you for standing by. Welcome to Casella Waste Systems Second Quarter 2021 Earnings Conference. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. And please be advised that today's conference is being recorded.
I would now like to hand the conference over to Joe Fusco, Vice President of Communications. Please go ahead.
Thank you everyone for joining us this morning and welcome. With us today are John Casella, Chairman and Chief Executive Officer of Casella Waste Systems Ed Johnson, our President and Chief Operating Officer Ned Coletta, our Senior Vice President and Chief Financial Officer and Jason Mead, our Vice President of Finance. Today, we will be discussing our 2021 Q2 results. These results were released yesterday afternoon. Along with a brief review of those results and an update on the company's activities and business environment, we will be answering your questions as well.
But first, as you know, I must remind everyone that various remarks that 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 those forward looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent Annual Report on Form 10 ks, 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 as of 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.
Also during this call, we will 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 available in the appendix in our investor slide presentation, which is available in the Investors section of our website at ir.casella.com.
And with that, I'll turn it over to John Casella, who
will begin today's discussion. John?
Thanks, Joe. Good morning, everyone, and welcome to our Q2 2021 conference call. As evidenced by our results, team continues to perform at a high level. We are executing very well against our key strategies. Through this period of economic recovery and growth, we have maintained focus on our customers' service and sustainability needs, quickly reacting to increased service levels.
At the same time, we prudently manage variable costs coming back into the business with the uptick in activity. As expected, solid waste volumes were up over 7% in the quarter compared to the Q2 of 2020, which was our hardest hit period of the pandemic. In the Q2, we grew revenues by over 14% and adjusted EBITDA improved over 18% with margin expansion as compared to the same period in 2020. We also continue to drive adjusted free cash flow growth with year to date improvement of 45%. As announced earlier this week, we acquired Connecticut based Willimantic Waste Paper.
Before I dive into the details of the operation, I'd like to mention that I've had the pleasure this week to meet with some of the hardworking men and women of Willimantic that are joining our team. I welcome you all aboard as we look forward to working with you to provide great service to cover the 30,000 customers in Connecticut. This is truly an exciting acquisition for the company as we expand our operations into Eastern Connecticut. The business is well run and has an established market presence with decades of experience providing integrated solid waste and recycling services to its customers. As I said, Tim and Tom DeVivo has built a terrific company and have a terrific number of hardworking men and women that have really done a terrific job of taking care of their customers.
And it's a great platform for Casella in Connecticut. Collection operations include residential, municipal, commercial, roll off services, other operations consist of several recycling operations, solid waste transfer and a rail serve transfer with C and D processing. Given the supply and demand dynamics in the Northeast, we are working to bring our McKeen landfill rail online. We will look to internalize Lyons, Wolimantic and other Casella operations as long term stable sources of tonnage into the site. I will now provide a brief review related to further execution against our key strategies and recent performance highlights.
First, as it relates to disposal, as expected, volumes were up in the Q2. While many of our customers are fully back on line, the volumes from the New York City area have been the slowest to recover. We do not have collection operations in and around the city, but several of our landfills accept waste from 3rd party transfer stations. We are seeing modest improved trends across these lines. However, slightly lower activity levels combined with labor shortages impacting 3rd party truckers has resulted in some of these volumes not coming back into our sites as yet.
From a pricing perspective, we advanced positive landfill price of 4.3% in the quarter, which was a sequential improvement from the Q1. We also continue to focus on various operational initiatives and permitting efforts to help drive further value and higher returns across our disposal assets. Moving to the collection business, Ed and Ned will provide details on the recent performance of our operations along with what we are seeing with price and volume trends. I wanted to take this opportunity to talk about labor and how we've positioned the company to mitigate the challenges many employees are facing in today's environment. Throughout the history of the company, we've created a culture of being of service not only to our customers, but to one another.
In 2020 through the pandemic, this was evident. Not only did we take exceptional care of our customers, but we also prioritized keeping our people safe, especially those working on our front lines. We supplied protective gears, established COVID related guidelines, and overall, we helped each other get through an unprecedented time emphasizing 1st and foremost the health and safety of our employees and their families. While this meant a lot to our workforce, we also recognized our frontline operators and hourly employees with a special heroes bonus around Labor Day. This is much well deserved and well received.
These actions are playing dividends in 2021 through increased loyalty across the organization. Over the last several years, we've also focused significantly on improving the quality of our fleet. We recognize that our drivers, mechanics and operational team take great pride in our trucks. Poor equipment leads to lower levels of employee satisfaction, execution against our multiyear fleet plan initiatives has driven organization in this area by prioritizing when each truck is to be replaced, creating standardization of body and chassis based on application and provide enhanced visibility and alignment to the budgeting and capital allocation process. Ultimately, this has resulted in lower average fleet age, lower maintenance, less downtime and highly reliable fleet, which all very much positively impacts employee morale and retention.
Further, we've invested more in automation across our fleet, automated trucks and routes, ultimately reduce safety incidents, improve productivity, require higher skill set and broaden labor pool and that the more innovation and technology inside the trucks, the easier the trucks are to operate, the broader the labor pool for those applications, which is absolutely terrific. These factors have all helped to mitigate turnover within the markets where we have enhanced automation. Our success in these areas coupled with other operational and HR initiatives have greatly helped to limit labor challenges. We have not had to drastically change labor rates and we are not experiencing significant labor significant levels of labor shortages. Next, our Resource Solutions business continues to perform very well.
Our recycling processing operations have benefited from improved operational performance coupled with higher recycling commodity prices. As commodity prices increase, we have shared a portion of the upside with our customers lowering tipping fees, higher rebates and lower SRA fees. Our risk mitigation fee programs protect us very well from the downside recycling commodity risk with exposure on only about 10% of our recycling volumes. So our risk balance structure is working well as intended and has allowed us to create a model that is both economically and environmentally sustainable. Our non processing operations are also performing well as we continue to focus on providing resource management services to large customers who often have high level of sustainability related needs.
As we envisioned, combining our recycling organics and customer solutions under Resource Solutions is bringing enhanced alignment across our sales, operating and back office teams, which is driving higher value to the organization. Finally, I would like to further highlight our capital allocation and growth strategy. Through the last several months, the acquisition activity continues to heat up. We've had many productive conversations with potential sellers, and we're working on several opportunities that could close over the balance of 2021 or into next year. We believe that certain factors such as labor challenges and tax reform are driving further acceleration of the pipeline.
Our pipeline remains robust and our balance sheet is well positioned to continue to grow the business. Wrapping up, we are executing well against our key strategies. We expect continued strength across the business and we have again raised 2021 guidance. Further, we are enthusiastic about our acquisition pipeline and our ability to continue to drive adjusted free cash flow growth. And with that, I'll turn it over to Ned.
Amongst the torrential downpour here in Vermont, which is what we've had for the entire month of July. So it's very green in Vermont. Hopefully, everyone can
hear me over the rain and the train horns. Revenues in the 2nd quarter were $215,900,000 up 27.1 percent year over year with 1.9 percent a year over year change driven by acquisition activity. Solid waste revenues were up 13.7% year over year with price up 4%, volumes up 7.1% and acquisition growth of 2.6%. This is a sequential improvement from the Q1 2021 when solid waste volumes were down 3.3% year over year. Revenues in the collection line of business were up 14.2% year over year with price up 4.2% and volumes up 6.7% with volumes up 12% over 12% in the commercial line of business and over 8% in the roll off line of business.
The residential line of business was slightly up year over year as we didn't have a significant impact with COVID last year. As we have discussed over the last year, we've kept close track of the commercial and industrial collection customers who reduced service levels or even shut off services during the COVID-nineteen pandemic. Through late April, we have recorded recovered roughly 70% of these volumes on a revenue basis. Since April, we've recovered another 15% and we're now sitting at roughly 85% recovery of any commercial or industrial services on a revenue basis that were reduced or suspended due to COVID. Revenues in the disposal line of business were up 12.4% year over year with landfill pricing up 4.3%.
Landfill tons were up 11.2% year over year. However, on a trailing 12 months basis, we're still down roughly 225,000 tons or 5% versus pre COVID landfill tonnage levels. Almost all of this negative impact is in New York State and is mainly the result of lower commercial activity in the Greater New York City area and as John mentioned driver shortages at 3rd party trucking companies that typically move this waste from the city to our landfills. Resource Solutions revenues were up 16.2% year over year with higher recycling commodity prices and higher processing and non processing volumes. Average commodity revenues per ton were up $62 per ton year over year on higher cardboard and mixed paper pricing, higher metals pricing and higher plastics pricing.
Adjusted EBITDA was $52,100,000 in the quarter, up 8,100,000 dollars or 18.5 percent year over year and adjusted EBITDA margins were 24.1% for the quarter, up 85 basis points year over year. Solid waste performance drove a positive 70 basis points of our consolidated year over year margin expansion and recycling contributed a positive 15 basis points to the expansion. Our core business performed very well in the period with pricing and operating efficiency programs outpacing a few notable year over year margin headwinds including fuel, overtime, acquisition integration, healthcare and incentive compensation. However, it's important to note that these costs were up year over year due to the very unique nature of Q2 2020. However, most of these categories were stable from Q1 to Q2 twenty twenty.
Solid waste adjusted EBITDA was $46,600,000 in the quarter, up $6,000,000 year over year with both collection and disposal up. Resource Solutions adjusted EBITDA was $5,600,000 in the quarter, up $2,300,000 year over year. As intended, as John discussed earlier, much of the increased commodity pricing during the quarter was passed back our customers through our recycling risk management programs through lower SRA fees and higher rebates or lower processing fees at our recycling processing centers. However, higher commodity prices did improve operating results by roughly $1,000,000 during the quarter. Cost of operations was up $15,100,000 year over year, but down 120 basis points as a percentage of revenues.
Many cost categories improved as a percentage of revenue and his team has worked hard to control costs as volumes have returned to the business and we continue to execute very well against key operating initiatives such as a collection route automation and optimization. General and administrative costs in the quarter were up $4,300,000 year over year with $2,800,000 of the increase driven by higher bonus and equity accruals due to timing differences and higher performance. Given the reversal of the tax valuation allowance in fiscal year 2020, we expect an income statement tax provision of approximately 32% in fiscal year 2021. However, our cash taxes will remain at approximately $1,500,000 in fiscal 2021. Our income tax provision was $5,400,000 in the quarter, up $5,100,000 from the same period in 2020.
This increase resulted in a $0.10 per share year over year headwind to EPS. As of June 30, we had approximately $549,000,000 of debt and $167,000,000 of cash. Our consolidated net leverage ratio was 2.54 times as of June 30.
Pro form a for
the Willimantic acquisition closed on July 26. Our pro form a leverage was approximately 2.46 times with liquidity of roughly $217,000,000 As John mentioned, we believe our capital structure is in a great position and gives us flexibility to continue to execute our strategy to grow through smart growth investments and acquisitions. Net cash provided by operating activities was $79,000,000 year to date, up $16,500,000 year over year driven by higher operating results and positive changes in our assets and liabilities year over year. Adjusted free cash flow was $39,800,000 year to date, up $12,300,000 or 45% year over year. Year to date capital expenditures were up $5,000,000 as we continue to invest in planned capital expenditures at newly acquired operations to drive operating synergies and integration efforts.
We also continue to invest in development of the Phase 6 landfill expansion at the Waste USA landfill. We expect to complete this expansion in 2021. Much of the capital expenditures that we've been buying this year were actually ordered back in 2020 and we locked in pricing at that time. However, we have experienced recent inflationary pressures on dumpster purchases as steel prices have skyrocketed and for certain construction materials at our landfills. We're closely watching these trends and adjusting our pricing models accordingly.
Given our solid execution year to date and our increased visibility of economic trends combined with the expected contribution of acquisitions already completed this year, including the Willimantic acquisition, we raised our fiscal 2021 guidance ranges for the 2nd time this year. These are laid out in our press release yesterday. The updated 2021 guidance ranges assume a stable economic environment continuing through the remainder of the year with a modest rebound in solid waste volumes. We expect solid waste volumes to be up roughly 1.5% year over year in Q3 and up 1.5% in the 4th quarter as the post COVID comparisons become more challenging. The guidance includes 4.7% of revenue growth from acquisitions already completed in 2020 2021.
However, as always, it does not include
Well, another great quarter. We continue to perform well operationally. And even though we knew we were going to have a very tough comp on the collection side, we exceeded plan in all major lines of business. We reduced consolidated cost of ops as a percentage of revenue by over 120 basis points. Q2 of last year was a very unusual quarter because of COVID.
So I thought it would be beneficial to talk to 2 year trends as I go through the segments. The collection line of business is on a long term track of margin improvement as we continue to increase our level of automation, upgrade routing systems, implement onboard computers and improve real time internal operating stat reports that we use to manage the business. However, the comp was difficult as last year Q2 was significantly affected by the COVID pandemic as businesses were forced to cease operating and people were asked to sequester in their homes. We moved quickly to flex cost and protect our people and our team did a great job, but there were a couple of unanticipated benefits, low disposal weights in the commercial line and the overall efficiency of having no traffic. Our costs dropped faster than our lost revenue and gave us a temporary boost in margins.
This year, cost of ops as a percentage of revenue went back up as compared to last year, but it is still a 2 70 basis point decrease from Q2 of 2019, which reflects a more normalized picture of our long term improvement. Over the past 2 years, our landfill operations have made substantial progress reducing costs and improving operating efficiency. Landfill operations, which have high fixed operating costs with little flex capability, are financially very volume sensitive. In Q2 of last year, the COVID effect on economic activity reduced tonnages, revenue was down 10% as compared to the prior year, but we still managed to reduce cost of ops as a cost of ops as a percentage of revenue by 50
basis points.
This year, with volume starting to return, we see the full benefit of what we have been doing in cost of ops as a percentage of revenue are down an additional 5 25 basis points. Our biggest landfill, Ontario County in New York, has led the charge and I want to give a special shout out to Mark Johnson and Brian Sanders for the great work they have done there. Our Resource Solutions group has also performed well. This group includes our recycling and biosolids operations and volumes in these areas remained fairly steady through last year's disruption. Operational improvements resulted in a reduction of cost of operations as a percentage of revenue of 200 basis points in Q2 of 2021 versus Q2 of last year and a cumulative 500 basis points from Q2 of 2019.
We continue to work on initiatives that will further improve our operational efficiency. We are investing in our recycling facilities, including technological innovations that will both increase capacity, improve product quality and reduce per ton processing costs. We are expanding our use of onboard computers and integrated camera systems on our collection vehicles. We are steadily increasing our level of automation in our residential collection quicken our response to operational issues as they arise. And we have developed a long term heavy equipment plan that will right size equipment in all post collection activities, replace equipment on a timely and preplanned basis and reduce overall capital and operational costs.
Similarly, we have also just completed a long term facility plan to upgrade efficiency and improve workplace environment to attract and retain good people. These initiatives give us confidence that we can continue to improve the efficiency of our existing operations. As a closing comment, I'd like to welcome the Willimantic employees that joined the Casella team this week. We look forward to you having long and fruitful careers with us and hope you find Casella to be the same great place to work as we have. With that, I'd like to turn it back to the operator to start the Q and A.
And thank you. Our first question is from Hamzah Mazari with Jefferies. Your question please.
Great. Thank you so much. Good morning. I guess the first question would just be on you mentioned exposure to New York and why you're not sort of above pre COVID levels on volume. Do you have a sense of when you get back to pre COVID levels, how quickly you can get there?
And as part of that, what's your guidance imply on pricing for this year and the second half?
Yes. I'll start with the
first part and
then you go. Yes. So on the collection line of business Hamzah, on the roll off side, the construction side, we're actually higher than pre COVID levels right now. And then on the commercial and industrial side, we're about $3,000,000 $3.5 $1,000,000 of revenues on an annualized basis lower, so pretty de minimis. And John, you're talking about I was
just going to say Hamzah, the city didn't open until July 1. So we expect that it should continue to improve through the rest of 2021. But if you remember and I'm sure you're well aware of it, the city opened I think it was around July 1. Yes.
And we're seeing something interesting too where as John described, we're doing a great job retaining drivers and hiring people and really building our workforce. But the volumes from New York move very far distances to our landfills and some of the 3rd party haulers have seen some labor challenges. And I think when some of the federal programs roll back, we expect that to help a bit with some of the driver shortages there. So not directly our people, but it is impacting our business a bit today.
Got it. And just on pricing, what's your expectations on pricing in your guide going forward?
Yes. So we expect pricing to as we said, Q1 was a little bit lighter than we expected. Q2 was where we want it to be. And for the rest of the year, we expect to be kind of 3.75 to kind of 4 ish or maybe around that 4 level for the rest of
the year. Got you. And just on the M and A pipeline, I know you talked about the current transaction. What does the pipeline look like? I know Pennsylvania changed hands.
You guys didn't get that asset. But just sort of any view as to the pipeline longer term going forward? I know you've sized it up, but maybe just talk about the level of transactions you think you can do in the near term and whether you think that's going to be higher than normal? Or I guess higher than is the run rate of deals you're doing right now going to be consistent going forward?
I think that we have always taken the approach to be a bit conservative in terms of what we do. And it seems as though we're obviously above what we laid out from a guidance. We've done 5 transactions and $67,000,000 of acquired revenue this year. And we have a lot of activity right now, Amza. There's a lot of activity because of labor issues, and there's a lot of activity.
And if you talk to us in the Q1, we weren't seeing activity from a tax contemplation, but we are now. Some people are really thinking about it in terms of tax changes. So there's an awful lot of activity. We still we had indicated that we had $80,000,000 to $100,000,000 that we were working on, still consistent even though we've completed Willimantic. We still have a number of things that will happen throughout the second half of the year.
And I think that clearly, we're going to be on a conservative side, but it seems as though we have been over performing from an M and A standpoint. And there are clearly transactions and opportunities that if you had talked to us a year ago that were not in the mix in terms of opportunities because we just didn't think that they would be a target from an M and A standpoint, which has changed pretty dramatically.
Our next question comes from Michael Hoffman with Stifel.
So that train shows up at every quarter. It must be a pretty reliable service.
It is. Even through a big rainstorm, those are reliable. Yes.
Actually, it's early.
And Joe, are you
in community theater? You've been practicing your presentation for the opening remarks there. Are you doing community theater
these days? He's definitely doing community theater
my whole life.
So on to more serious questions like interest expense and things like that. What are we looking at for the couple guidance things through the second half? Interest expense, your D and A, SG and A. Can you help us with those now that you've layered in a bigger long time family owned business that probably has no basis, so got fair amount of goodwill, maybe intangibles, things like that?
Yes. So interest expense, we expect around 20 $2,000,000 for the rest of the year. And right now with the Willimantic transaction, it was structured where we're able to take a tax basis step up. So there will be a little bit higher D and A both from a goodwill standpoint and amortizable intangible standpoint and from the tax basis step up, which is good from a tax planning standpoint. But to your point, Michael, in the near term actually weighs on G and A and I need to pull up that number.
So G and A We've guided to $103,000,000 of the year. Yes. I'll take that number in front of me.
There were several voices there. Say that again?
$103,000,000 of D and A on the
year, Michael, that we've guided to.
D and A is $103,000,000 Okay. Right. I'm a little light there. And then the SG and A, is that kind of probably land somewhere between 115 and 117?
So we are at very detailed 3 and then does that include Willimantic? No. So it will be around 1 so half a year. It will be around 114 to 115 range, Michael.
Okay. All right. That's very helpful. And then, the tax rate is high this year because of that tax valuation issue last year, but what's the dip back to going forward so we get the forward right?
Yes. So much of our focus for many years has been on managing cash taxes, which we've done very effectively. And but our effective income statement tax rate is sitting at 32%. And that's actually a little higher than we'd like it to be. And a lot of it has to do with nondeductibility of compensation and other charitable contributions and the like.
And we haven't done a lot with tax credits. We've done some with landfill gas to energy and we'll look to do more there. But it hasn't been a focus because we've had the net operating loss position and some of the work we've done with tax depreciation. So it is something we're looking at from a strategy standpoint, Michael, because from this point going forward, you'll see a normal provision on the income statement, and it's an area we'll focus on.
So should I use 32 or 30 for next year?
I'm sorry, use 32.
Use 32. Okay.
Yes.
All right. That's helpful. And then
And just one more point on that.
Our actual cash tax rate is like 27.8%. It's lower, of course, due to NOLs and whatnot, but the income statement is up because of those non deductible items.
Got it. Okay. That's very helpful. And you still think the NOL kind of based on doing your M and A, it might stretch it a little bit, doesn't really turnover on you until 2025, 2026?
Yes. We've been able to structure transactions very effectively to help us with that and we're looking at 2025 or later.
Okay. That's helpful as well. This is a hypothetical, but if New York City had been fully operational on May July 1, if you will, on July 1, so you knew that volume was there. The presumption is just your guidance would clearly have been stronger. And I'm not being critical that it's a little muted if I look back to starting February of this year and then what you raised it.
But it's a little more muted relative to some of the peers and that's about New York City. That's what the issue is. If you had visibility on New York City, it's a
pretty higher number. That's fair.
2 different Yes. And I think recycling as well, we mentioned that we've built a very fair system to share risk. And we maybe don't have as much of a tailwind right now, but that's fine with us. We're doing exactly what we set out to achieve and we're making a nice return recycling.
Perfect. That helps too. So lots of companies have been talking about landfill gas operations and the grand windfall that might come from it. Can you talk a little bit about is there incremental opportunities for either development or repositioning what you're doing to uncouple some value, including maybe grabbing some credits?
Well, as you know, we partner with 3rd parties to build our gas plants. We're moving towards RNG now. At most of our sites, we have a lot of great opportunities. But our model is basically to sell them the gas, minimize our capital and our risk, and then we share on the upside. So when we partner with somebody, we work a model on where that upside starts.
And we take very conservative long term estimates of things like RINs because we know the RIN market is spiking right now. So we want to make sure we stay conservative on that and we share as much upside as we can.
But I do think that there's an opportunity, Michael, from a pipeline ready gas that is going to change the dynamics a little bit from a landfill gas to energy standpoint. There's an opportunity there that technology innovation is moving forward and I think it is going to change the dynamics a bit and create a bit more opportunity, especially for those facilities that don't that aren't able to get to the grid.
Right. Any sense on what that might mean to a bump in cash or EBITDA?
I don't at this point in time. I mean, I wouldn't I think that it's I think there's a possibility that it could be a positive, but it wouldn't be something that we would be putting into the model at this point.
Okay. Fair enough. Williamannock has rail. Does this help accelerate McKean development? Or how does it play into the McKean story line?
It surely does. The Willimantic facility certainly fits into our strategy to bring McKeen up and operational. We're in the process of doing that now. We put the team together. We're going through the engineering and expect to have McKeen up operational towards the end of 2022, maybe early 2020 3.
But absolutely, it's very helpful because it puts more tons in our control to make sure that we've got the tonnage necessary to get a nice return at McKean when we bring it up and make it operational.
So you have to put a spur in. Is the state going to help fund some of that as they
So there's a possibility. We had received a grant once for $10,000,000 for that rail infrastructure. I'm not sure whether we will pursue that or not. We're going to build out the facility and we're going to do it at a very high level in terms of having the fastest turn times, the least amount of damage to the cars. So we've got an opportunity to build out a very high quality facility as there's it's a clean sheet of paper at this point in time.
That's exactly what we're going to do. So there's a nice opportunity for us to really build that facility right.
Okay. And last one for me, just because I think you need it helps you manage the news flow. So there is some stuff in the New Hampshire papers about the landfill having a leachate spill. Can you put that in perspective so everybody understands you've got on top of it, it's managed and it shouldn't interfere with the development of the second landfill.
No, it's unfortunate and it's very disappointing. We from an operating standpoint, it's unacceptable. We are we've made some changes to make sure that the issue doesn't happen. The leachate went into a retention basin. It's been cleaned up and straightened out.
We'll continue to work through with DES on the issue. And as I said, it's unacceptable and certainly something that we have looked at from a personnel standpoint and have made some changes in addition to some policy changes in terms of duplication as well and work over a weekend in particular. So it's unacceptable. It has been taken care of. It has been cleaned up, and it did go into a retention basin.
So we did not go into the river, which the journal the one journalist was trying to suggest it may have?
That did not happen. Absolutely not. No.
I think that's a good point to clarify for education.
Went into retention basin, correct.
Got it. All right.
Thank you very much. Nice quarter. Thanks, Michael.
Our next question comes from Tyler Brown with Raymond James.
Hi, Tyler.
Hey, good morning, guys. Hey, good morning. Hey, Ned, just real quick on the guide, but of the incremental $30,000,000 to $35,000,000 in revenue, just how much of that is M and A and how much of that is an increase in maybe core price and volume? It just feels like it's mostly M and A.
Yes. So $25,000,000 is associated with M and A on the revenue side. Okay. So Roughly a 20% margin attached to it. Okay.
I was going to ask on the EBITDA. Okay. So again, there the $10,000,000 increase is
a good chunk
of that is M and A?
Yes. Dollars 5,000,000 is M and A, dollars 5 is core.
Okay. So I can't tell, I
mean, do you feel like you're being conservative on the it sounds like maybe you do, I'm not being presumptuous here, but it feels like maybe you're being conservative on the core price and volume that could be upside there still on restarts?
Yes. Right now, we're tracking pretty close to our budget, as we mentioned a little while ago, both on price and volume. And even we're slightly lighter in Q2 on volumes. We're tracking ahead on operating efficiency programs. And we're probably being a little bit conservative.
Hopefully, we can track well during this quarter and come back and adjust guidance again. I think we're just trying not to get too far ahead of ourselves in this environment. And there have been a lot of moving pieces both from a margin stand point and it's actually been kind of a complicated period as you know because usually our businesses are so stable and we've had some real changes in volumes and we've changed our cost profile dramatically and we're doing a great job ramping back in with volumes and controlling costs and gaining more confidence there.
So kind of going back and touching on that, on the 85 basis points of margin improvement, there are a lot of numbers in there. Can you parse that out again? I thought that commodities was maybe 15%, but what was what were the puts and takes there?
Yes, good question. So it's interesting, our 85 basis points up, 70 basis points came from solid waste and 15 basis points from recycling. So, we did give all of that commodity price increase back to our customers, which is great. But there's some headwinds there too. I don't know how much detail you want to get in, but fuel was despite these headwinds, we still have really nice margin improvement.
And Q2 last year was such a strange period for everyone because we had much lower fuel, lower overtime, lower labor, things like that. But year over year, our fuel was up 30 basis points, over time up 60 basis points, healthcare up 90 basis points and incentive comp up 100 basis points. So you kind of take that into context and you think about our core business operate very, very well in the Q2.
Interesting. Yes, very interesting. But then if you look at the guidance, and again, I'm not great at math, but it looks like you're maybe going to see a flattening out in margin in the back half?
I don't know about that either. I'm not sure about that. I think you're pretty good
at that. Yes. But anyway, yes.
We have a lot of moving pieces with the new acquisition. And I think to your point, maybe we're being a little conservative, but we have moved up guidance ranges significantly throughout the year, second raise on the year and we hope to beat them.
Okay. And then just lastly on Willimantic, can you disclose what you paid and is there an earn out?
There's not an earn out, but we're not disclosing what we paid for.
Okay. And then just lastly, so on McKean, did I hear you right, John, that you're talking late 'twenty two or 'twenty three to get that the rail in?
That's correct. That's our plan at this point in time. The team's in place. We're moving it forward now. It'll be the end of 2022 or early 2023.
And so would it initially start accepting C and D with a longer term hope to bring in MSW both out of, I assume, Louimantic and Holyoke?
Yes, exactly. Our game plan would be to move C and D early on, but to build capability to move MSW to the site since we do have permits for MSW there. And we're working on finalizing the design. And like many things in this environment, capital assets on the rail side, as you know, are out pretty far. So we're working through just work on finalizing the design and then we'll get a better sense of the timeline.
Okay. All right, guys. Thanks so much for the time.
Thanks, Tyler. Yes.
And our next question comes from Sean Eastman with KeyBanc.
Hi, guys. Nice quarter. Congrats on the Willimantic deal. Thank you. So on one hand, you guys are saying that labor tightness is driving momentum in the acquisition pipeline.
But on the other hand, I think you said Casella hasn't seen labor shortages, not having to change wage rates. So
No, no, no. I think that we said that now where we had substantial changes a couple of years ago in 2018, 2019 2020, we had substantial labor changes. We went through all our labor rates almost. But we had a substantial amount of that activity with the economic activity before the pandemic, Sean.
But the other thing, Tom, too, is that we're not immune to this. We have been increasing labor rates. We have some places where we have open slots. But I think John was trying to intimate, it's not a crisis for us. I think we talked to some companies and they're really, really struggling with this factor and the way we've treated our employees both from a pay standpoint and from a culture and safety and you name it, has helped us to have better retention than many organizations.
The other thing that we've done is we've really built our HR team from not only from the standpoint of recruitment, but we've also built CDL schools. We're attracting people out of high school. I think the whole industry has to attract people out of high school. We changed our internal policy from 21 to 18 for people begin to drive truck. And obviously, it means more from a training standpoint, from a safety perspective.
But we've put a lot of programs in place over the last couple of years. Kelly Robinson and the HR team have done a great job of reaching out and really doing the hard work and making sure that as we look at our rates in each of the markets that we operate that we in fact are very competitive from a rate standpoint. So that's ongoing. But the bulk of that for us was a couple of years ago, 2 years ago.
Yes. Okay. That's what I was trying to flesh out. I think that's very helpful. Fair enough.
Okay. And
then Tyler's math skills fleshed out potential conservatism in the margins in the second half. Maybe you could just refresh us on exactly what you think you need to be conservative around there? Is it just kind of continued cost normalization? You mentioned the acquisition, but maybe what in particular might warrant a little bit of conservatism still as we exit a really strong first half clearly?
Yes. So the comparisons get much harder, right, in the second half of the year. So that's the first point because we exited COVID Q2 into Q3 and Q4 last year, but very strongly with margin enhancement. And then from our vantage point, I think it's just a cost normalization and it's something Ed and the operating team are keeping an eye on every day. And we're just trying not to get ahead of ourselves.
We've got great programs in place. We're reacting really quickly. But I think when we look at that's probably the biggest factor of why we're being a bit conservative. On the other hand, it's something we can manage and we're going to try to manage to where we can beat those numbers.
Okay. Fair enough. And last one for me on Willimantic. I mean, the rail and the McKean landfill synergy elements interesting. Maybe the other item we haven't hit on is just what this does to the pipeline since it is a new platform, establishes a new geographic presence.
Does this kind of open up another
bucket of
It is indeed another platform, Sean. There's no question about it. Eastern Connecticut, there are a number of opportunities that are associated with Willimantic. And it's a terrific platform for us into Eastern Connecticut, and we look forward to that. I do think too that the activity also is reflective of what's happening in the marketplace and should help with some momentum for the second half of the year and into 2022.
Okay, terrific. And that's another helpful call guys. Thanks very much.
Thank you. Appreciate it.
Thank you. And our next question comes from Alexander Leach with Berenberg Capital Markets.
Hey, Alex. Good morning, guys.
Good morning. Good morning.
So with the 85% of the commercial industrial business that you guys managed to get back online. What's going on with the remaining 15%? Why are some of these customers so late coming back to the full service levels?
Yes. So we did a really good scrub of everyone who still has lower service levels. And some of them I think never will come back and it's just going to be replaced with new businesses where unfortunately some companies didn't survive at this time period. But the rest of it is still I think a bit of tourism related. We see some of that and restaurant related.
It's still the Northeast is a little slower than everywhere else in the country as you well know, it being in the city. So and there's a little bit associated with some schools and whatnot that we assume when they come back in the fall that they were at lower run rates this spring and we'll see that come back to normalized levels. So it probably will never actually come back. It will replace it with some other work or other customers. And at some point here, we're probably done tracking this because it's not that productive.
We've gotten most of it back and ramp back on volumes.
Okay, great. And then could you give us an update on the customer solutions business? How is customer penetration faring on that side? Is it still growing faster than the group average?
Yes, it is.
Jason will probably give you the numbers or net in terms of the actual growth for the quarter. But the overall business platform is really doing very well. Paul, Liza, the entire team are doing a terrific job with colleges and universities, industrial customers. We'll continue to grow that book of business pretty dramatically and had a really good second quarter. A lot of activity, as you might know with regard to those sustainability goals that those institutions have whether it's colleges and universities or industrial customers.
No question that we're having some great growth there. Jason, maybe you want to walk through that? Yes. So in the second quarter, we had over 9% revenue growth in our non processing resource solutions operations, which is primarily related to our customer solutions professional services business. A little bit of an easier comp in the Q2, but year to date, I think we're closer to about 5% revenue growth.
So really strong performance there.
And the way we reorganized this business last year is important because we have the asset part of it and the asset light part of it. And the asset part is recycling processing, organics processing and the physical assets in the marketplace that we're vertically integrating to or servicing customers through. And the asset light part is really exciting as well. As John mentioned, everyone is really trying to work to reduce their environmental footprint and focus on ESG goals and our team can make a really meaningful difference partnering with our customers there. And we've gotten some great new wins on that side, some great renewals on one of our newest
And thanks everyone for joining us this morning. We look forward to discussing our 3rd quarter 2021 earnings with you in late October. The sun has finally come out in Vermont. You'll all be glad to know. I think we had 3 sunny days in July in total.
So everything is very green. Thanks again, everybody. Have a great day and enjoy the weekend. Thanks.
And with that, we conclude our conference for today. Thank you for your participation, and you may now disconnect.