The year 2020 has presented a series of challenges as companies work to pivot and adjust operations during the COVID-19 pandemic.
During a conference call on October 30, Casella Waste Systems Inc. (CWST), reported continued earnings growth despite the uncertain economic climate.
CFO Ned Coletta provided a detailed account of the third quarter financial results for the nine-month period which ended Sept. 30, 2020.
He noted that the company raised its financial guidance ranges for fiscal year 2020 based on its Q3 performance and “additional visibility into the rest of the year.”
Adjusted EBITDA was reported at $51.3 million for Q3 2020, up $2.8 million, or up 5.9% from Q3 2019. With 70% of Casella’s business in secondary and rural markets in the Northeastern United States, a “stable-to-improving” economy has driven recovery despite the pandemic shutdowns in late April through October.
Revenues came in at $202.7 million for Q3, up 2.1% or $4.1 million YOY. Coletta indicated that roughly 65% of Casella’s commercial and industrial collection services on a revenue basis that were reduced or suspended during the COVID-19 shutdowns have returned.
“We estimate that another 10% will return in the early winter when seasonal businesses and ski areas restart for the season,” he told investors. “It is unclear to us when the remaining 25% of these services will resume. This translates to approximately $6 million per year or 1.7% of collection revenues.”
Casella’s increased guidance range for the year is based on an expected “modestly declining to stable economic environment” for the remainder of the year, especially as the second wave of COVID begins to emerge.
Adjusted free cash flow was $60 million, up $35.9 million YOY. The company raised its 2020 adjusted free cash flow range back to the original level the company set back in February 2020. It received $5 million as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which Coletta said will be paid back in December.
Solid waste volumes continued to decline, down 8.4% in Q3 2020 from Q3 2019 as COVID-19 once again created negative business impacts.
The largest improvement seen in Q3 was from landfill operations, which are insensitive to shifts in volume. Results were achieved both from pricing power, more efficient operational management and partially because of a very dry summer, Coletta said.
While tonnage was down by about 9% for Q3, revenue was down less than 3%. This is due to a reduction in operating costs by around $2 million, almost 10%, “which would have taken place even if tonnage remain the same.”
With slightly more than half of Casella’s revenue generated from collection activities, cost of operations as a percentage of revenue improved by 125 basis points.
Coletta commented, “With the initial impacts of COVID becoming more stabilized, we have returned to our efforts to increase automation and ferreting out inefficiencies.”
Mergers and acquisitions continue to drive Casella’s growth strategy. The company has completed the acquisition of nine businesses so far this year, adding approximately $21 million of annualized revenues.