Morristown, N.J.-based Covanta Holding Corporation reported total revenue for the first quarter of 2019 was $453 million, down $5 million from the first quarter of 2018. Free cash flow for the quarter was $6 million, representing a $58 million improvement compared to the first quarter of 2018. Additionally, the company affirmed guidance for 2019 for the following key metrics:
- The guidance range for adjusted EBITDA is $440 million to $465 million for Q1 2019, compared to actual EBITDA of $457 million in 2018.
- The guidance range for free cash flow is $120 million to 145 million for Q1 2019, compared to $100 million in 2018.
"The year is off to a strong start, both operationally and strategically, and we are affirming our full-year financial outlook today," said Covanta President and CEO Stephen J. Jones in a statement. "On the strategic front, we are making steady progress in our partnership with the Green Investment Group (GIG), achieving another important milestone in Q1 with the Rookery project reaching financial close. With two of our four advanced U.K. development projects now in construction, we are well on our way toward our goal of generating $40 million to $50 million in annual free cash flow from this pipeline. Domestically, we commenced operations at the Manhattan Marine Transfer Station, continued execution of our fleet optimization program and benefited from stronger waste disposal prices and profiled waste revenue. Through these and other efforts, Covanta is becoming a more efficient and profitable company, and I am pleased with our progress and excited about the opportunities."
During an April 26 call with investors, Covanta discussed its key highlights for Q1 2019, including:
- Jones said Covanta is executing well on its 2019 plan, as the company generated $84 million of adjusted EBITDA and $6 million of free cash flow during the first quarter. Free cash flow is $6 million, compared to negative $52 million, or up $58 million, from Q1 2018.
- Covanta also announced it completed 30 percent of scheduled maintenance work in Q1.
- The company recorded a $57 million gain related to the Rookery South Energy Recovery Facility development project and a $9 million loss related to the pending divestiture of the company’s Springfield and Pittsfield, Mass., energy-from-waste (EfW) facilities. Covanta recorded a $204 million gain on the sale of 50 percent of its Dublin, Ireland, project to its joint venture with GIG and a $6 million gain on the sale of its remaining interests in China.
- The company reported that its waste business is strong: EfW tip fee prices are up more than 5 percent in Q1 on same-store basis. EfW profiled waste revenue is up 9 percent in Q1. Manhattan Marine Transfer Station began operations in March, and the company extended the Babylon, N.Y., relationship with a new 15-year agreement. “While we do not expect to be at 5 percent every quarter, we still expect to see full-year, same-store tip fee price improvements of more than 3 percent,” explained Jones.
- Optimizing its North America portfolio, Covanta closed its Warren County, N.J., facility and reached an agreement to divest Springfield and Pittsfield facilities. “We are focused on optimizing our fleet by exploring alternative options for some of our less profitable plants,” explained Jones. “The desired outcome in these situations is to make meaningful changes to improve profitability or unlock upside opportunities. However, in some cases, the right answer is to redeploy our resources and capital elsewhere. This quarter, we closed the Warren County, N.J., facility as previously announced and reached an agreement to divest in Springfield and Pittsfield assets. While all three plants were well run, they suffered from relatively small sizes, and we saw limited opportunities for improved economics under our ownership. We are pleased to have found a new owner for Pittsfield and Springfield who will focus solely on their operations and will continue to support the local communities. We expect this transaction to close in the second quarter. Given the small size and financial contributions of these three facilities, this will not have an impact on our overall material expectations for the year. But going forward, we believe this will reduce the risk in our portfolio and allow management to sharpen its focus on more profitable opportunities. A few underperforming plants remain in our fleet, and we will continue to look at all options to improve their performance or exit operations.”
- Covanta also reached financial close on its Rookery project in the U.K. Full-scale construction is underway, targeting commercial operations in 2022. Covanta monetized $44 million upfront, and approximately half of targeted $40 million to $50 million free cash flow from announced U.K. pipeline is now in construction.
“I am very pleased to note that alongside our partners Green Investment Group and Veolia, we reached financial close on the Rookery project late last month,” noted Jones. “It is the biggest of the four projects we have announced so far, and we expect to process around 545,000 metric tons of waste annually.”
“With financial close behind us, we are in full-scale construction,” he added. “Construction is anticipated to take about three years and puts commercial operations in 2022. Once operational, Covanta will be the operator of the plant under a long-term arrangement, while Veolia will supply the majority of the waste. The ownership split is as previously discussed with Covanta and GIG each owning 40 percent of the project and Veolia owning the remaining 20 percent. One of the many benefits with our partnership with GIG is the ability for the original developer to partially monetize their investment by financial close.”