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 June 30, 2023March 31, 2024
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“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 JulyApril 15, 2023:2024: | | | | | | | | |
Class A common stock, $0.01 par value per share: | 56,974,04957,120,029 | | |
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) | | June 30, 2023 | | December 31, 2022 |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
| | (Unaudited) | | | | (Unaudited) | | |
ASSETS | ASSETS | ASSETS |
CURRENT ASSETS: | CURRENT ASSETS: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 465,715 | | | $ | 71,152 | |
Cash and cash equivalents | |
Cash and cash equivalents | |
| Accounts receivable, net of allowance for credit losses of $3,333 and $3,016, respectively | 117,682 | | | 100,886 | |
Accounts receivable, net of allowance for credit losses of $3,881 and $4,066, respectively | |
Accounts receivable, net of allowance for credit losses of $3,881 and $4,066, respectively | |
Accounts receivable, net of allowance for credit losses of $3,881 and $4,066, respectively | |
| Refundable income taxes | |
Refundable income taxes | |
Refundable income taxes | Refundable income taxes | 3,726 | | | — | |
Prepaid expenses | Prepaid expenses | 18,122 | | | 15,182 | |
Inventory | Inventory | 16,784 | | | 13,472 | |
| Other current assets | Other current assets | 7,358 | | | 6,787 | |
Other current assets | |
Other current assets | |
Total current assets | Total current assets | 629,387 | | | 207,479 | |
Property, plant and equipment, net of accumulated depreciation and amortization of $1,117,946 and $1,064,756, respectively | 818,242 | | | 720,550 | |
Property and equipment, net of accumulated depreciation and amortization of $1,196,561 and $1,167,541, respectively | |
Operating lease right-of-use assets | Operating lease right-of-use assets | 104,920 | | | 92,063 | |
Goodwill | Goodwill | 619,683 | | | 274,458 | |
Intangible assets, net | Intangible assets, net | 187,148 | | | 91,783 | |
| Restricted assets | Restricted assets | 2,005 | | | 1,900 | |
Restricted assets | |
Restricted assets | |
Cost method investments | Cost method investments | 10,967 | | | 10,967 | |
Deferred income taxes | Deferred income taxes | 16,408 | | | 22,903 | |
Other non-current assets | Other non-current assets | 28,532 | | | 27,112 | |
Total assets | Total assets | $ | 2,417,292 | | | $ | 1,449,215 | |
The accompanying notes are an integral part of these consolidated financial statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(in thousands, except for share and per share data) | | June 30, 2023 | | December 31, 2022 |
| (Unaudited) | | |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
| (Unaudited) | | | (Unaudited) | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | LIABILITIES AND STOCKHOLDERS' EQUITY | LIABILITIES AND STOCKHOLDERS' EQUITY |
CURRENT LIABILITIES: | CURRENT LIABILITIES: | |
Current maturities of debt | |
Current maturities of debt | |
Current maturities of debt | Current maturities of debt | $ | 32,747 | | | $ | 8,968 | |
Current operating lease liabilities | Current operating lease liabilities | 8,510 | | | 7,000 | |
Accounts payable | Accounts payable | 87,602 | | | 74,203 | |
Accrued payroll and related expenses | Accrued payroll and related expenses | 14,847 | | | 23,556 | |
Accrued interest | Accrued interest | 3,116 | | | 2,858 | |
Contract liabilities | Contract liabilities | 16,260 | | | 3,742 | |
Current accrued final capping, closure and post-closure costs | Current accrued final capping, closure and post-closure costs | 10,767 | | | 11,036 | |
Other accrued liabilities | Other accrued liabilities | 45,333 | | | 46,237 | |
Total current liabilities | Total current liabilities | 219,182 | | | 177,600 | |
Debt, less current portion | Debt, less current portion | 983,344 | | | 585,015 | |
Operating lease liabilities, less current portion | Operating lease liabilities, less current portion | 71,039 | | | 57,345 | |
Accrued final capping, closure and post-closure costs, less current portion | Accrued final capping, closure and post-closure costs, less current portion | 107,949 | | | 102,642 | |
Deferred income taxes | Deferred income taxes | 479 | | | 437 | |
Other long-term liabilities | Other long-term liabilities | 26,916 | | | 28,276 | |
COMMITMENTS AND CONTINGENCIES | COMMITMENTS AND CONTINGENCIES | | COMMITMENTS AND CONTINGENCIES | | | |
STOCKHOLDERS' EQUITY: | STOCKHOLDERS' EQUITY: | |
| Class A common stock, $0.01 par value per share; 100,000,000 shares authorized; 56,974,000 and 50,704,000 shares issued and outstanding, respectively | 570 | | | 507 | |
Class A common stock, $0.01 par value per share; 100,000,000 shares authorized; 57,120,000 and 57,007,000 shares issued and outstanding, respectively | |
| Class A common stock, $0.01 par value per share; 100,000,000 shares authorized; 57,120,000 and 57,007,000 shares issued and outstanding, respectively | |
| Class A common stock, $0.01 par value per share; 100,000,000 shares authorized; 57,120,000 and 57,007,000 shares issued and outstanding, respectively | |
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 | |
Additional paid-in capital | Additional paid-in capital | 1,163,077 | | | 661,761 | |
Accumulated deficit | Accumulated deficit | (162,882) | | | (171,920) | |
Accumulated other comprehensive income, net of tax | 7,608 | | | 7,542 | |
Accumulated other comprehensive income (loss), net of tax | |
| Total stockholders' equity | Total stockholders' equity | 1,008,383 | | | 497,900 | |
| Total stockholders' equity | |
| Total stockholders' equity | |
Total liabilities and stockholders' equity | Total liabilities and stockholders' equity | $ | 2,417,292 | | | $ | 1,449,215 | |
The accompanying notes are an integral part of these consolidated financial statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share data) | | |
| |
| |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Revenues | Revenues | $ | 289,645 | | | $ | 283,666 | | | $ | 552,241 | | | $ | 517,693 | |
Revenues | |
Revenues | |
Operating expenses: | |
Operating expenses: | |
Operating expenses: | Operating expenses: | |
Cost of operations | Cost of operations | 186,319 | | | 186,038 | | | 366,563 | | | 348,493 | |
Cost of operations | |
Cost of operations | |
General and administration | |
General and administration | |
General and administration | General and administration | 35,865 | | | 33,562 | | | 71,544 | | | 63,354 | |
Depreciation and amortization | Depreciation and amortization | 34,924 | | | 31,150 | | | 68,359 | | | 60,579 | |
Depreciation and amortization | |
Depreciation and amortization | |
Expense from acquisition activities | |
Expense from acquisition activities | |
Expense from acquisition activities | |
| Legal settlement | 6,150 | | | — | | | 6,150 | | | — | |
Expense from acquisition activities | 3,677 | | | 1,019 | | | 6,540 | | | 3,062 | |
Southbridge Landfill closure charge | |
| Southbridge Landfill closure charge | |
| Southbridge Landfill closure charge | Southbridge Landfill closure charge | 96 | | | 178 | | | 206 | | | 318 | |
| | | 267,031 | | | 251,947 | | | 519,362 | | | 475,806 | |
| 334,173 | |
| | 334,173 | |
| | 334,173 | |
Operating income | |
Operating income | |
Operating income | Operating income | 22,614 | | | 31,719 | | | 32,879 | | | 41,887 | |
Other expense (income): | Other expense (income): | | | | | | | |
Other expense (income): | |
Other expense (income): | |
Interest income | |
Interest income | |
Interest income | Interest income | (1,611) | | | (42) | | | (2,295) | | | (81) | |
Interest expense | Interest expense | 9,001 | | | 5,698 | | | 15,959 | | | 10,902 | |
Loss from termination of bridge financing | 8,198 | | | — | | | 8,198 | | | — | |
Interest expense | |
Interest expense | |
| Other income | |
| Other income | |
| | Other income | Other income | (452) | | | (312) | | | (800) | | | (457) | |
Other expense, net | Other expense, net | 15,136 | | | 5,344 | | | 21,062 | | | 10,364 | |
Income before income taxes | 7,478 | | | 26,375 | | | 11,817 | | | 31,523 | |
Provision for income taxes | 1,988 | | | 8,579 | | | 2,779 | | | 9,537 | |
Net income | $ | 5,490 | | | $ | 17,796 | | | $ | 9,038 | | | $ | 21,986 | |
Other expense, net | |
Other expense, net | |
(Loss) income before income taxes | |
(Loss) income before income taxes | |
(Loss) income before income taxes | |
(Benefit) provision for income taxes | |
(Benefit) provision for income taxes | |
(Benefit) provision for income taxes | |
Net (loss) income | |
Net (loss) income | |
Net (loss) income | |
| Basic earnings per share attributable to common stockholders: | | | | | | | |
Basic earnings (loss) per share attributable to common stockholders: | |
| Basic earnings (loss) per share attributable to common stockholders: | |
| Basic earnings (loss) per share attributable to common stockholders: | |
Weighted average common shares outstanding | Weighted average common shares outstanding | 52,885 | | | 51,642 | | | 52,331 | | | 51,567 | |
Basic earnings per common share | $ | 0.10 | | | $ | 0.34 | | | $ | 0.17 | | | $ | 0.43 | |
Diluted earnings per share attributable to common stockholders: | | | | | | | |
Weighted average common shares outstanding | Weighted average common shares outstanding | 52,980 | | | 51,781 | | | 52,427 | | | 51,720 | |
Diluted earnings per common share | $ | 0.10 | | | $ | 0.34 | | | $ | 0.17 | | | $ | 0.43 | |
Weighted average common shares outstanding | |
Basic (loss) earnings per common share | |
Basic (loss) earnings per common share | |
Basic (loss) earnings per common share | |
Diluted earnings (loss) per share attributable to common stockholders: | |
Diluted earnings (loss) per share attributable to common stockholders: | |
Diluted earnings (loss) per share attributable to common stockholders: | |
Weighted average common shares outstanding | |
Weighted average common shares outstanding | |
Weighted average common shares outstanding | |
Diluted (loss) earnings per common share | |
Diluted (loss) earnings per common share | |
Diluted (loss) earnings per common share | |
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 June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net income | $ | 5,490 | | | $ | 17,796 | | | $ | 9,038 | | | $ | 21,986 | |
Other comprehensive income, before tax: | | | | | | | |
Hedging activity: | | | | | | | |
Interest rate swap settlements | 1,290 | | | (932) | | | 2,345 | | | (2,095) | |
Interest rate swap amounts reclassified into interest expense | (1,270) | | | 994 | | | (2,376) | | | 2,122 | |
Unrealized gain resulting from changes in fair value of derivative instruments | 2,508 | | | 3,488 | | | 117 | | | 11,869 | |
| | | | | | | |
Other comprehensive income, before tax | 2,528 | | | 3,550 | | | 86 | | | 11,896 | |
Income tax provision related to items of other comprehensive income | 693 | | | 570 | | | 20 | | | 2,773 | |
Other comprehensive income, net of tax | 1,835 | | | 2,980 | | | 66 | | | 9,123 | |
Comprehensive income | $ | 7,325 | | | $ | 20,776 | | | $ | 9,104 | | | $ | 31,109 | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Net (loss) income | $ | (4,117) | | | $ | 3,548 | | | | | |
Other comprehensive income (loss), before tax: | | | | | | | |
Hedging activity: | | | | | | | |
Interest rate swap settlements | 2,315 | | | 1,055 | | | | | |
Interest rate swap income reclassified into interest expense | (2,330) | | | (1,106) | | | | | |
Unrealized gain (loss) resulting from changes in fair value of derivative instruments | 8,438 | | | (2,391) | | | | | |
| | | | | | | |
Other comprehensive income (loss), before tax | 8,423 | | | (2,442) | | | | | |
Income tax provision (benefit) related to items of other comprehensive income (loss) | 2,308 | | | (673) | | | | | |
Other comprehensive income (loss), net of tax | 6,115 | | | (1,769) | | | | | |
Comprehensive income | $ | 1,998 | | | $ | 1,779 | | | | | |
| | | | | | | |
| | | | | | | |
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 | |
| | Class A Common Stock | | Class B Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Income | |
| | Total | | Shares | | Amount | | Shares | | Amount | | |
Balance, December 31, 2022 | $ | 497,900 | | | 50,704 | | | $ | 507 | | | 988 | | | $ | 10 | | | $ | 661,761 | | | $ | (171,920) | | | $ | 7,542 | | |
| | | Class A Common Stock | |
| | | Class A Common Stock | |
| | | Class A Common Stock | |
| Total | |
| Total | |
| Total | |
Balance, December 31, 2023 | |
Balance, December 31, 2023 | |
Balance, December 31, 2023 | |
| Issuances of Class A common stock | |
| Issuances of Class A common stock | |
| Issuances of Class A common stock | Issuances of Class A common stock | — | | | 194 | | | 2 | | | — | | | — | | | (2) | | | — | | | — | | |
Stock-based compensation | Stock-based compensation | 1,976 | | | — | | | — | | | — | | | — | | | 1,976 | | | — | | | — | | |
| Comprehensive income: | | |
Net income | 3,548 | | | — | | | — | | | — | | | — | | | — | | | 3,548 | | | — | | |
Other comprehensive loss: | | |
Hedging activity | (1,769) | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,769) | | |
Balance, March 31, 2023 | 501,655 | | | 50,898 | | | 509 | | | 988 | | | 10 | | | 663,735 | | | (168,372) | | | 5,773 | | |
| Issuance of Class A common stock - equity offering, net of stock issuance costs | 496,238 | | | 6,053 | | | 61 | | | — | | | — | | | 496,177 | | | — | | | — | | |
| Issuances of Class A common stock | 799 | | | 23 | | | — | | | — | | | — | | | 799 | | | — | | | — | | |
Stock-based compensation | |
Stock-based compensation | Stock-based compensation | 2,366 | | | — | | | — | | | — | | | — | | | 2,366 | | | — | | | — | | |
| Comprehensive income: | Comprehensive income: | | |
Net income | 5,490 | | | — | | | — | | | — | | | — | | | — | | | 5,490 | | | — | | |
| Comprehensive income: | |
| Comprehensive income: | |
Net loss | |
Net loss | |
Net loss | |
Other comprehensive income: | |
Other comprehensive income: | |
Other comprehensive income: | Other comprehensive income: | | |
Hedging activity | Hedging activity | 1,835 | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,835 | | |
Hedging activity | |
Hedging activity | |
Balance, March 31, 2024 | |
Balance, March 31, 2024 | |
Balance, March 31, 2024 | |
| Balance, June 30, 2023 | $ | 1,008,383 | | | 56,974 | | | $ | 570 | | | 988 | | | $ | 10 | | | $ | 1,163,077 | | | $ | (162,882) | | | $ | 7,608 | | |
|
| | | | Casella Waste Systems, Inc. Stockholders' Equity | |
| | | Casella Waste Systems, Inc. Stockholders' Equity | |
| | | Casella Waste Systems, Inc. Stockholders' Equity | |
| | | Class A Common Stock | |
| | | Class A Common Stock | |
| | | Class A Common Stock | |
| Total | |
| Total | |
| Total | |
Balance, December 31, 2022 | |
Balance, December 31, 2022 | |
Balance, December 31, 2022 | |
| | | 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) | |
Issuances of Class A common stock | |
| | Total | | Shares | | Amount | | Shares | | Amount | | Additional Paid-In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Income (Loss) | |
Balance, December 31, 2021 | $ | 422,457 | | | 50,423 | | | $ | 504 | | | 988 | | | $ | 10 | | | |
| Issuances of Class A common stock | |
| Issuances of Class A common stock | Issuances of Class A common stock | 19 | | | 227 | | | 2 | | | — | | | — | | | 17 | | | — | | | — | | |
Stock-based compensation | Stock-based compensation | 2,241 | | | — | | | — | | | — | | | — | | | 2,241 | | | — | | | — | | |
Stock-based compensation | |
Stock-based compensation | |
| Comprehensive income: | |
| Comprehensive income: | |
| Comprehensive income: | Comprehensive income: | | |
Net income | Net income | 4,190 | | | — | | | — | | | — | | | — | | | — | | | 4,190 | | | — | | |
Other comprehensive income: | | |
Net income | |
Net income | |
Other comprehensive loss: | |
Other comprehensive loss: | |
Other comprehensive loss: | |
Hedging activity | Hedging activity | 6,143 | | | — | | | — | | | — | | | — | | | — | | | — | | | 6,143 | | |
Balance, March 31, 2022 | 435,050 | | | 50,650 | | | 506 | | | 988 | | | 10 | | | 654,303 | | | (220,809) | | | 1,040 | | |
| Issuances of Class A common stock | 803 | | | 40 | | | 1 | | | — | | | — | | | 802 | | | — | | | — | | |
Stock-based compensation | 937 | | | — | | | — | | | — | | | — | | | 937 | | | — | | | — | | |
| Comprehensive income: | | |
Net income | 17,796 | | | — | | | — | | | — | | | — | | | — | | | 17,796 | | | — | | |
Other comprehensive income: | | |
Hedging activity | Hedging activity | 2,980 | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,980 | | |
Balance, June 30, 2022 | $ | 457,566 | | | 50,690 | | | $ | 507 | | | 988 | | | $ | 10 | | | $ | 656,042 | | | $ | (203,013) | | | $ | 4,020 | | |
Hedging activity | |
Balance, March 31, 2023 | |
Balance, March 31, 2023 | |
Balance, March 31, 2023 | |
| | |
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) | | |
| |
| |
| | | Six Months Ended June 30, | |
| | 2023 | | 2022 | |
Cash Flows from Operating Activities: | Cash Flows from Operating Activities: | | | | |
Net income | $ | 9,038 | | | $ | 21,986 | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | |
Cash Flows from Operating Activities: | |
Cash Flows from Operating Activities: | |
Net (loss) income | |
Net (loss) income | |
Net (loss) income | |
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |
Depreciation and amortization | |
Depreciation and amortization | |
Depreciation and amortization | Depreciation and amortization | 68,359 | | | 60,579 | | |
| Interest accretion on landfill and environmental remediation liabilities | Interest accretion on landfill and environmental remediation liabilities | 5,001 | | | 4,015 | | |
| Interest accretion on landfill and environmental remediation liabilities | |
| Interest accretion on landfill and environmental remediation liabilities | |
Amortization of debt issuance costs | |
Amortization of debt issuance costs | |
Amortization of debt issuance costs | Amortization of debt issuance costs | 1,505 | | | 924 | | |
Stock-based compensation | Stock-based compensation | 4,341 | | | 3,178 | | |
Stock-based compensation | |
Stock-based compensation | |
Operating lease right-of-use assets expense | Operating lease right-of-use assets expense | 6,872 | | | 6,824 | | |
Operating lease right-of-use assets expense | |
Operating lease right-of-use assets expense | |
| Disposition of assets, other items and charges, net | |
| Disposition of assets, other items and charges, net | |
| Disposition of assets, other items and charges, net | Disposition of assets, other items and charges, net | (300) | | | 376 | | |
| Loss from termination of bridge financing | 8,198 | | | — | | |
| Deferred income taxes | |
| Deferred income taxes | |
| | Deferred income taxes | Deferred income taxes | 1,952 | | | 7,156 | | |
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: | |
Changes in assets and liabilities, net of effects of acquisitions and divestitures: | |
Accounts receivable | Accounts receivable | (3,958) | | | (14,667) | | |
Landfill operating lease contract expenditures | (1,318) | | | (1,308) | | |
Accounts receivable | |
Accounts receivable | |
| Accounts payable | |
| Accounts payable | |
| Accounts payable | Accounts payable | 8,898 | | | 10,142 | | |
Prepaid expenses, inventories and other assets | Prepaid expenses, inventories and other assets | (5,845) | | | (6,099) | | |
Prepaid expenses, inventories and other assets | |
Prepaid expenses, inventories and other assets | |
Accrued expenses, contract liabilities and other liabilities | |
Accrued expenses, contract liabilities and other liabilities | |
Accrued expenses, contract liabilities and other liabilities | Accrued expenses, contract liabilities and other liabilities | (19,547) | | | (855) | | |
Net cash provided by operating activities | Net cash provided by operating activities | 83,196 | | | 92,251 | | |
Net cash provided by operating activities | |
Net cash provided by operating activities | |
Cash Flows from Investing Activities: | |
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 | (547,587) | | | (56,250) | | |
Acquisitions, net of cash acquired | |
Acquisitions, net of cash acquired | |
| Additions to property, plant and equipment | (50,415) | | | (54,868) | | |
Additions to property and equipment | |
| Additions to property and equipment | |
| Additions to property and equipment | |
| Proceeds from sale of property and equipment | |
| Proceeds from sale of property and equipment | |
| Proceeds from sale of property and equipment | Proceeds from sale of property and equipment | 776 | | | 507 | | |
| Net cash used in investing activities | Net cash used in investing activities | (597,226) | | | (110,611) | | |
| Net cash used in investing activities | |
| Net cash used in investing activities | |
Cash Flows from Financing Activities: | |
Cash Flows from Financing Activities: | |
Cash Flows from Financing Activities: | Cash Flows from Financing Activities: | | | | |
Proceeds from debt borrowings | Proceeds from debt borrowings | 430,000 | | | 82,200 | | |
Proceeds from debt borrowings | |
Proceeds from debt borrowings | |
Principal payments on debt | |
Principal payments on debt | |
Principal payments on debt | Principal payments on debt | (10,625) | | | (55,297) | | |
Payments of debt issuance costs | Payments of debt issuance costs | (7,185) | | | (1,229) | | |
Payments of contingent consideration | — | | | (1,000) | | |
Proceeds from the exercise of share based awards | — | | | 192 | | |
Proceeds from the public offering of Class A common stock | 496,403 | | | — | | |
Payments of debt issuance costs | |
Payments of debt issuance costs | |
| Net cash provided by financing activities | 908,593 | | | 24,866 | | |
Net increase in cash and cash equivalents | 394,563 | | | 6,506 | | |
| Net cash used in financing activities | |
| Net cash used in financing activities | |
| Net cash used in financing activities | |
Net decrease in cash and cash equivalents | |
Net decrease in cash and cash equivalents | |
Net decrease in cash and cash equivalents | |
Cash and cash equivalents, beginning of period | |
Cash and cash equivalents, beginning of period | |
Cash and cash equivalents, beginning of period | Cash and cash equivalents, beginning of period | 71,152 | | | 33,809 | | |
Cash and cash equivalents, end of period | Cash and cash equivalents, end of period | $ | 465,715 | | | $ | 40,315 | | |
Cash and cash equivalents, end of period | |
Cash and cash equivalents, end of period | |
Supplemental Disclosure of Cash Flow Information: | 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 paid during the period for: | |
Cash interest payments | |
Cash interest payments | |
Cash interest payments | Cash interest payments | $ | 14,196 | | | $ | 9,648 | | |
Cash income tax payments | Cash income tax payments | $ | 7,913 | | | $ | 2,092 | | |
| Non-current assets obtained through long-term financing obligations | $ | 4,715 | | | $ | 4,190 | | |
Cash income tax payments | |
Cash income tax payments | |
Supplemental Disclosure of Non-Cash Investing and Financing Activities: | |
Supplemental Disclosure of Non-Cash Investing and Financing Activities: | |
Supplemental Disclosure of Non-Cash Investing and Financing Activities: | |
Right-of-use assets obtained in exchange for financing lease obligations | |
Right-of-use assets obtained in exchange for financing lease obligations | |
Right-of-use assets obtained in exchange for financing lease obligations | |
Right-of-use assets obtained in exchange for operating lease obligations | Right-of-use assets obtained in exchange for operating lease obligations | $ | 17,756 | | | $ | 5,194 | | |
Right-of-use assets obtained in exchange for operating lease obligations | |
Right-of-use assets obtained in exchange for operating lease obligations | |
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.
Through June 30, 2023, we providedWe 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 a newly formed regional operating segment, the Mid-Atlantic region, that will expand our integrated solid waste services into the states of Delaware and Maryland ("GFL Acquisition"). See Note 4, Business Combinations for further disclosure. Operations under the Mid-Atlantic region did not commence until July 1, 2023, and have had no impact on our operational results for the periods presented in this Quarterly Report on Form 10-Q. 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 regional operating segments, the Eastern, Western and Mid-Atlantic regions, each of which provides a fullcomprehensive range of non-hazardous solid waste services.Weservices. We manage our resource-renewalresource 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, 2022 ("2023 (“fiscal year 2022"2023”), which was filed with the SEC on February 17, 16, 2024 (“2023 ("2022 Form 10-K"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 presentationstatement of the financial position, results of operations and cash flows for the periods presented. The results for the three and six months ended June 30, 2023March 31, 2024 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 20222023 Form 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 June 30, 2023March 31, 2024 through the date of filing of the consolidated financial statements with the SEC on this Quarterly Report on Form 10-Q. Except as disclosed,10-Q and determined that there have been no material subsequent events that have occurred since June 30, 2023 through the date of this filing that would require recognition or disclosureadjustments to our disclosures in our consolidated financial statements.
2. ACCOUNTING CHANGES
The following table provides a brief description of a recent Accounting Standards Update ("ASU(s)"Updates (“ASU”) to the Accounting Standards Codification ("ASC"(“ASC”) issued by the Financial Accounting Standards Board (“FASB”) that we adopted and is deemed to have a possible material impact on our consolidated financial statements based on current account balances and activity: | | | | | | | | | | | | | | |
| | | | |
Standard | | Description | | Effect on the Financial Statements or Other Significant Matters |
Accounting standards adopted effective January 1, 2023issued pending adoption |
ASU No. 2020-04: Reference Rate Reform2023-07: Improvements to Reportable Segment Disclosures (Topic 848), as amended through December 2022280) | | Requires entities to provide additional disclosure related to the chief operating decision maker (“CODM”) and reportable operating segments, including providing more detailed information about reportable operating segment's significant expenses and how that information is used by the CODM. | | Provides temporary optionalWe do not expect the adoption of this guidance to easehave a material impact on our consolidated financial statements, however, the potential burden in applying GAAPadoption of this guidance will have an impact on reportable operating segment disclosures within the accompanying notes 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. | | our consolidated financial statements. This guidance provides optional expedientsdoes not change how we identify our operating segments, aggregate them or apply quantitative thresholds to determine our reportable segments. This guidance is effective for fiscal years beginning after December 15, 2023, and exceptions for applying GAAPinterim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. |
ASU No. 2023-09: Improvements to contracts, hedging relationshipsIncome Tax Disclosures (Topic 740) | | Requires entities to provide additional disclosure related to the transparency and other transactions affected by referencedecision usefulness of income tax disclosures, including additional disclosure around the rate reform if certain criteria are met. Effectivereconciliation and income taxes paid. | | We do not expect the quarter ended March 31, 2023, we elected optional expedients underadoption of this guidance that allowed us to maintain hedge effectiveness upon modifying contract terms relatedhave a material impact on our consolidated financial statements, however, the adoption of this guidance will have an impact on income tax disclosures within the accompanying notes to reference rate reform in our amended and restated credit agreement, dated as of December 22, 2021, as amended by the first amendment, dated as of February 9, 2023, the second amendment, dated as of February 9, 2023, and the third amendment, dated as of April 25, 2023, collectively with the specified acquisition loan joinder ("Loan Joinder") (the "Amended and Restated Credit Agreement") until we transitioned our interest rate derivative agreements from LIBOR to term secured overnight financing rate ("Term SOFR") in the three months ended June 30, 2023, See Note 7, Debt.consolidated financial statements. This guidance will be in effect throughis effective for fiscal years beginning after December 31, 2024.15, 2024, with early adoption permitted. |
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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-renewalresource renewal operations are derived from processing services and non-processing services, which we now refer to as our National Accounts business.
The following tables set forth revenues disaggregated by service line and timing of revenue recognition by operating segment for each of the three and six months ended June 30, 2023March 31, 2024 and 2022:
Three Months Ended June 30, 2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Eastern | | Western | | Mid-Atlantic (1) | | Resource Solutions | | Total Revenues |
Collection | $ | 64,749 | | | $ | 85,099 | | | $ | — | | | $ | — | | | $ | 149,848 | |
Landfill | 7,220 | | | 18,921 | | | — | | | — | | | 26,141 | |
Transfer station | 17,698 | | | 14,728 | | | — | | | — | | | 32,426 | |
Transportation | 1,208 | | | 3,854 | | | — | | | — | | | 5,062 | |
Landfill gas-to-energy | 173 | | | 1,148 | | | — | | | — | | | 1,321 | |
Processing | 2,275 | | | 479 | | | — | | | 25,383 | | | 28,137 | |
National Accounts | — | | | — | | | — | | | 46,710 | | | 46,710 | |
Total revenues | $ | 93,323 | | | $ | 124,229 | | | $ | — | | | $ | 72,093 | | | $ | 289,645 | |
| | | | | | | | | |
Transferred at a point-in-time | $ | 99 | | | $ | 690 | | | $ | — | | | $ | 8,135 | | | $ | 8,924 | |
Transferred over time | 93,224 | | | 123,539 | | | — | | | 63,958 | | | 280,721 | |
Total revenues | $ | 93,323 | | | $ | 124,229 | | | $ | — | | | $ | 72,093 | | | $ | 289,645 | |
2023:
Three Months Ended June 30, 2022March 31, 2024 | | Eastern | | Western | | Mid-Atlantic (1) | | Resource Solutions | | Total Revenues |
| Eastern | | | Eastern | | Western | | Mid-Atlantic | | Resource Solutions | | Total Revenues |
Collection | Collection | $ | 59,299 | | | $ | 77,962 | | | $ | — | | | $ | — | | | $ | 137,261 | |
Landfill | Landfill | 6,542 | | | 18,599 | | | — | | | — | | | 25,141 | |
Transfer station | Transfer station | 17,292 | | | 11,982 | | | — | | | — | | | 29,274 | |
Transportation | Transportation | 1,765 | | | 4,024 | | | — | | | — | | | 5,789 | |
Landfill gas-to-energy | Landfill gas-to-energy | 249 | | | 1,504 | | | — | | | — | | | 1,753 | |
Processing | Processing | 2,116 | | | 813 | | | — | | | 33,867 | | | 36,796 | |
National Accounts | National Accounts | — | | | — | | | — | | | 47,652 | | | 47,652 | |
Total revenues | Total revenues | $ | 87,263 | | | $ | 114,884 | | | $ | — | | | $ | 81,519 | | | $ | 283,666 | |
| Transferred at a point-in-time | Transferred at a point-in-time | $ | 117 | | | $ | 517 | | | $ | — | | | $ | 18,813 | | | $ | 19,447 | |
Transferred at a point-in-time | |
Transferred at a point-in-time | |
Transferred over time | Transferred over time | 87,146 | | | 114,367 | | | — | | | 62,706 | | | 264,219 | |
Total revenues | Total revenues | $ | 87,263 | | | $ | 114,884 | | | $ | — | | | $ | 81,519 | | | $ | 283,666 | |
Six
Three Months Ended June 30,March 31, 2023
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Eastern | | Western | | Mid-Atlantic (1) | | Resource Solutions | | Total Revenues |
Collection | $ | 125,858 | | | $ | 163,967 | | | $ | — | | | $ | — | | | $ | 289,825 | |
Landfill | 13,521 | | | 35,380 | | | — | | | — | | | 48,901 | |
Transfer | 31,680 | | | 24,691 | | | — | | | — | | | 56,371 | |
Transportation | 2,390 | | | 7,434 | | | — | | | — | | | 9,824 | |
Landfill gas-to-energy | 386 | | | 2,859 | | | — | | | — | | | 3,245 | |
Processing | 3,398 | | | 931 | | | — | | | 48,189 | | | 52,518 | |
National Accounts | — | | | — | | | — | | | 91,557 | | | 91,557 | |
Total revenues | $ | 177,233 | | | $ | 235,262 | | | $ | — | | | $ | 139,746 | | | $ | 552,241 | |
| | | | | | | | | |
Transferred at a point-in-time | $ | 218 | | | $ | 1,421 | | | $ | — | | | $ | 14,572 | | | $ | 16,211 | |
Transferred over time | 177,015 | | | 233,841 | | | — | | | 125,174 | | | 536,030 | |
Total revenues | $ | 177,233 | | | $ | 235,262 | | | $ | — | | | $ | 139,746 | | | $ | 552,241 | |
Six Months Ended June 30, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Eastern | | Western | | Mid-Atlantic (1) | | Resource Solutions | | Total Revenues |
Collection | $ | 110,796 | | | $ | 145,997 | | | $ | — | | | $ | — | | | $ | 256,793 | |
Landfill | 11,918 | | | 32,788 | | | — | | | — | | | 44,706 | |
Transfer | 28,905 | | | 19,825 | | | — | | | — | | | 48,730 | |
Transportation | 3,238 | | | 6,682 | | | — | | | — | | | 9,920 | |
Landfill gas-to-energy | 522 | | | 3,885 | | | — | | | — | | | 4,407 | |
Processing | 3,203 | | | 1,546 | | | — | | | 61,263 | | | 66,012 | |
National Accounts | — | | | — | | | — | | | 87,125 | | | 87,125 | |
Total revenues | $ | 158,582 | | | $ | 210,723 | | | $ | — | | | $ | 148,388 | | | $ | 517,693 | |
| | | | | | | | | |
Transferred at a point-in-time | $ | 236 | | | $ | 1,028 | | | $ | — | | | $ | 33,900 | | | $ | 35,164 | |
Transferred over time | 158,346 | | | 209,695 | | | — | | | 114,488 | | | 482,529 | |
Total revenues | $ | 158,582 | | | $ | 210,723 | | | $ | — | | | $ | 148,388 | | | $ | 517,693 | |
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| Eastern | | Western | | Mid-Atlantic (1) | | Resource Solutions | | Total Revenues |
Collection | $ | 61,108 | | | $ | 78,869 | | | $ | — | | | $ | — | | | $ | 139,977 | |
Landfill | 6,301 | | | 16,460 | | | — | | | — | | | 22,761 | |
Transfer station | 13,981 | | | 9,961 | | | — | | | — | | | 23,942 | |
Transportation | 1,183 | | | 3,580 | | | — | | | — | | | 4,763 | |
Landfill gas-to-energy | 213 | | | 1,711 | | | — | | | — | | | 1,924 | |
Processing | 1,123 | | | 453 | | | — | | | 22,806 | | | 24,382 | |
National Accounts | — | | | — | | | — | | | 44,846 | | | 44,846 | |
Total revenues | $ | 83,909 | | | $ | 111,034 | | | $ | — | | | $ | 67,652 | | | $ | 262,595 | |
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Transferred at a point-in-time | $ | 119 | | | $ | 731 | | | $ | — | | | $ | 6,438 | | | $ | 7,288 | |
Transferred over time | 83,790 | | | 110,303 | | | — | | | 61,214 | | | 255,307 | |
Total revenues | $ | 83,909 | | | $ | 111,034 | | | $ | — | | | $ | 67,652 | | | $ | 262,595 | |
(1)Operations under the Mid-Atlantic region did not commence untilcommenced July 1, 2023, and have had no impact on our operational results for the periods presented in this Quarterly Report on Form 10-Q.2023.
Payments to customers that are not in exchange for a distinct good or service are recorded as a reduction of revenues. Rebates to certain customers associated with payments for recycled or organic materials that are received and subsequently processed and sold to other third-parties amounted to $6,329 and $12,958$7,115 in the three and six months ended June 30, 2023, respectively,March 31, 2024 and $5,908 and $9,702$6,629 in the three and six months ended June 30, 2022, respectively.March 31, 2023. Rebates are generally recorded as a reduction of revenues upon the sale of such materials, or upon receipt of the recycled materials at our facilities. We did not record revenues in the three and six months ended June 30,March 31, 2024 or March 31, 2023 or June 30, 2022 from performance obligations satisfied in previous periods.
Contract receivables, which are included in accounts receivable, net in our consolidated balance sheets are recorded when billed or when related revenue is earned, if earlier, and represent claims against third-parties that will be settled in cash. Accounts receivable, net includes gross receivables from contracts of $119,971$147,635 and $102,234$158,931 as of June 30, 2023March 31, 2024 and December 31, 2022,2023, respectively. Certain customers are billed in advance and, accordingly, recognition of the related revenues for which payment has been received is deferred as a contract liability until the services are provided and control transferred to the customer. We recognized contract liabilities of $16,260$29,715 and $3,742$31,472 as of June 30, 2023March 31, 2024 and December 31, 2022,2023, 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, 20222023 and December 31, 20212022 was recognized as revenue during the sixthree months ended June 30,March 31, 2024 and March 31, 2023, and June 30, 2022, respectively, when the services were performed.
4. BUSINESS COMBINATIONS
In June 2023, we entered into an asset purchase agreement with Consolidated Waste Services, LLC and its affiliates (dba as Twin Bridges), pursuant to which we agreed to acquire assets in the greater Albany, New York area for total consideration of approximately $219,000 ("Twin Bridges Acquisition"), subject to the terms and conditions set forth in the agreement. The Twin Bridges Acquisition includes two collection operations, one transfer station, one material recovery facility, one office building, and several satellite properties. The Twin Bridges Acquisition is subject to customary closing conditions, including the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Act, and the absence of any investigation by any governmental entity regarding the legality of the transactions contemplated by the asset purchase agreement. The waiting period under the Hart-Scott-Rodino Act has expired. On July 6, 2023, we received a subpoena duces tecum from the New York State Attorney General (“NYAG”) seeking information about the Twin Bridges Acquisition. We are cooperating with the NYAG to address the agency’s questions. The Twin Bridges Acquisition is expected to be funded with the net proceeds from an equity offering completed on June 16, 2023. See Note 9, Stockholders' Equity for further disclosure regarding the equity offering.
In the six months ended June 30, 2023, we acquired two businesses: the GFL Acquisition, which includes solid waste collection, transfer and recycling operations in Pennsylvania, Maryland and Delaware whose assets are allocated between our Mid-Atlantic region and Resource Solutions operating segments, as well as a stand alone solid waste business in our Western region. In the six months ended June 30, 2022, we acquired eight businesses primarily related to our solid-waste operations, which included solid-waste collection, recycling, transfer station and transportation businesses.
The operating results of these businesses are included in the accompanying unaudited consolidated statements of operations from each date of acquisition, with the exception of the GFL Acquisition whose operations did not commence until July 1, 2023, and the purchase price has been allocated to the net assets acquired based on fair values at 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. Acquired intangible assets other than goodwill that are subject to amortization include customer relationships, trade names and covenants not-to-compete. Such assets are amortized over a two-year to ten-year period from the date of acquisition. All amounts recorded to goodwill are expected to be deductible for tax purposes, with the exception of one of the GFL Subsidiaries acquired as a part of the GFL Acquisition in the six months ended June 30, 2023.
A summary of the purchase price paid and the purchase price allocation for acquisitions follows: | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 |
Purchase Price: | | | |
Cash used in acquisitions, net of cash acquired | $ | 544,359 | | | $ | 55,053 | |
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Holdbacks to sellers and contingent consideration | 1,900 | | | 3,842 | |
Total consideration | $ | 546,259 | | | $ | 58,895 | |
Allocated as follows: | | | |
Current assets | $ | 15,364 | | | $ | 7,584 | |
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Property, plant and equipment: | | | |
Land | 2,213 | | | 2,804 | |
| | | |
Buildings and improvements | 8,666 | | | 5,308 | |
Machinery and equipment | 90,276 | | | 6,712 | |
Operating lease right-of-use assets | 11,260 | | | 405 | |
Intangible assets: | | | |
| | | |
Covenants not-to-compete | 10,550 | | | 1,415 | |
Customer relationships | 93,000 | | | 9,725 | |
Other non-current assets | — | | | 40 | |
Deferred tax liability | (5,160) | | | — | |
Current liabilities | (15,195) | | | (3,577) | |
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Operating lease liabilities, less current portion | (9,887) | | | (282) | |
Fair value of assets acquired and liabilities assumed | 201,087 | | | 30,134 | |
Excess purchase price allocated to goodwill | $ | 345,172 | | | $ | 28,761 | |
Certain purchase price allocations, including the GFL Acquisition which is subject to finalizing the third-party valuation, are preliminary and are based on information existing at the acquisition dates or upon closing the transaction. Accordingly, the purchase price allocations are subject to change.
Unaudited pro forma combined information that shows our operational results as though each acquisition completed since the beginning of the prior fiscal year had occurred as of January 1, 2022 is as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Revenues | $ | 335,363 | | | $ | 335,299 | | | $ | 645,821 | | | $ | 626,980 | |
Operating income | $ | 25,982 | | | $ | 35,543 | | | $ | 39,734 | | | $ | 50,250 | |
Net income | $ | 7,494 | | | $ | 19,985 | | | $ | 13,113 | | | $ | 26,421 | |
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Basic earnings per share attributable to common stockholders: | | | | | | | |
Weighted average common shares outstanding | 52,885 | | | 51,642 | | | 52,331 | | | 51,567 | |
Basic earnings per common share | $ | 0.14 | | | $ | 0.39 | | | $ | 0.25 | | | $ | 0.51 | |
Diluted earnings per share attributable to common stockholders: | | | | | | | |
Weighted average common shares outstanding | 52,980 | | | 51,781 | | | 52,427 | | | 51,720 | |
Diluted earnings per common share | $ | 0.14 | | | $ | 0.39 | | | $ | 0.25 | | | $ | 0.51 | |
The unaudited pro forma results set forth in the table above have been prepared for comparative purposes only and are not necessarily indicative of the actual results of operations had the acquisitions occurred as of January 1, 2022 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 the result of the integration and consolidation of the completed acquisitions.
5.4. GOODWILL AND INTANGIBLE ASSETS
A summary of the activity and balances related to goodwill by operating segment is as follows:
| | | December 31, 2023 | |
| | December 31, 2022 | | Acquisitions | | Measurement Period Adjustments | | | June 30, 2023 |
| December 31, 2023 | |
| | December 31, 2023 | | | | | Measurement Period Adjustments | | | | March 31, 2024 |
Eastern | Eastern | $ | 52,406 | | | $ | — | | | $ | — | | | | $ | 52,406 | |
Western | Western | 183,286 | | | 11,282 | | | 53 | | | | 194,621 | |
Mid-Atlantic | Mid-Atlantic | — | | | 333,890 | | | — | | | | 333,890 | |
Resource Solutions | Resource Solutions | 38,766 | | | — | | | — | | | | 38,766 | |
| | $ | 274,458 | | | $ | 345,172 | | | $ | 53 | | | | $ | 619,683 | |
| $ | |
| $ | |
| $ | |
Summaries of intangible assets by type follows: | | Covenants Not-to-Compete | | Customer Relationships | | Trade Names | | Total |
Balance, June 30, 2023 | | | | | | | |
| Covenants Not-to-Compete | | | Covenants Not-to-Compete | | Customer Relationships | | Trade Names | | Total |
Balance, March 31, 2024 | |
Intangible assets | |
Intangible assets | |
Intangible assets | Intangible assets | $ | 41,863 | | | $ | 220,179 | | | $ | 8,405 | | | $ | 270,447 | |
Less accumulated amortization | Less accumulated amortization | (25,065) | | | (52,333) | | | (5,901) | | | (83,299) | |
| $ | 16,798 | | | $ | 167,846 | | | $ | 2,504 | | | $ | 187,148 | |
| $ | |
| | | Covenants Not-to-Compete | | Customer Relationships | | Trade Names | | Total | | Covenants Not-to-Compete | | Customer Relationships | | Trade Names | | Total |
Balance, December 31, 2022 | | | | | | | |
Balance, December 31, 2023 | |
Intangible assets | |
Intangible assets | |
Intangible assets | Intangible assets | $ | 31,201 | | | $ | 127,179 | | | $ | 8,405 | | | $ | 166,785 | |
Less accumulated amortization | Less accumulated amortization | (24,129) | | | (46,162) | | | (4,711) | | | (75,002) | |
| $ | 7,072 | | | $ | 81,017 | | | $ | 3,694 | | | $ | 91,783 | |
| $ | |
Intangible amortization expense was $4,226 and $8,296$12,564 during the three and six months ended June 30, 2023, respectively,March 31, 2024, and $4,262 and $8,052$4,071 during the three and six months ended June 30, 2022, respectively.March 31, 2023.
A summary of intangible amortization expense estimated for each of the next five fiscal years following fiscal year 20222023 and thereafter is estimated as follows: | | | | | |
| |
Estimated Future Amortization Expense as of June 30, 2023March 31, 2024 | |
Fiscal year ending December 31, 2023 | $ | 17,546 | |
Fiscal year ending December 31, 2024 | $ | 33,66835,421 | |
Fiscal year ending December 31, 2025 | $ | 30,93543,593 | |
Fiscal year ending December 31, 2026 | $ | 27,53238,720 | |
Fiscal year ending December 31, 2027 | $ | 24,35334,129 | |
Fiscal year ending December 31, 2028 | $ | 29,077 | |
Thereafter | $ | 53,11447,925 | |
| |
6.5. 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: | | | Six Months Ended June 30, | | Three Months Ended March 31, |
| | 2023 | | 2022 | | 2024 | | 2023 |
Beginning balance | Beginning balance | $ | 113,678 | | | $ | 86,914 | |
Obligations incurred | Obligations incurred | 2,615 | | | 2,244 | |
Revision in estimates (1) | — | | | 1,443 | |
| Accretion expense | |
Accretion expense | |
Accretion expense | Accretion expense | 4,809 | | | 3,799 | |
| Obligations settled (2) | (2,386) | | | (2,027) | |
Obligations settled (1) | |
Obligations settled (1) | |
Obligations settled (1) | |
Ending balance | Ending balance | $ | 118,716 | | | $ | 92,373 | |
(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.
7.6. DEBT
A summary of debt is as follows: | | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
Senior Secured Credit Facility: | | | |
Term loan A facility ("Term Loan Facility") due December 2026; bearing interest at Term SOFR plus 1.135% | $ | 350,000 | | | $ | 350,000 | |
Term loan A facility ("2023 Term Loan Facility") due December 2026; bearing interest at Term SOFR plus 2.385% | 430,000 | | | — | |
Revolving credit facility ("Revolving Credit Facility") due December 2026; bearing interest at Term SOFR plus 1.135% | — | | | 6,000 | |
Tax-Exempt Bonds: | | | |
New York State Environmental Facilities Corporation Solid Waste Disposal Revenue Bonds Series 2014 ("New York Bonds 2014R-1") due December 2044 - fixed rate interest period ending in 2029; bearing interest at 2.875% | 25,000 | | | 25,000 | |
New York State Environmental Facilities Corporation Solid Waste Disposal Revenue Bonds Series 2014R-2 ("New York Bonds 2014R-2") due December 2044 - fixed rate interest period ending in 2026; bearing interest at 3.125% | 15,000 | | | 15,000 | |
New York State Environmental Facilities Corporation Solid Waste Disposal Revenue Bonds Series 2020 ("New York Bonds 2020") due September 2050 - fixed rate interest period ending in 2025; bearing interest at 2.750% | 40,000 | | | 40,000 | |
Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-3 ("FAME Bonds 2005R-3") due January 2025 - fixed rate interest period ending in 2025; bearing interest at 5.25% | 25,000 | | | 25,000 | |
Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2015R-1 ("FAME Bonds 2015R-1") due August 2035 - fixed rate interest period ending in 2025; bearing interest at 5.125% | 15,000 | | | 15,000 | |
Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2015R-2 ("FAME Bonds 2015R-2") due August 2035 - fixed rate interest period ending in 2025; bearing interest at 4.375% | 15,000 | | | 15,000 | |
Vermont Economic Development Authority Solid Waste Disposal Long-Term Revenue Bonds Series 2013 ("Vermont Bonds 2013") due April 2036 - fixed rate interest period ending in 2028; bearing interest at 4.625% | 16,000 | | | 16,000 | |
Vermont Economic Development Authority Solid Waste Disposal Long-Term Revenue Bonds Series 2022A-1 ("Vermont Bonds 2022A-1") due June 2052 - fixed rate interest period ending in 2027; bearing interest at 5.00% | 35,000 | | | 35,000 | |
Business Finance Authority of the State of New Hampshire Solid Waste Disposal Revenue Bonds Series 2013 ("New Hampshire Bonds") due April 2029 - fixed rate interest period ending in 2029; bearing interest at 2.95% | 11,000 | | | 11,000 | |
Other: | | | |
Finance leases maturing through December 2107; bearing interest at a weighted average of 3.7% | 50,228 | | | 49,813 | |
Notes payable maturing through March 2025; bearing interest up to 8.1% | 339 | | | 664 | |
Principal amount of debt | 1,027,567 | | | 603,477 | |
Less—unamortized debt issuance costs (1) | 11,476 | | | 9,494 | |
Debt less unamortized debt issuance costs | 1,016,091 | | | 593,983 | |
Less—current maturities of debt | 32,747 | | | 8,968 | |
| $ | 983,344 | | | $ | 585,015 | |
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
Senior Secured Credit Facility: | | | |
Term loan A facility (“Term Loan Facility”) payable quarterly with balance due December 2026; bearing interest at 7.054% as of March 31, 2024 | $ | 349,125 | | | $ | 350,000 | |
Term loan A facility (“2023 Term Loan Facility”) payable quarterly with balance due December 2026; bearing interest at 7.552% as of March 31, 2024 | 413,875 | | | 419,250 | |
Revolving credit facility (“Revolving Credit Facility”) due December 2026; bearing interest at term secured overnight financing rate (“Term SOFR”) plus 1.725% | — | | | — | |
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 bearing interest at 2.875% through December 2029 | 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 bearing interest at 3.125% through May 2026 | 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 bearing interest at 2.750% through September 2025 | 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 bearing interest at 5.125% through September 2030 | 35,000 | | | 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 bearing interest at 5.25% through January 2025 | 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 bearing interest at 5.125% through July 2025 | 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 bearing interest at 4.375% through July 2025 | 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 bearing interest at 4.625% through April 2028 | 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 bearing interest at 5.00% through May 2027 | 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 bearing interest at 2.95% through April 2029 | 11,000 | | | 11,000 | |
Other: | | | |
Finance leases maturing through December 2107; bearing interest at a weighted average of 4.3% | 59,460 | | | 53,066 | |
Notes payable maturing through March 2025; bearing interest up to 8.1% | 146 | | | 230 | |
Principal amount of debt | 1,054,606 | | | 1,054,546 | |
Less—unamortized debt issuance costs | 10,360 | | | 11,103 | |
Debt less unamortized debt issuance costs | 1,044,246 | | | 1,043,443 | |
Less—current maturities of debt | 63,368 | | | 35,781 | |
| $ | 980,878 | | | $ | 1,007,662 | |
(1)A summary of unamortized debt issuance costs by debt instrument follows: | | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
Revolving Credit Facility, Term Loan Facility and 2023 Term Loan Facility (collectively, the "Credit Facility") | $ | 7,087 | | | $ | 4,716 | |
New York Bonds 2014R-1 | 832 | | | 866 | |
New York Bonds 2014R-2 | 177 | | | 207 | |
New York Bonds 2020 | 1,016 | | | 1,106 | |
FAME Bonds 2005R-3 | 134 | | | 176 | |
FAME Bonds 2015R-1 | 309 | | | 344 | |
FAME Bonds 2015R-2 | 156 | | | 193 | |
Vermont Bonds 2013 | 351 | | | 378 | |
Vermont Bonds 2022A-1 | 1,079 | | | 1,144 | |
New Hampshire Bonds | 335 | | | 364 | |
| $ | 11,476 | | | $ | 9,494 | |
Financing Activities
In the quarter ended March 31, 2023, we entered into first and second amendments to our Amended and Restated Credit Agreement. The first amendment provides, commencing in the fiscal year ending December 31, 2024, that the interest rate margin applied for drawn and undrawn amounts under the Amended and Restated Credit Agreement shall be separately adjusted based on our achievement of certain thresholds and targets on two sustainability related key performance indicator metrics during the prior fiscal year: (i) metric tons of solid waste materials reduced, reused or recycled through our direct operations or with third-parties in collaboration with customers; and (ii) our total recordable incident rate. The second amendment provides that loans under the Amended and Restated Credit Agreement shall bear interest, at our election, at Term SOFR, including a secured overnight financing rate adjustment of 10 basis points, or at a base rate, in each case, plus or minus any sustainable rate adjustment plus an applicable interest rate margin based upon our consolidated net leverage ratio.
In April 2023, we entered into an equity purchase agreement pursuant to which we agreed to the GFL Acquisition. In connection with the GFL Acquisition, we entered into (i) a commitment letter to obtain short-term secured bridge financing of up to $375,000 and (ii) the third amendment to the Amended and Restated Credit Agreement to, among other things, permit the draw down of the short-term secured bridge financing and authorize a delayed draw term loan facility to be executed with customary limited condition provisions. The short-term secured bridge financing was undrawn and subsequently terminated in May 2023 when we entered into the Loan Joinder, which provided for a $430,000 aggregate principal amount 2023 Term Loan Facility under the Amended and Restated Credit Agreement. In June 2023, we borrowed $430,000 under the 2023 Term Loan Facility and paid certain fees and costs due and payable in connection therewith. Borrowings from the 2023 Term Loan Facility were used to fund, in conjunction with cash and cash equivalents and borrowings from our Revolving Credit Facility, the GFL Acquisition.
In June 2023, we entered into an asset purchase agreement pursuant to which we agreed to the Twin Bridges Acquisition, which is pending regulatory approval. In connection with the Twin Bridges Acquisition, we entered into a commitment letter to obtain short-term unsecured bridge financing of up to $200,000 that was undrawn and subsequently terminated when we completed the public offering of our Class A common stock on June 16, 2023. See Note 9, Stockholders' Equity for further disclosure regarding the public offering. As of June 30, 2023, we have accrued $4,580 in our current liabilities for the unpaid portion of unsecured bridge financing costs.
Credit Facility
As of June 30, 2023, we are party to the Amended and Restated Credit Agreement, which provides for a $350,000 aggregate principal amount Term Loan Facility, a $300,000 Revolving Credit Facility, with a $75,000 sublimit for letters of credit, and a $430,000 2023 Term Loan 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. The Credit Facility shall bear interest, at our election, at Term SOFR, including a secured overnight financing rate adjustment of 10 basis points, or at a base rate, in each case plus or minus any sustainable rate adjustment of up to positive or negative 4.0 basis points per annum, plus an applicable interest rate margin based upon our consolidated net leverage ratio as follows:
| | | | | | | | | | | | | | |
| | Term SOFR Loans | | Base Rate Loans |
Term Loan Facility | | 1.125% to 2.125% | | 0.125% to 1.125% |
Revolving Credit Facility | | 1.125% to 2.125% | | 0.125% to 1.125% |
2023 Term Loan Facility | | 1.625% to 2.625% | | 0.625% to 1.625% |
A commitment fee will be charged on undrawn amounts at a rate of 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 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 June 30, 2023, further advances were available under the Revolving Credit Facility in the amount of $272,267. The available amount is net of outstanding irrevocable letters of credit totaling $27,733, and as of June 30, 2023 no amount had been drawn.
Interest Expense
The components of interest expense are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Interest expense on long-term debt and finance leases | $ | 8,007 | | | $ | 5,189 | | | $ | 14,437 | | | $ | 9,823 | |
Amortization of debt issuance costs (1) | 1,004 | | | 468 | | | 1,505 | | | 924 | |
Letter of credit fees | 98 | | | 116 | | | 194 | | | 230 | |
Less: capitalized interest | (108) | | | (75) | | | (177) | | | (75) | |
Total interest expense | $ | 9,001 | | | $ | 5,698 | | | $ | 15,959 | | | $ | 10,902 | |
(1)Includes interest expense related to short-term secured bridge financing entered into in connection with the GFL Acquisition of $395 and $395 during the three and six months ended June 30, 2023, respectively, and interest expense related to short-term unsecured financing entered into in connection with the Twin Bridges Acquisition, which is pending regulatory approval, of $101 and $101 during the three and six months ended June 30, 2023, respectively.
Loss from Termination of Bridge Financing
In the three and six months ended June 30, 2023, we wrote-off the unamortized debt issuance costs and recognized a loss from termination of bridge financing upon the extinguishment of both a secured bridge financing agreement in connection with the GFL Acquisition of $3,718 and $3,718, respectively, and an unsecured bridge financing agreement in connection with the Twin Bridges Acquisition, which is pending regulatory approval, of $4,480 and $4,480, respectively.
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.
In JulyAs of both March 31, 2024 and December 31, 2023, we entered into interest rate derivative agreements with ahad $515,000 notional amount of $250,000 after increasing the variable rate portion of our long-term debt by $430,000 by entering into the 2023 Term Loan Facility. According to the terms of the agreements, we receive interest based on Term SOFR restricted by a 0.0% floor, and pay interest at a rate of 4.285%. The agreements became effective in July 2023 and mature in June 2028.
As of June 30, 2023, we had active interest rate derivative agreements with a total notional amount of $165,000. According to the terms of theoutstanding. These agreements mature between February 2026 and June 2028 and provide that we receive interest based on Term SOFR, restricted by a 0.0% floor, and pay interest at a weighted average rate of approximately 2.08%3.6%. The agreements mature between February 2026 and May 2028. As of December 31, 2022, we had active interest rate derivative agreements with a total notional amount of $190,000 and a forward starting interest rate derivative agreement with a notional amount of $20,000.
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 | | | Balance Sheet Location | | March 31, 2024 | | December 31, 2023 |
Interest rate swaps | |
Interest rate swaps | |
| | | $ | |
| | Fair Value |
| | Balance Sheet Location | | June 30, 2023 | | December 31, 2022 |
Interest rate swaps | Interest rate swaps | Other current assets | | $ | 5,147 | | | $ | 4,345 | |
| Interest rate swaps | Interest rate swaps | Other non-current assets | | 6,763 | | | 7,461 | |
| $ | 11,910 | | | $ | 11,806 | |
| | Interest rate swaps | Interest rate swaps | Other long-term liabilities | | $ | 18 | | | $ | — | |
| | Interest rate swaps | Interest rate swaps | Accumulated other comprehensive income, net of tax | | $ | 11,892 | | | $ | 11,806 | |
| Interest rate swaps | |
| Interest rate swaps | |
Interest rate swaps - tax effect | Interest rate swaps - tax effect | Accumulated other comprehensive income, net of tax | | (4,284) | | | (4,264) | |
| $ | 7,608 | | | $ | 7,542 | |
| | | $ | |
8.7. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
In the ordinary course of our business and as the result of the extensive governmental regulation of the solid waste industry, we are subject to various judicial and administrative proceedings involving state and local agencies. In these proceedings, an agency may seek to impose fines or to revoke or deny renewal of an operating permit held by us. From time to time, we may also be subject to actions brought by special interest or other groups, adjacent landowners or residents in connection with the permitting and licensing of landfills and transfer stations, or allegations of environmental damage or violations of the permits and licenses pursuant to which we operate. In addition, we may be named defendants in various claims and suits pending for alleged damages to persons and property, alleged violations of certain laws and alleged liabilities arising out of matters occurring during the ordinary operation of a waste management business. The plaintiffs in some actions seek unspecified damages or injunctive relief, or both. These actions fall within various procedural stages at any point in time, and some are covered in part by insurance.
In accordance with FASB ASC 450 - Contingencies, we accrue for legal proceedings, inclusive of legal costs, when losses become probable and reasonably estimable. We have recorded an aggregate accrual of $6,208$23 relating to our outstanding legal proceedings as of June 30, 2023.March 31, 2024. As of the end of each applicable reporting period, we review each of our legal proceedings to determine whether it is probable, reasonably possible or remote that a liability has been incurred and, if it is at least reasonably possible, whether a range of loss can be reasonably estimated under the provisions of FASB ASC 450-20. In instances where we determine that a loss is probable and we can reasonably estimate a range of loss we may incur with respect to such a matter, we record an accrual for the amount within the range that constitutes our best estimate of the possible loss. If we are able to reasonably estimate a range, but no amount within the range appears to be a better estimate than any other, we record an accrual in the amount that is the low end of such range. When a loss is reasonably possible, but not probable, we will not record an accrual, but we will disclose our estimate of the possible range of loss where such estimate can be made in accordance with FASB ASC 450-20. We disclose outstanding matters that we believe could have a material adverse effect on our financial condition, results of operations or cash flows. See Note 11,
Other Items and Charges
for disclosure regarding a legal settlement charge accrued for as of June 30, 2023 due to reaching an agreement at a mediation held on June 20, 2023 and later executed on July 24, 2023.
North Country Environmental Services Expansion Permit
The permit for expansion of the Bethlehem, New Hampshire landfill of our subsidiary, North Country Environmental Services, Inc. (“NCES”), known as “Stage VI”, issued in October 2020 (“Permit”), was appealed by the Conservation Law Foundation (“CLF”) to the New Hampshire Waste Management Council (“Council”) on November 9, 2020 on the grounds it failed to meet the public benefit criteria. Following a hearing on the merits during which the Council found that the New Hampshire Department of Environmental Services (“DES”) had reasonably measured and acted lawfully in determining a capacity need for Stage VI, the hearing officer presiding over the proceedings issued an Order on May 11, 2022, without further hearing, determining instead that DES had acted unlawfully in reaching these conclusions (“Hearing Officer’s Order”), and remanded the Permit to DES on this determination. On December 5, 2022, DES and NCES both separately sought review of the Hearing Officer’s Order on appeal to the New Hampshire Supreme Court (“Supreme Court”). The parties presented oral arguments to the Supreme Court on October 3, 2023. On December 28, 2023, the Supreme Court issued a decision reversing the Hearing Officer's Order and held that the Stage VI Permit was lawfully issued by DES, fully resolving this matter and upholding the Stage VI Permit.
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, by Order dated April 6, 2023, and NCES appealed that decision to the Supreme Court on April 18, 2023. BothNCES’s brief on appeal was filed with the Supreme Court appeals remain pending. on August 11, 2023. On September 26, 2023, CLF filed a Motion to Intervene as well as a memorandum of law asking the Supreme Court to uphold the Superior Court’s dismissal, to which NCES filed an Objection in response on October 23, 2023. The Council filed its brief on October 25, 2023. On November 9, 2023, the Supreme Court issued an Order denying CLF’s Motion to Intervene but treating CLF’s memorandum of law as an amicus brief. NCES filed a reply brief on November 14, 2023. On January 18, 2024, the Supreme Court issued an Order setting a deadline of February 2, 2024 for the parties to submit memoranda addressing the mootness of this appeal in light of the Supreme Court’s December 28, 2023 Order reversing the Hearing Officer’s Order and upholding the Stage VI Permit. NCES subsequently filed a Motion for Vacatur of the Superior Court’s April 6, 2023 Order and a Memorandum in Response to the Supreme Court's February 2, 2024 Order on January 23, 2024. On March 18, 2024, the Supreme Court issued an order finding the appeal to be moot and vacating the Superior Court’s April 6, 2023 Order, resolving this matter.
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"(“Petition”) in the Superior Court asking the Superior Court for a determination of the meaning and constitutionality of New Hampshire’s public benefit requirement, the same statute at issue in the Hearing Officer’s Order. This matter remainsCLF was granted intervention in the Petition proceeding on June 8, 2023. On December 19, 2023, GSL filed a Motion To Stay pending before the Superior Court.outcome of the Supreme Court’s consideration of the Stage VI Permit appeal. The Stage VI Permit appeal was decided and upheld by Order of December 28, 2023 as discussed above. As NCES prevailed in the Stage VI Permit appeal, GSL and NCES voluntarily non-suited the Petition on January 2, 2024, resolving this matter.
On April 12, 2023, DES issued approval of construction plans for Stage VI, Phase II to NCES (“DES Approval”). CLF appealed the DES Approval to the Council on May 11, 2023, on the grounds that it failed to meet the public benefit criteria, and that the DES Approval conflicts with the Hearing Officer’s May 11, 2022 Order determining that DES had acted unlawfully in issuing the Permit, and requested expedited review. The Council has denied theCLF's request for expedited review and thisreview. CLF withdrew its appeal remains pending before the Council.
NCES will continue to vigorously defend the Permit through the appealsby notice to the Supreme Court, will litigate the Petition before the Superior Court, and will defend the DES ApprovalCouncil on February 7, 2024. In light of CLF's withdrawal of appeal, before the Council.this matter is fully resolved.
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 the 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 June 30, 2023March 31, 2024 range between 1.5% and 4.1%7.1%. A summary of the changes to the aggregate environmental remediation liabilities for the sixthree months ended June 30,March 31, 2024 and 2023 and 2022 follows:
| | Six Months Ended June 30, |
| 2023 | | 2022 |
| Three Months Ended March 31, | | | Three Months Ended March 31, |
| 2024 | | | 2024 | | 2023 |
Beginning balance | Beginning balance | $ | 6,335 | | | $ | 5,887 | |
Accretion expense | Accretion expense | 51 | | | 54 | |
| Obligations settled (1) | Obligations settled (1) | (320) | | | (72) | |
| Obligations settled (1) | |
| Obligations settled (1) | |
Ending balance | Ending balance | 6,066 | | | 5,869 | |
Less: current portion | Less: current portion | 1,430 | | | 280 | |
Long-term portion | Long-term portion | $ | 4,636 | | | $ | 5,589 | |
(1)May include amounts paid and amounts that are being processed through accounts payable as a part of our disbursement cycle.
9.8. 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 June 30, 2023, including underwriting discounts, commissions and offering expenses, the offering has resulted in net proceeds of $496,403. The net proceeds from this offering were and are to be used to fund acquisition activity, as discussed in Note 4, Business Combinations, 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 June 30, 2023,March 31, 2024, there were 640456 Class A common stock equivalents available for future grant under the 2016 Plan.
In the three months ended June 30, 2023, our stockholders approved the amendment and restatement of our Amended and Restated 1997 Employee Stock Purchase Plan (as further amended and restated, the"ESPP") to increase the number of shares of Class A common stock reserved for issuance under the ESPP by 400 shares of Class A common stock. As of June 30, 2023, 444 shares of Class A common stock were available for issuance under the ESPP.
Stock Options
Stock options are granted at a price equal to the prevailing fair value of our Class A common stock at the date of grant. Generally, stock options granted have a term not to exceed ten years and vest over a one-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 |
Outstanding, December 31, 2022 | 129 | | | $ | 55.60 | | | | | |
| Stock Options | | | Stock Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (years) | | Aggregate Intrinsic Value |
Outstanding, December 31, 2023 | |
Granted | |
Granted | |
Granted | Granted | — | | | $ | — | | |
Exercised | Exercised | — | | | $ | — | | |
Exercised | |
Exercised | |
Forfeited | Forfeited | — | | | $ | — | | |
Outstanding, June 30, 2023 | 129 | | | $ | 55.60 | | | 6.7 | | $ | 4,512 | |
Exercisable, June 30, 2023 | 49 | | | $ | 12.88 | | | 2.8 | | $ | 3,793 | |
Forfeited | |
Forfeited | |
Outstanding, March 31, 2024 | |
Outstanding, March 31, 2024 | |
Outstanding, March 31, 2024 | |
Exercisable, March 31, 2024 | |
|
Stock-based compensation expense related to stock options was $125 and $248$151 during the three and six months ended June 30, 2023, respectively,March 31, 2024, as compared to $17 and $33$123 during the three and six months ended June 30, 2022, respectively.March 31, 2023. As of June 30, 2023,March 31, 2024, we had $1,850$1,957 of unrecognized stock-based compensation expense related to outstanding stock options to be recognized over a weighted average period of 4.03.6 years.
During the three and six months ended June 30, 2023,March 31, 2024, the aggregate intrinsic value of stock options exercised was zero dollars.
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,Typically, restricted stock awards granted to non-employee directors vest incrementally over a three yearthree-year period beginning on the first anniversary of the date of grant. Restricted stock units granted to non-employee directors vest in full on the first anniversary of the grant date. Restricted stock units granted to employees vest incrementally over an identified service period, typically three years, beginning on the grant date based on continued employment. Performance stock units granted to employees, including market-based performance stock units, vest at a future date following the grant date and are based on the attainment of performance targets and market achievements, as applicable.
A summary of restricted stock award, restricted stock unit and performance stock unit activity follows: | | Restricted Stock Awards, Restricted Stock Units, and Performance Stock Units (1) | | Weighted Average Grant Date Fair Value | | Weighted Average Remaining Contractual Term (years) | | Aggregate Intrinsic Value |
Outstanding, December 31, 2022 | 169 | | | $ | 75.52 | | | | | |
| Restricted Stock Awards, Restricted Stock Units, and Performance Stock Units (1) | | | 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, 2023 | |
Granted | |
Granted | |
Granted | Granted | 98 | | | $ | 80.61 | | |
Class A Common Stock Vested | Class A Common Stock Vested | (62) | | | $ | 62.22 | | |
Class A Common Stock Vested | |
Class A Common Stock Vested | |
Forfeited | Forfeited | (2) | | | $ | 71.25 | | |
Outstanding, June 30, 2023 | 203 | | | $ | 82.11 | | | 1.9 | | $ | 18,339 | |
Unvested, June 30, 2023 | 362 | | | $ | 83.23 | | | 1.8 | | $ | 32,798 | |
Forfeited | |
Forfeited | |
Outstanding, March 31, 2024 | |
Outstanding, March 31, 2024 | |
Outstanding, March 31, 2024 | |
Unvested, March 31, 2024 | |
(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 159175 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 $2,132 and $3,894$1,875 during the three and six months ended June 30, 2023, respectively,March 31, 2024, as compared to $828 and $2,979$1,762 during the three and six months ended June 30, 2022, respectively.March 31, 2023.
During the three and six months ended June 30, 2023,March 31, 2024, the total fair value of other stock awards vested was $1,094 and $5,056, respectively.$3,165.
As of June 30, 2023,March 31, 2024, total unrecognized stock-based compensation expense related to outstanding restricted stock awards was $17,$3, which will be recognized over a weighted average period of 0.90.2 years. As of June 30, 2023,March 31, 2024, total unrecognized stock-based compensation expense related to outstanding restricted stock units was $5,905,$8,417, which will be recognized over a weighted average period of 2.02.6 years. As of June 30, 2023,March 31, 2024, total expected unrecognized stock-based compensation expense related to outstanding performance stock units was $6,791 to$8,626, which will be recognized over a weighted average period of 1.92.2 years.
The weighted average fair value of market-based performance stock units granted during the sixthree months ended June 30, 2023March 31, 2024 was $83.16$105.35 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%25.3% 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 $109 and $199 of stock-based compensation expense related to the ESPPSecond Amended and Restated 1997 Employee Stock Purchase Plan during the three and six months ended June 30, 2023, respectively,March 31, 2024, as compared to $93 and $166$90 during the three and six months ended June 30, 2022, 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, 20222023 | | | $ | 7,542 (1,080) | |
| | | |
Other comprehensive income before reclassifications | | | 2,46210,753 | |
AmountsIncome reclassified from accumulated other comprehensive income (loss) into interest expense | | | (2,330) | | | (2,376) | |
Income tax provision related to items of other comprehensive income | | | (20)(2,308) | |
Net current-period otherOther comprehensive income, net of tax | | | 6,115 | | | 66 | |
Balance, June 30, 2023March 31, 2024 | | | $ | 7,6085,035 | |
A summary of reclassifications out of accumulated other comprehensive income (loss), net of tax into earnings follows: | | | Three Months Ended March 31, | |
| | Three Months Ended March 31, | |
| | Three Months Ended March 31, | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, | |
| | | 2023 | | 2022 | | 2023 | | 2022 | | | | 2024 | | 2023 | | | | | | |
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 |
Accumulated Other Comprehensive Income (Loss), Net of Tax | | Accumulated Other Comprehensive Income (Loss), Net of Tax | | Amounts Reclassified Out of Accumulated Other Comprehensive Income (Loss), Net of Tax | | Affected Line Item in the Consolidated Statements of Operations |
Interest rate swaps | Interest rate swaps | | $ | (1,270) | | | $ | 994 | | | $ | (2,376) | | | $ | 2,122 | | | Interest expense | Interest rate swaps | | $ | (2,330) | | | $ | | $ | (1,106) | | | | | | | Interest expense | | | | | | Interest expense |
| | 2,330 | | | | 2,330 | | | 1,106 | | | | | | | (Loss) income before income taxes |
| | 642 | | | | 642 | | | 303 | | | | | | | (Benefit) provision for income taxes |
| | $ | | | | $ | 1,688 | | | $ | 803 | | | | | | | Net (loss) income |
| | 1,270 | | | (994) | | | 2,376 | | | (2,122) | | | Income before income taxes |
| 348 | | | — | | | 651 | | | (190) | | | Provision for income taxes |
| $ | 922 | | | $ | (994) | | | $ | 1,725 | | | $ | (1,932) | | | Net income |
|
10.9. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net (loss) 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 June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Numerator: | | | | | | | |
Net income | $ | 5,490 | | | $ | 17,796 | | | $ | 9,038 | | | $ | 21,986 | |
Denominators: | | | | | | | |
Number of shares outstanding, end of period: | | | | | | | |
Class A common stock | 56,974 | | | 50,690 | | | 56,974 | | | 50,690 | |
Class B common stock | 988 | | | 988 | | | 988 | | | 988 | |
| | | | | | | |
Unvested restricted stock | (1) | | | (2) | | | (1) | | | (2) | |
Effect of weighted average shares outstanding (1) | (5,076) | | | (34) | | | (5,630) | | | (109) | |
Basic weighted average common shares outstanding | 52,885 | | | 51,642 | | | 52,331 | | | 51,567 | |
Impact of potentially dilutive securities: | | | | | | | |
Dilutive effect of stock options and other stock awards | 95 | | | 139 | | | 96 | | | 153 | |
Diluted weighted average common shares outstanding | 52,980 | | | 51,781 | | | 52,427 | | | 51,720 | |
Anti-dilutive potentially issuable shares | 75 | | | 70 | | | 84 | | | 70 | |
(1)Adjustments in the three and six months ended June 30, 2023 primarily associated with the 6,053 shares of Class A common stock issued as part of the public offering, completed on June 16, 2023, only being outstanding for 14 days in the periods ended June 30, 2023. See Note 9, Stockholders' Equity for disclosure regarding the public offering of Class A common stock.
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Numerator: | | | | | | | |
Net (loss) income | $ | (4,117) | | | $ | 3,548 | | | | | |
Denominators: | | | | | | | |
Number of shares outstanding, end of period: | | | | | | | |
Class A common stock | 57,120 | | | 50,898 | | | | | |
Class B common stock | 988 | | | 988 | | | | | |
| | | | | | | |
Unvested restricted stock | — | | | (1) | | | | | |
Effect of weighted average shares outstanding | (78) | | | (115) | | | | | |
Basic weighted average common shares outstanding | 58,030 | | | 51,770 | | | | | |
Impact of potentially dilutive securities: | | | | | | | |
Dilutive effect of stock options and other stock awards | — | | | 99 | | | | | |
Diluted weighted average common shares outstanding | 58,030 | | | 51,869 | | | | | |
Anti-dilutive potentially issuable shares | 379 | | | 126 | | | | | |
11.10. OTHER ITEMS AND CHARGES
Expense from Acquisition Activities
In the three and six months ended June 30,March 31, 2024, and 2023, we recorded charges of $3,677$5,010 and $6,540, respectively, and in the three and six months ended June 30, 2022, we recorded charges of $1,019 and $3,062,$2,863, respectively, comprised primarily of legal, consulting and other similar costs associated with the due diligence, and the acquisition and integration of acquired businesses, or selectincluding expenses related to the development projects.of our Mid-Atlantic region, in the three months ended March 31, 2024.
Legal settlement
11. RELATED PARTY TRANSACTIONS
Leases
In the fiscal year ended April 30, 1994, we entered into two leases for facilities with a partnership of which John Casella, our Chairman and Chief Executive Officer, and Douglas Casella, a member of our Board of Directors, are the general partners. In the three and six months ended June 30, 2023,March 31, 2024, we accrued forextended one of these leases through February 2039. The terms of the lease agreement require a chargemonthly payment of $6,150 in current liabilities due to reaching an agreement at a mediation held on June 20, 2023 with the collective class members of a class action lawsuit relating to certain claims under the Fair Labor Standards Act of 1938 as well as state wage and hours laws. The settlement agreement was executed July 24, 2023, and remainsapproximately $17, subject to court approval. See Note 8, Commitments and Contingencies for disclosure regarding our aggregate legal proceedings accrual.a fixed annual escalation.
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, 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 Term SOFR yield curves that are observable at commonly quoted intervals for the full term of the swaps. The fair value of contingent consideration - acquisition included in the Level 3 tier below is calculated using a discounted cash flow valuation methodology based upon a probability-weighted analysis of a success payment related to the potential attainment of a transfer station permit expansion. We recognize all derivatives accounted for on the balance sheet at fair value.
Recurring Fair Value Measurements
Summaries of our financial assets and liabilities that are measured at fair value on a recurring basis follow: | | | Fair Value Measurement at June 30, 2023 Using: | | Fair Value Measurement at March 31, 2024 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: | | | | | |
Restricted investment securities - landfill closure | Restricted investment securities - landfill closure | $ | 2,005 | | | $ | — | | | $ | — | |
Restricted investment securities - landfill closure | |
Restricted investment securities - landfill closure | |
Interest rate swaps | Interest rate swaps | — | | | 11,910 | | | — | |
| | $ | 2,005 | | | $ | 11,910 | | | $ | — | |
| $ | |
| $ | |
| $ | |
| Liabilities: | Liabilities: | |
Contingent consideration - acquisition | $ | — | | | $ | — | | | $ | 376 | |
Liabilities: | |
Liabilities: | |
| Interest rate swaps | Interest rate swaps | — | | | 18 | | | — | |
| | $ | — | | | $ | 18 | | | $ | 376 | |
Interest rate swaps | |
| Interest rate swaps | |
|
| | | | | | | | | | | | | | | | | |
| Fair Value Measurement at December 31, 2022 Using: |
| Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | | | | | |
| | | | | |
| | | | | |
Restricted investment securities - landfill closure | $ | 1,900 | | | $ | — | | | $ | — | |
Interest rate swaps | — | | | 11,806 | | | — | |
| $ | 1,900 | | | $ | 11,806 | | | $ | — | |
Liabilities: | | | | | |
Contingent consideration - acquisition | $ | — | | | $ | — | | | $ | 965 | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| Fair Value Measurement at December 31, 2023 Using: |
| Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | | | | | |
| | | | | |
| | | | | |
Restricted investment securities - landfill closure | $ | 2,203 | | | $ | — | | | $ | — | |
Interest rate swaps | — | | | 10,364 | | | — | |
| $ | 2,203 | | | $ | 10,364 | | | $ | — | |
Liabilities: | | | | | |
| | | | | |
Interest rate swaps | $ | — | | | $ | 11,762 | | | $ | — | |
| | | | | |
Fair Value of Debt
As of June 30, 2023,March 31, 2024, 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“Industrial Revenue Bonds"Bonds”) was approximately $190,876$228,571 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 June 30, 2023,March 31, 2024, the carrying values of our Term Loan Facility and 2023 Term Loan Facility were $350,000$349,125 and $430,000,$413,875, 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 Mid-Atlantic regions. The GFL Acquisition, which occurred on June 30, 2023 and is the basis for our newly formed Mid-Atlantic operating segment, did not commence operations until July 1, 2023 and, therefore, had no operational impact on the periods presented in this Quarterly Report on Form 10-Q. Revenues associated with our solid waste operations are derived mainly from solid waste collection and disposal services, including landfill, transfer station and transportation services, landfill gas-to-energy services, and processing services in the eastern 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 comprised of processing services and non-processing services, provided bywhich we refer to as 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 our 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 June 30, 2023March 31, 2024 | 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 | | $ | 93,323 | | | $ | 23,563 | | | $ | 12,148 | | | $ | 7,519 | | | $ | 366,892 | |
Western | Western | | 124,229 | | | 42,342 | | | 18,917 | | | 18,991 | | | 751,324 | |
Mid-Atlantic | Mid-Atlantic | | — | | | — | | | — | | | — | | | 550,758 | |
Resource Solutions | Resource Solutions | | 72,093 | | | 3,316 | | | 3,090 | | | 688 | | | 203,049 | |
Corporate Entities | Corporate Entities | | — | | | — | | | 769 | | | (4,584) | | | 545,269 | |
Eliminations | Eliminations | | — | | | (69,221) | | | — | | | — | | | — | |
| $ | 289,645 | | | $ | — | | | $ | 34,924 | | | $ | 22,614 | | | $ | 2,417,292 | |
| | $ | |
Three Months Ended June 30, 2022March 31, 2023 | 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 | | $ | 87,263 | | | $ | 22,147 | | | $ | 11,538 | | | $ | 6,150 | | | $ | 362,942 | |
Western | Western | | 114,884 | | | 39,491 | | | 15,939 | | | 19,897 | | | 697,252 | |
Mid-Atlantic | | — | | | — | | | — | | | — | | | — | |
Mid-Atlantic (1) | |
Resource Solutions | Resource Solutions | | 81,519 | | | 317 | | | 3,110 | | | 6,235 | | | 189,820 | |
Corporate Entities | Corporate Entities | | — | | | — | | | 563 | | | (563) | | | 120,705 | |
Eliminations | Eliminations | | — | | | (61,955) | | | — | | | — | | | — | |
| $ | 283,666 | | | $ | — | | | $ | 31,150 | | | $ | 31,719 | | | $ | 1,370,719 | |
| | $ | |
(1)
Six Months Ended June 30, 2023
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
Segment | | Outside revenues | | Inter-company revenues | | Depreciation and amortization | | Operating income (loss) | | Total assets |
Eastern | | $ | 177,233 | | | $ | 42,932 | | | $ | 24,051 | | | $ | 9,659 | | | $ | 366,892 | |
Western | | 235,262 | | | 78,901 | | | 36,583 | | | 31,417 | | | 751,324 | |
Mid-Atlantic | | — | | | — | | | — | | | — | | | 550,758 | |
Resource Solutions | | 139,746 | | | 6,803 | | | 6,166 | | | (1,255) | | | 203,049 | |
Corporate Entities | | — | | | — | | | 1,559 | | | (6,942) | | | 545,269 | |
Eliminations | | — | | | (128,636) | | | — | | | — | | | — | |
| | $ | 552,241 | | | $ | — | | | $ | 68,359 | | | $ | 32,879 | | | $ | 2,417,292 | |
Operations under the Mid-Atlantic region commenced July 1, 2023.
Six Months Ended June 30, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
Segment | | Outside revenues | | Inter-company revenues | | Depreciation and amortization | | Operating income (loss) | | Total assets |
Eastern | | $ | 158,582 | | | $ | 38,815 | | | $ | 22,988 | | | $ | 3,920 | | | $ | 362,942 | |
Western | | 210,723 | | | 71,983 | | | 30,598 | | | 29,160 | | | 697,252 | |
Mid-Atlantic | | — | | | — | | | — | | | — | | | — | |
Resource Solutions | | 148,388 | | | 1,095 | | | 5,872 | | | 9,928 | | | 189,820 | |
Corporate Entities | | — | | | — | | | 1,121 | | | (1,121) | | | 120,705 | |
Eliminations | | — | | | (111,893) | | | — | | | — | | | — | |
| | $ | 517,693 | | | $ | — | | | $ | 60,579 | | | $ | 41,887 | | | $ | 1,370,719 | |
A summary of our revenues attributable to services provided follows: | | |
| |
| |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Collection | Collection | $ | 149,848 | | | $ | 137,261 | | | $ | 289,825 | | | $ | 256,793 | |
Collection | |
Collection | |
Disposal | Disposal | 63,629 | | | 60,204 | | | 115,096 | | | 103,356 | |
Power generation | 1,321 | | | 1,753 | | | 3,245 | | | 4,407 | |
Disposal | |
Disposal | |
Landfill gas-to-energy | |
Landfill gas-to-energy | |
Landfill gas-to-energy | |
Processing | |
Processing | |
Processing | Processing | 2,754 | | | 2,929 | | | 4,329 | | | 4,749 | |
Solid waste operations | Solid waste operations | 217,552 | | | 202,147 | | | 412,495 | | | 369,305 | |
Solid waste operations | |
Solid waste operations | |
Processing | |
Processing | |
Processing | Processing | 25,383 | | | 33,867 | | | 48,189 | | | 61,263 | |
National Accounts | National Accounts | 46,710 | | | 47,652 | | | 91,557 | | | 87,125 | |
National Accounts | |
National Accounts | |
Resource Solutions operations | |
Resource Solutions operations | |
Resource Solutions operations | Resource Solutions operations | 72,093 | | | 81,519 | | | 139,746 | | | 148,388 | |
Total revenues | Total revenues | $ | 289,645 | | | $ | 283,666 | | | $ | 552,241 | | | $ | 517,693 | |
Total revenues | |
Total revenues | |
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. “Financial Statements”. 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, 2022 ("2023 (“fiscal year 2022"2023”) filed with the Securities and Exchange Commission on February 17, 2023.16, 2024 (“2023 Form 10-K”).
This Quarterly Report on Form 10-Q and, in particular, this "“Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations”", 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, 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;
•projected improvements to our infrastructure and the impact of such improvements on our business and 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 Annual2023 Form 10-K and those included under Part II, Item 1A. “Risk Factors” of this Quarterly Report on Form 10-K for the fiscal year ended December 31, 2022.10-Q.
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 the 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 consolidatedwholly-owned 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.
Through June 30, 2023, we providedWe 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 a newly formed regional operating segment, the Mid-Atlantic region, that will expand our integrated solid waste services to the states of Delaware and Maryland ("GFL Acquisition"). Operations under the Mid-Atlantic region did not commence until July 1, 2023, and have had no impact on our operational results for the periods presented in this Quarterly Report on Form 10-Q. For additional disclosure regarding the GFL Acquisition see Note 4, Business Combinations, Note 7, Debt and Note 9, Stockholders' Equity to our consolidated financial statements includedunder Part I, Item 1 of this Quarterly Report on Form 10-Q.
We manage our solid waste operations on a geographic basis through regional operating segments, the Eastern, Western and Mid-Atlantic regions, each of which provides a fullcomprehensive range of non-hazardous solid waste services. We manage our resource-renewalresource 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 JulyApril 15, 2023,2024, we owned and/or operated 5963 solid waste collection operations, 6769 transfer stations, 2728 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 regional operating segments, which we designate as the Eastern, Western and Mid-Atlantic regions. Operations under the Mid-Atlantic region did not commence until July 1, 2023, and have had no impact on our operational results for the periods presented in this Quarterly Report on Form 10-Q. Revenues associated with our solid waste operations are derived mainly from fees charged to customers for solid waste collection and disposal services, including landfill, transfer station and transportation services, landfill gas-to-energy services, and processing services in the eastern United States. We derive a substantial portion of our collection revenues from commercial, industrial and municipal services that are generally performed under service agreements or pursuant to contracts with municipalities. The majority of our residential collection services are performed on a subscription basis with individual 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-renewalresource renewal operations through the Resource Solutions operating segment, which includes processing services and non-processing services, which we now refer to as our National Accounts business. Revenues from processing services are derived from customers in the form of processing fees, tipping fees, 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 our 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 ofThe table below shows revenues attributable to services provided (dollars in millions and as a percentage of total revenues) follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | $ Change | | Six Months Ended June 30, | | $ Change |
| 2023 | | 2022 | | 2023 | | 2022 | |
Collection | $ | 149.8 | | | 51.7 | % | | $ | 137.3 | | | 48.4 | % | | $ | 12.5 | | | $ | 289.8 | | | 52.5 | % | | $ | 256.8 | | | 49.6 | % | | $ | 33.0 | |
Disposal | 63.6 | | | 22.0 | % | | 60.2 | | | 21.2 | % | | 3.4 | | | 115.1 | | | 20.8 | % | | 103.4 | | | 20.0 | % | | 11.7 | |
Power | 1.3 | | | 0.4 | % | | 1.8 | | | 0.6 | % | | (0.5) | | | 3.2 | | | 0.6 | % | | 4.4 | | | 0.9 | % | | (1.2) | |
Processing | 2.9 | | | 1.0 | % | | 2.8 | | | 1.1 | % | | 0.1 | | | 4.4 | | | 0.8 | % | | 4.7 | | | 0.8 | % | | (0.3) | |
Solid waste | 217.6 | | | 75.1 | % | | 202.1 | | | 71.3 | % | | 15.5 | | | 412.5 | | | 74.7 | % | | 369.3 | | | 71.3 | % | | 43.2 | |
Processing | 25.3 | | | 8.8 | % | | 33.9 | | | 11.9 | % | | (8.6) | | | 48.1 | | | 8.7 | % | | 61.3 | | | 11.9 | % | | (13.2) | |
National Accounts | 46.7 | | | 16.1 | % | | 47.7 | | | 16.8 | % | | (1.0) | | | 91.6 | | | 16.6 | % | | 87.1 | | | 16.8 | % | | 4.5 | |
Resource Solutions | 72.0 | | | 24.9 | % | | 81.6 | | | 28.7 | % | | (9.6) | | | 139.7 | | | 25.3 | % | | 148.4 | | | 28.7 | % | | (8.7) | |
Total revenues | $ | 289.6 | | | 100.0 | % | | $ | 283.7 | | | 100.0 | % | | $ | 5.9 | | | $ | 552.2 | | | 100.0 | % | | $ | 517.7 | | | 100.0 | % | | $ | 34.5 | |
| | | | | | | | | | | | | | | | | | | |
for the following periods: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | $ Change | | | | |
| 2024 | | 2023 | | | | | |
Collection | $ | 211.4 | | | 62.0 | % | | $ | 140.0 | | | 53.3 | % | | $ | 71.4 | | | | | | | | | | | |
Disposal | 50.1 | | | 14.7 | % | | 51.5 | | | 19.6 | % | | (1.4) | | | | | | | | | | | |
Landfill gas-to-energy | 2.5 | | | 0.7 | % | | 1.9 | | | 0.7 | % | | 0.6 | | | | | | | | | | | |
Processing | 1.9 | | | 0.6 | % | | 1.5 | | | 0.6 | % | | 0.4 | | | | | | | | | | | |
Solid waste operations | 265.9 | | | 78.0 | % | | 194.9 | | | 74.2 | % | | 71.0 | | | | | | | | | | | |
Processing | 29.8 | | | 8.7 | % | | 22.9 | | | 8.7 | % | | 6.9 | | | | | | | | | | | |
National Accounts | 45.3 | | | 13.3 | % | | 44.8 | | | 17.1 | % | | 0.5 | | | | | | | | | | | |
Resource Solutions operations | 75.1 | | | 22.0 | % | | 67.7 | | | 25.8 | % | | 7.4 | | | | | | | | | | | |
Total revenues | $ | 341.0 | | | 100.0 | % | | $ | 262.6 | | | 100.0 | % | | $ | 78.4 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Solid waste revenues
A summary of the period-to-period changeschange 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 March 31, 2024 vs. 2023 | |
| Period-to-Period Change for the Three Months Ended March 31, 2024 vs. 2023 | |
| Period-to-Period Change for the Three Months Ended March 31, 2024 vs. 2023 | |
| | | Period-to-Period Change for the Three Months Ended June 30, 2023 vs. 2022 | | Period-to-Period Change for the Six Months Ended June 30, 2023 vs. 2022 |
| | Amount | | % Growth | | Amount | | % Growth |
Price | Price | $ | 15.5 | | | 7.7 | % | | $ | 30.2 | | | 8.2 | % |
Price | |
Price | |
Volume | |
Volume | |
Volume | Volume | (5.2) | | | (2.6) | % | | (4.7) | | | (1.3) | % |
Surcharges and other fees | Surcharges and other fees | 0.9 | | | 0.4 | % | | 11.3 | | | 3.1 | % |
Surcharges and other fees | |
Surcharges and other fees | |
Commodity price and volume | Commodity price and volume | (0.7) | | | (0.4) | % | | (1.7) | | | (0.5) | % |
Commodity price and volume | |
Commodity price and volume | |
Acquisitions | |
Acquisitions | |
Acquisitions | Acquisitions | 5.0 | | | 2.5 | % | | 8.1 | | | 2.2 | % |
| Solid waste revenues | Solid waste revenues | $ | 15.5 | | | 7.6 | % | | $ | 43.2 | | | 11.7 | % |
| Solid waste revenues | |
| Solid waste revenues | |
Price.
The pricemost significant items impacting the change component in quarterlyour solid waste revenues growth fromduring the three months ended March 31, 2024 as compared to the prior year period is the result of the following:are summarized below:
•$11.2Price increased solid waste revenues due to (i) $8.7 million, or 6.2% as a percentage of collection operations, from favorable collection pricing;pricing and
•$4.3 (ii) $2.1 million, or 4.0% as a percentage of disposal operations, from favorable disposal pricing associated withdriven by our landfills and transfer stationsstations.
•Volume decreased solid waste revenues due to (i) $(3.7) million, or (7.5)% as a percentage of disposal operations, from lower disposal volumes, primarily lower landfill volumes 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:
•$21.9 million from favorable collection pricing; and
•$8.3 million from favorable disposal pricing associated with our landfills, transfer stations and, to a lesser extent, transportation services.
Volume.
The volume change component in quarterly solid waste revenues growth from the prior year period is the result of the following:
•$(3.2) million from lower collection volumes, primarily in our Western region associated with higher customer churn due to increased pricing and fees charged to additional customers, customer deselection and slowing economic activity; and
•$(2.2) million from lower disposal volumes associated with slowing economic activity (of which $(1.1) million relates to lower transportation volumes, $(0.9) million relates to lower landfill volumes, and $(0.2) million relates to lower transfer station volumes driven by our Eastern region); partially offset by
•$0.2 million from higher processing volumes.
The volume change component in year-to-date solid waste revenues growth is the result of the following:
•$(5.4) million from lower collection volumes primarily in our Western region associated with higher customer churn due to increased pricing and fees charged to additional customers, customer deselection and slowing economic activity in the three months ended June 30, 2023; partially offset by
•$0.5 million from higher disposal volumes despite slowing economic activity in the three months ended June 30, 2023 quarter (of which $1.5 million relates to higher transfer station volumes, primarily in our Western region, and $0.1(ii) $(1.7) million, relates to higher landfill volumes; offset by $(1.1) million due toor (1.2)% as a percentage of collection operations, from lower transportation volumes); andcollection volumes.
•$0.2 million from higher processing volumes.Acquisitions increased solid waste revenues due to the rollover impact of the seven acquisitions we completed in fiscal year 2023, including the acquisition of solid waste collection, transfer and recycling operations in Pennsylvania, Maryland and Delaware, which are the basis of our newly formed regional operating segment, the Mid-Atlantic region (the “GFL Acquisition”), and the acquisition of collection, transfer and recycling operations in the greater Albany, New York Area (dba Twin Bridges).
•Surcharges and other fees.
The growth in surcharges and other fees change component in quarterlydecreased solid waste revenues growth from the prior year period is the result of higher sustainability recycling adjustment fee ("SRA Fee(s)") revenues, partially offset byprimarily due to (i) lower energy and environmental fee ("fees (“E&E Fee(s)"”) revenues. Higher SRA Fee revenues were the result of lower recycled commodity prices and a higher customer participation rate. Lower E&E Fee revenues associated with our fuel cost recovery program were theas a result of lower diesel fuel prices and (ii) lower sustainability recycling adjustment fees (“SRA Fee(s)”) revenues as a result of higher recycled commodity prices; partially offset by a higher customer participation rate.
The growth in surchargesnew fees related to legacy fuel and other fees change component in year-to-date solid waste revenues growth from the prior year period is the result of higher E&E Fee revenues and higher SRA Fee revenues. Higher E&E Fee revenuesenvironmental cost recovery programs associated with our fuel cost recovery program were the result of a higher participation rate, partially offset by lower diesel fuel prices. Higher SRA Fee revenues were the result of lower recycled commodity prices and a higher customer participation rate.
GFL Acquisition. See Item 3. “ "QuantitativeQuantitative and Qualitative Disclosures about Market Risk"” included in this Quarterly Report on Form 10-Q for additional information regarding our E&E FeeFees and SRA Fee.Fees.
Commodity price and volume.
The decline in commodity price and volume change components in quarterly and year-to-date solid waste revenues growth from the prior year periods are primarily from our Western region associated with unfavorable commodity and energy pricing and lower gas-to-energy volumes; partially offset by higher commodity processing volumes.
Acquisitions.
The acquisitions change components in quarterly and year-to-date solid waste revenues growth from the prior year periods are the result of increased acquisitions within our Western region in line with our growth strategy, including the timing and acquisition of one business in the six months ended June 30, 2023 and ten businesses in fiscal year 2022.
Resource Solutions revenues
The declineSee “Segment Reporting” below for discussion over the period-to-period change in quarterly Resource Solutions revenues of $(9.6) million from the prior year period is the result of the following:
•$(11.3) million primarily from the unfavorable impact of lower recycled commodity pricing on processing revenues, partially offset by higher tipping fees and other processing pricing; and
•$(0.9) million from lower revenues associated with our National Accounts business due to decreased volumes and lower fees, offset in part by favorable pricing; partially offset by
•$2.6 million from higher processing volumes mainly driven by higher recycled commodity volumes.
The decline in year-to-date Resource Solutions revenues of $(8.7) million from the prior year period is the result of the following:
•$(22.2) million from the unfavorable impact of lower recycled commodity pricing on processing revenues, offset in part by higher tipping fees and other processing pricing; partially offset by
•$7.3 million from increased processing volumes mainly driven by higher recycled commodity volumes;
•$3.5 million from higher revenues associated with our National Accounts business due to favorable pricing and increased fees, partially offset by lower volumes; and
•$2.7 million from acquisition activity.revenues.
Operating Expenses
A summary of cost of operations, general and administration expense, and depreciation and amortization expense is as follows (dollars in millions and as a percentage of total revenues) is as follows:: | | |
| |
| |
| | | Three Months Ended June 30, | | $ Change | | Six Months Ended June 30, | | $ Change |
| | 2023 | | 2022 | | 2023 | | 2022 | |
Cost of operations | Cost of operations | $ | 186.3 | | | 64.3 | % | | $ | 186.0 | | | 65.6 | % | | $ | 0.3 | | | $ | 366.6 | | | 66.4 | % | | $ | 348.5 | | | 67.3 | % | | $ | 18.1 | |
Cost of operations | |
Cost of operations | |
General and administration | |
General and administration | |
General and administration | General and administration | $ | 35.9 | | | 12.4 | % | | $ | 33.6 | | | 11.8 | % | | $ | 2.3 | | | $ | 71.5 | | | 13.0 | % | | $ | 63.4 | | | 12.2 | % | | $ | 8.1 | |
Depreciation and amortization | Depreciation and amortization | $ | 34.9 | | | 12.1 | % | | $ | 31.2 | | | 11.0 | % | | $ | 3.7 | | | $ | 68.4 | | | 12.4 | % | | $ | 60.6 | | | 11.7 | % | | $ | 7.8 | |
Depreciation and amortization | |
Depreciation and amortization | |
Cost of Operations
Cost of operations includes: (i) direct costs, which consist of the costs of purchased materials and third-party transportation and disposal costs, including third-party tipping fees; (ii) direct labor costs, which include salaries, wages, incentive compensation and related benefit costs such as health and welfare benefits and workers 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; (iv) fuel costs used by our vehicles and in conducting our operations; (v) maintenance and repair costs relating to our vehicles, equipment and containers; and (vi) other operational costs including facility costs.
A summary of the major components of our cost of operations is as follows (dollars in millions and as a percentage of total revenues):
| | Three Months Ended June 30, | | $ Change | | Six Months Ended June 30, | | $ Change |
| 2023 | | 2022 | | 2023 | | 2022 | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| 2024 | |
| 2024 | |
| 2024 | |
Direct costs | |
Direct costs | |
Direct costs | Direct costs | $ | 72.6 | | | 25.1 | % | | $ | 74.2 | | | 26.2 | % | | $ | (1.6) | | | $ | 138.8 | | | 25.1 | % | | $ | 134.1 | | | 25.9 | % | | $ | 4.7 | |
Direct labor costs | Direct labor costs | 37.3 | | | 12.9 | % | | 35.8 | | | 12.6 | % | | 1.5 | | | 74.0 | | | 13.4 | % | | 70.5 | | | 13.6 | % | | 3.5 | |
Direct labor costs | |
Direct labor costs | |
Direct operational costs | |
Direct operational costs | |
Direct operational costs | Direct operational costs | 23.1 | | | 8.0 | % | | 23.2 | | | 8.2 | % | | (0.1) | | | 46.0 | | | 8.3 | % | | 43.1 | | | 8.3 | % | | 2.9 | |
Fuel costs | Fuel costs | 9.4 | | | 3.3 | % | | 13.6 | | | 4.8 | % | | (4.2) | | | 20.3 | | | 3.7 | % | | 23.5 | | | 4.5 | % | | (3.2) | |
Fuel costs | |
Fuel costs | |
Maintenance and repair costs | |
Maintenance and repair costs | |
Maintenance and repair costs | Maintenance and repair costs | 22.7 | | | 7.7 | % | | 19.9 | | | 7.0 | % | | 2.8 | | | 45.5 | | | 8.3 | % | | 38.7 | | | 7.5 | % | | 6.8 | |
Other operational costs | Other operational costs | 21.2 | | | 7.3 | % | | 19.3 | | | 6.8 | % | | 1.9 | | | 42.0 | | | 7.6 | % | | 38.6 | | | 7.5 | % | | 3.4 | |
| $ | 186.3 | | | 64.3 | % | | $ | 186.0 | | | 65.6 | % | | $ | 0.3 | | | $ | 366.6 | | | 66.4 | % | | $ | 348.5 | | | 67.3 | % | | $ | 18.1 | |
Other operational costs | |
Other operational costs | |
| $ | |
| $ | |
| $ | |
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 changeschange in our cost of operations during the three and six months ended June 30, 2023 and 2022March 31, 2024 as compared to the prior year period are summarized below:
•Maintenance and repairDirect costs increased in aggregate dollars due primarily to (i) acquisitions and (ii) higher third-party disposal rates reflecting cost inflation; partially offset in dollars, and more than offset as a percentage of revenues, due to higher fleetby lower hauling and container maintenancetransportation costs driven by acquisition-related growth, primarily in our Western region, and inflationary pressureson lower volumes associated with personnel related expenses and supplyour National Accounts business, which operates with direct costs related to repairs and parts;
•Direct costs in aggregate dollars decreased quarterly and increased year-to-date, while decreasing asrepresenting a higher percentage of revenues, primarily as the result of higher hauling, transportation and disposal costs on acquisition-related growth, predominantly in our Western region, and higher disposal rates and hauling charges due to inflationary pressures; partially offset year-to-date, and more than offset quarterly, by lower purchased material costs in our Resource Solutions operating segment;related revenues.
•Direct labor costs increased in aggregate dollars associated with acquisition-related growth, predominantly in our Western region,due primarily to (i) acquisitions and inflationary pressures;(ii) higher wages and benefit costs reflecting cost inflation; partially offset by improved routing efficiencies;efficiencies.
•OtherDirect operational costs increased in aggregate dollars due primarily to (i) acquisitions, (ii) higher leachate disposal costs, (iii) higher short term rental expense driven by delays in the delivery of fleet vehicles as well as new municipal contracts, and (v) general cost inflation.
•Fuel costs increased in aggregate dollars due to acquisitions, partially offset in dollars, and more than offset as a percentage of revenues, driven by higher facility costs primarily associated with (i) higher spend on outside repairs, (ii) increased facility insurance costs and (iii) higher personnel related expenses due to acquisition-related growth, primarily in our Western region, and inflationary pressures; partially offset year-to-date by a benefit from the change in fair value of an acquisition related contingent consideration which is based upon a probability-weighted analysis of a success payment related to the potential attainment of a transfer station permit expansion in our Western region; and
•Direct operational costs in aggregate dollars decreased marginally quarterly and increased year-to-date primarily associated with: (i) acquisition-related growth, primarily in our Western region; (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; (iv) higher tire repair and replacement costs; and (v) inflationary pressures; partially offset year-to-date, and more than offset quarterly, by lower non-landfill operating lease expense, lower landfill related operating costs, and lower quarterly vehicle insurance costs; partially offset by
•Fuel costs decreased in aggregate dollars and as a percentage of revenues, primarily due to lower diesel fuel prices andalong with reduced fuel consumption in our base business related to lower solid waste volumes; partially offset by higher diesel fuel consumption related to acquisition-related growth primarily in our Western region.volumes and improved routing efficiencies. See Item 3. "“Quantitative and Qualitative Disclosures about Market RiskRisk”" included in of this Quarterly Report on Form 10-Q for additional information regarding our fuel costs.
•Maintenance and repair costs increased due to (i) acquisitions, (ii) higher personnel and parts costs reflecting cost inflation, and (iii) higher vehicle maintenance costs driven by delays in the delivery of fleet replacements.
•Other operational costs increased due to (i) acquisitions, (ii) higher spend associated with supporting acquisition-related growth, and (iii) general cost inflation.
General and Administration
General and administration expense includes: (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; (ii) professional service fees; (iii) bad debt expense;provision for expected credit losses; 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 expensesexpense is as follows (dollars in millions and as a percentage of total revenues):
| | Three Months Ended June 30, | | $ Change | | Six Months Ended June 30, | | $ Change |
| 2023 | | 2022 | | 2023 | | 2022 | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| 2024 | |
| 2024 | |
| 2024 | |
Labor costs | |
Labor costs | |
Labor costs | Labor costs | $ | 23.9 | | | 8.3 | % | | $ | 22.1 | | | 7.8 | % | | $ | 1.8 | | | $ | 47.3 | | | 8.6 | % | | $ | 43.4 | | | 8.4 | % | | $ | 3.9 | |
Professional fees | Professional fees | 2.3 | | | 0.8 | % | | 1.8 | | | 0.6 | % | | 0.5 | | | 4.7 | | | 0.9 | % | | 3.5 | | | 0.7 | % | | 1.2 | |
Provision for bad debt expense | 0.1 | | | — | % | | 1.3 | | | 0.5 | % | | (1.2) | | | 1.1 | | | 0.2 | % | | 1.1 | | | 0.2 | % | | — | |
Professional fees | |
Professional fees | |
Provision for expected credit losses | |
Provision for expected credit losses | |
Provision for expected credit losses | |
Other | Other | 9.6 | | | 3.3 | % | | 8.4 | | | 2.9 | % | | 1.2 | | | 18.4 | | | 3.3 | % | | 15.4 | | | 2.9 | % | | 3.0 | |
| $ | 35.9 | | | 12.4 | % | | $ | 33.6 | | | 11.8 | % | | $ | 2.3 | | | $ | 71.5 | | | 13.0 | % | | $ | 63.4 | | | 12.2 | % | | $ | 8.1 | |
Other | |
Other | |
| $ | |
| $ | |
| $ | |
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 changesGeneral and administrative expense increased in our general and administration expenses during the three and six months ended June 30, 2023 and 2022 are summarized below:
•Labor costs increased in aggregate dollars andMarch 31, 2024 as a percentage of revenuescompared to the prior year period, primarily due to acquisition-related growth, primarily in our Western region, wage inflation,(i) acquisition activity, including increased labor costs, professional fees and higher equity compensation costs; partially offset by lower accrued incentive compensation costs; and
•Other costs increased in aggregate dollars and as a percentage of revenues primarily due to inflationary pressures, an increase in service agreement costs, sponsorship and advertising related costs, and an increase in general overheadother costs to support business growth.our growth and acquisition strategy, (ii) escalation of salary, wage, incentive compensation and benefit costs, and (iii) general cost inflation.
Depreciation and Amortization
Depreciation and amortization expense includes: (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; (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 event; and (iii) amortization of intangible assets with a definite life, based on the economic benefit provided, or using the sum of years digits or straight-line methods over the definitive terms of the related agreements.
A summary of the components of depreciation and amortization expense (dollars in millions and as a percentage of total revenues) follows: | | |
| |
| |
| | | Three Months Ended June 30, | | $ Change | | Six Months Ended June 30, | | $ Change |
| | 2023 | | 2022 | | 2023 | | 2022 | |
Depreciation expense | Depreciation expense | $ | 20.8 | | | 7.2 | % | | $ | 18.9 | | | 6.7 | % | | $ | 1.9 | | | $ | 41.4 | | | 7.5 | % | | $ | 38.4 | | | 7.4 | % | | $ | 3.0 | |
Depreciation expense | |
Depreciation expense | |
Landfill amortization expense | |
Landfill amortization expense | |
Landfill amortization expense | Landfill amortization expense | 9.9 | | | 3.4 | % | | 8.0 | | | 2.8 | % | | 1.9 | | | 18.7 | | | 3.4 | % | | 14.1 | | | 2.7 | % | | 4.6 | |
Other amortization expense | Other amortization expense | 4.2 | | | 1.5 | % | | 4.3 | | | 1.5 | % | | (0.1) | | | 8.3 | | | 1.5 | % | | 8.1 | | | 1.6 | % | | 0.2 | |
| $ | 34.9 | | | 12.1 | % | | $ | 31.2 | | | 11.0 | % | | $ | 3.7 | | | $ | 68.4 | | | 12.4 | % | | $ | 60.6 | | | 11.7 | % | | $ | 7.8 | |
Other amortization expense | |
Other amortization expense | |
| $ | |
| $ | |
| $ | |
The period-to-period increasesDepreciation and amortization expense increased in depreciation expense can bethe three months ended March 31, 2024 as compared to the prior year period, primarily attributeddue to acquisition activity(i) acquisitions, including the impact of accelerated amortization schedules of certain intangibles, (ii) investment in property and increased investmentsequipment in our fleet. The period-to-period increases inexisting operations, and (iii) higher landfill amortization expense can be attributedrelated to increased landfill volumes year-to-date and changes in cost and other assumptions.assumptions from the prior year periods, more than offsetting lower landfill volumes.
Expense from Acquisition Activities
In the three and six months ended June 30,March 31, 2024, and 2023, we recorded charges of $3.7$5.0 million and $6.5 million, respectively, and in the three and six months ended June 30, 2022, we recorded charges of $1.0 million and $3.1$2.9 million, respectively, comprised primarily of legal, consulting, rebranding and other similar costs associated with the due diligence, and the acquisition and integration of acquired businesses, or selectincluding expenses related to the development projects.
Legal Settlement
Inof our Mid-Atlantic region, in the three and six months ended June 30, 2023, we accrued for a charge of $6.2 million in current liabilities due to reaching an agreement at a mediation held on June 20, 2023 with the collective class members of a class action lawsuit relating to certain claims under the Fair Labor Standards Act of 1938 ("FLSA") as well as state wage and hours laws. The settlement agreement was executed July 24, 2023, and remains subject to court approval.March 31, 2024.
Other Expenses
Interest Expense, net
Our interest expense, net increased $1.7$6.8 million quarterly and $2.8 million year-to-date as compared to the same periods in the prior year period 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 in June 2023, (ii) rising interest rates, and higher average debt balances associated with(iii) the issuance of $35.0 million aggregate principal amount of Vermont Economic Development AuthorityNew York State Environmental Facilities Corporation Solid Waste Disposal Long-Term Revenue Bonds Series 2022A-1 ("Vermont Bonds 2022A-1"), as well as the amortization of transaction, legal, and other similar debt issuance costs incurred2020R-2 in August 2023; partially offset by higher interest income associated with bridgethe timing of financing activities related to the GFL Acquisitionresulting in a higher average cash balance and entering into an asset purchase agreement with Consolidated Waste Services, LLC and its affiliates (dba as Twin Bridges) pursuant to which we agreed to acquire assets in the greater Albany, New York area ("Twin Bridges Acquisition"), which is pending regulatory approval. For additional disclosure regardingrising 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 three and six months ended June 30, 2023, we wrote-off the unamortized debt issuance costs and recognized a loss from termination of bridge financing upon the extinguishment of both a secured bridge financing agreement in connection with the GFL Acquisition of $3.7 million and $3.7 million, respectively, and an unsecured bridge financing agreement in connection with the Twin Bridges Acquisition, which is pending regulatory approval, of $4.5 million and $4.5 million, respectively.rates.
(Benefit) Provision for Income Taxes
Our provision for income taxes decreased $(6.6)$2.6 million in the three months ended June 30, 2023, and decreased $(6.8) million year-to-date as compared toMarch 31, 2024 from the prior year periods. This is primarily due to the GFL Acquisition and debt financing expenses incurred inperiod. The benefit of $(1.8) million for the three months ended June 30, 2023. The provision for income taxes in the six months ended June 30, 2023March 31, 2024 included $1.4$0.6 million of current income taxes and $1.4$(2.4) million of deferred income tax benefit. For the three months ended March 31, 2023, the provision of $0.8 million included $0.5 million of current income taxes and $0.3 million of deferred income taxes. The provision30.0% effective rate for income taxes in the sixthree months ended June 30, 2022 included $2.4 million of current income taxes and $7.1 million of deferred income taxes. The effective rate before discrete items for the fiscal year ending DecemberMarch 31, 2023 ("fiscal year 2023") is 28.1% and is2024 was computed based on the statutory rate of 21% adjusted primarily for state taxes, and nondeductible officer compensation. The discrete items includecompensation, an increase in the effective state rate due to tax losses in certain states requiring a valuation allowance, and partially offset by tax deductible equity compensation and a portionin excess of equity compensation disallowed in 162(m). The equity compensation deduction is taken into account inbook expense. This effective rate exceeded the six months ended June 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 the18.2% effective rate for the sixthree months ended June 30, 2023. TheMarch 31, 2023 primarily due to the current period rate having lower tax deductible equity compensation in excess of book expense and an increase in the effective state rate for the six months ended June 30, 2023 is 26.6%. For the period ending June 30, 2022 the effective rate was 32.5%.
tax losses in certain states requiring valuation losses.On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJA”“TCJ Act”) was enacted. The TCJATCJ Act significantly changed U.S. corporate income tax laws by, among other things, changing carryforward rules for net operating losses. Under the Internal Revenue Code, as amended by the TCJA,Our $7.2 million in federal net operating loss carryforwards generated beforeas of the 2018 tax yearend of 2017 continue to be carried forward for 20 years and are ableexpected to be available to fully offset taxable income (“pre-2018 net operating losses”).earned in 2024 and future years. Federal net operating losses generated following theafter 2017, tax year aretotaling $125.7 million carried forward to 2024, will be carried forward indefinitely, but generally may only offset up to 80% of taxable income earned in a tax year (“post-2017 net operating losses”).
We carried $5.8 million of pre-2018 net operating losses and $46.5 million of post-2017 net operating losses into the 2023 tax year. Due to the structure of the GFL Acquisition during the three months ended June 30, 2023, we are projecting a significant increase to depreciation and amortization deductions during the 2023 tax year. As such, we are projecting to utilize significantly less net operating losses during fiscal year 2023 than we projected in the three months ended March 31, 2023. Currently, we expect to utilize all our pre-2018 net operating losses in fiscal year 2023 and carryforward about $42 million post-2017 net operating losses to the fiscal year ending December 31, 2024. We expect some refinements to our tax provision for fiscal year 2023 as we obtain and analyze more detailed information from the GFL Acquisition.
In addition, the TCJATCJ Act added limitations on the deductibility of interest expense that became more restrictive beginning in tax year 2022 and potentially could limit the deductibility of some of our interest expense. Any interest expense limited may be carried forward indefinitely and utilized in later years subject to saidthe interest limitation.
Segment Reporting
Revenues
A summary of revenues by reportable operating segment (in millions) follows: | | | Three Months Ended June 30, | | $ Change | | Six Months Ended June 30, | | $ Change |
| | 2023 | | 2022 | | 2023 | | 2022 | |
| |
| 2024 | |
| 2024 | |
| 2024 | |
Eastern | |
Eastern | |
Eastern | Eastern | $ | 93.4 | | | $ | 87.3 | | | $ | 6.1 | | | $ | 177.2 | | | $ | 158.6 | | | $ | 18.6 | |
Western | Western | 124.2 | | | 114.8 | | | 9.4 | | | 235.3 | | | 210.7 | | | 24.6 | |
Mid-Atlantic | — | | | — | | | — | | | — | | | — | | | — | |
Western | |
Western | |
Mid-Atlantic (1) | |
Mid-Atlantic (1) | |
Mid-Atlantic (1) | |
Resource Solutions | |
Resource Solutions | |
Resource Solutions | Resource Solutions | 72.0 | | | 81.6 | | | (9.6) | | | 139.7 | | | 148.4 | | | (8.7) | |
| Total revenues | Total revenues | $ | 289.6 | | | $ | 283.7 | | | $ | 5.9 | | | $ | 552.2 | | | $ | 517.7 | | | $ | 34.5 | |
| Total revenues | |
| Total revenues | |
(1)Operations under the Mid-Atlantic region commenced July 1, 2023.
A summary of operating income (loss) by operating segment (in millions) follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | $ Change | | | | |
| 2024 | | 2023 | | | | | |
Eastern | $ | 3.6 | | | $ | 2.1 | | | $ | 1.5 | | | | | | | |
Western | 8.8 | | | 12.5 | | | (3.7) | | | | | | | |
Mid-Atlantic (1) | (4.8) | | | — | | | (4.8) | | | | | | | |
Resource Solutions | 1.4 | | | (1.9) | | | 3.3 | | | | | | | |
Corporate Entities | (2.2) | | | (2.4) | | | 0.2 | | | | | | | |
Operating income | $ | 6.8 | | | $ | 10.3 | | | $ | (3.5) | | | | | | | |
(1)Operations under the Mid-Atlantic region commenced July 1, 2023.
Eastern Region
A summary of the period-to-period changeschange 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 March 31, 2024 vs. 2023 | |
| Period-to-Period Change for the Three Months Ended March 31, 2024 vs. 2023 | |
| Period-to-Period Change for the Three Months Ended March 31, 2024 vs. 2023 | |
| | | Period-to-Period Change for the Three Months Ended June 30, 2023 vs. 2022 | | Period-to-Period Change for the Six Months Ended June 30, 2023 vs. 2022 |
| | Amount | | % Growth | | Amount | | % Growth |
Price | Price | $ | 8.2 | | | 9.4 | % | | $ | 15.8 | | | 10.0 | % |
Price | |
Price | |
Volume | |
Volume | |
Volume | Volume | (2.2) | | | (2.6) | % | | (1.8) | | | (1.1) | % |
Surcharges and other fees | Surcharges and other fees | 0.2 | | | 0.2 | % | | 4.7 | | | 3.0 | % |
Surcharges and other fees | |
Surcharges and other fees | |
Commodity price and volume | Commodity price and volume | (0.1) | | | (0.1) | % | | (0.1) | | | (0.1) | % |
| Commodity price and volume | |
Commodity price and volume | |
Acquisitions | |
Acquisitions | |
Acquisitions | |
| Solid waste revenues | Solid waste revenues | $ | 6.1 | | | 6.9 | % | | $ | 18.6 | | | 11.8 | % |
| Solid waste revenues | |
| Solid waste revenues | |
Price.
The price change component in quarterly solidSolid waste revenues growth from the prior year period is the result of the following:
•$5.9 million from favorable collection pricing; and
•$2.3 million from favorable disposal pricing related to transfer stations and landfills.
The price change component in year-to-date solid waste revenues growth from the prior year period is the result of the following:
•$11.2 million from favorable collection pricing; and
•$4.6 million from favorable disposal pricing related to transfer stations and landfills.
Volume.
The volume change component in quarterly solid waste revenues growth from the prior year period is the result of the following:
•$(1.8) million from lower disposal volumes related to slowing economic activity (of which $(0.9) million relates to lower transfer station volumes, $(0.6) million relates to lower transportation volumes and $(0.3) million is associated with lower landfill volumes due to customer and material mix); and
•$(0.6) million from lower collection volumes associated with slowing economic activity; partially offset by
•$0.2 million from higher processing volumes.
The volume change component in year-to-date solid waste revenues growth from the prior year period is the result of the following:
•$(1.4) million from lower disposal volumes related to slowing economic activityincreased in the three months ended June 30, 2023 (of which $(0.9)March 31, 2024 as compared to the prior year period, primarily driven by (i) the contribution from acquisitions, (ii) favorable collection pricing of $4.1 million, relates to lower transportation volumesor 6.8% as a percentage of collection operations, (iii) favorable disposal pricing of $0.7 million, or 3.1% as a percentage of disposal operations, and $(0.6)(iv) higher disposal volume of $0.9 million, is associated with lower landfill volumes due to customer and material mix,or 4.3% as a percentage of disposal operations; partially offset by $0.1 million in increased transfer station volumes);(a) lower surcharges and
•$(0.6) million from fees, as well as (b) lower collection volumes associated with slowing economic activityvolume of $(0.6) million, or (0.9)% as a percentage of collection operations.
Operating income increased in the three months ended June 30, 2023;March 31, 2024 by $1.5 million as compared to the prior year period. The period-over-period increase was driven by revenue growth, described above, as well as intercompany revenues, and lower costs due to improved routing efficiencies; partially offset by
•$0.2 million from (i) higher processing volumes.
Surcharges and other fees.
The growth in surcharges and other fees change component in quarterly solid waste revenues growth from the prior year period is the result of higher SRA Fee revenues, partially offset by lower E&E Fee revenues. Higher SRA Fee revenues were the result of lower recycled commodity prices and a higher customer participation rate. Lower E&E Fee revenuescosts associated with our fueloperating and supporting acquired businesses, (ii) increased depreciation expense due to investment in property and equipment, (iii) general cost recovery program were the result of lower diesel fuel prices, partially offset by ainflation, including for disposal, labor, and maintenance costs, as well as (iv) 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 E&E Fee revenues and higher SRA Fee revenues. Higher E&E Fee revenues associated with our fuel cost recovery program were the result of a higher participation rate, partially offset by lower diesel fuel prices. Higher SRA Fee revenues were the result of lower recycled commodity prices and a higher customer participation rate.
See Item 3. "Quantitative and Qualitative Disclosures about Market Risk" included in this Quarterly Report on Form 10-Q for additional information regarding our E&E Fee and SRA Fee.leachate disposal costs.
Western Region
A summary of the period-to-period changeschange in solid waste revenues (dollars in millions and as percentage growth of solid waste revenues) follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Period-to-Period Change for the Three Months Ended June 30, 2023 vs. 2022 | | Period-to-Period Change for the Six Months Ended June 30, 2023 vs. 2022 |
| Amount | | % Growth | | Amount | | % Growth |
Price | $ | 7.3 | | | 6.4 | % | | $ | 14.4 | | | 6.8 | % |
Volume | (2.9) | | | (2.6) | % | | (2.8) | | | (1.3) | % |
Surcharges and other fees | 0.7 | | | 0.5 | % | | 6.5 | | | 3.1 | % |
Commodity price and volume | (0.7) | | | (0.6) | % | | (1.6) | | | (0.8) | % |
Acquisitions | 5.0 | | | 4.4 | % | | 8.1 | | | 3.8 | % |
| | | | | | | |
Solid waste revenues | $ | 9.4 | | | 8.1 | % | | $ | 24.6 | | | 11.6 | % |
Price.
The price change component in quarterly solid waste revenues growth from the prior year period is the result of the following:
•$5.3 million from favorable collection pricing; and
•$2.0 million from favorable disposal pricing related to landfills, transfer stations, and transportation services.
The price change component in year-to-date solid waste revenues growth from the prior year period is the result of the following:
•$10.8 million from favorable collection pricing; and
•$3.6 million from favorable disposal pricing related to landfills, transfer stations, and transportation services. | | | | | | | | | | | | | | | |
| Period-to-Period Change for the Three Months Ended March 31, 2024 vs. 2023 | | |
| Amount | | % Growth | | | | |
Price | $ | 6.0 | | | 5.4 | % | | | | |
Volume | (5.9) | | | (5.3) | % | | | | |
Surcharges and other fees | (1.8) | | | (1.7) | % | | | | |
Commodity price and volume | 0.5 | | | 0.5 | % | | | | |
Acquisitions | 20.5 | | | 18.5 | % | | | | |
| | | | | | | |
Solid waste revenues | $ | 19.3 | | | 17.4 | % | | | | |
Volume.
The volume change component in quarterly solidSolid waste revenues growth from the prior year period is the result of the following:
•$(2.5) million from lower collection volumes associated with slowing economic activity and higher customer churn due to increased pricing and fees charged to additional customers, and customer deselection; and
•$(0.4) million from lower disposal volumes related to slowing economic activity (of which $(0.6) million relates to lower landfill volumes and $(0.6) relates to lower transportation services, partially offset by $0.8 million in higher transfer station volumes).
The volume change component in year-to-date solid waste revenues growth from the prior year period is the result of the following:
•$(4.8) million from lower collection volumes associated with slowing economic activity in the three months ended June 30, 2023March 31, 2024 as compared to the prior year period, primarily driven by (i) the contribution from acquisitions, (ii) favorable collection pricing of $4.6 million, or 5.8% as a percentage of collection operations, (iii) favorable disposal pricing of $1.4 million, or 4.7% as a percentage of disposal operations; partially offset by (a) lower surcharges and higher customer churnfees, (b) lower disposal volume of $(4.8) million, or (15.9)% as a percentage of disposal operations, driven by lower landfill C&D and special waste volumes, and (c) lower collection volume of $(1.1) million, or (1.4)% as a percentage of collection operations, due to increased pricing and fees charged to additional customers, and customer deselection; partially offset bychurn.
•$2.0 million from higher disposal volumes despite slowing economic activityOperating income declined in the three months ended June 30,March 31, 2024 by $(3.7) million as compared to the prior year period. The period-over-period decline was due to (i) higher costs associated with operating and supporting acquired businesses, including the impact of accelerated amortization schedules of certain intangibles, (ii) increased depreciation expense due to investment in property and equipment, (iii) general cost inflation, including for disposal, labor, and maintenance costs, (iv) delays in the delivery of fleet vehicles resulting in higher short term rental and vehicle maintenance costs, (v) higher leachate disposal costs, and (vi) a gain on resolution of acquisition-related contingent consideration that was recorded in the three months ended March 31, 2023 (of which $1.4 million relates to higher transfers stations volumes and $0.8 million relates to higher landfill volumes,associated with the reversal of a contingency for a transfer station permit expansion that is no longer deemed viable; partially offset by $(0.2) million in(a) revenue growth, described above, (b) intercompany revenues, (c) lower transportation services).
Surchargesexpense from acquisition activities, and other fees.
The growth in surcharges and other fees change component in quarterly solid waste revenues growth from the prior year period is the result of higher SRA Fee revenues, partially offset by lower E&E Fee revenues. Higher SRA Fee revenues were the result of lower recycled commodity prices and a higher customer participation rate. Lower E&E Fee revenues associated with our fuel cost recovery program were the result of lower diesel fuel prices, partially offset by a higher customer participation rate.
The growth in surcharges and other fees change component in the year-to-date solid waste revenues growth from the prior year period is the result of higher E&E Fee revenues and higher SRA Fee revenues. Higher E&E Fee revenues associated with our fuel cost recovery program were the result of a higher participation rate, partially offset by lower diesel fuel prices. Higher SRA Fee revenues were the result of lower recycled commodity prices and a higher customer participation rate.
(d) improved routing efficiencies. See Item 3."Quantitative and Qualitative Disclosuresfurther discussion about Market Risk" included in this Quarterly Report on Form 10-Q for additional information regarding our E&E Fee and SRA Fee.
Commodity price and volume.
The commodity price and volume change component in quarterly solid waste revenues growth from the prior year period is primarily due to unfavorable commodity and energy pricing.
The commodity price and volume change component in year-to-date solid waste revenues growth from the prior year period is primarily due to lower landfill gas-to-energy volumes and unfavorable commodity and energy pricing; 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 one business in the six months ended June 30, 2023 and ten businesses in the fiscal year 2022.
Operating Income (Loss)
A summary of operating income (loss) by operating segment (in millions) follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | $ Change | | Six Months Ended June 30, | | $ Change |
| 2023 | | 2022 | | 2023 | | 2022 | |
Eastern | $ | 7.5 | | | $ | 6.1 | | | $ | 1.4 | | | $ | 9.7 | | | $ | 3.9 | | | $ | 5.8 | |
Western | 19.0 | | | 19.9 | | | (0.9) | | | 31.4 | | | 29.2 | | | 2.2 | |
Mid-Atlantic | — | | | — | | | — | | | — | | | — | | | — | |
Resource Solutions | 0.7 | | | 6.2 | | | (5.5) | | | (1.3) | | | 9.9 | | | (11.2) | |
Corporate Entities | (4.6) | | | (0.5) | | | (4.1) | | | (6.9) | | | (1.1) | | | (5.8) | |
Operating income | $ | 22.6 | | | $ | 31.7 | | | $ | (9.1) | | | $ | 32.9 | | | $ | 41.9 | | | $ | (9.0) | |
Eastern Region
Operating income increased $1.4 million quarterly and $5.8 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 above in “Operating Expenses”.
Mid-Atlantic Region
A summary of the period-to-period change in solid waste revenues (dollars in millions) follows: | | | | | | | | | | | |
| Period-to-Period Change for the Three Months Ended March 31, 2024 vs. 2023 | | | | | | |
| Amount | | | | | | |
| | | | | | | |
| | | | | | | |
Surcharges and other fees | $ | 2.8 | | | | | | | |
| | | | | | | |
Acquisitions | 38.8 | | | | | | | |
| | | | | | | |
Solid waste revenues | $ | 41.6 | | | | | | | |
Collection and transfer station operations for our Mid-Atlantic region operating performancesegment commenced on July 1, 2023 following the GFL Acquisition. The operating loss of $(4.8) million was impacted by $3.0 million of expense from acquisition activities, comprised of legal, consulting and integration costs related to the GFL Acquisition, as well as the impact of accelerated amortization schedules of certain acquired intangibles. See further discussion about the expense from acquisition activities above in “Operating Expenses”.
Resource Solutions
A summary of the period-to-period change 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 March 31, 2024 vs. 2023 |
| | | | | Amount | | % Growth |
Price | | | | | $ | 6.2 | | | 9.2 | % |
Volume | | | | | (1.4) | | | (2.0) | % |
Surcharges and other fees | | | | | (0.4) | | | (0.6) | % |
| | | | | | | |
Acquisitions | | | | | 3.0 | | | 4.4 | % |
| | | | | | | |
Resource Solutions revenues | | | | | $ | 7.4 | | | 11.0 | % |
Resource Solutions revenues increased in the three and six months ended June 30, 2023 was driven by revenue growth, inclusive of inter-company revenues, more than offsetting the following cost changes.
Cost of operations
Cost of operations increased $1.8 million quarterly and $10.8 million year-to-date from the prior year periods due to the following:
•Direct costs increased in aggregate dollars primarily due to higher hauling, transportation and disposal costs associated with higher disposal rates and year-to-date hauling charges due to inflationary pressures;
•Maintenance and repair costs increased in aggregate dollars driven by higher fleet and container maintenance costs due to inflationary pressures associated with personnel related expenses and supply costs related to repairs and parts, partially offset by lower spend on outside repairs;
•Direct operational costs in aggregate dollars decreased quarterly and increased year-to-date primarily due to: (i) higher accretion expense associated with changes in the timing and cost estimates of our closure, post-closure, and capping obligations, (ii) higher tire repair and replacement costs (iii) and inflationary pressures; partially offset year-to-date, and more than offset quarterly by lower non-landfill operating lease expense, lower landfill related operating costs, and lower vehicle insurance costs;
•Direct labor costs increased in aggregate dollars primarily due to inflationary pressures; partially offset by lower spend on outside labor and improved routing efficiencies;
•Fuel costs decreased in aggregate dollars primarily due to lower diesel fuel prices and lower solid waste volumes. See Item 3. "Quantitative and Qualitative Disclosures about Market Risk" included in this Quarterly Report on Form 10-Q for additional information regarding our fuel costs; and
•Other operational costs increased in aggregate dollars driven by higher facility costs primarily associated with an increase spend on outside repairs, and personnel related expenses due to inflationary pressures.
General and administration
General and administration expense increased $0.7 million quarterly and $3.0 million year-to-date from the prior year periods due primarily to wage inflation and the allocation of higher shared service costs; partially offset by lower bad debt expense quarterly.
Depreciation and amortization
Depreciation and amortization expense increased $0.6 million quarterly and $1.1 million year-to-date from the prior year periods due to higher landfill amortization expenseMarch 31, 2024 as the result of higher landfill volumes year-to-date and changes in cost and other assumptions; partially offset by lower depreciation and other amortization expense duecompared to the prior year period, including additional depreciation and other amortization expense related to a purchase price allocation adjustment.
Western Region
Operating income decreased $(0.9) million quarterly and increased $2.2 million year-to-date from the prior year periods. Excluding the impact of the FLSA-related legal settlement charge and expense from acquisition activities, our operating performance in the three and six months ended June 30, 2023 wasprimarily driven by revenue(i) higher recycled commodity pricing on processing revenues of $4.8 million, or 21.2% as a percentage of processing operations, (ii) National Accounts business pricing growth inclusive of inter-company revenues,$2.7 million, or 6.0% as a percentage of National Accounts operations, (iii) the contribution from acquisitions, and the following cost changes.
Cost of operations
Cost of operations increased $6.6 million quarterly and $17.3 million year-to-date from the prior year periods due to the following:
•Direct costs increased in aggregate dollars primarily due to higher hauling, transportation and disposal costs on acquisition-related growth, and higher disposal rates and hauling charges due to inflationary pressures;
•Direct operational costs increased in aggregate dollars primarily due to: (i) acquisition-related growth; (ii) higher accretion expense associated with changes in the timing and cost estimates of our closure, post-closure, and capping obligations; (iii) higher host community and royalty fees; (iv) higher tire repair and replacement costs; (v) increased vehicle insurance costs; and (vi) inflationary pressures;processing volumes of $0.4 million, or 2.0% as a percentage of processing operations; partially offset by (a) lower non-landfill operating lease expenseNational Accounts business volumes of $(1.8) million, or (4.0)% as a percentage of National Accounts operations, (b) lower tipping fees and other processing pricing of $(1.3) million, or (5.8)% as a percentage of processing operations, and (c) lower landfill related operating costs;surcharges and other fees associated with our National Accounts business.
•Maintenance and repair costs increased in aggregate dollars due to higher fleet and container maintenance costs driven by acquisition-related growth and inflationary pressures associated with (i) personnel related expenses, (ii) supply costs related to repairs and parts and (iii) outside repair spend;
•Direct labor costs increased in aggregate dollars primarily due to acquisition-related growth and inflationary pressures; partially offset by improved routing efficiencies;
•Fuel costs decreased in aggregate dollars primarily due to lower diesel fuel prices and lower solid waste volumes; partially offset by higher diesel fuel consumption related to acquisition-related growth. See Item 3. "Quantitative and Qualitative Disclosures about Market Risk" included in this Quarterly Report on Form 10-Q for additional information regarding our fuel costs; and
•Other operational costs increased in aggregate dollars driven by higher facility costs due to acquisition-related growth and inflationary pressures primarily associated with higher spend on internally completed and outside repairs, and personnel related expenses; partially offset year-to-date by a benefit from the change in fair value of an acquisition related contingent consideration which is based upon a probability-weighted analysis of a success payment related to the potential attainment of a transfer station permit expansion.
General and administration
General and administration expense increased $1.3 million quarterly and $3.3 million year-to-date from the prior year periods, with the year-to-date increase due primarily to (i) acquisition-related growth, (ii) wage inflation, (iii) an increase in general overhead costs associated with acquisition-related growth and inflationary pressures and (iv) the allocation of higher shared service costs; partially offset by lower bad debt expense.
Depreciation and amortization
Depreciation and amortization expense increased $3.0 million quarterly and $6.0 million year-to-date from the prior year periods due primarily to acquisition-related growth and increased investments in our fleet, whereas the increase in landfill amortization expense can be primarily attributed to higher landfill volumes year-to-date and changes in cost and other assumptions.
Resource Solutions
Operating income decreased $(5.5) million quarterly and $(11.2) million year-to-date from the prior year periods. Excluding the impact of the expense from acquisition activities, our operating performance in the three and six months ended June 30, 2023 was driven by revenue decline, inclusive of inter-company revenues, and the following cost changes.
Cost of operations
Cost of operations decreased $(1.0) million quarterly and increased $6.4 million year-to-date from the prior year periods due to the following:
•Direct costs decreased in aggregate dollars quarterly and increased in aggregate dollars year-to-date due primarily to higher disposal rates and hauling charges due to inflationary pressures, and costs associated with the diversion of materials from our Boston, Massachusetts material recovery facility, which underwent a retrofit during the six months ended June 30, 2023; partially offset year-to-date, and more than offset quarterly, by lower purchased material costs;
•Other operational costs increased in aggregate dollars driven by higher facility costs primarily associated with (i) higher spend on outside repairs, (ii) increased facility insurance costs and (iii) personnel related expenses due to inflationary pressures;
•Maintenance and repair costs increased in aggregate dollars due to higher fleet and container maintenance costs driven by inflationary pressures associated with personnel related expenses and supply costs related to repairs and parts; and
•Direct operational costs increased in aggregate dollars due primarily due to inflationary pressures.
General and administration
General and administration expense increased $0.2 million quarterly and $1.9 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 quarterly by lower bad debt expense.
Depreciation and amortization:
Depreciation and amortization expense remained flat quarterly and increased $0.3 million year-to-date from the prior year periods due to the timing of acquisition activity completed in the six months ended June 30, 2022.
Operating income increased in the three months ended March 31, 2024 by $3.3 million as compared to the prior year period, primarily driven by (i) revenue growth, described above, (ii) intercompany revenues, and (iii) lower direct costs associated with our National Accounts business due to lower base business volumes; partially offset by (i) higher costs associated with operating and supporting acquired businesses, including the impact of accelerated amortization schedules of certain intangibles, (ii) increased depreciation expense due to investment in property and equipment, and (iii) general cost inflation, including for disposal, labor, and maintenance costs.
Corporate Entities
Corporate Entities operating loss reflects those costs not allocated to our reportable operating segments, which typically consists of depreciation and amortization expense.expense and certain expense from acquisition activities. Operating incomedeficit decreased $(4.1)$0.2 million quarterly and $(5.8) million year-to-date fromin the three months ended March 31, 2024 as compared to the prior year periods primarily due toperiod, driven by a decline in unallocated expense from acquisition related expenses, comprised primarily of legal, consulting and other similar costsactivities. See further discussion about the expense from acquisition activities above in the three and six months ended June 30, 2023.“Operating Expenses”.
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. As of June 30, 2023,March 31, 2024, we had $272.3 million of undrawn capacity fromunder our $300.0 million revolving credit facility ("(“Revolving Credit Facility"Facility”) and $189.5 million of cash and cash 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-current and long-term uses of cash include, among other possible demands: (i) acquisitions, including the Twin Bridges Acquisition, (ii) capital expenditures and leases, (iii) repayments to service debt and other long-term obligations, and (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 cash and cash equivalents, restricted assets and debt balances, excluding any debt issuance costs, (in millions) follows: | | March 31, 2024 | | | March 31, 2024 | | December 31, 2023 | | $ Change |
| Cash and cash equivalents | |
Cash and cash equivalents | |
Cash and cash equivalents | |
| | | June 30, 2023 | | December 31, 2022 | | $ Change |
Current assets, excluding cash and cash equivalents | |
| Cash and cash equivalents | $ | 465.7 | | | $ | 71.2 | | | $ | 394.5 | |
Current assets, excluding cash and cash equivalents | |
| Current assets, excluding cash and cash equivalents | Current assets, excluding cash and cash equivalents | $ | 163.7 | | | $ | 136.3 | | | $ | 27.4 | |
Restricted assets | Restricted assets | $ | 2.0 | | | $ | 1.9 | | | $ | 0.1 | |
Total current liabilities: | Total current liabilities: | |
Current liabilities, excluding current maturities of debt | Current liabilities, excluding current maturities of debt | $ | 186.5 | | | $ | 168.6 | | | $ | 17.9 | |
Current liabilities, excluding current maturities of debt | |
Current liabilities, excluding current maturities of debt | |
Current maturities of debt | Current maturities of debt | 32.7 | | | 9.0 | | | 23.7 | |
Total current liabilities | Total current liabilities | $ | 219.2 | | | $ | 177.6 | | | $ | 41.6 | |
Debt, less current portion | $ | 994.8 | | | $ | 594.5 | | | $ | 400.3 | |
Debt, less current portion, excluding unamortized debt issuance costs | |
Current assets, excluding cash and cash equivalents, increased $27.4decreased $(9.5) million and current liabilities, increased $41.6 millionexcluding current maturities of debt, decreased $(62.4) in the sixthree months ended June 30, 2023 as compared to DecemberMarch 31, 2022,2024, resulting in a $(14.2)$52.9 million declineincrease in working capital, net (defined as current assets, excluding cash, and cash equivalents and restricted cash, minus current liabilities)liabilities, excluding current maturities of debt), from $(41.3)$(37.7) million as of December 31, 20222023 to $(55.5)$15.2 million as of June 30, 2023.March 31, 2024. We strive to maintain a negative working capital cycle driven by shorter days sales outstanding as compared to days payable outstanding in an effort to collect money at a faster rate than paying bills to facilitate business growth.
Summary of Cash Flow Activity
Cash and cash equivalents increased $394.5decreased $(31.4) million in the sixthree months ended June 30, 2023.March 31, 2024. A summary of cash flows (in millions) follows: | | | Six Months Ended June 30, | | $ Change | | Three Months Ended March 31, | | $ Change |
| | 2023 | | 2022 | |
Net cash provided by operating activities | Net cash provided by operating activities | $ | 83.2 | | | $ | 92.3 | | | $ | (9.1) | |
Net cash provided by operating activities | |
Net cash provided by operating activities | |
Net cash used in investing activities | Net cash used in investing activities | $ | (597.2) | | | $ | (110.6) | | | $ | (486.6) | |
Net cash provided by financing activities | $ | 908.6 | | | $ | 24.9 | | | $ | 883.7 | |
Net cash used in financing activities | |
Cash flows from operating activities.
A summary of operating cash flows (in millions) follows: | | | Six Months Ended June 30, | | Three Months Ended March 31, |
| | 2023 | | 2022 | | 2024 | | 2023 |
Net income | $ | 9.0 | | | $ | 22.0 | |
Adjustments to reconcile net income to net cash provided by operating activities: | |
Net (loss) income | |
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |
Depreciation and amortization | |
Depreciation and amortization | |
Depreciation and amortization | Depreciation and amortization | 68.4 | | | 60.6 | |
| Interest accretion on landfill and environmental remediation liabilities | |
Interest accretion on landfill and environmental remediation liabilities | |
Interest accretion on landfill and environmental remediation liabilities | Interest accretion on landfill and environmental remediation liabilities | 5.0 | | | 4.0 | |
Amortization of debt issuance costs | Amortization of debt issuance costs | 1.5 | | | 0.9 | |
Stock-based compensation | Stock-based compensation | 4.3 | | | 3.2 | |
Operating lease right-of-use assets expense | Operating lease right-of-use assets expense | 6.9 | | | 6.8 | |
| Disposition of assets, other items and charges, net | Disposition of assets, other items and charges, net | (0.3) | | | 0.4 | |
Disposition of assets, other items and charges, net | |
Disposition of assets, other items and charges, net | |
| Loss from termination of bridge financing | 8.2 | | | — | |
| | Deferred income taxes | Deferred income taxes | 2.0 | | | 7.2 | |
| | 105.0 | | | 105.1 | |
| Deferred income taxes | |
| Deferred income taxes | |
| 57.6 | |
Changes in assets and liabilities, net | Changes in assets and liabilities, net | (21.8) | | | (12.8) | |
Net cash provided by operating activities | Net cash provided by operating activities | $ | 83.2 | | | $ | 92.3 | |
A summary of the most significant items affecting the change in our operating cash flows follows:
Net cash provided by operating activities decreased $(9.1)$(8.4) million in the sixthree months ended June 30, 2023March 31, 2024 as compared to the sixthree months ended June 30, 2022.March 31, 2023. This was the result of operational performance, more than offset byhigher interest expense and an increase in the unfavorable cash flow impact associated with the changes in our assets and liabilities, net of effects of acquisitions and divestitures.divestitures, partially offset by stronger operational performance. For discussion of our operational performance in the sixthree months ended June 30, 2023March 31, 2024 as compared to the sixthree months ended June 30, 2022,March 31, 2023, see "“Results of Operations"Operations” included in this Item 2. "“Management's Discussion and Analysis of Financial Condition and Results of Operations"” of this Quarterly Report on Form 10-Q. The increase in the 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 six months ended June 30, 2023 as compared to the six months ended June 30, 2022 was primarily due to the following:
•a $(18.7) million unfavorable impact to operating cash flows associated with the changes in accrued expenses, contract liabilities and other liabilities primarily on higher cash income tax payments, the timing of capital payments, and a higher decline in accrued payroll, related primarily to the payment of incentive compensation; and
•a $(1.2) million unfavorable impact to operating cash flows associated with the change in accounts payable as prior year period payables growth more than offset the current period increase in days payable outstanding; partially offset by
•a $10.7 million favorable impact to operating cash flows associated with the change in accounts receivable primarily due to the timing of increased revenues growth in prior year and a favorable decrease in days sales outstanding from prior year.
Cash flows from investing activities.
A summary of investing cash flows (in millions) follows: | | Three Months Ended March 31, | | | Three Months Ended March 31, |
| 2024 | | | 2024 | | 2023 |
Acquisitions, net of cash acquired | |
| Additions to property and equipment | |
Additions to property and equipment | |
Additions to property and equipment | |
| | | Six Months Ended June 30, |
Proceeds from sale of property and equipment | |
| | 2023 | | 2022 |
Acquisitions, net of cash acquired | $ | (547.6) | | | $ | (56.3) | |
| Additions to property, plant and equipment | (50.4) | | | (54.9) | |
| Proceeds from sale of property and equipment | |
| Proceeds from sale of property and equipment | Proceeds from sale of property and equipment | 0.8 | | | 0.6 | |
| Net cash used in investing activities | Net cash used in investing activities | $ | (597.2) | | | $ | (110.6) | |
| Net cash used in investing activities | |
| Net cash used in investing activities | |
A summary of the most significant items affecting the change in our investing cash flows follows:
Acquisitions, net of cash acquired. In the six months ended June 30, 2023, we acquired two businesses for total consideration of $546.3 million, including $544.4 million in cash and paid $3.2 million in holdback payments on businesses previously acquired, as compared to the six months ended June 30, 2022 during which we acquired eight businesses for total consideration of $58.9 million, including $55.1 million in cash, and paid $1.2 million in holdback payments on businesses previously acquired.
Capital expenditures. Capital expenditures decreased $(4.5)were $12.4 million higher in the sixthree months ended June 30, 2023March 31, 2024 as compared to the sixthree months ended June 30, 2022March 31, 2023, primarily due to the timing of spend for vehicles, machinery, equipment and containers; partially offset by higher capital spend associated withdriven by (i) inflation;acquisition activity; (ii) facility spend related to the purchase of a transfer station that was formerly leased and the retrofitting of a single-stream materialour Willimantic, Connecticut materials recovery facility; (iii) landfill development, including the development of rail side infrastructure at our Subtitle D landfill located in Mount Jewett, PennsylvaniaPennsylvania; and (iv) acquisition activity.the timing of spend for vehicles, machinery, equipment and containers.
Cash flows from financing activities.
A summary of financing cash flows (in millions) follows: | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 |
Proceeds from long-term borrowings | $ | 430.0 | | | $ | 82.2 | |
Principal payments on debt | (10.6) | | | (55.3) | |
Payments of debt issuance costs | (7.2) | | | (1.2) | |
Payments of contingent consideration | — | | | (1.0) | |
Proceeds from the exercise of share based awards | — | | | 0.2 | |
Proceeds from the public offering of Class A common stock | 496.4 | | | — | |
| | | |
| | | |
Net cash provided by financing activities | $ | 908.6 | | | $ | 24.9 | |
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 |
Proceeds from long-term borrowings | $ | 0.9 | | | $ | — | |
Principal payments on debt | (10.0) | | | (9.0) | |
Payments of debt issuance costs | — | | | (0.3) | |
| | | |
| | | |
| | | |
| | | |
| | | |
Net cash used in financing activities | $ | (9.1) | | | $ | (9.3) | |
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 $392.5 million in the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 due primarily to entering into the $430.0 million aggregate principal amount term loan A facility ("2023 Term Loan Facility") in June 2023, partially offset by the issuance of $35.0 million aggregate principal amount of Vermont Bonds 2022A-1 in prior year.
Payment of debt issuance costs. We paid $7.2 million of debt issuance costs in the six months ended June 30, 2023 primarily related to financing activities associated with the GFL Acquisition, which included $4.1 million of debt issuance costs that were paid related to short-term secured bridge financing that was terminated in May 2023 when we entered into the 2023 Term Loan Facility. In the six months ended June 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 Class A Common Stock. On June 16, 2023, we completed a public offering of 6.1 million shares of our Class A common stock at a public offering price of $85.50 per share. After deducting stock issuance costs received as of June 30, 2023, including underwriting discounts, commissions and offering expenses, the offering has resulted in net proceeds of $496.4 million. The net proceeds from this offering were and are to be used to fund acquisition activity, as discussed in Note 4, Business Combinations to our consolidated financial statements included in Part I. Item. 1 of this Quarterly Report on Form 10-Q, to pay certain costs associated with acquisition activities, and to repay borrowings and/or debt securities.
Outstanding Long-Term Debt
Financing ActivitiesCredit Facility
In the quarter endedAs of March 31, 2023,2024, we entered into first and second amendmentsare party to ourthe amended and restated credit agreement, dated as of December 22, 2021, (collectively withas amended by the first and second amendment, dated as of February 9, 20023, and the third amendment, anddated as of April 25, 2023, (collectively, the Loan Joinder disclosed below, the "Amended“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"Agreement”), 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 ("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 cash and cash equivalents and borrowings from our Revolving Credit Facility, the GFL Acquisition.
In June 2023, we entered into an asset purchase agreement pursuant to which we agreed to the Twin Bridges Acquisition, which is pending regulatory approval. In connection with the Twin Bridges Acquisition, we entered into a commitment letter to obtain short-term unsecured bridge financing of up to $200.0 million that was undrawn and subsequently terminated when we completed a public offering of our Class A common stock on June 16, 2023. See Note 9, Stockholders' Equity to our consolidated financial statements included in Part I. Item. 1 of this Quarterly Report on Form 10-Q, regarding the public offering.
Credit Facility
As of June 30, 2023, we are party to the Amended and Restated Credit Agreement, which provides for a $350.0 million aggregate principal amount term loan A facility ("(“Term Loan Facility"Facility”), a $300.0 million Revolving Credit Facility, with a $75.0 million sublimit for letters of credit, and a $430.0 million 2023 Term Loan Facility (collectively, the "Credit Facility"“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 futherfurther increase based on the terms and conditions set forth in the Amended and Restated Credit Agreement. The Credit Facility has a 5-year term that matures in December 2026. The Term Loan Facility and 2023 Term Loan Facility require scheduled quarterly principal payments in amounts equal to up to 0.650% per quarter of the original aggregate principal amount in the case of the Term Loan Facility and 1.25% per quarter of the original aggregate principal amount in the case of the 2023 Term Loan Facility, respectively, with the balances due at maturity. The Credit Facility shall bear interest, at our election, at term secured overnight financing rate (“Term SOFR,SOFR”), including a secured overnight financing rate adjustment of 10 basis points, or at a base rate, in each case plus or minus any sustainable rate adjustment of up to positive or negative 4.0 basis points per annum, plus an applicable interest rate margin based upon our consolidated net leverage ratio as follows:
| | | | | | | | | | | | | | |
| | Term SOFR Loans | | Base Rate Loans |
Term Loan Facility | | 1.125% to 2.125% | | 0.125% to 1.125% |
Revolving Credit Facility | | 1.125% to 2.125% | | 0.125% to 1.125% |
2023 Term Loan Facility | | 1.625% to 2.625% | | 0.625% to 1.625% |
A commitment fee will be charged on undrawn amounts at a rate of Term SOFR, including a secured overnight financing rate adjustment of 10 basis points, plus a marginour Revolving Credit Facility 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 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 June 30, 2023,March 31, 2024, further advances were available under the Revolving Credit Facility in the amount of $272.3 million. The available amount is net of outstanding irrevocable letters of credit totaling $27.7 million, and as of June 30, 2023March 31, 2024 no amount had been drawn.
The Amended and Restated 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 June 30, 2023,March 31, 2024, 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 June 30, 2023 | | Covenant Requirements at June 30, 2023 |
Maximum consolidated net leverage ratio (1) | | 2.35 | | | 5.00 |
Minimum interest coverage ratio | | 11.23 | | | 3.00 |
| | | | | | | | | | | | | | |
Credit Facility Covenant | | Twelve Months Ended March 31, 2024 | | Covenant Requirements at March 31, 2024 |
Maximum consolidated net leverage ratio (1) | | 2.72 | | | 4.75 |
Minimum interest coverage ratio | | 6.49 | | 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 plus an additional $400.0 million of limited condition acquisition unencumbered cash and cash equivalents as defined by the Amended and Restated Credit Agreement (calculated at $708.6$954.6 million as of June 30, 2023,March 31, 2024, or $1,027.6$1,054.6 million of consolidated funded debt less $319.0$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 June 30, 2023.March 31, 2024. Consolidated funded debt, net and consolidated EBITDA as defined by the Amended and Restated Credit Agreement ("(“Consolidated EBITDA"EBITDA”) are non-GAAP financial measures that should not be considered an alternative to any measure of financial performance calculated and presented in accordance with generally accepted accounting principles in the United States. A reconciliation of net cash provided by operating activities to Consolidated EBITDA is as follows (in millions): | | | | | |
| Twelve Months Ended June 30, 2023March 31, 2024 |
Net cash provided by operating activities | $ | 208.3224.7 | |
Changes in assets and liabilities, net of effects of acquisitions and divestitures | 20.238.9 | |
| |
| |
| |
Stock based compensation | (9.3)(9.2) | |
Loss from termination of bridge financing | (8.2) | |
Operating lease right-of-use assets expense | (5.0)(6.9) | |
Landfill capping charge - veneer failure | (3.0) | |
Disposition of assets, other items and charges, net | (0.1)0.3 | |
Interest expense, less amortization of debt issuance costs | 26.353.3 | |
Provision for income taxes, net of deferred income taxes | 3.84.2 | |
Adjustments as allowed by the Amended and Restated Credit Agreement(1) | 57.0 | | 65.3 |
Consolidated EBITDA | $ | 301.3351.1 | |
(1)Adjustments as allowed by the Amended and Restated Credit Agreement includes the estimated annual pro-forma impact of acquisitions on consolidated EBITDA.
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 June 30, 2023,March 31, 2024, 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 June 30, 2023,March 31, 2024, we had outstanding $197.0$232.0 million aggregate principal amount of tax exempt bonds, $50.2bonds; $59.5 million aggregate principal amount of finance leasesleases; and $0.3$0.1 million aggregate principal amount of notes payable. See Note 7,6, Debt to our consolidated financial statements included in Part I. Item. 1 of this Quarterly Report on Form 10-Q for further disclosure regarding debt.
Inflation
Inflationary increases in costs, including current inflationary pressurescost inflation 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 inflation negatively impacted operating results and margins during the three and six months ended June 30,March 31, 2024 and 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 RiskRisk”" 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 eastern 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, labor availability and severe weather conditions. We are unable to forecast or determine the timing and/or the future impact of a sustained economic slowdown.slowdown or other factors affecting the region.
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 northeasterneastern 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 fiberfibers from November through 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 OperationsOperations”" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.2023.
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. “Financial Statements” 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. Fuel is needed to run our fleet of trucks, equipment and other aspects of our operations, and price escalations for fuel increase our operating expenses. We have a fuel cost recovery program, which isprograms, primarily the energy component of our energy and environmental fee ("(“E&E 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 look-back provision, which results in a timing lag in our ability to match the changes in the fuel cost component of the fee to diesel fuel price fluctuations during periods of rapid price changes. In certain circumstances, a substantial rise or drop in fuel costs could materially affect our revenue and costs of operations. However, a substantial rise or drop in fuel costs should not have a material impact on our results of operations. In addition, we are susceptible to increases in fuel surcharges from our vendors.
Based on our consumption levels in the last twelve months ended June 30, 2023, combined with our expectedThe impact of fuel consumption related to the acquisition of the equity interests of four wholly owned subsidiaries of GFL Environmental Inc., which are the basis of a newly formed regional operating segment, the Mid-Atlantic region, that will expand our integrated solid waste services to the states of Delaware and Maryland ("GFL Acquisition"), and after considering physically settled fuel contracts we believe a $0.40 cent per gallon change in the price of diesel fuel would change our direct fuel costs by approximately $5.1 million annually, or $1.3 million quarterly. Offsetting these changes in direct fuel expense would be changes in the energy component of the E&E Fees charged to our customers. Based on participation ratesrisk as of June 30, 2023March 31, 2024 does not differ materially from that discussed in Item 7A. “Quantitative and consideringQualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the GFL Acquisition, we believe a $0.40 cent per gallon change in the price of diesel fuel would change the energy component of the E&E Fee by approximately $5.1 million annually, or $1.3 million quarterly. In addition to direct fuel costs related to our consumption levels, we are also subject to fuel surcharge expense from third party transportation providers. Other operational costs and capital expenditures may also be impacted by fuel prices.
In the three and six monthsfiscal year ended June 30, 2023, our fuel costs were $9.4 million, or 3.3% of revenue, and $20.3 million, or 3.7% of revenue, respectively, as compared to $13.6 million, or 4.8% of revenue, and $23.5 million, or 4.5% of revenue, in the three and six months ended June 30, 2022, respectively.December 31, 2023.
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 June 30, 2023,March 31, 2024, we were not party to any commodity hedging agreements.
The impact of commodity price volatility market risk as of June 30, 2023March 31, 2024 does not differ materially from that discussed in Item 7A, "7A. “Quantitative and Qualitative Disclosures About Market RiskRisk”" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.2023.
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.
The impact of interest rate risk as of March 31, 2024 does not differ materially from that discussed in Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
As of June 30, 2023, our active interest rate derivative agreements had total notional amounts of $165.0 million. According to the terms of the agreements, we receive interest based on term secured overnight financing rate ("Term SOFR"), restricted by a 0.0% floor, and pay interest at a weighted average rate of approximately 2.08% as of June 30, 2023. The agreements mature between February 2026 and May 2028.
As of June 30, 2023, we had $247.6 million of fixed rate debt in addition to the $165.0 million fixed through our interest rate derivative agreements. In July 2023, we entered into interest rate derivative agreements with a notional amount of $250.0 million. According to the terms of the agreements, we receive interest based on Term SOFR restricted by a 0.0% floor, and pay interest at a rate of 4.285%. The agreements became effective in July 2023 and mature in June 2028. After taking into consideration the new interest rate derivative agreements, we had interest rate risk relating to approximately $365.0 million of long-term debt. The weighted average interest rate on the variable rate portion of long-term debt was approximately 7.0% at June 30, 2023. After taking into consideration the new interest rate derivative agreements, should the average interest rate on the variable rate portion of long-term debt change by 100 basis points, we estimate that our interest expense would change by approximately $3.7 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 June 30, 2023.March 31, 2024. 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 June 30, 2023,March 31, 2024, 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 June 30, 2023March 31, 2024 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 8,7, Commitments and Contingencies to our consolidated financial statements included in Part I. Item 1. “Financial Statements” 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, 2022,2023, and the updated risk factor set forth below, 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 increasing focus on PFAS and other emerging contaminants may lead to increased compliance and remediation costs and litigation risks, which could adversely impact our financial condition and results of operations.
The regulatory environment for per - and polyfluoroalkyl substances (commonly refered to as “ PFAS”) is rapidly evolving, with increasing demands for enhanced environmental monitoring programs and advanced treatment technologies to mitigate PFAS contamination. Risks to the Company related to PFAS include regulatory risks, including the recent designation by the United States Environmental Protection Agency (“EPA”) of PFAS as hazardous substances, which could create Superfund liabilities under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended for all downstream recipients of PFAS, including passive receivers such as our landfills and transporters of biosolids, the establishment of federal and state drinking water standards and surface water criteria which set low thresholds for impacts to drinking water and surface water, the risk that states in which we operate will require stringent monitoring of PFAS at our landfills, the risk of material increases in landfill leachate treatment costs due to mandatory pre-treatment or otherwise, the risk that existing remedial sites will become more complex and that closed landfills will be under enhanced regulatory scrutiny, the risk that biosolids management will be impacted by restrictions on end uses and the risk that that pre-existing land application sites will be determined to contain PFAS. Any such liability is likely to be uninsurable, with no coverage likely under our pollution or product liability policies.
ITEM 5. OTHER INFORMATION
None of our directors or officers (as defined in Rule 16a-1(f) under the Securities Exchange Act of 1934, as amended) adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the the three months ended June 30, 2023.March 31, 2024.
ITEM 6. EXHIBITS | | | | | | | | | | |
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| 2.1 + | | Equity Purchase Agreement, dated as of April 21, 2023, by and among the sellers identified therein, GFL Environmental Inc., Casella Mid-Atlantic, LLC, and, solely with respect to Section 9.17 thereof,Casella Waste Systems, Inc. | |
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| 10.1 + | | Senior Secured Bridge Commitment Letter, dated as of April 21, 2023, by Casella Waste Systems, Inc., Bank of America, N.A., BofA Securities, Inc., Citizens Bank, N.A., JPMorgan Chase Bank, N.A., and Comerica Bank. | |
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| 10.2 | | Third Amendment to Amended and Restated Credit Agreement, dated as of April 25, 2023, by and among Casella Waste Systems, Inc., its subsidiaries party thereto, Bank of America, N.A., JPMorgan Chase Bank, N.A., Comerica Bank, Citizens Bank, N.A., TD Bank, N.A., and M&T Bank (incorporated herein by reference to Exhibit 10.1 to the current report on Form 8-K of Casella as filed on July 3, 2023 (file no. 000-23211)). | |
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| 10.3 | | Specified Acquisition Loan Joinder, dated as of May 25, 2023, by and among Casella Waste Systems, Inc., its subsidiaries party thereto, BofA Securities, Inc., Bank of America, N.A., JPMorgan Chase Bank, N.A., The Huntington National Bank, Citizens Bank, N.A., Comerica Bank, TD Bank, N.A., Capital One, National Association, CoBank, ACB, U.S. Bank National Association, and M&T Bank (incorporated herein by reference to Exhibit 10.2 to the current report on Form 8-K of Casella as filed on July 3, 2023 (file no. 000-23211)). | |
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101.INS | | The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. | | |
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101.SCH | | Inline XBRL Taxonomy Extension Schema Document.** | | |
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101.CAL | | Inline XBRL Taxonomy Calculation Linkbase Document.** | | |
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101.LAB | | Inline XBRL Taxonomy Label Linkbase Document.** | | |
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101.PRE | | Inline XBRL Taxonomy Presentation Linkbase Document.** | | |
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101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document.** | | |
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104 | | Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.) | | |
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** | | 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 June 30, 2023March 31, 2024 and December 31, 2022,2023, (ii) Consolidated Statements of Operations for the three and six months ended June 30,March 31, 2024 and 2023, and 2022, (iii) Consolidated Statements of Comprehensive Income for the three and six months ended June 30,March 31, 2024 and 2023, and 2022, (iv) Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30,March 31, 2024 and 2023, and 2022, (v) Consolidated Statements of Cash Flows for the sixthree months ended June 30,March 31, 2024 and 2023, and 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. | |
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Date: July 28, 2023April 26, 2024 | By: /s/ Kevin Drohan | |
| Kevin Drohan | |
| Vice President and Chief Accounting Officer | |
| (Principal Accounting Officer) | |
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Date: July 28, 2023April 26, 2024 | By: /s/ Edmond R. ColettaBradford J. Helgeson | |
| Bradford J. Helgeson | | Edmond R. Coletta |
| Executive Vice President and Chief Financial Officer | |
| (Principal Financial Officer) | |