Q2 2022 Casella Waste Systems Inc Earnings Call

July 29, 2022

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

Yes.

Good day, and thank you for standing by and welcome for Casella waste systems 2022 second quarter earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask question. During this session you will need to press star.

One one on your telephone please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today Joseph Moskow. 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, Ned Coletta, our president and Chief Financial Officer, Jason Mead, Our senior Vice President of Finance, and Treasurer, and Sean Steves, Our senior Vice President and Chief operating officer of solid waste operations.

Today is our 100th earnings call, which is a nice milestone for us I can never sleep. The night before these calls knowing that I get to read you one of the great works of English literature, but it is time to pass the baton to the next 100 calls so.

Joining us today as well Charlie Ward, our new director of Investor Relations, who will share with you the drama the entry and the raw honesty of the Safe Harbor statement all years Charlotte.

Thank you Jeff.

They we will be discussing our 2022 second 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'll be answering your questions as well.

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 1095.

Actual results may differ materially from those indicated by these forward looking statements as a result of various important factors, including those discussed in the risk factors section of our most recent annual report on Form 10-K, which is on file with the SEC.

In addition, any forward looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date, while we may elect to update forward looking statements at some point in the future, we specifically disclaim any obligation to do.

So even if our views change. These forward 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.

Filiation 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 under the heading.

And presentations with that I'll turn it over to John Casella, who will begin today's discussion.

Thanks, Charlie.

Thanks, Joe for the first 100.

Earnings calls.

Charlie will be able to bring the <unk> that you had to.

Those calls as well for the next hundred calls.

With that good morning, everyone and welcome to our second quarter 2022 Conference call. We are happy with our results and our continued execution against our key strategies. This was a great quarter, perhaps the best quarter in our company's history and it came at a time with record inflation and certainly overall challenging.

Environment, our performance in the quarter was the product of our efforts in many areas.

<unk> strong operating initiatives focused on reducing our cost of service through productivity enhancements further automation, while never discounting safety at the same time, our pricing and fuel recovery fees work well to offset inflation. In fact, we were fully offset we fully offset higher fuel costs.

In the quarter and our continued execution against our strategic growth strategy as we are growing the business through acquisitions in select development projects.

Ensuring proper follow through on our integration efforts.

And adjusted EBITDA were both up over 31% in the quarter as compared to the same period last year.

Further on a year to year basis, we have driven adjusted free cash flow growth of nearly 23% year over year. Our core business continues to be a significant driver of this growth while acquisitions are incremental.

On the topic of growth I would like to take a moment and recognize the significant milestone in the company's history.

That is that we.

In our earnings announcement yesterday.

On a trailing 12 month basis, we've crossed over $1 billion in consolidated revenues for the first time.

This is a significant achievement that I'm very proud of but more importantly, it would not be possible without the hard work and dedication of our entire team.

Every day, our employees strive to be of service to each other and then to our customers. This is a commitment of our core values will remain intact.

As we continue along our growth path.

As you are all aware inflation has not slowed through June and we did a great job in overcoming these pressures we continue to invest time and money into our operating efficiency programs to further reduce costs.

Additionally, we aim to pass on heightened operating cost to our customer base through our pricing programs and fuel cost recovery fees overall solid waste pricing was up six 9% in the quarter.

We are executing at a high level as our core operating efficiency and pricing programs, along with our fuel cost recovery fees are helping to offset inflation, we're maintaining a strong margin profile amidst a challenging backdrop the underlying fundamentals of our business remain very strong and we.

Year over year margin expansion over the remainder of the fiscal year.

I'd like to take a.

Try to provide a brief review related to the execution against a few of our key strategies and the recent performance of our operations first as it relates to our landfill operations in the quarter, we experienced positive volumes and positive price landfill tonnages were up in the corner quarter as we.

Had increased volumes after a tough winter the economy and in northeast remains strong.

Our expectation is that landfill volumes will be positive through the remainder of the year with increased volumes. We remain focused on both our landfill operating and pricing programs from a pricing perspective, we continue to improve the quality of revenue through customer mix. We measure this through our average land.

So price per ton statistic and in the quarter it was up over 6%.

Missing programs aimed to offset inflationary pressures and manage patent regulatory cost.

Moving to the collection business, we posted strong adjusted EBITDA growth and margin expansion year over year above budgeted levels. This achievement is twofold, we start the year with a concerted effort to reevaluate budgeted pricing programs given the environment to date, our core pricing is working well.

To mitigate inflation and our fuel cost recovery fee program is working well to recover higher fuel costs from.

From an operational standpoint second quarter results demonstrate strong operating leverage we improved key operating metrics, both sequentially and year over year, while maintaining focus on sales and service excellence.

As we look ahead, our goals and priorities remain the same we have a continued runway and return driven operating and technology investments, including automation route optimization and increasing the amount of in cab technology across our footprint shown on the team are excited about the opportunity here.

We are confident that they will help us continue to drive down costs as we further deliver on these operating initiatives.

Resource solutions performance was strong in the quarter was significant year over year adjusted EBITDA growth. This level of growth came from a combination of new business acquisitions higher pricing higher recycling commodity values, partially offset by lower tipping fees.

Customer demand for sophisticated resource management services continues to grow.

We are growing the business by meeting this need and helping our customers meet their sustainability goals. So we can we welcome this demand as we aim to strike a balance model in which we continue to invest in environmental solutions with appropriate financial returns I'm excited about several ongoing and recent.

Investments in this vein that highlight our commitment to environmental stewardship and sustainability.

We are in the process.

We're up.

Upgrading our <unk>.

Boston zero sort recycling facility with new equipment, including.

Select robotic technology, we expect this new equipment to be fully operational in the first quarter of 2023. This is nearly a $20 million investment that will drive higher throughput enhance and product quality and improve operating efficiency, which positions us well to meet the needs.

Of the greater Boston market from a recycling standpoint.

In addition to Boston, we recently installed new robotics and sorting capabilities at our Ontario County recycling facility early results are showing strong efficiency gains further we intend to install select tech upgrades at several other facilities.

In the near future.

Finally, I'd like to highlight our capital allocation and growth strategy. We continue to have success executing against our growth strategy.

We have now closed on 11 acquisitions year to date with approximately $47 million in annualized 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 and ensuring that we complete integration to achieve the <unk>.

<unk> returned.

Of the 11 acquisitions five closed since our last earnings call, including two in the second quarter and three in the month of July .

Over the last year, our team has grown by roughly 25% and we are focused on ensuring that our new team members become a part of our culture.

Quickly understanding and living our core values.

Critically important part of the integration that we need to achieve on a go forward basis.

Our M&A pipeline remains robust with over $500 million and revenues of identified opportunities over the top of our existing operating footprint in the northeast and presents a continued opportunity to further grow the business and drive value.

Wrapping up I'd like to.

I'm pleased with the performance thus far in 2022, we were operating at a high level and executing well against our key strategies.

As a result as announced yesterday, we are again raising guidance for 2022.

With that I'll now turn it over to Ned for additional financial details. Thanks, John I'd like to start by thanking our team for a great quarter arguably one of our best quarters ever given the challenging backdrop of historically high inflation and rapidly rising fuel costs.

Our team did an amazing job accelerating cost efficiency programs to help moderate inflation realigning pricing programs to offset heightened costs and ensuring the eligible customers where on a fuel cost recovery fee program.

This is a great testament to our ability to remain nimble and a dynamic economic environment.

Moving on to the quarter revenues in the second quarter were $283 7 million up $67 8 million or 31, 4% year over year with 17% at the year over year change driven by acquisition activity and 14, 4% of the change driven through organic growth.

Solid waste revenues were up 26, 4% year over year with price up six 9% volumes up one 6% acquisition growth of 12, 1% and our fuel cost recovery fees up five 3% as expected our price Chris improved.

Really from the first to the second quarters.

Revenues in the collection line of business were up 27, 9% year over year with price up seven 7% and volumes slightly down.

Revenues in the disposal line of business were up 22, 4% year over year with price up five 7% in volumes up six 2%.

As John mentioned landfill pricing was up five 5% year over year, but more importantly average price per ton was up six 4% as we continued to improve next at our sites.

After a slow start to the year landfill tons were up five 1% in the second quarter, which with the strength in the second quarter. Our volumes are now up for the year.

Resource solutions revenues were up 45, 7% year over year with five 3% from higher recycling commodity prices three 4% from higher customer solutions price, 38% growth from acquisitions, and the remainder from higher volumes and fuel cost recovery fees.

Commodity prices were up again year over year on higher cardboard and mixed paper pricing higher metals pricing higher plastics pricing. However, commodity prices did hit a nine month high point in April and have declined by roughly 20% from April through July with weakness across the board.

Adjusted EBITDA was $68 $5 million in the quarter up $16 $4 million or up 31, 4% year over year with roughly $10 1 million I think rent driven by improvements in our pes business and $6 3 million derived from the rollover impact of acquisitions.

Adjusted EBITDA margins were 24, 1% in the quarter. This was flat year over year, but it was a strong sequential improvement in ahead of our plan for the quarter.

Despite flat margins year over year, our pricing programs did cover cost inflation in the quarter with overall price solid waste and resource solutions up seven 4% offset by a five 2% headwind from inflation, excluding fuel a 65 basis point headwind.

From our fuel cost recovery program.

A 40 basis point headwind from acquisitions, and the remainder associated with a shift in revenue mix year over year.

Our fuel cost recovery fees are intended to recover higher fuel costs, which they did very successfully during the quarter with nearly 100% dollar cost recovery.

However, since these are cost recovery fees, we did experience margin compression as fuel prices rapidly increased driving higher costs and higher fuel surcharges from third party transporters.

Solid waste adjusted EBITDA was $58 8 million in the quarter up $12 3 million year over year with strength in both collection and disposal.

Resource solutions adjusted EBITDA was $9 5 million in the quarter up $3 8 million year over year with improvement in recycling and industrial operations.

With our SRA fee for hauling customers in a processing fee a rebate structure at our recycling facilities that reset each month based on commodity prices much of the year over year increase in recycling commodity prices, which passed back to our customers and lower fees or higher rebates.

Cost of operations in the quarter was up $47 $5 million year over year or up 140 basis points as a percentage of revenue with.

The increase driven by higher fuel costs.

G&A costs in the quarter were up $4 4 million year over year or down 170 basis points as a percentage of revenue with most of this improvement driven by lower incentive compensation accruals and lower labor costs.

As of June 30, we had $593 $7 million of debt $39 $3 million of cash and liquidity of $311 million or.

Our consolidated net leverage ratio was two three times and our average cash interest rate was approximately three 3%.

Our balance sheet is in great shape and positions us very well to continue to grow while also providing stability in this rising interest rate environment, we had roughly 73% of our debt at fixed rates at the end of the quarter and our next debt maturity isn't until January of 2025.

Adjusted free cash flow was $46 $2 million year to date up $8 $6 million year over year with slightly higher capital expenditures more than offset by higher net cash provided by operating activities.

As stated in our press release yesterday afternoon, we have increased our fiscal year 'twenty 2022 revenue net income adjusted EBITDA net cash provided by operating activities and adjusted free cash flow guidance ranges I won't read through them, but they're in there.

Please.

We increased our guidance ranges for the second time this year, mainly due to our stronger than planned pricing programs continued execution against our operating efficiency initiatives.

Excellent cost recovery from our fuel recovery fee program and the positive contribution from recent acquisitions.

We expect higher net cash provided by operating activities to be partially offset by higher capital expenditures, including continued investments into newly acquired operations growth capital investments for new contracts and customers additional.

Additional investments to accelerate operating efficiencies and unfortunately higher prices on certain budgeted capital items due to inflation.

As expected specific margin headwinds in the first quarter moderated significantly into the second quarter and we remain confident in our ability to outpace inflation through the full fiscal year and improved adjusted EBITDA margins year over year, our New guide has about 10 to 20 basis points year over.

A year or.

Our internal rate of inflation is currently running at five 2% we.

We expect to outpace inflation increase in adjusted EBITDA margins for the full year, and we expect margins to sequentially improve through the remainder of the year with margins up slightly in the third quarter and up more significantly into the fourth quarter.

As we discussed last quarter, if inflation does increase further we have great flexibility to advance additional pricing and roughly 70% of our collection book of business and our floating fuel recovery fee is now offsetting roughly a 100% of our costs.

And with that I'd like to pass it back to the operator for any questions.

And thank you.

As a reminder to ask a question you will need to press star one one on your telephone please standby will compile the Q&A roster.

One moment for questions.

Yes.

And our first question comes from Tyler Brown from Raymond James Your line is now open.

Hey, good morning, guys.

Good morning, Tyler.

Hey, Joe I cant remember laughing out loud on a conference call, but I did thanks for that.

Our work here is done.

Yeah.

Okay.

Hey, I wanted to talk a little bit about your revenue complexion, and what that May mean for pricing next year, just big picture conceptually. So I think that there's this broad understanding that CPI linked revenues will be materially higher next year.

Based on my notes on what you just said I think only about 30% of your revenues are restricted in nature.

And only half of that is may be CPI linked which is a pretty low mix between other players, but on the flip side and you've kind of talked about it but you have a lot of residential subscription with freedom to price. So can you just talk about how that might play out next year, because you won't get as much as of that call. It prescribed pricing help.

As maybe some others, but you also have this ability to push price as well.

Yes. It is really on our book of business as you are well aware is more open market and not.

Seth and municipal contracts or franchise agreements in fact in our collection line of business, roughly 10% to 12% or municipal contracts on that or land sales. We also have long term contracted work and through other lines of business as well and as you look through that book of business, there's not a lot.

Lot of them, they're directly linked to CPI U. We have many more of our contracts have moved to the trash and garbage index over time or if they are linked to CPI index on many times there will be kept so we don't expect.

On a certain date to have a lot of 9% price increases linked to CPI U.

You should expect a blend thats more like in that 5% to 6% range, where the trash and garbage indexes and other on price.

Price increases so we're not we're not staring down.

Set of research that will blend our price up higher however, with that all being said I think our pricing programs are working really well to help us offset inflation as John and I mentioned, a few times, we've accelerated a number of cost efficiency programs, we're pushing hard trying to strip costs out of the business.

Tackle inflation in that manner as well.

Yes that is.

Extremely helpful. I appreciate that.

But I do want to quickly go back over the margin walk as well. So I think I heard 65 basis points and impacting corporate margin I think 65 from fuel 40 <unk> commodities.

Right.

Yes, so I'll just walk through that again, so last year, we had 24, 1% EBITDA margins.

Add to that seven 4% price blended between solid waste in our resource solutions group on a consolidated basis.

Back off of that five 2% inflation.

Not including fuel then we had about 40 basis points of headwinds associated with acquisitions, having completed as you are aware they come in a little lower margin it might take us a year to two years to drive synergies and work on that.

Book of business.

65 basis points of headwind from fuel and the remainder was actually a mix shift in our book of business where.

We throw a lot of numbers out there, but our lowest growing part of our business actually in the quarter was our disposal part of our business. So re blending to resource solutions and two collection just overall change.

Margin mix down a little bit.

Now a little bit and commodities were hopeful.

Commodities.

Overall, that's in that seven 4% so I included.

There is 2% to 2% from resource solutions, which was part commodities and part actual pricing to our <unk>.

Industrial customers.

Okay. Okay. So the core mobile phones like margins moving in the right direction, yes.

Yes.

And then.

Certainly no mathematician, but it looks like your implied second half EBITDA.

It's only up slightly.

Since Q1 and typically it goes up.

At circa 20% and probably rounding down so is there just conservatism in the second half when am I missing something.

Well, we're going to anniversary a large acquisition, we will now take we just see a data in July 2006, I think this anniversary date. So that's part of it. We are also expecting some headwind into the second half of the year from recycling commodity prices. As you know we gave a lot of that back to customers, but it still has that it.

Tailwind.

And we're probably as always being a bit conservative every time, you turn on the news you're hearing something new about the recession, we haven't seen any real change in our volumes or our business yet we're doing really well our customers are strong our business is strong, but I think we're just taking a moderate.

Sure.

Okay, Okay and then.

So John .

My mom.

I think the news came out this week that mirror in Connecticut is finally closing its doors. So I think it's the goldstar camo, Matt maybe you can go read but was there any material amount of tonnage flowing into that plant or has it already been displays.

Does that tightened up that market.

Additionally.

I think that.

It's certainly going to tighten up the market in the northeast 700000.

The tons that will be displaced a portion of it already obviously, there's already happened, but just net net is clearly going to tighten up the already.

Imbalanced supply and demand.

The northeast disposal capacity Tyler so it's just.

It's something that we have been talking about a little bit but it is actually happening in that there's clearly going to impact the northeast market.

For the room, some tonnage needs to find a home.

There is and it will be it will be a little bit fluid probably for a year or so before it all finds a home in and settles out yes, without having mid teen online yet we didnt directly.

Sure.

If any of that lease because it is going to lead via rail, but it's taking up capacity in the whole network and theres not a lot of homes for that much waste.

Yeah, maybe my last one is on the <unk>. So I mean, it's just.

Slide capacity keeps grinding mall in the market it.

It seems like local governmental frankly aren't willing to pay and then additional capacity so.

It feels that way by rail is going to become a bigger and bigger.

And there won't be some volume you talked about in the <unk>.

Update us on where we all with Mckean again, when do you expect that to come online.

Sure So mccain.

<unk>.

Put or grant applications in place, we expect to hear on the grant application that we have in place before the end of the year.

We're also anticipating that we will have our revised permit in before the end of the year and expect to see that permit acted on sometime the middle of next year.

And anticipate hopefully be under construction.

Barring any delays on that permit which we don't anticipate at this point in time.

In the.

At the end of 'twenty three for operation early 'twenty four.

Yes, we've been working a long lead items as we speak as well once we have a sense of the grant we may start looking at and have an understanding where we are from a permitting standpoint understand where that's going we will start to as Ned said, we'll start to look at the long lead items from a capital standpoint and instead.

To act on that.

Not to be too specific but will that capex one to your Capex line.

Or is it the short line railroad that will make the investment.

And when you add that back in free cash in 'twenty three.

Yes, I think we need to do a little bit more work there and we've applied for several federal grants to help pay for part of this infrastructure as John referenced.

And.

They will be the grant recipient.

Local talent, our local township, there, but the capital will run through our <unk>.

Our balance sheet or statement of cash flows with.

Reimbursement funnel through local town to casella, netting against that Capex and we'll have to get into details on timing. If there are some timing differences between reimbursement at the exact level of investment we're looking at doing this in stages.

We do have.

The aerospace is fully permitted at this site, we do have a valid permit for taking 6000 tonnes a day via rail and what John was referring to is some wetlands permitting and some adjustments to our daily intake volume permit as well.

Okay very good I appreciate the time guys, yes, thanks, I think so.

Thank you and one moment for questions.

And our next question comes from Michael Hoffman from Stifel. Your line is now open.

Alright, Thank you very much Joe I've been there for all 100 of them and you get funnier.

And sometimes you have actually been on our side.

Yeah.

Joe.

Got to love it.

So I find that too.

Okay.

Yeah.

So back to the landfill comment mirrors closed I mean, clearly the volumes all found a home because it stop piling up on the question is what's the permanent home the bigger comment, though it's 700000 tons has disrupted the market.

Spot market again.

Spot prices have moved fairly meaningfully in the last six months as this was looming.

So I think the interesting question is can you do more on your landfill pricing.

Have you have you flex that as much as I can be.

It seems like Youre in a really enviable position 20 plus percent of the market.

Gary I think.

I think it is.

Clearly quicker.

Clearly Michael as the supply and demand continues to.

Be negative it's going to continue to increase pricing, obviously, so I think it will happen incrementally over time, it's not going to be one fell swoop, but I think that is the reason why we feel comfortable that we've got a really nice runway for the next three to five years in terms of being able to.

We've got a really nice runway for the next three to five years in terms of being able to price very successfully at the disposal facilities.

So we estimate we've talked to the burners that Boston renewal in 'twenty four.

Now potentially talking about a $1 30 to 140 number.

If that's the case it feels like the simple math is just figure out how much of cost to drive out to your assets and subtract that from the 140 and you ought to be charging somewhere close to that.

As it comes in on price.

Five plus percent of the landfills for a while.

Is that right.

Anything wrong with that logic.

No I mean, I think that obviously the higher the price goes the burners are the more likely it is that the higher the price is going to go.

Subject to transportation differential right.

In terms of how far you have to go to the disposal asset, but again I think that it's clear if in fact your premise of pricing at the incinerator goes to that level, then it's likely that.

Pricing will continue to be firm at the disposal facilities and again, it's what gives us comfort over the next three to five years that we've got a nice runway in the relief valve for these volumes is rail and it has been and we're seeing you know as much as 25 to 27, 28% of all waste being <unk>.

Rail out of the northeast today, and Thats growing with each of these closures.

Yes, we are opening up Mccain rail is capital intensive and it does generally cost more than our in market capacity to get to so we've got a great positioning over time.

Other really important expansion that we're working on is our Highland landfill in Western New York.

<unk> continues to move along nicely and we're excited about the opportunity to bring that capacity online in the next three to four plus years.

Yes, just to remind everybody that's 400000 going to a million dollars.

That's correct, yes, that's correct yes.

We've talked about this in may at the Investor Summit, but.

I view Mckean, both an offensive and defensive move because you wind up with the closest in rail access land pill.

So the critical question is based on what you just shared on the prior commentary you'll be up and running before Boston renews and therefore, you're in a position that that market does get driven there.

Volume starts getting displaced incrementally to rail you're in a position to capture it to leverage mckean.

We're going to we're going to do everything that we can.

The permitting perspective to try to move that as quickly as we can at this point, Michael we've made the commitment.

The team is fully engaged.

You know our grant application is in already we expect to hear on that before the end of the year. So you bet you, we're going to push to get it opened as quickly as we can at this point okay.

Shifting gears the fuel surcharges that are 100% direct or is it picked up the indirect exposure your third party transportation.

Yes. So historically, we are just looking at direct expense and we had not ever had any third party fuel surcharges passed through to us, but lo and behold, we click through a lot of thresholds in third party transportation contracts and starts to be levied pretty significant.

<unk> charges by third party transporters in Q1 into Q2, we've introduced a new fuel surcharge at our transfer stations that just went live in June . So we didn't have full recovery through the period, but into Q3, we will with that new fee that seeking to pass it back to our customers any.

Surcharges charged to us okay.

So speaking to questions about margins the guidance for $30 million of Rev.

It feels like two thirds of that is probably fuel and a third of its outright. Therefore theres two observations one that's $20 million worth of dilution to the margin, but the other is the EBITDA up.

Upside incremental margin is compelling because it's $10 million of growth and 6 million of EBITDA.

100% right. So we upwardly adjusted revenue guidance by $30 million from our last conference call to today and of the upward revision $20 million of it was associated with higher fuel surcharges, which are really just pass throughs and as we look at that the last $10 million.

Has some really nice beneficial margins because it's.

Really no additional EBITDA being generated on a fuel surcharges. So we raised our revenue guidance by $30 million, we raised our EBITDA guidance by 620 of the revenue guidance is associated with fuel. So you kind of $10 million of revenues increased $6 million of EBITDA. So we're doing a really nice job on cost.

Efficiency programs really nice job on pricing programs through the business.

Yes, I mean it should.

On said that 60% incremental margin, so that's a pretty pretty impressive.

Switching gears to <unk>.

Instead of comps it was down a bit.

Alright, Sean Didnt say something about how well he is doing.

[laughter] tried isn't very quiet for his first call.

I think the.

The great part about it is we do have still quite a bit of runway in terms of fully automating trucks route optimization getting computers and trucks.

Sean has made great progress there to help really lower our cost to.

To contribute to the overall situation, we find ourselves from a market perspective, but we've got a we've got runway there too in terms of continuing.

Continue to drive costs down.

Got it.

And then.

On incentive comp its down that's confusing if you're beating your numbers. So are we going to get Oh, an accrual adjustment in the fourth quarter.

No it's down as a percentage of revenue so.

Kind of an interesting period, where we have seen revenues escalate on fees.

Which are causing a re blending of some of our income statement. So there is.

There is no like big shifts there, we actually had a little catch up in the second quarter because bonus accruals.

Being adjusted higher but as a percentage of revenue year over year, it's down because we firm revenue so dramatically.

Got it Okay, and then lastly.

I know why you adjust to your free cash flow and presented a matter when do you anniversary the need to do so where you stand on the backs of just cash flow from ops less all capital spending.

It's a good question.

We started doing this several years back.

Just to give additional visibility into larger items, and we fully anniversaried, our 30 year infrastructure investment at waste USA and wishes.

<unk> successful, we're excited to be into the new capacity, there and that was a pretty unique event South bridge, we're getting down to the end of <unk>.

Long process with nasty AEP to get that site closed and that will come off here very shortly and then the last night and we get visibility to is on acquisitions and frankly, we when we pro forma acquisitions, we're typically trying to get new trucks facilities integrate.

It should start as fast as possible.

And we'd like to give visibility on that these are all items that were part of the pro forma but we feel like it's a good good way to give investors additional visibility on how we're investing.

Capex.

Fair enough, but you know the.

The industry in Europe become serial acquirer. So it's a cost of doing business. So in reality the underlying cash.

Yes.

I mean it.

I guess the other two are anomalous things, but the other is sort of a recurring event.

Yes.

More meaningful for us because we're.

Sure.

No that's smaller than the peers. So it's much more meaningful I think to us than it is to them.

Right. So last one John when do you get to $2 billion.

Yeah.

Net net told me he is going to it's not going to take as long as I took to get to $1 billion. So.

Got it.

I think it's probably within a couple of years. So I don't know I don't know what you said.

[laughter] only kidding.

We have had that conversation, though it's funny because he said he's definitely you said, it's not going to take as long as it took me to get to $1 billion. So very good so congratulations on that.

Good rest of the day.

Thanks, Michael appreciate it thank you.

Thank you and one moment for questions.

Okay.

And our next question comes from Sean Eastman from Keybanc capital markets. Your line is now open.

Hi, everyone nice quarter. Thanks for taking thanks, John Thank you good morning, Sean.

Good morning, guys.

Just a quick housekeeping one first I might have missed this but what's the updated solid waste price and volume embedded in the new revenue guidance.

Casey I'll take that yeah, sure Hey, Sean it's Jason So as you are aware original solid waste price guide for the year was 4.5% to 5%.

As we're looking over the balance of the year given the strength of our pricing programs to date, we have upwardly adjusted our solid waste pricing.

Metric can expectation to roughly 5% to 6%.

For the full year.

Some opportunity of course based on the overall inflationary environment to go back out and advanced more pricing if needed. So we'll continue to monitor and assess the situation.

On solid waste volumes, we initially guided 1.5% to 2% for the year and we've taken that back a little bit as we have seen slightly lower volumes at our transfer stations as well as a little bit lower than expected volumes across our collection operations, mainly due to customer G. Selections, we are improving the quality.

Of revenue.

Via both our pricing programs as well as some of our routing efficiency programs.

Deselected, some unprofitable business, which is a really good story so.

We're kind of okay with sitting at.

An outlook of 50 basis points to 100 basis points.

Solid waste volume growth for the year.

They are very helpful.

And then.

Just coming back to the comments about the flexibility to advance additional price later in the year.

What is the what is the big cost bucket variable, but but but we need to be thinking about there or is it really labor and wages.

We're tracking how the labor market would tighten up into the summer months, but just wanted to get some color on what what you are really monitoring there.

Yes, right now I mean.

He said earlier overall core inflation's around five 2%, which is up sequentially from the first quarter, which is around four 5% so inflation.

Turning to creep into many categories from parks to outside maintenance.

Labor spend more stable over the last six to nine months.

But one thing that doesn't flow through to the income statement, but there is real inflation as capital expenditures from liner materials at landfills two trucks containers ever.

Every standpoint.

So while that's not running through the income statements important area that we're cognizant of and we're looking at our pricing programs around as well to make sure we're covering that and we're ensuring we generate the appropriate returns on assets going on the ground.

Okay interesting interesting and then.

And then part of the Capex guidance raise was accelerated operating efficiency investments is there something new or interesting to note there and I'd be curious just more broadly how we should think about.

Annual efficiency gains you guys are targeting this year and sort of what's contemplated in the longer term outlook from an efficiency gain perspective.

So our most important efficiency gain programs right now are bringing online our route where onboard computing systems.

And we're through about 250 of our vehicles today out of a thousand and we're trying to accelerate more into this year.

System that allows us to more to help dynamically route trucks. It also helps us to more effectively capture what we're charging a helps efficiency for our drivers can also helps with safety, we've got a great camera system.

Integrated in with I think as.

As much as eight cameras cameras, and that's really been powerful for us as well on the street from a training standpoint, and also when something's not our fault. So we're looking to accelerate that we continue to work really hard on route conversions.

From rear load to frontload or to automated robotic side load trucks, and we're driving that over a multiyear horizon, we're seeing about 45% of our fleet automated side load today, and that's a regenerative opportunity because as we buy companies.

Typically don't have automated fleets.

So those are two majors, we brought online a great tool in the last 12 months as Sean shepherded.

Our easy route route optimization package, which allows us to very quickly effectively optimized routes as we do acquisitions or as we grow into markets or just trying to gain efficiency. So the teams because those are kind of three major building blocks of what we're focused on and.

<unk>.

These none of these are like a one year horizon. There are multiyear regenerate is set of tools.

Very helpful I'll turn it over there thanks guys.

Thank you.

And thank you.

And one moment for questions. Our next question.

And our next question comes from Tyler Brown from Raymond James Your line is now open.

Hey, I just got a quick follow up with Jason do you have what the.

Revenue from M&A is in 'twenty, two and then what is it in 'twenty three based on what we know today.

Yes, so I'll start with the latter first so the rollover into 2020 from acquisitions closed in 2022 is about $12 million of M&A rollover next year.

This year in terms of <unk>.

Total M&A related growth both from acquisitions closed in 2021, and 2022 is about $88 million of revenues for the full year.

Okay, and then on Boston.

So when that comes online.

Is that just.

Cost saves.

And then to figure out what is the year to year EBITDA impact.

Boston in 'twenty two to 'twenty three.

Yes, so the Boston Murph will have a couple different benefits one will be we will increase our throughput by about 35%. So initially will run less hours and have a little bit less operating expense associated with processing of each ton and some of that.

Will flow back to our customers and the marketplace some will stay with us.

And then over time that will allow us to grow but right now as you can imagine labor just trying to the other thing that we will end up with there is higher quality higher quality quality quality material, which could impact positively revenue revenues as well, we will have less residue.

Coming out of the stream so less materials that were going to the landfill announced to be recycled.

As well and we will have less labor on our R&R line as well, which is a really big gain in this environment.

Hart's spot to recruit for and with our robots were bringing online at several facilities, we're really seeing great quality of work, they're working very well the cost profile is right and it's allowing us to have.

Have a higher quality stream.

But is it an EBITDA hold this year that will get rebuilt.

In sum.

Yes.

Jason do you know how much EBITDA it may add next year.

I don't have the pro forma open in front of me to follow up on that one alright, yes. Okay.

Okay, Yeah, I'll follow up on that one, but just one last one in here.

Can you update us on where we are in new Hampshire.

Is there any update on north country, and maybe what the next steps are there.

Sure. So we continue to move that process forward.

We're we're looking at.

Reducing the <unk>.

Amount of wetlands associated with the with the facility in terms of taking.

Well.

In the.

The throes of going through that permit there was a vote.

Four.

Zoning in Dalton that was turned down I think is more obviously on the on the on.

On the basis of people just not wanting zoning as opposed to a favorable vote for the landfill, but nonetheless, it was a positive vote.

The zoning and the town. So we continue to move it forward.

No less controversial than it has been.

But we are reducing the impacts we still have a great project there and we will continue to move it forward from a permitting standpoint, and our north country landfill has four years of life.

And this fall our first RMG facility will come online at the North country landfill, which we're very excited about this is a project, where we put zero capital dollars, but we get a share of the cash flows and revenues from the Rins.

It's a spectacular facility.

DARPA team, who we teamed up with there has spent over $35 million, putting that facility in place to create pipeline quality gas. So we're very excited about that project and that should be a real real positive for.

For north country and the community.

Okay, and Thats, a help next U K cash flow.

Yes, yes.

All right. Thank you guys.

Thank you Tyler Thanks Tyler.

Thank you and I'm showing no further questions I would now like to turn the call back over to John Casella for closing remarks.

Thank you and thanks to everybody for joining us. This morning, we look forward to discussing our third quarter 2022 earnings with you in late October and with that everyone have a terrific afternoon, and a great weekend. Thanks everybody.

Afternoon, and a great weekend participating you may now disconnect.

The conference will begin shortly to raise your hand during Q&A you can dial one one.

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<unk>.

Good day, and thank you for standing by and welcome to the Casella waste systems 2022 second quarter earnings call. At this time, all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session to ask question. During this session you will need to press star one one on your telephone. Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today Joseph <unk>. Please go ahead.

Thank you for joining us this morning and welcome.

Today is our 100th earnings call, which is a nice milestone for us I can never sleep. The night before these small knowing that I get to read you one of the great works of English literature, but it is time to pass the baton to the next 100 calls so joining us today as well Charlie.

<unk>, our new director of Investor Relations, who will share with you the drama the entry and the raw honesty of the Safe Harbor statements all years Charles.

Thank you Jeff.

We will be discussing our 2022 second 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'll 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 1095 actual results may differ materially from those indicated by these forward looking statements as a result of various important factors, including those discussed in the <unk>.

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 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.

Reconciliation 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 under the heading events and presentations with that I'll turn it over to John Casella, who will begin today's discussion.

Thanks, Charlie.

Thanks, Joe for the first 100.

Earnings calls.

Hopefully Charlie will be able to bring the level that you have.

Those calls as well for the next hundred calls.

Environment, our performance in the quarter was a product of our efforts in many areas, including strong operating initiatives focused on reducing our cost of service through productivity enhancements further automation, while never discounting safety at the same time, our pricing and fuel recovery fees.

Well to offset inflation in fact, we were fully offset we fully offset higher fuel costs in the quarter.

And our continued execution against our strategic growth strategy as we are growing the business through acquisitions in select development projects, while ensuring proper follow through on our integration efforts.

Revenues and adjusted EBITDA were both up over 31% in the quarter as compared to the same period last year.

Further on a year to year basis, we have driven adjusted free cash flow growth of nearly 23% year over year.

Our core business continues to be a significant driver of this growth while acquisitions are incremental.

On the topic of growth I would like to take a moment and recognize the significant milestone in the company's history.

That is that we in our earnings announcement yesterday.

On a trailing 12 month basis, we've crossed over $1 billion in consolidated revenues for the first time.

This is a significant achievement that I'm very proud of but more importantly, it would not be possible without the hard work and dedication of our entire team.

Yes.

Every day, our employees strive to be of service to each other and then to our customers. This is a commitment of our core values will remain intact.

As we continue along our growth path.

Additionally, we aim to pass along heightened operating cost to our customer base through our pricing programs and fuel cost recovery fees overall solid waste pricing was up six 9% in the quarter.

Late year over year margin expansion over the remainder of the fiscal year.

I'd like to take a.

Had increased volumes after a tough winter the economy in the northeast remains strong.

So price per ton statistic and in the quarter it was up over 6%.

<unk> programs aimed to offset inflationary pressures and manage heightened regulatory costs.

To mitigate inflation and our fuel cost recovery fee program is working well to recover higher fuel costs from.

As we look ahead, our goals and priorities remain the same we have a continued runway and return driven operating and technology investments, including automation route optimization and increasing the amount of in cab technology across our footprint, Sean and his team are excited about the opportunity here.

We are confident that they will help us continue to drive down costs as we further deliver on these operating initiatives.

Customer demand for sophisticated resource management services continues to grow.

Investments in this vein that highlight our commitment to environmental stewardship and sustainability.

We are in the process.

We're up.

Upgrading our <unk>.

Boston zero sort recycling facility with new equipment, including.

Select robotic technology, we expect this new equipment to be fully operational in the first quarter of 2023. This is nearly a $20 million of investment that will drive higher throughput enhance and product quality and improve operating efficiency, which positions us well to meet the needs.

Of the greater Boston market from a recycling standpoint.

Yes.

Sure.

Finally, I'd like to highlight our capital allocation and growth strategy. We continue to have success executing against our growth strategy.

We have now closed on 11 acquisitions year to date with approximately $47 million in annualized revenues. The team continues to do a great job maintaining a disciplined approach in terms of focus on deals with the right strategic fit and return profile and ensuring that we complete integration to achieve the.

<unk> return.

Of the 11 acquisitions five closed since our last earnings call, including two in the second quarter and three in the month of July .

Over the last year, our team has grown by roughly 25% and we're focused on ensuring that our new team members become a part of our culture quickly understanding and living our core values.

Critically important part of the integration that we need to achieve on a go forward basis, our M&A pipeline remains robust with over $500 million and revenues of identified opportunities over the top of our existing operating footprint in the northeast and presents a continued opportunity to further grow.

The business and drive value.

Wrapping up I'd like.

I am pleased with the performance thus far in 2022, we were operating at a high level and executing well against our key strategies.

As a result as announced yesterday, we are again raising guidance for 2022.

This is a great testament to our ability to remain nimble and a dynamic economic environment.

Solid waste revenues were up 26, 4% year over year with price up six 9% volumes up one 6% acquisition growth of 12, 1% and our fuel cost recovery fees up five 3% as expected our price Chris improved sequential.

Really from the first to the second quarters.

Revenues in the collection line of business were up 27, 9% year over year with price up seven 7% and volumes slightly down.

Revenues in the disposal line of business were up 22, 4% year over year with price up five 7% in volumes up six 2%.

As John mentioned landfill pricing was up five 5% year over year, but more importantly average price per ton was up six 4% as we continued to improve mix at our site.

After a slow start to the year landfill tons were up five 1% in the second quarter, which with the strength in the second quarter. Our volumes are now up for the year.

Commodity prices were up again year over year on higher cardboard and mixed paper pricing higher metals pricing and higher plastics pricing. However, commodity prices did hit a nine month high point in April and have declined by roughly 20% from April through July with weakness across the board.

Adjusted EBITDA was $68 $5 million in the quarter up $16 $4 million or up 31, 4% year over year with roughly $10 1 million of the growth driven by improvements in our base business and $6 3 million derived from the rollover impact of acquisitions.

Adjusted EBITDA margins were 24, 1% in the quarter. This was flat year over year, but it was a strong sequential improvement in ahead of our plan for the quarter.

From our fuel cost recovery program.

A 40 basis point headwind from acquisitions, and the remainder associated with a shift in revenue mix year over year.

Our fuel cost recovery fees are intended to recover higher fuel costs, which they did very successfully during the quarter with nearly 100% dollar cost recovery.

However, since these are cost recovery fees, we did experience margin compression as fuel prices rapidly increased driving higher costs and higher fuel surcharge.

Charges through third party transporters.

Solid waste adjusted EBITDA was $58 8 million in the quarter up $12 3 million year over year with strength in both collection and disposal.

Resource solutions adjusted EBITDA was $9 5 million in the quarter up $3 8 million year over year with improvement in recycling and industrial operations.

Cost of operations in the quarter was up $47 $5 million year over year or up 140 basis points as a percentage of revenue with.

First is the increase driven by higher fuel costs.

G&A costs in the quarter were up $4 $4 million year over year or down 170 basis points as a percentage of revenue with most of this improvement driven by lower incentive compensation accruals and lower labor costs.

As of June 30, we had $593 $7 million of debt $39 $3 million of cash and liquidity of $311 million.

Our consolidated net leverage ratio was two three times and our average cash interest rate was approximately three 3%.

Our balance sheet is in great shape and positions us very well to continue to grow while also providing stability in this rising interest rate environment, we had roughly 73% of our debt at fixed rates at the ended the quarter and our next debt maturity isn't until January of 2025.

Adjusted free cash flow was $46 $2 million year to date up $8 $6 million year over year with slightly higher capital expenditures more than offset by higher net cash provided by operating activities.

Please.

We increased our guidance ranges for the second time this year, mainly due to our stronger than planned pricing programs continued execution against our operating efficiency initiatives.

Excellent cost recovery from our fuel recovery fee program and the positive contribution from recent acquisitions.

Additional investments to accelerate operating efficiencies and unfortunately higher prices on certain budgeted capital items due to inflation.

A year or.

Our internal rate of inflation is currently running at five 2% we.

And with that I'd like to pass it back to the operator for any questions. Thank you.

Thank you.

As a reminder to ask a question you will need to press star one one on your telephone please standby, while we compile the Q&A roster.

One moment for questions.

Yes.

And our first question comes from Tyler Brown from Raymond James Your line is now open.

Hey, good morning, guys.

Good morning.

Hey, Joe I cant remember laughing out loud on a conference call, but I did thanks for that.

Our work here is done.

Yeah.

Hey.

I wanted to talk a little bit about your revenue complexion, and what that May mean for pricing next year, just big picture conceptually. So I think that there's this broad understanding that CPI linked revenues will reset materially higher next year.

Based on my notes on what you just said I think only about 30% of your revenues are restricted in nature.

And only half of that is maybe CPI linked which is a pretty low mix between other players, but on the flip side, you kind of talked about it but you have a lot of residential subscription with freedom to price. So can you just talk about how that might play out next year, because you won't get as much as of that call. It prescribed pricing help.

As maybe some others, but you also have this ability to push price as well.

Yes, Theres really on our book of business as Youre, well aware is more open market and not.

Set in municipal contracts or franchise agreements in fact in our collection line of business, roughly 10% to 12% or municipal contracts on that our land sales. We also have long term contracted work and through other lines of business as well and as you look through that book of business.

Not a lot of them, they're directly linked to CPI U. We have many more of our contracts that moved to the trash and garbage index over time or if they are linked to CPI index on many times there will be kept so we don't expect.

On a certain date to have a lot of 9% price increases linked to CPI U.

You should expect a blend thats more like in that 5%, 6% range, where the trash and garbage indexes and the other on price.

Price increases so we're not we're not staring down.

Set of resets that will blend our price up higher however, with that all being said I think our pricing programs are working really well to help us offset inflation as John and I mentioned, a few times, we've accelerated a number of cost efficiency programs, we're pushing hard science strip costs out of the business.

Tackle inflation in that manner as well.

Yes that is extremely helpful. I appreciate that.

But I do want to quickly go back over the margin walk as well. So I think I heard 65 basis point impact from corporate margin I think 65 and fuel 40, when commodities are the is that right.

Yes, so I'll just walk through that again, so last year, we had 24, 1% EBITDA margins.

Add to that seven 4% price blended between solid waste in our resource solutions group on a consolidated basis.

Back off of that five 2% inflation.

Not including fuel then we had about 40 basis points of headwinds associated with acquisitions, having completed as you are aware they come in a little lower margin and might take us a year to two years to drive synergies and work off that book.

Book of business.

About 65 basis points of headwind from fuel and the remainder was actually a mix shift in our book of business where.

We threw a lot of numbers out there, but our lowest growing part of our business actually in the quarter was our disposal part of our business. So re blending to resource solutions and two collection just overall change.

Margin mix down a little bit.

Yeah, a little bit and commodities were a helper.

Commodities.

Overall that in that seven 4%. So I included it was 2% to 2% from resource solutions, which was part commodities and part actual pricing to our <unk>.

Industrial customers.

Okay. Okay. So the core level the margins moving in the right direction, yes.

Okay and then.

And certainly no mathematician, but it looks like your implied second half EBITDA is.

Is only up slightly.

With Q1 and typically it goes up.

At circa 20% and probably rounding down so is there just conservatism in the second half or am I missing something.

Well, we're going to anniversary a large acquisition willing to ask hey, if we just get data in July 2006, I think this anniversary date, so that part of it. We are also expecting some headwind into the second half of the year for recycling commodity prices. As you know we gave a lot of that back to customers, but it is still has that.

Tailwind.

And we're probably as always being a bit conservative every time, you turn on the news you're hearing something new about the recession, we haven't seen anything change in our volumes or our business yet we're doing really well our customers are strong our business is strong, but I think we're just taking a moderate.

Crouch here.

Okay, Okay and then.

Hello, John .

Why not.

I think the news came out this week that mirror in Connecticut is finally closing its doors. So I think it's the goldstar camo, Matt maybe you can go read.

Are there any material amount of tonnage flowing into that plant or has it already been displays.

Does that tightened up that market.

Additionally.

I think that.

It's certainly going to tighten up the market in the northeast 700000.

The tons that will be displaced a portion of it already obviously, there's already happened, but just net net is clearly going to tighten up the already.

Imbalanced supply and demand.

The northeast disposal capacity Tyler so it's just.

It's something that we have been talking about a little bit but it is actually happening in that there's clearly going to impact the.

The northeast market.

For the room.

Tonnage needs to find a home.

There is and it will be it will be a little bit fluent probably for a year or so before it all finds a home and settles out.

Having mid teen online yet we didnt directly.

Or any of that lease because it is going to lead via rail, but it's taking up capacity in the whole network and theres not a lot of homes for that much waste.

Yeah, maybe my last name is all Mckean.

Field wide capacity keeps grinding mall in the market.

It seems like local governmental frankly on Brian's appointment additional capacities so.

Just feels that way by rail is going to become a bigger and bigger.

It won't be some volume you talked about in the Q.

Update us on where we all with Mcmillan again, when do you expect that to come online.

Sure So mccain.

<unk>.

Put our grant applications in place, we expect to hear on the grant application that we have in place before the end of the year.

Also anticipating that we will have our revised permit in before the end of the year and expect to see that permit acted on sometime the middle of next year and anticipate hopefully be under construction.

Barring any delays on that permit which we don't anticipate at this point in time.

In.

At the end of 'twenty three for operation early 'twenty four.

We'll start to look at the long lead items from a capital standpoint and instead.

And start to act on that.

Not to be too specific.

Net capex one to your Capex line.

Or is it the short line railroad that will make the investment how does that work.

Add that back in free cash in 'twenty three.

Yes, I think we need to do a little bit more work there and we've applied for several federal grants to help pay for part of this infrastructure as John referenced.

<unk>.

They will be grant recipient.

Our local talent, our local township, there, but the capital will run through our.

Our balance sheet or statement of cash flows with.

We do have the aerospace is fully permitted at this site.

We do have a valid permit for taking 6000 tonnes a day via rail and what John was referring to is some wetlands permitting and some adjustments to our daily intake volume permit as well.

Okay very good I appreciate the time guys. Thanks, hi, thanks.

Thank you and one moment for questions.

And our next question comes from Michael Hoffman from Stifel. Your line is now open.

Hey, Thank you very much Joe.

I've been there for all 100 of them and you get funnier.

And sometimes you have actually been on our side.

Yeah.

Okay.

Joe.

Got to love it.

What is behind that too.

Yeah.

So back to the landfill comment mirrors closed I mean, clearly the volumes all found a home because it's not piling up on the question is what's the permanent home.

Comment, though it's 700000 tons has disrupted the market.

The.

What market again.

Prices have moved.

Fairly meaningfully in the last six months as this was looming.

So.

Interesting question is can you do more on your landfill pricing.

Have you have you flex that as much as I can be.

It seems like Youre in a really enviable position 20 plus percent of the market.

Gary I think.

I think it clearly.

Clearly Michael as the supply and demand continues to.

So that we've got a really nice runway for the next three to five years in terms of being able to price very successfully at the disposal facilities.

So we estimate we've talked to the burners that Boston renewal in 'twenty four.

There is now potentially talking about a $1 30 to $1 40 number.

If that's the case it feels like the simple math is just figure out how much of cost to drive out to your assets and subtract that from the $1 40.

You ought to be charging somewhere close to that.

You guys had commented on price that five plus percent of the landfills for a while.

Is that right.

Anything wrong with that logic.

No I mean, I think that obviously the higher the price goes the earners the more likely it is that the higher the price is going to go.

Subject to transportation differential right.

In terms of how far you have to go to the disposal asset, but again I think it's clear if in fact your premise of pricing at the incinerator goes to that level.

It's likely that.

Pricing will continue to be firm at the disposal facilities in it.

Again, it's what gives us comfort over the next three to five years that we've got a nice runway in the relief valve for these volumes is rail and it has been and we are seeing as much as 25 to 27, 28% of all waste being railed out of the northeast today and Thats growing with each of these closures.

Yes, we are opening up Mccain rail is capital intensive and it does generally cost more than our in market capacity to get to so we've got a great positioning over time.

Another really important expansion that we're working on is our Highland landfill in Western New York.

It continues to move along nicely and we're excited about the opportunity to bring that capacity online in the next three to four plus years.

Yes, just to remind everybody thats 400000 going to $1 billion.

Yes, that's correct, yes, that's correct yes.

Yes, we've talked about this in may at the Investor Summit, but.

I view Mckean, both an offensive and defensive move because you wind up with the closest in rail access landfill.

Volume starts getting displaced incrementally to rail you're in a position to capture it to leverage mckean.

We're going to we're going to do everything that we can.

The permitting perspective to try to move that as quickly as we can at this point, Michael we've made the commitment.

The team is fully engaged.

Our grant application is in already we expect to hear on that before the end of the year. So you bet you, we're going to push to get it opened as quickly as we can at this point okay.

Shifting gears the fuel surcharges that are 100% direct or it has it picked up the indirect exposure your third party transportation.

Yes. So historically, we were just looking at direct expense and we had not ever had any third party fuel surcharges passed through to us, but lo and behold, we click through a lot of thresholds in third party transportation contracts and it starts to be levied pretty significant.

Surcharges charged to us okay.

So speaking to questions about margins the guidance for $30 million of Rev.

Feels like two thirds of that is probably fuel and a third of its outright. Therefore theres two observations one that's $20 million worth of dilution to the margin, but the other is the EBITDA up.

Upside incremental margin is compelling because it's $10 million of growth and $6 million EBITDA.

Yes, youre, 100% right. So we upwardly adjusted revenue guidance by $30 million from our last conference call today and of the upward revision $20 million of it was associated with higher fuel surcharges, which are really just pass throughs and as we look at that the last $10 million.

Had some really nice beneficial margins because.

Efficiency programs really nice job on pricing programs through the business.

Yes.

On said that 60% incremental margins look pretty pretty impressive.

Yeah switching gears to.

Instead of comps of down <unk>.

Sean Didnt say something about how well he is doing.

[laughter], Jonathan quiet for his first call.

<unk>.

The great part about it is we do have still quite a bit of runway in terms of fully automating trucks.

Route optimization getting computers and trucks.

<unk> made great progress there to help really lower our costs to.

To contribute to the overall situation, we find ourselves from a market perspective, but we've got we've got runway there too in terms of continuing continue to drive costs down.

Got it.

And then on incentive comp its down that's confusing if you're beating your numbers. So are we going to get.

Oh.

<unk> adjustment in the fourth quarter.

No it's down as a percentage of revenue so.

Kind of an interesting period, where we have seen revenues escalate on fees, which are causing a re blending of some of our income statement. So there is.

There is no like big shifts there, we actually had a little catch up in the second quarter because bonus accruals are.

Being adjusted higher but as a percentage of revenue year over year, it's down because we for our revenues so dramatically.

Got it Okay, and then lastly.

I know why you adjust to your free cash flow and presented a matter when do you anniversary the need to do so.

Where do you stand on the backs of just cash flow from ops less all capital spending.

It's a good question we started doing this several years back just to give additional visibility into larger items and we fully anniversary our 30 year infrastructure investment at waste USA, which has been very successful we're excited to be.

And to the new capacity, there and that was it.

A unique event South bridge, we're getting down to the end of a very long process with nasty AEP to get that site closed and that will come off here very shortly and then the last night and we get visibility to it on acquisitions.

And frankly, we when we pro forma acquisitions, we're typically trying to get new trucks facilities integrations done as fast as possible and we'd like to get visibility on that these are all items that were part of the pro forma but we feel like it's a good way to give investors additional visibility on how we're investing.

Capex.

Fair enough, but.

The industry in Europe become serial acquirer. So it's a cost of doing business. So in reality the underlying cash.

Yes.

No.

I guess the other two are anomalous things, but the other is sort of a recurring event.

Yes.

More meaningful for us because we're.

Sure.

No it's smaller than the peers. So it's much more meaningful I think to us than it is to them.

Great.

Last one John when do you get the $2 billion.

Yes.

Net net told me he is going to it's not going to take as long as I took to get to $1 billion. So.

Yes.

I think it's probably within a couple of years I don't know I don't know.

[laughter] only kidding.

We have had that conversation, though it's funny because he said he is definitely you said, it's not going to take as long as it took me to get to $1 billion. So very good congratulations on that and have a good rest of the day.

Thanks, Michael I appreciate it thank you.

Thank you and one moment for questions.

Okay.

And our next question comes from Sean Eastman from Keybanc capital markets. Your line is now open.

Hi, everyone nice quarter. Thanks for taking thanks, John Thank you good morning, Sean.

Hey, guys.

Quick housekeeping, one first I might have missed this but what's the updated solid waste price and volume embedded in the new revenue guidance.

Jason I'll take that yeah, sure Hey, Sean it's Jason So as you are aware original solid waste price guide for the year was four 5% to 5%.

We're looking over the balance of the year given the strength of our pricing programs to date, we have upwardly adjusted our solid waste pricing.

Metric can expectation to roughly 5% to 6%.

For the full year.

Some opportunity of course based on the overall inflationary environment to go back out and Thats.

That's more pricing if needed so we'll continue to monitor and assess that situation.

On solid waste volumes, we initially guided 1.5% to 2% for the year and we've taken that back a little bit as we have seen slightly lower volumes at our transfer stations.

Well as a little bit lower than expected volumes across our collection operations, mainly due to customer deselection. So we're improving the quality of revenue.

Via both our pricing programs as well as some of our routing efficiency programs.

With that we Deselected, some unprofitable business, which is a really a good story so.

We're kind of okay with sitting at.

Outlook of 50 basis points to 100 basis points of solid waste volume growth for the year.

They are very helpful.

Just coming back to the comments about the flexibility to advance additional price later in the year.

Is the what is the big cost bucket variable.

But we need to be thinking about there or is it really labor and wages. I know you guys were tracking how the labor market would tighten up into the summer months, but just wanted to get some color on what you are really monitoring there.

Yes, right now.

As he said earlier overall core inflation's around five 2%, which is up sequentially from the first quarter, which is around four 5%. So inflation start continuing to creep into many categories from parts to outside maintenance.

Labor spend more stable over the last six to nine months.

But one thing that doesn't flow through to the income statement, but there is real inflation as capital expenditures from liner materials that land sales to trucks and containers.

Everything upfront.

Okay interesting interesting and then.

The annual efficiency gains you guys are targeting this year and sort of what's contemplated in the longer term outlook from an efficiency gain perspective.

So our most important efficiency gain programs right now are bringing online our route where onboard computing systems.

We're through about 250 of our vehicles today out of a thousand and we're trying to accelerate more into this year.

System that allows us to market helped dynamically route trucks. It also helps us to more effectively capture what we're charging a helps efficiency for our drivers can also helps with safety.

Got it great camera system.

<unk> integrated in with I think as much as eight cameras cameras, and that's really been powerful for us as well on the street from a training standpoint, and also when something's not our fault. So we're looking to accelerate that we continue to work really hard on route conversions.

Rear load to frontload or to automated robotic side load trucks, and we're driving that over a multiyear horizon, we're seeing about 45% of our fleet automated side load today, and that's a regenerative opportunity because as we buy companies. They typically don't have automated fleets. So those are.

Two majors, we brought online a great tool in the last 12 months as Sean shepherded.

<unk>.

These none of these are like a one year horizon, there are multiyear regenerative set of tools.

Very helpful I'll turn it over there thanks guys.

Thank you. Thank you. Thank you.

And thank you.

And one moment for questions. Our next question.

And our next question comes from Tyler Brown from Raymond James Your line is now open.

Hey, I just got a quick follow up but Jason do you have what the <unk>.

Revenue from M&A is in 'twenty, two and then what is it in 'twenty three based on what we know today.

Yes, so I'll start with the latter first so the rollover into 2020 from.

From acquisitions closed in 2022 is about $12 million.

Of M&A rollover next year.

And then this year in terms of.

Total M&A related growth falls from acquisitions closed in 2021, and 2022 is about $88 million of revenues for the full year.

Okay, and then on Boston.

So when that comes online.

Is that just.

Cost saves.

And then what is the year to year EBITDA impact.

Boston in 'twenty two to 'twenty three.

<unk> in the marketplace, some will stay with us.

And then over time that will allow us to grow but right now as you can imagine that labor is the other thing that we ended up where there is higher quality higher quality quality quality material, which could impact positively revenue revenues as well, we will have less residue.

Coming out of the stream so less materials.

We're going to the landfill announced to be recycled.

As well and we will have less labor on our R&R line as well, which is a really big gain in this environment.

Hart's spot to recruit for and with our robots were bringing online at several facilities, we're really seeing great quality of work, they're working very well.

Cost profiles, right and it's allowing us to.

Have a higher quality stream.

But is it an EBITDA hold this year that will get rebuilt.

Income.

Yes.

Jason do you know how much EBITDA and they add next year.

I don't have the pro forma open in front of me to follow up on that one alright, yes, okay I'll follow up on that one but just one last one in here.

Can you update us on where we are in new Hampshire.

Is there any update on north country, and maybe what the next steps are there.

Sure.

We continue to move that process forward.

We're we're looking at.

Reducing the.

The amount of wetlands associated with the with the facility in terms of the taking.

In the.

The throes of going through that permit there was a vote.

Four.

Zoning in Dalton that was turned down I think it is more obviously on the on the on the basis that people just not wanting zoning as opposed to a favorable vote for the landfill, but nonetheless, it was a positive vote.

Against the zoning and the town. So we continue to move it forward.

No less controversial than it has been.

But we are reducing the impacts we still have a great project there and we will continue to move it forward from a permitting standpoint, and our north country landfill has four years of life.

This fall our first RMG facility will come online at the new architecture landfill, which we're very excited about this is a project, where we put zero capital dollars, but we get a share of the cash flows are wrapping is from a range.

This is a spectacular facility.

With DARPA team, who we teamed up with there has spent over $35 million, putting that facility in place to create pipeline quality gas. So we're very excited about that project.

That should be a real real positive four.

For north country and the community.

Okay, and Thats, a help next year free cash flow.

Yes, yes.

All right. Thank you guys.

Thank you Tyler Thanks Tyler.

Thank you and I'm showing no further questions I would now like to turn the call back over to John Casella for closing remarks.

Afternoon, and a great weekend participating you may now disconnect.

Q2 2022 Casella Waste Systems Inc Earnings Call

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