Good day, ladies and gentlemen, and welcome to the Casella Waste Systems, Incorporated Q3 2016 Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I'd like to introduce your host for today's conference Mr. Joe Fusco. You may begin.

Thank you for joining us this morning, and welcome. With us today are John Casella, Chairman and Chief Executive Officer of Casella Waste Systems; Ed Johnson, our President and Chief Operating Officer; and Ned Coletta, our Senior Vice President and Chief Financial Officer. Today, we will be discussing our 2016 third quarter results. These results were released yesterday afternoon. Along with a brief review of those results and an update on the Company’s activities and business environment, we will be answering your questions as well. But first, as you know, I must remind everyone that various remarks that we may make about the Company’s future expectations, plans and prospects constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in the risk factors section of our most recent annual report on Form 10-K which is on file with the SEC. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views change. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to today. Also, during this call, we will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures to the extent they are available without unreasonable effort are available in the appendix to our Investor slide presentation, which is available in the Investor Section of our Web site at ir.casella.com. I’m Joe Fusco, and I approve this message. With that, I'll turn it over to John Casella, who will begin today's discussion.

Thanks, Joe, and good morning, everyone, and welcome to our third quarter 2016 call. We are obviously very pleased with the third quarter results. As reported in yesterday's press release, our revenues for the third quarter were $151.1 million, up 3.4% from last year. Adjusted EBITDA was $37.1 million, up 12.2% from last year and adjusted EBITDA margins were 24.6% up 190 basis points from last year, highest margins in six years. Year-to-date we are well ahead of our plan through due to the strong pricing, operating efficiency programs and continued execution against our key strategic initiatives. As such, we've increased our adjusted EBITDA and free cash flow guidance ranges for the year and indicated that we will be at the high-end of our revenue guidance range. Ned will go deeper into the numbers in a moment. But first, I’d like recognize that these strong results are tangible evidence to our commitment and continued execution against our key strategies. Our continued success in consistently improving results are a testament to a dedicated team and the process and discipline we’ve established throughout the organization to focus time and capital resources and the key drivers of our business. In early 2013, we raid out a comprehensive strategy to improve our financial and operating performance. Pursuant to that plan, we’ve refocused the Company, while simplifying our business structure. We’ve reduced risk exposure by either divesting or closing operations that did not fit within the strategy and we’ve refocused management's attention and capital resources on our core operations and strategic business initiatives. Given our progress and success executing against the plan, in August 2015 we refreshed our comprehensive strategic plan and outlined four investors financial targets for 2018. This plan focuses on increasing landfill returns, driving additional profitability within our collection operations, creating incremental…

Thanks, John. Revenues in the third quarter of 2016 were $151.1 million, up $4.9 million or 3.4% year-over-year. Solid waste revenues were up $2.3 million or 2.1% year-over-year, with higher collection disposal pricing and a rollover impact from the acquisition of three transfer stations in the second quarter partially offset by lower solid waste volume. Revenues in the collection line of business were up $2 million year-over-year with prices up 3.7% and volumes down 0.5%. Pricing was up 4.2% in our residential and commercial lines of business in the third quarter. We also advanced pricing 2.6% in the roll-off line of business. Our volumes were down slightly in this line of business, as we continued to focus on price over volume. Revenues in the disposal line of business were up $0.2 million year-over-year or $200,000 year-over-year with landfill and transfer revenues up $1.3 million, plus transportation revenues were down $1.1 million. Transportation revenues are typically at lower margins and represent mainly pass-through transportation costs associated with transportation and disposal contracts or as we say T&D contracts. We increased third-party reported landfill pricing by 2.7% year-over-year in the third quarter, with landfill prices up 3.6% in the Eastern region as we continue to capitalize on the tightening disposal markets. We've also begun to advance landfill pricing in the Western region, with landfill pricing up 2.1%, with particular strength in the construction and demolition material segment. We expect these same positive pricing trends to continue through the rest of 2016 and into 2017. Our total landfill volumes were 1.2 million tons in the third quarter, up slightly year-over-year. As John said, during the third quarter, we continue to ramp down volumes at the Southbridge landfill with volumes down roughly 70,000 tons. Further, we continued to experience headwinds in the Marcellus region, as…

Thanks, Ned. Good morning, everyone. We had a great quarter and I certainly want to congratulate our operating teams on their success. As we go through our budgeting process for 2017, our focus now is on how we continue to improve? So I thought I will spend a little time today talking about some of the initiatives and focus areas. So first and foremost, we need to celebrate our successes. We did a little research and this was the best quarter on both in EBITDA and net income from continuing operations basis in 10 years. The farthest we could look back without doing a lot of accounting work. Our services improved, our pricing dynamics have improved, and the operational improvements from a well-thought-out fleet improvement plan have all contributed to the success. Add to this our highly successful strategy is demanding a return on investment on our recycling assets and educating the customers that this is a value-added service worth the cost. It's amazing what can be accomplished when you determine and focus on your core activities. We're fundamentally a must better company and poise to the next leg up. So what are we looking at for operational improvements going forward? Let me start with the landfill operations. This is a business for the cost of developing the site and building new cells has become more and more expensive and the markets are just now starting to accept improved pricing. Our focus is to get an adequate return on the investments we've made and continue to make, and we will do this by continuing to improve our price management and the efficiency of our placement and compaction activities at each site. Understanding the core of this business is very important to getting financial improvement, so I thought I'd explain a…

Thank you. [Operator Instructions] Our first question comes from Corey Greendale with First Analysis. Your line is open.

Hey, good morning.

Good morning, Corey.

Good morning, Corey.

Congratulations on a nice quarter and all the continued progress. So, first of all I just wanted to ask about your near-term guidance, so …

Thanks.

… so just setting a mathematical fact, the EBITDA guidance now for the full-year applies kind of a not insubstantial step down in EBITDA From Q4 of last year? I know that was a relatively easy weather quarter, last year, but can you get us anything else we should be thinking that would drive EBITDA down year-over-year in Q4?

Yes, Corey. We have put out conservative estimate for Q4. It does reflect EBITDA going down year-over-year for the guidance range. We did this for two reasons. One, which you just stated, we had a really great weather in the Northeast in Q4 of 2015. It was sunny, it was bright, construction continued within our operational challenges from ice snow, that the normal [indiscernible], so we believe there is easier comp. Also our landfill sites ran very strong this summer into early fall and we're covered by annual permit limit at our site. So we're exactly ramping down a bit in times as we get through the remainder of the year. But there is nothing off track with our pricing programs, our operational programs, everything is tracking exactly as it has been and we’re very confident in those elements with the quarter.

And in terms of that -- the point about the landfill, obviously that's something you can't control if you [indiscernible] had a good year today, but could you helps us think about that a little bit, the year-over-year impact of having to ramp down the landfills, how much that would hit EBITDA from last year?

Yes. So it's all blended together in our model where we’re looking at sensitivities that we have in -- we don’t have a number to give on that, but we will be ramping down tonnages and as you know incremental tons at landfills have very high margins. So as much as half of that delta is due to that ramped down.

Okay. And then on a similar note, just given the $11 million in cash interest saving sort of, mathematically it would look like, it would be pretty tough for you not to hit the 2018 free cash flow target in 2017? Maybe as part of the answer to this is what Ed was talking about some of the initiatives, but what should we be thinking about in terms of it? Could there be some substantial ramp up in CapEx for kind of temporary reasons that would offset, so that we should not expect that you would hit the 2018 range in 2017?

Yes, even I had this conversation right after we announced our refinancing. We are working on capital budgeting right now and we’ve a range of opportunities in our business to put a little bit more money to work to accelerate either say our fleet plan, we won a couple new contracts in, but we didn’t mention this earlier, but in early September we won three new large municipal contracts in Massachusetts, that will put a little capital to work and that will be a great growth opportunity for us. So I think our -- we're still working on budgeting for the year. That’s why we didn’t give a perspective for next year, but generally our perspective is, yes, we want to pay down more debt, we’re also looking to put a little bit more money to work in the business at high return.

Okay. And then on the point about residential, you broke out the price by different lines of business, I think you aggregated residential and commercial. Just curious what’s happening in residential specifically and if you’re seeing more competitive pressures there?

Give me one second. Our residential price was 4.3% and our commercial price 4.2%. They were right on top of each other. But we typically get a little bit more from our residential business, but as [indiscernible] very effective pricing programs in the commercial line of business and we’re seeing some of the best staffs there we seen in a couple of years.

Okay. Ed, just one more housekeeping and I will turn [indiscernible] just one more housekeeping and I will turn it over. If you want to discuss this offline that’s fine, but as you get to a point where you sort of it looks like sustainably net income positive, how should we be thinking about GAAP taxes and I think this could be quite of a lot of [indiscernible] paying cash taxes, but thoughts on that as well?

Yes, I need to look at the model a bit. From our standpoint, we’ve close to $80 million net operating loss. So we will not be a cash taxpayer until, say 2021 maybe, give or take a little bit, we’ve a large valuation allowance that will reverse at some point in time, so there will be a large pick up in net income in a period. But when we expect it to happen, it will give some guidance on that. As far as kind of coming into next year, I got to look at the models [indiscernible] will it be.

Okay. Not a problem, no.

Ned, it will be a number of years before we’re going to be a tax payer.

Yes, understood. Again, nice work and thanks for the help.

Thanks, Corey.

Thank you.

Our next question comes from Tyler Brown with Raymond James. Your line is open.

Hey, good morning, guys.

Good morning, Tyler.

Good morning.

Hey, great quarter. Fantastic job on the execution, but Ned I’ve got to ask you, so when you guys laid out the goal back last year, you talked about kind of pro rata growth in '16, '17, '18, to get that high 20 EBITDA -- high $120 million EBITDA range. But given the really good traction this year, my guess is -- again, this is my guess that you guys are retracting towards the low end of that range in '17, but how should we start to think about the ultimate in game here? I mean, would that just a wrong on the ladder or should we still be thinking about that range for 2018?

Yes, I think we made a pretty unusual step as a Company last summer, when we gave three-year guidance and you know it was something we felt necessary to do in the proxy context and we wanted shareholders to speak, but we’re seeing and our Board was seeing and where some of our programs work. And it's really intention to roll the 2018 plan each year and we look forward - -as you said, we’re [indiscernible] really well attempted and there is some opportunity to beat it. But we sat around the table and discuss [indiscernible] we’re not going to keep on updating that plan. That’s not really our game plan, but you can see how well we’ve achieved against in the first year, that the interest savings are a bit better than we expected. So, we're in a great trajectory to hit that plan.

Okay. That’s very, very helpful. And then just quickly for modeling purposes, what is a good quarterly interest run rate post refine? How much of that will be cash versus non-cash, if any non-cash?

Just take a second, Tyler.

Sure. I think it maybe $8 million or so a quarter.

So cash interest, the run rate is $6 million a quarter, run rate about a 24 for the year, 23 to 24-ish range.

Okay.

The income saving interest is looking at about 27.5-ish.

Okay.

27, 28.

Okay. All right, great. And then just real quick, again on the incentive comp, what is -- what are you guys looking for on that accrual? Is it going to be like a 120% of normal or what any color there, I mean, incentive comp for this year?

So, the vast majority of our managers in our Company are incentivized through a economic value-added. So I’d say improved EPA year-over-year to take at a share of that. And many of this managers are tracking very well against their -- with their bonus targets for the year. The senior management team is targeted on free cash flow and EBIT. Goals for the year and we're tracking very well into [indiscernible] disposal, very established, really building off to 2018 plan last year, and we're tracking towards very well today against this [indiscernible]?

Okay. That’s helpful. And then, John, I don’t want to [indiscernible] here, but I’m curious and simply confused, but what exactly is going on in the main waste market? How do you guys kind of envision yourself as a part of that [indiscernible] waste ecosystem in 2018 and beyond?

With regard to -- from our perspective [multiple speakers] …

Yes, with fiber rising.

Potential development. Well, I mean, I think that with the expansion that we’re amended permit and expansion is under review right now, which is 9 million cubic yard, which takes out to the end of the O&L [ph] agreement with the State of Maine to 2033. I mean, I think that there is the [indiscernible] technology is new technology, it's certainly -- potentially going to be in the market. Keep in mind that we’ve very limited amount of MSW that’s going to our Juniper Ridge facility today. We're limited by about, I think, it's about 80,000 -- approximately 80,000 tons. So there's a tremendous amount of waste that’s over 300,000 tons of waste that’s currently going to the PERC facility. So we believe that we’re going to -- we should be the beneficiary of some portion of that. But again, we're going through the permitting currently. There's going to be fairly significant disruption in 2018 and I think that will -- we will a play role in terms of providing services out into the future for some of those communities.

Okay. Now that’s very helpful. And just real, lastly on Southbridge. So I think I heard you correctly that you're expecting at -- was that 70,000 tons down this year?

That’s correct.

And so your life is good through 2019 at the base run rate?

At today’s run rate, we’re -- we will make it to 2019, not necessarily end of 2019, somewhere in …

Okay.

… we’re getting -- we’re beginning to mid 2019 with current capacity.

Okay.

And in all likelihood, Two Tier that we’re probably going to move it down again this year, even more than what we did in '16, we’re going to move it down in '17 as well to give ourselves a bit more flexibility from a timing standpoint with regard to permit.

Okay. That answer my question. All right. Thank you.

You’re welcome.

Our next question comes from Joe Box with KeyBanc Capital. Your line is open.

Hey, good morning guys.

Hey, good morning, Joe. How are you?

Doing good. Thanks. So just on the landfill pricing, one I just -- can you hear me okay by the way?

Yes, we can hear you.

Okay, great. So just want to confirm on the landfill pricing side, are you actually getting price increases pushed through or are we seeing a little bit of a favorable mix issue as you guys flow controls from your landfills. And then, two, I’m curious, have you guys seen any impact from a more distant player in the Western region? Sounds like you got a nice increase in that market?

I think that we’re clearly seeing a more disciplined player in the market. I think that there is a -- it is very clear terms of what the strategy is, I think they’ve been very clear about that strategy. I think that we were seeing very good pricing, particularly on the C&D side, in the Western region. So all in all, we're beginning to see positive impacts in terms of the marketplace, both from a pricing standpoint and also just overall discipline in the market.

And those specifics I gave earlier, Joe, those were not average price statistics, but they were actual price statistics, so there is no mix component there. So the 2.7% then on a same customer, same-store of that, that will be increased price year-over-year. So if you think about this, upwards 60% to 70% of our book of business is contracted. And many landfill contracts have CPI like increases, so on the un-contracted buyers respond contracts we are being much more aggressive than that level.

Sure. Okay, great. I appreciate that. That’s helpful. And then, Ned, just curious, obviously you guys gave an adjusted EBITDA guide back in September when you kind of introduced to that refi. So I’m curious what was maybe the difference between what you saw back then and what [indiscernible] to drive the increase again on that?

Yes, we beat our numbers in September. So that was really the drive where we’re probably maybe even being a little bit conservative. It's somewhat difficult to -- just guiding a quarter. We are going out to market securities. We are doing a refinancing and we wanted to get adequate information to the public investors in the term loan about where our performance was, where we expected to be for the year, and we -- and we’re doing even a little better than we thought.

Okay. Got it. But the recycling businesses are just getting a little bit better, I guess, I’m curious, are we at the point where you’re starting to share in profit with some of your customers or are we at the point where it's turning profitable, but yet it's not hitting some of those thresholds where we actually have to share with the customer, any color would be [multiple speakers] …

I think that the way to look at it is, base of it was happened, Joe, is, with the SRA fee, the SRA fee, the cost commodity prices have come back. And again, keep in mind, they’re not back to -- they’re still 40% below where they were a couple of years ago. Both prices have some back, which means that our fee has gone down and we will continue to go down as net [ph] pricing continues to improve, then the SRA team will continue to put down and it could go to zero.

Okay. Got it. That’s it from me. Thanks, guys.

Okay. Thank you.

Our next question comes from Michael Hoffman with Stifel. Your line is open.

Hey, Michael.

hey, John. How are you doing?

Doing terrific, how are you?

I can't complain. I’m in [indiscernible] in Virginia.

Okay, perfect. Pretty nice at here too in Vermont, not too bad actually today.

You have good colors.

Yes, little sun, which is nicely, don’t need to -- we need to rain, but we don’t need to rain from a landfill construction standpoint though.

We need rain in Virginia, unfortunately.

Yes. I think everywhere.

So, yes -- on Southbridge, a couple of questions with regard to that. [Indiscernible] towards the permit, is currently about 405,000 a year. So of that 405,000 how much do you actually have to play with at your discretion, be able to manage the timing of this permitting process?

Well, we push at about 60,000 to 70,000 tons in '16 and we’ll probably push out more next year to give ourselves more flexibility from a permitting standpoint. So do you have specific numbers?

We are running about 315,000 tons [technical difficulty].

Yes, about 300 now, we move down a little bit more next year, Michael, to give ourselves more time.

So basically there is about 300 that’s under contract and you got a 100 to play within your [indiscernible]?

No, I wouldn’t characterize it that way. I think that what we’ve done is to push down -- I think we can push down more to the extent that we wanted to.

Okay. Just pretty good [indiscernible] isn't there any emphasis [indiscernible] into the community?

Very positive. Positive yes.

Yes, while I get the political backdrop of the previous governor who wanted to go to your landfill and all that, the current governor is favorable, and all the people who have showed up they don’t even belong to the community, but that [indiscernible] is a big deal of the community. So it would be a pretty meaningful political negative for somehow …?

It really would obviously. We're a very big contributor to the overall budget for the community and that we’re a very participant. So with is very meaningful. And so clearly it will be very difficult without the facility for the talent [ph] for sure.

Okay. So switching gears from that perspective and Ned talking, I guess, cancelling, modifying the target, but think about it different way, the 18 target with the established base for credibility around thereafter generate [ph] [indiscernible] now that your refinanced into the term B, how do I think about the pace of the delevered?

The pace we’ve been hitting at a pretty fast pace over the last year Michael. So, whether we’ve to finish our budgeting for '17, but we do have another light-year as we talked about earlier, we have lower cash interest cost that they’re lower than we expected in that plan.

Yes, and nothing has really changed, Michael, I mean, the vast majority of our free cash flow is going to go to pay down debt and the great job that Ned and the finance team did on the financing, allows us to pay that debt down with the term loan B. So, the vast majority of our free cash flow is going to go to making sure that we need or exceed our 18 plan.

So [indiscernible] it looks like you will be below three times, sometimes in or at least exiting 2017?

I don’t think we are quite capable of free time spend. So, we [indiscernible] a little bit on that range with the refinancing. So we added Q3 at 4.23x and with the refinancing in all the various fees and [indiscernible] 4.4. So we've been deleveraging at a pace of about 0.9 turn [indiscernible] a year. So that puts us into the mid 3or maybe high 3s in 2017, if your pro rata improve. So we’re running a little bit ahead of our plan, but we’re still very committed to deleveraging and end goals, as John said, focused free cash flow in that area.

Okay. That’s very helpful. And then, underlying -- I have a volume question in the context of the -- on a same-store basis, the vast majority of business is showing from normal level of volume growth in the collection point. Is that an accurate statement?

Yes. But one of the things we’ve really focused on Michael, is moving away from customers where we are making a process for decent margins. So we’ve improved the quality of our revenue versus focusing on the revenue growth. That’s the major driving piece.

Of the volume? Yes, I got that.

Yes.

That’s fine. If I stripped away you forces the turn. You’re going to pay me good margin or I don’t want to do it, service sale. That all of the rush [ph] of the business for showing asset volume?

It depends on the market. So, in our growth areas, [indiscernible] are having positive volume growth in and the Up State New York markets, less volume growth.

We are still on a positive -- we are slightly positive.

Yes, slightly positive.

Not negative, certainly. But not as positive as we are seeing in some markets.

And then we [indiscernible] landfill to be [indiscernible] the Marcellus and the Southbridge, we’re very positive representing [multiple speakers].

So up a 100,000 tons, right. And if you -- and if I focus the just on MSW in those between both your own trucks and the third-party is still [indiscernible], while the growth of the economy slow and consumers on this flow, they’re still positive trend that’s translating into volumes for your business model.

Yes, correct.

Okay, right. And then in your current price that you report, $2.3 million. When I think about transferring to 2017 and beyond, are there any one-time fee, the numbers that you anniversaried, I have to think about the context of what you’re reporting or [indiscernible] more specifically, should we be comfortable here at positive 2% for the foreseeable future in this economic background?

Yes, there is about 40 basis points in that number today relates to the SRA fee. So giving a little bit [indiscernible] every customer, that’s gone on. [Indiscernible], stay, but there is still a timing in that number, the [indiscernible] generally good.

And fully anniversary of that 14 patents by when?

That happens in Q1 '17.

1Q '17. Okay. All right. So if we would see a -- something in a 17 to 19 price [indiscernible]. That’s -- its not specifically [indiscernible] oh my gosh giving a price, that’s the underlying normal rate, unless you’ve improved your core going into that.

Yes. That’s fair. We haven't said to our budgeting for '17. We are working on strategies to market and working through our book of business.

Fair enough, but we also shouldn’t interpret, your pricing is going down. That's the ongoing base rate and you’re continuing to trying to walk it up.

Yes, that’s correct. Yes.

Okay, All right. That’s what I was looking for. Thanks.

Thank you, Mike.

Yep.

[Operator Instructions] And I’m showing no further questions at this time. I’d like to turn the call back over to John Casella, for closing remarks.

Thank you. Thanks everyone for your attention this morning. We look forward to discussing our fourth quarter earnings with you in early March 2017. Have a great day everyone. Thanks.

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program. You may now disconnect. Everyone have a great day.