Clearside Biomedical Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 28, 2023

There are 11 speakers on the call.

Operator

Day and thank you for standing by. Welcome to the Casella Waste Management Inc. 2nd Quarter 2023 Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session.

Operator

You will then hear an automated message advising you that your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Charlie Woodhunter, Director of Investor Relations. Please go ahead.

Speaker 1

All right. Thank you, Michelle. Good morning and thank you everyone for joining. With us today are John Casella, Chairman and Chief Executive Officer of Casella Waste Systems Ned Coletta, our President and Chief Financial Officer Jason Mead, our Senior Vice President of Finance and Treasurer and Sean Steves, our Senior Vice President and Chief Operating Officer Solid Waste Operations. Today, we will be discussing our Q2 2023 results, which were released yesterday afternoon.

Speaker 1

After a brief review of those results and an update on the company's activities and business environment, we will be answering your questions. Please note that various remarks 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 these forward looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent Annual Report on Form 10 ks, which is on file with the SEC. In addition, any forward looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. While we may elect to update forward looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views change.

Speaker 1

These forward looking statements should not be relied upon as representing our views as of any date to today, July 28, 2023. Also during this call, we will be referring to non GAAP financial measures. These non GAAP measures are not prepared in accordance with generally accepted accounting principles. Reconciliations of the non GAAP financial measures To the most directly comparable GAAP measures, to the extent they are available without unreasonable effort, are available in the appendix to our investor slide presentation, which is available in the Investors section of our website at ir.casella.com under the heading Events and Presentations. And with that, I will now turn it over to John Casella, who will begin our discussion.

Speaker 2

Thanks, Charlie. Good morning, everyone, and thank you for joining us. Welcome to our Q2 2023 conference call. Before I comment on the quarter, I'd like to take a moment and talk about the communities that were impacted by the severe flooding Across our footprint earlier this month, I'd also like to recognize our team. Many of our people have been on the front lines Helping our communities recover.

Speaker 2

Some of that damage absolutely catastrophic in some areas, in Vermont, Waterbury, Weston, Montpelier, our Montpelier operation itself was under 5 feet of water and Hats off to the entire team there, Billy, Heron, Pat, Mike, all of The entire team did a hell of a job. They were up and operating within 2 days of being under 5 feet of water, one of the first businesses in Mont Belair to get back up and operational. Also in Vermont, Significant damage in Berlin, Londonderry, Barrie and significant amount of damage in Ludlow as well. In New York, Clinton, Essex and Franklin Counties along with other areas in Upstate New York, Communities in Western Massachusetts such as North Adams and neighborhoods across our new markets in Pennsylvania were all impacted significantly by the weather. Hats off to the priority response teams, the team that's put together by Sean Steves That takes assets, people, trucks, containers from different areas of our footprint where they weren't impacted And brings those resources to the affected areas.

Speaker 2

And again, many of our people have worked tirelessly and self To help the affected areas across our markets to restore conditions, remove debris and get things back to normal. We've also done some fundraising as well, fundraising effort to help support those affected during Very difficult time. So far, our relief fund has raised just under $100,000 $86,000 To help people who have experienced loss and hardship, also there's a spot on our homepage If anybody would like to donate to the relief fund, again, I'm incredibly proud of the efforts Of all of our people and the work that they've done to help people recover from what In many cases, it was catastrophic damage. Every bit is much damage as we had in a lot of cases similar to Irene. Now moving on to the performance for the quarter, we're pleased to share with you our continued strong results and updated outlook, which demonstrates our focus on operating performance, disciplined growth and driving shareholder value.

Speaker 2

We are executing well against our key strategies As reflected in the results, we also had several key announcements recently culminating with the acquisition of GFL's Mid Atlantic operations on June 30th. Our entry into the Mid Atlantic presents a great long term opportunity to grow the business, Expand our platform into adjacent markets. Over time, we look forward to the potential to continue to grow both organically and through acquisitions. Less than 1 month into the GFL related acquisition operations and service are smooth And we're highly focused on establishing the Cacellas culture and core values. Once again, we welcome all of our new team members.

Speaker 2

As reported in yesterday's press release, we grew adjusted EBITDA by 5.5% year over year in the second quarter, Expanded our margins 80 basis points and grew adjusted free cash flow. Results from our solid waste operations once again shined This quarter on the hard work of our team, after a strong start to the year in the Q1, solid waste adjusted EBITDA margins expanded over 220 basis points year over year for the 2nd consecutive quarter this year and we're over 31% EBITDA Margins in the 2nd quarter. These results demonstrate the Strong operating plan we have in place to drive productivity and higher returns while keeping safety front and center. Our ongoing investments in automated trucks, route optimization, onboard computers are adding value across many areas from safety to efficiencies. And our pricing programs complement these efforts with 7.7 Percent price and solid waste in the quarter helping to offset inflation.

Speaker 2

Recycling commodity prices remained well below last year's level As we expected, while recycling prices were down 53% year over year in the Q2, our risk mitigation programs are working well to limit the impact. We expect the headwind will ease moving through the rest of this year. At the onset of the year, we took a conservative outlook on recycling commodity prices And that remains intact. All said, the business is performing well as reflected in our updated guidance And we look forward to carrying the strong momentum into the remainder of 2023. A brief review on related Key strategies, we continue to be focused on increasing returns across our disposal assets.

Speaker 2

Improving the quality of revenue of inbound streams is a major focal point. We measure this through our average Landfill price per ton, which was up nearly 10% in the quarter to help us stay ahead of inflation across many categories From daily operations to our capital spend on self construction and machinery and heightened regulatory costs. Notably, we are also capping at several sites this year, which reflects our commitment to further lowering emissions and improving gas capture for renewable energy. On this topic, in mid July, we announced the signing of an agreement with Waga Energy to build and operate RNG facilities at 3 of our landfills. WAVA's proven track record and expertise in this field proves to us that they are a strong partner to lead the next stage of our RNG development projects.

Speaker 2

We expect RNG to be another opportunity for driving higher returns and sustainability across our landfills. On the collection line of business, in terms of the Q2, great execution once again through the leadership of Sean Steves and his team. We posted another strong quarter with both adjusted EBITDA growth and margin expansion in collection operations exceeding our budget in the quarter. As I highlighted, our cost reduction investments and operational initiatives improved several of our key Operating metrics both sequentially and year over year. We accomplished this while maintaining a high level of service excellence.

Speaker 2

Looking ahead, our focus remains the same. As of the Q2, 60% of our routed fleet Have onboard computers and over 50% of our addressable residential collection fleet is automated. This strategy is paying off, but we still have room for further operational enhancements and investments to drive higher returns. Resource Solutions, notably as of mid June, our fully upgraded Boston recycling facility is up and running. Recycling is A part of the core of this company and this approximately $20,000,000 investment represents a meaningful component of sustainability to many customers in the Greater Boston area.

Speaker 2

The upgrades are expected to drive higher material throughput, enhanced end Product quality and improved operating efficiency, while advancing the safety profile of the facility. Like any investment we make, We balance environmental stewardship with economic returns to support the longevity of our programs and services. Our SRA and other risk mitigating features in our contracts are examples which have greatly limited the financial impact of current recycling prices. Including the Boston MRF, we expect positive contributions to our results from our recycling operations over the remainder of the year. Finally, I'd like to highlight our capital allocation and growth strategy.

Speaker 2

Following our recent debt and equity raises, the Strength of our balance sheet positions us well to continue growing the business and driving further free cash flow growth. Our acquisition pipeline of about $500,000,000 in annualized revenues over the top of the Northeast footprint combined with approximately $400,000,000 around our Mid Atlantic operation provides great And we will remain opportunistic in our approach. Aside from the GFL operations we acquired in June, we announced the Pending acquisition of Twin Bridges in New York with approximately $70,000,000 of annual revenues. The acquisition cleared HSR Our review on July 14th currently being reviewed by the New York Attorney General's Office and is targeted to close by the Q4. Overall, we have a strong runway that positions us for continued growth and driving long term shareholder value.

Speaker 2

We look forward to our continued ability to grow in a disciplined fashion. And with that, I'll turn it over to Ned for some more Detail on the financials.

Speaker 3

Thanks, John, and good morning, everyone. Revenues in the second quarter were 289 point $6,000,000 up $6,000,000 or up 2.1% year over year with 1.8% of the year over year change driven by acquisition activity. Solid waste revenues were up 7.6% year over year with price up 7.7%, acquisition growth of 2.5% With volumes down 2.6 percent. Revenues in the collection line of business were up 9.2% year over year With price up 8.2% and volumes down 2.3%. Volume declines were primarily driven by higher churn In the residential line of business associated with pricing programs and we experienced lower roll off activity split between industrial customers and temporary construction jobs.

Speaker 3

However, with these declines, we improved the quality of revenue, grew our adjusted EBITDA and expanded margins in both of Revenues in the disposal line of business were up 5.7% year over year with landfill pricing up 7.7%, While landfill tons were down 6.1%. The landfill volume declines were entirely driven by lower priced special waste volumes that were down year over year. As expected, Resource Solutions revenues were down 11.6% year over year with our average commodity revenue per tonne down Roughly 53% on lower cardboard and mixed paper pricing, lower metals pricing and lower plastics pricing. This decline in commodity prices was partially offset by 7.6% growth in processing fees at the Murf's. Kamaya prices hit a high point in April 2022 and then declined 67% through the remainder of 2022, Hitting a multi year low last December.

Speaker 3

Kymaya prices have rebounded from this low level, up Roughly 30% sequentially from December through June. Adjusted EBITDA was $72,200,000 in the quarter, Up $3,700,000 or 5.5 percent year over year with $2,800,000 of the growth driven by improvements in our base business and $900,000 derived from acquisitions. Solid waste adjusted EBITDA was $68,400,000 in the quarter, Up $9,500,000 year over year with collection and disposal both up year over year. Resource Solutions adjusted EBITDA was $3,800,000 in the quarter, down $5,600,000 year over year With the negative performance mainly driven by 2 factors. Adjusted EBITDA was down roughly $3,000,000 due to lower commodity prices.

Speaker 3

Our risk mitigating commodity programs help to offset most of the significant drop in commodity prices. Unfortunately, these programs are not Fully implemented in several newly acquired markets that had legacy contracts that do not allow us to pass recycling risk factor customers. These markets accounted for roughly 60% of the year over year decline from commodity prices. In addition, adjusted EBITDA was down $2,500,000 at our Boston recycling facility, as the facility was shut down for most of the quarter as we We did a full technology upgrade. Revenues were lower as we displaced volumes and costs were higher as we had to transload volumes to other facilities.

Speaker 3

Adjusted EBITDA margins were 24.9 percent for the quarter, up 80 basis points year over year. Solid waste margins were 31.4 percent in the quarter, up 2 30 basis points year over year, partially offset by the weakness in Resource Solutions. Our pricing programs once again covered cost inflation in the quarter With solid waste price as a percentage of total revenues up 6.4%, partially offset by 490 basis points from inflation. Further margin bridging items include a 45 basis point improvement driven by solid waste operating efficiencies, partially offset by the lower volumes, A 35 basis point tailwind from lower fuel cost net lower recovery fees. These were partially offset 105 basis point headwind from the shutdown at the Boston MIRF and lower recycling commodity prices, A 35 basis point headwind from lower landfill gas to energy performance and a 10 basis point headwind from acquisitions.

Speaker 3

Moving on, the 2nd quarter includes several unique items in the income statement that we highlighted in our press release and also have additional disclosure on our 10 Q and they included a $6,200,000 legal settlement charge in connection with the settlement of a class action litigation matter Relating to the Fair Labor Standards Act and the state wage and hours loss and an $8,200,000 loss The termination of bridge financing for the secured and unsecured bridge loans associated with acquisition of the GFL Operations in the pending Twin Bridges acquisition. Excluding these non recurring items and several other one time costs, adjusted net income was $18,800,000 in the quarter, flat year over year. It was a busy quarter for our team from an M and A and financing perspective. On April 3, we acquired a hauling and transfer company with approximately $10,000,000 of annual revenues. On June 30, we acquired GSL Solid Waste Operations in Pennsylvania, Maryland and Delaware with approximately $185,000,000 of annualized revenues.

Speaker 3

And on June 9, we entered into the asset purchase agreement to acquire Twin Bridges assets with approximately $70,000,000 of annual revenues. To support these acquisitions, we completed several financing events. We entered into a $375,000,000 secured bridge financing To provide committed capital for the GSL transaction, this bridge was never drawn and on May 25, it was terminated When we entered into the $430,000,000 delayed draw Term Loan A. The Term Loan A is priced on a grid With an initial pricing at SOFR plus 2.3eight. This pricing will drop to SOFR plus 1.7eight next quarter.

Speaker 3

In addition, we entered into a $200,000,000 unsecured bridge financing to provide committed capital for the planned Twin Bridges transaction. This bridge again was not drawn and on June 16, it was terminated when we closed on the $517,500,000 common stock offering. As of June 30, post the GFL acquisition, we had $1,000,000,000 of debt, dollars 466,000,000 of cash, Liquidity of $738,000,000 including the availability on our revolver, our consolidated net leverage ratio was 2.35 times. Our average cash interest rate was approximately 3.74 times and we had fixed interest rates on We have earmarked approximately $219,000,000 of cash on hand to complete the Twin Bridges acquisition. Post the Twin Bridges acquisition, we will still have significant liquidity to support our M and A pipeline with a focus on building additional In the Mid Atlantic and across select Northeastern Markets.

Speaker 3

While adjusted free cash flow started the year a bit light due to working capital And capital expenditure timing differences, these headwinds were mainly resolved in the Q2. Adjusted free cash flow was $49,000,000 year to date through June, Up roughly $2,800,000 year over year and on track to hit our fiscal year guidance range of $123,000,000 to $129,000,000 Given the expected contributions from acquisitions closed through the first half of this year and the expectation that our solid waste operations will continue to Well against budget, we increased our revenue, adjusted EBITDA and adjusted free cash flow guidance ranges for the year. However, given the negative impact of the several non recurring items I focused on earlier and the higher interest expense associated with the financings, We have lowered our net income guidance for the year. The updated guidance ranges include the contribution from the acquisition of the GFL assets, but do not include the pending acquisition of Twin Bridges. As always, we'll update our guidance after completing the acquisition.

Speaker 3

As part of the updated guidance ranges, we increased our adjusted EBITDA guidance range by $23,000,000 With roughly $20,000,000 of this increase associated with the newly acquired GFL operations and $3,000,000 from the base business. As I mentioned earlier, our internal rate of inflation is running at about 4.9%. That's down over 100 basis points From last summer, we definitely have seen inflation cool off a bit in the business. We do expect to outpace this inflation increase adjusted EBITDA margins by 70 basis points for fiscal 2023, which is an improvement from our prior guidance range. We are forecasting solid waste price to be up 6.5% to 7.5% and volumes to be flat through the second half of the year.

Speaker 3

In addition, we forecasted recycling commodity prices We have conservatively increased our fiscal 2023 adjusted free cash flow guidance range $4,000,000 with all of this increase associated with the newly acquired GSL operations. While we expect continued Operating cash flow growth and the working capital timing differences to further resolve through the remainder of the year, Higher capital expenditure costs due to inflation and higher interest costs offset this growth in the existing base business. And with that, I'll turn it back to the operator for questions. Thank you.

Operator

Thank you. And our first question is going to come from the line of Tyler Brown with Raymond James. Your line is open. Please go ahead.

Speaker 4

Hey, good morning guys.

Speaker 3

Good morning.

Speaker 4

Hey, lots of detail as usual. But Nick, can we kind

Speaker 5

of go back over some

Speaker 4

of the margin pieces? I think you said fuel was 35 basis points. And then I couldn't tell, was it commodities and Boston was 105 or can you just walk through that a little bit more?

Speaker 3

Yes, sorry. Yes. There's a few numbers there. So we had solid waste price as a percentage of total revenues was up 6.4 With inflation dropping out by 4.90 basis points and then we had positive good guys of a 45 basis point improvement In the solid waste business and a 35 basis point tailwind from fuel net of, so lower fuel prices, We also had lower surcharges. And then we had 105 basis point headwind and that was Boston and recycling commodity prices, A 35 basis point headwind from landfill gas to energy and 10 basis point headwind from acquisitions.

Speaker 3

Okay.

Speaker 4

Okay. And then as Boston kind of turns back on, does that become a margin good guy in the back half? Is that the right way to think about

Speaker 3

It does. We're expecting about $1,500,000 to $2,000,000 of positive impact in The second half of the year from Boston, we're still in that 90 day shakedown phase. It started off the 2nd to 3rd week of June and This is one of the more technologically advanced processing facilities in the country. Machine X is doing a great job, but there's a lot of work to get All of those obstacles and belts completely in sync. So that will continue to happen, but we're really positive And the next year, you think about it, you get the positive from the benefit of the investment, but you also get rid of that negative comp In the year.

Speaker 3

So this is going to be like a $6 plus 1,000,000 tailwind coming into next Which will be really positive for the Resource business.

Speaker 4

Plus, I would assume you readdress contracts without SRA

Speaker 3

fees. Yes. So we talked about this last quarter. There's a handful of them out there and there's a couple of notable ones in Connecticut. There's a few notable ones around our Western Mass recycling facility as well.

Speaker 3

And there are a couple of $1,000,000 a year of negative Headwind and we very successfully over the last decade have worked with communities and different businesses to Share that risk more effectively and we don't have an expectation that we can't do the same thing year over time.

Speaker 2

Yes. And those are really related, as you know, I think, Tyler, to acquisitions. Those contracts all came with acquisitions and We'll renegotiate them at the end of the contract, obviously.

Speaker 4

Okay. And then so I wanted to kind of hit On volume, it came in a bit weak. You gave some color, but it's interesting because this is actually something we've seen with a couple of the other guys that have reported. Maybe it's idiosyncratic, maybe not. But can you kind of help bridge that down to 6?

Speaker 4

Was it just broad weakness or was there something idiosyncratic It felt like in your franchise?

Speaker 3

Yes. So I listened to Waste Management earnings and I'm not sure Much of what we saw is not all that dissimilar. So at the land sales, we saw MSW volumes basically flat and we saw C and D up a little bit, which is interesting. But we saw almost every single special waste category down. We saw sludges down, which is a little bit of our own doing, Because we're trying to have less of those materials in the landfill, but then we saw all other special waste categories down contaminated soils, Buds, ashes, you name it, asbestos and other categories were down in the year.

Speaker 3

We also saw industrial roll off And we've seen our pipeline stretch out a little bit there. And I think what it really is, as everyone knows, industrial companies, large businesses Are looking around themselves and slowing their capital cycle a bit, just given the banking crisis and some of the stress in the economy, while the Tumor remains strong wholesale. So some of these projects that might be a bit discretionary Sure, investments are getting pushed off a bit and we're seeing that flow through both on the roll off side of the business and into the special waste categories at the landfill. On the residential side of the business, Sean and his team and the temporary roll off side, they're just trading price For quality of revenue and making sure we have the right mix in our business. As you know, like every other trucking business, we struggle Yes.

Speaker 3

Always fill the seats and have high quality drivers and mechanics. So we've been in a mode of making Sure. We really want to do business and we're doing it for the right return level and it's a big focus of the team. So you see a little bit of that churn there. Not a lot of it's stuff we're disappointed about.

Speaker 3

We're improving margins and quality of revenue.

Speaker 4

Okay. And then is it In the guide kind of flattish volume in the back half, is that what I heard?

Speaker 3

Yes. That's where we are right now. A little more visibility on some special waste projects, plus the Comps are a bit easier. Last year started off a bit hotter on volumes and tailed off through the second half of the year.

Speaker 4

Okay. And then Jason, just a couple modeling questions. But what is the M and A contribution for this year In the guide today, which excludes Twin Bridges, but roughly what is that in solid waste? And then what should we expect Kind of the run rate on interest expense to be?

Speaker 3

Yes. Just one clarifying point and Jason can hop in. The guide does not include Twin Bridges. It just includes GFL operations, yes.

Speaker 6

Yes. So, hey, Tyler. So, GFL in the back half of the year In terms of revenues for Q3 and Q4, roughly $91,000,000 in revenues In the second half of the year, then we have in terms of rollover from acquisitions completed In 2022, we've got roughly another $3,000,000 of revenues that will be in the back half of 2023. We had about $12,000,000 in the first half of the year. And then we completed a tuck in acquisition in April of this year, Triple T Trucking that we announced with our Q1 earnings and that was roughly $9,000,000 in annualized Revenues, so we'll get the pro rata portion of that in the second half of twenty twenty three.

Speaker 4

Okay. Okay. That's helpful. And then John, I got maybe my last one here. I read an article a couple of weeks ago, I think it was, About an intent to reopen Hardwick, I know it sounds like it's kind of far away and there's a lot Due to get there, but I'm just curious if those reports were correct and what was the driving factor in looking into that?

Speaker 2

Yes. Actually, as a development team associated with the community that came to us and asked us if we would be working with them to potentially reopen it. And so it's true. We Made a presentation to the Board. Brian Oliver made that presentation about 3 weeks ago to the Board.

Speaker 2

It is very early in the process. There's a lot of heavy lifting to be done, but there is capacity there for 20 years. And we're happy to push forward to the extent that we continue to enjoy Favorable response from the community. It certainly is a possibility for additional capacity in the future.

Speaker 3

In the flashback in time, this was a site that did not run out of capacity, but needed some building changes. And so it really hinges on great support for us to invest here.

Speaker 4

Okay. So it's something to stay tuned. That seems like it's kind of a ways away, but we'll keep going. It is indeed. Indeed.

Speaker 4

Okay. All right. Listen, I'll turn it over. I appreciate the questions.

Speaker 3

Thanks, Tyler. Thanks, Tyler.

Operator

Thank you. And one moment for our next question. And our next question is going to come from the line of Michael Hoffman with Stifel. Your line is open. Please go ahead.

Speaker 5

Good morning. Hoping it's sunny in Vermont today, Not really.

Speaker 2

It is Michael. It's hard to believe, but the sun is out.

Speaker 3

Rain will be

Speaker 5

We had 3 inches of rain yesterday afternoon, so it may be coming towards you, unfortunately. On recurring revenue volume, can we talk about underlying characteristics of the recurring revenue volume? So I think of Small container service interval changes, new business formation, large container permanent inside office building Schools, things like that. What are those trends like?

Speaker 3

Yes, J. C, you want

Speaker 1

to hop in on that?

Speaker 6

Yes. I'll start. Hey, Michael. So in the Q2, just focusing on our commercial line of business where many of those attributes would be Michael, Our volume in the commercial collection line of business was flat year over year in the quarter. We did experience net new business activity In the quarter, in terms of net new revenue from a sales perspective, I.

Speaker 6

E, we gained more new accounts than we lost. Yards per lift were flat from an operational metric perspective and Price was quite positive in the quarter, in our commercial line of business up about 9%, and we expanded adjusted EBITDA margins by about 100 basis points.

Speaker 5

Okay. That's terrific. And then, just to touch on your renewable energy, can you tell us what your current amount of MMBtu, we're playing with and then what the development with WAGO would add?

Speaker 3

Yes. So we've got 2 projects under development, 1 at our North Country Landfill in New Hampshire And one at our tenure information Lance on Main. Charlie, is that one? Those

Speaker 1

Two projects combined are about $1,300,000 $1,300,000

Speaker 3

yes, MMBTUs. And then we just announced this partnership or Commercial agreement with WAGA where they will develop the infrastructure at 3 of our sites And they'll own that infrastructure, invest in it, develop and operate it and will receive revenue shares From the gas sales and RINs and that will initially be about $1,300,000 MMBT as well, dollars 1,200,000 to $1,300,000 That contract, we think is very favorable And can create quite a bit of value for shareholders over time. It will take about 2 plus years to get those sites Permitted, built and online, but, so some real benefits after that point.

Speaker 5

So the when you refer to margin headwind from landfill gas, is that electricity based in the quarter?

Speaker 3

Yes. So we still have a number of Facilities are producing electricity and we definitely saw a decent sized headwind year over year in those facilities As racks and power sales were down.

Speaker 5

Okay. And then Back to Boston for a second. We've been hearing through various sources that the Boston 3 year or 5 year, 3 And focus on just collection and disposal since the disposal side may be up so much. Do you have any color on that? Because that would be good.

Speaker 5

You put 20,000,000 And you've got an assured rollover into the next sort of 3 to 4 years.

Speaker 7

Yes. I don't think that

Speaker 2

we have Any comment on it at

Speaker 3

this point in time,

Speaker 2

Michael, I think that ordinary course of business, they would Go out to bid. It's certainly a possibility, but it's nothing that we would comment on at this point.

Speaker 5

Okay. And then fleet replacement, how are you stand there? And what's the sort of positive impact to repair and maintenance costs if that's improving?

Speaker 3

Yes. It's, we've had a little

Speaker 8

bit of uptick. Michael, this is Sean. Truck delays, but nothing out of the ordinary. The fleet is in the best shape it's been in the history of the company actually. And we went thoroughly through the GFL trucks and we're pleased with what we have down there.

Speaker 8

We have some automation opportunities. And All in all, it's looking good.

Speaker 3

Yes, but it's Sean. Probably our highest inflationary categories are still parts, tires, Maintenance, outside repairs are some of our highest inflationary categories. And then on the capital side, trucks, Hello. Hi, Aaron. The landfill construction is still pretty heightened as well.

Speaker 3

We see those as outliers that aren't dropping as Fast is other categories.

Speaker 5

Okay. And then, can we get an update on 2 sort of landfill Scenarios, the sort of New Hampshire bought Bethlehem, Dalton status and then McKean timeline?

Speaker 2

Sure. Keane is under construction now. I think we talked about we received all of our permits last quarter under construction, Anticipate early 2024 with McKean beginning to ramp. So it'll take A year or 2 to ramp, don't expect to see significant tonnages on the start, it'll ramp over a period of time. The Belton facility, Just moving forward with permits, nothing really to report there, just continue to move forward from a permitting perspective.

Speaker 2

Same thing with regard to Highland. We're doubling the permit at Highland, host community agreement in place and Sam and The engineering team are working with DEC to expand that permit as well and We expect to have that probably, I would say towards the end of the year.

Speaker 5

Okay. And then I have to ask because you bought GSL. So when do we hear about your first M and A deal in the PA, Maryland, Delaware market?

Speaker 2

Well, we might want to do a little more integration, Michael, Maybe another week or 2 of inter no, only kidding. I mean, I think that clearly, Kyle, the real benefit of having Kyle who managed those assets and then having him work for us from a business development We do have a great portfolio of opportunity there. So it wouldn't be surprising to see something Happened, but we're really focused on the integration at this point in time and want to get that Done very well, which the team is in the midst of at this point. So I wouldn't anticipate something on an immediate basis, but the portfolio is just terrific opportunity there. So it will begin to happen Quick enough.

Speaker 5

Okay. Thank you very much.

Speaker 3

Okay. Thank you. Bye.

Operator

Thank you. And one moment for our next question. And our next question is going to come from the line of Sean Eastman with KeyBanc Capital Markets.

Speaker 9

I just wanted to come back to the 2023 guidance update, Specifically, the organic update, I mean, I think the M and A part of it is straightforward. But I just wanted to understand that I think it was 3,000,000 Kind of underlying EBITDA raise wondered if, maybe that underlying raise is a little juicier than it might seem if you're Overcoming some of these volume headwinds that weren't anticipated, obviously, the weather has been challenging. Any color on that would be helpful.

Speaker 3

Yes. I mean, it's a good point because we are a little bit lower on the recycling side than we had We have a bit more headwind there and we've seen a little bit weaker special waste volumes. So this is really a raise on the Strength of great investments and great execution on the hauling side of business and other areas where we've been able to Flex costs and drive efficiencies and execute our plan. So it's a good point. It is really Important to note that, that even with a little bit of weakness in volumes, you see what we're doing on the margin side of the business and it's pretty incredible.

Speaker 3

We increased margins 2 30 basis points while shedding some volumes and that really shows the ability for us to be nimble. The investments we've had in systems like Power BI that give us good real time tracking and our onboard computing and In automation, our ability to reroute trucks is allowing us to take costs out of the system rapidly.

Speaker 9

That's helpful. And then I'm trying to think through the margin bridge for next year With all the moving parts in the model, usually we're starting at that 50 basis points kind of baseline entering the year. We know recycling is going to be a tailwind. We've got some M and A dynamics going on. Maybe that price cost Spread visibility is looking pretty good into next year with inflation coming down.

Speaker 9

Just curious where your head is going As we think through that assumption.

Speaker 3

Yes. We've had a lot of moving pieces recently as you correctly reflected. We really haven't Done a lot of updating to our models. We're just stepping into budgeting right now. But all of the points you made are valid That recycling becomes a good guy into next year, given the Boston shutdown, even if commodities were a little weak, we still would have some tailwind there.

Speaker 3

And our outpacing of inflation that will continue with our pricing programs, we're very confident there. Operating programs, we still have multiple investments we're making this year into next year to drive more Returns in that space. So, and then you look at the acquisitions, I mean, they're coming in at good margin Points and if they're not dilutive, day 1. So we could be setting up to a year that could be better than 50 basis points. I think we've got more work to do before we You know, start to guide next year, but your perspective is fair.

Speaker 9

Okay, got it. And then last quick one for me. Just looking at The bridge from kind of vanilla free cash flow to adjusted free cash flow, those two acquisition related items that step up Kind of unsurprisingly around a large deal being folded in, but I just wanted to make sure I understand what's going in there On this post acquisition and development CapEx line and this cash outlays from acquisition activities line, just understanding what those adjustments are?

Speaker 3

Yes. The cash outlays from acquisition activities, it's lawyers and consultants and accounting work and stuff like the engineering work. And then the post acquisition and development capital expenditures, some of the initial dollars we put to work, right, when we get on the Brown to drive synergies or to fix facilities or safety issues, it's always contemplated in our pro formas, but we carve that out separately Just as a line, I need to give clarity of that additional investment we're making in those businesses in the 1st 18 months.

Speaker 9

Okay, thanks. Thanks for all the perspective.

Speaker 3

Thank you, Sean.

Operator

Thank you. One moment for our next question. And our next question is going to come from the line of Stephanie Moore with Jefferies. Your line is open. Please go ahead.

Speaker 10

Hi, good morning.

Speaker 2

Hi. Good morning.

Speaker 10

Maybe touching on What you're seeing, and with maybe some of your competitors on the private side, so both, I guess, 2 part question. First, What are you seeing maybe from an appetite from an M and A standpoint in that portion of the industry? And then Secondly, are you continuing to see, I think, maybe the same level of rational activity around pricing with those competitors that we've seen over the last year? Or Maybe any change on that front would be helpful. Thanks.

Speaker 7

I think that there's

Speaker 2

Significant activity. I mean, I think when you look at inflation, the challenges, recycling commodity prices, The atmosphere from an M and A standpoint is very strong. Businesses that historically we Really didn't think would be for sale or for sale. And so activity there is really strong. And I think John,

Speaker 3

do you want to add? Yes, sure. But we're not seeing the private as active buying things because their access to capital has maybe dried up Yes.

Speaker 2

I mean, I think that there's not a great deal of activity. Certainly, On larger transaction, you'll see activity and higher pricing, but on smaller transactions, Not a lot of activity from a competitive perspective.

Speaker 3

And then on pricing, John kind of answered that in the first part of his question where there's a lot of inflation out there and Recycling has been a really big headwind, I think, for companies across the Northeast in the last year. And then that cost of capital It's a big deal, I think, for smaller companies. So they're all looking at the same things we're looking at and that they're making Sure. They can cover their costs and cover the cost of capital and increasing prices.

Speaker 2

Yes. And in addition to the Disposal increases, labor difficulty, I mean, there's just a significant amount Of activity that is driving M and A and it as Ned said, there's not a lot of There's not a lot of activity from a competitive standpoint on smaller deals.

Speaker 10

No, that's really helpful. And then maybe just a follow-up to that point, and you probably kind of already answered part of it. In terms of you thinking the go forward opportunity to price, so even as inflation continues to come down, How do you view just the overarching pricing opportunity in your markets?

Speaker 3

Yes. It's interesting. Like we see The headline stack coming down, but I had mentioned a minute ago that some costs that hit our specific industry are still pretty high. I mean, we see it across Parts, maintenance, outside repairs, tires. But then you move over to some of the construction elements and we haven't seen inflation peak yet.

Speaker 3

It's still Quite high into this construction season at landfills and some of the equipment side. It's still Very far out to get the equipment and demand is high there. So we haven't seen prices start You don't comment on that side. So from our vantage point, in our pricing programs, it's business as usual. We're going to be out there trying to recover And recover slightly in excess of inflation and be nimble with what we're doing on the street.

Speaker 3

And That's our intention through the rest of the year and into next year. And our goal always is 50 basis points Ahead of inflation is our goal. We're looking at pricing programs.

Speaker 10

Absolutely. All right. Thank you so much.

Speaker 3

Yes. Thank you. You're welcome.

Operator

Thank you. And I'm showing no further Questions at this time, and I would like to turn the conference back over to John Casella for any further or closing remarks.

Speaker 1

Operator, I think we do have one follow-up.

Operator

I do. I see Mr. Hoffman, so just one moment.

Speaker 2

Go ahead, Michael.

Operator

And Michael Hoffman, your line is open, sir.

Speaker 5

Hey, thanks. I just wanted to follow-up on the dialogue in the last question because I think it's important For everybody to understand that as inflation comes down, the rate of change in price is going to narrow. But what's really important so there's a statement inferred in a question here. Can you talk about the discipline around managing the spread even as the rate of change narrows?

Speaker 3

I think it's important for

Speaker 5

the market to understand that industry is really good at that. You're good at it. And therefore, even if the price is 100 basis points lower next year or you'll still have the spread?

Speaker 3

Yes. I should have been clearer too, Michael. You're aware of this, but maybe not everyone is on the call. Over 70% of our collection book of business is not tied to CPI. They're contracts where we have the ability to price As necessary in whatever inflationary environment, that's how we structured many of our agreements and contracts.

Speaker 3

We do have some CPI linked or set Prices and contracts. So our book of business may be a little different than our peers and we can be very nimble and make sure that we're maintaining that Fred, so if inflation does start to come down, we may course correct our pricing to a lower level as you said, We're still working always to outpace inflation by 50 plus basis points. And with our book of business and Not being so TPI linked, we can be a little more nimble with that and make sure we get to that right price point. And we've done great at this over the last 5, 6 years and have done a very nice job.

Speaker 5

Okay. I just wanted to make sure we had that clarity.

Speaker 3

Yes. Thank you. Yes.

Operator

Thank you. And I do see another follow-up question. Just one moment. And we have a follow-up question from the line of Taylor Brown with Raymond James.

Speaker 4

Hey, guys. Real quick follow-up.

Speaker 3

Hi, Tyler.

Speaker 4

Jason, did you you never answered my question, Jason, on the interest expense run rate?

Speaker 6

Yes. I'm sorry about that, Tyler. Yes, as you came back into the queue, I realized what you're going to ask. So no problem there. So in our original guidance, our interest expense net that we guided to back at the beginning of the year was $26,000,000 And in our updated guidance, we're at $35,000,000 which is reflective of the new term loan A, which is $430,000,000 and funded on June 30, and that's that will run at about $26,000,000 of annualized Interest related to that, so we'll get half a year on that.

Speaker 6

Although we are experiencing higher levels of interest income As we have more cash on the balance sheet, we're putting some of that to work in conservative overnight investments with Modest yields associated with them. So that's a partial offset of about $5,000,000 Yes,

Speaker 3

I would say maybe more than modest yields. We're getting like close to 5%. 5%. 5% is covering most of that interest cost.

Speaker 6

Yes. It's a good offset. So $35,000,000 is our new guide on the Expense line cash interest should come in at around $33,000,000 for the year. And how much will we

Speaker 3

gain from income? About 5, yes. Offsetting the $35,000,000

Speaker 6

That's within the $33,000,000 Okay. Yes.

Speaker 3

That's a net number.

Speaker 6

Correct. $33,000,000 is a net inclusive of the interest income.

Speaker 4

Okay. I think I got it.

Operator

Thank you. And now I'm showing no further questions and I'd like to hand it back over to John Casella for any further remarks.

Speaker 2

Thanks everyone for joining us this morning. Look forward to discussing our Q3 2023 earnings with you Later on this year, have a great afternoon. Thank you.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Earnings Conference Call
Clearside Biomedical Q2 2023
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