Earnings call transcript: Casella Waste Systems Q2 2025 results disappoint

Casella Waste Systems, with a market capitalization of $6.48 billion, reported its Q2 2025 earnings, revealing a significant miss in earnings per share (EPS) compared to forecasts, despite a revenue beat. The company’s EPS came in at $0.08, falling short of the forecasted $0.33, a surprise of -75.76%. Revenue exceeded expectations, reaching $465.3 million against a forecast of $454.35 million. Following the earnings release, Casella’s stock dropped 6.14% in after-hours trading, closing at $108.73. According to InvestingPro analysis, the stock currently trades above its Fair Value, with 12 additional ProTips available for subscribers.

Key Takeaways

• EPS significantly missed forecasts, coming in at $0.08 versus $0.33 expected.
• Revenue exceeded expectations at $465.3 million, a 23.4% increase year-over-year.
• Stock price fell 6.14% in after-hours trading.
• The company completed six acquisitions, contributing $90 million in annualized revenue.
• Full-year revenue guidance raised to a midpoint of $1.83 billion.

Company Performance

Casella Waste Systems demonstrated strong revenue growth in Q2 2025, with a 23.4% increase year-over-year, maintaining its impressive 5-year revenue CAGR of 16%. The company completed several strategic acquisitions, enhancing its revenue base and market presence. While the significant EPS miss overshadowed these achievements, with adjusted net income reported at $23 million or $0.36 per diluted share, InvestingPro data shows the company maintains healthy liquidity with a current ratio of 1.96 and operates with moderate debt levels. This mixed performance reflects the challenges and opportunities in the waste management sector.

Financial Highlights

• Revenue: $465.3 million, up 23.4% year-over-year.
• Adjusted EBITDA: $109.5 million, up 19.5% year-over-year.
• Adjusted EBITDA Margin: 23.5%, down 75 basis points.
• Adjusted Net Income: $23 million or $0.36 per diluted share.
• Record first-half adjusted free cash flow: Over $70 million.

Earnings vs. Forecast

Casella’s Q2 2025 EPS of $0.08 fell well short of the $0.33 forecast, representing a negative surprise of 75.76%. This miss contrasts with the revenue performance, which beat expectations by 2.41%, coming in at $465.3 million compared to the forecasted $454.35 million.

Market Reaction

In response to the earnings report, Casella’s stock experienced a significant decline, dropping 6.14% in after-hours trading. The stock closed at $108.73, moving further away from its 52-week high of $121.24. While this decline reflects investor concerns over the EPS miss, InvestingPro data reveals the stock typically trades with low volatility (Beta: 0.84), suggesting this movement may be unusual for the company. Get access to the comprehensive Pro Research Report, available for Casella and 1,400+ other top US stocks, for deeper insights into the company’s valuation and prospects.

Outlook & Guidance

Despite the EPS miss, Casella raised its full-year revenue guidance to a midpoint of $1.83 billion. The company reaffirmed its adjusted EBITDA and adjusted free cash flow guidance, anticipating margin expansion in the Mid-Atlantic region by 2026. Casella also expects $5-10 million in synergies from the Mid-Atlantic integration over the next few years.

Executive Commentary

"We delivered another strong performance in Q2 with robust growth in both revenue and adjusted EBITDA," said John Casella, CEO. He emphasized the company’s strategic acquisitions and their alignment with Casella’s growth strategy. Ned Valletta, President, noted, "We expect McKean to be a positive volume contributor through 2026," highlighting ongoing development projects.

Risks and Challenges

• System conversion and truck delivery delays in Mid-Atlantic integration.
• Decline in recycling commodity prices, down 16% year-over-year.
• Potential supply chain disruptions affecting operational efficiency.
• Market volatility impacting investor sentiment and stock performance.
• Economic conditions influencing solid waste pricing and volume trends.

Q&A

During the earnings call, analysts raised questions about the Mid-Atlantic integration challenges, specifically regarding system conversions and truck delivery delays. Executives addressed potential pricing opportunities in the Mid-Atlantic market and reiterated their focus on operational efficiency and route optimization. The positive outlook on the McKean Landfill development was also discussed.

Full transcript - Casella Waste Systems Inc (CWST) Q2 2025:

Daniel, Conference Call Operator: Good day, and thank you for standing by. Welcome to the Casella Waste Systems Inc. Q2 twenty twenty five 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.

Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Brian Butler, VP of Investor Relations. Please go ahead.

Brian Butler, VP of Investor Relations, Casella Waste Systems: Thank you, Daniel. Good morning, and thank you for joining us on the call. Today, we’ll be discussing our second quarter twenty twenty five results, which were released yesterday afternoon. This morning, I’m joined with John Casella, Chairman and Chief Executive Officer of Casella Waste Systems Neg Valletta, our President Brad Helgeson, our Chief Financial Officer and Sean Steves, our Senior Vice President and Chief Operating Officer of Solid Waste Operations. After a review of these results and an update on the company’s activities and business environment, we’ll be happy to take your questions.

But first, please note that various remarks 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 these forward looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent Form 10 Q, 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 on 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, 08/01/2025.

Also during this call, we’ll 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 included in our press release filed on Form eight ks with the SEC. And with that, I will now turn over the call to John Casella to begin our discussion. John?

John Casella, Chairman and Chief Executive Officer, Casella Waste Systems: Thanks, Brian, and good morning, everyone. Welcome to our second quarter twenty twenty five conference call. In June, we probably rang the Nasdaq opening bell to commemorate the solar’s fiftieth anniversary. This milestone marks our evolution from a single truck operation in Vermont to a leading provider of waste, recycling, and resource management services across the Northeast and now into the Mid Atlantic. Over five decades of growth, our dedicated team has consistently delivered exceptional service and industry leadership, all while staying true to our core values and working toward a cleaner, more sustainable future.

I’d like to sincerely thank all of our employees for their grit, hard work, and commitment every day. The celebration was not only a reflection of our past, but also a reaffirmation of our vision for the future. It highlighted the strength of our culture, the resilience of our business model, and the deep trust we’ve built with our customers and communities. We’re incredibly proud of the legacy we’ve created and energized by the opportunities ahead. Turning to the quarter, we delivered another strong performance in Q2 with robust growth in both revenue and adjusted EBITDA.

Year to date, we’ve achieved record first half adjusted free cash flow over $70,000,000 more than $30,000,000 above the same period last year. These results reflect solid execution, meaningful contributions from our recent acquisitions. Pricing remains healthy with solid waste pricing up 5% year over year. We continue to execute well on our operating plans, meaningful margin improvement across our legacy business. This performance has been partially offset by some growing pains in the Mid Atlantic as we work through the transition to our systems and getting the acquired fleet up to our standards.

We are executing on a plan to rapidly get this performance on track. Elsewhere, landfill volumes were up nicely year over year and our Resource Solutions segment continued to perform very well, driven by improved performance at our upgraded recycling facilities. We’ve now completed six acquisitions year to date, representing about $90,000,000 in annualized revenues, and we’re excited about the pending acquisition of Mountain State Waste, which will expand our footprint in Pennsylvania and also into West Virginia, adding another $30,000,000 in annualized revenues. We look forward to welcoming their employees and customers to the Casella family and integrating their operations into our broader network. Our M and A pipeline remains full of targets that align perfectly with our strategy and our strong balance sheet positions us to continue to pursue and complete these deals opportunistically.

Looking ahead, we raised our full year revenue guidance reflecting on the continued strength of our core pricing and acquisition activity and reaffirmed our adjusted EBITDA and adjusted free cash flow guidance ranges representing another year of record financial results. And with that, I’ll turn it over to Brad to walk through the financials in more detail.

Brad Helgeson, Chief Financial Officer, Casella Waste Systems: Thanks, Sean. Good morning, everyone. Revenues in the second quarter were $465,300,000 up $88,200,000 or 23.4% year over year, with $67,100,000 from acquisitions, including rollover, and 21,000,000 from organic growth, or 5.6%. Solid waste revenues were up 27.1% year over year, with price up 5% and volume down 0.8%. Within solid waste, price in the collection line of business was up 4.9 in the quarter, led by 5.9% price in front load commercial and volume was down 1.2%.

However, year over year volume trends improved from the first quarter with indications of a stable economy in our markets. Price in the disposal line of business was up 5.8% and volume up 0.6% year over year. Results in the landfill business were strong with total tons up 9.5%, including higher third party MSW and C and D volumes and over 12% growth in internalized volumes. We feel that we have meaningful opportunities to grow volumes further at our sites, but it’s safe to say that the persistent market headwinds that we experienced last year are behind us. We drove price 8.2% at the transfer stations with flat volume in the quarter.

Resource Solutions revenues were up 10.2% year over year, with recycling and other processing revenue up 9.6% and national accounts up 10.6%. Within Resource Solutions processing operations, our average recycled commodity sales price was down 16% year over year with softer markets across the board and most commodities now selling below five year averages. Notwithstanding market pressures, our contract structures share this risk with our customers by adjusting tip fees in down markets. So the net impact of lower prices on our revenue was just 1.6% or less than $1,000,000 Processing volume in revenue terms was up 8.6%, driven by higher volumes at the Boston and Willamantic recycling facilities. Within national accounts revenue, price was up 5.9% and volume up 1.9%.

Adjusted EBITDA was 109,500,000 in the quarter, up $17,900,000 or 19.5% year over year, with contribution from acquisitions, including rollover and organic growth. Adjusted EBITDA margin was 23.5% in the quarter, down approximately 75 basis points year over year. Bridging the year over year change in adjusted EBITDA margin, acquisitions contributing at lower initial margins than our overall business presented a headwind of 85 basis points. The base business on a same store basis expanded margins by 10 basis points overall, with legacy footprint operations growing margins by over 100 basis points, with the Mid Atlantic region representing a near term headwind as we continue to work through business integration and synergy execution impacted by ongoing system conversions and delays in truck deliveries. I should note that these headwinds are transitory and represent margin expansion opportunity in the future, which we expect to see in 2026.

Cost of operations were $308,100,000 in the quarter, up $64,300,000 year over year, with $48,200,000 of the increase from acquisitions and $16,100,000 in the base business. General and administrative costs were $54,500,000 in the quarter, up $7,300,000 year over year. Depreciation and amortization costs were up $21,700,000 year over year, with 16,100,000 resulting from the recent acquisition activity, including the amortization of acquired intangibles. As a reference, D and A associated with acquisitions was approximately 24% of acquired revenues in the quarter as compared to 15% of our base business. Adjusted net income was $23,000,000 in the quarter or $0.36 per diluted share, up $1,300,000 and down $01 per share.

GAAP net income was $5,200,000 in the quarter, impacted by a $6,900,000 increase in amortization of acquired intangibles. Net cash provided by operating activities was $139,600,000 in the first June of twenty twenty five, up $59,900,000 year over year, driven by EBITDA growth and more normalized seasonal working capital flows as compared to 2024. DSO was thirty four days, down two days from year end and four days year over year. Adjusted free cash flow was $70,800,000 a record for the first six months and representing approximately 40% of our full year guidance. Capital expenditures were $121,900,000 up $47,000,000 year over year, including $40,000,000 of upfront onetime investment in recent acquisitions.

As of June 30, we had $1,160,000,000 of debt and $218,000,000 of cash. Our consolidated net leverage ratio for purposes of our bank covenants was 2.39x, and our $700,000,000 revolver remained undrawn. Our liquidity and leverage profile will enable us to be optimistic in continuing to execute on our growth strategy and robust M and A pipeline. As announced in our press release yesterday, we updated some of our guidance ranges for 2025. We raised our revenue guidance to a midpoint of $1,830,000,000 in light of acquisition activity to date.

However, we reaffirmed our range on adjusted EBITDA as the contribution from our announced acquisition activity since establishing guidance has not yet exceeded the original range, and we remain cautious on the pace of synergy execution this year in the Mid Atlantic region. We also raised the bottom end of our ranges on adjusted EBITDA adjusted free cash flow, I’m sorry, and cash flow from operating activities based on the strength of cash flow year to date and our confidence in the second half. Regarding cash flow, I should note that we will not see a benefit from the recent tax legislation in 2025 as we would not have been a federal cash taxpayer in any event. However, the provisions of the tax bill, most significantly the reinstatement of bonus depreciation, will certainly benefit our tax position in the future, deferring and ultimately reducing our eventual federal cash tax burden. With that, I’ll turn it over to Ned.

Ned Valletta, President, Casella Waste Systems: Thanks, Brett, and good morning, everyone. As highlighted in our earnings release yesterday, we delivered another strong quarter of growth with solid performance across key financial metrics. Organic trends remained positive in the second quarter with solid waste pricing up 5% year over year and total company volumes up 30 basis points with particular strength in resource solutions and landfill volumes. Collection operations made meaningful improvements. We completed 11 routing projects that reduced both route days and driver headcount requirements.

Operational productivity in our Eastern and Western regions remained strong with direct labor and overtime costs flat on a trailing twelve months basis. This helped to offset cost pressures in our Mid Atlantic region where labor costs are currently running hundreds of basis points higher than in other regions. As John mentioned, truck delivery delays and system conversions in the Mid Atlantic had a domino impact in the quarter, delaying route optimization, automation, and other cost synergies from being recognized as quickly as expected. We do expect 55 additional trucks to deliver in late twenty twenty five to the Mid Atlantic region with nearly 40 of these trucks being automated. In our Resource Solutions segment, adjusted EBITDA increased 1,800,000 in the second quarter, mainly driven by improved efficiencies at our recently upgraded Willimantic in Boston recycling processing facilities.

This operational strength, along with our floating processing and SRA fees, more than offset the impact of weaker commodity prices, which declined roughly $20 a ton or 16 year over year. Landfill volumes were up significantly with total volumes up 88,000 tons year over year or nine and a half percent with increased internalization driving a 55,000 ton increase or roughly 13%. We also continue to source more construction and demolition tons mainly due to the previously announced competitor landfill closure in Long Island, which had been a headwind throughout 2024. Since opening in mid twenty twenty four, our McKean Landfill has successfully accepted over 400 railcars and processed close to 2,000 containers of waste. We’re building out a new rail offload transfer building at the site to expand the range of materials that can be handled from the current containerized m s MSW to also include gondolas of MSW, C and D, and soils.

We expect these upgrades to be completed in the 2026. And at that time, we’ll work to drive additional internalization to the site and also selectively attract new customers and material streams. We also continue to execute well against our acquisition strategy, as John mentioned, closing three additional deals in the second quarter totaling over $40,000,000 of annualized revenues. Additionally, we’re really excited about the agreement to acquire Mountain State Waste, which will expand our geographic footprint and add an incremental $30,000,000 of annualized revenues after it closes. As we enter the 2025, our acquisition pipeline remains robust with over $500,000,000 of annualized revenue opportunities.

Our balance sheet remains strong with leverage under 2.4 times and total liquidity of approximately $900,000,000 Our outlook for the remainder of 2025 remains positive, supported by continued execution of our acquisition strategy and a resilient, sustainable organic growth model. Our limited exposure to commodity prices and tariffs further reinforces our confidence in delivering consistent results. With that, I’ll turn it back to the operator for questions. Thank

Daniel, Conference Call Operator: Our first question comes from Tyler Brown with Raymond James. Your line is open.

Tyler Brown, Analyst, Raymond James: Hey, good morning guys. Can you all hear me?

John Casella, Chairman and Chief Executive Officer, Casella Waste Systems: Sure can. Yes. Good morning, Tyler.

Tyler Brown, Analyst, Raymond James: Hey, good morning. So Ned, can we just kind of start with the Mid Atlantic? So it seems like maybe that group is lagging a little bit. Maybe can you talk about some of the reasons why? And I think you’re implementing an ERP there.

But big picture, once that new system is in place, won’t there be a substantial pricing opportunity in that market in ’26? Because I was under the impression that pushing price was kind of, call it, logistically difficult and cash cash collections were kind of slow on that legacy system.

Ned Valletta, President, Casella Waste Systems: Yeah. Great question, Tyler. So if we flash back in time, there’s always those moments where you make a a r and d decision, and we maybe made one that’s been a little bit painful. When we acquired the businesses originally from GFL, we decided to actually stay in the same billing operating system they have been operating. And it was more of an r and d decision for us to see, you know, how it would work and if it was something that would work for the rest of our business.

Flash forward, it’s not a great system. There’s not great analytics. There’s not great, routing capabilities. There’s a lot of lot of issues. So about, nine months ago, eight months ago, we decided to to move to our legacy billing system, which is stood the test of time.

It’s been amazing, called SoftPath, but but upgrading to the latest version. So we’re very rapidly doing so in the Mid Atlantic. But as I mentioned, it is a bit of a domino effect because not all those businesses are running in the exact same billing system today. We haven’t been able to move all newly acquired businesses onto that system. And then the the truck delays, you know, just compounds the whole thing where we haven’t been able to get automation routing synergies.

So we’re we’re not feeling bad about our our plans or our synergy expectations. It’s just taking longer. So your question about pricing, you’re a 100% right about this. There’s not the same level of visibility around the last 50 around pricing that that we have in our in our legacy system. So, there is opportunity there as well.

Tyler Brown, Analyst, Raymond James: Okay. So I’ll try to ask this question. We’ll see what you give me. But what would you say the synergy EBITDA benefit could be from that that group of assets in ’26? I mean, is this a couple million bucks, or is this 10,000,000 or more?

Just any color.

Ned Valletta, President, Casella Waste Systems: Yeah. So we haven’t we haven’t fully built out our budget for next year, and we’re still working through the steps here. But on the routing side, this will come in over the course of a couple years as you’re aware. And we had said there was ultimately as much as, you know, 6 $5.06, $7,000,000 of benefit over several years as we automate that fleet. On the back office side, there’s millions of dollars of benefit over you know, I wouldn’t say it’s all at once, but as we get the systems issues resolved.

So you’re looking at, you know, 5 to $10,000,000 over a couple years. We’ll give a better idea of the pacing of that, when we get our budget pulled together.

Adam Bubes, Analyst, Goldman Sachs: Okay. Yeah. That’s very helpful.

Tyler Brown, Analyst, Raymond James: And then can we turn to to Mountain State? So I’m just kinda curious about what some of the dynamics are in West Virginia. Is that a disposal neutral market? Can you internalize that through a transfer station? Just what’s the market structure there?

And then it looks like they have really nice set of assets. Will that kind of serve as a mini platform in that region?

John Casella, Chairman and Chief Executive Officer, Casella Waste Systems: It it will. You know, the majority of a a good portion of the assets are in Pennsylvania and they expansion into West Virginia. The expansion into West Virginia is through into Morgantown, which is a very it’s a terrific MSA in West Virginia. A lot of growth there because of the university. So it’s a secondary tertiary market that we’re similar, you know, similar to some of our other markets.

I think that there is an opportunity for us to continue to build off of that platform. There are operations we do go into Ohio and Kentucky with the West Virginia assets. So there is an opportunity for for us to add to that platform on a go forward basis.

Ned Valletta, President, Casella Waste Systems: Yeah. And as you may be aware, it’s a franchise market. So they have these lifetime franchise agreements that come with part of the acquisition. In in those markets, we would either be the sole provider or there might be, you know, several providers, but but you have a franchise agreement where you’re picking up, you know, customers within a defined rate structure. But but, you know, it’s a very nice, well run, profitable business with great assets.

Tyler Brown, Analyst, Raymond James: Yeah. Definitely looks like it. My last one here, just to Brad, this is a minutiae modeling question. But why did the interest expense guidance drop so much? Was that I mean, doesn’t look like the debt balance really moved, and I’m doubting the coupon moved that much.

Just what was going on there?

Brad Helgeson, Chief Financial Officer, Casella Waste Systems: Yeah. I think just as the year progresses, you know, we’re just refining our view and and letting some of the conservatism on that line out. It is really the really the bottom line.

Tyler Brown, Analyst, Raymond James: Okay. Yep. No. I just wanted to go over that. Alright.

Thank you, guys.

Ned Valletta, President, Casella Waste Systems: Thank you. Thank you.

Daniel, Conference Call Operator: You. Our next question comes from Adam Bubes with Goldman Sachs. Your line is open.

Adam Bubes, Analyst, Goldman Sachs: Hi, good morning. Good morning, Adam. I just had a follow-up on the Mid Atlantic dynamic. Just to put a finer point on it, is this a case where it’s slower than expected synergy realization? Or are we also realizing incremental costs in the Mid Atlantic year over year that’s impacting that margin bridge associated with integration?

Ned Valletta, President, Casella Waste Systems: It’s just slower synergy realization. We we expect the trucks to deliver sooner, which would have allowed us to do more automation, taking other trucks, labor off the road. You know, we’ve also, as I mentioned, with with Tyler, we really are having to move back to a legacy Casella order to cash system with with an upgrade. The the the system we took over from GSL just isn’t allowing us the flexibility to to achieve our business model the way we expected. So it’s a little bit more of a delay there.

But but nothing

John Casella, Chairman and Chief Executive Officer, Casella Waste Systems: The first half of the year, truck delivery was a was a a significant issue. The majority a good portion of the trucks that are coming in, the 55 that are coming in before the end of the year, a good portion of those go to the Mid Atlantic. So that’ll allow Sean and his team to really go after some of the synergies that we weren’t able to capture.

Adam Bubes, Analyst, Goldman Sachs: Understood. And then I think you closed on 40,000,000 annualized revenues incremental inter quarter. Can you just expand on the details of those transactions in terms of geographic and business mix? Any other details?

Ned Valletta, President, Casella Waste Systems: Yeah. We don’t we don’t typically give out the names, but we we had one acquisition that was into our Western region. It’s an existing market. We’ll be able to develop tuck in synergies with that. We’ll ultimately be able to consolidate routes, Good good solid acquisition.

We had two other acquisitions in the Mid Atlantic. One is a very direct overlay, which will have nice synergies over the next couple, next year plus. It’s in Delaware to Southern PA. And then a second acquisition in PA that is got bridged between two operations. It’s right in between, has some overlay, but but it expands territory slightly.

So it’s all really nice fits and acquisitions we’ve been working on for a period of time and have good synergy value.

Adam Bubes, Analyst, Goldman Sachs: And then last one for me. Thinking back to the second half of last year, I think you had some margin headwinds from insurance events, incentive comp and lower landfill volumes were also a headwind. With landfill volumes having recovered now and lapping some of those headwinds from last year, is it fair to think margins could expand at or better than the sort of 50 basis points of underlying margin expansion trend? Or how should we think about the sequential margin expansion in the back half of the year? Thanks.

Brad Helgeson, Chief Financial Officer, Casella Waste Systems: Yes, good question. Certainly the this is Brad. Certainly, the landfill business flipping from a headwind to a tailwind will be a nice driver of margin expansion year over year in the second half. I would say though that the margins implied by the fact that we raised our revenue guidance, we held our guidance range on adjusted EBITDA, That implies slightly softer margins than we had expected for the second half. And that’s really, again, not to keep harboring on it, it’s the Mid Atlantic.

So I think what we’re seeing is fifty, sixty basis point of same store margin improvement. In the first half, the legacy operations have exceeded that, and then the Mid Atlantic was a bit of a drag. So I think the pace at which we can execute on the synergies, get trucks delivered, etcetera, that’s really going to tell the tale for the second half on margins. But have those different factors that are going to be impacting it.

Adam Bubes, Analyst, Goldman Sachs: Great. Thanks so much.

Daniel, Conference Call Operator: Thank you. Our next question comes from Trevor Romeo with William Blair. Your line is open.

Trevor Romeo, Analyst, William Blair: Hey, good morning, guys. Thanks for taking the questions. I was

Jim Shung, Analyst, TD Cowen: just hoping you could maybe speak

Trevor Romeo, Analyst, William Blair: good morning. Hoping you could speak to the volume performance in the quarter and the outlook. I think, Brad, you mentioned indications of stable economy in your markets and clearly some good trends in the landfill. You’ve also got some of the, you know, the Brookhaven factors and your own internalization initiatives, I guess. So hoping you can maybe just talk to, like, what you’re seeing in the cyclical areas of volume and help us parse out the underlying trends in your markets versus the more Casella specific trends?

Brad Helgeson, Chief Financial Officer, Casella Waste Systems: Sure. Hey, Trevor. So if you recall on in the first quarter, we talked in particular about a really soft environment for roll off. And the time we weren’t really sure was that weather, and it was a difficult weather in the north weather quarter in the Northeast. Was it weather or was there some underlying economic weakness at play as well?

That business has recovered nicely. I don’t think we’re seeing a booming economy by any respect, but things have stabilized. And so the year over year numbers from a volume perspective really across the board are stronger in the second quarter than they were in the first quarter. Ned mentioned something in his prepared remarks that I don’t want to necessarily let it go unnoticed. Our volume overall across solid waste and resource solutions was actually positive year over year.

We tend to break up how we talk about volume between those two business lines. But overall, including recyclables, including our national accounts business, our collection business, and, of course, landfills, it’s actually a pretty good volume story.

Ned Valletta, President, Casella Waste Systems: Yeah. And and it doesn’t get reflected in our bond stat, Brad, but but it is important to note that a good degree of the volume increase at the landfills was internalized volume, you know, almost 60,000 tons. And that really reflects, one, you know, getting synergies derived from acquisitions that we’ve done over the last two years as we’ve rolled off contracts. And also just our efforts over the last year to put new transportation lanes in place and and ensure that transfer stations are are getting to our landfills to create that value. So, you know, another strong quarter there by our team of of getting that job done and and delivering those those benefits.

Trevor Romeo, Analyst, William Blair: Okay. Thank you both. That’s that’s really helpful there. And then, you know, sorry. Just wanna go back one more time to to, I guess, the Mid Atlantic.

I think you you talked about the systems and the fleet, I think, in detail already. But But I think one comment I caught from from Ned was labor running much hotter. And if I look at your expense details, and I think direct labor costs were up, like, a 170 basis points year over year as a percentage of revenue. So maybe just a little more detail on what’s going in there. Is it primarily just not having the automated trucks yet, or is something else going on with labor there?

Ned Valletta, President, Casella Waste Systems: Yeah. So we’ve we’ve mentioned this a few times where the labor the labor cost is a percentage of revenue or net revenue in the Mid Atlantic is much higher than our legacy hauling businesses in the Northeast. And that’s because there’s a lack of automation, a lack of optimization of routes, and it won’t get all solved at once. This is gonna take years to solve as we get new trucks into the fleet, as we look to automate certain municipal contracts. But right now, we have a much higher degree of labor servicing the same revenue base in that market, which which is a great opportunity.

As we’ve mentioned a few times, we thought we’re gonna yield that opportunity a little bit faster in 2025. And now with truck delays, it’s coming a little slower. But but the opportunity is there. So we expect that to start coming down, and we expect that to be a real tailwind into the future where we can start taking that labor out of that business model.

Brad Helgeson, Chief Financial Officer, Casella Waste Systems: More more broadly across the business, Trevor, we we are seeing labor costs at sort of the upper end of our cost stack from an inflation standpoint. Overall, we think we’re comfortably covering cost inflation with our pricing programs as aim to do. But labor has been one of the higher running line items candidly from an inflation standpoint.

Trevor Romeo, Analyst, William Blair: Got it. Alright. Thank you all. Really appreciate it.

Ned Valletta, President, Casella Waste Systems: Thank you.

Daniel, Conference Call Operator: Thank you. Our next question comes from Jim Shung with TD Cowen. Your line is open.

Jim Shung, Analyst, TD Cowen: Hey, good morning. Thanks, guys.

John Casella, Chairman and Chief Executive Officer, Casella Waste Systems: Good morning, Matt. So,

Jim Shung, Analyst, TD Cowen: yeah, just on the collection pricing, looks like a fairly significant dip in the second quarter sequentially. You went from 5.8% in Q1 to 4.9%, which seems pretty unusual quarter to quarter sequentially there. What’s driving that?

Brad Helgeson, Chief Financial Officer, Casella Waste Systems: Part hey, Jim, it’s Brad. Part of the issue is mix. So across the lines of business, front end commercial has been our strongest line of business from a pricing standpoint. Roll off has been the relative weakest. And of course, in the first quarter, there’s much less roll off activity than there is in the second quarter.

So the best I could explain it is it’s sort of a reweighting of the business line rather than a same store you know, decline in in in pricing trends. Yeah.

Ned Valletta, President, Casella Waste Systems: And we also we had great great pricing in the front load line of business in the quarter, Brad, as you laid out and very strong pricing in the the residential line of business as well. Our pricing was a bit weaker in the roll off, and we’ve been you know, as we exited the spring and volumes were a bit weaker than we expected, we didn’t test market last ’50 as much as we may in certain years. We’re looking for for those volumes, and it really isn’t into June, into July that we really were able to start pushing price a bit more in the roll off line of business, and we’re starting to see see that comp more now.

Jim Shung, Analyst, TD Cowen: Okay. Great. Thanks. And then what’s the longer term outlook for Resource Solutions? I mean, can this grow as quickly as solid waste, or does it become proportionally smaller over time?

John Casella, Chairman and Chief Executive Officer, Casella Waste Systems: I think that the evolution of resource solutions in terms of providing the services that our customers are looking for, whether it’s colleges and universities, municipalities, industrial customers. I think that the the resource solutions part of the business or materials management as we call it is gonna continue to grow at a fairly rapid pace. We have tremendous opportunity in the Mid Atlantic as an example. We’re just beginning to scratch the surface. We put the sales team in place, obviously.

We’re beginning to work that at this point in time. But when you think about Mid Atlantic as as an example from a resource solution standpoint, we’ve got tremendous opportunities from an industrial standpoint to really add a lot of value to the business on a go forward. So I think that we’re gonna continue to see resource solutions grow at a fairly rapid pace.

Jim Shung, Analyst, TD Cowen: Okay. Got it. Thanks. And if I could just squeeze one more in, if you don’t mind. You know, CapEx is a per thank you.

CapEx as a percent of sales has sort of been running 12 to 13% over the the past few years. It seems seems kind of high relative to maybe your your landfill composition to me. So how do you how do you see that evolving over time? What’s the right sort of capital intensity? Where do we land in in, you know, I don’t know, three, four years?

Brad Helgeson, Chief Financial Officer, Casella Waste Systems: Yeah. It’s it’s Jim, it’s going to go up and down, of course, as you know, based on, you know, our our schedule for landfill fill development. You know, the collection business, just trucks and containers, that tends to be six to 7% of revenue. You know, landfill could could bring that number up significantly depending on how busy the construction schedule is for a particular year. I’d also point out kind of a unique factor given the relative significance of our acquisition activity is that when we acquire businesses, we tend to not in all cases, but generally we tend to have pretty significant upfront CapEx as we try and in one shot bring their asset base up to our standards in terms of the fleet, in terms of the facilities.

So certainly that is a factor as well. And one that, you know, again, for us, given the relative importance of acquisition activity, you know, is probably a bit different from our competitors.

Jim Shung, Analyst, TD Cowen: Understood. Great. Thanks for the answers, guys. Appreciate it.

Brad Helgeson, Chief Financial Officer, Casella Waste Systems: Yes. Welcome.

Daniel, Conference Call Operator: Thank you. Our next question comes from Stephanie Moore with Jefferies. Your line is open.

Stephanie Moore, Analyst, Jefferies: Hi, good morning. Thank you.

John Casella, Chairman and Chief Executive Officer, Casella Waste Systems: Good morning. I

Stephanie Moore, Analyst, Jefferies: wanted to maybe touch on a bigger picture question here. And given the current administration does appear to be a bit more amenable to to larger scale m and a, if that changes your acquisition strategy at all or if there’s anything you can call out from a a pipeline standpoint? Thank you.

John Casella, Chairman and Chief Executive Officer, Casella Waste Systems: Yeah. I don’t think that it really changes our strategy at all, Stephanie. I think that we’ve indicated that, you know, we see great opportunity on the Eastern Seaboard. You know, there are some larger companies there, but we’re still focused on, you know, solidifying the investment that we have in the Northeast, solidifying the investment that we’ve just made in the Mid Atlantic in terms of taking advantage of those platforms, continuing to add tuck ins to those platforms as well. And then, obviously, looking for additional platforms down the Eastern Seaboard.

So I don’t I don’t think that it changes, you know, our strategy from a m and a standpoint at all.

Stephanie Moore, Analyst, Jefferies: Thank you. Appreciate

John Casella, Chairman and Chief Executive Officer, Casella Waste Systems: it. Think it’s certainly certainly beneficial in terms of the the tax depreciation, etcetera. It’s it’s very positive in terms of how we look at that with regard to the m and a activity on a go forward basis from a tax perspective. Very positive.

Stephanie Moore, Analyst, Jefferies: Excellent. And then I was hoping if maybe you could give us a bit more of an update on McKean. I know you called out some some good investments and opportunities there. But as we think about just the timing of maybe some of those investments starting to come to to fruition here and, you know, any potential impact we can we can expect to see over the course of the next, you know, twenty four months or so. Thank you.

Ned Valletta, President, Casella Waste Systems: Yeah. So Makin first became operational late last spring, and we started off very slowly. And we started to ramp the site more this spring. But to date, we’re only taking containerized MSWs. So, like, in 12 high boxes, we offload gantry train, run them up to the to the, like, face of the landfill.

Our permit at site stipulates that we’re gonna offload any gondolas, so loose MSW, loose C and D, or contaminated soils, we need to do so inside a building. So we’ve always had plans to add a a transfer station, transfer building at the site. We we had all the the rail track outlaid to to do that, and we’re starting to build that building now. We’ll expect that to be completed into the first quarter. And that will allow us actually to complete some vertical integration initially with one of our transfer stations.

We’ll look to move there. But but it also opens up some additional streams of waste from third parties that we may consider. As we’ve said for a long time, you know, we’ve never opened McKean to just become a big third party commercial site. It it’s really a lot of it is defense for the Northeast for the next, you know, five to ten years as there’s a lot of risk around disposal capacity. But but we wanna make money at the site, and we wanna have great returns.

So getting this building completed, ramping up volumes a bit more, all part of that strategy. So we expect McKean to be a positive volume contributor through 2026, and and we’ll let you know as we get that volume ramped, scheduled together.

John Casella, Chairman and Chief Executive Officer, Casella Waste Systems: Yeah. I think it’s fair to say that, it’s a a really nice opportunity for us to open up McKean for some select customers, two or three select customers that could, you know, be a base on a go forward basis. Particularly, as Ned said, after we get completion of the building then we’ll be able to take the gondolas which really opens up, our opportunity. Meanwhile, the team has really done a great job of getting up to speed operationally. They’re moving the containers.

They’re really really getting the experience and the operating wherewithal to be able to, you know, perform at a high level there. So we’re we’re pretty excited about that. And once we’re able to broaden what we can take there with the building, it’s gonna be a positive in 2026.

Brad Helgeson, Chief Financial Officer, Casella Waste Systems: And just as a footnote to what what Ned mentioned about the investment to bring on the capability to accept gondola waste. You’ll notice in the reconciliation of our guidance numbers in the press release, this quarter we have aligned for McKean Braille. That was a lot of spend. Of course, last year hadn’t really factored into our forecasting for this year until we decided to add this capability. So that that’s why there’s that additional number in the reconciliation to free cash flow.

Stephanie Moore, Analyst, Jefferies: Understood. Thank you.

Tyler Brown, Analyst, Raymond James: You’re welcome.

Daniel, Conference Call Operator: You. I’m showing no further questions at this time. I would now like to turn it back to John Casella for closing remarks.

John Casella, Chairman and Chief Executive Officer, Casella Waste Systems: Thanks, everyone, for joining us this morning and look forward to all of you joining us for our third quarter call in October. Thanks everybody and have a great day.

Daniel, Conference Call Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.

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