Covanta Holding Corporation
Q3 2017 Earnings Call Transcript

Published: 27 Oct 2017

[Operator:]

Good morning everyone and welcome to the Covanta Holding Corporation's Third Quarter 2017 Financial Results Conference Call and Webcast. An archive webcast will be available two hours after the end of the conference call and can be accessed through the Investor Relations section of the Covanta website at www.covanta.com. The transcript will also be archived on the company's website. At this time, for opening remarks and introduction, I would like to turn the call over to Dan Mannes, Covanta's Vice President of Investor Relations. Please go ahead.

[Dan Mannes:]

Thank you and good morning. Welcome to Covanta's third quarter 2017 conference call. Joining me on the call today will be Steve Jones, our President and CEO; and Brad Helgeson, our CFO. We'll provide an operational and business update, review our financial results, and then take your questions. During their prepared remarks, Steven 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, onto 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, October 27, 2017. 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 expressed written consent of Covanta is prohibited. The information presented includes non-GAAP financial measures, because these measures are not calculated in accordance with U.S. 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 imitations as to their usefulness for competitive 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?

[Stephen Jones:]

Thanks, Dan and good morning everyone. For those of you using the web deck, please turn to slide three. I'll start off with a quick overview of our financial results and the key drivers impacting the quarter. Adjusted EBITDA for the quarter was $117 million, and free cash flow was $68 million. With solid visibility on the fourth quarter, we are reaffirming our full year outlook. The highlight for the past few months at Covanta is undoubtedly the Dublin Energy-from-Waste Facility progressing through its commissioning process and transitioning to commercial operations. During commissioning, in the third quarter operations run smoothly and we processed nearly 100,000 tons of waste and generated over 35,000 megawatt hours of power. We successfully completed our 30 day performance demonstration test earlier this month. And results of our emissions test significantly below our permit limits. We posted these emissions results to our Dublin EFW website. In line with our previous guidance, we expect a full fourth quarter production and financial contribution from the plant. We're very proud and excited to be in a position to provide this sustainable waste management and renewable energy solution for the Dublin region for decades to come. I'm also extremely thankful to many Covanta employees and our partners in Dublin City Council who sees with effort over the many years made this possible. In my view this is quite an accomplishment. As an update on the status of the Fairfax facility, we secured approval earlier this month for the County for the installation of the new fire detection and suppression equipment. At this point, we expect the facility to return to service around the end of the year. This timeline is much longer than we'd originally expected. So there's further discussion. If you recall the first quarter earnings call in April, we expected the facility to come back on line later in the second quarter. Given the nature of the damage we could have achieved that. However, working through the process to agree to a fire protection plan simply took far longer than we expected. The application of fire codes to the facility was not straightforward given the unique nature of the facility in the County, so extensive education and discussion was required. The most important message here is that installation of the new fire protection and suppression system is underway and we're on track to resume normal operations in another couple of months. We'll do this as quickly as possible. As a result of all this, the overall financial impact in 2017 went up greater than previously anticipated even when accounting for insurance coverage. Brad will review this in more detail. With the exception of power prices, we see continued strength across all end markets. Market prices for waste disposal continue to firm and we expect our realized price to outpace general MSW pricing trend, as we supplement MSW with growing volumes of profound ways. The Covanta Environmental Solutions business or CES is also seeing increased opportunities for site services and materials processing. Lastly, metals prices are firm and this quarter's results highlight the pricing improvements from the investment in non-ferrous processing. Now, I'll get into detail on the markets and operation. I'll start with the Waste business. Please turn to Slide 4. During the quarter same-store EfW price growth was $8 million or a 3.2%. However, this is offset by lower volumes in the quarter, primarily related to the downtime at Fairfax which reduced revenue by $9 million. The Covanta Environmental Solutions business produced another solid quarter, though it faced some challenges with availability of internal disposed capacity due to the downtime at Fairfax, as well as an outage at another key profile waste plant. Pricing for all profile waste grew double-digits year-over-year and total profile waste revenue grew 7%. However, as a result of lower volumes in the quarter, internal EfW profile waste revenue growth slowed to 2.4% year-over-year. The loss of Fairfax alone created a mid-single digit year-over-year revenue headwind to internalize EfW profile waste, which will continue to impact us through the year end. While a Fairfax event was primarily or certainly an anomaly, we're working to improve the flexibility of our profile waste business by expanding the network of material processing facilities and increasing number of EfW facilities to except these high price waste streams, as well identifying incremental third party disposal option. With Fairfax's recovery in 2018 increased usage of incremental facilities throughout the fleet and expanding logistics capabilities, we expect to return to more typical pace of internalized profile waste growth. Environmental Services, which includes the balance of the CES business and represents our non-internalized materials management and industrial fuel services exhibited strong growth of approximately 25% as we continue to successfully integrate the CES acquisitions and expand our footprint and service capabilities. For the full year outlook, we have modestly reduced EfW volumes given the previously discussed items. Offsetting that, the pace of growth in environmental services is stronger than we previously expected. Leaving full year total waste and service revenue mostly unchanged from previous expectations. These forecasts include a full quarter's contribution from Dublin as they have all year. Now let's move on to Energy. Please turn to Slide 5. Soft energy prices impacted by the very mild summer in the Northeast this year were a $3 million headwind, while volume again was impacted by the downtime at Fairfax. This is partially offset by improved year-over-year production at other plants in the fleet. Separately, as we expect contract transitions represented another $8 million headwind. As we previously discussed, we're actively managing our exposure and have further reduced the 2017 and 2018 open market position. We've already hedged approximately 3 million megawatt hours of our production for 2018 which when combined with our contracted position leaves only 25% of our 2018 forecast for power output subject to market prices. Similar to waste, we have modestly reduced our full year volume outlook due to the downtime at Fairfax. However, the fourth quarter will benefit from a full quarter of electric revenue from Dublin. Let's now move on to the Metals business on Slide 6. Same-store realized ferrous prices increased 38% driven primarily by a 30% increase in HMS index prices year-over-year. Last quarter, we noted an expectation for some draw down in ferrous inventory in the second half of the year and this has begun to play out with a sequential 19% increase in ferrous sales volumes compared to the second quarter. Market prices for ferrous were strong in the quarter with the HMS number one index averaging $275 per ton. As prices have remained firm, we are slightly raising our expectations for the full year average to $250 to $260 per ton. On the non-ferrous side, revenue increased by $4 million or 74% on a same-store basis. The quarter benefited from improved pricing, as we sold higher value material after processing at the new centralized non-ferrous processing facility. This led to realize revenue per ton more than doubling versus last year. As previously discussed, processing also reduces volume sold, but the net trade-off clearly represents significant additional value. We're expecting a stronger realized non-ferrous pricing in the fourth quarter as we increased internalization of non-ferrous materials to the processing facility. This improvement is reflected in our full year guidance range. Let's now move on to maintenance and operating expenses. Please turn to Slide 7. Total EfW maintenance spend in the quarter, including both expense and CapEx was $69 million versus $58 million in Q3 2016. Maintenance costs were impacted by work at Fairfax during the continued downtime and increased maintenance scope at certain facilities. Looking at the full year, our outlook for EfW maintenance expense and maintenance CapEx remains at $365 million to $385 million. So we now expect to be at the top end of that range. Importantly, this is also well within the 365 million to $450 million three year range that we provided at the beginning of the year and we reiterate that this range is appropriate for setting longer term expectations. Other plant operating expenses increased 8% on a same-store basis, compare with Q3 2016, driven by expenses related to growth in the Covanta Environmental Solutions platform, the start-up of the non-ferrous processing facility, a normal wage and benefit escalation. Same-store costs for the EfW business were relatively flat year-over-year. During the third quarter, we recognized $2 million in insurance recoveries. Incremental recoveries are expected to come later in the year with some receipts expected in 2018. Lastly, we reached the settlement with a client related to a previously disclosed contract dispute, which resulted in an $8 million benefit. Before I hand the call off to Brad, I want to revisit a few drivers of our business outlook. First, in our in our international development efforts, we continue to make progress. The most advanced project Rookery is now closer to construction. The final environmental permit is expected later this year or early next year and we are finalizing project contracts and raising financing. This should put us in a position to move into construction in the first half of 2018. Look to hear more about the financing of this project and the UK pipeline as we get a little closer. Second, on the fourth quarter 2016 call, we noted that we expected to generate 3% to 5% organic growth annually, excluding the impact of commodity prices. This remains our expectation as an annual average. Absolutely nothing has changed in that regard. However, the impact of the Fairfax facility essentially being down for most of the year, along with the expected deferral of some Fairfax insurance recovery into 2018 will likely push us below the growth target in 2017. But the impact of this event is temporary. We believe that we're making the right investments in our facilities to maintain operating performance and drive improve results and are highly confident in a long-term organic growth trajectory in the business and a return to this type of growth or better in 2018. And again, notwithstanding the impact of Fairfax, we're reaffirming our overall guidance ranges for this year. Lastly, we're particularly gratified to transition the Dublin plant to commercial operations, in line with the original expectations we laid out. This sets the stage for improved financial results in 2013, while adding momentum to our development efforts. With that, I'll turn the call over to Brad to discuss the third quarter financial results in more detail.

[Brad Helgeson:]

Thanks, Stephen. Good morning, everyone. I'll begin my review of our third quarter financial performance with revenue on Slide 9. Total revenue was $429 million in the quarter, an $8 million improvement over Q3 2016. Revenue increased $12 million on an organic same-store basis within that amount our core business activities, excluding commodity price changes increased revenue by $10 million year-over-year. Waste price growth improved metals pricing through processing and the ongoing expansion of our environmental solutions business more than offset the downtime at Fairfax on the revenue line. Recycled metal prices represented a $3 million benefit, as we saw improved markets ferrous, while energy prices were down $1 million overall, with lower prices for electricity sales, partially offset by higher capacity payments. Outside of organic growth, the three small environmental services acquisitions we completed earlier this year contributed $3 million in the quarter. Contract transitions were a net $6 million headwind year-over-year, as the $9 million impact of long-term power contracts rolling off was partially offset by increased energy revenue share following service contract expirations and improved pricing on new waste contracts. Moving on to Slide 10. Adjusted EBITDA was a $117 million in the quarter, $7 million decline compared to the same period last year. On an organic same-store basis, adjusted EBITDA was $9 million lower than last year. Excluding the benefit from higher commodity prices, the decline related to core business activities was $11 million in the quarter. The primary driver was the downtime at Fairfax, which had little offset from business interruption insurance in the quarter due to the timing of recoveries, as we had flagged on our last earnings call. As a result, the negative impact at Fairfax downtime was $7 million year-over-year. Combined with the impact of Hurricane Irma on a couple of our plants in Florida, which was approximately $2 million in the quarter, as well as higher maintenance, these factors more than offset improved waste pricing and the benefit of non-ferrous processing. Commodity prices were a net benefit to adjusted EBITDA, to stronger metals prices outweighing slightly softer energy prices. Contract transitions were effectively flat year-over-year, as the gain from the settlement of a dispute regarding an expiring contract and improved terms on new waste contracts offset the negative impact of the expiration of above market long-term power contracts. Looking ahead to organic growth for the year, as Steve mentioned it's unlikely that we'll reach our annual target of 3% to 5% from core business activities, excluding commodity prices. The main driver of this is downtime at Fairfax, which has far exceeded our initial estimates. Since we previously stated that Fairfax would not represent a major financial impact for the year, this clearly warrants a deeper explanation. When we provided initial guidance for the year, Fairfax had just had the fire and we believed we'd be able to return to service around midyear. At that point, our forecast reflected a net impact of approximately $5 million, including the business interruption deductible and we assumed all insurance claims will be resolved in 2017. In addition, with the plant back up and running in the second half, we would benefit from significantly improved year-over-year performance versus 2016. As we discussed at this time last year, we made significant investment in the plant in 2016 following the transition to a merging structure and generating a return on that investment in the form of better plant production and higher profile of the waste volumes was anticipated as a key driver in our growth plan for 2017. However, as discussed the process of securing approval of a fire protection plan with the County simply took much longer than anticipated, which was out of our control. Ultimately this will likely push the timeline for returning to full plant operations all the way to the end of the year by the time we complete the fire system installation, restart and ramp up to full load. As a result, the overall financial impact in 2017 has grown substantially for two reasons. First, we now expect to collect a portion of our business interruption insurance in 2018 which we had mentioned as a possibility on our last earnings call. This could total $5 million to $10 million. Note this is purely a timing issue, as any slippage from 2017 will benefit results in 2018 dollar-for-dollar. Second, we will not be able to recognize any of our expected year-over-year operational improvement in 2017, which includes growth and profile waste volumes. That represents another $10 million, as compared to our initial expectations when the event occurred. All in, this totals about $15 million to $20 million relative to our initial guidance. And that will simply be too much to overcome for purposes of our stated organic growth target. The good news of course is this is a onetime event. In the history of Covanta, we've never had an operational event of this scale and time delay and we look forward to heading into 2018 with a plant that's positioned to generate record performance following the investments we made in 2016. Notwithstanding Fairfax, we're reaffirming our full year guidance range of $400 million to $440 million. Where exactly we come out will depend in part on the timing and amount of insurance recovery, but we're likely to end up below the midpoint. Lastly, as you think about the fourth quarter we would expect it to be our strongest quarter of the year with a full contribution of roughly $15 million from Dublin and the potential benefit of $5 million to $10 million of additional business interruption insurance recoveries for Fairfax. Turning to Slide 11. Free cash flow was $68 billion in the third quarter compared to $74 million in the prior year. Excluding changes in working capital, free cash flow was $15 million lower year-on-year, driven primarily by lower adjusted EBITDA and higher maintenance CapEx in the quarter. For the full year, we're reaffirming our guidance range for free cash flow of $100 million to $150 million. This implies a substantial portion of our cash flow will come in the fourth quarter, which is in line with historical seasonality and will be supported by our strongest core of adjusted EBITDA. Turning to Slide 12. The estimate for completing Dublin construction this year increased by $50 million in US dollar terms, given the stronger euro, as well as some small scope changes. Around $25 million is left to be spent in the fourth quarter and will be funded entirely by the final drawdown of our non-recourse project debt facility. Looking ahead, we continue to explore opportunities to invest in our assets to drive organic growth and attractive returns and anticipate continued spend in future years in Environmental Solutions, metals and ash processing and plant optimization. However, whether looking at organic growth, Greenfield EfW projects or acquisitions we will be highly disciplined on project returns and risks as we seek to strike the right balance between growth and balance sheet improvement over time. As it relates to our UK project development pipeline, we get a lot of questions about our financing plans for these meaningful investment opportunities in light of our balance sheet position. So I'd like to clarify a few things. First of all as a general matter, we believe that the projects we're developing will be well-structured, high return investments that will attract capital in many forms. The current market environment for infrastructure finance is very robust. So we'll have a range of attractive financing options at the project level. Second, when we move forward with the Rookery project or any other major investment, we will do so only with a comprehensive financing plan that will be clearly presented to our capital holders. Any plan must allow us to invest in accordance with our strategic objectives without impacting our commitment to improving the balance sheet and to our dividend payout it must achieve all of these objectives not just one. We're currently evaluating the alternatives for this. Third, I can confirm that none of the funding strategies that we're currently contemplating includes a public equity [Technical Difficulty] Slide 13. Net debt as of September 30 [Technical Difficulty] $22 million compared to June 30. Our consolidated net debt to adjusted EBITDA ratio at the end of Q3 [Technical Difficulty] times. And as I've mentioned before, [Technical Difficulty] we expect this to represent the high watermark, as improved performance and stronger free cash flow in Q4 will commence a trajectory of improvement in this ratio, with Dublin now on line, this is the turning point. The leverage ratio covenant under our senior secured credit facility was 3.6 times at September 30 versus the covenant limit four times. The covenant only relates to our secured debt and excludes the $1.2 billion of unsecured holding company debt, as well as over $300 million of project here at Dublin. As with the consolidated ratio, we expect that improved adjusted EBITDA and cash flow will drive this ratio lower beginning next quarter. With that, operator we'd like to move to the Q&A section.

[Operator:]

[Operator Instructions] Your first question comes from a line of Noah Kaye from Oppenheimer & Company. Your line is open.

[Noah Kaye:]

Good morning. Thanks for taking my questions. And first congratulations on standing up Dublin.

[Stephen Jones:]

Thank you.

[Noah Kaye:]

Well done. If we could turn to the project pipeline, as you mentioned both Steve and Brad in your prepared remarks, you know, that it does look to be some near-term opportunities here. Just talking about Rookery, I think you mentioned Steve that you know, if you secure the environmental permit construction could potentially begin as early as the first half in 2018. Can you just kind of remind us is 3 years kind of the right timeframe for a plant like that you know, has stood up and be ramped?

[Stephen Jones:]

Yeah. That's about right. I mean, so that the next - the next step in the process here is we're expecting the permit to be - the environmental permit to be issued and then it goes through kind of an appeal, a 90 day consent appeal process and then it can kind of kick off the project. Although some people - I understand some people kick it off during that 90 day appeal process. But - and then and it's about three years to construct a plant.

[Noah Kaye:]

Understood. And then with a couple of other projects that you know, you've identified or your waste partner in UK has identified. Where are those in terms of that environmental permit process?

[Stephen Jones:]

So earlier stages in that process that we announced last quarter that there's two other projects that we're now working on with Biffa as the waste supplier. This plants are about - so if you think about plant sizes, Dublin is 600,000 metric ton, Rookery is about 90%, that's a five - five something. The two with Biffa are in the 350,000 ton per year range. And we're kind of working with this now on figuring out you know, how we're going to move forward those projects, what the structures look like. So that's a little further back in the pipeline in Rookery.

[Brad Helgeson:]

And just a reminder, is because you asked about the permit, for all three of those plants have planning for all three of those development we have planning permission which is far and away were difficult hurdle, as compared to the environmental permit.

[Noah Kaye:]

Right. Right. And you know, Brad I think your commentary around the financing was very helpful. We are getting a lot of questions on that obviously. But I guess, I just want to ask a clear question. Do you believe at this point you have a viable plan you know, to provide the equity portion of the finance for Rookery without cutting the dividend?

[Brad Helgeson:]

Yes. That's certainly the objective.

[Noah Kaye:]

Okay. Okay, excellent. I'll turn it over. Thank you so much.

[Stephen Jones:]

Thanks, Noah.

[Operator:]

Your next question comes from the line of Tyler Brown from Raymond James. Your line is open.

[Tyler Brown:]

Hey. Good morning, guys.

[Stephen Jones:]

Good morning, Tyler.

[Brad Helgeson:]

Good morning.

[Tyler Brown:]

Hey, Brad, so I think this year you guys are guiding to around 19 million tons of waste processed and I know there's quite a few moving pieces here, so you got Fairfax coming back on line, Dublin and maybe Hennepin County, transitioning away. But basically based on the fleet today, how should we think about that annual ton's process maybe going forward?

[Brad Helgeson:]

I mean, will put out a precise number of course when we put our guidance for next year. We should expect that to be approaching approximately 20 million tons.

[Tyler Brown:]

Okay. And then can you remind us how much just in 2017 special and profile waste is of the 19 million tons?

[Brad Helgeson:]

Yeah, there is about 800,000, I think is what we expect for the full year.

[Stephen Jones:]

Right.

[Tyler Brown:]

Okay, perfect. And then you know, Brad if you can maybe again indulge me here a little bit, if we just think about the pieces for next year. I mean, we've got you know this 3% to 5% organic growth. I'm not sure if that includes maybe the Hennepin transition or not. But you've got this positive impact from Fairfax, continuous improvement, profiled waste et cetera, then we maybe add Dublin in and we take a little bit more away from the northeast transition that hangs over an 18 I think, and then whatever we think on power and metal prices. But are those basically the pieces to the bridge and is there anything that I'm missing or not?

[Brad Helgeson:]

No I mean, you hit the big pieces and all of - all that you know, of course, we've talked about in the past. The one point I'll clarify is that the head of the transition that's outside of what we talk about is organic growth. So the 3% to 5% stands on its own. If you if you include the Hennepin, the impact of the Hennepin transition year-over-year you end up with a number of about $15 million year-over-year as a negative headwind on waste transitions. And then a number like we talked about between 5 and 10 probably on the remainder of the power contract go up.

[Tyler Brown:]

Okay. And the Fairfax so would be kind of included in that 3 to 5?

[Brad Helgeson:]

Yeah, that's included in the 3 to 5, but you know, I would point out that given the fact that Fairfax will be down this entire year you know, we really expect that plant to be running at record production given all the investment we made in 2016 and the fact that we're going to be getting some insurance recoveries falling into 2018. I am not going to go ahead put out 2018 guidance yet, but I expect what you'll hear us say next year is that our expectation is to hope we do better than 3% to 5%.

[Tyler Brown:]

Right. Okay. No, I just wanted to kind of go over the pieces, but I appreciate. I'll hop back in queue.

[Operator:]

Your next question comes from the line of Michael Hoffman from Stifel. Your line is open.

[Michael Hoffman:]

Thank you, Steve and Brad for taking my questions. And good morning. Could you help us with what is - if you have 3 million megawatt hours hedged, what is the hedge rate for '18?

[Brad Helgeson:]

It is roughly - hi, Michael, it's Brad, roughly 32 to 34, so it's much higher than we hedge for this year, but probably consistent.

[Michael Hoffman:]

Okay. And then in that 3 year range you talked about in total maintenance spending, 365 to 415 from year [ph] ones at 385. How do I think about two and three in relationship to that range?

[Brad Helgeson:]

So we still expect the same shaping of that range that I talked about before, a little higher in '18 and then coming back down in '19 and we'll give you know, we'll tighten up our guidance around that as we - obviously on '18 when we come out with '18 guidance. But that's direction where it will head.

[Michael Hoffman:]

Okay. And then Brad I just want to make sure I understood the insurance comment. Is it 5 to 10 total or its 5 to 10 potentially in '18 and there's still some that could happen in '17?

[Brad Helgeson:]

Yeah. So let me just lay out the components. So by quarter we reported $10 million that impacted us on EBITDA positively, obviously is an offset to the impact of the downtime, $10 million in the second quarter, just $2 million this quarter. We weren't sure if we were going receive any, but we ended up with $2 million. Our expectation is 5 to 10 in the fourth quarter and then another 5 to 10 next year.

[Michael Hoffman:]

Okay…

[Brad Helgeson:]

That's about the estimate as we sit here today.

[Michael Hoffman:]

Okay. That's what I didn't understand is whether we were talking in pieces or total. And then last one for me. You're framing a return to a typical profiled internalized growth rate what would you define that growth rate as being?

[Brad Helgeson:]

Double-digits. Yeah, you know, it's interesting, there's no issue in sourcing profile waste, the issue we had this year or this quarter was finding you know, a home for it, after we - after we got our hands on it. So in Fairfax we were doing well through the first two quarters, but with Fairfax and its other facility which has a large profile waste facility also be down, it kind of caught up to us it a little bit. But again, there's plenty of profile waste out there. And one of the things what we're doing now is we're investing in our mature processing facilities and also trying to get third party energy for waste plants and not our energy from waste plants to participate in this profile waste business, so that we can have a more robust network of recipient for profile ways and that - that will be allowed to be a little more stable with our customers too right, because we have a plant that goes out like Fairfax that disrupts our customer base in a lot of respect.

[Michael Hoffman:]

Fair enough. And lastly on the ash handling investments you're making, where do we stand on capturing any benefit of that?

[Brad Helgeson:]

Probably late next year, early 2019. We're in the - we're looking at several different sites. One of the sites is in Pennsylvania and we're not far from getting guidance on what the right permitting strategy is there. We'll fire our permit here not - in the not too distant future. And then it's probably I think 9 to 12 months we'll probably pre-order some of the equipment. We're feeling pretty good about where things are headed on that ash processing system. So we'll start there. We're going to try to kind of cut the cycle time down if you will by pre-ordering some of the equipment.

[Michael Hoffman:]

Okay. Thank you very much.

[Brad Helgeson:]

Thanks, Michael.

[Operator:]

Your next question comes from the line of Ben Kallo from Baird. Your line is open.

[Ben Kallo:]

Hi. Thanks for taking my question. Could you guys just talk a little bit about maintenance CapEx or it's sort of elevated for this year and you guys get picked on about that and just how we should think about that as we head into next year, if we should think about going up or the kind of same type of levels?

[Brad Helgeson:]

So as we talked about before we maintain a pretty robust multi-year maintenance plan and we shared this with you folks before. It's - we look in great detail down through the plant level out 3 and then actually 5 years and we're going to move to 10 years now on what we need to do at different facilities. So - and we work through that process during the year and do the maintenance. I'd say you know, if you look at this year for example through September 30, about a third of our plants are higher than we expected maintenance and that effectively is been driven by when you pop up from a piece of equipment there's discoverable issues that occur, like you're right you have to do more with turbine or do more within a boiler. I mean, about two thirds of our plants were at or lower than where they had projected as 9

[Ben Kallo:]

Okay, great. Thanks very much.

[Brad Helgeson:]

Yeah, sure.

[Operator:]

Your next question comes from the line of Jeff Silber from BMO Capital. Your line is open.

[Jeff Silber:]

Thanks so much. I just wanted to go back to Fairfax for first. And so let's assume that you know, you're kind of up and running by the end of this year, beginning in next year. How long is it going to take that plant to kind of get back to pre-fire levels?

[Stephen Jones:]

By the end of the year, that's all built in. I would tell you right now and if you look at the timeline on putting in this fire suppression equipment, we'll be done putting that in you know, sometime in November and then we'll start to - it's kind of a plant start up, right. We're going to restart the plant after it's been down for a period of time. So when we give you end of the year at - you know the restart, that's back to full operations.

[Jeff Silber:]

Okay. That's great to hear. And then just a small item on Rookery, regarding the environmental permit. I know there was a delay in terms of the comment period. Do you foresee any kind of issues in terms of getting that permit?

[Stephen Jones:]

No, no, we don't.

[Jeff Silber:]

Okay…

[Stephen Jones:]

As Brad mentioned, the tougher permits again is the planning permit and we have that Rookery and the two Biffa projects, the environmental permit is easier to get. And you really need to go through a process in order to get it. We're in the midst of that process now.

[Jeff Silber:]

Okay, great. Thanks for the call.

[Stephen Jones:]

Yes, sure.

[Operator:]

Your next question comes from the line of Brian Lee from Goldman Sachs. Your line is open.

[Brian Lee:]

Hey, guys. Thanks for taking the questions.

[Stephen Jones:]

Hi, Brian. Good morning.

[Brian Lee:]

Hey, good morning. Just one more for me on Fairfax. Just so we all have you know, our ducks in a row, did the full year EBITDA expectation for Fairfax heading into fiscal '17. Can you quantify sort of what that was and sort of where you're falling out here with the impact of the delayed insurance recovery proceeds? And then you also mentioned you know coming into the year you had a $10 million incremental opportunity from operational improvements at that facility. So just trying to square where the base is for this year that we should be modeling off of to think about how much more catch up you'll get as Fairfax is you know in normal operational mode for all of '18?

[Brad Helgeson:]

Sure. Hey, Brian, it's Brad. So we stopped short of providing specific profit numbers for individual plans and there are a number of reasons why we do that. But you hit I think on the key numbers, our expectation for '17 reflected - actually was a little more than $10 million of the year-on-year benefit, just from running our expectation of better production - that the investments we'd made in 2016. So when you think about modeling it you know, that $10 million is going to be a benefit that you know we would expect as a part of the overall 3% or 5% or 3% or 5% plus organic growth next year.

[Brian Lee:]

Okay. Okay. Fair enough. And then just a couple housekeeping things. On the settlement that was announced $8 million that impacted this quarter. Any residual impacts from that in future quarters or is that complete. And also was that embedded in the EBITDA view that you would capture that this year?

[Brad Helgeson:]

So there is no - there is no lingering impact one way or the other, that reached the settlements and we've been paid the settlement, so that's done. We certainly - this dispute was ongoing as we entered the year. I suppose you could think of it as we have a probability weighted assumption around this, like we do to any number of things that may not happen in the year. So I'd say it wasn't maybe specifically pointed out as part of our guidance range, but it factored in along with many, many other things, again into our overall thoughts on the range.

[Brian Lee:]

Okay. Makes sense. And then last one for me, I'll pass that on. I think you mentioned the euro, but the CapEx related to Dublin it was up $50 million versus the outlook provided last quarter. Any drivers you can speak to and also should we expect any residual growth CapEx related to that facility in 2018? Thank you.

[Brad Helgeson:]

Yes. I'll take the last part first. No, construction is being completed, as obviously as we've talked about blended in commercial operation, but we're - you know we're still making final payments to subcontractors and so on. There was some slight scope increases just as we're - as you finish up the project. There is some change orders, nothing individually that I think warrants more explanation. It's just sort of general scope expansion. I think in the scheme of things though it's a very small percentage of the overall project size. But in any event of course, we're wrapping it up here in the fourth quarter.

[Brian Lee:]

All right. Its makes sense.

[Operator:]

Your next question comes from the line of Yilma Abebe from JPMorgan. Your line is open.

[Yilma Abebe:]

Thank you. Good morning.

[Stephen Jones:]

Good morning.

[Yilma Abebe:]

When looking at the various projects that you have and the pipeline going forward. How much of the financing should we expect to see on the balance sheet over the next call it 12 months?

[Brad Helgeson:]

So our baseline approach for these on an individual project level is to finance them primarily with of course non-recourse project that generally the way these projects are structured, the projects we're developing are merchant projects with underpinning of long-term waste contracts, they're not pure PPPs. So with that structure they generally support - you could for modeling purposes two thirds to 70%, maybe 75% of the capital can be raised with project debt. So then the question becomes how we fund our equity. And that's where you know, we're considering a range of options both at the project level and at the corporate level, so that we can fund the projects and we can continue on the path of sort of - as is our plan next year and beyond continue on that path of improving the balance sheet.

[Yilma Abebe:]

But just to put a fine tune on that. You know, if we look at 2018 would we expect to see that the financing happen or is this more '19 and beyond?

[Brad Helgeson:]

You'll see the - if the project is going to move forward in the first - I am talking about Rookery's specifically, if the project is going to move forward in the first half in 2018 which we expect it will, we're going to have a financing plan in place ahead of that.

[Yilma Abebe:]

Okay. Okay. And then I guess in that context and you talked about sort of leverage being at sort of the high point to currently end and trending down from here. How does that change with that financing and then the first half of '18?

[Brad Helgeson:]

You know, it's really impossible to get into the specific impact of the plan, and so we lay out the plan. So hard to answer that question. But again I'll just go back to what I said a minute ago, that you know, we're committed to having those leverage ratios move down. I think that's the point.

[Stephen Jones:]

Yeah, we're focused on that.

[Yilma Abebe:]

Okay. Okay. And then one last one you know, in total for that particular project in the first half of '18, you know, how much were we talking about in terms of you know, the 12 project types?

[Stephen Jones:]

What we've talked about in the past and when we're at the point where we're moving forward we'll lay this out in more detail. But we've talked about in the past is that Rookery is roughly comparable to the size of Dublin, it's about 80% to 90% of the size of Dublin. So if you look at the capital cost of Dublin, take 80% to 90% of that, you're looking at ballpark US$500 million. We're going to have - we're going to have project level leverage. We have a partner. We're partnering with Veolia in that project. So you can make some assumptions around both of those to come to what our equity investment requirement will be. But again when we get to that point we'll lay all that out very clearly.

[Yilma Abebe:]

Okay. And that's really the only financing expected in 2018, right, all the projects are in '19 and beyond, is that true?

[Stephen Jones:]

It should be determined, but I think as we sit here today that's probably good assumption…

[Brad Helgeson:]

That's probably - yeah, it's probably good assumption going forward.

[Yilma Abebe:]

Okay. Thanks very much. That's all I had.

[Stephen Jones:]

Sure. Thanks.

[Operator:]

Your next question comes from the line of Tyler Brown from Raymond James. Your line is open.

[Tyler Brown:]

Hey, guys just a quick follow up here. Steve I know it's early, but what all kind of growth - growth CapEx buckets should we think about next year, so will perhaps be in there, will New York, will there be any additional spending there. And then I guess Rookery. But specifically how much do you plan to spend on the tap's facility?

[Stephen Jones:]

So that the three that you mentioned, I am expecting they'll all be in the buckets next year, right. So let's talk about New York for a second. They're getting close to finishing construction. We're expecting the notice to proceed. I think a lot of people have forgotten about the second marine transfer station which is interesting. But you know, and I saw some pictures the other day and they're pretty far along in construction. So we'll expect to get a notice to proceed and then it'll take us you know, 12 - 9, 12 months to buy some of the equipment. Brad just talked about Rookery, again we're expecting that gets kick off into construction in the first half of 2018. And then on taps project, like I mentioned we're feeling pretty good about things from a permitting standpoint and we're looking at a couple of different options on sites, but one of the likely sites is the Fairless facility in Pennsylvania. So we've been working with some of the Pennsylvania DEP folks on permitting. That facility will probably cost about $20 million and we're kind of you know, kind of the square in those numbers out now, so - and you'll see some of that coming through, obviously, if we get the permit that will be coming through in '18 or so.

[Tyler Brown:]

And for New York City - for the marines…

[Brad Helgeson:]

Yeah, just as a reminder, we're looking at probably about $30 million of equipment purchases, all that equipment will be leased, but likely be structured as we did with the equipment for the Queen's transfer station as capital is going to be on balance sheet but we'll be leasing that equipment.

[Tyler Brown:]

Okay….

[Stephen Jones:]

Yeah, [indiscernible] that's about $5 million of incrementally EBITDA once that second marine transfer station gets started up, so.

[Tyler Brown:]

Okay. And that's for the barges and the containers et cetera?

[Stephen Jones:]

That's right.

[Tyler Brown:]

And then - so Brad, look I'm just sell side analysts, but on Rookery are there financing structures that can somehow keep the leverage optics at bay. I mean, I'm not even sure I know what I'm asking. But are there some financing options where again we don't have to replay the whole Dublin leverage issue. And then on the equity, why not just post that towards the end instead of posting up front?

[Brad Helgeson:]

Yeah, I think I'll answer that but saying there are range of options to get both at the project level and corporately and so yes, I guess that this is…

[Stephen Jones:]

The answer to that…

[Brad Helgeson:]

But we're reviewing probably most of the options you could dream up.

[Tyler Brown:]

Okay. All right. Look forward to more. Thanks.

[Brad Helgeson:]

Thanks, Tyler.

[Operator:]

Your next question comes from the line of Barbara Noverini from Morningstar. Your line is open.

[Barbara Noverini:]

Hey, good morning. Just a quick one from me.

[Stephen Jones:]

Morning.

[Barbara Noverini:]

Stephen, you had talked about your maintenance plans for the fleet and I'm curious how many of your plants could benefit from an upgraded fire suppression system, like what you're planning to install Fairfax and you know, whether that's baked into your near term, mid-term CapEx plans already?

[Stephen Jones:]

Yeah, that's a really good question, because I I've been working with the team here on taking the learning's that we were able to achieve or develop at Fairfax and start to roll those out across the fleet. Realize that a number of our plants, so you know, little less than half are owned by other folks. We just operate the plant. So the decision to put in the fire suppression is going to be their decision and their capital. But our plans, we're going to start to look now at rolling that out. And realize this is infrared cameras with a different deluge [ph] systems. They're not very expensive. I mean, to fit out - to kit out our facility is probably less than a $05 million. And so because a lot of the technology has got cheaper, particularly around the cameras. And so we're looking at that now and starting to roll that out. I think that's an important upgrades to our plans as we move forward.

[Barbara Noverini:]

All right. Thanks a lot.

[Stephen Jones:]

Thanks, Barbara.

[Operator:]

There are no further questions at this time. I now turn the call back over to Steve Jones.

[Stephen Jones:]

I'd like to thank everybody for joining us today. Again, we're really proud and excited about Dublin as it's come into operation. I mentioned previously that this is a transition year where Dublin coming on stream and allows us to do a number of other things. So we're looking forward to that as we move through the rest of 2017 into 2018. Again, thanks for taking the time. I know folks are busy. Thanks for joining us and trying to understand and appreciate what we're doing here at Covanta. So thanks and have a good rest of the day.

[Operator:]

This concludes today's conference call. You may now disconnect.