Executive Summary / Key Takeaways

• Casella Waste Systems (CWST) is a regional, vertically integrated solid waste and resource management company executing a disciplined growth strategy centered on strategic acquisitions and operational excellence in the eastern U.S.
• The company delivered a strong start to 2025, achieving record first-quarter revenues ($417.1M), adjusted EBITDA ($86.4M), and adjusted free cash flow ($29.1M), driven by recent M&A, solid pricing power (+5.6% Solid Waste price), and a rebound in landfill volumes (+3.9% tons).
• Core operational initiatives, including fleet automation, onboard computing, and recycling facility upgrades (like the Willimantic MRF, expected to contribute $4M incremental EBITDA in 2025), are driving efficiency and margin expansion, particularly in legacy collection operations (+140bps margin expansion in Q1 2025).
• CWST maintains a robust balance sheet and liquidity position (2.45x net leverage, ~$900M availability as of Q1 2025 pro forma for recent deals), supporting its active M&A pipeline ($500M+ in various stages) and strategic investments.
• While facing risks such as persistent inflation, integration complexities, and specific environmental liabilities, the company's reaffirmed 2025 guidance anticipates continued growth (approx. 5% Solid Waste price, flat to -1% volume, ~9% Adjusted FCF growth) and underlying base business margin expansion, positioning it for future value creation.

Setting the Scene: A Regional Powerhouse's Integrated Approach

Casella Waste Systems, Inc., founded in 1975, has evolved from a single-truck operation into a leading regional provider of solid waste, recycling, and resource management services across ten states in the eastern United States. Its core strength lies in its vertically integrated model, controlling assets spanning collection, transfer, disposal (including landfills), recycling, and organics processing. This structure allows Casella to manage the entire waste stream, offering comprehensive solutions to residential, commercial, municipal, institutional, and industrial customers.

Operating through distinct regional segments (Eastern, Western, Mid-Atlantic) for solid waste and a specialized Resource Solutions segment, Casella strategically positions itself against larger national competitors like Waste Management (WM), Republic Services (RSG), and Waste Connections (WCN). While these national players benefit from greater scale and potentially lower operating costs per unit (WM's operating margins often exceed CWST's by 5-8 percentage points), Casella leverages its deep regional expertise and integrated network to offer tailored services and build strong local relationships. Its growth trajectory, marked by a five-year annualized revenue growth rate significantly outpacing the industry average and even some larger peers, underscores the effectiveness of its focused strategy.

The company's strategic approach is fundamentally dual-pronged: aggressive, disciplined growth through acquisitions and continuous improvement in operational efficiency, significantly aided by technological investments. Over the past two years, Casella has notably expanded its footprint and revenue base through M&A, deploying over $1 billion in capital to acquire businesses with more than $500 million in annualized revenues. These deals, such as the GFL (GFL) Mid-Atlantic assets, Twin Bridges, Royal Carting, LMR Disposal, and Whitetail Disposal, are strategically selected to enhance density in existing markets, expand into adjacent geographies (like the Mid-Atlantic and Hudson Valley), and drive vertical integration by internalizing collected volumes into Casella's owned disposal sites.

Technological Edge and Operational Excellence

Technology is not merely a support function for Casella; it's a critical enabler of its operational efficiency, safety, and competitive differentiation. The company has made significant investments in several key technological areas:

• Fleet Automation: Converting traditional rear-load trucks to automated side-load vehicles is a core initiative, particularly in acquired operations that often utilize older fleets. This technology allows a single driver to service routes, eliminating the need for helpers, directly reducing direct labor costs and improving safety by keeping personnel inside the cab. The Mid-Atlantic region alone presents an opportunity to automate hundreds of trucks over the next 3-5 years, offering a clear runway for efficiency gains.
• Onboard Computing and Route Optimization: The rollout of onboard computing systems and route wear software across the fleet (over 1,400 systems deployed by Q4 2024) provides real-time data for route optimization, service verification, and operational monitoring. This technology boosts productivity, enhances safety protocols, and provides data-driven insights for continuous improvement, contributing to the expansion of collection margins.
• MRF Technology Upgrades: Investments in state-of-the-art equipment at recycling facilities, such as the recently upgraded Willimantic, CT, and Boston, MA facilities, significantly enhance processing capabilities. These upgrades increase processing speed, throughput, material recovery rates, and quality. The Willimantic upgrade, completed in early 2025, is expected to roughly double initial processing speed and is projected to contribute $4 million in incremental adjusted EBITDA in 2025. This demonstrates how technology directly translates into improved financial performance and supports the Resource Solutions segment's ability to handle diverse material streams efficiently.
• Leachate Treatment Technology: Addressing environmental challenges like PFAS contamination is crucial, particularly for landfill operations. Casella is implementing and piloting technologies like reverse osmosis and foam fractionation at its facilities to treat leachate, separating contaminants for safe solidification and disposal. While specific quantitative performance metrics for these systems were not detailed, the strategic intent is to ensure environmental compliance and provide flexibility in leachate disposal options.
• RNG Partnerships: Recognizing the value of landfill gas, Casella partners with third parties to develop Renewable Natural Gas facilities. While not directly investing in the energy technology itself, the company receives royalty payments from the sale of gas and RINs. This approach mitigates direct technology risk while allowing Casella to benefit from resource recovery, aligning with its sustainability focus.

The "so what" for investors is clear: these technological investments are foundational to Casella's strategy of driving operational leverage and expanding margins, especially within the collection business which now constitutes over 60% of revenues. They enhance the company's competitive moat by improving efficiency, safety, and service quality, allowing Casella to compete effectively on factors beyond just price, particularly in its targeted National Accounts segment where it wins on service and differentiated resource management solutions. While larger competitors like RSG also utilize automation, Casella's focused application within its regional footprint and acquired businesses is a key driver of its expected base business margin expansion.

Segment Performance and Financial Momentum

Casella's integrated model is reflected in the performance of its key operating segments. In the first quarter of 2025, the company demonstrated robust growth:

• Solid Waste: This segment, encompassing collection, disposal, transfer, and related services across the Eastern, Western, and Mid-Atlantic regions, saw third-party revenues jump 25.9% year-over-year to $334.9 million. This growth was primarily fueled by acquisitions (+21.5%) and strong pricing power (+5.6% overall Solid Waste price), which included a 5.8% increase in collection pricing (led by 6.5% in Front Load Commercial) and a 5.5% increase in disposal pricing. While overall Solid Waste volumes were down 1.7% (impacted by a challenging winter and slower roll-off), landfill tons specifically rebounded, increasing 3.9% year-over-year, with the average price per ton up 4.8%. This landfill volume recovery was attributed to both recapturing C&D tons in the New York market and successful efforts to increase internalization from collection operations. Operating income for the Solid Waste segments collectively increased by $6.0 million year-over-year in Q1 2025.
• Resource Solutions: This segment, focused on processing, recycling, organics, and National Accounts, grew third-party revenues by 9.5% year-over-year to $82.2 million in Q1 2025. This growth was driven by both price (+3.7%) and volume (+5.5%). The National Accounts business was a standout, with revenues increasing 10.9% (volume +7.4%), reflecting successful sales efforts with larger customers. The segment also benefited from the ramp-up of the upgraded Willimantic recycling facility. Operating income for Resource Solutions increased by $0.6 million year-over-year in Q1 2025.

Consolidated revenues reached $417.1 million in Q1 2025, a 22.3% increase from the prior year. Adjusted EBITDA grew 21.7% to $86.4 million, a record for the first quarter. Adjusted EBITDA margins were 20.7%, a slight decrease of 10 basis points year-over-year, primarily impacted by a non-operational adjustment to stock-based compensation. Excluding this, margins expanded by approximately 50 basis points, reflecting underlying operational improvements and the net impact of acquired businesses. Cost of operations increased due to acquisitions and inflation across various categories (labor, disposal, maintenance), while general and administration costs also rose, partly due to supporting growth and increased IT spending.

Financial Strength and Liquidity for Continued Growth

Casella maintains a healthy financial position, providing the flexibility to pursue its growth strategy. As of March 31, 2025, the company held $269.9 million in cash, cash equivalents, and restricted cash. Its $700 million revolving credit facility had $675.4 million of available capacity, resulting in approximately $900 million of total availability pro forma for recent acquisitions.

Total debt stood at $1.15 billion as of March 31, 2025. The company's consolidated net leverage ratio for bank covenants was 2.45x, well within its comfort zone and significantly below the maximum covenant of 4.00x. This strong leverage profile, coupled with ample liquidity, positions Casella well to fund its active M&A pipeline and planned capital expenditures, which include investments in property and equipment ($55.5 million in Q1 2025) and upfront spend related to acquisitions.

Net cash provided by operating activities saw a significant increase in Q1 2025, reaching $50.1 million compared to $7.7 million in the prior year period. This improvement was driven by strong EBITDA growth and a more normalized working capital cycle. Adjusted free cash flow was a record $29.1 million for the first quarter.

Outlook: Building on Momentum

Management reaffirmed its financial guidance for 2025, expressing confidence in the outlook despite heightened macroeconomic uncertainty. The guidance incorporates acquisitions completed year-to-date, which added approximately $50 million in annualized revenues.

Key components of the 2025 outlook include:

• Solid Waste Pricing: Expected to be approximately 5%, aimed at staying ahead of anticipated inflation (estimated around 4%).
• Solid Waste Volume: Projected to be flat to down 1%, reflecting the intentional shedding of less profitable business, particularly within newly acquired operations, as the company focuses on improving revenue quality.
• Adjusted EBITDA Margin: Expected to be approximately flat to up 40 basis points, with underlying base business margin expansion of around 50 basis points driven by pricing, operational efficiencies, Willimantic MRF contribution ($4M incremental EBITDA), and improved landfill volumes (including internalization). This expansion is partially offset by the lower initial margins of acquired businesses and increased investment in technology (~10bps headwind).
• Adjusted Free Cash Flow: Expected to grow at approximately 9% at the midpoint, reflecting EBITDA growth and planned capital expenditures ($215M, including $45M upfront acquisition spend). The long-term goal remains 10-15% annual growth.

Management anticipates positive tailwinds for landfill volumes throughout the remainder of 2025 as the market adjusts to the closure of the Brookhaven landfill, which created pressure in 2024. The active M&A pipeline, exceeding $500 million in various stages, presents further potential for growth beyond the current guidance, although the pace will be managed to ensure successful integration.

Risks and Challenges

While the outlook is positive, several risks warrant investor attention. Persistent inflation, particularly in areas like maintenance and landfill capital costs, could pressure margins if pricing and efficiency gains do not keep pace. Integration of acquired businesses, especially complex carve-outs, can present challenges related to systems transition, collections management, and realizing planned synergies, potentially impacting short-term financial performance. Specific environmental liabilities and regulatory matters, such as the NHDES Letter of Deficiency regarding leachate management or the denial of the Granite State Landfill permit application, could result in unexpected costs or limit disposal capacity options. Seasonal weather patterns and severe weather events can disrupt operations, increase costs, and impact volumes. Delays in receiving new trucks from manufacturers can hinder the pace of fleet automation and synergy realization.

Conclusion

Casella Waste Systems is executing a clear and effective strategy centered on leveraging its regional vertical integration, driving growth through disciplined acquisitions, and enhancing operational efficiency through technological investment. The strong performance in the first quarter of 2025, marked by record revenues, EBITDA, and free cash flow, underscores the momentum generated by recent M&A and the effectiveness of its core operating programs and pricing strategies.

Despite facing ongoing inflationary pressures, integration complexities, and specific environmental challenges, the company's robust balance sheet and liquidity provide a solid foundation for continued investment and growth. The reaffirmed 2025 guidance, anticipating further margin expansion in the base business and growth in cash flow, signals management's confidence in its ability to capitalize on market opportunities, including the expected normalization of landfill volumes and the benefits from infrastructure upgrades like the Willimantic MRF. Casella's focus on regional strength, technological adoption, and disciplined capital deployment positions it to continue creating value for shareholders within the dynamic waste and resource management industry.