Clean Harbors Inc (CLH) 2004 Q2 法說會逐字稿

Good day and welcome everyone, to the Clean Harbors Environmental Services second quarter results conference call. [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 like to turn the call over to Mark Burgess. Please go ahead, sir.

Thank you, Taylor, and good morning. Here with me today, are Alan McKim, our Chief Executive Officer; and Steve Moynihan, Senior Vice President of Planning and Development. Before we get started I would like to fill in for Bill Geary, our general counsel, and read our Safe Harbor statement.

Matters we are discussing this morning and information contained in the press release issued by the company today announcing our second quarter 2004 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 the words 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 of this date, July 28th, 2004. Information on the potential factors and detailed 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 31st, 2003 and our Form 10-Q for the quarter ended June 30, 2004, which we expect to file in early August.

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 this SEC concerning this reporting period. In addition, I would like to remind you that today's discussions will include references to earnings before interest, taxes depreciation and amortization or 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 us 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 Q2 2004 financial results news release dated today July 28th 2004. A copy of this can be found at the company's web site www.cleanharbors.com. A company has been furnished as an 8K with the Securities and Exchange Commission.

At this point I would like to provide now a financial overview of results for the quarter. Revenues decreased from $172.1 million in Q2 '03 to $161.6 million in Q2 '04. However when adjusting for impact of revenue associated with the buzzard space bill that we enjoyed revenue from in 2003, our overall revenues were actually up by approximately $8 million year-over-year.

Furthermore, sales increased by approximately $19 million versus our Q1 '04 revenue levels. Revenues were positively impacted by strong landfill volumes that were driven by our facility projects and remediation work that Alan will explain further in his remarks, strong incineration volumes and stable wastewater volumes. Overall pricing environment was relatively flat in the quarter versus last year's levels. Gross profit increased from $40.2 million in Q2 '03 to $45.8 million in Q2 '04 and percentage of sales gross profit increased 23.4% in Q2 '03, to 28.3% Q2 '04.

Improvement in gross profit as percentage of sales due to lower labor cost resulting from head count reduction efforts in the second half of 2003. Better fixed cost absorption at plants particularly in landfill business, internalization of transportation and better utilization of our transportation assets which grow costs down and other capital investments at our plants that have improved productivity. Accretion expense in the quarter was $2.6 million versus $2.8 million in Q2 '03 and in line with expectations.

Our depreciation and amortization expense was $6.3 million in Q2 '04 versus $6.4 million in Q2 '03. SG&A expense in the quarter was $27.5 million versus $30.7 million in Q2 '03 and as a percentage of sales SG&A decreased to 17% in Q2 '04 from 17.9% in Q2 '03. SG&A expense possibly impacting in the quarter by negative assets impacts in 2003 that was a hit to earnings did not occur in Q2 '04.

We also had lower professional fees in the quarter and lower head count and labor expense. SG and A was negatively impacted in the quarter by over $1million and deal expenses associated with the refinancing and higher accruals for bonuses. On a go forward basis, we expect SG&A expense to approximate $25 to $26 million per quarter.

Operating income was $9.4 million in Q2 '04 versus $280,000 in Q2 '03.As a percentage of sales, operating income improved by 580 basis points as a result of those costs in productivity initiatives and improvements previously outlined. Other income was adversely impacted by $6.9 million non-cash charge associated with the embedded derivative on the company's Series C preferred stock. As a result of the company's refinancing, it will no longer be subject to the volatility associated with this derivative. And we will be able to provide better clarity on the company's earnings performance.

Also, in the quarter the company took a $7.1 million one-time charge associated with the refinancing of its credit facilities. This charge consisted primarily of prepayment penalties and write-off of deferred financing costs. Interest expense in the quarter approximated $5.4 million versus $5.9 million a year ago. Lower expense resulted from lower interest rates, higher capitalization of interest associated with open capital projects primarily associated with the implementation of MAT.

Our net loss for the quarter was $12.1 million versus $6.8 million loss in Q2 '03. And as previously outlined the loss was adversely impacted by $7.1 million cost associated with refinancing, $6.8 million charged with the embedded derivative and over $1 million in other charges associated with the refinancing. Overall, these charges totaled $15 million, obviously, in impacted earnings dramatically. On a per-share basis loss attributed to common shareholders was $1.63 per share versus a 57-cents loss last year in the second quarter. Year-to-date results when adjusting out the impact of the buzzard space bill revenues in the first six months increased by almost 3.5% to $304 million.

Operating income increased from a $350,000 loss on year-to-date basis in 2003 to a $13.2 million profit in 2004. The improvements and performance were driven by a 250 basis-point improvement in gross margins as a percentage of sales -- again, because of reduced head count better fixed cost absorption at the plants and internalization efforts that the company has been successful in implementing. The remaining improvements in operating income resulted from a $6.8 million decrease in SG&A expense. Because of lower head count effects, improvements and professional expenses. On a year-to-date EPS basis we generated a loss of $1.49 share versus loss of $1.17 share in the first six months of 2003, for those reasons previously discussed.

From a balance sheet perspective our cash balance has approximated to $22 millions year-end -- excuse me -- at the end of Q2, up from year-end total of $6.3 million. This was a result of incremental liquidity we realized from the refinancing. Also included in these balances are approximately $3.9 million in restricted cash that I will address shortly. Our accounts receivable balances decreased from $125 million at year-end to $122 million at the end of Q2. While though -- while revenue -- receivables are up slightly from the end of Q1, they are -- that is so because of the higher revenue levels that the company has experienced in Q2.

On adjusted revenue basis, receivables are actually down by eight days on the days on hand basis from year's end as we continue to make improvements as a result of collection policy implementation and management to a more robust credit policy. And, our over 60 days aging is actually at its lowest level since September 2002 when we made the acquisition.

Our net P&E balance increased $166.5 million at year-end to $171 million at the end of Q2. Capital spending approximated $6.7 million in the quarter as a result of carryover spending associated with MAT. Some build out of new cells and landfills and incremental expenditures on rolling stock associated with our internalization efforts.

Restricted cash decreased from $88 million at year-end to $3.9 million at the end of Q2. Restricted cash will still be required at quarter end by some of old lenders cover short-term exposure on outstanding letters of credit at the time of the refinancing. We expect that the restricted cash will be at zero by the time of our next public filing. Accounts payable balances approximated year-end levels. Environmental liabilities were at $182 million roughly at the end of Q2 versus $183 million at the end of the year.

Our total funded debt was roughly $154 million in the quarter versus the $185 million at year-end. Other than a few capital leases outstanding, the only debt we have outstanding on our balance sheet are the notes that we issued on June 30th.We no longer have the redeemable preferred stock on the balance sheet as a result of the refinancing, as you can see in the press release. EBITDA for the quarter was $19.4 million, Interest expense about $5.5, Taxes $2.3, Capex $6.7, Environmental spending, $2.6 million. As Alan will talk about further on a go forward basis we projected EBITDA or given guidance of $17.5 to $20 million.

Our interest expense we expect to be in the $5.5 million range. Taxes in the $1 million range. And overall Capex and environmental spending for the year we expect to approximate somewhere in the mid-$30 million range. From refinancing perspective, we are very excited about the opportunities provided to our company as a result of this refinancing.

It provides us with the following advantages. A long-term capital structure that has stability and certainty, $20 million of excess cash plus $30 million of excess un-drawn credit availability. We no longer have the series C preferred stock, which is very diluted on short-term and long-term basis from a EPS perspective as well as it provides -- as well as the series C preferred, provide the company with extreme volatility in earnings as a result of the accounting treatment required for the embedded derivative.

We can now focus on running the business and driving shareholder value instead of worrying about balance sheet and need to refinance it. In summary, very quickly, our new credit facilities are comprised of $30 million revolving credit line plus 1.5 five-year maturity $90 million synthetic letter of credit facility. Price at 535 basis point participation fee and $150 million 11 and a quarter senior secured secondly notes with an eight-year maturity.

Covenants that we have in our bank facility are fixed charge leverage and interest coverage. Also, to the extent we generate excess cash flow, we can make an offer to repay the bonds at 104.More specifics associated with the covenants will be filed in the 10-Q in the next several days and provide the detail that many of you may, may want to see as it relates to those.

As we move into second half of the year we remain very committed to continuous cost reductions, improvement in asset utilization, additional revenue initiatives and even better balance sheet management and cash flow management. With that, I would like to turn the call over to Alan McKim to provide you with additional color on all these initiatives.

Thanks, Mark and good morning everyone. To echo Mark's comments our second quarter was a successful one by virtually all our key financial metrics. We continue to deliver on both our cost reduction and our revenue initiatives. We experience some of the seasonal demands that we typically see in Q2 and there was clearly a sense for many of our major customers that the economy is improving. In addition, we believe that our corporate initiatives drove our performance in the quarter.

As I mentioned in our Q1 call, we'd begun concentrating our sales efforts on vertical markets that we believe afford us the most opportunity based on our expertise. To support that vertical approach, we hired three senior industry managers, to accelerate our penetration in three key markets and, we're already seeing significant wins as a result. For instance, we recently won a $2.5 million dollar multi-year contract to be the sole source provider for a Fortune 500 company.

It is these types of wins that tell us that our strategy is working. Our facility group, which began in late 2003, is making good progress. In Q2 revenue growth resulted from Clean Harbors landing a number of large remediation projects are important to our success because they feed our disposal facilities, both our incinerators and our landfills. Our landfills in Q2 recorded the best volumes we've seen since we acquired them. Our incinerators also reported their best utilization rate since the acquisition at 100% of practical capacity. This was helped by a low number of maintenance days in the quarter.

Our site services registered a very strong quarter as well. We're encouraged by what we are seeing in that marketplace. We want a number of noteworthy contracts in that business during Q2 including two major wins in Canada that showcase how we're starting to make significant inroads across our expanded geographic footprint. The pipeline for this segment of our business is solid with a healthy mix of both new and existing customers seeking a broad range of services. In addition to some of our top line initiatives beginning to deliver results, we also continued our focus on taking costs out of the business in Q2, particularly in the areas of transportation and disposal.

As Mark alluded to, we also extended our successful track record in minimizing capital expenditures and managing our environmental liabilities. Our head count remained essentially the same as the prior quarter, at slightly above 3,700 employees. However, we continued to implement our plan to further reduce our non-billable head count as we have hired additional drivers, field technicians and chemists during the quarter.

We also strengthened our sales and marketing organization in Q2 with several key hires that specialized in these key targeted verticals as I mentioned. All of these efforts resulted in significant productivity gains in the quarter as we achieved sequential revenue growth of approximately $18.7 million from Q1, with really virtually no increase in total head count. I'd also like to touch briefly on the refinancing that we closed at the end of June.

This was an important achievement for the company for several reasons. It simplified the structure of our previous financing, including the elimination of the embedded derivative that was creating really wild swings in our GAAP net income and loss each quarter. We're happy to announce there will no longer be a factor in our quarterly results beginning with our third quarter. It also refinanced the series C preferred stock whose paid in kind dividend would have become very dilutive in the years to come.

Our refinancing also provided us with an additional $20 million of available cash. We can leverage this capacity along with our unused $30 million revolver to improve our access to bonded projects. Also this access, also this excess is additional capital enables us to pursue potential bolt on acquisitions that either expand our presence in a certain geographic market or adds a complementary technology in one of our lines of business.

At Clean Harbors we're committed to strong correspondent governance. During second quarter we announced the addition of Andrea Robinson to our Board of Directors. She is our ninth director, eight of whom are independent. Andrea, who is now a member of our audit committee, is a CPA who brings valuable experience as a former auditor. She is currently Senior Vice President and Treasurer of MasterCard International and has held financial management positions at several multibillion-dollar corporations.

I'd like to now talk about our guidance and our outlook before opening up the call to your questions. Q2 has historically been our strongest quarter. In the third quarter we typically experience some seasonality as a result of customer shutdowns during the summer months. Therefore, we typically bring down a number of our incinerators during this third quarter for our routine maintenance and scheduled shutdown as well as some of our high-end projects that are taking place.

Based on the current market conditions, the success of our ongoing initiatives, we expect 4-to-7% revenue growth in the third quarter of 04' compared to the prior years' third quarter. We also anticipate EBITDA in the range of $17.5 to $20 million in the third quarter. Looking ahead to the remainder of 2004, our operational priorities will continue to be twofold with a focus on cost containment and revenue growth. With the refinancing successfully completed, our principal focus on the expense front is going to be on reducing our out source transportation costs.

We intend to continue the expansion of our internal transportation fleet primarily through the hiring of more drivers. We will also be better utilizing our network of rail facilities and rail assets. Turning to the sales side of the equation, as I mentioned at the start of the year, top line growth is a number one priority for Clean Harbors in 2004.There are a number of factors that give us reason for renewed optimism.

Many of our recent wins have been with Fortune 500 companies. And opportunities exist to expand those relationships even more in the quarters ahead. As the overall economy strengthens, customer activity has been high. And we're currently competing for several significant opportunities. Our new business pipeline, including large facility and remediation projects, site service prospects and leads generated by salespeople targeting specific verticals has been more robust. And finally, the upcoming deadline for companies to comply with the new max standards is rapidly approaching.

Based on feedback we're receiving, we continue to believe that customers who own and operate their own captive incinerators will find outsourcing as an attractive alternative to meeting these stricter regulations on their own. This concludes our prepared remarks. And Taylor we will now be happy to answer and take questions.

[OPERATOR INSTRUCTIONS]. Your first question comes from Michael Roesler of CJS Securities.

Thanks.

Good morning.

It looks like you really turned the corner in terms of integrating the acquisition. Can you talk about now top line? And I think you've mentioned previously about major account initiatives. Can you tell us the progress on that?

Well, as we mentioned, we've got a number of initiatives going on in driving both across industries as well as through our national account program. We have identified six major industries that we believe we can expand significantly now with our expanded footprint since the acquisition. We have brought on three new professionals to help us drive those interest-focused programs and we are in the process of hiring three additional people and promoting people from within to drive those programs even further.

The Fortune 500 type focus that we have, the roughly 250 Fortune 500 type account programs, we're seeing our customers, we're seeing some real opportunities, again, introducing now a more broader capability than we ever had before. And as Gene has been expanding his site service business into new markets, you know, introducing those opportunities to existing relationships. So, I would say that Tony Patrillo and Jerry Corral and his team on the sales and marketing side, working closely with our operating folks, have been making real progress on those initiatives.

OK, and I think Mark had mentioned that pricing was flat year-over-year, what are you seeing on the transportation side, pass through any of the rise in gasoline costs?

We've been successful in increasing our energy and recovery fee to over 65, 70% of our customers at this point. We track it off of our national fuel average and as everyone knows, that's been quite significant in the past six months. It continues to be an issue for us and we continue to work hard with customers to get them accepting the fuel surcharge. We are also absorbing increased is surcharges because of the subcontracted transportation that we're doing. So, another important reason for us to internalize more of transportation is -- is to control that expense and cost more.

And what was the percent of waste that was not internalized in the quarter?

I don't disclose in the Q but we don't have that at this point.

OK.

There was an improvement.

Final question for now. Any update on the sale of the -- of those assets held for sale?

No update. Although, there's significant amount of those assets that are in the pipeline that we expect to have so by the end of the year.

OK, thanks.

OK. .

Your next question comes from Lionel Gilovat (ph) of Goldman Sachs.

Hi, guys, congratulations on the quarter. Just looking at your guidance for the third quarter, I think you're looking at a revenue growth of 4 to 7%. What are the assumptions behind this number? I mean, do you see all the growth in volume or are you factoring some price increases or some larger contracts that would kick in in the third quarter?

I would say all three. We certainly have some price increase initiatives that are going on and some selective lines of business that we provide. We also have a good backlog of large projects for our landfills and for our incinerators that are -- that we have purchase orders and have a relatively good visibility on.

And, you know, sometimes those projects could push 30-60 days, but these particular, you know, projects we have a pretty firm commitment on that they're going to happen in the quarter. Gene's business in site services segment won several major contracts that kicked in in the May-June time frame so we're really going to see them contribute in July-August-September and beyond. So I would say all three of those.

OK. And just, again, on the pricing side, could you comment on the pricing environment, particularly on the incineration business, because incineration capacity utilization is running pretty high. I think you mentioned you were pretty close to utilization in the second quarter. So as volumes improve, you should be able to raise prices significantly, I would guess.

There are opportunities, we believe, in some of the types of volumes that go into our incinerators where we can increase our pricing. We have taken on a lot more cost with the capital investment we made to meet MAT. We've spent, you know, close to $22 million alone in our Texas facility.

That plant is actually -- that new air pollution control system is being tied in as we speak. So we are taking an extended two-week shutdown at that plant. And so we are actively in the market trying to work with our clients to get them to understand and appreciate the value now that we bring with the newer investments in these plants and to try to recover some of that invested capital. So we agree with you.

OK. And just a last question on the acquisition front. What kind of acquisitions are you looking at? Is it more for the site services business or are looking on looking at acquisitions of facilities?

In the last 25 years the company has done 15 acquisitions and outside of the major acquisition we did two years ago, the majority of acquisitions we've made are mostly small, $5 million or even less in cost. And, you know, it would be probably more to do with Gene's business because it may help us get into a market faster.

We have more capacity than we need on the waste disposal side, although there may be some niches out there that could help us on our disposal and -- transportation disposal business. But I would say more so to Gene's business right now. And quite frankly, there are a lot of companies since the acquisition who have approached us who want to be on our team. And, you know, we're going to look at those seriously, but we're not going to go crazy out here and go on an acquisition spree.

OK. Thank you very much.

Your next question comes from Larry Taylor of CSSB.

Good morning. Several questions. The Deer Park, the facility and the status of that in terms of when you expect to be able to get the capacity increase going there, where is that?

We're tying in one train now, Larry, and the second train will be, you know, late August-September time frame. And so it should be, you know, kicking in the fourth quarter. And we'll, you know, we're expanding our thermal capacity significantly in that plant as a result of the capital investment from MAT.

And roughly speaking, how much of an expansion is that?

About 20,000 tons.

OK. And when you look at the cost reduction program that you have in place, you're obviously still in the midst of moving that forward, how far along would you say you are and how much of the potential cost savings do you think are still to go here?

Mark?

Yes, we, you know, clearly last year, from a head count perspective, we have made tremendous progress in driving a lot of variable costs out of our business. We have -- and so from that perspective, most of the, you know, cost reduction initiatives are relatively mature or will be relatively mature by the end of Q3.

That being said, we have, as a group, identified over $20 million in additional cost reductions that we are targeting to, you know, targeting to get out of our cost structure, set up specific teams and executive sponsors on those teams you know to drive those results. So we're still very bullish on the amount of cost reduction that we can get out of the company. It's just, you know, to get that $20 million number, you know, clearly it may be -- it may be 18 to 24 months before all that happens but we're still very committed to making that happen.

OK. And in terms of Bolton acquisitions Alan you did give a lot of detail but if you had to kind of, order of magnitude, the overall size of what you might do in the next year or two combined, what are we talking about in terms of spending?

Combined spending at this point, you know, we -- again, we're going to be really selective, Larry, and we've got a lot of you know, Steve Moynihan primarily leads this for us, as you know, he's done this for us for close to 20 years. You know, we're going to be very, very selective. And we're going to be prudent about it. I would say, you know, $10-$15 million is probably a fair budgeted estimate, roughly, in spending.

OK. Any progress in terms of resolving any of the larger environmental liabilities that are out there? I know you guys are working hard on some of those.

There really are no issues in our K we had our disclosure committee meeting. We have no issues at all there. I think the team has done an excellent job once again this year in managing these projects.

We are underway in a number of sites cleaning up sites and internalizing much of the disposal into our own facilities. So I think, for example, at a closed site in Cleveland we're under way right now with a major remediation. And we're really containing costs, and I think you're seeing that in the numbers.

Larry OK and then lastly, this MAT compliance is got to be coming up pretty quickly, right? I mean, in terms of potential customers making a decision about outsourcing?

Yes.

Do you have any sense in terms of order of magnitude, you know, what's out there, not necessarily, obviously, what you might win, but what's out there at least as a potential for new revenue out of that for the industry as a whole?

We've seen a couple of expansions recently been issued by the EPA to a couple of firms but our estimate, you know, that we've talked about in the past has been approximately 100,000 tons. Now some of that material would go to cement kilns as an alternative fuel or other disposal technologies, even some of it may even be able to be handled as a non-hazardous waste because some of these captives incinerators are burning material that doesn't necessarily have to be put into a high temperature incinerator.

So, we had looked at about 25,000 tons at a minimum that we felt, that we could benefit by. And we have seen proposals on the street right now for volumes that are currently being managed in captives that are looking to be outsourced and we're aggressive in trying to win that business.

And the rough time frame for when that would likely appear?

Some of that is August business and some of it that we had thought would be August but we've seen a couple of expansions being issued but, you know, we have at least five known sites out there that we believe we will be closing. We also had a competitive facility that shut down in January that has had a recent court ruling that appears to negate their permit and they have not made the investment. So we really believe that no new capacity would be coming online and, you know, we're in pretty good position to capture some of that business.

Thanks very much.

Yes.

Your next question comes from Mark Hoffman of Lazard Frerers.

Hello.

Hello.

Could you tell me how many shares are going to be outstanding now post the conversion of the preferred?

Right now there's around 14 million shares outstanding. But there are warrants, an additional 2.8 million warrants outstanding associated with this refinancing as well.

OK. What price are they stuck at?

$8.

$8. And with the new refinancing, what's the -- what's your estimated interest expense going forward?

You know, we gave guidance, you know, earlier the interest expense should be relatively close to what it has been, slightly less. That being said, we, you know, we do have $20 million of excess liquidity that was funded as a result of that and obviously the impact of the preferred and the dilution to shareholders associated with that disappears.

Thank you.

Your next question comes from David Cohen of Midwood Capital.

Mark, hello. I'm sorry, could you repeat what you -- the specific numbers you gave in the different pieces of guidance? I have got the revenue and the EBITDA for the quarter and I think Capex environmental was $30 million for the year. Could you just fill in the blanks?

The -- the interest expense, you know, we talked about was in the $5.5 million range, taxes in the $1million range. But these are quarterly numbers. Then the environmental spending for the year, environmental and capital spending in the aggregate for the year, we're expecting somewhere in the mid $30s, and year-to-date we are roughly at $17 million there.

And why is, I mean, if -- tell me how the synthetic LC works? What the cost of that money is?

Yes, we talked about the -- it's basically a 535 basis-point participation fee that we pay on the amount of letters of credit outstanding. So, we have a $90 million facility. The majority of that $90 million is outstanding with various LCs right now. So, the cost of that, again, is $90 million times the, you know, the 535 basis points.

That's, I mean, what is that a year? It's like --

Yes, $4.8 million or something like that.

OK. So, $1 million, two a quarter on top of the four and change that's on your senior notes, OK, all right, that works out, thanks a lot.

OK.

Your next question comes from Daniel Wolf of Astberth (Ph) Capital.

Hello, Mark and Alan.

Good morning.

Hey, real quickly, you closed the high yield with un-drawn 30, revolver availability and 20 of cash. Where's that sit today?

We haven't disclosed that, but we expect, given what the balance -- excuse me, what the cash flow -- you know, the cash flow numbers that we just shared, that that should increase, obviously.

OK. And in terms of where you are with vendors, are you pretty current, no pressure, little pressure?

Our payables are really consistent, you know, with what, the way we've managed the trade historically. We try to manage that aggressively, as any -- as most companies do.

OK. Thanks.

[OPERATOR INSTRUCTIONS]. Your next question comes from Michael McCormick of GGHC.

Good morning guys.

Good morning.

Just a couple of maintenance stuff, could you break that technical services and side services in the revenue for the quarter?

We didn't but in the segment reported in the Q that will be broken out.

OK and on the other income line item in the P&L, could you break out what of that was one-time oriented and what would kind of be a continuing number and what that continuing number might be?

All of that is really non-recurring in nature. The two line items on there at $6.9 million, a charge associated with the embedded derivative and then there was a gain on the sale of fixed asset of roughly $200,000.

OK. And the physical receivable grew in dollar terms, but you know, you had significant revenue growth. How do you feel about your receivable, your AR program and your working capital programs right now?

I think we continue to make good improvement. That being said, we still have a long ways to go. Our internal targets are such that we want to try to take receivables down even further from where they are right now.

In an aggregate dollar basis?

In both aggregate dollars and on a days-on-hand basis.

Right.

So, still have a ways to go.

Could you tell me why your depreciation line item is variable, you know, $5.5 million first quarter, $6.3 million, I mean, it's not a straight line depreciation or --?

You know, I -- I don't know that I can answer that question. I'll have to get back to you.

OK. And finally, could you talk to the variability on the SG&A line? I mean, you had roughly $20 million of sequential revenue growth, you saw basically $4 million loss of sequential SG&A growth, could you talk -- that variability is predominantly in what area?

Yes, sure, briefly, we had over $1 million of deal-related expenses in Q2.

That's in the SG&A line?

The SG&A line that clearly impacted that -- that. As well, you know, given what the strong results were, we increased our bonus accrual. For the quarter relative to what it had been accrued in previous quarters. And so on a go-forward basis where we had $27.5 million in SG&A expense in Q2. We think that a more realistic long-term number's in that $25 to $26 million range.

OK, terrific. And if you, you had had roughly $31 million of EBITDA in the first half of this year, if I have that correct and you said you had $17 million of Capex in environmental. If we just kind of normalize the businesses from, you know, without all the deals and so forth and so on what would have been the free cash flow on an adjusted basis for the first half?

You know, I don't know that I have a good number for you, Mike. Again, we -- I mean, we just briefly, I mean, if we go through, you know, the EBITDA was in the, you know, as you say slightly over $31.5 million. Our interest expense was, you know, roughly $11 million. Our taxes were 3.5 and that are spending on capital and environmental was roughly 17.

Uh-huh. So, you have roughly $10 million of free cash flow?

Roughly, that's slightly above the break-even from a cash flow.

Oh yes. I am sorry, I did the calculation ans was wrong, yep. OK Listen, thank you very much, guys.

You're welcome.

your next question comes from George Mellis of Lord Abbott.

Good morning, Mark and Alan, how are you?

Good morning.

Can you talk a little bit about your transportation assets and how you're trying to -- to better utilize them? Is that primarily relates to landfill or is it also incinerators, and where, specifically, are you trying to improve your transportation system?

With the acquisition came a tremendous amount of assets and some of those assets include, you know, various types of tankers, roll-off trailers, rail assets, the company owns 18 rail facilities today, for example, with significant assets. One, of the subsidiaries that became part of Clean Harbors was a subsidiary of union Pacific railroad and with that came a lot of very good assets on the rail side of the business.

So, we have a central logistics organization that has been working to improve the overall utilization of all those various types of components. The company has been spending about $60 million in outside expenses for transportation. We really have targeted that area and we have been meeting regularly in going after that area of expense aggressively. Our whole goal is to continue to improve the overall utilization.

I think we've hired over 35 drivers since that initiative began. And we are hiring more drivers as we speak. With the refinancing behind us, we're acquiring more tractors and power units to put underneath a lot of equipment that has been sitting and so it's really just, you know, taking all these assets that we now have and then putting them back to work and internalize them more.

OK. And those drivers, is that primarily to drive waste from a transfer facility or one of your real assets to your disposal site or is it -- I'm just trying to see how the drivers fit in with your rail assets because it seems like utilizing the rail assets productively is probably a key aspects of the transportation cost.

Yes, the range or the short movements between any remote rail facilities to our end-disposal sites is typically done with our own equipment or that is our intent. We also, you know, really focus on putting our drivers and equipment in front of the customer. Most of our long haul, it will continue to be subcontracted and we've got some great contractors that we work with out there to do our long haul work. So, it's going to be more to be in the face of the customer.

OK. In long-term would you see that $60 million in outsourced transportation going, I mean, clearly down but to what level do you think it will go down?

I mean, we certainly think we can get it outside of project-related spending, which is obviously something separate. But, you know, clearly under $30 million is our goal, to reduce that overall expenditure.

Great, thanks.

Yes.

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

Well, thank you very much everyone. We really appreciate your participation in the call today. We look forward to speaking to you again when Q3 results are available in October. Thanks again.

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