Hans Hoffman: Hi. This is Hans on for Stephanie. I was just curious if we could sort of bridge the 100 bps of margin expansion. I know you guys kind of called out sort of optimizing the overall cost structure in the collection and disposable side, but just curious if you could sort of parse out the other item impacts like fuel, ITC and M&A?
Devina Rankin: Sure. So collection and disposal of 70 basis points plus SG&A of 20 basis points basically tells the story, but then we’ve got puts and takes and the biggest piece there is the timing of the alternative fuel tax credit and that was a headwind of 50 basis points. That was almost entirely offset by the impact of lower fuel prices and our surcharge structure, and that was a 40 basis point impact in the quarter. Then you had recycling and renewable energy, recycling was positive 20 basis points renewable energy was negative 20 basis points. So again, those two offset each other. And we’ve talked all year about having some dilutive impact from M&A because of the type of acquisitions we had on the recycling brokerage side as well as just a typical ramp of getting good solid waste tuck-in acquisitions to WM standards.
That impact has lessened in the third quarter relative to what we’ve seen in the first half of the year, and that was at about 40 basis points in the first half down to about 20 basis in the third quarter.
Hans Hoffman: Got it. That’s helpful. And then just kind of shifting gears a bit. Just kind of curious if you could talk about the greatest – where do you have the greatest sort of pricing opportunity? And how should we be thinking about your pricing power in a lower inflationary environment. And I was also just sort of wondering if you could just remind us what percent of the restricted book is tied to waste and see trash collection portion of CPI versus actual headline CPI. I think it’s kind of important as that kind of component has been accelerating kind of for most of this year and probably will average a point or two higher than headline CPI, which could have some impact on pricing next year.
Jim Fish: Yes. The number we usually give is about 40% is tied to some type of index. Not necessarily water sewer trash, that’s one of the indices, but about 40% is tied to an index. There tends to be a bit of a look back on that, a lag. So to the extent that, that number is climbing, that ends up being a positive for us. It just – it takes a little while to get to that full positive. I think to your first question about where we expect pricing to be good. Look, I think pricing has been pretty consistently good across the board. In years past, particularly probably as far back as five years ago, pricing was pretty good, but it was very focused on one line of business. That has changed over the last few years where we’ve been good with pricing across the board.
But I think the piece that we’ve all touched on a little bit here today that I’ll reiterate is really the net price. It’s not something we used to talk about, because there wasn’t a whole lot of inflation in the economy. But if I just use Q2 of 2022, because that was kind of the high watermark for inflation, so CPI at 9.5% in Q2 of 2022 and if I look at our core price for collection disposal was 7.5% in Q2 of 2022 and yield was 6.2%. Now we’re looking at a CPI in the 4% range. I think 4.1% was the exact number. And our Q3 collection disposal core price was 6.6% and yield is 5%. So we’ve completely flipped the tables there, where in Q2 of 2022, CPI is 300 or 400 basis points in front of our price. And now we flip the table. So collectively, we’re kind of recovering – we’re adding margin now, whereas we were five quarters ago seeing margin decline.
But overall, I think we’re on a nice trajectory with respect to margin growth. And that really is a function of having a more manageable CPI. I know one of the questions that quarter was what’s the optimal level of inflation? And my kind of smart answer was, well, it’s not 9.5%. I think we’re – if I were asked that question today, I’d say we’re much closer to an optimal level of inflation, because we’re able to recover with our pricing programs across the board.
John Morris: The only thing I would add there, Jim, is when you look at our customer metrics, which is another benchmark and you look at our new business, our lost business, our net new, our churn numbers, our rollbacks, all those KPIs around how that’s impacting the customer are still on a good trajectory as well. So to your point, it feels like overall, we’re in a good spot.
Hans Hoffman: Got it. Super helpful and if I could just sneak one more question in. Just kind of curious with labor turnover improving, one, just sort of wondering how we should maybe think about productivity or efficiency gains as employees kind of mature into their positions?
John Morris: Yes, I think that’s a great question. One of the friction points, obviously, of turnover is the experience level, and that does translate to two things. One, it can translate to safety and it could translate to efficiency and we’ve seen positive momentum since the beginning of the year for each quarter in each line of business. And two of the three lines of business went back positive in the quarter. All three were positive in September. We’re seeing the positive efficiency momentum continue into October. So that’s probably the best benchmark for us to look at in terms of where that shows up.
Hans Hoffman: Got it. Thanks.
Operator: Thank you. One moment for our next question. Our next question will come from the line of Dave Manthey from Baird. Your line is open. Dave Manthey from Baird. Your line is open.
Dave Manthey: Can you hear me now? Hello?
Jim Fish: Yes, I hear you. Yes, we got you.
Dave Manthey: Oh, you got me now. Okay. Hi. Thank you. Good morning. So my question is any of the $350 million sustainability CapEx being cut at all? Or is it just being pushed to the right? And then is the plan to catch-up between now and 2026? Or is the time line potentially elongated from here?
Tara Hemmer: So none of it is cut. And yes, the plan is to catch up. As Devina mentioned earlier, it would be spread throughout 2024 and 2025 with some of what was originally in ’24 moving to 2025.
Dave Manthey: Okay. Thank you. And second, a couple of random modeling questions here. 11.7 D3 RINs you generate per MMBtu. Is that a constant or can that fluctuate for some reason over time? And then second, I think you told us last quarter that something like 19% of your debt is floating rate, what is that percent today?
