MORRISTOWN, NJ — (Marketwired) — 10/23/13 — Covanta Holding Corporation (NYSE: CVA) (“Covanta” or the “Company”), a leading global owner and operator of Energy-from-Waste (“EfW”) projects, reported financial results today for the three and nine months ended September 30, 2013.
Positive year-over-year operating results, however below management expectations
Signed 20 year waste transport and disposal agreement with the New York City Department of Sanitation
Acquired 1,050 ton-per-day EfW facility in Camden, New Jersey for $49 million
Year-over-year, Ferrous metal recovery up 9% and Non-Ferrous metal recovery up 41%
Commenting on Covanta–s results, Anthony Orlando, President and Chief Executive Officer stated, “We had mixed results this quarter. On the positive side, we completed two important transactions — the 20 year New York City waste contract and the Camden, NJ EfW facility acquisition — both of which will help drive long-term growth. However, we–ve lowered our 2013 guidance because of three key factors: unscheduled outages; lower than expected steam demand; and organic growth is slower than we hoped, but still very good.”
Operating revenues of $427 million increased $15 million compared to the prior year. This increase was primarily driven by increased energy revenue due to contract transitions and the execution of organic growth initiatives such as special waste and metal recovery. This increase was partially offset by lower biomass revenue and lower revenues earned to service project debt.
Excluding impairment charges(1), operating expenses of $335 million increased $2 million compared to the prior year. The increase was driven by higher plant operating expenses, increased costs from service contract transitions, normal cost escalations, and higher construction expense. These higher costs were partially offset by the timing of scheduled maintenance outages, cost reductions related to our organic growth initiatives, lower expense associated with our insurance business and lower business development spend in the UK.
Excluding the impairment charges noted above, operating income increased by $13 million to $92 million compared to $79 million in the prior year. This increase was due to the drivers noted above.
Adjusted EBITDA increased by $6 million to $156 million driven by the execution of organic growth initiatives such as special waste, metal recovery and cost savings, as well as the timing of scheduled plant maintenance outages and the benefit of contract transitions. This increase was partially offset by lower debt service pass through billings, lower construction profit and lower biomass profit.
Free Cash Flow increased by $50 million to $161 million for the three month comparative period. The increase was primarily driven by working capital, including the timing of working capital related to our construction projects, higher Adjusted EBITDA, and lower maintenance capital expenditures.
Adjusted EPS increased by $0.03 to $0.28 versus the prior year period, primarily due to the benefit of higher operating income(1) and a lower effective tax rate.
For the nine months ended September 30, 2013, total operating revenues decreased by $1 million to $1,213 million. Free Cash Flow was $204 million for the year-to-date period compared to $205 million for the same period last year. Adjusted EBITDA was $334 million compared to $349 million for the same period last year and Adjusted EPS was $0.17 compared to $0.32 for the same period last year.
During the third quarter, the Company returned $21 million to shareholders in the form of cash dividends. Year to date, the Company has returned $99 million dollars in the form of dividends and share repurchases. As of September 30, 2013, Covanta had $116 million of share repurchase authorization remaining.
Sanjiv Khattri, Covanta–s Executive Vice-President and Chief Financial Officer, commented, “Our overall business remains fundamentally sound. We continue to focus on creating shareholder value by both investing for growth and paying a healthy dividend. While we expect 2014 will be a financially challenging year, we are positioned to grow in 2015 when the New York contract begins.”
The Company is revising its guidance for 2013 for the following key metrics:
(In millions, except per share amounts)
Covanta will host a conference call at 10:00 AM (Eastern) on Thursday, October 24, 2013 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) Friday, November 1, 2013. 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 10034137. The webcast will also be archived on .
Covanta is a world leader in sustainable waste management and renewable energy. The Company–s 45 Energy-from-Waste facilities provide communities and businesses around the world with an environmentally sound solution to their solid waste disposal needs by using 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 clean, renewable electricity to power one million homes and recycle over 430,000 tons of metal. Energy-from-Waste facilities reduce greenhouse gases, complement recycling and are a critical component to sustainable solid waste management. 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 Holding Corporation and its subsidiaries (“Covanta”) or industry results, 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. For additional information see the Cautionary Note Regarding Forward-Looking Statements at the end of the Exhibits.
(1) In Q3 2013, we recorded non-cash write-offs of $12 million and in Q3 2012, we recorded a non-cash gain of $2 million. For additional information, see Exhibit 4B of this press release.
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 income 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, 2013 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, 2013, 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, 2013, 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, 2013. 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, 2013 and 2012, reconciled for each such period 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, 2013 and 2012, reconciled for each such period 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, 2013 and 2012, reconciled for each such period to diluted income per share from continuing operations, which is believed to be the most directly comparable measure under GAAP.
Certain statements in this press release 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 Holding Corporation and its subsidiaries (“Covanta”) or industry results, 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 us are not guarantees or indicative of future performance. Important factors, risks and uncertainties that could cause actual results to differ materially from those forward-looking statements include, but are not limited to:
seasonal or long-term fluctuations in the prices of energy, waste disposal, scrap metal and commodities, and our ability to renew or replace expiring contracts at comparable pricing;
adoption of new laws and regulations in the United States and abroad, including energy laws, environmental laws, labor laws and healthcare laws;
our ability to avoid adverse publicity relating to our business expansion efforts;
advances in technology;
difficulties in the operation of our facilities, including fuel supply and energy delivery interruptions, failure to obtain regulatory approvals, equipment failures, labor disputes and work stoppages, and weather interference and catastrophic events;
failure to maintain historical performance levels at our facilities and our ability to retain the rights to operate facilities we do not own;
difficulties in the financing, development and construction of new projects and expansions, including increased construction costs and delays;
our ability to realize the benefits of long-term business development and bear the costs of business development over time;
our ability to utilize net operating loss carryforwards;
limits of insurance coverage;
our ability to avoid defaults under our long-term contracts;
performance of third parties under our contracts and such third parties– observance of laws and regulations;
concentration of suppliers and customers;
geographic concentration of facilities;
increased competitiveness in the energy and waste industries;
changes in foreign currency exchange rates;
limitations imposed by our existing indebtedness and our ability to perform our financial obligations and guarantees and to refinance our existing indebtedness;
exposure to counterparty credit risk and instability of financial institutions in connection with financing transactions;
the scalability of our business;
restrictions in our certificate of incorporation and debt documents regarding strategic alternatives;
failures of disclosure controls and procedures and internal controls over financial reporting;
our ability to attract and retain talented people;
general economic conditions in the United States and abroad, including the availability of credit and debt financing; and
other risks and uncertainties affecting our businesses described in Item 1A. Risk Factors of Covanta–s Annual Report on Form 10-K for the year ended December 31, 2012 and in other filings by Covanta with the SEC.
Although we believe that our 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 of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The forward-looking statements contained in this press release are made only as of the date hereof and we do 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.