Covanta Holding Corp. Q3 2009 Earnings Call Transcript
Welcome to the Covanta Holding Corporation Third Quarter 2009 Financial Results conference call and webcast. This call is being taped and replay will be available to listen to until midnight eastern time on Thursday, October 29, 2009. The playback number is 888-286-8010 for callers in the United States.
Again that is 888-286-8010 for callers in the United States and 617-801-6888 from outside of the country. Again that number is 617-801-6888 if calling from outside of the country. The replay pass code is 64332101. Again the replay pass code is 64332101. The webcast will also be archived on
Covanta Energy. Again that is
Covanta Energy and can be replayed or downloaded as an MP3 file.
At this time for opening remarks and introductions, I'd like to turn the call over to Marisa Jacobs, Vice President of Investor Relations and Corporate Communications.
Marisa Jacobs
Welcome to Covanta Holding Corporation's Third Quarter 2009 conference call. Joining me on the call today will be our President and CEO, Tony Orlando, and our Executive Vice President and CFO, Mark Pytosh. We'll provide an operational and business update, review our financial results, and then take your questions.
The following discussion may contain forward-looking statements and our actual results may differ materially from those expectations. Information concerning factors that could cause such differences can be found in the company's reports and registration statement filed with Securities and Exchange Commission. The content of this conference call contains time sensitive information. It is only accurate as of the date of this live broadcast October 22, 2009. 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. Reconciliation to the most directly comparable GAAP measures and management's reason for presenting such information is set forth in the press release that was issued last night. As these measures are not calculated in accordance with GAAP, they should not be considered in isolation from our financial statements that are prepared in accordance with GAAP. It should also be noted that our computation of adjusted EBITDA may differ from similarly titled computations used by other companies.
I will now turn the call over to our President and CEO, Tony Orlando.
Tony Orlando
Thanks everyone for joining us this morning. This was a solid quarter. Our team continued working effectively to offset a significant portion of the economic headwind, and we made positive progress on numerous growth initiatives highlighted by a speedy completion of the majority of the Veolia acquisition.
As a result of this acquisition, we are now operating a sixth additional energy from waste facilities along with one additional transfer station. The integration work is progressing nicely and we expect to complete the transaction by closing on the Dade operating contract near the end of they year.
We are reaffirming our guidance on all key metrics. I'm pleased to note that taking into affect our solid third quarter and anticipated contribution from these new facilities, we now expect to finish the year near the midpoint of the guidance ranges. Mark will review the quarterly financial results in detail and he'll help you understand the numbers by sorting through the noise that relates to several contract transitions.
I'll give you an overview and offer some color on the market conditions. Let me start by noting that our quarterly operating cash flow of $111 million was slightly better than our third quarter last year. Organizationally, we are driven by cash so I'm really quite pleased with this performance and I'm confident we'll finish the year with strong free cash flow.
Turning to adjusted EBITDA, we were down $15 million from last year, that's less than 10%. There were two big drivers both in the existing domestic business, an $8 million revenue reduction due to lower recycled metal prices and another $8 million revenue reduction due to lower energy price and production.
You will not that I did not mention waste as a big driver, that's a positive . Our existing business tip fee revenue was down about $4 million, but more than half of that related to internalizing waste disposal from our new transfer stations in Philadelphia. And this revenue decline is directly offset with lower cost.
Waste disposal tip fees across the system are down only slightly, which caused less than a $2 million decline in revenue. Normally, of course, we'd like to see our tip fees escalate a few million dollars, but considering the difficult economy we're pleased with how well the waste side of the business is holding up. So again, the two big drivers were metal and electricity.
Our recycled metal revenue is down compared to last year. However, we have seen a nice uptick from the second quarter. In fact, we're up about 50%. Pricing during the third quarter was pretty close to historic averages, and remember scrap metal prices were extremely low at the end of last year. So we anticipate metal revenues to show a year-over-year improvement in the fourth quarter.
If prices hold steady, our metal revenue will finish the year about $24 million down from 2008, and that's pretty close to the middle of the $15 million to $30 million range we estimated at the beginning of the year.
Let me turn to energy markets. I'm going to get into more detail than normal because this is important for us and I know it's a topic of interest to our shareholders. As you probably know, market conditions were fairly challenging in the third quarter and prices dropped considerably. Around Labor Day, natural gas prices hit a seven-year low and PGM electricity prices sank well below $40 per megawatt hour.
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