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 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, developments in the COVID-19 pandemic and the
resulting impact on the results of operations, long-term remote work
arrangements which may adversely affect our business, measures taken by
governmental authorities to prevent the spread of the COVID-19 virus which could
disrupt our supply chain, result in disruptions in transportation services and
restrictions on the ability of our team members to travel, result in temporary
closure of our facilities or the facilities of our customers and suppliers,
affect the volume of paper processed by our secure information destruction
business and the revenue generated from the sale of SOP, labor shortages, an
economic disruption in the
Overview
Key business highlights include:
•Organic revenues grew 2.1% compared to the first quarter of 2021 with SID organic revenue growing 9.5%, which was partially offset by RWCS organic revenue declining 1.0% due to year-over-year reduction in COVID-19 related transactional volumes, such as vaccine and testing waste, international waste over-classification and patient engagement related call volumes.
•In the latter portion of the first quarter, pricing actions began to partially offset the inflationary cost pressures that accelerated compared to the fourth quarter.
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•Labor shortages improved in the latter portion of the first quarter as COVID-19 related absences and operational openings declined.
•The Company reached agreements with the
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. Additionally, we have been impacted by driver 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. Although we have been able to maintain near our desired staffing levels through these efforts, and that has enabled us to continue to support our customers, labor shortages have not uniformly impacted our businesses. In certain geographies and facilities, we have experienced more acute labor shortages and service delays or disruptions. Those locations have required additional team member overtime and re-allocation of team members to continue to support our customers. Our work force stabilized throughout the first quarter of 2022, as the effects of the Delta and Omicron variant on employee absences subsided.
Beginning in third quarter of 2021 and continuing throughout the first 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. In addition, overtime costs rose as a result of labor shortages, increased absences due to COVID-19, and lower productivity associated with training of new team members. Higher supply chain and other inflationary costs were mainly from higher vehicle rental and maintenance expenses as we continued delays in replacement vehicle deliveries, higher utility 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.
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 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 towards the latter half of the first quarter, including our adjustment of surcharges and fees,
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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. In 2021, our Engineering team completed a long-term planning process focused on our global facility network. 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. For example, we are preparing to launch our newest RWCS facility in the Northeast during the second quarter and we recently launched our new SafeShield™ antimicrobial medical waste containers as part of a larger container standardization initiative.
•ERP Implementation - In 2022, we plan to start a phased rollout of our ERP
system to a subset of North America RWCS. This disciplined and consistent
deployment approach allows us to mitigate risk and test data and functionality
before deploying the ERP across all
•Debt reduction and leverage improvement - We expect to improve our leverage
ratio through continued focus on operating margin expansion, free cash flow
generation, and leveraging divestiture proceeds, if applicable. We amended our
Credit Agreement to allow add backs related to the FCPA Settlement. Our amended
Credit Facility defined debt leverage ratio was 3.81 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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