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Covanta Holding Corporation (NYSE:CVA)

Q1 2014 Results Earnings Conference Call

April 23, 2014, 08:30 AM ET

Executives

Alan Katz - VP, IR

Anthony Orlando - President and CEO

Brad Helgeson - EVP and CFO

Analysts

Benjamin J. Kallo - Robert W. Baird

Scott Levine - Imperial Capital

Daniel Mannes - Avondale Partners

Michael Hoffman - Wunderlich Securities Inc.

Gregg Orill - Barclays Capital

Carter Driscoll - Ascendiant Capital

Albert Kaschalk - Wedbush Securities

JinMing Liu - Ardour Capital

Operator

Good morning everyone and welcome to the Covanta Holding Corporation's First Quarter 2014 Financial Results Conference Call and Webcast. This call is being taped, and 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 10043707. Webcast as well as the transcript will also be archived at www.covanta.com.

At this time, for opening remarks and introductions, I'd like to turn the call over to Alan Katz, Covanta's Vice President of Investor Relations. Please go ahead.

Alan Katz

Thank you, and good morning. Welcome to Covanta's first quarter 2014 conference call. Joining me on the call today will be Tony Orlando, our President and CEO, Brad Helgeson, our CFO; and Tom Bucks, our Chief Accounting Officer. We will provide an operational and business update, review our financial results and then take your questions.

During their prepared remarks, Tony and Brad will be referencing certain slides that we prepared to supplement the audio portion of this call. These slides can be accessed now or after the call on the Investor Relations section of our website. The prepared remarks should be listened to in conjunction with these slides.

Now on to the Safe Harbor; 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, April 23, 2014. 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. Reconciliation to the most directly comparable GAAP measure and management's reasons for presenting such information is set forth in the press release that was issued last night, as well as the slides posted on our website; because these measures are not calculated in accordance with U.S. GAAP, they should not be considered in isolation from our financial statements, prepared in accordance with GAAP.

It should also be noted that our computations of free cash flow, adjusted EBITDA and adjusted EPS may differ from similarly titled computations used by other companies.

With that, I'd like to now turn the call over to our President and CEO, Tony Orlando. Tony?

Anthony Orlando

Thanks Alan and good morning everyone. Please turn to slide three in the web deck.

Yesterday, we affirmed our 2014 guidance for all of our metrics. Consistent with our expectations, first quarter results were up year-over-year. As we all know this year's winter weather was cold and snowy in the U.S. and I want to spend a few minutes talking about how that affected our first quarter results.

Net-net it was a positive for us. The benefit was simple, higher energy prices. Across our entire energy from waste portfolio, the average energy price was up $7 a megawatt hour. Furthermore, our main biomass facilities were able to run flat-out to capture the benefit of higher prices. This benefit was partially offset by three weather related items.

First, we had higher fuel expense which Brad will describe further. Second, contracted waste deliveries was slightly lower than planned due to less economic activity and weather related disruptions. Our team did an excellent job of managing the waste supply and getting spot waste when they could but still this hurt our waste revenues a bit.

And third, as I'm sure you can imagine, the extremely cold weather cost some operational challenges including a small adverse impact to our metal recovery rates.

Overall, I'm very proud of how our team managed the business under these difficult conditions. This enabled us to capture a significant year-over-year benefit from higher energy prices.

Before moving on, I should note, the impact of winter weather was largely included in the guidance we issued in mid-February.

We also continue to make progress on the contract renewal front. I'm pleased to announce that in April, we signed a contract extension with our Fairfax County, Virginia client. This new contract starts in February 2016 and covers a five-year period with two five year extension options.

The facility will transition to a tip fee model meaning that the client will pay per ton fee for waste disposal and we will retain 100% of the energy in metal revenues.

In addition, we'll also take -- we'll take on certain costs that were previously passed through to clients. In a new agreement Fairfax County will provide approximately 60% of the facilities waste processing capacity and we'll fill the rest with new customers.

Let's move on to markets and we'll start with waste on slide four. I have just a couple of notable points regarding our first quarter waste revenue, which was inline with our expectations. Our same store volume was up 4%. This was largely due to the timing of scheduled maintenance.

In addition, you can see the benefit from the Camden acquisition and a reduction in debt service revenue. So in short, nothing new with respect to waste markets since we last spoke.

Let's move on to energy, please turn to slide five. Both energy price and production increased this past quarter. Market prices for March came in slightly higher than our initial expectations as of the last call due to the continued cold weather. But keep in mind that strong pricing was already baked into our guidance for the year.

The bigger beneficial factor compared to our original guidance was improved contract prices in the quarter. You'll notice that our contract energy price moved up compared to Q1, 2013.

We tend to think of our energy contract as fixed price. This is fundamentally correct but perhaps an oversimplification. About 70% of our contracted output is sold under pricing arrangements that have little to no volatility.

The other 30% have stated maximum and minimum prices, we call these collars. We've mentioned this before but had not focused on it previously because we were on a low-end of the price range and we were not expecting much price fluctuation.

But fortunately in the first quarter, the prices on the lease collars moved up a fair bit influenced by the spike in energy prices. As a result, our average Q1 price for all contracted output was about $70 per megawatt hour compared to the full year expectation of $65 per megawatt hour. We expect the remainder of the year to be closed to the $55 price point.

As a result of the improved market and contract prices, we now expect our average EfW energy price for the full year to be in a range of $57 per megawatt hour to $59 per megawatt hour. And accordingly our full year expected energy revenue moved up slightly.

Now let's move on to metals on slide six. Metal tons increased year-over-year as a result of the investments we made in 2013. Net tons sold came in slightly lower than anticipated, primarily as a result of the cold weather which makes it more difficult to recover metal. And in addition, we had some metal recovery system downtime.

Working in our favor, ferrous market pricing was higher than our initial expectations for the quarter. And we are recovering a higher quality product than in the past. This improvement in quality has enabled us to negotiate, a higher percentage of the market price for both ferrous and non-ferrous metals.

Our goal is now to sell between 340,000 and 360,000 tons of ferrous metal this year. We still expect to sell between 25,000 and 29,000 tons of non-ferrous metal. The net affect of our expectation for higher price and lower volume either modest improvement to our outlook for full year metal revenue.

I want to spend a few minutes discussing maintenance please turn to slide seven. Our 2014 maintenance activity is well underway. As usual, we're doing a lot of work to maintain our boilers in top condition.

In addition, we've completed a number of major and minor turbine outages as part of our enhanced proactive maintenance program that I described on our last call. So far, everything is progressing inline with our expectations.

As mentioned earlier, I want to point out that the timing of our scheduled maintenance this year is more heavily waited towards the second quarter when compared to the last few years. As such, maintenance expense was lower in Q1 and we expect to see much higher maintenance year-over-year in Q2. Our full year outlook for EfW maintenance has not changed.

Turning to slide eight, let me summarize our business outlook. Our focus remains on optimizing and enhancing our core EfW portfolio here in North America in running the business well, offering excellent service and sustainable solutions for our customers and extending mutually beneficial client relationships.

In terms of two big projects we have underway, we're well along with our Durham EfW facility construction which we still expect to complete late this year.

We're also making good progress in terms of putting in place the infrastructure and equipment that will support our New York City contract start-up less than a year from now.

The year is off to a good start. But again as I said earlier, year-over-year improvement was largely anticipated when we gave guidance.

The outlook for energy and metal revenue is up a little bit since then and we expect this benefit will be partially offset by slightly higher operating expense largely driven by increased fuel expense.

When considering all the factors, we still expect to finish the year within our initial guidance range for all of our metrics.

As demonstrated during the harsh winter, our business is stable and strong. We have confidence in our long-term cash generation which we demonstrated in February by increasing our quarterly dividend by 9% to $0.72 per share annually.

Our team is committed to providing outstanding service for our customers and creating value for our shareholders. That will continue to be our focus.

And now I'll turn it over to Brad, for his prepared remarks.

Brad Helgeson

Thanks Tony. And good morning, everyone.

Before I begin, I'd like to spend a minute on a housekeeping issue regarding some disclosure in our press release. Last quarter we began to provide additional financial and operating information on our energy from waste line of business which I hope has provided improved clarity on the key drivers within our core EfW operations.

As I presented last quarter, the results for EfW included the results of certain waste infrastructure assets that are dedicated exclusively to EfW facilities. And that we had historically reported internally as consolidated business units.

However, beginning this quarter, we've tweaked the line of business presentation to exclude all of these assets from the energy from waste category which now only includes EfW facilities.

The net result of this change is minimal, essentially resulting in slightly lower EfW waste revenue but also lower expense. You'll see this reflected on slide four of the presentation.

Now that we've provided quarterly 2013 detail in Exhibit 11 using the revised presentation in order to enable apple-to-apples comparisons.

Further in the prior presentation we had allocated a portion of our operating overhead to the energy from waste line of business. Going forward, we are only presenting the results of the EfW facility themselves in that category and have included all operating and G&A overhead in the other category within our North America segment.

As always, Alan is available for any questions. Now, let's move on to the review of our financial performance in the quarter.

I'll start with revenue on slide 10. Revenue in Q1 was $401 million, up $29 million from $372 million in Q1 of last year.

North America energy from waste revenue was up $19 million year-over-year on a same store basis driven by higher waste processing volume and price escalation, higher energy prices and higher recycled metal volume and price.

Contract transitions were net negative $1 million year-over-year. This included a $4 million decline in debt service revenue, partially offset by $3 million of overall higher energy pricing following PPA explorations.

The energy benefit was driven by the elevated market prices in New England in the quarter as compared to the PPA that we terminated in the second quarter of last year.

However, consistent with our commentary last quarter, we still expect PPA transitions overall to represent a net negative for the full year. Transactions over the past year contributed $7 million in revenue in the quarter.

Outside of EfW operations, construction revenue was lower by $5 million year-over-year, while all other operations were up $9 million. As you would expect, this includes higher revenue from our biomass facilities in Maine, which ran at full capacity given the high energy prices.

Moving on to slide 11, adjusted EBITDA was $87 million in the quarter, compared to $61 million in 2013, an increase of $26 million.

In the North America EfW business, the year-over-year increase was driven by the same store revenue increase of $19 million that I just described, as well as $7 million of lower maintenance expense due to the timing of scheduled maintenance.

As Tony discussed, we have a greater share of our scheduled maintenance plan for the second quarter of this year as compared to prior years. Overall, however, we expect our full year EfW maintenance spending to be inline with our initial outlook.

These positive variances in the quarter were partially offset by higher other plant operating expenses primarily increased fuel expense, which was driven by the higher price of natural gas, increased auxiliary fuel usage to deal with the wet waste, given the extreme weather conditions in the quarter, an increased fuel required to satisfy incremental steam demand at our Niagara facility.

Contract transitions negatively impacted adjusted EBITDA by $8 million. This consisted of an $11 million decline in debt service billings year-over-year offset by the $3 million year-over-year benefit from the PPA transitions that I mentioned.

Other operations improved by $9 million year-over-year. This was primarily the main biomass plants.

Turning to slide 12, free cash flow was $67 million in the quarter compared to $27 million in the comparable period last year.

In addition to the increase in adjusted EBITDA, we have slightly lower maintenance CapEx year-over-year and a positive impact from the timing of construction related working capital.

Other maintenance expense we expect EfW maintenance CapEx to be inline with our initial outlook and also expect it to be more weighted towards the second quarter than in previous years.

We also still expect construction working capital to have a negative impact of $35 million to $45 million on full year results which will reverse in 2015.

Turning quickly to slide 13, adjusted EPS was a loss of $0.03 in Q1 compared to a loss of $0.19 in 2013. This was simply driven by the higher operating income in the quarter.

Now we move on to our growth investments, please turn to slide 14. With our preparation for the commencement of the New York City contract continues, we invested $28 million for equipment and required facility upgrades in the quarter.

We also invested $8 million in various organic growth projects, including $3 million in new metal systems this quarter.

Our outlook for growth investment for the full year is unchanged. We plan to invest a $125 million to $175 million and currently identify growth opportunities including $75 million to $100 million for the New York contract this year.

A quick note on financing the New York City contract investment. In the past, we discussed financing the equipment with tax exempt debt. However, we changed course and now plan to utilize the equipment finance market which also offers a very attractive cost for financing.

This will not have a material impact on our future interest expense or capital allocation.

During the slide 15, I'll review our updated debt structure. In March, we issued $400 of 10 year senior unsecured notes with a coupon of 5.875%. We plan to use these proceeds as well as capacity under our revolver to pay off the $460 million of cash convertible notes due on June 1st.

During the quarter we also completed an amendment of our senior secured credit facilities to accomplish a few things. First, we reduced the pricing on the term loan by 25 basis points. If you recall, we had already reduced pricing by 50 basis points last spring.

Second, we extended the maturity of our revolver by two years to 2019 and based on the level of demand for our credit, increased the total committed size of the facility by $100 million to $1 billion.

Given this increase in revolver capacity, we pre-paid $95 million on the term loan in order to further reduce interest expense as a revolver carries an even lower cost.

The net result of these transactions is annual cash interest savings of little over $1 million with even greater financial flexibility with larger revolver.

To summarize the result of this activity, the chart on this slide presents our outstanding debt on March 31, on a pro forma basis, including the planned repayment of the convertible notes. Our net debt to the adjusted EBITDA ratio at March 31 was 3.9 times.

Turning to slide 16, yesterday we affirmed or full year 2014 guidance for all our key metrics as Tony mentioned. Adjusted EBITDA from $470 million to $500 million. Free cash flow from $107 million to $210 million and adjusted EPS from $0.35 to $0.50.

In the second quarter, we expected adjusted EBITDA to be sequentially higher than the first driven by the normal seasonal uptick in waste revenue.

On our free cash flow basis, as a result of the timing of construction related working capital and corporate bond interest payments, we expect to report negative free cash flow next quarter. Of course, this will reverse in the third and fourth quarters.

In summary, we started the year off strong and we're on track for full year targets. We have the benefit of higher energy and metals prices that are back and our plans are operating well.

Our number one focus remains continuing to execute against our operating plans in order to deliver strong results for the year.

In addition, our enhanced maintenance program continued investment in organic growth and proactive extension of mutually beneficial client contracts will position us to continue to deliver steady cash flow in 2015 and beyond.

So with that, Keith, we'd like to open up the line for Q&A.

Question-and-Answer Session

Operator

Thank you. We'll now begin the question-and-answer session. (Operator Instructions) And the first question comes from Ben Kallo with Robert W. Baird.

Benjamin J. Kallo - Robert W. Baird

Hi, great quarter and thanks for taking my questions.

First of all, on the guidance front, very strong quarter. It sounds like you expect electricity and energy pricing to continue to be strong. How do you guys approach your overall guidance and your view on tightening up guidance throughout the year? Or is there something -- when would you look to do that?

Anthony J. Orlando

Hey Ben, this is Tony Orlando. Look, as we mentioned in the prepared remarks we did put our guidance out it was mid-February. So we had most of the energy price impact already baked into the guidance.

Furthermore, it is early in the year obviously. So we still - we're pleased with the start that we gotten off to, but we feel good with the current guidance range.

Benjamin J. Kallo - Robert W. Baird

Okay. And then my second question is, anything that you're seeing on as far as capital allocation in your cash flow that we could see a share repurchase starts sooner than maybe next year?

Brad Helgeson

Hey Ben, it's Brad. Of course we're affirming the guidance on free cash flow for this year and also mentioned that our outlook for the growth investment is unchanged. So, we really haven't changed our view on capital allocation in the near-term.

Over the long-term, our capital allocation philosophy remains the same. We have the dividend, which obviously we're committed too. And then with excess cash flow after that, we'll invest it if we can invest it at a premium to our cost of capital and if we can't, we'll return to shareholders.

Benjamin J. Kallo - Robert W. Baird

Great. Thanks guys.

Operator

Thank you. The next question comes from Scott Levine from Imperial Capital.

Scott Levine - Imperial Capital

Hey, good morning guys.

Anthony Orlando

Hey Scott.

Brad Helgeson

Good morning.

Scott Levine - Imperial Capital

Okay. Wanted to focus in on the metals business a little bit. So it seems like pricing improvements and quality, offsetting some reduction in volume are below expectation due to weather. But if you can elaborate on the confidence you have in the investments that you're making in the recovery systems. And with weather expected to normalize here, what your expectations are for volumes or improvement or whether your views of investing in that business have changed at all in the last three, six months.

Anthony Orlando

Yeah. Sure Scott, this is Tony. The short answer in terms of our investment, the investments that we made are very, very attractive returns in the metal business whether or not we get all the way up to the high end of our recovery rates and really even frankly under almost any scenario we can imagine in the marketplace, they are very good strong investments.

So the question is, so we made those investments, we're happy with them. We've got a little bit more to do this year in terms of additional things that we can do to try to get additional metal out of it -- out of the systems little low, we're kind of winding down in terms of existing technology what we can do to get more metal out.

But we're very pleased with the investments that we did make. We're now just really focused on optimizing and one of our big areas of focus in that regard is the quality of the product which does actually, adversely affect the metal tons a little bit but we're very happy that we've been able to get a better percentage of the market price. So that's positive.

Again the first quarter was a little bit lower than we wanted it to be. A couple of challenges and I think as we get, we've now got a little bit of time under our belt with some of these newer systems. We'll make it work to continue to get that availability of the metal systems up on a more consistent basis.

But on balance, we feel very good about those investments and feel good about what we -- we've updated the volume and price for the full year outlook and we feel good about that outlook as well.

Brad Helgeson

And Scott, it's Brad. Just a follow-up on what Tony was describing. We noted on our call last quarter that our investment in those systems historically has come in about a four times EBITDA multiple. So we would - we will make those investments all day long if we could but unfortunately as Tony mentioned we're reaching the end of the road in terms of good current technology what we can do to improve.

Scott Levine - Imperial Capital

Understood, thanks. As a follow up, we've seen some news that the DOE is proposing additional loan aid for renewable energy and might be including energy from waste in that definition. Do you have any thoughts with regard to how that may affect your business? I know it's probably early days, but any thoughts or color regarding any potential impact to the U.S. market there?

Anthony Orlando

Well I think look, given the overarching market that we see domestically, our energy prices have been up this quarter, it's still relatively low. So we're not really looking at that much new investments. So I don't think that DOE programs can have a big impact on us.

But I would note -- for those of you that may not have seen it. The President did issue an update to his climate action plan, a couple of weeks back focusing on reducing methane and specifically targeting our landfills as third largest source of methane and maybe interesting to see what comes out of that.

The Director from the President to the EPA was to come out with something by this summer to look at both existing and new landfills in terms of methane emissions and what can be done to reduce that.

So, I think the trends in the waste space continue to be away from landfills and moving up the waste higher again. We're going to work to try to take advantage of that.

Scott Levine - Imperial Capital

Understood. Thanks. Nice quarter.

Anthony Orlando

Thank you.

Operator

Thank you. Next question comes from Dan Mannes with Avondale.

Daniel Mannes - Avondale Partners

Hey, good morning everyone.

Anthony Orlando

Good morning, Dan.

Brad Helgeson

Good morning, Dan.

Daniel Mannes - Avondale Partners

Couple of quick follow-ups, first on Fairfax. Obviously, I know you read this into, to give a lot of color on specific economics but can you remind us perhaps what the incremental pick-up in net megawatt hours is and what if any metals equipment you already put there i.e. giving us some idea of what the incremental could be?

Anthony Orlando

Sure. Again, just kind of big picture of looking at -- at the Fairfax transition. First of all, I'll say this was consistent with our expectations. There is going to be transition from a service fee to a tip fee in 2016, again kind of big broad brush. We've talked about all of those transitions combined being the net neutral after this year. And Fairfax is certainly included in that description.

This particular facility, the debt service was paid off. If I'm remembering correctly, it was 2011. And at that time, all of the benefit of that debt service going away, went to our client and so they are currently enjoying a very low cost of service and in 2016, essentially we kind of shared the benefit of that being a debt free facility.

So it is a big plant, it handles roughly $1 million tons per year. It's kind of a net 80 megawatt output and we will get all of the benefit of that.

We already have at that plant four metal recovery systems. In fact if you remember, I think it was last year, we announced the first what we call the small non-ferrous recovery went into that plant.

So, and so we really already have a lot of things going there. And I think fundamentally it is the big thing for us. We're really, really pleased to extend the relationship with a long standing partner at Fairfax County and we hope to continue that relationship for many, many years.

Daniel Mannes - Avondale Partners

Got it. And then one other clarification, part of the upside you mentioned on the power related to the collars, which I believe is the LIPA contract. Can you maybe remind us under the LIPA contract, how the resets work? What they're tied to and how frequently they are?

Brad Helgeson

Sure. There are actually more - is more then just a LIPA contract. But for those not familiar with the LIPA, which is Long Island Power Authority, covers all of our facilities on Long Island with the same price across the board for all of those facilities. In addition, we have couple of our steam contracts up in our Niagara facility, are sold under collar prices as well. So it does represent about 30% of our contracted output this year in total.

The resets, each of those three contracts, there's two steam contracts plus LIPA, they reset on different factors. The LIPA is monthly I think, I'm not sure if the others are monthly or less frequent than that, but the biggest single factor, -- the biggest factor that drives it, would be fuel cost.

Now, there is no - I can't give you kind of any one single item. But it's really, as fuel cost is the biggest factor that affects all of them. So we're certainly pleased that we kind of came up of the bottom end of the range. And hopefully it will continue that way for a while but our expectation is that it will kind of come back down to near the low end of the range for the rest of this year.

Daniel Mannes - Avondale Partners

Okay. Great. Thank you.

Brad Helgeson

Thanks Dan.

Operator

Thank you. And the next question comes from Michael Hoffman of Wunderlich.

Michael Hoffman - Wunderlich Securities Inc.

Hi, thank you very much. By the way, the presentation changed. The transparency that you added is welcome. Appreciate it from both of you, Tony and Brad.

Brad Helgeson

Thanks.

Anthony Orlando

You know that was mostly Brad.

Michael Hoffman - Wunderlich Securities Inc.

Yes, I do.

Anthony Orlando

But, thank you for the compliment.

Michael Hoffman - Wunderlich Securities Inc.

You're welcome. Can I follow on, on Dan's question about contracts, the resets? So I just want to make sure I understood correctly, because what I want to avoid is, I've got a big tough comp coming a year from now. You're expecting this, I got it, but it now readjusts. So all this will work itself out. And as we sort of think about how to talk about average electricity rates on a 12 month basis.

As we look forward in your modeling, the way we're going to average this year, maybe we're going to be slightly higher than next year because of what happened in the first quarter. But it's not a big gap. That's what I'm trying to understand.

Anthony Orlando

Well, you know clearly the pick up that we got in the first quarter this year, look -- stepping way back on the energy markets right, I mean, for those of you that follow it, we've got natural gas storage at the lowest point, I think it's been in roughly 10 years.

And the prices are going to be heavily dependent on what happens with the weather. So, we'll see what the comp look like next year, if you simply looked at the forward curves, forward curves for next year are lower than they are this year.

Now they're higher than they were a few months back, but year-over-year the forward curve will suggest is going to be lower next year and so that's the conventional wisdom.

And in particular the first quarter will be the most challenging in that regard, in terms of the year-over-year comp just because the prices went up so much last year.

I think what we're going to try to do is give you the clarity on what our expectations are, what those expectations are based on and then let - our shareholders make a judgment as to kind of what they think of the energy market.

Michael Hoffman - Wunderlich Securities Inc.

And as you think forward about - what hedged first is what's exposed, how do you think about how you want to manage that mix?

Anthony Orlando

I think a couple of things here. We talked before about this very systematically hedging, which is what we continue to do. As we do move through these contract transitions, as we know we would, we're having more and more of our energy exposed to the market and so we're doing more and more hedging.

I think one of the other things that we will kind of look at it for fortunate enough to have an expectation to be in the middle of the higher end of some of these cover contracts.

We may think about, what might we be able to do with regards to hedging some of that. But we do like the position on those contracts that we already have a floor which effectively is a hedge.

So, we're going to continue doing the same thing we're doing, as trying to reduce volatility in near-term and just very systematically take a net volatility off the table over time.

Michael Hoffman - Wunderlich Securities Inc.

Okay. And then on Fairfax, is there anything in the contract language that will prevent you from selling any of your 40% of the volume as specialized?

Anthony Orlando

We're going to work up to obviously maximize the benefit of that facility for Covanta and for our shareholders and we would expect to take some special waste into the facility. We do it today.

Michael Hoffman - Wunderlich Securities Inc.

Okay. And then, can you frame what you're seeing is the current environment for metals pricing because all the noise coming out of China and slowing down of activity, they tend to sort of cause those type of commodity markets to move. What do you think of metal prices, right now?

Brad Helgeson

Well, you know, our outlook does soon may come back down a bit from where they are today. Having said that, we've been hearing the noise out of the slowing economy in China for a little while and the prices have remained pretty robust for the first quarter, in fact continue to be pretty good here in the month of April.

It's very difficult to verdict - there's no forward curve for the metals market, so it is much more difficult to kind of predict where it's going. But our assessment is that it is likely to drift down the rest of the year and we've already kind of baked that into our number.

Michael Hoffman - Wunderlich Securities Inc.

Okay. And my last one. Given the nature of the type of special rates going after, did the weather issues caused special rates not to be particularly contributor of -- significant contributor in 1Q, so that's a positive going forward to the remainder of the year?

Anthony Orlando

No, we actually had a quite a good quarter on special waste. In the first quarter we're pleased, -- we've talked about targeting 10 plus percent growth, I think last year we finished somewhere around15% growth and we feel, we really had a good quarter to have this right on track for our full year plan on that service.

And we think that it continues to be plenty of runway and demand and we did also make some investments last year to help us facilitate processing, kind of faster, to get faster turn times to be little accept more waste, so - now we feel good about where we are after Q1 here.

Michael Hoffman - Wunderlich Securities Inc.

All right. Great. Thanks a lot and congratulations in the quarter.

Anthony Orlando

Thank You.

Brad Helgeson

Thanks Michael.

Operator

Thank you. The next question comes from Gregg Orill with Barclays Capital

Gregg Orill - Barclays Capital

Thanks. Just a follow-up back to fair facts. I was wondering if it was possible to reminders of the debt service, revenue that had rolled off there several years ago?

Anthony Orlando

To recall, I have a ballpark number in my head, but I don’t really recall.

Brad Helgeson

You're testing my memory here. I want to say, was in his neighborhood of $15 million, I'll have to go back and check that.

Anthony Orlando

Yeah.

Brad Helgeson

But again, 2011 was that’s why you're testing us, 2011 was the last year we had it.

Anthony Orlando

But again, I'm not sure how, firmly important to know that there was already an attractive price for the client, but in terms of what that might mean for where we're going forward, I don't think you can necessarily interpret that number to mean anything for going forward.

Gregg Orill - Barclays Capital

Right.

Anthony Orlando

It's really all about what's the waste market, what's the energy market? What are we able to do in terms of supplying waste for the balance of the plain capacity, which we go two years to kind of build that base of customers and we feel like, it's -- we're looking forward to doing that.

But, there is still at lot, we've got 60% of the waste locked up, now we still have to get 40. The energy contract also expires they're not too on from now between now and 2016.

So, lot of things for us to manage but we feel very happy that we've continued our relationship with Fairfax County.

Gregg Orill - Barclays Capital

Great. Thank you.

Anthony Orlando

Thanks Gregg.

Operator

Thank you. Next question is from Carter Driscoll with Ascendiant Capital.

Carter Driscoll - Ascendiant Capital

Hi, good morning guys. Just a clarification. If I understand correctly, Fairfax, you really did expect to convert over to tip free, so it's sounds like the primary benefits going to be the fact that municipality is going to be guaranteeing 60% of the waste, is that a fair rate?

Anthony Orlando

Yes. It really,-- I would say that this is very consistent with what our expectations have been for quite some time when we again to try to give you the very broad overview of all the service fee contract transitions Fairfax certainly was included in that and we expect them on balance to be a net neutral after this year.

Carter Driscoll - Ascendiant Capital

Okay. All right. And just switch it over quickly, it looks like the new acquisition of Camden last year had a positive contribution, I realized it's largely year-over-year execution in terms of securing the waste could you talk about what's surprised outside there and just a quick follow-up on Hudson Valley.

Anthony Orlando

Sure, Camden, we're now roughly six months into it since we closed that acquisition. It is a fully merchant plant. We've got a fair bit of work to do in terms of both kind of building our book of business on the waste supply as well as, kind of doing some of the things that we want to do from a maintenance perspective on our systems we actually have yet to install metal recover upgrade there. That's one of the future investments on metal recovery.

So, we think it's going to take a little bit of time but we believe our expertise in energy from waste are going to add some value to that plant over the course of the coming years.

Brad Helgeson

And Carter just a follow-up on that. It's something difficult to for you to see, and it's by design specific contribution of debt acquisition just given that we don't like to talk about facilities on an individual level.

But it's fair to say that, it's basically inline with our expectations at the time that we made acquisition. There hasn't been a significant out performer or underperformer, obviously relative to those expectations.

Carter Driscoll - Ascendiant Capital

Okay. Thank you.

Anthony Orlando

Also as far as Hudson Valley, it's a contract that we have - it was part of the acquisition with the whole year ends this June 30th. The client did decide that we have to bid there back in the fall and based on their bid package, they wanted to ship -- really they want to ship the significant amount of risk to the contractor and we really just didn't think that made sense given the technology and the small profit margin that we had and so we did not submit a responsive bid and it's not going to be meaningful to our results.

Carter Driscoll - Ascendiant Capital

Okay. So really it's a unique situation has nothing to do with the other contract transitions you face?

Anthony Orlando

Look, nobody has more experience enough in terms of operating these contracts and we bring to bear a tremendous amount of expertise in terms of depth and breath that can help our clients.

And we feel that we need to be disciplined and make a fair profit for bringing that expertise to bear.

Carter Driscoll - Ascendiant Capital

Absolutely. Thanks Tony.

Operator

Thank you. And the next question comes from Albert Kaschalk with Wedbush Securities

Albert Kaschalk - Wedbush Securities

Good morning.

Anthony Orlando

Good morning, Al.

Albert Kaschalk - Wedbush Securities

I just wanted to follow-up on the market conditions around spot waste, in particular, as you look to fill facilities, given the economy. And so maybe, Tony, if you could, just talk about maybe the intensity of activity. Whether it's pricing, whether there's a lot of additional volume in light of that you felt pretty comfortable with the transition here for Fairfax and a number of other facilities?

Anthony Orlando

Well, each market is, it's own regional market. They are all different. I would say, what we said last quarter and we'd continue to say. Generally speaking we've seen the market firm up in the last couple of quarters.

Certainly the winter is always a most challenging time period. So it’s a little bit hard to gauge off at the winter. But there is plenty of waste in the D.C., Northern Virginia area as you probably know there is lot of large landfills but for the most part they are down in kind of Richman, Southern Virginia area.

So, we know that we'll have the ability to fill the capacity and it really comes down to kind of what price we can secure for that. We got a couple of years to kind of ramp up and put ourselves in a good position to do that, the best price that we can.

Albert Kaschalk - Wedbush Securities

And then, I think you can hear the message is loud and clear on maintenance but historically Q2 has been much lower than Q1 in terms of -- on a percentage basis and still the first half has always been greater than second half.

But absent the energy decisions to keep running the plants, what maybe operationally a better shift to do more maintenance in Q2 or should we expect that on a go forward basis like Q2 is - are going to be a higher quarter than Q1

Can you share just maybe the broader thoughts on that because I know you've left the full year and what your plan has been intact. But I'm just trying to understand that this planning and the shifting and it is operational or business reasons for that. Thanks.

Anthony Orlando

Our focus on scheduling maintenance average is to first and foremost do what makes sense for a particular plant.

That's the guiding principle is to do what, what's necessary to optimize the value of the facility for our clients and for ourselves and the timing of how of you do that and kind of optimizing within our system is to what resources are available and it's just a whole variety of things go into that. And the way it played out this year we just had more -- right out of the box we had more scheduled for Q2, we have a couple of large, we've several large plants, we're doing the major outage work in the second quarter.

And so we were toasted that way to begin with, but we always also want to maintain some level of flexibility to shift either sooner or later if there's good business reason's to do it.

And we did do that in the first quarter when we had some turbine outage work scheduled for the, for March which is usually not a real high price month. And we said, where is the prices, they are still pretty not good in March, if we hold the turbine outage off for another few weeks, it's not, it's fine for the plant and we can get the benefit of the higher prices.

So, we did do some shifting like that but look, big picture, we're focused on the full year maintenance, what's best for the plants.

We're not worried about quarterly timing. I know that maybe probably frustrates you a little bit when you're trying to do your model but we're looking at what's best for the business long-term.

We're focused on full year and then we're going to try to let you know if there is something little bit unusual happening from quarter-to-quarter so that you have a perspective and you're not surprised.

Albert Kaschalk - Wedbush Securities

Fair enough. I appreciate that. And then just one housekeeping item, maybe, for Brad. With the financing, could you give us a little bit of color on interest expense in terms of the quarter? I apologize for the modeling question.

Brad Helgeson

No, no it's fine. We had -- within our range basically assumed what we ended up doing on the financing front, when we gave our guidance, so there wasn't going to be any impact on free cash flow or EPS from what we did.

We did a little bit better but within the ballpark of what we expected, we don't give the specific kind of quarterly guidance on exactly what the interest expense is going to be but it should be pretty straightforward to model and maybe we'll we could follow up offline and help you with that.

Albert Kaschalk - Wedbush Securities

Thank you.

Operator

Thank you. And the next question comes from JinMing Liu with Ardour Capital

JinMing Liu - Ardour Capital

Good morning. Thanks for taking my question.

First, related to the wastewater in the first quarter. On the same store level, the wastewater may increase but the energy it won't decrease. They wouldn't in the opposite direction. If they adjust for the widening of the waste, what was the actual change of wastewater in the first quarter?

Brad Helgeson

JinMing it's Brad. There are really two factors going on there, that does jump out as being little bit on. First, it is a mix issue potentially we had, we had more waste process as a result of less downtime this quarter at service fee plants versus a year ago. So, in essence the more waste with the plants where -- generally we weren't accounting 100% of the megawatt hours, we generally only keep 10% of the megawatt hours.

So that's part of it. Another part is and you just alluded to this, is the wet waste where for every ton of wet waste obviously has less BTU and translates into lower energy generation.

So, those are really the two factors. It's not just trying to answer your question. Specifically, it's really not possible to normalize across the portfolio a given level of BTU and the waste. But between those two factors that's why you had little bit of disconnect.

JinMing Liu - Ardour Capital

Okay. Got that. Thanks for the color. And my last question is regarding your biomass facilities, given the higher energy price for this year, are you going to turn some of those idle facilities back on or not?

Brad Helgeson

Right now we're running the two facilities in California that are under contract and of course the facilities remain given both energy prices and the level of record revenue that those facilities are generating.

We don't have any specific plans to turn on anything on our facilities in California at this time.

JinMing Liu - Ardour Capital

Okay. Got that. Thanks a lot.

Brad Helgeson

Thanks.

Operator

Thank you. Thank you. And at this time, I would like to turn the call back over to Tony Orlando, for any closing remarks.

Anthony Orlando

Well thank you everybody. We look forward to talking to you on the next quarterly call. Take care. Have a great day.

Operator

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a nice day.

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