UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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ý☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20172023
OR
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¨☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-23211
CASELLA WASTE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
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Delaware | 03-0338873 |
(State or other jurisdiction of incorporation or organization)
| (I.R.S. Employer Identification No.)
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25 Greens Hill Lane, Rutland, Vermont | 05701 |
Rutland, | Vermont | 05701 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (802) 775-0325
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Class A common stock, $0.01 par value per share | | CWST | | The Nasdaq Stock Market LLC |
| | | | (Nasdaq Global Select Market) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý☒ No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý☒ No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company," and "emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ¨☒ | Accelerated filer | ý☐ |
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Non-accelerated filer | ¨ (Do not check if a smaller reporting company) ☐ | Smaller reporting company | ¨☐ |
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| | Emerging growth company | ¨☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý☒
The number of shares outstanding of each of the registrant’s classes of common stock, as of October 31, 2017:
July 15, 2023: |
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Class A common stock, $0.01 par value per share: | 41,055,46556,974,049 |
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Class B common stock, $0.01 par value per share: | 988,200 |
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PART I.
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ITEM 1. | FINANCIAL STATEMENTS |
ITEM 1. FINANCIAL STATEMENTS CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| (Unaudited) | | |
ASSETS |
CURRENT ASSETS: | | | |
Cash and cash equivalents | $ | 2,303 |
| | $ | 2,544 |
|
Accounts receivable - trade, net of allowance for doubtful accounts of $694 and $1,069, respectively | 65,083 |
| | 61,196 |
|
Refundable income taxes | 719 |
| | 654 |
|
Prepaid expenses | 9,474 |
| | 7,989 |
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Inventory | 5,941 |
| | 4,915 |
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Other current assets | 1,011 |
| | 1,290 |
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Total current assets | 84,531 |
| | 78,588 |
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Property, plant and equipment, net of accumulated depreciation and amortization of $798,612 and $837,122, respectively | 351,502 |
| | 398,466 |
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Goodwill | 122,085 |
| | 119,899 |
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Intangible assets, net | 7,996 |
| | 7,696 |
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Restricted assets | 1,084 |
| | 1,002 |
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Cost method investments | 12,333 |
| | 12,333 |
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Other non-current assets | 12,889 |
| | 13,528 |
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Total assets | $ | 592,420 |
| | $ | 631,512 |
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| | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
| (Unaudited) | | |
ASSETS |
CURRENT ASSETS: | | | |
Cash and cash equivalents | $ | 465,715 | | | $ | 71,152 | |
| | | |
Accounts receivable, net of allowance for credit losses of $3,333 and $3,016, respectively | 117,682 | | | 100,886 | |
| | | |
Refundable income taxes | 3,726 | | | — | |
Prepaid expenses | 18,122 | | | 15,182 | |
Inventory | 16,784 | | | 13,472 | |
| | | |
Other current assets | 7,358 | | | 6,787 | |
Total current assets | 629,387 | | | 207,479 | |
Property, plant and equipment, net of accumulated depreciation and amortization of $1,117,946 and $1,064,756, respectively | 818,242 | | | 720,550 | |
Operating lease right-of-use assets | 104,920 | | | 92,063 | |
Goodwill | 619,683 | | | 274,458 | |
Intangible assets, net | 187,148 | | | 91,783 | |
| | | |
Restricted assets | 2,005 | | | 1,900 | |
Cost method investments | 10,967 | | | 10,967 | |
Deferred income taxes | 16,408 | | | 22,903 | |
Other non-current assets | 28,532 | | | 27,112 | |
Total assets | $ | 2,417,292 | | | $ | 1,449,215 | |
The accompanying notes are an integral part of these consolidated financial statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(in thousands, except for share and per share data)
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| September 30, 2017 | | December 31, 2016 |
| (Unaudited) | | |
LIABILITIES AND STOCKHOLDERS' DEFICIT |
CURRENT LIABILITIES: | | | |
Current maturities of long-term debt and capital leases | $ | 6,014 |
| | $ | 4,686 |
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Accounts payable | 47,043 |
| | 44,997 |
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Accrued payroll and related expenses | 8,994 |
| | 12,505 |
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Accrued interest | 2,284 |
| | 4,654 |
|
Current accrued capping, closure and post-closure costs | 1,705 |
| | 668 |
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Other accrued liabilities | 19,936 |
| | 14,916 |
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Total current liabilities | 85,976 |
| | 82,426 |
|
Long-term debt and capital leases, less current portion | 478,424 |
| | 503,961 |
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Accrued capping, closure and post-closure costs, less current portion | 56,865 |
| | 43,539 |
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Deferred income taxes | 6,562 |
| | 6,178 |
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Other long-term liabilities | 25,094 |
| | 19,958 |
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COMMITMENTS AND CONTINGENCIES |
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STOCKHOLDERS' DEFICIT: | | | |
Casella Waste Systems, Inc. stockholders' deficit | | | |
Class A common stock, $0.01 par value per share; 100,000,000 shares authorized; 41,055,000 and 40,572,000 shares issued and outstanding, respectively | 411 |
| | 406 |
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Class B common stock, $0.01 par value per share; 1,000,000 shares authorized; 988,000 shares issued and outstanding; 10 votes per share | 10 |
| | 10 |
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Additional paid-in capital | 354,457 |
| | 348,434 |
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Accumulated deficit | (415,128 | ) | | (373,308 | ) |
Accumulated other comprehensive loss | (251 | ) | | (68 | ) |
Total Casella Waste Systems, Inc. stockholders' deficit | (60,501 | ) | | (24,526 | ) |
Noncontrolling interests | — |
| | (24 | ) |
Total stockholders' deficit | (60,501 | ) | | (24,550 | ) |
Total liabilities and stockholders' deficit | $ | 592,420 |
| | $ | 631,512 |
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| | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
| (Unaudited) | | |
LIABILITIES AND STOCKHOLDERS' EQUITY |
CURRENT LIABILITIES: | | | |
Current maturities of debt | $ | 32,747 | | | $ | 8,968 | |
Current operating lease liabilities | 8,510 | | | 7,000 | |
Accounts payable | 87,602 | | | 74,203 | |
Accrued payroll and related expenses | 14,847 | | | 23,556 | |
Accrued interest | 3,116 | | | 2,858 | |
Contract liabilities | 16,260 | | | 3,742 | |
Current accrued final capping, closure and post-closure costs | 10,767 | | | 11,036 | |
Other accrued liabilities | 45,333 | | | 46,237 | |
Total current liabilities | 219,182 | | | 177,600 | |
Debt, less current portion | 983,344 | | | 585,015 | |
Operating lease liabilities, less current portion | 71,039 | | | 57,345 | |
Accrued final capping, closure and post-closure costs, less current portion | 107,949 | | | 102,642 | |
Deferred income taxes | 479 | | | 437 | |
Other long-term liabilities | 26,916 | | | 28,276 | |
COMMITMENTS AND CONTINGENCIES | | | |
STOCKHOLDERS' EQUITY: | | | |
| | | |
Class A common stock, $0.01 par value per share; 100,000,000 shares authorized; 56,974,000 and 50,704,000 shares issued and outstanding, respectively | 570 | | | 507 | |
Class B common stock, $0.01 par value per share; 1,000,000 shares authorized; 988,000 shares issued and outstanding, respectively; 10 votes per share | 10 | | | 10 | |
Additional paid-in capital | 1,163,077 | | | 661,761 | |
Accumulated deficit | (162,882) | | | (171,920) | |
Accumulated other comprehensive income, net of tax | 7,608 | | | 7,542 | |
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Total stockholders' equity | 1,008,383 | | | 497,900 | |
Total liabilities and stockholders' equity | $ | 2,417,292 | | | $ | 1,449,215 | |
The accompanying notes are an integral part of these consolidated financial statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except for per share data)
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Revenues | $ | 160,269 |
| | $ | 151,133 |
| | $ | 448,087 |
| | $ | 421,236 |
|
Operating expenses: | | | | | | | |
Cost of operations | 103,897 |
| | 98,803 |
| | 300,961 |
| | 284,409 |
|
General and administration | 20,750 |
| | 18,777 |
| | 58,388 |
| | 55,450 |
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Depreciation and amortization | 16,591 |
| | 16,175 |
| | 46,307 |
| | 46,430 |
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Southbridge Landfill closure charge | 754 |
| | — |
| | 64,868 |
| | — |
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| 141,992 |
| | 133,755 |
| | 470,524 |
| | 386,289 |
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Operating income (loss) | 18,277 |
| | 17,378 |
| | (22,437 | ) | | 34,947 |
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Other expense (income): | | | | | | | |
Interest income | (58 | ) | | (64 | ) | | (180 | ) | | (229 | ) |
Interest expense | 6,268 |
| | 9,643 |
| | 19,052 |
| | 29,677 |
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Loss on debt extinguishment | — |
| | 191 |
| | 517 |
| | 736 |
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Other income | (164 | ) | | (192 | ) | | (567 | ) | | (697 | ) |
Other expense, net | 6,046 |
| | 9,578 |
| | 18,822 |
| | 29,487 |
|
Income (loss) before income taxes | 12,231 |
| | 7,800 |
| | (41,259 | ) | | 5,460 |
|
Provision for income taxes | 151 |
| | 263 |
| | 561 |
| | 344 |
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Net income (loss) | 12,080 |
| | 7,537 |
| | (41,820 | ) | | 5,116 |
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Less: Net loss attributable to noncontrolling interests | — |
| | — |
| | — |
| | (9 | ) |
Net income (loss) attributable to common stockholders | $ | 12,080 |
| | $ | 7,537 |
| | $ | (41,820 | ) | | $ | 5,125 |
|
Basic earnings per share attributable to common stockholders: | | | | | | | |
Weighted average common shares outstanding | 41,951 |
| | 41,377 |
| | 41,783 |
| | 41,169 |
|
Basic earnings per common share | $ | 0.29 |
| | $ | 0.18 |
| | $ | (1.00 | ) | | $ | 0.12 |
|
Diluted earnings per share attributable to common stockholders: | | | | | | | |
Weighted average common shares outstanding | 43,295 |
| | 42,287 |
| | 41,783 |
| | 41,896 |
|
Diluted earnings per common share | $ | 0.28 |
| | $ | 0.18 |
| | $ | (1.00 | ) | | $ | 0.12 |
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| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Revenues | $ | 289,645 | | | $ | 283,666 | | | $ | 552,241 | | | $ | 517,693 | |
Operating expenses: | | | | | | | |
Cost of operations | 186,319 | | | 186,038 | | | 366,563 | | | 348,493 | |
General and administration | 35,865 | | | 33,562 | | | 71,544 | | | 63,354 | |
Depreciation and amortization | 34,924 | | | 31,150 | | | 68,359 | | | 60,579 | |
| | | | | | | |
Legal settlement | 6,150 | | | — | | | 6,150 | | | — | |
Expense from acquisition activities | 3,677 | | | 1,019 | | | 6,540 | | | 3,062 | |
| | | | | | | |
Southbridge Landfill closure charge | 96 | | | 178 | | | 206 | | | 318 | |
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| | | | | | | |
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| 267,031 | | | 251,947 | | | 519,362 | | | 475,806 | |
Operating income | 22,614 | | | 31,719 | | | 32,879 | | | 41,887 | |
Other expense (income): | | | | | | | |
Interest income | (1,611) | | | (42) | | | (2,295) | | | (81) | |
Interest expense | 9,001 | | | 5,698 | | | 15,959 | | | 10,902 | |
Loss from termination of bridge financing | 8,198 | | | — | | | 8,198 | | | — | |
| | | | | | | |
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| | | | | | | |
Other income | (452) | | | (312) | | | (800) | | | (457) | |
Other expense, net | 15,136 | | | 5,344 | | | 21,062 | | | 10,364 | |
Income before income taxes | 7,478 | | | 26,375 | | | 11,817 | | | 31,523 | |
Provision for income taxes | 1,988 | | | 8,579 | | | 2,779 | | | 9,537 | |
Net income | $ | 5,490 | | | $ | 17,796 | | | $ | 9,038 | | | $ | 21,986 | |
| | | | | | | |
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Basic earnings per share attributable to common stockholders: | | | | | | | |
Weighted average common shares outstanding | 52,885 | | | 51,642 | | | 52,331 | | | 51,567 | |
Basic earnings per common share | $ | 0.10 | | | $ | 0.34 | | | $ | 0.17 | | | $ | 0.43 | |
Diluted earnings per share attributable to common stockholders: | | | | | | | |
Weighted average common shares outstanding | 52,980 | | | 51,781 | | | 52,427 | | | 51,720 | |
Diluted earnings per common share | $ | 0.10 | | | $ | 0.34 | | | $ | 0.17 | | | $ | 0.43 | |
The accompanying notes are an integral part of these consolidated financial statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income (loss) | $ | 12,080 |
| | $ | 7,537 |
| | $ | (41,820 | ) | | $ | 5,116 |
|
Other comprehensive income (loss), before tax: | | | | | | | |
Hedging activity: | | | | | | | |
Interest rate swap settlements | (110 | ) | | — |
| | (304 | ) | | — |
|
Interest rate swap amounts reclassified into interest expense | 112 |
| | — |
| | 320 |
| | — |
|
Unrealized gain (loss) resulting from changes in fair value of derivative instruments | 15 |
| | — |
| | (263 | ) | | — |
|
Unrealized gain (loss) resulting from changes in fair value of marketable securities | 18 |
| | (10 | ) | | 64 |
| | (50 | ) |
Other comprehensive income (loss), before tax | 35 |
| | (10 | ) | | (183 | ) | | (50 | ) |
Income tax expense related to items of other comprehensive loss | — |
| | — |
| | — |
| | — |
|
Other comprehensive income (loss), net of tax | 35 |
| | (10 | ) | | (183 | ) | | (50 | ) |
Comprehensive income (loss) | 12,115 |
| | 7,527 |
| | (42,003 | ) | | 5,066 |
|
Less: Comprehensive loss attributable to noncontrolling interests | — |
| | — |
| | — |
| | (9 | ) |
Comprehensive income (loss) attributable to common stockholders | $ | 12,115 |
| | $ | 7,527 |
| | $ | (42,003 | ) | | $ | 5,075 |
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| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net income | $ | 5,490 | | | $ | 17,796 | | | $ | 9,038 | | | $ | 21,986 | |
Other comprehensive income, before tax: | | | | | | | |
Hedging activity: | | | | | | | |
Interest rate swap settlements | 1,290 | | | (932) | | | 2,345 | | | (2,095) | |
Interest rate swap amounts reclassified into interest expense | (1,270) | | | 994 | | | (2,376) | | | 2,122 | |
Unrealized gain resulting from changes in fair value of derivative instruments | 2,508 | | | 3,488 | | | 117 | | | 11,869 | |
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Other comprehensive income, before tax | 2,528 | | | 3,550 | | | 86 | | | 11,896 | |
Income tax provision related to items of other comprehensive income | 693 | | | 570 | | | 20 | | | 2,773 | |
Other comprehensive income, net of tax | 1,835 | | | 2,980 | | | 66 | | | 9,123 | |
Comprehensive income | $ | 7,325 | | | $ | 20,776 | | | $ | 9,104 | | | $ | 31,109 | |
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The accompanying notes are an integral part of these consolidated financial statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTSTATEMENTS OF
STOCKHOLDERS' DEFICIT
(Unaudited)EQUITY
(in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Casella Waste Systems, Inc. Stockholders' Deficit | | |
| | | Class A Common Stock | | Class B Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests |
| Total | | Shares | | Amount | | Shares | | Amount | | | | |
Balance, December 31, 2016 | $ | (24,550 | ) | | 40,572 |
| | $ | 406 |
| | 988 |
| | $ | 10 |
| | $ | 348,434 |
| | $ | (373,308 | ) | | $ | (68 | ) | | $ | (24 | ) |
Net loss | (41,820 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (41,820 | ) | | — |
| | — |
|
Other comprehensive loss | (183 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (183 | ) | | — |
|
Issuances of Class A common stock | 1,244 |
| | 483 |
| | 5 |
| | — |
| | — |
| | 1,239 |
| | — |
| | — |
| | — |
|
Stock-based compensation | 4,784 |
| | — |
| | — |
| | — |
| | — |
| | 4,784 |
| | — |
| | — |
| | — |
|
Other | 24 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 24 |
|
Balance, September 30, 2017 | $ | (60,501 | ) | | 41,055 |
| | $ | 411 |
| | 988 |
| | $ | 10 |
| | $ | 354,457 |
| | $ | (415,128 | ) | | $ | (251 | ) | | $ | — |
|
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| | | Casella Waste Systems, Inc. Stockholders' Equity | | |
| | | Class A Common Stock | | Class B Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Income | | |
| Total | | Shares | | Amount | | Shares | | Amount | | | | | |
Balance, December 31, 2022 | $ | 497,900 | | | 50,704 | | | $ | 507 | | | 988 | | | $ | 10 | | | $ | 661,761 | | | $ | (171,920) | | | $ | 7,542 | | | |
| | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | |
Issuances of Class A common stock | — | | | 194 | | | 2 | | | — | | | — | | | (2) | | | — | | | — | | | |
Stock-based compensation | 1,976 | | | — | | | — | | | — | | | — | | | 1,976 | | | — | | | — | | | |
| | | | | | | | | | | | | | | | | |
Comprehensive income: | | | | | | | | | | | | | | | | | |
Net income | 3,548 | | | — | | | — | | | — | | | — | | | — | | | 3,548 | | | — | | | |
Other comprehensive loss: | | | | | | | | | | | | | | | | | |
Hedging activity | (1,769) | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,769) | | | |
Balance, March 31, 2023 | 501,655 | | | 50,898 | | | 509 | | | 988 | | | 10 | | | 663,735 | | | (168,372) | | | 5,773 | | | |
| | | | | | | | | | | | | | | | | |
Issuance of Class A common stock - equity offering, net of stock issuance costs | 496,238 | | | 6,053 | | | 61 | | | — | | | — | | | 496,177 | | | — | | | — | | | |
| | | | | | | | | | | | | | | | | |
Issuances of Class A common stock | 799 | | | 23 | | | — | | | — | | | — | | | 799 | | | — | | | — | | | |
Stock-based compensation | 2,366 | | | — | | | — | | | — | | | — | | | 2,366 | | | — | | | — | | | |
| | | | | | | | | | | | | | | | | |
Comprehensive income: | | | | | | | | | | | | | | | | | |
Net income | 5,490 | | | — | | | — | | | — | | | — | | | — | | | 5,490 | | | — | | | |
Other comprehensive income: | | | | | | | | | | | | | | | | | |
Hedging activity | 1,835 | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,835 | | | |
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Balance, June 30, 2023 | $ | 1,008,383 | | | 56,974 | | | $ | 570 | | | 988 | | | $ | 10 | | | $ | 1,163,077 | | | $ | (162,882) | | | $ | 7,608 | | | |
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| | | Casella Waste Systems, Inc. Stockholders' Equity | | | | | | | | | | | | |
| | | Class A Common Stock | | Class B Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Income (Loss) | | | | | | | | | | | | |
| Total | | Shares | | Amount | | Shares | | Amount | | | | | | | | | | | | | | | |
Balance, December 31, 2021 | $ | 422,457 | | | 50,423 | | | $ | 504 | | | 988 | | | $ | 10 | | | $ | 652,045 | | | $ | (224,999) | | | $ | (5,103) | | | | | | | | | | | | | |
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Issuances of Class A common stock | 19 | | | 227 | | | 2 | | | — | | | — | | | 17 | | | — | | | — | | | | | | | | | | | | | |
Stock-based compensation | 2,241 | | | — | | | — | | | — | | | — | | | 2,241 | | | — | | | — | | | | | | | | | | | | | |
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Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | 4,190 | | | — | | | — | | | — | | | — | | | — | | | 4,190 | | | — | | | | | | | | | | | | | |
Other comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Hedging activity | 6,143 | | | — | | | — | | | — | | | — | | | — | | | — | | | 6,143 | | | | | | | | | | | | | |
Balance, March 31, 2022 | 435,050 | | | 50,650 | | | 506 | | | 988 | | | 10 | | | 654,303 | | | (220,809) | | | 1,040 | | | | | | | | | | | | | |
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Issuances of Class A common stock | 803 | | | 40 | | | 1 | | | — | | | — | | | 802 | | | — | | | — | | | | | | | | | | | | | |
Stock-based compensation | 937 | | | — | | | — | | | — | | | — | | | 937 | | | — | | | — | | | | | | | | | | | | | |
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Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | 17,796 | | | — | | | — | | | — | | | — | | | — | | | 17,796 | | | — | | | | | | | | | | | | | |
Other comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Hedging activity | 2,980 | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,980 | | | | | | | | | | | | | |
Balance, June 30, 2022 | $ | 457,566 | | | 50,690 | | | $ | 507 | | | 988 | | | $ | 10 | | | $ | 656,042 | | | $ | (203,013) | | | $ | 4,020 | | | | | | | | | | | | | |
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The accompanying notes are an integral part of these consolidated financial statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Cash Flows from Operating Activities: | | | |
Net (loss) income | $ | (41,820 | ) | | $ | 5,116 |
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | | |
Depreciation and amortization | 46,307 |
| | 46,430 |
|
Depletion of landfill operating lease obligations | 6,834 |
| | 7,130 |
|
Interest accretion on landfill and environmental remediation liabilities | 3,205 |
| | 2,688 |
|
Amortization of debt issuance costs and discount on long-term debt | 2,005 |
| | 3,106 |
|
Stock-based compensation | 4,784 |
| | 2,377 |
|
Gain on sale of property and equipment | (43 | ) | | (541 | ) |
Southbridge Landfill non-cash closure charge | 63,526 |
| | — |
|
Loss on debt extinguishment | 517 |
| | 736 |
|
Deferred income taxes | 384 |
| | 528 |
|
Changes in assets and liabilities, net of effects of acquisitions and divestitures: | | | |
Accounts receivable | (3,887 | ) | | (3,188 | ) |
Accounts payable | 2,046 |
| | 2,376 |
|
Prepaid expenses, inventories and other assets | (1,722 | ) | | (3,262 | ) |
Accrued expenses and other liabilities | (3,036 | ) | | (7,425 | ) |
Net cash provided by operating activities | 79,100 |
| | 56,071 |
|
Cash Flows from Investing Activities: | | | |
Acquisitions, net of cash acquired | (3,563 | ) | | (2,439 | ) |
Acquisition related additions to property, plant and equipment | (182 | ) | | (38 | ) |
Additions to property, plant and equipment | (43,230 | ) | | (37,435 | ) |
Payments on landfill operating lease contracts | (3,731 | ) | | (4,811 | ) |
Proceeds from sale of property and equipment | 657 |
| | 1,069 |
|
Net cash used in investing activities | (50,049 | ) | | (43,654 | ) |
Cash Flows from Financing Activities: | | | |
Proceeds from long-term borrowings | 146,400 |
| | 140,700 |
|
Principal payments on long-term debt | (175,244 | ) | | (152,123 | ) |
Payments of debt issuance costs | (1,451 | ) | | (682 | ) |
Payments of debt extinguishment costs | — |
| | (410 | ) |
Proceeds from the exercise of share based awards | 1,003 |
| | — |
|
Change in restricted cash | — |
| | 1,347 |
|
Net cash used in financing activities | (29,292 | ) | | (11,168 | ) |
Net (decrease) increase in cash and cash equivalents | (241 | ) | | 1,249 |
|
Cash and cash equivalents, beginning of period | 2,544 |
| | 2,312 |
|
Cash and cash equivalents, end of period | $ | 2,303 |
| | $ | 3,561 |
|
Supplemental Disclosure of Cash Flow Information: | | | |
Cash paid during the period for: | | | |
Interest | $ | 19,417 |
| | $ | 33,723 |
|
Income taxes, net of refunds | $ | 248 |
| | $ | 242 |
|
Supplemental Disclosure of Non-Cash Investing and Financing Activities: | | | |
Non-current assets obtained through long-term obligations | $ | 3,564 |
| | $ | 1,841 |
|
| | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | |
| 2023 | | 2022 | | | | |
Cash Flows from Operating Activities: | | | | | | | |
Net income | $ | 9,038 | | | $ | 21,986 | | | | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | |
Depreciation and amortization | 68,359 | | | 60,579 | | | | | |
| | | | | | | |
Interest accretion on landfill and environmental remediation liabilities | 5,001 | | | 4,015 | | | | | |
Amortization of debt issuance costs | 1,505 | | | 924 | | | | | |
Stock-based compensation | 4,341 | | | 3,178 | | | | | |
Operating lease right-of-use assets expense | 6,872 | | | 6,824 | | | | | |
| | | | | | | |
Disposition of assets, other items and charges, net | (300) | | | 376 | | | | | |
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Loss from termination of bridge financing | 8,198 | | | — | | | | | |
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Deferred income taxes | 1,952 | | | 7,156 | | | | | |
Changes in assets and liabilities, net of effects of acquisitions and divestitures: | | | | | | | |
Accounts receivable | (3,958) | | | (14,667) | | | | | |
Landfill operating lease contract expenditures | (1,318) | | | (1,308) | | | | | |
Accounts payable | 8,898 | | | 10,142 | | | | | |
Prepaid expenses, inventories and other assets | (5,845) | | | (6,099) | | | | | |
Accrued expenses, contract liabilities and other liabilities | (19,547) | | | (855) | | | | | |
Net cash provided by operating activities | 83,196 | | | 92,251 | | | | | |
Cash Flows from Investing Activities: | | | | | | | |
Acquisitions, net of cash acquired | (547,587) | | | (56,250) | | | | | |
| | | | | | | |
Additions to property, plant and equipment | (50,415) | | | (54,868) | | | | | |
| | | | | | | |
| | | | | | | |
Proceeds from sale of property and equipment | 776 | | | 507 | | | | | |
| | | | | | | |
| | | | | | | |
Net cash used in investing activities | (597,226) | | | (110,611) | | | | | |
Cash Flows from Financing Activities: | | | | | | | |
Proceeds from debt borrowings | 430,000 | | | 82,200 | | | | | |
Principal payments on debt | (10,625) | | | (55,297) | | | | | |
Payments of debt issuance costs | (7,185) | | | (1,229) | | | | | |
Payments of contingent consideration | — | | | (1,000) | | | | | |
Proceeds from the exercise of share based awards | — | | | 192 | | | | | |
Proceeds from the public offering of Class A common stock | 496,403 | | | — | | | | | |
| | | | | | | |
| | | | | | | |
Net cash provided by financing activities | 908,593 | | | 24,866 | | | | | |
Net increase in cash and cash equivalents | 394,563 | | | 6,506 | | | | | |
Cash and cash equivalents, beginning of period | 71,152 | | | 33,809 | | | | | |
Cash and cash equivalents, end of period | $ | 465,715 | | | $ | 40,315 | | | | | |
Supplemental Disclosure of Cash Flow Information: | | | | | | | |
| | | | | | | |
Cash interest payments | $ | 14,196 | | | $ | 9,648 | | | | | |
Cash income tax payments | $ | 7,913 | | | $ | 2,092 | | | | | |
| | | | | | | |
Non-current assets obtained through long-term financing obligations | $ | 4,715 | | | $ | 4,190 | | | | | |
Right-of-use assets obtained in exchange for operating lease obligations | $ | 17,756 | | | $ | 5,194 | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except for per share data)1. BASIS OF PRESENTATION
Casella Waste Systems, Inc. (“Parent”), a Delaware corporation, and its consolidated subsidiaries (collectively, “we”, “us” or “our”), is a regional, vertically integrated solid waste services company that providescompany. We provide resource management expertise and services to residential, commercial, municipal, institutional and industrial customers, primarily in the areas of solid waste collection transfer,and disposal, landfill, landfill gas-to-energy,transfer, recycling and organics services.
Through June 30, 2023, we provided integrated solid waste services in seven states: Vermont, New Hampshire, New York, Massachusetts, Connecticut, Maine and Pennsylvania, with our headquarters located in Rutland, Vermont. On June 30, 2023, we acquired the northeastern United States. We market recyclable metals, aluminum, plastics, paper,equity interests of four wholly owned subsidiaries of GFL Environmental Inc. ("GFL Subsidiaries"), which are the basis of a newly formed regional operating segment, the Mid-Atlantic region, that will expand our integrated solid waste services into the states of Delaware and corrugated cardboard, whichMaryland ("GFL Acquisition"). See Note 4, Business Combinations for further disclosure. Operations under the Mid-Atlantic region did not commence until July 1, 2023, and have been processed athad no impact on our recycling facilities, as well as recyclables purchasedoperational results for the periods presented in this Quarterly Report on Form 10-Q. The GFL Acquisition was funded from third-parties. financing transactions, see Note 7, Debt for further disclosure, the net proceeds from an equity offering, completed June 16, 2023, see Note 9, Stockholders' Equity for further disclosure, and cash on hand.
We manage our solid waste operations on a geographic basis through two regional operating segments, the Eastern, Western and WesternMid-Atlantic regions, each of which provides a full range of solid waste services, andservices.We manage our larger-scale recycling and commodity brokerageresource-renewal operations through the Resource Solutions operating segment, which leverages our Recycling segment. Organics services, ancillary operations, major accountcore competencies in materials processing, industrial recycling, organics and resource management service offerings to deliver a comprehensive solution for our larger commercial, municipal, institutional and industrial services, discontinued operationscustomers that have more diverse waste and earnings from equity method investees, as applicable,recycling needs. Legal, tax, information technology, human resources, certain finance and accounting and other administrative functions are included in our OtherCorporate Entities segment.
The accompanying unaudited consolidated financial statements, which include the accounts of the Parent and our wholly-owned subsidiaries, and any partially owned entities over which we have a controlling financial interest, have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). All significant intercompany accounts and transactions are eliminated in consolidation. Investments in entities in which we do not have a controlling financial interest are accounted for under either the equity method or the cost method of accounting, as appropriate. Our significant accounting policies are more fully discussed in Item 88. "Financial Statements and Supplementary Data" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2022 ("fiscal year 2022"), which was filed with the SEC on March 2, 2017.February 17, 2023 ("2022 Form 10-K").
Preparation of our consolidated financial statements in accordance with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the accounting for and recognition and disclosure of assets, liabilities, equity, revenues and expenses. We must make these estimates and assumptions because certain information that we use is dependent on future events, cannot be calculated with a high degree of precision given the available data, or simply cannot be readily calculated. In the opinion of management, these consolidated financial statements include all adjustments, which include normal recurring and nonrecurring adjustments, necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. The results for the three and ninesix months ended SeptemberJune 30, 20172023 may not be indicative of the results for any other interim period or the entire fiscal year. The consolidated financial statements presented herein should be read in conjunction with our audited consolidated financial statements included in our Annual Report on2022 Form 10-K for10-K.
Certain prior period amounts in the fiscal year ended December 31, 2016.consolidated financial statements are conformed to current period presentation. This includes the presentation of certain adjustments to reconcile net income to net cash provided by operating activities, which have been reclassified within cash flows from operating activities.
Subsequent Events
We have evaluated subsequent events or transactions that have occurred after the consolidated balance sheet date of SeptemberJune 30, 20172023 through the date of filing of the consolidated financial statements with the SEC on this Quarterly Report on Form 10-Q. We have determined that there areExcept as disclosed, no material subsequent events have occurred since June 30, 2023 through the date of this filing that would require recognition or disclosure in this Quarterly Report on Form 10-Q.our consolidated financial statements.
2. ACCOUNTING CHANGES
The following table providingprovides a brief description of a recent Accounting Standards Updates (“ASU”Update ("ASU(s)") to the Accounting Standards Codification (“ASC”("ASC") issued by the Financial Accounting Standards Board (“FASB”) that maywe adopted and is deemed to have a possible material effectimpact on our consolidated financial statements upon adoption follows:based on current account balances and activity: | | | | | | | | | | | | | | |
| | | | |
Standard | | Description | | Effect on the Financial Statements or Other Significant Matters |
Accounting standards adopted effective January 1, 2023 |
ASU No. 2020-04: Reference Rate Reform (Topic 848), as amended through December 2022 | | Provides temporary optional guidance to ease the potential burden in applying GAAP to contract modifications and hedging relationships that reference London Inter-Bank Offered Rate ("LIBOR") or another reference rate expected to be discontinued, subject to meeting certain criteria. | | This guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. Effective the quarter ended March 31, 2023, we elected optional expedients under this guidance that allowed us to maintain hedge effectiveness upon modifying contract terms related to reference rate reform in our amended and restated credit agreement, dated as of December 22, 2021, as amended by the first amendment, dated as of February 9, 2023, the second amendment, dated as of February 9, 2023, and the third amendment, dated as of April 25, 2023, collectively with the specified acquisition loan joinder ("Loan Joinder") (the "Amended and Restated Credit Agreement") until we transitioned our interest rate derivative agreements from LIBOR to term secured overnight financing rate ("Term SOFR") in the three months ended June 30, 2023, See Note 7, Debt. This guidance will be in effect through December 31, 2024. |
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|
| | | | |
Standard | | Description | | Effect on the Financial Statements or Other
Significant Matters
|
Accounting standards that are pending adoption |
ASU 2017-12: Derivatives and Hedging (Topic 815) | | Requires that an entity align its risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amendments expand and refine hedge accounting for both financial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. | | The adoption of this guidance affects the designation and measurement guidance for qualifying hedging relationships and the method of presenting hedge results, including the addition of a tabular disclosure related to the effect on the income statement of fair value and cash flow hedges and no longer measuring and reporting hedge ineffectiveness. This guidance is effective January 1, 2019 with early adoption permitted. |
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ASU 2017-09: Compensation - Stock Compensation (Topic 718) | | Requires that an entity should account for the effects of a modification to an award unless all of the following conditions are met: the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified; the vesting conditions of the modified award are the same as the vesting conditions immediately before the original award is modified; and the classification of modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. | | The adoption of this guidance could affect equity compensation expense and net income if there is a modification of an award. This guidance is effective January 1, 2018 with early adoption permitted. |
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ASU 2017-04: Intangibles - Goodwill and Other (Topic 350)
| | Requires that when an entity is performing its annual, or interim, goodwill impairment test, it should compare the fair value of the reporting unit with its carrying amount when calculating its impairment charge, noting that the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, if applicable, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when calculating its impairment charge. | | As of December 31, 2016, we did not record a goodwill impairment charge related to our annual goodwill impairment test because at that time the fair value of each reporting unit exceeded its respective carrying value. Upon adoption, if the carrying value of any of these reporting units exceeds the fair value when we perform a goodwill impairment test, we would record an impairment charge equal to the amount by which the carrying value exceeds its fair value. This guidance is effective January 1, 2020 with early adoption permitted for interim or annual goodwill impairment tests performed after January 1, 2017. |
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ASU 2016-02, as amended through September 2017: Leases (Topic 842) | | Requires that a lessee recognize at the commencement date: a lease liability, which is the obligation of the lessee to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. | | We are currently assessing the provisions of this guidance and evaluating the timing and impact the guidance will have on our consolidated financial statements and related disclosures. We are also in the process of aggregating lease documentation for review. The adoption of this ASU primarily impacts the balance sheet through the recognition of a right-of-use asset and a lease liability for all leases with terms in excess of 12 months. This guidance is effective January 1, 2019 using a modified retrospective transition approach with early adoption permitted. |
| | |
ASU 2016-01: Financial Instruments - Overall (Topic 825-10) | | Requires the following: (1) equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (2) entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (3) separate presentation of financial assets and financial liabilities by measurement category and form of financial asset; and (4) the elimination of the disclosure requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. | | The adoption of this guidance results in a cumulative-effect adjustment to the balance sheet, the recognition of changes in fair value of certain equity investments in net income, and enhanced disclosure. This guidance is effective January 1, 2018 with a cumulative-effect adjustment. |
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ASU 2014-09, as amended through September 2017: Revenue from Contracts with Customers (Topic 606) | | The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. | | The adoption of this guidance requires using either a full retrospective approach for all periods presented or a modified retrospective approach. We plan to adopt the guidance using the modified retrospective approach, recognizing a cumulative effect adjustment to retained earnings as of the date of adoption. We will record revenue when control is transferred to our customer, generally at the time we provide services. We are evaluating the effect of adopting this guidance on our collection line-of-business, as well as our transfer station, landfill, transportation, energy, customer solutions, recycling and organic services lines-of- business, and we expect our operating results to remain materially unchanged. We are also assessing the effect of adopting this guidance on our disclosures and the recognition of costs we incur to obtain and fulfill our contacts. Currently, these costs are typically expensed as incurred. This guidance is effective January 1, 2018 using a full or modified retrospective approach with early adoption permitted January 1, 2017. |
We acquired one
3. REVENUE RECOGNITION
Revenues associated with our solid waste operations are derived mainly from solid waste collection and disposal services, including landfill, transfer station and transportation services, landfill gas-to-energy services and processing services. Revenues associated with our resource-renewal operations are derived from processing services, and non-processing services, which we now refer to as our National Accounts business.
The following tables set forth revenues disaggregated by service line and timing of revenue recognition by operating segment for each of the three and six months ended June 30, 2023 and 2022:
Three Months Ended June 30, 2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Eastern | | Western | | Mid-Atlantic (1) | | Resource Solutions | | Total Revenues |
Collection | $ | 64,749 | | | $ | 85,099 | | | $ | — | | | $ | — | | | $ | 149,848 | |
Landfill | 7,220 | | | 18,921 | | | — | | | — | | | 26,141 | |
Transfer station | 17,698 | | | 14,728 | | | — | | | — | | | 32,426 | |
Transportation | 1,208 | | | 3,854 | | | — | | | — | | | 5,062 | |
Landfill gas-to-energy | 173 | | | 1,148 | | | — | | | — | | | 1,321 | |
Processing | 2,275 | | | 479 | | | — | | | 25,383 | | | 28,137 | |
National Accounts | — | | | — | | | — | | | 46,710 | | | 46,710 | |
Total revenues | $ | 93,323 | | | $ | 124,229 | | | $ | — | | | $ | 72,093 | | | $ | 289,645 | |
| | | | | | | | | |
Transferred at a point-in-time | $ | 99 | | | $ | 690 | | | $ | — | | | $ | 8,135 | | | $ | 8,924 | |
Transferred over time | 93,224 | | | 123,539 | | | — | | | 63,958 | | | 280,721 | |
Total revenues | $ | 93,323 | | | $ | 124,229 | | | $ | — | | | $ | 72,093 | | | $ | 289,645 | |
Three Months Ended June 30, 2022 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Eastern | | Western | | Mid-Atlantic (1) | | Resource Solutions | | Total Revenues |
Collection | $ | 59,299 | | | $ | 77,962 | | | $ | — | | | $ | — | | | $ | 137,261 | |
Landfill | 6,542 | | | 18,599 | | | — | | | — | | | 25,141 | |
Transfer station | 17,292 | | | 11,982 | | | — | | | — | | | 29,274 | |
Transportation | 1,765 | | | 4,024 | | | — | | | — | | | 5,789 | |
Landfill gas-to-energy | 249 | | | 1,504 | | | — | | | — | | | 1,753 | |
Processing | 2,116 | | | 813 | | | — | | | 33,867 | | | 36,796 | |
National Accounts | — | | | — | | | — | | | 47,652 | | | 47,652 | |
Total revenues | $ | 87,263 | | | $ | 114,884 | | | $ | — | | | $ | 81,519 | | | $ | 283,666 | |
| | | | | | | | | |
Transferred at a point-in-time | $ | 117 | | | $ | 517 | | | $ | — | | | $ | 18,813 | | | $ | 19,447 | |
Transferred over time | 87,146 | | | 114,367 | | | — | | | 62,706 | | | 264,219 | |
Total revenues | $ | 87,263 | | | $ | 114,884 | | | $ | — | | | $ | 81,519 | | | $ | 283,666 | |
Six Months Ended June 30, 2023
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Eastern | | Western | | Mid-Atlantic (1) | | Resource Solutions | | Total Revenues |
Collection | $ | 125,858 | | | $ | 163,967 | | | $ | — | | | $ | — | | | $ | 289,825 | |
Landfill | 13,521 | | | 35,380 | | | — | | | — | | | 48,901 | |
Transfer | 31,680 | | | 24,691 | | | — | | | — | | | 56,371 | |
Transportation | 2,390 | | | 7,434 | | | — | | | — | | | 9,824 | |
Landfill gas-to-energy | 386 | | | 2,859 | | | — | | | — | | | 3,245 | |
Processing | 3,398 | | | 931 | | | — | | | 48,189 | | | 52,518 | |
National Accounts | — | | | — | | | — | | | 91,557 | | | 91,557 | |
Total revenues | $ | 177,233 | | | $ | 235,262 | | | $ | — | | | $ | 139,746 | | | $ | 552,241 | |
| | | | | | | | | |
Transferred at a point-in-time | $ | 218 | | | $ | 1,421 | | | $ | — | | | $ | 14,572 | | | $ | 16,211 | |
Transferred over time | 177,015 | | | 233,841 | | | — | | | 125,174 | | | 536,030 | |
Total revenues | $ | 177,233 | | | $ | 235,262 | | | $ | — | | | $ | 139,746 | | | $ | 552,241 | |
Six Months Ended June 30, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Eastern | | Western | | Mid-Atlantic (1) | | Resource Solutions | | Total Revenues |
Collection | $ | 110,796 | | | $ | 145,997 | | | $ | — | | | $ | — | | | $ | 256,793 | |
Landfill | 11,918 | | | 32,788 | | | — | | | — | | | 44,706 | |
Transfer | 28,905 | | | 19,825 | | | — | | | — | | | 48,730 | |
Transportation | 3,238 | | | 6,682 | | | — | | | — | | | 9,920 | |
Landfill gas-to-energy | 522 | | | 3,885 | | | — | | | — | | | 4,407 | |
Processing | 3,203 | | | 1,546 | | | — | | | 61,263 | | | 66,012 | |
National Accounts | — | | | — | | | — | | | 87,125 | | | 87,125 | |
Total revenues | $ | 158,582 | | | $ | 210,723 | | | $ | — | | | $ | 148,388 | | | $ | 517,693 | |
| | | | | | | | | |
Transferred at a point-in-time | $ | 236 | | | $ | 1,028 | | | $ | — | | | $ | 33,900 | | | $ | 35,164 | |
Transferred over time | 158,346 | | | 209,695 | | | — | | | 114,488 | | | 482,529 | |
Total revenues | $ | 158,582 | | | $ | 210,723 | | | $ | — | | | $ | 148,388 | | | $ | 517,693 | |
(1)Operations under the Mid-Atlantic region did not commence until July 1, 2023, and have had no impact on our operational results for the periods presented in this Quarterly Report on Form 10-Q.
Payments to customers that are not in exchange for a distinct good or service are recorded as a reduction of revenues. Rebates to certain customers associated with payments for recycled or organic materials that are received and subsequently processed and sold to other third-parties amounted to $6,329 and $12,958 in the three and six months ended June 30, 2023, respectively, and $5,908 and $9,702 in the three and six months ended June 30, 2022, respectively. Rebates are generally recorded as a reduction of revenues upon the sale of such materials, or upon receipt of the recycled materials at our facilities. We did not record revenues in the three and six months ended June 30, 2023 or June 30, 2022 from performance obligations satisfied in previous periods.
Contract receivables, which are included in accounts receivable, net in our consolidated balance sheets are recorded when billed or when related revenue is earned, if earlier, and represent claims against third-parties that will be settled in cash. Accounts receivable, net includes gross receivables from contracts of $119,971 and $102,234 as of June 30, 2023 and December 31, 2022, respectively. Certain customers are billed in advance and, accordingly, recognition of the related revenues for which payment has been received is deferred as a contract liability until the services are provided and control transferred to the customer. We recognized contract liabilities of $16,260 and $3,742 as of June 30, 2023 and December 31, 2022, respectively. Due to the short term nature of advanced billings, substantially all of the deferred revenue recognized as a contract liability as of December 31, 2022 and December 31, 2021 was recognized as revenue during the six months ended June 30, 2023 and June 30, 2022, respectively, when the services were performed.
4. BUSINESS COMBINATIONS
In June 2023, we entered into an asset purchase agreement with Consolidated Waste Services, LLC and its affiliates (dba as Twin Bridges), pursuant to which we agreed to acquire assets in the greater Albany, New York area for total consideration of approximately $219,000 ("Twin Bridges Acquisition"), subject to the terms and conditions set forth in the agreement. The Twin Bridges Acquisition includes two collection operations, one transfer station, one material recovery facility, one office building, and several satellite properties. The Twin Bridges Acquisition is subject to customary closing conditions, including the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Act, and the absence of any investigation by any governmental entity regarding the legality of the transactions contemplated by the asset purchase agreement. The waiting period under the Hart-Scott-Rodino Act has expired. On July 6, 2023, we received a subpoena duces tecum from the New York State Attorney General (“NYAG”) seeking information about the Twin Bridges Acquisition. We are cooperating with the NYAG to address the agency’s questions. The Twin Bridges Acquisition is expected to be funded with the net proceeds from an equity offering completed on June 16, 2023. See Note 9, Stockholders' Equity for further disclosure regarding the equity offering.
In the six months ended June 30, 2023, we acquired two businesses: the GFL Acquisition, which includes solid waste collection, transfer and recycling operations in Pennsylvania, Maryland and Delaware whose assets are allocated between our Mid-Atlantic region and Resource Solutions operating segments, as well as a stand alone solid waste business in our Eastern region and two solid waste collection businesses in our Western region duringregion. In the ninesix months ended SeptemberJune 30, 2017. We2022, we acquired threeeight businesses primarily related to our solid-waste operations, which included solid-waste collection, recycling, transfer stations in our Western region during the nine months ended September 30, 2016. station and transportation businesses.
The operating results of each acquired business isthese businesses are included in the accompanying unaudited consolidated statements of operations from theeach date of acquisition, with the exception of the GFL Acquisition whose operations did not commence until July 1, 2023, and the purchase price has been allocated to the net assets acquired based on fair values at theeach date of acquisition with the residual amountamounts recorded as goodwill. Purchase price allocations are based on information existing at the acquisition dates or upon closing the transactions, including contingent consideration. Acquired intangible assets other than goodwill that are subject to amortization include customer relationships, trade names and covenants not-to-compete. Such assets are amortized over a two-year to ten-year period from the date of acquisition. All amounts recorded to goodwill are expected to be deductible for tax purposes, with the exception of one of the GFL Subsidiaries acquired as a part of the GFL Acquisition in the six months ended June 30, 2023.
A summary of the purchase price for these acquisitionspaid and the allocation of the purchase price allocation for these acquisitions follows: | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 |
Purchase Price: | | | |
Cash used in acquisitions, net of cash acquired | $ | 544,359 | | | $ | 55,053 | |
| | | |
| | | |
| | | |
Holdbacks to sellers and contingent consideration | 1,900 | | | 3,842 | |
Total consideration | $ | 546,259 | | | $ | 58,895 | |
Allocated as follows: | | | |
Current assets | $ | 15,364 | | | $ | 7,584 | |
| | | |
| | | |
| | | |
| | | |
Property, plant and equipment: | | | |
Land | 2,213 | | | 2,804 | |
| | | |
Buildings and improvements | 8,666 | | | 5,308 | |
Machinery and equipment | 90,276 | | | 6,712 | |
Operating lease right-of-use assets | 11,260 | | | 405 | |
Intangible assets: | | | |
| | | |
Covenants not-to-compete | 10,550 | | | 1,415 | |
Customer relationships | 93,000 | | | 9,725 | |
Other non-current assets | — | | | 40 | |
Deferred tax liability | (5,160) | | | — | |
Current liabilities | (15,195) | | | (3,577) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Operating lease liabilities, less current portion | (9,887) | | | (282) | |
Fair value of assets acquired and liabilities assumed | 201,087 | | | 30,134 | |
Excess purchase price allocated to goodwill | $ | 345,172 | | | $ | 28,761 | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Purchase Price: | | | |
Cash paid for acquisitions | $ | 3,383 |
| | $ | 2,439 |
|
Notes payable | 2,400 |
| | — |
|
Other non-cash considerations | 101 |
| | — |
|
Holdbacks | 376 |
| | 400 |
|
Total | 6,260 |
| | 2,839 |
|
Allocated as follows: | | | |
Current assets | — |
| | 40 |
|
Land | — |
| | 353 |
|
Building | — |
| | 1,360 |
|
Equipment | 2,452 |
| | 269 |
|
Intangible assets | 1,670 |
| | — |
|
Other liabilities, net | (49 | ) | | (106 | ) |
Fair value of assets acquired and liabilities assumed | 4,073 |
| | 1,916 |
|
Excess purchase price allocated to goodwill | $ | 2,187 |
| | $ | 923 |
|
Certain purchase price allocations, including the GFL Acquisition which is subject to finalizing the third-party valuation, are preliminary and are based on information existing at the acquisition dates or upon closing the transaction. Accordingly, the purchase price allocations are subject to change.Unaudited pro forma combined information that shows our operational results as though each acquisition completed since the beginning of the prior fiscal year had occurred as of January 1, 20162022 is as follows: |
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Revenue | $ | 160,401 |
| | $ | 152,572 |
| | $ | 450,512 |
| | $ | 426,376 |
|
Operating income (loss) | $ | 18,296 |
| | $ | 17,434 |
| | $ | (22,334 | ) | | $ | 35,037 |
|
Net income (loss) attributable to common stockholders | $ | 12,090 |
| | $ | 7,565 |
| | $ | (41,767 | ) | | $ | 5,162 |
|
Basic weighted average common shares outstanding | 41,951 |
| | 41,377 |
| | 41,783 |
| | 41,169 |
|
Basic earnings per share attributable to common stockholders | $ | 0.29 |
| | $ | 0.18 |
| | $ | (1.00 | ) | | $ | 0.13 |
|
Diluted weighted average shares outstanding | 43,295 |
| | 42,287 |
| | 41,783 |
| | 41,896 |
|
Diluted earnings per share attributable to common stockholders | $ | 0.28 |
| | $ | 0.18 |
| | $ | (1.00 | ) | | $ | 0.12 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Revenues | $ | 335,363 | | | $ | 335,299 | | | $ | 645,821 | | | $ | 626,980 | |
Operating income | $ | 25,982 | | | $ | 35,543 | | | $ | 39,734 | | | $ | 50,250 | |
Net income | $ | 7,494 | | | $ | 19,985 | | | $ | 13,113 | | | $ | 26,421 | |
| | | | | | | |
Basic earnings per share attributable to common stockholders: | | | | | | | |
Weighted average common shares outstanding | 52,885 | | | 51,642 | | | 52,331 | | | 51,567 | |
Basic earnings per common share | $ | 0.14 | | | $ | 0.39 | | | $ | 0.25 | | | $ | 0.51 | |
Diluted earnings per share attributable to common stockholders: | | | | | | | |
Weighted average common shares outstanding | 52,980 | | | 51,781 | | | 52,427 | | | 51,720 | |
Diluted earnings per common share | $ | 0.14 | | | $ | 0.39 | | | $ | 0.25 | | | $ | 0.51 | |
The unaudited pro forma results set forth in the table above have been prepared for comparative purposes only and are not necessarily indicative of the actual results of operations had the acquisitions occurred as of January 1, 20162022 or of the results of our future operations. Furthermore, the unaudited pro forma results do not give effect to all cost savings or incremental costs that may occur as athe result of the integration and consolidation of the completed acquisitions.
11
| |
4. | GOODWILL AND INTANGIBLE ASSETS |
5. GOODWILL AND INTANGIBLE ASSETS
A summary of the activity and balances related to goodwill by operating segment
is as follows:
|
| | | | | | | | | | | |
| December 31, 2016 | | Acquisitions | | September 30, 2017 |
Eastern region | $ | 17,429 |
| | $ | 1,764 |
| | $ | 19,193 |
|
Western region | 88,426 |
| | 422 |
| | 88,848 |
|
Recycling | 12,315 |
| | — |
| | 12,315 |
|
Other | 1,729 |
| | — |
| | 1,729 |
|
Total | $ | 119,899 |
| | $ | 2,186 |
| | $ | 122,085 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| December 31, 2022 | | Acquisitions | | Measurement Period Adjustments | | | | June 30, 2023 |
Eastern | $ | 52,406 | | | $ | — | | | $ | — | | | | | $ | 52,406 | |
Western | 183,286 | | | 11,282 | | | 53 | | | | | 194,621 | |
Mid-Atlantic | — | | | 333,890 | | | — | | | | | 333,890 | |
Resource Solutions | 38,766 | | | — | | | — | | | | | 38,766 | |
| | | | | | | | | |
| $ | 274,458 | | | $ | 345,172 | | | $ | 53 | | | | | $ | 619,683 | |
A summarySummaries of intangible assets by intangible asset type follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Covenants Not-to-Compete | | Customer Relationships | | Trade Names | | Total |
Balance, June 30, 2023 | | | | | | | |
Intangible assets | $ | 41,863 | | | $ | 220,179 | | | $ | 8,405 | | | $ | 270,447 | |
Less accumulated amortization | (25,065) | | | (52,333) | | | (5,901) | | | (83,299) | |
| $ | 16,798 | | | $ | 167,846 | | | $ | 2,504 | | | $ | 187,148 | |
|
| | | | | | | | | | | |
| Covenants Not-to-Compete | | Client Lists | | Total |
Balance, September 30, 2017 | | | | | |
Intangible assets | $ | 17,975 |
| | $ | 17,508 |
| | $ | 35,483 |
|
Less accumulated amortization | (16,739 | ) | | (10,748 | ) | | (27,487 | ) |
| $ | 1,236 |
| | $ | 6,760 |
| | $ | 7,996 |
|
| | | | | | | | | | Covenants Not-to-Compete | | Customer Relationships | | Trade Names | | Total |
| Covenants Not-to-Compete | | Client Lists | | Total | |
Balance, December 31, 2016 | | | | | | |
Balance, December 31, 2022 | | Balance, December 31, 2022 | | | | | | | |
Intangible assets | $ | 17,594 |
| | $ | 16,071 |
| | $ | 33,665 |
| Intangible assets | $ | 31,201 | | | $ | 127,179 | | | $ | 8,405 | | | $ | 166,785 | |
Less accumulated amortization | (16,402 | ) | | (9,567 | ) | | (25,969 | ) | Less accumulated amortization | (24,129) | | | (46,162) | | | (4,711) | | | (75,002) | |
| $ | 1,192 |
| | $ | 6,504 |
| | $ | 7,696 |
| | $ | 7,072 | | | $ | 81,017 | | | $ | 3,694 | | | $ | 91,783 | |
Intangible amortization expense was $526$4,226 and $1,518$8,296 during the three and ninesix months ended SeptemberJune 30, 2017,2023, respectively, as compared to $561 and $1,604$4,262 and $8,052 during the three and ninesix months ended SeptemberJune 30, 2016,2022, respectively.
A summary of intangible amortization expense estimated for each of the next five fiscal years following the fiscal year ended December 31, 20162022 and thereafter is estimated as follows: |
| | | |
Estimated Future Amortization Expense as of September 30, 2017 | |
Fiscal year ending December 31, 2017 | $ | 535 |
|
Fiscal year ending December 31, 2018 | $ | 1,961 |
|
Fiscal year ending December 31, 2019 | $ | 1,595 |
|
Fiscal year ending December 31, 2020 | $ | 1,392 |
|
Fiscal year ending December 31, 2021 | $ | 1,127 |
|
Thereafter | $ | 1,386 |
|
| | | | | |
| |
5.Estimated Future Amortization Expense as of June 30, 2023 | ACCRUED FINAL CAPPING, CLOSURE AND POST CLOSURE |
Fiscal year ending December 31, 2023 | $ | 17,546 | |
Fiscal year ending December 31, 2024 | $ | 33,668 | |
Fiscal year ending December 31, 2025 | $ | 30,935 | |
Fiscal year ending December 31, 2026 | $ | 27,532 | |
Fiscal year ending December 31, 2027 | $ | 24,353 | |
Thereafter | $ | 53,114 | |
| |
6. ACCRUED FINAL CAPPING, CLOSURE AND POST CLOSURE
Accrued final capping, closure and post-closure costs include the current and non-current portion of costs associated with obligations for final capping, closure and post-closure of our landfills. We estimate our future final capping, closure and post-closure costs in order to determine the final capping, closure and post-closure expense per ton of waste placed into each landfill. The anticipated time frame for paying these costs varies based on the remaining useful life of each landfill as well as the duration of the post-closure monitoring period.
A summary of the changes to accrued final capping, closure and post-closure liabilities follows: |
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Beginning balance | $ | 44,207 |
| | $ | 41,041 |
|
Obligations incurred | 2,187 |
| | 1,828 |
|
Revisions in estimates (1) | 9,598 |
| | (56 | ) |
Accretion expense | 3,164 |
| | 2,688 |
|
Obligations settled (2) | (586 | ) | | (601 | ) |
Ending balance | $ | 58,570 |
| | $ | 44,900 |
|
| |
(1) | Relates to changes in estimates and assumptions concerning anticipated waste flow, cost and timing of future final capping, closure and post-closure activities at certain landfills, including the Town of Southbridge, Massachusetts ("Town") Landfill ("Southbridge Landfill"). See Note 7, Commitments and Contingencies and Note 10, Other Items and Charges for disclosure regarding the matter.
|
| |
(2) | Includes amounts that are being processed through accounts payable as a part of our disbursements cycle. |
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 |
Beginning balance | $ | 113,678 | | | $ | 86,914 | |
Obligations incurred | 2,615 | | | 2,244 | |
Revision in estimates (1) | — | | | 1,443 | |
Accretion expense | 4,809 | | | 3,799 | |
| | | |
Obligations settled (2) | (2,386) | | | (2,027) | |
Ending balance | $ | 118,716 | | | $ | 92,373 | |
6. LONG-TERM(1)Relates to a change in estimates concerning anticipated capping costs at one of our landfills.
(2)May include amounts that are being processed through accounts payable as a part of our disbursements cycle.
7. DEBT
A summary of long-term debt and capital leasesis as follows: | | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
Senior Secured Credit Facility: | | | |
Term loan A facility ("Term Loan Facility") due December 2026; bearing interest at Term SOFR plus 1.135% | $ | 350,000 | | | $ | 350,000 | |
Term loan A facility ("2023 Term Loan Facility") due December 2026; bearing interest at Term SOFR plus 2.385% | 430,000 | | | — | |
Revolving credit facility ("Revolving Credit Facility") due December 2026; bearing interest at Term SOFR plus 1.135% | — | | | 6,000 | |
Tax-Exempt Bonds: | | | |
New York State Environmental Facilities Corporation Solid Waste Disposal Revenue Bonds Series 2014 ("New York Bonds 2014R-1") due December 2044 - fixed rate interest period ending in 2029; bearing interest at 2.875% | 25,000 | | | 25,000 | |
New York State Environmental Facilities Corporation Solid Waste Disposal Revenue Bonds Series 2014R-2 ("New York Bonds 2014R-2") due December 2044 - fixed rate interest period ending in 2026; bearing interest at 3.125% | 15,000 | | | 15,000 | |
New York State Environmental Facilities Corporation Solid Waste Disposal Revenue Bonds Series 2020 ("New York Bonds 2020") due September 2050 - fixed rate interest period ending in 2025; bearing interest at 2.750% | 40,000 | | | 40,000 | |
Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-3 ("FAME Bonds 2005R-3") due January 2025 - fixed rate interest period ending in 2025; bearing interest at 5.25% | 25,000 | | | 25,000 | |
Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2015R-1 ("FAME Bonds 2015R-1") due August 2035 - fixed rate interest period ending in 2025; bearing interest at 5.125% | 15,000 | | | 15,000 | |
Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2015R-2 ("FAME Bonds 2015R-2") due August 2035 - fixed rate interest period ending in 2025; bearing interest at 4.375% | 15,000 | | | 15,000 | |
Vermont Economic Development Authority Solid Waste Disposal Long-Term Revenue Bonds Series 2013 ("Vermont Bonds 2013") due April 2036 - fixed rate interest period ending in 2028; bearing interest at 4.625% | 16,000 | | | 16,000 | |
Vermont Economic Development Authority Solid Waste Disposal Long-Term Revenue Bonds Series 2022A-1 ("Vermont Bonds 2022A-1") due June 2052 - fixed rate interest period ending in 2027; bearing interest at 5.00% | 35,000 | | | 35,000 | |
Business Finance Authority of the State of New Hampshire Solid Waste Disposal Revenue Bonds Series 2013 ("New Hampshire Bonds") due April 2029 - fixed rate interest period ending in 2029; bearing interest at 2.95% | 11,000 | | | 11,000 | |
Other: | | | |
Finance leases maturing through December 2107; bearing interest at a weighted average of 3.7% | 50,228 | | | 49,813 | |
Notes payable maturing through March 2025; bearing interest up to 8.1% | 339 | | | 664 | |
Principal amount of debt | 1,027,567 | | | 603,477 | |
Less—unamortized debt issuance costs (1) | 11,476 | | | 9,494 | |
Debt less unamortized debt issuance costs | 1,016,091 | | | 593,983 | |
Less—current maturities of debt | 32,747 | | | 8,968 | |
| $ | 983,344 | | | $ | 585,015 | |
(1)A summary of unamortized debt issuance costs by debt instrument follows:
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Senior Secured Credit Facility: | | | |
Revolving Credit Facility due October 2021; bearing interest at LIBOR plus 2.75% and 3.00%, respectively | $ | 36,300 |
| | $ | 62,600 |
|
Term Loan B Facility due October 2023; bearing interest at LIBOR plus 2.75% and 3.00%, respectively | 348,250 |
| | 350,000 |
|
Tax-Exempt Bonds: | | | |
New York State Environmental Facilities Corporation Solid Waste Disposal Revenue Bonds Series 2014 due December 2044 - fixed rate interest period through 2019; bearing interest at 3.75% | 25,000 |
| | 25,000 |
|
New York State Environmental Facilities Corporation Solid Waste Disposal Revenue Bonds Series 2014R-2 due December 2044 - fixed rate interest period through 2026; bearing interest at 3.125% | 15,000 |
| | 15,000 |
|
Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-3 due January 2025 - fixed rate interest period through 2025; bearing interest at 5.25% | 25,000 |
| | — |
|
Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2015 due August 2035 - fixed rate interest period through 2025; bearing interest at 5.125% | 15,000 |
| | 15,000 |
|
Vermont Economic Development Authority Solid Waste Disposal Long-Term Revenue Bonds Series 2013 due April 2036 - fixed rate interest period through 2018; bearing interest at 4.75% | 16,000 |
| | 16,000 |
|
Business Finance Authority of the State of New Hampshire Solid Waste Disposal Revenue Bonds Series 2013 due April 2029 - fixed rate interest period through 2019; bearing interest at 4.00% | 11,000 |
| | 11,000 |
|
Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-2 due January 2025 - fixed rate interest period through 2017; bore interest at 6.25% | — |
| | 21,400 |
|
Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-1; letter of credit backed due January 2025 - bore interest at SIFMA Index | — |
| | 3,600 |
|
Other: | | | |
Capital leases maturing through September 2023; bearing interest at up to 7.70% | 5,870 |
| | 5,534 |
|
Notes payable maturing through June 2027; bearing interest at up to 7.00% | 2,882 |
| | 449 |
|
Principal amount of long-term debt and capital leases | 500,302 |
| | 525,583 |
|
Less—unamortized discount and debt issuance costs (1) | 15,864 |
| | 16,936 |
|
Long-term debt and capital leases less unamortized discount and debt issuance costs | 484,438 |
| | 508,647 |
|
Less—current maturities of long-term debt | 6,014 |
| | 4,686 |
|
| $ | 478,424 |
| | $ | 503,961 |
|
| |
(1) | A summary of unamortized discount and debt issuance costs by debt instrument follows: |
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Revolving Credit Facility | $ | 4,195 |
| | $ | 4,965 |
|
Term Loan B Facility (including unamortized discount of $1,540 and $1,712) | 7,682 |
| | 7,718 |
|
New York State Environmental Facilities Corporation Solid Waste Disposal Revenue Bonds Series 2014 | 1,081 |
| | 1,221 |
|
New York State Environmental Facilities Corporation Solid Waste Disposal Revenue Bonds Series 2014R-2 | 526 |
| | 571 |
|
Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-3 | 623 |
| | — |
|
Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2015 | 708 |
| | 760 |
|
Vermont Economic Development Authority Solid Waste Disposal Long-Term Revenue Bonds Series 2013 | 581 |
| | 605 |
|
Business Finance Authority of the State of New Hampshire Solid Waste Disposal Revenue Bonds Series 2013 | 468 |
| | 563 |
|
Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-1 | — |
| | 31 |
|
Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-2 | — |
| | 502 |
|
| $ | 15,864 |
| | $ | 16,936 |
|
| | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
Revolving Credit Facility, Term Loan Facility and 2023 Term Loan Facility (collectively, the "Credit Facility") | $ | 7,087 | | | $ | 4,716 | |
New York Bonds 2014R-1 | 832 | | | 866 | |
New York Bonds 2014R-2 | 177 | | | 207 | |
New York Bonds 2020 | 1,016 | | | 1,106 | |
FAME Bonds 2005R-3 | 134 | | | 176 | |
FAME Bonds 2015R-1 | 309 | | | 344 | |
FAME Bonds 2015R-2 | 156 | | | 193 | |
Vermont Bonds 2013 | 351 | | | 378 | |
Vermont Bonds 2022A-1 | 1,079 | | | 1,144 | |
New Hampshire Bonds | 335 | | | 364 | |
| $ | 11,476 | | | $ | 9,494 | |
Financing Activities
Term Loan B Facility
In the quarter ended June 30, 2017, we entered into the first amendment (“Repricing Amendment”) to our $350,000 aggregate principal amount term loan B facility ("Term Loan B Facility") and $160,000 revolving line of credit facility (“Revolving Credit Facility” and, together with the Term Loan B Facility, the "Credit Facility"). The Repricing Amendment decreased the applicable interest margin for our Term Loan B Facility by 25 basis points for both LIBOR borrowings and base rate borrowings. The applicable interest rate margin will continue to be determined based on our consolidated net leverage ratio, with the interest set at 2.75% for LIBOR borrowings (with a 1.00% LIBOR floor) and 1.75% for base rate borrowings at September 30, 2017. The applicable interest rate will be reduced to 2.50% for LIBOR borrowings (with a 1.00% LIBOR floor), and 1.50% for base rate borrowings upon us reaching a consolidated net leverage ratio of 3.75x or less.
Maine Bonds
In the quarter ended March 31, 2017,2023, we entered into first and second amendments to our Amended and Restated Credit Agreement. The first amendment provides, commencing in the fiscal year ending December 31, 2024, that the interest rate margin applied for drawn and undrawn amounts under the Amended and Restated Credit Agreement shall be separately adjusted based on our achievement of certain thresholds and targets on two sustainability related key performance indicator metrics during the prior fiscal year: (i) metric tons of solid waste materials reduced, reused or recycled through our direct operations or with third-parties in collaboration with customers; and (ii) our total recordable incident rate. The second amendment provides that loans under the Amended and Restated Credit Agreement shall bear interest, at our election, at Term SOFR, including a secured overnight financing rate adjustment of 10 basis points, or at a base rate, in each case, plus or minus any sustainable rate adjustment plus an applicable interest rate margin based upon our consolidated net leverage ratio.
In April 2023, we entered into an equity purchase agreement pursuant to which we agreed to the GFL Acquisition. In connection with the GFL Acquisition, we entered into (i) a commitment letter to obtain short-term secured bridge financing of up to $375,000 and (ii) the third amendment to the Amended and Restated Credit Agreement to, among other things, permit the draw down of the short-term secured bridge financing and authorize a delayed draw term loan facility to be executed with customary limited condition provisions. The short-term secured bridge financing was undrawn and subsequently terminated in May 2023 when we entered into the Loan Joinder, which provided for a $430,000 aggregate principal amount 2023 Term Loan Facility under the Amended and Restated Credit Agreement. In June 2023, we borrowed $430,000 under the 2023 Term Loan Facility and paid certain fees and costs due and payable in connection therewith. Borrowings from the 2023 Term Loan Facility were used to fund, in conjunction with cash and cash equivalents and borrowings from our Revolving Credit Facility, the GFL Acquisition.
In June 2023, we entered into an asset purchase agreement pursuant to which we agreed to the Twin Bridges Acquisition, which is pending regulatory approval. In connection with the Twin Bridges Acquisition, we entered into a commitment letter to obtain short-term unsecured bridge financing of up to $200,000 that was undrawn and subsequently terminated when we completed the remarketingpublic offering of $3,600our Class A common stock on June 16, 2023. See Note 9, Stockholders' Equity for further disclosure regarding the public offering. As of June 30, 2023, we have accrued $4,580 in our current liabilities for the unpaid portion of unsecured bridge financing costs.
Credit Facility
As of June 30, 2023, we are party to the Amended and Restated Credit Agreement, which provides for a $350,000 aggregate principal amount Term Loan Facility, a $300,000 Revolving Credit Facility, with a $75,000 sublimit for letters of Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-1 (“FAME Bonds 2005R-1”)credit, and $21,400 aggregate principala $430,000 2023 Term Loan Facility. We have the right to request, at our discretion, an increase in the amount of Finance Authorityloans under the Credit Facility by an aggregate amount of Maine Solid Waste Disposal Revenue Bonds Series 2005R-2 (“FAME Bonds 2005R-2”) into one series$125,000, subject to further increase based on the terms and conditions set forth in the Amended and Restated Credit Agreement. The Credit Facility has a 5-year term that matures in December 2026. The Credit Facility shall bear interest, at our election, at Term SOFR, including a secured overnight financing rate adjustment of $25,000 aggregate principal amount Finance Authority10 basis points, or at a base rate, in each case plus or minus any sustainable rate adjustment of Maine Solid Waste Disposal Revenue Bonds Series 2005R-3 (“FAME Bonds 2005R-3”).up to positive or negative 4.0 basis points per annum, plus an applicable interest rate margin based upon our consolidated net leverage ratio as follows:
| | | | | | | | | | | | | | |
| | Term SOFR Loans | | Base Rate Loans |
Term Loan Facility | | 1.125% to 2.125% | | 0.125% to 1.125% |
Revolving Credit Facility | | 1.125% to 2.125% | | 0.125% to 1.125% |
2023 Term Loan Facility | | 1.625% to 2.625% | | 0.625% to 1.625% |
A commitment fee will be charged on undrawn amounts at a rate of Term SOFR, including a secured overnight financing rate adjustment of 10 basis points, plus a margin based upon our consolidated net leverage ratio in the range of 0.20% to 0.40% per annum, plus a sustainability adjustment of up to positive or negative 1.0 basis point per annum. The FAME Bonds 2005R-3, whichAmended and Restated Credit Agreement provides that Term SOFR is subject to a zero percent floor. We are unsecuredalso required to pay a fronting fee for each letter of credit of 0.25% per annum. Interest under the Amended and Restated Credit Agreement is subject to increase by 2.00% per annum during the continuance of a payment default and may be subject to increase by 2.00% per annum during the continuance of any other event of default. The Credit Facility is guaranteed jointly and severally, fully and unconditionally by all of our significant wholly-owned subsidiaries accrue interest at 5.25% per annum until they mature on January 1, 2025.
Loss on Debt Extinguishment
We recorded a loss on debt extinguishmentand secured by substantially all of $0 and $517our assets. As of June 30, 2023, further advances were available under the Revolving Credit Facility in the threeamount of $272,267. The available amount is net of outstanding irrevocable letters of credit totaling $27,733, and nine months ended Septemberas of June 30, 2017, respectively,2023 no amount had been drawn.
Interest Expense
The components of interest expense are as comparedfollows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Interest expense on long-term debt and finance leases | $ | 8,007 | | | $ | 5,189 | | | $ | 14,437 | | | $ | 9,823 | |
Amortization of debt issuance costs (1) | 1,004 | | | 468 | | | 1,505 | | | 924 | |
Letter of credit fees | 98 | | | 116 | | | 194 | | | 230 | |
Less: capitalized interest | (108) | | | (75) | | | (177) | | | (75) | |
Total interest expense | $ | 9,001 | | | $ | 5,698 | | | $ | 15,959 | | | $ | 10,902 | |
(1)Includes interest expense related to a loss on debt extinguishmentshort-term secured bridge financing entered into in connection with the GFL Acquisition of $191$395 and $736$395 during the three and ninesix months ended SeptemberJune 30, 2016,2023, respectively, associated with the following:
the write-off of debt issuance costsand interest expense related to short-term unsecured financing entered into in connection with the Repricing Amendment inTwin Bridges Acquisition, which is pending regulatory approval, of $101 and $101 during the quarterthree and six months ended June 30, 2017;2023, respectively.
Loss from Termination of Bridge Financing
In the write-off ofthree and six months ended June 30, 2023, we wrote-off the unamortized debt issuance costs and recognized a loss from termination of bridge financing upon the extinguishment of both a secured bridge financing agreement in connection with the remarketingGFL Acquisition of the FAME Bonds 2005R-1$3,718 and the FAME Bonds 2005R-2 into the FAME Bonds 2005R-3$3,718, respectively, and an unsecured bridge financing agreement in the quarter ended March 31, 2017; and
the repurchase price premium and write-off of debt issuance costs and unamortized original issue discount associatedconnection with the early redemption, repurchaseTwin Bridges Acquisition, which is pending regulatory approval, of $4,480 and retirement of partial portions of our 7.75% senior subordinated notes due February 2019 in the three and nine months ended September 30, 2016.$4,480, respectively.
Cash Flow Hedges
In the quarter ended March 31, 2017, we enteredOur strategy to reduce exposure to interest rate risk involves entering into three interest rate derivative agreements to hedge against adverse movements in interest rate risk associated withrates related to the variable rate portion of our long-term debt. We have designated these derivative instruments as highly effective cash flow hedges, and therefore the change in their fair value is recorded in stockholders’ equity as a component of accumulated other comprehensive income, net of tax and included in interest expense at the same time as interest expense is affected by the hedged transactions. Differences paid or received over the life of the agreements are recorded as additions to or reductions of interest expense on the underlying debt and included in cash flows from operating activities.
In July 2023, we entered into interest rate derivative agreements with a notional amount of $250,000 after increasing the variable rate portion of our long-term debt by $430,000 by entering into the 2023 Term Loan Facility. According to the terms of the agreements, we receive interest based on Term SOFR restricted by a 0.0% floor, and pay interest at a rate of 4.285%. The agreements became effective in July 2023 and mature in June 2028.
As of June 30, 2023, we had active interest rate derivative agreements with a total notional amount of these$165,000. According to the terms of the agreements, is $60,000 and requires us towe receive interest based on changes in the 1-month LIBOR index withTerm SOFR, restricted by a 1.0%0.0% floor, and pay interest at a weighted average rate of approximately 1.95%2.08%. TwoThe agreements mature between February 2026 and May 2028. As of theDecember 31, 2022, we had active interest rate derivative agreements with a total notional amount of $35,000, mature in February 2021,$190,000 and the finala forward starting interest rate derivative agreement with a total notional amount of $25,000, matures in February 2022. We have designated these$20,000.
A summary of the effect of cash flow hedges related to derivative instruments as cash flow hedges.on the consolidated balance sheet follows: | | | | | | | | | | | | | | | | | |
| | | Fair Value |
| Balance Sheet Location | | June 30, 2023 | | December 31, 2022 |
Interest rate swaps | Other current assets | | $ | 5,147 | | | $ | 4,345 | |
Interest rate swaps | Other non-current assets | | 6,763 | | | 7,461 | |
| | | $ | 11,910 | | | $ | 11,806 | |
| | | | | |
| | | | | |
Interest rate swaps | Other long-term liabilities | | $ | 18 | | | $ | — | |
| | | | | |
| | | | | |
Interest rate swaps | Accumulated other comprehensive income, net of tax | | $ | 11,892 | | | $ | 11,806 | |
Interest rate swaps - tax effect | Accumulated other comprehensive income, net of tax | | (4,284) | | | (4,264) | |
| | | $ | 7,608 | | | $ | 7,542 | |
In accordance with the derivatives and hedging guidance in FASB ASC 815 - Derivatives and Hedging, the effective portions of the changes in fair values of interest rate swaps have been recorded in equity as a component of accumulated other comprehensive loss, net of tax. As the critical terms of the interest rate swaps match the underlying debt being hedged, no ineffectiveness is recognized on these swaps and, therefore, all unrealized changes in fair value are recorded in accumulated other comprehensive loss, net of tax. Amounts are reclassified from accumulated other comprehensive loss, net of tax into earnings in the same period or periods during which the hedged transaction affects earnings.
As of September 30, 2017, we have recorded a derivative asset with a fair value of $58 in other non-current assets and a derivative liability with a fair value of $321 in other accrued liabilities associated with these cash flow hedges.
7.8. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
In the ordinary course of our business and as athe result of the extensive governmental regulation of the solid waste industry, we are subject to various judicial and administrative proceedings involving state and local agencies. In these proceedings, an agency may seek to impose fines or to revoke or deny renewal of an operating permit held by us. From time to time, we may also be subject to actions brought by special interest or other groups, adjacent landowners or residents in connection with the permitting and licensing of landfills and transfer stations, or allegations of environmental damage or violations of the permits and licenses pursuant to which we operate. In addition, we may be named defendants in various claims and suits pending for alleged damages to persons and property, alleged violations of certain laws and alleged liabilities arising out of matters occurring during the ordinary operation of a waste management business. The plaintiffs in some actions seek unspecified damages or injunctive relief, or both. These actions fall within various procedural stages at any point in time, and some are covered in part by insurance.
In accordance with FASB ASC 450 - Contingencies, we accrue for legal proceedings, inclusive of legal costs, when losses become probable and reasonably estimable. We have recorded an aggregate accrual of $6,208 relating to our outstanding legal proceedings as of June 30, 2023. As of the end of each applicable reporting period, we review each of our legal proceedings to determine whether it is probable, reasonably possible or remote that a liability has been incurred and, if it is at least reasonably possible, whether a range of loss can be reasonably estimated under the provisions of FASB ASC 450-20. In instances where we determine that a loss is probable and we can reasonably estimate a range of loss we may incur with respect to such a matter, we record an accrual for the amount within the range that constitutes our best estimate of the possible loss. If we are able to reasonably estimate a range, but no amount within the range appears to be a better estimate than any other, we record an accrual in the amount that is the low end of such range. When a loss is reasonably possible, but not probable, we will not record an accrual, but we will disclose our estimate of the possible range of loss where such estimate can be made in accordance with FASB ASC 450-20. We disclose outstanding matters that we believe could have a material adverse effect on our financial condition, results of operations or cash flows. See Note 11, Other Items and Charges for disclosure regarding a legal settlement charge accrued for as of June 30, 2023 due to reaching an agreement at a mediation held on June 20, 2023 and later executed on July 24, 2023.
North Country Environmental Services Expansion Permit
The permit for expansion of the Bethlehem, New Hampshire landfill of our subsidiary, North Country Environmental Services, Inc. (“NCES”), known as “Stage VI”, issued in October 2020 (“Permit”), was appealed by the Conservation Law Foundation (“CLF”) to the New Hampshire Waste Management Council (“Council”) on November 9, 2020 on the grounds it failed to meet the public benefit criteria. Following a hearing on the merits during which the Council found that the New Hampshire Department of Environmental Services (“DES”) had reasonably measured and acted lawfully in determining a capacity need for Stage VI, the hearing officer presiding over the proceedings issued an Order on May 11, 2022, without further hearing, determining instead that DES had acted unlawfully in reaching these conclusions (“Hearing Officer’s Order”), and remanded the Permit to DES on this determination. On December 5, 2022, DES and NCES both separately sought review of the Hearing Officer’s Order on appeal to the New Hampshire Supreme Court (“Supreme Court”). On December 14, 2022, NCES filed an action in Merrimack Superior Court (“Superior Court”) seeking to invalidate the Hearing Officer’s Order as having been adopted in violation of New Hampshire’s statute governing access to public records and meetings in that the Council did not hold a public meeting to deliberate on the Hearing Officer’s Order. The Superior Court has since dismissed that proceeding,
however, NCES appealed that decision to the Supreme Court on April 18, 2023. Both Supreme Court appeals remain pending. On September 20, 2022, NCES, which has since withdrawn as a party, and our subsidiary, Granite State Landfill, LLC, filed a Petition for Declaratory Judgment ("Petition") in the Superior Court asking the Superior Court for a determination of the meaning and constitutionality of New Hampshire’s public benefit requirement, the same statute at issue in the Hearing Officer’s Order. This matter remains pending before the Superior Court.
On April 12, 2023, DES issued approval of construction plans for Stage VI, Phase II to NCES (“DES Approval”). CLF appealed the DES Approval to the Council on May 11, 2023, on the grounds that it failed to meet the public benefit criteria, and that the DES Approval conflicts with the Hearing Officer’s May 11, 2022 Order determining that DES had acted unlawfully in issuing the Permit, and requested expedited review. The Council has denied the request for expedited review and this appeal remains pending before the Council.
NCES will continue to vigorously defend the Permit through the appeals to the Supreme Court, will litigate the Petition before the Superior Court, and will defend the DES Approval on appeal before the Council.
Environmental Remediation LiabilityLiabilities
We are subject to liability for environmental damage, including personal injury and property damage, that our solid waste, recycling and power generation facilities may cause to neighboring property owners, particularly as athe result of the contamination of drinking water sources or soil, possibly including damage resulting from conditions that existed before we acquired the facilities. We may also be subject to liability for similar claims arising from off-site environmental contamination caused by pollutants or hazardous substances if we or our predecessors arrange or arranged to transport, treat or dispose of those materials. The following matters represent our material outstanding claims.
Southbridge Recycling & Disposal Park, Inc.
In October 2015, our Southbridge RecyclingWe accrue for costs associated with environmental remediation obligations when such costs become both probable and Disposal Park, Inc. (“SRD”) subsidiary reported toreasonably estimable. Determining the Massachusetts Departmentmethod and ultimate cost of Environmental Protection (“MADEP”) resultsremediation requires that a number of analysisassumptions be made. There can sometimes be a range of samples collected pursuant to our existing permit from private drinking water wells located near the Town of Southbridge, Massachusetts (“Town”) Landfill (“Southbridge Landfill”), which is operated by SRD. Those results indicated the presence of contaminants above the levels triggering notice and response obligations under MADEP regulations. In response to those results, we are carrying out an Immediate Response Action pursuant to Massachusetts General Law Chapter 21E (the "Charlton 21E Obligations") pursuant to state law. Further, we have implemented a plan to analyze and better understand the groundwater near the Southbridge Landfill and we are investigating with the objective of identifying the source or sourcesreasonable estimates of the elevated levelscosts associated with remediation of contamination measured ina site. In these cases, we use the well samples. If it is determinedamount within the range that some or allconstitutes our best estimate. In the early stages of the contamination originated at the Southbridge Landfill, we will work with the Town (the Southbridge Landfill owner and the former operator of an unlined portionremediation process, particular components of the Southbridge Landfill, which was used prior to our operation of a double-lined portionoverall liability may not be reasonably estimable; in this instance we use the components of the Southbridge Landfillcommencing in 2004) to evaluate and allocate the liabilities related to the Charlton 21E Obligations. In July 2016, we sent correspondence to the Town pursuant to Chapter 21E of Massachusetts General Laws demandingliability that the Town reimburse uscan be reasonably estimated as a surrogate for the environmental response costs we had spent and that the Town be responsible for all such costs in the future, as well as any other costs or liabilities resulting from the release of contaminants from the unlined portion of the Southbridge Landfill. The Town responded in September 2016, denying that the Southbridge Landfill is the source of such contamination, and claiming that if it is, that we may owe an indemnity to the Town pursuant to the Operating Agreement between us and the Town dated May 29, 2007, as amended. We entered into a Tolling Agreement with the Town to delay any further administrative or legal actions until our work with MADEP more specifically defines the parties’ responsibilities for the Charlton 21E Obligations, if any. Please see below for further discussion of our relationship with the Town regarding the Charlton 21E Obligations.
In February 2016, we and the Town received a Notice of Intent to Sue under the Resource Conservation and Recovery Act ("RCRA") from a law firm purporting to represent residents proximate to the Southbridge Landfill (“Residents”), indicating its intent to file suit against us on behalf of the Residents alleging the groundwater contamination originated from the Southbridge Landfill. In February 2017, we received an additional Notice of Intent to Sue from the National Environmental Law Center under the Federal Clean Water Act ("CWA") and RCRA (collectively the “Acts”) on behalf of Environment America, Inc., d/b/a Environment Massachusetts, and Toxics Action Center, Inc., which have referred to themselves as the Citizen Groups. The Citizen Groups alleged that we had violated the Acts, and that they intended to seek appropriate relief in federal court for those alleged violations. On or about June 9, 2017, a lawsuit was filed against us, SRD and the Town in the United States District Court for the District of Massachusetts by the Citizen Groups and the Residents alleging violations of the Acts (the “Litigation”), and demanding a variety of remedies under the Acts, including fines, remediation, mitigation and costs of litigation, and remedies for violations of Massachusetts civil law related to personal and property damages, including remediation, diminution of property values, compensation for lost use and enjoyment of properties, enjoinment of further operation of the Southbridge Landfill, and costs of litigation, plus interest on any damage award, on behalf of the Residents. We believe the Litigation to be factually inaccurate, and without legal merit, and we and SRD intend to vigorously defend the Litigation. Nevertheless, we believe itliability. It is reasonably possible that a losswe will occur as a resultneed to adjust the liabilities recorded for remediation to reflect the effects of new or additional information, to the extent such information impacts the costs, timing or duration of the Litigation although an estimate of loss cannot be reasonably provided at this time due to the infancy of this matter. We also continue to believe the Town should be responsible for costs or liabilities associated with the Litigation relative to alleged contamination originating from the unlined portionrequired actions. Future changes in our estimates of the Southbridge Landfill, although there can be no assurancecost, timing or duration of the required actions could have a material adverse effect on our consolidated financial position, results of operations and cash flows. We disclose outstanding environmental remediation matters that remain unsettled or are settled in the reporting period that we will not be required to incur somebelieve could have a material adverse effect on our financial condition, results of operations or all of such costs and liabilities.cash flows.
We entered into an Administrative Consent Order on April 26, 2017 (the “ACO”), with MADEP, the Town, and the Town of Charlton, committing us to equally share the costs with MADEP, of up to $10,000 ($5,000 each) for the Town to install a municipal waterline in the Town of Charlton ("Waterline"). Upon satisfactory completion of that Waterline, and other matters covered by the ACO, we and the Town will be released by MADEP from any future responsibilities for the Charlton 21E Obligations. We also entered into an agreement with the Town on April 28, 2017 entitled the “21E Settlement and Water System Construction Funding Agreement” (the “Waterline Agreement”), wherein we and the Town released each other from claims arising from the Charlton 21E Obligations. Pursuant to the Waterline Agreement, the Town will issue a twenty (20) year bond for our portion of the Waterline costs (up to $5,000). We have agreed to reimburse the Town for periodic payments under such bond.
We have recorded an environmental remediation liability associated with the future installation of the Waterline in other accrued liabilities and other long-term liabilities. We inflate the estimated costs in current dollars to the expected time of payment and discount the total cost to present value using a risk-free interest raterate. The risk-free interest rates associated with our environmental remediation liabilities as of 2.6%June 30, 2023 range between 1.5% and 4.1%. Our expenditures could be significantly higher if costs exceed estimates. TheA summary of the changes to the aggregate environmental remediation liability associated withliabilities for the Southbridge Landfillsix months ended June 30, 2023 and 2022 follows:
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 |
Beginning balance | $ | 6,335 | | | $ | 5,887 | |
Accretion expense | 51 | | | 54 | |
| | | |
| | | |
Obligations settled (1) | (320) | | | (72) | |
Ending balance | 6,066 | | | 5,869 | |
Less: current portion | 1,430 | | | 280 | |
Long-term portion | $ | 4,636 | | | $ | 5,589 | |
(1)May include amounts paid and amounts that are being processed through accounts payable as follows:a part of our disbursement cycle.
|
| | | | | | | |
| | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Beginning balance | $ | — |
| | $ | — |
|
Accretion expense | 41 |
| | — |
|
Obligations incurred | 6,379 |
| | — |
|
Obligations settled (1) | (241 | ) | | — |
|
Ending balance | $ | 6,179 |
| | $ | — |
|
| |
(1) | Includes amounts that are being processed through accounts payable as a part of our disbursements cycle. |
In August 2016, we filed a complaint against Steadfast Insurance Company (“Steadfast”) in the Superior Court
9. STOCKHOLDERS' EQUITY
Public Offering of Suffolk County, Massachusetts (the "Court"), alleging among other things, that Steadfast breached its Pollution Liability Policy (“Policy”) purchased by us in April 2015, by refusing to acknowledge coverage under the Policy, and refusing to cover any of the costs and liabilities incurred by us as described above as well as costs and liabilities that we may incur in the future. Steadfast filed an answer and counterclaim in September 2016, denying that it has any obligations to us under the Policy, and seeking a declaratory judgment of Steadfast’s obligations under the Policy. We are in the discovery phase of this litigation. Steadfast has filed a Motion to Dismiss (the "Motion") our litigation against it, and we filed our response on July 11, 2017. On September 7, 2017, the Court denied the Motion.Class A Common Stock
On June 13, 2017, Town voters rejected16, 2023, we completed a non-binding ballot initiative intendedpublic offering of 6,053 shares of our Class A common stock at a public offering price of $85.50 per share. After deducting stock issuance costs received as of June 30, 2023, including underwriting discounts, commissions and offering expenses, the offering has resulted in net proceeds of $496,403. The net proceeds from this offering were and are to provide guidancebe used to Town officials with respectfund acquisition activity, as discussed in Note 4, Business Combinations, to our pursuit of other landfill development opportunities at the Southbridge Landfill. Following such rejection by the Town voters, our board of directors and senior management determined after due consideration of all facts and circumstances that it is no longer likely that further development at the existing landfill site will generate an adequate risk adjusted return at the Southbridge Landfill, and accordingly we expect to cease operations at the Southbridge Landfill when no further capacity is available, expected by no later than December 31, 2018. We delivered correspondence to the Town to this effect on August 3, 2017, citing events of Change in Law and Force Majeure pursuant to our May 29, 2007 Extension Agreement with the Town ("Extension Agreement") and the impacts of such events on further expansion of the Southbridge Landfill. We have advised the Town that we see no economically feasible way to operate the Southbridge Landfill beyond its current permitted life. Following cessation of operations, we will proceed to conduct proper closure and other activities at the Southbridge Landfill in accordance with the Extension Agreement with the Town, and Federal, state and local law. We reached this conclusion after carefully evaluating the estimated futurepay certain costs associated with the permitting, engineering and constructionacquisition activities, for the planned expansion of the Southbridge Landfill against the possible outcomes of the permitting process and the anticipated future benefits of successful expansions. Under the Extension Agreement, which we account for as an operating lease, there are potential contractual obligations and commitments, including future cash payments of $3,069 and services that extend beyond the current useful life of the Southbridge Landfill. In accordance with FASB ASC 420 - Exit or Disposal Cost Obligations, a liability for costs to be incurred under a contract for its remaining term without economic benefit shall be recognized when we cease using the right conveyed by the contract. We may incur a loss associated with these potential contractual obligations upon cessation of operations at the Southbridge Landfill when remaining capacity is exhausted by the placement of waste at the site. See Note10, discussed in Note 11, Other Items and Charges, and to our consolidated financial statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q for information regarding the Southbridge Landfill closure charge.
The costs and liabilities we may be required to incur in connection with the foregoing Southbridge Landfill matters could be material to our results of operations, our cash flows and our financial condition.
Potsdam Environmental Remediation Liability
On December 20, 2000, the State of New York Department of Environmental Conservation (“DEC”) issued an Order on Consent (“Order”) which named Waste-Stream, Inc. (“WSI”), our subsidiary, General Motors Corporation (“GM”) and Niagara Mohawk Power Corporation (“NiMo”)repay borrowings and/or debt securities as Respondents. The Order required that the Respondents undertake certain work on a 25-acre scrap yard and solid waste transfer station owned by WSI in Potsdam, New York, including the preparation of a Remedial Investigation and Feasibility Study (“Study”). A draft of the Study was submitted to the DEC in January 2009 (followed by a final report in May 2009). The Study estimated that the undiscounted costs associated with implementing the preferred remedies would be approximately $10,219. On February 28, 2011, the DEC issued a Proposed Remedial Action Plan for the site and accepted public comments on the proposed remedy through March 29, 2011. We submitted comments to the DEC on this matter. In April 2011, the DEC issued the final Record of Decision (“ROD”) for the site. The ROD was subsequently rescinded by the DEC for failure to respond to all submitted comments. The preliminary ROD, however, estimated that the present cost associated with implementing the preferred remedies would be approximately $12,130. The DEC issued the final ROD in June 2011 with proposed remedies consistent with its earlier ROD. An Order on Consent and Administrative Settlement naming WSI and NiMo as Respondents was executed by the Respondents and DEC with an effective date of October 25, 2013. On January 29, 2016, a Cost-Sharing Agreement was executed between WSI, NiMo, Alcoa Inc. (“Alcoa”) and Reynolds Metal Company (“Reynolds”) whereby Alcoa and Reynolds elected to voluntarily participate in the onsite remediation activities at a combined 15% participant share. It is unlikely that any significant expenditures relating to onsite remediation will be incurred until the fiscal year ending December 31, 2019. WSI is jointly and severally liable with NiMo, Alcoa and Reynolds for the total cost to remediate.discussed Note 7, Debt.
We have recorded an environmental remediation liability associated with the Potsdam site based on incurred costs to date and estimated costs to complete the remediation in other accrued liabilities and other long-term liabilities. Our expenditures could be significantly higher if costs exceed estimates. We inflate the estimated costs in current dollars to the expected time of payment and discount the total cost to present value using a risk-free interest rate of 1.5%. The changes to the environmental remediation liability associated with the Potsdam site are as follows:
|
| | | | | | | |
| | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Beginning balance | $ | 5,866 |
| | $ | 5,221 |
|
Obligations settled (1) | (21 | ) | | (255 | ) |
Ending balance | $ | 5,845 |
| | $ | 4,966 |
|
| |
(1) | Includes amounts that are being processed through accounts payable as a part of our disbursements cycle. |
Stock Based Compensation
Shares Available For Issuance
In the fiscal year ended December 31, 2016, we adopted the 2016 Incentive Plan (“2016 Plan”). Under the 2016 Plan, we may grant awards up to an aggregate amount of shares equal to the sum of: (i) 2,250 shares of Class A common stock (subject to adjustment in the event of stock splits and other similar events), plus (ii) such additional number of shares of Class A common stock (up to 2,723 shares) as is equal to the sum of the number of shares of Class A common stock that remained available for grant under the 2006 Stock Incentive Plan (“2006 Plan”) immediately prior to the expiration of the 2006 Plan and the number of shares of Class A common stock subject to awards granted under the 2006 Plan that expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by us. As of SeptemberJune 30, 2017,2023, there were 1,904640 Class A common stock equivalents available for future grant under the 2016 Plan.
In the three months ended June 30, 2023, our stockholders approved the amendment and restatement of our Amended and Restated 1997 Employee Stock Purchase Plan (as further amended and restated, the"ESPP") to increase the number of shares of Class A common stock reserved for issuance under the ESPP by 400 shares of Class A common stock. As of June 30, 2023, 444 shares of Class A common stock were available for issuance under the ESPP.
Stock Options
Stock options are granted at a price equal to the prevailing fair value of our Class A common stock at the date of grant. Generally, stock options granted have a term not to exceed ten years and vest over a one yearone-year to four yearfive-year period from the date of grant.
The fair value of each stock option granted with the exception of market-based performance stock option grants, is estimated using a Black-Scholes option-pricing model, which requires extensive use of accounting judgment and financial estimation, including estimates of the expected term stock option holders will retain their vested stock options before exercising them and the estimated volatility of our Class A common stock price over the expected term. The fair value of each market-based performance stock option granted is estimated using a Monte Carlo option-pricing model, which also requires extensive use of accounting judgment and financial estimation, including estimates of the expected term stock option holders will retain their vested stock options before exercising them and the estimated volatility of our Class A common stock price over the expected term, but also including estimates of share price appreciation plus the value of dividends of our Class A common stock as compared to the Russell 2000 Index over the requisite service period.
A summary of stock option activity follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Stock Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (years) | | Aggregate Intrinsic Value |
Outstanding, December 31, 2022 | 129 | | | $ | 55.60 | | | | | |
Granted | — | | | $ | — | | | | | |
Exercised | — | | | $ | — | | | | | |
Forfeited | — | | | $ | — | | | | | |
Outstanding, June 30, 2023 | 129 | | | $ | 55.60 | | | 6.7 | | $ | 4,512 | |
Exercisable, June 30, 2023 | 49 | | | $ | 12.88 | | | 2.8 | | $ | 3,793 | |
| | | | | | | |
|
| | | | | | | | | | | | |
| Stock Options (1) | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (years) | | Aggregate Intrinsic Value |
Outstanding, December 31, 2016 | 1,115 |
| | $ | 6.13 |
| | | | |
Granted | — |
| | $ | — |
| | | | |
Exercised | (91 | ) | | $ | 10.97 |
| | | | |
Forfeited | (5 | ) | | $ | 7.54 |
| | | | |
Outstanding, September 30, 2017 | 1,019 |
| | $ | 5.68 |
| | 5.5 | | $ | 13,366 |
|
Exercisable, September 30, 2017 | 819 |
| | $ | 5.00 |
| | 4.8 | | $ | 11,305 |
|
Unvested, September 30, 2017 | 240 |
| | $ | 9.16 |
| | 8.5 | | $ | 2,313 |
|
| |
(1) | Market-based performance stock options are included at the 100% attainment level. Attainment of the maximum performance targets and market achievements would result in the issuance of an additional 40 shares of Class A common stock currently included in unvested. |
Stock-based compensation expense forrelated to stock options was $158$125 and $505$248 during the three and ninesix months ended SeptemberJune 30, 2017,2023, respectively, as compared to $143$17 and $435$33 during the three and ninesix months ended SeptemberJune 30, 2016,2022, respectively. As of June 30, 2023, we had $1,850 of unrecognized stock-based compensation expense related to outstanding stock options to be recognized over a weighted average period of 4.0 years.
During the three and ninesix months ended SeptemberJune 30, 2017,2023, the aggregate intrinsic value of stock options exercised was $91 and $297, respectively.zero dollars.
As of September 30, 2017, total unrecognized stock-based compensation expense related to outstanding stock options, including market-based performance stock options assuming the attainment of maximum performance targets, was $613, which will be recognized over a weighted average period of 0.9 years.
Other Stock Awards
Restricted stock awards, restricted stock units and performance stock units, with the exception of market-based performance stock units, are granted at a price equal to the fair value of our Class A common stock at the date of grant. The fair value of each market-based performance stock unit is estimated using a Monte Carlo pricing model, which requires extensive use of accounting judgment and financial estimation, including the estimated share price appreciation plus, if applicable, the value of dividends of our Class A common stock as compared to the Russell 2000 Index over the requisite service period.
RestrictedGenerally, restricted stock awards granted to non-employee directors vest incrementally over a three year period beginning on the first anniversary of the date of grant. Restricted stock units granted to non-employee directors vest in full on the first anniversary of the grant date. Restricted stock units granted to employees vest incrementally over an identified service period, typically three years, beginning on the grant date based on continued employment. Performance stock units granted to employees, including market-based performance stock units, vest at a future date following the grant date and are based on the attainment of performance targets and market achievements, as applicable.
A summary of restricted stock award, restricted stock unit and performance stock unit activity follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Restricted Stock Awards, Restricted Stock Units, and Performance Stock Units (1) | | Weighted Average Grant Date Fair Value | | Weighted Average Remaining Contractual Term (years) | | Aggregate Intrinsic Value |
Outstanding, December 31, 2022 | 169 | | | $ | 75.52 | | | | | |
Granted | 98 | | | $ | 80.61 | | | | | |
Class A Common Stock Vested | (62) | | | $ | 62.22 | | | | | |
Forfeited | (2) | | | $ | 71.25 | | | | | |
Outstanding, June 30, 2023 | 203 | | | $ | 82.11 | | | 1.9 | | $ | 18,339 | |
Unvested, June 30, 2023 | 362 | | | $ | 83.23 | | | 1.8 | | $ | 32,798 | |
(1)Market-based performance stock unit grants are included at the 100% attainment level. Attainment of the maximum performance targets and market achievements would result in the issuance of an additional 159 shares of Class A common stock currently included in unvested.
|
| | | | | | | | | | | | |
| Restricted Stock, Restricted Stock Units, and Performance Stock Units (1) | | Weighted Average Grant Date Fair Value | | Weighted Average Remaining Contractual Term (years) | | Aggregate Intrinsic Value |
Outstanding, December 31, 2016 | 1,099 |
| | $ | 7.03 |
| | | | |
Granted | 439 |
| | $ | 12.32 |
| | | | |
Class A Common Stock Vested | (376 | ) | | $ | 5.08 |
| | | | |
Forfeited | (23 | ) | | $ | 6.09 |
| | | | |
Outstanding, September 30, 2017 | 1,139 |
| | $ | 9.66 |
| | 1.5 | | $ | 10,403 |
|
Unvested, September 30, 2017 | 1,501 |
| | $ | 10.35 |
| | 1.6 | | $ | 12,679 |
|
| |
(1) | Market-based performance stock unit grants are included at the 100% attainment level. Attainment of the maximum performance targets and market achievements would result in the issuance of an additional 362 shares of Class A common stock currently included in unvested. |
Stock-based compensation expense related to restricted stock awards, restricted stock units and performance stock units was $1,684$2,132 and $4,183$3,894 during the three and ninesix months ended SeptemberJune 30, 2017,2023, respectively, as compared to $585$828 and $1,863$2,979 during the three and ninesix months ended SeptemberJune 30, 2016,2022, respectively.
During the three and ninesix months ended SeptemberJune 30, 2017,2023, the total fair value of other stock awards vested was $97$1,094 and $4,867,$5,056, respectively.
As of SeptemberJune 30, 2017,2023, total unrecognized stock-based compensation expense related to outstanding restricted stock and restricted stock unitsawards was $3,701,$17, which will be recognized over a weighted average period of 1.40.9 years. As of SeptemberJune 30, 2017, maximum2023, total unrecognized stock-based compensation expense related to outstanding restricted stock units was $5,905, which will be recognized over a weighted average period of 2.0 years. As of June 30, 2023, total expected unrecognized stock-based compensation expense related to outstanding performance stock units assuming the attainment of maximum performance targets, was $6,039$6,791 to be recognized over a weighted average period of 1.71.9 years.
The weighted average fair value of market-based performance stock units granted during the ninesix months ended SeptemberJune 30, 20172023 was $12.51$83.16 per award, which was calculated using a Monte Carlo pricing model assuming a risk freerisk-free interest rate of 1.45%4.31% and an expected volatility of 32.80%34.9% assuming no expected dividend yield. The risk-freeRisk-free interest rate is based on the U.S. Treasury yield curve for the expected service period of the award. Expected volatility is calculated using the daily volatility of our Class A common stock over the expected service period of the award.
The Monte Carlo pricing model requires extensive use of accounting judgment and financial estimation. Application of alternative assumptions could produce significantly different estimates of the fair value of stock-based compensation and consequently, the related amounts recognized in the consolidated statements of operations.
We also recorded $31$109 and $96$199 of stock-based compensation expense related to our Amended and Restated 1997 Employee Stock Purchase Planthe ESPP during the three and ninesix months ended SeptemberJune 30, 2017,2023, respectively, as compared to $28$93 and $79$166 during the three and ninesix months ended SeptemberJune 30, 2016,2022, respectively.
Accumulated Other Comprehensive LossIncome, Net of Tax
A summary of the changes in the balances of each component of accumulated other comprehensive loss,income, net of tax follows: | | | | | | | |
| | | |
| | | Interest Rate Swaps |
Balance, December 31, 2022 | | | $ | 7,542 | |
| | | |
Other comprehensive income before reclassifications | | | 2,462 | |
Amounts reclassified from accumulated other comprehensive income | | | (2,376) | |
Income tax provision related to items of other comprehensive income | | | (20) | |
Net current-period other comprehensive income, net of tax | | | 66 | |
Balance, June 30, 2023 | | | $ | 7,608 | |
|
| | | | | | | |
| | | |
| Marketable Securities | | Interest Rate Swaps |
Balance, December 31, 2016 | $ | (68 | ) | | $ | — |
|
Other comprehensive income (loss) before reclassifications | 64 |
| | (567 | ) |
Amounts reclassified from accumulated other comprehensive loss | — |
| | 320 |
|
Net current-period other comprehensive income (loss) | 64 |
| | (247 | ) |
Balance, September 30, 2017 | $ | (4 | ) | | $ | (247 | ) |
A summary of reclassifications out of accumulated other comprehensive loss,income, net of tax into earnings follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | | |
| | 2023 | | 2022 | | 2023 | | 2022 | | |
Details About Accumulated Other Comprehensive Income, Net of Tax Components | | Amounts Reclassified Out of Accumulated Other Comprehensive Income, Net of Tax | | Affected Line Item in the Consolidated Statements of Operations |
Interest rate swaps | | $ | (1,270) | | | $ | 994 | | | $ | (2,376) | | | $ | 2,122 | | | Interest expense |
| | 1,270 | | | (994) | | | 2,376 | | | (2,122) | | | Income before income taxes |
| | 348 | | | — | | | 651 | | | (190) | | | Provision for income taxes |
| | $ | 922 | | | $ | (994) | | | $ | 1,725 | | | $ | (1,932) | | | Net income |
| | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | |
| | 2017 | | 2016 | | 2017 | | 2016 | | |
Details About Accumulated Other Comprehensive Loss Components | | Amounts Reclassified Out of Accumulated Other Comprehensive Loss | | Affected Line Item in the Consolidated Statements of Operations |
Interest rate swaps | | $ | 112 |
| | $ | — |
| | $ | 320 |
| | $ | — |
| | Interest expense |
| | 112 |
| | — |
| | 320 |
| | — |
| | Income (loss) before income taxes |
| | — |
| | — |
| | — |
| | — |
| | Provision for income taxes |
| | $ | 112 |
| | $ | — |
| | $ | 320 |
| | $ | — |
| | Net income (loss) |
10. EARNINGS PER SHARE
Basic earnings per share is computed by dividing the net income (loss) from continuing operations attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated based on the combined weighted average number of common shares and potentially dilutive shares, which include the assumed exercise of employee stock options, including market-based performance stock options based on the expected achievement of performance targets, unvested restricted stock awards, unvested restricted stock units and unvested performance stock units, including market-based performance units based on the expected achievement of performance targets. In computing diluted earnings per share, we utilize the treasury stock method.
A summary of the numerator and denominators used in the computation of earnings per share follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Numerator: | | | | | | | |
Net income | $ | 5,490 | | | $ | 17,796 | | | $ | 9,038 | | | $ | 21,986 | |
Denominators: | | | | | | | |
Number of shares outstanding, end of period: | | | | | | | |
Class A common stock | 56,974 | | | 50,690 | | | 56,974 | | | 50,690 | |
Class B common stock | 988 | | | 988 | | | 988 | | | 988 | |
| | | | | | | |
Unvested restricted stock | (1) | | | (2) | | | (1) | | | (2) | |
Effect of weighted average shares outstanding (1) | (5,076) | | | (34) | | | (5,630) | | | (109) | |
Basic weighted average common shares outstanding | 52,885 | | | 51,642 | | | 52,331 | | | 51,567 | |
Impact of potentially dilutive securities: | | | | | | | |
Dilutive effect of stock options and other stock awards | 95 | | | 139 | | | 96 | | | 153 | |
Diluted weighted average common shares outstanding | 52,980 | | | 51,781 | | | 52,427 | | | 51,720 | |
Anti-dilutive potentially issuable shares | 75 | | | 70 | | | 84 | | | 70 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Numerator: | | | | | | | |
Net income (loss) attributable to common stockholders | $ | 12,080 |
| | $ | 7,537 |
| | $ | (41,820 | ) | | $ | 5,125 |
|
Denominators: | | | | | | | |
Number of shares outstanding, end of period: | | | | | | | |
Class A common stock | 41,055 |
| | 40,500 |
| | 41,055 |
| | 40,500 |
|
Class B common stock | 988 |
| | 988 |
| | 988 |
| | 988 |
|
Unvested restricted stock | (82 | ) | | (109 | ) | | (82 | ) | | (109 | ) |
Effect of weighted average shares outstanding | (10 | ) | | (2 | ) | | (178 | ) | | (210 | ) |
Basic weighted average common shares outstanding | 41,951 |
| | 41,377 |
| | 41,783 |
| | 41,169 |
|
Impact of potentially dilutive securities: | | | | | | | |
Dilutive effect of stock options and other stock awards | 1,344 |
| | 910 |
| | — |
| | 727 |
|
Diluted weighted average common shares outstanding | 43,295 |
| | 42,287 |
| | 41,783 |
| | 41,896 |
|
Anti-dilutive potentially issuable shares | — |
| | 322 |
| | 2,560 |
| | 322 |
|
| |
10. | Other Items and Charges |
Southbridge Landfill Closure Charge
In June 2017, we initiated the plan to cease operations of the Southbridge Landfill as disclosed in Note 7, Commitments and Contingencies. Accordingly,(1)Adjustments in the three and ninesix months ended SeptemberJune 30, 2017,2023 primarily associated with the 6,053 shares of Class A common stock issued as part of the public offering, completed on June 16, 2023, only being outstanding for 14 days in the periods ended June 30, 2023. See Note 9, Stockholders' Equity for disclosure regarding the public offering of Class A common stock.
11. OTHER ITEMS AND CHARGES
Expense from Acquisition Activities
In the three and six months ended June 30, 2023, we recorded charges of $3,677 and $6,540, respectively, and in the three and six months ended June 30, 2022, we recorded charges of $1,019 and $3,062, respectively, comprised primarily of legal, consulting and other similar costs associated with due diligence and the closureacquisition and integration of acquired businesses or select development projects.
Legal settlement
In the Southbridge Landfillthree and six months ended June 30, 2023, we accrued for a charge of $6,150 in current liabilities due to reaching an agreement at a mediation held on June 20, 2023 with the collective class members of a class action lawsuit relating to certain claims under the Fair Labor Standards Act of 1938 as follows:
well as state wage and hours laws. The settlement agreement was executed July 24, 2023, and remains subject to court approval. See Note 8, Commitments and Contingencies for disclosure regarding our aggregate legal proceedings accrual.
|
| | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Asset impairment charge (1) | $ | — |
| | $ | — |
| | $ | 47,999 |
| | $ | — |
|
Project development charge (2) | — |
| | — |
| | 9,149 |
| | — |
|
Environmental remediation charge (3) | — |
| | — |
| | 6,379 |
| | — |
|
Legal and transaction costs (4) | 754 |
| | — |
| | 1,341 |
| | — |
|
Southbridge Landfill closure charge | $ | 754 |
| | $ | — |
| — |
| $ | 64,868 |
| | $ | — |
|
| |
(1) | We performed a test of recoverability under FASB ASC 360 - Property, Plant, and Equipment, which indicated that the carrying value of our asset group that includes the Southbridge Landfill was no longer recoverable and, as a result, the asset group was assessed for impairment with an impairment charge allocated to the long-lived assets of the Southbridge Landfill in accordance with FASB ASC 360 - Property, Plant, and Equipment. |
| |
(2) | We wrote-off deferred costs associated with Southbridge Landfill permitting activities no longer deemed viable. |
| |
(3) | We recorded an environmental remediation charge associated with the future installation of a municipal waterline. See Note 7, Commitments and Contingencies for additional disclosure.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS |
| |
(4) | We incurred legal and other transaction costs associated with various matters as part of the Southbridge Landfill closure. See Note 7, Commitments and Contingencies for additional disclosure.
|
| |
11. | FAIR VALUE OF FINANCIAL INSTRUMENTS |
We use a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. These tiers include: Level 1, defined as quoted market prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; and Level 3, defined as unobservable inputs that are not corroborated by market data.
We use valuation techniques that maximize the use of market prices and observable inputs and minimize the use of unobservable inputs. In measuring the fair value of our financial assets and liabilities, we rely on market data or assumptions that we believe market participants would use in pricing an asset or a liability.
Assets and Liabilities Accounted for at Fair Value
Our financial instruments include cash and cash equivalents, accounts receivable-trade,receivable, restricted cash and investmentsinvestment securities held in trust on deposit with various banks as collateral for our obligations relative to our landfill final capping, closure and post-closure costs, interest rate derivatives, contingent consideration related to acquisitions, trade payables and long-term debt. The carrying values of cash and cash equivalents, accounts receivable - trade and trade payables approximate their respective fair values due to their short-term nature. The fair value of restricted cash and investmentsinvestment securities held in trust, which are valued using quoted market prices, are included as restricted assets in the Level 1 tier below. The fair value of the interest rate derivatives included in the Level 2 tier below is calculated using discounted cash flow valuation methodologies based upon the one month LIBORTerm SOFR yield curves that are observable at commonly quoted intervals for the full term of the swaps.
The fair value of contingent consideration - acquisition included in the Level 3 tier below is calculated using a discounted cash flow valuation methodology based upon a probability-weighted analysis of a success payment related to the potential attainment of a transfer station permit expansion. We recognize all derivatives accounted for on the balance sheet at fair value.
Recurring Fair Value Measurements
Summaries of our financial assets and liabilities that are measured at fair value on a recurring basis follow: | | | | | | | | | | | | | | | | | |
| Fair Value Measurement at June 30, 2023 Using: |
| Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | | | | | |
Restricted investment securities - landfill closure | $ | 2,005 | | | $ | — | | | $ | — | |
Interest rate swaps | — | | | 11,910 | | | — | |
| | | | | |
| $ | 2,005 | | | $ | 11,910 | | | $ | — | |
| | | | | |
Liabilities: | | | | | |
Contingent consideration - acquisition | $ | — | | | $ | — | | | $ | 376 | |
Interest rate swaps | — | | | 18 | | | — | |
| $ | — | | | $ | 18 | | | $ | 376 | |
|
| | | | | | | | | | | |
| Fair Value Measurement at September 30, 2017 Using: |
| Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | | | | | |
Interest rate derivatives | $ | — |
| | $ | 58 |
| | $ | — |
|
Restricted investments - landfill closure | 1,084 |
| | — |
| | — |
|
Total | $ | 1,084 |
| | $ | 58 |
| | $ | — |
|
Liabilities: | | | | | |
Interest rate derivatives | $ | — |
| | $ | 322 |
| | $ | — |
|
| | | | | | | | | | | | | | | | | |
| Fair Value Measurement at December 31, 2022 Using: |
| Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | | | | | |
| | | | | |
| | | | | |
Restricted investment securities - landfill closure | $ | 1,900 | | | $ | — | | | $ | — | |
Interest rate swaps | — | | | 11,806 | | | — | |
| $ | 1,900 | | | $ | 11,806 | | | $ | — | |
Liabilities: | | | | | |
Contingent consideration - acquisition | $ | — | | | $ | — | | | $ | 965 | |
| | | | | |
|
| | | | | | | | | | | |
| Fair Value Measurement at December 31, 2016 Using: |
| Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | | | | | |
Restricted investments - landfill closure | $ | 1,002 |
| | $ | — |
| | $ | — |
|
Fair Value of Debt
As of SeptemberJune 30, 2017,2023, the fair value of our fixed rate debt, including our FAME Bonds 2005R-3, Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2015 (“FAME Bonds 2015”),2015R-1, FAME Bonds 2015R-2, Vermont Economic Development Authority Solid Waste Disposal Long-Term Revenue Bonds Series 2013, (“Vermont Bonds”), New York State Environmental Facilities Corporation Solid Waste Disposal Revenue Bonds Series 2014 (“2022A-1, New York Bonds 2014”), New York State Environmental Facilities Corporation Solid Waste Disposal Revenue Bonds Series 2014R-2 (“2014R-1, New York Bonds 2016”)2014R-2, New York Bonds 2020 and Solid Waste Disposal Revenue Bonds Series 2013 issued by the Business Finance Authority of the State of New Hampshire (“New Hampshire Bonds”Bonds (collectively, the "Industrial Revenue Bonds") was approximately $106,053$190,876 and the carrying value was $107,000.$197,000. The fair value of the FAME Bonds 2005R-3, the FAME Bonds 2015, the Vermont Bonds, the New York Bonds 2014, the New York Bonds 2016 and the New HampshireIndustrial Revenue Bonds is considered to be Level 2 within the fair value hierarchy as the fair value is determined using market approach pricing provided by a third-party that utilizes pricing models and pricing systems, mathematical tools and judgment to determine the evaluated price for the security based on the market information of each of the bonds or securities with similar characteristics.
As of SeptemberJune 30, 2017,2023, the fair valuecarrying values of our Term Loan B Facility was approximately $349,121and 2023 Term Loan Facility were $350,000 and $430,000, respectively, and the carrying value was $348,250. The fair value of the Term Loan B Facility is considered to be Level 2 within the fair value hierarchy as its fair value is based off of quoted market prices in a principal to principal market with limited public information. As of September 30, 2017, the fair value of our Revolving Credit Facility approximated its carrying value of $36,300was zero dollars. Their fair values are based on current borrowing rates for similar types of borrowing arrangements, or Level 2 inputs.inputs, and approximate their carrying values.
Although we have determined the estimated fair value amounts of the Term Loan B Facility, FAME Bonds 2005R-3, FAME Bonds 2015, Vermont Bonds, New York Bonds 2014, New York Bonds 2016 and New HampshireIndustrial Revenue Bonds using available market information and commonly accepted valuation methodologies, a change in available market information, and/or the use of different assumptions and/or estimation methodologies could have a material effect on the estimated fair values. These amounts have not been revalued, and current estimates of fair value could differ significantly from the amounts presented.
24
We report selected information about our reportable operating segments in a manner consistent with that used for internal management reporting. We classify our solid waste operations on a geographic basis through regional operating segments, our Eastern, Western and EasternMid-Atlantic regions. The GFL Acquisition, which occurred on June 30, 2023 and is the basis for our newly formed Mid-Atlantic operating segment, did not commence operations until July 1, 2023 and, therefore, had no operational impact on the periods presented in this Quarterly Report on Form 10-Q. Revenues associated with our solid waste operations are derived mainly from solid waste collection and disposal services, including landfill, transfer station and transportation services, landfill gas-to-energy transferservices, and recyclingprocessing services in the northeasterneastern United States. Our revenuesResource Solutions operating segment leverages our core competencies in the Recycling segmentmaterials processing, industrial recycling, organics and resource management service offerings to deliver a comprehensive solution for our larger commercial, municipal, institutional and industrial customers that have more diverse waste and recycling needs. Revenues associated with our Resource Solutions operations are comprised of processing services and services provided by our National Accounts business. Revenues from processing services are derived from municipalities and customers in the form of processing fees, tipping fees, commodity sales, and commodityorganic material sales. OrganicsRevenues from our National Accounts business are derived from brokerage services ancillary operations, majorand overall resource management services providing a wide range of environmental services and resource management solutions to large and complex organizations, as well as traditional collection, disposal and recycling services provided to large account multi-site customers. Legal, tax, information technology, human resources, certain finance and industrial services, discontinued operations,accounting and earnings from equity method investees, as applicable,other administrative functions are included in our OtherCorporate Entities segment, which is not a reportable operating segment. Corporate Entities results reflect those costs not allocated to our reportable operating segments.
Three Months Ended SeptemberJune 30, 20172023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Segment | | Outside revenues | | Inter-company revenues | | Depreciation and amortization | | Operating income (loss) | | Total assets |
Eastern | | $ | 93,323 | | | $ | 23,563 | | | $ | 12,148 | | | $ | 7,519 | | | $ | 366,892 | |
Western | | 124,229 | | | 42,342 | | | 18,917 | | | 18,991 | | | 751,324 | |
Mid-Atlantic | | — | | | — | | | — | | | — | | | 550,758 | |
Resource Solutions | | 72,093 | | | 3,316 | | | 3,090 | | | 688 | | | 203,049 | |
Corporate Entities | | — | | | — | | | 769 | | | (4,584) | | | 545,269 | |
Eliminations | | — | | | (69,221) | | | — | | | — | | | — | |
| | $ | 289,645 | | | $ | — | | | $ | 34,924 | | | $ | 22,614 | | | $ | 2,417,292 | |
|
| | | | | | | | | | | | | | | | | | | |
Segment | Outside revenues | | Inter-company revenue | | Depreciation and amortization | | Operating income (loss) | | Total assets |
Eastern | $ | 49,066 |
| | $ | 14,296 |
| | $ | 6,122 |
| | $ | 5,897 |
| | $ | 155,726 |
|
Western | 67,992 |
| | 19,183 |
| | 8,572 |
| | 11,579 |
| | 335,373 |
|
Recycling | 16,360 |
| | (292 | ) | | 1,044 |
| | 638 |
| | 49,471 |
|
Other | 26,851 |
| | 531 |
| | 853 |
| | 163 |
| | 51,850 |
|
Eliminations | — |
| | (33,718 | ) | | — |
| | — |
| | — |
|
Total | $ | 160,269 |
| | $ | — |
| | $ | 16,591 |
| | $ | 18,277 |
| | $ | 592,420 |
|
Three Months Ended SeptemberJune 30, 20162022 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Segment | | Outside revenues | | Inter-company revenues | | Depreciation and amortization | | Operating income (loss) | | Total assets |
Eastern | | $ | 87,263 | | | $ | 22,147 | | | $ | 11,538 | | | $ | 6,150 | | | $ | 362,942 | |
Western | | 114,884 | | | 39,491 | | | 15,939 | | | 19,897 | | | 697,252 | |
Mid-Atlantic | | — | | | — | | | — | | | — | | | — | |
Resource Solutions | | 81,519 | | | 317 | | | 3,110 | | | 6,235 | | | 189,820 | |
Corporate Entities | | — | | | — | | | 563 | | | (563) | | | 120,705 | |
Eliminations | | — | | | (61,955) | | | — | | | — | | | — | |
| | $ | 283,666 | | | $ | — | | | $ | 31,150 | | | $ | 31,719 | | | $ | 1,370,719 | |
|
| | | | | | | | | | | | | | | | | | | |
Segment | Outside revenues | | Inter-company revenue | | Depreciation and amortization | | Operating income (loss) | | Total assets |
Eastern | $ | 47,238 |
| | $ | 12,775 |
| | $ | 7,291 |
| | $ | 4,452 |
| | $ | 206,177 |
|
Western | 63,171 |
| | 18,560 |
| | 7,010 |
| | 11,392 |
| | 326,862 |
|
Recycling | 14,412 |
| | 94 |
| | 1,055 |
| | 1,529 |
| | 48,531 |
|
Other | 26,312 |
| | 530 |
| | 819 |
| | 5 |
| | 53,685 |
|
Eliminations | — |
| | (31,959 | ) | | — |
| | — |
| | — |
|
Total | $ | 151,133 |
| | $ | — |
| | $ | 16,175 |
| | $ | 17,378 |
| | $ | 635,255 |
|
NineSix Months Ended SeptemberJune 30, 20172023
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
Segment | | Outside revenues | | Inter-company revenues | | Depreciation and amortization | | Operating income (loss) | | Total assets |
Eastern | | $ | 177,233 | | | $ | 42,932 | | | $ | 24,051 | | | $ | 9,659 | | | $ | 366,892 | |
Western | | 235,262 | | | 78,901 | | | 36,583 | | | 31,417 | | | 751,324 | |
Mid-Atlantic | | — | | | — | | | — | | | — | | | 550,758 | |
Resource Solutions | | 139,746 | | | 6,803 | | | 6,166 | | | (1,255) | | | 203,049 | |
Corporate Entities | | — | | | — | | | 1,559 | | | (6,942) | | | 545,269 | |
Eliminations | | — | | | (128,636) | | | — | | | — | | | — | |
| | $ | 552,241 | | | $ | — | | | $ | 68,359 | | | $ | 32,879 | | | $ | 2,417,292 | |
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
Segment | Outside revenues | | Inter-company revenue | | Depreciation and amortization | | Operating income (loss) | | Total assets |
Eastern | $ | 134,326 |
| | $ | 37,020 |
| | $ | 17,949 |
| | $ | (54,407 | ) | | $ | 155,726 |
|
Western | 186,507 |
| | 53,590 |
| | 22,762 |
| | 26,438 |
| | 335,373 |
|
Recycling | 49,206 |
| | (781 | ) | | 3,066 |
| | 3,285 |
| | 49,471 |
|
Other | 78,048 |
| | 1,516 |
| | 2,530 |
| | 2,247 |
| | 51,850 |
|
Eliminations | — |
| | (91,345 | ) | | — |
| | — |
| | — |
|
Total | $ | 448,087 |
| | $ | — |
| | $ | 46,307 |
| | $ | (22,437 | ) | | $ | 592,420 |
|
NineSix Months Ended SeptemberJune 30, 20162022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
Segment | | Outside revenues | | Inter-company revenues | | Depreciation and amortization | | Operating income (loss) | | Total assets |
Eastern | | $ | 158,582 | | | $ | 38,815 | | | $ | 22,988 | | | $ | 3,920 | | | $ | 362,942 | |
Western | | 210,723 | | | 71,983 | | | 30,598 | | | 29,160 | | | 697,252 | |
Mid-Atlantic | | — | | | — | | | — | | | — | | | — | |
Resource Solutions | | 148,388 | | | 1,095 | | | 5,872 | | | 9,928 | | | 189,820 | |
Corporate Entities | | — | | | — | | | 1,121 | | | (1,121) | | | 120,705 | |
Eliminations | | — | | | (111,893) | | | — | | | — | | | — | |
| | $ | 517,693 | | | $ | — | | | $ | 60,579 | | | $ | 41,887 | | | $ | 1,370,719 | |
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
Segment | Outside revenues | | Inter-company revenue | | Depreciation and amortization | | Operating income (loss) | | Total assets |
Eastern | $ | 131,630 |
| | $ | 34,003 |
| | $ | 20,618 |
| | $ | 6,742 |
| | $ | 206,177 |
|
Western | 175,093 |
| | 51,300 |
| | 20,409 |
| | 24,561 |
| | 326,862 |
|
Recycling | 37,865 |
| | 1,026 |
| | 3,187 |
| | 923 |
| | 48,531 |
|
Other | 76,648 |
| | 1,213 |
| | 2,216 |
| | 2,721 |
| | 53,685 |
|
Eliminations | — |
| | (87,542 | ) | | — |
| | — |
| | — |
|
Total | $ | 421,236 |
| | $ | — |
| | $ | 46,430 |
| | $ | 34,947 |
| | $ | 635,255 |
|
A summary of our revenues attributable to services provided follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Collection | $ | 149,848 | | | $ | 137,261 | | | $ | 289,825 | | | $ | 256,793 | |
Disposal | 63,629 | | | 60,204 | | | 115,096 | | | 103,356 | |
Power generation | 1,321 | | | 1,753 | | | 3,245 | | | 4,407 | |
Processing | 2,754 | | | 2,929 | | | 4,329 | | | 4,749 | |
Solid waste operations | 217,552 | | | 202,147 | | | 412,495 | | | 369,305 | |
Processing | 25,383 | | | 33,867 | | | 48,189 | | | 61,263 | |
National Accounts | 46,710 | | | 47,652 | | | 91,557 | | | 87,125 | |
Resource Solutions operations | 72,093 | | | 81,519 | | | 139,746 | | | 148,388 | |
Total revenues | $ | 289,645 | | | $ | 283,666 | | | $ | 552,241 | | | $ | 517,693 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Collection | $ | 70,040 |
| | $ | 65,581 |
| | $ | 196,185 |
| | $ | 187,117 |
|
Disposal | 44,881 |
| | 43,412 |
| | 118,334 |
| | 115,050 |
|
Power generation | 1,215 |
| | 1,610 |
| | 4,121 |
| | 4,777 |
|
Processing | 2,499 |
| | 1,974 |
| | 6,296 |
| | 4,694 |
|
Solid waste operations | 118,635 |
| | 112,577 |
| | 324,936 |
| | 311,638 |
|
Organics | 9,662 |
| | 10,266 |
| | 29,881 |
| | 31,372 |
|
Customer solutions | 15,612 |
| | 13,878 |
| | 44,064 |
| | 40,361 |
|
Recycling | 16,360 |
| | 14,412 |
| | 49,206 |
| | 37,865 |
|
Total revenues | $ | 160,269 |
| | $ | 151,133 |
| | $ | 448,087 |
| | $ | 421,236 |
|
| |
ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our unaudited consolidated financial statements and notes thereto included under Item 1. In addition, reference should be made to our audited consolidated financial statements and notes thereto and related "Management’s Discussion and Analysis of Financial Condition and Results of Operations" appearing in our Annual Report on Form 10-K for the fiscal year ended December 31, 20162022 ("fiscal year 2022") filed with the Securities and Exchange Commission (“SEC”) on March 2, 2017.February 17, 2023.
This Quarterly Report on Form 10-Q and, in particular, this "Management’s Discussion and Analysis of Financial Condition and Results of Operations", may contain or incorporate a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended, including:including statements regarding:
•the projected development of additional disposal capacity or expectations regarding permits for existing capacity;
•the outcome of any legal or regulatory matter;
•expected liquidity and financing plans;
•expected future revenues, operations, expenditures and cash needs;
•whether our pricing programs and operational initiatives will outpace higher operating and construction costs from inflation and regulatory changes;
•fluctuations in therecycling commodity pricing, of our recyclables, increases in landfill tipping fees and fuel costs and general economic and weather conditions;
•projected future obligations related to final capping, closure and post-closure costs of our existing landfills and any disposal facilities which we may own or operate in the future;
•our ability to use our net operating losses and tax positions;
•our ability to service our debt obligations;
•the recoverability or impairment of any of our assets or goodwill;
•estimates of the potential markets for our products and services, including the anticipated drivers for future growth;
•sales and marketing plans or price and volume assumptions;
•potential business combinations or divestitures; and
•projected improvements to our infrastructure and the impact of such improvements on our business and operations.operations; and
•general economic factors, such as ongoing or potential geopolitical conflict, pandemics, recessions, or similar national or global events, and general macroeconomic conditions, including, among other things, consumer confidence, global supply chain disruptions, inflation, labor supply, fuel prices, interest rates and access to capital markets that generally are not within our control, and our exposure to credit and counterparty risk.
In addition, any statements contained in or incorporated by reference into this report that are not statements of historical fact should be considered forward-looking statements. You can identify these forward-looking statements by the use of the words “believes”, “expects”, “anticipates”, “plans”, “may”, “will”, “would”, “intends”, “estimates” 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, as well as management’s beliefs and assumptions, and should be read in conjunction with our consolidated financial statements and notes thereto. These forward-looking statements are not guarantees of future performance, circumstances or events. The occurrence of the events described and the achievement of the expected results depends on many events, some or all of which are not predictable or within our control. Actual results may differ materially from those set forth in the forward-looking statements.
There are a number of important risks and uncertainties that could cause our actual results to differ materially from those indicated by such forward-looking statements. These risks and uncertainties include, without limitation, those detailed in Item 1A, “Risk Factors”1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and, if applicable, those included under Part II, Item 1A of this Quarterly Report on Form 10-Q.2022.
There may be additional risks that we are not presently aware of or that we currently believe are immaterial, which could have an adverse impact on our business. We explicitly disclaim any obligation to update any forward-looking statements whether as athe result of new information, future events or otherwise, except as otherwise required by law.
Company Overview
Founded in 1975 with a single truck, Casella Waste Systems, Inc., a Delaware corporation, and its wholly-ownedconsolidated subsidiaries and certain partially owned entities over which it has a controlling financial interest (collectively, “we”, “us” or “our”), is a regional, vertically-integratedvertically integrated solid waste services company. We provide resource management expertise and services to residential, commercial, municipal, institutional and industrial customers, primarily in the areas of solid waste collection and disposal, transfer, recycling and organics services. We provide
Through June 30, 2023, we provided integrated solid waste services in sixseven states: Vermont, New Hampshire, New York, Massachusetts, Connecticut, Maine and Pennsylvania, with our headquarters located in Rutland, Vermont. On June 30, 2023, we acquired the equity interests of four wholly owned subsidiaries of GFL Environmental Inc., which are the basis of a newly formed regional operating segment, the Mid-Atlantic region, that will expand our integrated solid waste services to the states of Delaware and Maryland ("GFL Acquisition"). Operations under the Mid-Atlantic region did not commence until July 1, 2023, and have had no impact on our operational results for the periods presented in this Quarterly Report on Form 10-Q. For additional disclosure regarding the GFL Acquisition see Note 4, Business Combinations, Note 7, Debt and Note 9, Stockholders' Equity to our consolidated financial statements includedunder Part I, Item 1 of this Quarterly Report on Form 10-Q.
We manage our solid waste operations on a geographic basis through two regional operating segments, the Eastern, Western and WesternMid-Atlantic regions, each of which provides a full range of solid waste services, andservices. We manage our larger-scale recycling and commodity brokerageresource-renewal operations through the Resource Solutions operating segment, which leverages our Recycling segment. Organics services, ancillary operations, major accountcore competencies in materials processing, industrial recycling, organics and resource management service offerings to deliver a comprehensive solution for our larger commercial, municipal, institutional and industrial services, discontinued operations,customers that have more diverse waste and earnings from equity method investees, as applicable,recycling needs. Legal, tax, information technology, human resources, certain finance and accounting and other administrative functions are included in our OtherCorporate Entities segment.
As of October 16, 2017,July 15, 2023, we owned and/or operated 3159 solid waste collection operations, 4667 transfer stations, 1827 recycling facilities, nineeight Subtitle D landfills, fourthree landfill gas-to-energy facilities and one landfill permitted to accept construction and demolition (“C&D”) materials. We also housed two landfill gas-to-energy facilities, which are owned and operated by third parties at landfills we owned and/or operated.
Recent Events
In the quarter ended June 30, 2017, we recorded a charge of $64.1 million associated with our decision to cease operations at the Town of Southbridge, Massachusetts ("Town") Landfill ("Southbridge Landfill"), including an asset impairment charge of $48.0 million related to our asset group that includes the Southbridge Landfill asset; a project development charge of $9.1 million related to the write-off of deferred costs associated with landfill permitting activities no longer deemed viable; an environmental remediation charge of $6.4 million associated with the future installation of a municipal waterline; and a charge of $0.6 million for legal and transaction costs associated with various matters as part of the Southbridge Landfill closure. Additionally, in the three months ended September 30, 2017, we recorded a charge of $0.8 million for legal costs associated with various matters as a part of the Southbridge Landfill closure. As part of our decision to cease operations, we assessed the estimated costs and timing of cash flows associated with remaining capital expenditures, environmental remediation, and final capping, closure and post-closure activities at the Southbridge Landfill. We expect cash outflows in the next five years associated with these activities to be approximately $21.0 million and we do not believe that this will negatively impact our liquidity during this time. In addition, we estimate that over $52.0 million in additional tax deductions relating to ceasing operations will be recognized in the next five years. Furthermore, we do not believe that ceasing operations at the Southbridge Landfill will impact our future operational activities in a manner that will have a material impact to our results of operations, our cash flows or our financial condition. For additional information, see Note 7, Commitments and Contingencies and Note 10, Other Items and Charges to our consolidated financial statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q.
Results of Operations
Revenues
We manage our solid waste operations, which include a full range of solid waste services, on a geographic basis through two regional operating segments, which we designate as the Eastern, Western and WesternMid-Atlantic regions. Operations under the Mid-Atlantic region did not commence until July 1, 2023, and have had no impact on our operational results for the periods presented in this Quarterly Report on Form 10-Q. Revenues inassociated with our Eastern and Western regions consist primarily ofsolid waste operations are derived mainly from fees charged to customers for solid waste collection and disposal services, including landfill, transfer station and transportation, landfill gas-to-energy, transfer and recycling services.processing services in the eastern United States. We derive a substantial portion of our collection revenues from commercial, industrial and municipal services that are generally performed under service agreements or pursuant to contracts with municipalities. The majority of our residential collection services are performed on a subscription basis with individual households.property owners or occupants. Landfill and transfer customers are charged a tipping fee on a per ton basis for disposing of their solid waste at our disposal facilities and transfer stations. We also generate and sell electricity at certain of our landfill facilities. We manage our resource-renewal operations through the Resource Solutions operating segment, which includes processing services, and non-processing services, which we now refer to as our National Accounts business. Revenues from our Recycling segment consist of revenuesprocessing services are derived from municipalities and customers in the form of processing fees, tipping fees, commodity sales, primarily comprised of newspaper, corrugated containers, plastics, ferrous and commodity sales.aluminum, and organic materials such as our earthlife® soils products including fertilizers, composts and mulches. Revenues from organicsour National Accounts business are derived from brokerage services ancillary operations, and majoroverall resource management services providing a wide range of environmental services and resource management solutions to large and complex organizations, as well as traditional collection, disposal and recycling services provided to large account and industrial services are included in our Other segment. Our revenues are shown net of inter-company eliminations.multi-site customers.
A summary of revenues attributable to serviceservices provided (dollars in millions and as a percentage of total revenues) follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | $ Change | | Six Months Ended June 30, | | $ Change |
| 2023 | | 2022 | | 2023 | | 2022 | |
Collection | $ | 149.8 | | | 51.7 | % | | $ | 137.3 | | | 48.4 | % | | $ | 12.5 | | | $ | 289.8 | | | 52.5 | % | | $ | 256.8 | | | 49.6 | % | | $ | 33.0 | |
Disposal | 63.6 | | | 22.0 | % | | 60.2 | | | 21.2 | % | | 3.4 | | | 115.1 | | | 20.8 | % | | 103.4 | | | 20.0 | % | | 11.7 | |
Power | 1.3 | | | 0.4 | % | | 1.8 | | | 0.6 | % | | (0.5) | | | 3.2 | | | 0.6 | % | | 4.4 | | | 0.9 | % | | (1.2) | |
Processing | 2.9 | | | 1.0 | % | | 2.8 | | | 1.1 | % | | 0.1 | | | 4.4 | | | 0.8 | % | | 4.7 | | | 0.8 | % | | (0.3) | |
Solid waste | 217.6 | | | 75.1 | % | | 202.1 | | | 71.3 | % | | 15.5 | | | 412.5 | | | 74.7 | % | | 369.3 | | | 71.3 | % | | 43.2 | |
Processing | 25.3 | | | 8.8 | % | | 33.9 | | | 11.9 | % | | (8.6) | | | 48.1 | | | 8.7 | % | | 61.3 | | | 11.9 | % | | (13.2) | |
National Accounts | 46.7 | | | 16.1 | % | | 47.7 | | | 16.8 | % | | (1.0) | | | 91.6 | | | 16.6 | % | | 87.1 | | | 16.8 | % | | 4.5 | |
Resource Solutions | 72.0 | | | 24.9 | % | | 81.6 | | | 28.7 | % | | (9.6) | | | 139.7 | | | 25.3 | % | | 148.4 | | | 28.7 | % | | (8.7) | |
Total revenues | $ | 289.6 | | | 100.0 | % | | $ | 283.7 | | | 100.0 | % | | $ | 5.9 | | | $ | 552.2 | | | 100.0 | % | | $ | 517.7 | | | 100.0 | % | | $ | 34.5 | |
| | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | $ Change | | Nine Months Ended September 30, | | $ Change |
| 2017 | | 2016 | | 2017 | | 2016 | |
Collection | $ | 70.0 |
| | 43.7 | % | | $ | 65.6 |
| | 43.4 | % | | $ | 4.4 |
| | $ | 196.2 |
| | 43.8 | % | | $ | 187.1 |
| | 44.4 | % | | $ | 9.1 |
|
Disposal | 44.9 |
| | 28.0 | % | | 43.4 |
| | 28.7 | % | | 1.5 |
| | 118.3 |
| | 26.4 | % | | 115.0 |
| | 27.3 | % | | 3.3 |
|
Power | 1.2 |
| | 0.8 | % | | 1.6 |
| | 1.1 | % | | (0.4 | ) | | 4.1 |
| | 0.9 | % | | 4.8 |
| | 1.1 | % | | (0.7 | ) |
Processing | 2.5 |
| | 1.5 | % | | 2.0 |
| | 1.3 | % | | 0.5 |
| | 6.3 |
| | 1.4 | % | | 4.7 |
| | 1.2 | % | | 1.6 |
|
Solid waste | 118.6 |
| | 74.0 | % | | 112.6 |
| | 74.5 | % | | 6.0 |
| | 324.9 |
| | 72.5 | % | | 311.6 |
| | 74.0 | % | | 13.3 |
|
Organics | 9.7 |
| | 6.1 | % | | 10.2 |
| | 6.8 | % | | (0.5 | ) | | 29.9 |
| | 6.7 | % | | 31.3 |
| | 7.4 | % | | (1.4 | ) |
Customer solutions | 15.6 |
| | 9.7 | % | | 13.9 |
| | 9.2 | % | | 1.7 |
| | 44.1 |
| | 9.8 | % | | 40.4 |
| | 9.6 | % | | 3.7 |
|
Recycling | 16.4 |
| | 10.2 | % | | 14.4 |
| | 9.5 | % | | 2.0 |
| | 49.2 |
| | 11.0 | % | | 37.9 |
| | 9.0 | % | | 11.3 |
|
Total revenues | $ | 160.3 |
| | 100.0 | % | | $ | 151.1 |
| | 100.0 | % | | $ | 9.2 |
| | $ | 448.1 |
| | 100.0 | % | | $ | 421.2 |
| | 100.0 | % | | $ | 26.9 |
|
A summary of the period-to-period changes in solid waste revenues (dollars in millions)millions and as percentage growth of solid waste revenues) follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Period-to-Period Change for the Three Months Ended June 30, 2023 vs. 2022 | | Period-to-Period Change for the Six Months Ended June 30, 2023 vs. 2022 |
| Amount | | % Growth | | Amount | | % Growth |
Price | $ | 15.5 | | | 7.7 | % | | $ | 30.2 | | | 8.2 | % |
Volume | (5.2) | | | (2.6) | % | | (4.7) | | | (1.3) | % |
Surcharges and other fees | 0.9 | | | 0.4 | % | | 11.3 | | | 3.1 | % |
Commodity price and volume | (0.7) | | | (0.4) | % | | (1.7) | | | (0.5) | % |
Acquisitions | 5.0 | | | 2.5 | % | | 8.1 | | | 2.2 | % |
| | | | | | | |
Solid waste revenues | $ | 15.5 | | | 7.6 | % | | $ | 43.2 | | | 11.7 | % |
|
| | | | | | | | | | | | | |
| Period-to-Period Change for the Three Months Ended September 30, 2017 vs. 2016 | | Period-to-Period Change for the Nine Months Ended September 30, 2017 vs. 2016 |
| Amount | | % of Growth | | Amount | | % of Growth |
Price | $ | 3.5 |
| | 2.3 | % | | $ | 8.5 |
| | 2.0 | % |
Volume | 1.3 |
| | 0.9 | % | | 2.4 |
| | 0.7 | % |
Fuel surcharge and other fees | — |
| | — | % | | (0.3 | ) | | (0.1 | )% |
Commodity price and volume | (0.1 | ) | | — | % | | 0.6 |
| | 0.1 | % |
Acquisitions and divestitures | 1.3 |
| | 0.8 | % | | 2.1 |
| | 0.5 | % |
Solid waste revenues | $ | 6.0 |
| | 4.0 | % | | $ | 13.3 |
| | 3.2 | % |
Solid waste revenues
Price.
The price change component in quarterly solid waste revenues growth from the prior year period is the result of the following:
•$2.211.2 million from favorable collection pricing, including a fixed component of the energypricing; and environmental fee to mitigate increasing environmental protection and regulatory compliance costs; and
•$1.34.3 million from favorable disposal pricing associated with our landfills, transfer stations and, transfer stations.to a lesser extent, transportation services.
The price change component in year-to-date solid waste revenues growth from the prior year period is the result of the following:
•$5.421.9 million from favorable collection pricing, including a fixed component of the energypricing; and environmental fee to mitigate increasing environmental protection and regulatory compliance costs; and
•$3.18.3 million from favorable disposal pricing associated with our landfills, transfer stations and, transfer stations.to a lesser extent, transportation services.
Volume.
The volume change component in quarterly solid waste revenues growth from the prior year period is the result of the following:
•$1.1(3.2) million from lower collection volumes primarily in our Western region associated with higher collection volumes;customer churn due to increased pricing and fees charged to additional customers, customer deselection and slowing economic activity; and
•$(2.2) million from lower disposal volumes associated with slowing economic activity (of which $(1.1) million relates to lower transportation volumes, $(0.9) million relates to lower landfill volumes, and $(0.2) million relates to lower transfer station volumes driven by our Eastern region); partially offset by
•$0.2 million from higher disposal volumes related to transfer stations.processing volumes.
The volume change component in year-to-date solid waste revenues growth is the result of the following:
•$2.1(5.4) million from lower collection volumes primarily in our Western region associated with higher customer churn due to increased pricing and fees charged to additional customers, customer deselection and slowing economic activity in the three months ended June 30, 2023; partially offset by
•$0.5 million from higher collection volumes; and
$0.4 million from higher processing volumes; partially offset by
$(0.1) million from lower disposal volumes despite slowing economic activity in the three months ended June 30, 2023 quarter (of which $(0.5) million relates to lower landfill volumes associated with diversion of tons from the Southbridge Landfill, $(0.2) million relates to lower transportation volumes, and $0.6$1.5 million relates to higher transfer station volumes primarily in our Western region, and $0.1 million relates to higher landfill volumes; offset by $(1.1) million due to lower transportation volumes).; and
•$0.2 million from higher processing volumes. Fuel surcharge
Surcharges and other fees.
The growth in surcharges and other fees change component in quarterly solid waste revenues growth from the prior year period is the result of higher sustainability recycling adjustment fee ("SRA Fee(s)") revenues, partially offset by lower energy and environmental fee ("E&E Fee(s)") revenues. Higher SRA Fee revenues were the result of lower recycled commodity prices and a higher customer participation rate. Lower E&E Fee revenues associated with our fuel surchargecost recovery program were the result of lower diesel fuel prices, partially offset by a higher customer participation rate.
The growth in surcharges and other fees change component in year-to-date solid waste revenues growth from the prior year period is the result of the following:
$(0.3) million from lowerhigher E&E Fee revenues generated fromand higher SRA Fee revenues. Higher E&E Fee revenues associated with our Sustainability Recycling Adjustment fee ("SRA fee") as afuel cost recovery program were the result of a higher participation rate, partially offset by lower diesel fuel prices. Higher SRA Fee revenues were the result of lower recycled commodity pricing.prices and a higher customer participation rate.
See Item 3. "Quantitative and Qualitative Disclosures about Market Risk" included in this Quarterly Report on Form 10-Q for additional information regarding our E&E Fee and SRA Fee. Commodity price and volume.
The decline in commodity price and volume change component in quarterly solid waste revenues growth is the result of the following:
$(0.4) million from lower landfill gas-to-energy volumes; partially offset by
$0.3 million from favorable processing commodity pricing and higher processing volumes.
The commodity price and volume change component in year-to-date solid waste revenues growth is the result of the following:
$1.3 million from favorable processing commodity pricing and higher processing volumes; partially offset by
$(0.4) million from lower landfill gas-to-energy volumes; and
$(0.3) million from unfavorable energy pricing.
Acquisitions and divestitures.
The acquisitions and divestitures change componentcomponents in quarterly and year-to-date solid waste revenues growth from the prior year periods are primarily from our Western region associated with unfavorable commodity and energy pricing and lower gas-to-energy volumes; partially offset by higher commodity processing volumes.
Acquisitions.
The acquisitions change components in quarterly and year-to-date solid waste revenues growth from the prior year periods are the result of increased acquisitions within our Western region in line with our growth strategy, including the timing and acquisition of one business in the six months ended June 30, 2023 and ten businesses in fiscal year 2022.
Resource Solutions revenues
The decline in quarterly Resource Solutions revenues of $(9.6) million from the prior year period is the result of the acquisition of three transfer stations infollowing:
•$(11.3) million primarily from the quarter ended June 30, 2016, a collection operation in the quarter ended March 31, 2017, a collection operation in the quarter ended June 30, 2017, and another collection operation in the three months ended September 30, 2017.
Organics revenues
Quarterly and year-to-date organics revenues decreased $(0.5) million and $(1.4) million, respectively, as a resultunfavorable impact of lower recycled commodity pricing on processing revenues, partially offset by higher tipping fees and other processing pricing; and
•$(0.9) million from lower revenues associated with our National Accounts business due to decreased volumes and lower fees, offset in part by favorable pricing; partially offset by
•$2.6 million from higher processing volumes mainly driven by higher recycled commodity volumes.
CustomerThe decline in year-to-date Resource Solutions revenues
Quarterly and year-to-date customer solutions revenues increased $1.7 of $(8.7) million and $3.7 million, respectively, as a result of higher volumes.
Recycling revenues
Quarterly recycling revenues increased as afrom the prior year period is the result of the following:
•$2.5(22.2) million from favorablethe unfavorable impact of lower recycled commodity pricing on processing revenues, offset in the marketplace;part by higher tipping fees and other processing pricing; partially offset by
•$0.17.3 million from increased processing volumes mainly driven by higher recycled commodity volumes;
•$3.5 million from higher commodity volumes;revenues associated with our National Accounts business due to favorable pricing and increased fees, partially offset by lower volumes; and
•$(0.6)2.7 million from lower tipping fees, as we reduced variable tipping fees at our facilities as commodity prices increased.acquisition activity.
Year-to-date recycling revenues increased as a result of the following:$12.6 million from favorable commodity pricing in the marketplace; and
$1.6 million from higher commodity volumes; partially offset by
$(2.9) million from lower tipping fees, as we reduced variable tipping fees at our facilities as commodity prices increased.
Operating Expenses
A summary of cost of operations, general and administration expense, and depreciation and amortization expense (dollars in millions and as a percentage of total revenues) is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | $ Change | | Six Months Ended June 30, | | $ Change |
| 2023 | | 2022 | | 2023 | | 2022 | |
Cost of operations | $ | 186.3 | | | 64.3 | % | | $ | 186.0 | | | 65.6 | % | | $ | 0.3 | | | $ | 366.6 | | | 66.4 | % | | $ | 348.5 | | | 67.3 | % | | $ | 18.1 | |
General and administration | $ | 35.9 | | | 12.4 | % | | $ | 33.6 | | | 11.8 | % | | $ | 2.3 | | | $ | 71.5 | | | 13.0 | % | | $ | 63.4 | | | 12.2 | % | | $ | 8.1 | |
Depreciation and amortization | $ | 34.9 | | | 12.1 | % | | $ | 31.2 | | | 11.0 | % | | $ | 3.7 | | | $ | 68.4 | | | 12.4 | % | | $ | 60.6 | | | 11.7 | % | | $ | 7.8 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | $ Change | | Nine Months Ended September 30, | | $ Change |
| 2017 | | 2016 | | 2017 | | 2016 | |
Cost of operations | $ | 103.9 |
| | 64.8 | % | | $ | 98.8 |
| | 65.4 | % | | $ | 5.1 |
| | $ | 301.0 |
| | 67.2 | % | | $ | 284.4 |
| | 67.5 | % | | $ | 16.6 |
|
General and administration | $ | 20.8 |
| | 12.9 | % | | $ | 18.8 |
| | 12.4 | % | | $ | 2.0 |
| | $ | 58.4 |
| | 13.0 | % | | $ | 55.5 |
| | 13.2 | % | | $ | 2.9 |
|
Depreciation and amortization | $ | 16.6 |
| | 10.4 | % | | $ | 16.2 |
| | 10.7 | % | | $ | 0.4 |
| | $ | 46.3 |
| | 10.3 | % | | $ | 46.4 |
| | 11.0 | % | | $ | (0.1 | ) |
Cost of Operations
Cost of operations includesincludes: (i) direct costs, which consist of the costs of purchased materials and third-party transportation and disposal costs, including third-party tipping fees; (ii) direct labor costs, tipping fees paid to third-party disposal facilities, fuel costs, maintenance and repair costs of vehicles and equipment, workers’which include salaries, wages, incentive compensation and vehicle insurancerelated benefit costs the cost of purchasing materials to be recycled, third-party transportationsuch as health and welfare benefits and workers compensation; (iii) direct operational costs, district and state taxes, host community fees, and royalties. Cost of operations also includeswhich include landfill operating costs such as accretion expense related to final capping, closure and post-closure obligations, leachate treatment and disposal costs and depletion of landfill operating lease obligations.obligations, vehicle insurance costs, host community fees and royalties; (iv) fuel costs used by our vehicles and in conducting our operations; (v) maintenance and repair costs relating to our vehicles, equipment and containers; and (vi) other operational costs including facility costs.
The period-to-period changes inA summary of the major components of our cost of operations canis as follows (dollars in millions and as a percentage of total revenues):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | $ Change | | Six Months Ended June 30, | | $ Change |
| 2023 | | 2022 | | 2023 | | 2022 | |
Direct costs | $ | 72.6 | | | 25.1 | % | | $ | 74.2 | | | 26.2 | % | | $ | (1.6) | | | $ | 138.8 | | | 25.1 | % | | $ | 134.1 | | | 25.9 | % | | $ | 4.7 | |
Direct labor costs | 37.3 | | | 12.9 | % | | 35.8 | | | 12.6 | % | | 1.5 | | | 74.0 | | | 13.4 | % | | 70.5 | | | 13.6 | % | | 3.5 | |
Direct operational costs | 23.1 | | | 8.0 | % | | 23.2 | | | 8.2 | % | | (0.1) | | | 46.0 | | | 8.3 | % | | 43.1 | | | 8.3 | % | | 2.9 | |
Fuel costs | 9.4 | | | 3.3 | % | | 13.6 | | | 4.8 | % | | (4.2) | | | 20.3 | | | 3.7 | % | | 23.5 | | | 4.5 | % | | (3.2) | |
Maintenance and repair costs | 22.7 | | | 7.7 | % | | 19.9 | | | 7.0 | % | | 2.8 | | | 45.5 | | | 8.3 | % | | 38.7 | | | 7.5 | % | | 6.8 | |
Other operational costs | 21.2 | | | 7.3 | % | | 19.3 | | | 6.8 | % | | 1.9 | | | 42.0 | | | 7.6 | % | | 38.6 | | | 7.5 | % | | 3.4 | |
| $ | 186.3 | | | 64.3 | % | | $ | 186.0 | | | 65.6 | % | | $ | 0.3 | | | $ | 366.6 | | | 66.4 | % | | $ | 348.5 | | | 67.3 | % | | $ | 18.1 | |
These cost categories may change from time to time and may not be primarily attributedcomparable to similarly titled categories presented by other companies.
The most significant items impacting the following:changes in our cost of operations during the three and six months ended June 30, 2023 and 2022 are summarized below:
Third-party direct•Maintenance and repair costs increased $2.9 millionin aggregate dollars and as a percentage of revenues due to higher fleet and container maintenance costs driven by acquisition-related growth, primarily in our Western region, and inflationary pressures associated with personnel related expenses and supply costs related to repairs and parts;
•Direct costs in aggregate dollars decreased quarterly and $7.9 millionincreased year-to-date, while decreasing as a percentage of revenues, primarily as the result of higher hauling, transportation and disposal costs on acquisition-related growth, predominantly in our Western region, and higher disposal rates and hauling charges due to the following:
higherinflationary pressures; partially offset year-to-date, and more than offset quarterly, by lower purchased material costs in our Recycling and CustomerResource Solutions lines-of-business;operating segment;
higher disposal•Direct labor costs increased in aggregate dollars associated with higher transfer station volumes and third-party disposal pricingacquisition-related growth, predominantly in theour Western region, and additionalinflationary pressures; partially offset improved routing efficiencies;
•Other operational costs increased in aggregate dollars and as a percentage of revenues driven by higher facility costs primarily associated with (i) higher spend on outside repairs, (ii) increased facility insurance costs and (iii) higher personnel related expenses due to acquisition-related growth, primarily in our Western region, and inflationary pressures; partially offset year-to-date by a benefit from the usechange in fair value of alternative disposal sitesan acquisition related contingent consideration which is based upon a probability-weighted analysis of a success payment related to the potential attainment of a transfer station permit expansion in our Organics line-of-business; and
higher hauling and transportation costs with higher collection volumes in the Eastern region; and higher quarterly hauling and transportation costs with increased volumes on lower margin commercial work in our Customer Solutions line-of-business; partially offset by lower hauling and transportation costs associated with decreased transportation services provided in the Western region; and lower commodity volumes in our Organics line-of-business.
Labor and related benefit costs increased $0.5 million quarterly and $3.5 million year-to-date due to the following:
higher healthcare costs of $1.6 million year-to-date associated with direct operational labor;
higher labor costs associated with higher collection volumes in the Eastern region as well as customer growth related to several new municipal contracts; and
higher labor costs associated with higher volumes and higher product quality standards from commodity buyers resulting in lower throughput and additional manpower in our Recycling line-of-business.
•Direct operational costs increased $1.3 millionin aggregate dollars decreased marginally quarterly and $3.4 millionincreased year-to-date due to the following:
higher leachate disposal costs and landfill operating costs at certain landfillsprimarily associated with: (i) acquisition-related growth, primarily in theour Western region due to increased rainfall through early summer and the timing of various landfill construction projects;
region; (ii) higher host community fees associated with increased volumes at certain landfills in the Western region;
higher quarterly accretion expense associated with changes in the accelerationtiming and cost estimates of asset retirement obligationsour closure, post-closure, and capping obligations; (iii) higher host community and royalty fees in our Western region; (iv) higher tire repair and replacement costs; and (v) inflationary pressures; partially offset year-to-date, and more than offset quarterly, by lower non-landfill operating lease expense, lower landfill related operating costs, and lower quarterly vehicle insurance costs; partially offset by
•Fuel costs decreased in aggregate dollars and as a percentage of revenues, primarily due to the closure of the Southbridge Landfill;lower diesel fuel prices and
higher equipment rental costs in the Eastern region; lower solid waste volumes; partially offset by
lower landfill operating costs associated with certain landfills higher diesel fuel consumption related to acquisition-related growth primarily in the Eastern region.
Maintenance and repair costs increased $0.1 million quarterly and $1.2 million year-to-date due primarily to higher fleet maintenance costs in theour Western region.
See Item 3. "Quantitative and Qualitative Disclosures about Market Risk" included in this Quarterly Report on Form 10-Q for additional information regarding our fuel costs.
General and Administration
General and administration expense includesincludes: (i) labor costs, which consist of salaries, wages, incentive compensation and related benefit costs such as health and welfare benefits and workers compensation costs related to management, clerical and administrative compensation,functions; (ii) professional service fees; (iii) bad debt expense, as well asexpense; and (iv) other overhead costs professional service fees and costsincluding those associated with marketing, sales force and community relations efforts.
The period-to-period changes inA summary of the major components of our general and administration expense canexpenses is as follows (dollars in millions and as a percentage of total revenues):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | $ Change | | Six Months Ended June 30, | | $ Change |
| 2023 | | 2022 | | 2023 | | 2022 | |
Labor costs | $ | 23.9 | | | 8.3 | % | | $ | 22.1 | | | 7.8 | % | | $ | 1.8 | | | $ | 47.3 | | | 8.6 | % | | $ | 43.4 | | | 8.4 | % | | $ | 3.9 | |
Professional fees | 2.3 | | | 0.8 | % | | 1.8 | | | 0.6 | % | | 0.5 | | | 4.7 | | | 0.9 | % | | 3.5 | | | 0.7 | % | | 1.2 | |
Provision for bad debt expense | 0.1 | | | — | % | | 1.3 | | | 0.5 | % | | (1.2) | | | 1.1 | | | 0.2 | % | | 1.1 | | | 0.2 | % | | — | |
Other | 9.6 | | | 3.3 | % | | 8.4 | | | 2.9 | % | | 1.2 | | | 18.4 | | | 3.3 | % | | 15.4 | | | 2.9 | % | | 3.0 | |
| $ | 35.9 | | | 12.4 | % | | $ | 33.6 | | | 11.8 | % | | $ | 2.3 | | | $ | 71.5 | | | 13.0 | % | | $ | 63.4 | | | 12.2 | % | | $ | 8.1 | |
These cost categories may change from time to time and may not be primarily attributedcomparable to similarly titled categories presented by other companies.
The most significant items impacting the following:changes in our general and administration expenses during the three and six months ended June 30, 2023 and 2022 are summarized below:
•Labor and related benefit costs increased $1.7 million quarterlyin aggregate dollars and $2.7 million year-to-dateas a percentage of revenues primarily due to higher healthcare costs, which were up $0.7 million year-to-dateacquisition-related growth, primarily in our Western region, wage inflation, and higher equity compensation expense of $1.1 million quarterly and $2.4 million year-to-date associated with market-based performance stock option and market-based performance stock unit grants, the majority of which were not outstanding as of September 30, 2016. These costs werecosts; partially offset by lower accrued incentive compensation costs; and
•Other costs increased in aggregate dollars and as a percentage of $(0.5) million year-to-date.
Bad debt expense decreased $(0.1) million quarterly and $(0.9) million year-to-daterevenues primarily due to improved credit processesinflationary pressures, an increase in service agreement costs, sponsorship and advertising related costs, and an easier comparison dueincrease in general overhead costs to collectability issues associated with a disposal customer in the prior year.support business growth.
Other expenses increased $0.7 million quarterly and $1.1 million year-to-date due to higher recruiting and software and information technology consulting costs.
Depreciation and Amortization
Depreciation and amortization expense includes: (i) depreciation of property and equipment (including assets recorded for capitalfinance leases) on a straight-line basis over the estimated useful lives of the assets; (ii) amortization of landfill costs (including those costs incurred and all estimated future costs for landfill development and construction, along with asset retirement costs arising from closure and post-closure obligations) on a units-of-consumption method as landfill airspace is consumed over the total estimated remaining capacity of a site, which includes both permitted capacity and unpermitted expansion capacity that meets certain criteria for amortization purposes; (iii)purposes, and amortization of landfill asset retirement costs arising from final capping obligations on a units-of-consumption method as airspace is consumed over the estimated capacity associated with each final capping event; and (iv)(iii) amortization of intangible assets with a definite life, using either anbased on the economic benefit provided, approach or on ausing the sum of years digits or straight-line basismethods over the definitive terms of the related agreements.
A summary of the components of depreciation and amortization expense (dollars in millions and as a percentage of total revenues) follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | $ Change | | Six Months Ended June 30, | | $ Change |
| 2023 | | 2022 | | 2023 | | 2022 | |
Depreciation expense | $ | 20.8 | | | 7.2 | % | | $ | 18.9 | | | 6.7 | % | | $ | 1.9 | | | $ | 41.4 | | | 7.5 | % | | $ | 38.4 | | | 7.4 | % | | $ | 3.0 | |
Landfill amortization expense | 9.9 | | | 3.4 | % | | 8.0 | | | 2.8 | % | | 1.9 | | | 18.7 | | | 3.4 | % | | 14.1 | | | 2.7 | % | | 4.6 | |
Other amortization expense | 4.2 | | | 1.5 | % | | 4.3 | | | 1.5 | % | | (0.1) | | | 8.3 | | | 1.5 | % | | 8.1 | | | 1.6 | % | | 0.2 | |
| $ | 34.9 | | | 12.1 | % | | $ | 31.2 | | | 11.0 | % | | $ | 3.7 | | | $ | 68.4 | | | 12.4 | % | | $ | 60.6 | | | 11.7 | % | | $ | 7.8 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | $ Change | | Nine Months Ended September 30, | | $ Change |
| 2017 | | 2016 | | 2017 | | 2016 | |
Depreciation | $ | 8.0 |
| | 5.0 | % | | $ | 8.2 |
| | 5.4 | % | | $ | (0.2 | ) | | $ | 24.1 |
| | 5.4 | % | | $ | 24.9 |
| | 5.9 | % | | $ | (0.8 | ) |
Landfill amortization | 8.1 |
| | 5.0 | % | | 7.4 |
| | 4.9 | % | | 0.7 |
| | $ | 20.6 |
| | 4.6 | % | | $ | 19.9 |
| | 4.7 | % | | 0.7 |
|
Other amortization | 0.5 |
| | 0.3 | % | | 0.6 |
| | 0.4 | % | | (0.1 | ) | | $ | 1.6 |
| | 0.4 | % | | $ | 1.6 |
| | 0.4 | % | | — |
|
| $ | 16.6 |
| | 10.3 | % | | $ | 16.2 |
| | 10.7 | % | | $ | 0.4 |
| | $ | 46.3 |
| | 10.4 | % | | $ | 46.4 |
| | 11.0 | % | | $ | (0.1 | ) |
The period-to-period changesincreases in depreciation and amortization expense can be primarily attributed to the timing of capital expendituresacquisition activity and related make-up of fixed assets, theincreased investments in our fleet. The period-to-period increases in landfill amortization rate and volume mix at our landfills (higherexpense can be attributed to increased landfill volumes year-to-date and changes in cost and other assumptions.
Expense from Acquisition Activities
In the Western region, offset by lower volumes in the Eastern region)three and the makeup and timing of definite life intangible assets.
Southbridge Landfill Closure Charge
Insix months ended June 2017, we initiated the plan to cease operations of the Southbridge Landfill in the Eastern region. Accordingly,30, 2023, we recorded charges of $3.7 million and $6.5 million, respectively, and in the three and six months ended June 30, 2022, we recorded charges of $1.0 million and $3.1 million, respectively, comprised primarily of legal, consulting and other similar costs associated with due diligence and the acquisition and integration of acquired businesses or select development projects.
Legal Settlement
In the three and six months ended June 30, 2023, we accrued for a charge of $6.2 million in current liabilities due to reaching an agreement at a mediation held on June 20, 2023 with the collective class members of a class action lawsuit relating to certain claims under the Fair Labor Standards Act of 1938 ("FLSA") as well as state wage and hours laws. The settlement agreement was executed July 24, 2023, and remains subject to court approval.
Other Expenses
Interest Expense, net
Our interest expense, net increased $1.7 million quarterly and $2.8 million year-to-date as compared to the same periods in the prior year due primarily to rising interest rates and higher average debt balances associated with the closureissuance of $35.0 million aggregate principal amount of Vermont Economic Development Authority Solid Waste Disposal Long-Term Revenue Bonds Series 2022A-1 ("Vermont Bonds 2022A-1"), as well as the Southbridge Landfill discussedamortization of transaction, legal, and other similar debt issuance costs incurred associated with bridge financing activities related to the GFL Acquisition and entering into an asset purchase agreement with Consolidated Waste Services, LLC and its affiliates (dba as Twin Bridges) pursuant to which we agreed to acquire assets in the greater Albany, New York area ("Twin Bridges Acquisition"), which is pending regulatory approval. For additional disclosure regarding interest expense, see Note 7, Commitments and ContingenciesDebt to our consolidated financial statements includedunder Part I, Item 1 of this Quarterly Report on Form 10-Q as follows (dollars in millions):
|
| | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Asset impairment charge (1) | $ | — |
| | $ | — |
| | $ | 48.0 |
| | $ | — |
|
Project development charge (2) | — |
| | — |
| | 9.1 |
| | — |
|
Environmental remediation charge (3) | — |
| | — |
| | 6.4 |
| | — |
|
Legal and transaction costs (4) | 0.8 |
| | — |
| | 1.3 |
| | — |
|
Southbridge Landfill closure charge | $ | 0.8 |
| | $ | — |
| — |
| $ | 64.9 |
| | $ | — |
|
| |
(1) | We performed a test of recoverability under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 360, which indicated that the carrying value of our asset group that includes the Southbridge Landfill was no longer recoverable and, as a result, the asset group was assessed for impairment with an impairment charge allocated to the long-lived assets of the Southbridge Landfill in accordance with FASB ASC 360. |
| |
(2) | We wrote-off deferred costs associated with Southbridge Landfill permitting activities no longer deemed viable. |
| |
(3) | We recorded an environmental remediation charge associated with the future installation of a municipal waterline. |
| |
(4) | We incurred legal and other transaction costs associated with various matters as part of the Southbridge Landfill closure. |
Other Expenses
Interest Expense, net
Our interest expense, net decreased $(3.4) million quarterly and $(10.6) million year-to-date due to lower average debt balances and changes to our capitalization structure. Specifically, since December 31, 2015 we completed the following transactions:
we completed the issuance of $15.0 million of New York State Environmental Facilities Corporation Solid Waste Disposal Revenue Bonds Series 2014R-2 (“New York Bonds 2016”) in June 2016;
we completed the refinancing of our senior secured asset-based revolving credit and letter of credit facility ("ABL Facility") with our credit facility, which consists of a $350.0 million term loan B facility ("Term Loan B Facility") and a $160.0 million revolving line of credit facility ("Revolving Credit Facility" and, together with the Term Loan B Facility, the "Credit Facility") and repaid in full our ABL Facility in October 2016;
we repurchased or redeemed, as applicable, $366.1 million of our most expensive debt, the 7.75% senior subordinated notes due February 2019 ("2019 Notes"), between June 2016 and October 2016;
we remarketed $3.6 million aggregate principal amount of Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-1 (“FAME Bonds 2005R-1”) and $21.4 million aggregate principal amount of Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-2 (“FAME Bonds 2005R-2”) into one series of $25.0 million aggregate principal amount of Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-3 (“FAME Bonds 2005R-3”) in February 2017; and
we entered into the first amendment ("Repricing Amendment") to our Term Loan B Facility and Revolving Credit Facility, which decreased the applicable interest margin for our Term Loan B Facility by 25 basis points for both LIBOR borrowings and base rate borrowings in April 2017.
.
Loss on Debt Extinguishmentfrom Termination of Bridge Financing
We recorded a loss on debt extinguishment of $0.0 million and $0.5 million inIn the three and ninesix months ended SeptemberJune 30, 2017, respectively, as compared to2023, we wrote-off the unamortized debt issuance costs and recognized a loss on debtfrom termination of bridge financing upon the extinguishment of $0.2 million and $0.7 million during the three and nine months ended September 30, 2016, respectively, associated with the following transactions:
the write-off of debt issuance costsboth a secured bridge financing agreement in connection with the Repricing Amendment in the quarter ended June 30, 2017;
the write-offGFL Acquisition of debt issuance costs$3.7 million and $3.7 million, respectively, and an unsecured bridge financing agreement in connection with the remarketingTwin Bridges Acquisition, which is pending regulatory approval, of the FAME Bonds 2005R-1$4.5 million and the FAME Bonds 2005R-2 into FAME Bonds 2005R-3 in the quarter ended March 31, 2017; and$4.5 million, respectively.
the repurchase price premium and write-off of debt issuance costs and unamortized original issue discount associated with the early redemption, repurchase and retirement of partial portions of our 2019 Notes in the three and nine months ended September 30, 2016.
Provision for Income Taxes
Income taxes decreased $(0.1) million quarterly and increased $0.2 million year-to-date from aOur provision for income taxes of $0.3 million and $0.3decreased $(6.6) million in the three and nine months ended SeptemberJune 30, 2016, respectively.2023, and decreased $(6.8) million year-to-date as compared to the prior year periods. This is primarily due to the GFL Acquisition and debt financing expenses incurred in the three months ended June 30, 2023. The provision for income taxes in the ninesix months ended SeptemberJune 30, 20172023 included $1.4 million of current income taxes and September 30, 2016 included $0.4$1.4 million and $0.5 million, respectively, of deferred taxincome taxes. The provision due mainly to an increasefor income taxes in the six months ended June 30, 2022 included $2.4 million of current income taxes and $7.1 million of deferred tax liabilityincome taxes. The effective rate before discrete items for indefinite lived assets, offsetthe fiscal year ending December 31, 2023 ("fiscal year 2023") is 28.1% and is computed based on the statutory rate of 21% adjusted primarily for state taxes and nondeductible officer compensation. The discrete items include equity compensation and a portion of equity compensation disallowed in 162(m). The equity compensation deduction is taken into account in the ninesix months ended SeptemberJune 30, 2017 in part by additional minimum tax credit carryforward with no expiration2023 due to the timing of bonuses and requiring no valuation allowance. Since we cannot determine whenequity awards. Where the deferred tax liability related to indefinite lived assets will reverse, that portionlong-term trend of the deferredstock price underlying the equity compensation has been increasing, this creates a larger deduction for tax, provisions cannotwhich reduces the effective rate for the six months ended June 30, 2023. The effective rate for the six months ended June 30, 2023 is 26.6%. For the period ending June 30, 2022 the effective rate was 32.5%.
On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJA”) was enacted. The TCJA significantly changed U.S. corporate income tax laws by, among other things, changing carryforward rules for net operating losses. Under the Internal Revenue Code, as amended by the TCJA, federal net operating loss carryforwards generated before the 2018 tax year continue to be used as a future sourcecarried forward for 20 years and are able to fully offset taxable income (“pre-2018 net operating losses”). Federal net operating losses generated following the 2017 tax year are carried forward indefinitely, but generally may only offset up to 80% of taxable income against whichearned in a tax year (“post-2017 net operating losses”).
We carried $5.8 million of pre-2018 net operating losses and $46.5 million of post-2017 net operating losses into the 2023 tax year. Due to benefit deferredthe structure of the GFL Acquisition during the three months ended June 30, 2023, we are projecting a significant increase to depreciation and amortization deductions during the 2023 tax assets.year. As such, we are projecting to utilize significantly less net operating losses during fiscal year 2023 than we projected in the three months ended March 31, 2023. Currently, we expect to utilize all our pre-2018 net operating losses in fiscal year 2023 and carryforward about $42 million post-2017 net operating losses to the fiscal year ending December 31, 2024. We expect some refinements to our tax provision for fiscal year 2023 as we obtain and analyze more detailed information from the GFL Acquisition.
In addition, the TCJA added limitations on the deductibility of interest expense that became more restrictive beginning in tax year 2022 and potentially could limit the deductibility of some of our interest expense. Any interest expense limited may be carried forward indefinitely and utilized in later years subject to said interest limitation. Segment Reporting
Revenues
A summary of revenues by reportable operating segment (in millions) follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | $ Change | | Six Months Ended June 30, | | $ Change |
| 2023 | | 2022 | | 2023 | | 2022 | |
Eastern | $ | 93.4 | | | $ | 87.3 | | | $ | 6.1 | | | $ | 177.2 | | | $ | 158.6 | | | $ | 18.6 | |
Western | 124.2 | | | 114.8 | | | 9.4 | | | 235.3 | | | 210.7 | | | 24.6 | |
Mid-Atlantic | — | | | — | | | — | | | — | | | — | | | — | |
Resource Solutions | 72.0 | | | 81.6 | | | (9.6) | | | 139.7 | | | 148.4 | | | (8.7) | |
| | | | | | | | | | | |
Total revenues | $ | 289.6 | | | $ | 283.7 | | | $ | 5.9 | | | $ | 552.2 | | | $ | 517.7 | | | $ | 34.5 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | $ Change | | Nine Months Ended September 30, | | $ Change |
Segment | 2017 | | 2016 | | 2017 | | 2016 | |
Eastern | $ | 49.1 |
| | $ | 47.2 |
| | $ | 1.9 |
| | $ | 134.3 |
| | $ | 131.6 |
| | $ | 2.7 |
|
Western | 68.0 |
| | 63.2 |
| | 4.8 |
| | 186.5 |
| | 175.1 |
| | 11.4 |
|
Recycling | 16.4 |
| | 14.4 |
| | 2.0 |
| | 49.2 |
| | 37.9 |
| | 11.3 |
|
Other | 26.8 |
| | 26.3 |
| | 0.5 |
| | 78.1 |
| | 76.6 |
| | 1.5 |
|
Total revenues | $ | 160.3 |
| | $ | 151.1 |
| | $ | 9.2 |
| | $ | 448.1 |
| | $ | 421.2 |
| | $ | 26.9 |
|
Eastern Region
A summary of the period-to-period changechanges in solid waste revenues (dollars in millions)millions and as percentage growth of solid waste revenues) follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Period-to-Period Change for the Three Months Ended June 30, 2023 vs. 2022 | | Period-to-Period Change for the Six Months Ended June 30, 2023 vs. 2022 |
| Amount | | % Growth | | Amount | | % Growth |
Price | $ | 8.2 | | | 9.4 | % | | $ | 15.8 | | | 10.0 | % |
Volume | (2.2) | | | (2.6) | % | | (1.8) | | | (1.1) | % |
Surcharges and other fees | 0.2 | | | 0.2 | % | | 4.7 | | | 3.0 | % |
Commodity price and volume | (0.1) | | | (0.1) | % | | (0.1) | | | (0.1) | % |
| | | | | | | |
| | | | | | | |
Solid waste revenues | $ | 6.1 | | | 6.9 | % | | $ | 18.6 | | | 11.8 | % |
|
| | | | | | | | | | | | | |
| Period-to-Period Change for the Three Months Ended September 30, 2017 vs. 2016 | | Period-to-Period Change for the Nine Months Ended September 30, 2017 vs. 2016 |
| Amount | | % of Growth | | Amount | | % of Growth |
Price | $ | 1.6 |
| | 3.4 | % | | $ | 3.8 |
| | 2.9 | % |
Volume | (0.5 | ) | | (1.2 | )% | | (1.7 | ) | | (1.3 | )% |
Fuel surcharge and other fees | (0.1 | ) | | (0.2 | )% | | (0.3 | ) | | (0.2 | )% |
Commodity price and volume | (0.1 | ) | | (0.2 | )% | | (0.5 | ) | | (0.4 | )% |
Acquisitions and divestitures | 1.0 |
| | 2.1 | % | | 1.4 |
| | 1.0 | % |
Solid waste revenues | $ | 1.9 |
| | 3.9 | % | | $ | 2.7 |
| | 2.0 | % |
Price.
The price change component in quarterly solid waste revenues growth from the prior year period is the result of the following:
•$1.15.9 million from favorable collection pricing; and
•$0.52.3 million from favorable disposal pricing related to transfer stations and landfills.
The price change component in year-to-date solid waste revenues growth from the prior year period is the result of the following:
•$2.511.2 million from favorable collection pricing; and
•$1.34.6 million from favorable disposal pricing related to transfer stations and landfills.
Volume.
The volume change component in quarterly solid waste revenues growth from the prior year period is the result of the following:
•$(1.8) million from lower disposal volumes related to slowing economic activity (of which $(1.8)$(0.9) million relates to lower transfer station volumes, $(0.6) million relates to lower transportation volumes and $(0.3) million is associated with lower landfill volumes due to the diversion of tonscustomer and material mix); and
•$(0.6) million from the Southbridge Landfill);lower collection volumes associated with slowing economic activity; partially offset by
•$1.30.2 million from higher collectionprocessing volumes.
The volume change component in year-to-date solid waste revenues growth from the prior year period is the result of the following:
•$(4.1)(1.4) million from lower disposal volumes related to slowing economic activity in the three months ended June 30, 2023 (of which $(3.9)$(0.9) million relates to lower transportation volumes and $(0.6) million is associated with lower landfill volumes from the diversion of tons from the Southbridge Landfilldue to customer and $(0.2)material mix, partially offset by $0.1 million relates to lowerin increased transfer station volumes); and
•$(0.6) million from lower collection volumes associated with slowing economic activity in the three months ended June 30, 2023; partially offset by
•$2.40.2 million from higher collectionprocessing volumes.
Fuel surchargeSurcharges and other fees.
The fuel surchargegrowth in surcharges and other fees change component in quarterly solid waste revenues growth from the prior year period is the result of higher SRA Fee revenues, partially offset by lower E&E Fee revenues. Higher SRA Fee revenues were the result of lower recycled commodity prices and a higher customer participation rate. Lower E&E Fee revenues associated with our fuel cost recovery program were the result of lower diesel fuel prices, partially offset by a higher customer participation rate.
The growth in surcharges and other fees change component in year-to-date solid waste revenues growth from the prior year period is the result of$(0.1)of higher E&E Fee revenues and higher SRA Fee revenues. Higher E&E Fee revenues associated with our fuel cost recovery program were the result of a higher participation rate, partially offset by lower diesel fuel prices. Higher SRA Fee revenues were the result of lower recycled commodity prices and a higher customer participation rate.
See Item 3. "Quantitative and Qualitative Disclosures about Market Risk" included in this Quarterly Report on Form 10-Q for additional information regarding our E&E Fee and SRA Fee.
Western Region
A summary of the period-to-period changes in solid waste revenues (dollars in millions and as percentage growth of solid waste revenues) follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Period-to-Period Change for the Three Months Ended June 30, 2023 vs. 2022 | | Period-to-Period Change for the Six Months Ended June 30, 2023 vs. 2022 |
| Amount | | % Growth | | Amount | | % Growth |
Price | $ | 7.3 | | | 6.4 | % | | $ | 14.4 | | | 6.8 | % |
Volume | (2.9) | | | (2.6) | % | | (2.8) | | | (1.3) | % |
Surcharges and other fees | 0.7 | | | 0.5 | % | | 6.5 | | | 3.1 | % |
Commodity price and volume | (0.7) | | | (0.6) | % | | (1.6) | | | (0.8) | % |
Acquisitions | 5.0 | | | 4.4 | % | | 8.1 | | | 3.8 | % |
| | | | | | | |
Solid waste revenues | $ | 9.4 | | | 8.1 | % | | $ | 24.6 | | | 11.6 | % |
Price.
The price change component in quarterly solid waste revenues growth from the prior year period is the result of the following:
•$5.3 million from favorable collection pricing; and
•$2.0 million from favorable disposal pricing related to landfills, transfer stations, and $(0.3)transportation services.
The price change component in year-to-date solid waste revenues growth from the prior year period is the result of the following:
•$10.8 million from favorable collection pricing; and
•$3.6 million from favorable disposal pricing related to landfills, transfer stations, and transportation services.
Volume.
The volume change component in quarterly solid waste revenues growth from the prior year period is the result of the following:
•$(2.5) million from lower collection volumes associated with slowing economic activity and higher customer churn due to increased pricing and fees charged to additional customers, and customer deselection; and
•$(0.4) million from lower disposal volumes related to slowing economic activity (of which $(0.6) million relates to lower landfill volumes and $(0.6) relates to lower transportation services, partially offset by $0.8 million in higher transfer station volumes).
The volume change component in year-to-date solid waste revenues generatedgrowth from our SRA fee as athe prior year period is the result of the following:
•$(4.8) million from lower collection volumes associated with slowing economic activity in the three months ended June 30, 2023 and higher customer churn due to increased pricing and fees charged to additional customers, and customer deselection; partially offset by
•$2.0 million from higher disposal volumes despite slowing economic activity in the three months ended June 30, 2023 (of which $1.4 million relates to higher transfers stations volumes and $0.8 million relates to higher landfill volumes, partially offset by $(0.2) million in lower transportation services).
Surcharges and other fees.
The growth in surcharges and other fees change component in quarterly solid waste revenues growth from the prior year period is the result of higher SRA Fee revenues, partially offset by lower E&E Fee revenues. Higher SRA Fee revenues were the result of lower recycled commodity pricing.prices and a higher customer participation rate. Lower E&E Fee revenues associated with our fuel cost recovery program were the result of lower diesel fuel prices, partially offset by a higher customer participation rate.
The growth in surcharges and other fees change component in the year-to-date solid waste revenues growth from the prior year period is the result of higher E&E Fee revenues and higher SRA Fee revenues. Higher E&E Fee revenues associated with our fuel cost recovery program were the result of a higher participation rate, partially offset by lower diesel fuel prices. Higher SRA Fee revenues were the result of lower recycled commodity prices and a higher customer participation rate. See Item 3."Quantitative and Qualitative Disclosures about Market Risk" included in this Quarterly Report on Form 10-Q for additional information regarding our E&E Fee and SRA Fee.
Commodity price and volume.
The commodity price and volume change component in quarterly and year-to-date solid waste revenues growth from the prior year period is the result of $(0.1) millionprimarily due to unfavorable commodity and $(0.5) million from decreased energy pricing and volumes.
Acquisitions and divestitures.pricing.
The acquisitionscommodity price and divestitures change component in quarterly and year-to-date solid waste revenues growth is the result of the acquisition of a solid waste collection business in the quarter ended June 30, 2017.
Western Region
A summary of the period-to-period changes in solid waste revenues (dollars in millions) follows:
|
| | | | | | | | | | | | | |
| Period-to-Period Change for the Three Months Ended September 30, 2017 vs. 2016 | | Period-to-Period Change for the Nine Months Ended September 30, 2017 vs. 2016 |
| Amount | | % of Growth | | Amount | | % of Growth |
Price | $ | 1.8 |
| | 2.9 | % | | $ | 4.7 |
| | 2.7 | % |
Volume | 2.6 |
| | 4.2 | % | | 4.8 |
| | 2.8 | % |
Commodity price and volume | 0.1 |
| | 0.1 | % | | 1.1 |
| | 0.6 | % |
Acquisitions & divestitures | 0.3 |
| | 0.4 | % | | 0.8 |
| | 0.4 | % |
Solid waste revenues | $ | 4.8 |
| | 7.6 | % | | $ | 11.4 |
| | 6.5 | % |
Price.
The price change component in quarterly solid waste revenues growth is the result of the following:
$1.1 million from favorable collection pricing; and
$0.7 million from favorable disposal pricing related to landfills and transfer stations.
The price change component in year-to-date solid waste revenues growth is the result of the following:
$2.9 million from favorable collection pricing; and
$1.8 million from favorable disposal pricing related to transfer stations and landfills.
Volume.
The volume change component in quarterly solid waste revenues growth is the result of the following:
$2.7 million from higher disposal volumes (of which $1.8 million relates to higher landfill volumes, $0.6 million relates to higher transportation volumes and $0.3 million relates to higher transfer station volumes); partially offset by
$(0.1) million from lower collection volumes.
The volume change component in year-to-date solid waste revenues growth from the prior year period is the result of the following:
$4.8 million from higher disposal volumes (of which $3.4 million relatesprimarily due to higherlower landfill volumes, $0.8 million relates to higher transfer stationgas-to-energy volumes and $0.6 million relates to higher transportation volumes);unfavorable commodity and
$0.2 million from higher processing volumes; energy pricing; partially offset by
$(0.2) million from lower collection higher commodity processing volumes.
Commodity price and volume.Acquisitions.
The commodity price and volumeacquisitions change componentcomponents in quarterly and year-to-date solid waste revenues growth isfrom the prior year period are the result of $0.1 millionincreased acquisition activity in line with our growth strategy, including the timing and $1.1 million from favorable commodity pricing and higher volumes within our processing operations, partially offset by lower landfill gas-to-energy volumes.
Acquisitions and divestitures.
The acquisitions and divestitures change component in quarterly and year-to-date solid waste revenues growth is the result of the acquisition of three transfer stationsone business in the quartersix months ended June 30, 2016, a collection operation2023 and ten businesses in the quarter ended March 31, 2017, and another collection operation in the three months ended September 30, 2017.fiscal year 2022.
Operating Income (Loss)
A summary of operating income (loss) by operating segment (in millions) follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | $ Change | | Six Months Ended June 30, | | $ Change |
| 2023 | | 2022 | | 2023 | | 2022 | |
Eastern | $ | 7.5 | | | $ | 6.1 | | | $ | 1.4 | | | $ | 9.7 | | | $ | 3.9 | | | $ | 5.8 | |
Western | 19.0 | | | 19.9 | | | (0.9) | | | 31.4 | | | 29.2 | | | 2.2 | |
Mid-Atlantic | — | | | — | | | — | | | — | | | — | | | — | |
Resource Solutions | 0.7 | | | 6.2 | | | (5.5) | | | (1.3) | | | 9.9 | | | (11.2) | |
Corporate Entities | (4.6) | | | (0.5) | | | (4.1) | | | (6.9) | | | (1.1) | | | (5.8) | |
Operating income | $ | 22.6 | | | $ | 31.7 | | | $ | (9.1) | | | $ | 32.9 | | | $ | 41.9 | | | $ | (9.0) | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | $ Change | | Nine Months Ended September 30, | | $ Change |
Segment | 2017 | | 2016 | | 2017 | | 2016 | |
Eastern | $ | 5.9 |
| | $ | 4.5 |
| | $ | 1.4 |
| | $ | (54.4 | ) | | $ | 6.7 |
| | $ | (61.1 | ) |
Western | 11.6 |
| | 11.4 |
| | 0.2 |
| | 26.4 |
| | 24.6 |
| | 1.8 |
|
Recycling | 0.6 |
| | 1.5 |
| | (0.9 | ) | | 3.3 |
| | 0.9 |
| | 2.4 |
|
Other | 0.2 |
| | — |
| | 0.2 |
| | 2.3 |
| | 2.7 |
| | (0.4 | ) |
Operating income (loss) | $ | 18.3 |
| | $ | 17.4 |
| | $ | 0.9 |
| | $ | (22.4 | ) | | $ | 34.9 |
| | $ | (57.3 | ) |
Eastern Region
Operating resultsincome increased $1.4 million quarterly and decreased $(61.1)$5.8 million year-to-date.year-to-date from the prior year periods. Excluding the impact of the Southbridge Landfill closure charge, the FLSA-related legal settlement charge and the expense from acquisition activities, our operating performance in the three and ninesix months ended SeptemberJune 30, 2017 improved due to the2023 was driven by revenue growth, outlined above andinclusive of inter-company revenues, more than offsetting the following cost changes:changes.
Cost of operations:
Cost of operations increased $1.9$1.8 million quarterly and $4.1$10.8 million year-to-date from the prior year periods due to the following:
•Direct costs increased in aggregate dollars primarily due to higher hauling, transportation and transportationdisposal costs associated with higher collection volumes;disposal rates and year-to-date hauling charges due to inflationary pressures;
•Maintenance and repair costs increased in aggregate dollars driven by higher directfleet and container maintenance costs due to inflationary pressures associated with personnel related expenses and supply costs related to repairs and parts, partially offset by lower spend on outside repairs;
•Direct operational costs in aggregate dollars decreased quarterly and increased year-to-date primarily due to: (i) higher accretion expense associated with changes in the timing and cost estimates of our closure, post-closure, and capping obligations, (ii) higher tire repair and replacement costs (iii) and inflationary pressures; partially offset year-to-date, and more than offset quarterly by lower non-landfill operating lease expense, lower landfill related operating costs, and lower vehicle insurance costs;
•Direct labor costs increased in aggregate dollars primarily due to inflationary pressures; partially offset by lower spend on outside labor and improved routing efficiencies;
•Fuel costs decreased in aggregate dollars primarily due to lower diesel fuel prices and lower solid waste volumes. See Item 3. "Quantitative and Qualitative Disclosures about Market Risk" included in this Quarterly Report on Form 10-Q for additional information regarding our fuel costs; and
•Other operational costs increased in aggregate dollars driven by higher facility costs primarily associated with higher collection volumes, customer growthan increase spend on outside repairs, and personnel related expenses due to several new municipal contracts, and higher healthcare costs of $0.7 million year-to-date.inflationary pressures.
General and administration:
General and administration expense increased $1.0$0.7 million quarterly and $1.4$3.0 million year-to-date from the prior year periods due primarily to wage inflation and the allocation of higher shared overhead costs associated with an increase in healthcare costs year-to-date and higher equity compensation expense,service costs; partially offset by lower bad debt expense.expense quarterly.
Depreciation and amortization: Depreciation and amortization expense decreased $(1.2) million quarterly and $(2.6) million year-to-date due to lower landfill amortization expense associated with lower landfill volumes at the Southbridge Landfill and the North Country Environmental Services landfill ("NCES Landfill") and changes to the asset retirement obligation amortization rate at the NCES Landfill.
Southbridge Landfill Closure Charge: In June 2017, we initiated the plan to cease operations of the Southbridge Landfill. Accordingly, in the quarter ended June 30, 2017, we recorded a $64.1 million charge associated with the closure of the Southbridge Landfill. Additionally, in the three months ended September 30, 2017, we recorded a charge of $0.8 million for legal costs associated with various matters as a part of the Southbridge Landfill closure. For additional information, see Note 7, Commitments and Contingencies to our consolidated financial statements includedunder Part I, Item 1 of this Quarterly Report on Form 10-Q.
Western Region
Operating income increased $0.2 million quarterly and $1.8 million year-to-date as our operating performance in the three and nine months ended September 30, 2017 improved due to the revenue growth outlined above and the following cost changes:
Cost of operations: Cost of operations increased $2.4 million quarterly and $7.8 million year-to-date due to the following:
higher disposal costs associated with higher transfer station volumes and increased third-party disposal pricing;
higher direct labor costs year-to-date associated with increased labor costs and increased healthcare costs of $0.7 million;
higher direct operational costs associated with increased leachate disposal and landfill operating costs due to; increased rainfall through early summer and the timing of various landfill construction projects; and higher host community fees associated with increased volumes at certain of our landfills; and
higher fleet maintenance costs; partially offset by
lower hauling and transportation costs associated with decreased transportation services provided.
General and administration: General and administration expense increased $1.4 million quarterly and $1.7 million year-to-date as higher shared overhead costs associated with an increase in healthcare costs and higher equity compensation expense were partially offset by lower wages and personnel costs.
Depreciation and amortization: Depreciation and amortization expense increased $1.6$0.6 million quarterly and $2.4$1.1 million year-to-date from the prior year periods due to higher landfill amortization expense (associated withas the result of higher landfill volumes combined with the volume mixyear-to-date and changes to landfill amortization rates as a result of changes in cost estimates and other assumptions with our landfills) more than offsettingassumptions; partially offset by lower depreciation and other amortization expense attributeddue to the timing of capital expendituresprior year period including additional depreciation and other amortization expense related make-up of fixed assets.to a purchase price allocation adjustment.
RecyclingWestern Region
Operating income decreased $(0.9) million quarterly and increased $2.4$2.2 million year-to-date. Ouryear-to-date from the prior year periods. Excluding the impact of the FLSA-related legal settlement charge and expense from acquisition activities, our operating performance in the three and ninesix months ended SeptemberJune 30, 20172023 was impacteddriven by the revenue growth, outlined aboveinclusive of inter-company revenues, and the following cost changes:changes.
Cost of operations:
Cost of operations increased $2.0$6.6 million quarterly and $6.3$17.3 million year-to-date from the prior year periods due to the following:
•Direct costs increased in aggregate dollars primarily due to higher third-party purchased materialhauling, transportation and disposal costs on acquisition-related growth, and higher disposal rates and hauling charges due to inflationary pressures;
•Direct operational costs increased in aggregate dollars primarily due to: (i) acquisition-related growth; (ii) higher accretion expense associated with changes in the timing and cost estimates of our closure, post-closure, and capping obligations; (iii) higher host community and royalty fees; (iv) higher tire repair and replacement costs; (v) increased vehicle insurance costs; and (vi) inflationary pressures; partially offset by lower non-landfill operating lease expense and lower landfill related operating costs;
•Maintenance and repair costs increased in aggregate dollars due to higher fleet and container maintenance costs driven by acquisition-related growth and inflationary pressures associated with (i) personnel related expenses, (ii) supply costs related to repairs and parts and (iii) outside repair spend;
•Direct labor costs increased in aggregate dollars primarily due to acquisition-related growth and inflationary pressures; partially offset by improved routing efficiencies;
•Fuel costs decreased in aggregate dollars primarily due to lower diesel fuel prices and lower solid waste volumes; partially offset by higher diesel fuel consumption related to acquisition-related growth. See Item 3. "Quantitative and Qualitative Disclosures about Market Risk" included in this Quarterly Report on Form 10-Q for additional information regarding our fuel costs; and
•Other operational costs increased in aggregate dollars driven by higher facility costs due to higher commodity prices on average year-over-year, accentuated in the quarter by the significant sequential decline in commodity pricing from August to September, which resulted in higher purchased materials costs based on trailing contractual calculations;acquisition-related growth and
higher labor and related benefit costs inflationary pressures primarily associated with higher healthcare costsspend on internally completed and outside repairs, and personnel related expenses; partially offset year-to-date higher volumes, and higher product quality standardsby a benefit from commodity buyers resultingthe change in lower throughput and additional manpower.
fair value of an acquisition related contingent consideration which is based upon a probability-weighted analysis of a success payment related to the potential attainment of a transfer station permit expansion.
General and administration:
General and administration expense increased $0.5$1.3 million quarterly and $1.0$3.3 million year-to-date from the prior year periods, with the year-to-date increase due primarily to (i) acquisition-related growth, (ii) wage inflation, (iii) an increase in general overhead costs associated with acquisition-related growth and inflationary pressures and (iv) the allocation of higher shared service costs; partially offset by lower bad debt expense.
Depreciation and amortization
Depreciation and amortization expense increased $3.0 million quarterly and $6.0 million year-to-date from the prior year periods due primarily to acquisition-related growth and increased investments in our fleet, whereas the increase in landfill amortization expense can be primarily attributed to higher landfill volumes year-to-date and changes in cost and other assumptions.
Resource Solutions
Operating income decreased $(5.5) million quarterly and $(11.2) million year-to-date from the prior year periods. Excluding the impact of the expense from acquisition activities, our operating performance in the three and six months ended June 30, 2023 was driven by revenue decline, inclusive of inter-company revenues, and the following cost changes.
Cost of operations
Cost of operations decreased $(1.0) million quarterly and increased $6.4 million year-to-date from the prior year periods due to the following:
•Direct costs decreased in aggregate dollars quarterly and increased in aggregate dollars year-to-date due primarily to higher labor costs, including incentive compensation,disposal rates and higher shared overheadhauling charges due to inflationary pressures, and costs associated with an increase in healthcare coststhe diversion of materials from our Boston, Massachusetts material recovery facility, which underwent a retrofit during the six months ended June 30, 2023; partially offset year-to-date, and more than offset quarterly, by lower purchased material costs;
•Other operational costs increased in aggregate dollars driven by higher equity compensation expense.facility costs primarily associated with (i) higher spend on outside repairs, (ii) increased facility insurance costs and (iii) personnel related expenses due to inflationary pressures;
•Maintenance and repair costs increased in aggregate dollars due to higher fleet and container maintenance costs driven by inflationary pressures associated with personnel related expenses and supply costs related to repairs and parts; and Other•Direct operational costs increased in aggregate dollars due primarily due to inflationary pressures.
Operating incomeGeneral and administration
General and administration expense increased $0.2 million quarterly and decreased $(0.4)$1.9 million year-to-date based onfrom the following:prior year periods due to (i) wage inflation, (ii) an increase in general overhead costs associated with inflationary pressures and (iii) the allocation of higher shared service costs; partially offset quarterly by lower bad debt expense.
lower operating performance of our Organics line-of-business, as lower operating costs did not offsetDepreciation and amortization:
Depreciation and amortization expense remained flat quarterly and increased $0.3 million year-to-date from the decline in commodity volumes and higher disposal costsprior year periods due to the usetiming of alternative disposal sites;acquisition activity completed in the six months ended June 30, 2022.
Corporate Entities
Corporate Entities operating loss reflects those costs not allocated to our reportable operating segments, which typically consists of depreciation and amortization expense. Operating income decreased $(4.1) million quarterly and $(5.8) million year-to-date from the prior year periods primarily due to unallocated acquisition related expenses, comprised primarily of legal, consulting and other similar costs in the three and six months ended June 30, 2023.
improved operating performance of our Customer Solutions line-of-business, as increased volumes outweighed higher cost of operations associated with increased purchased material, hauling and transportation, and healthcare costs.
Liquidity and Capital Resources
We continually monitor our actual and forecasted cash flows, our liquidity, and our capital requirements in order to properly manage our cashliquidity needs as we move forward based on the capital intensive nature of our business. business and our growth acquisition strategy. As of June 30, 2023, we had $272.3 million of undrawn capacity from our $300.0 million revolving credit facility ("Revolving Credit Facility") to help meet our short-term and long-term liquidity needs. We expect existing cash and cash equivalents combined with available cash flows from operations and financing activities to continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities for at least the next 12 months and thereafter for the foreseeable future.
Our capital requirementsknown current- and long-term uses of cash include, fixed asset purchases (includingamong other possible demands: (i) acquisitions, including the Twin Bridges Acquisition, (ii) capital expenditures for vehicles),and leases, (iii) repayments to service debt servicing, landfill development and cell construction, landfill siteother long-term obligations and cell closure, as well as acquisitions. We generally meet our liquidity needs from operating cash flows and borrowings from our Revolving Credit Facility.
As part of our decision to cease operations at the Southbridge Landfill as discussed in Note 7, Commitments and Contingencies to our consolidated financial statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q, we assessed the estimated costs and timing of cash flows associated with remaining capital expenditures, environmental remediation, and(iv) payments for final capping, closure and post-closure activities at the Southbridge Landfill.asset retirement obligations and environmental remediation liabilities. We expect cash outflowshave made in the next five years associated with these activitiespast and plan to be approximately $21.0 million and we do not believe that this will negatively impact our liquidity during this time. In addition, we estimate that over $52.0 million in additional tax deductions related to ceasing operations will be recognizedmake in the next five years. Furthermore, we do not believefuture, acquisitions to expand service areas, densify existing operations, and grow services for our customers. Future acquisitions may include larger, more strategic acquisitions that ceasing operations atmay be inside or outside of our existing market, which could require additional financing either in the Southbridge Landfill will impact our future operational activities in a manner that will have a material impact to our resultsform of operations, our cash flows and our financial condition.debt or equity.
A summary of cash and cash equivalents, restricted assets and long-term debt balances, excluding any unamortized debt discount and debt issuance costs, (in millions) follows: | | | | | | | | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 | | $ Change |
| | | | | |
Cash and cash equivalents | $ | 465.7 | | | $ | 71.2 | | | $ | 394.5 | |
Current assets, excluding cash and cash equivalents | $ | 163.7 | | | $ | 136.3 | | | $ | 27.4 | |
Restricted assets | $ | 2.0 | | | $ | 1.9 | | | $ | 0.1 | |
Total current liabilities: | | | | | |
Current liabilities, excluding current maturities of debt | $ | 186.5 | | | $ | 168.6 | | | $ | 17.9 | |
Current maturities of debt | 32.7 | | | 9.0 | | | 23.7 | |
Total current liabilities | $ | 219.2 | | | $ | 177.6 | | | $ | 41.6 | |
Debt, less current portion | $ | 994.8 | | | $ | 594.5 | | | $ | 400.3 | |
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Cash and cash equivalents | $ | 2.3 |
| | $ | 2.5 |
|
Restricted assets: | | | |
Restricted investments - landfill closure | $ | 1.1 |
| | $ | 1.0 |
|
Long-term debt: | | | |
Current portion | $ | 6.0 |
| | $ | 4.7 |
|
Long-term portion | 494.3 |
| | 520.9 |
|
Total long-term debt | $ | 500.3 |
| | $ | 525.6 |
|
Current assets, excluding cash and cash equivalents, increased $27.4 million and current liabilities increased $41.6 million in the six months ended June 30, 2023 as compared to December 31, 2022, resulting in a $(14.2) million decline in working capital, net (defined as current assets, excluding cash and cash equivalents, minus current liabilities), from $(41.3) million as of December 31, 2022 to $(55.5) million as of June 30, 2023. We strive to maintain a negative working capital cycle driven by shorter days sales outstanding as compared to days payable outstanding in an effort to collect money at a faster rate than paying bills to facilitate business growth.Summary of Cash Flow Activity
Cash and cash equivalents increased $394.5 million in the six months ended June 30, 2023. A summary of cash flows (in millions) follows: | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | $ Change |
| 2023 | | 2022 | |
Net cash provided by operating activities | $ | 83.2 | | | $ | 92.3 | | | $ | (9.1) | |
Net cash used in investing activities | $ | (597.2) | | | $ | (110.6) | | | $ | (486.6) | |
Net cash provided by financing activities | $ | 908.6 | | | $ | 24.9 | | | $ | 883.7 | |
|
| | | | | | | | | | | |
| Nine Months Ended September 30, | | $ Change |
| 2017 | | 2016 | |
Net cash provided by operating activities | $ | 79.1 |
| | $ | 56.1 |
| | $ | 23.0 |
|
Net cash used in investing activities | $ | (50.0 | ) | | $ | (43.7 | ) | | $ | (6.3 | ) |
Net cash used in financing activities | $ | (29.3 | ) | | $ | (11.2 | ) | | $ | (18.1 | ) |
Net cash provided byCash flows from operating activities.
A summary of operating cash flows (in millions) follows: | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 |
Net income | $ | 9.0 | | | $ | 22.0 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 68.4 | | | 60.6 | |
| | | |
Interest accretion on landfill and environmental remediation liabilities | 5.0 | | | 4.0 | |
Amortization of debt issuance costs | 1.5 | | | 0.9 | |
Stock-based compensation | 4.3 | | | 3.2 | |
Operating lease right-of-use assets expense | 6.9 | | | 6.8 | |
| | | |
Disposition of assets, other items and charges, net | (0.3) | | | 0.4 | |
| | | |
| | | |
| | | |
| | | |
Loss from termination of bridge financing | 8.2 | | | — | |
| | | |
Deferred income taxes | 2.0 | | | 7.2 | |
| 105.0 | | | 105.1 | |
Changes in assets and liabilities, net | (21.8) | | | (12.8) | |
Net cash provided by operating activities | $ | 83.2 | | | $ | 92.3 | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Net (loss) income | $ | (41.8 | ) | | $ | 5.1 |
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | | |
Depreciation and amortization | 46.3 |
| | 46.4 |
|
Depletion of landfill operating lease obligations | 6.8 |
| | 7.1 |
|
Interest accretion on landfill and environmental remediation liabilities | 3.2 |
| | 2.7 |
|
Amortization of debt issuance costs and discount on long-term debt | 2.0 |
| | 3.1 |
|
Stock-based compensation | 4.8 |
| | 2.4 |
|
Gain on sale of property and equipment | — |
| | (0.5 | ) |
Southbridge Landfill non-cash closure charge | 63.5 |
| | — |
|
Loss on debt extinguishment | 0.5 |
| | 0.7 |
|
Deferred income taxes | 0.4 |
| | 0.5 |
|
| 85.7 |
| | 67.5 |
|
Changes in assets and liabilities, net | (6.6 | ) | | (11.4 | ) |
Net cash provided by operating activities | $ | 79.1 |
| | $ | 56.1 |
|
A summary of the most significant items affecting the change in our operating cash flows follows:
ImprovedNet cash provided by operating activities decreased $(9.1) million in the six months ended June 30, 2023 as compared to the six months ended June 30, 2022. This was the result of operational performance, more than offset by an increase in the unfavorable cash flow impact associated with the changes in our assets and liabilities, net of effects of acquisitions and divestitures. For discussion of our operational performance in the ninesix months ended SeptemberJune 30, 20172023 as compared to the ninesix months ended SeptemberJune 30, 2016 due to2022, see "Results of Operations" included in this Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Quarterly Report on Form 10-Q. The increase in the following:
higher revenues of $26.9 million driven by our Recycling line-of-business, our collection line-of-business, our Western region disposal line-of-business and our Customer Solutions line-of-business; partially offset by
higher cost of operations of $16.6 million driven by higher third-party direct costs, higher labor and related benefit costs, including significant healthcare cost increases, and higher direct operational costs; and
higher general and administration expenses of $2.9 million driven by higher labor and related benefit costs, including significant healthcare cost increases.
The improvedunfavorable cash flow impact associated with the changes in our assets and liabilities, net of effects of acquisitions and divestitures, which are affected by both cost changes and the timing of payments, in the ninesix months ended SeptemberJune 30, 20172023 as compared to the ninesix months ended SeptemberJune 30, 20162022 was the result ofprimarily due to the following:
lower•a $(18.7) million unfavorable impact to operating cash outflowsflows associated with cash interest payments running throughthe changes in accrued expenses, contract liabilities and other liabilities;liabilities primarily on higher cash income tax payments, the timing of capital payments, and a higher decline in accrued payroll, related primarily to the payment of incentive compensation; and
lower•a $(1.2) million unfavorable impact to operating cash outflowsflows associated with prepaid expenses, inventories and other assets;the change in accounts payable as prior year period payables growth more than offset the current period increase in days payable outstanding; partially offset by
higher•a $10.7 million favorable impact to operating cash outflowsflows associated with accrued payrollthe change in accounts receivable primarily due to the timing of increased revenues growth in prior year and incentive compensation;a favorable decrease in days sales outstanding from prior year.
lower cash inflows associated with accounts receivable; and
higher cash outflows associated with accounts payable.
Net cash used inCash flows from investing activities.
A summary of investing cash flows (in millions) follows: | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 |
Acquisitions, net of cash acquired | $ | (547.6) | | | $ | (56.3) | |
| | | |
Additions to property, plant and equipment | (50.4) | | | (54.9) | |
| | | |
| | | |
Proceeds from sale of property and equipment | 0.8 | | | 0.6 | |
| | | |
| | | |
Net cash used in investing activities | $ | (597.2) | | | $ | (110.6) | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Acquisitions, net of cash acquired | $ | (3.5 | ) | | $ | (2.4 | ) |
Acquisition related additions to property, plant and equipment | (0.2 | ) | | — |
|
Additions to property, plant and equipment | (43.2 | ) | | (37.4 | ) |
Payments on landfill operating lease contracts | (3.7 | ) | | (4.8 | ) |
Proceeds from sale of property and equipment | 0.6 |
| | 0.9 |
|
Net cash used in investing activities | $ | (50.0 | ) | | $ | (43.7 | ) |
A summary of the most significant items affecting the change in our investing cash flows follows:
Acquisitions, net of cash acquired. We acquired three solid waste collection lines-of-business inacquired. In the ninesix months ended SeptemberJune 30, 20172023, we acquired two businesses for total consideration of $6.3$546.3 million, including $3.5$544.4 million in cash and paid $3.2 million in holdback payments on businesses previously acquired, as compared to the ninesix months ended SeptemberJune 30, 2016, when2022 during which we acquired three transfer stations in our Western regioneight businesses for total consideration of $2.8$58.9 million, including $2.4$55.1 million in cash.cash, and paid $1.2 million in holdback payments on businesses previously acquired.
Capital expenditures. Capital expenditures were $5.8decreased $(4.5) million higher in the ninesix months ended SeptemberJune 30, 20172023 as compared to the ninesix months ended SeptemberJune 30, 20162022 primarily due to timing differences with various landfill development projects and business growth.
Payments on landfill operating lease contracts. Landfill operating lease payments decreased $(0.9) million in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 due to the timing of payments at certain of our landfills based on the terms of the operating lease contracts.
Proceeds from the sale of propertyspend for vehicles, machinery, equipment and equipment. Proceeds from the sale of property and equipment decreased $(0.3) million in the nine months ended September 30, 2017 as comparedcontainers; partially offset by higher capital spend associated with (i) inflation; (ii) facility spend related to the nine months ended September 30, 2016 due topurchase of a transfer station that was formerly leased and the timingretrofitting of a single-stream material recovery facility; (iii) development of rail side infrastructure at our Subtitle D landfill located in Mount Jewett, Pennsylvania and make-up of various asset sales.(iv) acquisition activity.
Net cash used in
Cash flows from financing activities.
A summary of financing cash flows (in millions) follows: | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 |
Proceeds from long-term borrowings | $ | 430.0 | | | $ | 82.2 | |
Principal payments on debt | (10.6) | | | (55.3) | |
Payments of debt issuance costs | (7.2) | | | (1.2) | |
Payments of contingent consideration | — | | | (1.0) | |
Proceeds from the exercise of share based awards | — | | | 0.2 | |
Proceeds from the public offering of Class A common stock | 496.4 | | | — | |
| | | |
| | | |
Net cash provided by financing activities | $ | 908.6 | | | $ | 24.9 | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Proceeds from long-term borrowings | $ | 146.4 |
| | $ | 140.7 |
|
Principal payments on long-term debt | (175.2 | ) | | (152.1 | ) |
Payments of debt issuance costs | (1.5 | ) | | (0.7 | ) |
Payments of debt extinguishment costs | — |
| | (0.4 | ) |
Proceeds from the exercise of share based awards | 1.0 |
| | — |
|
Change in restricted cash | — |
| | 1.3 |
|
Net cash used in financing activities | $ | (29.3 | ) | | $ | (11.2 | ) |
A summary of the most significant items affecting the change in our financing cash flows follows:
Debt activity. We had an increase in bothNet cash associated with debt borrowings of $5.7 million and debt payments of $23.1activity increased $392.5 million in the ninesix months ended SeptemberJune 30, 2017 associated primarily with2023 as compared to the following:
the pay down of $28.1 million of long-term debt under the Credit Facility in the ninesix months ended SeptemberJune 30, 2017;
the remarketing of the FAME Bonds 2005R-1 and the FAME Bonds 2005R-22022 due primarily to entering into the $25.0$430.0 million FAME Bonds 2005R-3aggregate principal amount term loan A facility ("2023 Term Loan Facility") in the nine months ended September 30, 2017;
June 2023, partially offset by the issuance by the New York State Environmental Facilities Corporation of the New York Bonds 2016 in the nine months ended September 30, 2016;and
the repurchase or redemption, as applicable, and retirement of $24.7$35.0 million aggregate principal amount of the 2019 NotesVermont Bonds 2022A-1 in the nine months ended September 30, 2016 in order to maximize interest savings by paying down our most expensive debt.prior year.
PaymentsPayment of debt issuance costs. costs. We made $1.5paid $7.2 million of debt issuance cost paymentscosts in the ninesix months ended SeptemberJune 30, 20172023 primarily related to financing activities associated with the Repricing Amendment and the remarketingGFL Acquisition, which included $4.1 million of the FAME Bonds 2005R-1 and the FAME Bonds 2005R-2debt issuance costs that were paid related to short-term secured bridge financing that was terminated in May 2023 when we entered into the FAME Bonds 2005R-3 as compared to $0.7 million in2023 Term Loan Facility. In the ninesix months ended SeptemberJune 30, 20162022, we paid $1.2 million of debt issuance costs related primarily to the issuance of the New YorkVermont Bonds 2016.2022A-1.
Proceeds from the exercisepublic offering of share based awards. WeClass A Common Stock. On June 16, 2023, we completed a public offering of 6.1 million shares of our Class A common stock at a public offering price of $85.50 per share. After deducting stock issuance costs received $1.0 millionas of cash receiptsJune 30, 2023, including underwriting discounts, commissions and offering expenses, the offering has resulted in net proceeds of $496.4 million. The net proceeds from this offering were and are to be used to fund acquisition activity, as discussed in Note 4, Business Combinations to our consolidated financial statements included in Part I. Item. 1 of this Quarterly Report on Form 10-Q, to pay certain costs associated with the exercise of stock options in the nine months ended September 30, 2017.acquisition activities, and to repay borrowings and/or debt securities.
Change in restricted cash. In the nine months ended September 30, 2016, we obtained $3.0 million of restricted cash from the issuance of $15.0 million aggregate principal amount of New York Bonds 2016 and subsequently used these funds to pay down ABL Facility borrowings for costs incurred to fund certain capital projects in the state of New York. We also used the remaining $1.3 million of restricted cash associated with the issuance of Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2015 (“FAME Bonds 2015”) in the nine months ended September 30, 2016 to pay down ABL Facility borrowings for costs incurred to fund certain capital projects in the state of Maine.
Outstanding Long-Term Debt
Credit FacilityFinancing Activities
In the quarter ended June 30, 2017,March 31, 2023, we entered into first and second amendments to our amended and restated credit agreement dated as of December 22, 2021 (collectively with the third amendment and the Loan Joinder disclosed below, the "Amended and Restated Credit Agreement"). The first amendment provides, commencing in the fiscal year ending December 31, 2024, that the interest rate margin applied for drawn and undrawn amounts under the Amended and Restated Credit Agreement shall be separately adjusted based on our achievement of certain thresholds and targets on two sustainability related key performance indicator metrics during the prior fiscal year: (i) metric tons of solid waste materials reduced, reused or recycled through our direct operations or with third-parties in collaboration with customers; and (ii) our total recordable incident rate. The second amendment provides that loans under the Amended and Restated Credit Agreement shall bear interest, at our election, at term secured overnight financing rate ("Term SOFR"), including a secured overnight financing rate adjustment of 10 basis points, or at a base rate, in each case, plus or minus any sustainable rate adjustment plus an applicable interest rate margin based upon our consolidated net leverage ratio.
In April 2023, we entered into an equity purchase agreement pursuant to which we agreed to the GFL Acquisition. In connection with the GFL Acquisition, we entered into (i) a commitment letter to obtain short-term secured bridge financing of up to $375.0 million and (ii) the third amendment to the Amended and Restated Credit Agreement to, among other things, permit the draw down of the short-term secured bridge financing and authorize a delayed draw term loan facility to be executed with customary limited condition provisions. The short-term secured bridge financing was undrawn and subsequently terminated in May 2023 when we entered into the Repricing Amendment to our Credit Facility agreement. The Repricing Amendment decreased the applicable interest marginspecified acquisition loan joinder ("Loan Joinder"), which provided for our Term Loan B Facility by 25 basis points for both LIBOR borrowings and base rate borrowings. The applicable interest margin will continue to be determined based on our consolidated net leverage ratio. The applicable interest rate will be reduced to 2.50% for LIBOR borrowings (with a 1.00% LIBOR floor), and 1.50% for base rate borrowings upon us reaching a consolidated net leverage ratio of 3.75x or less. Based on our consolidated net leverage ratio of 3.71x for the twelve months ended September 30, 2017, we expect the applicable interest rate to be reduced to 2.50% for LIBOR borrowings (with a 1.00% floor) and 1.50% for base rate borrowings effective upon the acceptance of our covenant compliance certificate that we expect to provide to the administrative agent for the Credit Facility on November 3, 2017.
As of September 30, 2017, we had outstanding $348.3$430.0 million aggregate principal amount of borrowings under our2023 Term Loan BFacility under the Amended and Restated Credit Agreement. In June 2023, we borrowed $430.0 million under the 2023 Term Loan Facility and $36.3paid certain fees and costs due and payable in connection therewith. Borrowings from the 2023 Term Loan Facility were used to fund, in conjunction with cash and cash equivalents and borrowings from our Revolving Credit Facility, the GFL Acquisition.
In June 2023, we entered into an asset purchase agreement pursuant to which we agreed to the Twin Bridges Acquisition, which is pending regulatory approval. In connection with the Twin Bridges Acquisition, we entered into a commitment letter to obtain short-term unsecured bridge financing of up to $200.0 million that was undrawn and subsequently terminated when we completed a public offering of our Class A common stock on June 16, 2023. See Note 9, Stockholders' Equity to our consolidated financial statements included in Part I. Item. 1 of this Quarterly Report on Form 10-Q, regarding the public offering.
Credit Facility
As of June 30, 2023, we are party to the Amended and Restated Credit Agreement, which provides for a $350.0 million aggregate principal amount of borrowings under ourterm loan A facility ("Term Loan Facility"), a $300.0 million Revolving Credit Facility. TheFacility, with a $75.0 million sublimit for letters of credit, and a $430.0 million 2023 Term Loan B Facility has a 7-year term(collectively, the "Credit Facility"). We have the right to request, at our discretion, an increase in the amount of loans under the Credit Facility by an aggregate amount of $125.0 million, subject to futher increase based on the terms and bears interest at a rate of LIBOR plus 2.75% per annum (with a 1.00% LIBOR floor) as of September 30, 2017.conditions set forth in the Amended and Restated Credit Agreement. The Revolving Credit Facility has a 5-year term and bearsthat matures in December 2026. The Credit Facility shall bear interest, at our election, at Term SOFR, including a secured overnight financing rate adjustment of 10 basis points, or at a base rate, in each case plus or minus any sustainable rate adjustment of up to positive or negative 4.0 basis points per annum, plus an applicable interest rate margin based upon our consolidated net leverage ratio as follows:
| | | | | | | | | | | | | | |
| | Term SOFR Loans | | Base Rate Loans |
Term Loan Facility | | 1.125% to 2.125% | | 0.125% to 1.125% |
Revolving Credit Facility | | 1.125% to 2.125% | | 0.125% to 1.125% |
2023 Term Loan Facility | | 1.625% to 2.625% | | 0.625% to 1.625% |
A commitment fee will be charged on undrawn amounts at a rate of LIBORTerm SOFR, including a secured overnight financing rate adjustment of 10 basis points, plus 2.75% per annum as of September 30, 2017, which can be adjusted from an applicable rate of LIBOR plus 2.50% to 3.25% depending ona margin based upon our consolidated net leverage ratio.ratio in the range of 0.20% to 0.40% per annum, plus a sustainability adjustment of up to positive or negative 1.0 basis point per annum. The Amended and Restated Credit Agreement provides that Term SOFR is subject to a zero percent floor. We are also required to make scheduled quarterly paymentspay a fronting fee for each letter of $0.9 million oncredit of 0.25% per annum. Interest under the Term Loan B Facility in March, June, SeptemberAmended and DecemberRestated Credit Agreement is subject to increase by 2.00% per annum during the continuance of each year until maturity in October 2023. Oura payment default and may be subject to increase by 2.00% per annum during the continuance of any other event of default. The Credit Facility is guaranteed jointly and severally, fully and unconditionally by all of our significant wholly-owned subsidiaries and secured by substantially all of our assets. As of SeptemberJune 30, 2017,2023, further advances were available under the Revolving Credit Facility in the amount of $100.8$272.3 million. ThisThe available amount is net of outstanding irrevocable letters of credit totaling $22.9$27.7 million, and as of SeptemberJune 30, 2017, at which date2023 no amount had been drawn. We have the right to request, at our discretion, an increase in the amount of loans under the
The Amended and Restated Credit Facility by an aggregate amount of $100.0 million, subject to the terms and conditions set forth in the Credit Facility agreement.
The Credit Facility agreementAgreement requires us to maintain a minimum interest coverage ratio and a maximum consolidated net leverage ratio, to be measured at the end of each fiscal quarter. As of SeptemberJune 30, 2017,2023, we were in compliance with all financial covenants contained in the Amended and Restated Credit Facility agreementAgreement as follows:follows (in millions): | | | Twelve Months Ended September 30, 2017 | | Covenant Requirement at September 30, 2017 | |
Credit Facility Covenant | | Credit Facility Covenant | | Twelve Months Ended June 30, 2023 | | Covenant Requirements at June 30, 2023 |
Maximum consolidated net leverage ratio (1) | 3.71 |
| | 5.375 |
| Maximum consolidated net leverage ratio (1) | | 2.35 | | | 5.00 |
Minimum interest coverage ratio | 5.68 |
| | 2.50 |
| Minimum interest coverage ratio | | 11.23 | | | 3.00 |
| |
(1) | (1)The maximum consolidated net leverage ratio is calculated as consolidated funded debt, net of up to $100.0 million of unencumbered cash and cash equivalents in excess of $2.0 million plus an additional $400.0 million of limited condition acquisition unencumbered cash and cash equivalents as defined by the Amended and Restated Credit Agreement (calculated at $708.6 million as of June 30, 2023, or $1,027.6 million of consolidated funded debt less $319.0 million total of unencumbered cash and cash equivalents), divided by consolidated EBITDA. Consolidated EBITDA is based on operating results for the twelve months preceding the measurement date of June 30, 2023. Consolidated funded debt, net of unencumbered cash and cash equivalents in excess of $2.0 million (calculated at $500.0 million as of September 30, 2017, or $500.3 million of consolidated funded debt less $0.3 million of cash and cash equivalents in excess of $2.0 million as of September 30, 2017), divided by minimum consolidated EBITDA. Minimum consolidated EBITDA is based on operating results for the twelve months preceding the measurement date of September 30, 2017. Consolidated funded debt, net of unencumbered cash and cash equivalents in excess of $2.0 million, and minimum consolidated EBITDA as defined by the Amended and Restated Credit Agreement ("Consolidated EBITDA") are non-GAAP financial measures that should not be considered an alternative to any measure of financial performance calculated and presented in accordance with generally accepted accounting principles in the United States. A reconciliation of net cash provided by operating activities to Consolidated EBITDA is as follows (in millions): | | | | | | | Twelve Months Ended June 30, 2023 | Net cash provided by operating activities to minimum consolidated | $ | 208.3 | | Changes in assets and liabilities, net of effects of acquisitions and divestitures | 20.2 | | | | | | | | Stock based compensation | (9.3) | | Loss from termination of bridge financing | (8.2) | | Operating lease right-of-use assets expense | (5.0) | | Disposition of assets, other items and charges, net | (0.1) | | Interest expense, less amortization of debt issuance costs | 26.3 | | Provision for income taxes, net of deferred income taxes | 3.8 | | Adjustments as allowed by the Amended and Restated Credit Agreement | 65.3 | | Consolidated EBITDA is as follows (in millions): | $ | 301.3 | |
| | | | | | Twelve Months Ended September 30, 2017 | Net cash provided by operating activities | $ | 103.5 |
| Changes in assets and liabilities, net of effects of acquisitions and divestitures | 4.4 |
| Gain on sale of property and equipment | 0.1 |
| Environmental remediation charge | (0.9 | ) | Loss on debt extinguishment | (13.5 | ) | Stock based compensation | (5.8 | ) | Southbridge Landfill non-cash charge | (63.5 | ) | Interest expense, less amortization of debt issuance costs and discount on long-term debt | 25.5 |
| Provision for income taxes, net of deferred taxes | 0.3 |
| Adjustments as allowed by the Credit Facility agreement | 84.6 |
| Minimum consolidated EBITDA | $ | 134.7 |
|
In addition to thethese financial covenants, described above, the Amended and Restated Credit Facility agreementAgreement also contains a number of important customary affirmative and negative covenants which restrict, among other things, our ability to sell assets, incur additional debt, create liens, make investments, and pay dividends. As of June 30, 2023, we were in compliance with the covenants contained in the Amended and Restated Credit Agreement. We do not believe that these restrictions impact our ability to meet future liquidity needs. As of September 30, 2017, we were in compliance with the covenants contained in the Credit Facility agreement. An event of default under any of our debt agreements could permit some of our lenders, including the lenders under the Credit Facility, to declare all amounts borrowed from them to be immediately due and payable, together with accrued and unpaid interest, or, in the case of the Credit Facility, terminate the commitment to make further credit extensions thereunder, which could, in turn, trigger cross-defaults under other debt obligations. If we were unable to repay debt to our lenders or were otherwise in default under any provision governing our outstanding debt obligations, our secured lenders could proceed against us and against the collateral securing that debt.
Based on the seasonality of our business, operating results in the late fall, winter and early spring months are generally lower than the remainder of our fiscal year. Given the cash flow impact that this seasonality, the capital intensive nature of our business and the timing of debt payments has on our business, we typically incur higher debt borrowings in order to meet our liquidity needs during these times. Consequently, our availability and performance against our financial covenants may tighten during these times as well.
Tax-Exempt Financings and Other Debt New York Bonds. As of SeptemberJune 30, 2017,2023, we had outstanding $40.0$197.0 million aggregate principal amount of Solid Waste Disposal Revenue Bonds Series 2014 ("New York Bonds 2014") and New York Bonds 2016 issued by the New York State Environmental Facilities Corporation under the indenture dated December 1, 2014 (collectively, the “New York Bonds”). The New York Bonds 2014 accrue interest at 3.75% per annum through December 1, 2019, at which time they may be converted from a fixed rate to a variable rate. The New York Bonds 2016 accrue interest at 3.125% per annum through May 31, 2026, at which time they may be converted from a fixed rate to a variable rate. The New York Bonds, which are unsecured and guaranteed jointly and severally, fully and unconditionally by all of our significant wholly-owned subsidiaries, require interest payments on June 1 and December 1 of each year and mature on December 1, 2044. We borrowed the proceeds of the New York Bonds to finance or refinance certain capital projects in the state of New York and to pay certain costs of issuance of the New York Bonds.
Maine Bonds. In the quarter ended March 31, 2017, we completed the remarketing of $3.6tax exempt bonds, $50.2 million aggregate principal amount of FAME Bonds 2005R-1finance leases and $21.4$0.3 million aggregate principal amount of FAME Bonds 2005R-2 into one series of $25.0 million aggregate principal amount of FAME Bonds 2005R-3. As of September 30, 2017, we had outstanding $25.0 million aggregate principal amount of FAME Bonds 2005R-3. The FAME Bonds 2005R-3, which are unsecured and guaranteed jointly and severally, fully and unconditionally by all ofnotes payable. See Note 7, Debt to our significant wholly-owned subsidiaries, accrue interest at 5.25% per annum, and interest is payable semiannuallyconsolidated financial statements included in arrears on February 1 and AugustPart I. Item. 1 of each year until such bonds maturethis Quarterly Report on January 1, 2025.Form 10-Q for further disclosure regarding debt.
As of September 30, 2017, we had outstanding $15.0 million aggregate principal amount of FAME Bonds 2015. The FAME Bonds 2015, which are unsecured and guaranteed jointly and severally, fully and unconditionally by all of our significant wholly-owned subsidiaries, accrue interest at 5.125% per annum through August 1, 2025, at which time they may be converted from a fixed to a variable rate, and interest is payable semiannually in arrears on February 1 and August 1 of each year. An additional $15.0 million aggregate principal amount of FAME Bonds 2015 may be offered under the same indenture in the future. The FAME Bonds 2015 mature on August 1, 2035. We borrowed the proceeds of the offering of the FAME Bonds 2015 to finance or refinance the costs of certain of our solid waste landfill facilities and solid waste collection, organics and transfer, recycling and hauling facilities, and to pay certain costs of the issuance of the FAME Bonds 2015.Vermont Bonds. As of September 30, 2017, we had outstanding $16.0 million aggregate principal amount Vermont Economic Development Authority Solid Waste Disposal Long-Term Revenue Bonds Series 2013 (“Vermont Bonds”). The Vermont Bonds, which are unsecured and guaranteed jointly and severally, fully and unconditionally by all of our significant wholly-owned subsidiaries, accrue interest at 4.75% per annum through April 1, 2018, at which time they may be converted from a fixed rate to a variable rate, and interest is payable semiannually in arrears on April 1 and October 1 of each year. The Vermont Bonds mature on April 1, 2036. We borrowed the proceeds of the Vermont Bonds to repay borrowings under our Senior Credit Facility for qualifying property, plant and equipment assets purchased in the state of Vermont.
New Hampshire Bonds. As of September 30, 2017, we had outstanding $11.0 million aggregate principal amount of Solid Waste Disposal Revenue Bonds Series 2013 issued by the Business Finance Authority of the State of New Hampshire (“New Hampshire Bonds”). The New Hampshire Bonds, which are unsecured and guaranteed jointly and severally, fully and unconditionally by all of our significant wholly-owned subsidiaries, accrue interest at 4.00% per annum through October 1, 2019, at which time they may be converted from a fixed rate to a variable rate, and interest is payable in arrears on April 1 and October 1 of each year. The New Hampshire Bonds mature on April 1, 2029. We borrowed the proceeds of the New Hampshire Bonds to repay borrowings under our Senior Credit Facility for qualifying property, plant and equipment assets purchased in the state of New Hampshire.
Shelf Registration
We have filed a universal shelf registration statement with the SEC pursuant to which we may from time to time issue securities in an amount of up to $190.0 million, after giving consideration to the $60.0 million aggregate principal amount of additional 2019 Notes we issued in February 2015 pursuant to the registration statement.
Inflation Although inflationaryInflationary increases in costs, including current inflationary pressures associated primarily with fuel, labor and certain other cost categories and capital items, have materially affected, and may continue to materially affect, our historical operating margins and cash flows. While inflation negatively impacted operating results and margins during the three and six months ended June 30, 2023 and 2022, we believe that inflation generally has not had a significant impact on our operating results.flexible pricing structures and cost recovery fees are allowing us to recover and will continue to allow us to recover certain inflationary costs from our customer base. Consistent with industry practice, most of our contracts and service agreements provide for a pass-through of certain costs to our customers, including increases in landfill tipping fees and in somemost cases fuel costs, intended to mitigate the impact of inflation on our operating results. We have also implemented a number of operating efficiency
programs that seek to improve productivity and reduce our service costs, and aour fuel surcharge,cost recovery program, which is the energy component of our E&E Fee, is designed to recover escalating fuel price fluctuations above an annuallya periodically reset floor. Based onDespite these implementations, we believe we should be able to sufficiently offset most cost increases resulting from inflation. However,programs, competitive factors may require us to absorb at least a portion of these cost increases. See Item 3. "Quantitative and Qualitative Disclosures about Market Risk" included in this Quarterly Report on Form 10-Q for additional information regarding our fuel cost recovery program. Additionally, management’s estimates associated with inflation have had, and will continue to have, an impact on our accounting for landfill and environmental remediation liabilities. Regional Economic Conditions Our business is primarily located in the northeasterneastern United States. Therefore, our business, financial condition and results of operations are susceptible to downturns in the general economy in this geographic region and other factors affecting the region, such as state regulations and severe weather conditions. We are unable to forecast or determine the timing and/or the future impact of a sustained economic slowdown. Seasonality and Severe Weather Our transfer and disposal revenues historically have been higher in the late spring, summer and early fall months. This seasonality reflects lower volumes of waste in the late fall, winter and early spring months because: because the volume of waste relating to C&D activities decreases substantially during the winter months in the northeastern United States; and decreased tourism in Vermont, New Hampshire, Maine and eastern New York during the winter months tends to lower the volume of waste generated by commercial and restaurant customers, which is partially offset by increased volume from the ski industry.States.
Because certain of our operating and fixed costs remain constant throughout the fiscal year, operating income is therefore impacted by a similar seasonality. Our operations can also be adversely affected by periods of inclement or severe weather, which may increase with the physical impacts of climate change and could increase our operating costs associated with the collection and disposal of waste, delay the collection and disposal of waste, reduce the volume of waste delivered to our disposal sites, increase the volume of waste collected under our existing contracts (without corresponding compensation), decrease the throughput and operating efficiency of our materials recycling facilities, or delay construction or expansion of our landfill sites and other facilities. Our operations can also be favorably affected by severe weather, which could increase the volume of waste in situations where we are able to charge for our additional services provided. Our Recyclingprocessing line-of-business in the Resource Solutions operating segment typically experiences increased volumes of fiber infrom November and Decemberthrough mid-January due to increased newspaper advertising and retail activity during the holiday season. Limitations on Ownership of Notes
Pursuant to the provisions of the Credit Facility agreement and the FAME Bonds 2015, FAME Bonds 2005R-3, New Hampshire Bonds, New York Bonds and Vermont Bonds, no lender under the Credit Facility or beneficial holder of the FAME Bonds 2015, FAME Bonds 2005R-3, New Hampshire Bonds, New York Bonds and/or Vermont Bonds is permitted to knowingly lend under the Credit Facility agreement or acquire FAME Bonds 2015, FAME Bonds 2005R-3, New Hampshire Bonds, New York Bonds and/or Vermont Bonds if such lender or person would hold 10% or more of the consolidated debt for which relevant subsidiaries of ours are obligated (and must dispose of the loans under the Credit Facility agreement, FAME Bonds 2015, FAME Bonds 2005R-3, New Hampshire Bonds, New York Bonds and/or Vermont Bonds or other debt of ours to the extent such lender or person becomes aware of exceeding such threshold), if such ownership would require consent of any regulatory authority under applicable law or regulation governing solid waste operators and such consent has not been obtained. We will furnish to the lenders under the Credit Facility agreement or beneficial holders of the FAME Bonds 2015, FAME Bonds 2005R-3, New Hampshire Bonds, New York Bonds and Vermont Bonds, in each quarterly and annual report, the dollar amount of our debt that would serve as the threshold for evaluating a beneficial holder’s compliance with these ownership restrictions. As of September 30, 2017, that dollar amount was $49.2 million.
Critical Accounting PoliciesEstimates and EstimatesAssumptions The preparation of ourOur financial statements requires management to makehave been prepared in accordance with generally accepted accounting principles in the United States and necessarily include certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities, as applicable, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.judgments made by management. On an on-going basis, management evaluates its estimates and judgments which are based on historical experience and on various other factors that are believed to be reasonable under the circumstances. The results of their evaluation form the basis for making judgments about the carrying
values of assets and liabilities. Actual results may differ from these estimates under different assumptions and circumstances. Our significantcritical accounting policiesestimates are more fully discussed in Item 87. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2022. New Accounting Pronouncements For a description of the new accounting standards that may affect us, see Note 2, Accounting Changesto our consolidated financial statements included under Part I,I. Item 11. of this Quarterly Report on Form 10-Q. | | ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business we are exposed to market risks, including changes in diesel fuel prices, interest rates and certain commodity prices. We have a variety of strategies to mitigate these market risks, including those discussed below.
Fuel Price Risk The price and supply of fuel are unpredictable and fluctuate based on events beyond our control, including among others, geopolitical developments, supply and demand for oil and gas, actions by the Organization of the Petroleum Exporting Countries and other oil and gas producers, war and unrest in oil producing countries and regional production patterns. Fuel is needed to run our fleet of trucks, equipment and other aspects of our operations, and price escalations for fuel increase our operating expenses. We have a fuel cost recovery program, which is the energy component of our energy and environmental fee ("E&E Fee(s)") that is designed to offset some or all of the impact of diesel fuel price increases above a periodically reset floor and contemplates a minimum customer participation level to cover changes in our fuel costs. The energy component of the E&E Fee floats on a monthly basis based upon changes in a published diesel fuel price index and is tied to a price escalation index with a look-back provision, which results in a timing lag in our ability to match the changes in the fuel cost component of the fee to diesel fuel price fluctuations during periods of rapid price changes. In certain circumstances, a substantial rise or drop in fuel costs could materially affect our revenue and costs of operations. However, a substantial rise or drop in fuel costs should not have a material impact on our results of operations. In addition, we are susceptible to increases in fuel surcharges from our vendors.
Based on our consumption levels in the last twelve months ended June 30, 2023, combined with our expected fuel consumption related to the acquisition of the equity interests of four wholly owned subsidiaries of GFL Environmental Inc., which are the basis of a newly formed regional operating segment, the Mid-Atlantic region, that will expand our integrated solid waste services to the states of Delaware and Maryland ("GFL Acquisition"), and after considering physically settled fuel contracts we believe a $0.40 cent per gallon change in the price of diesel fuel would change our direct fuel costs by approximately $5.1 million annually, or $1.3 million quarterly. Offsetting these changes in direct fuel expense would be changes in the energy component of the E&E Fees charged to our customers. Based on participation rates as of June 30, 2023 and considering the GFL Acquisition, we believe a $0.40 cent per gallon change in the price of diesel fuel would change the energy component of the E&E Fee by approximately $5.1 million annually, or $1.3 million quarterly. In addition to direct fuel costs related to our consumption levels, we are also subject to fuel surcharge expense from third party transportation providers. Other operational costs and capital expenditures may also be impacted by fuel prices. In the three and six months ended June 30, 2023, our fuel costs were $9.4 million, or 3.3% of revenue, and $20.3 million, or 3.7% of revenue, respectively, as compared to $13.6 million, or 4.8% of revenue, and $23.5 million, or 4.5% of revenue, in the three and six months ended June 30, 2022, respectively. Commodity Price Risk We market a variety of materials, including fibers such as old corrugated cardboard and old newsprint, plastics, glass, ferrous and aluminum metals. We may use a number of strategies to mitigate impacts from these recycled material commodity price fluctuations including: (1) charging collection customers a floating sustainability recycling adjustment fee to reduce recycling commodity risks; (2) providing in-bound material recovery facilities (“MRF”) customers with a revenue share or indexed materials purchases in higher commodity price markets, or charging these same customers a processing cost or tipping fee per ton in lower commodity price markets; (3) selling recycled commodities to out-bound MRF customers through floor price or fixed price agreements; or (4) entering into fixed price contracts or hedges that mitigate the variability in cash flows generated from the sales of recycled paper at times using derivativefloating prices. Although we have introduced these risk mitigation programs to help offset volatility in commodity prices and to offset higher labor or capital costs to meet more stringent contamination standards, we cannot provide assurance that we can use these programs with our customers in all circumstances or that they will mitigate these risks in an evolving recycling environment. We do not use financial instruments for trading purposes and are not a party to hedge some portionany leveraged derivatives. As of these risks.June 30, 2023, we were not party to any commodity hedging agreements. The impact of commodity price volatility market risk as of June 30, 2023 does not differ materially from that discussed in Item 7A, "Quantitative and Qualitative Disclosures About Market Risk" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Interest Rate VolatilityRisk In the quarter ended March 31, 2017, we enteredOur strategy to reduce exposure to interest rate risk involves entering into three interest rate derivative agreements to hedge against adverse movements in interest rate risk associated withrates related to the variable rate portion of our long-term debt. The total notional amount ofWe have designated these agreements is $60.0 million and requires us to receive interest based on changes in the 1-month LIBOR index with a 1.0% floor and pay interest at a weighted average rate of approximately 1.95%. Two of the agreements, with a total notional amount of $35.0 million, mature in February 2021, and the final agreement, with a total notional amount of $25.0 million, matures in February 2022.
We designated the three interest rate derivative agreementsinstruments as highly effective cash flow hedges, upon inception, and therefore the change in fair value is recorded in our stockholders’ deficitequity as a component of accumulated other comprehensive lossincome (loss) and included in interest expense at the same time as interest expense is affected by the hedged transactions. Differences paid or received over the life of the agreements are recorded as additions to or reductions of interest expense on the underlying debt.debt and included in cash flows from operating activities.
As of June 30, 2023, our active interest rate derivative agreements had total notional amounts of $165.0 million. According to the terms of the agreements, we receive interest based on term secured overnight financing rate ("Term SOFR"), restricted by a 0.0% floor, and pay interest at a weighted average rate of approximately 2.08% as of June 30, 2023. The agreements mature between February 2026 and May 2028. As of June 30, 2023, we had $247.6 million of fixed rate debt in addition to the $165.0 million fixed through our interest rate derivative agreements. In July 2023, we entered into interest rate derivative agreements with a notional amount of $250.0 million. According to the terms of the agreements, we receive interest based on Term SOFR restricted by a 0.0% floor, and pay interest at a rate of 4.285%. The agreements became effective in July 2023 and mature in June 2028. After taking into consideration the new interest rate derivative agreements, we had interest rate risk relating to approximately $324.6$365.0 million of long-term debt at September 30, 2017.debt. The weighted average interest rate on the variable rate portion of long-term debt was approximately 4.0%7.0% at SeptemberJune 30, 2017. Should2023. After taking into consideration the new interest rate derivative agreements, should the average interest rate on the variable rate portion of long-term debt change by 100 basis points, we estimate that our quarterly interest expense would change by up to approximately $0.8 million. The remainder of our long-term debt is at fixed rates and not subject to interest rate risk.$3.7 million annually, or $0.9 million quarterly. Commodity Price Volatility
Through our Recycling operation, we market a variety of materials, including fibers such as old corrugated cardboard and old newsprint, plastics, glass, ferrous and aluminum metals. We may use a number of strategies to mitigate impacts from commodity price fluctuations including: (1) charging collection customers a floating sustainability recycling adjustment fee to offtake recycling commodity risks; (2) in-bound material recovery facilities ("MRF") customers receiving a revenue share or indexed materials purchases in higher commodity price markets, or charging these same customers a processing cost or tipping fee per ton in lower commodity price markets; (3) selling recycling commodities to out-bound MRF customers through floor price or fixed price agreements; or (4) entering into fixed price contracts or hedges that mitigate the variability in cash flows generated from the sales of recycled paper at floating prices. We do not use financial instruments for trading purposes and are not a party to any leveraged derivatives. As of September 30, 2017, we were not party to any commodity hedging agreements.
In October 2017, the Official Board Market released commodity pricing data that indicated a steep decline in near-term commodity prices. As a result, we believe that it is reasonably possible that our average commodity revenue per ton will drop by approximately 40% from September 2017 to October 2017. Should commodity prices change by 40%, we estimate that our quarterly operating income margin would change by approximately $0.8 million based on the observed impact of commodity price changes on operating income margin. Our sensitivity to changes in commodity prices is complex because each customer contract is unique relative to revenue sharing, tipping or processing fees and other arrangements. The above operating income impact may not be indicative of future operating results and actual results may vary materially.
| | ITEM 4. | CONTROLS AND PROCEDURES |
ITEM 4. CONTROLS AND PROCEDURES Evaluation of disclosure controls and procedures. Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of SeptemberJune 30, 2017.2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’sSecurities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of SeptemberJune 30, 2017,2023, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level. Changes in internal controls over financial reporting. No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended SeptemberJune 30, 20172023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. ITEM 1. LEGAL PROCEEDINGS General Legal Proceedings InThe information required by this Item is provided in Note 8, Commitments and Contingencies to our consolidated financial statements included in Part I. Item 1. of this Quarterly Report on Form 10-Q.
Legal Proceedings over Certain Environmental Matters Involving Governmental Authorities with Possible Sanctions of $1,000,000 or More Item 103 of the ordinary courseSecurities and Exchange Commission's Regulation S-K requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings and the proceedings involve potential monetary sanctions unless we reasonably believe the monetary sanctions, exclusive of interest and costs, will not equal or exceed a specified threshold which we determine is reasonably designed to result in disclosure of any such proceeding that is material to our business and as a result of the extensive governmental regulation of the solid waste industry, we are subjector financial condition. Pursuant to various judicial and administrative proceedings involving state and local agencies. In these proceedings, an agency may seek to impose fines or to revoke or deny renewal of an operating permit held by us. From time to time, we may also be subject to actions brought by special interest or other groups, adjacent landowners or residents in connection with the permitting and licensing of landfills and transfer stations, or allegations of environmental damage or violations of the permits and licenses pursuant to which we operate. In addition, we may be named defendants in various claims and suits pending for alleged damages to persons and property, alleged violations of certain laws and alleged liabilities arising out of matters occurring during the ordinary operation of a waste management business. Environmental Remediation Liability
We are subject to liability for environmental damage, including personal injury and property damage, that our solid waste, recycling and power generation facilities may cause to neighboring property owners, particularly as a result of the contamination of drinking water sources or soil, possibly including damage resulting from conditions that existed before we acquired the facilities. We may also be subject to liability for similar claims arising from off-site environmental contamination caused by pollutants or hazardous substances if we or our predecessors arrange or arranged to transport, treat or dispose of those materials. The following matters represent our material outstanding claims.
Southbridge Recycling & Disposal Park, Inc.
In October 2015, our Southbridge Recycling and Disposal Park, Inc. (“SRD”) subsidiary reported to the Massachusetts Department of Environmental Protection (“MADEP”) results of analysis of samples collected pursuant to our existing permit from private drinking water wells located near the Town of Southbridge, Massachusetts (“Town”) Landfill (“Southbridge Landfill”), which is operated by SRD. Those results indicated the presence of contaminants above the levels triggering notice and response obligations under MADEP regulations. In response to those results, we are carrying out an Immediate Response Action pursuant to Massachusetts General Law Chapter 21E (the "Charlton 21E Obligations") pursuant to state law. Further,Item 103, we have implemented a plan to analyze and better understand the groundwater near the Southbridge Landfill and we are investigating with the objective of identifying the source or sources of the elevated levels of contamination measured in the well samples. If it is determined that some or all of the contamination originated at the Southbridge Landfill, we will work with the Town, the Southbridge Landfill owner and the former operator of an unlined portion of the Southbridge Landfill, which was used prior to our operation of a double-lined portion of the Southbridge Landfillcommencing in 2004, to evaluate and allocate the liabilities related to the Charlton 21E Obligations. In July 2016, we sent correspondence to the Town pursuant to Chapter 21E of Massachusetts General Laws demanding that the Town reimburse us for the environmental response costs we had spent and that the Town be responsible for all such costs in the future, as well as any other costs or liabilities resulting from the release of contaminants from the unlined portion of the Southbridge Landfill. The Town responded in September 2016, denying that the Southbridge Landfill is the source of such contamination, and claiming that if it is, that we may owe an indemnity to the Town pursuant to the Operating Agreement between us and the Town dated May 29, 2007, as amended. We entered into a Tolling Agreement with the Town to delay any further administrative or legal actions until our work with MADEP more specifically defines the parties’ responsibilities for the Charlton 21E Obligations, if any. Please see below for further discussion of our relationship with the Town regarding the Charlton 21E Obligations.
In February 2016, we and the Town received a Notice of Intent to Sue under the Resource Conservation and Recovery Act ("RCRA") from a law firm purporting to represent residents proximate to the Southbridge Landfill (“Residents”), indicating its intent to file suit against us on behalf of the Residents alleging the groundwater contamination originated from the Southbridge Landfill. In February 2017, we received an additional Notice of Intent to Sue from the National Environmental Law Center under the Federal Clean Water Act ("CWA") and RCRA (collectively the “Acts”) on behalf of Environment America, Inc., d/b/a Environment Massachusetts, and Toxics Action Center, Inc., which have referred to themselves as the Citizen Groups. The Citizen Groups alleged that we had violated the Acts, and that they intended to seek appropriate relief in federal court for those alleged violations. On or about June 9, 2017, a lawsuit was filed against us, SRD and the Town in the United States District Court for the District of Massachusetts by the Citizen Groups and the Residents alleging violations of the Acts (the “Litigation”), and demanding a variety of remedies under the Acts, including fines, remediation, mitigation and costs of litigation, and remedies for violations of Massachusetts civil law related to personal and property damages, including
remediation, diminution of property values, compensation for lost use and enjoyment of properties, enjoinment of further operation of the Southbridge Landfill, and costs of litigation, plus interest on any damage award, on behalf of the Residents. We believe the Litigationdisclosure threshold to be factually inaccurate, and without legal merit, and we and SRD intend to vigorously defend the Litigation. Nevertheless, we believe it is reasonably possible that a loss will occur as a result of the Litigation although an estimate of loss cannot be reasonably provided at this time due to the infancy of this matter. We also continue to believe the Town should be responsible for costs or liabilities associated with the Litigation relative to alleged contamination originating from the unlined portion of the Southbridge Landfill, although there can be no assurance that we will not be required to incur some or all of such costs and liabilities.
We entered into an Administrative Consent Order on April 26, 2017 (the “ACO”), with MADEP, the Town, and the Town of Charlton, committing us to equally share the costs with MADEP, of up to $10.0 million ($5.0 million each) for the Town to install a municipal waterline in the Town of Charlton ("Waterline"). Upon satisfactory completion of that Waterline, and other matters covered by the ACO, we and the Town will be released by MADEP from any future responsibilities for the Charlton 21E Obligations. We also entered into an agreement with the Town on April 28, 2017 entitled the “21E Settlement and Water System Construction Funding Agreement” (the “Waterline Agreement”), wherein we and the Town released each other from claims arising from the Charlton 21E Obligations. Pursuant to the Waterline Agreement, the Town will issue a twenty (20) year bond for our portion of the Waterline costs (up to $5.0 million).$1,000,000. We have agreedno matters to reimburse the Town for periodic payments under such bond.
We have recorded an environmental remediation liability associated with the future installation of the Waterline in other accrued liabilities and other long-term liabilities. We inflate the estimated costs in current dollars to the expected time of payment and discount the total cost to present value using a risk-free interest rate of 2.6%. Our expenditures could be significantly higher if costs exceed estimates. The changes to the environmental remediation liability associated with the Southbridge Landfill are as follows: | | | | | | | | | | | | | | Nine Months Ended September 30, | | 2017 | | 2016 | Beginning balance | $ | — |
| | $ | — |
| Accretion expense | — |
| | — |
| Obligations incurred | 6.4 |
| | — |
| Obligations settled (1) | (0.2 | ) | | — |
| Ending balance | $ | 6.2 |
| | $ | — |
|
| | (1) | Includes amounts that are being processed through accounts payable as a part of our disbursement cycle. |
In August 2016, we filed a complaint against Steadfast Insurance Company (“Steadfast”) in the Superior Court of Suffolk County, Massachusetts (the "Court"), alleging among other things, that Steadfast breached its Pollution Liability Policy (“Policy”) purchased by us in April 2015, by refusing to acknowledge coverage under the Policy, and refusing to cover any of the costs and liabilities incurred by us as described above as well as costs and liabilities that we may incur in the future. Steadfast filed an answer and counterclaim in September 2016, denying that it has any obligations to us under the Policy, and seeking a declaratory judgment of Steadfast’s obligations under the Policy. We are in the discovery phase of this litigation. Steadfast has filed a Motion to Dismiss (the "Motion") our litigation against it, and we filed our response on July 11, 2017. On September 7, 2017, the Court denied the Motion.
On June 13, 2017, Town voters rejected a non-binding ballot initiative intended to provide guidance to Town officials with respect to our pursuit of other landfill development opportunities at the Southbridge Landfill. Following such rejection by the Town voters, our board of directors and senior management determined after due consideration of all facts and circumstances that it is no longer likely that further development at the existing landfill site will generate an adequate risk adjusted return at the Southbridge Landfill, and accordingly we expect to cease operations at the Southbridge Landfill when no further capacity is available, expected by no later than December 31, 2018. We delivered correspondence to the Town to this effect on August 3, 2017, citing events of Change in Law and Force Majeure pursuant to our May 29, 2007 Extension Agreement with the Town ("Extension Agreement") and the impacts of such events on further expansion of the Southbridge Landfill. We have advised the Town that we see no economically feasible way to operate the Southbridge Landfill beyond its current permitted life. Following cessation of operations, we will proceed to conduct proper closure and other activities at the Southbridge Landfilldisclose in accordance with the Extension Agreement with the Town, and Federal, state and local law. We reached this conclusion after carefully evaluating the estimated future costs associated with the permitting, engineering and construction activities for the planned expansion of the Southbridge Landfill against the possible outcomes of the permitting process and the anticipated future benefits of successful expansions. Under the Extension Agreement, which we account for as an operating lease, there are potential contractual obligations and commitments, including future cash payments of $3.1 million and services that extend beyond the current useful life of the Southbridge Landfill. In accordance with FASB ASC 420 - Exit or Disposal Cost Obligations, a liability for costs to be incurred under a contract for its remaining term without economic benefit shall be recognized when we cease using the right conveyed by the contract. We may incur a loss associated with these potential contractual obligations upon cessation of operations at the Southbridge Landfill, when remaining capacity is exhausted by the placement of waste at the site. See Note 10, Other Items and Charges for information regarding the Southbridge landfill closure charge.requirement.
The costs and liabilities we may be required to incur in connection with the foregoing Southbridge Landfill matters could be material to our results of operations, our cash flows and our financial condition.
Potsdam Environmental Remediation Liability
On December 20, 2000, the State of New York Department of Environmental Conservation (“DEC”) issued an Order on Consent (“Order”) which named Waste-Stream, Inc. (“WSI”), our subsidiary, General Motors Corporation (“GM”) and Niagara Mohawk Power Corporation (“NiMo”) as Respondents. The Order required that the Respondents undertake certain work on a 25-acre scrap yard and solid waste transfer station owned by WSI in Potsdam, New York, including the preparation of a Remedial Investigation and Feasibility Study (“Study”). A draft of the Study was submitted to the DEC in January 2009 (followed by a final report in May 2009). The Study estimated that the undiscounted costs associated with implementing the preferred remedies would be approximately $10.2 million. On February 28, 2011, the DEC issued a Proposed Remedial Action Plan for the site and accepted public comments on the proposed remedy through March 29, 2011. We submitted comments to the DEC on this matter. In April 2011, the DEC issued the final Record of Decision (“ROD”) for the site. The ROD was subsequently rescinded by the DEC for failure to respond to all submitted comments. The preliminary ROD, however, estimated that the present cost associated with implementing the preferred remedies would be approximately $12.1 million. The DEC issued the final ROD in June 2011 with proposed remedies consistent with its earlier ROD. An Order on Consent and Administrative Settlement naming WSI and NiMo as Respondents was executed by the Respondents and DEC with an effective date of October 25, 2013. On January 29, 2016, a Cost-Sharing Agreement was executed between WSI, NiMo, Alcoa Inc. (“Alcoa”) and Reynolds Metal Company (“Reynolds”) whereby Alcoa and Reynolds elected to voluntarily participate in the onsite remediation activities at a combined 15% participant share. It is unlikely that any significant expenditures relating to onsite remediation will be incurred until the fiscal year ending December 31, 2019. WSI is jointly and severally liable with NiMo, Alcoa and Reynolds for the total cost to remediate.
We have recorded an environmental remediation liability associated with the Potsdam site based on incurred costs to date and estimated costs to complete the remediation in other accrued liabilities and other long-term liabilities. Our expenditures could be significantly higher if costs exceed estimates. We inflate the estimated costs in current dollars to the expected time of payment and discount the total cost to present value using a risk-free interest rate of 1.5%. The changes to the environmental remediation liability associated with the Potsdam site are as follows:
| | | | | | | | | | | | | | Nine Months Ended September 30, | | 2017 | | 2016 | Beginning balance | $ | 5.9 |
| | $ | 5.2 |
| Obligations settled (1) | — |
| | (0.3 | ) | Ending balance | $ | 5.9 |
| | $ | 4.9 |
|
| | (1) | Includes amounts that are being processed through accounts payable as a part of our disbursement cycle. |
ITEM 1A. RISK FACTORS Our business is subject to a number of risks, including those identified in Item 1A, “Risk Factors”“Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2022, that could have a material effect on our business, results of operations, financial condition and/or liquidity and that could cause our operating results to vary significantly from period to period. As of September 30, 2017, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, except as set forth in the following paragraphs. We may disclose additional changes to our risk factors or disclose additional factors from time to time in our future filings with the SEC.Securities and Exchange Commission. Our results of operations are affected by fluctuating commodity prices and market requirements for recyclable materials.
Our results of operations have been and will continue to be affected by changing purchase or resale prices or market requirements for recyclable materials. Our recycling business involves the purchase and sale of recyclable materials, some of which are priced on a commodity basis. The commodity markets continue to see ongoing negative pressure on pricing associated with the decline of the fiber market due to less use of paper products such as newspaper and office paper as a result of increased on-line reading. As a result of these market changes, domestic demand for various recycled fibers from mill buyers has steadily declined over the past decade, and as such we have exported more of these materials overseas to China. In 2017, China launched a campaign called “National Sword” which has imposed significant restrictions on the importation into China of recyclable materials, including imposing new quality standards for contaminants in recycled materials commencing January 1, 2018. Furthermore, China has not issued import licenses for its mills to import recycled commodities for 2018, resulting in a stoppage of essentially all imports into China of recycled commodities. These factors could have a significant impact on our business.ITEM 5. OTHER INFORMATION
We seek to limit our exposure to fluctuating commodity prices through: our revenue sharing contracts that share commodity prices above a threshold level or charge a tipping fee below the threshold; our net commodity rate formula that allows us to pass back higher costs to sell commodities, including higher labor costs or equipment costs to meet new quality standards; our floating Sustainability Recycling Adjustment fee that passes back the cost of recycling to our collection customers; and as applicable the use of hedging agreements, floor price contracts and long-term supply contracts with customers. Although we have introduced these risk mitigation programs to help offset volatility in commodity prices and to offset higher labor or capital costs to meet more stringent contamination standards, we cannot provide assurance that we can use these programs with our customers in all circumstances or that they will mitigate these risks in an evolving recycling environment.
The waste industry is subject to extensive government regulations, including environmental regulations, and we incur substantial costs to comply with such regulations. Failure to comply with environmental or other regulations, as well as enforcement actions and litigation arising from an actual or perceived breach of such regulations, could subject us to fines, penalties, and judgments, and impose limits on our ability to operate and expand.
We are subject to potential liability and restrictions under environmental laws, including those relating to transportation, recycling, treatment, storage and disposal of wastes, discharges of pollutants to air and water, and the remediation of contaminated soil, surface water and groundwater. The waste management industry has been and will continue to be subject to regulation, including permitting and related financial assurance requirements, as well as attempts to further regulate the industry, including efforts to regulate the emission of greenhouse gases. Our solid waste operations are subject to a wide range of federal, state and, in some cases, local environmental, odor and noise and land use restrictions. If we are not able to comply with the requirements that apply to a particular facility or if we operate without the necessary approvals or permits, we could be subject to administrative or civil, and possibly criminal, fines and penalties, and we may be required to spend substantial capital to bring an operation into compliance, to temporarily or permanently discontinue activities, and/or take corrective actions, possibly including removal of landfilled materials. Those costs or actions could be significant to us and affect our results of operations, cash flows, and available capital. Environmental and land use laws also affect our ability to expand and, in the caseNone of our solid waste operations, may dictate those geographic areas from which we must,directors or from which we may not, accept solid waste. Those laws and regulations may limitofficers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the overall size and daily solid waste volume that may be accepted by a solid waste operation. If we are not able to expand or otherwise operate one or more of our facilities because of limits imposed under such laws, we may be required to increase our utilization of disposal facilities owned by third-parties, which could reduce our revenues and/or operating margins.the three months ended June 30, 2023.
In addition to complying with environmental laws and regulations, we are required to obtain government permits to operate our facilities, including all of our landfills. There is no guarantee that we will be able to obtain the requisite permits and, even if we could, that any permit (and any existing permits we currently hold) will be renewed or modified as needed to fit our business needs. Localities where we operate generally seek to regulate some or all landfill and transfer station operations, including siting and expansion of operations. The laws adopted by municipalities in which our landfills and transfer stations are located
may limit or prohibit the expansion of a landfill or transfer station, as well as the amount of solid waste that we can accept at the landfill or transfer station on a daily, quarterly or annual basis, and any effort to acquire or expand landfills and transfer stations, which typically involves a significant amount of time and expense. We may not be successful in obtaining new landfill or transfer station sites or expanding the permitted capacity of any of our current landfills and transfer stations. If we are unable to develop additional disposal and transfer station capacity, our ability to achieve economies from the internalization of our waste stream will be limited. If we fail to receive new landfill permits or renew existing permits, we may incur landfill asset impairment and other charges associated with accelerated closure.
We have historically grown through acquisitions, may make additional acquisitions in the future, and we have tried and will continue to try to evaluate and limit environmental risks and liabilities presented by businesses to be acquired prior to the acquisition. It is possible that some liabilities may prove to be more difficult or costly to address than we anticipate. It is also possible that government officials responsible for enforcing environmental laws may believe an issue is more serious than we expect, or that we will fail to identify or fully appreciate an existing liability before we become responsible for addressing it. Some of the legal sanctions to which we could become subject could cause the suspension or revocation of a permit, prevent us from, or delay us in, obtaining or renewing permits to operate or expand our facilities, or harm our reputation. As of September 30, 2017, we had recorded $5.9 million in environmental remediation liabilities for the estimated cost of our share of work associated with a consent order issued by the State of New York to remediate a scrap yard and solid waste transfer station owned by one of our acquired subsidiaries, including the recognition of accretion expense. There can be no assurance that the cost of such cleanup or that our share of that cost will not exceed our estimates.
In addition to the costs of complying with environmental laws and regulations, we incur costs defending against environmental litigation brought by government agencies and private parties. We are, and may be in the future, a defendant in lawsuits brought by parties alleging environmental damage, personal injury, and/or property damage, or seeking to overturn or prevent the issuance of an operating permit or authorization, all of which may result in us incurring significant liabilities.
In October 2015, our Southbridge Recycling and Disposal Park, Inc. (“SRD”) subsidiary reported to the Massachusetts Department of Environmental Protection (“MADEP”) results of analysis of samples collected pursuant to our existing permit from private drinking water wells located near the Town of Southbridge, Massachusetts (“Town”) Landfill (“Southbridge Landfill”), which is operated by SRD. Those results indicated the presence of contaminants above the levels triggering notice and response obligations under MADEP regulations. In response to those results, we are carrying out an Immediate Response Action pursuant to Massachusetts General Law Chapter 21E (the “Charlton 21E Obligations”) pursuant to state law. Further, we have implemented a plan to analyze and better understand the groundwater near the Southbridge Landfill and we are investigating with the objective of identifying the source or sources of the elevated levels of contamination measured in the well samples. If it is determined that some or all of the contamination originated at the Southbridge Landfill, we will work with the Town, the Southbridge Landfill owner and the former operator of an unlined portion of the Southbridge Landfill, which was used prior to our operation of a double-lined portion of the Southbridge Landfill commencing in 2004, to evaluate and allocate the liabilities related to the Charlton 21E Obligations. In July 2016, we sent correspondence to the Town pursuant to Chapter 21E of Massachusetts General Laws demanding that the Town reimburse us for the environmental response costs we had spent and that the Town be responsible for all such costs in the future, as well as any other costs or liabilities resulting from the release of contaminants from the unlined portion of the Southbridge Landfill. The Town responded in September 2016, denying that the Southbridge Landfill is the source of such contamination, and claiming that if it is, that we may owe an indemnity to the Town pursuant to the Operating Agreement between us and the Town dated May 29, 2007, as amended. We entered into a Tolling Agreement with the Town to delay any further administrative or legal actions until our work with MADEP more specifically defines the parties’ responsibilities for the Charlton 21E Obligations, if any.
In February 2016, we and the Town received a Notice of Intent to Sue under the Resource Conservation and Recovery Act (“RCRA”) from a law firm purporting to represent residents proximate to the Southbridge Landfill (“Residents”), indicating its intent to file suit against us on behalf of the Residents alleging the groundwater contamination originated from the Southbridge Landfill. In February 2017, we received an additional Notice of Intent to Sue from the National Environmental Law Center under the Federal Clean Water Act (“CWA”) and RCRA (collectively the “Acts”) on behalf of Environment America, Inc., d/b/a Environment Massachusetts, and Toxics Action Center, Inc., which have referred to themselves as the Citizen Groups. The Citizen Groups alleged that we had violated the Acts, and that they intended to seek appropriate relief in federal court for those alleged violations. On or about June 9, 2017, a lawsuit was filed against us, SRD and the Town in the United States District Court for the District of Massachusetts by the Citizen Groups and the Residents alleging violations of the Acts (the “Litigation”), and demanding a variety of remedies under the Acts, including fines, remediation, mitigation and costs of litigation, and remedies for violations of Massachusetts civil law related to personal and property damages, including remediation, diminution of property values, compensation for lost use and enjoyment of properties, enjoinment of further operation of the Southbridge Landfill, and costs of litigation, plus interest on any damage award, on behalf of the Residents.
We believe it is reasonably possible that a loss will occur as a result of the Litigation although an estimate of loss cannot be reasonably provided at this time due to the infancy of this matter.
We may not have sufficient insurance coverage for our environmental liabilities, such coverage may not cover all of the potential liabilities we may be subject to and/or we may not be able to obtain insurance coverage in the future at reasonable expense, or at all.
The conduct of our businesses is also subject to various other laws and regulations administered by federal, state and local governmental agencies, including tax laws, employment laws and competition laws, among others. New laws, regulations or governmental policy and their related interpretations, or changes in any of the foregoing, including taxes or other limitations on our services, may alter the environment in which we do business and, therefore, may impact our results or increase our costs or liabilities.
In certain jurisdictions, we are subject to compliance with specific obligations under competition laws due to our competitive position in those jurisdictions. For example, in May 2002, we entered into an assurance of discontinuance with the Vermont Attorney General’s Office concerning, among other matters, the conduct of our business in Vermont relating to certain contract terms applicable to our small commercial container customers. In August 2011, a revised final judgment of consent and order was entered by the Vermont Superior Court Washington Unit, Civil Division, as a result of some of our small commercial container customers having been mistakenly issued contracts that did not strictly comply with the terms of the assurance of discontinuance. Pursuant to the order, we paid a civil penalty in an aggregate amount of $1.0 million. In July 2014, we entered into an assurance of discontinuance with the office of the New York Attorney General in connection with certain of our commercial practices in certain specified counties in New York, pursuant to which we paid the State of New York a sum of $0.1 million. The assurances of discontinuance and order provide for certain restrictions on our customer contract terms, certain conditions on our business acquisitions, sales and market share and require us to maintain an internal compliance program. Failure to comply with these requirements or other laws or regulations could subject us to enforcement actions or financial penalties which could have a material adverse effect on our business.
See also Part II, Item I, “Legal Proceedings” and Note 7, Commitments and Contingencies to our consolidated financial statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q. ITEM 6. EXHIBITS | | | | | | | | | ITEM 6.Exhibit No. | EXHIBITS | Description |
| | | | | 10.1+ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2.1 + | | FormEquity Purchase Agreement, dated as of Restricted Stock Unit Agreement under 2016 Incentive Plan (non-employee director).April 21, 2023, by and among the sellers identified therein, GFL Environmental Inc., Casella Mid-Atlantic, LLC, and, solely with respect to Section 9.17 thereof,Casella Waste Systems, Inc. | | | | | | | 10.1 + | | Senior Secured Bridge Commitment Letter, dated as of April 21, 2023, by Casella Waste Systems, Inc., Bank of America, N.A., BofA Securities, Inc., Citizens Bank, N.A., JPMorgan Chase Bank, N.A., and Comerica Bank. | | | | 10.2 | | Third Amendment to Amended and Restated Credit Agreement, dated as of April 25, 2023, by and among Casella Waste Systems, Inc., its subsidiaries party thereto, Bank of America, N.A., JPMorgan Chase Bank, N.A., Comerica Bank, Citizens Bank, N.A., TD Bank, N.A., and M&T Bank (incorporated herein by reference to Exhibit 10.1 to the current report on Form 8-K of Casella as filed on July 3, 2023 (file no. 000-23211)). | | | | 10.3 | | Specified Acquisition Loan Joinder, dated as of May 25, 2023, by and among Casella Waste Systems, Inc., its subsidiaries party thereto, BofA Securities, Inc., Bank of America, N.A., JPMorgan Chase Bank, N.A., The Huntington National Bank, Citizens Bank, N.A., Comerica Bank, TD Bank, N.A., Capital One, National Association, CoBank, ACB, U.S. Bank National Association, and M&T Bank (incorporated herein by reference to Exhibit 10.2 to the current report on Form 8-K of Casella as filed on July 3, 2023 (file no. 000-23211)). | | | | 10.4 + | | | | | | 31.1 + | | | | | | 31.2 + | | | | | | 32.1 ++ | | | | | | 32.2 ++ | | | 101.INS | | XBRL Instance Document.** | 101.SCH | | | | | | 101.INS | | The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. | | | | 101.SCH | | Inline XBRL Taxonomy Extension Schema Document.** | 101.CAL | | | 101.CAL | | Inline XBRL Taxonomy Calculation Linkbase Document.** | 101.LAB | | | 101.LAB | | Inline XBRL Taxonomy Label Linkbase Document.** | 101.PRE | | | 101.PRE | | Inline XBRL Taxonomy Presentation Linkbase Document.** | 101.DEF | | | 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document.** |
| | | | 104 | | Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.) |
| | | | | | | | | ** | | Submitted Electronically Herewith. Attached as Exhibit 101 to this report are the following formatted in inline XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets as of SeptemberJune 30, 20172023 and December 31, 2016,2022, (ii) Consolidated Statements of Operations for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, (iii) Consolidated Statements of Comprehensive Income (Loss) for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, (iv) Consolidated StatementStatements of Stockholders’ DeficitEquity for the ninethree and six months ended SeptemberJune 30, 2017,2023 and 2022, (v) Consolidated Statements of Cash Flows for the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, and (vi) Notes to Consolidated Financial Statements.
| + | | Filed Herewith | ++ | | Furnished Herewith |
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | | | | | | | | | | Casella Waste Systems, Inc. | | | | | Date: July 28, 2023 | Casella Waste Systems, Inc.By: /s/ Kevin Drohan | | | Kevin Drohan | | Date: November 2, 2017 | By: /s/ Christopher B. Heald | | | Christopher B. Heald | | | Vice President and Chief Accounting Officer | | | (Principal Accounting Officer) | | | | | Date: November 2, 2017July 28, 2023 | By: /s/ Edmond R. Coletta | | | Edmond R. Coletta | | | Senior Vice President and Chief Financial Officer | | | (Principal Financial Officer) | |
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