CASELLA WASTE SYSTEMS, INC. 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 endedDecember 31, 2021 filed with theSecurities and Exchange Commission onFebruary 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 endedDecember 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. 26 --------------------------------------------------------------------------------
Company Overview
Casella Waste Systems, Inc. , aDelaware 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 andPennsylvania , with our headquarters located inRutland, 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 theResource 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.
As of
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 station 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 property owners or occupants. Landfill and transfer customers are charged a tipping fee on a per ton basis for disposing of their solid waste at our disposal facilities and transfer stations. We also generate and sell electricity at certain of our landfill facilities. We manage our resource-renewal operations through theResource Solutions operating segment, which includes processing and non-processing services. Revenues from processing services are derived from customers in the form of processing fees, tipping fees, and commodity sales, primarily comprised of newspaper, corrugated containers, plastics, ferrous and aluminum, and organic materials such as our earthlife® soils products including fertilizers, composts and mulches. Revenues from non-processing 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. 27 --------------------------------------------------------------------------------
A summary of revenues attributable to services provided (dollars in millions and as a percentage of total revenues) follows:
Three Months Ended September 30, $ Nine Months Ended September 30, $
2022 2021 Change 2022 2021 Change
Collection $ 144.1 48.8 % $ 118.9 49.1 % $ 25.2 $ 400.9 49.3 % $ 323.7 50.0 % $ 77.2
Disposal 66.1 22.4 % 55.6 23.0 % 10.5 169.5 20.9 % 142.6 22.0 % 26.9
Power 1.6 0.6 % 1.3 0.5 % 0.3 6.1 0.7 % 3.7 0.6 % 2.4
Processing 3.2 1.0 % 2.9 1.2 % 0.3 7.8 1.0 % 6.7 1.0 % 1.1
Solid waste 215.0 72.8 % 178.7 73.8 % 36.3 584.3 71.9 % 476.7 73.6 % 107.6
Processing 32.2 10.9 % 27.4 11.4 % 4.8 93.5 11.5 % 65.7 10.2 % 27.8
Non-processing 48.1 16.3 % 35.9 14.8 % 12.2 135.2 16.6 % 105.0 16.2 % 30.2
Resource solutions 80.3 27.2 % 63.3 26.2 % 17.0 228.7 28.1 % 170.7 26.4 % 58.0
Total revenues $ 295.3 100.0 % $ 242.0 100.0 % $ 53.3 $ 813.0 100.0 % $ 647.4 100.0 % $ 165.6 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 Nine Months Ended
Months Ended September 30, 2022 vs. 2021 September 30, 2022 vs. 2021
Amount % Growth Amount % Growth
Price $ 11.9 6.6 % $ 30.7 6.4 %
Volume 3.5 2.0 % 6.9 1.4 %
Surcharges and other fees 11.5 6.6 % 21.7 4.6 %
Commodity price and volume 0.4 0.2 % 2.7 0.6 %
Acquisitions 9.0 5.0 % 45.6 9.6 %
Solid waste revenues $ 36.3 20.4 % $ 107.6 22.6 %
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:
•$8.5 million from favorable collection pricing; and
•$3.4 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:
•$23.1 million from favorable collection pricing; and
•$7.6 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 higher disposal volumes ($2.1 million relates to higher third-party landfill volumes,$0.7 million relates to higher transfer station volumes and$0.7 million relates to higher transportation volumes). The volume change component in year-to-date solid waste revenues growth from the prior year period is the result of higher disposal volumes ($3.2 million relates to higher third-party landfill volumes,$2.2 million relates to higher transfer station volumes and$1.5 million relates to higher transportation volumes). 28 --------------------------------------------------------------------------------
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 and environmental fee ("E&E Fee") revenues and higher sustainability
recycling adjustment fee ("SRA Fee") revenues. Higher E&E Fee revenues
associated with our fuel cost recovery program were a result of higher diesel
fuel prices. Higher SRA Fee revenues were a result of lower recycled commodity
prices in the quarter and a higher overall customer participation rate. See Item
3. "Quantitative and Qualitative Disclosures about Market Risk" included in this
Quarterly Report on Form 10-Q for additional information regarding our E&E Fee
and SRA Fee.
Commodity price and volume.
The commodity price and volume change components in quarterly and year-to-date
solid waste revenues growth from the prior year periods are due primarily to
favorable energy pricing and, to a lesser extent, higher landfill gas-to-energy
and commodity processing volumes.
Acquisitions.
The acquisitions change components in quarterly and year-to-date solid waste revenues growth from the prior year periods are the result of increased acquisition activity within our Eastern and Western region operating segments in line with our growth strategy, including the timing and acquisition of ten businesses in the nine months endedSeptember 30, 2022 and ten businesses in the fiscal year endedDecember 31, 2021 .
The change component in quarterly
•$11.5 million from acquisition activity; and
•$9.0 million from higher non-processing revenues due to higher volumes on organic business growth, favorable pricing and increased fees; partially offset by •$(3.3) million primarily from the unfavorable impact of decreasing recycled commodity pricing on processing revenues, partially offset by higher tipping fees; and
•$(0.2) million from lower processing volumes mainly driven by lower recycled commodity volumes.
The change component in year-to-date
•$38.0 million from acquisition activity;
•$18.3 million from higher non-processing revenues due to higher volumes on organic business growth, favorable pricing and increased fees; and
•$2.1 million from the favorable impact of recycled commodity and other processing pricing on processing revenues, partially offset by lower tipping fees, partially offset by
•$(0.4) million from lower processing volumes mainly driven by lower recycled 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 September 30, $ Nine Months Ended September 30, $
2022 2021 Change 2022 2021 Change
Cost of operations $ 190.3 64.4 % $ 153.9 63.6 % $ 36.4 $ 538.8 66.3 % $ 419.6 64.8 % $ 119.2
General and administration $ 34.3 11.6 % $ 31.0 12.8 % $ 3.3 $ 97.7 12.0 % $ 87.3 13.5 % $ 10.4
Depreciation and amortization $ 32.5 11.0 % $ 27.5 11.4 % $ 5.0 $ 93.1 11.5 % $ 74.5 11.5 % $ 18.6
--------------------------------------------------------------------------------Cost of Operations
Cost of operations includes (i) direct costs, which consist of the costs of purchased materials and third-party transportation and disposal costs, including third-party tipping fees, (ii) direct labor costs, which include salaries, wages, incentive compensation and related benefit costs such as health and welfare benefits and workers compensation, (iii) direct operational costs, which include landfill operating costs such as accretion expense related to final capping, closure and post-closure obligations, leachate treatment and disposal costs and depletion of landfill operating lease obligations, vehicle insurance costs, host community fees and royalties, (iv) fuel costs used by our vehicles and in conducting our operations, (v) maintenance and repair costs relating to our vehicles, equipment and containers and (vi) other operational costs including facility costs.
A summary of the major components of our cost of operations for the three and
nine months ended
Three Months Ended September 30, $ Nine Months Ended September 30, $
2022 2021 Change 2022 2021 Change
Direct costs $ 76.7 26.0 % $ 60.5 25.0 % $ 16.2 $ 210.8 25.9 % $ 162.3 25.1 % $ 48.5
Direct labor costs 37.3 12.6 % 32.1 13.3 % 5.2 107.8 13.3 % 85.3 13.2 % 22.5
Direct operational costs 22.9 7.8 % 21.2 8.8 % 1.7 66.0 8.1 % 58.4 9.0 % 7.6
Fuel costs 12.1 4.1 % 7.1 3.0 % 5.0 35.6 4.4 % 18.9 2.9 % 16.7
Maintenance and repair costs 21.0 7.0 % 16.3 6.6 % 4.7 59.7 7.4 % 45.5 7.0 % 14.2
Other operational costs 20.3 6.9 % 16.7 6.9 % 3.6 58.9 7.2 % 49.2 7.6 % 9.7
$ 190.3 64.4 % $ 153.9 63.6 % $ 36.4 $ 538.8 66.3 % $ 419.6 64.8 % $ 119.2 These cost categories may change from time to time and may not be comparable to similarly titled categories presented by other companies.
The most significant items impacting the changes in our cost of operations
during the three and nine months ended
•Direct costs increased in aggregate dollars due primarily to higher hauling and third-party transportation and disposal costs on (i) higher solid waste volumes driven by acquisition activity, (ii) higher fuel surcharges from third party haulers due to higher diesel fuel prices, (iii) higher third-party disposal rates due to inflationary pressures and (iv) higher non-processing volumes in ourResource Solutions operating segment; and higher purchased material costs on acquisition activity and higher average commodity prices year-to-date;
•Direct labor costs increased in aggregate dollars due primarily to acquisition-related growth, wage inflation and higher workers compensation costs on claims activity associated with an increased headcount;
•Direct operational costs decreased as a percentage of revenues, while increasing in aggregate dollars due primarily to (i) higher landfill operating costs in our Western region due to severe winter weather earlier in the year and construction delays compounded with higher landfill volumes, (ii) higher vehicle insurance costs, (iii) acquisition-related growth and (iv) inflationary pressures; partially offset by lower host community and royalty fees; •Fuel costs increased in aggregate dollars due primarily to higher fuel prices and higher volumes driven by acquisition activity and, to a lesser extent, organic business growth. See Item 3. "Quantitative and Qualitative Disclosures about Market Risk" included in this Quarterly Report on Form 10-Q for additional information regarding our fuel costs;
•Maintenance and repair costs increased in aggregate dollars due primarily to acquisition related growth and higher fleet and container maintenance costs associated with inflationary pressures; and
•Other operational costs increased in aggregate dollars due primarily to higher facility costs driven by acquisition activity and inflationary pressures.
General and Administration
General and administration expense includes (i) salaries, wages, incentive compensation and related benefit costs such as health and welfare benefits and workers compensation costs related to management, clerical and administrative functions, (ii) professional service fees, (iii) bad debt expense, and (iv) other overhead costs including those associated with marketing, sales force and community relations efforts. A summary of the major components of our general and administration expenses for the three and nine months endedSeptember 30, 2022 and 2021 (dollars in millions and as a percentage of total revenues) is as follows: 30 --------------------------------------------------------------------------------
Three Months Ended September 30, $ Nine Months Ended September 30, $
2022 2021 Change 2022 2021 Change
Labor costs $ 23.5 7.9 % $ 20.5 8.5 % $ 3.0 $ 66.9 8.2 % $ 61.6 9.5 % $ 5.3
Professional fees 1.8 0.6 % 2.3 1.0 % (0.5) 5.2 0.6 % 5.4 0.8 % (0.2)
Provision for bad debt
expense 0.8 0.3 % 0.9 0.4 % (0.1) 1.9 0.2 % 1.3 0.2 % 0.6
Other 8.2 2.8 % 7.3 2.9 % 0.9 23.7 3.0 % 19.0 3.0 % 4.7
$ 34.3 11.6 %$ 31.0 12.8 %$ 3.3 $ 97.7 12.0 %$ 87.3
13.5 %
These cost categories may change from time to time and may not be comparable to similarly titled categories presented by other companies.
The most significant items impacting the changes in our general and
administration expenses during the three and nine months ended
•Labor costs decreased as a percentage of revenues, while increasing in aggregate dollars due primarily to acquisition-related growth, wage inflation and higher accrued incentive compensation on improved performance, partially offset by lower equity compensation costs; and
•Other costs increased in aggregate dollars due primarily to inflationary pressures and an increase in general overhead costs to support business growth.
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 September 30, $ Nine Months Ended September 30, $
2022 2021 Change 2022 2021 Change
Depreciation $ 19.7 6.7 % $ 16.3 6.7 % $ 3.4 $ 58.2 7.2 % $ 45.1 7.0 % $ 13.1
Landfill amortization 8.5 2.9 % 8.1 3.3 % 0.4 22.6 2.8 % 22.3 3.4 % 0.3
Other amortization 4.3 1.4 % 3.1 1.4 % 1.2 12.3 1.5 % 7.1 1.1 % 5.2
$ 32.5 11.0 % $ 27.5 11.4 % $ 5.0 $ 93.1 11.5 % $ 74.5 11.5 % $ 18.6
The period-to-period increases in depreciation and other amortization expense
can be primarily attributed to acquisition activity and increased investments in
our fleet, whereas increases in landfill amortization expense can be attributed
to increasing landfill volumes throughout the nine months ended September 30,
2022 and the volume mix at our landfills.
Expense from Acquisition Activities
In the three and nine months endedSeptember 30, 2022 , we recorded charges of$0.8 million and$3.9 million , respectively, and in the three and nine months endedSeptember 30, 2021 , we recorded charges of$1.9 million and$4.0 million , respectively, comprised primarily of legal, consulting and other similar costs associated with due diligence and the acquisition and integration of acquired businesses or select development projects.
Environmental Remediation Charge
In the three and nine months endedSeptember 30, 2022 , we recorded a charge of$0.8 million associated with the investigation of potential remediation at an inactive waste disposal site that adjoins one of our landfills. 31 --------------------------------------------------------------------------------
Other Expenses
Interest Expense, net
Our interest expense, net increased$0.9 million quarterly and$1.1 million year-to-date compared to the same periods in the prior year due primarily to rising interest rates and higher average debt balances associated with the issuance inJune 2022 of$35.0 million aggregate principal amount of Vermont Economic Development Authority Solid Waste Disposal Long-Term Revenue Bonds Series 2022A-1 ("Vermont Bonds 2022A-1").
Provision for Income Taxes
Our provision for income taxes increased$2.5 million quarterly and$4.2 million year-to-date as compared to the same periods in the prior year due primarily to higher income from operations between the periods. The provision for income taxes in the nine months endedSeptember 30, 2022 included$4.9 million of current income taxes and$13.8 million of deferred income taxes. For the nine months endedSeptember 30, 2021 , the provision included$1.5 million of current income taxes and$13 million of deferred income taxes. The effective rate for the nine months endedSeptember 30, 2022 was 31.2% and was computed based on the statutory rate of 21% adjusted primarily for state taxes and nondeductible officer compensation. OnDecember 22, 2017 , the Tax Cuts and Jobs Act (the "TCJ Act") was enacted. The TCJ Act significantly changedU.S. corporate income tax laws by, among other things, changing carryforward rules for net operating losses. Our$59.7 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 endingDecember 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.
Segment Reporting
Revenues
A summary of revenues by operating segment (in millions) follows:
Three Months Ended Nine Months Ended
September 30, $ September 30, $
2022 2021 Change 2022 2021 Change
Eastern $ 93.1 $ 75.2 $ 17.9 $ 251.7 $ 188.6 $ 63.1
Western 121.9 103.5 18.4 332.6 288.1 44.5
Resource solutions 80.3 63.3 17.0 228.7 170.7 58.0
Total revenues $ 295.3 $ 242.0 $ 53.3 $ 813.0 $ 647.4 $ 165.6
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 Nine Months
Months Ended September 30, 2022 vs. 2021 Ended September 30, 2022 vs. 2021
Amount % Growth Amount % Growth
Price $ 5.5 7.4 % $ 13.9 7.3 %
Volume 2.9 3.8 % 5.5 3.1 %
Surcharges and other fees 5.1 6.8 % 9.5 5.0 %
Commodity price and volume (0.1) (0.1) % - - %
Acquisitions 4.5 6.0 % 34.2 18.1 %
Solid waste revenues $ 17.9 23.9 % $ 63.1 33.5 %
Price.
The price change component in quarterly solid waste revenues growth from the prior year period is the result of the following:
•$3.8 million from favorable collection pricing; and
•$1.7 million from favorable disposal pricing related to transfer stations and, to a lesser extent, landfills.
32
--------------------------------------------------------------------------------The price change component in year-to-date solid waste revenues growth from the prior year period is the result of the following:
•$10.2 million from favorable collection pricing; and
•$3.7 million from favorable disposal pricing related to transfer stations and, to a lesser extent, landfills.
Volume.
The volume change component in quarterly solid waste revenues growth from the prior year period is the result of the following:
•$2.0 million from higher disposal volumes related to landfills, transportation services and, to a lesser extent, transfer stations; and
•$0.9 million from higher collection volumes as a result of organic business growth.
The volume change component in year-to-date solid waste revenues growth from the prior year period is the result of the following:
•$3.3 million from higher disposal volumes related to transfer stations, landfills and transportation services; and
•$2.2 million from higher collection volumes as a result of organic business growth.
Surcharges and other fees.
The surcharges and other fees change components in quarterly and year-to-date solid waste revenues growth from the prior year periods are due primarily to higher E&E Fees associated with our fuel cost recovery program on higher diesel fuel prices. 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 nine months endedSeptember 30, 2022 and five businesses in the fiscal year endedDecember 31, 2021 .
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 Nine Months
Months Ended September 30, 2022 vs. 2021 Ended September 30, 2022 vs. 2021
Amount % Growth Amount % Growth
Price $ 6.3 6.1 % $ 16.9 5.9 %
Volume 0.8 0.7 % 1.2 0.4 %
Surcharges and other fees 6.4 6.2 % 12.2 4.2 %
Commodity price and volume 0.4 0.4 % 2.7 0.9 %
Acquisitions 4.5 4.4 % 11.5 4.0 %
Solid waste revenues $ 18.4 17.8 % $ 44.5 15.4 %
Price.
The price change component in quarterly solid waste revenues growth from the prior year period is the result of the following:
•$4.7 million from favorable collection pricing; and
•$1.6 million from favorable disposal pricing related to landfills, transfer stations and, to a lesser extent, transportation services.
The price change component in year-to-date solid waste revenues growth from the prior year period is the result of the following:
•$13.0 million from favorable collection pricing; and
•$3.9 million from favorable disposal pricing related to landfills, transfer stations and, to a lesser extent, transportation services.
33
--------------------------------------------------------------------------------Volume.
The volume change component in quarterly solid waste revenues growth from the prior year period is the result of the following:
•$1.6 million from higher disposal volumes related to landfills and, to a lesser extent, transfer stations and transportation services; partially offset by
•$(0.8) million from lower collection volumes associated with higher customer churn due to higher pricing, implementation of the E&E Fee on additional customers 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:
•$3.6 million from higher disposal volumes related to landfills, transportation, and transfer stations; partially offset by
•$(2.4) million from lower collection volumes associated with higher customer churn due to higher pricing, implementation of the E&E Fee on additional customers 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 due primarily to higher E&E Fees associated with our fuel cost recovery program on higher diesel fuel 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 due primarily to favorable landfill gas-to-energy pricing.
Acquisitions.
The acquisitions change components in quarterly and year-to-date solid waste revenues growth from the prior year periods are the result of increased acquisition activity in line with our growth strategy, including the timing and acquisition of eight businesses in the nine months endedSeptember 30, 2022 and five businesses in the fiscal year endedDecember 31, 2021 .
Operating Income
A summary of operating income (loss) by segment (in millions) follows:
Three Months Ended Nine Months Ended
September 30, $ September 30, $
2022 2021 Change 2022 2021 Change
Eastern $ 10.1 $ 5.4 $ 4.7 $ 14.0 $ 11.4 $ 2.6
Western 22.4 15.8 6.6 51.6 38.5 13.1
Resource Solutions 4.5 6.7 (2.2) 14.5 12.8 1.7
Corporate entities (0.7) (0.5) (0.2) (1.9) (1.4) (0.5)
Operating income $ 36.3 $ 27.4 $ 8.9 $ 78.2 $ 61.3 $ 16.9
Eastern Region
Operating income increased $4.7 million quarterly and $2.6 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 nine months ended September 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
•Direct costs increased in aggregate dollars due primarily to higher hauling and third-party transportation and disposal costs on (i) higher solid waste volumes driven by acquisition activity and, to a lesser extent, organic business growth, (ii) higher fuel surcharges from third party haulers due to higher diesel fuel prices and (iii) higher third-party disposal rates due to inflationary pressures;
•Direct labor costs increased in aggregate dollars due primarily to (i) acquisition-related and, to a lesser extent, organic business growth, (ii) wage inflation and (iii) higher workers compensation costs on claims activity associated with an increased headcount;
34
--------------------------------------------------------------------------------
•Fuel costs increased in aggregate dollars due primarily to higher fuel prices
and higher volumes driven by acquisition activity and, to a lesser extent,
organic business growth. See Item 3. "Quantitative and Qualitative Disclosures
about Market Risk" included in this Quarterly Report on Form 10-Q for additional
information regarding our fuel costs;
•Maintenance and repair costs increased in aggregate dollars due primarily to higher fleet and container maintenance costs associated with inflationary pressures and acquisition activity;
•Other operational costs increased in aggregate dollars due primarily to higher facility costs driven by acquisition activity and inflationary pressures; and
•Direct operational costs remained flat quarterly and increased year-to-date in aggregate dollars due to increased vehicle insurance costs and inflationary pressures.
General and administration
General and administration expense increased$1.5 million quarterly and$5.8 million year-to-date from the prior year periods due primarily to (i) acquisition-related growth, (ii) wage inflation, (iii) higher accrued incentive compensation on improved performance (iv) and an increase in general overhead costs associated with business growth and inflationary pressures; partially offset by lower equity compensation costs.
Depreciation and amortization
Depreciation and amortization expense increased$2.5 million quarterly and$11.6 million year-to-date from the prior year periods due primarily to acquisition activity, increased investment in our fleet, and higher landfill amortization expense due to higher quarterly landfill volumes and the volume mix at our landfills.
Operating income increased$6.6 million quarterly and$13.1 million year-to-date from the prior year periods. Excluding the impact of the environmental remediation charge and expense from acquisition activities, our improved operating performance in the three and nine months endedSeptember 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
•Direct costs increased in aggregate dollars due primarily to higher hauling and third-party transportation and disposal costs on (i) higher solid waste volumes driven by acquisition activity, partially offset by lower collection volumes, (ii) higher fuel surcharges from third party haulers due to higher diesel fuel prices and (iii) higher third-party disposal rates due to inflationary pressures; •Fuel costs increased in aggregate dollars due to higher fuel prices and higher volumes driven by acquisition activity. See Item 3. "Quantitative and Qualitative Disclosures about Market Risk" included in this Quarterly Report on Form 10-Q for additional information regarding our fuel costs; •Direct labor costs increased in aggregate dollars due primarily to (i) wage inflation, (ii) increased overtime on higher solid waste volumes associated with acquisition activity and (iii) higher workers compensation costs on claim activity associated with an increased headcount year-to-date;
•Maintenance and repair costs increased in aggregate dollars due primarily to higher fleet maintenance costs associated with acquisition activity and inflationary pressures;
•Direct operational costs increased in aggregate dollars due to (i) higher landfill operating costs from severe winter weather earlier in the year and construction delays compounded with higher quarterly landfill volumes, (ii) higher vehicle insurance costs and (iii) inflationary pressures; partially offset by lower host community and royalty fees; and
•Other operational costs increased in aggregate dollars due primarily to higher facility costs driven by acquisition activity and inflationary pressures.
General and administration
General and administration expense decreased$(0.1) million quarterly and increased$0.6 million year-to-date from the prior year periods, with the year-to-date increase due primarily to (i) acquisition-related growth, (ii) wage inflation, (iii) higher accrued incentive compensation on improved performance and (iv) an increase in general overhead costs associated with business growth and inflationary pressures; partially offset by lower equity compensation costs. 35 --------------------------------------------------------------------------------
Depreciation and amortization
Depreciation and amortization expense increased$1.1 million quarterly and$2.6 million year-to-date from the prior year periods due primarily to acquisition activity and increased investments in our fleet.
Operating income decreased$(2.2) million quarterly and increased$1.7 million year-to-date from the prior year periods. Excluding the impact of the expense from acquisition activities, our operating performance in the three and nine months endedSeptember 30, 2022 was driven by revenue growth, inclusive of inter-company revenues, and the following cost changes.
Cost of operations
Cost of operations increased
•Direct costs increased in aggregate dollars due primarily to (i) higher hauling and third-party transportation costs on higher non-processing volumes (ii) higher fuel surcharges from third party haulers due to higher diesel fuel prices, (iii) inflationary pressures, and (iv) higher purchased material costs on acquisition activity and higher average commodity prices year-to-date;
•Direct labor costs increased in aggregate dollars due primarily to (i) acquisition activity and organic non-processing business growth, (ii) wage inflation and (iii) higher workers compensation costs on claim activity associated with an increased headcount;
•Other operational costs increased in aggregate dollars due primarily to higher facility costs driven by acquisition activity and inflationary pressures;
•Maintenance and repair costs increased in aggregate dollars due primarily to higher fleet maintenance costs associated with inflationary pressures, acquisition activity, and organic non-processing business growth;
•Direct operational costs increased in aggregate dollars due primarily to acquisition-related growth and inflationary pressures; and
•Fuel costs increased in aggregate dollars due to higher fuel prices and higher volumes driven by acquisition activity. See Item 3. "Quantitative and Qualitative Disclosures about Market Risk" included in this Quarterly Report on Form 10-Q for additional information regarding our fuel costs.
General and administration
General and administration expense increased$1.8 million quarterly and$3.6 million year-to-date from the prior year periods due to increased overhead costs associated with (i) acquisition activity and organic non-processing business growth, (ii) wage inflation, (iii) higher accrued incentive compensation on improved performance and (iv) an increase in general overhead costs associated with business growth and inflationary pressures; partially offset by lower equity compensation costs.
Depreciation and amortization
Depreciation and amortization expense increased
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 ("Revolving Credit Facility") as ofSeptember 30, 2022 to help meet our short-term and long-term liquidity needs. We expect existing cash and cash equivalents 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. 36 -------------------------------------------------------------------------------- A summary of the major indicators of our financial condition and liquidity (in millions) follows: September 30, December 31, 2022 2021 $ Change Cash and cash equivalents $ 47.9$ 33.8 $ 14.1 Current assets, excluding cash and cash equivalents$ 143.5 $ 112.7 $ 30.8 Restricted assets $ 1.7 $ 2.1$ (0.4) Total current liabilities: Current liabilities, excluding current maturities of debt$ 154.5 $ 142.3 $ 12.2 Current maturities of debt 8.3 9.9 (1.6) Total current liabilities$ 162.8 $ 152.2 $ 10.6 Debt, less current portion$ 588.4 $ 552.7 $ 35.7 Current assets, excluding cash and cash equivalents, increased$30.8 million and current liabilities increased$10.6 million in the nine months endedSeptember 30, 2022 , driven primarily by business and revenue growth resulting in a$20.2 million increase in working capital, excluding cash and cash equivalents, from$(39.5) million as ofDecember 31, 2021 to$(19.3) million as ofSeptember 30, 2022 . We strive to maintain a negative working capital cycle driven by shorter days sales outstanding as compared to days payable outstanding in an effort to collect money at a faster rate than paying bills to facilitate business growth.
© Edgar Online, source
