Casella releases third quarter earnings, new projections for fiscal year 2019
Casella Waste Systems Inc, a regional solid waste, recycling and resource management services company based in Rutland, Vermont, reported its financial results for the third quarter on Oct. 31.
Third quarter and year-to-date highlights include:
- Revenues were $198.5 million for the quarter, up $25.7 million, or 14.9 percent, from the same period in 2018.
- Overall solid waste pricing for the quarter was up 5.3 percent, driven by robust collection pricing that was up 5.2 percent and strong landfill pricing up 6.6 percent, from the same period in 2018.
- Net income was $12.4 million for the quarter, down $9.9 million, or 44.5 percent, from the same period in 2018.
- Adjusted net income was $17.7 million for the quarter, up $4.3 million, or 32.4 percent, from the same period in 2018.
- Adjusted EBITDA was $48.4 million for the quarter, up $6 million, or 14.1 percent, from the same period in 2018.
- The company raised its revenue and net cash provided by operating activities guidance ranges, lowered its net income guidance range and tightened its adjusted EBITDA and normalized free cash flow guidance ranges for the fiscal year ending Dec. 31, 2019.
- The company has acquired approximately $52 million of annualized revenues year to date, exceeding its $20 million to $40 million target range for 2019.
“We had another solid quarter, as we continued to execute well against our key strategies as part of our 2021 plan,” John Casella, chairman and CEO of Casella Waste Systems Inc, says. “We remain focused on driving 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 prudently allocating capital for strategic growth.
“We continue to make substantial progress executing against our strategic growth initiative, as we have acquired approximately $52 million of annualized revenues year to date, including the four acquisitions that we closed on during the third quarter. We are focused on acquiring well-run businesses in strategic markets that will drive additional internalization to our landfills and enhance operating synergies. In addition to robust organic growth, we expect revenue growth of roughly 4 percent in 2020 from the roll-over impact of acquisitions already completed in 2019. Our acquisition pipeline remains robust, and we believe that there is continued opportunity to drive additional cash flow growth across our footprint through the sustained execution against our growth strategy.
“Our solid waste pricing programs were ahead of budget again in the third quarter as we advanced 5.2 percent pricing in the collection line of business and 6.6 percent pricing at the landfills, with overall solid waste price of 5.3 percent. Solid waste volumes were down 0.1 percent in the quarter, with collection volumes down as we continued to focus on shedding unprofitable work and advancing pricing in excess of heightened inflation. Disposal volumes were up 1.6 percent year over year as we further ramped landfill volumes to take advantage of higher priced materials through the summer months. Unfortunately, we were unable to ramp up volumes at the Chemung landfill [in Elmira, New York] until late September due to landfill construction delays. While this delay negatively impacted results in the third quarter and fiscal 2019, we expect to increase volumes and maximize our annual permit in 2020.
“As announced in early September, we received an important permit expansion at our Waste USA landfill located in Coventry, Vermont. This expansion will increase the lined disposal area by 51.2 acres, or by approximately 13.7 million cubic yards, which will create approximately 20 years of additional airspace at the current run-rate. We continue to make great progress advancing permitting and development activities at several other key sites.
“Operating income was up again in the recycling business despite commodity prices being down 24.8 percent year over year. Our SRA fee, revenue share contracts and contamination fees combined with our efforts to produce higher quality materials and manage processing costs have allowed us to improve recycling financial performance and off-take commodity risk in a challenging pricing environment.”
For the quarter, revenues were $198.5 million, with revenue growth mainly driven by robust collection and disposal pricing; the roll-over impact from acquisitions; higher disposal, recycling, organics and customer solutions volumes; and higher recycling processing fees, which were partially offset by lower collection volumes, the closure of the Southbridge Landfill [in Southbridge, Massachusetts] and lower recycling commodity prices.
According to the company, the third quarter included $1.1 million of expense from acquisition activities and other items; $0.6 million of legal and other expenses associated with the Southbridge Landfill closure; and $3.6 million of withdrawal costs from a multi-employer pension plan. Casella says the withdrawal from this pension plan was a positive step for the company as it limited the ongoing financial risks associated with the multi-employer plan and allowed the company to exit the plan for “a significant discount to the stated withdrawal liability.”
The same quarter last year included a $10 million recovery related to the Southbridge Landfill environmental insurance settlement, which was partially offset by $500,000 in legal expenses associated with the Southbridge Landfill closure and $600,000 of expense from acquisition activities and other items.
Net income was $12.4 million for the quarter, or $0.26 per diluted common share for the quarter, as compared to net income of $22.3 million, or $0.50 per diluted common share for the same period in 2018. Adjusted Net Income was $17.7 million for the quarter, or Adjusted Diluted Earnings Per Common Share* of $0.37 for the quarter, as compared to Adjusted Net Income of $13.4 million, or Adjusted Diluted Earnings Per Common Share of $0.30 for the same period in 2018.
Operating income was $18.5 million for the quarter, down $10.4 million from the same period in 2018. Adjusted operating income was $23.8 million for the quarter, up $3.8 million from the same period in 2018. Adjusted EBITDA was $48.4 million for the quarter, up $6 million from the same period in 2018, with strength across almost all lines-of-business, the company says.
For the nine months ended Sept. 30, revenues were $549.7 million, up $63.7 million, or 13.1 percent, from the same period in 2018.
Net income was $22.6 million, or $0.47 per diluted common share year to date, as compared to net income of $20.1 million, or $0.46 per diluted common share, for the same period in 2018. Adjusted net income was $30.4 million, or $0.64 per diluted common share year to date, as compared to $23 million, or $0.52 per diluted common share, for the same period in 2018.
Operating income was $38.5 million year to date, down $6.4 million from the same period in 2018. Adjusted operating income was $46.4 million year to date, up $5.9 million from the same period in 2018. Adjusted EBITDA was $115.4 million year to date, up $11.3 million from the same period in 2018.
Net cash provided by operating activities was $71.5 million year to date, as compared to $89.9 million for the same period in 2018. According to the company, the reduction year over year was mostly attributable to timing differences in cash receipts associated with accounts receivable and cash outflows associated with accounts payable that are expected to normalize through the remainder of the fiscal year; the adoption of Accounting Standards Codification (ASC) Topic 842, Leases on Jan. 1, which shifted payments on landfill operating lease contracts from an investing activity to an operating activity on the statement of cash flows, with this change only impacting the financial statement classification of this cash outflow; and a reduction in accrued liabilities due to cash outflows associated with the remediation project at a former scrap yard owned by one of the company’s subsidiaries in Potsdam, New York, and the Southbridge Landfill closure.
Normalized free cash flow was $24.1 million year to date, as compared to $37.3 million for the same period in 2018. Normalized free cash flow year to date included the following adjustments: $11.1 million of landfill closure, site improvement and remediation expenditures associated with the Potsdam remediation project and the Southbridge Landfill closure; $2.2 million of cash outlays related to acquisition activities and other items; $2.6 million of cash outlays associated with the Waste USA landfill expansion; and $11.9 million of capital expenditures primarily related to acquisitions.
After assessing the company’s third quarter performance, Casella notes he expects increases in some of the company’s previous fiscal year 2019 assessments.
“Given the strength in our solid waste, recycling and customer solutions operations, combined with the expected contribution from the acquisitions we have completed year to date, we are updating our guidance ranges for fiscal 2019,” Casella says.
The company updated guidance for fiscal 2019 by estimating results in the following ranges:
- Revenues between $735 million and $745 million (raised from $720 million and $735 million);
- Net income between $31 million and $34 million (lowered from $35 million and $39 million);
- Adjusted EBITDA between $154 million and $157 million (updated from $153 million and $157 million);
- Net cash provided by operating activities between $114 million and $117 million (raised from $111 million and $115 million); and
- Normalized free cash flow between $52 million and $55 million (updated from $51 million and $55 million).