Conference Transcript - CWST 2025-12-03

Shlomo Rosenbaum, Analyst — Stifel

So, first I want to welcome Casella from Casella Waste. I appreciate your joining me for the kickoff fireside chat this morning. I'm just going to, I guess, go through the questions I think that are topical, you know, when it comes to Casella and in general in the waste space. and I thought I'll just kick it off over here and kind of throw it out, and you two could decide which one you feel like answering or which one is going to be taking a sip of water at that time. So thank you very much. So I guess maybe I'll just actually start. First, I'm going to start with you, Ned. Just what's your view of the solid waste space right now in the Northeast and Mid-Atlantic, and what are you seeing just in terms of the macro, the client base, and how has the year so far played out versus what you thought coming into it? Thanks, Shlomo. Good morning, everyone. Thanks for joining us.

John Casella, CEO

So right now we're seeing a really stable environment. It's not much different than we expected for the year. We have had diesel spike nearly 50% year over year, but we haven't seen that impact the economy to any large extent yet. You could see some inflation emerge across businesses, the economy, in the coming months, but at the current time, it's really stable. And our first quarter was a great quarter. We saw MSW volumes up, C&D volumes up, strong business metrics across the board. Coming into the second quarter, we've seen our normal seasonal uptick across the business, and we're feeling pretty confident about our plan for the year.

Shlomo Rosenbaum, Analyst — Stifel

Okay, great. And what about the cyclical parts of the business? How are you, have you noticed any change going into this year or through the first five months of this year? What are you seeing with that?

John Casella, CEO

Well, yes and no. This was probably one of the most challenging winters in the northeast and mid-Atlantic in 20 years. So we saw some depression of seasonal activity through the winter, roll-off poles, construction activity. But the trends have improved significantly through the spring. and as you saw in our first quarter results it really didn't impact our results in the quarter we were able to outperform in other areas that made up for any sort of you know it negative operating impacts or lower volumes from the tough winter weather as we look at specific streams of materials our construction demo volumes were up over 10% in the first quarter we are seeing some continued weakness in contaminated soils and special waste streams that has been a bit sluggish for the last two years. And coming into the spring, not a lot has changed there. So it's kind of steady

Shlomo Rosenbaum, Analyst — Stifel

state over the last couple of years. What would you say? How would you characterize it? Yeah, and I mean,

Bradford Helgeson, CFO

just to add on that, I mean, in our business, you know, in our region where we operate, it's very difficult to get a read on the economy in the first quarter because everything's so cold and under snow. What we've seen as we moved into the spring is all of the metrics you would look at what's cyclically sensitive landfill volumes, MSW, C&D, roll-off poles all are trending positively seasonally. I wouldn't say they're necessarily different than we expected. They're generally in line with our expectations. I mean, our view coming into the year was one of cautious optimism, and that's sort of what's playing out so far.

Shlomo Rosenbaum, Analyst — Stifel

So anything getting better, or is it how would, if you just put it all together, a little bit better, a little bit worse, the same, how would you characterize it?

John Casella, CEO

Yeah, I would say it's a year as expected, and as we've done for many years, we're having a positive growth here. I mean, we've put together 10 years in a row of growing free cash flow 20% a year, and we expect to have another strong year again this year through organic growth programs, positive price cost spread, our focus on operating initiatives, M&A activities. So as we look at the year, it's very much playing out in that regard. We've completed over $150 million of acquired revenues year to date through April, So we're off to a strong start there as well. Okay, great.

Shlomo Rosenbaum, Analyst — Stifel

Just how would you characterize the market share of Casella in the northeast and mid-Atlantic? Maybe along the lines of collection and landfills or any other way you would like to split it up. How do you view your market position?

John Casella, CEO

So over the years, we've had a large focus on secondary tertiary markets. And in those markets, we strive to have a number one, number two position. As we enter any market, we'd love to be top three over time. It really leads to positive outcomes from a route density and optimization standpoint. We probably don't really get into measuring each market specifically, but as we look at our business plan, getting into that top three is always part of where we'd like to be. On the landfill side of the business and disposal side, we're top two player in the Northeastern markets today. and will continue to be with our great platform of landfills across the market and our long-term disposal capacity. We've got over 25 years of capacity today across our sites, and so we're in a great position going forward as well, Shlomo.

Shlomo Rosenbaum, Analyst — Stifel

Okay, great. I want to talk a little bit about Waste by Rail, and you guys have your own Waste by Rail solution, And over the last year, there was some discussion with the company about competition impacting third-party tons in the pricing over there. And the commentary yet is, you know, you think that we're kind of normalized in the market. And I want to ask you, you know, how do you see that? And do you expect from time to time, like, this is a normalization, but then we should see a pickup in that in a year or two? or what's your view on how that kind of trends in the markets that you're in?

John Casella, CEO

Yeah, across our markets, if you look back over the last 30, 35 years, there's only been one new landfill permitted. The public policy in the northeastern United States is such that politicians, regulators, for a lot of years have really wanted society to recycle more, reduce their waste consumption. And here we are, we're in a situation where recycling has grown and it's made a really positive impact, but we're still a consumable society. So you look at that, the number of expansions have been quite low as well, but we've seen as much as 30% of total landfill capacity and disposal capacity close over the last 10 to 15 years in the market. And the solution has been putting waste on rail cars and moving it to faraway markets. One of the things I think is probably a little bit misunderstood about this is that's not a low-cost solution or a low-capital solution. It's a very expensive solution. You'd much prefer to just bring waste to a local landfill or a local waste-to-energy facility, but there's just not enough capacity. So as we look at these trends, long-term, that's not something that will bring the market down. Long-term, there's a lot of inflation involved and capital involved with moving waste long distances. So we don't think that's a disruptor to overall pricing in the marketplace. But in any given year, if you're looking to a long-term strategy of build a waste-to-rail transfer station or acquire additional rail assets and you bring those online, you might see some step functions in years. We've gone through a couple of years with no landfills permanently closing in the marketplace. while new capacity for rail has come online. So that's kept the market a bit more steady from a price-cost spread over that time period. But we'll be entering another period in the next couple of years where several sites close in the market. And we'll see contraction again in the amount of capacity and a great pricing backdrop.

Shlomo Rosenbaum, Analyst — Stifel

Do you think that that's going to prompt other competitors to try and invest more in rail as some of the capacity comes off? and then we're going to see a situation where, again, you have a step up in investment in those assets that need to be utilized.

John Casella, CEO

Yes, it will. I mean, it's a natural thing that there's just no place else to put the waste as sites close. But there's not an unlimited supply of landfills around the country that can take waste by rail, and they become less and less economical as you go further away or have drays on either side. So in no way, shape, or form is this a low-cost solution, but it's a necessary solution right now.

Bradford Helgeson, CFO

Yeah, I mean, by definition, the market will be in equilibrium always, unless there's waste piling up on the street, right? So the market is figuring out how to move the waste to end disposal. The only question is, at what price that takes place? at what's the price that's necessary for someone to make the investment, to incur the cost, to move it far away as opposed to local landfill.

Shlomo Rosenbaum, Analyst — Stifel

And based on what you're seeing right now, what do you think the pricing should look like for those third-party tons? Because in general, every company is a little bit different based on where their location of their landfills are around the country. And what do you think, from an investment perspective, If an investor is looking at your numbers every quarter, what's a reasonable expectation that they should see for pricing?

Bradford Helgeson, CFO

Yeah, so in 2025, you know, we were a little over 3% for the full year, third-party price. And that reflects what Ned was talking about. You know, we were in a bit of a holding pattern, I guess, in terms of prices moving higher as more capacity for rail export came into the market. This year, we expect to be in the fours, between 4% and 5%. We're at 4.3% in the first quarter. I would characterize that as more of a normalized run rate. As Ned also alluded to, I think there's good reason for us to be bullish about pricing in the coming years. But for this year, 4% to 5% is probably a reasonable expectation. As far as, you know, competitors, you know, as a reminder, of course, we're in the Northeast. You know, disposal prices, landfill prices are the highest in the country. So our average disposal price tip fee is, you know, over $50. So 1% for us means a lot more in dollar terms than 1% for someone with landfill capacity in the South or the West or the Midwest.

Shlomo Rosenbaum, Analyst — Stifel

Right. I hear it. Makes sense. And one of the other comments you made on, I guess, the last earning call is that you're working on managing the quality of the pipeline for what's being landfilled. And how does that work? Is that a long process, or is that something that's, you know, it's a strategic plan, or is it something that you can implement quickly? How does that work?

John Casella, CEO

If you flash back to say 2008 through 2010 timeframe, we're probably taking about 20 percent C and D volumes to our sites. You flash forward to today, it's less than 10 percent and we've consciously moved away from volatile streams that can go up and down with the economy. But you also can't get as much compaction with C and D. So from a quality of material we're taking into our landfills, we've moved away. Those streams can be costly as well with H2S. So, you know, we're definitely looking at what types of streams create the most value long-term. We've got energy production at almost every one of our landfills today, whether it's landfill gas to energy or RNG facilities. So getting the right mix of waste to produce methane and energy is important as well.

Shlomo Rosenbaum, Analyst — Stifel

Okay, great. I want to pivot a little bit. If I look at the margins of the business, the EBITDA margins have been hovering around 23% since around 2021. And I know there's a lot going on there because you make a lot of acquisitions, and those come in at usually lower margin. But when you think about the business going forward, what's the confidence you have that you can increase those margins from that level? And if I look, let's say, three to five years forward, if someone's looking at your business saying this is a three to five-year investment, How should they be thinking about the margins, like reported margins in three to five years from now?

Bradford Helgeson, CFO

Yeah, I think for margins, there's really two pieces to the story, of course. One is, which you alluded to, one is our existing base business that's growing organically, same story year over year, and then the impact in the near term of acquisitions, and is that dilutive to margins in the near term? So for the base business, let's just pretend we stopped doing acquisitions. We're looking to grow margins by 50 basis points at a minimum on the EBITDA line year after year. So a 200 basis point increase over a three to five year time period is absolutely in our plans. And there are things that we've highlighted that we're doing specifically to get there. So reducing G&A as a percentage of revenue, executing on the synergies that we have lined up in the mid-Atlantic. other ways that we just generally drive margins higher in our business like price cost spread operating initiatives and so forth so we certainly feel good about about that target the impact that acquisitions have it's a little more difficult to predict you know we've been growing over 10% a year for five plus years the acquisition the acquisitions based on the businesses were tend to acquire initially are dilutive to margins. So there's obviously that push and pull. So it's a long story short, it's difficult for us to pin to okay we're going to get here by this year because look hopefully we're more successful with our acquisition pipeline because our view is that those may come in at dilutive margins initially but there's significant shareholder value there as we execute synergies and that's a regenerative

Shlomo Rosenbaum, Analyst — Stifel

opportunity. Okay. And then you talked a bit about $15 million of G&A savings by 2028. And how should we think about that? Is that something that we should expect that the company, you're going to get that and that's something you're going to try and drop to the bottom line? Or is that something where you got it, you want to get it and reinvest it in the business going forward?

Bradford Helgeson, CFO

Yeah, it's a good question. And when we say $15 million, it's going to be hard to sort of track exactly that, you know, where that $15 million, did it fall to the bottom line? Was it reinvested? So, really, the best way to think about it, I think, is as a percentage of revenue. So, how does $15 million translate to a percentage of revenue? You know, that's north of 50 basis points of margin improvement over that three-year period. You know, some of it we will reinvest, some of it will fall to the bottom line. But, you know, there are some specific cost initiatives that we're targeting right now. But really, I think the more powerful opportunity from a margin perspective over time is get to a place where we feel like we have a technology-enabled, scalable platform, more so than we have today. so that as we continue to grow, all of that additional revenue falls more to the bottom line from a margin perspective.

Shlomo Rosenbaum, Analyst — Stifel

Maybe you could just do a double-click on that. When you're talking about more of your technology and trying to get more out of it, can you give some specific examples? Now, I guess I want to split this into two different things maybe you could go into. One is just kind of a basic, hey, more automation. And the other one is there's a lot of discussion about what people can do with AI. And maybe you can look at it in terms of both of those lenses and how you're implementing those things to improve the margins.

John Casella, CEO

Anyone want to take that? I can start and you can hop in. So for us, a lot of it's just been foundational technology work. We've been updating all of our core systems over the last couple of years from general ledger to procurement. and we've been on initiative for the last year plus to go through our order-to-cash system to modernize it and get a lot more connectivity to our other systems. We've built a new customer payment portal, we have a new app that just launched for our customers, a new website is launching soon. So, it's just digitizing the full chain through customer acquisition, through payment side and routing, and trying to make sure all of this done exactly the same way across our business with the same stable platforms. There's been a lot of our work and that's the first step along our journey to take a lot of costs out. As a perfect example, our last payment portal did not allow us to charge convenience fees if a customer use a credit card to pay, remarkably. And that's really become a staple in all of our lives or where we do business. If you use a credit card, there's a big exchange fee associated with that. So migrating more of our customer base to ACH payments is another strategy that really will take cost out. And on the AI side, some of that's kind of next generation for us, where just these really simple foundational elements are taking a lot of cost out. And then AI is another layer on top of that to look to automate process even further.

Shlomo Rosenbaum, Analyst — Stifel

So, what about routing and using some of the new technology for improvements in routing and pricing? Maybe you could just dig a little deeper in there in terms of where you expect to get efficiencies and how that should work.

John Casella, CEO

Yeah, the cab of our truck is becoming more and more digital. I mean, it's pretty complex from automated side load trucks that are taking away labor to route wear and easy route that we use to help us become more efficient in our routing and optimization and lytics that we have coming into our cabs, which is helping our drivers to have AI enabled real time coaching. All of these things are helping us to drive either efficiency on the street, safety. Our route wear system also allows us to automatically charge overages to customers if they overload a dumpster or residential stop. So trying to automate that flow of information and get it into systems to have productive moves in the business is a big goal of ours. A lot of it we've been doing for years, but there's always room to get better. number one recurring great operating programs are automating routes getting more digitization route where to let us optimize more efficiency more real-time and those are kind of just recurring things especially as we do an acquisition will typically come in in the first year year and a half upgrade the fleet and drive more of those programs through to get efficiency okay

Shlomo Rosenbaum, Analyst — Stifel

I mean, I'll pivot a little bit to going over some of the assets that you purchased from GFL in the Mid-Atlantic. And, you know, where do you stand with that in terms of the integration? It's been about three years now and the margin expansion of those assets. And, you know, where does that stand today in terms of your outlook?

John Casella, CEO

Yeah, so this was a really good decision for us to step into adjacent geography. We, of course, still have a lot of room to grow in the Northeast. But stepping into new geographies has allowed us to, one, really reinvigorate organic growth and look at our sales pipeline, especially in customer segments that we really excel in, higher education, large industrial. But we've also done, since that acquisition in late 2023, 11 additional acquisitions in that marketplace. We're starting to gain more density. We're putting the right assets in place to drive more vertical integration. So we're at a point in that journey that we're really starting to yield some great benefits and margin enhancement. As we announced last quarter, we've got $15 million of synergies we're looking to pull out of that business in the next three years. And much of it will start to come the second half of this year. We just completed the overhaul of all of the back office systems in that marketplace. We're running the way we want to run. We probably hit the brakes a tiny bit just to make sure fuel surcharges were in place across the entire customer base this spring with spiking diesel. And we're pushing as fast as we can to drive synergies on the street. And we're talking about taking tens and tens of trucks off the road through collapsing business units. As I said, we've done 12 acquisitions, including that one from GFL. We've got a lot of work to do to get routes reestablished, markets reestablished.

Bradford Helgeson, CFO

I mean, pre-Synergy, we've been running about 20% EBITDA margin across that region. I mean, our goal is to get into the mid-20s EBITDA margin over the next three-plus years.

Shlomo Rosenbaum, Analyst — Stifel

That was actually a pretty big bite for you guys to go ahead and take a, what's it called, an acquisition of that size. What would you say were some of the learnings that you took from there that if you were to do that again, you would say, hey, I would approach it a little bit like this or like that? How would you characterize it?

John Casella, CEO

Yeah, I think the unique thing there is it was a carve out. And we've done two carve outs in my time in the industry. One, we bought some assets from one of the big three and then this set of assets from GFL. And it's just a very unique situation because most of the time you're buying a company from an entrepreneur who runs it every day and has the infrastructure of the people to run a really successful business. Here, you're not getting the complete picture. You're getting maybe not all of the back office services, the systems, the management team that you need to run it successfully day one. So it makes it a little bit more challenging. And I think that's the unique element here. It wasn't something that we had to change in our diligence process. If I had to do it all over again though, the one thing I would change is just getting more of our team there day one, helping to manage the business. We've done that over the last couple of years. Of our key management roles in that market, probably about 70 percent of them are people who have been with us for a decade or more now that have moved down there and we've backfilled them in our legacy markets with great rising stars. Okay, great.

Shlomo Rosenbaum, Analyst — Stifel

One key item for investors is just understanding how the closing of the Ontario landfill is going to impact the business. It's a few years down the road into 28, but can you talk a little bit about your expectation for the impact of the EBITDA and free cash flow

Bradford Helgeson, CFO

lines? Yeah, I mean, there are a number of moving pieces there in connection with the Ontario landfill. So as a reminder, the Ontario landfill is going to close at the end of 2028. At the same time, and prior to that date, we're going to be expanding our Highland landfill, taking that from about 460,000 tons of annual throughput to a million tons. So essentially what's going to happen is we're going to swap very expensive capacity at Ontario for very inexpensive capacity at Highland. So the net net of that about 300,000 tons will be pushed out of our system just because Ontario is a very large landfill so Highland won't make up for all the expansion won't make up for all that difference. We expect the market to tighten over that period of time just with all that capacity coming out of the market. So the bogey we have to chase by 2029 is to move revenue an EBITDA higher, you know, in that portfolio by about $10 million. So we're going to be focused on doing that. And, you know, plus or minus, we expect to be, you know, more or less even, hopefully, hopefully there'll be some benefit, but, you know, pretty close to break even. I think the story, without getting into too much detail, the story is very different from an earning standpoint and a cash flow standpoint with Ontario. I mentioned Ontario is an expensive site from an operating income basis, net income, a lot of landfill amortization at that site, very expensive accruals for closure liabilities that we're running through the P&L for every ton that we put into the site. So the site actually loses money on an operating income line. It's a big EBITDA generator, but it actually loses money on an earnings basis. And on a cash flow basis, we're going to spend tens of millions of dollars over the next several years, capping and closing the site. So once you get through that period of time, 2029 and beyond, massive tailwind from an earnings perspective and massive tailwind from a cash flow perspective as that site is closed.

Shlomo Rosenbaum, Analyst — Stifel

Okay, and just to be clear, you said that you expect it to be kind of break-even on the EBITDA line because you're going to grow into it over the next three years?

Bradford Helgeson, CFO

Yeah, I mean, we're talking 2029, so it's a little far over the horizon,

John Casella, CEO

but yeah that's our expectation yeah we have our highland landfill in new york we're in the midst of permitting both an annual expansion and overall airspace expansion and we're adding roughly 60 years of capacity from airspace and we're more than doubling the annual permit from 460 000 tons a year to a million tons a year so that would be the second largest landfill in new york when that expansion is completed and as brad said you know we'll ramp that up as we're ramping Ontario down and offset the two sites okay great I

Shlomo Rosenbaum, Analyst — Stifel

think that's the time we have for today I want to thank you very much for joining and participating and it looks like it's going to be a great day okay thanks