Brian DelGhiaccio: Yes. So first on the rollover, based on transactions that have closed to date, that’d be about 50 basis points of rollover into 2024. And then just on polymer centers and the renewable natural gas, you can think of polymer centers kind of the $12 million or so incremental contribution next year from an EBITDA perspective. and things circa $15 million to $20 million on the RNG portfolio. That EBITDA.
Tyler Brown: Got it. Thank you.
Operator: The next question comes from Noah Kaye with Oppenheimer. Please go ahead.
Noah Kaye: Hey, thanks for taking the questions. So if the prints are right, then the economy grew 4.9% real GDP annualized for the third quarter, and it’s really the consumer leading that. Can you talk about your view of the broader macro right now? And specifically, and I know you’re not guiding for 2024, what kind of a volume environment we are in, on an underlying basis? Are we still in a positive volume growth environment from your view?
Jon Vander Ark: Yes. Listen, there’s tons of uncertainty in the economy. You can look back 18 months. And then even if you look forward, do you think about 2 wars going on and lots of different dynamics, election coming up next year. The underlying — but I think we’re closer to a soft landing than we certainly were a quarter ago. if you look at the outlook, and we’re planning on a positive year next year, and you heard that in our numbers and forecasts with a lot of humility baked into that in terms of things could change as uncertainty and we’ll adjust according to that. . The recycling and solid waste business, the underlying volume growth in that business is kind of 50 to 100 bps. We’re on the lower end of that with where construction is at.
That’s certainly been a soft spot. And we saw that with residential and commercial starts even last year and then earlier into this year is — slowing down. And we’re hoping that starts to anniversary and rebound. — here. So I’d say positive environment. We’re not firing on every cylinder, but we’re cautiously optimistic that we’re going to grow out of this thing coming into next year.
Noah Kaye: Very helpful. Given the progress that you and the industry have made in reducing some of the volatility around recycling commodities and the impact of the business. Just Curious to know how to think about whether as it relates to the polymer center or any of the vertical integration efforts you have, what the level of exposure is to commodities in that business? . In other words, is this largely a processing and fee-based model for you? And is there any increased sensitivity to be expected from that?
Jon Vander Ark: No. The model is constructed. We’re really making money on the spread and so that’s one thing that we — when we did this investment, we were very sensitive to that we’re not adding to the volatility of the overall profile. So could there be spots on the margin, of course. But in general, this isn’t something where we’re increasing our exposure.
Brian DelGhiaccio: Yes, because you have that underlying commodity risk, as you get the value of the upside tackling you capture that spread, you have the same amount of volatility in dollars with incremental revenue. So as a percentage of volatility actually goes down.
Noah Kaye: Right, right. So it’s really an infrastructure and spread play. Okay. That’s really helpful. I’ll turn it over.
Operator: The next question comes from Michael Hoffman with Stifel. Please go ahead.
Michael Hoffman: Thank you very much. On the ES side, US Ecology used to have a decent exposure to the auto industry given its Michigan density. So how are we sort of weathering what’s going on with the strikes and that business?
Jon Vander Ark: Reasonably well. There’s been some slowdown in activity in certain spots. But as you can kind of read from the headlines, right? It’s been walkouts on certain facilities to the point where if it was a mass shutdown, right, we’d have a much deeper impact because it would be all the automotive plants that we serve directly, but then it goes straight into the Tier 1, Tier 2 and even Tier 3 supply base. It’s been such a case, I mean, we’re a very, very small portion of the overall cost structure. So you’re not seeing people going to get down to canceling service or even reducing service intervals outside of a few facilities that have been directly impacted.
Michael Hoffman: And then, dwell on the RNG accounting since you’re doing mostly partnerships. Is this going to be an add back into the EBITDA, or how are you going to account for this as we see printed financial statements?
Brian DelGhiaccio: Yeah. As we do the reconciliation, Michael, moving from net income to the definition of EBITDA, we will include our pickup in those joint ventures. Remember that, this first round of facilities that are coming online, most of those are going to be predominantly royalty, so you’re not going to see a lot of that in 2024. That will start being 2025 and beyond, that you’ll really start to see the accounting that includes the pickup in those JVs.
Michael Hoffman: Okay. Great. That’s what I needed. And just one last, you had a great margin expansion and yet you’re reaffirming the guidance. It seems like you’re then expecting a lot more seasonality in 4Q given the strength of the margins or we’re at least at the very top end of the range. That’s sort of where I – ?
Jon Vander Ark: I’d say, we have a positive outlook. Yeah, we’re already in Q4, obviously, and we’ve got a positive outlook for that. But given that there is some seasonality of the business, where you do get some weather to start to impact the business this time of year, given there are some moving pieces in the broader economy, we thought it would be prudent to reaffirm and we’ll give you the results here in February, how we finish.
Brian DelGhiaccio: But to that point, Michael, if you remember, even when we began the year, said the cadence of margin expansion was going to actually start negative, which we saw in the first quarter. And sequentially, year-over-year margin expansion was going to improve every quarter throughout the year, and we still expect that. So we still expect to see the most amount of margin expansion in the fourth quarter, ultimately driving margin expansion for the full year.
Michael Hoffman: But margins might be down sequentially just because of seasonality.
