Q3 2021 Casella Waste Systems Inc Earnings Call
Okay.
Okay.
Good day, and thank you for standing by and welcome to Casella Waste Systems, Inc. Q3, 2021 conference call. At this time all participants are in a listen only mode. Please be advised that this call is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to Joe Posco.
<unk> Communications. Please go ahead.
Thank you for joining us this morning and welcome. This is our 97th earnings call or if you've been didn't binge watching us as the season 'twenty four episodes three.
With us today are John Casella, Chairman and Chief Executive Officer of to sell away systems, Ed Johnson, our president and Chief operating Officer.
Ned Coletta, our senior Vice President and Chief Financial Officer.
And Jason Mead, our vice President of Finance, a recurring characters that train whistle [laughter] joined us as well today.
Today, we will be discussing our 2021 third quarter results. These results were released yesterday afternoon, along with a brief review of those results and an update on the company's activities and business environment, we will be answering your questions as well, but first as you know I must remind everyone that various remarks that we may make about the <unk>.
Company's future expectations plans and prospects constitute forward looking statements for the purposes of the Safe Harbor provisions under the private Securities Litigation Reform Act of 1995 actual results may differ materially from those indicated by those forward looking statements as a result of various import.
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.
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 specifics 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.
Alible in the appendix to our Investor Slide presentation, which is available in the investors section of our website at IR dot to sell a dot com and with that I'll turn it over to John Casella Who'll begin today's discussion. Thanks, Joe Good morning, everyone and welcome to our third quarter.
2021 conference call.
We are very pleased with our performance and continued execution execution against our core strategies in.
In the third quarter revenues and adjusted EBITDA were both up over 19%.
Year over year, we also continue to drive free cash flow growth and through the third quarter adjusted free cash flows increase over 37% compared to the same period in 2020.
A core solid waste and resource solutions businesses are performing at high levels as we continue to advance key pricing and operational strategies.
Which help ensure we stay ahead of the inflationary costs related to labor disposal containers and equipment at.
At the same time, we're growing our business meaningful meaningfully in a disciplined manner through strategic acquisitions and sport development projects.
So far this year, we've closed nine acquisitions with $86 million of annualized revenue most notably this includes willimantic acquisition in Connecticut, which we announced in July.
Since then we've acquired four additional businesses within our operating footprint, including two transfer stations in the Buffalo market overall, the acquisition pipeline is robust and we're actively working on several deals in various phases.
Now a brief.
Update on the recent highlights performance against our key strategies, starting with disposal. We continue to see modest volume recovery landfill tonnages were up slightly in the third quarter compared to the same period last year.
The volumes have not returned to pre pandemic levels. This is almost entirely related to New York City and the surrounding area.
With lower economic activity levels paired with labor stresses on third party truckers that move the volume tourist sites that said third party volumes were generally in line with our expectations.
Year to date, we've advanced three 8% landfill price as volumes come back into the system and as the northeast disposal capacity continues to tighten we'll have further opportunity to advance our pricing programs.
Our operating programs at our disposal sites also continued to drive value and the team have done a nice job here, improving key operating metrics and improving performance.
From an R&D perspective, we have two projects in development that are slated to come online over the next year and in both cases third parties are deploying the capital and we will benefit from the sale of landfill gas to that third party.
Moving to the collection business question operations continue to perform very well, Ed and Ned will drive into some of the pricing inflation and volume trends.
Wanted to discuss my commentary on people our workforce given the unique environment that we're in from a labor perspective, our continued investment into our human resources.
Technology programs has certainly helped to mitigate some of the challenges over the past several years, we have reset our labor rates in many markets provided improved transparency through our career path initiatives.
And have significantly invested in training, including our new CDL School.
Some of these initiatives has helped to bring improved stability across our workforce, while lowering turnover and improving retention. This has benefited us greatly to the past several months from a labor perspective, ultimately we've been able to maintain high levels of service excellence and accuracy during a challenging labor environment.
Yeah.
And I also should mention the fact that we are focused.
So highly on keeping our people safe through the pandemic and we more rewarding them for their continued dedication to our customers.
And the company because of that has.
Without without doubt enhanced our culture.
Our continued investment in route optimization and automation has really helped us through this period the work as Sean Steve and his team are doing.
Really outstanding in terms of our ability to.
Optimize our routes and fully automated and bring automation to those areas.
Areas, particularly from an acquisition standpoint, where we have nice opportunity.
To really gain efficiencies, we have gained labor efficiencies well widening our labor pool due to the increase in automation across the business simultaneously, we've improved the quality of our fleet, which has resulted in lower maintenance costs, while improving the sentiment of our drivers and mechanics.
Next the resource solutions business, both our recycling processing operations in our noncore business units are performing very well, we continue to make return driven investment into our recycling processing facilities as we aim to gain further operational efficiencies, while improving the quality of our in Prague.
We've created a balanced business model that is economically and environmentally sustainable as recycling commodity prices have increased we've been able to share in the upside with our customers through lower tipping fees are lower SRA fee in the case of some materials a higher rebate.
We also benefited benefited from higher recycling commodity values, the flexibility and statistic Asian of our risk mitigation fee program contract structures protect us well on the downside should the market moderate into the future and finally and furthering.
Highlight our capital allocation and growth strategy acquisition activity continues to be strong our pipeline is very robust given the backdrop of labor challenges heightened inflation and tax reform. We are actively working on several opportunities that closed late in 2021 or into next year our balance sheet.
The strength of our team positions us well to execute against our growth strategy.
Since August we've completed four acquisitions, we look forward to fully integrating these businesses into our operations and continuing to provide a high level of service to our new customers.
We also welcome aboard our new hard working team members were already making meaningful contributions to the company.
Two of the four recent acquisitions helped strengthen our position in the Buffalo market well additional hauling with additional hauling routes and related transfer stations provide an opportunity to vertically integrate volumes into our sites over time.
Touching on Willimantic through the first three months post acquisition. Our team has displayed a high level of organization and collaboration as we work through the integration phase the performance today, there's been some and we look forward to driving further value from our new platform in Connecticut.
Wrapping up given our continued execution against key strategies and our outlook.
On the remainder of the year, we begin raised our 2021 guidance. This is our third raise on the year, which reflects the consistent solid performance of our team. We are excited about the opportunity to continue to grow the business and grow adjusted free cash flow importantly, as we grow we are selective.
Adding the necessary resources and focusing on succession planning throughout the company. This serves us better to better position. The organization for continued seamless execution through 'twenty two.
As well as well beyond that and with that I'll turn it over to Ned to walk through some of the financials. Thanks, John Good morning, everyone readiness in the third quarter with $242 million up $39 3 million or 19, 4% year over year with nine 3% a year.
Over year change driven by acquisition activity.
Solid waste revenues were up 16, 7% year over year with price up four 1% volumes up two 8% and acquisition growth of nine 7%.
In our collection line of business were up 16, 2% year over year with price up four 6% volumes up 40 basis points.
Year over year volume gains moderated as the economy rebounded very sharply last year and our markets after COVID-19.
This created a tough year over year comp further labor constraints this year limiting our ability to capture all available growth in the market revenues in the disposal line of business were up 16, 8% year over year with landfill pricing up three 7%.
Landfill tons were up 70 basis points or roughly 7000 tons year over year. However, on a trailing 12 months basis, we're still down roughly 350000 tons or roughly 8% versus pre COVID-19 tonnage levels as John just mentioned almost all of this negative impact is in New York State and we.
Believe is mainly the result of lower commercial activity in the Greater New York City activity area, I'm, sorry, and driver shortages.
Third party trucking companies that typically moved its way.
Through our landfill still have a major driver shortages.
Resource solutions revenues were up 27, 6% year over year with 12, 3% driven by higher recycling commodity prices eight 4% of the growth from acquisitions and the remainder from higher processing and non processing volumes.
The average commodity revenue per ton was up $113 per ton year over year in the quarter and higher cardboard and mixed paper pricing higher metals pricing and higher plastics pricing.
Adjusted EBITDA was $61 $2 million in the quarter up $10 million or 19, 4% year over year.
And adjusted EBIT da margins were 25, 3% for the quarter flat year over year as acquisitions negatively impacted margins by 45 basis points and a one time operating cost hit margins by roughly 32 basis points. So excluding acquisition impacts in this one.
<unk> operating costs, our adjusted EBITDA margins were up 77 basis points year over year with our pricing programs and cost efficiency efforts offsetting much of the rising inflationary pressures.
Given the challenges to retrain and attract frontline workers, we have increased hourly wage rates roughly.
300 basis points over budgeted rates, which resulted in an additional $700000 of costs in the third quarter or about 27 basis points of margin headwind.
Solid waste adjusted EBITDA was $52 2 million in the quarter up $4 $8 million year over year with collection and disposal adjusted EBITDA, both up year over year.
Resource solutions, adjusted EBITDA with $9 million in the quarter up $5 $2 million year over year with improvements from recycling organics processing and processing operations.
With our floating SRA fee for hauling customers and a floating processing fee our rebate structure at our recycling processing facility much of the increase in recycling commodity prices was passed back to our customers and lower fees are higher rebates during the quarter.
Cost of operations in the quarter was up $23 $5 million year over year, but still down 75 basis points as a percentage of revenues many cost categories improved as a percentage of revenue as our team has worked hard to control costs as volumes have returned to our business and we continue to <unk>.
Keep very well against key operating initiatives, such as collection route automation and optimization.
General and administrative costs in the quarter were up $6 million year over year with acquisition, it adding roughly $2 3 million of costs and our consulting costs were also up year over year on the successful launch of the Cooper procurement program.
Given the reversal of our tax valuation allowance in fiscal year 2020, we expect an income statement tax provision of approximately 31% in fiscal year 2021.
Our cash taxes will remain low at approximately $1 $3 million for the year, given our net operating loss position and our usage of accelerated depreciation.
Our income tax provision was $6 $6 million in the quarter up $6 $2 million from the same period in 2020.
This result, this resulted in about a 12% per share year over year headwind to our earnings.
As of September 30, we had $558 $6 million of debt and $46 $5 million of cash.
Overall, we had liquidity of $218 $5 million, including availability on our revolver and our cash position.
Our consolidated net leverage ratio as defined by our credit facility with 234 times.
Given these metrics, we believe our capital structure in a great position and it gives us a lot of flexibility to continue to execute our strategy of growth through smart investments and acquisitions.
Net cash provided by operating activities with $134 $1 million a year to date up $22 $2 million year over year, driven mainly by higher operating result changes in working capital were mainly offsetting in the aggregate year to date.
Adjusted free cash flow was $82 $3 million year to date up $22 $3 million or up 37, 2% year over year.
Year to date capital expenditures were up $4 $3 million year over year as we continue to invest in planned capital expenditures at the newly acquired operations to drive operating synergies and integration efforts.
Given our solid year to date performance and our increased visibility of economic trends combined with the expected contribution of acquisitions already completed this year as Sean mentioned, we raised our fiscal year 2021 guidance ranges for the third time this year.
As we announced yesterday. These ranges are revenues between 870 and $880 million.
Adjusted EBITDA between 202 hundred $4 million and adjusted free cash flow between 85% to $89 million to.
The updated 2021 guidance ranges assume a stable economic environment, continuing through the remainder of the year with a modest rebound in solid waste volumes.
We expect solid waste volumes to be up roughly one 5% year over year in the fourth quarter, and we expect solid waste pricing would be up about 4% or a little bit more in the fourth quarter.
Our 2021 guidance.
Includes roughly five 7% revenue growth from acquisitions already completed in 2021 or late 2020. However, as always our guidance does not include the impact from any acquisitions that have yet to be completed.
In addition, as we stated in our press release yesterday, we expect the rollover impact from acquisitions completed in 2021 to add roughly $50 million of revenues or 5% year over year growth into 2022, and with that I'll hand, it over to Ed.
And good morning, everyone.
Everyone can say, we have a really great quarter sow cost of ops as a percentage of revenue improved by 75 basis points, and we are hitting or exceeding targets on all our key operating metrics.
As with most companies today, we do have some inflationary cost pressures, particularly with our labor force, but in the current environment. We are finding that our customers are receptive to price and we continue to maintain our margins.
I had mentioned in the past acquisitions typically delude our margins.
That said this quarter, we had a 45 basis point headwind on margins from acquisitions, but our operating efficiency initiatives and our pricing programs have been able to make up the difference.
With another strong quarter behind us our focus as a management team is to ensure that we are both strategically and structurally positioned to continue to improve.
We talked quite a bit about our key strategies. So I thought I would provide some insight into our company structure and the advancements we have made over the past few years to position ourselves for growth.
<unk> enjoys a great reputation in the industry is having a very positive culture and working environment.
Has it become one of our greatest assets and it comes directly from our shared core values.
A lot of companies talk about core values, but at Casella, we really love it.
Our culture has allowed us to meet tough challenges and our reputation has allowed us to bring significant high level talent into the company to build needed bench strength as we have transitioned into a growth company.
In operations, we have three strong regional team led by seasoned rvp's supported by equally seasoned regional controllers and more recently, we have added regional marketing and ops positions.
Supporting from the home office, we added Sean Steves as senior VP of ops and he and his team had been spearheading numerous operational initiatives many of which can be directly credited presume some of our collection margin improvements.
We also added Mark Johnson as VP of post collection.
It has taken a leadership over our landfill operations as well as our transfer stations and heavy equipment plan. Neither of these positions existed five years ago and they are providing the operational experience and leadership talent to pursue our core value of continuous improvement in operations round.
Rounding out the team Sam Nikolaj, our VP of engineering and compliance has played a key role in our permitting process, while overseeing landfill construction and regulatory compliance at all of our facilities.
Mike Wilson, our VP fleet and.
And his team oversee our fleet maintenance and procurement, Mike Hughes RVP safety and his team oversee our safety and compliance.
I'm really proud of this team and what they have accomplished what they are accomplishing and I'm very confident that we are well positioned for continuing operational improvement in our legacy operations and to successfully integrate our recent and future acquisitions.
But operation does not the end of the story.
Paul Licon, our SVP of sustainable growth functions as our chief revenue officer and has built a strong team that handles marketing community engagement, our sustainability initiatives customer care, and our municipal and college and University bidding and is now leading an effort to improve the efficiency.
And effectiveness of our sales force Kelly.
Kelly Robinson, our senior Vice President of human resources.
A key role advancing our recruiting he implemented career paths for our critical labor positions to boost our retention.
Refined our succession planning and leadership development programs and built our CDL driver program and it is in the process of building our Tech training program.
<unk> recently marked with Simmons has joined us in a newly created position as VP of business development to oversee our rail development initiative and our acquisition efforts both outside the footprint and inside the footprint and supported the regional teams welcome aboard Mark.
We think we have both a very strong team to support our growth and our pursuit of operational excellence.
In addition, we have also invested in technology, providing tools to support management and to make us more efficient.
I will stay in my Lane here and just mentioned the operational technologies. This past year. We have successfully completed a pilot program for our new onboard computing solution, demonstrating a strong IRR and have begun rolling it out to other divisions. We currently have 182 units deployed.
We also developed and implemented various management operating reports using Microsoft power bi platform by harvesting data from numerous disparate systems into a centralized database.
These reports give us predictive insight into key areas of our collection operations down to the division level with drill down capability to the core data and help us react more quickly to any deteriorating conditions. These two technologies alone will drive margin improvements.
So I'm not just happy with the quarter I'm also very happy about where we are the company.
With that I'd like to turn it back to the operator to start the Q&A.
And thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press. The pound key please stand by we compile the Q&A roster and once again that is star one if you'd like to ask the questions and our first question.
Comes from Tyler Brown from Raymond James Your line is now open.
Hey, good morning, guys good morning.
Hey, just first off what was the onetime operating cost that 32 basis points.
Yes, So we took an accrual in the quarter four has the potential to relocate some waste at a landfill.
And it was a proactive move and it was booked during the quarter about $750000.
No.
Yeah.
It's definitely something to just down in cost of operations, but but not something you'd ever seen a recurring period.
Okay, Okay, and so can we just kind of unpack the margins, maybe just a little bit more so I think you called out 45 basis points to the negative on M&A.
Called out to 32 basis points, but how much of a pinch was fuel.
And then whats recycling of help even if modestly.
Yes, our fuel in the period.
Moved against Us about 26 basis points.
And.
Recycling was health and the period end.
A lot of moving pieces here, we basically if you look at it we basically netted even in solid waste margins between at when you back out the acquisition that we are roughly even in that onetime costs. So our pricing is covering inflation, but not in P&C ahead of it.
And recycling move margins about 50 basis points and then the rest of our resource solutions groups organics are.
Our customer solutions group push the rest of that margin.
Okay. So I don't want to necessarily go too far down on this on recycling it sounded like I could do the math of what the EBITDA dollar contribution was but.
Just is there any way to help us with sensitivity I mean, I know, it's difficult with the SRA fee.
I mean, you had $113 per tonne move and it seems like it was probably eight and EBITDA contributor, but any any help on sensitivity and then.
How does the sensitivity work on the downside.
Yeah, So we might even have to pick this up a little bit offline I'll try and stay super high level, but.
If you just look at our processing centers in general we have thresholds established with our contracts, where we our customers. If the average commodity revenue per ton is below a threshold. They are paying us a tipping fee or a processing fee and when it steps over that threshold, we start to share revenues with those customers, but we also share of shelf.
And those higher commodity rates, so we've click through those thresholds in the third quarter and Thats. The first time in many years. We've done. So so we did drive some additional EBITDA from commodities and its a little bit complicated because to the upside we have a lot of opportunity to the downside.
If commodity shop about $20 a ton.
We own about 50% of that risk and our customers are at about 50% at risk, but then you hit it asymptote and we hit the thresholds and our customers start to pay processing fees again in our downside pretty significantly limited at that point in time. So it's a it's an interesting it's a great business always felt we're meeting cliff all the upside and we've.
Built a lot of downside risk mitigation.
Okay. So asymptote, so basically a calculus.
Alright.
Alright, So real quick do you you mentioned on the landfill tons I think you said you're off 350000 annualized.
I thought last quarter. You said you were off like 250000 tons I could be completely wrong on that but what is there a step down.
Hmm mm.
Jason I looked at this yesterday, we ran the math last 12 months.
March 31, 2020 versus last 12 months.
September 30th and were off 350000.
In that period, and almost forgotten actually all of it in New York State.
That decline.
Okay, and so any thoughts about when that might be.
Get back to pre pandemic.
Kind of hard, but maybe by end of year early next year.
I think that it's really a function of when you know when the city comes back right. I mean, I think that there's still a lot of people out of offices is not not that kind of activity that was there obviously pre pandemic. So really it really depends on how quickly things come back.
Okay. Okay My last one.
There's a lot of talk on the Big three calls about you know 22 pricing in CPI rollovers. So first of all can you just help us how much of your book has an escalator tied to it because the market is quite a bit different in the northeast and then I'm, assuming you don't have a lot so Kim.
We just talk about pricing as we jump into 2022 any early color there.
You know I've got to think it's going to be a pretty strong disposal pricing.
Well I think that.
We're fortunate in that we're not tied to a lot of municipal activity in terms of CPI rollovers. So we're not.
We're not struggling with that.
Some of our peers do I think the team has done a really great job Tyler of covering off the inflation I think we hit it but I think that we need to be a little bit more aggressive.
From a price standpoint to make sure that we're covering up all of the inflation and staying ahead of it.
Into next year. So if you look at <unk>.
Our labor statistics.
Cash in Carthage index. It was up five 6% annualized since September as I said, a lot, but we're running like 4% inflation in our business. So the operating programs are making a meaningful difference keeping our costs down as we've made some really smart investment and our book of business. As you said is a little bit different than our peers.
We have about 10% of our collection revenues in municipal contracts.
<unk>, 30% is it 25% subscription residential about 40% and commercial both the subscription residential and commercial we can price.
Within our contracts to cover off inflation and then we've got temporary roll off where it's we're setting price daily and then we've got about 12% of long term permanent industrial work that is contractually. So you get that 10% municipal contracts about 12% to 13% long term.
Australia contracts of half half pricing.
Set in the contracts, whether it's the trash and garbage index are set CPI, So youre right we.
We do have a lot of flexibility within our contract structure and we've moved many of our customers set trash and garbage index over time, which we believe better reflects inflation in this industry.
Okay, Great I appreciate the time.
Thank you Tyler.
And thank you.
And our next question comes.
From Hamzah <unk> from Jefferies. Your line is now open.
Hey, good morning.
My.
My first question is just on landfill pricing I think you referenced three 7% or so.
Could you just maybe talk about you know the deceleration and then sort of pricing is that just tougher comps is that the market players I know it was a lot higher high single digits or you're on.
So just maybe walk us through what Youre seeing there maybe there's a COVID-19 issue et cetera, just walk us through the dynamics there.
Yeah, it's a few different things.
So all pricing statistics have their flaws and were seeing one small floor and ours right now where we look at a unique customer, adding a unique landfill site and we look at how we changed their price year over year, and that's how our pricing statistics generated last year.
We moved that pest diverse around a lot we closed one of our landfills hakes for four months during Covid, we pushed as many tons around as possible to have several sites running at higher.
Pass utilization and we ramped down several others and by doing that we caused some flaws in our pricing metric year over year, where.
If you look at individual customers can have price increases, but by moving to different sites. We've recognized a bit more of that is volume and how we do this now I don't like changing how you calculate statistics year to year quarter to quarter I think they should be how consistent and.
This period is weighed on a little bit by that Hamzah. The other thing we're seeing as we've talked about is we've got a little bit less on price in New York State and we're planning to throughout the year and we continue to be in that position as volumes have been bit lighter in the state were not reducing price, but we just haven't pushed as much as we had plan.
<unk> two in the year.
Given the inflationary environment, though.
Sitting right now.
We need to push a strong pricing program into next year to cover the higher costs on labor steel other consumables throughout the business. So it's something we're reviewing at this time.
Got it very very helpful. My follow up question and I'll turn it over.
On the M&A pipeline I think one of your one of your larger competitors bought the largest independent in Massachusetts, I could be wrong, but correct me if I'm wrong.
Could you maybe just comment on you know how much capital you raised earlier in the year how much is deployed.
Where does the pipeline look like.
You're being aggressive enough there I know you don't control the timing of M&A, So I realize that and appreciate that but just any color there would be helpful. Thank you.
I think.
So we're really we're really comfortable in terms of where we are from a pipeline standpoint, the activity is stronger than what we had thought.
Certainly we're not going to we're not going to execute on every deal.
And we are going to we are going to stay within our parameters from a disciplined standpoint.
So I suspect that they will.
<unk>.
Again, we're not we're not going to be.
We're not going to be fortunate enough to get every deal in the northeast so.
Not surprising but again.
We're very comfortable.
Over the next three to five years in terms of the robustness of the pipeline is stronger than what we thought at the beginning of this year.
And certainly that was stronger than what we saw last year or so.
As evidenced by what we've been able to do in expanding into Connecticut. That's a nice certainly a really nice platform for us, but again I think that.
Certainly going to see us.
Moving forward from a acquisition standpoint pipeline is.
<unk> is very robust and.
We're pretty pretty excited about where we sit and as I said, we're not going to get every deal.
And if you look at the tier two.
Over late October 2020, we raised $150 million in a car.
Common stock offering.
In 2021, when we put close to $160 million to work in buying nine companies during the year and we've done very fair valuations than we.
We've already started to drive synergy values from these businesses in integration and it's pretty exciting set of acquisitions. During the year. We've got a few more in the queue right now that will either go by year end or into Q1 as well.
Okay, great. Thank you.
Thank you Hamzah.
Thank you.
And our next question comes from Michael Hoffman from Stifel. Your line is now open.
So Joe Fosco, I understand Saturday night live need some writing help.
Yeah.
And leave this amazing game.
[laughter].
And Jackson, you celebrated a milestone birthday, Daryl happy birthday Pal.
Michael.
So I want to come back to the M&A, because I wanted to ask about it differently.
But also.
Compliment you.
Hold off Willimantic in the whole market, Connecticut, Massachusetts, Switzerland.
How has that happened so you might not win them all but yeah.
I think it's pretty quick wins.
I think I Couldnt agree with you more Michael.
We're really excited about the 80, some odd million of revenue that we brought in we've got it really.
Well integrated still have work to do and we're going to create more value with.
Those revenues over the next few years, but.
That said, we've also been building the team.
And we just we're in a just a terrific place.
Moving forward with great opportunity and a very strong pipeline.
So what I'd like to tease out a couple of years ago when you restarted.
In 2017 was restarted.
Certainly M&A.
Program you framed a a market then hey, you should think about us doing 2000 $30 million a year. If I look at the average since then it's well above that how do I think about.
For modeling.
<unk> flying.
Deals.
And I'm not expecting you to forecast going forward yields into my model I guess.
Don't do that.
Right.
It's a really it's a great question.
I understand the question I think that our view is that where some years are going to be stronger than others and I think that it's fair to say that.
Our view is that we want to stay disciplined we're going to continue to execute.
Those those transactions that really can create a tremendous amount of shareholder value and I think that maybe.
It may very well be that.
Some years are going to be stronger than others.
Some years, we're going to be at the lower end of.
The target.
Our cadence is almost about 10 acquisitions a year is about the cadence we've been doing it doesn't mean that will continue but we've done 38 acquisitions in 2018 since we've reinvigorated and we've had a couple of years of $20 million to $30 million of required.
A bit more and as we kind of look through our strategic plan and look into the future.
The biggest building blocks for us is driving free cash flow growth, 10% to 15% a year.
We've definitely beat that in some years in acquisitions help us to beat that.
Core side, we're definitely trying to hit that metric and we believe will create a lot of value over the next few years.
So would you know.
What is it.
But where are you if the market started baking in $40 million of acquired revenue in the year.
Well, we're not going to I mean, we're going to stay disciplined in terms of what expectations that we're setting I think that.
Our our view is that the path that we're on in terms of the expectations that we've been setting at $20 million to $40 million of.
Obviously, we're going to be closer to the upper end of that if you look at what we've done from a historic standpoint, but we're not going to we're not going to set a different expectation at this point or set a slightly different way, we're not going to change how we guide Michael So we've never guided acquisitions that we haven't completed.
It's just not how we do it and we don't plan to guide we don't think it changed that methodology, although we do have a team.
So how do you think and it works out for us.
Yeah, No no you shouldnt.
The other hand, I make a living having the models. So I had just one.
Okay.
Yes.
Volume.
So everybody likes to say what the other guys were all saying so you know one of the things one of the other Guy who said I'd tell you we had a really nice recovery.
September in New York City.
I talked to the largest private that market recently and they've been running down 15% in New York and now its down 10 to 12, so it's starting to pick up.
And I guess the interesting question is if it does well.
Does it go even if the transportation thing it's a problem I mean, it's got to come to you.
Somehow it has got to get to.
Well.
From a transportation standpoint.
Yes, a lot of it will come to us.
I think that.
Clearly those facilities that are closer in from a transportation standpoint are being accessed now right. So the first bite sites to fill up with a better plan correct.
And those sites that are transportation advantage right, so they're going to fill up first.
And we also we also stopped buying scale through the quarter, Michael July was a little bit.
Softer year over year and to your point September.
<unk> was the best month of the three year over year, and some nice trends as well.
Okay and then.
Last summer you didn't have much of a.
We've changing season seasonality.
But I talked a lot of people in the.
Hospitality industry up in new England for the quarter and it sounded like it was better but not as good as it could be given constraints on.
Or are there even restaurants open and can you get a hotel room. So can you talk about your seasonality and then there's the potential that when I think about next year I still got room for improvement.
I think theres any question about it and I think that we haven't seen the numbers in terms of tourism and what fall foliage has met across the northeast, but clearly.
Positive on a year over year basis, but nowhere near.
What it what it should be I mean, I think that Theres still probably we're still probably 20% 25% off of the highest before the pandemic.
It will be really interesting as you know what we see from a ski season standpoint across the entire north east because that affects us.
Vermont, New Hampshire.
Maine all.
All of those states and it's not only the ski areas. It's obviously, obviously the ancillary business the hotels motels all of the restaurants everything else all of the infrastructure around that economic activity, So and certainly where we're thinking that that should improve this year hopefully as well.
<unk>.
Okay and then.
Can we get an update on two things the status adult.
Notice of your rail permit development.
Sure.
Ed mentioned that.
Mark that Simmons has come onboard.
VP of business development.
Organizing that effort, we've got the entire team from.
From a.
From a permitting compliance operating engineering and Mark has come onboard and as you know taking that on as one of the major developments for us. So we're really excited to have him on board to take that forward. So we're moving forward with that with Dalton moving.
Forward and the permitting.
Submitting our permits you know we're in the process of resubmitting, our wetlands permit there and I think that's going to be completed at the end of this week or you know.
Perhaps next week so.
Continue to move forward.
You don't difficult process as you know very controversial.
We're continuing to move it forward.
And you.
I can't remember, which quarter sort of alluded to you thought you might be.
Actually moving volume by rail by the end of 'twenty. Two is that still I think it's probably more likely to be.
2023.
Okay.
And then.
I can't help but ask this because I was asking you had every three years so.
Unplanned looking into 'twenty, one you have blown the doors off for free cash flow number. So what is the 24 plan.
So we.
And we have put.
The 24 plan of course, the board did give us another five minutes of congratulations when they realize that we had already met the 2021 plan and.
We have already put in place in 2024 plan, but we haven't we haven't really talked about that at this point.
No.
Currently no.
I think kind of sea changes in strategy from our standpoint, we're still focused in the same kind of building blocks.
One thing we did do with our strategy is.
Further put pattern.
Foundational structure in place of how we're investing in people who have a wealth manager we call them, our foundational pillars people development technology, our sustainable growth team and also our facilities plan. We've been so successful with our multiyear fleet and multiyear heavy equipment plan that we put our facilities plan in place.
To make sure we have necessary infrastructure as we continue to grow so probably the biggest building block you are most excited about is we're looking at growth free cash flow of 10.
10 to 10% to 15% a year Yep Yep.
Okay, so 10% to 15% off of them take the midpoint of the current guide.
Yep.
That's what I needed.
Thanks Maria.
Okay.
Yes.
And thank you and our next question comes from Sean Eastman from Keybanc Capital. Your line is now open.
Hi, Good morning, Nice court.
Nike order.
Thanks.
So just trying to think about the margins into next year I think a 40 to 50 basis point number is sort of a normative level, but just in the context of the comments around you know getting more aggressive.
On pricing programs to stay ahead of inflation combined with what seems to be continued momentum and were up and runway around.
Technology automation route optimization et cetera.
Is this setting up to be a more outsized margin expansion year versus a normative level in 2022, how should we think about that.
You know if you had asked that question before the summer I would've said, we probably were trending a little bit higher than the 50.
With all of the Labor challenge is hitting the industry.
Other industries.
I'd say right now we're looking at trying to do the 50 basis points for next year, we're still in budgeting still a lot of moving pieces.
As we mentioned a minute ago as well acquisitions do you weigh on margins and we will have the rollover next year $50 million of revenues Thats below our core business that will be kind of a headwind coming into next year as well.
A very nice job over the last several years of bringing acquisitions into our core operating programs, our core pricing programs and working up margins tuck.
Tuck ins over a year larger ones. It sometimes takes 18 months or two years to get everything done and work through.
<unk> equipment and contractual obligations and you name it so.
Until I see that budget royalty I don't want to get ahead of myself, because we do have that weighing on us a little bit and we do have labor shortages and we've done a lot to rightsize wages. So we got some great stuff happening on the operating programs. We've got some great pricing programs, but we've got those two other things moving against us.
Okay, that's super helpful and and you've got the $50 million of rollover locked in already for next year sounds like there's a handful of opportunities sort of in that LOI phase but.
Our kind of near term.
Potential closures could you quantify that for us.
Yeah.
Sure.
Don't want to quantify that exactly yet because I don't know whats going to come this year and next year, but you are right. We do have a handful of deals in the LOI stage, we're working through diligence and when you get into the fourth quarter. Sometimes you don't know if its going this year and next year side.
But I can say we've got.
Four five.
Acquisitions are nice tuck ins in our footprint that we're working on.
Okay terrific and then.
Maybe just rounding out the volume discussion you had with with Michael there.
It sounds like we still have sort of reopening juice left but I'm not sure. How much is left around this kind of New York City disposal dynamic.
And then it sounds like momentum in.
Kind of tourism.
The element of the of the footprint should have some momentum into next year and then.
And then it just becomes like the incremental demand story and you guys have also talked about this urban flights being a tailwind in the business that could endure so.
I mean should it be kind of an outsized volume you here I mean, obviously not the same as this year, but but still above normal going into next year as we think about volume.
I think it is fair to say that.
We're anticipating that some more of.
Of those tonnes will come back.
But I think that you also have to recognize that a lot of restaurants are gone a lot of a lot of that there's a portion of the activity that's not going to come back or it will come back over a longer much longer period of time.
How much how much business is gone.
Many small businesses, who are out of business, particularly as it relates to the city.
That's a difficult equation to really understand at least from our perspective anyway. We do think that we're gonna see more tons coming back as the economy continues.
To expand in New York.
I think that there is a portion of it that's.
That's going to take a longer period of time to come back you also see in our collection business today, where as John and Ed. Both said, we're not immune to the labor challenges and not all of our seats are filled so what does that mean like we're very selective from a pricing standpoint.
You don't go after every new piece of work so well.
We're definitely in that stage right now of focusing more on quality of work over quantity of work as a team just because we can't put all and even if you wanted a new truck today.
Now how far right now at maybe 15 months or sorry longer underneath prior year. Yeah. So it's definitely a point in time, where you're going to see focus on margin focus on price and maybe not as much dynamic organic growth because of lack of labor lack of trucks.
Makes total sense. Thanks for the help have a nice weekend.
Absolutely you too.
Thank you and our next question comes from Michael Feniger from Bank of America. Your line is now open.
Yes, thanks, guys and thanks for taking my questions. Just following up on that last question just because of the inability to maybe to get some trucks. This year you guys are doing a lot of acquisitions and investments I'm. Just wondering net is do we look at 2022 is there going to be like a bigger step up.
And potentially just capital spending because of the inability to get some trucks this year and make the investments necessary for growth, yes, sorry, I didn't mean to imply that so it does it's really amazing Kathy He's planning like multiple years ahead for like our ongoing fleet needs. So you're ordering.
Sometimes a year to Henry.
We're getting.
Getting their capex approved by the board for truck.
Equipment, a year year and a half ahead of the needs. So.
It's more of an incremental incremental growth issues as opposed to budgeted capex for replacements, we do have a an inventory or we have the dealers hold in inventory for us if we've preordered some trucks, but it's still not enough to handle all of the acquisitions.
Excellent.
The acquisition, we don't assume day, one youre getting integration benefits or maintenance savings or things from new vehicles.
Realistically our approach it might take two years to get some of that in really driving to our standard or automation or.
Lower costs.
I think that.
It is true too though from.
Equipment standpoint, we're also ordering.
Additional.
Yes.
So that we have as we as we did.
Boy that capital in order, we're ordering some additional chassis to support some of the acquisition growth. So as Ed said, we've got additional chassis that are there, but once once those chassis are gone from a growth perspective, it's exactly what Nick said, it's much more difficult to.
To take.
Take that additional business because of the lead time to get additional equipment.
Got it so theres nothing that we should think 2022, the capex intensity or capex or sale now is gonna be nut milk.
Not at all no.
Perfect and then I know you were answering Tyler's question before around around CPI and you guys have the subscription portion just how do we think about over the course of 2022, when I think of collection and landfill when price increases kind of flow through the bid.
So can.
Can you go back to a customer that you put in let's say a price increase in April.
Or may or June like you were saying before that obviously the summer kind of change things can you go back to that customer now or strategically do you kind of wait to that.
Next year to put in a bigger price increase to cover some of the cost and like how does it kind of work when I think of your collection side in your landfill side.
So this just wanted to benefit sharp book of business as we said earlier a good 75% of our collection book of business. We can price when we want to you and to cover inflation. So we've restructured our teams that we will do our normal pricing cycles in Q1, but we're going to revisit this as we move through the year.
Here and if cost inflation stays higher dynamic, we'll look to see if there's any need for a second price increase.
Or whatnot to a customer and we're not in much of our book of business, We're not limited from doing so.
We just need to be thoughtful about.
If costs really have moved.
Okay.
Got it perfect.
Perfect and just curious like solid waste pricing I think you said in the fourth quarter, you are targeting 4% or higher you.
You did that it looks like in the third quarter with four one.
And while it doesn't accelerate much further I mean, I guess, 4% or higher would maybe assume that.
I'm just wondering because I think your pricing kind of offsetting our cost inflation I think you said it was 4%. So it's offsetting that I'm just curious if that that pricing pace starts to the price versus cost inflation dynamic start to shift a little bit in the fourth quarter or is that more first half next year.
It's probably a little more first half next year, where impact sheeting. So teams are doing a lot of analytical work right now and you're lining up how pricing programs and price elasticity studies, where coming into next year. So you don't want to jump the gun too much. He wanted to all of the analytical work So E.
It won't be jumping too much ahead of that that you could see some more of it moving December January.
Perfect. Thanks, everyone. Thank.
Thank you. Thank you.
And thank you and our next question comes from Alexander Leach from Bamberg Capital. Your line is now open.
Good morning, guys congrats on the quarter and thanks for taking my question Martin So yeah, just a quick one from me.
Most of my questions already but you.
You mentioned that we're driving value through what a month. It could you just highlight some of the ways you'll be doing that with the acquisition is it just a matter of sort of driving density.
And if that's the bigger acquisition compared to sort of your average.
Are there other countries that to be to be realized.
Sure so.
Well, Amanda I guess, a number of transfer stations in.
Overtime, those transfer stations will be able to be internalized.
So some of that waste not all of it obviously, but some of it will be able to be integrated to our asset base over time when the when some of the contracts that are in place.
Expires. So also there is opportunity to fill in from a tuck in acquisition standpoint around Willimantic. So presents another platform for us for additional growth.
As well and there is a.
It was just an opportunity from.
From an operating standpoint operating efficiency.
To bring.
New technology.
And operating efficiencies too.
To the business model so.
We're really excited about it I think there are number of different opportunities the other.
The other thing that.
Sits over the top of it as a resource solutions group from an industrial customer standpoint.
Having the opportunity to.
Have the assets there to service industrial customers.
And colleges and universities.
Another nice.
Market area for for that group to also generate additional revenues.
Okay, great. Thanks.
Thanks, Thank you.
Yeah.
And thank you and we have a follow up question from Tyler Brown from Raymond James Your line is now open.
Hey, Thanks, guys just real quick on the two R&D projects are those landfills flaring or you up fitting dirty gas and then two like when when do those come on.
So the operation in Maine, which is one of them they are flaring the gas.
As a matter of fact that the operations are firing the gas both of them.
Right.
Yeah.
Any thoughts about when those come on and then so.
How are they wanted they wanted to new Hampshire is supposed to come out of next spring.
And they're on track Thats under construction.
The one in Maine will be sometime after that.
It's a more complicated situation they have with their with the gas company there that they're trying to work a deal so.
And so I wonder.
This is gonna be later, new Hampshire is going to be the first its under construction now concrete in the ground buildings going up so that'll that'll be in the spring.
Our named main will follow probably in a year yes.
Okay.
That will dramatically reduce our greenhouse gas footprint as well right right are the rens is gonna be sold forward or will they float.
So we haven't worked through with them, yet, how they're going to do that but we.
We will get a revenue share upfront for our Caf right.
Cash flow waterfall, and then we will be able to share in.
Both gas sales and RIN sales as well from an upside standpoint, and Thats one of the things we need to look through it because there are some great opportunities to sell rens for in the market right now as you pointed out.
Yeah.
Aren't interesting things.
Thank you. Thank you.
And thank you and I am showing no further questions I would now like to turn the call back to John Casella for closing remarks.
Thanks, everybody for joining us today, we look forward to discussing our fourth quarter 2021 earnings and our 2022 guidance with you in February of next year. Thanks, everybody have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect.
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