Q2 2021 Casella Waste Systems Inc Earnings Call
[music].
Good day, and thank you for standing by welcome to Casella waste systems second quarter 2021 earnings.
Trends.
At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
To participate on that portion of the call simply press Star 1 on your telephone and please be advised that today's conference is being recorded I would now like to hand, the conference over to Joe.
Susko Vice President of Communications. Please go ahead.
Thank you everyone for joining us this morning, and welcome with US today are John Casella, Chairman and Chief Executive Officer Casella waste systems.
Ed Johnson, our President and Chief operating Officer, Ned Coletta, our senior Vice President and Chief financial.
<unk> cancer, and Jason need our vice President of finance.
We will be discussing our 2021 second quarter results. These results were released yesterday afternoon, along with a brief review of those results on an update on the company's activities and business environment, we will be answering your questions.
<unk> 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 $19.95.
<unk> 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 factors section of our most recent annual report on form 10-K, which is on file with the SEC and.
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 change.
These forward.
Pigments 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.
Stent they are available without unreasonable effort are available in the appendix in our Investor Slide presentation, which is available in the investors section of our website at IR Dot Casella Dot com.
And with that I'll turn it over to John Casella.
We will begin today's discussion John.
Thanks, Joe Good morning, everyone and welcome to our second quarter 2021 conference call.
As evidenced by our results our team continues to perform at a high level.
We are executing very well against our key strategies.
Through this period of economic.
On the recovery and growth we've maintained focus on our customers services sustainability needs quickly reacting to increase service levels at the same time, we prudently manage variable costs coming back into the business with the uptick in activity as expected solid waste volumes were up.
Over 7% in the quarter compared to the second quarter of 2020, which was was our hardest hit period of the pandemic in the second quarter. We grew revenues by over 14% and adjusted EBITDA improved over 18% with margin expansion as compared to the same period in 2020.
We also continued to drive adjusted free cash flow growth with year to date improvement of 45%.
As announced earlier this week, we acquired Connecticut based Willimantic waste paper before I dive into the details of the operations I'd like to mention that I've had the pleasure this week to meet with some of the hard working.
And women of Willimantic that are joining our team I. Welcome you all on board as we look forward to working with you to provide great service to cover that 30000 customers in Connecticut.
This is truly an exciting acquisition for the company as we expand our operations into eastern Connecticut.
The business is well run and has.
Tablet market presence with decades of experience, providing integrated solid waste and recycling services to its customers.
As I said, Tim and Tom the Veeva has built a terrific company and have a terrific.
On a number of hard working men and women that have really done a terrific job of taking care of their customers and it's a great platform for Casella and Connecticut collection.
Collection operations include residential municipal commercial rollout services. Other operations consists of several recycling operations.
Solid waste transfer and a rail served transfer with C&D processing, given the supply and demand dynamics in the northeast we're working to bring our Mckean landfill rail online, we will look to internalized volumes from Willimantic and other casella operations as long term stable sources of tonnage into the site.
I will now provide a brief review related to further execution against our key strategies and recent performance highlights.
First as it relates to disposal as expected volumes were up in the second quarter, while many of our customers are fully back online the volumes from the New York City area have been.
The slowest to recover we do not have collection operations in and around the city with several of our landfills accept waste from third party transfer stations.
We are seeing modest improved trends across these volumes, however, slightly lower activity levels combined with labor shortages impacting third party trucker.
<unk> has resulted in some of these volume is not coming back into our sites as yet.
From a pricing perspective, we advanced positive landfill price of 4.3% in the quarter, which was a sequential improvement from the first quarter.
We also continued to focus on various operational initiatives.
Permitting efforts to help drive further value and higher returns across our disposal assets.
Moving to the collection business, Ed and Ned will provide details on our recent performance of our operations along with what we're seeing with price and volume trends I wanted to take this opportunity to talk about labor.
<unk> and how we've positioned the company to mitigate the challenges many employers are facing in today's environment.
Throughout the history of the company, we've created a culture of being of service.
Not only to our customers, but to 1 another in 2020 through the pandemic. This was evident not only did we take exceptional.
And for our customers, but we also prioritized keeping our people safe, especially those working on frontline's, we supplied protective gear established COVID-19 related guidelines and overall, we helped each other get through an unprecedented time, emphasizing first and foremost the health and safety of our employees and.
Care of these low.
That's meant a lot to our work force. We also recognize our frontline operators and hourly employees with a special heroes bonus around labor day.
As much well deserved and well received these actions are paying dividends in 2021 through increase loyalty across the organization.
Over the.
Several years, we've also focused significantly on improving the quality of our fleet.
We recognize that our drivers mechanics, and operational team take great pride in our trucks for equipment leads to lower levels of employee satisfaction execution against our multi year fleet plan initiatives.
The last driven.
Organizationally in this area.
Prioritizing when each truck has to be replaced creating standardization of body and chassis based on applications and provide enhanced visibility and alignment to the budgeting and capital allocation process.
Ultimately this has resulted in lower.
Our average fleet age lower maintenance less downtime and highly reliable fleet, which all very much positively impacts employee morale and retention.
Further we've invested more in automation across our fleet automated trucks and routes ultimately reduced safety instance, Inc.
Productivity require higher skill set.
And broaden the labor pool in that.
The more innovation and technology inside the trucks the easier the trucks are to operate.
Broader the labor pool for those applications, which is absolutely terrific.
These factors have all helped to mitigate turnover within the markets, where we have enhanced automation.
Our success in these areas coupled with other operational on HR initiatives have greatly helped to limit labor challenges.
We have not had to drastically change labor rates and we are not experiencing significant.
And labor.
Significant levels of labor shortages net.
Our resource solutions business business.
<unk> to perform very well our recycling processing operations have benefit from improved operational performance, coupled with higher recycling commodity prices as.
As commodity prices increase we have shared a portion.
The upside with their customers lowering tipping fees higher rebates.
Lower SRA fees, a risk mitigation fee programs protect us very well from the downside recycling commodity risk with exposure on only about 10% of our recycling volumes. So our risk balance structure is working well.
As intended and has allowed us to create a model that is both economically and environmentally sustainable or.
Our non processing operations are also performing well as we continue to focus on providing resource management services to large customers, who often have high level of sustainability related needs.
As we envision combining our recycling organics and customer solutions under resource solutions is bringing enhanced alignment across our sales operating and back office teams, which is driving higher value to the organization.
Finally, I would like to further highlight our capital allocation and.
<unk> growth strategy through the last several months the acquisition acquisition activity continues to heat up we've had many productive conversations with potential sellers and we're working on several opportunities at close that could close over the balance of 2021 or into next year, we believe that certain factors such as labor challenges in taxes.
<unk> reformer driving further acceleration of the pipeline.
Our pipeline remains robust and our balance sheet is well positioned to continue to grow the business.
Wrapping up we are executing well against our key strategies, we expect continued strength across the business and we have.
And raised 2021 guidance further we are enthusiastic about our acquisition pipeline and our ability to continue to drive.
Just the free cash flow growth and with that I'll turn it over the net amongst the torrential downpour here at Mont which is what we've had for the entire month of July.
July so it's very green in Vermont, hopefully everyone can hear me over the rain and the train horns.
Revenues in the second quarter were $215.9 million up $27.1 million or 14, 4% year over year with 1.9% a year over year change driven by acquisition.
Again.
Solid waste revenues were up 13, 7% year over year with price up 4% volume is up 7.1% and acquisition growth of 2.6%.
The sequential improvement from the first quarter 2021, when solid waste volumes were down 3.3% year over year.
Rajiv.
Active and line of business were up 14, 2% year over year with price up 4.2% and volumes up 6.7% with volumes up 12 over 12% in the commercial line of business and over 8% in the roll off line of business. The residential line of business was slightly up year over year as we didn't have.
On a classic an impact with Covid last year.
As we have discussed over the last year, we've kept close track of the commercial and industrial collection customers, who reduced service levels or even shut off services. During the COVID-19 pandemic through late April we had recorded recovered roughly.
Roughly 70% of fees volumes on a revenue basis.
Since April we've recovered in the other 15% and we're now sitting at roughly 85% recovery of any commercial or industrial services on a revenue basis that were reduced or suspended due to COVID-19.
Revenue in the disposal.
Cigna business were up 12, 4% year over year with landfill pricing up 4.3%.
Landfill tons were up 11, 2% year over year. However, on a trailing 12 months basis, we're still down roughly 225000 tons or 5% versus pre COVID-19 landfill tonnage.
Your line almost all of this negative impact is in New York State and is mainly the result of lower commercial activity and a greater from New York City area and as John Net mentioned driver shortages at third party trucking companies that typically moved its waste from the city to our land sales.
Resource solutions revenues were up 6.
Levels, 2% year over year with higher recycling commodity prices and higher processing and non processing volumes average commodity revenue per ton were up $62 per ton year over year.
On higher cardboard and mixed paper pricing higher metals pricing and higher plastics pricing.
Adjusted EBITDA.
<unk> was $52.1 million in the quarter up $8.1 million or 18, 5% year over year and adjusted EBITDA margins were 24, 1% for the quarter up 85 basis points year over year.
Solid waste performance drove a positive 70 basis points of our consulted.
Consolidated year over year margin expansion and recycling contributed a positive 15 basis points to the expansion.
Our core business performed very well on the period with pricing and operating efficiency programs outpacing a few notable year over year margin headwinds, including fuel overtime acquisition.
Integration healthcare and incentive compensation.
However, it's important to note that these costs were up year over year due to the very unique nature of Q2.2020. However, most of these categories were stable from Q1 to Q2.2020.
Solid waste adjusted EBITDA was 40.
$6.6 million in the quarter up $6 million year over year with both collection and disposal.
Resource solutions, adjusted EBITDA was $5.6 million in the quarter up $2.3 million year over year.
As intended and as John discussed earlier much of.
<unk> is commodity pricing during the quarter was passed back to our customers through our recycling risk management programs through lower SRA fees, and higher rebates or lower processing fees, our recycling processing centers, however, higher commodity prices did improve operating results by roughly $1 million during the quarter.
The increase cost of operations was up $15.1 million year over year, but down 120 basis points as a percentage of revenues.
Many cost categories improved as a percentage of revenue and his team has worked hard to control costs as volumes have returned to the business and we continue to execute very.
Against key operating initiatives, such as our collection route automation and optimization.
General and administrative costs in the quarter were up $4.3 million year over year with $2.8 million of the increase driven by higher bonus and equity accruals due to timing differences and higher.
Performance.
Given the reversal of the tax valuation allowance in fiscal year 2020, we expect an income statement tax provision of approximately 32% in fiscal year 2021, However, our cash taxes will remain at approximately $1.5 million in fiscal 2021.
1.
Our income tax provision was $5.4 million in the quarter up $5.1 million from the same period in 2020 day.
This increase resulted in a 10 cent per share year over year headwind to EPS.
As of June 30, we had approximately $549 million of debt.
And $167 million of cash our consolidated net leverage ratio was 2.54 times as of June 30.
Pro forma for the Willimantic acquisition closed on July 26, our pro forma leverage was approximately 2.46 times with liquidity.
So $217 million.
As John mentioned, we believe our capital structure is in a great position gives us flexibility to continue to execute our strategy to grow through smart growth investments and acquisitions.
Net cash provided by operating activities was $79 million year.
Of rough up $16.5 million year over year, driven by higher operating results and positive changes in our assets and liabilities year over year.
Adjusted free cash flow was $39.8 million year.
Year to date up $12.3 million or 45% year over year.
Yeah.
Year to date capital expenditures were up $5 million as we continue to invest in planned capital expenditures and newly acquired operations to drive operating synergies and integration efforts. We also continue to invest in development of the phase 6 landfill expansion at our waste USA landfill, we expect we expect that.
Complete this expansion in 2021.
Much of the capital expenditures that we've been buying this year, we're actually ordered back in 2020, and we've locked in pricing at that time. However, we have experienced recent inflationary pressures on dumpster purchases as steel prices have skyrocketed and for certain.
Instruction materials at our landfills, we're closely watching these trends and adjusting our pricing models accordingly.
Given our solid execution year to date, and our increased visibility of economic trends combined with the expected contribution of acquisitions already completed this year, including the Willa <unk>.
<unk> acquisition, we raised our fiscal 2021 guidance ranges for the second time this year.
These are laid out on our press release yesterday.
The updated 2021 guidance ranges assume a stable economic environment, continuing through the remainder of the year with a modest rebound in solid waste volume.
We expect solid waste volume to be up roughly 1.5% year over year in the third quarter and up 1.5% in the fourth quarter as the post COVID-19 comparisons become more challenging.
The guidance includes 4.7% of revenue growth from acquisitions already completed in 2020 in 2000.
On a 21, however, as always it does not include any acquisitions, yet to be completed with that I'll hand, it over to Ed. Thank you.
Good morning, everyone well another great quarter, we've continued to perform well operationally and even though we knew we were going to have a very tough comp on the collection side.
<unk> exceeded plan in all major lines of business.
We reduced consolidated cost of ops as a percentage of revenue by over 120 basis points.
Q2 of last year was a very unusual quarter because of Covid. So I thought it would be beneficial to talk to 2 year trends as I go through the segments.
On the collection line of business is on a long term track of margin improvement as we continue to increase our level of automation upgrade routing systems implement onboard computers and improved real time internal operating stat reports that we use to manage the business.
However, the comp was difficult as last.
Last year Q2 was significantly affected by the Covid pandemic as businesses were forced to cease operating and people were asked the sequester in their homes.
Moving quickly to flex costs and protect our people and our team did a great job, but there were a couple of unanticipated benefits low disposal waste from the commercial.
On the overall efficiency of having no traffic.
Our cost dropped faster than our lost revenue and gave us a temporary boost in margins.
This year cost of ops as a percentage of revenue went back up as compared to last year, but it is still a 270 basis point decrease from Q2 of 2.
<unk>, which reflects a more normalized picture of our long term improvement.
Over the past 2 years, our landfill operations have made some substantial progress reducing costs and improving operating efficiency.
Landfill operations, which have high fixed operating cost fluid little flex.
On ability.
Our financially very volume sensitive.
In Q2 of last year, the Covid effect on economic activity reduced tonnages revenue was down 10% as compared to the prior year, but we still managed to reduce cost of ops as a percentage of revenue by 50 basis points. This year.
<unk> Cape volume starting to return we see the full benefit of what we've been doing and cost of ops as a percentage of revenue were down an additional 525 basis points.
Our biggest landfill, Ontario County in New York has led the charge on I wanted to give a special shout out to Mark Johnson on Brian Sanders for the great.
Work on there.
Our resource solutions Group has also performed well. This group includes our recycling and bio solid operations and volumes in these areas remained fairly steady through last year's disruption operational improvements resulted on a reduction on cost of operations as a percentage.
Revenue of 200 basis points in Q2.
2021 versus Q2 of last year, and a cumulative 500 basis points from Q2 of 2019.
We continue to work on initiatives that will further improve our operational efficiency we are investing.
The revenue of our recycling facilities, including technological innovations that will both increase capacity improve product quality and reduced per tonne processing costs were.
We're expanding our use of onboard computers and integrated camera systems on our collection vehicles, we are steadily increasing our level of automation on our residential.
Vesting on collection line, we're implementing real time business intelligence reports to quick on our response to operational issues as they arise and we have developed a long term heavy equipment plan that will rightsize equipment in all post collection activities replace equipment on a timely and preplanned basis and reduce overall capital.
Identical on operational costs.
Similarly, we have also just completed a long term facility planned upgrade efficiency and improve workplace environment to attract and retain good people. These are the initiatives give us confidence that we can continue to improve the efficiency of our existing operations.
Is it close.
And comment I'd like to welcome the Willimantic employees that joined the Casella team. This week, we look forward to you, having long and fruitful careers with us on hope you find casella to do the same great place to work because we have.
With that I'd like to turn it back from the operator to start the Q&A.
And thank you and as a reminder.
Binder to ask a question simply press star 1 on your telephone to withdraw your question press the pound or hash key please standby, while we compile the Q&A roster.
Our first question is from Hamzah <unk> with Jefferies. Your question. Please.
Great. Thank you so much good morning, I guess, the first question would just be on.
You know you you've mentioned it.
Or is your day, New York and why you are not sort of above pre COVID-19 levels on volume do you have a sense of when you get back.
To pre Covid levels, how quickly you can get there.
Sure.
And as part of that you know whats your guidance imply on pricing for this year in the second half.
Yes, I'll start.
Yes, John.
On the collection line of business on.
Yes.
On the roll off site construction construction side were actually higher than pre COVID-19 levels right.
Now and then on the commercial and industrial side, we're about $3.3 $5 million of revenues on an annualized basis lower to a pretty de minimis in giant Tiger I was just going to say hamzah.
City didn't open until July 1 so we expect that it should continue to improve through the rest of.
2021, but if you remember and I'm sure you're well aware of it.
The city opened it goes around July 1.
Yes, we're seeing something interesting to wear.
As John described we are doing a great job retaining drivers and hiring people and really building our work.
For us, but the volumes from New York moves very far distances to our land sales and some of the third party haulers has seen some labor challenges and I think when some of the federal programs roll back what we expect that to help on that with some of the driver shortages. There so not directly our people, but it is impacting our business a bit today.
Got it and just on pricing whats your expectations on pricing.
In your guidance going forward.
Yes, so we expect pricing to as we said.
Q1 was a little bit lighter than we expected Q2, with where we want it to be and for the rest of the year, we expect a day.
Kind of 3 and 3 quarters to kind of 4 ish.
We were on that 4 level for the rest of the year.
Gotcha and just on on the M&A.
Pipeline I know you talked about the Carter transaction.
What does the pipeline look like I know, Pennsylvania change.
Change hands.
Didn't get that asset.
Just just sort of any view as to the pipeline longer term going forward I know you've sized it up but maybe just talk about.
The level of <unk>.
Transaction do you think you can do in the near term.
And whether you think that.
That's going to be higher than normal or I guess higher than you know is the run rate of deals youre doing right now going to be consistent going forward.
I think that we have always taken the approach to.
To be a bit conservative in terms of what we do and it seems as though we're obviously.
Above what we'd laid out from a guidance, we've done 5 transactions and $67 million of acquired revenue. This year and we have we have a lot of activity right now.
There's a lot of activity because of labor issues and Theres a lot of activity.
And if you talk to us in the first quarter, we werent.
Seeing activity from attacks.
Contemplation, but we are now some people are really thinking about it in terms of tax changes. So there is an awful lot of activity. We still we had indicated that we had 80% to $100 million that we were working on still consistent even though we've completed well.
Obviously, I think we still have.
A number of things that will happen throughout the second half of the year.
And.
I think that.
Clearly, we're going to be on the conservative side, but it seems as though we have been over performing from a from an M&A standpoint.
Clearly.
Transactions and opportunities that if you would talk to us a year ago that were not in the mix in terms of opportunities because we just didn't think that they would be.
Target from an M&A standpoint, which has changed pretty dramatically.
Great. Thank you so much.
I'll turn it over thank you.
Thanks, John.
Our next question comes from Michael Hoffman with Stifel. Your question. Please.
Hey, guys.
Trading shows up at every quarter, it must be a pretty reliable service.
It is even through a big range from Israel.
Certainly.
Our net annuity theater, you've been practicing your presentation for the.
Opening remarks, there and you're doing community theater.
Yeah. He is definitely doing community theater.
On my whole life.
Yeah.
So on the more serious questions.
Like interest expense and things like that what are we looking at for the next.
Couple guidance thing through the second half interest expense.
Your DNA SG&A can you help us with those now that you've layered in a bigger a longtime family owned business probably has no basis. So got a fair amount of goodwill intangibles and things like that.
Yes, so on <unk>.
Interest expense, we expect around $22 million for the rest of the year.
And.
Right now with the Willimantic transaction.
It was structured where we able to take the tax basis step up so there will be a.
A little bit higher.
DNA, both from a goodwill standpoint.
Amortize the law and handful standpoint, and from the tax basis step up which is good from a tax planning standpoint, but to your airplane Michael in the near term actually weighs on G&A and I need to pull up that number so DNA.
<unk>.
We've guided to 101 hundred $3 million.
Okay Center on that number in front of me.
There were several voices there say that again.
$103 million of DNA on the year, Michael that we've guided to DNA is 1 O 3 okay alright.
And then.
CNA is that kind of probably land somewhere between $1.15 and 117.
So we are at.
Yes.
<unk>.
Lee.
And then does that include Willem assets.
So it will be around 1.
So half of the year.
Yes, it will be around on 114 to 115 range Michael Okay, Alright, that's very helpful and then.
The tax rate as high this year because of that.
Tax valuation issue last year, but whats the dip back to going forward. So we get the forward right.
Yes.
I shall go our focus for many years has been on managing cash taxes, which we've done very effectively and but our effective.
Income statement tax rate sitting at 32% and that's actually a little higher than we'd like it to be in a lot of it has to do with non deductibility of.
On my compensation and other charitable contributions and the like and we haven't done a lot with cash.
Tax credits.
We've done some with landfill gas to energy and we will look to do more there, but it hasnt been a focus because we've had a net operating loss position and some of the work we've done on the tax depreciation.
So it is something we're looking at from a strategy standpoint, Michael because from this point going forward Youll see normal provision on the income statement.
This area will focus on <unk>.
So should I use 32 or 30 for next year I'm, sorry, I'm used 32.
32, Okay, Alright, that's helpful and then.
And just 1 more point on that our actual cash tax rate is 27.8.
8% its lower of course due to Nols and whatnot with the income statement is up because of those non deductible items got it okay. That's very helpful.
And you still think the NOL on kind of based.
So on doing your M&A stretch it a little bit doesn't really turnover on it until 'twenty 5 'twenty 6.
Yeah.
We've been able to structure transactions very effectively to help us with that and we're looking at 2025 or later.
Okay, that's helpful as well.
<unk>.
This is a hypothetical but if new York City had been fully operational on July on May July 1 if you will on July 1 so you move that volume was there.
The presumption is your guidance would clearly have been stronger and.
And I'm not being critical that it's a little muted if I look back to starting.
This year and then what you raised it.
But it's a little more muted relative to some of the peers in the end that's about New York City. That's that's what the issue is if you had visibility on New York City area higher number.
That's all right that's fair to day.
Recycling as well when we mentioned that we.
<unk> built a very fair systems to share risk.
We maybe don't have as much of a tailwind right now, but that's fine with us. So we're doing exactly what we set out to achieve and we're making a nice return recycling.
Perfect that helps too so lots of companies have been talking about landfill gas operations and the Grand windfall that might.
February on it can you talk a little bit about is there are incremental opportunities for per either development or repositioning what youre doing to uncouple, some value, including maybe grabbing some credits.
Well.
As you know we partner with third parties too.
Come from build or <unk>.
Gas plants, we're moving towards RMG now that most of our sites with a lot of great opportunities, but our model is basically to sell them the gas minimize our capital on our risk.
And then we share on the upside so when we partner with somebody we work on.
Paul on where that upside start and we take very conservative long term estimates so things like rent because we know the RIN market is spiking right now so we want to make sure we stay conservative on that and we share as much upside as we can.
I do think that there is an opportunity.
Model from a.
Our pipeline ready gas.
It is going to change the dynamics, a little bit from the landfill gas energy standpoint.
There is an opportunity there.
Technology innovation is moving forward and I think it is going to change the dynamics a bit and create a bit more opportunity.
Especially for those facilities that zone that arent able to get to the grid.
Right any sense on what that might mean to bump in cash or EBITDA.
I don't at this point in time, I mean, I wouldn't think that it's.
I think there is a possibility that it.
It could be a positive but it wouldn't be something that we would be putting into the model at this point.
Okay fair enough.
Willimantic, Israel does this help accelerate mckean development or how does it play into the Mckean.
Yes, it surely does.
The romantic facility.
<unk>.
Certainly fits into our strategy to bring mckean up and operational we are in the process of doing that now we've put the team together we are going through the engineering.
And expect to have mckean.
Operational towards the end of 2022.
Maybe early 2023, but absolutely it's it's very helpful. Because it puts more tons.
On our control to make sure that we've got the tonnage necessary to get a nice return at Mckean when we bring it up.
Megan operational.
So you have to put a spur in this.
So state help.
Funding some of that as day.
There is a possibility we had received a grant loans for $10 million for that rail infrastructure I'm not sure whether we will pursue that or not we're going to build out.
The facility and we're going to do it.
At a very high level in terms of having.
On the fastest turn times, the least amount of damage to the cars. So we've got an opportunity to build out a very high quality facility.
It's a clean sheet of paper at this point in time, that's exactly what we're going to going to do so.
So there's a nice opportunity for us to.
2 really.
Build that facility right.
Okay and last 1 from me just because I think it helps you manage the news flow. So there was some stuff in the new Hampshire papers about.
Landfill, having we still can you put that.
And in fact on so everybody understands you have got on top of it it's managed and it shouldn't interfere with the development of.
The second 1 it's.
And it's very disappointing we from an operating standpoint, it's unacceptable.
We've made some changes to make sure that the issue doesn't happen.
It.
Went into our retention basin, that's been cleaned up.
Straightened out.
Continue to work through with Ges on on the issue and as I said this unacceptable and certainly something that we've looked at from a personnel standpoint and have made some changes and additions.
<unk> 2 some policy changes in terms of duplication as well.
And work over a weekend in particular, so it's on unacceptable.
That's been taken care of it has been cleaned up and it did go into our retention basin so that.
That go into the river, which the journal on the 1 journalists was trying to suggest.
Yeah.
That did not happen absolutely not right now.
So I think that's a good point to clarify education went into retention basin correct got it alright. Thank you very much nice quarter. Thanks. Thanks, Michael.
Our next question comes from Tyler Brown with Raymond James.
Hey, good morning, guys, Hey, good morning.
Hey.
Just real quick on the guide, but of the incremental $30 million to $35 million in revenue and just how much of that is M&A and how much of that is an increase in maybe core price and volume. It just feels like it's mostly M&A.
Cash at $25 million.
Associated with M&A on the revenue side.
Okay, so roughly a 20% margin and cash.
Okay, I was going to ask on the EBITDA. Okay. So again, there the $10 million increases a good chunk of that is M&A.
$5 million M&A fives corn crop.
Okay. So I can't tell I mean, do you feel like you're being conservative on the it sounds like maybe you do not being presumptuous here, but it feels like maybe you're being conservative on the core price and volume that could be upside there still on restarts.
Yes, right now we're tracking pretty close.
But as we mentioned a little while ago, both on price and volume and even were slightly lighter in Q2 on times. We're tracking ahead on operating efficiency programs and whereby we're probably being a little bit conservative.
Hopefully, we can track well during this quarter and come back and adjust.
2 items again.
I think we're just trying not to get too far ahead of ourselves in this environment and there've been a lot of moving pieces, both from a margin standpoint, and it's actually been kind of a complicated period as you know because usually our businesses are so stable and we've had some real changes in volumes and.
And we've changed our cost profile dramatically and we're doing a great job ramping back in with volume and controlling costs and gaining more confidence there.
So kind of going back and touching on that.
On the 85 basis points of margin improvement.
A lot of numbers in there can you parse that out again.
I thought the commodities was maybe 15, but what was what were the puts and takes there. Yes. Good question. So it's interesting our 85 basis points up 70 basis points came from solid waste and 15 basis points from recycling. So.
We did give.
Almost all of that commodity price increase back to our customers which is great.
But there is some system headwinds there are 2 I don't know how much detail you might get in the fuel was.
Despite these headwinds we still have really nice.
Margin improvement in Q2 last year was such a strange period.
We wanted because we had much lower fuel lower overtime, lower labor things like that but year over year fuel was up 30 basis points overtime up 60 basis points healthcare up 90 basis points and incentive comp up 100 basis points. So you kind of take that into context, and you think about our core business operating very very.
Well in the second quarter.
Interesting yeah very interesting, but then if you if you look at the guidance and again I'm not great at math, but it looks like you're maybe going to see a flattening out in margins on the back that I don't know about that.
Yeah Im not sure about that I think you are pretty good on that.
Anyway, but.
Uh huh.
Yeah, but anyway.
Yes, we have a lot of moving pieces with the new acquisition and I think TR.
To your point, maybe we're being a little conservative, but we have moved up guidance ranges significantly throughout the year second rate on the year end.
Hope to beat them.
Okay.
And then just lastly on Willimantic can you disclose what you paid and is there an earn out.
There's not an earn out.
But we're not disclosing what we paid for it.
And then just just lastly.
On Mccain did I hear you right John that you were talking.
Talking late 'twenty, 2 'twenty 3 to get that the rail in.
That's correct.
That's on a plan that's our plan at this point in time the teams in place.
We're moving it forward now it'll be the end of 'twenty 2 early 'twenty 3.
And so what it would it initially start.
In C and D with a longer term hope to bring in MSW, both out of I assume willimantic and wholly owned.
Yeah, exactly our game plan would be to move CND early on but to build capability to move MSW sites. Since we do have permits for MSW.
Have you there and we are working on finalizing the design and like many things in this environment cash.
<unk> assets on the rail side as you know are out pretty far so working through just work on finalizing the design and then we'll get a better sense of the timeline.
Okay, all right guys. Thanks, so much from time.
John Thanks Tyler.
And our next question comes from Sean Eastman with Keybanc.
Hi, guys nice quarter, congrats on Willimantic deal.
Thank you.
So.
On 1 hand, you guys are saying.
On the labor tightness as is driving momentum in the acquisition pipeline, but on the other hand.
I think he said casella hasnt seen labor shortages, not having to change wage rates. So.
No no that's.
We said that now.
We had substantial changes a couple of years ago in 18.19.
1919, and 20, we had substantial labor changes, we went through all our labor rates almost but.
We had a substantial amount of that activity with the economic activity before.
Now we're in demick, Sean so, but the other thing too is that we.
We're not immune to this has been increasing labor rates, we have some places where we had open slots, but I think John was trying to intimate it's not a crisis for US I think we talked to some companies and they are really really struggling with this factor.
Victor and the way, we treated our employees both from a pace standpoint, and from a culture and safety and you name. It has helped us to have better well on the other mentioned in many or any other thing that we've done is we've really built our HR team.
From not only from the standpoint of recruitment.
For that but we've also built CDL schools, we're attracting people out of high school I think the whole industry has to attract people at a high school we've changed our inter.
Internal policy from 21% to 18.
For people to begin to drive truck.
<unk>.
It means more from a training standpoint from a safety perspective, but we've put a lot of programs in place over the last couple of years, Kelly Robinson and the HR team have done a great job of reaching out and really.
Doing the hard work in making sure that as we look at our.
Obviously, it's in each of the markets that we operate that we in fact are are very competitive from a from a rate standpoint, so that's ongoing but the bulk of that for us was a.
A couple of years ago 2 years ago.
Yeah, Okay. That's what I was trying to flesh out I think that's fair enough from very very helpful.
Very helpful.
And then.
Tyler's math skills.
<unk>.
Conservatism.
And the margins in the second half.
Maybe you could just refresh us on exactly what.
You think you need.
Our reserve at or around there or is it just kind of continued cost normalization you mentioned the acquisition, but maybe what in particular.
On my warrant a little bit of conservatism still as.
As we exited a really strong first half clearly.
So the comparisons get much harder right in the.
So.
So that's the first point, because we exited COVID-19 Q2 into Q3 and Q4 last year for it very strongly with margin enhancement and then.
From our vantage point I think it's just a cost normalization, it's something AD and the operating team are keeping the eye on every day and we're just try.
Second to get ahead of ourselves we've got great programs in place. We are reacting really quickly, but I think when we look at that's probably the biggest factor of why we're being a bit conservative.
Another hand, it's something we can manage and we're going to try to manage to.
Where we can beat those numbers.
Okay Fair.
Fair enough and last 1 from me.
Unwilling mantech.
On the rail and the Mckean landfill synergy elements interesting.
Yes, maybe the other item we haven't hit on is just what this does because the pipeline since it's a new platform establishes a new geographic.
Presence does this kind of open up another.
Yes.
It is indeed, another another platform John there's no question about on Eastern Connecticut. There are a number of opportunities that are associated with.
Willimantic, and it's a terrific platform for us into.
Eastern.
Connecticut, and we look forward to that I do think too that the activity also.
Is.
Reflective of whats, what's happening in the marketplace and should help with some momentum for the second half of the year and into 2022.
Okay terrific. Another helpful color guys. Thanks very much.
I appreciate it.
Thank you and our next question comes from Alexander Leach with Bahrenburg capital markets.
Hey, good morning, guys.
Good morning, and good morning.
So with the.
85%.
Net of the commercial industrial business that you guys manage to to get back on line, what's what's going on with the remaining 15% Yeah why why some of these customer satellite coming back to the full service levels.
Yeah. So we did a really good scrub of everyone Who's still has lower service levels and.
Some of them and I think never will come back and it's just going to be replaced with new businesses, where unfortunately that some companies didn't survive. This time period, but the rest of it is still I think a bit of tourism related we see some of that and restaurant related it's still.
The northeast is a little slower than everywhere else in the country as you well know it being in the city.
So.
<unk> is a little bit associated with some schools and whatnot that we assume when they come back in the fall on the theory.
Lower run rates this spring and we'll see that come back to normalized levels. So.
You know it probably will never actually come back you will replace it with some other work or other customers and at some point here, we're probably done tracking net because its not that productive we've gotten most of it back in and ramped back on volumes.
Okay, Great and then could you give us an update on the.
The customer solutions business, you know how customer penetration ferring on that side is it still growing.
Fox is on the group average.
Yes. It is.
Jason will probably give you the numbers are net in terms of the actual growth for the quarter, but the the.
The overall business platform is.
<unk> is really doing very well Paul lives of the entire team are doing a terrific job with colleges and universities industrial customers will continue to grow that book of business pretty dramatically.
And had a really good second quarter.
A lot of activity.
Ah as you might know are with regard to those sustainability goals that those institutions have whether its colleges and universities or industrial customers. No question that we're having some great growth there Jason maybe you want on whatever that was so on a second quarter we had.
Over 9% revenue growth in our non processing resource solutions operations, which is primarily related to our customer solutions professional services business, a little bit of an easier comp in the second quarter, but year to date I think we're closer to about 5% revenue growth. So so really really strong performance there.
The.
As you May organize this business last year is important because we have the asset part of it and the asset light part of an asset parties recycling processing organics processing and our physical assets in the marketplace that we're vertically integrating to our servicing customers through an asset light part.
It is really exciting as well because as John mentioned.
Everyone is really trying to work to reduce their environmental footprint and focus on ESG goals and our team can make a really meaningful difference partnering with our customers there and we've gotten some great new wins on that side.
The way, we eat renewals on 1 of our newest customer usage, Boston University and we're Super excited about that's ramping online this summer and Theres a lot of promise on that business line.
Okay, Okay, great. Thanks, guys.
Thank you.
Thank you and I'm not showing any further questions in the queue.
I would like to turn the call back to John Casella for his final remarks.
Thank you operator, and thanks to everyone for joining us. This morning, we look forward to discussing our third quarter 2021 earnings with you in late October.
You know the Sun has finally come on with Vermont Mill.
You'll all be.
Glad to know I think we've had 3 sunny days in July in total.
So everything is very green. Thanks, again, everybody have a great day and enjoy the weekend. Thanks.
And with that we conclude our conference for today. Thank you for your participation and you may now disconnect.
[music].
[music].
Yeah.
[music].
[music].