MORRISTOWN, NJ — (Marketwire) — 07/18/12 — 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 six months ended June 30, 2012.
Key Q2 2012 Financial Highlights:
Revenue was relatively flat at $410 million
Adjusted EBITDA of $125 million was up $2 million from the prior year
Free Cash Flow declined to $16 million, as expected, due to construction working capital timing
Adjusted EPS improved by $0.01 to $0.15 per share
Returned $50 million to shareholders, including $30 million of share repurchases
Key Q2 2012 Operational Highlights:
Achieved outstanding EfW boiler availability, waste throughput and steam production
Successfully extended waste contracts with the City of Tulsa and Stanislaus County
Installed new non-ferrous recovery system at Fairfax and metal shredder at the SEMASS facility
Honolulu expansion unit commenced start-up testing in June
Commenting on the second quarter of 2012, Anthony Orlando, Covanta–s President and CEO stated, “Excellent operating performance drove another solid financial quarter and it gives us confidence to reaffirm our full year guidance, which calls for continued earnings growth despite declines in energy and recycled metal markets.”
“Furthermore, we are effectively executing against our organic growth initiatives, while strengthening our base business by negotiating win-win contract renewals with our clients. The work we are doing now will pay off in the coming years,” Orlando concluded.
Operating revenues of $410 million were relatively flat compared to the prior year as higher construction revenues, service fee contract escalations, and higher special waste revenues were offset by reduced energy revenues due to lower pricing, as well as lower production at our biomass facilities.
Operating expenses of $354 million decreased by $4 million from $358 million in the prior year period. This improvement was primarily attributed to the Company–s organic growth initiatives (including various operational improvements) and insurance recoveries, partially offset by normal cost escalations.
Operating income improved by $3 million to $56 million versus the prior year. This increase was primarily due to lower operating expenses.
Adjusted EBITDA of $125 million was up from $123 million in the prior year period.
As previously noted, Free Cash Flow declined to $16 million versus $43 million in the prior year. While the second quarter is typically a low seasonal quarter, the decline in Free Cash Flow was more pronounced due to the timing of construction working capital.
Adjusted EPS increased by $0.01 versus the prior year period to $0.15, as improved operating income, higher equity income and lower number of shares outstanding due to the Company–s common stock buyback program more than offset higher interest expense.
For the six months ended June 30, 2012, total operating revenues increased 2% to $802 million. Free Cash Flow was $92 million for the year-to-date period compared to $109 million for the same period last year. Adjusted EBITDA was $198 million compared to $194 million for the same period last year and Adjusted EPS was $0.06 compared to $0.03 in 2011.
During the quarter, the Company returned $50 million to shareholders, consisting of $20 million in cash dividends declared and $30 million in share repurchases (1.4% of common stock outstanding). Year-to-date, the Company has returned $101 million to shareholders in the form of $41 million in dividends declared and $60 million in shares repurchased (2.7% of common stock outstanding). Since the inception of its buyback program the Company has repurchased 15.6% of shares outstanding. As of June 30, 2012, Covanta had $115 million of share repurchase authorization remaining.
The Company is reaffirming its previously announced guidance for 2012 for the following financial metrics:
Sanjiv Khattri, Covanta–s Executive Vice-President and Chief Financial Officer commented, “Our financial results were right in-line with expectations for the quarter despite weakness in the energy and recycled metals markets. Construction working capital negatively impacted our Free Cash Flow this quarter, but overall our Free Cash Flow remains strong. We see plenty of room to grow the business in both the near and long term and are investing in high-value projects to make this happen. In the meantime, we continue to meaningfully return capital to our shareholders through our quarterly cash dividend and stock repurchase program.”
Covanta will host a conference call at 8:30 am (Eastern) on Thursday, July 19, 2012 to discuss its second 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, July 26, 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 10015619. 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 create more than 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.
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 June 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 June 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.
Under the credit facilities as of June 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 June 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 six months ended June 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 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 six months ended June 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 write-down of assets, 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 six months ended June 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.