New Covanta CEO talks about plans for company’s future as part of Q4 earnings call

New Covanta CEO talks about plans for company’s future as part of Q4 earnings call

As part of the company’s earnings call, CEO Mike Ranger addressed how the company will take a closer look at its operations over the coming months.

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February 22, 2021

Covanta, Morristown, New Jersey, announced its earnings for both the fourth quarter and full-year period of 2020 on Feb. 18.

Earnings highlights include:

  • In 2020, revenue increased to $1.9 billion, up from $1.87 billion in 2019.
  • Net (loss) income was $28 million in 2020, up from $10 million in 2019.
  • Adjusted EBITDA was $424 million in 2020, down from $428 million in 2019.
  • Net cash provided by operating activities was $254 million in 2020, up from $226 million in 2019.
  • Free cash flow was $95 million in 2020, down from $140 million in 2019.

2021 guidance highlights include:

  • An increase of adjusted EBITDA from $424 million in 2020 to a range of $435 million to $465 million in 2021.
  • An increase of free cash flow from $95 million in 2020 to a range of $100 million to $140 million in 2021.

As part of the company’s earnings call, new Covanta CEO Mike Ranger addressed how the company plans to take a closer look at its operations over the coming months:

“When I stepped into this role about 3.5 months ago to lead the company and the strategic review process, I brought a good perspective on the issues and opportunities given my experience with the company and similar situations. However, we did not bring a fully formed plan at that point, and we committed to let our analysis and the data direct our decisions and actions.

“As we announced in October, our initial focus has been an in-depth review of the company's businesses and strategies to understand where value can be unlocked and how to do so. With our efforts to date, I see a clear opportunity to deliver more value to shareholders, and we are now in the process of selecting how exactly to do just that.

“Allow me to layout some of the specific objectives and initiatives. First, we believe that some assets of the company are undervalued by the market. As such, we will evaluate the best alternatives to recognize this value. In some cases, this could result in – our testing the market demand for certain parts of our business in order to capitalize on potential value differentials.

“Second, in our core Waste-to-Energy business, the profitability of our operations is not uniform. A subset of our plants derives the majority of our current cash flow. Our efforts here will be to improve asset level contributions, or if not possible, we will work to exit less profitable operations. The specific levers we will use for this effort will be unique in each plant situation, but we will act decisively to reduce risk and improve cash flow. In many ways, this will be the most challenging part of the strategic reviews, the execution, but it is an area of great importance as we look to best position the company for the future.

“Our third objective, and a likely consequence of any resizing of our asset portfolio would be an evaluation of our costs and capital allocation. I expected the company that emerges from this review will be leaner and more focused. Importantly, we expect to be better able to pursue and fund growth in the remaining business.

“Lastly, an expected outcome of our activities will be reducing financial leverage. While the company is under no market rating agency or liquidity pressure, the Board and I believe that the current leverage is an overhang on our public equity valuation. By de-levering, we can both increase the mix of equity and the enterprise value, and potentially increase our trading multiples as a broader universe of investors are able to participate in our story.

“An added benefit of a less leveraged capital structure over time is increased optionality on capital allocation, whether for aggressive growth opportunities or shareholder returns. While we are not making any discrete announcements today, I anticipate that the strategic review will occur through a series of steps that will play out over the coming quarters. And I anticipate that we will begin to make announcements on specific actions by the middle of this year.”

Full earnings are available on Covanta’s website.