Q2 2020 Casella Waste Systems Inc Earnings Call
Thanks for joining us this morning and welcome.
With us today, or John Casella, Chairman, and Chief Executive Officer of Casella waste systems.
At Johnson, our President and Chief operating Officer.
Ned Colletti, our senior Vice President and Chief Financial Officer.
Jason meet our director of finance.
Today, we will be discussing our twentytwenty second quarter results. These results were released yesterday afternoon, and along with a brief review those results and an update on the company's activities and business environment, we will be answering some of 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.
Institute forward looking statements for the purposes of the Safe Harbor provisions under the private Securities Litigation Reform Act.
18 95.
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 recent 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 into future, we specifically disclaim any obligation to do so even if our views change. These forward looking statements should not be relied upon as representing our views as of 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 without unreasonable effort are available in the appendix to our investor Slide presentation, which is available in the investor section of our website at <unk>.
Our dot Stella <unk> dot com and with that I'll turn it over to John Casella, who will begin today's discussion.
Thanks, Joe Good morning, everyone and welcome to our second quarter 2020 conference call to begin with I'd like to no action sincerely think are dedicated war workforce.
Our management team did an unbelievable job keeping our people stay safe.
So they could provide.
The services to our customers and communities and.
Special Thanks to the frontline's.
Workers, who continue to work hard through this challenging time their efforts made it possible.
By the Central service in the safe.
Effective manner to the customers and communities that we served the company remains diligent and focused on ensuring the well being of our employees along with the business along with business continuity, we're nimble observe it as it relates to CDC guidelines and stayed orders leaders throughout the company you've done the top notch job communicate.
Adding organizing implementing mitigation measures, including the distribution of P.P.E. social distance the contact tracing disinfecting procedures limiting nonessential traveling in person meetings in working from home transitions, our sales and customer service and operation teams have been exceptional with their proactive.
Insensitivity to our customers their needs a their service and sustainability needs as well this flexibility not only allows us to maintain strong relationships with our customers, but it also enables us to rightsize service interview and most importantly flex variable comps.
Further we have leveraged our systems to monitor and track key sales and operational metrics through this period, resulting in a responses scaling of our operations overall, our efforts have reduced the number of cases and limited business interruption that we have experienced thus far.
Moving to the quarter in this challenging environment volumes within the solid waste a worse were significantly impacted by Ur cobot. Nevertheless, the resilience of the business and our continued execution against key strategic initiative is apparent in our results.
Despite the volume related headwinds coupled with other cobot related expenses, we improved <unk> adjusted EBITDA by 8.9% year over year, while expanding margins.
We've also improved adjusted free cash flow in a quarter, while maintaining our consolidated net leverage ratio well within our targeted range.
I'd also like to highlight that we've closed on six acquisitions to date and 2020 with approximately 16 million of dollars of annualized revenues. It's notable that four of these acquisitions have closed since April we continued to be excited about our growth opportunity in our pipeline remains robust overall, we're very pleased.
With our response to the pandemic.
We see the effectiveness of our proactive response to Kogut operational programs positive pricing improvement within our resource solutions business execution against our acquisition growth strategy and continued capital discipline.
Next the move onto some color on the recent performance of our operations as well as our continued execution against our key strategies.
Disposal volumes were down nearly 16% in the quarter, mostly as a result of the effective cobot on the economy in anticipation of lower volumes, we dug in what's costs, where we could across their disposal operations. As you know landfills have a much higher fixed cost and collection operations. Nevertheless.
Yes, our operations team did a tremendous job with prudent cost reductions, while maintaining hike heightened focus on our safety and compliance protocols.
Through July we're seeing landfills landfill volumes up slightly sequentially. However, we are not experiencing the typical seasonal ramp we usually see during the summer months, our focus will remain on providing a central environmental services that meet the needs of our customers. We continued to develop strong relationships.
With our hosts communities customers and our stakeholders, we need to have continued success in obtaining expansions that will allow us to continue to meet the disposal needs of society, a quick update on the north country landfill in New Hampshire in mid March we filed our permit application for stage six for me.
It application was recently deemed administratively complete and we're hopeful for a final approval by fall.
Now to the collection collections business.
As expected with shutdowns lower economic activity levels related to covert commercial and industrial bonds were never negatively impacted in the quarter.
Watching volumes were down over 10% year over year. However, overall collection revenues increased due to the rollover effect of acquisitions and positive pricing. Despite the volume when collection adjusted EBITDA margins improved year over year in the quarter.
As I mentioned, we have been very proactive and flexible with our customers. During this unprecedented time, our teams worked diligently and helping where needed to modify service levels suspend service levels. In some cases these actions enabled us to quit.
Well costs, such as labor overtime to appropriate levels, we were able to modify routes and better optimize caused all while ensuring that continued success of our operational excellence initiative, which is focused on service compliance reduce safety incidents and efficiencies.
Moving onto resource solutions in January we combined and realigned our recycling organics and customer solutions teams into one organization called resource solutions. This new newly formed segment will allow us to better meet or customers sustainability in service needs over time.
Our ability to better leverage our salesforce and back office.
The resource solutions organization had another strong quarter led by the recycling business, where we improved adjusted EBIDTA in margins year over year.
Our risk mitigation programs are working well and we continue to focus on operational initiatives and producing high quality and products, we've effectively past recycling commodity risk back to our customers.
We remain committed to meeting our customers' sustainability needs as well as ensuring our employee safety through the reduce reducing exposure risk go on the processing lines by way of distancing measures, increasing the cleaning of equipment.
Et cetera.
Within resource solutions, a customer solutions organic business also performed well during the quarter with combined adjusted EBITDA growth, even while experiencing lower economic activities due to the pandemic.
Lastly, I'd like to highlight our capital allocation and growth strategy as I mentioned before we completed six acquisitions. So far in 2020 with approximately $16 million of annualized revenue.
In the quarter, we completed two acquisitions, a tuck in operation in Central New York in a transportation operation in the Rochester, New York market in July we closed on two more tuck in acquisitions, we have seen acquisition activity slowed down slightly over the past few months with covance, but we still been able to close on deal.
Those that were in process. We believe there would be continue the continued to be sizable opportunity to grow the business in a disciplined manner and to further drive free cash flow growth the pipeline remains healthy and our balance sheet and teams are well positioned to continue to execute against this initiative.
Wrapping up.
Yes.
Running as the past few months have been we're incredibly proud of the response of our employees along with the company's execution and performance in recognition of the incredible work and dedication of our employees will be paying a onetime special bonus to or frontline and hourly back office employees. Thanks again for <unk>.
Presenting our core values and culture together, we've helped to keep our communities running throughout the prices.
We'd also like to welcome Rose Stuffy curve to our board Rosen exceptional leader, who brings important skills and perspectives to our board to help us further build our business and with that I'll turn it over the net to walk through some of the financials. Thank you John.
Revenues in the second quarter were $188.8 million up 1.3 million or 0.7% year over year with 5.3% of the year over year change driven by acquisition activity.
Solid waste revenues were down 1.1% year over year with price up, 4.4% and 6.8% growth from acquisitions and volumes down 12.3%.
Revenues in the collection line of business were up 2.1% year over year with price up 4.3%, 9.2% growth from acquisitions and volumes down 10.6% in the commercial line of business we saw.
Slides down 12.5% in in a roll off line of business, we saw volumes down 16.4%.
Production volumes were up sequentially from April through June as we hit a low point of coated related line losses in April.
Revenues in the disposal line of business were down 9.1% year over year with landfill pricing up 6.2%.
Landfill times were down 18.4% year over year as economic activity in construction projects for both negatively impacted by kind of it landfill tons, though were up 25.6% sequentially from April through June as we hit a low point of coded related by losses in April as it compares.
I think during the same period in 2019 landfill tons were up 4.9% sequentially, which is more of our normal seasonal pattern.
Resource solutions revenues were up 6.5% year over year with organics up 3.4%, mainly on newly contracted volumes customer solutions up 5.3% with new contract growth offsetting cotai teen impacts.
Recycling revenues were up 18.8% year over year, mainly driven by higher commodity prices.
Average come I revenues per tonne were up 45% year over year in the quarter, mainly on higher cardboard pricing, partially offset by lower plastics and metals pricing. The please note cardboard fracing hit a peak in may as trop nearly $40, a time and back to March levels into July.
Adjusted EBITDA was $44 million in the quarter up 3.6 million or 8.9% year over year adjusted EBITDA margins were 23.3% in the quarter up 175 basis points year over year.
There are lot of moving pieces that impacted adjusted EBITDA in the second quarter, given Kobe 19, I'll give a little color on these pieces the largest negative impact on our business was lower solid waste volumes with five Scott $17.6 million year over year in the quarter. This translates roughly an EBITDA.
Headwind of about $5.6 million with a 30% decremental also we had about $1.6 million of coded specific cost during the quarter.
Positive side as John mentioned, we effectively used our business intelligence tools to track key indicators in proactively flex costs to lower revenues. This included downsizing our workforce through the reduction of hours the reduction of overtime lay offs freezing hiring and salary increases limiting discretionary.
He's spending across all parts of the business. In addition, we maintained our pricing discipline across all lines of business given substantial capital intensity in the ever increasing regulatory and environmental costs in our business instead of reducing pricing. We actively worked with our customers. It just service levels to their actual.
Okay, so recycling needs during the period.
Solid waste adjusted EBITDA was $40.6 million in the quarter up $3.1 million year over year.
Increase year over year was mainly driven by great performance and a collection line of business. The positive rollover impact of acquisitions completed last 12 months, partially offset by lower performances disposal business.
Resource solutions, adjusted EBITDA was $3.3 million in the quarter up $400000 year over year, mainly due to higher performance in the recycling business.
Net income was $12.1 million for the second quarter, which was up $200000 year over year. However, please note that our tax provision was at $2.4 million headwind year over year, as we had a $2 million benefit for income taxes in the second quarter last year due to an acquisition.
Net cash provided by operating activities was $62.5 million year to date through June Thirtyth. This is up $24.2 million year over year, driven by higher operating results and $13.8 million as positive changes in our assets and liabilities, including the great mass been accounts perceive.
Adjusted free cash flow was $27.5 million here today up $22.1 million year over year, we continue to invest in planned capital expenditures at the newly acquired operations during the quarter to drive operating synergies integration efforts. In addition, we also continue to invest in that.
Development at the phase six landfill expansion at the waste USA landfill.
As you May note from our press release during the second quarter, we changed the name of our free cash flow metric from normalized free cash flow to adjusted free cash flow. The calculation remains exactly obtain physicists and naming change. We made this change the name to be more consistent with industry peers, while at the same time, we enhance it.
Disclosure to our non-GAAP measures in our press release.
[noise] as noted in our press release yesterday afternoon, we have entry to reintroduce our financial guidance ranges for fiscal 2020, given our increased visibility on the negative impacts of coded 19 on our business coupled with our strong execution today through the quarter the guidance ranges, we put out yesterday assume.
The stable to modestly improving economic environment for the remainder year. However, they do not contemplate a severe relapses coded 19 or new stay at home order shutting down commercial and economic activity again in the northeast I'd like to note that are guidance ranges for remainder year contemplate that adjusted EBITDA.
Okay, well remain generally flat from the second to third quarter. This is first is our normal seasonal trend has business activity typically growing during the summer months, we experienced a very rapid recovery and business activity for late April through mid June at substantial orders for first listed in many businesses reopened.
Construction activity resumed however, this rebound has flattened somewhat through July and we do not expect the normal seasonal business uptick from the second third quarters.
Today, roughly 55% at the commercial industrial services that were reduced or suspended due to co. They have been turned back on we estimate that another 15% to 20% will return in the fall when schools and other seasonal businesses. Recent however is unclear when the remaining 25% to 30% these services.
We'll resume further we expect certain operating expenses to increase through the remainder of the year such as higher disposal costs in the collection line of business lower operating efficiencies due to traffic increases higher fuel costs, and even higher medical costs as the services come back on with that I'll turn it over to add thank you.
Yes, thanks, and good morning, everyone.
Well, we've never had a quarter quite like this on.
The operational challenges presented by the pandemic were so unique that it was hard to predict where we're going to end up but our proactive recognition of effects of the business and the execution of our team to quickly cut costs resulted in a much better outcome than we anticipated.
We also learned a few things about the natural resiliency of the business.
Even with volumes down due to the economic realities of coated the cost of ops percentage of revenue improved by 324 basis points as compared to Q2 last year and drove a 175 basis point improvement in adjusted EBITDA margin.
It's important that you understand some of the moving pieces here, but it may be hard to predict the near future and some of the things were going to protect as much of the margin improvement as we can.
Our operating margin improved in all major lines of business, but the largest improvement was in collection.
The team has done a great job cutting costs to cushion areas of lost revenue I remain extremely proud of our people for what they've been able to accomplish but we've also had some on anticipated benefits of all talked about in a minute.
At the start of the crisis, our immediate focus with not only on protecting our workforce, but also protecting our business by flexing costs, helping customers and keeping our employees safe.
We went to staggered starts in the morning, reducing exposure between employees and at the same time streamlining our daily launch we tightly controlled direct labor hours to adjust for service suspensions from our commercial customers and reduced roll off pulls from our industrial and construction customers.
Where possible we redistributed the remaining workload both to save jobs and so that the labor hours saved were primarily the more costly overtime hours.
At the same time, we also benefited from our pricing discipline earlier in the year 70, private 78% of our budgeted price increases for the year were done in the first quarter. So we did not have to push through npis when customers were dealing with the pandemic and Q2 reflects the selection pricing up 4.3%.
Primarily from the rollover effect.
So the an anticipated benefits as events evolve one of the first thing. We know this was it even our residential routes were finishing earlier and we realized that we were getting a significant traffic benefits, particularly in our more urban markets from the stay at home orders.
This obviously save the some operating costs as stated or home orders are lifted we're seeing some increase in traffic, but it's very difficult to predict when traffic will fully returned to normal.
Another benefit was a reduction and disposal weight in the remaining commercial account base.
This helped to partially offset the reduction in revenue and an increase in residential weights.
Yes, I know in the last call. It said that early data in April was showing only a seasonally normal increase in resi weights. This was proven wrong as the quarter produce an 11% increase in pounds per stop it is difficult to predict the timing of the commercial waves the ready weights in the commercial and industrial revenue returning to normal.
Lastly, as you may recall from past quarters, we've introduced various employee retention programs over the past year, or so including career paths for our drivers mechanics, and heavy equipment operators and push through market based pay scale adjustment and these programs were showing great progress pre code.
We had a significant boost in the quarter with more customers stocked at home. We found the appreciation level of are essential service rose. There was an increase an unsolicited positive customer comments that are customer care center on social media and another customer data, we track record net promoter score.
This positive feedback, which we route back to the drivers where possible coupled with an increased depreciation from the workforce that their job with not interrupted by the Pandemics economics and that we were concerned about their health and safety increased morale and materially reduced our turnover and related costs were half.
With the progress we're not sure how much of this is a permanent improvement, but we are going to do all we can to keep our workforce happy and our turnover down.
With all these moving pieces on the collection side, the near future is a little harder to predict we do feel comfortable enough, though to provide guidance, albeit with a slightly larger adjusted EBITDA range than normal.
On the landfill side as would be expected our volumes were down about 209000 tons or 18.4% as compared to the second quarter last year.
As landfills have a high fixed and low variable operating cost structure, you would expect the margin squeeze.
The cost of ops as a percentage of revenue improved over Q2 last year by 44 basis point.
Part of this improvement is price.
With positive disposal market dynamics in the northeast price was up 6.2% as reported and the more meaningful average price per tonne was up 10.2%.
Part of this improvement is cost reduction driven primarily by our largest site. The Ontario landfill you may recall, we made a significant investment in the Ontario landfill last year, and we changed many of our daily operating procedures, improving both compliance and efficiency at the site.
I want to give a special shout out to Mark Johnson, our VP of landfills, Brian Sanders, our new general manager at the site and the rest of the Ontario team for not only returning that landfill back to casella standards, but doing so on a matter that has reduced our operating costs.
Operating trends are good now, we just need to volume to return.
Our resource solutions group had an outstanding quarter as well exceeding our original budget expectations. Both on revenue and bottom line with a 300 basis point improvement in cost of ops over last year.
This group includes our recycling operations, which benefited from both higher price of processing prices and higher average commodity prices, while only suffering a slight volume decline.
The balance of the resource solutions group also exceeded expectations. Despite some minor service suspensions due to the virus.
Last quarter I wanted to a great amount of detail regarding the operational changes we put in place to protect our employees to comply with rapidly changing rules and guidance for the within each of the states that we operate to accommodate our customers for their changing needs and to predict the long term health of the business.
All of these changes remain in effect.
I want to reiterate what I said that our people are doing an awesome job and I couldn't be more proud and appreciative of the team. Thank you.
I'd like to turn it back to the operator now for to start the Q on that.
As a reminder, we have a question. Please press star one of your telephone keypad.
Our first question comes from the line of Hamzah Mazari from Jefferies.
Hey, good morning, Thank you.
Morning.
During my my first question is just.
Stepping back.
From goal there.
When you look at your solid waste margins.
Goldberg react dr. bar potentially getting those margins up.
Maybe closer to 300 basis points could you just remind us.
What are the large buckets that you see that improvement coming from.
And over what timeframe I realize Colbert has.
Start time frame out.
But but just remind us again.
See as margin potential and solid waste in that segment.
Yes, Thanks Hamzah.
You know over the last several quarters, we've really started to translate more of our pricing to margin enhancement in solid waste and across and higher business as you've seen in.
She flashback to 2018 in early 2019, we had some large inflationary headwinds in that business for a few quarters labor was probably the largest we're suffering higher than normal turnover with a tight labor market. We had a huge effort to go through rightsized wages across the business and also create.
Career paths for key employees. We also were seeing quite a bit of inflation as we close the southbridge landfill and shifty tons to other sites and had to incur more disposal transportation costs and there is this general inflation across the business in long haul transportation other areas.
We did a great job really working to working through days in late 2019, it by the fourth quarter, we fully anniversary some of these high in cost and we start to push through has somewhere around 175 to 200 basis points of margin improvement.
And if you look at the underlying kind of building blocks of where we're getting that margin improvement from pre coded its pricing in excess of inflation.
Days, our key operating programs and his team leading dynamic routing our service excellence program focused in the roll off line of business on efficiency and incorrect pricing, it's our safety programs our focus on our employees. It goes across a lot as areas and then also acquisitions as well.
Ramped up the acquisition pipeline, we had a period of time, where we're bringing in a lot of new acquisitions at lower margins since taking us a number of quarters to generate the integration synergies and get onto our operating platforms.
Weve guided to more of a cadence with that and we're starting to see positive benefit as well as they come into our system. So a lot of moving pieces there.
Co. This is tons of complexity in the quarter, but those underlying reasons as to why we are improving margins prieto. They are still there and we believe to your point over the next several years there is it ability to drive our solid waste margins from the 26 point, 6.5% range.
To the high Twentys, we haven't given a specific timeline on that but we believe inherently we can do that.
Got it very very helpful and just a question on just landfill pricing going forward.
You guys compete with a lot of waste to energy plants in your area just frame for us.
Where do you see as the risk American pricing is it just that waste to energy plants get more aggressive you know is that waste gorillas very expensive part is it just regulation are just frame for US sure you know, how you're going to market dynamics.
I think that the first thing that you have to realize hamzah about the waste energy facilities in the northeast are all fall.
Maybe a little bit of volume contraction, obviously from the economic reality of co bed, but.
Going into it all of those facilities were full and.
In the summer season, there you know there.
And a lot of cases.
Shutdown outages and a lot of waste is moving out of the northeast.
Even.
I suspect even today with the impact from an economic standpoint of Kogas Theres a lot of ways moving out of the northeast. So I think that I don't I wouldn't anticipate.
Seeing any major issues there in terms of the incinerators.
Going after volume I think that were more likely to see.
Consistent activity from a pricing standpoint, as we've seen over the last.
Year to.
Got it.
Just last question I'll turn it over what were July volumes, where you I'm, just trying to compare to that or 12.4% that you reported for the quarter.
What was July relative to that down 12.
Thank you, yes, we hasn't fully closed the books for July, but as I said, a little bit earlier, we had really strong volume trends from April through late June and then our volumes of generally kind of flattened out a little bit in July.
You know chasing in June kind of what were down year over year.
Well from a landfill perspective.
We just focus on tons for as item.
We were down about.
8% year over year landfill tons in June.
And in July we're kind of seeing similar trends as Ned.
Things are pretty much stabilized over the last few weeks.
I could follow up and get some more specifics I don't exactly haven't from you know no problem. Yeah, we can do it offline. Thanks, so much thanks.
Zones.
Your next question on the line of Tyler Brown from Raymond James.
Hey, good morning, guys.
Hi, Alex.
Hey, Matt I, just wanted to follow back up on that do you by chance have just broadly revenue in July maybe the change there.
No, but June I, just pulled up I have it in June so.
We're looking at the month of Chin.
Our revenues as a business were up around 6% year over year and solid waste business was up around 2.5%. So our volume losses may moderate it add there.
Thanks, Ted 7% in a solid waste business down year over year.
And as we said it may go to July trends, there pretty similar kitchen.
Okay, Yes, no thats very helpful. Appreciate that okay. So you guys. Obviously gave some great color in your prepared remarks and again my Big question here is really the second half guide versus the first half numbers. So historically, you see something like I think a 10% revenue and call. It a 20, 25% step up in E.
Das sequentially from the first half. This guide assumes obviously low low single digit sequentially in both and I appreciate that prepared comments, but is there any way that you can help bridge that gap and I don't know could be helpful to talk about the onetime bonus is that being paid in Q3, but just simply how much.
Conservatism is basically in there just knowing that we don't know what we're going to see through the rest of the year.
So the onetime bonus was accreted hat in the second quarter and half in the third quarter. So that is in our forecast for the third quarter and.
A lot of it we've transitioned from managing our business on a monthly basis to transitioning to really having a lot more daily stats and weekly stats as our business intelligence has gotten better and as you're looking at these trends in the month of July and look at.
Key indicators that how much of the coated suspensions or cancellations have come back online what's still remain when do we think that will come back online what's happening with economic activity. Construction starts you name it which is not seen that typical major step up in the summer in some of that could be seasonal.
Businesses, there like resorts and things like that are coming on line. Some of it's just I think fear people arent, starting new projects in and alike and right now with the best we can tell we'll see a more flattish trend from Q2 to Q3 right. However to your point, maybe there's some conservative.
But it's hard to tell the other point of this is just on the cost side. So we've dug in every which way on our cost understanding in Q2, where we benefited how we that as stated in what can move into the future and some of that a deadly gas is things like traffic and the like and we've been happening.
I think lower medical costs that we think start to refer to normal trends in Q3 as hospitals are reopened for business. So.
We don't have a perfect turnarounds Beach is the main and main coast is not fully opened we don't anticipate the summer activity is going to be anywhere near where it normally is and then and then.
Certainly comparable to.
What we saw in.
In.
June but.
We're not going that we're not going to see the level of activity from a from a tourism standpoint.
From a.
Opening up which is that we don't anticipate seeing.
Some of business that we normally do.
Okay. No. That's that's very helpful. Appreciate I know theres a lot on unknowns out there.
So switching gears John it sounds like you've just feels like the M&A pipeline is very strong think use the word robust I think in the quarter one of your waste to energy competitors actually acquired some hauling assets. So I guess from an M&A competition perspective has anything changed there you are do you still feel like there is obviously that.
Due to allocate capital there.
There, there's a tremendous opportunity there continues to be the pipeline is very significant there is a little more activity from a competitive standpoint, you're right about that Tyler with.
With some of the waste energy folks, but again, we've been in a market for a long long time, we've been working on it now for two years, we've built the pipeline over that period of time and I think the interesting thing too that has happened is going into co bed, we saw a lot of fresh.
Sure on independence from a labor standpoint.
A lot of pressure from the disposal pricing standpoint, and also commodity prices were just.
Awful in terms of you know they were going from a situation, where there were getting significant amount of value for recyclables to paying for processing. So and then you add co bid on top of that and we're seeing even more people who.
Prior to co bed I would not have thought that they would be interested in really understanding what the value of their businesses now so.
Hope it is added another dimension.
I think we're going to see more more disruption from an acquisition standpoint because of that.
Yes, Okay, perfect I'm going to go and pass it on thank you.
Thank you.
Your next question comes on the line of Sean Eastman from Keybanc capital.
Hi, John this is.
Hi, gentlemen this.
Well.
Hello.
Yes, we can you.
Hi, gentlemen, this hamzah first speaking for Sean you spend complements the team nice work this quarter and thank you for taking my question I just wanted to dive deeper on the plans to leverage cost synergies across operations and the back office, where have you gotten some traction since the onset up the pandemic what kind of run mid you have on this initiative and what upgrade.
And is expected to be sustained into Q.
And the second half.
Yes. So these are a number of long range investments in programs, we have ongoing and as you know.
Successfully upgraded our financial ERP about a year and a half ago and we continue incremental programs to drive efficiency in the back office.
One area, we're very focused right now it's on the procurement side, there's a lot as.
Lot of manual work being done in our business today and.
They sort of create opportunity to digitize have further and drive improvement without a lot of risk.
So we're excited about that and teams and leading pilot of a new onboard computing.
Dynamic routing system that we'll be testing over the coming months to drive more efficiency on the road through that program, but I think he is on the technology side, we've done a really nice job with low risk doing things through fixed price programs and limited pilots I understand desirability before.
Adding large risk in any area. So as we look at the runway over the next year number quarters next several years.
There's a lot it great opportunity to drive more efficiency in that business on Cove, it kind of skewed that a little bit in the quarter.
But he looked pre coded and you look at the specific programs. We continue to have incremental cost benefits may also we also got a significant amount of.
Value in terms of reduced turnover.
Two years ago, we started new program in terms of career development with Kelly with the arrival of Kevin Kelly Robinson.
That program is really really.
I'm very very well in terms of.
Really helping with our turnover numbers, where we have been able to attract drivers mechanics, we're able to keep people some of the things that weve been able to achieve from a turnover standpoint is very very significant.
In terms of lowering our costs involved so we'll continue to see that going out into the future as well so very positive.
Got it that's helpful and frescoes housing nicely. So any color how you anticipate collection disposal unit to trend into the back off as we see.
Gone me going to mall space based some growth. Thank you.
I think one of the things.
Sure I really understand your question, but one of the things that we've also been able to do is at one point in time, we had about 60% of our back office folks working from home and some of the things coming out of co that will be positive as we've been able to do that very effectively and one of the areas that we've been able to do that is customer here.
So we've been able to really monitored people will have an understanding of how well. They are doing so that should be a positive on a go forward basis in terms of as we continue to grow that was one area, where we're growing real estate growing office space et cetera that should be really helped to something coming out of coal would that would be very helpful. Some of the other things that are that we.
Phone.
So having our people come in in waves Theres. Some operating you know.
Things that we're coming out of co bid on a positive that has also helped to reduce costs.
So.
It's got a number of things that we would want to on a go forward basis try to make sure that we keep as much of the savings as we possibly can.
Got it and on the pricing side do you see.
Sustained 4% to 5% for the back half or that London or side.
I think that the majority of our pricing was done Fortunately for us in the first quarter.
We don't anticipate significant pricing.
The second half of the year as I said most of the pricing for the year for US was done right. After the first of the year in January.
In early February so.
We don't and it's really positive because we've not been increasing pricing.
Through the coated.
Pandemic.
Got it that does alternative thank you very much.
You're welcome thank you.
Your next question comes in light of Michael Hoffman from Steve.
Hey, Michael Thanks permanent Jason Thanks for the question time.
Job.
Thanks, we're going to keep would work and we're going to keep working hard for you Michael.
We got that we got to improve we kind of improve where you are [laughter] I got it that's why I got this list. The question. So here we go okay terrific terrific.
While we're we're going to weird med Ed myself, Jason we're keeping our head down funeral workers.
Right.
Hey, So we can talk about cadence about the second half just to flex that a little so can you help us with what your deal roll over should be in the second half so we get back right.
And then applied picked out correctly Ned.
Scribbling away on the pre prepared comments, you're telling us we should assume quite EBITDA sequentially threeq versus twoq.
They've missed that yes, yes, that's what we currently have in our model right now and then okay.
We know what if you will.
All right and the deal cadence.
Deals we've completed year to date.
We expect this out.
This is around.
12 million if revenues in 2020 in about $4 million into next year and is about $2 million EBIT CA is here in about 3 million next year those revenues and the first year.
So.
Looking at this back half the year Chase and I'm not sure. If I have this mapped out by quarter, yes. So year to date through June from an acquisition perspective, we've had 20.5 million.
Revenues for that includes stuff rolls out for that asset returns rollovers from last year as well.
Thank you a little bit I thought that this aggregate that too.
Yeah.
Okay. When you bought 16 year to date haven't quite done it evenly so yes.
Because if you're saying 12 for the end of year that feels like maybe six or seven in the second half and you did four or five in the first half, yes, probably pretty close I can I can figure that out after it's been about $12 million update deals we've done in 2020 about $12 million at that.
He will show up in 2020 now right on exactly how it splits maybe seven or eight in the last half of the year, we can get a higher pen on that.
Okay that that would be helpful and then.
What has the pandemic done from a timing of when you run through the end of wells because of the work kind of running out through it by 22 now what we're now how are we thinking about the Noel.
Yes, so we've been really effectively using the accelerated depreciation as part of the 2018 tax reform. So as you know almost every acquisition with you as an asset deal and we've been taking advantage of accelerated depreciation so we've been preserving our.
And allows remarkably well and.
At the end of last year I seem to this 112 million as I know wells roughly still remaining so if we look out into future. Our goal of course is that produce as much pre tax income as possible and drive margins.
So.
It is changing of course over time, but if we continue to do some smart acquisitions in U.S accelerated depreciation to shield earnings in the current period.
Really gives us an opportunity to bring those out later in 2022 or 2023, Michael to your point.
Okay. So that's a that's good to know we keep free cash flow and then you had this capital spending issue related to closing Southbridge and some work to be done in Ontario and and.
But all three new England States of Maine, New Hampshire in Vermont, what how do how do we think about the direction of capital spending and 21, I guess, it's way early for guidance, but.
But as a percentage of revenue should it be less.
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Yes, if you if you care capital spending we've been spending.
10, Canada half percent on CIS.
Placement capital running that business and then this quarter, we've actually tried to breakout as well some additional details on where there is additional investments going in that business. So when we complete acquisitions were very heavily investing in the year. After we complete those acquisitions.
And.
Ticket integration synergies too.
Consolidate facilities you name it it's all contemplated as part of their original pro forma so we're investing money there and then of course, we're investing in its very large expansion at the waste USA landfill.
We're putting in 25 year infrastructure at the site. So those capital expenditures have been running.
She wish for set of revenues.
We'll continue with waste USA, one more year.
And then that project will be generally completed into 2021 the acquisition capital on I guess from our vantage point, if we can keep the same pace as acquisition spending that roughly.
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One to one and a half percentage of revenues integrate those acquisitions might be some that contains a roll into the future.
Okay, Alright that helps and then Connecticut has decided not to let America rebuilt or expanded so one of those that do from a dislocation standpoint on helping to sustain landfill pricing.
I think that there's a there's a real opportunity obviously in Connecticut.
Depending upon what happens there obviously, they would like to see processing and.
I think that.
Theres a million tons, just under a million tons.
That.
Is potentially going to be impacted them be in the marketplace.
And as you know Michael we've still got Mckean, we've got real serve permit there 5000 today. So I mean, we have the capacity.
And continues to be an option for us if we had an opportunity to have a long term contract or even for a portion of that waste that would be something that would cause us to invested capital and mckean to put the infrastructure in place to two received by rail so it represents an opportunity.
On a go forward.
So it's.
In our view more of the same in terms of the supply and demand.
Challenges that we're going to continue to see in the northeast over the next three to four five years.
Okay.
And then last one for me is you have talked about education being bought five 6% of revenues.
No. If you look at the chronicle of higher education.
Website, there there are not terribly optimistic about higher education reopening a lot of higher education.
And your markets. So is that part of the conservatism as.
Maybe we don't get back to school.
Sure, Yes, our secondary.
Sorry to that number.
When we said it was like six ish percent that was actually up our commercial collection business. So as our actual total revenues educations, maybe less than 2% so.
Our total collection businesses, maybe 3% to 4% and John you might want to answer about.
Coming back online I think I mean, I don't think that I think that part of the conservative approach that we've had from for the balance of the year is.
It's not likely that we're going to see.
A very large portion of it come online so.
I mean, I think that Youre. Your comment is probably correct, Michael it's really up in the year as to how much is going to come back on line at this point in time.
And just remind everybody there's normally a seasonal service on hold that occurs and education, but it happens sort of late May early June and then they restart again. So that's the thing we won't get seasonally is that service on whole normal recovery of that let alone it.
Closed early but yes, yes so.
When you get into details a co that we had a number of customers that we coated in March and April that said, we're reducing service levels versus spending service due to Kobe and as I said earlier about 55% those customers. Those services are back online and they start to cut through it we expect more to come online through the summer.
In the early fall and then there's things like educational institutions that wouldn't have come back online to the early fall Sharepoint and as we cut through customer by customer.
As much as 30 emerge summers like almost over that were in August or the right. So we'll have some are left in that.
One month.
Yeah, and new England, it's not for a lot.
You know, we're not sure how much that comes back online to your point, Michael but also it's not a huge part of our book of business also but but is in the northeast is something we have a number of great customers in that segment.
Okay.
That helped a lot what I, what I'm hearing is that.
Free cash flow should trend up and 21.
Because you're going to manage costs.
For recovery than sales.
We are leveling off in activity, you're keeping you're going to keep normalizing rightsizing the business Accordingly, and we continue to watch free cash will improve.
Yes, yes.
Okay great.
Thank you.
Thanks.
Already.
I would now like to turn the call back over to management.
Thank you operator.
Thanks, everyone for your attention today, we look forward to.
Discussing our third quarter earnings with you in the fall have the terrific rest of your day and they say thanks everybody.
This concludes today's conference you may now disconnect.
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