Attached files
| file | filename |
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| EX-99.1 - EXHIBIT 99.1 - COVANTA HOLDING CORP | exhibit991q117.htm |
| 8-K - 8-K - COVANTA HOLDING CORP | form8-kq117earnings.htm |
NYSE: CVA April 25, 2017
First Quarter 2017
Earnings Conference Call
Picture To Be Updated Next Week
Exhibit 99.2
April 25, 2017 2
Cautionary Statements
All information included in this earnings presentation is based on continuing operations, unless otherwise noted.
Forward-Looking Statements
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 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 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.
Note: All estimates with respect to 2017 and future periods are as of April 25, 2017. 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.
Non-GAAP Financial Measures
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. The non-GAAP financial measures of Adjusted EBITDA, Free Cash Flow and Adjusted EPS, as described and used in this earnings
presentation, 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. Please refer to the appendix of this
presentation for reconciliations of non-GAAP financial measures.
April 25, 2017 3
Q1 2017 Summary
(in millions, except per share amounts) Q1 2016 Q1 2017
FY 2017
Guidance (1)
Revenue $403 $404 N/A
Adjusted EBITDA $76 $51 $400 - $440
Cash flow provided by operating activities $35 $10 N/A
Free Cash Flow $(1) $(17) $100 - $150
Diluted EPS $(0.29) $(0.41) N/A
Adjusted EPS $(0.19) $(0.37) N/A
(Unaudited)
• Affirming 2017 guidance
• Dublin remains on track for commercial operations by the start of Q4 2017
• Fairfax expected to come back online in late Q2
• Strong waste market conditions and growth in Covanta Environmental Solutions
• Improved scrap metal market prices
• Executed opportunistic refinancing of $400 million of senior notes to extend maturity and reduce cost
1) Guidance affirmed as of April 25, 2017.
April 25, 2017 4
5) Excludes liquid waste.
6) Includes contracts at transfer stations from which waste is internalized.
7) Calculated for EfW waste processing revenue presented above.
Note: certain amounts may not total due to rounding.
Waste Update
• Client and new business activity:
▪ Extended client relationship at SECONN under new
tip fee contract
▪ Completed two CES acquisitions
• Q1 2017 revenue drivers vs. Q1 2016:
▪ EfW waste processing revenue up $4 million
◦ Higher average revenue per ton (~3%), partially
offset by downtime at Fairfax ($3 million impact)
◦ Uncontracted (spot) MSW price up ~5%
◦ Internalized profiled waste revenue up 12%
▪ Covanta Environmental Solutions
◦ Environmental services organic revenue up 26%
◦ Profiled waste growth contributing to higher
average pricing at EfW
• Trends and outlook:
▪ Strong waste volumes supporting higher prices
▪ Targeting double-digit profiled waste growth in 2017
1) Includes the operation of material processing facilities and related services.
2) Consists of transfer stations and transportation component of NYC MTS contract.
3) Includes waste brokerage, debt service and other revenue unrelated to EfW waste processing.
4) Elimination of intercompany transactions primarily relating to transfer stations.
(Unaudited)
(in millions, except price) Q1 2016A Q1 2017A 2017E
Waste & Service Revenue:
EfW Waste Processing $227 $231 $975 - $1,005
Environmental Services (1) 21 27 100 - 110
Municipal Services (2) 43 44 ~200
Other (3) 9 8 ~30
Intercompany (4) (21) (23) ~ (90)
Total $279 $286 $1,215 - $1,255
EfW Tons: (5)
Contracted (6) 4.06 3.99
Uncontracted 0.58 0.57
Total 4.64 4.56 19.5 - 19.7
EfW Revenue per Ton: (7)
Contracted $46.75 $47.52
Uncontracted $64.61 $71.85
Average $48.97 $50.56 $50.00 - $51.00
April 25, 2017 5
Energy Update
(in millions, except price;
MWh sold in millions) Q1 2016A Q1 2017A 2017E
Energy Revenue:
EfW Energy Sales $83 $76 $280 - $300
EfW Capacity 10 9 ~40
Other (1) 8 — —
Total $101 $86 $320 - $340
EfW MWh Sold:
Contracted 0.7 0.6 2.3 - 2.5
Hedged 0.4 0.6 ~2.6
Market 0.2 0.2 ~1.3
Total 1.4 1.4 6.2 - 6.4
EfW Revenue per MWh: (2)
Contracted $67.65 $70.85 $66 - $67
Hedged $62.64 $47.76 ~ $36
Market $27.91 $24.44 $22 - $34
Average $59.30 $53.76 $44 - $48
• Q1 2017 revenue drivers vs. Q1 2016:
▪ EfW energy revenue decreased $3 million (2.5%) on
a same store basis
◦ Price down 0.3%
◦ Volume down $3 million (3.9%), driven primarily by
downtime at Fairfax
▪ PPA expirations reduced revenue by $7 million,
partially offset by $3 million from higher contractual
revenue share
• Trends and outlook:
▪ Power prices remain muted with mild weather;
anticipate continued softness for balance of 2017
▪ Hedge activity:
◦ 2017 U.S. market exposure hedged to
approximately 1.3 million MWh
◦ Actively hedging 2018 exposure
1) Includes China and Biomass in 2016.
2) Excludes capacity revenue.
Note: certain amounts may not total due to rounding.
(Unaudited)
April 25, 2017 6
Recycled Metals Update
($ in millions, except price;
tons in thousands) Q1 2016A Q1 2017A 2017E
Metals Revenue:
Ferrous $8 $10 $35 - $45
Non-Ferrous 5 6 30 - 35
Total $13 $16 $65 - $80
Tons Recovered:
Ferrous 95 95 395 - 400
Non-Ferrous 8 9 35 - 40
Tons Sold:
Ferrous 86 60 310 - 320
Non-Ferrous 8 9 28 - 33
Revenue per Ton Sold:
Ferrous $91 $169 $110 - $140
Non-Ferrous $624 $615 $1,000 - $1,100
Average HMS index price (1) $158 $272 $200 - $250
Average Old Cast Aluminum (2) $0.55 $0.60 $0.55 - $0.61
• Q1 2017 revenue drivers vs. Q1 2016:
▪ Ferrous:
◦ Price up $7 million (94%), due to higher market
index price ($6 million, up 72%) and increased
processing
◦ Volume down $5 million (64%), driven primarily
by shipment timing
▪ Non-ferrous:
◦ Realized sales price essentially flat
◦ Volume up $1 million (16%), driven by increased
recovery
• Trends and outlook:
▪ HMS Index averaged $272 per ton in Q1 and set at
$258 in April; anticipate price softening for balance
of 2017
▪ Forward aluminum prices remain in line with
previous full year expectations
▪ Non-ferrous processing to drive significant increase
in price realization beginning in Q2
1) Q1 2017 and Q1 2016 average #1 Heavy Melt Steel composite index ($ / gross ton) as published by American Metal Market.
2) Q1 2017 and Q1 2016 average Old Cast Aluminum Scrap ($ / pound) calculated using the high price as published by American Metal Market.
(Unaudited)
April 25, 2017 7
Plant Operating Expense and Maintenance Update
• Q1 2017 summary:
▪ Total EfW maintenance (expense + capex) largely
flat year-over-year in Q1
▪ Q1 2017 maintenance expense included greater
percent of full year expected work (estimated 35%
vs. 32% in Q1 2016) with acceleration of scheduled
outages to optimize plant downtime
▪ Increase in other plant operating expense driven by
growth in Environmental Solutions business and
costs related to unplanned plant downtime
• Trends and outlook:
▪ Nearing completion of major outage season
▪ 2017 full year outlook unchanged
(in millions) Q1 2016A Q1 2017A 2017E
Plant Maintenance Expense:
EfW $88 $97 $275 - $285
Other 1 1
Total $89 $98
Maintenance Capex:
EfW $32 $25 $90 - $100
Other 4 1 ~20
Total $36 $27 $110 - $120
Total EfW Maintenance Spend $120 $122 $365 - $385
Other Plant Operating Expense $226 $234
(Unaudited)
Note: certain amounts may not total due to rounding.
April 25, 2017 8
Financial Overview
April 25, 2017 9
Revenue: Q1 2017 vs. Q1 2016
1) Includes waste and service revenue, energy and metals volume, metals processing and construction activity.
2) Energy price includes capacity payments.
Note: certain amounts may not total due to rounding.
(1) (2)
April 25, 2017 10
Adjusted EBITDA: Q1 2017 vs. Q1 2016
1) Includes waste and service revenue, energy and metals volume, metals processing, plant operating costs, construction activity and overhead.
2) Energy price includes capacity payments.
(1) (2)
April 25, 2017 11
Free Cash Flow: Q1 2017 vs. Q1 2016
Cash Interest (4)
Asia Eq. Inc. 3
Cash Taxes 5
April 25, 2017 12
Growth Investment Outlook
(Unaudited, in millions)
FY 2016
Actual
YTD
3-31-17
FY 2017
Outlook
Organic growth investments (1) $46 $11 ~ $30
New York City MTS contract 3 — —
Essex County EfW emissions control system (2) 33 3 ~5
Acquisitions 9 16 16
Subtotal: Corporate funded $91 $30 ~ $50
Dublin facility construction 162 20 ~100
Total growth investments $253 $50 ~ $150
1) Organic growth programs are focused primarily on growing waste, energy and metal revenue and/or reducing operating costs.
2) Classified as growth investment because cost is reflected in overall economic benefit of contract restructuring completed in 2013.
Note: certain amounts may not total due to rounding.
• Remaining Dublin investment to be funded entirely with project financing – no impact on domestic capital allocation
• Acquisitions to be targeted on an opportunistic basis – potential additional activity not reflected in FY 2017 outlook
April 25, 2017 13
(Face value; unaudited, in millions) 12/31/2015 12/31/2016 3/31/2017
Cash and Cash Equivalents $94 $84 $444
Corporate Debt:
Secured $621 $608 $648
Unsecured 1,664 1,664 2,064
Total Corporate Debt $2,285 $2,272 $2,712
Project Debt 197 406 435
Total Debt $2,482 $2,678 $3,147
Net Debt (1) $2,326 $2,547 $2,662
Stockholders’ Equity $640 $469 $398
Credit Ratios:
Net Debt / Adjusted EBITDA 5.4x 6.2x 6.9x
Excluding Non-Recourse Construction Debt (2) 5.3x 5.7x 6.3x
Senior Credit Facility Leverage Ratio (3) 2.9x 3.0x 3.4x
Capitalization Summary
1) Net debt is calculated as total principal amount of debt outstanding less cash and cash equivalents, debt service principal-related restricted funds ($12 million at March 31,
2017) and escrowed construction financing proceeds ($29 million at March 31, 2017). Cash and cash equivalents includes proceeds from recent refinancing.
2) Excludes $241 million of net debt (debt of $251 million less restricted funds of $10 million) outstanding at March 31, 2017 at Dublin project subsidiary.
3) Leverage ratio as calculated for senior credit facility covenant. Effectively represents leverage at Covanta Energy, LLC and subsidiaries.
April 25, 2017 14
Appendix
April 25, 2017 15
Long-term Outlook: Energy Detail
Consolidated EfW
(Unaudited, in millions, except price) 2015A 2016A 2017E 2018E 2019E 2020E 2021E
MWh Sold – CVA Share:
Contracted 3.0 3.1 2.4 2.1 2.1 2.1 2.1
Hedged 1.4 1.9 2.6 1.7 — — —
Market 1.4 1.0 1.3 3.0 4.7 4.7 4.7
Total MWh Sold 5.8 6.1 ~6.3 ~6.8 ~6.8 ~6.8 ~6.8
Market Sales (MWh) by Geography:
PJM East 0.5 0.3 0.7 1.6 2.7 2.7 2.7
NEPOOL 0.3 0.2 0.3 0.6 1.2 1.2 1.2
NYISO 0.1 0.1 — 0.2 0.2 0.2 0.2
Other 0.4 0.4 0.3 0.7 0.6 0.6 0.6
Total Market Sales 1.4 1.0 1.3 3.0 4.7 4.7 4.7
Revenue per MWh: (1)
Contracted $65.56 $65.98 ~$67
Hedged $45.64 $42.77 ~$36
Market $33.18 $31.35 ~$28
Average Revenue per MWh $53.17 $52.70 ~$46
Note: hedged generation as presented above reflects only existing hedges. Certain amounts may not total due to rounding.
1) Excludes capacity revenue.
• Note: Production estimates for 2018 - 2021 are approximated based on historical operating performance and expected
contract structures
April 25, 2017 16
1) Guidance affirmed as of April 25, 2017.
2) Adjustment for impact of adoption of FASB ASC 853 – Service Concession Arrangements.
Non-GAAP Reconciliation: Adjusted EBITDA &
Free Cash Flow
Q1 Full Year
(Unaudited, in millions) 2016 2017 Estimated 2017
Net Loss Attributable to Covanta Holding Corporation $(37) $(52)
Depreciation and amortization expense 52 52
Interest expense, net 34 36
Income tax benefit (10) (11)
Impairment charges 15 —
Debt service billings in excess of revenue recognized 1 1
Severance and reorganization costs 1 —
Non-cash compensation expense 5 5
Capital type expenditures at service fee operated facilities (2) 11 14
Loss on asset sales — 4
Other 4 2
Total adjustments 113 103
Adjusted EBITDA (1) $76 $51 $400 - $440
Cash paid for interest, net of capitalized interest (22) (26)
Cash paid for taxes, net (4) 1
Capital type expenditures at service fee operated facilities (2) (11) (14)
Adjustment for working capital and other (4) (2)
Net cash provided by operating activities $35 $10 $210 - $270
Maintenance capital expenditures (36) (27) (110) - (120)
Free Cash Flow (1) $(1) $(17) $100 - $150
Weighted Average Shares Outstanding 129 129
April 25, 2017 17
Non-GAAP Reconciliation: Adjusted EBITDA
Full Year LTM
(Unaudited, in millions) 2015 2016 March 31, 2017
Net Income (Loss) Attributable to Covanta Holding Corporation $68 $(4) $(19)
Depreciation and amortization expense 198 207 207
Interest expense, net 134 138 140
Income tax (benefit) expense (84) 22 21
Impairment charges 43 20 5
Gain on sale of assets, net — (44) (40)
Loss on extinguishment of debt 2 — —
Net income attributable to noncontrolling interests in subsidiaries 1 — —
Debt service billings in excess of revenue recognized 1 4 4
Severance and reorganization costs 4 3 2
Non-cash compensation expense 18 16 16
Capital type expenditures at service fee operated facilities (1) 31 39 42
Other 12 9 7
Total adjustments 360 414 404
Adjusted EBITDA $428 $410 $385
Note: Adjusted EBITDA results provided to reconcile the denominator of the Net Debt / Adjusted EBITDA ratios on slide 13.
1) Adjustment for impact of adoption of FASB ASC 853 – Service Concession Arrangements.
April 25, 2017 18
Non-GAAP Reconciliation: Adjusted EPS
Q1
(Unaudited, in millions, except per share amounts) 2016 2017
Diluted Loss Per Share $(0.29) $(0.41)
Reconciling Items 0.10 0.04
Adjusted EPS $(0.19) $(0.37)
Reconciling Items
Impairment charges $15 $—
Severance and reorganization costs 1 —
Effect on income of derivative instruments not designated as hedging instruments 4 —
Effect of foreign exchange loss on indebtedness (1) —
Loss on sale of assets — 4
Total Reconciling Items, pre-tax 19 4
Pro forma income tax impact (7) —
Grantor trust activity — 1
Total Reconciling Items, net of tax $12 $5
Diluted Earnings Per Share Impact $0.10 $0.04
Weighted Average Shares Outstanding 129 129
April 25, 2017 19
Non-GAAP Financial Measures
Free Cash Flow
Free Cash Flow is defined as cash flow provided by operating activities, 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 months ended March 31,
2017 and 2016, reconciled for each such period to cash flow provided by operating activities, which we believe to be the most directly comparable measure under GAAP.
Adjusted EBITDA
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 March 31, 2017 of our most significant subsidiary, Covanta
Energy, LLC ("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 March 31, 2017, 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. Under the credit facilities as of March 31, 2017, 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 March 31, 2017. 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 months ended March 31, 2017 and 2016, reconciled for each such period
to net income and cash flow provided by operating activities, which are believed to be the most directly comparable measures under GAAP. Our projected full year 2017 Adjusted EBITDA is not based on
GAAP net income/loss and is anticipated to be adjusted to exclude the effects of events or circumstances in 2017 that are not representative or indicative of our results of operations. Projected GAAP net
income/loss for the full year would require inclusion of the projected impact of future excluded items, including items that are not currently determinable, but may be significant, such as asset impairments and
one-time items, charges, gains or losses from divestitures, or other items. Due to the uncertainty of the likelihood, amount and timing of any such items, we do not have information available to provide a
quantitative reconciliation of full year 2017 projected net income/loss to an Adjusted EBITDA projection.
Adjusted EPS
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 impairment charges, 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 months ended March 31, 2017 and 2016, reconciled for each such period to diluted income per share, which is believed
to be the most directly comparable measure under GAAP.