Casella Waste Systems, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Casella Waste Systems, Inc. Q1 2020 conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. I must advise you that this conference is being recorded today, May 8, 2020. I would now like to hand the conference over to your speaker today, Joe Fusco, VP of Investor Relations. Please go ahead, sir.

Thank you for joining us this morning and welcome. With us today are John Casella, Chairman and Chief Executive Officer of Casella Waste Systems, Ed Johnson, our President and Chief Operating Officer, Ned Coletta, our Senior Vice President and Chief Financial Officer, and Jason Mead, our Director of Finance. Today we will be discussing our 2020 first quarter results. These results were released yesterday afternoon. Along with a brief review of those results and an update on the company's activities and business environment, we will be answering your questions as well. But first, as you know, I must remind everyone that various remarks that 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 those 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 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. 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 presentation, which is available in the investor section of our website at ir.casella.com. And with that, I'll turn it over to John Casella, who will begin today's discussion.

Thank you, Mr. Fusco. Actually, Mr. Fusco. Thanks, Joe. Good morning, everyone, and welcome to our first quarter 2020 call. I hope all of you and your families are doing well in this unprecedented time. I want to start off today by first thanking our 2,500 dedicated employees, particularly those on the front lines who have displayed their commitment and courage in providing our essential service to our customers and communities. Your hard work and family support at home during these unprecedented times is recognized and truly appreciated. As a company, we've been diligent. Our experienced team has done a tremendous job ensuring the well-being of our employees, while maintaining efforts in effectively servicing our customers. Since the onset of the pandemic in early March, we've taken the following five steps to ensure business continuity. Number one, keeping our people safe and healthy, establishing plans to provide continuity of operations. Number three, effectively transitioning back office functions to work at home. open communications and creating flexibility for our customers and flexing variable costs and freezing discretionary capital. In touching on some of the key elements of these five steps, we have been highly focused on mitigation measures such as distributing PPE, increasing social distancing within our field operations to limit exposure, establishing Contact tracing, operational continuity, and disinfecting procedures. During this period, we have also eliminated nonessential travel and very much limited in-person meetings by leveraging virtual formats. In addition, I'd like to have a shout out to Mike Hughes and our safety team for the outstanding job that they have done in support of our frontline operations. The team also did a great job transitioning office personnel into A work-from-home environment, creating a safer, more flexible workspace while maintaining redundancy of key processes and systems security. Our investments in technology over the last three years allowed us to make this transition with minimal cost and little disruption to our business. Our IT team did an amazing job ensuring employees had the right software, hardware, and training to do their jobs. Our response, coupled with the effectiveness of our consistent and thorough internal communications and teamwork, has undoubtedly resulted in limiting the number of cases and business interruptions that we have had to experience thus far. The geographic blend of our operations has also likely been a beneficial factor in our ability to limit exposure with approximately 60% secondary markets and 40% urban markets. And that's changed a little bit over the last year and a half in that our acquisitions have been in the Albany and the Rochester markets, which is really bringing up our participation in some of the more urban markets in our market area. As an organization, we have displayed agility in meeting our customers' service and sustainability needs while flexing our costs in an effort to right-size our operational programs as well as freezing Approximately 10 million of discretionary capital expenditures. We have been highly focused on monitoring and systematically tracking key metrics, such as service level changes and volumes, so that we can effectively scale our operation. Ed will dive deeper on some of the specifics related to our actions, but thus far, our proactive response has been very successful. Moving to the quarter, we are really pleased with The results of our first quarter. This is another strong period as we continue to execute well against our key initiatives. Given the timing of stay-at-home orders and its economic impact across our operational footprint, we did not experience any material negative impacts in the first quarter. As reported in yesterday's press release, our first quarter revenues in adjusted EBITDA were up 11.8%, and 25.9% respectively from last year. We continue to execute well our disciplined growth strategy as we have closed four acquisitions thus far in 2020 with approximately $13 million of annualized revenues. This marks a strong start to the year against this initiative, which we are excited about the growth opportunity our pipeline presents. Next. I want to provide some cover on the recent performance of our operations. From a disposal perspective, our focus remains on providing essential environmental services in a safe and compliant manner that meet the needs of our customers both today and tomorrow. We strive to develop deep, positive relationships with our host communities, customers, and stakeholders as we provide the necessary resource. We recognize the scarcity value of landfill assets in a highly regulated environment, and through time we have had great success in obtaining critical expansions that allow us to continue to meet disposal needs of society. In mid-March, we refiled our permit application for Stage 6 expansion at our North Country landfill in New Hampshire. We are confident that we have addressed the State's concerns. with our last application and look forward to advancing this permitting effort. We remain focused on discipline pricing, and in the quarter, landfill price was up 10.1%. Volume of the landfills were not impacted by COVID-19 in the first quarter. However, with the recent economic slowdown, tonnages were down roughly 22% year-over-year in April, with construction and demo and special waste tons down about 30%. Over the last couple of weeks, however, and into early May, we are starting to see sequential uptick in volumes at our sites, which is most likely indicative of modest improving economic activity levels. Now the collection business. Continue to execute well against our collection pricing and operational strategies. In the quarter, we advanced strong price at 5.2% as we continue to focus on offsetting disposal, recycling, and cost inflation. As we maintain pricing discipline, our operations teams remain highly focused on acquisition integration efforts as well as our operational excellence program that is focused on service compliance, reduced safety incidents, and efficiencies, a program that has been led by Sean, Steve, and Ed, and is really beginning to bring success. and many more. Thank you for joining us. We are monitoring these volume increases and will adjust our pricing model as needed. Our blend of residential customers provides flexibility from a pricing perspective with about 75% being subscription-based. Interestingly enough, as the sun comes out in the northeast, people begin to come out of their homes, do a lot more work, and start to clean up. And that's a normal trend that we see each year. although it was up maybe a couple percentages over and above what we saw last year. So this is a time of the year when we do see tonnages go up naturally because, again, in the Northeast, people finally have seen a little bit of sunshine. One of the keys on the hauling side is to be ready and nimble as our customers and businesses come back online over the next coming weeks and months. If you flash back three months ago, our largest challenge as an organization was attracting training and building a great team, especially drivers and mechanics. We believe with the work that Kelley Robinson and the entire HR team has done, we are well positioned to ramp back online services as stay-at-home orders are lifted and people get back to work across our markets. Moving on to resource solutions, in January we combined and realigned are recycling organics and customer solutions team into one organization called Resource Solutions. Over time, this will enable us to more effectively meet our customer service and sustainability needs while providing an opportunity to better leverage our sales and back office. Bob Capadonna and Paul Ligon have done a terrific job of bringing that together and really putting in place The team and an effective process as we go forward into the future. Our recycling business continues to perform well. Our average recycling commodity price per ton was down roughly 33% in the quarter year over year, while adjusted a bit and improved during the same period. This highlights the continued success of our risk mitigation programs, our focus on quality end products, and the outcomes of operational initiatives. We have effectively passed on over 90% of the recycling commodity risk back to our customers. In April, we did experience lower recycling tons year over year, about 9%, given the lower economic levels of consumption. However, sequentially, higher commodity prices and our tip fees offset this decline. From a regulatory standpoint, recycling throughout the Northeast remains vastly unaffected as it relates to COVID-19. We remain committed to our programs and to our customers' needs as well as ensuring our employees' safety through reduced exposure risk along processing bylines of distancing measures and increasing cleaning of equipment. And one of the things that's been clear to us is that we have spent the time and dollars, resources, retraining people on the quality of material being left at the curb so that we can increase The customer solutions and organics team also performed very well during the quarter with a combined adjusted EBITDA growth of over $300,000 year over year. Lastly, I would like to highlight our capital allocation and growth strategy continued to execute very well here as well. As I mentioned, we have completed four acquisitions thus far in 2020 with approximately $13 million of annualized revenues. We welcome the new and hardworking employees to our team and look forward to continuing to provide outstanding service to our new customers. Our two most recent acquisitions were a tuck-in collection operation in central New York and a transportation operation in the Rochester, New York market. which will nicely complement our solid waste operations within that footprint. Our pipeline remains robust. We do expect acquisition activity to slow in the near term but over time we believe there remains a significant opportunity to continue to selectively grow the business in a disciplined manner and further drive free cash flow growth. Our balance sheet is well positioned to continue to support this initiative and the market dynamics are still very, very strong in that All of the independents have seen tremendous impacts from a disposal standpoint, a recycling perspective, now COVID, labor issues. Those issues have not changed and, if anything, are even stronger today than they were before. Wrapping up, I'm incredibly proud of the response of our employees as it relates to this challenging time. We are well positioned to continue to grow the business and execute against our strategic initiatives. And with that, I'll turn it over to Ned. Thanks, John.