Ladies and gentlemen, thank you for standing by, welcome to the Casella Waste Systems, Inc. Q1 2020 conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone keypad. I must advise you that this conference is being recorded today, May 8th, 2020. I would now like to hand the conference over to your speaker today, Joseph Fusco, VP of Investor Relations. Please go ahead, sir.
Thank you 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 Director of Finance. Today, we will be discussing our 2020 first quarter 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. 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-K, which is on file with the SEC. 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. 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 to our investor slide presentation, which is available in the Investors section of our website at ir.casella.com. With that, I'll turn it over to John Casella, who will begin today's discussion.
Thank you, Mr. Fusco.
Thanks, John.
Actually, Mr. Fusco. Thanks, Joe. Good morning, everyone, welcome to our first quarter 2020 call. I hope all of you and your families are doing well in this unprecedented time. I want to start off today by first thanking our 2,500 dedicated employees, particularly those on the front lines, who have displayed their commitment and courage in providing our essential service to our customers and communities. Your hard work and family support at home during these unprecedented times is recognized and truly appreciated. As a company, we've been diligent. Our experienced team has done a tremendous job ensuring the well-being of our employees while maintaining efforts in effectively servicing our customers. Since the onset of the pandemic in early March, we have taken the following five steps to ensure business continuity. Number 1, keeping our people safe and healthy. Establishing plans to provide continuity of operations.
Number three, effectively transitioning back office functions to work at home. Open communications and creating flexibility for our customers, and flexing variable costs and freezing discretionary capital. In touching on some of the key elements of these five steps, we have been highly focused on mitigation measures such as distributing PPE, increasing social distancing within our field operations to limit exposure, establishing contact tracing, operational continuity, and disinfecting procedures. During this period, we have also eliminated non-essential travel and very much limited in-person meetings by leveraging virtual formats. In addition, I'd like to have a shout-out to Mike Hughes and our safety team for the outstanding job that they have done in support of our frontline operations. The team also did a great job transitioning office personnel into a work-from-home environment, creating a safer, more flexible workspace while maintaining redundancy of key processes and systems security.
Our investments in technology over the last three years allowed us to make this transition with minimal cost and little disruption to our business. Our IT team did an amazing job ensuring employees had the right software, hardware, and training to do their jobs. Our response, coupled with the effectiveness of our consistent and thorough internal communications and teamwork, has undoubtedly resulted in limiting the number of cases and business interruption that we have had to experience thus far. The geographic blend of our operations has also likely been a beneficial factor in our ability to limit exposure with approximately 60% secondary markets and 40% urban markets. That's changed a little bit over the last year and a half, in that our acquisitions have been in the Albany and the Rochester markets, which is really bringing up our participation in some of the more urban markets in our market area.
As an organization, we have displayed agility in meeting our customers' service and sustainability needs while flexing our costs in an effort to right-size our operational programs, as well as freezing approximately $10 million of discretionary capital expenditures. We have been highly focused on monitoring and systematically tracking key metrics such as service level changes and volumes so that we can effectively scale our operation. Ed will dive deeper on some of the specifics related to our actions. Thus far, our proactive response has been very successful. Moving to the quarter. We are really pleased with the results of our first quarter. This is another strong period as we continue to execute well against our key initiatives. Given the timing of stay-at-home orders and its economic impact across our operational footprint, we did not experience any material negative impacts in the first quarter.
As reported in yesterday's press release, our first quarter revenues and adjusted EBITDA were up 11.8% and 25.9%, respectively, from last year. We continue to execute well our disciplined growth strategy as we have closed four acquisitions thus far in 2020, with approximately $13 million of annualized revenues. This marks a strong start to the year against this initiative, which we are excited about the growth opportunity our pipeline presents. Next, I want to provide some cover on the recent performance of our operations. From a disposal perspective, our focus remains on providing essential environmental services in a safe and compliant manner that meet the needs of our customers both today and tomorrow. We strive to develop deep, positive relationships with our host communities, customers, and stakeholders as we provide a necessary resource.
We recognize the scarcity value of landfill assets in a highly regulated environment, and through time, we have had great success in obtaining critical expansions that allow us to continue to meet disposal needs of society. In mid-March, we refiled our permit application for stage 6 expansion at our North Country landfill in New Hampshire. We are confident that we have addressed the state's concerns with our last application and look forward to advancing this permitting effort. We remain focused on disciplined pricing, and in the quarter, landfill price was up 10.1%. Volume at the landfills were not impacted by COVID-19 in the first quarter. However, with the recent economic slowdown, tonnages were down roughly 22% year-over-year in April, with construction and demo and special waste tons down about 30%.
Over the last couple of weeks, however, and into early May, we are starting to see sequential uptick in volumes at our sites, which is most likely indicative of modest improving economic activity levels. The collection business continue to execute well against our collection pricing and operational strategies. In the quarter, we advanced strong price at 5.2% as we continue to focus on offsetting disposal, recycling, and cost inflation. As we maintain pricing discipline, our operations teams remain highly focused on acquisition, integration efforts as well as our operational excellence program that is focused on service compliance, reduced safety incidents, and efficiencies. A program that has been led by Sean Steves and Ed, and is really beginning to bring a very high level of performance across the entire organization.
We have been extremely flexible with our commercial and industrial customers during this challenging time, help them to reduce, in some cases, suspend services. Our operating teams have been nimble in our response to these service level changes by flexing labor, eliminating overtime, consolidating routes, and even parking trucks to right-size our cost structure quickly to lower revenue levels. We estimate approximately 62% of our collection-related costs to be variable in nature. With stay-at-home in place, we experienced slightly higher residential collection tonnages up about 15% as compared to March. This is fairly consistent trend, however, in terms of the normal seasonal uptick from previous years. We are monitoring these volume increases and will adjust our pricing model as needed. Our blend of residential customers provides flexibility from a pricing perspective with about 75% being subscription-based.
Interestingly enough, as the sun comes out in the Northeast, people begin to come out of their homes, do a lot more work and start to clean up, and that's a normal trend that we see each year, although it was up maybe a couple percentages over and above what we saw last year. This is a time of the year when we do see tonnages go up naturally because, again, in the Northeast, people finally have seen a little bit of sunshine. One of the keys on the hauling side is to be ready and nimble as our customers and businesses come back online over the next coming weeks and months. If you flash back three months ago, our largest challenge as an organization was attracting, training, and building a great team, especially drivers and mechanics.
We believe with the work that Kelley Robinson, the entire HR team has done, we are well-positioned to ramp back online services as stay-at-home orders are lifted and people get back to work across our markets. Moving on to Resource Solutions. In January, we combined and realigned our Recycling, Organics, and Customer Solutions team into one organization called Resource Solutions. Over time, this will enable us to more effectively meet our customer service and sustainability needs while providing an opportunity to better leverage our sales and back office. Bob Cappadona and Paul Ligon have done a terrific job of bringing that together and really putting in place the team and an effective process as we go forward into the future. Our recycling business continues to perform well.
Our average recycling commodity price per ton was down roughly 33% in the quarter year-over-year, while adjusted EBITDA improved during the same period. This highlights the continued success of our risk mitigation programs, our focus on quality end products, and the outcomes of operational initiatives. We have effectively passed on over 90% of the recycling commodity risk back to our customers. In April, we did experience lower recycling tons year-over-year, about 9%, given the lower economic levels of consumption. Sequentially, higher commodity prices and our tip fees offset this decline. From a regulatory standpoint, recycling throughout the Northeast remains vastly unaffected as it relates to COVID-19. We remain committed to our programs and to our customers' needs, as well as ensuring our employees' safety through reduced exposure risk along processing bylines of distancing measures and increasing cleaning of equipment.
One of the things that's been clear to us is that we have spent the time and dollars, resources, retraining people on the quality of material being left at the curb so that we can increase the quality of material that we're processing and really keep our recycling operations moving forward, even through this period of time. The Customer Solutions and Organics team also performed very well during the quarter with combined adjusted EBITDA growth of over $300,000 year-over-year. Lastly, I would like to highlight our capital allocation and growth strategy continue to execute very well here as well. As I mentioned, we have completed four acquisitions thus far in 2020 with approximately $13 million of annualized revenues. We welcome the new and hardworking employees to our team and look forward to continuing to provide outstanding service to our new customers.
Our two most recent acquisitions were a tuck-in collection operation in Central N.Y. and a transportation operation in the Rochester, N.Y. market, which will nicely complement our solid waste operations within that footprint. Our pipeline remains robust. Over time, we believe there remains a significant opportunity to continue to selectively grow the business in a disciplined manner and further drive free cash flow growth. Our balance sheet is well-positioned to continue to support this initiative, the market dynamics are still very strong in that all of the independents have seen tremendous impacts from a disposal standpoint, a recycling perspective, now COVID-19, labor issues. Those issues have not changed, if anything, are even stronger today than they were before.
Wrapping up, I'm incredibly proud of the response of our employees as it relates to this challenging time. We are well-positioned to continue to grow the business and execute against our strategic initiatives. With that, I'll turn it over to Ned.
Thanks, John. Revenues in the first quarter were $182.9 million, up 11.8% year-over-year, with 6.4% of the increase driven by acquisition activity. Solid waste revenues were up $15 million or 12.4% year-over-year as a percentage of solid waste revenues, with price up 5.8%, volumes down 2.7%, and 8.5% growth from acquisitions. Revenues in the collection line of business were up $11.5 million year-over-year, with price up 5.2% across all lines of business, volumes down 3.2%. Our negative collection volumes in the quarter were mainly driven by our efforts to shed unprofitable work, advance pricing, and we began to experience some early negative impacts from COVID-19. Revenues in the disposal line of business were up $2.6 million year-over-year, with reported landfill pricing up 10.1% year-over-year and transfer and transportation pricing up 4.8%.
Landfill tons were down 5.1% year-over-year as we reduced tons going into the North Country landfill. We also were conserving airspace in New York State in Q1 to ensure we are able to execute in Q4. We also experienced some early impacts from COVID-19. As John just mentioned, we changed our segment reporting for 2020 with Recycling, Organics, and Customer Solutions now rolling up into the Resource Solutions segment. Resource Solutions revenues were up $4.3 million or 19% year-over-year, with the Organics [proof] driving 9.8% growth year-over-year on new contracted volumes. Customer Solutions revenues were up 15% year-over-year due to several new multi-site contracts and higher industrial service work. Recycling revenues were up 1.9% year-over-year. This is a great story.
Once again, we had significantly lower commodity pricing with commodities down 33% year-over-year, but our higher third-party tipping fees and also a little bit of acquisition activity offset that during the period. Adjusted EBITDA was $33.5 million in the quarter, up $6.9 million or 25.9% year-over-year. Adjusted EBITDA margins were 18.3% for the quarter. This is up 205 basis points year-over-year. We saw margin improvement across almost all lines of business. This is really important because last year we were pushing great price, but we did have some inflationary impacts in the business, and we've begun to really anniversary those before COVID-19, including some of the changes in transportation, third-party disposal, and labor costs. We're really excited, once again, same trend as in the fourth quarter. Solid Waste adjusted EBITDA was $30.7 million for the quarter, up $6 million year-over-year.
Resource Solutions adjusted EBITDA was $2.6 million for the quarter, up $900,000 year-over-year, with recycling up, Organics and customer solutions, each business unit up year-over-year. Cost of operations was up $10.8 million year-over-year, down 170 basis points as a percentage of revenue, with roughly $9.6 million of the increase driven by acquisition activity. As I just mentioned, much like the fourth quarter, we continue to anniversary many of the inflationary headwinds that had negatively impacted margins in 2018 and early 2019. General and administrative costs were up $1.6 million year-over-year, down 60 basis points as a percentage of revenues. Roughly $1.2 million of this year-over-year increase was driven by acquisition activity.
With the adoption of the new CECL guidance in Q1 and our forecast of higher accounts receivable write-offs due to COVID-19, we actually increased our bad debt reserves by $900,000 during the first quarter, which drove a lot of that increase. Depreciation and amortization costs were up $3.9 million year-over-year, mainly due to higher depreciation on trucks and equipment as we continue to execute our multi-year fleet and yellow iron plans. It's also driven by higher amortization of intangibles from acquisitions and higher landfill amortization. Net cash provided by operating activities was $14.8 million for the quarter, up $10 million year-over-year, driven by both higher operating results and positive changes in our assets and liabilities year-over-year. We did a great job improving our accounts receivable during the quarter with our DSO at 35.3 days at March 31st, down close to four days from December 31st.
I believe that we entered the COVID-19 crisis with a stable and mature credit and collections program. Normalized free cash flow was $4 million for the quarter, up $12.5 million year-over-year. We continued to invest in planned capital expenditures at newly acquired operations during the quarter to drive operating synergies and integration efforts. In addition, we also continue to invest in the long-term development of the phase 6 landfill expansion at the Waste USA landfill. Our normalized free cash flow conversion as a percentage of adjusted EBITDA improved to 41.6% for the 12 months ended March 31st. As noted in our press release yesterday afternoon, we have withdrawn our financial guidance for the fiscal year ended December 31st, 2020, due to the uncertainties from the COVID-19 pandemic.
We cannot predict when the stay-at-home orders end, how fast things ramp back online, if there are additional outbreaks and closures, and any lasting economic impacts across our markets. We hope to have more visibility on key variables when we announce our second quarter results this summer. Our first quarter results did not have significant negative impacts from the COVID-19 pandemic, as the stay-at-home orders and widespread business shutdowns did not occur until roughly mid-March across our footprint. As an essential service provider, we have continued to operate through the pandemic with approximately 87% of our revenues from stable recurring sources such as residential collection, recycling, organics. We closed our books for the month of April on Wednesday, and our revenues were down 0.9% year-over-year, or excluding the rollover impact from acquisitions completed in the last year, down about 8.1%.
The negative impact of COVID-19 is somewhat hidden in the year-over-year revenue change for the month of April because of the other positive growth drivers, including our strong positive pricing, new contracts we've brought online, and as I just mentioned, 7.2% growth from the rollover impact of acquisitions. To help give a clearer view of COVID's impact in the month of April, I'm going to give a little bit of detail by line of business, excluding the rollover impact of acquisitions. Revenues in our residential line of business were flat year-over-year. Revenues in our commercial line of business were down 9.3% year-over-year, excluding acquisition impacts. Revenues in the roll-off line of business were down 26% year-over-year, excluding the rollover from acquisitions. Revenues in the disposal line of business were down 14.4% year-over-year, and revenues in our Resource Solutions segment were actually up close to 1% year-over-year.
While it's impossible to predict if we are at the bottom, we have seen several key indicators, such as commercial and industrial service level changes, the number of roll-off pulls, and landfill tons begin to stabilize, and in some cases, improve over the last several weeks. We've relied upon our business intelligence tools to track key indicators to allow us to proactively flex our cost structure to lower revenues. We have taken the following steps to reduce our costs. We have downsized our workforce through the reduction of hours, reduction of overtime, furloughs, and layoffs. We've actively flexed variable and general administrative costs, and we've instituted a hiring freeze for all non-essential roles and frozen salary increases. Our efforts to quickly flex variable costs to lower revenue levels have helped to limit the decremental impact of lower volumes.
However, we have experienced volume declines in the higher margin parts of our business, including commercial collection and the disposal lines of business. Given this, we expect a decremental impact to adjusted EBITDA margins of roughly 150-200 basis points year-over-year in the current environment. Moving on, we believe that a conservative capital structure will provide adequate liquidity and covenant headroom to manage through the pandemic and positions us well for opportunistic growth over the coming months. Our next major debt maturity is our senior secured credit facility in May 2023. As of March 31st, our consolidated net leverage ratio was 3.10x against the maximum covenant level of 4.00x. Our consolidated funded debt was $537.8 million, with liquidity of $139.8 million, including $26.2 million of cash. We have chosen to build additional cash liquidity during this uncertain time to further manage risk.
To further improve cash flows in 2020, we have frozen $10 million of planned capital expenditures, and we will continue to actively manage receivables and payables to maximize cash. With that, Ed?
Yeah, thanks, Ned. Good morning, everyone. Well, great first quarter, certainly one of the best Q1s operationally since I've been with the company. The landfills performed very well with strong pricing. Our overall average price per ton is up 12.5%, improved operating costs, and improved EBITDA contribution and margin. The collection line of business also performed well. We enjoyed strong pricing, up 5.2%, and continued to improve our key operating metric, which is variable margin contribution per driver hour. Our Resource Solutions group, where we've now combined recycling, Organics, our national brokerage business, and our industrial in-plant services business, turned in strong numbers as well. All combined, we saw an improvement of cost of operations as a percentage of revenue of around 170 basis points and achieved profitability in our seasonally lowest quarter. On track, great quarter.
Now I'd like to spend the rest of my time providing some details about our management through the challenges of the pandemic and how we are preparing ourselves for the resurgence of the economy as and when that comes. When it became clear in early March that everyone was going to be impacted by the virus, we established a task force, meeting daily to manage through the rapidly evolving situation. In managing any crisis, communication and leadership is imperative, and through this task force, we established direct lines of communication for each of our frontline managers. Our primary focus has been to protect our employees, comply with changing rules and guidance within each of the states that we operate, accommodate our customers for their changing needs, and to protect the long-term health of the business.
As it relates to protecting our workforce, there have been some pretty significant changes to the way we operate, and I'm sure most of the waste industry has done many of the same things. We implemented staggered starts for our drivers. We closed the break rooms, implemented various electronic solutions to reduce or eliminate face-to-face contact, both internally and at the scales in other areas of customer interface, and of course, we are disinfecting like crazy. There's the PPE side. In the early days, John personally became a highly effective chief procurement officer of hard-to-find PPE. Our lobby looked like an Amazon fulfillment center for a while.
We implemented an internal tracking system of any employees that might have symptoms or came into contact with an infected person, established procedures to isolate those individuals. I'm happy to say that all of these steps have been highly effective in keeping our employees safe. As it relates to complying with evolving state rules and guidance, our task force, which includes government affairs and legal department personnel, tracks daily changes in each of the states that we operate and is the prime communication source to implementing evolving operating policies. In the early weeks, new operating criteria was introduced daily. Now we are on the positive side of communicating relaxation of some of the rules as states begin to reopen. As it relates to accommodating our customers, colleges and universities, hotels, bars, restaurants, we're all familiar with what types of customers were quickly affected by the pandemic.
We were very proactive helping our customers through the process of reducing or suspending service. We stayed in touch with them where possible during their downtime, helping them think about how to restart when allowed, and then made sure we were ready to pull that switch operationally when it happens. At the same time, we needed to make sure that customers who did not have to shut down, such as hospitals, grocery stores, and other essential services, along with our entire residential base, received uninterrupted service by developing detailed contingency plans. The same goes for our disposal and recycling facilities that handle the materials or waste they produce. We secured our pipeline of parts, fuel, and supplies to protect from a disruption in delivery, and built inventory where needed.
We also established a priority response team of volunteers from all our divisions to enable us to service, on short notice, any division that became overwhelmed by the virus, along with procedures and guidelines for execution. I'm proud of the team for coming together to get all this in place in a relatively short time period, and I'm happy to report due to the success of our employee protection actions, we've not had to implement any of it. As it relates to protecting our business, as Ned discussed, we have experienced reductions in revenue and landfill volumes, and there have been extra costs associated with the actions we have had to take. We have taken the necessary steps to minimize the financial damage while protecting our customer base and our uniquely situated assets for the long-term benefit of shareholders.
Our focus has been not only on expenses, but on retaining as much cash flow as possible. We took a hands-on approach to helping our frontline managers flex costs, including a specific focus on reducing or eliminating overtime where possible. To do this, many employees that experienced reductions in their workload had to adapt, performing new functions or working in a different line of business or with different equipment than they were used to so that we could relieve overtime in other lines of business. There have also been selective furloughs or layoffs where needed, but I'm thankful to say that that hasn't been a huge requirement, as we will need these employees when things ramp back up. We have also reduced or deferred capital expenditures where possible, but only where we believed it would not hinder us in the future.
As you can imagine, there have been a million other details to managing this crisis than the few I've mentioned, and things have been very hectic. We haven't been overwhelmed, and at the risk of sounding like Trump, our team has done a great job. This is where the Casella culture, our consistency in living our core values, and our careful selection of people that fit those values has paid tremendous dividends. With that, I'd like to turn it back to the operator to start the Q&A.
At this time, if you would like to ask a question, please press star one on your telephone keypad. Again, that's star one to ask a question. Your first question comes from Tyler Brown with Raymond James.
Good morning.
Hey guys. Hey, Mead. To be clear, you bought a couple of businesses, I think that will add $13 million in revenue. Is that right?
Yeah.
As you see it right now, basically, what's the rollover benefit in the model to revenue from M&A, roughly?
Yeah. For the year, we've got about 7% or so, Jason. We had about 7% in April. For the full year, it reduces a little. Do you have that number for the year?
We had about 35 to start the year.
Yeah.
We did these two most recent subsequent acquisitions.
Yeah.
A little north of 35.
In the year, these new ones give us about $8 million. That's $43 million, roughly.
Okay. That's helpful. That's a good place marker. Okay. I am curious about how you think about the New York City dynamics really playing out, particularly from a disposal perspective. I know a lot of tons come out of New York City. It fills a lot of mouths in the region. I'm curious what the competitive response has been, given that those tons have maybe gone away. Do you think that this changes the dynamic in the region in any way? I know the landfill price increase was very strong this quarter, but is it having any impact today?
I don't think so. I think that, if any, it's modest. We haven't really felt anything at this point, as evidenced by what we were able to do in the first quarter, Tyler. We haven't seen any indications that that's problematic. I think that the supply and demand equation speaks for itself.
Yeah, If you look at across our different states, New York State is one of the areas where we had the highest volume declines at our landfills, and it is most directly related to New York City. As everyone on the phone knows, the cost and the complexity of permitting and building and maintaining the landfills doesn't go down in other disposal sites.
We still have the perspective that these are invaluable assets that need to be managed for long-term returns, and that doesn't change at all.
Okay. That's great to hear. John, you mentioned that 75% of your resi business is subscription, which is a very unique aspect for you guys. Are you guys able to implement any real-time, I don't know, call it a surge fee, to basically help offset the can weight increases?
I think that it's a great question. I think we contemplated it internally. We did not execute it because we didn't feel we needed to. It's certainly something that we looked at and contemplated, and Ned and Jason, Tyler, started to look at the algorithms and how we would approach that. It wasn't necessary.
Yeah
It wasn't necessary to execute.
This is a weird thing. Everyone's been talking about how increase tons have gone up year-over-year and whatnot.
We spent a ton of time studying this because every year from February to March to April, our weights go up in our resi containers.
They went up generally the same way this year. They go up every year. Ed was just telling me.
Yeah
a stat a minute ago.
I went through You know how we have A and B week service, so you got to have two weeks when you're comparing things. I went back to the last two weeks of last April, compared to the last two weeks of this April, and computed the pounds per stop, and it was very consistent. It actually went down slightly year-over-year.
The only thing we've seen is a normal seasonal uptick.
Yeah
in those pounds.
Okay. That's interesting. Real quickly, John, what is?
I think one of the reasons for that, Tyler, is that we see a seasonal uptick because we go through the winters up here. Nobody sees any sunshine. All of a sudden, comes the end of March, April, and all of a sudden the sun comes out at least one, two days. People are like, "Wow." They get all excited, start spending money, start going to the gardeners, and it's like everything starts to kind of bloom, and actually people start to smile.
Okay. That's interesting. John, I am curious about the status of the markets that you're in. Particularly in roll-off, I think you're about 50/50 temp versus perm, if I'm not mistaken.
Yes. That's correct.
Yeah, okay. You said April was down 26%. I'm just curious, how is temporary versus perm, and what about those big markets, say, like Boston? Just what's kind of going on in your general regions?
Jason, do you have the split?
Yeah.
Do you have it, Mead?
Yeah.
Yeah.
Temporary is down a little bit more than permanent, 200 basis points more. On the permanent side, with some factories and colleges and universities and other businesses that have temporarily shut down, we have seen declines. Urban is down more than our secondary markets. We haven't netted acquisitions out of this, but urban's down about 14%, secondary market's down about 11%.
That would be consistent, Tyler, because when you think about it, as you look at Massachusetts is going through a peak at this point in time in the last few weeks. They're late to peak, and so that's kind of consistent, and we're going to see more from an urban standpoint than from a rural perspective.
Okay. Makes sense. I'm going to give it one shot here, Ned. I know it's early. It sounds like you're going to give more color on Q2, hopefully. We all have to calibrate our models. If we just walked at a very high level from $157 last year, it feels like you still have quite a bit of contribution from incremental M&A. Let's call it Ontario's a couple million USD positive. If we just assume that collections are negative and disposals are fairly high negative, could you walk into the low to mid-$150s of EBITDA? Is that crazy based on what we know today?
Yeah, we didn't feel comfortable providing guidance for the year, as you know, because there's so many exogenous factors here that we can't control. If you look at our month of April, revenues are down roughly 1% year-over-year. As I said, you can't really use this normal decremental concept because we have some remixing of our revenues where we're growing with some of the acquisitions, and we see some higher margin landfill work down significantly. If you just start to roll out in a model that EBITDA margins are down 150 basis points year-over-year, and you can make your own assumptions what future months look like, I think you can start to get a sense of if April rolls forward, what that would do to Q2 or Q3. We just can't do that at this point in time.
Okay. No, that's fair. I appreciate it. Thanks, guys.
Thank you, Tyler.
Thanks, Tyler.
Your next question comes from Michael Hoffman with Stifel.
Hey, Michael.
Hey, Michael.
Michael?
Michael, your line is open. We have no response from Michael's line. We'll move on.
Yeah. Sorry, I had it on mute.
Hey. He's there.
That tickles me.
Yeah. Hope all y'all, everybody's well. Glad the sun's shining, John. It's not in Virginia.
Absolutely. It's about time, I tell you.
Yeah. We might get snow this weekend, believe it or not, in Virginia.
I didn't say we weren't going to get snow. We're definitely going to get snow. At least the sun's out.
I think you clarified one of my questions in the last one, Ned, because you made a comment of decremental 150, 200. What I think what you meant is what you just said, it would be down 150-200. It's not a decremental. It's the absolute margin will be down year-over-year.
Yeah. I'm sorry.
Okay.
Yeah. These concepts get a little confusing. This concept of for each dollar revenue lost, how many cents of EBITDA you'll lose gets a little confusing because of the remixing of our business. I think the easiest way to model this is just take our Q2 EBITDA margins from last year, hit them by 150-200 basis points. I think you start to get a sense of what a quarter could look like.
Got it. Thanks. That makes that clear. Then what was the percent of your direct labor cost in 2019 that was overtime?
I'm not sure I know that.
We were about $19 million for the year.
Yeah.
We've flexed out right now close to 40%.
Yeah
on a run rate basis out of the business. I don't know the percentage. Ed, do you?
No, I don't. It's probably higher than most of your national companies, Michael. It's just the way we run things.
Yeah. Well, I just think you guys have a lot of windshield time because of the site, the nature of your markets.
Well, yes. We also try to maximize the return on our equipment, our trucks and equipment, while still staying safe. Most of our routes are designed to run 10 hours a day, and so we have a pretty high overtime percentage.
Okay
in our collection operations.
Okay. What you're saying is $19 million was direct cost. Is that $19 million? I think that just seems too much.
For the entire year, last year, spent on overtime.
Oh, was overtime last year. Okay. Got it.
Yeah.
You've reduced that number by 40%.
By about 40% in the month of April.
In April. At this point, that's done, right? Whatever those cost things were are behind you, because if the trend's improving, you might hold the cost. Right?
That's done. That's right. It's done.
Yeah. Okay. How do I think about landfill pricing, having successfully gone in and said, "All right, the world's changed pre-COVID. Lots of capacity out. I ought to be able to price this better. We do." How do I anniversary that and get to how to think about modeling on a recurring basis? I can't imagine you keep coming back double digits. What's the sustained rate?
Yeah. What makes up the 10% landfill price? A lot of different factors. A few of the things that led to that 10%, we had several longer-term contracts that rolled over in the last six months that we've right-sized to current market rates. The underlying rate of landfill pricing is more like the six-ish% that we've been at. A few of those longer-term resets really showed themselves in this period, getting things to the right levels across a few of our markets.
Yeah. A couple of those contracts, Michael, were really large contracts with over 100,000 tons to almost over 200,000 tons. That's why the big impact.
Got it. That anniversaries when?
Some of that really anniversaries in the fall, and some of it goes all the way to next January.
Okay. We'll see this good trend all the way through the rest of this year, and then it's pretty much, for all intents and purposes, done going into Q1.
Yeah. One of the exciting things is we got out with a lot of our pricing plan early in Q1, so I think it's 70-ish.
70%. 70% of our price for the year went out in January.
Got it.
Which makes sense because everyone obviously wants to front-load in the year those price increases to get the benefit through the course of the year.
Yep. I realize predicting this is just as difficult as trying to predict the model, but what do you need to see to restart M&A? I get the everything between the logistical things and those.
It's not a matter of shutting down M&A, it's really more a matter of being somewhat impacted by stay-at-home, those issues from a state standpoint. We've continued on the phones, we've continued to reach out to potential targets. We've actually added some resources there as well from an acquisition standpoint, recognizing some of the things that we had shortcomings on over the last couple of years. We've added some resources at the beginning of the year. I think it's a matter of when things open up, Michael, more than Because that'll give us more flexibility to be face-to-face, and as you know, a lot of that really has to take place face-to-face.
We closed one deal on April 1st and closed another the second week of April. They had been in the pipeline.
For a while.
until it was completed.
Yeah.
You probably will see a little blank spot for a bit here because all of the early work and diligence has been pushed off with COVID.
Okay. Then last one for me. I get why we talk about normalized free cash flow. Where are we on the GAAP between that and the classic definition of cash flow from ops less all capital spending, those two merging together? How far away are we from that happening?
Well, if you look at every business, you're trying to get information out there about what cash flow you're producing from your business to invest back into different opportunities. We adopted this normalized free cash flow concept to try to get a sense of that, where you start to see our net cash provided by operating activities, less capital expenditures, less land. Then we start to add back a few items. One of the items we've been adding back is the cash we're spending to get Southbridge permanently closed, which as everyone knows, is a pretty unique event, and it was the right decision for shareholders. We've also been investing heavily into several of these acquisitions after they're completed in the fleet, to get operating synergies, other benefits. You see that in this quarter.
We put $5.9 million of our CapEx went into newly acquired businesses to get them into our system. We also, as we've laid out, we're making a very long-term investment at the Waste USA landfill, to get the new cell open, which is 25 years of capacity. We have felt it's really important for shareholders and for everyone to understand that part of our CapEx, part of this is something that's unique. You do need to understand. We could be choosing not to do it, these dollars are being put to work in areas that have great returns, great growth profile.
Right. Southbridge comes to an end when that's.
Southbridge, we're going to be substantially done this year. Maybe there's a little bit that carries into next year. I think there's some unknowns with COVID-19 in the construction cycle right now, but we're substantially done with cash out the door there this year.
The Waste USA?
Waste USA will be done substantially next year.
Yeah.
We'll be done with that investment next year. The acquisitions, it was all part of the pro forma to begin with, and it just doesn't roll into acquisition accounting, and we feel like it's a great thing to call that out and let people know what that investment is.
Yeah. Actually, interestingly enough, at the end of the day, you either bought a really good fleet and you paid for it in the purchase price, or you upgrade the fleet and it comes in capital spending, and it's the difference in the purchase price.
That's right. Exactly.
Yeah. Right. Okay.
Thank you, Michael.
Cool. Thanks.
Have a good day.
You too.
Your next question comes from Hamzah Mazari with Jefferies.
Hey. Good morning. Hope everybody-
Hey, Hamzah. Good morning
is having a good day. My first question, and you may have touched on this a little bit, but I know it's early, but in early May, I think you referenced sequential volume improvement. Is that across all lines of business? Maybe if you could just give some color as to where you're seeing that improvement, and whether it's broad-based.
We definitely don't want to call a bottom because we don't know where the COVID-19 is going. We are tracking a lot of key stats every single day. On the commercial and industrial side of our business, we track service level changes in our billing system with a COVID-19 code. Every day, we get a flash to look at if services have been suspended or reduced or increased. Over the last two weeks, we've seen some days with customers bringing services back online. We've definitely stabilized, and we see some bright spots there. On the roll-off side of the business, this is typically the time of the year where you see pulls ramping.
Throughout the month of April, we were declining week on week on week until the last week of April and the first week of May, and we started to increase the number of pulls, both on the temporary basis and the permanent basis. Some positive movement there. On the landfill side, we were reducing week on week till the, I think it's the last week of April. The last two weeks, we've been in a positive trend at the landfills. Once again, a little bit of brightness, but a little early to fully understand what that means.
That's very helpful. We talked about the landfill pricing dynamic, and you touched on the new contracts, et cetera, but could you maybe talk about at what point do people start thinking about waste to rail? Does that show up when you're bidding on these contracts? Just give us a sense as to how that dynamic sort of plays out.
Yeah. The waste to rail dynamic, you don't have a transfer station that one day it goes by truck and one day it goes by rail. Furthermore, we've really seen that infrastructure get built in more urban areas where there are constraints or truck constraints, or even in states where you don't get overweight permits for trucks on the highways, so you can't carry as much in a trailer. The sources we get waste from and the markets are generally stable, and we're not seeing big changes there, Hamzah. As you know, it's very capital-intensive and very hard to handle moving municipal solid waste via rail, and you've seen mainly just construction and demo and contaminated soils be moved via rail over the last several years in the Northeast.
It's fundamentally, Hamzah, because of the capital intensity of MSW, you've got to containerize it, where in the case of C&D, you can use gondolas to move it effectively from a rail standpoint. The capital intensity to containerize MSW is just huge.
Gotcha. That's very helpful. My last question, I'll turn it over, is, I know you're the largest sort of market share in your area, where you're operating largely. At what point do you think you get scale benefits, in terms of just being a bigger revenue base? What I mean by that is. Even companies like ADSW that were $1.4 billion of revenue talked about that revenue base just didn't have enough scale benefits to extract. I'm not trying to compare you to the larger public companies, but just curious as to, do you think you have enough scale today where you're getting some of these benefits? At what revenue base do you start to see incremental scale benefits in the waste space? Thank you.
I think if you look at our performance over the last few years as we've begun to grow again, I think we're beginning to see the benefit of a small amount of scale. I think certainly, as we go out into the future, we're going to have to continue to move on that path. We're approaching $1 billion in revenues today, and we have still significant opportunity from a growth perspective. At some point in time, that may very well be an issue for us in terms of whether or not we can get enough scale. Hamzah, we've got a great runway in front of us to create a lot more value over the next few years as we continue to grow. I don't know, Ned, do you have something to add to that too?
Just one quick thing, and I know we have one more caller. Waste business is very much a local market business, and we focus on route density and building scale within markets to drive operating efficiencies. The larger scale for G&A, that's a whole different question. On the local level, we're doing everything we can with acquisitions and smart marketing and the work we do to get that scale.
Great. Thank you.
Thanks, Hamzah.
Your next question comes from Sean Eastman with KeyBanc.
Hey, Sean.
Hi, gentlemen.
Good morning.
Hey, guys. Good morning. Thanks for taking my questions. I'm just curious, relative to that April 1st update you guys put out, how these April volume trends ended up versus expectations at that point. I'm also wondering just about the burn plant dynamic in the Northeast. What are you seeing from those guys in this kind of lighter volume environment? Is that a concern going forward?
I think that it's a concern, Sean, but I think we have not seen a lot of activity from them yet in terms of the marketplace. I think some of that really depends on how quickly things begin to ramp up and how quickly the economy begins to open back up again. That may or may not have an impact on that. To date, we have not seen a lot of activity from a pricing standpoint with regard to the incinerators. It doesn't mean that we won't, but I think that's really driven by how quickly the economy comes back.
That was a moment in time on, I think it was maybe March 30th or March 31st, what we saw for changes.
Yeah
in our business. The first two weeks of April, we shed a lot of volume in the commercial line of business, the industrial, the landfills roll-off. As I said, the last week or so of April, we started to improve slightly. It's definitely on the commercial segment, we were down at that point in time, I think, Jason, about 6% or 7%. We ended up being down about 17% on a run rate basis. We saw that. Roll-off made it down to about, we're about 22% or 23%. We were down maybe 6% or 7% right at the beginning of April. Things really did. You almost got the stay-at-home orders in mid-March. We felt some impact.
I think when customers got bills and we started to engage with them, you saw a big slowdown the first two weeks of April, and then a stabilization and a little improvement.
I think that the biggest thing that we're really excited about, Sean, is the reaction of our team and the levers that they pulled to get overtime out, the work that Ed and Sean did to work with our team to make sure we're doing everything that we can to get the variable cost down. I think that they did an absolutely terrific job during that period of time. Ned's really laid out for you what the volume impacts were for April. One of the offsetting factors clearly is the response of our team and the work they've done to minimize everything that we can from a variable standpoint.
Yeah. Thanks for that. That was the other question I had. Clearly a lot of moving parts around the decremental margin impact in April, but I'm just curious, around the 150 to 200, maybe what that would've been if not for the aggressive cost action, just how much you were able to protect margins any way. To parse that element out for us.
I'm not sure if we've done that math, but our margin decline's a little better than the negative 150 in April. As we look at the next few months, there's just a lot of unknowns. I don't think we've sat down with a piece of paper and said, "If we didn't change these things, how bad would it have been?" As you know, in a collection line of business, you can flex 60% of your costs, and we flexed most of that. In the landfill line of business, you can only flex 25% or 30% of your costs, and we do have some larger revenue declines there. We've done what we can, and we've done it pretty rapidly. I guess that's one interesting thing about this crisis or this recession.
It didn't come on over six months or a year where you're getting hit with a lot of different cuts over time. You could create a plan and move quickly and make changes almost immediately.
Yep. Got it. That's helpful. Last one for me. You guys highlighted $10 million of CapEx being frozen here. I'm just wondering, is that what we should kind of lob off our estimate for CapEx for the year?
Yeah
potentially more?
Right now, yes. We may have different perspective after the second quarter, but for right now, yes. I think it makes sense. We put it on hold. It's out of the equation at this point in time, but who knows what will happen as things begin to open up, et cetera.
Yeah.
It's hard to say, but I'd even take it out now.
It has to come to me for approval. It's frozen. As John said, we don't know what the next six months brings, and if we can put some of that money to work and things are opening up quickly and we need certain assets, maybe we unfreeze it. That's the unknown.
Got it. Okay, great. Helpful call. I'll leave it there. Thanks very much.
Good. Thanks, Sean.
That concludes the Q&A session for today. I'll turn it back over to the presenters for any closing remarks.
Thanks, everybody. Look forward to seeing you on our next conference call.
It's either going to be late July or early August.
Yeah. Late July or early August. Thanks, everyone. Stay safe and enjoy the weekend.
Thank you for participating in today's conference call. You may now disconnect.