Stericycle, Inc.

Thank you for standing by. Welcome to the fourth quarter 2023 StarCycle earnings conference call. At this time, our participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during a session, you will need to press star 101 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 101 again. Please be advised that today's conference has been recorded. I would now like to hand the conference over to your first speaker today, Andrew Ellis, Senior Vice President of Finance. Please go ahead.

Good morning, and thank you for joining StarCycle's 2023 fourth quarter earnings call. On the call today will be Cindy Miller, our Chief Executive Officer, Janet Zelenka, our Chief Financial Officer and Chief Information Officer, and Corey White, our Chief Commercial Officer. The discussion today includes forward-looking statements that involve risks and uncertainties. When we use words such as believes, expects, anticipates, estimates, may, plan, will, goal, or similar expressions, we are making forward-looking statements. Forward-looking statements are prospective in nature and are not based on historical facts, but rather on current expectations and projections of our management about future events and are therefore subject to risks and uncertainties. Our actual results could differ significantly from those described in such forward-looking statements. Factors that could cause our actual results to differ are discussed in the Safe Harbor Statement in our earnings press release and in greater detail within the risk factors 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 StairCycle's investor relations website at .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 28, 2024. Replay information is available in the event section on StairCycle's investor relations website. Time-sensitive information provided during today's call, which is occurring on February 28, 2024, may no longer be accurate at the time of a replay. Any redistribution, retransmission, or rebroadcast of this call in any form without the expressed 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 for their dedication to our customers and their great work throughout the year. Their commitment has been instrumental in our successful performance across all of our key business priorities. Over the last five years, this dedication has allowed us to make tremendous progress as illustrated on slide 11. On today's call, in addition to unpacking the results for the quarter and this year, we will also unveil our next generation of key business priorities, which are focused on the next phase of growth for the company, building on the foundation we have established. I am pleased to share that our fourth quarter results were generally in line with our expectations. Our quarterly results included regulated waste and compliance services organic revenue growth of 3.1%, expanded gross margin by 150 basis points. We are seeing the benefits of cost savings from productivity initiatives that supported a sequential quarterly improvement in adjusted EBITDA margin of 220 basis points, debt leverage ratio of 2.85 times, and portfolio optimization progress with the divestiture of our business in Romania. Throughout 2023, we continued to focus on our five key business priorities. I will start with a recap of our accomplishments, beginning with the successful deployment of the ERP to our U.S. regulated waste and compliance services business in September. In Europe, we made upgrades and enhancements to the secure information destruction technology and made meaningful progress planning for our regulated waste and compliance services system transformation, which kicked off in earnest with our international team members last month. I will now provide a brief recap of our quality of revenue achievements in 2023 across three key areas, expanding service penetration, improving customer implementation velocity, and deepening customer partnerships by developing enhanced customer solutions. We expanded our service penetration by launching cross-selling capabilities for our regulated waste and compliance services and secure information destruction sales team members in the U.S. We also expanded secure information destruction partnerships with large healthcare group purchasing organizations, which we expect will accelerate our ability to cross-sell and better penetrate the markets we serve. With regards to improving customer implementation velocity, we improved the speed to revenue by cutting in half the amount of time it takes to close a deal and begin servicing and providing value to our complex hospital customers sooner. Throughout 2023, we strengthened our customer partnerships by conducting customer-focused workshops throughout North America. These sessions generated excitement for our enhanced compliance services and award-winning solutions. Our most recent customer loyalty scores reflect the high level of value our customers receive from our services. Additionally, in support of our U.S. regulated waste and compliance services ERP deployment in September, the commercial organization was focused on supporting our customers through the system transition. In the second quarter of last year, we achieved our goal of reducing our debt leverage below three times and have continued to maintain our debt leverage target. We have come a long way since 2019, having improved our leverage over one and a half turns and reducing our debt by over one and a half billion dollars. Portfolio optimization has been a major contributor to streamlining the company and our debt reduction since 2019, as we have completed 19 divestitures and exited 10 countries. In 2023 alone, we divested eight businesses and exited six countries. This helps simplify our business and will allow us to better focus our efforts on driving operational and financial performance in our core services and key markets. Turning to operational efficiency, modernization, and innovation. In 2023, we completed over 20 infrastructure upgrades, including installing five new autoclaves, six new conveyance systems, two new shredders, and an upgraded wastewater treatment plant at one of our North America incinerator facilities. In the fourth quarter, we successfully expanded an Ohio facility to handle future medical waste growth. Since 2019, we have introduced improvements to more than half of our waste processing and facilities in North America, including installing more than 25 new autoclaves, six new boilers, and refurbishing more than 20 additional autoclaves and boilers. We have also reduced the average age of our North America fleet to less than four years since 2020, as we've continued to focus on modernizing our powered and non-powered units. Our engineering and operations teams have been focused on the construction of our newest incinerator facility in McCarran, Nevada. In November, we successfully installed foundational equipment, including the incinerators and boilers. We remain on track to complete the construction phase of the project in the first half of 2024. After construction is complete, we anticipate moving into the testing phase, which includes regulatory review. Once testing is successfully completed, we expect to ramp up the processing of waste with a target to achieve full production in mid-2025. Leveraging our transformed foundation as a springboard, we are positioned for growth and excited to introduce our next generation of key business priorities. These are, one, commercial and service excellence, two, operational excellence, three, digital implementation, and four, strategic capital allocation. I will turn it over to Corey to share his thoughts on our commercial and service excellence key business priority, and then I'll talk further about our other key priorities.

Thank you, Cindy. Our commercial and service excellence key business priority is focused on driving profitable revenue growth, delivering a differentiated value proposition, and creating a seamless customer experience. This includes enhancing sales, service, and product excellence to win, retain, and grow strong customer relationships. Through our sales excellence initiative, we continue to focus on our market to quote capabilities, including quality of revenue, digital marketing, e-commerce, and contract management. Utilizing the ERP, we expect to further enhance sales excellence by gaining greater insights into sales opportunities, driving pricing intelligence, expanding market presence, and enhancing sales productivity. Service excellence is focused on delivering a seamless service experience through all phases of our customer lifecycle, which includes, one, making it easier for customers to manage their accounts through improved digital touch points with our enhanced online customer portal, including real-time waste tracking, trending benchmarking and sustainability reporting, accessing compliance training, requesting new services, making service changes, and visibility to invoices. Two, enhancing our experience by leveraging ERP-enabled tools to solve issues on first contact. Three, utilizing modern routing and tracking technology and field operations to ensure on-time waste collection and container management. This initiative is expected to strengthen customer relationships and further enhance our value proposition. Finally, product excellence focuses on developing and launching enhanced solutions that deepen our customer partnerships, support our customer safety and sustainability goals, and promote further adoption of existing products and product innovation. We continue to commercialize innovative solutions and products that drive additional revenue opportunities while fulfilling our purpose to protect the health and well-being of healthcare organizations, commercial businesses, and communities we serve. I'll now turn the call back to Cindy to provide an overview of the remaining three key business priorities.

Thank you, Corey. Turning to operational excellence, this second key business priority is focused on driving margin expansion and cash flow improvement by leveraging the following. The skills and dedicated workforce focused on safety, service, savings, and sustainability, modern technologies, new and updated equipment and infrastructure, and a modernized fleet. In 2024, we expect workforce management in our retained businesses to drive approximately $40 to $45 million in savings. This reflects an approximate 6% -over-year structural reduction in our workforce. Of the $40 to $45 million savings, approximately $8 million in savings is expected to come from the reduction in force we announced on our third quarter call. This reduction took place in October and resulted in approximately $3 million of severance. Over $20 million in additional savings is expected to come from the targeted reduction in force that is occurring in the first quarter of 2024 with an estimated $5 to $7 million in severance that we anticipate occurring in the first quarter. The balance of the cost savings is expected to come from continued careful hiring and attrition that began in 2023. On our new digital implementation priority, we are beginning to strategically explore our next generation of capabilities using the foundation of our modern ERP system. We anticipate that digital, data, and AI capabilities will help us to further deliver commercial and service excellence and efficiencies across our network and shared services. The fourth and final of our next generation key business priorities is strategic capital allocation, which has the following foundational elements. A targeted debt leverage ratio between two and a half and three times. Investment in the business to maintain and modernize our infrastructure to drive growth and efficiencies. Portfolio optimization, including accretive tuck-in acquisitions, using a disciplined acquisition and integration playbook, and consideration of the potential for share repurchases. Consistent with this strategic capital allocation priority, in January, we successfully completed the acquisition of a southeastern U.S. regulated medical waste company. In 2024, this business is expected to generate approximately $4 million in revenue. We expect to integrate this acquisition into our new ERP technology platform in the second half of 2024. We are proud of the transformation journey we have been on, and we are excited about the next generation of priorities we have outlined. We look forward to updating you on our progress on future calls. 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 five, revenues in the fourth quarter of 2022, excluding the impact of divestitures of $28.6 million and favorable foreign exchange rates of $5 million, organic revenues increased $5.2 million. Organic revenues and regulated waste and compliance services grew $13.2 million, while secure information destruction organic revenues declined $8 million. Secure information destruction was impacted by lower commodity index revenues due to lower recycling revenues and lower fuel and environmental surcharges of $18 million, partially upset by higher service revenues of $10 million. As noted on slide six, regulated waste and compliance services revenues were $439.9 million compared to $449.3 million in the fourth quarter of 2022. Excluding the impact of foreign exchange rates and divestitures, organic revenues for regulated waste and compliance services increased 3.1 percent. North America regulated waste and compliance services organic revenues grew $10.1 or 2.8 percent, mainly driven by our three pricing levers, which include pricing in existing contracts, new customer pricing, and surcharges and fees. International regulated waste and compliance services were $2.1 million or 5.1 percent in the fourth quarter, mainly driven by pricing. Secure information destruction revenues were $212.1 million compared to $221.1 million in the fourth quarter of 2022. Excluding the impact of divestitures and foreign exchange rates, organic revenues for secure information destruction declined 3.6 percent, mainly due to lower commodity index revenues reflecting more than a $100 reduction in sorted office paper pricing per ton, year over year, and lower fuel and environmental surcharges. In North America, secure information destruction organic revenues decreased $5.9 million or 3 percent compared to the fourth quarter of 2022. Recycling paper revenues in the fourth quarter of 2023 contributed approximately 5.9 percent of the decline or $11.5 million due to lower sorted office paper pricing and lower tonnage. Service revenues contributed approximately 2.9 percent of growth or $5.6 million due to pricing, partially upset by lower fuel and environmental surcharges. Approximately 50 percent of the lower sorted office paper recycling revenue was offset by a recycling recovery surcharge, which is reflected in service revenue. As a reminder, on the third quarter call, we discussed that some national customers were reducing their store footprint, which led to a contraction in their related service stops. This contraction continued at a slower pace in the fourth quarter. In international, secure information destruction organic revenues decreased $2.1 million or 8.4 percent compared to the fourth quarter of 2022, mainly due to lower recycling revenues and fuel and environmental surcharges. Income from operations in the fourth quarter was $37.1 million compared to $59.1 million in the fourth quarter of last year. The $22 million decrease was mainly due to the following. A gain on a divestiture in 2022 of $15.6 million, lower secure information destruction commodity index revenue margin flow through of $10.2 million, higher bad debt expense of $8.1 million, mainly due to a lower fourth quarter of 2022 bad debt expense level as a result of improved North America secure information destruction collections, and higher incentive and stock-based compensation expense of $7.1 million in 2023. These items were partially offset by margin flow through of $18.9 million, including cost savings from productivity initiatives. Net income was $14.9 million or $0.16 diluted earnings per share compared to $31.8 million or $0.35 diluted earnings per share in the fourth quarter of last year. The difference was mainly related to lower income from operations of $22 million. Cash flow from operations for the year ending December 31, 2023 was $243.3 million compared to $200.2 million for 2022. As shown on slide 8, the -over-year increase of $43.1 million was mainly driven by lower FCPA settlement payments of $72.8 million and lower annual incentive compensation payments of $22.3 million, which were partially offset by accounts receivables net of deferred revenues of $68.5 million. Adjusted income from operations was $84.5 million or 13% as a percentage of revenues compared to $90.6 million or .5% as a percentage of revenues in the fourth quarter of last year. Adjusted income from operations decreased 50 basis points, mainly driven by lower secure information destruction commodity index revenue margin flow through of 160 basis points, higher bad debt expense of 120 basis points, and higher incentive and stack-based compensation of 110 basis points. These were partially offset by margin flow through of 340 basis points, including cost savings from productivity initiatives and margin expansion through portfolio optimization. Adjusted diluted earnings per share was $0.54 compared to $0.60 in the fourth quarter of 2022. As illustrated on the bridge on slide 9, the $0.06 -over-year decrease was driven by $0.09 from lower secure information destruction commodity index revenue flow through, $0.07 from higher bad debt expense, and $0.06 from higher incentive compensation. These were partially offset by $0.16 of margin flow through. Capital expenditures for 2023 were $131.3 million compared to $132.2 million for 2022. Free cash flow for 2023 was $112 million compared to $68 million in 2022. As noted on slide 8, the -over-year increase of $44 million was mainly driven by higher operating cash of $43.1 million. After considering 2023 adjusted litigation and severance payments, free cash flow excluding these two items was $138.5 million, which is approximately $30 million below our 2023 free cash flow guidance range of $170 to $190 million. This difference is mainly driven by the timing of U.S. regulated waste customer billings due to the ERP implementation, as we are holding and reworking some invoices for our largest customers to ensure accuracy. Turning to the full year 2023 results in slide 14, revenues were $2.66 billion compared to $2.7 billion in 2022. Excluding the impact of the vestiges of $101.6 million and unfavorable foreign exchange rates of $0.1 million, organic revenues increased 56.3 million or 2.2%. When 2023 and 2022 results are normalized to exclude the revenues from divested businesses, revenues were approximately $2.63 billion in 2023 compared to $2.57 billion in 2022. Regulated waste and compliance services organic revenue growth was $71.9 million, while secure information destruction organic revenues declined $15.6 million. Secure information destruction was impacted by lower commodity index revenues of almost $50 million due to lower recycling revenues and lower fuel and environmental surcharges. When considering secure information destruction's organic revenue growth over a two-year compounded annual growth rate, it grew .6% since 2021. Income from operations for the year ended December 31, 2023, with $77.3 million compared to $153.7 million in 2022. The $76.4 million decline was mainly due to change in divestiture net losses of $79 million, higher incentive compensation and timing of stock-based compensation of $22.7 million, lower secure information destruction and commodity index revenues and the corresponding margin flow-through impact of $18.5 million, and fleet costs of $10.5 million. These were partially upset by margin flow-through of $41.2 million, mainly from cost savings from productivity initiatives and lower bad debt expense of $7.1 million. Net loss for 2023 was $21.4 million, or $0.23 diluted loss per share, compared with net income of $56 million, or $0.61 diluted earnings per share in 2022. The difference was mainly related to lower income from operations of $76.4 million as previously discussed. Adjusted EBITDA was $420 million in 2023 compared to $432.2 million in 2022. The $12.2 million decline was mainly due to inflationary and supply chain costs of $25.5 million, higher incentive compensation and timing of stock-based compensation of $22.7 million, and lower secure information destruction commodity index revenues and the corresponding margin flow-through impact of $18.5 million. These were partially upset by margin flow-through of $51.1 million and lower bad debt expense of $7.1 million. In 2023, divested businesses generated a nominal amount of adjusted EBITDA. When 2023 results are normalized to exclude results from divested businesses, 2023 adjusted EBITDA would still have been approximately $420 million. Adjusted diluted earnings per share was $1.89 in 2023 compared to $2.04 in 2022. As illustrated on the bridge on slide 17, excluding the impact from foreign exchange rates and divestitures of $0.04, the remaining $0.11 -over-year decrease was driven by $0.19 from higher incentive and stock-based compensation, $0.15 from lower secure information destruction commodity index revenues, $0.09 from higher fleet costs, and $0.08 mainly from higher taxes. These were partially upset by $0.34 from margin flow-through and $0.06 from lower bad debt expense. I will now turn to our 2024 guidance, which includes forward-looking statements as contemplated in our Safe Harbor statement as referenced at the opening of this call. Our guidance is shown on slide 18 and is as follows. One, we expect to grow organic revenues 3 to 5% on a normalized revenue base of $2.63 billion. Two, we expect adjusted earnings per share of $2.20 to $2.50. This assumes approximately a 14% growth in adjusted EBITDA on a 2023 normalized adjusted EBITDA base of $420 million. As shown on slide 19, this margin growth rate anticipates revenue margin flow-through of approximately 4%, cost of revenue efficiencies and cost reductions of approximately 9%, mainly driven by our workforce management actions and operational initiatives, and selling general and administrative efficiencies and cost reductions of approximately 4%, mainly driven by our workforce management actions. These are expected to be partially upset by commodity impacts of 3%, mainly associated with sorted office paper pricing, which assumes a range of $125 to $140 a ton and fuel estimates for 2024 from the U.S. Energy Information Administration. Compared to last year, we anticipate that the first half of 2024 will have a more challenging paper pricing -over-year variance as the sorted office paper price per ton was above $200 on average for the first quarter of 2023 and above $185 on average for the second quarter of 2023. And the second half of 2023 pricing returned to the historical average range. Three, as noted on slide 20, we expect to generate free cash flow of $210 to $265 million, excluding additional interest payments due to redeeming the $600 million bond with proceeds from the revolver and severance payments. Excluding these two cash outlays, we anticipate an adjusted EBITDA to free cash flow conversion rate of 44 to 55% in 2024. Severance payments in 2024 are expected to be approximately $5 to $7 million. The additional in-year interest cash payments from redeeming the bond and higher interest rates are expected to be $14 to $19 million. When we redeem the bond, interest payments will shift from being semi-annual bond payments to monthly revolver interest cash payments. And four, we expect capital expenditures of $140 to $160 million. Regarding the timing of free cash flow generation through 2024, we anticipate the first quarter to be a use of cash as it includes our annual incentive compensation payouts, the semi-annual debt interest payments, and the timing of accounts receivable collections. Because of the heavier utilization of cash in the first quarter, we anticipate that our first quarter debt leverage ratio will be above three times and then is anticipated to return to our debt leverage ratio range of two and a half to three times in 2024. I will now turn the call back to Cindy.

Thank you, Janet. Our focus on ESG and sustainability is an ongoing pursuit, which we actively incorporate into our everyday practices and into our strategic business plans. In early February, we received our grade from CDP, and I'm excited to share that we achieved a B score, our highest rating since we began filing with the CDP three years ago. This follows on the heels of four recent awards on diversity and sustainability that recognize the continued maturation of our organization. With that, I'd like to thank our customers, team members, the communities we serve, and our shareholders for their continued trust in having Stereocycle protect what matters. Operator, please open the line for Q&A.

Thank you. At this time, we will conduct a question and answer session. As a reminder to ask a question, you will need to press star 101 on your telephone and wait for a name to be announced. Please limit yourself to one question and one follow-up. And to withdraw your question, please press star 101 again. Please stand by. We'll compile the Q&A roster.

One moment for our first question.

Our

first question will

come from the line of Sean Dodge from RBC Capital Markets. Your line is open.

Thanks.

Congratulations on the strong finish to the year. On the guidance and specifically on the bridge, I think super helpful that you all provided this, so thank you for that. On the cost of revenue efficiency, it looks like half of that is driven by workforce reductions and half from operational strategic initiatives. Cindy, you mentioned a lot of things in your prepared remarks. Can you give us a couple of examples of what the operational strategic initiatives are, what's new for 2024, and what are those expected to contribute?

Yeah. I think, Sean, thanks for the question. And we did try to quite thorough with the bridges. We know there's always a lot of moving parts and want to make sure that we make it as easy as we can. Yeah, you're right. As we're moving into 2024, we're now driving into the efficiencies. We're pivoting from the transformation phase and I think really moving into now delivering on plans, executing the plans, doing the things we need to do. If you'll recall, now Shred's been on from an operational perspective, they've been on the ERP platform for quite some time and right now we really are gaining efficiencies there. We've got a workforce that's familiar with the handhelds. We've got dispatchers that are very familiar with dispatching, routing, and really making some gains. And what we're going to lean into for 2024 is you'll recall we just put the regulated side of the business on the ERP in Q4 of last year. And they're starting to develop a similar rhythm. Not quite as advanced. Certainly, we're still working through some things. But you did catch on that whole riff piece. We took a reduction in force this quarter and we are going to lean into some of those efficiencies that I just talked about in the second half. The other thing, Sean, is when you talk about the amount of facilities and upgrades and equipment and modernization that we've done just in the work environments in which our people work, as you lean into those things, whether it's conveyance, whether it's resetting a building in terms of making work flow better, when you do those things along with standardizing some of the containers and a lot of the things that we do, those are the productivity initiatives that we're leaning into. So some are new, some are a continuation, and I think just that along with the improved routing capabilities and some of the things we have, those are the things that are really driving our ability to improve margin. Thanks for that question.

Okay, great. And then just quickly on SID, Janet, you said that the service stop rationalization had slowed in the fourth quarter. Are you seeing any evidence that it continued into this year? Has it stabilized? Is it continuing to taper? And it's still only the national accounts where you're seeing that or have you seen that in other parts of your base as well?

Yeah, Sean, I'll start. Thanks for that question. If, Janet, is there anything else you'd like to add? I think we're very proud of our shred side of the business to have faced the level, the headwind of a difference of $100 a ton pretty much for the year, certainly for the second half of the year. To have faced that and still continued to have the opportunity to service our customers, there still is demand for the service. I think what speaks volumes for us is we like to talk about the fact that if you look at the actual growth of the business over the last two years, so since 2021 and 2022 in comparison with 2023, we've seen a 6.6 year over year over that two-year comparison growth. And for me, that speaks that there's still demand for the business and you are correct. We are seeing it is the national footprint. It is that retail space. Anytime you take those big customers and they reduce, I'll just throw out an average number. Isn't a specific. But if you go from having 8,000 stores that get serviced either every week or every other week and now you reduce them to 6,000 and you take a few of those types of retail spaces that see that contraction, we feel that. We've not lost customers. As a matter of fact, we continue to grow with customers, but we feel it in terms of both the stop, the service fee, as well as the paper that wasn't generated. So we're still very, very positive about the shred side of the business, especially with their efficiencies, how they're getting better, how they're adapting and learning from data. So they play a very integral role in our continued growth. Thanks for that question.

Thank you. One moment for our next question. Our next question comes from Dave from Bayard. The line is open.

Thank you. Good morning, everyone. My first question is regarding the next generation key business priorities as you outline them, Cindy. They seem to all pretty much be centered around technology tools. Are there additional investments required for plugins to your ERP or does that functionality already exist within your instance of 4HANA?

Yeah, no, that's a great question, Dave. We're very excited about those. I think many of them do. It's now time to lean into the effort and energy and the money, quite frankly, that we invested in with our current ERP platform. So for us, I think if you were, as we look further into the digital implementation for us, right now I think commercial and service excellence and then the operational excellence, that's us taking us, diving into what we have and getting better at what we do. When you look at the digital implementation and we talk about where else can we deploy a more digital kind of streamlined engagement potentially with customers or some of these other things, or we look at AI, those are things that we're developing and looking at. But to your point, we don't see major technology investment required for harnessing any of that.

That's great to hear. Second, on the paper side, could you give us a figure for the tonnage in 2023 and what is your expectation for 2024? And as we're thinking about the typical formula there, which is, I think it used to be you experienced about 40% of the downside below 192 per ton, is that the same or have you moved the needle on that formula?

Yeah, I'll start with that one. The table is pretty much the same. Right now, the good news is, right now we're seeing paper in its 15-year average. It's anywhere from 140 to 160. It bounces in between there. As you know, you follow it, I think probably as closely, if not more so, than most, Dave, you and your team. So yeah, it's now rationalized and I think gotten far more stable in terms of predictability. So we are looking at that as kind of being a non-entity, but the sliding scale that we do have, that is the protection for it. And yes, you are correct. The scale has stayed the same with 192 being the top. And around that, I think the floor goes to 85 somewhere around in there. I'm not quite sure. I'd have to check on that on the floor for you. And then Janet, I think has got the stats for the tons of paper year over year. Yes, and we also

have that in the 10K, Dave. Thanks for being on the call today. After divestitures normalized, the tons were 453,000 versus 500,000 the year before or 9% tons of sorted office paper. So we did see some decline, non-unanticipated given the contraction of stops, which reflects the paper that we talked about in the nationals and some, and that I also wanted to point out in our guidance range for SOP pipe, we assume between $125 to $140 a ton. That seems to be a good run rate for what the business is doing today and is in the sweet spot of that recycling recovery charge range where it recovers about two-thirds of any fluctuation that we see. And the bottom end of the range of the index is around $77.

Thank you. One moment for our next question. Our next question will come from Michael E. Hoffman from Stiefel. Your line is open.

Good morning and thanks for taking the question. So on the opportunity to drive operating leverage at the gross margin

line,

you've talked a lot about this convergence of manual processes as a result of the ERP. So what you have shared with us, this initial 40 to 45 million, what percentage of that opportunity are we capturing?

So of the 40 to 45 million, that is the increase remain, over 20 million of that is due to the targeted workforce reduction. So say about 50% of it is on things that we've already taken in action. The rest of the margin improvement that we're referring to there is on efficiencies, route optimizations, all kinds of things we can leverage on a modernized fleet, modernized facilities and a modernized system.

So I did a bad job of asking the question. There's a certain amount of headcount that's been tied to doing manual processes. Are you done with this riff or is there more to come? That's what I was trying to get at. Sorry,

Michael. Yes, we had, if you recall, we had a smaller riff in October of last year. And then we are in the process of executing one right now in first quarter of this year. It'll be, it'll end up being about a 6% year over year reduction in headcount. And that's where we believe right now we are positioned to be able to drive growth and really focus on top line and, you know, equally if not more important, really driving bottom line opportunity. So that's, we don't foresee anything else.

Yeah. And we also leveraged attrition and careful hiring and will continue to do that through the year. But in terms of an action, as Cindy said, we don't anticipate any more this year.

Right. Okay. And then if I take the outlook, the combination of the three long-term outlook, the three to five on the top line, 13 to 17, the 50% are better in free cash. So how do I sort of put together this year's guidance into a couple of things? One is the top line mostly about price. Are we starting to get new customer ads, stop ads? Is the operating leverage that you're talking about, is it, how much can we expect incrementally from here from asset utilization, that sort of was talked about under the digital and the revised plan? And then the cash conversion is coming under the plan. So what has to happen to adjust the cash conversion?

Trying to pack four questions

into one, so I do two.

Yeah, no, that's fine, Michael. So I'm going to, for those listening, I'm going to go to slide 18, 19, and 20 on this. So the three to five percent is balanced. We expect volume and price to be part of our, and that's an organic revenue growth only. So it does not include the opportunity for tuck and acquisitions, nor the tuck and acquisition we mentioned on the call. So that's pure organic. In terms of the, so where we're getting the drivers of the about 14% adjusted EBITDA growth rate that underlines our adjusted EBITDA EPS range, it is what we talked about, largely within our control, with a significant amount already executed as we drive efficiencies, leveraging all the things I mentioned. The free cash flow, if you go to the slide 20 and you look at that, our adjusted free cash flow range is around 40 to 50% on a pure basis. However, when we were looking at the long-term range, we had not contemplated the severance payments, and it wouldn't normally do that. And we also have a shift in our interest rate payments due to the maturation of the bond and going to 12-month payments in the year versus the normal payments of the bonds. That is a one-time effect, so we thought we'd mention that as well. And then when you take those out, you're in about the 50% range on your free cash flow when you're looking at the normal operations of the business for 2024. I think I answered all your questions. Michael, if I didn't, go ahead and say one more thing, and then we'll go to the next person.

Thank you. And one moment for our next question. Our next question comes from Scott Schneeberger from Oppenheimer. Your line is open.

Thanks very much. Good morning. I'd like to start just following up on pricing. It sounds like, Janet, it's kind of the long-term guidance for revenue organically is half price, half volume. How is the pricing environment, particularly in the regulated waste segment? You have longer-term contracts. They roll off. You've been through an inflationary environment and still kind of on the tail end, it seems. How is your ability to be getting pricing now? It's kind of for both of you. Thanks.

Yeah. I think, Scott, great question. Good to hear from you. We have our ability to take price in the market according to market conditions. I think we've been doing a great job with that. We have been, you know, I think some of the commodity headwinds and a few other things, you know, may mask some of the gains that we've been making. But I think we're well positioned in the market. And right now, feedback from customers, let's say on the regulated side, with the new portal, with the changes and the abilities and the kind of visibility we've given them, there is an even greater level of, if you will, stickiness to some of the opportunities and the things that we can now do based on the fact that we're on a platform. So I think all of those things lend themselves to our ability to continue to lead in the marketplace, to bring value to our customers and to continue to come up with solutions that they need, if you will.

Thanks. Just a quick follow up on that and then one more. But on the pricing, with customers, how would you frame the competitive environment? Going back 8, 10 years ago, there was a bit of a shift where Stereocycle, you know, was adversely impacted by some enhanced competitive dynamics. How would you kind of categorize the industry now? You just mentioned in that last response, you're a leader, as we would expect, but just curious how it looks competitively out there. Thanks.

I think the one thing that stayed the same in both of our businesses is that the competition is still regional. So we've got some regional players that are a little stronger than on both the shred and the regulated waste size. And I think there are some where we've got some regions where we've got a stronger presence, you know, a bigger footprint where we can leverage ourselves a little better than others. And I think all of those things now in our understanding of that are really, it's really leading us now towards this potential tuck in acquisition opportunity where we can see more in depth in the areas where competition may or may not be there to whatever level and what's our ability to grow and to serve. So I think it's probably the same in terms of overall, it's still a regional competition. And it is different in every region. But I think we're well positioned to take advantage and to drive further growth both organically as well as with some very, very laser, very, very specific, very deliberate tuck in opportunities.

Thanks. And that's a great segue for my final question. It sounds like you have a propensity to start doing tuck ins a little bit more actively. I kind of want you to compare and contrast that by what remains with regard to divestiture, divestitures, which presumably what remains would still be international and obviously at the ERP implementation internationally this year. So tying that all together to make the question, would we see net acquisition or divestiture contribution or headwind in the guide this year? And how much is there left there on the divestiture end on international banks? Yeah,

Scott, I think the good news there is just in 2022 alone, we divested, we had eight divestitures and got out of six countries. So I would probably describe the ability of folks to continue to follow the story with the puts and takes. I can tell you it won't be anything like that. We don't have eight countries left to divest of. So I think overall what we're looking at, we still have portfolio optimization as a priority. We're looking to be opportunistic and see we've got great insights into the markets in which we operate. The divestitures we've made, quite frankly, 19 in the last four or five years have allowed us to really focus on driving operational and financial performance in the core markets and in our core businesses. So I think I can guarantee it certainly isn't anything like the bouncing ball you've seen over the last few years. As right now we're really, we have the ability to buckle down, get very focused and execute to the plans that we have. But it still remains a priority simply because we constantly look to be opportunistic.

Thank you. One moment for our next question. Our next question comes from Toby Slummer from Chura Securities. Your line is open.

Thanks. A follow up on a similar theme here. How do the new systems change your view of acquisitions and how do you view the market opportunity for Stericycle to sort of be a consolidator again and maybe in the context of that, if you could share key parameters you look for in acquisitions including valuation?

Yeah, I think a couple of those. Anytime you have a modern technology platform like we have, that is a game changer in terms of our ability to integrate, integrate quicker, our ability to engage with the customer base, the new customer base that would be brought on in a seamless manner. Technology is really the key, whether you're talking about top line opportunity or bottom line as you have greater visibility and insights into all the productivity key elements. So for us, our ability to get that platform in has really, it's a catalyst for us to be able to do more things. But you have to combine that, Toby. The other thing that afforded us this opportunity is the discipline that we've had financially and really just being very focused on being able to, number one, improve the balance sheet, but then number two, continue to operate in a manner that generates cash so that we do have an opportunity to take advantage of whatever the market presents. So I think for us, what are we looking for? Well, as I mentioned in one of the prior answers, we're going to be very strategic. We, over the course of the last few years, as we've put in much more structure and discipline and standardization, we're very focused. We've got a strong playbook in terms of what are the market conditions that would make us be opportunistic? What does that do to our overall network? What's the culture of the company? A myriad of things that we look at that right now make us have the ability to do tuck-ins. However, we would not be anything like the tuck-in engagements that maybe some folks might be familiar with their cycle from years past.

Thank you. How should we think about capex and free cash conversion over sort of more of medium to long-term relative to your 24 guidance? And I'm not asking for long-term guidance, but to the extent there are knowable puts and takes in the future that you could shine a light on that'd be helpful.

Yeah. So we do actually have long-term outlook of our free cash flow conversion rates, which is the 50 to 60% that we still have out there. And in terms of the capital needs of the business, this is a business that needs to be maintained and we see opportunity to invest in ourselves to grow. So I don't anticipate a much different profile of capital in the ranges that we've given in the past and the future. We will not get to that free cash flow conversion rate by reducing capital.

Thank you. One moment for our next question. Our next question comes from John Mazzoni from Wells Fargo. Your line is open.

Hi. Good morning. Thanks for taking my question. Maybe a quick one on Nevada and McCarran. It's been very helpful for that color in terms of the kind of completion of instruction the first half of the year and then regulatory review and testing with the ramp of full production in mid-25. Could you just give us a sense of kind of some of the puts and takes there, especially around the kind of milestones and what we should be looking for and maybe once it's fully ramped, should we kind of expect that you would use the full permit or any other commentary around the volumes once ramped would be helpful? Thanks.

Yeah. I think more to come. I think we will, as we move through this, we said that the whole project was going to be in four phases. So we've talked about construction, which we're in. We've got testing. We've got kind of ramping up and then full production. So for us, we see it as a steady journey. The good news for us at this point, John, is the fact that in spite of maybe potential supply chain issues or any types of problems with materials, we remain on track. Getting both of those boilers or getting the incinerator stacks and the boilers in in terms of their positions, we're getting close to being able to start the testing part of it. For us, that's a big deal. That's a milestone. We've been on budget and we're very pleased with the effort that's going on there. So in terms of as we move March throughout these quarters and we hit these different things, whether it's testing or it's testing and ramping up and passing regulations and those types of things, I think we'll give a regular cadence in terms of where we are so that folks can get a better understanding, including us, as to when we'd be running some volume through there. So I think more to come there in terms of that right now. I think we've given pretty much what we can to this point.

Great, Claire. Thank you. And let me just a quick follow up on cross-cell. It was helpful in terms of the acceleration of the velocity to close, but has there been any other initial proof points you can share and maybe just how are the conversations going with customers? Thanks.

Yeah, no, I think the velocity cross-selling and the engagement with customers has been great. I'll let Corey White, our Chief Commercial Officer, jump in on that. I don't know anybody who's been more engaged with customers this past year than Corey. So any updates, Corey, in terms of where the customers are?

Yeah, great question. Very early days. I think at this point, more to come on this. I think you're aware that the new ERP system has provided us the opportunity for the first time to actually see the full spectrum of customers that are utilizing our service on both sides of the house and the overlap. So very early days in our evaluation and opportunity to drive growth in that area, but we're excited about what the data is providing from a -to-market perspective. So more to come on that, but a lot of lessons learned very early days in our utilization of the ERP system. So just one added tool in our quiver.

Thank you. One moment for our next question.

Thanks, John, for joining the call today. Who's next?

And our next question, a couple of lines of Kevin Stank from Barrington Research Associates. Your line is open.

Hi, Kevin.

Good

morning. So I apologize if I missed this, but you gave the impact of commodities on the adjusted EBITDA growth in 2024. What are you assuming for commodity impact on organic revenue growth in 2024? And is that baked into the 3 to 5% organic revenue growth target?

Yes, it's baked into the 3 to 5% organic revenue. That's basically a flow through from the top line down to the commodity impact driven mostly by the fuel surcharges, and they sort it off the paper. Yeah.

And one thing I think that is important for, we talked last quarter about when, you know, are we still facing headwinds in terms of that comparative with the RISI rate? And just to let everybody know, Q1 of 2023, from a RISI perspective, paper was still up over $200. It was about 225. Q2 of 2023, paper was around 186. So with it right now being around 140, 145, Q1 is where we see a good bit of comparison headwind, but certainly, you know, we see an opportunity to continue to grow and as customers still show demand. And then Q2 is, let's say, a 40, you know, 30 to $40 headwind, a little different, but we're confident that when we get to the second half of the year, where if you remember Q3 of 23, paper was averaged around 146. Q4 is around 139 or 140, much more normal averages for the past 15 years. That's where we believe, you know, we're head to head pretty much even in terms of where paper is. So we see the commodity more as a first half, if you will, Q1 a little bit more than Q2 type of situation.

Okay, thanks. I mean, you know, the reason I asked that is that, you know, presumably, if we put, you know, commodities on an apple to apple basis year over year, then, you know, you'd be targeting organic revenue faster than 3 to 5%. So I was just

trying to get a You bring up a great point. We're very proud of the efforts from top line and bottom line that people fought through to, you know, really try to mitigate as much as they can, something that was as much a headwind that we faced as we did. And I think it just shows the resilience and the dedication of the team here at Stericycle. And I think the continued commitment with the relationship with the customers that we have as they continue to depend on us. So very, very pleased with that in the fight of the fact that, you know, numbers didn't necessarily, you know, look fantastic in terms of that top line. But facing that 50 million, that was a big deal for the group.

Okay, thank

you. I'll turn it back over.

Thanks, Kevin.

Thank you. I'm not showing any further questions at this time. I would now like to turn it back to Cindy for any closing remarks.

Thank you, Victor. So to everyone listening on this call, we appreciate your interest in Stericycle and your shared excitement for our future. Thank you all very much.

Thank you for your participation in today's conference. This does include the program. You may now disconnect. Everyone have a great day.

Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.

Thank you. Thank you. Thank you. Good day and thank you for standing by. Welcome to the fourth quarter 2023 Stericycle earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during a session, you will need to press star 101 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 101 again. Please be advised that today's conference has been recorded. I would now like to hand the conference over to your first speaker today, Andrew Ellis, Senior Vice President of Finance. Please go ahead.

Good morning and thank you for joining Stericycle's 2023 fourth quarter earnings call. On the call today will be Cindy Miller, our Chief Executive Officer, Janet Zelenka, our Chief Financial Officer and Chief Information Officer, and Corey White, our Chief Commercial Officer. The discussion today includes forward-looking statements that involve risk 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 perspective in nature and are not based on historical facts but rather on current expectations and projections of our management about future events and are therefore subject to risks and uncertainties. Our actual results could differ significantly from those described in such forward-looking statements. Factors that could cause our actual results to differ are discussed in the Safe Harbor Statement in our earnings press release and in greater detail within the risk factors 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'll 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 .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 28th, 2024. Replay information is available in the event section on StairCycle's investor relations website. Time-sensitive information provided during today's call which is occurring on February 28th, 2024 may no longer be accurate at the time of a replay. Any redistribution, retransmission, or rebroadcast of this call in any form without the expressed 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 for their dedication to our customers and their great work throughout the year. Their commitment has been instrumental in our successful performance across all of our key business priorities. Over the last five years this dedication has allowed us to make tremendous progress as illustrated on slide 11. On today's call in addition to unpacking the results for the quarter and this year we will also unveil our next generation of key business priorities which are focused on the next phase of growth for the company building on the foundation we have established. I am pleased to share that our fourth quarter results were generally in line with our expectations. Our quarterly results included regulated waste and compliance services organic revenue growth of 3.1 percent, expanded gross margin by 150 basis points. We are seeing benefits of cost savings from productivity initiatives that supported a sequential quarterly improvement in adjusted EBITDA margin of 220 basis points, debt leverage ratio of 2.85 times and portfolio optimization progress with the divestiture of our business in Romania. Throughout 2023 we continued to focus on our five key business priorities. I'll start with a recap of our accomplishments beginning with the successful deployment of the ERP to our US regulated waste and compliance services business in September. In Europe we made upgrades and enhancements to the secure information destruction technology and made meaningful progress planning for our regulated waste and compliance services system transformation which kicked off in earnest with our international team members last month. I'll now provide a brief recap of our quality of revenue achievements in 2023 across three key areas. Expanding service penetration, improving customer implementation velocity and deepening customer partnerships by developing enhanced customer solutions. We expanded our service penetration by launching cross-selling capabilities for our regulated waste and compliance services and secure information destruction sales team in the US. We also expanded secure information destruction partnerships with large healthcare group purchasing organizations which we expect will accelerate our ability to cross-sell and better penetrate the markets we serve. With regards to improving customer implementation velocity, we improved the speed to revenue by cutting in half the amount of time it takes to close a deal and begin servicing and providing value to our complex hospital customers sooner. Throughout 2023, we strengthened our customer partnerships by conducting customer-focused workshops throughout North America. These sessions generated excitement for our enhanced compliance services and award-winning container solutions. Our most recent customer loyalty scores reflect the high level of value our customers receive from our services. Additionally, in support of our US regulated waste and compliance services ERP deployment in September, the commercial organization was focused on supporting our customers through the system transition. In the second quarter of last year, we achieved our goal of reducing our debt leverage below three times and have continued maintain our debt leverage target. We have come a long way since 2019, having improved our leverage over one and a half turns and reducing our debt by over one and a half billion dollars. Portfolio optimization has been a major contributor to streamlining the company and our debt reduction since 2019 as we have completed 19 divestitures and exited 10 countries. In 2023 alone, we divested eight businesses and exited six countries. This helps simplify our business and will allow us to better focus our efforts on driving operational and financial performance in our core services and key markets. Turning to operational efficiency, modernization, and innovation. In 2023, we completed over 20 infrastructure upgrades including installing five new autoclaves, six new conveyance systems, two new shredders, and an upgraded wastewater treatment plant at one of our North America incinerator facilities. In the fourth quarter, we successfully expanded an Ohio facility to handle future medical waste growth. Since 2019, we have introduced improvements to more than half of our waste processing and facilities in North America including installing more than 25 new autoclaves, six new boilers, and refurbishing more than 20 additional autoclaves and boilers. We have also reduced the average age of our North America fleet to less than four years since 2020 as we've continued to focus on modernizing our powered and non-powered units. Our engineering and operations teams have been focused on the construction of our newest incinerator facility in McCarran, Nevada. In November, we successfully installed foundational equipment including the incinerators and boilers. We remain on track to complete the construction phase of the project in the first half of 2024. After construction is complete, we anticipate moving into the testing phase which includes regulatory review. Once testing is successfully completed, we expect to ramp up the processing of waste with a target to achieve full production in mid 2025. Leveraging our transformed foundation as a springboard, we are positioned for growth and excited to introduce our next generation of key business priorities. These are one, commercial and service excellence, two, operational excellence, three, digital implementation, and four, strategic capital allocation. I will turn it over to Corey to share his thoughts on our commercial and service excellence key business priority and then I'll talk further about our other key priorities.

Thank you, Cindy. Our commercial and service excellence key business priority is focused on driving profitable revenue growth, delivering a differentiated value proposition, and creating a seamless customer experience. This includes enhancing sales, service, and product excellence to win, retain, and grow strong customer relationships. Through our sales excellence initiative, we continue to focus on our market to quote capabilities including quality of revenue, digital marketing, e-commerce, and contract management. Utilizing the ERP, we expect to further enhance sales excellence by gaining greater insights into sales opportunities, driving pricing intelligence, expanding market presence, and enhancing sales productivity. Service excellence is focused on delivering a seamless service experience through all phases of our customer lifecycle which includes one, making it easier for customers to manage their accounts through improved digital touch points with our enhanced online customer portal, including real-time waste tracking, trending benchmarking and sustainability reporting, accessing compliance training, requesting new services, making service changes, and visibility to invoices. Two, enhancing our customer experience by leveraging ERP enabled tools to solve issues on first contact. And three, utilizing modern routing and tracking technology and field operations to ensure on-time waste collection and container management.

This

initiative is expected to strengthen customer relationships and further enhance our value proposition. Finally, product excellence focuses on developing and launching enhanced solutions that deepen our customer partnerships, support our customer safety and sustainability goals, and promote further adoption of existing products and product innovation. We continue to commercialize innovative solutions and products that drive additional revenue opportunities while fulfilling our purpose to protect the health and well-being of healthcare organizations, commercial businesses, and communities we serve. I'll now turn the call back to Cindy to provide an overview of the remaining three key business priorities.

Thank you, Corey. Turning to operational excellence, this second key business priority is focused on driving margin expansion and cash flow improvement by leveraging the following. A skilled and dedicated workforce focused on safety, service, savings, and sustainability, modern technologies, new and updated equipment and infrastructure, and a modernized fleet. In 2024, we expect workforce management in our retained businesses to drive approximately $40 to $45 million in savings. This reflects an approximate 6% -over-year structural reduction in our workforce. Of the $40 to $45 million savings, approximately $8 million in savings is expected to come from the reduction in force we announced on our third quarter call. This reduction took place in October and resulted in approximately $3 million of severance. Over $20 million in additional savings is expected to come from the targeted reduction in force that is occurring in the first quarter of 2024, with an estimated $5 to $7 million in severance that we anticipate occurring in the first quarter. The balance of the cost savings is expected to come from continued careful hiring and attrition that began in 2023. On our new digital implementation priority, we are beginning to strategically explore our next generation of capabilities using the foundation of our modern ERP system. We anticipate that digital, data, and AI capabilities will help us to further deliver commercial and service excellence and efficiencies across our network and shared services. The fourth and final of our next generation key business priorities is strategic capital allocation, which has the following foundational elements. A targeted debt leverage ratio between 2.5 and 3 times. Investments in the business to maintain and modernize our infrastructure to drive growth and efficiencies. Portfolio optimization, including accretive tuck-in acquisitions using a disciplined acquisition and integration playbook. And consideration of the potential for share repurchases. Consistent with this strategic capital allocation priority, in January we successfully completed the acquisition of a Southeastern U.S. regulated medical waste company. In 2024, this business is expected to generate approximately $4 million in revenue. We expect to integrate this acquisition into our new ERP technology platform in the second half of 2024. We are proud of the transformation journey we have been on and we are excited about the next generation of priorities we have outlined. We look forward to updating you on our progress on future calls. 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 five, revenues in the fourth quarter were $652 million compared to $670.4 million in the fourth quarter of 2022. Excluding the impact of divestitures of $28.6 million and favorable foreign exchange rates of $5 million, organic revenues increased $5.2 million. Organic revenues and regulated waste compliance services grew $13.2 million while secure information destruction organic revenues declined $8 million. Secure information destruction was impacted by lower commodity index revenues due to lower recycling revenues and lower fuel and environmental surcharges of $18 million, partially upset by higher service revenues of $10 million. As noted on slide six, regulated waste and compliance services revenues were $439.9 million compared to $449.3 million in the fourth quarter of 2022. Excluding the impact of foreign exchange rates and divestitures, organic revenues for regulated waste and compliance services increased 3.1%. North America regulated waste and compliance services organic revenues grew $10.1 million or 2.8%, mainly driven by our three pricing levers, which include pricing and existing contracts, new customer pricing, and surcharges and fees. International regulated waste and compliance services organic revenues grew $3.1 million or .1% in the fourth quarter, mainly driven by pricing. Secure information destruction revenues were $212.1 million compared to $221.1 million in fourth quarter of 2022. Excluding the impact of divestitures and foreign exchange rates, organic revenues for secure information destruction declined 3.6%, mainly due to lower commodity index revenues reflecting more than a $100 reduction in sorted office paper pricing per ton, year over year, and lower fuel and environmental surcharges. In North America, secure information destruction organic revenues decreased $5.9 million or 3% compared to the fourth quarter of 2022. Recycling paper revenues in the fourth quarter of 2023 contributed approximately .9% of the decline or $11.5 million due to lower sorted office paper pricing and lower tonnage. Service revenues contributed approximately .9% of growth or $5.6 million due to pricing, partially offset by lower fuel and environmental surcharges. Approximately 50% of the lower sorted office paper recycling revenue was offset by a recycling recovery surcharge, which is reflected in service revenue. As a reminder, on the third quarter call, we discussed that some national customers were reducing their store footprint, which led to a contraction in their related service This contraction continued at a slower pace in the fourth quarter. In international, secure information destruction organic revenues decreased $2.1 million or .4% compared to the fourth quarter of 2022, mainly due to lower recycling revenues and fuel and environmental surcharges. Income from operations in the fourth quarter was $37.1 million compared to $59.1 million in the fourth quarter of last year. The $22 million decrease was mainly due to the following. A gain on a divestiture in 2022 of $15.6 million, lower secure information destruction commodity index revenue margin flow through of $10.2 million, higher bad debt expense of $8.1 million, mainly due to a lower fourth quarter of 2022 bad debt expense level as a result of improved North America secure information collections, and higher incentive and stock-based compensation expense of $7.1 million in 2023. These items were partially offset by margin flow through of $18.9 million, including cost savings from productivity initiatives. Net income was $14.9 million or $16.0 million compared to $31.8 million or $35.0 million in the fourth quarter of last year. The difference was mainly related to lower income from operations of $22 million. Cash flow from operations for the year ending December 31, 2023 was $243.3 million compared to $200.2 million for 2022. As shown on slide 8, the year over year increase of $43.1 million was mainly driven by lower FCPA settlement payments of $72.8 million and lower annual incentive compensation payments of $22.3 million, which were partially offset by accounts receivables net of deferred revenues of $68.5 million. Adjusted income from operations was $84.5 million or 13% as a percentage of revenues compared to $90.6 million or .5% as a percentage of revenues in the fourth quarter of last year. Adjusted income from operations decreased 50 basis points, mainly driven by lower secure information destruction commodity index revenue margin flow through of 160 basis points, higher bad debt expense of 120 basis points, and higher incentive and stack-based compensation of 110 basis points. These were partially offset by margin flow through of 340 basis points, including cost savings from productivity initiatives and margin expansion through portfolio optimization. Adjusted diluted earnings per share was $0.54 compared to $0.60 in the fourth quarter of 2022. As illustrated on the bridge on slide 9, the $0.06 year over year decrease was driven by $0.09 from lower secure information destruction commodity index revenue flow through, $0.07 from higher bad debt expense, and $0.06 from higher incentive compensation. These were partially offset by $0.16 of margin flow through. Capital expenditures were $131.3 million compared to $132.2 million for 2022. Free cash flow for 2023 was $112 million compared to $68 million in 2022. As noted on slide 8, the year over year increase of $44 million was mainly driven by higher operating cash of $43.1 million. After considering 2023 adjusted litigation and severance payments, free cash flow excluding these two items was $138.5 million, which is approximately $30 million below our 2023 free cash flow guidance range of $170 to $190 million. This difference is mainly driven by the timing of U.S. regulated waste customer billings due to the ERP implementation as we are holding and reworking some invoices for our largest customers to ensure accuracy. Turning to the full year 2023 results in slide 14, revenues were $2.66 compared to $2.7 billion in 2022. Excluding the impact of the vestiges of $101.6 million, and unfavorable foreign exchange rates of $0.1 million, organic revenues increased 56.3 million or 2.2%. When 2023 and 2022 results are normalized to exclude the revenues from divested businesses, revenues were approximately $2.63 billion in 2023 compared to $2.57 billion in 2022. Regulated waste and compliance services organic revenue growth was $71.9 million, while secure information destruction organic revenues declined $15.6 million. Secure information destruction was impacted by lower commodity index revenues of almost $50 million due to lower recycling revenues and lower fuel and environmental surcharges. When considering secure information destruction's organic revenue growth over a two-year compounded annual growth rate, it grew .6% since 2021. Income from operations for the year ended December 31, 2023 was $77.3 million compared to $153.7 million in 2022. The $76.4 million decline was mainly due to change in divestiture net losses of $79 million, higher incentive compensation and timing of stock-based compensation of $22.7 million, lower secure information destruction and commodity index revenues and the corresponding margin flow-through impact of $18.5 million, and fleet costs of $10.5 million. These were partially offset by margin flow-through of $41.2 million, mainly from cost savings from productivity initiatives and lower bad debt expense of $7.1 million. Net loss for 2023 was $21.4 million or $0.23 diluted loss per share compared with net income of $56 million or $0.61 diluted earnings per share in 2022. The difference was mainly related to lower income from operations of $76.4 million as previously discussed. Adjusted EBITDA was $420 million in 2023 compared to $432.2 million in 2022. The $12.2 million decline was mainly due to inflationary and supply chain costs of $25.5 million, higher incentive compensation and timing of stock-based compensation of $22.7 million and lower secure information destruction commodity index revenues and the corresponding margin flow-through impact of $18.5 million. These were partially offset by margin flow-through of $51.1 million and lower bad debt expense of $7.1 million. In 2023, divested businesses generated a nominal amount of adjusted EBITDA. When 2023 results are normalized to exclude results from divested businesses, 2023 adjusted EBITDA would still have been approximately $420 million. Adjusted diluted earnings per share was $1.89 in 2023 compared to $2.04 in 2022. As illustrated on the bridge on slide 17, excluding the impact from foreign exchange rates and divestitures of $0.04, the remaining $0.11 -over-year decrease was driven by $0.19 from higher incentive and stock-based compensation, $0.15 from lower secure information destruction commodity index revenues, $0.09 from higher fleet costs and $0.08 mainly from higher taxes. These were partially offset by $0.34 from margin flow-through and $0.06 from lower bad debt expense. I will now turn to our 2024 guidance, which includes forward-looking statements as contemplated in our safe harbor statement as referenced at the opening of this call. Our guidance is shown on slide 18 and is as follows. One, we expect to grow organic revenues 3 to 5% on a normalized revenue base of $2.63 billion. Two, we expect adjusted earnings per share of $2.20 to $2.50. This assumes approximately a 14% growth in adjusted EBITDA on a 2023 normalized adjusted EBITDA base of $420 million. As shown on slide 19, this margin growth rate anticipates revenue margin flow-through of approximately 4%, cost of revenue efficiencies and cost reductions of approximately 9%, mainly driven by our workforce management actions and operational initiatives, and selling general and administrative efficiencies and cost reductions of approximately 4%, mainly driven by our workforce management actions. These are expected to be partially upset by commodity impacts of 3%, mainly associated with sorted office paper pricing, which assumes a range of $125 to $140 a ton, and fuel estimates for 2024 from the U.S. Energy Information Administration. Compared to last year, we anticipate that the first half of 2024 will have a more challenging paper pricing -over-year variance, as the sorted office paper price per ton was above $200 on average for the first quarter of 2023 and above $185 on average for the second quarter of 2023. And the second half of 2023 pricing return to the historical average range. Three, as noted on slide 20, we expect to generate free cash flow of $210 to $265 million, excluding additional interest payments due to redeeming the $600 million bond with proceeds from the revolver and severance payments. Excluding these two cash outlays, we anticipate an adjusted EBITDA to free cash flow conversion rate of 44 to 55% in 2024. Severance payments in 2024 are expected to be approximately $5 to $7 million. The additional in-year interest cash payments from redeeming the bond and higher interest rates are expected to be $14 to $19 million. When we redeem the bond, interest payments will shift from being semi-annual bond payments to monthly revolver interest cash payments. And four, we expect capital expenditures of $140 to $160 million. Regarding the timing of free cash flow generation through 2024, we anticipate the first quarter to be a use of cash as it includes our annual incentive compensation payouts, the semi-annual debt interest payments, and the timing of accounts receivable collections. Because of the heavier utilization of cash in the first quarter, we anticipate that our first quarter debt leverage ratio will be above three times and then is anticipated to return to our debt leverage ratio range of two and a half to three times in 2024. I will now turn the call back to Cindy.

Thank you, Janet. Our focus on ESG and sustainability is an ongoing pursuit, which we actively incorporate into our everyday practices and into our strategic business plans. In early February, we received our grade from CDP, and I'm excited to share that we achieved a B score, our highest rating since we began filing with the CDP three years ago. This follows on the heels of four recent awards on diversity and sustainability that recognize the continued maturation of our organization. With that, I'd like to thank our customers, team members, 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. At this time, we will conduct a question and answer session. As a reminder to ask a question, you will need to press star 101 on your telephone and wait for a name to be announced. Please limit yourself to one question and one follow-up, and to withdraw your question, please press star 101 again. Please stand by while we compile the Q&A roster.

One moment for our first question. Our first question will come from the line of Sean

Dodge from RBC Capital Markets. Your line is open.

Thanks. Congratulations on the specifically on the bridge. I think super helpful that you all provided this. Thank you for that. On the cost of revenue efficiency, it looks like half of that driven by workforce reductions and half from operational strategic initiatives. Cindy, you mentioned a lot of things in your prepared remarks. Can you give us a couple of examples of what the operational strategic initiatives are, what's new for 2024, and what those expect to contribute?

Yeah, I think, Sean, thanks for the question. We did try to be quite thorough with the bridges. We know there's always a lot of moving parts and we want to make sure that we make it as easy as we can. Yeah, you're right. As we're moving into 2024, we're now driving into the efficiencies. We're pivoting from the transformation phase and I think really moving into now delivering on plans, executing the plans, doing the things we need to do. If you'll recall, now Shred's been on from an operational perspective, they've been on the ERP platform for quite some time and right now we really are gaining efficiencies there. We've got a workforce that's familiar with the handhelds. We've got dispatchers that are very familiar with dispatching, routing, and really making some gains. What we're going to lean into for 2024 is, you'll recall, we just put the regulated side of the business on the ERP in Q4 of last year and they're starting to develop a similar rhythm. Not quite as advanced. Certainly, we're still working through some things, but you did catch on that whole riff piece. We took a reduction in force this quarter and we are going to lean into some of those efficiencies that I just talked about in the second half. The other thing, Sean, is when you talk about the amount of facilities and upgrades and equipment and modernization that we've done just in the work environments in which our people work, as you lean into those things, whether it's conveyance, whether it's resetting a building in terms of making work flow better, when you do those things along with standardizing some of the containers and a lot of the things that we do, those are the productivity initiatives that we're leaning into. Some are new. Some are a continuation. I think just that along with the improved routing capabilities and some of the things we have, those are the things that are really driving our ability to improve margin. Thanks for that question.

Okay, great. Then just quickly on SID, Janet, you said that the service stop rationalization had slowed in the fourth quarter. Are you seeing any evidence as it continued into this year? Has it stabilized? Is it continuing to taper? And it's still only the national accounts where you're seeing that or have you seen that in other parts of your base as well?

Yeah, Sean, I'll start. Thanks for that question. If Janet has anything else she'd like to add, I think we're very proud of our shred side of the business to have faced the level, the headwind of a difference of $100 a ton pretty much for the year, certainly for the second half of the year. To have faced that and still continued to have the opportunity to service our customers, there still is demand for the service. I think what speaks volumes for us is we like to talk about the fact that if you look at the actual growth of the business over the last two years, so since 2021 and 22 in comparison with 23, we've seen a 6.6 year over year over that two-year comparison growth. And for me, that speaks that there's still demand for the business and you are correct. We are seeing, it is the national footprint. It is that retail space. Anytime you take those big customers and they reduce, I'll just throw out an average number. This isn't a specific. But if you go from having 8,000 stores that get serviced either every week or every other week and now you reduce them to 6,000 and you take a few of those types of retail spaces that see that contraction, we feel that. We've not lost customers. As a matter of fact, we continue to grow with customers, but we feel it in terms of we're still very, very positive about the shred side of the business, especially with their efficiencies, how they're getting better, how they're adapting and learning from data. So they play a very integral role in our continued growth. Thanks for that question.

Thank you. One moment for our next question. Our next question comes from Dave from Bayard. The line is open.

Thank you. Good morning, everyone. My first question is regarding the next generation key business priorities as you outline them, Cindy. They seem to all pretty much be centered around technology tools. Are there additional investments required for plugins to your ERP or does that functionality already exist within your instance of 4HANA? Yeah,

no, that's a great question, Dave. We're very excited about those. I think many of them do. It's now time to lean into the effort and energy and the money, quite frankly, that we invested in with our current ERP platform. So for us, I think if you were, as we look further into the digital implementation for us, right now I think commercial and service excellence and then the operational excellence, that's us taking us, diving into what we have and getting better at what we do. When you look at the digital implementation and we talk about where else can we deploy a more digital kind of streamlined engagement potentially with customers or some of these other things, or we look at AI, those are things that we're developing and looking at. But to your point, we don't see major technology investment required for harnessing any of that.

That's great to hear. Second, on the paper side, could you give us a figure for the tonnage in 2023 and what is your expectation for 2024? As we're thinking about the typical formula there, I think it used to be you experienced about 40% of the downside below 192 per ton. Is that the same or have you moved the needle on that formula?

Yeah, I'll start with that one. The table is pretty much the same. Right now, the good news is, right now we're seeing paper in its 15-year average. It's anywhere from 140 to 160. It bounces in between there. As you know, you follow it, I think, probably as closely, if not more so, than most, Dave, you and your team. It's now rationalized and I think gotten far more stable in terms of predictability. We are looking at that as kind of being a non-entity, but that, the sliding scale that we do have, that is the protection for it. Yes, you are correct. The scale has stayed the same with 192 being the top. Around that, I think the bottom, the floor goes to about 85, somewhere around in there. I'm not quite sure. I'd have to check on that on the floor for you. Then Janet, I think, has got the stats for the tons of paper year over year.

Yes, and we also have that in the 10K, Dave. Thanks for being on the call today. After vestitures normalized, the tons were 453,000 versus 500,000 the year before, or 9% for tons of sorted office paper. We did see some decline, none unanticipated, given the contraction of stops, which reflects the paper that we talked about in the nationals and that. I also wanted to point out in our guidance range for SOP pipe, we assume between $125 to $140 a ton. That seems to be a good run rate for what the business is doing today. It is in the sweet spot of that recycling recovery surcharge range, where it recovers about two-thirds of any fluctuation that we see. The bottom end of the range of the index is around $77.

Thank you. One moment for our next question. Our next question will come from Michael A. Hoffman from Stiefel. Your line is open. Good morning, and thanks

for taking the question. On the opportunity to drive operating leverage at the gross margin

line,

you've talked a lot about this convergence of manual processes as a result of the ERP. What you have shared with us, this initial 40 to 45 million, what percentage of that opportunity are we capturing?

Of the 40 to 45 million, that is the increase, remain over 20 million. That is due to the targeted workforce reduction. So, say about 50 percent of it is on things that we've already taken in action. The rest of the margin improvement that we're referring to there is on efficiencies, route optimizations, all kinds of things we can leverage on a modernized fleet, modernized facilities, and a modernized system.

I did a bad job of asking the question. There's a certain amount of headcount that's been tied to doing manual processes. Are you done with this RIF, or is there more to come? That's what I was trying to get at. What percentage of that opportunity?

Sorry, Michael. Yes, we had, if you recall, we had a smaller RIF in October of last year, and then we are in the process of executing one right now in first quarter of this year. It'll end up being about a 6 percent year over year reduction in headcount, and that's where we believe right now we are positioned to be able to drive growth and really focus on top line, and equally, if not more important, really driving bottom line opportunity. So, that's a, we don't foresee anything else.

Yeah, and we also leveraged attrition and careful hiring and will continue to do that through the year, but in terms of an action, as Cindy said, we don't anticipate any more this year.

Right, okay. And then if I take the outlook, the combination of the three, long term outlook, the three to five on the top line, 13 to 17, the 50 percent or better in free cash. So, how do I sort of put together this year's guidance into a couple things? One is the top line mostly about price, or are we starting to get new customer ads, stop ads? Is the operating leverage that you're talking about, is it, how much can we expect incrementally from here from asset utilization, that sort of what was talked about under the digital and the revised plan? And then the cash conversion is coming under the plan, so what has to happen to adjust the cash conversion?

So, I'm trying to pack four questions

into one, so I do two.

Yeah, no, that's fine, Michael. So, I'm going to, for those listening, I'm going to go to slide 18, 19, and 20 on this. So, the three to five percent is balanced. We expect volume and price to be part of our, and that's an organic revenue growth only, so it does not include the opportunity for tuck and acquisitions, nor the tuck and acquisition we mentioned on the call. So, that's pure organic. In terms of the, so where we're getting the drivers of the about 14 percent adjusted EBITDA growth rate that underlines our EPS range, it is what we talked about, largely within our control, with a significant amount already executed as we drive efficiencies leveraging all the things I mentioned. The free cash flow, if you go to the slide 20 and you look at that, our adjusted free cash flow range is around 40 to 50 percent on a pure basis. However, when we were looking at the long-term range, we had not contemplated the severance payments, and you know, it wouldn't normally do that. And we also have a shift in our interest rate payments due to the maturation of the bond and going to 12-month payments in the year versus the normal payments of the bonds. That is a one-time effect, so we thought we'd mention that as well. And then when you take those out, you're in about the 50 percent range on your free cash flow when you're looking at the normal operations of the business for 2024. I think I answered all your questions. Michael, if I didn't, go ahead and say one more thing, and then we'll go to the next person.

Thank you. And one moment for our next question. Our next question comes from Scott Schneeberger from Oppenheimer. Your line is open.

Thanks very much. Good morning. I'd like to start just following up on pricing. It sounds like, it's kind of the long-term guidance for revenue organically is half price, half volume. How is the pricing environment, particularly in the regulated waste segment? Are you, you know, you have longer-term contracts, they roll off, you've been through an inflationary environment, and still kind of on the tail end, it seems. How is your ability to be getting pricing now? It was kind of for both of you.

Thanks. Yeah, I think, Scott, great question. Good to hear from you. We have our ability to take price in the market according to market conditions. I think we've been doing a great job with that. We have been, you know, I think some of the commodity headwinds and a few other things, you know, may mask some of the gains that we've been making. But I think we're well positioned in the market. And right now, feedback from customers, let's say, on the regulated side, you know, with the new portal, with the changes and the abilities and the visibility we've given them, there is an even greater level of, if you will, stickiness to some of the opportunities and the things that we can now do based on the fact that we're on a platform. So I think all of those things lend themselves to our ability to continue to lead in the marketplace, to bring value to our customers, and to continue to come up with solutions that, you know, that they need, if you will.

Thanks. Just a quick follow up on that and then one more. But on the pricing, with customers, how would you frame the competitive environment? Going back 8, 10 years ago, there was a bit of a shift where Stereocycle, you know, was adversely impacted by some enhanced competitive dynamics. How would you kind of categorize the industry now? You just mentioned in that last response, you're a leader, as we would expect, but just curious how it looks competitively out there. Thanks.

I think the one thing that stayed the same in both of our businesses is that the competition is still regional. So we've got some regional players that are a little stronger than others on both the shred and the regulated waste size. And I think there are some where we've got some regions where we've got a stronger presence, you know, a bigger footprint where we can leverage ourselves a little better than others. And I think all of those things now in our understanding of that are really, it's really leading us now towards this potential tuck in acquisition opportunity where we can see more in depth in the areas where competition may or may not be there to whatever level and what's our ability to grow and to serve. So I think it's probably the same in terms of overall, it's still a regional competition. And it is different in every region. But I think we're well positioned to take advantage and to drive further growth both organically as well as with some very laser, very specific, very deliberate tuck in opportunities.

Thanks. And that's a great segue for my final question. It sounds like you have a propensity to start doing tuck ins a little bit more actively. I kind of want you to compare and contrast that by what remains with regard to divestiture, divestitures, which presumably what remains would still be international and obviously at the ERP implementation internationally this year. So tying that all together to make the question, would we see net acquisition or divestiture contribution or headwind in the guide this year? And how much is there left there on the divestiture end on international? Thanks.

Yeah, Scott, I think the good news there is just in 2022 alone, we divested of, we had eight divestitures and got out of six countries. So I would probably describe the ability of folks to continue to follow the story with the puts and takes. I can tell you it won't be anything like that. We don't have eight countries left to divest of. So I think overall what we're looking at, we still have portfolio optimization as a priority. We're looking to be opportunistic and see, we've got great insights into the markets in which we operate. The divestitures we've made, quite frankly, 19 in the last four or five years have allowed us to really focus on driving operational and financial performance in the core markets and in our core businesses. So I think I can guarantee it certainly isn't anything like the bouncing ball you've seen over the last few years. As right now we're really, we have the ability to buckle down, get very focused and execute to the plans that we have. But it still remains a priority simply because we constantly look to be opportunistic.

Thank you. One moment for our next question. Our next question, a couple of lines. That was Toby Sommer from Chura Securities. Your line is open.

Thanks. A follow-up on a similar theme here. How do the new systems change your view of acquisitions and how do you view the market opportunity for Stericycle to sort of be a consolidator again, and maybe in the context of that, if you could share key parameters you look for in acquisitions, including valuation?

Yeah, I think a couple of those. Anytime you have a modern technology platform like we have, that is a game changer in terms of our ability to integrate, integrate quicker, our ability to engage with the customer base, the new customer base that would be brought on in a seamless manner. Technology is really the key, whether you're talking about top-line opportunity or bottom line, as you have greater visibility and insights into all the productivity key elements. So for us, our ability to get that platform in has really, it's a catalyst for us to be able to do more things. But you have to combine that, Toby. The other thing that afforded us this opportunity is the discipline that we've had financially and really just being very focused on being able to, number one, improve the balance sheet, but then number two, continue to operate in a manner that generates cash so that we do have an opportunity to take advantage of whatever the market presents. So I think for us, what are we looking for? Well, as I mentioned in one of the prior answers, we're going to be very strategic. We, over the course of the last few years, as we've put in much more structure and discipline and standardization, we're very focused. We've got a strong playbook in terms of what are the market conditions that would make us be opportunistic? What does that do to our overall network? What's the culture of the company? A myriad of things that we look at that right now make us have the ability to do tuck-ins. However, we would not be anything like the tuck-in engagements that maybe some folks might be familiar with their cycle from years past.

Thank you. How should we think about cap ex and free cash conversion over sort of more a medium to long-term relative to your 24 guidance? I'm not asking for long-term guidance, but to the extent there are knowable puts and takes in the future that you could shine a light on, that'd be helpful.

So we do actually have long-term outlook of our free cash flow conversion rates, which is the 50 to 60 percent that we still have out there. And in terms of the capital needs of the business, this is a business that needs to be maintained, and we see opportunity to invest in ourselves to grow. So I don't anticipate a much different profile of capital in the ranges that we've given in the past and the future. We will not get to that free cash flow conversion rate by reducing capital.

Thank you. One moment for our next question. Our next question comes from John Mazzoni from Wells Fargo. Your line is open.

Hi. Good morning. Thanks for taking my question. Maybe a quick one on Nevada McCarran. It's been very helpful for that color in terms of the kind of completion of instruction the first half of year and then regulatory review and testing with the ramp of full production in mid-25. Could you just give us a sense of kind of some of the puts and takes there, especially around the kind of milestones and what we should be looking for and maybe once it's fully ramped, should we kind of expect that you would use the full permit or any other commentary around the volumes once ramped would be helpful? Thanks.

Yeah, I think more to come. I think we will, as we move through this, we said that the whole project was going to be in four phases. So we've talked about construction, which we're in. We've got testing. We've got kind of ramping up and then full production. So for us, we see it as a steady journey. The good news for us at this point, John, is the fact that in spite of maybe potential supply chain issues or any types of problems with materials, we remain on track. Getting both of those boilers or getting the incinerator stacks and the boilers in in terms of their positions, we're getting close to being able to start the testing part of it. For us, that's a big deal. That's a milestone. We've been on budget and we're very pleased with the effort that's going on there. So in terms of as we move March throughout these quarters and we hit these different things, whether it's testing or it's testing and ramping up and passing regulations and those types of things, I think we'll give a regular cadence in terms of where we are so that folks can get a better understanding, including us, as to when we'd be running some volume through there. So I think more to come there in terms of that right now. I think we've given pretty much what we can to this point.

Great, Coller. Thank you. And let me just a quick follow up on cross cell. It was helpful in terms the acceleration of the velocity to close, but has there been any other initial proof points you can share and maybe just how are the conversations going with customers?

Thanks. Yeah, no, I think the velocity, cross selling and the engagement with customers has been great. I've let Corey White, our Chief Commercial Officer, jump in on that. I don't know anybody who's been more engaged with customers this past year than Corey. So any updates, Corey, in terms of where the customers are?

Yeah, great question. Very early days. I think at this point, more to come on this as I think you're aware that the new ERP system has provided us the opportunity for the first time to actually see the full spectrum of customers that are utilizing our service on both sides of the house and the overlap. So very early days in our evaluation and opportunity to drive growth in that area. But we're excited about what the data is providing from a go to market perspective. So more to come on that. But a lot of lessons learned very early days in our utilization of the ERP system. So just one added tool in our quiver.

Thank you. One moment for our next question.

Thanks, John, for joining the call today. Who's next?

And our next question will come from Kevin Stank from Barrington Research Associates. Your line is open.

Hi, Kevin.

Good morning. So I apologize if I missed this, but you gave the impact of commodities on the adjusted EBITDA growth in 2024. What are you assuming for commodity impact on organic revenue growth in 2024? And is that baked into the 3 to 5% organic revenue growth target?

Yes, it's baked into the 3 to 5% organic revenue. That's basically a flow through from the top line down to the commodity impact driven mostly by the fuel surcharges and they sort it off the paper. Yeah.

And one thing I think that is important for we talked last quarter about when, you know, are we still facing headwinds in terms of that comparative with the RISD rate? And just to let everybody know, Q1 of 2023 from a RISD perspective, paper was still up over $200. It was about 225. Q2 of 2023, paper was around 186. So with it right now being around 140, 145. Q1 is where we see a good bit of comparison headwind, but certainly, you know, we see an opportunity to continue to grow and as customers still show demand. And then Q2 is, let's say, a 40, you know, 30 to $40 headwind. A little different, but we're confident that when we get to the second half of the year where, if you remember, Q3 of 2023, paper was averaged around 146. Q4 is around 139 or 140. Much more normal averages for the past 15 years. That's where we believe, you know, we're head to head pretty much even in terms of where paper is. So we see the commodity more as a first half, if you will. Q1 a little bit more than Q2 type situation.

Okay, thanks. I mean, you know, the reason I asked that is that, you know, presumably, if we put, you know, commodities on an apple's apple's basis year over year, then, you know, you're you'd be targeting organic revenue faster than three to 5%. So I was just

trying to get up You bring up a great point. We're very proud of the efforts from top line and bottom line that fought through to really try to mitigate as much as they can something that was as much a headwind that we faced as we did. And I think it just shows the resilience and the dedication of the team here at Stericycle. And I think the continued commitment with the relationship with the customers that we have as they continue to depend on us. So very, very pleased with that in spite of the fact that, you know, numbers didn't necessarily, you know, look fantastic in terms of that top line. But but facing that 50 million, that was a that's a big deal for the group.

Okay, thank you. I'll turn it back over.

Thanks, Kevin.

Thank you. I'm not showing any further questions at this time. I would now like to turn it back to Cindy for any closing remarks.

Thank you, Victor. So to everyone listening on this call, we appreciate your interest in Stericycle and your shared excitement for our future. Thank you all very much.

Thank you for your participation in today's conference. This does include the program. You may now disconnect. Everyone have a great day.