Casella Waste Systems Inc (CWST) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Casella Waste Systems first-quarter 2012 conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session, with instructions following at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

Now I'd like to turn the call over to Joe Fusco. Please begin.

Thank you for joining us this morning, and welcome. Our group for today's discussion includes -- John Casella, Chairman and Chief Executive Officer of Casella Waste Systems; Paul Larkin, our President and Chief Operating Officer; Ed Johnson, our Senior Vice President and Chief Financial Officer; and Ned Coletta, our Vice President of Finance and Investor Relations.

Today we'll be discussing our first quarter, fiscal-year 2012 results. These 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's Safe Harbor provisions. Actual results may differ materially from those indicated by those forward-looking statements, as a result of various important factors, including those discussed in our prospectus and other SEC filings.

In addition, any forward-looking statements represent our views only as of today, and should not be relied upon as representing our views as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change. And therefore, you should not rely on those forward-looking statements as representing our views as of any date subsequent to today.

Also, during this call, we will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in the financial table section of our Earnings Release, which was distributed yesterday afternoon, and is now available in the investor section of our website at www.IR.Casella.com.

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

Thanks, Joe. Good morning, everyone. Welcome to our fiscal-year 2012 first quarter conference call. Our goal today is to discuss the first quarter, update you on our midterm strategy. I'll start with a brief summary, Ed will take us through the numbers, and Paul will run through an operating summary.

But before talking about the quarter, I wanted to touch on Hurricane Irene. First, our thoughts and prayers go out to the families that tragically have lost loved ones. Thankfully, all of our people are okay. Our people worked hard on Thursday and Friday to prepare for the storm, around the clock over the weekend to man pumps, move equipment, and berm facilities. And thanks to their hard work, our facilities and equipment were unscathed by the flooding. We were up and operational 7 AM on Monday morning at our customer care facility, fielding a number of calls to provide service for a devastated Northeast. In the short-term, the damage to regional infrastructure will impact our truck routing and ability to service certain customers. However, we are prepared. Our facilities, equipment, and people are ready to serve existing and prospective customers as the region rebuilds.

Overall, I'm very pleased with our performance for the quarter. In particular, our division management teams did a great job on the pricing front, as we began to see positive results of a year of hard work by the entire organization. It is never easy to change the culture of a business, but I believe that our team now clearly understands their part in accomplishing our goals to increase free cash flow to over $20 million in fiscal-year 2013, reach profitability, and decrease our leverage below 3.5 times.

Our multi-year strategy remains consistent, and is focused on executing in the following areas. Improve pricing and profitability of our customer relationships. Improve our cost structure and service performance. Harvest value from our landfills. Reduce our cost of capital by refinancing the expensive second lien notes in 2012. Also, continued expansion of our service offerings to provide economic and environmental solutions to our customers, while improving our profitability.

I want to touch on a few highlights from the quarter before handing it over to Ed and Paul to get into the details. Our goals to improve pricing and service performance overlap in many ways. As I described last quarter, the new pricing programs that were rolled out over the last fiscal year were accomplished by structural changes in how we are organized internally, and what our division teams spend their time doing. Our objective was to concentrate the focus of our local management teams on just a few important things -- managing pricing yield in their markets, servicing our customers at the highest level, and developing their people.

The waste business is fundamentally a local business, and we have begun to find that our local managers were focused on many internal responsibilities that were taking their time away from managing their markets. It is easy to say to a division manager to spend more time on pricing, spend more time on yield from your market, but until we made the changes to our organizational structure, we really didn't begin to see the results.

The biggest driver to our success in the first quarter on pricing initiatives was the leadership within our divisional management teams. They have embraced our profitability strategy, customer profitability tools to balance yield and volume. Lastly, the success of both our customer care center and shared service center has allowed them to spend more time directly with our customers.

Historically, as we grew the business through acquisitions, we kept the decentralized model for customer care and other back-office functions. Last year, on completing our customer care center integration, we began to build out our shared service center, and the process of centralizing these important functions. This effort has gone very well, and we currently have all of our customer care, collections, cash applications centralized. And we're in the process of consolidating additional back-office functions such as accounts payable and accounting into the center.

By moving these responsibilities out of our divisions to a centralized location, we freed up time for our managers to focus on driving their markets, improving the profitability of their book of business, and better aligning our service offering with customer needs. As a result, we've improved our sales performance, reduced our back-office functions at our divisions, and reduced costs.

On the landfill development front, we made good progress this quarter, as well. On August 4, the New York DEC Commissioner granted our request to increase the annual tonnage limit at Chemung landfill from 140,000 tons a year to 200,000 tons a year. We expect the DEC staff to issue the permit modification in the next 30 days. And this is obviously very good news.

We will begin ramping up tons through the remainder of our fiscal year, on track with our planned expectations in our fiscal year guidance. The Chemung landfill is a well-positioned site with a transportation cost advantage to many upstate landfills for MSW from New York City, and its proximity to the Marcellus shale drilling activity in northern Pennsylvania.

The efforts to expand our Southbridge annual permit from 180,000 tons a year to 300,000 tons per year remains on track. During the quarter, we installed a small landfill gas energy facility at the site, and we're working to complete the electrical interconnect. We expect the interconnect to be completed in the next month or 2, and the permit to be increased by our third quarter, as reflected in our fiscal year guidance.

And with that, I'll turn it over to Ed who will take you through some details on the numbers.

Thank you, John. Good morning, everybody. I want to start out by saying that we were all pretty happy with the quarter. We are making progress, and feel we're on track to build a Company that can produce consistent earnings growth and sustainable cash flow. I will get into a little more detail about that after I go through some of the financial highlights.

Revenue for the quarter came in at $127.2 million as compared to $122 million in the first quarter last year, a $5.2 million increase. Last year's number includes about $1.3 million in revenue from divested operations. And this was mostly offset by revenue from acquisitions, primarily the McKean landfill.

We generated $5.8 million in new revenue from price. About $3.6 million came from recycling commodity prices, a 34% increase. $1.2 million came from collection pricing, a 2.4% increase. The remaining $1 million was spread between landfill, major accounts, energy production, and recycling collection prices.

On the landfill side, there were 2 large long-term contracts entered into 5 years ago when prices were much higher, that expired prior to the quarter, and that distorted the pricing comps. To give you a better idea of where we are currently with our pricing, our landfills yielded 1.5% from pricing, excluding these contracts.

Solid waste volumes were relatively flat overall, with $200,000 in new revenue, while commodity volumes were down $1.2 million due to some temporary volume in the comparable period that we were processing for a competitor while they were building their own processing capability. Excluding that volume from the prior year, commodity volumes would have been positive.

Commodity prices are set by an efficient international commodity market for recycled materials. And we have little influence over them except to make sure we continue to provide top quality, clean materials. Landfill pricing is somewhat under our control, and I'm happy that we have been able to maintain price discipline without too much loss in volume. The collection line of business is where we have the most control. And we have successfully implemented the pricing tools and strategy to allow our divisional management teams to treat pricing as a core process. What we mean by this is that the local market focus has shifted towards a steady program of managing yield from their book of business on a continual basis.

Our disposal revenue includes long-haul transport to the landfill where we provide a T&D, or transport and disposal, service for certain customers. This type of business grew, which is why our volume numbers for disposal are positive. But overall tonnage at the landfills was down 8%, or 94,000 tons. The shortfall was from special waste jobs, primarily contaminated soils, which we believe is related to municipal and state budget constraints.

Cost of operations for the quarter was $85.2 million, up $3.9 million from last year, or 67% as compared to 66.7% of revenue. The higher operating costs, particularly as a percentage of sales, has to do primarily with revenue mix. The incremental tons lost at the landfills are very high-margin tons. And certain uncontrollable costs. Paul will go into a little more detail on the cost of ops, and what we anticipate going forward.

G&A expense for the quarter was $16.2 million as compared to $15.9 million. The slight increase has to do with the movement to a shared services model, as in the short run we were increasing headcount at our shared services center, but have not yet seen the benefit in the field. As a percentage of revenue, we improved from 13% last year to 12.7%. Depreciation and amortization of $14.5 million is down $1.1 million from last year's number, due to the lower amortization of [air] space on lower landfill volumes.

That brings us to operating income of $10.3 million for the quarter as compared to $12.7 million last year. Excluding the 1-time gain we booked last year on the sale of the Cape assets, and the unusual legal settlement charge we took this quarter, we improved normalized operating profit from $9.2 million to $11.3 million.

The tax provision is always difficult to explain. As we continue to be in a negative taxable income position, we are required to record a deferred tax liability under GAAP for the goodwill amortization we take on the tax return that we do not record for book. But are not allowed to use our tax loss to offset that liability. That is why we have a positive tax charge on a negative pre-tax income. Taking out all the unusual items, we reported adjusted EBITDA of $28.7 million, up from $27.8 million last year.

We are ahead of our expectations, and have confirmed our guidance for the year. We look forward to reassessing where we are at the end of the second quarter, but feel it is prudent to leave the guidance where it is this early in the year. As John mentioned, it remains our intent to call the high yield notes next July. And the cash interest savings, coupled with the cumulative effect of our yield management program, is expected to get us to profitability and boost our free cash flow to over $20 million in fiscal 2013. Other factors are in place to allow for growth in cash flow through fiscal 2015.

I mentioned at the beginning that we are happy with the quarter, and feel it puts us in position to produce more consistent, long-term earnings growth and sustainable cash flows. The key factors that give me the confidence to make that statement have to do with the way we have changed our focus and our discipline as a management team. Firstly, we have successfully implemented a yield management program, changing the culture of the Company and providing the tools to allow local management teams to focus on continual improvement in each market that we operate.

Secondly, we are continuing to streamline overhead costs, moving to a shared services model, and making our field management more responsive and flexible to changing market conditions. Cost savings have not shown up yet, but the progress is on track. And thirdly, we are recognizing the strategic value of our well-placed landfill and recycling assets, sticking with our price discipline, and preparing for what we believe will be an attractive disposal market in the next few years.

On this last point, I realize that we've often talked about the strategic positioning of our disposal assets, without really giving a lot of detail as to what we are thinking. Casella has always been a leader in the path to zero waste, and has a significant position on the forefront of recycling, and to support the sustainability goals of our customers. We remain committed to this long-term direction, and continue to find productive and economic uses for recyclables, organics, sludges, and other types of discarded material. But we also have a significant investment in low-emission landfills. What we are finding is that these landfills are well placed to not only provide capacity during a long transition period towards zero waste, but also as a solution for new volumes that did not historically require landfilling.

In New York and Pennsylvania, our landfills are well situated to provide the lowest cost solution for drill cuttings. Regulations are driving other types of materials, such as fly ash, to proper internment in aligned and controlled landfill. In Massachusetts, we have the only expanding landfill in a market where landfill capacity is scheduled to decline by 34% by 2014. We anticipate similar dynamics in other markets in the next few years. These factors lead us to believe that our air space will increase in value, and, coupled with our sustainability solutions, will lead to improved margins and cash flows going forward.

One last comment on the balance sheet and our leverage position. Growing earnings and cash flow are fundamental, and will reduce leverage in the long run, but we are still looking at strategic possibilities to speed this along and get us to our 3.5 leverage target. We continue to work on various potential projects, but have nothing to report yet.

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

Thanks, Ed. Good morning. Solid waste revenues were up 2.5% year-over-year, driven by higher solid waste pricing, higher pricing in our processing operations, and slightly higher volumes. Solid waste price was up 1.5% year-over-year, in line with our expectations for the quarter. Our collections division delivered price improvement of 2.4% as a percent of collections revenues. As mentioned, we're making great progress with our pricing programs, with collection pricing rising throughout the spring from 0.1% in January to 1.7% in April to 2.8% in July. And we're seeing general market acceptance of these increases, and we are again pleased with our performance in August.

In our fiscal-year 2012 plan, we targeted approximately 2.5% for price for our collection businesses, and flat pricing at our landfills. With the collection price increases completed to date, we are on the right path to achieve our fiscal year goal, with roughly 65% of the annual price increase complete.

Disposal price was up 0.4% as a percentage of disposal revenues, with MSW price per ton up 1.7%, and C&D price up 1.2%. Spot pricing was even stronger at our sites. However, since we calculate landfill price as a change in average price per ton, this metric includes price changes and mix changes.

In April, we reindexed our fuel environmental recovery fees, and rolled the existing fees into base customer pricing. These fees had reached roughly 22% in April, with the steep climb in diesel prices. Reindexing the recovery fees has allowed us to increase customer participation rates to more fully recover fuel inflation. Solid waste volumes were up 0.2% year-over-year, with collection volumes flat, disposal tonnages down, and processing volumes up 3.4%. Volumes are tracking to the low end of our fiscal year plan.

After the record rainfall across the Northeast in March, April, and May, our volumes began to increase in June and July. Our typical seasonal uptick was delayed by several months until the muddy roads dried, construction jobs resumed, and the clean up began from the devastating floods and storms. Our roll out pulls were up 1.1% during the quarter, with gains driven by our successful online marketing efforts, and catch-up from the delayed spring. We had the strongest June in the last 5 years for EBIT and a EBITDA margins, and profit dollars, as a result of the great work by our divisional management team in effectively managing yield in this line of business. Despite this increase, the overall industrial segment remains quite sluggish.

Landfill tons were down 7.7% year-over-year, with MSW tons up 5.3%, and C&D tons up 2.7%, while special waste volumes were down year-over-year. The lower special waste volumes occurred at several sites, with soil down at 1 landfill, as expected, due to the nesting of protected birds, while several other sites had top year-over-year comps. Most special waste tons are event-driven, and last summer was a very strong period for these materials.

Recycling commodity prices were higher year-over-year, with net commodity price per ton up 26.6%, with strength across all classes of commodities. The robust commodity pricing decreased slightly over the past few months, with fiber pricing off 1.5%. Recycling commodity ship volumes were down 4.5% year-over-year. Excluding 1-time tonnages in the first quarter of 2011, tonnages were up 7.7%, far outpacing GDP growth in our market. During the first 9 months of the last fiscal year, we received incremental volumes at our western Massachusetts recycling facilities from a New York market that was constructing a new MRF. When this facility came online over the winter, we stopped receiving those volumes.

Our cost of operations for the quarter was up $3.9 million year-over-year, with margins compressed 30 basis points. We drove down our direct labor cost by $1.1 million, as the result of our fleet and operating efficiency programs, while maintenance and facility costs were down as a percentage of revenues with heightened operating leverage. We are especially pleased with the continued efforts of our entire organization in finding smarter ways to run our business. The results speak for themselves as direct labor is now down 180 basis points as a percent of revenues from fiscal-year 2009 to this past quarter.

Rising diesel prices resulted in $1.5 million higher fuel costs year-over-year, with substantially all of the inflationary pressure offset through the reindexed fuel and oil recovery fee. The historic rainfall this spring resulted in millions of gallons of additional leachate at the landfills, which added approximately $900,000 of additional cost in this quarter. Leachate costs in May and June were roughly 3 times the cost levels from last year. By July, these costs had come down to roughly 1.5 times last year's levels. In the recycling business, higher commodity prices resulted in a $1.1 million higher purchase material costs.

We're very pleased with the performance of our team through a very tough operating environment this spring. We continue to execute against our customer care, collection pricing, marketing and fleet efficiency strategies. And our success is reflected in this quarter's numbers. These are lasting structural changes that we believe will continue to yield positive results for the Company.

At this time, operator, I think we would like to open the lines for questions.

(Operator Instructions) Scott Levine of JPMorgan.

It's actually Rodney Clayton here for Scott. So first, looking at your volumes, can you give us a sense for how much of the uptick came from some of the more recent landfill initiatives you had versus any macro trends that you might be seeing in the business?

Generally speaking, I think it's really driven by the effort from our sales team as opposed to macro trends from an economic standpoint. We're truly not seeing a great deal of activity from an economic perspective. Steady, stable, certainly moving in the right direction. But nothing from a trend perspective that we would characterize as significantly positive, Rodney. It's really more the effort that we've made from our team's perspective with regard to special waste and really driving the sales process as opposed to economic activity.

And the 2 contract expirations that you mentioned. I guess the answer to this question is no, given the timing. But were those losses related to some of your more recent pricing initiatives at all?

No, they really had nothing to do with that. If you are aware, landfill pricing came down in this market a few years back and these contracts predated that decline. This was back in '08, '09. And so when these contracts rolled off, then the volume that replaced it was at the market rate. So it's misleading to look at those and get an idea of how we're actually pricing on a short-term basis. So, taking that out we had 1.5% in price growth on the landfill pricing.

So you didn't lose the contract. It's just the contract renegotiated?

No, that's correct. That's exactly right.

And then I appreciate the comments on the hurricane, and glad to see you all made it through that safe and sound there. Can you give us any sense from maybe a quantitative standpoint in terms of what you expect the impact to the business to be from the difficulties that you'll have from a service standpoint?

I think that because of the efforts of our people, because of the preparation going in, because of the tireless work 24/7 over the weekend, we're prepared to now be in a position, as I said, 7 o'clock, open the customer care center. Which was in the floodplain, by the way. Open the customer care center, and we're servicing our customers right now. So from an impact standpoint in terms of our ability to serve our customers, there's really no impact to us from that perspective.

From an infrastructure standpoint in terms of being able to get to our customers, that's an impact yet to be determined. I think people are moving forward. FEMA, the state and local governments, roads are beginning to get repaired now. But there is significant devastation from a transportation. There's still communities that are cut off. So it's going to be rerouting and it's going to take some time. But my sense is that it's a matter of weeks to get roads back open. Not fixed, mind you, but get them back open. Several weeks, some of the roads should be reopened. Some of them probably won't be fixed for months, the way that they need to be on a long-term basis, but they should be able to get roads open and travelable within a few weeks period of time. So I think that, fortunately for us, and again because of the work of all of our people, we're prepared to be a part of the rebuilding process and helping all of our customers and new prospective customers clean up.

Bill Fisher of Raymond James.

John, I just want to follow-up on that last thing. Would there be any opportunity, or would you be able to move any roll-off assets from other regions that weren't impacted into that region?

It's a great question, Bill. We've already begun to do that. Our advanced team has already begun, with maintenance, with division managers of those areas that were more highly affected, we've already begun to move roll-off trucks, roll-off equipment and men from other areas of the Company that were not impacted. So that's exactly what we're doing. That plan is already in place and we've begun to execute it.

And maybe on that, has there been any precedent since you've been there, on would the state ever lift a temporary volume cap at a landfill if there was a debris clean up?

We've already proactively gone to the agencies. And I think that certainly there have been emergency lifts in the past for storms that were not as devastating as the one that we just went through. So I don't think that there's any issue there. Obviously, we have to go and do that. Our environmental permitting and compliance folks are in the process of doing that, not only with regard to landfills but with regard to transfer stations, as well.

And just last thing, you mentioned obviously Southbridge and Chemung. You were hoping to get $3 million to $4 million of EBITDA this year? Or do you have that figure handy?

That's exactly right. I think what we had laid out, Bill, was $3 million to $4 million for the next 3 years as we build out those facilities.

Corey Greendale of First Analysis.

I'm glad everyone is doing okay there. I was hoping to understand a little bit better given -- first of all, congratulations on the progress in the quarter. Given the progress on pricing, I just want to understand a little bit better the dynamics between what's being done in the field and what's being done centrally. So actually if you don't mind I'm going to throw out an example. Let's just say there's a municipal bid coming up, or a rebid, and it looks like you think competitive bids are going to come in 10% below the current level of a current contract. Do people in the field, then, have the ability to price at a level they think is appropriate to maintain that business? Is there central control of that or exactly what's the process?

With regard to the landfill, pricing there is central control. There's central organization in really high concert with the division and region managers. So clearly, the ingredients are in place from a plan perspective with regard to pricing so that there is no question that we have the right answers for those questions. I think the 2 contracts that came off are the exception as opposed to the rule. I wouldn't want you to go away thinking we have a book of business -- those were very large contracts that Ed mentioned before. And we don't have any other contracts that are as significant and that go back as far as those 2 particular contracts did, Corey. So we really don't have anything else in our book of business that is as significant as the 2 contracts that we talked about this quarter.

I'm more just trying to understand theoretically how you're viewing the balancing act between maintaining existing business and continuing to raise price. And if there's a chance, if you think you're going to have to lower price to maintain a certain piece of business.

I think we really truly have been disciplined with regard to both collection and on the landfill side. So I think that we're not of a mind set that we're in a situation where, from a competitive standpoint, volume is more important. That's not what we see in the marketplace and not a perspective that we have from a senior management standpoint. It is a matter of balancing the yield, price and volume from the market. And that is an issue that the entire team has to balance. But we're not going after volume at the expense of price at this point in time, and we don't really see that across the marketplace at this point.

I think the other thing that's important is that obviously you all know that for the last few years we've not gotten price, and I think we've been able to demonstrate that we have the capability to do that. We're moving in that direction. Our team is really focused on yield from the market, doing the right things in terms of getting ourselves to profitability. So I think we're seeing a real opportunity here in terms of moving that model in exactly the direction that we've laid out, which is to get to profitability.

Do you happen to know about what percent of your revenue base is tied explicitly to CPI?

Very small, very small amount. I would say that it's probably less than 10% that's tied to municipal contracts that are tied to CPI.

And the other question is, I think in your initial guidance you had assumed that commodity prices weaken as the year progresses. Is it fair to assume if commodity prices stay at the level they're at, there could be upside to the guidance?

That's correct. Our guidance assumes that for the rest of the year that commodity prices contract. That's how we budgeted. We didn't budget the high commodity prices that we experienced the beginning of the year throughout the course of the entire year. We actually budgeted a bit more conservatively with regard to commodity prices so we have them going down throughout the rest of the year.

Michael Hoffman of Wunderlich Securities.

To clarify on Irene, and not to be maudlin about this, but when disasters happen as tightly and concentrated as they do, you tend to benefit more than you have negatives because of the clean up afterwards. So there's more likely to have a nice volume uptick from this than it is a cost pressure.

There's no question that that's the case, with the devastation, with the amount, particularly as it relates to flooding. Wind -- high winds is really a lot of tree damage, power outages, things of that nature. Flooding is a lot of damage to homes and businesses which increases volume, obviously. That needs to be cleaned up and disposed of.

And then on the 2 contracts that came off, that pre-dated the landfill pricing pressure, to make this clear, did those reprice at a high above the old low? That pricing pressure that happened took pricing down pretty low. It's started to recover.

That's exactly right, Michael. Those contracts priced above the low but they were off significantly from where they were priced 5 years ago. So, they were a longer term contract but they were significantly above the low for sure, absolutely.

That's the important trend. The trend has been improving even though it's off of an old high. You're coming off of a high, you're not at the bottom anymore either.

That's exactly right.

And then can you help us a little bit with -- I appreciate reaffirming guidance, let's really wait for Q2 to see because that's your seasonally strongest period. Can you help us a little bit of how to think about the pattern of free cash flow across the 4 quarters to hit the, call it the mid point of your guidance of 2% to 7%?

Yes, definitely. The pattern in most waste companies is when you start your fiscal year and you have your capital approved, that's when all the projects get released, especially on the landfill side. And with Casella, we have a seasonality on the landfill construction. It's got to be done in the first 2 quarters. So our CapEx is always highest in the first 2 quarters. When you look, there's a table in the press release that compares to the free cash flow from this year to last year. I just want to point out that there's $7.8 million from the sale of the Cape assets in last year's number. Without that number, we're very consistent year to year. So we certainly expect negative free cash flow in the first quarter. Second quarter could also be negative, if not breakeven. And then the third and fourth quarter the CapEx budgets run low.

If you thought about how you would assign -- we're talking about $55 million, you did $14 million-and-change. So do another $14 million to what in the second quarter and then it drops to --?

Yes, the landfill construction tends to go through October.

Okay, so should we be thinking about the same kind of $14 million to $15 million in the second quarter?

Yes, I think so.

And then cash flow from operations, do you have a sense of what you think that number will look like for fiscal '12?

No, I don't off-hand. That's another point that has some seasonality to it, at least speaking to the quarter. Whereas our spring revenue increases so our receivables go up. But hold on just a second. Yes, our free cash flow from operations is looking to be about $67 million to $68 million for the fiscal year.

Which definitely means you get a little help from working capital this year then. That's one of the other things that seems to be working in your benefit.

Yes, it should.

And then lastly with regards to timing, at this juncture all you have to do is to phase into the grid this 1 operation at Southbridge, stick that permit underneath the DEP's nose in Massachusetts and you're done, right?

I wouldn't quite characterize it that way, Michael, but close. All we have to do is get the facility up and operational, which we're in the process of doing now. We should have the interconnect done in the next month or so and we are done. The permit is issued subject to the landfill gas to energy facility being up and operational. So it is formality but formalities with the agencies are still unpredictable. But we're very confident in terms of where we are right now.

Okay, so does the storm disrupt the planning of the phasing in to the interconnect?

No. Well, I shouldn't say that. Certainly the resources are going to be stretched. It may cause some delay but we don't anticipate it at this point in time. We think that we can get that work done and there should be enough outside contractors if, in fact, we have to go that way to support whatever needs to be done.

Okay. And then New York City is finally getting into a place where they have real bids out for permanent long-term contracts for disposal. Are you all able to bid for that now that Chemung has had the modification?

We are able to bid with that, not only with Chemung, but with our other facilities, as well. Keep in mind, we've got Hakes and Highland there in the southern tier. And the Ontario facility can also access that waste from a transportation standpoint.

So are you participating in that bid proposal?

Yes, we are.

And is your thoughts the timing of that is a '12 event by the city -- calendar '12 event?

I believe that's the case, yes. At least the information that we have right now, yes.

That's what we've been hearing from other sources, as well. I was just wondering if you were hearing the same thing. And then given the sell off in the market and your thoughts about trying to use development opportunities as another way to accelerate delevering, where is the mind set of sellers at this point? Because multiples have compressed across the industry or the markets broadly. Do they get it or are they all trying to --?

I think they do. I think there's a lot of activity at the tuck-in level, Michael, small tuck-in acquisitions. They're struggling and I think that we're going to see, at least from the transactions that we've been able to do at a small level on a truck-in basis only, the pricing is favorable at this point.

Kevin Lee of Wedbush Securities.

On the volume front, obviously Q1 volumes up 0.2%, especially in the solid waste operation. Just thinking going forward, Q2,obviously on a year-over-year basis comps look a little more challenging. Is there something in the pipeline that you guys are seeing that gives you the confidence that you guys can achieve the volume guidance of positive 1% to 1.5% for the full year? Or is it more so just a function of the expansion capacity that could be coming online in the back half of this year?

Yes, I think the guidance that we actually gave was 0% to 1% volume. The 1.5% was on pricing, I believe. So, I think as we said earlier, I think that we're very happy with what our landfill team has been able to do in conjunction with the region and division managers in terms of going after those opportunities that we see from a disposal standpoint. We'll continue to execute that strategy. I think that, clearly, as I said, we're seeing things stable from a volume standpoint. And obviously volumes are going to kick up with regard to the reality of the devastation from the storm.

John Zaro of Bourgeon Capital.

My questions have all been answered. Thanks very much. Congratulations.

Eric Prouty of Canaccord.

John, maybe you could just go over what we should be expecting for the shale waste for the remainder of the year, looking at it both sequentially. And maybe comparing it to how the volumes flowed last year.

I think right now, we're steady with regard to the shale waste on a sequential basis. We're down a little bit from last year as there has become much more activity in the Marcellus. But some of that is driven by the weather events and the drilling getting reactivated, and people really getting going again. But we're also expanding our service offerings to the oil and gas industry so that we can take care of more of the opportunities that face them such as sand coming in. Using our facilities as a staging area for sand going back to the wellheads. Also we're looking at process water. So we're looking at a number of things that we believe will make us much more sticky with the oil and gas industry in terms of providing a larger number of services to them. But sequentially, what we're seeing is we think that the tonnage is going to be the same. Unless we see significantly more drilling activity increase, Eric, we're expecting that for the rest of the year, we expect volumes sequentially to be about where they are now, which is down slightly from last year. And obviously we think in the next year or so that there's a good possibility that drilling will start in New York. And when that does happen, some of the estimates that we've seen are 2,000 wells year for 15 to 20 years. So I think that there's a significant opportunity on a go-forward basis. Right now we've projected our drill cuttings to be flat for the rest of the year.

And then John, you were talking about some of the other alternative waste streams that you might have an opportunity to get. Maybe just take a couple of them. You mentioned Flash for instance. Are these waste streams something that will take legislative action to send them to landfills? Or what are you seeing out there in the markets right now, with the few specific examples?

There's a couple of things. First of all, there's a growing activity from those folks who have got industrial boilers where we're seeing a movement in the marketplace, driven somewhat from the regulatory environment. But I don't think it's going to necessarily take regulatory change in order for that material to move into Subtitle D facilities. So there's a lot of activity around industrial boilers, material that has not historically gone into landfills. And then there are other opportunities that Paul will take you through with regard to organics, as well.

You probably know we've got a large organics business. And without getting into the weeds on the question, there is significant opportunity there. Some of that's coming out of New York. The earlier question with sludge, there's sludge available up in Canada. And our organics team is actively out looking at those waste streams. We're strategically positioned, as was mentioned, to handle those. We're prepared to handle them and they're doing a nice job. So there's a growing need. Toronto, New York, for example, don't want that material landfilled any longer so they're looking for solutions and we're right on top of it.

(Operator Instructions) George Deming of Deming Investments.

A couple of general questions. One, I just wondered what you really worry about the most in your basic business at this juncture. And then secondly, I'd appreciate a comment on stock buybacks since your stock price is still quite depressed and also a bad debt experience.

I'll take the latter 2 first. The bad debt experience, we've seen our day sales go up a little bit. But we just have been in a transition in terms of bringing that into the shared service center so we think some of that is attributable to that. We're going to work hard to bring that down over the next quarter or so. Our folks are working on it right now but we have seen it increase a little bit. But we're on top of that now. We'll get that squared away over the next quarter. We're not seeing a lot of stress there. I think, as I said, it's probably more because of the transition that we went through. As far as stock buyback, unfortunately our balance sheet is not in a position where we could really do anything from a buyback perspective. It certainly wouldn't be allowed within our covenants anyway within our existing credit facilities. So that's not something that we would do. And what was the third question, George?

I just wondered what you worry about the most in your basic business. If anything keeps you up at night, what is the 1 factor that affects your basic business?

I think the 1 factor that affects our basic business that concerns us the most is the direction that we're taking in Washington, and whether or not we're going to come to grips with the structural deficits. Because I think that it's truly the driver from an economic standpoint in really getting the economy moving again. So I think that's the 1 thing that I worry about consistently is whether or not we can get our act together from a Washington perspective to move things. Having said that, our people are doing a fabulous job in really working the opportunities that are in the marketplace. We're beginning to fire on all cylinders from a price perspective. We're getting our fair share of the volume. So I'm really pleased with the activity, having said what I said. But I think that, truly as a nation, we've got to get our house in order from a budget standpoint. And we also have to get some energy policy in this country. So those are 2 things that concern me.

Alan Mitrani of Sylvan Lake Asset.

You said you haven't yet really seen the cost savings from some of the labor cuts you've made as your centralizing some of the AP and AR and cash collection. But when do you expect those to kick in?

We expect those to kick in before the end of the year. As you build up the shared service center, you're adding people and you obviously have a number of those folks who are still in the field. I think that we have seen the early stages of that, and over time, we'll see the benefit of the cost reductions over the next couple of quarters.

And how many employees do you currently have versus maybe a year ago?

Versus a year ago, we're probably, I think we were about 1,800 a year ago, we're about 1,700 now.

That excludes the divestiture, correct?

That's correct.

And where do you expect that to be? As you continually centralize some of the services, are there more cuts that are coming in?

We really haven't talked about that at any high level. I think that it's fair to say that we will continue to move in the direction of becoming more and more efficient at the things that we do. And we have that plan in place and we're going to execute against that plan. And it's likely that we will, as I said, in the third and fourth quarter begin to see the benefits of that.

Dean Graves of Standish.

Two questions, 1 to follow-up on the prior question. To the extent you're comfortable could you give us some area of magnitude with respect to the expected savings from moving the shared services? And then second question, with respect to your pricing initiatives, can you give a sense for where you are in that process? How many accounts have been reviewed, pricing change, or whatever internal metrics you use to gauge where you are within that process?

I think that it's fair to say that our sense is that there's probably another $1 million to $1.5 million worth of savings that will come out of the third and fourth quarter.

And then with respect to the pricing initiatives, can you give us a sense for where you think you are in that process and what kind of progress has been made and what's left to be done?

Sure. Basically, where we are right now is we're on our plan but we think we have quite a bit left to be done with regard to pricing. As I said earlier in the conversation, we really haven't gotten price over the last 2 or 3 years. I think that bodes well for us at this point in time, to be able to execute that strategy and do that in a manner that we're able to maintain the book of business, as well. So I think we have a lot of work left to do from a pricing standpoint, we're at the early innings. We've had some great success this quarter, our team's done a great job. We're on our plan, we're really pleased with that, but there's still a lot of work left to be done from a pricing standpoint.

There are no further questions in the queue right now. I'd like to turn the call over to John Casella for any closing remarks.

Thanks, Tyrone. In closing, I want to restate that it has been an interesting challenging few days in the Northeast. We are grateful our employees are safe and healthy. Our thoughts and prayers are with those of our team and our customers in communities who have suffered loss, either life or property. I want to also thank everyone on our team for the work done to prepare for and anticipate the challenges presented by the Hurricane Irene. We truly have the best team in the industry. We'll be asking our people to use their great problem-solving skills in the coming weeks as we play a role in helping our current and prospective customers rebuild their homes, businesses and communities. Their focus, creativity and hard work will remain exceptionally important to achieving great results through service and productivity. Paul, Ed, and I will be asking them, too, what we can do to help them make their jobs easier. Thanks, everyone, and have a great day.

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