Casella Waste Systems Inc (CWST) 2022 Q1 法說會逐字稿

Ladies and gentlemen, welcome to the Casella Waste Systems, Inc. Q1 2022 Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Joe Fusco, Vice President of Communications. Sir, please go ahead.

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

Today, we will be discussing our 2022 first quarter 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 safe harbor provisions under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors including those discussed in the Risk Factors section of our most recent annual report on Form 10-K, which is on file with the SEC.

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 views change. These forward-looking statements should not be relied upon 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. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures, to the extent they are available without unreasonable effort, are available in the appendix to our investor slide presentation, which is available in the Investors section of our website at ir.casella.com.

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

Thanks, Joe. Good morning, everyone, and welcome to our first quarter '22 conference call. Needless to say, we're really pleased with our results for the beginning of the year. And myself, Ed, Ned, Jason and the entire senior team, we're really proud of the work that our entire team has done to offset really significant inflation that everyone is faced with, unfortunately, in business today. So again, I couldn't be more excited about the work that our entire team has done to offset that inflation.

We continue to grow the business meaningfully on a year-over-year basis. In the first quarter, revenues were up 23%. Adjusted EBITDA improved by over 17%, and we continued to grow adjusted free cash flow. Our pricing programs are working well to offset inflation. We've advanced strong price ahead of budgeted levels as we aim to pass through heightened operating cost to our customer base. This is reflected within the solid waste pricing stats in the quarter, which was up 5.6%, and notably collection price was up 6.5% in the quarter, and we exited the first quarter with pricing momentum as our solid waste price improved sequentially each month through March. We're also taking a proactive stance with our fuel recovery fees that are offsetting rising fuel costs, albeit a lag in a rising price environment.

Overall, our core pricing and operating programs outpaced inflation, but several unique items weighed on margins this quarter that Ned will go through in greater detail. We are optimistic that our efforts within the first quarter will benefit our execution through the balance of the year. We also continue to have success executing against our growth strategy. We closed 6 acquisitions year-to-date with approximately $30 million in annualized revenues.

The team continues to do a great job maintaining a disciplined approach in terms of focusing on deals with the right strategic fit and return profile. I'd like to provide a brief review related to the execution against a few of our key strategies and recent performance of our operations.

First, on the landfills, we advanced positive price. And in fact, our average price per ton was up nearly 9% year-over-year in the quarter. This is a result of our team's effort to offset significant inflation, including heightened regulatory costs. We have focused on improving customer mix at our sites through our sourcing efforts, along with executing pricing across our customer base, inclusive of our own intercompany volumes.

In the quarter, harsh winter weather results in lower -- resulted in lower volumes, both year-over-year and versus our budget. The weather not only resulted in lower activity levels than anticipated, but we also had to take actions to keep our people and customers safe by temporarily closing operations on several different occasions due to high winds or heavy snowfall.

We also experienced construction delays at key landfill facilities, which is now resolved, and we are again accepting volumes at our anticipated run rate. Our expectation is that landfill volumes will be positive through the remainder of the year, and we will recover without any meaningful help from the waste that is generated in the New York City area as we don't believe it's going to return quickly back to the pre-pandemic levels.

Moving to the collection business. As I mentioned, we've been nimble with our pricing programs, and we're off to a great start this year. Budgeted pricing plans were increased for inflation, and we continue to monitor the effectiveness of our programs. Our team has a high degree of adaptability, and our customer base presents us with further flexibility that enhances our ability to again modify our pricing. But the hard work doesn't stop there. Ed and his team continue to make substantial investment of time and capital within key areas, including increasing the use of automated trucks, route conversion, implementing new technology for route optimization. These return-driven investments aimed to further offset inflation by lowering our cost profile through improved safety, lower turnover and increased operational efficiencies.

We are also highly focused on service excellence,and new customer integration. As we grow the business and onboard new customers, we aim to provide great service and high levels of customer satisfaction.

Within Resource Solutions, performance in this segment was strong in the quarter with year-over-year adjusted EBITDA improvement. We continue to make investments in this area of the business that further our commitment to environmental stewardship while driving positive economic returns. Last month's purchase of Northstar Pulp & Paper in Springfield is an example of this. This business will integrate well and provide us with opportunity to further improve our resource management service offerings. I like again to welcome aboard our new customers and all of the hard-working employees of Northstar, a terrific addition both in customers and the employees to our team.

In February, we announced investment plans across our recycling facilities to strengthen our sustainability efforts while increasing our throughput, enhancing the quality of our end product and improving returns. A key project is the complete replacement and modernization of our Boston recycling facility, which is one of the largest in the country. With ongoing supply chain challenges, the upgraded dislocation will be delayed until 2023, but the expected margin and return profiles remain firmly intact. There is no material operating income -- excuse me, operating impact in 2022 with this revised time line.

Finally, I would like to highlight our capital allocation and growth strategy. Overall, our acquisition pipeline remains very robust with over $500 million of addressable opportunities in annualized revenue over the top of our existing footprint in the Northeast. We remain well positioned to continue to execute against our growth strategy given the strength of our balance sheet and that we are focused on opportunistically building capital to work on deals that meet our criteria that drive further value.

In wrapping up, I'd like to take a minute to thank Ed Johnson for his outstanding contributions and helping to shape and build the company to where it is today. As announced last week, Ed retiring on June 30. Ed's 12 years will leave a lasting impact as he's made instrumental improvements to the organization that have become core principles to the way we operate on a day-to-day basis. Myself and the rest of the company will miss his guidance, but I know we're in good hands management and the Board have invested significant time over the last several years on our succession planning. And with Ed's retirement, I'm confident that we have a seamless transition as we have the right people in-house to continue to drive value and execute. I'm excited to promote Ned into the President's role effective July 1 and maintaining his role as CFO.

Also, at that time, Sean Steves and Jason Mead will take on new leadership positions. Sean will be named Senior Vice President and Chief Operating Officer of the Solid Waste Operations, while Jason steps into the position of Senior Vice President of Finance and Treasurer. These are well-deserved promotions across the board. We couldn't be more excited for all of those individuals. And as I said, well deserved promotions.

With that, thank you again, Ed, and I'd like to personally wish you well in the next chapter on the intercoastal. And now I'll turn it over to Ned for some more financial details.

Thanks, John. We're getting a few texts that the web conference call is cutting in and out, but we're hearing that the phone call is okay. So I hope that's the case. Hopefully, there aren't a lot of problems out there. We're reaching out to the webcasting people. And with that said, I'll move on.

Before I get into the quarter, I also want to thank you, John and the Board of Directors for your continued confidence in me, and I'm very excited to take on the expanded role in July. I'd also like to thank Ed for his guidance and mentorship over the years and congratulate him and his family on his upcoming retirement. Excellent news. And congratulations to Jason and Sean in their new roles. Very exciting time for our whole team here at Casella.

Moving on to the quarter. Revenues in the first quarter were $234 million, up $44.5 million or up 23.5% year-over-year with 13% of the year-over-year change driven by acquisition activity and 10.5% of the year-over-year change resulting from organic growth. Solid Waste revenues were up 21% year-over-year with price up 5.6%, volumes up 0.5% and acquisition growth of 12.5%. As expected, our price growth improved again sequentially from the fourth quarter to the first quarter and continued to increase sequentially each month in the first quarter to a price of 6.2% for the month of March. Revenues in the collection line of business were up 22.6% year-over-year with price up 6.5% and volumes slightly up. Revenues in the disposal line of business were up 14% year-over-year with price up 4% and volumes up 0.9%.

Landfill pricing was up 4.2% year-over-year, with the average price per ton up 8.8% as we continue to improve mix at our sites, while landfill tons were slightly down year-over-year mainly due to the challenging winter weather and construction delays at key sites. Landfill tonnage trends have improved in March and April, and we expect to meet or exceed our tonnage plans for the year given the CRC of options.

Resource Solutions revenues were up 30% year-over-year with 3.8% from higher recycling commodity prices, 18.1% growth from acquisitions and the remainder from higher processing and nonprocessing volumes.

Commodity prices were up again year-over-year on higher cardboard and mixed paper pricing, higher metals pricing and higher plastics pricing. Adjusted EBITDA was $45.6 million in the quarter, up $6.7 million year-over-year. And adjusted EBITDA margins were 19.5% for the quarter, down 100 basis points year-over-year.

Our pricing programs did outpace cost inflation in the quarter. However, several identifiable factors negatively impacted margins in the quarter, including the construction delays at a landfill, the expected margin dilution from acquisitions, margin headwinds from the fuel recovery fees and margin headwinds at our transfer stations due to higher fuel surcharges on long-haul transportation.

Solid Waste adjusted EBITDA was $38.7 million in the quarter, up $4.1 million year-over-year, with collection and disposal -- with collection adjusted EBITDA up year-over-year. Resource Solutions adjusted EBITDA was $6.7 million in the quarter, up $2.7 million year-over-year, with improvements from recycling, organics processing and nonprocessing. With our floating SRA fees for hauling customers and a floating processing fee or rebate structure at a recycling processing facility, much of the year-over-year increase in recycling commodity prices was passed back to our customers in lower fees or higher rebates.

Cost of operations in the quarter was up $35.3 million or up 234 basis points as a percentage of revenues, with the majority of the increase driven by higher fuel costs, higher labor cost and parts inflation. General and administrative costs in the quarter were up $2.7 million year-over-year or down 160 basis points as a percentage of revenue with the majority of this improvement driven by lower incentive comp accruals and lower labor costs.

Depreciation and amortization costs were up $6.7 million year-over-year. However, $1.5 million of the increase was due to a true-up related to the July 2021 acquisition of Willimantic, and the remainder was mainly due to higher depreciation, amortization associated with acquisitions. This out-of-period Willimantic depreciation and amortization true-up resulted in a headwind to operating income margins of 60 basis points and a $0.03 per share headwind as well.

As of March 31, we had $580.2 million of debt and $12.6 million of cash and overall liquidity of $265.4 million, our consolidated net leverage ratio was 2.45x. Our balance sheet remains in great shape and positions us very well to continue to grow successfully while also providing stability in this rising interest rate environment. We have roughly 70% of our interest in fixed rates today.

Adjusted free cash flow was $16.3 million in the quarter, up $6.1 million year-over-year with net cash provided by operating activities down $7.4 million, mainly driven by timing differences for accounts receivable associated with acquisition activity. This decline was more than offset by lower capital expenditures in the first quarter of 2022 as compared to last year.

As stated in our press release yesterday afternoon, we have increased our fiscal year 2022 revenue net income, adjusted EBITDA and net cash provided by operating activities guidance ranges and reaffirmed our adjusted free cash flow range. We now expect our revenues across $1 billion in 2022. It's a very exciting milestone for our team.

The increase in each of these guidance ranges is primarily due to contribution from acquisitions completed year-to-date that were not included in our February guidance, most notably the acquisition of Northstar on March 2. We did not increase our adjusted free cash flow guidance range at this early point in the year as we currently expect higher net cash provided by operating activities to be mainly offset by higher capital expenditures, including growth capital investments for new contracts and customers, additional investments to accelerate collection operating efficiencies and higher prices on certain budgeted capital items.

Our changes to guidance ranges do not contemplate that the economy gets any better or worse through the remainder of the year, and we further assume that the current high inflation and high fuel prices remain at roughly the same levels as today. Despite the margin headwind in the first quarter, we remain very confident in our ability to outpace inflation in fiscal year 2022 and improve adjusted EBITDA margins year-over-year. Our internal rate of inflation is currently running at 4.3%, excluding fuel. We expect to outpace this inflation and increase adjusted EBITDA margins by 20 or 25 basis points year-over-year through a combination of flexible pricing programs, our floating energy and environmental cost recovery fee and our continued investment in cost efficiency programs.

As a point of validation, our adjusted EBITDA margins were up 20 basis points year-over-year in the month of March as we work past several of the operational challenges we faced during the winter months, our pricing programs further improve sequentially with solid waste price up 6.2% and our trailing energy and environmental cost recovery fees begin to catch up with higher fuel costs. As we discussed last quarter, if our cost inflation increases further, we have great flexibility to advance additional price increases across our business, and our floating energy and environmental fee effectively offsets most of the fuel exposure.

And with that, I'll turn it over to Ed. Thank you.

Yes. Thanks, Ned. Good morning, everyone. We are in high inflationary times, which is both a great challenge and a great opportunity for us. I can't help but think of what happened in Q2 of 2019 when our cost spiked. In that case, it was all labor related, and we temporarily lost margin. When we recovered margin over the following 2 quarters, we enhanced our profitability on higher revenue numbers and created real shareholder value. In Q1, inflation in our operating cost was even more significant, but we passed through price to cover it and we now have that same opportunity to enhance the bottom line as we recover the margin.

For a little more color on this, I've spoken on past calls that the primary metric we follow in the collection line of business is variable margin contribution per driver labor hour. That is the dollar amount contributed to our financial results for every hour we have a truck out servicing customers. The metric is computed on a net revenue basis, so it excludes disposal both from the revenue and cost, but it's a great indicator of how healthy our core business is.

In Q1, on a same-store basis, this metric improved 13.5%, the highest jump since we've been tracking it. However, when you divide that variable margin contribution amount into the net revenue per labor hour, that margin percentage declined a little over 2%. And that's where the opportunity is. The next few quarters we'll be focusing on margin recovery at the higher revenue level.

The disposal line of business, which includes our landfills and transfer station network, we now -- we had a slow start to the year as volumes were off about 3.7% from last year's first quarter, and we experienced some timing issues on cell availability at Ontario. So we had the added cost of shifting tons around. With lower volumes in a line of business with high fixed costs, there was some temporary margin pressure. But as you know, as a general statement, the tons that don't come in the first quarter allow for more available capacity for the rest of the year, and we still expect to hit our volume targets for the year. The good news is that we have improved pricing levels with the average price per ton going into our landfills rising by almost 9%.

Our Resource Solutions group continued to enjoy stronger-than-expected commodity prices and achieved great execution on the business plan. In our business model, we share revenue with our customers on the upside over certain thresholds. So higher commodities give us more revenue to spread over our operating costs. This group produced improved margins over the last year's Q1.

So I've kept my comments short today to allow a little more time for my swan song, hopefully not. Over the past few years, I focused much of my efforts on building a strong ops team and developing the key individuals and that team to be able to take on additional responsibilities. My efforts this past year have been especially successful with the introduction of a specific leadership development program that included a cross-training focus in the primary lines of business. With strong talent in place, I felt comfortable that this is the best time for me to retire and allow these great operators that have contributed so much to our success the opportunities they deserve.

This has been an amazing end of my professional career in the waste industry. I learned a lot here over the past 12 years about how to build a company the right way and the critical importance of a strong positive culture centered around shared core values. I've been very impressed with John's leadership and how he faces challenges and continually adapt to an ever-changing environment, all while maintaining his focus on the company culture and maintaining the values he and Doug established for the company years ago.

And of course, working with Ned has been great. As I've said in the past, he's the best CFO I've ever known, and that includes me. Although it is difficult to step away, the timing is good, and I look forward to spending more quality time with my wife, Lisa, our grandchildren and the rest of our growing family and watching from the sidelines as Casella continues to grow and prosper.

And last but not least, I want to thank you, the analyst, on this call for your tremendous support over the years and the hard work you put in to understand our strategy and to educate our shareholders. For that, I am extremely grateful.

With that, I'd like to now turn it back to the operator to start the Q&A.

(Operator Instructions) And your first question comes from the line of Alexander Leach from Berenberg Capital Markets.

Congrats on the various promotions and on your retirement, Ed. So I just wanted to start on the margin headwinds. Could you quantify those at all or given order of magnitude as to what was driving that 100 basis point contraction?

Sure. We've been monitoring really closely what our core inflation is in our business. And it takes a little bit of work to get at because you've got volume changes, you've got acquisitions, you've got new business. There's a lot of things happening. But we're calculating our core internal inflation to be 4.3% today. So if you look at that and you look at our pricing across the solid waste business, our pricing across resource solutions, we yielded as a full company about 5.3% price.

Now if you layer in fuel, our fuel inflation was close to 125 basis points year-over-year in the quarter, but we yielded about 90 basis points of fuel cost recovery fees to offset that. If you look at that, we're ahead of about 100 basis points on the core business, then backwards about 30 basis points on fuel, so ahead of about 70 basis points. So we're in a pretty good position.

But then you start to get under the hood and as we talked about earlier, we had 1 landfill that struggled quite a bit this winter with some construction delays and getting a certification to get into the new cell and it caused lower volumes. Then we had acquisition headwinds, as we've been talking about. That will start to mitigate into Q2, Q3 as we anniversary Willimantic. And then we had 1 factor really hasn't hurt us that much ever, and that's moving waste from our transfer stations to our landfills. We have fuel surcharges on third-party hauling. And we stepped into many of those surcharges and need to advance more flexible pricing as we are right now to offset that. So those couple of factors offset a lot of really good work in cost recovery, cost offset programs in the rest of the business. And as we look to Q2, Q3 and beyond, a lot of this gets resolved, and we start to step back into a positive position overall as a company with margins, and we expect for the full year to be up 20 to 25 basis points.

Okay. Great. So it sounds like some exceptional items in the quarter that won't repeat in the remainder of the year. And then just on the fuel recovery. I'm just looking at diesel prices in the Northeast, it seems so they remain flat. So after -- the last few weeks, just as the lag catches up, I assume, provided that prices stay relatively consistent that you won't see much headwind from that and provided that plays out?

Yes, you're absolutely right. So we've had a really effective energy and environmental recovery fee for a lot of years, close to 17 years now. And in rapidly rising markets, it's a lagging fee that's looking at a standard index, diesel index. And if you look at trailing numbers and then setting the fee for the upcoming month, so we've never quite seen a market like this where diesel rise as fast as it gets. So our fee works well, but it does lag, as you said. So there's some cost lag there.

Okay. Great. And just on M&A, you already done $30 million. You mentioned the $500 million pipeline. How much of that is active for the remainder of the year for full year 2022?

I think it is fair to say that we have a little bit of activity that is in various stages of LOIs. But we completed more obviously than we had anticipated in the first quarter. So some of what we completed in the first quarter, we would have thought would have taken a little bit longer, but we were able to get those transactions done much quicker than we had anticipated. But we've got a full opportunity from an M&A standpoint, and we've got various opportunities under LOI at this point.

And your next question comes from the line of Tyler Brown from Raymond James.

First of all, I know there's been a lot of title changes and position changes, just congrats to everybody, but particularly to Ed, it sounds like you're going somewhere warmer, so congrats on that.

So Ned, you touched on it on the last question, but kind of keep you on the hook here. But how much specifically was M&A? How much was that landfill delay? And how much was the transfer station in terms of the 100 basis points and just thinking about the impact on margin?

Yes. So we calculated Ontario to be about 100 basis points. Transfer is around 60. And then remarkably acquisitions came in a little lower at 10 basis points. For the full year, we're still expecting around a 35 basis point headwind from acquisitions. And that's more of a relative issue where our margins overall were a little lower, so acquisitions didn't pull it down, but our acquisition activity came in right around the targeted level in the quarter.

Okay. Perfect. And then it looks like you're looking for 20 basis points up at this point versus 40, I think, 90 days ago. But if you think about the big puts and takes for the year, I mean my hunch is that fuel -- it sounds like maybe M&A is about the same, but it feels like fuel is more dilutive than what you were originally expecting. So is it crazy to think that you're actually raising your core margins. Does that make sense?

Yes, it's a good question. We're expecting acquisitions to be about -- so what we've taken down, as you said, guide, we're expecting to be up about 40 basis points, now about 20 basis points. So if you look at that, about 10 basis points comes from acquisitions that were completed after we guided for the year. So Northstar will weigh on margins, and the remaining 10 basis points or so has to do with fuel for the rest of the year. We really didn't change a lot of other parts of our guidance, Tyler, since it is the first quarter, but we felt compelled to change with such a larger acquisition for us coming into the business.

Yes. Okay. And then going back to the fuel recovery fees, so it's interesting because if you look at diesel, and this is just national average, but I think it was up, call a little over $1 year-over-year in Q4, is up $1.40 in Q1. But if you look at the revenue contribution from that line, it was significantly bigger sequentially. So did you guys proactively make some changes to the program? Did you increase compliance? Was there other fees in there, but just curious why we saw the big step-up in contribution.

Yes. So it is trailing. So it looks to the last month. So it takes -- the step-up in Q4, some of that was recognized in Q1. And then you're absolutely right, compliance to the fee structure was a big part of our push in the quarter. You'll start to see that better in the second quarter, where these fees only work if customers have them and they're meant to protect both sides of the relationship.

Okay. Okay. That's helpful. And then just maybe a modeling big picture question. But how much M&A do you expect -- how much M&A contribution do you expect in total and how does that break down between Solid Waste and Resource Solutions?

Tyler, it's Jason. So about $75 million of revenues in 2022 in total, and -- which is about 8.5% year-over-year in terms of revenue growth for the full year. And in terms of the breakdown between Solid Waste and Resource Solutions, about $28 million in Resource Solutions in terms of revenue dollars and about $47 million in Solid Waste in terms of breaking down that 75%, if that's helpful, Tyler.

Yes, that's very helpful. And then on the volumes, I guess, I just didn't appreciate the weather this year. But how much of an impact did that have, say, versus budget? You mentioned that in the prepared remarks.

Yes. So I hate to talk about the weather because we always have challenging weather in the Northeast. But what happened this year that was a bit more challenging was we actually had to shut down operations for a day or so at several sites. And that's pretty unique for us.

And that's where we saw the volume decline. And as Ed mentioned, not only do you not get the volumes, but you might incur higher cost moving volumes around. So that was...

It impacted construction, too.

Yes, construction as well. Yes, it's 100 basis points. So it was a meaningful impact of the dollars, but I don't have that open in front of me. Do you have that, Jason? Yes, it's $2.5 million, roughly.

Okay. And I don't want to talk too much month-to-month, but just to be clear, it feels like April is starting to track better. And does it feel that the broader Northeastern waste shed is starting to tighten up a little bit? Or does it still feel a little bit loose from a disposal perspective?

I think it's really beginning to tighten up a little bit. I think that we're beginning to see the natural transition coming into spring, Tyler, with roll-offs picking up the construction and demolition season.

So I think we're cautiously optimistic in terms of where things will be. But obviously, a good deal of that remains tied to what happens from an economic perspective.

Your next question comes from the line of Michael Hoffman from Stifel.

So Ed, I remember our conversations going all the way back to Atwood. It's been a great pleasure.

It's been a long career. We're trying to figure out how many earnings sessions I've been through.

Don't do that. It will give you a headache. I've done that before and depress you on some level. And Ned and Jason, Sean, well done. But more importantly, John, bravo to you for really thinking this through. Succession planning is probably the most important thing you do, and you've done it well.

Appreciate that, Michael. We've got great interface with the Board, and we've done a good job over the last 3 or 4 years really trying to position the company for the future and some of that credit goes to the Board as well.

Terrific. So down to the nitty gritty, how many tons are we talking about? And what's the source to replace it? What do you think that sources? Is it...

Yes. So you're not talking huge numbers. That's the whole thing. We're off 32,000 tons. But as Ed said, things like that, we have sites that have very high fixed costs, they impact margins very quickly, especially when we incur additional transportation costs. And we also had tonnage declines in the transfer network. Jason, do you know how much that was?

It was another 60,000 or 70,000 tons actually.

60,000 or 70,000 tons. Yes. So those 2 in total -- definitely was a slower winter than expected, and it was a challenging winter in the Northeast. The spring has finally arrived, although we had snowflakes yesterday. And we -- as Tyler was saying at the end, we have seen a notable ramp through March into April and starting to get to that, that seasonality that we expect this time of the year, both on roll-off landfills, transfer if things are moving in the right direction.

Okay. And important sort of observation is you feel good about the room in your annual caps plus -- I mean, we're talking about 100,000 tons on a 4 million basis that you run through your system. So I don't have to use price to move volume around to fill up this hole. This is -- there's enough volume in the market, it will come at you naturally plus your own efforts to manage costs and use pricing.

Yes, absolutely. I mean we have struggled the last few years in November and December having to ramp down tonnages and manage across the franchise. So starting the year, a little slow from a tonnage standpoint is not actually the worst thing from our standpoint from an operating perspective.

Okay. And then, Ed, what inning do you think you are in the maximization of the asset utilization. I know it's been one of your crowning glories here as you reintroduce price discipline in that. But what inning do you think you're in?

Well, that's interesting because the innings keep extending as we move forward and we create more momentum. So I think there's a lot of runway here.

A lot of that has to do with the amount of activity that we've had from an M&A standpoint. Michael, as you know, every time you do a transaction, you get more opportunity from a routing perspective and efficiency standpoint.

Okay. So that -- and that's the way to think about it is that there's -- what has it been almost $200 million of added revenue, right, in M&A in the last 3 years, 4 years?

Yes.

Yes. So that's a pretty significant point of leverage when you're sitting here talking about a $1 billion base today. And then within the guidance, Ned, I appreciate that you've moved up for the M&A that was chunky enough to do that. But you did outdistance your expectation on price by 110 basis points. So are we -- we have the model for a living or are we over our skis if we walk up your expectations of 4.5% or 4.75% at the midpoint on price for Solid Waste, 4.5% for Resource Solutions?

Yes. We're stepping up as well, Michael. We're going to be north of 5%, maybe even closer to 5.5%, but we're still -- inflation stepped up as well against that model as our margins reflect. So we stepped up price, costs are up, and we're reassessing on a weekly basis right now where things sit. It's a pretty dynamic time.

Okay. And then on the M&A, I just -- I want to make sure I understood the answer. The comment about the $75 million of revenues is including rollover from last year plus this year done, that's what that $75 million is?

That's correct. Correct.

Okay. So would you share what you have under LOI? And two, you used to talk about the addressable market is $400 million. So you've now increased it by 25%. Is that a function of some of these chunkier deals you've done?

I think that it's a function of what's happened in the marketplace and that the challenges from a labor standpoint, challenges across the board have caused folks that we never thought would really be interested in monetizing are really coming to market. So I think I think that we don't have anything as chunky as what we did in the first quarter on LOI right now. It's sporadic, a few smaller deals. We don't have one large transaction, Michael, under LOI at this point in time. So we have a number of smaller tuck-in opportunities that are under LOI.

Okay. And then last one for me. I'm asking it sort of a question and a statement in the same breath. I have this feeling that just what you described, why that $100 million despite it might sell that is also creating an advantage for you as a company in your region -- some of those competitors aren't being as aggressive going after the new piece of volume that might be coming in the market because where are they going to find the driver, where are they going to find the truck?

I think this is exactly right. I don't think that there's any question about that. We have that challenge, and we've added tremendous resources.

Kelley Robinson and his team from an HR standpoint, we've built our own CDL school. We put 65 people through that school already. We're teaming up to build a mechanic school as well. So it's a real challenge as everyone knows to put drivers in the seat and get them trained properly to be able to safely perform the services that our communities and customers need.

And to get equipped...

Yes, absolutely, Ned. Absolutely.

A trough right now is 15 months out, if not more depending on the truck .So you really have -- the work Ed's done over the last couple of years to just really have a great vision for the future of what our replacements are and what we need in the system from a growth standpoint has positioned us really well during this period.

As you know, Michael, we're ordering our trucks now a year in advance. We've gone to the Board for the last 4 years, 5 years to get our CapEx for trucks a year in advance because we got to get the orders in slots for delivery. Otherwise, you're just -- you're not going to get them.

Yes. No, all the Class 8 guys have made it clear, they're on allocation. They're only going to build and ship what they can ship. They're not going to build a part and wait for parts. But to that point, just to close the loop on this, that's not impacting your ability to grow given the breadth of your model, you can work more over time, you'll find a way to do it in routing, where the smaller guy just can't add the capacity? And therefore, when it comes into the market, you're more likely to be the winner of that incremental volume coming -- the new box behind the coffee shop, whatever.

To a degree, that's true, absolutely. We have more flexibility in terms of the size and our ability to put extra equipment in place. We also have a bit of an opportunity because we are acquisitive at this point in time. We are doing a lot of M&A transactions to be able to order additional trucks, additional vehicles because we know what we want to do from a service standpoint in terms of efficiency. That's the work that Ed has done with Sean over the last few years. So we know what trucks we need, and we can order additional trucks as we put our orders in for the existing replacement.

So Ned, last one for me. We've modeled -- before the quarter reported, we assumed you were going to be slightly negative in 1Q and 2Q just because of comparability issues. How do you want us to think about the cadence of the margin trend for the year as you affect more price, productivity and then the volume starts to bounce.

Yes. So we never guide specifically on quarters, as you know. But you are right that Q2, we expect to be flat to negative on margins. And some of that really has to do with the volume ramp for the spring, which is always a bit hard to perfectly predict until it actually happens. But right now, we're sitting in our model slightly negative for margins in Q2 then we go positive in Q3 and Q4, and we are up in Q3 and Q4, Jason...

75 to 100 points, which gets us up close to the 20 to 25 basis points for the full year embedded in our guidance, Michael.

Your next question comes from the line of Sean Eastman from KeyBanc.

Ed, congratulations. Congratulations. I just hope your wife is as excited to spend more time together as you are. Coming back to the M&A discussion. I feel like we heard kind of a cautionary comment from another management team relative to M&A around just the inflationary environment, labor turnover, et cetera. Do you feel like you guys need to be more selective here? Maybe there's been some degradation in quality in the acquisition pipeline? What do you think about that?

I think that we need to be really thoughtful, stay within the bounds of the financial returns that Ned has outlined. And I'm going to show you that, that's the space that we're going to stay in. I think that we -- you don't see or feel the number of transactions that we don't do. So I think that we're probably going to stay to our disciplined approach. We're going to stay to the returns that Ned has outlined historically. They've served us very well over the last 7, 8 years. And so probably no changes from our perspective.

But when you go in and you look from a due diligence standpoint, you're evaluating fleet, you're looking at the trucks, you're evaluating people, you're looking at the route, you're looking at how many people that are down from a routing standpoint, all of those aspects of the M&A process are incorporated into the due diligence that we're doing. So I don't think that we're going to change things. I think that it's fair to say that we're going to take all of that into account as we look at new opportunities to continue to grow the business. It's not growth for the sake of growth. It's growth for the sake of creating and growing free cash flow.

Understood. That's helpful. And the volume number in Resource Solutions jumped out at me this quarter. I feel like revenues there come in stronger than my model every quarter. And of course, Resource Solutions is getting a lot of the acquisition growth this year as well. So just in light of all those things, can you just give us a refresher on the go-forward growth profile and strategic priorities in Resource Solutions.

Yes. So we did have quite a bit of growth in the nonprocessing side of this business, which is a combination of our multisite kind of retail industrial brokerage business, our industrial services business and then also our organics sourcing and transport and disposal part of the business where we don't process.

So all of those segments are really seeing quite a bit of growth. I mean we're very focused on ESG and every major institution across this country, whether it's a company or institution, college university or hospitals, so that part of our business is really growing. You're right, Sean. We're having (inaudible) customers. We're thought leaders in this area, and they're working with us to find solutions to create more value from the waste stream.

So you've seen quite a bit of that there. And it really is a continued opportunity for us to grow, gain share of wallet from existing customers. And quite a bit of this growth this year was from that area and will continue to be as well.

And really help them meet their sustainability goals. It's just -- it's becoming more and more important to every company, every institution.

Yes. That's super interesting. And just lastly for me. Anything to note around the receptivity to the big price increases in -- here in early '22, whether churn or rollbacks, anything to point out there?

I mean I think that it's pretty fair to say that there's a tremendous knowledge throughout the economy in terms of what's happening from an inflationary standpoint. I think that we really haven't received a tremendous amount of pushback. And I think it's a function of people having a clear understanding. Every time they go to the grocery store, they go to fill up their car. People can see and feel the relative inflation.

I think the other thing that we face, too, obviously, is steel prices have doubled. And then on top of that, we have a tremendous burden from a regulatory standpoint, the regulatory burdens are getting more and more difficult, particularly around disposal capacity. When you think about -- we're now being asked to solve for PFAS and leachate, and we're doing our first pilot program at our Waste USA facility. All of the regulatory aspects of our business are getting more and more difficult and higher -- and resulting in higher and higher costs.

And by creating flexible fee structures, we've been able to be fair as well. So our SRA fee is a great example of this. So while fuel costs have been going up and fuel recovery fees have been increasing, at the same time, our SRA fee has been coming down. So our customer base has seen a reduction there. We've been able to pass some of those higher commodity prices right back to our customers, which really has helped us a bit.

And these programs are set up to be fair and they're set up to manage risk, and we've seen that on both sides. So I think it's exciting in that way, and customers are more willing to understand and accept changes.

And one more meaningful data point with all the price we've pushed through our customer count in each main line of business went up in the quarter. We had strong customer growth. That's on an organic basis or a same-store basis, excluding acquisitions.

Your next question comes from the line of Alexander Leach of Berenberg Capital Markets.

I thought I'd just ask a couple more. Can you discuss -- I know you touched on this briefly a minute ago, but can you discuss sort of driver attrition in the quarter? It seems that the water industry seems sort of accelerating pay for drivers in Q1, and some pretty large companies announcing they're paying their drivers 140,000-plus. You haven't -- doesn't seem you've had any margin headwinds back in pricing. But I guess my question is really, has retention improved despite such a hiring market?

Yes, it really has. I think that -- I don't think there's any question that retention is improving. I think that we're still struggling like everyone is to fill all of the seats. It's -- and we've had -- from a driver standpoint, we've had some bumps in terms of negative issues from a retention standpoint.

But I think when you look at it -- at Casella, you have to look at it over a 3- or 4-year period of time because we've been raising rates over that period of time. So it's not like we're just -- you're seeing 1 raise, we've been doing market adjustments now for about 4 years.

Yes. And John, probably one of the most exciting stories we have in the last 12 months is a CDL driver training school.

Yes. We put 65 people through the driver school so far where we actually pay for them to get their CDL, and we just ask them for 1 year of service after they get their CDL. And out of the 64, I think we have 61 of those individuals still with the company. So I mean we're doing everything that we can. We've added some fairly -- Ned reminds me every now and then how much overhead we've added from an HR standpoint in terms of adding people to help our teams.

You can't have ops managers out in trucks and interview drivers. So we've added some people in the field to help interview drivers to when the application comes in, turn it within 24 hours to get that individual in for an interview, and then help to source that for the ops managers and then get them obviously in front of them and do a much better job of reacting very quickly to the applications that we do get.

So we're doing a lot of things there. We're putting the resources to it that are necessary to be successful, but we're still struggling to fill all of the seats.

And we've also been investing heavily in automation, which makes to be less seats to get the same work done, and we open up the funnel of who can do that work. It's a little bit less manual intense work, and we see more and more women and more and more people applying for these jobs and being successful, which is extremely exciting for us as a team. And the work we've done in a lot of markets and through your team, sometimes we'll take 3 manual trucks and replace it with 2 automated trucks. It's generally the formula. So that really helps with some of the driver challenges.

Yes. And we take the helper off the back, and it also helps with our safety.

Okay. Great. And could you just clarify your comments on PFAS. I mean, sorry, I missed that. What exactly is the opportunity there?

So in our Waste USA facility, we're doing a pilot program to remove the PFAS from the leachate, which is something that every facility across the country will be facing over the next few years. And it's -- again, I was talking about it in the context of the regulatory environment that we're in and the reality of higher costs and inflation, and some of that's being driven by the regulatory environment that we operate in.

Not only is it difficult to get that capacity permitted in place, it's also very difficult to meet the issues from a regulatory standpoint. We're unfortunately in a position where we've got a -- we're looking to find a solution through some pilot programs in terms of processing leachate to take out the PFAS.

Right. It's interesting to see somewhat of an interest in hazardous waste volume. What's the sort of competitive dynamics or any advantages...

I think it doesn't pose a negative for us in terms of -- if we find a solution, then we'll incorporate the cost of that solution into our tip fees at the facility. So it's just another factor that causes prices at disposal facilities to go up. If we're expected to do these things, we can certainly do it, but those costs are going to be incorporated into the tip fee on a go-forward basis.

And we have reached the end of our Q&A session. I would now like to turn the call over to Mr. John Casella for the closing remarks.

Thank you very much, and thanks, everybody, for joining us this morning. We look forward to discussing our second quarter '22 earnings with you late in July. Ed any closing comment?

It's been a great run. Absolutely. And I like it to continue because I'm still a stockholder, so they go to work. Thanks, everybody.

Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.