David Manthey: Thank you very much. My question is regarding residential volumes that have inched up here in the last couple of quarters. Is that a trend you expect to continue this year? And when you look at that 1% overall midpoint volume outlook, does that contemplate commercial container volumes being flat or negative at any point in 2023?
Brian DelGhiaccio: No, I mean what you’re seeing mostly on the residential is some relatively larger contracts. You’re seeing that in the numbers. So that’s expected to anniversary in 2023. So, we don’t expect that to continue throughout the year. And yes, when you take a look at our volume cadence, we expect that small container will remain positive, right, throughout 2023. When you take a look at overall volumes, we think to have our highest volume performance early in the year. And again, that’s a step down throughout but remaining positive in all 4 quarters.
Jon Vander Ark: I’d say residential, that’s been, I’d say, over the last decade, the most disappointing part of the business in terms of where margin and return has gone and that hasn’t expanded at the same rate as the other businesses. There’s a lot of reasons for that, with commodity prices and inflation and everything else. But listen, we don’t do work for free, right? We put upward pressure, right, on all those contracts and look at those contracts just like we were an acquisition, right? We’re going to put capital into it and what type of return do we get against that. And if we can’t meet our return thresholds on that, we won’t do the work.
David Manthey: I appreciate it. Thank you.
Operator: The next question is from Kyle White of Deutsche Bank. Please go ahead.
Kyle White: Hey good afternoon. Thanks for taking the questions. Just curious what you’re seeing on open market pricing heading into 2023 as inflation starts to come down and maybe there’s a bit more uncertainty regarding economy and volumes going forward. Are you seeing any change in behavior from maybe some of the smaller competitors in this environment relative to last year?
Jon Vander Ark: No, last year, we put out the highest level of pricing we ever have in small container in the open market, and we had the highest percentage of retention of that price that we’ve ever had in our history, which is really a staggering number. I think it speaks to, right, the value of our service that we’re providing. It also speaks to the broader context with everything else in plating. Those numbers were quite consistent across the quarters, right, in terms of our ability to retain price, right? And we’re seeing strength here in the early part of the year on that. So, we’re mindful of the environment. But look, at all of these smaller competitors, right, they have truck costs that are going up. They need to buy new equipment after some supply chain challenges, right? They have labor costs that are going up. So, they need the price to cover their costs, which I think is support of a broader pricing environment.
Kyle White: Yes, that makes sense. And then on leverage, how are you thinking about leverage in this environment? What’s sort of the right target for you before investors should expect meaningful capital return through buybacks?
Brian DelGhiaccio: Yes, we’ve talked about kind of that sweet spot for us being right around three times. We’re a little bit over that right now, but we expect to be there in the next, call it, six months, at which point then we would look to kind of return to that normal level of looking at the repurchases and so on and so forth.
Kyle White: Sounds good. I’ll turn it over.
Operator: The next question comes from Stephanie Moore of Jefferies. Please go ahead.
Stephanie Moore: Hi, good afternoon. Thank you. I certainly appreciate the level of details of your 2023 expectations. I think a lot of puts and takes in this environment. So it might be helpful if you could just outline the areas where you kind of see the greatest source of upside, inflation moderating, some tech investments. And then on the flip side, where you see the greatest risk to maybe hitting these targets as well? Thanks.
Brian DelGhiaccio: Yes, from an upside perspective, and we mentioned this earlier, is that we are expecting inflation to remain persistent throughout 2023. And so again, Jon just talked about the fact that we’re pricing at higher levels in 2023 — early in 2023 than we did even in 2022 because we expect inflation to remain sticky. So if that does come down, that is certainly an opportunity in order to sit there and to drive better performance than we anticipated. But you do have to remember, some of that inflation on wages, and wages typically go in annually. So, once you put that wage out in the marketplace, you’re not pulling that back. So, there is some stickiness to the inflation, but certainly, as it relates to some third-party costs, some of the maintenance-related expenses, transportation expenses. If those come in, that would certainly be a source of upside.
Stephanie Moore: Great. And then on the downside?
Brian DelGhiaccio: Sorry. We just talked a little bit about recycled commodity prices. Again, we’ve expected a recovery, but we’ve also dimensionalized it for you so you realize it’s a relatively modest recovery that we’re expecting. But if they stay at current levels, that would be a little bit of some downside relative to our expectations.
Jon Vander Ark: And I just said the broader macro environment, obviously, we’ve been through a pandemic and war at the doorstep of Europe and China virtually shutting down and supply chain challenges and inflation. So, I think we’re prepared for uncertainty in a dynamic environment. Again, we’re running the business, not just for the quarter or the year, we’re running it through the cycle and making decisions accordingly. But we’re mindful that we may have to adjust or adapt the business if do things emerge.
Stephanie Moore: Absolutely. And then just on the second polymer center going up, starting to go up this year. Maybe you could talk a little bit about some of the initial KPIs or returns you’re seeing from — or expect to see just given the demand from your first center and kind of what drove you to decide to open up the second here.
Jon Vander Ark: Yes, across, we think we’re going to have at least 4 centers across the U.S. We think when they all get up and running at scale, it’s kind of a $250 million incremental revenue business for us. We think the EBITDA margins are going to be certainly north of 30%, right? Very attractive IRRs on those investments, and I think we’re going to beat that pro forma, right? And we know from the conversations we’ve had and the pricing that we’re getting right now, we’re starting to take orders, obviously, for the center in Las Vegas. I’m very confident we’re going to beat those numbers in the pro forma.
Stephanie Moore: Great. Thank you so much.
