Stericycle, Inc.

Good day, and welcome to the Stericycle Fourth Quarter 2021 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference call over to Mr. Andrew Ellis, Vice President of Investor Relations. Mr. Ellis, the floor is yours, sir.

Good morning, and thank you for joining StairCycle's 2021 Fourth Quarter Earnings Call. On the call today will be Cindy Miller, our Chief Executive Officer, and Janet Zelenka, our Chief Financial Officer and Chief Information Officer. The discussion today includes forward-looking statements that involve risks and uncertainties. When we use words such as believes, expects, anticipates, estimates, may, plan, will, goal, or similar expressions, we're making forward-looking statements. Forward-looking statements are prospective in nature and are not based on historical facts but rather on current expectations and projections of our management about future events and are therefore subject to risks and uncertainties. Our actual results could differ significantly from those described in such forward-looking statements. Factors that could cause our actual results to differ are discussed in the Safe Harbor Statement and our earnings press release and in greater detail within the risk factors and our filings with the U.S. Securities and Exchange Commission. Our past financial performance should not be considered a reliable indicator of our future performance, and investors should not use historical results to anticipate future results or trends. We disclaim any obligation to update or revise any forward-looking statement other than in accordance with legal and regulatory obligations. On the call, we will discuss non-GAAP financial measures. For additional information and reconciliation to the most comparable U.S. GAAP measures, please refer to the schedules in our earnings press release, which can be found on Stericycle's Investor Relations website at investors.staircycle.com. The prepared comments for today's call correspond to an investor presentation, which is also available at StairCycle's Investor Relations website. Throughout the call, we may reference specific slides from the presentation. This call is being recorded, and a replay will be available approximately one hour after the end of the conference call today until March 24th, 2022. To access a replay of the call, dial 877-344-7000. and enter replay access code 3871221. A replay of the webcast will also be available on StairCycle's Investor Relations website. Time-sensitive information provided during today's call, which is occurring on February 24th, 2022, 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 StairCycle is prohibited. I'll now turn the call over to Cindy.

Thank you, Andrew, and welcome to our fourth quarter earnings call. I'd like to start off today's discussion by thanking all of our team members, and especially our frontline workers, for supporting our customers and protecting what matters. In the fourth quarter, like many organizations, we were faced with the impact of COVID-related illnesses tied to the Omicron variant. As a result of the variant and associated quarantine protocols, we experienced unprecedented absences, exacerbating driver and worker shortages. However, through these extraordinary times, our team members came together to support our customers, helping to keep the healthcare network running. We had another positive quarter of organic growth, which increased 3.5% and was in line with the mid-single-digit organic growth guidance Janet shared on last quarter's earnings call. We completed our 10th divestiture since 2019, closed on our first regulated waste and compliance services acquisition in over three years, and generated strong free cash flow of $69.8 million. Expanding on our key business priorities, I'll start with the quality of revenue. As I previously mentioned, organic revenues increased 3.5%, primarily led by secure information destruction, which grew 7.4%. We are pleased that North America secure information destruction had organic revenue growth of 7.6% year-over-year in the quarter after the ERP implementation. Additionally, we continue to see organic revenue growth in the regulated waste and compliance services of 1.9%, primarily led by North America at 2.6%, which was mainly driven by the partial return of our cruise industry customers and encouraging trends in the higher average weight per container, which we believe was due to increased elective surgeries. We continue to demonstrate to our customers the value of the services we provide. However, in the fourth quarter, we continue to see inflationary pressures in our cost to serve. One of the strengths of our quality of revenue initiatives has been working to create a more flexible pricing model with the necessary levers to adjust to these inflationary cost challenges. We have the following pricing levers. One, for multi-year contracts, we have been focused on standardizing contractual language and building in pricing flexibility, which affords us the opportunity to adjust pricing in several ways at contract anniversary and renewal. Two, for all new customers and purchasers of our one-time services, we have the ability to adjust our rates at point of sale, And three, for many of our customers, we also have the ability to adjust surcharges and fees that provide inflationary cost protection for commodity and other price volatility. Examples of these include our fuel, recycled paper, and environmental surcharges, and a new service cost recovery fee. Currently, we are utilizing all of these pricing levers with the intention of offsetting the existing supply chain and labor inflationary cost pressures, though there may be a lag between when we experience higher costs and when they are offset through pricing. Moving on to operational efficiency, modernization, and innovation, our engineering and operations teams have been incredibly focused on managing through a complex inflationary environment that has been further challenged by supply chain disruptions and labor shortages. Although we have seen productivity gains associated with our process standardization and modernization efforts these past couple of years, these results, along with our quality of revenue initiatives, were not sufficient to offset the rapidly accelerating cost and staffing pressures experienced in the fourth quarter. Let me share with you some of our efforts in 2021. We completed a comprehensive, long-range planning process focused on strategic capital investments. Over the next several years, we plan to invest in ourselves to continue to upgrade and build new facilities to drive growth, efficiencies, improve sustainability and safety, and replace end of life assets. We made strong progress in our modernization efforts in 2021, including five new and upgraded autoclaves and new regulated waste facilities in the United Kingdom, Ireland, and California. Additionally, we have several facility projects that have been delayed due to supply chain disruptions that we expect to complete in 2022. Transitioning to our North America ERP system, I'd like to provide some perspective on how this has evolved since we spoke a few months ago. Regarding our ERP implementation from August, the technology is stable and our team members continue to improve and hone their operating skills in the system. The business impacts associated with the ERP deployment as seen in August and September, have waned, as evidenced by our higher revenue performance of North America's secure information destruction in the fourth quarter. As we look to our North America ERP deployment for regulated waste and compliance services, we are keenly focused on leveraging lessons learned from the secure information destruction deployment. In 2022, we plan to start a phased rollout of the technology to a subset of North America regulated waste and compliance services. This is consistent with our disciplined deployment approach and allows us to mitigate risk and test data and functionality before deploying it across all targeted customers and facilities. Now turning to debt reduction. Our strong free cash flow generation and divestiture proceeds helped reduce net debt by $48.2 million in the fourth quarter. We finished 2021 with a debt leverage ratio of 3.61 times. Reflected in this calculation is $80.7 million, which we accrued in the second half of 2021 for the FCPA settlement with the SEC and DOJ, with whom we have reached an agreement in principle. If we did not have this settlement expense in 2021, we would have finished the year with a debt leverage ratio at 3.28 times. On December 1st, we divested our environmental solutions business in Canada for $24.4 million, which marks our 10th divestiture since 2019. Proceeds from this divestiture were applied toward debt reduction. As part of our portfolio optimization priority, over the past two years, we have been building our expertise to assess and analyze our core business markets while we have been divesting non-core assets and reducing debt. These efforts, which have strengthened our balance sheet, now afford us the opportunity to consider thoughtful, strategic tuck-in acquisitions in our core businesses in certain markets where synergies are believed to be strong. Acquisitions, when appropriately integrated, are an efficient way to scale operations and build critical customer density for transportation and treatment operations. On December 31, 2021, We completed an accretive acquisition of a Midwest-based regulated waste business that adds to our customer base with a strong focus on the independent market, which allows us to expand service offerings and scale our operations to increase overall route density in the region. We anticipate completing integration of this business into our operations, processes, controls, and technology in the first half of 2022, leveraging our new and disciplined integration playbook. I'll now turn the call over to Janet to review our financial results. Thank you, Cindy.

I will start by summarizing our fourth quarter results. As noted on slide 5, revenues were $657.3 million compared to $655.9 million in the fourth quarter of 2020, excluding the impact of divestitures of $20.5 million and unfavorable foreign exchange rates of $0.9 million organic revenues increased 22.8 million. Of the increase, secure information destruction organic revenue growth was 13.9 million, and regulated waste and compliance services organic revenue growth was 8.9 million. As noted on slide six, regulated waste and compliance services revenues were $455.7 million, compared to 468.5 million in the fourth quarter of 2020. Excluding the impact of divestitures and foreign exchange rates, organic revenues for regulated waste and compliance services increased 1.9%. North America regulated waste and compliance services organic revenues grew 2.6%. Of this 2.6% growth, the majority was driven by an increase in maritime waste services revenues and an increase in the average weight per container. which we believe was due to increased elective surgery waste. International regulated waste and compliance services organic revenues declined 0.7% in the fourth quarter. This decline was due to lower pandemic waste volumes compared to the fourth quarter of 2020, which experienced an over-classification of pandemic waste. As noted on slide six, Secure information destruction services delivered revenues of $201.6 million compared to $187.4 million in the fourth quarter of 2020. Excluding the impact of foreign exchange rates, organic revenues for secure information destruction increased 7.4%, mainly due to increased service stops and higher recycled paper revenues. reflecting higher SOP pricing offset by lower SOP volume. For the full year 2021, our global recycled paper volume was approximately 7% lower than 2020. In North America, secure information destruction organic revenues increased $12.2 million, or 7.6% compared to the fourth quarter of 2020. As Cindy mentioned, The ERP system startup challenges and customer impacts that we experienced in the third quarter have improved as we've continued to tune the new technology and processes. For secure information destruction, we generate revenues in two ways, servicing our customers through stops, which comprise about 87% of revenues to North America in the fourth quarter, and recycling paper, which comprise the remainder. North America revenues related to service stops increased approximately 1% compared to the fourth quarter of 2020. When evaluating the fourth quarter of 2021 against pre-pandemic results from the fourth quarter of 2019, we estimate that service stops were lower by approximately 8%. In North America, recycled paper revenues were up 72.8%, or about $9 million, compared to the fourth quarter of 2020. The increase in recycled paper revenues reflected higher SOP pricing offset by lower SOP volumes. In international, secure information destruction organic revenues increased 6.3% compared to the fourth quarter of 2020. This change was mainly due to increased recycled paper revenues and service stops as this business continues to recover from the economic impact of COVID-19. Income from operations in the fourth quarter was $8.2 million compared to $93.2 million in the fourth quarter of last year. The $85 million decline was primarily due to the following. Lower gains on divestitures of $30 million, higher legal and self-insurance claim expenses of $24.1 million, mainly due to an additional $19.7 million for the FCPA settlement with the SEC and DOJ, with whom we reached an agreement in principle, ongoing IT operating expenditures from our ERP system of $13.6 million, higher supply chain and other inflationary costs of approximately $10 million, and higher labor costs of approximately $7 million. The higher supply chain and other inflationary costs are primarily coming from higher utility expenses, higher rent expenses associated with properties with renewed leases, higher vehicle and facility maintenance expenses, and higher expenses associated with disposable containers and liners. Higher operating labor costs are primarily associated with maintaining competitive wages for existing team members and increased starting wages for new hires. In addition, overtime costs have increased as a result of labor shortages, increased absences, and lower productivity associated with the learning curve of new team members. In the fourth quarter of 2021, we spent $11.7 million related to the ERP deployment with about 80% in operating expenditures and 20% in capital expenditures, which aligns with the overall annual estimated spend I previously shared. U.S. GAAP net loss was $17.2 million, or 19 cents diluted loss per share, compared to net income of $48.5 million, or 53 cents diluted earnings per share in the fourth quarter of last year. The difference was related to lower income from operations of $85 million, which was partially offset by lower income tax expense of 15.5 million. Cash flow from operations for the year ended December 31st, 2021 was $303.1 million compared to 530.2 million for 2020. The year-over-year decline of $227.1 million was mainly from non-recurring differences of $216.6 million. Adjusted income from operations was $64.2 million or 9.8% as a percentage of revenues compared to $108.6 million or 16.6% as a percentage of revenues in the fourth quarter of last year. Adjusted income from operations declined 680 basis points, mainly driven by ongoing IT operating expenditures from our ERP system of 210 basis points, higher supply chain and other inflationary costs of approximately 150 basis points, higher legal and self-insurance claim expenses of 150 basis points, and higher labor costs of 110 basis points. Adjusted diluted earnings per share was $0.38 compared to $0.59 in the fourth quarter of 2020. As illustrated on the bridge on slide 8, excluding the impact from divestitures of $0.02, the remaining $0.19 year-over-year decline was driven by $0.12 unsavorability associated with higher supply chain, labor, and other inflationary costs, $0.09 on favorability associated with higher ongoing IT operating expenditures due to our ERP system go-live, and $0.06 on favorability from higher legal and self-insurance claim expenses. These impacts were partially offset by $0.06 favorability from a lower income tax rate and $0.02 favorability from interest expense and other. Our fourth quarter DSO as reported was 58 days. compared to 52 days in the fourth quarter of 2020. When excluding divestitures as of December 31st, 2021 from the trailing 12-month DSO calculation, DSO was 59 days in the fourth quarter of 2021, compared to 56 days in the fourth quarter of 2020. This difference is mainly due to a delay in the North America Secure Information Destruction customer invoicing schedule and subsequent collections due to the ERP deployment, as well as increased revenue compared to the prior year. Capital expenditures for 2021 were $116.9 million compared to $119.5 million for 2020, in line with the guidance I previously shared of $110 to $120 million. Free cash flow for 2021 was $186.2 million compared to $410.7 million for 2020. As noted on slide 9, the year-over-year decline of $224.5 million was primarily from non-recurring differences of $216.6 million and net working capital changes of $32.5 million, mainly driven by customer collections, as I mentioned earlier. These decreases were partially offset by tax refunds of $22 million and lower capital expenditures of $2.6 million. The non-recurring differences include U.S. CARES Act net operating loss carryback refunds of $110 million in 2020, government-related payment deferrals in 2020 associated with pandemic-related relief and subsequent 2021 payments, an aggregate of $48.8 million, annual incentive compensation payout of $38.6 million in 2021 versus a nominal payout in 2020, and advances received on a service agreement related to the divestiture of domestic environmental solutions of $19.2 million in 2020. As shown on slide 10, at the end of the fourth quarter, our credit agreement defined debt leverage ratio was 3.61 times. Net debt was reduced by $48.2 million in the fourth quarter, and $173.8 million for the year ended December 31, 2021, to approximately $1.57 billion. As Cindy mentioned, we successfully completed our 10th investiture with the sale of our environmental solutions business in Canada on December 1st, 2021 for proceeds of $24.4 million. Revenues and adjusted EBITDA of our environmental solutions business in Canada were approximately 1% of our consolidated totals through September 30th, 2021, which were reported in regulated waste and compliance services. Additionally, on December 31, 2021, we acquired a Midwest-based regulated waste business for $43.4 million. This accretive tuck-in acquisition is expected to add less than $10 million in revenues in 2022. Turning to the full year results in slide 11, total revenues were $2.65 billion compared to $2.68 billion in 2020. Excluding the impact of divestitures of $204.3 million and favorable foreign exchange rates of $31.4 million, organic revenues increased $144.3 million. Of the increase, regulated waste and compliance services organic revenue growth was $107.1 million and secure information destruction organic revenue growth was $37.2 million. When 2021 and 2020 results are normalized to exclude the revenues from divested businesses, revenues were approximately $2.60 billion in 2021 compared to $2.43 billion in 2020. Income from operations for the year ended December 31, 2021 was $72.3 million compared to $31.9 million in 2020. The $40.4 million increase was mainly due to lower net divestiture losses of $125.3 million. This was mainly offset by an estimated FCPA settlement accrual of $80.7 million. Net loss for 2021 was $27.8 million, or 30 cents diluted loss per share, compared with $57.3 million net loss, or 63 cents diluted loss per share in 2020. The difference was mainly related to higher income from operations of $40.4 million and lower interest expense of $10 million, as previously mentioned. These benefits were partially offset by a higher income tax expense of $27.6 million. Adjusted EBITDA was $457.8 million in 2021 compared to $495.2 million in 2020. In 2021, divested businesses generated approximately $5 million in adjusted EBITDA. When 2021 results are normalized to exclude results from the divested businesses, 2021 adjusted EBITDA would have been approximately $453 million. Adjusted diluted earnings per share was $2.19 in 2021 compared to $2.25 in 2020. As illustrated on the bridge on slide 14, Excluding the impact from divestitures of $0.12 and favorable foreign exchange rates of $0.03, the year-over-year increase of $0.03 was driven by the following. $0.11 favorability from lower interest expense and other, and $0.10 favorability from a lower tax rate. These were partially offset by $0.18 unfavorability, mainly from ongoing IT operating expenditures from our new ERP system. As noted on slide 16, our overall spend for the ERP in 2021 was $105.7 million, which was at the low end of the 2021 ERP estimated spending range of $105 to $120 million I previously shared. Although we still operate with uncertainty due to inflationary pressures and the pandemic trajectory, I would like to provide some insights into what we see emerging in 2022 related to organic revenue growth adjusted earnings per share, free cash flow, capital expenditures, continued ERP deployment-related expenditures, and our long-term outlook. The following 2022 guidance includes forward-looking statements as contemplated in our Safe Harbor provision as referenced at the opening of this call. Our guidance for 2022, as noted on slide 17, is as follows. We expect to grow organic revenues 3% to 5% on a base of $2.6 billion. Two, we expect to generate adjusted earnings per share in a range of $2 to $2.30. For this adjusted EPS projection, we assumed sorted office paper recycling revenue per ton and foreign exchange rates at year-end 2021. We assumed increased interest rates with an expected impact of approximately $0.02 for adjusted EPS. we assumed our adjusted effective tax rate will be in the range of 25 to 28 percent three regarding i.t cost total annualized ongoing operating expenses for running the new erp system in 2022 are expected to be 50 to 60 million dollars of which we anticipate approximately 18 to 20 million dollars of system depreciation additionally for 2022 we expect $20 to $25 million of adjusted ERP operating expenditures associated with the North America Regulated Waste and Compliance Services ERP deployment. Four, we expect to generate free cash flow of $125 to $155 million, which assumes payment of the estimated $80.7 million FCPA settlement and excludes any potential incremental FCPA settlement-related costs. Five, Finally, we expect capital expenditures of $120 to $140 million, which includes any ERP deployment-related capital expenditures. As we look at 2022, the first half adjusted EPS is expected to be lower than the first half of 2021, as 2021 did not have the same level of inflationary pressure or higher ongoing IT operating expenditures associated with our August 2021 ERP deployment. We remain committed to our long-term outlook as summarized on slide 18. So with that, I will now turn the call back to Cindy.

Thank you, Janet. I'd like to close highlighting our efforts to protect the health and well-being of the environment in a safe, responsible, and sustainable way, which is a key element of our mission and core values and something we focus on every day. With increasing focus on minimizing climate change impact, we formally disclosed our climate change data through CDP to enhance transparency with our many stakeholders. For our first submission, we are proud to have received a B-minus score and look forward to advancing our ESG efforts. Another example of our sustainability commitment is our recently announced five-year partnership with the National Park Foundation. Over the course of the relationship, we are committed to supporting landscape and wildlife conservation with a focus on wetland restoration. The National Park Foundation's mission is to protect national parks and connect people to the wonder of nature. This aligns well with Stericycle's mission to protect health and well-being in a safe, responsible, and sustainable way. Operator, please open the line for Q&A.

Yes, ma'am. We will now begin the question and answer session. To ask a question, you may press star, then one on a touch-tone phone. If you're using a speakerphone, please pick up your answer before pressing the keys. If any time your question has been addressed, we'd like to withdraw your question. Please press star then 2. As a courtesy, we please ask that you limit yourself to one question and a single follow-up. You may re-enter the queue for additional questions, time permitting. At this time, we will pause momentarily to assume our roster. And the first question we have will come from Scott Sneeberger of Oppenheimer. Please go ahead, sir.

Thank you very much. Good morning. I guess this first question is for both of you. The first acquisition in a few years, and just curious the impetus behind that, and should we expect more of that to come? I understand the leverage ratio is a little distorted by the Foreign Credit Practice Act payout, and it's actually trending really nicely in the right direction with the debt paydown. So is this a turn? Are we going to see more? Cindy, that's your part. And then, Janet, if you could kind of hit on maybe what type of multiple paid and contribution in current period and going forward.

Thanks. Great question. Thank you much. Appreciate it. Yeah, so one of the things that we had – we're still with the same five key business principles and initiatives for the past several years since Janet and I have been together. And one of them, it started out as portfolio rationalization because we realized that we needed to clean up the balance sheet. We needed to get focused on the core. We needed to make sure that we could take the resources and deploy them to where we had the opportunity to improve and grow StairCycle. So for us, Just last year, we changed it to portfolio optimization. And I think for us, we're getting smarter, we're getting more strategic, and I think more importantly, we're getting more disciplined in order to understand the strengths of our markets, whether it's regionally here in North America or where we are globally. So for us, this strategic tuck-in made great sense for us in terms of it being, I think, a well-run company, similar service offering, similar culture, a strong focus on independent customers. So I think that's going to afford us an opportunity to expand service offerings and really scale some of the operations in an area where we didn't have the strongest footprint. So I hope that helps. And I think in terms of what's the future, as always, We're going to take a look at all conditions, market conditions, our strengths and weaknesses, where we think that, you know, we could improve our footprint in order to grow. So I think as optimization states, all things are on the table. Go ahead, Janet.

Yeah, thank you. And thank you for noting the debt leverage improvements. You're right. We do have a large payment or accrual that we put in there for the FCPA. And without that, we're trending quite nicely. In terms of what we viewed as acquisition, as we stated, it was accretive. It will generate revenue less than $10 million in the year, which we're pleased of, and I think we achieved a multiple that both parties were happy with.

Great, thanks. And for my follow-up, just curious that, you know, working capital headwind in 2021 sounds like the ERP in – and destruction was kind of a headwind. Janet, how quick can we see that repair? How is that factored into the free cash flow guidance for the upcoming year? And I guess tying to that, on the Foreign Credit Practices Act settlement, do you have a sense of timing of payments in the coming year? Thank you.

Yes. So in terms of the free cash flow that we indicated, yes, you're right. The FCPA settlement will be this year. I'm not quite sure exactly when. So we'll keep you posted as we know. In terms of the working capital opportunity, yes, we did make a conscious decision to delay some of the billings so we wouldn't have a lot of credit in rebills as we work to get very complicated customers on the platform for an accurate billing. So that is an opportunity. However, we also are not going to see the income tax benefits that we saw this year in terms of refunds. or at least we're not anticipating it. So there is a working capital opportunity there. There's also a cash flow from operations opportunity built in to that free cash flow. And yes, it would have been higher if we didn't have to pay the 80-some million for the FCPA.

Got it. Thanks. I'll turn it over.

And next, we have Sean Dodge of RBC Capital Markets.

Yes, thanks. Good morning. Well, on the revenue guidance for the year, the 3% to 5% growth you're targeting, can you talk a little bit about the visibility or maybe some of the underlying assumptions there? Is a lot of that expected to come from the cost pass-through levers, Cindy, that you talked about? Is there an assumed contribution from things like ongoing revenue quality initiatives? And then how much incremental recovery or rebound do you need to see and shred it to get to that 3% to 5% range?

Yeah, great question. Thanks, Sean. So for us, you're right. We talked on – specifically, we wanted to share with everybody and get out there the fact that, you know, we are looking at price. We are looking at the levers that we can pull. We talked about those, whether it's with existing customers, brand-new customers, or some of the surcharges. You know, our intent is to have that to offset, you know, some of the – just the onset of some unprecedented – whether it's inflation or some of the supply chain or labor shortages that we've seen. But your point is about what, here's what we're happy about. And here's what I'm very pleased with in terms of our businesses. You know, if we take a look, we've learned a lot of things since the pandemic. We've learned that the services that we provide within these businesses, our core businesses, really have an opportunity to ebb and flow and yet still provide us a chance to grow. So if you think back to the pandemic, elective surgeries are down, but COVID, you know, COVID waste. Lighter, we had to get more creative, but still we saw growth, and we saw growth as we came through it. Now as COVID is, you know, it's less and less. Elective surgeries are starting to go back. At one point in time, maritime was completely shut down. It's starting to come back. So I think for us, it's a combination. It's a combination of the resilience of the service offerings that we have where they can ebb and flow. One can be more, one can be a little bit less, and we're still in the growth focus for that three to five. And then on the shred side, On the SHRED side, we've seen good growth in SHRED. If you take a look, prior to the pandemic, we had an extremely strong January of 20 and February of 2020 in SHRED, a lot of momentum. And then pandemic hits. Okay, we continue to focus. So good growth, incremental growth in recovery. you know, as the world started to dig out from underneath the pandemic. And then we saw growth January through July last year. And then, you know, we roll out the ERP and we have normal disruptions, you know, to a business. And now we're showing strong growth. We're showing solid growth in Q4 for Shred. So I think all indicators for us, as the world continues to rebound, and again, your guess is as good as mine, I know there's some very unfortunate news today in terms of what's happening globally, and I think that tempers a lot of things everybody thinks about during a given day. And so for us, all things being as normal as they can be, we're very positive about all things contributing to that 3% to 5% growth opportunity.

And the only thing I would add is that as we look at that opportunity, yes, it's price. As all the levers that Cindy mentioned, it's also the volume based on the value proposition. We do note that the inflationary came on fast, and you have to push price into your customers. So as we mentioned in the prepared remarks, there is a timing between the first half and second half as we see that go into the market. But we're really impressed with the collaborative work that our sales team is doing with our customers, and I think a lot of our customers understand that. the pressures that everyone is seeing these days.

Okay. And then you mentioned the impact that the Omicron surge had on drivers and having a large number of people not being able to come into work. It sounds like you had to pay some overtime to those drivers that could come in. Could you quantify maybe the impact of cost from that Omicron surge? And then I guess were stops affected? Did this have a revenue impact in the quarter two? And then was this specific to the fourth quarter? Is there some that's filling into Q1?

I think there's a lot in there. And, you know, one of the things that we are looking at is we don't specifically have anything tied to X amount of drivers are absent for whether it's Omicron or some of the other things. I think we've had a run rate. of a certain percentage of shortage just based off of the labor shortage specifically. I think the American Truckers Association still talks about the fact that there's 80,000 short drivers in North America. So that is still there, but Omicron, as we had said, exacerbated it. It's on top of whatever companies have adapted to in terms of being – being short drivers. But for us, I think a couple positive things that, you know, we did have, you know, we did talk about having overtime and those things. I think it's a testimony to the team for how hard everybody worked to make sure that we took care of customers as best we could. And we're really focused on the continuation of our efforts to attract talent and to retain it. You mentioned some local market adjustments that we had put in. I think the culture that we're developing here at Stericycle is becoming something that's helping us retain our employees with our mission and our purpose and our values. And then, you know, I think there's a lot to be said for the fact that people are enjoying the fact that at least a portion of the business, we're getting new technology. You know, we're now not, you know, at a disadvantage in comparison to the working environment you know, a normal work environment that potential candidates would have at another company versus ours. So I think all of those things are shaping up to be more of a positive for us. But when it will end, when it will stop, you know, when we'll see more, you know, employees going into the marketplace, your guess is as good as mine. I'm just really pleased that right now the Omicron variant, we are seeing, you know, folks coming out of protocol and certainly returning to work and, you know, servicing our customers.

And in terms of the quantification, the labor costs that we saw that were above and beyond were around $7 million, and that was a combination of the shortages, the absences, which caused the overtime, right? And then you have – we had just – we were bringing on – we are being successful in recruiting new people in, but you have a learning curve with the new people. So as we assessed all those which are very connected, that was worth about $7 million in the fourth quarter. Okay. All right. Great. Thanks again.

Thanks much, Sean.

The next question we have comes from David Manji of Baird.

Yeah, thank you. Good morning. Janet, the $7 million you were just referring to, I was unclear. Is that in the quarter or for the year?

That was in the quarter.

In the quarter. Okay. So that's okay. Right.

And then... Yeah, which was due to the, you know, fast onset of several people. You know, almost everyone saw that happen in the quarter.

Yep. Okay. And then more accounting here on the acquisition and divestiture. You gave us $10 million in REVs for the acquisition, and you gave us $5 million in EBITDA for the divestiture. But could you fill in the gaps there? What was the – approximately EBITDA for the acquisition and then revenues related to the divestiture.

I didn't release the EBITDA with the divestiture, but it's accretive, meaning that it would be at least at the rate or above what we normally see. And there's a lot of bridges in information. in my remarks and in the deck and even indicate to help you get to what the divestiture's impact was versus others to set the end-of-the-year framework for you.

Right. Yeah, we'll have to sort that out. Thank you. And then the 3% to 5% organic revenue growth, I know you said that – Maybe it'll take some time to get some of this pricing in. But could you talk broadly about how you think that breaks down volume versus price? I mean, in an environment where inflation is running as hot as it is, that seems pretty low either way. And I'm just wondering, would it start out the year at the beginning at the low end of that and end the year at the high end? Or how are you thinking about that three to five? It just seems low in this inflationary environment.

Yeah, so we're putting the pricing in place using the levers that Cindy said, and as we mentioned, we will have a timing. The first half EPS will be lower than the second half compared to the prior year due to two factors, the timing of that plus we didn't have the IT costs that we had in – now we have in our normal adjusted run rate costs as it reflects into adjusted EBITDA compared to the first half of last year. And in terms of pricing, yes, there is significant pricing going into the market that will drop to the bottom line, but it will also be covering the increased costs that we're seeing, and you're going to see a timing on that between the first half and the second half.

Okay. Thank you very much.

Thanks, David.

Again, as a reminder, if you'd like to participate in today's Q&A, please press star, then 1 on a touch-tone phone. Again, at a star, then 1 to ask a question. Again, we will pause momentarily to assume our roster. At this time, there appear to be no further questions. This will conclude today's question and answer session. I would now like to turn the conference call back over to Ms. Cindy Miller, President and Chief Executive Officer, for any closing remarks. Ma'am?

Thank you, Mike. I appreciate it. So to everyone listening on this call, we greatly appreciate your interest in Stericycle and your shared excitement in our future. So thank you much. Appreciate it.

All right. And we thank you, ma'am, and to the rest of the management team for your time also today. Again, the conference call has now concluded. At this time, you may disconnect your lines. Thank you, everyone. Take care and have a wonderful and blessed day. Thank you.