Ron Mittelstaedt: Yes. Well, first off, Noah, the – when you’re doing M&A, there’s always going to be some level of shedding, so because when you’re acquiring a private company that I’m just going to use this, it’s got $40 million of revenue, they probably have somewhere between $4 million and $8 million that is going to come up in a one to three-year period that you’re probably going to bid to lose or keep at a margin that you want. So you start doing $200 million, $400 million, $500 million as we’ve done per year over the last several years, 2021, 2022, especially a fairly large year already this year, that’s going to – you’re going to have some of that for a period of time. We are still believe it or not, we are still rightsizing progressive.
We acquired that in 2016. Several of the larger contracts in that we have lost in 2023 came out of progressive in both Canada and Florida. And they were 10-year agreements that we lived with till expiration, and we bid them to either re-keep them and make money or happily walk away. And so obviously, we’ve only done one progressive over time. So – and that is – I would tell you that type of shedding is effectively probably done from that that footprint, but there’s going to be some – we think of the negative volume as probably roughly about three quarters to a point related to shedding, and about up to a point, maybe a little less for a conscious price volume trade-off in competitive commercial markets. That’s the way we think of that.
And obviously, we have comfortably led the entire sector in 2022 in price, comfortably led it again in 2023 in price. And we are happy to take that price volume trade-off as I think you’re seeing it show up in the pace and the margin acceleration.
Mary Anne Whitney: No, the other observation I would make an offer is that if the observation is, hey, it looks like there’s more shedding with these recent acquisitions, I’d say, no, we don’t see a material difference. I think what’s different is that the underlying economy isn’t generating more volumes, and so it’s more pronounced for ourselves and others in the industry. And so I think it’s always going on, but there’s generally a base of positive volume to offset it.
Noah Kaye: Yes. That’s great context. Thank you both.
Operator: Thank you. And our next question today comes from Jerry Revich with Goldman Sachs. Please go ahead.
Jerry Revich: Yes. Hi, good morning, everyone.
Ron Mittelstaedt: Good morning, Jerry.
Jerry Revich: Ron, Mary Anne, I’m wondering if we just talk about the margin trajectory in the core business. You folks sequentially posted margins over a point better than normal seasonality, the guidance, excluding the noise, suggests another 60 basis points improvement versus normal in 4Q. Does that momentum continue into the first quarter? Are we getting caught up on price cost from here, or will you be at the appropriate run rate exiting 4Q?
Mary Anne Whitney: Sure. So I’ll start with just keep in mind that Q3 is the seasonally strongest margin contributor in the – across the industry for ourselves. And so that’s important to put it in context. And remember, that’s the starting point that you’re going from right now. So I’d say there is normal seasonality, which impacts the degree to which that impacts reported margins. We’ve also had the changing dynamics of recycled commodities and RINs, which of course, were the big headwind going into the year that’s waning and becomes a tailwind. So I’d say within that context, are we still encouraged by the trajectory of margins? Yes. And it’s for the reasons that we’ve described the opportunity for outsized price cost spread, we’ve pointed to that as a driver of the potential for outsized margin expansion in 2024 and then the follow-on benefits from the improving retention that we’ve described.
So no change in the way we’re thinking about those things. And yes, that is positive in terms of the trajectory.
Jerry Revich: And it sounds like the momentum is continuing into the first quarter just to be clear, Mary Anne, or at least expect it to continue.
Mary Anne Whitney: Yes, nothing we’ve seen would depart from that. As I said, those tailwinds on the commodities, for instance are positive and we haven’t seen incremental cost pressures. So we’re encouraged by the trends.
Jerry Revich: Okay. Super. And in terms of you spoke to D3 RINs just mathematically given where pricing is now, that suggests 2024 versus 2023 will be about a $50 million tailwind if current spot prices hold, given the supply issues we’ve been talking about. Anything that would preclude you from realizing that benefit if the spot rate holds, do you have any contracts in place? And I just want to confirm, if spot prices do hold, it would be additive to the guidance or preliminary outlook that you shared.
Mary Anne Whitney: So, a couple of things. One, whenever the guidance we’ve given is basically marking to market commodity values. And so what we’ve said is continued movement in commodities would be upside along with the new projects coming online. So we’ve already factored in some tailwind from RINs as well as recycled commodities. The other comment, Jerry would be I never think in terms of that spot price because as you know, that’s not indicative of where you actually sell RINs, even in the current environment. So rather than picking a point like $3.40, I’d say we’re probably in that range of $3 to $3.25 is the way we’ve thought about it.
Jerry Revich: Got it. Thank you. And can you just update us on the timing of CapEx related to these projects? What are you expecting in 2024 and 2025 on the projects where you are putting capital to work?
Mary Anne Whitney: Right. So that would be that $125 million to $150 million in CapEx associated with the RNG projects that we said will impact 2024. That – when that’s the vast majority of the $200 million in outlays that we’d expect for all those projects to generate that $200 million in EBITDA by 2026.
Jerry Revich: Super. And then just a clarification, the $200 million. I believe when you had set that target D3 RINs prices were in the low-2s, correct? Can I get you to fact check that for me, please?
Mary Anne Whitney: I think what we talked about was a five-year average, and so I think its north of that.
Ron Mittelstaedt: Yes, it’s $250 million to $270 million.
Jerry Revich: Okay. Super. Thank you.
Operator: Thank you. And our next question today comes from Stephanie Moore with Jefferies. Please go ahead.
Stephanie Moore: Hi, guys. Appreciate the time. We’ll keep it to just one here. We talked a little bit about the volume environment and your own actions of shedding accounts, but could you maybe talk a little bit about the strength in the underlying environment? What you’re seeing on both the commercial and residential side? I know you called out specialty being stronger, but that can be kind of volatile, but would love to just get your overall view. Thanks.
Ron Mittelstaedt: Well, I would tell you overall, Stephanie, that the economy is okay. I wouldn’t say it is by any way strong. I would say it’s sort of a flattish environment from a growth standpoint. You have pockets of strength. I wouldn’t really say there’s too many pockets of weakness, just flatness. We looked at so year-to-date, our new business sales through our sales force activity is 102% of what it was year-to-date last year, so better than last year, but 2% in terms of new sales. So overall, I would say you’ve seen a little improvement over 2022, but really pretty flat. And I think you saw that in our comments that in Q3 roll off pulls were up 1%. Price on per pull was up quite strong, but roll off pulls were up 1%.
