Casella Waste Systems, Inc. (CWST) Earnings Call Transcript & Summary

Hi, good morning, everyone. This is Jon Windham, I run alternative energy and environmental services equity research here at UBS. And welcome to the UBS Global Industrials and Transportation Conference held virtually this year and and I think the way things are going, will not be held virtually next year, so everyone enjoy doing these meetings remotely today and hopefully, we'll all be in person next year. It is 9 am eastern. So you are joining the Casella Waste Systems fireside chat. We're very happy to have with us today, representing Casella Waste, Jason Mead, who's the Director of Finance as well as Ned Coletta, SVP and CFO of Casella Waste. So welcome, Ned, Jason, very happy to have you here as always. It's always a good conversation. As a quick disclosure, I did spend most of the winter in Vermont. So I consider myself a part-time resident as we move the family up there for a lot of the winter up in [indiscernible], which was nice. So I really appreciate you being here today. Just for those who aren't familiar, Casella Waste is the fifth largest waste company in the United States, operating primarily in the Northeast region. A company which, over the last 5 years, the stock chart tells the entire story. If you haven't seen it. We've at times and are currently neutral on the stock full disclosure. Every time I've had a neutral on the stock, I've been wrong. Should have been a buy basically every day for the last 5 years. So congratulations to Ned, Jason as well as John Casella, who won't be here today, is really a fantastic story over the last 5 years. Really happy to have you here. Maybe to get started Ned, I'll just turn it over to you to sort of level set on where Casella is right now and some of the key issues you want to talk about today.

Thanks, John. Thanks for having us today. And the last 5 -- really 8 years has been a great period for Casella. We worked very hard in the 2013, 2014, 2015 time period to reposition our business and really just kind of get back to the basics and simplify what we're doing. And we refocused strategy at that point in time to focus on driving additional profitability and returns out of our landfill assets by capitalizing on the supply demand imbalance in the Northeast, and we'll talk about that more today, but we've driven outsized pricing at the landfills. We've also had some excellent expansions at a time when the market in the Northeast has been contracting significantly as sites permanently close. In the collection line of business, we're really firing the best what we ever have as a company. Our pricing programs are working great. We have some very nice investments we've made over the last several years in addition to automation, dynamic route optimization. We're driving costs out of the business. And this is really evident during the COVID period where we did a great job of flexing labor, flexing trucks off the road and getting costs out of the business. Our Resource Solutions business is a real integral part of our operations, where we're focused on providing differentiated services to customers through recycling processing, organics, some of our implant services, and this is that explosive growth area for us, and it will continue to be a growth area for us over time. We had a reorganization of that business a little over a year ago to make sure we were delivering the right comprehensive services to premier customers and while getting more efficient doing it. On the technology side, this is actually a really fun area for us. We -- I think we're really leading in many ways on the technology front. And when I say technology, I mean driving better back office systems, better solutions for our customers, simple things like dynamic route optimization. And we've been making a ton of progress there over the last 3 years, and we're starting to see it both in the cost of operations, on winning premier customers by delivering differentiated data and probably single-handedly, the most important part of our story today and where things are the most exciting is on the growth side. Back in 2017, we pivoted our capital allocation strategy to start to focus on acquisitions again. Over the last 3 years, we've acquired 31 companies. And generally, these are smaller companies that tuck into existing markets or into adjacent markets where we can drive vertical integration. And we're driving very nice returns from this work. And where we sit today, our pipeline is very exciting. I mean in the near term, we estimate in the next 12 months, we have about $80 million to $100 million of revenues that will be coming on board. They're under letter in [ 10 ], and we're doing diligence on. So that's accelerating very nicely post-COVID. With that, I'll turn it back to you, Jon, and we look forward to the discussions.

Yes. Appreciate that, Ned. So for the audience, today is going to be a fireside chat, and I have quite a number of questions and sort of topics we're going to get into. But I would just remind participants, you do have the option at the bottom of the webcast that you're getting into that you can put questions in there. I will have the ability to see them, and I'll ask some as sort of time permits. So if you have a specific question, do feel free to type it then at the bottom of your screen, I'll be able to see that and get it asked for you. Maybe let's start here, Ned, just sort of level set on where we are in terms of absolute volume. So forgetting sort of year-on-year growth, are we back to the levels of 2019? Are we above that? Just sort of how people should think about the absolute level of volume that's going through the system right now?

Yes. And this is an interesting time of the year for us because, as you know, and I think most investors know, our seasonally slowest quarter for the company happens in Q1. There's less economic activity, less tourism, less construction in January, February, March in the Northeast. And then this time of the year, we see a week-on-week, month-on-month climb all the way to late August as trends build, and we're seeing very good trends right now across our business, across all lines of business, we're seeing strength. As society reopens more and more. And as you kind of flash back to last spring, we had 3 parts of our business that were negatively impacted by COVID. The small can commercial line of business, roll-off construction open top dumpsters and at the landfills from lower economic activity. At the low point, our small can commercial was running at about 85% of where we would expect it to be. Today, we're running at about 96% of where we expect to be. So we're not back to 100. And I suspect over the coming months, we'll get pretty close to it, where some of the continued pain there, just things like restaurants, hotels, some events that aren't back to full service, and we're seeing the Northeast is really one of the last places in the country to reopen. So we're seeing some acceleration right now, as you know. On the open top construction line of business, at the low point, we're about a 75% run rate last May. Today, we're sitting over 100% of where we'd expect to be. The construction trends are robust. They're some of the strongest we've seen in 15 years in the Northeast. And our bottleneck is truly labor right now, trying to make sure we can meet the needs of the marketplace. So there's a lot of pricing opportunities there. On the landfill side of the business, at the low point, we're about 80% of where we'd expect to be. And today, we're back to about 94%. And that's the biggest laggard, and it's lagging for one reason and one reason alone, New York City. We don't haul any waste in New York City, but we have a number of major customers who do haul waste in New York City and bring waste to our landfills. And that's the last major areas to reopen in society. And as New York comes alive on the commercial side, on the construction side, we'll see landfills get back online to 100%.

Got it. And so let's dive a little bit more into the construction market because I think that's one of the sort of really interesting phenomenons that's come out of COVID. And sort of people talk a little bit about moving out of metropolitan areas, whether that's temporary or not. The data point used in my town pre COVID, there were 75 homes for sale. There's currently 5.

Yes.

But there's literally no listings. Every piece of property got snapped up. Construction is going nuts. I live in a pretty -- it's an hour commute into Boston. So am I right to think of Casella as a bit more secondary market-focused and those sort of suburban to more rural construction trends, you're positioned to really benefit from?

Yes, absolutely. So about 70% of our business is in secondary kind of more rural markets. And they were the first to reopen with COVID. They had some of the least impacts. And frankly, we saw population move to these areas, and we saw some of the stagnant real estate get sucked up. We saw people investing in renovations, investing in new home starts. And in the Northeast United States, if you flash back that pre-crash, there were -- in [ '04 ], [ '05 ], there were 200,000, 150,000 single-family home starts a year -- I'm sorry, single-family home starts were about 130,000 a year. In 2019, there were 50,000 new single-family home starts. So you never saw the Northeast really fully recover pre-COVID. And right now, we're seeing permits, architectural billings, we're seeing a steep climb. I don't think back to that [ '06 ], [ '07 ] level. But it's a real shot in the arm for the economy, and you're seeing new business formation, new household formation and a lot of the attributes that are really healthy for the waste business. If you ask anyone around the waste industry, what are the arbiters for success, maybe GDP growth, new home formation, construction. In the Northeast, there's a little bit of a different arbiters for success. And it's the huge barriers to entry. It's the public policy. So landfills closing, it's our market positioning, our ability to get price. Now stacking on some positive real estate construction trends that's really exciting for us for the next couple of years.

Got it. And so you brought up several topics, including like the tightness in the Northeast, as well as sort of a Casella sort of growth formula going forward. And I definitely want to get into all of those. But first, I wanted to dive into probably a topic that's going to come up in every one of these fireside chats. And that is the impact of commodity prices on your business as well as supply chain tightness and labor. So maybe just taking those one at a time, steel, in particular, how does that flow through to your CapEx relative to revenue? Where is the nearest impact? How are you able to sort of manage that? And have you started to see higher commodity prices coming through in things like the boxes and the trucks?

Yes. So all of our truck orders are completed before year even starts. And we're at a cadence now. We're about 3/4 of our trucks and heavy equipment arrive in Q1 or early Q2. Those orders were placed sometime last year. So on the major items, we're not seeing a lot of inflationary pressure. Even on landfill construction, we're seeing a little bit on some bids that were later, most of our bidding is done kind of Q4, Q1. So there wasn't a lot of inflation there. One area we are seeing some acute inflation, it's not breaking the bank or changing our free cash flow for the year is on the container side, exactly what you said. I mean a 30-yard open top construction dumpster cost $3,000 or $3,500, 6 months ago. It costs $7,000 or $7,500 today. And not all of that's steel, it's labor availability. It's tightness of factories. It's transportation. It's a lot of things that are happening very quickly. So it means we need to have better pricing discipline. And I think as you know, Jon, we've got a pretty unique model in the Northeast, where most of our residential customers are subscription based, where we can price it well. Most of our roll-off business, we can price it well. And roughly about 70% of our collection business, we can change pricing at any point in time. So we're monitoring inflation carefully. And if we need to step in additional price increases, we will do so.

Got it. And so when you think about how you deal with this, let's just -- who knows where commodity prices are going, right? Everyone can have their different opinion about how long both supply constraints and high commodity prices last. What are the levers you can pull? Can you age out the container fleet a little bit, age out the trucks if pricing comes back for next year's order is really high? How do you think about flexing that? Or is it more about, hey, we're going to keep the -- our asset base at the age, we have it because we have pricing power on the other side? Just talk a little bit more about how you think about those levers.

You want to hop in, Jason?

Yes, no. Yes. Sure. Thanks, Ned. Yes, I was going -- I think it's more of the latter there, Jon. We're -- I don't think at this point in time, there's any willingness or expectation that we would begin to age our fleet or our container inventory. As always, we're focused on optimizing our inventory from a container perspective or our route optimization across our fleet. So we'd rather optimize in that manner and maintain capital discipline. And as inflation comes into the business, to Ned's point, with a good portion of our collection book of business being more open in nature in terms of us having the ability to price that well, we'll look to continue to stay disciplined from a pricing perspective and outpace inflation via our pricing programs.

And some of the really specific things that we're challenging our teams with right now are the repair versus buy new decision for dumpsters. We have a pretty set policy on that, and we're challenging our teams to do more repairs. On the flip side, you can scrap boxes and get lots of scrap steel. On the other hand, with some of those real issues that I don't think are all steel based driving pricing, whether it's just labor availability in factories or transportation, fixing more is a real solution. We're trying to turn our inventory faster through rental fees. As Jason said, a lot of our work right now on dynamic route optimization, automation and cutting out routes, cutting out trucks are going to have more and more of a return actually in this environment right now.

Got it. And maybe diving a little bit more into that last topic we were getting to, which is labor. It seemed like the waste industry early on in the pandemic took a pretty proactive sort of view on retaining the workers they had, right, maybe cutting back overtime hours, but experienced drivers, I've always heard people say, worth their weight in gold, right? So keeping the staff on, but maybe not doing as many overtime hours. Is that paying dividends for you now as you're hearing -- I mean, a lot of businesses that were forced to close and lay off people having a very, very hard time getting people back in the door? Can you just talk a little bit about where Casella is on the labor? How you're feeling about the availability and supply of labor to meet the demand growth you're seeing?

Yes. When we first stepped into COVID, John, Ed and myself sat down, and you change your playbook pretty quickly. And we had a couple of things we wanted to do right, keep our people safe, we want to keep our people in their jobs, as you said, because it's almost impossible over the last several years to find qualified drivers and to train them and to retain them and we knew how much time and attention to resources we had put into that. And we also want to service our customers throughout the pandemic. And we did all of those really great. And I think the people side of this story is actually one we're the most proud of, where we did cut back overtime hours, but we really retained our workforce. We kept people safe throughout the pandemic. The PPE, we're really forward-thinking on that. We had hundreds of thousands of N-95 masks in storage. We're able to actually donate about half of them to hospitals right in the early stages of the crisis to help the frontline life-saving support there. And as the pandemic emerged, and we started to see that we're tracking really good and we've got a lot of costs out of the business, we started to look for ways to reward our workforce, and we did a special heroes bonus right before Labor Day, where we paid all of our hourly employees a week's pay and over time. We also had a special bonus right before the holidays for our hourly employees as well. And stepping into this year, we're pretty proud of the entire team. We're proud of the culture. We continue to invest during the pandemic in our training programs, our driver apprentice programs, mechanic apprentice programs. We have a CDL driving training school. We're helping people get their CDLs. We're helping to pay for mechanics to get their licenses and training. So it's an area where we were really smart, and we didn't let up on these programs, and you see it a bit in our numbers. So we flexed down cost of ops very effectively. Our G&A stayed up. And it's because we decided not to cut key HR programs, not to cut key technology programs. These are investments for the midterm, and I think we could see through a period of pain where you had to keep investing in these programs to win in the midterm.

Perfect. So maybe let's go back to some of the sort of basics of the business. And I think one of the reasons a lot of people look at Casella is a really interesting growth story in what is a pretty mature market, obviously. But maybe talk to one of -- each in turn. First, the tightness in the Northeast market, and then we'll talk about the acquisition sort of pipeline. But maybe just first, any sort of updates on what you're seeing on the supply side, it seems like many more closings than openings of disposal capacity in the Northeast tends to be the trend.

Yes. Yes, absolutely, Jon. So across the Northeast, it's a little bit different than other geographies across the U.S., where over the last several years, over 2.5 million tons of annual disposal capacity has come out of the market from a disposal perspective, as landfills have and -- have reached the end of useful lives or we've seen smaller incinerators shut down as well. And as we look out over the next few years, we expect another 3-plus-million tons of annual capacity to come out of the marketplace again, as sites reach the end of their useful life and other examples of incinerators shutting down. Connecticut has announced the closure of the MIRA facility, which is roughly 700,000 tons as an example, which will be slated to close about a year from now in 2022. So with this backdrop, it's really accelerated some of our pricing programs as we've recognized the scarcity value of the landfill asset across the Northeast in a highly regulated environment, high barriers to entry. So that pricing at the landfills has really trickled down to other lines of business within the waste business. So we push pricing to ourselves as an example from our -- as we bring volumes to our landfills, we priced ourselves market based pricing, and that goes back to our collection business through intercompany pricing and then ultimately back to the curve, where waste is generated. So we've -- as we entered this year, we had guided 3.5% to 4.5% solid waste price. We're tracking a little bit below the midpoint of that today, really as it relates to the rollover effect of some of the pricing coming out of the pandemic period in 2020. And as all the lines have not come back into the system yet. So in Q1, we did about 3.4% solid waste price. So in all likelihood, we'll have a little bit of a different pricing cadence this year. We won't be so front-end loaded as we typically are. And we will see pricing build throughout the year as volumes come back into the system.

But as you look to the midterm, there's no change in pricing strategy. We're not seeing large price rollbacks. As Jason mentioned, any of the near term, slightly lower pricing was really prescribed by John, myself, where we decided to go a little slower with certain pricing programs during the pandemic, and now we're ramping back to more normalized programs. And as you look to the midterm, the situation is going to get much more acute in the Northeast. There are no new sites coming online. There are no new technology solutions. The waste is going to need to be moved further away, most likely on rail. And one of the more exciting assets we have in our portfolio is our McKean landfill in Pennsylvania. It's a landfill -- sleepy landfill that takes a little bit of waste in each year via truck. But as a very special permit, it can take in 1.5 million tons a year via rail. And we're in the early stages of building out that rail infrastructure at the site. And we expect in the next 2 years, that this will be a growth engine for us. And also a risk mitigation strategy as additional sites close, we'll always have an outlet for our waste. In addition, we actually received a really important post-community vote back in November. Our Highland landfill in Angelica, New York received overwhelming citizen support to more than double the annual permit to go from 460,000 tons a year to 1 million tons a year and to more than triple the size of the landfill. So may be several years in permitting to get that done. But that additional capacity in New York state is really important. So we're sitting at a point where a crisis is emerging in the Northeast. But from our asset base and where we're positioned, we actually have some pretty good growth ahead of us and good opportunity to expand volumes.

Okay. Sort of within that, and I alluded to it before, when investors think about the growth formula at Casella, I always sort of think of that 3% to 4% pricing, just certainly higher than the industry at a norm, 1% to 2% volume, gets you to 4% to 6% organic, right, on the revenue, maybe that gets you 5% to 7% on earnings with some operating leverage. And then beyond that, you can get in double digits with the M&A pretty easily. And sort of think about this business that I've always said about the waste industry in the United States. It's one of the best industries in the country. I don't think many people sort of realize that with the stability, the lack of risk to technological disruption, strong free cash flow. You can get that sort of stability with low double digits potential per share earnings growth. The big delta there for Casella is the acquisitions and the accretiveness of them. So maybe we can talk a little bit through how you're thinking about or how you'd like investors to think about how much of the acquisitions are tuck-ins within the existing footprint versus how much of this is a geographic expansion story, maybe moving? I always think of it as a bit of a -- Casella bit of a flywheel around New York City, not necessarily in New York City, but around the sort of rural area, moving out of New England sort of through Upstate New York into Pennsylvania. Is that the right way to think about it? And just sort of talk to a little bit about the proportion of M&A within geography. And how much it's moving into new?

Yes. So essentially reinvigorate our acquisition pipeline and process in late 2017, we've done 31 acquisitions. But the average size of those acquisitions is right around $6 million of revenue. So a lot of smaller tuck-ins and a lot of these came through relationships we've had for many years, where we compete against these smaller haulers or transfer stations. And we have very high integrity. We're very fair competitors in the marketplace. So what's remarkable is when a small entrepreneur looks to sell their business, typically, we're not running through a competitive process. They're having direct conversations with us. And they're coming to us. And as we look out to the future, we've got some different areas across our platform in the Northeast, where we think we can drive differentiated value and grow hauling businesses through tuck-ins, have additional transfer stations that vertically integrate more to our landfills, our processing assets, add additional processing capacity in a few instances. But as we look over the midterm, we also believe it's very, very important to start to expand our boundaries a little bit. And in certain instances, expand them to look towards the McKean landfill over the next 5 years of how can we vertically integrate into our rail-serve landfill. And there are certain markets where you see more waste moving via rail versus truck, and we're looking at those. We're also looking at attributes of what types of markets are we successful. We're very successful in secondary markets. And we can create differentiated positioning and leading market share. So those are the lenses we're looking at, and I think you should expect to see more of the same from us. We're not looking to do $0.5 billion deals. We're looking to do smaller, lots of tuck ins, maybe some deals there, $20 million of revenue or $50 million of revenues. But more of the same where we can absorb these companies, do all of the integration work and drive cash flow returns quickly for shareholders.

And we've -- just to add one thing there, Ned. And we've talked about the back half of 2021 being a little bit more back-end loaded in the year. So in 2020, really because of COVID, our acquisition pace slowed a little bit. We did just over $20 million in annualized revenues and acquisitions in 2020. And we have acquired one business in early 2021 with about $4 million of annualized revs. So we've got -- we've identified about $80 million to $100 million of revenues that are in various stages right now of diligence or LOI. So as we look toward the second half of 2021, we see great potential to move the needle and potentially close on some of that pipeline. And then, of course, looking out beyond that, a really, really robust pipeline as well.

Got it. Is that a simple -- I always think of -- any time there's uncertainty or a greater perception of uncertainty about the future in the market. The amount of uncertainty in the future is a constant. Only thing that changes is our perception of it. But when perception of uncertainty is high, bid/ask spreads tend to get pretty wide, right, because buyers and sellers can have very reasonable different views on what the future is. Is it as simple as that, the uncertainty around COVID sort of, I don't want to say, dried up the market, but maybe disconnecting buyer and seller prices, and now we're getting back into a world where people feel more confident that they can put a range of possible outcomes on the earnings of the business that, that starts to open up deal flow a little bit? Is it that? Or is it a matter of just -- like you're saying, a lot of these sound like very much relationship acquisitions. You know people, Jon and have probably known for years that family-run businesses that they want to be part of the Casella family moving forward, and you just need an in-person conversation to really do that. Could you just talk through a little bit how the drivers?

Yes. It's really the latter. This is a relationship-driven industry. And almost all of the small businesses we acquire are family owned. And sometimes they're even multigenerational. And their customers, their employees matter to them. They've devoted their lives to building these businesses. They have a lot of care. And selling that business is the toughest thing any of these entrepreneurs ever have to do or want to do. And they do it for a variety of reasons, whether it be, they're ready to retire or there's an illness or we're seeing more and more young entrepreneurs maybe who have been at for 10, 15 years, have built a nice business selling because of inflation or selling because of labor shortages or other regulations, other stresses. And they want to join our team, and they want to become part of our culture. And we see many of them become very strong contributors in the organization. They have great entrepreneurial spirit, great care for their customers, their people, and they're willing to learn and grow. So this backdrop today and what we've seen over the last year, we just missed about 6 to 9 months of time where you weren't meeting with acquisition targets face-to-face. They were just in the trenches trying to keep their people safe, trying to keep their customer serviced and any thoughts they had about selling their businesses just got parked for a little while. And as Jason said, Q4 last year, Q1 of this year into Q2, the acceleration is very fast. And a lot of stuff we were working on last year is back on the table. We're advancing rapidly, and it's really exciting for us, and very good opportunity.

Great. Sorry, I have one other question sort of related that came in on email about the supply and demand. We'll sort of get into that. And then I do want to give Ned a chance to talk about some of the tech investments and things that are happening there because you had brought that up earlier. But the specific question, is there any risk? Or how do you think about the risk challenge opportunity of potentially more marine, transport infrastructure? Obviously, New York City ships a lot of their ways via marine. Is there potential for Boston to go in that direction and that serve as an outlet per trash volumes out of the Northeast?

We studied the New York City marine transfer stations pretty in-depth when it came online. And the capital intensity was so far significant with that business model that we don't see it as being a disruptor. Rail will more than likely be the larger solution to bring ships and container boxes and that time cycle into it, it becomes very expensive and complex. And just to give a difference of some of moving waste via trucks versus rail, you see that capital intensity. And it's something you really need to have higher market prices to bear. And as an example, we're moving waste from Western Massachusetts to -- out to one of our landfills in New York. You have one truck a day making a circle back and forth, moving that waste. If you're going to put waste on a railcar and move it to Ohio or Alabama, it might take you 21, 22 days for that railcar to make it to Ohio and back to Massachusetts. So you have to have 22x the capital assets to make that same move. So we don't see that next step coming to marine at this point in time. The rail infrastructure is robust in the Northeast, there's excess capacity in rail, and you're not moving so far that the ships would make a meaningful impact.

Okay. So now moving onto the technology sort of investments, just would love to hear what do you think on sort of the longer lens, what's coming over the next 5 or 7 years and what you're looking at investing in today?

Yes. There's a wide variety of things. I'll cover a couple of operational, a couple of development and some back office tech and try to do that quickly and you can circle back. So on the operational side, our single favorite area to invest right now is automation of the fleet. We're just having such meaningful impact there. And example is in Rochester, New York, we're really moving quickly to move from a rear load truck where you might have a driver and 1 or 2 helpers, picking up garbage cans or bags, throwing them in the back to [indiscernible] trucks or to automated side loads, where you have 1 driver, no helpers, robotic arm, picks up the garbage. And we're seeing incremental returns of north of 28% to 30%. As an example, if I have 15 rear load trucks on the road, 15 drivers, 30 helpers, I'll move to 10 automated trucks, reduce 5 drivers, get rid of 30 helpers and drive very good returns, helps workers' comp claims, a lot of focus there. On the operating side, we upgraded our route optimization software this last year and our onboard computing systems to a system called Routeware, an easy route. And this has been a real step forward for us. We're using a system called IIT, which is remarkably owned by Waste Management for a lot of years. And we were really rerouting markets maybe once a year, if you can believe that, in such a heavy route-based industry. And we now have a tool that allows us to almost instantaneously reroute and optimize markets. It's been a big winner for us in the last year with COVID, and it'll continue to be a big winner as we do acquisitions and automation in markets and just lots of work. Ultimately, I think long term, there'll be a lot of machine learning and AI that drives kind of daily changes in what we're doing to optimize. In the back office, we continue to have some really nice wins there. As you know, we upgraded our financial ERP a few years ago to NetSuite. We are currently working on a Coupa implementation with a team from Deloitte and digitizing our procurement and modernizing many of our procurement processes. And this is one part just saving back office dollars and one part really improving how we purchase and using catalog purchasing, more centralized bulk purchasing and using our purchasing power better. So we haven't given a specific number to that of how much return we can drive to the marketplace, but a very nice trajectory. We're actually following on the heels of Waste Management who implemented Coupa last year. And we were very lucky to hire same team from Deloitte that they had used. So that's an exciting implementation for us. And probably the best thing we're doing right now is modernizing our customer interfacing systems. It's very dated, our customer infrastructure, and we're working right now with Hitachi and Microsoft D365 to upgrade that entire platform and really digitize, modernize how we're interacting with customers, how they can get services. And we see this wave of really escalating of what customers want from us. They not only want great environmentally safe services that are reliable, but they also want more data from us. Especially our higher-end customers who have developed sustainability goals, and they're really trying to reduce their environmental impact. They want real-time data of what they're doing to drive sustainability in their business, their institution, their home. And we see that coming, and we feel like it's a very differentiated point for us, especially compared to small privates to move the needle and will give us advantage over time. So there's a lot there, Jon, because there's a lot going on. But I think the most important thing for me to say is, we're investing several million dollars a year in these areas. So it's not tens of millions of dollars. We're doing it with really great partners. And in almost all cases with fixed-price contracts, so we're not taking a lot of risk and capital risk and project creep. And it's extremely exciting for me because I think it's an area that the waste industry is easily 10 years behind other industries with digital tools and customer interaction, and there's a lot of room to go there.

Got it. And then in terms of automation, let's talk a little bit more about that because it's the first thing you touched on, seems like a big driver of reducing cost for service. Where are you now in terms of trucks, sort of more automated trucks? And then how in terms of percentage? And then where do you think you can get because ultimately, going through the mountains and the White Mountains in Vermont, New Hampshire, not every neighborhood can do automated side lowers. It's sort of a perfectly planned community, it would work good. But where are you, how far can you get? How long will it take?

We're probably about in the fourth inning or so, Jon, in terms of our overall automation opportunity. And you're right, being that we're in more secondary, rural markets, not every market is an opportunity to fully automate. But as we look across the business and identify areas within certain -- routes within certain operations that we can optimize via automation, we will continue to make that investment in a selective and disciplined manner. And then secondarily, as we -- there's a tremendous opportunity via as we acquire businesses, they often are a little bit more manual in nature, especially the smaller haulers. So that presents an opportunity there in terms of either businesses that we have acquired over the last couple of years or in terms of our trajectory going forward as we execute against our acquisition strategy. We will have the continued ability to automate some of those routes in all likelihood as well.

All right. And on the last topic, I think I'm contractually required to bring up now. ESG, a topic that's been near and dear to me for quite some time. Obviously, the other side of my coverage is alternative energy. And certainly, there's been a lot of commercial fleet electrification companies that have been bought by special acquisition corporations in the last year. Some of them talking about the electrification or using hydrogen for refuse trucks. So Ned or Jason, really interested on where you think we are in the process of using alternative fuels beyond compressed natural gas for refuse trucks. And then we'll sort of be very interested to hear just sort of the broader ESG story of Casella after that.

Yes. This is an area that's very important to us as well, as you know, company started its first recycling facility 40 years ago, and Jon and the entire organization has had a huge commitment to not only the environment, but our employees, our communities across that entire time period. And it's kind of funny because there are not many times that investing kind of trend or important point lines up so well with your business strategy. Where we look at this and we say this is everything we do as an organization. We create sustainable value for customers, we drive sustainability. And as we kind of look at electrification in trucks and alternative fuels, we are not -- we think it's a little early right now. We've got 2 trucks coming from Lion Electric. We're really excited. The former CEO of [indiscernible] who makes the best automated waste body in the industry, [ slip body ], has joined on with Lion Electric to help create an entirely electric body. There's only one hydraulic component on it. The electric engines, the batteries. We're getting 2 of them in Vermont. We're able to get some of the funds from the Volkswagen settlement directed towards this effort because the trucks are too expensive now. And we're going to test them all over Vermont in the winter, at the hills, the mountains and see how they perform. And we're looking to get feedback to Lion, and we believe it's a brand that really aligns with what we want to do. And you're right, over the next 5 years, I think this will be a game changer. And we just don't think it's quite there yet. And it's definitely going to be in a pilot stage. But as we look at our business and like what we're trying to do to further from an ESG standpoint and environmental standpoint, we just published our sixth sustainability report a few months back. And we've laid out a set of goals for 2030, that range from employee to communities, to environmental goals, to safety. And the single, I think, most important point we made in the entire report was something we've been trying to communicate for a few years that a lot of organizations today are just really focused on their footprint, what is their exact impact on the environment. And we've tried to pivot that conversation to what's our handprint. So what are we doing for our customers. And today, for every ton of greenhouse gas emissions that we emit running our trucks, running our landfills, our processing centers, we're reusing 3 for our customers through recycling, organics, carbon sequestration, clean energy production. And that's pretty exciting, in my view, that you can have a business model that's having that compounding improvement to the environment and I feel like it really positions us very well strategically over the next number of years as this topic continues to gain importance.

All right. Awesome. Thank you for that. Ned, Jason, we're right at it and to keep everyone on time, I'd like to thank all the participants but mostly sincere thank you to Jason and Ned. Ned, I'm going to leave the final word to you.

Thank you, Jon, for inviting us. We look forward to seeing you in the future in person.

Yes, absolutely.

See you, everyone. Thank you. Have a great day.

Thanks, Jon.