UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) | | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20222023
OR | | | | | |
☐ | 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)
| | | | | |
Delaware | 03-0338873 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| | | | | | | | |
25 Greens Hill Lane, | |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ 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. | | | | | | | | | | | |
Large accelerated filer | ☒ | Accelerated filer | ☐ |
| | | | | | | | | | | |
Non-accelerated filer | ☐ | Smaller reporting 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 ☒
The number of shares outstanding of each of the registrant’s classes of common stock, as of October 15, 2022:2023: | | | | | | | | |
Class A common stock, $0.01 par value per share: | 50,692,05356,994,524 | | |
Class B common stock, $0.01 par value per share: | 988,200 | | |
PART I.
ITEM 1. FINANCIAL STATEMENTS
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands) | | | September 30, 2022 | | December 31, 2021 | | September 30, 2023 | | December 31, 2022 |
| | (Unaudited) | | | | (Unaudited) | | |
ASSETS | ASSETS | ASSETS |
CURRENT ASSETS: | CURRENT ASSETS: | | CURRENT ASSETS: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 47,934 | | | $ | 33,809 | | Cash and cash equivalents | $ | 219,089 | | | $ | 71,152 | |
| Accounts receivable, net of allowance for credit losses of $4,265 and $3,276, respectively | 108,010 | | | 86,979 | | |
Accounts receivable, net of allowance for credit losses of $3,703 and $3,016, respectively | | Accounts receivable, net of allowance for credit losses of $3,703 and $3,016, respectively | 140,332 | | | 100,886 | |
| Refundable income taxes | | Refundable income taxes | 3,726 | | | — | |
Prepaid expenses | Prepaid expenses | 14,998 | | | 12,766 | | Prepaid expenses | 20,448 | | | 15,182 | |
Inventory | Inventory | 13,432 | | | 9,729 | | Inventory | 17,519 | | | 13,472 | |
| Other current assets | Other current assets | 7,109 | | | 3,196 | | Other current assets | 12,227 | | | 6,787 | |
Total current assets | Total current assets | 191,483 | | | 146,479 | | Total current assets | 413,341 | | | 207,479 | |
Property, plant and equipment, net of accumulated depreciation and amortization of $1,038,576 and $973,094, respectively | 685,348 | | | 644,604 | | |
Property, plant and equipment, net of accumulated depreciation and amortization of $1,136,955 and $1,064,756, respectively | | Property, plant and equipment, net of accumulated depreciation and amortization of $1,136,955 and $1,064,756, respectively | 935,402 | | | 720,550 | |
Operating lease right-of-use assets | Operating lease right-of-use assets | 93,066 | | | 93,799 | | Operating lease right-of-use assets | 103,116 | | | 92,063 | |
Goodwill | Goodwill | 272,442 | | | 232,860 | | Goodwill | 737,150 | | | 274,458 | |
Intangible assets, net | Intangible assets, net | 94,792 | | | 93,723 | | Intangible assets, net | 256,689 | | | 91,783 | |
| Restricted assets | 1,705 | | | 2,122 | | |
Restricted cash and assets | | Restricted cash and assets | 4,658 | | | 1,900 | |
Cost method investments | Cost method investments | 10,967 | | | 11,264 | | Cost method investments | 10,967 | | | 10,967 | |
Deferred income taxes | Deferred income taxes | 25,549 | | | 43,957 | | Deferred income taxes | 6,604 | | | 22,903 | |
Other non-current assets | Other non-current assets | 23,995 | | | 14,772 | | Other non-current assets | 30,088 | | | 27,112 | |
Total assets | Total assets | $ | 1,399,347 | | | $ | 1,283,580 | | Total assets | $ | 2,498,015 | | | $ | 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) | | | September 30, 2022 | | December 31, 2021 | | September 30, 2023 | | December 31, 2022 |
| | (Unaudited) | | | | (Unaudited) | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | LIABILITIES AND STOCKHOLDERS' EQUITY | LIABILITIES AND STOCKHOLDERS' EQUITY |
CURRENT LIABILITIES: | CURRENT LIABILITIES: | | CURRENT LIABILITIES: | |
Current maturities of debt | Current maturities of debt | $ | 8,337 | | | $ | 9,901 | | Current maturities of debt | $ | 33,957 | | | $ | 8,968 | |
Current operating lease liabilities | Current operating lease liabilities | 6,898 | | | 7,307 | | Current operating lease liabilities | 8,626 | | | 7,000 | |
Accounts payable | Accounts payable | 71,074 | | | 63,086 | | Accounts payable | 100,108 | | | 74,203 | |
Accrued payroll and related expenses | Accrued payroll and related expenses | 20,056 | | | 22,210 | | Accrued payroll and related expenses | 20,753 | | | 23,556 | |
Accrued interest | Accrued interest | 2,956 | | | 2,042 | | Accrued interest | 3,719 | | | 2,858 | |
Contract liabilities | Contract liabilities | 3,891 | | | 3,404 | | Contract liabilities | 18,852 | | | 3,742 | |
Current accrued final capping, closure and post-closure costs | Current accrued final capping, closure and post-closure costs | 10,880 | | | 7,915 | | Current accrued final capping, closure and post-closure costs | 13,155 | | | 11,036 | |
Other accrued liabilities | Other accrued liabilities | 38,740 | | | 36,328 | | Other accrued liabilities | 54,014 | | | 46,237 | |
Total current liabilities | Total current liabilities | 162,832 | | | 152,193 | | Total current liabilities | 253,184 | | | 177,600 | |
Debt, less current portion | Debt, less current portion | 578,462 | | | 542,503 | | Debt, less current portion | 1,012,169 | | | 585,015 | |
Operating lease liabilities, less current portion | Operating lease liabilities, less current portion | 58,528 | | | 56,375 | | Operating lease liabilities, less current portion | 68,584 | | | 57,345 | |
Accrued final capping, closure and post-closure costs, less current portion | Accrued final capping, closure and post-closure costs, less current portion | 83,727 | | | 78,999 | | Accrued final capping, closure and post-closure costs, less current portion | 104,401 | | | 102,642 | |
Deferred income taxes | Deferred income taxes | 522 | | | 868 | | Deferred income taxes | 516 | | | 437 | |
Other long-term liabilities | Other long-term liabilities | 28,717 | | | 30,185 | | Other long-term liabilities | 28,294 | | | 28,276 | |
COMMITMENTS AND CONTINGENCIES | COMMITMENTS AND CONTINGENCIES | | COMMITMENTS AND CONTINGENCIES | |
STOCKHOLDERS' EQUITY: | STOCKHOLDERS' EQUITY: | | STOCKHOLDERS' EQUITY: | |
| Class A common stock, $0.01 par value per share; 100,000,000 shares authorized; 50,692,000 and 50,423,000 shares issued and outstanding, respectively | 507 | | | 504 | | |
Class A common stock, $0.01 par value per share; 100,000,000 shares authorized; 56,994,000 and 50,704,000 shares issued and outstanding, respectively | | Class A common stock, $0.01 par value per share; 100,000,000 shares authorized; 56,994,000 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 | 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 | | 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 | Additional paid-in capital | 658,453 | | | 652,045 | | Additional paid-in capital | 1,165,517 | | | 661,761 | |
Accumulated deficit | Accumulated deficit | (180,341) | | | (224,999) | | Accumulated deficit | (144,710) | | | (171,920) | |
Accumulated other comprehensive income (loss), net of tax | 7,930 | | | (5,103) | | |
Accumulated other comprehensive income, net of tax | | Accumulated other comprehensive income, net of tax | 9,480 | | | 7,542 | |
| Total stockholders' equity | Total stockholders' equity | 486,559 | | | 422,457 | | Total stockholders' equity | 1,030,867 | | | 497,900 | |
Total liabilities and stockholders' equity | Total liabilities and stockholders' equity | $ | 1,399,347 | | | $ | 1,283,580 | | Total liabilities and stockholders' equity | $ | 2,498,015 | | | $ | 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
(in thousands, except for per share data) | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Revenues | Revenues | $ | 295,268 | | | $ | 241,969 | | | $ | 812,962 | | | $ | 647,375 | | Revenues | $ | 352,735 | | | $ | 295,268 | | | $ | 904,975 | | | $ | 812,962 | |
Operating expenses: | Operating expenses: | | Operating expenses: | |
Cost of operations | Cost of operations | 190,285 | | | 153,892 | | | 538,779 | | | 419,583 | | Cost of operations | 226,303 | | | 190,285 | | | 592,865 | | | 538,779 | |
General and administration | General and administration | 34,348 | | | 30,993 | | | 97,702 | | | 87,336 | | General and administration | 41,177 | | | 34,348 | | | 112,721 | | | 97,702 | |
Depreciation and amortization | Depreciation and amortization | 32,527 | | | 27,491 | | | 93,106 | | | 74,510 | | Depreciation and amortization | 47,736 | | | 32,527 | | | 116,095 | | | 93,106 | |
Expense from acquisition activities | | Expense from acquisition activities | 3,261 | | | 816 | | | 9,801 | | | 3,878 | |
| Expense from acquisition activities | 816 | | | 1,904 | | | 3,878 | | | 3,950 | | |
Southbridge Landfill closure charge | | Southbridge Landfill closure charge | 70 | | | 245 | | | 276 | | | 563 | |
Legal settlement | | Legal settlement | — | | | — | | | 6,150 | | | — | |
Environmental remediation charge | Environmental remediation charge | 759 | | | — | | | 759 | | | — | | Environmental remediation charge | — | | | 759 | | | — | | | 759 | |
Southbridge Landfill closure charge | 245 | | | 302 | | | 563 | | | 653 | | |
| | | 258,980 | | | 214,582 | | | 734,787 | | | 586,032 | | | 318,547 | | | 258,980 | | | 837,908 | | | 734,787 | |
Operating income | Operating income | 36,288 | | | 27,387 | | | 78,175 | | | 61,343 | | Operating income | 34,188 | | | 36,288 | | | 67,067 | | | 78,175 | |
Other expense (income): | Other expense (income): | | | | | | | | Other expense (income): | | | | | | | |
Interest income | Interest income | (178) | | | (61) | | | (260) | | | (191) | | Interest income | (5,525) | | | (178) | | | (7,820) | | | (260) | |
Interest expense | Interest expense | 6,177 | | | 5,164 | | | 17,078 | | | 15,928 | | Interest expense | 15,748 | | | 6,177 | | | 31,708 | | | 17,078 | |
| Loss from termination of bridge financing | | Loss from termination of bridge financing | — | | | — | | | 8,191 | | | — | |
| Other income | Other income | (1,523) | | | (178) | | | (1,978) | | | (825) | | Other income | (225) | | | (1,523) | | | (1,019) | | | (1,978) | |
Other expense, net | Other expense, net | 4,476 | | | 4,925 | | | 14,840 | | | 14,912 | | Other expense, net | 9,998 | | | 4,476 | | | 31,060 | | | 14,840 | |
Income before income taxes | Income before income taxes | 31,812 | | | 22,462 | | | 63,335 | | | 46,431 | | Income before income taxes | 24,190 | | | 31,812 | | | 36,007 | | | 63,335 | |
Provision for income taxes | Provision for income taxes | 9,140 | | | 6,601 | | | 18,677 | | | 14,476 | | Provision for income taxes | 6,018 | | | 9,140 | | | 8,797 | | | 18,677 | |
Net income | Net income | $ | 22,672 | | | $ | 15,861 | | | $ | 44,658 | | | $ | 31,955 | | Net income | $ | 18,172 | | | $ | 22,672 | | | $ | 27,210 | | | $ | 44,658 | |
| Basic earnings per share attributable to common stockholders: | Basic earnings per share attributable to common stockholders: | | | | | | | | Basic earnings per share attributable to common stockholders: | | | | | | | |
Weighted average common shares outstanding | Weighted average common shares outstanding | 51,677 | | | 51,389 | | | 51,604 | | | 51,312 | | Weighted average common shares outstanding | 57,962 | | | 51,677 | | | 54,228 | | | 51,604 | |
Basic earnings per common share | Basic earnings per common share | $ | 0.44 | | | $ | 0.31 | | | $ | 0.87 | | | $ | 0.62 | | Basic earnings per common share | $ | 0.31 | | | $ | 0.44 | | | $ | 0.50 | | | $ | 0.87 | |
Diluted earnings per share attributable to common stockholders: | Diluted earnings per share attributable to common stockholders: | | | | | | | | Diluted earnings per share attributable to common stockholders: | | | | | | | |
Weighted average common shares outstanding | Weighted average common shares outstanding | 51,806 | | | 51,586 | | | 51,749 | | | 51,506 | | Weighted average common shares outstanding | 58,062 | | | 51,806 | | | 54,325 | | | 51,749 | |
Diluted earnings per common share | Diluted earnings per common share | $ | 0.44 | | | $ | 0.31 | | | $ | 0.86 | | | $ | 0.62 | | Diluted earnings per common share | $ | 0.31 | | | $ | 0.44 | | | $ | 0.50 | | | $ | 0.86 | |
The accompanying notes are an integral part of these consolidated financial statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(in thousands) | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Net income | Net income | $ | 22,672 | | | $ | 15,861 | | | $ | 44,658 | | | $ | 31,955 | | Net income | $ | 18,172 | | | $ | 22,672 | | | $ | 27,210 | | | $ | 44,658 | |
Other comprehensive income (loss), before tax: | | |
Other comprehensive income, before tax: | | Other comprehensive income, before tax: | |
Hedging activity: | Hedging activity: | | Hedging activity: | |
Interest rate swap settlements | Interest rate swap settlements | (129) | | | (1,205) | | | (2,224) | | | (3,551) | | Interest rate swap settlements | 1,763 | | | (129) | | | 4,108 | | | (2,224) | |
Interest rate swap amounts reclassified into interest expense | 14 | | | 1,204 | | | 2,136 | | | 3,551 | | |
Interest rate swap (income) loss reclassified into interest expense | | Interest rate swap (income) loss reclassified into interest expense | (1,805) | | | 14 | | | (4,181) | | | 2,136 | |
Unrealized gain resulting from changes in fair value of derivative instruments | Unrealized gain resulting from changes in fair value of derivative instruments | 5,493 | | | 1,215 | | | 17,362 | | | 5,866 | | Unrealized gain resulting from changes in fair value of derivative instruments | 2,621 | | | 5,493 | | | 2,738 | | | 17,362 | |
| Other comprehensive income, before tax | Other comprehensive income, before tax | 5,378 | | | 1,214 | | | 17,274 | | | 5,866 | | Other comprehensive income, before tax | 2,579 | | | 5,378 | | | 2,665 | | | 17,274 | |
Income tax provision related to items of other comprehensive income | Income tax provision related to items of other comprehensive income | 1,468 | | | 322 | | | 4,241 | | | 1,379 | | Income tax provision related to items of other comprehensive income | 707 | | | 1,468 | | | 727 | | | 4,241 | |
Other comprehensive income, net of tax | Other comprehensive income, net of tax | 3,910 | | | 892 | | | 13,033 | | | 4,487 | | Other comprehensive income, net of tax | 1,872 | | | 3,910 | | | 1,938 | | | 13,033 | |
Comprehensive income | Comprehensive income | $ | 26,582 | | | $ | 16,753 | | | $ | 57,691 | | | $ | 36,442 | | Comprehensive income | $ | 20,044 | | | $ | 26,582 | | | $ | 29,148 | | | $ | 57,691 | |
|
The accompanying notes are an integral part of these consolidated financial statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
(in thousands)
| | | | | Casella Waste Systems, Inc. Stockholders' Equity | | | | | 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) | | | Class A Common Stock | | Class B Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Income | |
| | Total | | Shares | | Amount | | Shares | | Amount | | | | Total | | Shares | | Amount | | Shares | | Amount | | |
Balance, December 31, 2021 | $ | 422,457 | | | 50,423 | | | $ | 504 | | | 988 | | | $ | 10 | | | $ | 652,045 | | | $ | (224,999) | | | $ | (5,103) | | | |
Balance, December 31, 2022 | | Balance, December 31, 2022 | $ | 497,900 | | | 50,704 | | | $ | 507 | | | 988 | | | $ | 10 | | | $ | 661,761 | | | $ | (171,920) | | | $ | 7,542 | | |
| Issuances of Class A common stock | Issuances of Class A common stock | 19 | | | 227 | | | 2 | | | — | | | — | | | 17 | | | — | | | — | | | Issuances of Class A common stock | — | | | 194 | | | 2 | | | — | | | — | | | (2) | | | — | | | — | | |
Stock-based compensation | Stock-based compensation | 2,241 | | | — | | | — | | | — | | | — | | | 2,241 | | | — | | | — | | | Stock-based compensation | 1,976 | | | — | | | — | | | — | | | — | | | 1,976 | | | — | | | — | | |
| Comprehensive income: | Comprehensive income: | | | Comprehensive income: | | |
Net income | Net income | 4,190 | | | — | | | — | | | — | | | — | | | — | | | 4,190 | | | — | | | Net income | 3,548 | | | — | | | — | | | — | | | — | | | — | | | 3,548 | | | — | | |
Other comprehensive income: | | | |
Other comprehensive loss: | | Other comprehensive loss: | | |
Hedging activity | Hedging activity | 6,143 | | | — | | | — | | | — | | | — | | | — | | | — | | | 6,143 | | | Hedging activity | (1,769) | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,769) | | |
Balance, March 31, 2022 | 435,050 | | | 50,650 | | | 506 | | | 988 | | | 10 | | | 654,303 | | | (220,809) | | | 1,040 | | | |
Balance, March 31, 2023 | | 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 | | 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 | Issuances of Class A common stock | 803 | | | 40 | | | 1 | | | — | | | — | | | 802 | | | — | | | — | | | Issuances of Class A common stock | 799 | | | 23 | | | — | | | — | | | — | | | 799 | | | — | | | — | | |
Stock-based compensation | Stock-based compensation | 937 | | | — | | | — | | | — | | | — | | | 937 | | | — | | | — | | | Stock-based compensation | 2,366 | | | — | | | — | | | — | | | — | | | 2,366 | | | — | | | — | | |
| Comprehensive income: | Comprehensive income: | | | Comprehensive income: | | |
Net income | Net income | 17,796 | | | — | | | — | | | — | | | — | | | — | | | 17,796 | | | — | | | Net income | 5,490 | | | — | | | — | | | — | | | — | | | — | | | 5,490 | | | — | | |
Other comprehensive income: | Other comprehensive income: | | | Other comprehensive income: | | |
Hedging activity | Hedging activity | 2,980 | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,980 | | | Hedging activity | 1,835 | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,835 | | |
Balance, June 30, 2022 | 457,566 | | | 50,690 | | | 507 | | | 988 | | | 10 | | | 656,042 | | | (203,013) | | | 4,020 | | | |
Balance, June 30, 2023 | | Balance, June 30, 2023 | 1,008,383 | | | 56,974 | | | 570 | | | 988 | | | 10 | | | 1,163,077 | | | (162,882) | | | 7,608 | | |
| Issuance of Class A common stock - stock issuance costs | | Issuance of Class A common stock - stock issuance costs | (7) | | | — | | | — | | | — | | | — | | | (7) | | | — | | | — | | |
| Issuances of Class A common stock | Issuances of Class A common stock | — | | | 2 | | | — | | | — | | | — | | | — | | | — | | | — | | | Issuances of Class A common stock | 89 | | | 20 | | | — | | | — | | | — | | | 89 | | | — | | | — | | |
Stock-based compensation | Stock-based compensation | 2,411 | | | — | | | — | | | — | | | — | | | 2,411 | | | — | | | — | | | Stock-based compensation | 2,358 | | | — | | | — | | | — | | | — | | | 2,358 | | | — | | | — | | |
| Comprehensive income: | Comprehensive income: | | | Comprehensive income: | | |
Net income | Net income | 22,672 | | | — | | | — | | | — | | | — | | | — | | | 22,672 | | | — | | | Net income | 18,172 | | | — | | | — | | | — | | | — | | | — | | | 18,172 | | | — | | |
Other comprehensive income: | Other comprehensive income: | | | Other comprehensive income: | | |
Hedging activity | Hedging activity | 3,910 | | | — | | | — | | | — | | | — | | | — | | | — | | | 3,910 | | | Hedging activity | 1,872 | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,872 | | |
Balance, September 30, 2022 | $ | 486,559 | | | 50,692 | | | $ | 507 | | | 988 | | | $ | 10 | | | $ | 658,453 | | | $ | (180,341) | | | $ | 7,930 | | | |
Balance, September 30, 2023 | | Balance, September 30, 2023 | $ | 1,030,867 | | | 56,994 | | | $ | 570 | | | 988 | | | $ | 10 | | | $ | 1,165,517 | | | $ | (144,710) | | | $ | 9,480 | | |
|
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (Continued)
(in thousands)
| | | Casella Waste Systems, Inc. Stockholders' Equity | | | Casella Waste Systems, Inc. Stockholders' Equity | |
| | Class A Common Stock | | Class B Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | | Class A Common Stock | | Class B Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Income (Loss) | |
| | Total | | Shares | | Amount | | Shares | | Amount | | | | Total | | Shares | | Amount | | Shares | | Amount | | |
Balance, December 31, 2020 | $ | 362,142 | | | 50,101 | | | $ | 501 | | | 988 | | | $ | 10 | | | $ | 639,247 | | | $ | (266,099) | | | $ | (11,517) | | | |
Balance, December 31, 2021 | | Balance, December 31, 2021 | $ | 422,457 | | | 50,423 | | | $ | 504 | | | 988 | | | $ | 10 | | | $ | 652,045 | | | $ | (224,999) | | | $ | (5,103) | | |
| Issuances of Class A common stock | Issuances of Class A common stock | 112 | | | 273 | | | 3 | | | — | | | — | | | 109 | | | — | | | — | | | Issuances of Class A common stock | 19 | | | 227 | | | 2 | | | — | | | — | | | 17 | | | — | | | — | | |
Stock-based compensation | Stock-based compensation | 2,941 | | | — | | | — | | | — | | | — | | | 2,941 | | | — | | | ��� | | | Stock-based compensation | 2,241 | | | — | | | — | | | — | | | — | | | 2,241 | | | — | | | — | | |
| Comprehensive income: | Comprehensive income: | | | Comprehensive income: | | |
Net income | Net income | 4,311 | | | — | | | — | | | — | | | — | | | — | | | 4,311 | | | — | | | Net income | 4,190 | | | — | | | — | | | — | | | — | | | — | | | 4,190 | | | — | | |
Other comprehensive income: | Other comprehensive income: | | | Other comprehensive income: | | |
Hedging activity | Hedging activity | 3,830 | | | — | | | — | | | — | | | — | | | — | | | — | | | 3,830 | | | Hedging activity | 6,143 | | | — | | | — | | | — | | | — | | | — | | | — | | | 6,143 | | |
Balance, March 31, 2021 | 373,336 | | | 50,374 | | | 504 | | | 988 | | | 10 | | | 642,297 | | | (261,788) | | | (7,687) | | | |
| Issuances of Class A common stock | 492 | | | 24 | | | — | | | — | | | — | | | 492 | | | — | | | — | | | |
Stock-based compensation | 3,116 | | | — | | | — | | | — | | | — | | | 3,116 | | | — | | | — | | | |
| Comprehensive income: | | | |
Net income | 11,783 | | | — | | | — | | | — | | | — | | | — | | | 11,783 | | | — | | | |
Other comprehensive loss: | | | |
Hedging activity | (235) | | | — | | | — | | | — | | | — | | | — | | | — | | | (235) | | | |
Balance, June 30, 2021 | 388,492 | | | 50,398 | | | 504 | | | 988 | | | 10 | | | 645,905 | | | (250,005) | | | (7,922) | | | |
Balance, March 31, 2022 | | Balance, March 31, 2022 | 435,050 | | | 50,650 | | | 506 | | | 988 | | | 10 | | | 654,303 | | | (220,809) | | | 1,040 | | |
| Issuances of Class A common stock | Issuances of Class A common stock | 51 | | | 12 | | | — | | | — | | | — | | | 51 | | | — | | | — | | | Issuances of Class A common stock | 803 | | | 40 | | | 1 | | | — | | | — | | | 802 | | | — | | | — | | |
Stock-based compensation | Stock-based compensation | 2,655 | | | — | | | — | | | — | | | — | | | 2,655 | | | — | | | — | | | Stock-based compensation | 937 | | | — | | | — | | | — | | | — | | | 937 | | | — | | | — | | |
| Comprehensive income: | Comprehensive income: | | | Comprehensive income: | | |
Net income | Net income | 15,861 | | | — | | | — | | | — | | | — | | | — | | | 15,861 | | | — | | | Net income | 17,796 | | | — | | | — | | | — | | | — | | | — | | | 17,796 | | | — | | |
Other comprehensive income: | Other comprehensive income: | | | Other comprehensive income: | | |
Hedging activity | Hedging activity | 892 | | | — | | | — | | | — | | | — | | | — | | | — | | | 892 | | | Hedging activity | 2,980 | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,980 | | |
Balance, September 30, 2021 | $ | 407,951 | | | 50,410 | | | $ | 504 | | | 988 | | | $ | 10 | | | $ | 648,611 | | | $ | (234,144) | | | $ | (7,030) | | | |
Balance, June 30, 2022 | | Balance, June 30, 2022 | 457,566 | | | 50,690 | | | 507 | | | 988 | | | 10 | | | 656,042 | | | (203,013) | | | 4,020 | | |
| Issuances of Class A common stock | | Issuances of Class A common stock | — | | | 2 | | | — | | | — | | | — | | | — | | | — | | | — | | |
Stock-based compensation | | Stock-based compensation | 2,411 | | | — | | | — | | | — | | | — | | | 2,411 | | | — | | | — | | |
| Comprehensive income: | | Comprehensive income: | | |
Net income | | Net income | 22,672 | | | — | | | — | | | — | | | — | | | — | | | 22,672 | | | — | | |
Other comprehensive income: | | Other comprehensive income: | | |
Hedging activity | | Hedging activity | 3,910 | | | — | | | — | | | — | | | — | | | — | | | — | | | 3,910 | | |
Balance, September 30, 2022 | | Balance, September 30, 2022 | $ | 486,559 | | | 50,692 | | | $ | 507 | | | 988 | | | $ | 10 | | | $ | 658,453 | | | $ | (180,341) | | | $ | 7,930 | | |
| |
The accompanying notes are an integral part of these consolidated financial statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) | | | Nine Months Ended September 30, | | | Nine Months Ended September 30, | |
| | 2022 | | 2021 | | | 2023 | | 2022 | |
Cash Flows from Operating Activities: | Cash Flows from Operating Activities: | | | | | Cash Flows from Operating Activities: | | | | |
Net income | Net income | $ | 44,658 | | | $ | 31,955 | | | Net income | $ | 27,210 | | | $ | 44,658 | | |
Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | | Adjustments to reconcile net income to net cash provided by operating activities: | | |
Depreciation and amortization | Depreciation and amortization | 93,106 | | | 74,510 | | | Depreciation and amortization | 116,095 | | | 93,106 | | |
| Interest accretion on landfill and environmental remediation liabilities | Interest accretion on landfill and environmental remediation liabilities | 6,018 | | | 5,915 | | | Interest accretion on landfill and environmental remediation liabilities | 7,470 | | | 6,018 | | |
Amortization of debt issuance costs | Amortization of debt issuance costs | 1,414 | | | 1,716 | | | Amortization of debt issuance costs | 2,221 | | | 1,414 | | |
Stock-based compensation | Stock-based compensation | 5,589 | | | 8,712 | | | Stock-based compensation | 6,699 | | | 5,589 | | |
Operating lease right-of-use assets expense | Operating lease right-of-use assets expense | 10,405 | | | 9,981 | | | Operating lease right-of-use assets expense | 10,956 | | | 10,405 | | |
Gain on sale of property and equipment | (580) | | | — | | | |
| Disposition of assets, other items and charges, net | | Disposition of assets, other items and charges, net | 279 | | | (282) | | |
| Non-cash expense from acquisition activities | 298 | | | 532 | | | |
| Loss from termination of bridge financing | | Loss from termination of bridge financing | 8,191 | | | — | | |
| Deferred income taxes | Deferred income taxes | 13,819 | | | 12,974 | | | Deferred income taxes | 5,233 | | | 13,819 | | |
Changes in assets and liabilities, net of effects of acquisitions and divestitures: | Changes in assets and liabilities, net of effects of acquisitions and divestitures: | | | Changes in assets and liabilities, net of effects of acquisitions and divestitures: | | |
Accounts receivable | Accounts receivable | (14,230) | | | (10,943) | | | Accounts receivable | (23,298) | | | (14,230) | | |
Landfill operating lease contract expenditures | Landfill operating lease contract expenditures | (3,336) | | | (3,646) | | | Landfill operating lease contract expenditures | (3,336) | | | (3,336) | | |
Accounts payable | Accounts payable | 7,946 | | | 20,318 | | | Accounts payable | 24,568 | | | 7,946 | | |
Prepaid expenses, inventories and other assets | Prepaid expenses, inventories and other assets | (5,799) | | | (14,391) | | | Prepaid expenses, inventories and other assets | (10,112) | | | (5,799) | | |
Accrued expenses, contract liabilities and other liabilities | Accrued expenses, contract liabilities and other liabilities | (6,877) | | | (3,544) | | | Accrued expenses, contract liabilities and other liabilities | (14,351) | | | (6,877) | | |
Net cash provided by operating activities | Net cash provided by operating activities | 152,431 | | | 134,089 | | | Net cash provided by operating activities | 157,825 | | | 152,431 | | |
Cash Flows from Investing Activities: | Cash Flows from Investing Activities: | | | | | Cash Flows from Investing Activities: | | | | |
Acquisitions, net of cash acquired | Acquisitions, net of cash acquired | (73,963) | | | (153,112) | | | Acquisitions, net of cash acquired | (847,763) | | | (73,963) | | |
| Additions to property, plant and equipment | Additions to property, plant and equipment | (87,667) | | | (81,577) | | | Additions to property, plant and equipment | (90,364) | | | (87,667) | | |
| Proceeds from sale of property and equipment | Proceeds from sale of property and equipment | 571 | | | 593 | | | Proceeds from sale of property and equipment | 971 | | | 571 | | |
| Net cash used in investing activities | Net cash used in investing activities | (161,059) | | | (234,096) | | | Net cash used in investing activities | (937,156) | | | (161,059) | | |
Cash Flows from Financing Activities: | Cash Flows from Financing Activities: | | | | | Cash Flows from Financing Activities: | | | | |
Proceeds from debt borrowings | Proceeds from debt borrowings | 82,200 | | | 500 | | | Proceeds from debt borrowings | 465,000 | | | 82,200 | | |
Principal payments on debt | Principal payments on debt | (57,407) | | | (8,517) | | | Principal payments on debt | (18,563) | | | (57,407) | | |
Payments of debt issuance costs | Payments of debt issuance costs | (1,232) | | | — | | | Payments of debt issuance costs | (12,759) | | | (1,232) | | |
Payments of contingent consideration | Payments of contingent consideration | (1,000) | | | — | | | Payments of contingent consideration | — | | | (1,000) | | |
Proceeds from the exercise of share based awards | Proceeds from the exercise of share based awards | 192 | | | 163 | | | Proceeds from the exercise of share based awards | 89 | | | 192 | | |
Proceeds from the public offering of Class A common stock | | Proceeds from the public offering of Class A common stock | 496,231 | | | — | | |
| Net cash provided by (used in) financing activities | 22,753 | | | (7,854) | | | |
Net increase (decrease) in cash and cash equivalents | 14,125 | | | (107,861) | | | |
Cash and cash equivalents, beginning of period | 33,809 | | | 154,342 | | | |
Cash and cash equivalents, end of period | $ | 47,934 | | | $ | 46,481 | | | |
Net cash provided by financing activities | | Net cash provided by financing activities | 929,998 | | | 22,753 | | |
Net increase in cash and cash equivalents | | Net increase in cash and cash equivalents | 150,667 | | | 14,125 | | |
Cash, cash equivalents and restricted cash, beginning of period | | Cash, cash equivalents and restricted cash, beginning of period | 71,152 | | | 33,809 | | |
Cash, cash equivalents and restricted cash, end of period | | Cash, cash equivalents and restricted cash, end of period | $ | 221,819 | | | $ | 47,934 | | |
Supplemental Disclosure of Cash Flow Information: | Supplemental Disclosure of Cash Flow Information: | | | | | Supplemental Disclosure of Cash Flow Information: | | | | |
| Cash paid during the period for: | | Cash paid during the period for: | | |
Cash interest payments | Cash interest payments | $ | 14,750 | | | $ | 14,378 | | | Cash interest payments | $ | 28,626 | | | $ | 14,750 | | |
Cash income tax payments | Cash income tax payments | $ | 2,875 | | | $ | 597 | | | Cash income tax payments | $ | 9,689 | | | $ | 2,875 | | |
| Right-of-use assets obtained in exchange for financing lease obligations | $ | 9,420 | | | $ | 18,153 | | | |
Supplemental Disclosure of Non-Cash Investing and Financing Activities: | | Supplemental Disclosure of Non-Cash Investing and Financing Activities: | | |
Non-current assets obtained through long-term financing obligations | | Non-current assets obtained through long-term financing obligations | $ | 8,053 | | | $ | 9,420 | | |
Right-of-use assets obtained in exchange for operating lease obligations | Right-of-use assets obtained in exchange for operating lease obligations | $ | 7,672 | | | $ | 3,566 | | | Right-of-use assets obtained in exchange for operating lease obligations | $ | 18,558 | | | $ | 7,672 | | |
The accompanying notes are an integral part of these consolidated financial statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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. 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 integrated solid waste services in sevennine states: Vermont, New Hampshire, New York, Massachusetts, Connecticut, Maine, Pennsylvania, Delaware and Pennsylvania,Maryland, 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. ("GFL Subsidiaries"), which are the basis of our newly formed regional operating segment, the Mid-Atlantic region, that expanded our integrated solid waste services into the states of Delaware and Maryland ("GFL Acquisition"). See Note 4, BusinessCombinations for further disclosure. Operations under the Mid-Atlantic region commenced on July 1, 2023. The GFL Acquisition was funded from 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 fullcomprehensive range of solid waste services. We manage our resource-renewal operations through the Resource Solutions operating segment, which leverages our core 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 customers that have more diverse waste and recycling needs. Legal, tax, information technology, human resources, certain finance and accounting and other administrative functions are included in our Corporate Entities segment.
The accompanying unaudited consolidated financial statements, which include the accounts of the Parent and our wholly-owned subsidiaries, 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 8. "Financial Statements and Supplementary Data" of our Annual Report on Form 10-K for the fiscal year ended December 31, 20212022 ("fiscal year 2021"2022"), which was filed with the SEC on February 18, 2022.17, 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 includeincluding normal recurring and nonrecurring adjustments, as applicable, 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 nine months ended September 30, 20222023 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 for fiscal year 2021.10-K.
Certain prior period amounts in the 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 September 30, 20222023 through the date of filing of the consolidated financial statements with the SEC on this Quarterly Report on Form 10-Q. We have10-Q and determined that there arehave been no subsequentmaterial events that have occurred that would require disclosurerecognition or adjustments to our disclosures in this Quarterly Report on Form 10-Q.our consolidated financial statements.
2. ACCOUNTING CHANGES
AThe following table providingprovides a brief description of a recent Accounting Standards UpdatesUpdate ("ASUs"ASU") to the Accounting Standards Codification ("ASC") issued by the Financial Accounting Standards Board (“FASB”) that are pending adoptionwe adopted and is deemed to have a possible material impact on our consolidated financial statements based on current account balances and activity follows:activity: | | | | | | | | | | | | | | |
| | | | |
Standard | | Description | | Effect on the Financial Statements or Other Significant Matters |
Accounting standards issued pending adoptionadopted effective January 1, 2023 |
| | | | |
ASU No. 2020-04: Reference Rate Reform (Topic 848), as amended through January 2021December 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. | | We currently have interest rate derivative agreements with hedging relationships that reference LIBOR. 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. We are currently reviewing and updating our existing contracts, as applicable, for transition or fallback languageEffective the quarter ended March 31, 2023, we elected optional expedients under this guidance that specifies how a replacement rate for LIBOR will be identified. We are also no longer using LIBOR as aallowed us to maintain hedge effectiveness upon modifying contract terms related to reference rate for any new contracts. We do not expect thatreform in our amended and restated credit agreement, dated as of December 22, 2021, as amended by the adoptionfirst amendment, dated as of this guidance will have a material impact onFebruary 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, dated May 25, 2023 ("Loan Joinder") (the "Amended and Restated Credit Agreement") until we transitioned our consolidated financial statements and related disclosures.interest rate derivative agreements from LIBOR to term secured overnight financing rate ("Term SOFR") in the quarter ended June 30, 2023, See Note 7, Debt. This guidance will be in effect from March 12, 2020 through December 31, 2022. See Note 7, Debt for further disclosure over our interest rate derivative agreements and debt instruments that reference LIBOR.2024.
|
| | | | |
ASU No. 2021-08: Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805) | | Requires entities to apply ASC 606 to recognize and measure contract assets and contract liabilities in a business combination. This guidance improves comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. | | We have made in the past, and we may make in the future, acquisitions to densify existing operations, expand service areas, and grow services for our customers, and these acquisitions may include contract assets or contract liabilities. We do not expect that the adoption of this guidance will have a material impact on our consolidated financial statements and related disclosures. This guidance is effective January 1, 2023 with early adoption permitted. |
| | | | |
|
| | | | |
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 servicesoperations are derived from processing services and non-processing services.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 nine months ended September 30, 20222023 and 2021:2022:
Three Months Ended September 30, 2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Eastern | | Western | | Mid-Atlantic (1) | | Resource Solutions | | Total Revenues |
Collection | $ | 68,944 | | | $ | 93,924 | | | $ | 43,225 | | | $ | — | | | $ | 206,093 | |
Landfill | 7,588 | | | 18,563 | | | — | | | — | | | 26,151 | |
Transfer station | 16,963 | | | 17,491 | | | 497 | | | — | | | 34,951 | |
Transportation | 1,328 | | | 3,907 | | | — | | | — | | | 5,235 | |
Landfill gas-to-energy | 208 | | | 1,589 | | | — | | | — | | | 1,797 | |
Processing | 2,476 | | | 545 | | | — | | | 27,782 | | | 30,803 | |
National Accounts | — | | | — | | | — | | | 47,705 | | | 47,705 | |
Total revenues | $ | 97,507 | | | $ | 136,019 | | | $ | 43,722 | | | $ | 75,487 | | | $ | 352,735 | |
| | | | | | | | | |
Transferred at a point-in-time | $ | 121 | | | $ | 651 | | | $ | — | | | $ | 8,549 | | | $ | 9,321 | |
Transferred over time | 97,386 | | | 135,368 | | | 43,722 | | | 66,938 | | | 343,414 | |
Total revenues | $ | 97,507 | | | $ | 136,019 | | | $ | 43,722 | | | $ | 75,487 | | | $ | 352,735 | |
Three Months Ended September 30, 2022 | | | Eastern | | Western | | Resource Solutions | | Total Revenues | | Eastern | | Western | | Mid-Atlantic (1) | | Resource Solutions | | Total Revenues |
Collection | Collection | $ | 61,875 | | | $ | 82,242 | | | $ | — | | | $ | 144,117 | | Collection | $ | 61,875 | | | $ | 82,242 | | | $ | — | | | $ | — | | | $ | 144,117 | |
Landfill | Landfill | 7,900 | | | 20,240 | | | — | | | 28,140 | | Landfill | 7,900 | | | 20,240 | | | — | | | — | | | 28,140 | |
Transfer station | Transfer station | 19,525 | | | 13,230 | | | — | | | 32,755 | | Transfer station | 19,525 | | | 13,230 | | | — | | | — | | | 32,755 | |
Transportation | Transportation | 1,233 | | | 4,019 | | | — | | | 5,252 | | Transportation | 1,233 | | | 4,019 | | | — | | | — | | | 5,252 | |
Landfill gas-to-energy | Landfill gas-to-energy | 205 | | | 1,438 | | | — | | | 1,643 | | Landfill gas-to-energy | 205 | | | 1,438 | | | — | | | — | | | 1,643 | |
Processing | Processing | 2,399 | | | 734 | | | 32,159 | | | 35,292 | | Processing | 2,399 | | | 734 | | | — | | | 32,159 | | | 35,292 | |
Non-processing | — | | | — | | | 48,069 | | | 48,069 | | |
National Accounts | | National Accounts | — | | | — | | | — | | | 48,069 | | | 48,069 | |
Total revenues | Total revenues | $ | 93,137 | | | $ | 121,903 | | | $ | 80,228 | | | $ | 295,268 | | Total revenues | $ | 93,137 | | | $ | 121,903 | | | $ | — | | | $ | 80,228 | | | $ | 295,268 | |
| Transferred at a point-in-time | Transferred at a point-in-time | $ | 115 | | | $ | 439 | | | $ | 12,380 | | | $ | 12,934 | | Transferred at a point-in-time | $ | 115 | | | $ | 439 | | | $ | — | | | $ | 12,380 | | | $ | 12,934 | |
Transferred over time | Transferred over time | 93,022 | | | 121,464 | | | 67,848 | | | 282,334 | | Transferred over time | 93,022 | | | 121,464 | | | — | | | 67,848 | | | 282,334 | |
Total revenues | Total revenues | $ | 93,137 | | | $ | 121,903 | | | $ | 80,228 | | | $ | 295,268 | | Total revenues | $ | 93,137 | | | $ | 121,903 | | | $ | — | | | $ | 80,228 | | | $ | 295,268 | |
ThreeNine Months Ended September 30, 2021 | | | | | | | | | | | | | | | | | | | | | | | |
| Eastern | | Western | | Resource Solutions | | Total Revenues |
Collection | $ | 48,951 | | | $ | 69,921 | | | $ | — | | | $ | 118,872 | |
Landfill | 6,622 | | | 18,201 | | | — | | | 24,823 | |
Transfer station | 16,948 | | | 10,375 | | | — | | | 27,323 | |
Transportation | 54 | | | 3,393 | | | — | | | 3,447 | |
Landfill gas-to-energy | 269 | | | 984 | | | — | | | 1,253 | |
Processing | 2,310 | | | 649 | | | 27,418 | | | 30,377 | |
Non-processing | — | | | — | | | 35,874 | | | 35,874 | |
Total revenues | $ | 75,154 | | | $ | 103,523 | | | $ | 63,292 | | | $ | 241,969 | |
| | | | | | | |
Transferred at a point-in-time | $ | 43 | | | $ | 296 | | | $ | 19,927 | | | $ | 20,266 | |
Transferred over time | 75,111 | | | 103,227 | | | 43,365 | | | 221,703 | |
Total revenues | $ | 75,154 | | | $ | 103,523 | | | $ | 63,292 | | | $ | 241,969 | |
2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Eastern | | Western | | Mid-Atlantic (1) | | Resource Solutions | | Total Revenues |
Collection | $ | 194,801 | | | $ | 257,891 | | | $ | 43,225 | | | $ | — | | | $ | 495,917 | |
Landfill | 21,109 | | | 53,943 | | | — | | | — | | | 75,052 | |
Transfer | 48,643 | | | 42,181 | | | 497 | | | — | | | 91,321 | |
Transportation | 3,718 | | | 11,342 | | | — | | | — | | | 15,060 | |
Landfill gas-to-energy | 594 | | | 4,448 | | | — | | | — | | | 5,042 | |
Processing | 5,875 | | | 1,476 | | | — | | | 75,970 | | | 83,321 | |
National Accounts | — | | | — | | | — | | | 139,262 | | | 139,262 | |
Total revenues | $ | 274,740 | | | $ | 371,281 | | | $ | 43,722 | | | $ | 215,232 | | | $ | 904,975 | |
| | | | | | | | | |
Transferred at a point-in-time | $ | 339 | | | $ | 2,072 | | | $ | — | | | $ | 23,121 | | | $ | 25,532 | |
Transferred over time | 274,401 | | | 369,209 | | | 43,722 | | | 192,111 | | | 879,443 | |
Total revenues | $ | 274,740 | | | $ | 371,281 | | | $ | 43,722 | | | $ | 215,232 | | | $ | 904,975 | |
Nine Months Ended September 30, 2022
| | | | Eastern | | Western | | Resource Solutions | | Total Revenues | | Eastern | | Western | | Mid-Atlantic (1) | | Resource Solutions | | Total Revenues |
Collection | Collection | $ | 172,671 | | | $ | 228,239 | | | $ | — | | | $ | 400,910 | | Collection | $ | 172,671 | | | $ | 228,239 | | | $ | — | | | $ | — | | | $ | 400,910 | |
Landfill | Landfill | 19,819 | | | 53,028 | | | — | | | 72,847 | | Landfill | 19,819 | | | 53,028 | | | — | | | — | | | 72,847 | |
Transfer station | 48,431 | | | 33,055 | | | — | | | 81,486 | | |
Transfer | | Transfer | 48,431 | | | 33,055 | | | — | | | — | | | 81,486 | |
Transportation | Transportation | 4,470 | | | 10,700 | | | — | | | 15,170 | | Transportation | 4,470 | | | 10,700 | | | — | | | — | | | 15,170 | |
Landfill gas-to-energy | Landfill gas-to-energy | 727 | | | 5,323 | | | — | | | 6,050 | | Landfill gas-to-energy | 727 | | | 5,323 | | | — | | | — | | | 6,050 | |
Processing | Processing | 5,602 | | | 2,281 | | | 93,421 | | | 101,304 | | Processing | 5,602 | | | 2,281 | | | — | | | 93,421 | | | 101,304 | |
Non-processing | — | | | — | | | 135,195 | | | 135,195 | | |
National Accounts | | National Accounts | — | | | — | | | — | | | 135,195 | | | 135,195 | |
Total revenues | Total revenues | $ | 251,720 | | | $ | 332,626 | | | $ | 228,616 | | | $ | 812,962 | | Total revenues | $ | 251,720 | | | $ | 332,626 | | | $ | — | | | $ | 228,616 | | | $ | 812,962 | |
| Transferred at a point-in-time | Transferred at a point-in-time | $ | 352 | | | $ | 1,467 | | | $ | 46,279 | | | $ | 48,098 | | Transferred at a point-in-time | $ | 352 | | | $ | 1,467 | | | $ | — | | | $ | 46,279 | | | $ | 48,098 | |
Transferred over time | Transferred over time | 251,368 | | | 331,159 | | | 182,337 | | | 764,864 | | Transferred over time | 251,368 | | | 331,159 | | | — | | | 182,337 | | | 764,864 | |
Total revenues | Total revenues | $ | 251,720 | | | $ | 332,626 | | | $ | 228,616 | | | $ | 812,962 | | Total revenues | $ | 251,720 | | | $ | 332,626 | | | $ | — | | | $ | 228,616 | | | $ | 812,962 | |
(1)Operations under the Mid-Atlantic region commenced July 1, 2023.
Nine Months Ended September 30, 2021
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Eastern | | Western | | Resource Solutions | | Total Revenues |
Collection | $ | 124,389 | | | $ | 199,278 | | | $ | — | | | $ | 323,667 | |
Landfill | 18,143 | | | 48,336 | | | — | | | 66,479 | |
Transfer station | 39,847 | | | 27,498 | | | — | | | 67,345 | |
Transportation | 148 | | | 8,646 | | | — | | | 8,794 | |
Landfill gas-to-energy | 784 | | | 2,873 | | | — | | | 3,657 | |
Processing | 5,246 | | | 1,508 | | | 65,721 | | | 72,475 | |
Non-processing | — | | | — | | | 104,958 | | | 104,958 | |
Total revenues | $ | 188,557 | | | $ | 288,139 | | | $ | 170,679 | | | $ | 647,375 | |
| | | | | | | |
Transferred at a point-in-time | $ | 125 | | | $ | 1,284 | | | $ | 44,964 | | | $ | 46,373 | |
Transferred over time | 188,432 | | | 286,855 | | | 125,715 | | | 601,002 | |
Total revenues | $ | 188,557 | | | $ | 288,139 | | | $ | 170,679 | | | $ | 647,375 | |
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 $4,617 and $17,575 in the three and nine months ended September 30, 2023, respectively, and $5,460 and $15,162 in the three and nine months ended September 30, 2022, respectively, and $4,341 and $8,440 in the three and nine months ended September 30, 2021, 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 any revenues in the three and nine months ended September 30, 20222023 or September 30, 20212022 from performance obligations satisfied in previous periods.
Contract receivables, which are included in Accountsaccounts 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 $111,256$126,672 and $89,232$102,234 as of September 30, 20222023 and December 31, 2021,2022, 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 $3,891$18,852 and $3,404$3,742 as of September 30, 20222023 and December 31, 2021,2022, 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, 20212022 and December 31, 20202021 was recognized as revenue during the nine months ended September 30, 20222023 and September 30, 2021,2022, respectively, when the services were performed.
4. BUSINESS COMBINATIONS
In the nine months ended September 30, 2022,2023, we acquired twelve businesses, including: an organic materials management business and a full servicefive businesses: the GFL Subsidiaries, which includes solid waste collection, transfer and recycling operations in Pennsylvania, Maryland and transportation business in our Resource Solutions operating segment; a closed waste-to-energy facility that is being decommissionedDelaware and rebuilt as a transfer station, a transfer station, and six tuck-in solid waste collection businesses in our Western region; a portable toilets business in our Eastern region; and a scrap metal collection business whose assets are allocated between our EasternMid-Atlantic region and Resource Solutions operating segments.segments; Consolidated Waste Services, LLC and its affiliates (dba Twin Bridges), which was completed on September 1, 2023, consisting of a collection, transfer and recycling business in the greater Albany, New York area whose assets are allocated between our Western region and Resource Solutions operating segments ("Twin Bridges Acquisition"); as well as three solid-waste collection businesses that provide collection, transfer and recycling services. In the nine months ended September 30, 2021,2022, we acquired eighttwelve businesses including: a residential, commercial and roll-offprimarily related to our solid-waste operations, which included solid-waste collection, business in eastern Connecticut that operates a rail-served construction and demolition processing and waste transfer facility, a waste transfer station, a single-stream recycling, facility, and several other recycling operations whose assets and liabilities are allocated between our Eastern region and Resource Solutions operating segments; a septic and portable toilet business, a tuck-in solid waste collection business and a solid waste collection business that operates a waste transfer station in our Eastern region; and a waste composting and food-scrap hauling business, a solid waste collection business that operates a waste transfer station and two tuck-in solid waste collection businesses in our Western region.transportation businesses.
The operating results of these businesses arehave been included in the accompanying unaudited consolidated statements of operations from each date of acquisition, and the purchase price has been allocated to the net assets acquired based on fair values at each date of acquisition with the residual amounts recorded as goodwill. Purchase price allocations are based on information existing at the acquisition dates or upon closing the transactions, including contingent consideration.transactions. Acquired intangible assets other than goodwill that are subject to amortization may 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. AllSubstantially all amounts recorded to goodwill are expected to be deductible for tax purposes.
A summary of the purchase price paid and the purchase price allocation for acquisitions follows: | | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Purchase Price: | Purchase Price: | | | | Purchase Price: | | | |
Cash used in acquisitions, net of cash acquired | Cash used in acquisitions, net of cash acquired | $ | 72,731 | | | $ | 150,364 | | Cash used in acquisitions, net of cash acquired | $ | 842,635 | | | $ | 72,731 | |
| Other non-cash consideration | Other non-cash consideration | 1,220 | | | — | | Other non-cash consideration | — | | | 1,220 | |
Holdbacks to sellers and contingent consideration | 4,112 | | | 4,865 | | |
Holdbacks and additional consideration owed to sellers | | Holdbacks and additional consideration owed to sellers | 2,435 | | | 4,112 | |
Total consideration | Total consideration | $ | 78,063 | | | $ | 155,229 | | Total consideration | $ | 845,070 | | | $ | 78,063 | |
Allocated as follows: | Allocated as follows: | | Allocated as follows: | |
Current assets | Current assets | $ | 7,599 | | | $ | 7,260 | | Current assets | $ | 19,297 | | | $ | 7,599 | |
| Property, plant and equipment: | Property, plant and equipment: | | Property, plant and equipment: | |
Land | Land | 3,141 | | | 803 | | Land | 6,760 | | | 3,141 | |
Finance lease right-of-use-assets | — | | | 31,467 | | |
| Buildings and improvements | Buildings and improvements | 8,566 | | | 8,468 | | Buildings and improvements | 29,636 | | | 8,566 | |
Machinery and equipment | Machinery and equipment | 10,296 | | | 42,458 | | Machinery and equipment | 175,309 | | | 10,296 | |
Operating lease right-of-use assets | Operating lease right-of-use assets | 405 | | | 6,500 | | Operating lease right-of-use assets | 11,732 | | | 405 | |
Intangible assets: | Intangible assets: | | Intangible assets: | |
Trade names | — | | | 8,350 | | |
| Covenants not-to-compete | Covenants not-to-compete | 2,034 | | | 3,069 | | Covenants not-to-compete | 37,648 | | | 2,034 | |
Customer relationships | Customer relationships | 11,417 | | | 30,340 | | Customer relationships | 145,553 | | | 11,417 | |
Other non-current assets | Other non-current assets | 40 | | | — | | Other non-current assets | — | | | 40 | |
Deferred tax liability | | Deferred tax liability | (11,013) | | | — | |
Current liabilities | Current liabilities | (3,721) | | | (5,952) | | Current liabilities | (21,724) | | | (3,721) | |
| Other long-term liabilities | Other long-term liabilities | (123) | | | — | | Other long-term liabilities | (828) | | | (123) | |
Financing lease liabilities, less current portion | — | | | (10,535) | | |
| Operating lease liabilities, less current portion | Operating lease liabilities, less current portion | (282) | | | — | | Operating lease liabilities, less current portion | (9,939) | | | (282) | |
Fair value of assets acquired and liabilities assumed | Fair value of assets acquired and liabilities assumed | 39,372 | | | 122,228 | | Fair value of assets acquired and liabilities assumed | 382,431 | | | 39,372 | |
Excess purchase price allocated to goodwill | Excess purchase price allocated to goodwill | $ | 38,691 | | | $ | 33,001 | | Excess purchase price allocated to goodwill | $ | 462,639 | | | $ | 38,691 | |
Certain purchase price allocations, including but not limited to the GFL Acquisition and the Twin Bridges Acquisition, which are subject to finalizing the third-party valuations, 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, 20212022 is as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Revenues | $ | 295,512 | | | $ | 262,000 | | | $ | 825,020 | | | $ | 733,819 | |
Operating income | $ | 36,247 | | | $ | 28,516 | | | $ | 79,473 | | | $ | 64,360 | |
Net income | $ | 22,635 | | | $ | 15,308 | | | $ | 44,888 | | | $ | 27,993 | |
| | | | | | | |
Basic earnings per share attributable to common stockholders: | | | | | | | |
Weighted average common shares outstanding | 51,677 | | | 51,389 | | | 51,604 | | | 51,312 | |
Basic earnings per common share | $ | 0.44 | | | $ | 0.30 | | | $ | 0.87 | | | $ | 0.55 | |
Diluted earnings per share attributable to common stockholders: | | | | | | | |
Weighted average common shares outstanding | 51,806 | | | 51,586 | | | 51,749 | | | 51,506 | |
Diluted earnings per common share | $ | 0.44 | | | $ | 0.30 | | | $ | 0.87 | | | $ | 0.54 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Revenues | $ | 371,139 | | | $ | 374,421 | | | $ | 1,077,303 | | | $ | 1,061,748 | |
Operating income | $ | 34,584 | | | $ | 40,537 | | | $ | 75,876 | | | $ | 92,345 | |
Net income | $ | 17,964 | | | $ | 24,339 | | | $ | 30,318 | | | $ | 50,001 | |
| | | | | | | |
Basic earnings per share attributable to common stockholders: | | | | | | | |
Weighted average common shares outstanding | 57,962 | | | 51,677 | | | 54,228 | | | 51,604 | |
Basic earnings per common share | $ | 0.31 | | | $ | 0.47 | | | $ | 0.56 | | | $ | 0.97 | |
Diluted earnings per share attributable to common stockholders: | | | | | | | |
Weighted average common shares outstanding | 58,062 | | | 51,806 | | | 54,325 | | | 51,749 | |
Diluted earnings per common share | $ | 0.31 | | | $ | 0.47 | | | $ | 0.56 | | | $ | 0.97 | |
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, 20212022 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.
5. GOODWILL AND INTANGIBLE ASSETS
A summary of the activity and balances related to goodwill by operating segment is as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | Acquisitions | | Adjustments to Acquisitions | | September 30, 2022 |
Eastern | $ | 52,072 | | | $ | 93 | | | $ | 241 | | | $ | 52,406 | |
Western | 163,728 | | | 16,892 | | | 650 | | | 181,270 | |
Resource Solutions | 17,060 | | | 21,706 | | | — | | | 38,766 | |
| | | | | | | |
| $ | 232,860 | | | $ | 38,691 | | | $ | 891 | | | $ | 272,442 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| December 31, 2022 | | Acquisitions | | Measurement Period Adjustments | | | | September 30, 2023 |
Eastern | $ | 52,406 | | | $ | 23,947 | | | $ | — | | | | | $ | 76,353 | |
Western | 183,286 | | | 97,905 | | | 53 | | | | | 281,244 | |
Mid-Atlantic | — | | | 331,975 | | | — | | | | | 331,975 | |
Resource Solutions | 38,766 | | | 8,812 | | | — | | | | | 47,578 | |
| | | | | | | | | |
| $ | 274,458 | | | $ | 462,639 | | | $ | 53 | | | | | $ | 737,150 | |
Summaries of intangible assets by type follows: | | | Covenants Not-to-Compete | | Customer Relationships | | Trade Names | | Total | | Covenants Not-to-Compete | | Customer Relationships | | Trade Names | | Total |
Balance, September 30, 2022 | | | | | | | | |
Balance, September 30, 2023 | | Balance, September 30, 2023 | | | | | | | |
Intangible assets | Intangible assets | $ | 30,812 | | | $ | 126,372 | | | $ | 8,350 | | | $ | 165,534 | | Intangible assets | $ | 68,960 | | | $ | 272,731 | | | $ | 8,405 | | | $ | 350,096 | |
Less accumulated amortization | Less accumulated amortization | (23,609) | | | (43,254) | | | (3,879) | | | (70,742) | | Less accumulated amortization | (25,713) | | | (61,201) | | | (6,493) | | | (93,407) | |
| | $ | 7,203 | | | $ | 83,118 | | | $ | 4,471 | | | $ | 94,792 | | | $ | 43,247 | | | $ | 211,530 | | | $ | 1,912 | | | $ | 256,689 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Covenants Not-to-Compete | | Customer Relationships | | Trade Names | | Total |
Balance, December 31, 2021 | | | | | | | |
Intangible assets | $ | 28,777 | | | $ | 115,005 | | | $ | 8,350 | | | $ | 152,132 | |
Less accumulated amortization | (22,148) | | | (34,809) | | | (1,452) | | | (58,409) | |
| $ | 6,629 | | | $ | 80,196 | | | $ | 6,898 | | | $ | 93,723 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Covenants Not-to-Compete | | Customer Relationships | | Trade Names | | Total |
Balance, December 31, 2022 | | | | | | | |
Intangible assets | $ | 31,201 | | | $ | 127,179�� | | | $ | 8,405 | | | $ | 166,785 | |
Less accumulated amortization | (24,129) | | | (46,162) | | | (4,711) | | | (75,002) | |
| $ | 7,072 | | | $ | 81,017 | | | $ | 3,694 | | | $ | 91,783 | |
Intangible amortization expense was $10,109 and $18,405 during the three and nine months ended September 30, 2023, respectively, and $4,281 and $12,333 during the three and nine months ended September 30, 2022, respectively, and $3,133 and $7,175 during the three and nine months ended September 30, 2021, respectively.
A summary of intangible amortization expense estimated for each of the next five fiscal years following fiscal year 20212022 and thereafter is estimated as follows: | | | | | |
| |
Estimated Future Amortization Expense as of September 30, 20222023 | |
Fiscal year ending December 31, 2022 | $ | 4,194 | |
Fiscal year ending December 31, 2023 | $ | 15,91812,589 | |
Fiscal year ending December 31, 2024 | $ | 15,27848,250 | |
Fiscal year ending December 31, 2025 | $ | 14,24444,556 | |
Fiscal year ending December 31, 2026 | $ | 12,57940,193 | |
Fiscal year ending December 31, 2027 | $ | 36,053 | |
Thereafter | $ | 32,57975,048 | |
| |
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, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Beginning balance | Beginning balance | $ | 86,914 | | | $ | 82,533 | | Beginning balance | $ | 113,678 | | | $ | 86,914 | |
Obligations incurred | Obligations incurred | 3,592 | | | 3,638 | | Obligations incurred | 4,023 | | | 3,592 | |
Revision in estimates (1) | Revision in estimates (1) | 1,443 | | | — | | Revision in estimates (1) | — | | | 1,443 | |
Accretion expense | Accretion expense | 5,685 | | | 5,496 | | Accretion expense | 7,193 | | | 5,685 | |
| Obligations settled (2) | Obligations settled (2) | (3,027) | | | (5,394) | | Obligations settled (2) | (7,338) | | | (3,027) | |
Ending balance | Ending balance | $ | 94,607 | | | $ | 86,273 | | Ending balance | $ | 117,556 | | | $ | 94,607 | |
(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 debt is as follows: | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Senior Secured Credit Facility: | | | |
Term loan A facility ("Term Loan Facility") due December 2026; bearing interest at LIBOR plus 1.375% | $ | 350,000 | | | $ | 350,000 | |
Revolving credit facility ("Revolving Credit Facility") due December 2026; bearing interest at LIBOR plus 1.375% | — | | | — | |
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 through 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 through 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 through 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 through 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 through 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 through 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 through 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 through 2027; bearing interest at 5.00% | 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 through 2029; bearing interest at 2.95% | 11,000 | | | 11,000 | |
Other: | | | |
Finance leases maturing through December 2107; bearing interest at a weighted average of 3.6% | 49,070 | | | 45,724 | |
Notes payable maturing through August 2024; bearing interest at a weighted average of 1.6% | 712 | | | 4,846 | |
Principal amount of debt | 596,782 | | | 562,570 | |
Less—unamortized debt issuance costs (1) | 9,983 | | | 10,166 | |
Debt less unamortized debt issuance costs | 586,799 | | | 552,404 | |
Less—current maturities of debt | 8,337 | | | 9,901 | |
| $ | 578,462 | | | $ | 542,503 | |
| | | | | | | | | | | |
| September 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 1.385% | $ | 350,000 | | | $ | 350,000 | |
Term loan A facility ("2023 Term Loan Facility") due December 2026; bearing interest at Term SOFR plus 1.885% | 424,625 | | | — | |
Revolving credit facility ("Revolving Credit Facility") due December 2026; bearing interest at Term SOFR plus 1.385% | — | | | 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 | |
New York State Environmental Facilities Corporation Solid Waste Disposal Revenue Bonds Series 2020R-2 ("New York Bonds 2020R-2") due September 2050 - fixed rate interest period ending in 2030; bearing interest at 5.125% | 35,000 | | | — | |
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 3.9% | 51,066 | | | 49,813 | |
Notes payable maturing through March 2025; bearing interest up to 8.1% | 278 | | | 664 | |
Principal amount of debt | 1,057,969 | | | 603,477 | |
Less—unamortized debt issuance costs | 11,843 | | | 9,494 | |
Debt less unamortized debt issuance costs | 1,046,126 | | | 593,983 | |
Less—current maturities of debt | 33,957 | | | 8,968 | |
| $ | 1,012,169 | | | $ | 585,015 | |
(1)
A summary of unamortized debt issuance costs by debt instrument follows: | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Revolving Credit Facility and Term Loan Facility (collectively, the "Credit Facility") | $ | 5,011 | | | $ | 5,884 | |
New York Bonds 2014R-1 | 882 | | | 933 | |
New York Bonds 2014R-2 | 223 | | | 268 | |
New York Bonds 2020 | 1,150 | | | 1,283 | |
FAME Bonds 2005R-3 | 198 | | | 262 | |
FAME Bonds 2015R-1 | 361 | | | 413 | |
FAME Bonds 2015R-2 | 212 | | | 268 | |
Vermont Bonds 2013 | 392 | | | 433 | |
Vermont Bonds 2022A-1 | 1,176 | | | — | |
New Hampshire Bonds | 378 | | | 422 | |
| $ | 9,983 | | | $ | 10,166 | |
Financing Activities
In February 2023, we entered into first and second amendments to our Amended and Restated Credit Agreement. The first amendment provides, commencing in the nine months ended September 30, 2022,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 the net proceeds from the public offering of our Class A common stock completed on June 16, 2023, cash and cash equivalents and borrowings from our Revolving Credit Facility, the GFL Acquisition. See Note 9, Stockholders' Equity for further disclosure regarding the public offering.
In June 2023, we entered into an asset purchase agreement pursuant to which we agreed to the Twin Bridges Acquisition. 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 public offering of our Class A common stock on June 16, 2023. Net proceeds from the public equity offering completed on June 16, 2023, together with cash and cash equivalents, were used to fund the Twin Bridges Acquisition. See Note 9, Stockholders' Equity for further disclosure regarding the public offering.
In August 2023, we completed the issuance of $35,000 aggregate principal amount of VermontNew York Bonds 2022A-1.2020R-2. The VermontNew York Bonds 2022A-1,2020R-2, which are unsecured and guaranteed jointly and severally, fully and unconditionally by all of our significant wholly-owned subsidiaries, accrue interest at 5.00%5.125% per annum from June 1, 2022August 24, 2023 through May 31, 2027,September 2, 2030, at which time they may be converted to a variable interest rate period or to a new term interest rate period. The VermontNew York Bonds 2022A-12020R-2 mature on JuneSeptember 1, 2052. We borrowed and used the2050. As of September 30, 2023, we had $2,730 of remaining cash proceeds from the Vermontissuance of the New York Bonds 2022A-12020R-2 included in restricted cash and assets that is restricted to finance or reimburse certain noncurrent asset costs associated with capital projects in the State of Vermont.New York.
Credit Facility
WeAs of September 30, 2023, we are party to an amendedthe Amended and restated credit agreement ("Restated Credit Agreement"),Agreement, which provides for a $350,000 aggregate principal amount Term Loan Facility, and a $300,000 Revolving Credit Facility, with a $75,000 sublimit for letters of credit.credit, and a $430,000 2023 Term Loan Facility (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 $125,000, 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 and bears2026. The Credit Facility shall bear interest, at a rate of LIBOR plus 1.375% per annum, which will be reduced to a rate of LIBOR plus as low as 1.125% upon us reaching a consolidated net leverage ratio of less than 2.25x. The Credit Agreement contains customary benchmark replacement provisions pursuant to which, upon certain triggering events, the LIBOR benchmark used to calculate the LIBOR rate will be replaced withour 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 adjusted,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 the terms and conditionsundrawn 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 Amended and Restated Credit Agreement.Agreement provides that Term SOFR is subject to a zero percent floor. We are also 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 and secured by substantially all of our assets. As of September 30, 2022,2023, further advances were available under the Revolving Credit Facility in the amount of $271,805.$272,267. The available amount is net of outstanding irrevocable letters of credit totaling $28,195,$27,733, and as of September 30, 20222023 no amount had been drawn.
Interest Expense
The components of interest expense are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Interest expense on long-term debt and finance leases | $ | 15,128 | | | $ | 5,692 | | | $ | 29,565 | | | $ | 15,513 | |
Amortization of debt issuance costs (1) | 715 | | | 489 | | | 2,221 | | | 1,414 | |
Letter of credit fees | 103 | | | 117 | | | 297 | | | 347 | |
Less: capitalized interest | (198) | | | (121) | | | (375) | | | (196) | |
Total interest expense | $ | 15,748 | | | $ | 6,177 | | | $ | 31,708 | | | $ | 17,078 | |
(1)Includes interest expense related to a short-term secured bridge financing entered into in connection with the GFL Acquisition and interest expense related to a short-term unsecured bridge financing entered into in connection with the Twin Bridges Acquisition of $395 and $101, respectively, during the nine months ended September 30, 2023.
Loss from Termination of Bridge Financing
In the nine months ended September 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 GFL Acquisition of $3,718, and an unsecured bridge financing agreement in connection with the Twin Bridges Acquisition of $4,473.
Cash Flow Hedges
Our strategy to reduce exposure to interest rate risk involves entering into interest rate derivative agreements to hedge against adverse movements in interest rates 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, (loss), 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.
AsA summary of September 30, 2022 and December 31, 2021, our activethe changes to the notional amount of interest rate derivative agreements had total notional amounts of $190,000 and $195,000, respectively. According to the terms of the agreements, wefollows:
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2023 |
| Active | | Forward Starting | | Total |
Beginning balance | $ | 190,000 | | | $ | 20,000 | | | $ | 210,000 | |
Additions | 290,000 | | | — | | | 290,000 | |
Commencements | 20,000 | | | (20,000) | | | — | |
Maturities | (85,000) | | | — | | | (85,000) | |
Ending balance (1) | $ | 415,000 | | | $ | — | | | $ | 415,000 | |
(1)We receive interest based on the 1-month LIBOR index, in some instancesTerm SOFR, restricted by a 0.0% floor, and pay interest at a weighted average rate of approximately 2.20%3.41%. TheThese agreements mature between May 2023February 2026 and June 2027.
As of December 31, 2021, we had forward starting interest rate derivative agreements with a total notional amount of $85,000 outstanding. As of September 30, 2022, we have a forward starting interest rate derivative agreement with a total notional amount of $20,000 after considering any forward starting interest rate derivative agreements that became effective in the current period. According to the terms of this agreement, we will receive interest based on the 1-month LIBOR index, restricted by a 0.0% floor, and will pay interest at a rate of 1.29%. The agreement matures in May 2028.
A summary of the effect of cash flow hedges related to derivative instruments on the consolidated balance sheetsheets follows: | | | Fair Value | | Fair Value |
| | Balance Sheet Location | | September 30, 2022 | | December 31, 2021 | | Balance Sheet Location | | September 30, 2023 | | December 31, 2022 |
Interest rate swaps | Interest rate swaps | Other current assets | | $ | 3,526 | | | $ | — | | Interest rate swaps | Other current assets | | $ | 7,835 | | | $ | 4,345 | |
Interest rate swaps | Interest rate swaps | Other non-current assets | | 8,814 | | | 424 | | Interest rate swaps | Other non-current assets | | 8,522 | | | 7,461 | |
| | $ | 12,340 | | | $ | 424 | | | $ | 16,357 | | | $ | 11,806 | |
| Interest rate swaps | Other accrued liabilities | | $ | — | | | $ | 3,796 | | |
| Interest rate swaps | Interest rate swaps | Other long-term liabilities | | — | | | 1,380 | | Interest rate swaps | Other long-term liabilities | | $ | 1,886 | | | $ | — | |
| | $ | — | | | $ | 5,176 | | |
| Interest rate swaps | Interest rate swaps | Accumulated other comprehensive income (loss), net of tax | | $ | 12,340 | | | $ | (4,935) | | Interest rate swaps | Accumulated other comprehensive income, net of tax | | $ | 14,471 | | | $ | 11,806 | |
Interest rate swaps - tax effect | Interest rate swaps - tax effect | Accumulated other comprehensive income (loss), net of tax | | (4,410) | | | (168) | | Interest rate swaps - tax effect | Accumulated other comprehensive income, net of tax | | (4,991) | | | (4,264) | |
| | $ | 7,930 | | | $ | (5,103) | | | $ | 9,480 | | | $ | 7,542 | |
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 $1,071$6,280 relating to our outstanding legal proceedings as of September 30, 2022.2023. 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 recorded in the nine months ended September 30, 2023.
North Country Environmental Services Expansion Permit
On October 9, 2020,The permit for expansion of the Bethlehem, New Hampshire landfill of our subsidiary, North Country Environmental Services, Inc. ("NCES"(“NCES”), received a Type I-A Permit Modification ("Permit") for Expansionknown as “Stage VI”, issued in the Stage VI area of the NCES landfill located in Bethlehem, New Hampshire. On November 9,October 2020 (“Permit”), was appealed by the Conservation Law Foundation ("CLF"(“CLF”) filed an appeal of the Permit to the New Hampshire Waste Management Council (“Council”) on November 9, 2020 on the grounds it failed to meet the public benefit criteria.
Throughout 2021 and early 2022 a number of motions were filed by both NCES and CLF with the Council and in February 2022 the Council held Following a hearing on the CLF appeal.
Themerits during which the Council ruled in favor of NCES on all motions concerning questions of fact, and indicatingfound that a written decision incorporating the Hearing Officer’s decision as to questions of law would follow. On May 11, 2022, an Order was issued denying all of CLF’s arguments on appeal, with the exception of one; the Hearing Officer held that based on his interpretation of the relevant statute, the public benefit determination made by the New Hampshire Department of Environmental Services (“DES”), had reasonably measured and acted lawfully in issuingdetermining a capacity need for Stage VI, the Permit to NCES, was unlawful,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 the DES with regard toon 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”). The parties presented oral arguments to the Supreme Court on October 3, 2023. A decision has not yet been issued. 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
DESappealed that decision to the Supreme Court on April 18, 2023. NCES’s brief on appeal was filed with the Supreme Court on August 11, 2023. On September 26, 2023, CLF filed a Motion for Reconsideration withto Intervene as well as a memorandum of law asking the Council on May 31, 2022 (“DES Reconsideration Motion”) andSupreme Court to uphold the Superior Court’s dismissal, to which NCES filed aan Objection in response on October 23, 2023. The Council submitted its brief on October 25, 2023; NCES’s reply is due November 4, 2023. CLF’s Motion for Rehearingto Intervene remains pending. In the event that the Supreme Court affirms the Hearing Officer’s Order on June 10, 2022 (“appeal, the Permit would remand to DES, where NCES Rehearing Motion”). The Hearing Officer suspended his May 11, 2022 decision by Order dated June 20, 2022, pending consideration ofwould take steps in an effort to avoid or mitigate an adverse determination. If the DES Reconsideration Motion andStage VI permit is not ultimately approved, NCES Rehearing Motion.capacity could be curtailed.
On September 20, 2022, NCES, which has since withdrawn as a party, and our subsidiary, Granite State Landfill, LLC, (“GSL”), filed a Petition for Declaratory Judgment ("Petition") in Merrimackthe Superior Court seekingasking the Superior Court for a determination of the meaning and constitutionality of New Hampshire’s public benefit requirement. On September 21, 2022, NCES filed a Motion to Stayrequirement, the Council proceedings pending resolution ofsame statute at issue in the Hearing Officer’s Order. CLF was granted intervention in the Petition action. DES assented to the relief sought by that motion, and CLF filed an Objection to the Motion to Stayproceeding on September 26, 2022. On October 3, 2022, NCES filed a Motion for Leave to File Reply together with its Reply to CLF’s Objection to Motion to Stay. The aforesaid Motions remainJune 8, 2023. 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 as doeson May 11, 2023, on the Petitiongrounds 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 Merrimack Superior Court. Council.
NCES will continue to vigorously defend the litigationPermit through the appeals to the Supreme Court, will litigate the Petition before the CouncilSuperior Court, and together with GSL will continue to pursue Declaratory Judgmentdefend the DES Approval on appeal before the Merrimack Superior Court.Council.
Cash, Cash Equivalents and Restricted Cash
Restricted cash is included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Beginning-of-period and end-of-period cash, cash equivalents and restricted cash s presented in the statement of cash flows is reconciled as follows:
| | | | | | | | | | | | | | | | | | |
| | September 30, 2023 | | December 31, 2022 | | | | |
Cash and cash equivalents | | $ | 219,089 | | | $ | 71,152 | | | | | |
Restricted cash - non-current | | 2,730 | | | — | | | | | |
Cash, cash equivalents and restricted cash | | $ | 221,819 | | | $ | 71,152 | | | | | |
Our restricted cash consists of cash proceeds from the issuance of the New York Bonds 2020R-2 included in restricted cash and assets that is restricted to finance or reimburse certain noncurrent asset costs associated with capital projects in the State of New York. See Note 7, Debt for disclosure regarding New York Bonds 2020R-2.
Environmental Remediation Liabilities
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.
We accrue for costs associated with environmental remediation obligations when such costs become both probable and reasonably estimable. Determining the method and ultimate cost of remediation requires that a number of assumptions be made. There can sometimes be a range of reasonable estimates of the costs associated with remediation of a site. In these cases, we use the amount within the range that constitutes our best estimate. In the early stages of the remediation process, particular components of the overall liability may not be reasonably estimable; in this instance we use the components of the liability that can be reasonably estimated as a surrogate for the liability. It is reasonably possible that we will need 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 required actions. Future changes in our estimates of the cost, 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 believe could have a material adverse effect on our financial condition, results of operations or cash flows.
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. The risk-free interest rates associated with our environmental remediation liabilities as of September 30, 20222023 range between 1.5% and 4.1%. A summary of the changes to the aggregate environmental remediation liabilities for the nine months ended September 30, 20222023 and 20212022 follows:
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Beginning balance | Beginning balance | $ | 5,887 | | | $ | 5,200 | | Beginning balance | $ | 6,335 | | | $ | 5,887 | |
Accretion expense | Accretion expense | 79 | | | 82 | | Accretion expense | 75 | | | 79 | |
Obligations incurred (1) | Obligations incurred (1) | 759 | | | — | | Obligations incurred (1) | — | | | 759 | |
| Obligations settled (2) | Obligations settled (2) | (353) | | | (281) | | Obligations settled (2) | (338) | | | (353) | |
Ending balance | Ending balance | 6,372 | | | 5,001 | | Ending balance | 6,072 | | | 6,372 | |
Less: current portion | Less: current portion | 646 | | | 375 | | Less: current portion | 1,799 | | | 646 | |
Long-term portion | Long-term portion | $ | 5,726 | | | $ | 4,626 | | Long-term portion | $ | 4,273 | | | $ | 5,726 | |
(1)Associated with the investigation of potential remediation at an inactive waste disposal site that adjoins one of the landfills that we operate.
(2)May include amounts paid and amounts that are being processed through accounts payable as a part of our disbursement cycle.
9. STOCKHOLDERS' EQUITY
Public Offering of Class A Common Stock
On June 16, 2023, we completed a public 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 September 30, 2023, including underwriting discounts, commissions and offering expenses, the offering has resulted in net proceeds of $496,231. The net proceeds from this offering were and are to be used to fund acquisition activity, including the GFL Acquisition and the Twin Bridges Acquisition, to pay certain costs associated with acquisition activities, as discussed in Note 11, Other Items and Charges, and to repay borrowings and/or debt securities as discussed Note 7, Debt.
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 September 30, 2022,2023, there were 793625 Class A common stock equivalents available for future grant under the 2016 Plan.
On June 1, 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 September 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-year to five-year period from the date of grant.
The fair value of each stock option granted 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.
A summary of stock option activity follows: | | | Stock Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (years) | | Aggregate Intrinsic Value | | Stock Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (years) | | Aggregate Intrinsic Value |
Outstanding, December 31, 2021 | 77 | | | $ | 15.68 | | | | | | |
Outstanding, December 31, 2022 | | Outstanding, December 31, 2022 | 129 | | | $ | 55.60 | | | | | |
Granted | Granted | 75 | | | $ | 82.47 | | | Granted | — | | | $ | — | | |
Exercised | Exercised | (23) | | | $ | 8.56 | | | Exercised | (18) | | | $ | 4.88 | | |
Forfeited | Forfeited | — | | | $ | — | | | Forfeited | — | | | $ | — | | |
Outstanding, September 30, 2022 | 129 | | | $ | 55.60 | | | 7.4 | | $ | 3,148 | | |
Exercisable, September 30, 2022 | 49 | | | $ | 12.88 | | | 3.5 | | $ | 3,105 | | |
Outstanding, September 30, 2023 | | Outstanding, September 30, 2023 | 111 | | | $ | 63.87 | | | 7.3 | | $ | 1,846 | |
Exercisable, September 30, 2023 | | Exercisable, September 30, 2023 | 49 | | | $ | 40.60 | | | 5.4 | | $ | 1,825 | |
|
Stock-based compensation expense related to stock options was $126 and $374 during the three and nine months ended September 30, 2023, respectively, as compared to $89 and $122 during the three and nine months ended September 30, 2022, respectively, as compared to $11 during both the three and nine months ended September 30, 2021.respectively. As of September 30, 2022,2023, we had $2,225$1,724 of unrecognized stock-based compensation expense related to outstanding stock options to be recognized over a weighted average period of 4.73.7 years.
During the three and nine months ended September 30, 2022,2023, the aggregate intrinsic value of stock options exercised was zero dollars$1,302 and $1,467,$1,302, respectively.
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.
Generally, restricted stock awards granted to non-employee directors vest incrementally over a three yearthree-year to five-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 to five 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 | | 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, 2021 | 249 | | | $ | 55.40 | | | | | | |
Outstanding, December 31, 2022 | | Outstanding, December 31, 2022 | 169 | | | $ | 75.52 | | | | | |
Granted | Granted | 82 | | | $ | 94.23 | | | Granted | 119 | | | $ | 81.04 | | |
Class A Common Stock Vested | Class A Common Stock Vested | (65) | | | $ | 49.85 | | | Class A Common Stock Vested | (65) | | | $ | 62.57 | | |
Forfeited | Forfeited | (34) | | | $ | 67.92 | | | Forfeited | (6) | | | $ | 76.91 | | |
Outstanding, September 30, 2022 | 232 | | | $ | 68.83 | | | 1.7 | | $ | 17,692 | | |
Unvested, September 30, 2022 | 416 | | | $ | 68.95 | | | 1.4 | | $ | 31,751 | | |
Outstanding, September 30, 2023 | | Outstanding, September 30, 2023 | 217 | | | $ | 91.51 | | | 2.1 | | $ | 16,597 | |
Unvested, September 30, 2023 | | Unvested, September 30, 2023 | 376 | | | $ | 88.63 | | | 1.7 | | $ | 28,660 | |
(1)Market-basedPerformance stock unit grants, including market-based performance stock unit grantsunits, are included at the 100% attainment level. Attainment of the maximum performance targets and market achievements would result in the issuance of an additional 184159 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 $2,112 and $6,007 during the three and nine months ended September 30, 2023, respectively, as compared to $2,225 and $5,204 during the three and nine months ended September 30, 2022, respectively, as compared to $2,576 and $8,505 during the three and nine months ended September 30, 2021, respectively.
During the three and nine months ended September 30, 2022,2023, the total fair value of other stock awards vested was $218$223 and $5,577,$5,279, respectively.
As of September 30, 2022,2023, total unrecognized stock-based compensation expense related to outstanding restricted stock awards was $46,$12, which will be recognized over a weighted average period of 1.30.7 years. As of September 30, 2022,2023, total unrecognized stock-based compensation expense related to outstanding restricted stock units was $4,611,$6,344, which will be recognized over a weighted average period of 1.82.4 years. As of September 30, 2022,2023, total expected unrecognized stock-based compensation expense related to outstanding performance stock units was $5,592$5,655 to be recognized over a weighted average period of 1.61.7 years.
The weighted average fair value of market-based performance stock units granted during the nine months ended September 30, 2023 was $83.16 per award, which was calculated using a Monte Carlo pricing model assuming a risk-free interest rate of 4.31% and an expected volatility of 34.9% assuming no expected dividend yield. Risk-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 $97$120 and $262$318 of stock-based compensation expense related to our Amendedthe ESPP during the three and Restated 1997 Employee Stock Purchase Plannine months ended September 30, 2023, respectively, as compared to $97 and $262 during the three and nine months ended September 30, 2022, respectively, as compared to $67 and $196 during the three and nine months ended September 30, 2021, respectively.
Accumulated Other Comprehensive Income, (Loss), Net of Tax
A summary of the changes in the balances of each component of accumulated other comprehensive income, (loss), net of tax follows: | | | | | | | |
| | | |
| | | Interest Rate Swaps |
Balance, December 31, 20212022 | | | $ | (5,103)7,542 | |
| | | |
Other comprehensive income before reclassifications | | | 15,1386,846 | |
AmountsIncome reclassified from accumulated other comprehensive income (loss)into interest expense | | | 2,136 (4,181) | |
Income tax provision related to items of other comprehensive income | | | (4,241)(727) | |
Net current-period other comprehensive income, net of tax | | | 13,0331,938 | |
Balance, September 30, 20222023 | | | $ | 7,9309,480 | |
A summary of reclassifications out of accumulated other comprehensive income, (loss), net of tax into earnings follows: | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| | | 2022 | | 2021 | | 2022 | | 2021 | | | | | 2023 | | 2022 | | 2023 | | 2022 | | |
Details About Accumulated Other Comprehensive Income (Loss), Net of Tax Components | | Amounts Reclassified Out of Accumulated Other Comprehensive Income (Loss), Net of Tax | | Affected Line Item in the Consolidated Statements of Operations | |
Details About Accumulated Other Comprehensive Income, Net of Tax Components | | 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 | Interest rate swaps | | $ | 14 | | | $ | 1,204 | | | $ | 2,136 | | | $ | 3,551 | | | Interest expense | Interest rate swaps | | $ | (1,805) | | | $ | 14 | | | $ | (4,181) | | | $ | 2,136 | | | Interest expense |
| | (14) | | | (1,204) | | | (2,136) | | | (3,551) | | | Income before income taxes | | 1,805 | | | (14) | | | 4,181 | | | (2,136) | | | Income before income taxes |
| | — | | | (496) | | | (190) | | | (765) | | | Provision for income taxes | | 495 | | | — | | | 1,146 | | | (190) | | | Provision for income taxes |
| | $ | (14) | | | $ | (708) | | | $ | (1,946) | | | $ | (2,786) | | | Net income | | $ | 1,310 | | | $ | (14) | | | $ | 3,035 | | | $ | (1,946) | | | Net income |
|
10. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income 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, 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 September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Numerator: | Numerator: | | | | | | | | Numerator: | | | | | | | |
Net income | Net income | $ | 22,672 | | | $ | 15,861 | | | $ | 44,658 | | | $ | 31,955 | | Net income | $ | 18,172 | | | $ | 22,672 | | | $ | 27,210 | | | $ | 44,658 | |
Denominators: | Denominators: | | | | | | | | Denominators: | | | | | | | |
Number of shares outstanding, end of period: | Number of shares outstanding, end of period: | | Number of shares outstanding, end of period: | |
Class A common stock | Class A common stock | 50,692 | | | 50,410 | | | 50,692 | | | 50,410 | | Class A common stock | 56,994 | | | 50,692 | | | 56,994 | | | 50,692 | |
Class B common stock | Class B common stock | 988 | | | 988 | | | 988 | | | 988 | | Class B common stock | 988 | | | 988 | | | 988 | | | 988 | |
| Unvested restricted stock | Unvested restricted stock | (1) | | | (2) | | | (1) | | | (2) | | Unvested restricted stock | — | | | (1) | | | — | | | (1) | |
Effect of weighted average shares outstanding(1) | Effect of weighted average shares outstanding(1) | (2) | | | (7) | | | (75) | | | (84) | | Effect of weighted average shares outstanding(1) | (20) | | | (2) | | | (3,754) | | | (75) | |
Basic weighted average common shares outstanding | Basic weighted average common shares outstanding | 51,677 | | | 51,389 | | | 51,604 | | | 51,312 | | Basic weighted average common shares outstanding | 57,962 | | | 51,677 | | | 54,228 | | | 51,604 | |
Impact of potentially dilutive securities: | Impact of potentially dilutive securities: | | | | | | | | Impact of potentially dilutive securities: | | | | | | | |
Dilutive effect of stock options and other stock awards | Dilutive effect of stock options and other stock awards | 129 | | | 197 | | | 145 | | | 194 | | Dilutive effect of stock options and other stock awards | 100 | | | 129 | | | 97 | | | 145 | |
Diluted weighted average common shares outstanding | Diluted weighted average common shares outstanding | 51,806 | | | 51,586 | | | 51,749 | | | 51,506 | | Diluted weighted average common shares outstanding | 58,062 | | | 51,806 | | | 54,325 | | | 51,749 | |
Anti-dilutive potentially issuable shares | Anti-dilutive potentially issuable shares | 84 | | | 12 | | | 115 | | | 12 | | Anti-dilutive potentially issuable shares | 78 | | | 84 | | | 75 | | | 115 | |
(1)The adjustment in the nine months ended September 30, 2023 is primarily associated with the 6,053 shares of Class A common stock issued as part of the public offering, completed on June 16, 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 nine months ended September 30, 2022,2023, we recorded charges of $816$3,261 and $3,878,$9,801, respectively, and in the three and nine months ended September 30, 2021,2022, we recorded charges of $1,904$816 and $3,950,$3,878, respectively, comprised primarily of legal, consulting and other similar costs associated with due diligence and the acquisition and integration of acquired businesses, including the GFL Acquisition and the Twin Bridges Acquisition in the nine months ended September 30, 2023, or select development projects.
Legal Settlement
In the nine months ended September 30, 2023, we recorded a charge of $6,150 accrued for in other accrued 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 well as state wage and hours laws. The settlement agreement was executed July 24, 2023 and has received court approval. See Note 8, Commitments and Contingencies for disclosure regarding our aggregate legal proceedings accrual.
Environmental Remediation Charge
In the three and nine months ended September 30, 2022, we recorded a charge of $759 associated with the investigation of potential remediation at an inactive waste disposal site that adjoins one of the landfills we operate.
12. 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, restricted investment 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 debt. The carrying values of cash and cash equivalents, restricted cash accounts receivable and trade payables approximate their respective fair values due to their short-term nature. The fair value of restricted investment 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 September 30, 2022 Using: | | Fair Value Measurement at September 30, 2023 Using: |
| | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | Assets: | | | | | | Assets: | | | | | |
Restricted investment securities - landfill closure | Restricted investment securities - landfill closure | $ | 1,705 | | | $ | — | | | $ | — | | Restricted investment securities - landfill closure | $ | 1,928 | | | $ | — | | | $ | — | |
Interest rate swaps | Interest rate swaps | — | | | 12,340 | | | — | | Interest rate swaps | — | | | 16,357 | | | — | |
| | | $ | 1,705 | | | $ | 12,340 | | | $ | — | | | $ | 1,928 | | | $ | 16,357 | | | $ | — | |
| Liabilities: | | Liabilities: | |
| Interest rate swaps | | Interest rate swaps | — | | | 1,886 | | | — | |
| | | $ | — | | | $ | 1,886 | | | $ | — | |
| | | Fair Value Measurement at December 31, 2021 Using: | | 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) | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | Assets: | | | | | | Assets: | | | | | |
| Restricted investment securities - landfill closure | Restricted investment securities - landfill closure | $ | 2,122 | | | $ | — | | | $ | — | | Restricted investment securities - landfill closure | $ | 1,900 | | | $ | — | | | $ | — | |
Interest rate swaps | Interest rate swaps | — | | | 424 | | | — | | Interest rate swaps | — | | | 11,806 | | | — | |
| | $ | 2,122 | | | $ | 424 | | | $ | — | | | $ | 1,900 | | | $ | 11,806 | | | $ | — | |
Liabilities: | Liabilities: | | | | | | Liabilities: | | | | | |
Interest rate swaps | $ | — | | | $ | 5,176 | | | $ | — | | |
Contingent consideration - acquisition (1) | | Contingent consideration - acquisition (1) | $ | — | | | $ | — | | | $ | 965 | |
|
(1)In the three and nine months ended September 30, 2023, we recorded a gain on resolution of acquisition-related contingent consideration of $376 and $965, respectively, within cost of operations associated with the reversal of a contingency for a transfer station permit expansion that is no longer deemed viable.
Fair Value of Debt
As of September 30, 2022,2023, the fair value of our fixed rate debt, including our FAME Bonds 2005R-3, FAME Bonds 2015R-1, FAME Bonds 2015R-2, Vermont Bonds 2013, Vermont Bonds 2022A-1, New York Bonds 2014R-1, New York Bonds 2014R-2, New York Bonds 2020, New York Bonds 2020R-2 and New Hampshire Bonds (collectively, the "Industrial Revenue Bonds") was approximately $185,533$223,926 and the carrying value was $197,000.$232,000. The fair value of the Industrial 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 September 30, 2022,2023, the carrying valuevalues of our Term Loan Facility wasand 2023 Term Loan Facility were $350,000 and $424,625, respectively, and the carrying value of our Revolving Credit Facility was zero dollars. Their fair values are based on current borrowing rates for similar types of borrowing arrangements, or Level 2 inputs, and approximate their carrying values.
Although we have determined the estimated fair value amounts of the Industrial 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.
13. SEGMENT REPORTING
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 WesternMid-Atlantic regions. The Mid-Atlantic region, which was formed as a result of the GFL Acquisition on June 30, 2023, commenced operations on July 1, 2023. 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 in the northeasterneastern United States. Our Resource Solutions operating segment leverages our core 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 customers that have more diverse waste and recycling needs. Revenues associated with our Resource Solutions operations are derived from two lines-of-service:comprised of processing services and non-processing.services provided by our National Accounts business. Revenues from processing services are derived from customers in the form of processing fees, tipping fees, commodity sales, and organic material sales. Revenues from non-processing servicesour National Accounts business are derived from brokerage services and 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 accounting and other administrative functions are included in our Corporate 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 September 30, 20222023 | Segment | Segment | | Outside revenues | | Inter-company revenues | | Depreciation and amortization | | Operating income (loss) | | Total assets | Segment | | Outside revenues | | Inter-company revenues | | Depreciation and amortization | | Operating income (loss) | | Total assets |
Eastern | Eastern | | $ | 93,137 | | | $ | 23,027 | | | $ | 11,907 | | | $ | 10,061 | | | $ | 361,950 | | Eastern | | $ | 97,507 | | | $ | 24,911 | | | $ | 12,381 | | | $ | 11,160 | | | $ | 417,138 | |
Western | Western | | 121,903 | | | 40,703 | | | 16,778 | | | 22,405 | | | 725,232 | | Western | | 136,019 | | | 46,307 | | | 20,976 | | | 20,462 | | | 986,659 | |
Mid-Atlantic | | Mid-Atlantic | | 43,722 | | | 212 | | | 10,182 | | | (747) | | | 557,710 | |
Resource Solutions | Resource Solutions | | 80,228 | | | 1,579 | | | 3,138 | | | 4,526 | | | 189,854 | | Resource Solutions | | 75,487 | | | 4,172 | | | 3,452 | | | 4,110 | | | 242,413 | |
Corporate Entities | Corporate Entities | | — | | | — | | | 704 | | | (704) | | | 122,311 | | Corporate Entities | | — | | | — | | | 745 | | | (797) | | | 294,095 | |
Eliminations | Eliminations | | — | | | (65,309) | | | — | | | — | | | — | | Eliminations | | — | | | (75,602) | | | — | | | — | | | — | |
| | $ | 295,268 | | | $ | — | | | $ | 32,527 | | | $ | 36,288 | | | $ | 1,399,347 | | | $ | 352,735 | | | $ | — | | | $ | 47,736 | | | $ | 34,188 | | | $ | 2,498,015 | |
Three Months Ended September 30, 20212022 | Segment | Segment | | Outside revenues | | Inter-company revenues | | Depreciation and amortization | | Operating income (loss) | | Total assets | Segment | | Outside revenues | | Inter-company revenues | | Depreciation and amortization | | Operating income (loss) | | Total assets |
Eastern | Eastern | | $ | 75,154 | | | $ | 18,768 | | | $ | 9,407 | | | $ | 5,374 | | | $ | 352,067 | | Eastern | | $ | 93,137 | | | $ | 23,027 | | | $ | 11,907 | | | $ | 10,061 | | | $ | 361,950 | |
Western | Western | | 103,523 | | | 35,523 | | | 15,710 | | | 15,805 | | | 673,608 | | Western | | 121,903 | | | 40,703 | | | 16,778 | | | 22,405 | | | 725,232 | |
Mid-Atlantic | | Mid-Atlantic | | — | | | — | | | — | | | — | | | — | |
Resource Solutions | Resource Solutions | | 63,292 | | | 156 | | | 1,903 | | | 6,679 | | | 126,529 | | Resource Solutions | | 80,228 | | | 1,579 | | | 3,138 | | | 4,526 | | | 189,854 | |
Corporate Entities | Corporate Entities | | — | | | — | | | 471 | | | (471) | | | 128,193 | | Corporate Entities | | — | | | — | | | 704 | | | (704) | | | 122,311 | |
Eliminations | Eliminations | | — | | | (54,447) | | | — | | | — | | | — | | Eliminations | | — | | | (65,309) | | | — | | | — | | | — | |
| | $ | 241,969 | | | $ | — | | | $ | 27,491 | | | $ | 27,387 | | | $ | 1,280,397 | | | $ | 295,268 | | | $ | — | | | $ | 32,527 | | | $ | 36,288 | | | $ | 1,399,347 | |
Nine Months Ended September 30, 20222023
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
Segment | | Outside revenues | | Inter-company revenues | | Depreciation and amortization | | Operating income (loss) | | Total assets |
Eastern | | $ | 251,720 | | | $ | 61,842 | | | $ | 34,895 | | | $ | 13,981 | | | $ | 361,950 | |
Western | | 332,626 | | | 112,687 | | | 47,376 | | | 51,565 | | | 725,232 | |
Resource Solutions | | 228,616 | | | 2,673 | | | 9,011 | | | 14,453 | | | 189,854 | |
Corporate Entities | | — | | | — | | | 1,824 | | | (1,824) | | | 122,311 | |
Eliminations | | — | | | (177,202) | | | — | | | — | | | — | |
| | $ | 812,962 | | | $ | — | | | $ | 93,106 | | | $ | 78,175 | | | $ | 1,399,347 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
Segment | | Outside revenues | | Inter-company revenues | | Depreciation and amortization | | Operating income (loss) | | Total assets |
Eastern | | $ | 274,740 | | | $ | 67,843 | | | $ | 36,431 | | | $ | 20,819 | | | $ | 417,138 | |
Western | | 371,281 | | | 125,208 | | | 57,559 | | | 51,880 | | | 986,659 | |
Mid-Atlantic | | 43,722 | | | 212 | | | 10,182 | | | (747) | | | 557,710 | |
Resource Solutions | | 215,232 | | | 10,975 | | | 9,618 | | | 2,854 | | | 242,413 | |
Corporate Entities | | — | | | — | | | 2,305 | | | (7,739) | | | 294,095 | |
Eliminations | | — | | | (204,238) | | | — | | | — | | | — | |
| | $ | 904,975 | | | $ | — | | | $ | 116,095 | | | $ | 67,067 | | | $ | 2,498,015 | |
Nine Months Ended September 30, 20212022
| | Segment | Segment | | Outside revenues | | Inter-company revenues | | Depreciation and amortization | | Operating income (loss) | | Total assets | Segment | | Outside revenues | | Inter-company revenues | | Depreciation and amortization | | Operating income (loss) | | Total assets |
Eastern | Eastern | | $ | 188,557 | | | $ | 47,322 | | | $ | 23,342 | | | $ | 11,401 | | | $ | 352,067 | | Eastern | | $ | 251,720 | | | $ | 61,842 | | | $ | 34,895 | | | $ | 13,981 | | | $ | 361,950 | |
Western | Western | | 288,139 | | | 97,771 | | | 44,838 | | | 38,462 | | | 673,608 | | Western | | 332,626 | | | 112,687 | | | 47,376 | | | 51,565 | | | 725,232 | |
Mid-Atlantic | | Mid-Atlantic | | — | | | — | | | — | | | — | | | — | |
Resource Solutions | Resource Solutions | | 170,679 | | | 3,337 | | | 5,020 | | | 12,792 | | | 126,529 | | Resource Solutions | | 228,616 | | | 2,673 | | | 9,011 | | | 14,453 | | | 189,854 | |
Corporate Entities | Corporate Entities | | — | | | — | | | 1,310 | | | (1,312) | | | 128,193 | | Corporate Entities | | — | | | — | | | 1,824 | | | (1,824) | | | 122,311 | |
Eliminations | Eliminations | | — | | | (148,430) | | | — | | | — | | | — | | Eliminations | | — | | | (177,202) | | | — | | | — | | | — | |
| | $ | 647,375 | | | $ | — | | | $ | 74,510 | | | $ | 61,343 | | | $ | 1,280,397 | | | $ | 812,962 | | | $ | — | | | $ | 93,106 | | | $ | 78,175 | | | $ | 1,399,347 | |
A summary of our revenues attributable to services provided follows: | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Collection | Collection | $ | 144,117 | | | $ | 118,872 | | | $ | 400,910 | | | $ | 323,667 | | Collection | $ | 206,093 | | | $ | 144,117 | | | $ | 495,917 | | | $ | 400,910 | |
Disposal | Disposal | 66,147 | | | 55,593 | | | 169,503 | | | 142,618 | | Disposal | 66,337 | | | 66,147 | | | 181,433 | | | 169,503 | |
Power generation | Power generation | 1,643 | | | 1,253 | | | 6,050 | | | 3,657 | | Power generation | 1,797 | | | 1,643 | | | 5,042 | | | 6,050 | |
Processing | Processing | 3,133 | | | 2,959 | | | 7,883 | | | 6,754 | | Processing | 3,021 | | | 3,133 | | | 7,351 | | | 7,883 | |
Solid waste operations | Solid waste operations | 215,040 | | | 178,677 | | | 584,346 | | | 476,696 | | Solid waste operations | 277,248 | | | 215,040 | | | 689,743 | | | 584,346 | |
Processing | Processing | 32,159 | | | 27,418 | | | 93,421 | | | 65,721 | | Processing | 27,782 | | | 32,159 | | | 75,970 | | | 93,421 | |
Non-processing | 48,069 | | | 35,874 | | | 135,195 | | | 104,958 | | |
National Accounts | | National Accounts | 47,705 | | | 48,069 | | | 139,262 | | | 135,195 | |
Resource Solutions operations | Resource Solutions operations | 80,228 | | | 63,292 | | | 228,616 | | | 170,679 | | Resource Solutions operations | 75,487 | | | 80,228 | | | 215,232 | | | 228,616 | |
Total revenues | Total revenues | $ | 295,268 | | | $ | 241,969 | | | $ | 812,962 | | | $ | 647,375 | | Total revenues | $ | 352,735 | | | $ | 295,268 | | | $ | 904,975 | | | $ | 812,962 | |
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, 20212022 ("fiscal year 2022") filed with the Securities and Exchange Commission on February 18, 2022.17, 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 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 recycling 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” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and 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
Casella Waste Systems, Inc., a Delaware corporation, and its wholly-ownedconsolidated subsidiaries (collectively, “we”, “us” or “our”), is a regional, vertically 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 integrated solid waste services in sevennine states: Vermont, New Hampshire, New York, Massachusetts, Connecticut, Maine, Pennsylvania, Delaware and Pennsylvania,Maryland, 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 our newly formed regional operating segment, the Mid-Atlantic region, that expanded our integrated solid waste services to the states of Delaware and Maryland ("GFL Acquisition"). Operations under the Mid-Atlantic region commenced on July 1, 2023. For additional disclosure regarding the GFL Acquisition see Note 4, Business Combinations, Note 7, Debt, Note 9, Stockholders’ Equity and Note 11, Other Items and Charges 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 fullcomprehensive range of solid waste services. We manage our resource-renewal operations through the Resource Solutions operating segment, which leverages our core 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 customers that have more diverse waste and recycling needs. Legal, tax, information technology, human resources, certain finance and accounting and other administrative functions are included in our Corporate Entities segment.
As of October 15, 2022,2023, we owned and/or operated 4964 solid waste collection operations, 6571 transfer stations, 2629 recycling facilities, eight Subtitle D landfills, three 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.
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 commenced on July 1, 2023. 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, and processing services.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 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.services, which we now refer to as our National Accounts business. Revenues from processing services are derived from customers in the form of processing fees, tipping fees, and commodity sales, primarily comprised of newspaper, corrugated containers, plastics, ferrous and aluminum, and organic materials such as our earthlife® soils products including fertilizers, composts and mulches. Revenues from non-processing servicesour National Accounts business are derived from brokerage services and 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.
A summary of revenues attributable to services provided (dollars in millions and as a percentage of total revenues) follows: | | | Three Months Ended September 30, | | $ Change | | Nine Months Ended September 30, | | $ Change | | Three Months Ended September 30, | | $ Change | | Nine Months Ended September 30, | | $ Change |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | | 2023 | | 2022 | |
Collection | Collection | $ | 144.1 | | | 48.8 | % | | $ | 118.9 | | | 49.1 | % | | $ | 25.2 | | | $ | 400.9 | | | 49.3 | % | | $ | 323.7 | | | 50.0 | % | | $ | 77.2 | | Collection | $ | 206.1 | | | 58.4 | % | | $ | 144.1 | | | 48.8 | % | | $ | 62.0 | | | $ | 495.9 | | | 54.8 | % | | $ | 400.9 | | | 49.3 | % | | $ | 95.0 | |
Disposal | Disposal | 66.1 | | | 22.4 | % | | 55.6 | | | 23.0 | % | | 10.5 | | | 169.5 | | | 20.9 | % | | 142.6 | | | 22.0 | % | | 26.9 | | Disposal | 66.3 | | | 18.8 | % | | 66.1 | | | 22.4 | % | | 0.2 | | | 181.4 | | | 20.0 | % | | 169.5 | | | 20.9 | % | | 11.9 | |
Power | Power | 1.6 | | | 0.6 | % | | 1.3 | | | 0.5 | % | | 0.3 | | | 6.1 | | | 0.7 | % | | 3.7 | | | 0.6 | % | | 2.4 | | Power | 1.8 | | | 0.5 | % | | 1.6 | | | 0.6 | % | | 0.2 | | | 5.0 | | | 0.6 | % | | 6.1 | | | 0.7 | % | | (1.1) | |
Processing | Processing | 3.2 | | | 1.0 | % | | 2.9 | | | 1.2 | % | | 0.3 | | | 7.8 | | | 1.0 | % | | 6.7 | | | 1.0 | % | | 1.1 | | Processing | 3.0 | | | 0.9 | % | | 3.2 | | | 1.0 | % | | (0.2) | | | 7.4 | | | 0.8 | % | | 7.8 | | | 1.0 | % | | (0.4) | |
Solid waste | Solid waste | 215.0 | | | 72.8 | % | | 178.7 | | | 73.8 | % | | 36.3 | | | 584.3 | | | 71.9 | % | | 476.7 | | | 73.6 | % | | 107.6 | | Solid waste | 277.2 | | | 78.6 | % | | 215.0 | | | 72.8 | % | | 62.2 | | | 689.7 | | | 76.2 | % | | 584.3 | | | 71.9 | % | | 105.4 | |
Processing | Processing | 32.2 | | | 10.9 | % | | 27.4 | | | 11.4 | % | | 4.8 | | | 93.5 | | | 11.5 | % | | 65.7 | | | 10.2 | % | | 27.8 | | Processing | 27.8 | | | 7.9 | % | | 32.2 | | | 10.9 | % | | (4.4) | | | 76.0 | | | 8.4 | % | | 93.5 | | | 11.5 | % | | (17.5) | |
Non-processing | 48.1 | | | 16.3 | % | | 35.9 | | | 14.8 | % | | 12.2 | | | 135.2 | | | 16.6 | % | | 105.0 | | | 16.2 | % | | 30.2 | | |
Resource solutions | 80.3 | | | 27.2 | % | | 63.3 | | | 26.2 | % | | 17.0 | | | 228.7 | | | 28.1 | % | | 170.7 | | | 26.4 | % | | 58.0 | | |
National Accounts | | National Accounts | 47.7 | | | 13.5 | % | | 48.1 | | | 16.3 | % | | (0.4) | | | 139.3 | | | 15.4 | % | | 135.2 | | | 16.6 | % | | 4.1 | |
Resource Solutions | | Resource Solutions | 75.5 | | | 21.4 | % | | 80.3 | | | 27.2 | % | | (4.8) | | | 215.3 | | | 23.8 | % | | 228.7 | | | 28.1 | % | | (13.4) | |
Total revenues | Total revenues | $ | 295.3 | | | 100.0 | % | | $ | 242.0 | | | 100.0 | % | | $ | 53.3 | | | $ | 813.0 | | | 100.0 | % | | $ | 647.4 | | | 100.0 | % | | $ | 165.6 | | Total revenues | $ | 352.7 | | | 100.0 | % | | $ | 295.3 | | | 100.0 | % | | $ | 57.4 | | | $ | 905.0 | | | 100.0 | % | | $ | 813.0 | | | 100.0 | % | | $ | 92.0 | |
|
Solid waste revenues
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 September 30, 2022 vs. 2021 | | Period-to-Period Change for the Nine Months Ended September 30, 2022 vs. 2021 | | Period-to-Period Change for the Three Months Ended September 30, 2023 vs. 2022 | | Period-to-Period Change for the Nine Months Ended September 30, 2023 vs. 2022 |
| | Amount | | % Growth | | Amount | | % Growth | | Amount | | % Growth | | Amount | | % Growth |
Price | Price | $ | 11.9 | | | 6.6 | % | | $ | 30.7 | | | 6.4 | % | Price | $ | 14.9 | | | 6.9 | % | | $ | 45.1 | | | 7.7 | % |
Volume | Volume | 3.5 | | | 2.0 | % | | 6.9 | | | 1.4 | % | Volume | (7.2) | | | (3.3) | % | | (11.9) | | | (2.0) | % |
Surcharges and other fees | Surcharges and other fees | 11.5 | | | 6.6 | % | | 21.7 | | | 4.6 | % | Surcharges and other fees | (0.2) | | | (0.2) | % | | 11.0 | | | 1.8 | % |
Commodity price and volume | Commodity price and volume | 0.4 | | | 0.2 | % | | 2.7 | | | 0.6 | % | Commodity price and volume | — | | | — | % | | (1.7) | | | (0.3) | % |
Acquisitions | Acquisitions | 9.0 | | | 5.0 | % | | 45.6 | | | 9.6 | % | Acquisitions | 54.7 | | | 25.5 | % | | 62.9 | | | 10.8 | % |
| Solid waste revenues | Solid waste revenues | $ | 36.3 | | | 20.4 | % | | $ | 107.6 | | | 22.6 | % | Solid waste revenues | $ | 62.2 | | | 28.9 | % | | $ | 105.4 | | | 18.0 | % |
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:
•$8.511.0 million from favorable collection pricing; and
•$3.43.9 million from favorable disposal pricing associated with our landfills, transfer stations and, to a lesser extent transportation services in our Western region.services.
The price change component in year-to-date solid waste revenues growth from the prior year period is the result of the following:
•$23.132.9 million from favorable collection pricing; and
•$7.612.2 million from favorable disposal pricing associated with our landfills, transfer stations and, to a lesser extent transportation services in our Western region.services.
Volume.
The volume change component in quarterly solid waste revenues growth from the prior year period is the result of higherthe following:
•$(4.5) million from lower disposal volumes ($2.1(of which $(4.1) million relates to higher third-partylower landfill volumes, $0.7$(0.2) million relates to higherlower transfer station volumes and $0.7$(0.2) million relates to higherlower transportation volumes). due to slowing economic activity; partially offset by the increase in disposal volumes in the Western region due to flooding caused from severe weather; and
•$(2.8) million from lower collection volumes associated with slowing economic activity, higher customer churn due to increased pricing and fees charged to additional customers in our Western region, and to a lesser extent purposeful shedding of less profitable customers; partially offset by
•$0.1 million from higher processing volumes.
The volume change component in year-to-date solid waste revenues growth is the result of the following:
•$(8.1) million from lower collection volumes associated with slowing economic activity, higher customer churn due to increased pricing and fees charged to additional customers in our Western region, and to a lesser extent purposeful shedding of less profitable customers; and
•$(4.0) million from lower disposal volumes (of which $(4.0) million relates to lower landfill volumes, $(1.3) million relates to lower transportation volumes and $1.3 million relates to increased transfer station volumes) due to slowing economic activity; partially offset by the increase in disposal volumes in the Western region due to flooding from severe weather; partially offset by
•$0.2 million from higher processing volumes.
Surcharges and other fees.
The decline in surcharges and other fees change component in quarterly solid waste revenues growth from the prior year period is the result of lower energy and environmental fee (“E&E Fee(s)”) revenues, partially offset by fuel surcharges and environmental fee revenues associated with the GFL Acquisition and higher sustainability recycling adjustment fee (“SRA Fee(s)”) revenues. Lower E&E Fee revenues associated with our fuel cost recovery program were the result of lower diesel fuel prices. Higher SRA Fee revenues were the result of lower recycled commodity prices and 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 higher disposal volumes ($3.2 million relates to higher third-party landfill volumes, $2.2 million relates to higher transfer station volumes and $1.5 million relates to higher transportation volumes).
Surcharges and other fees.
Thefuel surcharges and other fees change components in quarterlyenvironmental fee revenues associated with the GFL Acquisition, higher SRA Fee revenues, and year-to-date solid wastehigher E&E Fee revenues. Higher SRA Fee revenues growth from the prior year periods arewere the result of lower recycled commodity prices and a higher energy and environmental fee ("E&E Fee") revenues and higher sustainability recycling adjustment fee ("SRA Fee") revenues.customer participation rate. Higher E&E Fee revenues associated with our fuel cost recovery program were athe result of a higher customer participation rate, partially offset by lower diesel fuel prices. Higher SRA Fee revenues were a result of lower recycled commodity prices in the quarter and a higher overall 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 Feefuel recovery programs and SRA Fee.
Commodity price and volume.
The decline in commodity price and volume change componentscomponent in quarterly and year-to-date solid waste revenues growth from the prior year periods are dueperiod is primarily to favorablefrom our Western region associated with: unfavorable commodity and energy pricing and to a lesser extent,lower gas-to-energy volumes; partially offset by higher landfill gas-to-energy and 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 acquisition activity within our Eastern and Western region operating segments in line with our growth strategy includingassociated with the timing and acquisition of tenfive businesses in the nine months ended September 30, 20222023, including: the formation of our Mid-Atlantic region operating segment through the GFL Acquisition, which commenced operations effective July 1, 2023, and tenthe acquisition of Consolidated Waste Services, LLC and its affiliates (dba Twin Bridges), a collection, transfer and recycling business in the greater Albany, New York area ("Twin Bridges Acquisition"), which commenced operations September 1, 2023, and twelve businesses in the fiscal year ended December 31, 2021.2022.
Resource Solutions revenues
The change componentdecline in quarterly Resource Solutions revenues growth of $17.0$(4.8) million from the prior year period is the result of the following:
•$11.5 million from acquisition activity; and
•$9.0 million from higher non-processing revenues due to higher volumes on organic business growth, favorable pricing and increased fees; partially offset by
•$(3.3)(6.3) million primarily from the unfavorable impact of decreasinglower recycled commodity pricing on processing revenues, partially offset by higher tipping fees;fees and other processing pricing; and
•$(0.2)(0.4) 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
•$1.1 million from acquisition activity; and
•$0.8 million from higher processing volumes mainly driven by lowerhigher recycled commodity volumes.
The change componentdecline in year-to-date Resource Solutions revenues growth of $58.0$(13.4) million from the prior year period is the result of the following:
•$38.0(28.6) million from acquisition activity;
•$18.3 million from higher non-processing revenues due to higher volumes on organic business growth, favorable pricing and increased fees; and
•$2.1 millionprimarily from the favorableunfavorable impact of lower recycled commodity and other processing pricing on processing revenues, partially offset in part by lowerhigher tipping fees and other processing pricing; partially offset by
•$(0.4)8.2 million from lowerincreased processing volumes mainly driven by lowerhigher recycled commodity volumes.volumes;
•$3.8 million from acquisition activity; and
•$3.2 million from higher revenues associated with our National Accounts business due to favorable pricing, partially offset by decreased volumes and lower fees.
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 September 30, | | $ Change | | Nine Months Ended September 30, | | $ Change | | Three Months Ended September 30, | | $ Change | | Nine Months Ended September 30, | | $ Change |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | | 2023 | | 2022 | |
Cost of operations | Cost of operations | $ | 190.3 | | | 64.4 | % | | $ | 153.9 | | | 63.6 | % | | $ | 36.4 | | | $ | 538.8 | | | 66.3 | % | | $ | 419.6 | | | 64.8 | % | | $ | 119.2 | | Cost of operations | $ | 226.3 | | | 64.2 | % | | $ | 190.3 | | | 64.4 | % | | $ | 36.0 | | | $ | 592.9 | | | 65.5 | % | | $ | 538.8 | | | 66.3 | % | | $ | 54.1 | |
General and administration | General and administration | $ | 34.3 | | | 11.6 | % | | $ | 31.0 | | | 12.8 | % | | $ | 3.3 | | | $ | 97.7 | | | 12.0 | % | | $ | 87.3 | | | 13.5 | % | | $ | 10.4 | | General and administration | $ | 41.2 | | | 11.7 | % | | $ | 34.3 | | | 11.6 | % | | $ | 6.9 | | | $ | 112.7 | | | 12.5 | % | | $ | 97.7 | | | 12.0 | % | | $ | 15.0 | |
Depreciation and amortization | Depreciation and amortization | $ | 32.5 | | | 11.0 | % | | $ | 27.5 | | | 11.4 | % | | $ | 5.0 | | | $ | 93.1 | | | 11.5 | % | | $ | 74.5 | | | 11.5 | % | | $ | 18.6 | | Depreciation and amortization | $ | 47.7 | | | 13.5 | % | | $ | 32.5 | | | 11.0 | % | | $ | 15.2 | | | $ | 116.1 | | | 12.8 | % | | $ | 93.1 | | | 11.5 | % | | $ | 23.0 | |
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,fees; (ii) direct labor costs, which include salaries, wages, incentive compensation and related benefit costs such as health and welfare benefits and workers compensation,compensation; (iii) direct operational costs, which 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, vehicle insurance costs, host community fees and royalties,royalties; (iv) fuel costs used by our vehicles and in conducting our operations,operations; (v) maintenance and repair costs relating to our vehicles, equipment and containerscontainers; and (vi) other operational costs including facility costs.
A summary of the major components of our cost of operations for the three and nine months ended September 30, 2022 and 2021is as follows (dollars in millions and as a percentage of total revenues) is as follows::
| | | Three Months Ended September 30, | | $ Change | | Nine Months Ended September 30, | | $ Change | | Three Months Ended September 30, | | $ Change | | Nine Months Ended September 30, | | $ Change |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | | 2023 | | 2022 | |
Direct costs | Direct costs | $ | 76.7 | | | 26.0 | % | | $ | 60.5 | | | 25.0 | % | | $ | 16.2 | | | $ | 210.8 | | | 25.9 | % | | $ | 162.3 | | | 25.1 | % | | $ | 48.5 | | Direct costs | $ | 86.7 | | | 24.6 | % | | $ | 76.7 | | | 26.0 | % | | $ | 10.0 | | | $ | 225.5 | | | 24.9 | % | | $ | 210.8 | | | 25.9 | % | | $ | 14.7 | |
Direct labor costs | Direct labor costs | 37.3 | | | 12.6 | % | | 32.1 | | | 13.3 | % | | 5.2 | | | 107.8 | | | 13.3 | % | | 85.3 | | | 13.2 | % | | 22.5 | | Direct labor costs | 49.3 | | | 14.0 | % | | 37.3 | | | 12.6 | % | | 12.0 | | | 123.3 | | | 13.6 | % | | 107.8 | | | 13.3 | % | | 15.5 | |
Direct operational costs | Direct operational costs | 22.9 | | | 7.8 | % | | 21.2 | | | 8.8 | % | | 1.7 | | | 66.0 | | | 8.1 | % | | 58.4 | | | 9.0 | % | | 7.6 | | Direct operational costs | 25.1 | | | 7.1 | % | | 22.9 | | | 7.8 | % | | 2.2 | | | 71.1 | | | 7.9 | % | | 66.0 | | | 8.1 | % | | 5.1 | |
Fuel costs | Fuel costs | 12.1 | | | 4.1 | % | | 7.1 | | | 3.0 | % | | 5.0 | | | 35.6 | | | 4.4 | % | | 18.9 | | | 2.9 | % | | 16.7 | | Fuel costs | 13.6 | | | 3.9 | % | | 12.1 | | | 4.1 | % | | 1.5 | | | 34.0 | | | 3.8 | % | | 35.6 | | | 4.4 | % | | (1.6) | |
Maintenance and repair costs | Maintenance and repair costs | 21.0 | | | 7.0 | % | | 16.3 | | | 6.6 | % | | 4.7 | | | 59.7 | | | 7.4 | % | | 45.5 | | | 7.0 | % | | 14.2 | | Maintenance and repair costs | 27.1 | | | 7.7 | % | | 21.0 | | | 7.0 | % | | 6.1 | | | 72.6 | | | 8.0 | % | | 59.7 | | | 7.4 | % | | 12.9 | |
Other operational costs | Other operational costs | 20.3 | | | 6.9 | % | | 16.7 | | | 6.9 | % | | 3.6 | | | 58.9 | | | 7.2 | % | | 49.2 | | | 7.6 | % | | 9.7 | | Other operational costs | 24.5 | | | 6.9 | % | | 20.3 | | | 6.9 | % | | 4.2 | | | 66.4 | | | 7.3 | % | | 58.9 | | | 7.2 | % | | 7.5 | |
| | $ | 190.3 | | | 64.4 | % | | $ | 153.9 | | | 63.6 | % | | $ | 36.4 | | | $ | 538.8 | | | 66.3 | % | | $ | 419.6 | | | 64.8 | % | | $ | 119.2 | | | $ | 226.3 | | | 64.2 | % | | $ | 190.3 | | | 64.4 | % | | $ | 36.0 | | | $ | 592.9 | | | 65.5 | % | | $ | 538.8 | | | 66.3 | % | | $ | 54.1 | |
These cost categories may change from time to time and may not be comparable to similarly titled categories presented by other companies.
The most significant items impacting the changes in our cost of operations during the three and nine months ended September 30, 20222023 and 20212022 are summarized below:
•Direct costs increased in aggregate dollars primarily due primarily to higher haulingthe commencement of operations of the Mid-Atlantic operating segment effective July 1, 2023, which resulted in $11.0 million of direct costs, and third-party transportation andthe following cost changes: (i) higher disposal costs on (i) higher solid waste volumes driven by acquisition activity,acquisition-related growth; and (ii) higher fuel surcharges from third party haulers due to higher diesel fuel prices, (iii) higher third-party disposal rates dueand hauling charges related to inflationary pressurespressures; partially offset in dollars, and (iv) higher non-processing volumesmore than offset as a percentage of revenues, by (i) lower purchased material costs in our Resource Solutions operating segment; and higher purchased material(ii) lower hauling and transportation costs on acquisition activity and higher average commodity prices year-to-date;lower organic disposal volumes in our Eastern region operating segment.
•Direct labor costs increased in aggregate dollars primarily due primarily to the commencement of operations of the Mid-Atlantic operating segment effective July 1, 2023, which resulted in $8.8 million of direct labor costs and an increase as a percentage of revenues from the business mix including more labor intensive rear-load operations, and the following cost changes: higher wages and benefit costs driven by acquisition-related growth wage inflation and higher workers compensation costs on claims activity associated with an increased headcount;inflationary pressures; partially offset by (i) improved routing efficiencies; (ii) lower outside labor costs; and (ii) lower organic disposal volumes in our Eastern region operating segment.
•Direct operational costs decreasedincreased in aggregate dollars primarily due to the commencement of operations of the Mid-Atlantic operating segment effective July 1, 2023, which resulted in $1.9 million of direct operational costs, and the following cost changes year-to-date: (i) higher other operating costs on acquisition-related growth and inflationary pressures; (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 in our Western region; and (iv) higher tire repair and replacement costs; partially offset in dollars, and more than offset as a percentage of revenues, while increasing in aggregate dollars due primarily toby (i) higherlower landfill related operating costs in our Western region due to severe winter weather earlier in the yearon lower volumes and construction delays compounded with higher landfill volumes, (ii) higherlower vehicle insurance costs, (iii) acquisition-related growth and (iv) inflationary pressures; partially offset by lower host community and royalty fees;costs.
•Fuel costs increased in aggregate dollars quarterly due to the commencement of operations of the Mid-Atlantic operating segment effective July 1, 2023, which resulted in $3.0 million of fuel costs, and decreased in aggregate dollars year-to-date primarily to higherdue to: lower diesel fuel prices and lower organic solid waste volumes; partially offset by higher volumes driven by acquisition activity and,diesel fuel consumption related to a lesser extent, organic businessacquisition-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;costs.
•Maintenance and repair costs increased in aggregate dollars primarily due primarily to acquisitionthe commencement of operations of the Mid-Atlantic operating segment effective July 1, 2023, which resulted in $3.4 million of maintenance and repair costs, and the following cost changes: (i) higher personnel related expenses and supply costs related to parts and repairs associated with acquisition-related growth and inflationary pressures; and (ii) higher fleet and containervehicle maintenance costs associated with inflationary pressures; anddriven by delays in the delivery of fleet replacements.
•Other operational costs increased in aggregate dollars primarily due primarily to the commencement of operations of the Mid-Atlantic operating segment effective July 1, 2023, which resulted in $1.8 million of other operational costs, and higher facility costs driven by acquisition activityrelated to: (i) higher spend on outside repairs and personnel related expenses associated with acquisition-related growth and inflationary pressures.pressures; and (ii) increased facility insurance costs; partially offset by a gain on resolution of acquisition-related contingent consideration associated with the reversal of a contingency for a transfer station permit expansion in our Western region that is no longer deemed viable.
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 functions,functions; (ii) professional service fees,fees; (iii) bad debt expense,expense; and (iv) other overhead costs including those associated with marketing, sales force and community relations efforts.
A summary of the major components of our general and administration expenses for the three and nine months ended September 30, 2022 and 2021is as follows (dollars in millions and as a percentage of total revenues) is as follows::
| | | Three Months Ended September 30, | | $ Change | | Nine Months Ended September 30, | | $ Change | | Three Months Ended September 30, | | $ Change | | Nine Months Ended September 30, | | $ Change |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | | 2023 | | 2022 | |
Labor costs | Labor costs | $ | 23.5 | | | 7.9 | % | | $ | 20.5 | | | 8.5 | % | | $ | 3.0 | | | $ | 66.9 | | | 8.2 | % | | $ | 61.6 | | | 9.5 | % | | $ | 5.3 | | Labor costs | $ | 26.8 | | | 7.6 | % | | $ | 23.5 | | | 7.9 | % | | $ | 3.3 | | | $ | 74.1 | | | 8.2 | % | | $ | 66.9 | | | 8.2 | % | | $ | 7.2 | |
Professional fees | Professional fees | 1.8 | | | 0.6 | % | | 2.3 | | | 1.0 | % | | (0.5) | | | 5.2 | | | 0.6 | % | | 5.4 | | | 0.8 | % | | (0.2) | | Professional fees | 2.2 | | | 0.6 | % | | 1.8 | | | 0.6 | % | | 0.4 | | | 6.9 | | | 0.8 | % | | 5.2 | | | 0.6 | % | | 1.7 | |
Provision for bad debt expense | Provision for bad debt expense | 0.8 | | | 0.3 | % | | 0.9 | | | 0.4 | % | | (0.1) | | | 1.9 | | | 0.2 | % | | 1.3 | | | 0.2 | % | | 0.6 | | Provision for bad debt expense | 0.7 | | | 0.2 | % | | 0.8 | | | 0.3 | % | | (0.1) | | | 1.7 | | | 0.2 | % | | 1.9 | | | 0.2 | % | | (0.2) | |
Other | Other | 8.2 | | | 2.8 | % | | 7.3 | | | 2.9 | % | | 0.9 | | | 23.7 | | | 3.0 | % | | 19.0 | | | 3.0 | % | | 4.7 | | Other | 11.5 | | | 3.3 | % | | 8.2 | | | 2.8 | % | | 3.3 | | | 30.0 | | | 3.3 | % | | 23.7 | | | 3.0 | % | | 6.3 | |
| | $ | 34.3 | | | 11.6 | % | | $ | 31.0 | | | 12.8 | % | | $ | 3.3 | | | $ | 97.7 | | | 12.0 | % | | $ | 87.3 | | | 13.5 | % | | $ | 10.4 | | | $ | 41.2 | | | 11.7 | % | | $ | 34.3 | | | 11.6 | % | | $ | 6.9 | | | $ | 112.7 | | | 12.5 | % | | $ | 97.7 | | | 12.0 | % | | $ | 15.0 | |
These cost categories may change from time to time and may not be comparable to similarly titled categories presented by other companies.
The most significant items impacting the changes in our general and administration expenses during the three and nine months ended September 30, 20222023 and 20212022 are summarized below:
•Labor costs decreased as a percentage of revenues, while increasingincreased in aggregate dollars primarily due primarily to the commencement of operations of the Mid-Atlantic operating segment effective July 1, 2023, which resulted in $1.4 million of labor costs, and the following cost changes: (i) higher salary, wages and benefit costs on acquisition-related growth wage inflation and inflationary pressures; and (ii) higher accrued incentiveequity compensation on improved performance,costs year-to-date; partially offset by lower equityaccrued incentive compensation costs; andcosts.
•Other costs increased in aggregate dollars primarily due primarily to inflationary pressuresthe commencement of operations of the Mid-Atlantic operating segment effective July 1, 2023, which resulted in $1.5 million of other costs, and the following cost changes: (i) an increase in general overhead costs related to support business growth.growth and inflationary pressures; (ii) an increase in service agreement costs; (iii) quarterly property taxes; and (iv) sponsorship and advertising related costs.
Depreciation and Amortization
Depreciation and amortization expense includesincludes: (i) depreciation of property and equipment (including assets recorded for finance leases) on a straight-line basis over the estimated useful lives of the assets,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, 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 eventevent; and (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 September 30, | | $ Change | | Nine Months Ended September 30, | | $ Change |
| 2022 | | 2021 | | 2022 | | 2021 | |
Depreciation | $ | 19.7 | | | 6.7 | % | | $ | 16.3 | | | 6.7 | % | | $ | 3.4 | | | $ | 58.2 | | | 7.2 | % | | $ | 45.1 | | | 7.0 | % | | $ | 13.1 | |
Landfill amortization | 8.5 | | | 2.9 | % | | 8.1 | | | 3.3 | % | | 0.4 | | | 22.6 | | | 2.8 | % | | 22.3 | | | 3.4 | % | | 0.3 | |
Other amortization | 4.3 | | | 1.4 | % | | 3.1 | | | 1.4 | % | | 1.2 | | | 12.3 | | | 1.5 | % | | 7.1 | | | 1.1 | % | | 5.2 | |
| $ | 32.5 | | | 11.0 | % | | $ | 27.5 | | | 11.4 | % | | $ | 5.0 | | | $ | 93.1 | | | 11.5 | % | | $ | 74.5 | | | 11.5 | % | | $ | 18.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | $ Change | | Nine Months Ended September 30, | | $ Change |
| 2023 | | 2022 | | 2023 | | 2022 | |
Depreciation expense | $ | 27.5 | | | 7.8 | % | | $ | 19.7 | | | 6.7 | % | | $ | 7.8 | | | $ | 68.8 | | | 7.6 | % | | $ | 58.2 | | | 7.2 | % | | $ | 10.6 | |
Landfill amortization expense | 10.1 | | | 2.9 | % | | 8.5 | | | 2.9 | % | | 1.6 | | | 28.9 | | | 3.2 | % | | 22.6 | | | 2.8 | % | | 6.3 | |
Other amortization expense | 10.1 | | | 2.8 | % | | 4.3 | | | 1.4 | % | | 5.8 | | | 18.4 | | | 2.0 | % | | 12.3 | | | 1.5 | % | | 6.1 | |
| $ | 47.7 | | | 13.5 | % | | $ | 32.5 | | | 11.0 | % | | $ | 15.2 | | | $ | 116.1 | | | 12.8 | % | | $ | 93.1 | | | 11.5 | % | | $ | 23.0 | |
The period-to-period increasesmost significant items impacting the changes in our depreciation and other amortization expense can be primarily attributed to acquisition activityexpenses during the three and increased investments in our fleet, whereas increases in landfill amortization expense can be attributed to increasing landfill volumes throughout the nine months ended September 30, 2023 and 2022 are summarized below:
•Depreciation expense increased in aggregate dollars primarily due to the commencement of operations of the Mid-Atlantic operating segment effective July 1, 2023, which resulted in $5.5 million of depreciation expense, and the volume mix atfollowing impacts: (i) acquisition activity; and (ii) increased investment in our landfills.fleet.
•Landfill amortization expense increased in aggregate dollars primarily due to changes in cost and other assumptions from the prior year periods more than offsetting lower landfill volumes.
•Other amortization expense increased in aggregate dollars primarily due to the commencement of operations of the Mid-Atlantic operating segment effective July 1, 2023, which resulted in $4.6 million of other amortization expense, and other acquisition activity.
Expense from Acquisition Activities
In the three and nine months ended September 30, 2023, we recorded charges of $3.3 million and $9.8 million, respectively, and in the three and nine months ended September 30, 2022, we recorded charges of $0.8 million and $3.9 million, respectively, and in the three and nine months ended September 30, 2021, we recorded charges of $1.9 million and $4.0 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.including the GFL Acquisition and the Twin Bridges Acquisition in the nine months ended September 30, 2023.
Legal Settlement
In the nine months ended September 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 has received court approval.
Environmental Remediation Charge
In the three and nine months ended September 30, 2022, we recorded a charge of $0.8 million associated with the investigation of potential remediation at an inactive waste disposal site that adjoins one of our landfills.
Other Expenses
Interest Expense, net
Our interest expense, net increased $0.9$4.2 million quarterly and $1.1$7.1 million year-to-date as compared to the same periods in the prior year due primarily to: (i) entering into a $430.0 million aggregate principal amount term loan A facility (“2023 Term Loan Facility”) to fund the GFL Acquisition; (ii) the amortization of transaction, legal, and other similar debt issuance costs incurred associated with bridge financing activities related to the GFL Acquisition and the Twin Bridges Acquisition; (iii) rising interest ratesrates; (iv) and higher average debt balances associated with the issuance in June 2022 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"2022A-1”) in June 2022 and $35.0 million aggregate principal amount of New York State Environmental Facilities Corporation Solid Waste Disposal Revenue Bonds Series 2020R-2 (“New York Bonds 2020R-2”) in August 2023; partially offset by higher interest income associated with the timing of financing activities resulting in a higher average cash balance and rising interest rates. For additional disclosure regarding interest expense, see Note 7, Debt to our consolidated financial statements includedunder Part I, Item 1 of this Quarterly Report on Form 10-Q.
Loss from Termination of Bridge Financing
In the nine months ended September 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 GFL Acquisition of $3.7 million, and an unsecured bridge financing agreement in connection with the Twin Bridges Acquisition of $4.5 million.
Provision for Income Taxes
Our provision for income taxes increased $2.5decreased $(3.1) million quarterlyin the three months ended September 30, 2023, and $4.2decreased $(9.9) million year-to-datein the nine months ended September 30, 2023, as compared to the same periodsprior year periods. This is primarily due to increased depreciation and amortization from acquisitions, higher interest expenses and debt extinguishment costs during the nine months ended September 30, 2023. The provision for income taxes in the prior year due primarily to highernine months ended September 30, 2023 included $3.8 million of current income from operations between the periods.taxes and $4.9 million of deferred income taxes. The provision for income taxes in the nine months ended September 30, 2022 included $4.9 million of current income taxes and $13.8 million of deferred income taxes. For the nine months ended September 30, 2021, the provision included $1.5 million of current income taxes and $13 million of deferred income taxes. The effective rate excluding discrete items for the nine months ended September 30, 2022 was 31.2%fiscal year ending December 31, 2023 ("fiscal year 2023") is 27.3% and wasis computed based on the statutory rate of 21% adjusted primarily for state taxes and nondeductible officer compensation. The discrete items include equity compensation, a portion of equity compensation disallowed pursuant to Section 162(m) of the Internal Revenue Code and a provision for the entry booked relating to the prior year. The equity compensation deduction is taken into account in the nine months ended September 30, 2023 due to the timing of bonuses and equity awards. Where the long-term trend of the stock price underlying the equity compensation has been increasing, this creates a larger deduction for tax, which reduces the effective rate for the nine months ended September 30, 2023. The effective rate for the nine months ended September 30, 2023 is 24.4%. For the nine months ended September 30, 2022 the effective rate was 29.5%.
On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJ Act”“TCJA”) was enacted. The TCJ ActTCJA significantly changed U.S. corporate income tax laws by, among other things, changing carryforward rules for net operating losses. Our $59.7 million inUnder the Internal Revenue Code, as amended by the TCJA, federal net operating loss carryforwards generated as ofbefore the end of 20172018 tax year continue to be carried forward for 20 years and are expected to be availableable to fully offset taxable income earned in the fiscal year ending December 31, 2022 ("fiscal year 2022"(“pre-2018 net operating losses”) and future tax years.. Federal net operating losses generated afterfollowing the 2017 totaling $46.5 million carried forward to fiscaltax year 2022, will beare carried forward indefinitely, but generally may only offset up to 80% of taxable income earned in a tax year.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 the structure of our acquisitions during the nine months ended September 30, 2023, we are projecting a significant increase to depreciation and amortization deductions during the 2023 tax 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 $35 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 acquisitions, including the GFL Acquisition and the Twin Bridges Acquisition.
In addition, the TCJA added limitations on the deductibility of interest expense that became more restrictive beginning in tax year 2022 and will 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 September 30, | | $ Change | | Nine Months Ended September 30, | | $ Change | | Three Months Ended September 30, | | $ Change | | Nine Months Ended September 30, | | $ Change |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | | 2023 | | 2022 | |
Eastern | Eastern | $ | 93.1 | | | $ | 75.2 | | | $ | 17.9 | | | $ | 251.7 | | | $ | 188.6 | | | $ | 63.1 | | Eastern | $ | 97.5 | | | $ | 93.1 | | | $ | 4.4 | | | $ | 274.7 | | | $ | 251.7 | | | $ | 23.0 | |
Western | Western | 121.9 | | | 103.5 | | | 18.4 | | | 332.6 | | | 288.1 | | | 44.5 | | Western | 136.0 | | | 121.9 | | | 14.1 | | | 371.3 | | | 332.6 | | | 38.7 | |
Resource solutions | 80.3 | | | 63.3 | | | 17.0 | | | 228.7 | | | 170.7 | | | 58.0 | | |
Mid-Atlantic | | Mid-Atlantic | 43.7 | | | — | | | 43.7 | | | 43.7 | | | — | | | 43.7 | |
Resource Solutions | | Resource Solutions | 75.5 | | | 80.3 | | | (4.8) | | | 215.3 | | | 228.7 | | | (13.4) | |
| Total revenues | Total revenues | $ | 295.3 | | | $ | 242.0 | | | $ | 53.3 | | | $ | 813.0 | | | $ | 647.4 | | | $ | 165.6 | | Total revenues | $ | 352.7 | | | $ | 295.3 | | | $ | 57.4 | | | $ | 905.0 | | | $ | 813.0 | | | $ | 92.0 | |
Eastern 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 September 30, 2022 vs. 2021 | | Period-to-Period Change for the Nine Months Ended September 30, 2022 vs. 2021 | | Period-to-Period Change for the Three Months Ended September 30, 2023 vs. 2022 | | Period-to-Period Change for the Nine Months Ended September 30, 2023 vs. 2022 |
| | Amount | | % Growth | | Amount | | % Growth | | Amount | | % Growth | | Amount | | % Growth |
Price | Price | $ | 5.5 | | | 7.4 | % | | $ | 13.9 | | | 7.3 | % | Price | $ | 7.7 | | | 8.3 | % | | $ | 23.5 | | | 9.4 | % |
Volume | Volume | 2.9 | | | 3.8 | % | | 5.5 | | | 3.1 | % | Volume | (4.3) | | | (4.6) | % | | (6.1) | | | (2.4) | % |
Surcharges and other fees | Surcharges and other fees | 5.1 | | | 6.8 | % | | 9.5 | | | 5.0 | % | Surcharges and other fees | (1.8) | | | (2.0) | % | | 2.9 | | | 1.1 | % |
Commodity price and volume | Commodity price and volume | (0.1) | | | (0.1) | % | | — | | | — | % | Commodity price and volume | — | | | — | % | | (0.1) | | | (0.1) | % |
Acquisitions | Acquisitions | 4.5 | | | 6.0 | % | | 34.2 | | | 18.1 | % | Acquisitions | 2.8 | | | 3.0 | % | | 2.8 | | | 1.1 | % |
| Solid waste revenues | Solid waste revenues | $ | 17.9 | | | 23.9 | % | | $ | 63.1 | | | 33.5 | % | Solid waste revenues | $ | 4.4 | | | 4.7 | % | | $ | 23.0 | | | 9.1 | % |
Price.
The price change component in quarterly solid waste revenues growth from the prior year period is the result of the following:
•$3.85.7 million from favorable collection pricing; and
•$1.72.0 million from favorable disposal pricing related to transfer stations and to a lesser extent, landfills.
The price change component in year-to-date solid waste revenues growth from the prior year period is the result of the following:
•$10.216.8 million from favorable collection pricing; and
•$3.76.7 million from favorable disposal pricing related to transfer stations and to a lesser extent, landfills.
Volume.
The volume change component in quarterly solid waste revenues growth from the prior year period is the result of the following:
•$2.0(4.5) million from lower disposal volumes (of which $(3.3) million relates to lower transfer station volumes, $(1.3) million relates to decreased landfill volumes and $0.1 million associated with higher transportation volumes) due to slowing economic activity and, in the case of landfill volumes, the customer and material mix; partially offset by
•$0.1 million from higher disposal volumes related to landfills, transportation services and, to a lesser extent, transfer stations;collection volumes; and
•$0.90.1 million from higher collection volumes as a result of organic business growth.processing volumes.
The volume change component in year-to-date solid waste revenues growth from the prior year period is the result of the following:
•$3.3(5.8) million from higherlower disposal volumes related(of which $(3.2) million relates to lower transfer stations, landfillsstation volumes, $(1.9) million is associated with decreased landfill volumes and $(0.7) million is associated with lower transportation services;volumes) due to slowing economic activity and, in the case of landfill volumes, the customer and material mix; and
•$(0.5) million from lower collection volumes associated with slowing economic activity and to a lesser extent purposeful shedding of less profitable customers; partially offset by
•$2.20.2 million from higher collection volumes as a result of organic business growth.processing volumes.
Surcharges and other fees.
The decline in surcharges and other fees change componentscomponent in quarterly solid waste revenues growth from the prior year period is the result of lower E&E Fee revenues, partially offset by higher SRA Fee revenues. Lower E&E Fee revenues associated with our fuel cost recovery program were the result of lower diesel fuel prices. Higher SRA Fee revenues were the result of lower recycled commodity prices and 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 periods are due primarily toperiod is the result of higher SRA Fee revenues, partially offset by lower E&E FeesFee 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 on higherwere the result of lower diesel fuel prices.prices, partially offset by 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 fuel recovery programs and SRA Fee.
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 acquisition activity in line with our growth strategy, including the timing and acquisition of two businessesone business in the nine months ended September 30, 20222023 and fivetwo businesses in the fiscal year ended December 31, 2021.2022.
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 September 30, 2022 vs. 2021 | | Period-to-Period Change for the Nine Months Ended September 30, 2022 vs. 2021 |
| Amount | | % Growth | | Amount | | % Growth |
Price | $ | 6.3 | | | 6.1 | % | | $ | 16.9 | | | 5.9 | % |
Volume | 0.8 | | | 0.7 | % | | 1.2 | | | 0.4 | % |
Surcharges and other fees | 6.4 | | | 6.2 | % | | 12.2 | | | 4.2 | % |
Commodity price and volume | 0.4 | | | 0.4 | % | | 2.7 | | | 0.9 | % |
Acquisitions | 4.5 | | | 4.4 | % | | 11.5 | | | 4.0 | % |
| | | | | | | |
Solid waste revenues | $ | 18.4 | | | 17.8 | % | | $ | 44.5 | | | 15.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Period-to-Period Change for the Three Months Ended September 30, 2023 vs. 2022 | | Period-to-Period Change for the Nine Months Ended September 30, 2023 vs. 2022 |
| Amount | | % Growth | | Amount | | % Growth |
Price | $ | 7.1 | | | 5.9 | % | | $ | 21.6 | | | 6.5 | % |
Volume | (2.9) | | | (2.4) | % | | (5.8) | | | (1.8) | % |
Surcharges and other fees | (1.3) | | | (1.1) | % | | 5.2 | | | 1.6 | % |
Commodity price and volume | — | | | — | % | | (1.6) | | | (0.5) | % |
Acquisitions | 11.2 | | | 9.2 | % | | 19.3 | | | 5.8 | % |
| | | | | | | |
Solid waste revenues | $ | 14.1 | | | 11.6 | % | | $ | 38.7 | | | 11.6 | % |
Price.
The price change component in quarterly solid waste revenues growth from the prior year period is the result of the following:
•$4.75.3 million from favorable collection pricing; and
•$1.61.8 million from favorable disposal pricing related to landfills, transfer stations, and 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:
•$13.016.1 million from favorable collection pricing; and
•$3.95.5 million from favorable disposal pricing related to landfills, transfer stations, and 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:
•$1.6 million from higher disposal volumes related to landfills and, to a lesser extent, transfer stations and transportation services; partially offset by
•$(0.8)(2.9) million from lower collection volumes associated with slowing economic activity, higher customer churn due to higherincreased pricing implementation of the E&E Fee onand fees charged to additional customers, and customer deselection.to a lesser extent purposeful shedding of less profitable customers; and
•Disposal volumes were flat ($3.1 million of higher transfer station volumes, $(2.8) million in lower landfill volumes and $(0.3) million in lower transportation volumes) due to higher disposal volumes associated with the flooding caused by severe weather; offset by slowing economic activity.
The volume change component in year-to-date solid waste revenues growth from the prior year period is the result of the following:
•$3.6(7.7) million from lower collection volumes associated with slowing economic activity, higher disposal volumes relatedcustomer churn due to landfills, transportation,increased pricing and transfer stations;fees charged to additional customers, and to a lesser extent purposeful shedding of less profitable customers; partially offset by
•$(2.4)1.9 million from higher disposal volumes (of which $4.5 million relates to higher transfers stations volumes; partially offset by $(2.1) million in lower collectionlandfill volumes and $(0.5) million in lower transportation volumes) related to higher disposal volumes associated with higher customer churn due to higher pricing, implementationthe flooding caused from severe weather; partially offset by slowing economic activity.
Surcharges and other fees.
The decline in surcharges and other fees change component in quarterly solid waste revenues growth from the prior year period is the result of thelower E&E Fee revenues, partially offset by higher SRA Fee revenues. Lower E&E Fee revenues associated with our fuel cost recovery program were the result of lower diesel fuel prices. Higher SRA Fee revenues were the result of lower recycled commodity prices and 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 higher SRA Fee and E&E Fee revenues. Higher SRA Fee revenues were the result of lower recycled commodity prices and a higher customer participation rate. Higher E&E Fee revenues associated with our fuel cost recovery program were the result of a higher customer participation rate, partially offset by lower diesel fuel prices.
See Item 3."Quantitative and Qualitative Disclosures about Market Risk" included in this Quarterly Report on Form 10-Q for additional customersinformation regarding our fuel recovery programs and customer deselection.SRA Fee.
Commodity price and volume.
The decline in commodity price and volume change component in year-to-date solid waste revenues growth from the prior year period is primarily 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 period are the result of increased acquisition activity in line with our growth strategy, including the timing and acquisition of the Twin Bridges Acquisition and two additional businesses in the nine months ended September 30, 2023, and ten businesses in the fiscal year 2022.
Mid-Atlantic 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 September 30, 2023 vs. 2022 | | | | Period-to-Period Change for the Nine Months Ended September 30, 2023 vs. 2022 | | |
| Amount | | | | Amount | | |
| | | | | | | |
| | | | | | | |
Surcharges and other fees | $ | 3.0 | | | | | $ | 3.0 | | | |
| | | | | | | |
Acquisitions | 40.7 | | | | | 40.7 | | | |
| | | | | | | |
Solid waste revenues | $ | 43.7 | | | | | $ | 43.7 | | | |
Surcharges and other fees.
The surcharges and other fees change components in quarterly and year-to-date solid waste revenues growth from the prior year periods are due primarily to higher E&E Fees associated withthe result of fuel surcharges and environmental fee revenues.
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 on higher diesel fuel prices.programs.
Commodity price and volume.
The commodity price and volume change components in quarterly and year-to-date solid waste revenues growth from the prior year periods are due primarily to favorable landfill gas-to-energy pricing.
Acquisitions.
The acquisitions change components in quarterly and year-to-date solid waste revenues growth from the prior year periodsperiod are the result of increased acquisition activitythe GFL Acquisition, which resulted in line with our growth strategy, including the timing$40.2 million in collection revenue and acquisition of eight businesses$0.5 million in the nine months ended September 30, 2022 and five businesses in the fiscal year ended December 31, 2021.transfer station revenue.
Operating Income (Loss)
A summary of operating income (loss) by operating segment (in millions) follows: | | | Three Months Ended September 30, | | $ Change | | Nine Months Ended September 30, | | $ Change | | Three Months Ended September 30, | | $ Change | | Nine Months Ended September 30, | | $ Change |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | | 2023 | | 2022 | |
Eastern | Eastern | $ | 10.1 | | | $ | 5.4 | | | $ | 4.7 | | | $ | 14.0 | | | $ | 11.4 | | | $ | 2.6 | | Eastern | $ | 11.2 | | | $ | 10.1 | | | $ | 1.1 | | | $ | 20.8 | | | $ | 14.0 | | | $ | 6.8 | |
Western | Western | 22.4 | | | 15.8 | | | 6.6 | | | 51.6 | | | 38.5 | | | 13.1 | | Western | 20.5 | | | 22.4 | | | (1.9) | | | 51.9 | | | 51.6 | | | 0.3 | |
Mid-Atlantic | | Mid-Atlantic | (0.7) | | | — | | | (0.7) | | | (0.7) | | | — | | | (0.7) | |
Resource Solutions | Resource Solutions | 4.5 | | | 6.7 | | | (2.2) | | | 14.5 | | | 12.8 | | | 1.7 | | Resource Solutions | 4.1 | | | 4.5 | | | (0.4) | | | 2.9 | | | 14.5 | | | (11.6) | |
Corporate entities | (0.7) | | | (0.5) | | | (0.2) | | | (1.9) | | | (1.4) | | | (0.5) | | |
Corporate Entities | | Corporate Entities | (0.9) | | | (0.7) | | | (0.2) | | | (7.8) | | | (1.9) | | | (5.9) | |
Operating income | Operating income | $ | 36.3 | | | $ | 27.4 | | | $ | 8.9 | | | $ | 78.2 | | | $ | 61.3 | | | $ | 16.9 | | Operating income | $ | 34.2 | | | $ | 36.3 | | | $ | (2.1) | | | $ | 67.1 | | | $ | 78.2 | | | $ | (11.1) | |
Eastern Region
Operating income increased $4.7$1.1 million quarterly and $2.6$6.8 million 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 nine months ended September 30, 20222023 was driven by revenue growth, inclusive of inter-company revenues, more than offsetting the following cost changes.
Cost of operations
Cost of operations increased $14.6$3.4 million quarterly and $59.3$14.2 million year-to-date from the prior year periods due to the following:
•Direct costs increased in aggregate dollars primarily due primarily toto: higher hauling and third-party transportation and disposal costs, on (i) higher solid waste volumesincluding landfill disposal costs, driven by acquisition activityacquisition-related growth and to a lesser extent, organic business growth, (ii) higher fuel surcharges from third party haulers due to higher diesel fuel prices and (iii) higher third-party disposal rates due to inflationary pressures; partially offset by lower hauling and transportation costs on lower organic disposal volumes;
•Direct labor costs increased in aggregate dollars primarily due primarily toto: (i) acquisition-relatedinflationary pressures; and to a lesser extent,(ii) acquisition activity; partially offset by (i) lower spend on outside labor, (ii) lower organic business growth, (ii) wage inflationdisposal volumes; and (iii) higher workers compensation costs on claims activity associated with an increased headcount;improved routing efficiencies;
•Fuel costs increaseddecreased in aggregate dollars primarily due primarily to higherto: lower diesel fuel prices and lower organic solid waste volumes; partially offset by higher volumes driven by acquisition activity and,diesel fuel consumption related to a lesser extent, organic businessacquisition-related growth. See Item 3. " "QuantitativeQuantitative and Qualitative Disclosures about Market Risk" included in this Quarterly Report on Form 10-Q for additional information regarding our fuel costs;
•Maintenance and repair costs increased in aggregate dollars due primarily todriven by higher fleet and container maintenance costs due to: (i) higher personnel related expenses and supply costs related to repairs and parts associated with acquisition-related growth and inflationary pressurespressures; and acquisition activity;(ii) higher vehicle maintenance costs from delays in the delivery of fleet replacements; partially offset by lower spend on outside container repairs; and
•Other operational costs increased in aggregate dollars due primarily todriven by: (i) higher facility costs driven by acquisition activityprimarily associated with an increase in spend on outside repairs; and inflationary pressures; and
•Direct operational costs remained flat quarterly and increased year-to-date in aggregate dollars(ii) higher personnel related expenses due to increased vehicle insurance costsacquisition-related growth and inflationary pressures.
General and administration
General and administration expense increased $1.5$1.8 million quarterly and $5.8$4.8 million year-to-date from the prior year periods due primarily to: (i) wage inflation; (ii) the allocation of higher shared service costs; and to (i)a lesser extent (iii) quarterly acquisition-related growth, (ii) wage inflation, (iii) higher accrued incentive compensation on improved performance (iv) and an increase in general overhead costs associated with business growth and inflationary pressures;growth; partially offset by lower equityaccrued incentive compensation costs.
Depreciation and amortization
Depreciation and amortization expense increased $2.5$0.5 million quarterly and $11.6$1.5 million year-to-date from the prior year periods due primarily to acquisition activity, increased investment in our fleet, and higher landfill amortization expense dueas the result of changes in cost and other assumptions from prior year more than offsetting lower landfill volumes; partially offset year-to-date by additional depreciation and other amortization expense related to higher quarterly landfill volumes anda purchase price allocation adjustment in the volume mix at our landfills.quarter ended March 31, 2022.
Western Region
Operating income increased $6.6decreased $(1.9) million quarterly and $13.1increased $0.3 million year-to-date from the prior year periods. Excluding the impact of the environmental remediationFLSA-related legal settlement charge, and expense from acquisition activities and the environmental remediation charge, our improved operating performance in the three and nine months ended September 30, 20222023 was driven by revenue growth, inclusive of inter-company revenues, more than offsettingand the following cost changes.
Cost of operations
Cost of operations increased $15.1$14.5 million quarterly and $41.1$31.8 million year-to-date from the prior year periods due to the following:
•Direct costs increased in aggregate dollars primarily due primarily toto: higher hauling, and third-party transportation and disposal costs, on (i) higher solid waste volumesincluding landfill disposal costs, driven by acquisition activity,(i) acquisition-related growth; and (ii) higher third-party disposal rates and hauling charges due to inflationary pressures; partially offset by lower hauling and transportation costs on lower organic collection volumes, (ii) higher fuel surcharges from third party haulers due to higher diesel fuel prices and (iii) higher third-party disposal rates due to inflationary pressures;volumes;
•FuelDirect labor costs increased in aggregate dollars primarily due to: acquisition-related growth and inflationary pressures; partially offset by improved routing efficiencies;
•Direct operational costs increased in aggregate dollars primarily due to: (i) acquisition-related growth; (ii) inflationary pressures; (iii) higher accretion expense associated with changes in the timing and cost estimates of our closure, post-closure, and capping obligations; (iv) higher year-to-date host community and royalty fees; (v) and higher tire repair and replacement costs; partially offset by lower vehicle insurance costs quarterly and landfill related operating costs on lower volumes;
•Maintenance and repair costs increased in aggregate dollars due to higher fleet maintenance costs driven by: (i) personnel related expenses, supply costs related to repairs and parts and outside repair spend associated with acquisition-related growth and inflationary pressures; and (ii) higher vehicle maintenance costs from delays in the delivery of fleet replacements; and
•Other operational costs increased in aggregate dollars driven by higher facility costs primarily due to: higher spend on outside repairs and personnel related expenses associated with acquisition-related growth and inflationary pressures; partially offset by a gain on resolution of acquisition-related contingent consideration associated with the reversal of a contingency for a transfer station permit expansion that is no longer deemed viable; partially offset by
•Fuel costs decreased in aggregate dollars primarily due to: lower diesel fuel prices and lower collection volumes; partially offset by higher volumes driven by acquisition activity.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;
•Direct labor costs increased in aggregate dollars due primarily to (i) wage inflation, (ii) increased overtime on higher solid waste volumes associated with acquisition activity and (iii) higher workers compensation costs on claim activity associated with an increased headcount year-to-date;
•Maintenance and repair costs increased in aggregate dollars due primarily to higher fleet maintenance costs associated with acquisition activity and inflationary pressures;
•Direct operational costs increased in aggregate dollars due to (i) higher landfill operating costs from severe winter weather earlier in the year and construction delays compounded with higher quarterly landfill volumes, (ii) higher vehicle insurance costs and (iii) inflationary pressures; partially offset by lower host community and royalty fees; and
•Other operational costs increased in aggregate dollars due primarily to higher facility costs driven by acquisition activity and inflationary pressures.costs.
General and administration
General and administration expense decreased $(0.1)increased $2.3 million quarterly and increased $0.6 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) higher accrued incentive compensation on improved performance and (iv) an increase in general overhead costs associated with business growth and inflationary pressures; partially offset by lower equity compensation costs.
Depreciation and amortization
Depreciation and amortization expense increased $1.1 million quarterly and $2.6$5.5 million year-to-date from the prior year periods, due primarily to (i) acquisition-related growth; (ii) wage inflation; (iii) an increase in general overhead costs due to inflationary pressures and to support business growth; and (iv) the allocation of higher shared service costs; partially offset by lower accrued incentive compensation costs quarterly.
Depreciation and amortization
Depreciation and amortization expense increased $4.2 million quarterly and $10.2 million year-to-date from the prior year periods due primarily to (i) acquisition activity andactivity; (ii) increased investmentsinvestment in our fleet.fleet; and (iii) higher landfill amortization expense attributed to changes in cost and other assumptions from prior year more than offsetting lower landfill volumes.
Mid-Atlantic
Collection and transfer station operations for our Mid-Atlantic region operating segment commenced on July 1, 2023. Operating deficit was $(0.7) million for the Mid-Atlantic region operating segment in the three and nine months ended September 30, 2023 driven primarily by solid waste collection services, as revenues, inclusive of inter-company revenues, was more than offset by $30.0 million cost of operations, $3.0 million of general and administration expense, $10.2 million of depreciation and amortization expense and $1.5 million of expense from acquisition activities, comprised primarily of legal, consulting and integration costs pertaining to the GFL Acquisition.
Resource Solutions
Operating income decreased $(2.2)$(0.4) million quarterly and increased $1.7$(11.6) 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 nine months ended September 30, 20222023 was driven by revenue growth,decline, inclusive of inter-company revenues, and the following cost changes.
Cost of operations
Cost of operations increased $17.7decreased $(1.7) million quarterly and $48.3increased $4.7 million year-to-date from the prior year periods due to the following:
•Direct costs increased in aggregate dollars year-to-date due primarily toto: (i) higher disposal rates and hauling charges related to inflationary pressures; and third-party transportation costs on higher non-processing volumes (ii) higher fuel surchargescosts associated with the diversion of materials from third party haulers due to higher diesel fuel prices, (iii) inflationary pressures,our Boston, Massachusetts material recovery facility, which underwent a retrofit during the nine months ended September 30, 2023; partially offset year-to-date, and (iv) highermore than offset in total quarterly, by lower purchased material costs on acquisition activity and higher average commodity prices year-to-date;
•Direct labor costs increased in aggregate dollars due primarily to (i) acquisition activity and organic non-processing business growth, (ii) wage inflation and (iii) higher workers compensation costs on claim activity associated with an increased headcount;
•Other operational costs increased in aggregate dollars due primarily to higher facility costs driven by acquisition activity and inflationary pressures;costs;
•Maintenance and repair costs increased in aggregate dollars due primarily to higher fleet and year-to-date container maintenance costs driven by personnel related expenses and supply costs related to repairs and parts associated primarily with inflationary pressures, acquisition activity, and organic non-processing business growth;pressures;
•DirectOther operational costs increased in aggregate dollars driven by higher facility costs primarily due to: (i) higher year-to-date spend on outside repairs; (ii) increased facility insurance costs; and (iii) higher personnel related expenses primarily due to acquisition-related growth and inflationary pressures; and
•FuelDirect labor costs increaseddecreased in aggregate dollars primarily due to higher fuel prices and higher volumes driven by acquisition activity. See Item 3. "Quantitative and Qualitative Disclosures about Market Risk" included in this Quarterly Report on Form 10-Q for additional information regardinglower outside labor costs associated with the diversion of materials from our fuel costs.Boston, Massachusetts material recovery facility, which underwent a retrofit during the nine months ended September 30, 2023.
General and administration
General and administration expense increased $1.8decreased $(0.2) million quarterly and $3.6increased $1.7 million year-to-date from the 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 year-to-date and more than offset quarterly by (i) lower accrued incentive compensation costs; and (ii) lower bad debt expense.
Depreciation and amortization:
Depreciation and amortization expense increased $0.3 million quarterly and $0.6 million year-to-date from the prior year periods due primarily to the timing of acquisition activity.
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 deficit increased $(0.2) million quarterly and $(5.9) million year-to-date from the prior year periods due to increased overhead costs associated with (i)unallocated acquisition activityrelated expenses year-to-date, comprised primarily of legal, consulting and organic non-processing business growth, (ii) wage inflation, (iii) higher accrued incentive compensation on improved performance and (iv) an increase in general overhead costs associated with business growth and inflationary pressures; partially offset by lower equity compensationother similar costs.
Depreciation and amortization
Depreciation and amortization expense increased $1.2 million quarterly and $4.0 million year-to-date from the prior year periods due to acquisition activity.
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 liquidity needs as we move forward based on the capital intensive nature of our business and our growth acquisition strategy. We have $271.8As of September 30, 2023, we had $272.3 million of undrawn capacity from our $300.0 million revolving credit facility ("Revolving Credit Facility") asand $219.1 million of September 30, 2022cash and equivalents 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 known current- and long-term uses of cash include, among other possible demands: (1)(i) acquisitions, (ii) capital expenditures and leases, (2) acquisitions, (3)(iii) repayments to service debt and other long-term obligations and (4)(iv) payments for final capping, closure and post-closure asset retirement obligations and environmental remediation liabilities. We have made in the past and plan to make in the future, acquisitions to expand service areas, densify existing operations, and grow services for our customers. Future acquisitions may include larger, more strategic acquisitions that may be inside or outside of our existing market, which could require additional financing either in the form of debt or equity.
A summary of the major indicators of our financial conditioncash and liquiditycash equivalents, restricted cash, restricted assets and debt balances, excluding any debt issuance costs, (in millions) follows: | | | September 30, 2022 | | December 31, 2021 | | $ Change | | September 30, 2023 | | December 31, 2022 | | $ Change |
| Cash, cash equivalents and restricted cash: | | Cash, cash equivalents and restricted cash: | | | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 47.9 | | | $ | 33.8 | | | $ | 14.1 | | Cash and cash equivalents | $ | 219.1 | | | $ | 71.2 | | | $ | 147.9 | |
Current assets, excluding cash and cash equivalents | $ | 143.5 | | | $ | 112.7 | | | $ | 30.8 | | |
Restricted cash | | Restricted cash | 2.7 | | | — | | | 2.7 | |
Total cash, cash equivalents and restricted cash | | Total cash, cash equivalents and restricted cash | $ | 221.8 | | | $ | 71.2 | | | $ | 150.6 | |
Current assets, excluding cash, cash equivalents and restricted cash | | Current assets, excluding cash, cash equivalents and restricted cash | $ | 194.3 | | | $ | 136.3 | | | $ | 58.0 | |
Restricted assets | Restricted assets | $ | 1.7 | | | $ | 2.1 | | | $ | (0.4) | | Restricted assets | $ | 1.9 | | | $ | 1.9 | | | $ | — | |
Total current liabilities: | Total current liabilities: | | Total current liabilities: | |
Current liabilities, excluding current maturities of debt | Current liabilities, excluding current maturities of debt | $ | 154.5 | | | $ | 142.3 | | | $ | 12.2 | | Current liabilities, excluding current maturities of debt | $ | 219.2 | | | $ | 168.6 | | | $ | 50.6 | |
Current maturities of debt | Current maturities of debt | 8.3 | | | 9.9 | | | (1.6) | | Current maturities of debt | 34.0 | | | 9.0 | | | 25.0 | |
Total current liabilities | Total current liabilities | $ | 162.8 | | | $ | 152.2 | | | $ | 10.6 | | Total current liabilities | $ | 253.2 | | | $ | 177.6 | | | $ | 75.6 | |
Debt, less current portion | Debt, less current portion | $ | 588.4 | | | $ | 552.7 | | | $ | 35.7 | | Debt, less current portion | $ | 1,024.0 | | | $ | 594.5 | | | $ | 429.5 | |
Current assets, excluding cash, and cash equivalents and restricted cash, increased $30.8$58.0 million and current liabilities increased $10.6$75.6 million in the nine months ended September 30, 2022, driven primarily by business and revenue growth2023, resulting in a $20.2$(17.6) million increasedecline in working capital, net (defined as current assets, excluding cash, and cash equivalents and restricted cash, minus current liabilities), from $(39.5)$(41.3) million as of December 31, 20212022 to $(19.3)$(58.9) million as of September 30, 2022.2023. 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 and restricted cash increased $14.1$150.6 million in the nine months ended September 30, 2022.2023. A summary of cash flows (in millions) follows: | | | Nine Months Ended September 30, | | $ Change | | Nine Months Ended September 30, | | $ Change |
| | 2022 | | 2021 | | | 2023 | | 2022 | |
Net cash provided by operating activities | Net cash provided by operating activities | $ | 152.4 | | | $ | 134.1 | | | $ | 18.3 | | Net cash provided by operating activities | $ | 157.8 | | | $ | 152.4 | | | $ | 5.4 | |
Net cash used in investing activities | Net cash used in investing activities | $ | (161.1) | | | $ | (234.1) | | | $ | 73.0 | | Net cash used in investing activities | $ | (937.2) | | | $ | (161.1) | | | $ | (776.1) | |
Net cash provided by (used in) financing activities | $ | 22.8 | | | $ | (7.9) | | | $ | 30.7 | | |
Net cash provided by financing activities | | Net cash provided by financing activities | $ | 930.0 | | | $ | 22.8 | | | $ | 907.2 | |
Cash flows from operating activities.
A summary of operating cash flows (in millions) follows: | | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Net income | Net income | $ | 44.7 | | | $ | 32.0 | | Net income | $ | 27.2 | | | $ | 44.7 | |
Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
Depreciation and amortization | Depreciation and amortization | 93.1 | | | 74.5 | | Depreciation and amortization | 116.1 | | | 93.1 | |
| Interest accretion on landfill and environmental remediation liabilities | Interest accretion on landfill and environmental remediation liabilities | 6.0 | | | 5.9 | | Interest accretion on landfill and environmental remediation liabilities | 7.5 | | | 6.0 | |
Amortization of debt issuance costs | Amortization of debt issuance costs | 1.4 | | | 1.7 | | Amortization of debt issuance costs | 2.2 | | | 1.4 | |
Stock-based compensation | Stock-based compensation | 5.6 | | | 8.7 | | Stock-based compensation | 6.7 | | | 5.6 | |
Operating lease right-of-use assets expense | Operating lease right-of-use assets expense | 10.4 | | | 10.0 | | Operating lease right-of-use assets expense | 11.0 | | | 10.4 | |
Gain on sale of property and equipment | (0.6) | | | — | | |
| Disposition of assets, other items and charges, net | | Disposition of assets, other items and charges, net | 0.3 | | | (0.3) | |
| Non-cash expense from acquisition activities | 0.3 | | | 0.5 | | |
| Loss from termination of bridge financing | | Loss from termination of bridge financing | 8.2 | | | — | |
| Deferred income taxes | Deferred income taxes | 13.8 | | | 13.0 | | Deferred income taxes | 5.2 | | | 13.8 | |
| | 174.7 | | | 146.3 | | | 184.4 | | | 174.7 | |
Changes in assets and liabilities, net | Changes in assets and liabilities, net | (22.3) | | | (12.2) | | Changes in assets and liabilities, net | (26.6) | | | (22.3) | |
Net cash provided by operating activities | Net cash provided by operating activities | $ | 152.4 | | | $ | 134.1 | | Net cash provided by operating activities | $ | 157.8 | | | $ | 152.4 | |
A summary of the most significant items affecting the change in our operating cash flows follows:
Net cash provided by operating activities increased $18.3$5.4 million in the nine months ended September 30, 20222023 as compared to the nine months ended September 30, 2021.2022. This was the result of improved operational performance, partially 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 improved operational performance in the nine months ended September 30, 20222023 as compared to the nine months ended September 30, 2021,2022, see "Results of Operations" above.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 unfavorable 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 nine months ended September 30, 20222023 as compared to the nine months ended September 30, 20212022 was primarily due primarily to the following:
•a $(12.4) million unfavorable impact to operating cash flows associated with the change in accounts payable;
•a $(3.3) million unfavorable impact to operating cash flows associated with the change in accrued expenses and other liabilities; and
•a $(3.3)$(9.1) million unfavorable impact to operating cash flows associated with the change in accounts receivable associated primarily with increased revenues growth; partially offset bydue to acquisition-related growth more than offsetting a favorable decrease in days sales outstanding from the prior year period;
•a $8.6$(7.5) million favorableunfavorable impact to operating cash flows associated with the changes in accrued expenses, contract liabilities and other liabilities due to higher payments associated with landfill capping, closure and post closure activity and a higher decline in accrued payroll related primarily to accrued incentive compensation, partially offset by acquisition-related growth; and
•a $(4.3) million unfavorable impact to operating cash flows associated with the change in prepaid expenses, inventories and other assets.assets associated with the timing of payments and acquisition-related growth; partially offset by
•a $16.6 million favorable impact to operating cash flows associated with the change in accounts payable due to acquisition-related growth and the favorable increase in days payable outstanding from the prior year period.
Cash flows from investing activities.
A summary of investing cash flows (in millions) follows: | | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Acquisitions, net of cash acquired | Acquisitions, net of cash acquired | $ | (74.0) | | | $ | (153.1) | | Acquisitions, net of cash acquired | $ | (847.8) | | | $ | (74.0) | |
| Additions to property, plant and equipment | Additions to property, plant and equipment | (87.7) | | | (81.6) | | Additions to property, plant and equipment | (90.4) | | | (87.7) | |
| Proceeds from sale of property and equipment | Proceeds from sale of property and equipment | 0.6 | | | 0.6 | | Proceeds from sale of property and equipment | 1.0 | | | 0.6 | |
| Net cash used in investing activities | Net cash used in investing activities | $ | (161.1) | | | $ | (234.1) | | Net cash used in investing activities | $ | (937.2) | | | $ | (161.1) | |
A summary of the most significant items affecting the change in our investing cash flows follows:
Acquisitions, net of cash acquired. In the nine months ended September 30, 2023, we acquired five businesses for total consideration of $845.1 million, including $842.6 million in cash and paid $5.2 million in holdback payments on businesses previously acquired, as compared to the nine months ended September 30, 2022 during which we acquired twelve businesses for total consideration of $78.1 million, including $72.7 million in cash, and paid $1.3 million in holdback payments on businesses previously acquired,acquired.
Capital expenditures. Capital expenditures were $2.7 million higher in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2021 during which we acquired eight businesses for total consideration of $155.2 million, including $150.4 million in cash, and paid $2.7 million in holdback payments on businesses previously acquired.
Capital expenditures. Capital expenditures increased $(6.1) million in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021primarily due primarily to higher capital spend associated with landfill development, investments in newly acquired operations(i) inflation; (ii) facility spend related to drive synergies,the purchase of a transfer station that was formerly leased and the retrofitting of aour Boston, Massachusetts single-stream material recovery facility and inflationary pressures, partially offset by the completion of construction andfacility; (iii) development of phase VIrail side infrastructure at our Subtitle D landfill located in Coventry, Vermont in the fiscal year ended December 31, 2021.Mount Jewett, Pennsylvania and (iv) acquisition activity; partially offset by timing of spend for vehicles, machinery, equipment and containers.
Cash flows from financing activities.
A summary of financing cash flows (in millions) follows: | | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Proceeds from long-term borrowings | Proceeds from long-term borrowings | $ | 82.2 | | | $ | 0.5 | | Proceeds from long-term borrowings | $ | 465.0 | | | $ | 82.2 | |
Principal payments on debt | Principal payments on debt | (57.4) | | | (8.6) | | Principal payments on debt | (18.5) | | | (57.4) | |
Payments of debt issuance costs | Payments of debt issuance costs | (1.2) | | | — | | Payments of debt issuance costs | (12.8) | | | (1.2) | |
Payments of contingent consideration | Payments of contingent consideration | (1.0) | | | — | | Payments of contingent consideration | — | | | (1.0) | |
Proceeds from the exercise of share based awards | Proceeds from the exercise of share based awards | 0.2 | | | 0.2 | | Proceeds from the exercise of share based awards | 0.1 | | | 0.2 | |
Proceeds from the public offering of Class A common stock | | Proceeds from the public offering of Class A common stock | 496.2 | | | — | |
| Net cash provided by (used in) financing activities | $ | 22.8 | | | $ | (7.9) | | |
Net cash provided by financing activities | | Net cash provided by financing activities | $ | 930.0 | | | $ | 22.8 | |
A summary of the most significant items affecting the change in our financing cash flows follows:
Debt activity. Net cash associated with debt activity increased $32.9 million. The increase in financing cash flows$421.7 million in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 is due primarily to entering into the $430.0 million aggregate principal amount 2023 Term Loan Facility in June 2023 and the issuance of $35.0 million aggregate principal amount of New York Bonds 2020R-2 in August 2023, partially offset by the issuance of $35.0 million aggregate principal amount of Vermont Bonds 2022A-1 in June 2022.the prior year period.
Payment of debt issuance costscosts. . We paid $1.2$12.8 million of debt issuance costs in the nine months ended September 30, 2023, which included $8.7 million related to bridge financing activities associated with the GFL Acquisition and the Twin Bridges Acquisition. In the nine months ended September 30, 2022, we paid $1.2 million of debt issuance costs related to the issuance of Vermont Bonds 2022A-1.
Proceeds from the public offering of contingent considerationClass A Common Stock.. We paid $1.0 On June 16, 2023, we completed a public offering of 6.1 million shares of contingent considerationour Class A common stock at a public offering price of $85.50 per share. After deducting stock issuance costs as of September 30, 2023, including underwriting discounts, commissions and offering expenses, the offering resulted in net proceeds of $496.2 million. The net proceeds from this offering were and are to be used to fund acquisition activity, including the GFL Acquisition and the Twin Bridges Acquisition, to pay certain costs associated with an acquisition based on the completion of a permit expansion application.activities, and to repay borrowings and/or debt securities.
Outstanding Long-Term Debt
Financing Activities
In February 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 specified acquisition loan joinder, dated May 25, 2023 ("Loan Joinder"), which provided for a $430.0 million aggregate principal amount 2023 Term Loan Facility under the Amended and Restated Credit Agreement. In June 2023, we borrowed $430.0 million 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 the net proceeds from the public offering of our Class A common stock completed on June 16, 2023, cash and cash equivalents and borrowings from our Revolving Credit Facility, the GFL Acquisition. See Note 9, Stockholders' Equity to our consolidated financial statements included in Part I. Item. 1 of this Quarterly Report on Form 10-Q for further disclosure regarding the public offering.
In June 2023, we entered into an asset purchase agreement pursuant to which we agreed to the Twin Bridges Acquisition. 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.
In August 2023, we completed the issuance of $35.0 million aggregate principal amount of New York Bonds 2020R-2. The New York Bonds 2020R-2, 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 from August 24, 2023 through September 2, 2030, at which time they may be converted to a variable interest rate period or to a new term interest rate period. The New York Bonds 2020R-2 mature on September 1, 2050. As of September 30, 2023, we had $2.7 million of remaining cash proceeds from the issuance of the New York Bonds 2020R-2 included in restricted cash and assets that is restricted to finance or reimburse certain noncurrent asset costs associated with capital projects in the State of New York.
Credit Facility
As of September 30, 2022,2023, we had outstandingare party to the Amended and Restated Credit Agreement, which provides for a $350.0 million aggregate principal amount of borrowings under our term loan A facility ("Term Loan Facility") and no borrowings under our, a $300.0 million Revolving Credit Facility, with a $75.0 million sublimit for letters of credit. Thecredit, and a $430.0 million 2023 Term Loan Facility and the Revolving Credit Facility (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 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 and bears interest at a rate of London Inter-Bank Offered Rate ("LIBOR") plus 1.375% per annum, which will be reduced to a rate of LIBOR plus as low as 1.125% upon us reaching a consolidated net leverage ratio of less than 2.25x.2026. The Credit Facility contains customary benchmark replacement provisions pursuant to which, upon certain triggering events, the LIBOR benchmark used to calculate the LIBOR rate will be replaced withshall 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 adjusted,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 the terms and conditionsundrawn 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 amendedrange 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 restatedRestated Credit Agreement provides that Term SOFR is subject to a zero percent floor. We are also required to pay a fronting fee for each letter of credit agreement ("of 0.25% per annum. Interest under the Amended and Restated Credit Agreement").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 and secured by substantially all of our assets. As of September 30, 2022,2023, further advances were available under the Revolving Credit Facility in the amount of $271.8$272.3 million. The available amount is net of outstanding irrevocable letters of credit totaling $28.2$27.7 million, and as of September 30, 20222023 no amount had been drawn. 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 the terms
The Amended and conditions set forth in the Credit Agreement.
TheRestated Credit Agreement 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 September 30, 2023, we were in compliance with all financial covenants contained in the Amended and Restated Credit Agreement as follows (in millions):
| | | | | | | | | | | | | | |
Credit Facility Covenant | | Twelve Months Ended September 30, 2023 | | Covenant Requirements at September 30, 2023 |
Maximum consolidated net leverage ratio (1) | | 2.89 | | | 5.00 |
Minimum interest coverage ratio | | 9.15 | | | 3.00 |
(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 (calculated at $958.0 million as of September 30, 2023, or $1,058.0 million of consolidated funded debt less $100.0 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 September 30, 2023. Consolidated funded debt, net and 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 September 30, 2023 |
Net cash provided by operating activities | $ | 222.7 | |
Changes in assets and liabilities, net of effects of acquisitions and divestitures | 15.5 | |
| |
| |
| |
Stock based compensation | (9.3) | |
Loss from termination of bridge financing | (8.2) | |
Operating lease right-of-use assets expense | (5.6) | |
Disposition of assets, other items and charges, net | (1.3) | |
Interest expense, less amortization of debt issuance costs | 35.6 | |
Provision for income taxes, net of deferred income taxes | 4.1 | |
Adjustments as allowed by the Amended and Restated Credit Agreement | 78.3 | |
Consolidated EBITDA | $ | 331.8 | |
In addition to these financial covenants, the Amended and Restated Credit Agreement 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 September 30, 2022,2023, 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.
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
As of September 30, 2022,2023, we had outstanding $197.0$232.0 million aggregate principal amount of tax exempt bonds, including the issuance of $35.0 million aggregate principal amount of Vermont Bonds 2022A-1, $49.1bonds; $51.1 million aggregate principal amount of finance leasesleases; and $0.7$0.3 million aggregate principal amount of notes payable. See Note 7, Debt to our consolidated financial statements included in Part I. Item. 1 of this Quarterly Report on Form 10-Q for further disclosure overregarding debt.
Inflation
Inflationary 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 operating margins and cash flows. While rapid inflation negatively impacted operating results and margins during the three and nine months ended September 30, 2023 and 2022, we believe that our 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 most 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 our fuel cost recovery program, which isprograms, primarily the energy component of our E&E Fee, which is designed to recover escalating fuel price fluctuations above a periodically reset floor. Despite these 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.programs. 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 the volume of waste relating to C&D activities decreases substantially during the winter months in the northeastern United 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 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 processing line-of-business in the Resource Solutions operating segment typically experiences increased volumes of fiber infrom November and Decemberthrough mid-January due to increased retail activity during the holiday season.
Critical Accounting Estimates and Assumptions
Our financial statements have been prepared in accordance with generally accepted accounting principles in the United States and necessarily include certain estimates and 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 critical accounting estimates are more fully discussed in Item 7. "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, 2021.2022.
New Accounting Pronouncements
For a description of the new accounting standards that may affect us, see Note 2, Accounting Changes to our consolidated financial statements included under Part I. Item 1. of this Quarterly Report on Form 10-Q.
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. Because fuelFuel 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 isprograms, primarily the energy component of our energy and environmental fee ("E&E Fee"Fee(s)") that, which 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 lookbacklook-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 September 30, 2022,2023, 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 expanded our integrated solid waste services to the states of Delaware and Maryland ("GFL Acquisition"), and after considering physically settled fuel contracts, we believe a $0.50$0.40 cent per gallon change in the price of diesel fuel would change our direct fuel costs by approximately $4.8$5.1 million per year.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 September 30, 2022,2023 and considering the GFL Acquisition, we believe a $0.50$0.40 cent per gallon change in the price of diesel fuel would change the energy component of the E&E Fee by approximately $4.8$5.2 million per year.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 nine months ended September 30, 2023, our fuel costs were $13.6 million, or 3.9% of revenue, and $34.0 million, or 3.8% of revenue, respectively, as compared to $12.1 million, or 4.1% of revenue, and $35.6 million, or 4.4% of revenue, in the three and nine months ended September 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 floating 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 any leveraged derivatives. As of September 30, 2022,2023, we were not party to any commodity hedging agreements.
Should recycled material commodity prices change by $10 per ton, we estimate that our annual operating income margin would change by approximately $0.8$1.0 million annually, or $0.2$0.3 million quarterly. 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.
Interest Rate Risk
Our strategy to reduce exposure to interest rate risk involves entering into interest rate derivative agreements to hedge against adverse movements in interest rates 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 fair value is recorded in our stockholders’ equity as a component of accumulated other comprehensive income (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 and included in cash flows from operating activities.
AsA summary of September 30, 2022, our activethe changes to the notional amount of interest rate derivative agreements had total notional amounts of $190.0 million. According to the terms of the agreements, wefollows:
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2023 |
| Active | | Forward Starting | | Total |
Beginning balance | $ | 190.0 | | | $ | 20.0 | | | $ | 210.0 | |
Additions | 290.0 | | | — | | | 290.0 | |
Commencements | 20.0 | | | (20.0) | | | — | |
Maturities | (85.0) | | | — | | | (85.0) | |
Ending balance (1) | $ | 415.0 | | | $ | — | | | $ | 415.0 | |
(1)We receive interest based on the 1-month London Inter-Bank Offered Rate ("LIBOR") index, in some instancesterm secured overnight financing rate, restricted by a 0.0% floor, and pay interest at a weighted average rate of approximately 2.20% as of September 30, 2022. The3.41%. These agreements mature between May 2023February 2026 and June 2027. Additionally, as of September 30, 2022, we have a forward starting interest rate derivative agreement with a total notional amount of $20.0 million that matures in May 2028. We will receive interest based on the 1-month LIBOR index, restricted by a 0.0% floor, and will pay interest at a rate of 1.29%.
As of September 30, 2022,2023, we had $246.8$283.3 million of fixed rate debt in addition to the $190.0$415.0 million fixed through our interest rate derivative agreements. We hadagreements; and interest rate risk relating to approximately $160.0$359.6 million of long-term debt as of September 30, 2022.debt. The weighted average interest rate on the variable rate portion of long-term debt was approximately 4.2%7.0% at September 30, 2022.2023. Should the average interest rate on the variable rate portion of long-term debt change by 100 basis points, we estimate that our annual interest expense would change by up to approximately $1.6 million.$3.6 million annually, or $0.9 million quarterly.
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 September 30, 2022.2023. 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 Securities 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 September 30, 2022,2023, 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 September 30, 20222023 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
The 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 Securities 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 or financial condition. Pursuant to Item 103, we have determined such disclosure threshold to be $1,000,000. We have no matters to disclose in accordance with that requirement.
ITEM 1A. RISK FACTORS
Our business is subject to a number of risks, including those identified in Item 1A.1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, and the updated risk factor set forth below,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. We may disclose additional changes to our risk factors or disclose additional factors from time to time in our future filings with the Securities and Exchange Commission.
The waste industry is subject to extensive government regulations, including environmental laws
ITEM 5. OTHER INFORMATION
Director and regulations, and we incur substantial costs to comply with such laws and regulations. Failure to comply with environmental or other laws and regulations, as well as enforcement actions and litigation arising from an actual or perceived breach of such laws and regulations, could subject us to fines, penalties, and judgments, and impose limits on our ability to operate and expand.Officer Trading Arrangements
We are subject to potential liability and restrictions under environmental laws and regulations, including potential liability and restrictions arising from or relating to the transportation, handling, recycling, generation, treatment, storage and disposal of wastes, the presence, release, discharge or emission of pollutants, and the investigation, remediation and monitoring of impacts to soil, surface water, groundwater and other environmental media including natural resources, as a resultA portion of the actual or alleged presence, release, discharge or emission of hazardous substances, pollutants or contaminants on, at, under or migrating from our properties, or in connection with our operations. 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 and limit the emission of greenhouse gases to ameliorate the effect of climate change. 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 in violation of the terms and conditions of, or 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 and regulations also affect our ability to expand and, in the casecompensation of our solid waste operations, may dictate those geographic areas from which we must, or, from which we may not, accept solid waste. Those lawsdirectors and regulations may limitofficers (as defined in Rule 16a-1(f) under 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 moreSecurities Exchange Act 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 foregoing includes recent changes in solid waste laws of the State of Maine, which we do not anticipate will have a material effect on our business, results of operations, financial condition and/or liquidity, but which may negatively impact our operating results1934, as amended (“Exchange Act”)) is in the form of lower revenuesequity awards, including restricted stock units (“RSU(s)”) and performance stock units (“PSU(s)”), and, from time to time, directors and officers engage in open-market transactions with respect to the securities acquired pursuant to such equity awards or increased costs and/other securities of ours, including to satisfy tax withholding obligations when equity awards vest or liabilities.are exercised, and for diversification or other personal reasons.
We have historically grown through acquisitions, expect to make additional acquisitionsTransactions in the future,our securities by directors and we have tried and will continue to try to evaluate and limit environmental risks and liabilities presented by businessesofficers are required to be acquired priormade in accordance with our insider trading policy, which requires that the transactions be in accordance with applicable U.S. federal securities laws that prohibit trading while in possession of material nonpublic information. Rule 10b5-1 under the Exchange Act provides an affirmative defense that enables directors and officers to prearrange transactions in our securities in a manner that avoids concerns about initiating transactions while in possession of material nonpublic information.
The following table describes, for the acquisition. Itquarter ended September 30, 2023 covered by this Quarterly Report on Form 10-Q, each trading arrangement for the sale or purchase of our securities adopted or terminated by our directors and officers that is possibleeither (1) a contract, instruction or written plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) (a “Rule 10b5-1 trading arrangement”) or (2) a “non-Rule 10b5-1 trading arrangement” (as defined in Item 408(c) of Regulation S-K):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name (Title) | | Action Taken (Date of Action) | | Type of Trading Arrangement | | Nature of Trading Arrangement | | Duration of Trading Arrangement | | Aggregate Number of Securities |
John W. Casella (Chairman of the Board of Directors, Chief Executive Officer and Secretary) | | Adoption (08/22/2023) | | Durable Rule 10b5-1 trading arrangement for sell-to-cover transactions relating to certain equity awards that have or may be granted | | Sale | | Until final settlement of any covered RSU or PSU | | Indeterminable(1) |
Edmond "Ned" R. Coletta (President and Chief Financial Officer) | | Adoption (08/02/2023) | | Durable Rule 10b5-1 trading arrangement for sell-to-cover transactions relating to certain equity awards that have or may be granted | | Sale | | Until final settlement of any covered RSU or PSU | | Indeterminable(1) |
Shelley E. Sayward (Senior Vice President and General Counsel) | | Adoption (08/02/2023) | | Durable Rule 10b5-1 trading arrangement for sell-to-cover transactions relating to certain equity awards that have or may be granted | | Sale | | Until final settlement of any covered RSU or PSU | | Indeterminable(1) |
Sean M. Steves (Senior Vice President and Chief Operating Officer of Solid Waste Operations) | | Adoption (08/02/2023) | | Durable Rule 10b5-1 trading arrangement for sell-to-cover transactions relating to certain equity awards that have or may be granted | | Sale | | Until final settlement of any covered RSU or PSU | | Indeterminable(1) |
Kevin J. Drohan (Vice President and Chief Accounting Officer) | | Adoption (08/02/2023) | | Durable Rule 10b5-1 trading arrangement for sell-to-cover transactions relating to certain equity awards that have or may be granted | | Sale | | Until final settlement of any covered RSU or PSU | | Indeterminable(1) |
Paul J. Ligon (Senior Vice President Sustainable Growth) | | Adoption (08/02/2023) | | Durable Rule 10b5-1 trading arrangement for sell-to-cover transactions relating to certain equity awards that have or may be granted | | Sale | | Until final settlement of any covered RSU or PSU | | Indeterminable(1) |
Douglas R. Casella (Vice Chairman) | | Adoption (08/20/2023) | | Durable Rule 10b5-1 trading arrangement for sell-to-cover transactions relating to certain equity awards that have or may be granted | | Sale | | Until final settlement of any covered RSU or PSU | | Indeterminable(1) |
(1)The number of shares subject to covered RSUs or PSUs that some liabilities may provewill be sold to satisfy applicable tax withholding obligations upon vesting is unknown as the number will vary based on the extent to which vesting conditions are satisfied, the market price of our common stock at the time of settlement and the potential future grant of additional RSUs or PSUs subject to this arrangement. This trading arrangement, which applies to RSUs or PSUs whether vesting is based on the passage of time and/or the achievement of performance goals, provides for the automatic sale of shares that would otherwise be more difficultissuable on each settlement date of a covered RSU or costlyPSU in an amount sufficient to address than we anticipate. It is also possible that government officials responsible for enforcing environmental laws and regulations 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. Somesatisfy the applicable withholding obligation, with the proceeds of the legal sanctionssale delivered 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.satisfaction of the applicable withholding obligation.
In addition to the costs of complying with environmental laws and regulations, we incur costs in connection with environmental proceedings and litigation brought against us by government agencies and private parties. We are, and may be in the future, a defendant in lawsuits brought by parties alleging environmental damage, including natural resource damage, personal injury, and/or property damage or impairment, or seeking to impose civil penalties, injunctive relief or overturn or prevent the issuance of an operating permit or authorization, all of which may result in us incurring significant liabilities.
The conductNone of our businesses is also subject to various other laws and regulations administereddirectors or officers terminated a Rule 10b5-1 trading arrangement or adopted or terminated a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the quarterly period covered 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.this report.
In certain jurisdictions, we are subject to compliance with specific obligations under competition laws due to our competitive position in those jurisdictions. 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.
ITEM 6. EXHIBITS | | | | | | | | | | |
Exhibit No. | | Description |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| | | | |
| | | |
| | | | |
| | | |
| | | | |
| | | |
| | | | |
| | | |
| | | | |
| | | |
| | | | |
| | | |
| | | | |
| | | |
| | | | |
| | | |
| | | | |
| | | |
| | | | |
| | | |
| | | | |
| | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
10.1 | | | | |
| | | | |
10.2 + | | | | |
| | | | |
10.3 + | | | | |
| | | | |
31.1 + | | | | |
| | | | |
31.2 + | | | | |
| | | | |
32.1 ++ | | | | |
| | | | |
32.2 ++ | | | | |
| | | | |
| | | | |
| | | | |
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 | | Inline XBRL Taxonomy Calculation Linkbase Document.** | | |
| | | | |
101.LAB | | Inline XBRL Taxonomy Label Linkbase Document.** | | |
| | | | |
101.PRE | | Inline XBRL Taxonomy Presentation Linkbase Document.** | | |
| | | | |
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 September 30, 20222023 and December 31, 2021,2022, (ii) Consolidated Statements of Operations for the three and nine months ended September 30, 20222023 and 2021,2022, (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 20222023 and 2021,2022, (iv) Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 20222023 and 2021,2022, (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 20222023 and 2021,2022, 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: October 28, 2022November 2, 2023 | By: /s/ Kevin Drohan | |
| Kevin Drohan | |
| Vice President and Chief Accounting Officer | |
| (Principal Accounting Officer) | |
| | |
Date: October 28, 2022November 2, 2023 | By: /s/ Edmond R. Coletta | |
| Edmond R. Coletta | |
| President and Chief Financial Officer | |
| (Principal Financial Officer) | |