Casella Waste Systems, Inc. (CWST) Q1 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Casella Waste Systems Q1 2017 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] And as a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Joe Fusco.

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 will be discussing our 2017 first quarter results. These results were released earlier yesterday afternoon. Along with a brief review of those results and an update on the Company’s activities and business environment, we will be answering your questions later as well. But first, as you know, I must remind everyone that various remarks that we may make about the Company’s future expectations, plans and prospects constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in the risk factors section of our most recent annual report on Form 10-K which is on file with the SEC. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views change. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to today. Also, during this call, we will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. Reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures to the extent they are available without unreasonable effort are available in the appendix to our Investor slide presentation, which is available in the Investor Section of our website at ir.casella.com. And now before I pass out, I'll turn it over to John Casella, who will begin today's discussion.

Thanks, Joe. Good morning, everyone, and welcome to our first quarter 2017 conference call. We are very pleased with the first quarter results and we are off to a solid start for 2017. As reported in yesterday's press release, our revenues for the quarter were up 6.7% from last year. Adjusted EBITDA was up 20.1% from last year. Adjusted EBITDA margins were up 190 basis points from last year. We drove year-over-year improvement in the first quarter through our strong pricing execution, our operating efficiency program tailwinds from higher recycling commodity pricing and continued the strong overall execution against our key strategic initiatives. In the first quarter we experienced normal weather, winter weather in the Northeast with a number of severe snow storms and prolonged periods of cold weather. While we were used to operating in these conditions, the first quarter faced a tough year-over-year weather comparison as we experienced historically warm weather in the first quarter of 2016, which resulted in higher volumes and lower operational cost last year. Winter has finally left the Northeast over the last few weeks and we’ve seen positive seasonal trends for construction demolition and contaminated soil work. In August 2015, we announced an updated comprehensive strategic plan and outlined for investor financial target for fiscal year 2018. The 2018 plan focused on increasing landfill returns, driving additional profitability within our collection operations, creating incremental value through resource solutions and reducing financial and operating risk while improving our balance sheet. We are tracking ahead of this multi year plan and we remain confident that our enhanced process, discipline and continuing focus on key operating strategies will further drive improved performance and increase free cash flow enabling us to continue to further delever the balance sheet and increase shareholder value. Our first major strategy is improving landfill return through a focus on principle pricing discipline, sourcing incremental volumes at select sites and driving operational and cash flow efficiencies. As expected, our landfill returns were down 6.4% in the quarter with the decline driven largely by the planned erosion at the Southbridge landfill and a planned ways diversion from our Ontario landfill as we work to complete a newly constructed cell. Excluding these two impacts, our landfill plants [ph] were roughly up – roughly 2.1% in the first quarter. The disposal capacity continues to tighten in the Northeast market as permanent site closures are reducing capacity in stronger economic and construction activity are driving higher volumes. Given the supply demand imbalance, we were able to successfully advance 3.4% pricing at our landfills in the first quarter. We believe that this positive pricing backdrop will continue into the future as additional site closure are expected over the next several years and as we roll out multiyear contracts, we expect to advance pricing in excess of CTI on larger percentage of our book of business. On landfill development site, we recently received a draft license for a 9.4 million cubic yard extension at our Juniper Ridge landfill. This permit when issued will extend the life of this site to match our long term operating and lease agreement that goes through 2033. We continue to make slow progress advancing our permitting activities for the next Southbridge landfill. Given these timing delays and challenges, we ramped down volumes at this site by roughly 31% in fiscal year 2016 and by another 35% in the first quarter. On April 30, we entered into an ACO with Massachusetts DEP the town of Southbridge and the town of Charlton for the equal sharing of costs between MassDEP and us of up to $10 million in total, or $5 million for the town of Southbridge to install a municipal waterline in the town of Charlton. Upon satisfactory completion of the waterline and other matters, covered by the ACO, we in the town will be released by MassDEP from any further responsibility for the Charlton after 21E obligations. It is expected that the town of Southbridge will issue upto a 20-year bond for our portion of the waterline cost and we have agreed to reimburse the town for periodic payments under the bond. While we continue to pursue future expansion capacity at the Southbridge landfill we currently do not have visibility on whether we will be able to develop this extension capacity as an adequate risk adjusted return, and it is possible at some point in the near future we could conclude that closing this site is in the company’s best interest. However, even if we are unsuccessful from a permitting standpoint at the Southbridge landfill we remain confident that we can still achieve our fiscal year 2018 financial targets that we first announced in August of 2015. In the first quarter, we continued to make great progress with our second major strategy improving profitability of our hauling operations. Our focus here is on core blocking and tackling namely a focus on pricing programs, route optimization and fleet standardization. In the first quarter, operating income in the collection line of business was up 12.8% year-over-year with margins up 130 basis points, as robust pricing operating efficiencies drove results despite a tough operational comparison to last winter. We have continued to advance price increases in the collection line of business with residential and commercial pricing growth of 3.1% in the first quarter. On the operating side, we continued to advance a number of key initiatives in plugging our fleet plants, maintenance initiatives, improving routing to further improve our operating costs in the collection line of business. Moving onto the third major strategy creating incremental value through resource solutions, here we differentiate ourselves in the marketplace by offering value-added resource solutions. These solutions range from our customer solutions group which provides professional services to large industrial customers to our organics business that is the leader in organics processing and disposal in the Northeast to our market-leading recycling business. Higher commodity prices coupled with the changes that we made over the last two years to reshape our recycling business model helped to drive strong recycling performance in the first quarter. We generated return on net assets of over 20% in the first quarter up from roughly 2% in 2015. While we expect recycling commodity prices to drop by roughly 25% from March to April on weakness in paper and cardboard pricing, we do not expect this decline to impact our guidance for the year since we had previously budgeted prices to moderate throughout the year. Also we continue to make substantial progress improving our balance sheet and reducing operational and financial risk. During the first quarter, we continued to repay debt and reduce leverage. And in April we completed the favourable repricing of our term loan B to save additional cash interest cost. With the work that we have done over the last few years, our balance sheet positions us well for the future and we remain deeply committed to a disciplined capital investment strategy with free cash flow primarily used to repay debt or in select instances for small tuck-in acquisition and growth investments within our core operations. We completed the small tuck-in acquisition during the quarter and we were working to reinvigorate our acquisition pipeline. And with that, I’ll turn it over to Ned to walk us through to the financials.

Thanks, John. Revenues in the first quarter were $133.8 million, up $8.4 million or 6.7% year-over-year. Solid waste revenues were up $1.3 million or up 1.5% year-over-year in the first quarter with higher collection and disposal pricing and a rollover impact from the acquisition of free transfer stations last year partially offset by lower solid waste volumes. Revenues in the collection line of business were up $2 million year-over-year with prices up 2.4% and volumes up 1%. Pricing was up 3.1% in our residential and commercial lines of business in the first quarter. Volumes were slightly down in the roll-off line of business as we continue to focus on price over volumes and we had a tough comparison to unseasonably warm and dry first quarter of 2016. Revenues were down $1 million in the disposal line of business year-over-year in the quarter with higher pricing offset by lower volumes. We increased our third-parties reported landfill pricing by 3.4% year-over-year in the quarter with landfill prices up 3.3% in the Eastern region, and up 3.5% in the Western region as we pivoted strategy in mid 2016 to focus on advancing pricing versus capacity utilization in the West. We expect these same positive pricing trends to continue through 2017, as we recognize the rollover impact of price increases already completed and we advanced further pricing in key markets. Our landfill volumes were 866,000 tons in the first quarter down 59,000 tons year-over-year. During the quarter as John mentioned, we continued to ramp down the Southbridge landfill with tons down roughly 31,000 tons at the site. Further we ramped down volumes by 47,000 tons at our Ontario landfill as we had to divert tons for a newly constructed cell. We expect this headwind to resolve during our second quarter. Excluding these two impacts, our landfill tons were actually up 2.1% year-over-year with strengths across most waste types and sites. Recycling revenues were up $6 million year-over-year in the first quarter with higher commodity pricing and volumes partially offset by lower tipping or processing fees. Our average commodity revenue per ton or as we say our ACR was up 89% year-over-year in the first quarter and higher fiber, plastic and metals pricing. However, these positive trends reversed in April with our average commodity revenue per ton down roughly 25% from March to April. Much of this decline was driven by significant drop in export pricing for news, cardboard and mixed paper as China heads reduced purchases in the market place. As we discussed last quarter on our conference call, we’d only expected the higher pricings for commodities to hold in the first quarter and we had forecasted the ACR to drop throughout the year to about $95 in the fourth quarter or down about 25% for the year. Organics revenues were up $300,000 in the first quarter on higher volumes as our team continued to source new streams of bio solids in ever tightening Northeast disposal markets. Customer solutions revenues were up $700,000 in the first quarter with continued growth in our industrial services business. Adjusted EBITDA was $23.1 million in the quarter, up $3.9 million year-over-year with margins improving 190 basis points to 17.3%. So, with our revenues up $8.4 million and our adjusted EBITDA up $3.9 million, that gave us a flow-through impact of roughly 46% in the quarter. This further reinforces our success of shedding less profitable low margin volumes while at the same time securing pricing increases and reducing operating costs. Solid waste adjusted EBITDA was $18.9 million in the quarter, up $1.2 million year-over-year. We achieved 6.6% adjusted EBITDA growth on only 1.5% revenue growth. Solid waste adjusted EBITDA margins were 20.1%, up 100 basis points year-over-year, reflecting strong pricing, coupled with cost efficiencies which offset the volume declines. Recycling adjusted EBITDA was $2.6 in the quarter, up $2.6 million year-over-year, with improvement driven by a combination of higher commodity pricing coupled with the structural changes we have made to recycling business model to offtake risk and increase our returns. To be clear, our improvement in recycling financial performance has not just been driven by higher commodity prices. The last time, our adjusted EBITDA in the recycling business was at these things level was back in fiscal year 2011, when our average commodity revenue per ton was roughly 45% higher than we’ve experienced over the last year. Adjusted EBITDA was $1.6 million in the other segment, up a $100,000 year-over-year with the increased driven by better performance in the customer solutions group. Cost of operations in the quarter was up $4.1 million, but down 140 basis points year-over-year as a percentage of revenues. With the improvement as a percentage of revenues driven by lower transportation costs and lower vehicle maintenance costs partially offset by higher purchase material cost on a recycling business due to higher commodity pricing, higher healthcare cost and higher fuel cost. G&A cost in the quarter were up $250,000 year-over-year, this increase was mainly driven by higher equity compensation accruals. Depreciation and amortization costs in the quarter were down $600,000 year-over-year due to lower landfill amortization expense mainly associated with the lower volumes at the Southbridge landfills. Our free cash flow was $1.1 million in the first quarter as oppose to negative $8.3 million last year. This improvement was driven by improved operating performance, lower cash interest cost on the refinancing we did last and slightly lower capital expenditures on timing differences. In the first quarter of [Indiscernible] we took additional steps to further strengthen our balance sheet and reduce risk. On February 1st, we completed the remarketing of $25 million of our Finance Authority of Maine Solid Waste Disposal Revenue Bonds with a great outcome from this remarketing where we repaid our existing term refunds to had a fixed rate of 6.25% and our existing variable rate bonds, we’re borrowing some new eight-year senior unsecured bond with fixed rate of 5.25%. During the quarter we recognized roughly $0.5 million a loss of debt extinguishment associated with this transaction. In mid February we also began our effort to further manage long term interest rates by entering into [Indiscernible] of floating to fixed LIBOR swaps that mature between four and five years. As of March 31, roughly 32% of our debt was at fixed rates including these swaps. On April 2018 as you might have seen in our press release, we finalized our repricing amendment to our senior [Indiscernible] credit facilities to reduce the interest rate on our $350 million term loan B from LIBOR plus 300 points to LIBOR plus 275 basis points. We also reduce the interest rate step down to now in our consolidated net leverage ratio is at or below 3.75 times, our interest rate was drop to LIBO plus 250 basis points. This amendment is expected to save as roughly $875,000 in cash interest cost, this is an half of the $11 million of cash interest savings we recognized from the October 2016 refinancing. As of March 31, 2017 our consolidated net leverage ratio was 4.07 times which sound 1.35 times since December of 2014. As stated in our press release yesterday afternoon we reaffirmed our previously announced guidance ranges for 2017. We’re currently tracking a little bit ahead of budget year-to-date with recycling in the collection lines of business both ahead and landfill slightly behind and further slowing about volumes to Southbridge and the delays of getting into the new sale at the Ontario landfill. We remain very confident in achieving our guidance ranges for year. And with that, I’ll hand it over to Ed.

Thanks, Ned and Good morning everyone. Well another good quarter in the book. As we all know the first quarter is the slowest quarter for the year and the results are always dependent on weather and the timing of spring activities. This year we had a pretty normal winter as compared to last year’s mild winter and we had snow until April. So the construction season got a late [Indiscernible]. Despite this we continue to show improvement operationally and in mid April we saw the increase and we remain comfortable with our guidance for the year. Looking at the quarter we see a continuation of our cost of ops improvement as we picked up another 140 basis points as a percentage of revenue as compared to last year’s first quarter. Unlike prior quarters this improvement was driven primarily by our recycling line of business, but given the circumstances for the quarter we’re pretty happy with the performance in all lines of business. On the hauling side as you might recall last year’s first quarter was a breakout quarter led by record price improvement and improvement in our key costs and efficiency metrics aided by the mild winter. This year we’re happy to maintain the cost of ops percentage on increased revenue adding about 5% to last year’s EBITDA contribution and as John mentioned 12.8% on EBIT. We also focus efforts during the quarter on preparation for what we believe will be a strong construction season this year, the economy looks good and April is off to a strong start. On the disposal side, we’ve been focused on price, while working through permitting delays and our strategy has been very successful. At the Southbridge landfill we have needed to push outcomes as we deal with the – link expansion process. Coupled with the temporary logistical issues at Ontario as we work through activating a new sell we were down about 60,000 tons from the prior year first quarter. Strong price discipline allowed us to only see a slight drop in revenue matched by a drop in cost and we maintained our EBITDA contribution despite the lower tonnage. We continue to push price in a tightening market and the Ontario sell logistical issues are behind us now. As I mentioned the recycling line of business produced a very strong quarter for us. Our transition to a new pricing structure a few years ago has given us a business model that shift commodity risk to the customer and allows us to generate a fair return on invested capital irrespective of commodity prices. Although our customers do benefit when commodity prices are high from either increased revenue share or reduction in our floating SRAC, we share in the upside and in our average commodity revenue per ton our ACR was up almost 90% as compare to a year ago. As a result recycling contributed an additional $2.5 million in EBITDA and helped drive our costs [Indiscernible] percentage of revenue down. Another thing we’ve change a few years ago was the way we look at and incentivise our customer resource solutions group and our Casella organic business group. Performance in these groups has evaluated based not only their contribution of third party revenue and profits but also the revenue and profit they contribute to the disposal and recycling lines of business. During the first quarter they improved both and these teams are working well as integrated contributors to our results. So another good quarter and we look forward to continued improvement as we move through the year. And with that, I’d like turn it back to the operator for this Q&A session.

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

Hey, good morning, guys.

Good morning, Tyler.

Hey, nice quarter. Hey, Ned, just looking through the proxy it looks like you guys achieved an incentive comp payout of maybe 190% I believe in 2016, it obviously seems to be much-deserved in the performance. But if you simply accrue for 100% bonus this year what would that dollar difference be between the 2016 accrual and the 2017 accrual?

I don’t have that on hand. I can get back to you. We are tracking right now slightly better than our budget and as the way our compensation committee of the board puts together incentives, typically around if we hit our budget numbers we get about 50% of our incentive compensation, and then from there it scales up. So last year we blew our budget out of the water and that’s why we achieved above 100%. This year we’re tracking a little bit ahead right now. So as you mentioned the accruals are down a little bit at this point of the year.

Okay. So should we about SG&A coming in around 13% of revenue or could it be lower than that?

G&A right now in our forecast is right around 13% for the year.

Okay. And then longer term not to keep hopping on SG&A, but where should we think about that panning out. Your peers -- or call 300 basis points lower than you, they have more scale, I get that. But any broader thoughts on where SG&A as a percentage of revenue could go in out years and is that going to be part of kind of the story may be the next leg of the story so to speak?

Yes. That really could be part of the next leg of the story. We haven’t been fully prepared to layout some of the plans we’ve been working on, but behind the scenes we’ve been making some investments in sales for its efficiency and productivity and also our back office. And we’ve been working on – as you know laying up the next leg of strategy and those are two areas that we’re about a year into making some investments. They are longer term to pan out, but we feel like there are areas to gain efficiency there overtime.

Okay. Good. And then John, this maybe a bit left field question, but any updates on developing and rail infrastructure from McCain?

No. Nothing to report Tyler, I think that we continue to work, the team continues look for that opportunity that would cause us to invest the capital to put the rail siding in et cetera, but no, nothing really to report.

Okay. I was just curious.

As we said before we’re not going to invest that capital unless we have a long term contract for minimum 200,000 tons.

Sure. Okay. Good. And then maybe my last one here, John, you made some interesting comments in the prepared remarks about possibly reinvigorating your acquisition activity, I’m just curious if you could expand on that. And would you kind of be focus more on smaller deals more tuck-in. Just any color on that would helpful? Thanks.

Sure. I think that clearly everyone is looking for the next stage of growth from Casella perspective, so as our board quite frankly. So, we’re beginning those discussions now. We’re beginning to look at the acquisition pipeline and I think it is fair to say that it’s a very positive in terms of what we see and what the opportunities might be and we’re in process of going through that process, putting together strategic plans for the new few years.

And just adding to that, our capital discipline extends everything and what we’re doing as a business over the last few years. We looked at a few acquisitions say 10 to 20 and we’ve only done a handful, because they just either didn’t fit our assets correctly or the evaluation expectations where they need to be. As John said, we completed one in the first quarter. That was a perfect tuck-in and the evaluation was right for us. And we continue to look at that, but I think our perspective as a team is we’re very focused on risk adjusted returns and things need to make sense for us.

All right. Thanks guys.

You’re welcome.

Thank you.

Your next question comes from the line of Joe Box with KeyBanc Capital Markets. Your line is open.

Good morning.

Good morning, Joe.

So, Ned, on the recycling side just where we sit on the price curves here and in 2Q. Can you maybe just talk about where the sharing agreements could actually come out at and how we should think about the expected incremental margins?

Yes. It’s interesting, because we have so many different contracts with customers. We’re sharing, kicks in at different levels and more sharing different commodities that – and some of that has to with the export markets as well. This last quarter with every dollar increase of commodities we saw about 50% shared with our customers. So, we said that before our dollar price in the recycling business is not exactly like a dollar price in other part of the business, because we’re sharing some of that back, but its exactly where we want to be at the business as if commodity prices were to fall again. We start to see a curve that’s smooth out and ultimately we get the break points in most of our contracts where we’re getting paid dollar per dollar tipping fees, we can almost imagine like it at intuitive [ph] curve when we hit a floor. So we’re very comfortable with where we are. We make more money from recycling in the period and customers said as well, a great price to be.

I mean, but just based off of the 25% sequential change, I mean, can we think about maybe stepping back to a 65% incremental margin on the recycling side. Is that aggressive?

Maybe a little bit aggressive. We’re kind of move linearly between 50 and the 65 during the period, and then kind of when we get commodities around a little bit below 90% we get into that more of 65% range where 65% accrues to us and 35% generally to our customers.

Okay. Thank you. And then changing gears, how is the EBITDA profile changed at Southbridge since you guys started throttling back the volume. I guess what I’m specifically looking for is maybe the contribution of EBITDA to the total company from Southbridge and then if its – if that EBITDA number has declined meaningful as the volumes come down or if you’ve been able to kind of stabilize that EBITDA just with the price offset?

Yes. So as you know incremental confidential [ph] landfill are very high contributors, there are lot of fixed cost sale landfill. Back in 2015, we did roughly $12.5 million of the EBITDA, Southbridge, 2016 we did roughly 7.5 million [ph] and we’re tracking to about $3 million to $4 million in 2017. So it’s been throttling back, but at the same time we have been beating our numbers and we’re winning in other areas of our business. So we remain confident that we can offset any further declines at the site.

Got it. So the risk profile usually moderated, does the EBITDA has come down there? Okay.

Absolutely, Joe, I mean, that we’re very confident in terms of being able to meet our numbers for 2018 irrespective of what happen with Southbridge.

I mean, I don’t want to take too draconian of the view, but hypothetically speaking let’s say Southbridge doesn’t get a permit expansion. Is there – is it possible to maybe construct transfer facility that try and internalize some of those volumes and ship it up into your Western New York facilities?

I think that certainly a possibility. There is no question that we could potentially do or transfer station there and move it to other facilities. Obviously, we prefer to get through the process and be successful with the development, but if not that’s a possibility.

Okay. Yes, I mean, you can do the permitting process in tandem? I would think it would still take a while to get a permit for transfer station, right?

So, not a lot of the garbage comes to rectorite [ph] that landfill today, Joe. We’ve got two very well placed transfer stations in Central Mass that are moving some of that waste around to third-party sites a little bit, that’s moving internally as well.

And it wouldn’t be a significant - I don’t think it would be a significant effort to have a small transfer station there. As Ned said lot of the waste is coming in by long haul trailer but it wouldn’t be -- I don’t think a significant effort from a permitting standpoint to do a transfer station.

Got it. Thank you. That’s helpful. And then, one last one if you don’t mind. Can you maybe just give us a feel on pricing quarter-to-date here in 2Q? I’m curious are the trajectory looks relative to maybe what you got last year at this time or versus just normal seasonality?

We’ll have Q2, mean, Q1 you need the pricing for Q1.

Yes. So far in April and early May, it sounds like maybe there’s a little bit of a normalized step up from a seasonal standpoint, I’m just hoping you can give us maybe a little bit of color on the pricing side?

Yes. We haven’t closed our book, right, but yes, I don’t feel comfortable. I think what we’re saying is, if I get visibility on pricing in our residential, commercial customers and we remain on plan for the year and price increase when its budgeted in April. On roll offline of business we’re entering that kind of year where construction is ramping up and we brought a little a new capacity into the franchise this year, but we’re focused on gaining our adequate return in the roll offline in business, so we’re pushing price.

Here’s what we’ve done too, proactively we’ve put to roll-off continues in place because we do anticipate that we will need additional assets for the demand that we’re likely to have through this spring.

Understood. Thank you.

Thanks, Joe.

Your welcome, thank you.

Your next question comes from the line of Corey Greendale from First. Your line is open.

Hey, good morning.

Good morning, Corey.

Congratulations on quarter, and John, congratulations on the whole theme [ph] really cool.

Thank you.

So, the question about the western region so, I understand the dynamics, while their landfill pricing dynamic in the east, but in the west seems like you’ve been kind of creeping that up. Can you just talk about kind of competitive conditions of that market, is that change – is this all internally driven and initially as you crept up, what’s the reaction, and then how much pushback you’re getting?

Yes. So, the western landfill, if you flash back a few years to go when we reset strategy back in 2013, we have shed a lot of tons in the western region as the economy stall back in 2008, 2009 and we saw the drill must go away in 2011 and 2012. We shift into our volume based strategy at our western region landfills. And it was an important strategic move for us. It wasn’t that we drop price in the market but when we reach further away we’re taking in tons at lower price. And as we sat down last summer and really reviewed, where we were strategically and for the budget, we were making adequate return at our few of our landfills. This expenses to permit capacity. We’ve has gone through five-years of permitting at Ontario, five-years of permitting at [Indiscernible] huge successes getting airspace of both site, but expenses to operate, expenses to built, expenses to permit landfill and we made a decision that we’re shifting strategy in the marketplace and starting to focus more on pricing over volumes. We have shed some volumes in the marketplace, but it’s a right thing to do, some of this volume is irreplaceable and we need to manage these asset appropriately.

Okay. And in terms of the – I understand what you’re saying, but in terms of the reaction, I imagining if the headline price is 3% that means you’re not getting 3% or everything you’re getting larger increases on some volume, so just what has therapy action then?

That exactly right Corey. I think that it’s fair to say that we’ve had fairly significant increases on C&D basis that are Hakes facility that is probably a big driver in terms of the overall price increase, very substantial price increases there. And I think as Ned said we’re really looking at the lower price waste that we’ve had at all of those facilities and making a real effort to push out all of the lower price weight and be fairly aggressive at all of the sites in terms of pricing, but probably one of the biggest drivers was our Hakes facility from the C&D pricing standpoint. And we go into this year, this first quarter, we had thought that we would push more tons than we actually did.

Okay. Great. And then apologies if you’ve addressed this, could you just help me understand the EBITDA impact specifically of higher commodity prices just kind of parsing out the various pieces of that?

Yes. So EBITDA was up $2.6 million year-over-year in the recycling business, and as we talked about our revenues were roughly $6 million. So, and our pricing was up, what’s that number, prices up – I have in front of me. Its not every dollar price float through perfectly to EBITDA that’s what we’re saying because we have revenue shares that kick in, so we contracted structured. We’ll set a threshold amount for the average commodity revenue per done and we’ll start to share with our customers above that threshold. And as we move through those thresholds we’re sharing more and more with our customers. But the point I was trying to make earlier is a lot of that has to do with what we change structurally in the business, because if you kind of flash back in time and say when is the last time we are making this much operating income or EBITDA in our recycling business, that was back in 2011, but commodity prices were 50% higher at that point in time. So it’s hard to disaggregate all the moves. But we’ve know we’ve made our business more profitable and higher return in all market cycles because you do a direct comparison to when we made this much money before.

Yes. Understood. That’s very helpful. Thank you.

Thanks, Corey.

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

Thank you, John, Ed, Ned for taking my questions and look forward to see you in New Orleans on Sunday, Monday?

We’re looking forward to that conversation as well Michael.

And the spirit of all that, we hear that Wheelabrator is being shopped by ECP, and I think it’s done before. You hit a four-year anniversary of the original trade. Waste management can cancel its disposal agreement. So I’m curious what your thoughts are about what could happen to spot market pricing if they pull tons away even though that's temporary, what you think happens in the spot market and the market you’re operating, do you have a feel for that?

I think that’s – I don’t think that from the overall standpoint its likely that that waste would move away from the incinerators because of transportation costs. So I don’t think that is likely that would to move to other facilities, maybe move some real infrastructure possibly, but I don’t think that there is a significant impact in the short term.

Okay. That’s great. And then…

The other thing too, I don’t think that with New Hampshire facility, double-check this Michael, but I’m not sure that they have a lot of capacity that at facilities to take that waste, so I think…

Or Western Mass.

Yes, or Western Mass, and Chicopee facility is closing and they’re moving that volume to the Pittsburgh facility and they did get the permit of expansion there, but Chicopee facility is closing. So, they obviously be wasting our view probably we move from Chicopee to the Pittsburgh facility, but I don’t think that there’s a lot of capacity that they would have to take that waste that would make sense from a transportation adjusted basis.

Okay. That’s helps. And then, Ned, would you mind, can you share with us your ACR for the quarters for 2016 so we understand -- and then what was in 1Q, 2017?

Sure. So Q1 of 2016 our ACR was 67 a ton, Q2 was 87, Q3 a 100, Q4, 104, and Q1 of 2017, 128, and we’ve forecasted to be down to sort of low 90s, but Q4 of 2017.

Okay. All right. That helps terrifically. And then with regards to the margin if I look at this a little bit a longer timeframe there's a lot more margin expansion then might you might think. I think, I'm am I'm putting this question up for an easy, yes, but you’re up 100 basis points acknowledges its mostly recycling and this is solid waste year-over-year, but if I go back to 2015, and look where you started there, factor in the pull forward of volume that helped margins in 2016 and sort of try and smooth at some net of the recycling prices you had a pretty good margin improvement in 2017. That’s my interpretation. Am I talking myself into something?

I don’t think so. Ned gone through the numbers right now, Michael, but I think you’re perspective is right.

Yes. I mean, we continue to, the solid waste business as you know makes about 75% of our revenues and over three-year period we’re up roughly 300 basis points on our solid waste business. We’re around -- last 12 months around 26.5%. We continue to see opportunity to drive that higher over the next couple of years. I should say, you’re right.

As Ned said before there was obviously a benefit from a commodity standpoint in the first quarter, no question about it. But the last time we had that kind of contribution was in 2011 and commodity prices were 50% higher than where they are today. So, I think the most important thing from our perspective is we believe we fixed the recycling model that as you know Michael and low commodity prices was broken historically, it has been broken, but we believe that we fixed it.

Great. All right. And that’s the point I was trying to make as we can strip away recycling and you’re going to still see there's been this true structural margin improvement in solid waste and there’s still room. So where do you think the room to go. Is it another 200 basis points with when – what’s the timeline? And that kind of leads into you’re beating your 2018 plan by years. So what’s the next plan?

So both on the hauling side and the disposal side. The hauling side still has a room where from my point of view we are only halfway through our fleet improvement, so as we progress to the next couple of years we’ll see margin improvement on the collection side of the business. And on the disposal side, the markets have gotten better for us quite frankly. You are going to see it in the price and we are running the sites as efficiently as we can, we’ve got a heavy equipment plan as well which I don’t talk about much but we are trying to improve the compassion at the sites, and that’s the general operation of the sites has already improved quite dramatically and I expect some more margin improvement there. And when you tie us to what percentage number that could be and the timeline while those are the two variables [ph] we don’t like to take – that have taken the stand yet, but there will be improvement and it should be in the next couple of years.

And it’s not 50 basis points and maybe it’s not 300 but it’s somewhere in between, right that’s....

I think that was a fair perspective, yes.

Okay. Allright. And then have you settled on a new plan for 2018 and beyond since you are going to beat the 2018 plan by a year?

You sound like the board. We are working on it. So you know...

....on Monday, so I’m going to ask them.

Okay, you can ask them absolutely. They said the same thing Michael, what are you going to do for me now. So we are in a process of reinvigorating the acquisition pipeline. We are looking at that, we are going to be presenting to the board next quarter the beginning stages of the next three year plan is going to look like. So we are in a process of doing that now, we’ve got that commitment to the board as well they are obviously asking the same questions.

All right. And then Ned, given the strength of the performance when do you think you cross over to or use up the NOLs, make it simple or you become a cash tax bearer at this point?

Right now, it looks like 20/20.

Okay. All right. And then a question on that deal subject. You know then the Northeast market is kind of interesting has it a big chunk still that are privately held family businesses, so how many little bits and pieces are there really to meaningfully move the needle from a tuck-in stand point are you really going to have to go after some of these chunkier pieces?

I think that you would look at all of it quite honestly you look at everything that is an overlap. You know some of those businesses may very well be for sale over the next year or two, some may not. But I think clearly when we look at opportunities and acquisition pipeline you are going to look at all of it.

Okay. All right, great. Thanks for your...one last question [Indiscernible] activity. I know that you are exposed to the Northern Marcellus, have a curiosity what you are seeing as far as the trend getting prices have lifted in through some activities trying to dig [ph] out.

Not any significant movement from our perspective in terms of funds. Maybe a little bit of movement from a rig standpoint but nothing of any substance at this point in time Michael.

All right. Great, thanks.

Thanks. Thank you. See you on Monday.

Yup.

[Operator Instructions] Your next question comes from the line of Wayne Archambo with Monarch Partners. Your line is open.

Good morning, Wayne. Wayne, did we loose you?

Mr. Archambo, you may be on mute.

Operator, he could follow up with me later, if he got cut off.

And we have no further questions at this time. I’ll turn the call back over to the presenter.

We continue to execute well against our key strategies to improve our financial and operating performance. At all levels of the organization we are devoted to operational walking and tackling with a focus on pricing strategies at the local level, improving our operational facilities and disciplined capital allocation. We believe these actions will further improve the company’s performance and allow us to continue to delever the balance sheet on a going forward basis. Thank you all for your attention this morning and we look forward to discussing our second quarter 2017 earnings with you in early August. Thanks everyone, have a great day.

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation and have a wonderful day. You may all disconnect.