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Casella Waste Systems Inc (CWST -0.70%)
Q3Â 2019 Earnings Call
Nov 1, 2019, 9:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen thank you for standing by and welcome to the Casella Waste Systems Inc. Third Quarter 2019 Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Joe Fusco Vice President of Communications. Thank you.
Joseph Fusco -- Vice President of Communications
Thank you for joining us this morning and welcome. With us today are john Casella, Chairman and Chief Executive Officer of console away systems. at Johnson our president and chief operating officer, Ned Coletta our Senior Vice President and Chief Financial Officer; and Jason Mead our Director of Finance. Today we will be discussing our 2019 third quarter results. These results were released yesterday afternoon. And along with a brief review of those results and an update on the company's activities and business environment we will be answering your questions as well. But first as you know I 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 safe harbor provisions under the Private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors including those discussed in the Risk Factors section of our most recent annual report on Form 10-K which is on file with the SEC. In addition any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. While we may elect to update forward-looking statements at some point in the future we specifically disclaim any obligation to do so even if our views change. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to today. Also during this call we will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures to the extent they are available without unreasonable effort are available in the appendix to our investor slide presentation which is available in the Investors section of our website at ir.casella.com.
And with that I'll turn it over to John Casella who'll begin today's discussion.
John W. Casella -- Chairman and Chief Executive Officer
Thanks Joe and good morning everyone. Welcome to our third quarter 2019 conference call. We continue to be pleased with our execution against key strategies of our 2021 plan and with our performance and results thus far in 2019. Our third quarter revenues and adjusted EBITDA were up 14.9% and 14.1% respectively from last year. Our core solid waste recycling customer solutions business remain strong as we continue to advance key pricing and operational programs. We remain highly focused on the base business as we grow through our disciplined acquisition strategy where year-to-date we've acquired eight businesses with approximately $52 million in annualized revenues exceeding our target of $20 million to $40 million acquisitions for 2019. Four of these acquisitions were completed in the third quarter. Given the timing of these acquisitions in 2019 we expect a 4% revenue growth contribution in 2020 from the rollover impact.
As with the past I would like to provide an update on the five key strategies of our 2021 plan which were consistent with the plan as announced in August of 2017. Our first strategy increasing landfill returns. We continue to enhance returns through price execution operational programs the sourcing of new volumes at higher prices and our efforts to advance key permits. The pricing environment remains strong. And we are continuing to find success in driving price at our landfills in the capacity-constrained northeast as we recognize the scarcity value of these assets and heightened regulatory cost inflation. Landfill price was up 6.6% in the quarter as we continued to advance robust pricing. At the same time we are also replacing lower-priced tonnages with higher-priced customers which blends up overall pricing and enhances our returns. As such our average landfill price per ton was up 7.8% in the quarter. Notably in the third quarter our operating costs at the Ontario landfill moderated as we worked diligently through the first half of the year to resolve order issues and made various site improvements.
We are pleased that these operational challenges are behind us and we will continue to ensure the site is operating at our highest standards. In the third quarter we also received an important permit expansion at our Waste USA landfill in Vermont. This site is a critical outlet for much of Vermont's waste and our continued investment in the facility will drive significant shareholder returns. With this expansion the line disposal area will increase by approximately 51 acres which should provide roughly 13.7 million cubic yards of airspace extending the life of the site for -- by about 20 years. While we have several years of capacity remaining within the current operational footprint we recently began construction for the new large expansion area. This is a unique construction project as we plan to invest over $20 million of capital during the next several years building out the necessary long-term infrastructure for the expansion area. The second strategy in our 2021 plan is driving further profitability within our hauling business. Our hauling teams did a great job offsetting continued disposal labor and recycling cost inflation as we advanced 5.2% price during the quarter and continued to advance key operational initiatives.
Ed will get further into the details on our efforts to drive operational excellence through increased process to ensure that we have the highest levels of service compliance reduce safety incidents and operating efficiency. At the same time we are working hard to integrate our acquired collection operations. The third strategy value through resource solutions. For the fourth consecutive quarter we improved recycling adjusted EBITDA year-over-year even with commodity prices down roughly 25% in the third quarter versus last year. This speaks to the success of our offtaking risk programs and certainly the efforts from the entire team. We have built a recycling infrastructure that helps to insulate us from volatility and declines in the global recycling markets through our third-party recycling processing contract structure which allows us to pass commodity risk back to the customer coupled with our SRA program which is fully offsetting the commodity risk on our intercompany volumes. The year-to-date declines in recycling commodity prices has not materially impacted our 2019 recycling forecast and we remain on track to improve recycling adjusted EBITDA by $5 million in 2019.
With the reset of the City of Boston recycling processing contract on July 1st to an appropriate market level we have now passed over 90% of the recycling commodity risk back to our customers. We will continue to ensure that we generate an appropriate return on recycling assets as we are focused on recycling -- on restructuring the remaining legacy third-party contracts over time improving our contamination fee program furthering the education of our customer base. We have also completed two recycling equipment upgrade projects during -- that will reduce operating costs and improve the quality of our outbound materials. The customer solutions and organics team performed very well with combined adjusted EBITDA growth of over $400000 in the quarter. The fourth strategy in our 2021 plan is using technology to drive profitable and efficient growth. We are pleased with the progress we have made against this initiative as we continue to drive better scale and further reduce costs out of our existing processes.
While we have grown the business significantly through acquisitions with the 2018 launch of NetSuite we've been able to leverage simplify and better automated purchasing processes which has allowed us to not add back-office headcount. We've also experienced early success related to our new case management system an upgrade to our CRM system which enable us to better integrate our sales and customer care teams. And we'll continue to target enhancing our responsiveness to our customers and improving their overall experience. Moving on to the final strategy in the Well, we have grown the business significantly through acquisitions. With the 2018 launch of NetSuite, we've been able to leverage simplified and better automated purchasing processes, which has allowed us to not add back office headcount. We've also experienced early success related to our new case management system, and upgrades to our CRM system, which enable us to better integrate our sales and customer care teams will continue to target enhancing our responsiveness to our customers and improving their overall We're all experience. Moving on to the final strategy in the 2021 plan which is allocating capital. We're balanced growth. We continue to execute very well, in 2019. against the strategy. We've completed eight acquisitions here today with any lies revenue of roughly 52 million of the four acquisitions completed during a quarter. The most significant was the previously announced acquisition of select solid waste assets in the Albany, New York and Cheshire, Massachusetts markets from Republicans Republic services that are expected to produce roughly 30 million of annualized revenue. This is a great strategic fit to our assets and operation. And that transition well through the first two months.
Our teams are working hard to fully integrate this acquisition. And given its size and new market entry we expect synergies will take over a year to fully recognize. In the quarter we also acquired three solid waste businesses with collection and transfer operations in New York. These businesses will integrate well with -- and complement existing operations. We look forward to continuing to provide excellent service to their customers and we welcome their hard-working employees to our team. As we look across the acquisitions we have completed over last 1.5 years we are pleased to say that most are tracking well against pro forma. And in all cases we are generating expected revenues. Now it's a focus on attaining our top -- targeted operational synergies as we integrate the operation and expand margins. Looking ahead to 2020 our near-term pipeline remains strong and we are positioned well to continue to opportunistically grow the business and further drive free cash flow growth. We believe that there is over $400 million of acquisition opportunity in the midterm across our market areas and we will continue to selectively look at opportunities in adjacent markets.One area that was not specifically outlined in our 2021 plan but is very important to our continued long-term success and underlies all of our initiatives is our focus on further building our team. We are focused on ensuring that Casella is a choice employer in the markets by actively engaging with our employees investing in development programs and development career paths for all of our employees.
Our efforts and programs targeted toward attracting and retaining drivers and maintenance mechanic -- maintenance technicians and a variety of other operational roles are working well through the early innings. We have achieved stronger applicant flow coupled with a more rigorous and timely recruitment process that has improved the quality of our job candidates. With the help of our human resources team we are also in the process of creating a robust apprentice onboarding and training platform. Our goal is to develop programs that enable us to train our own CDL drivers and apprentice-level technicians who are committed to high levels of service and safety for many years with the company. We have established several training hubs across our operations and we're having great initial success in attracting trainees to the program. A number of the initial trainees have received their CDLs and have helped fill open driver positions within the company. The success of our human resources strategy should yield reduced turnover which will lower safety-related incidents and enhance productivity. Wrapping up. As reflected in our updated guidance in 2019 2019 is tracking well against our 2021 plan and displays continued execution of our key strategies with a goal of driving additional shareholder value. We expect continued strength in solid waste a robust acquisition pipeline and recycling tailwinds.
And with that I'll turn it over to Ned.
Ned R. Coletta -- Senior Vice President and Chief Financial Officer
Thanks John. Good morning everyone. Revenues in the third quarter were $198.5 million up $25.7 million or 14.9% year-over-year with 10.6% or $18.3 million of the increase driven by acquisition activity. Solid waste revenues were up $21.9 million or 16.7% year-over-year as a percentage of solid waste revenues with price up 5.3% volumes down 0.1% and 14% of this growth driven from acquisitions. Revenues in the collection line of business were up $19.4 million year-over-year with price up 5.2% across all lines of business volumes slightly down and risk recovery fees up 0.7% mainly in the SRA and the E&E fee. Acquisitions drove $15.6 million of this growth. Our disciplined pricing strategy has been working very well balancing customer retention and new business growth with appropriate pricing levels to offset heightened inflation across our operations. Revenues in the disposal line of business were up $1.8 million year-over-year despite the closure of the Southbridge Landfill in November of 2018 which resulted in a $3.2 million year-over-year headwind.
The landfill pricing environment remains very strong and we increased reported landfill and pricing by 6.6% year-over-year. And as John mentioned we increased the average price per ton at the landfill by 7.8% as we improved the mix of our customers and volumes. Excluding the Southbridge Landfill closure landfill tons were up 1.8% year-over-year as we ramped volumes during the higher-priced summer months while still maintaining strict pricing discipline. One unexpected headwind in the quarter was the construction delays at our Chemung landfill. We originally anticipated ramping volumes in August and September but we are not able to do so until the last week of September. Given this delay we will not be able to maximize our permit in 2019 since the Chemung landfill has quarterly permit limitations. While this delay negatively impacts our forecast for 2019 it presents a great opportunity to increase volumes in 2020. Recycling revenues were down slightly year-over-year with $2.7 million of lower commodity pricing offset by $2.3 million of higher third-party processing fees and $300000 of higher volumes.
Commodity prices were down 33% year-over-year in the quarter on lower cardboard mixed paper plastics and metals pricing and they were down 5% sequentially from the second quarter to the third quarter mainly on declines in mixed paper and cardboard. Our organics revenues were up $800000 year-over-year on higher volumes. And the customer solutions group's revenues were up $3.2 million year-over-year due to several new multisite retail customers and strong growth in the high-margin industrial services group. Adjusted EBITDA was $48.4 million in the quarter up $6 million or 14.1% year-over-year. Adjusted EBITDA margins were 24.4% in the quarter down 15 basis points year-over-year. As you'll remember last quarter we did lay out that we expected a slight margin headwind in the third quarter but then margins ramping into the fourth quarter. The Southbridge Landfill closure negatively impacted margins in the third quarter by 80 basis points while acquisitions completed in the last 12 months pressured margins by additional 90 basis points as we worked to integrate operations and drive synergies.
So excluding these two items margins for the remainder of the business were up 155 basis points year-over-year. Solid waste adjusted EBITDA was $44.8 million in the quarter up $4.3 million year-over-year driven by strong pricing higher disposal volumes in acquisition activity partially offset by operating cost inflation. And one thing to note is we had a $3 million year-over-year headwind in adjusted EBITDA with the closure of the Southbridge Landfill. So ex that factor our overall adjusted EBITDA was very strong in the rest of the business. Recycling adjusted EBITDA was up $700000 year-over-year with $2.7 million lower commodity prices as I said offset by higher tipping fees and processing fees lower rebates to customers and higher volumes in the period. Adjusted EBITDA was $2.3 million in the other segment for the quarter up $1 million year-over-year. Customer solutions had a great quarter with adjusted EBITDA up 12% year-over-year on strong execution of our strategy. The organics group had a very strong quarter with adjusted EBITDA up $600000 year-over-year and this was despite our efforts to reduce internalization of sludge volumes.
The team did a great job optimizing disposal outlets and driving higher pricing. Cost of operations was up $17.2 million year-over-year with roughly $14.5 million of this increase driven by acquisition activity and most of the remainder driven by inflation across direct labor third-party disposal and transportation and vehicle maintenance. G&A costs were up $2 million year-over-year but down 54 basis points as a percentage of revenues as we began to gain further leverage from our acquisition activity and our 5-year technology plan. Roughly $1.6 million of this increase year-over-year was driven by acquisition activity. Depreciation and amortization costs were up $2.7 million year-over-year mainly due to higher depreciation on trucks and equipment related to our 5-year fleet in Yellow Iron plan and the acquisition activity during the period. The third quarter included several unique income item -- income statement items. We incurred $600000 of legal and transaction costs related to our ongoing efforts to cap and close the Southbridge Landfill. We incurred $1.1 million of expense from acquisition activities completed in the period. And we recorded a $3.6 million charge from the withdrawal from our multiemployer pension plan.
This is the only multiemployer defined benefit plan we had as a company. The withdrawal from this pension plan was a positive step for the company as we limited the ongoing financial risk associated with this multiemployer plan and exited the plan for approximately a 77% discount to the stated withdrawal liability. We expect to have a $1.7 million cash payment in the fourth quarter and the remaining payment will be made over the next 16-plus years. As of September 30 2019 our consolidated net leverage ratio was 3.24x. This is slightly up from June 30 mainly due to acquisition activity during the quarter. Our total debt net was $533.7 million with liquidity of roughly $137 million. We believe that this capital structure is in a great position to allow us to continue to execute against our strategy of growth through smart acquisitions and investments. Year-to-date our normalized free cash flow was $24.1 million as compared to $37.3 million for the same period last year. Normalized free cash flow is down year-over-year due to lower net cash provided by operating activities which I'll explain in a moment and higher capital expenditures. Net cash provided by operating activities was down $18.4 million year-over-year with higher operating results offset by $28.5 million lower shift in working capital.
This negative change in working capital is mainly driven by three factors: one timing differences and cash receipts associated with AR and cash outflows and timing differences with AP; the adoption of ASC 842 as we've discussed previously on January 1 2019 which shifted payments on landfill operating lease contracts from an investing opportunity to an operating activity on the statement and cash flows; this change only impacted the financial statement positioning of this cash outflow not the amount; and three a reduction in accrued liabilities due to the cash outflows associated with the remediation project at a former scrapyard in Potsdam and the Southbridge Landfill closure. Over the last month we refreshed our 2019 forecast and we expect strength in our solid waste recycling and customer solutions operations to continue through the remainder of 2019 and into fiscal '20. As previously discussed we expect EBITDA margins adjusted EBITDA margins to expand by 100 basis points or more in the fourth quarter as we anniversary the Southbridge Landfill closure and we begin to recognize easier comparisons for labor and disposal inflation. As such we have raised our revenue guidance raised and also updated and tightened the ranges for adjusted EBITDA and normalized free cash flow guidance ranges for 2019. We expect normalized free cash flow to increase sequentially in the fourth quarter mainly due to improved operating results and working capital swinging to a positive $10 million in the quarter as we regain historical DSO and TPO levels.
And with that I'll turn it over to Ed. Thanks.
Edwin D. Johnson -- our President and Chief Operating Officer
Thanks Ned and good morning everyone. Operationally this was a very good quarter. We continue to lead the industry in price we are growing at a strong but manageable pace and we are making a lot of progress with our acquisition integration work. In addition our innovative approach of providing clear career paths for our drivers mechanics and equipment operators are starting to bear fruit as we are seeing a stabilization of our workforce. Consolidated cost of ops as a percentage of revenue was roughly flat as compared to Q3 last year increasing slightly by seven basis points but improving considerably over Q2. Collection operations generated about 50% of our revenue growing 24% over the prior year primarily through acquisitions. We grew 5.2% for price and were slightly negative on volume as we continue to process -- the process of managing our low-margin customers toward either better pricing or discontinuing of relationship. Variable margin contribution per driver hour our key productivity metric continued to improve.
The landfill line of business which generates about 13% of our third-party revenue performed very well in the quarter. Ned mentioned the Chemung delay which provided a little headwind but Ontario is back on track. Overall our landfill volume was up 1.8% reported price was up 6.6% and the average price per ton was up 7.8%. As you can imagine the cost of ops as a percentage of revenue for our landfill operations improved by over 300 basis points. We continue to be a price leader in this ever-tightening disposal market in the northeast and we look forward to continued strong pricing and a good finish to the year. Recycling processing was a little less than 6% of our overall revenue and cost of ops improved about 5% year-over-year. During the quarter we completed significant equipment upgrades in two of our MRFs and there are two points I would like to highlight about that. First despite several weeks of downtime in each of these facilities our recycling line of business increased its EBITDA contribution by $700000.
This is partially due to better pricing in muni contracts like Boston that were renewed under our new pricing structure over the past 12 months and partially due to the continued effectiveness of our SRA fee structure. More importantly these two MRFs have not only increased capacity they are producing cleaner products that will demand higher pricing in the commodity market. You might ask why that would matter if we have an effective fee system in place. We believe we are an integral part of the sustainable economy and it is our obligation to provide our customers with the best possible outcome and keep the recycling model sustainable. And in the long run we will share in the upside. Last quarter I talked about the initial lower margin contribution of the acquisitions and the margin compression of passing through significant disposal and labor cost increases in the collection line of business. Our focus this quarter was to start to recover those margins through both price and operational efficiency.
We're not all the way there yet but we ended the quarter in a much better position than we started it. So I'm pretty happy with our progress and comfortable that we will have recovered the margin on disposal and labor for our legacy operations in Q4. I wanted to talk a little bit about the integration process for acquisitions and why as I mentioned last quarter they tend to dilute our margins in the first year. Clearly not all acquisitions are alike but we generally follow four integration phases and the complexity of the acquisition determines the length of time that each phase takes. The first phase is management integration of back-office systems. This is where we convert customer billings to our customer information system convert the related driver route sheets integrate payables all the admin stuff. The second phase is operational integration. This includes route optimization and could include service changes such as converting recycling service to a more efficient every-other-week service with carts.
Once we become operationally efficient and the customers become accustomed to our billing structure and any changes in service we can then focus on pricing. Many of our acquired companies have not kept pace with the pricing in the market. And this can be a significant long-term opportunity but takes time to execute thoughtfully. And then what I will call phase four we look for opportunity to improve automation. We plan for this upfront such as providing recycling carts but it takes more time to implement as it entails equipment replacement under our prudent asset utilization plan. So even if acquisitions dilute margins a little in the short run we are very happy with where we are in the process. We are on track and commend our team for the hard work they've done to-date. Before I move on I want to extend a warm welcome to our new team members that have joined us through these acquisitions. Our philosophy is one of inclusion. We recognize and need your talents and hope that each of you find a long and rewarding career that allows you to grow with us as we grow the company.
So last thing I want to comment on is the enhancements we've been making over the past year through our operational management capabilities adding foundational elements to both run our existing business well and to integrate newly acquired businesses. In addition to the Vice President of Operations that we added a year ago we have now added regional operational executive teams of our solid waste regional teams and have initiated several programs to improve pricing management monitor and improve service levels standardize internal metrics and operational reporting and then improve our ability to replicate operating processes as we grow. We've also added a Vice President of Landfill to oversee operational improvements at our nine sites and in the long run improve our prospects for expansion. We will continue to tweak our structure and improve our capabilities as we move forward and the size of the company and the demands of the market dictates.
With that overview I'd like to turn it back to the operator to start the question-and-answer session.
Questions and Answers:
Operator
[Operator Instructions] Your first question comes from the line of Sean Eastman with KeyBanc Capital Markets.
Sean Eastman -- KeyBanc Capital Markets -- Analyst
David This is Hamza speaking for Sean. Congrats on the quarter. One main question I had was the guidance raise congrats. They came in slightly lower than expected. Maybe walk us through the puts and takes of the additional revenue from the RSG assets and the lower volumes on the Chemung landfill.
Ned R. Coletta -- Senior Vice President and Chief Financial Officer
Hamza this is Ned. Great question. So when we look at the quarter we had forecasted ramping up Chemung. As you know we got a permit expansion at the site several years ago to go from 180000 tons a year to 417000 tons a year. We'd held back executing an option with the community until 2019 and we had always envisioned this as a step-up to help handle volumes from the Southbridge Landfill and other market needs. We executed that option successfully this year and we actually began construction of our new cell in late 2018. And there were several construction delays and certification delays that really brought us getting into that new cell until late September unfortunately. And that weighed on our results by about $2 million $2.5 million compared to where we expected to be in 2019 so a little bit of a negative this year. And you're right we did some great acquisitions in the quarter and they -- we drove about $30 million of new annualized revenues which this year should add about $10 million of revenues or roughly $2 million of EBITDA. So there's a direct push between both of those. So we are able to tighten our EBITDA and our free cash flow ranges by increasing the lower end of the range but we were not able to increase both ranges because of the Chemung delay. The positive here though is we are now ramped up at Chemung. The site is running great. The team's done a great job. We're into the new cell. And with our current run rate this gives some great tailwind coming into next year for the company.
Sean Eastman -- KeyBanc Capital Markets -- Analyst
Okay. And then on special waste a lot of the peers are talking about a more slower pace of growth. I was wondering given the northeast footprint if the special waste -- how the special waste pipeline look relative to the national average.
Ned R. Coletta -- Senior Vice President and Chief Financial Officer
Right now we haven't seen any sort of major break in projects. And I think you have to remember with our sites in the northeast in general things are so tight out there that many sites are bursting at the seams. And as you remember we've been running strong pricing programs in our landfills. And we're also trying to manage volumes for the summer months and later in the year. Last year in 2018 we were out of space by like November at several of our key landfills and had to spend a lot more money moving tons around. And we really weren't able to access some of the special waste contaminated soils market late in the year. And this year we've saved some space. We continue to run strong in special waste. And I don't know John if there were any reductions or...
John W. Casella -- Chairman and Chief Executive Officer
Yes. No I think that it's just the opposite in northeast. I mean one of the other problems that is being experienced across the northeast is a lot of facilities are reducing the amount of sludge that they're taking which is also creating an issue in terms of special waste as it relates to sludge. Most facilities are at their capacity from a sludge standpoint. So there's additional pressure being put on the facilities and marketplace because again facilities were full before but a lot of facilities are reducing the amount of sludge that you're taking because of the sensitivity to odors and other issues. So that's becoming more and more of an issue for municipalities. And one of the things that I think everyone is doing is pushing the responsibility from an odor control standpoint back to municipalities because it's an issue that's problematic for everyone at the disposal facilities. I think it's being managed well by our team. They're having those conversations with our municipalities from a sludge standpoint helping them to better manage the sludge at the sites and it's working fairly well. But from a practical standpoint the marketplace from a special waste standpoint the supply and-demand situation is very very favorable from a price standpoint.
Sean Eastman -- KeyBanc Capital Markets -- Analyst
That's good to hear. And maybe my last question was I just wanted to congratulate the team on the execution on the SG&A front. Maybe walk through some of the efforts being taken place and the long-term implications.
Ned R. Coletta -- Senior Vice President and Chief Financial Officer
Yes. A lot of it really comes back to our multiyear technology plan. And we've done a great job looking at foundational systems in the back office. We recognized several years ago that we needed to become more efficient and easier to do business with for our customers and also internally looking around at fundamental processes the number of touch points we had and the amount of paper in the back office. And we started with a couple of key systems. As you know we upgraded our financial ERP in one year's time on time on budget to NetSuite in the cloud. We also updated our CRM to Microsoft Dynamics. And we recently put in a new case management system which allows our customer care our sales force and our operating teams to more effectively communicate. We continue to drive in each of those areas because we really -- there's a lot more opportunity here both from a technology standpoint and from a process standpoint. We'll have a lot of focus in 2020 on procurement and we'll have focus on the technology side on dynamic routing and optimization and scheduling on the truck side
John W. Casella -- Chairman and Chief Executive Officer
Another opportunity that we have Hamza for 2020 and beyond is the investment that we've made in HR. Kelley Robinson came onboard just under two years ago now. And really what we did there was a recognition a couple of years ago that the driver issue was going to be a significant issue. And at that time I think Kelley started we probably had 50 to 60 openings for drivers across the company and probably 25 or 30 mechanics. And when you have that kind of vacancy from a driver standpoint it puts pressure on the entire organization increases issues from a safety standpoint. I'm happy to lay out for you after 1.5 years and the work that the whole team has done from an HR standpoint where we can count the number of drivers that we need on one hand. And really what it's going to do is help to drive down costs related to safety costs related to turnover. And there are significant costs associated with turnover as well. So the better job that we can do from a career development training programs the things that we're doing from a safety standpoint are all going on a go-forward basis really make a difference. So it's another exciting program that's going to have some significant returns for us in the future.
Sean Eastman -- KeyBanc Capital Markets -- Analyst
Definitely returning to the team thank you.
Ned R. Coletta -- Senior Vice President and Chief Financial Officer
Welcome
Operator
Your next question comes from the line of Tyler Brown with Raymond James.
Tyler Brown -- Raymond James -- Analyst
Hey good morn Guys can you hear me? HeyI just want to start on Waste USA so congrats on that expansion. But it looks like you're spending some $5 million in capital on cell development there I think this year. John you talked about $20 million total. Will next year be something like $10 million? Or is it like $5 million $5 million $5 million? Or how do we think about that?
Ned R. Coletta -- Senior Vice President and Chief Financial Officer
Yes. Next year should be around $12 million to $13 million or so. We're still on budgeting so it's a bit of a moving target. And frankly if we can do more work next year we'll do more work. The faster we can get that done and into this new cell the better off we are.
Tyler Brown -- Raymond James -- Analyst
Okay. And then bigger picture obviously that's an unusual capex item but will there be any lingering unusual capex on Southbridge or Potsdam next year?
Ned R. Coletta -- Senior Vice President and Chief Financial Officer
So Potsdam -- yes Potsdam is a great story. We're able to complete the project this year. And one thing that's a little bit unique at Potsdam flashing back to 1999 when this transaction was completed there was some foresight that there may be some environmental issues there. And we have put 59000 shares of Casella stock that were going to be paid to the sellers into escrow. We were able to sell those during that period and we yielded $2.6 million of cash to offset our roughly $4.8 million liability to clean that up. So that was a positive as well during the period to help to offset. We're almost done with that. We would just have some modest monitoring going forward. Southbridge continues to chug along. We finished some of the capping there. Some of it we'll move into next year. It won't be capex per se but we'll continue to work down that liability for closure and capping at Southbridge over the next year. And we expect Jason how much like $5-or-so million next year $6 million?
John W. Casella -- Chairman and Chief Executive Officer
Yes. I would say yes $5 million to $6 million or $7 million between capping and closure maybe a little bit even more for that. But like you said I think we still need to go through our full budgeting process.
Ned R. Coletta -- Senior Vice President and Chief Financial Officer
Full year budgeting yes.
Tyler Brown -- Raymond James -- Analyst
Okay. That's helpful. And then -- so John at this point have the issues in Ontario been largely resolved?
John W. Casella -- Chairman and Chief Executive Officer
Yes. They have. There's still some work to do there to get us to exactly where we want to be from a quality standpoint but the vast majority of it is behind us at this point in time Tyler. Absolutely.
Ned R. Coletta -- Senior Vice President and Chief Financial Officer
And we [Speech Overlap] the third quarter.
John W. Casella -- Chairman and Chief Executive Officer
Yes. And to Ned's comment we beat budget in the quarter which is a clear indication that the vast majority of the costs associated with that is behind us.
Tyler Brown -- Raymond James -- Analyst
Okay. And so what was the total P&L impact from rectifying that situation this year? My presumption is it won't reoccur next year.
Ned R. Coletta -- Senior Vice President and Chief Financial Officer
Yes. We're sitting at about ...
Edwin D. Johnson -- our President and Chief Operating Officer
Maybe 2?
Ned R. Coletta -- Senior Vice President and Chief Financial Officer
No. A little -- a lick -- a little more than three this year.
Edwin D. Johnson -- our President and Chief Operating Officer
A little more than 3.
Ned R. Coletta -- Senior Vice President and Chief Financial Officer
A little more than three yes.
Tyler Brown -- Raymond James -- Analyst
Okay. And then as of right now you would expect the rollover benefit on revenue from M&A at 4%. So I think that's about $30 million. Is the right way to think about that as $6 million to $7 million of EBITDA? Or could it be better on synergies?
Ned R. Coletta -- Senior Vice President and Chief Financial Officer
Yes. So you're in the right ballpark. We're looking at -- it's $6 million to $8 million in our model from a rollover benefit for next year from acquisitions.
Tyler Brown -- Raymond James -- Analyst
Okay. Perfect. And then this -- John or Ed on the M&A side should we expect a pause as you kind of move this wrapping the snake and digest? I think this year you outlined maybe $80 million. Or should we expect that the M&A cadence will just continue to keep up?
John W. Casella -- Chairman and Chief Executive Officer
I think that it's fair to say that we're in the process of really getting our arms around from an integration standpoint what we bought this year. That's probably the activity in the fourth quarter. We still see a very robust pipeline Tyler. But I think clearly for the fourth quarter we are going to really digest and do the job from an integration standpoint for what we bought so far this year so a little bit of pause probably in the fourth quarter. I wouldn't really call it cause of the pause as much as I would. I think that after what we've achieved already from an acquisition standpoint we're going to focus on the integration through the end of the year. Certainly stuff that we have in the pipeline if we need to close it we will. But I suspect that we're going to be more focused. We are more focused on the integration for the rest of the year.
Tyler Brown -- Raymond James -- Analyst
Okay. That's helpful. So Ned so I want to come back to the disposal fleet. So correct me if I'm wrong but there's going to be some moving pieces in disposal fleet next year. So is it safe to assume that Chemung will be a good guy as it ramps? And should be a material good guy but you would also be pulling back at North Country and Hakes.
Ned R. Coletta -- Senior Vice President and Chief Financial Officer
Yes. I think it's really to be determined right now. We haven't finished budgeting yet but as you pointed out both of those -- those are two sites that have less than five years of permitting capacity remaining. Hakes we're very close to getting a new long-term permit there. So really depending upon the timing of Hakes and the timing of construction into new cell will determine how we run the site next year. And you could see us ease up a little bit on volume so we could run it to the same level as 2019 depending on when we received that permit and what construction looks like. North Country that's a complex permitting and community horizon over the next five to six years with our remaining capacity. And we probably will ease up a little bit there. It's a tight marketplace right now. But if we can push some additional price and run slightly lower volumes that that will probably be our strategy into 2020.
Tyler Brown -- Raymond James -- Analyst
Okay. And then just big picture though you would expect EBITDA contribution from the disposal fleet excluding Ontario next year and maybe even meaningful contribution.
Ned R. Coletta -- Senior Vice President and Chief Financial Officer
Yes. We do expect a positive across our assets. Ontario will have good comp year-over-year as we've resolved some of these issues. Chemung as we talked about earlier will ramp up volumes there year-over-year. And then the rest of the franchise I mean pricing continues to get into a better and better spot. We don't see any headwinds across the franchise except for as you pointed out maybe we run Hakes a little bit lower and North Country a little lower so a couple million dollars potentially at those two sites. But generally we feel good year-over-year.
Tyler Brown -- Raymond James -- Analyst
Okay. My last one just on the multiemployer plan. So did I hear it right as of now you have no off-balance sheet multiemployer liabilities at this point?
Ned R. Coletta -- Senior Vice President and Chief Financial Officer
Yes. This is the only one. So we're party to a few other collective bargaining agreements with several Teamsters units. But each of those are defined contribution plans where we don't have multiemployer exposure and this was the only one. So we are pretty excited about this. It was roughly $18.5 million off-balance sheet liability associated with it. And it's actually a business unit where we've been growing. So we've been picking up other people's liabilities. So we're able to flash back in time to 2011 is the way this work and negotiate and exit as if it happened in 2011. So really favorable we're excited. Our team did a great job negotiating this.
Tyler Brown -- Raymond James -- Analyst
Okay perfect. Guys let's appreciate the time
Ned R. Coletta -- Senior Vice President and Chief Financial Officer
Thank you
Operator
Your next question comes from the line of Michael Hoffman with Stifel.
Michael Hoffman -- Stifel -- Analyst
So Ned you all had the benefit of a positive move in your credit rating this year. How do I think that through with the landfill accounting going into 2020?
Ned R. Coletta -- Senior Vice President and Chief Financial Officer
Oh complex accounting question here. So one of the elements of landfill accounting is how you discount future liabilities and then how those get reflected on to the balance sheet retirement assets and retirement liabilities. And to your point for the last 15 years we've used a credit-adjusted risk-free rate based upon a single B high-yield index that was then adjusted for the tenor of our landfill liabilities future closure liabilities. So to your point we've moved to a BB credit which is great. It will bring now that discount rate. And also right now high-yield rates -- interest rates are lower as well. So we didn't finish all the math for our budget next year but what you'll actually see happen is you'll see a few balance sheet moves where asset retirement obligations liabilities will click up a little bit and you'll see slightly higher amortization and slightly lower accretion. And it's hard to say right now what that will result in but the net result is a little -- no difference at the operating income line but slightly higher EBITDA potentially. I haven't done all the math yet Michael but it is a positive move in that regard because you'll see a shift between accretion expense and landfill amortization. Once again no difference to the operating income line a few balance sheet moves but it will change the complexion slightly. And once we get that math then I'll let you know.
Michael Hoffman -- Stifel -- Analyst
Okay. And then you mentioned earlier in the commentary about sludges. Is this a PFAS issue or is it an older issue? We're picking up that out in the West Coast Northwest there's a couple of the public companies who've stopped taking PFAS sludges. Are you focused there or just its odor ?
John W. Casella -- Chairman and Chief Executive Officer
I think that it's more of the odor but the PFAS issue is an issue as well particularly as it relates to land application and other. I think that that's certainly something that is in the marketplace but the major component really is odor. We really have to control the -- have to control the odors at the facilities Michael because even traveling from the wastewater treatment plant to the landfill has been problematic in some cases. And I think -- so I think that the majority of the issues that we've seen have been odor.
Michael Hoffman -- Stifel -- Analyst
Okay. All right that helps. And then Ned if you pro forma-ed all your acquisitions this year into an EBITDA what would the leverage ratio be?
Ned R. Coletta -- Senior Vice President and Chief Financial Officer
If we took them out of our...
Michael Hoffman -- Stifel -- Analyst
No no pro forma it. As you're -- yes you own them since January 1st so you had full credit for them in the EBITDA and you did your leverage ratio. What's the EBITDA? What's the leveraging?
Ned R. Coletta -- Senior Vice President and Chief Financial Officer
I don't have that calculator down Mike. I may need to follow up with you. I'm sorry.
Michael Hoffman -- Stifel -- Analyst
But clearly it's less. So it's back down...
Ned R. Coletta -- Senior Vice President and Chief Financial Officer
Yes.
Michael Hoffman -- Stifel -- Analyst
Yes. Okay. That's very helpful.
Ned R. Coletta -- Senior Vice President and Chief Financial Officer
But the way our credit agreement works though to be clear is when you bring on an acquisition you actually get full credit at that point in time. So I'm not sure it changed anything. So if we take on an acquisition on September 1st for instance you have some additional debt. But our credit agreement most due they allow you to take 12 months of the EBITDA at that point in time based upon an improved pro forma. So I don't -- I guess I got to look at that. I don't think it would change anything with our leverage ratio.
Michael Hoffman -- Stifel -- Analyst
Okay. Well if it does will you let me know?
Ned R. Coletta -- Senior Vice President and Chief Financial Officer
Yes.
Michael Hoffman -- Stifel -- Analyst
And then John I always have to ask this as we come looming into a year where you're going to beat your goal by a year. So it looks like you are likely to be close to $70 million in free cash in 2020 which is a year ahead of plan. So what's the 2020 floor plan look like?
John W. Casella -- Chairman and Chief Executive Officer
You sound like a board member.
Michael Hoffman -- Stifel -- Analyst
I know you're board members.
John W. Casella -- Chairman and Chief Executive Officer
I know you do. Obviously it's premature for us to really comment on that. I mean I think that we'll have to make a determination Michael as to when it's appropriate for us to start talking about that. Obviously we better get our budget done for 2020 get a look at where that lands. And maybe at that point in time we may have a comment we may not. It may -- it's a little premature right now to really start thinking about 2024 or 2025.
Michael Hoffman -- Stifel -- Analyst
Fair enough. But if I were sitting out there having conversations and throw out $100 million would that make you blanch?
John W. Casella -- Chairman and Chief Executive Officer
If you what?
Michael Hoffman -- Stifel -- Analyst
I was having conversations with people and I said $100 million. Would that make you blanch?
Ned R. Coletta -- Senior Vice President and Chief Financial Officer
We haven't done that.
John W. Casella -- Chairman and Chief Executive Officer
We haven't done that math. I think that it's fair to say that we are going to drive as much free cash flow as we can. I think we obviously have demonstrated the capability to do that over the last five years. I really wouldn't comment on $100 million but I think that obviously we're going to drive as much as we can.
Ned R. Coletta -- Senior Vice President and Chief Financial Officer
Yes. And we've been driving consistently as you know Michael roughly 15% to 20% a year of free cash flow growth. And if you start to roll forward and then maybe how you got to that position. But we expect the same 10% to 15% next year and don't see anything that gets us off track.
Michael Hoffman -- Stifel -- Analyst
Yes. That was a little bit behind it. And then lastly are we getting close to a market rate where closed top rail comes into play out of your region for disposal?
John W. Casella -- Chairman and Chief Executive Officer
Closed rail?
Ned R. Coletta -- Senior Vice President and Chief Financial Officer
So we continue to see some C&D in contaminated sales move. There are several moves that are happening in the marketplace with containerized municipal solid waste. They are costly and they are capital-intensive as you know. And we're not -- we've done a few test loads. We're not moving any considerable amount of MSW or even C&D or contaminated soil down the marketplace. We are trying to really maximize our capacity. But as you point out that is going to be the relief valve for the northeast because there will be additional sites that close over the next five years. And whether the same new capacity comes online that's a long shot. So I think from our view you'll continue to see more to your point those prices are higher than where the market is today. So I think gives us room from a landfill pricing standpoint.
Michael Hoffman -- Stifel -- Analyst
And you have Holyoke which does have a rail. So maybe McKean comes into play in some future...
John W. Casella -- Chairman and Chief Executive Officer
I think that we view McKean obviously is that option from a capacity standpoint to the extent that there's an opportunity to have long-term contracts from a municipal standpoint to take care of long-term need. Obviously that's an option for us in the future. And certainly we could connect it to Holyoke there's no question about that Michael. I think that's an option for us in the future and we'll continue to drive it right now. McKean is operating at a level that's not that painful. So from a practical standpoint it's a real significant option for us in the future if we need it. And I think I would agree with Ned where we're ways away from I think really effective pricing from a rail standpoint.
Michael Hoffman -- Stifel -- Analyst
Okay. Thank you very much
Ned R. Coletta -- Senior Vice President and Chief Financial Officer
Welcome.
Operator
Your next question comes from the line of Tony Bancroft with Gabelli Funds.
Tony Bancroft -- Gabelli Funds -- Analyst
Good morning gentlemen Maybe piggybacking on Michael's questions sort of more big picture. But with your strong performance outsized M&A strong balance sheet the landfill dynamics in Massachusetts and maybe further going along in some more areas along with the margin and growth differentials in outside markets. Any change maybe sort of some puts and takes on how you view the northeast versus other markets adjacent markets that you may be expanding potentially could expand into? Could you just sort of talk big picture on that?
John W. Casella -- Chairman and Chief Executive Officer
I think that we're still very much focused on our 2021 plan Michael. I think that it's fair to say that we've got significantly -- I'm sorry Tony. I apologize.
Tony Bancroft -- Gabelli Funds -- Analyst
I take it as a high compliment.
John W. Casella -- Chairman and Chief Executive Officer
That's fair enough. I think that we are still focused Tony on the 2021 plan. we've got significant opportunity over the top of the existing assets that we own in the northeast. And certainly we'll take a look at adjacent opportunities as they come to the market but we are focused on executing the strategy that we put in place for 2021. I think that there's again more opportunity than even what we had anticipated 1.5 years two years ago. When you look at the pressure that's out there from a disposal inflation standpoint labor inflation and recycling inflation the opportunities are even more robust than what we had originally thought. So we are going to continue to stay focused on the 2021 plan stay focused on the northeast. But certainly we'll look at opportunities that come to the market. If something were to divest in Pennsylvania from a waste and advanced transaction it would certainly be something we would be interested in as an example. But we're already in Pennsylvania now currently. So we'll look at opportunities as they come but we're really staying focused on our 2021 plan.
Tony Bancroft -- Gabelli Funds -- Analyst
Sounds good. Thanks.
John W. Casella -- Chairman and Chief Executive Officer
Thanks.
Operator
And there are no further questions at this time.
Joseph Fusco -- Vice President of Communications
Great. Thanks operator. Thank you everyone for joining us this morning. We look forward to discussing our fourth quarter 2019 earnings and our 2020 guidance with you in February of next year. Thanks everyone. Have a great weekend.
Operator
[Operator Closing Remarks]
Duration: 59 minutes
Call participants:
Joseph Fusco -- Vice President of Communications
John W. Casella -- Chairman and Chief Executive Officer
Ned R. Coletta -- Senior Vice President and Chief Financial Officer
Edwin D. Johnson -- our President and Chief Operating Officer
Sean Eastman -- KeyBanc Capital Markets -- Analyst
Tyler Brown -- Raymond James -- Analyst
Michael Hoffman -- Stifel -- Analyst
Tony Bancroft -- Gabelli Funds -- Analyst
