Q4 2024 Waste Management Inc Earnings Call
Thank you Olivia good morning, everyone and thank you for joining us for our fourth quarter and full year 2024 earnings Conference call with me. This morning are Jim Fish, President and Chief Executive Officer, John Morris Executive Vice President and Chief operating Officer, and Davita ranking executive Vice President and Chief Financial Officer, you'll hear prepared comments from each of them today.
I'll cover high level financials, and provide a strategic update John will cover an operating overview debatable cover the details of the financials and our 2025 outlook.
Before we get started please note that we have filed a form 8-K that includes the earnings press release and is available on our website at Www Dot W. M Dot com.
The form 8-K, the press release schedule for 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.
Looking statements are subject to risks and uncertainties that could cause actual results to differ materially.
Some of these risks and uncertainties are discussed in today's press release and other filings with the SEC, including our most recent Form 10-K and Form 10-Qs.
John will discuss our results in the area of yield and volume, which unless stated otherwise are more specifically references to internal revenue growth or IRG from any other volume.
Speaker Change: During the call Jim Jonathan to being able to discuss operating EBITDA, which is income from operations before depreciation and amortization.
Speaker Change: You'll also hear references to Wm health care solutions. This new segment includes the acquired Stericycle medical waste and secure information destruction businesses.
Speaker Change: As to the <unk> legacy business, our total Wm results, excluding the Wm health care solutions segments.
Speaker Change: Any comparisons unless otherwise stated will be with the prior year period net income EPS income from operations margin operating EBITDA and margin operating expense and margin and SG&A expense and margin results have been adjusted to enhance comparability by excluding certain items that management believes do not reflect our fundamental business performance or results of operations.
Speaker Change: These adjusted measures and adjusted projections. In addition to free cash flow are non-GAAP measures.
Speaker Change: Please refer to the earnings press release, and tables, which can be found on the company's website at www dot dot com for reconciliations to the most comparable GAAP measures and additional information of our use of non-GAAP measures and non-GAAP projections.
Speaker Change: This call is being recorded and will be available 24 hours a day beginning approximately one P M eastern time today.
Speaker Change: A replay of the call accessed at <unk> website at Www dot investors that Wm Dot com.
Speaker Change: Time sensitive information provided during today's call, which is occurring on January 32025 may no longer be accurate at the time of a replay.
Speaker Change: Any redistribution retransmission or rebroadcast of this call. It 80 form without the express written consent of WNS is prohibited.
Speaker Change: Now I'll turn the call over to Debbie who is president and CEO Jim fish.
Speaker Change: Alright, Thanks, Ed Good morning, everyone and thank you for joining us today.
Speaker Change: I'm pleased to report another year of outsized operational and financial performance driven by our team's focus on topline growth and cost discipline.
Speaker Change: This combination along with our ongoing investments in technology automation and sustainability and precision Wm to continue delivering long term value to our shareholders.
Speaker Change: In 2024.
Speaker Change: We remained dedicated to optimizing the cost structure, expanding our sustainability platform and enhancing shareholder returns.
Speaker Change: This focus led us to achieve operating EBITDA growth of more than 10% and our legacy business for the year and achieving 30% full year operating EBITDA margin for the first time in our history.
Speaker Change: Our collection and disposal business led the way driven by consistent organic revenue growth disciplined cost initiatives and a continued focus on business mix optimization.
Speaker Change: 2024 marked a year of significant milestones and progressing sustainability growth investments.
Speaker Change: We brought five renewable natural gas facilities online expanding our renewable energy platform and further positioning WNS as a leader in environmental sustainability.
Speaker Change: And we're confident in the demand for renewable natural gas, especially from sources like our landfills and in our overall investment thesis for these transformative assets.
Speaker Change: Additionally in 2024.
Speaker Change: We advanced automation upgrades at tenant recycling facilities improving.
Improving throughput and lowering operating costs across our recycling network.
Speaker Change: And added recycling facilities in two new markets.
Speaker Change: These investments are unlocking opportunities with customers and delivering positive environmental outcomes, while also putting us on a path to broader long term financial growth.
Speaker Change: We're progressing well on the remaining of renewable natural gas and recycling projects and expect our growth investments to contribute operating EBITDA approaching $800 million in 2027.
Speaker Change: We have a great deal of confidence in the value of these projects that are underway.
Speaker Change: And we're enthusiastic about the strong complement they provide to our existing business.
Speaker Change: In addition to achieving strong organic growth across our business in 2024.
Speaker Change: A sizable year for acquisitions, including the successful completion of the Stericycle acquisition in November.
Speaker Change: At Exterran cycles, leading platform in medical waste management, and secure information destruction to Wm.
Speaker Change: <unk>, our suite of solutions, allowing us to more comprehensively serve our customers.
Speaker Change: Ross a wider range of environmental services.
Speaker Change: Our integration efforts are underway.
Speaker Change: And in a short three months, we've integrated the commercial operations.
Speaker Change: Operations support and back office functions and dws structures led by our seasons disciplined leaders.
Speaker Change: One of our new employees summed up our excitement for this acquisition, saying it really feels good to be working for a management team, that's looking to grow and optimize the business.
Speaker Change: We have a well resource experienced wm team engaged in making the necessary operational and cultural changes.
Speaker Change: And we're encouraged by the progress we've made so far.
Speaker Change: With respect to synergy capture.
Speaker Change: We now expect $250 million of synergies over a three year period, and we're confident we can deliver up to $100 million.
Speaker Change: In 2025.
Speaker Change: The Wm health care solutions business is expected to grow about 9% before synergies.
Driven by organic revenue growth and operations initiatives.
Speaker Change: Overall, we remain confident and focused on ensuring a smooth transition for both employees and customers, while driving synergies and unlocking value.
Speaker Change: This acquisition exemplifies our disciplined approach to capital allocation and strategic growth and we're excited about the long term benefits it will bring to <unk>.
Speaker Change: Looking ahead to 2025.
Speaker Change: We're confident that the momentum we built will lead to another year of outpaced growth.
Speaker Change: At the midpoint of our guidance, we expect our collection and disposal business to produce more than 7% operating EBITDA growth in the year ahead, even as we face a headwind from the exploration of alternative fuel tax credits.
Speaker Change: Our disciplined focus on pricing and cost management will ensure that we maintained healthy margins with a positive price cost spread.
Speaker Change: Our renewable energy and recycling platforms will continue to scale with additional projects coming online and incremental contributions from sustainability investments expected to accelerate this year, adding $150 million of operating EBITDA growth and our sustainability segments.
Speaker Change: Combining all of this we expect to deliver total company operating EBITDA growth of 15% at the midpoint of our range, our nearly $1 billion of growth in 2025 compared to 2024.
John: Before I turn the call over to John to cover operating results I want to express my gratitude to the entire Wm team, including our new team members from Stericycle.
John: Their commitment to our mission and values continues to be the foundation of our success.
John: We look forward, we're excited about the opportunities ahead and remain steadfast in our goal of creating long term value for all of our stakeholders.
John: I'll hand, it over to Jon to provide more detail on our operational performance, thanks, Jim and good morning.
Jon: Discussing our performance I want to thank our team for their dedication during the devastating California wildfires.
Jon: As far as it impacted our employees and the communities, we serve and we're committed to supporting recovery efforts in restoring normalcy for everyone affected.
Jon: Turning to our results Wm delivered another fantastic quarter to close 2024, reflecting our focus on operational discipline and price execution.
Jon: Operating expenses as a percentage of revenue were 63%, marking the fifth consecutive quarter below 61%.
Jon: Our full year result of 67% was below 61% for the first time in <unk> history, and improved 100 basis points from 2023.
Jon: This improvement was driven by strong execution by our team as well as automation and technology adoption.
Jon: Labor efficiency continued to improve during 2024 with labor cost as a percentage of revenue declining by 60 basis points for the full year compared to 2023.
Jon: Which is particularly notable considering the dilutive impacts from the winter Winters brothers and Stericycle acquisitions.
Jon: Our labor cost improvements stem from our commitment to human centered leadership process discipline and importantly, the introduction of technology that allows our operational leaders to spend more time in the field.
Jon: Our annualized driver turnover as of December was the lowest ever at 15%, marking an improvement of over 300 basis points from 2023. Additionally.
Jon: Additionally, advances in or out automation and resource planning tools have driven labor savings.
Jon: Since we started our residential optimization effort in 2022, we have automated over 500 resident residential routes and exited an additional 400 routes where conversion was not an option or profit margins were challenged.
Jon: The outcome.
Jon: Has been reduced labor dependency, while greatly enhanced safety performance and improved customer service.
Jon: And binding these efforts have translated in our residential line of business operating EBITDA margin growing more than 400 basis points and approaching 20% for the full year.
Jon: We're pleased with the considerable progress we made in 2024 on automating routes shedding lower margin business and improving driver turnover and we will be focused in the year ahead on maintaining the value we've captured from these efforts.
Jon: Repair and maintenance costs also decline as a percentage of revenue. Thanks to increased truck deliveries fleet optimization, and a streamline maintenance approach that increased technician productivity and reduce reliance on rental units and third party services, we remain focused on optimizing our business using data technology and process discipline to enhance our customers'.
Jon: <unk>, while reducing our cost to serve.
Jon: Our operational achievements combined with disciplined pricing led to a 10, 4% growth in operating EBITDA in our collection and disposal business in 2024.
Jon: <unk> at 37, 2% margin for the year, our highest ever.
Jon: These results exceeded our original growth projections with margins, expanding 200 basis points and delivering nearly $700 million and operating EBITDA growth in our collection and disposal business.
Jon: This is impressive performance this impressive performance underscores our team's focused execution of strategic priorities.
Jon: Our revenue grew across all lines of business supported by our collection and disposal yield of four 5% and core price of six 7% with churn remaining at about 9%.
Jon: We continue to refine the use of data and analytics to maximize customer lifetime value to deliver pricing performance in line with our cost to serve our customers while meeting our margin objectives.
Jon: The year volume grew consistently in our key lines of business commercial and MSW landfill.
Jon: Workday adjusted volume finished the year as expected and net service increases remain positive for.
Jon: For the year MSW volumes grew steadily with an observed acceleration in the second half of the year.
Jon: The four 4% annual increase in MSW volumes demonstrate the value of expand our expanding network and logistical capabilities as evidenced by our expanded rail operation serving the Midwest Special waste also showed positive momentum indicating growth potential for 2025 as our pipelines remain strong.
Jon: While our industrial business remains soft we are rolling out disciplined growth programs to enhance volume capture at appropriate pricing levels, which gives us confidence in our outlook for 2025.
Jon: As we look ahead to 2025, our focus is on building upon our success in 2024. Our priorities include further improving operational efficiency in our core core collection and disposal business and maximizing growth opportunities from acquisitions and sustainability investments. Additionally, our core fleet business optimization and revenue management.
Jon: <unk> are now embedded into the Wm healthcare solutions organization, driving a disciplined integration process.
Jon: With these efforts we are confident in our ability to drive continued revenue and operating EBITDA growth, while delivering value to our shareholders and customers.
Jon: At the midpoint of our guidance, we expect sustained momentum in our disciplined pricing programs, resulting in a core price increase of between five 8% and six 2% and.
Jon: And yielded between 4% four 2% with collection and disposal volume between two 5% and 75% compared to 2024.
Jon: We remain committed to maximizing customer lifetime value securing pricing that exceeds our cost inflation and driving disciplined volume growth in.
Speaker Change: In closing I extend my gratitude to our dedicated team members, whose hard work and commitment have been instrumental in our success together, we will continue to build on this year's achievements striving for excellence in all that we do I will now turn the call over to <unk> to discuss our 2024 financial results and 2025 financial outlook in further detail.
Jon: Thanks, John and good morning.
I'm proud of our 2024 results building on our commitment to operational excellence sustainability leadership and shareholder value creation through targeted grafts.
Jon: We improved operating EBITA margin by 80 basis points for the year. This strong result was driven by margin expansion of 200 basis points in the collection and disposal business with about 180 basis points from the benefits of price cost optimization and intentional shedding of low margin residential business.
Jon: Yes.
Jon: The remaining improvement in collection and disposal margin was from lower fuel costs.
Jon: The record growth from collection and disposal business, our collection and disposal business was partially offset by the impact of higher commodity pricing and our recycling brokerage business.
Jon: Increased incentive compensation costs higher.
Jon: Higher employee health and welfare costs.
Jon: <unk> of Stericycle, each affecting the margin measure by about 30 basis points.
Jon: Cost efficiency remains a central theme in 2024.
Jon: Our SG&A as a percentage of revenue was nine 6% for the full year.
Jon: <unk>, a 30 basis point headwind from the addition of Wm health care solution.
Jon: Compared to 2023, we achieved a 10 basis point improvement in SG&A as a percentage of revenue for our legacy business largely through discipline and discretionary spending and targeted optimization of customer engagement costs.
Jon: Our strong operating performance translated into robust cash flow generation in 2020 for cash.
Jon: Cash flow from operations grew more than 14% to $5 $39 billion.
Jon: And free cash flow before sustainability growth investments reached 327 billion.
Jon: At 22, 5% increase of our 2023.
Jon: These outcomes highlight our focus is on margin expansion working capital optimization and disciplined capital expenditure investment.
In 2024, we returned $1 $7 billion to shareholders, including more than $1 2 billion in dividend.
Jon: Additionally, we acquired Stericycle and invested about $800 million in tuck in acquisitions to expand our traditional solid waste and recycling footprint.
Jon: All while funding $950 million in sustainability growth initiatives.
Jon: Our disciplined approach to allocating capital prioritizes growing shareholder returns by identifying investment opportunities that will drive long term growth.
Jon: Back in return.
Jon: The strategic growth of our sustainability business and targeted investment in health care demonstrate this focus and we expect 2025 to be a year of outsized operating EBITDA growth as a result.
Jon: As Jim outlined we expect to grow operating EBITDA by 15% in the year, which.
Jon: Which we anticipate translating into robust cash from operations and free cash flow.
Jon: Capital expenditures for 2025 are targeted at between $3 175, and $3 275 billion.
Jon: With about $625 million directed toward high return sustainability growth projects and about $225 million for Wm healthcare solutions business.
We expect free cash flow to grow more than 17% to $2 $75 billion at the midpoint of our outlook.
Jon: This outlook includes an anticipated benefit from investment tax credits of about $220 million.
Jon: WNS strong balance sheet, and our cash flow growth outlook position us to continue our commitment to sound capital allocation.
Jon: Our outlook includes $100 million to $200 million of investment and solid waste acquisition.
Jon: <unk> estimated dividend payments of about $1 3 billion.
Jon: We've paused share buyback as we expect to focus on getting the balance sheet back to targeted leverage levels with a combination of earnings growth and debt reduction.
Jon: By the end of 2025, we expect leverage to be approximately three one times.
Jon: In summary, 2024 showcase the strength and resilience of Wm people and our business model driven by our commitment to operational excellence disciplined capital management and sustainability leadership.
Jon: Like to extend my gratitude to our dedicated team members, whose hard work make these achievements possible.
Jon: We're excited about the opportunities ahead and confident in our ability to deliver strong results for 2025 and in future years.
With that Libya, let's open the line for questions.
Speaker Change: Ladies and gentlemen to ask a question at this time, you will need to press star one on your telephone and wait for you.
Name to be announced soon.
Speaker Change: A question simply press Star one again.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Now first question coming from the line of Tyler Brown with Raymond James Your line is now open.
Tyler Brown: Hey, good morning.
Speaker Change: Hey, good morning, Hey.
Speaker Change: Hey, I promise to ask a question on the business, but can you help me with a couple of bridge items. So first I think I heard it but you are assuming our CMT tax credit headwind is that correct and is that like $60 million yes.
Speaker Change: Yes, that's correct, it's a 63 million dollar headwind in dollars and a 30 basis point headwind in margin.
Speaker Change: Excellent Okay, and then on Stericycle, I think youre, including $400 million of incremental EBITDA, which means you're going to do something like 40, 60, I take the Q4 number.
Speaker Change: Is that okay. So number one.
Speaker Change: Is that including $100 million of realized synergies or is that a run rate and then two was there a definitional change in how you calculate EBITDA for stericycle versus their convention because it feels like the base EBITDA is just lower than what they were reporting or am I off on that.
Speaker Change: That's a great question, Tyler and thanks for pointing them out so I'll take the second one first and yes. There was a definitional change in EBITDA between the two companies we have I would say I guess some more.
Speaker Change: Conventional approach to what we adjust out of earnings and we found that they adjusted things that look more like normal course of business costs and so we've recast that and so the 2024 run rate number that we had for the business exiting the year.
Speaker Change: Representative of that $61 million with about $4 million of realized synergies in the fourth quarter for us and so.
Speaker Change: Would recommend using that as the starting point for 2025, we're optimistic about synergy capture in the year ahead, and we think up to $100 million will be realized in the year, our midpoint assumes $85 million to $90 million of.
Speaker Change: Excellent Okay, great. Okay, I don't know if <unk> is there and I apologize.
Speaker Change: Just kind of can't get waste management sustainability contribution deploy because I think last quarter. You said sustainability was $92 million benefit year to date, but then in the release today, you said again $92 million for 24, So was there no incremental sustainability contribution in Q4.
Speaker Change: I am missing something which I probably am.
But if I look at your table and allocate the recycling fees and the royalties it looks more like EBITDA was up 110, I hate to throw that many numbers that out but maybe you are following what I'm, saying.
Speaker Change: I am in the room, Hi, Tyler and.
Speaker Change: If you are following the right math.
Speaker Change: There is a couple of things that are going on in between.
Speaker Change: Between the segments and what we report and of course on the recycling side of the business of.
Speaker Change: A piece of it ends up in collection and disposal and then you have the 15% royalty that flows to be collection and disposal business. What we really want to emphasize for 2025 is theres a lot of tailwind in both of these businesses, but gives us a lot of optimism about what we're going to contribute in 2025.
Speaker Change: $190 million coming from those growth investments.
Speaker Change: Like Jim said, if you look at how much we've delivered at the end of 2024, that's going to roll into 2025 with the new R&D plans.
Speaker Change: And the 12 recycling facilities plus we have another eight on the R&D side in two.
Speaker Change: 2025, there is a lot of positive impact that's going to roll through the P&L.
Speaker Change: Okay.
Speaker Change: Helpful. Last question. This is for Jim or John because it sounds like collection and disposal organic EBITDA is expected to be up something like 7%. Despite the <unk> tax credit headwind, obviously that is super solid I mean, you guys said back at your last Analyst day, you are 5% to 7% organic grower.
Speaker Change: Frankly, <unk> got pretty tough comps. So that's really good. So can you talk about the core dynamics, maybe the outlook for pricing, maybe more importantly cost inflation and productivity because it just feels like there is a very solid price cost spread in our collection and disposal. Thank you.
Speaker Change: Yes, Jim.
Speaker Change: I think you've highlighted one of the probably the area that.
Speaker Change: That maybe we're most proud of which is the core business itself and we can talk a lot about stair cycle and the sustainability businesses, which are exciting, but the core business.
Speaker Change: If you think about it from 'twenty two to 'twenty three grew 7% grew 10% last year just the core.
Speaker Change: And then we're looking at another kind of over 7% this year and of course, so so well ahead of that 5% to 7% number that we gave way back in 2019 and that is coming as you pointed out really from from several areas. We talk a lot about pricing and our pricing team does a great job, but what that cost the price spread is not just price it is core.
Speaker Change: Cost and John mentioned it in his script and in John's kind of a modest guy, but I mean his team has done a spectacular job of taking that cost number when you think about that opex as a percent of revenue coming under 61%.
Speaker Change: Ours ago, we kind of aspirational you talked about a 60% number and then kind of lapped in the room about that city, yet when that will never happen.
Speaker Change: We're kind of scratching at that right now we're close so a lot of the cost to.
Speaker Change: Two price spread and a lot of the margin growth that you've seen in the business over the last few years and ultimately that those those growth EBITDA growth numbers that I just cited are coming on the cost side.
Speaker Change: At the same time as we're doing well on price and I think once you start to see volume pick up because volume has been pretty pretty muted over the last couple of years.
Speaker Change: You really can see the core business taking off at the same time.
Speaker Change: The old Stericycle business, the new Wm Health care solutions takes off and at the same time as the sustainability investments really start to to add EBITDA free cash flow.
Speaker Change: The only thing I would add tower Jim cover it all is I think a lot of the benefits Youre seeing play out in the middle of the P&L for Wm, I think Ralph and the team are really excited to do the same with the Wm health care business is a lot of the processes and practices and technology advantages. We have developed that we can lay right over the top of that business and start to drive some meaningful results in Ralph.
Speaker Change: It could come on that but you heard you saw in the press release, our confidence around the synergy capture over the next handful of years.
Speaker Change: Perfect. So it feels like call it 4%, yielding collection and disposal and maybe a couple percent unit cost inflation net of productivity something like that yes.
Speaker Change: Yes, I think what you saw from a spread perspective and it showed up in our Opex and our EBITDA margins in our labor ratios youre going to see that youre going to see continued benefits into 2025.
Speaker Change: Okay excellent. Thank you for the time guys.
Speaker Change: Tyler.
Speaker Change: Thank you.
Next question coming from the line of Noah Kaye.
Speaker Change: With Oppenheimer. Your line is now open.
Noah Kaye: Alright, Thanks, I'll pick up on Tyler's line of questioning.
Speaker Change: The 2025 yield guide, 4% to four two.
Noah Kaye: Obviously, we've seen.
Noah Kaye: Come down a little bit so.
Noah Kaye: Just help us understand maybe the different components of core price and yield assumptions.
Noah Kaye: That you are factoring in open market versus.
Noah Kaye: The restricted index part of the business.
Noah Kaye: Sure. So at a high level I think what's really important on the core price to yield conversion, that's something that we talk a lot about and the commentary in John's prepared remarks about what's happening in the landfill part of the business is a really important example of that conversion and what you see is it really comes.
Noah Kaye: The business mix and that's very good profitable business for us, but it does come at a lower yield because it has a lower average unit rate than some of the rest of the network and so the core price guide is five eight to $6 two a little lower conversion this year at four to $4 two with.
Noah Kaye: Mix being one of the things that's leading that.
Speaker Change: I guess, the only thing I would add is on the resi side I mean, we've done such a great job on resi, but.
Speaker Change: I was maybe a little surprise, even see this number myself, but when we look at we've been going through this call. It a business improvement process with residential is improved margins significantly in that line of business and the number that surprised me was the 25% of our residential customers still have an EBIT margin of zero or less.
Speaker Change: And sometimes we ask what inning are we in in terms of this residential.
Speaker Change: I don't know what to call it cleanup I guess.
Speaker Change: Got it.
Speaker Change: But if.
Speaker Change: If it's 25% than I was assuming we were kind of in the eighth inning, we're probably more like in the sixth inning to use a baseball analogy and that all helps us on the on the price front.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Stericycle.
Speaker Change: Wm Hs.
Speaker Change: You previously I think did a nice job of buckets.
Speaker Change: The different areas, where you were going to see those synergies could be.
Maybe give us an updated breakdown now obviously between sort of going from 50 to maybe $100 million this year and.
Speaker Change: Going to $250 million overall, just kind of how does that break down where do the cost synergies come from.
Speaker Change: I think I can take a stab at that and all of this is Ralph I got ask him now leading the <unk> healthcare solutions business.
Speaker Change: What I will tell you is the doubling of our synergy estimates is centered essentially at around the same three buckets that we offered at the time of the acquisition that was internalization SG&A and Opex, which we set at the time was about 33% each.
Speaker Change: Internalization was about the same value now, but we now see meaningfully larger SG&A opportunities and higher opex opportunities.
Speaker Change: Examples I'll give you up on the on the SG&A side optimization of the sales coverage, which we have already embarked on on the shred it business.
And on the Opex side, we've uncovered new opportunities for consolidating recycling capacity in the network and then reducing fleet number while working on bringing the maintenance and repair in house.
Speaker Change: Yes, very helpful. Just one last one maybe for Davina.
Speaker Change: You gave us some nice pieces around.
Speaker Change: Free cash flow this year.
Speaker Change: But just wondering if there's any other moving pieces, we should consider to bridge from EBITDA to at least operating cash flow, maybe you can touch on interest expense tax and.
Speaker Change: Some of the other items, we would normally look at.
Speaker Change: Yes, so it's going to be another great year of free cash flow growth, there's a couple of <unk>.
Speaker Change: I'd like to make one is we always talk about EBITDA being the long pole in the tent with regard to free cash flow conversion and win.
Speaker Change: With almost a $1 billion of EBITDA growth expected in the year ahead, we're going to have another great conversion to more cash flow from operations. The two things that will offset that.
Speaker Change: Our increased cash interest and we expect that to be $350 million to $400 million higher in 2025.
Speaker Change: And about $300 million of that is related to the Stericycle acquisition. The remainder is just timing related and so we had more of that pulled in or we had more help from that in 2024, and you'll have more of a run rate for a full year and the year ahead, and then on the cash tax side.
Speaker Change: It's an interesting story because.
Speaker Change: This growth in pre tax income is fantastic unusually comes at a pretty high incremental cost from.
Speaker Change: From a cash tax perspective, but we're seeing some offsets of that because we have a higher expectation for ITC in 2025, So total cash tax.
Speaker Change: Taxes will go up about $75 million to $100 million.
Speaker Change: And that's the plus from higher ITC slightly offsetting the higher pre tax income impact and then the only other thing I would point to is working capital was a fantastic result, 2024, and we do think that some of the strong execution by the team.
Speaker Change: <unk> on improving our key steps like DSO and GPO is what's contributing to that but some of it is also timing related and we think we got some of that timing benefit in Q4, that's impacting rollover into the first part of 2025, which is why 2025 may look a little muted in terms of the level.
Speaker Change: Correct.
Speaker Change: Alright, well. Thank you for all of this and I just want to say, thanks, as well for providing all the additional details in the release that the business is obviously continuing to transform and grow and you've given us a lot of information. So I appreciate it. Thank you.
Thank you Sarah.
Speaker Change: Thank you.
Speaker Change: Our next question coming from the line of Jerry Revich with Goldman Sachs. Your line is now open.
Jerry Revich: Yes, hi, good morning, everyone. Good morning.
Speaker Change: I'm wondering.
Rob I Wonder if you could just talk about the commercial opportunity really interesting to hear about the synergy target moving higher without.
Speaker Change: The commercial piece.
Speaker Change: Kicking in yet can you just talk about how that looks to you given your.
Sure Route economics work on the core business it sounds like there's really significant runway there.
Speaker Change: Can you talk about what did you give that process, where we're at and what sort of contribution can you get by getting the right pricing on the right routes.
Speaker Change: Internal lines of business.
Jerry Revich: Yes, Jerry Hi, how are you.
Jerry Revich: Look what I will tell you is with respect to cross selling we virtually have nothing built into our existing <unk>.
Jerry Revich: 2025 contribution right now.
Jerry Revich: It is something that the team that joined team is engaged in evaluating and we see some of that actually coming in 2000, 22026, I should say.
Jerry Revich: I can also tell you that with respect to kind of the routing one of the important things. We're working on is deriving P&L accountability down all the way into the business units, that's something that didn't exist that stericycle before when we do that we're actually going to also generate P&L is by customer that's going to allow us to implement a disciplined growth.
Jerry Revich: Disciplined that we actually have already built into our wm facilities, and that's going to inform quality of revenue.
Jim: The timeframe on that sorry. This is Jim I, just I wanted to kind of put.
Speaker Change: An exclamation point on what Rob said about cross selling so we don't we don't really have anything in there in 2005 and it starts to ramp up in 2006, I would say that might be the single biggest opportunity we have over the long term for this business.
Speaker Change: I'll give it a couple of examples I've been in.
Speaker Change: A couple of doctors' offices recently not for any health problems, but just for my physical beta but in both cases in one case, we were present, meaning Wm legacy business was there an stericycle is off and then the other office Stericycle was there and we were not so.
Speaker Change: Both of those would be opportunities for cross selling that we really havent fully baked into anything at this point, but we feel like is a big opportunity for us.
Speaker Change: I'm glad you got the Green light Jim.
Speaker Change: And in terms of the.
Speaker Change: The base business performance and I think we're all holding our breath this quarter for the group heading into earnings because the last time commodity prices took a hit.
Speaker Change: We had a bit of a recalibration to go through.
Speaker Change: Across the sector now we're looking at really attractive margin expansion $25 24 can you just talk about how you folks are maybe taking a more aggressive approach to make sure you're pushing pricing in the base business to compensate for potential downside risk in recycling feels like that's part of what's playing out here, but.
Speaker Change: I want to make sure I have that right.
Speaker Change: Well look this is probably something everybody at the table could answer we're looking around whether you want to take it use it but I think the point here is such a good point, which is the base business and I made this point earlier the base businesses is really the superstar in this report and.
Speaker Change: And I think as we look at pricing.
Speaker Change: We like the fact that our price team has developed a level of sophistication to be able to really price on a much more granular basis.
Speaker Change: So where you have customers for example that have had missed pickups or whatever we're able to say, we're not going to give those customers. The same level of price increase that level of granularity didn't exist within the company several years ago. So I think the sophistication within the pricing group is palpable and.
And to Robert's point about pricing within Cirrus cycle, I mean, I think we can take that same level of sophistication to the stericycle business.
Speaker Change: Really in that $250 million of Robert talks about the large large majority of that is really cost related or internalization and so there isn't a whole lot. There there is some but not a lot in there with respect to price. So we feel good about price not only in the core business, but also with Stericycle and I think I've talked a lot about cost.
Speaker Change: I will say one thing about cost and that is that we had talked about not replacing a certain number of position several years ago and we've been we've been chipping away at that.
Speaker Change: I think through the end of last year, we're up to about 2500 positions that we've chosen not to replace that spans different functional areas.
Speaker Change: But I think John it's right we have about another 1000 coming from two primary areas. One is recycling as we upgrade these facilities, but the other is these conversions from railroad to ASO got it.
Speaker Change: Okay.
Speaker Change: Can I ask Tara the landfill gas really get to see the production coming online.
Speaker Change: On schedule.
Speaker Change: You laid out last quarter it looks like maybe the Opex per Btu is higher in 2025 as you ramp that up is that right can you talk about that given the EBITDA ramp 26 versus 25 feels like that might be happening or maybe we're not getting a full environmental credits.
Speaker Change: Could you just comment on if thats whats the numbers, it's a great point, sorry, and if you also look at our 2027 update and that updated range. It is driven by Opex. If you think about our highest cost category within our renewable natural gas plants. It's electricity. So we are.
Speaker Change: We're working very closely to figure out ways to reduce our power consumption and lock in on right. So that's one item, we're very confident in our gas curve. The team that John leans on the landfill side has done a fantastic job in optimizing flows and we feel really good.
Speaker Change: And about the plants, we're going to bring online in 2025, but a really important note is that by the end of 2025, we will have all but two of our plants that have completed construction, we won't necessarily see the revenue on that into 2020 into 2026 because of timing on commissioning, but most of these.
Speaker Change: Plants are going to be done and completed we have solid momentum there.
Speaker Change: I appreciate the discussion everyone. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question coming from the line of Trevor Romeo with William Blair. Your line is now open.
Trevor Romeo: Hi, Good morning, I appreciate you taking the questions.
Trevor Romeo: First just going back to the Stericycle, maybe more on the organic side I was just wondering if you could maybe talk about the Q4 like for like performance from a revenue and margin perspective for Stericycle and then the 9% organic growth do you expect for 'twenty five pre synergies just to clarify is that a revenue or.
Trevor Romeo: EBITDA growth number and either way could you kind of just talk about some of the drivers of that organic performance in 'twenty five, especially if it doesn't include any cross sell benefits.
Trevor Romeo: Sure.
Trevor Romeo: When we look at the Stericycle performance in the fourth quarter I think like I said earlier about $4 million of that was synergy capture and so the rest of it you can look at being that the performance of the business.
Trevor Romeo: And when we look forward to the growth that we will generate in the year ahead in our healthcare solutions business nine percentage is a step change from what they have generated over the last several years and we see that change as possible for two primary reasons, one being the <unk>.
Trevor Romeo: Asset network expansion with the Mccarran facility coming online and the other being fleet optimization. They were underway with regard to some re characterization of their fleet.
Trevor Romeo: Historically has used operating leases in order to fund their fleet and they knew and.
Trevor Romeo: <unk> started to execute upon some opportunities to recapitalize that at a better cost.
Trevor Romeo: We accelerated some of that into the fourth quarter and so.
Trevor Romeo: We see the ability to reduce those costs by up to 30% in some instances.
By being able to have a better cost of capital for the organization in a more intentional approach to funding our fleet yes.
Trevor Romeo: Trevor This is rafa divina covered it very well the one thing I would add outside of Opex and more on the revenue side is that we.
Trevor Romeo: We have now the ability to add in a couple of weeks. We'll have every single one of the stericycle contracts over $50000 in annual revenue in our data Mart and then it's going to allow us to better capture earn pis that in the past had been overlooked and it'll prevented revenue leakage. So that gives us some confidence going into 2025 as well.
Speaker Change: Great. So it sounds like just to clarify the 9% is.
Speaker Change: EBITDA number, but the revenue outlook, we expect a little bit of uptick there as well.
Speaker Change: That's correct, 9% EBITDA revenues in the range of two 5% to 5% depending on price execution and that revenue leakage that Rafa mentioned with some offset on volume expected in the business.
Speaker Change: Okay, great good to hear and maybe for my follow up I guess on the.
Speaker Change: Going back to the collection and disposal business, maybe specifically the volumes.
Speaker Change: But 0.2.
Speaker Change: Three quarters of a point expected for this year.
Speaker Change: I guess what are some of the puts and takes in that outlook and maybe specifically how are you thinking about that.
Speaker Change: The more cyclical portions of that volume and how likely they could be to rebound.
Speaker Change: So I think.
Speaker Change: I think Jim made it in his statement his opening comments I mean with the administration change we have some some optimism there from a business perspective, if you start to break it down though Trevor if you look at our landfill volume, specifically MSW and CND, we had some good momentum there our special waste pipeline is strong our special waste results, where we are.
Speaker Change: We're solid through the year and we're off.
Speaker Change: Optimistic about that for 25 to one I would highlight Jim made a comment about is our residential the intentional shedding of three five ish percent.
Speaker Change: Residential volumes part of that number and we're going to continue to do that as I mentioned in my prepared remarks, where we're getting close to 20%. There on that business were up 400 basis points were down 900 routes.
Speaker Change: There's a lot of benefits to us doing that and Thats part of what the volume calculations, but if you take if you kind of strip out the residential piece and look at that.
Speaker Change: Disposal volumes in the commercial business, we've got good momentum there and I think on the industrial side, we've seen some softness there, but as I mentioned in my remarks, we've got a team rallied around trying to look for opportunities, where we have some capacity to bring some of that volume back.
Speaker Change: At margins that are that are acceptable.
Speaker Change: Alright, great. Thank you all very much thank.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question coming from the line of Faiza <unk> with Deutsche Bank. Your line is now open.
Faiza: Yes, hi, Thank you so much I wanted to first ask about the sustainability EBITDA what I'm understanding is that some of that is in the collection goes in the collection and disposal business as opposed to the renewable energy and recycling business. So just wanted to get a sense of.
Faiza: How much of the 7% increase in EBITDA with a 500 million is it related to the sustainability projects.
Faiza: So first and foremost for 2025, we're going to deliver $190 million in EBITDA incremental EBITDA from our growth investments and Youll see when you look at the segments, we're showing $150 million.
Faiza: What happens is with our renewable energy business is roughly a 15% royalty that's paid to the collection and disposal business, that's really about the use of their landfill gas.
Faiza: Then there are certain fees that go into the collection business related to recycling.
Faiza: Those are the key element.
Speaker Change: Okay. Okay understood and then I was hoping if you could help us.
Speaker Change: Some of the quarterly cadence as it relates to various items and what im thinking of the buildup of synergies on tariff cycle and maybe your assumptions around some of the commodity cost that you laid out whether it's the natural gas.
Speaker Change: Right.
Speaker Change: OTC pricing sure I can take this and what I would say is you can think about it in the three pieces and it's the traditional solid waste business, we actually expect some margin pressure in the first half of the year because if you look at 2020 for Q1 is our capex.
Speaker Change: Comp on a year over year basis, as we saw some of the momentum with regard to automation in particular take hold.
Speaker Change: And so we would say from an earnings growth and margin perspective collection and disposal may look a little more muted in Q1 in particular, but first half and then in the Stericycle business.
Speaker Change: You will expect that the ramp of synergy capture will be more significantly weighted towards the second half of the year. So I would say that the earnings growth Youll start to see more of that momentum as we get into Q3, and then on the sustainability businesses because of the <unk>.
Speaker Change: <unk> of.
Speaker Change: Recycling commodity prices, we actually see more of the pressure downside pressure associated with recycling commodity prices being in the first half of 2025 because of the year over year comparison.
Speaker Change: Great. Thank you and if I could just sneak one more in I wanted to you mentioned the ITC.
Speaker Change: Curious if you're anticipating a change in that just given the new administration and the.
Speaker Change: The changes around the IRI and funding related to that I think should we anticipate sort of any changes there.
Speaker Change: We certainly do not expect any changes we are watching everything closely but based on our interpretation of where those decisions will get made we think that those ITC benefits are secure.
Speaker Change: That being said I think it's really important to remind everyone that we made our capital investment decisions for our renewable natural gas business before the IR Ray was in place and the payback period of three years excludes the incremental benefit that we get from that ITC. So it it really speak to.
Speaker Change: The significant return profile of this business irrespective of that incremental benefit.
Speaker Change: We also.
Davina: Davina said earlier.
Speaker Change: Sure.
Speaker Change: 60, plus million 63, I think is the exact number on the alternative fuel tax credits that we did not put in and similarly, if bonus depreciation came back that would be something that we have not put in and that would be an even bigger number something north of a 100. So.
Speaker Change: So we're not we're not sure what to expect there is a bit of TBD, but.
Speaker Change: We did put in the.
Speaker Change: Investment tax credits, we feel strongly that those will remain.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question coming from the line.
Speaker Change: Kevin Chang with CIBC. Your line is now open.
Speaker Change: Hey, good morning, Thanks for thanks for taking my questions.
Speaker Change: Thanks on the disclosure it's very helpful.
Speaker Change: Maybe I missed this earlier you talked about as you look past 25, some of the revenue synergy opportunities.
Speaker Change: That's a significant long term opportunity.
Speaker Change: Did you disclose the percentage of note the percentage of healthcare.
Speaker Change: Health care clients that might use wm today, but not stericycle or vice versa, just to get a sense of maybe how big that cross selling opportunity could be.
Speaker Change: So are we still kind of assessing that I don't know Ralph Yes, I was just going to say no. We're still in the process of assessing yet I mean, we see the opportunity looms large in the.
Speaker Change: We were concentrating frankly, and making sure that we merge the right commercial teams.
Speaker Change: We placed a number of our <unk>.
Speaker Change: Wm sales and commercial leaders.
Speaker Change: Talk some of those functions now and we are particularly excited because.
Speaker Change: We see a lot of parallels between what we can accomplish in cross selling with Stericycle and their customers and what we've been able to do with national accounts, which as you know has grown at a double digit pace over the last five years for us.
Speaker Change: That's helpful. It sounds like an exciting opportunity.
Speaker Change: And maybe just I know you touched on this a little bit just the.
Speaker Change: I guess, the residential volume trends of some of the intentional shutting.
Speaker Change: We look at the growth rate it did take a bit of a step down in Q4 versus the previous quarter trends I'm just wondering.
Speaker Change: Can we attribute that incremental delta that intentional shutting or you're kind of accelerating that given.
Speaker Change: And then you find yourself in terms of the opportunity and I guess in terms of what that volume trend looks like more specifically and 25% does it kind of look like the down 3%, we've seen on an annual basis or maybe more like what we saw in Q4 with maybe a four handle.
Speaker Change: In front of it there I would tell you Kevin that business can be a little lumpy if you will.
Speaker Change: That contract and I could certainly follow up on Q4, but no I think what you heard from Mike from Jim and I. Both is that we think that three to three 5% range through 'twenty five and probably through 2006 is probably what we can expect but again I think what we would highlight here is when you look at it we've reduced 900 routes over the over the period we've improve.
Speaker Change: With margins this year by 400 basis points, it's been a shining star, which we haven't been able to stay in a long time and our collection business. So I think from a from a return standpoint from a margin standpoint and from a I mean all of the other benefits, we get from safety and service and whatnot, we're going to continue on that path for the time being just to just so we're clear on it.
Speaker Change: How does it actually happens with these residential customers. We don't we don't go fire anybody alright, we do I just want to win a contract comes up if the margins arent acceptable if they are underwater or at flat or whatever.
Speaker Change: We just did it at a at a price that it would it be acceptable to us and then in many cases, we end up losing it and thats, Okay. If we lose that business.
Speaker Change: That's great color. Thank you very much and congrats on a good quarter there okay. Thank you.
Speaker Change: Thank you.
Connect Gupta: Our next question coming from the line of connect Gupta with Scotiabank. Your line is now open.
Speaker Change: Thanks, operator, good morning, everyone.
Speaker Change: Congrats on on doubling the synergies here good to see that.
Speaker Change: I just wanted to get back to the Stericycle, our health care business.
Speaker Change: Guidance is I guess directionally, suggesting about $2 6 billion revenue.
Speaker Change: 460 in EBITDA in 2025.
Speaker Change: If we use that as a baseline.
Speaker Change: How do you guys envision the growth in that business, obviously, including synergy over the next two.
Speaker Change: Three years, especially when you compare that to what's cyclical what's looking at the acquisition at <unk>.
Speaker Change: Ill put into 17% CAGR in EBITDA.
Speaker Change: So I would tell you it's difficult for us to.
Speaker Change: Specifically indicate the long term growth rate and that 13% to 7%, 17%. We certainly always had our eye on when we were going through diligence processes, but also werent seeing the prior team create strong traction on delivering that consistently at this point, though we do.
Speaker Change: You see that we're on.
Speaker Change: The door step of a step change in the growth profile of this business, it's too early to.
Speaker Change: Indicate a specific growth rate 2026 will be a big year for us, though in terms of synergy capture and.
Speaker Change: Ensuring that we take the customer centric approach that Wm has and leveraging that for topline growth. You can see that 2025 is a year of still pretty moderate top line growth for this business, we expect to see a step change in that beginning in 2020.
Speaker Change: One thing to add here.
Speaker Change: Hope to be able to give you some additional color on this.
Speaker Change: On Investor Day in June.
Speaker Change: We're really a little bit less than three months into this having having ownership of it so.
Speaker Change: So I think Ralph and team have done a great job of identifying these opportunities being able to bump the synergies from from 125 to $2 50, but by the time, we get to June I think we'll have even.
Speaker Change: A little bit better insights into into what 26 looks like with the remainder 25 looks like.
Speaker Change: If theres any revisions to the synergies than what those might look like but.
Speaker Change: For now we're Super excited about how this thing is really starting to take shape. He cannot maybe I'll add one more thing because I mentioned earlier that we saw a significant amount of inquiry incremental value coming from SG&A on the synergy side and when we first started talking about this post acquisition and we were talking about aiming at.
Speaker Change: Initially to take this business down to SG&A as a percent of revenue and that sort of 19% range, which was.
Speaker Change: Already a significant improvement over the 24, 25% of the business has historically showed I think right now with what we have line of sight on we're already going to eclipse that number and we have our targets set in 15 and beyond I mean, as you know we're hovering our own SG&A as a percent of revenue under 10, and ultimately we would like to get to know that that's going to take.
Some time, but if you think about the question you asked about growth that's an important element as well.
Speaker Change: That's great I appreciate the color on that I didn't want to Suntrust. The message here for sure.
Speaker Change: Talked about.
Speaker Change: I'm just getting on the Stericycle team.
Speaker Change: We had we had some ERP chat.
Speaker Change: Challenges.
Speaker Change: <unk> they were going through last year and 24.
Speaker Change: Can you help us understand how are you kind of tackling that situation and how.
Speaker Change: Much of that ERP cut or it's baked into your expectations.
Speaker Change: So what's really important for us of using technology to optimize our processes and our people and what we see in the first three months of being part of this having the stericycle team part of team Wm is that they focus more on the technology itself.
Speaker Change: And not so much on the change management and operational connectivity that needs to exist with new systems and so our team is laser focused on bringing together the total of the impact of technology on how you run a business and so we've got a team that's focused on data.
Speaker Change: Quality focused on process redefinition, and bringing all of that together, we expect 2025 to be another year of investment in the ERP and while that's not specifically provided for in the earnings. We currently expect that we would spend around 35 to 40.
Speaker Change: <unk>.
Speaker Change: An incremental spend for this initiative in the year ahead, we don't know the split between capital and expense for that so thats, a TBD, but thats. Another reason that the step change going into 2026 is something that we're so bullish about.
Speaker Change: That's great. Thanks, and then one last one for me just on the leverage side. It seems like you're expecting three one at the end of this year, that's down from I guess, two five or six last year.
Speaker Change: Is that there's nothing good sort of run.
Speaker Change: Run rate do you expect in terms of deleveraging and so you might be missing.
Speaker Change: Perhaps by the end of 2020.
Mindy: Thanks Mindy.
Mindy: It's a great question and what I would tell you is our long term target of two five to three times, we think that thats optimal for our business in order to prove.
Mindy: Plenty of dry powder for strategic opportunities like acquisitions, when we see them with the cash flow generating power of the business, we expect to use some of our free cash flow.
Mindy: Reduced debt in 2025.
Mindy: If we see outsized tech.
Mindy: <unk> acquisition opportunities relative to the $100 million to $200 million that we included in our guidance you could see some moderation in that level of debt reduction.
Mindy: While im not prepared to specifically tell you where we finished in 2020 I think that what you hear is the momentum in earnings growth both from the core sustainability and our healthcare solutions business. We will provide an organic approach to delevering that really is fundamental.
Mindy: So how do we get back to that target range.
Mindy: And maybe one last point on the ERP.
Mindy: The team that we have working on it which is a fantastic team.
Mindy: As identified something in the neighborhood of $150 million in cash improvement that probably doesn't happen until early 'twenty six but that's an opportunity for us so we haven't baked in anywhere.
Mindy: These these receivables that are outstanding so, it's really a DSO improvement, but it could be as high as 150, maybe even more.
Mindy: That we think is out there for us.
Speaker Change: Great appreciate the color.
Mindy: All of us Thank you.
Mindy: Thank you.
Speaker Change: Thank you. Our next question coming from the line of James <unk> with TD Colin Your line is open.
James: Hey, good morning, guys good morning.
Speaker Change: Most of my questions have been answered, but regarding R&D can you update us on what the what are the most significant delays you're facing at the moment.
Speaker Change: Any change there.
Speaker Change: Haven't updated any of our our projections since our last call like I said before by the end of 2025, we will have all but two of our plants completely constructed.
Speaker Change: And then the other the remaining two in early 2006 in the first half of 2006, so where.
Speaker Change: We're on track.
Speaker Change: But presumably.
Speaker Change: What are the delays in the <unk>.
Speaker Change: Past I think you had some delays in getting an interconnect with <unk> is that still an issue or what's what's happening there. Yes. So in the past you had mentioned that two of our biggest issues, where interconnects with utilities and then some final permits we worked really closely on utility interconnect.
Speaker Change: And we have line of sight into Windows will complete so we feel more confident today than we did in the past.
Speaker Change: And then on the on the ITC you gave guidance there did you get shovels in the ground for all 20 projects by the end of 'twenty four such that you believe you will receive the ITC in 2026 as well, yes, yes.
Speaker Change: 20 projects other than the two in Canada will be eligible for the ITC. So we feel confident that okay.
Speaker Change: Great and then just lastly.
Speaker Change: Sorry go ahead, well Super quickly. We've also focused extensively on domestic content and building the facilities. So that we maximize the amount of the activity.
Speaker Change: So our long range target had been $250 million to $350 million for ITC benefit and when you look at the $220 million in 2025, plus the $135 million that we captured in 2024, you can see that we're actually going to exceed the previous range that we had committed.
Speaker Change: Right right. Okay. Thanks, and then just lastly, so.
Speaker Change: You still have a lot of work to do on the remaining projects, but do you have a lot of incremental R&D opportunities beyond the 13 or so that you are working on right now and.
Speaker Change: I know, it's a bit off into the future, but as it stands now do you think you would own and operate these additional projects or is that something you'd look to engage in a joint venture for those.
Speaker Change: So we are tracking a whole host of opportunities beyond. These first two plants and we have more landfill gas that we could put to use whether it's power projects R&D projects and the team is actively looking at what the future could look like we haven't made any decisions yet on where we had.
Speaker Change: And that's to come you could look at partnerships with others or doing them ourselves I think the most important thing to remember is we've maintained control of these assets and we've maintained optionality and Thats a good thing.
Speaker Change: Right. Okay, great. Thank you guys for the help I appreciate it.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Thank you. Our next question coming from the line of Fahad Khan with RBC capital. Your line is now open.
Speaker Change: Okay, great. Thanks, and good morning, just a couple of quick ones just to start off I guess, when we look at the volume assumption here for 25, I guess, what's the underlying view on the macro for the rest of the year and maybe more specifically on some of the more industrial or cyclical volumes.
Speaker Change: That's been a bit challenged just for the sector over the last few years. Thanks.
Speaker Change: Yes, I think.
Speaker Change: Highlighted the industrial side, which has been the slowest segment overall for us and if you look at industrial production in the us.
Speaker Change: You could argue that we've been kind of in somewhat of an industrial recession over the last few quarters.
Speaker Change: Our numbers have reflected that we've been soft on that front I mean, the two areas, where our volume has been softest or the one that John has talked a lot about this morning, which is residential and that's intentional and then the one that's not intentional as.
Speaker Change: Our industrial hauls and those have been soft and I would tell you honestly, we're not expecting a big rebound in those in 2025 love to see it.
Speaker Change: And as John mentioned, we are cautiously optimistic about what the new administration brings.
Speaker Change: With respect to business growth, but we haven't baked anything along those lines I will say that the landfill line of business has been.
Speaker Change: It kind of a superstar here for us with respect to volume.
Speaker Change: John mentioned the MSW has been strong you talked about our special waste pipeline is good as well and thats starting to pick up. So we just had our quarterly reviews with all of our area Vice presence and they were speaking pretty optimistically about special waste. So I would tell you that that volume is we're being I think fairly cautious.
Speaker Change: That's kind of point to $5 75.
Speaker Change: Should things start to pick up on the industrial side, I think you could see that number or exceed.
Speaker Change: Okay, Great and then there's a bit of a discussion earlier about the commodity prices just barely there has been some clogging at the port some evolution of the demand environment.
Speaker Change: More color on what's baked into your 2025 commodity price assumption. If you just put a finer point on that end.
Speaker Change: How cautious are and how much of a recovery is built into that assumption for the rest of this year.
Speaker Change: So our assumption for recycled commodity prices is $85 a ton, which is down slightly from 2024 at $92 Here's what's important to note.
Speaker Change: Sitting December commodity prices were around $80, a ton and that has been the bottom of the trough. If you look at January we've already seen an uptick and the good news is we were tracking very closely the January potential for a port strike and that did not happen. So we're seeing.
Speaker Change: Great movement on commodities.
Speaker Change: So now that we're seeing.
Generation slowdown post the holidays.
Speaker Change: Should provide some good structure for prices to improve so the way that we've modeled it is.
Speaker Change: Moderate increases throughout the year.
Speaker Change: Alright, thanks very much for that.
Speaker Change: Thank you.
Speaker Change: Our next question coming from the line up.
Brian: Brian <unk> with Citi. Your line is now open.
Brian: Good morning, Thank you for taking the questions. So I just have two very quick ones.
Brian: One I appreciate the updated earnings sensitivity.
Brian: In the press release to recycle commodity prices I was just wondering is recycling earnings really step up over the next couple of years.
Brian: Do you think the earnings sensitivity.
Brian: On a scale with earnings growth or do you think the new earnings will rely maybe more on processing fees as opposed to the commodity prices.
Brian: Overall thoughts on your sensitivity to commodity assess recycling maybe stepped up a lot in the next couple of years, absolutely great question and I think what's important to remember when we made these investments and these automation facilities is much of the benefit comes outside of commodity prices. If you look at the automation.
Brian: Through 2024, we've automated.
Brian: Over 850 rolls out of the system and that really has nothing to do with commodity prices. That's benefit that's going to run straight to EBITDA independent of revenue and then where we.
Brian: We're getting a price premium on what me produce I was at our Westside Murph couple of months ago.
Brian: How clean are.
Brian: Cardboard is coming out of those plants were able to get a price premium. So those are two aspects that are really independent of commodity prices.
Brian: The other thing that I think is really important to note that we were looking at this.
Brian: Weak is we spent a lot of time, making sure that we evolve our fee for service model and that we get paid.
Brian: First for processing.
Brian: So we created sort of a floor when you think about it when commodity prices decline.
Brian: So the range here is not going to scale.
Brian: As we grow our volume in the same way it certainly will go up a little bit but not at the same level that you would expect.
Brian: Got it got it that makes sense thanks for the detail.
Brian: Last question for me and then I can turn it over is just <unk>.
Brian: Solid waste internalization I think exceeded 70% this quarter I think that's like an all time high.
Brian: I was just curious if that's maybe higher than with Wm was originally expecting or did you always see potential for 70% plus maybe after the advanced disposal acquisition.
Brian: Do you consider yourself, maybe fully optimized or penetrated at 70% just broader thoughts on internalization moving forward. Thank you.
Brian: Good question, Brian I mean, I would tell you that we're constantly focused on trying to find ways from a cash on cash basis to put the volume and the right facilities, you've heard me and the rest of the team talked a lot over the last handful of quarters at least about the value of our network not just the landfills our logistical capabilities I mentioned in my prepared comments that we opened up another rail operation in the Midwest we can.
Brian: To look for intermodal opportunities and I think thats whats driving it we've got great positioned assets and part of the group our network planning team has been doing a great job of building out those capabilities and I think thats, what youre seeing in our internalization rates.
Brian: Thank you.
Speaker Change: Our next question coming from the line of Tobey Sommer with Thomas Your line is now open.
Tobey Sommer: Thank you.
Speaker Change: If you.
Speaker Change: Looking at the margins and returns on your existing LNG and recycling how do those compare with your.
Speaker Change: April Investor day from almost two years ago.
Speaker Change: Well, what if if you could kind of discreetly isolate that the drivers of the Delta should there be one.
Speaker Change: Yes.
Speaker Change: So our returns are tracking pretty closely to the Investor day.
Speaker Change: The biggest thing when you look at EBITDA flow through on our R&D business. It really is about 75% and that's what we've been seeing the biggest change really has been our capital has increased and we've been pretty transparent about that but still within that three year range that davina.
Speaker Change: I had mentioned on the recycling side, we're right there on what we model not a whole lot to say there.
Speaker Change: Other than these investments have really helped us with.
Speaker Change: New customers, we've done that in Canada, where we've been able to leverage these investments to build new facilities, there and we've got new contracts as a result of these investments. So we are seeing.
Speaker Change: Opportunities for more volume to come into these plants.
Speaker Change: Thanks, and as my follow up I was wondering if you could.
Speaker Change: Talk about immigration and whether that matters the company in the industry because there's been some discussion that.
Speaker Change: Smaller local players may employ some illegal immigrants subpar compensation is that are sort of relevant.
Speaker Change: Uh huh.
Speaker Change: Change for your business.
Speaker Change: Don't really think it's not relevant to us so I can't really comment on anybody else, but I.
Speaker Change: I mean, all of our all of our employees are documented.
Speaker Change: And we pride ourselves on paying a good wage for all of our employees. So.
Speaker Change: I can't say much else about others.
Speaker Change: Thank you very much.
Speaker Change: Right.
Thank you our next question coming from the line of.
Speaker Change: Brian Butler with Stifel. Your line is now open.
Brian Butler: Hey, good morning, Thanks for fitting me in here.
Speaker Change: Alright, great quick one just on the incremental.
Speaker Change: Sustainability of that $190 million, you talked about how should we think about that flowing through on the quarters is that going to be more backend weighted or pretty even.
Speaker Change: So the way to think about it on the R&D side, we're going to have the rollover impact of the planned that completed at the end of 2024 those floor plans because we had.
Speaker Change: Minimal impact of those in 2024, then we have three of the eight that would really.
Speaker Change: So earnings in the first half of the year and the other five in the second half, which are really more back loaded I would say into Q4 on.
Speaker Change: On the recycling side, what we've seen again, the rollover impact of those automation investments in 2024, and we also have some benefits we're going to have less shutdown costs in 'twenty five than we did in 24, so it's a bit more of an even distribution.
Speaker Change: Okay. That's helpful and then on the RIN pricing you gave your additives, which is super helpful, but from a strategic perspective, how you're thinking about.
Speaker Change: Locking in those contracts.
Speaker Change: Kind of longer term, especially considering the potential for the volatility year under the new administration.
Speaker Change: Maybe just kind of your thoughts on where you are kind of viewing the strategy on dealing with what could be some volatility in RIN prices sure. So first the team did a fantastic job of locking up about 50% of our projected sales for 2025 and that is a mix of.
Speaker Change: The voluntary market and they had pre sold some 2025 range at $2 70. So they were very opportunistic in being able to do that and we feel confident that for 2000 and the balance that we have to sell if you look at where the market is today at about $2 40 that we should be able to do that.
Speaker Change: We've always talked about taking a proactive approach at getting more towards that 80, 20 split where a.
Speaker Change: A year out we would have 40% locked up and to hear from their 20%.
Speaker Change: Right now we have about 15% of our future years locked in and we have some.
Speaker Change: I would say pretty robust activity on the voluntary market side. There are players out there who are really looking to decarbonize and we're going to balance that against the fact that we have a fleet of CMG trucks, where we can generate rins.
Speaker Change: And make sure that we're monetizing the whole portfolio in the right way.
Speaker Change: Great. Thanks for taking my questions.
Speaker Change: Right.
Speaker Change: Thank you our next question coming from the line of Tom.
Speaker Change: Toni Kaplan with Morgan Stanley Your line is open.
Toni Kaplan: Thanks, So much I wanted to ask about the resin shedding just.
Speaker Change: Just wondering are these contracts that were inherited from acquisitions or were they just signed a long time ago and something changed in the markets just wanted to understand the.
Speaker Change: The rationale for why these contracts are not that profitable anymore.
Speaker Change: It's a few things I don't think its necessarily acquisitions, although I'm sure. We acquired a few that were underperforming, but I think it's a few things I think it's one you've seen inflation, you've seen labor inflation and that was always most prevalent in our residential line of business. So I think we've seen more cost pressure because of the labor intensity in that business and we're offsetting that by changing the model.
Speaker Change: And automating that driving that a lot of labor a lot of risk.
Speaker Change: And it's a portfolio approach, it's not in any one particular.
Speaker Change: Segment of business in terms of its contracts that are one to three years in duration of 3% to $5 five to seven I wouldn't say, it's any particular length I would tell you. We're a lot more cautious when it comes to anything over three to five years. When we are making our assumptions on what that's going to look like the saying I have is I don't want the best day to be the first day of any of those contracts.
Speaker Change: Great got it and then.
Speaker Change: I know, it's still early but could you talk about the potential impacts from the California wildfire cleanup on your volumes and just wanted to confirm that there is nothing in the volume guidance from that at this point.
Speaker Change: That would be upset.
Speaker Change: Yes, Tony I mean, first and foremost I was actually out in California, whether team over the weekend. The good news is is that our folks are all safe and as of the other day nobody had been displaced which we're thrilled about our operations are safe.
Speaker Change: In terms of any benefit folks in southern California are doing a grid theyre assessing that right now there may be a little bit of upside they've put in there, but when you look at our guidance for the 500 million for the solid waste business is really nothing meaningful in there at this point. We have included about a half a point of volume in our revenue guide.
Speaker Change: For the year and there is the flow through of that both included in EBITDA dollars and margin.
Speaker Change: It's also important it's such a good question about about these natural disasters.
Speaker Change: But looking back over the last decade, probably three out of every five years, we see something the difficulty is you can't predict it so whether it's whether it's tornadoes in the midwest or or or Hurricanes in Florida or fires in northern or southern California or whatever it is.
Speaker Change: <unk>, 60% of the time something is happening 2024, as an example of a year where not that there werent any natural disaster that we really just didn't see a whole lot of volume from those disasters and so how do we put something in initially we would have.
Speaker Change: <unk> been running uphill.
Speaker Change: 125, we likely will see some impact, but again, it's very difficult it's impossible to predict any of these and therefore, we don't we don't factored in.
Speaker Change: Italy, and it ends up being.
Speaker Change: Either upside for us in the year that it happens or something we have to recapture and.
Speaker Change: Work against in the years, where we don't have the last point I'd make Tony is I think our folks and our assets are very well positioned to help all those communities get back on their feet when they're when they're ready to reach out for that helped them.
Speaker Change: Terrific. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you our next question coming from the line of Tony Bancroft with Gabelli funds. Your line is now open.
Tony Bancroft: Thanks, so much Jim and team congratulations on all your success great Great quarter, just wanted to ask and I was on another call. So just please stop me if I'm sorry to ask but just with regards to the healthcare solutions business, obviously youre highlighting that.
Tony Bancroft: Seems like there's a lot of potential growth going on there could you maybe remind us again.
Tony Bancroft: Just sort of walk through it.
Tony Bancroft: Sort of.
Tony Bancroft: <unk> are there other large regional competitors I know theres, a lot of ones and twos out there like you were sort of talking about but.
Tony Bancroft: Maybe sort of define that market a little bit since it seems like that's somewhere back you could have some more transformational growth yes, Toni this is Ralph.
Tony Bancroft: I can tell you about that is I mean, obviously when we set our sights on Stericycle is because they had the most comprehensive network of assets.
Speaker Change: Out there and the largest portfolio of customers really we didnt look around to see who we were going to competing with necessary. We've got comes with the territory as we kind of assess the ability to cross sell and all that but we're focused on really maximizing.
Speaker Change: What we acquired and making sure we synergize properly and introduce a lot of customer centricity to something that maybe was lacking a discipline that was knocking back with stericycle. Thanks, great job. Thank you.
Speaker Change: In Q.
Speaker Change: Thank you.
Speaker Change: Our next question coming from the line of.
Speaker Change: Harold Andrew with Jefferies. Your line is now open.
Speaker Change: Harold.
Please check your mute button.
Speaker Change: Hello, sorry, I apologize.
Speaker Change: Yes. It is.
Speaker Change: As you know labor turnover has been <unk>.
Speaker Change: Something that's been talked about on several of these calls.
Speaker Change: Just get an update on where labor turnover.
Speaker Change: Inflation is running around the business I think you said you have.
Speaker Change: Another 1000 jobs expected to be.
Speaker Change: And over a period of time, so just wanted to get an update on what those.
Speaker Change: That's a trend on that.
Speaker Change: And the guidance.
Speaker Change: Oh I'll take this quickly and then John can add some color basically from a frontline labor perspective, we had we're exiting 2024 with a 300 basis point improvement in frontline turnover. It's the best in our history. So frontline turnover had actually achieved about a run rate of 15%.
Speaker Change: Fantastic.
Speaker Change: And then when we look at wage inflation, while we are seeing top CPI inflation abate generally speaking.
Speaker Change: Do think wage pressure continues to be above.
Speaker Change: CPI and we expect wage pressure to be in the 4% to 5% range for the year ahead.
Speaker Change: Harold I think the only thing I'd emphasize Divina gave you a good answer is and that's why you hear us talk about automation and our investments in technology are going to make us less labor dependent that's why it's so important in the short term and candidly over the long term because I don't think we see anything on the horizon that would suggest that the labor pool that we're searching for is going to be that much more plentiful.
Speaker Change: Next year or the years after that so it reinforces our commitment to those investments.
Speaker Change: Thank you.
Speaker Change: Thank you for the color that's all for me.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question coming from the line of David Manthey with Baird. Your line is now open.
David Manthey: Alright. Thank you just quickly on the Stericycle math here, if you did $61 million in EBITDA in the fourth quarter that implies a $90 million run rate, which I guess implies roughly a $360 million run rate for 2024, you're guiding to 460 by the by backing into the math there.
David Manthey: In 2025, including the $100 million in synergies. So question are you defining all stericycle improvement.
David Manthey: Synergy and maybe a better way to ask is just what what's the 2020 for pro forma EBITDA youre assuming for that.
David Manthey: The health solutions business based on the Wm definition of EBITDA.
David Manthey: Sure. So basically the $61 million in Q4 included $4 million of synergy capture when you adjust for that.
Speaker Change: Hi, as a full year EBITDA number on AWS measured basis of around $350 million for the business.
Speaker Change: We're implying a 9% growth rate that's expected on the base business, and then $85 million to $90 million of synergy capture all of that together. It brings you to the 460 ish million of EBITDA that we're projecting in the year ahead.
Speaker Change: Very clear. Thank you. Thank you.
Speaker Change: Thank you.
Speaker Change: I will now turn the call back over to Mr. Jim Fish, President and CEO for any closing remarks.
Speaker Change: Okay well. Thank you for your for your excellent questions. This morning.
Speaker Change: We hope you'll take in our Phoenix Open next week.
Speaker Change: Capstone, the golf channel and CBS Theres my plug for that.
Speaker Change: And we look forward to talking to all of you again next quarter. Thank you.
Speaker Change: This concludes today's conference. Thank you for your participation and you may now disconnect.
Speaker Change: Okay.
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