Casella Waste Systems Inc (CWST) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Casella Waste Systems first-quarter fiscal year 2011 conference call. At this time all participants are in a listen only mode. Later we will conduct a question-and-answer session and instructions will be provided at that time. (Operator Instructions). As a reminder, this conference call may be recorded.

And now for opening remarks, Mr. Joe Fusco of Casella Waste Systems. Sir, please go ahead.

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; and Ed Johnson, our Senior Vice President and Chief Financial Officer. Today we will be discussing our first-quarter fiscal year 2011 results. These results were released yesterday afternoon. And along with a brief review of these results and an update on the Company's activities and business environments, we will be answering your questions as well.

But first as you know, I must remind everyone that various remarks that we may make about the Company's future expectations, plans and prospects constitute forward-looking statements for the purposes of the SEC's Safe Harbor provisions. Actual results may differ materially from these 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 investors section of our web site at ir.casella.com.

Now I will turn it over to John Casella who will begin today's discussion. John?

Thanks, Joe. Good morning everyone, and welcome to our first-quarter conference call. The purpose today is to discuss and give you insight into the first quarter fiscal year results. I will start with a brief strategic summary.

First of all, rather than giving you an update on our CFO search, we will be introducing Ed Johnson, our new Chief Financial Officer, who 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.

First, I want to start by saying our team continues to do an excellent job winning new business, taking care of our existing customers and improving operating efficiency and lowering costs. Differentiating ourselves through resource transformation service offerings has continued to make a big difference through this protracted downturn in winning new customers and adding value for our existing customers.

While we experienced another quarter of positive revenue growth, we still think that it is too early to say that this growth reflects a sustainable economic trend. The results do reflect strengthening in key parts of the business, especially at the landfills. Revenue growth in the first quarter was mainly driven by gains in landfill volumes attributable to new landfill long-term disposal contracts, new major account contracts and higher recycling commodity prices and volumes.

Volume losses in the collection line of business continued to moderate sequentially, reflecting the success of our targeted marketing efforts and bundled resource transformation service offerings. Solid Waste price weakened sequentially as we anniversaried large pricing increases instituted in the spring of calendar year 2009. We still expect that our pricing will be in line with our fiscal year 2011 price targets, and we've taken concrete steps to improve pricing into the second quarter in the collection line of business. This is a very important goal that needs to be delivered by the entire organization, and I believe that our people have the right tools and incentives to accomplish the pricing targets.

Most importantly, we do see the first quarter not as a surprise, but something that was expected in terms of how we are approaching pricing, the details of which Paul will go through in his part of the presentation to give you a much better understanding of what our expectations are from a pricing standpoint and how that impacted the -- what that meant in the first quarter.

In addition, our landfill pricing improved sequentially as we were able to source new higher-priced tonnages. Landfill pricing statistics will also begin to benefit this fall as we anniversary the market price landfill contract sourced in September of 2009 and begin to feel the benefit of the escalators that are in those contracts. Recycling commodity prices improved again year over year with pricing up for all commodities.

Excluding the gain from the sale of the Cape Cod assets adjusted EBITDA for the quarter was $30.8 million, down $300,000 for the same quarter last year. Adjusted EBITDA benefited year-over-year from higher landfill volumes, the conversion of Southbridge landfill to MSW and cost savings from the operating efficiency programs. As expected, these gains were primarily offset by lower energy prices at Maine Energy and the closure of the Pine Tree landfill, resulting in negative a $2 million year-over-year impact to adjusted EBITDA.

Free cash flow for the porter was $4.5 million, down $700,000 from the previous period driven mainly by higher cash interest costs and also landfill capping costs. As discussed in the press release, we have increased our free cash flow guidance by $3 million for the fiscal year through the reduction of planned growth capital expenditures. The new estimated guidance range is now between $4 million and $11 million for the fiscal year.

I think most importantly as we weighed out previously, we targeted leverage of 3.5 times debt to EBITDA over the next two years to better position ourselves for a major debt refinancing in 2012. To delever the balance sheet, we will stay focused on the same four key initiatives that we launched at the end of last year, driving profitable revenue growth and increasing pricing where supported by the market; executing cost controls and operating efficiency programs; harvesting value from the landfill investments; and divesting of select assets.

During the first quarter, we made excellent progress on the number of key initiatives to achieve our deleveraging goal. I would like to outline a few of the most important.

With the issuance of the MSW conversion permit at Southbridge in late May, our team began to market MSW into the site and has made excellent progress improving the financial performance of the site. We are on track to improve adjusted EBITDA by roughly $1 million for the current fiscal year and we are working on the necessary steps to ultimately increase the permit to the 405,000 tons per year. The value of the air space at Southbridge should begin to increase as other landfills in the state close. We estimate that roughly 35% of the landfill capacity in Massachusetts will be closed by 2014.

In late August, we received a permit from the New Hampshire Department of Environmental Services to expand the total air space at our North Country landfill by over one million cubic yards. With this expansion we now have 10 years of capacity at this site and we can begin to ramp tonnages back to historical levels.

In early July, we sold our Rochester and Cape Cod, Massachusetts transfer and hauling assets for roughly $7.8 million in proceeds, bringing our total divestiture of proceeds to $11.1 million since announcing the program in December 2009. With the assets sold to date generating $1.1 million of adjusted EBITDA in fiscal year 2010, the divestitures have both reduced debt and reduced leverage.

We believe that our strategy to repay debt, reduce leverage is the right plan to drive long-term shareholder value. We are already seeing positive results from our efforts with total funded leverage at 4.4 at the end of our first quarter, down 43 basis points from the peak in the second quarter of 2010. In the near term, our biggest opportunity to pay down debt and reduce our leverage is to sell select assets.

We remain focused on the deleveraging initiative and share your sense of urgency, but as our recent gains on the sales have shown, we believe that we can receive fair value for the assets we are selling by following a disciplined approach. We continue to dedicate significant resources and time to this goal and we believe that we are on track to achieve our deleveraging goals and will continue to update the market as asset sales are completed.

Now with that, introduce Ed for him to go through the numbers.

Thank you, John. Good morning, everyone. I want to start out by saying that I am really happy to be here. I have been very impressed by the professionalism of the management team and by the number of business improvement projects and strategic initiatives under way throughout the Company. Part of the team is working on process and structural improvements designed to increase operating efficiency and customer service and perhaps most importantly, to allow for intelligent yield management, which Paul will provide some color on. At the same time, others are working diligently on our balance sheet issues, evaluating and marketing select divestiture opportunities that will pay down debt, reduce leverage and unlock shareholder value. We are all looking forward to watching this story develop over the coming quarters as the results of these efforts start showing in the financial performance of the Company.

Turning to the results for the quarter, the Company reported revenue of $139.8 million, an increase of $7.4 million or 5.6% from the same quarter last year. Solid Waste revenue was up $2.2 million, primarily due to increased volumes at our landfills and FCR recycling revenue was up $5.2 million due to higher overall commodity prices.

We provided in our release a table showing revenue breakdown by line of business and another table of our internal growth percentages by line of business. This is a new format which I hope you will find informative and easy to follow. You can see in this table that we had positive price growth in collection. The 60 basis point improvement was close to plan for the first quarter but certainly not where we intend to finish the year. The slight negative in pricing on the disposal side is a direct result of a large disposal contract entered into in the second quarter of last year, so we expect that to swing nicely in the next quarter not only from the comparative aspect, but also from escalators in that contract.

We had positive volume growth of 3.6% in Solid Waste operations due both to that large disposal contract and increased special waste volumes. FCR, our independent recycling operations, enjoyed 3.3% volume growth and a 20.7% improvement from commodity prices.

Cost of operations increased $7.2 million and from 66.2% a 67.8% as a percentage of revenue. The dollar increase in cost of operations is primarily due to higher cost of purchase materials associated with increased FCR revenues. In addition, Solid Waste operations incurred higher post and royalty fees on the increased landfill volumes and higher fuel costs. The increase in the percentage of operating costs to revenue was driven primarily by commodity price increases at FCR, which has a pass-through effect raising purchase cost and revenue and from reduced energy prices at our main energy facility, where operating costs are substantially fixed in nature.

General and administrative expenses remained at 12.3% of revenue. Adjusted EBITDA excluding the $3.5 million gain on divestitures came in at $30.8 million, which is 22% of revenue as compared to $31.1 million in the first quarter of last year. The primary EBITDA differences between this year and last year are the closure of the Pine Tree landfill in Q3 2010, the sale of our Cape Cod operations in the middle of this quarter, and reduced energy prices at our waste energy plant in Maine.

By business segment, the EBITDA contributions from Solid Waste operations was $27 million and from FCR, $3.7 million. The adjusted EBITDA margins for our Solid Waste operations was 26.3%, excluding the gain on divestitures, down from 27.1% last year due to the landfill closure. The margin decline is directly related to Maine Energy and the closing of the Pine Tree landfill. Factoring out these items, margins in the Solid Waste operation would have come in at 27.3%.

As mentioned, the rising commodity prices has a diluting effect on margins at FCR so adjusted EBITDA margins for FCR decreased from 17.5% to 13.8%.

Despite higher volumes overall at our landfills, the closure of the Pine Tree landfill resulted in a net reduction in depreciation and amortization expense of $2.8 million. $3.8 million of this was from Pine Tree. D&A went from 14.7% of revenue in the first quarter last year to 12% this quarter. As a result, excluding the gain on divestitures of $3.5 million, operating income increased by 21% from $9.1 million in last year's first quarter to $11 million this year.

Net interest expense increased $4.8 million or 49% to $14.6 million in the quarter from $9.8 million in the prior year first 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 of last year. The average interest rate for the quarter was 10.3% including amortization of financing costs. Net of finance cost amortization, it was 9.3%. Availability on the revolver at quarter end was $95.7 million after taking into account $49.8 million of LCs outstanding.

The provision for income taxes increased slightly to $0.8 million in the quarter from $0.6 million last year. This is primarily state taxes and the impairment effect on nondeductible goodwill. At July 31, the Company had approximately $50 million in federal net operating loss carry forwards, fully offset by valuation allowances on our balance sheet. For the quarter, the net loss from continuing operations was $2.9 million or $0.11 per common share compared to a net loss of the same $2.9 million in last year's first quarter, also $0.11 per share.

Free cash flow for the quarter was $4.5 million and the same amount was used to repay debt. Free cash flow benefited from $7.8 million in proceeds from the sale of property and equipment. However, this was more than offset by higher cash interest of $9.4 million and higher capping and closure payments of $2.2 million mainly from the final closure of the Pine Tree landfill.

We have confirmed our guidance for revenue and EBITDA for fiscal year 2011 and improved our guidance for CapEx and free cash flow by removing certain growth CapEx that has been reconsidered. I want to clarify that the Cape divestiture was included in the Company's guidance for free cash flow. The growth CapEx we are eliminating was not going to have an effect on current year revenue and EBITDA, and we decided to push it out of the current year and focus on debt reduction.

I know that many of you may question why we still have growth CapEx on the budget when our primary goal this year is to reduce leverage. We went through the CapEx very closely this past month and reviewed the items that we felt were discretionary. But most of the remaining growth CapEx relates to Zero-Sort conversions. These specific conversions are considered growth as they will greatly increase our capacity. However, they are not really discretionary at this point because they were tied to Zero-Sort upgrades in progress with municipal customers.

We will continue to review CapEx to see if there are any other potential deferrals that we can make.

And with that, I would like to pass the call over to Paul Larkin for some comments on the operating performance of the Company.

Thanks, Ed. Good morning. Solid Waste revenues were up 1.6% year-over-year, the second consecutive quarter of year-over-year growth. As you will note in our press release, we've enhanced our revenue growth disclosure in this quarter. I would like to run you through a few additional comments on the components of that growth.

Solid Waste price was slightly up year-over-year and was a bit weaker than planned for the quarter. Our collection divisions delivered price improvement of 0.6% as a percentage of collection revenues. Pricing growth was a bit weaker in the quarter in comparison to the last several quarters as we anniversaried large collection pricing increases from the spring of 2009. While collection pricing was close to our plan, we are not happy with our pricing performance, and we've taken three actions to improve it through the remainder of the fiscal year.

After extensive testing, we recently completed the implementation of a systematic customer profitability tool which provides us with the right analytical platform to more effectively target pricing going forward. Secondly, we have adopted a sales commission structure to drive implementation of our profitability tool. And lastly, we increased our environmental recovery fee by 150 basis points to 7.5% on August 1.

While disposal price was down 0.7% as a percentage of disposal revenues, we again experienced sequential improvement from the fourth quarter when disposal was down 1.9%. The landfill price decline was primarily driven by several large new contracts at Ontario County, which were taken at market rates starting in September 2009. As part of those new contracts [in] Ontario, however, we have price escalators in place that have already begun to favorably shift pricing in this market as evidenced in the sequential improvement in disposal pricing this year. We anniversaried the largest contract in Q3, which will help normalize pricing statistics.

Solid Waste volumes increased 3.6% year-over-year, the second consecutive quarter of year-over-year growth. Collection volumes were down 2.6% as a percentage of collection revenues in the first quarter, but overall losses moderated sequentially. We are encouraged with the lead generation and customer acquisition trends coming from our marketing campaigns and our sales team continues to make great progress selling our Zero-Sort Recycling services.

Landfill tonnages were up 12.2% year-over-year excluding the impact of closing the Pine Tree landfill in December 2009. With MSW volumes up 19.9% and C&D and BUD both higher, C&D volumes were driven by special waste streams, a category where we continue to see growth opportunity. Volume growth was in line with our normal sequential seasonal trends. And finally, fuel and oil recovery fees were up 0.6% on a year-over-year basis.

Cost of operations for the first quarter were $94.8 million or 67.8% of revenues, an increase of 160 basis points as a percent of revenue from last year. Solid Waste costs of operations increased 50 basis points as a percent of third-party revenues driven mainly by the loss of operating leverage at Maine Energy resulting from the lower energy revenues and a predominately fixed cost structure, higher fuel costs, and increased direct operating costs at the landfills. Partially offsetting those cost increases, 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 disposal costs.

FCR cost of operations increased 600 basis points as margins were compressed with higher purchase material costs on index-based contracts and higher operating costs as a result of three Zero-Sort conversions during the quarter. With index-based contracts we make a fixed rate per ton for processing so when commodity prices rise, we see margins compress while cash flow remains stable.

Excluding the sale of the Cape Cod assets, Solid Waste adjusted EBITDA margins were down 80 basis points year-over-year. However, after normalizing for the large year-over-year variances from lower energy rates at Maine Energy and the closure of Pine Tree, Solid Waste margins improved 20 basis points, reflecting the operating leverage gains with cost efficiencies.

We are pleased with the continued execution of our fleet efficiency programs and have recently selected fleet lines onboard technology platform to improve driver productivity, streamline our invoice reconciliation while also enhancing communication to our customer care center. We are pleased with the results within our pilot locations, and we plan to roll out fleet [man] across the network over the next two years. We are on track to achieve roughly $1.1 million of cost savings in fiscal year 2011 with this and other fleet efficiency programs.

We continue to execute our customer care strategy, and to date we've transitioned over 50% of our customers into our new centralized customer care center. We are on target to our internal plan, and we are pleased with the results in improving our customer experience, driving revenue growth and also reducing our SG&A. We expect to complete the consolidation by the end of the fiscal year.

As mentioned last quarter, we are in the process of consolidating our back-office operations into a shared service center co-located with our customer care center. We've completed the integration and automation of our cash application processes and we expect to complete the collections process by the end of October.

In summary, our sales and marketing teams have done a great job returning us to revenue and volume growth. We are pleased with our lead generation and our customer acquisition strategy and the returns over the last quarter. We are also excited about the customer feedback coming through the customer care network and the continued improvement of the customer experience.

Finally, while we are not satisfied with our collection pricing, we have put the right platform in the hands of our field team and we are on target for achieving our full-year pricing objectives.

Jim is going to walk you through a summary on development activity.

Thanks, Paul. Good morning. FCR's commodity prices were higher year-over-year for the quarter, and this is clearly consistent with the overall commodity markets. However, pricing has began to sequentially weaken a little bit in this quarter and we do expect a continuing softening through the balance of the year.

Gross commodity prices per ton increased 58% year-over-year. More importantly however, net revenues per ton were up nearly 4% same quarter last year reflecting our risk mitigation programs that share with the customer a portion of higher commodity prices in exchange for long-term stability and protections combined (technical difficulty) volatility.

Our risk mitigation strategies continue to work well, dampening the volatility of commodity pricing and helping us to maintain stable EBITDA. Our core strategy is to maintain the stability in EBITDA while seeking additional volumes, particularly through Zero-Sort conversions.

FCR's ship volumes were up 2.7% year-over-year and up 5.2% sequentially, a great indication that the Zero-Sort conversions are offsetting the continued weakness due to the soft economic environment and reduced consumer activity.

Commodity prices and support volumes are going to continue to track the economy. With the lack of economic growth, they look to be soft for the balance of the year. We believe that particularly ONP will be a challenged commodity over the next two quarters.

On the development front, we continue to make good progress. John mentioned that we received very important additional permit issuance of the North Country landfill in New Hampshire in August. This extends the life of the site by approximately 10 years, producing about one million cubic areas of additional capacity. As you know, this is a facility we have owned since 1996. It has produced very good results for us. It is fully amortized and we will continue to produce over the next 10 years good EBIT returns.

The Southbridge landfill development following the issuance of the 2008 site assignment remains very much on schedule to achieve full permitting authority to reach 405,000 tons. The construction of the new access road is nearly complete. We expect trucks to begin using the road in late October. Utility installation will be completed by the first quarter of the calendar year and that will enable us to then initiate and complete the design of the landfill gas to energy project at the site and break ground on that facility first quarter 2010 -- first quarter of 2011 with the facility expected to be operational by next summer.

With operation of this facility, we will meet our next condition to raise our permit authority to 300,000 tons, an operational increment required by the permit. We will then proceed to achieve the 405,000 tons authorized on the site assignment, and we will submit those key permitting authority applications late this year and early next year.

Our Zero-Sort recycling conversions initiatives continue very successfully, particularly those where we've been able to work with our host communities and do that and funded by those municipal partners. Mecklenburg County, as you know, its Charlotte Zero-Sort conversion was completed in late May. There was a grand opening hosted by the city, very successfully accepted by the overall communities and the city has now completed a citywide delivery of 95 gallon carts, and we've seen over the last 30 days tremendous volume improvements as a result of that initiation.

Ann Arbor, Michigan Zero-Sort conversion was completed in late July. We expect increased capacity and significant additional reach to remove areas of that market as a result of this.

And finally, the Fort Myers' Zero-Sort conversion was also completed in early August and we expect to see incremental volumes building into those facilities in the next quarter. As I mentioned earlier, all three of these projects were funded by municipal partners.

Moving on to US GreenFiber, the management team at GreenFiber continues to do an excellent job in managing their business during a very protracted downturn in the housing construction industry. Revenues were down $3.7 million or 17% as was EBITDA was down $2.6 million. Lower volumes and higher fiber prices continued to negatively impact this result although raw material costs have stabilized and begun to weaken.

We have experienced modest volume increases in some of the segments, and we are hopeful that as this housing industry finally finds the bottom, that we will see and be positioned to take advantage of it. Within the industry we think that GreenFiber's edition position for substantial growth when housing does start -- starts do return, the current housing market rate of 550,000 of business has been appropriately right sized for manufacturing capacity and the team has done a very successful job of downsizing the remaining cash flow positive during the entire housing downcycle. Business continues to appropriately follow pricing activity currently underway in the market following material price increases instituted by the fiberglass industry over the past three to six months.

With that, I will turn it back to John for his comments.

Thanks, Jim. Karen, could we open it up for questions now?

(Operator Instructions) Corey Greendale, First Analysis Securities.

This is [Stephen Gregory, Mandalay Research]. A couple of things. A few months ago there was an article in the Wall Street Journal, companies in your industry are looking to move everything to e-commerce and improve their e-commerce growth initiatives for the upcoming year. So my question is how are you guys looking to add new e-commerce growth initiatives for 2011 as some of your competitors have already started initiating, and how do you plan to sell more goods and services online?

I think clearly we have a marketing program that we've instituted over the last two years in particular where we've done an awful lot of work from a search perspective to incorporate landing pages for each of our divisions, activity in terms of search engine activity on different words and to really position the business from an e-commerce perspective. So I think we have an ongoing program. That program has been fairly successful in terms of we are very pleased with the activity that we've seen from those marketing programs, and we continue to move that forward pretty aggressively.

I guess (inaudible) addition, you guys are currently using [Waste Secure] and I hear they are doing very well with you. Are you guys ever looking to bring that in-house to actually provide more value to your shareholders rather than outsourcing to someone else and bring it in house and use e-commerce to actually improve value and return growth to the bottom line?

Well, I think that there is no question that in order to have the biggest impact in the shortest period of time, outsourcing some of that activity makes a great deal of sense. Over time obviously you would look at the dynamics of that in terms of that spend and make the determination on the basis of the benefits that are being provided from that particular consultant. So I think that remains to be seen, but clearly we believe it was the right move out of the box to have as big of an impact, get as much moving from an e-commerce perspective by using a consultant.

Okay. And final question is as we go into 2011, a lot of analysts are forecasting a double-dip for the economy. What is your biggest challenge for the Company? How do you plan to overcome that challenge to take Casella to the next level?

Well, I think that the challenge that is in front of us is to delever the balance sheet. We've articulated pretty clearly what our plan is there in terms of delevering the balance sheet. The senior management team is clearly focused on delevering. And we are going to achieve that target over the next two years as we've laid out historically.

So I think the most significant issue in front of us is to execute our strategy to delever the balance sheet. Relative to the economic reality, I think Paul and our team has done a terrific job, as well as folks throughout the Company in every aspect of rethinking the model, whether it is our routing, our fleeting, our transportation, it's our shared services, our customer care.

So we are rethinking every aspect of the model to really enhance the performance of the base business but from a practical standpoint the real issue for us is to delever the balance sheet as quickly and as effectively as we can.

Thank you very much. Congratulations on a good quarter.

Michael Hoffman, Wunderlich Securities.

I hope it is cooler in Vermont than it is here in Virginia.

I suspect it is. It's a pretty nice day.

We are going to be 100 degrees today. Balance sheet. Just remind us when the current bank agreement goes current again.

I believe that is 2012.

(inaudible) the senior secured revolver matures on December 31, 2012, so it will go (inaudible) on December 31, 2011. And the Term Loan B matures in April 2014.

Okay, so from a practical basis, part of this initiative has to be completed really the material -- a material step in delevering well before or certainly before you go current on 2011 on that one portion so you are in the strongest position to negotiate with your banks. Is that a fair observation?

It is a very fair observation, and I don't think that there is anything more important than delevering the balance sheet and doing that with a clear sense of urgency. Obviously we set a target, Michael, in terms of getting that done. But the sense of urgency around getting delevered is very clear, and it is a focus where we are putting the resources to it and I think that it is a fair perspective in terms of the sense of urgency around getting it done.

I do think too though the one other point obviously is that we need to get it done and we certainly understand that, and I think the results of the divestitures that we have done so far indication of our ability to get the divestitures done and get them done at a fair price.

Scott Levine, JPMorgan.

Good morning, guys. A quick overview or maybe a little bit more color regarding the macro backdrop throughout your footprint. Your volumes did come in a bit better than we expected, down a little bit sequentially with out micro-analyzing sequential changes. Could you talk may be broadly about the business climate, the backdrop and any notable variances throughout your entire Solid Waste footprint during this quarter?

I think that Paul will give a little bit of color on the lines of business as well, but I think in general we still see the business clearly stabilized and moving in the right direction. We've had great success with regard to getting a larger portion of the volumes that are in the area in the market from a sales and marketing standpoint with regard to the disposal capacity.

So I think just from a general perspective, business models stabilized probably six months ago. We continue to see that stability and we also continue to see slight improvement in terms of overall activity from a rolloff perspective. And Paul may --

Rolloff was in Q1 quarter to quarter was flat, and we were pleased with that. We are most pleased going into August that we are seeing both the temp and the perm increase. And we think that that is going to continue. We are very pleased with the marketing efforts that we've put overall. John mentioned the e-commerce at the start of Q&A. And we are seeing a nice return on those. So August has been a pleasant surprise for us on a roll off continuing what we saw through the latter part of Q1.

Jonathan Ellis, Bank of America.

Thank you. The first question I wanted to ask, you mentioned some higher priced tonnages that created a benefit at the landfills during the quarter. Can you just give us a sense are those part of longer-term contracts that are in place now -- were those transitory benefits in the quarter? Help us understand how those higher priced wage streams may influence your reported pricing in future quarters.

Some of that is from higher priced contracts, and some of it is from special waste, Jonathan. So some of it would be event driven, but some of it is also from higher priced contracts that we've been able to secure for the facility by the sales and marketing team.

Okay, thank you. That's helpful. And just on the escalators that you referenced with respect to the Ontario County contracts, can you give us some sense how much of a swing that would be on reported landfill pricing in the second half of fiscal '11?

Yes, the swing on those contracts is approximately 4%.

And correct me if I'm wrong, but those contracts account for somewhere between 10% to 15% of your third-party disposal volume?

That's correct.

Okay. Great. Just have you seen from a competitive standpoint any irrational behavior from waste energy plants in the market given where natural gas prices are?

Quite frankly, no. I think that the normal cycles that we see from a waste energy perspective, we expect to see in terms of the seasonal aspect. So I don't think that we've seen something, anything as yet that is a direct impact from natural gas pricing.

I suspect if we did, it would be a positive because I would think that with energy rates down it would cause tip fees to be rising. So if there were an impact, I would suspect that that would be a positive impact for us in the marketplace.

Michael Hoffman, Wunderlich.

Sorry, I didn't finish what I was asking. So with regards to the deleveraging strategy, clearly to get to a place to get you into a competitive bidding position with your banks, the asset sale issue is pretty paramount. Can you, without -- I get you might not be able to talk about specifics, but can we talk about how quickly we can get some of this done from this point forward? (multiple speakers) saw what's happening in the market. Is private equity showing up? Or is the bidding environment seeming to be more vitality in it? Things like that.

Sure, first of all, I think that it is fair to say that we -- from the negotiation with our banks we know at this point in time, Michael, that the real issue for us from a deleveraging standpoint is to really drive shareholder value. And I think from a bank perspective obviously the banks are very happy with us, and we can refinance the balance sheet at any point in time that we want to. The real challenge for us is the only way we are going to create shareholder value is to delever the balance sheet. We understand that. We understand that that needs to be significant, and I think we were very clear on the last conference call that all assets are on the table that we are looking at what it will take to deliver the targets that we set out. And obviously we understand what the criteria is with regard to the existing credit facility and what the timeframe is.

So while we may have a conservative two-year window from an execution standpoint with regard to the divestitures, we certainly have a much higher sense of urgency in trying to get that done much quicker than that. And as I said before, last quarter we made it clear that we are looking at everything. Our goal and what we are going to execute against is delivering the deleveraging of the balance sheet.

Fair enough. So in the context of being able to do that and maximize value, are you seeing a more attractive selling environment to do that (multiple speakers) are more bidders showing up?

I think being disciplined and being not in a position where I think the Cape asset is a really good indication. The first offers that we had for those assets which caused us probably an additional three-month period of time to sell those assets were about half of what we ended up getting for those assets. So I think that our disciplined approach in the marketplace is going to pay dividends. At the same time, we are going to execute the strategy.

So I think we are seeing nice activity on loss of assets. We've got a number of things that are ongoing at this point in time. So I think that there is no question in our mind as to whether or not we will be able to execute the strategy.

Okay and then last question, Maine Energy, I believe you have anniversaried the task force formation where everyone was coming together within the state and local community trying to work out a solution. Without a solution in hand, is the state getting a little more amicable about giving you the free way to revisit a strategic sale?

That was really more a town issue than it was a state issue. Certainly we would have to get approval there but it is both a town and a state issue. So I think we also were pretty clear last quarter that we are not anticipating in what we've talked about so far that we will get through the issue and incorporate Maine Energy into the deleveraging strategy. We had said last quarter that because of the political issues around the facility that we were looking at executing the deleveraging strategy with or without Maine Energy.

John Zaro, Bourgeon Capital.

My questions were already answered. Thanks very much. But I do like your guys' focus and concentration on getting value for all of us shareholders. I appreciate it.

Absolutely. You know, we've laid out that plan, and as we have done before, we laid out a plan to add disposal capacity, and we did. We laid out the plan to delever to refinance the balance sheet. We got that done in a very difficult situation and now we've laid out a plan to delever the balance sheet, and we need obviously to get that done. And we certainly have a sense of urgency of getting it done as well.

I think if you get a couple of larger sales under your belt like you did with the Cape and then we get the negativism out from the analysts on pricing because the market gets a little better I think it will be fine. So anyway, thanks very much.

Corey Greendale, First Analysis.

Good morning. You can actually hear me this time, huh?

We can hear you.

Excellent. Thanks. I'm not sure what happened before, but first of all not to be one of those analysts focused on pricing but can you just -- I heard in your script at one point I heard something about the Q1 price performance was what you expected. And then I heard something else that it was weaker than expected. Can you just clarify that? (multiple speakers)

I will take that initially. I think that the Q1 pricing was very close to what we had expected. It was slightly below but it was not that far off what we had expected. If you go back a year, we had very significant price increases last year that we were coming off of and rather than simply go through our customer base inordinately without a lot of discipline in terms of understanding profitability, what Paul and the team has done is we put together a pricing profitability tools that was done at the beginning of the quarter. It was executed at the end of the quarter, and I think our approach from a pricing perspective is much more disciplined and I think we are owing to have much more success with it throughout the rest of the year. So I think clearly slightly below what we had expected but not far. And maybe you might want to add to that, Paul.

Just another way to say it is we knew this was something that we wanted to get much more laser like in our approach in terms of a plot form. We built it. We thought it was going to take through Q1 to finish it. It did. So that's not the pricing we want, but the platform is in, and our performance was slightly below where we expected it. I think that is really the summary of it.

Okay and the environmental fee that you discussed, what is the timing of rolling that out? I think you said it was a 150 basis point increase. Can you just help us understand how that (multiple speakers)

It's already done. That was done as of August 1.

Okay and 150 basis point increase -- just how does that flow through if you -- the impact on overall core volume -- excuse me, core price growth, what does that translate to on a reported basis?

On an annualized basis, I believe it is about $900,000 on an annualized basis.

Correction. 900 for this fiscal year, it is 1.2 annualized.

Okay, good. That helps. And then I have one to ask you about GreenFiber specifically. What -- and I understand they are kind of managing through a very difficult time. What do you want to see there before you would look to monetize that, and if it doesn't hit the benchmarks that you think would make it sufficiently attractive in the deleveraging window the couple of years that you are talking about, do you think that you can get to your target even if you don't monetize GreenFiber?

I think that it is fair to say that, as I said before, all assets are on the table, Corey. So I think that fortunately the GreenFiber management team has done a terrific job of rightsizing the business for the revenues they have. They have done a terrific job of customer interface. They are really performing very well and in a very, very difficult obviously housing environment. And as Jim said, they are cash flow positive which is an indication of the job that the management team has done there.

So I think that we are looking at, as I said before, all assets. So I think that we, our sense is that clearly the management team has done a really good job in a very difficult period.

And just one last quick one if I could. I think you mentioned that you changed the commission structure for your sales force. Can you just quickly describe what you changed? And are there any other changes and incentive comps anywhere else in the organization?

Sure. That was part of this overall holistic approach to get much more laser like in how we are examining customer profitability. That change went in at the same time that the new platform was rolled out. And essentially it shifts our sales team to a much more profit oriented approach than we have in the past.

And any other changes incentive comps elsewhere?

No.

Thanks, and welcome, Ed also.

Thank you.

Eric Prouty, Canaccord.

Thanks a lot. Just a quick question with a longer-term perspective. We've read recently about Cleveland attaching some chips to their cards to track recycling etc. Obviously you guys have been involved with the recycle bank for some time. How are you seeing technology kind of transform this fairly traditional business? And is this going to necessitate any sort of change or alteration in the business model going forward?

I think that clearly from our perspective, as you know, we have been out in front of the resource optimization strategy with regard to the overall industry. And I think that it is clearly our perspective that over time the waste stream will in fact be utilized either from the standpoint of supply for manufacturing or from an energy perspective. It is our belief that over time we are going to see that happen. And I think that innovation and technology will become more of a factor as you have more optical sorting, you have more technology looking at the waste stream trying to create a valuable feedstock for manufacturers or from an energy perspective. But again, that is over time I think that is likely to be the trend.

Great. Thanks, John.

Thank you, sir. Does not conclude your question for today? I would now like to turn the conference back to Mr. John Casella for any further remarks.

Thanks, Karen. Just in conclusion, we continue to execute well against the factors that we can control. We've done a great job of offsetting negative economic pressures with operating programs that improve productivity, asset utilization and also our disciplined efforts from a pricing perspective. I think critically important, particularly in light of the fact of where we find ourselves from an economic perspective and where our customers find themselves. So I think our disciplined approach is going to pay real dividends.

The sales team is doing a great job differentiating our services in a market with unique resource renewal offerings. These efforts are helping us to grow profitable revenues. We've also laid out a plan to delever over the next two years. We know the sense of urgency. Our team knows what they need to accomplish and I'm confident that we will meet this challenge as we've 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 early December when we will report our second quarter fiscal year 2011 results. Thank you everyone and have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may now disconnect. Everyone have a good day.