John Morris: I was just going to add on the recycling side. If you look at that separately from the RNG comments you made, if you went back five or six years ago and looked at the commodity price versus what their earnings stream was out of the recycling facilities was much different. But in my prepared comments, you earn at $47 a ton. We’re still seeing strong earnings and returns in our — in all of our MRFs, not to mention the fact that when you were to carve out the automated plants, which is only a small portion, we’re going to add to that next year, as Tara mentioned, those margins are even higher. So I would argue that we’ve taken out a lot of the volatility in the recycling business, and that’s why you continue to see our conviction in those investments going forward.
Jim Fish: Yes, I’m glad you made that point, John, because we did change a lot of these contracts from four years ago, and I think that’s your point.
Walter Spracklin: Yes. No, that’s absolutely — that’s clear that you’ve done a lot of good work in terms of restructuring those contracts to produce some of that volatility. Just curious in terms of the spinout, but addressed that question. Appreciate the time.
Jim Fish: You bet.
Operator: Thank you. Our next question comes from Sean Eastman with KeyBanc Capital Markets. You may proceed.
Sean Eastman: Hi, team. Thanks for taking my questions. First one, I just wanted to reconcile the — there was a 35% labor costs per ton reduction on the recycling footprint mentioned, also a headcount reduction of, I think, 127. Just trying to reconcile those two data points.
Tara Hemmer: Yes. So John mentioned in his remarks, the 35% reduction on our automated plants on labor cost per ton, and that’s what we saw in Q4. And then that 137 number is related to the headcount attrition related to automation in 2022, and we’re expecting 200 in 2023.
Sean Eastman: Okay. Helpful. It’s impressive. And then, the other one is just kind of nitpicking here, but the some of the inputs on the guidance for this year, $70 OCC, $2.30 RIN price. Could you just tell me where those numbers are today? And if you can, just how to think about sensitivity to the extent we don’t climb up to those numbers?
Tara Hemmer: Yes. So just to clarify, it’s $70 per ton in our commodity basket, not on OCC, just to —
Sean Eastman: Okay. Yes.
Tara Hemmer: Yes. So $70 a ton number for 2023, exiting December of this year, just north of $50 a ton. And we’re seeing some signs on the plastic side, is a great example, where we’re seeing plastic pricing increase a bit. And we’ve seen that uptick related to, again, CPG companies trying to meet their sustainability commitments on using recycled content. So we expect, if you look at that ramp through Q1, Q2, Q3, we’ll start to see that ramp over the quarters when you look at how commodity prices will move on the recycling side of the business. And then, on the renewable energy side of the house, that $2.30 RIN price, exiting 2022, RIN prices were higher. We’ve seen a bit of a dip on RIN pricing that definitely recognizes what we’re seeing in the market today and where we expect it will hedge throughout 2023. Just remember, 40% of our off-take is fixed. So the other 60% is exposed.
Devina Rankin: And I would just say the midpoint of our guidance anticipated the commodity values that Terra just went through, the downside has contemplated some of the downside risk should those values be less than what we are currently predicting.
Sean Eastman: Understood. Thank you, very much. I’ll pass it over.
Operator: Thank you. Our next question comes from Michael Hoffman with Stifel. You may proceed.
Michael Hoffman: Good morning. I just want to make sure this is very clear. You are not seeing unit prices come down, the rate of change in price is narrowing options coming down?
John Morris: No, sir. Michael, no, we are not.
Michael Hoffman: Okay. And you are in a position today where you have a real spread against the internal cost of inflation?
Jim Fish: Yeah. That was my earlier point.
Michael Hoffman: Okay.
Jim Fish: This gives us €“ it gives us that spread. We had essentially no spread for the last 18 months.
Michael Hoffman: Okay. So then I want to dig into €“ I think there’s more power in the solid waste business than maybe everybody’s understanding. Are you about 80% of your EBITDA, 80%, 85% is solid waste and then 15 to 20 is sustainable investments in recycling. Is that about the right proportioning?
Devina Rankin: The way that, I would answer the question, Michael, is if you look at our outlook for the year ahead, we’re implying growth from the solid waste business of about $475 million and that rivals the highest levels of growth that we’ve ever seen in our history. And so what we focus on in terms of measuring solid waste performance is our ability to fundamentally grow that business over the long term, both in terms of the pricing execution and our strong focus on operating cost efficiency and those things are what are driving that $475 million target.
John Morris: I would tell you, Michael, I think with Devina and I can share this €“ we all do on OpEx. But I think to Jim’s point, we were kind of arm wrestling with it, I forget the phrase used, Jim. I think the efforts that we undertook last year and what happened in the last two quarters, in particular, the fourth quarter make us feel really good about what’s happening on the solid waste side and some of the commentary was about price and yield and the movement. But when you see OpEx, our guidance on OpEx moving the way it is for next year and the EBITDA improvement in Devina said what the strength of the solid waste business is we feel really good about how we’re entering 2023.
Michael Hoffman: And I agree. I’m trying to get there by backing into numbers a little more precisely. That’s why I was asking about the mix. If I’m right, and you’re in the 80%, 85% is solid waste, you’re going to end up with a 9% to 10% growth in solid waste in 2023 in EBITDA. And like 90 basis points, maybe even 100 basis points in the solid waste business and then you give a little bit of a back because of the other stuff, right?
Devina Rankin: We are predicting that strong solid waste growth coupled with some SG&A margin expansion. Those are really the two levers for next year’s overall EBITDA growth.
Michael Hoffman: Okay. Okay. Well, I tried. I would €“ would you all consider starting to segment where you show us recurring core solid waste versus the alternatives? So we start to be able to track this better?
Devina Rankin: We always focus on making sure that you guys have the best information available, and we’ll continue to try and meet that goal, and we’ll step back and look at our disclosures and ensure that they’re appropriately robust. We think that they are today, but we know we can always get better.
Michael Hoffman: Okay. Baseline capital spending at 2 to 2.1 comes out at 9.9% of revenues, which is below your long-term average. And it’s a little surprising given the vendor side of the world is talking about a lot of inflation in their side of the business still. So I’m trying to understand why that baseline €“ and it’s essentially flat, sequentially in absolute dollars. So what €“ I don’t think you’re under investing in your business. I know, you’re not doing that. But can you talk me through why that’s settling the way it is?
John Morris: I think, Michael, if you look at the inflationary pressure and the performance on the revenue side related to that, we’ve been also very sensitive to the fact that capital shouldn’t just necessarily go up because revenue is. We’re looking at it by line of business and what’s happened from a volume perspective. And I think that’s what you’re seeing part of the leverage there. On the supply side, Michael, I would tell you, this was a challenging year in terms of juggling CapEx mostly because of the truck-related issues that we had. So 2023 will be more balanced, but I think you’re seeing the sub-10 number as a result of our discipline around capital dollars.
Devina Rankin: The other thing I would point out is we did pull ahead some capital into the fourth quarter. And as a result of our ability to do that, we moderated our outlook for 2023 capital slightly from our original expectations. Should we see a need to adjust that further as we get into the year and perform well as we expect to do, particularly in the solid waste business, we might take some steps to accelerate capital that much further. But this is about strong execution on capital discipline, combined with our ability to ensure that our price isn’t just addressing the operating cost side of the business, but also capital inflation.
Michael Hoffman : Right. Last two for me. Tara, the $500 million of EBITDA in RNG in 2026, how much of it is fixed versus spot?
