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Covanta Holding’s (CVA) Steve Jones on Q1 2016 Results – Earnings Call Transcript

Covanta Holding Corporation (NYSE: CVA ) Q1 2016 Earnings Conference Call April 27, 2016 8:30 AM ET Executives Alan Katz – Vice President-Investor Relations Steve Jones – President and Chief Executive Officer Brad Helgeson – Chief Financial Officer and Executive Vice President Analysts Tyler Brown – Raymond James Andrew Buscaglia – Credit Suisse Noah Kaye – Oppenheimer & Company Michael Hoffman – Stifel Scott Levine – Imperial Capital Dan Mannes – Avondale Partners Operator Good morning, everyone, and welcome to the Covanta Holding Corporation’s First Quarter 2016 Financial Results Conference Call and Webcast. This call is being taped and a replay will be available to listen to later this morning. For the replay, please call 877-344-7529 and use the replay conference ID number of 10084165. The webcast as well as the transcript will also be archived on www.covanta.com. At this time for opening remarks and introductions, I would like to turn the call over to Alan Katz, Covanta’s Vice President of Investor Relations, sir? Alan Katz Thank you and good morning. Welcome to Covanta’s first quarter 2016 conference call. Joining me on the call today will be Steve Jones, our President and CEO; and Brad Helgeson, our CFO. We will provide an operational and business update, review our financial results and then take your questions. During their prepared remarks, Steve and Brad will be referencing certain slides that we prepared to supplement the audio portion of this call. Those slides can be accessed now or after the call on the Investor Relations section of our website, www.covanta.com. These prepared remarks should be listened to in conjunction with these slides. Now on to the Safe Harbor and other preliminary notes. The following discussion may contain forward-looking statements and our actual results may differ materially from those expectations. Information regarding factors that could cause such differences can be found in the Company’s reports and registration statements filed with the SEC. The content of this conference call contains time-sensitive information that is only accurate as of the date of this live broadcast, April 27, 2016. We do not assume any obligation to update our forward-looking information unless required by law. Any redistribution, retransmission or rebroadcast of this call in any form without the express written consent of Covanta is prohibited. The information presented includes non-GAAP financial measures. Because these measures are not calculated in accordance with GAAP, they should not be considered in isolation from our financial statements, which have been prepared in accordance with GAAP. For more information regarding definitions of our non-GAAP measures and how we use them as well as the limitations as to their usefulness for comparative purposes, please see our press release, which was issued last night and was furnished to the SEC on Form 8-K. With that, I’d like to turn the call over to our President and CEO, Steve Jones. Steve? Steve Jones Thanks, Alan, and good morning everyone. For those of you using the web deck, please turn to Slide 3. We’ve had a good start to the year and we’re marking great progress on our key initiatives. In terms of financial results, Q1 adjusted EBITDA was $76 million, a decline of $3 million from Q1 2015, and free cash flow was a negative $5 million lower by $21 million. The decline in adjusted EBITDA was driven largely by the impact of lower year-over-year commodity prices, approvals for variable incentive compensation and lower energy revenues from our biomass facilities, partially offset by the positive impact of growth in our environmental solutions business. Free cash flow was impacted by these same factors as well as by higher maintenance CapEx as a result of increased scheduled maintenance activity in the quarter. Given the lower year-over-year power prices in 2016, note that we did more maintenance this year than last year. Our financial results were in line with expectations as of our last call and in last night’s press release we affirmed our guidance for 2016. In terms of our strategic initiatives, we continue to grow our environmental solutions business with another quarter of record revenue. We also acquired another small material handling facility in Augusta, Georgia earlier this month. This will support the profile waste programs at our Energy-from-Waste facilities in Florida, Alabama, and Virginia. We completed the first step in our China asset swap in sale and are now going through the process to complete this transaction, which is the sale of equity of CITIC. We still expect to complete this process by the end of this quarter. Our continuous improvement initiative is going well and we have uncovered a number of opportunities across the business. I continue to be impressed with the size of the projects that we’re working on in this area. We had a strong quarter operationally with boiler availability, energy production and metal recovery right on target. We’re also in the final weeks of our heaviest maintenance period of the year, and overall things are going very well. Now let’s move on to the markets and operations. I’ll start with the waste business. Please turn to Slide 4. Our North American Energy-from-Waste same-store volume was flat while pricing was higher by $6 million versus Q1 2015. This was driven primarily by the impact of profile waste. In March, we completed a full-year of service at the Queen’s MTS taking waste deliveries to our Niagara and Delaware Valley facilities via rail. This contract is going well and we continue to displace lower priced spot waste with New York City waste in these markets as the city ramps up volumes. Looking at our Covanta Environmental Solutions business, EfW profiled waste grew 16% this quarter compared with Q1 2015. We completed two acquisitions so far in 2016. And the integration in the materials handling facilities and services businesses that we acquired in 2015 has gone well in terms of both cost synergies and sales force integration. Now let’s move on to energy. Please turn to Slide 5. As many of you have likely seen, the power markets, particularly in the Northeast, we’re under significant pressure in the first quarter given the mild winter and low gas prices. Average market pricing for the quarter was $28 per megawatt hour. However, our full-year expectation is that the portfolio will likely still be around $50 per megawatt hour. Production was in line with expectations and there have been no changes to our outlook for the full year. We did hedge a bit more for this year and for 2017 as you can see in our energy portfolio detail on Slide 16. I’ll note that, as expected, earlier this month we shutdown all of our biomass facilities and don’t anticipate any additional biomass revenues for the remainder of the year. We’ll have some minimal carrying costs moving forward, which we included in our guidance. Note that we continue to look at options for these assets. Let’s spend a few minutes on the metals business. I’m now on Slide 6. Market pricing continued to have a significant impact on metals revenue year-over-year. The average price for the HMS number 1 Index was $158 per ton in Q1 versus $255 per ton in the same quarter last year. However, we’re starting to see some positive movements with recent HMS Index prices coming in above $200 per ton. Given the recent move in the markets, we now expect our average revenue per ton for ferrous to be between $80 and $90 for the full year. In terms of volumes, ferrous volumes increased by 9% this quarter as a result of new recovery systems that we installed in 2015. The impact of our Fairless Hills facility and more metal in the waste stream, which we believe was driven by lower market prices. This increase is after the effect of the cleaning process at Fairless, which reduces volume. Non-ferrous volume increased by 6% versus Q1 2015, also driven primarily by investments made to increase recovery at certain facilities, so overall metals volumes have been very good. Forward prices for – of recycled aluminum are holding steady and our outlook for the full year non-ferrous price is unchanged at approximately $600 per ton. While we’re still a ways off from historical averages, it’s encouraging to see some price support in the ferrous market. Now let’s move on to operating expense and CapEx. Please turn to slide seven. Total EfW maintenance spend in the quarter, including both expense and CapEx, was up 19% versus Q1 2015. As I mentioned, this increase was primarily the result of a relatively lighter outage scope in Q1 last year in an effort to capture higher power prices. Our outlook for the full year Energy-from-Waste maintenance spend is unchanged at $350 million to $370 million. We completed about a third of our total expected maintenance spend in Q1 and will complete another 30% in Q2, very much on track in terms of – we’re very much on track in terms of our full year maintenance spend. North American Energy-from-Waste other plant operations expenses were down 1% on a same-store basis this quarter compared with Q1 2015 primarily due to cost savings from our continuous improvement initiatives. We’ve been reducing the amount of fuel and other chemicals used in our processes and this has had a favorable impact on costs. This is a classic example of continuous improvement productivity. I’ll wrap up with some thoughts on our business outlook for the rest of this year and beyond. Our core business is running extremely well. While the commodity markets continue to be volatile, we’re focusing on things that we can control. We’re generating record revenue on profiled waste and continuing to build out our environmental solutions platform. Our continued improvement effort is moving ahead nicely. In terms of growth projects Dublin is coming along very well with construction approximately 60% complete. We’re currently installing the stoker, boiler and air pollution control equipment. We still expect to have first fire by this time next year and are on track for commercial operations by the fourth quarter of 2017. We also continued to look for other growth opportunities, both here in the U.S. and abroad. One of these, Perth, which we discussed a bit at our analyst day, is still in the development stage. We’re looking closely at the cost of construction and the contracts, and should come to a conclusion on whether we want to move ahead with this project in the next several months. There are a number of other opportunities that are in the pipeline for expansions, new builds and growth within the Environmental Solutions business. We’re off to a great start for the year and I continue to be excited about the avenues for growth that I see for this business. With that, I turn the call over to Brad to discuss the first quarter results in more detail. Brad Helgeson Thanks, Steve. Good morning, everyone. I’ll begin my review of our first quarter 2016 financial performance with revenue on slide nine. Revenue was $403 million, up $20 million versus Q1 2015. North America Energy-from-Waste revenue declined $5 million year-over-year on a same-store basis. Within that amount waste and service revenue increased by $5 million, with higher average revenue per ton driven by the continued growth of profiled waste volume, as well as contractual escalation. Energy revenue declined by $3 million and recycled metal revenue declined by $7 million, both driven by lower year-over-year market prices. North America EfW contract transitions were a net positive $3 million year-over-year, with two months of benefit from our Fairfax facility, now operating under a Tip Fee contract structure, partially offset by lower debt service revenue. Outside of North America EfW operations, the Environmental Solutions business was up $16 million primarily as a result of the acquisitions that we completed in 2015. All other operations netted to a $6 million increase, with higher year-over-year service fee revenue from the New York City MTS Contract, partially offset by lower biomass revenue. As Steve mentioned, we’re no lower operating any of the biomass facilities given the economics in the current energy price environment. Moving on to slide 10, adjusted EBITDA was $76 million in Q1 2016, compared to $79 million in Q1 2015. The year-over-year decline was driven by lower energy and recycled metal prices in the North America EfW portfolio, which reduced adjusted EBITDA by $10 million on a same-store basis. Contract transitions added $1 million to adjusted EBITDA in the quarter, with the Fairfax transition partially offset by lower debt service revenue. New business, including the New York City MTS contract, which commenced towards the end of the first quarter last year and acquisitions in the Environmental Solutions business, together added $8 million to adjusted EBITDA in the quarter. The other significant impact in the quarter when compared to the prior year was the relatively heavier scheduled maintenance outage calendar, which Steve discussed. Turning to slide 11, free cash flow was negative $5 million in the first quarter, compared to positive $16 million in the prior year. This was driven by the operational factors that impacted adjusted EBITDA in the quarter totaling $3 million, higher maintenance CapEx of $10 million year-over-year and higher cash payments for interest and taxes totaling $5 million. Cash flow from working capital was similar to the same period in 2015. The first quarter is often a seasonal low point for cash flow and free cash flow can sometimes be negative in a given quarter depending on maintenance activity, as we had this quarter, or working capital movements, as we’ve seen in the past. In any event, these are seasonal and timing factors and therefore nothing should be extrapolated from this for our full year outlook. Our expectations for full year free cash flow are unchanged as we affirmed in yesterday’s press release. Our growth investment outlook, which is detailed on slide 12, is unchanged for the year. We invested $14 million in organic growth projects in the first quarter primarily related to metal recovery systems and some investments in new equipment for the Environmental Solutions business. Investments in the infrastructure to support the New York City MTS contract and in the emissions control system at the Essex County facility are on track, as expected, as well as our Dublin spend this quarter. As Steve mentioned, the Dublin facility construction is progressing well. Turning to slide 13, I’ll quickly touch on our balance sheet and leverage ratios. Net debt increased in Q1 to $2.4 billion, versus $2.3 billion at the end of 2015, resulting from further drawdown of the Dublin facility project debt and seasonal revolver borrowings. The net-debt-to-adjusted-EBITDA ratio for Q1 was 5.7 times. As I’ve discussed in the past, we expect leverage to remain elevated until we begin to realize contribution from the Dublin project, after which we expect leverage to trend lower, as we seek to return to our long-term target of approximately four times. The calculation of the leverage ratio covenant under our senior secured credit facility was 3.1 times at March 31, versus the covenant limit of four times. Remember this ratio isn’t impacted by the increased leverage from Dublin as that non-recourse debt is excluded from the calculation during facility construction. So even though our consolidated metrics are elevated for the time being, we remain well within our debt covenants as we move through this period in our investment cycle. In conclusion, I’ll quickly reiterate the theme of Steve’s commentary. 2016 is off to a very strong start in the execution of our strategic, operating and financial objectives for this year and beyond. And with that, let’s open up the line for questions. Question-and-Answer Session Operator Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Tyler Brown of Raymond James. Please go ahead. Tyler Brown Hey. Good morning, guys. Nice start to the year. Steve Jones Thanks, Tyler. Tyler Brown Hey, Steve, so we’ve been working on continuous improvement now for the better part of a year. You guys have added some talent there to really drive the cadence. It sounds like you’ve been successful, but can you guys talk a little bit about what types of projects are in that opportunity stack? Secondly, maybe are those initiatives here in the beginning targeted at the Tip Fee fleet? And three, do you still believe that there’s annually maybe $10 million to $15 million of annual cost saves out there over the next couple of years? Steve Jones Yes. Sure, Tyler. We’re working on a number of different projects. I’d say the four biggest buckets are really around outage optimization because when you spend $350 million to $370 million a year on outages, I think there’s efficiency that can occur there. Stable operations, which is you’ve probably heard me talk about this before. This is basically having your best – it’s as if you had your best operator on your control board every minute of the day, and so we’re working on that. We’re looking at reagent optimization, which is really kind of the chemicals that we use in the plant, and then lastly, boiler fouling. All of those buckets are much higher benefits than I’ve been used to in the past. So, since we’re in early stages of continuous improvement, the returns are kind of bigger buckets of savings at this point. And it’s like some of these like stable ops, the savings in 2016, we’re looking at upwards to $1 million of savings in 2016, for example. And so we have about seven or eight people on the team right now. Some of those – most of those have black – folks are black-belt qualified already. And as we’re projecting out through 2016, we’re still seeing that $10 million to $15 million benefit rolling through the P&L. So things are go – been going very well from that perspective. It’s still early on realize that when you start these programs there’s a lot of data gathering and work that needs to be done. So I’d still say it’s early in the process, even though I’ve been talking about it for about a year. It’s still relatively early in the process, but I am very encouraged by the size of the projects that we’re uncovering. Tyler Brown Okay. Yes. Brad Helgeson Tyler. Tyler Brown Yes. Brad Helgeson Sorry. Just to answer I think one other part of your question. The focus here, certainly initially, is on the larger Tip Fee facilities. Steve Jones Yes. Good point. Brad Helgeson You’re right about that. Tyler Brown Okay, okay, great color. And then, Brad – excuse me – from a modelling – for modelling purposes, so as biomass completely shuts down in China, kind of eventually goes away, will the total plant operating expense X maintenance, will that actually decline sequentially, calling into a new baseline into Q2 or Q3? Brad Helgeson It should. Yes. Tyler Brown Okay. Brad Helgeson Yes. And that’s all – that’s all being equal. Yes. Tyler Brown Yes. Okay, perfect. And then just lastly under the current kind of knee-pool environment, can you guys talk even at a high level, about how we should be thinking about PPA expirations in 2017? And maybe what that looks like from an EBITDA headwind? Brad Helgeson Yes. I mean based on the forward prices that we observe in the market today up there, we’d expect a pretty meaningful hit to us. In 2017, as we’ve talked about in the past, we’re still a little bit away from it, but we’re probably in the $20 million to $25 million EBITDA impact next year. Tyler Brown Okay. All right. Perfect. Thank you very much. Operator And our next question comes from Andrew Buscaglia of Credit Suisse. Please go ahead. Andrew Buscaglia Hey, guys. Thanks for taking my question. Steve Jones Hey, Andrew. Andrew Buscaglia Can you touch on – you had some interesting commentary. It sounds like profiled waste in your Environmental Solutions group. Group is really starting to gain some traction. Can you talk a little bit about your expectations this year for further M&A growth on that side of things? And where you see that shaking up for the full year? Steve Jones Yes. So I mean, I’m really pleased with this business. It’s been growing well. You heard the profiled waste going into the Energy-from-Waste facilities is up 16% kind of year-on-year. That continues to be really nice growth. The Tip Fees in this area are better than municipal solid waste. We’ve talked about that before. You can get two times or three times higher Tip Fees, so we’ll continue to focus on this area. As we – as M&A going forward, we’re still looking for opportunities. With other calls on our capital and the fact that commodity pricing is low, we’re being careful on how we put our capital to use. But if we can find good opportunities that have the returns similar to the returns we’ve been getting on the assets we’ve already bought the businesses, we’ve already bought, we’ll certainly look at those. And quite frankly, one of the things, we grew quicker than I’d anticipated. Brad and I both have said, if you’d asked us a year-and-a-half ago, would we have had this many acquisitions so far. We wouldn’t have said this number. So one of the things I’ve really asked the team to look at is, let’s focus on integration as we go through 2016, and make sure that we’re getting all the benefits we can out of the assets that we – and the businesses that we’ve already bought. But we’re still looking in the market, to answer your question. Andrew Buscaglia Okay. Yes, that’s helpful. And then if you could just touch on the impairment charge in the quarter. You didn’t mention it, I don’t think in the prepared remarks, but are there any other things like that out there that you’re looking at that we could see in the future? Is there anything else that you’d like to talk about at this time? Steve Jones Well, if you look at – and – if you look at the impairment charge, it was related to an Energy-from-Waste facility where we basically have told the customer that we triggered a termination right. I don’t see a lot of those out there. In this particular case we really weren’t making that much money for the operating work that we’ve been doing. And one of the things I’ve been telling the team here is I’m not really worried about size. So having a certain number of Energy-from-Waste facilities isn’t important to me. It’s really about whether we’re getting paid for the work that we do. And I think in this case we, as a team, looked at this and said, we’re really not getting the kind of returns on the work that we’re doing there. So we triggered that termination right and then took the – and then the impairment occurred. So again, I don’t – there’s not a lot of those out there, but you’ll see us being kind of more rigorous as time goes on about whether we’re getting the right margins on the efforts that we put out there. Andrew Buscaglia All right. Thanks, guys. Steve Jones Sure. Operator And our next question comes from Noah Kaye of Oppenheimer & Company. Please go ahead. Noah Kaye Good morning. Maybe we can start with the pipeline of project opportunities. You mentioned Perth this morning and you talked about other projects in Australia before, China saying they’re going to build 300 new waste energy plants in the next several years, EU’s circular economy package and many member states having to move away from landfilling, it just seems like there’s a more supportive environment internationally at this point for waste energy facilities. And so I was wondering if, kind of in light of that, you could talk about maybe how you see the pipeline and the set of opportunities now versus a year or so ago? Steve Jones Yes. It’s interesting, there are some expansions in the U.S. and we’ve talked a little bit about those, there’s a couple of expansions around. But you’re right, Noah, the regulatory support and climate for energy from waste outside the U.S. is better than inside the U.S., and so there’s opportunities – I think at our Investor Day we talked about we like to do kind of a new plan every other year. We’re trying to get the pipeline filled from that perspective so we have Durham-York this year, Dublin next year, and then we’re looking at is Perth, we able to do Perth at returns that we think are reasonable based on the risk associated with the project. We’re going to be continuing to look at Australia. I mentioned China. The 13th five-year plan which came out a month or so ago was very supportive energy from waste, so there’s a number of opportunities there. We’ll look at the EU obviously, putting Dublin in the ground gives us a nice bulkhead to do other things in the EU. So we’re working on a number of projects. I’m a little reluctant to do project development in the public domain for competitive reason. So let’s assure we’ve got a lot going on. And I think in the past we were working a little bit, and maybe focused a little bit more on the kind of the transitions that were occurring in the U.S. Most of those were behind us so I think the team did a nice job here getting those transitions behind us and the mark-to-market behind us. So now we’re able to focus a little bit more on business development and growth. And you see that in energy from waste facilities, you’re also seeing that in the profile waste business. Noah Kaye Okay. Very helpful. And then maybe just a follow-up question for me on the profiled waste, again, really nice growth, 16% as you said year-over-year. Steve Jones Yes. Noah Kaye And it seems like more of the waste that you’re getting in that is really being driven by sustainability concerns from corporate participants. I was wondering if you could talk about that trend, maybe how you’re seeing the mix of profiled waste shift a little bit and some of the initiatives that you have to kind of keep that growing. Thanks. Steve Jones Yes. Sure. I’ve talked about this in the past. You’re seeing a lot of companies now want to go to zero waste to landfill. And then I mentioned even New York City, the mayor there has mentioned that. So that’s tending to drive the profiled waste business as companies try to meet their sustainability goals and zero waste to landfill goals. They’re coming to companies like Covanta in order to get a sustainable solution for their waste. And that’s continuing to grow. One of the things we’ve done around that is we’re building that business out. You’ve seen the growth associated with that. We’re adding sales people. We’ve got a much greater focus on that marketplace now. And we’re also working with our plant operations folks to be able to take that waste safely and reliably into our Energy-from-Waste facility. So there’s a lot of work underway. But a few years back, we saw this as a trend that’s occurring with corporations. And that’s what’s driving the U.S. really. It’s not government’s driving the U.S. in Energy-from-Waste, it’s corporations who want to not utilize landfills because, and you’ve heard me say this, putting your waste in landfills is not a great alternative. It creates a lot of greenhouse gas, a large greenhouse gas impact. And I think companies are really starting to embrace that and that’s driving the business. Noah Kaye Okay. Thanks so much. Appreciate it. Steve Jones Thanks, Noah. Operator And our next question comes from Michael Hoffman of Stifel. Please go ahead. Michael Hoffman Thank you, Steve and Brad, for taking my questions. Steve Jones Sure, Michael. Michael Hoffman On gross margins, you’ve had a mix shift because of profiled waste were mostly from energy solutions and contract revisions that have had the margins coming down. At what point do we see the benefit of six sigma, the mix shift having stabilized and this margin compression arrests? How do you see that time wise? Brad Helgeson Yes. It’s – hey, Michael. It’s Brad. Michael Hoffman Hi, Brad. Brad Helgeson It’s a difficult question to answer with precision just because there are a number of variables in play. So one of the variables being the rate at which we continue to add revenue that is service type revenue in the environmental solutions business. Commodity prices obviously impact that significantly. Commodity prices are come with 100% margin either for better or worse. Continuous improvement, we talked about a benefit which we baked into our guidance for this year of $10 million total between revenue and costs, though that’s likely to be more weighted towards cost and that’s something that we would expect to continue to grow over time. Certainly that’s our goal. But it’s something that’s very difficult to pinpoint that given all of those variables, that by the fourth quarter this year or second quarter of next year you’ll be able to really see continuous improvements specifically driving the margin from X to Y. Michael Hoffman Okay. I get all that. But you’re the quintessential modeler. You love doing this. So in your mind, when do you think you – if all things being equal, we live with the conditions you have for pricing in your metals, electricity, the mix you have today, this is a – the margin issue settles out here in this next 12 months? Steve Jones It’s another big factor actually, as I answered that question, that when you think about the consolidated total that will come into play later next year is of course the Dublin project… Michael Hoffman Dublin? Steve Jones Yes, which comes in at a very, very high margin, so that’ll be a significant mix shift. So you throw all that in the pot and stir it around, I would say that by the end of next year and certainly into 2018, you’re going to see a much different margin profile. Michael Hoffman Okay. So talked about capital and capital deployment. How would you frame the return characteristics of profiled waste spending and environmental solutions spending at this point in the cycle of that, the growth of those business? Brad Helgeson Yes. We look at whether we’re buying a $500,000 shredder in one of our new environmental solutions facilities or we’re investing in a new Energy-from-Waste facility. We look at the return in the same way, everything sort of needs to stack up to the same benchmarks. And so on that basis, we’re seeing the investments, both in the acquisitions. And then especially to the extent that there are opportunities for add on more organic growth-type investments into the businesses that we acquire, we’re looking at returns, cash-on-cash, IRR on the assets of low to mid-teens. And those – it’s still relatively early days. I want to give it that caveat. But I would say that the early returns are certainly favorable to our initial expectations in our models when we justified the investments. Michael Hoffman Okay. Thank you on that. And then on capital spending $86 million what’s in the cash flow statement on Page 7 of our PowerPoint. It’s – $36 million is maintenance. You get to Page 12, it talks about the growth. It shows $59 million, but if you do $36 million out of $86 million, that’s $50 million. So how do I reconcile what my modeling for that growth spending from a cash standpoint? Brad Helgeson Yes maybe rather than getting into it here, why don’t we – let’s take that offline and make sure we get the reconciliation exactly the way you want to look at it. Michael Hoffman Okay, great. Thank you very much. Brad Helgeson Thank you. Steve Jones Thanks, Michael. Operator And our next question comes from Scott Levine of Imperial Capital. Please go ahead. Scott Levine Hey. Good morning, guys. Steve Jones Good morning, Scott. Brad Helgeson Good morning. Scott Levine Just running through the various assumptions for 2016 guidance and comparing them to what you had in your slides for the fourth quarter. It looks like, obviously, you’re raising the metals assumption for revenue by $5 million give or take. It looks like you’re leaving the energy revenue or the revenue assumptions and the pricing intact. Just wondering whether based on the 1Q results coming in relative to your expectations if we should be moving upwards in the range or whether there are some offsets that we should be taking into consideration? Just trying to – it’s pretty wide guidance expanse. Just trying to get your, some additional color behind where we should be favoring within the range, if you can provide it. Steve Jones Yes, on energy we’re slightly negative to where we were when we looked at the forward prices when we gave guidance. And that’s reflected in the updated. We didn’t update the overall ranges because the change isn’t, I think, significant enough to justify changing the range. But you can see that in our expectation for a lower market price. And also actual lower average hedge price for the balance of 2016. So I’d say prices overall have weakened by on the order of a few million dollars relative to where we were. But again, it’s still well within the range that we talked about. So not worth changing the outlook. Scott Levine Fair enough. Go ahead. Brad Helgeson I would just say that there’s the offsetting factor on the metals side of things. We did tweak the range there as well. And the two pretty much offset each other. Scott Levine And given where you’ve come in for Q1, should we, and the fact that you’re pulling forward some of the planned maintenance, any changes in seasonality we should expect for the second quarter or maybe as the year progresses, based on the way Q1 came in or not meaningful as well. Brad Helgeson Yes, not meaningfully. And when I say not meaningfully, I mean to put it in perspective, if we talk about a percentage one way or the other of our spend, on maintenance, it’s $4 million that could come right before a quarter end or after a quarter end. So there is going to be just natural variability. And I think our outlook for the first half is going to be consistent, generally consistent with history which has been 60% to 65% of our maintenance spend, both expense and capital in the first half. As Steve talked about and as you’ve seen in the numbers. Relative to last year, we had a little bit more of that in the first quarter, so we’ll have a little bit less probably in the second quarter. But again it’s really the – it’s the first half versus the second half that’s really what drives it. And again we’ll be in that 60% to 65% range. Scott Levine Gotcha. One last one, if I may, on environmental and profiled waste. Firstly, would you be willing to share, I don’t know if you shared, how large is the profiled waste business in terms of revenue at this point? Brad Helgeson Yes, we did about $80 million last year and we are targeting to do – and this is just profiled waste in the energy – into the Energy-from-Waste plants. We’re targeting to do close to $100 million this year, so about a 15% year-over-year increase. Scott Levine Got it. And then the acquisitions sheaf and then the latest purchase from U.S. Ecology, could you quantify the revenue earnings associated with that are they relatively small or any additional color there? Brad Helgeson Yes, they’re so small. I mean we haven’t talked about the individual contribution of any of these acquisitions. And these together were less than $10 million purchase price. I would say that the multiple that we have talked about that we’re achieving on these at least going into the investment of about seven times. I would say that’s a fair assumption on these as well. Scott Levine Very good. Thanks, Brad. Operator And our next question comes from Dan Mannes of Avondale Partners. Please go ahead. Dan Mannes Thanks. Morning, everyone. Brad Helgeson Morning, Dan. Steve Jones Good morning, Dan. Dan Mannes First a follow-up on guidance, kind of to follow-up on Scott’s question, maybe more on the metals side given that current HMS prices is above your annual rate, are you maybe being conservative in terms of maybe some slippage in pricing? I don’t know if you can talk through what you’ve baked into your guidance relative to where we are on spot HMS? Steve Jones So the HMS, when it printed, was it about 183, and then it’s trailed up from there. We’re watching, we don’t have a lot of visibility to far out. I mean you guys can look at the same numbers we can. There has been seasonality in the past, so the first quarters tended to be a little stronger. So we changed from 125 to 150 up to 150 to 175 as our estimate for the full-year. And we’ll kind of watch that as time goes on. And obviously it commences higher than that right now. And if the seasonality doesn’t occur, then yes, I think the numbers move up. But we don’t have a lot of visibility on where it’s going to head at this point. Dan Mannes Got it. And I know you obviously your whip solved [ph] there last year. So… Steve Jones Yes, exactly. Dan Mannes So the second thing is on New York City. Number one, is the initial MTS, is that – are you at the full run rate in the first quarter? Is there still a ramp? And secondly, could you give us any update on the Manhattan MTS? Steve Jones Yes, so 14 out of 15 boroughs are delivering waste now to the MTS and but we’re getting paid our full fee. So from an economics standpoint consider us fully ramped although the city is still doing some things around one of the burrows. And then on the Manhattan you know we’re still expecting probably late 2017, early 2018 is the current expectation. So not a lot has changed there, we still haven’t got our notice to, our kick off notice at this point, so we’re kind of watching the construction. You obviously can drive by the city is continuing to build that Manhattan MTS so it’s moving along. Dan Mannes Got it. And then my last question and this is a follow-up on a previous question about the impairment. When I look at the assets that you’ve generally repaired or shut down they’ve tended to be on the smaller side, 300 tons, 400 tons, 500 tons per day. I guess, obviously, is there – we know there’s a lot of economics of scale in waste to energy, but how much of this relates to the increased cost of running older facilities? And is there a risk that over time we’re going to see that threshold number move up from say 400 tons per day to 1,000 tons per day and maybe over time a larger number of your plants are at risk or am I maybe misreading this issue a little bit? Steve Jones I think you’re misreading a little bit. This is a smaller plant. We’re getting paid to operate the plant. We just weren’t making a lot of money on it and most of our, realize this too, most of our EBITDA comes from our top 15 or so plants. So some of these smaller plants they give us certain scale for procurement reasons and doing maintenance and it costs bigger fleet but they don’t have a impact on our financial results. Dan Mannes Understood. Thank you very much. Steve Jones Sure. Operator And this concludes our question-and-answer session. I’d like to turn the call back over to Mr. Jones for any closing remarks. Steve Jones Well, great. Thanks again for everyone participating in the discussion today. It’s always a pleasure to talk about the business and we look forward to speaking with all of you next quarter. So thanks again and have a great day. Operator And thank you, sir. Today’s conference has now concluded and we thank you all for attending today’s presentation. You may now disconnect your lines and have a wonderful day. 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Which Way Are Stock Prices Headed? And When? Who Can Tell?

Summary There are folks who know, but they don’t talk. There are lots of other folks who talk, but they don’t know. When spokespeople for the ones that do know do talk, they say it can’t be done. The talkers try to ignore them. Many of the listeners believe the spokesfolk while the non-talkers continue to capture obscene annual payoffs, and retire luxuriously in their 30s. Right! It’s Market-Makers [MMs] who are the subject of attention here How do we know? We have been monitoring how they play the game, daily for the last 15+ years, and a lot earlier. We learned that they have to put their own (the firm’s) money at risk temporarily, and they know how to hedge (transfer) that risk to other MM speculators willing to fade the bet – for a price. And then the MMs get their clients to pay for the risk protection. Sweet deal, huh? If you had it, would you talk? Or be generous with the clients you are “helping”? So what does our “monitoring” tell us? It tells, on a stock-by-stock (or ETF) basis, just how far up in price and how far down in price they think the subject security is likely to travel over the next few weeks or months. And how do they know? By the “order flow” in volume transactions (blocks) from their big-$ clients. Clients they talk to (over dedicated phone lines) dozens of times a day. Like they have for years. In that time, they come to know how the client thinks, and how he tries to hide what he really intends to do, and then does it. The perspective MMs have, of who’s buying and who’s selling, by how much, and how urgently, is augmented by the MMs’ own decades-old, world-wide, 24×7 information-gathering systems and communications networks. Fed into their analytical and evaluative staffs, where every street newbie MBA grad wants to get a job. Like it or not, the MMs are among the best-informed players in the game. They have to be. If they weren’t, their clients would rape them in any transaction they could. (It’s an earned response). Can we prove it? Years ago, we determined how to translate MMs’ hedging actions into explicit forecast price ranges. Then, we created a simplistic measure, the Range Index, whose numeric value is the percentage of the whole forecast range that is between the bottom of the forecast range and the then current market quote. To prove the RI’s usefulness, we looked at over 2,000 stocks and ETFs during the prior 4-5 years daily and measured how much each one’s price had changed from the date of the forecast week by week cumulatively over the next 16 weeks. Figure 1 shows the result, with changes measured in CAGRs: Figure 1 (click to enlarge) The average of these 2,959,450 individual measurements is shown in the blue mid-row. Stepping away from that overall average row progressively to the cheaper side in the row above are the 1.7 million instances of all RIs less than 33, where at least twice as much upside RWD is indicated than is expected in downside RSK. Got the picture? The cheapest opportunities in the top 100: 1 row are paralleled by the most hazardous forecasts of the bottom 1 :100 row. The data speaks for itself. In the aggregate of individual instances, MMs have a compelling understanding of when there is trouble ahead, and instead, when near-term an opportunity calls. Trouble seems to last longer for stocks than opportunity. Well, if they can do so well pervasively for that many stocks, shouldn’t they be able to tell where and when the whole market is headed? They could if stocks were lemmings and they all ran in the same herd at all times. But they only do that at infrequent times. That’s when market moves become apparent. To illustrate the problem, Figure 2 uses the Figure 1 analysis on the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) by itself as the subject in the same period. (A period “chosen” by happenstance because Figure 1’s large amount of work was already “on the shelf” and was recent). Figure 2 (click to enlarge) Interestingly, SPY’s average (blue row) annual growth in price during these 4-5 years was double that of the larger population, which contains other-than big-cap institutional favorites. The small sample sizes of above-average SPY RIs (the lower #BUYS column) severely penalize their reliability or usefulness. But little divergence from SPY’s average CAGR is seen in its below-average, more attractive Range Indexes. While 2% to 4% gains above market averages seem to titillate academics, most real motivated investors tend to aim considerably higher before putting personal capital at risk. When is price volatility not risk? Answer: When it is opportunity. When what is coming is a big price move to the upside in something you own or could own. When not a big move to the downside. Knowing “when” is what makes the difference. Since the prevailing investment mythology propounded by those spokesfolk is that it can’t be done, and since much of the investing public and most of the media has neither the time, experience, nor the inclination to figure out how to do otherwise, it gets believed. That way the public doesn’t get in the way of the market pros. Obviously, stocks or ETFs with big price volatility from time to time offer big payoffs. That makes them attractive targets to identify their good “whens” from the bad ones. The trick is to find those subject securities that have the combination of big positive payoffs identified in advance frequently. And identified successfully far more often than being deceived; more and bigger winners than losers. We can use the kind of comparisons between MM Range Index forecasts and subsequent market price changes of Figures 1 and 2 to screen candidates for this approach. Three prospects present themselves quickly out of over a hundred eligibles. Here are their price performance comparison credentials: Figure 3 (click to enlarge) Figure 4 (click to enlarge) Figure 5 (click to enlarge) All three of these securities have price trend growth rates of +30% annually. But more importantly, the way the MM community hedges when they are being actively traded in volume tells of likely upcoming price moves at past average rates more than double their admirable trend growth. The magenta numbers in the #BUYS column identify the current level of Range Index for each. The bold white data signify result cells of the table that are significantly different from the value in that column of the blue average row. These are not all exotic operations. Indeed, Tempur Sealy International, Inc. (NYSE: TPX ) is a sleeper: Tempur Sealy International, Inc., together with its subsidiaries, develops, manufactures, markets, and distributes bedding products worldwide. It operates through two segments, North America and International. The company provides mattresses, foundations, and adjustable bases, as well as other products comprising pillows and other accessories. It offers its products under the TEMPUR, Tempur-Pedic, Sealy, Sealy Posturepedic, Optimum, and Stearns & Foster brand names. The company sells its products through furniture and bedding retailers, department stores, specialty retailers, and warehouse clubs; e-commerce platforms, company-owned stores, and call centers; and other third party distributors, and hospitality and healthcare customers. It is also involved in licensing its Sealy, and Stearns & Foster brands, technology, and trademarks to other manufacturers. Tempur Sealy International, Inc. was founded in 1989 and is based in Lexington, Kentucky. – Source: finance.yahoo.com Granted, Alkermes (NASDAQ: ALKS ) has more evident scientific content: Alkermes Public Limited Company, an integrated biopharmaceutical company, engages in the research, development, and commercialization of pharmaceutical products to address unmet medical needs of patients in various therapeutic areas. The company offers RISPERDAL CONSTA for the treatment of schizophrenia and bipolar I disorder; INVEGA SUSTENNA to treat schizophrenia schizoaffective disorder; AMPYRA/FAMPYRA to treat multiple sclerosis; BYDUREON to treat type II diabetes; and VIVITROL for alcohol and opioid dependence. It is also developing Aripiprazole Lauroxil for the treatment of schizophrenia; ALKS 5461 that is under Phase III study for the treatment of depressive disorder; ALKS 3831, a Phase II study medicine to treat schizophrenia; ALKS 8700, a monomethyl fumarate molecule, which is under Phase I study to treat multiple sclerosis; ALKS 7106, a drug candidate to treat pain with intrinsically low potential for abuse and overdose death; and RDB 1419, a proprietary investigational biologic cancer immunotherapy product that is under pre-clinical stage. The company serves pharmaceutical wholesalers, specialty pharmacies, and specialty distributors directly through its sales force. It has collaboration agreements with Janssen Pharmaceutica, NV (NYSE: JNJ ); AstraZeneca plc (NYSE: AZN ); Acorda Therapeutics, Inc. (NASDAQ: ACOR ); and other collaboration partners. Alkermes Public Limited Company was founded in 1987 and is headquartered in Dublin, Ireland. – Source: finance.yahoo.com The SPDR Biotech ETF (NYSEARCA: XBI ) is a non-leveraged exchange-traded fund of stocks active in the research and development of medicines and therapeutics. The investment seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of an index derived from the biotechnology segment of a U.S. total market composite index. In seeking to track the performance of the S&P Biotechnology Select Industry Index (the “index”), the fund employs a sampling strategy. It generally invests substantially all, but at least 80%, of its total assets in the securities comprising the index. The index represents the biotechnology industry group of the S&P Total Market Index (“S&P TMI”). The fund is non-diversified. – Source: finance.yahoo.com There are many other stocks with price volatility that offer gain prospects on average, but few have as competitive odds for profit as the records of these three at this point in time. Here are relevant market capitalization and trading considerations: (click to enlarge) But what next? So far, we have just looked at things that have already happened. Our interest should be in what may come next. That centers around the MMs’ current forecasts of likely coming price ranges, and what has happened in the past when similar forecasts were made. Figure 6 pictures the evolution of such forecasts for TPX, daily over the past 6 months. Figure 6 (used with permission) The vertical lines in Figure 6 are forecasts of price ranges yet to come rather than the traditional plots of actual past prices in those days. The forecast ranges surround the market quote ending the day, which separates the range into prospective upside and downside segments. It is this balance that the forecast Range Indexes measure. The lower thumbnail picture shows the distribution of Range Indexes for the subject over the past 3 years, with the current RI highlighted. The row of data between the two pictures tells what the subsequent price action has been when our standard portfolio management discipline was applied to all 37 of the past 3 years’ RIs like today’s. They averaged +15.1% net gains, in typical holdings of 34 market days, about 7 weeks. Compounded, 7+ times a year the annual rate of gain is +180%. During the typical 34-day holding periods, the average worst-case price drawdowns were -3.6%. Only one of the 37 failed to recover in the 3-month holding limit, a win rate of 97 of 100. Figure 7 provides a two-year picture of once-a-week looks at the past daily forecasts for TPX: Figure 7 (used with permission) There is no guarantee that future price behavior will duplicate these experiences, but when something good happens a dozen times a year over a three-year period, it is more reassuring than an observer’s unsupported assertion that “the stock’s price now looks attractive”. Our second illustration, Alkermes, is in the opportunistically fertile field of healthcare technology. Its prior experiences following MM implied forecasts like today’s have been quite competitive among over 100 such competitors. Figure 8 gives the same look at its current situation as did Figure 6. Figure 8 (used with permission) ALKS currently is benefiting from a recent passing political suggestion that put down the prices of most stocks in the medical care field, particularly those active in the development of new therapeutics. Figure 8 illustrates ALKS’s price volatility potential and its recovery prospects now seen by the MM community. In every prior case of two dozen such forecasts in the last four years, ALKS has gained an average of +16% in 8+ weeks of disciplined holdings management, recovering from average worst-case price drawdowns of -5%. Figure 9 provides a two-year perspective of once-a-week forecasts for ALKS. It illustrates the uptrend underlying the stock’s price volatility that creates the recurring opportunities that are so appealing to active investors. Figure 9 (used with permission) But does greed justify undertaking all this? ALKS is a good illustration of the power of active investment management as opposed to conventional, passive buy&hold, index-oriented risk (and opportunity) – avoiding investment practice. Where the investor has sufficient capital at work to achieve his/her investment objectives from returns in single digits, conventional passive investing may do the job with a minimum of emotional cost. It frees the investors’ time and energy to be applied to other life objectives. Lucky them. But, for many who once saw financial goals within reach of low-double-digit investing returns, the failure of achieving those returns by conventional “growth and income” gains puts them now in a position of considerable discomfort. The passage of inadequate productive years, which cannot be retrieved, makes continuation of leisurely investing practices incapable of reaching prior objectives. A different approach is now required. Active, time-disciplined investing can help at least ease the problem, and in many cases, may retrieve earlier hopes. But active investing takes time, attention, and a different attitude of personal operation. The active investor is taking on a “second job”. It involves repeated decisions that test the personal limits of discomfort that must be set by the investor. That makes the investor an unattractive client for independent wealth managers. The outside investment manager has to live in a competitive world hemmed in by market uncertainty and threat of legal action by clients who have lost money by the advisor’s actions or guidance. He far prefers clients who will be content with conventional passive buy&hold&don’t-worry management. Which is what most are prepared to provide. The individual investor whose situation urges active management typically finds that his/her position is best served by a do-it-yourself (DIY) approach. The quandary is that it is next to impossible to do the necessary job “from scratch”. That requires developing a general market perspective, and then fitting into that, continuing selections from careful research of the prospects of hundreds, even thousands, of alternative choices. An overwhelming prospect. What may be most helpful is a source of information that draws on the required actions of experienced professionals whose everyday activities accomplish and maintain that market perspective. Activities that also provide appraisals of the price prospects of hundreds (or more) of potential portfolio candidates. When the prospects for those candidates can be described in terms of odds and payoffs, ones that the individual investor can tailor to his/her own tradeoff preferences, then we are closer to helpful guidance. The essentials here are issue comparability, and individual investor preferences and self-imposed limits. What of the third illustration? The SPDR Biotech ETF is, in a way, an extension of the ALKS situation. It is helpful in that it shows that some ETFs can develop attractive price velocity without the engineering present in leveraged ETFs. The problem with leveraged ETFs is two-fold. First, the mechanics of those that are structured to provide positive payoffs when the securities involved are declining (the “short” ETFs) have an unavoidable bias over time that causes their price decay. They should not be held “long” except at irregular, intermittent, very brief (days) periods. They typically cannot be borrowed by brokers so these “short” ETFs are usually not available at other times to be sold short. The levered long ETFs do provide ongoing price volatility, which can cut both ways. They often encounter “ordinary” double-digit worst-case price declines during 2-3 month holding periods that can be well beyond most DIY investors’ tolerance limits. Check Figure 10 for the present RI record for XBI and see what it has been: Figure 10 (used with permission) The worst-case price drawdowns following 28 prior RIs for XBI of 21 at -4.4% were about half of the 8.2% gains that were ultimately produced. Since prices of 27 of the 28 forecasts ultimately recovered and reached their top-of-forecast range sell targets, the drawdowns needed to be tolerable. The benefit of the ETF’s diversification among many biotech holdings contributed to the smaller drawdowns. Another aspect of XBI’s appeal to the active investor is the typically short (5+ weeks) holding periods required to reach position closeouts following forecasts at this RI level. Compounding of 8+% gains ten times a year generates returns at a triple-digit rate. Short holding periods not only generate high rates of return, but also provide opportunities to keep capital, liberated by reaching targets, fairly fully employed in other attractive opportune positions. That is an advantage in active investing that provides the compounding of single-digit gains into double- and even triple-digit rates of return for the portfolio as a whole. The repetition of such opportunities is illustrated in the 2-year weekly review of MM forecasts for XBI in Figure 11: Figure 11 (used with permission) Conclusion There are resources available to DIY investors that can help them return the progress of lagging investment programs to (or better than) original visions. But they require both a shift in mindset of how that is to be accomplished, and the time, energy, and conviction that will be required to bring it about. Where the remaining years are few before scheduled financial requirements arrive, such advanced performance may be the only means of accomplishment. But you should know what risks and rewards are likely before venturing into new investing approaches. Seeking Alpha provides a “crowd-source” reservoir of other active investors collectively looking for investing opportunities and drawing on their life experiences in many and varied occupations. Continuing selective reference to SA can help build market and investing perspective, although with the caveat that many contributors who are eager to write and to comment may be little more than beginners at the adventure. So check contributor and commenter profiles. A variety of specialized research product services by SA contributors are available through the site’s PRO program, and others, like the illustrations above, are available at Internet site addresses.