Clean Harbors Inc (CLH) 2005 Q3 法說會逐字稿

Good morning, everyone and welcome to the Clean Harbors Third Quarter 2005 Conference Call. My name is Tammy and I will be your conference call facilitator. (Operator Instructions). At this time, I would like to introduce you to Mr. Bill Geary, Executive Vice-President and General Counsel of Clean Harbors. Mr. Geary, you may begin your conference.

Thank you, Tammy. Good morning, everyone, and thank you for joining us for our Q3 conference call. On the call with me today are Chairman and Chief Executive Officer, Alan S. McKim; Senior Vice President and Treasurer, Steve Moynihan; Chief Financial Officer, Jim Rutledge; and Gene Cookson, President of our Site Services Group.

Before we get started, I would like to remind everyone that matters we are discussing this morning and the information contained in the press release issued by the Company last evening announcing our third quarter 2005 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 as of this date, November 8, 2005.

Information on the potential factors and detailed risk 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, 2004, and our subsequent Form 10-Qs. The Company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in our third quarter press release or this morning's conference call other than through the filings that 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 the acronym EBITDA, which is Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA is a non-GAAP financial measure and is intended to serve as a complement to results provided in accordance with 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 Clean Harbors' third quarter news release. A copy of this release can be found on our Web site, cleanharbors.com. A copy has also been furnished as an 8-K with the Securities and Exchange Commission.

And now, I'd like to turn the call over to Alan McKim for our quarterly review. Alan?

Thanks, Bill, and good morning, everyone. As I hope you all saw in our press release which we issued after the market closed yesterday, the third quarter was another period of significant growth for Clean Harbors. Despite several mitigating factors, we exceeded our revenue guidance by generating sales growth of nearly 10% in Q3. We also continued delivering solid EBITDA and profitability for the quarter. Our employees really should be commended for these results. Their efforts particularly in the Gulf region have been exceptional and they have worked tirelessly to continue building momentum for Clean Harbors.

Let's start our discussion this morning with the Gulf Coast hurricanes since this has certainly been a top priority for us. And our answer to the question, what impact will hurricanes Katrina and Rita have on sales -- has consistently been answered we do not know. Those of you who haven't visited New Orleans and the Gulf region in the past month would have a hard time imagining the level of devastation in the area and the amount of work that remains to be done.

Even today, we're unable to quantify how much business Clean Harbors will be generating from these storms. But I can tell you that we anticipate working on the cleanup effort for both government agencies and customers in the region well into 2006 at a minimum. I can also tell you that our business opportunity for the fourth quarter of 2006 will likely exceed $10 million.

As we outlined in our news release, the hurricane had a mixed effect on our Q3 results. During the quarter, approximately $7 million of our quarterly revenues were generated from hurricane-related work. The bulk of these initial projects were outside of the usual scope of Clean Harbors' services. Our Baton Rouge, Louisiana site served as the base of operations for the region.

During the quarter we supplied government agencies with fuel and housing facilities. We also worked on some non-traditional projects such as providing logistic support such as water and fuel. While this type of work did have a positive impact on our sales for the quarter, the margins on this business were below what we tend to derive from our typical services. Many of our employees early on helped and took part in humanitarian efforts shortly after Katrina hit.

Given our expectations for a prolonged presence in the Gulf, Q3 also was a period of significant investment for us in that region. We incurred more than $3 million in upfront logistics costs for items such as equipment, fuel, mobile trailers and housing. The negative impact of Katrina on our business was minimal as we were only forced to shut down four of our wastewater treatment plants in the region for a period of one to two weeks.

Hurricane Rita then followed directly on the heels of Katrina. In anticipation of this storm, we evacuated over 400 of our employees, including the personnel that were helping with the Katrina cleanup. We were also forced to shut down two of our disposal facilities, most notably our Deer Park incinerator for close to a week and several field offices as well as the Katrina cleanup crews, as I mentioned. Throughout this entire period, we made the decision to continue to pay all of our affected personnel, and we estimate that these shutdowns reduced our Q3 revenue by several million dollars and lowered our Q3 EBITDA by approximately $1.5 million.

Given all of these factors, I think we performed extremely well in Q3 and did not suffer any major damage to our nine locations in the Gulf. Excluding the impacts of the hurricane for the third quarter, we still would have achieved our revenue and EBITDA guidance in the Q3. Our growth in the quarter was primarily driven by our Site Service business. We've been experiencing substantial momentum in recent quarters due in large part to our aggressive sales strategy. In fact, this business has grown 32% year-to-date compared to last year.

Although our overall tech service business experienced a modest level of growth, it's been affected by our large-scale remediation projects which feed our incinerators and landfills. While the pricing environment for these services remain stable, our landfill business in recent quarters has fallen below our expectations. While we did see an improvement from Q2, volumes for Q3 were down nearly 25% year-over-year, as large projects continue to be postponed or reduced in size.

We continue to believe that landfills provide a growth opportunity for Clean Harbors. We have been developing new initiatives to more effectively utilize these sites. For example, we're seeking new permits that will enable us to expand the types of materials that can be treated at our landfills and also afford us some flexibility in our pricing.

Utilization of our incinerators, meanwhile, remains steady, as does the pricing for these services. For the third quarter, utilization was 88%. This is flat year-over-year. In fact, if it were not further forced to close -- if we were not forced to close all three Deer Park incinerators in the Gulf region, utilization would have risen above 90% for the quarter.

Those of you who are familiar with Clean Harbors have probably heard me talk about captive incinerators. These are facilities that are owned and operated by large corporations to meet their own disposal needs. With the rising cost of natural gas and energy, the cost to run these incinerators is becoming increasingly cost prohibitive for corporations in light of MACT and other strict regulatory standards.

In Q3, we signed a new $5 million incineration contract as a result of a captive closing. And I met personally with three other corporations who plan to shut down their captive incinerators and are looking to outsource. While these three in particular do not represent a large revenue opportunity, they are indicative of the trend that will benefit Clean Harbors and the industry in the long-term.

Moving to the cost side of our business, we made further progress in Q3. The key highlight of the quarter was the deployment of our Win Operating System across our Canadian operations, which was launched in the third quarter and completed on October 1st. Our Win Computer system had been helping us to efficiently manage our entire U.S. operations and we anticipate that this platform will enable us to more effectively deploy our resources and increase profitability in our Canadian operations moving forward.

So to sum up, the team here at Clean Harbors performed very well in Q3. Our Site Service business continues to generate healthy growth and we anticipate a substantial flow of business from the Gulf region well into 2006. We have approximately 240 people dedicated to Katrina right now, an additional 15 employees carrying on Rita-related services and all of our plants are back up and in operations. Our work in the Gulf is now shifting to more traditional Clean Harbors Services, such as oil spill cleanup, utility support services and household hazardous waste cleanup, which tend to carry higher margins. Again, for Q4, we expect that these emergency response projects will contribute more than $10 million in revenue to Clean Harbors, and this will help us post another year of record revenues at the Company.

I'll now turn the call over to Jim Rutledge so he can take you through the financial details and provide our guidance for the fourth quarter and full-year. Jim?

Thank you, Alan, and good morning everyone. Q3, my first full quarter with Clean Harbors, was certainly a dynamic time to be with the Company. I would like to echo Alan's sentiments in regards to our employees. I have been particularly impressed with the level of dedication and professionalism that I have witnessed here in my first few months on the job. And we've positioned the Company for continued growth and increased profits.

Now, turning to the Q3 results. Revenues increased to $178.6 million in the third quarter from $162.7 million in Q3 of 2004. As Alan noted, this 10% increase was driven by emergency response projects and strong performance from our Site Services business. The tech services side of our business grew by 3% this quarter compared to last year. Gross profit for the quarter was $49.6 million. Gross margin was 28%. This gross margin level was relatively flat year-over-year; margins in Q3 were affected by the hurricanes. They also were somewhat affected by the spike in fuel prices that occurred late in the quarter. As you all know, when the hurricanes hit, the price of fuel skyrocketed. While we have an excellent system in place to pass on these price hikes through surcharges and recovery fees, prices rose so fast and frequently in September that we could not keep pace.

By October, we had implemented new surcharges to recoup some of that expense. Interest accretion was $2.6 million in the quarter, slightly up from the $2.5 million incurred in Q3 2004. Depreciation and amortization expense was $7.2 million in Q3 of 2005. This compares with $5.8 million in Q3 of 2004. The higher depreciation expense was incurred as a result of capital improvements at our Deer Park incineration facility last year to comply with MACT standards. In addition, new landfill cell construction and other capital projects increased that rate of depreciation.

Selling, general and administrative expense was $27.5 million in Q3 '05, compared to $26.2 million during last year's third quarter. The increase reflects head count additions associated with new offices and higher sales-related expenses. The quarter also included approximately $1.1 million in consulting expense related to our strategic planning initiative that Alan highlighted on our last call. These increases were partly offset by $1.6 million of income related to an insurance settlement and $1.2 million of reductions in our estimates to complete various environmental projects.

Operating income was $12.3 million in Q3 '05 versus $11.2 million in Q3 '04. This increase was primarily due to our higher sales level. For the Q3 '05, EBITDA was approximately $22.1 million or 12.4% of revenue. This compares with $19.6 million or 12% of revenue in Q3 '04. Interest expense increased slightly to $5.9 million in Q3 '05 versus $5.6 million in Q3 '04. Tax expense in the quarter was approximately $900,000 versus $1.1 million in the third quarter last year. Net income available to common shareholders was $5.4 million or $0.31 per diluted share versus net income of $4.3 million or $0.25 per diluted share in the third quarter of 2004.

From a balance sheet perspective, our cash position came in at $47.1 million which is down from approximately $50.2 million on June 30th. The primary reason behind the lower cast total is the upfront logistical costs of purchasing trailers, fuel and equipment that Clean Harbors incurred related to the hurricanes. In addition, we paid the scheduled semiannual interest payment of nearly $8.5 million on our senior secured notes during the quarter. Total accounts receivable, including unbilled, stood at $144.3 million on September 30th, an increase of $15 million from the beginning of the quarter. This increase reflects the spike in Katrina revenues late in the quarter, as well as the increasing rate of other sales as the quarter progressed as well as a negative collections impact from customers who were shut down in the Gulf region. As you might expect, cash collections are presently coming in at record levels.

Capital expenditures approximated $6.3 million for Q3. Year-to-date, Clean Harbors has dedicated $13.3 million to CapEx. This compares with $19.7 million a year ago. Accounts payable balances remain essentially flat on a sequential basis at $65.4 million. Deferred revenue was $19.5 million on September 30th. This was up nearly $2 million from the prior quarter due to the higher rate of business activity and also some backlog emanating from the hurricane related shutdowns.

Environmental liabilities were $171.1 million at the end of Q3 '05 versus $181.3 million at year-end 2004. For the first nine months of 2005, we have incurred $5.9 million in environmental spending. This compares with $8.1 million for the same period a year ago. Long-term debt at the end of Q3 stood at $148.2 million. For the full-year 2005, we expect our cash interest expense will be approximately $23 million. Cash taxes we believe will be approximately $3 million for 2005 and our total capital and environmental spending for the year should approximate -- I'm sorry -- should approximate $28 to $30 million.

And in terms of our top and bottom-line Q4 expectations, we currently expect that revenues will be in the range of $171 to $176 million, with EBITDA in the range of $20 to $22 million. This would lead to record financial results for the full year 2005, with revenues growing to a range of $689 to $694 million and EBITDA rising 16 to 18% to a range of $86.3 to $88.3 million. With that, Tammy, would you please open the call for questions?

(Operator Instructions). Your first question comes from the line of Al Kaschalk, Wedbush Morgan.

Good morning, guys.

Good morning.

Good morning.

Quick question on the comment - Alan, on the prolonged presence in the Gulf there. Are you able to box that in terms of a range? Does that mean six months, 12 months -- as it relates, of course, to the Gulf Coast hurricanes?

I think we certainly think throughout next year. We already had - and I think I should mention this. We recently expanded our Field Services capabilities into the Gulf Coast by opening up offices in Lake Charles and expanding our Baton Rouge office prior to the hurricanes. So fortunately we had a presence in that market and we are expanding that now.

And we believe certainly, that over the next year and a minimum and beyond, that there will continue to be opportunities for the company to go after in that market, not only with our base accounts down there and the impact that they've experienced, but with the infrastructure support that needs to be in put in place. So, whether it's for the utilities or the refining industry or the federal government, it's so difficult to predict how long, but we would expect it to go beyond next year.

Okay. And in terms of the $10 million number that you indicated for Q4, can you talk a little bit further on the nature of either the contracts or what's beneath that meaning? Are those short duration, three-month type contracts or what are those comprised of?

The majority of the work that we have historically done is under contract, but it's on a time-material type contract basis, where we're providing personnel and equipment to handle a wide range of types of services. And again, it could be for utilities, it could be for some of the federal agencies that are working on projects that have been federalized and so they will hire us, primarily, on a time-material basis, I would not anticipate Clean Harbors being awarded these large, $100 million-type contracts, that's typically not the kind of business that we go after. We tend to be a subcontractor to companies who are going after those large projects like that. So, I would say that the majority of the work that we're doing is relatively short in duration, but it's ongoing for the same clients that we expect to do business with throughout the whole year.

Okay. And then, as you think about maybe some of the business opportunities or growth on the revenue side, it seems with the shutdown in the plant for a week or so, that margins were naturally negatively impacted. How do you think through and, I won't say protect the margins, but sort of that trade-off between revenue growth and proprietary margins that historically you've shown?

I'm not sure, if I'm following you, Al. Could you ask it again, please?

Sure. Sorry. Well, you recorded, I think, $1.2 million or $1.4 million -- or indicated $1.4 million operating profit was lower, because of the shutdown.

Right. Yes.

Right.

Secondly, it looks as if with the $7 million of revenue that came from Katrina, overall, operating margins were down.

Yes, absolutely.

And I just want -- as you move out here, you talked about margins should improve --

Right.

-- and do those get back to historical levels or is it a time -- couple of quarters before sort of that new revenue comes in and it comes at historical rates or are they going to be more improved margins going forward?

I'll take a shot at that, Al. I think, what - first of all, on the $1.4 million, obviously, those were the shutdowns that occurred at the end of September. So, the go-forward effect is nil on that. That was just a one-time effect. But, as Alan, pointed out, the nature of the work in the initial stage after the Katrina Hurricane was lower margins. Some of the projects that we were involved in were cost plus with administrative fees -- supplying fuel in there, and also we were participating in search and rescue, so some of that was humanitarian type effort. That was more or less gratis at very beginning. So now that the kind of work that - now that things are settling down -- although they're not quite settled down yet, but the kind of work is our more normal margin-related work of hazardous waste-type cleanup. So going forward, you should see back to normal margins.

Okay. And then finally, are you able to comment or update on the permitting or opportunity to permit in Colorado for one of the landfills there?

There has been a draft permit that was issued for our Cordell(ph) facility and that the comment period has expired. We have not yet received our final permit but are optimistic that we should receive that low-level permit soon.

Okay. Thank you very much.

Okay. Thank you.

Your next question comes from the line of Rich Wesolowski with Sidoti.

Thanks. Good morning. Alan, after exing out the emergency response work both in the second quarter expected -- if you put $10 million in there and according to my notes you booked about $10 million in the second quarter of last year, the underlying revenue is flat. And I was wondering if this was a lag in the waste shipments or there are remediation projects that you expect Or was this any another unusual item in the year ago quarter that provided tough comp?

I think, we are conservative of this year in our fourth quarter guidance. I'd like to think that we can exceed that guidance. I also think that the landfills are softer than they were a year ago. We have been disappointed with the lack of large projects this year into some of our key landfills. So I would like to think that they're conservative, but we should be able to improve on those.

You mentioned the landfill there. Is the lack of projects that Clean Harbors is winning or is there a lack of projects in the market?

I would say there is a little bit of both. But the -- our Canadian business, particularly our Canadian landfill business has been very soft this year, particularly our Sarnia facility. So it's just not been a U.S. issue, it's been a Canadian issue for us as well. I think in looking at some very large contracts that we like, we saw some extremely low pricing. And I think I mentioned that in the last call. But I think, overall, we see a good pipeline of projects that we're bidding on and in some cases we have won, but just not seen the execution taking place yet. So right now, we're being conservative with the fourth quarter landfill side of our business based upon the pipeline we see.

Okay. Moving aside from the volume of work you expect to come through in the landfills, to what degree were results in the 3Q or the expected results in 4Q affected by any underperformance operationally of the landfills?

The third quarter certainly was better then the second quarter in our landfill business from a revenue and profitability, but substantially behind last year's third quarter revenue and profit. We have got a number of initiatives going on at four of our landfills to expand or change the permits or grow those facilities to make them more competitive from a pricing standpoint. And I think we made a lot of good progress on that from a strategic standpoint. But now, it's time for us to execute and really drive some new business into these really nice assets that we have.

Okay. And just finally, what was cash from operations in the quarter?

Cash from operations was about breakeven, Rich. And what I described before of the accounts receivable, that was up because of the spike at the end there. We had the extra interest payment, if you will, of $4.3 million because it was a semiannual payment that we made of the $8.5. So that during the quarter brought us down. And then all the logistical support around the Katrina event just caused a big drain on our cash toward the end. And as I pointed out in my comments, collections are pretty strong, very strong, actually at a record level in the month of October.

Okay. Thank you very much.

Thank you.

Thank you.

Your next question comes from the line of Lionel Jolivot with Goldman Sachs.

Yes. Good morning.

Good morning.

First -- so in the third quarter you had roughly $3 million of upfront logistical costs in the Gulf region. Did you -- I mean, looking at your guidance for the fourth quarter, does it include any additional costs in the area just to get up to speed?

There should not be any significant logistical costs like we just incurred.

Okay. And then you say that your SG&A was reduced in the quarter by, I think it was a $1.6 million gain from an insurance settlement. Is it cash or non-cash, the settlement?

It's -- the cash maybe in by now, at the end of the quarter. It was an accrual for cash that we expect to come in. And it may very well have been received by now.

Okay. So it should be in the fourth quarter?

Absolutely, yes.

So if I look at the $1.6 million gain or cash received in the fourth quarter, and then it seems that your working capital will be a big source of cash in Q4. And what are you looking at for the full year in terms of free cash flow after all of these receipts in Q4?

I think -- just while Jim is putting that number together -- I mean, we have a goal of finishing the year out with $65 to $70 million of cash on our balance sheet. And that's not including any proceeds from the offering. That does include approximately $12 million of cash that we received in October from the exercise of warrants. So we feel like we're going to the end the year with a very good strong cash position.

Okay.

And on a free cash basis -- I don't think we have that number here, do we Jim?

No. We don't have a precise number on the free cash flow.

Okay, that's fine. And then on the environment -- and if I look at your environmental liabilities, they continue to come down and they have been down every quarter for the past two years. Did you go back to your insurance company? Did you to try to reduce the amount of LCs you have to post to back the environmental liabilities?

We've started that process. Certainly, looking at our balance sheet which is improving and some of our intentions to improve it further, that that is a very good scenario for being able to decrease some of that financial assurance. So we've started that process.

Okay. And then I've seen in S-3 that you filed with the SEC, and you will continue to reduce the leverage and you're likely to take out a portion of the bonds. I was just wondering, did you go back to the bank market or do you plan to go back to the bank market to renegotiate the terms of the LC facility at this point?

Yes. If you go back, if you go into the S-3, we do talk about that a bit. That is the intention. And that's described actually in that S-3.

Okay. Great. Thank you very much.

Very good, thank you.

Your next question comes from the line of Baker Burleson (ph), Cambium Capital (ph).

Hi. Good morning.

Good morning.

I was interested in your comments about the MACT standards and seeing some capacity coming off line in the third quarter. What should we expect going forward? I know it's kind of a moving target, but what should we expect going forward in terms of when does the rubber hit the road for some of these captive incinerators for them to actually say, okay, it's getting too expensive and too much of a hassle to deal with this and let's close up and outsource some more of this?

Yes. I think, it's going to be -- it's not sort of a general industry trend. I think it has to be a decision that each company makes on their own. I would tell you that a large driving force today is not as much as the Max expenditures, although that adds to their costs. But it's more to do with the costs of natural gas and energy in general, is just driving the cost up significantly on keeping these captive incinerators at temperature. And when they're not operating at full utilization, it's a tremendous waste heat. And we have seen a real substantial number of questions being raised as some of our key clients who operate their own incinerators around their energy cost.

So I don't want to set an expectation. As I mentioned, the three that I've met with recently, although I think they're going to be closing their capacity in those cases, we will probably gain volumes into some of our other treatment facilities versus incineration because of the nature of the waste that they're burning. But we were successful in the quarter in gaining a nice piece of business that was going to a captive incinerators. But, I think that companies are going to continuously look at the total costs of operations, not just MACT but just energy in general. And look towards getting out of those assets.

Great. Thanks. And I if could, just one follow-up.

Yes.

You mentioned pricing on incinerators, I think you use the word steady. How should we think about modeling that going forward, I mean there is kind of $0.23 a pound-ish still right, do you seen any improvement in that in the nearer future as more captives close?

Clearly, that's, roughly our average price across our mixes of kinds of waste feeds today in our business. And, there are recycling options for some waste that's currently being incinerated. We'd like to think that the additional volumes coming into that market will further firm up capacity utilization. But on a pricing standpoint, I wouldn't want to make any predictions at this point.

Great. Thanks.

Okay.

Your next question comes from the line of Arnie Ursaner, CJS Securities.

Hi.

Good morning.

I just want to try to come back again on the landfill question. In Q2, you were down about 33% and attributed it to inclement weather in Q2?

Yes.

And in your conference call in Q2, you talked about your expectation.

Yes.

You see increased volumes in the third quarter of this year and some project delays were work through.

Yes.

Can you expand a little bit more on what the caused the 25% decline in volumes?

Well, we saw an increase in volumes -- excuse me -- from Q2 to Q3 this quarter. So, our comments regarding the delay in the second quarter, I think were true because we saw a good pick-up in business in Q3, but not at the levels a year ago. And our -- our forecast in Q4 is still showing our landfill volume as being less than a year ago.

And I think what we're seeing is is just a number of large opportunities that quite frankly changed into non-haz and so substantial amount of volume never made it to our landfills. And that particularly hurt a couple of projects going in to our Canadian landfills. But just overall pipeline and volume in the fourth quarter is down quite a bit from a year ago, but, certainly, up over the first and second quarters of this year.

Okay. Two more questions, if I can. I'd like to unfortunately go back to your guidance for the Q4. And I think someone early pointed out, you had a pretty good unusual items last year with the $10 million or so from Katrina, it still implies your core or based business will be down year-over-year. And you've expanded quite a bit during the course of the year. Can you give us a -- I know you mentioned you're trying to be conservative but conservative is, perhaps, different than cautious, if you will.

Well, first of all -- and Alan already gave some comments recognizing some being conservative over in the softness in the landfill business. Also, looking at last year, the fourth quarter it was about -- it was $11 million or so. And I guess we have roughly $10 million in the Q4, that we're projecting this year. We may have been a little conservative there as well but I think that's pretty much the reason.

Yes. I'd like to think that the landfill side of our business is the piece that still is under performing for us. But on the other side, the work that we're doing in the Gulf, I think, is making up for a year ago but it does -- because of the nature of that work down there, it does take away a little bit of our capacity that we repositioned in the Gulf, both personnel and equipment. So, there is a little bit of impact going on our ongoing business, if you would, Arnie, to our base business with that response going on down there. We've got people working seven days a week, 12 hours a day, and it's going to be over a long duration of time. And, so we're cycling people through there on two week cycles and the people are working extremely hard. And that does take away from the resources that are available in some of our other regions quite frankly.

Okay. My final question, if I can. I know you have a formal agreement with the government entities where you don't have to negotiate prices in an emergency situation, but obviously there's been tremendous political pressure on a lot of entities because of Katrina to either put pressure on price or not allow contracts that have been in place. Can you comment on whether you have had any pressure put on you or any renegotiation or what was your existing price structure?

None of them I'm aware of, Arnie. We had base going agreements in place prior to the Hurricanes and we have agreements with our corporate clients under the OBRA Act they call us when they do have needs and to my understanding, I don't believe we've seen any pricing pressure on that. I would tell you that we have shut away from low-margin business down there, there is lot of opportunity. We're trying to be selective in the kind of work that we're doing that is more in line with the kind of services that we typically offer. There's a lot of debris removal for example down there and it doesn't fit well with our landfill strategy, but for the chemical waste and household waste that's mixed in with that it fits right into the business that we are in. And, so we are subcontracting to go after that kind of business. And I think we're very competitive in those and not seeing real price pressure on that area.

I'm sorry. I have one more question, if I could.

Yes.

In the landfill side, you're very leveraged both up and down for modest changes in volume. Given the short fall in volume we have seen in landfills, can you perhaps comment on the margin impact that may have had on you?

Yes, the margin, as you point out, due to the predominance of fixed costs and variable costs being lower, depending upon the particular landfill. I mean, we're talking about contributions margins in the area of 60% and upwards even higher than that.

It hurts us both.

Yes both upwards and down. We've talked in general and publicly of our goal to get to 15% EBITDA margins. Two key drivers to get there is driving those landfills to full utilization because they're operating, less than 50% or approximately 50% today. And that's going to help us to get there because of the nature of that fixed cost.

Right.

It's great operating leverage.

Okay. Thank you.

Thank you.

(Operator Instructions). Your next question comes from the line of Michael McCormick, Gilder, Gagnon, Howe & Company.

Good morning, guys. Could you give us some inclination about the collections that you have received in October? You said it was the record collection month, although you did have quite a spike in this quarter.

Right. Yes. Collections coming through both from the start of the Katrina event as well as the base business -- just very high, more than the revenues in the quarter.

Well, if I recall on another number in front of me, you had about a $12 million increasing receivables, excuse me.

$15 million. Yes, it was $15 million.

$15 million increase in receivables in the quarter. And would you say that should be normalized by the end of the quarter and that your -- your DSO improvement plan will be back on track?

Absolutely. I think that our DSO jumped temporarily just because of the spike at the end of the quarter. And we do expect to bring it back in line by the end of this fourth quarter. And I would say that the level of collections, I had said greater than revenues before probably -- I don't have exact figures in front of me, but at about the level of revenues. So we are receiving as fast as we're billing because we're collecting on the spike at the end of the previous quarter.

Okay. Can I ask a question regarding the financing and what you anticipate with the claw-back and pay down of debt, what would be the financing charge that you're anticipating with regarding that?

What we did in the S3, we spelled all that out. We actually put out specific numbers in the pro forma section and the description of the debt and you can pick up the exact figures right from there.

Okay. Thank you very much. Okay.

You're welcome, thank you.

Your next question comes from the line of Jamie Cook, First Boston.

Hi, good morning.

Good morning.

Good morning.

Quick question. Just a follow up on the impact of the hurricane in the quarter, you gave the revenue number, is it fair to assume that in the fourth quarter you're assuming normalized margins with that --

Yes. I would --

-- in your guidance, sorry.

Yes, I would say Jamie, at the EBITDA level, probably looking at between 12%, 13% EBITDA margin.

Okay. And then could you talk just what about you mentioned fuel was negative in the quarter. I guess how much of the negative? And what are your assumptions for the fourth quarter?

We were able to increase our energy and recovery fee in October -- the first week in October, we tend to do it based on the national average posted at the beginning of each month. So we have not totally quantified the September impact, but as you know, as prices went beyond $3.50 and beyond in some cases, we ended up incurring a substantial amount of added cost to have fuel to run our operations quite frankly in the Gulf and throughout the country. I don't have a quantified number right now, but I think it's gone -- our energy recovery fee went up in October, I think close to 1.5%. And we're happy to see the prices coming down more to a $2.50 a gallon average. So it's really, it was more of a blip there for us in September than hurt us.

Okay. Thank you very much.

You're welcome. Thank you.

Your next question comes from the line of Al Kaschalk, Wedbush Morgan.

Just a follow-up. Alan, I think in the prepared comments you'd indicated some of the commercial projects were delayed or pushed out. Can you elaborate on perhaps visibility over the next couple of quarters for some new work coming in?

We have in regard -- we typically don't give out guidance for first and second quarters. As you know we try -- we have been historically giving out guidance for the current quarter on these calls. We have been pleased with the amount of opportunities that we've been winning on these large projects, and those projects are certainly going to take us into next year. So I'd like to think that the sales team in general is working hard out there to win these accounts and to drive volumes into these facilities. And we've added quite a bit of resources at the different landfills to drive further improvements in volumes into these sites. So, I think overall Al, I'd like to think that, we're going to have a much better year on the facility project side than we had this year.

Are you seeing, are you changing any of the types of activities or projects you're going after or finding success in some areas or a little bit more competition than others?

By changing some of the permits at our sites, we believe we can go after business that we've historically have not been going after like the norm, the T-Norm, the foosrap(ph) business is a good example of that. At one of our sites, we are also recently got a new permit at a landfill to handle more mixed tosca(ph) and recro(ph) materials. So that's a market that we have not been able to participate in, so that along in Canada, there are some key opportunities in the oil sands business now with the price of crude being where it's at. We have some large landfill type projects that we have historically not gone after. So, I think that's the kind of flavor that -- projects that we're going after that we hadn't been in the past.

Thank you.

Yes.

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

Well, thanks very much for participating on today's call. We look forward to speaking to you again early next year on our 'Q4 call. Take care.

This concludes today's Clean Harbors Third Quarter 2005 conference call. You may now disconnect.