Casella(CWST) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited consolidated financial statements and management's discussion and analysis for Casella Waste Systems, Inc. ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited consolidated financial statements for Casella Waste Systems, Inc. and its subsidiaries, including the balance sheets, statements of operations, comprehensive income, stockholders' equity, and cash flows, along with their accompanying notes Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and stockholders' equity at specific dates | Metric | March 31, 2023 (Unaudited) ($M) | December 31, 2022 ($M) | | :-------------------------------------- | :------------------------------ | :--------------------- | | Total Current Assets | 187.8 | 207.5 | | Total Assets | 1,419.9 | 1,449.2 | | Total Current Liabilities | 145.1 | 177.6 | | Total Liabilities and Stockholders' Equity | 1,419.9 | 1,449.2 | - Total assets decreased from $1,449.2 million at December 31, 2022, to $1,419.9 million at March 31, 2023. Total current liabilities decreased from $177.6 million to $145.1 million over the same period[25][27] Consolidated Statements of Operations This section outlines the company's revenues, expenses, and net income over specific periods, reflecting operational performance | Metric | Three Months Ended March 31, 2023 ($M) | Three Months Ended March 31, 2022 ($M) | | :--------------------------- | :------------------------------------- | :------------------------------------- | | Revenues | 262.6 | 234.0 | | Operating Income | 10.3 | 10.2 | | Net Income | 3.5 | 4.2 | | Basic EPS | $0.07 | $0.08 | | Diluted EPS | $0.07 | $0.08 | - Revenues increased by $28.6 million (12.2%) year-over-year, from $234.0 million in Q1 2022 to $262.6 million in Q1 2023. Net income decreased by $0.6 million (15.3%) year-over-year, from $4.2 million in Q1 2022 to $3.5 million in Q1 2023[28] Consolidated Statements of Comprehensive Income This section details the company's total comprehensive income, including net income and other comprehensive income or loss components | Metric | Three Months Ended March 31, 2023 ($M) | Three Months Ended March 31, 2022 ($M) | | :-------------------------------------- | :------------------------------------- | :------------------------------------- | | Net Income | 3.5 | 4.2 | | Other comprehensive (loss) income, net of tax | (1.8) | 6.1 | | Comprehensive Income | 1.8 | 10.3 | - Comprehensive income significantly decreased from $10.3 million in Q1 2022 to $1.8 million in Q1 2023, primarily due to a shift from other comprehensive income of $6.1 million to an other comprehensive loss of $(1.8) million[8] Consolidated Statements of Stockholders' Equity This section tracks changes in the company's equity accounts, including retained earnings and accumulated other comprehensive income | Metric | Balance, December 31, 2022 ($M) | Balance, March 31, 2023 ($M) | | :-------------------------------------- | :------------------------------ | :--------------------------- | | Total Stockholders' Equity | 497.9 | 501.7 | | Accumulated Other Comprehensive Income | 7.5 | 5.8 | - Total stockholders' equity increased from $497.9 million at December 31, 2022, to $501.7 million at March 31, 2023[10] Consolidated Statements of Cash Flows This section reports the cash generated and used by the company across operating, investing, and financing activities | Metric | Three Months Ended March 31, 2023 ($M) | Three Months Ended March 31, 2022 ($M) | | :-------------------------------------- | :------------------------------------- | :------------------------------------- | | Net cash provided by operating activities | 16.1 | 24.7 | | Net cash used in investing activities | (17.7) | (62.5) | | Net cash (used in) provided by financing activities | (9.3) | 16.6 | | Net decrease in cash and cash equivalents | (10.9) | (21.2) | | Cash and cash equivalents, end of period | 60.2 | 12.6 | - Net cash provided by operating activities decreased by $8.6 million (34.9%) year-over-year. Net cash used in investing activities significantly decreased from $(62.5) million in Q1 2022 to $(17.7) million in Q1 2023, primarily due to lower acquisition spending[34] Notes to Unaudited Consolidated Financial Statements This section provides detailed explanations and additional information supporting the figures presented in the consolidated financial statements - The financial statements are unaudited and prepared in accordance with GAAP and SEC rules, with management's estimates and assumptions affecting recognition and disclosure[63] 1. BASIS OF PRESENTATION This note describes the accounting principles, estimates, and scope used in preparing the financial statements - The financial statements are prepared in accordance with GAAP and SEC rules, reflecting management's estimates and assumptions. The company is a regional, vertically integrated solid waste services company operating in seven states[63] - No material subsequent events occurred between March 31, 2023, and the filing date that would require recognition or disclosure[15] 2. ACCOUNTING CHANGES This note details the adoption of new accounting standards and their impact on the company's financial reporting - The company adopted ASU No. 2020-04 (Reference Rate Reform) effective January 1, 2023, to ease the burden of applying GAAP to contracts and hedging relationships affected by the discontinuation of LIBOR[65] - Optional expedients were elected to maintain hedge effectiveness for interest rate derivative agreements transitioning from LIBOR to another reference rate prior to its planned discontinuation on July 1, 2023[65] 3. REVENUE RECOGNITION This note explains the company's policies for recognizing revenue from its various solid waste and resource renewal services - Revenues are primarily derived from solid waste collection and disposal services (landfill, transfer station, transportation, landfill gas-to-energy, processing) and resource-renewal operations (processing, National Accounts business)[16] Revenue by Source (Q1 2023) | Revenue Source (Q1 2023) | Eastern ($M) | Western ($M) | Resource Solutions ($M) | Total Revenues ($M) | | :----------------------- | :----------- | :----------- | :---------------------- | :------------------ | | Collection | 61.1 | 78.9 | — | 140.0 | | Landfill | 6.3 | 16.5 | — | 22.8 | | Transfer station | 14.0 | 10.0 | — | 24.0 | | Transportation | 1.2 | 3.6 | — | 4.8 | | Landfill gas-to-energy | 0.2 | 1.7 | — | 1.9 | | Processing | 1.1 | 0.5 | 22.8 | 24.4 | | National Accounts | — | — | 44.8 | 44.8 | | Total revenues | 83.9 | 111.0 | 67.7 | 262.6 | - Rebates to customers for recycled or organic materials, recorded as a reduction of revenues, amounted to $6.6 million in Q1 2023, up from $3.8 million in Q1 2022[67] 4. INTANGIBLE ASSETS This note provides details on the company's intangible assets, including their carrying values and amortization expenses Intangible Assets Balance | Intangible Asset Type | Balance, December 31, 2022 ($M) | Balance, March 31, 2023 ($M) | | :-------------------- | :------------------------------ | :--------------------------- | | Not-to-Compete Covenants | 7.1 | 6.6 | | Customer Relationships | 81.0 | 78.0 | | Trade Names | 3.7 | 3.1 | | Total | 91.8 | 87.7 | - Intangible amortization expense was $4.1 million in Q1 2023, up from $3.8 million in Q1 2022[69] Estimated Future Amortization Expense | Fiscal Year Ending December 31 | Estimated Future Amortization Expense ($M) | | :----------------------------- | :----------------------------------------- | | 2023 | 12.1 | | 2024 | 15.5 | | 2025 | 14.4 | | 2026 | 12.7 | | 2027 | 11.3 | | Thereafter | 21.7 | 5. OTHER ACCRUED LIABILITIES This note details various accrued liabilities, including self-insurance reserves and accrued capital expenditures Other Accrued Liabilities | Other Accrued Liabilities | March 31, 2023 ($M) | December 31, 2022 ($M) | | :------------------------ | :------------------ | :--------------------- | | Self insurance reserve | 7.7 | 7.4 | | Accrued capital expenditures | 4.0 | 10.8 | | Other accrued liabilities | 23.3 | 28.0 | | Total | 35.0 | 46.2 | - Total other accrued liabilities decreased from $46.2 million at December 31, 2022, to $35.0 million at March 31, 2023, primarily due to a decrease in accrued capital expenditures and other accrued liabilities[42] 6. ACCRUED FINAL CAPPING, CLOSURE AND POST CLOSURE This note explains the company's accruals for future landfill capping, closure, and post-closure costs - The company accrues for costs associated with final capping, closure, and post-closure of landfills, estimating future costs to determine expense per ton of waste[71] Accrued Final Capping, Closure and Post-Closure Liabilities | Metric | Three Months Ended March 31, 2023 ($M) | Three Months Ended March 31, 2022 ($M) | | :---------------------- | :------------------------------------- | :------------------------------------- | | Beginning balance | 113.7 | 86.9 | | Obligations incurred | 1.2 | 1.0 | | Accretion expense | 2.4 | 1.9 | | Obligations settled | (1.2) | (0.9) | | Ending balance | 116.2 | 88.8 | - Accrued final capping, closure, and post-closure liabilities increased from $113.7 million at the beginning of Q1 2023 to $116.2 million at the end of the period[43] 7. DEBT This note details the company's various debt instruments, including term loans, revolving credit facilities, and tax-exempt bonds Debt Instruments | Debt Instrument | March 31, 2023 ($M) | December 31, 2022 ($M) | | :---------------------------------- | :------------------ | :--------------------- | | Term Loan A Facility | 350.0 | 350.0 | | Revolving Credit Facility | — | 6.0 | | Tax-Exempt Bonds | 197.0 | 197.0 | | Finance leases | 48.8 | 49.8 | | Notes payable | 0.3 | 0.7 | | Principal amount of debt | 596.1 | 603.5 | | Debt less unamortized debt issuance costs | 586.8 | 594.0 | | Less—current maturities of debt | 9.3 | 9.0 | | Debt, less current portion | 577.6 | 585.0 | - The company entered into a commitment letter in April 2023 for secured bridge financing up to $375 million and a Term Loan A up to $400 million to fund the acquisition of GFL Subsidiaries for approximately $525 million[46] - The Amended and Restated Credit Agreement provides for a $350 million Term Loan Facility and a $300 million Revolving Credit Facility, maturing in December 2026[47] 8. COMMITMENTS AND CONTINGENCIES This note outlines the company's legal proceedings, environmental remediation liabilities, and other significant commitments - The company is subject to various judicial and administrative proceedings, including environmental damage claims and permit-related actions, and accrues for legal proceedings when losses are probable and estimable[79] - An aggregate accrual of $0.8 million was recorded for outstanding legal proceedings as of March 31, 2023[79] - Environmental remediation liabilities are accrued when probable and reasonably estimable, with estimated costs inflated to payment time and discounted to present value using risk-free rates between 1.5% and 4.1%[53] Environmental Remediation Liabilities | Environmental Remediation Liabilities | March 31, 2023 ($M) | March 31, 2022 ($M) | | :------------------------------------ | :------------------ | :------------------ | | Beginning balance | 6.3 | 5.9 | | Accretion expense | 0.03 | 0.03 | | Obligations settled | (0.02) | (0.05) | | Ending balance | 6.3 | 5.9 | | Less: current portion | 1.1 | 0.3 | | Long-term portion | 5.2 | 5.6 | 9. STOCKHOLDERS' EQUITY This note details changes in stockholders' equity, including stock-based compensation and accumulated other comprehensive income - Under the 2016 Incentive Plan, 649 thousand Class A common stock equivalents were available for future grant as of March 31, 2023[54] - Stock-based compensation expense for stock options was $0.1 million in Q1 2023, compared to $0.02 million in Q1 2022[85] Other Stock Awards Activity | Other Stock Awards Activity | Outstanding, Dec 31, 2022 | Granted | Vested | Forfeited | Outstanding, Mar 31, 2023 | Unvested, Mar 31, 2023 | | :-------------------------- | :------------------------ | :------ | :----- | :-------- | :------------------------ | :--------------------- | | Restricted Stock Awards, Units, Performance Units (1) | 169 | 89 | (50) | (2) | 206 | 365 | - Stock-based compensation expense related to restricted stock awards, restricted stock units, and performance stock units was $1.8 million in Q1 2023, down from $2.2 million in Q1 2022[58] - Total unrecognized stock-based compensation expense for outstanding restricted stock awards, units, and performance units was $0.03 million, $6.0 million, and $8.0 million, respectively, as of March 31, 2023[87] Accumulated Other Comprehensive Income, Net of Tax | Accumulated Other Comprehensive Income, Net of Tax | Balance, Dec 31, 2022 ($M) | Net Current-Period Other Comprehensive Loss, Net of Tax ($M) | Balance, Mar 31, 2023 ($M) | | :----------------------------------------------- | :------------------------- | :---------------------------------------------------------- | :------------------------- | | Interest Rate Swaps | 7.5 | (1.8) | 5.8 | 10. EARNINGS PER SHARE This note details the calculation of basic and diluted earnings per share, including the impact of potentially dilutive securities - Basic EPS is calculated by dividing net income by weighted average common shares outstanding, while diluted EPS includes potentially dilutive shares using the treasury stock method[60] Earnings Per Share Calculation | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Net income | $3.5 M | $4.2 M | | Basic weighted average common shares outstanding | 51,770 thousand | 51,490 thousand | | Basic earnings per common share | $0.07 | $0.08 | | Diluted weighted average common shares outstanding | 51,869 thousand | 51,657 thousand | | Diluted earnings per common share | $0.07 | $0.08 | 11. OTHER ITEMS AND CHARGES This note outlines significant non-recurring or specific charges, such as those related to acquisition activities - Charges from acquisition activities were $2.9 million in Q1 2023, up from $2.0 million in Q1 2022, primarily for legal, consulting, and integration costs[89][206] 12. FAIR VALUE OF FINANCIAL INSTRUMENTS This note describes the fair value measurement of financial instruments using a three-tier hierarchy - The company uses a three-tier fair value hierarchy (Level 1, 2, 3) for financial instruments, maximizing market prices and observable inputs[96] - Financial instruments include cash, receivables, restricted investment securities, interest rate derivatives, contingent consideration, payables, and debt[97] Fair Value of Financial Instruments (March 31, 2023) | Financial Instrument (March 31, 2023) | Level 1 ($M) | Level 2 ($M) | Level 3 ($M) | | :------------------------------------ | :----------- | :----------- | :----------- | | Restricted investment securities | 2.0 | — | — | | Interest rate swaps (assets) | — | 10.1 | — | | Contingent consideration (liabilities) | — | — | 0.4 | | Interest rate swaps (liabilities) | — | 0.7 | — | - The fair value of fixed rate debt was approximately $186.8 million, with a carrying value of $197.0 million as of March 31, 2023, classified as Level 2[99] 13. SEGMENT REPORTING This note provides financial information by operating segment, including revenues, operating income, and assets - The company operates through two solid waste regional segments (Eastern and Western) and a Resource Solutions segment, with Corporate Entities covering administrative functions[101][63] Segment Performance (Q1 2023) | Segment (Q1 2023) | Outside Revenues ($M) | Inter-company Revenues ($M) | Depreciation and Amortization ($M) | Operating Income (Loss) ($M) | Total Assets ($M) | | :---------------- | :-------------------- | :-------------------------- | :--------------------------------- | :--------------------------- | :---------------- | | Eastern | 83.9 | 19.4 | 11.9 | 2.1 | 364.9 | | Western | 111.0 | 36.6 | 17.7 | 12.4 | 744.1 | | Resource Solutions | 67.7 | 3.5 | 3.1 | (1.9) | 195.0 | | Corporate Entities | — | — | 0.8 | (2.4) | 115.9 | | Eliminations | — | (59.4) | — | — | — | | Total | 262.6 | — | 33.4 | 10.3 | 1,419.9 | Revenue by Service (Q1 2023) | Revenue by Service (Q1 2023) | Amount ($M) | Q1 2022 Amount ($M) | | :--------------------------- | :---------- | :------------------ | | Collection | 140.0 | 119.5 | | Disposal | 51.5 | 43.2 | | Power generation | 1.9 | 2.7 | | Processing (Solid Waste) | 1.6 | 1.8 | | Processing (Resource Solutions) | 22.8 | 27.4 | | National Accounts | 44.8 | 39.5 | | Total revenues | 262.6 | 234.0 | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial performance, condition, and future outlook, discussing revenues, operating expenses, segment results, liquidity, capital resources, and key operational factors - The company experienced revenue growth driven by price increases and acquisitions, but net income decreased due to higher operating expenses, interest expense, and acquisition-related charges[28][110][117][120] Company Overview This section provides a brief introduction to Casella Waste Systems, Inc., outlining its business model and operational footprint - Casella Waste Systems, Inc. is a regional, vertically integrated solid waste services company providing collection, disposal, transfer, recycling, and organics services across seven northeastern states[107] - As of April 15, 2023, the company owned/operated 50 solid waste collection operations, 66 transfer stations, 26 recycling facilities, 8 Subtitle D landfills, 3 landfill gas-to-energy facilities, and 1 C&D landfill[107] Results of Operations This section analyzes the company's financial performance, focusing on revenue drivers, operating expenses, and profitability Revenues This section details the sources and changes in the company's revenue, including solid waste and resource solutions operations Revenue by Category | Revenue Category (Q1 2023) | Amount ($M) | % of Total | Q1 2022 Amount ($M) | % of Total | $ Change ($M) | | :------------------------- | :---------- | :--------- | :------------------ | :--------- | :------------ | | Collection | 140.0 | 53.3% | 119.5 | 51.1% | 20.5 | | Disposal | 51.5 | 19.6% | 43.2 | 18.4% | 8.3 | | Power | 1.9 | 0.7% | 2.7 | 1.1% | (0.8) | | Processing (Solid Waste) | 1.5 | 0.6% | 1.8 | 0.8% | (0.3) | | Solid waste operations | 194.9 | 74.2% | 167.2 | 71.4% | 27.7 | | Processing (Resource Solutions) | 22.9 | 8.7% | 27.3 | 11.7% | (4.4) | | National Accounts | 44.8 | 17.1% | 39.5 | 16.9% | 5.3 | | Resource Solutions operations | 67.7 | 25.8% | 66.8 | 28.6% | 0.9 | | Total revenues | 262.6 | 100.0% | 234.0 | 100.0% | 28.6 | Solid Waste Revenue Change Drivers (Q1 2023 vs Q1 2022) | Solid Waste Revenue Change Drivers (Q1 2023 vs Q1 2022) | Amount ($M) | % Growth | | :---------------------------------------------------- | :---------- | :------- | | Price | 14.7 | 8.8% | | Volume | 0.6 | 0.3% | | Surcharges and other fees | 10.3 | 6.3% | | Commodity price and volume | (1.0) | (0.6)% | | Acquisitions | 3.1 | 1.8% | | Total Solid Waste Revenues | 27.7 | 16.6% | - Resource Solutions revenues increased by $0.9 million, driven by higher processing volumes ($4.8M) and National Accounts business ($4.5M), but partially offset by lower recycled commodity pricing ($-11.1M)[115] Operating Expenses This section analyzes the components of operating expenses, including cost of operations, general and administration, and depreciation Operating Expense Summary | Operating Expense Category | Q1 2023 ($M) | % of Total Revenues | Q1 2022 ($M) | % of Total Revenues | $ Change ($M) | | :------------------------- | :----------- | :------------------ | :----------- | :------------------ | :------------ | | Cost of operations | 180.2 | 68.6% | 162.5 | 69.4% | 17.7 | | General and administration | 35.7 | 13.6% | 29.8 | 12.7% | 5.9 | | Depreciation and amortization | 33.4 | 12.7% | 29.4 | 12.6% | 4.0 | - Cost of operations increased by $17.7 million, primarily due to higher direct costs (hauling, transportation, disposal), maintenance and repair, direct operational costs (host community fees, accretion, leachate disposal), and fuel costs, driven by higher volumes, acquisitions, and inflation[117][204] - General and administration expense increased by $5.9 million, mainly due to business growth, wage inflation, higher bad debt expense, and increased overhead costs[118][205] - Depreciation and amortization expense increased by $4.0 million, attributed to acquisition activity, increased fleet investments, and higher landfill amortization due to increased volumes and cost assumption changes[119] Expense from Acquisition Activities This section details the expenses incurred from acquisition-related activities, including legal and consulting fees - Acquisition-related expenses increased to $2.9 million in Q1 2023 from $2.0 million in Q1 2022, primarily for legal, consulting, and integration costs[206] Other Expenses This section discusses other non-operating expenses, such as net interest expense, and their impact on financial results - Net interest expense increased by $1.1 million in Q1 2023 compared to the prior year, driven by rising interest rates and higher average debt balances from new bond issuances[120] Provision for Income Taxes This section analyzes the company's income tax provision and effective tax rate, including factors influencing tax expense - The provision for income taxes decreased by $0.2 million in Q1 2023, with an effective tax rate of 18.2% (compared to 18.6% in Q1 2022), influenced by equity compensation deductions[121] - The company expects to utilize all pre-2018 ($5.8 million) and post-2017 ($46.5 million) net operating losses in fiscal year 2023[122] Segment Reporting This section provides a detailed analysis of the financial performance of each operating segment, including revenue and operating income - Segment performance varied, with the Western region showing strong operating income growth driven by acquisitions and pricing, while Resource Solutions experienced a decline due to unfavorable commodity pricing[131][140][141] Segment Revenues | Segment (Revenues) | Q1 2023 ($M) | Q1 2022 ($M) | $ Change ($M) | | :----------------- | :----------- | :----------- | :------------ | | Eastern | 83.9 | 71.3 | 12.6 | | Western | 111.0 | 95.8 | 15.2 | | Resource Solutions | 67.7 | 66.9 | 0.8 | | Total revenues | 262.6 | 234.0 | 28.6 | Segment Operating Income (Loss) | Segment (Operating Income (Loss)) | Q1 2023 ($M) | Q1 2022 ($M) | $ Change ($M) | | :-------------------------------- | :----------- | :----------- | :------------ | | Eastern | 2.1 | (2.2) | 4.3 | | Western | 12.5 | 9.3 | 3.2 | | Resource Solutions | (1.9) | 3.7 | (5.6) | | Corporate Entities | (2.4) | (0.6) | (1.8) | | Total Operating Income | 10.3 | 10.2 | 0.1 | - Eastern Region operating income increased by $4.3 million, driven by revenue growth from favorable collection and disposal pricing, and higher surcharges, offsetting increased operating costs[131][126][127] - Western Region operating income increased by $3.2 million, primarily due to revenue growth from favorable pricing, higher disposal volumes, and acquisitions, despite increased operating costs[140][129][137] - Resource Solutions operating income decreased by $5.6 million, as revenue growth was more than offset by increased direct costs (hauling, transportation, disposal, processing diversion costs) and higher general and administration expenses[141][142] - Corporate Entities operating loss increased by $1.8 million, mainly due to unallocated acquisition-related expenses[143] Liquidity and Capital Resources This section assesses the company's ability to meet its short-term and long-term financial obligations and fund operations - The company has $272.3 million of undrawn capacity from its $300.0 million revolving credit facility as of March 31, 2023, to meet liquidity needs[144] - Working capital, net (current assets excluding cash minus current liabilities) increased by $23.8 million, from $(41.3) million at Dec 31, 2022, to $(17.5) million at March 31, 2023[146] Cash Flow Activity | Cash Flow Activity ($M) | Q1 2023 | Q1 2022 | $ Change | | :---------------------- | :------ | :------ | :------- | | Operating Activities | 16.1 | 24.7 | (8.6) | | Investing Activities | (17.7) | (62.5) | 44.8 | | Financing Activities | (9.3) | 16.6 | (25.9) | - Net cash provided by operating activities decreased by $8.6 million, primarily due to an unfavorable impact from changes in accrued expenses, contract liabilities, and accounts payable, partially offset by a favorable impact from accounts receivable[149] - Net cash used in investing activities decreased by $44.8 million, mainly due to lower acquisition payments ($0.3 million in Q1 2023 vs. $49.8 million in Q1 2022), partially offset by higher capital expenditures ($17.9 million in Q1 2023 vs. $12.9 million in Q1 2022)[150] - Net cash used in financing activities was $(9.3) million, a decrease of $25.9 million from Q1 2022, primarily due to debt borrowings in the prior year period for acquisition activity[151][153] - The company was in compliance with all financial covenants (maximum consolidated net leverage ratio of 2.06 vs. 4.00, minimum interest coverage ratio of 10.85 vs. 3.00) under its Amended and Restated Credit Agreement as of March 31, 2023[154] - In April 2023, the company secured bridge financing and Term Loan A commitments to fund the $525 million acquisition of GFL Subsidiaries, expected to close by Q3 2023[157] Inflation This section discusses the impact of inflationary cost increases on the company's operating margins and cash flows - Inflationary cost increases, particularly in fuel, labor, and capital items, have materially impacted operating margins and cash flows[159] - The company uses flexible pricing structures and cost recovery fees (e.g., E&E Fee) to mitigate inflation's impact, but competitive factors may require absorbing some cost increases[159] Regional Economic Conditions This section addresses how regional economic downturns and other factors in the northeastern US affect the company's business - The company's business is susceptible to economic downturns and other regional factors (regulations, severe weather) in the northeastern United States[160] Seasonality and Severe Weather This section describes the seasonal variations in waste volumes and the impact of severe weather on operations and revenues - Transfer and disposal revenues are historically higher in late spring, summer, and early fall, with lower waste volumes (especially C&D) in winter months in the northeastern US[161] - Inclement weather can adversely affect operations by increasing costs, delaying services, or reducing waste volumes, while severe weather can also favorably increase waste volumes in some cases[161] - The Resource Solutions segment's processing business typically sees increased fiber volumes from November to mid-January due to holiday retail activity[161] Critical Accounting Estimates and Assumptions This section highlights key accounting estimates and judgments that significantly impact the financial statements - Financial statements rely on management's ongoing estimates and judgments, which are based on historical experience and various reasonable factors, but actual results may differ under different assumptions[163] New Accounting Pronouncements This section refers to Note 2 for details on recently adopted or issued accounting standards - Refer to Note 2, Accounting Changes, for a description of new accounting standards that may affect the company[164] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company is exposed to market risks from fuel prices, commodity prices, and interest rates, and employs various strategies, including hedging and cost recovery programs, to mitigate these risks Fuel Price Risk This section discusses the company's exposure to fluctuating fuel prices and strategies to mitigate their impact on operating expenses - Fuel prices are unpredictable and fluctuate due to geopolitical events, supply/demand, and other factors, increasing operating expenses[166] - The company uses an energy and environmental fee (E&E Fee) with a fuel cost recovery program to offset diesel fuel price increases, though there is a timing lag in matching cost changes[166] - A $0.50 per gallon change in diesel fuel price would change direct fuel costs by approximately $4.9 million per year, offset by an estimated $5.8 million change in E&E Fees[174] Fuel Costs | Fuel Costs | Q1 2023 ($M) | % of Revenue | Q1 2022 ($M) | % of Revenue | | :--------- | :----------- | :----------- | :----------- | :----------- | | Total | 10.9 | 4.2% | 9.9 | 4.2% | Commodity Price Risk This section addresses the company's exposure to price fluctuations in recycled materials and mitigation strategies - The company markets various recycled materials (fibers, plastics, glass, metals) and mitigates price fluctuations through strategies like floating sustainability recycling adjustment fees (SRA Fees), revenue sharing, processing fees, and fixed-price contracts[168] - As of March 31, 2023, the company was not party to any commodity hedging agreements[168] Interest Rate Risk This section details the company's exposure to variable interest rates on debt and its use of derivative agreements to manage this risk - The company uses interest rate derivative agreements as cash flow hedges to reduce exposure to adverse movements in variable interest rates on long-term debt[169] - As of March 31, 2023, active interest rate derivative agreements had a total notional amount of $190.0 million, with forward starting agreements totaling $60.0 million[169] - The company had $246.1 million of fixed rate debt and $160.0 million of long-term debt exposed to interest rate risk as of March 31, 2023. A 100 basis point change in the variable rate portion would change annual interest expense by approximately $1.6 million[169] ITEM 4. CONTROLS AND PROCEDURES Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures, concluding they were effective as of March 31, 2023, with no material changes in internal controls over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective at a reasonable assurance level as of March 31, 2023[179] - No material changes in internal control over financial reporting occurred during Q1 2023[179] PART II. OTHER INFORMATION This section includes disclosures on legal proceedings, risk factors, exhibits, and corporate signatures ITEM 1. LEGAL PROCEEDINGS This section refers to Note 8 for details on general legal proceedings and confirms no environmental matters with potential monetary sanctions of $1.0 million or more require separate disclosure - Information on general legal proceedings is provided in Note 8, Commitments and Contingencies[181] - No environmental matters involving governmental authorities with potential monetary sanctions of $1.0 million or more require disclosure[181] ITEM 1A. RISK FACTORS The company's business is subject to various risks, as detailed in its Annual Report on Form 10-K for fiscal year 2022, which could materially affect its business, results of operations, financial condition, and liquidity - Key risks are identified in Item 1A, "Risk Factors" of the Annual Report on Form 10-K for fiscal year 2022[182] ITEM 6. EXHIBITS This section lists the exhibits filed with the Form 10-Q, including employment agreements, certifications, and XBRL taxonomy documents for the financial statements - Exhibits include employment agreements, Section 302 and 906 certifications, and various Inline XBRL taxonomy documents for the consolidated financial statements[185][186] SIGNATURES The report is duly signed on behalf of Casella Waste Systems, Inc. by its President and Chief Financial Officer, Edmond R. Coletta, and Vice President and Chief Accounting Officer, Kevin Drohan, on April 28, 2023 - The report was signed by Edmond R. Coletta (President and CFO) and Kevin Drohan (VP and Chief Accounting Officer) on April 28, 2023[188][189]