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By the numbers
Net income: $5.5M, down 69.2% year over year
Negative impacts on net income included one-time payments for a legal settlement, losses from termination of bridge financing and other one-time costs
Solid waste pricing: up 7.7% year over year
Mainly due to 8.2% higher collection pricing and 7.1% higher disposal pricing
- Economic picture: During the Q2 earnings call on Friday, CEO John Casella said the company was “performing well” and updated company guidance to reflect expected contributions from recently closed acquisitions and stable solid waste operations. The company now anticipates revenues between $1.24 billion and $1.26 billion, up from prior expectations between $1.15 billion and $1.18 billion. However, it adjusted its net income expectations to a range of $41 million to $47 million, down from a range of $56 million to $62 million.
- Integrating recent acquisitions: Casella described the quarter as “an exciting period of growth for our organization” as the company integrated assets it recently acquired from GFL in Pennsylvania, Delaware and Maryland as part of a $525 million deal. Less than a month into the acquisition, “operations and service are smooth,” he said. Casella’s other notable acquisition announced in Q2 was the $219 million deal to acquire Twin Bridges, which is expected to close in Q4. That deal cleared an antitrust review on July 14 and is currently being reviewed by the New York state attorney general's office, Casella said. The company also completed the acquisition of a separate solid waste collection and transfer station company in April.
- One-time costs: Casella paid several one-time costs that affected net income in Q2, including a $6.2 million legal settlement charge for a class action lawsuit in which several employees sued for overtime wages they said they had not been paid. Casella also paid about $8.2 million to terminate bridge financing for secured and unsecured bridge loans related to both the GFL and Twin Bridges acquisitions. Those bridges were not drawn, and Casella closed both deals through other means, said President and CFO Ned Coletta.
- Pricing: Inflation remains an issue, but Casella said the company’s pricing structure has helped to offset most of the headwinds. Collection pricing was up 8.2% in the quarter, and overall solid waste pricing was up 7.7%. “We expect the strength in our solid waste line of business to continue over the remainder of this year and help drive consolidated margin expansion for the year,” he said.
- Commodities: Recycled commodity prices were down 53% year over year, but Coletta said the company’s risk mitigation methods — mainly a 7.6% increase in processing fees at the MRFs — are “working well to limit the impact.” He expects headwinds from commodity prices to ease through the rest of the year. “At the onset of the year we took a conservative outlook on recycling commodity prices, and that remains intact.” Casella’s newly upgraded MRF in Boston is also expected to help “contribute positively” in the second half of the year because of its higher capacity and ability to output cleaner material.
- RNG deal: Casella signed a deal with Waga Energy earlier in the month to develop renewable natural gas facilities at three of its landfills. Waga will fund the construction and will also own and operate the RNG infrastructure, but the two companies will share revenue, Coletta said. It could take about two years for the projects to be operational, and the three sites combined will generate about 1.3 million MMBtus per year, he said. Casella sees the projects as a way to “reflect our commitment to further lowering emissions and improving gas capture for renewable energy,” Casella said. The company already has two RNG-generating sites in New Hampshire and Maine, Coletta said.
- Landfill updates: Casella said the company is interested in reopening its landfill in Hardwick, Massachusetts. Responding to an analyst’s question about the possible project, Casella said the landfill has about 20 years of capacity left, and the company would be “happy to push forward” with updating the landfill. However, favorable community support would be necessary to advance the project, and any possible work on the landfill wouldn’t happen for “several years,” he said. Meanwhile, Casella still expects to complete rail infrastructure improvements at its McKean Landfill in Pennsylvania by spring 2024.
