Casella Waste Systems reports revenue growth for Q2 2018

Casella Waste Systems Inc., a regional solid waste, recycling and resource management services company based in Rutland, Vermont, has reported its financial results for the three-month period ended June 30, 2018. (Casella Recycling was profiled in the February 2018 issue of Recycling Today.)

Among the highlights for the quarter, according to Casella Waste Systems, was revenue growth of 7.6 percent, or $11.6 million, compared with the second quarter of 2017, for total revenue of $165.6 million for the quarter.

Overall solid waste pricing for the quarter increased 4.3 percent, driven by strong collection pricing (up 4.9 percent) and robust landfill pricing (up 4.1 percent) from the same period in 2017.

Casella Waste Systems reports net income of $1.7 million for the quarter, an increase of $55.4 million from the same period in 2017. However, adjusted net income was $9.6 million for the quarter, a decrease of $1.2 million from the same period in 2017.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $37.1 million for the quarter, up $1 million, or 2.8 percent, from the second quarter of 2017.

Net cash provided by operating activities was $48.1 million year to date, an increase of $8.1 million, or 20.2 percent, from the same period in 2017, according to the company.

Normalized free cash flow was $16.1 million year to date, which is $2.7 million, or 19.8 percent, more than in the second quarter of 2017.

Casella Waste Systems says it has acquired approximately $19 million of annualized revenue year to date and is on track to exceed its target range for 2018 given its near-term pipeline.

“We had another strong operational quarter as we continued to execute well against our key strategies as part of our 2021 plan,” says John W. Casella, chairman and CEO of Casella Waste Systems. “We remain focused on driving normalized free cash flow growth by increasing landfill returns, improving collection profitability, creating incremental value through resource solutions, using technology to drive profitable growth and efficiencies and allocating capital to balance delevering with strategic growth.”

Casella says the company’s year-to-date normalized free cash is outpacing the target range Casella Waste Systems set in its 2021 plan, reflecting continued success in executing against the company’s key strategies.  “This robust growth was driven by strong pricing execution in our solid waste operations, sourcing new volumes at higher prices, and execution against our acquisition strategy,” he adds.

“Our disciplined solid waste pricing programs continued to add value, with collection pricing up 4.9 percent and landfill pricing up 4.1 percent,” Casella says. “This strong pricing was coupled with 1.5 percent solid waste volume growth, mainly driven by higher volumes in the collection line of business coupled with the completion of a one-time soil remediation job that started in the first quarter.”

Casella says the company is growing its acquisition pipeline, targeting companies with more than $40 million in annual revenue. “We are focused on acquiring well-run businesses in strategic markets that will drive additional internalization to our landfills,” he says. “We are also focused on more effectively optimizing waste placement around the northeast as the ever-tightening disposal market is creating additional opportunity to source new volumes at higher prices.”

While the waste side of Casella Waste Systems performed well in the second quarter, the company’s recycling business was challenged by declining commodity pricing for paper and cardboard. “Our average commodity revenue per ton was down roughly 55 percent year over year in the quarter and down roughly 12 percent sequentially from the first quarter to the second quarter,” Casella says.

He continues, “Commodity prices have stabilized in June and into July, and we are pleased that our trailing SRA (Sustainability/Recycling Adjustment) fee is now fully recovering higher recycling costs in our hauling operations, albeit the program is designed to recover costs and as a result has pressured margins.”

Casella adds, however, that the company still is absorbing commodity pricing risk on several legacy third-party processing contracts at its material recovery facilities MRFs), saying that its variable costs have increased because it has had to slow processing lines to improve quality and was paying higher transportation costs to ship commodities to new markets. 

“Looking forward to 2019,” he continues, “we expect recycling to provide a positive tailwind even if commodity prices stay at historically low levels as several third-party recycling processing contracts will reset over the next 12 months.”

The second quarter included a $0.2 million Southbridge Landfill closure charge primarily related to on-going legal expenses, $0.3 million of expense from acquisition activities and other items and a $7.4 million loss on debt extinguishment primarily related to the refinancing of senior secured credit facility, Casella Waste Systems reports. The same period in 2017 included a $64.1 million Southbridge landfill closure charge associated with the company’s decision to cease operations at the site by Dec. 31, 2018.

“Our solid waste, customer solutions and organics operations all continued to outperform budget in the second quarter and we expect this outperformance to continue through the remainder of the year,” Casella says. “Despite the further deterioration of recycling commodity prices from the first quarter and our expectation that commodity prices stay flat at the current historically low levels for the remainder of 2018, we have reaffirmed our adjusted EBITDA and normalized free cash flow guidance ranges for the fiscal year ending Dec. 31, 2018. We have increased our revenue guidance range for the year given our higher cost recovery fees, including our SRA and energy and environmental fees and higher organics volumes on a new transportation and disposal contract.”

The estimated ranges are:

• revenue between $630 million and $640 million (increased from a range of $618 million to $628 million);
• adjusted EBITDA between $135 million and $139 million; and
• ·normalized Free Cash Flow between $42 million and $46 million.