Casella(CWST) - 2023 Q3 - Quarterly Report

PART I Financial Statements Unaudited consolidated financial statements for Q3 2023 reflect significant asset and liability growth from acquisitions, with increased revenues but decreased net income Consolidated Balance Sheet Summary (in millions) | Balance Sheet Items | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $2,498.015 | $1,449.215 | | Total Current Assets | $413.341 | $207.479 | | Goodwill | $737.150 | $274.458 | | Total Liabilities | $1,467.148 | $951.315 | | Total Current Liabilities | $253.184 | $177.600 | | Debt, less current portion | $1,012.169 | $585.015 | | Total Stockholders' Equity | $1,030.867 | $497.900 | Consolidated Statement of Operations Summary (in millions) | Income Statement Items | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Revenues | $904.975 | $812.962 | | Operating Income | $67.067 | $78.175 | | Net Income | $27.210 | $44.658 | | Diluted EPS | $0.50 | $0.86 | Consolidated Statement of Cash Flows Summary (in millions) | Cash Flow Items | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $157.825 | $152.431 | | Net cash used in investing activities | $(937.156) | $(161.059) | | Net cash provided by financing activities | $929.998 | $22.753 | | Net increase in cash and cash equivalents | $150.667 | $14.125 | Notes to Unaudited Consolidated Financial Statements The notes detail accounting policies, significant acquisitions like GFL and Twin Bridges, debt financing, and ongoing legal proceedings, including the adoption of new accounting standards - On June 30, 2023, the company acquired GFL Subsidiaries, forming the new Mid-Atlantic regional operating segment and expanding services into Delaware and Maryland, funded by new financing and an equity offering[108] - During the nine months ended September 30, 2023, the company acquired five businesses for total consideration of $845.1 million, a significant increase from the $78.1 million spent on twelve businesses in the same period of 2022[121][21] - To fund acquisitions, the company completed a public offering of 6.1 million shares of Class A common stock on June 16, 2023, resulting in net proceeds of $496.2 million[148][26] - In June 2023, the company borrowed $430.0 million under a new 2023 Term Loan Facility to help fund the GFL Acquisition[131][23] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A highlights revenue growth from acquisitions and pricing, increased operating expenses, decreased operating income, and strong liquidity maintained through financing activities Results of Operations Results of operations show Q3 and YTD revenue growth driven by acquisitions and pricing, offset by volume declines, leading to increased operating expenses and decreased operating income Revenue by Service Type (in millions) | Service Type | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Solid waste operations | $277.2 | $215.0 | $689.7 | $584.3 | | Resource Solutions operations | $75.5 | $80.3 | $215.3 | $228.7 | | Total revenues | $352.7 | $295.3 | $905.0 | $813.0 | Solid Waste Revenue Growth Drivers (Q3 2023 vs Q3 2022, in millions) | Driver | Amount | % Growth | | :--- | :--- | :--- | | Price | $14.9 | 6.9% | | Volume | $(7.2) | (3.3)% | | Surcharges and other fees | $(0.2) | (0.2)% | | Acquisitions | $54.7 | 25.5% | | Total Solid Waste Revenue Change | $62.2 | 28.9% | - Operating income decreased across several segments, with the Western region's operating income falling by $1.9 million quarterly, Resource Solutions seeing an $11.6 million year-to-date decline, and the Mid-Atlantic segment reporting a $0.7 million operating loss in its first quarter[86] - Cost of operations increased by $36.0 million in Q3 2023 compared to Q3 2022, driven by acquisitions, higher direct labor costs due to wage inflation, and increased maintenance and repair expenses[193][195][197] Liquidity and Capital Resources The company maintains strong liquidity with substantial cash and credit availability, primarily funded by financing activities and acquisitions - The company maintains a strong liquidity position with $219.1 million in cash and equivalents and $272.3 million available under its Revolving Credit Facility as of September 30, 2023[15] Summary of Cash Flow Activity (Nine Months Ended Sep 30, in millions) | Cash Flow Activity | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $157.8 | $152.4 | $5.4 | | Net cash used in investing activities | $(937.2) | $(161.1) | $(776.1) | | Net cash provided by financing activities | $930.0 | $22.8 | $907.2 | - Cash used in investing activities surged to $937.2 million year-to-date, primarily due to $847.8 million spent on acquisitions, a significant increase from $74.0 million in the prior-year period[21] - Financing activities provided $930.0 million in cash, mainly from a $496.2 million public stock offering and $465.0 million in proceeds from long-term borrowings, used to fund strategic acquisitions[22][26] Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from fuel prices, interest rates, and commodity prices through fees, revenue sharing, and derivative agreements - A $0.40 per gallon change in diesel fuel price is estimated to change annual direct fuel costs by approximately $5.1 million, which is expected to be almost fully offset by a corresponding $5.2 million change in E&E Fee revenue[40][39] - A $10 per ton change in recycled material commodity prices is estimated to change annual operating income by approximately $1.0 million[43] - As of September 30, 2023, the company had approximately $359.6 million of variable-rate long-term debt, where a 100 basis point change in the average interest rate would change annual interest expense by approximately $3.6 million[44] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal controls - The CEO and CFO concluded that as of September 30, 2023, the company's disclosure controls and procedures were effective at the reasonable assurance level[45] - No material changes to the internal control over financial reporting occurred during the three months ended September 30, 2023[45] PART II Legal Proceedings The company reports no new legal proceedings involving governmental authorities with potential monetary sanctions of $1.0 million or more - The company has no environmental legal matters with potential sanctions of $1.0 million or more to disclose[48] Risk Factors The company refers to existing risk factors from its 2022 Annual Report on Form 10-K, with no new material risks identified in this report - The company refers to the risk factors disclosed in its 2022 Annual Report on Form 10-K, indicating no material changes or additions during the quarter[49] Other Information This section discloses the adoption of Rule 10b5-1 trading arrangements by several directors and officers for tax-related equity award transactions Adoption of Rule 10b5-1 Trading Arrangements (Q3 2023) | Name (Title) | Action (Date) | Nature of Arrangement | | :--- | :--- | :--- | | John W. Casella (CEO) | Adoption (08/22/2023) | Sell-to-cover for equity awards | | Edmond R. Coletta (CFO) | Adoption (08/02/2023) | Sell-to-cover for equity awards | | Shelley E. Sayward (General Counsel) | Adoption (08/02/2023) | Sell-to-cover for equity awards | | Sean M. Steves (COO) | Adoption (08/02/2023) | Sell-to-cover for equity awards | | Kevin J. Drohan (CAO) | Adoption (08/02/2023) | Sell-to-cover for equity awards | | Paul J. Ligon (SVP) | Adoption (08/02/2023) | Sell-to-cover for equity awards | | Douglas R. Casella (Vice Chairman) | Adoption (08/20/2023) | Sell-to-cover for equity awards |