Q2 2023 Casella Waste Systems Inc Earnings Call
Speaker 1: We continue to be focused on increasing returns across our disposal assets. Improving the quality of revenue of inbound streams is a major focal point. We measure this through our average landfill price per ton, which was up nearly 10% in the quarter, to help us stay ahead of inflation across many categories, from daily operations to our capital spend on cell construction and machinery and heightened regulatory costs. Notably, we are also capping at several sites this year, which reflects our commitment to further lowering emissions and improving gas capture for renewable energy. On this topic, in mid-July, we announced the signing of an agreement with WAGA Energy to build and operate RNG facilities at three of our landfills. WAGA's proven track record and expertise in this field.
Speaker 1: proves to us that they are a strong partner to lead the next stage of our RNG development projects. We expect RNG to be another opportunity for driving higher returns and sustainability across our landfills. On the collection line of business, in terms of the second quarter, great execution once again through the leadership of Sean, Steve, and his team. We posted another strong quarter with both adjusted a bit of growth and margin expansion in collection operations exceeding our budget in the quarter. As I highlighted, our cost reduction investments and operational initiatives
Speaker 1: and proved several of our key operating metrics both sequentially and year over year. We accomplish this while maintaining a high level of service excellence.
Speaker 1: Looking ahead, our focus remains the same. As of the second quarter, 60% of our routed fleet have onboard computers and over 50% of our addressable residential collection fleet is automated. This strategy is paying off, but we still have room for further operational enhancements and investments.
Speaker 1: to drive higher returns. Resource solutions. Notably, as of mid-June, our fully upgraded Boston recycling facility is up and running. Recycling is a part of the core of this company and this approximately $20 million investment represents a meaningful
Speaker 1: profile of the facility. Like any investment we make.
Speaker 1: We balance environmental stewardship with economic returns to support the longevity of our programs and services. Our SRA and other risk mitigating features in our contracts are examples which have greatly limited the financial impact of current recycling prices.
Speaker 1: including the Boston MRF, we expect positive contributions to our results from our recycling operations over the remainder of the year. Finally, I'd like to highlight our capital allocation and growth strategy.
Speaker 1: Following our recent debt and equity raises, the strength of our balance sheet positions as well to continue growing the business and driving further free cash flow growth. Our acquisition pipeline of about $500 million in annualized revenues over the top of the Northeast footprint combined with approximately $400 million in annualized revenues.
Speaker 1: around our mid-Atlantic operation provides great opportunity for us and we will remain opportunistic in our approach.
Speaker 1: Aside from the GFL operations we acquired in June , we announced the pending acquisition of twin bridges in New York with approximately $70 million of annual revenues. The acquisition cleared HSR review on July 14, currently being reviewed by the New York Attorney General's Office and is targeted to close by the fourth quarter.
Speaker 1: Overall, we have a strong runway that positions us for continued growth and driving long-term shareholder value. We look forward to our continued ability to grow in a disciplined fashion. With that, I'll turn it over to Ned for some more detail on the financials.
Speaker 2: Thanks, John , and good morning, everyone. Revenue is in the second quarter with $289.6 million, up $6 million or up 2.1% year-over-year, with 1.8% of the year-over-year change driven by acquisition activity.
Speaker 2: Solid waste revenues were up 7.6% year over year with price up 7.7%, acquisition growth of 2.5% with volumes down 2.6%.
Speaker 2: Reviews in a collection line of business were up 9.2% year over year with price up 8.2% and volumes down 2.3%
Speaker 2: VINA clients were primarily driven by higher churn in the residential line of business associated with pricing programs, and we experienced lower roll-off activity split between industrial customers and temporary construction jobs.
Speaker 2: However, with these declines, we improved the quality of revenue, grew our adjusted EBITDA, and expanded margins in both of these wines of business.
Speaker 2: Revenues in the disposal line of business were up 5.7% year over year, with landfill pricing up 7.7%, while landfill tons were down 6.1%.
Speaker 2: The landfill volume declines were entirely driven by lower price special waste volumes that were down here every year.
Speaker 2: As expected, Resource Solutions revenues were down 11.6% year over year, with our average commodity revenue per ton down roughly 53% on lower cardboard and mixed paper pricing, lower metals pricing, and lower plastics pricing.
Speaker 2: This decline in commodity prices was partially offset by 7.6% growth in processing fees at customers who are left with a little over 50% growth after its Dallas County monthly
Speaker 2: Kamae prices hit a high point in April 2022 and then declined 67% through the remainder of 2022, hitting a multi-year low last December . Kamae prices have rebounded from this low level up roughly 30% sequentially from December through June .
Speaker 2: Adjusted EBITDA was $72.2 million in the quarter, up 3.7 million or 5.5% year over year, with $2.8 million of the growth driven by improvements in our base business and $900,000 derived from acquisitions. The EBITDA was $2.8 million in the quarter, up 3.5% year over year, with $2.8 million
Speaker 2: Solid waste adjusted EBITDA was $68.4 million in the quarter, up $9.5 million year over year, with collection and disposal both up year over year.
Speaker 2: Resource Solutions adjusted EBITDA was $3.8 million in the quarter, down $5.6 million every year with the negative performance mainly driven by two factors.
Speaker 2: Adjusted EBITDA was down roughly $3 million due to lower commodity prices.
Speaker 2: Our risk mitigating commodity programs help to offset most of the significant drop in commodity prices. Unfortunately, these programs are not fully implemented in several newly acquired markets that have legacy contracts that do not allow us to pass recycling risk back to customers. These markets accounted for roughly 60% of the year-over-year decline.
Speaker 2: as we had to transload vines to other facilities.
Speaker 2: Adjusted EBITDA margins were 24.9% for the quarter, up 80 basis points year over year.
Speaker 2: Solid waste margins were 31.4% in the quarter, up 230 basis points year over year, partially offset by the weakness and resource solutions.
Speaker 2: Our pricing programs once again covered cost inflation in a quarter with solid waste price as a percentage of total revenues up 6.4%, partially offset by 490 basis points from inflation.
Speaker 2: Further margin bridging items include a 45 basis point improvement driven by solid waste operating efficiencies partially offset by the lower volumes, a 35 basis point tailwind from lower fuel cost net lower recovery fees.
Speaker 2: These were partially offset by 105 basis point headwind from the shutdown at the Boston MRF in lower recycling commodity prices, a 35 basis point headwind from lower landfill gas to energy performance, and a 10 basis point headwind from acquisitions.
Speaker 2: Moving on, the second quarter included several unique items in the income statement that we highlighted in our press release and also have additional disclosure at 10-2. And they included a $6.2 million legal settlement chart in connection with the settlement of a class action litigation matter relating to Fair Labor Standards Act.
Speaker 2: and state wage and hours loss, and an $8.2 million loss for the termination of bridge financing for the secured and unsecured bridge loans associated with the acquisition of the GFL operations and the pending Twin Bridges acquisition.
Speaker 2: Excluding these non-recurring items and several other one-time costs, adjusted net income was $18.8 million in the quarter flat year over year.
Speaker 2: It was a busy quarter for our team from an M&A and financing perspective. On April 3rd, we acquired a hauling and transfer company with approximately $10 million of annual revenues. On June 30th, we acquired GFL Solid Waste Operations in Pennsylvania, Maryland, and Delaware with approximately $185 million.
Speaker 2: of annualized revenues. And on June 9th, we entered into the asset purchase agreement to acquire Twin Bridges assets with approximately $70 million of annual revenues.
Speaker 2: To support these acquisitions, we completed several financing events.
Speaker 2: We entered into a $375 million secured bridge financing to provide committed capital for the GFL transaction. This bridge was never drawn and on May 25th it was terminated when we entered into the $430 million delay draw term loan edit.
Speaker 2: The term loan A is priced on a grid with the initial pricing at SOFR plus two and three-eighths.
Speaker 2: This pricing will drop the SOFR plus 1 7 8 next quarter.
Speaker 2: In addition, we entered into a $200 million unsecured bridge financing to provide committed capital for the planned Twin Bridges transaction. This bridge, again, was not drawn, and on June 16th, it was terminated when we closed on the $517.5 million common stock offering.
Speaker 2: As of June 30th, post the GFL acquisition, we had $1 billion of debt, $466 million of cash, liquidity of $738 million, including the availability on our revolver. Our consolidated net leverage ratio was 2.35 times.
Speaker 2: Our average cash interest rate was approximately 3.74 times, and we had fixed interest rates on 64% of our debt.
Speaker 2: We have earmarked approximately $219 million of cash on hand to complete the Twin Bridges acquisition.
Speaker 2: Post the Twin Bridges acquisition, we will still have significant liquidity to support our M&A pipeline with a focus on building additional density in the mid-Atlantic and across select northeastern markets.
Speaker 2: While adjusted free cash flow started the year a bit light due to working capital and capital expenditure timing differences, these headwinds were mainly resolved in the second quarter. Adjusted free cash flow was $49 million year to date through June , up roughly $2.8 million year over year and on track for the year.
Speaker 2: we increased our revenue, adjusted EBITDA, and adjusted free cash flow guidance ranges for the year.
Speaker 2: However, given the negative impact of the several non-recurring items I focused on earlier and the higher interest expense associated with the financing, we have lowered our net income guidance for the year.
Speaker 2: The updated guidance ranges include the contribution from the acquisition of the GFL assets, but do not include the pending acquisition of twin bridges. As always, we'll update our guidance after completing the acquisition.
Speaker 2: As part of the updated guidance ranges, we increased our adjusted EBITDA guidance range by $23 million.
Speaker 2: with roughly $20 million of this increase associated with the newly acquired GFL operations and $3 million from the base business.
Speaker 2: As I mentioned earlier, our internal rate of inflation is running at about 4.9%. That's down over 100 basis points from last summer. We definitely have seen inflation cool off a bit in the business. We do expect to outpace this inflation increase adjusted EBITDA margins by 70 basis points for fiscal 23.
Speaker 2: through the remainder of the year. We have conservatively increased our fiscal 23 adjusted free cash flow guidance range by $4 million with all of this increase associated with the newly acquired GFL operations.
Speaker 2: While we expect continued operating cash flow growth and the working capital timing differences to further resolve through the remainder of the year, higher capital expenditure costs due to inflation and higher interest costs offset this growth in the existing base business.
Speaker 2: And with that, I'll turn it back to the operator for questions. Thank you.
Speaker 3: Thank you. As a reminder, if you would like to ask a question at this time, please press star then 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment while we compile our Q&A roster.
Speaker 3: Our first question is going to come from the line of Tyler Brown with Raymond James. Your line is open. Please go ahead.
Speaker 3: Tyler Brown with Raymond James. Your line is open. Please go ahead. Hey, good morning guys.
Speaker 4: Good morning.
Speaker 1: Hey, you know, lots of detail as usual. But, Ned, can we kind of go back over some of the margin pieces? I think you said fuel was 35 basis points. And then I couldn't tell, was it commodities and Boston was 105? Or can you just walk through that a little bit?
Speaker 2: Yeah, sorry. Yeah, there's a few numbers there. So, we had solid waste prices, the percentage of total revenues was up 6.4 with inflation dropping that by 490 basis points. And then we had positive good guys at a 45 basis point improvement.
Speaker 2: which in the solid waste business. The 35 basis point tailwind from fuel net of lower fuel prices, but we also had lower surcharges. Then we had 105 basis point headwind, and that was Boston and recycling commodity prices.
Speaker 2: A 35 basis point headwind from landfill gas to energy and 10 basis point headwind from acquisitions. For more information visit www.fema.gov
Speaker 5: Okay, okay. And then as Boston kind of turns back on, does that become a margin good guy in the back half? Is that the right way to think about it?
Speaker 2: It does, and we're expecting about a million and a half to two million dollars of positive impact in the second half of the year from Boston. You know, we're still in that 90-day shakedown phase. It started off the second to third week of June , and this is one of the more technologically advanced.
Speaker 2: processing facilities in the country. Machine X is doing a great job, but there's a lot of work to get all of those obstacles and belts completely in sync. So that will continue to happen, but we're really positive about where we sit. And the next year, you think about it, you get the positive from the benefit of the investment, but also get rid of that negative comp in the industry.
Speaker 2: talked about this last quarter, there's a handful of them out there and you know there's a couple notable ones in Connecticut. There's a few notable ones around our Western Mass recycling facility as well and there are a couple million dollars a year of negative headwind and you know we've very successfully over the last decade have worked with communities.
Speaker 1: We'll renegotiate them at the end of the contract, obviously.
Speaker 5: Okay, and then, so I wanted to kind of hit on volume. It came in a bit weak.
Speaker 5: You gave some color, but it's interesting because this is actually something we've seen with a couple of the other guys that have reported
Speaker 5: Maybe it's idiosyncratic, maybe not. But can you kind of help bridge that down two-six?
Speaker 5: Was it just broad weakness or was there something idiosyncratic that it felt like in your franchise?
Speaker 2: Yeah, so I listened to Waste Management earnings and I'm not sure much of what we saw is not all that dissimilar. So at the land skills, we saw MSW vines basically flat and we saw C&D up a little bit, which is interesting.
Speaker 2: But we saw almost every single special waste category down. We saw sludges down, which is a little bit of our own doing, because we're trying to have less of those materials in the landfill. But then we saw all other special waste categories down, contaminated soils, buds, ashes... You know, if we haven't covered that entire story, we're going to be able to walk through how much of the atmosphere is outside?
Speaker 2: you name it, asbestos and other categories were down in the year. We also saw industrial roll-off activity down. We've seen our pipeline stretch out a little bit there. I think what it really is, as everyone knows, industrial companies, large businesses are looking around themselves and slowing their capital cycle a bit. Just given the
Speaker 2: into the special waste categories at the landfill. On the residential side of the business, Sean and his team and the temporary roll-off side, that they're just trading price for quality of revenue and making sure we have the right mix in our business. As you know, like every other trucking business, we struggled.
Speaker 2: to always fill the seats and have high quality drivers and mechanics. So, you know, we've been in a mode of making sure we really want to do business and we're doing it for the right return level and it's a big focus of the team. So you see a little bit of that churn there. Not a lot of it's stuff we're disappointed about. We're improving margins and quality.
Speaker 2: bit hotter on volumes and entailed off through the second half of the year.
Speaker 5: Okay, and then Jason, just a couple modeling questions, but what is the M&A contribution for this year?
Speaker 5: in the guide today, which excludes twin bridges, but roughly what is that in solid waste and then what should we expect kind of the run rate on interest expense to be? Yeah, just one clarifying point and Jason can hop in. The guide does not include twin bridges. It just includes TFL operations.
Speaker 6: Yeah, so, hey Tyler, so GFL in the back half of the year in terms of revenues for Q3 and Q4, roughly $91 million in revenues in the second half of the year. Then we have in terms of rollover from acquisitions completed,
Speaker 6: In 2022, we've got roughly another $3 million of revenues that will be in the back half of 2023. We had about $12 million in the first half of the year. And then we completed a tuck-in acquisition in April of this year.
Speaker 6: Triple T trucking that we announced with our Q1 earnings.
Speaker 6: And that was roughly $9 million in annualized revenues. So we'll get the pro rata portion of that in the second half of 2023.
Speaker 5: Okay, okay, that's helpful. And then John , I got maybe my last one here. I read an article a couple weeks ago, I think it was.
Speaker 5: about an intent to reopen Hardwick.
Speaker 5: I know it sounds like it's kind of far away and there's a lot to do to get there, but I'm just curious if those reports were correct and what was the driving factor in looking into that. I'm just curious if those reports were correct and what was the driving factor in looking
Speaker 1: Yeah, actually there's a development team associated with the community that came to us and asked us if we would be interested in working with them to potentially reopen it. And so it's true. We made a presentation to the board.
Speaker 1: Brian Oliver made that presentation about three weeks ago to the board. It is very early in the process. There's a lot of heavy lifting to be done, but there is capacity there for 20 years. And we're happy to push forward to the extent that we continue to push forward.
Speaker 7: changes.
Speaker 5: So it really hinges on great support for us to invest here. Yeah. Okay. So it's something to stay tuned. That seems like it's kind of a ways away, but we'll keep doing that. Indeed. Indeed. Okay. All right, listen, I'll turn it over. Appreciate the questions.
Speaker 5: And so it really hinges on great support for us to invest here. Yeah. Okay. So it's something to stay tuned. That seems like it's kind of a ways away, but we'll keep doing that. It is. Okay. Indeed. Indeed. Okay. All right, listen, I'll turn it over. Appreciate the questions. Thanks, Tyler. Okay.
Speaker 3: Thank you. And one moment for our next question. And our next question is going to come from the line of Michael Hoffman with Stifel. Your line is open. Please go ahead.
Speaker 6: Good morning Hoping it's sunny in Vermont today It is Michael. It's hard to believe but the Sun is out every other day We had three inches of rain yesterday afternoon, so it may be coming towards you unfortunately
Speaker 6: On recurring revenue volume,
Speaker 6: Can we talk about underlying characteristics of the recurring revenue volume? Think of small container service interval changes, new business formation.
Speaker 6: you know, large container permanent inside office building, schools, things like that. What are those trends like?
Speaker 6: Yeah, I'll start. Hey Michael. So in the second quarter, just focusing on our commercial line of business where many of those attributes would be, Michael. Our volume in the commercial collection line of business was flat year over year in the quarter. We did experience net new business activity.
Speaker 6: in the quarter in terms of net new revenue from a sales perspective, i.e. we gained more new accounts than we lost.
Speaker 6: Yards per lift were flat from an operational metric perspective and price was quite positive in the quarter. Our commercial line of business up about 9% and we expanded adjusted EBITDA margins by about 100 basis points. For more information on EBITDA, visit www.EBITDA.com
Speaker 8: Okay, that's terrific. This is pup pup pup out in replaces
Speaker 8: Just to touch on your renewable energy, can you tell us what your current amount of MMBtu
Speaker 8: were playing with and then what the development with WAGO would add.
Speaker 2: Yeah, so we've got two projects under development, one at our North Country Landfill in New Hampshire and one at our Junior Formation Landfill in Maine. Charlie, is that one? Those two projects combined are about 1.3 million. Yeah, MMBTUs.
Speaker 2: revenue shares from the gas sales and RINs. And that'll initially be about 1.3 million MMBQs as well, 1.2, 1.3 million. That contract, we think is very favorable and can create quite a bit of value for shareholders over time. It'll take about.
Speaker 2: two plus years to get those sites permitted, built, and online. But some real benefits after that point.
Speaker 2: So when you refer to margin headwind from landfill gas, is that electricity based then in the quarter? Oh, yeah. So we still have a number of facilities that are producing electricity. And we definitely saw a decent sized headwind year over year in those facilities as a year ago, we saw a decent sized headwind year over year in those facilities as a year ago.
Speaker 8: REX and power sales were down. Okay, and then back to Boston for a second. We've been hearing
Speaker 8: through various sources that the Boston five-year, three-contract renewal cycle starting for 2024.
Speaker 8: that they may actually extend you and not go through a contracting process and focus on just collection and disposal since the disposal side may be up so much. Do you have any color on that? Because that'd be good. You put 20 million in there and you've got an assured rollover into the next sort of three to four years.
Speaker 1: Yeah, I don't think that we have any comment on it at this point in time. Michael, I think that ordinary course of business, they would go out to bid. It's certainly a possibility, but it's nothing that we would comment on at this point.
Speaker 8: Okay, and then fleet replacement, how do you stand there and what's the sort of...
Speaker 8: Positive impact to repair maintenance cost if that's improving
Speaker 5: Yeah, we've had a little bit of uptake. Michael, this is Sean. Truck delays, but nothing out of the ordinary. The fleet's in the best shape it's been in the history of the company, actually.
Speaker 2: We went thoroughly through the GFL trucks and we're pleased with what we have down there. We have some automation opportunities. All in all, it's looking good. Sean, probably our highest inflationary categories are still parts, tires, maintenance, outside repairs, or some of our highest inflationary categories.
Speaker 8: update on two sort of landfill scenarios the sort of New Hampshire, Bethlehem, Dalton status and then McKean timeline.
Speaker 1: Sure, McKean is under construction now. I think we talked about, we received all of our permits last quarter under construction, anticipate early 2024 with McKean beginning to ramp. So it'll take.
Speaker 1: year or two to ramp. Don't expect to, you know, see significant tonnages on the start. It'll ramp over a period of time. The Dalton facility, just moving forward with permits, nothing really to report there. Just continue to move forward from a permitting perspective.
Speaker 1: Same thing with regard to Highland. We're doubling the permit at Highland. Host community agreement in place and Sam and the engineering team are working with DEC to expand that permit as well.
Speaker 1: and expect to have that probably, I would say, towards the end of the year.
Speaker 8: I have to ask because you bought GFL, so when do we hear about your first M&A deal in the PA, Maryland, Delaware market? Well, we might want to do a little more integration, Michael.
Speaker 1: Maybe, you know, another week or two of dinner. No, only kidding. I mean, I think that clearly Kyle, you know, the real benefit of having Kyle who managed those assets and then having him work for us from a business development standpoint, we do have a great...
Speaker 1: a great portfolio of opportunity there. So it wouldn't be surprising to see something happen, but we're really focused on the integration at this point in time, and want to get that done very well, which the team is in the midst of.
Speaker 1: at this point. So I wouldn't anticipate something on an immediate basis, but a portfolio is just a terrific opportunity there. So it will begin to happen quick enough.
Speaker 8: Okay, thank you very much. Thank you.
Speaker 3: Thank you and one moment for our next question.
Speaker 3: And our next question is going to come from the line of Shawn Eastman with KeyBank Capital Markets. Your line is open. Please go ahead.
Speaker 6: Hi team, thanks for taking my questions. I just wanted to come back to the 2023 guidance update, specifically the organic update. I mean I think the M&A part of it is straightforward but I just wanted to understand that I think it was 3 million kind of underlying EBITDA, raised, wondered if
Speaker 6: Maybe that underlying raise is a little juicier than it might seem if you're overcoming some of these volume headwinds that weren't anticipated. Obviously, the weather has been challenging. Any color on that would be helpful.
Speaker 2: Yeah, I mean it's a good point because we're a little bit lower on the recycling side than we had expected. We had a bit more headwind there and we've seen a little bit weaker special waste volume. So this is really a raise on the strength of the water.
Speaker 2: great investments and great execution on the hauling side of business and other areas where we've been able to flex costs and drive efficiencies and execute our plan. So it's a good point.
Speaker 2: It's important to note that even with a little bit of weakness in volumes, you see what we're doing on the margin side of the business and it's pretty incredible. We increased margins 230 basis points while shedding some volumes and that really shows the ability for us to be humble.
Speaker 2: The investments we've had in systems like Power BI that give us good real-time tracking and our onboard computing and automation, our ability to reroute trucks is allowing us to take costs out of the system rapidly.
Speaker 9: That's helpful. And then I'm trying to think through the margin bridge for next year with all the moving parts in the model. Basically we're starting at that 50 basis points kind of baseline entering the year.
Speaker 9: We know recycling is going to be a tailwind. We've got some M&A dynamics going on. Maybe that price-cost spread visibility is looking pretty good into next year with inflation coming down.
Speaker 9: Just curious where your head's going.
Speaker 9: Just curious where your head's going as we think through that assumption.
Speaker 2: Yeah, we've had a lot of moving pieces recently as you correctly reflected. We really haven't done a lot of updating to our models. We're just stepping into budgeting right now. But all of the points you made are valid, that recycling becomes a good guy into next year.
Speaker 2: given the Boston shutdown, even if commodities were a little weak, we still would have to tell when there. And our outpacing of inflation that will continue with our pricing programs, we're very confident there. Operating programs who still have multiple investments, we're making this year into next year.
Speaker 2: more work to do before we start to guide next year, but your perspective is fair.
Speaker 9: Okay, got it. And then last quick one from me, just looking at the bridge from kind of vanilla free cash flow to adjusted free cash flow, those two acquisition related items that step up, kind of unsurprisingly around a large deal being folded in. But I just wanted to make sure I understand what's going in there on this post acquisition.
Speaker 2: post acquisition and development capital expenditures. Some of the initial dollars we put to work right when we get on the ground to drive synergies or to fix facilities or safety issues, it's always contemplating our pro formas, but we carve that out separately just as a line item to give clarity of that additional investment we're making in those businesses in the first.
Speaker 3: Any more with Jeffries your line is open please go ahead. Hi, good morning. No, good morning. Maybe touching on
Speaker 10: what you're seeing with maybe some of your competitors on the private side. So both, I guess two part questions. First, what are you seeing maybe from an appetite from an M&A standpoint in that portion of the industry? And then secondly, are you continuing to see, I think maybe the same level of...
Speaker 10: you know, rational activity around pricing with those competitors that we've seen over the last year or maybe any change on that front would be helpful. Thanks.
Speaker 1: I think that there's significant activity. I think when you look at inflation, the challenges, recycling commodity prices, the atmosphere from an M&A standpoint is very strong. I think inflation seems to continue, as thatís dead.
Speaker 1: Historically, we really didn't think would be for sale, are for sale. And so activity there is really strong. Can I add one thing, John ? Yeah, sure. But we're not seeing the privates as active buying things because their access to capital has maybe dried off a bit. Yeah. I think that there's not a...
Speaker 1: great deal of activity. Certainly on larger transaction you'll see activity and higher pricing but on smaller transactions not a lot of activity from a competitive perspective.
Speaker 2: Then on pricing, John answered that in the first part of his question where there's a lot of inflation out there and recycling has been a really big headwind, I think, for companies across the Northeast in the last year. And then that cost of capital.
Speaker 2: It's a big deal, I think, for smaller companies. They're all looking at the same things we're looking at and that they're making sure they can cover their costs and cover the cost of capital and increasing prices. In addition to the disposal increases.
Speaker 1: labor difficulty. I mean there's just a significant amount of activity that is driving M&A. As Ned said, there's not a lot of activity from a competitive standpoint on smaller deals.
Speaker 10: No, that's really helpful. And then maybe just a follow-up to that point, and you probably kind of already answered part of it. In terms of you thinking the go-forward opportunity to price, so even as inflation continues to come down......
Speaker 2: How do you view just the overarching pricing opportunity in your market? Yeah, it's interesting. We see the headline stack coming down, but I mentioned a minute ago that some costs that hit our specific industry are still pretty high. We see it across parts, maintenance, outside repairs, tires.
Speaker 2: But then you move over to some of the construction elements and we haven't seen inflation peak yet. It's still quite high into this construction season at landfills and some of the equipment side is still very far out to get the equipment and the demand's high there. So we haven't seen prices start to...
Speaker 2: you know, come in on that side. So from our vantage point, you know, in our pricing programs, it's business as usual. We're going to be out there trying to recover and recover slightly in excess of inflation and be nimble with what we're doing on the street. And that's our intention through the rest of the year and into next year.
Speaker 2: Our goal always is 50 basis points ahead of inflation is our goal when we are looking at pricing programs.
Speaker 10: All right, thank you so much.
Speaker 10: All right, thank you so much. Good, thank you. Thank you.
Speaker 3: Thank you, and I'm showing no further questions at this time, and I would like to turn the conference back over to John Casella for any further or closing remarks.
Speaker 11: Operator, I think we do have one follow-up.
Speaker 3: I do I see Mr. Hoffman so just one moment.
Speaker 3: Go ahead Michael. And Michael Hoffman your line is open sir.
Speaker 8: Hey, thanks. I just wanted to follow up on the dialogue on the last question because I think it's important
Speaker 8: for everybody to understand that as inflation comes down the rate of change in price is going to narrow but what's really important so there's a statement inferred in a question here can you talk about the discipline around managing the spread even as the rate of change narrows.
Speaker 8: I think it's important for the market to understand that industry is really good at that. You're good at it and therefore even if the price is 100 basis points lower next year, you'll still have the spread.
Speaker 2: Yeah, I should have been clearer too, Michael. You're aware of this, but maybe not everyone is on the call. Over 70% of our collection book of business is not tied to CPI. They're contracts where we have the ability to price as necessary in whatever inflationary environment. We've structured many of our agreements in contrast.
Speaker 2: We're still working always to outpace inflation by 50 plus basis points. With our book of business and not being so CPI length, we can be a little more nimble with that and make sure we get to that right price point. We've done great at this over the last 5-6 years and have done a very nice job.
Speaker 8: Okay, I just wanted to make sure we had that clarity. Yeah, thank you. Yep.
Speaker 3: Thank you. And I do see another follow-up question. Just one moment.
Speaker 3: And we have a follow-up question from the line of Taylor Brown with Raymond James.
Speaker 5: Hey, guys, real quick follow-up. Jason, did you, you never answered my question, Jason, on the interest expense run rate?
Speaker 12: Yeah.
Speaker 6: Sorry about that Tyler, as you came back into the queue I realized what you were going to ask so no problem there. So in our original guidance our interest expense net that we guided to you back at the beginning of the year was $26 million. And in our updated guidance we're at $35 million, which is reflective of the
Speaker 6: Although we are experiencing higher levels of interest income as we have more cash on the balance sheet, we're putting some of that to work in conservative overnight investments with modest yields associated with them. So that's a partial offset of about five million. Yeah, I would say maybe more than modest yields. We're getting like close to 5%. 5% is covering...
Speaker 13: Yeah.
Speaker 6: So that's a net number? Correct. So that's 33, then that inclusive will be interest income.
Speaker 14: Okay, I think I got it.
Speaker 14: I appreciate that.
Speaker 3: Thank you. And now I'm showing no further questions, and I'd like to hand it back over to John Casella for any further remarks.
Speaker 1: Thanks everyone for joining us this morning. I look forward to discussing our third quarter 2023 earnings with you later on this year. Have a great afternoon. Thank you.
Speaker 3: This concludes today's conference call. Thank you for participating. You may now disconnect.
Speaker 15: Thank you. Amen.