Advanced Disposal Announces First Quarter Results

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May 03, 2016, 04:52 ET

PONTE VEDRA, Fla., May 3, 2016 /PRNewswire/ -- Advanced Disposal Services, Inc., (d/b/a Advanced Disposal) announced today revenue for the three months ended March 31, 2016 of $333.8 million versus $330.4 million in the same period of the prior year. Adjusted EBITDA for the first quarter was $86.8 million compared to $90.5 million in the first quarter of 2015 and net loss increased $3.5 million to $14.3 million.

Advanced Disposal automated side-loading truck collecting 96-gallon cart in residential neighborhood.

The company's core business operations remain strong. Organic revenue gains were driven by a 1.9% improvement in average yield as the company continued its disciplined pricing strategy along with an 8% increase in disposal tons. These items were partially offset by lower fuel fee revenue and declines in residential volume primarily due to a business rationalization initiative that began in 2015. Revenue growth of 2.3% from acquisitions completed during 2015 was offset by lower margin divestitures during that same time period as the company remained focused on strengthening its competitive position in vertically integrated markets and divesting certain non-core businesses.

While the company's core business operations improved, adjusted EBITDA declined $3.7 million and adjusted EBITDA margins fell 140 basis points to 26.0%. The company faced non-core revenue headwinds related to the sale of landfill gas as well as continued declines in shale activity and single-stream recyclable commodity pricing. Costs were adversely impacted by the cycling of a $2.0 million prior quarter benefit from insurance claim developments, which can vary on a quarterly basis but overall are representative of the company's continued commitment to safety improvements. Additionally, adjusted EBITDA declined due to an extra workday since a portion of the company's business is on a fixed monthly fee basis while additional variable costs were incurred. These items, coupled with capital market costs that are not included in adjusted EBITDA, drove higher net losses during the first quarter of 2016.

"Our team is committed to generating profitable growth and enhancing cash flow over time," said Richard Burke, CEO. "While we faced some revenue and cost headwinds during the quarter, our strategy of improving safety and providing an excellent customer experience, coupled with strengthening our core markets through accretive tuck-in acquisitions, pricing discipline, and controlling costs will continue. This strategy will be the platform on which we drive earnings growth and improved returns on invested capital."

Advanced Disposal will conduct a quarterly earnings conference call on May 4, 2016 at 10:00 a.m. EDT. The call can be accessed by dialing (866) 478-7805 domestically or (832) 445-1679 internationally and asking for conference ID 12094268 or the Advanced Disposal Q1 2016 earnings call. This call will be recorded and available via replay approximately two hours after the completion of the earnings call for thirty days. You may access the recording by dialing (855) 859-2056 or through the link on the investor relations page of our website at www.AdvancedDisposal.com.

The calculation of free cash flow and adjusted free cash flow, as well as details of charges and other expenses that are excluded from EBITDA in arriving at adjusted EBITDA, are contained in the "Reconciliation of Certain Non-GAAP Measures" section of this press release.

SUPPLEMENTAL UNAUDITED FINANCIAL INFORMATION AND OPERATING DATA

Advanced Disposal Services, Inc. Condensed Consolidated Statements of Operations (Unaudited)

(in millions)

	Three Months Ended March 31,
	2016		2015
Service revenues	$	333.8	$	330.4
Operating costs and expenses
Operating	213.2		207.9
Selling, general and administrative	45.0		37.5
Depreciation and amortization	60.8		60.9
Acquisition and development costs	0.1		—
Loss on disposal of assets	0.9		0.1
Restructuring charges	0.8		—
Total operating costs and expenses	320.8		306.4
Operating income	13.0		24.0
Other income (expense)
Interest expense	(34.4)		(34.2)
Other, net	0.1		(4.3)
Total other expense	(34.3)		(38.5)
Loss before income taxes	(21.3)		(14.5)
Income tax benefit	(7.0)		(3.7)
Net loss	$	(14.3)	$	(10.8)

Advanced Disposal Services, Inc. Condensed Consolidated Balance Sheets (Unaudited)

(in millions, except share data)

	March 31, 2016		December 31, 2015
Assets
Current assets
Cash and cash equivalents	$	0.5	$	0.6
Accounts receivable, net of allowance for doubtful accounts of $4.2 and $4.4, respectively	167.0		177.5
Prepaid expenses and other current assets	29.1		33.4
Total current assets	196.6		211.5
Other assets	22.8		22.9
Property and equipment, net	1,627.5		1,649.9
Goodwill	1,173.6		1,173.5
Other intangible assets, net	355.0		364.5
Total assets	$	3,375.5	$	3,422.3
Liabilities and Stockholder's Equity
Current liabilities
Accounts payable	$	75.0	$	98.1
Accrued expenses	135.9		135.7
Deferred revenue	61.5		63.1
Current maturities of landfill retirement obligations	30.2		30.2
Current maturities of long-term debt	52.3		49.1
Total current liabilities	354.9		376.2
Other long-term liabilities	55.3		55.8
Long-term debt, less current maturities	2,198.9		2,198.0
Accrued landfill retirement obligations, less current maturities	168.3		163.5
Deferred income taxes	131.7		139.0
Total liabilities	2,909.1		2,932.5
Equity
Common stock: $.01 par value, 1,000 shares authorized, issued and outstanding	—		—
Additional paid-in capital	1,091.9		1,101.0
Accumulated deficit	(625.5)		(611.2)
Total stockholder's equity	466.4		489.8
Total liabilities and stockholder's equity	$	3,375.5	$	3,422.3

Advanced Disposal Services, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited)

(in millions)

	Three Months Ended March 31,
	2016		2015
Cash flows from operating activities
Net loss	$	(14.3)	$	(10.8)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization	60.8		60.9
Change in fair value of derivative instruments	(4.1)		(0.9)
Amortization of interest rate cap premium	0.2		0.6
Amortization of debt issuance costs and original issue discount	4.9		4.8
Accretion on landfill retirement obligations	3.3		3.4
Accretion on capital leases, long-term debt, loss contracts and other long-term liabilities	0.6		0.4
Provision for doubtful accounts	0.8		1.4
Loss on disposition of property and equipment	0.8		0.1
Share based compensation	0.4		0.7
Deferred tax benefit	(7.3)		(5.1)
Earnings in equity investee	(0.5)		(0.2)
Changes in operating assets and liabilities, net of businesses acquired
Decrease in accounts receivable	9.9		19.8
Decrease in prepaid expenses and other current assets	4.4		4.0
Increase in other assets	(0.4)		(0.4)
Decrease in accounts payable	(3.1)		(6.7)
Increase in accrued expenses	4.2		11.0
Decrease in unearned revenue	(1.8)		(2.5)
Decrease in other long-term liabilities	(0.6)		(1.9)
Capping, closure and post-closure expenditures	(4.2)		(0.1)
Net cash provided by operating activities	54.0		78.5
Cash flows from investing activities
Purchases of property and equipment and construction and development	(38.5)		(55.5)
Proceeds from sale of property and equipment	0.4		0.3
Acquisition of businesses	(1.6)		(18.6)
Net cash used in investing activities	(39.7)		(73.8)
Cash flows from financing activities
Proceeds from borrowings on debt instruments	35.0		35.0
Repayment on debt instruments	(41.1)		(30.6)
Bank overdraft	1.1		(1.3)
Other financing activities	0.1		0.2
Capital contribution from parent	—		0.1
Return of capital to parent	(9.5)		(7.5)
Net cash used in financing activities	(14.4)		(4.1)
Net (decrease) increase in cash and cash equivalents	(0.1)		0.6
Cash and cash equivalents, beginning of period	0.6		1.0
Cash and cash equivalents, end of period	$	0.5	$	1.6

You should read the following information in conjunction with our audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2015 appearing in our Annual Report on Form 10-K and our unaudited condensed consolidated financial statements and notes thereto as of and for the three months ended March 31, 2016 appearing in our Form 10-Q, as filed with the Securities and Exchange Commission.

REVENUE

The following table reflects our revenue by line of business for the periods presented (in millions and as a percentage of revenue):

	Three Months Ended March 31,
	2016				2015
Collection	$	238.6	71.5	%	$	234.9	71.1	%
Disposal	115.5		34.6	%	104.8		31.7	%
Sale of recyclables	4.2		1.3	%	5.7		1.7	%
Fuel fees and environmental fees	19.0		5.7	%	20.0		6.1	%
Other revenue	20.1		6.0	%	24.2		7.3	%
Intercompany eliminations	(63.6)		(19.1)	%	(59.2)		(17.9)	%
Total service revenues	$	333.8	100.0	%	$	330.4	100.0	%

The table set forth below reflects changes in revenue, as compared to the previous year:

	Three Months Ended March 31,
	2016		2015
Average yield	1.9	%	1.5	%
Recycling	—	%	(0.9)	%
Fuel fee revenue	(1.3)	%	(0.7)	%
Total yield	0.6	%	(0.1)	%
Organic volume growth	0.4	%	2.1	%
Acquisitions	2.3	%	0.9	%
Divestitures	(2.3)	%	—	%
Total revenue growth	1.0	%	2.9	%

OPERATING EXPENSES

The following table summarizes our operating expenses for the periods presented (in millions and as a percentage of revenue):

	Three Months Ended March 31,
	2016				2015
Operating	$	209.9	62.9	%	$	204.4	61.9	%
Accretion of landfill retirement obligations	3.3		1.0	%	3.5		1.1	%
Operating expenses	$	213.2	63.9	%	$	207.9	62.9	%

The following table summarizes the major components of our operating expenses, excluding accretion expense on landfill retirement obligations and other long-term liabilities for the periods presented (in millions and as a percentage of revenue):

	Three Months Ended March 31,
	2016				2015
Labor and related benefits	$	73.2	21.9	%	$	70.0	21.2	%
Transfer and disposal costs	45.6		13.7	%	45.6		13.8	%
Maintenance and repairs	32.0		9.6	%	28.7		8.7	%
Fuel	12.2		3.7	%	17.7		5.4	%
Franchise fees and taxes	14.6		4.4	%	14.1		4.3	%
Risk management	8.4		2.5	%	6.3		1.9	%
Other	23.9		7.2	%	22.0		6.7	%
Operating expenses, excluding accretion expense	$	209.9	62.9	%	$	204.4	61.9	%

SELLING, GENERAL AND ADMINISTRATIVE

The following table summarizes our selling, general and administrative expenses for the periods presented (in millions and as a percentage of revenue):

	Three Months Ended March 31,
	2016				2015
Salaries	$	24.3	7.3	%	$	23.2	7.0	%
Legal and professional	9.7		2.9	%	2.5		0.8	%
Other	11.0		3.3	%	11.8		3.6	%
Total selling, general and administrative expenses	$	45.0	13.5	%	$	37.5	11.3	%

RECONCILIATION OF CERTAIN NON-GAAP MEASURES

Adjusted EBITDA, free cash flow and adjusted free cash flow, which are not measures determined in accordance with GAAP, provide an understanding of operational activities before the financial impact of certain items. We use these measurements in the management of our business, and believe investors will find them helpful in understanding operational activities before the financial impact of certain items. Our definition of adjusted EBITDA, free cash flow and adjusted free cash flow may not be comparable to similarly titled measures presented by other companies.

The following table calculates adjusted earnings before interest, taxes, depreciation, amortization and accretion adjusted for certain other costs (in millions):

	Three Months Ended March 31,
	2016			2015
Net loss	$	(14.3)		$	(10.8)
Additions/deductions:
Income tax benefit	(7.0)			(3.7)
Interest expense	34.4			34.2
Depreciation and amortization	60.8			60.9
Accretion on landfill retirement obligations	3.3			3.4
Accretion on loss contracts and other long-term liabilities	0.2			0.1
EBITDA	77.4			84.1
EBITDA adjustments:
Acquisition and development costs	0.1			0.7
Stock option vesting	0.4			0.7
Earnings in equity investee, net	(0.5)			(0.2)
Restructuring charges	0.8			—
Loss on disposal of assets and asset impairments	0.9			0.1
Unrealized loss on fuel derivatives	(4.2)			(0.9)
Capital market costs	7.2			—
Realized loss on fuel derivatives	4.7			6.0
Adjusted EBITDA	$	86.8		$	90.5

Revenue	$	333.8		$	330.4

Adjusted EBITDA margin	26.0		%	27.4		%

ADJUSTED FREE CASH FLOW

The following table calculates free cash flow and adjusted free cash flow (in millions):

	Three Months Ended March 31,
	2016		2015
Net cash provided by operating activities	$	54.0	$	78.5
Purchases of property & equipment (a)	(38.5)		(53.5)
Proceeds from sale of property & equipment	0.4		0.3
Free cash flow	15.9		25.3
Restructuring payments	0.7		1.0
Capital market costs	5.8		—
Adjusted free cash flow	$	22.4	$	26.3
Realized loss on fuel derivatives	4.7		6.0
Adjusted free cash flow excluding realized loss on fuel derivatives	$	27.1	$	32.3

(a) Excludes the impact of land purchased for future airspace of $2.0 million in 2015.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the U.S. federal securities laws. All statements other than statements of historical facts including, without limitation, those regarding our business strategy, financial position, results of operations, plans, prospects and objectives of management for future operations (including development plans and objectives relating to our activities), are forward-looking statements. Many, but not all, of these statements can be found by looking for words like "expect," "anticipate," "goal," "project," "plan," "believe," "seek," "will," "may," "forecast," "estimate," "intend" and "future" and similar words. Statements that address activities, events or developments that we intend, expect or believe may occur in the future are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended and are subject to the "safe harbor" created by those sections. Forward-looking statements do not guarantee future performance and may involve risks, uncertainties and other factors which could cause our actual results, performance or achievements to differ materially from the future results, performance or achievements expressed or implied in those forward-looking statements.

There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause actual results to differ materially from the forward-looking statements contained in this report. Such risks, uncertainties and factors include those set forth under the heading "Risk Factors" in our most recent Annual Report on Form 10-K and subsequent Form 10-Q filed with the Securities and Exchange Commission.

Examples of these risks, uncertainties and other factors include, but are not limited to:

risks relating to our history of losses;
risks relating to operating in a highly competitive industry and the inability to compete effectively with larger and better capitalized companies and governmental service providers;
risks relating to results being vulnerable to economic conditions;
risks that we may lose contracts through competitive bidding, early termination or governmental action;
risks that some of our customers, including governmental entities, have suffered financial difficulties affecting their credit risk, which could negatively impact our operating results;
risks that our financial and operating performance may be affected by the inability in some instances to renew landfill operating permits, obtain new landfills or expand existing ones;
risks that the cost of operation and/or future construction of our existing landfills may become economically unfeasible causing us to abandon or cease operations;
risks that we could be precluded from entering into or maintaining permits or certain contracts if we are unable to obtain sufficient third-party financial assurance or adequate insurance coverage;
risks that our accruals for our landfill site closure and post-closure costs may be inadequate;
risks that our business requires a high level of capital expenditures;
risks relating to our acquisitions, including our ability to integrate acquired businesses, or that the acquired businesses will have unexpected risks or liabilities;
risks relating to the seasonal nature of our business and "event-driven" waste projects that could cause our results to fluctuate;
risks that we may be subject in the normal course of business to judicial, administrative or other third-party proceedings that could interrupt or limit our operations, result in adverse judgments, settlements or fines and create negative publicity;
risks relating to fuel supply and prices that may fluctuate significantly and that we may not be able to pass on cost increases to our customers or effectively hedge such costs;
risks relating to fluctuations in the prices of commodities;
risks that increases in labor and disposal and related transportation costs could adversely impact our financial results;
risks that commodity derivatives could adversely affect our results;
risks that efforts by labor unions to organize our workforce could divert management attention and adversely affect operating results;
risks that we depend significantly on the services of the members of our senior, regional and local management teams, and that the departure of any of those persons could cause our operating results to suffer;
risks that we are increasingly dependent on technology in our operations and, if our technology fails our business could be adversely affected;
risks relating to operational and safety risks, including the risk of personal injury to employees and others;
risks that we are subject to substantial governmental regulation and failure to comply with these requirements, as well as enforcement actions and litigation arising from an actual or perceived breach of such requirements, could subject us to fines, penalties and judgments, and impose limits on our ability to operate and expand;
risks from our operations being subject to environmental, health and safety laws and regulations, as well as contractual obligations that may result in significant liabilities;
risks that future changes in laws or renewed enforcement of laws regulating the flow of solid waste in interstate commerce could adversely affect our operating results;
risks relating to fundamental change in the waste management industry as traditional waste streams are increasingly viewed as renewable resources and changes in laws and environmental policies may limit the items that enter the waste stream, any of which may adversely impact volumes and tipping fees at our landfills;
risks that alternatives to landfill disposal may cause our revenues and operating results to decline;
risks relating to our substantial indebtedness and our working capital deficit;
risks relating to our limited access to forms of capital;
risks relating to our ability to implement growth strategy as and when planned; and
other risk factors previously disclosed in "Item 1A. Risk Factors" in our 2015 Annual Report on Form 10-K.

The above examples are not exhaustive and new risks may emerge from time to time. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Such forward-looking statements are based on our current beliefs, assumptions, expectations, estimates and projections regarding our present and future business strategies and the environment in which we will operate in the future. These forward-looking statements speak only as of the date of this report. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in our expectations with regard thereto or any change of events, conditions or circumstances on which any such statement was based.

About Advanced Disposal
Advanced Disposal brings fresh ideas and solutions to the business of a clean environment. We provide integrated, non-hazardous solid waste collection, recycling and disposal services to residential, commercial, industrial and construction customers across 17 states and the Bahamas. Our team is dedicated to finding effective, sustainable solutions to preserve the environment for future generations. We welcome you to learn more at AdvancedDisposal.com or follow us on Facebook.

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SOURCE Advanced Disposal Services, Inc.

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