Tetra Tech Inc

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Hello and welcome to Casella Waste Systems, Inc. Q4 2024 Conference Call. [Operator Instructions]

I would now like to turn the conference over to Jason Mead. You may begin.

Good morning. Today, we'll be discussing our fourth quarter and full year 2024 results, which were released yesterday afternoon. This morning, I'm joined by John Casella, Chairman and Chief Executive Officer; Ned Coletta, our President; Brad Helgeson, Executive Vice President and Chief Financial Officer; and Sean Steves. Senior Vice President and Chief Operating Officer of Solid Waste operations.

After a review of these results and an update on the company's activities and business environment, we will be happy to take your questions. But first, please be aware that various remarks we 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 recently filed Form 10-Q 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 in 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 subsequent date to today, February 13, 2025. Also during this call, we'll be referring to non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. Reconciliations of the non-GAAP financial measures are to the most directly comparable GAAP measures, to the extent they are available without unreasonable effort, and they are included in our press release filed on Form 8-K with the SEC.

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

Thanks, Jason. Good morning, everyone, and welcome to our fourth quarter 2024 conference call. This is another great year for the company. We really performed well against our key strategies, maintaining focus on our core competencies and continue to grow the business in a meaningful manner. Very proud of all that we've accomplished this year, and I truly appreciate the efforts around the organization that have supported our execution and growth thus far. We have tremendous opportunities again in 2025 and to drive value, and I'm very much looking forward to the year ahead.

We closed 8 acquisitions in 2024 with over $200 million in annualized revenues. And we are off to a fast start in 2025 with 3 acquisitions closing to date with approximately $40 million in annualized revenues. Consistent with the last few years, we are working on several deals, and we're poised to put our balance sheet to work. It's amazing to consider our growth over the last 2 years, we've acquired over $500 million in revenues and put over $1 billion of capital to work. However, I find it equally remarkable that we are now a company of more than 5,000 employees with operations in 10 states and have welcomed hundreds of thousands of new customers to Casella over the last couple of years. In particular, our new markets enable us to further build our brand through great service, community engagement to and to support new business opportunities. and to bolt on with acquisitions that have the right strategic fit, terrific opportunity across the entire footprint with many opportunities from a tuck-in standpoint.

In further highlighting 2024, we grew revenues, adjusted EBITDA and adjusted free cash flow by all over 20%. That marks 3 years in a row of adjusted EBITDA growth of over 20%. We also maintain a low leverage profile. Clearly, this speaks to our disciplined growth strategy, focus on integration and the strength of our pricing and operating programs. Our landfills provide us with an excellent in-market position, although C&D and special volumes were down in 2024 due to various external dynamics, we're optimistic that we will experience modest volume growth in 2025 as these pressures ease. Further, our McKean rail landfill is online and provides us with a long-term opportunity to meet the disposal needs of our customers as well as potentially partner with third parties that are seeking capacity. As we've grown the business, we have also increased our ability to internalize tonnages. This has been a focus in 2024 and will continue to be so in 2025. Shifting to our collection business.

It has another strong year across our collection operations with year-over-year adjusted EBITDA margin expansion in the base business of over 100 basis points. Sean and his team continue to look for those opportunities from a synergy standpoint, from a technology perspective in terms of driving our operating costs down. This accomplishment is a reflection of our continued investment in automation, further rollout of in-cab technology and routing programs as well as our flexible pricing. Most of our acquisition growth over the last several years has been in the collection line of business. In fact, now over 60% of our consolidated revenues are in collection.

As expected, the acquired businesses usually have initial margins at lower levels as compared to our typical collection business, which presents the ability to improve operations over time as we integrate and take the business to our operating standards. Sean and the team are focused on driving further value here in 2025. In Resource Solutions, we had one of the best years in the history across our recycling processing operations in national accounts business. We invested in and upgraded our Boston recycling facility in '23. The operation performed very, very well in 2024. In fact, better than expected. And was a contributor to our success in the year.

In early 2025, we wrapped up a similar upgrade in Willman, Connecticut. The operation was offline for part of 2024, but is now up and running. As planned, it will take a few weeks to calibrate the new system, but we're excited to have that project complete. In our national accounts business, we grew volumes by over 4% in 2024. Our sales organization won new municipal, commercial, industrial and institutional accounts while also growing our service with existing accounts. Given the expertise of our team, our expanding operating footprint in our sales pipeline, we are positioned well to continue to grow this resource management offering. This marks the 50th year of the company. And as I reflect on where we started from the simple beginning that Doug started with that [ one truck ] and the construction of our first recycling facility in 1977, I feel absolutely blessed to have been a part of this. And so incredibly proud of what we have been able to achieve collectively. We are the product of hard work and best perseverance of so many people over the years. As we look ahead, this is the best team that I've worked with, it's exceptional. We have a lot of momentum going into 2025, and I look forward to our continued execution and growth.

And now I'll pass it on to Brad to go through some of the financial details.

Thanks, John, and good morning, everyone. Revenues in the fourth quarter were $427.5 million, up $67.9 million or 18.9% year-over-year with $50.1 million from acquisitions, including rollover and $17.8 million for organic growth or 4.9%. Solid waste revenues were up 21.4% year-over-year with acquisition growth of 17.8%, price up 5.4% and volumes down 1.8%. Within solid waste, price in the collection line of business was up 6.2% and volume down 0.7%. Price was up 7.3% in the frontload commercial business up 6.1% in residential and up 5% in roll-off. Volume declines were concentrated in our Mid-Atlantic region with a higher rate of churn as we work to improve the quality of revenue and margins in those recently acquired businesses. Collection volume was flat to positive elsewhere in our footprint across all lines of business. Revenues in the disposal line of business were up 1.4% year-over-year with transfer and transportation revenue up 5.8% and landfill revenue down 5%.

Landfill price growth of 3.2% was offset by lower volume of 8.2% in revenue terms. And the W tons into the landfills were up 4.8% in the quarter, but we saw a continued weakness in special waste, C&D and other tons with those streams down 11.8% year-over-year. The average price per ton at the landfills was up 5.1% year-over-year, reflecting a mix shift away from lower-priced streams as we help the line on price in the face of volume pressure and prioritize preserving our valuable airspace. Resource Solutions revenues were up 9.7% year-over-year with recycling and other processing revenue, up 8.1% and national accounts up 10.7%.

Within processing operations, price was up 10.7%, driven by an increase of 13% in average commodity revenue over Q4 last year. Commodity prices overall remain firm so far this year with recent softness in the fiber market, largely offsetting strength in plastics and aluminum. Processing volume in revenue terms was down 2.5% and driven by the municipal biosolids business as we have been more price sensitive in renewing municipal contracts in light of processing capacity constraints. I'd like to note that the Willimantic recycling facility came back online as scheduled in January. And following a shakeout period, we expect the facility to roughly double its processing speed initially allowing us to produce operating costs by going from 2 shifts to 1.

Adjusted EBITDA was $95 million in the quarter, up $12.8 million or 15.6% year-over-year with $11.5 million from acquisitions, including rollover and $1.3 million from organic growth. Adjusted EBITDA margins were 22.2% in the quarter, down 60 basis points year-over-year. Bridging the year-over-year change in adjusted EBITDA margin in the quarter, higher annual and long-term incentive compensation expense, driven by the strong adjusted free cash flow generation in 2024 impacted EBITDA in the quarter by approximately $5.5 million, representing 125 basis points of margin headwind as the adjustment to the full year accrual was concentrated in the fourth quarter, magnifying the impact.

Margins across the rest of the base business were up 55 basis points, and acquisitions represented a further tailwind of 10 basis points in the quarter. Cost of operations were $285.6 million in the quarter, up $46.5 million year-over-year, with $35.3 million of the increase from acquisitions and $11.2 million in the base business. Cost of operations in the base business were down approximately 30 basis points as a percentage of revenue in the quarter, reflecting continued operating leverage in the collection business and lower landfill costs such as we shape.

General and administrative costs were $52.2 million in the quarter, up $9.1 million year-over-year. For fiscal year 2024, G&A costs were down 10 basis points as a percentage of revenue. In gross dollars, this expense line reflects increased spend to support our growth and invest in the technology that will enable us to scale effectively. But in percentage terms, we expect to continue to gain leverage here over time as we grow. Depreciation and amortization costs were up $11.7 million year-over-year with all of that increase or $12.4 million resulting from the recent acquisition activity, including the amortization of acquired intangibles.

As a reference, D&A associated with acquisitions was approximately 25% of acquired revenues in the quarter as compared to 14% for our base business. GAAP net income was $4.9 million in the quarter, up $6 million year-over-year, with the charge for the landfill cap [indiscernible] failure at the Ontario County landfill in Q4 last year, compared to a partial recovery related to that event in Q4 this year. This recovery in the P&L resulted from a settlement payment from one of the contractors involved in the capping as well as an engineering assessment that more of the cap can be retained than originally estimated.

I'd like to take a moment to discuss the change to the calculation of our non-GAAP metrics adjusted net income, adjusted EPS and adjusted operating income. Beginning with our presentation of 2024 results and going forward, we will further adjust these metrics to exclude the amortization of acquired intangibles. As we've discussed in the past, this amortization expense significantly weighed on the income statement in the early years of an acquisition with an amortization schedule that expenses approximately 50% of the purchase price allocated to intangibles such as customer lists and noncompetes in the first 3 years.

We believe that this change will present a much clearer picture of the underlying trends in our business performance as we execute on our acquisition growth strategy that we believe is creating significant long-term value for our shareholders. On this basis, adjusted net income was $25.8 million in the quarter, up $8.7 million compared to prior year, with acquisitions and organic growth driving this increase. Adjusted EPS was $0.41 in the quarter and $1.35 for fiscal year 2024. Our book income tax rate was 35.7% for the year with nondeductible expenses and discrete items pushing the rate above our statutory rate of approximately 27%, including state taxes.

The reason this effective rate is higher than previous years is that lower GAAP net income in 2024, driven by acquisition-related expenses and amortization of intangibles magnifies the impact of permanent differences and discrete items on the rate. We paid $6.8 million in cash taxes in 2024, which included over payments that will be applied to 2025 and we expect to pay approximately $5 million again this year. We entered 2025 with an estimated $83 million of NOLs, which we expect will shield the vast majority of our federal tax liability in 2025. Assuming all else equal from a tax legislation and future acquisitions, we will begin to pay federal tax more meaningfully in 2026, but we expect to have more clarity on this outlook as the year progresses.

Net cash provided by operating activities was $281.4 million in 2024, up $48.3 million year-over-year, mirroring our strong EBITDA growth for the year. Adjusted free cash flow was $158.3 million, up $30 million year-over-year or 23%. This came in above the high end of our guidance range, boosted by strong AR collections to finish the year with DSO of 36 days at December 31, down from 41 days of the year prior. As I mentioned earlier this year, we struggled with collections at the operations acquired from GFL in our Mid-Atlantic region as a result of the transition services period for the carve-out of that business. However, we've been able to make good progress on turning this around over the past several months bringing DSO in the Mid-Atlantic region down from 56 days at June 30 to 42 days at year-end. By comparison, the rest of Casella was at 35 days at December 31. So we still have a lot of work to do here, but it's certainly heading in the right direction. As of December 31, we had $1.1 billion of debt and $383 million of cash in our consolidated net leverage ratio for purposes of our bank covenants was 2.54x.

As of today, after acquisitions completed thus far in 2025, and we maintained approximately $900 million of potential financing capacity between excess cash and undrawn revolver. As laid out in our press release yesterday, we announced financial guidance for 2025. This guidance includes revenue in the range of $1.775 billion to $1.805 billion or 15% growth at the midpoint; adjusted EBITDA in the range of $410 million to $425 million or 16% growth at the midpoint and adjusted free cash flow in the range of $165 million to $180 million. Our guidance ranges reflect acquisitions completed to date in 2025 and assume a stable economic environment for the balance of the year. While we expect to continue to be acquisitive this year, our guidance does not reflect any further acquisition activity nor does it assume any material changes in the inflation outlook for tariff policy.

On the top line, our guidance includes $170 million from acquisitions or approximately 11% growth which includes both rollover and the impact of approximately $40 million in annualized revenue acquired so far in Q1 and approximately 4% organic growth at the midpoint. In the solid waste business, we're planning pricing of approximately 5%, which we aim to cover and stay ahead of inflation. As a reminder, we retained pricing flexibility across approximately 2/3 of our collection revenue so we are well positioned to respond to changing conditions if necessary as the year progresses. Solid waste volumes are expected to be flat to down 1%, with continued churn in our collection book of business reflected in that estimate particularly with our new acquisitions in the Mid-Atlantic region.

Bridging 2024 adjusted EBITDA to our guidance, $30 million to $35 million is from acquisitions and approximately $25 million or 7% and is base business organic growth at the midpoint. Our adjusted EBITDA guidance implies a margin range of approximately flat to 40 basis points of margin improvement in 2025 and with underlying base business margin expansion of approximately 50 basis points at the midpoint of guidance. This improvement is expected to be driven by strong pricing, ongoing operating improvements in our collection business, the benefit of the Willimantic recycling facility coming back online following the completion of that retrofit and improved landfill volumes year-over-year, including the benefit of increased internalization of MSW times from our existing operations in our Western region and the Royal acquisition, partially offset by a headwind of approximately 10 basis points related to increased investment in technology.

This business margin expansion is expected to be partially offset by acquisitions contributing at a lower initial adjusted EBITDA margin than our consolidated margin, representing a headwind of approximately 30 to 40 basis points. We expect adjusted free cash flow to grow at approximately 9% at the midpoint of guidance, taking into account the strong working capital performance to finish 2024 but our goal remains 10% to 15% annually, and we'll work hard as a team to achieve that. Our guidance reflects investing significantly in the business with capital expenditures of approximately $215 million which includes approximately $45 million of upfront spend in connection with recent acquisitions.

With that, I'll turn it over to Nick.

Thanks, Brad, and good morning, everyone. As John mentioned, I'm also extremely proud of our team and their continued advancement of our key strategies throughout 2024. We made excellent progress with our growth initiatives, including on organic sales growth acquisitions and long-term development projects. Our operating teams executed well, continuing to offset persistent inflation with our core programs and investments. Just as important, we continue to take the time to invest in our people to maintain and grow our winning culture and to ensure new team members understand and help to support our core values.

On the acquisition growth front, our team was really busy in the fourth quarter and into early 2025, closing new transactions and integrating deals that were completed over the last year. As John mentioned, during 2024, we acquired 8 businesses with over $200 million of annualized revenues, but this included 3 acquisitions with $100 million of annualized revenues in the fourth quarter alone. 2025 is off to a solid start with 3 acquisitions completed year-to-date with approximately $40 million of annualized revenues. We remain selective with our acquisitions, focusing on opportunities that have the right strategic fit that can help advance our efforts to densify certain markets, drive additional vertical integration or establish new adjacent market areas.

Our team continues to do an excellent job successfully onboarding acquisitions with an early focus on welcoming new team members, establishing our core values and beginning to integrate the back office sales and operations. It was another successful year for our sales teams across the organization, where we continue to focus efforts on winning premier customers in important segments where we can implement our resource management solutions, drive circularity and create win-win long-term relationships.

A few examples of this happened across the municipal, higher education, industrial multi-site retail segments, where we contracted roughly $150 million of annualized revenues in 2024 with new revenues representing roughly 25% and renewal of 75%. This is a huge accomplishment for the team across the entire business during the year. From an operating perspective, we continue to execute very well against our core programs, including automated truck conversions, route optimizations and even extra revenues generated through our onboard computing.

During 2024, Sean and his team converted or automated 17 trucks, which eliminate 22 rear boat trucks from the road, which drove quite a bit of labor savings. We also rolled out 532 route wear systems to our fleet. We're sitting shy a little bit under 1,400 today. These efforts continue to boost safety, operating and financial performance. Our recent acquisitions all present great opportunities to apply these same successful programs. As discussed last quarter, given the lingering softness in special waste and C&D volumes we focused our efforts in the second half of 2024 on increasing landfill internalization across both newly acquired markets and markets entered over the last few years.

To achieve this strategy, we purchased additional long-haul trucks and trailers and established new transportation lanes mainly from 4 markets to our New York landfills. With these moves, we're driving an incremental 120,000 tons per year of internalization, we're working on additional opportunities for 2025 to create more internalization. Turning to development projects. As Brad mentioned, in January 2025, we completed the full technology and equipment upgrade at Willimantic for our recycling facility. This system is operating and our team is very busy optimizing the equipment.

Taking the site off-line was a negative drag to the second half of 2024. However, we expect the project to generate roughly $4 million of EBITDA in 2025. We continue to evaluate other opportunities to advance our recycling and resource management infrastructure with a focus on another recycling facility conversion in the near term. The first phase of investment in [indiscernible] McKeen landfill was completed during the third quarter of 2024. To date, we've received roughly 7,500 tons of waste by rail at McKean. While the current infrastructure allows us to offload almost 5,000 tons per day of containerized solid waste we are not rapidly ramping volumes as we believe the site provides long-term risk management to preserve our flexibility in the disposal-constrained northeast market. As we look ahead, our M&A pipeline continues to be very active with over 100 opportunities and roughly $700 million of revenues in various stages of diligence and development. The strength of our balance sheet and our robust liquidity positions us very well for continued return-focused growth.

And with that, I'd like to turn it back to the operator for questions. Thank you.

[Operator Instructions] Our first question comes from the line of Trevor Romeo with William Blair.

First one actually maybe just a follow-up on the M&A point, Ned. And kind of just thinking about the opportunity set and how 2025 potentially shape up for M&A. You had some really strong activity in the last 2 years already closed 3 deals in '25. It sounds like the pipeline is maybe a bit higher than you mentioned last quarter. I was just wondering if you could give us an update on what you're hearing from your discussions as far as willingness to sell availability of targets and then kind of on the buyer side, are you seeing any changes in competition for assets. Just kind of how you're expecting M&A to shape up this year?

Yes. Thanks for the question. The pipeline is as active, if not more active than spend ever. We continue to do quite a bit of work. John and I are [indiscernible] meeting with potential sellers and just doing what we do, I mean one of the greatest sources of potential acquisitions for us is our national accounts team. that teams worked constructively for 25 years with hundreds of small hauling companies up and down the Eastern Seaboard, and it continues to present a great stream for us to collaborate with small independent businesses and have them know more about us and our culture and our integrity. And that's really the best way to build that pipeline. There are always some great opportunities that come through banking processes. But the ones that come directly to us and we can have a meeting of the minds really are the best acquisitions and we love that.

And there are a lot of those in the pipeline right now. So we're in various stages with other opportunities throughout the Northeast and down into the Mid-Atlantic footprint. And also look at some adjacencies. And we're excited for '25, and it's great to get off to such a nice start as well with a couple of high-quality deals. There's a big focus with a few acquisitions in Pennsylvania, 1 in Maryland, 1 in New York, 1 in Massachusetts. So across the board, we're adding density and great addition to the footprint.

If anything, it's more intense. Normally, we don't do as much in the fourth quarter as we've done this year. So it's really, really interesting. I think it's accelerating a bit.

Yes. And John, I should have actually mentioned this. We're always chasing what the bottleneck is. And for us, making sure we have the right resources to integrate and successfully integrate and meet the pro forma is very important and the balance for our people. And with our growth, we continue to look at where we add resources across even our acquisition integration teams, back office, ops, HR and IT. And we're really trying to do all the heavy lifting and make sure we can continue to support a reasonable amount of growth.

Great. And then kind of on a similar theme, I guess. I believe, at least kind of in the reporting that was out there, the acquisition you made in Eastern Massachusetts, you acquired a MRF that -- it sounds like it's pretty close to the Charles Dow merch you already have in Boston. I was just kind of wondering if you could talk about your plans for that facility and what kind of synergy opportunities you see there with your existing business?

Yes. We were able to acquire a great business called Save that stuff, which is a really nice brand in Massachusetts, [ Eric Livi ] started this company 35 years ago. his values, his team really align well with ours. And it's a hauling company and recycling kind of resource management companies, a great fit to Casella. We've done an amazing job across the Massachusetts market, most especially Eastern Massachusetts servicing high-end institutional, industrial customers. And Eric has had a lot of the same focus and his team over the years. So it's very complementary, both on the hauling side where we have overlaps on routes. But then as you said on the processing side, is a big overlap. Some of his processing capabilities can probably be handled in our recycling facilities. And it gives us more additional space to handle some unique industrial streams going forward. So a great complementary acquisition. We're very excited.

Great. And then maybe just 1 more quick one for me, if you don't mind. Just wondering if you could kind of give an update on the Brookhaven situation in New York. I think we talked about the impending close at the end of 2024. Now that we're past that point. Can you kind of just give us an update on where things stand in the market and if you're still expecting a good portion of those volumes to come back to Casella in '25.

Yes. I think that it started off slow, but Brookhaven is closed for sure. [ 110s ] sands and gravel is taking some of that material, but our tons are up at our facilities as well. So up slightly, we would like to see them up more, but certainly moving in the right direction. So we think that we're likely to see -- continue to see improvement in 2025. But in fact, Brookhaven did close.

Yes, it's closed for C&D [indiscernible]

Our next question comes from the line of Tyler Brown with Raymond James.

John 50 years. Long time, could have been in the hotel business.

Yes, I just think.

But hey, just Brad, real quick, can you possibly help us with Q1? I'm just wondering if all this weather is having an impact?

Not significantly. I mean obviously, Q1, we deal with weather every year. So I wouldn't call out anything in particular that's different from historical trends.

And if anything, tourisms great this year, Tyler. Never base season in 20 years in the Northeast.

Okay. I know you probably enjoy that. Can we -- you guys didn't mention it in the prepared remarks, but can we talk about Ontario basically, what kind of happened there? How will the wind down of that operation play out where those tons are going to get directed

Yes. I mean, I think that we've got 4 years to play that out. So I think that we'll be able to move those tons to our other facilities. We'll look at that from a transportation-adjusted basis, and I think we're in a good position to close it out appropriately. But it's interesting because there is no alternative at this point in time. So it will be interesting to see what those transpire. Anything could happen. I mean, we obviously believe at this point in time with the vote from the county that they're going to close in 2028, but that wouldn't be the first time that there's a change in direction. But we're prepared to close it out. And financially, we don't think that that's going to be a negative impact at all.

So Tyler, as you know, but maybe other know, it's within 20 miles of Senecametos as well, which is the largest landfill in New York State, which may have some complexity in their future permitting as well. So we've been actively working on a permit expansion at our Highland landfill for 3 years, where we're looking to take the annual permit from 460,000 tons a year to 1 million tons a year. And that process continues to move along really positively. We've got opportunities, of course, to McKean and some other sites. So as John said, we have homes for our tons and for our customers. While not ideal, it just really shows the complexity of maintaining and expanding capacity across the Northeast.

Yes. Okay. So can we talk a little bit more kind of in that same vein, it sounds like there is a sizable opportunity to internalize times. I think you mentioned 4 markets. It sounds like you made headway in '24, but I'm a little unclear, is that kind of already in the numbers? Is there more incremental benefit? Is that an EBITDA benefit? Or is it just a defensive play.

Yes. Sorry. So in our 2025 numbers, we do have that internalization benefit. Some of it was in as you know, ordering long-haul trucks, trailers, all of that takes time. And if you look back over the last couple of years, in the Northeast, we didn't always make the decision with new markets to instantly internalize those tons through our landfills. In many cases, we kept it flowing to third-party sites. As we look at some of the headwinds in '24 with construction, demo and special waste streams, we said we got to get moving. We got to get this waste into our own landfills, create the maximum amount of cash value. So we started those moves through the summer, the late fall coming into 2025, every one of those moves is happening in our guidance. There are other opportunities for us to do more, and we're working on that, and we're making sure we're making the right return based decisions when we do that.

Okay. So then I'll kind of bring it back to the break, Brad. So I think, let's call it the bridge of $60 million of EBITDA year-to-year. Did I hear you right, $30 million to $35 million of that is M&A. Is that right?

Yes.

And I think you said the other part would represent roughly 7% organic growth. But it seems like you've got some positive idiosyncratic things, will Willamantic, internalization Brocade and closure, et cetera. Now it sounds like you're also spending money on technology, and we'll talk about that in a second. But what are those pieces? Because it feels like that's pretty conservative with those idiosyncratic benefits. Does that make sense?

It does. I wouldn't characterize it as conservative. We think our guidance is appropriate. But I think you highlight the fact that we have a number of levers at our disposal to drive results year-over-year. So obviously, the landfill internalization, which Ned just talked about, notwithstanding our internalization efforts, we would expect the market, at least for C&D volumes to improve year-over-year. The pricing and collection operating cost improvements, that obviously is our story year after year, and that's kind of what we're always pursuing. And then the Willimantic [indiscernible] is I would say that falls under the idiosyncratic category, as you said, as Ed mentioned in his prepared remarks, that will be about a $4 million benefit year-over-year in 2025. But there are -- it's a hard business sometimes and things don't necessarily always come out the way you plan them. So we feel like our guidance is appropriate.

Okay. Perfect. And what is the technology spend, net? Are you -- what's going on there?

Yes. So -- as we continue to grow, we're always looking to see what types of processes systems. What do we need to be just as successful in the next year were the previous year. And a part of our business right now, that's probably the lead scalable are some of our systems. And we -- especially with the new acquisitions, and we've continued to invest both in capital and G&A expense. Our G&A expense -- just on the IT side alone over the last couple of years is up around 20 basis points, and it will be up another 10 basis points to next year. And we don't think that's a permanent spend. We just have some redundant spend with acquisitions where we're running old systems. And our systems, and we're getting those onto our systems as fast as possible.

And then we're doing an upgrade of our long-term order-to-cash system that we've used for 30 years called [ softpack ] and we're in the process of modernizing and upgrading to the latest version. So we're not doing something crazy with a whole new system. This is a technology we've used for years. We're automating more of the connections to other systems. And this is millions of dollars of investment, not tens of millions of dollars. And we're -- we just need to get more scalable processes, scalable automation through our back office through our systems and a lot of focus there right now. So we're over investing a bit right now on the G&A side and a little bit more CapEx, but we're excited to get through that part of it also will be a new customer portal. That's out pilot market right now, a bit more digitization of the customer experience, which we think will help as well as we continue to scale.

Okay. Perfect. And then my last 1 -- and Brad, you talked about it a little bit. I do get this question time to time around your NOL position and your cash tax paying position. So did you say that you would be a $5 million cash taxpayer in fiscal '25. But that number could...

Yes. That's correct.

Okay, that's right. So that number, though, on the federal side could go up substantially in '26? Or is it just too early and you guys will update a floater?

Yes. I mean it is too early because a lot of this depends upon what happens with tax legislation. And obviously, a lot of the discussion with the new administration is to implement some changes to the tax policy that certainly would be beneficial to us. So I -- the best I can do is comment on all else being equal. So the tax law remains as it is today. Given that assumption, we would expect the NOLs to shield us through the rest of this year. And then in 2026, we would begin to pay federal tax more meaningfully.

But Brad, on that topic, one of the things we've been really successful with acquisitions is either doing asset purchases or structuring stock purchases where we get the asset step-up value. And with that, not every dollar on an income statement will convert to cash taxes even if we became we didn't have NOL shielded us. So a lot of the acquisitions give us 15 years of runway of higher tax depreciation that will shield cash taxes in the future. So we'll continue to focus there and trying to structure acquisitions in a way that helps us to get tax value as well.

Yes. That's a huge point. And I mentioned this in my prepared remarks, all else being equal, really refers to 2 things. One is tax legislation and the other is deal activity. And so the outlook that I talk about is assuming we do no other deals that are structured from a tax advantage way, showing that isn't our plan going forward.

Okay. Yes. Deal structure matters. Okay. Cool. Appreciate it.

Our next question comes from the line of Adam Bubes with Goldman Sachs.

Given the acquisitions in the second half of 2024 and year-to-date, can you just sort of update us on the expanded collection fleet automation opportunity how much runway is there today now that we've sort of regenerated that opportunity? And I think looking back to 2021, direct labor costs were 150 basis points lower as a percent of sales. Is that sort of a good way to contextualize the potential margin opportunity from these initiatives?

I'll take that first part, Adam. This is Sean. So in our Mid-Atlantic area, we have a couple of hundred opportunities that we're going to automate over the next 3 years. in our Hudson Valley area, we have opportunity as well. So it's going to keep the op support team busy for 3 to 5 years. That's not counting anything else we acquired this year. So a big pipeline of cost of ops reduction for the next few years.

And on the direct labor point, you hit the nail exactly on the head when we automate routes, we many times are taking rear load trucks off the road where we have drivers and helpers and as an example, this last year, I talked about how we eliminate 22 rear load trucks from the row we took 27 head count out. And that's because they are held versus as well. So as we -- as we look at automation opportunities, especially in the Mid-Atlantic, our direct labor is running 50 basis points higher than in historical markets that we had. And that really speaks to the story of many rear load routes that aren't as efficient and many routes to have helpers, which we'd also not like to see from a safety standpoint. We really want everyone to be inside the truck. We'd like automation to occur. And so the big focus to Sean and his team, you hit it exactly right. We want to get that direct labor number down.

Yes. And labor is the biggest factor. But not only are we taking helpers off the back of trucks, we're taking trucks off the road. So you really see the benefit up and down the cost back in terms of fuel, maintenance, et cetera, all the costs associated with a rounded truck.

Yes, the rear load line of business is the oldest from a fleet age perspective as well. So there's a multitude of benefits to automate.

Terrific. And then revisiting the internalization opportunity, can you just help us think about the economics in terms of incremental travel costs versus tip fee savings? And what's the magnitude of incremental opportunities that you're looking at for internalization?

Yes. So if the landfill is full, then you're really talking about the difference of what you could internalize that ton app versus the third-party time you may be taking out -- we're really looking at sites that did not run full in 2024, and we have excess capacity. So if we can land additional internalized tons the variable cost of putting another ton into a landfill can be quite small. Of course, you've got the capital investment of building out that additional capacity. And to your point, the trucking cost to get it there. So each one of these situations will look at individually. But these are nice incremental margin decisions, 50% to 75% on an incremental ton that's coming into a landfill.

And then last one for me. I just want to talk about your national accounts business for a moment. It continues to grow really nicely. I think up high single digits in 2025. Can you just talk about how you think about the growth algorithm in that business going forward and the magnitude of cross-selling efforts on recently acquired assets.

Certainly, great point, Adam. One of the biggest opportunities for us in the Mid-Atlantic is the industrial component from a major account standpoint. It's very, very right. There's tremendous amount of distribution centers. I think it's the distribution center for the Northeast and that Allentown-Bethlehem area, many, many facilities. So there's a big runway there from a national account standpoint, with the industrial component. I think that we've been very successful with the municipal team to -- we've -- I think that we knock out 4 or 5, 6 contracts in the fourth quarter from a municipal standpoint as well, where we were successful from a bidding perspective. So that team is really doing well. We've got some big opportunities in terms of the expanded footprint. So we're looking forward to it. We know how to do that work. The team has been very successful providing those services to large industrial customers where we can put 5 to 10 people inside the facilities to help them with their waste and recycling component.

And John, one interesting thing is when we talk about price volume, we talk about where the revenue is recognized. And our national accounts team owns the customer relationship in many instances and then has our own truck service to those customers. So you look at the growth there, while our volumes are slightly down in the collection line of business, we're actually feeding a lot of intercompany growth when windows accounts or national accounts group, whether they be industrial or institutional good. So it's a story that needs to probably tell a little better going forward, but it's a great point because -- that's been a real volume engine for us when you see some of those small declines in landfill volumes or some of the churn in subscription residential. We're really not focusing enough on that huge amount of wins that we're having with premier customers down to national accounts.

Our next question comes from the line of Brian Butler with Stifel.

Just the first one, just when you look at like the price/cost spread, it looks positive going into 2025. Maybe we could talk about where internal inflation was in the fourth quarter and kind of what's built into the 2025 outlook.

Yes, Brian, it's Brad. As we finish '24 and heading into '25 and our expectations, we broadly expect to be in the area of 4% inflation. So really, what we're targeting is 100 basis points of positive spread, at least in the solid waste business. And that's what we tend to target to be at least 50 to 100 basis points ahead of inflation. It's hard to measure it sometimes precisely, but we feel like we're about 4% right now.

Okay. Great. And then considering the M&A levels you guys have had. When you think about the flat to down 1% volume outlook for '25, how much of that is shedding from some of the acquired assets or customers that are just kind of underperforming versus there's any other weakness there?

I would say all of it. In the fourth quarter, in the collection line of business, as I mentioned in my prepared remarks, in our legacy footprint, I'll call it, volume was actually flat to up across all the lines of business. So we're seeing real stability there and a modest level of growth, depending on the market and the line of business. So really, that volume decline is concentrated in particularly in the Mid-Atlantic as we -- I'm never quite sure what the term intentionally shed means, but we're focused on driving price with some of those customers that where we think that pricing isn't appropriate and the margins aren't where they need to be.

Yes. I'll come back to the point that we talked about it a minute ago as well. When you look at multi-site retail, industrial, institutional, municipal across those segments, we actually have an internal goal to grow those volumes in those segments. And we've got a stretch goal as well. We've organized our sales force and put additional resources on the ground from the strategic account managers and specific sales resources help do that, and we've shown a lot of success in that area. So that's I think we're going to try to get a little more information out there because those are the types of customers that are very, very sticky. We can create more value for them and do really well margin-wise as well.

All right. Great. And then 1 last one. Can you talk maybe about how you're thinking about PFAS at the landfill and kind of in handling that, especially in New England that's very regulatory focused?

Sure. I mean I think that we're in front of it. We've got 2 facilities up that are processing PFOS, ones reverse osmosis and the other 1 in our Waste USA facility is foam fractionation facilities up and operational. We're excited about the results. I think we're doing a pilot program right now with the agency in Vermont. I believe they're excited about the operations and the efficacy of the technology. It separates the PFOS and then we solidify it and put it back in the landfill, solidify it in concrete and put it back in the landfill. But the technology is there. We know how to do it. Now we're just really kind of tweaking it to see what's the lowest cost technology that can really do the job. And we'll be applying it to our other facilities at this point, Brian. it's likely that we're going to see it at our facilities. And it just gives us more flexibility to be able to take our leachate to many different municipal sewage treatment facilities.

Our next question comes from the line of Tony Bancroft with Gamco Investors.

Well done. You guys have just grown rapidly in these last few years, and you've really done a great job of integrating your acquisitions. And I sort of -- I guess, I asked this before, but just any thoughts on potential further large maybe transformational M&A that you could do? Would you want to do? Is there a potential funnel of that out there? Just maybe you could give us any updated thoughts just based on all of your success recently.

I think that we're likely -- you're likely to see us stay to are knitting in terms of what we have said historically, which is strategically up and down the Eastern seaboard. But that doesn't mean that there wouldn't be a much larger opportunity that came available that we would take a look at. So I think it's fair to say, Tony, that we'll continue to do -- continue to execute on the tuck-ins over the top of the Mid-Atlantic and the Northeast and then drive ourselves down the eastern seaboard as we've done with the GFL acquisition. And again, you never know what's going to come available and what opportunities are going to be in front of you. So you never say never, but that's not -- our strategy is and all of a sudden to go and look differently. If those opportunities come to us, then certainly we'll look at it. we can't pick and choose when somebody wants to monetize their business.

But what we can do is get much better at integrating and have the resources and the ability to scale like -- so as every acquisition goes by we gain best practices, we gain better structure, better ways of doing diligence. We really have built a great team there. and many of our business leads across the organization dig in for their night jobs, helping us successfully acquire businesses and integrate them as well. So it's kind of core confidence, I think.

I think the other thing that we've done as well, Tony, is training is really important. Maintaining 1 culture on a go-forward basis is extremely important. And we've made the investment over the last 3 years in HR. We've made the investment in training facilities. We bought the college a number of years ago. We've revamped the training center. We've got 3 separate training areas can train up to 180 people in 1 part of the facility. So that's a critical component on a go-forward basis, especially when you're adding the total number of employees doing core values, training, leadership training, helping people understand how we want to run the business, critically important, particularly as we grow the way we've grown. We've added 1,000 people in the last 10 months. So a critical component, something that we've already made the investment in.

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back to John for closing remarks.

Great. Thank you very much, everyone, for joining us this morning, and we look forward to discussing our first quarter 2025 results in April. Thanks, everybody. Have a great day.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.