While Ponte Vedra, Fla.-based Advanced Disposal Services, Inc.’s revenues for the second quarter of 2018 were $398.1 million, up from $383.1 million in 2017, the company faced recycling and fuel headwinds. The fuel surcharge was 60 basis points, but fuel as a percentage of cost is up 113 basis points year-over-year, according to an analysis of sales/earnings provided by Stifel Financial Corp. Recycling sales are down $5 million year-over-year with at least a 70 percent to 80 percent decremental, which is about 100 basis points of margin headwind.
"Advanced Disposal continues to improve its overall profitability led by disciplined pricing that is helping to drive gains in operating income, net income and adjusted EBITDA," said Richard Burke, CEO of Advanced Disposal, in a statement. "We have also generated operating cash flow of $163.2 million and adjusted free cash flow of $81.3 million year-to-date. Based on our year-to-date results, we remain on track to achieve our full year guidance targets."
Here’s a breakdown of the firm’s earnings report:
- Net income was $9.7 million, or $0.11 per diluted share, and adjusted net income, which excludes certain gains and expenses, was $17.3 million, or $0.19 per diluted share.
- Overall revenue increased by 3.9 percent over the prior year period,despite an $8.8 million reduction related to the adoption of the new revenue recognition standard.
- The company’s average yield was 3.2 percent and its organic volume growth was 1.2 percent.
- Year-over-year growth from acquisitions was 2.6 percent, as Advanced Disposal benefited from the rollover impact of acquisitions completed in 2017 and six tuck-in acquisitions completed year-to-date 2018.
- Adjusted EBITDA improved $2.2 million to $112.0 million, despite a $4.9 million adjusted EBITDA decline from the sale of recyclables and net fuel costs.
- Cash provided by operating activities improved $8.7 million to $84.7 million and was $163.2 million year-to-date 2018.
- Adjusted free cash flow was $81.3 million year-to-date 2018.
- Solid waste collectionaccounted for 67.8 percent of reported revenue ($269.9 million vs. $252.8 million in 2017). Solid waste disposal and transfer accounted for 37.2 percent ($148.0 million vs. $144.6 million 2017). Sale of recyclables (1.1 percent), fuel charges and environmental charges (7.7 percent), intercompany eliminations (decrease of 20.1 percent) and other (6.3 percent) accounted for the remainder.
- “We’re becoming easier to do business with, and within the next 12 months, we will transform the way customers are able to connect with us,” said Burke on a call with investors. “We’re expanding services for existing customers, providing a price point for new customers and enhancing our mobile capabilities so we can interact with our customers when it’s most convenient for them. We’re piloting next-generation safety technology to help reduce in-cab distractions while at the same time increasing service verification for our customers. At the end of the day, we are passionate about safety because we care about our people and want every employee to go home safely. Our ultimate goal remains to have an accident-free workplace.”
- The company’s cost of operations,excluding accretion expense, as a percentage of revenue was 62 percent, compared to 61.7 percent the year prior. The adoption of the Rev Rec standard added in an 80 basis point positive impact to the cost of operations as a percentage of revenues. The $8.8 million reduction in revenue and operating expenses impacted were transfer station and disposal costs by $1.9 million and franchise fees and taxes by $7.9 million. Normalizing for the Rev Rec impact, the company’s cost of operations increased 110 basis points as a percentage of revenue primarily due to higher fuel costs.