Casella Waste Systems wrapped another year of profit expansion fueled by a string of acquisitions, competitive pricing in the capacity-strained Northeast and a stabilized recycling model. The company reported adjusted EBITDA of $156.5 million for the year, up 13.4% from 2018, even with an $8 million headwind from the early closure of its Southbridge landfill in Massachusetts.
CEO John Casella described 2019 as "another strong and exciting year" during Friday's earnings call, one that marked notable progress toward a five-year growth plan set to culminate in 2021. Multiple signs point to 2020 being a similarly positive year for the Vermont-based company, with the potential exception of a surprise permitting setback at its North Country Environmental Services (NCES) landfill in New Hampshire.
- Casella touted 2019 approvals for landfill expansions in Vermont and New York, but recently ran into unexpected questions from the New Hampshire Department of Environmental Services over public benefits of the NCES site expansion. Casella "vigorously" disputes this interpretation of state statute, but withdrew its application earlier this month.
- The company now plans to resubmit "as soon as we can," with the goal of extending the site's lifespan another four or five years. Still, this delay could result in a $5 million hit to revenue as volumes are ramped down to preserve remaining capacity. Waste from the approximately 150 New Hampshire municipalities serviced by Casella may go to third-party sites or be exported to company sites as far as New York.
- On a broader level, across all nine Casella landfills, pricing was up by 7.6% for Q4 (as compared to 2018). Overall solid waste pricing, including collection, was up by 5%. Pricing is expected to remain strong into 2020, though may not rise at the same pace.
Casella has received permit approval for seven of its nine active landfills within the past four years, and has substantial capacity in the network, but the NCES challenges are noticeable given the company's smaller scale. Its pricing power comes in part from the fact that regional disposal capacity is limited, but some of the dynamics behind that situation are also potential vulnerabilities. The company experienced that with closure of Southbridge in 2018, following years of community and regulatory pressure.
The situation in New Hampshire has been similarly strained, including multiple local votes over the NCES landfill's fate and ongoing litigation led by regional environmental groups. Many of the groups that have been fighting Casella over this site, such as the Conservation Law Foundation and Toxics Action Center, cheered the news of its permit withdrawal. In a potential recognition of the NCES site's uncertain future, Casella has also explored the possibility of constructing a new landfill in the state. That faced its own pushback, including from a newer group called Save Forest Lake, and resulted in the approval of a potentially limiting town zoning ordinance last summer.
During the earnings call John Casella reiterated he anticipates this expansion issue can still be resolved with minimal impact on operations by 2021. The company's annual filing with the Securities and Exchange Commission notes similar optimism, while cautioning Casella makes "no assurance that we will receive this permit after it is refiled."
- Unlike its larger competitors, Casella's recycling revenues increased slightly to $42.82 million despite a commodity price decline of around 20% from the prior year. This was attributed in part to resetting two large contracts, including a deal with Boston for which Casella was the sole bidder.
- The company acquired nine businesses in 2019 for $82.2 million, worth an estimated $53 million in annual revenue. COO Ed Johnson said acquisitions from the Rochester, New York, market, largely done in 2018, are now almost fully integrated. 2019 acquisitions are still midway through that integration process.
- This pace of acquisition continues to be above target and led to the addition of an estimated 600 employees over the past year or so. Casella is concurrently expanding the company's management and back office teams to handle this growth.
- Casella has acquired two businesses so far this year worth an estimated $6 million in annual revenue: Daley & Sons Trucking in western Massachusetts and an industrial recycling facility from Cascades in Albany, New York. Executives still see significant acquisition opportunity, but made no mention of possible Pennsylvania divestitures from the Waste Management-Advanced Disposal Services deal.
- The company is projecting $113 million in capital expenditures for 2020, including $16 million of non-recurring costs related to acquisitions. Another $12 million will go toward ongoing expansion at the Waste USA landfill in Vermont, with additional expenses for closing the Southbridge landfill.
- For 2020, Casella is projecting revenues as high as $815 million and net income upward of $39 million. This guidance includes an expectation of 4.7% revenue growth from 2019 acquisitions (as well as the two deals done in 2020) and price growth of 3.5-4.5%.