Casella Waste Systems, Inc.

Good day and thank you for standing by. Welcome to the 2024 Third Quarter Cosella Way System Conference Call. At this time, all participants are in 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. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would like to hand the conference over to your first speaker today, Charlie Walhunter, Director of Investment Relations. Please go ahead.

All right, thank you, Marvin. Good morning and thank you for joining us today. We'll be discussing our Third Quarter 2024 results, which were released yesterday afternoon. Here with me today are John Cosella, Chairman and Chief Executive Officer of Cosella Way Systems, Ned Coletta, our President, Brad Helgeson, our Chief Financial Officer, and Sean Steeves, our Senior Vice President and Chief Operating Officer of Solid Waste Operations. After a review of these results and an update on the company's activities and business environment, we will be happy to take your questions. But first, please be aware that various remarks we may make about the company's future expectations, plans and prospects constitute forward-looking statements for the purposes of the State 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 factor section of our most recently filed Form 10-K and Form 10-Q, which are 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 in 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, October 31st, 2024. Also during this call, we'll 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 included in our press release filed on Form 8-K with the SEC. And with that, I will now turn the call over to John Kisala to begin today's

discussion. Thanks, Charlie. Good morning, everyone, and welcome to our third quarter 2024 conference call. Once again, it was a busy but very exciting quarter as we continue to execute against our strategic growth plan. I will review these highlights and provide comments on our results. Brad and Ned will then discuss details on the financials and our strategies. As we announced in our press release last night, we recently completed our sixth acquisition of the year, closing royal on October 1st. This is a company that we've known and respected for decades. They're focused on delivering excellent customer service, taking care of their team, and supporting their local communities are admirable and aligned with how we operate. I'd like to welcome all of our new team members to Kisala and look forward to serving our new customers with the same outstanding customer service that has helped make Royal successful for nearly 70 years. As always, our initial focus is on integration, which I'm happy to share is going well at the three larger acquisitions we completed this year, LMR, Whitetail, and now Royal. With nearly 5,000 employees, I'm very excited about what the future holds. Shifting to our results for the third quarter, revenue topped 400 million while we generated over 100 million of adjusted EBITDA for the first time in a quarter. These achievements reflect the power of the hard work at all levels and underscore the strong foundation of our company. Beginning with our landfills, volumes were down year over year, C&D tons remain the driver for almost the entire decline. Special waste was down marginally and MSW tonnages were mostly flat in the quarter. While this has presented a recent headwind, our strategy has not changed as we remain dedicated to preserving our valuable airspace for the longterm. To this point, our average price per ton at our landfills increased over 7% year over year. And just recently we received support from the state of Maine on the expansion of our Jupiter Ridge landfill. This is a critical asset for the communities in Maine and will continue to provide a dedicated disposal outlet. Moving to the collection side, I'm especially happy to report the strategic investments in our frontline operations are making positive impacts. Adjusting the bid and margins were up 130 basis points in the quarter on same store basis. This is impressive and a testament to the strong operating program Sean Steeves and his team have developed. With plans for continued automation, automated truck conversions, rollout of onboard computers and leveraging power BI tools, we see further opportunities across our base business and acquisitions for more value creation. These benefits also flow through to our recruiting efforts, employee safety and turnover trends as well. In some cases, these are at the best levels in the company's recorded history. Applications are strong and both TRIR and turnover rates are moving lower. In resource solutions, we also posted strong results across both adjusted bid and growth and margins. On the same store basis, margins were up 90 basis points year over year in the quarter. We've worked very hard at making strategic investments that answer the demand for sustainable solutions while generating strong returns. And the broad base strength in the results shows it. Beginning with our MRRS, results benefit from higher commodity prices. This provided a tailwind to our performance. However, this was only part of our success. The equipment upgrades at certain facilities have increased productivity, throughput and safety levels while material recovery and quality have also improved. Our Boston MRF is a great example for how technology can enhance our operations and is a blueprint we are applying to other facilities, namely our Willem Manick facility. This facility is offline now, but is expected to be up and running early next year. Our national accounts business remains strong and it's a very strong area of growth. We want new commercial, municipal, industrial businesses in the quarter and now entry into the Hudson Valley with Royal provides opportunity to target commercial and institutional customers with a focus on sustainability much like our strategy in the mid Atlantic. Speaking of sustainability, in late September, we published our 2024 sustainability report highlighting our vision and achievements in creating and sharing value with the customers and communities that we serve. Our sustainability strategy is deeply rooted in our company from building our first MRF in the state of Vermont back in 1977 to further investments across our MRF network a resource solutions segment is one part of our focus. The other key areas are the resources we are devoting to our people in safety, training, recruitment and retention. These investments support the backbone of our company and allow us to better serve our customers and communities. Finally, I'd like to emphasize the solid waste results our team has delivered. The strength of our base business positions us very well as I look forward and the recent acquisitions we completed add to this foundation. I'm looking forward to a strong finish in 2024 and it's set up for 2025 and beyond. The outlook is very promising giving me opportunities in front of us and our continued potential to grow the business. I'll now pass it on to Brad to walk through the details from a financial standpoint.

Thanks John and good morning everyone. Revenues in the third quarter were $411.6 million up to $58.9 million or .7% year over year with 37.5 million from acquisitions including rollover and $21.3 million from organic growth or 6%. Solid waste revenues were up .3% year over year with acquisition growth of 13%, price up .5% and volumes down 1%. Within solid waste, price in the collection line of business was up .1% and volume down 0.7%. In the front load commercial business, price was up .5% and volume up .7% while volume declined in the quarter were concentrated in residential and rolloff as we work to improve the quality of revenue and margins in those businesses. Revenues in the disposal line of business were up .7% year over year with transfer revenue up .6% and landfill revenue down 1.5%. Landfill price growth of .6% was offset by lower volume of .1% in revenue terms. MSW tons into the landfills were essentially flat in the quarter and year to date, but we saw continued weakness in C&D tons down 16% year over year. As we've discussed, the C&D market is currently under pressure with the impending closure of the landfill site in the Metro New York market. We expect this dynamic to continue through the end of the year, but it should abate in 2025. The average price per ton at the landfills was up .1% year over year, reflecting a mixed shift away from lower price streams as we held the line on price in the face of volume pressure and prioritize preserving our valuable airspace. Resource solutions revenues were up .5% year over year with recycling and other processing revenue up .8% and national accounts up 8%. Within processing operations, price was up 7% driven by an increase of over 60% in average commodity revenue over Q3 last year. Of course, most of the benefit of these higher commodity price is shared with our customers under our contract structures which was designed to mitigate risk. So the net benefit to our revenue was only $1.6 million in the quarter. We expect favorable year over year price comps to continue through year end as recycled commodity markets remain firm and current prices are well above last year. Processing volume was up .9% with higher recycling volumes benefited by production enhancements at the Boston Mer. Within national accounts revenue, price was up .1% and volume was up 7.2%. Acquisitions contributed .8% across the resource solution segment. Adjusted EBITDA was $102.9 million in the quarter up 13.3 million or .9% year over year with $9.3 million from acquisitions including rollover and 4 million for organic growth. Adjusted EBITDA margins were 25% in the quarter down 40 basis points year over year. Bridging the year over year change in EBITDA margin, a few specific headwinds drove the decline in the quarter. As noted in our press release, we incurred over $3 million of expense in the quarter related to two discrete insurance events which impacted margins by 80 basis points. Insurance events are part of our ongoing business so we don't treat these as adjusted EBITDA add backs but the magnitude of these two events was certainly unusual and had a material impact on the quarter. In addition, lower year over year volume at the landfills, particularly C&D materials as we've discussed, continued to weigh on results and impacted margins by another 30 basis points in the quarter. The rest of our business performed well and in line with plan. Our pricing programs continued to outpace inflation and we benefited again from ongoing cost efficiencies in the collection business. On a same store basis, adjusted EBITDA margins in the collection and resource solutions line of business were up 130 and 90 basis points respectively so the underlying margin trend in our base business remained strong. The year over year benefit of higher production at the Boston Merck was essentially offset in the quarter by the shutdown of the Willimantic Merck for the retrofit and upgrade of that facility. We look forward to having both facilities operating at new higher levels of production in early 2025. Acquisitions were net neutral to the quarter on consolidated margins. Cost of operations were $267.1 million in the quarter, up 40.8 million year over year with 25.8 million of the increase from acquisitions and $15 million in the base business. Excluding the impact of a large insurance events that I mentioned, cost of operations were down 40 basis points in the quarter in the base business. Adjusted net income was $15.9 million in the quarter, down 4.2 million compared to prior year with the accelerated amortization of identifiable and tangibles associated with recent acquisitions and higher net interest expense weighing on earnings. Intangible amortization was up $3.9 million year over year while excess cash balances related to the company's financing activities in Q2 2023 resulted in higher interest income in the prior year period. Gap net income was $5.8 million in the quarter, down 12.4 million compared to prior year, driven by an $8.5 million closure charge at the Southbridge landfill, as well as higher DNA and acquisition related expenses. The Southbridge charge resulted from the revision of accrued post closure costs following the receipt of the site's requirements contained in the final closure permit, including increased well monitoring and testing for emerging contaminants. These requirements were more onerous than previously expected and could not have been reasonably estimated prior to receipt of the final permit, which represented the official closure of the site and transitioned to the post closure period. Our effective book tax rate was .6% in the quarter and it's projected at approximately 42% for the full year as certain non-deductible expenses and discrete items push the rate above our statutory rate of approximately 27%, including state taxes. The reason this effective rate is higher than previous years is that a reduction in forecasted gap net income for 2024, driven by the items I mentioned, magnifies the impact of permanent differences and discrete items on the rate. As a reminder, we expect to pay approximately $5 million in cash taxes this year. Net cash provided by operating activities was $171.6 million for the first nine months of 2024, up 13.8 million year over year. This increase was primarily driven by EBITDA growth and came notwithstanding higher cash outflows from net changes in assets and liabilities in the first half. Adjusted free cash flow was $98.8 million in the first nine months, up $4.4 million a year over year with stronger operating cash flow partially offset by higher capital expenditures. As we announced in September, we completed two important financing transactions in Q3, raising over $500 million in equity and extending and upsizing our senior credit facility to 1.5 billion, including increasing our revolver from 300 to 700 million. These financings position us well for continuing to execute on our M&A and growth investment strategies. As of September 30, we had $1.1 billion of debt and $519 million of cash and our consolidated net leverage ratio for purposes of our bank covenants was 2.57 times. We closed on the acquisition of Royal Oncobra One and pro forma for that transaction, our bank covenant leverage was less than two and a half times and we still have approximately $1 billion of potential financing capacity between excess cash and undrawn revolver. As we announced in our press release yesterday, we reaffirmed our guidance ranges for revenue, adjusted EBITDA, cash flow from operations and adjusted free cash flow for 2024 and revised our guidance range for gap net income primarily to reflect the Southbridge landfill closure charge. With acquisitions close to date, including Royal, we now expect to be at the high end of our guidance range for revenue. However, for adjusted EBITDA, contribution of one quarter of Royal will be roughly offset by the unexpected insurance charges in Q3 that I mentioned, keeping anticipated results within the existing guidance ranges. Looking ahead to 2025, we're excited for another year of strong growth across revenue, adjusted EBITDA and cash flow. As you build your models for next year, we expect approximately $125 million of rollover acquisition revenue, primarily from Royal, Whitetail and LMR. In the base business, we anticipate tailwinds from solid waste pricing of approximately 5%, improved landfill volumes year over year, the completion of the Willimantic Merck retrofit and continued benefits from our operating programs and acquisition synergies, driving margin improvement across all lines of business. Taking all of this into account, we expect growth in the range of 12 to 15% on adjusted EBITDA and adjusted free cash flow growth in our long-term range of 10 to 15%. Of course, this outlook assumes no further acquisition activity. And with that, I'll turn it over to Nick.

Thanks, Brad. Good morning, everyone. As John said, we had another busy quarter with further execution against our growth strategy. With the purchase of Royal Carding on October 1st, we completed our sixth acquisition year to date, bringing total acquired revenues to over $200 million on an annualized basis. We remained selective with our acquisitions, focusing on opportunities to have the right cultural and the right strategic fit. We're excited to welcome the Royal team to Casella and believe that this adjacent market presents a unique opportunity to drive landfill internalization and organic sales growth. The early stages of integration are going well with efforts to integrate the back office sales and operations progressing according to our plans. From an operating perspective, we continue to execute well against our core programs, including automated truck conversions, route optimizations, and extra revenues generated through our onboard computing capacity. These efforts continue to boost safety, operating, and financial performance. Our recent acquisitions all present great opportunities to apply these same successful programs. Given the lingering softness in special waste and C&D landfill vines, we focused efforts over the last several months on increasing landfill internalization across both newly acquired markets and markets entered over the last few years. Along this vein, we have purchased additional long haul trucks and trailers and have established new transportation lanes from four markets to our New York landfills. With these moves, we expect to drive and increment to 120,000 tons per year of internalization. We are working on additional opportunities for 2025. Turning to our development projects, the first phase of investment in our rail served McKean, Pennsylvania landfill is now complete. To date, we have received over 50 rail cars and 6,400 tons of waste at McKean, allowing us to test equipment and processes. We are very excited about the future promise of the site. Currently, our infrastructure includes a gantry crane to offload boxes and over a mile of rail spur. We can offload roughly 5,000 tons per day of containerized solid waste, sludges, and special waste at the site. As previously discussed, this site provides a great long-term risk management to preserve our flexibility in the disposal-constrained Northeast. As such, this won't be a meaningful driver of near-term volume growth, and this site will be operated under the same return-driven focus that we apply across all opportunities. As Brad mentioned, during the third quarter, we began the full technology and equipment upgrade at the Willimantic, Connecticut Recycling Facility, and we expect to have the project completed by the first quarter of 2025. Taking the site offline is a negative drag for the second half of 2024. However, we expect the project to generate roughly $4 million of EBITDA in 2025. We continue to evaluate other opportunities to advance our circularity infrastructure. The RNG projects being developed by our partners are also progressing, albeit slowly. The RNG facility at Juniper Ridge-Lansville finally came online in the third quarter. Looking ahead, the three WAGA-led projects continue to advance with commercial operations expected to begin in late 2025. As a reminder, we have invested $0 in these projects and are receiving a royalty payment from the sale of gas and RINs, which we believe is the most appropriate risk-mitigating path for us. As we look ahead to late 2024 and into 2025, our M&A pipeline continues to be very active with roughly $600 million of revenues across a number of excellent opportunities in various stages of diligence. The strength of our balance sheet and our robust liquidity positions us well for continued return-focused growth. With that, I'd like to turn it back over to the operator for questions. Thank you.

Thank you. At this time, we'll conduct a -and-answer session. As a reminder to ask a question, you'll need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Trevor Romero of William Blair. Your line is now open.

Hi, good morning. Thanks so much for taking the questions. First one, I just wanted to ask for a progress update on some of the landfill development and expansion initiatives. John, I think you mentioned the Juniper Ridge landfill. Good to hear you received some support from the state there. Just wondering if you had thoughts on kind of the size and expansion of what the timeline could look like there. And then on McKean, thanks for the update there towards the end. Just curious how that ramp could look like for tons as we head into 2025 and beyond.

The Juniper Ridge facility received its public benefits permit from Maine. And that's a very significant permit, very positive in terms of being able to provide additional capacity for a number of years. Keep in mind, it's not necessarily to expand the facility in terms of total tons. It's really to bring the facility out for the next 10 years. So that capacity is really well received and it's gonna give us the ability to continue to provide those services to all of our Maine customers, both commercial as well as municipal. So it's a great step in the right direction now. It's walking through the technical reviews of the additional permits that we need to go to an operating mode. So very, very positive move. Great job by the entire team there. Our McKeen facility, as Ned said in his opening statement, we've really begun to shake it down. We've limited amount of tons, a thousand, under 10,000 tons into the facility, but that's hundreds of containers and really it's given the team the opportunity to go through, test everything, run, and really begin to shake down the entire facility and really give our people real experience from a rail perspective. So again, exciting facility in place, ready to go, but it's really, we don't anticipate a significant ramp up early in the process. As Ned said, it'll be more on the basis of need and as pricing continues to move in a positive direction.

Yeah, and two other kind of positive points there. Today we have three rail serve transfer stations that they're moving waste to other sites. We'll look to transition those over time to McKeen as appropriate. We've also brought on a really talented rail logistics professional on to the team, someone who has over 25 years of experience, it's helping us to work through the ramp up there and siting an additional rail transfer station in the appropriate market, kind of southern New Hampshire, northern mass markets where we'll have needs over time. So this is a long-term strategy, we're excited about where we sit right now, but the team's coming together and it's really progressing right where we want it to be.

That's great, thank you both for that. And then just wanted to add for maybe a little more detail on the Royal Acquisition, one from a strategic perspective and just talk about the importance of extending into the middle and lower Hudson Valley, and then from a financial perspective, just any thoughts on kind of the EBITDA you'd expect on that nine million of revenue and any synergy potential?

Thanks. Yeah, I'll give you a little bit of perspective with regards to the strategic piece of Royal. Royal has been a small customer of ours for 30 years, we've had a relationship with them for 30 years, it's a spectacular company driven by the Anishi family and in place for 70 years, really an exciting opportunity for Kasella and Westchester, Dutchess County, great market area, very, very exciting, a great opportunity for us to advance our resource solutions offerings to all of those companies, both industrial, commercial, colleges and universities, medical centers, in terms of helping them meet their sustainability goals. So it's very exciting, it's an area that we had no presence from a hauling standpoint, we did, as I said, take a little bit of waste from their transfer stations, but obviously now we'll have the opportunity to internalize a lot more of it. So, and there is significant relationships from a strategic standpoint with the county, which we will continue as well. So it's strategically just a terrific fit, we're excited to have the entire team come on board, very similar culture in terms of taking care of their people, the Anishi family really did a very, a great job of taking care of their people and obviously the communities that they served as well.

You know, through

some of the financials,

Ned. On the financial side, it's kind of like a mid-teens, even down margin company, you know, from our vantage point though, as John said, there's a few things we can do over the course of two years to drive it to a mid-20s percent margin company and one is just focusing on core operating programs and stuff we do great, route optimization, onboard computing, automation. Yeah, this is a really great opportunity there. Little more work for Sean. Little more work for Sean. And then the other thing that John mentioned, landfill internalization, we've got a game plan to move about a quarter of the times that they generate into our sites over the next year plus and that'll be some real great value creation over that time period. Longer term, probably opportunity to internalize more, but in the near term, about a quarter of the way. So, you know, these adjacent markets are excellent because we weren't there, we get that great internalization benefit, extends our footprint and, you know, also from a sales standpoint, we've got a great playbook with larger institutional industrial customers that we think can create a lot of value. Yeah, just a

great group of talented employees that, you know, all really come on board with us and just really a very exciting transaction.

Okay, that's all great. Thanks so much. You're welcome. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Tyler Brown of Raymond James. Your line is now open.

Hey, good morning, guys. Good morning. Hey, Brad, I think you did a good job explaining the guide, but I just want to kind of be crystal clear. So, effectively, the slightly weaker Q3, again, we had these insurance accruals that were maybe unexpected, largely offset the royal deal. So for all intents and purposes, that is one. The guide really doesn't change, just to be clear. Yeah,

that's right. Just netting the two together, it just didn't, you know, result in a significant enough move to adjust the guidance range either way. But yeah, essentially that punchline.

Okay, that's fair and helpful. I want to come back to the C&D issues. I know that these are not new. I think you mentioned it was a $2 million headwind in the quarter. I think it's been a headwind basically all year. So has that been as much as an $8 to $10 million EBITDA drag? And does that site close on 12-31? And I get that you probably won't get it all back in year one, but won't that be a positive delta into next year or should be?

Yeah, this has been a pretty significant drag throughout the year, Tyler. I mean, we're down close to 150,000 tons year to day on C&D. And this isn't like the construction demo market has weakened or something has permanently changed. As you laid out that there's a site on Long Island, Brookhaven Landfill, that's going to be permanently closed on -31-24. They're in those final stages where you need the lines in the site to grade shape, get it permanently closed. So the market will resolve coming into 2025. You know, we're really confident. As I talked about in my comments, we're also, you know, it's been hyper-focused and just making sure internalization is where it needs to be. We have the right transportation lanes. When our third-party vendors can't support those lanes, we've been buying trucks and trailers and putting assets on the ground. And, you know, I think we probably shouldn't focus on that a little bit more earlier in the year and pushing faster and harder. We pushed throughout the summer to do that. It's also, you know, helped with some of that, the headwind we've had. I don't think it's like a light switch on January 1, but we've seen the progress of getting back some of those construction demo times, even now into the fourth quarter. Some of our really great long-term customers from the New York market to, you know, had a nice opportunity to go out to Long Island over the last year and have a good price reduction as the site was getting closed. We've been talking to them. They're slowly starting to ramp tons back to us into the fourth quarter, so we expect some positives there and coming into next year.

Okay, now, super helpful. And I know you guys are gonna put, obviously, a much finer point on 25, call it 90 days, but there are a lot of moving pieces here. So if I just think through some of these, I mean, you've got organic growth. You've got Will and Mantick that goes from a negative to a positive. We just talked about C and D. Maybe McKean ramps up. No, that's somewhat debatable. It sounds like you've got internalization opportunities. These insurance accruals don't recur. You got a big roll over impact to them, and there's a lot of things going on. I mean, are some of those the key pieces to the bridge, or is there anything else that I should be thinking about?

You hit on, Talers, Brad, you hit on a lot of the key drivers. I mean, the way we think 25 is shaping up over 24, there's a lot that's lining up to position as well on a -over-year basis, and the biggest one is what you and Ed were just talking about, is landfill volumes in that market returning to some form of normalcy. So the way I would think about it is kind of everything you talked about is encompassed in the high-level EBITDA guidance that we gave. We're, of course, in our budget process right now, so we're gonna work through that over the next month or two, and gonna have a much more refined view when we talk again in February. But we're feeling good about the year.

Yeah, okay, perfect. Now, this is my last one here, Ned. Can you kind of go back over all the internalization numbers? So I thought you said that you were buying some long-haul tractors for something like 100, 125,000 tons via truck, but then you also mentioned that you've got three rail-serve transfer stations that are sending waste to elsewhere. So can you kind of just talk big picture, because this could be a big, and that's not, I know it's probably not just a 25, it's a multi-year story, but can you just talk a little bit more about that and just maybe, again, put a little more shape around it? Thank you.

Yeah, sure. So we have bought additional tractors and trailers, and we've established four new transportation lanes to hit our New York landfills from some major population centers where we weren't moving enough waste to internalize think Rochester, Buffalo, Capital District. So that's ramping up as we speak into the fourth quarter, and will be a positive benefit into next year. And as I also said, we do have three rail-transfer stations today, we haven't flipped the switch and moved those tons to McKean yet. We will do some of that over time, but we are more focused on moving MSW and sludges into McKean. A lot of what's leaving via rail today from Casella's construction and demo debris, and we feel like there are better outlets in other locations for that. So we're more focused on moving containerized MSW and special wastes and sludges to McKean. We think that's the higher value creation over the long-term for the site. So that's why you haven't seen us just go out and move those transfer stations to date. They're moving today to Ohio landfills, that they're effective TND rates, and it makes sense today. We will be looking at those sites and potentially a new site as well to really start moving some of that containerized MSW in the next year plus.

Yeah, perfect. Okay, thank you so much.

Thanks, Tyler.

Thank you, one moment for our next question. Our next question comes from the line of Adam Buggins of Coleman Saks, your line is now open.

Hi, good morning. I was wondering if you could just provide a little more color on the insurance expense accruals related to the two discrete events. What is that exactly related to and does that roll off next quarter?

Yeah, so we had a really tragic accident one of our transfer stations where a third party truck hit one of our employees and caused some pretty significant injuries to our employee. He's alive, he's recovering, but with a workers' comp incident like this, we got hit with a full accrual, even though much of this will be subrogated back over time to that third party's insurance provider. So really unfortunate in many ways, we're just thankful that our employee's on the mend and has a fight ahead of him, but is on the mend. That the other is just kind of almost one part insurance, one part legal where we had at a third party transfer station municipality unloading a truck, bumped such truck into a third party, that third party was injured, and we had to pick up a large accrual this quarter. Associate with that, that we always thought was a GL claim and it's turning out to be an auto claim. So there's just two really unusual claims that don't fit within the normal accruals of what we look at, and they hit us unexpectedly in the quarter, but not something we normally would see.

Understood, Dan.

Yeah, and just to finish, to your question about is this one time, there's a potential that the accrual could change up or down in the future, but this is our best estimate as of today.

Got it, understood, and hoping for the best for everyone involved there. And then on the 2025 outlook, you know, there's a lot of moving pieces in terms of the margin bridge, shifting from bad guys to good guys when you think about Willamantic, Leachate, Headwinds this year, C&D Volumes potentially returning. How are you thinking about the early puts and takes on potential for an outside 2025 margin expansion year?

Yeah, I think thematically, you're thinking about it the right way. I think it's premature for us to put a finer point on the margin bridge, but because of the things you mentioned, you know, our expectation is that, you know, likely 2025 is looking like, you know, above trend in terms of margin expansion, given the headwinds that we face this year.

Got it, and then last one from me, you know, really high level of M&A contribution flowing through the portfolio. Great to see that level of growth. Is it prudent to expect a pause here in M&A spend over the next, you know, couple quarters as you integrate over 200 million annualized revenues acquired this year?

You know, it's always opportunistic, so we have a number of transactions that we've been working to develop over years, and a few of them continue to move through the pipeline, not larger, but smaller tuck-ins that will fit very well into existing markets, especially into the mid-Atlantic. So I think you should expect to see over the next, you know, six months, a continued focus on some tuck-ins and just real accretive value. Our team is hyper-focused on integration work, though. That's where the money's made, and that's the most important part. And we've added some great select resources to help us expand our capacity to do integration work more effectively, more rapidly. So, you know, we are focused in that area. I wouldn't say it's a full pause on acquisitions, because there's definitely deals that are in the pipeline that continue to kind of move along.

I think it's fair to say, though, that for the fourth quarter, you know, certainly a significant effort from an integration standpoint and only doing what is necessary for those transactions that are in the pipeline to continue to move them. But certainly from now through the end of the year, a real focus on the integration of the businesses that we've bought in 2024.

Great, thanks so much.

Thank you.

Thank you, Walnut, for our next question. Our next question comes from a line of Timna Tanner of Wolf Research. Your line is now open.

Hey, good morning. One follow-up on the M&A discussion. I thought I heard in your preliminary remarks that you had by parter, sounded like you were implying up to a billion dollars or so. I wanted to check on that. If that were the case, would that be an amount up to which you wouldn't need to tap debt or equity markets? Could you do any of those tuck-ins or other deals up to that amount?

Yeah, the billion dollars was just the excess cash that we have on the balance sheet. So following the acquisition of Royal, we have about $300 million left sitting on the balance sheet. We upsized our revolver, as I mentioned, as we announced. So that's 700 million. So 300 plus 700 is the total between those two. That isn't taking into account potential available liquidity given pro-formal leverage. Obviously that assumes that we would exhaust all of that liquidity. That wouldn't necessarily be our approach. So really it was just a kind of an overall sense for how much room we have.

Okay, but is it safe to say that some of the smaller deals you would be able to absorb pretty easily than with your available liquidity? I didn't want to assume too much there. Yeah, absolutely.

Yeah, absolutely. No question.

Okay, helpful. And then also along those lines, I know a lot has been said about the election. I don't want to beat that course there, but I think with regard to M&A, there's some thought that there may be some ease in FTC approach or replacement of that head. Is that change much for you all in terms of how you look at M&A? Has that been a constraint?

I don't think that it's going to change much. I mean, I think the real question is whether, in terms of what direction it goes in, if there are significant issues from a tax standpoint, it could have an impact from an M&A standpoint in terms of people's behavior. But from our perspective, it's not going to change much. I think the opportunities that we have, the things that we've been working on, keep in mind some of the development work that we're doing from an M&A standpoint goes on for a year or so before we're doing something from an M&A standpoint. So constantly building relationships, constantly talking with people. So our activity is not going to change, but behavior may be impacted in terms of which way the election goes.

And bonus depreciation stepping down is a real impact to M&A, and it has been. I think as you're aware, Tuma, we've been really effective on how we've bought companies. We've been able, unlike Royal, for instance, it was an F reorg, which we bought the stock of the company, but able to get asset treatment, step up basis, shield a lot of taxes. So we've been really effective on how we bought things. But stepping down next year from 60% bonus to 40%, changes the NPV value of the tax assets and brings in multiples for M&A. So I think that might be one way if the election plays out one way or the other, that you could see M&A accelerate or maybe stay around the same levels.

Got it, that's helpful, Coler. Thank you again.

Welcome.

Thank you, Wilwyn, for our next question. Our next question comes from the line from Stephanie Moore of Jeff Rees. Your line is now open.

Hi, good morning, thank you.

Morning,

Stephanie. Hi, I wanted to touch a little bit about the synergy realization from prior deals, maybe specifically if you wanted to touch on some of the deals last year, GFL and Twin Bridges, and then kind of what you've seen early on from the synergy capture or potential for synergy capture from deals announced this year, thank you.

So Twin Bridges, we are ahead of plan. We've had a really great job of capturing synergies both with collapsing routes and taking trucks off the road and also advancing some landfill internalization and collapsing facilities as well. We've been able to reduce the number of total facilities by two over the last year. So we're well ahead of our plans and achieved every synergy in our model already. The mid-Atlantic assets we acquired from GFL were behind our plans there and kind of netting neutral between the two. And our biggest negatives there of being behind was just the complexity of the transition services. It's hard to buy assets out of another company and we didn't have enough visibility on our revenue book of business, collections associated with that and the like. Everything's on our systems now and we have much better data visibility and we're back to executing the plan and growing the business. So those two, we're gonna capture synergies in the mid-Atlantic and there's a lot of work to be done there. The other thing I'd point to in the mid-Atlantic and we had said this all along, that automating trucks and moving from old rear loads to automated side load trucks is like a five or six year run for us where we have a lot of work to do, over 200 trucks. And this year our truck deliveries have been pretty significantly delayed. We primarily buy from Mack and Kenworth and we have about, let's say 30% of our truck deliveries have been delayed and might push into next year and a number of those were in the mid-Atlantic as well, which has weighed on us getting some of those early synergy benefits and automation in that market. It's a little early with LMR, Whitetail, and of course Royal, but the teams are executing very well on the ground in each of those acquisitions. The former owners have been extremely gracious, are working very, very hard to complete integration work and help us to be successful. We couldn't be more thankful and that's the most important part. Making sure teams are secure, we maintain employees, customers are maintained and that transition goes well. So with each of those acquisitions, you got an A plus effort by the former owners making sure things are stable and running well.

Great, that's helpful color. And then I just had one follow up on the 2025 high level guidance. Thank you, called out margin expansion across all lines of business. So if you think about the margin drivers for next year, clearly the pricing commentary looks strong, so we should see another year of pricing in excess of inflation and the benefit there. But what are the other major drivers as we think of next year? Thanks.

Yeah, the continued efforts of Sean and his team on reducing operating costs in the collection line of business, as both John and I commented in our prepared remarks, we're really seeing the, if you kind of dig down to the next level, people know the consolidated numbers, we're seeing real benefits from those quarter after quarter in the collection line of business. Your resource solutions, of course, Willamantic, Murph coming back on, we talked about that. And really having both Willamantic and Boston firing on all cylinders, pretty much from the beginning of 2025, that'll be a nice margin tailwind. And again, and maybe we're beating a dead horse here, but the real drag this year from a margin perspective has been the landfill business and specifically the C&D market. So with that, again, returning to some level of normalization, that should, if we do nothing, that should be a nice margin tailwind. So we see opportunity across all lines of business for margin expansion. This year, it's really been two out of the three. And next year, we expect landfill to participate as well.

Understood, thank you so much.

Thank you, Willam.

Thank you, Willam for our next question. Our next question comes from the line of Brian Butler of Stateville, your line is now open.

Good morning, thanks for taking the question. Morning, Brian. The first one, can we go back to the landfill closure and kind of that happening at the end of this year? I mean, that 150,000 tons you're down, I mean, what would keep that from coming back, I guess? Is there really any other place for that volume to go?

Well, you know, a bit of it has gone to a competitive site on Long Island as well, not to get too much into weeds, but there's two private sites on Long Island, the municipal site Brookhaven and their private site. And they've both been kind of battling it out over the last year with the closure of Brookhaven. So our expectations, you know, vast majority of that waste returns to us in 2025, but some of it did go to that other private site. Yeah, it might be 100% of it, but maybe 60, 70% maybe. Yeah, but you're right. I mean, there aren't a lot of places to take it, and we expect those flows to return to our landfill.

And that 60, 70%, that may be coming back. Is that part of what's built into the 12 to 15% EBITDA growth for 25? I mean, how much

is

in there, I guess, if any?

Yeah, yeah, that's encompassed in the 12 to 15% kind of high-level guidance. Again, we're not, at this point, parsing through the specific growth associated with each driver, but that's reflected in the outlook overall.

Okay, and then let's circle back again just on M&A. Maybe a little bit more color, maybe on the 600 million pipeline. What's kind of the makeup from a deal perspective on size? And then maybe just your thoughts on how competitive has the M&A market been? I mean, this has been a huge year in 24. Is that carrying into 25?

Yeah, so if we look at our pipeline, there's a great mix between -$20 million revenue companies that are really nice tuck-ins to existing markets or adjacencies. There's a lot of focus there. And then there's a handful of adjacent markets that are a little bit larger, like some of the transactions that we've done over the last year. We continue to have a balance of -to-party acquisitions where owners of companies we have direct discussions with and we come to a fair price, and then some come through a banker-led process as well. So we're not, it's probably less than 10% of our deals are coming through an auction process still. So we're really effective on the street with the relationships that John's built over a lot of years. Another great pipeline for our growth is our national accounts group. So we've had a team for over 35 years that wins large multi-site commercial or retail or industrial customers. And some of them we service with our trucks, some we broker out to third parties. And those third party companies that we do business with, we get to know them over time. We form relationships and trust, and it really helps with our pipeline development as well over time.

Keep in mind that we stepped into the mid-Atlantic, which gives us a significant opportunity for additional tuck-ins throughout the entire mid-Atlantic. And then stepping into Royal in Dutchess in Westchester County, again, additional opportunities to continue to grow around that market area. Both opportunities were new opportunities to Cosella in the last year. So very exciting opportunities from a continued growth standpoint. As Ned said, some of those transactions are the 10, 15, 20, 30 million dollar businesses that just will fit in very nicely. And very exciting in terms of the future growth.

Okay, great color. And then last one for me, just with the post-acquisition development capital spending, does that come down in 25 now that we're kind of through the GFL assets and the twin bridges?

Well, it's the sort of thing where if we were to stop acquisition activity, that it would naturally roll off. And that's gonna be, but the reality is it's gonna be a function of how active we are in deploying new capital. So it's no way of saying it's impossible to answer that. It depends on how next year plays out from an acquisition standpoint.

Okay, great. Thanks for taking the questions.

Thanks, Ryan.

Thank you, one moment for our next question. Again, as a reminder to ask a question, you'll need to press star 101 on your telephone. Our next question comes from a line of Michael Finager of Bank of America. Your line is now open.

Yes, hey everyone. Thanks for squeezing me in. I'm just curious on some of the M&A. We've seen some public players announce some acquisitions in New York and the Northeast market as well. I'm just curious if you're seeing more out there in competition in terms of your M&A pipeline is it getting more competitive to these assets or on the flip side, are we seeing some more discipline out there as we're starting to see some more announcements of the Northeast market from some of the public peers?

I think that from our perspective, we don't anticipate any significant additional competitive activities. As Ned said, a lot of the transactions that we're doing are based on relationships that we've built for a lot of years in the marketplace and the presence that we've had in the Northeast for almost 50 years now. So certainly there will be deals, the larger deals are gonna be competitive. They always are with other companies, but for the most part, I don't think that we would characterize the market currently as seeing significantly additional competitive, no more so than what we've seen over the last year.

Okay, great to know. And just, I'm curious, I know there's a lot of noise and moving parts, but I'm just curious what you're seeing for your underlying cost inflation in the third quarter, as you move into the fourth quarter, obviously there's labor, there's a lot of moving pieces, but how you think that kind of sets up, just bigger picture, what the cost budget kind of looks like for 2025 and how you're thinking about some of the pricing to offset that, thanks everyone.

Yeah, the cost inflation, this is Brad, the cost inflation has been stubborn, I would call it, over the course of this year. So in the third quarter, consistent, I think, with year to date, we've been running in that four to 5%, so sort of mid-fours as an average across our cost stack and kind of within that, there are some areas where inflation remains a big issue and other areas where it's eased, but sort of that four to 5% is kind of overall. You know, looking ahead to next year, we certainly don't have a crystal ball, but we're budgeting, assuming no easing, and so what we're gonna have to do is continue to try and reduce costs in other ways and drive price.

Thank you, I'm showing no further questions at this time. I would now like to turn it back to John Corsetta for closing remarks.

Thank you, thanks everybody for joining us this morning. Hope you all have a safe and fun Halloween. Look forward to discussing our fourth quarter, 2024 earnings in February. Thanks everybody, have a great day.

Thank you for your participation in today's conference. This is the end of the program. You may now disconnect.