Thank you for standing by. And welcome to the Casella Waste Systems, Inc. Q1 2021 Earnings. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s call is being recorded.

[Operator Instructions] I would now like to hand the call over to Joe Fusco, Vice President of Communications. Please go ahead..

Thank you this morning for joining us and welcome. With us today are John Casella, Chairman and Chief Executive Officer of Casella Waste Systems; Ed Johnson, our President and Chief Operating Officer; Ned Coletta, our Senior Vice President and Chief Financial Officer; and Jason Mead, our Vice President of Finance.

Today, we will be discussing our 2021 first quarter results. These results were released yesterday afternoon. Along with a brief review of those results and an update on the company’s activities and business environment, we will be answering your questions as well.

But first, as you know, I must remind everyone that various remarks that 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 those forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent annual report on Form 10-K, 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 as of 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. Also during this call, we will 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 available in the appendix to our investor slide presentation, which is available in the Investors section of our website at ir.casella.com.

And with that, I will turn it over to John Casella, who will begin today’s discussion..

Thanks, Joe. Good morning, everyone. And welcome to our first quarter 2021 conference call. Obviously, we’re very pleased with our results and continued against -- execution against our key strategies.

Real proud of the work that the entire team has done throughout the entire period of time with regards to the pandemic and management team continues to do a great job of taking care of our people. And obviously, our people are doing a great job taking care of our customers and the communities that we serve.

Our performance really reflects a maintain focus and commitment by our teams on service excellence through this dynamic period.

Over the past year, I’ve witnessed our cultural -- culture strengthening even further across the organization, driving success related to both meeting the needs of our customers, as well as executing against key operating metrics and goals.

As expected in the quarter, we experienced lower economic activity levels compared to the first quarter of 2020, and as such, Solid Waste volumes declined 3.3%. Despite this headwind, consolidated revenues were up 3.6% and adjusted EBITDA improved 15.9%, with margin expansion of 215 basis points year-over-year.

At the same time, we grew adjusted free cash flow by $6.9 million year-over-year in the quarter through our strong operating performance, continued discipline, capital allocation and working capital improvement. Although, Solid Waste volumes were negative in the quarter, the progression from Q4 through April has been positive.

The sequential trends and outlook indicate a continued recovery as part of the economic reopening across the Northeast. Some brief review of our key strategies. First, on disposal, while tonnage trends are improving, volumes were down in the first quarter.

This is largely driven by lower landfill tons year-over-year as we experienced lower volumes in the Greater New York City area into some -- several of our sites. While we do not have collection operations in and around New York City, we do accept wastes from third-party customers within its geographic geography.

As you -- as we know, the city has been one of the hardest hit areas in the country related to the pandemic and one of the slowest to reopen. That said, we have seen positive volume trends over the past several weeks related to business and construction activity levels beginning to come back online in a more robust manner.

Also, as you probably know, the Mayor announcement that we had yesterday, the Mayor de Blasio announced yesterday that the city is going to reopen it’s entirely on July 1, which is obviously going to be a positive.

With a vaccine rollout and restrictions loosening, we expect to see continued improvement in volumes -- volume levels throughout the year. Despite lower volumes, we have remained disciplined from a pricing perspective. We advanced 3.5% reported price -- landfill price in the quarter. We also continue to focus on operating programs.

Disposal adjusted EBITDA margin expansion improved as we flex certain variable costs in line with volumes without sacrificing safety or compliance. Overall, our disposal assets are well-positioned within the capacity constraint Northeast, our pricing, operating and permitting outlook remains positive.

In the Collection business, recent volume trends are also improving in the Collection business as we’re experiencing increased commercial and roll-off service levels closer to normal seasonal levels. Similar to disposals, sequential volume trends are on a positive trajectory.

Over the last year, we’ve leveraged improved real-time business intelligence to better reflect our variable costs and we have continued to invest in further automation -- route automat -- optimization and technology in an effort to drive improved operating performance.

We have improved collection adjusted EBITDA margins for five consecutive quarters and we are up 330 basis points since 2019. We’ve advanced collection price by 3.5% in the quarter and as the economy continues to reopen across the Northeast, volumes improve. We will consider inflation across various categories.

We will analyze further pricing opportunities over the balance of the year, while continuing to enhance our operating programs.

On Resource Solutions, if you recall in January of last year, we combined our Recycling, Organics and Customer Solutions businesses under Resourced Solutions, in an effort to better align cross functional sales operating back office teams while strengthening our ability to attract, win and retain profitable customers within this segments.

This January, we took another step in further integrating these teams to drive increased synergies by creating processing and non-processing business unit groups within Resource Solutions. With this, we aim to drive better teamwork, improved organization across the sales team and position our business to best meet the needs of our customers.

Within processing our recycling and biosolids facilities where we receive inbound materials, process it and produce an end product. Non-processing consists of brokerage and resource management services provided to large customers with broad sustainability needs.

Resource Solutions performance was strong in the quarter with adjusted EBITDA up $1.4 million year-over-year, while expanding margins.

Aside from strong financial performance, I am proud of the work of Resort Solutions team in regard to the recognition we received this March from Becton Dickinson as its top global supplier in sustainability category for resource management services delivered to their manufacturing and distribution operations across North America.

Finally, I’d like to highlight our capital allocation and growth strategy. Our acquisition pipeline remains robust with over $400 million of addressable opportunities in annualized revenue over the top of our existing footprint in the Northeast.

We are well-positioned to continue to execute against our growth strategy in the discipline manner, given the strength of our balance sheet.

We are focused on opportunistically putting this capital to work on deals that meet our criteria from a strategic fit and a financial return perspective, where we can drive higher levels of free cash flow and continue to grow the business.

Wrapping up, we’re executing well against our strategies as reflected by our continued performance in the first quarter against our 2021 plan. We expect continued strength across our Solid Waste and Resource Solutions operations, and a phased reopening of the major cities across the Northeast. And with that, I will turn it over to Ned..

Thanks, John. Revenues in the first quarter were $189.5 million, up $6.6 million or up 3.6% year-over-year, with 2.1% of the year-over-year change driven by acquisition activity. Solid Waste revenues were up 2% year-over-year, with price up 3.4%, acquisition growth of 2.9% and volumes down 3.3%.

This is actually a sequential improvement from the fourth quarter 2020 when our Solid Waste fines were down 4.6% year-over-year. Revenues in collection line of business were up 3.1% year-over-year, with price up 3.5% and volumes down 2.3%.

As we have discussed over the last year, we’ve kept close track of the commercial and industrial collection customers who reduce service levels or shut off services due to the COVID-19 pandemic.

We experienced a very steady rebound as service levels from May 2020 through October 2020, and then we saw a slight decline of service levels in November and December as COVID waves hit the Northeast. This negative trend reversed in early 2021 and we have seen a slow but steady rebound of collection service levels year-to-date.

Through late April we have recovered roughly another 5% of the losses and we have now recovered over 70% of the commercial and industrial collection services on a revenue basis that were reduced or suspended due to COVID.

Revenues in the disposal line of business were down 2% year-over-year in the quarter, with landfill pricing up 3.5% and our landfill down -- tons down roughly 3.8% year-over-year. As John pointed out, much of the negative year-over-year variance is due to lower economic activity in the Greater New York City area.

Resource Solutions revenues were up 8.1% year-over-year, mainly due to higher recycling commodity prices, partially offset by lower tipping fees. Our average commodity revenue per ton was 150% year-over-year in a quarter on substantially higher cardboard and mixed paper pricing, higher metals pricing and higher plastics pricing.

Adjusted EBITDA was $38.8 million in quarter, up $5.3 million or up 15.9% year-over-year. And our margins were 20.5% in a quarter, up 215 basis points year-over-year. Our Solid Waste adjusted EBITDA was $34.6 million in the quarter. This is up $3.9 million year-over-year, with the gains driven by both collection and disposal lines of business.

Our Resource Solutions adjusted EBITDA was $4 million in a quarter, up $1.4 million year-over-year with improvements from recycling and organics processing. While our commodity prices were up significantly year-over-year. This increase was mainly passed back to our customers through lower tipping fees or lower SRA fees.

These floating fee structures effectively manage over 90% of our commodity risks today. Cost of operations in the quarter were down $1.4 million year-over-year and down 318 basis points as a percentage of revenue.

Almost all cost categories improved as a percentage of revenue as our team effectively flex costs to lower revenue levels and continue to execute very well against key operating initiatives.

General and administrative costs in a quarter were up $2.8 million year-over-year, with $3.6 million of the increase driven by higher bonus and equity accruals due to timing differences and higher performances here.

Given the reversal of the tax valuation allowance in fiscal 2020, we now expect the income statement tax provision of roughly 31% in fiscal 2021. However, our cash taxes will remain low at approximately $1.5 million in the year, given our net operating loss position. In the quarter, our income tax provision was $2.4 million.

This is up $2.3 million from the same period in 2020, and as expected, we only paid cash taxes of $200,000 in the quarter. As of March 31st, we had $550.2 million of debt, $152.6 million of cash and liquidity of $326.2 million. Our consolidated net leverage ratio as defined by our credit facility was 2.66 times as of March 31st.

However, if we net 100% of our cash against our debt, our true net leverage was 2.11 times. We’re very happy with our capital structure where it sits and it allows us to continue to execute against our strategy to grow with investments and acquisitions.

Net cash provided by operating activities was $32.1 million in the quarter, up $17.4 million year-over-year, driven by higher operating results and $11.5 million of positive changes in assets and liabilities year-over-year.

This positive change was mainly driven by timing differences related to accounts payable and the continued great work by our accounts receivable team managing our receivables at historically low levels. Adjusted free cash flow was $11 million in the quarter, up $6.9 million year-over-year.

We continue to invest in the plan capital expenditures and newly acquired operations during the quarter to drive operating synergies and integration, and we also continue to invest in the development of the Phase 6 landfill expansion at the Waste USA landfill in the quarter. We expect this expansion to be completed in 2021.

We don’t typically raise our guidance levels in the first quarter, given the short duration from publishing our initial guidance in February. However, given the solid execution year-to-date, combined with our increased visibility of economic trends, we did update our fiscal 2021 guidance ranges yesterday.

We have reaffirmed our revenue and net income guidance ranges and we raised our ranges for adjusted EBITDA, adjusted free cash flow and net cash provided by operating activities.

The updated 2021 Ranges assume a stable economic environment continuing through the remainder of the year, with only a modest rebound in Solid Waste volumes, as major cities in our markets are very slowly reopening from the pandemic, most notably New York City.

The increase in adjusted EBITDA and adjusted free cash flow ranges is mainly driven by higher operating margins combined with slightly lower than planned Solid Waste pricing and slightly higher than planned volumes.

We expect Solid Waste volumes to be up roughly 8% year-over-year in the second quarter and to be up roughly 1% year-over-year in the third and fourth quarters. To put this into context, last year, Solid Waste volumes were down $41 million due to lower economic activity associated with COVID.

And at the current midpoint of our guidance, we only have $10 million to $12 million of volume growth in 2021.

As we typically point out, the guidance does not include the impact of any acquisitions that have yet to be completed and we do include 1.5% of revenue growth associated with acquisitions that we completed last year into the first quarter of this year. And with that, I’ll hand it over to Ed..

Yeah. Thanks, Ned, and good morning, everyone. From an operational standpoint, we had a really strong start to the year. Usually the first quarter is uneventful, it’s the winter quarter and seasonally is typically a lower revenue and margin quarter for us.

But this year, our performance is notably strong and improved margin significantly across all lines of business. As we break down the details, you will see that the improvement was primarily driven by operational efficiencies. Consolidated cost of ops as a percentage of revenue improved by over 300 basis points over Q1 last year.

Our landfill results continue to reflect the fundamental improvements we started making over a year ago. By focusing on daily filled plans, lead change management [ph], efficient soil usage and proactive gas collection, we are staying ahead of issues that are costly to fix after the fact. We are now seeing the benefits.

The effect of COVID on economic activity, particularly volumes coming out of New York City kept volumes low in the quarter. Tonnage was down from last year’s first quarter 3.8% and our pricing was a little muted at 3.5%. But as I pointed out in the past, landfills are high fixed cost operations and margins tend to struggle in lower volume.

But we’re continuing to bring down costs and costs of ops as a percentage of revenue improved by over 220 basis points and produced our best Q1 EBITDA margin contribution in over 10 years. We’re seeing volumes return in April.

So we’re optimistic that the economy in the Northeast is starting to come back and certain sectors like construction seemed to be leading the recovery. Our collection operations which generated a little over 50% of our Q1 revenue had similar results.

Volume was down 2.3% in the quarter versus Q1 2020, but cost of ops as a percentage of revenue improved by roughly 240 basis points. We improved our key productivity metric, which is variable margin contribution per labor hour by 15.9% over Q1 last year.

The main driver of this improvement was in our residential service where our focus has been on automation, but the roll-off in front load lines and service also improved. In addition to our focus on automation, we added a corporate routing support function a year ago and has improved our routing efficiency.

Routing efficiency is something that deteriorates slowly over time in a division and can be hard to recognize quickly at the division level. Adding the dedicated resources to continually review our routes has been a powerful driver for cost reductions.

As a result of increased automation, improved routing, our pricing discipline and other key initiatives, we have consistently improved our overall variable margin contribution per labor hour quarter-after-quarter ever since we adopted that metric a few years ago. Our Resource Solutions Group produced similar margin improvements.

Our volume and revenue remained flat and like the other segments, the biggest savings has been on the cost side.

Over time, we continue to tweak the level of automation on our processing lines and this is coming through in labor savings particularly -- partially offsetting us, excuse me, partially offset by the continuing extra cost of COVID protection to keep our workers safe.

Processing volumes have been steady year-over-year and cost of option improved by over 330 basis points in this line of business. Simply stated, we had a great quarter and I wanted to close with a comment about our management team.

As always, I’m very appreciative of the extra efforts that our division managers and ops managers have made to keep our employees safe to serve our customers through the pandemic and also make operational improvements in their market over the past 12 months.

An additional factor that is helping to make all this possible is our focus over the past three years and building the depth of our upper management. Adding a Senior VP of Ops focused on collection activities, a VP of Post Collection, the home office ops support team I mentioned earlier and two regional ops positions.

In addition, the restructuring of our Resource Solutions Group has added structure to our operations for processing and non-processing of material. It also helps that we have a very operationally focused HR Department that is supporting our divisions and keeping us ahead of labor challenges.

With these changes in place, I have confidence that our progress will continue. With that, I’d like to now turn it back to the Operator to start the Q&A..

[Operator Instructions] Our first question comes from Tyler Brown with Raymond James. Your line is open..

Good morning, Tyler..

Good morning, Tyler..

Okay. Good. You can hear me. Hey. So thanks for the commentary on New York City and how that impacted landfill tonnage, I guess, across the broader region. But I was kind of hoping you could put a finer point on it. I mean, just how important was the city going to sleep on the volumes over the past year? I mean, maybe I’m not appreciating it.

But again, just a finer point on how important that was?.

Yeah. Last year our landfill volumes were down 11%, roughly 460,000 tons to 480,000 tons year-over-year. And remarkably, about 80% of that decline was related to customers in New York City or the surrounding areas. And historically is not that big of a mix. But we saw other parts of our franchise really come back.

And you and I have had this conversation before with us being 70% in the secondary markets. We saw some really nice economic trends and construction trends later in the year from the secondary market, but New York City just completely lagged and that same trend came into Q1, Tyler..

Interesting. And then I know, Ed, you kind of alluded to it.

But with the weakness in the volume, I do kind of wonder did that have a broader impact on landfill pricing kind of late last year and into this year? And if so, if things do kind of kick back up, do you expect that to maybe re-accelerate?.

Yeah. Tyler, as you know, landfills are very volume sensitive, so last year the economy in Q1 pre-COVID was kind of booming. I mean, we had all the time we could handle and we push through some pretty heavy pricing. But once COVID hit that slowed down a bit and going into Q1 this year, we were short of volumes.

So we weren’t that aggressive on price and now April’s comes and now we’re actually tracking very nicely in April. So the volume seemed to be coming back. So it’ll help us with the price level..

You’re also….

And it’s relatively coming back in March, right, was January….

Yeah. Right..

… January, February, it actually really began to come back fairly significantly in March and has continued through April..

I’ll make two other comments. If you look everywhere other than some of our kind of New York downstate customers our pricing programs are very much intact and we are getting same level of budget and pricing increases in the business. You’re also seeing a little bit of the impacts from last year.

So price is not just related to one quarter, it’s a buildup of the three quarters in the current quarter. So we did do a little bit less pricing in Q2, Q3 and Q4 of 2020, given COVID. And then coming into this year in many parts of the business, we’re back on track.

And to Ed’s point and certain of those customers in New York were probably eased up a little bit in Q1 from what we typically would do..

Interesting. Because if you look back, I think, you’ve re-priced the heavy part of the collection book early in 2020 like right before COVID..

Yeah. That’s right..

And then -- so do you think the shape of how your pricing will look, Ned? Do you actually think your collection pricing will accelerate as the year goes on just with the mathematics of easier comps, just curious?.

Yeah. So the shape of our curve every year is the first quarter is the highest pricing quarter and then it actually declines given how our price increases rollout.

And we’ve readdressed the shape this year is actually going to accelerate through the year, given what we just talked about where the comps get easier year-over-year and we’ve held back a little bit of pricing as Ed just discussed as well. So we actually -- we will see a little different trend is here in our pricing model.

We’re not losing confidence in our pricing power in the market, nor are we giving pricing concessions.

Is this a different cadence of the program?.

Right. Yeah. no. That’s helpful for modeling. Okay. And then I don’t want to dwell on the guidance too much, but just to be cleared, so there wasn’t any change in the volume assumption in that change. I mean, there was no change in revenues.

Is that right?.

No. There wasn’t. As I said earlier in my comment, we have price maybe 0.25% -- at the midpoint, maybe 0.25% lower, but we haven’t lost a confidence in our pricing programs, we have volumes maybe 0.25% higher at the midpoint in our internal model. So not a drastic change but a lot changing very, very rapidly right now.

That news out in New York City yesterday is big. We’re seeing some of the best trends we’ve seen in construction in over 10 years to 15 years in the Northeast. So it’s a dynamic environment. And our tweak to guidance was just that it’s a small tweak.

We don’t typically touch guidance in the first quarter and as we come into the second quarter, we’re really going to be reassessing where we are in the year and loss, it could be more as we kind of get more visibility into the year and execute further..

Okay. Yes. No. That’s very helpful. And just lastly, maybe just a quick question on M&A. So, John, I mean, you mentioned a robust pipeline. I think you said $400 million of addressable revenue out there.

Just any thoughts on what we should expect this year or hope -- maybe hope to expect on the M&A front?.

Yeah. I mean, I think that we’re pretty excited about where we sit there with the vaccination moving forward, things are beginning to open up a little bit more.

I think that we’re working on $80 million to $100 million of that $400 million in various stages, Tyler, and I think, we’ll see some activity towards the second half of the year from an acquisition standpoint..

Okay. All right, guys. Thank you so much for the time..

Thank you..

Thank you..

Our next question comes from Hamzah Mazari with Jefferies. Your line is open..

Hey. Good morning. Just on….

Good morning..

Good morning. Just on the M&A side, you’re working on $80 million out of the $400 million.

How long have you been working on the $80 million and do you think that, capital gains, tax changes, accelerates transactions for you guys or are you not hearing that?.

I think that it probably does, but it’s probably only recently in the last month or two, where there’s been activity discussions around the implications of a Biden tax increase, particularly as it relates to obviously capital gains. So I think probably six months is the answer.

First part of that question, Hamzah, we’ve been working on those transactions for probably about six months now and probably in the last month or so, we’ve started to hear a little bit of noise on tax indication..

Got you. And just my second question and I’ll turn it over, is just on pricing, just following up on the pricing. I understand the deceleration in Q1, but just a thoughts on what is the sustainable pricing for Casella, and what I mean by that is, 2018 4.5%, in 2019 little over 5%, during COVID last year 4.2%.

Now we’re at 3% and change, but it does up as you said.

But on a sustainable level going forward, help us get comfortable is 4% the right number, is 3% the right number, is it 5%, just help us think through that a little bit? And the reason why I’m asking is, we’re trying to get comfortable if you’ve seen sort of this big catch up on pricing and now your normal price is 3% and change going forward?.

Yeah. Good question. I mean, that question has a couple legs to it. And as you know, not a lot of our business is in markets with that CPI linked. I mean, it’s maybe 10% to 15% of our contracts and we’ve been moving that contract base to more and more the trash and garbage index, which is now sitting north of 4%.

Most of our contracts we can price it will, on the subscription residential, small and commercial roll-off line of business. And we have been pricing pretty aggressively to stay ahead of some meaningful inflation in Northeast. If you stop to look at our margin improvements over the last year, it did they’re excellent, very, very good.

So our key operating programs are working good. We’re pricing a little bit lighter than we had a few years ago. But it’s partially by design, partially the cadence we talked about a minute ago. So our game plan for the year is still that 3.5% to 4.5% range as we look out the future years. We’re still looking around that 4% range.

But when it really comes down to we’re tweaking, we’re looking at last 50, we’re looking at our margins, we’re trying to have a constant cadence of improving margins as a business and that weighs into the pricing strategy..

Got it. Very helpful. Thank you so much..

Thank you, Hamzah..

Our next question comes from Michael Hoffman with Stifel. Your line is open..

Hey. Thank you very much. Ed….

Hi, Mike..

…did you see normal seasonality from just overall the business pattern? And then things were recovering underneath it and that’s part of the help and then you ran it better some seasonality….

Yeah. that’s -- absolutely. So the normal seasonality is still there. But the COVID effect is still in that January, February volume. So now we’re seeing almost a totally normal seasonal uptick March and April..

Got it. Okay.

And then just to refine the point of you see, you’re sticking with the ranges 1 to 2.5 or volume 3.5, 4.5, but you’re now suggesting to all of us, we ought to settle in around 1.9 or 2 is your full year number for volume and a 3.5 to 3.7 for the price? Did that -- did I hear that messaging correct?.

That’s where we are at our model at this moment, Michael, and we’ll look to update again next quarter. But we probably are shy lighter on price, given that we held back a little bit of pricing in Q1, just with some of those New York City impacts and we’re seeing a little bit higher volumes.

But there’s not a massive change there to the cadence for the year. And as I talked about earlier, we only really have about $10 million of the Solid Waste volumes coming back this year that we lost last year of the $40 million. So we’re either the projection is not for absolute recovery, it’s for a partial recovery..

So digging into the $10 million, is the unit price of that $10 million flat year-over-year?.

No..

It’s up or down?.

No. It’s up..

It’s up. Okay.

So you’re getting some of that $10 million recovery is the price, as opposed to, if I looked at it on the tons, if that -- and that 25% of the tons back yet something less the cost price?.

Yeah. If you look at it, I mean, the biggest laggard in the portfolio is on the landfill tonnage side, we’re running at….

Okay..

… let’s say, 93% of expected run rate. We’re running close to 100% of the expected run rate on the temporary roll-off side and we’re running about 95% to 96% expected run rate on commercial. So that’s definitely the laggard, and as Ed pointed out that there’s a lot of leverage on the landfill side margins as well..

Great.

So of the 460,000 to 480,000, 80% that’s New York, is more of that a high value ton like an MSW than C&D ton that might not be as high value?.

Yes. About two-thirds, one-thirds, two-thirds MSW, one-thirds, C&D, Michael, and the mix. And we saw, as you know, we have both commercial customers out of the city that are bringing us MSW and we have commercial customers bringing us C&D. The residential waste in the city goes through the apartment sanitation contracts..

Right. So points of leverage here are the governor doesn’t prevent Mayor from opening on July 1st of this year.

Boy, he is got to distract the attention from something, right? Anyway, so let’s say it happens, MSW is a buyer quality ton that starts to ramp back up and that gives you some incremental pricing levers that helps the spot market and therefore that’s the reversion of the mean higher is the leverage.

Is that the way to think about?.

Yeah..

Okay. Okay.

And this is -- you run your business appropriately and when it happens, you’re going to be able to capture this leverage, because of the way you’ve got the cost structure leaned out is the other part of it?.

Yes. Absolutely..

Okay.

On the M&A world, if capital gains ends up being a driver of someone’s decision, how late can they make the decision or they awarded the other way? When do you have to start a process, so if the calendar year was the trigger, you could get deals done relative to tax motivation? How late does somebody have to say buy me?.

I think it depends on the -- certainly, it depends on the size of the business, Michael. Obviously, the -- larger the business the more time it’s going to take to get through that, especially if you have to go through Hart-Scott, et cetera, et cetera.

But I think that we’re only beginning to see people think about it in the last 30 days to 45 days, where prior to that it wasn’t really on the radar. So -- but I do think that there is more activity now. People are starting to think about it.

So that the timing is going to be really based on the size of the business, smaller businesses, I think, much shorter period of time to get through due diligence and get it done properly..

And type of transaction as well. The asset purchase is typically a lot simpler and faster for us than the stock purchase..

Yeah..

Okay. Last one from me. We hosted the CEO of WIN Waste on a call recently and asked the question about what he thought 2024 Boston disposal could end up? And he suggested as sort of 110 to 120 range versus the low 90s that it was renewed in 2019.

How much of the 4% long-term pricing is dependent on that happening, where the knock on consequence all the way through the market is, that helps with the pricing versus just what you’re doing today?.

Yeah. I think if you look at the marketplace, there’s some pretty key facilities are attracting towards closing in the next handful of years, Michael, as you’re aware, like, Brookhaven on Long Island. We’ve got the Allied Niagara facility up in the Buffalo market, the Albany landfill.

We also have MIRA, the burn plant in Connecticut is scheduled to close in June of 2022. So there’s like 2.5 million tons to 3 million tons of capacity coming out of this market. You might be off a year so either way, you kind of stretch the end of life. So there is lot capacity coming out of this market.

There is not enough places to put all that garbage. So the pricing is not dependent upon the City of Boston. The pricing is just going to be a supply/demand imbalance and where that waste needs to go and there’s a lot of opportunity, I think, as we look over the next five years..

Okay.

And then last one, I forgot to ask this, McKean, what’s the progress on this sort of thinking out over the next two years being able to open up that real whole opportunity? How are you doing on that?.

Yes. We’re in the process right now of -- the team is working on the permits. We’re working on design. So I think that we’re on track to move that forward in the next couple of years, Michael. As we’ve got some of the permits already in place. We need some additional permits.

We’ve got to get fully designed to the most productive design from a rail perspective. So, we are moving forward and certainly we think that we’re on track right now..

Okay. Great. Thank you very much..

You’re welcome..

Thank you, Michael..

Thank you..

Our next question comes from Sean Eastman with KeyBanc. Your line is open..

Good morning, Sean..

Good morning, Sean..

Good morning, Sean..

Good morning. Good morning. Strong start to the year. Thanks for taking my questions..

Absolutely..

I just wanted to go back to Hamzah’s question on sort of the sustainable yields in the business.

I mean, it’s really more a function of the underlying inflation in the business, right? I mean, when we hear companies sort of sounding the alarm bell on inflation and labor, you guys can be nimble around that, given the disposal capacity dynamic and given that only 10% to 15% of the book is indexed to CPI.

Is that right?.

Yeah. You’re 100% right. I mean you’re pointing out something super important, where we’re not relying upon trailing government revenue statistics, like, CPI and urban CPI. We’re not to drive our ability to recover inflation.

As you’ve seen over the years, 90% of our collection book of business, we can price either per contract or at will and we have a lot of ability to move rapidly. Now, we don’t want to try and catch up to inflation, we want to try and be ahead of it.

We’re very cognizant that the economy is heating up quickly, the government’s put a lot of money into the economy and labor markets shifted rapidly again to be tight. So we are cognizant of those factors. And as I said earlier, our game plan with price really is to expand margins and we’re constantly moving that lever to get to the right point..

And we’re doing that on a almost on an immediate basis from a labor perspective, each time that we’ve had to go in and rethink, our competitiveness from a wage rate standpoint each market, we’re obviously calculating what that’s going to cost and going back and pricing that on an immediate basis..

Okay. Got it. That’s very helpful. And then, the outlook for 2021 prudently builds in a partial recovery.

Can you help at all with just how to think about, what a full -- what sort of the incremental margin on a full recovery would look like, given the operating efficiencies and other moving parts, so just wanted to check that back in on that?.

Yeah. So we’ve lost $40 million of revenues last year due to COVID. About half of it was in the collection line of business, half of it was at the landfills. And as we’re coming back this year in the model chasing, more of it -- more of the 10 coming back is in collection than at the landfill..

Correct..

Do you know that split is, I think, it’s like 60/40 or maybe even a little more of this. And we look at that -- I think we’re getting all the landfill comes back. As soon as the economy comes back, we have such tightness with sites closing, that’s all coming back. On the collection side of business, maybe some of these customers never come back.

I mean, certain businesses, certain industries, but they’ll be replaced by other things. And our COVID tracking is not perfect in that way, because we’re looking at specific customers, specific services, and now they are coming back online.

So I think on the landfill side, that $20 million of revenue, when that comes back in, that’s coming back here with greater than 50% incremental margins. It’s just a lot of value there. And on the hauling side of business, I would suspect not all of it ever comes back.

But what we have seen coming back in -- comes back in the 30% plus incremental, 35% incremental margin type range. On the flip side, we got to be a little bit cautious, because we’re running all time low on overtime for labor. And we are -- the labor markets are so tight that we’ll have to bring more labor online.

We’ve also been a little bit cheaper on trucking, in certain instances, fuel that there’s some things that have been positive in there. So I think ourselves and others in the industry, we’re all being a little bit cautious, because we’ve never seen a recovery like this.

And until we see more water under the bridge, it’s hard to fully estimate where that will shake out. But Q1 was a good arbiter with margins up 200 basis -- 215 basis points year-over-year..

And Ned to your point, if I can just add one thing to that comment, yes, with the margins up 215 basis points year-over-year in the first quarter is excellent.

As you look out through the rest of the year, as volume comes back in on to Ned’s points, our guidance implies margins are up roughly 20 basis points to 50 basis points over the rest of the year year-over-year. So perhaps a little bit muted, but to Ned’s point, a little bit of cautiousness there just because we don’t really have as [ph] volume back….

Yeah..

… into the system and as levels tick back up..

Okay. Again, really helpful. And then you guys have talked about this sort of $100 million acquisition revenues kind of in advanced stages.

What’s the makeup of that in terms of how many companies are in there that sort of general size? And given the comments on activity heating up on the M&A front and how things are shaping up, do you think it’s likely that we see greater than that $20 million to $40 million acquisition revenue target closed in 2021?.

Yeah. I think it’s fair to say, Sean, that it’s likely that we’ll be at the high end or above our target from acquisition standpoint at the $40 million, yes..

Got it. And….

This -- you’ll continue to see us focusing on a lot of smaller companies. Generally, where there’s a lot of good tuck-in opportunities, a lot of good adjacent markets and that’s where primarily our focus is in the marketplace and we’ve done very well..

Okay. Terrific. I’ll turn it over. Thanks so much..

Thanks, Sean..

Our next question comes from Alexander Leach with Berenberg Capital Markets. Your line is open..

Good morning, guys..

Good morning, Alex..

Good morning. So most of my questions were asked, but just a quick one from me. I know you referred to this in your prepared remarks, but can we get an update on the automation of your fleet? I believe you are around to 40% to 45% of revenue last year at the end of Q4. And you were planning to make some significant progress on that in Q1.

So where are you guys at now and how much more room is left for improvement?.

So a big mover in that automation is on the revenue side and it’s in Rochester. So we had a significant -- we had Phase 1of a two phase process happened in the fall of last year. And now we’re going to Phase 2 right now that is in process.

The equipment has been delivered and we’re training drivers and we’re implementing reroute around the new automation there. So that’s going to drive our automation level over 50%, just some ballpark figures..

Sure. Okay. So you’re still around that 40% to 45% level and then it should be pushed over to 50% over the next few months..

Yeah. It’ll pump up probably by Q2, right? So -- and we have other -- we have a whole automation initiatives. So we’re reviewing all of our other operations right now, when identifying automation opportunities..

In automation opportunities that are also combined with the new rollout of our routing software, EasyRoute..

Right..

So it’s kind of in tandem, we’ve got a whole new dynamic routing optimization package and then the team is also looking to automate trucks at this. So we’re using that to reroute and gain efficiencies..

Okay. Great. And first to go back to the volumes guidance again, but just to make sure I’ve got this right over my head.

The NYC re-openings, is that captured within the top end of the range or is there upside to that?.

There’s definitely upside. We really haven’t assumed a large economic rebound from New York City or any other major areas in the model. As we talked about, even at the upside of the range chasing we’re only coming back in $100 billion of volume..

I’d have to calculate it..

We have to calculate it, but it’s not a lot more. It’s $5 million more something. It’s not, right, it’s not all in there..

Okay. Great. Thanks..

You’re welcome..

Thank you..

Our next question comes from Tyler Brown with Raymond James. Your line is open..

Hey. Thanks for the quick follow-up. Question on Highland. So I think last November you got the referendum to expand that from 460,000 tons to 1 million tons.

So number one, I’m just curious how that ramp has gone if at all? And then this is a really big picture question, but two strategically just how important is that expansion to the entire future of your Western theater?.

I think it’s very important. So we’re in permitting now. The process is moving on very nicely. As you know, Tyler, the probably the biggest win obviously is getting through the referendum with the community, which went really well. Hats-off to the team there. They just did an outstanding job.

So that facility is going to be very significant moving to -- from 470,000 to just under around 1 million tons a year. It’s going to have a significant presence in our New York disposal capacity over the next decade for sure, no question about it.

There is a lot of uncertainty in terms of some of the facilities that are in place, whether they’re going to continue or not and that will also impact it. Ned talked about Brookhaven. He talked about the incinerator shutting down in Buffalo. So there’s a lot of capacity that’s coming out of the market -- out of the New York market.

So that facility will be a big part of our capacity on a go-forward basis..

Okay. But the full expansion hasn’t been gotten..

Yeah..

So the permit hasn’t been actually released to you?.

No. Not at all. So, we’re not -- we don’t have any of that benefit in our numbers at this point in time..

And it’s actually year out, John..

Oh! You’re covering. Okay..

Yeah..

Okay. You are covering this..

At least a year out, but maybe, John, God only knows….

Yeah. Okay..

That’s right..

I get where you’re going with that, okay? I get that. We’ll move on from that. But -- and then, Ned, so, or Ed or whoever I may butcher this a little bit.

But I’m just curious, how much on average is transportation as a percentage of the landed cost into the landfill? On average big picture generally speaking, in the Northeast?.

Oh man. It depends….

It depends..

It depends on where you are, but….

Yeah. I mean….

… on a transfer station, it might be 40%, in depending on what the transportation line is at 35% of the tipping fee of that transfer station, but it kind of depends on how far you’re going?.

You got right..

Yeah. I mean….

Yeah..

Yeah. Obviously, but anyway I was just kind of looking for broad….

Yeah..

… average?.

I mean, obviously, the further away the higher the percentage and I think the percentage could get much higher than 40% depending upon how far you are traveling. In some cases, you could have $60, $65, $70 a ton in just trans..

I mean, we are -- it’s obviously a very tight transportation market. I obviously know this way too well. So….

Yeah..

… I’m just curious, I mean, is -- does that piece, is it really moving that subcontractor piece, if you will?.

It doesn’t move kind of linearly, because everything we do is either contracted or on our own long-haul trucks. So we do subcontract quite a bit that our. But you’re typically moving under three-year and five-year contracts, because there’s a lot of equipment involved.

So there aren’t any big resets we’ve had recently that impacted, but it is something we pay attention to..

Okay. All right, guys. Thanks for the time..

Okay. Thanks, Tyler..

Thanks Tyler..

There are no further questions. I’d like to turn the call back over to John Casella for any closing remarks..

Thank you, Operator, and thanks for joining us this morning. We look forward to discussing our second quarter 2021 earnings with you in late July. Thanks, everybody. Have a great day..

Ladies and gentlemen, this does conclude the conference. You may now disconnect. Everyone have a great day..