Clean Harbors Inc (CLH) 2004 Q1 法說會逐字稿

Good day and welcome everyone, to the Clean Harbors Environmental Services first quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. [Operator instructions].

With us today is the Chairman, President and Chief Executive Officer, Mr. Alan McKim, and Executive Vice President of Administration and Chief Financial Officer, Mr. Mark Burgess. At this time, I would now like to turn the call over to the General Counsel, Mr. Bill Geary. Please go ahead sir.

Thank you. Good morning. In addition to Mr. McKim and Mr. Burgess, we have Steve Moynihan, our Senior Vice President of Planning and Development with us here this morning.

Before we begin our presentation, I'd like to read our Safe Harbor statement. Matters we are discussing this morning, and the information contained in the press release issued by the company today, announcing our first quarter financial results, that are not historical facts, are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements including predictions, estimates, expectations and other forward-looking statements, generally identifiable by the use of words such as "believes", "hopes", "expects", "anticipates", "plans to", "estimates", "projects" or similar expressions, are subject to risks and uncertainties that could cause actual results to differ materially.

Accordingly, participants in today's call are cautioned not to place undue reliance on these forward-looking statements, which reflect management's opinions only as of this date, April 23 2004.

Information on the potential factors and details or risks that could affect the company's actual results of operations, is included in the company's filings with the SEC, including, but not limited to, our Form 10-K for the year ended December 31 2003, and our Form 10-Q for the quarter ended March 31 2004, which we expect to file on April 26 2004.

The company undertakes no obligation to revise or publicly release the results of any revisions to the forward-looking statements made in today's press release or conference call, other than through the filings which will be made with the SEC concerning this reporting period.

In addition, I would like to remind you that today's discussion will include references to earnings before interest, taxes, depreciation and amortization, known by the acronym of EBITDA. EBITDA is a non-GAAP financial measure, and is intended to serve as a complement to results provided in accordance with the accounting principles generally accepted in the United States.

Clean Harbors believes that such information provides an additional measurement and consistent historical comparison of the company's performance. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in the Clean Harbors Q1 2004 financial results news release dated today, April 23 2004. A copy of this can be found in the company's website, www.cleanharbors.com. A copy has also been furnished as an 8-K with the Securities and Exchange Commission.

With that said, I will turn the call over to Mr. Mark Burgess.

Thanks Bill and good morning everyone. Revenues in Q1 2004 were $142.8m versus $142.3m in Q1 2003. They were consistent with the guidance that we provided to you last quarter.

Revenues were positively impacted by several facility projects received in the quarter, and while revenues were down slightly over Q4 totals, we experienced positive momentum at the end of the quarter, as we moved out of our cold seasonal winter months.

We also experienced a slight additional build-up in deferred inventory that adversely impacted revenues by $600,000 from year-end levels. We expect to drive deferred revenue down in the coming months, and record this accordingly.

Site Service revenue increased to $41.3m in Q1, compared to $39m in Q1 2003, despite flat revenues in our core Eastern region. We are seeing improved volumes in our growth markets, and have been successful in securing several new contracts in our Canadian and Gulf regions in Q2. Alan will provide more color on Site Service revenue opportunities in his prepared remarks.

Technical Services revenue decreased slightly in the quarter, to approximately $101m, from $102m a year ago. As I talked about earlier, weak seasonal demand patterns in January and February were the primary drivers for the shortfall in the quarter. However, in March we began to see improved demand dynamics, that made up for the majority of the January and February shortfall.

Landfill volumes were up slightly from Q1 '03 levels. Incineration, wastewater and our other disposal business volumes were essentially flat with our volumes from Q1 2003.

Cost of revenues increased to $107.5m, from $106.6m in Q1 2003. As a percentage of sales, cost of revenues increased to 75.6% from 74.9% in Q1 2003. Positive impact associated with our cost-reduction programs was offset by lower margin event business experienced in the quarter, several extra planned preventative maintenance days at our incinerators in Q1 '04 versus Q1 '03, and a competitive pricing environment. Cost of revenues as a percentage of sales was impacted by volumes due to the fixed-cost nature of our assets, and should improve as revenues climb in the future.

SG&A was $23.2m in the quarter, compared with $27.1m a year ago. As a percentage of sales, SG&A decreased to 16% from 19% in Q1 2003. Lower headcount, reduced professional fees and improved and more stringent expense controls, all positively impacted SG&A expense in the quarter. We expect that SG&A expense will be in the $25m-$26m range on a go forward basis, based on slightly improved revenues.

Accretion expense on our environmental landfill liabilities was $2.6m in Q1 versus $2.7m in Q1 '03, and consistent with our expectations. We anticipate full-year 2004 accretion expense to approximate $11m in 2004.

Depreciation and amortization expense was $5.4m in Q1, down from $6.7m a year ago. Income from operations was $4.1m, compared with a loss of $655,000 in Q1 '03. As previously described, the improvement was primarily driven by the solid improvement that is related to increased productivity and expense management, and headcount reductions that we've been successful in implementing.

EBITDA climbed 39% to $12.1m in Q1 2004, from $8.7m in Q1 2003, for the same reasons previously discussed.

Other income/expense in Q1 '04 includes a $5.3m non-cash gain recorded with the total revaluation of the embedded derivative associated with our preferred stock. This compares with a $17,000 gain booked in Q1 2003, and a $9m charge booked in Q4 2004.

As outlined in our press release and in previous conference calls, this is a non-cash gain that we believe should be discounted when reviewing company performance.

Interest expense decreased to $5.4m from $5.5m a year ago. Gross interest expense was roughly $5.9m, but offset by $600,000 capitalized interest expense, primarily associated with the MACT project that we have going on down in Deer Park, Texas.

Basic earnings per share was $0.14 in the quarter, compared with the loss of $0.60 per share in Q1 2003. As previously described, net income in the first quarter included the non-cash $5.3m gain associated with the embedded derivative on the company's preferred stock. On a fully diluted basis, therefore, not including the impact associated with this gain, EPS was a loss of $0.08.

As we move to the balance sheet cash balances, we're at $5m at the end of the quarter, compared to $6.3m at year-end. Our total receivables decreased to $115.5m versus roughly $124m at December 2003.

We continue to see slow improvement in both our receivables aging , and our absolute receivable dollars level, as a result of good hard work by our entire organization in improving this particular account. As discussed in previous calls, we believe significant opportunities continue to exist to drive accounts receivable days on hand lower, and we're committed to making this happen.

Properties held for sale were $12.3m in Q1 compared to $12.7m at the end of Q4. We are still focused on selling the majority of these properties in 2004.

Net PP&E increased to $169.5m at quarter end, from $166.5m at year-end.

Capital spending in the quarter approximated $6m. That includes $600,000 of capitalized interest that I spoke about earlier.

Restricted cash was flat, at $89m versus $88.9m at the end of December. There is no further cash collateralization on letters of credit, as required to support our financial assurance requirements in the next several years.

We still remain focused on exploring ways to decrease these cash collateral requirements on a go forward basis.

Accounts payable at quarter end were $55.4m, versus $60.6m at the end of December. Environmental liabilities decreased slightly, to $182.7m from $183.1m at the end of December. Environmental spending was $1.8m dollars in the first quarter. As, again, previously discussed, we are very focused on environmental spending and managing that carefully on a go forward basis.

Our total funded debt decreased roughly $800,000 in the quarter, as a result of slightly lower borrowings on a revolver, and a slight pay down in debt associated with some asset sales in the quarter.

We continue to remain very, very focused on good working capital management and solid controls on spending throughout the quarters, and the upcoming quarters. We believe we can make further improvement in reducing our receivables agings and further improvements in reducing working capital requirements.

For the year, we expect total environmental and capital spending to approximate $35m-$40m, cash interest expense to approximate $21m-$22m, and cash taxes to approximate $3m.

In order to remain in compliance with our credit agreements, we need to generate roughly $15m in EBITDA in Q2 2004, and for the year, roughly $64m.

At this point, I would like to turn the call over to Alan, who will provide more color on a number of opportunities the company has in store going forward. Alan?

Thanks Mark and good morning.

First of all I'm pleased that we are issuing our first quarter financial results and hosting our conference call this morning, so soon after the close of the first quarter.

As we stated on the fourth quarter call, a point of emphasis for us has been to close our books on a more timely basis. Since completing the CSD acquisition, this is the shortest number of days we've had to take to close the quarter. In the past year we have spent considerable time and effort focused on strengthening our finance organization. I think that Mark and his team should be commended for the excellent job they have done, in facilitating our ability to report our financial performance in a more expedient manner.

Reducing the time it takes to close our books is just one example of how we have benefited from all the systems and processes that we have put in place over the past year. As each quarter passes, we learn more about the substantial potential for our company, and increase our proficiencies in managing our network of assets.

With revenues of $142.8m, we achieved our revenue guidance, in what is historically our slowest quarter of the year, as the cold and inclement weather slows operations for many of our customers. The lack of event business or emergency work also limited our revenue upside in what was still a difficult economic quarter for our industry.

We continued to benefit in the first quarter from the cost reduction and operational initiatives that began gaining traction in the second half of '03. You can see it clearly in our year-over-year comparisons.

As Mark mentioned, we're essentially at the same revenue level that we had in first quarter '03, we were able to substantially increase operating income and grow EBITDA by 39%.

We spent the majority of '03 rightsizing the company, while at the same time integrating two large organizations. One year after the CSD acquisition, our greatest potential as a combined company and our primary objective in 2004 is revenue and profit growth.

Our growth initiatives are in several areas. First our Technical Services division, which handles the disposal of hazardous waste, accounted for approximately 70% of our 2003 revenues. We are the only player in the industry to offer the full spectrum of hazardous disposal services needed by our clients.

The quality and scope of our facilities make us the industry leader. We possess 55% of the commercial hazardous waste incineration capacity, and have over 29m cubic yards of hazardous waste landfill capacity in North America. And of equal value, in a competitive industry such as ours, is the strategic location of these facilities. For example in California, the world's fifth largest market, we own two of the three hazardous waste landfills. In Utah, our Aragonite facility is the only commercial incinerator located west of the Rockies. And our landfill plant in Ontario site has the distinction of being the only combination landfill and incineration facility in Ontario.

Our goal in Tech Services is to grow our revenues and profits by leveraging these strategic assets.

In our Site Service business, which accounted for approximately 30% of our revenues in '03, we operate within a potential multi-billion dollar market. Within this segment, companies are looking for vendors who have integrated environmental services, to meet their needs. And Site Services is where Clean Harbors' greatest growth opportunity lies.

To put the growth potential of Site Services in perspective, before the CSD acquisition, 80% of our Site Service revenue came from the North Eastern United States, within the geographic triangle drawn from Maine, Illinois and Virginia. Now with our larger North American footprint, we are positioned to leverage our Tech Services infrastructure to expand our Site Services business. We have seen some recent successes, early in the second quarter, both across Canada and the Gulf region, and we are encouraged by our ability to gain market share in those areas.

The range of services provided within Tech Services and Site Services not only provides us with a clear market advantage, but also offers a natural entree into new business development. For some of our larger customers, a relationship that began as disposal work has since progressed to a level where we supply other services, such as paint cleaning, lab pack, our follow on site services and now industrial services.

During the first quarter, we moved closer to completing a more than $20m upgrade to our Deer Park, Texas facility. We expect to finish the work well in advance of the September '04 deadline, in order to be compliant with the Federal Government MACT standards. MACT represents Clean Harbors with yet another opportunity for growth, as our Deer Park facility will achieve a 10% increase in capacity upon completion.

Because of regulatory hurdles, as well as the time and money involved, there have not been incinerators or landfills constructed in the US in the past decade. MACT will raise the bar even higher for new hazardous waste facilities, and it is expected to force the owners of a number of captive incinerators to shut down, rather than make the capital investments required to reach compliance. We are in the process of identifying and targeting those waste streams, to bring them into the Clean Harbors facilities.

Looking forward to the normally stronger second quarter, we're beginning to see signs that point to growth in our top line. The spring brings increased activity with community-based hazardous waste collection days, that also add to our revenues.

This year, we will gain additional revenue from a number of large remediation projects that we have already secured. So as a result, in the second quarter we expect to achieve a sequential revenue increase of 7-12%. And based on these improved revenues and further execution of cost reduction and productivity initiatives, we are projecting in the second quarter EBITDA in the range of 16m-$19m.

Before I turn the call over for your questions, I'd like to touch on one of our 2004 objectives, the refinancing of our capital structure. We are now actively pursuing financing options, that will ultimately lower our annual interest payments, simplify our capital structure and give Clean Harbors more financial flexibility for the future.

By closely managing our business, we have generated some real momentum in the past three quarters. Clearly, we have made some significant strides in lowering our cost structure. Now we can concentrate on achieving growth.

This concludes our prepared remarks. We'll now take your questions.

Thank you sir. [Operator instructions].

The first question comes from the line of Michael Roesler of CJS Securities.

Good morning.

Good morning Michael.

Alan, it looks like cost-control has really been holding steady here, and it looks like we're going to be focusing on driving the top line over the next couple of years. Any specific programs other than what you've mentioned already, that you have set up to drive revenue growth?

We've put a number of initiatives in, Michael, last year. One was a group headed up by gentlemen focusing on our facilities, and particularly on our landfills -- we call it our Facilities Projects Group. We have targeted a revenue goal of approximately $25m, which would be focusing on those large remediation and soil contamination jobs.

I think some of the other areas we are focusing on, is our on-site program; we call it our Apollo program. We have been very successful in working with a lot of companies, enabling them to focus, really, on their core business, and outsourcing a lot of their environmental compliance and management programs. And today that program continues to grow and we believe that gives us real significant opportunity.

I think one of the things that we've found now that we've got good year-over-year comparisons, is that we've got some real strength in about ten major industries. And when we look at how we can grow across those industries, I think it really makes sense for us to focus more of our sales, our marketing, our national account program, and all of our systems and processes across those ten major industries, so that we can really leverage all those expertise now that we have.

So I think we have a number of issues, initiatives going on, but I think those three are by far the most important for our sales group right now.

Okay. You've talked a lot in the past about leveraging your rail assets to lower your transportation costs. Any update on progress there?

I think we certainly have been successful in winning some of these facility projects because of our rail network. It is a little bit of a two-edged sword though, because it does increase some of our deferred revenue, and that's expected because you've got waste that takes a little bit longer typically to get to your end disposal site.

But other than that downside, the real upside is then that we are more competitive now. We are more aggressive in the market place. We have a lower cost structure because of those 18 rail facilities that we have, and we've put in more management in our rail areas. So I think that's going to be something that's going to really help us lower our costs.

A lot of news lately on companies beginning to get pricing on their products, obviously on commodities, but it's across the board now. What are you seeing, price-wise?

There are some particular areas where we are actively pursuing price increases, to enable us to, certainly to increase our profitability, and focus maybe on some lower margin business and improve that. So we've put together some plans here. I would say that it depends on which area we're talking about. Our Drum business is relatively flat. But because the incineration market seems to be pretty firm right now, we're looking at some selective streams that we believe we can increase our pricing.

Okay. I have a final question for Mark. It looks like the depreciation and amortization went down pretty substantially year-over-year, and sequentially on a pretty similar revenue base, Mark. I'm trying to understand the reasoning for that?

Yes there's a little bit of clean up with the CAPEX that's not significant. On a go forward basis the depreciation numbers should be in that $6m range.

Okay, thanks.

Your next question comes from the line of [David Cohen] of Midwood Capital.

Hi gentlemen. One thing I wanted to clarify first. Mark - what did you say was the trend in landfill volume in the quarter?

Only that it was slightly up from where we were in Q1 '03.

Okay. [Except for the] financial [report], what are the comments of how much needs to be spent in environmental spending? And by that I mean is there, what sort of a regulatory oversight that for lack of a better phrase keeps you honest in what you need to spend to clean up, monitor, remediate, any of your facilities? Or is it based on a self-imposed level of spending?

No. We certainly are required to do certain things at some of these facilities. There's many, many projects, and as you would imagine, each one of them have their own story. But there is certainly a maintenance spend that the company will have on a go forward basis. It's probably in that $4m range. So anything above that is really the activities associated with the capping of cell, or providing some remediation and removing some contaminated soil or something at a site.

Okay. When you say $4m, what would be in the $4m range?

That would be the organization and cost, including utilities and analytical and other costs associated with monitoring the closed facilities.

Okay. When I look at the balance sheet and see current portion environmental liabilities, this is presumably not highly discounted under FAS 43, given the near term nature of that. Is that cash that needs -- will go out the door in the next 12 months to address environmental liabilities?

Under GAAP you're required to provide guidance as to all those different projects that are out there, and what at this point the potential spending associated with those has been. Last year, I think at the beginning of the year that number was roughly $20m. We ended up spending $8m. And we need to look at that every quarter, just to make sure that we're updating that with the appropriate estimates that come from the operating group and our engineers.

For 2004, at the end of last quarter that current portion of environmental liabilities was slightly over $20m. But because of our under spend in Q1, we just look at it for the '04 year, now that would be $17.5m.

I would tell you that we think those estimates are conservative, but they're prudent at this point in time until we have further developments in actually managing what those expenses are. But history has shown that we tended to do better than what is actually on the balance sheet there. And that's why I gave guidance earlier, saying that between capital spending and environmental spending, we expect to be in that $35m-$40m range between those two items.

And with regard to capital spending, what are the biggest baskets, if you will, that those dollars are going into?

Last year, the biggest basket was really costs associated with the MACT project, and MACT compliance of our Deer Park incinerators.

But what about this year?

This year, it's really more driven by construction of new landfill cells, replacement of transportation equipment, some spending associated with the MACT project. Those would be the three biggest buckets.

Okay. So pretty much necessary. There's not much in there that's discretionary then?

There's always room for discretionary versus actual. Our maintenance CAPEX, we clearly do have some discretion as it relates to spending.

Okay. All right, thank you. I'll get back in queue.

The next question comes from [Michael McCormick] of GGHC.

Good morning. A couple of questions. You made a comment in the comments this morning, that price had an impact in revenue, and I was wondering if you could highlight where you're seeing price pressure?

And then I have a couple of others.

Yeah, I think what I just mentioned is that we had a couple of, as Alan has talked about, we just focus on some larger projects. And beyond the larger projects, the event type business. The margins on that are slightly less, or sometimes significantly less than what you might have in core business.

So that was one factor that impacted margins during the quarter.

Okay. And could you give us a sense of customer churn, maybe accounts lost, maybe new accounts won? Anything that could give us an idea about stability or progress?

To some extent I think the revenue number speaks for itself a little bit, that we were relatively flat. We have gained some customers through the natural bidding and contracting procedures out there. You do lose a site of a customer, but when you look at the company's top accounts, I think we've been very successful in maintaining those companies. Adding in some places and in other cases you do have some churn going on. But I think that the net result is pretty consistent.

Any signs of the losses mitigating or accelerating? The account losses?

Not anything particular to mention here. We've got a sales force of 200 plus people out there, and I think that they're doing a great job of getting up in front of their clients and rebuilding the relationships that maybe were impacted from the bankruptcy of CSD. And I think we have seen some real progress in that area. So I'd like to think that we can move forward now with building new and better relationships, with new and existing accounts.

Finally, last year in the second quarter, you had some large special projects that were won, that appeared to have very low margins. You have won, or commented that you've won, some large projects again in the second quarter. Can you give us a sense of the margin characteristics of those projects, or?

I think that last year's second quarter included a very large spill, but it was very much a labor-intensive type job, which is -- we had commented at that time that it was a lower typical margin that we enjoy on a time/material kind of emergency response event.

It really depends on the mix, where if we have some large remediation projects and we have some capacity that we can take advantage of on our landfills, for example. Although it might be a lower margin job for us, it really does have important ramifications to our bottom line. So we can leverage some of those fixed-cost facilities and really improve our profitability, even with some lower margin jobs out there.

And these projects you've won are remediation?

Well, as I said, there are a number of projects out there. We also have won several large contracts, both in Canada and the Gulf, in our Site Service business, which are the classic equipment and materials and labor type contracts. And those are relatively good margin type contracts. And so I think we've got a mix of wins in the one at this point that will impact second quarter and throughout the rest of the year.

And my final question, thanks Alan, is that - on a year-over-year basis, the cost of goods sold is roughly flat actually, from that standpoint. And with all the cost controls that have been put in place, and the education and understanding that you now have a year later, I'm a little bit surprised we weren't able to see a little bit more leverage in the cost of goods side.

I think our costs naturally increase in the first quarter, particularly with all of our utility costs, with our fuel and energy costs, certainly are significant this year. So we did eat up a little bit of our cost reductions by simply the heating of our buildings, and the operations of all of our equipment out there. We have been very successful in getting our recovery fee increased, as the national cost of fuel has been increasing, but there certainly is a lag in some cases when that takes place. So I think we've seen a little bit of loss against that.

And I thought of one more, so then I'll pass it off. Mark, could you explain this $600,000 credit you got to your interest expense with the MACT standard that you've got?

Yes. Only that under GAAP, to the extension of a large project that is still in the construction and process stage, there's a calculation associated with the core interest component required to finance that. And so typically what happens then is, when that calculation is made you capitalize interest as part of your cost of the project, but the offset to that is a credit to the interest expense.

Thank you.

Your next question comes from the line of Mark Hoffman of Lazard Freres.

Hi, this is Mark Hoffman. I was wondering if you've seen, if you could quantify any particular industry that you've seen more strength in than others right now? Whether it be steel, chemical, or things like that?

I think our pharmaceutical business right now is very strong. The utility business was very weak last year for us, and we are seeing that beginning to pick up. It went through some real difficulties last year, and we hope that that's behind us. The oil and refining and petrochemical business is going into its busy season now, with turnarounds and remediation and cleanings. So that business typically picks up at this time of the year for us. The consulting and engineering segment has been improving. We're looking at more projects and more opportunities in that area.

I hope that gives you a sense of what we're seeing.

Okay. Yes, that certainly does. Thanks very much.

[Operator instructions]

Your next question comes from [Greg Weaver] of [Curran Capital]

Hi. I was just wondering if you could give us a little bit more color on the gross margin front, in terms of the impact of the maintenance outage, as well as the event job you did?

Yeah. I don't know if we really want to break that up for purposes of this call, but it did have a slight impact on margins in the quarter. Greg Weaver: Which?

Both.

It was down 240 basis points sequentially, right? I guess I'm trying to understand the event business. My sense is the job couldn't be that big, right? Because of your revenue run rate?

Yes. Sequentially, our revenue was down by roughly $3m. And the fixed-cost nature of this business is very, very significant and very, very sensitive to volume, depending on which market segment the disposal is actually being disposed in. So from that perspective, yes, some of these businesses have as much as a 50% incremental improvement in margin, to the extent revenues run up or down. So all of those factors have had an impact on the cost of sales, along with the other things that we talked about this morning.

So if I look at your guidance, if I back into the number, it looks like your gross margin outlook is 27%, 28%? So it's going back to where it was and then some?

Yes. As I spoke about, fixed-cost absorption has a major impact and given the revenue guidance that Alan outlined earlier, we think that that will clearly help us on a percentage of sales basis, drive cost of sales down.

Right. So if I use that logic, I guess, help me understand then why, if the guidance is $156m for revenue, why the gross margin wouldn't exceed what it was in Q4, by a fair bit? Because you've got an extra $10m of revenue.

I think the gross margin does improve as time goes on this year.

Okay. So we can expect it to keep going up sequentially?

Yes.

Okay. And I guess just from a revenue increase perspective, what's the normal seasonal uptick? You guys are normally, like you said, busier in Q2 versus Q1, if we go back in history?

Yes. Historically for Clean Harbors, and certainly looking at year-over-year comparisons, we can see our household hazardous waste business pick up in the spring, and in many markets continue right through the summer and fall.

Our Site Service business certainly is much busier after the winter months. There typically is not a lot of outside work going on in a lot of the markets in the Northeast and in Canada for Site Service work. So all of those areas tend to pick up, and quite frankly the company's really trying to grow its Site Service business more aggressively in the Gulf and the West, which is less impacted by the weather. So we hope that we could maybe smooth some utilization out and take a little bit of that seasonality off moving forward.

So the disposal business isn't as seasonal as the Site Service?

Well, it is a little bit. Most of your generators are also on a 90-day cycle. So you tend to have more strength in a December month or a March month, and so forth, because they're all on a 90-day regulated cycle, so to speak. You also have more, I think, just overall manufacturing and remediation. So you might have more of your [flow goods] kind of business be consistent in the first quarter, but all your remediation, your projects and what have you, because the ground's frozen, tends to slow down a lot of those kind of projects in the first quarter.

Okay. And I guess just lastly, I'm glad to hear you think that you're able to increase some pricing in incineration. But you mentioned earlier, Mark, in your comment about margins, you said that it's a competitive pricing environment, right? And I'm just wondering maybe what segment of the business, and who's driving that?

We certainly have a very large competitor in the landfill business, who's been very competitive in the marketplace. We also still compete aggressively in the wastewater treatment business, although we've seen some, not only stabilization in that, but with the new central waste treatment regulations, we've seen some price increases in that area, because of the additional cost of managing that business.

So we've seen some positive movements in the water side, but I would say the landfill business on some of the large projects continues to be a pretty aggressive market, because of some of the larger competitors in that area.

Great. Thank you.

Your next question comes from David Cohen of Midwood Capital.

Yes. I'm following up on Greg's focus on top line growth, sequential growth. Looking at last year's second quarter, we had the big site project, which I think was somewhere in the order of $17m, $18m of revenue. Backing that out you get to around the $155m, $156m. And so looking at the mid-point of your guidance for growth for the second quarter, you don't get a whole lot of uptick in the top line here, and I'm wondering what levers do you have in what is you've just described a pretty price competitive market, to try to grow the top line?

We're certainly putting additional billable people in the organization. We're adding a lot of equipment and resources under our Site Service business. We've got a very good model on how we can grow our Site Services in some of these new areas there. We do have a tremendous amount of landfill capacity, but we're not going to give it away. We're looking to try to fill up that capacity with profitable business out there, but we have a lot of opportunity for revenue growth from a capacity standpoint in those areas.

Our lab pack business is growing. We've been adding a lot of chemists across the country, and we would expect that segment of our business to continue to grow across the pharmaceutical industry.

You talked about your rail assets, and I think we heard one of your competitors earlier in the week talk about their rail assets. Doesn't that, the fact that there are these assets out there, the willingness to bundle some prices, mitigate any of the geographic, the strategic value of any geographic positioning of your assets?

Well, I think --

Can't this waste basically go anywhere, especially if there's rail assets out there that are under-utilized?

Well your wastewater business is certainly a very local business. Much of your drum business can be very much a local business. And even landfill business is somewhat local, although depending on the nature of the project and the scope of the waste, it could be more of a national work, where it could be transported to your point. The incineration probably has more sensitivity to a national rail strategy, so to speak. It is a national business.

I think you have to look at each opportunity, but there's nobody out there that has the rail infrastructure that we have, where the rail comes into our facilities, we have minimal drainage on each end. We own the flat cars. We have 150 tank cars out there running, and we've got, I think, an unparalleled infrastructure from a rail perspective that we can compete more aggressively, even than somebody who might be using a third-party rail cut supplier.

Okay. All right, thanks.

We now have a follow-up question from Mark Hoffman of Lazard Freres.

Hi guys. Have you engaged an investment banker yet to look at re-financing opportunities, or are you in the early stages?

We've not engaged anybody, but we're working very, very closely with several parties right now in exploring options and alternatives.

Thank you.

Your next question comes from [Leo Sarasino] with Sun Life Financial.

Hi. My question has actually been asked.

Okay

At this time there are no further questions. Are there any closing remarks?

Thank you. Okay, thanks again for joining us this morning, and we look forward to speaking to you again with our report on Q2 financial results, this early summer.

Thank you.

This concludes today's conference call. You may now disconnect.