Casella Waste Systems, Inc.
Q2 2009 Earnings Call Transcript

Published: 4 Dec 2008

[Operator:]

Good day and welcome everyone to the Casella Waste Systems second quarter fiscal year 2009 financial results conference call. Today’s conference is being recorded. At this time I’d like to turn the call over to the Vice President Mr. Joe Fusco, please go ahead sir.

[Joe Fusco:]

Thank you for joining us this morning and welcome. We’re joined by John Casella, Chairman and Chief Executive Officer of Casella Waste Systems; Paul Larkin, our Chief Operating Officer; Jim Bohlig our Chief Development Officer and Richard Norris our retired Chief Financial Officer and Trusted Advisor. Today we’ll be discussing our fiscal year 2009 second quarter results. These results were released yesterday afternoon. Along with a brief review of these results and an update on the company’s activities and business environment, we’ll answer your questions as well; but first as you know I must remind everyone that various remarks that we may make about the company’s future expectations, plans and prospects, constitute forward-looking statements for the purposes of the SEC’s Safe Harbor provisions. Actual results may differ materially from those indicated by those forward-looking statements, as a result of various important factors including those discussed in our prospectus and other SEC filings. 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 estimates change and therefore, you should not rely on those forward-looking statements as representing our views as of any date subsequent to today. Also during this call, we will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in the financial table section of our earnings release which was distributed yesterday afternoon and is available in the Investor Section of our website at www.casella.com. Now I’ll turn it over to John Casella who will begin today’s discussion. John.

[John Casella:]

Thanks Joe. Good morning everyone and welcome to our fiscal year ’09 second quarter conference call. Richard will go through the numbers as usual and as Joe said, Richard has continued in his consulting role as we continue to search for his replacement. With regard to the search, we have made great progress and we expect to have the search completed by the end of December, by the end of the current calendar year. After Richard’s summary, Paul Larkin will run through the operating summary and as usual Jim will give an update on the development activity. A little bit of an overview relative to the quarter. First, we continue to execute well against the factors that we control in a challenging economic environment. I think a real tribute to our people, a very tough economic environment and against those factors that we control, we’ve executed very well. Since the Northeast economy began to slow in July ’06, we have taken steps to better position our business to perform well in this uncertain economic environment. Paul and his team are building on the successful operating initiatives from the past 18 months with programs that further enhance productivity and asset utilization. These efforts are offsetting economic pressures in our solid waste group and demonstrate the inherent operating strength and recession resistant qualities of our integrated business. Our operating performances remained stable, with EBITDA for the quarter up $600,000 year-over-year, excluding the negative variance created by the completion of the Colebrook closure project in early August. While the Northeast markets have remained stable, it’s difficult to fully asses the potential economic impact from the financial market meltdown. From my experience, the Northeast economy is typically stable, a very stable environment, albeit slow growth. We’ve never experienced the high growth over the past 10 years that happened in other parts of the country, especially in non-residential and commercial construction. Also we believe that the recent steep declines in energy prices are helping to offset some of the economic pressures in the region and as all of you know, obviously that’s much more important in the Northeast than in other areas of the country. However, until the financial markets have stabilized, we expect the economic conditions to remain uncertain with continued volatility in commodity pricing. The commodity market dislocation that we experienced from October to mid-November is unprecedented in its speed and severity. From September to November, fiber prices dropped 67% and co-mingled container prices dropped 54%. It’s important for everyone to recognize that we did not build the recycling business model that tried to capture the topside of the commodity markets. Our goal has always been to build long-term stability. Over the past 20 years, we forced long-term relationships with municipal partners and many commodities buyers. In addition we sell 10% of our commodities to the export global markets, which has really helped us to maintain shipments of commodities to domestic mills throughout this market downturn. Our commodity risk mitigation programs are successfully dampening price exposure through the use of hedging agreements, floor price contracts, revenue share agreements, index purchases and sales and long-term supply contracts with customers. I’d like to point out that not all players in the market use the same strategy. We did not or lose recycling operating income dollar-for-dollar to prices you might expect. The risk management programs do dampen price moments both to the upside as well as the downside. A little bit of an example on that; based on the weighted-average prices and volumes for the second quarter, if commodity prices would drop an additional 20%, the company’s revenues for the quarter will drop $3.1 million, while operating income will drop only $1.6 million. It’s about a 50% dampening to commodity price volatility and that’s the benefit of the risk mitigation strategy that we put in place. Despite the economic downturn, we continue to execute well against our fiscal year ’09 strategy, with a focus on improving the performance of our base operations and selectively pursuing growth opportunities and resource optimization or transformation. Our core focus remains the same, maximizing shareholder returns by improving our return on net assets and generating free cash flow. Free cash flow for the quarter was up $8.2 million over last year and as we laid out in the press release, we are maintaining our free cash flow guidance of $8 million to $14 million for the fiscal year. We’re actively reflecting our cap spending to better match the volume activity at facilities. Our investments and high return projects that create sustainable solutions are also moving forward very well. As you know, we already announced the Hyland and Clinton landfill gas-to-energy plants; both came online ahead of plan in October, putting the company’s total landfill gas-to-energy power generation to roughly 25 megawatts per hour. The Hartford zerosort, $3 million conversion was completed in late August with the CRRA investing the capital in that facility. We began recycling operations in the trade on October 1. The Philadelphia zerosort conversion was completed in November and we expect to complete the Boston zerosort conversion late this month before the end of the current calendar year. With that, I’ll turn it over to Richard who will take you through the numbers.

[Richard Norris:]

Thank you, John. For the quarter ended October 31, 2008, revenue increased $7.1 million to $157.5 million or 4.7%. Internal growth for the quarter, continued to reflect higher energy pricing across hauling and transfer operations in the solid waste segment; however, landfill prices again showed a net year-over-year decrease. Western region is experiencing the most difficult days in landfill pricing, both for MSW and C&D; although C&D prices on average include marginally from last year. MSW prices held firm over at the other landfills. Hauling and transfer volumes were down in the quarter, while landfill volumes were up in total. MSW volumes were up 3% this quarter, while C&D was down, but more than offset by some bud projects, especially at Ontario. Our closure projects for Worcester and Colebrook, which are not included in our landfill statistics, benefited from another large volume increase at Worcester at a better price, but Colebrook closed during the quarter, which negatively impacted volumes. At FCR, average commodity prices continued to reflect year-over-year increases and volumes were also up. Commodity prices continued to move upwards in August and September. The downturn in prices began in October, but revenue and earnings were depressed as a result only by about $350,000 million. Surcharges were again up in the quarter, amounting to 1.5% as a percentage of total company revenues, 2.1%, as a percentage of solid waste revenue. Revenues for the quarter breakdown as follows

[Paul Larkin:]

Thank you, Richard. We are pleased with our performance again in the quarter. We continue to deliver on a number of sales and operating initiatives that are driving top-line growth, improving operating efficiencies and our asset utilization. As Richard mentioned, total company revenue grew 4.7% quarter-over-quarter. Highlights for the quarter include solid waste price, excluding surcharges increased 1.3% and now has improved for three consecutive quarters. Growth in solid waste pricing reflects 1.4% higher pricing in the hauling and transfer businesses with slight weakness at the landfill. Overall, landfill pricing was up in our Southeast and Northeast regions. Landfill pricing was flat in our central region, while pricing declined in our western market. MSW pricing improved in all regions except for the west. Landfill pricing in the west was negatively impacted by a mix shift and higher diesel fuel costs. With the recent drop in fuel prices, our sales team continues to work to source volumes with the Hakes and Ontario landfills at the appropriate returns and we are maintaining our conservative strategy to fill this expanded annual volume. Despite slight weakening in third-party pricing, the western region had strong operating performance in the quarter with revenues up 5.6% and operating income up 23.7%. In total landfill volumes at our active sites increased 3% with MSW volume up 3%. Highlights for the quarter within our hauling division include our standardized pricing programs that the hauling companies continued to yield positive result, as our average revenue per new account was up 1.2% over prior year and our roll-off net revenue per pole improved 8.3% year-over-year despite continued softness in the market with total rollout pole down 6.6%, primarily centered in the Southeast and in the western markets. Solid waste operating margins improved 85 basis points to 10.3% quarter-over-quarter, while FCR operating margins declined 310 basis points to 13.3% driven by weaker commodity prices in October and the higher purchase material cost. The solid waste year-over-year operating margin improvements were made in the following areas

[Jim Bohlig:]

Thank you, Paul. Good morning. I will first discuss our principal development activities and then provide some additional background on FCR and US GreenFiber’s operations. As reported in Q1 ’09, we received the Board of Health confirmative determination to expand the Southbridge landfill operation, in stages to 405,000 tons. While, we did received an appeal which is underway, we have received permission to source the landfill to the initial stage of 180,000 tons from outside waste and we are operating at capacity while waiting the final permitting appeal process to work through its course. The two subsequent distinct stages are at 300,000 and then to 405,000 and they are tied to successful landfill gas energy operations and a new C&D processing facility, which is built and awaiting completion of the access road. The bid for that access road was issued about a month ago and I believe they bid openings early this morning and we expect that bid for the road to be awarded within the month and for construction to be completed mid 2009, which will enable access both to the second stages as well as allowing us to access our new C&D processing operations at that facility. We have for the winter, the old facility shutdown and that’s an entirely appropriate with the economic volumes that we are seeing in that marketplace. During the quarter, we completed construction, synchronized and placed into operation both the Hyland and Clinton County landfill gas facilities, employing our proprietary lower machine landfill technology, which basically is aimed at providing a zero-emission fuse of emission from these landfills maximizing gas generation capabilities and incorporating leachate recirculation. All of this has produced excellent returns relative to excess gas generation and early completions of these projects are welcomed at all levels, both from a financial standpoint but as well as a green house gas standpoint. In the quarter we also received final Clinton County Phase V permits extending the landfill permitted capacity to end of our lease and beyond. This is a major permit expansion covering the developments that have been on the way of this landfill for four or five years and gives us permitted capacity past 2020. The balance through this landfill permitting activity is unchanged from that reported in Q1 ‘09. The balance of development activity has been focused on converting and upgrading recycling infrastructure in response to strong market demand, while on the Camden Q1 zerosort conversion, we during the quarter upgraded the Philadelphia container line and also completed the mid-Con CRA zerosort conversion. Both Camden and mid-Con have seen dramatic flow of material increase as a result of converting to zerosort and the convenience that comes from that and we have seen that across our lines that we have made recycling more convenient. The volume of material has dramatically increased and we are preparing for that as we are continuing to convert our infrastructure to the state of the art of our technology. We have initiated zerosort conversions in the trials to our Boston facility and we expect that to be completed in January ’09. This is a 45 ton per hour facility, with nine optical sort station and we expect to be able to access considerable but more recyclables within this market as a result of this upgrade. We also commenced in the quarter operation of the Stratford opened County facility near Detroit. This was an important win for us, which we announced this summer and it is an important opportunity for us to strike into a new market. We believe that there will be a single-stream conversion there in the near-term. As I mentioned these conversions, upgrades are a response to market demands, particularly related to volume growth driven by zerosort conversions and I think this is a good segue into the FCR operations. For the quarter FY ’09 versus FY ’08, the volume grew by 7% with commodity pricing and net revenue share up 12.4%. Purchased price increased to 23%, however quarter-over-quarter performance was impacted by the Boston conversion, by Philadelphia conversions and the late October commodity price wins as Richard reported in his section. As everyone is aware, I think we’ve reached to a point now where commodity pricing is linked to global economic activity and an early confirmation of lease global research constraints linked to economic activity resulted in an unprecedented fall of greater than 80% within 45 days to commodity pricing during November. We had seen a continued stagnation around those numbers during the months and slight improvements of the markets adjust to this. Many competitors have been unable to move during this period of time their products and I would like to complement and report, but I think FCR has done an excellent job in moving commodities, particularly through their strategy of being linked to the domestic market. As John reported, more than 90% of our product is tied to domestic mills and although the export market has dampened the domestic pricing and made those contracts obviously more challenging, I think we’ve distinguished ourselves in doing a very good job in moving product and not only moving product, but where appropriate, we’ve been able to take additional flow of material in markets, where we had outlets to ship and we could do that at an incremental free cash flow improvement and thus work our way up our capacity utilization curve at our facilities. Relative to hedging, as we have recorded before, we have used hedging to dampen or help us with fiber, aluminum and PET and the effects of those will be quite dramatically as it has helped to dampen the negative pricing impact that are occurring in the market. However, we remain exposed to HTP metal and some unprotected fiber commodities that we chose not to hedge and we are taking immediate steps to mitigate those things as we go forward through this quarter. Some improving markets early in December, but we believe that it will remain extremely difficult to forecast exactly until we have a clear vision of where the economic activity will go. Although, I do suspect that early in the year, the stimulus package that everyone is talking about will begin to raise market expectations and we will begin to see some firming as a result of that. Immediate steps that I reported earlier, I think are important just too quickly review. We have shut off all spot tons where appropriate fees did not cover our processing fees. We have negotiated increased take from our domestic mills in exchange for basically the long-term relationships that we’ve had with them and the ability to maintain that long-term relationship. We’ve established upstream floor options with existing long-term customers, initiated new upstream take agreements and we have most importantly communicated to our key customer, the market movements and if they remain persistent, the requirements does get additional support related to diversion savings and related to the ACR cost as it tracks through each month and we’ve also initiated discussions long-term with some partners on plastic mitigation plan creating floors and ceilings. Where possible we’ve added new tons as I mentioned before, where incremental tons have added to the free cash floor. With the next eight to 12 months, we will receive a significant benefit from the hedging programs in place. So, we remain not entirely protected on our commodity positions and we will enjoy a free cash flow positive position, but we will not be able to access the return until obviously the global economic activities clarifies and has an impact on the commodity positions worldwide. Moving on to U.S. GreenFiber, not surprisingly their performance is actually improved in this quarter and we’re seeing improvement in November as well. They’re benefiting from a lower O&P pricing, a major cost element to their business and they’re also benefiting from a very strong energy pull demand and particularly in the retail channels. O&P pricing peaked during October and has materially reduced since then and as part of the program initiated over year ago, U.S. GreenFiber has shifted their fiber supply, over 40% to a local programs and we expect within four or five months over 60% of the materials will be acquired through programs that do not require a traditional brokerage and related pricing. Retail business is up 26%, reflecting the high energy awareness. It’s not surprisingly manufacturing housing and contracted business which is tied to the housing business overall, which is down 35% and 24% respectively. U.S. GreenFiber has done an excellent job responding to the housing correction underway. Over a year ago, they initiated two headcount reductions that now total 23%. They’ve maintained free cash flow positive; refinanced their capital structure, late summer 2008 and they continue to do a very good job to not be connected to their external markets. As I reported early in November, we’ve seen substantial improvement in their performance both through the demand, through the retail channel, as well as the effects of reduced paper pricing and we expect to see the effect of that to continue through Q3 and into Q4. With that, I’ll turn it back to John.

[John Casella:]

Okay, then we’d like to open it up for questions.

[Operator:]

(Operator Instructions) Your first question comes from Ben Kallo - Stanford Group.

[Ben Kallo:]

Could you guys walk us through the different options you have for refinancing the debt and then also de-leveraging how you’re looking at that and then maybe, how you rank those options and timing or any time that you could give us on that?

[John Casella:]

Yes sure, I’ll be happy too. I think first of all, there is a couple of different factors that come into play. We’ve previously discussed our effort in terms of delivering with the sale of main energy. Second, we currently have a $140 million of availability in terms of refinancing and I think it’s fair to say that we can reduce that pretty easily. So, there is two factors need to be incorporated into the being part of the discussions. The discussion that we’ve had is, fundamentally over the next six months we’ll be in the marketplace looking to refinance. The discussions that we’ve had currently, obviously the current market has been fundamentally closed and so I think the real challenge is going to be whether or not financial markets begin to fall and we begin to see a fundamental change, but the two things that we’re working are two factors; one obviously, the delivering with the potential sale of main energy; second, potential reduction in the facility. I think there are a number of different things that we can look at from a capital structure standpoint to the extent that the markets do not get better in terms of, how we might approach that. We’re working closely with Bank of America, we’ve put together our package; we’re getting prepared so that we’re able to access the markets in terms of having the work down. I think that’s predominately, how we are looking at this point in time. Obviously it makes no sense to try to access the market or to have tried to access the market over the last month or two, because effectively the market is effectively closed. I think that the sense would be that I think obviously you’ve certainly seen some deals that have gotten done, but the price paid is very, very significant in terms of the actual cost.

[Operator:]

Your next question comes from Corey Greendale - First Analysis.

[Corey Greendale:]

A question about the waste energy projects; there are two questions about it actually. First of all, do you have some sort of a back of the envelope number for the EBITDA contribution in the quarter from the new plant starting up this year; and secondly, given energy prices coming down, does that change your appetite for doing these plants or how does it affect the economics of the plants that you are building?

[Richard Norris:]

In the quarter the impact for the gas-to-energies plants was not down material Corey, we would have mentioned it as one of the factors. These plans are still in start up mode, so the revenue in the quarter is about 1 million bucks and the EBITDA was about 200. John Casella Yes, I think in terms of the go forward Corey, no it wouldn’t dampen our view, because there are two issues that are associated with the landfill gas-to-energy programs. One of which is the green house gas, climate change issues that are affecting the low emission landfill models. I think you’ve heard us talk about, the development of the low emission landfill model, which I think is important as we go out into the future, because we do believe that the facilities are going to face more regulatory pressure in terms of the climate issues as we move out into the future. So, the issues that we see in terms of the model, I think is still going to work even in a market where we may see a bit of a decline from an energy standpoint. Jim? Jim Bohlig Let me just give you some specifics there. The revenue is really coming from two components; one is the power sales and the other one is renewable energy credit. The power sales, a year ago were doing ahead of sales. The power sales were probably $0.07 to $0.09; it’s fallen to $0.04 to $0.05, so you’ve probably seen about a $0.03 decline there, but if anything, the renewable energy credits have increased, because there is a less available renewable energy credit to meet the statutory demands. We actually expect the Congress, one of the first areas that they will actually move in the new session well be to push forward the 15% requirement on all the utilities to have renewable energy which will continue to support that $0.05. So, $0.05 in top of the $0.04 to $0.05 is a $0.10 total revenue stream and we still get a very substantial and acceptable return model with that, albeit it’s not as good as 13% model that we have six months ago, but well above our threshold for return on capital. So, I just wanted to add that because I thought that was part of your question.

[Operator:]

Your next question comes from Eric Prouty - Canaccord.

[Eric Prouty:]

First a question on the commodity pricing; are you seeing any impact on actual volumes because of lower commodity prices that you’re taking in and then second, are you seeing any change in municipalities plans to move towards single-stream recycling again because of lower commodity prices?

[John Casella:]

We really haven’t seen any real change from a public policy. If anything, an understanding of where the markets are in terms of the conversations that we’ve had Eric and then understanding that as long as your developing programs which we are and which we have, where you share the upside and that we’re not keeping all of the upside, there is a real understanding of where we are in terms of supporting the infrastructure to implement public policy. So, I think the feedback that we have gotten has been somewhat positive from a municipal standpoint. We don’t think that we’re going to see volume declines or a significant amount of material go in the landfill, but keep in mind the large majority of that is in markets where we have pretty high disposal fees. So, as it relates to the North Eastern United States, I think that’s very clear that the alternatives are fairly significantly high cost disposal alternative. One other thing, one other issue related to that; I think there is always a double edged on these kinds of market discourse. The other interesting thing that we’re seeing happen is a lot of folks who have existing agreements that have failed, were starting to get a lot of activity from people who we may have lost business too because of the structure that we were trying to get them in, to reach out and look for additional processing capability because existing programs are not working the way they thought they would. So, there is two exist to this issue and we’re seeing a little bit of an opportunity in terms of some of the markets that we operate in, where in fact municipalities that we may have loss business are reaching out for us to provide service.

[Eric Prouty:]

Alright thank you and maybe a follow-up for Jim on GreenFiber. You gave some good detail, but maybe just to drill a little bit deeper, obviously with the low fiber prices, is that enough on to get GreenFiber with a little increased volume here back to profitability or do you think that will still be operating at a loss?

[Jim Bohlig:]

Well, I hesitate to say anything here because as soon as I say anything positive, others might take that as a segue into some kind of moving a model up for the next quarter and I don’t think we want to do that yet, but clearly US GreenFiber is seeing a market change in their business model, both because of energy demand and the dramatic fall and their material cost and that, if it’s sustained over the period of time we’ll eventually have that result. I think we want to be cautionary and careful and not have people jump to conclusions on that until we report it.

[Eric Prouty:]

Again this is a lot of detail and then maybe too much, but again on GreenFiber, given extremely low prices we’re seeing here in this market, is there anyway for them to add hedged, maybe future fiber pricing increases by locking in forward volumes here. Is that something they’re pursuing or they’re primarily just buying in the stock markets?

[Jim Bohlig:]

No, of course this is a wonderful opportunity for them to do forward hedging and to protect themselves and they are doing that, but one of the things that I tried to articulate is that we were forced because we our long-term markets had very high numbers. We weren’t able to access those previous hedging things to go in another direction, which has proved to be very, very successful; which was to add grinding and shredding operations at each facility, so that we could locate our access to local fiber market without going through brokers. We believe that we’re going to have well and excess of our 60% of our entire material source on that, which will dramatically lower our overall O&P cost well below probably anything that we could sensibly report together from the hedging standpoint. So a combination of that plus hedging, I think positioned this business for both the future and when the housing corrects to having a very stable supply paper.

[Operator:]

Your next question comes from Bill Fisher - Raymond James.

[Bill Fisher:]

On the CapEx side I think, you targeted $65 million to $69 million this year. Is the growth CapEx about 10 or 11 of that and then kind of segueing into the next fiscal year just conceptually, do you see that growth CapEx coming down as you look at the single-streams and maybe ease off on that with the pricing and then on the maintenance side of the CapEx, it sounds like your fleet size is down? Can you see yourself pulling that maintenance CapEx down as well in the next fiscal year? John Casella I think that it’s fair to say that it’s certainly something that we’re looking at right now. We really haven’t talked about that today, but clearly Bill on the basis of where we are right now, where the economic activity is, it certainly is something that we will in all likelihood take a very serious look at in terms of pulling capital down to levels lower than where we’ve been historically. Certainly from a development standpoint, we’ll look very hard at that on a go forward basis. Jim Bohlig On the recycling commodities capital, we are clearly not going to invest any additional recycling capital unless the ACR returns support. So, very much we’re going to be linked to the external markets relative to only where those returns are supported and that means that we kind of retard our development in this way for a while until the markets recover. I think that’s the strategic and appropriate direction.

[Bill Fisher:]

Okay and then on strategy as well in our next fiscal year on Southbridge. Jim, on the 180,000 tons, did you get the conversion MSW or is that going to be tied to further expansions down the road next year? Jim Bohlig The actual MSW conversion is tied to that actually DES, DEP permit approval which is underway, but that probably won’t issue until we get this appeal resolved and so what we received was the ability to reach out beyond the local market and take materially and we’re operating the facility at that level and then as soon as we get the landfill gas energy on the road and those done we will be able to go to the next increment, but all of that obviously will require a final resolution of the appeal which we hope to kind of be in the mid stages of that and expect that to be resolved in the first quarter of ’09 calendar year.

[Bill Fisher:]

Okay great and just last thing maybe for Richard. On the 120, 124, the EBITDA guidance, if I conceptually think of it, like FCR did around $13 million or so in EBITDA in the first half, just kind of a mid-pointish range there, if you hit the midpoint, like five or so in the second half or how should I think about that?

[Richard Norris:]

Yes, I think that’s reasonable Bill.

[Operator:]

Your next question comes from Scott Levine - J.P. Morgan.

[Ron:]

Hi, it’s actually Ron. First question, you alluded a little bit to some of the risk mitigation activities you’re looking at taking on some of your un-hedged commodity exposure, specifically if I look at plastics, what have you done there and maybe what are your plans there going forward? Jim Bohlig I think, different things that we’re doing there is working with different manufactures who are utilizing PET and HDPE in their manufacturing process, directly with those manufacturers to establish with them lifecycle cost; establish our floor and ceiling that would be really beneficial in terms of establishing more predictability and stability in the market. Specifically, from the PET standpoint as well as from an HDPE perspective working with very large companies that were utilizing that material in their manufacturing process. Hopefully, we will have some opportunity over the next quarter or so to be able to talk specifically about what we’ve been able to get done there. This is not something new for us, it’s something that actually we’ve been working at for over a year and unfortunately, we’ve not been able to get that completed, but I do think that we will have success in terms of being able to put those force in place, particularly with where the markets are right now. Jim Bohlig If I could just add, if there ever was an environmental cultural condition that would have both the buyers and sellers thinking about the stability, it’s what’s occurred in the last six months, because it was only five months ago that we were at unprecedented high plastic pipe pricing. Some might say, it’s obviously tied to oil, but I think we’ll comeback to that and I think people are aware that being in a long-term business model with a short-term spot market contract is not a very healthy place to be for either on the buy or sell side and we’ve already seen that. So, I think what John is actually referring to is the kind of relatively healthy discussions underway now with a whole number of party saying, “Okay. We’ve got a move to new paradigm and new paradigm has got to involve floors and ceilings and a little bit of win-win for everybody, not win-lose top or the bottom” and we’ve hoped to make great progress in this environment because of that.

[Ron:]

Secondly, on the de-leveraging front, you spoke a little bit main energy, but speaking more generally, can you just give us a general update on the timing of that and when you think you might be able to have something announced?

[John Casella:]

Well, it’s really difficult; if you could give me a sense as that what your perspective is in terms of when the financial markets are likely to move in a different direction. Probably, we’d be able to give you a more indicative answer to the question. I think, our sense was that we would have had it done by now, not withstanding what has happened in the financial market. So, we have several folks that we’re working with right now; we have a fairly significant amount of interest in the facility, but it’s really difficult to kind of pin point. Obviously, from our perspective it’s a high priority and something that we would like to get done as soon as possible.

[Operator:]

Your next question comes from Jonathan Ellis - Merrill Lynch.

[Jonathan Ellis:]

I wanted to ask just briefly, first on the solid waste business. You had mentioned some roll-off pulls declining; I think at a percentage if I marked this down correctly, that was somewhat worse than last quarter. Can you talk a little bit …

[John Casella:]

It was up 6% Jonathan.

[Jonathan Ellis:]

Okay, thank you. Can you talk a little about solid waste volume trends in your other markets; residential and commercial?

[Paul Larkin:]

Jonathan, on the roll-off polls as John said it was 6% and the weakness that we primarily saw across the board and roll-off was in the Southeast and in the west. MSW volumes in total, our challenge continues to be as we said in the western market, primarily tied in the last couple of quarters to the transportation costs and we’re very focused on that as I said in my remarks. That is our biggest challenge at the moment.

[John Casella:]

I think also Jonathan; it offers the biggest opportunity or one of the biggest opportunities on a go forward basis because as those transportation costs come down, I think there is an opportunity for us to share in some of that value with some of the folks who are no longer experiencing the additional transportation cost, because of the material to our facilities. I think there is an opportunity there; on the downside as energy prices come up, there should be an opportunity for us to look at that from a pricing opportunity.

[Paul Larkin:]

Maybe one other highlight again. In that market, the operating income improved 24%, in the same period last year.

[John Casella:]

The notion of just simply looking at price without the balance of the metrics that move business model from an operating income standpoint; certainly price is a big metric; its an important one for sure, but it’s not the only one.

[Jonathan Ellis:]

You talked a little bit about the protection you have in place in the recycling business with respect to hedges and floor prices. Can you talk a little bit about, how far how those hedges and floor price contract extend and when you’d have to re-up them?

[John Casella:]

The portfolio goes out for another 24 to 36 months. Some of the material comes up. As an example, our hedges on aluminum are tied to our year-end this year in April, but the balance of it is a portfolio that goes out over 24 to 36 months. So, we’re fairly well protected for a fairly significant period of time.

[Jonathan Ellis:]

And just my final question; in terms of decline in fuel costs which you spoke about earlier and recognizing that your surcharge programs in the waste industry tend to lag despite the spot price of fuel a little bit. So, I’m wondering just in the quarter, can you quantify how much of revenue or more importantly an EBITDA benefit came from this lag between surcharges and the spot price of fuel?

[Richard Norris:]

I think that the surcharge is 1.5%.

[Paul Larkin:]

Yes, 1.5% of total company revenue and that is not just the fuel surcharge, sorry that was the increase; quarter-over-quarter is 1.5%. That surcharge includes also the landfill and environmental charges as well as fuel, oil and lubricants.

[Jonathan Ellis:]

Okay, but do you have a sense though just given the inherent lag in the fuel surcharge programs, how much of it…

[Richard Norris:]

I don’t know off the top of my head, but the specifics were in terms of the lag for this quarter. We can get that offline for you Jonathan.

[Operator:]

(Operator Instructions) Your final question comes from Corey Greendale - First Analysis.

[Corey Greendale:]

So, as I’m looking at the guidance; if I’m looking at this correctly it looks like the high-end of the revenue guidance would assume that revenue is up year-over-year in the second half of the year and given the dramatic decrease in commodity prices and given that the revenue growth in aggregate in the solid waste business was being driven by fuel surcharges which I assume that is not going to be a contributor in the next couple of quarters, what would have to happen to get to the high-end of the revenue guidance range?

[John Casella:]

Well I think some of the things that we are doing proactively is the sales of the marketing program both from the landfill perspective as well as the programs that Bill has put in place on the entire revenue stream. So, I think we are going to see some revenue growth from those programs, but I think clearly the challenge that we are going to have is what really happens from an overall economic perspective and do we see more softness or do those few things continue to stabilize on a go forward basis.

[Corey Greendale:]

Can you just say a little bit more? I think Paul in your comments you were mentioning increased sales efforts, but one would think that given the pretty dramatic decreases in fuel prices there is just a wider range of volume that you might be able to attract at some of the landfills. Can you in some way quantify how much of that you are seeing already, and how much of a ramp you might see at some of the more outlying sites with fuel costs coming down?

[Paul Larkin:]

We’ve really done a couple of things. We also brought on a Director of Transportation into our business that is aligned with Bill’s sales team. So, I go in the market with a much more consorted approach towards attracting new volumes and opening new markets. So our primary focus over the last couple of quarters and going forward, we condensify our sales in the markets that we are already in and then through a combination of a transportation synergy coming from the lower diesel prices, the focus that we have on that team plus the marketing sales efforts coming from build to attract new ways. We’ve seen a nice increase into the Worcester landfill through that effort, we’ve seen a nice increase in the Pine Trees through that effort and we think that now we’ll divert over to the west. We will realize that and those are all in tonnage so far in the quarter.

[John Casella:]

Yes, I think the increase in Worcester alone was something in the order of 80,000 tons accordingly.

[Operator:]

And we have no further question at this time. I’d like to turn the conference over to Mr. John Casella for any additional or closing remarks.

[John Casella:]

Thank you. In conclusion, I just like to emphasize that it is our belief that we are executing very well against the factors that we can control. Our people are working hard to offset the negative impact from the economic pressures and our operating programs are improving productivity in asset utilization. In light of the uncertainty and the economic financial markets, our people have performed very well and I’m confident that we will continue to improve performance in spite of the economic conditions. Thanks for your attention this morning. Our next earnings release and conference call will be in early March when we will report our third quarter of fiscal year ‘09 results. Thank you very much everyone and have a great day.

[Operator:]

Ladies and gentlemen that does conclude today’s conference. We appreciate your participations and you may disconnect at this time.