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Casella Waste Systems Reports Strong Growth in 2018
The company posted $660.7 million in revenues for the year.
7 Min Read
Rutland, Vt.-based Casella Waste Systems, Inc. reported its fourth quarter and full-year earnings for 2018. The company reported an increase in revenues in 2018, with $174.7 million in revenues for the fourth quarter and $660.7 million in revenues for the year. This is up $23.5 million and $61.4 million, respectively, from the prior year period.
“We had a strong operational quarter and a great 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, Inc., 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 efficiently allocating capital for strategic growth.”
“We continued to make substantial progress ramping up our strategic growth initiative in 2018, with the acquisition of 10 businesses with roughly $77 million of annualized revenues," added Casella. "We have built strong process and discipline in our acquisition approach, and we plan to remain focused on acquiring well-run businesses in strategic markets that will drive additional internalization to our landfills and leverage operating synergies. We expect revenue growth of approximately 5.5 percent in 2019 from the roll-over impact of acquisitions completed in 2018. Further, our acquisition pipeline remains robust entering 2019, and we believe that we are well positioned to again surpass our target to acquire or develop $20 million to $40 million of annualized revenues in 2019.”
Providing guidance for the fiscal year ending December 31, 2019, the company estimates revenues between $710 million and $725 million, as compared to $660.7 million in fiscal year 2018; net income between $34 million and $38 million, as compared to $6.4 million in fiscal year 2018; adjusted EBITDA between $152 million and $156 million, as compared to $138.0 million in fiscal year 2018; net cash provided by operating activities between $119 million and $123 million, as compared to $120.8 million in fiscal year 2018; and normalized free cash flow between $51 million and $55 million, as compared to $47.1 million in fiscal year 2018.
“Our fiscal year 2019 budget is on track with the fiscal year 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," said Casella in a statement. “We expect strong growth again in 2019 despite the closure of the Southbridge Landfill in November 2018, driven by continued pricing execution, ramping up of tons at our landfills in New York, the roll-over impacts of acquisitions completed in 2018 and improvements in our recycling business as several legacy recycling contracts reset to further shift commodity risk to our customers and increase processing fees.”
Here are some additional highlights from the firm’s 2018 results and 2019 outlook:
Net loss was $13.7 million for the quarter, as compared to net income of $20.0 million for the same period in 2017. Net income was $6.4 million for the fiscal year, as compared to net loss of $21.8 million in fiscal year 2017.
Overall solid waste pricing for the quarter was up 4.5 percent, driven by strong collection pricing, up 5.6 percent, and robust landfill pricing, up 3.7 percent, from the same period in 2017.
Adjusted net income attributable to common stockholders was $4.1 million in the fourth quarter, as compared to $4.6 million for the same period in 2017. Adjusted net income attributable to common stockholders was $27.2 million for the fiscal year, as compared to $28.7 million in fiscal year 2017.
Adjusted EBITDA was $33.8 million in the fourth quarter, up $3.6 million, or 12 percent, from the same period in 2017. Adjusted EBITDA was $138.0 million for the fiscal year, up $9.0 million, or 7 percent, from fiscal year 2017.
Operating loss was $5.1 million for the fourth quarter, as compared to operating income of $9.9 million for the same period in 2017. Adjusted operating income was $11.6 million for the fourth quarter, up $1.3 million from the same period in 2017.
Net cash provided by operating activities was $120.8 million for the fiscal year, up $13.3 million, or 12.4 percent, from fiscal year 2017.
Normalized free cash flow was $47.1 million for the fiscal year, up $8.3 million, or 21.3 percent, from fiscal year 2017.
In 2018, the company further enhanced and refined its long-term technology plan. According to Casella, the company is pleased with the early progress it has made against the strategy, and the implementation of the new NetSuite ERP program has been successful. The company’s technology plan is focused on driving profitable revenue growth, improving how Casella interacts with and sells to its customers and improving operating in back-office efficiencies.
The fourth quarter included: a $15.8 million Southbridge Landfill closure charge, $0.9 million of expense from acquisition activities and other items and a $1.1 million impairment charge for the company’s investment in RecycleRewards, Inc. The same period in 2017 included a negative $16.1 million benefit from U.S tax reform; partially offset by a $0.3 million Southbridge Landfill closure charge, $0.2 million of expense from acquisition activities and other items and $0.2 million of tax effect.
Given the strength of the company’s cash flow growth and its robust acquisition activity to date, Casella is on track to outpace its normalized free cash flow growth targets set as part of its 2021 plan, according to the company. Casella is increasing its normalized free cash flow target range for fiscal year 2021 to between $65 million and $70 million, or roughly 10 percent to 15 percent per year of growth.
“During 2018, strong operating performance in our integrated solid waste, customer solutions and organics operations more than offset the significant commodity pricing headwinds in our recycling business,” said Casella in a statement. “Our disciplined solid waste pricing programs continue to drive significant value, with collection pricing up 5.6 percent and landfill pricing up 3.7 percent year-over-year in the fourth quarter. Solid waste volumes were flat year-over-year in the fourth quarter, or up 0.5 percent excluding the negative volume headwind resulting from a fire-related business interruption at a transfer station.”
“Our team has done a great job over the last several years working to off-take risk across our business, including recycling commodity pricing risk,” added Casella. “As recycled paper and cardboard commodity prices stabilized over the last six months, our trailing SRA fee and revenue share contracts, where applied, are now fully recovering lower commodity prices. Despite our average commodity revenue per ton being down roughly 18 percent year-over-year in the fourth quarter, our efforts to improve our recycling business model, reset pricing on legacy contracts and reduce contamination all contributed to increasing operating income $0.7 million in the recycling business year-over-year in the fourth quarter. Looking forward to 2019, we expect recycling results to improve further as several third-party recycling processing contracts will reset over the next six months.”
Other 2019 guidance:
The company expects overall revenue growth of between 7.5 percent and 9.7 percent in fiscal year 2019.
In the solid waste business, revenue growth of between 10 percent and 12 percent, with price growth from 3.5 percent to 4.5 percent, volume growth from 0.0 percent to 1 percent, 7.5 percent growth from acquisitions already completed and roughly a 2 percent headwind from the Southbridge Landfill closure.
In the recycling business, overall revenue growth of between 2 percent and 5 percent, mainly driven by slightly higher recycling commodity prices, higher processing fees and neutral to slightly higher volumes.
In the other segment, overall revenue growth of between 1 percent and 2 percent, with growth in the industrial segment for the customer solutions group and higher volumes in the organics group.
The budget includes approximately 5.5 percent revenue growth from the roll-over impact of acquisitions completed during fiscal year 2018 but does not include any acquisitions that have not yet been completed.
Capital expenditures of approximately $83 million, with roughly $8.5 million of non-recurring capital associated with acquisition integration and recycling facility upgrades. Payments on operating lease contracts of approximately $6.0 million.
Net cash provided by operating activities will be negatively impacted in 2019, and the company plans to spend $12.5 million on landfill closure, site improvement and remediation expenditures associated with the Southbridge landfill closure and Potsdam remediation project.
No material changes in the regional economy from the last 12 months.
"We have a multiyear plan on the technology side, and we are quite inefficient today in the back office," said Casella on a call with investors. "[It's] no fault of anyone. Solid waste is complex, and every customer has different pricing structures, billing structures, etc. There's a lot going on, and there's a lot of paper that moves in all elements of our business. We made the first step with our ERP implementation in 2018 with NetSuite. Where we are today, a year later, we are just about as efficient as we were beforehand. We have a lot of work to do, especially on the digitalization side of taking paper, approval stats and manual intervention out of the work. We will be very focused on that over the next year plus."
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