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Covanta Holding Corporation (NYSE:CVA)

Q2 2012 Earnings Conference Call

July 19, 2012 8:30 AM ET

Executives

Anthony J. Orlando - President and CEO

Sanjiv Khattri - CFO

Tom Bucks - CAO

Alan Katz - VP, IR

Analysts

Daniel Mannes - Avondale Partners, LLC

Ben Kallo - Robert W. Baird & Co.

Smittipon Srethapramote - Morgan Stanley & Co. LLC

Al Kaschalk - Wedbush Securities Inc.

Gregg Orill - Barclays Capital

Carter Shoop - KeyBanc Capital Markets Inc.

Michael Hoffman - Wunderlich Securities

JinMing Liu - Ardour Capital Investments, LLC

Barbara Noverini - Morningstar, Inc.

Operator

Good morning, everyone, and welcome to the Covanta Holding Corporation’s Second Quarter 2012 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 or 412-317-0088 and use the replay conference ID number of 10015619. 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 second quarter 2012 conference call. It’s great to speak with you again. I joined the Covanta team a little over a year-ago and I think we’ve made some great strides in that time in terms of disclosure and investor communication.

We all appreciate the positive feedback that we received from the investment community on this. We’re always looking for other ways to make the story easier to understand. So please feel free to let us know if you have other ideas.

Joining me today on the call will be Tony Orlando, our President and CEO, Sanjiv Khattri, 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 Sanjiv 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 in the Investor Relations section of covantaenergy.com. These 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, July 19, 2012. 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 express written consent of Covanta is prohibited. The information presented includes non-GAAP financial measures. Reconciliation to the most directly comparable GAAP measures and management’s reasons for presenting such information is set forth in the press release that was issued last night as well as in 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’ll now turn the call over to our President and CEO, Tony Orlando.

Anthony J. Orlando

Thanks Alan, and good morning everyone. Let’s begin with a quick summary of the quarter.

For those of you using the web deck, please turn to slide 3. Our second quarter results were right in line with expectations. Revenue was $410 million, essentially flat with 2011. Adjusted EBITDA was $125 million, a $2 million increase over last year. Our organic growth initiatives were largely offset by lower debt service pass through billings and softness in the energy market. That’s consistent with the outlook we gave you on the Q1 call.

Free cash flow declined by $27 million to $16 million. Again, this result was consistent with our Q1 discussion. The decline was due to the timing of construction working capital. And finally, adjusted EPS was $0.15, $0.01 increase over last year.

Operationally we performed exceptionally well. Boiler availability, waster throughput and steam production were all very good. In fact, we achieved some of our highest performance levels on all three metrics for the first half of this year. We commenced start-up testing at our Honolulu expansion project. We renewed a number of important client contracts and we’ve made some great headway on both revenue generating and cost saving organic growth initiatives. I will give you some concrete examples of those in a few minutes.

The strong operational performance enables us to reaffirm our guidance despite the weak energy markets and the recent downturn in metal prices. We are intent on growing our adjusted EBITDA even in a down market. Furthermore, the work we’re doing this year will pay off in coming years.

Now let’s turn to the business outlook. We will start with waste on slide 4. A few of the waste markets is essentially unchanged from our last earnings call. We are largely contracted and those contracts generally move up with inflation on an annual basis. This provides a nice base to work from. Tip fees continued to be under some pressure, primarily due to low waste generation. Fortunately, we have a relatively small amount of net spot exposure and we’ve been managing our portfolio very well.

We are contracting for waste where it makes sense and we continue to expand our special waste business, which allows us to replace lower price spot waste with higher price special waste. Overall, our tip fee pricing was up about half a percent in Q2.

During the quarter, we also successfully extended waste contracts with two long-term clients. First, we amended and extended the contract relating to our Stanislaus County California facility. This contract now run through 2027 with our municipal clients still delivering virtually all of the waste. But as of July 1st, the contract structure has been converted from a service fee to a tip fee.

We’ve talked many times about what happens when a facility converts from a service fee to a tip fee, but I think its worth reviewing because this is complex with many changes to revenue and expense. We will now receive all of the energy revenue and metal revenues at this plant and we will have the opportunity to implement some of our organic growth initiatives. That’s the benefit for us.

There are also things that benefit our client. On this particular contract, we expect our waste revenue to decline slightly and we will be responsible for some additional expense that was previously paid by our client. In addition, we assume additional exposure to potential changes in regulation.

As always we’re focused on long-term value creation and we see this as a win-win agreement for both parties. The second extension was at our tip fee facility in Tulsa, Oklahoma. This is a 10-year agreement, which we secured through a competitive bid process. The city of Tulsa will continue to provide approximately 1/3 of the waste that goes to this plant.

Tulsa is an interesting facility because in this region of the country waste disposal price are very low. As a result, there are no other energy from waste facilities in the region and that create some unique opportunities to grow our special waste program and do some innovative things. I’m pleased that our team was able to extend both of these long-term relationships.

Before moving on, I also want to review the tentative agreement we’ve reached with our clients at the Essex facility in New York, New Jersey. We expect that it will be finalized soon. In which case, effective at the end of this year, the plant will convert from a service fee to a tip fee, with similar revenue impact as I described on the Stanislaus contract.

There are two additional important provisions. First, we will have approximately half of the facilities waste capacity on the contract through 2032 and second as part of this agreement we will invest about $75 to a $100 million to install a state-of-the-art air filtration system as well as some other facility upgrades. The majority of this investment will be in 2014, ’15, and ’16. We are confident that we can finance this outlay without compromising any of our capital allocation activities.

Essex is a large facility in an excellent location and this investment will secure its long-term future for our clients and for Covanta. Looking ahead to 2013, we expect that we will continue to have about 75% of our waste revenue under long-term contract and again these contracts typically include inflation adjustments. In addition, we will benefit from continue to grow our special waste business. Working against this will again have lower debt service pass through billings with correspondingly lower project debt service payments.

In addition, we expect the waste markets will continue to be soft and we do have a few above market contracts that are transitioning to market. I should point out that not withstanding the soft market we will continue to run our facilities at full capacity because we offer our clients a competitive price and an environmentally superior alternative to landfills.

Moving on to our energy portfolio, please turn to slide 5. Earlier this year natural gas and electricity markets declined significantly, but recently they recovered a bit due and part to the hot weather that we’ve been having across the country as well as the decline in drilling activity. Our full-year 2012 energy revenue remains about three quarters contracted or hedged. Full-year average natural gas price is now forecast to be about $2.65 versus the $3 price that we’ve discussed when we initially issued guidance in February.

Our rough rule of thumb has been holding true. Again, that rule of thumb was that for every $1 move in natural gas prices we’d see a $10 million to $15 million annualized impact to our 2012 adjusted EBITDA. Using this rule of thumb, the $0.35 move in natural gas prices causes a $3 million to $5 million decline in our adjusted EBITDA. We will update this rule of thumb for 2013 once our contract and hedges have all been finalized. But I will give you some color on the outlook in just a minute.

Last quarter I mentioned that we were managing our longer term energy outlook by seeking to enter additional contracts with floor and ceiling prices. We are making progress on this front. For our Honolulu expansion, our client community finalized the contract with Hawaiian Electric Company at an attractive fixed price rate for approximately 100,000 megawatt hours of new generation. Remember, Hawaii is what we call a premium market driven by oil prices not natural gas. So this is priced well above our average contract price.

So looking ahead to 2013, the Essex and Stanislaus tip fee contracts, plus the additional Honolulu output, would mean an increase in our total annual revenue output of about 500,000 megawatt hours. Notwithstanding this increase, we expect to enter 2013 with about the same amount of power exposed to the market.

Regarding our pricing outlook, the current forward curve forecast for 2013 natural gas price is about $3.50 MMBtu versus the 2012 price I just mentioned of $2.65. Assuming that comes to pass, we will have a nice pick up in pricing on our exposed output. Offsetting this benefit, the 2012 hedges that we put in place during 2011 will roll off and be replaced with lower price hedges that we just recently put in place for 2013. This will result in about a $7.50 per megawatt hour price reduction related to about 500,000 megawatt hours that we’ve hedged.

That’s a lot of moving part. So let me just sum up our current 2013 outlook. Due largely to contracts being amended, to tip fee structures, we expect about half a million megawatt hour increase in total electric output. But remember, this is partially offset by other changes relating to the new tip fee contract structure. And based on our current forward curve, we expect pricing to be about the same perhaps slightly better taking into account both spot exposure as well as mark-to-market on our hedges.

Let’s move on to metals on slide 6. We continued to make progress maximizing the value of our metal recovery. Notwithstanding the fact that year-over-year for the quarter market prices for ferrous and non-ferrous were down about 5%. We were able to hold our revenue flat. We accomplished this with a small increase in recovered ferrous and by negotiating better contracts for the sale of metal.

The average HMS price for the second quarter was $392, which compares to our full-year 2011 average of $410. So the market is already down from last year and unfortunately we’re seeing some pretty steep drop recently.

Our July HMS price just came in at $316. We anticipate a small rebound later this year resulting in a full-year 2012 HMS average of about $360. Remember, at the beginning of the year we said our guidance was based on the 2012 HMS of $410 and we gave you a rule of thumb at a $50 movement in the HMS #1 index will be approximately $10 million impact to our adjusted EBITDA.

It’s important to note that the capital projects we’re pursuing continue to have an excellent return with any reasonable market price assumption. We know short-term metal prices will be volatile, but these are long-term investments and we are advancing projects consistent with our plan. In fact, our first two metal projects just came online. During the quarter, we started operating a new non-ferrous system at our Fairfax, Virginia facility. We also installed a small shredder at our SEMASS facility. Given the timing of the start-up and shipment of metals, we will start to see the benefit of these systems in the third quarter.

Looking ahead to next year, we’re on track to continue growing the amount of metal we recover from the waste stream. Compared to our actual 2011 results, our 2013 target is to recover approximately 50,000 more tons of ferrous metal and approximately 10,000 more tons of non-ferrous metal. We’re getting about half of the ferrous improvement this year with the lion share of the non-ferrous improvement next year driven by the recovery projects now in the pipeline. Recall that non-ferrous has accounted for only about 4% of our metal volumes in the past, but has accounted for 20% of our revenues.

I’m confident we will accomplish our goal to increase metal recovery plus we will get the benefit of the higher share on metal revenue related to the two contracts being converted to tip fee structures. The big question for next year relates to price. It’s the 2012 price hold to – throughout 2013 then it’s going to work against us. But there is really no good way to forecast where metal prices will be, we will just have to wait and see.

Moving on to slide 7, I want to spend a few minutes reviewing our organic growth initiatives. I just addressed metal recovery, so I wont repeat that. Moving to special waste, we continue to make great headway. In fact, special waste should be more than a $50 million revenue business by the end of this year. We’ve been steadily growing this business for the past several years and we believe we can continue growing it at a double-digit rate.

We are also making progress on efficiency and productivity improvements. I talked a few times about our proprietary ash conditioning systems and our national purchasing programs.

Let me give you another small example. We are replacing some large motors with high efficiency motors to reduce in-house power consumption and thus increase our electricity sale revenue. This is not a new technology, but we’re now able to achieve attractive returns in some locations by utilizing the utility rebate program directed at lowering energy demand. Again, this is just one example of the type of things we’re constantly doing to make our facilities more efficient.

In terms of new units coming online, the Honolulu expansion started up during the second quarter and is now processing waste. Remember, this is a 300 plus million dollar project that we’re responsible to build under a fixed price contract with our client. That size project is never easy, but this project was further complicated by the fact that we built it while continuing to operate the existing facility. I’m proud to say that our team’s execution was exceptionally good and we look forward to this unit officially moving into commercial operation very soon.

Durham York project is also on schedule. We are now into the early stages of construction and we’re approximately 18% complete at the quarter end. As some of you may have heard we participated in a competitive bid to refurbish and operate the New Hanover energy from waste facility in North Carolina. We’ve been selective as to winning bids and we’re now working with our clients in the hope of finalizing the contract. When we’ve successfully done that, we will let you know.

Before I move on to 2013, I want to spend a minute on an announcement that we made shortly after our last earnings call. We’ve developed a commercial gasification system for the conversion of waste to energy called clear gas. This is the first of its kind gasification technology, which gasifies unprocessed post-recycled municipal solid waste in a commercial setting, while reducing emissions and increasing energy efficiency.

We believe this technology will enable us to be more competitive on smaller units and that opens new markets. The level of interest we’ve seen thus far is encouraging and we’re now exploring several opportunities. We believe this technology will be in an important part of our long-term growth. But I don’t want to get anybody too excited, I’m talking long-term. Development and implementation of energy from waste projects take years.

Speaking of which let me just note that there is not much to report this quarter regarding our European development efforts. We submitted our final bid for the Merseyside waste procurement in June and now we await the client selection of the winning bid. Regarding the Dublin project, we’re in discussions for financing, but there is nothing further to report on this now. Hopefully we will have something to report on both of these projects by the next call.

Let me turn back to our organic growth initiatives where we’re making excellent progress. We’re already getting the benefits from these initiatives and we expect that will grow particularly in the fourth quarter. Looking ahead to 2013, we expect our organic growth initiatives will deliver meaningful benefit. In addition, we’ve plans in the works to continue making organic growth investments next year, that will benefit 2014 and beyond.

Turning to slide 8, I’d like to offer a quick summary on 2012 before passing the call to Sanjiv. Looking at the first half of this year, I’m pleased with both operational and financial performance. Our facilities are running very well and were on track to achieve our full-year guidance. Doing so, will produce our third consecutive year of adjusted EBITDA growth and very strong free cash flow, which I think is pretty impressive given the significant downturn in energy prices and the recent decline in metal prices.

Furthermore, we’re positioning ourselves for continued success with extended several long-term waste contracts representing over 1 million tons per year and our organic growth initiatives are on track.

We also remained committed to returning capital to our shareholders, which we’ve demonstrated in the first six months of the year by not only buying back $60 million of our stock, but also doubling our dividend to $0.60 per share annually. We’re managing the business effectively in the phase of a challenging pricing environment and remained confident in our teams’ ability to create shareholder value by providing our clients with innovative and world class services by aggressively executing organic initiatives by capitalizing on a strategic growth initiative and by smartly managing assets, risks, and capital allocation.

Now I will turn the call over to Sanjiv for his remarks.

Sanjiv Khattri

Thanks, Tony. Good morning, everybody and good afternoon to those of you calling in from Europe. And I hope those of you in the North East are staying cool. I call this weather India hot, where heat has been incredible. But one positive of the hot weather is that it’s been providing some long over due support to the power markets. Hopefully we will continue to see this positive trend in the power markets. More importantly we hope to continue the trend of solid operating and financial results at Covanta. As you can see it was another good quarter for us.

As usual, let’s start with a quick overview of the financials. I’m on slide 10, which lays out our Q2, 2012 financial highlights.

As Tony highlighted, this quarter came in right as we discussed on our Q1 call. Adjusted EBITDA was generally flat with last year and free cash flow was down significantly due to the timing of construction working capital. Revenue and adjusted EPS were basically flat.

As usual I'll walk you through the detailed financial variant waterfalls over the next few slides. Before we get into the numbers, I want to note that like always on slide 21 in the appendix we include more detailed summary of the P&L.

Okay, now let’s get to work and dive into the details.

Starting with revenue on slide 11. Total revenue in the first quarter declined by $1 million year-over-year to $410 million, as expected the most significant driver for this decline was the softness in energy pricing leading to $5 million impact in the quarter. This was offset by higher construction revenue of $4 million as the increase from our Durham-York project ramping up is partially offset by our Honolulu construction project ramping down. Just as a reminder the Honolulu expansion project is close to completion and won't generate construction revenues once the construction is complete later this year.

The improvement from our organic growth initiatives and increased energy production at our EfW plants was offset by lower energy production at our biomass plants and some other drivers. So this bucket is not shown in the waterfall. However as you would see on the next slide, we did see a positive impact to adjusted EBITDA from our organic growth initiatives.

Moving on to slide 12. Adjusted EBITDA was up $2 million year-over-year to $125 million. Organic growth including special waste, our new China units coming online, increased energy production at our EfW plants and various operational improvements this quarter were all positive drivers leading to $9 million positive impact to adjusted EBITDA. We also had $5 million year-over-year benefit due to contract transitions and extensions and some construction profit. Lower debt service through billings of $7 million was right in line with expectations. Energy pricing was another $5 million negative with the impact flowing through to the bottom line.

A quick comment on metals performance. As Tony mentioned the metal markets have declined lately which we will aim to offset by continuing to grow the quantity and quality of metals we recover. It’s hard to speculate on when metal prices will start to strengthen, but the investments we are making now will improve both the quality and quantity of metals we recover which will payoff for many years to come.

Turning to slide 13, let’s briefly discuss Q2 free cash flow. Q2 free cash flow played out exactly the way we had discussed during the last quarterly call. Our Q2 free cash flow was $16 million a decline of $27 million from the second quarter of last year. As you can see from the waterfall this was primarily due to the impact of construction working capital which I will address in detail in a few minutes, with a small part of the increase due to slightly higher maintenance CapEx.

Maintenance CapEx is on track and unchanged for the full-year number of $80 million to $90 million that we gave you earlier in the year. Adjusting for construction working capital, free cash flow was in fact quite solid. In fact you can see that it would have been right in line with last year’s number, but for the construction impact. We are very happy with our core working capital management.

As it relates to the ups and downs of quarterly cash flow, the important point to be noted is that we’re still very confident that we will hit our full-year cash flow guidance of $250 million to $280 million. I would be remiss if I did not remind you that like always I believe its on slide 23 and 24, we have laid out using quarterly data from Q2 why Covanta consistently generates significant amounts of cash flow from relatively modest earnings.

Now turning to slide 14. Our adjusted EPS is up by $0.01 compared with last year with higher operating and equity income deriving the increase. Further it’s also good to see the continued benefit of our share repurchase program on all of our per share metrics. The net impact since we started the program is about 16% accretion; these positives were partially offset by the higher interest expense which was right in line with our expectations after our recent successful refinancing. We had discussed that this would impact Q2 and beyond during the last earnings call.

Before we discuss working capital in detail, I wanted to spend a quick minute on a few one-off items which impacted our operating results for this quarter. As you know, we own a minority stake in a joint venture in China, that joint venture entered into a transaction that swapped its entire interest in one facility for an increased stake in another resulting in a small gain. As a result, our international facility count declined by one, and you will see a small onetime benefit in our equity income line.

We also recorded income this quarter related to an insurance recovery due to a payment from a damage claim at one of our EfW plants that we made earlier in the year. GAAP accounting requires you to recognize the income at the time you receive the recoveries adjusted for the book value of the assets impacted. So this was a small benefit in the quarter.

In addition, we accrued some costs related to two of our offline biomass plants as the purchase power agreement had a contractual obligation provision in lieu of guaranteed production. This was part of our analysis when we decided not to operate these plants and is right in line with our strategy of running the plants when they are profitable and keeping them off-line when the bark spread goes negative. While the net impact of all of these were minimally positive, we still wanted to flag them to you as they are out of the ordinary course of business.

Let’s turn to slide 15 for an update on working capital and how it has and will impact free cash flow of our business. First our working capital is going to be lumpy because of our construction projects. Further major projects typically last as much as three years so the impact is over years and not just quarters. The fact is during these projects our payments and our cash disbursements aren’t directly aligned. For example, with our Durham-York client this is a $250 million project which we are paid for in only 11 installments. On the other hand the disbursements related to this project will generally be spread out across the whole construction period.

In the second quarter specifically we had the impact of Honolulu which had more disbursements than in the same quarter last year as well as the impact of Durham-York which hadn’t even started construction in Q2 of 2011, so we didn’t have any receipts or disbursements at all. This noise from construction working capital will continue for as long as we have ongoing construction projects. The important thing to remember is that free net cash flow impact over the life of these projects is equal to the profit that we make on the construction which is a modest amount.

As you know the real driver behind the construction projects is a long-term win-win operating relationship with our client. In the case of both Honolulu and Durham that’s 20 years each with the Honolulu contract expected to start this year and the Durham-York contract expected to start in 2014.

Let’s turn to slide 16 now to go through our capital return activities in the second quarter, a slide that you’re all familiar with. In the second quarter we paid out our first quarter cash dividend of $0.15 per share and announced our second quarter dividend for the same amount. This works out to a $0.60 per share annualized dividend or a 3.5% yield based on the stock price at the end of the quarter.

During the second quarter we also purchased 1.9 million shares of stock for $30 million. This reduced our actual share count to 133 million shares at quarter end, a deduction of about 16% since we started the buyback program. I also thought I would flag that we have been executing on our capital return activities for two years now. It was two years ago when Tony and Sam laid out our capital allocation strategy which we have been following since, balancing investment in growth projects with near-term capital returns.

I am sure you will agree that it has worked out well with over $700 million returned to shareholders since that time. Needless to say our balance sheet remains strong. Slide 22 in the appendix highlights this well. Thanks to prudent capital planning, including the recent refinancing and of course strong operating results, we’ve a balance sheet with a lot of flexibility over the next several years.

Moving on to slide 17; this chart summarizes our unchanged 2012 guidance which we reaffirmed just now and last night. While we remain confident in our guidance ranges it is important for you to remember that the softness in the metals and energy markets will impact us, if given new rules of thumb that provide direction on the potential impact that market pricing will have on our adjusted EBITDA line. In fact given this decline year-to-date it speaks volumes on the strength of our underlying operating business and the impact of our organic growth initiatives have and will have in order to keep us on track and within our guidance ranges.

In terms of free cash flow and I’ve just discussed construction working capital will be a driver for quarter-to-quarter and year-to-year variances. We’ll also see the impact of higher interest cost this year from our refinancing. When you adjust for the working capital impact we would have been generally inline with 2011, so another solid year of free cash flow generation. Lastly adjusted EPS will show a benefit due to growth in operating income as well as the lower share count as a result of our continued stock buyback program.

I’ll conclude with a quick summary for the outlook for the third quarter. We're on slide 18. In reviewing the Q2 outlook as usual I am referring to year-over-year variances. Revenue should be basically flat for the quarter. Adjusted EBITDA will be down slightly in Q3, as with revenues our organic growth initiatives are offsetting, the recent weakness in metals pricing and a few above market waste contracts that we've recently renegotiated.

On our adjusted EBITDA line we will also be impacted from lower debt service passed through billings. Other than market weakness, this is nothing that we weren’t expecting. With respect to free cash flow, it should be slightly up in Q3. The slight year over decline in the adjusted EBITDA should be more than offset by positive construction working capital. As we have said before, quarterly swings in our free flow is not what is important. We focus on our full-year performance.

The important thing to note is that we are still comfortable with our full-year free cash flow guidance of $250 million to $280 million which on our revenue base represents very high cash flow margins. Adjusted EBITDA should be flat in Q3, with the adjusted – adjusted EPS should be flat in Q3 with the adjusted EBITDA and higher interest expense impacts offset by the benefit from our share repurchase program.

So in summary, Q2 actuals and Q3 outlook are playing out generally as we anticipated, but maybe the exception of the recent decline in the recycled metal markets. However despite this softness in the markets we are still executing on our plan.

As I said earlier, I am not that worried about metals long-term. As we increase the amount of high quality metals that we recycle we will see the benefits play out, also over time energy should bounce back. Moreover we will start to benefit from increasing energy volumes more of which will accrue contractually rather than just with new investment.

With this earnings cycle I will have completed two years as your CFO. Over this time I’ve really enjoyed getting to know many of you and discussing the strong investment story of this business.

A lot of exciting things have happened in the business over this time and the next two years and beyond represents even more exciting opportunities for us. Organic growth gaining traction, success in development projects, continued capital return, potential uptick in the energy markets and, and, and… So, thank you for your continued support.

Now, let’s move on to some Q&A. Amy, please open up the phone lines.

Question-and-Answer Session

Operator

Thank you. We will now begin the question and answer session. (Operator Instructions) At this time we will pause momentarily to assemble our roster. Our first question is from Dan Mannes with Avondale Partners. Go ahead please.

Daniel Mannes - Avondale Partners, LLC

Hey, good morning team.

Anthony J. Orlando

Good morning, Dan.

Sanjiv Khattri

Good morning, Dan.

Daniel Mannes - Avondale Partners, LLC

First of all, I do appreciate the uptick you guys are giving us as it relates to ’13, but I just wanted to sort of pull all the numbers together. As you look at 2013, if you assume that Essex does get transitioned and you assume the current outlook for both power and scrap, at least where it is. Do you anticipate that 2013 on an adjusted EBITDA base should be better than 2012?

Anthony J. Orlando

Thank you, Dan. This is Tony, well certainly it’s our objective to grow and we’re making the investments to position ourselves to achieve that objective. We did kind of give you a snapshot of the key issues affecting all of our key revenues, waste metal and energy. And as you can see there is some things working for us and some things working against us, but until we get more visibility into the metals and energy markets as well as our operational plan it’s really just a little bit too early to kind of pull that all together and tie it up with a bow on it.

I think in particular the metal prices feel like a wild card, given the fact that they just dropped pretty dramatically in the last month, but again we’re focused on finishing this year strong, managing the things that we can control, and then putting ourselves in a position to continue growing.

Daniel Mannes - Avondale Partners, LLC

Okay. And then real quick, just focusing a little bit more on the metal side, you guys have some – you guys put some numbers in there in terms of your expectation about increased volumes, can you just kind of confirm here, in the past you’ve highlighted the total volumes, the gross, but not necessarily the net received, can you contrast that with your expectations in terms of the incremental volumes you pick up?

Anthony J. Orlando

Sure. Yeah, the numbers that we do report as well as those numbers that we laid out for next year are growth. One of the things that we’ve been thinking about is metal becomes a more and more important aspect of the business is whether or not we should report net, which is essentially the way we do our energy. So that’s something that we’re contemplating to give some greater clarity.

I’ll say that the structure of the deals that we’ve we do retain a line share of the metal revenues. So – and I think we’ve kind of laid that out. So those are gross numbers, but we’re contemplating whether or not we should kind of lay out some better numbers for you in the future so you get a better handle on it in terms of the net.

Daniel Mannes - Avondale Partners, LLC

Got it, thank you.

Anthony J. Orlando

Thanks, Dan.

Operator

Our next question is from Ben Kallo with Robert W. Baird. Go ahead.

Ben Kallo - Robert W. Baird & Co.

Thanks guys for taking my question.

Sanjiv Khattri

Good morning, Ben.

Ben Kallo - Robert W. Baird & Co.

Hi, good morning. I want to ask about the environmental improvements at Essex, is that regulatory-driven? And then, is there going to be some type of return on capital figured into your contract renewal?

Anthony J. Orlando

Yeah. The agreement that we’ve at Essex is something that again as we’ve – we always use the term win/win for all parties. We think this is a great example of that where we’ve come together with our client and everybody, all the stakeholders on that project and are prepared to make a significant investment to upgrade the – to upgrade that facility. And again as we look at it, certainly that’s going to be a positive thing for us. It sets up that facility to be very successful in the long-term, but of course the environmental benefits are also very positive for all of the stakeholders involved.

Ben Kallo - Robert W. Baird & Co.

Okay, great. And then in July, how are you seeing those, is it going to uptick in pricing, is that continued on throughout July?

Anthony J. Orlando

I’m sorry; did you say the energy pricing, Ben?

Ben Kallo - Robert W. Baird & Co.

Yeah.

Sanjiv Khattri

What pricing, Ben?

Anthony J. Orlando

Well, the natural gas markets have moved up really since the spring. Again, I think it’s driven by two things, I mean there is no question the hot weather is having an impact on the short-terms numbers. But we’ve also seen the longer term forward curves move up, and I think that’s really been driven by the activity in the drilling.

So, I think it’s a combination of those two things. And that improvement in pricing is reflected in the full-year number that we gave you, which is the 265, average.

Ben Kallo - Robert W. Baird & Company

Okay, great.

Anthony J. Orlando

Right.

Sanjiv Khattri

Thanks, Ben.

Operator

Our next question is from Smitty Srethapramote from Morgan Stanley.

Smittipon Srethapramote - Morgan Stanley & Co. LLC

Yes, good morning. Thank you for taking my question.

Anthony J. Orlando

Good morning.

Sanjiv Khattri

Good morning, Smitty.

Smittipon Srethapramote - Morgan Stanley & Co. LLC

I just have a quick follow-up to that, to the previous question. Could you note what kind of energy in metal pricing assumptions that you guys are assuming to calculate the bottom end of the guidance range?

Anthony J. Orlando

Well, we’ve laid out the numbers that we expect, right, which for full-year natural gas, and again this is just to give the rule of thumb – but the rule of thumb I think has been helpful for people to get their arms around the impact. So the full-year natural gas price that we’re looking at is $2.65. So that’s a little bit below where we started the year at 3. And the full-year HMS price that we’re looking at is 360, and that’s versus the – where we started at the beginning of the year of 410. So that’s down about 50, which is translated into about $10 million impact.

We’re expecting a small uptick in the metals. And again, energy, there is lots of forward curves and there is lots of ways to try to get your arms around what those numbers are going to be and we really just kind of use some very basic forwards curves on energy. That type of information is not readily available for metals. So we just have to try to get our sense of what’s going on in the market, what’s going on in the overall economy, and we do think there is going to be a little bit of an uptick, but we just have to see how that plays out.

Smittipon Srethapramote - Morgan Stanley & Co. LLC

Okay, thank you.

Operator

Our next question comes from Al Kaschalk with Wedbush Securities. Go ahead please.

Al Kaschalk - Wedbush Securities Inc.

Good morning.

Anthony J. Orlando

Good morning, Al.

Sanjiv Khattri

Good morning, Al, early morning for you.

Al Kaschalk - Wedbush Securities Inc.

It is, long night, early morning, good thing. On the metal recovery standpoint, I wanted to just – you’ve been growing at it now for several quarters and I appreciate the longer term value to shareholders that you see. I was hoping you could maybe just share some of your real-time observations on maybe some of the positives or perhaps some of the headwinds you’re seeing, obviously have some price decline, but to sort of help support the long-term strategic value of growing this business? So, just sort of business update on…

Anthony J. Orlando

Sure

Al Kaschalk - Wedbush Securities Inc.

… on the business.

Anthony J. Orlando

Again, and we talked about this probably a couple of quarters back, what we’re really doing is two-fold, one is kind of an enhanced focus on metal recovery. The other is deploying equipment and new technologies, and quite frankly particularly on the non-ferrous recovery, the technologies have advanced a lot, which allow us to recover a lot more non-ferrous.

So what you’ve seen in really the first and second quarter is almost entirely a benefit of just us focusing on recovering more metal. But we’ve had – the two projects that we just finished, we’ve got eight more that we’ve got in the works and these projects, as you imagine there is several million dollar investments, they take some time to plan, they take time to order equipment etcetera, etcetera.

So the first two projects just came on-line in the second quarter, but actually one of them was early July. But we really aren’t seeing the benefit of either of those two projects until the third quarter, just the timing of when you start to ship the metals out and what not. So we’re going to start to see in the third quarter the benefit of our first two projects where we’ve invested capital to get more metal out, where to clean the metal up as in the case of the shredder.

We’ve got eight more projects in the hopper. Those are going to finish throughout the rest of this year, quite frankly, most of this is towards the end of this year, and where we’re really in it to get the benefit as most of these investments are on non-ferrous metal recovery. And that 10,000 ton number that I – throughout there in terms of our goal to recover non-ferrous in 2013 is a pretty big step-up from where we were in 2011. And most of that benefit is going to come into 2013.

So we’re getting some ferrous metal benefit pickup this year, particularly towards the fourth quarter we’re going to start to get some non-ferrous metal pickup in the fourth quarter and then next year. And these are relatively modest investments that have excellent returns. And again, they’re also – not only they’re good for our bottom-line; these are perfect, right in line with our win/win approach. To some extent, depending on the project we’re sharing the benefit with our client community, on the economic side, but in all cases the benefit accrues to the environment by recycling more, reducing the amount of waste that goes into landfills, so it just really fits very nicely with our overall approach of diverting waste from landfills and having win/win deals with our clients.

Al Kaschalk - Wedbush Securities Inc.

And then just as a – maybe a follow-up to that, do you’ve to, not do you’ve, but are you considering ways to mitigate volatility and price or is this one of these areas where you’re going to have to hopefully operationally offset some of the volatility or in cases where the price declines just kind of grind through it?

Sanjiv Khattri

Well, right now it’s unfortunately grind through it, hopefully because of all the factors that Tony highlighted, the uptick in volume will be meaningful that we’ll be able to at least year-over-year absorb any pressure on price. There is no real good market to hedge scrap metal. There is some action effort, I understand, a lot of people at this market become more and more important on looking whether they can design a security. But right now unlike a lot of the other commodities this is not a good market to hedge. We do have some long-term commitments. We’re also discussing whether we can know that we’re a meaningful volume player, whether we can do long-term contracts to be eventual users in China and Turkey, but I think for the near-term you guys should expect to unfortunately see some price volatility.

Al Kaschalk - Wedbush Securities Inc.

Thank you.

Sanjiv Khattri

It’s not that we do control, which is a quality and quantity I really feel good about.

Al Kaschalk - Wedbush Securities Inc.

Thank you.

Sanjiv Khattri

Thanks, Al.

Operator

Our next question comes from Gregg Orill with Barclays. Go ahead please.

Gregg Orill - Barclays Capital

Thanks, good morning.

Sanjiv Khattri

Good morning, Gregg.

Anthony J. Orlando

Good morning.

Gregg Orill - Barclays Capital

Question similar to the last one, but with regard to special waste in terms of – I appreciate the quantification that you provided this morning of $50 million in revenue, could you give us a sense for the potential for the business and maybe a multi-year goal, recognizing that I appreciate that you gave us the $50 million this morning.

Anthony J. Orlando

Yeah. Again, this is something that we’ve been focused on as part of our organic growth and why we have that business with the special waste for quite some time. We’re really continuing to ratchet up our attention. We wanted to give you a sense of this scale because I know people have asked before and I think our prior answer was its a couple percent of revenue or something on those lines. So we want to give you a little bit more precise size and scale of it, which is a $50 million business.

And we’ve further said that we’re looking to grow it in double-digits. So I think that gives you an idea of where we’re going now. I’ll say that does not incrementally drop to the bottom-line, right, because what we’re doing with the special waste is we’re bringing in higher price waste. We’re already running our plants to capacity, so what we’ve to then do is we’ve to kind of kick out some of the waste that’s at the low-end of the price spectrum.

So we’re not getting the full benefit of that $50 million, but we’re of course looking to optimize where we can bring special waste in locations where the price of the spot waste is very low.

Sanjiv Khattri

The other thing I’ll just clarify, Gregg, you know this well, but benefit all the people on the call, in looking at this revenue this is a gross number, so you need to offset it with the spot waste it’s replacing and as Tony highlighted it really depends on which market you’re in. So if you’re in a market where spot waste is really low, then the delta or the pickup in margin is significant or in case of certain markets where the spot waste is not as low, then the delta is less.

So, in every case there is a pickup in margin, but the range of margin will depend on which markets that we pickup the special waste.

Gregg Orill - Barclays Capital

Thanks.

Sanjiv Khattri

Thanks, Gregg.

Gregg Orill - Barclays Capital

I was wondering if you could also touch on Ireland and what you see as the options there, and how you’re moving forward and considering them?

Anthony J. Orlando

Sure. This is Tony. We’re currently focused on raising financing for the project and we’re in the middle of that process. As you can imagine, the financing markets in Ireland and for that matter across Europe are pretty challenging right now. But we believe it’s an attractive investment and we’re encouraged at the level of interest that we’ve gotten.

We think it’s, again, I’ll use my phrase again, we think it’s a win-win both for Covanta and for Ireland, but we’ll have to see how that plays out. It’s too early to know yet. Hopefully we can get the financing done, but that remains to be seen.

Gregg Orill - Barclays Capital

Great, thank you.

Sanjiv Khattri

Thanks, Al – Gregg, sorry.

Operator

Our next question is from Carter Shoop with KeyBanc. Go ahead.

Carter Shoop - KeyBanc Capital Markets Inc.

Good morning.

Anthony J. Orlando

Good morning.

Sanjiv Khattri

Good morning, Carter.

Carter Shoop - KeyBanc Capital Markets Inc.

I wanted to follow-up with the two development projects in Europe and better understand how confident you’re about a definitive go, no go by next quarter’s earnings call, and as a follow-up to that how long do you think it will take for the board to prove some sort of new capital allocation strategy if none of the projects are going to go forward?

Anthony J. Orlando

Well, we hope that we’re going to hear by the next earnings call, but the reality is this is not something that’s in our control. We’ve to rely on – in the case of Dublin, you know what’s going on with the markets. And in the case of the big Ince project, of course we did submit our bid in June, and now we’ve to wait their selection and decision of who the winning bid will be. So we hope we’re going to know more by the next call and we expect to, but that’s not in our control.

I think with regard to your second question, and I know this kind of came up on the last call as well and I gave a fairly short answer, so let me give you a longer answer this time. We’re working hard to make these projects a success and we’ve high hopes that that’s going to get done, but they are development projects and therefore they’ve got a lot of uncertainty.

So with respect to how that may affect our capital allocation strategy, I hope that our historic actions speak a lot than our words, right? I mean we’ve really put in place I think a very flexible balance sheet. We’re in a very fortunate position, of course we’re generating a lot of cash and we’re in the position where we can both invest in these high return projects and return capital to shareholders.

I might say we’re also – we’ve been very, very disciplined in our investment approach and we’re only going to invest when the risk return profile is good and there is a good strategic reason to invest. So, during the past couple of years we haven’t had as much opportunity to invest. And as a result, as you mentioned we returned about $700 million of capital to shareholders.

Hopefully in the future we’re going to have the opportunities to invest in good projects and however that plays out I can assure you, I can absolutely assure you that we’ll make our capital allocation decisions based on the facts that we’ve at the time, but using the same criteria that we always use, which is to maximize long-term shareholder value.

Carter Shoop - KeyBanc Capital Markets Inc.

That’s helpful. I’m shifting gears to the waste market and the three contract extensions in the quarter, when you look at those three deals, obviously a lot of variables that are unknown at this point in regards to ‘13. With that said, when you look at the three contracts, do you feel comfortable that all three will deliver higher EBITDA in ’13 versus ’12 as it transitions into fixed fee contracts?

Anthony J. Orlando

Yeah. Again, we think that these are win/win for everybody of course as we look at it. We want it to be beneficial for us over the long-term. And we do expect to see benefit particularly as we can. We’ve the opportunity to kind of grow the pie and implement some of our organic growth initiatives we see opportunity and benefit and so, yes, we do expect to see benefit out of those transitions.

Sanjiv Khattri

Yeah, I think Carter these are all good projects and they’re really nicely sag into our organic growth initiatives. As an example, FX, we hope to put in some metal systems that we’ll get the benefit also, there the many collateral things we’ll do that will all help the bottom-line.

Carter Shoop - KeyBanc Capital Markets Inc.

Yeah, that’s helpful. And I’ve no doubt that over the long-term those will be incremental to the bottom-line of the company. I guess – in other way I think the question is can you walk us through some of the costs that you bring on and some of the potential risks for the immediate term in 2013 from these contract extensions or there is relatively well known and that you shouldn’t be expecting a lot of variability there?

Sanjiv Khattri

I don’t think so. As Tony mentioned, some of these contracts as a transition to the extent in that market, the pricing is below currently when the contract was done, there is some small drop and this goes into the – how complicated some of these contract renewals are, you may see a downturn in one line. So, waste revenue for example as in the case of Stanislaus may actually be down, but then there are other things as we’re getting all the power now, we’re getting all the metals now. So, you’ve to look at the big picture.

I think on the whole I’d have to say the operating team has a fantastic job of managing these asset managements. I mean we’re batting five projects this year. I think the total overall count is 20 out of 21, something like that. And in each case, we’ve been able to create a situation where the client is also pleased with the certainty and the quality of service we give and the environmentally good service we give, and we’ve been pleased. And in virtually every case the investments that we’re making have all paid off.

So we’ll give you more clarity in terms of what happens when we talk 2013 in detail at the end of the year, but from a – sitting from a CFO Head I’m like very created with these renewals, they’re very good.

Carter Shoop - KeyBanc Capital Markets Inc.

Great, congratulations. Thank you.

Sanjiv Khattri

Thank you.

Operator

Our next question is from Michael Hoffman with Wunderlich Securities. Please go ahead.

Michael Hoffman - Wunderlich Securities, Inc

Thank you very much for taking my call.

Sanjiv Khattri

Good morning, Michael.

Michael Hoffman - Wunderlich Securities, Inc

Good morning, Sanjiv and Tony. Actually one more question about metals, but – a little help, do you sell direct or do you sell through brokers? And if you’re direct, do you’ve a feel if you’re seeing possibly a seasonal dip because this is the typical time of the year that lots of manufacturing facilities will take shutdowns, and so maybe there is demand pullback and then we’d get a lift again in the fall, maybe not back to the beginning of the year level, but there is – our demand lift comes back?

Sanjiv Khattri

Well, first of all we virtually don’t sell any metal right now to the end user i.e. the project or the plant that would actually profess, but we’ve – depending on the markets we’re and some of this stuff is pretty heavy, it doesn’t travel well in terms of costs. So in many cases we’d sell to the local consolidator.

In the case of non-ferrous we actually have a very nice agreement where that goes to a professor who cleans and sorts out the metal, so there are different arrangements. I do think ultimately the two big markets which drive the global price for this is China and Turkey, even though Brazil and India are also big users and there was a downturn in the price and some of the trends you see are suggesting that the price is solidifying again actually as recently as end of July people are speculating that the price will again start stabilizing. It’s hard to pin that down on a specific shutdown or anything like that.

This is something we’ll look closely at. We do know that we’re getting a good deal. And as I said earlier, we’re looking at ways to as some of our production in concentrated in the certain markets whether we can get closer to where the end user is. So those are things we're looking at as opportunities even as much as directly dealing with the offshore markets.

So it’s hard to read into that. There’s a lot of speculation that there’s some correlation to new car sales et cetera but, I mean, now we’re sitting tight as I said earlier, as long as we are improving quality and quantity I think long-term it will payoff, Michael.

Anthony J. Orlando

Yeah. I think it is also fair to say that with the size of the drop that we saw in July it’s more than seasonal.

Sanjiv Khattri

Yeah - yeah definitely.

Michael Hoffman - Wunderlich Securities, Inc

Okay. All right.

Sanjiv Khattri

And there’s all these discussion about China production and all that, I mean, you’ve read – I mean, you had a very nice note this morning that we explained it all, so it’s good.

Michael Hoffman - Wunderlich Securities, Inc

Yeah, thank you. And then you – Tony, thank you first in bringing incremental visibility about your capital allocation thoughts. If I might press it a little bit, philosophically is the intention not – I’m not asking for a level, but is the intention to grow your dividend on a recurring basis so that, that’s a message you send to the market that the dividend not only is it a good one, but it has an underlying growth rate to it?

Anthony J. Orlando

Well, see we just doubled the dividends, so I thought it might take a little longer before you ask that question. But – and look of course it’s our goal to grow the business and while we grow the business to grow the dividend, right. I mean, that’s our goal.

Michael Hoffman - Wunderlich Securities, Inc

Okay.

Anthony J. Orlando

And the key to that is growing the business.

Michael Hoffman - Wunderlich Securities, Inc

All right. And then if I may, bare with me once. You appear to have demonstrated very well over the last two years, this ability to flex your business model around some of this variability related to energy and metals and other factors. Can you frame for us; what's the limits of that flexing relative to moves that you’re able to absorb and it’s been pretty impressive that it’s in the phase of some of these pressures you’ve continued to deliver what you have, but what's the limit to that as far as the level of a movement?

Sanjiv Khattri

Well, thank you Michael, that was kind. I think there’s sort of no magic to this that look because markets are weak we need to scramble a bit more. We're scrambling all the time. If you look at some of the organic growth initiatives we have, some of the focus we’ve all well had on cost, so that process is ongoing. You are right in pointing out though that there’s only so much downturn in the market we can handle. Our waste revenues are fairly stable. Even our energy revenues are at 75% contracted. Our metal revenues are not contracted at all and last year metals was a run rate of $74 million, so it’s becoming a big chunk of our revenue and ultimate profitability.

And within reason we can manage that and that’s why we have a range in our outlooks, but you’re right Michael, if things deteriorate in a meaningful way further on metals, especially from the current spot price of HMS and energies unlikely but shows weakness again then I think it will be challenging for us to keep the range. At this time we feel good about it. We took – we've basically taken $13 million to $15 million of headwind directly just from these two items and we’re still in our range. So that has to feel good.

Michael Hoffman - Wunderlich Securities, Inc

Yes.

Anthony J. Orlando

And I think maybe just to – maybe add to what Sanjiv said, that we’re taking that downward pressure and we've been able to manage it by managing the business effectively and the things we can control. And I look at it as, while it may go down and we’ll have those challenges. We also have some nice upside leverage if it goes the other way and we continue to manage the business well. We’ll really feel some nice tailwind if those markets do turn in our favor.

Michael Hoffman - Wunderlich Securities, Inc

Okay. Thank you very much.

Sanjiv Khattri

Thank you, Michael.

Operator

Our next question is from JinMing Liu from Ardour Capital. Go ahead.

JinMing Liu - Ardour Capital Investments, LLC

Yes. I just have one question left. Hi, Sanjiv. Can you quantify how much benefits you receive from those one time items, your adjusted EPS?

Sanjiv Khattri

It’s very minimal, very small item, because if you recall two were positive, one was negative and so the net impact was very small. I just wanted to share it with you because those sort of stuff doesn’t happen every quarter. Very minimal, JinMing.

JinMing Liu - Ardour Capital Investments, LLC

But if I look at your equity income, that’s $5 million, which is much higher than the normal run rate about ….

Sanjiv Khattri

Two things are driving that. One is just the fact that year-over-year we have now two new units online. If you remember, Tony has been talking about to re-commission those plants, so that’s driving equity income, and then some of it is the one-off gain from the Chinese equity swap that I talked about, but offsetting that is the payment we made relating to on the accrual in fact we made not the payment – payment has to be made yet, we made according for our biomass plants. So I think you have to look at where it’s sitting. As I said it’s minimal, JinMing.

JinMing Liu - Ardour Capital Investments, LLC

Great. Thanks.

Sanjiv Khattri

Thank you.

Operator

Our next question is from Barbara Noverini with Morningstar. Go ahead.

Barbara Noverini - Morningstar, Inc.

Hi. Good morning, everybody.

Anthony J. Orlando

Good morning.

Sanjiv Khattri

Good morning Barbara and welcome to Covanta.

Barbara Noverini - Morningstar, Inc.

Thank you so much. I just wanted to revisit special waste again really quickly; on this low waste volume environment the landfill operators are also setting their sides on special waste, and can you provide any color on price competition in this particular segment and what gives Covanta an edge to compete effectively for these volumes?

Anthony J. Orlando

Sure, let me take that one. This is, Tony. I will say one of the things that we have to be a little bit aware of is that what we talk about special waste and what the landfill operators talk about special waste maybe two very completely different things. I think the consistency is that its not traditional municipal solid waste, not traditional commercial waste. Typically the landfill special wastes are going after things like, the reject processing material from Shale drilling or things that are in – not compatible with what we could even take at our plants, they’re not combustible.

But they’re not traditional ways where we really go after the special waste and we have a great advantage because we do have a pretty unique offering is with the target that we go after for special waste are companies that want assured destruction of the material, companies that want zero landfill disposal option, and the environmental benefits that come with that and that’s a pretty unique offering that we have in terms of the scope of the facilities we had nationally.

So, we’ve an opportunity to go after a lot of companies that want zero landfill alternatives and assured destruction. So, that’s the market that we’re focused on. It’s still competitive. There are plenty of alternatives out there, but we feel like we’re providing a service, its fairly unique to our customers.

Barbara Noverini - Morningstar, Inc.

Great. Thanks very much for that.

Sanjiv Khattri

Thanks, Barbara.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Covanta’s CEO Mr. Tony Orlando for closing remarks.

Anthony J. Orlando

Well, thanks everybody for joining us. I hope you found this helpful. We look forward to getting together again in a quarter and continue to do a good job creating shareholder value. So, we will talk to you soon.

Sanjiv Khattri

Thanks, guys.

Anthony J. Orlando

Thank you.

Operator

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect your lines.

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