Casella Waste Systems Inc (CWST) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Casella Waste Systems Incorporated fourth-quarter 2015 earnings conference call.

(Operator Instructions)

As a reminder, today's conference call is being recorded. I would now like to introduce your first speaker for today, Joe Fusco, for opening remarks. You have the floor, sir.

Thank you for joining us this morning, and welcome. With us today are John Casella, Chairman and Chief Executive Officer of Casella Waste Systems; Ed Johnson, our President and Chief Operating Officer; and Ned Coletta, our Senior Vice President and Chief Financial Officer.

Today we will be discussing our 2015 fourth quarter and 2015 full-year results. These results were released yesterday afternoon. Along with a brief review of those results, and an update on the Company's activities and business environment, we will be answering your questions, as well.

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. 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 website at IR. Casella.com.

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

Thanks, Joe. Good morning everyone, and welcome to our fourth-quarter 2015 conference call.

We were very pleased with our fourth quarter and our FY15 results. Ned will go through the numbers in detail in a moment, but first I would like to recognize that these strong results are a testament to Management's commitment and continued execution against our key strategies, all despite ongoing head winds from lower recycling commodity prices and lower energy pricing.

We hit the upper end of our adjusted EBITDA guidance, and exceeded our free cash flow guidance for FY15. If you remember, we first issued FY15 guidance all the way back in June of 2014. Since that point, we've raised our free cash flow guidance. I would also like to note that the first quarter of 2016 is off to a solid start, driven by continued positive pricing and volume trends, and a more normalized winter helping to maintain more consistent levels of economic activity and operational efficiencies.

Three years ago we laid out a comprehensive strategy to improve our financial and operating performance. We have diligently followed and executed against that plan, as our results demonstrate. Pursuant to that plan, we've re-focused the Company while simplifying our business structure. We've reduced risk exposure by either divesting or closing operations that did not fit within this strategy; and have re-focused Management attention and capital resources on our core operations and strategic business initiatives.

Going forward, we plan to continue to focus on increasing landfill returns, driving additional profitability at our collection operations, creating an incremental value through resource solutions, and reducing financial and operational risks while improving our balance sheet. We are confident that our focus on the core operations will continue to drive improved performance and increase free cash flow, enable us to continue to de-lever our balance sheet.

In mid-August we introduced our multi-year plan and announced financial targets for FY18, including adjusted EBITDA targets of $122 million to $132 million, a free cash flow target of $30 million to $40 target, and total debt to EBITDA target of 3.5 -- I'm sorry 3.25 million to 3.7 times debt to EBITDA.

Our plan is focused on driving pricing, volumes, and operating efficiencies through our current asset base. It does not include any acquisitions or new development projects, nor does it contemplate a recovery of recycling commodity prices, energy prices, or the construction market to help drive achievement of these financial targets. We believe that this plan is achievable, and our execution over the last three years, clearly demonstrates our ability to execute and drive sustainable growth. Further our FY16 budget is in line with the multi-year plan.

As the Northeast disposal market continues to tighten due to the permanent closures of various competitor disposal sites, we further advanced our landfill strategy during FY15 with higher pricing and increased volumes. In FY15, we increased the total landfill volumes by 133,000 tons per year through our focused landfill sales strategy, building our special waste capabilities, as well as our landfill asset positioning in the market place.

In addition, we increased average price per ton at our landfills by 3.7%, as we advanced our focus on landfill pricing in select markets, and improving the mix of customers and materials at key sites. We expect these positive trends to continue for the next several years, as disposal capacity constraints become more acute across our footprint, and we remain focused on executing against our disposal strategy.

Further, we received two import landfill permits that will help us to drive additional value. In mid-January, we received a minor modification in our Highland landfill to expand the annual permit limit from 312,000 tons per year to 465,000 tons per year. This permit expansion provides us with an opportunity to further grow our landfill platform in western New York at one of our lowest-cost sites.

In late January, the Ontario landfill received its final permit for a 15.7-million-cubic-yard expansion, which creates an additional 13 years of air space. The performance of the Ontario landfill was negatively impacted in FY15 as we approached the end of our permitted capacity, and had to limit our in-take of high-value special waste trains while we incurred heightened operational costs ti effectively manage the site. With this new permit, we received an immediate vertical expansion which will help us get the site back to historical financial performance by late-year 2016 or into year 2017.

We continue to make great progress on our second major strategy, improving profitability of our hauling operations. Our focus here is on core blocking and tackling, namely a focus on pricing programs, route optimizations, fleet standardization, which Ed will discuss in greater detail.

The disposal capacity constraints in the northeast markets are also providing a positive backdrop for us to advance price increases in the collection line of business. With disposable pricing across our markets increasing above CPI, haulers are experiencing higher inflation on disposal costs, which is the largest cost line for a hauler. As such, haulers are in turn advancing pricing to their customers to offset this inflationary pressure.

Within the context of this rapidly improving market place, we have continued to advance hauling price increases in the residential and commercial lines of business, with only limited price roll-back. In the fourth quarter, combined residential and commercial collection pricing was up 5.6%, the strongest pricing execution that we have experienced in the last 10 years. We have forecasted positive pricing trends to continue into FY16; however, we do expect pricing to moderate from these levels.

As part of our comprehensive hauling strategy, we have developed a plan designed to simplify our fleet and target prep replacements to maximize returns. We are in the second year of our five-year fleet plan, and we believe that this plan will reduce our operating expenses through lower maintenance costs, improve our capital efficiency, and improve our service levels through decreased down time.

Our effort in this area was muted in FY15, as we experienced significant delays with new truck deliveries. As such, in FY16 we pre-ordered the majority of trucks, and took the delivery of most all of our new trucks in the first week of January, giving us a strong start to 2016.

Moving on to the third major strategy, creating incremental value through resource solutions, here we differentiated ourselves in the market place by offering value-added resource solutions. These solutions range from our customer solutions group, which provides professional services to large industrial customers, to our organic business that is the leader in organics processing and disposal in the northeast, to our market-leading recycling business.

Our customer solutions groups continue to improve margins and returns through the FY15. Adjusted EBITDA margins improved by 100 basis points on continued operating and G&A leverage, despite commodity pricing head winds in much of the industrial services group. Lower recycling commodity prices remained one of the largest challenges, in we believe, opportunities facing the solid waste industry today.

The slowing global economy, lower oil prices, and strong US dollar weighed heavily on paper, OCC plastic, and metal pricing through FY15. We experienced a 19% decline in average commodity revenue per ton in FY15, which resulted in an $8.8-million decline in recycling commodity revenues.

However, we did not sit by idly and hope that the markets were going to recover. We have taken concrete steps to earn an appropriate return on our recycling investment through all market cycles. This effort has included the implementation of higher tip fees at our recycling facilities. Another critical step that we've taken is the introduction of our new sustainability recycling fee, or our SRA fee. The SRA fee is similar to a fuel surcharge where it floats inversely to changes in recycling commodity prices. The implementation of the SRA fee has gone very well, with the fee now rolled out to all target collection markets with minimal roll-back. Our efforts have worked extremely well, and I'm proud to say that we maintained flat operating income in the recycling business in FY15, despite the significant head winds that we faced from commodity price standpoint.

This solid performance is a testament to our entire team, and their effort to act quickly to re-shape our recycling model, implement the SRA fee, and educate -- most importantly, educate our customers about its importance in assuring that we can continue to offer recycling services and invest in the necessary recycling infrastructure. Also, we continue to make progress improving our balance sheet and reducing operational and financial risk. We have simplified our business by divesting and closing under-performing and non-core operations. Further, with the refinancing of our senior credit facility in 2015, our next major debt maturity has now received subordinated notes due in 2019.

FY15 was an important year for Casella, as we delivered positive free cash flow and began to pay down debt and reduce leverage. In fact, since the first quarter we have reduced our total debt by $23.6 million, and reduced our average leverage by roughly 2/3 of a turn.

We are well positioned for the future, and we are committed to a disciplined capital investment strategy, with free cash flow primarily used to re-pay debt, or in selected instances we could consider small tuck-in acquisitions, and grow investments within our core operations.

We continue to execute extremely well against the strategic plan that we laid out three years ago to improve our financial and operating performance. We are devoted to operational blocking and tackling, with a focus on pricing strategies at the local level, improving our operational efficiencies, and disciplined capital allocation. We believe that these actions will further improve the Company's performance, and allow us to continue, most importantly, to de-lever the balance sheet going forward.

With that, I will turn it over to Ned to take you through the financials.

Thanks, John.

Revenues in the fourth quarter 2015 were $140 million, up $6.5 million, or 4.9%, year over year. Solid waste revenues were up $7.5 million, or up 7.7% year over year in the fourth quarter, with increase mainly driven by higher disposal volumes, higher collection and disposal pricing, partially offset by lower processing price and volumes, lower fuel surcharges on lower diesel prices, and lower energy pricing and volumes in the landfill gas to energy business. Revenues in the collection line of business were up $3.2 million year over year in the fourth quarter, with prices up 5.3% and volumes up 0.6%.

Our pricing programs in the commercial and residential lines of business continued to strengthen through the fourth quarter, with pricing up 5.6% year over year, marking our strongest marking period in 10 years. We also advanced stronger pricing in the roll-off business, with pricing up 4.8% in the fourth quarter, as we tested elasticity in select markets with strong volume trends, as we experienced an unseasonably warm fall and early winter in the northeast.

Revenues in the disposal line of business were up $5.2 million year over year in the fourth quarter. Roughly 55% of this increase came from strong volume growth at our landfills, with landfill tons up 72,000 tons year over year in the fourth quarter, with strength at most sites and across most waste categories.

A portion of this growth was driven by the unseasonably warm late fall and winter, with C&D tons up roughly 30,000 tons year over year. Further, as we discussed over the last several quarters, the remainder of the disposal revenue growth mostly came from higher revenues at the transfer station and in the transportation business, driven by several new transportation and disposal contracts initiated over the last year.

With C&D contracts, we typically subcontract the majority of the transportation work, and as such, revenues are grossed up to cover the increased cost of transportation a customer's waste from a transfer station to a landfill. Total cash flows improved from these additional tons for our landfills, although these additional pass-through costs slightly compressed solid waste adjusted EBITDA margins.

We increased our overall average price per ton at the landfills by 3.1% in the fourth quarter, as we continue to cycle out lower-price customers, and improve customer and waste mix. We expect these same positive pricing trends to continue into FY16, as we plan further pricing increases in key markets.

Our total landfill volume were roughly 1.2 million tons in the fourth quarter -- as I said, up 72,000 tons year over year, despite head winds at the Ontario landfill.

As you recall, several years ago we set a landfill strategy. We said we would source an additional 350,000 to 500,000 tons per year to our landfills. We continue to execute extremely well against this goal, and we actually are up 790,000 tons annually since we set that goal, which has driven adjusted EBITDA by $17 million.

In the period, recycling revenues were down $700,000 year over year, with the decrease driven by lower commodity pricing, with our average commodity revenue per ton down 25% year over year in the quarter. This is almost across all categories, with lower fiber pricing, lower plastics, and lower metals pricing, partially offset by higher tipping fees at our facilities and higher volumes.

Organics and customer solutions revenues were down roughly $300,000 year over year in the fourth quarter, driven by lower volumes in the organic business and the customer solutions lines of business. During the fourth quarter, our revenues were roughly $300,000 lower from the divestiture of low margin [hauling] reps.

Adjusted EBITDA was $27.8 million in the fourth quarter, and margins improved 150 basis points to 19.8%. With revenues up $6.5 million, and adjusted EBITDA up $3.4 million, that gave us flow-through impact of 52%.

Solid waste adjusted EBITDA was $28.3 million in the fourth quarter, up $5 million year over year, after neutralizing for any changes in the allocation of inter-company management fees. This correlates to a flow-through benefit of 65%. Hauling adjusted EBITDA was up $3.4 million year over year, with margins expanding 425 basis points. Disposal adjusted EBITDA was up $1.6 million year over year, all of this partially offset by lower performance in the energy and processing lines of business.

Solid waste adjusted EBITDA margins were 26.9%, up 300 basis points year over year, reflecting strong pricing coupled with cost efficiencies. Lower fuel costs benefited margins by roughly 110 basis points. However, lower energy prices and higher inter-company recycling tipping fees were a 100-basis-point head wind in the period.

Recycling adjusted EBITDA was $1.2 million in the fourth quarter, up $600,000 year over year, with higher tipping fees to both third party and inter-company customers offsetting the lower commodity pricing.

Adjusted EBITDA was negative $1.7 million in the Other segment, down $2.2 million year over year. This decline was primarily due to higher G&A costs, partially offset by gains in the customer solutions business.

Cost of ops in the fourth quarter as a percentage of revenue is down 260 basis points. Ed will run through this in more details in a bit.

G&A costs in the fourth quarter were up $3 million year over year, mainly driven by $1.1 million of proxy contest expenses, and $1.6 million in higher labor and bonus accruals. G&A costs in FY15 were up as well, with the majority of this driven by the proxy contest costs in the year.

During the fourth quarter we recorded a $1.9-million contract settlement charge that related to a favorable pending settlement of an obligation at our Juniper Ridge landfill. We estimate that this settlement will save us over $33 million over the next 18 years. Further, during the quarter we recorded a $1.8-million non-cash charge related to the impairment of two historical cost method investments.

Free cash flow was positive $8.7 million in the fourth quarter, and positive $20.2 million for FY15, driven by higher operational results, lower capital expenditures, and several asset sales. We continue to use our excess cash to repurchase on the open markets, and permanently retire our high-cost 7.75% senior sub notes due in 2019.

During the fourth quarter, we repurchased an additional $5 million of the bonds, bringing our total repurchased bonds to $14.7 million in FY15. As we've previously described, our ABL revolver allows us to pay down junior debt, as long as we maintain a minimum-threshold availability on our revolver.

Paying down the 7.75% senior sub debt is a great capital allocation decision, because the interest cost on the senior sub notes is roughly 5% higher than the interest cost on the revolver, enabling us to accelerate free cash flow generation and debt repayment. We plan to continue to repurchase and retire senior sub notes in 2016, and we have already repurchased another $4.2 million of the bonds in January.

On December 31, 2015, our total debt to EBITDA was 4.75 times, down from 5.43 times on March 31, 2015, or down 0.68 times in nine months. We remain focused on further reducing leverage, and as we laid out in our multi-year plan we announced back in August, we're targeting leverage of 3.25 to 3.75 times by the end of 2018.

Our efforts to improve our operating performance, reduce risk, and improve our balance sheet have not gone un-noticed. Last week, Standard & Poor's upgraded our corporate credit rating from B- to B, and our issue level of ratings by one notch, bringing the rating on our senior sub notes to single B. This is the third increase on this rating for this debt in the last three years.

In our press release yesterday afternoon, we announced guidance for FY16 by estimating results in the following ranges: revenues between $550 million and $560 million, this is compared to $546.5 million in FY15; adjusted EBITDA between $111 million and $115 million, as compared to the $106.1 million in FY15; free cash flow between $20 million and $24 million, as compared to the $18.6 million of normalized free cash flow in FY15; and CapEx of $46 million to $50 million. These ranges are on track with the multi-year strategic and financial plan that we laid out for shareholders in August of 2015.

One item to note, we expect the same seasonal patterns to revenues, adjusted EBITDA, and free cash flow that we experienced in calendar year 2015 to repeat into 2016, with the first quarter having the lowest revenues, lowest margins, and negative free cash flow as we experience our lowest working capital point of the year. Further, we have forecasted FY16 G&A costs to be down on a dollar basis and down 60 basis points as a percentage of revenue.

Several quarters ago we were asked by one of the analysts if we could achieve our FY15 free cash flow guidance, excluding the proceeds from asset sales such as [Cares] and other associated assets. We disclosed the normalized free cash flow statistic in our press release in an effort to eliminate these non-recurring gains and losses, to better demonstrate free cash flow from ongoing operations. In FY15, normalized free cash flow was $18.6 million, at the high end of our range, our revised range, mind you, and up $9.3 million year over year.

With that, I will hand it over to Ed.

Thanks, Ned. Good morning, everyone. As you can see by the numbers, we continue to make progress.

The fourth quarter come in strong, and we finished the year hitting all of our financial targets. As I take you through the key operating metrics, you will see that the steady improvement in the core business fundamentals support our results, and also give us a pretty clear path to continued improvement.

For the quarter, cost of ops as a percentage of revenue improved 260 basis points year over year. That strong finish brought the full-year cost of ops improvement to 170 basis points, and as I go through each line of business, you will see that this was led by our collection operations, which still have room for improvement, and overcame some temporary operational head winds at one of the landfills, and a significant drop in recycling commodity prices.

Collection operations accounted for 47% of our revenue for the quarter, and cost of ops as a percent of revenue improved 430 basis points over the fourth quarter last year. This was a sequential improvement from the third quarter, our strongest quarter seasonally, of 50 basis points, at a time when things are normally slowing down for the year.

I hate to break a cardinal rule for analyst calls, but I'm going to say something positive about the weather in a minute. I mentioned on prior calls that our fleet orders for the year had come in on time, and we ended up -- had not come in on time, sorry, and we ended up having to keep old trucks on the road through the summer, trucks that were supposed to have been retired before the spring season. This caused us reduced efficiency and a spike in maintenance costs, as we had to invest in the old trucks that we had not been planning to run.

While the new trucks showed up in August, September and October, and were on-route fully in the fourth quarter, severe weather could have buried this benefit, but the lack of weather challenges allowed us to show the improved efficiency of the new trucks. We also continued to benefit from disposal cost savings, lower fuel costs, and our ability to get price, offset partially by the increase in our Company charge for recycling tipping fees. By the way, we will not be experiencing the fleet delays in 2016, as we pre-ordered a substantial number of our budgeted trucks, and most have already arrived, and are being introduced into daily service as we speak, ahead of the business spring season.

The pricing environment continues to be strong, as we are recouping for the years of market resistance to price in the northeast. Our collection operations generated 5.3% in price growth for the quarter, exceeding the 4.3% of last quarter, and setting a new high-level mark. Good services is the key to being able to improve your pricing, and a dependable fleet and a customer- oriented divisional management team are the keys to good service.

John mentioned the SRA fee, and as this is the year-end call, I wanted to go through it again. This is a fair way to take commodity risks off the shoulders of the waste companies, who are merely providing a service to the communities where they operate, particularly in markets where recycling is being mandated by legislation, like in the northeast. For recycling to remain economically viable, someone has to pay the shortfall in the value of the commodities collected and processed. As we run our material recovery facilities as merchant's facilities, we charge tipping fees to third parties and to our own hauling companies to cover that shortfall, and the SRA fee passes this cost to the street. We were not able to fully implement all markets with the fee until the first quarter of 2016, so collection operations did not fully recover the inter-company cost on this is 2015. But we are now there, and the finance team, the recycling team, marketing, and divisional sales team deserve special recognition for getting this over the hump for us.

Getting to those key operating metrics, we have improved our net revenue per hour for commercial services 9.1% as compared to Q4 last year, while our variable cost per hour has dropped 3.7%, significantly improving margin contribution from this line of business. Similarly, the residential net revenue per hour was up 8.7%, as compared to an increase in variable costs per hour of only 3.4%. The resi numbers are higher on both sides, partially due to the increased tipping fee for recyclables being passed through to the customers on the revenue line.

Lists per hour improved 6.7% in the fourth quarter year over year, which continues to reflect progress with improved routing activities, and our strategy to increase the use of automation as we implement the fleet plan.

Our disposal line of business, consisting of our network of landfills and transfer stations, accounted for about 28% of our revenue for the quarter, and the market dynamics continue to develop in our favor. We reported 120 basis points in price improvement from disposal on our price volume report in the press release. As Ned mentioned, the more significant average price per ton figures, which are more reflective of our strategy to move out lower-price customers and to work towards a higher value mix of materials, improved by 3.1%.

We experienced a short-term head wind in the cost of ops at the landfills, as delays in our expansion permitting outside of our control, at the Ontario site caused us some unique challenges by forcing us to work on side slopes and on a diminishing open working space. The good news is that the permit was finally issued in January, and immediately gave us approval for 30 feet of vertical expansion, resolving our operational problem, and providing sufficient build capacity to allow us time to build out new cells this coming year.

Our recycling operations continue to show improvement, as our ability to manage tipping fees, both internal and third party, have allowed us to improve not only our margins, but the actual dollar EBITDA contribution year over year, in what has been a challenging environment for other waste companies.

Despite an increase in minimum wage at most of our facilities, which has increased our variable cost per hour by 2.6%, the team was able to effectively manage price and increase volumes by over 10% to improve the adjusted EBITDA contributions by almost 50% over Q4 last year.

Customer solutions, which includes our brokered services and our industrial services offering, also made progress during the quarter. As a reminder, these are lower-margin but high-[RONA] customers, operating from multiple sites within and outside our footprint. Although small, both EBIT and EBITDA contributions from these customers improved year over year, and we continue to use this group to drive business to our collection, landfill, and recycling operations within the footprint.

In closing, this was a strong end to a strong year, and I am happy with the trends, and the progress we are making operationally, and look forward to continuous improvement in 2016. I would like to now turn it back to the operator to facilitate the question-and-answer session.

(Operator Instructions)

Joe Box, KeyBanc Capital Markets.

Good morning, guys. So a question for you on the free cash flow guide. I'm just trying to understand what puts you at the low end of the range versus the high end, I guess in light of the permit expansions that you're talking about, I mean should we think about the wide range incorporating in some additional landfill investments? Just any color on that and just CapEx guide would be helpful too.

Yes, thanks, Joe. The CapEx guidance for the for the year is $46 million to $50 million, and if you look at that range, some of it comes down to timing of landfill capital expenditures. As we laid out we have a couple of expansions we're working on at Ontario with the new airspace and we'll be working on building some new airspace at our Chemung landfill as well this year. There's always a little bit of variability there through the year.

To your point when you look at guidance for the year, our pricing programs are going very well. We have good visibility today where we advanced price increases through late 2015 and into early 2016 and feel like we have a pretty good visibility there. But we are pushing that market elasticity, especially the landfill and the transfer line of businesses here. So we put out a slightly muted volume projection there, if we shed some volumes we'll know we're hitting the elasticity point and that's our goal for the year. So we're a little bit muted there as we work through the numbers but there's probably some upside if things go better than we had forecasted.

Great. Actually that was my next question. Why isn't there more opportunity with respect to volume? So just to be clear, it's not necessarily something that you're seeing from an end market standpoint. You're not necessarily seeing an increase in churn just yet or increased competitive dynamics. It's more just along the lines of you're being cautious and you're pushing price hard and expecting that that could result in less volume, but you're not seeing it yet.

I think that's a very fair statement, Joe. We're not seeing any changes in terms of churn from a landfill standpoint. I think that, as Ned said, we are churning a bit out of the lower price, so we're trying to move real value creation from a pricing standpoint, and we're consistently doing that across the entire portfolio from a disposal standpoint, but we really haven't seen any significant churn at this point.

Got it. Last one then I'll turn it over. Just curious on the western markets. Clearly you've seen some capacity expansions there. I know it's early in the DSNY process but I'm curious if you're starting to see anybody in the market start to posture for any displaced tonnage at this point?

No, I don't think that we are seeing any, we're not seeing any unique activity that would be attributable to the New York situation. So I don't think we've seen anything at this point in time. The tons are beginning to flow to upstate New York to both facilities, but we're not seeing anything that is very significant from an impact in the marketplace as yet.

Got it. Thanks, guys.

We're pretty -- I think most importantly, we're pretty comfortable with what we've laid out for the plan in terms of the western region landfills. I think we've got a plan in place that we believe we can achieve in terms of the total tons to 2018 that we've laid out in our plan.

And in western New York and New York State in general, construction demo fines were really a [laggard], we saw much more economic activity there across other markets the last few years, and in 2015 we started to see more of a recovery in New York State which is also helping [other] capacity out there in western New York.

Great. Thanks for that.

Tyler Brown, Raymond James.

Good morning, guys. Nice quarter, congrats on a good year. Ned, can you help me out a little bit, just bridging the midpoint EBITDA guidance to the 2015 EBITDA? So big picture can you talk about some of the puts and takes. It sounds like you've got a pretty strong tailwind in collection. It sounds like G&A will be down slightly. The positive lapping on SRA, but how should we think about disposal volumes and gas, recycling, et cetera? Basically I'm looking at some of the big puts and takes for next year.

Yes. Really the biggest puts are pricing. The collection line of business is going to be a big positive mover for us in a year, as you can see from the stats we put forward. Part of that we expect slightly to be muted through higher recycling [tipping] fees moved intercompany.

Landfill price, we're expecting that to be a positive mover as well in the year, with a couple million dollars. When we look at other moving pieces in the year, we've actually put a flat to slightly negative volume stat into our solid waste forecast for the year, and as John said, it's not that we're not seeing anything in the environment today, we're just being conservative as we continue to advance strong price increases into the market.

As far as other negatives in the year, we expect energy at the landfill gas to energy facility to be down another 5% to 10% this year, which will be a continued headwind into the business, and we expect some other cost lines to be up as we increase at facilities and other categories across the business in the year.

Okay. That's very helpful. And then just bigger picture, as we think about the three-year strategic plan and we've got the three buckets. Landfill, collection, resource solutions. But how should we think about the contributions from those buckets over the next three years? Maybe I'm wrong here, maybe I'm missing it, but is 2016 going to be more a year benefited by collection, with 2017 and 2018 being more landfill driven? Or how is it going to work over the next couple of years?

Yes, that's an excellent point. We're driving faster and further on the collection strategy than when we put this plan together back last summer. Even from where we started back in June, if you're looking at our last month's basis, close to $6.5 million of our EBITDA gain during that period comes from the collection line of business.

So we had buckets. Landfill is $10 million to $18 million over a three-year period, collection $11 million to $15 million, and resource solutions $6 million to $7 million. And as we've gone out of the gate with the strategy, the biggest mover, first mover was the collection line of business, and as I said earlier, into next year collection is going to be the biggest contributor, again through pricing and moderating some of the costs for the efforts Ed's making on vehicle maintenance and productivity.

Landfills, it's going to be a big price push in 2016. We're positive in our forecast for the year on EBITDA, but as I said earlier we are forecasting to substantially shed some volumes. We'd be looking into 2017 and 2018 to start growing volumes more significantly as we see the markets tighten further.

Okay. Yes. Perfect. That's very helpful. And just lastly on the senior notes that you bought, where are those notes trading today? Are you able to buy those under par?

Yes. So we've made a couple trades to date, and the most recent trades in January, we bought below par in the 96 range. They're trading 95 to 96 the last time I looked. So it's very accretive for us, further accretive beyond just the interest savings to be buying back those bonds with the overall dislocation in the high-yield market.

Perfect. Very interesting. Thanks.

Scott Levine, Imperial Capital.

Good morning, guys. Following on the topic of the sub notes and the interest expense. I don't know if you have a breakdown of how much of the notes are outstanding versus your revolver. Maybe a little bit more detail on the total debt outstanding, and maybe if I could trouble you for guidance on interest expense given that mix and given what your debt repayment plans are for 2016 to try and get the model right?

Sure. So as of December 31, we had $370.3 million outstanding on the senior sub notes, and as I said a minute ago we paid down another $4.2 million into January, so we are currently around $366 million. The revolver on 12/31 was at $57.4 million, and we had availability of $64.1 million on the revolver, so we have plenty of liquidity in the business today.

And as you look out into next year, we expect interest expense on the income statement to be roughly $39.5 million, right around there. The trades we've conducted to date to pay down the senior sub notes are the $18.9 million we've paid down to date saves us about $1 million a year in cash interest. So some real meaningful benefit for shareholders.

Got it. And it sounds like your intention in terms of your use of cash free cash flow continues to be paying down the sub notes for this year, so can we expect the bulk of your free cash flow to be applied to debt repayment, and/or are there any other things you guys are thinking about above and beyond tuck ins that may come your way, you may not expect, or anything else that would be a call on cash there?

No, I think that is exactly right. I think our utilization as cash is going to be to pay down debt, Scott. Exactly right.

A couple of other quick ones. I want to make sure I understood right. Did you say, John, that you saw a 100 basis point margin improvement year-over-year in the customer solutions business? Or did I not hear that right and does that include organics or other areas?

That was in customer solutions business. Correct. Yes.

Got it. Okay. Thanks. And I'm guessing you're still seeing, I know that the volumes were down, I think you indicated there but you're still seeing a positive margin trend within that business in 2016?

Yes, so the volumes are really down due to recycling commodity prices. It's just the way it runs through the system, so it's maybe a little bit of a misnomer where we have a lot of flow through revenues in that business, where a customer will have us handle their recycling streams from an industrial standpoint, and then as recycling commodity prices have dropped, we're selling them for less.

It's more of an accounting system issue today where we don't do price volume mix in that line of business, so it would be something we look to improve. So their sales pipeline still remains strong, they continue to drive to new customers, and we're just seeing, it's really a recycling headwind that's impacting that stat. But we expect to improve operating [comp] and adjusted EBITDA further in 2016.

Got it. Great. Thanks. Last one. Not to try to extract or infer guidance for 2017 from your three-year financial targets, but, you know, kind of assuming from the midpoint of your 2016 guidance here to your three-year targets, you know, informally is the expectation roughly to assume ratable improvement as you move towards those 2018 goals, or is there anything else we should be thinking about preliminarily that might affect the trajectory as you guys execute towards those three-year targets?

Yes. So we finished 2015 at $106.1 million of adjusted EBITDA, at the midpoint of 2016 guidance that's up $7 million year-over-year, and if you look out to 2018, the plan we laid out, the midpoint, that would be $127 million of adjusted EBITDA, so up $21 million over the three years, and we expect it to come ratably each year. As Tyler asked earlier, the mix of where it's coming from we believe will shift a little each year. This is a big collection year, we think disposal's going to drive a bit more into 2017.

Got it. Great. Thank you.

Corey Greendale, First Analysis.

Good morning and congratulations on the progress. I had just few quick follow-ups and excuse my voice please, just struggling with a cough here. Ned, did you say that we should expect cash interest to be down $1 million in 2016, or can you just clarify that?

Yes. Cash interest in 2016 is expected to be about $35.5 million, and in 2015 we're at right around $35 million, so it's generally flat. I think it's mixing in, I might have to get back to you on that, it might be mixing in some of the new revenue bonds that's causing that to stay somewhat flat, so we are taking cash interest costs out.

Our forward-looking model also had a LIBOR going up pretty significantly during the year. Jason, do you know how much? (multiple speakers) Yes, we had in our forward model LIBOR going up 100 basis points on the revolver, so those are probably the two countervailing trends where we're taking cash interest costs out on the senior subs, but we had a pretty straightforward curve on the floating rate debt, and we're mixing in more industrial revenue bonds over the year.

Okay. I appreciate that and maybe we should follow up off-line. Has anything changed relative to your expectation of the long-term plan you laid out as far as cash interest savings in 2018?

No.

Second question I had, just digging a little more on the dynamics underlying the collection price increases, is the concept that you're kind of raising price to residential and collections and commercial customers across the board by 5%, or is the concept that some are flat, a significant number are flat and there are some customers where you're raising price by 15% or something like that because they were, the returns haven't been good?

I wouldn't go as far as saying any of them are flat. I think we're raising everyone something, but obviously this is a local market business and there are some markets where we've pushed price a little harder or had to push price a little harder than in other markets, so it all averages out to the 5.3%. But I don't think there's anyone that's on a flat price.

No. You're just really looking at profitability by customer and then appropriately making those decisions from a pricing standpoint, Scott. Sorry, Corey.

I appreciate that. I was trying to get some sense of the standard deviation on it, if it was a massive range or if in general everybody's getting 3% to 7% or something like that?

Yes, I think it's everybody getting more the 3% to 5% to 7%.

Okay. Got it. And then since Scott asked you about 2017, I want to ask you about 2019 (Laughter). One of the questions I've been getting.

I won't call you Scott again. (Laughter) You might be asking for 2020.

Exactly. The question is more conceptual, that you're making great progress on this plan, you've got this improvement plan in place, but once you hit the end of 2018, do you think you're more at industry growth rates as far as EBITDA and free cash flow, or are there still some more outsize kinds of things to go from there?

We laid out this multi-year plan and looked at the key strategies of where we could drive the business, and I think from our vantage point there'll be more strategic options open to us at that point in time. We'll have leveraged well within where we want to be, and whether there are acquisitions later that could drive more growth to integrate with that, this could be a question that could come up.

So we haven't really mapped out from 2018 on. So frankly, Corey, everything we're doing is driving to that point where we believe that getting the leverage out of business and focusing on blocking and tackling and optimizing our current assets drives the most shareholder value in this period. When you get past that, we'll still have excess capacity at our western New York landfills, that plan never fills those landfills. We'll still have 300,000 to 400,000 tons of excess capacity, so some ability to continue to grow there.

And I can't quite forecast pricing or other savings that far out, but down at those levels, that leveraged level, that free cash flow production level, we'll have a lot of opportunity as a business grow in other manners as well.

Okay and one last quick one, since Ed broke the cardinal rule on weather I'm going to ask about the economy. Mixed signals at a macro level in the Northeast. What have you seen in terms of the economy?

I think we're seeing a pretty strong economy in the eastern region, but I think the economy is still struggling in the western region.

Okay. Great. Thanks very much.

The other thing that, probably worthwhile to mention too, just from a seasonal standpoint, you've got to remember in 2015, in January and February we had very, very significant impacts from a weather standpoint, and I think it kind of averaged itself out with the mild November and December this year -- in 2015. So I think those two things were offsetting a bit too from a weather standpoint.

Understood. Thanks, John.

Brian Butler, Stifel.

Good morning, thanks for taking my questions. First one, just on how should we think about booking cash taxes in 2016, and then how to think about those ramping up going forward?

Cash taxes will remain quite low in 2016. We have in our model around a half a million of cash taxes, and cash taxes were roughly $300,000 in 2015. We still have $80 million roughly NOL in the business today. And we project the next five years not working through all of the NOLs. So there are non deductible items, both at a federal and state level, that cause us still to be a small cash taxpayer. But we'll have continued leverage there over the next few years through our free cash flow where we just don't expect to pay cash taxes at least out through 2019.

How about on the book side? What should we look like trying to get to, through the model?

Yes. On the book side it's going to be more of the same, where we'll expect book taxes to be pretty much around $1 million, $1.2 million, we ended this year at $1.3 million. There's non deductible items and whatnot, that caused us to have a small book tax there even with the negative pretax which will be coming in dramatically further in 2016.

Okay. Great. And then on the free cash flow guidance, I just want to be clear, that doesn't include any divestiture proceeds in 2016?

No, it does not. It has, you know during the year we do see some small sales of assets or small sales of routes and that stuff's kind of ongoing business, but as far as a larger sale being in the guidance, it's not there.

Okay. And what assumptions do you have built in there if any on where working capital swings? You had about a $5 million benefit in 2015 from working capital. What is embedded in the $20 million to $24 million for 2016?

There's not much there. It's pretty neutral year-over-year. Some of the benefit in 2015 to 2016, there's just some big moving pieces as we changed our year-end, and each of those have generally resolved themselves, and we'll be into a more neutral position year-over-year.

Okay. And then just real quick on the SRA fee that you guys have now rolled out, more or less, I think I heard it was fully rolled out in the first quarter? But you still have recycling revenues going to be down 2% to 7%? Is that just not offsetting the magnitude of the rollover impact of lower commodity prices, or is your forecast for 2016 including additional pressure on commodity pricing coming down?

So our forecast for 2016 has commodity prices coming down further. But we've seen a pretty weak market in January. We believe February will resolve a bit. But year-over-year January was down. And we will continue to push tipping fees in lower markets to third-party customers and intercompany. If they go to intercompany hauling divisions, we'll increase the SRA fee as necessary. So there is an offsetting factor. (Multiple speakers)

Okay. So the SRA fees, is not quite offsetting the full commodity pressure at this point?

The SRA fee plus increased tipping fees to third-party customers exiting 2015, at exit run rate, was offsetting the full impact and we expect it do so into 2016. It did not fully offset in 2015, but at an exit run rate we're offsetting all of the negative impacts.

If that's offsetting the commodity, what's pushing it down 7% to 2% for the recycling --

Oh sorry, I'm sorry. So it's just where the money shows up. So when we sell the commodities in the recycling business, we book the revenue there and we expect to have lower commodity revenues there, and then we book the revenue for the SRA fee through the hauling business and when we report price volume stats, we don't report the intercompany price stat, so the revenue is showing up through the hauling business, and those stats are all presented third-party, not total revenue, if that makes sense.

All right, just so I heard this right. So the recycling business is down because of lower commodity prices but you're making that up in the hauling business because you're going to see the fee there.

Yes.

Okay. Great. That was all my questions.

Tyler Brown, Raymond James.

Hey guys, I just have a quick follow-up. Ed, out of curiosity, how big is the fleet today and what is the average age?

(Laughter) The fleet today is about 740 trucks. We're still going through a purge as we brought in quite a few trucks over the past six months. We brought in all of 2015 trucks and most of 2016 trucks. So we still have not purged out our older trucks. And so the average age is running around eight years.

Okay. And is this including front line and spares, or is it just front line?

It's front line and spares.

Okay. And so the second year into a five-year plan, where do you expect that average age to ultimately pan out?

The target is to get the average age to 6.5 at the end of the five-year [period].

Okay. Perfect. Thanks, guys.

Al Kaschalk, Wedbush.

We're not getting audio from your line, please check your mute button.

Are we there? Excellent. Good morning, guys. Strong finish to the year, good to see. I have a little bit broader question, first on the capacity comments that I think you said, I don't know if it was 19 or 20 but I want to focus on 2016 and 2017, but the availability of capacity across your landfill portfolio, how much is there and just trying to get a sense of the pricing dynamic that you may be able to be positioned for.

So we have roughly 600,000 tons of excess capacity in our landfill portfolio today, with the majority of that being out in western New York and Pennsylvania. But if you look back to the multi-year plan we put out, we said we'd drive 200,000 to 400,000 tons of incremental volumes. So that was what I was saying to Corey was, even within the context of that plan we still have a little excess capacity to drive additional value.

So is the 200,000 to 400,000 tons, is that because of known closures forthcoming, or is that additional economic activity that you expect to benefit from, given the positioning of the landfills?

Well there are some known closures. There's a small landfill within miles of one of our landfills in western New York that will be closing in the next year, and we believe we're in a great position to bring in some of those additional volumes.

And as everyone knows the dynamics are shifting in New York State, and we believe we're in a good position to continue to get additional tons, and as I said earlier on the call, we've actually seen slightly improved C&D trends in New York State finally, and that's driving a little better performance. So if we see some sustained activity there, that could help as well.

As with last year, Al, there'll be different transfer stations out to bid, there'll be bidding opportunities for different volumes of tonnage that would be coming in through municipal contracts or from transfer stations as well.

Okay. Second, you've talked about in the past about strategically operating some of the landfills and collection, meaning swaps and whatnot. You just commented about the shifting dynamics in New York. Are there opportunities as a result of the announced transaction, it looks like it's well on track to close by June 1, for some opportunities to pick up some volume there, or to participate in some type of swaps that can benefit you strategically?

We don't see a significant opportunity there. I think that our perspective is keeping our heads down and continuing to drive our plan to execute against that plan. I think that certainly we'll look at swaps and if there are opportunities to improve our performance and get more tons to the facilities, et cetera, then we'll certainly look at all of that, but we don't anticipate anything significant coming out of the transaction.

Great. Okay, that's all I had. Thanks a lot. Good luck.

(Operator Instructions)

And that is all the questioners that I have in the queue at this time, so I would like to turn the call back over to management for closing remarks.

Thanks. Thanks, everyone for your attention this morning. We look forward to discussing our first quarter earnings with you in early May. Thanks, everyone, have a great day.

Ladies and gentlemen, thank you again for your participation in today's conference. This now concludes the program and you may now all disconnect at this time. Everyone have a great day.