Hi, everybody. My name is Trevor Romeo. I'm the research analyst here at Blair that covers the waste and recycling services industry. Just before we begin, I'm required to inform you that you can find a complete list of our research disclosures or potential conflicts of interest on our website at williamblair.com. Today, we're very excited to welcome Casella Waste Systems back to the Growth Stock Conference. Casella is one of the leading solid waste and recycling providers in the U.S., focused in the Northeast and the mid-Atlantic regions. I'm very pleased to announce Casella's CEO, Ned Coletta, CFO, Brad Helgeson, and Jason Mead, the Senior Vice President of Finance and Treasurer is in the audience there. We'll start here with, I think, a brief slide deck and then a fireside chat.
Immediately after this, there will be a breakout session in the Adler Room for anybody in the audience who would like to follow and ask some more questions. With that, I'll turn it over to you guys.
Thanks, Trevor. Good morning, everyone. Thanks for joining us. I'll just flip through a couple slides, give a brief overview, and then begin the question and answer. Casella is an integrated solid waste and recycling resource management company. We're located in Vermont, one of the only companies in Vermont. The company was founded there over 50 years ago. As Trevor said, we're an integrated company in 15 states today. We have a mix of collection, landfill, Resource Solutions, which is our recycling, organics, professional services, brokerage business as well. Our financials really speak for themselves. Over the last decade plus, and especially over the last five years, we've delivered very consistent growth for shareholders, with a compound annual growth rate of revenues of 19%, EBITDA of 20%, and free cash flow of 21%. We've done this over time, really following the same recipe.
We're able to get a great price-cost spread. About 70% of our customers are not CPI-linked, so we can price at will and introduce fees as we need to stay ahead of inflation. We've got great operating investments and programs that have helped us to gain efficiencies, from automation of routes to dynamic route optimization, to focuses in our recycling facilities on more technology and more automation. At the same time, we've been very acquisitive. About half of our growth each year comes from organic price volume spread, different cost programs, and half of it comes from acquisitions. Year to date this year, we've acquired $150 million of revenues through early April. Pipeline remains very strong, and we're going to look to continue to expand through acquisition growth. Our strategic plan has stayed very consistent over the last decade plus.
We've got five core strategies from driving profitability and collection line of business, driving returns through our landfills, differentiating ourselves through our Resource Solutions business, driving circularity for customers and communities. Our capital allocation strategy, as I was just discussing, has really been focused on acquisitions, but we've got some great development projects as well. We just brought online one of the closest rail-served landfills to the Northeastern U.S. in Pennsylvania that can take 1.5 million tons a year of a diverse set of waste. Our foundational structure, this is really what's allowed us to be very successful over the last 10 years, with a focus on our people, a focus on technology, our sales process, culture, and we've been starting to really focus on asset location.
We've acquired over 80 companies in the last six years. We're really focused on how to consolidate those operations and get into the right places and markets to have the most efficiency. Our value creation framework, it's pretty simple. You see what we've done over the last five years. We've got a great outlook to continue to grow at the same pace. That comes from organic revenue growth, driving organic EBITDA growth and free cash flow growth combined with acquisitions. Our pipeline right now is close to $1 billion of revenues in our acquisition pipeline. A lot of great opportunity both in this year and into the future. We have a few specific drivers that are really beyond just the normal growth. Of course, the price spread to cost of 50 basis points.
We've got about $15 million of synergies we're pulling out of acquisitions that we've completed the last two years. These will be operating costs that will come out over the next three years. We've got about $15 million of costs we're taking out of G&A through investments we've already made in technology and refining process, and that will happen over the next three years as well. Here's a map of where we are. You can see the concentration in the Northeastern United States. These are actually all the acquisitions we've done since 2018. There's 80 acquisitions. We're very good at targeting acquisitions. We're very good at converting them. Almost all of these were party to party without bankers or brokers. We've been the acquirer of choice and the consolidator of choice in the Northeastern United States.
I'll focus here for a minute, and then we'll open it up for questions. We stepped into Mid-Atlantic a couple of years ago with some spin-off assets from one of our public peers. We entered Pennsylvania, Maryland, Delaware. Since then, we've done 11 acquisitions. The gray dots are their initial acquisition from GFL, all of the other dots are acquisitions we've done since then. You can really see how this story is coming together, building density, building vertical integration, and ultimately driving margins and value. I'll stop there.
Great.
Instead of going through our whole deck.
Okay, great. Well, thank you, Ned. If you don't mind, maybe we could go back to the bigger dots on the map slide just for a second. I'd love to start there. It seems like landfills are a topic that a lot of investors want to talk about, so maybe we could start with that.
One dynamic that's been interesting has been rail and I think there was a recent report from the Northeast Waste Management Officials' Association, kind of a mouthful, that showed 26% of the waste that's generated in the Northeast is exported out of the region. A lot of that comes on rails. I think you've talked about the specific competitor that's had to move from New Jersey to Ohio. That kind of had a dampening effect on the in-market landfill pricing, maybe last year, last two years, but that's kind of now full. I'd say a question that we get from some investors is, well, why won't others just bring on more rail capacity?
It takes a lot of time and capital to do that. Yeah, maybe you could just walk us through the economics of how you move waste around a little bit, and as we go forward into this world where more of the local landfills in the Northeast close, what's the net impact to Casella?
Yeah. It's a multifaceted question. Maybe just take a quick step back. Let's look at what's happened over the past couple of decades and pivot forward, and then we'll zoom in on what's happening right now. There's rough numbers, 30 million of tons of waste that's generated in the Northeast. Northeast defined as New England plus New York, New Jersey. You mentioned 26%, depending on who measures it. Close to a third of that waste is now on rail, heading out of the region to faraway landfills in Ohio, Alabama, Georgia, South Carolina. The reason for that is, we're not permitting new landfill capacity in the Northeast.
Landfill capacity has steadily declined in the Northeast over the last couple of decades to the point where prices have continued to rise, and it began to make sense for companies to make the investment in rail to move the waste out of the market because there's nowhere else for it to go. The economics are, it varies. It really depends on the specific destination and the logistics of the rail move, but just to use some rough numbers, call it $100, $110 a ton or so is the disposal price for a waste disposal in metro Boston, in metro New York, sort of close to the population centers. The most cost-effective disposal outlet there is to direct haul from your collection vehicle to a local landfill, there aren't many of those anymore, or a local waste energy plant.
The second most economic thing to do is go to a transfer station and have that waste long haul trucked to a landfill that's a little bit further outside of the population centers. That's primarily our portfolio. The least economic, but really the only place that the market had to turn is rail. If you rewind a decade ago at $60, $70, $80 a ton, it didn't make sense to rail, and there wasn't enough capacity to handle it. At $100, $110, all of a sudden it starts to make sense to make the significant investment in the rail infrastructure, loading, unloading, all of the transportation equipment, rail cars, rail containers, and then pay the rail operator to move it. The question of, is there going to be more rail? The answer is yes because prices are going to keep going up.
At higher prices, once we go to $120, $130, $140, all of a sudden, a site that didn't make sense to set up a rail move to, will make sense and so on. It's the only way that the market's ultimately going to balance itself out.
There's a definite limiter there. There's only a handful of landfills in the U.S. that actually have rail lines that go to them.
Yeah.
The ones that do have rail lines that go to them are nearly full. This isn't just like, all of a sudden, another landfill's going to pop up somewhere right next to a rail line. It can take you a decade or more to permit a greenfield landfill. This isn't like a normal supply-demand balance where you could just create something new quite easily.
Right.
What happens, consistent with what Ned's describing, and this is what's happened the last year or two in the market, where disposal prices have continually gone up for decades. It doesn't go up in a straight line. It goes up in a bit of an ebb and a flow, where landfills close, all of a sudden that squeezes prices jump higher. To the extent that someone is making a long-term investment in rail, that capacity comes online. All of a sudden, it's a little bit of an ebb period where all of a sudden companies that have waste in the market have options.
For an equivalent price that they could bring the waste to us, okay, now I have this rail outlet to bring it to. That's the ebb period of really the consistent prices moving up.
As we look to the next five years, there are multiple large landfills in the Northeast that will be closing. We're going to enter another significant tightening period.
Yeah.
It's unclear to us, but it could be another, you know, 20% of the market permanently closing or more during that period, and there's no new capacity coming online other than two expansions that Casella's doing. We're in the process of expanding two sites in New York State, our Hakes Landfill, which is one of only three construction demo landfills in New York State, and our Highland Landfill in New York. We're more than doubling the annual capacity. At the end of that permitting process, we've been permitting for over six years, we expect that to be successfully completed in late 2026. It'll be the second-largest landfill in the northeastern U.S. when that's completed. It's very hard to bring on new capacity to market. There's been only one new greenfield landfill in 35 years, and there's only been a handful of expansions.
This crunch in the marketplace will continue, and we're back into a period where we're running the most full against our permits that we've run in over five years since pre-COVID. We're seeing a positive pricing backdrop. Once again, our rail asset is one of the closest to the market, and we're really saving that for our own portfolio.
Yep. Great. Well, that last part there was kind of going to be my next question. Just on your expansion efforts.
Yeah
Because that's also a big topic of discussion with some investors, I think. You have Ontario and North Country that are scheduled to close. I think that's roughly 20% of your overall annual volumes. You mentioned Hakes and Highland, you're working on the permits. I think Juniper Ridge, you just got a favorable decision. New Hampshire, you got a couple different things going on. Maybe just, what gives you confidence you can get some of these across the finish line?
Yeah. Well, we're not immune to these dynamics in the Northeast. It's very challenging to expand landfill capacity. In New Hampshire, we've had a landfill, one of two major landfills in the state, for close to 30 years. We've got less than a year's worth of life left. We've worked on three alternatives for this waste. We serve over 150,000 customers and municipalities and businesses throughout the state. We've worked on expanding our current landfill, which requires a zoning vote in the local community. We've worked on permitting a greenfield landfill, and we've also been developing a very large rail transfer facility on CSX mainline. The landfill permitting activities continue to chug along, but they're complex, and they probably will not be completed until after North Country ultimately closes. We'll see waste leaving New Hampshire via rail to our McKean Landfill.
Long term, we'll continue to work on developing that capacity. Moving to New York, the story's much better where we are today. We're closing our Ontario landfill in two years, at the end of 2028, but we'll have two landfill expansions ramping online at the same time, and it'll actually be a positive financial outcome for shareholders, where Ontario's our single most expensive landfill to operate each day and to build, and Highland and Hakes are our two least expensive. We'll have a trade where we'll move tons from expensive capacity to less expensive and have a positive outcome. North Country, we've been ramping down for four years. We're at the point today where we produce $2 million of EBITDA a year at this site.
It's not a big headwind for us, but it's a very complex regulatory environment, and right now it looks like rail may be the best alternative in that market. Maine, as you mentioned, we've got about seven years of capacity left in Maine. We've been in permitting for two years, if you can believe it. We've had some really positive outcomes in the permitting process, and we feel confident with our expansion there for the long term. If you look across our portfolio today, we have over 20+ years of capacity at current run rates. There's just some sites that are ramping up, some sites that are ramping down, but it's overall a very positive story.
Yep. Okay, great. Maybe let's shift over to volume. There was a lot of severe weather, especially in the northeast in Q1. I think some of the more cyclical volume categories, construction, manufacturing, that sort of thing, it's been pretty choppy the past few years. You did see, I think, 13% C&D tons growth, I guess, in Q1. Maybe you could just talk about volume trends the last few months, and speak on puts and takes for your outlook for the back half of 2026 and beyond for volumes.
Yeah. Q1 is always tough with our footprint. This year seemed particularly difficult, and we saw that in some of our numbers. Again, as you alluded to, the areas of our business where you would tend to see the impact. C&D volumes were strong at the landfills, but volumes were down at our transfer stations, for example. Roll-off was down. There was some softness definitely in the business. What happens every spring, as it thaws in the Northeast, is people come out of hibernation and there's a lot more activity, and that's what we're seeing. Nothing I would call out one way or the other than it's generally in line with what we expected, generally in line with our budget.
Once we get through Q2, once we get the spring under our belt, then I think we'll have a better idea where we're headed for the rest of the year.
Yeah, I'd talk about one more part about volumes. For many years, we've had a price volume kind of trade, where I'd rather have positive price and push price to 5%+ and run volumes around 0%. The last couple of years, we've seen slightly negative volumes in our collection line of business. Most of that's really due to acquisitions we've completed. We buy businesses, we get into the book of business, we start to run profitability analytics. We'll churn some of the lowest quartile customers. We'll do consolidations to get density on route. You'll lead to a better outcome. There's a little bit more churn there. I've just brought in a new Chief Revenue Officer. He's been 20+ years in the industry. A great executive.
He and I are really trying to rebuild a lot of our sales processes from the ground up with a lot of focus on retention, better customer access tools. We have a new app that's launching on the App Store very quickly. We have a new customer portal. There's a lot of things we're doing to make us easier to do business with, which we believe will lead to more stickiness over time. One of my goals is if we can move that retention number up slightly and keep our same pricing programs, that'll lead to a better volume outcome also over time.
Great. Well, let's maybe shift over to M&A, which has been a huge growth driver for Casella over the years. I think, Ned, you mentioned almost $1 billion in your kind of actionable pipeline now. First of all, maybe how is that weighted in the sort of New England versus Mid-Atlantic? Kind of following up on that, we had John here last year, and he talked about expanding down the Eastern Seaboard as the long-term goal. At this point, what is your appetite for beefing up what you have continuing to expand?
Yeah, John Casella and I spent a lot of years working together and forming strategy for the company. One of the differences in strategy that he and I have is where we're focused from an acquisition standpoint. We are not going up and down the Eastern Seaboard. We're focused on tuck-in acquisitions over the top of our existing businesses and adjacent acquisitions. We're not jumping to new geographies, and it really takes a lot to do that, and there's a lot of risk involved. From our standpoint, building into adjacencies allows us to leverage our G&A, our back office, even just our regulatory environment, our legal, our lobbying teams. That's where our focus is. If you look at year to date this year, we've done four acquisitions, $150 million of acquired revenues.
One of those acquisitions was in our eastern region, one in our western region, one in our Mid-Atlantic, and one in Resource Solutions. The pipeline's diverse, and it's not just all of our efforts going to the Mid-Atlantic. As I showed earlier, though, in this slide, we have done 11 acquisitions in the Mid-Atlantic, and you can kind of see by the dots that there's a rhyme and a reason to this, where we're trying to build density in certain markets. We're also trying to bring online key assets to drive more vertical integration. We've acquired two transfer stations over the last year. We have several more in the pipeline, and this will allow us to become more efficient at the end of routes, consolidate waste, get better price points at disposal sites.
We also have a lot of pent-up synergies in this market that our team's very focused on getting out of the business. An example of this is you buy one company here, buy one company here, routes overlap. You reroute the entire market, bring in automation, take trucks off the road. This year alone, we'll be taking $5 million of operating costs out of that business just by taking trucks off the road and bringing more automated equipment into the marketplace.
Yep. Great. Maybe let's stick with the Mid-Atlantic then. In fact, I believe you have the order to cash system migrations finished as of, I guess it's June, so last month. As it stands today, what is your confidence in the $5 million of synergies this year, maybe being a touch conservative, like I think you had said a quarter or two ago? Is there a chance we see maybe some of the kind of pricing, that kind of upside play in second half of this year, or is it more of a next year phenomenon?
Yeah. Things are going really well in the Mid-Atlantic. I don't want to get too much into the weeds on the systems journey there, but we are at the point today where we are 100% on the same system across all these business units in the Mid-Atlantic, and it's enabling us to start to collapse operations, collapse routes. We've also brought to bear a more modern version of our order to cash system that's fully integrated to technology in our trucks, including our route optimization software. It's fully integrated to our new customer portal, our new customer app, our general ledger, our CRM. The entire ecosystem right now is set up to where we can start to strip out back office costs as well as the operating costs. We're on track to deliver the $5 million of operating costs this year.
It's in the second half of the year, so that's more like $10 million because we're really just starting to take the trucks off the road today. The next phase of what we're doing in the market is focusing on quality of revenues. The systems that came with these acquisitions were lacking a lot of tools we need to really understand how much money we make from every customer. We now have our standard tools in place. It gives our managers, our salespeople, the tools to understand, I'm making 20% margin on this customer, 5% margin on this customer. It gives us a roadmap to move up the market over time. There were just some simple things missing. I mentioned this last night. There were no scales on any of the trucks from these acquisitions.
Like, when we go to a dumpster, front load truck, pick up the dumpster, typically, you weigh it every time. That data will flow automatically into our systems, and we're constantly understanding, has something changed with this customer where there's more weight and more cost associated with their waste? None of that was in place. It's in place today. We're starting to understand. To your question about accelerating, we've taken a little bit of a right turn in the Mid-Atlantic over the last couple of months. In our traditional businesses, we have two very successful fees that pass risk back to our customers. We have an energy and environmental fee that passes 100% of fuel risk back to customers. Very successful.
We have a recycling fee that as commodities go up and down for recycling, it passes all of that risk back to our customers as well. These fees are really well established in the Northeast. They've managed risk over time. As we've bought these businesses in the Mid-Atlantic, there were no fuel surcharges in place. As you can imagine this spring with fuel spiking rapidly, that was a great opportunity for us to bring our fees into that marketplace rapidly. We've done that over the last three months. It's helping to offset all of the fuel costs that are rising in that market. We tapped the brakes a little bit on the profitability work, and we'll pick that up second half of the year.
The fuel was really important to cover off because, when you're dealing with millions and millions of gallons of diesel and you see prices up that much, you got to get that back to the marketplace.
The timing of the fuel fees, it's maybe a little bit counterintuitive where we're putting the fees in place at a time when fuel costs are higher, therefore the fee is higher, but it's all over the headlines. Everyone's living it day to day. It isn't a surprise to customers when a fuel fee shows up on their bill for the first time.
It's actually been really successful over the years. When you acquire a business, that's typically one of the steps with a customer that can cause the most questions. Why are you putting fees on my bill? They don't understand that it's a very fair mechanism. If fuel's high, they're paying more. If fuel's low, it's not a permanent price increase. Our customers get accustomed to that over long periods of time. You acquire a business and generally, that's a step that's a little bit hard, but when fuel's spiking, it's actually the perfect time to do it. We get very little pushback from the marketplace.
Right. You guys were able to offset all the costs.
Yes.
Essentially immediately, which is great. When you think about scaling the Mid-Atlantic business from here, I think you do have the $15 million of synergies over the next three years. That's a great start. You think about maybe as you expand, how do you continue to expand more and more profitably, scaling the business without scaling the team, things like that, to get toward that 30% collection margin type of business?
This is another area of key focus for us as a management team is to become more scalable, more efficient from a G&A perspective, and that'll benefit us in the Mid-Atlantic, but across the company. In addition to the Mid-Atlantic synergies, we've laid out a target of $15 million of G&A, not synergies, but G&A cost efficiencies over the next few years. That's a number of things. The first step, just from a timing perspective, is we eat the merchant fees associated with customer credit card payments today. We're catching up to most of the economy and laying out a convenience fee so people can use a credit card, but they would pay the fee associated with it. We need to be a lot more scalable, technology-led. We're effective in our back office, but it's very manually focused. It's very manually driven.
Our financial shared services, payables, receivables, cash applications, those can be much more technology-led. We're going to be exploring AI solutions. It's the buzzword, obviously for those activities. From an accounting perspective, we're almost entirely decentralized. Significant opportunities for us to become more efficient, centralizing accounting activities, and then allowing our field controllers with knowledge in the business to pivot to be better partners to our managers. Spans of control across our frontline management. We could greatly standardize those to be more cost-effective and more consistent across our divisions. I could go on and on. There's sort of a, I hate the term low-hanging fruit because it implies it would be easy. It's not going to be easy. We have a pretty clear pathway to that level of savings.
One more point on that. One of my major goals over the last six months as a new CEO is some team refreshment as well. We've had some really great members of our team who have been on board for a lot of years, but we unfortunately outpaced where they were and from a skills experience standpoint, I've brought in a new Chief Revenue Officer, a new head of customer care, a new Senior VP of HR, a new head of safety. These are all areas where we were not bringing the solutions to bear that would allow us to effectively scale and grow to the next level. We're also right now working on bringing a new Chief Operating Officer, which will be a great addition to our team to help us to continue to grow effectively and bring more discipline to our operations up and down.
It's definitely a period of time where refreshment's a really positive thing. Over the last three years, Brad joined our team, great team member. We brought in a new CIO, which has allowed us to really move on the technology side over the last couple of years. We've got a great foundational platform, great growth trajectory, and as Brad said, for us to execute to the next level, it's a lot of technology systems driven process and bringing in a refreshment of team who have the right experiences really will help us achieve that faster.
Okay, excellent. Well, that was a great use of the time. We've got the breakout session in the Adler room for anyone who wants to join. Ned and Brad, thank you so much.
Thank you.
Thank you.