CASELLA WASTE SYSTEMS INC annual report, FY2022

Casella Waste Systems, Inc. — FY2022 Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2022, compared primarily with FY2021. This is an annual filing; the supplied text does not provide standalone fourth-quarter results. Casella is a vertically integrated waste and resource-management company operating mainly in seven Northeastern states.

Financial performance and liquidity

Metric	FY2022	FY2021
Revenue	$1,085.1 million	$889.2 million
Operating income	$95.4 million	$77.7 million
Net income	$53.1 million	$41.1 million
Diluted EPS	$1.03	$0.80
Cash from operations	$217.3 million	$182.7 million
Capital expenditures	$131.0 million	$123.3 million

• Revenue grew 22.0%; operating income rose 22.8% and net income rose 29.1%. Operating margin was approximately 8.8%, versus 8.7% in FY2021.
• Operating cash flow less capital expenditures was approximately $86.4 million, compared with $59.4 million in FY2021; this is a simple calculation, not a company-reported free-cash-flow measure.
• Revenue growth reflected acquisitions, pricing and surcharges. Solid-waste revenue increased 20.0%, including 7.6% from acquisitions, 6.4% from price, and 5.0% from surcharges and other fees. Collection pricing rose 7.0% and landfill pricing 5.0% year over year.
• Resource Solutions revenue increased to $299.9 million from $235.1 million, but segment operating income declined to $15.9 million from $17.6 million as higher costs outweighed revenue growth.
• Cost of operations increased to 66.6% of revenue from 65.5%. Management cited inflation, wages, fuel, maintenance, third-party hauling and disposal costs. Fuel expense rose to $48.3 million from $26.9 million; the company said its recovery program offset higher fuel costs, though margins were compressed.
• Cash and cash equivalents were $71.2 million at year-end. Undrawn revolver availability was $266.1 million, net of letters of credit. Working capital excluding cash was negative $41.3 million; management says this reflects its short-cycle billing and payment model.
• Principal debt was $603.5 million, and the company-reported consolidated net leverage ratio was 2.08x. It reported compliance with debt covenants. Debt less issuance costs and current maturities on the balance sheet was $585.0 million. Scheduled principal maturities include $352.4 million in 2026.

Material changes and notable items

• Casella acquired 14 businesses in FY2022 for total consideration of $82.7 million, versus 10 businesses and $171.7 million in FY2021. It reported approximately $51 million of annualized revenue from FY2022 acquisitions and expects about $15.5 million of acquisition rollover revenue in FY2023.
• FY2022 included $4.6 million of acquisition-related costs, a $1.4 million Southbridge landfill closure charge and a $0.8 million environmental remediation charge. Net income also reflects a $21.9 million income-tax provision; FY2021’s was $16.9 million. FY2020 net income was unusually high at $91.1 million, including a $61.3 million tax benefit from a valuation-allowance release.
• Accrued landfill capping, closure and post-closure liabilities rose to $113.7 million from $86.9 million, including $18.4 million of estimate revisions, primarily associated with expected waste flow, costs and timing.
• The company issued $35 million of Vermont revenue bonds in June 2022. In February 2023, it amended its credit agreement to transition borrowing options from LIBOR to SOFR and introduced potential interest-margin adjustments tied to recycling and safety metrics.
• Auditors issued unqualified opinions on the financial statements and internal controls. The audit identified landfill accounting as a critical audit matter because of assumptions about airspace, future costs, inflation and closure timing. Three 2022 acquisitions, representing about 3% of assets and revenue, were excluded from management’s internal-control assessment pending integration.

Outlook, risks and contingencies

• The company’s 2024 strategic plan focuses on landfill returns, collection profitability, Resource Solutions, disciplined growth and investment in people, technology and facilities. It targets adding more than $30 million of annualized revenue per year through acquisitions or development through FY2024. The filing does not provide a formal FY2023 revenue or earnings forecast.
• Management expects existing cash, operating cash flow and financing capacity to fund operating needs and planned investing and financing commitments for at least 12 months and thereafter for the foreseeable future. This outlook is subject to business and market conditions.
• Landfill permitting is a significant operational risk. Appeals and related litigation challenge the public-benefit basis for the NCES landfill expansion permit. The company said the Granite State Landfill may not be fully permitted, built and operating by the end of 2027; at current expected usage, NCES could exhaust remaining permitted capacity during FY2027.
• Other principal risks include inflation and labor availability, fuel and interest-rate changes, recycling commodity volatility, acquisition integration, severe weather, cybersecurity, environmental regulation (including emerging contaminants such as PFAS), and landfill closure costs. The company is regionally concentrated in the Northeast.
• Environmental remediation liabilities totaled $6.3 million at year-end; recorded legal-proceeding accruals were $0.8 million. The filing describes permitting disputes and environmental matters, and notes that ultimate remediation costs and timing could differ from estimates.
• No cash dividends have been paid, and the company does not anticipate paying them in the foreseeable future. Class B shares carry ten votes per share, compared with one vote for Class A shares.

Key facts for investors to verify

• Whether landfill permit appeals are resolved favorably and whether the company can secure disposal capacity before expected NCES capacity constraints.
• Whether price increases and customer fee recovery continue to offset inflation without further customer churn or margin pressure.
• Whether Resource Solutions can convert revenue growth into improved segment profitability despite commodity-price and operating-cost volatility.
• Whether acquisitions deliver expected rollover revenue, synergies and returns, while integration and capital spending remain disciplined.
• Debt refinancing and maturity exposure, particularly the large 2026 principal maturity, alongside leverage, interest costs and covenant headroom.
• Changes in landfill closure and remediation estimates, and progress integrating the acquired businesses into internal controls.