Covanta Holding Corporation Reports 2017 First Quarter Results And Affirms 2017 Guidance

MORRISTOWN, N.J., April 25, 2017 /PRNewswire/ -- Covanta Holding Corporation (NYSE: CVA) ("Covanta" or the "Company"), a world leader in sustainable waste and energy solutions, reported financial results today for the three months ended March 31, 2017.

"We continued making meaningful progress across our strategic initiatives in the first quarter, nearing completion of construction of the Dublin facility, driving growth in our Environmental Solutions business, and beginning to process metals at our centralized non-ferrous processing facility," said Stephen J. Jones, Covanta's President and CEO.  "The fire and resulting downtime at the Fairfax facility impacted results in the first quarter, but recovery is well underway, with credit to our outstanding team on the ground.  We expect to recoup much of the financial impact later in the year as we receive insurance payments.  We also took the opportunity to accelerate scheduled outages at a few facilities into the first quarter while these facilities were down for other reasons, which contributed to our completing about 35% of our annual planned maintenance expense in Q1.  We are very well positioned to post improved year-over-year performance for the balance of the year, and remain squarely on track with our full year outlook."

First Quarter Results
For the three months ended March 31, 2017, total revenue increased by $1 million to $404 million from $403 million in Q1 2016.  Higher waste and service, metals and construction revenue were largely offset by lower energy revenue.

Organic growth contributed an overall revenue increase of $14 million as follows:

• Waste and service revenue grew by $8 million, which primarily consisted of:
• EfW waste processing of $4 million (1.7%), driven by improved pricing and growth in profiled waste, partially offset by lower volume due to plant downtime; and
• Environmental services revenue of $6 million;
• Energy revenue decreased by $3 million due to lower production volume related to plant downtime;
• Recycled metals revenue increased by $3 million driven by improved ferrous market prices and better price realization after metals processing, partially offset by lower volume due to the timing of shipments; and
• Other revenue increased by $6 million due to construction activity.

Contract transitions reduced revenue by $4 million, as the expiration of certain long-term energy contracts offset an increased share of energy revenue following service fee to tip fee contract transitions.

Transactions, most notably the exit from our China operations, resulted in a net decrease of $8 million in revenue year-over-year.

Excluding impairment charges ⁽¹⁾, operating expense increased by $26 million to $427 million. The year-over-year net increase included a $33 million increase in same store costs, driven primarily by a $9 million increase in plant maintenance, largely due to the timing and scope of outage activities, and an $18 million increase in other plant operating expenses, including additional costs related to plant downtime, organic growth in the Environmental Solutions business, and normal wage and benefit escalation. Transactions overall reduced operating expense by $7 million.

Adjusted EBITDA declined by $25 million on a year-over-year basis to $51 million, as improved waste and metals pricing were more than offset by facility downtime, impacting both revenue and plant operating expenses, increased scheduled maintenance activity, and the impact of contract transitions and the China asset sale last year.

Free Cash Flow decreased by $16 million to $(17) million, primarily as a result of the factors that drove Adjusted EBITDA as noted above, partially offset by lower maintenance capital expenditures.

Adjusted EPS decreased by $0.18 to $(0.37).  The decrease was driven primarily by lower operating income as discussed above.

Shareholder Returns
During the quarter, the Company declared a regular cash dividend of $0.25 per share, totaling $33 million.

2017 Guidance
The Company affirmed guidance for 2017 for the following key metrics:            

Conference Call Information
Covanta Holding Corporation (NYSE: CVA) ("Covanta" or the "Company") will host a conference call at 8:30 AM (Eastern) on Wednesday, April 26, 2017 to discuss its first quarter results.

The conference call will begin with prepared remarks, which will be followed by a question and answer session.  To participate, please dial 1-877-201-0168 approximately 10 minutes prior to the scheduled start of the call.  If calling outside of the United States, please dial 1-647-788-4901.  Please request the "Covanta Holding Corporation Earnings Conference 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 www.covanta.com.

An archived webcast will be available two hours after the end of the conference call and can be accessed through the Investor Relations section of the Covanta website at www.covanta.com.

About Covanta
Covanta is a world leader in providing sustainable waste and energy solutions.  Annually, Covanta's modern Energy-from-Waste facilities safely convert approximately 20 million tons of waste from municipalities and businesses into clean, renewable electricity to power one million homes and recycle approximately 500,000 tons of metal.  Through a vast network of treatment and recycling facilities, Covanta also provides comprehensive industrial material management services to companies seeking solutions to some of today's most complex environmental challenges.  For more information, visit www.covanta.com.

Cautionary Note Regarding Forward-Looking Statements
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.  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 factors, risks and uncertainties that could cause actual results to differ materially from those forward-looking statements with respect to Covanta include, but are not limited to: fluctuations in the prices of energy, waste disposal, scrap metal and commodities; adoption of new laws and regulations in the United States and abroad; the fee structures of our contracts; difficulties in the operation of our facilities, including fuel supply and energy transfer interruptions, failure to obtain regulatory approvals, equipment failures, labor disputes and work stoppages, weather interference and catastrophic events; difficulties in the financing, development and construction of new projects and expansions, including increased construction costs and delays; limits of insurance coverage; our ability to avoid defaults under our long-term service contracts; performance of third parties under our contractual arrangements; concentration of suppliers and customers; increased competitiveness in the energy industry; changes in foreign currency exchange rates; limitations imposed by our existing indebtedness; exposure to counterparty credit risk and instability of financial institutions in connection with financing transactions; our ability to utilize our net operating losses; failures of disclosure controls and procedures; general economic conditions in the United States and abroad, including the availability of credit and debt financing and market conditions at the time our contracts expire; and other risks and uncertainties affecting our businesses described in Item 1A. Risk Factors of our Annual Report on Form 10-K and in other 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 of its forward-looking statements.  Covanta's 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 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.

Discussion of 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.  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.

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 effect 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.

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 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.

CAUTIONARY NOTE REGARDING 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 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, 2016 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.

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SOURCE Covanta Holding Corporation