Service First. Safety Always. Credit Suisse Global Industrials Conference November 2017

Transcription

1 Service First. Safety Always. Credit Suisse Global Industrials Conference November 2017

2 Disclaimer The information ("Confidential Information") contained in this presentation is confidential and is provided by Advanced Disposal Services, Inc. ( ADS or the "Company") confidentially to you solely for your reference and may not be retransmitted or distributed to any other persons for any purpose whatsoever. The Confidential Information is subject to change without notice, its accuracy is not guaranteed, it has not been independently verified and it may not contain all material information concerning the Company. No representations or warranties (express or implied) are made regarding, and no reliance should be placed on, the accuracy or completeness of, or any errors or omissions in, any information or opinions contained herein. None of the Company nor any of its respective directors, officers, employees, stockholders, representatives or affiliates nor any other person accepts any liability (in negligence, or otherwise) whatsoever for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection therewith. No reliance may be placed for any purposes whatsoever on the information set forth in this presentation or on its completeness. This presentation does not constitute or form part of any offer or invitation for sale or subscription of or solicitation or invitation of any offer to buy or subscribe for any securities, nor shall it or any part of it form the basis of or be relied on in connection with any contract or commitment whatsoever. Recipients of this presentation are not to construe the contents of this presentation as legal, tax or investment advice and should consult their own advisers in this regard. This presentation contains forward-looking statements within the meaning of the U.S. federal securities laws. All statements other than statements of historical facts in this presentation, including, without limitation, those regarding our business strategy, financial position, results of operations, plans, prospects and objectives of management for future operations (including development plans and objectives relating to our activities), are forward-looking statements. Many, but not all, of these statements can be found by looking for words like expect, anticipate, goal, project, plan, believe, seek, will, may, forecast, estimate, intend, future and similar words. Statements that address activities, events or developments that we intend, expect or believe may occur in the future are forward-looking statements. Forward-looking statements do not guarantee future performance and may involve risks, uncertainties and other factors which could cause our actual results, performance or achievements to differ materially from the future results, performance or achievements expressed or implied in those forward-looking statements. EBITDA, Adjusted EBITDA, Free Cash Flow ( FCF ) and normalized FCF are non-gaap measures and, when analyzing our operating performance, investors should not consider these measures in isolation or as substitutes for net income, cash flows from operating activities or other statement of operations or cash flow statement data prepared in accordance with GAAP. Our calculations of EBITDA, Adjusted EBITDA, FCF and normalized FCF are not necessarily comparable to those of similarly titled measures provided by other companies. 1

3 Today s presenters CEO since July 1, 2014 Richard Burke Chief Executive Officer Over 28 years of experience in the waste services industry Served as President since 2012, President and CEO of Veolia Environmental Services North America from 2009 to 2012 and President and CEO of Veolia ES Solid Waste from 2007 to 2009 Prior to joining Veolia, spent 12 years with Waste Management in various leadership positions CFO of ADS and predecessor entities since 2006; CAO from Steven Carn Chief Financial Officer Over 16 years of corporate finance experience in the waste services industry CFO of Town Star Food Stores and Senior Consultant with CFO Services Certified Public Accountant Leadership Team Driving Value Creation Maximized economies of scale Strengthened operations and re-shaped portfolio Refocused corporate structure Selectively expanded through acquisition Successfully pursued exclusive municipal contracts CPPIB investment to facilitate deleveraging Executed IPO, debt refinancing and secondary offering Optimized operations support stability of performance 2

4 Company Overview

5 A leading provider of solid waste collection & disposal services Overview Collection Services Transfer Stations Leading integrated provider of non-hazardous solid waste collection, transfer, recycling and disposal services Extensive network of vertically integrated and strategically located assets Focused on serving customers in secondary markets or under exclusive municipal arrangements LTM 09/30/2017 revenue of $1.5 billion and adjusted EBITDA of $417 million 92 Collection Operations 2.8M residential customers Over 800 exclusive municipal contracts Over 200K C&I customers 73 Transfer Stations Over 3,000 vehicle fleet 5.0M tons of waste handled annually LTM 9/30/2017 Revenue Recycling Facilities Landfill Services Landfill Gas Commodity 1% Sales 2% Revenue by Source Other 4% Residential 28% Revenue by Category (a) Primary market revenue 20% Transfer / Landfill 19% 22 Recycling Facilities 40 Landfills Rolloff 19% Commercial 27% Exclusive municipal and secondary market revenue 80% ~550K tons of recyclables collected annually ~165K tons of recyclables processed annually 15.7M tons disposed of annually 64% internalization rate Note: See appendix for full reconciliation of Adjusted EBITDA (a) Primary market revenue includes revenue from the following four markets (excluding revenue from exclusive municipal contracts): Atlanta, Chicago, Detroit and Philadelphia 4

6 ADS has delivered on its promises made at IPO Acquisition Growth Municipal Contract Wins Commitment Made Pursue disciplined strategy of accretive tuck-in growth and acquisitions of high margin assets that align with market selection strategy Secure additional exclusive municipal contracts and develop vertically integrated operations Accomplishments Results Delivered Completed 12 tuck-ins during first nine months of 2017 Closed acquisition of CGS Services in Q $25 million incremental revenue for 2017 Expanded with vertically integrated network into new Central and Eastern Indiana markets Net new municipal contract revenue growth since IPO Won Polk County, Florida contract with over 60,000 homes strengthening presence in Central Florida Tuck-in acquisition in Polk jumpstarts Commercial and Industrial business Pricing Discipline Focus on prudent cost management and pricing discipline to drive profit maximization 1.9% average yield for last eight quarters 40bps over CPI-U growth (a) Balance Sheet Efficiency Deleveraging Optimize balance sheet to reduce interest expense and minimize weighted average cost of capital (WACC) Commitment to deleveraging Targeting long-term leverage of 3.25x 4.25x Refinanced existing indebtedness at improved pricing Term Loan B pricing 75 bps to L+225bps since IPO Sr. Unsecured Notes pricing 263 bps to 5.625% Corporate ratings upgrades to B2 / BB- since IPO Post IPO and debt refinancing leverage of 4.9x reduced to 4.6x $20 million Term Loan B prepayment in December 2016 Delevered an additional 20bps YTD 2017 to 4.6x (a) CPI-U stands for Consumer Price Index for All Urban Consumers; represents the average year-over-year change in quarterly CPI-U, and quarterly CPI-U is calculated as the average of the underlying monthly CPI-U 5

7 (% of Total Ownership) Continued focus on corporate governance Appointment of Independent Directors A majority of the Board of Directors and all committees are now comprised of independent directors Since IPO, three independent directors have been appointed to the Board May 2, 2017 Tanuja Dehne joined the Board and chairs the Compensation Committee June 16, 2017 E. Renae Conley elected to the Board and serves on the Compensation Committee and Nominating and Corporate Governance Committee October 3, 2017 Michael J. Hoffman joined the Board and chairs the Nominating and Corporate Governance Committee and serves as a member of the Audit Committee Sponsor Shareholding Evolution Highstar and BTG's lockup from the May 2017 secondary offering expired on August 15, They closed on a block trade on November 21, Pre-IPO Post-IPO 6/30/17 Post-FTFO 11/21/17 Post-Block Highstar BTG Highstar has the right to nominate a number of designees to the Board equal to the percentage of common stock owned Highstar currently has 3 board seats, which will drop to 2 seats post the block trade and then to 1 seat once their ownership falls below 20% BTG s Board designee left the Board on 10/31/17 and BTG will have no further board representation 6

8 Key Investment Highlights

9 Why is ADS an attractive investment opportunity? Market selection creating competitive and differentiated business model driving growth 1 4 Strong core revenue growth and increasing profitability allow for free cash flow expansion and continuous deleveraging Strategic network of vertically integrated disposal assets providing scale, scope and diversity 2 Operating efficiency gains, acquisitions and pricing driving margin and free cash flow enhancement 3 8

10 Disposal Market 1 Market selection creating competitive and differentiated business model driving growth Competitive Market Focus on vertical integration in exclusive and secondary markets (a) Exclusive Secondary Primary Primary market revenue 20% Strong competitive position ADS Owned Landfills Exclusive municipal and secondary market revenue 80% Enhanced customer retention Disciplined price environment ADS owned landfill first priority Disposal Neutral Enables vertical integration in any market Pursue opportunities in primary markets where we own a landfill Atlanta, Chicago, Philadelphia, Detroit Competitor Owned Disposal neutral second priority Opportunity for highly profitable operations Efficient collection operations Limited capital requirement Opportunities for price initiatives High Priority Not a Priority ADS Core Focus Ability to maintain high quality, strategically located infrastructure (a) Primary market revenue includes revenue from the following four markets (excluding revenue from exclusive municipal contracts): Atlanta, Chicago, Detroit and Philadelphia 9

11 2 Strategic network of vertically integrated disposal assets providing scale, scope and diversity Complementary network of landfills & transfer stations (a) Balanced geographic revenue base (c) ME MN WI IA MO AR LA IL MS MI IN KY TN AL OH WV GA SC FL VA NC NY PA NJ MD DE VT NH MA CT RI Corporate Headquarters Regional Headquarters Hauling/Collection Landfills Recycling Transfer Stations not listed Midwest 38% South 37% East 25% Revenue diversification by source (d) Landfills Transfer stations Foundation of vertically integrated operations Most profitable component of the waste services value chain Establish a highly defensible market position Average landfill expected life of 38 years (b) with 34% capacity utilization Extend reach of landfill service area Highly complementary to landfills, enhancing competitive advantage Landfill Gas Commodity 1% Sales 2% Transfer / Landfill 19% Other 4% Residential 28% Collection Large diverse customer base with largest customer represents less than 2% of revenue (d) Over 800 municipal contracts representing approximately 2.8 million residential customers Terms of 3-10 years or longer with Renewal rate of approximately 80% Over 200,000 commercial & industrial contracts Rolling contracts that are typically 5 years in duration Strong relationship with C&I customers Rolloff 19% Commercial 27% (a) As of September 30, 2017 (b) Average of 38 years of aggregate remaining permitable and deemed permitable life among active landfills (c) Shaded states reflect continuing operations only. Percentages by region represent % of LTM 9/30/2017 revenue (d) Based on LTM 9/30/2017 revenue 10

12 Average growth (% of collection routes) (% of fleet automated) 3 Operating efficiency gains, acquisitions and pricing driving margin and free cash flow enhancement CNG conversion Fleet automation (residential) Safety initiatives Other initiatives 25% 20% 15% 10% 5% 0% 5% 18% 12/31/ /30/ % 50% 40% 30% 20% 10% 0% 43% 55% 12/31/ /30/2017 Workforce training Risk management and auditing Drive cam Snapshots Sales productivity and pricing effectiveness Driver productivity and route optimization Maintenance efficiency Effective purchasing Growth from acquisitions Average yield Number of acquisitions: % 40 bps 5.0% 2.0% 1.9% 4.0% 3.4% 1.6% 1.5% 3.0% 1.2% 2.0% 1.3% 1.2% 1.8% 0.8% 1.0% 0.4% Acquisition spend: 0.0% YTD 09/30/2017 $10 $50 $5 $ % Avg. over past 8 quarters Avg. CPI-U growth (a) Avg. yield (b) (a) CPI-U stands for Consumer Price Index for All Urban Consumers; represents the average year-over-year change in quarterly CPI-U, and quarterly CPI-U is calculated as the average of the underlying monthly CPI-U (b) Average yield represents the average of eight quarters, Q to Q

13 4 Strong core revenue growth and increasing profitability allow for free cash flow expansion and continuous de-leveraging Revenue Growth Adjusted EBITDA $1,475 $417 $1,319 $361 YE 12/31/2013 LTM 9/30/2017 YE 12/31/2013 LTM 9/30/2017 % EBITDA margin 27.4% 28.3% +90 bps Normalized FCF growth $46 million Leverage (a) 1.7x $ $ % FCF margin YE 12/31/2013 LTM 9/30/2017 % of sales 5.2% 7.8% +260 bps YE 12/31/2013 LTM 9/30/2017 Note: See appendix for full reconciliation of Adjusted EBITDA and Normalized Free Cash Flow (a) Leverage consistent with debt covenant compliance calculations and gives affect to pro-forma adjustments 12

14 Financial Update and Highlights

15 Financial policy Organic price and volume growth Accretive tuck-in acquisitions New residential municipal contract awards Revenue growth Balance Sheet efficiency Interest savings Leverage EBITDA margin Operating leverage and increased route density Cost controls and efficiencies Leverage SG&A Increase EBITDA Manage Capex Reduce DSO (a) Increase DPO (b) Free cash flow Return on invested capital Capital spend controls Prudent capital allocation (a) (b) DSO: Days Sales Outstanding DPO: Days Payable Outstanding 14

16 Financial profile Metric Commentary Summary financials ($mm) Revenue Historic revenue driven primarily by: Increase in collection volume driven by new residential contracts, commercial growth and increased roll off activity Increase in landfill volume driven by special waste, MSW, and C&D Favorable pricing gains and increased environmental fee revenue $1,319 $1,403 $1,396 $1,405 $1,475 $1, and 2016 revenue reflects strategic divestitures, customer rationalization of low margin business, lower shale volume, and fuel fees and recycling price headwinds LTM 09/30/ Adj. EBITDA Flexible, highly-scalable cost structure Strong EBITDA growth: Economies of scale Divestiture of low margin businesses / acquisitions of high margin assets Vertically integrated operations $ % $ % $ % $411 $417 $ % 28.3% 27.8% 90 bps margin headwind 2017 extraordinary non recurring costs LTM 09/30/ Adj. EBITDA minus Capex (a) Unlevered FCF growth driven by: Organic growth Operating leverage Full year impact of acquisitions FY 2017 impacted by extraordinary costs $ % $ % $ % $240 $ % 16.4% $ % LTM 09/30/ Note: See appendix for full reconciliation of Adjusted EBITDA (a) Capex for YE 2013, YE 2014,YE 2015, YE 2016, and LTM 09/30/2017 of $158 million, $166 million, $177 million, $171 million, and $175 million, respectively 15

17 (million) (million) (million) YTD 2017 performance YTD 09/30 Revenue Selected commentary $1,200 $1,125 $1,050 $1,053 $1,123 Revenue growth of 6.7% year-to-date driven by acquisition, volume and pricing growth $975 $900 YTD 09/30/2016 YTD 09/30/2017 YTD 09/30 EBITDA and Margin Average yield of 1.4% moderated by tough prior year comps but offset by volume growth turning positive impacted by strong disposal volume and positive commercial and roll off activity $320 $310 $300 $290 $280 $309 $ % 27.5% YTD 09/30/2016 YTD 09/30/2017 YTD 09/30 Normalized FCF and % Sales 36.0% 32.0% 28.0% 24.0% 20.0% (margin) Adjusted EBITDA growth of 1.9% year-to-date Gains from organic and acquisition growth moderated by nearterm headwinds from fuel, healthcare costs, leachate and sulfate treatment costs and storm and start-up costs Strong normalized FCF growth year-to-date $120 $105 $90 $75 $91 8.6% $ % 14.0% 12.0% 10.0% 8.0% 6.0% (margin) Adjusted EBITDA growth coupled with interest savings driving improvements Slight headwind from growth capex to support acquisitions and new muni contract wins $60 YTD 09/30/2016 YTD 09/30/ % Focused on long-term FCF generation Note: See appendix for full reconciliation of Adjusted EBITDA and Normalized Free Cash Flow 16

18 % of revenue % of revenue Investing for the future Capital expenditure by purpose (a) Capital expenditure by asset class (a) ($ in millions) 14.0% 14.0% 12.0% 10.0% $ % 2.5% $ % 1.1% $171 $ % 1.7% 1.5% 1.7% 12.0% 10.0% $ % 2.3% $ % 1.9% $171 $ % 1.0% 1.7% 1.8% 8.0% 8.0% 6.0% 6.0% 4.1% 5.1% 5.0% 4.9% 4.0% 8.7% 10.4% 8.6% 8.5% 4.0% 2.0% 2.0% 4.1% 4.3% 4.1% 4.2% 0.0% LTM 09/30/ % LTM 09/30/2017 ADS % of sales Replacement Growth Infrastructure 11.8% 12.7% 12.2% Peer avg. % of sales (b) 10.6% 11.1% 10.0% 11.9% Trucks Cell construction and landfill infrastructure Containers Others (a) (b) 2014 excludes the impact of land purchased for future airspace of $8.8 million at one landfill and capital related to the start of a major municipal contract of $21.6 million excludes the impact of land purchased for future landfill airspace of $2.4 million, 2017 excludes the impact of land purchased for future landfill airspace of $3.1 million and capital expenditures related to a municipal contract of $8.7 million Peers include: Republic Services, Waste Management, Waste Connections and Progressive Waste exclude Progressive Waste due to Waste Connections merger 17

19 ADS Highlights Strong asset base in attractive markets Differentiated business model driving growth Proven growth strategy and execution Continued focus on operating efficiency Financial discipline Commitment to shareholder value creation 18

20 Appendix I: Supplemental Materials

21 Adjusted EBITDA reconciliation Adjustments to EBITDA ($ in millions) LTM 09/30/2017 Net Income (loss) ($117.8) ($17.1) ($33.6) ($30.4) ($23.8) Loss (income) from discontinued operations, net (22.5) (0.3) Income tax benefit (45.4) (80.6) (19.4) (25.7) (24.2) 28.8% 29.4% Interest expense D&A Loss on debt extinguishment and modifications Accretion on landfill retirement obligations Accretion on loss contracts and other long-term liabilities EBITDA from Continuing Operations $315.4 $329.3 $358.0 $399.1 $383.8 Acquisition and development costs Stock based compensation Loss on sale of assets and asset impairments Restructuring charges Unrealized (gain) loss on derivative instruments (11.1) (18.5) (6.3) Realized loss (gain) on fuel derivative instruments (1.1) Gain on redemption of security - - (2.5) - - Rebranding and integration costs (Earnings) losses in equity investee, net (0.3) (0.1) 0.3 (0.3) 0.2 Write-off of share issuance & other capital market costs and other Greentree expense, net of estimated insurance recoveries Adjusted EBITDA $361.1 $378.8 $400.0 $411.1 $

22 Normalized free cash flow reconciliation LTM 09/30/2017 Net Cash Provided by Operating Activities $180.3 $243.2 $244.5 $237.0 $292.7 Purchases of Property and Equipment (a) (158.1) (166.0) (177.3) (171.0) (175.5) Proceeds from the Sale of Property and Equipment Free Cash Flow $25.6 $80.2 $69.8 $69.3 $120.1 Net Assumption of Long-term Care and Closure (22.0) Restructuring Payments Payments to Retired Executives Greentree Costs Capital Market Costs Realized Loss on Derivatives (1.1) Adjusted Free Cash $68.9 $92.0 $102.1 $94.0 $115.0 Adjusted Free Cash % margin 5.2% 6.6% 7.3% 6.7% 7.7% (a) 2016: Excludes the impact of land purchased for future airspace of $3.1M and the purchase of a facility related to a municipal contract of $8.7M 2015: Excludes the impact of land purchased for future landfill airspace of $2.4M 21