Casella Waste Systems, Inc. (CWST) Q1 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Casella Waste Systems Quarter 1 2014 Conference Call. [Operator Instructions] As a reminder, this call may be recorded. I would now like to introduce your host for today's conference, Joe Fusco. Please go ahead, sir.

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 first quarter fiscal year 2014 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'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, ir.casella.com. And with that, I'll turn it over to John Casella who'll begin today's discussion.

Thanks, Joe. Good morning, and welcome to our Fiscal Year 2014 First Quarter Conference Call. Today, we plan to discuss our first quarter results and to provide you with an update on our midterm strategy. I will start with a brief overview. Ned will take us through the numbers and then Ed will provide an update on the steps that we have taken over the last several months to improve the operating performance in our business. As we stated in our press release yesterday afternoon, we are pleased with our performance in the first quarter and with the excellent progress that we are making against our key business strategies. We had a solid first quarter with results primarily driven by continued execution against the 4 areas of management focus: sourcing incremental landfill volumes, improving collection route profitability, completing the multi-year Eastern region strategy and driving value through our Customers Solutions group. We remain committed to these strategies in fiscal year 2014 as we believe they are the main drivers to increase free cash flow and improved shareholder returns. Ed plans to run through a number of details regarding each strategy, but I would like to first touch on some high-level corporate points regarding our game plan and recent wins. Our success in the quarter was led by an outperformance at the landfills with tonnages up 175,000 tons year-over-year, excluding the planned declines at the Worcester landfill closure project. This improvement in volumes and financial performance is directly attributable to our actions over the last 9 months, including the formation of a special waste sales team, the realignment of our landfill management structure in New York, several additions -- new additions to our landfill team and a tightening disposal market in select markets as opposed to a broad-based improvement in the Northeast economy. Volume increases were spread evenly across the franchise. Volumes were up in Massachusetts as we ramped tonnages to the new annual permit level at Southbridge. This process has gone very well, and we expect the mass market to further tighten as additional competitive capacity comes off-line over the next year or 2. Volumes were up at our New Hampshire and Maine landfills as we benefited from the Maine Energy closure and internalized volumes from the BBI acquisition. Volumes were up in Vermont and Eastern New York as we sourced new special waste streams and benefited from the Moretown landfill closure on July 15. We expect this market to further tighten in September when Wheelabrator closes their Claremont incinerator. Volumes were up in New York -- Western New York as we sourced several long-term customers and won more than our fair share of special waste and contract work throughout the summer. Last week, we renewed a very important landfill contract in New York with the signing of Rockland County to a 5-year contract favorable pricing. Rockland is one of our largest customers. It generates over 200,000 tons of waste a year for our Ontario facility. We're tracking well against our goal to add over 500,000 tons of additional waste to our landfills and believe that we should hit this target by late fiscal year 2014 or early year fiscal 2015. Moving on. Earlier this year, we reorganized our former Major Accounts group into a new business unit called Customer Solutions. The Customer Solutions team is tasked with sourcing large multi-location accounts, partnering with our local teams to build municipal and -- to bid municipalities and colleges and universities and developing resource solutions for industrial customers. In conjunction with local hauling, recycling and disposal teams, the Customer Solutions team has had a number of big wins over the last couple of months, including, on the retail side, they've won over $4 million of annualized revenues from new accounts such as Shaw's, Bertucci's, BURGER KING and CVS. On the college and university front, they've helped to renew several key contracts such as MIT, University of Vermont, Dartmouth, Skidmore and are actively bidding several new schools. On the municipal front, we worked with our local teams to renew the Worcester recycling contract for 2 years and win a major new municipal contract that we plan to announce next week. On the industrial side, we were making great progress launching a new set of industrial recycling and logistic services. This asset-light model is a key differentiator with high end industrial customers that want help to manage their waste teams to meet zero waste, recycling or cost-reduction goals. Our first notable win in this area was with the Vermont E-Waste contract, which we expect to generate roughly $2 million of revenues per year. Over the last several months, we continue to make progress with our efforts to rationalize assets and sharpen our strategic focus. On July 31, we sold the negative margin KTI Bio Fuels C&D processing operation located in Maine. And earlier in the quarter, we engaged Greentech Capital Advisors to explore strategic options for our equity investment in U.S. GreenFiber. And with that, here is Ned with the numbers.

Thanks, John. Revenues in the first quarter were $128.6 million, up $10.9 million or 9.3% year-over-year. Solid waste revenues were up $10.2 million or 11.6% year-over-year with the increase mainly driven by higher landfill volumes, acquisition activity and higher collection pricing. Revenues in the collection line of business were up $5.3 million year-over-year with price up 1.2% and volumes up 0.9%. To note, roll-off lines were up 2.3%, the first year-over-year increase in over 6 quarters. Our pricing programs in the commercial and residential lines of business remain on track with positive 1.9% pricing in the quarter. Revenues in the disposal line of business were up $4.2 million year-over-year or 13.4%. Excluding the closure of the Worcester landfill and the divestiture of Maine Energy and Bio Fuels, disposal revenues were actually up $6.4 million year-over-year on a same-store basis. Pricing was down slightly in the disposal line of business. However, the decline was predominantly driven by a mix shift at our Waste USA landfill where, historically, many third parties have paid us a grossed up rate, tipping rate at the landfill that included various taxes and district fees. And recently, we've been working to change our terms to have the third parties pay this rate on their own. In many cases, these fees are in excess of $20 per ton. Our landfill volumes were up 175,000 tons year-over-year, excluding the planned declines at the Worcester landfill closure project. I want to talk about Worcester for a second so everyone can remember what that project is. We began the Worcester landfill closure project roughly 8 years ago to grade, shape and permanently close the city's landfill. This project is much different from a normal landfill in that at Worcester, we've only accepted low-price contaminated soils during the closure operations. The Worcester landfill closure project stopped taking tonnages in October 2012 as we reached the end of permitted airspace. During the first quarter of fiscal 2014, we received approval to place roughly another 200,000 tons of soils at the project. We expect it to be a onetime benefit in fiscal 2014 of roughly $4 million of revenues and $2 million of adjusted EBITDA. August is typically our strongest month of the year, and to date, tons are tracking very close to plan and we feel confident that our results in July are stretching into August. Recycling revenues were flat year-over-year growth with a drop in recycling commodity prices fully offset by higher volumes. Pricing for most classes of commodities were down year-over-year with fibers down 13% and mixed containers down nearly 18%. However, recycling shipped tons were up 14.9% year-over-year. The recycling team has done an excellent job leveraging their industry-leading quality control processes and infrastructure to drive higher volumes and tipping fees. These increases have significantly offset the negative commodity pricing pressure that mainly yields from China's Green Fence initiative. We expect commodity prices to remain soft until purchasing returns to a more normal pace in the marketplace. Other revenues were up $700,000 year-over-year with organics revenue up $1 million on higher volumes and the ramp-up of a new biosolids processing facility while revenues for our Customer Solutions group were down $400,000 year-over-year. As John discussed, we expect Customer Solutions' revenues to be positive year-over-year by next quarter as we fully anniversary any lost Oakleaf accounts and we begin to ramp up revenues from new accounts. During the quarter, we recognized $6.1 million of revenues from the rollover impact of acquisitions and $2.8 million offsetting that from divestitures. Adjusted EBITDA was $28.7 million in the first quarter, up $4.4 million or 18% from the same quarter last year. Adjusted EBITDA was $26 million in the Solid Waste segment, up $3.8 million year-over-year with higher landfill volumes driving the majority of the gain. Adjusted EBITDA was $1 million in the Recycling segment which was only down $100,000 year-over-year with strong volumes and tipping fees offsetting the lower pricing. Other adjusted EBITDA was $1.8 million in the quarter, up $800,000 year-over-year with higher organics performance and lower corporate overhead driving the majority of the improvement. Cost of operations were up $7.1 million year-over-year in the quarter, were down 40 basis points as a percentage of revenue with the majority of the dollar increases resulting from higher solid waste and recycling volumes, the acquisition of BBI operations and increased costs at the landfill where we saw leachate and other weather-related costs up during the quarter on the high rainfall. General and administrative costs were down $100,000 year-over-year with decreases in salaries and other discretionary costs nearly offset by higher incentive compensation accruals and additional BBI labor and overhead. Depreciation and amortization costs were up $500,000 year-over-year, largely due to higher landfill, amortization on higher volumes and then higher amortization associated with BBI. This was partially offset by lower depreciation at Maine Energy. As John discussed, we completed the sale of the low-margin Bio Fuels C&D processing operation on July 31. As this asset was held for sale in the quarter, we recorded an additional further $378,000 loss on the disposal of discontinued operations, which was mainly offset by $329,000 of income from discontinued operations. Now moving on to the forecast for the year and our guidance. Given our solid performance year-to-date and better visibility into the remainder of the fiscal year, we have modestly increased our revenue and adjusted EBITDA guidance for fiscal 2014. The new ranges were listed in our press release yesterday. We have chosen to leave our original free cash flow guidance in place this early in the fiscal year. This is mainly due to a lack of visibility around the timing of capital expenditures given our higher run rate of landfill tons through the first quarter. A few items to note. As we discussed last quarter, we have recast our operating segments for fiscal 2014 to better reflect the day-to-day management of our business. The most significant change is the move of our Organics group from the Eastern region to the Other segment. The Organics group had roughly $35 million of revenues for the fiscal year ended April 30, 2013. In addition, we have provided 3 sets of historical tables at the end of our press release to help everyone from a modeling standpoint. First, we have provided a fiscal year 2013 quarterly income statement restated for discontinued operations. Second, there's a quarterly adjusted EBITDA and adjusted operating income reconciliation restated for discontinued operations. And third, we've restated the segment revenues for each quarter in fiscal '13, aligned with the new reporting structure. And with that, I'll hand it over to Ed. Thank you

Thanks, Ned. Good morning, everyone. We've made a lot of progress over the past few quarters improving our focus on the fundamentals of the business, putting the right people in the right positions, empowering management at the local market level to make the decisions affecting their customers and driving new tons to the landfills. Our financial results are starting to show success, but this is, by no means, the time to say mission accomplished. Our prospects have never looked better, but we need to continue to work hard and work smart as we strive to reach our potential. This is a good time to reflect on why we are starting to see success and what key things there are for us to continue to work on. Let me start by talking about a few fundamental things regarding the quarter. Many of you may be guessing that our results have been buoyed by economic improvement, but we really haven't seen much of a change in our markets. One key economic indicator is roll-off pulls and when you look at the number of pulls, factoring out the BBI acquisition, our activity level is pretty consistent with the same quarter last year. Another indicator is weight in the cans, which usually picks up in an improving economy and we've not seen that. So I'd like to look at key factors within our control that are indicative of whether the operational trends of the company are healthy. First, we continue to demonstrate price discipline in our commercial and residential lines of business. Our pricing programs that we put in place a couple of years ago are now ingrained in our procedures and our culture and help us stay ahead of cost increases. Landfill pricing is a little different as each landfill is a unique situation. Underutilized landfills need to secure tons before working price up. Also, average price at the gate is dependent on material type and customer distance, the market price where we are bringing it from. So there's a mix issue. Similarly, we price roll-off pulls by zones, seeking higher revenue on more remote customers and material type and related disposal fees may also vary. So both roll-off and landfill pricing are affected by mix, and overall price calculations are less indicative of the health of the business and you have to get into a more detailed analysis. Overall, I'm very happy with our pricing and think the teams have shown great discipline managing price. The next place I'd look for fundamental business health is our net new business. We focus on a simple report that we get every day, showing us the number of new and the number of lost residential and commercial customers along with related monthly revenue. Over the past few years, this report has been slightly negative on most days and negative on a monthly basis, both in the net number of customers and the monthly revenue per customer lost versus gained. This dynamic shifted in the spring and each month of the first quarter produced positive growth in the net number of customers. And more significantly, the average price of our new commercial customers exceeded the average of the lost. Now there could be some mix issues here as well because we operate in so many different markets. But reviewing the divisional details, I like what I see and we appear to be starting to win on the sales side. The third place to focus is the cost side and the efficiency of our operations. Landfill operations, as you know, are fixed costs in nature and fluctuations are usually related to weather events, which affect leachate volumes and over-control costs and fuel costs to run the equipment and maximize compaction. Our landfills are well designed and well run and there are not too many levers to pull on the operations. It's all about volume. The collection business is totally different and there remains a lot of opportunity for efficiency improvements. On the last call, I mentioned our focus on improving route profitability and our initiatives to improve our logistical routing, analyze our route list for off-route customer anomalies that affect profitability and implementing on-route marketing programs designed to increase density. In many of our locations, we've been able to make a lot of progress making our routes more efficient and reducing the number of trucks and drivers needed to service our customers. This saves both cost and truck capital and, in the long run, will show in the numbers. Unfortunately, the benefits were offset this quarter by unforeseeable equipment issues relating to our C&D trucks and a new type of collection body that we have deployed. When ambient temperatures rose in the spring, our CNG trucks started running out of fuel before the routes were complete, a logistical nightmare when the only fueling station in town is back at the division office. This has been resolved by an emergency retrofit of additional tanks in the vehicles completed late in the quarter for our residential fleet and to be completed in early September for the commercial fleet. The body issues relates to a type of split-body automated side loader that was specifically designed for us as the most efficient way to collect our rural residential accounts. These are very complex machines and, as with anything new, there were issues that the manufacturer has done a Herculean job to correct; but that took time and the available spares to run those routes while the trucks were down were of an older design that couldn't do the job efficiently. Both these issues offset the improvements that we made to route efficiency. So the collection line of business profitability remained about the same year-over-year. However, we can be optimistic about our performance going forward as the route efficiencies are permanent and the equipment issues are fixed. Now to the main driver of our current success this quarter: landfill volumes. I stated before that I believe the recovery of landfill volumes for us was not economy-dependent. We just weren't getting our share, especially of special waste. The volume increase we are seeing now results from a combination of focused effort and a beginning of the realization of the benefits of our long-term strategic positioning. The focused effort includes our addition of expertise on the technical side of clearing special waste into the landfills and by a concerted effort of the sales team and John's personal involvement in securing tons. The long-term strategic positioning started many years ago and is just starting to pay dividends. This is extremely significant to us so I thought I'd refresh everyone on the highlights of our strategic thinking. First and foremost, Casella has always wanted to be the last landfill standing in our marketplaces. That means we steadfastly positioned ourselves over a long period of time with a low-emission landfill plan, public-private partnerships that align us with local government support and community outreach activities that eventually garnered local community support. We successfully positioned ourselves in Massachusetts and Maine with landfills that can service an East Coast market with shrinking capacity. We kickstarted the market shift in the East by closing Maine Energy and pushing some of that volume back into Massachusetts. Since then, it has been announced that the South Hadley landfill in Mass and the Claremont burn plant in Southern New Hampshire will close over the coming months, and I think you will see other disposal facilities closing within the next few years. In Vermont, the Moretown landfill is closed, removing another 150,000-ton facility from the market. So summing up the quarter. We've had success in our initiatives on the landfill side, which is showing up in the numbers; and some success on the collections side, both in sales and efficiency of operations, which has not yet been reflected in the results. We continue to like where we see sit strategically, and look forward to the next quarter. I know you will have questions so I'd like to now turn it back to the operator to start the Q&A.

[Operator Instructions] And our first question comes from Bill Fisher from Raymond James. William H. Fisher - Raymond James & Associates, Inc., Research Division: I had a question just on -- I think you touched on this, Ed, but on the $4 million or so EBITDA improvement, it sounds like the bulk of that was disposal and I think you mentioned collection EBIT was kind of flat. Given all the cost things you talked about, is your hope kind of that the costs kind of fall off and then, say, EBIT could improve on collections, say, by Q3 or so?

Yes, I think we've fundamentally taken some of the costs out. It just hasn't shown up because of the fleet issues that we've been addressing. William H. Fisher - Raymond James & Associates, Inc., Research Division: Okay. And then any other -- I know you had, had success on the Southbridge permit. Any progress on, say, Maine or any other landfill permit changes?

Well, we hope -- Bill, we hope to hear on the permit expansion on Juniper Ridge probably, I would say, sometime by the fall. Before the end of the year, we should hear on that. We also have a permit expansion at Waste USA that we have been working on now for about 1.5 years and we hope to have that in place before the end of the year as well. William H. Fisher - Raymond James & Associates, Inc., Research Division: Okay. And just a quick one. You mentioned, I think, GreenFiber, you're looking at that. Any other possible small noncore assets that you're looking at or will those be the major one?

Those are the major. With the sale of Bio Fuels, now it's really just GreenFiber left.

And our next question comes from Al Kaschalk from Wedbush Securities.

I wanted to ask about the volume, the progress you're making there, and in particular, you laid out some contract at C&D, maybe some special waste. But of that 175,000 positive volume in this quarter, could you address maybe the duration or the sustainability of that volume? In other words, is any of it of a short duration that you know it's not returning? Just maybe start there.

I think what we have been doing is contracting for as much of that waste as we can. So the vast majority of the waste that we have going in that we have been able to attract to the facilities in the last 6 months, Al, is under contract, a good portion of it. Certainly not on the special waste side but the MSW are anywhere from 3- to 5-year contracts.

And Al, just as a data point for you and everyone else, of the increase in the quarter of 175,000 tons up, 105,000 of that was MSW. So there was a very good mix to the volume increase and then another 45,000 was construction and demo waste, which is a positive as well.

Okay. So the MSW a.k.a. is better known as contracted volume and that maybe has that 3- to 5-year type of duration. The C&D obviously is somewhat seasonal, but there's economic dependent?

Yes.

Okay. What about on a -- if I may slice it then another way. On volumes, if you talk about regions, I know you've been clear here, at least reemphasizing to us that you haven't seen really the turn in the economy to drive the volume. But what regions or areas are working? And maybe not to focus on the negative, but where are you still finding a little bit of headwind on the recovery?

Well, I think to put it in a -- to take your half glass empty question and turn it into a half glass full, there's still a lot of upside in the Western landfills. We're not near capacity there on the annual permit. So we've been working on a wide array of solutions for the Western landfills and they just take a long time to get in place because, as you know, that waste has to come from a distance to meet our needs there.

Okay. And then finally, and then I'll hop back into queue, on recycling. I know it's only, what, 10%, 12% of the business but you've, I believe, picked up a nice little incremental of revenue stream from some additional processing for perhaps some of your competitors. Can you talk about maybe the duration of that volume on the business?

Yes, on the recycling side of business, Al, we've had a pretty interesting quarter and it might be somewhat atypical for the waste business where a lot of people have talked about this Operation Green Fence out of China and new quality standards that have been imposed on the waste industry and bales being shipped overseas. And you've been to some of our facilities over the years and you know how important quality control is to us. And we invested the capital over the years and in the people and the training to have some of the highest quality product in the industry. So what we've found during this period of time is that's we've been able to continue to move our product, albeit as with everyone else at a lower price because the market has come down, but we sell a lot of our recycling in the domestic market. And what we've found over the last 5 months is that our volumes are up significantly. And they're not just up because of adoption of recycling, but they're up because other processing facilities across the Northeast are unable to meet qualities spec in some cases and have contracted with us to process their materials. So it's a new kind of business model that's emerged during a tough time when pricing's down and it's actually helped us to offset a lot of price. So to your question, is it sustainable forever? Well, most likely not. But when it would decline those volumes would be when pricing started to come up and, say, the Chinese market loosened again. So that would be a bigger benefit to us. So it's not a concern to our team.

And our next question comes from Michael Hoffman from Wunderlich Securities.

So can we talk about -- sort of thinking about debt repayment plan and how to think through this year into next year now that you've seen this turn, and we're not trying to get ahead of ourselves but just -- the turn's moving in the right direction. How does that translate into a debt repayment schedule?

Well, Michael, as you know, we don't have any debt maturities until our next major debt maturity is in March of 2016, which is our senior secured credit facility. And then after that, our next major debt maturity is in February of 2019, which is our senior secured -- senior subordinated notes. So we've done a great job putting runway in front of us. And as a team, we're very focused on improving free cash flow and beginning to repay debt. At the senior secured level, we ended the quarter levered at roughly -- let me just find the number, hold on a second -- at 1.8x and to the revolver we're levered at roughly 1.4x. So we don't see there being any problem refinancing the senior secured credit facility in 2 years and we would look to do that in the spring of 2015. But we have our heads down for the next 2 years, driving on the operating results and getting free cash flow up.

Okay, great. That's helpful. And then can you share with us regional EBITDA margins and sort of what does the trend look like now on a restated basis?

Yes, in the quarter -- this is without allocations. I might need to talk to you afterwards. I probably should do it with allocated overhead, but the trends are positive in the East. It would take me a minute to do it, Michael. I just have a report without allocated overhead, which probably is not a fair look at the numbers.

Okay. We can take that one off-line. If we can follow up, that'd be great. And then you announced this new EVA compensation system, which I applaud you for focusing on return on capital. Is that triggering any incremental sort of walking away from traditional business because it's just not going to be EVA positive? So you'll rationalize some of even the core solid waste?

Let me make sure I understand your question. So yes, we are focused on EVA. In every report we look at, EVA is the bottom line. But there is 2 things there: we're focused on EVA as a business, but we're also focused on EVA in the incentive program, which is a little different. So the EVA in the incentive program incentivizes our managers to improve their EVA and their bonus is conditioned on that. As far as looking at segments of the business to try to make a strategic decision, yes, we also look at long-term prospects and what would happen to shareholder value in those businesses and we continually do that. We mentioned that on other phone calls. We always look at our strategic options when we're looking at the company.

And Michael, Ned again. Let me circle back to your earlier question just so everyone can have the benefit. In the first quarter, as you know, overall for the company our EBITDA margins were 22.4%, up from 20.7% last year. In our Eastern region, our margins were 24.7%, in the Western region 28.6% and in the Recycling segment 9%. And if you look at kind of where we're tracking for the year, we're generally on track to be right around 22% in the Eastern region and around 26%, 27% in the Western and roughly 10% in the Recycling region. So as we've discussed with everyone over the last year, the strategic steps we've taken in the East we thought would put us on track to get to roughly 22%, from a year ago we were at 15% margin. So where we sit today this early in the fiscal year and where we believe we're headed the rest of the year, we're generally on track to get to that 22%, 23% threshold.

Okay, great. That's super helpful. And then one of the things that history has told us about volume in the business is that it tends to be -- when it's really recovering, it tends to beget pricing. So how are you thinking differently about some of the pace and degree of price now that you've seen this volume uptick? And if we just focused on 105,000 that was MSW, acknowledging the other 2 are temporary, the special waste and the C&D. [ph]

I think just from a natural perspective, as volumes -- as we get closer to the capacities it's -- the natural evolution is you're going to start pushing much more aggressively on the price side and that's really fundamentally -- as we get closer and closer to getting towards capacity, we'll continue to push price. And in fact, it's already happening in certain markets because we're at capacity.

And our next question comes from Corey Greendale from First Analysis.

This is David Warner for Corey. Just looking at the implied guidance for the rest of fiscal '14, it looks like you're not assuming -- you're assuming quite a bit of conservatism in terms of margin expansion. Could you just talk about maybe your assumptions as far as underlying economic activity, whether there was -- the Q1 performance was due to some lumpiness in special waste, perhaps? And if you are expecting some of these cost items to come off in a year, why you wouldn't expect that to translate into higher EBITDA margin?

Yes, David, it's Ned. Great question. Right now, and I think as everyone recognizes, we've done a lot to recap how we budget and forecast. And really working with our local teams, we do a bottoms-up forecast and we want people to very much forecast contracted waste for ways to have visibility on. And as we've talked about over the last year, you don't have as much visibility maybe on the project work beyond 3, 4 months into the future. So if you look at our forecasts for the remainder of the year, Q2 is generally in line with Q1 from a results standpoint in our forecast. And then we have Q3, Q4 generally flat to last year. And while that might seem like a conservative approach, where we sit today that's where our visibility is and that's where we'd prefer to guide.

Okay, good. And as far as you've seen some good increases in internalization probably with the BBI acquisition, but where do you expect internalization to go from here, 2014? Do you expect continued increases or maybe continued at this level?

I think as we continue to have successes from a Customer Solutions standpoint, we should continue to see increased internalization as well. A very large portion of the Customer Solutions is directly related to our existing franchise. So the success that they have there will increase internalization.

And to further John's point, as we are bidding on any new municipal work, we really are only looking at opportunities that we can internalize to our recycling or our landfill facilities to get the extra benefit.

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

This is Andy filling in for Bill. Just a couple of quick ones for me. We've talked a lot about the volume. I wanted to kind of take a look at the yield. It came in a bit weaker, I guess, than we would've expected at about 0.3% for total revenues and that actually came down sequentially on a pretty neutral comp. I was just wondering if you could kind of parse out what that was mainly a function of. Was that pricing competitively to get the volumes? Or is there something else holding back price, again, sort of sequentially at this point?

Yes, I think you got to look at it and get under the surface a little bit. I gave a few stats on the call and they probably came too quickly. But on the residential and commercial side of our business, we are at 1.9% price for the quarter, which is generally in line with where we've been for 6, 7, 8 quarters in a row since Ed helped to revamp the pricing programs. We're doing well there. We're executing. On the roll-off business, we had negative price in the quarter and this is an area that, as you know, in certain instances, you need to follow the market and you need to not take price down. But it's very much, as Ed discussed, it's a function of how close you are to the location and the mix and whatnot. On the landfill side of business, you look across our franchise and our prices were up in almost every single marketplace and we were driving price. Price is generally neutral out in Western New York. We had a big negative pricing comp at our Waste USA landfill in Vermont, which was -- we're trying to make a smart cash flow decision, which is going to hit our statistics a bit over time. And what's been happening long term is we'll have people pay us a grossed up tipping fee at the landfill, which includes a number of state and local and district taxes and then we pay it to the appropriate agency. Under some of the newly contracted tons we're bringing into the site, we've been telling customers, why don't you pay that yourselves? So instead of us paying us maybe at 38 days and us owing it to a district at 30 days and having a negative cash flow and a receivable risk, we're just having them pay it directly. So our pricing statistics look a little weird in that one place, but from a cash flow standpoint, very, very positive and we're on track.

Great, that's very helpful details, Ned. And I guess just kind of bringing it all together, I think you guys had previously referenced sort of full year pricing in that 1% to 1.5% range. Is that still applicable, comfortable?

We're probably more like 1-ish. And to tell you the truth, Andy, I don't have it in front of me, but I will look at that and follow up.

Sure, that's fair. Switching gears then quickly to the recycling front, can you just kind of, I guess, give us a little more sense about how sticky or sustainable the efforts to drive the volumes are? I mean, it sounds like obviously you guys have put the work in ahead of time to have the cleaner materials. But I'm just trying to figure out, going forward, is this going to be enough to sort of offset the pricing impact for the full year or just this quarter kind of. . .

Yes, well, I think the dynamic, which Ned went through that's happening right now, we pride ourselves in doing a really good job on the recycling and our material tends to be high quality; in other words, very low contamination in it. And because of what's going on in the market, we've become the place to go and we're processing some volumes for some of our competitors right now. But as Ned mentioned, that's helping us now and it's helping us offset where the price is. But if China loosens up the Green Fence, price will go back up and we may lose a little bit of this volume, but we're going to be as well off, if not better off, anyway because the pricing will be going up in the market.

And it's also likely that people will adjust. So over time, we're going to lose some of that volume just naturally because competitors will adjust. They'll adjust their process, they'll put additional equipment in, they'll do the things that are necessary to improve quality over time. But one of the offsetting factors that we do have is the Customer Solutions group. So that group is out there and we're seeing double-digit recycling growth before the issues of the Green Fence. So I think that the actions that we've taken with regard to Customer Solutions is really going to continue to drive our volumes from a recycling standpoint even though it is likely that people will adjust and we will, at some point in time, in all likelihood lose that volume that we're getting at this point in time because of the quality issues.

Sure, that make sense. And I just wanted to sneak one more sort of general question in here. You guys spent a lot of time last quarter talking about or differentiating between visible volume and sort of the pipeline. I'm just thinking in the context of the guidance increase, which was nice but still fairly modest and the cadence Ned gave us just a bit a go, can you maybe just give us an updated sort of view of how the pipeline became actuality in 1Q and how it's sort of trending as you see it today?

Well, I think that both from a disposal standpoint in terms of opportunities that we're working on, as well as from a Customer Solution, the pipeline is robust in terms of the opportunities that we're working on both from a tonnage standpoint, as I said from a landfill volume, and also from a Customer Solutions standpoint with regard to opportunities from a municipal standpoint as well as from college and university perspective. And we're also getting great traction from an industrial recycling perspective as well. So it's really adding -- the industrial piece is really adding more services to our existing customers and that's beginning to take hold as well. So I would characterize the pipeline in all areas as robust.

And our next question comes from Tony Bancroft from Gabelli & Company. Tony Bancroft - Gabelli & Company, Inc.: I just had a quick question. I just wanted to see if you have any updates on the E&P waste out in McKean, if you have anything for us there?

Well we're seeing -- for the first time, we're seeing a bit of a pickup. Nothing really substantial, but it's moving in the right direction, modest improvement. Bradford County has got some activity from a drilling standpoint. It looks like there's going to be more activity there, which is fairly close our McKean site for '14 as well. So we're beginning to see a little bit of improvement, but nothing really substantial at this point in time.

[Operator Instructions] And our next question comes from Al Kaschalk from Wedbush Securities.

Ned, can you repeat those credit statistics you gave out or leverage? I don't think I caught them.

Sure. And this will all be filed in our Q this afternoon, so there'll be a lot of details provided. But we are estimating -- if I can find it again -- our total debt-to-EBITDA for the quarter to be 5.20x against a 5.85x covenant and senior funded debt at 1.83x against a 2.50x covenant. So we've actually gotten quite a bit of headroom against covenants, both with the amendment we saw last quarter and the improved performance.

Great. But I want to, maybe John, maybe Ed, can you talk a little bit though about, while there's some headroom and maybe some time, it still seems fairly highly levered and I'm sure it's higher than you'd like it, but could you just address maybe some of the steps that you're looking at or the events that you feel uncomfortable about reducing this -- the leverage?

It's a good question. And as we all know, there's 2 parts of the equation for leverage and one is EBITDA and the other is debt. We have given ourselves a lot of runway on the debt. And our primary focus is improving the EBITDA and getting it back to where it should be. And so there -- as Ned mentioned, there's not a lot of pressure on the debt side as opposed to improving the performance, so that remains our main focus. So as EBITDA improves, the leverage comes down. Now, I will mention -- I mean, we had some questions on cash flow. We are cash flow focused. We're not spending money where we don't have to spend money. And we are focused on getting the cash flow up. And year-over-year, as we proceed, that's a main focus and that free cash flow will go against debt.

Right. But if -- and I appreciate that and I know there's a lot of moving pieces here to this with EBITDA being the principal driver to reduce leverage. But on a free cash flow basis or a cash flow basis, I think mid- to upper single digits is where you're targeting. And in fiscal '15, is that -- should we start to think about that the business can do 2x, that type of number? And then EBITDA, if we get to the mid-25% range, that's going to help get us down another turn or so?

Yes, I don't know that we want to start talking about fiscal '15. We're making progress, and we want to stay focused on it. So we don't want to get over our skis.

But I do think that the thing that we can say is that we understand where we are from a leverage standpoint and we're focused on increasing free cash flow to get our leverage down. We know we're still too highly levered. And as a team, it's certainly something that we're addressing.

And to be clear, and everyone knows this, but just to affirm it, our guidance has free cash flow up between $16 million and $20 million year-over-year, which is a pretty significant increase that's headed in right direction and we'll drive that further over time. We're very much focused.

I'm not showing any further questions in queue. I would now like to turn the call back to John Casella for any further remarks.

Thank you, all, for your attention this morning. Our next earnings release and conference call will be in early December when we will report our second quarter of fiscal 2014 results. Thank you, everyone. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.