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Covanta Holding Corp (NYSE:CVA)
Q3 2019 Earnings Call
Oct 25, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, everyone, and welcome to Covanta Holding Corporation's Third Quarter 2019 Financial Results Conference Call and Webcast. An archived webcast will be available two hours after the end of the conference call, and can be accessed through the Investor Relations section of the Covanta website at www.covanta.com, that's http://www.covanta.com/. The transcript will also be archived on the Company's website.

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

Dan Mannes -- Vice President of Investor Relations

Thank you, and good morning. Welcome to Covanta's third Quarter 2019 conference call. Joining me on the call today will be Steve Jones, our President and CEO; and Brad Helgeson, our CFO.

We will provide an operational and business update, review our financial results and then take your questions. During their prepared remarks, Steve and Brad will be referencing certain slides that we prepared to supplement the audio portion of this call. Those slides can be accessed now or after the call on the Investor Relations section of our website www.covanta.com. These prepared remarks should be listened to in conjunction with these slides.

Now onto the safe harbor and other preliminary notes. 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, October 25th, 2019. We do not assume any obligation to update our forward-looking information unless required by law.

Any redistribution, retransmission or rebroadcast of the call in any form without the express written consent of Covanta is prohibited.

The information presented includes non-GAAP financial measures, because these measures are not calculated in accordance with US GAAP. They should not be considered in isolation from our financial statements, which have been prepared in accordance with GAAP. For more information regarding definitions of our non-GAAP measures and how we use them, as well as limitations as to their usefulness for comparative purposes, please see our press release, which was issued last night and was furnished to the SEC on Form 8-K.

With that, I'd like to turn the call over to our President and CEO, Steve Jones. Steve?

Stephen J. Jones -- President and Chief Executive Officer

Thanks, Dan, and good morning, everyone. For those of you using the web deck, the quarterly results are summarized on Slide 3, and I'll begin my discussion on Slide 4. During the third quarter, we continued executing on our operating plan, generating $125 million of adjusted EBITDA and $22 million of free cash flow. With solid performance in the quarter and line of sight on the remainder of the year, we are affirming our full-year guidance of $420 million to $445 million of adjusted EBITDA and $120 million to $145 million of free cash flow.

Taking a moment to provide more context around our results, bear in mind that the adjusted EBITDA of $125 million represents 2% year-over-year growth, even as we've seen 20-plus percent declines in the price of many of the commodities we sell. We overcame this headwind, because we are able to drive organic adjusted EBITDA growth of 9% in the quarter.

The reliability and performance of our fleet of energy-from-waste assets is critical to our ability to grow organically. During the quarter, we processed 5.5 million tons of waste, an 8% increase over last year. This production includes 2.5% same-store tip fee volume growth, as some of our largest tip fee plants continue to run at or near record levels as well as inclusion of the Palm Beach contracts acquired in September last year. These improved operating results are no accident.

Over the last several years, we have revamped our operating and supply chain management and instituted Lean Six Sigma techniques to improve the operations and reduce costs. Further, we've invested in our plans. And those maintenance dollars are paving the way to consistent operating performance. With three quarters of the year complete, we're right on track from a maintenance perspective, and we expect 2019 to be another year of record production. Our primary end market is sustainable waste disposal, and our ability to capture improving waste prices across our EFW fleet has been a key driver of the financial performance.

Tip fees were up over 4% in the third quarter on a same-store basis, with higher spot prices, effective recontracting and strong profile waste growth, overcoming typically muted contractual escalation. As I like to say, it's a good time to be a waste company. Especially with our assets in the Northeast. And we expect to deliver tip fee price growth of over 4% for the year. Covanta Environmental Solutions drove 10% growth in same-store profile waste revenue to our EFW plants. This increase was a product of both unit price and volume improvement. In order to facilitate these high value waste flows our EFW facility -- into our EFW facilities.

We're focused on maximizing the volume of material that is internalized through our material processing facilities or MPF. The revenue internalized through our MPS increased by 25% in the quarter, as we continue to utilize these complementary assets to service more customers and increase our profile waste sourcing capability. We expect this rate of internalization to grow further over time supporting our expanded -- expanding profile waste business.

While profile waste comes in many forms, a key area of opportunity is regulated medical waste. During the third quarter, we grew regulated medical waste revenue by over 40%, as we continue to ramp volumes to our three energy-from-waste plants that are permitted to accept this waste. While still representing a modest amount of the overall profile waste revenue, we see very strong growth potential and are working with regulated medical waste collection companies to source more volume. We aspire to be the leading provider of wholesale regulated medical waste disposal services to that industry.

In order to reduce our long-term cost of ash disposal as well as to become more sustainable while creating new revenue opportunities, we've been developing our first Total Ash Processing System or TAPS. The first TAPS plant is currently under construction at the Fairless Hills, Pennsylvania metal processing facility.

While we had expected to be fully operational by the fourth quarter this year, we've extended the construction timeline a bit to optimize the equipment. This is the first system of its type and an exciting long-term opportunity for Covanta. So we want to make sure we get this first one right. We now anticipate beginning to start up some components later this year before moving into commissioning of the entire system early next year.

In the metal processing area, as we mentioned in the last couple of quarters, we've recently invested in technologies to further separate the various types of non-ferrous materials we recover. This equipment began operations late in the third quarter, and were now separating higher-value heavy metals, like copper and zinc, from lower value mixed non-ferrous scrap.

As we discussed on the second quarter call, we continued to see a soft environment for many of the commodities we sell, and this has not improved over the last three months. On scrap, steel or ferrous, after a decline in the second quarter, HMS pricing appeared to stabilize in the third quarter in the $220 per ton range.

In October, prices took another leg down with the index reaching $192 per ton. At these price levels, we believe that the markets will see a reduction in scrap flows, which should then stabilize prices. That's what these markets do. And longer term, we expect to see continued domestic demand growth for ferrous scrap as new mill capacity comes online over the next two years. However, our history tells us that prices should fund market equilibrium again at prices well above current levels. The timing of recovery is difficult to predict.

On the non-ferrous side, the largest product we sell volumetrically is scrap aluminum. For much of the year, pricing has softened as China reduced the volume of this product it will accept and the smelters in the rest of the world has struggled to absorb the excess material. This has led to severe price pressure with the Old Cast index now pricing at $0.37 per pound in October. This is down meaningfully from 2018 when price averaged just under $0.60 per pound. This is another reason why we're investing in technology to separate the non-aluminum components of the non-ferrous stream as they often traded three or more times the price.

Lastly, on energy, we have recently seen some stability in price, albeit at the historically low levels. As you know, we have a formulaic program to hedge our energy exposure to reduce volatility. This has served us well in this market.

I'll conclude my remarks with a brief update on our UK development activities. Rookery and Earls Gate are now well into construction, and we continue to progress Protos and Newhurst toward financial close. Those projects are attractive and well structured, and we're actively engaged with our project partners, lenders and EPC contractors to swiftly move the projects forward. The Protos project remains positioned to reach financial close in 2019, while the Newhurst project is right behind with financial close more likely in early 2020.

Further, and as I mentioned in the last quarter, our partnership with GIG goes beyond these four projects, and there're other earlier stage projects that are moving along as well. We look forward to providing more color on these projects as well as our efforts in other geographies when we have reached material development steps.

With that, I'll hand the call over to Brad to discuss the financial results in greater detail.

Brad Helgeson -- Executive Vice President and Chief Financial Officer

Thanks, Steve. Good morning, everyone. I'll begin my review of our financial performance with revenue on Slide 6. Total revenue for the quarter was $465 million, up $9 million from the third quarter of 2018. Organic growth, excluding the impact of commodities, contributed $12 million as higher waste prices and strong EFW plant production outweighed lower construction revenue in the quarter.

Commodities had a negative impact as we saw a $13 million decline in revenue related to lower market prices for energy and metals. Transactions added $10 million to revenue in the quarter with the September 2018 acquisition of the Palm Beach operations and Q1 start-up of the Manhattan Marine Transfer Station, partially offset by divestitures. Long-term contract transitions added $1 million in the quarter.

Moving on to Slide 7. Adjusted EBITDA was $125 million in the quarter, a $3 million increase compared to the third quarter of 2018. Excluding commodities, adjusted EBITDA improved by $12 million organically, as the benefit of higher waste prices and plant production more than offset higher planned maintenance this quarter.

As we look ahead to the fourth quarter and full year, I would remind you that we will lap $11 million and $17 million, respectively, in business interruption insurance proceeds received in 2018. We knew coming into the year that it would be challenging to meet our 3% to 5% annual organic adjusted EBITDA growth target, given this year-over-year comparison and this remains the case. However, we expect to be in our target range excluding the impact of insurance proceeds. The $13 million headwind from commodity prices, as I just discussed, translated directly from revenue to the adjusted EBITDA line. The net benefit of transactions added $5 million to EBITDA in the quarter as the contribution from the Palm Beach acquisition and Manhattan Marine Transfer Station were again partially offset by divestitures.

For the full-year 2019, we continue to expect adjusted EBITDA in the range of $420 million to $445 million. As Steve noted, we've seen a further reduction in metals prices since last quarter's call. We've revised our outlook range for metals revenue by a further $10 million to $20 million compared to previous expectations, as you can see in the appendix of the slide presentation. This reflects lower scrap ferrous and aluminum market prices as well as a lower average sales price on non-ferrous, given the timing of start-up of separation equipment at our Fairless Hills processing facility.

Further impacting non-ferrous sales this year, we historically have recovered mutilated coins and delivered to the US Mint for currency value. However, the Mint has temporarily closed its redemption program this year in response to fraudulent activity. So as a result, we're currently holding coins in processed inventory awaiting shipment.

In total, and all else being equal, these factors in our metals business will likely move us to the lower end of our guidance range. Though it should be noted that much of this essentially represents sales timing.

Turning to Slide 8. Free cash flow was $22 million for the quarter as compared to $85 million in Q3 last year. While adjusted EBITDA was $3 million higher in the quarter, working capital and restricted funds were a net cash outflow in Q3 and lower by $63 million compared to the cash inflow in Q3 2018. The two largest components of this were the final payment of hold back and dispute settlement amounts related to the construction of the Durham York plant, which we have previously accrued for and a shift in the timing of interest payments on high-yield bonds following last year's refinancing, which reduced cash interest payment in Q3 last year.

Our full-year guidance for free cash flow is unchanged and these items were always contemplated in the range. Therefore, you should expect a sizable improvement in working capital and free cash flow in the fourth quarter, which is a fairly typical seasonal pattern for us.

Now please turn to Slide 9, where I'll review our growth investment activity. Over the first nine months of the year, we invested just over $40 million in growth, most notably equipment to support the start-up of the Manhattan Marine Transfer Station. Year-to-date, we have spent a little under $5 million on TAPS. But with equipment now being delivered and installed, we anticipate increased spend in the fourth quarter with further spend in 2020 as we complete construction.

In the UK, we have spent $10 million year-to-date, which primarily represents our investment in Earls Gate, where we have fully funded our proportion of the equity as well as pre-construction site work primarily at Rookery. A couple of reminders here. First, our equity investment in Rookery was bridge financed at the project level, and net of the premium and cost recovery received from our partners of financial close, we anticipate the remaining funding requirement from the parent company of about $40 million in 2022. Second, this forecast does not yet include our equity investments in Protos and Newhurst until they reach financial close. We'll provide more specifics on the amounts and timing of funding requirements for those projects at that time.

Please turn to Slide 10, where I'll provide an update on our balance sheet. At September 30, net debt was $2.5 billion, up about $30 million from Q2. Our consolidated leverage ratio was 6.0 times, unchanged from June 30, and the senior credit facility covenant ratio was 2.4 times. Our available liquidity under our revolver was nearly $400 million.

During the quarter, we issued our first series of tax-exempt green bonds, primarily to fund spending on TAPS and our energy from waste plants in Pennsylvania. With a 20-year term and 3.25% coupon, these unsecured bonds represent very attractive long-term funding that further enhances the cost, tenor and flexibility of our capital structure.

We now have over $500 million of corporate tax-exempt bonds like this outstanding and we'll look to tap into this market in the future as an efficient means of funding domestic investment.

Before I turn it over to Q&A, I'd like to hand it back to Steve for some concluding comments.

Stephen J. Jones -- President and Chief Executive Officer

Thanks, Brad. I want to take a moment and reiterate a few things. Operationally, the year is going well and our investments in our plants and people are yielding the growth we expected. The benefits of these investments are evident in our operating performance over the last several quarters. In the US market, we continue to benefit from a very supportive waste environment with strong volumes and declining alternative disposal options, which is driving waste pricing at our irreplaceable assets.

I also remain very excited about our progress on several growth initiatives. TAPS remains a major opportunity to improve our profitability and sustainability with broad-based opportunities throughout the fleet. On the development front, we're well on our way to reaching our initial target of four plants in the UK, and we see broader opportunities in international markets, as well as growth in the US

With that, operator, let's move on to Q&A.

Questions and Answers:

Stephen J. Jones -- President and Chief Executive Officer

[Operator Instructions] Your first question comes from the line of Michael Hoffman from Stifel. Your line is open.

Michael Hoffman -- Stifel -- Analyst

Thank you very much for the questions. And Steve, I hope you feel better.

Stephen J. Jones -- President and Chief Executive Officer

Yes, I know -- I was going to say something when I first started off. Last Friday, I couldn't speak at all. So this is an improvement. So thanks for that.

Michael Hoffman -- Stifel -- Analyst

Brad, can I just get a clarity on the guidance side, if I understood it. $420 million to $450 million remains if you were able to sell the mutilated coins, you'd still be at the midpoint. Is that what you were saying?

Brad Helgeson -- Executive Vice President and Chief Financial Officer

Well, I think -- the mutilated coins is one of a few issues that are impacting us on the non-ferrous revenue line. Of course, the first one is the underlying commodity prices. The second is our progress on increasing the average sales price by separating, and Steve alluded to this, the heavy metals generally speaking from the lights, so the scrap aluminum. And then another piece of it is the mutilated coins. So I certainly wouldn't pin it all on mutilated coins, but it was significant enough relative to where we thought we were going to be that it was worth mentioning.

Michael Hoffman -- Stifel -- Analyst

Okay. But if you could sell the mutilated coins, would you be telegraphing -- in the lower half?

Stephen J. Jones -- President and Chief Executive Officer

Yes, the mutilated coins alone wouldn't move us back up to the metal.

Brad Helgeson -- Executive Vice President and Chief Financial Officer

That's right.

Michael Hoffman -- Stifel -- Analyst

Okay. That's what I was trying to understand. Okay. You have a target of $250 million in free cash over a five-year period and $15 million a year supposed to come from US domestic leverage and $45 million comes from the UK, and that's assuming you do the $130 million this year. That's the midpoint of your guidance. Is there anything that you look at in the business model under the conditions you're now living with, a lousy commodity environment and the like, that would preclude you from doing the $15 million a year on average to get back $75 million in place? It would seem the UK part seems reasonably good.

Brad Helgeson -- Executive Vice President and Chief Financial Officer

Yes. So the short answer is, no. I think the underlying drivers of the target when we originally put it out and the components of our strategic plan are unimpacted by commodity prices. I mean, that's the production and profitability in the plants, growing the metals recovery, ash management capabilities with TAPS, growing Covanta environmental solutions, profile waste, regulated medical waste. And there are a number of initiatives that we're focused on, none of which were impacted by commodities, and that's what underpins the $15 million that you referenced. And then, of course, on top of that, we're looking to grow our portfolio. Focus immediately is in the UK, but we have our eyes out on the horizon on other international markets as you know, and then ultimately opportunities domestically. So all of that is unchanged.

With regards to $250 million specifically, commodities obviously impact our results, and so I think we'd have to recognize that if commodity prices are materially lower than where they were when we set the guidance as they are today on the order of probably $50 million when you step back. And that's going to impact our results and all else being equal. Probably, the best way to think about it is it just makes the path to $250 million a little bit longer.

Michael Hoffman -- Stifel -- Analyst

Okay. But you'll still get to the $250 million. It's not that you're permanently lowering the number. It's going to take you longer.

Stephen J. Jones -- President and Chief Executive Officer

Yes. That's exactly. [Speech Overlap] Yes, this is Steve. Yes, that's what we're saying. And some of it depends on when does the commodity environment snap back to the mean, right? We're not sure. And everybody on the call can take a view on that obviously, but that's an important consideration when you start to think about the time it takes to get to $250 million.

Michael Hoffman -- Stifel -- Analyst

Okay. I have two kind of high-level housekeeping type questions. You have a peer company that has not had particularly good press lately; one around a landfill expansion for ash and the other air population equipment. Can you contrast why you're different?

Brad Helgeson -- Executive Vice President and Chief Financial Officer

Yes, so -- yes, we saw those too. If you look at -- let's take the second one first, air pollution equipment. I think out of our 40 facilities now, we have two facilities that don't have bag houses. And so -- and that's -- this other company is, I think, dealing with issues around not having a bag house in a particular facility. I think, that's what you're referencing. We're in the process now of determining when we're going to add bag houses to the two facilities. So it's limited in number and we'll think about, it will present lumpiness in the year that we decide to add the bag houses, but as a general matter on maintenance isn't really going to vary much from the inflationary boggy that we put out there. So we've got a good handle on air pollution control from that perspective.

With respect to the first part was again...

Michael Hoffman -- Stifel -- Analyst

Ash. They got denied a permit for [Speech Overlap]

Brad Helgeson -- Executive Vice President and Chief Financial Officer

Yes, we have multiple -- in most of our plants that we -- where we're responsible for the ash, we have multiple options in order to be able to get our ash put into an ash landfill or an ash monofill. So we're not particularly worried about that. We've got -- I think, we've got really good programs in place to be able to back up what we need to do from an ash standpoint. And then the other side of that is TAPS, right. So we're -- one of the reasons we're interested in TAPS and I use the words financially and from a sustainability standpoint in my prepared remarks is that TAPS allows us to reduce the volume of ash that's going to go into an ash monofill. So we're very excited about what's going on in Fairless Hills right now, and that will help us to reduce even if we had issues, which we don't. That would reduce the volume of ash that needs to find a home.

Michael Hoffman -- Stifel -- Analyst

All right. And then last from me. Brad, can you tell us what the hedging rate we should be using for 2020 at this point?

Brad Helgeson -- Executive Vice President and Chief Financial Officer

In terms of price?

Michael Hoffman -- Stifel -- Analyst

Yes.

Brad Helgeson -- Executive Vice President and Chief Financial Officer

Yes, I think it's a little -- we'll lay[Phonetic] that out in February. So little early to -- because we're still hedging for next year to put a specific number on that. Though I think a reasonable expectation would be that it's going to be modestly lower than the hedged rate overall for this year.

Michael Hoffman -- Stifel -- Analyst

With the emphasis on the word modest?

Brad Helgeson -- Executive Vice President and Chief Financial Officer

Yes. I think that emphasis is appropriate.

Michael Hoffman -- Stifel -- Analyst

Okay. All right, thanks.

Stephen J. Jones -- President and Chief Executive Officer

Thanks.

Operator

Your next question comes from the line of Noah Kaye from Oppenheimer. Your line is open.

Noah Kaye -- Oppenheimer -- Analyst

Thanks. I want to ask you a question around operations and in particular, increasing the plant throughput. You've got 2.5% same-store volume increase growth this quarter, and just broadly, I think this is an area you talked about getting stable operations and improved uptime, and when I think about 0.5 million ton increase in tip fee plants, that's a $25 million to $30 million bump in revenue.

So I guess the question here is really can you give us a sense of how much of the fleet is operating close to permitted capacity? How much cushion you have under permits to increase throughputs? Would you need to seek expansion of the permitting capacity as you improve truly in operations? Just how much runway you see for -- to serve stable operations, lean operations to drive higher throughput?

Stephen J. Jones -- President and Chief Executive Officer

Noah[Phonetic], I'll start with this and then Brad can jump in. So stable operations, first off, we're not using it at all our plants yet. We know we picked our biggest clients. So they are the ones that actually came through this quarter. So the reason you see the 2.5% same-store growth is these big tip fee plants. Think places like Essex, for example, or Hempstead, they're operating really well at this point, and that's because we've been using stable operations, which is basically -- and you've heard me talk about this before is -- as if you've had your best operator on the board 24 hours a day, seven days a week. And so that's working well.

We will get more leverage from stable operations as we move it out to some of our other plants, which are a little smaller in size. So this will be a path that will continue for some period of time. I would say on -- how we operate from a permit standpoint, we try to operate it to limit our permits all the time. And so -- and with the waste market the way it is right now, which is a great waste market, there's plenty of waste out there so we can operate at the limit of our permits. The issue -- sorry, the benefit you saw particularly in this quarter is we had less downtime. So we were able to -- we always have some downtime in our plants because of stable operations. We were able to limit that downtime as you look at this past quarter. And that's what we're expecting stable operations to do as we move forward.

Brad Helgeson -- Executive Vice President and Chief Financial Officer

Yes, I would just add. As it relates to the permits, what we're seeing at a few of our big plants, the permit limitation is now relevant to the production, whereas in the past it hasn't been. So in those situations we'll look to see if there is flexibility for us to modify the permits if the plant is sustainably operating at a higher level.

Noah Kaye -- Oppenheimer -- Analyst

Okay, that's very helpful. And then on the TAPS facility, the first one that you're standing up, I think you've talked in the past about starting in and around the 20% on levered IRR and that type of project. I guess, how long do you need to see that facility operate before you would get comfortable enough in the returns to put capital into additional plants? And just give us an idea of how long you think it might take to put the processing capacity in place to cover the full fleet?

Stephen J. Jones -- President and Chief Executive Officer

The plants -- we're going to start to commission some of the aspects of the plant later this year, and then kind of full commission next year, and I mentioned that in my prepared remarks. I think the plant needs to run for I'd say a couple of quarters in order to make sure everything is working the way we expected it to.

This is not new technology, so I'm not particularly worried about the technology risk. Because technology has been used in other industries, so we're putting -- it's novel, if you will, as it relates to our industry. And the ramp up and the size is bigger than it's been used in some other places. So that's what we're going to need to test out over these, let's say, couple of quarters. We also want to make sure that the sand in the aggregate that we produce gets de-wasted, which is effectively -- it's got to go through a testing process in order to then be used in DOT approved roadways. So it can be used in other applications before then, but -- and so that's going to take a couple of quarters to work that out.

And then quite frankly, right now, we're in discussions with clients and also looking at our own plants on when we rollout the next TAPS projects. So they're going to move -- the long lead time item and you saw it on the Pennsylvania TAPS, the one that Fairless Hills was permitting. So we're in the process now of lining up the resources to get the permitting well under way. So that's the leading indicator, and so we'll start that process even as we're waiting these couple of quarters to see how the Fairless Hills TAPS operate.

How long they'll take to rollout over the whole fleet, I'd say probably two, three years, something like that, and probably on the later end of that timeline. Again, the pacing item is going to be permitting. So -- and as you saw on this first one, it was a little variable depending on the state.

Noah Kaye -- Oppenheimer -- Analyst

That is very helpful. Thank you.

Stephen J. Jones -- President and Chief Executive Officer

Sure.

Operator

Your next question comes from the line of Tyler Brown from Raymond James. Your line is open.

Tyler Brown -- Raymond James -- Analyst

Hey, good morning, guys.

Stephen J. Jones -- President and Chief Executive Officer

Good morning, Tyler.

Tyler Brown -- Raymond James -- Analyst

Hey, great job on controlling the controllables, but I do want to come back to HMS. Can you guys give us any color on what's exactly going on in that market? Do you think that it's being influenced by the US-Turkey relations or do you think it's destocking at domestic mills, just any additional color there?

Stephen J. Jones -- President and Chief Executive Officer

Yes, it's probably a little bit of both. The noise around Turkey and that's reason is -- and you saw the leg down in October on HMS 1 Index. It could have some impact from the Turkey situation. We certainly think there's destocking going on. We saw some -- and to go -- take a look at Nucor's comments, there's been some comments out from other companies that they -- generally, they think that we're at the bottom and now we're going to start to move back up again. We'll see how that plays out.

I think as a general matter, we'll continue to reclaim all the metal that we can. The alternative for us unlike some other folks is we'd have to pay to get rid of it, pay to put it in -- stay in the ash and then we'd had to pay to get rid of the ash. So it makes a lot of sense for us to kind of collect the metal and then we'll see where the HMS Index comes out. But it does feel to me that we're kind of at and around the bottom, and it's going to start moving up from here.

Tyler Brown -- Raymond James -- Analyst

Okay. And then, Brad, on free cash, so I just want to kind of get to the bottom of this restricted cash benefit. So I see that the flows from restricted funds was increased, I think, this quarter to $15 million to $20 million[Phonetic] for 2019. So wondering if, Number one, you can just talk about what's going on there? Maybe two, if you can talk, is this a cash flow that will be recurring in 2020 and beyond?

Brad Helgeson -- Executive Vice President and Chief Financial Officer

Sure. There was -- there is really two pieces to it. So I'll take the first one, and this explains the increase. We had a movement in a restricted account under one of our service fee contracts with a client earlier this year, and so really the increase in the range accounts for that. Essentially we had cash come out of a restricted fund and went right back out the door through working capital. So -- but essentially net neutral. It's just -- and that's why you saw an offsetting change to the guidance range for working capital change went just in and out, and that was about $5 million.

The other piece is one that has been more permanent and will go away next year. So for the last few years, we've been receiving on an annual basis cash distributions from a trust related to the ownership structure of the Delaware Valley facility. Those cash distributions concluded earlier this year. So all else being equal, you should expect the restricted fund line to maybe plus or minus in a quarter, but on a sustained basis, it should be essentially zero over time.

Tyler Brown -- Raymond James -- Analyst

Okay, that's helpful. And then maybe on the working capital side, and I know it's early. You probably haven't done all of your budgeting. But is that -- so I think that's positive this year. Is that something that is recurring as well maybe into 2020 or even beyond that?

Brad Helgeson -- Executive Vice President and Chief Financial Officer

Yes, I guess, I'd probably say a couple of things. One, as you know -- as we've talked about several times, working capital efficiency is a long-term initiative. And we've gotten a lot of value out of that over the last few years, and that's AR collections primarily, but it's also AP management. So I would hope that we're going to continue to get efficiencies over time. That being said, in this business working capital can be lumpy quarter-to-quarter or year-to-year.

And ultimately, out over the long term and this isn't necessarily a comment specific to 2020, but over the long term it's probably appropriate as a modeling assumption to assume the working capital isn't going to be a persistent $10 million, $20 million benefit to us indefinitely. That will ultimately -- the opportunity will reduce over time. So as far as 2020, again, it can be lumpy, and so we're just not really in a position at the moment to put a final point on it.

Tyler Brown -- Raymond James -- Analyst

Yes. That's very helpful. And then maybe on the total EFW maintenance spend, so I think this year you guys are looking for $415 million at the midpoint and I think maybe 30% of that is attributed to maintenance capex. But I'm curious. Does that exchange or should we just grow that maintenance spend and assume that's about 30% is maintenance capex or is that the right way to think about it?

Brad Helgeson -- Executive Vice President and Chief Financial Officer

My response to that unfortunately is going to sound a little similar to my response on working capital. I mean, it can be lumpy and it could move up and down in a particular year. For maintenance, and Steve alluded to this earlier, really what we look at is an underlying trajectory of what's the annual spend now and going forward that's going to be required to maintain these plants and keep them at peak operating condition. And that's a spend that is going to -- plus or minus going to grow with inflation or inflation plus or minus over time.

In a given year, the profile of spend is subject to the long-term maintenance plan and that's, OK, how much of it is more weighted toward expense versus capital and also what is the aggregate spend. So I guess, in summary, of all of that, you can't necessarily look at 2018 and extrapolate -- sorry, 2018 and 2019 and extrapolate what will that mix be in 2020.

Tyler Brown -- Raymond James -- Analyst

Okay, interesting. And then my last one, so Steve with these two plants without bag houses, are these large tip fee facilities?

Stephen J. Jones -- President and Chief Executive Officer

Yes, both of them are. [Speech Overlap] They use a different technology, and so these are plants that we own and we're looking at. Okay, what do we want to do? The other technology -- non-bag house technology is called ESP. It works just fine. The bag houses are becoming more popular at this point. So we're looking -- as I mentioned, we're looking right now, and OK, what do we want to do? What's the timing on changing out to a bag house rather than ESP?

Tyler Brown -- Raymond James -- Analyst

I see. Okay. I appreciate the time. Thanks, guys.

Stephen J. Jones -- President and Chief Executive Officer

Sure.

Operator

Your next question comes from the line of Brian Lee from Goldman Sachs. Your line is open.

Brian Lee -- Goldman Sachs -- Analyst

Hey, guys. Good morning. Thanks for taking the questions. Maybe just going back to the free cash flow topic for a moment. Brad, it seems that the free cash flow is obviously much more 4Q weighted than it has been in past years. I know you've talked through some of the moving pieces here. But can you kind of walk us through again a little bit of the dynamics driving that this year versus the cadence we've seen in past years? And then that steep ramp that you did need in 4Q to hit the full year target, kind of, how derisk do you see that being right now?

Brad Helgeson -- Executive Vice President and Chief Financial Officer

Yes. So we actually have had precedent historically for the free cash to be heavily weighted in the fourth quarter. We saw that a couple of years ago. And I mentioned it's early, -- really the driver is going to be working capital based on how we see the rest of the year playing out.

Brian Lee -- Goldman Sachs -- Analyst

And from a derisk perspective, you see that as being pretty solidly in hand. At this point, I know you're -- taking the EBITDA guidance down to the lower end, how are you kind of thinking about where you're settling out from a cash flow perspective?

Brad Helgeson -- Executive Vice President and Chief Financial Officer

Yes, we feel comfortable with the guidance.

Stephen J. Jones -- President and Chief Executive Officer

Yes, we're comfortable with that guidance. It's -- the working capital side, as we've shown in the past, whether it's accounts receivable or accounts payable, there's levers that we can adjust in order to get positive working capital in the fourth quarter.

Brian Lee -- Goldman Sachs -- Analyst

Okay, fair enough. And then just maybe switching gears a bit, I know earlier in the call you mentioned investing in technology to move some non-aluminum metals given the higher pricing potential there. Can you maybe elaborate a bit on what goes into that and the potential timing of deploying that? And then just in terms of impact, does that really move the needle from a volume perspective if you're successful, just trying to get a handle around whether or not that could be a strategy to help on the metal side of the business?

Brad Helgeson -- Executive Vice President and Chief Financial Officer

Yes, it's clearly something -- it's actually in operation now. So what we've looked at was -- and it's interesting. I don't think some other companies aren't necessarily doing this. I got a note from my -- from Steve Bossotti, who does our metals management about this yesterday. There's color sorting, so basically you're looking at taking non-ferrous and using technology that color sorts in order to take out -- in order to split the non-ferrous into its kind of piece parts.

And some of the darker non-ferrous metals, so the heavier and darker non-ferrous metals traded 3 times the price with some of the other metals. So it can move the needle. You don't need a lot of it to make it impactful. And as I said, we're -- I've been out to see the unit. It's in operation now in the third quarter. And we actually had stockpiled some of our non-ferrous in order to run it through this unit in order to take advantage of its capabilities.

Brian Lee -- Goldman Sachs -- Analyst

Okay. Fair enough. Thanks a lot guys.

Stephen J. Jones -- President and Chief Executive Officer

Sure.

Operator

Your next question comes from the line of Angie Storozynski from Macquarie. Your line is open.

Angie Storozynski -- Macquarie -- Analyst

Thank you. So I have a bigger picture question. Nobody has really asked a question about your 2020 guidance, and I understand that you're not really willing to provide it. But can you at least, directionally, tell us if you think that, if the current commodity price environment were to persist and you would continue to see the pickup in sales and volumes, would we see a year-over-year growth in EBITDA? So that's one.

And two, how should we get more comfortable with your ability to support your dividend given that there is -- that the commodity prices are weighing on your free cash flow and your net debt to EBITDA is already up 6 times?

Brad Helgeson -- Executive Vice President and Chief Financial Officer

Sure. Hi, Angie. It's Brad. So on 2020 and you said it at the top, we're not giving guidance for next year whether that's specific or directional. But I think, there are a few, sort of, building blocks, if you will, when you think about 2020 that I'll mention. One is the underlying rate of organic growth, which is sort of all encompassing for the initiatives that we're focused -- 3% to 5%. Nothing has changed, that would impact our view on that. So that's something you can count on from us when we rollout our 2020 guidance.

The other big one of course is commodities. It's a variable that we can't predict. I think if you look at current spot prices and you extrapolate that across calendar-year 2020, that's not necessarily our view. But if you did that, that would imply a headwind year-over-year. And then of course the kind of handy rules of thumb that we've talked about to help people kind of frame what that impact could be are -- for HMS, for every $25 move, it's about -- on a full year basis 12 months, it's about a $4 million to $5 million revenue EBITDA impact. For Old Cast, which is the underlying index for aluminum, every $0.05 is about $2 million to $3 million. So based on what your view is going to be for commodities for next year, that's how it would flow into an estimate for 2020.

The other question around the dividend, our dividend policy is something that we stand behind. And as we've said many times, the dividend policy is based on what we view as the long-term sustainable cash generation in the business not based on the cash flow in any particular period or certainly not based on commodities in any particular period. And to the extent that our long-term view is that we're going to be growing cash flows sustainably. That's what supports the dividend. So I'm not sure how better I could answer it than that.

Stephen J. Jones -- President and Chief Executive Officer

Yes, I mean -- let me be clear. We're committed to the dividend. We clearly don't see a case where we're not going to be able to support that dividend as we look out in time. For us to even consider changing our dividend, we'd have to have a persistent reduction in free cash, as Brad mentioned. And quite frankly, we see free cash growing with our -- up to $250 million over the next several years and we talked a little bit about that earlier in the call. So we think we're in a pretty good place.

Angie Storozynski -- Macquarie -- Analyst

Thank you. And just one bigger picture question. So are you trying to basically change the design of some of your contracts to make less dependent on commodity prices? I'm asking, well, not only because we have this downturn but also if you look at the Northeast, you have all kinds of structural reasons why power prices could continue to decline, you have offshore wind, you have this issue in New York, so -- about potentially putting a carbon price on power generators. Can you talk us through how you perceive your market positioning from that perspective?

Stephen J. Jones -- President and Chief Executive Officer

Yes, that's a tricky question. The markets clearly are changing. In a lot of respects, the -- what drives our business is the waste side of the business and then the power is in some respects of byproduct. So one of the things we've been trying to do is figure out how to sell that power not into -- just into the grid. And very difficult these days to get long-term contracts -- we have a long-term contract in Long Island, for example, but to get those types of contracts is difficult.

So one of the things that we've been looking at is whether we can sell the steam rather than turn the steam into electrons and sell the steam directly to customers in and around our plants. We do that in place like Niagara, for example, our Niagara facility. We're looking at other options around that. I've talked about a few of them on prior calls.

And then on the electrons itself, we got involved in the BGS auction. We're looking at other ways to sell these electrons in a way that's more valuable to our investors. And we'll look at direct lines, for example. So there's a couple of our facilities that are close to other large users of electricity and can we sell directly to those large users and -- at some middle price. So we'd be selling at higher than wholesale and maybe buying it at lower than retail to make both parties happy. So those are the types of things that we're looking at right now. But those business development efforts do take some time has been my reaction. Because we've been looking at these for a couple of years at this point just because of the way the market has been playing out.

Angie Storozynski -- Macquarie -- Analyst

Okay. Thank you.

Stephen J. Jones -- President and Chief Executive Officer

Sure.

Operator

Your last question comes from the line of Henry Chien from BMO. Your line is open.

Henry Chien -- BMO -- Analyst

Hey guys, good morning.

Stephen J. Jones -- President and Chief Executive Officer

Good morning.

Henry Chien -- BMO -- Analyst

Just wanted to -- I figured I just had a question to explore a little bit more -- maybe not necessarily explicit guidance but the one area beyond the organic growth. Like what are the projects or factors, I guess, that would also impact free cash flow and EBITDA if we think about 2020?

Brad Helgeson -- Executive Vice President and Chief Financial Officer

Well, our big focus -- Henry, it's Brad -- in the project area is of course the pipeline in the UK and that's something that's going to impact us when those plants come online at least for the first four that we're developing that we've been talking about in the 2022, 2023 timeframe. When you think about 2020, really the drivers for us are the ongoing initiatives under the organic growth umbrella and that's encompassed in the 3% to 5%.

Stephen J. Jones -- President and Chief Executive Officer

So you think about things like waste pricing, metals -- additional metals recovery, TAPS continuous improvement, profile waste, regulated medical waste, Covanta Environmental Solutions. They are all those -- all the things that we're undertaking in order to grow the Company, and a lot of that is -- that's more on the domestic side. Brad mentioned more the international side. And then on the international side and I've mentioned this. We're looking at other projects outside the UK. I mean, there's additional projects inside the UK on the GIG's -- was one of the reasons we partnered with GIG in the UK. Outside the UK, you may have seen some publicity around a project in the Philippines that we're involved in. There's projects in China that we're looking at. There's a lot of energy-from-waste new plant activity that's occurring. In places like China, quite frankly, they've build these plants very quickly. It doesn't take them three years to build a plant in China. It's half the time.

And so depending on what we do with some of these other markets, that will also flow into, maybe not 2020, but not too many years further out from 2020.

Henry Chien -- BMO -- Analyst

Got it, OK. That makes sense. And I guess, maybe just for the next 12 months or so not with that sort of view, any kind of milestones that you're looking at going forward or timing wise or just kind of regulatory hoops for [Indecipherable] things that you guys are looking out to?

Brad Helgeson -- Executive Vice President and Chief Financial Officer

I think the key milestones -- I'm not sure if this is your question, but the key milestones that we're focused on are having all -- getting all four of the initial projects in the UK into construction. So two down, two to go. We're focused on Protos and Newhurst now to get those going. It's getting TAPS up and running. And then as Steve was talking about, based on the operational performance of that unit rolling that out across the fleet. So I think if we can meet those milestones and build from there, we'll be in a really good position, and that's where we're focused.

Henry Chien -- BMO -- Analyst

Got it. Thank you.

Stephen J. Jones -- President and Chief Executive Officer

Yes. And the other thing I'll mention too and this is a US comment for new energy-from-waste. There are opportunities for new energy-from-waste in the US. You've seen -- there's been some public announcements and some of our clients -- some of these are client opportunities, some of them maybe tip fee opportunities where we own the plant. So even in the US -- I would have told you in the beginning of my tenure, there wasn't going to be a lot of new energy-from-waste in the US. I think now I'm changing my view a little bit. I think there's going to be opportunities for us here in the US. There will also be varying timelines associated with those opportunities.

Henry Chien -- BMO -- Analyst

Got it. Okay. Yes, I look forward to hearing more. Thanks.

Brad Helgeson -- Executive Vice President and Chief Financial Officer

Thanks.

Operator

There are no further questions at this time. I'll turn the call back over to the presenters.

Stephen J. Jones -- President and Chief Executive Officer

We want to again thank everybody for joining us for the call today. And we appreciate your ongoing interest and support in Covanta. Have a good day and have a good weekend. Thanks.

Operator

[Operator Closing Remarks]

Duration: 51 minutes

Call participants:

Dan Mannes -- Vice President of Investor Relations

Stephen J. Jones -- President and Chief Executive Officer

Brad Helgeson -- Executive Vice President and Chief Financial Officer

Michael Hoffman -- Stifel -- Analyst

Noah Kaye -- Oppenheimer -- Analyst

Tyler Brown -- Raymond James -- Analyst

Brian Lee -- Goldman Sachs -- Analyst

Angie Storozynski -- Macquarie -- Analyst

Henry Chien -- BMO -- Analyst

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