Yahoo Finance Casella Waste Systems, Inc. (NASDAQ:CWST) Q1 2024 Earnings Call Transcript
Casella Waste Systems, Inc. (NASDAQ:CWST) Q1 2024 Earnings Call Transcript April 27, 2024
Casella Waste Systems, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and thank you for standing by. Welcome to the Casella Waste Systems First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Charlie Wohlhuter, Director of Investor Relations. Please go ahead.
Charlie Wohlhuter: Thank you, Liz. Good morning, and thank you for joining us on the call today. Today, we will be discussing our first quarter 2024 results, which were released yesterday afternoon. Here with me are John Casella, Chairman and Chief Executive Officer of Casella Waste Systems; Ned Coletta, our President; Brad Helgeson, our Chief Financial Officer; Jason Mead, our Senior Vice President of Finance and Treasurer and; Sean Steves, our Senior Vice-President and Chief Operating Officer of Solid Waste Operations. 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. But first, please note that various remarks we may make about the company's future expectations, plans and prospects constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 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 the SEC. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views in 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, April 26, 2024. 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 included in our press release filed on Form 8-K with the SEC. And with that, I will now turn it over to call - turn over the call to John Casella to begin our discussion.
John Casella: Thanks, Charlie. And good morning, everyone. And welcome to our first quarter 2024 conference call. I'll begin today's remarks with highlights of our first-quarter and then have Brad and Ned go into more details on our results and a strategic overview. But first, I'd like to take a minute to credit several of our team members who exemplify our core values and who have been recognized for their service. They put service to our communities first while operating in a safe and responsible manner. We are fortunate to have four drivers earn Driver of the Year recognition by the National Waste and Recycling Association through their focus to enhance safety and be a strong representative of the solid waste industry. They are Curtis Rhodes, Sean Dutton, John Machad and Cesar Giguere.
Our long time market area manager, Bill Meyers in Northern New York was named Citizen of the Year by the United Way of the Adirondack region for his community engagement. They lead by an example and inspire the rest of us to make our own positive contributions to the customers and communities we serve. Shifting to the results. As you saw in our earnings release yesterday, we hit the ground running to begin 2024. Our business is performing at a high level. Revenues were up nearly 30% year-over-year, while we drove adjusted EBITDA growth of over 40%. This resulted in a 150 basis point margin improvement, which demonstrates the strong execution of our operating strategies and the successful ongoing integration of some of the largest acquisitions in the company's history.
It's truly impressive and speaks really well of our entire team. On that note, acquisition integration has been among our key priorities, as you know. The hard work our team has done is very evident as we grow. Their commitment and dedication to be of service to each other, our customers and the communities we serve shows. The senior team and I are very proud of the culture. This is the foundation that's positioned us well for another exciting year of growth and performance. Looking now to a few of our key strategies and the performance of operations. Beginning with the landfills, as we expected in the first-quarter, volumes were down with lower C&D in special waste tonnages. To be clear, this is not a sign we are experiencing weaker construction activity or a signal from the economy.
In fact, roll-off collection volumes were up 1.4% in the quarter, followed by commercial collection volumes up nearly 1%. C&D disposal dynamics are being influenced by a large landfill in the Northeast that is projected to close at the end of this year. We anticipate that C&D disposal market will readjust following the closure. Regardless, we continue to focus our operating programs at the landfills, as well as our quality of revenue. Our average landfill price per ton stat is often a good metric to measure our improvement in quality of the inbound waste stream. For third consecutive quarter, the increase was double digits on a percentage basis. Turning to the collection side of the business. We've executed well and have a lot of positive momentum as we advance our strategies across this business line.
Our investments in automated side loaders, rounding technology and real-time data intelligence are providing nice benefits. We are capturing labor, safety and productivity enhancement as we steadily roll out these programs across our collection fleet. As part of the efforts, we aim to keep our costs low for our customers. Our ongoing fleet automation plan is attracting larger and more diverse labor pools and creating a safer work environment for our frontline workers. We experienced favorable trends in our turnover and TRIR safety metric in 2023, and we aim to repeat this in 2024 with incentives aligned up-and-down the organization. In terms of routing initiatives, we completed a number of routing projects in the first-quarter. This is a reflection of our focus on driving synergies in the business.
Sean Steves and his team are applying these operating gains with analytics to help make more informed decisions for better service accuracy, efficiency and quality. These positive contributions are showing up in the numbers. Collection adjusted EBITDA margins improved more than 200 basis points year-over-year in the first quarter, excluding acquisitions. We've already begun deploying these programs into the Mid-Atlantic region with more opportunity ahead of us. We are highly focused on service excellence and new customer integration. As we grow the business and onboard new customers, these efforts will help enable our success in customer retention and satisfaction. In the Resource Solutions part of the business, performance in this segment was strong in the quarter with year-over-year adjusted EBITDA growth and margin improvement.
The growth was widespread. Yes, improvement in the recycling commodity prices was a tailwind. However, we experienced a greater contribution in the quarter from our strategic investments, namely our upgraded Boston MRF is firing on all cylinders with the results that delivered strong incremental adjusted EBITDA in the first-quarter. Modernization of our Willimantic MRF will kick-off later this year, which will be a similar investment in further enhancing the recycling capabilities we provide. On an overall basis, whether it be full upgrade of the processing equipment or selectively replacing certain pieces of equipment, we are constantly looking for ways to improve our operating efficiencies, better end product quality and enhanced recovery across our sustainability infrastructure, while generating solid returns.
In terms of the national account business, customer demand for our professional services remains quite strong and we grew a bit in this line of business for the quarter. The sales strategy is moving to our Mid-Atlantic region where we see opportunity over-time to grow various customer segments. And finally, we really like the growth runway that we see ahead for our entire business. Our core operating strategies are working well and providing us with opportunity to drive further value. We have a number of organic development projects to come. And of course, our M&A pipeline remains robust with exciting opportunities. Now, I'll turn it over to Brad to go through the results.
Brad Helgeson: Thanks, John. And good morning, everyone. Revenues in the first quarter were $341 million, up $78.4 million or 29.9% year-over-year with $69 million from acquisition rollover and $9.4 million from organic growth or 3.6%. Solid waste revenues were up 36.4% year-over-year with acquisition growth of 33.9%, price up 5.5% and volumes down 2.8%. Revenues in the collection line of business were up 51% year-over-year, with price up 6.2% and volumes down 1.2%. Volume declines were concentrated among residential customers as we work to improve the quality of revenue and margins, while we experienced positive volume growth in both the front-load commercial and roll off lines of business in the quarter. Revenues in the disposal line of business were down 2.6% year-over-year, with landfill pricing up 4.7% and landfill tons down 12.4%.
MSW volumes into the landfills were up 1.7% in the quarter, but C&D volumes remained soft, which we expect to continue over the next several quarters and volumes of soils and sludges were also down. The average price per ton of the landfills was up 13.3% year-over-year, reflecting a mix shift away from lower price streams as we help align on price and prioritize preserving our valuable aerospace. Resource Solutions revenues were up 11% year-over-year, with price up 9.2% across the segment and acquisitions contributing 4.4%. Price growth was driven by an increase of 58% or $41 per ton in our average commodity revenue over Q1 of 2023. Of course, our contract and fee structures work to mute the impact of commodity price swings both - in both up and down markets, so the nearly 60% increase in commodity prices only yielded $3 million of increased revenue in the quarter.
National accounts revenue within Resource Solutions was up 1% year-over-year, with price up 6%, while volume was down 4%, primarily driven by municipal biosolids as we've been a bit more selective with that work. Adjusted EBITDA was $71 million in the quarter, up $20.4 million or 40.2% year-over-year, with $15.9 million of the change from acquisitions and $4.5 million from organic growth or 8.8%. Solid waste adjusted EBITDA was $64.8 million in the quarter, up $15.3 million year-over-year with acquisitions, strong pricing and our operating initiatives driving this growth. Resource Solutions adjusted EBITDA was $6.2 million in the quarter, up $5.1 million year-over-year, driven by the benefits of the Boston MRF retrofit, higher recycled commodity prices and acquisitions.
Adjusted EBITDA margins were 20.8% for the quarter, up 150 basis points year-over-year. Once again, our pricing programs fully offset cost inflation in the quarter, which we estimated at approximately 4.5%, excluding fuel. Inflation has been moderating and was down a bit sequentially in the quarter, but of course, remains elevated in historical terms. At a high-level, the year-over-year EBITDA margin bridge included a few key drivers. The positive spread of price over cost inflation, higher recycled commodity prices and improved operating performance, particularly cost efficiencies in the collection business, in total represented approximately 150 basis points of margin improvement. The Boston MRF retrofit contributed approximately $2.5 million or 50 basis points of margin, and acquisitions and related synergies contributed another 50 basis points of margin.
If you recall, our expectation was for acquisitions to weigh slightly on consolidated margins in 2024 as they did in the fourth quarter. The performance has exceeded expectations, including the pace of achieving synergies, particularly at Twin Bridges. These were partially offset by approximately 100 basis points of margin headwind from the lower landfill volumes and higher leachate costs with the wet weather that we experienced in the quarter. Cost of operations in the quarter was up $50.6 million year-over-year, but down nearly 100 basis points as a percentage of revenues as the company continues to outpace inflation on the revenue line and operate more efficiently. $48.1 million of the increase was from acquisitions and $2.5 million from the base business.
So, on a same-store basis, cost of operations was down over 140 basis points as a percentage of revenue year-over-year. General and administrative costs in the quarter were up $8.7 million year-over-year, but down 60 basis points as a percentage of revenue. $5 million of the increase was from acquisitions. The company is investing in the G&A line to support our growth, including adding a new region to manage our Mid-Atlantic operations, where we expect to gain further leverage here over-time as we grow. Depreciation and amortization costs were up $20.6 million year-over-year, with $19 million of the increase resulting from the recent acquisition activity. As I explained last quarter, we expect heightened D&A for the first few years after each acquisition, driven in particular by the accelerated amortization of identifiable intangibles.
To put this in perspective, D&A associated with the acquisitions was over 27% of acquired revenues in the quarter as compared to 13% for our base business. Our effective tax-rate was 30% in the quarter and certain non-deductible expenses and discrete items pushed the rate above our statutory rate of approximately 27%. Adjusted net loss was $0.8 million in the quarter, down $6.1 million compared to prior year with the accelerated D&A associated with acquisitions weighing on earnings. GAAP net loss was $4.1 million in the quarter, impacted by D&A and $5 million of near-term expenses related to acquisition due-diligence, closing and integration. Adjusted EPS was a loss of $0.01 in the quarter and GAAP EPS was a loss of $0.07 in the quarter. Net cash provided by operating activities was $7.7 million in the quarter compared to $16.1 million in the first quarter of 2023.
This was driven by higher outflows from net changes in assets and liabilities, including the payment of the accrued FLSA legal settlement of $6.2 million and AP timing, which should resolve itself over the balance of the year, partially offset by lower AR due to a modest improvement in DSO. Adjusted free-cash flow was a loss of $2.4 million in the quarter compared to positive $2.2 million in the first quarter of 2023. As I'm sure you all know, the first quarter is our seasonally weakest quarter, particularly from a cash-flow perspective, and results were further impacted this quarter by $4 million in higher replacement CapEx. As of March 31, we had $1.05 billion of debt, $189.5 million of cash and available liquidity of $462 million. Our consolidated net leverage ratio for purposes of our bank covenants was 2.72 times.
Our average cash interest rate was 5.6%, and we had fixed interest rates on over 77% of our debt. Our liquidity and leverage profile will enable us to be opportunistic in continuing to execute on our growth strategy and robust M&A pipeline. As stated in our press release yesterday, we reaffirmed guidance for 2024 across all of our key financial metrics. While the business is off to a great start this year, it's premature to consider revising guidance. Our full-year guidance ranges imply significant growth in the last three quarters of the year, particularly from a cash-flow standpoint, but this is consistent with the normal seasonality of our business and our plan for this year. With that, I'll turn it over to Ned.
Ned Coletta: Thanks, Brad. And good morning, everyone. As discussed last quarter, we completed seven acquisitions in 2023 and acquired approximately $315 million of annualized revenues. Our team has been hard at work through late 2023 and into early 2024 to successfully integrate the newly-acquired businesses into our operations, systems and back-office. And given these successful efforts, we're tracking well against pro-forma for each acquisition. Our Mid-Atlantic team led by Kyle Larkin is doing a great job executing against our operating and efficiency plans. To date, we have installed onboard computers on roughly 55 trucks and achieved limited route synergies through our early automation and route optimization efforts. We have 17 automated side load trucks ordered for 2024 for this region and expect to drive meaningful operating cost reductions in 2025 when these trucks are delivered and routes are optimized.
We're tracking well against our plan to recognize $8 million of operating cost synergies over the next three years. Our IT, finance and customer care teams have been working tirelessly since last summer on the Mid-Atlantic Systems integrations and in early April, we successfully completed the final migrations from GFL. A big thank you to the entire Casella team for all your hard work and I'd like to extend a special thank you to the GFL team for their help providing transition services and assisting us with the successful migration off their systems. Our Western Region team led by Michael Stehman has partnered extremely well with Scott Earl and the Twin Bridges team to quickly advance integration efforts to drive operating synergies and ensure top-notch customer service.
To date, we have eliminated 14 trucks through or synergies in close to operating locations. Through these efforts, we are tracking well ahead of our three year synergy plan to eliminate $4 million of costs. Our acquisition pipeline today is approximately $800 million of potential revenues across our entire footprint, including the Mid-Atlantic region. We are positioned very well to have another solid acquisitive year in 2024. On the development side, we continue to invest in return-driven sustainability infrastructure, including the full equipment upgrade at our Boston recycling facility as John discussed. The facility continues to operate well above pro-forma and in the first quarter delivered strong incremental growth. Given the success of that facility upgrade, we're scheduled for the full upgrade of our Willimantic, Connecticut facility in Q4 of 2024.
We expect our first RNG project at the Juniper Ridge landfill to be online in midyear of 2024, with final commissioning expected in the coming weeks. RKF or BP owns and will operate the facility, while Casella generates a royalty stream from the sale of the gas and RINs with zero capital investment by Casella. In addition, we anticipate an additional two to three RNG projects with third-party developers coming online in the second half of 2025. Our team also continues to make excellent progress in the build-out of the rail offload infrastructure at our McKean, Pennsylvania landfill, and we expect the facility to be online in mid-2024 with our first test loads received. In this first phase, we're bringing online capacity to offload up to 5,000 tonnes per day of containerized MSW soils and sludges.
We expect this operation to ramp very slowly over the next few years as this investment is less about near-term volumes and more about long-term risk management and flexibility as we want to ensure viable waste disposal outlets long term in the capacity constrained Northeast. As we continue to grow as an organization, we are focused on maintaining our positive culture and core value system by investing and developing our people. This is especially important as our team grew by over 30% or 1,000 employees in the last year through acquisition and organic growth. And our team did an amazing job effectively onboarding and welcoming our new team members. As demonstrated in the first-quarter, we are set-up very nicely in 2024 to continue executing against our core strategies to drive further shareholder value and profitable growth.
And with that, I'd like to turn it back to the operator for questions. Thank you.
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