Q2 Earnings

Casella Waste Systems continues making progress on its 2021 comeback plan, with prices rising "ahead of budget" in numerous categories, contract awards going in its favor and increasing interest in M&A opportunities. The Vermont-based company's Q2 report included a 5.1% increase for overall solid waste pricing and adjusted EBITDA of $40.4 million.

Pricing power

• Casella's solid waste revenues were up 13.8% YoY, driven by factors such as a 5.5% increase in collection pricing, "robust" 6% increase in landfill pricing and 11.8% growth from rollover acquisition benefits.
• Given that the company has paced its disposal activity more evenly this year, executives see potential for more revenue in the remaining months. "We continue to be a price leader in this ever tightening disposal market in the Northeast and look forward to Q3 as we finish up cell construction projects and add back capacity," said president and COO Ed Johnson during the company's earnings call.
• Despite a 13.3% decline in commodity values YoY, Casella increased recycling revenue 9.5% to $10.51 million — a result of higher pricing for various customers. A newly awarded recycling contract in Boston is also projected to help EBITDA by $3 million per year going forward.

The Northeast disposal crunch is well-documented at this point, and Casella is in a strong position to capitalize on it. The company's regular presentation for investor events highlights disposal capacity shortfalls throughout New England – and increasingly upstate New York – as a prime opportunity to increase returns. Recent approval for a key permit at the last landfill in Vermont further solidifies that position.

Executives also pointed to Boston's new disposal contracts with Covanta and Wheelabrator as a benchmark that could further increase regional pricing.

"I think that there is no question that we're seeing huge inflation in that market. And some of it is driven by the activity from a bidding perspective on some of the larger contracts. So I think all of the transfer stations have moved up dramatically — both ours, as well as a third-party sites, have all moved up," said Johnson.

Like other competitors around the country, Casella has also seen disposal expenses rise due to factors such as leachate management and third-party transportation costs. Ongoing odor issues at the company-operated Ontario County Landfill in New York are expected to create a $3-4 million headwind this year.

Not factoring in plans for a potential new landfill in New Hampshire, the company estimates its sites have around 83 million metric tons of permitted and permittable airspace left. With further regional landfill closures expected in the coming years, and little appetite for new incinerator capacity, this network will only become more valuable.

While CEO John Casella maintained during this year's WasteExpo that the company is "not looking to sell the business," he also didn't rule it out. In the meantime, he said, "we're building the platform to be able to continue growing."

M&A uptick

• Casella reported paying $28.9 million on four acquisitions in Maine, Massachusetts and Vermont so far this year. Executives believe these deals are worth approx. $18.5 million in annual revenue. 
• Following 10 acquisitions last year, including multiple in upstate New York, Casella has seen its collection revenues for the first half of 2019 increase by 24% YoY — more than any other category.
• "As we got back into acquisitions and started to really get into the marketplace, what we're finding is that there is even more opportunities. So I think that the pipeline continues to be robust," said Casella. "Our phone is ringing at this point in time because of the activity that we've had in the marketplace."

Looking ahead

• Casella is still on track to close a deal by Q3 to purchase assets worth an estimated $30 million in annual revenues from Republic Services in the Albany, New York and Cheshire, Massachusetts markets. This will fill a key gap in the company's regional footprint.
• Unlike some competitors, the company isn't as exposed to RIN credit fluctuations for landfill gas projects because of a conscious decision to pull back after profitability started declining. "We have not invested in any high BTU projects or pipeline gas quality projects ,and that's where you would generate the RIN," said Casella.
• The company is raising 2019 guidance for revenue (now $720-735 million), net income ($35-39 million) and adjusted EBITDA ($153-157 million). According to CFO Ned Coletta, this was driven by "the strength in solid waste recycling and customer solutions, combined with the expected contribution from the acquisitions we have already completed."