CWST - NASDAQ

Good day, and thank you for standing by. Welcome to the Casella Waste Systems, Inc. Q2 2025 Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Brian Butler, VP of Investor Relations. Please go ahead.

Thank you, Daniel. Good morning, and thank you for joining us on the call. Today, we'll be discussing our second quarter 2025 results, which were released yesterday afternoon. This morning, I'm joined with John Casella, Chairman and Chief Executive Officer of Casella Waste Systems; Ned Coletta, our President; Brad Helgeson, our Chief Financial Officer; and Sean Steves, our Senior Vice President and Chief Operating Officer of Casella Waste operations. After a review of these results and an update on the company's activities and business environment, we'll be happy to take your questions. But first, please note that various remarks we may make about the company's future expectations, plans and prospects constitute forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent Form 10-Q, which is on file with the SEC. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views on any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views change. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to today, August 1, 2025. Also during this call, we'll be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures, to the extent they are available without unreasonable effort, are included in our press release filed on Form 8-K with the SEC. And with that, I will now turn over the call to John Casella to begin our discussion. John?

Thanks, Brian, and good morning, everyone. Welcome to our second quarter 2025 conference call. In June, we probably ran the NASDAQ opening bell to commemorate Casella's 50th anniversary. This milestone marks our evolution from a single truck operation in Vermont to a leading provider of waste recycling and resource management services across the Northeast and now into the Mid- Atlantic. Over 5 decades of growth, our dedicated team has consistently delivered exceptional service and industry leadership, all while staying true to our core values and working toward a cleaner and more sustainable future. I'd like to sincerely thank all of our employees for their grit, hard work and commitment every day. The celebration was not only a reflection of our past, but also a reaffirmation of our vision for the future. It highlighted the strength of our culture the resilience of our business model and the deep trust we've built with our customers and communities. We are incredibly proud of the legacy we've created and energized by the opportunities ahead. Turning to the quarter. We delivered another strong performance in Q2, with robust growth in both revenue and adjusted EBITDA. Year-to-date, we've achieved record first half adjusted free cash flow over $70 million more than $30 million above the same period last year. These results reflect solid execution, meaningful contributions from our recent acquisitions. Pricing remains healthy with solid waste pricing up 5% year-over-year. We continue to execute well on our operating plans, driving meaningful margin improvement across our legacy business. This performance has been partially offset by some growing pains in the Mid-Atlantic as we work through the transition to our systems and getting the acquired fleet up to our standards, we are executing on a plan to rapidly get this performance on track. Elsewhere, landfill volumes were up nicely year-over-year, and our Resource Solutions segment continued to perform very well, driven by improved performance at our upgraded recycling facilities. We've now completed 6 acquisitions year-to-date, representing about in annualized revenues, and we're excited about the pending acquisition of Mountain State Waste, which will expand our footprint in Pennsylvania and also into West Virginia, adding another $30 million in annualized revenues. We look forward to welcoming their employees and customers to the Casella family and integrating their operations into our broader network. Our M&A pipeline remains full of targets that align perfectly with our strategy and our strong balance sheet positions us to continue to pursue and complete these deals opportunistically. Looking ahead, we raised our full year revenue guidance reflecting on the continued strength of our core pricing and acquisition activity and reaffirmed our adjusted EBITDA and adjusted free cash flow guidance ranges representing another year of record financial results. And with that, I'll turn it over to Brad to walk through the financials in more detail.

Thanks, John. Good morning, everyone. Revenues in the second quarter were $465.3 million, up $88.2 million or 23.4% year-over- year with $67.1 million from acquisitions, including rollover and $21 million from organic growth or 5.6%. Solid waste revenues were up 27.1% year-over-year, with price up 5% and volume down 0.8%. Within solid waste, price in the collection line of business was up 4.9% in the quarter, led by up 5.9% price in frontload commercial and volume was down 1.2%. However, year-over-year volume trends improved from the first quarter with indications of a stable economy in our markets. Price in the disposal line of business was up 5.8% and volume up 0.6% year-over-year. Results in the landfill business were strong, with total tons up 9.5% and including higher third-party MSW and C&D volumes and over 12% growth in internalize volumes. We feel that we have meaningful opportunities to grow volumes further at our sites. But it's safe to say that the persistent market headwinds that we experienced last year are behind us. We drove price 8.2% at the transfer stations with flat volume in the quarter. Resource Solutions revenues were up 10.2% year-over-year with recycling other processing revenue up 9.6% and national accounts, up 10.6%. Within Resource Solutions processing operations, our average recycled commodity sales price was down 16% year- over-year, with softer markets across the board and most commodities now selling below 5-year averages. Notwithstanding market pressures, our contract structures share this risk with our customers by adjusting tip fees in down markets. So the net impact of lower prices on our revenue was just 1.6% or less than $1 million. Processing volume and revenue terms was up 8.6%, driven by higher volumes at the Boston and Willimantic recycling facilities. Within national accounts revenue, price was up 5.9% and volume up 1.9%. Adjusted EBITDA was $109.5 million in the quarter, up $17.9 million or 19.5% year-over-year with contribution from acquisitions, including rollover and organic growth. Adjusted EBITDA margin was 23.5% in the quarter, down approximately 75 basis points year-over-year. Bridging the year-over-year change in adjusted EBITDA margin, acquisitions contributing at lower initial margins than our overall business presented a headwind of 85 basis points. The base business on a same-store basis expanded margins by 10 basis points overall with legacy footprint operations growing margins by over 100 basis points, but the Mid-Atlantic region representing a near-term headwind and as we continue to work through business integration and synergy execution impacted by ongoing system conversions and delays in truck deliveries. I should note that these headwinds are transitory and represent margin expansion opportunity in the future, which we expect to see in 2026. Cost of operations were $308.1 million in the quarter, up $64.3 million year-over-year, with $48.2 million of the increase from acquisitions and $16.1 million in the base business. General and administrative costs were $54.5 million in the quarter, up $7.3 million year-over-year. Depreciation and amortization costs were up $21.7 million year-over-year with $16.1 million resulting from the recent acquisition activity, including the amortization of acquired intangibles. As a reference, D&A associated with acquisitions was approximately 24% of acquired revenues in the quarter as compared to 15% for our base business. Adjusted net income was $23 million in the quarter or $0.36 per diluted share, up $1.3 million and down $0.01 per share. GAAP net income was $5.2 million in the quarter impacted by a $6.9 million increase in amortization of acquired intangibles. Net cash provided by operating activities was $139.6 million in the first 6 months of 2025, up $59.9 million year-over-year, driven by EBITDA growth and more normalized seasonal working capital flows as compared to 2024. DSO was 34 days down 2 days from year-end and 4 days year-over-year. Adjusted free cash flow was $70.8 million, a record for the first 6 months and representing approximately 40% of our full year guidance. Capital expenditures were $121.9 million, up $47 million year-over-year, including $40 million of upfront onetime investment in recent acquisitions. As of June 30, we had $1.16 billion of debt and $218 million of cash. Our consolidated net leverage ratio for purposes of our bank covenants was 2.39x and our $700 million revolver remained undrawn. Our liquidity and leverage profile will enable us to be optimistic in continuing to execute on our growth strategy and robust M&A pipeline. As announced in our press release yesterday, we updated some of our guidance ranges for 2025. We raised our revenue guidance to a midpoint of $1.83 billion in light of acquisition activity to date However, we reaffirmed our range on adjusted EBITDA as the contribution from our announced acquisition activity since establishing guidance has not yet exceeded the original range and we remain cautious on the pace of synergy execution this year in the Mid-Atlantic region. We also raised the bottom end of our ranges on adjusted EBITDA, adjusted free cash flow, or -- and cash flow from operating activities based on the strength of cash flow year-to-date and our confidence in the second half. Regarding cash flow, I should note that we will not see a benefit from the recent tax legislation in 2025 as we would not have been a federal cash taxpayer in any event. However, the provisions of the tax bill, most significantly the reinstatement of bonus depreciation will certainly benefit our tax position in the future, deferring and ultimately reducing our eventual federal cash tax burden with that, I'll turn it over to Ned.

Thanks, Brad, and good morning, everyone. As highlighted in our earnings release yesterday, we delivered another strong quarter of growth with solid performance across key financial metrics. Organic trends remained positive in the second quarter, with solid waste pricing up 5% year-over-year and total company volumes up 30 basis points with particular strength in Resource Solutions and landfill volumes. Collection operations made meaningful improvement. We completed 11 routing projects that reduced both route gates and driver headcount requirements. Operational productivity in our Eastern and Western regions remained strong with direct labor and overtime costs flat on a trailing 12-month basis. This helped to offset cost pressures in our Mid-Atlantic region, where labor costs are currently running hundreds of basis points higher than in other regions. As John mentioned, truck delivery delays and system conversions in the Mid-Atlantic had a domino impact in the quarter, delaying route optimization, automation and other cost synergies from being recognized as quickly as expected. We do expect 55 additional trucks to deliver in late 2025 to the Mid-Atlantic region with nearly 40 of these trucks being automated. In our Resource Solutions segment, adjusted EBITDA increased $1.8 million in the second quarter, mainly driven by improved efficiencies at our recently upgraded Willimantic in Boston recycling processing facilities. This operational strength, along with our floating, processing and SRA fees more than offset the impact of weaker commodity prices, which declined roughly $20 a ton or 16% year-over-year. Landfill volumes were up significantly, with total volumes up 88,000 tons year-over-year or 9.5%, with increased internalization driving a 55,000 ton increase or roughly 13%. We also continue to source more construction and demolition tons, mainly due to the previously announced competitor landfill closure on Long Island, which had been a headwind throughout 2024. Since opening in mid-2024, our McKean Landfill has successfully accepted over 400 railcars and processed close to 2,000 containers of waste. We're building out a new rail offload transfer building at the site to expand the range of materials that can be handled from the current containerized MSW to also include gondolas of MSW, C&D and soils. We expect these upgrades to be completed in the first half of 2026. And at that time, we'll work to drive additional internalization to the site and also selectively attract new customers and material streams. We also continue to execute well against our acquisition strategy, as John mentioned, closing 3 additional deals in the second quarter, totaling over $40 million of annualized revenues. Additionally, we're really excited about the agreement to acquire Mountain State Waste, which will expand our geographic footprint and added incremental $30 million of annualized revenues after it closes. As we enter the second half of 2025, our acquisition pipeline remains robust with over $500 million of annualized revenue opportunities. Our balance sheet remains strong with leverage under 2.4x and total liquidity of approximately $900 million. Our outlook for the remainder of 2025 remains positive, supported by continued execution of our acquisition strategy in a resilient, sustainable organic growth model. Our limited exposure to commodity prices and tariffs further reinforces our confidence in delivering consistent results. With that, I'll turn it back to the operator for questions.

[Operator Instructions]. Our first question comes from Tyler Brown with Raymond James.

So Ned, can we just kind of start with the Mid-Atlantic. So it seems like maybe that group is lagging a little bit. Maybe can you talk about some of the reasons why? And I think you're implementing an ERP there, but big picture, once that new system is in place, won't there be a substantial pricing opportunity in that market in '26 because I was under the impression that pushing price was kind of, call it, logistically difficult and cash collections were kind of slow on that legacy system.

Yes. Great question, Tyler. So if we flash back in time, there's always those moments where you make R&D decision, and we may be made one that's been a little bit painful. When we acquired the businesses originally from GFL, we decided to actually stay in the same billing operating system they have been operating. And it was more of an R&D decision for us to see how it work, and if there's something that would work for the rest of our business, flash forward is not a great system. There's not great analytics. There's not great routing capabilities. There's a lot of issues. So about 9 months ago, 8 months ago, we decided to move to our legacy billing system, which is still to test the time. It's been amazing called Soft-Pak, but upgrading to the latest version. So we're very rapidly doing so in the Mid-Atlantic. But as I mentioned, it is a bit of a domino effect because not all those businesses are running in the exact same billing system today. We haven't been able to move all newly acquired businesses onto that system. And then the truck delays just compounds the whole thing where we have delegate automation, routing synergies. So we're not feeling bad about our plans or our synergy expectations. It's just taking longer. To your question about pricing, you're 100% right about it. There is not the same level of visibility around elasticity around pricing that we have in our legacy systems. So there's opportunity there as well.

Okay. So I'll try to ask this question, we'll see what you give me. But what would you say the synergy EBITDA benefit could be from that group of assets in '26. I mean is this a couple of million bucks? Or is this $10 million or more? Just any color?

Yes. So we haven't fully built out our budget for next year, and we're still working through the steps here. But on the routing side, this will come in over the course of a couple of years as you're aware. And we have said there is ultimately as much as $6 million -- $5 million, $6 million, $7 million of benefit over several years as we automate that fleet. On the back office side, there's millions of dollars of benefit over. I wouldn't say it's all at once, but as we get the systems issues resolved, so you're looking at $5 million to $10 million over a couple of years. We'll give a better idea on the pacing of that when we get our budget pulled together.

Okay. Yes. That's very helpful. And then can we turn to Mountain State. So I'm just kind of curious about what some of the dynamics are in West Virginia. Is that a disposal neutral market. Can you internalize that through a transfer station? Just what's the market structure there? And then it looks like they have a really nice set of assets. Will that kind of serve as a mini platform in that region?

It will -- the majority of -- a good portion of the assets are in Pennsylvania and the expansion into West Virginia. The expansion into West Virginia is through into Morgantown, which is a very -- it's a terrific MSA in West Virginia, a lot of growth there because of the university. So it's a secondary tertiary market that were similar -- similar to some of our other markets. I think that there is an opportunity for us to continue to build off of that platform. There are operations we do go into Ohio and Kentucky with the West Virginia assets. So there is an opportunity for us to add to that platform on a go-forward basis.

As you may be aware, it's a franchise market. So they have these lifetime franchise agreements that come with part of the acquisition. And in those markets, we would either be the sole provider or there might be several providers but you have a franchise agreement where you're picking up customers within a defined rate structure. But it's a very nice, well-run, profitable business with great assets.

Yes, definitely looks like it. My last one here, just Brad, this is a minutia modeling question. But why did the interest expense guidance dropped so much? Was that -- I mean, it doesn't look like the debt balance really moved and I'm doubting the coupon move that much. Just what was going on there?

I think just as the year progresses, we're just refining our view and letting some of the conservatism on that line out is really the bottom line.

Our next question comes from Adam Bubes with Goldman Sachs.

I had a follow-up on the Mid-Atlantic dynamic. Just to put a finer point on it, is this a case where it's slower than expected synergy realization? Or are we also realizing incremental cost in the Mid-Atlantic year-over-year that's impacting that margin bridge associated with the integration.

It's just slower synergy realization. We expect the trucks to deliver sooner, which would have allowed us to do more automation, taking other trucks, labor off the road, we've also, as I mentioned, with Tyler, we really are having to move back to legacy Casella order-to-cash system with an upgrade. The system we took over from GFL isn't allowing us the flexibility to achieve our business model the way we expected. So it's a little bit more of a delay there. But nothing...

The first half of the year, truck delivery was a significant issue. The majority -- a good portion of the trucks that are coming in, the 55 that are coming in before the end of the year, a good portion of those go to the Mid-Atlantic. So that will allow Sean and his team to really go after some of the synergies that we weren't able to capture.

Understood. And then I think you closed on $40 million annualized revenues incremental into a quarter. Can you just expand on the details of those transactions in terms of geographic and business mix, any other details?

Yes. We don't typically give out the names, but we had one acquisition that was into our Western region. It's an existing market. We'll be able to develop tuck-in synergies with that. We'll ultimately be able to consolidate routes, good solid acquisition. We had two other acquisitions in the Mid-Atlantic. One is a very direct overlay which will have nice synergies over the next couple of next year plus it's in Delaware to Southern PA and then a second acquisition in PA that is a bridge between 2 operations sits right in between had some overlay, but it expands territory slightly. So it's all really nice fits and acquisitions we've been working on for a period of time and have good synergy value.

And then last one for me. Thinking back to the second half of last year, I think you had some margin headwinds from insurance events, incentive comp and lower landfill volumes were also a headwind with landfill volumes having recovered now and lapping some of those headwinds from last year, is it fair to think margins could expand at or better than the sort of 50 basis points of underlying margin expansion trend? Or how should we think about the sequential margin expansion in the back half of the year?

Yes. Good question. And certainly, the -- this is Brad. Certainly, the landfill business flipping from a headwind to a tailwind will be a nice driver of margin expansion year-over-year in the second half. I would say, though, that the margins implied by the fact that we raised our revenue guidance, we held our guidance range on adjusted EBITDA, that implies slightly softer margins than we had expected for the second half. And that's really, again, that not to keep harping on it, but it's the Mid-Atlantic. So I think what we're seeing is 50, 60 basis point of kind of same-store margin improvement. In the first half, the legacy operations have exceeded that. And then Mid-Atlantic was a bit of a drag. So I think the pace at which we can execute on the synergies, get trucks delivered, et cetera, that's really going to tell the tail for the second half on margins. But you have those different factors that are going to be impacting it.

Our next question comes from Trevor Romeo with William Blair.

I was just hoping you could maybe speak -- hoping you could speak to the volume performance in the quarter and the outlook, I think, Brad, you mentioned indications of stable economy in your markets and clearly some good trends in the landfill. You've also got some of the Brookhaven factors and your own internalization initiatives, I guess. So hoping you can maybe just talk to like what you're seeing in the cyclical areas of volume and help us parse out the underlying trends in your markets versus the more Casella specific trends?

Sure. Trevor. So if you recall in the first quarter, we talked in particular about a really soft environment for roll off and the time we weren't really sure was that weather and it was a difficult weather in the north -- weather quarter in the Northeast. Was it weather? Or was there some underlying economic weakness at play as well? That business has recovered nicely. I don't think we're seeing a booming economy by any respect. But things have stabilized. And so the year-over-year numbers from a volume perspective, really across the board are stronger in the second quarter than they were in the first quarter. Ned mentioned something in his prepared remarks that I don't want to necessarily let it go unnoticed. Our volume overall across solid waste and resource solutions was actually positive year-over-year. We tend to break up how we talk about volume between those 2 business lines. But overall, including recyclables, including our national accounts business, our collection business and of course, landfills, it's actually a pretty good volume story.

Yes. And it does reflected in our volume stat, Brad. But it is important to note that a good degree of the volume increase in the landfill was internalized volume, almost 60,000 tons and that really reflects, one, getting synergies derived from acquisitions that we've done over the last 2 years as we've rolled off contracts. And also just -- our efforts over the last year to put new transportation lanes in place and ensure that transfer stations are getting to our landfills to create that value. So another strong quarter there by our team of getting that job done and delivering those benefits.

Okay. That's really helpful there. And then Sorry, I just wanted to go back one more time to I guess, the Mid-Atlantic. I think you talked about the systems and the fleet, I think, in detail already. But I think one comment I caught from Ned was labor running much hotter and if I look at your expense details, and I think direct labor costs were up like 170 basis points year-over-year as a percentage of revenue. So maybe just a little more detail on what's going in there. Is it primarily just not having any automated trucks yet? Or is something else going on with labor there?

Yes. So we've mentioned this a few times where the labor cost as a percentage of revenue or net revenue in the Mid Atlantic it's much higher than our legacy hauling businesses in the Northeast. And that's because there's a lack of automation, a lack of optimization of routes and it won't get all solved at once. This is going to take years to solve as we get new trucks into fleet as we look to automate certain municipal contracts. But right now, we have a much higher degree of labor servicing the same revenue base in that market. which is a great opportunity, as we've mentioned a few times, we thought we're going to yield that opportunity a little bit faster in 2025 and now with truck delays is coming a little slower, but the opportunity is there. So we expect that to start coming down, and we expect that to be a real tailwind into the future where we can start taking that labor out of that business model.

More broadly across the business, Trevor, we are seeing labor costs at sort of the upper end of our cost stack from an inflation standpoint. Overall, we think we're comfortably covering cost inflation with our pricing programs as we that we aim to do. But labor has been one of the higher running line items candidly from an inflation standpoint.

Our next question comes from Jim Schumm with TD Cowen.

Yes, just on the collection pricing, it looks like a fairly significant dip in the second quarter sequentially, you went from 5.8% in Q1 to 4.9%, which seems pretty unusual quarter-to-quarter sequentially there. What's driving that?

So Jim, it's Brad. Part of the issue is mix. So across the lines of business, front-end commercial has been our strongest line of business from a pricing standpoint. Roll-off has been the relative weakest. And of course, in the first quarter, the much less roll-off activity there is in the second quarter. So the best I could explain it is it's sort of a re-weighting of the business line rather than a same-store decline in pricing trends?

Yes. We also -- we had -- we had great pricing in the front-load line of business in the quarter. Brad, as you laid out and very strong pricing in the residential line of business as well. But our pricing was a bit weaker in the roll off. And we've been as we exited the spring and volumes were a bit weaker than we expected, we didn't test market elasticity as much as we may in certain years, we're looking for those volumes. And it really isn't into June into July that we really were able to start pushing price a bit more in the roll-off line of business, and we're starting to see that come more now.

Okay. Great. And then what's the longer-term outlook for Resource Solutions? I mean can this grow as quickly as solid waste? Or does it become proportionally smaller over time?

I think that the evolution of Resource Solutions in terms of providing the services that our customers are looking for, whether it's colleges and universities, municipalities industrial customers. I think that the Resource Solutions part of the business or materials management, as we call it, is going to continue to grow at a fairly rapid pace. We have tremendous opportunity in the Mid-Atlantic as an example. We're just beginning to scratch the surface. We put the sales team in place, obviously. We're beginning to work that at this point in time. But when you think about Mid-Atlantic, as an example, from a Resource Solutions standpoint, we've got tremendous opportunities from an industrial standpoint to really add a lot of value to the business on a go forward. So I think that we're going to continue to see resource solutions grow at a fairly rapid pace.

Okay. Got it. And if I could just squeeze one more in, if you don't mind. CapEx as a percent of sales has sort of been running 12% to 13% over the past few years. It seems you kind of high relative to maybe your landfill composition to me. So how do you see that evolving over time? What's the right sort of capital intensity, where do we land in, I don't know, 3, 4 years?

Yes. It's -- Jim, it's going to go up and down, of course, as you know, based on our schedule for landfill cell development. The collection business, just trucks and containers, that tends to be 6% to 7% of revenue. Landfill could bring that number up significantly depending on how busy the construction schedule is for a particular year. I'd also point out kind of the unique factor given the relative significance of our acquisition activity is that when we acquire businesses, we tend to, not in all cases, but generally, we tend to have pretty significant upfront CapEx as we try in one shot, bring their asset base up to our standards in terms of the fleet, in terms of the facilities. So certainly, that is a factor as well. And one that again, for us, given the relative importance of acquisition activity is probably a bit different from our competitors.

[Operator Instructions]. Our next question comes from Stephanie Moore with Jefferies.

I wanted to maybe touch on a bigger picture question here. And given the current administration does appear to be a bit more amenable to larger scale M&A. If that changes your acquisition strategy at all? Or if there's anything you can call out from a pipeline standpoint?

Yes. I don't think that it really changes our strategy at all, Stephanie. I think that we've indicated that we see great opportunity on the Eastern Seaboard. There are some larger companies there. But we're still focused on solidifying the investment that we have in the Northeast, solidifying the investment that we've just made in the Mid-Atlantic in terms of taking advantage of those platforms, continuing to add tuck-ins to those platforms as well. And then obviously, looking for additional platforms down the Eastern Seaboard, so I don't think that it changes our strategy from an M&A standpoint at all. Certainly beneficial in terms of the tax depreciation, et cetera. It's very positive in terms of how we look at that with regard to the M&A activity on a go-forward basis from a tax perspective, very positive.

Excellent. And then I was hoping if maybe you could give us a bit more of an update on McKean and I know you called out some good investments and opportunities there. But as we think about just the timing of maybe some of those investments starting to come due to fruition here and any potential impact we can expect to see over the course of the next 24 months or so.

Yes. So McKean first became operational late last spring, and we started off very slowly, and we sort of ramped the site more at this spring. But to date, we're only taking containerized MSW. So like in 12 high boxes, we offload gantry train, run them up to face the landfill. Our permit at the site stipulates that we're going to offload any gondolas, so loose MSW, loose C&D or contaminated soils, we need to do so inside a building. So we've always had plans to add a transfer station, transfer building at the site. We had all the rail track outlay to do that, and we're starting to build that building now. We'll expect that to be completed into the first quarter. And that will allow us actually to complete some vertical integration initially with one of our transfer stations, we'll look to move there. But it also opens up some additional streams of waste from third parties that we may consider. As we've said for a long time. As we've said for a long time, we've never opened McKean to just become a big third-party commercial site. It's really a lot of it is defense for the Northeast for the next 5 to 10 years as there's a lot of risk around disposal capacity. But we want to make money at the site. We want to have great returns. So getting this building completed, ramping up volumes a bit more all part of that strategy. So we expect McKean to be a positive volume contributor through 2026, and we'll let you know as we get that volume [indiscernible] scheduled together.

Yes, I think it's fair to say that there's a really nice opportunity for us to open up McKean for some select customers, 2 or 3 select customers that could be a base on a go-forward basis, particularly, as Ned said, after we get completion of the building, then we'll be able to take the gondolas, which really opens up our opportunity Meanwhile, the team has really done a great job of getting up to speed operationally. They're moving the containers. They're really getting the experience and the operating wherewithal to be able to perform at a high level there. So we're pretty excited about that. And once we're able to broaden what we can take there with the building, it's going to be a positive in '26.

And just as a footnote to what Ned mentioned about the investment to bring on the capability to accept gondola waste, you'll notice in the reconciliation of our guidance numbers in the press release. This quarter, we have aligned for McKean Rail. There was a lot of spend, of course, last year, hadn't really factored into our forecasting for this year until we decided to have this capability. So that's why there's an additional number in the reconciliation to free cash flow.

Thank you. I'm showing no further questions at this time. I would now like to turn it back to John Casella for closing remarks.

Thanks, everyone, for joining us this morning and look forward to all of you joining us for our third quarter call in October. Thanks, everybody, and have a great day.