Casella Waste Systems, Inc.

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 second quarter results. These results were released yesterday afternoon. and along with a brief review of those results and an update on the company's activities and business environment, we will be answering some of 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 within 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.

Thanks, Joe. Good morning, everyone, and welcome to our second quarter 2020 conference call. To begin with, I'd like to acknowledge and sincerely thank our dedicated workforce. Our management team did an unbelievable job keeping our people safe so they could provide the services to our customers and communities. And a special thanks to the front lines workers who continue to work hard through this challenging time. Their efforts made it possible to provide this essential service in a safe, effective manner to the customers and communities that we serve. The company remains diligent and focused on ensuring the well-being of our employees along with business continuity. We're nimble, observant as it relates to CDC guidelines and state orders. Leaders throughout the company have done a top-notch job communicating, organizing, implementing mitigation measures, including the distribution of PPE, social distancing, contact tracing, disinfecting procedures, limiting nonessential travel and in-person meetings, and working from home transitions. Our sales and customer service and operation teams have been exceptional with their proactiveness and sensitivity to our customers. Their needs, their service and sustainability needs as well. This flexibility not only allows us to maintain strong relationships with our customers, but it also enables us to right-size service interviews and, most importantly, flex variable costs. Further, we have leveraged our systems to monitor and track key sales and operational metrics through this period, resulting in a responsive scaling of our operations. Overall, our efforts have reduced the number of cases and limited business interruption that we have experienced thus far. Moving to the quarter, in this challenging environment, volumes within the solid waste were significantly impacted by COVID. Nevertheless, the resilience of the business and our continued execution against key strategic initiatives is apparent in our results. Despite the volume-related headwinds coupled with other COVID-related expenses, we improved adjusted EBITDA by 8.9% year-over-year while expanding margins. We have also improved adjusted free cash flow in the quarter while maintaining our consolidated net leverage ratio well within our targeted range. I would also like to highlight that we have closed on six acquisitions to date in 2020 with approximately $16 million of dollars of annualized revenues. It's notable that four of these acquisitions have closed since April. We continue to be excited about our growth opportunity and our pipeline remains robust. Overall, we're very pleased with our response to the pandemic. We see the effectiveness of our proactive response to COVID, operational programs, positive pricing improvement within our resource solutions business, execution against our acquisition growth strategy, and continued capital discipline. Next, I'll move on to some color on the recent performance of our operations as well as our continued execution against our key strategies. Disposal volumes were down nearly 16% in the quarter, mostly as a result of the effect of COVID on the economy. In anticipation of lower volumes, we dug in flex costs where we could across our disposal operations. As you know, landfills have a much higher fixed cost than collection operations. Nevertheless, our operations team did a tremendous job with prudent cost reductions while maintaining heightened focus on our safety and compliance protocol. Through July, we're seeing landfill volumes up slightly sequentially. However, we are not experiencing the typical seasonal ramp we usually see during the summer months. Our focus will remain on providing essential environmental services that meet the needs of our customers. We will continue to develop strong relationships with our host communities, customers, and our stakeholders. We aim to have continued success in obtaining expansions that will allow us to continue to meet the disposal needs of society. A quick update on our North Country landfill in New Hampshire. In mid-March, we refiled our permit application for Stage 6. from an application was recently deemed administratively complete and we're hopeful for a final approval by fall. Now to the collections business. As expected with shutdowns, lower economic activity levels related to COVID, commercial and industrial bonds were negatively impacted in the quarter. Collection volumes were down over 10% year over year. However, overall collection revenues increased due to the rollover effect of acquisitions and positive pricing. Despite the volume win, collection adjusted a bit and margins improved year over year in the quarter. As I mentioned, we have been very proactive and flexible with our customers during this unprecedented time. Our teams work diligently in helping where needed to modify service levels, Suspend Service Levels, in some cases, these actions enabled us to quickly adjust our costs, such as labor, overtime, to appropriate levels. We were able to modify routes and better optimize costs, all while ensuring that continued success of our Operational Excellence Initiative, which is focused on service compliance, reduced safety incidents and efficiencies. Moving on to resource solutions, in January we combined and realigned our recycling, organics, and customer solutions teams into one organization called Resource Solutions. This newly formed segment will allow us to better meet our customers' sustainability and service needs over time through our ability to better leverage our sales force and back office. The Resource Solutions organization had another strong quarter, led by the recycling business, where we improved adjusted and Martins year over year. Our risk mitigation programs are working well and we continue to focus on operational initiatives and producing high quality end products. We have effectively passed recycling commodity risk back to our customers. We remain committed to meeting our customers' sustainability needs as well as ensuring our employees' safety through reducing exposure risk along the processing lines by way of distancing measures, increasing the cleaning of equipment, et cetera. Within resource solutions, the customer solutions, organic business also performed well during the quarter with combined adjusted a bit of growth even while experiencing lower economic activities due to the pandemic. Lastly, I would like to highlight our capital allocation and growth strategy. As I mentioned before, we completed six acquisitions thus far in 2020 with approximately $60 million of annualized revenue. In the quarter, we completed two acquisitions, a tuck-in operation in central New York and a transportation operation in the Rochester, New York market. In July, we closed on two more tuck-in acquisitions. We have seen acquisition activity slow down slightly over the past few months with COVID, but we've still been able to close on deals that were in process. We believe there will continue to be a sizable opportunity to grow the business in a disciplined manner and to further drive free cash flow growth. The pipeline remains healthy and our balance sheet and teams are well positioned to continue to execute against this initiative. Wrapping up, as trying as the past few months have been, we are incredibly proud of the response of our employees along with the company's execution and performance. In recognition of the incredible work and dedication of our employees, we'll be paying a one-time special bonus to our frontline and hourly back office employees. Thanks again for representing our core values and culture. Together we've helped to keep our communities running throughout the crisis. We'd also like to welcome Rose Stuckey-Kirk to our board. Rose is an exceptional leader who brings important skills and perspectives to our board to help us further build our business. And with that, I'll turn it over to Ned to walk through some of the financials.

Thank you, John. Revenues in the second quarter were $188.8 million, up $1.3 million, or 0.7% year-over-year, with 5.3% of the year-over-year change driven by acquisition activity. Solid waste revenues were down 1.1% year-over-year, with price up 4.4% and 6.8% growth from acquisitions and volumes down 12.3%. Revenues in the collection line of businesses were up 2.1% year-over-year, with price up 4.3%, 9.2% growth from acquisitions, and volumes down 10.6%. In the commercial line of business, we saw volumes down 12.5%, and in the roll-off line of business, we saw volumes down 16.4%. Collection volumes were up sequentially from April through June, as we hit a low point of COVID-related volume losses in April. Revenues in the disposal line of business were down 9.1% year-over-year, with landfill pricing up 6.2%. Landfill tons were down 18.4% year-over-year, as economic activity and construction projects were both negatively impacted by COVID. Landfill tons, though, were up 25.6% sequentially from April through June as we hit a low point of COVID-related volume losses in April. As a comparison, during the same period in 2019, landfill tons were up 4.9% sequentially, which is more of our normal seasonal pattern. Resource solutions revenues were up 6.5% year-over-year, with organics up 3.4%, mainly on newly contracted vines. Customer solutions up 5.3%, with new contract growth offsetting COVID-19 impacts. Recycling revenues were up 18.8% year-over-year, mainly driven by higher commodity pricing. Average commodity revenues per ton were up 45% year-over-year in the quarter, mainly on higher cardboard pricing, partially offset by lower plastics and metals pricing. But please note, cardboard pricing hit a peak in May and dropped nearly $40 a ton and back to March levels into July. Adjusted EBITDA was $44 million in the quarter, up 3.6 million or 8.9% year-over-year. Adjusted EBITDA margins were 23.3% in the quarter, up 175 basis points year-over-year. There are a lot of moving pieces that impacted adjusted EBITDA in the second quarter given COVID-19. I'll give a little color on these pieces. The largest negative impact on our business was lower solid waste volumes. with bonds of $17.6 million year-over-year in the quarter. This translates to roughly an EBITDA headwind of about $5.6 million with a 30% decremental. Also, we had about $1.6 million of COVID-specific costs during the quarter. On the positive side, as John mentioned, we effectively used our business intelligence tools to track key indicators and proactively flex costs to lower revenues. This included downsizing our workforce through the reduction of hours, the reduction of overtime, layoffs, freezing hiring and salary increases, limiting discretionary spending across all parts of the business. In addition, we maintain our pricing discipline across all lines of business given substantial capital intensity and the ever increasing regulatory and environmental costs in our business. Instead of reducing pricing, We actively worked with our customers to adjust service levels to their actual waste and recycling needs during the period. Solid waste adjusted to EPA was $40.6 million in the quarter, up $3.1 million year-over-year. The increase year-over-year was mainly driven by great performance in the collection line of business, the positive rollover impact of acquisitions completed in the last 12 months, partially offset by lower performance in the disposal line of business. Resource Solutions Adjusted EBITDA was $3.3 million in the quarter, up $400,000 year over year, mainly due to higher performance in the recycling business. Net income was $12.1 million for the second quarter, which was up $200,000 year over year. However, please note that our tax provision was a $2.4 million headwind year over year, as we had a $2 million benefit for income taxes in the second quarter last year, Net Cash provides the offering activities with $62.5 million year-to-date through June 30th. This is up $24.2 million year-over-year, driven by higher offering results and $13.8 million of positive changes in our assets and liabilities, including the great management of accounts receivable. Adjusted free cash flow with $27.5 million year-to-date up $22.1 million year over year. We continue to invest in planned capital expenditures at the newly acquired operations during the quarter to drive operating synergies and integration efforts. In addition, we also continue to invest in the development of the Phase 6 landfill expansion at the WasteUSA landfill. As you may note from our press release during the second quarter, we changed the name of our free cash flow metric from normalized free cash flow to adjusted free cash flow. The calculation remains exactly the same. This is just a naming change. We made this change to a name to be more consistent with industry peers, while at the same time we enhanced the disclosure to our non-GAAP measures in our press release. As noted in our press release yesterday afternoon, we have reintroduced our financial guidance ranges for fiscal 2020. Given our increased visibility on the negative impacts of COVID-19 on our business, coupled with our strong execution to date through the quarter. The guidance ranges we put out yesterday assume a stable to modestly improving economic environment for the remainder of the year. However, they do not contemplate a severe relapse of COVID-19 or new stay-at-home orders shutting down commercial and economic activity again in the Northeast. I'd like to note that our guidance ranges for the remainder of the year contemplate that adjusted EBITDA will remain generally flat from the second to third quarter. This is versus our normal seasonal trend that has business activity typically growing during the summer months. We experienced a very rapid recovery in business activity from late April through mid-June as the stay-at-home orders were first lifted and many businesses reopened and construction activity resumed. However, this rebound has flattened somewhat through July, and we do not expect a normal seasonal business uptick from the second to third quarters. To date, roughly 55% of the commercial industrial services that were reduced or suspended due to COVID have been turned back on. We estimate that another 15% to 20% will return in the fall when schools and other seasonal businesses resume. Thank you, Ed, and good morning, everyone. Well,