Safe Harbor Statement
This document may contain forward-looking statements as defined in the Private
Securities Litigation Reform Act of 1995. When we use words such as "believes",
"expects", "anticipates", "estimates", "may", "plan", "will", "goal", or similar
expressions, we are making 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, which could cause
actual results to differ materially from the future results expressed or implied
by the forward-looking statements. Factors that could cause such differences
include, among others, inflationary cost pressure in labor, supply chain,
energy, and other expenses, decreases in the volume of regulated wastes or
personal and confidential information collected from customers, the ability to
implement the remaining phases of our ERP system, and disruptions resulting from
deployment of our ERP system, disruptions in our supply chain, disruptions in or
attacks on information technology systems, labor shortages, a recession or
economic disruption in the
Overview
2022 Q3 10-Q Report
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Key business highlights include:
•Organic revenues(1) grew 10.9% compared to the third quarter of 2021. SID organic revenue grew 32.3%, mainly driven by higher service and recycling revenues and the impact of non-recurring typical ERP start-up challenges experienced in the third quarter of 2021. RWCS organic revenue grew 2.2%.
•Pricing levers helped offset labor and other supply chain inflationary cost pressures in the third quarter of 2022.
•Net cash from operating activities was
(1)See Results of Operations, Revenues for a reconciliation between total
COVID-19 Update and Other Developments
Our COVID-19 pandemic response has included efforts to protect the health and
well-being of our workforce and our customers. We have worked proactively with
the
Like many organizations, we have been impacted by higher absences related to COVID-variants that surged towards the end of the fourth quarter of 2021 and into the first quarter of 2022, particularly driver and operational team members. Our work force stabilized throughout the first and second quarters of 2022, as the effects of the Delta and Omicron variants on employee absences subsided, but still remains highly susceptible to fluctuations due to various variants that impact sites and regions periodically. Additionally, we have been impacted by driver and operational team member shortages. To date, we are addressing our internal needs through three main areas: (i) recruitment, (ii) market competitive compensation and benefits, and (iii) employee engagement and retention.
Beginning in third quarter of 2021 and continuing throughout the third quarter of 2022, we experienced inflationary cost increases in our underlying expenses, including labor, supply-chain and other costs. We also have been experiencing delays in completing certain capital projects and face additional challenges due to macroeconomic supply chain disruptions. The higher operating labor costs were mainly associated with maintaining competitive wages for existing team members and increased starting wages for new hires. Higher supply chain and other inflationary costs were mainly from higher vehicle rental and maintenance expenses as we continued to experience delays in replacement vehicle deliveries, higher energy expenses, and higher costs associated with supplies and disposable containers and liners. While fuel costs have increased, they have been offset through our existing fuel surcharges.
We have continued to see the impact of the strengthening
Key Business Priorities
In 2022, our five key business priorities remain the following:
•Quality of revenue - We have been executing against our foundational initiatives to drive revenue quality. These included a formal cross-functional deal review committee, realignment of sales incentive plans, re-organization of our commercial leadership team around our service lines, key customer channels, and implementation of global customer pipeline management processes for both RWCS and SID. As a reminder, our three main pricing levers are as follows: (i) for all multi-year contracts, we adjust pricing at contract anniversary and renewal, (ii) for all new customers and purchasers of our one-time services, we adjust our
2022 Q3 10-Q Report Stericycle, Inc. ? 21
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rates at point of sale, and (iii) for many of our customers, we also have surcharges and fees that provide inflationary cost protection for commodity and other price volatility. Our pricing actions have gained momentum since the first quarter, including our adjustment of surcharges and fees, which provide the most flexible mechanism to help offset inflationary costs by adjusting these surcharges and fees.
•Operational efficiency, modernization, and innovation - We remain focused on operational efficiency, modernization, and innovation to control variable and discretionary costs and improve performance and efficiencies in our field operations. Our goal is to optimize our facilities with a strategic and standardized operating model. We are analyzing processing capabilities, plant and transportation equipment needs, team member requirements, and potential customer implications or benefits.
•ERP implementation - In the third quarter, we successfully moved the technical
code functionality for RWCS into our production environment. Following the
completion of this milestone, we launched a pilot at the end of October for RWCS
customers in
•Debt reduction and leverage improvement - We expect to improve our leverage
ratio through continued focus on operating margin expansion, free cash flow
generation, and divestiture proceeds, if applicable. Our amended Credit Facility
defined debt leverage ratio was 3.76 times as of
•Portfolio optimization - We expect to continue evaluating opportunities to further optimize our portfolio through a combination of asset rationalizations and strategic accretive tuck-in acquisitions, which streamlines our portfolio of businesses and allows us to focus more deeply on our core businesses.
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