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; Ned Coletta, our Senior Vice President and Chief Financial Officer; and Jason Mead, our Director of Finance. Today, we will be discussing our 2020 second quarter results. These results were released yesterday afternoon. And along with a brief review of those results and an update on the company’s activities and business environment, we will be answering some of your questions as well. But first, as you know, I must remind everyone that various remarks that we may make about the company’s future expectations, plans and prospects, constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent annual report on Form 10-K, which is on file with the SEC. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views change. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to today. Also, during this call, we will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures, to the extent they are available without unreasonable effort, are available in the appendix to our investor slide presentation, which is available in the Investors section of our website at ir.casella.com. And with that, I’ll turn it over to John Casella, who will begin today’s discussion.

Thanks, Joe. Good morning, everyone, and welcome to our second quarter 2020 conference call. To begin with, I would like to acknowledge and sincerely thank our dedicated workforce. Our management team did an unbelievable job keeping our people safe, so they could provide the services to our customers and communities. And a special thanks to the frontline workers who continue to work hard through this challenging time. Their efforts made it possible to provide this essential service in a safe, effective manner to the customers and communities that we serve. The company remains diligent and focused on ensuring the well-being of our employees along with the business – along with business continuity. We’re nimble, observant as it relates to CDC guidelines and state orders. Leaders throughout the company have done a top-notch job communicating, organizing, implementing mitigation measures, including the distribution of PPE, social distancing, contact tracing, disinfecting procedures, limiting nonessential travel and in-person meetings and working-from-home transitions. Our sales and customer service and operation teams have been exceptional with their proactiveness and sensitivity to our customers, their needs, their service and sustainability needs as well. This flexibility not only allows us to maintain strong relationships with our customers, but it also enables us to right-size service interview and most importantly, flex variable costs. Further, we have leveraged our systems to monitor and track key sales and operational metrics through this period, resulting in a responsive scaling of our operations. Overall, our efforts have reduced the number of cases and limited business interruption that we have experienced thus far. Moving to the quarter, in this challenging environment, volumes within the solid waste were significantly impacted by COVID. Nevertheless, the resilience of the business and our continued execution against key strategic initiative is apparent in our results. Despite the volume-related headwinds,…

Thank you, John. Revenues in the second quarter were $188.8 million, up $1.3 million or 0.7% year-over-year, with 5.3% of the year-over-year change driven by acquisition activity. Solid waste revenues were down 1.1% year-over-year with price up 4.4% and 6.8% growth from acquisitions and volumes down 12.3%. Revenues in the collection line of business were up 2.1% year-over-year with price up 4.3%, 9.2% growth from acquisitions and volumes down 10.6%. In the commercial line of business, we saw volumes down 12.5%. And in the roll-off line of business, we saw volumes down 16.4%. Collection volumes were up sequentially from April through June as we hit the low point of COVID-related volume losses in April. Revenues in the disposal line of business were down 9.1% year-over-year, with landfill pricing up 6.2%. Landfill tons were down 18.4% year-over-year as economic activity and construction projects were both negatively impacted by COVID. Landfill tons, though, were up 25.6% sequentially from April through June as we hit a low point of COVID-related volume losses in April. As a comparison, during the same period in 2019, landfill tons were up 4.9% sequentially, which is more of our normal seasonal pattern. Resource Solutions revenues were up 6.5% year-over-year, with organics up 3.4%, mainly on newly contracted volumes; customer solutions up 5.3%, with new contract growth offsetting COVID-19 impacts. Recycling revenues were up 18.8% year-over-year, mainly driven by higher commodity pricing. Average commodity revenues per ton were up 45% year-over-year in the quarter, mainly on higher cardboard pricing, partially offset by lower plastics and metals pricing. But please note, cardboard pricing hit a peak in May and has dropped nearly $40 a ton and back to March levels into July. Adjusted EBITDA was $44 million in the quarter, up $3.6 million or 8.9% year-over-year. Adjusted EBITDA margins were…

Yes. Thanks, Ned and good morning everyone. Well, we have never had a quarter quite like this one. The operational challenges presented by the pandemic were so unique that it was hard to predict where we’re going to end up, but our proactive recognition of effects to the business and the execution of our team to quickly cut costs resulted in a much better outcome than we anticipated. We also learned a few things about the natural resiliency of the business. Even with volumes down due to the economic realities of COVID, the cost of ops, percentage of revenue improved by 324 basis points as compared to Q2 last year and drove a 175 basis point improvement in adjusted EBITDA margin. It’s important that you understand some of the moving pieces here while it may be hard to predict the near future and some of the things we’re doing to protect as much of the margin improvement as we can. Our operating margin improved in all major lines of business, but the largest improvement was in Collection. The team has done a great job cutting costs to cushion areas of lost revenue. I remain extremely proud of our people for what they have been able to accomplish. But we have also had some unanticipated benefits that I’ll talk about in a minute. At the start of the crisis, our immediate focus was not only on protecting our workforce but also protecting our business by flexing costs, helping customers and keeping our employees safe. We went to staggered starts in the morning, reducing exposure between employees and at the same time streamlining our daily launch. We tightly controlled direct labor hours to adjust for service suspensions from our commercial customers and reduced roll-off pulls from our industrial and construction customers. Where…

[Operator Instructions] Our first question comes from the line of Hamzah Mazari from Jefferies.

Hey, good morning. Thank you.

Good morning.

Good morning. My first question is just stepping back aside from COVID, when you look at your solid waste margins, pre-COVID, we had talked about potentially getting those margins up, maybe close to 300 basis points. Could you just remind us what are the large buckets that you see that improvement coming from and over what timeframe, I realize COVID has pushed that timeframe out, but just remind us again what you see as margin potential in solid waste in that segment?

Yes. Thanks, Hamzah. Over the last several quarters, we have really started to translate more of our pricing to margin enhancement in solid waste and across the entire business, as you have seen. And if you flash back to 2018 and early 2019, we had some large inflationary headwinds in the business for a few quarters. Labor was probably the largest. We were suffering higher-than-normal turnover with a tight labor market. And we had a huge effort to go through right-sized wages across the business and also create career paths for our key employees. We also were seeing quite a bit of inflation as we closed the Southbridge Landfill and shifted tons to other sites and had to incur more disposal, transportation costs. And there’s this general inflation across the business in long-haul transportation in other areas. We did a great job really working through this in late 2019. And by the fourth quarter, we fully anniversaried some of these heightened costs, and we started to push through somewhere around 175 to 200 basis points of margin improvement. And if you look at the underlying kind of building blocks of where we are getting that margin improvement from pre-COVID, it’s pricing and excessive inflation. It is our key operating programs that Ed and his team are leading; dynamic routing, our service excellence program, a focus in the roll-off line of business on efficiency and correct pricing, it’s our safety programs, our focus on our employees. It goes across a lot of areas and then also acquisitions. As we have ramped up the acquisition pipeline, we had a period of time where we are bringing in a lot of new acquisitions at lower margins. So it was taking us a number of quarters to generate the integration synergies and get on to our operating platforms. We have gotten to more of a cadence with that, and we are starting to see a positive benefit as well as they come into our system. So, a lot of moving pieces there. COVID has just tons of complexity in the quarter, but those underlying reasons as to why we are improving margins pre-COVID are still there. And we believe, to your point, over the next several years, there is an ability to drive our solid waste margins from the 26%, 26.5% range up to the high 20s. We haven’t given a specific timeline on that, but we believe inherently we can do that.

Got it. Very helpful. And just a question on just landfill pricing going forward, you guys compete with a lot of waste-to-energy plants in your area. Just frame for us, what do you see as the risk to landfill pricing? Is it just the waste-to-energy plants get more aggressive? Is it waste-to-rail is very expensive? Is it just regulation? Just frame for us how you think about that dynamic?

Sure. I think that the first thing that you have to realize, Hamzah, about the waste-to-energy facilities in the Northeast are all full. There may be a little bit of volume contraction, obviously, from the economic reality of COVID. But going into it, all of those facilities were full. And in the summer season, they are – in a lot of cases, they have shut down, outages and a lot of waste is moving out of the Northeast, even – I suspect even today with the impact from an economic standpoint of COVID, there’s a lot of waste moving out of the Northeast. So I think that – I don’t – I wouldn’t anticipate seeing any major issues there in terms of the incinerators going after volume. I think that we are more likely to see consistent activity from a pricing standpoint as we have seen over the last year or two.

Got it. And just last question, I will turn it over. What were July volumes for you? I am just trying to compare to the 12.4% that you reported for the quarter. What was July relative to that, down 12%? Thank you.

Yes. We haven’t fully closed the books for July. But as I said a little bit earlier, we had a really strong volume trend from April through late June, and then our volumes have generally kind of flattened out a little bit in July. And do you know, Jason, in June, kind of what we were down year-over-year?

Yes. Well, from a landfill perspective, if we just focus on tons for a second, we were down about 8% year-over-year in landfill tons in June. And in July, we are kind of seeing similar trends as Ned said, as things have pretty much stabilized over the last few weeks.

I could follow-up and get some more specifics. I don’t exactly have in front of me.

No problem. Yes, we can do it offline. Thank you so much.

Thanks, Hamzah.

Thanks, Hamzah.

Your next question comes from the line of Tyler Brown from Raymond James.

Hey, good morning guys.

Hey, Tyler.

Ned, I just want to follow back up on that. Do you, by chance, have just broadly revenue in July, maybe the change there?

No. But June, I just pulled up, I have it in June. So if we are looking at the month of June, our revenues as a business were up around 6% year-over-year and the solid waste business was up around 2.5%. So our volume losses moderated a bit. They were about 6% to 7% in the solid waste business, down year-over-year. And as we said a minute ago, the July trends are pretty similar to June.

Okay. Yes. No, that’s very helpful. Appreciate that. Okay. So you guys obviously gave some great color in your prepared remarks. And again, my big question here is really the second half guide versus the first half number. So historically, you see something like, I think, a 10% revenue, and call it, a 20%, 25% step-up in EBITDA sequentially from the first half. This guide assumes, obviously, low, low single digits sequentially in both. And I appreciate the prepared comments. But is there any way that you can help bridge that gap? And I don’t know if it would be helpful to talk about the onetime bonus. Is that being paid in Q3? But just simply, how much conservatism is basically in there just knowing that we don’t know what we are going to see through the rest of the year?

So the one-time bonus was accrued half in the second quarter and half in the third quarter. So that is in our forecast for the third quarter. And a lot of it – we have transitioned from managing our business on a monthly basis to transitioning to really having a lot more daily stats and weekly stats as our business intelligence has gotten better. And as we are looking at these trends in the month of July and looking at key indicators like how much of the COVID suspensions or cancellations have come back online, what’s still remaining, when do we think that will come back online, what’s happening with economic activity, construction starts, you name it. We are just not seeing the typical major step-up in the summer. And some of it could be seasonal businesses like resorts and things like that are coming online. Some of it is just, I think, fear. People aren’t starting new projects and the like. And right now, the best we can tell, we will see a more flattish trend from Q2 to Q3. However, to your point, maybe there’s some conservatism, but it’s hard to tell. The other point of this is just on the cost side. So we have dug in every which way on our cost understanding in Q2, where we benefited, how we benefited and what can move into the future. And some of it as Ed laid out, just things like traffic and the like, and we even had things like lower medical costs that we think will start to refer to normal trends in Q3 as hospitals are reopened for business. So we don’t have a perfect answer...

Restaurants, beaches, the main coast is not fully open. We don’t anticipate that the summer activity is going to be anywhere near where it normally is. And then certainly comparable to what we saw in June, but just – we are not going to see the level of activity from a tourism standpoint, from opening up. We are just not – we don’t anticipate seeing summer business that we normally do, Tyler.

Okay. That’s very helpful. I appreciate it. I know there is a lot of unknowns out there. So switching gears, John, it sounds like – it feels like the M&A pipeline is very strong. I think you used the word robust. I think in the quarter, one of your waste-to-energy competitors actually acquired some hauling assets. So, I guess, from an M&A competition perspective, has anything changed there? Or do you still feel like there’s obviously that – a good opportunity to allocate capital there?

There is a tremendous opportunity there. It continues to be – the pipeline is very significant. There is a little more activity from a competitive standpoint. You are right about that, Tyler, with some of the waste-to-energy folks. But again, we have been in the market for a long, long time. We have been working on it now for 2 years. We have built the pipeline over that period of time. And I think the interesting thing, too, that has happened is going into COVID we saw a lot of pressure on independents from a labor standpoint, a lot of pressure from a disposal pricing standpoint and also commodity prices were just awful in terms of they were going from a situation where they are getting significant amount of value for recyclables to paying for processing. So – and then you add COVID on top of that, and we are seeing even more people who prior to COVID, I would not have thought that they would be interested in really understanding what the value of their business is now. So COVID has added another dimension, and I think we are going to see more disruption from an acquisition standpoint because of this.

Yes. Okay, perfect. I am going to go ahead and pass it on. Thank you.

Thank you.

Your next question comes from the line of Sean Eastman from KeyBanc Capital.

This is…

Hi, Sean.

Hello. Can you hear me? Hello.

Yes. We can hear you.

Hi, gentlemen. This is Hamza Jaffer, speaking for Sean Eastman. Compliments to the team. Nice work this quarter and thank you for taking my question. I just wanted to dive deeper on the plans to leverage cost synergies across operations in the back office. Where have you gotten some traction since the onset of the pandemic? What kind of run rate do you have on this initiative? And what operationally is expected to be sustained in 2Q and in the second half?

Yes. So these are a number of long-range investments and programs we have ongoing. And as you know, we successfully upgraded our financial ERP about 1.5 years ago, and we continue incremental programs to drive efficiency in the back office. One area we are very focused right now is on the procurement side. There’s a lot of manual work being done in our business today, and there’s a great opportunity to digitize that further and drive improvement without a lot of risk. So we are excited about that. Ed’s team has been leading a pilot of a new onboard computing dynamic routing system that will be testing over the coming months to drive more efficiency on the road through that program. But I think the key is on the technology side we have done a really nice job with low risk, doing things through fixed price programs and limited pilots to understand the viability before having large risk in any area. So as we look at the runway over the next number of quarters, next several years, there is a lot of great opportunity to drive more efficiency in the business. COVID kind of skewed that a little bit in the quarter. But if you look pre-COVID and you look at the specific programs, we continue to have incremental cost benefits.

We also got a significant amount of value in terms of reduced turnover. 2 years ago, we started a new program in terms of career development with Kelley. With the arrival of Kelley Robinson, that program has really done very, very well in terms of really helping with our turnover numbers, where we have been able to attract drivers, mechanics. We were able to keep people. Some of the things that we have been able to achieve from a turnover standpoint is very, very significant in terms of lowering our cost of ops. So we’ll continue to see that going out into the future as well. So very positive.

Got it, That’s helpful. And price growth held in nicely for 2Q. Any color how you anticipate collection disposal yields to trend into the back half as we see the economy going through a moderate space of – pace of growth? Thank you.

I think one of the things – I’m not sure I really understand your question, but one of the things that we’ve also been able to do is, at one point in time, we had about 60% of our back-office folks working from home. And some of the things coming out of COVID that would be positive as we have been able to do that very effectively. And one of the areas that we have been able to do that is customer care. So we have been able to really monitor people, have an understanding of how well they are doing. So that should be a positive on a go-forward basis in terms of – as we continue to grow, that was one area where we’re growing real estate, growing office space, et cetera. And that should be really helpful – something coming out of COVID that would be very helpful. Some of the other things that we found, having our people come in, in waves, there is some operating things that were coming out of COVID on a positive that has also helped to reduce costs. So Ed’s got a number of things that we want to on a go-forward basis try to make sure that we keep as much of the savings as we possibly can.

Got it. And on the pricing side, do you see a sustained 4% to 5% for the back half or is it more on the lower side?

I think that the majority of our pricing was done, fortunately for us, in the first quarter. We don’t anticipate significant pricing in the second half of the year. As I said, most of the pricing for the year for us was done right after the first of the year in January and early February. So we don’t – and it’s really positive because we’ve not been increasing pricing through the COVID pandemic.

Got it. That’s helpful. I will turn it over. Thank you very much team.

You are welcome.

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

Hey, Michael.

Thanks for the question time. Nice job.

Thanks. We’re going to keep working hard for you, Michael. We’ve got to improve. We’ve got to improve where you are.

Got it. I got it. That’s why I got this list of questions. So here we go.

Okay, terrific, terrific. I am all yours. We are going to – we are – Ned, Ed, myself, Jason, we are keeping our head down, work hard. Go ahead.

Alright. If we can talk about cadence about the second half, just to flex it a little bit. So can you help us with what your deal rollover should be in the second half so we get that right? And then if I picked up correctly, Ned, scribbling away on the prepared comments, you’re telling us we should assume flat EBITDA sequentially 3Q versus Q2? I may have missed that.

Yes, yes. That’s what we currently have in our model right now and then…

Okay. And then what about the deal cadence?

Sorry and then deal cadence, for deals we have completed year-to-date, we expect about there’s around $12 million of revenues in 2020 and about $4 million into next year and is about $2 million of EBITDA this year and about 3 – about $1 million next year of those revenues in the first year. So looking at this back-half of the year, Jason, I’m not sure if I have this math done by quarter.

Yes. So year-to-date through June, from an acquisition perspective, we’ve had $20.5 million of revenues.

So that includes stuff rolled over from last year.

That includes rollovers from last year as well.

We may have to do a little math on that to disaggregate it too.

Sure.

Okay. Well, you bought $16 million year-to-date. You haven’t quite done it evenly. So because if you’re saying $12 million for the end of the year, that feels like maybe it’s $6 million or $7 million in the second half and you did $4 million or $5 million in the first half.

Yes, it’s probably pretty close. I can figure that out afterwards. But about $12 million – of the deals we’ve done in 2020, about $12 million of that revenue will show up in 2020. Now exactly how it splits, maybe it’s $7 million or $8 million in the last half of the year. We can get a finer pen on that.

Okay. That would be helpful. And then what has the pandemic done from a timing of when you run through the NOLs because you were kind of running out through it by ‘22. Now how are we thinking about the NOL?

Yes. So we have been really effectively using the accelerated depreciation as part of the 2018 tax reform. So as you know, almost every acquisition we do is an asset deal. And we’ve been taking advantage of accelerated depreciation. So we’ve been preserving our NOLs remarkably well. And at the end of last year, I think it was $112 million of NOLs roughly still remaining. So if we look out into the future, our goal, of course, is to produce as much pretax income as possible and drive margins. So it is changing, of course, overtime. But if we continue to do some smart acquisitions and use accelerated depreciation to shield earnings in the current period, really gives us an opportunity to bring those out later than 2022 or 2023, Michael, to your point.

Okay. So that’s good to know. We keep free cash flow. And then you had this capital spending issue related to closing Southbridge and some work to be done in Ontario and all three New England states of Maine, New Hampshire and Vermont. How do I think about the direction of capital spending in ‘21? I guess it is way early for guidance, but as a percentage of revenue should it be less?

Yes. So if you look at our capital spending, we have been spending 10%, 10.5% on just replacement capital, running the business. And then this quarter, we’ve actually tried to break out as well some additional details on where there are additional investments going in the business. So when we complete acquisitions, we’re very heavily investing in the year after we complete those acquisitions in – to get integration synergies, to consolidate facilities, you name it. It’s all contemplated as part of the original pro forma. So we’re investing money there. And then, of course, we are investing in this very large expansion at the Waste USA Landfill. We’re putting in 25-year infrastructure at the site. So those capital expenditures have been running 2%ish of revenues. We will continue with Waste USA one more year, and then that project will be generally completed into 2021. The acquisition capital, I guess, from our vantage point, if we can keep the same pace of acquisitions, spending that roughly 1% to 1.5% of revenues, integrating those acquisitions might be something that continues to roll into the future.

Okay, alright. That helps. And then Connecticut has decided not to let MIRA get rebuilt or expanded. So what does that do from a dislocation standpoint on helping to sustain landfill pricing?

I think that there’s a real opportunity, obviously, in Connecticut, depending upon what happens there. Obviously, they would like to see processing, and I think that there is a 1 million tons, just under 1 million tons that is potentially going to be impacted and be in the marketplace. And as you know, Michael, we have still got McKean. We have got rail serve permit there, 5,000 ton a day so I mean, we have the capacity. McKean continues to be an option for us. If we had an opportunity to have a long-term contract there, even for a portion of that waste, that would be something that would cause us to invest the capital in McKean to put the infrastructure in place to receive by rail. So it represents an opportunity on a go-forward. So it’s, in our view, more of the same in terms of the supply and demand challenges that we’re going to continue to see in the Northeast over the next 3 to 4, 5 years.

Okay. And then last one for me is, you have talked about education being about 5%, 6% of revenues. If you look at The Chronicle of Higher Education’s website, they are not terribly optimistic about higher education reopening. You have got a lot of higher education in your market. So is that part of the conservatism? Is – maybe we don’t get back to school some odd way not by secondary.

Sure, Sorry. To that number, when we said it was like 6%ish, that was actually of our commercial collection business. So of our actual total revenues, education is may be less than 2%. So of our total collection business, it’s maybe 3% to 4%. And John, you might want to answer about the coming back online. I think.

Yes. I mean I don’t think that – I think that part of the conservative approach that we have had for the balance of the year is, it’s not likely that we are going to see a very large portion of it come online. So I mean, I think, that your comment is probably correct, Michael. It’s really up in the air as to how much is going to come back online at this point in time.

And just to remind everybody, there’s normally a seasonal service on hold that occurs in education, but it happens sort of late May, early June and then they restart again. So that’s the thing we won’t get seasonally, is that service on hold normal recovery of that, let alone it closed early this year.

Yes. Yes. So when you get into details of COVID, we had a number of customers that we coded in March and April that so we’re reducing service levels, we’re suspending service due to COVID. And as I said earlier, about 55% of those customers, those services are back online. And then you start to cut through it, we expect more to come online through the summer and the early fall. And then there’s things like educational institutions that wouldn’t have come back online to the early fall, to your point and as we cut through customer by customer, as much as 30.

Summer is like almost over. We are in August already, right? So we don’t have much of the summer left, Ned.

I know. Yes, New England, it’s not very long. But we are not sure how much of it comes back online, to your point, Michael, but also, it’s not a huge part of our book of business also. But it is in the Northeast, it’s something we have a number of great customers in that segment.

Okay. That helped a lot. What I am hearing is that free cash flow should trend up in ‘21 because you are going to manage costs at a slower recovery than sales that we are leveling off in activity, you are keeping – you are going to keep normalizing and rightsizing the business accordingly, and we continue to watch free cash flow improve.

Yes.

Yes, absolutely.

Okay, great.

Thank you.

Thanks.

I would now like to turn the call back over to management.

Thank you, operator. Thanks, everyone, for your attention today. We look forward to discussing our third quarter earnings with you in the fall. Have a terrific rest of your day, and stay safe. Thanks, everybody.

This concludes today’s conference. You may now disconnect.