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CASELLA WASTE SYSTEMS, INC.

(CWST)
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CASELLA WASTE SYSTEMS INC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

07/29/2022 | 04:49pm EDT
The following discussion should be read in conjunction with our unaudited
consolidated financial statements and notes thereto included under Item 1. In
addition, reference should be made to our audited consolidated financial
statements and notes thereto and related "Management's Discussion and Analysis
of Financial Condition and Results of Operations" appearing in our Annual Report
on Form 10-K for the fiscal year ended December 31, 2021 filed with the
Securities and Exchange Commission ("SEC") on February 18, 2022.

This Quarterly Report on Form 10-Q and, in particular, this "Management's
Discussion and Analysis of Financial Condition and Results of Operations", may
contain or incorporate a number of forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Exchange Act of 1934, as amended, including statements regarding:

•the projected development of additional disposal capacity or expectations regarding permits for existing capacity;

•the outcome of any legal or regulatory matter;

•expected liquidity and financing plans;

•expected future revenues, operations, expenditures and cash needs;

•fluctuations in commodity pricing of our recyclables, increases in landfill tipping fees and fuel costs and general economic and weather conditions;


•projected future obligations related to final capping, closure and post-closure
costs of our existing landfills and any disposal facilities which we may own or
operate in the future;

•our ability to use our net operating losses and tax positions;

•our ability to service our debt obligations;

•the recoverability or impairment of any of our assets or goodwill;

•estimates of the potential markets for our products and services, including the anticipated drivers for future growth;

•sales and marketing plans or price and volume assumptions;

•potential business combinations or divestitures; and

•projected improvements to our infrastructure and the impact of such improvements on our business and operations.


In addition, any statements contained in or incorporated by reference into this
report that are not statements of historical fact should be considered
forward-looking statements. You can identify these forward-looking statements by
the use of the words "believes", "expects", "anticipates", "plans", "may",
"will", "would", "intends", "estimates" and other similar expressions, whether
in the negative or affirmative. These forward-looking statements are based on
current expectations, estimates, forecasts and projections about the industry
and markets in which we operate, as well as management's beliefs and
assumptions, and should be read in conjunction with our consolidated financial
statements and notes thereto. These forward-looking statements are not
guarantees of future performance, circumstances or events. The occurrence of the
events described and the achievement of the expected results depends on many
events, some or all of which are not predictable or within our control. Actual
results may differ materially from those set forth in the forward-looking
statements.

There are a number of important risks and uncertainties that could cause our
actual results to differ materially from those indicated by such forward-looking
statements. These risks and uncertainties include, without limitation, those
detailed in Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2021 and those included under Part II, Item 1A of
this Quarterly Report on Form 10-Q.

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 a result of new information, future events or otherwise,
except as otherwise required by law.
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Company Overview


Casella Waste Systems, Inc., a Delaware corporation, and its wholly-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. We provide integrated solid
waste services in seven states: Vermont, New Hampshire, New York, Massachusetts,
Connecticut, Maine and Pennsylvania, with our headquarters located in Rutland,
Vermont. We manage our solid waste operations on a geographic basis through two
regional operating segments, the Eastern and Western regions, each of which
provides a full range of solid waste services. We manage our resource-renewal
operations through the Resource Solutions operating segment, which leverages our
core competencies in materials processing, industrial recycling, organics and
resource management service offerings to deliver a comprehensive solution for
our larger commercial, municipal, institutional and industrial customers that
have more diverse waste and recycling needs. Our Resources Solutions operations
consist of two lines-of-service: processing and non-processing. Processing
services consist of the receipt of recycled, sludge or other organic materials
at one of our materials recovery, processing or disposal facilities, where it is
then sorted, mixed and/or processed, and then disposed of or sold.
Non-processing services consist of brokerage services and overall resource
management services, which provide 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.

As of July 15, 2022, we owned and/or operated 50 solid waste collection operations, 65 transfer stations, 25 recycling facilities, eight Subtitle D landfills, three landfill gas-to-energy facilities and one landfill permitted to accept construction and demolition ("C&D") materials.

Results of Operations

Revenues


We manage our solid waste operations, which include a full range of solid waste
services, on a geographic basis through two regional operating segments, which
we designate as the Eastern and Western regions. Revenues in our Eastern and
Western regions consist primarily of fees charged to customers for solid waste
collection and disposal services, including landfill, transfer and
transportation, landfill gas-to-energy, and processing services. We derive a
substantial portion of our collection revenues from commercial, industrial and
municipal services that are generally performed under service agreements or
pursuant to contracts with municipalities. The majority of our residential
collection services are performed on a subscription basis with individual
households. Landfill and transfer customers are charged a tipping fee on a per
ton basis for disposing of their solid waste at our disposal facilities and
transfer stations. We also generate and sell electricity at certain of our
landfill facilities. We manage our resource-renewal operations through the
Resource Solutions operating segment, which includes processing and
non-processing services. Revenues from processing services are derived from
municipalities and customers in the form of processing fees, tipping fees, and
commodity sales, primarily comprised of newspaper, corrugated containers,
plastics, ferrous and aluminum, and organic materials such as our earthlife®
soils products including fertilizers, composts and mulches. Revenues from
non-processing services 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.
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A summary of revenues attributable to services provided (dollars in millions and as a percentage of total revenues) follows:

                                                    Three Months Ended June 30,                               $                               Six Months Ended June 30,                                $
                                              2022                                 2021                    Change                       2022                                2021                     Change
Collection                      $       137.3             48.4  %       $ 107.3             49.7  %       $ 30.0          $      256.8             49.6  %       $ 204.8             50.5  %       $  52.0
Disposal                                 60.2             21.2  %          49.2             22.8  %         11.0                 103.4             20.0  %          87.0             21.5  %          16.4
Power                                     1.8              0.6  %           1.1              0.5  %          0.7                   4.4              0.9  %           2.4              0.6  %           2.0
Processing                                2.8              1.1  %           2.3              1.1  %          0.5                   4.7              0.8  %           3.8              0.9  %           0.9
Solid waste                             202.1             71.3  %         159.9             74.1  %         42.2                 369.3             71.3  %         298.0             73.5  %          71.3
Processing                               33.9             11.9  %          21.1              9.7  %         12.8                  61.3             11.9  %          38.3              9.5  %          23.0
Non-processing                           47.7             16.8  %          34.9             16.2  %         12.8                  87.1             16.8  %          69.1             17.0  %          18.0
Resource solutions                       81.6             28.7  %          56.0             25.9  %         25.6                 148.4             28.7  %         107.4             26.5  %          41.0
Total revenues                  $       283.7            100.0  %       $ 215.9            100.0  %       $ 67.8          $      517.7            100.0  %       $ 405.4            100.0  %       $ 112.3

A summary of the period-to-period changes in solid waste revenues (dollars in millions and as percentage growth of solid waste revenues) follows:

                                                  Period-to-Period Change for the Three          Period-to-Period Change for the Six Months
                                                   Months Ended June 30, 2022 vs. 2021                  Ended June 30, 2022 vs. 2021
                                                     Amount                  % Growth                  Amount                  % Growth
Price                                          $          11.1                      6.9  %       $          18.9                      6.3  %
Volume                                                     2.6                      1.6  %                   3.3                      1.1  %
Surcharges and other fees                                  8.4                      5.3  %                  10.2                      3.4  %
Commodity price and volume                                 0.7                      0.5  %                   2.3                      0.8  %
Acquisitions                                              19.4                     12.1  %                  36.6                     12.3  %

Solid waste revenues                           $          42.2                     26.4  %       $          71.3                     23.9  %



Solid waste revenues

Price.

The price change component in quarterly solid waste revenues growth from the prior year period is the result of the following:

•$8.3 million from favorable collection pricing; and


•$2.8 million from favorable disposal pricing associated with our landfills,
transfer stations and to a lesser extent transportation services in our Western
region.

The price change component in year-to-date solid waste revenues growth from the prior year period is the result of the following:

•$14.6 million from favorable collection pricing; and


•$4.3 million from favorable disposal pricing associated with our landfills,
transfer stations and to a lesser extent transportation services in our Western
region.

Volume.

The volume change component in quarterly solid waste revenues growth from the prior year period is the result of the following:


•$3.1 million from higher disposal volumes (of which $1.4 million relates to
higher third-party landfill volumes, $1.2 million relates to higher transfer
station volumes and $0.5 million relates to higher transportation volumes); and

•$0.2 million from higher processing volumes; partially offset by

•$(0.7) million from lower collection volumes in our Western region with higher customer churn due to higher pricing, implementation of the energy and environmental fee ("E&E Fee"), and customer deselection.

The volume change component in year-to-date solid waste revenues growth from the prior year period is the result of the following:

•$3.4 million from higher disposal volumes (of which $1.5 million relates to higher transfer station volumes, $1.1 million relates to higher third-party landfill volumes and $0.7 million relates to higher transportation volumes); and

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•$0.1 million from higher processing volumes; partially offset by

•$(0.2) million from lower collection volumes in our Western region with higher customer churn due to higher pricing, implementation of the E&E Fee, and customer deselection.

Surcharges and other fees.


The surcharges and other fees change components in quarterly and year-to-date
solid waste revenues growth from the prior year periods are the result of higher
energy fee revenues on higher diesel fuel prices, partially offset by lower
sustainability recycling adjustment fees ("SRA Fee") year-to-date on higher
recycled commodity prices.

Commodity price and volume.

The commodity price and volume change component in quarterly solid waste revenues growth from the prior year period is the result of $0.6 million primarily from favorable energy pricing and $0.1 million from higher landfill gas-to-energy volumes.

The commodity price and volume change component in year-to-date solid waste revenues growth from the prior year period is the result of $1.9 million primarily from favorable energy pricing and $0.4 million from higher landfill gas-to-energy and commodity processing volumes.

Acquisitions.


The acquisitions change components in quarterly and year-to-date solid waste
revenues growth from the prior year periods are the result of increased
acquisition activity in line with our growth strategy, including the timing and
acquisition of eight businesses in the six months ended June 30, 2022 and ten
businesses in the fiscal year ended December 31, 2021.

Resource Solutions revenues

The change component in quarterly Resource Solutions revenues growth of $25.6 million from the prior year period is the result of the following:

•$17.2 million from acquisition activity;

•$5.9 million from higher non-processing revenues due to higher volumes on organic business growth, favorable pricing and increased fees; and

•$3.1 million from the favorable impact of recycling commodity pricing on processing revenues; partially offset by

•$(0.6) million from lower processing volumes mainly driven by lower recycling commodity volumes.

The change component in year-to-date Resource Solutions revenues growth of $41.0 million from the prior year period is the result of the following:

•$26.5 million from acquisition activity;

•$9.3 million from higher non-processing revenues due to higher volumes on organic business growth, favorable pricing and increased fees; and

•$5.4 million from the favorable impact of recycling commodity pricing on processing revenues; partially offset by

•$(0.2) million from lower processing volumes mainly driven by lower recycling commodity volumes.


Operating Expenses

A summary of cost of operations, general and administration expense, and depreciation and amortization expense (dollars in millions and as a percentage of total revenues) is as follows:

                                                    Three Months Ended June 30,                              $                              Six Months Ended June 30,                               $
                                               2022                                2021                   Change                      2022                                2021                   Change
Cost of operations               $       186.0            65.6  %       $ 138.6            64.2  %       $ 47.4          $      348.5            67.3  %       $ 265.7            65.5  %       $ 82.8
General and administration       $        33.6            11.8  %       $  29.2            13.5  %       $  4.4          $       63.4            12.2  %       $  56.3            13.9  %       $  7.1
Depreciation and amortization    $        31.2            11.0  %       $  24.3            11.3  %       $  6.9          $       60.6            11.7  %       $  47.0            11.6  %       $ 13.6



Cost of Operations

Cost of operations includes labor costs, tipping fees paid to third-party
disposal facilities, fuel costs, maintenance and repair costs of vehicles and
equipment, workers' compensation and vehicle insurance costs, the cost of
purchasing materials to be recycled, third-party transportation costs, district
and state taxes, host community fees and royalties. Cost of operations also
includes accretion expense related to final capping, closure and post-closure
obligations, leachate treatment and disposal costs and depletion of landfill
operating lease obligations.
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As a percentage of revenues, cost of operations increased approximately 140
basis points and 180 basis points during the three and six months ended June 30,
2022, respectively, from the same periods of the prior year. The
period-to-period changes in cost of operations can be primarily attributed to
the following:

Third-party direct costs increased $19.6 million quarterly, while increasing
approximately 90 basis points as a percentage of revenues, and increased $32.3
million year-to-date, while increasing approximately 80 basis points as a
percentage of revenues, due to the following:

•higher hauling and third-party transportation costs associated primarily with:

•increased solid waste volumes on acquisition activity;

•higher fuel surcharges from third-party transporters; and

•higher non-processing volumes in our Resource Solutions operating segment; partially offset by

•lower Western region collection volumes in the quarter.

•higher purchased material costs associated primarily with:

•acquisition activity; and

•higher recycling commodity prices in our Resource Solutions operating segment.

•higher third-party disposal costs associated primarily with:

•increased solid waste volumes on acquisition activity and to a lesser extent organic business growth; and

•higher fuel surcharges from third-party transporters.

Direct labor costs increased $8.8 million quarterly, while increasing approximately 10 basis points as a percentage of revenues, and increased $17.3 million year-to-date, while increasing approximately 50 basis points as a percentage of revenues, due primarily to the following:

•wage inflation in our markets and increased overtime and outside labor costs on higher solid waste volumes on acquisition activity and to a lesser extent organic business growth;

•higher non-processing volumes on acquisition activity and organic business growth; and

•higher workers compensation costs on claim activity.


Maintenance and repair costs increased $8.2 million quarterly, while decreasing
approximately (60) basis points as a percentage of revenues, and increased $15.5
million year-to-date, while decreasing approximately (30) basis points as a
percentage of revenues, due primarily to higher fleet, facility and container
maintenance costs associated with inflation and acquisition activity.

Fuel costs increased $7.4 million quarterly, while increasing approximately 200
basis points as a percentage of revenues, and increased $11.8 million
year-to-date, while increasing approximately 170 basis points as a percentage of
revenues, due primarily to higher fuel prices and higher volumes driven by
acquisition activity and to a lesser extent organic business growth.

Direct operational costs increased $3.4 million quarterly, while decreasing approximately (100) basis points as a percentage of revenues, and increased $5.9 million year-to-date, while decreasing approximately (90) basis points as a percentage of revenues, due primarily to the following:

•lower host community and royalty fees; and

•lower non-landfill operating lease expense; more than offset by

•higher landfill operating costs in our Western region due to severe winter weather earlier in the year and construction delays compounded with higher quarterly landfill volumes;

•higher vehicle insurance costs; and

•higher repair and replacement part costs.

General and Administration


General and administration expense includes (i) management, clerical and
administrative compensation, (ii) bad debt expense, and (iii) overhead costs,
professional service fees and costs associated with marketing, sales force and
community relations efforts.

The period-to-period changes in general and administration expenses of $4.4 million quarterly and $7.1 million year-to-date due primarily to increased overhead costs associated with wage inflation, organic business growth, acquisition activity, higher accrued incentive compensation on improved performance, and higher bad debt expense, partially offset by lower equity compensation costs.

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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, using either an
economic benefit provided approach or on a straight-line basis 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,                             $                             Six Months Ended June 30,                              $
                                          2022                               2021                   Change                      2022                              2021                   Change
Depreciation                 $       18.9             6.7  %       $ 14.5             6.7  %       $  4.4          $      38.4             7.4  %       $ 28.8             7.1  %       $  9.6
Landfill amortization                 8.0             2.8  %          7.8             3.6  %          0.2                 14.1             2.7  %         14.2             3.5  %         (0.1)
Other amortization                    4.3             1.5  %          2.0             1.0  %          2.3                  8.1             1.6  %          4.0             1.0  %          4.1
                             $       31.2            11.0  %       $ 24.3            11.3  %       $  6.9          $      60.6            11.7  %       $ 47.0            11.6  %       $ 13.6



The period-to-period increases in depreciation and other amortization expense
can be primarily attributed to acquisition activity, which included $1.5 million
of additional depreciation and other amortization expense related to a purchase
price allocation adjustment in the quarter ended March 31, 2022, and increased
investments in our fleet. Landfill amortization expense increased in the three
months ended June 30, 2022, remaining slightly down year-to-date, on higher
landfill volumes in our Western region.

Expense from Acquisition Activities


In the three and six months ended June 30, 2022, we recorded charges of $1.0
million and $3.1 million, respectively, and in the three and six months ended
June 30, 2021, we recorded charges of $1.6 million and $2.0 million,
respectively, comprised primarily of legal, consulting and other similar costs
associated with due diligence and the acquisition and integration of acquired
businesses or select development projects.

Other Expenses

Interest Expense, net

Our interest expense, net increased $0.4 million quarterly and $0.2 million year-to-date due primarily to rising interest rates and higher average debt balances associated with the issuance of $35.0 million aggregate principal amount of Vermont Economic Development Authority Solid Waste Disposal Long-Term Revenue Bonds Series 2022A-1 ("Vermont Bonds 2022A-1").

Provision for Income Taxes


Our provision for income taxes increased $3.1 million quarterly and $1.7 million
year-to-date as compared to the same periods in the prior year, primarily due to
higher income from operations between the periods, and one-time adjustments for
the tax benefit on equity compensation awards between the periods and for a
decrease in the current period in our state deferred tax asset from a change in
state law in our footprint. The provision for income taxes in the six months
ended June 30, 2022 included $2.4 million of current income taxes and $7.1
million of deferred income taxes. For the six months ended June 30, 2021, the
provision included a $0.8 million of current income taxes and $7.1 million of
deferred income taxes. The effective rate for the six months ended June 30, 2022
was 31% before the one-time adjustments, and was computed based on the statutory
rate of 21% adjusted primarily for state taxes and nondeductible officer
compensation.

On December 22, 2017, the Tax Cuts and Jobs Act (the "TCJ Act") was enacted. The
TCJ Act significantly changed U.S. corporate income tax laws by, among other
things, changing carryforward rules for net operating losses. Our $52.4 million
in federal net operating loss carryforwards generated as of the end of 2017
continue to be carried forward for 20 years and are expected to be available to
fully offset taxable income earned in the fiscal year ending December 31, 2022
("fiscal year 2022") and future tax years. Federal net operating losses
generated after 2017, totaling $46.5 million carried forward to fiscal year
2022, will be carried forward indefinitely, but generally may only offset up to
80% of taxable income earned in a tax year.
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Segment Reporting

Revenues

A summary of revenues by operating segment (in millions) follows:

                          Three Months Ended                          Six Months Ended
                               June 30,                  $                June 30,                $
                           2022            2021        Change        2022          2021        Change
Eastern              $     87.3          $  61.1      $ 26.2      $   158.6      $ 113.4      $  45.2
Western                   114.9             98.9        16.0          210.7        184.6         26.1
Resource solutions         81.5             55.9        25.6          148.4        107.4         41.0

Total revenues       $    283.7          $ 215.9      $ 67.8      $   517.7      $ 405.4      $ 112.3



Eastern Region

A summary of the period-to-period changes in solid waste revenues (dollars in millions and as percentage growth of solid waste revenues) follows:

                                                  Period-to-Period Change for the Three          Period-to-Period Change for the Six Months
                                                   Months Ended June 30, 2022 vs. 2021                  Ended June 30, 2022 vs. 2021
                                                     Amount                  % Growth                  Amount                  % Growth
Price                                          $           4.8                      7.9  %       $           8.3                      7.3  %
Volume                                                     2.2                      3.6  %                   2.8                      2.5  %
Surcharges and other fees                                  3.7                      6.1  %                   4.4                      3.8  %

Acquisitions                                              15.5                     25.3  %                  29.7                     26.2  %

Solid waste revenues                           $          26.2                     42.9  %       $          45.2                     39.8  %



Price.

The price change component in quarterly solid waste revenues growth from the prior year period is the result of the following:

•$3.5 million from favorable collection pricing; and

•$1.3 million from favorable disposal pricing related to transfer stations and to a lesser extent landfills.

The price change component in year-to-date solid waste revenues growth from the prior year period is the result of the following:

•$6.3 million from favorable collection pricing; and

•$2.0 million from favorable disposal pricing related to transfer stations and to a lesser extent landfills.

Volume.

The volume change component in quarterly solid waste revenues growth from the prior year period is the result of the following:

•$1.1 million from higher disposal volumes related to transfer stations and to a lesser extent landfills;

•$0.8 million from higher collection volumes as a result of organic business growth; and

•$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:

•$1.3 million from higher disposal volumes related to transfer stations, partially offset by lower landfill volumes;

•$1.4 million from higher collection volumes as a result of organic business growth; and

•$0.1 million from higher processing volumes.


Surcharges and other fees.
The surcharges and other fees change components in quarterly and year-to-date
solid waste revenues growth from the prior year periods are the result of higher
energy fee revenues on higher diesel fuel prices, partially offset by lower SRA
Fees on higher recycled commodity prices.
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Acquisitions.


The acquisitions change components in quarterly and year-to-date solid waste
revenues growth from the prior year periods are the result of increased
acquisition activity in line with our growth strategy, including the timing and
acquisition of two businesses in the six months ended June 30, 2022 and five
businesses in the fiscal year ended December 31, 2021.

Western Region

A summary of the period-to-period changes in solid waste revenues (dollars in millions and as percentage growth of solid waste revenues) follows:

                                                  Period-to-Period Change for the Three          Period-to-Period Change for the Six Months
                                                   Months Ended June 30, 2022 vs. 2021                  Ended June 30, 2022 vs. 2021
                                                     Amount                  % Growth                  Amount                  % Growth
Price                                          $           6.3                      6.4  %       $          10.6                      5.7  %
Volume                                                     0.4                      0.3  %                   0.4                      0.2  %
Surcharges and other fees                                  4.7                      4.8  %                   5.9                      3.2  %
Commodity price and volume                                 0.7                      0.7  %                   2.3                      1.2  %
Acquisitions                                               3.9                      4.0  %                   6.9                      3.8  %

Solid waste revenues                           $          16.0                     16.2  %       $          26.1                     14.1  %



Price.

The price change component in quarterly solid waste revenues growth from the prior year period is the result of the following:

•$4.8 million from favorable collection pricing; and

•$1.5 million from favorable disposal pricing related to landfills, transfer stations, and to a lesser extent transportation services.

The price change component in year-to-date solid waste revenues growth from the prior year period is the result of the following:

•$8.3 million from favorable collection pricing; and

•$2.3 million from favorable disposal pricing related to landfills, transfer stations, and to a lesser extent transportation services.

Volume.

The volume change components in quarterly and year-to-date solid waste revenues growth from the prior year periods are the result of the following:

•$2.0 million from higher disposal volumes related to landfills, transfer stations, and transportation services; partially offset by

•$(1.6) million from lower collection volumes with higher customer churn due to higher pricing, implementation of the E&E Fee, and customer deselection.

Surcharges and other fees.


The surcharges and other fees change components in quarterly and year-to-date
solid waste revenues growth from the prior year periods are the result of higher
energy fee revenues on higher diesel fuel prices, partially offset by lower SRA
Fees year-to-date on higher recycled commodity prices.

Commodity price and volume.


The commodity price and volume change components in quarterly and year-to-date
solid waste revenues growth from the prior year periods are primarily the result
of favorable landfill gas-to-energy pricing.

Acquisitions.


The acquisitions change components in quarterly and year-to-date solid waste
revenues growth from the prior year periods is the result of increased
acquisition activity in line with our growth strategy, including the timing and
acquisition of five businesses in the six months ended June 30, 2022 and five
businesses in the fiscal year ended December 31, 2021.
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Operating Income


A summary of operating income (loss) by operating segment (in millions) follows:
                           Three Months Ended                           Six Months Ended
                                June 30,                  $                 June 30,                 $
                            2022             2021       Change          2022            2021       Change
Eastern              $      6.1            $  3.8      $  2.3      $     3.9          $  6.0      $ (2.1)
Western                    19.9              14.9         5.0           29.2            22.7         6.5
Resource Solutions          6.2               3.7         2.5            9.9             6.1         3.8
Corporate entities         (0.5)             (0.5)          -           (1.1)           (0.8)       (0.3)
Operating income     $     31.7            $ 21.9      $  9.8      $    41.9          $ 34.0      $  7.9



Eastern Region

Operating income increased $2.3 million quarterly and decreased $(2.1) million
year-to-date from the prior year periods. Excluding the impact of the
Southbridge Landfill closure charge and the expense from acquisition activities,
our operating performance in the three and six months ended June 30, 2022 was
driven by revenue growth, inclusive of inter-company revenues, and the following
cost changes.

Cost of operations: Cost of operations increased $24.3 million quarterly and $44.7 million year-to-date from the prior year periods due to the following:

•higher third-party disposal costs and higher hauling and third-party transportation costs associated with increased solid waste volumes on acquisition activity and to a lesser extent organic business growth, and higher fuel surcharges from third-party transporters;


•higher labor and related benefit costs due primarily to wage inflation in our
markets and increased overtime on higher solid waste volumes associated
primarily with acquisition activity and to a lesser extent organic business
growth, higher outside labor costs, and higher workers compensation costs on
claim activity;

•higher maintenance and repair costs due primarily to higher fleet, facility and container maintenance costs associated with inflation and acquisition activity;

•higher fuel costs due to higher fuel prices and higher volumes driven by acquisition activity and to a lesser extent an organic business growth; and

•higher direct operational costs due to increased vehicle insurance costs and higher repair and replacement part costs.


General and administration: General and administration expense increased $2.5
million quarterly and $4.2 million year-to-date from the prior year periods
primarily due to increased overhead costs associated with wage inflation,
organic business growth, acquisition activity, higher accrued incentive
compensation on improved performance, and higher bad debt expense, partially
offset by lower equity compensation costs.

Depreciation and amortization: Depreciation and amortization expense increased
$4.2 million quarterly and $9.0 million year-to-date from the prior year periods
due primarily to acquisition activity, which included additional depreciation
and other amortization expense related to a purchase price allocation adjustment
in the quarter ended March 31, 2022, and increased investment in our fleet.

Western Region


Operating income increased $5.0 million quarterly and $6.5 million year-to-date
from the prior year periods. Excluding the impact of the expense from
acquisition activities, our improved operating performance in the three and six
months ended June 30, 2022 was driven by revenue growth, inclusive of
inter-company revenues, more than offsetting the following cost changes.

Cost of operations: Cost of operations increased $15.1 million quarterly and $25.9 million year-to-date from the prior year periods due to:

•higher third-party disposal costs and higher hauling and third-party transportation costs associated with increased solid waste volumes on acquisition activity, partially offset by lower collection volumes in the quarter and higher fuel surcharges from third-party transporters;


•higher labor and related benefit costs due primarily to wage inflation in our
markets and increased overtime on higher solid waste volumes associated with
acquisition activity and higher workers compensation costs on claim activity;

•higher maintenance and repair costs due primarily to higher fleet and facility maintenance costs associated with inflation and acquisition activity;

                                       33
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•higher fuel costs due to higher fuel prices and higher volumes driven by acquisition activity; and


•higher direct operational costs due to higher landfill operating costs due to
severe winter weather earlier in the year and construction delays compounded
with higher quarterly landfill volumes, higher vehicle insurance costs, and
higher repair and replacement part costs, partially offset by lower host
community and royalty fees.

General and administration: General and administration expense increased $0.4
million quarterly and $0.7 million year-to-date from the prior year periods
primarily due to increased overhead costs associated with wage inflation,
organic business growth, acquisition activity, higher accrued incentive
compensation on improved performance, and higher bad debt expense, partially
offset by lower equity compensation costs.

Depreciation and amortization: Depreciation and amortization expense increased
$0.8 million quarterly and $1.5 million year-to-date from the prior year periods
primarily due to increased investments in our fleet and acquisition activity.
Landfill amortization expense increased in the quarter, remaining slightly down
year-to-date, on higher landfill volumes.

Resource Solutions


Operating income increased $2.5 million quarterly and $3.8 million year-to-date
from the prior year periods. Excluding the impact of the expense from
acquisition activities, our improved operating performance in the three and six
months ended June 30, 2022 was driven by revenue growth, inclusive of
inter-company revenues, more than offsetting the following cost changes.

Cost of operations: Cost of operations increased $19.3 million quarterly and $30.6 million year-to-date from the prior year periods due to:

•higher purchased material costs associated with acquisition activity and higher recycling commodity prices;

•higher hauling and third-party transportation costs associated primarily with higher non-processing volumes and higher fuel surcharges from third-party transporters;


•higher labor and related benefit costs due primarily to wage inflation in our
markets and increased overtime and outside labor costs on higher commodity and
non-processing volumes associated with acquisition activity and to a lesser
extent organic business growth; and

•higher maintenance and repair costs due primarily to higher facility and container maintenance costs and to a lesser extent vehicle maintenance costs, associated with inflation, acquisition activity, and organic business growth.


General and administration: General and administration expense increased $1.5
million quarterly and $1.8 million year-to-date from the prior year periods due
to increased overhead costs associated with wage inflation, organic business
growth, acquisition activity and higher quarterly bad debt expense, partially
offset by lower equity compensation costs.

Depreciation and amortization: Depreciation and amortization expense increased
$1.6 million quarterly and $2.8 million year-to-date from the prior year periods
due to acquisition activity, which included additional depreciation and other
amortization expense related to a purchase price allocation adjustment in the
quarter ended March 31, 2022.

Liquidity and Capital Resources


We continually monitor our actual and forecasted cash flows, our liquidity, and
our capital requirements in order to properly manage our liquidity needs as we
move forward based on the capital intensive nature of our business and our
growth acquisition strategy. We have $271.8 million of undrawn capacity from our
$300.0 million Revolving Credit Facility as of June 30, 2022 to help meet our
short-term and long-term liquidity needs. We expect existing cash, cash
equivalents and restricted cash combined with cash flows from operations and
financing activities to continue to be sufficient to fund our operating
activities and cash commitments for investing and financing activities for at
least the next 12 months and thereafter for the foreseeable future. Our known
current- and long-term uses of cash include, among other possible demands: (1)
capital expenditures and leases, (2) acquisitions, (3) repayments to service
debt and other long-term obligations, and (4) payments for final capping,
closure and post-closure asset retirement obligations and environmental
remediation liabilities.

                                       34
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A summary of cash and cash equivalents, restricted assets and debt balances, excluding any debt issuance costs (in millions) follows:

                                                       June 30,      

December 31,

                                                         2022            

2021

Cash, cash equivalents and restricted cash:
Cash and cash equivalents                             $   39.3      $       

33.8

Restricted cash                                            1.0              

-

Total cash, cash equivalents and restricted cash $ 40.3 $

33.8

Restricted assets:

Restricted investment securities - landfill closure $ 1.8 $

  2.1

Debt:
Current portion                                       $    7.6      $         9.9
Non-current portion                                      586.1              552.7
Total debt                                            $  593.7      $       562.6


Summary of Cash Flow Activity

A summary of cash flows (in millions) follows:

                                                          Six Months Ended
                                                              June 30,                $
                                                         2022          2021        Change
Net cash provided by operating activities             $    92.2      $  79.0      $  13.2
Net cash used in investing activities                 $  (110.6)     $ 

(61.1) $ (49.5) Net cash provided by (used in) financing activities $ 24.9 $ (5.0) $ 29.9

Cash flows from operating activities.

A summary of operating cash flows (in millions) follows:

                                                                                 Six Months Ended
                                                                                     June 30,
                                                                              2022                 2021
Net income                                                              $     22.0             $    16.1

Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization

                                                 60.6                  47.0

Interest accretion on landfill and environmental remediation liabilities

                                                                    4.0                   4.0
Amortization of debt issuance costs                                            0.9                   1.1
Stock-based compensation                                                       3.2                   6.1
Operating lease right-of-use assets expense                                    6.8                   6.4
Gain on sale of property and equipment                                        (0.3)                 (0.1)

Non-cash expense from acquisition activities                                   0.6                   1.0

Deferred income taxes                                                          7.2                   7.0
                                                                             105.0                  88.6
Changes in assets and liabilities, net                                       (12.8)                 (9.6)
Net cash provided by operating activities                               $     92.2             $    79.0



                                       35
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A summary of the most significant items affecting the change in our operating cash flows follows:


Net cash provided by operating activities increased $13.2 million in the six
months ended June 30, 2022 as compared to the six months ended June 30, 2021.
This was the result of improved operational performance, partially offset by an
increase in the unfavorable cash flow impact associated with the changes in our
assets and liabilities, net of effects of acquisitions and divestitures. For
discussion of our improved operational performance in the six months ended June
30, 2022 as compared to the six months ended June 30, 2021, see "Results of
Operations" above. 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, 2022 as compared to the six months
ended June 30, 2021 was primarily due to the following:

•a $(10.0) million unfavorable impact to operating cash flows associated with the change in accounts receivable associated with increased revenues growth; and

•a $(0.7) million unfavorable impact to operating cash flows associated with the change in accounts payable; partially offset by

•a $6.3 million favorable impact to operating cash flows associated with the change in accrued expenses and other liabilities; and

•a $1.1 million favorable impact to operating cash flows associated with the change in prepaid expenses, inventories and other assets.

Cash flows from investing activities.

A summary of investing cash flows (in millions) follows:

                                                   Six Months Ended
                                                       June 30,
                                                  2022          2021
Acquisitions, net of cash acquired             $   (56.3)     $  (5.5)

Additions to property, plant and equipment (54.9) (56.1)

Proceeds from sale of property and equipment 0.6 0.5

Net cash used in investing activities $ (110.6) $ (61.1)

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, 2022, 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, as compared to the six months ended June 30, 2021 during
which we acquired four businesses for total consideration of $4.9 million,
including $4.4 million in cash, and paid $1.1 million in holdback payments on
businesses previously acquired.

Capital expenditures. Capital expenditures were $(1.2) million lower in the six
months ended June 30, 2022 as compared to the six months ended June 30, 2021
primarily due to lower post-acquisition capital spend and the completion of
construction and development of phase VI at our Subtitle D landfill in Coventry,
Vermont in the fiscal year ended December 31, 2021, partially offset by higher
capital spend associated with landfill development and the retrofitting of a
single-stream material recovery facility.

Cash flows from financing activities.

A summary of financing cash flows (in millions) follows:

                                                           Six Months Ended
                                                               June 30,
                                                           2022            

2021

Proceeds from long-term borrowings                    $    82.2          $  

0.5

Principal payments on debt                                (55.3)           

(5.6)

Payments of debt issuance costs                            (1.2)            

-

Payments of contingent consideration                       (1.0)            

-

Proceeds from the exercise of share based awards            0.2             

0.1

Net cash provided by (used in) financing activities $ 24.9 $ (5.0)




                                       36
--------------------------------------------------------------------------------

A summary of the most significant items affecting the change in our financing cash flows follows:


Debt activity. Net cash associated with debt activity increased $32.0 million.
The increase in financing cash flows in the six months ended June 30, 2022 is
due primarily to the issuance of $35.0 million aggregate principal amount of
Vermont Bonds 2022A-1.

Payment of debt issuance costs. We paid $1.2 million of debt issuance costs in
the six months ended June 30, 2022 related to the issuance of of Vermont Bonds
2022A-1.

Payment of contingent consideration. We paid $1.0 million of contingent consideration associated with an acquisition based on the completion of a permit expansion application.

Outstanding Long-Term Debt

Credit Facility


As of June 30, 2022, we had outstanding $350.0 million aggregate principal
amount of borrowings under our term loan A facility ("Term Loan Facility") and
$0.0 million in borrowings under our $300.0 million revolving credit facility
("Revolving Credit Facility"), with a $75.0 million sublimit for letters of
credit (the Term Loan Facility and the Revolving Credit Facility together, the
"Credit Facility"). The Credit Facility has a 5-year term that matures in
December 2026 and bears interest at a rate of London Inter-Bank Offered Rate
("LIBOR") plus 1.375% per annum, which will be reduced to a rate of LIBOR plus
as low as 1.125% upon us reaching a consolidated net leverage ratio of less than
2.25x. The Credit Facility contains customary benchmark replacement provisions
pursuant to which, upon certain triggering events, the LIBOR benchmark used to
calculate the LIBOR rate will be replaced with a secured overnight financing
rate, as adjusted, on the terms and conditions in the amended and restated
credit agreement ("Credit Agreement"). 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,
2022, further advances were available under the Revolving Credit Facility in the
amount of $271.8 million. The available amount is net of outstanding irrevocable
letters of credit totaling $28.2 million, and as of June 30, 2022 no amount had
been drawn. We have the right to request, at our discretion, an increase in the
amount of loans under the Credit Facility by an aggregate amount of $125.0
million, subject to the terms and conditions set forth in the Credit Agreement.

The 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. In addition to these financial covenants, the 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, 2022, we
were in compliance with the covenants contained in the 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, 2022, we had outstanding $197.0 million aggregate principal
amount of tax exempt bonds, including the issuance of $35.0 million aggregate
principal amount of Vermont Bonds 2022A-1, $45.9 million aggregate principal
amount of finance leases and $0.8 million aggregate principal amount of notes
payable. See Note 7, Debt to our consolidated financial statements included in
Part I, Item 1 of this Quarterly Report on Form 10-Q for further disclosure over
debt.
                                       37
--------------------------------------------------------------------------------

Inflation


Inflationary increases in costs, including current inflationary pressures
associated primarily with fuel, labor and certain other cost categories and
capital items, have materially affected, and may continue to materially affect,
our operating margins and cash flows. While rapid inflation negatively impacted
operating results and margins during the three and six months ended June 30,
2022, we believe that our flexible pricing structures and mature 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 the
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. 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 northeastern United States. Therefore,
our business, financial condition and results of operations are susceptible to
downturns in the general economy in this geographic region and other factors
affecting the region, such as state regulations and severe weather conditions.
We are unable to forecast or determine the timing and/or the future impact of a
sustained economic slowdown.

Seasonality and Severe Weather


Our transfer and disposal revenues historically have been higher in the late
spring, summer and early fall months. This seasonality reflects lower volumes of
waste in the late fall, winter and early spring months because the volume of
waste relating to C&D activities decreases substantially during the winter
months in the northeastern United States.

Because certain of our operating and fixed costs remain constant throughout the
fiscal year, operating income is therefore impacted by a similar seasonality.
Our operations can be adversely affected by periods of inclement or severe
weather, which 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 experiences increased volumes of fiber in November and December due to increased retail activity during the holiday season.

Critical Accounting Estimates and Assumptions


Our financial statements have been prepared in accordance with generally
accepted accounting principles in the United States and necessarily include
certain estimates and judgments made by management. On an on-going basis,
management evaluates its estimates and judgments which are based on historical
experience and on various other factors that are believed to be reasonable under
the circumstances. The results of their evaluation form the basis for making
judgments about the carrying values of assets and liabilities. Actual results
may differ from these estimates under different assumptions and circumstances.
Our critical accounting estimates are more fully discussed in Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of our Annual Report on Form 10-K for the fiscal year ended December
31, 2021.

New Accounting Pronouncements

For a description of the new accounting standards that may affect us, see Note 2, Accounting Changes to our consolidated financial statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q.

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