Covanta Holding Corporation Reports 2019 Second Quarter Results And Revises 2019 Adjusted EBITDA Guidance

Three Months Ended
June 30,

2019

2018

(Unaudited, $ in millions)

Revenue

$467

$454

Net loss

$(21)

$(31)

Adjusted EBITDA

$94

$103

Net cash provided by operating activities

$50

$60

Free Cash Flow

$21

$26

Reconciliations of non-GAAP measures can be found in the exhibits to this press release.

2019 Guidance Range

Metric

Current

Initial

2018
Actual

Adjusted EBITDA

$420 - $445

$440 - $465

$457

Free Cash Flow

$120 - $145

$120 - $145

$100

Reconciliations of non-GAAP measures can be found in the exhibits to this press release
Guidance as of July 25, 2019.

Covanta Holding Corporation

Exhibit 1

Consolidated Statements of Operations

Three Months Ended
June 30,

Six Months Ended
June 30,

2019

2018

2019

2018

(Unaudited)
(In millions, except per share amounts)

OPERATING REVENUE:

Waste and service revenue

$

359

$

333

$

686

$

645

Energy revenue

72

76

166

176

Recycled metals revenue

21

25

42

49

Other operating revenue

15

20

26

42

Total operating revenue

467

454

920

912

OPERATING EXPENSE:

Plant operating expense

354

334

713

679

Other operating expense, net

16

19

33

27

General and administrative expense

31

27

61

58

Depreciation and amortization expense

55

55

110

109

Impairment charges ^(a)

1

37

1

37

Total operating expense

457

472

918

910

Operating income (loss)

10

(18)

2

2

OTHER (EXPENSE) INCOME:

Interest expense

(36)

(36)

(72)

(74)

Net (loss) gain on sale of business and investments ^(a)

(2)

—

48

210

Other income (expense), net

1

(1)

2

(1)

Total other (expense) income

(37)

(37)

(22)

135

(Loss) income before income tax benefit and equity in net income
    from unconsolidated investments

(27)

(55)

(20)

137

Income tax benefit

3

22

1

31

Equity in net income from unconsolidated investments

3

2

3

2

Net (loss) income

$

(21)

$

(31)

$

(16)

$

170

Weighted Average Common Shares Outstanding:

Basic

131

130

131

130

Diluted

131

130

131

132

(Loss) Earnings Per Share:

Basic

$

(0.16)

$

(0.24)

$

(0.12)

$

1.31

Diluted

$

(0.16)

$

(0.24)

$

(0.12)

$

1.29

Cash Dividend Declared Per Share

$

0.25

$

0.25

$

0.50

$

0.50

(a) For additional information, see Exhibit 4 of this Press Release.

Covanta Holding Corporation

Exhibit 2

Consolidated Balance Sheets

As of

June 30,
 2019

December 31,
 2018

(Unaudited)

ASSETS

(In millions, except per share amounts)

Current:

Cash and cash equivalents

$

102

$

58

Restricted funds held in trust

22

39

Receivables (less allowances of $8 and $8, respectively)

318

338

Prepaid expenses and other current assets

84

64

Total Current Assets

526

499

Property, plant and equipment, net

2,492

2,514

Restricted funds held in trust

8

8

Intangible assets, net

269

279

Goodwill

321

321

Other assets

286

222

Total Assets

$

3,902

$

3,843

LIABILITIES AND EQUITY

Current:

Current portion of long-term debt

$

16

$

15

Current portion of project debt

10

19

Accounts payable

61

76

Accrued expenses and other current liabilities

318

333

Total Current Liabilities

405

443

Long-term debt

2,446

2,327

Project debt

128

133

Deferred income taxes

378

378

Other liabilities

129

75

Total Liabilities

3,486

3,356

Equity:

Preferred stock ($0.10 par value; authorized 10 shares; none issued and outstanding)

—

—

Common stock ($0.10 par value; authorized 250 shares; issued 136 shares, outstanding 131 shares)

14

14

Additional paid-in capital

848

841

Accumulated other comprehensive loss

(27)

(33)

Accumulated deficit

(419)

(334)

Treasury stock, at par

—

(1)

Total Equity

416

487

Total Liabilities and Equity

$

3,902

$

3,843

Covanta Holding Corporation

Exhibit 3

Consolidated Statements of Cash Flow

Six Months Ended June 30,

2019

2018

(Unaudited, in millions)

OPERATING ACTIVITIES:

Net (loss) income

$

(16)

$

170

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Depreciation and amortization expense

110

109

Amortization of deferred debt financing costs

2

3

Net gain on sale of business and investments ^(a)

(48)

(210)

Impairment charges ^(a)

1

37

Stock-based compensation expense

15

14

Equity in net income from unconsolidated investments

(3)

(2)

Deferred income taxes

(4)

(28)

Dividends from unconsolidated investments

5

1

Other, net

5

(8)

Change in working capital, net of effects of acquisitions and dispositions

18

(21)

Changes in noncurrent assets and liabilities, net

2

(2)

Net cash provided by operating activities

87

63

INVESTING ACTIVITIES:

Purchase of property, plant and equipment

(93)

(130)

Acquisition of businesses, net of cash acquired

2

(4)

Proceeds from the sale of assets, net of restricted cash

26

112

Property insurance proceeds

—

7

Payment of indemnification claim related to sale of asset

—

(7)

Investment in equity affiliate

(8)

—

Other, net

(1)

(1)

Net cash used in investing activities

(74)

(23)

FINANCING ACTIVITIES:

Proceeds from borrowings on long-term debt

14

30

Proceeds from borrowings on revolving credit facility

359

317

Payments on long-term debt

(8)

(6)

Payments on revolving credit facility

(248)

(387)

Payments on project debt

(13)

(13)

Cash dividends paid to stockholders

(68)

(66)

Payment of insurance premium financing

(14)

(13)

Other, net

(8)

2

Net cash provided by (used in) financing activities

14

(136)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

—

2

Net increase (decrease) in cash, cash equivalents and restricted cash

27

(94)

Cash, cash equivalents and restricted cash at beginning of period

105

194

Cash, cash equivalents and restricted cash at end of period

$

132

$

100

(a) For additional information, see Exhibit 4 of this Press Release.

Covanta Holding Corporation

Exhibit 4

Consolidated Reconciliation of Net (Loss) Income and Net Cash Provided by Operating Activities

    to Adjusted EBITDA

Three Months Ended
June 30,

Six Months Ended
June 30,

2019

2018

2019

2018

(Unaudited, in millions)

Net (loss) income

$

(21)

$

(31)

$

(16)

$

170

Depreciation and amortization expense

55

55

110

109

Interest expense

36

36

72

74

Income tax benefit

(3)

(22)

(1)

(31)

Impairment charges ^(a)

1

37

1

37

Net loss (gain) on sale of businesses and investments ^(b)

2

—

(48)

(210)

Property insurance recoveries, net

—

—

—

(7)

Capital type expenditures at client owned facilities ^(c)

7

11

20

23

Debt service billings in excess of revenue recognized

—

—

—

1

Business development and transaction costs

1

1

1

3

Severance and reorganization costs

1

2

4

4

Stock-based compensation expense

7

5

15

14

Adjustments to reflect Adjusted EBITDA from unconsolidated
   investments

6

7

12

11

Other ^(d)

2

2

8

5

Adjusted EBITDA

$

94

$

103

$

178

$

203

Capital type expenditures at client owned facilities ^(c)

(7)

(11)

(20)

(23)

Cash paid for interest

(12)

(40)

(59)

(73)

Cash paid for taxes, net

(3)

(2)

(4)

(2)

Equity in net income from unconsolidated investments

(3)

(2)

(3)

(2)

Adjustments to reflect Adjusted EBITDA from unconsolidated
   investments

(6)

(7)

(12)

(11)

Dividends from unconsolidated investments

5

1

5

1

Adjustment for working capital and other

(18)

18

2

(30)

Net cash provided by operating activities

$

50

$

60

$

87

$

63

(a)

During the six months ended June 30, 2018, we identified an indicator of impairment associated with certain of our EfW facilities and recorded a non-cash impairment charge of $37 million to reduce the carrying value of the facilities to their estimated fair value.

(b) 

During the six months ended June 30, 2019, we recorded a $57 million gain related to the Rookery South Energy Recovery Facility development project and a $12 million loss related to the divestiture of our Springfield and Pittsfield EfW facilities.

During the six months ended June 30, 2018, we recorded a $204 million gain on the sale of 50% of our Dublin project to our joint venture with Green Investment Group and $6 million gain on the sale of our remaining interests in China.

(c)

Adjustment for impact of adoption of FASB ASC 853 - Service Concession Arrangements. These types of capital equipment related expenditures at our service fee operated facilities were historically capitalized prior to adoption of this new accounting standard effective January 1, 2015 and are capitalized at facilities that we own.

(d) 

Includes certain other items that are added back under the definition of Adjusted EBITDA in Covanta Energy, LLC's credit agreement.

Covanta Holding Corporation

Exhibit 5

Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow

Three Months Ended
June 30,

Six Months Ended
June 30,

Full Year
Estimated 2019

2019

2018

2019

2018

(Unaudited, in millions)

Net cash provided by operating activities

$

50

$

60

$

87

$

63

$230 - $260

Add: Changes in restricted funds - operating ^(a)

5

(1)

5

(11)

10

Less: Maintenance capital expenditures ^(b)

(34)

(33)

(65)

(78)

(130 - 120)

Free Cash Flow

$

21

$

26

$

27

$

(26)

(a) Adjustment for the impact of the adoption of ASU 2016-18 effective January 1, 2018. As a result of 
     adoption, the statement of cash flows explains the change during the period in the total of cash, cash 
     equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, 
     changes in restricted funds are eliminated in arriving at net cash, cash equivalents and restricted funds 
     provided by operating activities.

(b) Purchases of property, plant and equipment are also referred to as capital expenditures. Capital 
     expenditures that primarily maintain existing facilities are classified as maintenance capital 
     expenditures. The following table provides the components of total purchases of property, plant and equipment:

Three Months Ended
June 30,

Six Months Ended
June 30,

2019

2018

2019

2018

Maintenance capital expenditures

$

(34)

$

(33)

$

(65)

$

(78)

Net maintenance capital expenditures paid but 
     incurred in prior periods

—

(5)

(6)

(12)

Capital expenditures associated with construction 
      of Dublin EfW facility

—

(4)

—

(21)

Capital expenditures associated with the New York 
     City MTS contract

(6)

—

(17)

—

Capital expenditures associated with organic 
     growth initiatives

(1)

(7)

(5)

(15)

Total capital expenditures associated with 
     growth investments ^(c)

(7)

(11)

(22)

(36)

Capital expenditures associated with property 
     insurance events

—

—

—

(4)

Total purchases of property, plant and equipment

$

(41)

$

(49)

$

(93)

$

(130)

(c)  Total growth investments represents investments in growth opportunities, including organic growth 
      initiatives, technology, business development, and other similar expenditures.

Capital expenditures associated with growth 
     investments

$

(7)

$

(11)

$

(22)

$

(36)

UK business development projects

—

—

(1)

—

Investment in equity affiliate

(5)

—

(8)

—

Asset and business acquisitions, net of cash acquired

—

—

2

(5)

Total growth investments

$

(12)

$

(11)

$

(29)

$

(41)

Covanta Holding Corporation

Exhibit 6

Supplemental Information

(Unaudited, $ in millions)

Three Months Ended
June 30,

2019

2018

REVENUE:

Waste and service revenue:

EfW tip fees

$

162

$

156

EfW service fees

116

100

Environmental services ^(a)

37

37

Municipal services ^(b)

62

54

Other ^(c)

10

12

Intercompany ^(d)

(28)

(27)

Total waste and service

359

333

Energy revenue:

Energy sales

58

64

Capacity

12

13

Other ^(e)

2

—

Total energy

72

76

Recycled metals revenue:

Ferrous

13

15

Non-ferrous

8

10

Total recycled metals

21

25

Other revenue ^(f)

15

20

Total revenue

$

467

$

454

OPERATING EXPENSE:

Plant operating expense:

Plant maintenance

$

83

$

79

Other plant operating expense

272

255

Total plant operating expense

354

334

Other operating expense

16

19

General and administrative

31

27

Depreciation and amortization

55

55

Impairment charges

1

37

Total operating expense

$

457

$

472

Operating income (loss)

$

10

$

(18)

Plus: impairment charges

1

37

Operating income excluding impairment charges

$

11

$

19

(a) Includes the operation of material processing facilities and related services provided by our Covanta Environmental Solutions business.

(b) Consists of transfer stations and the transportation component of our NYC Marine Transfer Station contract.

(c) Includes waste brokerage, debt service and other revenue not directly related to EfW waste processing activities.

(d) Consists of elimination of intercompany transactions primarily relating to transfer stations.

(e) Primarily components of wholesale load serving revenue not included in Energy sales line, such as transmission and ancillaries.

(f) Consists primarily of construction revenue.

Note: Certain amounts may not total due to rounding.

Covanta Holding Corporation

Exhibit 7

Revenue and Operating Income Changes - Q2 2018 to Q2 2019

(Unaudited, $ in millions)

Contract Transitions ^(b)

Q2 2018

Organic
Growth ^(a)

%

Transactions ^(c)

Total
Changes

Q2 2019

REVENUE:

Waste and service:

EfW tip fees

$

156

$

5

3.5

%

$

5

$

(5)

$

5

$

162

EfW service fees

100

7

6.6

%

(5)

14

16

116

Environmental services

37

—

—

%

—

—

—

37

Municipal services

54

3

5.6

%

—

5

8

62

Other revenue

12

(2)

(12.5)

%

(1)

—

(3)

10

Intercompany

(27)

1

—

(1)

(1)

(28)

Total waste and service

333

14

4.3

%

(1)

13

27

359

Energy:

Energy sales

64

(7)

(10.6)

%

2

(1)

(6)

58

Capacity

13

(1)

(6.6)

%

—

—

(1)

12

Other

—

2

—

%

—

—

2

2

Total energy

76

(5)

(7.1)

%

2

(1)

(4)

72

Recycled metals:

Ferrous

15

(3)

(18.2)

%

—

—

(2)

13

Non-ferrous

10

(2)

(19.9)

%

—

—

(2)

8

Total recycled metals

25

(5)

(18.9)

%

—

1

(4)

21

Other revenue

20

(5)

(25.7)

%

—

—

(5)

15

Total revenue

$

454

$

(1)

(0.2)

%

$

1

$

13

$

13

$

467

OPERATING EXPENSE:

Plant operating expense:

Plant maintenance

$

79

$

3

3.2

%

$

—

$

2

$

4

$

83

Other plant operating expense

255

8

2.9

%

1

8

17

272

Total plant operating expense

334

10

3.0

%

1

10

21

354

Other operating expense

19

(3)

—

—

(3)

16

General and administrative

27

3

—

—

3

31

Depreciation and amortization

55

(1)

—

1

—

55

Total operating expense

$

435

$

8

$

1

$

11

$

21

$

456

Operating income (loss) excluding impairment charges

$

19

$

(10)

$

—

$

2

$

(8)

$

11

(a) Reflects performance on a comparable period-over-period basis, excluding the impacts of transitions and transactions.

(b) Includes the impact of the expiration of: (1) long-term major waste and service contracts, most typically representing the transition to a new contract structure, and (2) long-term energy contracts.

(c) Includes the impacts of acquisitions, divestitures, new projects and the addition or loss of operating contracts.

Note: Certain amounts may not total due to rounding.

Operating Metrics

Exhibit 8

(Unaudited)

Three Months Ended
June 30,

2019

2018

EfW Waste

Tons: (in millions)

Tip fee- contracted

2.29

2.32

Tip fee- uncontracted

0.43

0.44

Service fee

2.70

2.31

Total tons

5.41

5.07

Tip Fee revenue per ton:

Tip fee- contracted

$

54.16

$

51.52

Tip fee- uncontracted

$

89.06

$

84.05

Average tip fee

$

59.66

$

56.68

EfW Energy

Energy sales: (MWh in millions)

Contracted

0.47

0.52

Hedged

0.73

0.81

Market

0.37

0.30

Total energy

1.57

1.62

Market sales by geography: (MWh in millions)

PJM East

0.2

0.1

NEPOOL

0.1

0.1

NYISO

—

—

Other

0.1

0.1

Revenue per MWh (excludes capacity and other energy revenue):

Contracted

$

66.00

$

64.81

Hedged

$

26.42

$

25.99

Market

$

21.69

$

30.86

Average revenue per MWh

$

37.19

$

39.28

Metals

Tons Recovered: (in thousands)

Ferrous

110.8

106.6

Non-ferrous

12.5

11.7

Tons Sold: (in thousands)

Ferrous

94.9

81.4

Non-ferrous

6.7

7.0

Revenue per ton:

Ferrous

$

132

$

182

Non-ferrous

$

1,255

$

1,432

EfW plant operating expense: ($ in millions)

Plant operating expense - gross

$

279

$

264

Less: Client pass-through costs

(12)

(12)

Less: REC sales - contra-expense

(2)

(3)

Plant operating expense, net

$

265

$

250

Note: Waste volume includes solid tons only. Metals and energy volume are presented net of client revenue sharing. Steam sales are converted to MWh equivalent at an assumed average rate of 11 klbs of steam / MWh.  Hedged  energy sales includes the energy component of wholesale load serving. Uncontracted energy sales include sales under PPAs that are based on market prices.

Note: Certain amounts may not total due to rounding.