Casella Waste Systems Inc (CWST) 2010 Q2 法說會逐字稿

Good day, everyone. Welcome to today's Casella Waste Systems Incorporated second quarter 2010 earnings conference call. As a reminder today's call is being recorded. At this time it is my pleasure to turn the call over to Joe Fusco. Please go ahead, sir.

Thank you for joining us this morning. Welcome. With us today are John Casella, Chairman and Chief Executive Officer of Casella Waste Systems, Paul Larkin, our President and Chief Operating Officer, Jim Bohlig, our Chief Development Officer and Paul Massaro our Principal Accounting Officer.

Today we'll be discussing our fiscal year 2010 second quarter results. These results were released yesterday afternoon. While with a brief review of these results and an update on the Company's activity and business environment, we'll 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 SEC's Safe Harbor Provisions. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors including those discussed in our prospectus and other SEC filings. 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 estimates change and therefore, you should not rely on those forward-looking statements 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 is available in the financial table section of our earning's release which was distributed yesterday afternoon and is available in the investor section of our website at Casella.com. Now I'll turn it over to John Casella who will begin today's discussion.

Thanks, Joe. Good morning everyone and welcome to our fiscal year 2010 second quarter conference call. I will start with a brief strategic summary. Paul Massaro will take us through the numbers and Paul Larkin will run through an operating summary and as usual, Jim will give development update, but before I get started I would like to give a brief update on the CFO search. We did engage Spencer Stuart to help us with the search. They've sourced a number of interesting candidates. The Senior Management team and some Board members have met with several of the candidates. We continue to interview candidates into the third quarter.

Just a brief overview in terms of the business. The business continues to perform well through the economic downturn with stable cash flows and improving adjusted EBITDA margins. Successful pricing initiatives, operating efficiency programs, and moderately strengthening recycling commodity prices are helping to offset volume weakness due to the protracted downturn and the reality of the economic activity or lack thereof what we seen over the last year. Through the first six months of the fiscal year we're tracking well against the fiscal year 2010 guidance ranges with landfill, gas, energy roll off revenues weaker and recycling revenues stronger. We experienced our normal sequential seasonal revenue growth from the fourth quarter to the first quarter and into the second quarter for landfill volumes and roll off pulls albeit at a lower starting base.

During the third quarter we will anniversary through the tough year-over-year comps for recycling revenues and we expect to anniversary the higher year-over-year volume comps for the solid waste group in the fourth quarter. Also, we believe that we've seen very positive results turn the corner perhaps in November with initial billings up year-over-year for the first time in 12 months, landfill volumes and recycling prices were positive. On an adjusted EBITDA for the quarter was $34.7 million down from the same quarter last year but again tracking well against the guidance that we had laid out in June. As projected weakness in landfill volumes, commodity price revenues made up a large part of the year-over-year decline of adjusted EBITDA; however even with the year-over-year declines in adjusted EBITDA, we still improved margins by 170 basis points for the quarter, a clear indication of the work that Paul is doing and the entire operating team from a solid waste standpoint as well as Shawn and the recycling team to improve operating efficiencies, increase pricing to help offset the continued weakness in the economically sensitive part of the business.

Adjusted EBITDA margin gains were stronger in the solid waste group with adjusted EBITDA margin of 29.7% up 240 basis points year-over-year. We continue to make progress towards our goal to improve free cash flow. Our free cash flow at the quarter was slightly negative but still up $3.7 million from the same quarter last year. This was in fact our first full quarter of the increased interest cost incurred as part of the July '09 refinancing that we completed. Free cash flow of $3.6 million year-to-date is also tracking well against our previously announced guidance range. With our next significant debt maturity in December 2012, we have the capital structure in place that allows us to execute our intermediate strategy to reduce debt leverage and increase shareholder returns. As we laid out last quarter we targeted leverage of 3.5 times debt to EBITDA over the next three years to better position ourselves for our next major debt refinancing. To achieve our goals to reduce leverage and increase returns we are focused on the following. Driving profitable revenue growth, increasing pricing where supported by the market, executing cost controls and operating efficiency programs, divesting in non-core assets and selectively investing in resource renewal solutions.

In the near term, our biggest opportunity to pay down debt and reduce our leverage is to sell non-strategic, non-contributing assets. During the second quarter our operating and finance teams completed a bottom up strategic review the focus of this multi-year review was to formulate an operating plan for each of our assets, understand growth opportunities in each market, and assess opportunity costs of our capital by market. Looking forward, we plan to focus investment in assets that produce positive free cash flow and support our strategy to improve asset integration and utilization. As a result of this review, we have identified several baskets of assets that we will work to divest over the next two years. The proceeds of these divestitures will be used to repay long term borrowings.

As previously discussed we're working towards the sale of Maine Energy which is a $50 million transaction, however as we've indicated it is highly dependent upon public sector execution although Jim will give some details on that and it certainly is moving in a positive direction, but certainly difficult to determine from an execution standpoint. The first basket of assets contains several hauling companies, transfer stations and one of our investments in unconsolidated entities, we believe that the sale of these assets will yield over $25 million of total proceeds and we've targeted to have these assets sold within 6 to 12 months. We have also identified a second basket of assets which we believe will yield $50 million of total proceeds with the sale of additional non-core assets. Not really prepared to discuss the specifics of those assets but as e -- we will update you as we make progress on the execution of the first basket of $25 million.

As we execute against our delevering plan by selling non-core assets and improving operating performance we believe that our equity will positively react and at the appropriate time we'll consider issuing equity as part of our strategy to refinance the 2013 senior subordinated notes and to fund future growth. With that I'll turn it over to Paul to take us through the numbers.

Thank you, John. Good morning. Turning to the results for the quarter, the Company reported revenues of $133.7 million, a decrease of $23.8 million or 15.1% from $157.5 million for the same quarter last year. As a percentage of total solid waste revenue, solid waste revenues decreased 13.7% with lower collection, disposal, processing and recycling volumes accounting for 9.5% of the decrease, 2.7% of the decrease from lower fuel recovery surcharges, and 3% from lower commodity prices and volumes. These decreases were partially offset by the positive sector price increases of 1.5% primarily from our collection operations. As a percentage of total SGR recycling revenues, SGR revenues decreased 28.3% with 22.1% coming from lower commodity prices and 6.2% from lower volumes in the quarter. Paul Larkin, our President, will provide more color on revenue and speak to the pricing volumes in each of the lines of businesses.

Moving to cost of operations. Cost of operations decreased $17 million or 16.4% with $86.7 million in the second quarter from $103.7 million in the quarter a year ago and decreased as a percentage of revenue between periods to 64.8% from 65.8%. The dollar decrease in cost of operations is primarily due to a decrease in the cost of purchase materials associated with lower SGR recycling revenues as well as lower fuel costs and direct labor costs in the solid waste segments.

General and administration expenses decreased $3.5 million or 19.1% to $14.8 million in the quarter from $18.3 million in the quarter a year ago. The decrease in general and administration expenses is primarily from reduced salary and incentive compensation costs, lower travel expenses and lower consulting expense. General and administration expenses as a percentage of revenues decreased to 11.1% in the quarter from 11.6% for the same quarter last year.

Depreciation and amortization expense decreased $1.2 million or 6.2% to $18.3 million in the quarter from $19.5 million in the prior year quarter. Compared to the prior year period, higher landfill amortization expenses at the Pine Tree landfill due primarily to higher volumes were more than offset by lower amortization associated with lower volumes at other landfill sites. Net interest expense increased $4.7 million or 45.6% to $15 million in the quarter from $10.3 million in the quarter a year ago. This increase is primarily attributable to higher average interest rates associated with the Company's new capital structure which was put in place in July of this year. Net interest expense as a percentage of revenue increased to 11.2% in the quarter from 6.5% in the same quarter last year. Availability on the revolver at quarter end was $92.3 million taking into account $50 million of LCs outstanding.

Moving to EBITDA, adjusted EBITDA was $34.7 million, a decline of $3.4 million compared to the same quarter last year. The break down -- the adjusted EBITDA break down for the quarter by business segment is as follows. Solid waste $30 million from $31.8 million a year ago or a $1.8 million decline, FCR of $4.7 million from $6.3 million a year ago for a decline of $1.6 million, adjusted EBITDA margins improved from 24.2% to 25.9% primarily from the solid waste operations. Our tax expense for the quarter was $555,000 but previously provided guidance of 3 million to $5 million of tax expense for the year and as previously stated we expect the results to come in at the high end of that range. The Company's net loss for the quarter was $1.6 million or $0.06 a share compared to a profit of $2.1 million or $0.08 per share in the same quarter last year. Our average interest rate for the quarter was 10.2% including amortization of finance costs net of these expenses it was 9.3%. Year-over-year, free cash flow improved $3.7 million to negative $1.5 million compared to negative $5.2 million in the prior year. Our cash flow from operations for the quarter was $15.9 million compared to $19.4 million last year for the same quarter. Our capital expenditures were $14.2 million this quarter with no new assets acquired under financing leases compared to $15.8 million in capital expenditures with an additional $7.5 million of financing leases last year. And with that I'd like to pass the call over to Paul Larkin for some comments on the operating performance of the Company.

Thanks, Paul. Good morning. As mentioned, total Company revenue declined 15.1% with solid waste revenues declining 13.4% year-over-year. 2.7% of the solid waste revenue decline was a result of the reduction in our fuel and oil recovery fees. Solid waste price increased 1.5% year-over-year and that was improved for six consecutive quarters. We continue to make great progress within our collection divisions with price increasing 4.3% which has been offset by a landfill pricing decline of 3.4%. The landfill price decline was mainly driven by continued regional weakness in C&D and BUD material specifically in our New York market and our new municipal contract at Ontario County. In the last month, however, we have seen an increase in both C&D volume and price into our New York landfills and all indications are that this volume will continue. Solid waste volume was down 9.5% year-over-year with a decline across all lines of business. Lower collection volumes were primarily driven by continued weakness in roll off with pulls down 14.3% year-over-year, evenly distributed across all markets. Roll off pulls continued to follow normal seasonal trends with slight decreases from the first quarter. Landfill tonnages were down 13.6% year-over-year with MSW volumes up 3% and C&D and BUD materials both declining. Our normal sequential seasonal trend remained intact in the second quarter.

FCR's revenue declined 28.3% year-over-year driven mainly by declines in commodity pricing. Cost of operations for the second quarter was $86.7 million or 64.8% of revenue, a decrease of 100 basis points as a percent of revenue from last year. Solid waste operating margins improved 90 basis points as a percent of third party revenues while FCR operating margins improved 250 basis points mainly due to declines in purchased material, partially offset by lower operating leverage. We've expanded our major accounts business line which has high free cash flow but lower margins than the integrated solid waste business. Quarter-over-quarter, revenues increased 10.1% and adjusted EBITDA margins increased by 236 basis points. Although accretive to our top line results, margins were compressed by 40 basis points overall. In addition, with lower revenues year-over-year we lost 50 basis points of operating leverage in a number of fixed categories. The net impact of our fuel and oil recovery fee positively impacted solid waste margin by approximately 40 basis points in the second quarter.

Solid waste operating margins benefited again this quarter by our continued focus on flexing labor to volumes while also delivering more permanent labor efficiencies. Solid waste direct costs were down 160 basis points as a percent of revenue with higher third party disposal costs offset by lower purchase materials. Solid waste direct labor costs were up slightly as a percent of revenue while costs were down $1.4 million and solid waste maintenance costs were down 10 basis points as a percent of revenues while costs were down $1.1 million as a result of the continued reduction in our routed fleet. Solid waste SG&A also declined as previously mentioned.

We're very pleased with the continued success of our fleet routing program and we are on target to meet our expected annualized cost savings for the full year. We also completed our front load conversions and our productivity results have exceeded our expectations. And lastly as reported last quarter, we are in the process of significant upgrades to our customer care network. We have completed all of our hardware, software and fiber upgrades to support Cisco's call center solution and we have transitioned our first divisions into the network. We're very pleased with the results thus far and we expect this consolidation to significantly improve our customer experience, drive revenue growth while also reducing our SG&A expenses over time. We expect to consolidate all customer service into Rutland over the next 12 months.

In summary we're pleased with our execution against our sales and operating objectives and we're excited about the potential we see in the rollout of our customer care network and the continued opportunity to drive improvements within our fleet routing and core businesses. Jim?

Thank you, Paul. Good morning. Two material development projects that I will speak to, one is Southbridge Recycling and Disposal Development and the second as John indicated is the Maine Energy City of Biddeford and Saco Task Force transformation project.

First, as I think we discussed many times, the Southbridge Massachusetts Recycling and Disposal Development project is an important project for the Company. A year ago, we received full Board of Health determination approving the landfill expansion to 405,000 tons. That determination was appealed on proper authority of the Board of Health and we expect that that appeal should be heard and a decision ready within the next two or three months. The issue that was appealed was the issue of the property of the Board of Health and I might remark that that Board of Health has been operating under that structure since 2005 so we believe naturally that the appeal has little or no merit but we will obviously wait for the results of the Court. Upon favorable determination which we expect in the first quarter of calendar year 2010, they Mass DDP will process our MSW application. We expect that application to be approved in March of 2010 and by the beginning of our fiscal year 2011 which is May to begin having an impact and to be progressing to the 405,000 tons which will take approximately two to three years. We expect meaningful impact during Q4, 2011 and that will be reflective within our guidance for next year.

With regards to Maine Energy, the cities of Biddeford and Saco, along with the agents of Governor Vidachi from the State of Maine and the legislature has been working through an appointed Task Force to transform the Maine Energy facility into a renewable energy demonstration project which is to be aligned to meet the funding opportunity announcements of the Department of Energy, energy efficiency community block grants. There are six elements of the program, weatherization, electric thermal storage, community power supply, downtown CHP renewable mill redevelopment and repositioning the facilities across one renewable eligible facility including the development of the multi-material processing platform for densified renewable fuel. This is a transformative project and enjoys broad, regional State of Maine and national interest. We think the project is particularly important to us as it not only deals with an issue that we've had with the project and the community in a very positive way but more importantly the project is developed around a resource optimization principle and results and we think it will be a very important demonstration project for both the Company's strategy as well as the local community. The project concludes a right for Biddeford Saco and the State to purchase the facility but as John indicated that is always a very problematic issue as the states have to shift through their priorities and decision-making with regards to risk outpacing.

Moving on to FCR. FCR's commodity prices were lower year-over-year, prices have rebounded from January lows with sequential strengthening from Q1 FY '10 to Q2 FY '10 driven by firming export markets in spite of very weak domestic demand. On a Q2 FY '10 to Q2 FY '09 basis, gross commodity prices decreased close to 41%; however the net revenue per ton only decreased by 8.9%. This is a very good illumination of the effectiveness of our risk mitigation strategy and I'll talk a little bit more about that in a second. Adjusted EBITDA for FCR was up by 17% or $7.7 million for the quarter and from Q1 FY '10 to Q2 FY '10 net revenue per ton for commodities were as follows. HTP natural was up 8.5%, HDP pigment is up 18%, Ferrous is up 59%, whole CC is up 13%, and O&P is up 6.8%. Net revenue associated with PET is down 8.8% and aluminum is also down as well 17.1%. If you look at net revenue per ton compared to our plan it's up 3.7% while gross net revenue per ton is up 9% reflecting the recent moves in the market and the effectiveness of our risk mitigation strategy there as well.

The strategy continues to work well for the Company, dampening the volatility of commodity pricing and helping us to maintain a stable EBITDA. We laid out last quarter it's important to look at the recycling business from the perspective of net revenues which is defined as commodity revenues, less revenue shares, plus tipping fees, plus hedging revenues, net purchase materials. As an example commodity revenues were down nearly $16 million in Q2 FY '10 on a year-over-year basis while net revenues were down only $3.4 million and adjusted EBITDA was down only $1.6 million over the same period. That shows the strength and power of this strategy. Lower revenue shares, higher tipping fees, higher hedging revenues and lower purchase material costs offset the majority of the commodity price declines under way during the last 12 months. In spite of a deep economic correction in not only economic pricing but economic activity in all markets, FCR's volumes are down only 6.2% on a year-over-year basis and we continue to expect flat to rising volume as the economy recovers, communities convert to single stream recycling and the external market searches for increased diversion opportunities for the waste stream and to recovery programs.

On the development front for FCR, we've been very active on the Zero-Sort Recycling conversion. We're seeing substantial single strain growths in Boston, Philadelphia, and Camden, where we recently completed single stream conversions. We recently renewed our contract with Mecklenburg County for 10 years and that facility with Mecklenburg funding on the go conversion to single stream starting in early 2010 and under way and completed by June of 2010. We also renewed our contract in West Palm Beach for four years and we have just completed a newly constructed West Palm Beach Zero-Sort Recycling facility and it's in its final stages of shake down and placed into operation. We extended our Stratford County agreement, we've selected a vendor at Fort Myers, Florida for the Zero-Sort Recycling conversion and Casella was recently selected in Concord, New Hampshire as the Operator of a new Zero-Sort Recycling facility for the North country of New Hampshire. We expect construction to begin within the next six to nine months.

Moving on to US Greenfiber, the management team at Greenfiber has done an excellent job managing this business during a protracted downturn in the housing. Despite Greenfiber's revenues being down $6.6 million or about 19% on year-over-year basis, EBITDA was up $1.7 million or 190%. Greenfiber has experienced volume declines in all lines of its business in line with industry trends, however Greenfiber has been successful in raising prices across this business and the net price per bag up 3% on a year-over-year basis. Greenfiber was able to increase EBITDA through continued efforts to flex manufacturing costs down to revenues and reductions of SG&A cost are also down as well 16% on a year-over-year basis. Greenfiber's EBITDA on a trailing 12 month basis was $9.2 million and for the calendar year of 2009, we expect it to come in the range of 9.8 million to $10 million. Greenfiber is running roughly 30% manufacturing capacity with the new home construction at 529,000 starts but we believe it is positioned well for a housing market correction when it does come and to its more normally adjusted rate of $1.4 million annually.

Looking forward for the next 24 months, Greenfiber expects to benefit from both the projected increases in new housing starts and the $5 billion of federal stimulus money targeted and distributed to the State weatherization assistance projects. Installation projects have been prioritized as number two on the list of qualified projects and Greenfiber product is ideal and is identified as a key support product for retrofitting existing hopes. US Greenfiber also launched an Australian product partnership which will go for retrofitting homes in Australia, via partnership with the Canadian partner whose doing the work and this should allow 3 million to $5 million of incremental sales over the next 12 to 18 months with $0.5 million occurring in the last two months of this year and with that I'll turn it over to John for his closing remarks.

Actually, we'll open it up to questions, Operator.

(Operator Instructions) We'll take our first question from Corey Greendale with First Analysis.

Hi, good morning.

Good morning.

A couple questions. First of all, John, did I hear correctly, did you say that revenue was up year-over-year in the month of November?

That's correct. First month in 12 or 14 months where revenues were actually up, the month of November is in fact the first month where we've seen revenues up on a year-over-year basis.

And was there anything unusual about that, any reason to think they wouldn't now see revenue up year-over-year in each quarter going forward?

Well, obviously it's hard to predict but I think that we see some new streams, additional customers coming into the landfills that we believe are going to continue out into the future, so I think that notwithstanding something from an economic perspective that we can't see at this point in time, certainly the look seems, with the additional customers that we have, it looks as though we're going to see those out into the future so it certainly seems like we've hit bottom and are beginning to move in a different direction.

Well, that's good news and then on the pricing front, it sounds like I think there was some positive commentary about landfill pricing in the New York market so with that in mind do you think that in the solid waste business, price could be more positive in Q3 than it was in Q2 and can you also talk about your thoughts on pricing going into calendar 2010 given very low CPI?

I think that it's fair to say that we've seen positive activity in November for sure, particularly in New York so I think there is, I think some of the market dynamics, the changes in the market are positive in terms of its outlook, but it's still probably too early to tell in terms of where we are from an economic reality perspective. It certainly seems like we're bouncing around the bottom. We have any economic activity at all, it should bode well for pricing as we go out into the next year and certainly some of the dynamics in the marketplace are positive dynamics I think from an overall pricing perspective as well.

Is it fair to say that your goal would be to keep price growth at least consistent with where it is right now?

Yes.

Okay, if I could just ask one more. I know there's only so much you can or are going to say about the divestitures that you're talking about but the first basket of assets, is it fair to assume that it would be net-net after you pay down the debt free cash flow accretive and is there anything you can say about the revenue associated with the assets and if the bottom line impact would be accretive?

Yes, it's fair to say that obviously the first basket is going to be very accretive. It would be those assets that really are not contributing at a level that we should continue to invest in, could be in someone else's hands where they could create more value than what we're creating with those assets, so that's absolutely the case. Those assets will be the first basket of assets will be the most accretive.

And is there anything you can say about the revenue associated with that basket?

No, not really.

Okay, I'll get back in the queue. Thank you.

Yes.

Now we'll open the floor up to Raymond James, Bill Fisher.

Hi, good morning.

Good morning, Bill, how are you?

Just fine, thanks. You mentioned, just follow up on Corey's question on November, were the sequential trends a little better in October or was there anything different on a seasonal basis? Obviously year-over-year you had easier comps but just wondering how the trends were there?

We really haven't looked at the sequential numbers to really take them apart. One of the things that we're looking at right now, I think sequentially it's probably a bit positive but we're in the process of going through and taking a look at that right now, Bill, to really understand because we normally have a seasonal downturn from October to November. We're going through trying to evaluate that right now in terms of what that normal seasonal downturn is against what we performed from October to November so we're really looking at that right now but I think it was net-net positive from a sequential basis as well.

Okay, and actually--?

We will have more specifics on that and certainly can give you the specifics as soon as we have had a chance to really take a look at it, but it does look as though sequentially it was favorable as well.

Oh, great. And for Jim, you mentioned a number of the zero sort projects coming online over the next year or so. I mean I think you're, if I'm not mistaking doing like 250,000 or so tons of recycling right now for FCR. If you look out 12 months and the economy is stable or whatever, how much kind of tonnage could you add from all of those different projects you mentioned?

Well, I mean the good news is in every one of those markets we have processing capacity that can be utilized. The second answer to that is that in every one of those markets we're seeing community or the individual awareness of the power of single stream or Zero-Sort Recycling in terms of its convenience so you're seeing a natural growth that's coming from the dual stream programs with their own kind of inefficiencies to a more efficient system under the single stream banner, and that in itself has generally in those markets where those programs have been deployed have resulted in about 35% increase in volume and material from the peak to the valley or the valley to the peak, and we expect that to be kind of how it will work.

The countervailing movements against that is that every community is very cost conscience and budget conscience these days, many of them are suffering obviously tax deteriorations so new programs are challenged and a large measure of these programs rest upon communities being willing to go ahead. Fortunately, the Federal Government is very strongly trying to stimulate recycling and recovery. They are very strongly stimulating and looking to find ways to stimulate both from a regulatory and in the Senate program so we expect to see more communities awakening and opting against these things.

Recently in the last month we've seen three large communities come out with our piece asking not only for single stream but much higher waste conversion processing capabilities which we think is indicative of the right strategy that we're in and so we do think it's a good place to be to have a product line. We think it's a core piece of our strategy. We have the core competence in that area and we expect to be able to see the continued growth in that as both the economy recovers and as the economy recovers, folks feel more comfortable to deploy technologies associated with waste diversions.

Okay and let me just follow-up on that, if you maybe slice it another way, are all of the contracts you mentioned that most of those are existing, if you added those up would they be maybe 30% of the production you're doing today, those locations?

Well, we obviously have that number, I don't know if I want to guess off the top of my head, I would be glad to call you and give it to you but let's just assume that it's 25%.

Okay.

And I think that it is fair to say, Bill, that what we're trying to do with the Resource Optimization strategy with regard to the recycling infrastructure is to better utilize the capacity of those facilities on a 20 hour, two shift day and we do have that capacity and so as we are able to attract more volumes to those existing facilities, we'll obviously be able to bring up the return on the invested capital as those facilities.

Okay, perfect. Thank you.

And now we'll go to Jonathan Ellis with Banc of America Merrill Lynch.

Thank you. Wanted to just first ask about the landfill pricing, you mentioned it was down 3.4%. Is there any way to break out what the impact was from the new municipal contract as well as the mix of C& D and BUD?

Jonathan, this is Paul. That contract actually started late in the quarter, so the impact I don't think we have it right in front of us but the impact probably for the quarter wasn't as significant as what's more significant is that we made a decision instead of holding off the market in terms of price, we actually with that one followed the market for price to get those tons into our facility, so the impact for the quarter, what we're calling it out is it's going to impact us going forward and it's a contributor, albeit small to the three four.

Yeah, the majority would have been C&D and BUD tonnages where the impact would have come from, Jonathan.

Okay. Do you have and I know in the past you've given a price figure just for the MSW component, do you have that available for this quarter?

Yes, MSW was up, the volume was up 3% and I think we've got the price here, just a moment.

Sure.

Mr. Ellis, do you have anything further?

I do. I'm just waiting on an answer and then I have a couple of follow-up questions.

Let us pull that out, Jonathan.

Sure, no problem. I don't know maybe another sort of related question and I realize there's a lot of seasonality so maybe over the course of the year, do you have a sense of typically the percentage of your land to volumes are from MSW versus C&D and BUD?

Jonathan, on the first question that you asked could you just clarify what the question was?

Sure, I was just asking if you had a figure for MSW pricing at your landfill this quarter?

I don't think that we normally disclosed MSW pricing. You mean the percentage?

Yes. I had noted down last quarter that MSW pricing was up 1.5% at your landfills and so I didn't know if you had a separate, if not we can talk about that off line.

Yes. I think the disposal pricing was down 3.2%.

Okay.

Disposal pricing on the solid waste segment was down 3.2%.

Right. Okay. And I'm sorry the other question was do you have a sense of the break out for MSW versus C&D and BUD at your landfills?

In volumes MSW was up 3%, C&D--.

I'm sorry, the percentage of total volumes, what you typically take at your landfills, not growth, not changes, I'm talking about total volumes, what percentage of total volumes typically come from MSW versus C&D and BUD?

We could probably get that for you. We don't have it right here. We don't have the totals but we can certainly get that information for you.

Okay. Just any qualitative commentary on the, in your fund loaded business the weights per container this quarter?

I think that we're probably more of the same in terms of stability. We aren't really seeing real significant economic activity. I think we've had some successes as we indicated with customers from a disposal standpoint in November but I guess we would characterize it as stable and maybe slightly improving in terms of what we seen in November but we're not seeing any real significant economic activity from a front load containers but it's certainly stable to possibly slightly improving in November.

Okay, great.

If you're talking about front load containers, right?

That's correct, yes.

Yes. And then just my final question, just on the recycling business. I was trying to get a sense, I know you've talked about year-over-year changes in price vis-a-vis net revenue but on a sequential basis, there was obviously some appreciation in pricing and I'm trying to get a sense to what extent has the hedges and other mechanisms you put in place to dampen volatility limited some of the upside? I know obviously it creates protection on the downside but to the extent we've seen some appreciation over the last few quarters in pricing how much of that is in the upside in terms of net revenue?

I don't think that there would be much of an impact. Jonathan's question is how much of an impact would we have seen sequentially from limited buy, the hedges that we put in place. Most of those hedges I think have rolled off over the last year, right? So we really limited the upside opportunity with the risk mitigation program so I don't think that there's, certainly you will to a degree that's obviously the purpose of putting the risk mitigation strategy in place in the first place.

Well, I mean, we still have a substantial number of hedges in place. They will continue rolling off for another 12 to 16 months. Those hedges are both in terms of price and volume and the term that they run, so when you look at it, it's really a three dimensional program in terms of how it protects you. We are at the current pricing levels we're seeing in the market beginning to believe that in the next quarter that we would start to actually place new hedges to start a new hedging program based on our belief of where the market is going to go and the rising of that market, so to basically build the next leg of our hedging strategy, I think that in large measure, the net revenue per ton and the mitigation strategies are as much as anything today being carried by contrast negotiation changes that we affected over the last 12 months where we shifted our revenue share into a more sustainable model in combination with the remaining hedges on our balance sheet so that I think what we're actually reporting is that our program has many legs to it but a big part of that program is not resting now solely on hedging but rather restructuring of our relationships with our customers that allows them to share the downside market risk and also take some of the upside revenue share and we think that's a much more longer term sustainable model.

So it's likely that that will we more of an issue as we go forward with higher commodity prices where we will begin to give some of that back.

Thanks guys.

You're quite welcome. One other comment too with regard to the roll off in November is slight improvement there as well Jonathan.

Great. Thank you.

Now we'll move on to Eric Prouty with Canaccord Adams.

Great, thanks. Just two questions, please. First on the guidance. When you look at some of the improvements which have occurred in the volumes, some of the improvements in the pricing and also especially with the commodity prices moving up, can you put that in context with the guidance that you've maintained or is this still consistent with your guidance range but maybe we're now moving towards the higher end than the lower end, maybe if you could just put the recent what you're seeing out there recently in the market in context with your guidance?

Sure. I think that what we seen really is one month of real positive activity from a revenue standpoint. As we said before, Eric, the month of November is the first month on a year-over-year basis where we've actually seen revenue up and so I think it's really early to declare anything with regard to changing guidance but certainly, that improvement would indicate that we would move towards the high end of those ranges.

And from a commodity price standpoint, especially with the recycling again, is that kind of tracking as you saw or is that again gearing towards the higher end of your guidance?

I think that it's tracking where we thought it would be, maybe slightly ahead, but I think on balance it's tracking where probably slightly ahead of where we thought it would be.

And on an absolute level it's probably where we thought it was but on a momentum basis I think the market is building and there are some early indications that there's momentum in that pricing market but as I gave you those net revenue per ton by commodities you can see that the market is dysfunctional in the sense that aluminum and, I forget the other one, PET were going down as opposed to the other ones are going up so our overall commodity pricing remains a blend of those and the whole market has to go up together in order to have the full impact of what we're speaking of so we're always mindful of the portfolio mix and the impact that some of them may not yet be recovering at the same pace, but some of the recovered fibers do look stronger, OCC and O&P for their own reasons, the hydrocarbon related products I think are not likely to drive as far or as fast and metal is very much tied to the export market and what happens in Asia and China.

Okay, fair enough, and then John you might have touched on this a little bit but do you have from a dollar standpoint any identified additional savings that would impact the G&A line?

We don't. We haven't really talked about it other than the plans that Paul has laid out with regard to the rerouting, the front load conversions. We also have got work that's being done with regard to the customer care unit as well as shared services, so I think that there's some opportunity there but we don't have any additional numbers that we've talked about other than what Paul has laid out historically, Eric.

Okay. That's good and you've done a good job in the past keeping -- being able to take money out. Do you feel like the low hanging fruit from a cost savings standpoint is probably behind you guys and now it's more just maintaining G&A as revenue starts ramping back up?

I think that we set out a couple of years ago and indicated that we wanted to bring our margins much closer to the industry. We're still on that path, we still think that we have opportunity there. Certainly the last year and a half, Paul has done a great job with the entire operating team, Shawn has done a great job on the recycling side, but I think that we believe we still have opportunity there and we will continue to move every stone and look at every opportunity in terms of how we can change this model to become more productive and more efficient.

Great. Okay, that's all for me. Thanks a lot guys.

You're welcome.

Now we'll open the floor up to Brian Butler with WSI.

Good morning guys.

Hey, Brian, how are you?

Good, thanks. First question is on just to follow-up on Jonathan's question about the commodities and the structural changes you've made in the FCR business, the share of the upside. I guess like on a year-over-year basis, I think you said that the commodity prices were down 16% but FCR revenue or EBITDA, adjusted EBITDA was only down 1.6 million so significantly less. When you think about it going the other direction, is it similar kind of magnitude? If commodity prices are up 16%, is FCR EBITDA going to be up 1.6? I'm just trying to find a frame work of how to think about that?

The way you should think about it is it's not a symmetric framework, in other words, what goes, what happens when we go down is by design different than when the markets go up but what you should think about is if we don't give dollar for dollar the market goes up so as the market goes up, we have a early giveback if you will to the commodity and to our customers and then that commodity share reduces as the market goes up so it's both got an aspect of it tied to where the absolute price of the commodity is and what the revenue share is as that commodity goes up so we actually get more if commodity prices go up we get a bigger percentage than we do initially from what I would describe as a tipping point, so it's not a symmetric relationship but we definitely probably only harvest about 30 or 40% of the early market rises and then if the market recovers back to its high numbers, obviously we get more. Part of that will be also further dampened or leverage by successes and hedges and derivatives that we place associated with the volumes we have in our control.

So if I hear you right when prices are going up you guys are only getting about 30% of that initially and then that gradually increases and when it goes down how does that work? Is it you--?

I don't think, I mean I think that we've tried to be very specific in the numbers I gave you to give you a way to think about how it went down. I wouldn't like to try to characterize it beyond the numbers we gave you because I think you could actually look at that and see the relationship.

Yes, I think if you go to the website and look at the last presentation we've got, we've got that mapped out so you can take a look at that and if you come out of that with additional questions just reach out to Ned, and he will walk you through it.

Okay, great. That's very helpful, and then on the asset sales, can you give any color on kind of the valuation markets and the areas you're selling, any thoughts on how that looks?

Not really. I mean I think that obviously the market currently because of the economic reality is difficult but I think that we've laid out a plan, we think that we can achieve that in terms of the first bucket but really can't get into the specifics of valuation at this point.

Okay, and then last one from a modeling perspective. How to think about the taxes split for the third quarter and the fourth quarter. Should I just take the remaining to the high end of your guidance and divide them evenly between the two quarters or is it going to be one more or another?

Yes, I think we said on the call previously that we should be high end of that range at $5 million and I think your approach will be fine.

Just put half in each quarter?

Yes, I would.

Okay. Thank you very much guys.

Yes.

Thank you.

Now we'll hear from Scott Levine with JPMorgan.

Hi.

Good morning Scott.

Good morning guys. How are you?

Great. How are you doing?

Okay. First question, somewhat of a modeling question. Obviously you're heading into a seasonally weaker period of the year from an earnings standpoint but if I look at your cash flows obviously you've had some moving parts with the refinancing and with some of your labor rationalization issues. Is there going to be a typical seasonality pattern with the cash flows or will there be any differences for the third and fourth quarters of the year?

I think that the only impact would be anything from a divestiture standpoint. Other than that it should be probably fairly consistent seasonally. That's at least what we've seen so far. Again though, we are going into much easier comps as we get into the third and fourth quarter. Okay, that's helpful. Second question on the CFO search, is there a timeline or a time frame where you're hoping to get this done or is it just whenever you find the right candidate? Well, I think that it's always to find the right candidate first. Obviously we want to try to get that done as quickly as we can. I think that several months is likely to go into, with the holiday coming up, it's likely to go into the first quarter of next year but certainly we're looking to try to get that position filled as quickly as we possibly can.

Okay, and one last one if I may and I apologize if you already discussed this in your prepared remarks but just generally speaking, what type of expectations do you have in terms of the impact from consolidation in your market there, obviously with one of the merger recently announced in the industry--?

I think that our sense of that is it's really positive but I think that the combination is a positive one and I think that it should bode well I think in that there's more tons available to go into the facilities and I think on balance that should be a very positive for the market both from a volume and a pricing standpoint in Upstate New York.

Okay, great. Thanks a lot guys.

Okay, thank you.

Now we'll take a follow-up question from Corey Greendale.

Hi, thanks, I'll keep this quick. Given the improvement that sounds like you're seeing with Greenfiber, do you have any thoughts on what the equity income contribution is from Greenfiber for the full year?

We don't, Corey, but certainly we could get that information for you. I think that, I'm not sure, do we have a number out there now? Do we have a--? I don't know if we have anything disclosed. If we do we'll update that but I think clearly, Jim articulated where we thought they were going to be for the year in terms of $10 million of free cash flow, so that being said obviously the management team there has done a terrific job in moving that business forward. They've also paid down a substantial portion of debt over the last year as well and have redone their credit facility recently as well, so business model obviously is in very good shape. The team has done a terrific job through this downturn.

But I think it's fair to say they're waiting for the housing market to recover which it has not shown any real heart beat recovery signs yet, so absent that, I think they're bunkered down, they're well positioned, they are managing their business, they are looking for other markets and we would expect that their next year performance would be in line with this year but I wouldn't, I don't think that we would go beyond that.

Okay, and then on the divestitures, the language you're using baskets of assets, is your expectation that each of those baskets would be to a single buyer?

Not necessarily.

Okay. And then the one last real quick question I had just going back for a second to the free cash flow guidance, you mentioned that you did think the historical seasonality would hold. At least the past few years, the second half of the year has been stronger in free cash flow in the first half of the year and if that happens again you should be above the guidance for the year so can you just put that into perspective, what would happen to make it so you don't have that historical uptick in the second half of the year?

Well, I think that the real issue is whether or not we're going to see continued activity similar to what we saw in November for the rest of the year. I think that's very difficult to predict at this point in time so I think that it's fair at this point, Corey, that as we indicated earlier in the call that it's likely that we'll be at the high end of the range.

Okay, thank you.

There are no further questions. At this time I would like to turn the call back over to Mr. John Casella for any closing additional remarks.

Thank you very much. Five years ago we set out to add disposal capacity to the franchise and in fact we were successful in adding 66 million tons of disposal capacity which really solidifies our free cash flow generation for the next 10 to 20 years, so from a practical standpoint we set out to do it, we executed it. Last year in the toughest economic climate in 70 years we were faced with refinancing our senior secured credit facility. We successfully refinanced the pending maturities providing us now the time to delever the balance sheet over time. The facilities were oversubscribed, were able to really have a great financing in what was the toughest climate as I said in 70 years, and now we've laid out a plan to delever over the next three years. Our team really knows what we need to accomplish and I'm confident that we'll meet this challenge as we've met the other strategic goals and challenges over the past several years. With that, thanks to everyone for your attention this morning. Our next earnings release and conference call will be in early March when we'll report our third quarter fiscal 2010 results. Have a great day everyone and thanks for being on the call today.

Ladies and gentlemen, that does conclude our conference for today. Again, thank you for your participation.