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, Ned Coletta, our Senior Vice President and Chief Financial Officer and Jason Mead, our Director of Finance. Today, we will be discussing our 2020 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. Of course, you will be shocked to hear that 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 view 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. Reconciliations 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 Investors section of our website at ir.casella.com. And with that, I will turn it over to John Casella, who will begin today's discussion.

Thanks Joe. Good morning everyone and welcome to our third quarter 2020 conference call. I would like to start today's call, by again, acknowledging and thanking our workforce, particularly the dedicated men and women of our frontline. Their hard work and commitment through these unprecedented times has enabled us to continue to safely provide our social essential environmental services to our customers as well as the communities that we serve. Safety is paramount. We remain highly focused on ensuring the well-being of our workforce and observant as it relates to CDC guidelines and state orders. Our mitigation measures and our communications have been well organized and deliberate. We have adequately equipped our teams with PPE and we have implemented effective standards related to social distancing, contract racing, disinfecting procedures, nonessential travel and in-person meetings, work from home and business continuity. Through this, we have limited the number of cases across the organization as well as minimized business interruption. Moving onto the quarter. As expected, solid waste volumes were, again, down year-over-year due to COVID. Despite the lower volumes coupled with COVID related expenses, we improved adjusted EBITDA by 5.9% year-over-year, while expanding margins. We also improved adjusted free cash flow in the quarter while further driving down our consolidated net leverage ratio. Overall, we continue to execute well against our strategic initiatives despite headwinds related to COVID. The proactive response, our sales, customer service and operational teams benefited our performance in the quarter. We continue to meet our customers' service interval and sustainability needs while effectively scaling variable cost. We are executing our pricing programs and we continue to opportunistically grow the business in a disciplined manner through acquisitions. Notably, as announced last week, we recently completed an equity offering with gross proceeds of $151 million before underwriting discounts and…

Thanks John. Good morning everyone. Before we discuss the quarter, I would like to give a brief overview of the equity raise we completed last week. We issued 2.7 million shares of Class A common stock and yielded $151 million of gross proceeds before underwriting discounts and transaction fess. This was an opportunistic equity raise, as we said. And we do not plan to use the proceeds to immediately repay debt. We plan to use the capital to continue to find smart acquisition and development growth over the coming months and the coming year. The proceeds are not targeted to one single larger transaction. We plan to continue to focus on acquiring smaller private waste operators to build greater density, drive internalization and gain additional operating and G&A leverage. As of September 30, we had $549.1 million of debt and $21.1 million of cash and our consolidated net leverage ratio was 2.99 times. If we netted 100% at equity raise against our debt as at the September 30, our leverage will drop 2.17 times, or a reduction of 0.8 times. In addition, pro forma for the transaction, our available liquidity was $339 million as of September 30. Moving on to the quarter. Revenues in the third quarter were $202.7 million, up $4.1 million or up 2.1% year-over-year with 3.7% of the year-over-year change driven by acquisition activity. Solid waste revenues were slightly up 0.1% year-over-year with price up 4%. We had 4.6% growth from acquisitions and volumes down 8.4%. Revenues in the collection line of business were up 3.3% year-over-year with price up 3.7%. We had 6.3% growth from acquisitions and volumes were down 6.4%. Collection volumes continued to rebound through the third quarter as various commercial customers reopened or increased services, construction projects resumed and overall building activity increased.…

Thanks Ned. Good morning everyone. I will start with a quick update on our COVID procedures. As John indicated, we are staying very disciplined with our operational practices that we put into place in March and we continue to have excellent results, keeping our workforce safe and on-the-job servicing our customers. Although most of our markets have had lower infection rates than larger metropolitan areas, in the last few weeks we have seen spikes. So we know the risk is still there and we continue to be very diligent. This has become new normal for us and I remain proud of our team and their ability to adapt. Having said that, some of the changes on our operating environment that we experienced in the early stages of the pandemic returned closer to normal in the quarter. Traffic has returned. So operating hours and labor cost are a little closer to budget and the disposal weights are normalizing as customers either have resumed business or adjusted service. Pounds per container yard is back to within 2% of normal on the commercial side. And on the revenue side, pounds per lift is down to within 6% of normal. Some of the commercial volume has returned. We are now only down about 3.5%, from COVID related service suspensions. And roll-off pulls are not quite as robust as a year ago. But even with these factors, the cost of ops as a percentage of revenue improved by 180 basis points as compared to Q3 last year and drove a 90 basis point improvement in adjusted EBITDA margin. With the recent uptick in the pandemic, we are continuing to track activity levels carefully so that we can respond operationally to a change in circumstances. Our operating margins improved in all major lines of business, but…

Thanks Ed. As Ned reflected in our raised guidance for 2020, we are performing well during these challenging times. The collective response and effort through this crisis of our devoted hard-working team is something that we are all quite proud of. In the quarter, just before Labor Day, we took great honor in paying out $1.8 million special bonus to our frontline, personnel and hourly employees. We look forward to a strong finish to the year and continued execution against our key strategies. And with that, operator, we would like to open it up for questions.

[Operator Instructions]. Our first question is from the line of Michael Hoffman of Stifel. Your line is open.

Good morning Michael.

Good morning. Hope everybody is well.

We are.

How is the fall foliage? Is it good, given it was down?

It was white. It was after it was down.

It was white. Oh my goodness. Well, the ski season might open soon.

Yes.

Ned, on the free cash flow guide, just I was trying to keep up with how fast you were talking my writing, the new guide or revisited guide reflects paying back the CARES Act. Is that correct?

Yes, it does.

Okay. All right. So it seems that it's actually better than the original guide because you had the CARES Act, if that's the way to think about it, right? Or net neutral and back to even?

Yes. So I mean the original guide for the year, we didn't know about the -- there was no CARES Act back then, right. So we are back even to that. But we are tracking even better against the guide we put in August because at that point in time, I did not contemplate paying it back.

Okay. And then when you look at volume trends related to commercial and you think back to the great recession and it might have taken four or five years for this to play out, 2008 through kind of 2012, 2013. Are we basically repeating the same amount of lost business and it's now stabilized and from this point forward, we can talk about sort of on an annual basis a growth pattern?

Yes. I will start off and then John can hop in. So we are seeing right now at about 5%, exactly 5.2% of commercial revenues, down from service reductions. And this is on a revenue base, not a customer basis. We have had customers reduce or suspend services in certain instances. And it's not far too similar, except in one way. I mean with this happening basically overnight, we are able to flex costs very effectively and reroute trucks and you don't step into it by a million different cuts. It happened quickly and we rightsized.

I think that some of the benefit of the IT work that you and the whole finance team and the IT team has done has really given us the ability to act very quickly. We are able to keep track of the revenues on a daily basis. We understand what divisions are flexing up and are going up and down from a revenue standpoint. So we can flex much more quickly in terms of getting the cost out and rightsizing the business for the revenues that they actually have. So some of the benefit is the work that we have done from a systems standpoint over the last couple of years really has come to play over the last, probably the last two, three quarters, in particular.

Okay. So if you thought about your incremental margin in January and February before we knew we were going to have this, what we have had. And now you look at your incremental margin, how does it compare?

So when you say for each dollar of new collection revenues or the incremental margin?

Right. If you think about the operating leverage of incremental growth, what did that look like in January and February? Now you have gone through this pandemic, nothing like crisis to get you to focus on the cost more intensively. We come out of it, I am assuming the incremental margins better because you are going to able to do some of this business on a leaner cost structure.

I think you are right. I am not sure if we have a perfect number because I think we have even surprised ourselves over some of where we have been able to flex. Ed talked about in his script some of the work we have done at the landfills to make fundamental change.

Routing efficiencies in terms of the reroute, equipment efficiency, putting automation in place in different, it just is a combination of everything that's has really come to bear from an operating standpoint. The operating programs that have been put in place with you and Sean are paying dividends.

It's amazing when you are in your COVID case what you can come up with. We can really and now with the new IT systems, we are going to dig into the numbers and see where we might develop more efficiencies.

Yes. And we might have said it last quarter, I am not certain, but we froze a bunch of CapEx, $10 million, right, when COVID hit. And then as soon as we really got our arms around our cash flow projections, we started to call our truck vendors to see if we could actually buy more trucks this year. And Ed was able to find a number of Curotto-Can trucks to get on the road immediately and we accelerated a part of our capital plan from 2021 to drive greater efficiency late in the year. They are just getting on the road now. We are starting to gain a little bit. But that's the type of stuff we are trying to do to drive long-term efficiency.

Okay. M&A, how would you frame the pipeline? And then last question would be, Waste Connections invented this phrase, COVID fatigue. It would be interesting at how you are handling the prospects of COVID fatigue on the employees, this kind of intensity of awareness of risk and health and PPE?

I think that the pipeline is really strong, Michael. As you know, all of the drivers, COVID has created another issue for independence across our footprint. So pipeline is really strong. We saw a little bit of a low over last couple months in terms of activity with people getting out. I think we have got a little bit more. And activity has begun to increase over the last probably month or six weeks maybe in terms of activity being meeting with potential candidates, really getting out from a business development standpoint. So I think that we will begin to see that improve assuming we don't have a setback. And that's a big assumption at this point in time, especially in that recently over last couple of weeks, we are seeing obviously the cases go up across the Northeast, not substantially but certainly up for the numbers that we have been seeing. But our pipeline is strong. And in terms of, the last thing that I said was, how proud we were of our people and the work that they have done. And as I said, just before Labor Day, we paid out almost $2 million bonus to our frontline and hourly employees. And while I think everyone is seeing a little bit of COVID fatigue, I think we are well positioned with our people to get through the rest of the year, hopefully get to a vaccine. And we are thinking about what's the next thing that we need to do for our people over the course of the holidays. That's something that we are discussing now. But right now, I think with what we have done with the bonus, the work that the management team has done to protect our people and then the bonus being put in place in early September, notwithstanding the fact that I think everyone is little fatigued of COVID, our team is in good shape.

Okay. Thank you very much. Enjoy your early winter.

Thank you Michael.

Thank you.

Thank you sir. We have another question from the line of Tyler Brown from Raymond James. Your line is open.

Good morning Tyler.

Good morning Tyler.

Hi Tyler.

Hi. So Ned, obviously 90 basis points of total margin expansion was just, I mean it was really impressive. I mean you had down internal growth. I think the incremental COVID cost, John I think you just said $2 million of frontline payments, incremental bad debt, I could go on and on. So can you help build that bridge for me? So I mean with all of those bad guys, what were the good guys that were just really working for you?

So it's interesting because I was looking at this almost from a different perspective this morning. We were down a little bit from Q2 to Q3 and we have had some stuff start to creep back into our cost structure like medical costs were up, over time's up a little bit. So from our standpoint, we started to maybe start to normalize several of those cost categories. But on the good side, it's price, it's price in excess of inflation, it's our core operating programs. It's the same things that existed prior to COVID are shining through. It's reducing our turnover. It's better safety performance. So it's like 30 different things that show up all over the income statement and they are to same things that were there in Q4 of 2019 and Q1 of 2020. And the COVID noise is there, as you were saying, I mean the special bonus alone was a 50 basis point headwind in the quarter to our margins. so we are performing very well and our long term investments in our programs are yielding nice margin enhancements.

And so as you think about, let's talk about 2021 since we are so close. But big picture, I mean, you talked about flexibility, you talked about planning. It feels like you have structurally pushed the margin ball forward? Or do you think that you may be take a step back in margins in 2021?

We haven't finished budgeting for the year. And we haven't guided for the year. But as we look at what we are doing structurally as a company and what some of the challenges we had in 2018 and 2019, such as labor and turnover and some of the transportation differences we had, we have really moved through those [indiscernible] and we have done that ahead of COVID. And then now, there were fundamental, lasting changes in our business that we have made. Our pricing programs are in excess of inflation. So as we look to next year, we do you expect to have margins up. Maybe not 90 to 200 basis points. I think we are up 140 basis points year-to-date. But that's pretty spectacular. For us, success would be up 20 basis points next year.

Yes. Okay. That's helpful. And then you talked a little bit about this, but if I just go back and look historically, I think your EBITDA steps down about 15% sequentially on average from Q3 to four. I know M&A can impact that. There is some stuff in there. But it looks like in the guide you are looking for nearly a 25% at the midpoint sequential decline. I think you talked about overhead and landfill tons. But is there a bit of conservatism in there?

I think clearly there is. I mean, Ned obviously will go through in even more detail. But when you think about it, there is a bit of conservatism. We don't know what's going to happen with the ski business across the Northeast. And we certainly are not projecting that that's going to come back 100% because there is no way in hell it's going to come back 100%. They are trying to figure out now how they are going to social distance on those ski and the slopes and how many people they will be able to put on a hill and what does that mean for the restaurants and the additional service support in terms of restaurants, hotels, motels, everything around it, from a commercial standpoint which obviously is a big part of the fourth quarter.

Yes. And we are taking a pretty conservative view on volumes in the fourth quarter. We had a strong fourth quarter last year. As you know, we had a huge margin enhancement quarter last year. We were up 180 basis points year-over-year. So as we are looking at this, we are not purposely trying to be overly conservative. But we have developed a model that's assuming volumes are down 6% at the midpoint. We are assuming as well that some of the cost as we saw from the second to third quarter with medical costs up, OT up, fuel up, little more traffic, as Ed said, with productivity, we are assuming those trends continue to normalize into the fourth quarter. We have continued to beat on a lot of things. But from our vantage point right now, with all the uncertainty, we are being a bit conservative.

Okay. And then Ed, I have got a quick question. So I think you guys said 70% of your revenue is in, call it, rural or secondary markets. And threw a lot of numbers at us. But did you see a demonstrable difference in the volumes in your secondary markets versus, call it, your big metros like Boston?

Yes. Certainly, on the collection side, absolutely. I mean many of the rural markets were hardly affected or were affected for a very short period of time whereas places like Boston and Rochester were affected for a longer time. And when we get to the traffic question, Rochester in particular and Boston, what you know is world renowned for their traffic had all of a sudden, the streets opened up in the second quarter. And we have seen that traffic start to come back.

Yes. Ed, I live in Atlanta. So I know a lot of traffic. And my last one real quickly is on the M&A side. But do you think that the PPP money that, if you just look at the data, it feels like the vast majority of small private haulers took advantage of, has that impacted converting some of that potential M&A? This almost give some haulers may be a lifeline. Or has that been a headwind at all?

I don't think there is any question, but it's given them, in some cases, Tyler, given them a lifeline,. But I don't think that -- I think people that are getting tired and getting ready to monetize their business, there is a lot of different factors. That's certainly one and it certainly helped maybe some people put it off for six months. But the reality has not changed, right. You will have to structurally fix the business in order for reality to change. And all that does is just pushes the inevitable off a bit. But I think you are right. To a degree, it's pushed it back a little bit.

Okay. Yes. I was just, okay, that's interesting. I don't want to take up too much time. But I appreciate the time you did give me. Thanks.

Thank you Tyler.

Thank you.

Thanks.

Thank you. We do have another question from the lined presenters. We have Hamzah Mazari from Jefferies. Your line is open. You may ask your question, please.

Hi. Good morning. Thank you. My first question is just around just free cash flow. Is double digit free cash flow going forward sort of the right metric to think about for you guys? I know you spoke a lot about margin today. Timing of M&A probably impacts that. You have NOLs, so maybe taxes are not a big deal. So just maybe walk us through the free cash flow side versus I know you talked a lot about margins?

Yes. Thanks Hamzah. Good morning. So as we laid out our 2021 plan a few years back, our goal is to grow free cash flow 10% to 15% a year or more. And as we look to next year and the year after, we think that goal is completely achievable. This year, even with all these headwinds and moving pieces, we were well on track to do that. We really had some amazing management on the working capital side or accounts receivable. But we have been trying to work down our accounts payable as well to historically low levels to just make sure we have an offset there. As I said also, we are paying back the CARES money. So as we look into next year, we are trying to make sure we have as normal of a pattern as possible to ensure that growth.

Got it. And then I think you guys have talked about $400 million as sort of this pipeline on M&A. But could you maybe talk about your appetite to get into adjacent markets? And what that does to your pipeline? And are you seeing any competitive dynamic changes in terms of people bidding against you on M&A? It seems like one waste-to-energy player has been looking at collection assets that didn't in the past.

I think that clearly we are sitting with a tremendous opportunity over the top of the existing infrastructure. But clearly, we will look at adjacent markets that are just very, the Pennsylvania, those markets that are close to the existing infrastructure. Hamzah. And you are right. I think that the Wheelabrator, Tunnel Hill transaction has another competitor in the marketplace for acquisitions. And certainly that's a bit of a factor. But again, we have been in the market for 40 years. We know most of the players. So I think will do just fine.

And then just sort of last question, just a clarification. What is your revenue exposure to sort of the seasonal businesses that you referenced, sort of skiing, restaurant and the resort areas, all that kind of stuff?

It's around $2 million a year or less.

Got it. Small, got you, okay. Thank you so much.

Thank you.

[Operator Instructions]. We have another question from the line of Sean Eastman from KeyBanc. Your line is open.

Hi guys. Nice quarter. I am sure a lot of hard work went into that. Just in light of the equity offering, we have got a lot of color on the strength of the acquisition pipeline. But I just wondered if I maybe approach from the hurdle rate perspective. You guys have highlighted very strict capital hurdle rates on the program. Just curious where the market sort of sits today relative to that? And maybe how that's changed since the launch of this program a couple years ago? And then maybe if you could just reflect on the deals you have done over the past couple years in terms of pulling those, for instance, out of that capital, that will be a helpful discussion.

I think at this point in time, from our perspective, it really hasn't changed. We are going to continue with the same discipline in terms of the financial discipline that Ned has laid out and that we have been following for the last couple of years, Sean. So I don't think that there is any changes at this point in time. As Hamzah said, we have Wheelabrator in the market as another competitor, but I think that a lot of people that are in this market, we have been working with one way of the other for a long period of time and certainly that's a little bit different with another competitor in the market. But we think that we will, as I said before, do just fine. And I don't know if, Ned, maybe want to walk through the margins as well as the multiples.

Yes. We always look at everything after-tax unlevered returns through every opportunity we have. It's just the nature when we look at risk premiums the same, whether we are bidding on new work or putting an asset to work or buying a business. And it really depends on where the risk profile is. So we are trying to buy business north of 15% returns. And the many cases, we are looking greater than 20% returns depending upon risk profile, how it overlays. You look over the last couple f years and we are paying post year one EBITDA 6.5 times or so. So it hasn't dramatically changed. We are trying to find opportunities where assets fit ours and we can drive some nice synergies and we can do that within a two-year timeframe. So we been pretty successful doing that and we will continue to focus in the same area.

Okay. Super helpful. And then also just in context of the equity offering, you have this sort of $20 million to $40 million of annualized deferred revenue target out there. You have been above that consistently. On a go forward, is that still the right target?

Yes. We think that it is. And we are not going to change the target, as the question you asked before in terms of changing how we are looking at it from a financial standpoint. I mean, obviously, we are going to be towards the upper end of that range. And we have been over that range for a couple of years. So I think clearly, at the conservative view, it's likely that we will be closer to the $40 million than we will the lower end of the range. But I don't see, at this point in time, that we would change it.

Yes. And we don't budget acquisitions either. It's 100% opportunistic, as you know. We don't guide long range acquisition. So we are out knocking on a lot of doors and we have got a lot in the pipeline. And we have added resources, both on the finance side, the operating, the IT side. We have tried to development side. We have tried to position ourselves where we can pick up our cadence and be more effective from integration, HR people, systems standpoint and get into operating synergies even faster. So we are trying over the last few years, we had a lot of learning experiences and we keep trying to improve and make sure we can convert more and more effectively.

Got you. And last one from me is, you guys talked about being conservative on the go forward volume recovery with the stimulus money coming out and as that remaining 25% of volume that you are clear on. But it doesn't something seem like a big number in terms of revenue. So I just wanted to get some context on than comment. And then also just around that 25%, what exactly is in there, just to get a sense for what the real risk is and trying to understand like what the inherent feeling is on this volume recovery?

Yes. So I was talking specifically about the commercial line of business. So there has been three places our business has been hit. Small, commercial customers. Then the roll-off business, which had some industrial customers who were down, some construction and demo that's down. And the landfills, Jason, do you have a read recently? We are probably back to --

About 90%.

90%, 92%. So we are little bit lighter at the landfills and some of that has to do with just we get some volumes out of the Greater New York City area and north of New York City. We don't run trucks there. But we service customers and that's still an area that hasn't rebounded as much as other of our secondary rural markets. So when we talk about the impact and we are talking 5% to 6% overall volume impact inside of solid waste, it's not just a small and commercial. There are some lagging impacts in roll-off at the landfills as well.

Okay. That's super helpful clarity. Again, compliments. Thanks guys.

Thank you.

Thank you.

Thank you, sir. Presenters, we do have another question from the line. We have Alexander Leach from Berenberg Capital. Your line is open. You may ask your question.

What's the environment been like for new customer additions across the business in Q3? And then on the flip side, how has demand been holding up for existing customers in customer solutions? I know you mentioned a number of industrial customer wins. But how has demand held up for everyone else?

So in resource solutions, I will start there. I had Jason dig into this for me last week and it's interesting. Probably our largest area of growth in the resource solutions are in the customer solutions or large industrial was addition to services for existing customers, which is exactly one of our key strategies, growing the share of wallet. So it was very nice to see that trend continue through COVID. Some of our special project work has been a little bit lower because we had to be able to be on-site and working with these customers and working through this project. So our backlog has increased there. And I think that's actually nice into the future. And then as we look out -- what was the last question, was it industrial?

Yes. What was the last part of the question, Alex?

Well, the first part was, what's the environment been like for new customer additions across the business in Q3? And then second part was just about customer solutions.

Yes. Sorry. So I answered your customer solutions part. The new customer addition part. We have actually seen some net new customer additions on the commercial side of business and new business formation. It hasn't outstripped the COVID service reductions. But in our secondary and rural markets, there is some new business formation right now and we have seen new customers coming into the business. But it's still not at a pace to outstrip those reductions.

Yes. I think that we have seen clearly an increase in roll-off pills from a residential standpoint as well. With people being home, there is a lot of activity in terms of remodeling, cleaning out, things of that nature. So probably that's an area where we have also seen some benefit as well.

Okay. Great. Thanks. And then just quickly, could you give a bit more color on the lower level of collection pricing increases this quarter? Is that largely just due to pricing concessions for all commercial customers who are struggling with pandemic? Or is there anything else at play there?

We really haven't given a lot of pricing confessions per se. It's more just the timing. So we got out the door with quite a bit of our pricing in the first quarter ahead of COVID and then as our customer base and the world dealt with COVID, we paused some of our pricing programs through the second quarter into early third quarter. And then we will get back out with them because we do have real inflation in our business and we do need to reflect that through to our pricing. So there is no real disruption long term. It's just a matter of, we push back some of our start dates for pricing in second and third quarter.

And the majority of our pricing was done in the first quarter, as Ned said, though. Majority of our price increase for the year was done in January.

Right. Okay. Thanks guys.

Thank you.

There are no further questions on the line, presenters. You may continue.

Back to you, John.

Well, thanks everybody for joining us this morning. We look forward to discussing our fourth quarter 2020 earnings and our 2021 guidance with you in February of next year. Thanks everybody. Have a great day.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you for joining us. Thank you, presenters.