Casella Waste Systems Inc. of Rutland, Vermont, recently released its earnings for the first quarter of 2019.
The company brought in $163.7 million in revenue, up $16.2 million, or 11 percent, year-over-year. John Casella, the company’s chairman and CEO, attributes much of the growth to solid waste revenues and acquisition activity—the company made 10 acquisitions last year alone.
Casella announced the company’s latest acquisition of M.C. Disposal in Fairfield, Maine, during an earnings call April 30. During the call, Casella detailed improvements the company has made based on its 2021 plan, which is composed of five key areas: increasing landfill returns, improving collection profitability, creating incremental value through resource solutions, using technology to drive profitable growth and allocating capital for strategic growth.
Here are some highlights from the call:
On increasing landfill returns
“Our first strategy in our 2021 plan is increasing landfill returns. We continue to enhance returns through price execution, operational programs, the sourcing of new volumes at higher prices and our efforts to advance key permits. Our average landfill price per ton was up 6.6 percent in the quarter as we advanced a strong pricing program in the early 2019. The pricing landscape continues to be favorable, and we expect it to remain so into the foreseeable future due to the continued disposal capacity constraints across the Northeast.
“We're not only increasing price on existing volumes but also reflecting lower price waste streams with higher-priced volumes, which blends up our overall pricing and improves return.”
On improving collection profitability
“We continue to outperform and execute well against our pricing and operational strategies. Our pricing discipline and agility [are] once again apparent in the quarter as we advanced collection price by 6 percent year-over-year. We're continuously monitoring inflation across the business and adjusting our pricing programs accordingly as we aim to outpace heightened disposal, recycling and labor cost.
“As we continue to advance price, our risk-mitigation SRA [sustainability/recycling adjustment] and E&E [energy and environmental] fee programs are working well to offset recycling commodity pressures, fuel, environment and regulatory costs.
“We improved collection margins in the quarter while at the same time experiencing slightly negative volumes as we deselected or shed less profitable customers. We launched a new program in 2019 called Service Excellence, focused on establishing and clear measurable service standards.”
On creating value through resources
“Our recycling business performed well in the quarter, with a year-over-year improvement in adjusted EBITDA, as we continue to make progress restructuring third-party recycling processing contracts to pass commodity risk. … Our SRA fee continues to work well, as it is fully offsetting the commodity risk on our intercompany volumes. Given our early success in 2019 and the strength of our risk-mitigation programs, we do not expect the year-to-date declines in the recycling commodity prices, including the recent declines in cardboard, to significantly impact our forecast for remainder of the year.
“We will maintain focus on producing high-quality materials, reducing our exposure to commodity prices and improving our operational efficiency.
“The customer solutions team also performed exceptionally well in the quarter with adjusted EBITDA growth of approximately 33 percent and margin improvement of over 70 basis points as they continue to capture share of wallet for major industrial customers across our franchise area.
On implementing technology for growth
“We're happy with the progress we have made against this initiative over the last year. Our net suite implementation went very well. We are now starting to drive meaningful change to our business processes, working to simplify [and] automate our purchasing processes to drive out cost, enabling us to continue to scale our business without adding significant back office headcount.
“One of our main focus areas in 2019 is on better integrating our sales force and our customer care teams through a newly launched case management system, which is tied to our CRM [customer relationship management], which is Microsoft CRM, with an aim on improving our ability to quickly and efficiently respond to customer needs.”
On allocating capital for growth
“We executed very well in 2018 against this strategy with the completion of 10 acquisitions during the year. We exceeded our goal to acquire or develop $20 million to $40 million per year of annualized revenues, and we are well positioned to again outperform our goal in 2019.
“Over the last six months, we have made great progress integrating the acquisitions we completed in 2018. To date, we've completed all of the finance back-office systems integration work for all of the acquisitions completed in 2018. … We're tracking generally well to the performance or above performance for almost every acquisition completed last year with a few areas that need to improve over the next several years.
“And as we said last year when we talked about those acquisitions, the value will come out of those acquisitions over the next year or so as existing disposal contracts terminate and we are able to internalize additional tons from those acquisitions that we did in 2018.
“Yesterday, we closed on acquisition of M.C. Disposal in Maine. This is a great tuck-in acquisition for us, roughly $7 million of annualized revenues that will integrate well with our existing operations in Maine. This acquisition represents a nice start to our acquisition growth strategy in 2019. And as we look out over the next few months, we have approximately $40 million of annual revenues across several acquisition targets in the letter-of-intent stage.
“We expect to close these transactions by the end of the third quarter. We're well positioned to continue to opportunistically grow the business given the recent equity offering and our ability to continue to grow free cash flow organically.”
On first quarter challenges
“The first quarter was a tough quarter for our disposal line of business, with adjusted EBITDA down due to the expected closure of the Southbridge Landfill in November 2018—a tough comparison given the large soil remediation job that we had in the first quarter of last year.
“And, most notably, operational challenges at our Ontario Landfill that caused us to cut hike price sludges accepted at the site, and to incur higher unbudgeted expenses to resolve several operational issues.
“It's an all hands on deck, including myself, to resolve the issues. And we are well on our way to getting back to our high operating standards and expected financial performance at the same.”
On employee retention
“In 2018, we introduced our career path program to our maintenance and landfill technicians, our recycling employees and our drivers. While the program is in our early innings, we are starting to see some early positive benefits.
“The goal of career path program is to provide a measurable and transparent path through advancement through carrier training programs, safety and productivity goals. Over time, we expect this program to improve employee satisfaction, strengthen our recruitment, reduce turnover and enhance productivity while lowering safety incidents.
“In 2019, with the help of our human resource team, we are also in the process of creating a robust on-premise onboarding and training platform. Our goal is to develop a training program to help us to train CDL drivers and apprentice level technicians that are highly committed to the company and dedicated to superior safety and service. We have established several training hubs across our operations, and we are having great initial success in attracting trainees to the program.”
By the numbers
More Q1 financial highlights are listed below. For the full earnings report, visit Casella’s website.
- Acquisition activity brought in $11.9 million, or 8.1 percent, in net growth.
- Solid waste revenues were up $11.2 million, or 10.2 percent, year-over-year.
- Revenues in the collection line of business were up $16.6 million with price up 6 percent across all lines of business
- Revenues in the disposal line of business were down $4.2 million year-over-year with strong pricing offset by volume declines and the closure of the Southbridge Landfill in November 2018. The closure of Southbridge resulted in a $2.2 million year-over-year decline in revenues.
- Recycling revenues were up $600,000 year-over-year, with $1.9 million lower commodity pricing that was offset by a $2 million of higher third-party tipping fees or processing fees, along with $500,000 of higher volumes.
- Adjusted EBITDA was $26.6 million in the quarter, up $2 million, or 8.1 percent, year-over-year with margins down 44 basis points.