Good day, and thank you for standing by. Welcome to the Casella Waste Systems First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded..

I would now like to hand the conference over to Charlie Wohlhuter, Director of Investor Relations. Please go ahead. .

Thank you, Liz. Good morning, and thank you for joining us on the call today. Today, we will be discussing our first quarter 2024 results, which were released yesterday afternoon..

Here with me are John Casella, Chairman and Chief Executive Officer of Casella Waste Systems; Ned Coletta, our President; Brad Helgeson, our Chief Financial Officer; Jason Mead, our Senior Vice President of Finance and Treasurer; and Sean Steves, our Senior Vice President and Chief Operating Officer of Solid Waste Operations..

After a review of these results and an update on the company's activities and business environment, we will 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 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 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, April 26, 2024..

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 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. .

Thanks, Charlie, and good morning, everyone, and welcome to our first quarter 2024 conference call. I will begin today's remarks with highlights of our first quarter and then have Brad and Ned go into more details on our results and a strategic overview..

But first, I'd like to take a minute to credit several of our team members who exemplify our core values and who have been recognized for their service. They put service to our communities first, while operating in a safe and responsible manner..

We are fortunate to have 4 drivers, earn driver of the Year recognition by the National Waste & Recycling Association through their focus to enhance safety and be a strong representative of the solid waste industry..

They are Curtis Rhodes, Sean Dutton, John Machad and Cesar Giguere. Our longtime market area manager, Bill Myers, in Northern New York was named Citizen of the Year by the United Way of the Adirondack region for his community engagement.

They lead by an example and inspire the rest of us to make our own positive contributions to the customers and communities we serve..

Shifting to the results. As you saw in our earnings release yesterday, we hit the ground running to begin in 2024. Our business is performing at a high level. Revenues were up nearly 30% year-over-year, while we drove adjusted EBITDA growth of over 40%.

This resulted in a 150 basis point margin improvement, which demonstrates the strong execution of our operating strategies and the successful ongoing integration of some of the largest acquisitions in the company's history is truly impressive and speaks really well of our entire team..

On that note, acquisition integration has been among our key priorities, as you know. The hard work our team has done is very evident as we grow. Their commitment and dedication to be of service to each other, our customers and the communities we serve shows. The senior team and I are very proud of the culture.

This is the foundation that's positioned us well for another exciting year of growth and performance..

Looking now to a few of our key strategies and the performance of operations. Beginning with the landfills. As we expected in the first quarter, volumes were down with lower C&D and special waste tonnages..

To be clear, this is not a sign we're experiencing weaker construction activity or a signal from the economy. In fact, roll-off collection volumes were up 1.4% in the quarter, followed by commercial collection volumes up nearly 1%..

C&D disposal dynamics are being influenced by a large landfill in the North east that is projected to close at the end of this year. We anticipate that C&D disposal market will readjust following the closure..

Regardless, we continue to focus our operating programs at the landfills, as well as our quality of revenue. Our average landfill price per ton stat is often a good metric to measure our improvement in quality of the inbound waste stream. For the third consecutive quarter, the increase was double digits on a percentage basis..

Turning to the collection side of the business. We've executed well and have a lot of positive momentum, as we advance our strategies across this business line. Our investment in automated side loaders, routing technology and real-time data intelligence are providing nice benefits.

We are capturing labor, safety and productivity enhancement, as we steadily roll out these programs across our collection fleet. As part of the efforts, we aim to keep our costs low for our customers..

Our ongoing fleet automation plan is attracting larger and more diverse labor pools and creating a safer work environment for our frontline workers. We experienced favorable trends in our turnover in TRIR safety metric in 2023, and we aim to repeat this in 2024 with incentives aligned up and down the organization..

In terms of routing initiatives, we completed a number of routing projects in the first quarter. This is a reflection of our focus on driving synergies in the business. Sean Steves and his team are applying these operating gains with analytics to help make more informed decisions for better service accuracy, efficiency and quality.

These positive contributions are showing up in the numbers..

Collection adjusted EBITDA margins improved more than 200 basis points year-over-year in the first quarter, excluding acquisitions. We've already begun deploying these programs into the Mid-Atlantic region with more opportunity ahead of us..

We are highly focused on service excellence and new customer integration. As we grow the business and onboard new customers, these efforts will help enable our success in customer retention and satisfaction..

In the Resource Solutions part of the business, performance in this segment was strong in the quarter with year-over-year adjusted EBITDA growth and margin improvement. The growth was widespread. Yes, improvement in the recycling commodity prices was a tailwind..

However, we experienced a greater contribution in the quarter from our strategic investments, namely our upgraded Boston MRF is firing on all cylinders with the results that delivered strong incremental adjusted EBITDA in the first quarter.

Modernization of our Willimantic MRF will kick off later this year, which will be a similar investment in further enhancing the recycling capabilities we provide..

On an overall basis, whether it'd be full upgrade of the processing equipment or selectively replacing certain pieces of equipment, we are constantly looking for ways to improve our operating efficiencies, better end product quality and enhanced recovery across our sustainability infrastructure, while generating solid returns..

In terms of the national account business, customer demand for our professional services remains quite strong, and we grew a bit in this line of business for the quarter. These sales strategy is moving to our Mid-Atlantic region, where we see opportunity over time to grow various customer segments..

And finally, we really like the growth runway that we see ahead for our entire business. Our core operating strategies are working well and providing us with opportunities to drive further value. We have a number of organic development projects to come. And, of course, our M&A pipeline remains robust with exciting opportunities..

Now, I'll turn it over to Brad to go through the results. .

Thanks, John, and good morning, everyone. Revenues in the first quarter were $341 million, up $78.4 million or 29.9% year-over-year, with $69 million from acquisition rollover and $9.4 million from organic growth or 3.6%. Solid waste revenues were up 36.4% year-over-year, with acquisition growth of 33.9%, price up 5.5% and volumes down 2.8%..

Revenues in the collection line of business were up 51% year-over-year with price up 6.2% and volumes down 1.2%.

Volume declines were concentrated among residential customers as we work to improve the quality of revenue and margins, while we experienced positive volume growth in both the front-load commercial and roll-off lines of business in the quarter..

Revenues in the disposal line of business were down 2.6% year-over-year, with landfill pricing up 4.7% and landfill tons down 12.4%. MSW volumes into the landfills were up 1.7% in the quarter, but C&D volumes remained soft, which we expect to continue over the next several quarters and volumes of soils and sludges were also down..

The average price per ton at the landfills was up 13.3% year-over-year, reflecting a mix shift away from lower priced streams, as we help align on price and prioritize preserving our valuable aerospace..

Resource Solutions revenues were up 11% year-over-year, with price up 9.2% across the segment and acquisitions contributing 4.4%. Price growth was driven by an increase of 58% or $41 per ton in our average commodity revenue over Q1 2023.

Of course, our contract and fee structures work to mute the impact of commodity price swings in both up and down markets..

So, the nearly 60% increase in commodity prices only yielded $3 million of increased revenue in the quarter. National Accounts revenue within Resource Solutions was up 1% year-over-year with price up 6%, while volume was down 4%, primarily driven by municipal biosolids as we've been a bit more selective with that work..

Adjusted EBITDA was $71 million in the quarter, up $20.4 million or 40.2% year-over-year, with $15.9 million of the change from acquisitions and $4.5 million from organic growth or 8.8%..

Solid Waste adjusted EBITDA was $64.8 million in the quarter, up $15.3 million year-over-year with acquisitions, strong pricing and our operating initiatives driving this growth.

Resource Solutions adjusted EBITDA was $6.2 million in the quarter, up $5.1 million year-over-year, driven by the benefits of the Boston MRF retrofit, higher recycled commodity prices and acquisitions. Adjusted EBITDA margins were 20.8% for the quarter, up 150 basis points year-over-year..

Once again, our pricing programs fully offset cost inflation in the quarter, which we estimated at approximately 4.5%, excluding fuel. Deflation has been moderating and was down a bit sequentially in the quarter, but, of course, remains elevated in historical terms..

At a high level, the year-over-year EBITDA margin bridge included a few key drivers. The positive spread of price over cost inflation, higher recycled commodity prices and improved operating performance, particularly cost efficiencies in the collection business, in total represented approximately 150 basis points of margin improvement..

The Boston MRF retrofit contributed approximately $2.5 million or 50 basis points of margin. And acquisitions and related synergies contributed another 50 basis points of margin..

As you recall, our expectation was for acquisitions to weigh slightly on consolidated margins in 2024, as they did in the fourth quarter. The performance has exceeded expectations, including the pace of achieving synergies, particularly at Twin Bridges.

These were partially offset by approximately 100 basis points of margin headwind from the lower landfill volumes and higher leachate costs with the wet weather that we experienced in the quarter..

Cost of operations in the quarter was up $50.6 million year-over-year, but down nearly 100 basis points as a percentage of revenues, as the company continues to outpace inflation on the revenue line and operate more efficiently. $48.1 million of the increase was from acquisitions and $2.5 million from the base business..

So, on a same-store basis, cost of operations was down over 140 basis points as a percentage of revenue year-over-year..

General and administrative costs in the quarter were up $8.7 million year-over-year, but down 60 basis points as a percentage of revenue. $5 million of the increase was from acquisitions. The company is investing in the G&A line to support our growth, including adding a new region to manage our Mid-Atlantic operations.

We expect to gain further leverage here over time as we grow..

Depreciation and amortization costs were up $20.6 million year-over-year with $19 million of the increase resulting from the recent acquisition activity. As I explained last quarter, we expect heightened D&A for the first few years after each acquisition, driven in particular by the accelerated amortization of identifiable intangibles..

To put this in perspective, D&A associated with the acquisitions was over 27% of acquired revenues in the quarter, as compared to 13% for our base business. Our effective tax rate was 30% in the quarter, and certain nondeductible expenses and discrete items pushed the rate above our statutory rate of approximately 27%..

Adjusted net loss was $0.8 million in the quarter, down $6.1 million compared to prior year, with the accelerated D&A associated with acquisitions weighing on earnings. GAAP net loss was $4.1 million in the quarter, impacted by D&A and $5 million of near-term expenses related to acquisition due diligence, closing and integration.

Adjusted EPS was a loss of $0.01 in the quarter and GAAP EPS was a loss of $0.07 in the quarter..

Net cash provided by operating activities was $7.7 million in the quarter compared to $16.1 million in the first quarter of 2023.

This was driven by higher outflows from net changes in assets and liabilities, including the payment of the accrued FLSA legal settlement of $6.2 million in AP timing, which should resolve itself over the balance of the year, partially offset by lower AR due to a modest improvement in DSO..

Adjusted free cash flow was a loss of $2.4 million in the quarter compared to positive $2.2 million in the first quarter of 2023. As, I'm sure you all know, the first quarter is our seasonally weakest quarter, particularly from a cash flow perspective, and results were further impacted this quarter by $4 million in higher replacement CapEx.

As of March 31, we had $1.05 billion of debt, $189.5 million of cash and available liquidity of $462 million..

Our consolidated net leverage ratio for purposes of our bank covenants was 2.72x. Our average cash interest rate was 5.6%, and we had fixed interest rates on over 77% of our debt. Our liquidity and leverage profile will enable us to be opportunistic in continuing to execute on our growth strategy and robust M&A pipeline..

As stated in our press release yesterday, we reaffirmed guidance for 2024 across all of our key financial metrics. While the business is off to a great start this year, it's premature to consider revising guidance.

Our full year guidance ranges imply significant growth in the last 3 quarters of the year, particularly from a cash flow standpoint, but this is consistent with the normal seasonality of our business and our plan for this year..

With that, I'll turn it over to Ned. .

Thanks, Brad, and good morning, everyone. As discussed last quarter, we completed 7 acquisitions in 2023 and acquired approximately $315 million of annualized revenues..

Our team has been hard at work through late 2023 and into early 2024 to successfully integrate the newly acquired businesses into our operations, systems and back office. And given these successful efforts, we're tracking well against pro forma for each acquisition..

Our Mid-Atlantic team led by Kyle Larkin, is doing a great job executing against our operating and efficiency plans. To date, we have installed onboard computers on roughly 55 trucks and achieve limited route synergies through our early automation and route optimization efforts..

We have 17 automated side load trucks ordered for 2024 for this region and expect to drive meaningful operating cost reductions in 2025 when these trucks are delivered and routes are optimized. We are tracking well against our plan to recognize $8 million of operating cost synergies over the next 3 years..

Our IT, finance and customer care teams have been working tirelessly since last summer on the Mid-Atlantic systems integration. And, in early April, we successfully completed the final migrations from GFL.

A big thank you to the entire Casella team for all your hard work and I'd like to extend a special thank you to the GFL team for their help providing transition services and assisting us with the successful migration of their systems..

Our Western region team led by Michael Stehman has partnered extremely well with Scott Earl and the Twin Bridge's team to quickly advance integration efforts to drive operating synergies and ensure top-notch customer service..

To date, we have eliminated 14 trucks or route synergies in close to operating locations. Through these efforts, we are tracking well ahead of our 3-year synergy plan to eliminate $4 million of costs. Our acquisition pipeline today is approximately $800 million of potential revenues across our entire footprint, including the Mid-Atlantic region.

We are positioned very well to have another solid acquisitive year in 2024..

On the development side, we continue to invest in return-driven sustainability infrastructure, including the full equipment upgrade of Boston recycling facilities as John discussed. The facility continues to operate well above pro forma in the first quarter to deliver strong incremental growth.

Given the success of that facility upgrade, we're scheduled for the full upgrade of our Willimantic, Connecticut facility in Q4 of 2024..

We expect our first RNG project that is Juniper Ridge Landfill to be online in midyear 2024 with final commissioning expected in the coming weeks. Our KOBP owns and will operate the facility, while Casella generates a royalty stream from the sale of the gas and RINs with 0 capital investment by Casella..

In addition, we anticipate an additional 2 to 3 RNG projects with third-party developers coming online in the second half of 2025.

Our team also continues to make excellent progress on the build-out of the rail offload infrastructure at our McKean, Pennsylvania landfill, and we expect the facility to be online in mid-2024 with our first test loads received..

In this first phase, we're bringing online capacity offload up to 5,000 tonnes per day of containerized MSW, soils and sludges.

We expect this operation to ramp very slowly over the next few years, as this investment is less about near-term volumes and more about long-term risk management and flexibility, as we want to ensure viable waste disposal outlets long term in the capacity constrained in the Northeast..

As we continue to grow as an organization, we are focused on maintaining our positive culture and core value system by investing and developing our people. This is especially important as our team grew by over 30% or 1,000 employees in the last year through acquisition and organic growth.

And our team did an amazing job effectively onboarding and welcoming our new team members..

As demonstrated in the first quarter, we are set up very nicely in 2024 to continue executing against our core strategies to drive further shareholder value and profitable growth..

And with that, I'd like to turn it back to operator for questions. Thank you. .

[Operator Instructions] Our first question comes from the line of Michael Hoffman with Stifel. .

Good morning. .

Good morning, Michael, I think, first and foremost a big congratulations from the entire team here at Casella for the new position in leadership at NWRA. From our perspective, it's really exciting to have your leadership and energy to lead the National Association. It's really exciting. So first and foremost, so --.

Congratulations, Michael. Although we'll miss you on this call last one. .

Well, now you got me choked up. Well, I probably will go with true withdrawal, so I'll have to listen in a few times anyway. Thank you. Those are awfully kind words. I'm going to say legacy portfolio because that's where there's a real landfill constraint. I mean, Pennsylvania has got tons of landfills.

So, the dynamic in that legacy book on the landfill side continues to favor your strategy..

But are we finding the market price getting to a level where the third-party hauler has more options about whether they stay in market and use you or management or the smaller places or move and go by rail? And why I ask is we're hearing more tons thinking about moving out of the market. And there's a question in this.

What's the strategic move?.

I think McKean is part of that, but what is your strategy on how you react to volume starting to move around because we've opened up the access because prices have gotten not because of you, just in general, prices have gotten to a place where they can?.

Yes, Michael, this is never going to be a perfect linear or time relationship. It takes many, many years to permit new landfill capacity or even if you're going to open a new rail transfer station to get permitted and built and operating..

So, you're seeing much like you've seen over the last decade, some ebbs and flows, right? Like there's an anticipation of a few sites that are going to close this year into next year.

So, new rail capacity, new transfer capacity has come online, which in the near term is kind of sucking sometimes from the Northeast and causing a little bit of lower volumes in the market, but nothing is off with the midterm trend..

We still expect sites like Brookhaven on Long Island to close at the end of this year and other sites over the next couple of years. And it will become capacity-constrained again. It is not a perfect linear relationship, as you know, we'll never chase tons. We're very disciplined. We know how valuable our airspace is and we're very focused on returns..

So, part of what you saw in the first quarter and in Q4 of last year is what we chose to just allow sometimes to lead the system, especially on construction and demo short term, while some sites reach the end of life. We'll ultimately get back tons into our system and be able to create quite a bit of value from that waste over time. .

I think that also is a reflection, Michael, of the investment that we made in late '23 and now in '24 to bring McKean on where it's been an option for 10 years. And, clearly, from a transportation cost perspective, will be as competitive as anyone from a rail serve perspective on a go-forward basis.

We're excited about that opportunity, and it's a great move for us to make sure that we have the disposal capacity long term to meet the needs of our customers in the Northeast. .

Well, and I don't think it's unrealistic to think of McKean. It's both offensive and defensive, and that's not a negative. It's going to give you that opportunity to flex and so it's most volume moves..

Fleet has been a challenge. We've been under ideal replacement rates, but it appears it might be improving maybe a little bit of a better pace. Some of the other companies have reported and their fleet adds have been more in line with normal replacement. What is your vision on that? And clearly, it would have a positive to repair and maintenance cost. .

I think there's still a bit of a struggle in terms of delivery of vehicles. I think we're certainly getting through it. Our overall 5-year fleet plan is in good shape. Sean has done a terrific job..

We've managed to be very proactive with the Board getting our capital approved years in advance to be able to be in a position to get the slots to be successful in maintaining our fleet at a good age..

The other interesting aspect of that is when some of the acquisitions that we've done, particularly the Twin Bridges, the average age of that fleet actually brought our overall age down because they were all 2 or 3 years old..

So, we've been able to get through it. Sean's done a fabulous job of managing that process and managing our 5-year plan, so that we're not out of sync at all. But it's still a struggle in terms of delivery and getting all of the slots that we'd like from a replacement standpoint. .

And, John, you take that comment one step further and you look at some of the early synergy work the team's worked on in the capital district of New York. We've taken 14 routes of road by combining the companies. And a lot of times you do acquisitions, you have older, less quality trucks.

And usually, we don't have a lot of great uses other than spares for them..

In this case, there are some really high-quality vehicles that we're putting to work in the fleet as well. So, another really nice benefit from all the hard work the team has done in that market and in Sean's team. .

And then last one for me. On labor, it looks like the market is starting to help labor, but how do you feel about where you are in your open positions, whether year-over-year or sequentially and sort of the thought about the labor path and wage inflation. The sense is maybe it's coming in line a little bit better, faster because the market is helping.

.

I think that's a very fair perspective. The efforts that we've made from an HR standpoint and from the CDL School and the maintenance school are really paying dividends. We put 250 folks through the CDL School. And we've seen, not only our turnover, lower on an annual basis by about 20%.

We've also lowered the total number of openings that we've had significantly on a year-over-year basis..

So, we're excited about where we sit. The maintenance school has come up this year. We started that about 3, 4 months ago and are having good results of that. The new facility will be operational before the end of this year in conjunction with the CDL School..

So, our CDL School and maintenance school will be on the same piece of property, which is really exciting. So, I think that your characterization is correct. It's getting easier, but not without significant investment and attention on our part..

The other thing that we've done, too, Michael, is we started to talk about the power of hard work from a marketing perspective in terms of really marketing our work as a differential for those people that don't necessarily want to work in an office. And that has been getting a tremendous amount of play across our entire footprint..

We've targeted from a marketing perspective, those areas where we have more significant openings and it's really starting to pay huge dividends. So, I think the team has done a really good job of addressing the issue across the board, not only with the training facilities, but from a marketing perspective as well as from an HR standpoint. .

And it's not just about money, right John? Like really, it's about culture, it's about how we treat people. We're doing a lot with pulse surveys to make sure that we really have an understanding and we don't get behind any sort of leadership issues or just whatever --.

The other piece of the facility, 5-year facility plan that we put in place a few years ago, too, is paying real dividends because you got to have facilities that people want to come to work at. So, improving the facilities is also another big plus. .

Well, thank you very much, and thank you for the kind words in the beginning, and we'll see you in a week in Las Vegas. .

Our next question comes from the line of Stephanie Moore with Jefferies. .

This is Harold Antor on for Stephanie. So, I guess a quick question. You talked about it, I guess, on the volume front, I know that came in a little bit weaker than expected.

How should we think about that as we look through the rest of the year? And how did volumes exited in the quarter?.

Yes. This is Brad. The volume probably came in a little bit softer. But we're feeling really good about the plan for the year and the guidance we put out at the beginning of the year for volume to be flat to down 1% overall in the Solid Waste line of business..

Unpacking that a little bit, certainly, when we talked about it this quarter, C&D volumes in the landfill, that's sort of a temporary issue, and that's really kind of more than anything else, I think, weighing on overall volumes..

Collection volumes are relatively strong. As I mentioned in my prepared remarks, residential business was down so frontloading roll-off were actually up. So, it's a pretty good picture looking forward. We feel good about the guidance that we gave at the beginning of the year. .

And we expect volumes to be down modestly in Q2, but then kind of flattish second half of the year. .

Yes, that's fair. .

I guess just on pricing.

Is pricing sticking you getting any pushback from clients? How should we think about that going forward?.

Yes. So, as you may know, we come out with about 75% of our pricing for the year in late December into January. And we've had really great stickiness with that pricing. So, much of it really has to do with the service you deliver to customers and differentiated service.

And we do an amazing job, especially with some of our resource offerings and just the quality of our service delivery. We measure every single day service delivery in our markets and hold ourselves accountable to high standards..

So, as we come out with pricing programs, if we're getting the job done, and we're keeping a high-quality service to our customers, it's accepted by the market, and that's where we are right now, and we're feeling really good about the trajectory for the rest of the year. .

[Operator Instructions] Our next question comes from the line of Adam Bubes with Goldman Sachs. .

The margin trajectory started off really strong, 150 basis points year-over-year margin expansion.

Can you just help us think about how you expect the cadence of margin expansion to look on the path to the 30 to 50 basis points margin expansion outlook? And how do you feel you're tracking against that range, given the strong start of the year?.

Yes, it's Brad. I'll start off and maybe Ned can jump in with some historical perspective. But certainly, we're off to a good start, as you mentioned, we feel really good about the full year implied EBITDA margin range that we talked about at the beginning of the year..

I think, if you sort of use history, the historical trend of margin sequentially is probably a good starting point. I think one comment with regard to Q2 is given how strong we started the year in Q1, probably look for a little bit less sequential margin increase Q1 to Q2 than, for example, we saw last year..

I think landfill margins, landfill volumes are playing a role there. So, as we look at across the year, it may quarter-to-quarter look a little bit different, but we feel good about where we set our guidance. .

Yes. I think a bit is just a little bit of conservatism as well. We're just a few months into the year. The trends were really solid in the first quarter. But there are also some things that led to that 150 basis point margin increase. Like the Boston MRF year-over-year comp..

Last year, we're spending a lot of money to move materials around. This year, we didn't have to move materials around, plus we had the benefit of the new system. So, we'll pick that up again in Q2, but that doesn't recur in Q3 and Q4..

So, I think as we look at the year, yes, we got off amazingly well with 150 basis points of margin enhancement. We kept guidance in that 40 to 50 basis point improvement range just as we get more visibility on the year. .

And price cost continues to be a nice tailwind for you.

As we think about margin expansion runway going forward, beyond price cost, how significant is the opportunity from the productivity gains, the routing software, back-office efficiency, fleet automation? What should we think about the annual contribution from those initiatives?.

Yes. Within our core business, it's regenerative. And we still have quite a bit of work that we can do over the next few years on the fleet side, from automation, conversions to front loads, route optimization. Sean has a team that's continually working with our local teams to find opportunities..

But where it gets really exciting is around acquisitions, either tuck-ins or new areas. And as we had laid out when we first did the acquisition of the Mid-Atlantic region, there's almost half of that fleet are rear load trucks.

Now, it's going to take us years to address, because some of them are in specific municipal contracts and some of them may never get converted..

But we've got a great track record of moving in and moving to automated fleets, which drives higher productivity, better safety profile and excellent returns. And, as I said earlier, we have 17 automated trucks on order this year that could possibly take off the road, 25 to 30 or more rear load trucks as we get into specifics.

So, this is an opportunity that's going to continue to add millions of dollars of operating cost savings each year..

On the back office side, we brought in a new CIO last August, Keith Landau, who has 25 years of experience, most recently was the CTO at Deloitte and previous to that was in the waste industry. And Keith has hit the ground running..

We're doing an amazing job of really rethinking some of our systems approach and back office ad more to comment on this story over time, we see there being a great opportunity to continue to shave G&A costs. Over the last couple of years, Jason, as a percentage of revenues, we've come down maybe 80 basis points. .

Over 100 basis points. .

100 basis points over the last 3 years. So, it is coming out of the business, but there's more room to go. And we've got a great opportunity to do so. .

I mean we'll quickly at a data point to kind of underscore what Ned was talking about with the acquisitions. So, just a snapshot in the first quarter, the acquisitions in the quarter kind of digging into the cost of operations line were 21% of revenue on direct labor, the base business was 14%..

So, that's not exactly apples-to-apples as far as we acquire primarily collection operations, and we have more of a diverse business mix in the base business, but really that, I think, highlights the significance of the opportunity over time. .

And then one more quick one for me. It sounds like guidance still embeds volumes of flat to down 1%.

Do volumes have to improve ahead of normal seasonality for you to reach those numbers? Or is that just the comps getting easier and sticking with this current run rate from here?.

I think the comps will get a bit easier in terms of volume through the year. And obviously, just the way the math works, we were down 2.8%, Solid Waste and guiding to 0% to down 1%. So, that implies we're expecting some recovery in that. And we feel good about that. .

Our next question comes from the line of Michael Feniger with Bank of America. .

I just was curious, Ned, on the M&A pipeline being active and robust. Is this more a collection asset? Is there some integrated assets also kind of available? Just curious, if you kind of get a sense of that pipeline.

And, is that something you guys are actively pursuing? Or is this year more of an integration digestion given kind of the transformational year you guys had in '23?.

Yes. Great question, Michael. Thank you. Much of our focus right now is on driving density and adjacencies, really not looking at large new platforms in any serious way at this moment in time. We're really looking at density, both in the legacy markets and now down into Mid-Atlantic with strong tuck-ins, strong adjacent acquisitions. That's our focus. .

And, clearly, I think Michael said it earlier, Michael, the Mid-Atlantic market has a tremendous amount of disposal capacity. So, the opportunities that we have there would be with transfer station and recycling facilities fully integrated in terms of collection, transfer and recycling.

So, nice opportunities for us to continue to build the collection recycling and transfer portion of the business. So, right down the middle of the fairway, and great opportunities from a growth standpoint there. .

And we're generating the highest returns in our business right now and our collection line of business, followed by recycling. So, as we continue to invest in automation and route synergies, we just are getting great returns in those areas..

Our playbook, our team, our muscle memory is very, very good. So, as we get into small tuck-ins and we integrate them into our business, it creates a lot of value quickly. .

And, Ned, I know you guys talked a lot about the onboarding and the route optimization. Just to kind of put a finer point on it, and I realize you're going to be deploying that with your acquisitions.

I mean, do you feel like you're still in like early innings of this process? Is this more third, fourth? Or what you're seeing now makes it feel like you're kind of in the later innings of this process. .

I think that, I would characterize it as being in the mid-innings and probably a great deal of that is related to the M&A activity. So, as we continue to grow from an M&A standpoint, we continue to provide opportunity for Sean and his team to bring efficiency, productivity to the businesses that we're buying, Michael.

So, I think a little bit further ahead on the core business from an efficiency standpoint, but still a little bit left to be done there as well. .

And just last one to squeeze in. I'd love to get Casella's view on last Friday, what we're seeing out of the preliminary proposals around PFAS. Obviously, landfill and your disposal asset has been a great part of your story. I know it's still early and some of this isn't finalized.

I'd love to get a sense from you all, how you're kind of interpreting it and what that kind of means going forward, what you're kind of looking for going forward, what we should be paying attention to?.

Yes. It's really interesting. This has been years in the making. We actually welcome federal regulation around this. It was getting kind of confusing state by state, district by district.

So, to have some real clarity around with circla and some of the recent rulings on a groundwater standpoint as well and shrinking water are really, I think, positive for the industry..

And finally, the EPA has taken a stance that the manufacturers of these chemicals are responsible for them. And the users in manufacturing products are responsible, not the passive receivers like landfills or wastewater treatment facilities or even the passive use in biosolids application for fertilizer. So, from our vantage point, a great first step.

I'm sure there's going to be more to this story, but it's exactly what we've been saying for years. .

And I think the other piece of that, too, Michael, with regard to Casella is not only do we have an RO plant in McKean that can take out the PFAS.

We also are doing foam fractionation pilot program with the state of Vermont in our Waste USA facility in Vermont, where we've seen significant positive results from that pilot program in terms of 98% removal on 4 or 5 components from a PFAS standpoint and about 65% on the fifth one..

So, early stages of the pilot program. But again, we're out in front from an innovation standpoint, trying to understand what kind of technology will take the PFAS out of our leachate on a go-forward basis to efforts in terms of technology and understanding of what it's going to take to take the PFAS out of our leachate.

So, again, out in front from an innovation standpoint. .

That's a great point. So, the liability issue was really spoken to you by the recent circla, but on the innovation side, as Sean said, the reality of on the ground, we want to take that PFAS out of leachate. And our teams did an excellent job on the technology side, looking for cost-efficient ways to do so. .

Our next question comes from the line of Tony Bancroft with GAMCO Investors. .

A great job, John and team, you guys have obviously done a fatuous job over the years. You guys did the recent acquisition for the Mid-Atlantic. I think you probably have size-wise, there's probably some capability to do something, again, some more transformational, particularly in the region you're in..

Is there something out that you're seeing or maybe looking to get into another kind of business that's somewhat aligned with the traditional business? Maybe just any just general thoughts and maybe longer-term view on things?.

Sure. I think that our view is that, really right down the middle of the fairway. Our biggest opportunity is to add value in the existing business that we're in..

The $800 million that Ned talked about from an M&A standpoint is right down the middle of the fairway. We don't see stepping out of our comfort zone and our capabilities as something that's going to create significant shareholder value..

Our execution of our strategy in terms of the M&A directly is clearly the way that we're going to create the most shareholder value on a go-forward basis. So, you're not going to see us deviate from that strategy. There's really no basis for it. We can create the most value in the existing business model. .

Congratulations on all your successes. .

[Operator Instructions] I'm showing no further questions in queue at this time. I'd like to turn the call back to John Casella for closing remarks. .

Thank you, Operator, and thanks, everyone, for joining us this morning. We hope you have a great weekend. Look forward to discussing our second quarter 2024 earnings in July. Thanks, everybody. Have a great day. .

This concludes today's conference call. Thank you for participating. You may now disconnect..