As economic activity continues to rebound, Casella Waste Systems Inc. (CWST) reported strong financial results led by commercial waste volume returns.
The company reported Q1 2021 results that exceeded fiscal expectations citing operating performance, continued discipline, capital allocation and working capital improvement as factors.
"Our performance really reflects a maintain focus and commitment by our teams on service excellence through this dynamic period," said John W. Casella, CEO and chairman. "Over the past year, I've witnessed our cultural culture strengthening even further across the organization, driving success related to both meeting the needs of our customers as well as executing against key operating metrics and goals."
Lower economic activity compared to Q1 2020 was expected given the pandemic, with solid waste volumes declining 3.3% year over year. However, consolidated revenues grew 3.6%
Adjusted EBTIDA rose 15.9% on margin expansion of 215 basis points YOY. The company has improved collection adjusted EBITDA for five consecutive quarters, Casella said.
Adjusted free cash flow increased $6.9 million from the same period in 2020.
"Although solid waste volumes were negative in the quarter, the progression from Q4 through April has been positive," Casell said. "The sequential trends and outlook indicate a continued recovery as part of the economic reopening across the Northeast."
While tonnage trends improved, solid waste volumes were down largely due to a slow return to normal operations in the Greater New York City area. While the company does not have collection operations in the area, Casella noted that it does accept waste from third-party consumers.
"As you as we know the city has been one of the hardest hit areas in the country related to the pandemic and one of the slowest to reopen," Casella said. "That said, we have have been seeing positive volume trends over the past several weeks related to business and construction activity levels beginning to come back online in a more robust manner."
Casella referenced NYC Mayor Bill de Blasio's announcement about plans to reopen the city to pre-pandemic economic operations beginning July 1, 2021.
"With a vaccine rollout and restrictions loosening, we expect to see continued improvement in volume levels throughout the year," he said.
Over the past year, the company has amplified efforts in real-time business intelligence to address variable costs, investing in automation, route optimization and technology to further improve its operating performance. Advanced collection price rose 3.5% in Q1, coinciding with a return in volumes in the Northeast.
Casella also provided an update on the company's Resource Solutions division, which was formed in January 2020 through the merger of its recycling and organics operations. The division saw strong Q1 results, up $1.4 million YOY as margins improved and teams in the division further aligned. Resource solutions revenues were up 8.1% compared to the same period in 2020.
"We aim to drive better teamwork, improved organization across the sales team and position our business to best meet the needs of our customers," Casella explained. "Within processing our recycling biosolids facilities where we receive inbound materials, process it and produce an end product. Nonprocessing consists of brokerage and resource management services provided to large customers with broad sustainability needs."
CFO Ned Coletta reported Q1 company revenues at $189.5 million, up $6.6 million, 3.6% YOY. The majority of the change, 2.1% was driven by acquisition activity, which was up 2.9%.
Solid waste revenues were up 2% over the same period in 2020. Even with volumes down 3.3%, Coletta noted a "sequential improvement" from Q4 2020.
"As we have discussed over the last year, we've kept close track of the commercial and industrial collection customers who reduce service levels or shut off services due to the covid 19 pandemic," Coletta explained. "We experienced a very steady rebound as service levels from May 2020 through October 2020."
Even with a "slight decline" of service levels in the Northeast in the last two months of 2020, collection service levels have seen a shift to normal levels to date. The company recovered another 5% of losses due to the pandemic and 70% of the commercial and industrial collection services on a revenue basis, Coletta said.
The company raised its adjusted EBITDA and adjusted free cash flow and net cash provided by operating activities to:
- Adjusted EBITDA between $185 million and $189 million (raised from $184 million and $188 million);
- Net cash provided by operating activities between $150 million and $154 million (raised from $149 million and $153 million); and
- Adjusted Free Cash Flow between $76 million and $80 million (raised from $75 million and $79 million).
- Revenues between $815 million and $830 million; and
- Net income between $33 million and $37 million.
Colleta commented that "the updated 2021 Ranges assume a stable economic environment continuing through the remainder of the year, with only a modest rebound in solid waste volumes, as major cities in our markets are very slowly reopening from the pandemic, most notably New York City. The increase in adjusted EBITDA and adjusted free cash flow ranges is mainly driven by higher operating margins combined with slightly lower than planned solid waste pricing in slightly higher than planned volumes."
President and COO Ed Johnson provided company updates from an operation standpoint, first echoing a "very strong start" to 2021.
"Usually the first quarter is uneventful," he said. "It's the winter quarter and seasonally is typically a lower revenue and margin quarter for us, but this year, our performance is notably strong and improved margin significantly across all lines of business."
Johnson attributed the improvement to operational efficiencies. The company has also focused on a number of categories including daily fill plans, leachate management, effective soil usage and proactive gas collection.
"We are staying ahead of issues that are costly to fix after the fact," Johnson said. "We are now seeing the benefits."
Costs of operations as a percentage of revenue rose by over 220 basis points, the company's best Q1 EBITDA margin contribution in more than a decade.
Johnson concluded, "as always, I'm very appreciative of the extra efforts that our division managers and ops managers have made to keep our employees safe to serve our customers through the pandemic and also make operational improvements in their marketing over the past 12 months."
Q1 2021 Financial Highlights:
- Revenue was $189.5 million, up $6.6 million, or up 3.6%, from the same period in 2020.
- Net income was $4.3 million, up $3.3 million, or up 349.5%, as compared to net income of $1.0 million, from Q1 2020.
- Operating income was $12 million.
- Adjusted EBITDA was $38.8 million, up $5.3 million, or up 15.9%, from the same period in 2020.
- Solid waste volumes were down 3.3%.
- Adjusted Net Income, a non-GAAP measure, was $4.8 million, up $2.6 million, or up 122.1%, as compared to Adjusted Net Income of $2.1 million in Q1 2020.