Good day and thank you for standing by. Welcome to the Casella Waste Systems, Inc. Q4 2021 Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised, this call is being recorded. [Operator Instructions]. I would now like to hand the conference over to your host today, Joe Fusco. Sir, please begin.

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 Vice President of Finance. Today, we will be discussing our 2021 fourth quarter and year-end 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 the 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 Web site at ir.casella.com. With that, I'll turn it over to John Casella who will begin today’s discussion.

Thanks, Joe, and good morning, everyone. Welcome to our fourth quarter 2021 conference call. We are very pleased with our results in the quarter as we finish the year strong and continue to execute well against our key strategies. Ed and Ned will provide color on the quarter, but I would like to focus my comments on performance for 2021, our forward outlook and our strategy. In August of 2017, we laid out our multiyear 2021 strategic plan. The plan included key strategies most relevant to driving shareholder value, along with a financial framework that provided measurable targets to track performance. As we exit 2021, I truly could not be prouder of what we have achieved. As a result of the hard work, focus and discipline across the organization, we exceeded all key metrics of the 2021 plan. As an outcome, we grew the business meaningfully in 2021 through our pricing programs, operating initiatives and growth strategy. For the year, revenues were up nearly 15%, adjusted EBITDA improved over 18% and adjusted free cash flow increased roughly 38%. Our performance reflects continued strong operational execution within our base business, combined with growth through acquisitions. During 2021, we closed on 10 acquisitions with $88 million of annualized revenues. In the first 45 days of '22, we've closed on five additional tuck-in acquisitions with approximately $4 million of annualized revenues that have a great strategic fit. As our momentum carries into 2022, we have a plan that aligns with our recently created 2024 strategic plan. The key strategies of the 2024 plan are very much consistent with those of the 2021 plan are as follows; one, increasing landfill returns; number two, driving additional profitability in the collection and operations; third, creating incremental value through resource solutions; and the fourth, allocating capital to…

Thanks, John. Revenues in the fourth quarter were $241.8 million, up 41.6 million or up 20.8% year-over-year, with 11.7% of the year-over-year change driven by acquisition activity and the remainder from organic growth. Solid waste revenues were up 18.9% year-over-year with price up 4.3%, volumes up 2% and acquisition growth of 12%. As expected, our price growth improved again sequentially from the third to the fourth quarter. Revenues in the collection line of business were up 18.3% year-over-year with price up 4.8% and volumes slightly up. Revenues in the disposal line of business were up 19.3% year-over-year with price up 3.3%, volumes up 5.9% and the remainder acquisitions. Landfill pricing was up 4% year-over-year with landfill tons up 4.2%. We still have a negative basis to pre-COVID tonnage levels of roughly 300,000 tons. Resource solutions revenues were up 26.4% year-over-year with 8.3% from higher recycling commodity prices, 10.7% from growth from acquisitions and the remainder from higher processing and non-processing volume growth. Commodity prices were up year-over-year and our higher cardboard, mixed paper pricing, higher metals pricing and higher plastics pricing. However, from September 2021 through January 2022, commodity prices have dropped by roughly 30% with the declines driven by plastics and fiber pricing. Adjusted EBITDA was 51.4 million in the quarter, up 8.8 million year-over-year and adjusted EBITDA margins were 21.3% for the quarter, flat year-over-year as acquisitions negatively impacted margins by 35 basis points and fuel costs, net of our muni [ph] fee negatively impacted margins by 11 basis points. So excluding our acquisition impacts, adjusted EBITDA margins were up roughly 35 basis points year-over-year with our pricing programs and cost efficiency efforts offsetting the rising inflationary pressures. Solid waste adjusted EBITDA was 43.7 million in the quarter, up $5 million year-over-year with collection and disposal adjusted EBITDA…

Thanks, Ned, and good morning, everyone. So we finished the year strong. We're excited about our growth and our positioning going into 2022. All our operational improvement programs are building momentum. And with 20% more revenue now than Q4 a year ago, there was more opportunity to apply these proven programs to new divisions. Having said that, I know everyone is focused on inflation, pricing and our ability to maintain margins. So I'm going to concentrate my comments accordingly. For the quarter, on a consolidated basis, cost of ops as a percentage of revenue increased 78 basis points and adjusted EBITDA margins were roughly flat. Acquisitions accounted for an 80 basis point increase in cost of ops as a percentage of revenue and negative 35 basis points in EBITDA margins. The margin dilution on the pass through of higher fuel cost accounted for another 11 basis points headwind, so cost of ops and EBITDA margins net of these items improved about 13 and 46 basis points, respectively. As I've discussed on prior calls, acquisitions will generally hurt our margins for the first couple of years until we put in our operating programs, introduce technology, improve equipment solutions for the services provided, and execute on synergies. The best example of this is our Rochester operation. I looked at the financials for 2021 and margins for Rochester are now almost exactly the company average. We accomplished this by implementing our best practices, converting to the most efficient equipment to service that market and using our technology to streamline routes. So I'm very confident in our ability to execute, but it takes a little time. About half of our revenue comes from our collection operations and we had a great quarter from a bottom line perspective. Cost of ops in this line of…

Thank you. [Operator Instructions]. And our first question comes from Sean Eastman from KeyBanc Capital Markets. Your line is now open.

Hi, gentlemen. Just wanted to start on the 2024 plan. Just at a high level, it kind of sounds to me like don't fix what ain't broke kind of message around the 2024 strategy, it sounds like maybe human capital is a bigger focus. You juice [ph] the M&A target a little bit. But is that kind of a fair characterization here?

I think there's a very clear perspective, Sean. I think clearly over the last few years, I think everyone has got a focus on people and HR. It's a much higher priority and certainly attracting drivers and mechanics retention. We've got to do everything that we can as an industry to attract as many, many people coming out of high school as we can that are not going on to college. So the people, the technology, facilities, those pillars really help us to drive the overall performance of the business.

And when we sat down to look at the strategic plan, the core strategies are working amazingly well. But underneath those are sub-strategies that we're focusing capital resources on people resources. We also took a good hard look at our growth over the last few years. We've grown from 1,600 people to 3,000 people in less than three years. And as we look around to be successful for the next three years, next 10 years, we really do believe we need some additional investment and key foundational elements, and that's where that part of the plan has emerged. And there's not like some radical shift there or huge dollars. It's just kind of taking what we're doing, codifying it and improving it and really just making sure everyone's rowing in the same direction.

Okay, got it, very helpful. And the comments around the intentional mix shift just associated with the transfer stations and the upcoming disposal capacity coming online. Can you just sort of explain that in a little bit more of a simpler way? And how that dynamic -- how much of a margin tailwind that dynamic is over the coming years? I just want to make sure I understand what you mean there.

Yes, happy to do that. So if you look in our market, everybody knows that disposal capacity is very limited and things are shifting. States like Massachusetts are looking to export all their waste. We're now down in Connecticut. They're struggling with their disposal plan. So what are you going to see in the market over -- you're already seeing it, you're going to see it more over the next few years, is a move towards transfer stations, including rail transfer stations, to get waste to the existing sites, because they're not permitting any new ones. So the plan is we need to expand the existing sites. We do have a lot of permitted capacity at McKean as well, and it's time to take advantage of that. And to get it there, we have to strategically place ourselves in the market where the disposal crisis is so that we have transfer stations to move that volume to these landfills.

And another example of this is our investment in Buffalo, New York. We've purchased two transfer stations there and it's about 40 to 50 miles away from our Hyland landfill. There's a landfill in the Buffalo market there will be closing in the next several years that takes 400,000 to 500,000 tons a year. At the same time, we're working on expansion at our Hyland landfill to take it from 400,000 tons a year to 1 million tons a year. So intentional moves like this of looking at markets that will be capacity constrained, adding assets like transfer stations that can allow us to vertically integrate and build our business. And as Ed said, the McKean rail strategy, are parts of what we're looking at intentionally over the next couple of years to drive great organic growth.

And then the idea there that you can drive a lot of that growth from disposal, which is higher margin.

Exactly. And it gives us a platform for growth and integrated growth from recycling resource management to collecting waste to disposing of it. If you don't have a full set of solutions, it's hard to gain new customers, it's hard to grow that base. So finding ways to make sure we are secure in our ability to handle waste and recyclables over the long term is important to us.

So your question about the margin effect, which is what I was trying to address was -- so we have a timing issue here. So we've expanded in the transfer stations, which as everyone knows is not where the margin is. The margin is at the landfills. So once we start internalizing that volume from these transfer stations into our landfills, you see the margin effect for the company.

Got you. Okay, great. Super helpful, guys. I'll turn it over there.

Thanks, Sean.

Thanks.

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

Hi. Good morning, guys.

Good morning.

Good morning, Tyler.

Hi. Thanks for some of the color in the prepared remarks about pricing broadly. But can you just talk a little bit more about landfill pricing outlook in '22 and even beyond that? I know things have slowed a bit in '21 on the New York City dynamics. It doesn't really sound like those volumes are tightening up that quick. So can you just talk a little bit more specifically about the outlook longer term there?

Yes, it's interesting. We've talked about this for a few quarters where sometimes statistics tell the story perfectly, sometimes they don't. In our reported landfill pricing stat has maybe not fully told the story. It was 4% in Q4, which is up from 3.5% in Q1 '21. So it has been increasing. It's over 4% into January. But probably more importantly, our average pricing stat was over 6% in Q4 and increased into January. And you got to really -- the way we calculate stats, we talked about this last quarter, same customer, same site, same type of waste, how much we have changed it year-over-year. But we're changing customers, we're changing mixes, we're blending up our book of business, which is creating more profitability. And that doesn't really show up in the price. The way we have it calculated, the average stat shows it better. So we're excited with the pricing plan for the year. We've gone out to the street with most of it in collection and at landfills and it's sticking. And if we see additional opportunity to push price either to cover more inflation or to just advance pricing in the market, we'll look to do that again in 2022.

Okay, that's extremely helpful. So I do want to come back to the margins and the outlook. I think you're looking, and correct me if I'm wrong, but maybe 40 basis points of improvement next year. But that is despite some dilution from layering in that M&A. So you talked about price exceeding inflation. But can you just talk about some of the broader puts and takes to margins? Is there anything that's kind of one-time that we should think about?

Yes. So if we look at 2021, just as a starting point, our margins were up 75 basis points year-over-year, up strong in the first half a year. Second half of the year a little bit more muted with more of the acquisition overhang. For the full year, we had an acquisition overhang of about 30 basis points. So if we net those two together, our margins were up over 100 basis points for the full year. And you start to get under the hood of what drove that in big pieces. As Ed said, our core investments in technology offering programs drove about 30 plus basis points, recycling, our SRA fees, those programs drove about 35 basis points. And then pricing drove 50 to 60 basis points. And then there's a couple like one-time things and other moving pieces. But those are the big buckets. As we enter this next year, Jason, how much acquisitions overhang into 2022?

Yes. Thanks, Ned. So in 2022, there's on a full year about a 25 basis point headwind as it relates to acquisitions. In the first half of the year, it will be more dramatic at about 35 basis points in the first half of '22 and about 15 bps in the second half of the year. And it will roll over.

And as we look to the year, we expect recycling from the slowing from September through today to actually be positive year-over-year in the first half of the year, but then negative in the second half of the year, unless something really changes. But no other really big moving pieces. We expect that same kind of 30-plus basis points from the core operating programs and we expect pricing to do the same thing, 40 to 50 basis points of improvement.

Okay. And if I can squeeze one last one here real quick. You talked about the Boston MRF upgrade. So is that capital spend in the $15 million add back to free cash flow or is it not? And secondly, I missed it, but --

It's not.

Okay, it is not. Okay, that's helpful. So can you talk about what the 15 million is on the add back, which I think is Waste USA, but I'm not sure? And then secondly, and I may have missed it, but when does the Boston MRF come online, or when the retrofit is done? And then how much of an EBITDA contribution is that once it's done?

Okay. The first Boston MRF investment of $18 million is actually spread between 2021 and 2020. About $6 million or $7 million happened this last year. We didn't add it back. It's just in maintenance -- what we call maintenance capital or recurring CapEx. The additional investment next year of $11 million or $12 million in 2022 -- I'm sorry, is just in our maintenance recurring capital, it's not something we are adding back. There really is only one category of capital that we're adding back this year, and that's associated with the integration of acquisitions. So as we've explained in the past, when we look at a pro forma for an acquisition and we buy a business in the first 18 months, we'll over invest in that business to drive synergies, to get into our systems, to consolidate facilities. And that's what that $15 million is associated with. In waste USA, it's done. A very successful project, three years in the making, the cell is open, waste is being placed and that will not be add back into the future.

Okay. And then EBITDA contribution?

I’m sorry. Yes, it's several million dollars once it's all done, but we have to ramp additional customer facility. So we're adding about 35% new capacity to the facility by increasing throughput and being more efficient with less people. So we're not just going to snap our fingers in 2022 and have more tons, but it will allow us to grow into that over a couple of years. So you'll see less downtime, less maintenance, and there's $1 million of benefits there. But in the year, us being shut down for six to eight weeks and having to move recyclables all over the Northeast, it's going to suck up all those savings. And then you look out over the next couple of years, we've got some really nice built in organic growth there to build that business and meet needs.

Okay, great. I'll hop back in the queue. Thanks.

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

Thank you very much. Following back on the landfill side, I'd like to understand the juxtaposition between scarcity value of the space, so you brought that Ed, versus there probably is some ceiling that gets triggered by with more competitive transfer stations add rail, so that optionality in the rail, but why can't you get more price in the landfill now given the scarcity value?

Well, I think we are getting quite a bit of price. As we said earlier, Michael, we ended Q4 with over 6% average price. If you look back over the last couple of years too, you'll see from a reported pricing standpoint, we had periods of 6% to 7%. And those were related to some rollovers of long-term contracts. About one-third of the tons going into our landfills come from our trucks, one-third from long-term municipal contracts and one-third from commercial contracts. And those municipal contracts are typically longer in nature, three to five years. And what we've seen is when we roll over those contracts, we can get larger increases. And then within the term of the contracts, they're a little bit lower. They increase is sometimes their CPI indexes, sometimes their set indexes. So you might see some periods of higher pricing, some periods of pricing more at that 5% level as we look out over the next couple of years in that mix of our book of business.

That's particularly true when you have a really large contract and we have a couple of contracts, Michael, that are in that vein with 300,000 tons a year. There's a really nice increase to price when that contract is renewed, but then it's somewhat tied to inflation for the period of time of the contract until the renewal. Then it would be appropriately adjusted.

Right. Okay. I have a second question, but I'd like to follow up. Boston renewed like $94 for the burners, but the spot market is at 120 right now and that rate of change there seems greater than when I figure out how much cost to drive each of your facilities, the rate of change you've been taking advantage of. It's just a wonder if you couldn't do more, given the scarcity value. That's where that sort of is coming from.

I think it's a good question, and it's something we're continually looking at and addressing where we can address additional pricing. And as you know, transport is very complex right now. There are multiple shifts of where waste is going across the Northeast as additional rail opens up and people struggle to move waste out in markets where you have closing facilities. And I think from our vantage point, we just understand this as a long-term opportunity. And it's not just a one-year opportunity. So this pricing is going to come for years into the future. And I think from our vantage point, we're adding value, we're adding margin each year, we're adding returns at the sites. And if we can course correct a little higher, we'll do so.

Okay. The second question is --

I was just going to say, Mike, we're also offsetting substantial inflation at this point in time as well.

Fair enough and I do appreciate that, and I think that shouldn't be lost on anybody that the industry has validated. You can react to this as well as you've reacted to other things and maintained the quality underlying cash conversion. So to that, the cash conversion -- so you have enjoyed an NOL for a long time. We're starting to whittle into it and this is the benefit of really good success. You're going to run out of this NOL, probably three years. How do we think about if we're modeling a free cash flow analysis, what's that step up?

Yes, so we are taking less bonus depreciation right now with thought that we will maintain more tax depreciation as NOLs roll off, Michael. So, as you know, bonus depreciation goes away in 2026. We were taking a lot of advantage for taking a little bit less advantage today, so we can keep those tax assets in place. We've also -- as you well know, we do almost all of our acquisitions as asset deals. So we can take the step up in valuation, depreciate from a tax standpoint to assets. Willimantic was a 338(h)(10) election deal, which was a stock deal, but we treat it as an asset deal from a book standpoint, which was really exciting, because it also helps to improve our tax standpoint. But you're right. Probably by 2020, our NOL position is mainly consumed and we're stepping into a more normalized cash tax pay. And you'll see that step up as next year we'll be stepping up for about $1.5 million of cash taxes in '21 to $4 million in 2022. And you will see a step up of few million dollars each year over the next several years. And we'll be working additional strategies to try to manage that over time.

But what I'm hearing is talk about that this is 5 million to 10 million, not a 20 million or 30 million thing?

Yes. It really depends on the year. But by 2024, we’re up like 10 million in cash taxes. That's generally what's in our models today, but not 20 or 30.

Okay, that's very helpful. Thank you very much.

Thank you, Michael.

Thank you, Michael.

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

Good morning. Thank you. I may have missed this, but could you just remind us how much of the business is inflation indexed? And how the resets work? And then I think you had mentioned a specific Casella inflation index, and maybe talk about how that plays into it and if that's already in the contracts?

Yes, a good question, Hamzah. Nice to hear from you. On our book of business on the collection side is pretty unique, as you know, where only about 10% of our collection book of business are municipal contracts. About 25% are subscription residential agreements where we have pricing flexibility, about 35% is small commercial customers where we have pricing flexibility, about 15% is temporary construction roll off and the remainder are long-term industrial roll off contracts that typically have set escalators. So a large degree of our book of business is over 70%. We have a lot of pricing flexibility. And then where we do have linked contracts, about half of them are CPI linked and about half of them have set escalators. And those CPI linked contracts they vary from CPI used to regional CPI to somewhere on the trash and garbage index. But given where CPI is, those should be nice tailwinds this year. As far as the cost index that we talked about earlier, it's interesting, because you see the headline CPI huge [ph] numbers of 7.5%, and then you dig into our business or anyone in the trash business and it's not perfectly reflective of what we do. And you start to look at the components of that 7.5%, and there are things like cars and other kind of categories that aren't exactly related to our business. So we created our own internal CPI index looking at key categories to just make sure we take out any sort of price volume indicators and where our aggregate basket is sitting at 4.1% today, which is quite interesting, because the Bureau of Labor Statistics trash and garbage index is right at 4% in January. So our internal index is sitting right on top of what the BLS is predicting for the industry as well.

Right, very helpful. And then just my last question, and I'll turn it over, is just on the -- I think you guys highlighted free cash flow growth 10% to 15%. Correct me if I'm wrong, but it seems like you've been growing over 10% free cash flow growth recently. And so is that -- and then it also feels like you have more self help on your solid waste margins. So maybe talk about or maybe just flush that out. Is that conservatism or maybe we're missing something else?

Yes, good point. We have been growing higher than 10% to 15%. We've been growing closer to 20% for several years now. And I guess if you look at just core organic growth, we're growing more like 10% to 12%-ish. And then you add in acquisitions, that accelerates us greater than the 15%. And as we kind of guide that 10% to 15%, we're not really including acquisitions. And as Michael mentioned a few minutes ago, we're going to have a little headwind from cash taxes over the next number of years. So that will be not moderating significantly our growth rate, but will moderate a little bit. So I think we're really comfortable with that 10% to 15%. And we'll look to hopefully beat it with some acquisitions as well.

Got it. Thank you.

Thank you, Hamzah.

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

Hi, everyone. Thanks for taking my questions. You may have covered this Ned. Your CapEx guide for 2022 I think is around 120 million. It's actually down from 2021. So with all the investments and growth opportunity, any reason why we're not seeing that capital spend and the level of investment higher with where you guys are in the cycle?

Yes, we have pretty unique investments happening in 2021, the largest of which was getting open this 25-year sale at Waste USA, which is a real unique one-time investment for us. We don't usually open up an entire 25-year period like that. So that was a bit of the reason. I don't know, Jason, is there anything else we're seeing there? There's no kind of like major decline in any category.

It’s primarily Waste USA year-over-year. And I think if you look purely at our absolute capital less the CapEx that we add back related to acquisitions and Waste USA, last year in 2021, you'll actually see what we'll call our maintenance capital step up slightly year-over-year from about 9.5% to 10.5%. So we are maintaining a consistent level of spend year-over-year, if not slightly increasing.

Yes. I think one other kind of comment there, and it goes to something as really passionate about and put a lot of work into our fleet plan, our yellow iron plan and now our facilities plan. You got that planned out years into the future, Ed.

Yes. And we have a lot of automation opportunities still in the company. So look forward to the efficiencies we gained through that fleet plan in the next few years.

Great. And I apologize if you guys touched on this earlier. You talked about with Hamzah that 4% of what you guys are seeing within your internal costs. Is that, Ned, what you're embedding for your guidance for cost inflation in 2022? And do you have that easing at all in the second half, because based on the margins you're obviously likely to see more operating leverage it looks like in the back half of the year? Just curious how those dynamics kind of play out?

Yes, you're right. We are. That is in our model right now, 4% cost inflation for 2022. We don't have it easing in the back half of the year. However, the negative overhang from acquisitions moderates through the year and that allows our pricing programs and our cost efficiency programs to add more margin through the last half of the year.

Makes sense. And just to squeeze one last thing, I know you guys were very early in restructuring the whole recycling model. So forgive me for asking this. How do we think about the sensitivity to commodity price? I believe you said earlier, Ned, that the fees were 35 basis points tailwind to margin in 2021. So I'm just trying to get a sense like what are we kind of thinking about for 2022? And how does that relate to movements we see with fiber prices, for example? Thanks, everyone.

I'm going to give you like the two-minute answer on this. And if you want, give me a call and I'll explain even further.

Sure.

At our recycling processing facilities, we put thresholds in place. And they're equal to our fully loaded processing fees plus a margin. And those thresholds are around, let's say, $100 a ton or maybe a little bit higher, a little bit less. And if commodity prices click over those thresholds, we start to share some of that additional commodities with our customers, maybe 50-50 or a different formula. If they click below that, and we can sell say the average basket of commodities for $70 a ton, a customer would pay us a processing fee of 30. What happened in 2021 is we click through those thresholds for the first time in four years. So we started to create more money to our bottom line and we gave more back to our customers. But that 90% risk off take that we have when we're below the threshold shifted, where we actually added more value from recycling, but we also took on a little bit more risk. So if you saw recycling commodity prices drop through the floor, we would have some downside until we hit those thresholds. Once we get below the thresholds, our customers then start taking on the risk dollar-for-dollar. But above those, we accreted some additional value in 2021.

Okay. I appreciate it, guys. Thanks for running through that with me. Thanks, Ned.

Thank you.

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

Hi, guys. Thanks for taking my question. Just a quick one for me. You mentioned wanting to improve customer mix, to improve quality of revenue. Could you dive into that a little bit more, what sort of end markets or customers does that include and one of the characteristics that makes revenue from them high quality?

So I think that there's a real opportunity from a resource solution standpoint in terms of meeting the needs of our customers, particularly as it relates to colleges and universities, industrial customers and municipal customers for that matter in terms of helping them to meet their sustainability goals. And that's somewhat down the middle of the fairway in terms of improving. We know where people are really trying to move the needle from a sustainability standpoint, and they understand that there's cost associated with that, and it gives us an opportunity to help solve that problem and improve our book of business as well. I don't know if you have anything to add, Ed.

Yes, just going to mention that there's an interesting trend over the past few years where we used to propose to colleges and universities a sustainable solution. And a few years ago, they'd react just based on the cost at the end of the day and not accept our proposal. And in the past year or so, we're starting to see quite a bit of success, because the attitudes have changed and the colleges and universities are much more focused on the overall intrinsic value of being sustainable. And we've started having a lot of success.

It's the same thing from the manufacturing standpoint; major manufacturers, major industrial customers, we're seeing the same thing. They're all trying to rethink their processes, rethink their packaging if they're packaging a product, et cetera. So there's just an awful lot of activity that is lending itself to higher margin customers and people that are obviously willing to pay for those type of services.

Okay, great. Thanks, guys.

You’re welcome.

Thank you. And our next question comes from Tyler Brown from Raymond James. Your line is now open.

Hi. Thank you for the follow up.

Hi, Tyler.

No problem.

Hi. This may be a hard question, but I'm going to ask it anyway.

You’re not supposed to ask hard questions.

Yes. Well, given that the Northeastern market is and it's going to continue to be a long haul waste market. And it sounds like it's probably going to become even more transfer centric with the build out of rail. How do you -- how should we think about the long-term solid waste margin profile versus your peers? So if there are say, let's just call it low 30% margins, are you structurally a couple hundred basis points behind that, or just any help on handicapping that?

Yes, but I don't know exactly the mix of our peers and their exact margins, but we do know and we -- today it's a negative hit to our margins where almost every ton we handle goes through a transfer station and gets transferred far distances to landfills or disposal sites. We have very few direct drive routes. And that's not the case around the country. There are many more garbage trucks that pick up at businesses or households that go directly to disposal sites in the Northeast. It is flowing mainly through transfer stations, which doesn't have a negative cash impact, but it has a negative margin impact. And as Ed pointed out, we saw it in our numbers this year as we mixed slightly more transportations for long-term strategy. It weighed on margins, good long-term strategy, but it was a margin detractor.

Yes. Okay, all right. That's helpful. Then my last one, it sounds like you finished up Waste USA. Will we see that in your airspace table in the 10-K?

Yes, it's in there already.

Okay.

So we have permitted and permutable. So that's the permitted airspace for the last couple of years. It just wasn't built. Now it's built. Waste is being placed. And it's a really big deal for us, because that was complex and tough permitting, complex and tough construction cycle. So we're excited to done.

Okay, all right. I'll leave it at that. Thanks, guys.

Thank you.

Thanks, Tyler.

Thank you. And we have a follow up from Michael Hoffman from Stifel. Your line is now open.

So I promise you, Tyler and I aren't sitting in the same room and ganging up on you. But I am almost repeating my question because of what he asked. And by the way, I think on a national basis, it's about 40% of the volume goes direct. All the rest is long haul. But why can't you get -- why can't you price that scarcity issue through, given that -- if you control the gate, even if it's a long haul gate, you control it.

Yes, it's a good question. But some of this is just math too. So you made the reference earlier where transfer stations use the price of $50, $60 a ton. And getting 5% or -- let’s say 5% on $60 was $3 a ton. If I get $4 a ton on $100 gate rate, it's now down to a 4% increase. So I've improved my cash position and I've improved profitability, but I have a lower percentage stat. And a bit of that's what's happening here, Michael, as these rates have climbed really quickly, the percentage stats maybe look a little bit worse. But the dollars we're getting on the street are good, they're improving. And you see that in our numbers for the year, both from an EBITDA, operating income and free cash flow standpoint.

Okay. And then the last one for me would be how many of your landfills are below five years of life and you're in a development mode? Clearly Bethlehem is. What else is?

I think Bethlehem is the only one.

Okay. So Ontario's got plenty of life. And then you've got the Hyland, you got the community agreements. So that's just going through the bureaucratic process in New York State. So unless something changes politically there, but it's just New Hampshire then that we're worried about.

It is New Hampshire. I think probably the next one is Ontario. Ontario is probably five to seven years.

2028.

2028 right now. So we'll have an expansion there as well, Michael. So it's Bethlehem and then Ontario.

Okay.

But keep in mind, we did get approval and we're in the permitting process at Hyland now to move that facility. And obviously, we've just brought in McKean's capacity to the model as well. So those two factors, McKean is going to be a great long-term facility for us as well as Hyland moving that permit from 470 million to 1 million tons a year.

Right. And it should be less than anybody. In New York, there’s a community host fee agreement trigger. So that's Mount Everest to get the permit. Everything else just is bureaucratic.

That’s right.

Okay. Thanks.

You’re welcome.

Thank you. And I'm showing no further questions. I would now like to turn the call back over to Mr. John Casella for closing remarks.

Thank you. Thanks everybody for joining us today. We look forward to discussing our first quarter 2022 earnings with you in April. Thanks, everybody. Have a great day.

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