Advanced Disposal Services IPO: Consider Holding Off

| About: Advanced Disposal (ADSW)

Summary

Based in South Vedra, Florida, ADSW provides non-hazardous solid waste collection, recycling and disposal services in the United States.

Syndicate includes Barclays, Credit Suisse, Deutsche Bank, BofA, Morgan Stanley, Wells Fargo, and others.

We like ADSW's narrowing losses and powerful team of underwriters but are hesitant on lack of revenue growth and high debt levels.

We suggest investors hold off.

Advanced Disposal Services Incorporated expects to raise $163 million in its upcoming IPO. Based in South Vedra, Florida, Advanced Disposal Services (NYSE:ADSW) provides non-hazardous solid waste collection, recycling and disposal services in the United States.

ADSW will offer 21.4 million shares at an expected price range of $20 to $22.

ADSW filed for the IPO on August 21, 2015.

Lead Underwriters: Barclays Capital, Credit Suisse Securities, and Deutsche Bank Securities.

Underwriters: BofA Merrill Lynch, First Analysis Securities Corp., Macquarie Capital, Morgan Stanley, SMBC Nikko Securities America, UBS Investment Bank, and Wells Fargo Securities.

Business Summary: Provider of Waste Collection, Recycling and Disposal Services

Advanced Disposal Services provides non-hazardous solid waste collection, recycling and disposal services to commercial, residential, industrial and government customers in the United States. Its services include garbage, recycling, special waste collection, commercial waste and recycling containers, yard waste, bulk pickup, electronic recycling, oil and gas drilling waste material management and disposal, and special waste disposal, among other services.

The company serves the manufacturing, construction and demolition, property management, restaurant, healthcare, hotels, faith based, retail, entertainment, agriculture, colleges and universities, and K-12 education industries.

ADSW operates across 18 states in the Midwest, South and East regions in the United States, and they serve nearly 2.8 million residential consumers and 202,000 industrial and commercial clients. Their network comprises 93 collection operations, 22 owned or operated recycling facilities, 74 transfer stations, and 39 owned or operated landfills.

The Midwest region accounts for 39 percent of revenue, and the South and East regions account for 35 percent and 26 percent respectively for the twelve months ended September 30, 2015. Their client base is diverse with no single customer accounting for more than 2 percent of revenue.

The company expects to receive approximately $163 million from the initial public offering with the remaining proceeds going to a selling shareholder. Advanced Disposal Services intends to use the proceeds to pay down debt.

Advanced Disposal Services South, Inc. was formerly known as Advanced Disposal Services SouthEast, Inc. and changed its name to Advanced Disposal Services South, Inc. in January 2013.

Executive Management Overview

CEO Richard Burke has been with ADSW since November 2012, and he originally held the position of President. His previous experience comes from positions at Environmental Services Solid Waste and Veolia Environmental Services. Mr. Burke holds a bachelor's degree from Randolph Macon College.

CFO and Treasurer Steve Carn is also a member of the Board of Directors at Advanced Disposal. He joined the company in 2001 as the Chief Accounting Officer. His previous experience comes from senior financial positions at Town Star Food Stores, CFO Services and Ernst & Young. Mr. Carn graduated from The Ohio State University with a bachelor's degree in Business Administration in 1987 and is a certified public accountant in Ohio.

Potential Competition: Waste Management, Republic Services and Clean Harbor

Waste management is a highly competitive business with over 20,000 companies in the United States providing those services. Several of the leading firms include Waste Management, Republic Services, Clean Harbor, Stericycle and Progressive Waste Solutions.

Financial Overview: Impressive Revenue Figures and Narrowing Losses

Advance Disposal Services Incorporated provided the following figures from its financial documents for the nine months ended September 30:

2015

2014

Service Revenues

$1,046,800,000

$1,049,200,000

Net (Loss)

($24,800,000)

($41,400,000)

Click to enlarge

As of September 30, 2015:

Total Assets

$3,463,600,000

Total Liabilities

$2,966,400,000

Stockholder's Equity

$497,200,000

Click to enlarge

Conclusion: Hold Off

We like ADSW's narrowing losses and powerful team of underwriters, however, are hesitant on lack of revenue growth and high debt levels. ADSW has a history of losses, operates in a highly competitive, seasonal industry. Additional risks include losing contracts and obtaining landfill permits.

We suggest investors hold off at this point.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.