Slide 1: Enhancing Stockholder Value at Casella
Casella Waste Systems, Inc. October 2015 Enhancing Stockholder Value at Casella 1 JCP INVESTMENT MANAGEMENT
Slide 2: Disclaimer
Disclaimer This presentation is for discussion and general informational purposes only. It does not have regard to the specific investment objective, financial situation, suitability, or the particular need of any specific person who may receive this presentation, and should not be taken as advice o
Slide 3: Table of Contents
Table of Contents I. Overview and Total Shareholder Return II. History of Poor Performance and Undervaluation III. Serious Concerns About Capital Allocation IV. Excessive Leverage and Stock Dilution V. Troubling Related Party Transactions and Entrenchment VI. Broken Promises & Missed Targets VII. JC
Slide 4: I. Overview and Total Shareholder Return
I. Overview and Total Shareholder Return 4 JCP INVESTMENT MANAGEMENT
Slide 5: Why Change is Warranted
Why Change is Warranted JCP first purchased shares of Casella Waste Systems, Inc. (“Casella” or the “Company”) in 2010. Since then, we have witnessed the Board of Directors (the “Board”) oversee significant value destruction and chronic underperformance. – Abysmal total shareholder return (TSR): The
Slide 6: Opportunity for Change
Opportunity for Change Change is Urgently Needed at Casella After 18 years the Board has repeatedly failed to produce shareholder value We have nominated directors who are highly-qualified and offer a better future for Casella There is substantial opportunity to create value for the benefit of all C
Slide 7: JCP's Nominees Will Drive Positive Change
JCP’s Nominees Will Drive Positive Change Brett Frazier (60) • 12 years at Waste Management, Senior VP over East and Southern Groups • 19 years at BFI, formerly second largest waste company in the world. • Full P&L responsibility for 20 years • Area Vice President – Marketing and Sales and Head of I
Slide 8: Why We are Here
Why We are Here Share Price Down nearly 50% over 10 years +$770 million over 10 years in Capital Expenditures with no incremental growth in EBITDA +$80 million in Related Party Transactions Share count up more than 60% over 10 years Consistently Missed Guidance over 15 years 8 JCP INVESTME
Slide 9: JCP Has Made Every Attempt to Reach Amicable Resolution
JCP Has Made Every Attempt to Reach Amicable Resolution August 9th, 2015 • JCP submitted a Formal Settlement Proposal to the Company in an attempt to resolve the proxy contest amicably August 18th, 2015 • Casella responded with a flat rejection, with no counter offer and a clear indication that the
Slide 10: II. History of Poor Performance and Undervaluation
II. History of Poor Performance and Undervaluation 10 JCP INVESTMENT MANAGEMENT
Slide 11: Total Shareholder Return (TSR)
Total Shareholder Return (TSR) Management and the Board have a record of poor shareholder returns despite favorable markets and strong peer performance Casella has materially underperformed Proxy and S&P 500 groups by considerable amounts over 3-, 5-, and 10- year periods (1) Share Price Performance
Slide 12: Shareholder Value Lost
Shareholder Value Lost “The market value of our company – your company – grew by over seventy percent since the pricing of our initial public offering last fall. This growth in shareholder value is the simplest measure of our success.” - John Casella, Shareholder Letter, 1998 IPO 1997 Oct 2015 $18.0
Slide 13: No Increase in Revenue after Cap Ex Spend
No Increase in Revenue after Cap Ex Spend Casella has produced no more revenues today than it had in 2006 after years of significant capital expenditures 900,000 846,079 800,000 700,000 600,000 535,754 500,000 400,000 300,000 200,000 100,000 - 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 LTM Re
Slide 14: Declining EBITDA and EBITDA Margins
Declining EBITDA and EBITDA Margins Casella has not been able to increase EBITDA or EBITDA margins even as it continues to release guidance claiming that to do so 140,000 25.0% 120,000 20.0% 100,000 15.0% 80,000 60,000 10.0% 40,000 5.0% 20,000 0 0.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Slide 15: III. Serious Concerns About Capital Allocation
III. Serious Concerns About Capital Allocation 15 JCP INVESTMENT MANAGEMENT
Slide 16: Serious Concerns About Capital Allocation
Serious Concerns About Capital Allocation Capital allocation at Casella has been categorically subpar for more than a decade with many acquisitions, poor execution of internal efforts and declining cash flow despite ample capex spending Capital Expenditures ̶ Casella’s capital expenditure program is
Slide 17: Years of Capex Without Incremental Growth
Years of Capex Without Incremental Growth For years cash flow has been poorly spent organically and on acquisitions that have generated no incremental EBITDA Casella generated more than $600 million in Cash Flow from Operations over last 10 years with no return +$770 million spent over 10 years
Slide 18: Years of Capex Without Incremental Growth
Years of Capex Without Incremental Growth +$770 million Total Capex over 10yrs No New EBITDA = Shareholder Value Destruction 18 JCP INVESTMENT MANAGEMENT
Slide 19: Poor Acquisition History
Poor Acquisition History In 1999, Casella agreed to pay $340mm for KTI, a waste company primarily involved in recycling and waste to energy. Long term debt boomed from $82mm in FY1999 to $449mm in FY2000 while they also increased the Class A share count over the year by +40% “It is, simply, a very p
Slide 20: Poor Acquisition History
Poor Acquisition History After more than $770mm spent over the past 10 years on capex and other acquisitions, Casella has similar assets as in 1999 January 13, 1999 January 30, 2015 Landfills 6 10 Collection Operations 34 35 Transfer Stations 46 44 Recycling Facilities 13 18 “Would you do it again?”
Slide 21: Poor Acquisition History
Poor Acquisition History “From fiscal year 2003 to fiscal year 2007, we invested approximately $177.5 million of capital to acquire and develop strategically located landfill capacity. Capital spending was elevated during this period as we built-out 25- to 30-year infrastructure and met contractual
Slide 22: IV. Excessive Leverage and Stock Dilution
IV. Excessive Leverage and Stock Dilution 22 JCP INVESTMENT MANAGEMENT
Slide 23: Excessive Leverage
Excessive Leverage • Casella had paid down some of its debt in 2011 after divesting a large portion of the KTI assets; however debt levels are near all time highs again • Debt levels are materially above those of peers and have remained excessively high due in part to failed acquisitions - managemen
Slide 24: Class A Share Dilution
Class A Share Dilution Class A shares outstanding have increased every year since 2000 Class A share issuances have been used by the Board for payments to employees, acquisitions, and de-leveraging the balance sheet – all payments that could have been avoided or controlled by the Board and manag
Slide 25: Casella's Board Needs Large Class A Public Shareholder Representation
Board Lacks Shareholder Representation Significant Debt + Continuous Class A Dilution = CASELLA’S BOARD NEEDS LARGE CLASS A PUBLIC SHAREHOLDER REPRESENTATION 25 JCP INVESTMENT MANAGEMENT
Slide 26: V. Troubling Related Party Transactions and Entrenchment
V. Troubling Related Party Transactions and Entrenchment 26 JCP INVESTMENT MANAGEMENT
Slide 27: Related Party Transactions Continue
Related Party Transactions Continue • The Company has paid +$80 Million to Casella Construction, a company controlled by Chairman and CEO John Casella and his brother Vice Chairman Doug Casella • This large payment on an absolute and relative basis represents almost a third of the market capitalizat
Slide 28: John Casella Has Conflicting Interests with Public Class A Shareholders
Casella Construction, Inc. • Casella does business with Casella Construction • John has significant interests in both • +$80 million in revenues are paid to Casella Construction from Casella for business done over the last +10 years John Casella Has Conflicting Interests with Public Class A Sharehol
Slide 29: Loans to Employees
Loans to Employees • Generally poor practice for the Company to lend money to employees • From 2000 to 2011, the Company made a $1 million loan to the then COO for margin loans he had taken on his stock • The interest rate charged was the prime rate with no maturity, while the Company borrowed at hi
Slide 30: Class A Dilution Continues with No Growth
Class A Dilution Continues with No Growth The Company has a dual class capital structure – while the Class A shares held predominantly by public shareholders have 1 vote per share, the Class B shares held exclusively by Chairman and CEO John Casella and his brother have 10 votes per share This mea
Slide 31: CEO John Casella Has Never Purchased but Consistently Sold Class A Shares
CEO John Casella HAS Never Purchased but Consistently Sold Class A Shares CEO JOHN Trade Date Participants Net Sell (Shares) CASELLA HAS 6/10/2015 CASELLA JOHN W -2,928 7/3/2014 CASELLA JOHN W -10,118 NEVER MADE AN 12/17/2013 CASELLA JOHN W -2,968 OPEN MARKET 12/16/2013 CASELLA JOHN W -32,644 12/13/
Slide 32: VI. Broken Promises & Missed Targets
VI. Broken Promises & Missed Targets 32 JCP INVESTMENT MANAGEMENT
Slide 33: Broken Promises & Missed Targets
Broken Promises & Missed Targets GUIDANCE Announcement January 13th, 1999 June 7th, 2010 July 7th, 2015 2018 Revenue $560m $532 - $542m $525 - $535m 1.7% - 2.6% CAGR EBITDA $145m $123 - $127m $103 - $107m $122 - $132m EPS $1.30 per share - - - Period For FY2000 For FY2011 For CY2015 For CY2018 Sourc
Slide 34: Broken Promises & Missed Targets: Missed Guidance
Broken Promises & Missed Targets GUIDANCE (cont) FY2000 Guidance FY2011 Guidance After the merger, Casella will have Revenues $532.0 million - $542.0 million annualized revenues of approximately $460 million, EBITDA in excess of $115 million, Adjusted EBITDA $123.0 million- $127.0 and total assets i
Slide 35: Broken Promises & Missed Targets: Undelivered Promises
Broken Promises & Missed Targets Decade of increasing leverage LEVERAGE “Over the next three to five years 6.0x we have targeted a leverage of 5.5x three to 3.5 times debt to EBITDA 5.0x and ultimately we believe that bringing our leverage down to this 4.5x 5.6x 5.3x range will reduce our cost of ca
Slide 36: Broken Promises & Missed Targets: Undelivered Promises
Broken Promises & Missed Targets OPERATIONAL “We have numerous operating initiatives including the pricing initiative. So we certainly expected not just the debt to go down, but the EBITDA to rise. And the cash flow numbers really start to jump in 2012 when we take that $24 million a year by then, o
Slide 37: Broken Promises & Missed Targets: Dilution
Broken Promises & Missed Targets DILUTION “We've also been asked by many of our shareholders if we plan to issue equity. Our answer is no. Our stock is extremely undervalued, and we don't have a great use of proceeds and while our leverage is still not at our long-term targeted level, we do not have
Slide 38: Broken Promises & Missed Targets
Broken Promises & Missed Targets “If plantings made confidently are repeatedly followed by disappointing harvests, something is wrong with the farmer. Just as you should be suspicious of managers who pump up short-term earnings by accounting maneuvers, asset sales and the like, so also should you be
Slide 39: Board has Overseen Poor Performance
Board has Overseen Poor Performance • We are fully supportive of Jim O’Connor and believe he will add tremendous value to Casella • Six members of the Board have served for more than 8 years and have overseen Casella’s poor performance • Now is the time for significant change on the Board Years 2015
Slide 40: VII. JCP Opportunities to Create Value
VII. JCP Opportunities to Create Value 40 JCP INVESTMENT MANAGEMENT
Slide 41: Over-Promise, Under-Deliver
Over-Promise, Under-Deliver Another “transformational” plan – one of several since IPO in 1997 A history of over-promising and under-delivering 41 JCP INVESTMENT MANAGEMENT
Slide 42: Competitive Tonnage Market
Competitive Tonnage market We continue to be skeptical that Casella will receive the tons…at $30.00 per ton 42 JCP INVESTMENT MANAGEMENT
Slide 43: Opportunities
Opportunities 1. Monitor Capital Expenditures and Plan 1. Closely monitor the proposed capital expenditure program and transformational plan 2. Assess All Opportunities to Decrease Leverage 1. Assess opportunity to deleverage through asset sales 3. G&A Analysis 1. Corporate Structure Analysis – anal
Slide 44: JCP Plan of Days 1-30
JCP Plan of Days 1-30 JCP has a proven ability to lead a board through the initial transition period without unnecessary distractions to the core operations of the company • Our director candidates are highly experienced and capable of looking holistically at the business for improvements and strate
Slide 45: JCP Plan of Days 31-60
JCP Plan of Days 31-60 We take an open approach to the Board and look to create value for all shareholders based on the information we gather • It is critical that the Board make decisions based on all available information, not simply management presentations • Every contract and asset will be revi
Slide 46: JCP Plan of Days 61-100
JCP Plan of Days 61-100 Within the first 100 days we have a deep fundamental knowledge of all “levers” that can be pulled and we put forward looking plans into motion • Days 61-100 are more focused on the 5 year plan than prior days • It is key during this time period to analyze the strategic plan i
Slide 47: VIII. Conclusion
VIII. Conclusion 47 JCP INVESTMENT MANAGEMENT
Slide 48: We have serious concerns but there is opportunity
We have serious concerns but there is opportunity As shareholders, we have seen massive value destruction over an extended period of time and a Board that has not been held accountable • Operational Concerns – Management has made promises for over a decade of improving cash flows and delevering the
Slide 49: JCP Investment Management
JCP Investment Management The Pantry • $7.5 billion Revenue, +$200 million in EBITDA with 1,500 convenience stores spread across the southeast United States • Proxy vote in March 2014 replacing 3 directors on the Board, with James Pappas, Todd Diener and Josh Schechter joining the Board Opportunity
Slide 50: Brett Frazier will Bring Great Experience
Brett Frazier will Bring Great Experience Brett Frazier’s experience at Waste Management and BFI, especially in the East, is highly relevant to Casella’s issues Brett W. Frazier is currently retired after serving in multiple executive roles for Waste Management, Inc. (NYSE:WM) (“Waste Management”),
Slide 51: Board Needs Change
Board Needs Change JCP has invested significant time and effort in an attempt to reach a settlement agreement with Casella • We are seeking to work constructively with the rest of the Board • Our nominees have corporate governance experience, capital allocation experience, operating experience and w
Slide 52: JCP's Nominees are Ready to Create Value
JCP’s Nominees are Ready to Create Value As shareholders, we have seen massive value destruction over an extended period of time and a Board that has not been held accountable Each of our nominees is highly capable and qualified to help turnaround Casella having waste management, capital allocation