Stericycle, Inc (SRCL) Q3 2021 Earnings Call Transcript

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Stericycle, Inc (SRCL -5.29%)
Q3 2021 Earnings Call
Nov 2, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Stericycle, Inc. Third Quarter 2021 Earnings Conference Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]

I would now like to turn the conference over to Andrew Ellis, Vice President of Investor Relations. Please go ahead.

Andrew Ellis -- Vice President of Investor Relations

Good morning, and thank you for joining Stericycle's 2021 third quarter earnings call. On the call today will be Cindy Miller, our Chief Executive Officer; and Janet Zelenka, our Chief Financial Officer and Chief Information Officer. The discussion today includes forward-looking statements that involve risks and uncertainties. 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 the future events and are therefore, subject to risks and uncertainties. Our actual results could differ significantly from those described in such forward-looking statements.

Factors that could cause our actual results to differ are discussed in the safe harbor statement in our earnings press release and in greater detail within the Risk Factors in our filings with the U.S. Securities and Exchange Commission. Our past financial performance should not be considered a reliable indicator of our future performance, and investors should not use historical results to anticipate future results or trends. We disclaim any obligation to update or revise any forward-looking statement other than in accordance with legal and regulatory obligations.

On the call, we will discuss non-GAAP financial measures. For additional information and reconciliation to the most comparable U.S. GAAP measures, please refer to the schedules in our earnings press release, which can be found on Stericycle's Investor Relations website at investors.stericycle.com. The prepared comments for today's call correspond to an earnings presentation, which is also available at Stericycle's Investor Relations website. Throughout the call, we may reference specific slides from the presentation.

This call is being recorded, and a replay will be available approximately one hour after the end of the conference call today until December 2nd 2021. To access a replay of the call, dial (877) 344-7529 and enter replay access code 10160097. A replay of the webcast will also be available on Stericycle's Investor Relations website. Time-sensitive information provided during today's call, which is occurring on November 2nd 2021, may no longer be accurate at the time of a replay. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Stericycle is prohibited.

I'll now turn the call over to Cindy Miller.

Cindy J. Miller -- President and Chief Executive Officer

Thank you, Andrew. Good morning, everyone, and thank you for joining our third quarter earnings call. Overall, our results of the quarter demonstrate that we continued to execute on our key business priorities. We delivered on our quality of revenue initiatives, driving organic revenue growth in Regulated Waste and Compliance Services. We also achieved an important milestone in our transformational journey; the launch of our ERP system. I couldn't be more proud and excited to share some of the benefits our team members and customers will begin to experience because of this new platform. At the beginning of August, we went live with the ERP capabilities for Secure Information Destruction in North America for our operational and commercial processes, as well as our overall North America financial and procurement processes. Today, more than 5,000 team members are using the new ERP across eight key business processes, transforming us to a modernized data and technology environment.

The improved processes encompass the following. Market to Quote, which is how our commercial organization identifies and onboards new customers and manages contracts and renewals; Source to Pay, which includes our procurement of goods and services and the payment to vendors; Hire to Retire, which includes the technology and processes we use to manage our global workforce; Order to Cash, which is how we process customer orders, all the way to invoicing and cash collections; Collective Dispose, which includes the comprehensive processes to service our customers; Customer Experience, which is how we manage the overall relationship with our customers; Plan to Perform, which involves the planning, forecasting and monitoring of business performance; and Account to Report, which is how we close our books and report our financials.

Our focus for the fourth quarter is to continue tuning and enhancing the platform. While it is still early in the rollout, let me outline a few of the impacts and improvements we're beginning to see from the ERP. One, we have improved the quality of our automated data flow. The technology-enabled data flows are moving us toward more streamlined and automated processing of our business, which we anticipate will improve service, optimize the deployment of assets and minimize the need for manual intervention. Two, we have also launched an enterprise data lake that is being filled with data from the new systems. We are excited to begin harnessing the power of this data lake, which provides powerful analytic capabilities, including capturing daily revenue and cost trends. We believe this information will drive better real-time operational commercial decisions, leading to optimize business performance. Three, we are improving our customers' experience. We have expanded our digital customer experience capabilities for enhanced and simplified customer on-boarding and service delivery, streamlining sales and customer service processes and expanding self-service tools to deliver an integrated customer experience. Four, we are scheduling and servicing our North America Secure Information Destruction customers through the ERP with 98% of orders being automatically routed to our dispatch system; a significant improvement over prior processes, which included manual intervention. Our new technology allows us to automate scheduling and route rebalancing, which we expect will result in route optimization and greater efficiency. Five, we are invoicing North American Secure Information Destruction customers through the ERP. The system is also providing real-time insights into revenue trends by facility location. The power of this technology is its ability to organize, process and present data, which will enable us to better understand our customers and their needs. Six, we are processing both Secure Information Destruction and Regulated Waste and Compliance Services North America vendor invoices through the new system and leveraging the technology to remit payment. Our North America vendors and their invoices are being routed through our Source to Pay System, following automated workflows that help ensure appropriate review and approval prior to payment. We now have a fully automated flow of receipts and payments into our general ledger, giving us daily insight into expenditures. Seven, we are closing our books in the new ERP, which was designed with an effective and efficient control environment in mind. The ERP automates several key controls, automates numerous manual journal entries and streamlines our overall close process. Additionally, we built a new profit and cost center structure that will enable future insights into profitability.

We are early days in harnessing the power of this technology and the value of the data generated, and it's going to take time for us to unlock the full potential. But we are encouraged by the system improvements we've experienced so far. We have made great progress in the last three months and we'll continue to work over the next several months on fine-tuning the system and our processes, as we build efficiencies in our operational execution.

Looking ahead to the North America Regulated Waste and Compliance Services ERP deployment, we couldn't be more excited. The Secure Information Destruction deployment has taught us many things and we will leverage those learnings for the North America RWCS deployment in 2022. I couldn't be more proud of how our team members came together for this deployment and for their adaptability to a new way of working.

Turning to our quality of revenue initiatives. We delivered another quarter of overall revenue growth of 2% and organic revenue growth of 4.4%, which is in line with the revenue growth range provided last quarter. Regulated Waste and Compliance Services ahead organic revenue growth of 6.8% comprised of 6.9% growth in North America as we continue to see recovery in Maritime waste services and elective surgeries and 6.2% growth in International. Overall, Secure Information Destruction revenue declined 1.1% as North America revenue declined 3.4%, mainly due to the complexities associated with this large-scale ERP deployment. This decline was partially offset by 14.7% growth in International. We are encouraged with month-over-month improvements in revenue within Secure Information Destruction as we make this system a part of everyday life. We are pleased to see improvement from August through September, which has continued into October.

Moving to operational efficiency, modernization and innovation. I'm excited to announce that our new Northern California regulated waste facility came online during the third quarter. This is an important achievement that secures and strengthens Stericycle's medical waste capabilities in Northern California and furthers our commitment to sustainability. This facility provides 75% capacity increase to better serve the healthcare needs in heavily populated Northern California. This strategic location is expected to improve our network by reducing vehicles, fleet miles driven fuel consumption and emissions. This modernized automated facility also is anticipated to process waste more cost efficiently, improve employee safety and be more reliable. We believe it's opening enhances our ability to grow our business in the region and improve customer service. As mentioned last quarter, Stericycle is not immune to the impacts of inflation, a tightening labor market and supply disruptions. These factors continued to impact us in the third quarter, primarily resulting in higher labor costs and delays in receiving services and materials for our capital expenditure projects. On September 1st, we divested our operations in Japan for approximately $11.3 million. The team continues to make strong progress, executing on our portfolio optimization initiative, as this marks our ninth divestiture since 2019. Proceeds from this divestiture were applied toward debt reduction.

I will now turn the call over to Janet to review our financial results.

Janet H. Zelenka -- Executive Vice President, Chief Financial Officer and Chief Information Officer

Thank you, Cindy. I will start by summarizing our third quarter results. As noted on Slide 5, revenues in the third quarter were $648.9 million compared to $636.4 million in the third quarter of last year. Regulated Waste and Compliance Services organic revenue growth was $30.4 million and the positive impact of foreign exchange rates was $5.8 million. These increases were partially offset by the impact of divestitures of $21.6 million and a decline in Secure Information Destruction organic revenue of $2.1 million.

As noted on Slide 6, Regulated Waste and Compliance Services revenues were $461.7 million compared to $449.1 million in the third quarter 2020. Excluding the impact of divestitures and foreign exchange rates, organic revenues grew 6.8% in the third quarter. North America Regulated Waste and Compliance Services organic revenues grew 6.9%. Of this 6.9% growth, approximately 3.7% was driven by quality of revenue initiatives; approximately 1.4% was due to an increase in Maritime waste services revenues; approximately 1.1% was from an increase in the average weight per container, which we believe was due to increased elective surgery waste; and the remaining 0.7% was primarily from COVID-19 related revenues. International Regulated Waste and Compliance Services organic revenue growth was 6.2% in the third quarter, the vast majority attributable to higher pandemic waste volumes. Secure Information Destruction Services delivered revenues of $187.2 million compared to $187.3 million in the third quarter of 2020. Organic revenues declined $2.1 million or 1.1% due to North America results. In North America, Secure Information Destruction organic revenues decreased $5.6 million or 3.4% compared to third quarter of 2020. This decline was due to ERP start-up challenges, which included team members learning new processes and technology across every aspect of the Secure Information Destruction business; and onboarding and tuning the flow of new data elements to the system. We saw a continuous improvement in our team members' performance as they leveraged the technology and data flow during the quarter and into October.

In North America, recycled paper revenues were up 11.5% or about $2 million compared to the third quarter of 2020. The increase in recycled paper revenues reflected higher SOP pricing, offset by lower SOP volume, which was primarily driven by our ERP challenges. In International, Secure Information Destruction organic revenues increased 14.7% compared to the third quarter of 2020. This was mainly due to increased service stops, as this business continues to recover from COVID 19.

Loss from operations was $50.6 million in the third quarter compared to a loss from operations of $55.8 million in the third quarter of last year. The improvement was mainly due to lower year-over-year divestiture and impairment losses. This improvement was partially offset by an estimated aggregate FCPA settlement accrual of $61 million, typical start-up challenges associated with the ERP deployment of approximately $13.2 million, ongoing IT operating expenditures from our new ERP of $10.8 million and higher labor costs of $5.4 million.

In the third quarter of 2021, we spent $20.2 million related to the ERP, with about 70% in operating expenditures and 30% in capital expenditures, on track with the overall annual estimated spend I shared in previous quarters. U.S. GAAP net loss was $66 million or $0.72 diluted loss per share compared to a net loss of $81.2 million or $0.89 diluted loss per share in the third quarter of last year. The difference was mainly related to improved loss from operations of $5.2 million as explained earlier.

Cash flow from operations for the nine months ended September 30th 2021 was $202.2 million compared to $365.2 million in the same period of 2020. As illustrated on Slide 8, the year-over-year decrease of $163 million was mainly driven by 2020 favorable nonrecurring variances of $141.1 million as itemized in prior quarters and broken down in detail on Slide 8, and net working capital changes of $21.9 million.

Adjusted income from operations was $72.5 million or 11.2% as a percentage of revenues, down from $101 million or 15.9% as a percentage of revenues in the third quarter of last year. Adjusted income from operations declined 470 basis points due to start-up challenges of deploying the ERP of approximately 200 basis points, higher ongoing IT operating expenditures associated with the ERP go-live explained during last quarter's earnings call contributing approximately 170 basis points; higher labor costs of approximately 80 basis points; and the impact of divestitures of approximately 20 basis points, mainly driven by the divestiture of expert solutions in 2020. Adjusted diluted earnings per share was $0.44 compared to $0.68 in the third quarter 2020.

As illustrated on the bridge on Slide 9, the $0.24 decline was due to the following. $0.11 on favorability from ERP challenges, $0.09 on favorability associated with higher ongoing IT operating expenditures due to the ERP go-live as explained during last quarter's earnings call, $0.04 on favorability from higher labor costs and $0.04 on favorability from divestitures. These were partially offset by $0.04 favorability from other, mainly driven by lower incentive compensation expense.

Our third quarter DSO, as reported, was 59 days compared to a DSO of 50 days in the third quarter 2020. When excluding divestitures as of September 30th 2021 from the trailing 12-month DSO calculation, DSO was 60 days in the third quarter 2021 compared to 54 days in the third quarter of 2020. This difference is primarily due to a one-time deferral in the North American Secure Information Destruction customer invoicing schedule and subsequent collections due to the ERP deployment and increased revenue compared to prior year.

Capital expenditures for the nine months ended September 30th 2021 were $85.8 million compared to $94.7 million for the same period last year. For full year 2021, we anticipate spending $110 million to $120 million in capital expenditures. This represents a change from our previously shared range of $140 million to $160 million, mainly driven by expanded timelines to complete these projects due to supply chain delays. However, if there is any movement in supply chain opportunities, we will take advantage of them and increase spending in the last two months of 2021.

Free cash flow for the nine months ended September 30th 2021 was $116.4 million compared to $270.5 million in the same period 2020. The $154.1 million decrease was due to lower cash flow from operations, as explained earlier.

As shown on Slide 10, at the end of the third quarter, our credit agreement defined debt leverage ratio was 3.40 times, an improvement from the 3.75 times as of September 30th 2020. Net debt was reduced by $125.6 million through the nine months ended September 30th 2021 to approximately $1.62 billion. During the third quarter, we renewed our credit agreement with a new maturity date of September 30th 2026. This provides a $200 million term loan facility and a $1.2 billion revolving credit facility. It also allows for a maximum debt leverage ratio of 4.25 times in any fiscal quarter and even before September 30th 2022 and 4.0 times thereafter. Although we still operate with uncertainty due to the evolving recovery from the pandemic, I would like to provide some insights into what we are seeing emerging related to fourth quarter revenues, free cash flow and anticipated ERP-related expenditures.

After normalizing for the impact of divestitures on revenues in the fourth quarter 2020, which were approximately $18 million from Expert Solutions in Japan and excluding the impact of foreign exchange rates, which have been favorable on revenues for the past couple of quarters, we anticipate generating organic revenue growth in the mid-single digits in North America, offset by lower international Regulated Waste and Compliance Services revenues, which we anticipate will begin normalizing compared to fourth quarter 2020 due to COVID-19 pandemic impacts. These trends are expected to result in a low single-digit year-over-year consolidated organic revenue growth rate in the fourth quarter of 2021. Additionally, in the fourth quarter, we anticipate generating at least $45 million in free cash flow.

Regarding the ERP, as Cindy mentioned, we have launched the North American finance and procurement portion of our ERP and completed our deployment for Secure Information Destruction. As noted on Slide 11, we are on track to spend approximately $75 million to $85 million on the ERP implementation in 2021, which is in line with the ERP spending range I previously shared. Incremental costs incurred in the remainder of the year will support system optimization and continued to work on Regulated Waste and Compliance Services. For the third quarter, we had $10.8 million of additional ongoing IT operating expenses associated with the ERP and we anticipate occurring $30 million to $35 million for the full year. Beginning in 2022, we estimate the total annualized ongoing operating expenses for running the new system to be $50 million to $60 million. The 2022 ongoing IT operating expenditure ranges are in line with the estimates I previously provided. As a reminder, we plan to implement the North America ERP for Regulated Waste and Compliance Services in 2022.

Finally, we remain committed to our long-term outlook as summarized on Slide 12.

I will now turn the call back to Cindy.

Cindy J. Miller -- President and Chief Executive Officer

Thank you, Janet. This quarter highlights the commitment and dedication of our team members as they executed on our key business priorities, deploying the technological foundation for Stericycle's future. We're excited to begin leveraging the new system to deliver on our expected long-term outlook, driving organic growth, operational efficiencies and improved cash flow. We are extremely proud of our recently released Corporate Social Responsibility Report. The report highlights many of our recent achievements, including how we support long-term social and environmental sustainability, updates on some of our new facilities, investments in technologies to reduce our consumption of natural resources and our commitment to diversity, equity and inclusion. As always, I'd like to thank our team members, our customers, the communities we serve and our shareholders for their continued trust in having Stericycle protect what matters.

Operator, please open the line for Q&A.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] At this time, we will pause momentarily to assemble the roster.

And our first question comes from Sean Dodge of RBC Capital Markets. Please go ahead.

Sean Dodge -- RBC Capital Markets -- Analyst

Yeah, thanks, good morning. Cindy, you mentioned some of the early capabilities or system improvements from the ERP deployment thus far, and it sounds like automation is a big part of it. Are there any numbers you can put around how much labor this frees up for you, either in the near term or over the longer term? I guess, how much does this -- does the new ERP help kind of take some of the pressure from the tight labor conditions off your shoulders?

Cindy J. Miller -- President and Chief Executive Officer

Yeah. I think, Sean, thanks for the question, there are a couple of things. We're still early days in terms of that, but anytime that you automate your data flow, you're taking manual-ness out of your business. Anytime you're developing a data lake, you're going to get more information in order to be able to make some real-time decisions. Anytime you are automating and helping with your -- optimize your routes, any of your route rebalancing, anytime you're engaging in a more digital fashion with your customers, obviously, that brings the types of results that you're talking about. So -- And I even look at our control environment. This is going to give us even a stronger control environment when you automate a lot of the key controls, you automate and remove manual journal entries, just to name a few. I think, obviously, the system is going to give us what we're all expecting. I think it's early days in terms of putting the specifics to it and quite frankly, we have just a third of the business on the ERP right now with the Secure Information Destruction side with two-thirds of the business coming with Regulated Waste. But I can't say right now on early adoption, really excited about how the team has adapted. I think we've all read and we've all been very focused on ERPs and what makes an ERP successful. And oftentimes, you've learned by reading what has made ERPs fail. And I think adoption, the adaptation to the new way of doing business, the focus by the team, the resilience and then also how are you seeing your improvements from the initial rollout, what are you seeing week after -- day after day, week after week and then month after month. And right now, we've seen improvements, and I think meaningful improvements, from August to September and they've continued from September to October. There was even quite a difference between the first two weeks of October and what we're seeing, as we are gaining more momentum for the last two weeks of October. So for us internally, we're very excited about what this technology is going to bring. And to your question, more to come when we get a larger portion of the business on, so that we can use this to make sure that we guarantee our -- and work toward our long-range plan.

Sean Dodge -- RBC Capital Markets -- Analyst

Okay. And then with the Shred-it organic growth challenges in the quarter, Janet, you mentioned, related to the ERP, is that just naturally how these deployments go that you've got some temporary disruption in lower productivity when you introduce new systems, or was this more of kind of an isolated operational hiccup? And I guess what I'm getting is, should we expect something similar in Regulated Waste when those modules or that part of the deployment gets implemented.

Cindy J. Miller -- President and Chief Executive Officer

Sean, I'll start. I know Janet can give maybe a little bit more color. Janet has really been leading the charge for us with her -- having her CIO add-on at the time, but a couple of things to think about. So when I talked about Market to Quote, that means everything changed for right from a salesforce person on how do you engage with the customer, how do you input the information into the system, how does it flow through, what screen do you put somebody's address in. We think those things are simple and basic, but just think about if you've gone into 7-Eleven and they said-- oh, I'm sorry. We just changed our computer system. I have to figure out how to hit the button for a soda -- fountain soda. All of those things are different. So what happens is, we had an opportunity where it did slow down the process, but it didn't break the process. We've changed how we do business. So for us, the excitement is, as people develop the rhythm of the new system, as people develop the shortcuts of how they know to flip from one to the next as that data -- as people know where to look for data in the system, on what page, on what screen, where do I find this, as drivers get more familiar with the handheld that tells them that looks different, that gives them different directions, that tells them different things. As the business develops that rhythm and adopts it and then starts to make it better, that's the momentum that will ride moving forward. And I would say one thing, too, Sean. The best thing for us that we've learned in terms of lessons, couple of things. That we are resilient and flexible and that this workforce can handle just about anything. And we've learned much about data and what do we need to do in order to prep the data even better for the RWCS rollout. And then the other thing, I think, that we will have next year, that we didn't have at the beginning of this rollout, is right now we have 5,000 current employees trained across multiple systems with a knowledge base that they're developing. And we'll have that core group of folks to help lean on and to help roll out the RWCS whereas day one, August 1st, this was new to everybody. So, I think all of those things position us well for 2022.

Janet, I'm sorry, I may have gone -- I'll turn it over to you, if there is any other points I may have missed.

Janet H. Zelenka -- Executive Vice President, Chief Financial Officer and Chief Information Officer

Yeah, I'll just directly answer your question, Sean. These are typical. Your data and the ability of people to learn a new system, it just slows things down. I think I may have talked about that in past quarters and then they gain speed as they gain familiarity, as Cindy suggested. And then the data, you're loading millions of data records from the old systems that were disparate into the new system and they have to be tuned and flowed and people have to understand them, and then we're loading [Indecipherable] data lake with those as well. So, these are what I would classify as typical challenges and I'm actually pleased with the speed of recovery from those normal challenges that you see in an ERP and I think that's due to our hyper-care methodology that we use, where we had people newly focused and a ticketing system to quickly resolve any issue as they came up, so we could recover quickly.

Sean Dodge -- RBC Capital Markets -- Analyst

Okay, that's very helpful. Thanks again.

Cindy J. Miller -- President and Chief Executive Officer

Thanks, Sean.

Operator

The next question comes from David Manthey of Baird. Please go ahead.

David Manthey -- Baird -- Analyst

Thank you. Good morning, everyone. My question on the SID start-up challenges here. What were the nature of those missed revenues? Is that just drivers missing stops or something? And then, back into that $5.6 million. Does that include both the stop fees and the recycling revenues on the back end?

Cindy J. Miller -- President and Chief Executive Officer

Yeah. I -- That's a great question, and I can -- I'll share with you just what we've seen. So, what we do know is, and as we've said many times and we learned this a good bit through the pandemic, that the Secure Information Destruction side, we get paid when we provide a service. So, you have a speed at which your requests and your service request come through your pipeline. And yesterday's world, it was very manual. You'd have a printout sheet and then a new order would come in and somebody would call you and the dispatch person would write it on a piece of paper, and we had all the lack of optimization and all the people driving close to somebody else and around the corner and all of those types of things. When -- We made a commitment to the system and to us, if data doesn't come through the system as quickly as it did before for all the various reasons that Janet had talked about, that means the drivers may have done a couple of stops less than normal because the system didn't produce it at the time of dispatch. So, as you fix the pipeline, as you fix the input through which your data must go through, you start to get back to normal levels. So for us, a transaction equals an opportunity to get revenue. So, it isn't about not having demand. It isn't about any of those things. It's about our internal ability to make sure that that demand for service gets to the front line. So, we are -- we've seen steady improvement from August to September and September to October. So, it's more from that perspective in this type of business where it is transactional in nature.

David Manthey -- Baird -- Analyst

Okay. And then given that the service revenues are -- those are sort of missed, they're gone, but the volume may still reside. Is that the right way to think about it, that you could theoretically pick up greater volumes when your drivers do get there? And then finally, last question. Would you be able to release the tons of paper you picked up in the quarter? That's something you provide to us.

Cindy J. Miller -- President and Chief Executive Officer

On the first part, Dave, you're spot on. So, if I normally come out and I should have gotten there on a Thursday in the month of August and I didn't get there and it didn't come through the system for me to get there until the following week. You're right. The opportunity would be that maybe the bin is a little fuller. So, I think you're spot on in terms of those transactional stops where we had an opportunity to swing our weight back to it, if you will. And in terms of tons, we don't have and we won't be able to -- we don't release by quarter. I can tell you, I know we finished 2020 at around 550,000 tons of paper. It's down from -- That was down from a 2019 average of anywhere from 700,000 tons to 750,000 tons. And I think -- Janet, I think that was -- those are the only numbers that we have released up to this point in time. Is that correct?

Janet H. Zelenka -- Executive Vice President, Chief Financial Officer and Chief Information Officer

That's correct. We did see, as I mentioned in my remarks, that tonnage also is impacted a bit in the quarter, but it is more due to the ERP because if you pick up less paper, you have less paper to recycle, but nothing -- from a trend perspective, I think the first half year what we did release was appropriate.

David Manthey -- Baird -- Analyst

Okay. Thank you very much.

Cindy J. Miller -- President and Chief Executive Officer

Thanks, Dave.

Operator

The next question comes from Michael Hoffman of Stifel. Please go ahead.

Michael Hoffman -- Stifel -- Analyst

Hey, Cindy and Janet. So, I'm going to try and dissect the same conversation a little differently. In 2Q, you shared that you were down year-over-year 10% in stops. So, this is a multi-part question. This is a humor of trying to ask two questions and ask five at once. What is -- So, what is the exit momentum on stops at this point? I got it. You disrupted the stop numbers got to be greater than the 10, but what's the exit momentum or where are we in October? What was the customer reaction to this? And the -- I'm going to ask it differently. There's got to be lessons learned, where you don't repeat some of this in medical waste when you do this in '22. That's the first question.

Cindy J. Miller -- President and Chief Executive Officer

All right. I like the multi question. So, I try to break down and keep track. So, I think let's start with lessons learned. Anytime you learn as much as we are learning about data, not just data that comes out after you've completed a transaction or after you've done something. But about how to cleanse the data and how to understand, how to make it fit through a pipeline, what's the bandwidth required, what's -- who is putting in PO [Phonetic] boxes when they don't work in the system. Where do the -- Where are the orders going that aren't necessarily making it into a drivers handheld? What are the forensics on all those things? That's a learning journey. And I think when Janet talks about hypercare, we've had folks that have worked 24/7 literally, albeit sleeping in the building, and have done just an unbelievable job of taking Big Rock big ticket issues and getting those completed and fixed in one or two or couple of days. That was really incredible to all of us. And so, those learnings, they're going to help tremendously as we get into RWCS. When we talk about a customer reaction, I look at something just as simple as this. We have -- This technology, we've been able to upgrade and revamp a lot of our websites for the engagement that we have with our customers. And this helps with demand capture and generation, and we've seen very positive result since the launch. That's not to say that initial start-up with phone calls coming in-- Hey, where's my person, he is normally here. Of course, the company goes through all of those things, but I think in terms of overall, we're always upset, if we interrupt one customer's routine. We want to be seamless. We want to be the business that nobody thinks about, that-- hey, we're just there automatically, we do our thing, we help you protect what matters and more on our way. So for us, we are certainly getting ourselves back toward a normal engagement from a customer experience. But I think in terms of opportunities, customers are really liking it. And in terms of exit momentum, I think what we're seeing is as we've seen before and we use this as kind of a barometer. As we've continued -- As the world has continued to recover from the pandemic, the demand for our Shred services has continued commensurate with the opening up of whether it's facilities or economies or businesses. And we saw that continue. And what we saw in August and into September was disruption due to -- we couldn't catch as much that was coming to us, but we are getting better and we're seeing sequential improvement August to September, September to October, and like I said, even just the difference between the first two weeks of October and the last two weeks are very, very encouraging for us. And I think that's the best I can say with reference to momentum that we're building.

Janet H. Zelenka -- Executive Vice President, Chief Financial Officer and Chief Information Officer

And Michael, I just wanted to add, you said 10% down year-over-year. We were -- What we -- We were up actually, in Q2, 30% up over the prior year in North America organic growth Secure Information Destruction. We were down 10% to what we viewed as sort of benchmark before COVID of down 10%. I just wanted to clarify that.

Michael Hoffman -- Stifel -- Analyst

And that's what I meant. And where is October compared to that number? Are we back to that number, so we've made up, we're back to a normal pace?

Janet H. Zelenka -- Executive Vice President, Chief Financial Officer and Chief Information Officer

So, we are encouraged with the trends being that the demand is coming in. We're not ready to release that we're still working on all the data flows, etc. But we are encouraged by what we're seeing through the quarter.

Michael Hoffman -- Stifel -- Analyst

Okay. So, question number two, medical waste. In the 3.7% part of the total, you had a very strong comp served last year. So, how does that 3.7% compared to that comp? What's in it? What's it made up of? And in the 1.4% in Maritime, how does that compare to virtually to zero. So, where am I getting back to the pre-COVID Maritime?

Cindy J. Miller -- President and Chief Executive Officer

Yeah, I think -- So, let's talk about the 3.7. Anytime you're getting quality of revenue growth and anytime you're getting any type of organic growth, that's a good thing. If we take a look at the comparables Q3 2021 to Q3 2020, remember Regulated Waste stayed -- it's an essential service. It was the complete opposite of the story that we saw because of the pandemic with Secured Information Destruction. So, we were seeing opportunity in growth and we were trying to take advantage of the COVID growth, whether it's in top-up testing centers and all the different kind of ancillary things that the healthcare network set up in order to deal with the pandemic. So, -- But we did see growth. And here we are, now continuing with solid growth. If you take a look at the overall 6.9% growth from an organic perspective here in North America overall for the company, 6.8%. I think comparing that to Q3 of last year is -- shows that we continue to drive the value and be an important service to the customers. I think Maritime being up, as Janet said, a 1.4% shows that -- It was basically zero. Last year, it was zero. So, it is coming back. And remember, Maritime for us, and you know this better than anybody, Michael, is -- it's got to be an international boat. It's a cruise ship that has to hit international waters for it to really play into being providing waste for us. So, I think as we see any of that continue to open up, that's a good sign for us.

Janet H. Zelenka -- Executive Vice President, Chief Financial Officer and Chief Information Officer

Yeah. And Michael, to Maritime, there is still upside potential in Maritime. It is just starting to recover as the cruise ships run. So, that's an encouraging sign that we see it up, but we're not back to normal run rates by any stretch.

Michael Hoffman -- Stifel -- Analyst

Okay, thanks.

Operator

The next question comes from Scott Schneeberger of Oppenheimer. Please go ahead.

Daniel -- Oppenheimer -- Analyst

Hi, good morning. It's Daniel on for Scott. Thanks for taking our questions. Could you please provide an update on what you're seeing with pricing for large and small customers, and the ability to offset some of the cost pressures you're seeing in labor, in particular? Thank you.

Cindy J. Miller -- President and Chief Executive Officer

Sure. I think what you're targeting or what you're getting to, and I know Janet can add some color there, is our ability to maybe pass through some costs in terms of what we're seeing with the headwinds right now in the economy, whether it's with supply chain or labor shortages or just an overall challenging cost environment. So, I think the good news for us is we've taken -- we've made concerted efforts over the last 2.5 years with our quality of revenue initiatives to improve and standardize with contractual language. We didn't have that before. So now, we at least have levers that we can engage within -- with our customers through the contracts where we have the opportunity to potentially pass through some of the costs. But like many other companies have mentioned, I think the main issue is the difference in the speed at which you can pass through costs versus the immediate real-time effects to your feeling of prices increasing right now. So, I think, more to come on there in terms of what we're working on, but just know that we do have it in our sights in terms of the contractual language and our opportunity to pass through some of the headwind costs we're seeing.

Daniel -- Oppenheimer -- Analyst

Got it. Thank you. And on recycled paper prices. Recycled paper overall, I think, it was up 11% you said, with higher pricing offsetting the lower volume. Could you please talk about how you see that going forward and both with respective prices on recycled paper revenue? And if you can provide an update on the surcharge program and its impact, please. Thank you.

Cindy J. Miller -- President and Chief Executive Officer

Yeah, I think, in terms of the recycled paper, we do see a continued demand for it and it kind of followed as the world opens up. A good bit of the recycled efforts of the paper that we do provide the paper mills goes right into whether it's the retail industry for napkins and paper towels and the like. So, as more demand and as the world continues to open up from that perspective, obviously, the demand for paper increases. So, I think, as we continue to see economies open to some degree, there will continue to be that demand.

And for us in terms of the surcharge, hours, as you will recall, is a tiered surcharge. Wherever the risky rate comes in, then there is a kind of a fee structure associated with it that would get passed through to customers and it's meant to not just have one constant price that -- or one constant fee for customers to have to face, especially if the price of paper continues to rise. So, what we do see is out -- it has been helpful for us, especially when paper at the end of 2019 had gotten down as low as $85 a ton. Obviously, that helped to smooth out some of the volatility. And as we see that the ability of paper to continue to rise, we get more based on the value of the paper. Therefore, the amount that we're receiving from the surcharge would reduce a bit.

Janet, any other color on the specifics?

Janet H. Zelenka -- Executive Vice President, Chief Financial Officer and Chief Information Officer

Yeah. In terms of the surcharge and our coverage of our revenue in North American and Shred-it, we've got about 60% of the revenue now covered with that surcharge, which gives us a really nice leverage point in terms of mitigating any risk with SOP paper pricing, which right now is a tailwind for us.

Daniel -- Oppenheimer -- Analyst

Got it. Very helpful. Thanks so much.

Operator

The next question comes from Jeff Silber of BMO Capital Markets. Please go ahead.

Jeff Silber -- BMO Capital Markets -- Analyst

Thanks so much. Just want to go back to the Shred-it business. I know you talked a lot about the ERP deployment, but has the slower pace of office opening impacted that business at all? I know we're seeing that in almost every city.

Cindy J. Miller -- President and Chief Executive Officer

Now, that's a great question. But one of the things that I would look toward is this, Jeff. We've seen steady improvement since the bottom of the pandemic effect on our Shred business, which was Q2 of 2020. And as the economy has opened, we've continued to see steady improvement and we did right through from January of this year, even through July, and talking about as services -- as companies come back, our services are there. So, I think we all thought many businesses and professional billings were going to open, whether it was in August or September, and then there was a deferral of that. But combined with that, we saw steady demand for our Shred business and schools weren't open yet. So, as we got into right now schools are open, which is one other piece of the total puzzle, but you're right, the big box offices aren't fully staffed or open to whatever the new normal is going to be yet. And to be fair, we look at that as yet another tailwind for us, another opportunity for us to continue to provide service and work toward that transactional service fee revenue.

Jeff Silber -- BMO Capital Markets -- Analyst

Okay. And just, sorry, another question on the ERP start-up challenges. I know you don't have a crystal ball, but whatever you have is better than what we have. Any idea when these start-up challenges will be behind you?

Cindy J. Miller -- President and Chief Executive Officer

I think if you take a look at where we are today in comparison to where we were August 1st, I can tell you there's -- that in terms of calendar, it was only three months. In terms of effort, energy and blood, sweat and tears, it felt like it could have been three years. We've grown, and we continue to grow. I think we fully expect to see that continual improvement. And then, Jeff, I think the other thing that comes when you can say are you through it is how well are you now adapting to the new data, to the new world and to the things that you're learning, so that you can improve the customer experience, that you can figure out how to get the next customer that much better. So for us, we're looking at everything from improved demand generation, how we're capturing demand, greater accountability toward and visibility in toward into the pipeline and into how we continue to drive business. So, I can't say exactly when it's going to be over, but I can tell you that we march steadily toward normalcy. And let's be fair; we're talking about Secure Information Destruction, a 3.4% decline here in North America. And we've paid close attention to many other companies and what they may have experienced, looking at the massive type of deployment that we've had, and we're very pleased with where we are, well positioned to continue to grow in the future.

Jeff Silber -- BMO Capital Markets -- Analyst

All right. Thanks so much.

Cindy J. Miller -- President and Chief Executive Officer

Thank you.

Operator

[Operator Instructions] And our next question comes from Kevin Steinke of Barrington Research. Please go ahead.

Kevin Steinke -- Barrington Research -- Analyst

Good morning. Just wanted to follow up in RWCS related to your quality of revenue initiatives. How far along would you say you are in rolling those out in terms of them actually touching your customer base? I'm just trying to get a sense as to what sort of growth legs we have, what sort of runway we have with continued growth coming from quality of revenue initiatives.

Cindy J. Miller -- President and Chief Executive Officer

Yeah. I think when you set up the right initiatives in the things that you're looking at, they are set in stone, number one, to get you organized and to get you functioning. And then after that, they're set to make sure that you get continual improvements. Anytime you make organizational changes or you centralize RFP processing or you get more disciplined because you now have a pipeline and you get more disciplined in your pipeline management, anytime you're leveraging sales and sales intelligence or are you realigning incentive plans toward what you're targeting, anytime you do those things, and you now have daily analytics or sales activity that you can look at by sales team, you're going to get better. So for us in Regulated Waste, we have a long-term outlook that we talked about from a 3% to 5% growth rate. Regulated Waste plays a very big portion of us being able to achieve that. And that's coming off of many, many years within this company of decline. So for us to see that and continue to drive things forward, I think the quality of revenue initiatives are here to stay and will help us continue to improve.

Janet, any other color?

Janet H. Zelenka -- Executive Vice President, Chief Financial Officer and Chief Information Officer

No, I think they're covered, Cindy.

Kevin Steinke -- Barrington Research -- Analyst

All right. One other quick question. Just -- you've talked about this tool of data you're accumulating from the ERP, or I guess, a lake, as I believe you called it. Did you feel like you have to hire more to be able to really mine and analyze that data and get the insights and the business improvements you'd like to out of that? Or is that something you can handle with your existing staff?

Cindy J. Miller -- President and Chief Executive Officer

Yeah. So, I think, Kevin, that's a great question and one of the things we've talked about. It's interesting to be in the business that's becoming a data company that, quite frankly, here we are at the turn of the century and still had not been to the degree that most of the other companies are. So, you're right. Where do you get the analytical capability to take a look at data, glean important pieces of it and then be able to set business plans and operations and utilize it for planning and forecasting and just basic decision making. I'm pleased to say, while many of our folks that currently work at Stericycle, some folks may not have always had access to that data, but I'm very pleased with the talent that we've brought in, the talent that we've had, that have been with the company maybe just a shorter period of time, but maybe longer than me, as an example, that came with the skill and the ability for maybe a previous employer where they understand and know what to do with data. So, I think it's going to be a combination. We're always -- We always want to make sure that we provide opportunity to our internal folks, which we continue to do. And then as we get into some of the other pieces of goodness that we can get from all this data, we will bring in top talent when we see we have a need.

Kevin Steinke -- Barrington Research -- Analyst

Okay, thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Cindy Miller for any closing remarks.

Cindy J. Miller -- President and Chief Executive Officer

Thank you, Andrea. So, just as the close, everyone listening on the call, as always, we appreciate your interest in Stericycle and your shared excitement for our future. So, thank you very much.

Operator

[Operator Closing Remarks]

Duration: 57 minutes

Call participants:

Andrew Ellis -- Vice President of Investor Relations

Cindy J. Miller -- President and Chief Executive Officer

Janet H. Zelenka -- Executive Vice President, Chief Financial Officer and Chief Information Officer

Sean Dodge -- RBC Capital Markets -- Analyst

David Manthey -- Baird -- Analyst

Michael Hoffman -- Stifel -- Analyst

Daniel -- Oppenheimer -- Analyst

Jeff Silber -- BMO Capital Markets -- Analyst

Kevin Steinke -- Barrington Research -- Analyst

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