Covanta Holding Corporation
Q3 2013 Earnings Call Transcript

Published:

  • Operator:
    Good morning, everyone, and welcome to the Covanta Holding Corporation's Third Quarter 2013 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 10034137. The webcast will also be archived on www.covantaenergy.com 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 Mr. Alan Katz, Covanta's Vice President of Investor Relations. Mr. Katz, please go ahead.
  • Alan Katz:
    Thank you, Amy, and good morning. Welcome to Covanta's Third Quarter 2013 Conference Call. Some of you have asked why we moved our call to 10
  • Anthony J. Orlando:
    Thanks, Alan, and good morning, everyone. For those of you using the web deck, please turn to Slide 3. Our third quarter results came in better than last year but slightly below our expectations. Based on our year-to-date results and our outlook for the rest of the year, we've lowered our guidance metrics. Three primary reasons have developed within the last few months
  • Sanjiv Khattri:
    Thanks, Tony. Good morning, everybody, and good afternoon to those of you calling in from Europe. While the fact that we are lowering guidance on this call is disappointing news, our goal is to be transparent in terms of the gives and takes that are impacting our near-term financial performance. We hope that this will allow you to assess how well we are coping with the near-term challenges while remaining focused on running the business for long-term shareholder value. Before jumping on to the numbers, let's take care of some normal housekeeping. First, I wanted to remind everyone that we have our detailed P&L on Slide 20, as well as the usual non-GAAP reconciliations in the appendix. In addition, slides 25 and 26 provide a free cash flow walk, showing how you get from our booked earnings to our free cash flow. We are happy to take any questions on any of these, of course. Now on to the main deck. Slide 10 lays our Q3 2013 financial highlights. Tony went through these results, so I'll just say that this quarter came in a bit lower than expected on adjusted EBITDA, but year-over-year, it was a solid quarter, as you can see from the waterfalls. Free cash flow was much higher because we got the construction working capital payment that I had mentioned last quarter. If you recall, I noted that it would either be a Q3 or Q4 inflow. As discussed earlier, all of our key metrics are up year-over-year. We also completed the acquisition of the Camden Energy-from-Waste facility this quarter. This had a very modest impact in Q3 but is a nice long-term addition to our portfolio. Before I go on, I want to flag 2 noncash write-downs totaling $12 million pretax that we had this quarter. The first is a write-down of $9 million related to our Wallingford facility in Connecticut. This facility had an attractive power purchase agreement that ended a couple of years ago, and our updated outlook for the facility required us to write it down. We continue to look at various options to enhance its outlook. The second is a $3 million write-down related to our unconsolidated equity investment in one of our biomass facilities. We are a 55% owner of this plant. We don't operate it. Therefore, we don't control things like contract renewals or cost-saving opportunities. At the current bark spread, the facility has just not been profitable. As such, we decided to write-down the asset as we continue to look for ways to optimize its value. Before I discuss the quarter in detail, let's spend a few minutes on the puts and takes that resulted in our lowering the 2013 guidance ranges. I'm on Slide 11. As I mentioned, our 2013 guidance ranges are now $480 million to $495 million for adjusted EBITDA and $220 million to $240 million for free cash flow. Adjusted EPS also moved down to $0.33 a share to $0.43 a share. Tony already addressed the 3 reasons why we are down versus our last update in July. Let me just quickly repeat those reasons
  • Operator:
    [Operator Instructions] Our first question is from Dan Mannes with Avondale Partners.
  • Daniel J. Mannes:
    So first thing I want to touch on is, obviously, 2014. It certainly feels like there's kind of an evolution in the way you guys are discussing the prospects. I know in the past you'd kind of said your goal was modest growth over the period, with '14 facing some headwinds. It now feels, using the term "challenging," even against kind of easier comps in '13. It seems to indicate maybe modest growth, maybe even difficult. Can you maybe go to a little bit more detail on the puts and takes as you look at '14 versus '13, particularly in the context of some of the headwinds that '13 faced that shouldn't recur and the fact that you should be coming out of '13 with more organic growth? I guess I'm still struggling a little bit in terms of the way you've characterized '14.
  • Anthony J. Orlando:
    Sure. I guess I'll take that one, Dan. This is Tony. Again, it's still early in the process. We haven't yet finalized our planning for next year. And of course, it's our goal to grow. But it is going to be a challenging year. We've known that for awhile. But I think it's fair to say that as we look at it, some of those challenges have gotten a little bit steeper. And I think probably the biggest ones are the 2 things that we've highlighted, really, that our organic growth, while still quite good, came up a little bit short of where we had hoped it would. And so that means we'll be starting off a little bit lower base. And then the other one is that we're going to proactively address the unscheduled maintenance challenge, right? I mean that -- I think that's kind of the biggest thing going on this year. We've had, I think, a remarkably good track record with our boiler availability at 92% consistently. But this year, as I talked about earlier, we've seen some areas unrelated to the boiler, most notably the turbine generator, which, of course, is the other major component in the facility. And what we're going to look to do is employ, really, some of the same philosophies that we've been so successful with on our boiler to the turbine generator and proactively get in there to reverse the trend that developed this year. But it's -- I think it's fair to say that you can't reverse a trend overnight. This is a program that's going to take us several years. We'll go after the higher-priority items first and kind of work our way through that. But we did see a fair bit of unscheduled downtime related to turbines this year. And our goal is to reverse that trend, but it's going to take some time.
  • Daniel J. Mannes:
    Can you quantify, within maybe a range, the incremental spend? And two, can you talk at all about the 2014 cash flow story, particularly in the context of both the working capital drag on -- from construction and secondarily, maybe some incremental costs around the convertible refi?
  • Sanjiv Khattri:
    Sure. Dan, Sanjiv here. First of all, as Tony said, the work on '13 -- '14 is ongoing. It's very preliminary. Because we were lowering our guidance for '13, we felt it behooved us to update you on how we see the challenges. As Tony pointed out, maintenance was probably new, all the others, you are aware of. I also want to mention organic growth will continue to be positively, even though it's starting from a lower base. And we'll have the full year benefit of Camden and all the other little good things we are doing. But I think it's probably premature to pin down specific numbers as it relates to what the delta could be. I could comment on free cash flow. First of all, as you saw on my Slide 16, I believe, with construction working capital, and again, it really depends on certain milestones that we have with our major construction project that's ongoing. But at this time, we expect that we will be short by $30 million to $50 million in construction working capital next year. That's sort of our current estimate. However, that will immediately flip in 2015. So whatever number we come out with or whatever number you think we have, you should probably normalize for that because whatever you see down, you should expect a pick -- equal pickup in '15. And to the extent that we are able to contractually complete certain milestones sooner, you'll see it happen sooner. But I'm trying to give you the best estimate possible. We have not yet made a decision on how we are going to refinance the convert that is coming due in middle of next year. But as I have consistently said, on the margin, the interest expense and interest cash cost will be higher than the convertibles cost it's complete -- currently replacing. I think our goal is to find the right space in the capital structure, which makes the most sense for us in terms of both long-term cap balance sheet flexibility and also the long-term cost of capital. So it will go up. But at this time, I would be speculating by how much. It really depends on what type of security Brad chooses and when he decides to go to the market.
  • Daniel J. Mannes:
    But more broadly, I mean, the '14 cash flow story, given the combination of the challenging EBITDA conditions, the working capital drag and potentially higher interest expense, it sounds like that's obviously going to have some challenges as well. And not to throw in a third question, but I will because someone else will probably ask. But how does that play in maybe to the -- to your capital allocation plans for next year and potentially, use of cash? Because it sounds like you'll be even a little more constrained.
  • Sanjiv Khattri:
    Well, we, obviously, have not finalized our full plans. Our underlying policy that has basically been steady for over 3.5 years now since Sam and Tony laid it out in July of 2010 stays unchanged. We have 3 uses of capital, and our goal is long-term shareholder value, growth investments, a dividend, hopefully, that continues to grow and stock buyback. And we'll continue to allocate it. We do think our balance sheet has capacity. Otherwise, we will not be doing all 3 and sharing. Our stock buyback is obviously a flex. But as I said, we are very careful not to give our targets. What I can assure all of you is that we are very focused on long-term shareholder value, and we will direct our capital to an appropriate use with that goal in mind.
  • Operator:
    Our next question is from Hamzah Mazari with CrΓ©dit Suisse.
  • Hamzah Mazari:
    The first question, Tony, would just be on the maintenance outages. Could you help us understand how much of this is an execution issue or operational issue versus just a factor of the age of your facilities? Any sense how we should think about that? You pointed out, historically, you haven't had these issues. So just wondering is it an operational issue or is this sort of just the age of your facilities, frankly.
  • Anthony J. Orlando:
    No. Our team does a fantastic job of maintaining the facilities with great reliability and availability. But as I said earlier, our facilities are aging. They're an average of about 25 years old and -- in particular, on the turbine generators, but also some of the other ancillary equipment. We have started to see some areas that we need to address that hadn't appeared before. So what we're going to do is go after those proactively and without getting too far into the details, really try to look at those systems with the same rigor and the same philosophy that we have with the boiler. That's been very, very successful for us. And again, the boiler is still the vast, vast majority of our scheduled maintenance, of our -- any kind of downtime. That's still the big primary driver for the business, as you can imagine. It's a 2,000 degree fire inside of a very large 100-foot tall box with metal tubes. It requires a lot of maintenance. And we're going to use the success that we've had there and employ it to some of the other areas that, historically, wasn't necessary because they had extremely high availability and reliability for a long time. But now we're seeing some new items that need to be addressed. It's not an overnight item. I want to make sure that we're clear about this. We're going to go after the high-priority items first. We're going to do certain inspections, and then we'll address things as we see them. And we'll a work our way through it. But I do think that, that's going to -- it's going to take us a little bit of time to get there. And so we're managing the fact that the fleet is getting a bit older, and I'm confident that we're going to get there to the point where we'll have the entire facility in the same condition that we have the boilers once we implement this program.
  • Hamzah Mazari:
    Great. And then just a follow-up question on the New York City long-term plan. Maybe if you could just update us on how we should think about the ramp in investment in the $140 million. I assume it's gradual. And then also, do you guys consider logistics a core competency? Or is that an opportunity? I mean, you have all these small growth initiatives. Logistics seems like a bigger growth opportunity longer term. I know you're not in the collection business, but maybe any comments there.
  • Anthony J. Orlando:
    Yes. No, I think it is an area of opportunity for us. We currently -- obviously, we move a fair amount of waste via transfer station, via truck. We also have 1 facility where we move all the wastes via rail currently. Certainly, this contract will be our first in moving on barge. And we have expert contractors that will be subs to us, that will help us with that logistics. But we think that it is an opportunity for us to kind of think about how do we continue to leverage our assets. And as Sanjiv noted earlier, as we're making some improvements to the Niagara facility and the Delaware Valley facility that's driven by the New York City contract, that opens up doors to do other things, as we have rail connections and whatnot. So I think, long term, that there could be some more opportunities there, and I think that could be one of the kind of hidden benefit to that contract.
  • Sanjiv Khattri:
    Just to answer your question specifically on timing of CapEx, Hamzah, the $80 million relates to the Queens marine transfer station. We would expect to spend all of that between this year and next year, and we've laid that out for you, so that should be gone. And then the one for the New York City really depends on when the city gives us notice to proceed. But you should expect between 12 and 18 months from when we get the notice to proceed. That $30 million should go. In terms of the improvements that Tony referred to in Delaware Valley and Niagara, that money is -- also will be spent between '13, '14 and some residual money in '15.
  • Operator:
    Our next question is from Gregg Orrill with Barclays.
  • Gregg Orrill:
    I was wondering if you could come back to the organic growth initiatives. It seemed like part of the weakness this year was just delay in getting some of the projects, investments completed. And so how do you feel about the downside from this year going away in '14 as the projects get a full year?
  • Anthony J. Orlando:
    Yes. A couple of things this year. In fact, it was really many, many small things that added up, but the couple that we focus a lot on, because they're our biggest single initiatives, are the metals and the special waste. And we had aggressive targets both in terms of our schedule to install maintenance -- I'm sorry, metals recovery, as well as aggressive targets to improve our special waste sales. And we really did quite well, I mean significant double-digit growth in special waste, but just not quite up to what we were hoping for. And so I think it's fair to say that, that grows off a slower base. On the metals side, hopefully, it's going to just be the fact that we're a little bit later, which hurts this year. And that we're still -- having said that, given the fact that we haven't actually got the -- all these systems up and running, we haven't kind of been able to test and verify that we're going to get the yield and the results that we thought we would. The -- where we have installed those early on, we've gotten the good results, almost spot on what we were expecting. So -- but we'll have to see how these -- the ones that are going in now and we fully expect to get very good results from those. And hopefully, that will -- well, I know that will -- is going to be a big contribution to helping next year. There's no question about that. The other thing in the organic growth is it really encompasses almost everything else that's going on in the business, right? So everything else, whether it's challenges with health care costs or any other challenges going on in the business, everything effectively gets rolled into that organic growth number. We break out the pricing on metals and energy. We breakout the contract transitions. We break out what's going on with the unscheduled maintenance, and then really everything else is left in that organic growth bucket. And so we're working to optimize that, and I know we're going to get some good results again next year.
  • Gregg Orrill:
    Okay. And then I'd be interested in your updated thoughts on yield co drop-down vehicles as a source of low-cost capital. Particularly given long-term contracted nature of many of your projects, that would seem to fit.
  • Sanjiv Khattri:
    Thanks, Gregg. We -- as you remember, this topic came up last quarter when, I think, another company had launched such a vehicle. I think, at this time, it's fair to say that we did look at it, of course, because of the interest generated. At this time, if you look at the profile, and we studied some of the other companies that have been successful, and even though we remain very contracted and predictable business, we would not naturally fit the profile of the type of companies that had been out there on yield co. So some things would have to fundamentally change for us in terms of either our core growth trajectory and the longer-term nature of some of the contracts. So in a nutshell, I think, at this time, it's fair to say we do not see that as an opportunity. Having said that, we are always looking at ways, either through balance sheet or through operations or figuring out new ways to optimize the use of capital and improve our overall returns. So we are -- there are lots of things we are looking at, but a classic yield co, I don't think -- at least at this time, we don't think it works.
  • Operator:
    Our next question is from Ben Kallo with Robert W. Baird.
  • Benjamin J. Kallo:
    As we look ahead to the PPA transitions for next year, is it safe to say that, that $10 million to $15 million is straight EBITDA?
  • Sanjiv Khattri:
    On the margin, that's exactly right, Ben. On the margin, absent any other changes, there may be some contract transitions that may have other differences as linked to it. But on a simple PPA, yes, every change in revenue, both positive and negative, flows to the bottom line.
  • Benjamin J. Kallo:
    And I know that it's not time for specific guidance yet, but just as I crunch the number, I kind of get to flat year-over-year type numbers, without, gaining some upside from gas or metals or things outside of your control?
  • Sanjiv Khattri:
    Again, very careful not to comment on that, as Tony pointed out, a work in progress. What we did want to do was to lay out, as we see, the big items affecting our performance. Obviously, we will work hard and try to come up with as aggressive a plan as we can. But that's a discussion to be had when we released 2013 earnings and released our guidance.
  • Benjamin J. Kallo:
    Okay, understood. And then finally, I guess on the unplanned maintenance having a little -- having some of that stretch into 2014. I guess with some of, Tony, your comments earlier about this is not all going to be done at once, what's the likelihood that we see some of the same happen in 2015 that act as a headwind? And then possibly, maybe if you could comment, Sanjiv, on as we look to 2015 and maybe some of the headwinds you face from cash taxes going up as well, all combined in there.
  • Sanjiv Khattri:
    Well, I'll address the last topic first very quickly. When we last updated our NOL outlook, we said mid-decade, and that still happens to be true, [ph] If anything, sort of in a very perverse sort of way. To the extent that our operating performance lags a bit, that actually extends the life of the NOL. So we do plan to give you a much better update when we meet in February because we would have completed all our analysis. But at this time, I would be surprised if we had any free cash flow headwinds in '15 due to the NOL. But that's something we have to flush out a bit more. I think Tony did say that some of the maintenance spend is a multiyear issue. And clearly, we would be speculating, at this time, what we mean by how much amount. Some of the unscheduled may become scheduled because it would be planned as part of our exercise, but I think it would be premature right now to discuss any numbers for '14, leave alone '15. But the activity, both in expense and capital, will moderately go up. Anything to add, Tony?
  • Anthony J. Orlando:
    No. I think that's right. But just to kind of take a step back and think about it, I mean, the unscheduled downtime is something, first off, that is normal in our business, right? We have large complex power plants, and we always have scheduled and unscheduled downtime. And so really, the question is what's the level and what's the mix between the 2 because the scheduled is more cost-effective than unscheduled, as you can imagine. But I think it's fair to say that those don't -- typically, the downtime trends don't typically move in a step function. They're trends, and what we're going to do is proactively jump in there and work to reverse that trend and as I talked about earlier, really look to employ some of the things that we've had great success on with our boilers and other areas of the facility.
  • Operator:
    The next question is from Michael Hoffman with Wunderlich.
  • Michael E. Hoffman:
    On the unplanned maintenance, Tony, can you frame for us what the full year pattern of that has been, say, for the last 3 years, year-to-date? So we've got roughly $15 million this year. What was it in '12? What was it in '11? Just so we understand the delta that we've gotten to deal with this year.
  • Anthony J. Orlando:
    The numbers that we're talking about, the $15 million, is really versus our internal expectation. So we're focused on what it looked like this year. And the majority of it was really in that first quarter related to turbine generators, and we also had one -- fairly meaningful one related to an air cool condenser. We had a bit more than we hoped in the third quarter, but we also had a couple of other things go against us in the third quarter. So I think we're really looking at it compared to our expeditions for this year, which our expectations this year is we would have similar unscheduled activity to prior years.
  • Michael E. Hoffman:
    Okay. So just so I'm clear, this is a $15-ish million incremental to an expectation that's always there, and it runs about a number -- and that number has been relatively constant?
  • Sanjiv Khattri:
    Give or take. If you go to Exhibit 10B, we show you maintenance expense year-to-date. And of course, some of it has to do with timing of projects, of outage projects, but you see that number is up year-over-year. So as you can see, some of it is revenue. So did we have some unscheduled maintenance last year? Yes, we did. But it was not big enough to get noticed, and so you can make your assumptions. We always assume certain amount of downtime. Because these were so big and concentrated, we felt it was important to share with you.
  • Michael E. Hoffman:
    Okay. So I'm trying to understand the messaging with regards to next year then on this. Is your anticipation that you'll get back to a normal pattern, but you'll then increase some expenses to address pulling the turbines and the air cool condensers into a more intensive preventive maintenance? So your -- so to repeat myself, the expectation is, in '14, I go back to a more normalized unscheduled cycle but I'll have more dollar spend to improve preventive maintenance?
  • Anthony J. Orlando:
    Again, we're still -- we're in the process of fleshing out exactly where we are in '14, and we'll lay that out when we get to the guidance for 2014. I don't know any other way to say it. I've tried to say it in a number of different ways. We are going to proactively get in and do some additional inspection and look at some of our turbine generators, given what we've learned this year. And this process is going to take a little while. It is not going to happen overnight. So we'll get into the specifics when we lay out the 2014 numbers.
  • Michael E. Hoffman:
    Yes, okay. But I'm -- I've been asking, actually, about a number, as much as I -- dollars, specifically. Just the messaging -- am I right about what you're saying, messaging is -- you would anticipate going back to a more normalized unscheduled but you'll introduce more operating expense to incorporate a greater amount of preventive maintenance? Is that...
  • Sanjiv Khattri:
    I think that's maybe a bit simple. If I could, I think there will be some unscheduled outages next year, there always is. The question is, will it be big enough that we would flag or will it be as part of our overall planning. So in our operating expense and our maintenance expense, we always assume a certain level of unscheduled. And we will -- when we finalize '14, we'll make sure that we factor in some of our new learnings from 2013. You are right in concluding that both expense and capital will moderately go up next year, and we'll all have to add it all up and see where we end up.
  • Anthony J. Orlando:
    Yes. I think that's the key takeaway at this point. Again, we're still on the process. But we do expect it to -- the expense and capital to moderately go up. And that's what we are doing because of what we've seen this year, and it makes sense for the long term in the business. But I do want to emphasize, fundamentally, the maintenance program is not changing. I just -- I really want to emphasize that. Most of our maintenance activity on all the fundamental things we do to ensure reliability for our customers and for ourselves and for our shareholders and to be safe and environmentally sound at our facilities. There's nothing fundamentally changing. The key focus that we maintain in our plants, with a great deal of success, is on our boilers and all the other ancillary equipment. We're really making a couple of tweaks based on some of the things we've learned this year around the turbine generators primarily, but also a couple of other piece of equipment to get out in front of this, and it's just going to takes us a few years to do that.
  • Michael E. Hoffman:
    Okay, second question. So I followed this, you've talked about it, I just want to make sure I've got my list right. On free cash flow, the adds would be Camden, the onetime aspect of this lost steam energy issue between the 2 customers, lower SG&A because of international development savings and organic growth. Those are the key ones on the add side. And on the negatives, I've got the negative from lower debt service. I don't get the benefit of the gain of the PPA, so that was onetime this year. I've got more working capital because of construction, and I'm going to spend a little more -- have a little more maintenance related to what we've just discussed. Those are the key puts and takes to whatever we choose to come out with as a free cash number?
  • Sanjiv Khattri:
    That's what we've sort of discussed with you. As I said, when we have the whole -- I don't know, we see that you are talking...
  • Michael E. Hoffman:
    I get you're going to give me data later, I just want to make sure I got my list right. That's the right list?
  • Sanjiv Khattri:
    I think you've got -- these are all the things we flagged, so you were -- you were taking notes well.
  • Operator:
    Our next question is from Al Kaschalk with Wedbush Securities.
  • Albert Leo Kaschalk:
    I'll try to make this brief here, but Tony, I just wanted to get a clarification on the organic growth trend and some of the smaller initiatives and in particular, why maybe they didn't materialize at the rate, internally, you had hoped. So is there -- was that a conscious decision on your end? Or was it customer, facility related that pushed some of these things, maybe out is the right word?
  • Anthony J. Orlando:
    Well, the 2 that are most visible really are the metal projects, and that's largely relating to the projects being completed later than we anticipated. But so far, we're getting the results we expected. More testing to come on that, but so far, so good. And then on the special waste, look, we targeted a very significant growth rate. We're still growing meaningful double digits in that area, and I believe we'll continue with a long runway to grow in that area because our customers like the service we provide. And we're providing an environmentally-superior product to landfills, and I think that, that area is going to continue to grow. It's just -- we're a few percentage points below what we are targeting to grow at. So nothing really fundamentally has shifted there, just we're ticked down below where we thought we'd be. And those are the 2 big ones for this year.
  • Albert Leo Kaschalk:
    Okay, fair enough. I appreciate the special waste comment. Given availability and integrity rates of the boilers, I can certainly appreciate those comments. And then my final follow-up is on -- would you be willing to share any update, and I apologize if I missed, on Dublin and maybe time frame or major milestones over the next 6 months that you're looking at?
  • Anthony J. Orlando:
    Well, I think the short answer is that there's really not much new to say about Dublin. We're frustrated that it's taking as long as it has. I think it's fair to say that is the nature of energy from waste development, but it seems to be more so the case in Dublin than on most projects. It's just taking a very, very long time. I think that, at this point, though, we are spending very little money, and we still believe it's a good project for us and for our client. The client still believes it's a good project, and we'll see if the various approvals come through. And if they do, then we can move forward. So we're just going to have to wait and see on the timing.
  • Operator:
    Our next question is from Jeff Osborne with Stifel.
  • Jeffrey D. Osborne:
    Just 2 quick questions. I think you answered it, and that was the question on the special waste side. But I'm just trying to get a sense of the sequential movement. You talked about double-digit growth year-on-year. But what happens sequentially on the special waste, in particular? And then a follow-up on that, are you looking to add any additional sales capability there? Any process steps to hit the milestones for next year?
  • Anthony J. Orlando:
    I don't -- you know what the quarter-on-quarter growth is, Sanjiv, on special waste?
  • Sanjiv Khattri:
    It's close to 15%. Well, year-over-year, we're giving $55 million run rate last year. We expect that to grow double...
  • Anthony J. Orlando:
    Yes. He was asking what it was sequentially on the quarter.
  • Sanjiv Khattri:
    It was about 10%.
  • Anthony J. Orlando:
    It continued to grow sequentially on the quarter, I can say that. I don't have the exact number in front of me. But -- so we're really -- we have done a lot of things there, including ramping up our sales costs and our marketing efforts. And we continue to see success not just in the special waste area that we would traditionally define as special waste, but also in what we see as bundled services. And we're looking to see how can we expand that and grow that, we've had a great deal of success with that in the Connecticut and Massachusetts area, and how might we be able to leverage that in other areas. What additional services can we provide? Where -- the customers are looking to find ways to reduce what they send to landfills and move up what's known as the waste hierarchy, which is reduce, reuse, recycle and recover energy from waste. And so we think that we've got some nice opportunities for a long time to come to continue growing that special waste, that bundled services. And that's something that we're going to be very, very focused on as part of the future of the business. Meanwhile, somebody did give me the numbers, and yes, in fact, we are up a very healthy amount quarter-over-quarter, actually fairly consistent with what we're up year-over-year. So we continue to grow at a nice healthy double digit pace.
  • Sanjiv Khattri:
    Nice double-digit number.
  • Jeffrey D. Osborne:
    Got you. And then one clarification and one quick question for Sanjiv. Did you -- I may have missed it, did you mention what spot tip pricing was in the quarter, what the trends there were? And then I wanted to understand -- I understand the maintenance procedures haven't really changed, in light of what happened with the unscheduled downtime. But is there any sense of scope that will be in a discovery mode for you as you have your seasonal downtime over the winter? So perhaps you don't know what you're getting into yet, and then as you kind of get in there with traditional maintenance periods, then things will be brought more into light and you'll have more details to add as you provide the guidance next year.
  • Anthony J. Orlando:
    Yes. Let me take that one. I think that's actually a very good question in terms of how we think about it. And one of the things that's unique and different about turbines than boilers, boilers we shut down once or twice a year for scheduled maintenance. We maintain, we clean, we inspect, and we plan for the next maintenance. And so you're constantly kind of in -- literally, inside the equipment. Turbine generators are very different. They're designed not to be opened up or brought down for a very long period of time. Typically, maybe 6 to 8 years before you would actually shut them -- the machine down and open it up to inspect it. We are -- one of things we're doing proactively is we're going to shut those machines down more frequently to do some inspection next year. And so that process is -- in fact, it's actually starting late this year. So we're doing that now, and that's one of the things that we're going to -- we'll assess as we go in to inspect what needs to be done.
  • Jeffrey D. Osborne:
    And then on the spot tipping side? I might have missed that one.
  • Anthony J. Orlando:
    Sorry. Well, I did -- I just forgot it. I've had so many maintenance questions. Yes -- no, spot, I don't think, actually, we've covered spot pricing. I'd say it, generally speaking, is still soft for us, but it really is very location-dependent. I think in some of our areas where we have more spot waste exposure, we've seen more acute softness now. In particular, where we've got more spot waste exposure that's been areas of challenge are Niagara Falls and Delaware Valley facilities. Obviously, that dynamic will shift when we start to fill that spot up with the New York City contract. I think some of the other areas of the country have been a little bit better, but I think generally speaking, as we say, it's still fairly soft market but getting maybe a little bit better in certain areas. And we think with the New York City contract, long term, that's going to help stabilize that.
  • Sanjiv Khattri:
    Remember, Jeff, it all matters where it is, and some of our spot waste market is in some of the weaker markets in terms of incremental waste pricing.
  • Operator:
    Our next question is from Barbara Noverini with Morningstar.
  • Barbara Noverini:
    So given that 2014 is expected to be a challenging year and you won't be able to fully monetize your investment to serve New York City until 2015 and unplanned challenges have prevented you from really fully realizing the full benefit of your growth investments to date, it appears reasonable to expect depressed ROAs and ROICs through 2014, maybe part of 2015. If so, could we expect to see these metrics improve once the New York ramps up? What are you focusing on as the main drivers of ROIC improvement going forward?
  • Sanjiv Khattri:
    Well, Barbara, we have 2 things. First of all, obviously, you need to step back and look at what the overall cash flow that the whole enterprise is generating from both its current assets and its incremental investments. And even though we are disappointed that we had to lower our free cash flow for the year, we still are at fairly strong levels even at $220 million to $240 million. I wish it was much higher, but we took you through where we are. In terms of incremental investment decisions, we do have a very rigorous process, where we assess the dynamics and the risk and benefits of each project. And it's fair to say that each project actually exceeds its appropriate cost of capital. That is very important about that. And if the investment is a bolt-on to our current facility, like a metal system, then you would expect the returns to be much higher and the payments -- the paybacks much more accelerated. If, on the other hand, it represents what I call, sometimes I'd like to use the word offense/defense, a bit of defense, where -- which allows us to have some visibility to revenue streams over a long period of time, then the returns may be more modest. I don't see that process fundamentally changing. It's not like we are capital-constrained, that does not -- that is not -- having said that, we remain very capital-disciplined. And it is an irony that even as we have some operational challenges, which are near term and are no commentary on the fundamental strength of the business, we also happen to have a bunch of opportunities that we were -- we -- rightfully so, because of the balance sheet capacity we have, we rightfully so are going after. So we have a rigorous ROIC process for incremental investments. And overall, we are obviously very focused on generating cash because then that allows us to do a lot of things.
  • Operator:
    And our last question is from Carter Driscoll with Ascendiant Capital.
  • Carter W. Driscoll:
    Most of them have been answered, but I want to maybe drill down a little deeper into Camden. Obviously, you've only had this facility for a short time, but maybe you could talk about it in the context of your expectations for its operating performance and waste volumes, given you don't have a contractual commitment in that area? Has that been performing, at least initially, to your expectations? And then, overall, as it pertains to your growth initiatives, what part -- were does M&A play or fall in that spectrum in terms of opportunities and then your willingness, obviously, to lever up the balance sheet in order to try to pursue these types of acquisitions?
  • Anthony J. Orlando:
    Yes. The Camden facility, I think, is kind of squarely in our sweet spot. It's located in southern New Jersey. It's close to our other facilities. It's close to our home office here. It is essentially a fully emerging facility on electricity and does have some contracts on waste. But that's why we think we could really add value there. The plants have been well maintained. We -- not to say we don't think we can maybe do some things to leverage our expertise on that side, but we really think that -- where we can add value. And that, of course, is the key to any kind of acquisition, is what can the new owner do to add some value. We think we can add value on waste supply and how do you manage the electricity output. And so far, so good. Obviously early, but the facilities kind of fit right in, and confident that's going to be a good, strong investment for us. In terms of other future acquisitions, I think we've had a pretty good track record with acquisitions, and we do have the financial flexibility, as Sanjiv described earlier, to do things if we see something that fits both the strategy and we think, is at the right price, where we can create value. So we've had a track record in the past of doing acquisitions successfully that we think makes sense, and we'll obviously keep our eye out for additional opportunities in the future.
  • Carter W. Driscoll:
    Okay. Maybe just a quick follow-up. I realize it's getting long here on the call, but could you at least -- could you address the number of your facilities that you've implemented the metals capture, the number that it's a bolt-on versus maybe a new installation? And maybe, at least at a high level, talk about where one is more profitable than the other, at least the difference between a bolt-on, which I'm assuming is more profitable than a completely new install. Maybe frame out, incrementally, how one might impact versus the other in terms of margin, at a very high level.
  • Anthony J. Orlando:
    I think the metals projects have all been very good, and there's really kind of 2 -- 3 areas that we're going after on metals. One is how do we recover more ferrous by, for the most part, slight changes to the existing system. So every one of our facilities already had ferrous metal recovery and they have for a long time. But what can we do to get a little bit more out? What can we do to make that metal more clean and therefore, more valuable? Then we had -- historically had non-ferrous recovery for only a certain portion of the ash and only, really, at our large facilities. So we've now started to implement the non-ferrous recovery at many, many of our facilities. The economies of scale are obviously better at the larger facilities. And then the third area is the -- what we call the small non-ferrous, which, historically, we didn't even try to capture, very small pieces of non-ferrous. We implemented our first system at a large facility, again economies of scale, at Fairfax County a year ago. And we're now doing that other large facilities as well. So I did mention in the prepared remarks that we are starting to kind of get on to what we would say the downhill side of the investments. So I think next year is when we'll see, really, the full benefit of what we've done this year. We've got a few more investments to make. And then lastly, we are looking at a joint venture that we have talked about in the past, where we're looking to actually mine existing ash landfills to recover metal that was missed historically. And we have our first of those. It's going to be starting up in the coming months, early next year. And so we're going to be keenly interested in the success of that project because, if it works as we anticipate, we think that will create some opportunities for us as well.
  • Operator:
    That concludes our question-and-answer session. I would like to turn the conference back over to Mr. Tony Orlando, Covanta's CEO, for any closing remarks.
  • Anthony J. Orlando:
    Well, thanks, everybody. As Carter said, the call is getting long, but just a couple of comments to wrap things up. The business remains fundamentally strong. We've -- all the things that I like about the business and hopefully, you like about the business are the same. We've got great locations on our assets. We've got a portfolio that's virtually impossible to replicate. We provide a service that's essential to municipalities and to commercial customers, and we do it in a way that's environmentally superior to the landfill alternatives that's still predominantly used in this country. And so we think there's some great long-term upside, and we're going to continue to work as hard as we can to deal with some of these short-term challenges and focus on long-term value.
  • Operator:
    The conference has now concluded. Thank you for attending today's presentation. Please disconnect your lines.