Q4 2024 Casella Waste Systems Inc Earnings Call
Speaker Change: Charlie Wohlhuter... Produced by Charlie Wolhuter Edmond Coletta.. Edmond Coletta... Edmond Coletta... Charlie Wolhuter...
Speaker Change: Hello and welcome to Casella Waste Systems Inc Q4 2024 conference call. At this time all participants are on a listen-only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session.
Speaker Change: To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised.
To withdraw your question, please press star 11 again.
Speaker Change: I would now like to turn the conference over to Jason Needs. You may begin.
Jason Needs: Good morning. Today we'll be discussing our fourth quarter and full year 2024 results, which were released yesterday afternoon.
Speaker Change: This morning I'm joined by John Casella, Chairman and Chief Executive Officer, Ned Coletta, our President, Brad Helgeson, Executive Vice President and Chief Financial Officer, and Sean Steeves, Senior Vice President and Chief Operating Officer of Solid Waste Operations.
Speaker Change: After a review of these results and an update on the company's activities and business environment, we will be happy to take your questions.
Speaker Change: But first, please be aware that various remarks we 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 1995.
Speaker Change: 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 recently filed Form 10-Q on file with the SEC.
Speaker Change: In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views in any subsequent date.
Speaker Change: Also during this call, we'll be referring to non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles.
Speaker Change: Reconciliation of the non-GAAP financial measures are the most directly comparable GAAP measures to the extent they are available without unreasonable effort and they are included in our press release filed on Form 8K with the SEC.
Jason Needs: And with that, I'll now turn it over to John Casella to begin today's discussion. Thanks, Jason. Good morning, everyone, and welcome to our fourth quarter 2024 conference call.
John Casella: This was another great year for the company. We really performed well against our key strategies, maintained focus on our core competencies, and continue to grow the business in a meaningful manner.
John Casella: I'm very proud of all that we've accomplished this year, and I truly appreciate the efforts around the organization that have supported our execution and growth thus far. We have tremendous opportunities again in 2025 to drive value, and I'm very much looking forward to the year ahead.
John Casella: We closed eight acquisitions in 2024 with over $200 million in annualized revenues.
John Casella: And we are off to a fast start in 2025 with three acquisitions closing to date with approximately $40 million in annualized revenues. Consistent with the last few years, we are working on several deals and we are poised to put our balance sheet to work.
John Casella: It's amazing to consider our growth over the last two years. We've acquired over $500 million in revenues and put over a billion of capital to work.
John Casella: However, I find it equally remarkable that we are now a company of more than 5,000 employees with operations in 10 states.
John Casella: and have welcomed hundreds of thousands of new customers to Casella over the last couple of years. In particular, our new markets enable us to further build our brand through great service, community engagement, to invest into support new business opportunities.
John Casella: and to bolt on with acquisitions that have the right strategic fit. Terrific opportunity across the entire footprint with many, many opportunities from a tuck-in standpoint.
John Casella: In further highlighting 2024, we grew revenues, adjusted EBITDA, and adjusted free cash flow by all over 20%. That marks three years in a row of adjusted EBITDA growth of over 20%.
John Casella: We also maintain a low-leverage profile. Clearly, this speaks to our discipline growth strategy, focus on integration, and the strength of our pricing and operating programs.
John Casella: Our landfills provide us with an excellent in-market position. Although C&D and special volumes were down in 2024 due to various external dynamics, we are optimistic that we will experience modest volume growth in 2025 as these pressures ease.
John Casella: Further, our McKean rail landfill is online and provides us with long-term opportunity to meet the disposal needs of our customers, as well as potentially partner with third parties that are seeking capacity.
John Casella: As we have grown the business, we have also increased our ability to internalize tonnages. This has been the focus in 2024 and will continue to be so in 2025.
John Casella: Shifting to our collection business. Had another strong year across our collection operations with year-over-year adjusted, a bit of margin expansion.
John Casella: in the base business of over 100 basis points. Sean and his team continue to look for those opportunities from a synergy standpoint, from a technology perspective in terms of driving our operating costs down.
John Casella: This accomplishment is a reflection of our continued investment in automation, further rollout of in-cab technology and routing programs, as well as our flexible pricing.
John Casella: Most of our acquisition growth over the last several years has been in the collection line of business. In fact, now over 60% of our consolidated revenues are in collection.
John Casella: As expected, the acquired businesses usually have initial margins at lower levels as compared to our typical collection business.
Speaker Change: which presents the ability to improve operations over time as we integrate and take the business to our operating standards. Sean and team are focused on driving further value here in 2025.
Speaker Change: In Resource Solutions, we had one of the best years in history across our recycling processing operations and national accounts business.
Speaker Change: We invested in and upgraded our Boston Recycling Facility in 2023.
Speaker Change: The operation performed very, very well in 2024, in fact, better than expected.
Speaker Change: and was a contributor to our success in the year. In early 2025, we wrapped up a similar upgrade in Willimantic, Connecticut.
Speaker Change: The operation was offline for part of 2024, but it is now up and running. As planned, it will take a few weeks to calibrate the new system, but we're excited to have that project complete.
Speaker Change: In our national accounts business, we grew volumes by over 4% in 2024. Our sales organization won new municipal, commercial, industrial, and institutional accounts, while also growing our service with existing accounts.
Speaker Change: Given the expertise of our team, our expanding operating footprint, and our sales pipeline, we are positioned well to continue to grow this resource management offering.
Speaker Change: This marks the 50th year of the company and as I reflect on where we we started from the simple beginnings that Doug started with that one truck and the
Speaker Change: construction of our first recycling facility in 1977. I feel absolutely blessed to have been a part of this and so incredibly proud of what we have been able to achieve collectively.
Speaker Change: We are the product of hard work and perseverance of so many people over the years. As we look ahead, this is the best team that I've worked with. It's exceptional. We have a lot of momentum going into 2025, and I look forward to our continued execution and growth.
Speaker Change: And now I'll pass it on to Brad to go through some of the financial details. Thanks, John, and good morning everyone.
Brad: Revenues in the fourth quarter were $427.5 million, up $67.9 million, or 18.9% year-over-year.
Brad: with $50.1 million from acquisitions, including rollover, and $17.8 million from organic growth, or 4.9%.
Brad: Solid waste revenues were up 21.4% year-over-year, with acquisition growth of 17.8%, price up 5.4%, and volumes down 1.8%.
Brad: Within solid waste, price in the collection line of business was up 6.2% and volume down 0.7%.
Brad: Price was up 7.3% in the front-load commercial business, up 6.1% in residential, and up 5% in roll-off.
Brad: Volume declines were concentrated in our Mid-Atlantic region with a higher rate of churn as we work to improve the quality of revenue and margins in those recently acquired businesses.
Brad: Collection volume was flat to positive elsewhere in our footprint across all lines of business.
Brad: Revenues in the disposal line of business were up 1.4% year-over-year with transfer and transportation revenue up 5.8% and landfill revenue down 5%.
Brad: Landfill price growth of 3.2% was offset by lower volume of 8.2% in revenue terms.
Brad: And the W tons into the landfills were up 4.8% in the quarter, but we saw continued weakness in special waste, C&D, and other tons with those streams down 11.8% year-over-year.
Brad: The average price per ton at the landfills was up 5.1% year-over-year, reflecting a mixed shift away from lower-priced streams as we help align on price in the face of volume pressure and prioritize preserving our valuable airspace.
Brad: Resource Solutions revenues were up 9.7% year-over-year with recycling and other processing revenue up 8.1% and national accounts up 10.7%.
Brad: Commodity prices overall remain firm so far this year with recent softness in the fiber market largely offsetting strength in plastics and aluminum.
Brad: Processing volume in revenue terms was down 2.5% driven by the municipal biosolids business as we have been more price sensitive in renewing municipal contracts in light of processing capacity constraints.
Brad: I'd like to note that the Willimantic Recycling Facility came back online as scheduled in January and following a shakeout period, we expect the facility to roughly double its processing speed, initially allowing us to reduce operating costs by going from two shifts to one.
Brad: Adjusted EBITDA was $95 million in the quarter, up $12.8 million, or 15.6% year-over-year, with $11.5 million from acquisitions, including rollover, and $1.3 million from organic growth.
Brad: Adjusted EBITDA margins were 22.2% in the quarter, down 60 basis points year-over-year.
Brad: Bridging the year-over-year change in adjusted EBITDA margin in the quarter, higher annual and long-term incentive compensation expense,
Brad: driven by the strong adjusted pre-castral ageneration in 2024 impacted Eva Dye in the quarter by approximately $5.5 million, representing 125 basis points of margin headwind as the adjustment to the full-year accrual was concentrated in the fourth quarter, magnifying the impact.
Brad: Martins across the rest of the base business were up 55 basis points and acquisitions represented a further tailwind of 10 basis points in the quarter.
Brad: Cost of operations were $285.6 million in the quarter, up $46.5 million year-over-year, with $35.3 million of the increase from acquisitions and $11.2 million in the base business.
Brad: Cost of operations in the base business were down approximately 30 basis points as a percentage of revenue in the quarter, reflecting continued operating leverage in the collection business and lower landfill costs such as leachate.
Brad: General and administrative costs were $52.2 million in the quarter, up $9.1 million year-over-year.
Brad: For fiscal year 2024, G&A costs were down 10 basis points as a percentage of revenue.
Brad: In gross dollars, this expense line reflects increased spend to support our growth and invest in the technology that will enable us to scale effectively. But in percentage terms, we expect to continue to gain leverage here over time as we grow.
Brad: Depreciation and amortization costs were up $11.7 million a year, with all of that increase, or $12.4 million, resulting from the recent acquisition activity, including the amortization of acquired intangibles.
Brad: As a reference, DNA associated with acquisitions was approximately 25% of acquired revenues in the quarter, as compared to 14% for our base business.
Brad: Gap net income was $4.9 million in the quarter, up $6.7 million year-over-year, with the charge for the landfill cap veneer failure at the Ontario County Landfill in Q4 last year compared to a partial recovery related to that event in Q4 this year.
Brad: This recovery in the P&L resulted from a settlement payment from one of the contractors involved in the capping, as well as an engineering assessment that more of the cap can be retained than originally estimated.
Brad: I'd like to take a moment to discuss a change to the calculation of our non-GAAP metrics, adjusted net income, adjusted EPS, and adjusted operating income.
Brad: Beginning with our presentation of 2024 results and going forward, we will further adjust these metrics to exclude the amortization of acquired intangibles.
Brad: As we've discussed in the past, this amortization expense significantly weighs on the income statement in the early years of an acquisition. With an amortization schedule, the expense is approximately 50% of the purchase price allocated to intangibles such as customer lists and non-competes in the first three years.
Brad: We believe that this change will present a much clearer picture of the underlying trends in our business performance as we execute on our acquisition growth strategy that we believe is creating significant long-term value for our shareholders.
Brad: On this basis, adjusted net income was $25.8 million in the quarter, up $8.7 million compared to prior year, with acquisitions and organic growth driving this increase.
Brad: Adjusted EPS was 41 cents in the quarter and $1.35 for fiscal year 2024.
Brad: Our book income tax rate was 35.7% for the year, with non-deductible expenses and discreet items pushing the rate above our statutory rate of approximately 27%, including state taxes.
Brad: The reason this effective rate is higher than previous years is that lower gap net income in 2024, driven by acquisition-related expenses and amortization of intangibles, magnifies the impact of permanent differences and discrete items on the rate.
Brad: We paid $6.8 million in cash taxes in 2024, which included overpayments that will be applied to 2025, and we expect to pay approximately $5 million again this year.
Brad: We enter 2025 with an estimated $83 million of NOLs, which we expect will shield the vast majority of our federal tax liability in 2025.
Brad: Assuming all else equal from a tax legislation and future acquisitions, we would begin to pay federal tax more meaningfully in 2026, but we expect to have more clarity on this outlook as the year progresses.
Brad: Net cash provided by operating activities was $281.4 million in 2024, up $48.3 million year-over-year, mirroring our strong EBITDA growth for the year.
Brad: Adjusted free cash flow was $158.3 million, up $30 million dollars year-over-year, or 23%.
Brad: This came in above the high end of our guidance range boosted by strong AR collections to finish the year with DSO of 36 days at December 31 down from 41 days the year prior.
Brad: As I mentioned earlier this year, we struggled with collections at the operations acquired from GFL in our Mid-Atlantic region as a result of the transition services period for the carve-out of that business.
Brad: However, we've been able to make good progress on turning this around over the past several months, bringing DSO in the Mid-Atlantic region down from 56 days at June 30 to 42 days at year end.
Brad: By comparison, the rest of Casella was at 35 days at December 31.
Brad: So we still have a lot of work to do here, but it's certainly heading in the right direction.
Brad: As of December 31, we had 1.1 billion dollars of debt and 383 million dollars of cash and our consolidated net leverage ratio for purposes of our bank covenants was 2.54 times.
Brad: As of today, after acquisitions completed thus far in 2025, we maintain approximately $900 million of potential financing capacity between excess cash and undrawn revolvers.
Thank you.
Brad: As laid out in our press release yesterday, we announced financial guidance for 2025.
Brad: This guidance included revenue in the range of $1.775 to $1.805 billion, or 15% growth of the midpoint.
Brad: adjusted EBITDA in the range of $410 million to $425 million, or 16% growth at the midpoint, and adjusted free cash flow in the range of $165 million to $180 million.
Brad: Our guidance ranges reflect acquisitions completed to date in 2025 and assume a stable economic environment for the balance of the year.
Brad: While we expect to continue to be acquisitive this year, our guidance does not reflect any further acquisition activity, nor does it assume any material changes in the inflation outlook or tariff policy.
Brad: On the top line, our guidance includes $170 million from acquisitions, or approximately 11% growth, which includes both rollover and the impact of approximately $40 million in annualized revenue acquired so far in Q1, and approximately 4% organic growth at the midpoint.
Brad: In the solid waste business, we're planning pricing of approximately 5%, which we aim to cover and stay ahead of inflation.
Brad: As a reminder, we retain pricing flexibility across approximately two-thirds of our collection revenue, so we are well positioned to respond to changing conditions if necessary as the year progresses.
Brad: Solid waste volumes are expected to be flat to down 1%, with continued churn in our collection book of business reflected in that estimate, particularly with our new acquisitions in the Mid-Atlantic region.
Brad: Bridging 2024 adjusted EBITDA to our guidance, 30 to 35 million dollars is from acquisitions and approximately 25 million or 7 percent is based business organic growth at the midpoint.
Brad: Our Just-Leave-A-Dodd guidance implies a margin range of approximately flat to 40 basis points of margin improvement in 2025, with underlying base business margin expansion of approximately 50 basis points at the midpoint of guidance.
Brad: This improvement is expected to be driven by strong pricing, ongoing operating improvements in our collection business,
Brad: The benefit of the Willimantic Recycling Facility coming back online following the completion of that retrofit and improved landfill volumes year-over-year, including the benefit of increased internalization of MSW tons from our existing operations in our western region and the Royal Acquisition.
Brad: partially upset by a headwind of approximately 10 basis points related to increased investment in technology.
Brad: This base business margin expansion is expected to be partially offset by acquisitions contributing at a lower initial adjusted EBITDA margin than our consolidated margin, representing a headwind of approximately 30 to 40 basis points.
Brad: We expect Adjusted Free Cash Flow to grow at approximately 9% at the midpoint of guidance, taking into account the strong working capital performance to finish 2024, but our goal remains 10-15% annually and we'll work hard as a team to achieve that.
Brad: Our guidance reflects investing significantly in the business, with capital expenditures of approximately $215 million, which includes approximately $45 million of up-front spend in connection with recent acquisitions.
Brad: With that, I'll turn it over to Nick. Thanks, Brad, and good morning, everyone.
Speaker Change: As John mentioned, I am also extremely proud of our team and their continued advancement of our key strategies throughout 2024.
Speaker Change: We made excellent progress with our growth initiatives, including on organic sales growth, acquisitions, and long-term development projects. Our operating teams executed well, continuing to offset persistent inflation with our core programs and investments.
Speaker Change: Just as important, we continue to take the time to invest in our people, to maintain and grow our winning culture, and to ensure new team members understand and help to support our core values.
Speaker Change: On the acquisition growth front, our team was really busy in the fourth quarter and into early 2025, closing new transactions and integrating deals that were completed over the last year.
John Casella: As John mentioned, during 2024, we acquired eight businesses with over $200 million of annualized revenues, but this included three acquisitions with $100 million of annualized revenues in the fourth quarter alone.
John Casella: 2025 is off to a solid start, with three acquisitions completed year-to-date with approximately $40 million of annualized revenues.
John Casella: We remain selective with our acquisitions, focusing on opportunities that have the right strategic fit, that can help advance our efforts to densify certain markets, drive additional vertical integration, or establish new adjacent market areas.
John Casella: Our team continues to do an excellent job successfully onboarding acquisitions with an early focus on welcoming new team members, establishing our core values, and beginning to integrate the back office, sales, and operations.
John Casella: It was another successful year for our sales teams across the organization, where we continue to focus efforts on winning premier customers in important segments, where we can implement our resource management solutions, drive circularity, and create win-win long-term relationships.
A few examples of this.
John Casella: happened across the municipal, higher education, industrial, and multi-site retail segment where we contracted roughly $150 million of annualized revenues in 2024.
John Casella: with new revenues representing roughly 25% and renewals 75%. This is a huge accomplishment for the team across the entire business during the year.
John Casella: During 2024, Sean and his team converted or automated 17 trucks, which eliminated 22 rear-load trucks from the road, which drove quite a bit of labor savings.
John Casella: a little bit under 1,400 today. These efforts continue to boost safety, operating, and financial performance. Our recent acquisitions all present great opportunities to apply these same successful programs.
John Casella: As discussed last quarter, given the lingering softness and special weight from C&D volumes, we focused our efforts in the second half of 2024 on increasing landfill internalization across both newly acquired markets and markets entered over the last few years.
John Casella: To achieve this strategy, we purchased additional long-haul trucks and trailers and established new transportation lanes, mainly from four markets to our New York landfills.
John Casella: With these moves, we're driving an incremental 120,000 tons per year of internalization. We're working on additional opportunities for 2025 to create more internalization.
John Casella: Turning to development projects, as Brad mentioned, in January 2025, we completed the full technology and equipment upgrade at Willimantic for a recycling facility. This system is operating and our team is very busy optimizing the equipment.
John Casella: Taking the site offline was a negative drag to the second half of 2024. However, we expect the project to generate roughly $4 million of EBITDA in 2025.
John Casella: We continue to evaluate other opportunities to advance our recycling and resource management infrastructure with a focus on another recycling facility conversion in the near term.
John Casella: The first phase of the Beth Maren Rail Service McKean Landfill was completed during the third quarter of 2024.
John Casella: To date, we've received roughly 7,500 tons of waste by rail at McKean. While the current infrastructure allows us to offload almost 5,000 tons per day of containerized solid waste, we are not rapidly ramping volumes to the site, as we believe the site provides long-term risk management to preserve our flexibility in the disposal-constrained Northeast market.
John Casella: As we look ahead, our M&A pipeline continues to be very active, with over 100 opportunities and roughly $700 million of revenues in various stages of diligence and development.
John Casella: The strength of our balance sheet and our robust liquidity positions us very well for continued return focused growth. And with that I'd like to turn it back to the operator for questions. Thank you.
Speaker Change: Thank you. Ladies and gentlemen, as a reminder to ask a question, please first start 1-1 on your telephone, then wait for your name to be announced. To withdraw your question, please first start 1-1 again. Please stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from the line Trevor Romeo with Wim Blair. Your line is open.
Hi, good morning. I really appreciate you taking the questions.
Speaker Change: The first one was actually maybe just to follow up on that, the M&A coin, Ned, and kind of just thinking about the opportunity set and how 2025 could potentially shape up for M&A. You know, you had some really strong activity the last two years, already closed three deals in 25. Sounds like the pipeline is maybe a bit higher than you mentioned last quarter. We're just wondering if you could give us an update on, you know, what you're hearing from your discussions as far as
Speaker Change: willingness to sell, availability of targets, and then kind of from the buyer's side, are you seeing any changes in competition for assets?
Speaker Change: potential sellers and just doing what we do. I mean one of the greatest sources of potential acquisitions for us is our national accounts team.
Speaker Change: That team has worked constructively for 25 years with hundreds of small hauling companies up and down the eastern seaboard and it continues to present a great stream for us to collaborate with small independent businesses.
Speaker Change: have them know more about us and our culture and our integrity. You know, that's really the best way to build that pipeline. You know, there are always some great opportunities that come through banking processes, but the ones that come directly to us...
and we can have a meeting of the mind.
Speaker Change: really are the best acquisitions, and we love that. There are a lot of those in the pipeline right now. So we're at various stages with other opportunities, you know, throughout the Northeast and down into the Mid-Atlantic footprint and also looking at some adjacencies. So we're excited for 25.
Speaker Change: And it's great to get off to such a nice start, as well, with a couple high-quality deals. There's a big focus.
Speaker Change: with a few acquisitions in Pennsylvania, one in Maryland, one in New York, one in Massachusetts. So across the board, we're adding density and great additions to the footprint.
Speaker Change: And if anything is more intense, you know, normally we don't we don't do as much
in the fourth quarter as we've done.
Speaker Change: you know, this year. So it's really, really interesting. I think it's accelerating a bit.
Yeah, and John, I should have actually mentioned this.
We're always chasing what the bottleneck is.
Speaker Change: For us, you know, making sure we have the right resources to integrate and successfully integrate and meet the performance is very important and the balance for our people. And with our growth, we continue to look at where we add resources across even our acquisition integration teams, back office, ops, HR, and IT, and we're really trying to do all the heavy lifting and make sure we can continue to support a reasonable amount of growth.
Speaker Change: Great, thank you both for that. And then, kind of on a similar theme, I guess, I believe, at least kind of in the reporting that was out there, the acquisition you made in Eastern Massachusetts.
Speaker Change: You acquired a MRF that sounds like it's pretty close to the Charlestown MRF you already have in Boston. I was just kind of wondering if you could talk about your plans for that facility and what kind of synergy opportunities you'd see there with your existing business.
Speaker Change: Yeah, we were able to acquire a great business called Save That Stuff, which is a really nice brand in Massachusetts. Eric Levy started this company 35 years ago. His values, his team really aligned well with ours, and it's a hauling company and recycling kind of resource management company. It's a great fit to Casella. You know, we've done an amazing job across the Massachusetts market, most especially Eastern, Massachusetts.
Speaker Change: servicing high-end institutional industrial customers and Eric's had a lot of same focus in his team over the years so it's very complimentary both on the hauling side where we have overlaps on routes but then as you said on the processing side it is a big overlap some of his processing capabilities can probably be handled in our recycling facilities and it gives us more additional space to handle some unique industrial streams going forward so a great compliment
Speaker Change: Thank you all for joining us for this event reacquisition. We're very excited.
Speaker Change: Great. And then maybe just one more quick one for me, if you don't mind. Just wondering if you could kind of give an update on...
Speaker Change: The Brookhaven situation in New York, I think we talked about the impending close at the end of 2024. Now that we're past that point, can you kind of just give us an update on where things stand in the market?
Speaker Change: You know, if you're still expecting a good portion of those volumes to come back to Casella in 2025. Yeah, I think that it started off slow, but Brookhaven is closed for sure. 110 Sand and Gravel is taking some of that material, but our tons are up.
Speaker Change: at our facilities as well. So up slightly, we would like to see them up more, but certainly moving in the right direction. So we think that we're likely to see, continue to see improvement in 2025.
Speaker Change: But in fact Rookhaven did close. Yeah, it's closed for C&D. Yes, and there's no thing you can ask for here else.
Okay, thank you both very much. You're welcome. Thank you.
Please stand by for our next question.
Speaker Change: Our next question comes from the line of Tyler Brown with Raymond James. Your line is open.
Good morning, guys. Good morning, guys.
Speaker Change: John, 50 years. Long time. You could have been in the hotel business.
Speaker Change: Yeah, I just think. But hey, just, Brad, real quick. Hey, can you possibly help us with Q1? I'm just wondering if all this weather is having an impact.
Speaker Change: Not significantly. I mean, obviously Q1, you know, we deal with weather every year, so I wouldn't call out anything in particular that's different from historical trends.
Speaker Change: And if anything, tourism is great this year, Tyler. Best ski season in 20 years in the Northeast.
Speaker Change: Okay, I know you probably enjoy that. Can we, you guys didn't mention it in the prepared remarks, but can we talk about Ontario?
Speaker Change: basically what kind of happened there, how will the wind down of that operation play out, where are those tons going to get directed?
Speaker Change: Yeah, I mean, I think that we've got, you know, four years to, you know, play that out. So, I think that we'll be able to move those tons to our other facilities. We'll look at that from a transportation-adjusted basis.
Speaker Change: I think, you know, we're in a good position to close it out appropriately.
Speaker Change: But it's interesting because there's no alternative at this point in time, so it'll be interesting to see what does transpire.
Speaker Change: anything can happen. I mean, we obviously believe at this point in time with the vote from the county that they're going to close in 2028, but
Speaker Change: that wouldn't be the first time that there's a change in direction. But we're prepared, we're prepared to close it out. And, you know, financially, we don't think that that's gonna be a negative impact at all.
Speaker Change: is of course to McKean and some other sites. So as John said, we have homes for our tons and for our customers. While not ideal, it just really shows the complexity of maintaining and expanding capacity across the Northeast.
Speaker Change: Yeah, okay, so can we talk a little bit more kind of in that same vein? It sounds like...
There is a sizable opportunity to internalize times.
I think you mentioned four markets.
Speaker Change: It sounds like you made headway in 24, but I'm a little unclear. Is that kind of already in the numbers? Is there more incremental benefit? Is that an EBITDA benefit, or is it just a defensive play?
Speaker Change: Yeah, sorry. So, in our 2025 numbers, we do have that internalization benefit.
Speaker Change: Some of it was in Q4 You know as you know ordering long haul trucks trailers all that takes time And if you look back over the last couple of years
In the Northeast, we didn't always make the decision.
Speaker Change: with new markets to instantly internalize those tons for our landfills. In many cases, we kept it flowing to third-party sites.
Speaker Change: As we look at some of the headwinds in 2024 with construction and demo and special waste streams, we said we've got to get moving, we've got to get this waste into our own landfill to create the maximum amount of cash value. So we started those moves through the summer, the late fall, coming into 2025, every one of those moves is happening in our guidance.
Speaker Change: There are other opportunities for us to do more and we're working on that and we're making sure we're making the right return based decisions when we do that.
Speaker Change: Okay, so then I'll kind of bring it back to the bridge, Brad. So I think, let's call it that the bridge is 60 million dollars of EBITDA year-to-year.
Speaker Change: Did I hear you right? 30 to 35 of that is M&A? Is that right? Yep.
Speaker Change: Okay, so, and I think you said the other part would represent roughly 7% organic growth.
Speaker Change: But it seems like you've got some positive idiosyncratic things. Willimantic, internalization.
Speaker Change: Brookhaven Closure, et cetera. Now, it sounds like you're also spending money on technology, and we'll talk about that in a second, but what are those pieces? Because it feels like that's pretty conservative with those idiosyncratic benefits. Does that make sense?
Speaker Change: at our disposal to drive results year-over-year. So obviously the landfill internalization, which Ned just talked about, notwithstanding our internalization efforts.
Speaker Change: We would expect the market, at least for C&D volumes, to improve year over year.
You know, the pricing and collection, operating cost improvements.
Speaker Change: That obviously is our story year after year, and that's kind of what we're always pursuing.
Speaker Change: and then the Willimantic MRF, which is, you know, I would say that it falls under the idiosyncratic category, as you said, as Ned mentioned in his prepared remarks, and that'll be about a $4 million benefit year over year in 2025.
Speaker Change: But, you know, it's a hard business sometimes and things don't necessarily always come out the way you planned them, so we feel like our guidance is appropriate.
Speaker Change: Okay, perfect. What is the technology spin, Ned? What's going on there?
Yeah, so
Speaker Change: You know, as we continue to grow, we're always looking to see what types of processes, systems, what do we need to be just as successful in the next year as we were in the previous year. And the part of our business right now that's probably the least scalable are some of our systems.
Speaker Change: and we especially with the new acquisitions and we continue to invest both in capital and and G&A expense. Our G&A expense just on the IT side alone over the last couple of years is is up around 20 basis points.
Speaker Change: Something crazy with a whole new system. This is a technology we've used for years. We're automating more of the connections to other systems.
Speaker Change: You know, we just need to get more scalable processes, scalable automation through our back office, through our systems, and a lot of focus there right now. So we're, you know, over-investing a bit right now on the G&A side and a little bit more at CapEx, but we're excited to get through that. Part of it also will be a new customer portal.
Speaker Change: That's out in a pilot market right now, a bit more digitization of the customer experience which we think will help as well as we continue to scale.
Okay, perfect. And then my last one.
Speaker Change: And Brad, you talked about it a little bit. I do get this question time to time around your NOL position and your cash tax paying position. So did you say that you would be a $5 million cash taxpayer in fiscal 25?
Speaker Change: But that number could, okay, that's right. So that number though on the federal side could go up substantially in 26, or is it just too early? You guys will update us later.
Speaker Change: Yeah, I mean, it is too early, because a lot of this depends upon what happens with tax legislation, and obviously a lot of the discussion with the new administration is to implement some changes to the tax policy that certainly would be beneficial to us.
Speaker Change: So the best I can do is comment on all else being equal. So the tax law remains as it is today. Given that assumption,
Speaker Change: We would expect the NOLs to shield us through the rest of this year.
Speaker Change: and then in 2026, we would begin to pay federal tax.
more meaningfully.
Speaker Change: But Brad, on that topic, one of the things we've been really successful with with acquisitions is either doing asset purchases or structuring stock purchases where we get the asset step-up value.
Speaker Change: you know, we didn't have NOL shielding us. So a lot of the acquisitions give us 15 years of runway of, you know, higher tax depreciation that will shield cash taxes in the future. So we'll continue to focus there and try to structure acquisitions in a way that helps us to get tax value as well. Yeah, that's a huge point. And, you know, I mentioned this in my prepared remarks.
Speaker Change: All else being equal really refers to two things, one is tax legislation and the other is deal activity.
Speaker Change: And so the outlook that I talk about is assuming we do no other deals that are structured from a tax-advantaged way. Surely that isn't our plan going forward.
Speaker Change: Okay, yeah, deal structure matters. Okay, cool. Thank you. Appreciate it. Thanks, Tyler. Thanks, Tyler.
Please stand by for our next question.
Speaker Change: Our next question comes from the line of Adam Bouves with Goldman Sachs. Your line is open.
Hi, good morning.
Adam Bouves: Given the acquisitions in the second half of 2024 and year-to-date, can you just sort of update us on the expanded collection fleet automation opportunity? You know, how much runway is there today now that we've sort of regenerated that opportunity?
Thank you. Thank you.
Adam Bouves: I'll take that first part Adam, this is Sean. So in our Mid-Atlantic area we have a couple hundred opportunities that we're going to automate over the next three years.
Adam Bouves: In our Hudson Valley area, we have opportunity as well, so it's going to keep the ops support team busy for three to five years. That's not counting anything else we acquire this year, so big pipeline of cost of ops reduction for the next few years.
Adam Bouves: And on the direct labor point, you hit the nail exactly on the head. When we automate routes, you know, we many times are taking rear-load trucks off the road where we have drivers and helpers.
Adam Bouves: As an example, this last year, I talked about how we eliminated 22 rear-load trucks from the road. We took 27 headcount out, and that's because there are helpers as well. So as we...
Adam Bouves: As we look at automation opportunities, especially in the Mid-Atlantic, our direct labor is running
Adam Bouves: You know, 500 basis points higher than in historical markets that we had, and that really speaks to the story of many rear load routes that aren't as efficient and many routes that have helpers, which, you know, we'd also not like to see from a safety standpoint. We really want everyone to be inside the truck. We'd like automation to occur. And so it's a big focus to Sean and his team. You hit it exactly right. We want to get that direct labor number down.
Speaker Change: Yeah, labor is the biggest factor, but not only are we taking helpers off the back of trucks, we're taking trucks off the road, so you really see the benefit up and down the cost stack in terms of fuel, maintenance, et cetera, all the costs associated with a routed truck.
Speaker Change: Yeah, the rear load line of business is the oldest from a fleet age perspective as well. So there's a multitude of benefits to automating.
incremental travel costs versus tip fee savings.
Speaker Change: What's the magnitude of incremental opportunities that you're looking at for internalization?
Speaker Change: Yeah, so if a landfill is full then you're really talking about the difference of what you could internalize that tonnette versus
Speaker Change: The variable cost of putting another ton into a landfill can be quite small. Of course, you've got the capital investment of building out that additional capacity, and to your point, the trucking cost.
Speaker Change: to get it there. So, each one of these situations we'll look at individually, but these are nice incremental margin decisions, you know, 50 to 75 percent on an incremental ton that's coming into a landfill.
Speaker Change: the magnitude of cross-selling efforts on recently acquired assets. Thank you. Certainly a great point, Adam. You know, one of the biggest opportunities for us in the mid-Atlantic is the industrial
component from a major account standpoint.
Speaker Change: It's very, very right. There's tremendous amount of distribution centers. I think it's the distribution center for the Northeast and that Allentown-Bethlehem area, many, many facilities. So there's a big runway there from a national account standpoint with the industrial component.
Speaker Change: I think that we've been very successful with the municipal team, too. We've, you know, I think that we knocked out four, five, six contracts in the fourth quarter from a municipal standpoint as well, where we were successful from a bidding perspective. So that team is really doing well. We've got some big opportunities in terms of the expanded footprint. So we're looking forward to it. We know how to do that work.
Speaker Change: He's been very successful, you know, providing those services to large industrial customers where we can put five to ten people inside the facilities to help them with their waste and recycling component.
Speaker Change: And John, you know, one interesting thing is, you know, when we talk about price volume, we talk about where the revenue is recognized.
and our National Health Team.
you know, owns the customer relationship in many.
Speaker Change: It's a story that we could probably tell a little better going forward, but it's a great point because that's been a real volume engine for us when you see some of those small declines in landfill volumes or just some of the churn in subscription residential. We're really not focusing enough on that huge amount of wins that we're having with premier customers down in national accounts.
Thanks so much. Appreciate the color. Yeah, thank you.
Please stand by for our next question.
Speaker Change: Our next question comes from the line of Brian Butler with Stiefel. Your line is open.
Hey, good morning. Thanks for taking the question.
Good morning, Brian.
Speaker Change: Just the first one, when you look at the price-cost spread, it looks positive going into 2025. Maybe we could talk about where internal inflation was in the fourth quarter and kind of what's built into the 2025 outlook.
Speaker Change: Yeah, Brian, it's Brad. As we finish 24 and heading into 25 under expectations, we broadly expect to be in the area of 4% deflation, so really what we're targeting is 100 basis points of positive spread, at least in the solid waste business.
Speaker Change: And that's what we tend to target, you know, to be at least 50 or 100 basis points ahead of inflation. It's hard to measure it sometimes precisely, but we feel like we're about 4% right now.
Speaker Change: Considering the M&A levels you guys have had, when you think about the flat to down 1% volume outlook for 2025, how much of that is shedding from some of the acquired assets or customers that are just kind of underperforming versus there's any other weakness there?
Speaker Change: I would say all of it. In the fourth quarter, in the collection line of business, as I mentioned in my prepared remarks, in our legacy footprint, I'll call it, volume was actually flat to up across all the lines of business.
Speaker Change: So we're seeing real stability there and a modest level of growth depending on the market and the line of business. So really that volume decline is concentrated in, particularly in the mid-Atlantic, as we
Speaker Change: Yeah, I'm never quite sure what the term intentionally shed means, but you know, we're focused on driving price you know with some of those customers that
Speaker Change: specific sales resources help do that, and we've shown a lot of success in that area. So, you know, that's I think we're trying to get a little more information out there because those are the types of customers that are very, very sticky. We can create more value for them and do really well margin wise as well.
Speaker Change: All right, great. And then one last one. Can you talk maybe about how you're thinking about PFAS at the landfill and kind of in handling that, especially, you know, in New England that's very regulatory focused.
Speaker Change: You know, we're excited about the results. I think we're doing a pilot program right now with the agency in Vermont. I believe they're excited about the operations and the efficacy of the technology.
Speaker Change: But the technology is there, we know how to do it, now we're just really kind of tweaking it to see what's the lowest cost.
Speaker Change: technology that can really do the job and we'll be applying it to our other facilities at this point, Brian. It's likely that we're going to see it at our facilities and it just gives us more flexibility to be able to take our leachate to many different municipal sewage treatment facilities.
Alright, great. Thanks for taking my questions. You got it.
Please stand by for our next question.
Speaker Change: Our next question comes from the line of Tony Bancroft with Gamco Investors. Your line is open.
Good morning, gents. Well done.
Speaker Change: You guys have just grown rapidly in these last few years, and you've really done a great job of integrating.
Speaker Change: your acquisitions. I sort of, I guess I've asked this before, but just any thoughts on potential further large, maybe transformational
Speaker Change: M&A that you could do, would you want to do? Is there a potential funnel of that out there? Just maybe give us any updated thoughts just based on all of your success recently.
Speaker Change: I think that, you know, we're likely, you're likely to see a state who are knitting in terms of what we've said historically, which is
strategically up and down the eastern seaboard.
Speaker Change: but that doesn't mean that there wouldn't be a much larger opportunity that came available that we would take a look at. So I think it's fair to say, Tony, that we'll continue to do, continue to execute on the tuck-ins over the top of the mid-Atlantic and the Northeast.
Speaker Change: and then, you know, drive ourselves, you know, down the eastern seaboard as we've done with the GFL acquisition.
Speaker Change: And again, you never know what's going to come available and what opportunities are going to be in front of you. So you never say never, but that's not our strategy isn't all of a sudden to go and look.
differently. If those opportunities come to us, then certainly we'll
Speaker Change: will look at it. We can't pick and choose when somebody wants to monetize their business. But what we can do is get much better at integrating and have the resources and the ability to scale. So as every acquisition goes by...
Speaker Change: We gain best practices, we gain better structure, better ways of doing diligence. We really have built a great team there, and many of our business leads across the organization dig in for their night jobs, helping us successfully.
Speaker Change: acquired businesses and integrate them as well. So, you know, it's really become a core competency, I think, for us. I think the other thing that we've done as well, Tony, is training is really important. Maintaining one culture on a go-forward basis is extremely important.
Speaker Change: and we've made the investment over the last three years in HR.
Speaker Change: We've made the investment in training facilities. We bought the college a number of years ago. We've revamped the training center. We've got three separate training areas.
Speaker Change: can train up to 180 people in one part of the facility. So that's a critical component on a go-forward basis, especially when you're adding the total number of employees.
Speaker Change: doing core values training, leadership training, helping people understand how we want to run the business, critically important, particularly as we grow. The way we've grown, we've added a thousand people in the last, you know, ten months, so a critical component and something that we've already made the investment in.
Speaker Change: Great job. Congratulations, John. I'm a 50 and well done team.
Thank you. Thank you, Tony. Thank you.
Speaker Change: Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back to John for closing remarks.
Speaker Change: Great, thank you very much, everyone, for joining us this morning, and we look forward to discussing our first quarter 2025 results in April. Thanks, everybody, have a great day.
Speaker Change: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Thank you.