Stericycle, Inc. (NASDAQ:SRCL) Q1 2024 Earnings Call Transcript

Stericycle, Inc. (NASDAQ:SRCL) Q1 2024 Earnings Call Transcript April 25, 2024

Stericycle, Inc. beats earnings expectations. Reported EPS is $0.57, expectations were $0.53. Stericycle, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and thank you for standing by and welcome to the Q1 2024 Stericycle Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Andrew Ellis, Senior Vice President of Finance.

Andrew Ellis: Good morning and thank you for joining Stericycle’s 2024 First 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 Cory 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 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 US Securities and Exchange Commission. Our past financial performance should not be considered a reliable indicator of our future performance, and investors should not use historical results to anticipate future results or trends. We disclaim any obligation to update or revise any forward-looking statements other than in accordance with legal and regulatory obligations. On the call, we will discuss nonfinancial measures. For additional information and reconciliation to the most comparable US GAAP measures, please refer to the schedules in our earnings press release, which can be found on Stericycle’s Investor Relations website at investors.stericycle.com.

The prepared comments for today’s call correspond to an earnings presentation, which is also available at Stericycle’s Investor Relations website. Throughout the call, we will reference specific slides from the presentation. This call is being recorded, and a replay will be available approximately one hour after the end of the conference call today until May 25th, 2024. A replay of the webcast will also be available on Stericycle’s Investor Relations website. Time-sensitive information provided during today’s call, which is occurring on April 25th, 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 express written consent of Stericycle is prohibited.

I’ll now turn the call over to Cindy.

Cindy Miller: Thank you, Andrew. Good morning, everyone. On today’s call, I will walk through highlights of our first quarter results. Cory and I will provide an update on our key business priorities and Janet will cover our financial performance. We are pleased with our first quarter results. Adjusted earnings per share was $0.57, an $0.08 improvement and adjusted EBITDA was $116.2 million, a $4.9 million improvement over the first quarter of 2023. These improvements were driven by disciplined execution across our key priorities and we are on track to achieve our guidance for full year 2024. First quarter revenues were in line with our internal expectations. Regulated Waste and Compliance Services organic revenues grew for the eighth consecutive quarter, mainly driven by growth in our hospital customers, which is being partially offset by a reduction in the national account footprint we serve as we have outlined on previous earnings calls.

Secure Information Destruction performed as expected, mainly due to year-over-year anticipated headwinds in commodity indexed revenues in the first half of 2024, as we mentioned in our prior earnings call. I will now turn the call over to Cory to provide an update on our first new key business priority, commercial and service excellence.

Cory White: Thank you, Cindy. As a reminder, the three pillars of commercial and service excellence are sales, service and product excellence. Today, I would like to provide an update on our latest initiative in product excellence, which focuses on developing and launching enhanced solutions. We recently launched our Shred-it ProtectPLUS service for our Secure Information Destruction business, which provides regularly scheduled paper shredding service and bundles customizable tiers of cybersecurity and privacy awareness training. This offering promotes compliance, helps maintain brand reputation and provides predictable monthly subscription, billing enabled by capabilities that were delivered with our latest ERP deployment last fall.

ProtectPLUS aligns with ongoing customer feedback and our annual Shred-it data protection report which surveys over 1,500 small business leaders and consumers. In this year’s survey, more than 90% of small business leaders reported that data and information protection and compliance training are an essential security practice, yet only 15% reported that they provided employees with training. This differentiated product addresses this specific need in the marketplace. ProtectPLUS is our first subscription-based offering for Secure Information Destruction, small and medium-sized business customers, which bundle service stops with compliance-based tools similar to our Steri-Safe offering for our regulated waste customers. Although early days, we have already generated approximately $2 million in annualized revenues with new customers only.

I will now turn the call back to Cindy for an update on our other key business priorities.

Cindy Miller: Thank you, Cory. Turning to our second key business priority. Operational excellence, we are focusing on driving margin expansion. First, we have completed the workforce management actions that we discussed on the February 2024 earnings call, which included targeted reductions in headcount in the fourth quarter of 2023 and first quarter of 2024, along with continued careful hiring and managing attrition that began in 2023. From these actions, we are on track to realize an estimated $40 million to $45 million of in-year cost savings. Second, the construction phase of our newest medical waste incinerator facility in McCarran, Nevada remains on track to be completed in the second quarter of 2024, at which point we will begin the testing phase.

We are also building the capability to process sorted office paper at this location and expect to begin shredding paper later this year. Third, we continue to make progress on our routing optimization initiative across both core businesses, which has been enabled by our ERP. In North America, producing routes has allowed us to eliminate approximately 5% of our North America fleet, which is a reduction of about 200 vehicles over the last 15 months. I will now turn the call over to Janet to discuss our financial results in more detail.

Janet Zelenka: Thank you, Cindy. I will start by summarizing our first quarter financial results. As noted on Slide 6, revenues in the first quarter were $664.9 million compared to $684.3 million in the first quarter of 2023. The decrease was mainly due to divestitures of $17.7 million, which was partially offset by favorable foreign exchange rates of $2.8 million and an acquisition of $0.9 million. Organic revenues in Regulated Waste and Compliance Services grew $9 million, while Secure Information Destruction organic revenues declined $14.4 million. Secure Information Destruction was mainly impacted by lower commodity index revenues due to lower recycling revenues and lower fuel and environmental surcharges of $19.8 million which were partially offset by higher service revenues of $5.4 million.

As noted on Slide 7, Regulated Waste and Compliance Services revenues were $447.8 million compared to $451.3 million in the first quarter of 2023. Excluding the impact of divestitures, foreign exchange rates and an acquisition, organic revenues increased 2.1% in the first quarter. In North America, Regulated Waste and Compliance services organic revenues increased $7.1 million or 1.9%, mainly driven by price. International Regulated Waste and Compliance Services organic revenues increased $1.9 million or 3% mainly driven by price. Secure Information Destruction revenues were $217.1 million compared to $233 million in the first quarter of 2023. Excluding the impact of divestitures, foreign exchange rates and an acquisition, organic revenues decreased 6.3%, mainly due to lower commodity index revenues, reflecting about an $80 reduction per ton in sorted office paper pricing year-over-year.

In North America, Secure Information Destruction organic revenues declined $12.2 million or 6% compared to the first quarter of 2023. In the first quarter, recycling paper revenues were down approximately 7% or $14.3 million due to lower RISI rates affecting sorted office paper pricing and lower tonnage. We continue to see headwinds in service stops with our national customers, driven by recent losses of mostly low-margin stops with existing customers and site closures. In the quarter, service revenues were up approximately 1% or $2.1 million, mainly driven by the recycling recovery surcharge. As a reminder, when sorted office paper prices are below $192 a ton, we are able to offset approximately 60% of the reduction in paper prices with our recycling recovery surcharge.

Looking year-over-year, we were able to offset approximately 40% of the reduction as the average sorted office paper price in the first quarter of 2023 was over $220 a ton. Our International Secure Information Destruction organic revenues decreased $2.2 million or 8.4% compared to the first quarter of 2023 mainly due to lower commodity index revenues. Income from operations in the first quarter was $38.9 million compared to $40 million in the first quarter of 2023. The $1.1 million decrease was mainly due to lower Secure Information Destruction commodity index revenues and the corresponding margin flow-through impact of $11.9 million higher adjusting items of $6.9 million and higher bad debt expense of $3.8 million, mainly due to a lower first quarter of 2023 bad debt expense level as a result of improved North America Secure Information Destruction collection.

These decreases were partially offset by cost savings and margin flow-through of $14.8 million and lower incentive and stock-based compensation of $5.5 million. Net income was $13.1 million or $0.14 diluted earnings per share compared to $11.2 million or $0.12 diluted earnings per share in the first quarter of 2023. The $1.9 million increase was mainly due to lower interest expense of $2 million, partially offset by lower income from operations, as I just explained. Cash from operations for the three months ended March 31st, 2024, was an outflow of $54.5 million compared to an inflow of $49.5 million in the same period of 2023. The year-over-year decrease of $104 million was mainly due to an increase in accounts receivable, net of deferred revenues of $63.1 million due to expected billing and collection delays from the regulated waste ERP launch in September 2023, higher annual incentive plan payments of $17.1 million and other net working capital changes of $23.8 million.

In the beginning of the first quarter, we experienced a continuation of accounts receivable trends that we discussed on the fourth quarter call. As a reminder, these trends were mainly driven by the timing of US regulated waste customer billings and collections due to the ERP implementation as we held some invoices for our largest customers to ensure accuracy or meet complex customer invoicing requirements. Beginning in March, accounts receivable balances started to stabilize, and we started to see improvement in collections in April. Adjusted income from operations was $90.5 million or 13.6% as a percentage of revenues, up from $84.7 million or 12.4% as a percentage of revenues in the first quarter of 2023. Adjusted income from operations increased 120 basis points as a percentage of revenues mainly due to cost savings and margin flow-through of 230 basis points, lower incentive and stock-based compensation of 80 basis points and the impact of divesting lower-margin businesses of 40 basis points.

This increase was partially offset by lower Secure Information Destruction commodity index revenues and the corresponding margin flow-through impact of 180 basis points and higher bad debt expense of 60 basis points as explained. As noted on Slide 10, adjusted diluted earnings per share was $0.57 compared to $0.49 in the first quarter of 2023. Excluding the positive impact from divesting lower-margin businesses of $0.01, the remaining $0.07 year-over-year increase was driven by, one, cost savings and margin flow-through of $0.11, two, lower taxes, interest and other are $0.04, and three, lower incentive and stock-based compensation of $0.04. These were partially offset by lower Secure Information Destruction commodity index revenues of $0.09 and lower bad debt expense of $0.03.

Capital expenditures for the three months ended March 31st, 2024 were $43.1 million compared to $36.4 million for the same period last year. Free cash flow for the first quarter was an outflow of $97.6 million compared to an inflow of $13.1 million in the same period of 2023. As noted on Slide 9, the year-over-year decline of approximately $110.7 million was mainly due to lower cash from operations of the $104 million and higher capital expenditures of $6.7 million. As mentioned on the fourth quarter call and in line with our expectations, we expected a use of cash in the first quarter as it includes our annual incentive compensation payouts, the semiannual debt interest payments and the timing of accounts receivable collections. As shown on Slide 11, at the end of the first quarter, our credit agreement-defined debt leverage ratio was 3.51 times and aligned with our expectations.

The amended credit agreement allows for certain cash add-backs when calculating the credit agreement-defined debt leverage ratio with $50 million of such add-backs that expired at the end of 2023. Expiration of these add-backs, which was anticipated, increased the credit agreement-defined debt leverage ratio by approximately 30 points in the first quarter of 2024. We expect to return to our long-term range of 2.5 to 3 times later this year. I will now turn the call back to Cindy.

Cindy Miller: Thank you, Janet. One of Stericycle’s core values is that we embrace diversity and inclusion, aligning with this core value, I’m very excited to share that we were recently recognized by Newsweek as one of America’s greatest workplaces for diversity and for women. We received the highest rating for offering a diverse and inclusive work environment, and celebrating the role that diversity plays in driving activity, innovation and organizational success. As always, I’d like to thank our customers, team members and 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.

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Q&A Session

Operator: Thank you. [Operator Instructions] One moment for our first question. And our first question comes from Sean Dodge from RBC Capital Markets. Your line is now open.

Sean Dodge: Thanks. Good morning. On the full year EBITDA guidance, Cindy, you said you completed the headcount reduction tracking towards the $40 million to $45 million of in-year cost savings you targeted. The other cost actions you need to take to get the rest of the way to that guidance, the other $15 million to $20 million, give or take, are those the facility and transportation enhancements? I think you mentioned some routing and fleet reduction. Are those part of that $40 million to $45 million or separate? I guess maybe you — can you just give us a little bit more detail on, what specifically else, needs to be done in the year and how far along you are on all of that?

Cindy Miller: Yes. No, Sean, thanks for the question. Yes, you’re correct. So we’ve got some savings from last year. We’ve got then the reduction in force that happened this year at the end of February. So for us, we are leaning into the continuation of route rebalancing. And I think the team is making great progress, where they’re a small, but mighty team for sure. We are leaning into productivity gains that we’ve seen. We upgraded about 20 facilities last year, everything from conveyance to new autoclaves and quite a bit of other capital expenditure investments. Those things are yielding good results in terms of, the equipment is staying up, running longer, which reduces the amount of time that we’ve got to have, folks actually handling materials or staffing them.

So that all is working. Remember, there’s also a part to this in terms of careful hiring and attrition as well. We’re being very disciplined in terms of replacements and a lot of the things to make sure that we keep a keen eye on the reduction in forces that we’ve already had. So I think it’s a combination of all those initiatives. I’m very confident that we are on track, we’re certainly trending towards the plan that we had laid out, and I think the team is doing a great job.

Sean Dodge: Okay. Great. And then on the free cash flow, Janet, I know you mentioned some impact from accounts receivable in the ERP. Can you just unpack that a little bit more for us? What’s happening there? And then you said it looks like it’s starting to stabilize as of April. Are we at the point now where we should start to see that begin to reverse? And then just in context of your full year guidance, the $210 million to $265 million. Is this going to be pretty Q4 or back-half weighted? Or with this stabilizing and reversing should free cash be pretty ratable over the next few quarters?

Janet Zelenka: Yes, I think you will start to see it improve in the second quarter. We are starting to see momentum and those cash collections remaining. Those are focused on our largest customers that are most complex. For most of our customers, we build about $120 million a month in RWCS in North America and most of that is coming in. This is intent to pay and just getting the bills right, highly complex over thousands of invoices to be processed over a lot of systems for our customers. So we’re very encouraged by the momentum we’re seeing. I think that will continue into the second quarter a bit, but we intend to flip into positive cash flow as the year progresses and are confident in our guidance because we know that it’s money to be paid. And we had predicted that when we were looking at the cash outflow, that I said we would have in the first quarter, that would continue to go into Q1. And actually, internally, we did better on our cash flows than we had thought.

Sean Dodge: Okay, great. Thanks again.

Cindy Miller: Thanks, Sean.

Operator: Thank you. And one moment for our next question. And our next question comes from David Manthey from Baird. Your line is now open.

David Manthey: Hi. Good morning, everyone.

Cindy Miller: Good morning.

David Manthey: My first question is that I’m hoping you can outline some of the business problems or processes that you’ve been able to either solve or improve with the new ERP system so far? And what key projects are next on the timeline? And associated with that, Janet, you talked about the $0.11 of cost savings and margin flow-through. Are you expecting that to accelerate, decelerate or remain at constant levels in quarters ahead?

Cindy Miller: Great. Dave, great to hear you. Appreciate the questions. So I think the ERP has done. We look at it two ways. Certainly, it solves problems, but then it also gives us additional capabilities we didn’t have. So it’s almost as if what can you fix? And then what does it open up as an opportunity for you. So in terms of problems, anytime you get morning report, if you will, putting it in simple terms, from an RWCS side right now that they are on the same platform as Shred-it with dispatching routing capabilities to know productivity levels to understand stop counts during a day to be able to shift and make changes. I don’t want to say on the fly, but certainly as customers have different needs. We are early days on the ERP or on the regulated side.

But I think our operators are really leaning into the technology. So for us, better routing, Anytime you can turn around and take 200 vehicles off the street, continue to do the work, just having it routed better, all the miles that you run less, the fuel, everything. Those are some of the problems, if you will call — or I would just say, the inefficiencies that we’re solving for. And then — but if you take a look at solutions, right now, as we morph into, let’s say, the commercial side and the excellence, we just launched ProtectPLUS. We’re looking at understanding our customers better. We are looking at how we can leverage, penetrate, cross-sell, do things better. All of that is coming to life because we’re no longer manual. So for me, I think it is early days in terms of what the ERP is giving us, but pretty much anything that we’re coming out with right now.

It is really — we’re morphing from the brawn stage. I used to talk about we’re doing an awful lot because we’re muscling through. We’re now finally combining the brawn with some brain. And the brain is more just the information we’re getting and able to use and harness from the ERP. So more to come there, and quite frankly, for us to have reaffirmed long-range guidance, a good bit of us getting better with that is built into that.

Janet Zelenka: And then in terms of the momentum on what we’re seeing, remember, we just completed the headcount reduction in Q1. So most of the savings are not in Q1. And we’re just going to see momentum on that build on the $40 million to $45 million in-year cost savings that we’re going to have, David, for the year. We also — we’re going to see that in SG&A and others because that is a key driver for us. But there is also continued route rebalancing. Most of that has been in Secure Information Destruction. We have some momentum that we can build over this year and next and applying the RWCS, and data has been key for us to see insights that we have never seen before and RWCS which are important. I just want to point out that margin flow-through from SID from the headwinds that we’re seeing in first quarter.

The heaviest headwinds we have year-over-year on the commodity index revenue related to the RISI rates was heaviest in the first quarter. We’ll see some in the second quarter and then that will also mitigate as well creating margin flow-through in the second half of the year.

David Manthey: Okay. That’s a lot of great information. Thank you for that. And then just a quick one. On this ProtectPLUS offering, how important is this going to be? I don’t want to overstate it, but and secondarily, when you used to break out SQ med waste, it was higher operating margin than overall and given that it sounds like you’re catering to a SMB customer here? Is it right to assume that ProtectPLUS operating margins would be higher than the corporate average?

Cindy Miller: I’ll let Janet kind of address maybe the margin discussion. But for us, we’re — Cory talked about ProtectPLUS. And for us, Dave, you’ve been a follower for a long time. Any time you take a look, and you compare this to what we’re doing in Steri-Safe and being able to provide a similar service really to that niche market, that’s small and medium business owner who doesn’t have a training department. They don’t have compliance departments. They don’t have an awful lot of the resources that the big companies have for us, it has been — our customer base in RWCS really appreciates the expertise we provide to them at their fingertips. And this is our venture into that on the Shred-it side, because with all the cyber, all the information, all the technical things around keeping information secure, that’s extremely important to them.

So for us — this is allowing us right now — I think, Cory, I think it was — I think Cory had mentioned that it is just with new customers at this moment. Where we are providing them that subscription service which takes them away from the transactional engagement that’s with us, and really builds the value, builds the connectivity and I think builds the customer stickiness. Because certainly we’re — I think what we have is something that our competitors and anybody else the big and the small really aren’t offering.

Janet Zelenka: And in terms of margin, yes, inherently, your small and medium business customers have a better margin profile than your largest customers. And it has a stability to the margin. Right now, 100% of Secure Information Destruction is transactional by its very nature. And I’d just like to point out this was — this subscription-based capability was put into place when we went to the ERP for RWCS just last fall. So we didn’t have the capability in the system to offer subscription base to our SID customers. So this is a capability-enabled offering. That also provides a stability and revenue flow-through in the long run as a potential, just like we do with our independent customers in RWCS, which about 90% of that revenue, I think, is about subscription based.

David Manthey: Sounds great. Thank you both.

Janet Zelenka: So it’s — it’s an early days. So you’re right not to overstate it, but it is encouraging. And it is an example of the capabilities enabled by the ERP.

David Manthey: Yeah, it’s interesting. Thank you very much.

Cindy Miller: Thanks, Dave.

Operator: Thank you. And one moment for our next question. And our next question comes from Scott Schneeberger from Oppenheimer & Company. Your line is now open.

Scott Schneeberger: Thanks very much. Good morning, everyone. I’ll pick up on that last question. It’s very — ProtectPLUS sounds very interesting as a new offering. Maybe like a three-part question in this. First one will be, Janet, will the collections on the subscription base, be at the top of the month as opposed to after the fact, which I believe is the way you do Steri-Safe. And please correct me if not. Number two in this is, if you can just add — provide more for you, Cindy, a progress update on Express and priority pickup services for Secure Information, that was an initiative you rolled out a couple of years ago. Just curious on how that’s progressing as you’re clearly looking to innovate in the destruction business.

And lastly, on this topic, should we expect any innovation, this is — you have the ERP in place, for SID over a year. So we’re seeing this innovation from you. Should we expect innovation with regard to regulated waste in a matter of time, particularly with regard to the top line? Thank you.

Janet Zelenka: So I’ll take the first question on collections. So yes, you are right, we do bill in advance and for the subscription billing and RWCS. So various two questions. We are also asked going for credit cards with ProtectPLUS as well or billing by ACH. So that is a cashflow improvement and versus the transactional you do it and then you bill. So it is another win for this particular product. And then I’ll turn it over to Cindy for the Express and Priority.

Cindy Miller: Sure. So absolutely the Express and the Priority continues along very well. We’ve got the teams that are selling it. I think that’s a drive — it’s amazing how many folks really one thing this on-demand culture, that Priority purge really fits right into that, matching that demand. So I think I think we’ve got some positive things going on there. And then, Cory, I would say the short answer to your last question is, there innovation coming with RWCS that’s unleashed by the ERP. Cory can answer that. I know we won’t say anything prematurely. But Cory?

Cory White: Yes. I think great questions, Scott. I think ultimately, we’re excited about the capabilities there. I think it’s safe to assume we’ll continue to see innovation. We’ve talked in the past about, obviously, new centers and some innovation we’re doing there. So that will continue. We’ve talked about new sites and facilities. But I think the big unlock there is data. We’ve talked about this in past earnings calls. I think the really exciting thing for us, especially as we move into more sustainability targeted innovations. The data is really unlocking opportunities for us to really see some innovation in the way we present data, the way we target opportunities for savings for our customers, but more importantly, to give better insights into benchmarking waste streams, areas of opportunity to drive recycling capabilities, things like that, that I think are going to be unlocked again from this new ERP technology.

So more to come there, early days, but we’re excited about the innovation pipeline that continues to grow.

Scott Schneeberger: I appreciate that everyone. I know I did a 3 for 1 on the first one, but I would like to ask a second question. And I guess Cindy probably for you primarily just how is the pricing environment across both major segments and in disruption more on the service as opposed to use paper. But just curious, are you able to cover more than inflationary pressure. And how sort of are you in — across both segments? Thanks.

Cindy Miller: I think that’s a great question, Scott. Another thing I think just internally that the ERP has really afforded us the opportunity to stay current to be more engaged to be able to be more adaptive and flexible as we see those things. So for me I think overall pricing I don’t see there being any major pushback from customers. And quite frankly I think we — most companies like Stericycle from, I think, January of 2022 when inflation hit 9%, had their opportunities to go back and forth with reference to negotiations on, hey, where should price be? I think for us right now, I think we’re in a very steady rhythm. And I think we’re looking to continue with whether it’s CPIs or those types of things, as we move forward.

But I see stability. I think maybe what you’re really driving at is, are we seeing any problems with it? For me, I see more stability. I see our ability on both sides of the business be able to extract the value that we expect for services that we provide.

Scott Schneeberger: Great. Thanks.

Operator: Thank you. And one moment for our next question. And our next question comes from Tobey Sommer from Truist Securities. Your line is now open.

Jasper Bibb: Hey, good morning. This is Jasper Bibb on for Tobey. For the US regulated waste business, I’m just curious if you could stratify the growth trends you’re seeing between the large and small quantity generators as well as what competitive behavior looks like on price from some of the smaller players in the market? Thanks.

Cindy Miller: Yes. Good question. I think for us that large quantity generator is really our — we call it our hospital group, if you will. Some of these hospital networks have grown quite large. I think when you take a look at growth, there are — it really is very interesting. We’re pleased with what we’re seeing in terms of volume — looks like it’s returning. I think more to come as the year unfolds. We’re encouraged by what we’re seeing. It is mixed in terms of that recovery, though, certain areas, staffing has come back. And are in a little bit better shape than maybe some of the others. But for us, we’re very encouraged by what we see in terms of the opportunity to grow there.

Jasper Bibb: Thanks. And then I know there’s typically a seasonal impact in the first half with tax season for Shred-it. So just kind of curious if you’ve seen the seasonal uplift there that you’d normally expect — and whether you’ve seen tonnage start to, I guess, stabilize a bit more as the return to office trend discontinued?

Cindy Miller: Yes, I think that’s a good call out. It is kind of a minor blip, not everybody as soon as they do their taxes purge everything from seven years prior. So it isn’t quite an apples-to-apples. The other thing I want to say with reference to Q1, we did see some — we did have some adverse weather in the beginning of — or through January, we had several facilities. We had the usual things with the issues with pipes bursting and vehicles not being able to get out. And as a result with us on the Shred-it business, that means transactions weren’t able to happen that day, which means we missed some revenue. So I think all-in-all, those things kind of washed as we moved through the quarter. So for us, as we move forward into Q2, I think that the ones that we do like about this business is it isn’t really extreme cycles or seasonality to it.

So I think we’re encouraged where we are, which is why we believe we’re going to continue to make guidance as originally outlined.

Jasper Bibb: Makes sense. Thanks for taking the questions.

Cindy Miller: Thanks, Tobey. Thanks, Jas.

Operator: Thank you. And one moment for our next question. And our next question comes from Michael Hoffman from Stifel. Your line is now open.

Michael Hoffman: So, Cindy, congratulations on being noted as a woman who inspires by Waste360.

Cindy Miller: Michael, thank you very much. That was a very kind little public service announcement.

Michael Hoffman: So my questions are around growth first. In medical waste, I think, of you as having kind of in the low 30s penetration in the small — what used to be called small generator, your independent market. Cory talked about a go-to-market strategy on the fourth quarter call so there’s why can’t you get the next incremental dock. But in volume part of the market. Mike said is you’re a little underweighted relative to your hospitals in assisted living and nursing homes. So isn’t that and also golden opportunity even as we are waiting for the staffing volume recovery issue and the existing base. There’s a new customer add opportunity as well?

Cindy Miller: Michael, it’s almost as if you’ve been in a couple of the rooms, we do talk about that. And one of the things that I think the ERP has done for us. And quite frankly, one of the things that a stable workforce. So we are staffed accordingly. And when you reroute and you rebalance routes and you take miles out of drivers days. It provides them an opportunity within their territory and to be more productive as you drive density within that days’ worth of work. So for us, when you have the opportunity to do more than just drive across town, drive to the next county and worry about time commitments for big customers or bigger customers. When you tighten up your routes, you afforded the opportunity to look left and right and go after different leads and go after different opportunities, because you do have appropriate staffing now to be able to provide the service that all of those customers expect.

And as you can imagine, when you’re dispatching looks more like a bowl of spaghetti, sometimes it’s very difficult to add — to look for something else in order to capture and gain that revenue. So as we continue to rebalance and we continue to really get, I think, pretty efficient. I’m pretty proud of this team, having lived in the world of efficiency for 30 years before getting here. I would stack the ability that our people and the learnings that they’re getting with this new technology, I’d stack it up against many. And for us, as we do that, you’re right, that’s where operations improvements and engineering improvements come to the table and share with commercial that, hey, we have the opportunity to do more and be more and then we can get more aggressive in those avenues.

So I think you’re only as good as the service you provide, as we get tighter and we get better with our routes, you can then open up the service to more. And I think that’s finally a position where we putting ourselves in as we move forward.

Michael Hoffman: Okay. And then on the Shred-it side, Janet, could you disaggregate for us or help us, if we strip away SOP, and we strip away the CVS and Rite Aid site facility closures, where same-store otherwise stops up, so we’re seeing organic growth.

Janet Zelenka: Yes. So if you take away what’s going on with the national footprint and good to call out, we’re seeing encouraging signs on the rest of the small medium business. And what’s going on there. And really it’s a really commodity issue as well as you all know. And if you strip out globally, all the commodity-based revenue, just look at service revenue was up about 3% globally and about 2.9% North America.

Michael Hoffman: Terrific. And then just so we don’t get your top line wrong. If you gave — if you knew if the current SOP price was the price for the whole quarter, what’s our headwind year-over-year?

Janet Zelenka: Yes. So significant headwind for the year. I think we’re looking at — I’m trying to get the number right here. It’s like 18 million or something like it’s a big number. That was headwinds. Are you looking for the headwinds Q1 over Q1?

Michael Hoffman: Well, you told us in 1Q, I have that data because you gave it to us, but there’s going to be another headwind, it’s supposed to be smaller in Q2.

Janet Zelenka: Right. If there is more in Q2. It’s less than what it was in Q1 significantly. If you just look at the paper pricing year-over-year, it starts to mitigate in the comparison. And then it ceases to be a headwind in the second half of the year.

Michael Hoffman: So $10 million?

Janet Zelenka: Yes. It’s actually in the — around the $5 million range is our best guess for the second quarter of what we see year-over-year, and then it gets to be a nonissue in the second half of the year.

Michael Hoffman: Right. And then squeeze one last one. Cindy, about a couple of years ago, I asked you this question about, could you go from transaction base to service base. So now I understand why you were so enthusiastic because it was going to be in the ERP. Five years out, what do you think the mix looks like?

Cindy Miller: Yes. I think just as Janet had mentioned, if you take a look in our best bellwether is Steri-Safe on the regulated side. We’ve got a large customer base in terms of independent, which would be the equivalent to the small and medium businesses on the Shred-it side. So for us, if you take a look at about 90% of that independent is in that subscription base. I think for us it at least put a target out there for us to work towards — so I don’t know exactly what it will be, but I know what it turned into and what we’ve matured on the regulated side. So I think we’ve challenged ourselves internally that we know what’s possible. And certainly, different businesses, different needs. But for us, we think there’s great upside there, and that’s what we’re going to continue to work towards.

Michael Hoffman: All right. Thanks and congratulations again.

Cindy Miller: Thank you.

Janet Zelenka: Thank you.

Operator: Thank you. [Operator Instructions] And one moment for our next question. And our next question comes from Kevin Steinke from Barrington Research Associates. Your line is now open.

Kevin Steinke: Thank you. So just again following up on the ProtectPLUS offering. You mentioned the 2 million contribution from new customers only. Does that imply that you have not yet begun to cross-sell it to existing customers, which presumably is a large opportunity for penetration. As you referenced there with the high levels of Steri-Safe penetration that you’ve achieved?

Cory White: That’s exactly right, Kevin. It’s been focused on new customers only. We expect more opportunity to manifest as we go throughout the year, but we’ve started with only new contracts.

Kevin Steinke: Okay. Do you have a sense as that timing is when you might start to ramp up the cross-sell for ProtectPLUS to existing customers?

Cory White: Yes. That will, obviously, over the course of the next few years, as contracts come up, we’ll have the opportunity to write them on the new ProtectPLUS offering. And so it will continue to trickle throughout the rest of this year and in the years to come.

Kevin Steinke: Okay. Understood. Thank you for taking the questions.

Cindy Miller: Thanks, Kevin.

Operator: Thank you. And I’m showing no further questions. I would now like to turn the back over to Cindy Miller for closing remarks.

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

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.