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spk08: Good day, and thank you for standing by, and welcome to Casella Waste Systems' 2022 Second Quarter Earnings Call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Joseph Busco. Please go ahead.
spk03: Thank you for joining us this morning and welcome. With us today are John Casella, Chairman and Chief Executive Officer of Casella Waste Systems, Ned Coletta, our President and Chief Financial Officer, Jason Mead, our Senior Vice President of Finance and Treasurer, and Sean Steeves, our Senior Vice President and Chief Operating Officer of Solid Waste Operations. Today is our 100th earnings call, which is a nice milestone for us. I can never sleep the night before these calls, knowing that I get to read you one of the great works of English literature. But it is time to pass the baton for the next 100 calls. So, joining us today as well, Charlie Woolhutter, our new Director of Investor Relations, who will share with you the drama, the intrigue, and the raw honesty of the Safe Harbor Statement. All yours, Charlie. Thank you, Joe.
spk02: Today we will be discussing our 2022 second 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 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 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. Reconciliation 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.cosella.com under the heading Events and Presentations. With that, I'll turn it over to John Casella, who will begin today's discussion.
spk09: Thanks, Charlie, and thanks, Joe, for the first 100 earnings calls. Hopefully, Charlie will be able to bring the levity that you have brought to those calls as well for the next 100 calls. With that, good morning, everyone, and welcome to our second quarter 2022 conference call. We're happy with our results and our continued execution against our key strategies. This was a great quarter, perhaps the best quarter in a company's history, and it came at a time with record inflation and certainly overall challenging environments. Our performance in the quarter was a product of our efforts in many areas, including strong operating initiatives focused on reducing our cost of service through productivity enhancements, further automation, while never discounting safety. At the same time, our pricing and fuel recovery fees worked well to offset inflation. In fact, we fully offset higher fuel costs in the quarter. and our continued execution against our strategic growth strategy as we are growing the business through acquisitions and select development projects while ensuring proper follow-through on our integration efforts. Revenues in adjusted EBITDA were both up over 31% in the quarter as compared to the same period last year. Further, on a year-to-year basis, we have driven adjusted free cash flow growth of nearly 23% year-over-year. Our core business continues to be a significant driver of this growth, while acquisitions are incremental. On the topic of growth, I would like to take a moment and recognize the significant milestone in the company's history. That is that we, in our earnings announcement yesterday, on a trailing 12-month basis, we've crossed over a billion dollars in consolidated revenues for the first time. This is a significant achievement that I'm very proud of. But more importantly, it would not be possible without the hard work and dedication of our entire team. Every day, our employees strive to be of service to each other and then to our customers. This is a commitment of our core values will remain intact as we continue along our growth path. As you are all aware, inflation had not slowed through June. We did a great job in overcoming these pressures. We continue to invest time and money into our operating efficiency programs to further reduce costs. Additionally, we aim to pass along heightened operating costs to our customer base through our pricing programs and fuel cost recovery fees. Overall, solid waste pricing was up 6.9% in the quarter. We are executing at a high level as our core operating efficiency and pricing programs along with our fuel cost recovery fees are helping to offset inflation. We are maintaining a strong margin profile amidst a challenging backdrop. The underlying fundamentals of our business remain very strong, and we anticipate year-over-year margin expansion over the remainder of the fiscal year. I'd like to provide a brief review related to the execution against a few of our key strategies in the recent performance of our operations. First, as it relates to our landfill operations, in the quarter we experienced positive volumes and positive price. Landfill tonnages were up in the quarter as we had increased volumes after a tough winter. The economy in the Northeast remains strong. Our expectation is that landfill volumes will be positive through the remainder of the year. With increased volumes, we remain focused on both our landfill operating and pricing programs. From a pricing perspective, we continue to improve the quality of revenue through customer mix. We measure this through our average landfill price per ton statistic, and in the quarter, it was up over 6%. Our pricing programs aim to offset inflationary pressures and manage heightened regulatory costs. Moving to the collection business, we posted strong adjusted EBITDA growth and margin expansion year over year above budgeted levels. This achievement is twofold. We start the year with a concerted effort to reevaluate budgeted pricing programs given the environment. To date, our core pricing is working well to mitigate inflation, and our fuel cost recovery fee program is working well to recover higher fuel costs. From an operational standpoint, second quarter results demonstrate strong operating leverage. We improved key operating metrics both sequentially and year over year, while maintaining focus on sales and service excellence. As we look ahead, our goals and priorities remain the same. We have a continued runway in return-driven operating and technology investments, including automation, route optimization, and increasing the amount of in-cab technology across our footprint. Shauna and team are excited about the opportunity here. We are confident that they will help us continue to drive down costs as we further deliver on these operating initiatives. Next, resource solutions. Performance was strong in the quarter with significant year-over-year adjusted EBITDA growth. This level of growth came from a combination of new business acquisitions higher pricing, higher recycling commodity values, partially offset by lower tipping fees. Customer demand for sophisticated resource management services continues to grow. We are growing the business by meeting this need and helping our customers meet their sustainability goals. So we welcome this demand as we aim to strike a balanced model in which we continue to invest in environmental solutions with appropriate financial returns. I'm excited about several ongoing and recent investments in this vein that highlight our commitment to environmental stewardship and sustainability. We are in the process of upgrading our Boston Zero Sort recycling facility with new equipment, including select robotic technology. We expect this new equipment to be fully operational in the first quarter of 2023. This is nearly a $20 million investment that will drive higher throughput, enhance end product quality, and improve operating efficiency, which positions us well to meet the needs of the greater Boston market from a recycling standpoint. In addition to Boston, we recently installed new robotics and sorting capabilities at our Ontario County recycling facility. Early results are showing strong efficiency gains. Further, we intend to install select tech upgrades at several other facilities in the near future. Finally, I'd like to highlight our capital allocation and growth strategy. We continue to have success executing against our growth strategy. We have now closed on 11 acquisitions year to date with approximately 47 million in annualized revenues. The team continues to do a great job maintaining a disciplined approach in terms of focusing on deals with the right strategic fit and return profile, and ensuring that we complete integration to achieve the expected return. Of the 11 acquisitions, five closed since our last earnings call, including two in the second quarter and three in the month of July. Over the last year, our team has grown by roughly 25%, and we are focused on ensuring that our new team members become a part of our culture quickly understanding and living our core values, critically important part of the integration that we need to achieve on a go-forward basis. Our M&A pipeline remains robust with over $500 million in revenues of identified opportunities over the top of our existing operating footprint in the Northeast and presents a continued opportunity to further grow the business and drive value. In wrapping up, I'd like to I'm pleased with the performance thus far in 2022. We were operating at a high level and executing well against our key strategies. As a result, as announced yesterday, we are again raising guidance for 2022. And with that, I'll now turn it over to Ned for additional financial details. Thanks, John.
spk01: I'd like to start by thanking our team for a great quarter. arguably one of our best quarters ever, given the challenging backdrop of historically high inflation and rapidly rising fuel costs. Our team did an amazing job accelerating cost efficiency programs to help moderate inflation, realigning pricing programs to offset heightened costs, and ensuring the eligible customers were on our fuel cost recovery fee program. This is a great testament to our ability to remain nimble in a dynamic economic environment. Moving on to the quarter, revenues in the second quarter were $283.7 million, up 67.8 million, or 31.4% year-over-year, with 17% of the year-over-year change driven by acquisition activity and 14.4% of the change driven through organic growth. Solid waste revenues were up 26.4% year-over-year, with price up 6.9% volumes up 1.6%, acquisition growth of 12.1%, and our fuel cost recovery fees up 5.3%. As expected, our price growth improved sequentially from the first to the second quarters. Revenues in a collection line of business were up 27.9% year over year, with price up 7.7% and volumes slightly down. Revenues in the disposal line of business were up 22.4% year over year, with price up 5.7% and volumes up 6.2%. As John mentioned, landfill pricing was up 5.5% year over year, but more importantly, average price per ton was up 6.4% as we continue to improve mix at our sites. After a slow start to the year, landfill tons were up 5.1% in the second quarter, With the strength in the second quarter, our volumes are now up for the year. Resource solutions revenues were up 45.7% year-over-year, with 5.3% from higher recycling commodity prices, 3.4% from higher customer solutions price, 30.8% growth from acquisitions, and the remainder from higher volumes and fuel cost recovery fees. Commodity prices were up again year-over-year at higher cardboard, in mixed paper pricing, higher metals pricing, and higher plastics pricing. However, commodity prices did hit a nine-month high point in April and have declined by roughly 20% from April through July with weakness across the board. Adjusted EBITDA was $68.5 million in the quarter, up $16.4 million or up 31.4% year-over-year. with roughly 10.1 million of the growth driven by improvements in our base business and 6.3 million derived from the rollover impact of acquisitions. Adjusted EBITDA margins were 24.1% in the quarter. This was flat year over year, but it was a strong sequential improvement and ahead of our plan for the quarter. Despite flat margins year over year, our pricing programs did cover cost inflation in the quarter. with overall price, solid waste, and resource solutions up 7.4%, offset by a 5.2% headwind from inflation, excluding fuel, a 65 basis point headwind from our fuel cost recovery program, a 40 basis point headwind from acquisitions, and the remainder associated with a shift in revenue mix year over year. Our fuel cost recovery fees are intended to recover higher fuel costs. which they did very successfully during the quarter with nearly 100% dollar cost recovery. However, since these are cost recovery fees, we did experience margin compression as fuel prices rapidly increased, driving higher costs and higher fuel surcharges for third-party transporters. Solid waste adjusted EBITDA was 58.8 million in the quarter, up 12.3 million year over year, with strength in both collection and disposal. Resource Solutions adjusted EBITDA was $9.5 million in the quarter, up $3.8 million year-over-year with improvements in recycling and industrial operations. With our SRA fee for hauling customers and a processing fee or rebate structure at our recycling facilities that we set each month based on Kamae prices, much of the year-over-year increase in recycling Kamae prices was passed back to our customers in lower fees or higher rebates. Cost of operations in the quarter was up $47.5 million year-over-year or up 140 basis points as a percentage of revenue with most of the increase driven by higher fuel costs. G&A costs in the quarter were up $4.4 million year-over-year or down 170 basis points as a percentage of revenue with most of this improvement driven by lower incentive compensation, accruals, and lower labor costs. As of June 30th, we had $593.7 million of debt, $39.3 million of cash, and liquidity of $311 million. Our consolidated net leverage ratio was 2.3 times, and our average cash interest rate was approximately 3.3%. Our balance sheet is in great shape and positions us very well to continue to grow while also providing stability in this rising interest rate environment. We had roughly 73% of our debt at fixed rates at the end of the quarter, and our next debt maturity isn't until January of 2025. Adjusted free cash flow was $46.2 million year-to-date, up $8.6 million year-over-year, with slightly higher capital expenditures, more than offset by higher net cash provided by operating activities. As stated in our press release yesterday afternoon, we have increased our fiscal year 2022 revenue, net income, adjusted EBITDA, net cash provided by operating activities, and adjusted free cash flow guidance ranges. I won't read through them, but they're in the release. We increased our guidance ranges for the second time this year, mainly due to our stronger than planned pricing programs, continued execution against our operating efficiency initiatives, excellent cost recovery from our fuel recovery fee program, and a positive contribution from recent acquisitions. We expect higher net cash providing operating activities to be partially offset by higher capital expenditures, including continued investments into newly acquired operations, growth capital investments for new contracts and customers, additional investments to accelerate operating efficiencies, and unfortunately higher prices on certain budgeted capital items due to inflation. As expected, specific margin headwinds in the first quarter moderated significantly into the second quarter, and we remain confident in our ability to outpace inflation through the full fiscal year and improve adjusted EBITDA margins year over year. Our new guide has about 10 to 20 basis points year over year. Our internal rate of inflation is currently running at 5.2%. We expect to outpace this inflation and increase adjusted EBITDA margins for the full year, and we expect margins to sequentially improve through the remainder of the year, with margins up slightly in the third quarter and up more significantly into the fourth quarter. As we discussed last quarter, if inflation does increase further, we have great flexibility to advance additional pricing on roughly 70% of our collection book of business, and our floating fuel recovery fee is now offsetting roughly 100% of our costs. And with that, I'd like to pass it back to the operator for any questions. Thank you.
spk08: And thank you. As a reminder to ask a question, you'll need to press star 11 on your telephone. Please stand by while we compile the Q&A roster. One moment for questions. And our first question comes from Tyler Brown from Raymond James. Your line is now open.
spk04: Hey, good morning, guys. Good morning, Tyler. Hey, Joe, I can't remember laughing out loud on a conference call, but I did, so thanks for that. My work here is done. I want to talk a little bit about your revenue complexion and what that may mean for pricing next year, just big picture conceptually. So I think that there's this broad understanding that CPI-linked revenues will be set materially higher next year. But based on my notes and what you just said, I think only about 30% of your revenues are restricted in nature. And only half of that is maybe CPI length, which is a pretty low mix between other players. But on the flip side, and you kind of talked about it, but you have a lot of residential subscription with freedom to price. So can you just talk about how that might play out next year? Because you won't get as much of that, call it prescribed pricing help as maybe some others, but you also have this ability to push price as well.
spk01: Yeah, there's really, our book of business, as you're well aware, is more open market and not set in municipal contracts or franchise agreements. In fact, in our collection line of business, roughly 10 to 12% are municipal contracts. At our landfills, we also have long-term contracted work and through other lines of business as well. And as you look through that book of business, there's not a lot of them that are directly linked to CPI-U. We have many more of our contracts that have moved to the trash and garbage index over time, or if they are linked to a CPI index, many times they'll be capped. So we don't expect, you know, on a certain date to have a lot of 9% price increases linked to CPI-U. You should expect, you know, a blend that's more like in the 5% to 6% range where the trash and garbage index is and other price increases. So we're not, we're not staring down, you know, a set of resets that will blend our price up higher. However, with that all being said, I think our pricing programs are working really well to help us offset inflation. As John and I mentioned a few times, we've accelerated a number of cost efficiency programs. We're pushing hard to try and strip costs out of the business to, you know, tackle inflation in that manner as well.
spk04: Yeah, no, that is extremely helpful. I appreciate that. But I do want to quickly go back over the margin walk as well. So I think I heard 65 basis point, and I'm talking corporate margin. I think 65 from fuel, 40 from commodities. Is that right?
spk01: Yeah, so I'll just walk through that again. So last year we had 24.1% EBITDA margins. Add to that 7.4% price blended between solid waste and our resource solutions group on a consolidated basis. Back off of that 5.2% inflation, not including fuels, then we had about 40 basis points of headwinds associated with acquisitions that have been completed. As you're aware, they come in a little lower margin. It might take us a year to two years to drive synergies and work off that book of business. We had about 65 basis points of headwind from fuel. And the remainder was actually a mixed shift in our book of business where we threw a lot of numbers out there, but our lowest growing part of our business actually in the quarter was our disposal part of our business. So re-blending to resource solutions and to collection just overall changed the margin mix down a little bit.
spk04: And commodities were a help or a hurt?
spk01: Commodities overall, well, that's in that 7.4%. So I included, there was 2%, 2.2% from resource solutions, which was part commodities and part actual pricing to our industrial customers.
spk04: Okay. Okay. So at the core level, though, it sounds like margins moving in the right direction.
spk01: Yes.
spk04: Okay. And then, you know, I am certainly no mathematician, but it looks like your implied second half EBITDA is only up slightly versus Q1. And typically it goes up, you know, call it circa 20% and I'm probably rounding down. So is there just conservatism in the second half or am I missing something?
spk01: Well, we're going to anniversary a large acquisition. Will and Nancy, we just did that on July 26, I think was the anniversary date. So that's part of it. We're also expecting some headwind into the second half of the year from recycling commodity prices. As you know, we give a lot of that back to customers, but it still has been a tailwind. And, you know, we're probably as always being a bit conservative. Every time you turn on the news, you're hearing something new about the recession. We haven't seen anything change in our volumes or our business yet. We're doing really well. Our customers are strong. Our business is strong, but I think we're just, you know, taking a moderate approach here.
spk04: Okay. Okay. And then, so John or not or whatnot, I think some news came out this week that Mira in Connecticut is finally closing its doors. So I think it's a gold star on your camo map. Maybe it can go red. But was there any material amount of tonnage flowing into that plant, or has it already been displaced? Does that tighten up that market additionally?
spk09: I think that it's certainly going to tighten up the market in the northeast, 700,000 tons that will be displaced. A portion of it already, obviously, has already happened. But just net-net, it's clearly going to tighten up the already imbalance supply and demand of the Northeast disposal capacity, Tyler. So it's just, it's something that we have been talking about a little bit, but it is actually happening and that is clearly going to impact the Northeast market. Okay, so there is some tonnage that needs to find a home. There is, and it will be, you know, it'll be a little bit fluent probably for a year or so before it all finds a home and settles down.
spk01: Yeah, without having McKean online yet, we didn't directly source any of that waste because it is going to leave via rail, but it's taking up capacity in the whole network and there's not a lot of homes for that much waste.
spk04: Yeah, maybe my last name is on McKean. So, I mean, it just feels like capacity keeps grinding lower in the market. It seems like local governments are frankly unwilling to permit additional capacity. So, It just feels that Waste by Rail is going to become a bigger and bigger outlet for Northeastern volume. You talked about McKean. Can you update us on where we are with McKean and when do you expect that to come online?
spk09: Sure. So McKean, we put our grant applications in place. We expect to hear on the grant application that we have in place before the end of the year. We're also anticipating that we will have our Revise permit in before the end of the year and expect to see that permit acted on sometime the middle of next year and and anticipate hopefully being under construction barring any delays on that permit, which we don't anticipate at this point in time. Um, you know, in, uh, at the end of 23 for operation, early 24.
spk01: Yeah, we've been working on long lead items as we speak as well.
spk09: Yeah, once we have a sense of the grant, we may, you know, start looking at and have an understanding where we are from a permitting standpoint, understand where that's going. We'll start to, as Ned said, we'll start to look at the long lead items from a capital standpoint and start to act on that.
spk04: Not to be too specific, but will that CapEx run through your CapEx line? Or is it the short line railroad that will make the investment? Or how does that work? And will you add that back to free cash in 2023?
spk01: Yeah, so I think we need to do a little bit more work there. And we've applied for several federal grants to help pay for part of this infrastructure, as John referenced. And they will be the grant recipient, a local township there. But the capital will run through our... our balance sheet and our statement of cash flows with reimbursement funneled through a local town to Casella netting against the CapEx. And we'll have to get into details on timing if there's some timing differences between reimbursement or the exact level of investment. We're looking at doing this in stages. We do have the airspace is fully permitted at the site. We do have a valid permit for taking 6,000 tons a day via rail. And what John was referring to is some wetlands permitting and some adjustments to our daily intake volume permit as well.
spk04: Okay. Very good. Appreciate the time, guys.
spk01: Good. Thanks, Tyler.
spk04: Thanks, Taylor.
spk08: Thank you. And one moment for questions. And our next question comes from Michael Hoffman from Stiefel. Your line is now open.
spk05: Hey, thank you very much. Joe, I've been there for all 100 of them, and you get funnier every day.
spk03: You have, and sometimes you've actually been on our side. Oh, God. That's true, Joe.
spk09: Oh, God. You've got to love it.
spk05: There's always stories behind that, too. So back to the landfill comment, mirrors closed. I mean, clearly the volume is all found at home because it's not piling up on the street. The question is, what's the permit at home? The bigger comment, though, is 700,000 tons has disrupted the market, the spot market again. Spot prices have moved fairly meaningfully in the last six months as this was looming. So the interesting question is, can you do more on your landfill pricing? Have you flexed it as much as it can be? It seems like you're in a really enviable position, 20 plus percent of the market getting permanent expansions.
spk09: I think it's clearly, Michael, as the supply and demand continues to be negative, it's going to continue to increase pricing, obviously. So I think it will happen incrementally over time. It's not going to be one fell swoop, but I think that it's the reason why we feel comfortable that we've got a really nice runway for the next three to five years in terms of being able to, that we've got a really nice runway for the next three to five years in terms of being able to priced very successfully at the disposal facilities.
spk05: So we guesstimate, we've talked to the burners, that Boston's renewal in 24 is now potentially talking about a 130 to 140 number. If that's the case, it feels like, you know, then the simple math is just figure out how much it costs to drive out to your assets and subtract that from the 140, and you ought to be charging somewhere close to that, that you could comp the price at five plus percent at the landfills for a while. Is there anything wrong with that logic?
spk09: No, I mean, I think that, you know, obviously the higher the price goes at the earners, the more likely it is that the higher the price is going to go, you know, subject to transportation differential, right, in terms of how far you have to go to the disposal asset. Again, I think that it's clear if, in fact, your premise of pricing at the incinerator goes to that level, then it's likely that pricing will continue to be firm at the disposal facilities. And again, it's what gives us comfort over the next three to five years that we've got a nice runway.
spk01: And the relief valve for these volumes is rail. And it has been. And we're seeing as much as 25% 27, 28% of all waste being railed out of the Northeast today. And that's growing with each of these closures. And yes, we're opening up McKean, but the rail is capital intensive and it does generally cost more than our in-market capacity to get to. So we've got a great positioning over time. And another really important expansion that we're working on is our Highland landfill in Western New York. that continues to move along nicely. And we're excited about the opportunity to bring that capacity online in the next, you know, three to four plus years.
spk05: Yeah. And just to remind everybody that's 400 ish thousand going to a million.
spk01: Yes, that's correct. Yes, that's correct.
spk05: So, you know, we talked about this in May and at the investor summit, but you know, I, I, I view McKean both an offensive and defensive move because you'll end up with the closest in rail access landfill. Um, So the critical question is, based on what you just shared in the prior commentary, you will be up and running before Boston renews, and therefore you're in a position that that market does get driven there, that volume starts getting displaced incrementally to rail. You're in a position to capture it to leverage McKean.
spk09: We're going to do everything that we can from a firmity perspective to try to move that as quickly as we can at this point, Michael. We've made the commitment already. The team is fully engaged. We're, you know, our grant application is in already. We expect to hear on that before the end of the year. So, you betcha, we're going to push to get it open as quickly as we can at this point.
spk05: Okay. Shifting gears, the fuel surcharge, is it 100% direct or is it picked up the indirect exposure, your third-party transportation?
spk01: Yeah, so historically we were just looking at direct expense and we had not ever had any third party fuel surcharges pass through to us. But lo and behold, we clicked through a lot of thresholds in third party transportation contracts and started to be levied pretty significant surcharges by third party transporters in Q1 into Q2. We've introduced a new fuel surcharge at our transfer stations that just went live in June. So we didn't have full recovery through the period, but into Q3, we will with that new fee that's seeking to pass that back to our customers, any surcharges charged to us.
spk05: Okay. And so speaking to questions about margins, the guidance, the 30 million of REBs, feels like two-thirds of that's probably fuel and a third of it's outright. There's two observations. One, that's $20 million worth of dilution to the margin. But the other is the EBITDA upside, the incremental margin is compelling because it's 10 million of growth and 6 million of EBITDA.
spk01: Yeah, you're 100% right. So we upwardly adjusted revenue guidance by 30 million from our last conference call to today. And of the upward revision, 20 million of it was associated with higher fuel surcharges, which are really just pass-throughs. And as we look at that, the last 10 million It has some really nice beneficial margins because there's really no additional EBITDA being generated on the fuel surcharges. So we raised our revenue guidance by $30 million. We raised our EBITDA guidance by six. Twenty of the revenue guidance is associated with fuel. So you kind of have $10 million of revenues increase $6 million of EBITDA. We're doing a really nice job on cost efficiency programs, really nice job on pricing programs through the business.
spk05: Yeah, I mean, it should go unsaid. That's 60% incremental margins. That's pretty impressive. Yeah. Switching gears to incentive costs is down. You're beating your numbers.
spk09: I'm surprised Sean didn't say something about how well he's doing from an operating salesman.
spk05: Yeah. Sean's been very quiet for his first call.
spk09: I think the great part about it is that we do have still quite a bit of runway in terms of fully automating trucks, route optimization, getting computers in trucks. Sean's made great progress there to help really lower our costs to contribute to the overall situation we find ourselves from a market perspective. But we've got runway there, too, in terms of continuing
spk05: continue to drive costs down got it um and then on incentive comp it's down that's confusing if you're beating your numbers so are are we going to get a an accrual adjustment in the fourth quarter no it's just down as a percentage of revenue so um it's actually kind of an interesting period where we've seen revenues escalate on fees
spk01: which are causing a re-blending of some of our income statements. So there's, there's no like big shift there. We actually had a little catch up in the second quarter because bonus accruals were, you know, being adjusted higher, but as a percentage of revenue year over year, it's down because we've grown revenues so dramatically.
spk05: Got it. Okay. And then lastly, I know why you adjust your free cash flow and present it that manner. When do you anniversary the need to do so, where you stand on the backs of just cash flow from ops, less all capital spending?
spk01: It's a good question. We started doing this several years back just to give additional visibility into larger items. And we fully anniversary our 30-year infrastructure investment at Waste USA, which is been very successful. We're excited to be into the new capacity there. That was a pretty unique event. Southbridge, we're getting down to the end of a very long process with MassDEP to get that site closed, and that will come off here very shortly. And then the last item we give visibility to is on acquisitions. And frankly, when we pro forma acquisitions, we're typically trying to get new trucks, facilities, integrations done as fast as possible. And we'd like to give visibility on that. These are all items that were part of the pro forma, but we feel like it's a good way to give investors additional visibility on how we're investing CapEx.
spk05: Fair enough. But the industry and you have become serial acquirers so it's a cost of doing business so in reality the underlying cash is i mean you know i get the other two are anomalous things but the other is sort of a recurring event of as long as you have it it's more meaningful for us because we're you know we're um much smaller than the peers so it's much more meaningful i think to us than it is to them right So last one, John, when do you get to $2 billion?
spk09: Ned's told me it's not going to take as long as I took to get to a billion. So Ned said, I think it's probably within a couple of years. I don't know. I don't know. Only kidding. We have had that conversation, though. It's funny because he's definitely said it's not going to take as long as it took me to get to a billion. Yeah.
spk05: Very good. Well, congratulations on that, and have a good rest of the day. Thanks, Michael. Thanks, Michael.
spk09: Appreciate it. Thank you.
spk08: And thank you. And one moment for questions. And our next question comes from Sean Eastman from KeyBank Capital Markets. Your line is now open.
spk07: Hi, everyone. Nice quarter. Thanks for taking my question. Hey, Sean.
spk01: Thank you. Good morning, Sean.
spk07: Morning, guys. Just quick housekeeping one first. I might have missed this, but what's the updated solid waste price and volume embedded in the new revenue guidance? Jason, you want to take that?
spk06: Yeah, sure. Hey, Sean. It's Jason. So as you're aware, our original solid waste price guide for the year was 4.5% to 5%. And as we're looking over the balance of the year, given the strength of our pricing programs to date, we have upwardly adjusted our solid waste pricing metric and expectation to roughly five to six percent for the full year with some opportunity of course based on the overall inflationary environment to go back out and advance more pricing if needed so we'll continue to monitor and assess that situation on solid waste volumes we initially guided one and a half to two percent for the year and we've taken that back a little bit as we have seen slightly lower volumes at our transfer stations as well as a little bit lower than expected volumes across our collection operations, mainly due to customer deselections. So we're improving the quality of revenue via both our pricing programs as well as some of our routing efficiency programs. And with that, we've deselected some unprofitable business, which is a really good story. So we're kind of okay with sitting at an outlook of 50 basis points to 100 basis points. of solid waste volume growth for the year.
spk07: Very helpful. And then just coming back to the comments about the flexibility to advance additional price later in the year, what is the big cost bucket variable that that we need to be thinking about there. Is it really labor and wages? You know, I know you guys were tracking how the labor market would tighten up into the summer months, but just wanted to get some color on what you're really monitoring there.
spk01: Yeah, right now, I mean, as we said earlier, overall core inflation is around 5.2%, which is up sequentially from the first quarter, which is around 4.5%. So inflation continues to creep into many categories from parts to outside maintenance. Labor's been more stable over the last six to nine months. But one thing that doesn't flow through the income statement, but there is real inflation, is capital expenditures from liner materials at landfills to trucks to containers. Everything is running through there. So while that's not running through the income statement, it's an important area that we're cognizant of and we're looking at our pricing programs around as well to make sure we're covering that and we're ensuring we generate the appropriate returns on assets that are going on the ground.
spk07: Okay. Interesting. Interesting. And then part of the CapEx guidance raise was accelerated operating efficiency investments. Is there something new or interesting to note there? And I'd be curious just more broadly how we should think about, you know, the annual efficiency gains you guys are targeting this year and sort of what's contemplated in the longer term outlook from an efficiency gain perspective.
spk01: So our most important efficiency gain programs right now are bringing online our routeware onboard computing systems. And we're through about 250 of our vehicles today out of 1,000. And we're trying to accelerate more into this year. It's a system that allows us to more help dynamically route trucks. It also helps us to more effectively capture what we're charging. It helps efficiency for our drivers. It also helps with safety. We've got a great camera system integrated in with, I think, as much as eight cameras, Sean? Eight cameras. And that's really been powerful for us as well on the street from a training standpoint and also when something's not our fault. So we're looking to accelerate that. We continue to work really hard on route conversions. from rear load to front load or to automated robotic side load trucks. And we're driving that over a multi-year horizon. We're seeing about 45% of our fleet automated side load today. And that's a regenerative opportunity because as we buy companies, they typically don't have automated fleets. So those are kind of our two majors. We brought online a great tool in the last 12 months that Sean Shepard did. our easy route optimization package, which allows us to very quickly, effectively optimize routes as we do acquisitions or as we grow into markets or just try to gain efficiency. So the teams, those are kind of the three major building blocks of what we're focused on. And none of these are like a one-year horizon. They're a multi-year regenerative set of tools.
spk07: Very helpful. I'll turn it over there. Thanks, guys. Thank you.
spk08: And thank you. And one moment for our next question. And our next question comes from Tyler Brown from Raymond James. Your line is now open.
spk04: Hey, I just got a quick follow-up. But, Jason, do you have what the – the revenue from M&A is in 22, and then what is it in 23 based on what we know today?
spk06: Yeah, so I'll start with the latter first. So the rollover into 2023 from acquisitions closed in 2022 is about $12 million of M&A rollover next year. And then this year, in terms of total M&A related growth, both from acquisitions closed in 2021 and 2022, is about $88 million of revenues for the full year.
spk04: 88, okay. And then on Boston, so when that comes online, is that just a cost save? What I'm trying to figure out is what is the year-to-year EBITDA impact of Boston 22 to 23?
spk01: Yeah, so the Boston MRF will have a couple different benefits. One will be We'll increase our throughput by about 35%. So initially, we'll run less hours and have a little bit less operating expense associated with processing of each ton. And some of that will flow back to our customers in the marketplace. Some will stay with us. And then over time, that will allow us to grow. But right now, as you can imagine, labor struggles.
spk09: The other thing that we end up with there is higher quality. Higher quality. Higher quality material, which could impact positively revenues.
spk01: Revenues as well. We'll have less residue coming out of the stream, so less materials that were going to the landfill now can be recycled as well. And we'll have less labor on our line as well, which is a really big gain in this environment. That's a hard spot to recruit for, and with the robots we're bringing online at several facilities, We're really seeing great quality of work. They're working very well. The cost profile is right, and it's allowing us to have a higher quality stream.
spk04: But is it an EBITDA hole this year that will get refilled and dim sum?
spk01: Yeah, so with that investment, Jason, do you know how much EBITDA it may add next year? I don't have the proforma open in front of me.
spk04: we have to follow up on that one all right yeah okay okay yeah i'll follow up on that one but just my last one here john i just can you update us on where we are in new hampshire is there any updates on north country and just maybe what the next steps are there sure um so you know we continue to um move that process forward um we're you know we're looking at um
spk09: reducing the amount of wetlands associated with the facility in terms of the taking. In the throes of going through that permit, there was a vote for zoning in Dalton that was turned down. I think it's more obviously on the basis of people just not wanting zoning as opposed to a favorable vote for the landfill, but nonetheless, it was a positive vote against zoning in the town. So, you know, we continue to move it forward. It's no less controversial than it has been, but we're reducing the impacts. We still have a great project there and we'll continue to move it forward from a permitting standpoint.
spk01: And our North Country landfill has, you know, four years of life. And this fall, our first RMG facility will come online at the North Country Landfill, which we're very excited about. This is a project where we put zero capital dollars, but we get a share of the cash flows and revenues from the RIN.
spk09: It's a spectacular facility. The Rudarpa team, who we teamed up with there, has spent over $35 million putting that facility in place to create pipeline-quality gas. So we're very excited about that project, and that should be a real positive for North Country and the community.
spk04: Okay. And that's a help next year to cash flow into Dallas.
spk09: Yeah. Yeah. All right.
spk01: Thank you, guys. Thank you, Tyler. Thanks, Tyler.
spk08: Thank you. And I am showing no further questions. I would now like to turn the call back over to John Casella for closing remarks.
spk09: Thank you, and thanks, everybody, for joining us this morning. We look forward to discussing our third quarter 2022 earnings with you in late October. And with that, everyone have a terrific afternoon and a great weekend. Thanks, everybody. Terrific afternoon and a great weekend.
spk08: Participating, you may now disconnect.
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