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Covanta Holding Corp (NYSE:CVA)
Q1 2020 Earnings Call
May 9, 2020, 10:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, everyone, and welcome to Covanta Holding Corporation's First Quarter 2020 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. The transcript will also be archived on the Company's website. [Operator Instructions]

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

Dan Mannes -- Vice President, Investor Relations

Thank you, Jamie, and good morning, everyone. Welcome to Covanta's first quarter 2020 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 on to 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, May the 8 of 2020. 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 results. 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. I hope everyone is healthy and safe. For those using the web deck, let's begin on Slide 3. We had a great start to the year. During the first quarter, we generated $97 million of adjusted EBITDA and $19 million of free cash flow, both showing strong growth and processed 5.3 million tons of waste, a 2% improvement over last year driven primarily by improved plant availability.

The first quarter highlighted our ability to drive higher waste prices, given the secular trends of reduced disposal capacity in our market and growing demand for landfill alternatives. With same-store average tip fee price growth of nearly 5% in the quarter, continuing the trend that we demonstrated in 2019. This pricing improvement stem from tight waste disposal market, major contracts that we repriced during 2019 at higher prevailing prices, as well as the escalators embedded in our contracts.

Our Covanta Environmental Solutions platform was a large contributor in the first quarter, as we saw significant revenue growth in profile waste at our Waste-to-Energy plant, which was up 18% and at our Material Processing Facilities where revenue grew 7%. We revamped the CES sales and customer care team and systems in 2019. And these efforts clearly bore fruit in the first quarter.

While we can feel good about starting the year off on a strong note in Q1, the COVID-19 pandemic that emerged in mid-March significantly impacting our operations, markets, customers, employees is now our overriding focus. How we navigate this period will tell the story for 2020, and I believe, will demonstrate the strength of our Company. As I discussed on our business update call a few weeks ago, we reacted decisively to mitigate the impact of COVID-19 pandemic on our employees, facilities, customers and financial. As a result, our business continues to operate well in this challenging environment. At its core, Covanta operates critical infrastructure, providing essential services for our host communities and we've continued to do so with minimal operational disruptions.

The majority of our waste and service revenue was stable and largely unaffected by the pandemic. This includes our long-term service fee contracts with municipalities, where we are relatively agnostic to waste volumes and our tip fee revenues that are generated from processing residential waste, which has remained strong. We are seeing pressure on commercial MSW and profile waste volumes, which is largely generated from industrial and the manufacturing sources, given the widespread stay-at-home and similar mandates in our core regions. However, given the location of our assets, our logistics and transfer station capabilities and the talent of our waste procurement team, we've been successful in backfilling any shortfall volumes to ensure consistent operations. I'll discuss this further in a few minutes.

Regarding commodity-based revenue, things haven't changed too much since last quarter. And while markets remain extremely challenging, the impact on us is manageable. Electricity prices are near historic lows and are expected to remain subdued in the near-term. So natural gas futures have recently begun to move upward on the expectation of reduced drilling for oil and the potential reduction in associated gas. We are highly hedged for the remainder of 2020 and see limited remaining downside risk. As we look at 2021, we are already over 50% hedged on our exposed positions at prices similar to our 2020 hedge levels. This activity is in line with our disciplined risk management strategy. While we are ultimately long on electricity, our goal remains to minimize near-term volatility.

In light of reduced economic activity during the COVID-19 pandemic, we have seen a reduction in demand for our scrap metal. That said, other sellers of scrap rely on the collection of metals from areas like auto scrapping, and a slowdown in these activities is quickly reducing the supply of material. The supply response is helping to support prices even in this low demand environment. Importantly, given the investments we've made in separating and upgrading our metals, we continue to find markets for our products.

Looking beyond the current situation, I want to remind you of the fundamental value proposition of Covanta. As a company, we're focused on leading the world and sustainable waste management. And our business is levered to ongoing secular growth trends in waste disposal. This provides us the opportunity to drive incremental value from our critical assets, while offering the potential for new investment opportunities. We will continue to invest in growth, but for the near-term this will be focused on the UK projects and our first TAPS facility in Fairless Hills, Pennsylvania. These are the most strategic opportunities we have in front of us and offer the highest rates of returns on investment. In the UK, our first three projects are in construction and we expect to begin seeing cash flow from the UK in 2022.

As a brief update from our conference call a few weeks ago, the Earls Gate project in Scotland is now in the process of restarting construction activities. I'm proud of our success in UK to-date and excited about the opportunities ahead of us. Supporting these initiatives is a flexible balance sheet with no near-term maturities and ample liquidity. By lowering our dividend and focusing our growth investment, we are enabling a faster pathway to reducing our leverage, which we believe offers more value and less risk to all stakeholders, while still offering an attractive shareholder payout.

Now, let's move to Slide 4 to take a closer look at our waste revenue in this environment. While the waste bucket is well followed by investors, the current situation calls for a deeper dive on how the pandemic and economic shutdown are impacting Covanta specifically. Overall, our volume process will remain relatively steady with softness in certain waste streams translating to us as temporary pressure on tip fee prices. This is different than how the integrated waste collection and landfill companies experience this environment.

As a reminder, in 2019, we generated about $1.4 billion in waste and service revenue; of which, approximately 70% will see very little impact from COVID-19. As I mentioned earlier, this includes all of our long-term service fee contracts with municipalities where we are relatively agnostic to waste volumes and about half of our tip fee revenue which is based on processing residential waste under long-term contracts. We have felt some downward pressure on roughly 30% of our waste revenue, including commercial MSW and profile waste, which together represent the other half of our tip fee revenue and environmental services offered by Covanta Environmental Solutions.

As our Waste-to-Energy plants are designed to run full, our goal is to procure sufficient additional ways to offset any declines in existing waste streams. One of our first options here is to tap into our transfer stations. In 2019, over 200,000 tons received at our transfer stations were sent to disposal at third-party outlet. We're appropriate, we're now internalizing some of these tons. Second, we're going back to some of our key customers and ask them for more waste. And then lastly, in some cases, we're simply casting a wider net to accept waste from additional haulers.

On the profile waste side, we have a diverse customer base that is balanced across areas including environmental services, chemicals, food and beverage, consumer products, manufacturing and healthcare. I'll note that we have very limited exposure to oil and gas. While overall profile waste volumes to our Waste-to-Energy plants were down in the 15% to 20% range in April, this has been particularly driven by our exposure to certain sectors like auto manufacturing, while volume for many other sectors has shown limited impact.

Now please turn to Slide 5. Rather than try to guess when and how things will normalize, we can give you a sense for what we're seeing in the business today under current economic conditions. First, we estimate that backfilling shortfalls in commercial and industrial volumes with lower price alternative waste sources as currently reducing tip fee revenue by $5 million per month or an impact of $4 to $6 per ton on our overall average tip fee.

To be clear, this isn't a calendar year prediction, but rather a current run rate that will evolve as the macro environment changes. Note that the majority of our existing commercial and industrial volumes are still largely unaffected. But on the portion where we do need to find replacement tons, the price delta can be significant depending on the location and waste type. As commercial activity improves, we anticipate these headwinds will abate, but this is where we are today. In addition, we're also seeing some impact from reduced volumes at our material processing facilities where Environmental Services revenue is currently running lower by 15% to 20%. However, as compared to our Waste-to-Energy facilities, this business can respond by reducing costs such as labor, transportation and disposal. As a result, we estimate the decremental margins on lower revenue of less than 50%.

Outside of waste revenue, we're seeing some impacts operationally. There are incremental cost of operating in this environment including areas like PPE and other suppliers this affecting services and increased overtime. Further, in light of some of the general challenges operating in this environment, it is inevitable we will see negative impacts on throughput and efficiency. As previously announced, we expect to partially offset these items through proactive cost savings initiatives, including discretionary cost reductions, hiring freezes, temporary salary reductions, furloughs and reduced bonus.

In total, we expect $15 million to $30 million in total cost savings in 2020. This discussion does not touch on the potential impact of the pandemic on commodity prices, but as usual we are separately providing our outlook for commodity volumes, prices and revenue in the appendix to the presentation. Fundamentally, this is a highly contracted and stable business, where we generally have good visibility and for the majority of the business this has not changed.

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

Brad Helgeson -- Executive Vice President and Chief Financial Officer

Thanks, Steve; and good morning, everyone. I'll begin my review of our financial performance with revenue on Slide 7. Total revenue for the quarter was $468 million, up $15 million or 3% from the first quarter 2019. Organic growth, excluding the impact of commodities, contributed $28 million, driven by a strong waste price improvement, higher plant availability in the quarter, and additional revenue related to our new wholesale electricity load serving contract in New Jersey.

Commodity has had a significant negative impact as we saw a $12 million decline related to lower market prices for energy and metals. On the year-over-year basis, average power prices across PJM and the New England ISO were down approximately 40%, while the ferrous scrap HMS number one index and the old cast high side scrap aluminum index were lower by 20% and 15% respectively. Transactions reduced revenue by $4 million with the benefit of the start-up of the Manhattan Marine Transfer Station more than offset by asset divestitures. Long-term contract transitions represented a $3 million benefit to revenue, reflecting new contract at two of our plants on Long Island.

Now moving on to Slide 8. Adjusted EBITDA was $97 million in the quarter, a $13 million increase compared to Q1 2019. Excluding commodities, adjusted EBITDA improved by $21 million organically, led by stronger waste prices, Waste-to-Energy plant production and lower maintenance outage expense. Core business organic growth was over 20% in the first quarter. The $12 million headwind from commodity prices that I just discussed translated directly from revenue to the adjusted EBITDA line. The net contribution from transactions was $2 million, representing the benefit from the Manhattan MTS, while long-term contract transitions at the two plants on Long Island contributed $1 million to EBITDA.

Turning to Slide 9; free cash flow was $19 million in the quarter compared to $6 million in Q1 last year. The $13 million increase in adjusted EBITDA was partially offset by higher maintenance capital expenditures in the quarter. In light of our maintenance capital plan for 2020, we expect this to be a recurring item in year-over-year comparisons throughout the year. During Q1, 2019, we incurred cash costs in connection with the closure of our Warren facility and for severance, which did not reoccur in Q1 2020, providing a $7 million favorable comparison year-over-year. Working capital provided a modest benefit in the quarter largely consistent with Q1 last year.

Now, please turn to Slide 10 where I'll review our growth investment activity. As discussed during our recent business and capital allocation update call in April, we plan to focus growth investment primarily on our UK project and the start-up of the TAPS facility in 2020. We will be highly disciplined in making any additional discretionary investments this year, which this outlook reflects. During the first quarter we invested $8 million in TAPS and we expect to spend about $15 million in total this year. The plant is in start-up and testing right now and some of our payments to our vendors will not be released until next year after the plant has met extended operating performance task. We plan to invest a little over $30 million in this project in total.

Upon reaching financial close on the Newhurst project in the UK in the first quarter, we received both the premium from GIG to buy into the project and a recovery of development costs similar to Rookery, but with smaller amounts involved given the relative size, ownership and economics of the project. With the amounts received for both projects, we currently have approximately $22 million in our unconsolidated joint venture that can now be invested in project construction. As you can see in our outlook presented here, we anticipate that these funds will effectively cover any planned spend for the UK project in 2020 with little net new investment required from Covanta corporate funds.

Please turn to Slide 11 where I'll provide an update on our balance sheet. At March 31, net debt was approximately $2.5 billion, up $41 million from year-end. Our consolidated leverage ratio was six [Phonetic] times, down from 6.1 times at December 31. And our senior credit facility covenant ratio was 2.2 times, which is flat with year-end and substantially below the covenant limit of four [Phonetic] times. Our available liquidity under our revolver was $425 million at March 31st.

I'd like to take this opportunity to revisit the discussion around leverage from our call a few weeks ago. The revision to our dividend policy and focus of our growth investment plan will increase the cash flow that we retain over time and thus accelerate the pace of deleveraging, all else being equal. While it's premature to lay out a timeline for when we will reach specific target, especially given the current limits on business visibility, this shift in capital allocation policy represents a fundamental reprioritization of balance sheet improvement and puts the Company firmly on a path which, we think, is in the best interest of all stakeholders.

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

Stephen J. Jones -- President and Chief Executive Officer

Thanks, Brad. I want to take a moment and reiterate a few things. We've spoken a lot this morning about our various initiatives to manage through this environment. There is no crystal ball and we can't say when things will return to normal. What we can say is the business has a very high degree of resiliency and stability, and we're also operating as normally as possible. We are value partner to our clients and continue to provide the same high level of service that is expected from us.

Our initiatives to grow the business are unchanged and we remain focused on these opportunities. Waste to energy investments take patience and perseverance, but as we saw the Dublin, they pay off handsomely. In the UK, we remain focused on growth with three facilities in construction and multiple others in development. New development activities in the US are at an earlier stage, but as I've mentioned before, we're seeing more activity. For example, as you may have recently seen in the press, we are in negotiations with our client in Pasco County, Florida, to support the potential expansion of their waste to energy plant. This will take time to play out, but it's a positive sign on the potential for domestic growth and of our strong position in the market.

As always, we appreciate your interest and support. And I'd like to open the line for questions now. Operator, can we move on to the Q&A?

Questions and Answers:

Operator

[Operator Instructions] And our first question today comes from Noah Kaye from Oppenheimer. Please go ahead with your question.

Noah Kaye -- Oppenheimer -- Analyst

Hey, good morning and thank you for taking the questions and for providing all the detail. Very helpful for modeling. If I could ask one more that will help us, you called out some of the higher operating cost around the process and efficiencies and supplies over time. If we just sort of take a look at April, how-what did that actually translate to in terms of increased plant operating and other expenses? What kind of run rate higher with that in terms of millions, if you can quantify that?

Brad Helgeson -- Executive Vice President and Chief Financial Officer

Yes. Hey, Noah. It's Brad. It's difficult to quantify that at the moment. We have a good view on just in our closed process on revenue for April. We haven't fully closed the books. And also, I think, given the evolution of the rapidly evolving situation here, probably doesn't make sense for us to put too fine a point on the operating cost impact. I think, we just wanted to make sure that people work as they think about how this may impact us, if you'll think about those potential impact, but then of course our intention is to offset those impacts, if not more than what we incur additionally with the cost reduction initiatives.

Noah Kaye -- Oppenheimer -- Analyst

Okay. I appreciate that. It's sort of one missing feature, but I think you've given us the piece for the others. If I could just sort of try to simply capture those assuming no improvement in the business environment, you're basically looking at trends from today carry forward for the rest of the year. I just want to give a baseline here so we have something like $50 million a quarter, so $45 million lower EBITDA for the year from tip fee mix, maybe $5 million or so from 100,000 less volume, call it low-single to mid-single digit million lower EBITDA from energy maybe high-single digits from environmental services, whatever the OpEx is, and then you get back some of that with the savings program, right.

So I mean, it kind of implies something like $40 million to $50 million EBITDA walk if we don't get any improvement. Is that a fair way to think about it based on current trends?

Brad Helgeson -- Executive Vice President and Chief Financial Officer

It is. Yes, you've covered all the major categories. And again, just to confirm what you said, that's assuming the environment that we're operating in at this moment remains as is through the rest of the year, but yes.

Noah Kaye -- Oppenheimer -- Analyst

All right, that's extremely helpful. If I could sneak in one more, if you can just give us a quick update on Protos and imagining all kinds of processes are slowed because of the pandemic, but just any color there on expectations for that to move forward and into financial close?

Stephen J. Jones -- President and Chief Executive Officer

Yes. So Protos, we're in the process now of finding an EPC, so engineering, procurement, construction contractor to build the plant for us. We're talking to several different entities at this point, and so we're working through that process. That will take us a few months to work through that and then will we expect to get the financial close. So it's still moving along the path. The original EPC contractor we were going to use ran into some issues during the year pre-COVID and so we had a pivot toward another set of EPC contractor. So we're working on that now.

Noah Kaye -- Oppenheimer -- Analyst

I appreciate that. Thanks for the update.

Stephen J. Jones -- President and Chief Executive Officer

Sure.

Operator

Our next question comes from Tyler Brown from Raymond James. Please go ahead with your question.

Tyler Brown -- Raymond James -- Analyst

Hey, good morning, guys.

Stephen J. Jones -- President and Chief Executive Officer

Good morning.

Tyler Brown -- Raymond James -- Analyst

Hey. So, Steve, great color on waste pricing. I think, we all understand maybe why prices jogging down to keep the burners full. However, my question is how contractually locked in are you in some of these new rates? Meaning, if you gave a hauler an advantageous enough deal to redirect tons to one of your plants, did you have to give them that rate for some duration or is that not the case? I guess, my simple question is, how quickly can waste pricing migrate back up?

Stephen J. Jones -- President and Chief Executive Officer

Yes, it's interesting. Derek Veenhof and I were talking about this yesterday. These are short-term deals. So, quite frankly, we're already looking at some of these deals as the state-at-home orders start to dissipate and waste is starting to come back into the-commercial waste to start to come back into the marketplace, we're starting to pivot now back to our kind of our normal flow-back to our normal customers that we get flow from; so not-these don't really lock us in for any significant period of time.

Tyler Brown -- Raymond James -- Analyst

Okay, that's very helpful. And I know you guys probably won't get too granular like week-to-week, but has your uncontracted price to-date improved versus peak pain or is that just too granular?

Stephen J. Jones -- President and Chief Executive Officer

Let me say this, because I've heard this question with some of the other bigger waste-integrated waste companies. We're in the same general business as those guys. We're seeing-we're expecting a similar recovery. The low point for us, because, again, I've heard this question a few times, so let me deal with it. The low point for us was kind of Easter week, so mid-early to-mid April, when most of the stay-at-home and shelter-in-place orders were in full force. Since that time, as the commercial and industrial business have restarted, we've seen a stabilization and a modest improvement in volumes in both commercial waste and profile waste to our facilities. So that's kind of the position we're in now.

So again, if you look at mid-April was particularly challenging, but it's kind of moved up from there. And from a pricing standpoint, that's following that trend.

Tyler Brown -- Raymond James -- Analyst

Right. Okay, right. Very, very helpful. And maybe my last one. So, Brad, I just want to make sure I have it all, but the $5 million a month impact on tip fees, that's basically 100% decremental, because it's all price, the 15% to 20% decline in environmental services, I think you said was that about a 50% decremental? And then lastly, I think you're guiding down to some $5 million in service fee revenue, is that a 100% decremental or just how do we think about all those?

Brad Helgeson -- Executive Vice President and Chief Financial Officer

Yes. So the first part, it is 100% decremental, that's just a net different price. On environmental services, yes, as Steve said, we actually expect the decremental to be probably less than 50%. If you want to use 50% as a rule of thumb, it's probably fine. And then on the service fee revenue, that's really just a function of the fact that we earn additional waste service fees under our service fee contracts. And so, Steve commented in the prepared remarks that we're relatively volume agnostic. We do see a very small impact to the extent that volumes are running a little lower and that's really a function of the fact that under a number of these contracts the municipalities bringing us primarily residential waste, but also some commercial. So the volumes are running a bit lower on the service fee deals. That's not 100% decremental, but it's pretty high.

Tyler Brown -- Raymond James -- Analyst

Okay. All right. Thank you, guys.

Operator

Our next question comes from Mario Cortellacci from Jefferies. Please go ahead with your question.

Mario Cortellacci -- Jefferies -- Analyst

Hi, guys. Hope everyone's safe and well. Just kind of looking longer term and I think obviously from what you've just said things have more or less bottomed or stabilized, but kind of thinking longer term, I guess, what is the mix shift and commercial doesn't come back as quickly or just kind of, if there is a structural change in the business. Is there opportunity to get pricing on that lower priced spot business? I'm just sure trying to think theoretically about its longer term.

Stephen J. Jones -- President and Chief Executive Officer

I think that will. I mean, as volumes come back into the market, I think you'll see more of a stabilization on pricing. It depends on the region though. And so in some regions, I think, we've got more pricing power; in other regions, less pricing power. So it really is region-specific, but I think there will be-it will-the secular trends aren't going to change-aren't changing in the market. There is more limited landfill capacity and we are still seeing customers who want to go to a non-landfill option and so that's been helping our business.

Mario Cortellacci -- Jefferies -- Analyst

Great. And I don't know if you mentioned any update on the regulated medical waste part of your business, but any kind of update there would be great. And then, what is your end market exposure look like in terms of, I guess, large quantity versus small quantity hospitals, preventative care, things like that, just any sense for the mix of that business? Thank you.

Stephen J. Jones -- President and Chief Executive Officer

Yes, we have three facilities that are permitted to accept regulated medical waste. And so we believe we have the leading market position there. So we've been pleased with that. The third plant began to take shipments in the third quarter of 2018 and so these plants provide a secure path for regulated medical waste. It's actually been interesting during the pandemic we had originally anticipated that regulated medical waste would ramp up. It ramped up in the first quarter, and you saw that 42% figure that we've mentioned. But it actually-with the doctors' offices closing and the slowdown in elective surgeries, regulated medical waste kind of slowed down also.

So as we start to see doctors' offices opening, my doctor's office just sent me a note the other day they are opening up and then elected procedures will start up again here, I think you'll see a ramp up in regulated medical waste. Because on top of all that, you've got the COVID-19 waste and how that's all playing in. So we originally thought that would-and you saw it in China, there was a lot of COVID-19 waste coming through the system. We haven't seen that come to us at this point, because the other two things I mentioned the doctors' offices and the elective surgeries are down. So it's been kind of a mixed bag as we got into the COVID period.

Brad Helgeson -- Executive Vice President and Chief Financial Officer

Yes. And I'll just at a little more and Steve touched on the trends, but I think it's probably useful to restate that we're not in the hospitals, we are not in the doctors' offices. Of course, we leave that to our partners, including Stericycle. So Steve described the general trends, but frankly for us, we don't really see a difference whether it's a small quantity or large quantity generator. For us, what's relevant is it must incinerate material or not, and that just impacts on the market price for the material.

Mario Cortellacci -- Jefferies -- Analyst

Great. Thank you so much.

Operator

Our next question comes from Brian Lee from Goldman Sachs. Please go ahead with your question.

Brian Lee -- Goldman Sachs -- Analyst

Hey, guys. Good morning and thanks for taking the questions. Hope everyone is safe and well. Question on the pricing. I know there has been a lot of focus here and I appreciate the granular color on the $4 to $6 per ton impact here. You are stating that it's not on the entire 30% of the volume that's kind of in that blue part of the pie chart on Page 4. So could you help size kind of what impact or what part of that mix is actually seeing the pricing impacts right now?

Brad Helgeson -- Executive Vice President and Chief Financial Officer

Yes. Hey, Brian, it's Brad. So we intentionally kept this at a pretty high level to essentially give the market what we see as sort of the punch line and really not get into too much detail on specific volumes in specific markets, et cetera. I would tell you though that it is a minority of the 30% is actually showing up as lower volume and-but in those instances, in many cases the price delta can be pretty significant. So the most obvious example would be profiled waste that we may need to backfill depending on the location with spot MSW. Of course, our average price on profiled waste is over $100 a ton, so that can be a pretty steep delta. But again, in the scheme of things, even within the $30 [Phonetic], it's not a majority of that volume.

Brian Lee -- Goldman Sachs -- Analyst

Okay, fair enough, that helps. And then, just a second question here on the cost savings. I would imagine some of this is going to get phased in, but can you give us a sense of how much of that $15 million to $30 million is already flowing through as of today or as of the end of Q1 into Q2 and then what the cadence of achieving the rest of that cost savings is moving through the year?

Stephen J. Jones -- President and Chief Executive Officer

Yes. So we've started-I mean, some of the things we've started and we're fairly quick out of the gates on furloughing and pay reduction started several weeks ago. So they're flowing through travel and entertainment, and discretionary spending that was easy to shut off. So you take the midpoint of that $15 million to $30 million, it's coming in pretty, pretty evenly right now as we start to work through this COVID period. So it's not extremely lumpy. If I was modeling it, I'd make it pretty smooth through that period.

Brian Lee -- Goldman Sachs -- Analyst

Okay. Thanks guys.

Operator

Our next question comes from Jeff Silber from BMO Capital. Please go ahead with your question.

Jeff Silber -- BMO Capital -- Analyst

Thanks so much. You mentioned the negotiations going on with Pasco County, Florida. I wanted to focus on that a little bit. I'm not asking for specifics on that transaction or potential transaction. But, do you really think there is possibility that you might see more domestic growth or is this maybe just a one-off?

Stephen J. Jones -- President and Chief Executive Officer

No, we've got several discussions going on right now, Jeff. Interesting with Pasco County, one of the-there is a kick-off meeting today on the discussion. So that one's been in the press, so we figured we'd mentioned it. There is two, three others that we're actively talking to folks. And what's happening is a lot of these folks are looking at their solid waste plant and seeing depending on the location, seeing the need for additional disposal capacity in their municipalities or in their geographic areas, and so that's driving the business. And we haven't been, at least from my tenure, we haven't been talking a lot about or have had a lot of opportunities in the US, it's been more outside the US.

So we've been pleased with the fact that there seems to be a change in viewpoint. And I think you're going to see more energy-from-waste now in the US. And really focused on expansions of some of the existing facilities that we have out there.

Brian Lee -- Goldman Sachs -- Analyst

Okay, that's helpful. And I know this is a horrific crisis and I hate to ask this question, but do you think there are any clinical silver linings for your business longer term? Will things change?

Stephen J. Jones -- President and Chief Executive Officer

Yes, that's an interesting question. I think the kind of-and I've had this from employees that-things will change from an employee standpoint. I think we'll get more remote. I mean, there's a lot of articles out there about how the world is going to change. As it relates to the waste business, I don't see as much-we are seeing quite frankly some recycling program shut down, which means that there is more waste coming through the waste stream, and I think that'll continue. And I think you'll see that continue even further, which means there'll be more waste looking for at home.

So I think it'll tighten the market up a little bit is my sense, but as a general matter, this is a pretty stable, resilient business. I don't see a lot of issues from a drop off in waste. I think, if anything, we'll see the same waste levels when we get back to whatever the new normal is or maybe an uptick.

Jeff Silber -- BMO Capital -- Analyst

Okay. Appreciate the color. Thanks so much.

Operator

And our next question comes from Michael Hoffman from Stifel. Please go ahead with your question.

Jeff Silber -- BMO Capital -- Analyst

Thank you, Steve, Brad, Dan, for taking the question and I echo I'm glad to hear your employees are safe and you as well. You all had a terrific core business incremental in 1Q, I mean, came in at 75% incrementals. If you follow through with all this cost cutting, I'm not saying you're not, but as you follow through with it and revs come back, is it possible the incremental on recovery is better than that 75%?

Brad Helgeson -- Executive Vice President and Chief Financial Officer

Hey Michael, it's Brad. I suppose it's possible. I mean, it really depends on the pace of-and the trajectory really of the recovery, which obviously we're not sort of waiting into predicting. But your point is a valid one, which is the one certainty of the numbers that we've laid out is the $15 million to $30 million; we're doing it no matter what. And so depending on what the recovery looks like, I suppose that's possible.

Michael Hoffman -- Stifel -- Analyst

Well, slight differently, you take out the midpoint, what is that, 22-something and you add revenues faster than you would add cost?

Stephen J. Jones -- President and Chief Executive Officer

Yes, I think that's right. I think you're-I think that's definitely a possibility.

Michael Hoffman -- Stifel -- Analyst

Okay, cool. And then, I just want to make sure I understood your one comment, Steve. I got the business bottomed in the middle of April, it starts to kind of look like a switch, so it's steep down short gradual slow recovery. Did the blended average tip fee bottom as well or does typically pricings tend to have a longer tail before they level and then they take slower to recover?

Stephen J. Jones -- President and Chief Executive Officer

Yes, that was more of a volume comment. The data I've been looking at has been more volume base. I think the tip fee will follow a little bit after that, but I think it's directionally all moving-will move in the same direction. I have been-so far, I have been pleased with the recovery, I have to say. And as we get more states pivoting away from the shelter in-stay-at-home and shelter-in-place orders, I think we're going to see a faster recovery.

Jeff Silber -- BMO Capital -- Analyst

Okay. And then, it should be an interesting observation on tailing-tagging on the question of what's the silver lining. As Derek's teams out there trying to find volume, are there fewer third-party players to find it from, because they are struggling in this environment?

Stephen J. Jones -- President and Chief Executive Officer

We haven't seen that yet. I mean, and you've been around the waste industry long time. There is still waste coming out, it's really-commercial side is lower, the residential side, we don't have as good a visibility of some of the big guys who are the haulers, but there is still plenty-there's still plenty of waste, I think, we're going to see that needs a home.

Michael Hoffman -- Stifel -- Analyst

Okay. Thank you very much.

Stephen J. Jones -- President and Chief Executive Officer

Thanks, Michael.

Operator

And ladies and gentlemen, with that, I will be turning the conference back over to management for any closing remarks.

Stephen J. Jones -- President and Chief Executive Officer

Sure. Thank you for joining us on the call this morning and for your continued interest in Covanta. As you heard today, we're navigating through a challenging environment, but we remain focused on our long-term goals. I'm extremely thankful to our employees who are diligently performing in this environment. Our success as a company would not be possible without their continued outstanding effort. So I want to thank them. I remain excited about the Company and our progress.

And we look forward to virtually meeting with many of you over the coming months, as we have an active shareholder engagement schedule plan. So stay safe, be well and have a good day. Thanks.

Operator

[Operator Closing Remarks]

Duration: 43 minutes

Call participants:

Dan Mannes -- Vice President, Investor Relations

Stephen J. Jones -- President and Chief Executive Officer

Brad Helgeson -- Executive Vice President and Chief Financial Officer

Noah Kaye -- Oppenheimer -- Analyst

Tyler Brown -- Raymond James -- Analyst

Mario Cortellacci -- Jefferies -- Analyst

Brian Lee -- Goldman Sachs -- Analyst

Jeff Silber -- BMO Capital -- Analyst

Michael Hoffman -- Stifel -- Analyst

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