Casella Waste Systems, Inc. — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This filing reports full-year results, not standalone fourth-quarter results. Casella is a vertically integrated waste-services company operating primarily in seven Northeastern states, with Eastern, Western, and Resource Solutions segments.
Financial performance and liquidity
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Revenue | $889.2 million | $774.6 million |
| Operating income | $77.7 million | $59.3 million |
| Operating margin | 8.7% | 7.7% |
| Income before taxes | $58.0 million | $38.3 million |
| Net income | $41.1 million | $91.1 million |
| Diluted earnings per share | $0.80 | $1.86 |
| Cash from operations | $182.7 million | $139.9 million |
| Capital expenditures | $123.3 million | $108.1 million |
| Cash and cash equivalents at year-end | $33.8 million | $154.3 million |
| Debt principal at year-end | $562.6 million | $548.4 million |
Revenue increased 14.8%. Operating income grew 31.0%, while net income fell 54.9%; FY 2020 net income included a $61.3 million deferred-tax benefit from releasing most of the valuation allowance. FY 2021 included a $16.9 million tax provision. Cost of operations was 65.5% of revenue versus 66.6% in FY 2020; general and administrative expense was 13.4% versus 13.2%.
Operating cash flow less capital expenditures was approximately $59.4 million, compared with $31.8 million. Investing cash outflow was $293.2 million, including $170.6 million for acquisitions. Year-end cash declined substantially, while debt increased. The company reported $271.9 million of available revolving capacity, net of letters of credit. Its credit-agreement net leverage ratio was 2.35x against a 4.00x maximum, and interest coverage was 11.43x against a 3.00x minimum; it reported compliance with covenants.
Material changes versus prior year
- Solid-waste revenue rose $75.8 million, or 13.1%, from price, volume, and acquisitions. Collection pricing increased 4.3% and landfill pricing 3.9%.
- Resource Solutions revenue increased $38.8 million, led by favorable commodity pricing, acquisitions, and higher volumes. Recycling commodity markets strengthened through September 2021 and then leveled off or declined slightly.
- Operating income improved across all three reportable segments: Eastern $12.9 million, Western $49.0 million, and Resource Solutions $17.6 million.
- The company acquired ten businesses for total consideration of $171.7 million, versus ten acquisitions for $33.5 million in FY 2020.
- On December 22, 2021, Casella refinanced its credit agreement, establishing a $350 million term loan and a $300 million revolver, both with a December 2026 maturity.
Outlook, commentary, risks, and unusual items
- Outlook: The new strategic plan through FY 2024 targets more than $30 million per year in annualized revenue from acquisitions or development. Management expects approximately $52 million of FY 2022 revenue growth from the full-year contribution of FY 2021 acquisitions. No formal earnings or revenue guidance is provided in the filing text.
- Growth drivers: Management cites tight Northeastern disposal capacity, pricing initiatives, landfill expansion efforts, route optimization, and growth in resource-management services. It reported approximately 0.5 million tons per year of permitted capacity and 50.9 million cubic yards of permitted airspace added through prior permit initiatives.
- Cost and operating risks: Inflation, fuel prices, labor availability and wage pressure, adverse weather, regional economic conditions, and lingering COVID-19 effects could pressure costs, demand, and margins. Fuel surcharges and contractual pass-through provisions may not offset all increases.
- Other exposures: Landfill permits and expansions are subject to regulatory and legal challenges; recycling commodity prices remain volatile; and environmental, closure, post-closure, insurance, cybersecurity, and acquisition-integration risks could affect results. Accrued landfill capping, closure, and post-closure obligations were $86.9 million; recorded environmental-remediation liabilities were approximately $5.9 million.
- Contingencies and unusual items: FY 2021 included $5.3 million of acquisition-related expense, a $0.9 million environmental remediation charge tied to a stream-restoration settlement at the NCES landfill, and a net $0.5 million Southbridge landfill closure charge. The NCES expansion-permit appeal remained pending, with a hearing scheduled for February 2022. The Hakes Landfill expansion approvals were final after the challengers did not pursue an appeal.
- Audit and controls: The auditor issued unqualified opinions on the financial statements and internal controls, while identifying landfill accounting and acquisition-related intangible-asset valuation as critical audit matters. Specified recently acquired businesses were excluded from the auditor’s internal-control scope; the excluded entities represented approximately 14% of assets and 4% of FY 2021 revenue.
Important facts for investors to verify
- Whether FY 2022 acquisition contribution and the plan’s annual acquisition/development target translate into profitable growth and cash generation.
- Whether pricing and operational efficiencies can offset continued fuel, labor, maintenance, and other inflationary pressures.
- Progress and outcomes for the NCES permit appeal, other landfill permitting initiatives, and development plans, including the proposed Dalton, New Hampshire landfill.
- Revolving-credit availability, seasonal borrowing needs, debt service, covenant headroom, and the effect of interest-rate changes.
- Landfill airspace, closure-cost assumptions, environmental remediation estimates, and the integration of recently acquired businesses into internal controls.
- Related-party transactions: Casella Construction, a company owned by the CEO’s family, provided $15.2 million of services charged to operations or capitalized in FY 2021.