casella waste systems, inc. - jefferies · casella waste systems 2 volumes sufficiently to achieve...

Casella Waste Systems, Inc.

August 14, 2014

Jefferies Global Industrials

Conference

Casella Waste Systems 22

volumes sufficiently to achieve estimated Adjusted EBITDA and other

targets; landfill operations and permit status may be affected by factors

outside our control; we may be required to incur capital expenditures in

excess of our estimates; fluctuations in energy pricing or the

commodity pricing of our recyclables may make it more difficult for us

to predict our results of operations or meet our estimates; we may incur

environmental charges or asset impairments in the future; and our

change in our fiscal year may not benefit our financial performance.

There are a number of other important risks and uncertainties that

could cause our actual results to differ materially from those indicated

by such forward-looking statements. These additional risks and

uncertainties include, without limitation, those detailed in Item 1A, “Risk

Factors” in our Form 10-K for the year ended April 30, 2014.

We undertake no obligation to update publicly any forward-looking

statements whether as a result of new information, future events or

otherwise, except as required by law.

Safe harbor statementCertain matters discussed in this presentation are "forward-looking

statements" intended to qualify for the safe harbors from liability

established by the Private Securities Litigation Reform Act of 1995.

These forward-looking statements can generally be identified as such by

the context of the statements, including words such as “believe,”

“expect,” “anticipate,” “plan,” “may,” “will,” “would,” “intend,” “estimate,”

“guidance” and other similar expressions, whether in the negative or

affirmative. These forward-looking statements are based on current

expectations, estimates, forecasts and projections about the industry

and markets in which we operate and management’s beliefs and

assumptions. We cannot guarantee that we actually will achieve the

plans, intentions, expectations or guidance disclosed in the forward-

looking statements made. Such forward-looking statements, and all

phases of our operations, involve a number of risks and uncertainties,

any one or more of which could cause actual results to differ materially

from those described in our forward-looking statements. Such risks and

uncertainties include or relate to, among other things: adverse weather

conditions that have negatively impacted and may continue to negatively

impact our revenues and our operating margin; current economic

conditions that have adversely affected and may continue to adversely

affect our revenues and our operating margin; we may be unable to

increase volumes at our landfills or improve our route profitability; our

need to service our indebtedness may limit our ability to invest in our

business; we may be unable to reduce costs or increase pricing or


Casella Waste Systems - Overview

Casella provides integrated solid waste, recycling and resource services.

• $497.6mm of revenues for fiscal year ended Apr 30, 2014.

• Integrated solid waste and recycling services in 6 northeast states.

Casella’s strategy focuses on resource transformation.

• Tying economic and environmental models together to create incremental

value from traditional waste streams.

• Provide customers unique resource

solutions through Zero-Sort® recycling,

organics, and clean energy programs.

Casella Waste Systems

Company overview

4

Hakes LF462k tons/yr

4.8mm tons capacity

Chemung LF200.5k tons/yr

6.9mm tons capacity

Hyland LF312k tons/yr

15.8mm tons capacity

Clinton LF175k tons/yr


WasteUSA LF600k tons/yr

15.8mm tons capacityNCES LFNo annual cap

2.3mm tons capacity

Juniper Ridge LFNo annual cap


Southbridge LF405k tons/yr

7.2mm tons capacity

Ontario LF918k tons/yr


Total disposal capacity includes permitted and permittable airspace estimates at each site as of April 30, 2014.1 Annual capacity does not reflect the 1.5mm ton per year rail permit at McKean LF.

McKean LF 1

312k tons/yr

2.1mm tons capacity

16 Recycling Facilities

10 Disposal Facilities

35 Collection Operations

42 Transfer Stations4 Landfill Gas-to-Energy Facilities


Casella controls valuable northeast landfill assets

10 landfills in strategic locations across the Northeast.

• Added 80.1mm tons of total long-term capacity at an avg. tipping fee over $30 per ton.

• Annual permitted capacity now at 3.9mm tons.

1 Total Disposal Capacity excludes MERC and all “Closure Projects”; Annual Disposal Volumes only include amortizable tons at active landfills.

Fiscal year ended April 30, Fiscal year ended April 30,

Total Disposal Capacity (mm Tons) (1) Annual Landfill Disposal Volumes (mm Tons) (1)

29.6

65.6

81.7 86.7

94.1 92.4 97.9 103.1

120.9 118.0 110.7 109.7

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

1.4

1.8

2.5

2.9 2.9

3.3 3.0 3.1

3.3 3.2 3.1

3.5

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


$107.9 $109.0

$100.0 $101.6

$87.8

$95.1

22.6%24.2%

22.0% 21.7%

19.3% 19.1%

2009 2010 2011 2012 2013 2014

Fisal year ending April 30,

6

Sourcing new landfill volumes is driving performance

Adjusted EBITDA up in FY14 on higher landfill tons, better collection pricing, and improved operating execution.

1 Adjusted EBITDA equals earnings before interest, taxes, depreciation and amortization, adjusted for accretion, depletion of landfill operating lease obligations, gain on sale of assets, development project charge write-offs, legal settlement costs, tax settlement costs, bargain purchase gains, asset impairment charges, environmental remediation charges, severance and reorganization costs, expenses from divestiture, acquisition and financing costs, gains on the settlement of acquisition related contingent consideration, as well as losses on divestiture. Reconciled in the Appendix.

Revenue ($mm) Adjusted EBITDA and Margin ($mm) 1

$476.4

$449.7 $454.7 $468.0

$455.3

$497.6

2009 2010 2011 2012 2013 2014

Fisal year ending April 30,


$87.8

$95.1

FY13 FY14

7

FY14 results up significantly on strategic execution

FY14 results up on strong execution:

• Revenue growth +$42.3mm (or +9.3%) YOY.

• Adj. EBITDA up +$7.3mm (or +8.3%) YOY,

with strongest growth in over 5 yrs.

• Free Cash Flow up +$13.5mm YOY.

• Improvement driven by higher landfill tons and

strategic execution.

• Landfill tons up +350k (+9.7%) YOY.2

• Residential and Commercial collection price up

+1.9% YOY.

• Recycling Commodity tons up +6.2% YOY.

1 Adjusted EBITDA defined on slide 6, and reconciled in the Appendix . 2 Excludes a +76k ton year-over-year increase in low priced soils at the Worcester landfill closure project.

Adjusted EBITDA ($mm) 1

+$7.3


Focus in the near term to improve free cash flow

Management focused in key areas to increase free cash flow and to reduce debt leverage:

1. Increasing landfill returns;

2. Driving additional profitability in collection operations;

3. Executing Eastern Region strategy;

4. Creating incremental value through Customer Solutions; and

5. Improving balance sheet and reducing risk.

8


(1) Increasing landfill returns

Focus in FY14 to increase volumes and capacity utilization.

• Landfill tons up +350k year-over-year in FY14.1

• Disposal Adj. EBITDA up +$9.2mm YOY in FY14.

• Volume increases primarily driven by: (1) long-term contracted MSW volumes; (2) ramp-ups

at Southbridge, NCES and WasteUSA; and (3) higher C&D volumes.

Market dynamics are beginning to shift across our footprint area.

• Disposal site closures (and expected closures) will create a supply-demand imbalance.

• Roughly 2.7mm tons/yr of disposal capacity is expected to permanently close.

• The NY/PA market has over-capacity, but NYC Dept of Sanitation contracts will shift market

dynamics in 2015-2016 (roughly +1.5mm tons/yr in NY landfills).

Shifting strategic focus in FY15 to further enhance landfill returns.

• Maximize capacity utilization – incremental tons have high margins.

• Increase pricing – pricing power returning to the disposal market in the northeast.

• Improve asset positioning – leverage $7.0mm rail grant at McKean to drive new volumes.

1 Excluding Worcester soils closure project.


Taunton LF

120k tons/yr

Closing 20152

3

41

Fall River LF

376k tons/yr,

Closing 2014

Disposal market dynamics are shifting

10

Hakes LF462k tons/yr

4.8mm tons capacity

Chemung LF200.5k tons/yr

6.9mm tons capacity

Hyland LF312k tons/yr


Clinton LF175k tons/yr


WasteUSA LF600k tons/yr

15.8mm tons capacityNCES LFNo annual cap

2.3mm tons capacity

Juniper Ridge LFNo annual cap


Southbridge LF405k tons/yr

7.2mm tons capacity

Ontario LF918k tons/yr


Total disposal capacity includes permitted and permittable airspace estimates at each site as of April 30, 2014.1 Annual capacity does not reflect the 1.5mm ton per year rail permit at McKean LF.

McKean LF 1

312k tons/yr

2.1mm tons capacity

16 Recycling Facilities

10 Disposal Facilities

35 Collection Operations

42 Transfer Stations4 Landfill Gas-to-Energy Facilities

Other disposal sites (closed or

potential to close)

Moretown LF

172k tons/yr, Closed 7/13

Claremont WTE

73k tons/yr, Closed 9/13

MERC WTE

300k tons/yr,

Closed 12/12

PERC WTE

300k tons/yr,

Granby LF - 235k tons/yr, Closed 3/14

S. Hadley LF – 156k tons/yr, Closed 4/14

Barre LF - 94k tons/yr, Closing 2015

Northampton LF – 50k tons/yr, Closed 5/13

Chicopee LF - 365k tons/yr

2

1

3

4

5

5

Albany LF

275k tons/yr

Closing 2016

Expected NYC waste flows

NYC Dept of Sanitation

• 10k – 12k tons per day.

• Building 4 marine transfer

stations to transload waste to rail

(expect 2 built by early 2015).

• Expect an additional 1.0m tons/yr

to be disposed in NY.


(2) Driving additional profitability in collection operations

Collection pricing programs continue to drive value.

• Residential and commercial pricing remained strong at +1.9% for FY14.

• The roll-off market has shown early signs of rebounding, with growth in select markets.

Local market leaders matter in the hauling business.

• Driving towards a local market centric approach; “one-size-fits-all” approach is not effective.

• Shifted management of key decisions/programs to local teams – pricing, routing, marketing,

and service offerings.

• Replaced/upgraded over 35% of our local managers in last 18 months.

Team working to further improve collection profitability.

• Pricing – continued focus on pricing discipline.

• Quality of revenue – shifting focus from volumes to quality of revenue.

• Route profitability - eliminating route days to reduce cost and improve asset utilization.

• Fleet optimization – upgrading fleet for route applications and solving lingering fleet issues.


(3) Executing eastern region strategy

Significantly improved asset positioning and financial performance.• Adj. EBITDA margins improve from 15.5% in FY13 to 21.4% in FY14.

Settled North Country landfill litigation in Jan 2012.• Ramped tons to site after closing Maine Energy and acquiring BBI in Dec 2012.

Sold Maine Energy for $6.7mm in Nov 2012.1

• Facility permanently closed in Dec 2012.

• Waste redirected through newly constructed Westbrook transfer station to other

sites, including North Country and Juniper Ridge landfills

Acquired BBI in Dec 2012.

• Owned/operated 7 hauling & transfer facilities that overlap CWST’s

operations.

• +85k tons of internalization benefit to landfills and recycling facilities.

Sold BioFuels for $2.0mm in Jul 2013.2

• Capital intensive C&D processing operation with low margins.

1 Purchase price for Maine Energy to be paid over 20 years. 2 Purchase price to be paid over 5 years. 3 Adjusted EBITDA is reconciled to net income as

follows; in the second full 12 months of combined operations following closing, we estimate net income to be $2.0 million, plus estimated depreciation and

amortization of $2.9 million which equals estimated Adjusted EBITDA of $4.9 million.


(3) Executing eastern region strategy – cont’d.

Expanded Southbridge landfill in Jan 2013.• Received permit to increase annual permit limit to 405k tons per year.

• Ramped up tons to roughly 360k tons per year in FY14.

Received MSW permit at Juniper Ridge landfill in Feb 2014.• Received a permit to receive up to 82k tons per year of in-state MSW.

New Concord, NH contract started in Jul 2014. • 10 year hauling/disposal/recycling contract; with disposal contract starting in Jan 2015.

• Expect to internalize roughly 30k tons per year.

Expiration of Ogden put-or-pay contract. • Out-of-market disposal contract expires Dec 31, 2014.

• Paying $3.7mm/yr higher disposal costs than current market rates.


(4) Creating incremental value through resource solutions

Zero-Sort® Recycling

• Casella operates 5 Zero-Sort MRFs in our integrated footprint.

• Mature facilities operating at ~95% of capacity; adding a new MRF in Lewiston, ME in FY15.

• Recycling volumes up +6.2% and ACR down -3.1% in FY141.

Casella Organics

• Business model is primarily focused on transforming Biosolids into renewable products

for fertilization and landscaping.

• Working with partners to transform Source Separated Organics into energy or compost.

Customer Solutions

• Focus on creating resource solutions for Industrial, Municipal, Institutional, and multi-location

Retail customers.

• Experiencing strong growth in the Industrial segment (lower margins with high FCF).

1 Shipped tons from MRFs on a “same store basis” .


(5) Improving balance sheet and reducing risk

Divestitures reduced risk, improved cash flows and reduced leverage.

• Mar 2011 – sold non-integrated recycling facilities outside northeast for $134.1mm;

used proceeds to pay down debt and reduce leverage.

• Dec 2012 – sold Maine Energy for $6.7mm; eliminated negative cash flow operation.

• Jul 2013 – sold BioFuels for $2.0mm; eliminated negative cash flow operation.

• Dec 2013 – sold 50% stake in US GreenFiber for $3.5mm; eliminated non-integrated,

negative cash flow operation.1

• Jan 2014 – ceased development of landfill gas pipeline project; NPV negative project.

Sept 2012 equity offering reduced balance sheet risk and refinancings

improved cash flows.

• Leverage remains heightened, but maintain adequate head-room to covenants.

• Cash interest reduced by >$20.0mm/yr with refinancings & divestitures over last 3 years.

Current balance sheet provides flexibility to execute strategy.

• Next major debt maturity is Senior Secured Revolving Credit Facility in Mar 2016.

1 US GreenFiber sold for $18.0mm gross proceeds, with $3.5mm net proceeds for Casella’s 50% equity interest.


Fiscal year end change better matches business cycle

Moving fiscal year end to Dec 31st better matches our business cycle.

• New fiscal year will begin with slow winter months; allowing “catch-up” if necessary.

• Revenues ramp during spring (not at year end), enabling more effective forecasting.

• Strongest months will occur during summer months and early fall.

• Budgeting in late fall enables capital purchases in Dec through Jan; allowing for new

assets to be in place before seasonally strong periods.

Fiscal year change effective on Jan 1, 2015.

• Plan to report an 8-month transition period ending Dec 31, 2014.

• Plan to report current Q1 (7/31/14) & Q2 (10/31/14) during 8-month transition period.


$87.8

$95.1

19.3% 19.1%19.9%

FY2013 FY2014 CY2015 $(12.2)

$1.3

FY2013 FY2014 CY2015

$455.3

$497.6

FY2013 FY2014 CY2015

Adj EBITDA & Margin ($mm) 1,2

17

Free Cash Flow projected to be materially higher in CY2015

Expect to complete balance sheet clean-up and asset repositioning

during the 8-month transition period ending Dec 31, 2014.

• $9.0mm of environmental remediation and closure payments at 3 sites.

• $13.0mm of capital spending on new contracts/facilities, rail siding at McKean landfill,

and gas treatment facility to reduce operating costs.

1 Reflects guidance provided on June 25, 2014; FY2013 and FY2014 are for the 12-months ended April 30, 2013 and 2014, respectively; while CY2015 reflects our new reporting period for the 12-months ending December 31, 2015 (effective Jan 1, 2015). 2 Adjusted EBITDA defined on slide 6, and reconciled in the Appendix. 3 Free Cash Flow equals net cash provided by operating activities, less capital expenditures (excluding acquisition related capital expenditures), less payments on landfill operating leases, less assets acquired through financing leases, plus proceeds from the sale of property and equipment, plus contributions from non-controlling interest holders.

Revenue ($mm) 1 Free Cash Flow ($mm) 1,3

Guidance

$530.0

to

$520.0

Guidance

$18.0

to

$14.0

Guidance

$107.0

to

$103.0


Casella’s value drivers…

Valuable integrated solid waste assets in

disposal limited Northeast markets.

Management focused on increasing Free

Cash Flow and reducing debt.

FY14 results demonstrate strong

execution of plan.

Near term focus of team:

Improving landfill returns;

Driving profitability of collection operations;

Executing Eastern Region strategy;

Creating value through Resource Solutions.


Appendix

19


Non-GAAP reconciliation of Adjusted EBITDA

Non-GAAP Reconciliation of Adjusted EBITDA to Net Income (Loss)($ in thousands)

2014 2013 2012 2011 2010 2009

Net (loss) income (27,404)$ (54,463)$ (77,592)$ 38,428$ (13,858)$ (68,024)$ Loss (income) from discontinued operations, net (284) 4,480 614 2,198 138 (2,476) Gain on disposal of discontinued operations, net 378 - (725) (43,590) (1,180) (63)

Loss from continuing operations before discontinued operations (27,311)$ (49,983)$ (77,703)$ (2,964)$ (14,900)$ (70,563)$

(Benefit) provision for income taxes 1,799 (2,526) 1,593 (23,723) 3,016 6,212 Other expense (income), net (436) 23,501 20,110 10,626 2,355 1,366 Interest expense, net 37,863 41,429 44,966 45,489 44,108 33,083 Expense from divestiture, acquisition and financing costs 144 1,410 - - - - Depreciation and amortization 60,339 56,576 58,415 58,121 63,509 68,342 Severance and reorganization charges 586 3,709 - - 185 1,370 Tax settlement costs - 679 - - - - Asset impairment charge 7,455 - 40,746 3,654 - 54,036 Legal settlement - - 1,359 - - - Gain on settlement of acquisition related contingent consideration (1,058) - - - - - Development project charges 1,394 - 131 - - - Bargain purchase gain - - - (2,975) - - Gain on sale of assets - - - (3,502) - - Environmental remediation charges 400 - - 549 335 4,356 One-time discretionary bonus charge - - - 3,550 - - Depletion of landfill operating lease obligations 9,948 9,372 8,482 7,878 6,867 6,416 Interest accretion on landfill and environmental remediation liabilities 3,985 3,675 3,479 3,331 3,506 3,262

Adjusted EBITDA 95,109$ 87,842$ 101,578$ 100,033$ 108,980$ 107,880$

Fiscal Year Ended April 30

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