Q1 2020 Earnings Call
Ladies and gentlemen, thank you for Sandy.
Standing by and welcome to the Castello waste systems incorporated Q1, 2020 conference call.
This time, all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone keypad I must advise you that this conference is being recorded today may eight 2020, I would now like to hand, the conference over to your speaker today.
Hey, Joe Fusco VP of Investor Investor Relations. Please go ahead Sir.
Thank you for joining us this morning welcome.
With us today, your job Casella, Chairman and Chief Executive Officer Casella waste system.
Johnson, President and Chief operating Officer, Ned Colletti, our senior Vice President and Chief Financial Officer, and Jason meet our director Finance.
Today, we will be discussing our 2021st quarter results. These results were released yesterday afternoon.
Along with a brief review those results in an update on the company's activities and business environment, we will be answering your questions as well, but first as you know I must remind everyone that various remarks that we may make about the company's future expectations plans and prospects constitute forward looking statements.
For the purposes of the Safe Harbor provisions under the private Securities Litigation Reform Act of 1995 actual results may differ materially from those indicated by those forward looking statements as a result of various important factors, including those discussed in the risk factor section of our most read.
<unk> annual report on form 10-K, which is on file with the FCC. In addition, any forward looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date.
While we may elect to update forward looking statements at some point in the future. We specifically disclaim any obligation to do so even if our views to change. These forward looking statements should not be relied upon as representing our views as an any date subsequent to today.
Also during this call we will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures to the extent they are available that's.
A little effort are available in the appendix to our Investor Slide presentation, which is available in the Investor section of our website at all eyes are dot casella dot com and with that I'll turn it over to John Casella, who will begin today's discussion. Thank you Mr. fusco.
[laughter] actually Mr. Fosco [laughter], Thanks, Joe I'm, good morning, everyone and welcome to our first quarter 2020 call I Hope all of you and your families are doing well in this unprecedent time when it started off today by first thinking or 2500 dedicated employees.
Particularly those on the front line with displayed their commitment encourage and providing or central service to our customers in communities.
Your hard work and family support at home. During these unprecedented times is recognized and truly appreciated.
The company, we've been diligent our experienced team has done a tremendous job ensuring the well being of our employees, while maintaining efforts in effectively servicing our customers since the onset of the pandemic in early March we've taken the following five steps to ensure business continuity.
Number one keeping our people safe and healthy.
Establishing plans to provide continuity of operations.
Right three effectively transitioning back office functions to work at home.
Open communications in creating flexibility for customers and flexing variable cost and freezing this discretionary capital.
Touching on some of the key elements of these five steps we have been highly focused on mitigation measures such as distributing P. P E increasing social doesn't see within our field operations to limit exposure, establishing contact tracing operational continuity and disinfecting procedures.
During this period, we've also eliminated non essential traveling to very much limited in person meetings by leveraging virtual format. In addition in addition, I'd like to have a shout out to my views and our safety team for the outstanding job that they have done in support of our frontline operations the team.
So do the great job transitioning office personnel into a work from home environment greeting the safer more flexible work space, while maintaining redundancy of key processes and systems security our investments in technology over the last three years allowed us to make this transition with minimal costs.
And little disruption to our business, our I T team did an amazing job ensuring the employees that had the right I'm sure employees at the right software hardware and training to do their jobs. Our response, coupled with the effectiveness of our consistent and thorough internal communication.
Yes, and teamwork is undoubtedly resulted in limiting the number of cases and business interruption that we've had to experience. This fall.
The geographic blend over operations is also likely been a beneficial factor in our ability to limited exposure with approximately 60% secondary markets and 40% urban markets and that's changed a little bit over the last a year and a half or in that or acquisitions have been.
In the Albany, and the Rochester markets, which is really bring up or our participation in some of the more urban markets in our market area as an organization, we have displayed agility in meeting our customers' service and sustainability needs, while flexing our costs in an effort to rightsize our operational.
Programs as well as freezing approximately 10 million of discretionary capital expenditures.
We have been highly focused on monitoring and systematically tracking key metrics such as service level changes and volumes. So that we can effectively scale or operation.
And we'll dive deeper on some of the specifics related to our actions, but thus far our proactive response has been very successful.
Moving to the quarter, we're really pleased with the result of our first quarter.
This is another strong period as we continue to execute well against our key initiatives given the timing of stay at home orders and its economic impact across our operational footprint, we did not experience any material negative impacts in the first quarter.
As reported in yesterday's press release, our first quarter revenues and adjusted a bit of were up 11.8% and 25.9 for Smith percent, respectively from last year, we continue to execute well are disciplined growth strategy as we closed for acquisitions, thus far in 2020 with approximately three.
<unk> million of annualized revenues. This marks a strong start to the year against this initiative, which we are excited about the growth opportunity our pipeline present.
Next I want to provide some cover on the recent performance of operations from a disposal perspective, our focus remains on providing a central environmental services in a safe and compliant manner.
That meet the needs of our customers both today and tomorrow, we strive to develop the positive relationships with our hosts communities customers and stakeholders as we provide unnecessary resource.
Recognize the scarcity value of landfill assets in a highly regulated environment and through time, we've had great success in the painting critical expansions that allow us to continue to me disposal needs of society.
In mid March we filed our permit application for Sage six expansion at our north country landfill in New Hampshire, we're confident that we have addressed the state's concerns with our last application and look forward to advancing this permitting effort.
We remain focused on disciplined pricing and in the quarter landfill price was up 10.1% volume at landfills were not impacted by Covidien 19 in the first quarter. However, with the recent economic slowdown tonnage is were down roughly 22% year over year in April with construction and demo.
All in special waste tons down about 30%.
Over the last couple of weeks, however, and into early May we're starting to see this sequential uptick in volumes at our sites, which is most likely indicative of modest improving economic activity levels now the collection business continue to execute well against our collection pricing and operational strategies.
In the quarter, we advanced strong price at 5.2% as we continue to focus on offsetting disposal recycling in cost inflation.
As we maintain pricing discipline or operations teams remain highly focused on acquisition integration efforts as well as our operational excellence program is focused on service compliance reduce safety incidents and efficiencies a program that has.
Has been led by Sean Steve's and Ed and is really beginning to bring you know a high level of very very high level of performance across the entire organization. We have been extremely flexible with our commercial industrial customers. During this challenging time help them to reduce in some case.
This is suspend services our operating teams have been nimble in our response to these service level changes.
Flexing labor, eliminating overtime consulting wrote routes and even parking trucks to rightsize, our cost structure quickly to lower revenue lower revenue levels, we estimate approximately 62% of our collection related cost to be variable in nature.
With stay at home in place, we experienced slightly higher residential collection tonnage is up about 15% as compared to March. This is fairly consistent trend. However in terms of the normal seasonal uptick from previous years.
We are monitoring these volume increases and we'll adjust our pricing model as needed or Brazil, our blended residential customers provide flexibility from a pricing perspective with about 75% being subscription based.
Interestingly enough as the Sun comes out in the northeast people begin to come out of their homes do a lot more work and start to clean up and that's a normal trend that we see each year. Although it was up maybe a couple of percentages over and above what we saw last year. So this is a time of year when we do.
See tonnage is go up.
Naturally because again in the northeast people find they've seen a little bit of Sunshine.
One of the keys on the hauling side.
Is to be ready and nimble.
As our customers and businesses come back online over the next coming weeks and months. If you flash back three months ago, our largest challenge as an organization was attracting training and building a great team, especially drivers of mechanics, we believe with the work that Kelly Robinson entire HR team is.
Done we are well positioned to ramp back online services has stayed home orders are lifted and people get back to work across our markets.
Moving on to resource solutions in January we combined and realign our recycling organics and customer solutions team into one organization called resource solutions overtime. This will enable us to.
To more effectively meet our customer service and sustainability needs, while providing an opportunity to better leverage or sales and back office, Bob cabin, Donna and Paul ligand has done a terrific job of bringing that together and really putting in place.
The team and an effective.
Process as we go forward into the future recycling business continues to perform well our average recycling commodity price per ton was down roughly 33% in the quarter year over year, while adjusted EBITDA improved during the same period.
This highlights the continued success of our risk mitigation programs, our focus on quality in products and the outcomes of operational initiatives. We have effect, we passed on over 90% of the recycling commodity respect to where customers in April we did experience lower recycling tons year over year about 9%.
Given the lower economic levels of consumption, however, sequentially higher commodity prices and our tip fees offset this decline.
From a regulatory standpoint recycling throughout the northeast remains vastly unaffected as it relates to covert 19.
We remain committed to our programs into our customers' needs as well as ensuring our employees safety through reduced exposure risk on processing by lines of distant distancing measures and increasing cleaning increasing cleaning.
Equipment.
And one of that you want to the things it's been clear to US is that we've spent the time in dollars resources retraining people on the quality of material being left at the curve. So that we can increase the quality of material that we're processing and really keep our recycling operations moving forward.
Even through this period of time.
The customer solutions and organics team also performed very well during the quarter with combined adjusted EBITDA growth of over $300000 year over year.
Lastly, I would like to highlight our capital allocation and growth strategy continue to execute very well here as well as I mentioned, we have completed four acquisitions, thus far in 2020 with approximately $13 million of annualized revenues, we welcome the new and hardworking employees to our team and look forward to continuing to prove.
Right outstanding service to our new customers.
Our two most recent acquisitions were tuck in collection operation in.
Tuck in collection operation in Central New York, and a transportation operation in Rochester, New York market, which will nicely complement our solid waste operations within that footprint.
Pipeline remains robust, we do expect acquisition activity to slow in near term, but overtime. We believe there remains a significant opportunity to continued to selectively grow the business in a disciplined manner and further drive free cash flow growth our balance sheet is well positioned to continue to support this initiative.
And the market dynamics.
We are still very very strong in that all of the independents have seen tremendous impacts from a.
Disposal standpoint, a recycling perspective now co that.
Labor issues, those issues or have not changed if anything our even stronger today than they were before wrapping up.
Credibly proud of the response of our employees as it relates to this challenging time, we are well positioned to continue to grow the business and execute against our strategic initiatives and with that I'll turn it over the net thanks John.
Revenues in the first quarter were $182.9 million up 11.8% year over year with 6.4% of the increase driven by acquisition activity solid waste revenues were up $15 million or 12.4% year over year as a percentage to solid waste revenues with price up 5.8.
Percent volumes down 2.7% in 8.5% Chris from acquisitions revenues in a collection line of business were up $11.5 million year over year with price up 5.2% across all lines of business volumes down 3.2%.
Negative collection volumes in the quarter were mainly driven by our efforts to shed unprofitable, where advanced pricing and we began to experience. Some early negative impacts from coven 19.
Revenues in a disposal line of business were up $2.6 million here every year with reporting landfill pricing up 10.1% year over year and transfer and transportation pricing up 4.8%.
Landfill tons were down 5.1% year over year, as we reduced trends going into the north country landfill, we also where concerning airspace in New York State in Q1 to ensure we are able to executing Q4 and we also experienced some early impacts from coven 19.
As John just mentioned, we change our segment reporting for 2020 with recycling organics in customer solutions now rolling up into the resource solutions segment.
Resource solutions revenues were up $4.3 million.
Year over year with the organic create driving 9.8% growth year over year on new contracted volumes customer solutions revenues were up 15% year over year due to several new multi site contracts and higher industrial service work recycling revenues were up 1.9% year.
Every year.
This is a great story once again, we had significantly lower commodity pricing with commodities down 33% year over year, but our higher third party tipping fees and.
Also little bit of acquisition activity offset that during the period.
Adjusted EBITDA was $33.5 million in the quarter up 6.9 million or 25.9% year over year adjusted EBITDA margins were 18.3% for the quarter. This is up 205 basis points year over year, we saw margin improvement across almost all the.
Hi, this business and this is really important because last year, we're pushing great price, but we did have some inflationary impacts in the business and we've begun to really anniversary those before cove, including some that changes in transportation third party disposal labor costs. So we're really excited once again.
Same trend is in fourth that fourth quarter.
Solid waste adjusted EBITDA was $30.7 million for the quarter up $6 million year over year.
Resource solutions, adjusted EBITDA was $2.6 million for the quarter up $900000 year over year with recycling.
Organic and customer solutions, each business unit up here every year.
Cost of operations was up $10.8 million year over year, but down 170 basis points as a percentage of revenue with roughly 9.6 million of the increase driven by acquisition activity.
I just mentioned much like the fourth quarter, we continue to anniversary many as inflationary headwinds that had negatively impacted margins in 2018 in early 2019.
General and administrative costs were up $1.6 million year over year end down 60 basis points as a percent percentage of revenues roughly $1.2 million at this year over year increase was driven by acquisition activity.
With the adoption that the new Cecil guidance in Q1 in our forecast of higher accounts receivable write offs due to covert 19, we actually increased our bad debt reserves by $900000 during the first quarter, which drove a lot of that increase.
Depreciation and amortization costs were up $3.9 million year over year, mainly hired to mainly due to higher depreciation on trucks and equipment as we continue to execute our multiyear fleet in yellow iron plans. It's also driven by higher amortization of intangibles from acquisitions and higher landfill amarin.
Station.
Net cash provided by operating activities was $14.8 million for the quarter up $10 million year over year, driven by both higher operating results and positive changes in our assets and liabilities year over year.
We did a great job improving our accounts receivable during the quarter with our Dsos at 35.3 days at March 31 down close to four days from December 30, Onest I believed that we entered the coded 19 crisis with a stable and make sure credit and collections program.
Normalized free cash flow with $4 million for the quarter up $12.5 million year over year. We continue 10, Thats can planned capital expenditures and newly acquired operations during the quarter to drive operating synergies and integration efforts. In addition, we also continue to invest in the long term development of the.
Phase six landfill expansion at the waste USA landfill.
Our normalized free cash flow conversion as a percentage of adjusted EBITDA improved to 41.6% for the 12 months ended March 30 Onest.
As noted in our press release yesterday afternoon, we have withdrawn our financial guidance for the fiscal year ended December 30, Onest 2020, due to the uncertainties from the Kobe 19 pandemic, we cannot predict when a stay at home orders and how fast things ramp back online. If there are additional outbreaks in close.
Sure as in any lasting economic impacts across our markets. We hope to have more visibility on key variables. When we announce our second quarter results. This summer.
Our first quarter results did not have significant negative impacts that cove and 19 pandemic as the stay at home orders and widespread business shutdowns did not occur until roughly mid march across our footprint.
As an essential service provider, we have continued to operate through the pandemic with approximately 87% of our revenues from stable recurring sources, such as residential collection recycling organics.
We closed our books for the month at April on Wednesday, and our revenues were down <unk>, 0.9% year over year or excluding the rollover impact from acquisitions completed in the last year down about 8.1%.
The negative impact of Cobot 19, it's somewhat hidden in the year over year revenue change for the month of April because of the other positive growth drivers, including our strong positive pricing new contracts. He brought online and as I, just mentioned, 7.2% growth from the rollover impact of acquisitions.
To help you have a clearer view of Cofunds impact in the month of April on they give a little bit of detailed by line of business. Excluding the rollover impact of acquisitions revenues in our residential line of business for flat year over year revenues at our commercial line of business were down 9.3% year over year exclude.
In impacts revenues in a roll off line of business were down 26% year over year, excluding the rollover from acquisitions revenues in the disposal line of business were down 14.4% year over year and revenues in our resource solutions segment were actually up close to 1% here.
A year.
Well, it's impossible to predict if we are at the bottom we have seen several key indicators such as commercial and industrial service level changes the number of roll off pulls and landfill tons began to stabilize and in some cases improves over the last several weeks.
We have relied upon our business intelligence tools to track key indicators allow us to proactively flex our cost structure to lower revenues, we have taken the falling steps to reduce our costs. We have downsized our workforce through the reduction of hours reduction of overtime furloughs and lay offs with actively flex variable in general and admin.
On a straight up cost and we've instituted a hiring freeze for all non essential role roles and frozen salary increases.
Our efforts to quickly flex variable costs to lower revenue levels have helped to limited detrimental impact of lower volumes. However, we have experienced volume declines in the higher margin parts of our business, including commercial collection and the disposal lines of business given that we expected detrimental impact.
Adjusted EBITDA margins of roughly 150 to 200 basis points year over year in the current environment.
Moving on we believe that a conservative capital structure will provide adequate liquidity covenant headroom to manage through the pandemic and positions us well for opportunistic growth over the coming months. Our next major debt maturity is our senior secured credit facility in May 2023.
As of March 30, Onest, our consolidated net leverage ratio was 3.10 times against the maximum coverage covenant level of 4.00 times.
Our consolidated funded debt was $537.8 million with liquidity of 139.8 million, including $26.2 million of cash we have chosen to build additional cash liquidity. During this uncertain time to further managed risk.
To further improve cash flows in 2020, we have frozen $10 million of planned capital expenditures and we will continue to actively managed receivables and payables to maximize cash with that Ed.
Thanks, Good morning, everyone.
Well, great first quarter, certainly one of the best Q1's operationally since I've been with the company.
The landfills performed very well with strong pricing our overall average price per ton is up 12.5%.
Improved operating cost and improved EBITDA contribution margin.
The collection line of business also performed well, we enjoyed strong pricing up 5.2% and continued to improve our key operating metrics, which is variable margin contribution per driver.
And our resource solutions group, where we've now combined recycling organics, our national brokerage business in our industrial in plant services business turned in strong numbers as well all combined we saw an improvement of cost of operations as a percentage of revenue of around 170 basis points and achieve profitable.
Realty in our seasonally lowest quarter. So on track great quarter now I'd like to spend the rest of my time, providing some details about our management through the challenges of the pandemic and how we are preparing ourselves for the resurgence of the economy as and when that homes.
When it became clear in early March that everyone was going to be impacted by the virus. We established a task force meeting daily to manage through the rapidly evolving situation.
And managing any crisis communication and leadership is imperative and through this task force, we established direct lines of communication for each of our frontline managers. Our primary focus has been to protect our employees comply with changing rules in guidance within each of the states that we operate.
Accommodate our customers for their changing needs and to protect the long term health of the business.
As it relates to protecting our workforce there've been some pretty significant changes to the way, we operate and I'm sure. Most of the waste industry has done many of the same that.
Minutes staggered starts for drivers we closed the break gromes implemented various electronic solutions to reduce or eliminate face to face contact both internally and at the scale than other areas of customer interface and of course, we are disinfecting like crazy.
And there's the BP side and the early days John personally became a highly effective chief procurement officer of hard to find PDP.
Our lobby looked life and Amazon fulfillment center for a while we implemented an internal tracking system of any employees that might have symptoms for came under contract with an unfair contact with an effective person established procedures to isolate those individuals and I'm happy to say that all of these steps have been highly effective.
Keeping our employees.
As it relates to complying with evolving state rules and guidance our task Force, which includes government affairs and legal Department personnel tracks daily changes in each of the states that we operate in is the prime communication source to implementing evolving operating policies and the early weeks new operating criteria.
It was introduced daily and now we're on the positive side it communicating relaxation of some of the rules as states begin to reopen.
As it relates to accommodating our customers.
Colleges and universities hotels bars restaurants, we're all familiar with what types of customers were quickly affected by the pandemic.
We were very proactive, helping our customers through the process of reducing or suspending service. We've stayed in touch with them where possible during their downtime, helping them think about how to restart when a loud and it made sure we are ready to pull that switch operationally when it happens.
At the same time, we needed to make sure the customers who did not have to shutdown such as hospitals grocery stores and other essential services along with our entire residential base receive uninterrupted service by developing detailed contingency plans. The same goes for disposal and recycling facilities that handle the military.
Well there are ways they produce.
We secured our pipeline of parts fuel and supplies to predict from a disruption deliveries and built inventory where needed. We also established a priority response team of volunteers from all our divisions will enable us to service on short notice any division that became overwhelmed by the virus along with per se.
Leaders and guidelines for execution.
I'm proud of the team for coming together to get all this in place in a relatively short time period and I'm happy to report due to the success of our employee protection actions, we've not had to implement any of it.
As it relates to protecting our business as Ned discussed we have experienced reductions in revenue and landfill volumes and there have been extra cost associated with the actions. We have had to take so we have taken the necessary steps to minimize the financial damage, while protecting our customer base and our new uniquely situated assets.
For the long term benefit of shareholders.
Our focus has been not only on expenses, but on retaining as much cash flow as possible.
We took a hands on approach to helping our frontline managers flex costs, including a specific focus on reducing or eliminating overtime, where possible to do this many employees that experience reductions in their workload had to it that performing new functions are working on a different line of business or with different equipment than they were used to.
So that we could relieve overtime and other lines of business.
They are also been selective furloughs or layoff where needed.
Well I'm thankful to say that that hasn't been a huge requirement as we will need these employees when things ramp back up we've also reduced or deferred capital expenditures were possible, but only where we believe that would not hinder us in the future.
As you can imagine there have been a million other details to managing this crisis than the few I've mentioned and things have been very hectic, but we havent been overwhelmed and at the risk of sounding like from our team has done a great job. This is where the so a culture, our consistency and living our core values and are careful so.
Section of people that fit those values has paid tremendous dividends I couldn't be more proud of our people at all levels of the company.
With that I'd like to turn it back to the operator the surface Una.
At this time, if you would like to ask your question. Please press star one on your telephone keypad again that star one to ask a question.
Your first question comes from Tyler Brown with Raymond James.
Well.
Morning, guys, Hey, nice quarter.
Hey, Ned so to be clear you bought a couple of businesses I think that will add 13 million in revenue is that right and as you see at right now basically what's the rollover benefit in the model revenue from M&A roughly.
Yes, so for the year, we've got about 7% or so Jason.
We had about 7% in April for the full year Greek usage or do you have that number.
We had about 35 to start the year, we did a couple of that.
Q2, most recent subsequent acquisitions, yes, so little north of 30.
The year these new ones give us about on.
$8 million sets $43 million roughly okay. Okay. Okay. That's helpful. That's good placemark are okay. So I am curious about how you think about the New York City dynamics really playing out, particularly from a disposal perspective, so I know a lot of tons come out in New York City. It fills a lot of mouth.
In the region. So I'm curious what the competitive response has been.
Given that those tons have maybe gone away and do you think that this changes the dynamic in the region in any way I mean, I know the landfill price increase was very strong this quarter, but is that having any impact today.
I don't think so I think that.
If any is modest we haven't really felt anything at this point as evidenced by what we were able to do in the first quarter Tyler doesn't mean that wont in the future, but we haven't seen any indications that.
That that problematic I think that the supply and demand equation speaks for itself, yes, and if you look at across our different states.
New York State its wanted to areas, where we had the highest volume declines that are landfills and it is most directly related to New York City, but add to everyone on the phone knows the costs and the complexity of permitting and building and maintaining the landfills doesn't go down and other disposal sites. So we.
Still have the perspective that it these are in valuable assets that need to be match for long term returns and that doesn't change at all.
Okay. That's great to hear so John you mentioned that 75% of your resi business is subscription which is a very unique aspect for you guys. So are you guys able to implement any real time like not an I'll call. It a surge fee to basically help offset the can wait increases.
You know I think it's a great question I think we contemplated internally, we did not executed because we didn't feel we needed to but it's certainly something that we looked at and comp contemplated in net and Jason.
Tyler.
Started to look at the algorithms and how we would approach that but it wasn't necessary in our view wasn't necessary to execute and this is a weird thing on everyone's been talked to the how increase types have gone up year over year and whatnot and we spent a ton of time studying that speak hit every year from February to Mark.
In April our waste go up and are ready containers, but they went up generally the same way that he I think off every year and Edwin just tell me a stat and minute ago. So I went through you know how we have a and B. We service. So you've got to have two weeks when you're comparing things, but I went back to the last two weeks of last April.
Compared to the first two last two weeks of this April and computed the pounds per stop.
It was very consistent it actually went down slightly year over year. So so only thing we have seen as a seasonal a normal seasonal yes.
Those pounds.
Okay that's interesting.
Real quickly John.
I think I think one of the one of the reasons for that Tyler is that we see a seasonal uptick because we go through the winners up here nobody sees any sunshine and all of a sudden you hope comes at the end of March April and all of sudden the Sun comes out at least one two days.
People like Wow, you get all excited started spending money started go into the gardeners of and it's like everything starts the kind of bloom and actually people start to smile.
[laughter] dressing.
So John I am curious about the status of the markets that your end so, particularly in roll off I think you're about 50 50 temp versus Perm if I'm.
Not mistaken, yes, I think you are you said, yes, Okay see said April was down 26% Im just curious how it's temporary versus perm and what about those big market say like Boston, just whats kind of going on in your your general regions.
Jason This is due to the Atlas I split up if you havent, yet temporary scatter little bit more than permanent a couple hundred basis points more on the permanent side with some factories and colleges and universities in other businesses have temporarily shut down we have seen declines.
And then urban is down more in our secondary markets. We see that arrived and we haven't netted acquisition database urbans down about 14% secondary market down about 11% and that would be consistent Tyler because when you think about it mass as you look at Massachusetts, Massachusetts is going through peak at this point in time.
In the last few weeks so they're relate to the late could peak in so that that's kind of consistent we're going to see more more from an urban standpoint than from a.
Rural perspective.
Okay makes sense I'm going to.
Give a one shot here NAD. So I know it's early it sounds like youre going to give more color on Q2, hopefully, but we all have to calibrate our model. So I mean, if we just walked out a very high level very high level from 157 last year I mean, it feels like you still have quite a bit of contribution.
And from incremental M&A, let's call. It Ontario's a couple million positive and then if we just assume the collections a negative and disposals a fairly high negative I.
I mean could you walk into the low to mid 100 Fiftys of EBITDA is that crazy based on what we know yet.
So we didn't feel comfortable providing guidance to the year as you know because this is there's so many exit genius factors here that we can't control, but if you look at our month of April revenues are down roughly 1% year over year and as I said it Doesnt really you can't really use as normal detrimental concept.
Because we have some re mixing of our revenues were growing with some of the acquisitions and we see some higher margin landfill work down significantly. So if you just start to roll out in a model that EBITDA margins are down 150 basis points year over year and you look at you can make your own assumption.
That's what future months look like I think he can start to get a sense said if at April rolls forward, what that would do to Q2 or Q3, but we just can't do that at this point in time.
Okay. That's fair I appreciate it thanks, guys. Thank you Tyler thanks to.
Your next question comes from Michael Hoffman with Stifel.
Hey, Michael Michael.
Michael Michael Your line is open.
We have no response from Michaels line, we'll make that sorry, sorry, I had it on.
Hi.
Hi, there.
Yes, yes of all your everybody as well glad the Sun Shining John It's not Virginia, absolutely hit both time.
Hi were actually.
I think we like it snowed this region believe or not in Virginia, I Didnt say, we weren't going to get snow, we're definitely going to.
This though [laughter].
So I think you clarified one of my questions in the last one that could you made a comment of decremental once at the 200, but what I think we what you meant is what you just said.
It would be down 150 to 200, it's not a detrimental it's the absolute margin will be down year over year, yet yeah, I'm sorry, yes, these kinds of scale confusing I.
This concept of for each dollar revenue loss, how many sense of EBITDA will yield lose gets a little confusing because it of the mixing of our business I think the easiest way to model. This is just take our Q2 EBITDA margins from last year hit them by 150 basis points to 200, you know how much our revenues are tracking down.
April at I think you start to get a sense of what a quarter look like.
Got it thanks, let me.
But clear and then what was the percent of your direct labor cost and 29 team that was overtime.
Okay.
I'm not sure I know that 19. So we are about 19 million in for the year, Yes, and we flex out right now close to 40%.
On a run rate basis out as the business.
But I don't know the percentage that you know I don't it's probably higher than most of your national companies, Michael just the way we run things.
Thank you guys on a lot of windshield time cause of the site. So nature of them markets was yes, and we also try to maximize the return on our our equipment our truck equipment, while still staying safe. So most of our routes are designed to run 10 hours a day.
And so we have a pretty high overtime percentage.
Collection operations.
Okay, but what you're saying, it's $19 million direct costs.
19 million for the patents that since it seems to related to higher year last year spent on overtime.
Always overtime last year, Okay got it and you've reduced that number by 40% by about 40% in the month of April April and at this point that's done you whatever your whenever those costs things were behind your consistent trends improving here now.
Hold the cost but.
Right. That's done that's right it's done yes, Okay and then.
Well thats, what well how do I think about landfill pricing, having successfully gone in and said alright, the world's chains pre Tobin.
Lots capacity out I ought to be able to price. This better. We do then what what how do I had a bursary that and get to how to think about modeling.
On a recurring basis could you I can't imagine keep coming back double digits. So what's the sustained rate.
Yes, so what makes up that 10% landfill pricing.
Lots of different factors and a few of the things that led to that 10%. We had several longer term contracts that rolled over the last six months that weve right sized to current market rates. So the underlying rate of landfill pricing is more like the six ish percent that we spend that and then a few of those.
Longer term resets.
Really show themselves in this period get getting things right levels across a few of our markets and couple of those contracts, Michael we're really large contracts with.
You know over 100000 tons to almost two to over 200000 tons. So.
That's why the big impact.
Got it from that anniversaries when.
Some of that really anniversaries in the fall in some of it goes all the way to next January.
Okay. So we'll see this good trend all away through the rest of this year and that is pretty much for all intents and purposes, Don going yes.
And one of the exciting things is what we got out with a lot of our pricing plan on early in Q1, So I think its 770% 70% of our price.
For the year went out.
In January.
Makes sense because everyone obviously wants to.
Frontloaded in the year those price increases to get the benefit through the course of the year.
Yep Yep.
And I realize predicting this is just difficult trying to predict the model but.
What do you need to see to restart M&A.
Because I kept though.
I don't think that.
We really haven't it's not a matter of shutting down M&A, it's really more a matter of being somewhat impacted by stay at home.
You know the those issues from the state standpoint, So I mean, we've continued on the phone we've continued.
To to reach out to the potential targets, we've actually added some resources there as well from an acquisition standpoint, recognizing some of the things that we had shortcomings on over the last couple of years.
We've added some resources the beginning of the year. So I think it's a matter of when things open up Michael more than.
Because that will give us more flexibility to be face to face and as you know.
Out of that really has to take planned face to face and we closed one deal on April onest enclosed and others second week of April, but they've been in the pipeline and dealer wealth was completed.
I will see a little black spot for update here because all of the early work in diligence has been pushed off of it.
Okay, and then last one for me.
I get why we talk about normalized free cash flow where are we on.
Gap between that and the classic definition of cash from ops less all capital spending those two.
Merging together, how how far away, our where you from that happening.
Well you know.
If you look at if you look at every business you're trying to get information out there about whats cash flow you are producing from your business 10, thats back into different opportunities and we adopted this normalized free cash flow concept to try to give a sense of that where you start to see.
Operating synergies other other benefits and you see that in this quarter, we put $5.9 million of our cat backs went into newly acquired businesses to get them into our system and then we also as we've laid out we're making a very long term investment the waste USA landfill to get a new sell open which is 25 years of <unk>.
I see so we have felt it's really important for shareholders and for everyone to to understand that part of our cat backs part of this is something that's unique you do need to understand we could be choosing not to do it but these dollars are being put to work in areas to have great returns craycraft profile.
Right. So like sounds bridge comes doing and.
You know, we're giving substantially done this year, maybe is a little bit that carries into next year I think there's someone knows that Kobe didn't the construction cycle right now, but were substantially down with cash out the door. There this year.
And the waste USA will be done substantially next year.
We'll we'll be done with that investment next year. The acquisition. It was all part of the pro forma to begin with and it just doesn't roll into acquisition accounting and we feel like it's a great thing to call that out and let people know what that investment is.
Yeah accidents enough I mean, the 10 of the day you either bought a really good fleet you paid for the purchase price or you upgrade the free comes in capital spending on Oh, that's the difference in the <unk> exactly yup.
Okay. Thank you my call. Thanks.
Okay you too.
Your next question comes from.
No rozzi.
<unk>.
Hey, Hey, good good morning hope.
Hey.
My My first question. Then you know you may have to touch on this little <unk> part Yeah. I know it's early early May I think you reference took one channel volume approved Martin the <unk> across online to business and it's familiar if you're just give some color as to you know where.
Where are you are seeing dart improvement and whether it's broad based.
Yeah, <unk>. So we definitely don't want to call a bottom because we don't know where the viruses going and how this will but but we are tracking a lot of keys stats every single day and on the commercial and industrial side of our business. We tracked service level changes in our building system with a Kobe code. So every day we get.
Flash to look at if services have been suspended or reduce or increase in over the last two weeks, we've seen some days with customers, bringing services back online.
We've definitely stabilize and we see some bright spots they're on the roll off sided a business. This is typically the time as a year, where you see holes ramping and throughout the month of April we were declining week on week a week until the last week of April in the first week of May and we started to increase the number.
Polls, both on the temporary basis and the permanent bases. So you know some positive.
Movement, there and then the landfill side, we were reducing week I'm weak till the.
So last week of April and then the last two weeks we've been in a positive friend at the landfills. So you know once again, a little bit of brightness, but a little early to you know fully understand what that means.
That's very helpful. And then you know we've talked about the landfill pricing dynamic and you know you've touched on the new contract <unk> <unk> <unk> <unk> does two people start thinking about waste rail that does that show up when you're.
On these contracts just just give us a sense that's true how's our dynamic you know sort of plays are.
Yeah, the waste or rail dynamic you don't have a transfer station at one day goes by truck and one day goes by rail there's a lot of infrastructure involved and Furthermore, we've really seen the infrastructure get built him more urban areas, where there are constraints are truck constraint or even in states, where you don't get overweight.
<unk> for trucks on the highway so you can't carries much and trailer and the sources, we get waste from in the market. We are generally stable and we're not seeing big changes their homicide and as you know, it's very capital intensive and very hard to handle moving municipal solid waste via rail and you've seen mainly just construe.
<unk> contaminated soils B. movie a rail over the last several years in the northeast.
<unk> fundamentally <unk> because of the capital intensity of M.S.W. <unk> Containerize that we're in the case of C.N.D. you can use gone was to to move it effectively from a real standpoint, and the the capital intensity to Containerize M.S.W. was just huge.
<unk> Gotcha, that's very helpful. My last question like turn it over his.
I I know, you're the largest sort of market share in in your area, where you're operating largely.
<unk> what point do you think you know you got skilled benefits in terms of just being a bigger revenue base <unk>. What I mean by that is you know even companies like your D.S.W. that were 1.4 billion or rubbing you talked about you know that Doc rubbing your best just didn't have enough scale benefits to extract.
And I'm not trying to compare you to the to the larger public companies put just curious as to you don't you think you have enough scale today, where you're getting some of these benefits or a work revenue fish do you start because she incremental scale benefits in the way space. Thank you, but I think if you. If you look at her performance over the last few years as we've begun.
Grogan I think we're beginning to see the benefit of a small amount of skill I mean, certainly you know as we go out into the future. We wouldn't have to continue to you know move on that path. We're approaching you know a billion dollars in revenues today, and we have still significant an opportunity.
From a growth perspective, so at some point in time that the <unk> will be you know an issue for us in terms of whether or not we can get enough scale. So, but we've got a great runway in front of us to create a lot more value over the next few years as we continue to grow I don't know that you'd have something I mean, this one quick thing and I know, we have one more call or odd.
You know waste business is very much a local market business and we focus on rouse density and building scale within markets to drive operating efficiencies the larger scale for G.N.A. I mean, that's a whole different question, but on the local level, we're doing everything we came with acquisitions and smart marketing.
And the work, we do to to get that scale.
Great. Thank you.
<unk>.
Your next question comes from Sean Eastman with Keybank.
Hey, Sean, but gentlemen, hey, thanks for taking my good morning. Thanks for taking my questions. I'm. Just curious you know relative to that April 1st Kinda update you guys put out how these April volume trench ended up versus expectations at that point and then I'm also.
Wondering just about the the burn plant dynamic in the northeast.
What do you see him from those guys in this kind of lighter volume environment and it does you know is that a concern going forward.
[noise] I think that it's a concern shown but I think we have not seen a lot of activity from them yet in terms of the.
Please I think some of that really depends on how quickly things begin to ramp up and how quickly the economy begins to open back up again.
That may or may or may not have an impact on that but to date, we have not seen a lot of activity from a pricing standpoint with regard to the incinerators. It doesn't mean that we won't but I think that's really driven by how quickly the economy comes back.
And you know, we Dallas a moment in time on eight I think it was maybe March 30th March 31st what we saw for judges in our business and the first two weeks of April we shed a lot of volume in the commercial line of business and Australia, the landfills role.
And then as I said to last week or so is April we started to improve slightly and you know it's definitely on a commercial segment, we were down at that point in time, I think casing about.
Six or seven per cent and then we ended up being down about 17% on a runrate basis. So we saw that you know roll off may it down to about we're about 22 or 23% and we were down you know maybe six or seven per cent that right at the beginning of eight.
Cool so things really did you almost got to stay at home orders in mid March we felt some impact and now I think when customers got bills and you know we started engage with them you saw big slow down. The first two weeks of April Annetta stabilization and a little improvement I think that the biggest thing that.
We're really excited about Sean is the reaction of or team and the lovers that they pulled together over time out the work that didn't Sean did to work with our team too you know make sure we do and everything that weekend to get the variable costs down and I think that you know they do that.
We we terrific job during that period of time, maybe nets really laid out for you. What the you know the volume impacts were for April but.
One of the off sending faxes clearly is the response of our team in the work they've done to to minimize everything that we can from a variable standpoint.
Yeah. Thanks for that yeah that was the other question I had you know you clearly a lot of moving parts around you know the detrimental margin impact in April but I'm just curious around the 150 to 200, maybe what.
That would've been if not for you know the aggressive cost action just how much you were able to protect margins any way to parse that element out for us.
Yeah, I'm not sure if we've done that now, but you know our margin declines a little better than that negative 150 in April but you know as we look at the next few months.
There's there's a lot of unknowns. So I don't think we sat down with a piece of paper and said if we didn't change the things how bad what is then but as you know in collection line of business you can flex 60% of your costs and we flax most and a landfill line of business you can only flex 25 or 30.
Percent of your costs and we we do have some larger ready you declines there. So you know we've done what we can then we've done it pretty rapidly I guess, that's one interesting thing about this crisis or this recession. It didn't come on over six months or a year, where you're getting hit with a lot of different.
Cuts over time, you could create a plan and move quickly and they change is almost immediately.
Yep got it that's helpful and last one for me.
Guys highlighted 10 million cutbacks being frozen here.
I'm just wondering you know should we just is that what we should kind of law boss far estimate for contracts for the year or you know there.
Yeah, potentially potentially right or right now yeah. I mean, we may have different perspective, after those second quarter, but for right now, yes, right. It wasn't going to make sense, but you know we.
We put it on hold it's it's out of the equation at this point in time, but who knows what will happen as things begin to open up et cetera et cetera. So yeah, it's hard to say, but it w. take it out now yes, <unk>. It has to come to me for approval. So it's it's frozen those John Sadie you know, we don't know what the next six months.
They didn't need to put some of that money to work and things are opening up quickly and we need certain assets, maybe we unfreeze it and that's so that's some known.
Got it okay, great helpful call I'll leave it there thanks very much good thanks, Sean.
And that concludes Q. and I'd question quite today I'll turn it back advertise for centres for any closing remarks.
[noise]. Thanks, everybody look forward to see you <unk> a conference call, which will be it needs are going to be late July early August yeah wait throw or early August. So thanks, everyone stay safe and enjoy the weekend.
And keep our participating in today's conference call you may now disconnect.
[laughter].