Covanta increases revenue for year and quarter

Covanta Holding Corp., Morristown, New Jersey, a sustainable waste and energy solutions company, reported financial results for the three and twelve months ended Dec. 31, 2016.

For the twelve months ended Dec. 31, 2016, total revenue increased by $54 million to $1.699 billion from $1.645 billion in 2015. Overall, higher waste and service revenue more than offset a decline in energy revenue.

Organic growth drove revenue increases of $51 million as follows:

• Waste and service revenue grew by $35 million, with increases including:
  • Energy from Waste (EfW) waste processing of $26 million (2.8 percent), with price and volume improvements of $24 million and $2 million, respectively;
  • Environmental services revenue of $12 million as a result of increased activity at previously acquired businesses; and
  • Higher municipal services revenue, primarily relating to the NYC MTS contract and transfer station volumes;
• Energy revenue decreased by $5 million, resulting from lower production volume at EfW facilities (primarily related to turbine generator downtime at our Plymouth facility);
• Recycled metals revenue decreased by $1 million, driven by lower market prices, partially offset by higher volume; and

Other revenue increased by $21 million due to higher construction revenue.

Contract transitions increased revenue by $16 million, with increased share of energy revenue following service fee to tip fee contract transitions partially offset by the expiration of certain long-term energy contracts.

Transactions resulted in a decrease of $13 million in revenue year-over-year, with $52 million in higher waste and service revenue across business lines more than offset by a $66 million reduction resulting from the shut-down of biomass facilities and the sale of assets in China.

Excluding impairment charges (1), operating expense increased by $77 million to $1.570 billion. The year-over-year increase was primarily due to:

• a $17 million increase in same store plant maintenance, driven by the timing and scope of scheduled maintenance;
• a $49 million increase in same store other plant operating expenses due to higher employee incentive compensation, same store cost escalation, and higher expenses relating to the commencement of operations at our centralized metals processing facility;
• a $14 million increase in same store other operating expense resulting from increased construction activities;
• a $9 million increase in same store general and administrative costs driven primarily by higher employee incentive compensation; and
• a $7 million increase in operating expense resulting from contract transitions, namely the Fairfax EfW facility transition from a service fee to tip fee contract structure; offset by a $22 million decrease in plant operating expense related to the transactions described above.
• 2016 and 2015 include impairment charges of $20 million and $43 million, respectively.

Adjusted EBITDA declined by $18 million on a year-over-year basis to $410 million, as year-over-year organic growth, primarily from improved waste pricing and profiled waste, was more than offset by increased employee incentive compensation and a modest headwind from commodity prices.  Contract transitions increased Adjusted EBITDA by $15 million, while transactions resulted in a net negative $4 million, with the impact of the China asset sale exceeding the benefits of the environmental services acquisitions and NYC MTS contract in the year.

Free Cash Flow increased by $25 million to $172 million, primarily as a result of a meaningful working capital benefit.

Adjusted EPS decreased by $0.22 to $(0.15).  The decrease was driven primarily by increased tax expense.

During the quarter, the company declared a regular cash dividend of $0.25 per share. In 2016, the Company paid a total of $131 million in dividends at its annualized rate of $1.00 per share.

For the three months ended December 31, 2016 compared to the same period last year:

• Total revenue increased $25 million to $457 million;
• Adjusted EBITDA increased $1 million to $128 million;
• Cash flow provided by operating activities increased $41 million to $136 million;
• Free Cash Flow increased $44 million to $108 million;
• Diluted EPS decreased $0.50 to $0.08; and
• Adjusted EPS increased $0.05 to $0.08.

"I am very pleased with our performance in the fourth quarter, which led to solid full year results," says Stephen J. Jones, Covanta president and CEO. "Record profiled waste and strong markets helped drive our performance on the waste revenue line, and the team continues to execute on our other organic growth initiatives, including metal recovery, which also hit a record in 2016, and continuous improvement.”

He adds, “While we expect modest adjusted EBITDA growth in 2017, the significant progress on the construction of our Dublin facility, which is scheduled for commercial operations by the start of the fourth quarter, coupled with the benefits from our ongoing organic growth initiatives, position us for stronger results and more meaningful free cash flow growth in 2018 and beyond."

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