Episode 127: Waste & Recycling Is Good Business (Transcript)

[00:00:00] Liz Bothwell: Hi everyone, welcome to Waste360's NothingWasted! Podcast. On every episode, we invite the most interesting people in waste recycling and organics to sit down with us and chat candidly about their thoughts, their work, this unique industry and so much more. Thanks for listening and enjoy this episode.

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[00:00:27] Liz: Hi everyone. This is Liz Bothwell from Waste360 with Joe Ursuy, Senior Vice President and Department Manager for Comerica Bank. Welcome, Joe. Thanks for being on the show again.

[00:00:40] Joe Ursuy: I appreciate, Liz. It's always wonderful to chat with you and it's great to be here. Thank you.

[00:00:45] Liz: You too. It's great to have you back. I know you've been on the show before, can you give some quick context on your seasoned career in environmental services?

[00:00:56] Joe: Sure. I started in banking in '98, right out of college. Was working in a general middle market group, and really decided and knew that I needed to bring in clients and revenue for the bank. I was having a little bit of a hard time here, calling on the industrial businesses in the portfolio. Thought about ways to differentiate myself, and locked into the waste management industry. At the time, the industry was, if you were a middle-market sized company and had growth goals, it was really not a bank for you.

The large companies had the large banks. The very small companies had one-off equipment lenders and the medium-size [unintelligible 00:02:00] companies underserved. Again, just fell into it at a great time and the rest is history. Now we have bankers in Michigan, in Texas, in California. We've diversified over the years to beyond solid waste into, obviously, do a ton of recycling. Waste to energy, landfill gas energy, and renewable. It's been a great industry to be a part of and we want to continue to grow in it.

[00:02:34] Liz: That's fantastic. Boy, did you differentiate yourself, Joe. That's awesome [laughs]. 

[00:02:40] Joe: Thank you.

[00:02:41] Liz: What was it being like back in person at the Waste360 Business Leadership Forum this summer at WasteExpo?

[00:02:48] Joe: It was fantastic. WasteExpo, for us, is a very large networking event, and difficult to do that virtually. Even though the attendees were down, everybody we wanted to see was pretty much there. It was a lot of fun. It was like the old days. A lot of energy, so it was fantastic for the Comerica team.

The Business Leadership Forum was another successful event. We had strong attendance, it was well-planned, and we had very good content from our Chief Economist talking about what's going on with the economy, which is a tremendous amount of activity. We talked about leading your business through COVID, what our clients learned during COVID, what could apply in the future, and what lessons learned you could use even outside of a pandemic.

We talked about strategies to maximize business value. We talked about the outlook for recycling, which is ever-changing. We had some very good content. We try to mix it up every year. We have fantastic moderators and panelists. We're looking forward to next year.

[00:04:09] Liz: That's great. It was amazing. Can you dig a little bit into what you guys talked about in terms of the economic forecast? You covered everything, but I know reflation was mentioned, so I'd love to hear more about that.

[00:04:25] Joe: Yes. I think reflation is our Chief Economist Robert Dye's term for, basically, all the demand surge you see coming out of COVID that we're in right now. A lot of the things we're talking about with our clients every day is what we talked about back in June. It's basically learning how to operate in an inflationary environment.

You see that with labor, you see that with disposal in certain markets, you see that with transportation, you see that with certain types of insurance. How do they handle operating in that environment? That was a big topic of conversation at the BLF.

[00:05:09] Liz: I bet. I mean, recycling markets are on fire. Probably not a good word to use, but with commodity prices and everything else. I know you guys covered a little bit about that, what do you think about the market right now? Do you think it can sustain itself?

[00:05:27] Joe: The price for any commodity is supply-demand, as we all know. There's certainly a lot of demand, so we'll see where commodities go. The one thing we all know is they go up and then they go down. Obviously, they've been on a tear here for the past year-plus, so we're trying to just make sure we understand our clients' exposure to commodities.

A lot of the recycling contracts over the years, since the time is [unintelligible 00:06:02] have been restructured whereby our clients are MRF operators. They basically give up some upside commodities to give up the downside on commodities. Then there's other contracts that are maybe more exposed where you have more merchants and you're flowing the ups and downs. We want to make sure that we understand our clients' exposure to commodities. We're happy they're up but we want to make sure that they're all protected on the downside. If they're not protected on the downside, we're all just aware of that.

They have been on a tear. We're happy for that. There is a lot of domestic mill activities. There's domestic mills being constructed and increasing domestic demand. We think long-term, the pure-play recycling business is a lot more bankable than it was 10 years ago. Especially for more leveraged type deals because they are more on a tipping fee concept and they're moving the commodity back to the inbound supplier of said commodity.

We feel great about the industry and I think that a lot of people are insulated now. Like I said, commodity's been up or down but they've certainly been on a nice tear here. We'll see how long that goes.

[00:07:41] Liz: That's great. How are you feeling about the outlook for M&A activity?

[00:07:48] Joe: M&A has been robust this year. M&A this year is significantly stronger than '20. Obviously, in the pandemic, if you've had a good company, why would you sell your company in the middle of a pandemic? Maybe take less value. This year it's roaring back and it's positive and it's a negative for my portfolio. We have a lot of clients itself.

It's a bittersweet moment where, yes, we might take them from a small company and help them build their business up to something much larger and substantial. They sell that to a strategic buyer and they get a lot of money, but we get lifelong friendships. They remember some favor we did for them, they remember when we were helping them through a difficult time and not hammering them, being constructive.

The nice part about the M&A wave is you have those calls with people and they say, "Do you know what? I really am never going to forget when your bank did this for me when I was in a tough time. Now here I am, I sold my company for a tremendous amount of money and we have generational wealth." Those are the types of things that make it great. But on the other hand, they pay back their loan and we have to find a place to re-loan the money, so to speak.

M&A is big right now. You have some companies putting up good numbers. You have very strong public company choirs. You have a very robust equity market, stock market for those companies and it trickled down. On top of that, you have a tremendous amount of money in private equity that loves the industry. You're seeing good valuations, then overlay that with maybe some uncertainty in the future with potential taxes. It all adds up to a really, really strong M&A year.

[00:09:54] Liz: It definitely looks that way, I think you're right. I always love talking to you because you're always focused on the relationships that you build and I always hear that from your customers, too. It does seem bittersweet, but like you said, you have lasting friendships once some of your smaller companies grow and move on.

[00:10:14] Joe: Absolutely. That's the fun part of the job, meeting a client, figuring out what their goals are, and helping them achieve it. Again, it's never a straight path. Sometimes it's a smooth road, sometimes it's bumpy. That relationship, that approach that we have of being there for people, trying to add value and help them ultimately get where they want to go, really works. That's what people remember. Nobody remembers, "Hey, you lowered my interest rate when I was making a ton of money." People remember what you did for them in a very difficult time and that's where we earn our stripes.

[00:11:00] Liz: Definitely. I know you talked about managing through the pandemic at BLF and I'm sure that's part of your counseling for your clients regularly, but do you think there are any lasting changes to our industry, whether they're good or bad, that will stay beyond the pandemic that you see?

[00:11:18] Joe: I think that, certainly in the short term, the effects of the pandemic are causing our clients to operate an inflationary environment. The only way to combat that is to really drive price because their cost structure is increasing. If your revenue is flat, your margins are going to be squeezed. You're seeing good price increases, some people better than others. That's happening and that's going to continue to happen.

You see the availability of trucks. If you win a contract, you're going to be needing unless you have a lot of trucks laying around, to rent trucks for quite a while until you can get equipment to service that. We're seeing a huge uptick in volumes of curbside commodities, curbside weights, curbside cardboard from a permanent shift to more purchasing on e-commerce. I think that those things are all happening and will continue to happen.

I think that, in the dark days of COVID, companies that may have been hesitant to cut some costs, quickly thereafter, though, they brought those people back on. Because for our industry, it didn't end up being as big of a deal. Certain pockets of the country, New York, New Jersey, or where they were very, very hard lockdowns, it was very difficult for the commercial side of the business. Then in certain parts of the country roll-off construction was shut down.

Outside of that, though, the industry performed very nicely. Long answer to your question, I think the story is about halfway written, the impacts of COVID for the industry. But that would be how I would think about it at this point.

[00:13:20] Liz: That makes sense. We recently did a poll to see what was most concerning for the industry these days. The top concern was labor shortages by a wide margin. That was followed by supply chain issues and then climate change. I really wasn't surprised by those results at all. What do you think?

[00:13:39] Joe: No, I think it's correct. It seems like you're seeing more unique weather events. Whether it's the ice storm and freeze in Texas to the fires on the West Coast, that impacts the finished rate. Yes, labor is a big thing and wages are going up, in the old economy saying the wages are sticky. When you increase somebody's compensation, it's difficult to decrease that when the economy is cooling down. Yes, wages are sticky and that drives price, which drives certain level of inflation. I would agree with all those key topics. 

[00:14:26] Liz: We've talked about this before and how the waste industry really has always been environmentally sound, talking about sustainability and ESG. Now we're seeing a lot of the major players hiring executive positions to focus on this. What do you think we, as an industry, can teach the rest of the world about doing this?

[00:14:47] Joe: Yes. I think that we can teach the rest of the world. I think part of it is just the image of garbage trucks, [unintelligible 00:14:53] stations, the landfills. There's maybe a stigma to that. There was a recent equity analyst report out on these companies should be an ESG play for investors because they're pollution control. They keep the environment clean. A lot of the vehicles are very clean emissions. They own massive recycling facilities so they're preserving natural resources.

On the landfill side, they're trapping the greenhouse gas, the methane. They're converting that to renewable natural gas or renewable electricity. That story, I think, is an underrated or underappreciated story. This industry maybe has a twenty-five, fifty-year-old stigma where it's an old dump or who knows what about the water runoff, or old smoky diesel truck with a lot of emissions. I think that the industry is changing. I think it's changing for the better.

I think, in large part, it's been really good for a long time, but I think that story needs to continue to get out there. I think those executives that are coming on board in those companies will help do that.

[00:16:14] Liz: Absolutely. I think you're right. It seems a lot of it is communication and just learning to tell their stories better because they've been doing it for years. 

[00:16:24] Joe: Exactly. The average people don't really get into garbage trucks, recycling facilities, diversion rates, how landfills are constructed, and what they do with their gas. That education, just getting it out there consistently and into the media, I think that's a very, very good thing for the industry.

[00:16:44] Liz: Absolutely. What else is happening? What else are you paying attention to, Joe? I feel like you always have your finger on the pulse of what's happening

[00:16:51] Joe: Yes, I think that, like I said, the industry is in a good spot. We are just making sure that our clients are-- They're all very nimble, but just talking about the environment that we're operating in. How they can protect themselves and how they can prepare to be prosperous. We're continuing to look, invest, and do more in renewables. Certainly on the landfill gas side. We want to do more on the waste-to-value side. We're dipping our toes into solar, wind, things like that. We're going to continue to do more of that, so we're looking at renewables.

Yes, certainly on my team we've had a lot of growth. It comes down to just blocking, tackling the fundamentals, the mundane things that our clients do to run really fundamentally sound businesses. Our business is different here in banking. But we have a lot of things that we do and track, our own KPIs, and our own best practices. Right now we're focused on just running the best business that we can.

I'm really, really blessed of the team that we have here at the bank in general, but also on my environmental services department team. Long-tenured, extremely talented, results-driven, team players, want to do the right thing all the time. The team that I'm fortunate to be a part of and lead makes it pretty easy for me. That's what we're focused on. Our clients are focused on making sure they have their eyes open on what's going on in the industry with regulations and things like that, and the environment they're in. For the rest of the year, that's what we're focused on.

Also, coming out of COVID where we really want to get out. We have been getting out and traveling substantially. But just getting out after a year or whatever it was, working remotely to just reconnecting with people, reconnecting with all of our clients. Not that we were ever disconnected, but when you don't see somebody in person for a year or whatever, you miss out on conversations. You just can't replace that nose-to-nose interaction. That's what we're doing right now. It's working out great. We did a lot of it at Expo and we'll continue to do that.

[00:19:24] Liz: That's great. I think a lot of people feel the same way. It was like a breath of fresh air to actually all be together again.

[00:19:30] Joe: Absolutely, it was.

[00:19:31] Liz: Joe, a lot of people are saying that the industry is doing the veritable handoff because a lot of people are aging out. Are you seeing a lot of your clients, and the industry in general, being more prepared with succession planning?

[00:19:45] Joe: I think that a lot of the entrepreneurs that sold their business in the last several years are very good advisors. Obviously, we help with that as well in estate planning. That's one part of it. I think the other part of it, our clients have been middle-market waste management companies and other industries for 20 years, I've been doing this. 15 years ago, our portfolio was, I don't know, 25% of the size it is now, maybe less.

We looked around and said, "Geez, we bank a lot of people and how are we going to find deals next year?" We always end up finding them. There's a younger generation of entrepreneurs, of leaders, that are in the industry and we think that's fantastic. We work with a lot of them. We're going to work with a lot more of them that are creating businesses and they're our clients, so we're focused on that. We think that we want to see that younger generation of talent and drive in this industry.

All industries go through succession and this one is no different. We're encouraged that we're seeing young entrepreneurs out there in this industry that liked the industry. We're going to be here to support them.

[00:21:12] Liz: That's great. I love that too, especially since it's such a family-oriented industry. It's a must.

[00:21:18] Joe: Yes, absolutely. Now, I think that the amount of privately owned landfills, MSW landfills, certainly is shrinking. Probably will continue to shrink as those are consolidated by the large players in the industry. But collection businesses, people with transfer stations, recycling facilities, people in certain renewables, those businesses are popping up all the time. It's the life cycle of the industry. People say the industry recycles itself and people recycle themselves.

We continue to see that but that's been something that we've been dealing with for the whole time we've been in this industry, Liz. We have clients sell, they pay us off, we have new clients come out, we find people, we find the younger generation, and it just keeps going. We're going to continue to support that.

[00:22:18] Liz: Great. That's the beauty of it. Joe, is there anything else you want to share before I let you go?

[00:22:23] Joe: No, I appreciate you having me on, Liz. Always appreciate the support of Waste360, and looking forward to the Business Leadership Forum next year as well. Again, thanks for the time and have a wonderful day.

[00:22:39] Liz: You too, Joe. Thank you. We look forward to the next round of the Business Leadership Forum. I know you're going to keep us all in the know and really covering timely topics. Thank you. I just want to let our listeners know that it moved to Wednesday, so it's going to be a great event. Thank you for listening. It would mean the world if you would take a moment to rate or review this podcast. If you share it with us on one of our social networks, we are giving out some fun, Nothing Wasted Podcast swag. Just tag us and see what you get. Thanks so much.

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