Casella Waste Systems Inc (CWST) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Casella Waste Systems Inc. third-quarter 2010 conference call. (Operator Instructions). As a reminder, this program is being recorded.

I would now like to introduce your host for today's program, Mr. Ned Coletta. Please go ahead, sir.

Thank you for joining us this morning, and 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; Paul Massaro, our Principal Accounting Officer; and Ned Coletta, our Director of Investor Relations.

Today we'll be discussing our fiscal-year 2010 third-quarter results. Those results were released yesterday afternoon. Along with a brief review of these results and an update on the Company's activities 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 Safe Harbor provision. 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 tables section of our earnings release, which was distributed yesterday afternoon and is available in the investor section of our website at Casella.com/investor.

And now, with that I'll turn it over to John Casella who will begin today's discussion. John?

Thanks, Joe. Good morning and welcome, everyone, to our fiscal 2010 third-quarter conference call. I will start with a brief strategic summary. Paul Massaro, our Principal Accounting Officer, will take us through the numbers. Paul Larkin will run through an operating summary and, as usual, Jim will give us an update on development activity.

Before I get started, I would like to give you a brief update on the CFO search. As I mentioned last quarter, we engaged a search firm to help us with the search and, as you can imagine, they have sourced a number of interesting candidates. We continue with a senior management team, as well as key members of the Board, to interview candidates. Meanwhile, our finance team continues to do a great job with Paul Massaro providing the leadership in his chief accounting role.

A little bit of a strategic overview of the third quarter. Our business continues to perform well through the economic downturn with stable cash flows and improving adjusted EBITDA margins. We are encouraged by the performance of the business in the third quarter, particularly our revenue growth, our first quarter of revenue growth in five quarters.

While we still think it's too early to say that this growth reflects a turning point, the results reflect strengthening in key parts of our business. The key contributors to growth in the quarter were successful collection pricing increases, higher landfill volumes attributed to new long-term disposal contracts, and strengthening recycling commodity prices.

Year to date, our revenues continue to track relatively well against our fiscal 2010 guidance ranges, with landfill volumes and recycling revenues stronger and gas-to-energy pricing and collection volumes weaker, especially in the rolloff line of business. Since our solid-waste volumes stabilized in the spring of 2009, we have generally followed our normal seasonal trends. However, we do not see any meaningful catalyst in the reason that will materially improve the economy or drive volume growth in the next several quarters.

While we do expect to continue year-over-year landfill volume growth associated with several new long-term contracts, our sales team continues to make great progress in selling Zero-Sort Recycling services as well. During the third quarter, we anniversaried through tough year-over-year comps for commodity prices that peaked in September of 2008. Recycling commodity prices continued to strengthen sequentially from the second quarter to the third quarter of fiscal 2010, especially OCC pricing.

We expect markets to continue to moderately strengthen in the near term, and our initial read on February pricing supports this projection. However, it is important to note that markets are certainly not overheated. Most classes of commodities are still significantly off the 2008 highs, with average commodity prices down 35% from the second quarter of 2009.

Adjusted EBITDA for the quarter was $29 million, up $4.8 million from the same quarter last year, tracking -- again tracking well against our guidance. Robust collection pricing, higher landfill volumes, higher recycling commodity prices, and, you know, a terrific job on the operating side in terms of really leveraging, rethinking the model, doing just a great job in just about every line item from an operating perspective were the main drivers of the adjusted EBITDA growth. We are having great success in rethinking the model and Paul will go into some of those details when he begins his presentation.

Adjusted EBITDA margins were up 300 basis points for the quarter, reflective of operating leverage that we've gained through the implementation of permanent cost controls, pricing programs, and again, rethinking the model with things such as our shared-services model and some of the other things, as I said, that Paul will go through in more detail.

Free cash flow for the quarter was negative, but up $1.6 million from the same quarter last year, even with higher cash interest costs of $9 million associated with the July 2009 refinancing and the timing of some payments. Our free cash flow year to date is tracking well against our original guidance.

In terms of the strategy, just a little bit of an update, but first I'll take you through, for those of you who may not have been on the last call. As we laid out last quarter, we have targeted leverage at 3.5 times debt to EBITDA over the next three years to better position us for our next debt refinancing in 2012.

To achieve this goal, we are focused on driving profitable growth, increasing pricing where it's supported by the market, executing cost controls and operating efficiency programs, divesting of 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 nonstrategic, non-contributing assets.

As part of the second-quarter strategic asset review, which was completed by our finance and operating teams, we identified two baskets of assets that we would like to divest over the next two years. 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 proceeds, and as we laid out last quarter, we have targeted the sale of these assets in six to 12 months. It was actually laid out in December.

We made great progress on the divestitures in the first basket of assets since our last conference call. We've actually received $1.8 million of cash for divestitures of two operations that have been previously accounted for as assets under contractual obligation.

In addition, our team has pulled together confidential offering memorandums for the remaining assets in the first basket. We've signed nondisclosure agreements with interested party and have begun formal diligence. Diligence is in various stages, and we will provide updates as the assets are sold.

While we are doing some preliminary work on the second basket, until we make further progress on the first basket of assets we do not plan to discuss the second basket of assets in any detail. However, as we laid out last quarter, we do believe that the second basket could yield an additional $50 million of total proceeds from the sale of non-core assets.

With that, I'll turn it over to Paul Massaro with the numbers.

Thank you, John. Good morning. Turning to the results for the quarter, the Company reported revenues of $126.1 million, an increase of $5.2 million, or 4.2%, from $120.9 million for the same quarter last year.

FCR Recycling revenues increased $4.5 million, or 23.3%, to $23.6 million from $19.2 million in the prior-year quarter, mainly due to increases in commodity prices as offset by relatively flat volumes.

At $93 million for the quarter, solid-waste revenues were relatively flat year over year with internal growth coming from collection pricing and increased disposal volumes, offset by lower collection volumes, landfill prices, and fuel recovery fees. Paul Larkin will provide more color on solid-waste revenues and speak to price and volume by line of business.

Moving to cost of operations, cost of operations decreased slightly to $84.8 million in the current quarter from $85.3 million in the prior-year quarter and decreased as a percentage of revenues between periods to 67.2% from 70.5%. The decrease in cost of operations as a percentage of revenue came primarily from lower direct-labor hauling and other operating costs, partially offset by higher host and royalty fees.

General and administration expenses increased to $15.1 million in the current quarter from $13.9 million a year ago. The increase in general and administration expenses is primarily due to higher employee incentive costs due to a reversal of bonus accruals in the prior year, partially offset by lower salary, bad debt, and legal expenses. General and administration expenses as a percentage of revenues increased to 12% in the current quarter from 11.5% in the prior-year quarter.

Moving to adjusted EBITDA, adjusted EBITDA at $29 million was up $4.8 million from $24.2 million in the prior-year quarter, and margins improved to 23% from 20% a year ago. The adjusted EBITDA breakdown by business segment is as follows. Solid waste in the current year of $24.1 million, compared to $24.4 million a year ago. FCR at $4.9 million, up from a negative $200,000 a year ago.

Solid waste adjusted EBITDA margins were relatively flat year over year. As mentioned, solid-waste revenues were consistent year over year with lower cost of operations as a percentage of revenues coming from lower direct labor, hauling, and other operating costs, which were offset by higher host and royalty fees and higher general and administration costs associated with increased incentive compensation expense.

For FCR, adjusted EBITDA was up $5.1 million and margins improved to 20.7%, primarily as a result of the partial recovery of gross commodity prices as well as the non-recurrence of one-time costs incurred in the prior year associated with the global commodity market collapse and the retrofit of two facilities to Zero-Sort Recycling facilities. Jim Bohlig will provide more detail on FCR later in the call.

Depreciation and amortization decreased year over year primarily due to the planned closure of Pine Tree Landfill, which ceased operations in the quarter. Net interest expense increased $5.1 million, or 52%, to $14.9 million in the quarter, from $9.8 million in the prior-year quarter. This increase is primarily attributable to higher average interest rates associated with the Company's new capital structure, which was put in place in the first quarter. Net interest expense as a percentage of revenues increased to 11.8% in the current quarter from 7.9% a year ago.

The average interest rate for the quarter remained unchanged at 10.2%, including amortization of financing costs. Net of these expenses, it was 9.3%.

Availability on the revolver at quarter end was $89 million after taking into account $50 million of LCs outstanding. Income-tax expense for the quarter was $1.2 million. As you may recall, as a result of the collapse in the commodity markets a year ago, the projected and year-to-date pretax booked income decreased, resulting in a quarterly tax benefit.

For the current year, we previously provided guidance of $3 million to $5 million of tax expense, and I would reconfirm our guidance at the high end of that range. For the quarter, the net loss amounted to $4.4 million, or $0.17 per common share, compared to a net loss of $3.8 million, or $0.15 per common share, in the prior year.

Free cash flow was up $1.6 million year over year. Lower capital expenditures in the current period were partially offset by lower cash from operating activities, driven primarily by higher cash interest payments and higher uses of working capital due to higher levels of Accounts Receivable, partially offset by lower trade payables.

Our capital expenditures were $6.9 million for this quarter, compared to $11.4 million in capital expenditures with an additional $2.2 million of financing leases last year.

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, and good morning. As mentioned, total Company revenue increased 4.2%. Solid waste revenues were flat year over year, which is a significant improvement from the 13.4% decline we experienced in Q2.

Solid waste price increased 1.3% year over year and has now improved for seven consecutive quarters. Our collections divisions delivered price improvement of 3.8% as a percent of collection revenues, which was offset by a landfill price decline of 4.2% as a percent of landfill revenues.

The landfill price decline was primarily driven by several large contracts in Ontario County priced at existing market rates, continued regional weakness in C&D and BUD material, and mix shifts to lower-priced BUD materials. As part of the new contract into Ontario, we have price escalators that will begin to favorably shift pricing in this market in the early spring.

Collection volumes were lower in all lines of business. In particular, the rolloff business continued to decline with polls down 3.2% year over year, but much improved, again, from the 14.3% year over year decline we saw in Q2. Rolloff softness was evenly spread across all the markets.

Landfill tonnages were up 15.9% year over year with MSW volumes up 10.6% and C&D and BUD tonnages both higher. Increases in C&D volumes were driven by event-type work. We outperformed our normal sequential seasonal trends, mainly due to the new contracts coming online during the quarter.

And lastly related to revenue, our fuel and oil recovery fees were down 1% year over year.

Cost of operations for the quarter were $84.8 million, or 67.2% of revenue, a decrease of 325 basis points as a percent of revenue from last year. Solid waste cost of operations decreased by 130 basis points, while FCR cost of operations decreased by 1,625 basis points. Solid waste operating margins benefited from our continued focus on flexing labor to volume, while also delivering more permanent labor efficiencies.

Solid waste direct costs were down 100 basis points as a percent of revenue, primarily driven by improvements by our long-haul transportation team and secondarily by lower third-party disposals and purchased material costs. Solid waste direct labor costs were down 60 basis points as a percent of revenue, or $0.5 million. Solid waste direct operating costs were up 40 basis points as a percent of revenue, with landfill depletion, accretion, and host fees up with higher volumes.

The net impact of our fuel oil recovery fee negatively impacted solid waste margins by approximately 50 basis points in the quarter. Solid waste maintenance costs were down 20 basis points as a percent of revenues, with costs in dollars also down $200,000 as a result of the continued production in our routed fleet.

With revenues up year over year, we gained 40 basis points of operating leverage in a number of fixed-cost categories, including facilities, insurance, and utilities.

The improvements in solid waste operating margins were offset by higher G&A costs. Solid waste G&A costs were up 190 basis points as a percent of revenues, due to the reversal of bonus accruals in the prior period. Eliminating the impact of the bonus accruals, G&A costs were actually down 150 basis points as a percent of revenue. Improvements were recognized in labor and benefits, bad-debt provisions, and facility costs.

In spite of the $3.1 million of bonus accruals last year in the third quarter, solid waste adjusted EBITDA margins were only slightly down year over year. Excluding this impact, solid waste adjusted EBITDA margins were actually up 350 basis points, reflecting the operating leverage gained with cost efficiencies and continued pricing gains.

FCR margins improved dramatically, due to both improved commodity pricing and the non-recurrence of one-time costs in Q3 of last year.

We continue to expand 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 7.6%; however, total Company margins were compressed by 50 basis points.

As reported last quarter, we are in the process of significant upgrades to our customer care network. To date, we have transitioned 11 divisions, about 40%, into our new centralized customer care center. We are very pleased with the results, and we expect this consolidation to significantly improve our customer experience, drive revenue growth, while also reducing G&A over time. We expect to consolidate all customer service into Rutland over the next nine months.

We are also in the process of streamlining our back-office functions through the transition to a shared-service model. We are consolidating cash management with one of our credit facility's partners currently and we will move forward with other key functions over the next year. We continue to be pleased with the success of our fleet routing program and we are on target to meet our expected annualized cost savings for the full year.

In summary, we are very pleased with our execution against our sales and operating objectives and we are really excited about the revenue generation potential we see in the rollout of our customer care network and the continued opportunity to drive improvements within our fleet routing and core business processes.

Jim?

Thank you, Paul. Before I go into some details on FCR, I'll quickly address a couple of development activities that are important to the Company.

First is the Southbridge Recycling & Disposal development project located in Southbridge, Massachusetts. As most of you are probably aware, during the quarter the Superior Court returned a final decision on the Board of Health appeal, reversing or overturning the appeal on all issues except one which was found to not have jurisdiction. It has been moved on to another court.

This favorable determination has now allowed the permitting process to move forward to the Mass DEP, and we this week received a letter from the DEP indicating their action against the permit, and we would expect the permit would receive final action by the agency before the end of the fiscal year, and we would expect it towards the end of fiscal-year 2011, to be beginning our progression to 405,000 tons which would create a meaningful impact late in 2011.

With regards to Maine Energy, Maine Energy along with members of the host communities and agents of Gov. Baldacci have been working through an appointed task force to transform the Maine Energy facility into a renewable energy demonstration project, particularly in line to meet the EECBG energy-efficiency grant objectives that were established last October. This is a six-element program, including weatherization, logic thermal storage, community power supply, downtown combined heat and power, renewable mill redevelopment, and repositioning the facility as a Class I wreck-eligible facility, including the development of multi-material processing platform. It's a transformative project, and we hope, along with several other projects that we're working in Maine, to actually spearhead energy efficiency and community power supply delivery to the local host community projects that are involved in these undertakings.

Moving to FCR, FCR's commodity prices were higher year over year and pricing improved again sequentially. This is primarily due to robust export markets and firming domestic demand, in turn coupled with diminished supply which have driven these gains. Year over year Q3 FY 2010 to Q3 FY 2009 gross commodity prices increased 70%, while net revenue per ton increased by 24%.

As you may recall, net revenue is a Company term that we use because we think it more accurately describes the impact of the market after taking effect of the various tools that we have developed to mitigate those volatilities. Correspondingly, the adjusted EBITDA for FCR is up $5.1 million year over year and $400,000 sequentially from Q2 to Q3.

All of the commodity prices have risen quite well. We expect somewhat again a rise during Q4, and our average commodity revenue for the end of January, for the Q3, was $93.7.

Our mitigation strategies continue to work well, dampening the volatility of commodity pricing and helping us to maintain a stable EBITDA. As we laid out last quarter, it's important to look at the recycling business from the perspective of net revenue, which is equal to commodity revenues less revenue share, plus tipping fees, plus hedging revenues, net purchased materials.

As an example, commodity revenues were down $12.6 million from Q2 FY 2009 to Q3 FY 2010, quite a large drop, while net revenues were down only $2.6 million and adjusted EBITDA was down only $900,000 for the same period. This is a core example of our business platform strategy to minimize the downside exposure and share that with our customers in return for sharing with some of the upside growth as the market returns. Lower revenue shares, higher tipping fees, higher hedging revenues, and lower purchased material costs offset the majority of commodity price declines.

Giving you a little bit of a forward feeling for the Q4, utilizing 1/31/10 data date, holding volume, mix, revenue share, residuals, and hedge portfolio instruments constant through the next three months would produce a year-over-year revenue increase of $3.24 million and a corresponding EBITDA increase of 1.44. So with this example, we're trying to give you an indication that if we used an experienced ACR of $98.7 for the balance of Q4 applied across a constant set of mixed revenues, residuals, and hedge portfolio assumptions, the impact to the Company would be an increase of $3.2 million and an EBITDA increase of $1.44 million against the same period, Q4 2009.

In spite of the deep economic correction in not only commodity pricing but economic activity in all markets, FCR shipped volumes are down only minus 0.4%. And we continue to exploit flat to rising volumes as the economy recovers, communities convert to single-stream recycling, and the external market searches for increased conversion of waste material into recovered programs.

We have experienced a steady growth from between 38% to 41% of incoming recyclables derived through the single-stream product line and we continue to move forward in that in every market, in every opportunity that we have. In MSAs where single-stream markets have taken hold, we are seeing continued substantial market growth. A good example of that is Boston, Philadelphia, Camden. New markets which we will see in the next quarter are Charlotte, Fort Myers, and Stratford.

We recently renewed our MRF contract with Mecklenburg County for 10 years. Mecklenburg County is investing their capital to convert their facility from a dual stream to a Zero-Sort Recycling facility. The equipment vendor has been selected. The plan is to be operational by June of 2010. And in addition, the city of Charlotte has purchased 215,000 95-gallon carts for a citywide rollout. We expect this to be a new and growing single stream market for us.

We recently also renewed our MRF contract with West Palm Beach for four years, and while this facility is a dual-stream facility, it is fully operational and has passed its acceptance tests, and we believe in time that the market will shift to single stream as well.

In Stratford, Connecticut, we are in the final stages of a multi-year contract extension and conversion to single stream. We expect to have this conversion take place during Q2 of 2011 and to begin to experience the benefits of increased single-stream material. Fort Myers has selected a vendor to complete their Zero-Sort Recycling conversion, and we expect that conversion to be scheduled for Q1 2011 and also to produce additional material.

As we mentioned last quarter, we were selected by Concord, New Hampshire, the operator of their Zero-Sort Recycling facility, and we await the final decision in the communities when they would expect to start this facility, but we believe it will occur during the early part of our next fiscal year.

Moving onto US GreenFiber, the management team at Greenfiber continues to do an excellent job in a very difficult housing market. Despite Greenfiber's revenues being down $3.9 million, or 10.7% year over year, EBITDA was only down $200,000, primarily through efforts to effectively flex manufacturing costs and lower SG&A.

They did experience volume declines in all lines of business during the quarter, and on a trailing basis, Greenfiber's EBITDA was $9 million, up $4 million over the previous 12 months. Greenfiber is running approximately at 30% capacity today with new home construction at the 557,000 level and is positioned to grow quite well once the housing market returns, which of course none of us have any forecasts when that will occur.

Looking forward, in the next 24 months Greenfiber expects to benefit from the projected increase in housing starts and the money -- stimulus money that has been created for both weatherization and yesterday's announced Homestar program. In fact, we believe that the Homestar program, which bypasses the local state weatherization assistance programs and goes directly between the residents, the contractors, and the retailers acting in the aggregator, may very well produce $6 billion and convert 2 million to 3 million homes over the next two years, which would be quite a stimulus to US GreenFiber. I think the Homestar program is much like -- think about the Cash for Clunkers, except this is cash for installation.

With that, I'll turn it back to John.

Actually, Operator, at this point we'd like to open the call up for questions.

(Operator Instructions). Scott Levine, JPMorgan.

It's actually Rodney Clayton. First question on the volume side. Effective volumes in the quarter were quite a bit better than we were looking for. Could you, I guess, break that down? The upside? How much of that was just lapping the comps of a year ago versus new volumes coming from some of your contracts?

I think that it's fair to say that the volume increases, some of which Paul pointed out, about 10% was increase in MSW on a year-over-year basis and the balance we had some event work that increased the C&D, and then we did have positive volume increases with the [various] BUD as well.

So, I think that while I think that we are seeing improvement, obviously, I think that some of that improvement is related to event and some of it, obviously, particularly on the MSW side, is a reflection of our decision several, two quarters ago to really go after the volume, and I think we've essentially achieved that goal. And if you noticed, on an overall basis our pricing was down just about what it was last quarter, so no real surprises there.

We've been able to achieve what we wanted to from a volume standpoint and I think, positively now, we are beginning to see pricing move in a different direction. I think that -- I would characterize this as I think that we have hit bottom from a pricing standpoint. And as Paul said, some of the contracts that we've put in place, we are happy with the escalators, and those escalators begin to take effect on some of those contracts, but primarily the major contracts that we put in place, in April of this year.

Okay. And just staying on the pricing theme, you sound a little bit encouraged about that, going forward. But at the same time, you said it's too early to call it a turn in the economy. Is there a stabilization in general, in trends there that's allowing you to get better pricing, or is it something you are doing on your contracting structure or on your sales practices?

I think that there are several things. As I indicated, we made a conscious decision to go to market price, where we have not done that for the last two years, several quarters ago.

By market price, we ended up taking price down as evidenced by the reduction in price this quarter, which was consistent with last quarter, so we did take a different approach from a sales standpoint. We were successful in getting the volumes that we needed at market rates, and now we're in a different situation with the facilities and we're beginning to look at the bottom quartile from a pricing standpoint and begin to move that's, obviously, in a positive direction.

I think that there is some activity, although limited, with regard to -- you know, the economy has certainly stabilized. Things are better, but there is no catalyst out there for real economic activity that we can see at this point in time.

But clearly, it's stabilized, and the other dynamic that we have is that the combination of BFI Canada and WSII is also a positive in the marketplace as well. So I think we're cautiously optimistic that we have hit bottom from a pricing standpoint and we'll begin to see improvement.

Now, obviously, some of that is caveated on what happens from an economic standpoint, and I'm obviously assuming that we're not going to take another leg down. If we take another leg down, all bets are off. But assuming that doesn't happen, we are cautiously optimistic that we've hit bottom from a pricing standpoint.

Great. Very helpful, and then one last one, if I may, on the CFO search, did you say when you expect that to be wrapped up or is it still kind of open?

I didn't say. But I would expect it -- our goal is to really have it wrapped up by the beginning of next fiscal year, which would be May, June timeframe. I did not say, but that is the timeframe that we are executing against.

I think the most important thing, obviously, from a senior management standpoint is to get the right fit and to have the right talent. It's not been for lack of effort, but we do have several candidates, as I did indicate, and I expect that we'll probably have that wrapped up by the beginning of next year, which is May, June.

Corey Greendale, First Analysis Securities.

First of all, I just wanted to congratulate you on getting back into growth mode, and thank you very much for being flexible on the timing of the call. It's really helpful.

Well, listen, we were really glad to do that. We certainly didn't want to disrupt the call that was going on tomorrow because we know how much everyone would really want to participate in our call. So we're happy to do that, Corey.

[Because] you didn't have to, like -- you hadn't scheduled your call for right after the Super Bowl or you would've had to pre-empt Larry O'Donnell's show, so that's good.

Yes, well, we wouldn't want to do that.

Exactly. I also wanted to ask about the new landfill contracts because it's a pretty big swing in volume, so I was hoping you could just talk a little bit more about what those volumes are. Are they municipalities? And where they had been going before you won these contracts?

You know, we can do that without getting into real granularity. Certainly, some of those contracts are municipal contracts. Some of those contracts were actually moving to Pennsylvania facilities, to answer that in general, and then some of that material is, as I said, BUD material as well. And some of it is just a bit of event activity in the Northeast that we hadn't seen in the last couple of years.

So, there is some positive things happening there. And some -- as I said, some of it is municipal, but -- the MSW tonnage, Corey, is municipal. Obviously.

And would you say you got a full quarter impact -- so looking into Q4, for example, would you expect the volume benefit to be --

I think that we got a full quarter impact, yes. We did.

Just for modeling purposes, can you help us understand what the EBITDA contribution of these new contracts is, both now and after the pricing escalator kicks in?

I think that -- that may be something that we could do off-line. The impact, I think it would be reflective of the positive impact that we have had from a volume standpoint.

I think it's really difficult to isolate it out in terms of the specific contracts, though. It's really hard to do that. I don't -- I really don't think that we can do that.

So, we shouldn't be thinking about this the way we think about the increased capacity at Southbridge, for example, when there's going to be a bump up? You're going to be able to kind of highlight resulting from these contracts?

I think that Southbridge is a little bit different because you don't have the mix issue. You're going from MSW to -- excuse me, going from C&D to MSW, so you don't have the mix issue.

There are so many moving parts with regard to the landfill of whether it's BUD material, C&D, MSW, sludge, that it really -- it's really difficult to just make an arbitrary statement as to what that impact is. Whereas with Southbridge, we're just converting from C&D to MSW, and it's a little bit easier to put a -- it's a little easier to give more specific guidance with -- in that regard, which I think that we will -- in all likelihood, as we get closer to that permit being issued, we will try to do that at the end of the fiscal year, give some sense of what the contribution from Southbridge will look like.

Another question for Paul. I think I heard you say that you're going to be centralizing customer service in Rutland. Is that right?

Yes, we have been, Corey. We put that out, I think, in Q2. So we are about -- as I said, we're about 40% of the way through it and we expect to wrap that up at the end of this calendar year.

So, can you just -- evidently, you are comfortable that that's not going to result in less kind of customer satisfaction out in the field and being -- I mean, historically, I also think of secondary markets as being more kind of suited to decentralized customer service. So can you just talk about how that's going to work and why you think that's the right way to go?

Well, we're doing it -- as you pointed out, we are doing it here in Rutland, and that's our first advantage. We're very pleased with that selection.

We're also leaving some virtual capability in our highest revenue markets. For example, Burlington, Vermont, we're leaving virtual agents that are connected through Cisco's Contact Manager into our care center here in Rutland.

So, no, we're actually -- it's actually to the contrary. With the consolidation that we've seen and with the work that we've done around really categorizing customer feedback and aggressively acting for that feedback, we actually think it's going to improve significantly.

Yes, I think that one thing that I would add there, Corey, is the whole -- your perspective is the right one from a legacy perspective.

We had really interesting discussions internally making the move to the customer care center, and the results that we've had show that we're going to be actually delivering a higher quality of customer care across the entire organization, and the premise for which we did that was really driven by increasing our customer care, the interface with our customers, our knowledge base and the feedback from our customers, and increasing the training and the capabilities of our customer care reps to move more towards solution providers as opposed to where we've been historically.

So, the results that we've seen from the efforts that Paul and the team have made have been very, very consistent with a much higher quality of customer care, and that really for us was the driver as opposed to cost. The real driver here is to bring our customer care to a much higher level of performance.

It's really interesting to see it actually work, to come and feel the customer care center, and feel the momentum that we have there in terms of being able to do that.

That makes sense to me. And John, if I could just ask you one more. If -- talking about kind of deleveraging initiatives, could you just speak to your perspective both as the CEO and as a significant shareholder on the possibility of equity sales as a meaning -- as a means to deleveraging, particularly with a stock getting close to $5.00?

Sure. It's a good question. I think we've talked about that a little bit. I think that we had laid out a plan from a deleveraging standpoint. I think that from our perspective, it's important that we execute that plan and that we deliver on the first basket, and that we show that in fact we're going to execute that as we've laid out.

I think -- we have, I think, a good track record over the last two or three years of executing exactly what we said we were going to do, and I think that our sense, Corey, is that we should get some credit from the deleveraging from an equity standpoint that would help us to use equity in deleveraging.

But we did indicate last quarter that at some point in time, it may very well make sense for us to use equity to delever. But we intend to go down the path of executing the deleveraging, show the -- show that execution, and move that process forward. I think that as we do that, then we'll look at what the reaction is from an equity standpoint as we delever and we'll, at the appropriate time, certainly use equity to delever the balance sheet as well.

Bill Fisher, Raymond James & Associates.

Just a quick question for Jim, or maybe just a couple. On the Southbridge, did you say that all the appeals are now exhausted? And actually a second related to that, is there -- you mentioned the 400,000 tons would be maybe end of 2011. Is there an interim thing to get to 300,000 now or are you just going directly to the other?

On your first question, Bill, there were 10 issues that were appealed. Nine of them were completely settled. The one that the court found no jurisdiction on was the make-up of the Board of Health, which is outside of the purview of the Board of Health determination in itself. That issue still kind of lingers out there.

A late appeal was filed on that, to that decision, but we have no indication. And I just would tell you that the Board of Health has operated under their structure since 2005 with many decisions unrelated to solid waste and has never been challenged. So we believe this issue has no appeal as well.

With regards to your volume issue, the overall Board of Health determination allows us to go to 405,000 tons. It's a sequenced program that is triggered by a number of intermediate steps, so we'll actually take two or three years to get there. As soon as we get the 180 at conversion to MSW, which we hope to have that occur at the end of this fiscal year, we then would proceed through the other stages and we would be staging it first to about 300,000 tons and then ultimately to 405,000.

So, we really won't -- receive the 405,000 actual operating number for probably about two years, but we'll immediately start progressing up to that number in a [staged] sequenced package.

Great. One quick one, just on FCR. You went through a lot of single-stream conversions and new facilities. Any sense that -- I think you did 230,000-some tons or so this quarter, what that could look like a year out? Could it be up 10%, 15% in volume or any order of magnitude there?

Well, in single-stream facilities where we are doing conversion and it's a citywide program, we're seeing quite robust growth in every market.

So, our total single stream will increase dramatically because of the conversions I mentioned, and I think we will see a then-corresponding number of tons coming out of those programs. But I would be a little bit cautionary in terms of actually trying to forecast what that is, except that I can tell you that where we've done it in every market before, Camden, Philadelphia, and Boston, as an example, it's grown quite steadily.

Brian Butler, Wunderlich Securities, Inc..

Just to return back to the pricing, the landfill pricing one more time, do you have any color just on the regions on where landfill pricing was? I know you mentioned Ontario was a big primary piece of it. But if you can give a little color about the other regions how landfill pricing was, that would be helpful.

I think that primarily -- as indicated last quarter, Brian, the major issue from a pricing standpoint is the New York landfills. That's where the -- most of the price issues -- that's where that contract went. That's where we increased the volume most significantly. I think pricing really was more driven by the New York facilities.

So can I classify the other areas as stable or are they also down?

I think stable, actually.

Brian, the Central region was up a little bit and the Eastern region was generally flat and the Western region, we saw the price degradation in switching with those new contracts.

That's really helpful. Do you have any details on the escalators? Are those tied to anything specific, like an inflation index? Are they tied to volumes? Just any color on the escalators would be of use. I realize you probably have a lot of them out there, but --

Well, the color is we're really happy with them.

That's good.

We're very happy with them. They're really not tied to inflation. They are specific escalators in the contract, as opposed to tied to some index or inflation index, which I think from our perspective we are very happy with them and I think it's the right thing to do with inflation where it has been historically -- so, well, not historically, for the last two years.

Is there any way that the escalators don't kick in? Or are they -- they definitely kick in?

No, there is hard -- it's by date.

It's by date.

Okay, that's good. And then, I think Corey kind of asked this question, but I'm going to ask it again. Do you know -- have a sense of what the margin impact in the quarter from the mix shift towards the landfill volumes, what that had of that 300 basis points' improvement in adjusted EBITDA?

You know, we don't have that off the top of our head. It may be something that we can get for you, but we don't have that. We don't have it handy.

And then last one was on the recycled prices -- the recycled -- the recycling business. You guys talked about, I guess, an improvement in the recycled prices. I think you said if it got up to $98, that was about $1.4 million in EBITDA. Does that go the same way if prices move the other direction?

I think that -- basically what we've said was -- the correlation is if we take the prices as of January and we have the same mix, the same volumes from a recycling standpoint through the end of the year, our revenue would be up $3.2 million and EBITDA would be up $1.4 million.

So really, what we were trying to do was take the baseline pricing from January and just correlate that out for folks to the end of the year, what would that mean, so that's really what we laid out. So if you take January pricing and you have no changes in the volumes that we collect, no changes in the mix -- in other words, how much PDT versus HDPE versus fiber, etc., no changes in the mix, then we're up $3.2 million in revenue and $1.4 million in EBITDA, and that's simply on January numbers. We did say that February was up slightly from January.

Okay, and where was January? I missed that.

We are just talking baseline January numbers (multiple speakers) where our average pricing was for January.

Eric Glover, Canaccord Adams.

I was wondering if you could comment more specifically on your landfill gas business. How many megawatts do you have in operation now and where do you see that going perhaps in fiscal 2011?

Well, we have three operating facilities, one each located at Hyland, Clinton County, and Pine Tree. And we are in the process of developing a facility for Southbridge and we're in the process of developing on behalf of Steuben County, a facility in Steuben County. Each of those facilities generally are situated in a landfill where there's three engines and each of the engines are generally 1.5 MW a piece. So that's about 4 MW per site, and so it's a total of about 12 MW.

We really have Waste USA where we are getting the gas. We have those other sites as well (multiple speakers) talk about as well.

Right, but they're not facilities that we're actually operating landfill gas. We're just getting a smaller gas payment associated with those.

Right, but all of those facilities have landfill gas to energy, and the facilities that Jim talked about are facilities that we own. The other facilities, we are providing the gas, where in fact Ontario and Waste USA, we're providing the gas to those facilities and getting the gas payment.

Okay, so can we assume that Southbridge and Steuben City come online next year?

Southbridge, we believe will come online in the next year. Steuben County, which is -- the Steuben County home facility, which we're just doing the project management, will come online in the next six months.

Jonathan Ellis, BofA Merrill Lynch.

I wanted to just talk a little bit more about the recycling business. You mentioned the impact in the coming quarter, if mix holds constant, in terms of revenue and EBITDA. I guess my question is was mix in the current quarter in line with where it's been historically or were some nuances in mix in the current quarter?

I would say that mix has been in line with the changes that we've seen over the last year relative to new strengths, volume reductions, etc.. So I think that -- based on where we've been over the last year, I would say that the mix is a somewhat normal mix, Jonathan.

Okay, great. And then, just on the --

One of the things, though, that is important is when you look at OCC pricing, we have limited amount of OCC compared to some of our peers where our OCC coming outside of our solid waste franchise is really coming from the residential stream, not from the commercial stream.

So we have much less exposure to significant tonnage or volumes of OCC, and we do have the risk-mitigation strategy in place where about only 30% of our total OCC floats at market, so we have index pricing, revenue shares, we've really protected ourselves, a hedging program. We are protecting ourselves for the downside which causes us, obviously, to be giving away more of the upside than you might see at some of our peers.

Okay. And sort of a related question, and that is I know you've talked in the past about -- under this risk-mitigation strategy, that at a certain price point -- up to a certain price point, you are sharing in the -- I'm sorry, you're giving up a proportion of the upside and then beyond that threshold, you potentially benefit to a larger magnitude. Can you help us understand, given where we are today in terms of pricing, have we reached that threshold yet where you are going to start be able to -- participating more in the upside?

Yes, I think that we -- that's what we tried to do when we laid out the January baseline. If we just take the January pricing, right, of where we are and roll that out through the end of the year, it's going to increase our revenue and EBITDA from $3.2 million of revenue to -- and an additional $1.4 million of EBITDA.

And maybe the correlation would be if we were to go up 10% from where we are, revenue would be $4.4 million and EBITDA would be $2.3 million. So maybe you can correlate some of that -- some of your question from that answer.

Okay, but to be clear if, I guess, maybe asking a bit differently (multiple speakers)

It's really difficult to answer your question because every quarter, mix is likely to change. You're going to have volume differences, you're going to have pricing differences. You're going to have a mix differential.

It's just -- there are so many moving factors, it's really difficult to answer your question. So when we answer that question, we are keeping mix and volumes the same because a change in terms of aluminum pricing has more of an impact than fiber pricing, as an example.

Jonathan, on your inflection-point question, the problem is that there's probably 200 or so major contracts, and each one of them have a -- potentially have different revenue share points.

So, to actually try to share with you one precise number where things start to shift kind of ignores the granularity of the actual contractual structure, and while we have all those modeled and we can do that, it doesn't lend itself to that kind of simple conveyance that would allow you to kind of say, okay, when commodity prices go up by X, this is what the share starts to shift towards.

So, that's why we gave you the 10% increase as an indication. Not that we think prices are going to increase 10% this quarter, but if they were, that would be the impact. And, again, if the prices are higher at the end of Q4 and prices continue to run, that shift will continue, but it's really hard to predict exactly what it is.

Okay, that's helpful. Just very quickly turning to the landfill contracts that you've been discussing. Can you at least tell us how long do those contracts last on average? I know you said there were several, but what is the typical average duration of a disposal contract?

Yes, sure, they're normally three to five years on a municipal contract. And you know, we would -- when we are contracting other materials, BUD materials or other materials, that we would be doing, trying to do the same thing, Jonathan, three- to five-year contracts.

Okay, and then just my final question is with the escalators that you cited coming in to the spring, would those be substantial enough for landfill pricing overall, for the division to actually be more flat or potentially up year over year? Or is there still too much of an impact from C&D and BUD to actually go flat from a landfill pricing standpoint?

I think that it's going to be a significant driver, but I don't really know. We really can't answer that question because it's really dependent upon what the mix is.

If we end up with more C&D versus more BUD versus incremental, I think that our sense would be, without getting to the specifics and I'm not trying to avoid the question, it's just difficult to answer because of the mix, the MSW pricing and the escalations will have a significant impact and will offset. And I think we'll -- it gives us a bit of comfort in terms of the comment that I made before that I think that we have hit bottom from a pricing perspective. That's really how I would answer that.

Thank you. There are no further questions in the queue at this time. I'd like to turn the program back to management for any further remarks.

Thank you. In conclusion, I would like to simply lay out, obviously, we feel really good about the work that all of our folks have done.

We continue to execute well against all of the factors that we can control. The ops team has really done a great job just about at every level of the organization, looking at how we can do that job better, differently, and how we can position ourselves really as a solution provider as we go out into the future, particularly with customer care. We've done a great job of offsetting the negative economic pressures. Our sales team is doing a great job differentiating our services in the market with our resource renewal offerings, our solutions offerings. And I think that they are going to continue to help us grow profitably.

We've laid out our plan to delever the balance sheet over the next three years. Our team knows what they need to accomplish, and I'm confident that we will meet this challenge as we have met other strategic goals over the past several years.

Thanks for your attention this morning. Our next earnings release and conference call will be in mid-June, when we will report our fourth-quarter year -- fiscal-year 2010 results. Thank you, everybody, and have a great day.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.