Clean Harbors Inc (CLH) 2006 Q1 法說會逐字稿

Good day everyone and welcome to Clean Harbors' first-quarter 2006 conference call. Today's call is being recorded. There will be an opportunity for questions and comments after the prepared remarks. (Operator Instructions). At this time for opening remarks and introductions, I would like to time the call over to Mr. Bill Geary, Executive Vice President and General Counsel of Clean Harbors. Please go ahead sir.

Thank you operator and good morning everyone, thank you for joining us this morning. On the call with me today are Chairman and Chief Executive Officer Alan S. McKim, Senior Vice President and Treasurer Steve Moynihan and our Chief Financial Officer, Jim Rutledge.

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 today announcing our first-quarter 2006 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, May 4, 2006.

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 31, 2005 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 first-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' first-quarter news release. A copy of this release can be found on our website. A copy has also been furnished as an 8-K with the Securities and Exchange Commission.

So with that said, I would like to turn the call over to Alan McKim for our quarterly review. Alan?

Thanks, Bill, and good morning everyone. Before we jump into a discussion of the quarter, let me start off by spending some time commenting on the Teris acquisition that we announced as part of today's news release. Teris is a U.S. subsidiary of the Suez Group, one of the largest conglomerates in the energy and environmental sectors based in Europe. The Teris subsidiary is based in Dallas and generated around $95 million in revenues in 2005. Teris was created with the acquisition of ENSCO from Brambles USA in 2001. It has an incineration facility in El Dorado, Arkansas, which focuses on the drum and small container market. That site currently processes approximately 30,000 drums of containerized waste per month.

Teris also operates a treatment, storage and disposable facility in Wilmington, California and the company has several other field offices around the United States. Teris customers, which include a variety of industries and government operations, are dispersed throughout the country.

Suez decided to divest Teris and we've been successful in achieving a purchase and sale agreement that we believe is fair to both companies. We believe that we can leverage our North American network of waste collection and routing capabilities and achieve substantial cost efficiencies, dramatic gains in productivity and thereby benefit from the significant synergies within our present system. We are particularly excited about the improvement in transportation that can be made since Teris does not operate its own fleet of transport vehicles and we have an extensive infrastructure in both rail and truck to support their operations.

Under the terms of the agreement announced today, we will acquire Teris for $52.7 million, which includes approximately $10 million in net working capital. Based on our initial calculations, we fully expect the transaction to be accretive by year end. The deal is expected to close July 31 and we plan to begin consolidating the Teris operations in the third quarter. Acquiring Teris mirrors our long-standing strategy of growing the business both organically and through complementary acquisitions. This is an exciting opportunity for Clean Harbors, adding a natural adjunct to our existing network of disposal facilities across the United States and further strengthening our position here in North America.

So with that, let's shift to a discussion of Q1. Clean Harbors delivered another consecutive quarter of steady top- and bottom-line performance. We generated double-digit revenue growth and delivered the best first-quarter revenue performance in our history.

Revenue came in at 184.5 million, up by 12% year-over-year as a result of several positive factors. The first factor was our ongoing involvement with the Gulf Coast cleanup in Texas and Louisiana. Even though much of the work has begun to taper off, we still generated an additional $13 million in hurricane-related revenues for the first quarter. Starting late last year, the work in the Gulf shifted to more traditional waste disposal and field service business for our Gulf region customers. As a result, the margins we generated in Q1 for hurricane-related work were closer to our norm than work we did in Q4. Overall, Clean Harbors' involvement in the Gulf Coast recovery is winding down. Although we expect to see some limited projects extend into the spring and summer months, we believe that the bulk of our work is now behind us.

The second factor that supported our top-line growth in Q1 was favorable weather. This January was one of the warmest Januaries on record for the U.S. Understandably, this improved overall capacity utilization at our disposal facilities, which tend to slow down somewhat during the winter months when project work is impacted by colder weather.

Since I mentioned capacity, I think it's a good segue into the discussion of Tech Services, whose solid contributions were the third factor driving our topline growth. Our Landfill business delivered the best first-quarter performance since we acquired these facilities in late 2002 with volumes growing 14% year-over-year. This is the second quarter in a row that our landfills have performed above expectation, a trend which bodes well for this business going forward. Although pricing remains competitive, we are confident that we can continue to win the large-scale facility projects that feed these landfills and ensure higher levels of utilization.

Our incinerators also ran at a strong utilization rate in the quarter, registering 88.5% based on our higher annual capacity. We announced last quarter that we were increasing our incineration capacity by 20,000 tons due to investments at Deer Park and elsewhere. So on an apples-to-apples basis, our utilization rate in Q1 of 2005 would have been 81.8%, so we really saw a nice pickup year-over-year in utilization.

Now turning to Site Services, we continued to achieve steady growth this quarter in the quarter in the core segment of that business. If we exclude our Gulf Coast emergency work and all emergency response work from Q1 of '05, our Site Service business grew by 10% year-over-year. We opened up two new offices -- one in Louisiana and one in Canada -- and our plan to open 10 to 12 offices in 2006 remains on track. New office locations are central to our Site Service growth strategy as they further the Clean Harbors brand and offer us the opportunity to cross-sell our Tech Services.

The inflow of Katrina-related revenues, the warmer than normal weather and a concerted sales effort at both our Tech and Site Services delivered the double-digit top-line growth we announced today. What's even more impressive than our revenue growth is our operating performance. Operating income grew by 47% compared to Q1 2005 and we increased our EBITDA by 23.6%.

I want to take a moment to talk about this growth in EBITDA which demonstrates that the leverage in our business is nearly twice our Q1 revenue growth. It's even more revealing once you remove the environmental liability components from our EBITDA. In Q1 2006, there was an environmental pickup of approximately $1.2 million. In Q1 2005, it was approximately $4 million. So when you strip out those two numbers out of EBITDA for the true apples-to-apples comparison, it shows 38% EBITDA increase on a 12% revenue increase. Our cost savings initiatives have worked well, and again we're seeing incremental benefits [each] dollar of revenue growth as a result of the leverage in our business model where our fixed costs are obviously high.

We continue to make strides on the cost side of the equation in Q1. We experienced an entire quarter of our WIN operating system being fully operational across Canada and with the elimination of redundant costs, we've benefited from significant efficiencies there this quarter.

We also continue to make headway this quarter on our efforts to internalize transportation by adding drivers and purchasing additional equipment. Customers have been quite understanding regarding our need to increase our fuel recovery charges, so as the price of all forms of fuel have impacted our business, we believe we can continue to manage our fuel costs going forward. We remain confident that through incremental and steady growth each quarter, we can achieve our long-term goal of reducing outside transportation expense to around $30 million on an annual basis.

So in summary, our business is off to a strong start for 2006 and the underlying trends are positive. We remain firmly focused on execution, our cost-cutting initiatives are working and we continue to generate healthy organic growth. At the same time, we're excited about the prospects for Teris. We firmly believe that we can repeat the success of the CSB acquisition with Teris and achieve a high level of synergies.

I will now turn the call over to Jim Rutledge so he can walk you through the Q1 financials and provide our products for the second quarter. Jim?

Thank you, Alan, and good morning everyone. Looking at Q1 as Alan mentioned, Clean Harbors turned in another solid quarterly performance, generating a Q1 Company record of 184.5 million in revenue. This is an increase of 11.8% from 165 million in the year-ago quarter. As Alan said, the main drivers were the Gulf Coast cleanup work, favorable weather conditions during the quarter and strong execution at both Tech and Site Services.

Gross profit for the quarter was 53.1 million, translating into a gross margin percentage of 28.8%. Gross margin was almost 200 basis points higher year-over-year on a percentage basis, which is indicative of our continued progress in cost reduction and the improved operating leverage on the increased revenues in our business.

Selling, general and administrative expenses were 28.4 million, or 15% of revenue in Q1 2006. This is flat on a percentage basis year-over-year, but up by 4.2 million on a gross dollar basis. The increase in SG&A is primarily due to higher accrued incentive compensation costs given the improved profitability, lesser benefit from reductions in environmental liability estimates and stock-based compensation costs recorded this quarter in accordance with Financial Accounting Standard 123 (R).

Accretion of environmental liabilities was 2.5 million in the quarter, down slightly from 2.6 million incurred in Q1 2005. Depreciation and amortization expense was 7.3 million in Q1 of 2006, which is comparable to last year’s of 7.2 million. Q1 '06 operating income was 15 million, up 47% from the first quarter last year.

EBITDA for a Q1 '06 was approximately 24.8 million, or 13.4% of revenue. This compares with 20.1 million, or 12.2% of revenue in Q1 of 2005. As Alan pointed out, this growth in EBITDA is particularly noteworthy, considering the fact that last year's first-quarter EBITDA included a $4 million benefit from changes in environmental liability estimates versus only a $1.2 million benefit recorded in Q1 of this year. Our EBITDA growth is far outpacing our revenue growth, which demonstrates the economies of scale and true leverage within our business model. This bodes well for the Teris acquisition.

Interest expense in Q1 was 3.2 million, down from 6 million in the comparable quarter of '05, which primarily reflects the savings from our debt paydown in January. Our provision for income taxes was 695,000. For full-year 2006, we believe our tax rate will be approximately 10%.

Net income available to common shareholders was 2.8 million, or $0.14 per diluted share based on 20.5 million average common shares outstanding during the first quarter of '06. This reflects the previously disclosed $8.3 million charge we took this quarter as a result of the debt reduction in January. In Q1 2005, we reported net income of 4.8 million, or $0.27 per diluted share.

Turning to the balance sheet, our balance of cash and marketable securities was approximately 77.6 million at the end of the quarter. Total accounts receivables stood at 134 million on March 31 and DSO was approximately 69 days for the quarter. Capital expenditures approximated 10.2 million for Q1. This compares with 3.2 million a year ago. We continue to expect CapEx for 2006 to be in the range of 25 to 30 million as we continue to upgrade our facilities and invest in several growth projects in our landfill and transportation areas.

Accounts payable balances declined year-over-year to 61.5 million while deferred revenue was relatively flat at 22.2 million on March 31, 2006. We are continuing to benefit from carefully managing our environmental liabilities and reducing our exposure in this area. At March 31, our balance of environmental liabilities stood at 170.5 million, which is down nearly 8 million from 178.3 million for the comparable quarter in 2005. This will remain a key focus for us in 2006. Environmental spending during the first quarter was 1.6 million compared to 1.8 million in Q1 2005.

Moving to our guidance, we currently expect revenue in Q2 to be in the range of 182 to 195 million, which represents a steady 5 to 6% rate of growth year-over-year. We expect EBITDA in the range of 23 million to 25 million.

With that, operator, would you please open the call to questions?

(Operator Instructions). Arnie Ursaner, CJS Securities.

Hi, good morning, congratulations on a very good quarter. I guess two questions looking out into Q2. Obviously we had very good weather and a very good contribution from the Gulf Coast region in Q1. Is there any way you can attempt to quantify the impact and how that would disappear, if you will, in -- I guess I'm trying to understand your Q2 guidance in relation to Q1 which did get these onetime benefits.

Arnie, we have very little revenue in Q2 for the Gulf. I would say it's probably less than a couple of million dollars at best at this point. That obviously is subject to change if opportunities start getting a bid down there that we are successful at, but a good part of the emergency part of the response that we've been working on really tailed off, particularly in March. And so moving forward into April and beyond, it's not considered material for us.

And, clearly, you have demonstrated the leverage in your operating model. Can you give us a sense for what utilization in your two segments you're assuming you will have in Q2 in your guidance?

On utilization? Well certainly, I think if you look at the seasonality of our business, we -- across the entire company, both in the Waste Disposal/Tech Services side of our business and in the Site Service side of our business, the second and third quarter tend to be our strongest months. We have our Household Hazardous Waste business really picks up in the second quarter. Our incinerators we would expect to continue to operate at the utilization level that we discussed this morning or even better. We expect our project business to be real strong in the second quarter, which drives utilization of our landfill. So I think it's just a natural improvement that we see historically in the second and third quarter will drive that topline for us.

My final question relates to Teris, if you would not mind expanding on it a little bit. Can you give us a feel for perhaps how long you have been in negotiation with them? Can you give us a sense of their margins versus yours at the moment? And you described potential synergies -- are there -- other than cost synergies, are there also revenue synergies you believe you can bring to the equation?

We're really early into this acquisition, as you would expect. We have a long ways to go before we actually close this deal. And so I think maybe the comment we will make is that we began looking at Teris in the beginning of the year when they decided to entertain offers, and so we have been participating in a process that they've been managing. And from our standpoint, they have a great reputation. They have a -- many long-term employees with a great deal of industry experience. We really think we can leverage off their strengths, both from a personnel standpoint as from an asset standpoint. They have tremendous facilities. They made about a $30 million investment to meet their [MAC] standards at their facility, so it's a very nice plant in El Dorado. And I think just overall, we would like to think that we can leverage both on the cost and the revenue side moving forward. But we certainly will have more information for you at the end of our second quarter call.

Okay, thank you, congratulations.

Mark Grzymski, Needham & Co.

Good morning, guys and congratulations. I was just wondering on the split in the quarter between -- revenue for Tech and Site Services. What was the split there?

Mark, that would be about two-thirds and a third. So, maybe about 125 million Tech Service and roughly 61 or so million in Site.

And just curious -- are you kind of assuming that same split going forward, or are you obviously -- in your Q2 guidance, is there going to be any expansion to Site Services there from a percentage of revenue basis?

Well, we're opening the offices, so we will see an increase during the course of the year. But probably into the second quarter, it will be roughly about the same -- two-thirds and a third.

Okay, great. Just moving onto pricing, could you characterize pricing in Q1, where you were increasing prices and what the plan is for increased landfill and incineration pricing going forward?

I think what we've been trying to do is really focus on customers who have not been receiving any surcharge for the added fuel costs that we've been bearing over the last year, year-and-a-half here. So I think we've been successful in getting customers to allow us to do some price increases in that area. We have been looking at our contracts. We are breaking our contracts down more on a regional basis to really understand better about the regional variability between costs and markets in those areas which has really been a good exercise for us. And we think we will be able to have a better success in raising rates on a regional basis now, particularly for our Site Service business.

On the landfill side, it has been a very competitive market as we've been saying over the last couple of years where you do have still a lot of capacity. But we think we have been very successful in winning some nice projects because we've been leveraging the transportation infrastructure that we have. And I think we can do more at expanding that network and further allowing us to be more competitive in the landfill business than we even are today. So I hope that kind of gives you a little bit of sense of where we are from a pricing and strategy standpoint on price increases.

Is there any way to quantify it on a percentage basis, what your plans are to increase, a 1%, 2% increase in pricing?

I'm probably guessing to tell you what we would like to get on a percentage basis. Obviously, we realize that our costs are increasing -- labor costs, health care costs and many other costs, and we have a dedicated group of employees now that are totally focused on analyzing and driving price across all lines of business that we have. And I think it's too soon to probably communicate what that price effect will be on a percentage basis, but it is a priority for the Company this year to improve its overall margins across all its businesses.

Alan, you mentioned it earlier, you mentioned the large-scale facility business and how that important that is to Clean Harbors' franchise. Is there any -- regarding pricing and linking it to that -- is there any desire on your part to keep prices lower to sort of facilitate business in there, in that market? Or, are you going to raise prices and just assume that you'll be able to get the large-scale business anyhow? Does pricing have a big impact on you there?

It really is a balance for us. We see in many cases competitors bid substantially below us and we recognize that many times going into a bidding proposal that we probably will not be successful due to some prior behavior by our competitors, if you would. And so we have a lot of capacity at some of our landfills, for example, and we're not going to give it away and we would like to make a good margin on the capacity we have. We are expanding a couple of our landfills. We are building out new cell capacities this year. As Jim mentioned, our CapEx was up in the first quarter and that is primarily the result of us adding new capacity where we have a couple of landfills that have been underperforming and we hope to really turn those around in the second half of this year. So it really depends. Each market is a little bit different and unique and we have to look at what our book of business is and what our pipeline looks like before we make pricing decisions.

Great, and just one final question. If you could kind of do an apples-to-apples comparison with regards to fuel prices and how that compared this quarter to the year-ago quarter, on a percentage basis I guess?

On a percentage basis, obviously fuel is much higher than where it was last year. But the effect on Clean Harbors was mitigated by the fact that we do pass on certain increases to our customers in the form of a fuel surcharge. And also, we are able to use high BTU content waste in our incinerators, which is a cost avoidance measure and causes us to not feel the full effect of price increases. So I would say year-over-year, we probably felt probably I would say less than 10%, and that is -- might refine that a little bit, but probably less than a 10% increase year-over-year in what we've sustained in fuel price increases.

Great, thanks guys, congrats.

Rich Wesolowski, Sidoti.

Thank you, good morning. Alan, I am sorry, I missed it -- what was the incineration utilization for the quarter?

It was -- I believe I said 88.1 -- 88.5.

Okay.

And that was based on the new tonnage that we discussed in a fourth quarter where we expanded the tonnage by 20,000. So if you compare it apples-and-apples, it's compared to 81.8 a year ago.

Okay. Looking at the leverage that you've been talking about, it seems it has been pretty uneven over the years. I mean last year, if you kind out all of the noise from the environmental stuff, you guys came out at about 10% EBITDA growth on 10% sales growth. But in the March quarter here, we're seeing almost 50% on, again, a clean number versus a 12% revenue growth number. Has something changed in the business?

I don't think it's anything that has changed, it's just the leverage when you consider the fact that with landfills, for example, there is a predominance of fixed costs and the variable costs are not that significant. And in our incineration, our contribution margin is also could -- depending upon which incinerator you're talking about, it could be as much as 50% contribution margin. So obviously, as -- for each incremental pound or ton of waste that you bring into our facilities, you do enjoy a nice contribution margin. So that really is the effect, and that is what we are referring to when we talk about operating leverage.

Okay. I understand the effect, I just don't understand the difference in the effect of the last couple of quarters versus the March quarter, is I think what I'm trying to get at.

The business -- there is obviously a mix issue with our business and we were very strong in the first quarter across a good part of our business. Our incinerators were strong, our landfills were above a year ago, our Site Service was running at a high utilization with the positive weather that we talked about. I just think that we have a lot of good things working, but we are still nowhere near where we want to be. We have said that we would like to get that EBITDA margin at 15% on an annualized basis, and I think we've made good progress, but we still have more costs to take out of our business. There is still a lot more work that we can do to drive the business to that level, and we still have a lot of work ahead of us here.

That makes sense. On the landfills, is it just the favorable weather that enabled the customers to ship more waste from, say, a flat underlying base of work, or would you say there's more waste to be had across the industry? And if so, what's driving that?

I think particularly the team here, [Gene] obviously driving the focus on our facility project business over the last six months I think has been very successful in building a stronger pipeline. We have a number of folks who are basically full-time focused on driving projects business for us and they've done a nice job. And we are way ahead of where we were a year ago and I think they've got a nice backlog of business and we expect to continue to build on that. I think that, coupled with the vertical approach, we are really targeting the engineering and consulting business out there and some government business. We think we can win a greater share of that side of the business than we have historically have, and I think it will show up in our numbers.

So you think this is the a company specific effect rather than you guys being lifted by a greater volume of waste?

I think it's a combination. As Alan pointed out, we have been able to win some nice projects, but it has increased the volume that we've been able to take into our facilities.

Okay. Can you comment on the strength of Teris' business as it comes into yours? We've got a snapshot of 95 million revenue, but is there a lot of sales momentum, are margins expanding or contracting, that sort of thing?

I think as a company that is relatively single-site operation, if you would, they tend to have less strength in the marketplace. They have a lot of extra of costs, if you would, that are spread over certainly a smaller revenue base. So their margins I think just historically have probably been less than ours, and I think that's the opportunity here is, how do we leverage their assets across our network and how do we help one another grow our business collectively. So I think their business has been suffering a little bit because of that, because it's relatively small in this marketplace. But I don't think that has anything to do with the fundamentals of their business.

Do they compete heavily with Deer Park?

Their El Dorado facility is very much focused on containerized waste. What is exciting is they are very strong in the [Lab Pack] market. As you know, we do about $100 million in Lab Pack which is having trained chemists go out and package small quantities of chemicals and then dispose of those materials. And they have a division called [EnPack] and their facility in El Dorado is really focused on that side of the market which is much different than our Deer Park facility. Our Deer Park facility tends to be focused much more on bulk waste, both bulk liquids and bulk solids, and this will really complement some of the capabilities that we currently don't have.

Okay, thanks a lot.

Al Kaschalk, Wedbush Morgan.

Could you just clarify -- so the customers for Teris are clearly different than the customers you have, and that would allow you to perhaps cross-sell from the services?

I believe so, Al. For example, they don't have their own landfill. They have to ship all of their ash off-site, and so we tend not to see them competing in the marketplace for a large projects, large soil or contaminated soil projects. And so maybe we can certainly help their customer base in some of those areas. Other bulk solid type materials that they currently might not have the capability, both from a transportation standpoint or a disposable standpoint. But they're a strong business, particularly in the east. They have a nice presence out here. Like I've mentioned earlier, they have a strong employee workforce that we're excited to work with. So I think it's a real complement to us.

And is that -- what type of industry is the customer base? Is it petrochem, chem, pharma?

It's probably too soon for us to probably get into it, but you know due to the confidentiality of completing this deal, we won't be able to see any of that kind of information until the deal actually closed. We have engaged a consulting firm once again to help us so that we can migrate data through this clean team approach so that we can get our systems intertwined with their operations quickly. But I don't think we will be able to give you any specific real customer information until we actually close.

On the working capital, you said it was 10 million. Is that primarily cash, or what's the 10 million, you know, the composition of that?

Accounts receivable, less payables in essence.

Would there be any liabilities you are acquiring or part of that?

There will. There will be environmental liabilities. They have been working over a number of years in remediating the site. They have their facilities; we've done a lot of due diligence here. They have really a manageable program there with a lot of studies. It's less than $10 million, and those liabilities extend out well beyond 2020. So we feel very comfortable on the environmental side.

And just to clarify, you gave utilization of 88.5, including the expansion. What was it after the expansion?

I can probably get that for you. (inaudible). It would have been 92.7% in the first quarter, and that would compare to last year at about -- almost 86%, last year's first quarter.

And we did have several outages in the first quarter which were planned. We have a very strong fourth quarter, and so that utilization is impacted by those outages.

Were there any streams that are ramping up in terms of a contract that would, ex-the weather factor for a moment, that would indicate some type of different utilization rates for the balance of '06? In other words, is you forward calendar here in terms of visibility pretty comfortable? Because when you look at your guidance adjusted for Katrina, it looks like it's around 6%, yet even though Site Services seems to be creeping up in terms of what you're trying to do there?

We have good visibility, Al, our forecasting process. We have a weekly forecasting call that we go through with all of our management and basically look out over the next several months. So the visibility is pretty good.

But it would be heavier towards Site Service growth than Tech Services (MULTIPLE SPEAKERS)?

I think as we progress later in the year, we will see more Site Service growth because we're in the process of opening offices. So toward the end of the year, I think we will start seeing that be growing at a faster pace perhaps than Tech Service.

And then on the P&L, the SG&A you had some incremental cost there. It is that (indiscernible) is it Site Services, is it the acquisition? What is the part that perhaps is not recurring relative to the out quarters?

In SG&A?

Yes.

We had increased accruals for incentive compensation. Also, if you are comparing it to last year, that environmental impact has an impact on SG&A. And also, the 600 -- almost 600,000 of stock-based compensation expense. But I would look at our rate if you're looking at SG&A overall as a percentage of sales if you ex-out the environmental and everything, you're probably somewhere around 16% of sales.

And that's consistent with what we see for the balance of this year?

I would say roughly. It's our objective and as part of our cost reduction plan to also hold the line on fixed costs and SG&A and try to bring that percentage down somewhat. But I would say roughly, that's about where we would be.

Okay. And then one two-part question I guess. So there was 1.2 million in the change in estimates in the P&L?

Yes.

And none in cost of goods sold or SG&A?

About 1 million is in SG&A, and about 200,000 is in cost of revenues.

Okay. And then on the balance sheet, the only real thing that stuck out in my view was, I think it was on the liabilities side, I think there was a change of about 10 million, 11 million.

On accounts payable?

Let me see if I can grab it, I apologize.

Accounts payable has come down about 10 million, and what you're seeing -- since the beginning of the year.

My question is actually on other accrued expenses from the beginning of year, it was about 50 million and now it's at 39. What is the --?

We had our sales incentive plans and management incentive compensation payments obviously are made after year-end, made in March, so there is a component of that. And there were also the accrual for the audit, the completion of the audit, and other miscellaneous items that add up to the difference. And also actually, a big component there was our interest accrual, and that was roughly, Steve, what, about -- 8 million, actually.

Great, thank you.

(Operator Instructions). John Reilly, [Ack] Asset Partners.

I haven't heard you mention anything about any captive incinerators that may be potentially shutting down. Could you give us an update on where we are with that, and how you see the landscape there?

We have -- we continue to be discussing with customers around this issue and recognize that there are -- continues to be a number of customers pursuing shutdown. But we have not announced anything this quarter as we did in the third quarter. But certainly, there is a continuing focus on that by a number of our clients.

Right. And then also obviously, this looks like a great acquisition at a great price. Could you tell us about what else you're seeing out there in the acquisition opportunities for contiguous properties -- landfills and incineration?

I think we've seen an awful lot of opportunities coming into the Company, people contacting us both on the Site Services side, as well as on the Tech Services side. And as we've publicly said, we really want to try to get our business to $1 billion and we're going to do that growing it organically and through some selective acquisitions. And I think the Teris acquisition is a great fit for us, both from a personnel and infrastructure standpoint. And we hope to continue to pursue those kinds of deals moving forward as well.

And when I look at your guidance for Q1, you handily exceeded the guidance that you gave on March 7 for the first quarter. Is it fair to say we have enough conservativism in the second quarter also?

I couldn't say that. We tend to be a conservative group. But as far as evaluating that guidance, I would say that's what we feel we could do, in that range.

That's great. Thank you very much.

Rich Wesolowski, Sidoti.

Just following up on a couple of specifics related to the acquisition. What sort of transportation network do they have, and what sort of integration will you have to accomplish the next couple of months, next couple of quarters?

Again, from my understanding, they really do not operate a fleet of transport vehicles, and so all of or a good part of their transportation is subcontracted or provided by their clients. So we think we could help them in this area.

They also had said that they -- on their site has a nationwide field services group. Is this going to affect the Site Services as well?

Their field services is somewhat different than what we would call our field services. It would be much more focused on our Tech Service side where they have an EnPack Group which is their Lab Pack Group. And that is certainly a very significant strength of their organization, one that really complements our Tech Service business. I think the opportunity would be to cross-sell their customers with our Site Services capabilities, and we hope to be able to achieve that over the next coming years.

Okay. And finally, how much of the emergency response work -- you said it was lower -- but how much of that is baked into the Q2 revenue?

It's minor.

It's less than $1 million.

Yes, that's right.

Thanks.

Pretty small number, yep.

Thank you.

Al Kaschalk, Wedbush Morgan.

Alan, just a follow-up on the three locations that you're working on in '06. Is there any update into the change and outlook for those, in terms of getting profitability, or at least as towards the breakeven from an EBITDA standpoint?

We still have three landfills that we have touched on in the past that are negative EBITDA, and one of those landfills we are constructing new capacity at and have expectation in the second half of this year we're going to see some -- a good turnaround there. Another one of our landfills we hope to receive our expansion for our permit in the June time frame. That should not require any significant capital, more of just a permit requirement. So we feel like we're on track there. And quite frankly, our third site is still going to be one that is going to lag for us this year. We have not been able to resolve that profitability issue yet at that site. But two out of the three I feel very strongly that the second half this year, we will see some improvements at.

Thank you very much.

Vito Menza, Sandler Capital.

Hey, guys, congrats on a great quarter. Quick question -- free cash flow for the quarter, where were you guys at?

Our free cash flow in excess -- I think it was about 25 million -- I'm sorry, on an annualized rate, I'm sorry. Our cash flow from operations, what you will see when we file our Q, will be right at about 5 million.

Also, could you guys just highlight with Teris, what share of the North American commercial hazardous waste market is that going to give you, on a percentage basis?

We have not calculated that as a percentage basis. They are much stronger on the container side of the business than certainly we are. They are handling about 30,000 drums a month. We have not calculated that.

Just refresh me -- there's 11 commercial hazardous waste incinerators in North America, and this will bring you guys to -- is it seven now out of the 11?

Yes. Six -- I'm sorry, six.

6 out of the 11, I'm sorry, 6 out of the 11. Great, thanks, guys, congratulations.

Mark Grzymski, Needham & Company.

Hi, guys, just a follow-up on the tons, the containerized tons from Teris. Alan, said it's how many per month?

About 30,000 is our understanding.

Okay, 30,000 tons.

No -- containers -- 30,000 containers, not tons.

Okay. And getting back to pricing, could you talk about the difference -- was it mostly volume-driven in the first quarter, or was -- just trying to pin down the pricing, or was there any price increases that benefited you?

I don't think I would probably highlight prices as a key driver in our top-line revenue growth.

Okay, thank you.

At this time, we have reached the end of the Q&A session. I will now turn the conference back over to Mr. Alan McKim for any closing or additional remarks.

Thank you very much for participating on our call this morning and we look forward to updating you all on our second quarter and our next conference in the second quarter. Thanks again.

That concludes our conference . Call thank you for joining us. You may now disconnect.