Casella Waste Systems (NASDAQ:CWST) Q4 2020 Earnings Call

0:00 Ladies and gentlemen, thank you for standing by and welcome to the Casella Waste Systems, Inc. Q4 2020 conference call. At this time, all participants are in listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Joe Fusco, Price President Communications.

0:29 Please go ahead, 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, Ned Coletta, our Senior Vice President and Chief Financial Officer, and Jason Mead, our Director of Finance. Today we will be discussing our 2020 fourth quarter and year-end 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 am deeply compelled to 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.

1:26 Actual results may differ materially from those indicated by those 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.

2:13 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 investor section of our website at ir.casella.com. The older I get, the harder it is to breathe through that statement. But with that, I will turn it over to John Casella, who's a little older than me, will begin today's discussion.

2:56 Thanks, Joe. Good morning, everyone. Welcome to our fourth quarter 2020 conference call. We are obviously very pleased with our fourth quarter and 2020 results. This year was unprecedented, and our strong performance and execution highlights the resiliency of our business, along with the courage, dedication, and tenacity of our 2,500 employees. Many thanks again to the men and women on our front lines who performed at an exceptionally high level in providing safe and reliable service to our customers. Our success in 2020 is also credited to other teams across the company, including but certainly not limited to our safety, operating maintenance, sales, customer care, and back office personnel.

3:42 As a company, we are organized and proactive from the onset of the pandemic. We ensured the continued safety of our workforce by adhering to CDC guidelines and state orders. At the same time, we worked with our customers to understand their changing service needs so that we could right-size our service levels and flex variable operating costs. These actions not only helped drive strong results for the year, but also safeguarded our ability to deliver our essential environmental services to our customers. Lower economic activity levels during the year resulted in a decline in solid waste volumes of $40.6 million as compared to 2019. This was primarily driven by lower disposal tonnages, lower volumes in the commercial and industrial collection lines of business.

4:35 Despite this volume headwind and other COVID-related expenses in 2020, on a year-over-year basis, we grew consolidated revenues by 4.2%. improved adjusted EBITDA by 9.5%, while expanding margins by over 100 basis points, increased adjusted free cash flow by 24.7%, and further drove down our consolidated net leverage ratio. Notably, our 2020 adjusted EBITDA and adjusted free cash flow respectfully met and exceeded our initial 2020 guidance ranges as announced in February of last year. Despite solid waste volumes being down $40.6 million year over year, coupled with roughly $2.5 million of COVID-specific costs. During the year, we executed well against our key strategic initiatives.

5:33 Operating pricing programs displayed very significant capital discipline in closed-end acquisitions. Next, I'll provide further details on the recent performance of our operations as well as our continued execution against our key strategies. Starting with disposal volumes, we're again down year over year due to the economic impacts of COVID. That said, similar to what we will highlight within the collection operations, there was sequential improvement in terms of volume recovery from the third quarter to the fourth quarter. Disposal volumes were down 8.7% In the fourth quarter, disposal volumes were down approximately 12% year over year.

6:25 Volumes continued to slowly meter back towards normal seasonal levels. Our printing programs continued to work well and helped to partially offset the impact of lower tonnages in 2020. During the year, we also flexed select variable costs out of our disposal operations to adjust for lower volumes. while of course maintaining our high standards related to safety and compliance. We remain focused on key permitting efforts and furthering our relationships with our host communities as we provide essential resource management infrastructure and services to help meet society's environmental needs. Moving to the collection business. As expected, volumes were again down in the quarter year over year. However, we experienced a modest sequential volume recovery from the third quarter to the fourth quarter as some businesses came back online. Increased service intervals and roll-up activity continued to narrow the gap to normalize seasonal trends. In the fourth quarter, collection volumes were down 3% year-over-year as compared to down over 6% year-over-year in the third quarter. This marked a fairly substantial recovery since the second quarter where collection volumes were down over 10% year-over-year.

7:47 Despite the continued volume headwind, we again increased adjusted EBITDA and margins year-over-year in the quarter. Our performance has been aided by continued investment in technology, automated trucks to better drive collection efficiency, route optimization, and real-time business intelligence. We remain focused on service excellence, operating initiatives, pricing programs, and acquisition integration. On to resource solutions. We continue to drive more value and synergies from resource solutions as we have worked to further integrate our recycling, organics, and customer solutions, sales, and back office teams. As our customers' sustainability needs grow, our resource solution team is well positioned to provide expertise and services required to achieve these goals. As with all other aspects of our business, we are focused on models that are economically and environmentally sustainable.

8:52 Resource Solutions performed well in the quarter and on the year. For the year, revenues were up 9.9% year-over-year with growth within all three operations while improving adjusted EBITDA and expanding margins. Our recycling operation performed particularly well on the year. Our TIP fee and SRA fee programs have allowed us to offtake over 90% of the recycling commodity risk. We continue to make operational improvements through various initiatives while at the same time prioritizing safety on the processing lines. Our customer solutions and organics businesses continue to focus on driving value through low capital intensity business model while growing the business through the addition of profitable new customers, gaining share of wallet across new services with existing customers, and increasing vertical integration opportunities.

9:50 Finally, I'll highlight our capital allocation and growth strategy. In 2020, we closed 10 acquisitions with approximately $22 million of annualized revenue, while our acquisition growth was somewhat modest in the year due to COVID-19 travel restrictions Our pipeline remains strong with over $400 million of annualized revenues and opportunities. We ended the year with over $300 million of liquidity, including $154 million in cash. We are poised to opportunistically put capital to work in a return-driven manner on deals with that strategic fit that will drive further free cash flow growth.

10:35 Thus far in 2021, we have closed one tuck-in acquisition in western New York with approximately $4 million in annualized revenue. The collection operation will nicely complement our operations, and we welcome aboard the hardworking folks that are new to the Casella team. And with that, I'll turn it over to Ned to walk you through the financials.

10:58 Thanks, Todd. Revenues in the fourth quarter were $200.2 million, up $6.6 million, or up 3.4% year-over-year, with 2.2% of the year-over-year change driven by acquisition activity. Solid waste revenues were up 1% year-over-year, with price up 3.9%, 2.7% growth from acquisitions, and volumes down 4.6%. This is a sequential improvement from the third quarter when solid waste volumes were down 8.4% year over year. Revenues in the collection line of business were up 2.7% year over year, with price up 3.8% and volumes down 3%. With roughly 70% of our business in secondary and rural markets across the Northeast, we have experienced a stable to improving economy since the low point of COVID in late April through mid-October. However, with the ramp-up of COVID cases in November and December, we had select commercial customers reduce their service levels.

12:02 However, this impact was limited, it was short-lived, and it was further offset by winter seasonal businesses coming back online. By early February, we're back to roughly the same levels at a run rate basis as we were in October. Or said another way, we've recovered roughly 70% of the commercial and industrial collection services on a revenue basis that were reduced or suspended due to COVID. Revenues in the disposal line of business were down 3.3% year-over-year in the quarter, with landfill pricing up 5.6%. Landfill tons were down 10.5% year-over-year, as economic activity and construction projects were both negatively impacted by COVID-19, and we also had some timing differences year-over-year at the end of the permit year.

12:56 Resource Solutions revenues were up 11.1% year-over-year, with organics up 6.2% on new contracted volumes and additional processing. Customer Solutions up 5%, mainly driven by growth of our services, our existing customers, and some new industrial customers as well. And Recycling revenues were up 29.7%, mainly driven by higher commodity pricing and higher volumes. Our average commodity revenue per ton was up 79% year-over-year in the quarter, and this is on substantially higher cardboard and mixed paper pricing, higher metals pricing, partially offset by lower plastics pricing. Adjusted EBITDA was $42.6 million in the quarter, up $1.5 million, or 3.7% year-over-year, and adjusted EBITDA margins were 21.3% in the quarter, up 10 basis points.

13:52 Improving adjusted EBITDA was a huge achievement in the quarter, given the COVID headwinds. We saw our solid waste volumes down $6.9 million year over year, translating to roughly a $3.5 million adjusted EBITDA headwind from COVID. In addition, we had roughly $200,000 of COVID-specific costs during the quarter. Solid waste adjusted EBITDA was $38.6 million in the quarter, with collection adjusted EBITDA up and disposal slightly down. Resource solutions adjusted EBITDA was $3.9 million in the quarter, up $900,000 year-over-year with improvements in our recycling and organic segments.

14:38 Cost of operations in the fourth quarter were up $2.3 million year-over-year but down 110 basis points as a percentage of revenues. and our general administrative costs in the fourth quarter were up $2.8 million year-over-year with roughly $2.5 million of the increase driven by higher bonus and equity accruals due to timing differences year-over-year and $900,000 associated with severance during the period. As you may have noted from our press release, our fourth quarter had one very large unique item included. We had a $55 million benefit to income taxes due to the reversal of a valuation allowance on the majority of our net operating loss carry-fors and other deferred tax assets. We determined that the majority of our deferred tax assets would be realized in the future given our significant cumulative consolidated income over the last three fiscal years.

15:38 As of December 31st, We had $548.4 million of debt, $154.3 million of cash, and liquidity of $327.9 million. Our consolidated net leverage ratio, as defined by our credit facility, was 2.76 times at December 31st. However, if we net 100% of our cash against our debt, our true leverage ratio was 2.18 times. As John mentioned, we believe our capital structure is in a great position and will allow us to execute efficiently against our strategy to grow through investments and acquisitions in the coming year. Net cash provided to operating activities was $139.9 million year-to-date. This is up $23.1 million year-over-year, and this is driven by higher operating results and positive changes in our assets and liabilities year-over-year. We did an outstanding job on our accounts receivable during the year, with our day sales outstanding at 34.9 days at December 31st. This is down 4.3 days from last year.

16:49 We entered the COVID-19 pandemic with a stable and mature credit and collections program, and during the pandemic, we've improved our customer outreach and communications and created additional flexibility as needed. However, as noted last quarter, we have taken a conservative stance on the recoverability of accounts midterm, especially now that the federal stimulus programs are starting to wind down. Our bad debt accrual was up $800,000 year over year. Given the strong positive working capital management throughout 2020, we chose to repay our entire CARES Act payroll tax deferral of $5 million in December, and we also accelerated payments to our vendors bringing our days payable outstanding down by 15 days year-over-year.

17:36 Adjusted free cash flow was $69.1 million for 2020, up $13.7 million or up 24.7% year-over-year. We continue to invest in planned capital expenditures and newly acquired operations during the quarter to drive operating synergies and integration efforts and we also continue to invest in the development of the Phase 6 landfill expansion at the WasteUSA landfill. As stated in our press release yesterday afternoon, we announced guidance for fiscal year 2020 by estimating results for revenues adjusted to EBITDA and adjusted free cash flow. You can read those in our earnings release. As we pointed out in our earnings release, Our guidance ranges assume a stable economic environment and no new severe impacts from COVID or large shutdowns.

18:28 Our 2021 guidance does include a 1.5% revenue growth from the rollover of acquisitions completed in 2020 and those already completed in early 2021. However, our guidance does not include the impact of any acquisitions that have yet to be completed. We have some specific Guidance percentages in our press release as well that you can refer to. One thing you will note in our press release is that given the reversal of our tax valuation allowance in fiscal 2020, we now expect income statement tax provision of roughly 30% in fiscal 2021. However, our cash taxes are expected to remain at approximately $1.5 million in 2021.

19:17 In addition, we had roughly $140 million of net operating losses remaining at December 31st, which we expect will help us to minimize cash taxes for the next three to four years. One question we get quite often is, can we just bridge simply our adjusted EBITDA year over year? And looking at a simple bridge, we're expecting our collection adjusted EBITDA to be up $7 to $8 million year over year. Our disposal to be up $4 to $5 million year over year. Our resource solutions to be up $1 to $2 million year over year. Roughly $2.5 million of benefit from acquisitions and about $1 to $2 million of headwinds, mainly on the G&A side as we scale G&A to new revenues and acquisitions. And with that, I'll pass it to Ed.

20:09 Thanks, Ned, and good morning, everyone. Operationally, we had a strong finish to the year, and I continue to be impressed by the focus and discipline of our frontline workers and management. Our ability to flex costs on lower revenue during the continuing pandemic while protecting our workforce and customers is testament to our culture and the quality of our people, and I'm extremely grateful to the team for their hard work. Consolidated cost of ops as a percentage of revenue improved by about 110 basis points over Q4 last year, which in turn was 206 basis points better than Q4 of the year before, driven by price and improved operating costs for the collection business at the landfills and at our resource solutions businesses.

20:57 For the full year, despite the early extra cost and reduced revenue from COVID, consolidated cost of ops improved 186 basis points. Our collection operations, which generate over 50% of our revenue, improved cost of ops by 166 basis points in the quarter and 163 basis points for the full year. We improved our overall variable margin contribution per driver hour, which is our key productivity metric, by 4.4% for the year. Though all divisions performed well, I'm particularly pleased with the maturation of our 2018 acquisitions where we have succeeded in moving margins up to company averages and are ahead of our original pro forma expectations.

21:47 I have mentioned in the past that acquisitions tend to dilute our margins for a couple of years as it takes time to get pricing where it should be and to increase the level of automation appropriate to the operations. The current results prove out our ability to transition the acquired companies to our culture and our operating standards. As we continue with our growth strategy, it is our goal to find ways to shorten this time frame, but we are pleased with our execution. Our resource solutions group had an outstanding year as well and also finished with a strong Q4. As you may recall, this group was challenged this past year with reorganizing our recycling, organics, industrial solutions, and major account segments into a more effective organization structured between processing and non-processing activities.

22:38 Throw COVID on top of that challenge and the results are even more impressive. The group improved cost of ops for the year by 226 basis points and contributed an additional $4 million of adjusted EBITDA to the consolidated results. Landfill ops, despite lower volume due to the pandemic, continue to produce better margins through reduced cost. Tonnage was down from last year's fourth quarter 10.5%, and as I pointed out in the past, landfills are high fixed cost operations and expected to experience margin squeeze when tonnage is down. So it's pretty significant that the cost of ops percentage improved by 80 basis points for the quarter. For the full year, our landfills continue to hit their high operational metric and compliance standards, Notably, the New York landfills showed marked improvement from a year ago with reduced odor issues, improved turn times for the trucks coming into the facilities, and improved regulatory compliance.

23:39 All in all, a great performance by the landfill team. So, I'll keep it brief. We finished the year strong and are excited about the opportunities in front of us going into the new year and look forward to your questions. I'd like to now turn it back to the operator to start the Q&A. Thank you. As a reminder, to ask a question, you'll need to press star 1 on your telephone. To reply to your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Sean Eastman with QBain Technical Markets. You may proceed with your question.

24:14 Hi, guys. Nice morning.

24:18 Thanks for taking my questions.

24:21 I just wanted to start on the guidance. So, you know, you guys made it clear that, you know, you're kind of assuming status quo sort of macro backdrop. But just given the volume range, you know, it's fairly wide, 1% to 2.5%. Is there, you know, some reopening sort of reflected at the high end? You know, how should we be thinking about it, you know, within the range range? Thank you for joining us.

25:19 a bit in late November into December. And now into February, we're right back to where we were in October. So that is a positive, but I think we're making a little bit of a wider range than we typically do because we just don't know. We're all very excited about the vaccine news, but the rollout appears to be slow across many of our market areas. And something we pointed out last fiscal year is our secondary vaccine and more rural markets have really weathered the storm quite well. And, yes, we do have declines in volumes and some economic impacts, but probably some of the larger impacts we have have been in the major metropolitan areas. We don't haul waste to New York City, but we have customers who bring us waste to our landfills from the city, and that's been probably the slowest to recover to date.

26:12 Okay, gotcha. All right, that's helpful. And the dollar EBITDA bridge, you know, is always helpful, Ned, so I appreciate that. But, you know, as we look at it from a margin perspective, you know, the guidance implies 50 basis points of expansion. You know, I think that's consistent with sort of the preliminary expectations we messaged last quarter.

26:33 But, you know, is there any other interesting elements to parse out there from a margin expansion perspective in terms of the moving pieces?

26:42 There's really not a lot more to it. I think as we look at it, we expect our core pricing programs and our core operating programs to advance in 2021. And as you look back to 2020, something we get asked quite often are, are there margin improvements from COVID that you expect to roll into 2021, or are you going to lose some of them? And there's a lot of moving pieces here, and we've cited this a bunch of different ways. And the best we can tell is, you know, in the year, we had about 100 basis points of headwinds from COVID on margins, and we had about 100 basis points of health on margins from COVID-specific issues of things like T&E, you know, overtime, health care, things like that, the health.

27:33 We feel like the patterns we had coming into COVID when we were expanding margins and we were outpacing inflation with things like dynamic route optimization, automation of trucks, and some of our other key initiatives are what will carry margins into next year.

27:51 Got it. So maybe just drilling in on those sort of systems enhancements, you know, how much of the 110 basis points of expansion in 2020 do you think those drove? And maybe more importantly, you know, how much sort of juice is left in the tank on those programs as we think about to go forward?

28:13 So we did quite a bit of automation during the second half of 2020. and we have more automation taking place in the first quarter of 21. So, you know, it's, you know, a guess as to how much of that margin improvement was from that. But a good chunk of it, at least a third of the margin improvement was related to that.

28:38 And about 40% of our residential fleet, 40, 45% is automated today. So it's a long way to go. We have a lot of opportunity.

28:49 Okay, terrific.

28:50 Thanks, guys. I'll turn it over. Thank you. Thanks, John. Thank you. Our next question comes from Michael Hoffman with Stiefel. You may proceed with your question.

29:01 So, John, Joe's opened the door here. I'm supposed to call you old-timer now?

29:08 I think so. Well, you could reflect on Joe that way as well.

29:18 That just reminds me of Dumb and Dumber, right? The mirror closing in New Haven, how would you prognosticate, if you would, the impact of 700,000 tons coming out on your assets to be disposable assets, whether transfer stations or landfill, to be able to drive another layer of pricing?

29:46 I think that the indications are that that's going to happen in 2022. I think that it could really be another issue in terms of the supply and demand imbalance, as you know, Michael. And I think, obviously, we're really well positioned. We're doing more work with McKean. We believe that we need to bring McKean on. It'll be a couple-year process to go through the process in terms of additional permitting that we need to do in construction, but it's our view that that capacity, instead of being an option, is probably going to be necessary in the future. And I think there's other activity from a permitting standpoint that is questionable at this point in time, in addition to The 700,000 tons at MIRA.

30:49 There are other facilities that are questionable in terms of whether they're going to operate into the future in the Northeast. So I think that we're going to see, we said this before, we're going to see the same kind of dynamics for the next three to five years in the Northeast in terms of the imbalance, which should bode well for our assets.

31:12 So Is it reasonable to try and model a 5% to 6% price increase on disposal for a while?

31:20 We don't see anything that disrupts that pattern, but we're still in the place where these assets, as you know, are extremely capital intensive. The regulatory and environmental compliance issues are getting greater, and we need to drive higher returns on invested capital at each of these sites. So that's our game plan, and we don't see anything that disrupts it.

31:43 Okay, and then I'm going to interchange these two names. I can't remember whether it's Highland or Hakes. You've got the community vote came through on a pretty meaningful increase. That was Highland. Highland. How's the progress of the DEP on that part?

32:01 I think that that progress is going well, Michael. I think the biggest hurdle, in our view, was getting through the community, and we had a unanimous vote. in the community to move forward with the project from the select board. And then obviously we won the referendum on a very positive basis as well. So that facility has the capability to go from 470,000 tons to a million tons a year. And we have a very significant additional development in terms of acreage. So we'll have another, I guess, you know, just, what is it, 100 acres?

32:49 Another... 107 acres.

32:52 Yeah, 107 acres of potentially approvable capacity. So we're going to be there for a lot of years. That facility will be performing at a much higher level than it is today.

33:05 Okay. You mentioned that service intervals were positive sequentially. In your guidance, Ned, what's your assumption about the underlying service interval pattern? Yeah, so let's see.

33:21 So we do expect volumes to be down a bit in Q1 overall as a company because we didn't have a meaningful COVID impact in Q1 of 2020. However, We expect a moderate to slightly positive recovery from COVID through the first quarter and into the second quarter. And then we've modeled kind of getting to that 70% recovery. So the 30% that we lost early in COVID, we just don't see a pathway to that coming back on the collection side. And that's roughly like $8 million to $9 million of revenues.

34:10 The remainder of the $40 million that John spoke to is in landfill volumes and some in the roll-off collection business as well. And once again, we've put a little bit of a wide range on that because I think your guess is as good as ours of when that will come back or how long it will take.

34:33 Okay, so that's – it's upside to the opportunity depending on like if – New York finally wakes up and realizes they probably ought to restart their economy. All that volume at third-party base that goes to disposal coming out of the lower New York starts showing up. That's all upside to the guidance.

34:55 It's part of its upside. So we do have a range there, you know, up. Jason, what's your range again? The midpoint of our solid waste volume guidance. and some of its additional upside.

35:14 Okay. All right.

35:19 That helps. And then capital spending, what's the line of sight where we no longer have conversations about having to talk about big, chunky adjustments like WasteUSA for instance, the $13 million. And then I want to just make sure the $10 million for Southbridge to finalize that close and remediation, is that in the 113 or is that going through the cash flow statement somewhere else?

35:46 So Southbridge is going through the statement of cash flows. It will be a reduction of short-term liabilities. So it will be a negative hit to working capital as we work down the closure liability. And we expect to and substantially complete Southbridge this year. It's been a tough road with the regulators. Right now our plan is to have about 80% to 90% of that done in 2021, but there are some things outside of our control. WasteUSA, we will complete that site in the development this year, and it's about $13 million of capital to complete that 25-year development project. and, you know, we won't call that out going forward.

36:34 So, thinking about modeling, long-term modeling, I can take $113 and pull $13 million out of it, all things being equal, in the next year, just as a starting place? Yes. And then the cash flow from ops is $10 million better as a starting place, all else

36:51 being equal? No. Yes, we don't see any major capping or closure activities. I mean, there's always some that's routine, but nothing like the Southbridge project.

37:01 Okay, and then you spent about $33 million on deals per the cash flow statement. What's the basis of the $15 million that's in CapEx for Waste? You know, quite a bit of that was related to acquisitions we completed in late 2019. So we

37:37 We look for about a year to 18 months after we completed acquisition of all of our enhancements to fleet, integration, those matters. We're putting them into that basket. So it wasn't really all related to assets in 2020. And furthermore, as you know, Michael, it takes 12 to 15 months to get a truck right now if you place an order. So, you know, some of those plans were put into motion upwards of a year earlier, and the assets arrived in 2021.

38:07 Okay. And then lastly, you have recently talked about there's about 100 million of active dialogue out of the 400 million sort of pipeline. From an M&A standpoint, you've done four of that. So I've got 96 million left of the active pipeline. What's your sense of the probability of close and timings? And I get it's not in guidance, but just so we have a feel for what we're looking at.

38:38 I think, you know, a good portion of that, Michael, obviously still in works. And I think, you know, a good portion of that will be in the second half of the year. Okay.

38:49 All right. Terrific. Thank you very much. Thank you, Michael. Thanks, Michael. See you, old-timer.

38:57 I can live that down, Joe. Thank you. Our next question comes from Tyler Brown with Raymond James. You may proceed with your question.

39:07 Hey, good morning, guys. Hey, Tyler. Good morning. I've got to be honest. A lot of my questions have been answered. You guys have talked about quite a bit of stuff here. But I do have a conceptual question, and it may be a tough one to answer at this point. But, Matt, I thought you said that maybe 70% of your revenue is in rural or secondary markets. Do you guys believe that there is a real de-urbanization trend in the Northeast? Are you seeing that maybe in your resi subscription market pick up in those rural markets, or Is that just transitory, or do you think there's something bigger afoot?

39:43 It's really hard to say at this point in time, Tyler, but there's no question that there is something afoot. To be able to characterize that correctly, I think it's a little bit early, but what we can characterize is the movement of real estate in the entire Northeast, particularly around the ski areas, around the vacation areas, Property that hasn't moved in over a decade is all sold at this point in time. So there's a lot of movement that we can see and feel from a real estate standpoint, which is impacting positively volumes. But to be able to characterize it, I think it's still a little early. But certainly, there's significant activity from a real estate standpoint that supports The perspective that there is a movement.

41:02 I don't know if you've seen any activity. I don't know if RIGS are repositioning there. But I'm just curious, have you seen anything happen there? Do you think that's an opportunity? Just any broad thoughts there?

41:14 Yeah, it's definitely been a headwind to us for the last year. And, you know, activity is dramatically lower than it was in 2011, 2012. and we have not budgeted or forecasted any of that to come back in in 2021. So to your point, if there is some additional activity there, it could be a positive. But we're talking like millions of dollars, not like tens of millions of dollars of positive revenues. It's never been a huge part of our business and it's primarily McKean.

41:54 Yeah, okay, okay, that's helpful. Well, like I said, most of my questions have been answered, so I appreciate the time.

41:59 Thank you, Tyler.

42:00 Thanks, Tyler. Yep. Hey, here, as a reminder, to ask a question, you'll need to press star 1 on your telephone. Our next question comes from Ramzan Mazari with Jeffrey, and we proceed with your question.

42:13 Hey, good morning. Thank you. I guess just a question on pricing. Is the difference between the low-end and the high-end of pricing just price relief for commercial customers, or anything going on on the disposal side that sort of equates to that range?

42:34 Yeah, it's always – we get a lot of our pricing lowing this time of the year, in December, January, February, and – Thank you for joining us. Thank you. Got it.

43:34 Gotcha. And then just, you know, you talked about flexing variable costs down and, you know, margin expansion, 100 bps plus, I guess you saw in 2020. Just any thoughts on incremental margins, how to think about that for the business today?

43:53 Do you want to hop in on that? Yeah, so, you know, as we're looking ahead for this year and the years after, you know, we've been trying to evaluate How much of a COVID effect, either positive or negative, was last year, even though we had significant margin improvement? And I think Ned pointed out pretty well, as we dig into that, we see it as almost a wash. I mean, there's a little higher disposal cost per pickup on the resi side, but it's offset by lower tons or pounds per yard on the commercial side. So a lot of what the margin improvement has been has been our operational initiatives, and we continue with those initiatives. So we're pretty confident that we can continue to improve the margin. I think we said we had 50 basis points

44:46 in. Yeah. And tacking on to that, it's an interesting strategic point, but you did notice that our G&A as a percentage of revenue was up year over year. And when COVID hit, we sat down and thought this through very clearly. We're investing in some very important midterm areas in the business, whether it be on the HR side or on the technology side, that we believe position us and our shareholders very well for the next several years. And we did not cut those programs. We continue to invest in some areas. We invested a little bit more to accelerate. And we see some of those investments actually translating to improvements of the operating side, like our new dynamic route optimization software is having a real impact on the ground, taking out operating hours. But, you know, as we roll back into some of those revenues we lost from COVID and as we grow other areas, we're going to get some scale back on G&A, and it's definitely another area of HOMSA that we're going to gain margin.

45:47 Great. Thank you so much, Dr. Hernadova.

45:50 Thank you. Thank you, and I'm not showing any further questions at this time. I would now like to turn the call back over to John Casella for any further remarks.

46:02 Thanks, everyone, for your attention this morning. As reflected in our 2020 results and 2021 guidance, we're executing really well against our key strategies. In August 2017, we announced our 2021 plan. I'm proud to say we've achieved this plan one year early. We're in the process of developing our 2024 plan, and we'll look forward to providing an update later in the year. Thanks, everybody, for joining us this morning. We look forward to discussing our first quarter 2021 earnings with you in late April. Thanks, everybody. Have a great day. Thank you. Ladies and gentlemen, this concludes today's conference call. Thanks for participating. You may now disconnect.