Casella Waste Systems, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. Amounts are in U.S. dollars; financial statement amounts below are in millions. Casella provides integrated waste collection, transfer, disposal, recycling and organics services, primarily in the northeastern United States.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $189.5 | $182.9 |
| Operating income | $12.0 | $7.0 |
| Operating margin | 6.3% | 3.8% |
| Net income | $4.3 | $1.0 |
| Diluted EPS | $0.08 | $0.02 |
| Cash from operations | $32.1 | $14.8 |
| Capital expenditures | $26.8 | $19.9 |
Revenue increased $6.6 million, or 3.6%. Solid-waste revenue grew $2.8 million (2.0%): pricing contributed $4.6 million and acquisitions $3.9 million, partly offset by $4.4 million lower volumes and $1.6 million lower surcharges and other fees. Resource Solutions revenue increased $3.8 million, primarily from favorable commodity pricing. Cost of operations declined to 67.1% of revenue from 70.3%; general and administrative expense rose to 14.3% from 13.3%, and depreciation and amortization rose to 12.0% from 11.7%.
Cash from operations increased by $17.3 million, reflecting improved operating performance and a more favorable working-capital impact than in the prior-year quarter. Cash less property additions was approximately $5.3 million, compared with negative $5.1 million. Investing used $31.3 million, including $26.8 million of property additions and $4.6 million for acquisitions. Cash declined $1.8 million during the quarter to $152.6 million.
Balance sheet and liquidity
At March 31, 2021, cash was $152.6 million and total debt principal was $550.2 million ($542.0 million carrying value after debt issuance costs). Cash less total debt principal was approximately $397.7 million. Current assets were $239.5 million and current liabilities $123.1 million. The $200 million revolving facility had no borrowings; $173.6 million was available after $26.4 million of letters of credit. The $349.1 million term loan and revolving facility mature in May 2023. The company reported compliance with credit-agreement covenants.
Property, plant and equipment, net, was $523.3 million. Accrued landfill capping, closure and post-closure obligations totaled $85.0 million. The company had $201.1 million of fixed-rate debt and $195.0 million of debt hedged through active interest-rate swaps; it estimated that a 100-basis-point change in rates on the remaining variable-rate debt could change annual interest expense by up to approximately $1.5 million.
Management commentary, outlook and risks
Management said COVID-19 continued to depress collection and disposal volumes in Q1, particularly in commercial, construction and landfill-related activity, while also increasing costs for employee safety, illness and customer-related disruptions. Demand had improved as local economies reopened, but management could not predict the pandemic’s full future impact. Casella reported cost-control and liquidity-preservation measures and expected to continue generating positive operating cash flow. The filing provides no numerical full-year revenue, earnings or cash-flow guidance.
Operating income improved across the Eastern, Western and Resource Solutions segments. Management attributed improvement to revenue growth and cost performance; Western-region volumes remained particularly affected by pandemic-related declines. Results are seasonal, with lower activity generally in late fall, winter and early spring. The company also cited regional economic conditions, severe weather, commodity pricing, fuel costs, interest rates, landfill capacity and permitting as relevant uncertainties.
Material legal and environmental matters include Southbridge landfill remediation and closure obligations, a Clean Water Act case and permit-related litigation concerning the NCES landfill in New Hampshire, and a challenge involving proposed Granite State Landfill permitting. A settlement in an Ontario County odor-related class action included a $0.75 million payment to a settlement fund and $0.9 million of remediation-related expenses and capital improvements. The Hakes landfill expansion approvals became final after the petitioners did not appeal. Management said there were no material changes to the risk factors in its 2020 Form 10-K.
Net income rose year over year, but the income-tax provision also increased, to $2.4 million from $0.1 million. Management noted the prior-year period included a current tax benefit related to minimum tax credits and that the 2021 effective tax rate was 31% before certain one-time adjustments. It also reported a $61.3 million tax benefit in Q4 2020 from releasing most of its valuation allowance, a prior-period item relevant to interpreting tax comparisons.
Most important facts to verify
- Whether collection and disposal volumes recover as COVID-related restrictions and economic disruptions ease, and how that affects pricing, costs and margins.
- Whether cash generation can sustain the company’s capital spending and acquisition plans while maintaining liquidity and compliance with credit covenants.
- Debt refinancing and interest-rate exposure ahead of the May 2023 credit-facility maturity, including the effect of LIBOR transition on floating-rate debt and hedges.
- Developments, potential costs and operating consequences of the NCES, Granite State and other landfill-related litigation and permitting matters.
- Changes to landfill closure, post-closure and environmental remediation cost estimates, including Southbridge obligations.