Stericycle, Inc.

Hello everyone and welcome to the Q2 2023 Stericycle Earnings Conference Call. My name is Nadia and I'll be coordinating the call today. If you would like to ask a question, please press star, fill it by one on your telephone keypad. Please note we will have one question and one follow-up. If you wish to ask another question, please rejoin the queue. I will now hand over to your host, Andrew Ellis, Vice President, Investor Relations, Enterprise Finance to begin. Andrew, please go ahead.

Good morning, and thank you for joining Stericycle's 2023 Second 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 are making forward-looking statements. Forward-looking statements are prospective in nature and are not based on historical facts, but rather on current expectations and projections of our management about future events and are therefore subject to risks and uncertainties. Our actual results could differ significantly from those described in such forward-looking statements. Factors that could cause our actual results to differ are discussed in the safe harbor statement and our earnings press release 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 statements 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 StairCycle's investor relations website at investors.staircycle.com. The prepared comments for today's calls correspond to an earnings presentation, which is also available at StairCycle's investor relations website. Throughout the call, we will 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 August 24th, 2023. A replay of the webcast will be available on StairCycle's investor relations website. Time-sensitive information provided during today's call, which is occurring on July 27th, 2023, may no longer be accurate at the time of a replay. Any redistribution, transmission, or rebroadcast of this call in any form without the express written consent of Ceracycle is prohibited. I'll now turn the call over to Cindy.

Thank you, Andrew. Good morning, everyone, and welcome to today's call. Four years ago, the leadership team set this organization on a path focused on five key business priorities, which include quality of revenue, operational efficiency, modernization, and innovation, ERP implementation, portfolio optimization, and debt reduction and leverage improvement. These priorities have been our true north star through unanticipated macroeconomic and pandemic-related headwinds. Today, I'm excited to share that we have achieved our targeted debt leverage ratio of below three times, ending the second quarter at 2.7 times. our lowest leverage since 2015. This is a major milestone and reflects our consistent focus on financial discipline. The strengthening of our balance sheet and debt leverage puts us in a position to optimize our debt structure and will afford us greater investment flexibility in the future. This quarter, we also made important progress executing on our portfolio optimization initiative as we completed the divestiture of our operations in four countries, Brazil, Australia, Singapore, and Korea, for combined net proceeds of approximately $84 million. Brazil and Korea were regulated waste and compliance services businesses, and Singapore and Australia were secure information destruction businesses. Additionally, earlier this week we divested our dental recycling business in the Netherlands, and we expect to close on the sale of our secure information destruction business in the United Arab Emirates in the third quarter. Turning to our second quarter results, we delivered our 10th consecutive quarter of overall organic revenue growth, growing 2.3%, with regulated waste and compliance services increasing 4.7%, partially offset by secure information destruction organic revenue declining 2.1% as a result of lower indexed fuel and environmental surcharges. In North America, we are encouraged by positive trends in the market, with the stabilization of hospital staffing levels and the return of elective surgeries. Internationally, we have not observed similar improving trends, but we stand at the ready to support our customers. Our infrastructure modernization efforts, including existing and additional future treatment capacity in strategically placed geographic areas, will allow us to support growth in our customer base. Turning to our operational efficiency, modernization, and innovation priority, our multi-phase journey to construct, test, and ramp up processing of regulated medical waste in the McCarran Nevada incinerator continues to progress through the construction phase. Based on our current timeline, we expect the construction phase of the project to be completed in the first half of 2024, subject to successfully achieving critical milestones equipment deliveries, and passing quality inspections. After construction is complete, we will move into the testing phase, which includes regulatory review. Once testing is successfully completed, we will be able to ramp up the processing of waste and eventually move into full production. In addition to McCarran, we have 20 other infrastructure projects underway, including several autoclave and incinerator improvement projects, with many of these upgrade projects expected to be finalized in the third quarter of 2023. Like many logistics companies, we are experiencing higher fleet costs, including repairs, maintenance, and vehicle return fees. We expect to continue to manage these higher costs through other savings and productivity opportunities, such as our fleet modernization initiative. At quarter end, we had received almost 80% of our outstanding fleet orders, and we anticipate receiving the remaining vehicles by late summer. Fleet modernization helps drive fuel savings and driver productivity. Moving to the ERP, we expect to deploy U.S. regulated waste and compliance services on the platform in the third quarter. subject to successfully achieving the remaining go, no-go decision point. Over the next several weeks, approximately 5,000 team members will be involved in preparing for and launching the system. As I turn the call over to Janet to review our financial results, I'm pleased to share that our first half financial performance came in line with our full-year guidance, as she'll explain.

Thank you, Cindy. I will start by summarizing our second quarter results. As noted on slide five, revenues in the second quarter were $669.5 million compared to $679.8 million in the second quarter of 2022. Excluding the net impact of divestitures of $24 million and unfavorable foreign exchange rates of $1.2 million, organic revenues increased $14.9 million. Of this increase, regulated waste and compliance services organic revenue growth was $19.7 million, while secure information destruction organic revenues declined $4.8 million. As noted on slide 6, regulated waste and compliance services revenues were $444.7 million compared to $448.4 million in the second quarter of 2022. Excluding the impact of divestitures and foreign exchange rates, organic revenues increased 4.7% in the second quarter. In North America, regulated waste and compliance services organic revenues increased $16.8 million, or 4.8%, mainly driven by our three pricing levers, which include pricing and existing contracts, new customer pricing, and surcharges and fees. We are also pleased with the year-over-year positive growth in core medical waste collected, which contributed to roughly a third of the organic revenue growth. International regulated waste and compliance services organic revenues increased $2.9 million, or 3.9%, mainly driven by our pricing levers, partially offset by lower waste volumes compared to the second quarter of 2022. International waste volumes have been impacted by hospital and nursing staffing shortages and intermittent strikes throughout Europe. In the case of the United Kingdom, it was recently reported that the NHS's medical procedures backlog has increased over 200% since 2020 to more than 7.4 million patients needing medical procedures. Secure information destruction revenues were $224.8 million compared to $231.4 million in the second quarter of 2022. Excluding the impact of foreign exchange rates, organic revenues decreased 2.1%. In North America, secure information destruction organic revenues declined $3.3 million, or 1.6%, compared to the second quarter of 2022, mainly due to the decline in fuel surcharges. In the second quarter, recycling paper revenues were down approximately 4%, or $8.1 million, due to lower SOP paper pricing and lower tonnage. The lower SOP recycling revenue was mostly offset by our recycling recovery surcharge, mainly due to the change in the rate table beginning in June 2022. Service revenue was up approximately 2.4% or $4.9 million, mainly driven by pricing levers, which includes the expansion of the recycling recovery surcharge. As a reminder, we have been working to add SOP surcharges to customer service contracts. As we continue to renew contracts and win new business, these surcharges are now included in approximately 60% of North America customer contracts and are anticipated to offset approximately 60% of our paper price volatility at current RISI rates. Our service revenue growth was partially offset by lower index fuel and environmental surcharges, which have declined as fuel prices have come down year over year. In international, secure information destruction organic revenues decreased $1.5 million, or 5.4%, compared to the second quarter of 2022, mainly due to lower recycling revenue and fuel and environmental surcharges. Loss from operations in the second quarter was $24 million compared to income from operations of $38.1 million in the second quarter of 2022. The $62.1 million decrease was mainly due to 2023 net divestiture losses of $54.2 million, higher incentive and stock-based compensation of $9.7 million, and higher fleet costs of $4.9 million, partially offset by lower bad debt expense of $8.9 million. Although we saw a decline in fuel costs, it roughly mirrored the decline in fuel and environmental surcharges. net loss was 49.5 million dollars or 54 cents diluted loss per share compared to net income of 10.5 million or 11 cents diluted earnings per share in the second quarter of 2022. the 60 million dollar decrease was mainly due to lower income from operations of 62.1 million as i just explained cash flow from operations for the six months ended june 30th 2023 was an inflow of 154.9 million dollars compared to an outflow of 18.4 million in the same period of 2022. The year-over-year increase of 173.3 million was mainly driven by lower FCPA settlement payments of 67.6 million, accounts receivable improvements of 52.1 million, mainly due to an improvement in day sales outstanding, higher cash generated from operating income of 23.3 million, lower annual incentive compensation payments of $22.3 million, and other working capital improvements of $8 million. Adjusted income from operations with $76 million, or 11.4% as a percentage of revenues, down from $82 million, or 12.1% as a percentage of revenues, in the second quarter of 2022. Adjusted income from operations decreased 70 basis points as a percentage of revenues due to the following. One, higher incentive and stock-based compensation of 150 basis points, and two, higher fleet costs of 70 basis points. These were partially offset by lower bad debt expense of 130 basis points. As noted on slide eight, adjusted diluted earnings per share was 43 cents compared to 48 cents in the second quarter of 2022, excluding the impact from divestitures and foreign exchange rates of one cent. The remaining $0.04 year-over-year decline was driven by, one, higher incentives and stock-based compensation of $0.08. As noted on the fourth quarter 2022 earnings call, we expected to incur higher year-over-year costs in this area, which began in the second quarter, and two, higher fleet costs of $0.04. These were partially offset by lower bad debt expense of $0.07 and lower tax expense of $0.01. Capital expenditures for the six months ended June 30, 2023 were $63.7 million compared to $70 million for the same period last year. Free cash flow for the six months ended June 30, 2023 was an inflow of $91.2 million compared to an outflow of $88.4 million in the same period of 2022. As noted on slide 9, the year-over-year improvement of $179.6 million was mainly due to higher cash flow from operations of $173.3 million. Our second quarter DSO, as reported, was 55 days compared to a DSO of 64 days in the second quarter of 2022. The difference was mainly driven by the timing of North America secure information destruction customer billing and collections in the prior year. As shown on slide 10, at the end of the second quarter, our credit agreement defined debt leverage ratio was 2.7 times. Additionally, we reduced our net debt by $174.4 million in the second quarter to approximately $1.28 billion. As Cindy noted, we divested our Brazil, Republic of Korea, Australia, and Singapore businesses for net proceeds of approximately $84 million. These proceeds were used to pay down our term loan by $50 million the remainder applied to our revolver. These divested entities contributed approximately $56 million in revenue in 2022 and approximately $20 million in revenue prior to divestiture in 2023. On slide 11, we have removed the divested revenue from our 2022 baseline revenue. The divestitures generated a nominal amount of adjusted EBITDA in 2022 and we're expected to contribute approximately $5 million in adjusted EBITDA in 2023, with a planned improvement in the second half of 2023. The majority of the anticipated $5 million reduction in adjusted EBITDA is expected to be offset by lower interest expense to using divestiture proceeds to pay town debt. Additionally, as of June 30th, we approved plans to divest our dental recycling business in the Netherlands, which was sold earlier this week, and our secure information destruction joint ventures in the United Arab Emirates. which is expected to close in the third quarter, resulting in second quarter pre-tax charges of $1.5 million. The dental recycling business contributed approximately $2 million in revenue in 2022 and nominal adjusted EBITDA while the joint venture is accounted for as an equity investment. Our results for the first six months of the year were aligned with our full year 2023 guidance as shown in slide 11. Our guidance ranges remain the same. As we look to complete construction on the new incinerator in Nevada, which is about a third of our plan 2024 capital expenditures, we may pull forward cash outlays from 2024 into the fourth quarter of 2023 based on timing of equipment deliveries. If this occurs, we anticipate that it would put us in the higher end of our 2023 capital expenditure guidance range of 125 to 145 million. which we anticipate would have a minimal impact in overall free cash flow due to projected working capital improvements. Regarding our free cash flow guidance, it excludes other adjusted litigation items, which we anticipate may be paid in the third and fourth quarters. If paid this year, they would reduce free cash flow by approximately $25 to $30 million. I will now turn the call back to Cindy.

Thank you, Janet. The second quarter continues to highlight the strength of our team's ability to execute against our key business priorities while maintaining our ability to achieve our full-year guidance. Our team is excited to build on our momentum of our key business priorities as we look forward to the deployment of the ERP to our U.S. regulated waste and compliance services business in the third quarter. As always, I'd like to thank our customers, team members in the communities we serve, and our shareholders for their continued trust in having Stericycle protect what matters. Operator, please open the line for Q&A.

Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you choose to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your phone is muted locally. Please note, we will take one question and one follow-up. If you wish to ask another question, please rejoin the queue. Our first question today goes to Sean Dodge of RBC Capital Markets. Sean, please go ahead. Your line is open.

Yep, thanks. Good morning and congratulations on the great progress with the leverage ratio. Thanks, John. I want to start on the ERP, Cindy. Yeah, you said you expect to have the U.S. regulated waste systems all transitioned over by it sounds like September. If we think about the potential for disruption to the business from this, if all this goes well, by the time we get to October, or the big risks with that pretty much behind you at that point?

Yeah, I think it's very insightful, Sean. A couple of things that we will have when we get ready to share an update in October. We will have gone through a billing cycle or more. We'll be able to do some comparisons to make sure that we're on track in terms of trends and any of the data that we can analyze. So I think those are very big ones. And then I think after that, you still have the nuances of, you know, how's it going with all the handhelds out in the operations? And how are all the scales transmitting all the material and the data that we need to keep track of for regulatory and compliance reasons. So there's a myriad of things. I just mentioned, you know, two kind of very simple buckets. But I think we're going to get a really good feel because what you talked about was disruption. And in terms of disruption, automatically we're going to look at making sure, number one, are we servicing customers when we should be? Are customers taken care of? And then number three is, is the revenue flowing through and are we seeing it in terms of our billing process? So I think that Q3 report will be able to give some pretty good insight.

Okay, great. And then on the margins and all the pricing action you all have taken over the last couple of years, the service recovery fee, the shifting of the SOP table, Are those all now fully reflected in what we're seeing here in Q2, or are there more levers you're pulling or some leg benefits still out there from these? I guess as we think about margins into the back half of the year, is there any more lift you expect to get from these pricing actions on a sequential basis?

I think the lift that we've gotten is pretty much at steady state. I think we would look to provide additional lift if we saw conditions worsen, if anything else had happened. I think we are seeing some relief in portions of the business where costs are becoming more, I want to say, normalized. However, as we called out in an area like fleet, we are still seeing cost pressures being up with reference to maintenance, vehicle repairs. When we return any of our rental vehicles, the fees for returning some of those vehicles have been increased quite a bit. So for us, I think we stayed pretty close to it. I don't foresee anything else that would be added in terms of any changes. However, all of those are dictated by what we see in the marketplace. And I know Fed just raised yesterday. So, you know, we'll see if that drives anything else. Just as a latest update, Shawn, just so you know, the last time we changed the SCARF fee, the regulated waste fee, was in October of last year. And then the last adjustment that we've made on the recycling surcharge was March of this year, just as a reference point for moving forward. But I don't see anything else at this time.

Thank you. And the next question goes to David Manthe of Fed. David, please go ahead. Your line is open.

Yeah, thank you. Good morning. Good morning. First question related to the question that was just asked. After the inefficiencies that you experienced with the SID ERP rollout, have you factored in any type of disruption or inefficiencies or anything in RWCS in the current 2023 guidance that you've given us?

Yeah, so thank you for the question, David. The guidance that we put out for the year reflected that we were going to go through this. And so that meant that we weren't going to be able to drive significant productivity improvements in the second half of the year as RWCS, in the RWCS space, as they will actually be taken off for training. They're actually doing that now. and that will ramp up in this quarter for the go-live. Secure information destruction will continue to drive operational efficiencies, but that will be offset by what we plan for just this productivity, if you will, from putting an ERP in. And I think you can see that our guidance and outlook for the year is pretty reasonable, and that is reflected in the sales growth as well. So the short answer is yes, we plan for some of that.

Okay. Thank you for that. And then, Janet, further, based on the free cash flow guidance you've given us in the past and you sort of given us some thoughts around the magnitude of operating margin improvement that you ultimately might expect in the business, can you give us an idea of what you might be thinking about in year one after this? You come out the other side. And, again, based on the opportunity that you see out there, blue sky, in addition to the experience that you had and sort of the cadence of improvement coming out of the SID improvement trajectory after you implemented the ERP there. Any thoughts you can give us on that?

Yeah, so we still remain committed to our long-term guidance, which included the 13 to 70% adjusted, you know, EPS improvement that we adjust and, you know, that is reflected in improved margin improvement. And what will happen is Secure Information Destruction continues to get some momentum into next year as they continue to find opportunities through using the platform to generate productivity improvements from fleet to route to idle time to all the measures that we can see. While RWCS will learn the platform and then it will start probably towards the second half of the year to be able to leverage it. So the advantage of sequencing the two businesses is one can keep moving and driving on the improvements while the other is taking on the new work and learning it and then can move into driving improvement.

Thank you. Our next question goes to Scott Schneeberger of Oppenheimer. Scott, please go ahead. Your line is open.

Thanks very much. And then I'll echo the congratulations on reducing the the financial leverage. You mentioned, I think it was Netherlands and the United Emirates divestitures in the quarter. Could you just give us an update on where you are on the portfolio optimization process? It seems like you're announcing a few each quarter now. They don't sound too material in size, but I'm just curious how much more meaningful proceeds perhaps can be derived there. Thanks.

Yeah, this is Scott. Great question. Portfolio optimization remains one of our key priorities. I think we've got about 17, well, the dental business will be 18 divestitures in the last little bit. The joint venture in the UAE will be, if you will, 19, although certainly different than the others because it's a joint venture. But in essence, kind of pulling out of business, pulling out of operations, But along that same time period, we've had an acquisition too. So for us, I think if you take a look at the discipline that we've had fiscally in terms of improving the balance sheet, if you take a look at the position that we're in in terms of overall debt, I think portfolio optimization for us continues to be looking at markets, where we believe we have the opportunity to grow at the margins that we believe a company of our size and the value that we can bring would be meaningful. So I think the long answer that I gave you is really in portfolio optimization, we continue to look from a divestiture perspective as well as a potential acquisition perspective as we've done before, and we'll see where that leads.

Thanks. Appreciate that.

Thank you. And the next question goes to Toby Starmer of Truist Securities. Toby, please go ahead. Your line is open.

Yeah, good morning. This is Jack Wilson on for Toby Summer. Thank you for taking my question. Can you give me a little more color around sort of the organic revenue decline in secure information destruction?

Sure. I think, you know, one of the things that I think we need to really take a look at is I like to look at secure information more in terms of a first half of the year versus a last year first half of the year, simply because things, I think, have the potential to get skewed. Last year first half, it was early 2022, record inflation, driver shortages, supply chain issues, And we were still dealing, believe it or not, with Omicron with 14-day quarantines if anybody was exposed to anybody that had COVID. And if you recall, Q1 of last year was probably one of the most difficult operating quarters we've ever had. And when you take a transactional business that says, you only get paid if you actually make a stop. You've got some difficulties there when you're already in a driver shortage to begin with, and then you have a lot of drivers out based off of different CDC rules. So as a result, Q1 of this year, Shred saw our secure information destruction business in North America grew 13.4% over the prior year. So as you can see, that was a pretty big number. What ended up happening and what we believe is we then accelerated, started to get drivers back, put drivers in seats, had ramp up time to get drivers ready to go, and we made up for an awful lot of those stops in Q2 of last year. So what we're seeing right now is the overall comparison this quarter versus last quarter. You know, we are showing in North America, you know, a decline, a modest decline of 1.6%, but I think it's just coming off of that comparison. So our ability to reaffirm guidance this year believes that the fundamentals of what we're seeing in the shred business still continues to be what we think is good. So for us, it's not a quarter story. We're continuing to monitor the overall business, and we like the position that we're in.

I just would add that we also have the dynamic of a fuel surcharge that is mostly in the shredded business, and as fuel costs came down, it worked as it should, and that index came down at revenue. But cost came down in the core business as well, and our cost of revenue. So it sort of did what it was supposed to do at the EBIT level and we're still okay. So that's a top line dynamic that doesn't filter down to the bottom line.

Thank you. Thank you. As a reminder, if you would like to ask a question, please press star, followed by one on your telephone keypad. We will take one question and one follow-up. If you wish to ask another question, please rejoin the queue. Our next question goes to Brian Butler of Stifle. Brian, please go ahead. Your line is open.

Hi, good morning. Thanks for taking my question. Yeah, good morning, Brian. First question, just on the secure information destruction business, did the stops increase, and are you seeing a meaningful shift between on-site shred versus off-site?

Yeah, I think on-site versus off-site, we've been making steady progress, and I think it's pretty much been not as much. We made more progress earlier than where we are right now in terms of when we purchased the business back in 2015, there was a tremendous amount of shredding on a customer site, which is very difficult, specialized vehicles, a lot of vehicle issues, high maintenance, with not as much being brought back to facilities. Over the course of the last several years, there's been a marked effort to now the majority of the volume that we pick up is processed back in our facilities as opposed to with the specialized vehicles on site. So for me, I think we're in a really good position there. We constantly look to improve that, but I think that's a real good dynamic for us. And in reference, in terms of stops, just remember, you know, we continue to win new business. We continue to drive our sales efforts in that space. And I think, unfortunately, we've got two quarters with different dynamics in a transactional business for some odd comparisons. But I think overall, we take a look internally at where we are for stops. And I think I think in terms of how we are trending towards our plan and how that plan fits into our 3% to 5% growth, organic revenue growth for the company, we're reaffirming guidance, which means we believe we're on track.

Okay. And then shifting back to the ERP, can you remind us what the duplicative IT costs are? Is there any more costs to be eliminated once the ERP, you know, is fully rolled out? And how does that, I guess, flow through the business over the next, whether that be six or 12 months?

Yes, you're right. We are maintaining and we put into full operation, which was about 50 to 60 million of costs that flipped into our normal operating expenses in August of 2021 for the new system while maintaining the legacy system, which RWCS is on globally. And that costs around 20 to 30 million of legacy costs in IT and some other related areas. That is the cost that has the opportunity to go away once we're fully deployed, but we also need to modernize international before we can achieve that. So we're well on our path for that, and we have started to work on the international space, but it needs to come off globally before we can really turn that legacy system off. And that is factored in. to our long-term guidance as we thought through on the savings that we will achieve on IT costs.

Thank you. And we have a follow-up question from Scott Schneeberger of Oppenheimer. Scott, please go ahead. Your line is open.

Thanks very much. Cindy, with, you know, fleet costs being an issue here, and I wanted to hone in on the use of rentals a little bit. What percent of vehicles are you, it sounds like you're fleeting up a bit and fleet modernizing, but use of rentals, where are you now as maybe a percent of your fleet and usage on a given day? And where are you looking to take that as a goal? Thanks.

Yeah, that's pretty keen, a good insight, Scott. So for us, we've been in the rental business. I think most... most of last year second half of last year we talked an awful lot about the supply chain being far behind and the actual receiving of our vehicle requests really being delayed so as a result you want to continue you continue to grow you continue to see organic growth you've got to be able to service your customers and you know rentals not just of of tractors but then also trailers you've got to rent in order for that growth in terms of your ability to hold on to your trailers and a lot of the other power units. So since the beginning of this year, we've really been modeling an opportunity as vehicles and the fleet orders have started to come in. We've been, this year, going on some pretty massive vehicle returns, so returning those rentals that we have. And what we have seen are some pretty exponentially high return costs for each vehicle. It used to be a set amount that was quite reasonable, and in some instances we've seen it be 200% more in terms of an increase. So as you return more, which is a good thing because you're going to get a new vehicle order come in, you're going to have a vehicle that's more modernized and it's better equipped and designed for the job that our frontline drivers do, However, you do take a hit in terms of the rental. So your question is, how many do we have? I can tell you by the end of summer, we're estimating to have eighty percent of our fleet order completed. Now that's a much better position than we've been in quite some time. We've been waiting on quite a few vehicles. So for us, I think we're winding down the last bit of our rental returns on the trailers as well as on the power equipment. But I think the overall fleet strategy, Sean, I think, or I'm sorry, Scott, the overall strategy that we have is we eventually want to even get out of the leasing business. Because right now, we've talked before about our fleet strategy has been leasing. I think a longer term push for us will be to a point where We continue to be fiscally responsible, have some strength in our balance sheet. We're looking for reasons to invest as we continue to generate cash. I think our long-term momentum to be able to start to buy some of the fleet and buy the trailers so that we can really take advantage of that on our balance sheet, I think that's the future of where we'd like to get to.

Thanks very much.

Thanks, Scott.

Thank you. And we have a follow-up from Jack Wilson of Truist Securities. Jack, please go ahead. Your line is open.

Yeah, thanks so much. So can we just maybe walk through a little bit of the moving parts of achieving full-year EPS guidance with sort of the ERP system and new fleet dynamics?

We have a fairly stable year, but if you look at where we delivered the first half, it kind of is in line with the first half guidance. You know, if you split the guidance in two and the second half is kind of in the same boat, you will probably see some uptick in the fourth quarter just as we get through the ERP and we, you know, continue to drive productivity and shred. But we are going into an ERP, so the precision of being able to do a quarterly precision on what's going to happen is a little tougher, but we're really confident in the second year and the guidance for the full year that we put out.

Thank you.

Thank you. We have no further questions. I'll now hand back to Cindy for any closing comments.

Thank you, Nadia. So for everyone listening to the call, I just want to share that we, as always, we appreciate your interest in StairCycle and your shared excitement in our future. So thank you very much. We'll talk to you all soon.

Thank you. This now concludes today's call. Thank you all for joining us on our Disconnect Your Line.