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Advanced Disposal Announces Second Quarter Results

Cash flow from operations improved $21.0 million during the second quarter compared to prior year despite COVID-19 pandemic headwinds

PONTE VEDRA, Fla. , July 30, 2020 /PRNewswire/ -- Advanced Disposal Services, Inc. (NYSE: ADSW), (d/b/a Advanced Disposal) announced today revenue of $380.3 million for the three months ended June 30, 2020 versus $419.1 million in the same period of the prior year. Net income during the second quarter 2020 was $6.2 million or $0.07 per diluted share, which was an improvement of $7.2 million or 0.08 per diluted share compared to the prior year.  Adjusted net income, which excludes certain gains and expenses, was $17.0 million , or $0.19 per diluted share.

Advanced Disposal - Vertical 4C Logo (PRNewsFoto/Advanced Disposal Services, Inc.)
Advanced Disposal - Vertical 4C Logo (PRNewsFoto/Advanced Disposal Services, Inc.)

"We are extremely pleased with the results the team delivered," said Richard Burke , CEO.  "The second quarter was one of the most challenging business environments we have ever faced with unprecedented changes to our economy driven by the COVID-19 pandemic.  We also are now fifteen months from the original announcement of our pending merger with Waste Management, which could have easily distracted the team.  Yet despite these headwinds, we were able to achieve significant improvements in operating income, net income, and cash flow from operations during the quarter.  This is the collective result of our over 6,000 team members living out our Service First, Safety Always culture, and it underscores our team's commitment to our customers, communities, and company."

Second Quarter Financial Highlights

  • Revenue of $380.3 million represented a (9.2%) decrease

  • Achieved average yield of 3.8% but suffered volume declines of (12.2%) primarily related to the pandemic

  • Net income improved $7.2 million to $6.2 million or $0.07 per diluted share

  • Achieved adjusted EBITDA of $103.8 million

  • Adjusted EBITDA margins improved 110 basis points to 27.3% despite sharp volume declines as the company focused on managing controllable costs

  • Adjusted net income improved $8.0 million to $17.0 million

  • Cash provided by operating activities improved $21.0 million during the second quarter to $97.0 million

  • Adjusted free cash flow improved $29.2 million during the second quarter to $61.8 million

Investor Communications
On June 24, 2020 , Advanced Disposal, Waste Management, Inc. ("Waste Management"), and the merger subsidiary of Waste Management entered into Amendment No. 1 to the merger agreement.  In exchange for agreeing to reduce the per share merger consideration to $30.30 per share in cash, Advanced Disposal and Waste Management agreed to amend the terms of the original merger agreement to provide increased closing certainty to the Advanced Disposal stockholders, including by: (i) extending the end date from July 13, 2020 to September 30, 2020 , which will be further extended automatically to November 30, 2020 , subject to certain conditions; (ii) providing for a $250,000,000 (increased from $150,000,000 ) termination fee payable by Waste Management to Advanced Disposal in certain circumstances; (iii) providing that Waste Management must use ''best efforts'' to take all actions to consummate the transactions by the end date, including using its ''best efforts'' to obtain antitrust approval; (iv) eliminating the $200,000,000 revenue threshold on the divestiture obligation of Waste Management as provided in the original merger agreement; and (v) providing that each party has certified to the other that such party's closing conditions with respect to the accuracy of its representations and performance of its covenants, and, with respect to Waste Management, the absence of a material adverse effect on Advanced Disposal, would be satisfied as of the date of the merger agreement amendment if the closing were to occur on such date (and that Waste Management and its merger subsidiary will not assert that any of such conditions are not satisfied at the closing as a result of what such parties had knowledge of as of the date of the merger agreement amendment).

In light of the pending transaction, we elected to cease conducting quarterly earnings conference calls until transaction closing, although we will continue to provide a quarterly earnings release. We also elected to enter into an extended quiet period related to investor communications and are no longer providing forward-looking guidance until the transaction is closed.

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, 2019 , appearing in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission and our unaudited condensed consolidated financial statements and notes thereto as of and for the three and six months ended June 30, 2020 , appearing in our Form 10-Q, to be filed with the Securities and Exchange Commission.

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 and net (loss) income in arriving at adjusted EBITDA and adjusted net income, 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. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)


(in millions, except share and per share data)



Three Months Ended June 30,


Six Months Ended June 30,


2020


2019


2020


2019

Service revenues

$

380.3



$

419.1



$

767.0



$

803.1


Operating costs and expenses








Operating (exclusive of items shown separately below)

242.3



277.2



499.7



526.6


Selling, general and administrative

45.7



62.2



96.7



112.0


Depreciation and amortization

64.1



70.3



128.7



136.2


Acquisition and development costs



0.2





1.0


Loss on disposal of assets and asset impairments

0.5



0.5



0.6



0.7


Total operating costs and expenses

352.6



410.4



725.7



776.5


Operating income

27.7



8.7



41.3



26.6


Other (expense) income








Interest expense

(19.8)



(26.2)



(42.4)



(52.2)


Other income (expense), net

0.2



(3.5)



0.9



(2.8)


Total other expense

(19.6)



(29.7)



(41.5)



(55.0)


Income (loss) before income taxes

8.1



(21.0)



(0.2)



(28.4)


Income tax expense (benefit)

1.9



(20.0)



(0.1)



(21.4)


              Net income (loss)

$

6.2



$

(1.0)



$

(0.1)



$

(7.0)










Net income (loss) attributable to common
stockholders per share








Basic income (loss) per share

$

0.07



$

(0.01)



$



$

(0.08)


Diluted income (loss) per share

$

0.07



$

(0.01)



$



$

(0.08)


Basic average shares outstanding

90,424,107



88,857,948



90,167,026



88,790,157


Diluted average shares outstanding

91,557,116



88,857,948



90,167,026



88,790,157


 

 

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


(in millions, except share data)



June 30, 2020


December 31, 2019

Assets




Current assets




Cash and cash equivalents

$

31.4



$

12.5


Accounts receivable, net of allowance for doubtful accounts of $4.8 and $4.5,
respectively

193.8



208.3


Prepaid expenses and other current assets

34.6



44.0


Total current assets

259.8



264.8


Other assets

52.6



53.3


Property and equipment, net of accumulated depreciation of $1,809.6 and $1,720.7,
respectively

1,748.2



1,767.6


Goodwill

1,224.8



1,224.8


Other intangible assets, net of accumulated amortization of $333.6 and $318.1,
respectively

217.5



233.0


Total assets

$

3,502.9



$

3,543.5


Liabilities and Stockholders' Equity




Current liabilities




Accounts payable

$

121.9



$

120.7


Accrued expenses

109.1



124.5


Deferred revenue

67.5



71.3


Current maturities of accrued landfill retirement obligations

20.2



28.0


Current maturities of long-term debt

41.3



76.1


Total current liabilities

360.0



420.6


Other long-term liabilities

90.1



82.7


Long-term debt, less current maturities

1,762.7



1,792.1


Accrued landfill retirement obligations, less current maturities

255.1



236.2


Deferred income taxes

89.1



88.5


Total liabilities

2,557.0



2,620.1


Equity




Common stock: $.01 par value, 1,000,000,000 shares authorized, 90,906,005 and
89,836,069 issued including shares held in treasury, respectively

0.9



0.9


Treasury stock at cost, 178,540 and 132,930 shares, respectively

(5.6)



(4.1)


Additional paid-in capital

1,551.0



1,527.7


Accumulated deficit

(598.2)



(598.1)


Accumulated other comprehensive loss

(2.2)



(3.0)


Total stockholders' equity

945.9



923.4


Total liabilities and stockholders' equity

$

3,502.9



$

3,543.5


 

 


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

(in millions)



Six Months Ended June 30,


2020


2019

Cash flows from operating activities




Net loss

$

(0.1)



$

(7.0)


Adjustments to reconcile net loss to net cash provided by operating activities




Depreciation and amortization

128.7



136.2


Change in fair value of derivative instruments



4.6


Amortization of debt issuance costs and original issue discount

3.0



2.8


Accretion on landfill retirement obligations

8.9



8.7


Other accretion and amortization

3.5



3.4


Provision for doubtful accounts

2.7



3.2


Loss on disposition of property and equipment

0.6



0.7


Stock based compensation

2.9



6.3


Deferred tax expense (benefit)

0.3



(17.8)


Earnings in equity investee

(0.4)



(1.1)


Write-off of 2012 Veolia acquisition related indemnification receivable



3.9


Changes in operating assets and liabilities, net of businesses acquired




Decrease (increase) in accounts receivable

11.8



(10.2)


Decrease in prepaid expenses and other current assets

9.4



3.4


(Increase) decrease in other assets

(1.2)



1.9


Increase in accounts payable

8.3



15.4


(Decrease) increase in accrued expenses

(15.4)



4.4


Decrease in deferred revenue

(3.8)



(1.1)


Increase (decrease) in other long-term liabilities

7.1



(1.7)


Capping, closure and post-closure obligations

(4.6)



(7.5)


Net cash provided by operating activities

161.7



148.5


Cash flows from investing activities




Purchases of property and equipment and construction and development

(87.5)



(83.4)


Proceeds from sale of property and equipment and insurance recoveries

0.8



1.7


Acquisition of businesses, net of cash acquired



(27.1)


Net cash used in investing activities

(86.7)



(108.8)


Cash flows from financing activities




Proceeds from borrowings on debt instruments

70.0



101.0


Repayment on debt instruments, including finance leases

(145.0)



(140.1)


Proceeds from stock option exercises net of stock repurchases

18.9



3.3


Net cash used in financing activities

(56.1)



(35.8)


Net increase in cash and cash equivalents

18.9



3.9


Cash and cash equivalents, beginning of period

12.5



6.8


Cash and cash equivalents, end of period

$

31.4



$

10.7




 

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, 2019 , appearing in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission and our unaudited condensed consolidated financial statements and notes thereto as of and for the three and six months ended June 30, 2020 , appearing in our Form 10-Q, to be filed with the Securities and Exchange Commission.  The information presented is considered unaudited.

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 June 30,


Six Months Ended June 30,


2020


2019


2020


2019

Collection

$

259.9



68.3

%


$

279.4



66.7

%


$

528.7



68.9

%


$

547.6



68.2

%

Disposal

129.0



33.9

%


152.5



36.4

%


252.1



32.9

%


279.6



34.8

%

Sale of recyclables

3.8



1.0

%


2.7



0.6

%


6.6



0.9

%


6.3



0.8

%

Fuel and environmental
charges

24.2



6.4

%


30.3



7.2

%


51.7



6.7

%


59.2



7.4

%

Other revenue

35.7



9.4

%


34.6



8.3

%


71.2



9.3

%


62.0



7.7

%

Intercompany
eliminations

(72.3)



(19.0)

%


(80.4)



(19.2)

%


(143.3)



(18.7)

%


(151.6)



(18.9)

%

Total service revenues

$

380.3



100.0

%


$

419.1



100.0

%


$

767.0



100.0

%


$

803.1



100.0

%


 

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


Three Months Ended June 30,


Six Months Ended June 30,


2020


2019


2020


2019

Average yield

3.8

%


3.2

%


3.7

%


3.6

%

Recycling

0.2

%


(0.2)

%


%


(0.2)

%

Fuel surcharge revenue

(1.0)

%


%


(0.6)

%


0.2

%

Total yield

3.0

%


3.0

%


3.1

%


3.6

%

Organic volume

(12.2)

%


0.8

%


(7.8)

%


0.2

%

Acquisitions

%


1.5

%


0.2

%


1.5

%

Total revenue change

(9.2)

%


5.3

%


(4.5)

%


5.3

%


 

OPERATING EXPENSES

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


Three Months Ended June 30,


Six Months Ended June 30,


2020


2019


2020


2019

Operating

$

237.9



62.6

%


$

272.8



65.1

%


$

490.8



64.0

%


$

517.9



64.5

%

Accretion of landfill retirement
obligations

4.4



1.1

%


4.4



1.0

%


8.9



1.1

%


8.7



1.1

%

Operating expenses

$

242.3



63.7

%


$

277.2



66.1

%


$

499.7



65.1

%


$

526.6



65.6

%


 

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


Three Months Ended June 30,


Six Months Ended June 30,


2020


2019


2020


2019

Labor and related benefits

$

83.6



22.0

%


$

88.2



21.0

%


$

173.7



22.6

%


$

173.9



21.7

%

Transfer and disposal costs

49.6



13.0

%


57.7



13.8

%


102.0



13.3

%