Operator
all participants are in a listen-only mode after the speaker presentation there will be a question and answer session to ask a question during the session you will need to press star 1 1 on your telephone you will then hear an automated message advising your hand has been raised to withdraw your question please press star 1 1 again please be advised that today's conference is being recorded it is now my pleasure to introduce vice president of investor relations, and finance, Henry Bobby.
Good morning, and thank you for joining us on the call. Today, we'll be discussing our second quarter 2026 results, which were released yesterday afternoon. This morning, I'm joined by Ned Coletta, President and Chief Executive Officer, Brad Helgeson, our Chief Financial Officer, Damon Rebar, Jason Mead, our senior manager. After a review of these results and an update on the company's activities and business environment, we'll be happy to take your questions. But first, please note that various remarks we may make about the company's future expectations of the safe harbor results may differ materially from those working statements as concluding those...
Good morning. I'm Damien Reebok. Operating and finance executed well. Our disciplined operating approach, strong pricing actions from acquisition, continues to perform well and remains a core driver of our positive results. Solid waste pricing was up 5.5% overall, including 5.8% in the collection line of business. Equally as important, landfill tons were up 8.4% year-over-year in the quarter, reflecting the strength of our newly constituted close. From a volume perspective, the quarter played out largely as we expected. We continued to prioritize price. Volume trends followed the normal seasonal. On the cost side, our fuel recovery program worked effectively in the quarter. with floating fees fully offsetting the dollar increase. This continues to be, and as previously discussed, our to recover costs, and as such, we experience. As we have emphasized, our focus remains on discipline and execution at the operating level. Our teams continue to make progress with route optimization, fleet efficiency. This is our first quarter. We continue to invest in key initiatives across the business. These efforts have resulted in better safety performance, with our key OSHA metric improving 34%. a huge thank you to everyone on the team for their we continue to deploy the lytics in-cab ai technology across our fleet and it's helping to drive safer behavior through real-time coaching further our expanded triage program continues to reduce workers compensation costs in the mid-atlantic region we made significant progress on our integration efforts during the second quarter. As guided, we are on track to cut $5 million of operating costs and another 10 million. We completed a migration of our customers to our new lead-to-cash system and integrated customer payment portal and operational synergies. Through these early efforts, we have already eliminated 13 routes and related trucks and labor from the business. From a technology and efficiency standpoint, we're making great progress. From a customer side, we continue to invest in key platforms to improve and check out these. These efforts are focused on improving customer experience through the development of robust e-commerce capabilities, while also yielding cost efficiencies and enhancing our selling capabilities. We remain focused on reducing G&A costs, and we are on track with our previously identified $15 million in targeted savings over the next three years. We expect these savings will come in three phases, with the first phase yielded in the second half of 2026 as we roll out credit card convening. The second phase will be yielded in 2027 as we eliminate the cost of redundant CI-enabled tools and investing in data infrastructure. In addition, we've had a strong start to the year. We have completed five acquisitions, so we closed on one acquisition in early January and then one tuck. These transactions continue to align well with our strategy of building density and adding key transfer stations. Our teams are making good progress on integration with an early focus on. At the same time, our acquisition pipeline remains strong and we have a number of tuck-in opportunities. Overall, we feel very good about our execution year-to-date and our outlook for the remainder of the year.
We're executing well against our core priorities, pricing in excessive cost we're continuing to invent our employees for this thanks Ned good morning everyone revenues in the second quarter or five hundred and forty three point seven million dollars up seventy eight point four million or sixteen point nine percent year-over-year with forty six point two million dollars from acquisitions including rollover and thirty two point two million dollars from same store growth or six point solid waste revenues were up 18.4% year-over-year, with price up 5.5% and volume down within solid waste. Price in the collection line of business was up 5.8% in the quarter, led by 7% price in roll-off and 7% price in front-load commercial, and volume was down 1.4%. Price in the disposal line of business was up 4.7 percent including four percent third party price at landfills and 5.1 percent at transfer stations landfill volumes overall were up 86 000 tons or 8.4 percent in the quarter with internalized volume about 24 000 tons and third party volume up 62 000 tons landfill activity was strong this spring and we expect this to continue through the second half in 2026 we anticipate improved year-over-year third-party landfill pricing of four to five percent consistent with our guidance expectation for five percent price growth overall in the solid waste business resource solutions revenues were up 10.7 percent year over year with recycling and other processing revenues up five and a half percent and national accounts up seventeen point one percent including four point three percent price and six point four percent volume growth overall we generated eleven point six million dollars in additional revenue in the quarter from higher cost recovery fees including those tied to fuel prices as ned mentioned we successfully offset all of the dollar increase in fuel costs in the quarter with higher related fees. Adjusted EBITDA was a hundred and twenty three point two million dollars in the quarter up thirteen point seven million or twelve and a half percent year over year with seven point five million dollars of contribution from acquisitions including rollover and five point seven percent organic growth. Adjusted EBITDA margin was 22.7 percent in the quarter down 80 basis points year over year bridging the year-over-year change and adjust the EBITDA margin fuel represented a 40 basis point negative impact as higher fee revenue offsetting higher fuel expense diluted margins and resource solutions with a 70 basis point headwind year over year against a strong EBITDA comparable in q2 2025 with higher recycling volumes last year from a competitor undergoing a facility retrofit, the previously announced closure of the organics facility in Maine in Q3, and lower margins in national accounts. Excluding fuel and resource solutions, the business expanded margins by 30 basis points, driven by the benefits of higher landfill volumes and positive price-cost spread across the collection business. in the Mid-Atlantic we've completed our systems integrations and are well into route consolidations as Ned discussed we expect to begin to see the benefit of these cost reductions in margins in the second half of this year as the Mid Atlantic transitions to a long-term margin tailwind as we execute on our strategy with this increasingly integrated business cost of operations were 364.9 million dollars in the quarter up 56.9 million dollars year over year with 34.1 million dollars of the increase from acquisitions and 22.8 million in the base business including higher fuel costs which we covered with our fuel recovery program general and administrative costs were 63.2 million dollars in the quarter up 8.6 million dollars year over year but down 10 basis points as percentage of revenue depreciation and amortization costs were up eleven point five million dollars year-over-year with nine point nine million dollars resulting from acquisition activity in the past 12 months including the amortization of acquired intangibles adjusted net income was twenty five point three million dollars in the quarter or forty cents per diluted share up $1.1 million and two cents per share. GAP net income was lower by $1.4 million in the quarter on higher depreciation and amortization, interest, and the organic facility closure costs. Net cash provided by operating activities was $161 million in the first six months of the year, up $21.4 million year-over-year, or 15.3%, driven by EBITDA growth. adjusted free cash flow was seventy eight point one million dollars for the first six months of the year up ten point three percent capital expenditures were a hundred and twenty two point three million with twenty point six million of upfront investment in recent acquisitions overall capital expenditures were relatively flat year over year but with a higher mix of recurring spend which is reflected in adjusted free cash flow and less for acquisitions. As of June 30, we had $1.35 billion of debt and $25 million of cash, with our consolidated net leverage ratio for purposes of our bank covenants at 2.7 times. We have approximately $500 million in available liquidity, which will enable us to be opportunistic in continuing to execute on our growth strategy and robust acquisition pipeline. As announced in our press release yesterday we raised our revenue guidance to a range of 2.09 billion to 2.11 billion an increase of 30 million dollars reflecting our acquisition activity to date and higher expected fuel recovery fees associated with elevated fuel costs this updated revenue assumes that fuel remains elevated around current levels for the balance of the year we reaffirmed our adjusted EBITDA guidance range of $473 to $483 million, our adjusted free cash flow range of $200 million to $210 million, and our net cash provided by operating activities range of $370 to $380 million as the business is performing in line with our expectations and we remain well positioned relative to our internal plan for the year. From an EBITDA margin standpoint, the impact of higher fuel recovery fees and costs, as well as a modest dilutive impact from the acquisitions close to date, weighs on margins by approximately 40 to 50 basis points, implying flat to 40 basis points of margin improvement across the rest of the business, consistent with our outlook at the beginning of the year. We lowered our GAAP net income guidance to a range of $0 to $6 million, reflecting higher forecasted amortization expense and income tax provision. If you recall, we currently do not pay federal cash taxes, and with advantage of tax structuring of our acquisition activity and benefits of the new tax law, we do not expect to be a cash taxpayer for several years into the future. with that operator would you please open the line for q and a as a reminder to ask a question please press star one one on your telephone and wait for your name to be announced to withdraw your question please press star one one again one moment please this question comes from the line of adam bubis
with goldman sachs hi good morning good morning brad i think good morning brad i think you said underlying margins were 30 basis points in the business excluding fuel and the national accounts headwind does that include m a dilution because i think you normally target 50 base points of underlying margin expansion just from price cost so just trying to get all the the moving pieces on the underlying piece yeah it does um include acquisitions netted within that so if you if you pull that out.
And acquisitions were a bit of a dilutive impact as well. The base business performed well in excess of 50 basis points of margin expansion.
Great. I appreciate the clarification there.
And now that systems integration is complete in the mid-Atlantic, can you just update us on how that business is performing on key metrics like volumes, price, margins and how do you expect uh the mid-atlantic margin cadence to trend over the remainder of the year yeah margins in in the segment and you'll see this in the um in the 10q that we filed later um we're relatively flat in the quarter year over year we're up slightly um year over year um yeah we really do expect though for the margins to start to move in the positive direction um you Q3, Q4, and then especially into next year. Pressing was actually pretty good in the mid-Atlantic. We were, just from the top of my head, a little over 4% price, so a touch below the rest of the business, but we are getting some price. I think an important achievement in the quarter was us getting our floating fuel fees in place to cover our fuel costs. Sometimes there's a little bit of a delay of us getting those feeds in place for acquired customers, but we did a good job making sure that at least we were covered from that standpoint.
Yeah, and probably up 4.7% in the mid-Atlantic. But one of the important things to note is the timing. So we got through our systems integration work in the second week of May, and a lot of training a lot of work with our teams down there to really get everyone comfortable in the new system ensuring that our trucks were routed dispatch we're giving the right level of service to our customers and then kind of in late June and coming into July that's when we started to put routes together businesses together and this is this is going to be a five plus month process it doesn't all happen at once. There's a lot of people impacted from our dispatchers, our drivers, our ops people to our customers, our customer care reps. So there's a lot going on there and all the building blocks are there and we're just ticking through one market by market. So there's not a lot of that tailwind.
Great. Appreciate the color. And last one for me, just on landfill volumes. I mean, you touched on it briefly, but can you just expand on, you know, what's driving the performance there? Because really sharp accelerations, I think 8% volumes. What are you seeing on that line item and how should we think about it going forward?
Yeah, I mean, we're seeing healthy volumes in the market generally, you know, indicating a relatively healthy economy and you know kind of taking a step back I mean the dynamic in the Northeast is that landfill capacity is coming out of the market and you have more and more time looking for less and less landfill capacity work or waste energy capacity yeah I mean one of the most key facilities in the New York market it has announced its closure at the end of 2026 the Hudson and it sits right in the middle of our market area and part of the market where there are already some pretty
tight Albany, which will be another leg. You know, that substitution of our landfill sales team, Liza Casella has done a great job. We've got Chris Rains now on the team as our chief revenue officer. The two of them are doing a great job. It's very organized. We're coming to market in an efficient way and really getting the flow.
Operator
And our next question comes from the line of James Shum with T.D. Catwin.
So you guys aren't getting really much credit for your growth these days via the stock price. And just sort of wondering, does it give you pause or do you sort of reconsider the growth versus margin debate at this point? You know, I recognize, you know, that fuel fees are diluted to margins, and so even that margin guidance steps down a little bit. But just curious, you know, if you guys contemplate, you know, if we're not going to get credit for all this growth, do we back off on M&A a little bit and try to get the margins up? Or how are you guys thinking about that?
Yeah, I think you can look at it through an even different lens than that. We've gone through a transition period in the last, let's say, two years from a regional company to an enterprise. And we need to have scalable functions in this business that allow us to take on the growth while getting margin accretion. Because these truly are accretive acquisitions that add density, add integration and vertical integration into the business but as we've added revenues over the last couple years you know one dollar revenue adds more people and it really needs to be scalable systems scalable process that allow us to get that leverage and we we've done just such great jobs behind the scenes from our tech team to our business teams to our finance across across the board to really get the foundation in place and we're on the cuspid of unlocking a lot of that um from automated processes from sales to customer care to finance with our new systems processes. We've brought in some really talented leaders who have deep experience.
Okay, thanks. That makes sense. And then just if you could help me with some of the third quarter margin considerations. I think, you know, you said fuel was a 40 basis point headwind in the second quarter. um you know how should we be thinking about that i think brad said maybe x all the items uh it would be 50 basis points underlying improvement in the second quarter um so could we think about something similar in the third quarter and then back out a similar 40 basis points for fuel um so i guess that's part one of the question and then the other consideration that you guys mentioned was resource solutions sort of had that benefit last year with the closure of, I guess, a MRF. So what was the benefit last year in three-quarter? So what do you think the headwind is going to be from that this year?
Yeah, a couple of questions in there. So I think that the year-over-year comparison, taking resource solutions first, should be easier in the third quarter the volume that we benefited from last year won't be quite the comparable headwind in the third quarter there was in the second quarter we do we will still see the impact of having closed the organics processing facility in Maine in the third quarter last year so that's going to be a year-over-year impact extending into the third quarter and that was something we talked about at the beginning of the year with our overall guidance expectation. You know, I think fuel, as we said, I mean, fuel or assuming that the prices remain elevated. I mean, who knows what it does? We don't have a crystal ball, but we thought it would be simple to assume that prices remain certainly where they are and and we haven't really seen any any evidence that that they're moving moving lower materially so that'll remain a headwind based on our guidance for the rest of the year overall for the year fuel is probably a 30 basis point headwind 26 over 25 so you can kind of factor that into your model in terms of the quarters as you know we don't get into specific quarterly guidance, but usually the sequential trends historically can be a good starting point, a good guide. So I would look to the second to the third quarter last year with kind of a step down relative to the impact of fuel, but sequentially a consistent improvement plus or minus this year compared to last year.
Okay. Thanks, Brad. And just on that resource Solutions Benefit last year. Did that persist? Did that go into the fourth quarter or how did that sort of, how long was it?
No, that competitor facility that was shut down in one of our markets came back online in the third quarter.
Okay. Okay, great. Thanks a lot, guys. Appreciate it.
Operator
Thank you. And our next question comes from the line of Tammy Zachariah with JP Morgan.
Hi, good morning. Thank you so much. I wanted to get clarity on the updated revenue guidance. You're raising it by $30 million. Could you parse out how much of that $30 million raise is fuel versus M&A versus price versus volume?
Sure. Yeah, it's majority fuel, actually. So the acquisition that we closed on July 1st that Ned mentioned, that's about $15 million of annual revenue. So half of that, you know, less than $10 million to balance this fuel. You know, we're assuming, again, the fuel does not decline over the course of the year. It just sort of stays relatively where it is. So, you know, based on that and And assuming our fuel fees continue to cover the higher fuel costs, that's a little over $20 million of the 30. We haven't really updated our guidance for anything else in the underlying base business. I mean, frankly, the business is performing pretty close to how we expected going into the year. So not a lot of material changes that would move us out of our guidance range at least year to date.
Understood. And then similar question, but on the EBITDA margin, the full year EBITDA margin guidance is now, I think, 30 bits lower than before. How much of that is M&A versus fuel?
Most of it is fuel. A little bit of it is M&A, but it's majority fuel.
Operator
Thank you. And our next question comes from the line of Trevor Romeo with William Blair.
Hey, good morning, guys. Thanks for taking the questions. I had a couple maybe to start on M&A. So maybe, one, it looked like you made one more tuck-in in the last quarter, about $15 million of revenue. Anything you'd call out on that business that you bought? And then just thinking about your integrations that are ongoing for star waste and mountain waste, you know, it's still probably early days there, But are you kind of realizing results from all of the platform unification and efficiency efforts you put in place? Just maybe updates on how those processes are going for those two deals.
Yeah, thanks for the question. So early days on both of them, we've hit all the important marks from the safety, culture, training, people side. That's the early step. But frankly, we're probably a beat behind on integration because we've been so focused on putting the Mid-Atlantic back together. It's just such a key initiative and unlocks so much value. So our tech team, our ops teams are just in that marketplace working to get those pieces put back together, and then we'll kind of shift to both Mountain State Waste and Star. They're both well-run businesses. there was an urgency to change anything immediately. It's more of what are the next steps to get those synergies out of business. And we looked at our business plan and our roadmap and, frankly, our team. We're focused in the mid-Atlantic right now and then on to that. But we're happy early days. All the important stuff's working right, and we're in a good position to add more value in the coming quarters.
Okay, thanks, Ned. I mean, just, I guess, along those lines, if you're kind of more focused on the Mid-Atlantic at the moment, what does that kind of say about your, you know, maybe second half M&A pipeline? It sounds like generally you still have a lot of opportunities out there, but are you maybe going to – yeah, go ahead.
Yeah, what you'll see from a second half into early next year, a lot focus on very small talk-ins that either overlay existing businesses or have a strategic asset like a transfer station that allows us to move ways and create more value. nothing large coming. It's more of that typical kind of $10 million revenue type of $20 million revenue type of company that tucks in quite easily. As an example, the company we bought on July 1st, we had a day one onto our systems and our processes. So getting to that point where we're doing acquisitions, getting them into our system, our data, our processes, day one, up to day 30, you know, we'll start to yield synergy, small deals day of the year.
Okay, thanks. That's helpful. If I could maybe sneak one more quick one, kind of a big picture question on leadership. And I guess, you know, welcome Damien to the call, first of all. But I think, Ned, you know, you've made several key hires lately across the company, I think, and kind of feels like you've been very intentional about, you know, who you're hiring, and where they're coming from and the kind of experience they have. So maybe you could talk a little more about, you know, how you're thinking about the leadership team and kind of what you and they are focused on for evolving the company going forward.
Yeah, thank you for the question. You know, this has been a period of change for Casella where we've got some really talented team members, but we're growing very rapidly. And as we've moved from, say, a billion dollars of revenues of $2 billion of revenues, we realized pretty quickly that a lot of the old ways of doing business internally didn't scale as effectively as they should or need to to allow us to be successful into the future. So we've been looking to fill roles with both internal candidates and some really talented external candidates that have been in scaled enterprises, but also bring with them a mindset where they're amazing cultural fits, they believe in our value system as a company, but also have been in a role where they've helped to scale businesses and put in process, discipline, technology to help move to the next level. So we're really blessed as a team. We've got great balance right now. Our team's working well together. We're gelling around key initiatives. We've got great objectives in front of us. So it's an exciting time for us. We're, you know, energy is very, very good, and we came out of a board meeting where we're able to showcase some of our great new team members and strategies coming from this year to next year.
Operator
All right. That's great. Thank you, guys.
Operator
Thank you. And our next question comes from the line of Shlomo Rosenbaum with Stiefel.
Hi. Good morning. Thank you for taking my questions. Hey, Ned, could you talk a little bit about what you've seen with the reconstituted landfill sales team, the progress they've made over there, what looks different right now than it did 18 months ago? And is there a potential for them to move the pricing beyond kind of the 4% to 5% targeted range for third party? Or, you know, how are you thinking about that?
Yeah, right now the teams come together. we've got great leadership from the team as I mentioned earlier it's slipped under Liza Casella who's been our VP of sales for years and that response we put a new director of post collection sales in place we've moved in a really talented sales lead side of business and we've just started from the bottom up from a process discipline standpoint following you know best practice from a sales standpoint, building out pipelines, working the market for both price and volumes, and building out a pipeline that stretches out several years. Some of these jobs, you know, they take a long time to get through permitting and execution, especially on the special waste contaminated soil side. So we're starting to fill back up that blank spot that existed in our pipeline and we're working jobs. Now, from our vantage point, it's a balance, right? So we love to maximize prices of landfills. But, you know, many of these sites, the last ton in at the end of the day might have a 60% or 70% margin. So, you know, we're also balancing that as well. You know, we're around 4% this quarter.
Okay. And then, thank you. Does the $5 million savings in the Mid-Atlantic that you're looking for this year, does that include the better targeted pricing that you're hoping to get, or would the targeted pricing be incremental to that?
No, that's primarily a cost reduction. That's sort of the, I hesitate to say low-hanging fruit because there's a lot of work, as Ned was describing, but that's the immediate opportunity for us taking costs out of the business by running the business with fewer routes after the integration. Pricing, I think, is a longer-term opportunity the way we look at it. With the data that we now have in place, the analytical tools that we have in place going into the back half, we're looking to drive price in that market, but we haven't put a specific dollar number on that opportunity and that'll that'll play out i think over a period of a couple years okay so so the pricing is something that hasn't been quantified and it's really incremental to anything that you're talking about right now just want to get that clear correct yeah that's right okay and then um just again the pricing the mid-atlantic i think you said it's 4.7 percent in the quarter Is that inclusive or exclusive of any fuel recovery fees?
So that does not include fuel recovery fees. Fuel recovery fee runs through a line you'd see below that in our case, and what's the exact language?
Okay. Got it. Thank you very much.
Operator
Thank you. And our next question comes from the line of Tyler Brown with Raymond James.
Hey, good morning, guys. This is Ethan Krolinger on for Tyler.
Hey, good morning. How are you doing?
Good, good. Yeah, so I just wanted to ask. So, you know, the northeastern market is clearly a longer-haul market with a lot of transfer. I'm curious what you're seeing in the transportation markets, not only from a fuel but for, like, core rate increases, given that market is very tight. How should we think about inflation in the context of the guide?
Yeah, so we have a balance between our own trucks that are running long haul and third-party trucks that are running long haul. So you have both within our business model today. With our third-party contractors, there are fuel surcharge formulas within those contracts, and they click in above set fuel levels. So every one of those. When we look at our fuel recovery program as a business, and as you know, I mean, as much as 70% of our collection line of business, we can put to our customers, and that was job number one. As far as any other kind of price increases, we'll get that back to the market if we see anything outsized.
Great. Thank you so much for the color, Ned. That'll be all for me.
Operator
Thank you. Thank you. And our next question comes from the line of Stephanie Moore with Jeffries.
Hi, good morning. Thanks for the question. Thank you, guys. I was hoping you could give us an update on McKean. I think it's always helpful to get a sense on how that's ramping and then how I think long-term you're thinking about leveraging McKean in your portfolio just as the supply shortage dynamics in the Northeast continue to progress.
Thank you. So things at McKean are going well, as we've talked about over time, we haven't gone out and just made a big push from a third-party standpoint to ramp line significantly through the site. But the second quarter was actually kind of an exciting time into early July for McKean, where our new transfer station came online at McKean. So now we have capabilities to offload open gondolas on site, whether they're filled with construction, demo debris, contaminated soils, or even MSW that has posi shell or Atmos on top of it to seal in the waste. Our first Casella rail cars were delivered a couple of weeks ago. So if you see some blue rail cars on the track with CWXX on them, those are ours. So they're traveling around the northeast now. So that was an exciting moment for us as well. We started moving intercompany waste in July from Massachusetts to McKean. So great movement there. You know, it's still a little bit slow, but this is long-term positioning for us. We'll start to see more and more waste flow from our facilities to McKean over time. We're also working on some specialty streams that we think could have some long-term value at the site. You know much of the biosolids or sludges that were going through composting projects to land application now need to be placed in landfills and we're looking at strategies to get more.
Operator
All right thank you. I'm sure I'm showing no further questions so with that I'd like to hand the call back over to President and CEO, Ned Coletta, for any closing remarks.
Thank you, everyone, for joining us today. We appreciate the great questions on the call, and we look forward to speaking with everyone in early November to discuss our third quarter 2026 results. I hope everyone has a wonderful end to the summer, and thank you. Have a nice day.
Operator
Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.
