Devina Rankin: Yes, Brian, you’re spot on there. Our ability to convert revenue and EBITDA dollars to free cash flow with the sustainability investments will be heightened as we come through the investment period. Fundamentally, that’s because there’s a different capital outlay model for this part of our business than there is for the collection and disposal business, where you’re having to spend capital dollars effectively each day that you service the customer. So with maintenance capital levels meaningfully lower in both recycling and renewable energy, we’re optimistic that cash flow conversion will be stronger after this investment period.
Bryan Burgmeier: Got it. Thanks for that. And last question for me. The press release called out investment in plastic recycling infrastructure. Maybe just from a high level, is it possible to say what makes that such an enticing market for WM longer term, do you have any thoughts on how the margins or returns could compare to your existing business?
Devina Rankin: Sure. The investment we made in Natura PCR, this is really about taking film and film plastic and mechanically recycling it. Film has very low recycling rates today. And on top of that, if you look at — all of the brands out there, CPG companies have very strong commitments to use more recycled content products. So it’s a market where there is a very strong need and we have a strong fit. Also, if you think about the plastics that we collect on the brokerage side of the house, so it felt like a natural fit for us. What you’re seeing in the press release are some capital dollars to invest in building out that plant portfolio in Houston and also in the Midwest, and we’ll be providing a bit more information on that in April.
Bryan Burgmeier: Okay. Great. Thanks a lot. I’ll turn it over.
Operator: Thank you. Our next question comes from Kevin Chiang with CIBC. You may proceed.
Kevin Chiang: Hi. Thanks for taking my question and thanks for the supplemental information here. If I look at your pro forma earnings contribution from these sustainability investments of — and if I do kind of a quick back of the envelope math, it seems like you’d get to something like 15%, maybe even upwards of 20% of your earnings coming from recycling on RNG. And then the payback looks phenomenal. ROIC is obviously very big. But I guess how do you think about the underlying earnings volatility of the business now that it becomes more commodity exposed once these investments are completed?
Devina Rankin: Yes, I can speak to the commodity volatility on both sides of the business. So on the RNG side of the house, we’ve talked a lot and I mentioned it today that we have 40% of our volume that’s really tied into fixed price markets. And then we also have the ability on the transportation side of the house to leverage WM suit and tie it into ERINs . We’re really — sorry, RINs, conventional RINs, we’re really being thoughtful about how our ramp looks long term and how to tap into those fixed versus transportation markets. And so we’ll give a bit more information on that in April. But suffice it to say that, it’s something that we’re tracking very closely, and we have a whole host of options to ensure that we can navigate that.
I think there’s very strong fundamentals. If you look at what the EPA did with their announcement on the renewable volume obligation and setting a three-year pathway. So it really shores up where we’re headed on the renewable natural gas side of the house. On the recycling side of the house, I think what’s interesting is, if you look at the $240 million in EBITDA, 60% of that is really independent of commodity prices, and that really speaks to the fact that a big piece of it is coming from labor and labor improvements. 35% exiting the quarter in labor cost per ton improvements at our automated facilities. And then revenue quality, and a great example of that is how we’re able to take mixed paper and remove cardboard from those bales and sell it at a higher price premium.
And that’s independent of market prices. So a lot of what we’re doing will help us inflate ourselves from those wings.
Jim Fish: And I might add one thing because in your question about adding volatility, I mean, I guess you could say that. But look, as I said, and Tara has mentioned as well, this gas is coming to us regardless. I mean, this is gas that is produced by these landfills as a result of MSW going into them. And about half of it is monetized in some form today. All we’re doing here is taking advantage of a situation that was presented to us, but also taking advantage of our natural gas fleet and turning that 50% that isn’t monetized into some value add for shareholders. Does it add some volatility? I guess it adds some, although Tara has gone through a part of her answer to question earlier was to — that we are looking to take some of that volatility away by fixing some of the pricing.
But I think there’s this view that why would you add a volatile business here? And the answer is, we’re just taking gas that’s being produced by these sites and turning it into a very, very profitable revenue stream with very, very strong paybacks.
Kevin Chiang: That’s great color, Jim. That’s very helpful. Maybe just my second one just maybe on some of the automation you were talking about on the customer service side. It sounds like, obviously, some huge wins there. Just wondering what you’re seeing from — I guess, the labor cost savings — would you track, I guess, like a Net Promoter Score or like a customer churn, as you roll that technology out and maybe do some of the friction that some of your customers might have had calling into call centers. Are you seeing other benefits, whether something that promoter score or churn rate that you’d be tracking alongside just the labor cost savings?
John Morris: Yes, that’s a good question. A few things are happening on that front. One is we’ve digitized a lot of the customer-facing elements of sort of these transactions. So customers have the better ability to transact with us when and how they want to from a digital perspective. We’re seeing that translate to NPS scores, not a surprise that we in the beginning of the year had some dips in our NPS scores as we were challenged on some of the labor and asset fronts that Devina and Jim commented on, but that started to improve in the second half of the year, which has also helped our service quality. So, we’re seeing our NPS score start to move the right way in the back half of the year. And we’re also, at the same time, seeing the benefits from some of the labor arbitrage.
As Jim mentioned, these are not jobs we’re moving out. These are jobs that we’re not replacing because they’re because they’re high turnover. And I think Tara and Jim gave good color on what’s happening with the recycling and the recycling front with respect to automation benefits. And we’ve touched on the other big bucket is moving from sort of the traditional manual rear load system to the ASL system, that’s another element of automation where we’re clearly seeing benefits.
Kevin Chiang: Excellent. That’s it from me. Thank you very much.
Operator: Thank you. Our next question comes from Walter Spracklin with RBC Capital Markets. You may proceed.
Walter Spracklin: Yes, thanks very much Jim. And just following up on Kevin’s question there regarding — and to your point, Jim, it is fluctuation, but it’s something that can be managed and it looks like you’re doing you’re setting up for a great job managing some of that fluctuation. But I guess investors are — and you touched on it on your pricing, right? In the solid waste sector, investors are accustomed to price never going down. Yes, it might go up less and the volatility is really just how much more does it go up one year to the next. But with some of the renewable energy fluctuations and recycled commodity prices as you pointed out. I mean, you’re getting EBITDA going down this year as a result of those. My question, I guess, is that as you build these out more, is this something that you would you would consider spinning off while retaining a stake as to kind of separate the two so that investors who desire that volatility, want that volatility and willing to pay for the volatility can do so and then those that are — prefer the more steady EBITDA stream that your company has delivered so well in the past, can focus more on.
Is that something that is in the cards in the future? How much have you thought about it? Just curious in that regard?
Jim Fish: Well, a couple — I think you’re making a couple of points here. Just to maybe correct one thing. Price isn’t going down if that’s what you were implying. It’s not going down. It’s just going up by slightly less than it did last year. And to your question about whether we would consider spinning off the RNG business. I mean, first of all, there’s a lot of options for us and we would never take any options off the table. But what Tara said earlier, which I think is important is we — part of the value for us is that we like owning the gas, we like owning the facilities. And so for the time being, the answer is we’re going to develop these ourselves. We’re going to — and we’re going to see the full benefits come to ourselves.
And we’ll do everything we can to try and mitigate the volatility — but we like owning the gas itself. We like being in a position — I’ve been in a position in the field where I managed the landfill where we didn’t own the well field. And that was not a great position to be in, having been there a number of years ago. So, we like being in a position where we manage the well fields that produce the gas. Not to say we wouldn’t consider that down the road. But for now, we’re kind of in our infancy and we’re going to own and develop on our own for now.
John Morris: I think Jim —
Walter Spracklin: Okay. That was my only question. Thanks very much.
Jim Fish: Yes.
