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 third 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. Of course, you'll be shocked to hear that 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 view 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 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. are available in the appendix to our investor slide presentation, which is available in the investor section of our website at ir.casella.com. 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 third quarter 2020 conference call. I would like to start today's call by again acknowledging and thanking our workforce, particularly the dedicated men and women of our front lines. Their hard work and commitment through these unprecedented times has enabled us to continue to safely provide our essential environmental services to our customers as well as the communities that we serve. Safety is paramount. We remain highly focused on ensuring the well-being of our workforce and observant as it relates to CDC guidelines and state orders. Our mitigation measures and our communications have been well organized and deliberate. We have adequately equipped our teams with PPE and we've implemented effective standards related to social distancing, contract tracing, disinfecting procedures, nonessential travel and in-person meetings, work from home and business continuity. Through this, we have limited the number of cases across the organization as well as minimized business interruption. Moving on to the quarter, as expected, solid waste volumes were again down year over year due to COVID. Despite the lowered volumes coupled with COVID-related expenses, we improved, adjusted a bit of by 5.9% year over year while expanding margins. We also improved adjusted free cash flow in the quarter while further driving down our consolidated net leverage ratio. Overall, we continue to execute well against our strategic initiatives despite headwinds related to COVID. The proactive response, our sales, customer service, operational teams benefited our performance in the quarter. We continue to meet our customers' Service Interval and Sustainability Needs while effectively scaling variable costs. We are executing our pricing programs and we continue to opportunistically grow the business in a disciplined manner through acquisitions. Notably, as announced last week, we recently completed an equity offering with gross proceeds of $151 million before underwriting discounts and expenses. This transaction positions us well for further acquisition opportunities and execution against our growth strategy. Next, I'll highlight the recent performance of our operations as well as our continued execution against our key strategies. From a disposal perspective, volumes were down in the quarter again due to COVID. This represents a sequential improvement from the second quarter, and we continue to see volumes slowly meter back online. In fact, September, landfill tons were down less than 3% year over year. That said, we expect modestly negative to stable volumes through the remainder of the year, with landfill tonnages expected to be slightly down year over year in the fourth quarter. Although we are experiencing headwinds related to lower disposal volumes, we have been able to partially offset the negative impact through our positive pricing programs and our focus on flexing variable costs across our operations without sacrificing our safety and compliance standards. On October 9th, we received an important permit modification from the New Hampshire DES for our North Country landfill. The permit modification increased the site's disposal capacity by 1.2 million cubic yards, which will provide approximately six years or of additional capacity. We are pleased with this outcome and we look forward to our ability to continue to provide resource management services to the more than 50,000 commercial and residential customers in over 150 communities that we service in New Hampshire. Now to the collection business. As expected, volumes were down in the quarter year over year with lower activity levels across certain commercial and institutional customers, again, Thank you. Thank you. Collection adjusted EBITDA and margins improved year-over-year in the quarter as a result of our pricing programs, rollover effective acquisitions, and our operational initiatives, including our heightened focus on right-sizing variable costs to the service levels. System enhancements over the last year have improved our ability to analyze and respond to these key trends and operational metrics in a more responsive and intelligent manner. This visibility and response, coupled with proactive effort related to our customer service needs, enabled us to scale our operations in a meaningful manner, driving out costs of the business to better align with the lower volumes, again, that we're experiencing because of COVID. Moving on to resource solutions, this segment is comprised of our recycling, organics, and customer solutions businesses. In January, these operations were combined as part of our strategy to drive further value and cohesiveness from our sales force and back office teams. The focus remains on enabling our customers to meet their sustainability needs through our service offerings, expertise, and resources. Resource solutions performance was again strong in the quarter. In particular, our recycling operations executed very well, improving adjusted EBITDA and margins year over year. The team has been diligent from a safety perspective along the processing lines, while at the same time is focused on achieving operational goals and continuing to improve the business. Our tipping fee and SRA fee programs are nimble and are effectively passing recycling commodity risk back to our customers. Our customer solutions and organic businesses have performed well year to date, with a combined year-over-year adjusted EBITDA growth even while experiencing the lower activities related to COVID. Lastly, I would like to highlight our capital allocation and growth strategy. We continue to execute well here through October. We've completed nine acquisitions thus far in 2020 with approximately $21 million of annualized revenues. In the quarter, we completed two tuck-in acquisitions. On October 1, we closed three more acquisitions, two of which were tuck-ins, and the other Pinto Trucking Service in the greater Buffalo market. It's a nice strategic fit with our western New York operations and provides an opportunity to expand our presence in that market as well as build additional vertical integration. Overall, our pipeline remains robust. Our teams and balance sheet are well positioned to meaningfully grow the business and drive further free cash flow growth. The recent equity offering strengthens our position to opportunistically acquire businesses with the right strategic fit and certainly the right return profile. And with that, I'll turn it over to Ned.

Thanks, John. Good morning, everyone. Before we discuss the quarter, I'd like to give a brief overview of the equity raise we completed last week. We issued 2.7 million shares of Class A common stock and yielded $151 million of gross proceeds before underwriting discounts and transaction fees. This was an opportunistic equity raise, as we said, and we do not plan to use the proceeds to immediately repay debt. We plan to use the capital to continue to fund smart acquisition and development growth over the coming months and the coming year. The proceeds are not targeted to one single larger transaction. We plan to continue to focus on acquiring smaller private waste operators to build greater density, drive internalization, and gain additional operating and GNA leverage. As of September 30th, we had $549.1 million of debt and $21.1 million of cash, and our consolidated net leverage ratio was 2.99 times. If we netted 100% of the equity raised against our debt as of September 30th, Our leverage would drop to 2.17 times or a reduction of 0.8 times. In addition, pro forma for the transaction, our available liquidity was $339 million as of September 30th. Moving on to the quarter, revenues in the third quarter were $202.7 million, up $4.1 million or up 2.1% year-over-year, with 3.7% of the year-over-year change driven by acquisition activity. Solid waste revenues were slightly up 0.1% year-over-year with price up 4%. We had 4.6% growth from acquisitions and volumes down 8.4%. Revenues in a collection line of business were up 3.3% year-over-year with price up 3.7%. We had 6.3% growth from acquisitions and volumes were down 6.4%. Collection volumes continued to rebound through the third quarter As various commercial customers reopened or increased services, construction projects resumed and overall building activity increased. And overall economic activity rebounded across our mainly secondary and rural markets in the Northeast. Given these sequential improvements, by September, our solid waste volumes were down only 4.8% year-over-year for the month. Revenues in the disposal line of business were down 5.8% year-over-year, with landfill pricing up 6.9%. Landfill tons were down 9.1% year-over-year as economic activity and construction projects were both negatively impacted by COVID. Resource solutions revenues were up 8.9% year-over-year with organics up 2.6%, mainly on new contracted volumes. Customer solutions was up 7.9%, mainly driven by growth of services at existing customers and several new industrial customers. Recycling revenues were up 18.9% year-over-year, mainly driven by higher Kamae pricing and higher volumes in the business. Average Kamae revenue per ton was up 37% year-over-year in the quarter, and this was mainly on higher cardboard pricing and mixed paper pricing, partially offset by lower plastics pricing. Adjusted EBITDA was $51.3 million in the quarter, up 2.8 million or up 5.9% year-over-year. And our margins were 25.3% for the quarter, up 90 basis points year-over-year. Improving adjusted EBITDA was a huge achievement given the large COVID headwinds we had in the quarter. With solid waste volumes down $12.8 million year-over-year, this translates to roughly an EBITDA headwind of $4 million. Also, we had roughly $1 million of COVID-specific costs during the quarter. Solid waste adjusted EBITDA was $47.4 million in the quarter, up $2.7 million year-over-year. This increase was driven by higher performance in the collection line of business, higher performance in the disposal line of business, and the positive rollover impact of acquisitions completed in the last year. Resource solutions adjusted EBITDA was $3.7 million in the quarter, Flat year-over-year with recycling up $1.4 million on higher performance. Cost of operations in the quarter was down $900,000 year-over-year and down 180 basis points as a percentage of revenues. Almost all cost categories improved as a percentage of revenue as our team effectively flexed costs to lower revenue levels and we anniversaried many of the inflationary headwinds that had negatively impacted margins in 2018 and early 2019. General and administrative costs in the third quarter were up $2.5 million year-over-year. Roughly $1.8 million of the increase was driven by higher bonus accruals due to timing differences year-over-year. $300,000 of the increase was driven by acquisition activity, and half a million was related to higher bad debt accruals during the period. We've done an outstanding job improving our accounts receivable during the quarter and over the last nine months. Our day sales outstanding was 32.3 days as of September 30th, and this is down nearly seven days from December 31st, 2019. We entered the COVID pandemic with a stable and mature credit and collections program. and during the pandemic, we've improved our customer outreach and communications and created additional flexibility as necessary. This has had a very positive impact on our collection efforts. However, as we noted last quarter, we've taken a conservative stance on the recoverability of accounts midterm, especially now that the federal stimulus programs are starting to wind down. Third quarter included two unique items on the income statement. One was we incurred $200,000 of expense from acquisition activities, and two, we incurred $2.6 million of expense related to our efforts to close the Southbridge landfill. This $2.6 million included $2 million during the period as a legal settlement charge to resolve outstanding litigation at the site. Net cash provided by operating activities was $111.9 million year-to-date. up $40.4 million year-over-year, driven by higher operating results and $23.4 million of positive changes in our assets and liabilities year-over-year, including the great management of accounts receivable. Adjusted free cash flow was $60 million year-to-date, up $35.9 million year-over-year. We continue to invest during the quarter in planned capital expenditures at our newly acquired operations, to drive operating synergies and integration efforts. In addition, we continue to invest in the development of the Phase 6 landfill expansion at the WasteUSA landfill. As noted in our press release yesterday afternoon, we raised our financial guidance ranges for the fiscal year, given our strong performance in the third quarter and additional visibility into the rest of the year. With roughly 70% of our business in secondary and rural markets across the Northeast, We experienced a stable to improving economy since the low point of COVID in late April through October. Roughly 65% of commercial and industrial collection services on a revenue basis that were reduced or suspended due to COVID have been turned back on. We estimate that another 10% will return in the early winter when seasonal businesses and ski areas restart for the season. It is unclear to us when the remaining 25% of these services will resume. This translates to roughly $6 million a year or roughly 1.7% of collection revenues. Our increased guidance ranges for the year assume a modestly declining to stable economic environment for the remainder of the year as the second wave of COVID is emerging. However, the ranges do not contemplate a severe relapse of COVID-19 or new stay-at-home orders shutting down commercial and economic activity again. Please note that we raised our 2020 adjusted free cash flow range back to the original level we set back in February. We plan to pay back the $5 million of CARES Act money in December given our strong cash flow generation year to date. We place great importance on free cash flow generation and we are quite proud to reestablish our original guidance levels despite the significant headwinds this year. We have forecasted that adjusted EBITDA will be flat to slightly down year over year in the fourth quarter as some landfill volumes that we had expected to receive in the fourth quarter were received early in the third quarter. We also expect certain operating overhead costs to continue to ramp back to more normalized levels and There's a lot of uncertainty right now as COVID cases are ramping across Northeast. With that, I'll hand it to Ed. Thank you.