Good morning, ladies and gentlemen, and welcome to the Casella Waste Systems Q1 2017 conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touch-tone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Joseph Fusco.
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, and Ned Coletta, our Senior Vice President and Chief Financial Officer. Today, we will be discussing our 2017 first-quarter results. These results were released earlier 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 later 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. 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. 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. Now, before I pass out, I'll turn it over to John Casella, who will begin today's discussion.
Thanks, Joe. Good morning, everyone. Welcome to our first quarter 2017 conference call. We are very pleased with the first quarter results, and we are off to a solid start for 2017. As reported in yesterday's press release, our revenues for the quarter were up 6.7% from last year. Adjusted EBITDA was up 20.1% from last year. Adjusted EBITDA margins were up 190 basis points from last year. We drove year-over-year improvement in the first quarter through our strong pricing execution, our operating efficiency programs, tailwinds from higher recycling commodity pricing, and continued strong overall execution against our key strategic initiatives. In the first quarter, we experienced normal winter weather in the Northeast, with a number of severe snowstorms and prolonged periods of cold weather.
While we're used to operating in these conditions, the first quarter faced a tough year-over-year weather comparison as we experienced historically warm weather in the first quarter of 2016, which resulted in higher volumes and lower operational costs last year. Winter has finally left the Northeast over the last few weeks, and we've seen positive seasonal trends for construction demolition and contaminated soil work. In August 2015, we announced an updated comprehensive strategic plan and outlined for investor financial targets for fiscal year 2018. The 2018 plan focused on increasing landfill returns, driving additional profitability within our collection operations, creating incremental value through resource solutions, and reducing financial and operating risks while improving our balance sheet.
We are tracking ahead of this multi-year plan, and we remain confident that our enhanced process discipline and continuing focus on key operating strategies will further drive improved performance and increase free cash flow, enabling us to continue to further delever the balance sheet and increase shareholder value. Our first major strategy is improving landfill returns through a focus on pricing discipline, sourcing incremental volumes at select sites, and driving operational and capital efficiencies. As expected, our landfill tons were down 6.4% in the quarter, with the decline driven largely by the planned diversion at the Southbridge Landfill and a planned waste diversion from our Ontario Landfill as we work to complete a newly constructed cell. Excluding these two impacts, our landfill tons were up roughly 2.1% in the first quarter.
The disposal capacity continues to tighten in the Northeast market as permanent site closures are reducing capacity and stronger economic and construction activity are driving higher volumes. Given the supply-demand imbalance, we were able to successfully advance 3.4% pricing at our landfills in the first quarter. We believe that this positive pricing backdrop will continue into the future as additional site closures are expected over the next several years. As we roll off multi-year contracts, we expect to advance pricing in excess of CPI on a larger percentage of our book of business. On the landfill development side, we recently received a draft license for a 9.4 million cubic yard expansion at our Juniper Ridge Landfill. This permit, when issued, will extend the life of the site to match our long-term operating and lease agreement that goes through 2033.
We continue to make slow progress advancing our permitting activities for the next cells of the Southbridge Landfill. Given these timing delays and challenges, we ramped down volumes at the site by roughly 31% in fiscal year 2016, and by another 35% in the first quarter. On April 30th, we entered into an ACO with Massachusetts DEP, the town of Southbridge, and the town of Charlton, for the equal sharing of costs between Mass DEP and us of up to $10 million in total, or $5 million each, for the town of Southbridge to install a municipal water line in the town of Charlton. Upon satisfactory completion of the water line and other matters covered by the ACO, we and the town will be released by Mass DEP from any further responsibility for the Charlton Chapter 21E obligations.
It is expected that the town of Southbridge will issue up to a 20-year bond for our portion of the water line costs, and we have agreed to reimburse the town for periodic payments under the bond. While we continue to pursue future expansion capacity at the Southbridge Landfill, we currently do not have visibility on whether we will be able to develop this expansion capacity at an adequate risk-adjusted return. It is possible at some point in the near future, we could conclude that closing the site is in the company's best interest. However, even if we are unsuccessful from a permitting standpoint at the Southbridge Landfill, we remain confident that we can still achieve our fiscal year 2018 financial targets that we first announced in August of 2015.
In the first quarter, we continued to make great progress with our second major strategy, improving profitability of our hauling operations. Our focus here is on core blocking and tackling, namely a focus on pricing programs, route optimization, and fleet standardization. In the first quarter, operating income in the collection line of business was up 12.8% year-over-year, with margins up 130 basis points. Robust pricing operating efficiency drove results despite a tough operational comparison to last winter. We have continued to advance price increases in the collection line of business with residential and commercial pricing growth of 3.1% in the first quarter. On the operating side, we continue to advance a number of key initiatives, including our fleet plan, maintenance initiatives, improving routing to further improve our operating costs in the collection line of business. Moving on to the third major strategy, creating incremental value through resource solutions.
Here we differentiate ourselves in the marketplace by offering value-added resource solutions. These solutions range from our customer solutions group, which provides professional services to large industrial customers, to our organics business that is a leader in organics processing and disposal in the Northeast, to our market-leading recycling business. Higher commodity prices, coupled with the changes that we made over the last two years to reshape our recycling business model, helped to drive strong recycling performance in the first quarter. We generated a return on net assets of over 20% in the first quarter, up from roughly 2% in 2015. While we expect recycling commodity prices to drop by roughly 25% from March to April on weakness in paper and cardboard pricing, we do not expect this decline to impact our guidance for the year since we had previously budgeted prices to moderate throughout the year.
We continue to make substantial progress improving our balance sheet and reducing operational and financial risks. During the first quarter, we continued to repay debt and reduce leverage. In April, we completed a favorable repricing of our Term Loan B to save additional cash interest costs. With the work that we've done over the last few years, our balance sheet positions us well for the future, and we remain deeply committed to a disciplined capital investment strategy with free cash flow primarily used to repay debt or in select instances for small tuck-in acquisitions and growth investments within our core operations. We completed a small tuck-in acquisition during the quarter, and we are working to reinvigorate our acquisition pipeline. With that, I'll turn it over to Ned to walk us through the financials.
Thanks, John. Revenues in the first quarter were $133.8 million, up $8.4 million or 6.7% year-over-year. Solid waste revenues were up $1.3 million or up 1.5% year-over-year in the first quarter, with higher collection and disposal pricing and the rollover impact from the acquisition of three transfer stations last year, partially offset by lower solid waste volumes. Revenues in the collection line of business were up $2 million year-over-year, with price up 2.4% and volumes up 1%. Pricing was up 3.1% in our residential and commercial lines of business in the first quarter. Volumes were slightly down in the roll-off line of business as we continued to focus on price over volumes, and we had a tough comparison to the unseasonably warm and dry first quarter of 2016. Revenues were down $1 million in the disposal line of business year-over-year in the quarter, with higher pricing offset by lower volumes.
We increased our third party's reported landfill pricing by 3.4% year-over-year in the quarter, with landfill prices up 3.3% in the eastern region and up 3.5% in the western region as we pivoted strategy in mid-2016 to focus on advancing pricing versus capacity utilization in the West. We expect the same positive pricing trends to continue through 2017 as we recognize the rollover impact of price increases already completed and we advance further pricing in key markets. Our landfill volumes were 866,000 tons in the first quarter, down 59,000 tons year-over-year. During the quarter, as John mentioned, we continued to ramp down the Southbridge Landfill, with tons down roughly 31,000 tons at the site. Further, we ramped down volumes about 47,000 tons at our Ontario landfill as we had to divert tons for a newly constructed cell. We expect this headwind to resolve during our second quarter.
Excluding these two impacts, our landfill tons were actually up 2.1% year-over-year, with strength across most waste types and sites. Recycling revenues were up $6 million year-over-year in the first quarter, with higher commodity pricing and volumes partially offset by lower tipping or processing fees. Our average commodity revenue per ton, or as we say, our ACR, was up 89% year-over-year in the first quarter on higher fiber, plastics, and metals pricing. However, this positive trend reversed in April with our average commodity revenues per ton down roughly 25% from March to April. Much of this decline was driven by a significant drop in export pricing for news, cardboard, and mixed paper as China has reduced purchases in the marketplace.
As we discussed last quarter on our conference call, we had only expected the higher pricing for commodities to hold in the first quarter, and we had forecasted the ACR to drop throughout the year to about $95 in the fourth quarter or down about 25% for the year. Organics revenues were up $300,000 in the first quarter on higher volumes as our team continued to source new streams of biosolids in the ever-tightening Northeast disposal markets. Customer solutions revenues were up $700,000 in the first quarter with continued growth in our industrial services business. Adjusted EBITDA was $23.1 million in the quarter, up $3.9 million year-over-year, with margins improving 190 basis points to 17.3%. With our revenues up $8.4 million and our adjusted EBITDA up $3.9 million, that gave us a flow-through impact of 46% in the quarter.
This further reinforces our success of shedding less profitable, low-margin volumes, while at the same time securing pricing increases and reducing operating costs. Solid waste adjusted EBITDA was $18.9 million in the quarter, up $1.2 million year-over-year. We achieved 6.6% adjusted EBITDA growth on only 1.5% revenue growth. Solid waste adjusted EBITDA margins were 20.1%, up 100 basis points year-over-year, reflecting strong pricing coupled with cost efficiencies which offset the volume declines. Recycling adjusted EBITDA was $2.6 million in the quarter, up $2.6 million year-over-year, with improvement driven by a combination of higher commodity pricing coupled with the structural changes we have made to the recycling business model to offtake risk and increase our returns. To be clear, our improvement in recycling financial performance has not just been driven by higher commodity prices.
The last time our adjusted EBITDA in the recycling business was at these same levels was back in fiscal year 2011, when our average commodity revenue per ton was roughly 45% higher than we experienced over the last year. Adjusted EBITDA was $1.6 million in the other segment, up $100,000 year-over-year with the increase driven by better performance in the customer solutions group. Cost of operations in the quarter was up $4.1 million, but down 140 basis points year-over-year as a percentage of revenues, with the improvement as a percentage of revenues driven by lower transportation costs and lower vehicle maintenance costs, partially offset by higher purchase materials costs on our recycling business due to higher commodity pricing, higher healthcare costs, and higher fuel costs. G&A costs in the quarter were up $250,000 year-over-year. This increase is mainly driven by higher equity compensation accruals.
Depreciation and amortization costs in the quarter were down $600,000 year-over-year due to lower landfill amortization expense, mainly associated with the lower volumes at the Southbridge Landfill. Our free cash flow was $1.1 million in the first quarter, as opposed to negative $8.3 million last year. This improvement was driven by our improved operating performance, lower cash interest costs on the refinancing we did last year, and slightly lower capital expenditures on timing differences. In the first quarter 2017, we took two additional steps to further strengthen our balance sheet and reduce risk. On February 1st, we completed the remarketing of $25 million of our Finance Authority of Maine solid waste disposal revenue bonds. We had a great outcome from this remarketing where we repaid our existing term rate bonds that had a fixed rate of 6.25%.
In our existing variable rate bonds with borrowings from a new 8-year senior unsecured bond with fixed rates at 5.25%. During the quarter, we recognized roughly a half a million dollar loss on debt extinguishment associated with this transaction. In mid-February, we also began our efforts to further manage long-term interest rate risk by entering into $60 million of floating to fixed LIBOR swaps that mature between four and five years. As of March 31st, roughly 32% of our debt was at fixed rates, including these swaps. On April 18th, as you might have seen in our press release, we finalized a repricing amendment to our senior secured credit facility to reduce the interest rate on our $350 million Term Loan B from LIBOR plus 300 basis points to LIBOR plus 275 basis points.
We also reduced the interest rate step down to now when our consolidated net leverage ratio is at or below 3.75 times, our interest rate will drop to LIBOR plus 250 basis points. This amendment is expected to save us roughly $875,000 per year in cash interest costs. This is on top of the $11 million of cash interest savings we recognized from the October 2016 refinancing. As of March 31st, 2017, our consolidated net leverage ratio was 4.07 times, which is down 1.35 times since December of 2014. As stated in our press release yesterday afternoon, we reaffirmed our previously announced guidance ranges for 2017. We're currently tracking a little bit ahead of budget year-to-date with recycling and the collection lines of business both ahead, and landfill slightly behind on further slowing volumes to Southbridge and the delays of getting into the new cell at the Ontario landfill.
We remain very confident in achieving our guidance ranges for the year. With that, I'll hand it over to Ed.
Thanks, Ned. Good morning, everyone. Well, another good quarter in the books. As we all know, the first quarter is the slowest quarter for the year. The results are always dependent on weather and the timing of spring activities. This year, we had a pretty normal winter as compared to last year's mild winter. We had snow into April, the construction season got a late start. Despite this, we continued to show improvement operationally. In mid-April, we saw activity increase and we remain comfortable with our guidance for the year. Looking at the quarter, we see a continuation of our cost of ops improvement as we picked up another 140 basis points as a percentage of revenue as compared to last year's first quarter.
Unlike prior quarters, this improvement was driven primarily by our recycling line of business. Given the circumstances for the quarter, we're pretty happy with the performance in all lines of business. On the hauling side, as you might recall, last year's first quarter was a breakout quarter led by record price improvement and improvement in our key cost and efficiency metrics, aided by the mild winter. This year, we're happy to maintain the cost of ops percentage on increased revenue, adding about 5% to last year's EBITDA contribution, and as John mentioned, 12.8% on EBIT. We also focused efforts during the quarter on preparation for what we believe will be a strong construction season this year. The economy looks good and April is off to a strong start. On the disposal side, we've been focused on price while working through permitting delays, and our strategy has been very successful.
At the Southbridge Landfill, we've needed to push out tons as we deal with the lengthy expansion permitting process. Coupled with the temporary logistical issues at Ontario as we work through activating a new cell, we were down about 60,000 tons from the prior year first quarter. Strong price discipline allowed us to only see a slight drop in revenue matched by a drop in cost. We maintained our EBITDA contribution despite the lower tonnage. We continued to push price in a tightening market. The Ontario cell logistical issues are behind us now. As I mentioned, the recycling line of business produced a very strong quarter for us. Our transition to a new pricing structure a few years ago has given us a business model that shifts commodity risk to the customer and allows us to generate a fair return on invested capital irrespective of commodity prices.
Although our customers do benefit when commodity prices are high from either increased revenue share or a reduction in our floating SRA fee, we share in the upside in our average commodity revenue per ton, or ACR, was up almost 90% as compared to a year ago. As a result, recycling contributed an additional two and a half million in EBITDA and helped drive our cost of ops percentage of revenue down. Another thing we changed a few years ago was the way we look at and incentivized our customer resource solutions group and our Casella Organics business group. Performance in these groups is evaluated based on not only their contribution of third-party revenue and profits, but also the revenue and profit they contribute to the disposal and recycling lines of business.
During the first quarter, they improved both. These teams are working well as integrated contributors to our results. Another good quarter, and we look forward to continued improvement as we move through the year. With that, I'd like to turn it back to the operator for the Q&A session.
Ladies and gentlemen, if you have a question at this time, please press the star and then the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Your first question comes from Tyler Brown with Raymond James. Your line is open.
Hey, good morning, guys.
Good morning, Tyler.
Hey, nice quarter. Hey, Ned, just looking through the proxy, it looks like you guys achieved an incentive comp payout of maybe 190%, I believe, in 2016. That obviously seems to be much deserved given the performance. If you simply accrue for 100% bonus this year, what would that dollar difference be between the 2016 accrual and the 2017 accrual?
Do you know that number, Ned?
I don't have that on hand. I can get back to you. The way the compensation committee of the board puts together incentives, typically around, if we hit our budget numbers, we get about 50% of our incentive compensation. From there, it scales up. Last year, we blew our budget out of the water, and that's why we achieved above 100%. This year, we're tracking a little bit ahead right now. As you mentioned, the accruals are down a little bit at this point of the year.
Okay. Should we think about SG&A coming in around 13% of revenue, or could it be lower than that?
Give me one second. I have the phone here. Okay, G&A right now in our forecast is right around 13% for the year.
Okay. Longer term, not to keep harping on SG&A, but where should we think about that panning out? Your peers are, call it 300 basis points lower than you. They have more scale, I get that, but any broader thoughts on where SG&A as a percentage of revenue could go in out years? Is that going to be part of kind of the story, maybe the next leg of the story, so to speak?
Yeah, that really could be part of the next leg of the story. We haven't been fully prepared to lay out some of the plans we've been working on. Behind the scenes, we've been making some investments in sales force efficiency and productivity and also our back office. We've been working on, as you know, laying out the next leg of strategy, and those are two areas that we're about a year into making some investments. They're longer term to pan out, but we feel like there are areas to gain efficiency there over time.
Okay, good. John, this may be a bit of a left field question, but any updates on developing the rail infrastructure for McKean?
No, nothing to report, Tyler. I think that the team continues to look for that opportunity that would cause us to invest the capital to put the rail siding in, et cetera. No, nothing really to report.
Okay. I was just curious.
As we've said before, we're not going to invest that capital unless we have a long-term contract.
Sure
a minimum of 200,000 tons.
Sure. Okay, good. Maybe my last one here. John, you made some interesting comments in the prepared remarks about possibly reinvigorating your acquisition activity. I'm just curious if you could expand on that. Would you kind of be focused more on smaller deals, more tuck-in? Just any color on that would be helpful. Thanks.
Sure. I think that, clearly everyone is looking for the next stage of growth from a Casella perspective. As is our board, quite frankly. We're beginning those discussions now. We're beginning to look at the acquisition pipeline. I think that it's fair to say that it's very positive in terms of what we see and what the opportunities might be. We're in a process of going through that process of putting together a strategic plan for the next few years.
Just adding to that. Our capital discipline extends to everything in what we're doing as a business over the last few years.
Yeah.
We've looked at a few acquisitions, say 10 to 20. We've only done a handful because they just either didn't fit our assets correctly or the valuation expectations weren't where they needed to be. As John said, we completed one in the first quarter that was a perfect tuck-in. The valuation was right for us. We continue to look at that. I think our perspective as a team is we're very focused on risk-adjusted returns. Things need to make sense for us.
All right. Thanks, guys.
You're welcome.
Thank you.
Your next question comes from the line of Joe Box with KeyBanc Capital Markets. Your line is open.
Good morning.
Morning, Joe.
Ned, on the recycling side, just where we sit on the price curve here in 2Q, can you maybe just talk about where the sharing agreements could actually come out at and how we should think about the expected incremental margins?
Yeah, it's interesting because we have so many different contracts with customers where sharing kicks in at different levels and we're sharing different commodities. Some of that has to do with the export markets as well. This last quarter, of every dollar increase of commodities, we saw about 50% shared with our customers. We said this before, a dollar of price in the recycling business is not exactly like a dollar of price in another part of the business because we're sharing some of that back. It's exactly where we want to be as a business. If commodity prices were to fall again, we start to see a curve that smooths out, and ultimately we get to break points in most of our contracts where we're getting paid dollar for dollar tipping fees.
You can almost imagine like an asymptote of a curve where we hit a floor. We're very comfortable with where we are. We made more money from recycling in the period, and our customers did as well. It's a great place to be.
Just based off of the 25% sequential change, can we think about that maybe stepping back to a 65% incremental margin on the recycling side? Or is that aggressive?
Maybe a little bit aggressive. We'll kind of move linearly between the 50% and the 65% during the period. When we get commodities around a little bit below 90%, we get into that more of a 65% range, where 65% accrues to us and 35% generally to our customers.
Okay, thank you. Maybe changing gears, how has the EBITDA profile changed at Southbridge since you guys started throttling back the volume? I guess what I'm specifically looking for is maybe the contribution of EBITDA to the total company from Southbridge, and then if that EBITDA number has declined meaningfully as the volume has come down or if you've been able to kind of stabilize that EBITDA just with the price offset.
Yeah. As you know, incremental tons into a landfill are very high contributors. There are a lot of fixed cost at a landfill. Back in 2015, we did roughly $12.5 million of EBITDA at Southbridge. 2016, we did roughly $7.5 million, and we're tracking to about $3 million-$4 million in 2017. It's been throttling back, but at the same time, we've been beating our numbers and we're winning in other areas of our business. We remain confident that we can offset any further declines at the site.
Got it. The risk profile is moderately moderated as the EBITDA has come down there. Okay.
Yeah, absolutely.
Absolutely, Joe. I think that we're very confident in terms of being able to meet our numbers for 2018, irrespective of what happens with Southbridge.
I don't want to take too draconian of a view, hypothetically speaking, let's say Southbridge doesn't get a permit expansion. Is it possible to maybe construct a transfer facility to try and internalize some of those volumes and ship it up into your Western New York facilities?
I think that's certainly a possibility. There's no question that we could potentially do a transfer station there and move it to other facilities. Obviously, we'd prefer to get through the process and be successful with the development, but if not, that's a possibility.
Okay. You can't do the permitting process in tandem? I would think it would still take a while to get a permit for a transfer station, right?
Not a lot of the garbage comes direct drive to that landfill today, Joe. We've got two very well-placed transfer stations in central Mass that are moving some of that waste around to third-party sites. A little bit is moving internally as well.
I don't think it would be a significant effort to have a small transfer station there. As Ned said, a lot of the waste is coming in by long-haul trailer, it wouldn't be, I don't think, a significant effort from a permitting standpoint to do a transfer station.
Got it. Thank you. That's helpful. One last one, if you don't mind. Can you maybe just give us a feel on pricing quarter to date here in 2Q? I'm curious how the trajectory looks relative to maybe what you got last year at this time or versus just normal seasonality.
The last Q2. You mean Q1? You gave the pricing for Q1, right?
Yeah, so far in April and early May, it sounds like maybe there's a little bit of a normalized step up from a seasonal standpoint. I'm just hoping you can give us maybe a little bit of color on the pricing side.
Yeah, we haven't closed our books for April yet, so I don't feel comfortable. I think what we're saying is we've got good visibility on pricing in our residential commercial customers, we remain on plan for the year and price increases when it's budgeted in April. On the roll-off line of business, we're entering that time of year where construction's ramping up.
Yeah.
We brought a little bit of new capacity into the franchise this year, but we're focused on gaining an adequate return in the roll-off line of business, so we're pushing price.
Got it.
The other thing that we've done too, proactively, we've put roll-off containers in place because we do anticipate that we will need additional assets for the demand that we're likely to have through the spring.
Understood. Thank you.
Thanks, Joe.
You're welcome. Thank you.
Your next question comes from the line of Corey Greendale from First. Your line is open.
Hey, good morning.
Good morning, Corey.
Congratulations on the quarter, John, congratulations on the Hall of Fame. Really cool.
Thank you.
A question about the western region. I understand the dynamics, well, the landfill pricing dynamics in the east, in the west, it seems like you've been kind of creeping that up. Can you just talk about kind of competitive conditions in that market? Has that changed? Is this all internally driven? Initially, as you crept it up, what's the reaction been? How much pushback are you getting?
Yeah. The western landfills, if you flash back a few years ago when we reset strategy back in 2013, we had shed a lot of tons in the western region. As the economy stalled back in 2008, 2009, and we saw the drill mud go away in 2011 and 2012, we shifted to a volume-based strategy at our western region landfills, and it was an important strategic move for us. It wasn't that we dropped price in the market, but when we reached further away, we were taking in tons at lower price. As we sat down last summer and really reviewed where we were strategically and for the budget, we just weren't making an adequate return at a few of our landfills. It's expensive to permit capacity. We had just gone through five years of permitting at Ontario, five years of permitting at Chemung.
Had huge successes getting airspace at both sites, but it's expensive to operate, expensive to build, expensive to permit landfills. We made a decision that we are shifting strategy in the marketplace and starting to focus more on pricing over volumes. We have shed some volumes in the marketplace, but it's the right thing to do. Some of this volume is irreplaceable, and we need to manage these assets appropriately.
Okay. I understand what you're saying. In terms of the reaction, I'm imagining if the headline price is 3%, that means you're not getting 3% on everything, so you're getting larger increases on some volumes. Just what has their reaction been?
That's exactly right, Corey. I think that it's fair to say that we've had fairly significant increases on the C&D basis at our Hakes facility. That is probably a big driver in terms of the overall price increase, very substantial price increases there. I think that, as Ned said, we're really looking at the lower-priced waste that we've got at all of those facilities and making a real effort to push out all of the lower-priced waste and be fairly aggressive at all of the sites in terms of pricing. Probably one of the biggest drivers was our Hakes facility from a C&D pricing standpoint. We go into this year, the first quarter, we had thought that we would push away more tons than we actually did.
Okay. Great. Apologies if you feel like you've addressed this already, but could you just help me understand the EBITDA impact specifically of higher commodity prices, just kind of parsing out the various pieces of that?
Yeah. EBITDA was up $2.6 million year-over-year in the recycling business. As we talked about, our revenues were up roughly $6 million. Our pricing was up, what's that number? Not every dollar price flows through perfectly to EBITDA. That's what we were saying, because we have revenue shares that kick in. The way our contracts are structured, we'll set a threshold amount for the average combined revenue per ton, and we'll start to share with our customers above that threshold. As we move through those thresholds, we're sharing more and more with our customers. The point I was trying to make earlier is, a lot of it has to do with what we've changed structurally in the business.
If you kind of flashback in time and say, "When's the last time we were making this much operating income or EBITDA in our recycling business?" It was back in 2011. Commodity prices were 50% higher at that point in time. It's hard to disaggregate all the moves, but we know we've made our business more profitable and higher returning in all market cycles because you just do a direct comparison to when we made this much money before.
Yep, understood. That's very helpful. Thank you.
Thanks, Corey.
Your next question comes from the line of Michael Hoffman with Stifel. Your line is open.
Thank you, John, Ed, and Ned, for taking my questions, and look forward to seeing you in New Orleans on Sunday and Monday.
We're looking forward to that conversation as well, Michael. As always.
In the spirit of all that, we hear that Wheelabrator is being shopped by ECP. If it gets done before you hit a 4-year anniversary of the original trade, Waste Management can cancel its disposal agreements.
I'm curious what your thoughts are about what could happen to spot market pricing if they pull tons away, even though that's temporary. What do you think happens in the spot markets, in the markets you're operating? Do you have a feel for that?
I don't think that, from an overall standpoint, it's likely that that waste would move away from the incinerators because of transportation costs. I don't think that it's likely that that would move to other facilities. Maybe with some rail infrastructure, possibly, but I don't think that there's a significant impact in the short term.
Okay. That's great. Ned,
The other thing, too, I don't think that with the New Hampshire facility, we can double-check this, Michael, but I'm not sure that they have a lot of capacity at that facility to take that waste.
Or Western Mass.
Yeah, or Western Mass. The Chicopee facility is closing, and they're moving that volume to the Fitchburg facility, and they did get a permit expansion there. The Chicopee facility is closing, there'll obviously be waste, in our view, probably moved from Chicopee to the Fitchburg facility. I don't think that there's a lot of capacity that they would have to take that waste that would make sense from a transportation-adjusted basis.
Okay. That helps then. Then Ned, can you share with us your ACR for the quarters for 2016, so we understand, and then what it was in Q1 2017?
Sure. Q1 of 2016, our ACR was 67 a ton. Q2 was 87. Q3, 100. Q4, 104. Q1 of 2017, 128.
Okay.
We've forecasted to be down to the low 90s by Q4 of 2017.
Okay. All right. That helps terrifically. With regards to the margin, if I looked at this over a little longer timeframe, there's a lot more margin expansion than you might think. I think. I'm setting this question up for an easy yes, but you're up 100 basis points. Ed acknowledges it's mostly recycling, and this is in solid waste year-over-year. If I go back to 2015 and look where you started there, factor in the pull forward of volume that helped margins in 2016 and sort of try and smooth that sum, net of the recycling prices, you had a pretty good margin improvement in 2017. That's my interpretation. Am I talking myself into something?
I don't think so. Ned's going through the numbers right now, Michael, I think your perspective is right.
Solid waste business, as you know, makes up about 75% of our revenues. Over a three-year period, we're up roughly 300 basis points on our solid waste business. We're around, last 12 months, around 26.5%. We continue to see opportunity to drive that higher over the next couple of years. I'd say you're right.
As Ned said before, there was obviously a benefit from a commodity standpoint in the first quarter, no question about it. The last time we had that kind of contribution was in 2011, and commodity prices were 50% higher than where they are today. I think the most important thing from our perspective is we believe we've fixed the recycling model that, as you know Michael, in low commodity prices was broken historically, has been broken. We believe that we fixed it.
Great. All right. That's the point I was trying to make, is we can strip away recycling and you're going to still see there's been this true structural margin improvement in solid waste, and there's still room. Where do you think the room to go is? Is it another 200 basis points? What's the timeline? That kind of leads into, you're beating your 2018 plan by a year, what's the next plan?
Both on the hauling side and the disposal side, the hauling side still has room. From my point of view, we're only halfway through our fleet improvement plan. As we progress the next couple of years, we'll see margin improvement on the collection side of the business. On the disposal side, the markets have gotten better for us, quite frankly. You're going to see it in the price, and we're running the sites as efficiently as we can. We've got a heavy equipment plan as well, which I don't talk about much, but we're trying to improve the compaction at the sites. The general operation of the sites has already improved quite dramatically, and I expect some more margin improvement there.
When you tie us to what % number that could be and the timeline, well, those are the two variables we don't like to put a stake in the sand yet. There will be improvement, and it should be in the next couple of years.
It's not 50 basis points, and maybe it's not 300, but it's somewhere in between, right?
Yeah.
I think that's a fair perspective, yes.
Okay. All right. Have you settled on a new plan for 2018 and beyond, since you're going to beat the 2018 plan by a year?
You sound like the board. We're working on it.
They're going to have dinner with me on Monday, so I'm going to ask them.
Well, you can ask them. Absolutely. They said the same thing, Michael, what are you going to do for me now? We're in the process of reinvigorating the acquisition pipeline. We're looking at that. We're going to be presenting to the board next quarter, the beginning stages of what the next three-year plan is going to look like. We're in the process of doing that now. We've got that commitment to the board as well. They're obviously asking the same questions.
All right. Ned, given the strength of the performance, when do you think you cross over to or use up the NOLs? Make it this simple. You become a cash taxpayer at this point.
Right now, it looks like 2020.
Okay. All right. Then, last question. On that deal subject, the Northeast market's kind of interesting because there are a lot of big chunks still that are privately held family businesses. How many little bits and pieces are there really to meaningfully move the needle from a tuck-in standpoint? Are you really going to have to go after some of these chunkier pieces?
I think that you would look at all of it, quite honestly. You'd look at everything that is an overlap. Some of those businesses may very well be for sale over the next year or two. Some may not. I think clearly when we look at opportunities in acquisition pipeline, you're going to look at all of it.
Okay. All right, great. Thanks for your Oh, one last question. E&P activity. I know that it's You're exposed to the Northern Marcellus, but I just have a curiosity what you're seeing as far as the trend, given gas prices have lifted and there's some activity starting to pick up.
Not any significant movement from our perspective in terms of tons. Maybe a little bit of movement from a rig standpoint, but nothing of any substance at this point in time, Michael.
All right, great. Thanks.
Thanks.
Thank you. See you on Monday.
Yep.
Yep.
Again, ladies and gentlemen, if you have a question at this time, please press the star and then the number 1 key on your touch tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Your next question comes from the line of Wayne Archambo with Monarch Partners. Your line is open.
Morning, Wayne. Wayne, did we lose you?
Mr. Archambo, you may be on mute.
Hold on.
Operator, he could follow up with me later if he got cut off.
We have no further questions at this time. I turn the call back over to the presenters.
We continue to execute well against our key strategies to improve our financial and operating performance. At all levels of the organization, we're devoted to operational blocking and tackling with a focus on pricing strategies at the local level, improving our operational facilities, and disciplined capital allocation. We believe these actions will further improve the company's performance and allow us to continue to de-lever the balance sheet on a going-forward basis. Thank you all for your attention this morning. We look forward to discussing our second quarter 2017 earnings with you in early August. Thanks, everyone. Have a great day.
Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.