Good day, ladies and gentlemen, and welcome to the Casella Waste Systems Fourth Quarter 2013 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to hand the conference over to Joseph Fusco. Sir, please go ahead.

Thank you for joining us this morning, 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; and Ned Coletta, our Senior Vice President and Chief Financial Officer. Today, we'll be discussing our fourth quarter and fiscal year 2013 results. These results were released yesterday afternoon. Along with a brief review of those results and an update on the company's activities and the business environment, we'll 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 SEC's Safe Harbor provisions. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in our prospectus and other SEC filings. 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 estimates change and, therefore, you should not rely on those forward-looking statements 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. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in the Financial Table section of our earnings release, which was distributed yesterday afternoon and is also available in the Investors Section of our website at ir.casella.com. Now I'll turn it over to John Casella, who'll begin today's discussion. John?

Thanks, Joe. Good morning, and welcome to our fiscal year 2013 fourth quarter conference call. Our goal today is to discuss the fourth quarter results, discuss guidance for fiscal year '14 and to update you on our midterm strategy. I'll start with a brief overview. Ned will take you through the numbers, and then Ed will provide an update on the steps that have been taken over the last 3 months to improve operating performance in the business. As we stated in our press release yesterday afternoon, we're quite pleased with where the business exited our fourth quarter and the excellent progress we're making against the midterm business strategies. Our results in April were the strongest we've had in over 12 months and helped us to achieve our objectives for the fiscal year. In early March, we announced the comprehensive plan to improve operating performance of the business. The plan focused on management attention in 4 key areas. We have effectively call hair-on-fire initiatives: placing the right people, right leaders in the right roles; sourcing incremental volumes to the landfills; improving collections route profitability; and completing the multi-year Eastern region strategy. During the first 2 months of our fourth quarter, our business continued to lag year-over-year as we worked through the various leadership changes and our efforts began to take hold. However, in April, we reached the tipping point. It's our belief February and March, we hit the bottom. In April, we reached the tipping point with adjusted EBITDA up $1.1 million year-over-year on increased landfill volumes, improved performance at our hauling companies and continued success with our Eastern region strategy. More importantly, we're seeing same positive volume and operating trends continue through May and into June. We believe that this dramatic improvement in financial performance is directly attributable to…

Thanks, John. Before running through the quarter, I wanted to discuss the amendment that we've received to our senior secured credit facility on June 25. To be clear, we were in compliance with all of our debt covenants on April 30, and we are projecting to be in compliance going forward. However, we sought this amendment to increase our liquidity and headroom against covenants going forward. On April 30, our total debt to EBITDA was 5.37x against our 5.50x covenant, which gave us roughly $11.5 million of true availability or liquidity. As part of the amendment, we loosened the total debt to EBITDA covenant to 5.85x for April 30, which gave us roughly $44 million of liquidity. In addition, we loosened the interest coverage covenant in future quarters. In recognition of this additional flexibility, we agreed to tighten our senior debt to EBITDA covenant, reduced the amount of CapEx we can incur in a given fiscal year, and we added a new pricing level to the grid for total debt EBITDA greater than or equal to 5.5x. The amendment was filed as an attachment to the 8-K yesterday afternoon. Moving on to the quarter. Revenues in the fourth quarter were $108.7 million, up $2.3 million, or 2.2%, year-over-year. Solid waste revenues were up $3.2 million, or 3%, year-over-year, with increase mainly driven by acquisition activity, higher organic volumes, higher collection and energy pricing. Revenues in the collection line of business were up $3.8 million year-over-year, with price up 1.5% and volumes down 2.3%. Volume weakness was most pronounced in the roll-off line of business. Roll-off pricing was down negative 0.7%, and volumes were down 6.4% due to continued challenges in the construction market across the Northeast, lower work associated with drilling sludges, and the loss of permanent roll-off accounts in…

Thanks, Ned. Good morning, everyone. So as Ned has walked through the results for you and we finished the year pretty much as expected, so I thought I would spend my time talking about the significant progress we've been making behind the scenes to structure and position ourselves for success going into fiscal '14. John mentioned that we had a strong April, so we are cautiously optimistic that the things we are putting into place are starting to produce results. On the last quarterly call in March, I went into the quite a bit of detail about what I had learned from visiting all of our sites, and talked about some of the immediate changes and new strategies we are putting into place. Without repeating the history and reasoning that I went into before, I thought I'd just list the changes and we can certainly go into the detail if you have questions at the end. First and foremost, we have successfully changed the culture of the business from corporate-centric to local market-centric, empowering and supporting local management teams to control any decision-making that affects a core function of their operation, such as sales, customer service, fleet maintenance, routing, dispatch, anything that affects a customer and the quality and efficiency of the service we provide to that customer. Consistent with our change from a corporate-centric management structure to local management empowerment, we've had to make some changes in personnel. Over the past few quarters, we've replaced 6 collection managers, 2 landfill managers and various lower level managers, and we are really happy with the new talent we've been able to recruit to the company. We've also established Randy Jensen as the new Regional Vice President for the Western region, who is proving to be a great addition to the team,…

[Operator Instructions] Our first question comes from the line of Corey Greendale from First Analysis.

A couple of questions for you. So when you look at the better trends in April, May, June, can you break out for us what the drivers are? How much of that is the economy and weather? How much of it is each of the initiatives you're working on, like, how much of it is incremental volumes coming into the Western New York landfills? Just some more detail on the drivers would be helpful.

I'm not sure we can break it out in detail for you, but -- or that it would be appropriate to do that until we announce the first quarter. But the main drivers are, we're having success on the disposal side, we're starting to bring new volumes into the landfills, and we're having success on the route profitability initiative, where we're taking trucks off the road and decreasing route days.

Okay. And then, kind of in light of those trends, it's hard not to come away with the impression that the guidance is potentially conservative, and certainly I understand the perspective of preferring to beat, as opposed to miss numbers, but can you just give us a sense of how much -- how conservative do you think the guidance is, and where the upside might come from?

Well, that's a tough question to answer 50 days into the fiscal year, Corey. We approach budgeting in a much different fashion this year. And the guidance we laid out bookends our budget, and we thought it was prudent to stick with that guidance as we get into the fiscal year. If we overachieve, like we have done so early in the fiscal year, we'll be more constructive and have those conversations. But I think, as we sit here today, as I laid out in my comments, we actually put together a budget that had landfill tons going down 100,000 tons year-over-year. We have recycling pricing coming down, which hits EBITDA as well, and we had a pretty lackluster kind of forecast for collection volumes and other volumes through the business. So we just -- given some of the stresses we've had over the last 18 months, we don't want to get ahead of ourselves. We've got a very good plan as a management team. We're all very well-aligned and we'll continue executing against it.

Is your commodity price assumption in the guidance? And how is it compared to what you're seeing right now?

Yes. So we've assumed that commodity prices come down about 3% to 4% through the year. We saw some rebound from last October, where we hit a low. And, in fact, in March we have reached the average commodity price per ton a little bit north of $110 a ton. And with the Chinese Green Fence in place, we're kind of down into the mid- to high-90s right now, say, $96 a ton in the month of June. Our guidance for the year had us right around $100 a ton for the full year, $100 per ton on average, so we're sitting a little below today. But generally, we believe that the markets will begin to rebound in the late summer to fall as the Chinese reenter the market.

Okay. And then, also hoping you could elaborate on the CapEx guidance, so it's coming down a fair amount. I assume part of it's because you're parking trucks, but can you just give a little bit more detail on the drivers of the decrease? And what you think we should be thinking about as kind of the go-forward CapEx level if this level is not sustainably low?

In theory, it's not really coming down that much, Corey, because if you've looked at -- if you look at last year and look at the composition of our CapEx for fiscal '13, we had roughly $41 million of maintenance capital and $12 million of growth capital. We really are not investing in much growth capital for fiscal '14. There will be some containers, some new accounts, various items like that, that are $1 million to $2 million in our budget. But besides that, we're sticking to just investing in the core assets and maintaining those assets. So our guidance of $42 million to $44 million is very much consistent with what we spent on maintenance in fiscal '13.

And our next question comes from the line of Al Kaschalk from Wedbush Securities.

I want to drill a little bit further on this landfill volume tone, and then maybe overall volumes in the business. I think, I heard 100,000 decline on your budgeting for '14. Can you put some of those pieces together? I know you may have dispersed them throughout some of the various prepared remarks, but it seems to me that, that number should be going the other way as opposed to up, and I'm wondering if it's more a function of pushing away some business that maybe is profitability-oriented, or is it still economic challenges in the regions?

No. I think it's simply our approach to the budget and the forecast this year and that over the past few years, we have included a certain block of what we call gold tons into the landfills. They're event-based, and certainly the Western landfills in New York are pretty dependent on those gold tons. And that puts some exposure to us. I mean, if the gold tons don't materialize, then we're going to be short of our forecast. So what we decided to do this year is only put in tons that we had high visibility on and, of course, when you do that, the tons farther out, like third and fourth quarter, we don't have a lot of visibility on, so we reduced the volumes there. And as the year progresses, then we can increase our visibility on whether we're going to get those gold tons or not.

So if you do not pick up incremental -- or shall we say, shadow business, in other words, that's your -- that's in the pipeline but not closed, and execute on everything you have in the pipeline. Should volumes be down only 100,000 then?

No. I think the point is -- and we might be confusing matters. I apologize. Corey had asked the question, is our budget conservative, and probably really aren't going to answer in a certain way because we put our guidance just yesterday. However, reading through that commentary we do have, tonnage is down 100,000 tons year-over-year in our budget. So for April to gain 100,000 tons, that would be upside to our current budget, or gain 200,000 tons, there would be significant upside to the budget.

But let me just clarify this. The reason you've got 100,000 volume decline on the budget is a function of a change in a way you're guiding? Or is it a change because of the various things you're moving around with the business that the capability of the system and the forward calendar suggests still softness in the economy? Because across -- I would argue across the business -- across the industry, that everyone is seeing a net tickup in volume, but they don't have a lot of the moving parts that you do. So I think there's 2 parts to this. One, it sounds that there's a change in the budgeting or the forecasting, which would dictate speculative work you're not incorporating in as a -- versus the business has just worsened than it has in the year ago period.

That's exactly right. It's a change in methodology of budgeting and forecasting versus the change in view of the business environment or our ability to get tons.

Okay. So I think all of us should be on record to write that your ability to hit to be no worse than 100,000 down would be you didn't get any further closure on some things in the pipeline versus just the economy softening further.

Exactly.

And then secondly, and I don't know if it's possible, but I would like to hear maybe some of this discussion about route profitability and how that translates to margin performance for the business, and whether this is still to be seen coming through the business, or if you've got a lot of the lower margin business out of the way in 20%, 21% EBITDA margin is what we should be thinking about going forward.

Well, I can talk quite a bit on that subject but I'm limited by time. But the -- part of the route profitability program, I talked about there were 3 stages, and the first stage was to go out and reroute the customers that we have. This is a process that in most companies good general managers are focused on their routing, of the efficiency of their routes on a regular basis. Over the past 4, 5 years, Casella had centralized a lot of those functions and taken them off the plate of the local management and then run into problems, where just wasn't focused on a weekly basis like it should be. What we've done is push it all back out to the field. We've asked everybody, "Okay, take a fresh look, reroute all your trucks now as Step 1 to this route profitability initiative." And we were pretty surprised at how many route days we were able to eliminate just on that basis. Now the second step, which has not happened yet is to evaluate the anomalies on those routes. Are there customers, based on a philosophy in the past, that seek volume growth? We reached farther for certain customers. And are there customers on those routes that are making the route less profitable? And we need to address that. Then we need to go through those customers, figure out whether it's a price increase, or what to do to remedy that situation. And then the third step, which we have not really done yet, is to market on route to increase the density once we have the routes where we want them. Now I say we haven't started those second 2 phases, but in the company-wide, there are many divisions where their routes are very well-designed, and they're not getting much of a benefit yet so we're already marketing on route in those divisions to increase density. Coupled with all of that, we introduced this economic value-added incentive plan, which puts a real incentive on the plate of the general manager to take a truck off the road. If you can reroute enough, reduce enough route days to eliminate one truck, you've eliminated the driver and the cost of the vehicle, the repairs, the maintenance, the capital cost, it has a significant effect on the EVA for that division and should tie into their incentive but it also has a really good effect on our margins. Quantifying that with a case-by-case basis, you have to look at the individual divisions and how much savings there is, but that's the whole plan and it's going well.

Are you able to think about, or share with us how much margin could come from this exercise/program over a reasonable period of time?

Yes. I would hate to throw a number out there, because it all depends on what we find.

And our next question comes from the line of Joe Box from KeyBanc Capital Markets.

This is Andy, filling in for Joe. I wanted to just quickly touch on the SG&A. It looks like as a percent of revenues you kind of finished up the year around 12.8%. I know you guys had talked about previously, kind of goal of around 12%. Just curious if that is something you're targeting in FY '14 or how you're kind of thinking about SG&A relative to your guidance.

Yes. The fiscal year '13, we just have one unique item that ran through G&A in the year, which was roughly $700,000 of legal expenses. We spent to settle the New York State tax matter that had been ongoing for a number of years. That was money well-spent and reduced our risk exposure. There are also, as we discussed on previous quarters, where we had some additional G&A in the numbers associated with our acquisition of BBI, which we've mainly taken out through various synergies to date. So going forward, our goal is to get down less than 12%. And we continue to strive towards that goal, and you'll see us talk about that again to the future. For us, it's probably a little bit more of a leverage issue today, where higher revenues will help with that goal. But we've done quite a bit to restructure our business and take various costs out. And I wouldn't say we have a G&A cost problem today or low-hanging fruit to achieve. It's more of we won't need to grow G&A as we grow as a business, and we can hold the dollar number flat while we grow revenues.

Sure, that makes sense. And just kind of switching gears, I wanted to kind of piggyback on you talked about the commodity pricing side of things. But on the volume side of recycling, your guidance kind of talks about flat volumes and yet you guys have kind of talked about continued modest positive growth from expanded 0 sort offerings. Just try to kind of reconcilable those 2 statements, and try to get a grasp of where volume could go this year to combat the pricing you talked about.

On those -- on the one hand, at the residential level and the commercial level, the actual collection level, recycling activity is continuing to increase. So you have, particularly, in the Eastern markets, say, Massachusetts, there is a lot of room for improved recycling rates at the municipal level and at the commercial level, so we expect the market to keep growing. The reason we've stayed flat on our forecast is because there's additional capacity coming online for processing recyclables. So until the market absorbs that capacity -- it hasn't come on yet. So as it comes on until the market absorbs it, we don't want to continue to think that we're going to be getting increased volumes even though we're pretty well-positioned in the market.

And then lastly, Ned, I just wanted to touch on, if you could, I think I missed it in the prepared remarks, but if you could just give us the bank calculated debt to EBITDA again for 4Q, and confirm that, that new covenant was 5.85x.

Yes. So the calculated covenant was 5.37x for total debt to EBITDA in our -- for our quarter ended April 30. In the 8-K we filed yesterday, we have the full text of the amendment and you can see that the levels for each of the amended covenants.

Great. And then, I just wanted to kind of get your perspective there. In conjunction with the free cash flow guidance you gave -- that you guys put out, is there still a focus then in the near term on some debt pay down? Or was this sort of new covenant meant to give you guys a little more time? I mean, how are you kind of thinking about that as you go forward?

No. Yes, great question. Does the liquidity issue is really in response to a number of questions we had on the debt side of business, which is we were running generally close to covenants, and we had a step down in our previous covenant package on April 30, from 5.75x to 5.50x. It's not an indication that as a management team or a company we deviated strategy and we plan to incur more indebtedness. On the contrary, we would love to pay down more debt and do it more quickly. It's just a matter of gaining liquidity and having more room to alleviate any stress in the marketplace on the debt side.

And your next question comes from the line of Brian Butler from Wunderlich.

First one, just to touch back on the landfill guidance or the volume -- the landfill volume guidance, and you talk about the pipeline, kind of those project pipeline being pulled out. Can you give a little color where the pipeline stands today versus where it was a year ago?

I would say that the pipeline is generally stronger, but it's -- well, we have new resources in the landfill sales sites, so we're building the pipeline as best we can, but the visibility still on third and fourth quarter is pretty cloudy.

And do you have the data for what that project work was in fiscal year '13? What level of volumes that was?

Special waste volumes are about 40%, aren't they?

Yes, 40%. But that's not the answer to the question, though, that's it historically.

We could maybe -- yes, I don't have it in front of me. We would have to go to our database, our CRM database, and just take a snapshot last year entering the summer months where our pipeline was. And then the second kind of part to that question is one of the things we're tracking very particularly this year is anything that's in our pipeline is it included in the budget or not included in the budget. And as I'm looking at a list of pipeline contracts, most of them are not included in the budget this year, so the risk profile is different and I would hazard to guess, if I looked at a similar list last year and we put that together, most of those items were in the budget last year. And that's the point we're trying to make. It's just a difference in risk profile to our guidance. We're still looking to achieve as many of those tons as possible, which would give us an upside to the year.

Right, great. Okay. That makes good sense. And when you think about looking -- going after, I think John said, $500,000 of incremental tons, mostly I'm guessing on the Western region, can you also give a little color what kind of growth opportunities from a landfill perspective or a landfill volume perspective do you have in the Eastern market, where you have the higher utilization? I mean, is there still good growth opportunities there for volumes?

Yes, there is. Brian, there's significant opportunity there. It's also -- we're also running very close to our permitted Southbridge, so it's an opportunity to improve pricing in the Eastern region as well. And, of course, I think that the market is certainly favorable in terms of some capacity coming out of the market, not only our capacity, but there's other capacity that has come out of the market as well in terms of more towns. So there's positive opportunity both from a pricing -- from a volume standpoint, but also from a pricing standpoint, too, to begin to move pricing at the disposal facilities in the Eastern region in particular.

And just to be clear, is any of that kind of opportunity on the price of the volume side in the Eastern region, is that in the current guidance? Or is that really more upsides from where we are today?

I would characterize it as more upside than being in the plan itself.

Okay, great. And I wanted to touch on, I think you mentioned that you had lost a couple or you lost some volume on -- to the Oakleaf for -- sorry, lost some counts on the Oakleaf, is there any continued headwind on that going forward through 2014 of accounts rolling off and being lost to Oakleaf?

No. We've already felt the full impact of the Oakleaf transaction with waste management so, no, there's no further impact from that at all in '14.

Okay. And then, last question is on the discontinued ops, what book value on the assets are out there for those -- for that part of the business?

Yes. So as part of that charge that we took that you see in the disco line, $3.3 million of the $3.7 million in the quarter was a write-down of assets.

Okay. Was that -- did you write them down to 0?

Near to 0. I think to less than $100,000.

And our next question comes from the line of Sam McCatherine [ph] from Crédit Suisse.

On the credit facility side, I just wanted to double-check that the pro forma for the amendment you said availability was up $44 million on April 30. Is that right?

Roughly $44 million. It was our newly -- our new tightest covenant is the total debt to EBITDA covenant of 5.85x and we came in at 5.37x, which -- I'm looking for some calculations. Our bank covenant EBITDA was $93 million for the quarter ended April 30, and from a true availability standpoint, that put us at roughly $44 million, so from liquidity for Q4 with the new covenant package.

Got it. And so what do you think of as sort of a comfortable range for liquidity? Because I think you said on actual basis, you only had $11.5 million of liquidity at April 30, which seems pretty low.

Yes. So we typically try to keep availability on the revolver north of $50 million, as generally a management goal, ended the year at $69 million, so we're within that standard. But for true kind of liquidity or availability, $25 million would be some kind of a bare minimum, and we feel more comfortable with where we are today at $44 million.

Got it. And I know during the quarter, you guys did a bunch of sort of revenue bonds to help improve liquidity. Is there more to do on that? Or have you guys sort of used up this sort of availability right now?

No, great point. This is an excellent mechanism for solid waste companies to better match the tenor of our assets to the tenor of our debt. We did 2 bonds in the quarter, our Vermont bond and the New Hampshire bond, and they have maturity dates, 23 years on the Vermont and, I believe, 16 years on the New Hampshire bond, well out into the future. And we are able to -- both of them are within the IRS solid waste tax exempt standards, so we're able to yield very good interest rates on each bond. And the New Hampshire bond, in particular, has a draw down structure, which allows us to draw down an additional $5.5 million on that bond within the current indenture, so you'll expect to see that in the coming months for us at least to that $5.5 million. And then going forward as a company, we'll try and do some more of these bonds going forward and in other states and on other projects because they are a very good matching over asset lives to debt life.

Got it. And then in terms of your definition of free cash flow, I think in your guidance is sort of $4 million to $8 million. Is that going to be a decent proxy for the improvement of sort of the cash balance or the liquidity on a go-forward basis? Or are there other line items below your definition of free cash flow that could cause that to sort of tighten up a little bit more?

We try to match our definition of free cash flow to the changes in debt balance, but you're right, there are some additional items that might fall below that line, one of which would be money spent on acquisitions or other kind of investments. As a management team, we do have a goal to pay down debt and to produce real free cash flow, so that would be our goal and, generally, that definition does not match. In the last fiscal year, our free cash flow is roughly negative $12 million, and our debt went up right around $15 million, so it was up a little bit more and that was around some of the acquisition activity during the year.

Got it. And so on the acquisition front, I mean, since you're below your liquidity target of $50 million and you're at $44 million, I mean, do you have the appetite to do cash-based acquisitions? Or would guys -- how would you guys sort of look to do acquisitions if there are any in the pipeline?

Well, I think we're going to continue to look at tuck-in type of acquisitions, which are highly accretive, but I think we'd tend to be conservative. This is a good year for us to focus on our knitting and really get the margins back to where they belong and get the disposal volumes in, and that remains our main focus.

And I see no additional questions from the phone line.

Very good. Thank you, everyone, for joining us and look forward to joining us at our second quarter conference call in --

Early September.

Early September. Thank you, everyone, and have a terrific day. Thanks.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may now disconnect. Everyone, have a good day.