Q1 2022 Casella Waste Systems Inc Earnings Call
Ladies and gentlemen, welcome to take a silo based systems, Inc. Q1, 2022 conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require assistance during the conference.
This press Star then zero on your Touchtone telephone.
A reminder, this conference is being recorded I would now like to turn the conference over to your host Mr. Joe Fusco, Vice President of Communications. Sir. Please go ahead.
Thank you for joining us this morning and welcome.
With us today are John Casella, Chairman and Chief Executive Officer of Casella waste 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.
Today, we will be discussing our 2022 first 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 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 actual results may differ materially from those indicated by these forward looking statements as a result of various important factors, including those discussed in <unk>.
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.
<unk> forward looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views change. These forward looking statements should not be relied upon as representing our views as of any date. Subsequent to today also during this call we will be referring to non-GAAP financial measures.
These non-GAAP measures are not prepared in accordance with generally accepted accounting principles reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures to the extent they are available without unreasonable effort are available in the appendix to our investor Slide presentation, which is available in.
The investors section of our website at IR Dot Casella dot com and with that I will turn it over to John Casella, who will begin today's discussion.
Thanks, Joe Good morning, everyone and welcome to our first quarter 'twenty two conference call.
Needless to say, we're really pleased with our results for the beginning of the year.
Myself, Ed Ned Jason the entire senior team, we're really proud of the work.
Our entire team has done to offset really significant inflation.
Everyone is.
Faced with unfortunately in business today, so again couldn't be more excited about the work that our entire team has done to.
<unk> inflation.
We continue to grow the business meaningfully on a year over year basis in the first quarter revenues were up 23% adjusted.
Adjusted EBITDA improved by over 17% and we continued to grow adjusted free cash flow our pricing programs are working well to offset inflation, we've advanced strong price a head to.
Ahead of budgeted levels as we aim to pass through heightened operating costs to our customer base.
This is reflected within the solid waste pricing steps in the quarter, which was up five 6%, notably collection price was up six 5% in the quarter.
And we exited the first quarter with pricing momentum as our solid waste price improved sequentially each month through March.
Also taking a proactive stance with our fuel recovery fees that are offsetting rising fuel costs, albeit a lag in a rising price environment overall, our core pricing and operating programs outpaced inflation, but several unique items weighed on margins this quarter that Ned will go through in greater detail.
We are optimistic that our efforts within the first quarter will benefit our execution through the balance of the year. We also continue to have success executing against our growth strategy. We closed six acquisitions year to date with approximately $30 million and analyzed revenues. The team continues to do a great job maintaining a disciplined approach.
In terms of focusing on deals with the right strategic fit and return profile.
I'd like to provide a brief review related to the execution against a few of our key strategies and recent performance of our operations first on the landfills, we have advanced positive price and in fact, our average price per ton was up.
Nearly 9% year over year in the quarter. This is a result of our team's efforts to offset significant inflation.
<unk> heightened regulatory costs.
We are focused on improving customer mix at our sites through our sourcing efforts along with executing pricing across our customer base inclusive of our own intercompany volumes in the quarter and harsh winter weather results in lower.
Resulted in lower volumes, both year over year and versus our budget, but whether or not only resulted in lower activity leverage than anticipated, but we also had to take action to keep our people and customers safe by temporarily closing operations on several different occasions due to high winds or heavy snow.
We also experienced Kentucky construction delays at key landfill facilities, which is now resolved and we are.
Again accepting volumes at our anticipated run rate.
Our expectation is that landfill volumes will be positive through the remainder of the year and we will recover without any meaningful help from the waist.
It is generated in New York City area as we don't believe it's going to return.
Quickly back to the pre pandemic levels.
Moving to the collection business as I mentioned, we've been nimble with our pricing programs and we're off to a great start this year budgeted pricing plans were increase for inflation and we continue to monitor the effectiveness of our programs. Our team has a high degree of adaptability and our customer base presents us with further flexibility that enhances our ability.
82, again modify our pricing.
But the hard work doesn't stop there Ed and his team continued to make substantial investment of time and capital within key areas, including increasing the use of automated trucks.
Conversion implementing new technology for route optimization. These return driven investments aimed to further offset inflation by lowering our cost profile through improved safety lower turnover and increased operational efficiencies.
We are also highly focused on service excellence and new customer integration as we grow the business and onboard new customers. We aim to provide great service and high levels of customer satisfaction.
Within the resource solutions performance in this segment was strong in the quarter with year over year adjusted a bit of improvement we continue to make investments in this area of the business that further our commitment to environmental stewardship, while driving positive economic returns last month's purchase of Northstar pulp and paper.
Springfield is an example of this this business will integrate well and provide us with opportunity to further improve our resource management service offerings like again to welcome onboard our new customers and all of the hard working employees.
Northstar.
A terrific addition, both in customers and the employees to our team.
In February we announced investment plans across our recycling facilities to strengthen our sustainability efforts, while increasing our throughput enhancing the quality of our end product and improving returns a key project is the complete replacement and modernization of our Boston recycling facility, which is one.
One of the largest in the country with ongoing supply chain challenges the upgraded dislocation will be delayed until 2023, but the expected margin and return profiles remains firmly intact.
There is no material operating income excuse me operating impact in 2022 with this revised timeline finite.
Finally, I would like to highlight our capital allocation and growth strategy overall, our acquisition pipeline remains very robust with over $500 million of addressable opportunities in annualized revenue over the top of our existing footprint in the northeast.
We remain well positioned to continue to execute against our growth strategy given the strength of our balance sheet and we are focused on opportunistically, putting capital to work on deals that meet our criteria that drive further value.
Wrapping up I'd like to take a minute to thank Ed Johnson for his outstanding contributions in helping to shape and build the company to where it is today as announced last week and is retiring on June 30 at 12 years will leave a lasting impact as he's made instrumental improvements to the organization that have become core principle.
So the way we operate on a day to day basis myself and the rest of the company will Miss his guidance, but I know we are in good hands management and the board has invested significant time over last several years on our succession planning and with edge retirement, and I'm confident that we have a seamless.
Transition as we have the right people in house to continue to drive value and execute I am excited to promote net into the President's role effective July one and maintaining his role as CFO also at that time, Sean Steves and Jason Mead will take on new leadership positions John will be named.
Senior Vice President and Chief operating officer of the solid waste operations, while adjacent steps into the position of senior Vice President of Finance and Treasurer. These are well deserved promotions across the board, we couldnt be more excited.
For all of those individuals and as I said, well deserved promotions with that thank you again, Ed and I would like to personally wish you well in the next chapter.
On the intercoastal fishing.
And now I'll turn it over to.
Turn it over to Ned for some more financial details. Thanks, Jamie we're getting a few tests that.
Web conference call. It is cutting in and out but we're hearing that the phone calls okay. So I hope that's the case.
Hopefully there aren't a lot of problems out there.
Reaching out to a webcasting people and with that said I'll move on before I can hit quarter. I also want to thank you John and our board of directors for your continued confidence in me and I'm very excited to take on an expanded role in July .
Also like to thank Ed for his guidance and Mentorship over the years and congratulate him and his family on his upcoming retirement excellent news tank and congratulations to Jason and Sean in their new roles very exciting time for our whole team here at Casella.
Moving on to the quarter revenues in the first quarter were $234 million up $44 5 million or up 23, 5% year over year with 13% a year over year change driven by acquisition activity and 10, 5% in the year over year change, resulting from organic growth solid.
<unk> revenues were up 21% year over year with price up five 6% volumes up a half a percent and acquisition growth of 12, 5%.
As expected our price growth improved again sequentially from the fourth quarter to the first quarter and continue to increase increased sequentially. Each month in the first quarter to a price of six 2% for the month of March.
Revenues in the collection line of business were up 22, 6% year over year with.
With price up six 5% in volumes slightly up.
Revenues in the disposal line of business were up 14% year over year with price up 4% and volumes up <unk>, 9%.
<unk> pricing was up four 2% year over year with the average price per ton up eight 8% as we continue to improve mix at our sites.
While landfill tons were slightly down year over year, mainly due to a challenging winter weather and construction delays at key sites.
Landfill tonnage trends have improved in March and April and we expect to meet or exceed our tonnage plans for the year given the scarcity of options.
Resource solutions revenues were up 30% year over year with three 8% from higher recycling commodity prices 18, 1% growth from acquisitions and the remainder from higher processing and non processing volumes tomorrow.
Commodity prices were up again year over year on higher cardboard and mixed paper pricing higher metals pricing and higher plastics pricing.
Adjusted EBITDA was $45 $6 million in the quarter up $6 7 million year over year and adjusted EBITDA margins were 19, 5% for the quarter down 100 basis points year over year.
Our pricing programs did outpace cost inflation in the quarter. However, several identify identifiable factors negatively impacted margins in the quarter, including the construction delays at a landfill.
The expected margin dilution from acquisitions margin headwinds from the fuel recovery fees and margin headwinds at our transfer stations due to higher fuel surcharges on long haul transportation.
Solid waste adjusted EBITDA was $38 7 million in the quarter up $4 $1 million year over year with collection and disposal with collection adjusted EBITDA up year over year.
Resource solutions, adjusted EBITDA was $6 7 million in the quarter up $2 $7 million year over year with improvements from recycling organics processing in non processing.
With our floating SRA fees for hauling customers and a floating processing fee rebate structure at our recycling processing facility much of the year over year increase in recycling commodity prices was passed back to our customers and lower fees are higher rebates.
Cost of operations in the quarter was up $35 $3 million or up 234 basis points as a percentage of revenues with the majority of the increase driven by higher fuel costs higher labor costs and parts inflation.
General and administrative costs in the quarter were up $2 $7 million year over year or down 160 basis points as a percentage of revenue with the majority of this improvement driven by lower incentive comp accruals and lower labor costs.
Depreciation and amortization costs were up $6 $7 million year over year. However, one $5 million of the increase was due to a true up related to the July 2021 acquisition of Willimantic and the remainder was mainly due to higher depreciation amortization associated with acquisitions.
This out of period, Willimantic, depreciation and amortization trip resulted a headwind to operating income margins of 60 basis points and a <unk> <unk> per share headwind as well.
As of March 31, we had $582 million of debt and $12 6 million of cash and overall liquidity of $265 $4 million or.
Our consolidated net leverage ratio was 245 times.
Our balance sheet remains in great shape and positions us very well to continue to grow successfully while also providing stability in this rising interest rate environment, we have roughly 70% of our interest in fixed rates today.
Adjusted free cash flow was $16 3 million in the quarter up $6 $1 million year over year with net cash provided by operating activities down seven 4 million, mainly driven by timing differences for accounts receivable associated with acquisition activity. This.
This decline was more than offset by lower capital expenditures in the first quarter 2022 as compared to last year.
As stated in our press release yesterday afternoon, we have increased our fiscal year 2022 revenue net income adjusted EBITDA and net cash provided by operating activities guidance ranges and reaffirmed our adjusted free cash flow range.
Now, we expect our readiness across $1 billion in 2022, it's a very exciting milestone for our team.
The increase in each of these guidance ranges.
Primarily due to contribution from acquisitions completed year to date that were not included in our February guidance, most notably the acquisition of Northstar on March 2nd.
We did not increase our adjusted free cash flow guidance range at this early point in the year as we currently expect higher net cash provided by operating activities to be mainly offset by higher capital expenditures, including growth capital investments for new contracts and customers additional investments to accelerate.
Collection operating efficiencies and higher prices on certain budgeted capital items.
Our changes to guidance ranges do not contemplate that the economy gets any better or worse through the remainder of the year and we further assume that the current high inflation and high fuel prices remain at roughly the same levels as today.
Despite the margin headwind in the first quarter, we remain very confident in our ability to outpace inflation in fiscal year, 2022, and improved adjusted EBITDA margins year over year or.
Our internal rate of inflation is currently running at four 3% excluding fuel we expect to outpace inflation increased adjusted EBITDA margins by 20% or 25 basis points year over year through a combination of flexible pricing programs are floating energy and environmental cost recovery fee.
And our continued investment and cost efficiency programs.
As a point of validation our adjusted EBITDA margins were up 20 basis points year over year in the month of March as we work past several of the operational challenges we faced during the winter months, our pricing programs further improved sequentially with solid waste price up six 2% and our trailing energy and environmental cost recovery fee.
Began to catch up with higher fuel costs.
As we discussed last quarter, if our cost inflation increases further we have great flexibility to advance additional price increases across our business and our floating energy and environmental fee effectively offsets most of the fuel exposure without I'll turn it over to Ed. Thank you, yes. Thanks.
Good morning, everyone.
But we are in high inflationary times, which is both a great challenge and a great opportunity for us.
Can't help but think of what happened in Q2 2019, what are costs spiked in that case. It was all labor related and we temporarily lost margin when we recovered margin over the following two quarters, we enhanced our profitability on higher revenue numbers and created real shareholder value.
In Q1 inflation on our operating costs was even more significant but we pass through price to cover it.
We now have that same opportunity to enhance the bottom line is if we recover the margin.
For a little more color on this ive spoken on past calls that the primary metric we follow in the collection line of business is variable margin contribution per driver labor hour.
That is the dollar amount contributed to our financial results for every hour, we have a truck out servicing customers. The metric is computed on a net revenue basis. So it excludes disposal both from the revenue and cost, but it is a great indicator of how healthy our core businesses.
In Q1 on a same store basis. This metric improved 13, 5% the highest jumped since we've been tracking it.
However, when you divide that variable margin contribution amount under the net revenue per labor hour that margin percentage declined a little over 2% and that's where the opportunity is the next few quarters, we'll be focusing on margin recovery at the higher revenue level.
The disposal line of business, which includes our landfill and transfer station network. We know we had a slow start to the year as volumes were off about three 7% from last year's first quarter and we experienced some timing issues on cell availability at Ontario. So we have the added cost of shifting tons.
Around with lower volumes on our line of business with high fixed costs. There was some temporary margin pressure, but as you know as a general statement the tons that don't come in the first quarter allow for a more available capacity for the rest of the year and we still expect to hit our volume targets for the year.
Good news is that we have improved pricing levels with the average price per ton going into our landfills rising by almost 9%.
Our resource solutions group continued to enjoy a stronger than expected commodity prices and achieved great execution on the business plan and our business model, we share revenue with our customers on the upside over a certain threshold, so higher commodities give us more revenue to spread over our operating costs.
This group produced improved margins over the last year's Q1.
So I kept my comments short today to allow a little more time for minus one song.
So.
Hopefully not.
Over the past few years I focus much of my efforts on building a strong team in developing the key individuals in that team to be able to take on additional responsibilities.
My efforts this past year have been especially successful with the introduction of a specific leadership development program that included a cross training focus and the primary lines of business with strong talent in place I felt comfortable that this is the best time for me to retire and allow these great operators that have.
<unk> added so much to our success the opportunities they deserve.
This has been an amazing in my professional career in the waste industry.
I learned a lot here over the past 12 years about how to build a company the right way and the critical importance of a strong positive culture Senator centered around shared core values.
I've been very impressed with John's leadership, and how we faces challenges and continually adapt to an ever changing environment, all while maintaining his focus on the company culture and maintaining the values he and Doug established for the company years ago.
Of course, working with net has been great.
As I've said in the past he's the best CFO I've ever known and that includes me company.
Okay.
Although it is difficult to step away. The timing is good and I look forward to spending more quality time with my wife, Liza our grandchildren, and the rest of our growing family.
Watching from the sidelines as casella continues to grow and prosper.
And last but not least I want to thank you. The analysts on this call for your tremendous support over the years and the hard work you put in to understand our strategy and to educate our shareholders for that I'm extremely grateful.
With that I'd like to now turn it back to the operator to start the Q&A.
Thank you ladies and gentlemen, if you have a question at this time simply press Star then the number one key on your Touchtone telephone.
Your question has been answered or you wish to remove yourself from the queue. Please press the pound key one moment. Please for our first question.
And your first question comes from the line of Alexander Leach from <unk> capital markets. Your line is open.
Hi, guys. Thanks for taking my question and congrats on the various promotions on on your retirement.
Thank you.
So I just wanted to start on the margin headwinds could you quantify that as a tool or Kevin.
<unk> as to what was driving that 100 basis points.
Traction.
Sure.
Monitoring really closely what our core inflation is in our business and it takes a little bit of work to get at because you've got volume changes you've got acquisitions, you've got new business, there's a lot of things happening.
But we're calculating our court date turtle inflation before 3% today. So if you look at that and you look at our pricing across the solid waste business, our pricing plus resource solutions, we yielded as a full company about five 3% price now if you layer in.
Fuel.
Inflation was close to 125 basis points year over year in the quarter.
But we yielded about 90 basis points of fuel.
Cost recovery fees to offset that so you can look at that we're ahead about 100 basis points on our core business and backwards about 30 basis points on fuel. So ahead about 70 basis points. So we're in pretty good position, but then you start to get under the Hood and as we talked about earlier, we had one landfill.
Struggled quite a bit this winter with some construction delays in getting a certification to get into a new cell and it caused lower volumes.
Then we had acquisition headwinds as we've been talking about that will start to mitigate into Q2 Q3, as we anniversary <unk> and then.
We had one factor really hasnt hurt us that much ever and Thats moving waste from our transfer stations to our landfills, we have fuel surcharges on third party hauling and we stepped into many of the surcharges in our need to advance more flexible pricing as we are right now to offset that so those.
Couple of factors offset a lot of really good work and cost recovery costs offset programs and the rest of the business and as we look to Q2 Q3 and beyond a lot of this gets resolved and we start to step back into a positive position overall as a company with margins and we expect for the full year to be up 20.
25 basis points.
Okay, great. So it sounds like some exceptional.
On items in the quarter.
What repeat in the remainder of the year.
And then just on the fuel recovery.
Just looking at diesel prices in the northeast it seems like from a flat so.
Last few weeks, just if the lag catches up.
Provided that the prices stayed relatively consistent that you won't see much headwind from now and provided that plays out.
Yes, Youre absolutely right. So we've had a really effective energy and environmental recovery fee for a lot of years close to 17 years now and in rapidly rising markets. It's a lagging fee is looking at.
Our standard index.
Diesel index, and if you look at trailing numbers and it's setting a fee for the upcoming months. So we've never quite seen a market like this with diesel rise as fast as it did so our fee works well, but it does lag as you said so there's some cost lag there.
Okay, Great and then just on the M&A.
Or are you already some $30 million.
You mentioned the $500 million.
Pipeline, how much of that is active.
The remainder of the year for full year 2022.
And I think that it's fair to say that we have a little bit.
Activity that is in various stages of LOI.
We completed more obviously than we had anticipated in the first quarter. So some of what we completed in the first quarter, we would have.
Thought would have taken a little bit longer, but we were able to get.
Yet.
Transactions done much quicker than we had anticipated, but we've got a full we've got a full opportunity from an M&A standpoint, and we've got various.
Opportunities under LOI at this point.
Okay, Great I'll jump back in the queue next question.
Yes.
And your next question comes from the line of Tyler Brown from Raymond James Your line is open.
Hey, good morning, everyone.
Good morning, Good morning, Joe.
Hey, first of all I know theres been a lot of title changes and position changes just congrats to everybody, but particularly to add it sounds like youre going somewhere warmer so congrats on that.
Much warmer.
So you touched on it on the last question, but.
Kind of keep you on the hook here, but how much specifically was M&A how much was that landfill delay and how much was the transfer station in terms of the 100 basis points and just thinking about the impact on margins.
Yes, so we calculated Ontario, which would be about 100 basis points transfers around 60, and then remarkably acquisitions came in a little lower at 10 basis points.
For the full year, we're still expecting around at 35 basis point headwind from acquisitions and Thats more of a relative issue, where our margins overall were a little lower so acquisition stand Paul them down, but our acquisition activity came in right around the targeted level in the quarter.
Okay, perfect and then it looks like Youre looking for 20 basis points.
Up at this point versus 40, I think 90 days ago, but if you think about the big puts and takes for the year I mean, my hunch is that fuel it sounds like maybe M&A is about the same but it feels like fuels more dilutive than what you were originally expecting so.
Is it crazy to think that Youre actually raising your core margins does that makes sense.
Yes, it's a great question, where were expecting acquisitions to be about.
So we've taken down as you said guy we're expecting it to be up about 40 basis points now about 20 basis points. So if you look at that about 10 basis points comes from acquisitions that were completed after we guided for the year. So Northstar will weigh on margins and the remaining 10 basis points or so has to do with fuel for.
For the rest of the year, we really didn't change a lot of other parts of our guidance Tyler and since it is the first quarter, but we felt compelled to change with such a larger acquisition for us coming into the business.
Yeah, Okay, and then going back to the fuel recovery fees. So it's interesting because if you look at diesel and this is just national average, but I think it was called a little over $1 year over year. In Q4 is up about 40% in Q1, but if you look at the revenue contribution from that that line significantly.
Bigger sequentially. So did you guys proactively make some changes to the program did you increase compliance whats their other fees in there, but just curious why we saw the big step up in contribution.
Yes, so it is trailing so.
It looks to the last month so it takes.
The step up in Q4 some of that was recognized in Q1, and then youre absolutely right compliance to the fee structure.
A part of our push in the quarter Youll start annuity that that are in the second quarter, where <unk> only work if customers have them and they're meant to protect both sides of that relationship.
Okay. Okay. That's helpful. And then just maybe a modeling big picture question.
But how much M&A do you expect how much M&A contribution do you expect in total and how does that breakdown between solid waste can resource solutions.
Yes.
Hey, Tyler, Jason So about $75 million of revenues in 2022 in total.
And which is about eight 5% year over year in terms of revenue growth for the full year.
And in terms of the breakdown.
Between solid waste.
And resource solutions about $28 million.
In resource solutions in terms of revenue dollars and about $47 million in solid waste.
<unk> got about 75, if that's helpful Tyler.
Yes, that's very helpful. And then on the volumes I guess I just didn't appreciate the weather this year, but how much of an impact did that have let's say versus budget you mentioned that in the prepared remarks.
Yeah. So.
I hate to talk about the weather because we always had challenging weather in the northeast, but what happened. This year that was a bit more challenging was we actually had to shut down operations.
For a day or so at several sites and Thats pretty unique for us and that's where we saw the volume decline and as Ed mentioned not only did not hit the volumes might incur higher cost moving volumes around so that was.
Impacted construction construction as well as auction, yes, now with the 100 basis points. So it was a meaningful impact of close to $1 50.
I don't have that often in front of me.
Go ahead chase.
Yes.
Yes.
$2 5 million roughly.
Okay.
And I don't want to talk too much month to month, but just to be clear it feels like April starting to track better.
It feel that the broader northeastern waste shed certain starting to tighten up a little bit or does it still feel a little bit leads from a disposal perspective.
I think it's.
It's really beginning to.
<unk> tightened up a little bit.
I think that we are beginning the.
See the natural transition coming into spring Tyler with.
Roll offs picking up.
The construction demolition season, so I think we're.
We're cautiously optimistic in terms of where things will be but obviously a good deal of that.
It remains tied to what happens from an economic perspective.
Right, Okay, all right well I will jump back in queue, but I appreciate the questions.
Thanks, Terry Thank you.
Your next question comes from the line of Michael Hoffman from Stifel. Your line is open.
Thank you very much.
So Ed I remember our conversation is going all way back to Attwoods, that's been a great.
Pleasure than a long career, we're trying to figure out how many earnings sessions I've been telling you that it will give you a headache I've done that before.
Okay.
Okay.
And the pressure on some level.
Okay.
Ned and Jason Sean well done, but more importantly, John problems to you for really thinking this through.
Succession planning is probably the most important thing to do and we've done it well.
I appreciate that I appreciate that Michael we've had we've got great to interface with the board and.
We've we've done a good job over the last three or four years really trying to position the company for the future and some of that credit goes to the board as well.
Perfect.
So down to the Nitty gritty, how many how many tonnes are we talking about and what's the source to replace it.
Do you think that sources.
Yes, so youre not talking huge numbers, that's the whole thing that we are up 32000 tons, but as Ed said.
Things like that where you have a site that had very high fixed costs impact margins very quickly, especially when you incur additional transportation costs and we also had punished decline and the transfer network case, and you know how much that what it was another 60 or 70000 tons of extra 60 or 70.
Yeah. So.
Those two in total.
It definitely was a slower winter than expected and it was a challenging winter in the northeast as spring has finally arrived although we had snowflakes yesterday.
And we as Tyler was saying at the end we have seen a notable ramp through March into April and starting to get to that that seasonality and we expect this time of the year both on roll off landfills transfer that things are moving in the right direction.
Okay.
Important sort of observations you feel good enough about.
The room in your annual caps plus I mean, we're talking about 100000 tonnes on a $4 million basis that you run through your system.
So I don't have to use price to move volume around the fill up as whole. This is there's enough volume in the market that will come out naturally plus your own efforts to manage costs.
Used pricing.
Yeah, absolutely I mean, we.
We have struggled the last two years in November and December having to ramp down tonnages and manage across the franchise. So starting the year a little slow from a tonnage standpoint is not actually the worst thing from our standpoint from an operating perspective.
And then Ed.
And do you think you are in the maximization of the asset utilization and that's been one of your crowding Gores here as you reintroduce price discipline in that but what inning do you think your year end.
Alright.
Interesting because the earnings keep extending us.
Forward and create more momentum so I think theres a lot of runway here.
Okay, a lot of that has to do with the amount of activity that we've had from an M&A standpoint.
Michael as you know every time you do a transaction you've got more opportunity from a.
Routing perspective, an efficiency standpoint.
Okay.
The way to think about it is that there is no.
Orders have been almost sure it almost $200 million of added revenue right.
Last three years.
Yes.
That's a pretty significant point of leverage when you're sitting here talking about the $1 billion base today.
And then.
Within the guidance.
Appreciate that you've moved it for the M&A that was chunk enough to do that.
But you did out distance your expectation on price by 110 basis points. So.
Are we.
We have the model for a living.
We over our skis, if we walk up your expectations of four and a half.
Four and three quarters at the midpoint on price for solid waste four and a half for our resource solutions.
Yes, we're stepping up as well, Michael we're going to be north of 5%, maybe even closer to five 5%, but we're still.
Inflation stepped up as well against that model as you know our margins reflect.
We stepped up price costs are up and we're reassessing on a weekly basis right now where things said, it's a pretty dynamic time.
Okay, and then on the M&A.
I just want to make sure I understood the answer there.
Your comment about the 75 million of revenues, including rollover from last year plus this year done that's what that 75 years.
That's correct correctly, yes, right. Okay. So would you share what you have under LOI and too.
Just to talk about the dress market is 400 miles. So you have now increased it by 25% is that a function of some of these chunkier deals you've done.
I think it's a function of what's what's happened in the.
And the marketplace in that.
The challenges from a labor standpoint challenges.
Across the board.
Have caused folks that we never thought would really be interested in monetizing.
Really coming on the market so.
I think I think that we don't we don't have anything as chunky as what we did in the first quarter on LOI right now it's sporadic a few smaller smaller deals. We don't have one large transaction Michael under LOI at this point in time, So we have a number of smaller tuck in opportunities.
Or under LOI.
Okay, and then last one for me.
Yes.
I'm asking it's sort of a question that statement in the same breath I have this feeling that just what you describe why that 100 million decide that might sell that is also.
Creating an advantage.
For you as a company.
In your region.
Some of those competitors arent being as aggressive going after the new piece of volume that might be coming in the market because where are they going to fly and the driver where are they going to find a truck.
Okay.
I think there is this exactly right, but I don't think Theres any question about that.
We have that challenge and we've added tremendous resources Kelly Robinson and his team from an HR standpoint, we've built our own CDL schools. We've put 65 people through that school already were.
Teaming up to build.
Mechanics school as well so it's a real challenge.
Everyone knows.
Put drivers in the seat and get them trained properly to be able to safely.
For them the services that our communities and customers need and to get equipment, Jonathan Yes, absolutely.
Truck right now a year ago.
15 months out if not more depending on the trial depending on the trucks. So you really have to see the work <unk> done over the last couple of years to just really have a creative vision for the future of water replacements are and what we need in the system from a gross standpoint position us really well during this period.
As you know Mike Michael we're ordering our trucks in our year in advance we've come to the board for the last four years five years.
To get our Capex for trucks.
Year in advance because we got to get the orders in.
Slots for delivery, otherwise, you're just you're not going to get them.
Yes.
Lastly, you guys have made it clear there.
They are on allocation.
There are only going to build and ship what they can ship, we're not going to build in park and wait for parts.
No.
But to that point just to close the loop on this.
Not impacting your ability to grow given the breadth of your model you can work more overtime youll find a way to do it and routing where the smaller guy just can add the capacity.
Therefore, when it comes into the market you are more likely to be the winner of that incremental volume coming the new box behind the coffee shop or whatever.
To a degree that's true absolutely. Okay, alright, we have more flexibility in terms of the size of our abilities.
Put extra equipment in place we also have.
A bit of opportunity because we are acquisitive at this point in time, we are doing a lot of M&A transactions to be able to order.
Additional trucks additional vehicles, because we know what we want to do from a service standpoint in terms of efficiency Thats. The work that is done with schein over the last few years. So we know what trucks, we need and we can order or additional trucks as we as we put our orders in for <unk>.
Existing replacement.
So last one for me.
We've modeled that.
For the quarter reported we assumed you were going to be slightly negative in <unk>, just because of the comparability issues. How do you want us to think about the cadence of the margin trend for.
For the year as you affect.
More price productivity and then the volume starts to bounce.
Yes, so we never guide specifically on quarters as you know, but you are right that Q2, we expect to be flat at negative margins.
Some of that really has to do with.
The volume ramp for the spring, which is always a bit hard to perfectly predict until it actually happens, but right now we're sitting in our model slightly negative for margins in Q2 than we go positive in Q3, and Q4 and we are up in Q3 and Q4 Jason.
Seven.
<unk> 75 to 100 basis points, which gives us up.
Close to 20% 25 basis points for the full year embedded in our guidance Michael Okay.
Okay that helps a lot. Thank you.
Okay. Thank you.
Alright.
Okay.
Does that Michael.
Okay.
Cut them off I guess must be cut off again.
Hopefully, we're still off yes, Hello, operator are you there Michael Okay.
Okay.
You got cut off at the end of that.
I look forward to seeing at the Investor Summit in waste Expo in 10 days.
<unk>.
Thank you Michael.
Your next question comes from the line of Sean Eastman from Keybanc. Your line is open.
Hi, guys and congratulations.
Congratulations.
Just I just hope your wife's as excited to spend more time together.
Activated but.
Yes.
Yeah.
I'm looking forward to it.
Coming back to the M&A discussion I feel like we heard a kind of a cautionary comment from another management team relative relative to M&A around.
Just the inflationary environment labor turnover et cetera.
Do you feel like you guys need to be more selective here, maybe theres been some degradation in quality and in the acquisition pipeline, what do you think about that.
I don't think that I think that.
We need to be really thoughtful stay within the bounds of the financial returns that net has outlined and im going to assure you that that's the space that we're going to stay in.
I think that.
We.
You don't see or feel the number of transactions that we don't do.
So I think that we're probably going to stay to our disciplined approach.
We were going to stay to the returns that.
As outlined historically, they've served us very well over the last.
Seven to eight years and so.
Probably no changes from our perspective, but.
When you go in and you look from a due diligence standpoint, youre evaluating fleet Youre looking at the trucks, you're evaluating people youre looking at the route you are looking at how many people. They are down from routing standpoint, all of those aspects of the M&A process are incorporated into the due diligence that we're doing so I don't.
Think that we're going to change things I think that it's fair to say that we're going to take all of that into account as we look at new opportunities to continue to grow the business.
It's not growth for the sake of growth is growth for the sake of creating.
And growing free cash flow.
Understood that's helpful.
The volume number and resource solutions jumped out at me this quarter I feel like revenues there come in stronger than my model every quarter and of course resource solution. This is.
It is getting a lot of the B acquisition.
Growth this year as well so just in light of all of those things can you just give us a refresher on the.
Go forward growth profile, and strategic priorities and resource solutions.
Yes, so we did have quite a bit of growth in the non processing side of this business, which is a combination of our multi site kind of retail industrial brokerage business.
Our industrial services business and then also our organics.
So we are seeing in transport and disposal of part of the business, where we don't process. So all of those segments are really seeing quite a bit of growth. I mean, we're very focused on ESG and every major institution across this country, whether it's our company or.
Institution College University or a hospital so that part of our business is really growing youre right Shawn we're having.
Mers, where thought leaders in this area and they're working with us to find solutions to create more value from the waste stream <unk> seen.
Seemed quite a bit of that there and it really is a continued opportunity for us to grow gain share of wallet from existing customers and quite a bit of this growth. This year was from that area and we will continue to be.
And really help them meet their sustainability goals, it's just it's becoming more and more important to every company every institution.
Yes, that's super interesting and just lastly from me anything to note around.
Receptivity to the big price increases.
Here in early 'twenty, two whether churn or rollbacks like anything to point out there.
It's pretty fair to say that.
There is.
Tremendous.
Knowledge.
Throughout the economy in terms of what's happening from an inflationary standpoint.
I think that the.
We really haven't.
We haven't received a tremendous amount of pushback.
And I think it's a function of people, having a clear understanding every time they go to the grocery store or they go to fill up their car.
People can see and feel the relative inflation I think the other thing that we face two obviously as steel prices have doubled.
And then on top of that we have a tremendous burden from a regulatory standpoint, the regulatory burdens are getting more and more difficult, particularly around disposal capacity. We think about were now being asked to solve for P fast and leachate and we're doing our first pilot program at our waste USA facility. This all.
Although the regulatory.
Aspects of our business are getting more and more difficult and higher end, resulting in higher and higher costs.
Creating flexible fee structures, we fail to be fair as well so our SRA fee is a great example of it so while fuel costs have been going up in fuel recovery fees have been increasing at the same time, our SRA fee has been coming down so our customer if you haven't <unk> reduction there and we've been able to pass some of those higher.
Commodity prices right back to our customers.
Really has helped us at the end.
These programs are set up to be fair and they're set up to manage risk and we've seen that on both sides. So I think.
It is exciting in that way and customers are more willing to understand and accept changes.
One more meaningful data point with all the price we've pushed through our customer count in each main line of business went up in the quarter. We had strong customer growth that's on an organic basis or a same store basis, excluding acquisitions.
Got it good stuff guys. Thanks, Thanks for the time and congrats everybody on the big moves right.
Alright. Thanks.
Your next question comes from the line of Alexander <unk> <unk> capital markets. Your line is open.
Hi, guys.
Ask a couple more.
Can you discuss I know you touched on this briefly.
So could you discuss the driver attrition in the quarter. It seems that the water industry seems to be accelerating pay for drivers in Q1.
Pretty large companies announcing.
The pain that drive is 140 K.
Plus.
You haven't it.
It doesn't seem you've had any margin headwind back in pricing.
I guess my question is ready has retention improved despite hiring market.
Yes. It really has I think that I don't think Theres any question that retention is improving I think that we are.
We're still struggling like everyone has to fill all of the seats.
And we've had.
We've had from a driver standpoint, we've had.
Some.
Some bumps in terms of.
<unk>.
Negative.
Issues from a retention standpoint, but I think when you look at it.
Facility you have to look at it over a three or four year period of time, because we've been raising rates over that period of time. So it's not like we're just.
Youre seeing one one raise we've been.
Doing market adjustments now for about four years, yes, John probably one that most exciting stories, we have in the last 12 months as a CDL driver training school.
We put 60 65 people through the driver school so.
So far we actually pay for them to get their CDL and we're just asking them for one year of service.
After they get their CDL and added 64, I think we have 61.
Those individuals still with the company. So I mean, we're doing everything that we can we've added.
So I am fairly Ned reminds me every now and then how much overhead we've added from HR standpoint in terms of adding people to it.
To help our teams.
Have ops managers out in trucks and interview drivers. So we've added some people in the field to help <unk> drivers.
When the application comes in turn it within 24 hours to get that individual infer.
An interview and then help to source that for the ops managers.
And then get them, obviously in front of them and do much better job of reacting very quickly to the applications that we do get so we're doing a lot of things there.
We're putting the resources that are necessary to be successful, but were still struggling to fill all of the seats and we've also been investing heavily in automation, which makes.
To be less seats to get the same work done and we opened up the funnel of who can do that work, it's a little bit less.
Annual intense work and we see more and more women.
More and more people applying for these jobs and being successful which is extremely exciting for us as a team and the work we've done in a lot of markets add to your team.
Sometimes we'll take three manual trucks to replace it with two automated trucks is generally in formula So that really helps with some of the driver challenges and we take to help her off the bat.
And it also helps with our our safety.
Okay, Great and could you just clarify your comments on pizza.
Sorry, I missed.
What exactly is the opportunity there.
So.
Our waste USA facility, we're doing a pilot program to remove the <unk> from the leachate, which is something that every facility across the country, you'll be facing over the next.
Few years.
Again.
I'm talking about it in the context of the regulatory environment that we're in and the reality of higher costs and inflation and some of Thats being driven by the regulatory environment that we operate in not only is it difficult to get that capacity permitted in place. It's also very difficult to meet.
The issues from a regulatory standpoint.
Unfortunately.
In a position where.
We've got a we're looking to find the solution through some pilot programs in terms of processing leachate to pick out the <unk>.
It's interesting to see.
Somewhat of interest.
And hazardous waste volume.
What's the sort of competitive dynamics or any thoughts strategically.
Good morning.
I think it does impose a negative for us in terms of.
If we find a solution then we will incorporate the cost of that solution into our tip fees at the facilities. So it's just another factor that causes prices at disposal facilities to go up if we're expected to do these things we can certainly do it but those costs are going to be incorporated into the tip fee on a go.
Forward basis.
Okay, Great alright, thank you.
Thank you Alex.
Thank you and we have reached the end of our Q&A session I would now like to turn the call over to Mr. Jon Kessler for any closing remarks. Thank.
Thank you very much and thanks everybody.
Body for joining us this morning.
We look forward to discussing our second quarter 'twenty two earnings.
With you late in.
July .
Ed any closing.
Comments, it's been a great run.
Alright.
And I expect that to continue because I'm philosophical over so you can go to work.
You can get on the call. Thanks, everybody.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
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