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Advanced Disposal the largest privatelyheld companynbspin the Waste 100 filed with the US Securities and Exchange Commission for an initial public offering of common stock in AugustMichael E Hoffman industry analyst and managing directornbspStifel Nicolaus amp Co Inc and Leone Youngnbspthe Principal of LTY ERC LLC and editornbspof Waste36039s monthly Business Insights newsletter each analyzed what the IPO might signify

Advanced Disposal Tight-lipped Through WM Acquisition, Sees Revenue Growth for Q1 2019

In light of the pending Waste Management transaction, Advanced Disposal Services said it has elected to cease conducting quarterly earnings conference calls.

Ponte Vedra, Fla.-based Advanced Disposal Services (ADS), which is being acquired by Waste Management (WM), released its first quarter 2019 results on April 30. The company did not hold its formerly planned earnings call on May 1, citing it will enter an "extended quiet period related to investor communications" until the WM transaction is closed.

In its quarterly earnings release, ADS reported revenue of $384 million for the three months ended March 31, 2019, versus $364.7 million in the same period in 2018. Net loss during the first quarter of 2019 was $6 million, or $0.07 per diluted share, and adjusted net income, which excludes certain gains and expenses, was $1.6 million, or $0.02 per diluted share.

"Although we announced a merger agreement with Waste Management, our operating philosophy is unchanged," said ADS CEO Richard Burke in a statement. "We remain focused on safely providing an excellent service experience for our customers, disciplined pricing that aligns with the quality service we provide and generating strong cash flow for our shareholders. Our first quarter results of price-led revenue growth, along with $72.5 million of cash generated from operations and $43.9 million of adjusted free cash flow, underscore our commitment to our strategy."

First quarter financial highlights include:

  • Revenue at $384 million, representing a 5.3 percent increase.
  • Achieved average yield of 4.1 percent.
  • Organic volume declined 0.3 percent, which included a 0.5 percent impact from one fewer workday in Q1 2019.
  • Year-over-year growth from acquisitions was 1.4 percent, as the company primarily benefited from the rollover impact of a vertically integrated acquisition in December 2018 and two new acquisitions in Q1 2019.
  • Net loss was $6 million, or $0.07 per diluted share.
  • Achieved adjusted EBITDA was $95 million, an increase of $0.9 million versus prior year levels as the company said it was able to overcome challenging wet winter weather conditions leading to a $2.5 million increase in leachate costs, the cycling of a prior year compressed natural gas tax credit of $1.8 million and a $2 million recycling headwind.
  • Cash provided by operating activities was $72.5 million during Q1 2019.
  • Adjusted free cash flow year-to-date was $43.9 million

“Consistent with the joint press release issued with Waste Management Inc. on April 15, 2019, regarding entry into a merger agreement pursuant to which a subsidiary of Waste Management will acquire all outstanding shares of Advanced Disposal for $33.15 per share in cash, we are reaffirming our 2019 revenue, adjusted EBITDA and adjusted free cash flow guidance,” said ADS in a statement. “The transaction, which was unanimously approved by the board of directors of both companies, is expected to close by the first quarter of 2020, subject to the satisfaction of customary closing conditions, including regulatory approvals and approvals by a majority of the holders of Advanced Disposal’s outstanding common shares.”

“In light of the pending transaction, we have elected to cease conducting quarterly earnings conference calls until transaction closing, although we will continue to provide a quarterly earnings release,” added ADS. “We will also enter into an extended quiet period related to investor communications and cease providing forward-looking guidance after this press release until the transaction is closed.”

During Waste Management's Q1 earnings call on April 25, President and CEO Jim Fish said WM expects to achieve more than $100 million in annual capital expenditure synergies from the acquisition. He added that the acquisition is expected to close in 2020, subject to the satisfaction of customary closing conditions, including regulatory approvals.

“We are enthusiastic about this catalyst for long-term value for our shareholders in 2020 and beyond,” said Fish during the call. “We believe we can leverage benefits of the investments we’re making in technology and people to achieve enhanced efficiency across the ADS network in the coming years. ADS has talented and dedicated employees, and we look forward to capitalizing on the strengths of both organizations.”

Waste Management Chief Financial Officer Devina Rankin added that WM is still in the early stages of determining its financial strategy for the acquisition.

“While the agreement is certainly exciting news, it’s just the first step in bringing the two companies together,” explained John Morris, WM's chief operating officer, during the call. “Over the coming months, we will assemble an integration planning team to determine how to best assemble our operations. Like our operations, the two companies’ cultures are very complementary—with a shared commitment to outstanding customer service, safety and operational excellence. We expect a smooth integration acquisition process for this acquisition. We will be ready to execute as soon as the deal closes.”

Michael E. Hoffman, managing director and group head of Diversified Industrials at Stifel, released a report noting ADS produced Q1 2019 results consistent with prior results of its three larger peers—strong price, better volumes plus some deals to offset weaker recycling and leave room to reaffirm fiscal year 2019 guidance.

“The price and volume trend would seem to put [ADS] on pace to be at the top end of its guidance despite the weaker recycling markets,” according to the report. “[ADS] will no longer provide any updates to its FY19 outlook beyond regularly reporting quarterly earnings. The next communication outside of proxy materials related to a shareholder vote on the pending merger with Waste Management should be in late July or early August.”

“While we think it is unlikely a competing bid is made for [ADS], the break-up fee alone is not sufficient to thwart an interested party, and never say never,” added Hoffman.

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