MORRISTOWN, NJ — (Marketwire) — 10/17/12 — Covanta Holding Corporation (NYSE: CVA) (“Covanta” or the “Company”), a leading global owner and operator of Energy-from-Waste (“EfW”) projects, reported unaudited financial results today for the three and nine months ended September 30, 2012.
Key Q3 2012 Financial Highlights:
Revenue was $412 million versus $432 million in the prior year period
Adjusted EBITDA of $150 million was down slightly from $153 million a year ago
Free Cash Flow of $111 million improved by $4 million compared to the prior year
Adjusted EPS of $0.25 was flat with the prior year period
Returned $45 million to shareholders, including $25 million of share repurchases
Key Q3 2012 Operational Highlights:
Completed Honolulu expansion on schedule; third boiler in commercial operation
Signed agreement to convert our Essex County facility from Service Fee to Tip Fee
Entered long-term power purchase agreements with the Long Island Power Authority
Commenting on the third quarter of 2012, Anthony Orlando, Covanta–s President and CEO stated, “Results for the quarter were in-line with our expectations. We are successfully managing the business, which gives me confidence that we will grow the bottom line this year notwithstanding weakness in the pricing environment. Furthermore, we executed several new long-term contracts during the quarter that will secure predictable revenue for years to come.”
“Looking ahead to 2013, we expect to continue growing and we remain focused on capital allocation and shareholder returns,” Orlando concluded.
Operating revenues of $412 million decreased by $20 million for the three month comparative period as service fee contract escalations, higher special waste revenues and increased electricity revenue related to retroactive contract pricing, were more than offset by lower construction revenues relating to completion of our Honolulu expansion project, a decline in metal prices, reduced debt service revenue, waste contract transitions including the expiration of the Hartford operating contract and lower tip fee volume.
Operating expenses of $331 million decreased by $14 million from the prior year period. Excluding Q3 2012 events of $5 million(1), operating expenses decreased by $19 million due to lower construction expenses, operational improvement initiatives, and the expiration of the Hartford operating contract, partially offset by normal cost escalations, lower alternative fuel tax credits and increased plant maintenance activities due primarily to timing.
Excluding the Q3 2012 events referenced above, operating income decreased by $1 million to $86 million versus the prior year due to the factors noted above.
Adjusted EBITDA of $150 million declined 2% from $153 million in the prior year period. The benefit of higher energy revenue related to retroactive contract pricing, improved profitability on construction and our organic growth initiatives were more than offset by lower metal prices, waste contract transitions, increased maintenance expenses due to timing, and a reduction in debt service pass through billings.
Free Cash Flow increased 4% to $111 million versus $107 million in the prior year as the benefit from the timing of working capital more than offset the decline in Adjusted EBITDA.
Adjusted EPS was flat with the prior year period at $0.25, as a lower effective tax rate and the benefit of a lower number of shares outstanding due to the Company–s common stock buyback program were offset by higher interest expense.
(1) Includes $7 million for increases in insurance company loss reserves, offset by $2 million in net write-offs. For additional information, see Exhibit 4A.
For the nine months ended September 30, 2012, total operating revenues were $1,214 million versus $1,220 million in the prior year. Free Cash Flow was $205 million compared to $219 million in the prior year period. Adjusted EBITDA was $349 million compared to $347 million for the same period last year. Adjusted EPS was $0.32 versus $0.27 in 2011.
During the quarter, the Company returned $45 million to shareholders, consisting of $20 million in cash dividends declared and $25 million in share repurchases (1.1% of common stock outstanding). Year-to-date, the Company has returned $146 million to shareholders in the form of $61 million in dividends declared and $85 million in shares repurchased (3.8% of common stock outstanding). Since the inception of its buyback program the Company has repurchased 16.5% of shares outstanding. As of September 30, 2012, Covanta had $90 million of share repurchase authorization remaining.
Covanta intends to issue new tax-exempt bonds in the aggregate amount of approximately $300 million to refinance existing tax-exempt project bonds at its Haverhill, Niagara and SEMASS facilities, as well as to fund certain capital expenditures in Massachusetts. The new bonds, with maturities of up to 2042, will be issued by Covanta Holding Corporation and guaranteed by Covanta Energy Corporation, and will not be secured by project assets. Final terms and conditions of the new bonds, including coupon and maturity, will be determined based on market conditions. We expect the transaction to close during the fourth quarter of 2012.
The Company is narrowing its previously announced guidance for the full year 2012 for the following financial metrics:
(In millions, except per share amounts)
Sanjiv Khattri, Covanta–s Executive Vice-President and CFO commented, “In the third quarter, we remained focused on growing our business and pursuing innovative ways to improve our financial position. We narrowed our 2012 guidance range, acknowledging the tougher macro conditions. Looking ahead, we will continue to create value by executing on opportunities to grow and strengthen the business, and also by returning excess capital to shareholders.”
Covanta will host a conference call at 8:30 am (Eastern) on Thursday, October 18, 2012 to discuss its third quarter results. The conference call will begin with prepared remarks, which will be followed by a question and answer session. To participate, please dial 800-860-2442 approximately 10 minutes prior to the scheduled start of the call. If calling from Canada, please dial 866-605-3852. If calling outside of the United States and Canada, please dial 412-858-4600. Please request the “Covanta Holding Corporation call” when prompted by the conference call operator. The conference call will also be webcast live from the Investor Relations section of the Company–s website. A presentation will be made available during the call and will be found on the Investor Relations section of the Covanta website at .
A replay will be available one hour after the end of the conference call through 9:00 AM (Eastern) Thursday, October 25, 2012. To access the replay, please dial 877-344-7529, or from outside of the United States 412-317-0088 and use the replay conference ID number 10019283. The webcast will also be archived on .
Covanta Holding Corporation (NYSE: CVA) is an internationally recognized owner and operator of large-scale Energy-from-Waste and renewable energy projects and a recipient of the Energy Innovator Award from the U.S. Department of Energy–s Office of Energy Efficiency and Renewable Energy. Covanta–s 44 Energy-from-Waste facilities provide communities with an environmentally sound solution to their solid waste disposal needs by using that municipal solid waste to generate clean, renewable energy. Annually, Covanta–s modern Energy-from-Waste facilities safely and securely convert approximately 20 million tons of waste into 9 million megawatt hours of clean renewable electricity and approximately 9 billion pounds of steam that are sold to a variety of industries. For more information, visit .
Certain statements in this press release may constitute “forward-looking” statements as defined in Section 27A of the Securities Act of 1933 (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), the Private Securities Litigation Reform Act of 1995 (the “PSLRA”) or in releases made by the Securities and Exchange Commission (“SEC”), all as may be amended from time to time. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of Covanta and its subsidiaries, or general industry or broader economic performance in global markets in which Covanta operates or competes, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements that are not historical fact are forward-looking statements. Forward-looking statements can be identified by, among other things, the use of forward-looking language, such as the words “plan,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “may,” “will,” “would,” “could,” “should,” “seeks,” or “scheduled to,” or other similar words, or the negative of these terms or other variations of these terms or comparable language, or by discussion of strategy or intentions. These cautionary statements are being made pursuant to the Securities Act, the Exchange Act and the PSLRA with the intention of obtaining the benefits of the “safe harbor” provisions of such laws. Covanta cautions investors that any forward-looking statements made by Covanta are not guarantees or indicative of future performance. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements with respect to Covanta, include, but are not limited to, the risk that Covanta may not successfully grow its business as expected or close its announced or planned acquisitions or projects in development, and those factors, risks and uncertainties that are described in periodic securities filings by Covanta with the SEC. Although Covanta believes that its plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, actual results could differ materially from a projection or assumption in any forward-looking statements. Covanta–s future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties. The forward-looking statements contained in this press release are made only as of the date hereof and Covanta does not have or undertake any obligation to update or revise any forward-looking statements whether as a result of new information, subsequent events or otherwise, unless otherwise required by law.
During years ended December 31, 2010 and 2011, and the quarters ended March 31, June 30, and September 30, 2012, the following amounts were returned to stockholders:
The Americas segment quarterly plant operating expenses typically differs substantially as a result of the timing of scheduled plant maintenance. We typically conduct scheduled maintenance periodically each year, which requires that individual boiler units temporarily cease operations. During these scheduled maintenance periods, we incur material repair and maintenance expenses and receive less revenue until the boiler and/or turbine units resume operations. This scheduled maintenance typically occurs during periods of off-peak electric demand and/or lower waste volumes, which are our first, second and fourth fiscal quarters. The first half of the year scheduled maintenance period is typically the most extensive. The third quarter scheduled maintenance period is typically the least extensive. Given these factors, we typically experience our lowest operating income from our projects during the first half of each year. The aggregate of all other components of plant operating expense is relatively consistent each quarter of the year.
We use a number of different financial measures, both United States generally accepted accounting principles (“GAAP”) and non-GAAP, in assessing the overall performance of our business. To supplement our assessment of results prepared in accordance with GAAP, we use the measures of Adjusted EBITDA, Free Cash Flow, and Adjusted EPS, which are non-GAAP measures as defined by the Securities and Exchange Commission. The non-GAAP financial measures of Adjusted EBITDA, Free Cash Flow, and Adjusted EPS as described below, and used in the tables above, are not intended as a substitute or as an alternative to net income, cash flow provided by operating activities or diluted earnings per share as indicators of our performance or liquidity or any other measures of performance or liquidity derived in accordance with GAAP. In addition, our non-GAAP financial measures may be different from non-GAAP measures used by other companies, limiting their usefulness for comparison purposes.
The presentations of Adjusted EBITDA, Free Cash Flow and Adjusted EPS are intended to enhance the usefulness of our financial information by providing measures which management internally use to assess and evaluate the overall performance of its business and those of possible acquisition candidates, and highlight trends in the overall business.
We use Adjusted EBITDA to provide further information that is useful to an understanding of the financial covenants contained in the credit facilities as of September 30, 2012 of our most significant subsidiary, Covanta Energy, through which we conduct our core waste and energy services business, and as additional ways of viewing aspects of its operations that, when viewed with the GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, provide a more complete understanding of our core business. The calculation of Adjusted EBITDA is based on the definition in Covanta Energy–s credit facilities as of September 30, 2012, which we have guaranteed. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, as adjusted for additional items subtracted from or added to net income. Because our business is substantially comprised of that of Covanta Energy, our financial performance is substantially similar to that of Covanta Energy. For this reason, and in order to avoid use of multiple financial measures which are not all from the same entity, the calculation of Adjusted EBITDA and other financial measures presented herein are ours, measured on a consolidated basis for continuing operations, less the results of operations of our insurance subsidiaries.
Under the credit facilities as of September 30, 2012, Covanta Energy is required to satisfy certain financial covenants, including certain ratios of which Adjusted EBITDA is an important component. Compliance with such financial covenants is expected to be the principal limiting factor which will affect our ability to engage in a broad range of activities in furtherance of our business, including making certain investments, acquiring businesses and incurring additional debt. Covanta Energy was in compliance with these covenants as of September 30, 2012. Failure to comply with such financial covenants could result in a default under these credit facilities, which default would have a material adverse affect on our financial condition and liquidity.
These financial covenants are measured on a trailing four quarter period basis and the material covenants are as follows:
maximum Covanta Energy leverage ratio of 4.00 to 1.00, which measures Covanta Energy–s Consolidated Adjusted Debt (which is the principal amount of its consolidated debt less certain restricted funds dedicated to repayment of project debt principal and construction costs) to its Adjusted EBITDA (which for purposes of calculating the leverage ratio and interest coverage ratio, is adjusted on a pro forma basis for acquisitions and dispositions made during the relevant period); and
minimum Covanta Energy interest coverage ratio of 3.00 to 1.00, which measures Covanta Energy–s Adjusted EBITDA to its consolidated interest expense plus certain interest expense of ours, to the extent paid by Covanta Energy.
In order to provide a meaningful basis for comparison, we are providing information with respect to our Adjusted EBITDA for the three and nine months ended September 30, 2012 and 2011, reconciled for each such periods to net income from continuing operations and cash flow provided by operating activities from continuing operations, which are believed to be the most directly comparable measures under GAAP.
Free Cash Flow is defined as cash flow provided by operating activities from continuing operations, excluding the cash flow provided by or used in our insurance subsidiaries, less maintenance capital expenditures, which are capital expenditures primarily to maintain our existing facilities. We use the non-GAAP measure of Free Cash Flow as a criterion of liquidity and performance-based components of employee compensation. We use Free Cash Flow as a measure of liquidity to determine amounts we can reinvest in our core businesses, such as amounts available to make acquisitions, invest in construction of new projects, make principal payments on debt, or amounts we can return to our stockholders through dividends and/or stock repurchases.
In order to provide a meaningful basis for comparison, we are providing information with respect to our Free Cash Flow for the three and nine months ended September 30, 2012 and 2011, reconciled for each such periods to cash flow provided by operating activities from continuing operations, which we believe to be the most directly comparable measure under GAAP.
Adjusted EPS excludes certain income and expense items that are not representative of our ongoing business and operations, which are included in the calculation of Diluted Earnings Per Share in accordance with GAAP. The following items are not all-inclusive, but are examples of reconciling items in prior comparative and future periods. They would include the results of operations of our insurance subsidiaries, write-off of assets and liabilities, the effect of derivative instruments not designated as hedging instruments, significant gains or losses from the disposition or restructuring of businesses, gains and losses on assets held for sale, transaction-related costs, income and loss on the extinguishment of debt and other significant items that would not be representative of our ongoing business.
We will use the non-GAAP measure of Adjusted EPS to enhance the usefulness of our financial information by providing a measure which management internally uses to assess and evaluate the overall performance and highlight trends in the ongoing business.
In order to provide a meaningful basis for comparison, we are providing information with respect to our Adjusted EPS for the three and nine months ended September 30, 2012 and 2011, reconciled for each such periods to diluted earnings per share from continuing operations, which is believed to be the most directly comparable measure under GAAP.