Q1 Earnings

Dive Brief:

• Advanced Disposal Services reported a positive start to 2019 in its Q1 earnings release – the first without an accompanying earnings call, in light of the Waste Management merger announcement. The company completed two unspecified acquisitions during Q1 for a cash price of $23.9 million and notes payable (pending various factors) of $1 million.
• Advanced's quarterly filing indicates it also finalized a landfill consent order with penalties of more than $200,000. Remediation accruals of $16.2 million have been set aside for "required engineering enhancements related to leachate and gas infrastructure" — a reference to a settlement with Georgia's Environmental Protection Division over the Eagle Point Landfill.
• Recycling revenue declined to $3.5 million, making it less than 1% of Q1 revenue. Higher single-stream recycling processing costs — along with increased transportation costs from transfer station volume and greater reliance on subcontractors — increased transfer and disposal costs by 4.8% to $50.2 million.

Dive Insight:

Following the recent news of a merger with Waste Management, Advanced will still issue quarterly earnings releases, but has canceled all future calls. The company will go into an "extended quiet period" with investors and won't comment on 2019 guidance. CEO Richard Burke, in a statement, said during the merger process "our operating philosophy is unchanged."

Original projections of $1.60-1.63 billion in revenue, pricing in the 3-3.6% range and adjusted EBITDA around $440-452 million still stand. For Q1, adjusted EBITDA came in at $95 million and adjusted free cash flow was $43.9 million.

It's difficult to get a full picture of how the company fared during Q1 without the context of an earnings call, but financial results largely indicate business as usual. Landfill expenses remain a factor — and Advanced finalized another consent order in Alabama with a nearly $55,000 penalty — but are viewed as manageable in light of the increasing profitability of the company's disposal assets.

Other areas track with Q1 results from publicly-traded competitors — pricing on municipal collection contracts is trending up due to consumer price index resets, tight commodity markets have reduced recycling revenue and growth has continued through acquisitions.

M&A helped increase YoY revenue by 1.4% for the quarter — primarily due to a $15 million December deal with EC Waste and the two recent acquisitions for $23.9 million. Earlier this year, executives projected spending $50-75 million on new deals in 2019 — as compared to $30 million in 2018 — giving the company a busy start to 2019.

The Waste Management merger news can be expected to change those plans as attention shifts to ensuring the transaction's completion by Q1 2020. While the deal has been approved by both companies' boards, it still requires a vote from Advanced shareholders as well as regulatory approval. The Department of Justice is widely expected to require some amount of antitrust divestment. Republic Services, Waste Connections and Lakeshore Recycling Systems are already on record expressing interest in these potentially available assets, with others almost certainly keeping tabs on the situation.

If and when the acquisition of the U.S. industry's no. 4 player is complete, Waste Management will have executed its largest deal in nearly 20 years and further solidified its position as the largest waste and recycling industry agglomerate in North America.