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Stefanie Valentic

February 19, 2021

8 Min Read

Casella Waste Systems Inc. (CWST) presented its Q4 2020 financial results as well as figures for the fiscal year ended December 31, 2020.

The company cited the resiliency of its business model and systems enhancements for its ability to respond to sales trends and market changes while executing its long-term growth strategy.

Volumes further rebounded in Q4 as commercial customers reopened, construction activity returned and economic activity moved in a positive direction for Casella’s secondary and rural markets in the Northeast.

"This year was unprecedented in our strong performance and execution highlights the resiliency of our business, along with a courage, dedication and tenacity of our 2500 employees," said John Casella, chairman and CEO.

Solid waste pricing grew 3.9%, while collection pricing jumped 3.8% and landfill pricing increased 5.6%.

Revenue came in at $200.2 million, up 3.4% YOY as a result of positive collection and disposal pricing; the roll-over impact from acquisitions; higher resource solutions volumes and higher recycling commodity prices. Even with the positive figures, lower fuel surcharges and solid waste volumes due to the pandemic did cause a partial offset, according to the company. The company recovered "roughly 70% " of its commercial and industrial collection services on a revenue basis that were reduced or suspended due to COVID, said CFO Ned Coletta.

"Lower economic activity levels during the year resulted in a decline of solid waste volumes of $40.6 million as compared to 2019," Casella said. "This was primarily driven by lower disposal tonnage is lower volumes in the commercial industrial collection lines of business."

While negative business impacts caused solid waste volumes to slide 4.6% in Q4, it was still an improvement from the 8.4% decrease in Q3 2020.

Q4 adjusted EBITDA was reported at $42.6 million -  up $1.5 million, or up 3.7% year over year (YOY). Operating income was $14.2 million for the quarter, down $0.4 million, or 2.7% in 2019.

Coletta noted that "improving adjusted EBITDA was a huge achievement in quarter given the COVID headwinds. We saw our solid waste volumes down $6.9 million for the year translating to roughly a $3.5 million adjusted EBITDA headwind from COVID. In addition, we had roughly $200,000 of COVID specific costs."

Net income grew to $62.9 million in Q4, up from $9.1 million in 2019, a 594% leap. Acquisition activities accounted for $0.3 million in expenses.

The closure of the Southbridge Landfill in Massachusetts affected Q4 2020’s numbers, with $0.8 million of legal and other expenses and a $55.0 million non-recurring benefit to income taxes “due to the reversal of a valuation allowance on the majority of our net operating loss carryforwards and other deferred tax assets,” Casella stated.

In contrast, Q4 2019 included $0.5 million of expenses from acquisition activities and $0.6 million of legal and other costs associated with the landfill closure.

Casella credited the company's performance to "continued investment in technology, automated trucks to better drive collection efficiency and route optimization in real time business intelligence." He also cited a focus on service excellence, operating initiatives, pricing programs, and accurate acquisition integration onto resource solutions.

He added, "we continue to drive more value in synergies for resource solutions as we have worked to further integrate our recycling organics and customer solutions, sales and back office teams. As our customers sustainability needs grow, our resource solutions team is well positioned to provide expertise and services required to achieve these goals. As with all other aspects of our business, we are focused on models that are economically and environmentally sustainable."

Coletta shared more details, reporting that, "​r​​​​esource solutions revenues grew 11.1% year over year, with organics up 6.2% on new contracted volumes in additional processing, customer solutions up 5% mainly driven by growth of our services our existing customers and some new industrial customers as well. And recycling revenues were up 29.7% mainly driven by higher commodity pricing and higher volumes are averaged my revenue per tonne was up 79% year over year in the quarter."

Higher cardboard and mixed paper pricing as well as higher metals pricing partially offset by lower plastics pricing contributed to the results. Adjusted EBITDA for resource solutions was $3.9 million in Q4, up $900,000 YOY as a result of improvements in the company's recycling and organic segments.

The closure of ten acquisitions led the company to $22 million of annualized revenue, although growth in this sector was "somewhat modest" due to COVID-19. 

Still, Casella said that the company's pipeline remains strong with $400 million of annualized revenues in opportunities.

"We ended the year with over $300 million of liquidity including $154 million in cash, we're poised to opportunities to opportunistically put capital to work in a return driven manner on deals with that strategic fit that will drive further free cash flow growth," he stated.

Q4 Financial Highlights:

  • Revenue was $200.2 million

  • Net income was $62.9 million

  • Adjusted EBITDA was $42.6 million

  • Solid waste pricing was up 3.9%, Collection pricing was up 3.8%, Landfill pricing up 5.6%

  • Solid waste volumes were down 4.6%

  • Adjusted Net Income, a non-GAAP measure, was $8.8 million

Fiscal Year 2020

Even though 2020 presented a number of challenges with the pandemic and ensuing economic downturn, Casella experienced an adjusted EBITDA  of $171.4 million, an increase of $14.5 million, or 9.5% YOY. 

"Operationally, we have a strong finish to the year and I continue to be impressed by the focus and discipline of our frontline workers and management," said President and COO Ed Johnson. "Our ability to flex cost on lower revenue during the continuing pandemic, while protecting our workforce and customers is testament to our culture and the quality of our people. And I'm extremely grateful to the team for their hard work."

Adjusted free cash flow by 24.7% year-over-year for the fiscal year ended December 31, 2020.The company reported its 2020 revenue at $774.6 million, up $31.3 million or 4.2% YOY. Net income was $91.1 million for fiscal year 2020, up $59.5 million from fiscal year 2019. Net cash also improved, reaching $139.9 million in 2020, a $23.1 million increase, or 19.8% YOY.

Johnson presented an overview of Casella's cost of operations (cost of ops) noting that it improved 186 basis points despite the onset of the COVID-19 pandemic. Collections operations, which contribute to 50% of Casella's revenue, improved cost of ops by 163 basis points for the year, driven by positive movement in the variable margin contribution per driver hour. While all company divisions experienced good performance, Johnson was "particularly pleased" with the progress of its 2018 acquisitons, where improved margins have aided company averages.

"I have mentioned in the past that acquisitions tend to dilute our margins for a couple of years, as it takes time to get the pricing where it should be and to increase the level of automation appropriate to the operation," Johnson said. "The current results prove out our ability to transition the acquired companies to our culture and our operating standards. As we continue with our growth strategy, it is our goal to find ways to shorten this timeframe, but we are pleased with execution."

Fiscal Year 2020 Highlights:

  • Revenue was $774.6 million

  • Net income was $91.1 million

  • Adjusted EBITDA was $171.4 million

  • Operating income was $59.3 million 

  • Adjusted free cash flow was $69.1 million

2021 Outlook

With the books closed for the 2020 year, Casella shared estimates for 2021, which do not include completed acquisitions.

The company's 2021 budget already is "tracking ahead" of its strategic plan that was implemented in August 2017. The plan "reflects continued execution of our key strategies with the goal of driving additional shareholder value," Casella said.

Even with the pandemic's uncertainty leading to volume headwinds and negative cost impacts, Casella expects "solid growth." The provided 2021 outlook factors in a stable economic environment as presented in Q4 2020 leading into 2021.

Casella added, "And the guidance ranges do not contemplate a severe relapse of the COVID-19 pandemic or new stay-at-home orders, which may negatively impact commercial and general economic activity in our markets through the remainder of 2021. There are still many variables outside of our control, such as new waves of COVID-19, additional stay-at-home orders, the availability and effectiveness of vaccines and therapeutics as well as impacts on the economy as the federal stimulus programs run their course. However, our team has remained nimble in this rapidly changing environment and continues to flex operating costs and drive operating efficiencies to offset lower volumes or other headwinds.”

2021 Fiscal Outlook Guidance:

  • Revenues between $815 million and $830 million (as compared to $774.6 million in fiscal year 2020)

  • Net income between $33 million and $37 million (as compared to $91.1 million in fiscal year 2020, which included a $55.0 million benefit from the reversal of the valuation allowance);

  • Adjusted EBITDA between $184 million and $188 million (as compared to $171.4 million in fiscal year 2020);

  • Net cash provided by operating activities between $149 million and $153 million (as compared to $139.9 million in fiscal year 2020); and

  • Adjusted Free Cash Flow between $75 million and $79 million (as compared to $69.1 million in fiscal year 2020).

  • Revenue growth of between 5.2% and 7.2% in fiscal year 2021, including 1.5% revenue growth from the roll-over impact of acquisitions completed during fiscal year 2020 and those already completed in early fiscal year 2021.

  • Solid waste revenue growth of between 6.5% and 9.5%, with price growth from 3.5% to 4.5%, volume growth from 1.0% to 2.5%, and 2.0% growth from acquisitions completed during fiscal year 2020 and those already completed in early fiscal year 2021.

  • Resource Solutions revenue growth of approximately 1.5%. Higher recycling commodity prices and neutral to slightly higher volumes will partially offset by lower processing fees.

  • Capital expenditures of approximately $113 million, which includes approximately $15 million of non-recurring capital associated with acquisition integration and $13 million of Waste USA landfill phase VI construction capital expenditures.

  • Net cash provided by operating activities will be negatively impacted with $10 million allocated to landfill closure, site improvement and remediation expenditures as a result of  the Southbridge Landfill closure. Activities related to the closure will be “substantially completed” in fiscal year 2021, according to the company.

  • With a reversal of the tax valuation allowance in fiscal year 2020, the company expects an income statement tax provision of approximately 30.5% in fiscal year 2021. Cash taxes are expected to remain at approximately $1.5 million.


About the Author(s)

Stefanie Valentic

Editorial Director, Waste360

Stefanie Valentic is the editorial director of Waste360. She can be reached at [email protected].


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