Casella Waste Systems, Inc. — Q3 2021 Form 10-Q
Business and period: Regional, vertically integrated solid-waste and resource-renewal services company operating primarily in the northeastern United States. This unaudited filing covers the three and nine months ended September 30, 2021; balance-sheet comparisons are with December 31, 2020. Amounts below are USD millions except per-share data.
Financial performance
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Revenue | 242.0 | 202.7 | 647.4 | 574.3 |
| Operating income | 27.4 | 20.6 | 61.3 | 45.1 |
| Operating margin | 11.3% | 10.2% | 9.5% | 7.8% |
| Income before taxes | 22.5 | 15.5 | 46.4 | 29.0 |
| Net income | 15.9 | 15.1 | 32.0 | 28.2 |
| Diluted EPS | $0.31 | $0.31 | $0.62 | $0.58 |
| Operating cash flow | Not presented quarterly | Not presented quarterly | 134.1 | 111.9 |
| Capital expenditures | Not presented quarterly | Not presented quarterly | 81.6 | 77.3 |
Q3 revenue rose 19.4%; 9M revenue rose 12.7%. Solid-waste growth reflected pricing, volumes and acquisitions. Resource Solutions benefited from stronger commodity pricing, acquisitions and higher processing and non-processing volumes. Operating income increased across all operating segments, with Resource Solutions contributing notably. The 9M increase in operating cash flow reflected stronger operations and a less unfavorable working-capital impact. Operating cash flow less capital expenditures was approximately $52.5 million, versus $34.6 million in 9M 2020.
Financial position and liquidity
- At September 30, cash was $46.5 million, down from $154.3 million at year-end. Current assets were $167.2 million and current liabilities $178.4 million.
- Total debt principal was $558.6 million, including $16.8 million current maturities; carrying debt, net of issuance costs, was $551.5 million. Debt principal was $548.4 million at December 31, 2020.
- The company had no revolving-credit borrowings and $172.0 million of available capacity, net of $28.0 million in letters of credit. The credit facility matures in May 2023. The company reported compliance with its covenants.
- 9M investing cash outflow was $234.1 million, including $153.1 million for acquisitions and $81.6 million for property and equipment. Cash declined by $107.9 million over the period.
Material changes, outlook and risks
- Costs and margins: Cost of operations declined as a share of revenue by 0.7 percentage points in Q3 and 1.8 points year to date. Management cited higher labor and health costs, fuel prices, maintenance and transportation costs; pricing and increased volumes supported results. G&A rose as a share of revenue.
- Taxes: Q3 tax provision was $6.6 million versus $0.4 million; 9M provision was $14.5 million versus $0.8 million. Management attributed much of the year-over-year increase to the prior-year release of a significant portion of the deferred-tax valuation allowance; the 2021 9M provision included $13.0 million deferred tax expense.
- Acquisitions and unusual charges: 9M acquisition consideration was $155.2 million, primarily for collection, transfer, recycling and organics businesses. Acquisition-related expense was $4.0 million in 9M 2021 versus $1.5 million. Southbridge Landfill closure charges were $0.7 million versus $3.8 million.
- Management outlook: No specific numerical earnings or revenue guidance is provided in the supplied filing text. Management said demand and volumes had improved as local economies reopened, and expects stable service revenues to support positive operating cash flow. It cautioned that the full effects of COVID-19 and related supply-chain, labor-market and inflation pressures remain uncertain.
- Other risks: The business is seasonal and exposed to severe weather, regional economic conditions, labor and fuel inflation, commodity prices, interest rates, permitting and environmental liabilities. Management estimated that a 100-basis-point change in variable borrowing rates could change annual interest expense by up to $1.5 million; a $10-per-ton commodity-price change could affect annual operating income by up to $2.0 million.
- Contingencies: The filing describes ongoing New Hampshire Clean Water Act landfill litigation and a challenge to an expansion permit; settlement discussions in the former matter were allowed to proceed. The company also disclosed Southbridge environmental remediation obligations and landfill-related matters. A New York odor class action was settled, with $0.9 million committed to remediation measures. The filing does not quantify a clear aggregate potential loss for the outstanding proceedings.
Key facts for investors to verify
- Whether revenue and operating-income growth persist after separating acquisition contributions from pricing, volume and commodity effects.
- Cash conversion and working-capital trends, given the substantial cash decline and acquisition spending.
- Debt refinancing and covenant capacity ahead of the May 2023 credit-facility maturity, including seasonal liquidity needs.
- Whether labor, fuel and other inflationary costs can be offset through pricing, surcharges and operating efficiencies.
- Developments in landfill permits, environmental remediation and litigation, and any resulting costs or operating constraints.