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Casella, ADS Report 2019 Revenue Growth, Casella Details 2020 Outlook Casella Waste Systems Image

Casella, ADS Report 2019 Revenue Growth, Casella Details 2020 Outlook

During a call with investors, Casella detailed its revenue growth, impact from acquisitions and 2020 guidance. ADS did not provide 2020 guidance.

During a February 21 call with investors, Rutland, Vt.-based Casella Waste Systems, Inc. reported revenues of $193.6 million for the fourth quarter 2019, up $18.9 million, or up 10.8 percent, from the same period in 2018. Casella also provided its guidance for 2020.

Meanwhile, Ponte Vedra, Fla.-based Advanced Disposal Services, Inc. (ADS) announced revenue of $400.5 million for Q4 2019 versus $394.8 million in the same period of the prior year. ADS did not hold an earnings call or provide 2020 guidance due to the pending Waste Management acquisition.

Casella’s revenue growth was mainly driven by robust collection and disposal pricing; the roll-over impact from acquisitions; higher customer solutions volumes; and higher fuel surcharge, recycling processing and other fees. It was partially offset by lower solid waste, organics and recycling volumes; the closure of the Southbridge Landfill; and lower recycling commodity prices.

“We had another great quarter and year, as we continued to execute well against our key strategies as part of our 2021 plan,” said John W. Casella, chairman and CEO of Casella Waste Systems, in a statement. “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 meaningfully grew the business with nine acquisitions in the year with approximately $53 million of annualized revenue. And we’ve closed on two acquisitions (with approximately $6 million of annualized revenues) thus far in 2020,” added Casella during the call with investors.

Casella noted that the company expects revenue growth of roughly 4.7 percent, or $35 million, in 2020 from the roll-over impact of acquisitions completed in 2019 and those already completed in early 2020.

“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 disciplined acquisition strategy,” he added.

For Casella, Q4 2019 included a $0.5 million of expense from acquisition activities and other items and $0.6 million of legal and other expenses associated with Casella’s Southbridge Landfill closure. The same quarter last year included a $15.8 million charge related to the Southbridge Landfill closure and $0.9 million of expense from acquisition activities and other items.

Additional highlights for Q4 and full year 2019 are:

  • Revenues were $743.3 million for the fiscal year, up $82.6 million, or 12.5 percent, from fiscal year 2018.
  • Overall solid waste pricing for the quarter was up 5 percent, driven by robust collection pricing, up 4.8 percent, and strong landfill pricing, up 7.6 percent, from the same period in 2018.
  • Net income was $9.1 million for the quarter, up $22.7 million from the same period in 2018. Net income was $31.7 million for the fiscal year, up $25.2 million from fiscal year 2018.
  • Adjusted net income was $10.2 million for the quarter, up $6.1 million, or up 146.2 percent, from the same period in 2018. Adjusted net income was $40.6 million for the fiscal year, up $13.5 million, or up 49.6 percent, from fiscal year 2018.
  • Operating income was $14.6 million for the quarter, up $19.7 million from the same period in 2018. Adjusted operating income was $15.7 million for the quarter, up $4.1 million from the same period in 2018.
  • Operating income was $53.1 million for the fiscal year, up $13.3 million from fiscal year 2018. Adjusted operating income was $62.1 million for the fiscal year, up $10 million from fiscal year 2018.
  • Adjusted EBITDA was $41.1 million for the quarter, up $7.3 million, or up 21.5 percent, from the same period in 2018. Adjusted EBITDA was $156.5 million for the fiscal year, up $18.5 million, or 13.4 percent, from fiscal year 2018.
  • Net cash provided by operating activities was $116.8 million for the fiscal year, down $(4) million, or (3.3) percent, from fiscal year 2018. The year-over-year reduction was mainly due to a reduction in accrued liabilities due to cash outflows associated with the remediation project at a former scrap yard owned by one of Casella’s subsidiaries in Potsdam, N.Y., and the Southbridge Landfill closure; and the adoption of Accounting Standards Codification Topic 842, Leases on January 1, 2019, 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.
  • Normalized free cash flow was $55.5 million for the fiscal year, up $8.4 million, or 17.9 percent, from fiscal year 2018. Normalized free cash flow for the fiscal year included the following adjustments: $15.4 million of landfill closure, site improvement and remediation expenditures associated with the Potsdam remediation project and the Southbridge Landfill closure; $2.6 million of cash outlays related to acquisition activities and other items; $4.9 million of capital expenditures associated with the Waste USA landfill expansion; and $17.8 million of non-recurring capital expenditures primarily related to acquisitions.

“As a company, we have spent the last 45 years working to develop an integrated resource management strategy that balances our customers' current solid waste collection, recycling, organics and disposal needs with a vision for the future through increased sustainability and resource management,” said Casella in a statement. “We have worked extremely hard to develop and successfully implement leading resource initiatives, long before sustainability was in vogue. One such success is our innovative recycling business model. Our revenue share model and other risk management programs coupled with our investments in new processing technologies and our efforts to produce higher quality materials and manage processing costs with increased automation have allowed us to improve our recycling business's financial performance, mitigate commodity risk and maintain viable end-markets in a challenging pricing environment. These efforts have allowed our recycling program to remain both environmentally and economically sustainable through this historically low commodity pricing cycle.”

In 2019, Casella received two important landfill permit expansions. In December, the company received a 2.7 million cubic yard expansion at its Hakes landfill located in New York. And, in September, Casella received a 13.7 million cubic yard expansion at its Waste USA landfill in Vermont, which will create approximately 20 years of additional airspace at the current run-rate.

“Despite these great successes, we faced an unexpected setback at our North Country landfill located in New Hampshire in February 2020, when we learned from the New Hampshire Department of Environmental Services that it had decided to interpret the state’s public benefit statute in a manner that we believe was different than how it had consistently interpreted it in the past,” explained Casella during the call. “As such, we decided to withdraw our airspace expansion permit application at this site, and we plan to quickly resubmit our application to address the department’s interpretation of the long-standing statute. As this step adds time to the process, we will need to ramp down volumes at the site in 2020 to maintain adequate near-term capacity.”

Casella’s 2020 Outlook

“Our 2020 budget is on track with the 2021 strategic plan that we first introduced in August 2017 and reflects continued execution of our key strategies with the goal of driving additional shareholder value," noted Casella. “We expect strong growth again in 2020 despite our plan to slow volumes into our North Country landfill as we work to permit the next expansion airspace. We remain focused on pricing execution, driving core operating efficiency programs, ramping up tons at our landfills in New York, and our integration of acquisitions completed in 2019 and in early 2020.”

Casella provided guidance for 2020 by estimating results in the following ranges:

  • Revenues between $800 million and $815 million (as compared to $743.3 million in fiscal year 2019).
  • Net income between $35 million and $39 million (as compared to $31.7 million in fiscal year 2019).
  • Adjusted EBITDA between $170 million and $174 million (as compared to $156.5 million in fiscal year 2019).
  • Net cash provided by operating activities between $131 million and $135 million (as compared to $116.8 million in fiscal year 2019).
  • Normalized free cash flow between $60 million and $64 million (as compared to $55.5 million in fiscal year 2019).

“As we look to 2020 and beyond, we plan to continue to focus on making investments to modernize economically sustainable recycling programs,” said Casella. “We plan to continue to make investments in recycling equipment, operating initiatives and customer education programs.”

Casella also plans to retarget further refinance of its contamination fee program and reset its remaining third-party legacy contracts over time.

Additionally, Casella provided the following assumptions that are built into its outlook:

  • Overall the company expects revenue growth of between 7.6 and 9.6 percent in fiscal year 2020, including 4.7 percent revenue growth from the roll-over impact of acquisitions completed during fiscal year 2019 and those already completed in early 2020. This does not include the impact of any acquisitions that have not yet been completed.
  • Revenue growth in the solid waste business between 9 and 11 percent, with price growth from 3.5 percent to 4.5 percent, volume growth from (0.5) percent to 0.5 percent (which includes a headwind from the reduction of volumes at the North Country landfill), and 6 percent growth from acquisitions completed during fiscal year 2019 and those already completed in early 2020.
  • In the resource solutions business, revenue growth of between 3.3 and 5.3 percent, mainly driven by slightly higher recycling commodity prices, higher processing fees, and neutral to slightly higher volumes, with growth in the industrial segment for the customer solutions group and higher volumes in the organics group.
  • The planned reduction of volumes at the North Country landfill is expected to negatively impact revenues by $(5) million and operating income by $(4.5) million from fiscal year 2019.
  • Capital expenditures of approximately $113 million, which includes approximately $16 million of non-recurring capital associated with acquisition integration, and $12 million of Waste USA landfill construction capital expenditures.
  • Net cash provided by operating activities will be negatively impacted in 2020 as Casella plans to spend $14 million on landfill closure, site improvement and remediation expenditures associated with the Southbridge Landfill closure. Casella expects the Southbridge Landfill closure project to be substantially completed in 2020.

ADS: Disciplined Pricing and Continued Strong Cash Flow for Q4 2019

Casella, ADS Report 2019 Revenue Growth, Casella Details 2020 Outlook

ADS announced revenue of $400.5 million for Q4 2019 2019 versus $394.8 million in the same period of the prior year. Net loss during fourth quarter 2019 was ($3.2) million or ($0.04) per diluted share, and adjusted net income, which excludes certain gains and expenses, was $7.5 million, or $0.08 per diluted share.

"We executed on a number of important objectives in 2019 including year-over-year improvements across all key safety metrics and continued strong cash flow generation," said ADS CEO Richard Burke in a statement.  "While we faced operating headwinds related to recycling and leachate costs, our team delivered on the items directly within their control, and I'm proud of the focus, dedication and professionalism our team has exhibited throughout the year."

Last April, ADS entered into a merger agreement with Waste Management (WM). In light of the pending transaction, ADS elected to cease conducting quarterly earnings conference calls until the transaction closing. ADS also elected to enter into an extended quiet period related to investor communications and is no longer providing forward-looking guidance until the transaction is closed.

During Waste Management’s Q4 2019 earnings call on February 13, WM President and CEO Jim Fish mentioned that the closing of the ADS acquisition is expected to be the highlight of 2020.

“We are excited as we near the close of the transaction, and we have great confidence in the potential of the combined organization,” said Fish during WM’s call with investors. “We anticipate that we will obtain antitrust regulatory approval by the end of March and close soon thereafter.”

“Our integration team has been working hard preparing for this close, and the team is positioned to move quickly to integrate ADS operations and to achieve our targeted synergies,” he added.

ADS’ Q4 and full year 2019 highlights include:

  • Fourth quarter revenue of $400.5 million represented a 1.4 percent increase.
  • Achieved fourth quarter and full year average yield of 3.3 percent.
  • Fourth quarter organic volume declined 2.2 percent due to lower disposal tonnage and full year organic volume was flat.
  • Year-over-year growth from acquisitions was 1.4 percent for the fourth quarter and full year.
  • Net loss for the fourth quarter was ($3.2) million.
  • Achieved adjusted EBITDA of $103.7 million for the fourth quarter, which included a $9.4 million year-over-year headwind related to the recycling business and higher disposal facility costs. Those costs were partially offset by a $4.5 million benefit from compressed natural gas fuel tax credits.
  • Full year revenue of $1,623.0 million was up 4.2 percent overall versus the prior year.
  • Full year cash provided by operating activities was $280.2 million.
  • Achieved full year adjusted free cash flow of $136.8 million.
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