Q3 2023 Casella Waste Systems Inc Earnings Call
Yeah.
Right.
Yes.
Yeah.
Good day, and thank you for standing by and welcome to the Casella waste systems Q3, 223 earnings conference call at this time.
Are in listen only mode. After the speaker's presentation, there will be a question and answer session. You are allowed to ask two questions and a follow up.
To ask a question during the session you will need to press star one on your telephone and you will then hear an automated message advising your hands is raised to withdraw your question Press Star. One again. Please be please be advised that today's conference is being recorded I would now like to hand, the conference over to your first Speaker, Charlie would Hunter director of Investor Relations.
[noise] Casella waste systems. Please go ahead.
Alright. Thank you Amanda good morning, and thank you for joining us on the call today with US are John Casella, Chairman and Chief Executive Officer of Casella waste systems, That's coletta, our president and Chief Financial Officer.
Jason meet our senior Vice President of Finance, and Treasurer, and Shawn <unk>, Our senior Vice President and Chief operating officer of solid waste operations.
Today, we will be discussing our third quarter 2023 results, which were released yesterday afternoon. After a brief review of those results and an update on the company's activities and business environment, we will be happy to take your questions.
Please note that various remarks, we may make about the company's future expectations plans and prospects.
Institute forward looking statements for the purposes of the Safe Harbor provisions under the private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those indicated by 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 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 November 2nd 2023.
Also during this call we will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures to the extent they are available without unreasonable effort are available.
In the appendix to our Investor Slide.
<unk>, which will be available in the investors section of our website at IR Doc Casella dot com under the heading events and presentations.
With that I'll now, let Jonathan I want to begin our discussion.
Thanks, Charlie and good morning, everyone and thank you for joining us and welcome to our third quarter 2023 conference call.
I would like to begin by offering our sincere thoughts and prayers to everyone affected by the tragic events in Lewiston, Maine last week.
It's a community that we're proud to serve and be a part of and support in any way we can.
This quarter.
Pivotal pivotal an exciting time in our company's history as we execute against our growth strategy.
Closed on three acquisitions in the quarter, which were tuck ins or adjacent markets across our northeast footprint, who we see lots of opportunity for these assets into our operating plans and grow our services included in his twin bridges, which we completed on September one.
<unk> platform in the Albany, New York market with young assets, including a state of the art recycling facility that provides greater capacity for us to continue to grow our resource solutions business around the region.
Also pleased to report that our early results in the mid Atlantic are on track to hit or exceed pro forma operations and service are excellent and we are quickly working to establish a culture and core values. We are building our sales pipeline and continue to work on acquisition opportunities in this market.
Gration efforts are going well for all our acquisitions.
And nearly 900 new team members are on making this possible speaking of new members last night, we also announced the hiring of Brad Helgeson as our new Chief Financial Officer effective.
Monday November six Brad has been.
Very well respected finance executive in solid waste industry over many years and we believe that his experience values and leadership style fit very well with our company and our entire team.
As you know net has been instrumental to the company's success in many ways over the last 11 years as CFO and both proud and excited for him to devote as complete attention to the President's role, where he will continue helping to profitably grow this company and drive further shareholder value.
Moving to the results reported in yesterday's press release, we grew both revenues and adjusted EBITDA by over 19% in the third quarter on a year over year basis, along with strong adjusted free cash flow generation.
This shows the excellent job that our team is doing to serve our customers and communities and deliver strong operating results in our core business, while onboarding and integrating our recent acquisitions.
We remain keenly focused on executing a high level over the remainder of this year and carrying this momentum into 2024.
I'm very excited about the performance of the company and the larger platform that we're building.
Once again updating guidance for 'twenty, three and remain very excited about the opportunities looking ahead.
A brief review related to our key strategies and recent performance of our operations.
Disposal assets are an important part of our overall so solid waste strategy in the northeast we are focused on increasing returns across these assets and doing so we focused on improved improving the quality of our revenue and our operating programs. Our landfill price was up seven 4% in the quarter.
As we work to stay ahead of higher capital cost items.
Our sites and ever increasing regulatory compliance costs for costs. We can control we continue to refine our operating programs for better productivity inefficiencies, while keeping safety at the forefront.
As we communicated last quarter special waste remain weak, but MSW and CND, which together are the majority of the volumes. We accepted our landfills continues to track in line with budgeted and historic levels.
Looking at our special waste volumes can be choppy since most of these volumes are project based and can be deferred into future periods. When there is economic uncertainty.
We do have a solid special waste pipeline and have a few projects that just started in October. Despite the volume decline, we still drove 75 basis point of year over year margin expansion at our landfills in the third quarter.
Our collection lines of business, we posted another solid adjusted EBITDA growth and underlying margin expansion in our core collection operations. This success is a direct result of Sean Steves and his team's focus on executing our operating plans.
Plan is concentrated around operating efficiency initiatives flexible pricing programs.
On returns ongoing implementation of fleet automation and conversions route.
Optimization and onboard computers are delivering increased efficiencies and <unk>.
Amendment to safety improvements for our team members.
From a pricing perspective, collecting price was up seven 6% in the third quarter exceeding budgeted levels volumes were softer in the quarter as a result of our efforts to improve margins in our residential line of business. This shows the deliberate changes were made for profitable growth.
As always we will continue to be nimble with our operating strategy and maintain a focus on returns.
Resource solutions, we take great pride in providing our customers resource solutions that help them meet their sustainability and economic goals as noted in our press release yesterday, our fully upgraded Boston recycling facility is back online and again, making positive contributions we are seeing increased productivity.
Throughput and safety levels, while increasing material recovery and quality on the backend. These early results are very exciting and we look forward to this positive contribution over the remainder of the year.
Our national accounts business has also been a positive area growth, we continue to win new contracts and have a plan to overlay overlay our national account sales strategy across our mid Atlantic region, where we see a lot of opportunity for further growth.
Potential targeting large commercial and industrial customers.
Finally, I'd like to highlight our capital allocation and growth strategy.
Remain focused on continuing to integrate our larger acquisitions completed over the last several months, but we're also keeping an eye on the opportunities that meet our return guidelines and review process. Our acquisition pipeline is robust and roughly $500 million of annualized revenue over the top of our northeast operations.
Approximately 400 million or around our mid Atlantic operations.
Our organic side, our near term development project pipeline is strong as well and provides a number of building blocks over the next several quarters, including further contribution from our upgraded Boston Murph and R&D projects that are commencing.
Overall, we have a nice organic and inorganic growth runway that positions us well to drive long term shareholder value.
I'll turn it over to Ned for more details on our financials. Thanks, John and good morning, everyone before I get into the quarter I also lots of wild Brad to the role of Chief Financial Officer. This is a bit bittersweet for me and again Thats for 11 years.
Excited to pass the torch to someone who's so talented and really fits the value system of our company and will be a great partner for our team.
Moving on to the quarter revenues in the third quarter were $352 7 million up $57 5 million or up 19, 5% year over year.
With 18, 9% of a year over year change driven by acquisition activity.
Solid waste revenues were up 28, 9% year over year with price up six 9% acquisition growth of 25, 5% and volumes slightly down at negative three 3%.
Revenues in the collection line of business were up 43% year over year with price up seven 6% and volumes down one 9% as John mentioned volume declines were primarily driven by our efforts to improve the quality of revenue and margins in our residential line of business.
Revenues in the disposal line of business were up 3% year over year with landfill pricing up seven 4% and landfill tons were down 10, 1%.
And then WN C&D landfill volumes were roughly flat year over year, while special waste and contaminated soils volumes were down 35% year over year on lower regional activity levels.
It is important to note a few things about this decline in landfill special waste volumes one the third quarter of last year was particularly strong for special waste, we had a tough year over year comparison, two were not losing these titles to a competitor in the market our special waste soils.
And.
Pipeline remains very strong however, we have experienced project delays as customers continue to gauge their economy and when to initiate projects and.
And three we have finally seen special waste fires click up over the last several weeks as anticipated projects kicked off however in the spirit of conservatism, we are guiding for special waste volumes to be down both sequentially and year over year in the fourth quarter.
As expected our resource solutions revenues were down five 9% year over year with our average commodity revenue per ton down roughly 28% year over year on lower cardboard and mixed paper pricing lower metals pricing and lower plastics pricing.
This decline in commodity prices was partially offset by a 10, 9% growth in processing fees.
Industrial and multi site retail revenues were nearly flat year over year with pricing gains offsetting slight volume declines.
Adjusted EBITDA was $89 $6 in the quarter up $14 6 million year over year with $14 million of it growth derived from acquisitions.
Solid waste adjusted EBITDA was $82 million in the quarter up $14 $9 million year over year with collection and disposal adjusted EBITDA, both up year over year.
Lower special waste and soils volumes at the landfill weighed on our adjusted EBITDA by roughly $2 $6 million. This partially offset very strong performance in our collection line of business.
Resource solutions, adjusted EBITDA was $7 6 million in the quarter down $200000 year over year lower year over year commodity pricing was offset by strong performance at the Boston recycling facility with adjusted EBITDA up $1 $3 million year over year at the facility.
As John mentioned, we completed a full equipment upgrade in late June and the facility is now operating at pro forma levels.
Adjusted EBITDA margins were 25, 4% for the quarter flat year over year.
Once again, our pricing programs fully offset cost inflation in the quarter with consolidated price as a percentage of total revenues up five 8%, partially offset by a four 8% headwind from inflation.
This is a 100 basis point positive spread between price and moderating inflation.
Further margin bridging items included a 45 basis point headwind from lower special waste volumes and soils at the landfills.
35 basis point headwind from rising fuel costs net of our fuel recovery fees.
A 15 basis point headwind from the July flooding in Vermont, and parts of New York and New Hampshire.
Five basis point headwind from acquisitions.
Our fuel recovery fees under recovered rising fuel costs by approximately $2 $6 million during the third quarter as fuel prices increased sequentially throughout the quarter and our surcharge program calculation lags in a rising environment.
Cost of operations in the quarter was up $36 million year over year or down 30 basis points as a percentage of revenues with approximately.
$37 7 million if the increase.
On the acquisitions.
General and administrative costs in the quarter.
$6 $8 million year over year or up four basis points as a percentage of revenues.
Depreciation and amortization costs were up $15 2 million year over year with $13 5 million of the increase resulting from the recent acquisition activity we.
We do expect heightened D&A for the first few years after each acquisition as we rapidly depreciate or ammar highest many of the assets acquired to give some further perspective DNA associated with acquisitions was actually 24, 2% of acquired revenues in the quarter as compared to DNA.
At 11, 5% of revenues in the remainder of that business.
On a dollar basis, we expect to acquire DNA to drive roughly 20% by year, two and roughly 50% by year five. So this this will resolve in the next several years.
It was another strong M&A quarter for our team on September one we completed the previously announced acquisition of the twin <unk> branches, including hauling transfer and recycling assets with approximately $70 million of annual revenues.
As John mentioned, our team has been busy working through the integration of the newly acquired businesses.
Including the work with the Tfl mid Atlantic operations, we continue to make very good progress against our integration plans and most importantly, we have achieved our operating and financial targets through this initial period with each transaction.
As of September 30, we had $1 billion 58 billion of debt of $219 1 million of cash and liquidity of $491 4 million.
Our consolidated net leverage ratio was 289 times, our average cash interest rate was four 5% and we had fixed interest rates on approximately two thirds or 66% of our debt.
We are maintaining significant liquidity and balance sheet flexibility to continue to support our M&A and organic development pipeline.
While the adjusted free cash flow started the year light due to working capital and capital expenditure timing differences. These headwinds were resolved through the second and third quarters as expected.
Free cash flow now is at $96 million year to date through September or up $14 $3 million year over year and on track to hit our increased fiscal year 'twenty three guidance range.
Given the expected contribution from acquisitions closed year to date and continued pricing above our cost inflation, partially offset by the recent weakness in landfill special waste volumes, we increased our revenue adjusted EBITDA and adjusted free cash flow guidance ranges for fiscal 2023.
Again this quarter.
The revised guidance range assumes a conservative view of special waste for the fourth quarter with volumes forecasted to be down again.
As part of our updated 2023 guidance range as we increased our adjusted EBITDA guidance range by $3 million at the midpoint.
With an increase of $8 million for the newly acquired operations offset by a $5 million decrease in our core business associated with the lower special waste volumes at the landfills.
Our internal rate of inflation is currently running at four 8%, we expect to outpace inflation and increased adjusted EBITDA margins by roughly 70 basis points in total for fiscal 2023.
We are forecasting solid waste price to be up 6% to six 5% and the volumes to be down slightly in the fourth quarter.
As you May have recognized we did lower our net income guidance ranges for 2023 with a reduction associated with our recent acquisition activity, most notably the changes in our depreciation and amortization.
We are conservatively increase our fiscal year adjusted free cash flow guidance range by $2 million with all of this increase associated with the newly acquired operations. While we expect continued operating cash flow growth inflationary pressures on capital expenditures and higher interest rates.
Have partially offset this growth.
Looking forward to 2024, we're exiting 'twenty three in great shape and continue to grow margins and cash flows into next year.
We expect roughly 14% rollover revenue growth as a percentage of our total revenues from acquisitions already completed in 2023.
We expect organic pricing of roughly 5% five 5% adjusted EBITDA growth of roughly 20% year over year margin expansion of 30 to 40 basis points year over year and continued adjusted free cash flow growth and a target range of 10.
To 15%.
That I will turn it back to the operator for questions.
Thank you.
Please standby, while we compile our questions.
At this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced.
You are allowed to ask two questions and a follow up.
To withdraw your question. Please press star one again.
Please standby, while we compile our questions.
Okay.
Yes.
Our first question comes from Adam Bobs from Goldman Sachs. Please go ahead.
Hi, good morning, Thanks for taking my question.
Your guidance seems to imply for <unk> margins of 22, 8%, which translates to down 260 basis points sequentially from 30, Q historically it looks like you folks have stepped down around 430 basis points Q3 to <unk>. So.
It looks like this guidance implies margins that are trending better than normal seasonality can you just help us think about the different moving pieces <unk> that might be pushing margins ahead of the normal seasonal cadence.
Yeah. So if we look the last year, we had a larger step down in Tibet call and we had some we had some headwinds in the business into the fourth quarter, most notably into December right. Now, we've actually seen some business trends that were improving from September to October which is a.
A little bit different than our normal seasonality as we mentioned earlier landfill tonnage is we had some of the largest phase of our entire year in October from a landfill tonnage standpoint. So we are seeing some slight changes the business seasonality. We also have a couple of new contracts rolling on in the fourth quarter in our.
Resource solutions business.
Some positive.
Tailwind and one other factor is our is our recycling business.
Last year, we still had negative.
Year over year comps into fourth quarter, we expect a positive tailwind this year and then the Boston recycling facility is firing on all cylinders right now and we expect a really positive contribution from that project into the fourth quarter. So youre right, probably the seasonality is not quite as much of a step down.
But we have some trends that are showing.
A lesser step down into the fourth quarter.
And then if I just if I assume you hit <unk> margins trend margins in line with normal seasonality off of Q4 through 2024, I'm getting to somewhere in the range of margins up 70 basis points 2024, just based off normal seasonality. Meanwhile, price.
<unk> cost seems to be accelerating their certain operate great operational initiatives in the business.
I think you mentioned 30 to 40 basis points year over year can you just.
Walk me through if I'm missing any moving pieces there.
Yes. So we haven't finished our budgeting for the year and we're not we usually don't give a lot of visibility in this quarter I mean next year, but we thought just with the acquisitions and the moving pieces. It was important to give a quick snapshot Adam So theres still work to be done on our side as you are well aware, we have a lot of flex of.
<unk> with most of our collection pricing programs. So we're taking the temperature of where inflation is trying to set up the right pricing programs into next year, Sean and his team have an excellent slate of operating efficiency program scheduled for next year and we're deep into <unk> for our new <unk>.
<unk> unit. So we don't want to get ahead of ourselves.
Right opportunity I think to expand margins again into next year, and we'll get more visibility in the coming months on and where that will be.
Terrific and then last one from me at the start of the year I think you had expected task to RMG facilities coming online by the end of 2023 or $1 3 million Btu.
The industry has obviously you had some issues with project delays since so just wondering if theres any update on those two facilities in terms of timing.
Yes. Good question. So in both cases, we've partnered with third parties, who are investing the capital building the facilities and bringing them online or one facility associated with our north country landfill in New Hampshire is close to commercial operations.
They are working on a couple of a couple of details to get online and we hope that will be online in either the fourth quarter first quarter.
So that is a negative headwind. This year, we had expected that to start to give a positive contribution in the third and fourth quarters, Our second project partnering with <unk>.
At our facility in Juniper Ridge in Maine is also a little bit delayed we'd expected that to come online in the fourth quarter and Thats probably fair.
First half of 'twenty four so youre perspective is right.
Probably running about six months behind on these projects once again, we're not driving that both there are third parties and I think they've had some issues sourcing.
Certain components in bringing these online exactly on time not huge delays, though.
But a little bit of a headwind in our guidance well, we'd expect about 1 million $5 of contribution in the second half of the year. So that's something that's been a headwind for us as well.
Thank you.
Our next question comes from Michael Hoffman from Stifel. Please go ahead hi.
The other question I have with regards to the guidance that you did have this disruption because of all the storm debris.
<unk>.
Is there any benefit of that coming back through as just like you saw on the hurricanes years ago.
I think it's fair to say Michael that there is not that significant benefit keep in mind that.
We really didn't talk that much about it because net net it's probably somewhat neutral I think the real question is.
How long will it take those businesses to come back up into operation. We still have a lot of businesses that are not recovered and not that an operational from a commercial standpoint, so that's been a little bit of a headwind.
But net net obviously, we received more tons to the landfill from the damage.
Offset by the lack of commercial activity so net net.
We have not any expenses in that period as well, John yes, with being down, especially in Vermont for sure yes.
Hi expenses in terms of bringing in the priority response team from other areas to handle the issues our mob failure operations, obviously were underwater.
For a week and shut down completely and we brought people in from other areas of the company to service those customers and get ourselves up and operational not only and obviously that was not only.
Montpelier, but waterbury Berlin.
Ludlow Londonderry and western.
Large portions of Vermont.
Smaller activity in upstate New York and smaller activity in Pennsylvania, as well, but net net a few more tons to the landfills, but offset by commercial lack of commercial activity. Okay that helps and then.
It's not a confusion I just wanted clarity more than anything so in the press release, you talk about transfer and disposal price at $5 nine you shared on the call 704.
So there's sort of two pieces to this.
Given the the supply.
Imbalanced.
The availability of disposal capacity imbalance the likelihood the Boston disposal rates go up a lot in 'twenty four shouldn't we see incremental improvement in the landfill side of the price and then what's the drag in the blend of transfer and disposal that it would've pulled the whole thing down.
To $5 nine and sort of yeah, well below your collection number.
Yes.
Sometimes the percentages are friends and sometimes they're not and in this case a lot in our business is done on a dollar basis. So if you think about the transfers.
In certain markets, where 80% to $90 a ton gate rates and we're passing through a dollar increase to cover dollar based cost increases.
Yes.
$4 increase on a $80 hit your 5% now you get to a landfill and you have $4 on a $40 chip Ray save $4 Youre, 10%. So a lot of what happens in the market, especially on the disposal side transfers in landfills are more dollar base.
This increase is it as you get to the really high transfer rates, Michael in our footprint because theres. So much transportation that's occurring between transfer stations and landfill. The percentages are a little bit lower but we're still getting the dollars and thats. The important part of it and then to your point.
We really haven't seen New York city fully ever recover from Covid and that's that is reduction in tons across the entire northeast across this period.
We expect additional facility closures in the next couple of years, which will continue to put some pressure on the market, but where we sit right now we're still seeing good pricing in the marketplace, even with economic activity may be slowing a little bit and then special waste coming off we're not seeing any sort of.
Competitive actions to reduce pricing we're seeing.
Everyone in the market are hyper focused on getting adequate returns in this complex regulatory environment.
Okay.
Then.
Good get on Brad well regarded.
I spent a lot of time with them over the years in his role at Covanta.
And part of that as a banker where is it going to be located.
Are you selling to Vermont.
Alright good.
Yes.
There is a lot of people that really nice Vermont Michael months.
Yes.
Thanks, Larry.
He's got a family and kids and all of that and he has been in Trenton, New Jersey, a long time and it's good for you.
The per month will be there'll be a transit.
A transition period, where.
There'll be back and forth for a period of time.
Our business extends out of his way as well and its exciting for our entire team here is exciting for me from a balance standpoint.
And there is a lot lot we're working on here the team from organic and acquisition development standpoint, and we have a lot of.
Great opportunities in front of us to have another strong team member join us as exciting so outstanding.
Very good thank you.
Thank you Michael Thanks, Michael.
Please standby, while we compile our next question.
Yes.
Okay.
Our next question comes from Tyler Brown from Raymond James. Please go ahead.
Hey, good morning, guys.
Hey, good morning, Tyler Hey.
Brian it's on TV land or not but just really looking forward to working with him again.
I am a little bit confusing so whether EBITDA.
Headwind in the quarter.
Yes.
So.
Yeah. It was.
We gave in the margin bridge.
A 15 basis point headwind from the flooding.
So that's the one aspect we looked at in dollars Jason It's several hundred thousand dollars. It was not all that material.
Yes, so the headwinds Youre right Youre right there Tyler.
I'm not going to be not all that material okay.
If we come back to the volumes and I'm, specifically interested in collection volumes. So I think you said they were down maybe 2% you called out Ramsey.
But can you talk about how volumes are trending in small container and large container are you seeing any weakness there.
So clarify Matt sorry.
So in the small container a little bit it was like down 4%.
But nothing all that material and the trend there has been stable throughout the year rollout.
Roll off were down 1%, but once again.
A lot of work there to improve margins our margins were up actually 400 basis points in that line of business year over year. So we're really focused on quality of revenue and pushing adequate pricing in that line of business.
That's one that really is showing the right direction.
And then did I hear you correctly did you say that twin bridges would add $8 million in.
In the quarter.
Yes, So we've had a couple of other small acquisitions and in total between us and the other small acquisitions were at $8 million contribution.
Not just in the quarter, but from.
Our last guidance ended the year so to embrace as we brought online in September one. So we have about a third of the year and we expect it to about $18 million of EBITDA through.
The first year and we're tracking at that we have about six $6 5 million in our guide from September ended the year and then we had a couple of smaller acquisitions that are contributing as well so it's $8 million in total.
And in our mid Atlantic region is tracking so far in mid Atlantic is tracking right to pro forma.
And Alaska.
Okay perfect that's helpful.
A couple of little.
Where does the high wind expansion go into effect.
We are in permitting right now I mean, I think the biggest threshold issue is behind us in terms of the host community.
Agreement and now it's just a matter of getting through the regulatory environment with New Europe Vec Tyler.
I think that.
It's probably months away.
Probably.
Another quarter or two.
To get through the process.
But.
We don't anticipate any surprises there like I said, the most difficult and most important aspect is to get through the host community agreements, which are done okay.
Okay and then my last one here so when we think big picture about the building blocks for next year. So we obviously have the DFL rollover the twin bridges and others rollover there may be some acquisition synergies in there I'm curious if you're including that in your number you have the Boston and restart organic growth, but then more when we think.
About $25 when potentially something from Highlander Mckean those would be additive probably further down the road.
Yes, that's a great perspective Highland.
Really that becomes more material as the.
Allied to accurate landfill closes up into a slow market that our asset is about 45 miles from the Buffalo marketplace.
What really helped to serve that need and that whole in that market.
And when we look to maintain its going to be a slow ramp as we've said before.
Just from.
The construction is going extremely well the infrastructures nearly bill and we expect to be in a position where we can be online early spring, but things like railcars are containers and the like are definitely slow down but from our vantage point. This is a long long term play and we've always played.
Thats ramping up slowly and you'll start to see a little impact in 2024 more material impact into 2025.
Okay perfect well, thank you guys.
Thanks Tyler.
Thank you please standby.
Yeah.
And our next question comes from Jon Windham from UBS. Please go ahead.
Hey, great. Thanks for taking the questions.
I'll Echo the.
Congratulations on the hiring of Brad.
Good higher maybe.
Maybe in line with that now I'd ask maybe can you expand a little bit on how you think about your.
Our priorities after transitioning.
The CFO CFO role as you think about.
More as integration or further expansion just any thoughts you have on how you think about your next year. Thanks.
Yes, Thanks, Sean.
So either balancing a lot has happened in the last year Ed.
When Ed Johnson retired in July of 2022, we reshuffle some responsibilities across the board with our senior team.
And.
From my Vantage point, when Brad hits circle around I wanted him to be successful and gives him what he needs to transition successfully and now I'll continue to focus on development projects. We have a couple of key organic development projects. As you are aware that we're looking to bring to completion I'm, sending a lot of time on the.
<unk> side of the house as well.
Theres a lot going on there for us from the integration of our acquisitions and also forward looking and then I've been working deeply with the resource solutions team landfill teams to help drive value in their business units and partnering with Sean and his team as well on the operating front. So there's a lot of ground to cover.
And.
I suspect that won't be bored.
I can't imagine you being idle.
Yes.
Then one other question I just wanted to get your if you sort of general thoughts.
On the interest rate environment within the market and lost one yourself you also have a lot of fixed rate debt.
Just wondering what youre seeing and hearing from maybe the vulnerabilities of higher interest rates from some of the smaller regional players.
Thanks for that.
Yes.
I'll start with that question May Jason can hop to talk a bit about our balance sheet.
So it's a good point where.
We've talked to a lot of small companies, we buy a lot of smaller companies and they really are always financing. The next piece of equipment and the next piece of growth with new debt and.
So they've really seen a composition change to their ability to grow and we expect this to result in a.
Our return profile going up in the marketplace. So what it means like when we bid on municipal work.
If you look to if they're private fitting their cost of capital to enter that data is going to be higher now than it once a year ago, whereas we've done an excellent job hedging and entering into fixed price.
Agreements and our balance sheet is very stable and we have a lot of flexibility. So we actually have units is appointed advantage. We're also hearing from some smaller private companies that you.
This may be accelerating their view of when they might want to sell because their cost of capital and cost to replace equipment has gone up so from our vantage point, we're in a great stable place and it probably creates more opportunity for us and it really does I mean, if you go through the consistent with what we've laid out from a growth perspective then.
Not only are we moving forward.
To make sure that we have the resources in place.
From a practical standpoint, particularly as it relates to frame that up.
In terms of being more involved from an operating standpoint, it's really exciting because of the opportunities that we have in front of us as we've indicated we're not only we have the opportunities over the top of our existing franchise in the northeast, but now we obviously have.
Those opportunities.
Mid Atlantic as well, so really exciting time and not only are people still seeing.
We have invested substantially in HR to try to fill all of the seats and those pressures are still out there inflation disposal cost labor issues those are all issues affecting.
Most of the independents that are that.
And that we're aware of up and down.
Eastern Seaboard, and particularly in the northeast and in the mid Atlantic.
And John just attack on this is Jason so as Ned mentioned from a risk mitigation perspective, we have about $415 million in interest rate swaps to help hedge out our interest rate volatility risk and we're close to 70% fixed rate debt today across our balance sheet. So we've done a really nice job there and that's something that.
We focus heavily on and we will continue to do so I mentioned, a stat earlier, but the average interest rate was four 5% correct in the quarter, which is pretty notable.
Really appreciate.
John Thanks for that.
Thank you.
Thank you please standby for our last question.
Well.
And our next question comes from Stephanie <unk> from Jefferies. Please go ahead.
Hi, good morning, Thank you.
I Wonder why.
Good morning, I wanted to touch on maybe you could talk a little bit about your recycling operations clearly a best in class.
In the northeast in your footprint I think theres, some kind of on the background with potential changing legislation as it relates to recycling maybe following the path of what we've seen in Canada extended a producer responsibility. So just would love to get your thoughts on how you might think are tackling or potentially be involved in what could be some changing legislation in some other areas some of the state.
And footprint.
Thanks.
So every kind of part of what we obviously track from a government relations standpoint is the potential for.
Changes from a recycling standpoint, and producer responsibilities, etc, and I think that we're seeing various degrees of effort.
Every one of those efforts.
Would be in the middle of that trying to make recommendations to.
Improve whatever path.
Municipalities or state governments want to potentially move down.
So I think that is.
Certainly on the agenda is certainly something that is in the.
The legislature is across the northeast not all of them, but several of them and it's certainly something that we follow.
Keep keeps.
<unk> significant track of.
Great. Thank you and then just on M&A, it's been a tremendous year of M&A in 2020.
As you think of 2020 for what's your view in terms of kind of pace of M&A is it still kind of look to be opportunistic and what the pipeline kind of turns up or are you looking at maybe kind of optimizing some of that DLC. You did this year, but love to get your thoughts about M&A in 2024.
Yes, I think that we have plenty of opportunities, but I think youre right in terms of the amount of M&A that we've done this year.
We will be continuing to integrate into the beginning of 2020 for.
Work to do there significant work to do there so.
Obviously, we want to get those businesses tucked in.
Get them completely onboard from a cultural perspective, so there's a lot of work ongoing right now and there will be a lot of work continuing into the first quarter, but again I think that the.
Our acquisition program will probably be more towards.
The second quarter to the end of the year, but nonetheless.
Significant opportunities for us to continue to grow from an M&A standpoint, but we do we do have work that needs to be done from an integration standpoint, and as Ned said, we're also doing a significant amount of work from an it perspective, as well and John and I mentioned this number earlier, but we expect about 14% revenue.
Growth year over year from the acquisitions, we completed in 2023.
It came on in the second and third quarters. The vast majority so there's quite a bit of tailwind there already as well, Stephanie, but besides new deals happening.
Great. Thank you so much.
Thank you.
Hi, I'm showing no further questions at this time I would now like to turn it back over to John Casella, Chairman and Chief Executive Officer for closing remarks.
Thanks, everybody.
Thank you for being a part of the call today, we look forward to talking to you in February for our next call.
Have a great day.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Okay.
Yeah.
Yes.