Casella Waste Systems, Inc. (CWST) Q3 2021 Earnings Report, Transcript and Summary

Good day and thank you for standing by and welcome to the Casella Waste Systems Q3 2021 Conference Call. At this time, all participants are in a listen-only mode. Please be advised that this call is being recorded. [Operator Instructions]. I would now like to hand the conference over to Joe Fusco, VP of Communications. Please go ahead.

Thank you everyone for joining us this morning, and welcome. This is our 97th earnings call or if you have been binge watching us this is Season 24 Episode 3. 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 Vice President of Finance. Our recurring characters at train whistle will join us as well today. Today we will be discussing our 2021 third quarter 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 will 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 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 will turn it over to John Casella who will begin today’s discussion.

Thanks, Joe. Good morning everyone and welcome to our third quarter, 2021 conference call. We are very pleased with our performance and continue to execution against our core strategies. In the third quarter revenues and adjusted EBITDA were both up over 19% year-over-year, we also continue to drive free cash flow growth and through the third quarter, adjusted free cash flow is increased over 37% compared to the same period in 2020. Our core solid waste and resource solutions businesses are performing at high levels, as we continue to advance key pricing and operational strategies, which help ensure we stay ahead of inflationary costs related to labor, disposal, containers, and equipment. At the same time, we are growing our business meaningfully in a disciplined manner through strategic acquisitions in select development projects. So far this year, we have closed nine acquisitions with $86 million of annualized revenue. Most notably, this includes Willimantic acquisition in Connecticut, which we announced in July, since then we have acquired four additional businesses within our operating footprint, including two transfer stations in the Buffalo market. Overall, the acquisition pipeline is robust, and we are actively working on several deals in various phases. Now a brief update on the recent highlights performance against our key strategies. Starting with disposal, we continue to see modest volume recovery landfill tons were up slightly in the third quarter compared to the same period last year. The volumes have not returned to pre pandemic levels, this is almost entirely related to New York City and the surrounding area. With lower economic activity levels paired with labor stresses on third-party truckers that move the volume to our sites. That said, third-party volumes were generally in line with our expectations. Year-to-date, we have advanced 3.8% landfill price as volumes come back into the system, the Northeast disposal capacity continues to tighten. We will have further opportunity to advance our pricing programs. Our operating programs at our disposal sites also continued to drive value. Ed and his team has done a nice job here, improving key operating metrics and improving performance. From an R&D perspective, we have two projects in development that are slated to come online over the next year. And in both cases, third-parties are deploying the capital and we will benefit from the sale of landfill gas to that third-party. Moving to the collection business question operations continue to perform very well. Ed and Ned will drive into some of the pricing inflation and volume trends. I wanted to discuss my commentary on people, our workforce given the unique environment that we are in. From a labor perspective, our continued investment into our human resources, technology programs has certainly helped to mitigate some of the challenges. Over the past several years, we have reset our labor rates in many markets provided improved transparency through our career paths, initiatives and then have significantly invested in training, including our new CDL school. The outcome of these initiatives has helped to bring improve stability across our workforce, while lowering turnover and improving retention. This has benefited us greatly through the past several months from a labor perspective. Ultimately, we have been able to maintain high levels of service excellence and accuracy during a challenging labor environment. I also should mention the fact that we are focused so heavily on keeping our people safe through the pandemic and rewarding them for their continued dedication to our customers, and the company because of that without doubt enhanced our culture. Our continued investment in route optimization and automation has really helped us through this period, the work that Sean, Steve and his team are doing is really outstanding in terms of our ability to optimize our routes and fully automated - and bring automation to those areas, particularly from an acquisition standpoint, where we have nice opportunity to really gain efficiencies. We have gained labor efficiencies while widening our labor pool do the increase in automation across the business. Simultaneously, we have improved the quality of our fleet, which has resulted in lower maintenance costs while improving the sentiment of our drivers and mechanics. Next, the resource solutions business, both our recycling processing operations and our non-core business units are performing very well. We continue to make return driven investment into our recycling processing facilities as we aim to gain further operational efficiencies while improving the quality of our end product. We have created a balanced business model that is economically and environmentally sustainable. As recycling commodity prices have increased, we have been able to share in the upside with our customers through lower tipping fees, a lower SRA fee in the case of some materials a higher rebate. While we also benefited from higher recycling and commodity values, the flexibility and sophistication of our risk mitigation fee programs and contract structures protects us well on the downside should the market moderate into the future. And finally, in furthering highlight our capital allocation and growth strategy, acquisition activity continues to be strong. Our pipeline is very robust given the backdrop of labor challenges, heightened inflation and tax reform. We are actively working on several opportunities that close late in 2021 or into next year. Our balance sheet and the strength of our team positions us well to execute against our growth strategy. Since August, we have completed four acquisitions. We look forward to fully integrating these businesses into our operations and continuing to provide a high level of service to our new customers. We also welcome aboard our new hardworking team members, who are already making meaningful contributions to the company. Two of the four recent acquisitions helped strengthen our position in the Buffalo market, with additional hauling routes and related transfer stations provide an opportunity to vertically integrated volumes into our sites overtime. Touching on Willimantic through the first three months post-acquisition, our team has displayed a high level of organization and collaboration as we work through the integration phase. The performance today has been sound and we look forward to driving further value from our new platform in Connecticut. Wrapping up, given our continued execution against key strategies and our outlook on the remainder of the year, we have again raised our 2021 guidance. This is our third raise on the year which reflects the consistent solid performance of our team. We are excited about the opportunity to continue to grow the business and grow adjusted free cash flow. Importantly, as we grow, we are selectively adding the necessary resources and focusing on succession planning throughout the company. This serves us better to better position the organization for continuing to seamless execution to 2022, as well as well beyond that. With that, I will turn it over to Ned to walk through some of the financials.

Thanks, John. Good morning, everyone. Revenues in the third quarter was $242 million, up 39.3 million or 19.4% year-over-year with 9.3% of the year-over-year change driven by acquisition activity. Solid waste revenues were up 16.7% year-over-year with price up 4.1%, volumes up 2.8% and acquisition growth of 9.7%. Revenues in collection line of business were up 16.2% year-over-year with price up 4.6% volumes up 40 basis points. Year-over-year volume gains moderated as the economy rebounded very sharply last year in our markets after COVID and this created a tough year-over-year comp, further labor constraints this year limited our ability to capture all available growth in the market. Revenues in the disposal line of business were up 16.8% year-over-year with landfill pricing up 3.7%. Landfill tons were up 70 basis points to roughly 7,000 tons year-over-year. However, on a trailing 12-months basis we are still down roughly 350,000 tons or roughly 8% versus pre-COVID tonnish levels. As John just mentioned almost all of this negative impact is in New York State and we believe is namely the result of lower commercial activity in the greater New York City activity area, I’m sorry, in driver shortages, as third-party trucking companies that typically moved this way as to our landfills still have a major driver shortages. Resource solutions revenues were up 27.6% year-over-year with 12.3% driven by higher recycling commodity prices, 8.4% of the growth from acquisitions and the remainder from higher processing and non-processing volumes. The average combined revenue per ton was up $113 per ton year-over-year in the quarter and higher cardboard and mixed paper pricing, higher metals pricing and higher plastics pricing. Adjusted EBITDA was 61.2 million in the quarter up $10 million or 19.4% year-over-year and EBITDA margins were 25.3% for the quarter, flat year-over-year as acquisitions negatively impacted margins by 45 basis points and a one-time operating costs hit margins by roughly 32 basis points. So excluding acquisition impacts and this one-time operating costs our adjusted EBITDA margins were up 77 basis points year-over-year with our pricing programs and cost efficiency efforts offsetting much of the rising inflationary pressures. Given the challenges to retrain and attract frontline workers, we have increased hourly wage rates roughly 300 basis points over budgeted rates, which resulted in an additional $700,000 of costs in the third quarter or about 27 basis points of margin headwinds. Solid waste adjusted EBITDA was 52.2 million in the quarter up $4.8 million year-over-year with collection and disposal adjusted EBITDA both up year-over-year. Resource solutions, adjusted EBITDA was $9 million in the quarter up $5.2 million year-over-year with improvements from recycling, organics processing and non-processing operations. With our floating SRA fee for [Holland] (Ph) customers in a floating processing fee or rebate structure at a recycling processing facility, much of the increase in recycling commodity prices was passed back to our customers in lower fees or higher rebates during the quarter. Cost of operations in the quarter was up $23.5 million year-over-year, but still down 75 basis points as a percentage of revenues. Many costs categories improved as a percentage of revenue. As their team has worked hard to control costs as buy-ins have returned for our business, and we continue to execute very well against key operating initiatives, such as collection route automation and authorization. General and administrative costs in the quarter, were up $6 million year-over-year with acquisition adding roughly $2.3 million of costs. And our consulting costs were also up year-over-year on the successful launch of the Cooper Procurement program. Given reversal of a tax valuation allowance in fiscal year 2020, we expect an income statement tax provision of approximately 31% in fiscal year 2021. However, our cash taxes will remain low at approximately $1.3 million for the year, given our net operating loss position and our usage of accelerated depreciation. Our income tax provision was $6.6 million in a quarter up $6.2 million in the same period in 2020. This resulted in about a $0.12 per share year-over-year headwind to our earnings. As of September 30th, we had $558.6 million of debt and $46.5 million of cash. Overall, we had liquidity of $218.5 million, including availability of revolve or in our cash position. Our consolidated net leverage ratio is defined by our credit facility, with 2.34 times. Given these metrics, we believe our capital structure is a great position. It gives us a lot of flexibility to continue to execute our strategy of growth through smart investments and acquisitions. Net cash provides the operating activities with $134.1 million a year-to-date up $22.2 million year-over-year driven mainly by the higher operating results, changes in working capital were mainly offsetting in the aggregate year-to-date. Adjusted free cash flow was $82.3 million year-to-date up 22.3 million or 37.2% year-over-year. Year-to-date, capital expenditures were up $4.3 million year-over-year, as we continue to invest in plan capital expenditures at the newly acquired operations to drive operating synergies and integration efforts. Given our solid year-to-date performance and our increased visibility of economic trends, combined with the expected contribution of acquisitions already completed this year, as Sean mentioned, we raised our fiscal year 2021 guidance ranges for the third time this year. As we announced, yesterday these ranges are revenues between 870 and 880 million, adjusted EBITDA between 200 and 204 million and adjusted free cash flow of between85 and 89 million. The updated 2021 guidance ranges assume a stable economic environment continuing through the remainder of the year with a modest rebound and solid waste volumes. We expect solid waste volumes the up roughly 1.5% year-over-year in the fourth quarter and we expect solid waste pricing to be up about 4% or a little bit more in the fourth quarter. Our 2021 guidance includes roughly 5.7% revenue growth from acquisitions already completed in 2021 or late 2020. However, as always, our guidance does not include the impact from any acquisitions that have yet to be completed. In addition, as you stated in our press release yesterday, we expect a roll over impact from acquisitions completed in 2021 to add roughly $50 million of revenues or 5% year-over-year growth into 2022. And with that, I will hand over to Ed.

Thanks, Ned, and good morning, everyone. As everyone can see, we had a really great quarter. So, a cost of ops as a percentage of revenue improved by 75 basis points and we are hitting or exceeding targets on all our key operating metrics. As with most companies today, we do have some inflationary cost pressures, particularly with our labor force, but in the current environment, we are finding that our customers are receptive to price and we continue to maintain our margins. As I had mentioned in the past, acquisitions typically dilute our margins as Ned said, this quarter we had a 45 basis point headwind on margins from acquisitions, but our operating efficiency initiatives and our pricing programs have been able to make up the difference. With another strong quarter behind us, our focus as a management team is to assure that we are both strategically and structurally positioned to continue to improve. We talked quite a bit about our east strategy. So I thought I would provide some insight into our Company’s structure and the advancements we have made over the past few years to position ourselves for growth. Casella enjoys a great reputation in the industry is having a very positive culture and working environment. This has become one of our greatest assets and comes directly from our shared core values. I know a lot of companies talk about core values, but at Casella, we really live it. Our culture has allowed us to meet tough challenges, and our reputation has allowed us to bring significant high level of talent into the company to build needed bench stream as we have transitioned into a growth company. On operations we have three strong regional teams led by seasoned RVPs, supported by equally seasoned regional controllers, and more recently, we have added regional marketing and ops positions. Supporting from the home office, we added Sean Steves, a Senior VP of Ops, and he and his team have been spearheading numerous operational initiatives many of which can be directly credited for some of our collection margin improvements. We also added Mark Johnson, as VP of Post Collection, and he has taken leadership over our Landfill Operations, as well as our transfer stations and heavy equipment plan. Neither of these positions existed five years ago and they providing the operational experience and leadership talent to pursue our core value of continuous improvement and operations. Rounding out the team, Sam Nicolai, our VP of Engineering and Compliance has played a key role in our permitting process, while overseeing landfill construction and regulatory compliance at all of our facilities. Mike Wilson, our VP Fleet, and his team oversee our fleet maintenance and procurement. Mike Hughes, our VP Safety, and his team oversee our safety and DOT compliance. I’m really proud of this team and what they have accomplished, what they are accomplishing. And, I’m very confident that we are well positioned for continuing operational improvement in our legacy operations and to successfully integrate our recent and future acquisitions. But operations is not the end of the story. Paul Legion our SVP of sustainable growth functions as our Chief Revenue Officer and has built a strong team that handles marketing, community engagement, our sustainability initiatives, customer care, and our municipal and college and university bidding, and is now leading an effort to improve the efficiency and effectiveness of our salesforce. Kelly Robinson, our senior vice president of human resources has played a key role in advancing our recruiting. He implemented career paths for our critical labor positions to boost our retention, refined our succession planning and leadership development programs and built our CDL driver program and is in the process of building our tech training program. More recently, Mark Fitzsimmons has joined us in a newly created position as VP of business development to oversee our rail development initiative and our acquisition efforts, both outside the footprint and inside the footprint in support of the regional teams. Welcome aboard Mark. We think we have built a very strong team to support our growth and our pursuit of operational excellence. In addition, we have also invested in technology providing tools to support management and to make us more efficient. I will stay in my lane here and just mentioned the operational technologies. This past year, we have successfully completed a pilot program for a new onboard computing solution, demonstrating a strong IRR and have begun rolling it out to other divisions. We currently have 182 units deployed. We also developed and implemented various management operating reports using Microsoft Power VI platform by harvesting data from numerous disparate systems into a centralized database. These reports give us predictive insight into key areas of our collection operations down to the division level, with drill down capability to the core data and help us react more quickly to any deteriorating conditions. These two technologies alone will drive margin improvements. So I’m not just happy with the quarter. I’m also very happy about where we as a company. With that I would like to turn it back to the operator to start the Q&A.

Thank you. [Operator Instructions] And our first question comes from Tyler Brown from Raymond James. Your line is now open.

Hey, good morning guys. Hey, Ned just first off, what was the one-time operating costs that 32 basis points?

Yes, so we took an accrual in the quarter for the potential to relocate some waste at a landfill. And it was a proactive move and it was booked during the quarter about $750,000. So, you know, it is definitely some digits down in cost of operations, but not something you would ever see in a recurrent period.

Okay. Okay. And so can we just kind of unpack the margins, maybe just a little bit more. So I think you called out 45 basis points to the negative on M&A. You called out the 32 basis points, but how much of a pinch was fuel and then was recycling a help even modestly?

Yes, so fuel in the period, moved against about 26 basis points, and recycling was a health in the period, and a lot of moving pieces here. We basically, if you look at it, we basically need if even in solid waste on margins between at we backed out that the acquisition that we were roughly, even in that one time costs or pricing is covering inflation, but not advancing ahead of it. And recycling move margins about 50 basis points. And then the rest of our resource solutions groups organics our, customer solutions group push the rest of that margin.

Okay. So I don’t want to necessarily go too far down on this on recycling. It sounds like I could do the math of what the EBITDA dollar contribution was, but is there any way to help us with sensitivity. I mean, I know it is difficult with the SRA fee, but I mean, you had $113 per ton move and it seems like it was probably eight, and EBITDA contributor, but any help on sensitivity. And then how does the sensitivity work on the downside?

Yes. So we might even have to pick this up a little bit offline. I will try and stay super high level, but, if you just look at our processing centers in general, we have thresholds established with our contracts where - we our customers - if the average my revenue per time is below that threshold, they are paying us a tipping fee or processing fee. And when it steps over that threshold, we start to share revenues with those customers. But we also share ourselves in those higher commodity rates. So we have, clicked through those thresholds in the third quarter. And that is the first time in many years we have done so. So we did drive some additional EBITDA from commodities, and it is a little bit complicated because to the upside, we have a lot of opportunity to the downside. If commodity is up about $20 a ton, we own about 50% of that risk and our customers own about 50% at risk, but then you hit an asymptote and we hit the threshold and our customers start to pay processing fees again in our downsides pretty significantly limited at that point in time. So it is interesting, you have got the great business always built, we are meeting clip all the upside, and we have built a lot of downside risk mitigation.

Okay. So asymptote, so basically it is calculus. Alright, so real quick though, you mentioned on the landfill tons, I think you said you are off 350,000 annualized. I thought last quarter you said you were off like 250,000 tons. I could be completely wrong on that, but was there a step-down?

Jason, I looked at this yesterday, we ran the math last 12-months, March 31st, 2020 versus last 12-months September 30th and we are off 350,000 in that period and almost all of this in New York State that decline.

Okay. And so any thoughts about when that might get back to pre pandemic, I know that is kind of hard, but maybe by end of year or early next year.

I think it is really a function of when the city comes back. I mean, I think that there is still a lot of people out of offices is not the kind of activity that was there obviously pre pandemic. So it really depends on how quickly things come back.

Okay. My last one, there is a lot of talk on the big three calls about 2022 pricing and CPI rollovers. So, first off, can you just help us, how much of your book has an escalator tied to it, because the market is quite a bit different in the North East. And then, I’m assuming you don’t have a lot. So can we just talk about pricing as we jump into 2022 any early colors there and I have got to think it is going to be a pretty strong disposal pricing...

I think that is we are fortunate in that we are not tied to a lot of municipal activity in terms of CPI rollover. So, we are not struggling with that, as some of our peers do. I think that the team has done a really great job, Tyler of covering off the inflation. I think we hit it, but I think that we need to be a little bit more aggressive from a price standpoint to make sure that we are covering off all of the inflation and staying ahead of it into the next year.

If you look at pure labor statistics trash and garbage index, it was up 5.6% annualized in September. As I said, a little while ago, we are running like 4% inflation or a business. So the operating programs are making a meaningful difference, keeping our costs down as we have made some really smart investments. And our book of business, as you said, is a little bit different than our peers. We only have about 10% of our collection revenues and municipal contracts about 30% is in - 25% subscription residential, about 40% in commercial, both the subscription residential and commercial. We can price within our contracts to cover off inflation. And then we have got temporary roll off where we are setting price daily. And then we have got about 12% of long-term permanent industrial work that is set contractually. So you got that 10% municipal contracts, about 12% to 13% long-term industrial contracts that have pricing set into contracts, whether it is the trash and garbage index or set CPI. So you are right, we do have a lot of flexibility within our contract structure, and we have moved many of our customers that trash and garbage index over time, which we believe better reflects true inflation in this industry.

Okay, great. I appreciate the time.

Thank you Tyler.

Thank you. Our next question comes from Hamzah Mazari from Jefferies. Your line is now open.

Hey, good morning. My first question is just on landfills the pricing. I think you referenced 3.7% or so. Could you just maybe talk about the deceleration in landfills pricing. Is that just proper comps. Is that the marketplace. I know it was a lot higher high single digits earlier on. So just maybe walk us through what you are seeing there. Maybe there is COVID issue et cetera, just walk us through their dynamics there.

Yes. It is a few different things. So all pricing statistics have their flaws, and we are seeing one small flaw in ours. Right now, we looked at a unique customer at a unique landfills site. And we look at how we changed their price year-over-year, and that is our pricing statistics generated. Last year, we moved our customers around a lot. We closed one of our landfill takes for four months during COVID. We pushed as many tons around as possible to have several sites running at higher capacity utilization and we ramped down several others. And by doing that, we caused some flaws in our pricing metric year-over-year, where if you look at individual customers, you have done price increases, but by moving to different sites, we have recognized a bit more of that volume in how we do this. Now, I don’t like changing how you calculate statistics year-to-year, quarter-over-quarter. I think they should be all consistent and, this period is weighed on a little bit by that concept. The other thing we are seeing as we have talked about is we thought a little bit less on price in New York State that we are planning to throughout the year. And we continue to be in that position as volumes have been a bit lighter in the state. We are not reducing price, but we just haven’t pushed as much as we had planned to in the year. Given the inflationary environment though, we are budgeting right now. We need to push a strong pricing program into next year to cover the higher costs on labor, steel, other consumable throughout the business. So it is something we are reviewing at this time.

Got it very helpful. My follow up question, and I turn it over is just on the M&A pipeline. I think one of your largest, one of your larger competitors bought the largest independent in Massachusetts. I could be wrong, but correct me if I’m wrong. Could you maybe just comment on, you know, how much capital you raised earlier in the year, how much is deployed. What does the pipeline look like. Are you being aggressive enough there. I know you are going to control the timing of M&A. So I realize that and appreciate that, but just any color that would be helpful here. Thank you.

I think, Hamzah we are really comfortable in terms of where we are from a pipeline standpoint. The activity is stronger than what we thought. And certainly we are not going to, we are not going to execute on every deal. And we are going to stay within our parameters from a discipline standpoint. So I suspect that, you know, again, we are not going to be fortunate enough to get every deal in the Northeast. So, not surprising, but again, we are very comfortable in terms of the next three to five years in terms of the robustness. It is, the pipeline is stronger than what we thought at the beginning of this year. And certainly that was stronger than what we saw last year. So as evidenced by what we have been able to do in expanding into Connecticut, it is certainly a really nice platform for us. But again, I think that you are certainly going to see us moving forward from a acquisition standpoint, pipeline is very robust and, we are pretty excited about where we sit. And as I said, we are not going to get every deal.

Yes. And if you look at that hub city or place October late, October, 2020, we raised $150 million in a common stock offering. And in 2021 we put close to $160 million to work in buying nine companies during the year, and we have done very fair evaluations, and we have already started to drive synergy values from these businesses and integration. And it is a pretty exciting set of acquisitions starting a year we have got a few more in the queue right now that will either go by year end or into Q1 as well.

Okay, great. Thank you.

Thank you, Hamzah.

Thank you. And our next question comes from Michael Hoffman from Stifel. Your line is now open.

So. Joe Fusco I understand Saturday Night Live needs some writing help.

And leave this amazing gift, no.

And Johnson, you celebrated a milestone birthday, so happy birthday pal.

Thank you Michael.

Thank you. I want to come back to the M&A, because I want to ask you about differently, but also, compliment you - you pulled off a little - in the whole market and Connecticut, Massachusetts well how that happened. So you might not win them all, but pretty cool wins.

I think I couldn’t agree with you more on Michael, and we are really excited about the 80, some odd million of revenue that we brought in. We got it really well integrated, still have work to do, and we are going to create more value with those revenues over the next few years. But as Ed said, we have also been building the team, and we just were in just a terrific place moving forward with great opportunity and a very strong pipeline.

What I would like to tease out a couple of years ago, when you restarted 2017, restarted certain M&A program, the frames of the market then, hey you should think about us doing $20, $30 million a year. If I look at the average since then, it is well above that. How do we think about the modeling of a baseline of deals. And I’m not expecting you to forecast going forward into the model, I guess...

It is a great question. And certainly we understand the question. I think that, our view is that we are, some years are going to be stronger than others. And I think that it is fair to say that, our view is that we want to stay disciplined. We are going to continue to execute those transactions that really can create a tremendous amount of shareholder value. And I think that, it may very well be that some years are going to be stronger than others, some years we are going to be at the lower end of the target.

Our cadence is almost about 10 acquisitions a year. It is about the cadence we have been doing. It doesn’t mean that we will continue, but we have done 38 acquisitions in 2018, since we have reinvigorated.

We have had a couple of years of $20, $30 million of acquired, right.

Some of bit more, and as we kind of looked for a strategic plan and look into the future and in what is the biggest building blocks for us is driving free cash flow growth 10% to 15% a year. We have definitely be set in some years, and acquisitions help us to be that on the core side. We are definitely trying to hit that metric and we believe we will create a lot of value over the next few years.

So when were you at the market started baking in 40 million of acquired revenue a year?

Well, we are not going to I mean, we are going to stay disciplined in terms of what expectations that we are setting. I think that our view is that the path that we are on in terms of the expectations that we have been setting at 20 to 40 million, obviously we are going to be closer to the upper end of that. If you look at what we have done from a historic standpoint, but we are not going to set a different expectation at this point.

Yes to see it slightly different way. We are not going to change how we guide, Michael. So we have never guided acquisitions that we haven’t completed. This is not how we do it. We don’t plan the guide. We don’t try to change that methodology, although we tried a few things and it worked well for us.

No, you should. On the other hand, I make a living model, so I just want - Volume, everybody likes to say what the other guys were all saying. So one of the things one of the other guys said, hey, we had a really nice recovery at the end of September in New York City. I talked to the largest private market recently, and they have been running down 15% in New York and now it is down 10% to 12%. So it is starting to pick up and I guess the interesting question is if it does where does it go even if the transportation thing is a problem. I mean, it is got to come to you, I mean somehow it has got to get to you.

Well, from a transportation standpoint, yes, a lot of it will come to us. I think clearly, those facilities that are closer in from a transportation standpoint are being access now.

The first sites to fill up was a [merger site] (Ph).

Correct. And those sites that are transportation advantaged. So they are going to fill up first.

And we also saw volumes build through the quarter, Michael, July was a little bit softer year-over-year. And to your point September, what was the best month of that rate year-over-year, and some nice trends as well.

Okay. And then, last summer, you didn’t have much of a things changing seasonality, but I talked to a lot of people in the hospitality industry up in New England through the quarter. And it sounded like it was better, but not as good as it could be given constraints on. Are there even restaurants open and can you get a hotel room. So can you talk about your seasonality and as a potential event, when I think about next year, I still got room for improvement?

I don’t think there is any question about it. I think we haven’t seen the numbers in terms of tourism and what fall foliage is net across the Northeast, but clearly, positive on a year-over-year basis, but nowhere near what it should be. I mean, I think we are still probably 20%, 25% off of the height before the pandemic. What will be really interesting is what we see from a species standpoint across the entire Northeast, cause that affects us, and Vermont, New Hampshire Maine all of those states, and it is not only the skier is it is obviously the ancillary business the hotels, the motels, all of the restaurants, everything else all of the infrastructure around that economic activity. So, certainly, we are thinking that that should improve this year hopefully as well.

Okay. And then can we get an update on two things, the status at Dalton and the status of your rail permit development?

Sure. Ed mentioned that Mark Simmons has come onboard, VP of Business Development and he is organizing that effort, got the entire team from affirming, compliance, operating, engineering. And Mark has coming on board and taking that on as one of the major developments for us. So we are really excited to have him on board to take that forward. So, we are moving forward with that with Dalton moving forward in the permitting. We are submitting our permits, we are in the process of resubmitting our wetlands permit there, and I think that is going to be completed at the end of this week or, you know, perhaps next week. So, continue to move forward, you know, difficult process as, you know, very controversial. But we are continuing to move it forward.

And you, I can’t remember which quarter, sort of alluded to you thought you might be actually moving volume by rail by the end of 2022. Is that still…

I think it is probably more likely to be, 2023.

Okay. And then, I can’t help but ask this cause I always ask I got every three years, so 2018 plan looking into 2021 you have blown the doors off of the free cash flow number. So what is the 2024 plan.

So, we have put the 2024 plan, of course, the board did give us another five minutes of congratulations when they realized that we had already met the 2021 plan. And, we have already put in place with 2024 plan, but we haven’t really talked about that at this point, have we?

No, it is definitely, not be kind of sea changes in strategy from our standpoint, we are still focused in the same kind of building blocks. One thing we did do with our strategy is further put a foundational structure in place is how we are investing in people. I would call them our foundational pillars, people development technology, our sustainable growth team, and also a facilities plan. We have been so successful with our multi-year fleet and multi-year heavy equipment plans that we have put a facilities plan in place to make sure we have necessary infrastructure as we continue to grow. So, probably the biggest goal last year most excited about is we are looking to grow free cash flow from 10% to 15% a year.

Okay. So 10% to 15% off of them, you know, take the midpoint of the current guidance. That is what I needed. Thanks.

Thank you. And our next question comes from Sean Eastman from KeyBanc Capital. Your line is now open.

Hi guys good morning nice quarter. So just trying to think about the margins into next year. I think a 40 to 50 basis point number is sort of a normative level, but just in the context of the comments around you and getting more aggressive on pricing programs to stay ahead of inflation combined with, you know, what seems to be continued, you know, momentum and runway around, you know, technology, automation, route optimization, et cetera. I mean, is this setting up to be a more outsize margin expansion year versus a normative level in 2022, how should we think about that?

You know, if you would asked that question before the summer, I would have said we probably were trending a little bit higher than the 50, with all the labor challenges hitting the industry, other industries, I would say right now, we are looking at trying to do the 50 basis points for next year. We are still in budgeting, still a lot of moving pieces. As we mentioned a minute ago as well, acquisitions do weigh on margins and we will have the roll over next year, $50 million of revenues that is below our core business. So will be kind of a headwind coming into next year as well. We did a very nice job over the last several years of bringing acquisitions into our core offering programs, our core pricing programs and working off margins. Over a year larger ones is sometimes 16, 18-months or two years to get everything done and work through various equipment and contractual obligations you name it. So, it is hard to see that budget rules yet. I don’t want to get ahead of myself, because we do have that weighing on us a little bit, and we do have labor shortages, and we have done a lot to right-size wages. So we have got some great stuff happening on the operating programs. We have got some great pricing programs, we have got those two other things moving against us.

Okay. That is super helpful. And you have got the 15 million of rollover locked in already for next year. Sounded like there is a handful of opportunities sort of in that LOI phase that are kind of near term potential closers. Could you quantify that for us?

I don’t want to quantify that exactly yet because I don’t know what is going to come this year and next year, but you are right. We do have a handful of deals in the LOI stage. We are working through diligence, and we get into the fourth quarter. Sometimes you don’t know if it is going this year and next year. But I can say we have got four or five acquisitions or nice tuck-ins in our footprint that we are working on.

Okay, terrific. And then maybe just routing out the volume discussion you had with Michael there. It sounds like we still have sort of reopening juice left, and I’m not sure how much is left around this kind of New York city disposal dynamic. It sounds like momentum and kind of tourism element of the footprint should have some momentum into next year. And then it just becomes like this incremental demand story. And you guys have also talked about this urban flight being a tailwind in the business that could enjoy. So, I mean, should it be kind of an outsize volume year. I mean, obviously not the same as this year, but what is still above normal going into next year as we think about volume?

I think it is fair to say that we are, we are anticipating that some more of those times will come back. But I think that you also have to recognize that a lot of restaurants are gone, a lot of that good portion of the activity, that is not going to come back or it will come back over a longer, much longer period of time. How much business is gone, how many small businesses are out of business, particularly as it relates to the city that is a difficult equation to really understand it. At least from our perspective anyway, we do think that we are going to see more times coming back as the economy continues to expand in New York, but I think that there is a portion of it that is going to take a longer period of time to come back.

You also see our collection business today, where as John and Ed both said, we are not immune to the labor challenges and not all of our seats are filled. So what does that mean like, we are very selective for a pricing standpoint, and you don’t go after every new piece of work. So, we are definitely in that stage right now, it is focusing more on quality of work over quantity of work as a team, just because we can’t put all and in even if you wanted a new truck today, you are out. I don’t know how far we now add maybe 15-months or so longer on a new truck. So it is definitely a point in time where you are going to see focus on margin, focus on price, and maybe not as much dynamic organic growth because of lack of labor, lack of quick trucks.

Makes total sense. Thanks for the help. Have a nice weekend.

Absolutely. You too.

Thank you. And our next question comes from Michael Feniger from bank of America. Your line is now open.

Thanks guys. And thanks for taking my questions. Just following up on that last question, just because of the inability maybe to get some trucks this year, and you guys are doing a lot of acquisitions and investments. I’m just wondering Ned is, do we look at 2022, is there going to be like a bigger step and potentially just capital spending because of the inability maybe to get some trucks this year and make the investments necessary for your growth?

Yes, sorry, I didn’t mean to imply that. So, Ed says it is quite an amazing shot. He is planning like multiple years ahead for like our ongoing fleet needs, and you are ordering sometimes in year and half ahead.

We are getting there CapEx approved by the board for truck assortment a year, year and a half ahead of the needs. So, incremental growth issues as opposed to budgeted CapEx for replacements.

We do have an inventory or we have the dealers hold an inventory for us if we pre-order some trucks, but it is still not enough to handle all of the acquisitions.

And pro forma acquisition, we don’t assume day one, you are getting integration benefits or maintenance cadence or things from new vehicles, we are realistic in our approach that it might taking two years to get some of that end and then really driving to our standard or automation or lower costs.

I think it is true too though from a equipment standpoint, we are also ordering additional chassis so that we have as we deploy that capital and we ordering some additional chassis to support some of the acquisition growth. So with that said, we have got additional chassis that are there, but once those chassis are gone from a growth perspective, it is exactly what Ned said. It is much more difficult to take that additional business because of the lead time to get additional equipment.

Got it. There is nothing that we should think 2022, the CapEx intensity or CapEx or sales is going to be…

Not at all.

Perfect. And then I know you were answering Tyler’s question before around CPI and you guys have this subscription portion. Just how do we think about over the course of 2022 when I figured collection landfills, when price increases kind of flow through the business. So can you go back to a customer that you put in, let’s say a price increase in April or May or June. And like you were saying before that obviously the summer kind of changed things. Can you go back to that customer now or strategically, do you kind of wait to next year to put in that bigger price increase to cover some of the costs and like, how does it kind of work when I think of your collection side and your landfill side?

So, this is one of the benefits to our book of business. As you said earlier, a good 75% of our collection book of business we can price when we want to and deposit inflation. So we have instructed our teams that we will do our normal pricing cycles in Q1, but we are going to revisit this as we move through the year next year. And if cost inflation stays higher dynamic, we will look to see if there is any need for a second price increase or whatnot to a customer. And we are not in much of our book of business we are not limited from doing so. We just need to be thoughtful about if costs really have moved.

Got it. Perfect. And just curious, like solid waste pricing. I think you said in the fourth quarter, you are charging 4% higher. You did that, it looks like in the third quarter with 4.1, any reason why that doesn’t accelerate much further. I mean, I guess 4% higher would maybe assume that. I’m just wondering, because I think your pricing’s kind of offsetting your cost inflation. I think you said it was 4%, so it is offsetting that. I’m just curious if that, if that pricing piece starts to the price versus cost inflation dynamic starts to shift a little bit in the fourth quarter or is that more, you know, first half next year.

It is probably a little more first half next year. We are in budgeting. So teams are doing a lot of analytical work right now and you are lining up how pricing programs and pricing activities are going to work coming into next year. So you don’t want to jump the gun too much and you want to do all the analytical work. So you know, we probably won’t be jumping too much ahead of that, but you could see some more of it moving December, January.

Perfect. Thanks everyone.

Thank you.

Thank you.

Thank you. And our next question comes from Alexander Leach from Berenberg Capital. Your line is now open.

Morning guys, congrats on the quarter and thanks for taking the question. So just a quick one from me, most of my questions were asked already, but, you mentioned the driving Dolly tree with a non-tech unit. Can you just highlight some of the ways, you will you will be doing that with the acquisition. Is it just a matter of sort of driving density or in the sense of bigger acquisition compared to sort of your average, you know, are there other synergies that have to be realized?

Sure. So, I will, I’m going to guess the number of transfer stations and, you know, over time, those transfer stations will be able to be internalized. So some of that waste, not all of it obviously, but some of it will be able to be integrated to, our asset base, over time when some of the contracts that are in place are expired. So also there is opportunity to fill in from a tuck-in acquisition standpoint around Willimantic. So presents a, another platform for us for additional growth, as well. And there is you know, there is just an opportunity, from an operating standpoint, operating efficiency, to bring new technology and operating efficiencies to you know, to the business model. So, you know, we are really excited about it. I think there, there are a number of different opportunities, the other. The other thing that sits over the top of it is our resource solutions group from an industrial customer standpoint having the opportunity to have the assets there to service industrial customers colleges and universities, another nice market area for that group to also generate additional revenues.

Okay, great. Thanks a lot.

Thanks.

Thank you.

Thank you. And we have a follow-up question from Tyler Brown from Raymond James. Your line is now open.

Hey thanks guys. Just real quick on the two RNG projects, are those landfills flaring or are you up fitting dirty gas, I mean two when did those come on?

So the operation in Maine, which is one of them, they are flaring the gas. The matter of fact, actually both the operations they are flaring the gas.

Both of them are flaring. Yes.

Any thoughts about when those come on and then…

The one that New Hampshire is about to come on next spring and they are on track, it is under construction. The one in Maine will be some time after that. It is a more complicated situation they have with their, with the gas company there that they are trying to work a deal. And so I would think that both are…

Yes New Hampshire is going to be the first, it is under construction now, concrete in the ground, buildings going up. So that will be in the spring, and then the Maine will follow probably in a year. That will dramatically reduce our greenhouse gas footprint as well.

Right. Are the [RINs] (Ph) going to be sold forward or we will like float?

So, we haven’t worked through with them yet on how they are going to do that, but we will get a revenue share upfront for our gas in a cash flow waterfall. And then will be other share in both gas sales and RIN sales as well from an upside standpoint. And that is one of the things we need to look through, because there are some great opportunities to sell rins forward in the market right now, as you pointed out.

Yes. Alright. Interesting. Thanks.

Thank you.

Thank you.

And thank you. And I’m showing no further questions. I would now like to turn the call back to John Casella for closing remarks.

Thanks everybody for joining us today. We look forward to discussing our fourth quarter 2021 earnings and our 2022 guidance with you in February of next year. Thanks everybody. Have a great day.

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