Clean Harbors Inc (CLH) 2006 Q4 法說會逐字稿

Good day, everyone and welcome to Clean Harbors' fourth-quarter and full-year 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 turn 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 Executive Vice President and 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 fourth-quarter and full-year 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, March 14, 2007. 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, 2006, which will be filed with the SEC on March 16.

The Company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in our fourth-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 EBITDA. EBITDA is the acronym for 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' fourth-quarter news release. A copy of this release can be found on our website, CleanHarbors.com. A copy has also been furnished as an 8-K with the Securities and Exchange Commission. And now I would like to turn the call over to Alan McKim for our quarterly review. Alan?

Thanks, Bill and good morning, everyone. 2006 was a record year for Clean Harbors both financially and operationally. As we highlighted in today's news release, we added substantial incineration capacity with the acquisition of Teris. We constructed several secure landfills, upgraded numerous facilities and expanded our transportation fleet and exceeded our health and safety and compliance goals. As a result, we posted the strongest organic growth in our history.

The acquisition of Teris was a key milestone for us this past year. Acquiring Teris has broadened our service offerings and improved our ability to service our customers. We have a great expectation for Teris and expect to see continued improvement as a result of capital investments and operational changes we are making.

Although Teris is still ramping up, performance in December was its best month last year. I am pleased to report that Teris was accretive to our business in this quarter, while contributing approximately $27 million of revenue for the year. However, as you know, we allocated significant Company resources and management time to both close the deal and integrate the business, which ultimately reduced our margins. We still have several initiatives underway so that Teris is performing in line with the rest of our facilities, but the integration process remains on track and we are confident that Teris will make a more substantial bottom-line contribution in 2007 and beyond.

With that said, overall, 2006 was a year of solid profitability improvement for Clean Harbors. We continue to closely manage our operating costs and environmental liabilities, while improving our operating efficiencies. As a result, annual EBITDA grew by 33% and our net income for 2006 grew by 83%.

Now let's turn to the fourth-quarter results. We exceeded our revenue and EBITDA guidance for the quarter generating sales growth of nearly 20% and quarterly EBITDA growth of 31% and posted earnings of $0.56 per diluted share.

Our Technical Services business segment performed extremely well in the quarter benefiting from solid demand and good weather across the country. While pricing remained competitive in the landfills, our U.S. landfill locations turned in a healthy year-over-year growth rate of 27% and our Canadian locations rebounded from the modest declines that we saw in Q3 with revenue growth of 33%. We have a healthy pipeline of opportunities for our landfills and we're continuing to strengthen our logistics capabilities to be more competitive in winning landfill business.

Our incinerator utilization was a strong 91% in the fourth quarter. This compares with 95% in Q4 of '05, but just as a reminder, we expanded our available capacity by an additional 20,000 tons this year due to investments that we made in our incinerators, particularly in Deer Park.

Moreover, we added approximately 30,000 drums of containerized waste capacity per month from our El Dorado, Arkansas incineration facility that we acquired with the Teris deal. Teris will add approximately 75,000 tons of capacity to our Company in 2007.

While we had no major emergency response events in Q4, Site Services contributed about $7 million in revenue from a steady stream of small-scale projects, growing 9% from Q4 of '05. Site Service margins were down, however, from a year ago principally as a result of more than $17 million of higher-margin revenue related to the clean-up in the Gulf Coast region during the fourth quarter of 2005.

We opened a new Site Service office in southern Florida during Q4 bringing our tally of new offices opened this past year to six. Opening new offices is central to our growth strategy for Site Services because it expands our geographic footprint beyond our traditional stronghold in the Northeast corridor. We currently plan to further broaden our presence across North America in 2007 by opening another five to six Site Services offices.

On the expense side of the equation, we continue to closely manage our operating costs, but we did face some challenges this quarter that squeezed our profitability. Materials and supplies expense rose from 6% of revenues in Q4 of '05 to 7.7% of revenues in Q4 of '06 primarily as a result of increased prices for goods and services we purchased. For the full year, material and supply expense was up nearly 33% to 7% of revenues from 6.1% in 2005.

We also saw an increase in outside transportation expense. Although we have been able to pass on fuel surcharges to a significant amount of our customers, the cost of hiring outside contractors for transportation services had a noticeable impact on our fourth-quarter and full-year results. Outside transportation expense for Q4 was $17 million or 7.5% of our revenues. This is up from 6% of revenues for Q4 of '05.

For the full year, outside transportation expense was 6.9% of revenues versus 6.1% in 2005. Teris did not operate its own fleet of vehicles, so part of this increase is attributable to the acquisition. Other factors related to our higher spending include the strong revenue growth we saw last year from our projects business and the overall increase in our waste volumes.

Our long-term goal is to continue to reduce our annual outside transportation expense to approximately 5% of revenue. We are working to expand our internal transportation fleet, adding equipment, hiring more drivers. We did add 64 additional drivers last year, so we are going to continue to pursue this objective in the year ahead.

I mentioned earlier that we have been successful in improving our operating efficiencies. SG&A expense was up nearly $3 million this quarter on a dollar basis, but down as a percentage of sales to 14.1% from 16.1% in Q4 of '05. For the full year, SG&A increased by $16.7 million. The biggest factors being a $6.5 million increase in employee performance-based incentive compensation and a $3.3 million non-cash stock-based compensation earned as a result really of the Company's superior performance this year. Despite the increases, SG&A was essentially flat with 2005 at 15.1% of revenues.

In summary, it was a great Q4 for the Company and exceptional year overall. We are proud of the growth we have achieved here organically and we took an important step forward in driving to building Clean Harbors into a $1 billion organization.

Looking forward, we see good opportunities for growth and improved performance in the quarters. I am now going to turn the call over to Jim Rutledge so that he can walk you through the financials in more detail and provide our guidance for the first quarter and fiscal year '07.

Thank you, Alan and good morning, everyone. Looking first at Q4, as Alan mentioned, Clean Harbors posted a new record, generating $231.8 million in revenue. This is an increase of nearly 20% from $193.7 million in the year-ago quarter. Gross profit for the quarter was $65.9 million translating into a gross margin percentage of 28.4%. This gross margin level was relatively flat year-over-year on a percentage basis from $55.1 million in the year-ago quarter.

Selling, general and administrative expenses were $34.5 million or 15% of revenue in Q4 2006. On an absolute basis, this is an increase of 10.8% from $31.2 million in the year-ago quarter mainly due to a favorable change in environmental estimates of $2.3 million in the fourth quarter of 2005 and the recording of stock-based compensation in this year's figures of approximately $900,000. However, as a percentage of sales, SG&A was 120 basis points lower this quarter from 16.1% in the fourth quarter of 2005.

Interest accretion was $2.6 million in the quarter; relatively flat from the $2.5 million in Q4 2005. Depreciation and amortization expense was $9 million in Q4 of 2006. This compares with $7.1 million in Q4 of 2005. The higher depreciation expense was primarily the result of the Teris acquisition.

Q4 '06 operating income was $19.8 million, nearly 40% higher than the $14.3 million of operating income generated in the year-ago quarter. EBITDA for Q4 '06 was approximately $31.4 million or 13.5% of revenue. This compares with $23.9 million or 12.3% of revenue in Q4 of 2005.

Interest expense in Q4 was $3.1 million, down from $5 million in the comparable quarter of '05. Our tax expense for the quarter was $4.8 million reflecting an effective tax rate of 29%. For full year 2007, we believe our tax rate will be in the 39% range, excluding any potential impact of implementing FIN 48 in the first quarter. This is a good segue for me to give you an update about our implementation of FIN 48.

As you probably know, the FASB issued its interpretation number 48 entitled Accounting for Uncertainty in Income Taxes. FIN 48 clarifies how to account for tax positions taken or expected to be taken in companies' tax returns and how to recognize them in financial statements. This required new standard becomes effective in the first quarter of 2007. Management estimates to date that a cumulative effect adjustment to retained earnings, which will be a reduction to shareholders' equity of approximately $40 million, will be recorded in the first quarter to increase our reserve for uncertain tax positions, including appropriate interest.

This outcome of the uncertain tax positions is not considered probable and as prescribed by financial accounting standard number 5 or FAS 5, which is related to accounting for contingencies, the contingencies were not accrued. However, under the strict, more likely than not criteria of FIN 48, an adjustment to accrue the full amount of any uncertainties is required. The Company believes its tax positions on these matters could result in a much more favorable outcome.

I will also point out that this estimate of course is subject to the completion of management's analysis as it implements the new standard in Q1.

Now turning back to our financial results, net income for the fourth quarter of 2006 was another Company record at $11.4 million or $0.56 per diluted share based on 20.6 million average common shares outstanding plus potentially dilutive common shares. This is up from the year-ago quarter's net income of $7.9 million or $0.43 per diluted share, which was based on 18.6 million average common shares outstanding during the fourth quarter of 2005.

Looking briefly at our full-year numbers, revenue in 2006 increased 16.7% to $830 million from $711 million in 2005. As Alan noted, this growth was mostly organic within Clean Harbors. Teris only accounted for approximately $27 million or 3% of total revenue for the year. Operating income for the year was $74.4 million or 9% of revenue. This is up from $51.3 million or 7% of revenue in 2005.

Looking at our earnings performance for 2006 really showcases the leverage within our extensive network of assets. EBITDA for 2006 was nearly $120 million, up 33% from $90.3 million for the full year 2005 and net income for the full year 2006 was $46.4 million or $2.26 per diluted share. This translates to an impressive growth rate of 83% over net income of $25.3 million or $1.45 per share for 2005.

Looking at the balance sheet, our cash position remained strong in the quarter despite the $6 million paid to redeem a portion of our outstanding 11.25 senior secured notes. As of December 31, we had $84 million in cash and marketable securities.

Total accounts receivable stood at $169.6 million on December 31 and DSO was 71 days for the quarter, including Teris. Capital expenditures approximated $10.4 million for Q4. For the full year 2006, Clean Harbors invested $40.7 million in CapEx. This compares with $19 million a year ago.

In 2007, we would expect CapEx to be approximately $40 million again as we continue to upgrade our facilities and invest in several projects in our landfills and transportation areas and continue to improve our safety and service reliability.

Accounts payable balances increased during the year to $81.4 million, while deferred revenue also increased to $29.4 million as of December 31, 2006 primarily due to the acquisition.

Another key highlight for us in 2006 can be seen in environmental liabilities. At year-end, our balance of environmental liabilities stood at $173.4 million compared with $170.7 million at year-end 2005. Excluding Teris, environmental liabilities decreased nearly $7 million during 2006. Environmental spending approximated $7.6 million in 2006 and we have been doing some extraordinary work at our sites to reduce our exposure in this area and that will continue to be a focus for us in 2007.

Moving onto our guidance, we expect Q1 will follow its seasonal pattern and be a slower period for us compared with Q4. We expect first-quarter revenue in the range of $200 million to $205 million, which represents an 8% to 11% growth rate year-over-year. This growth rate is noteworthy when you consider that last year's first quarter included $13 million of higher-margin post-hurricane event business.

We expect EBITDA in the range of $22 million to $25 million. For the full year 2007, we expect revenue growth of 8% to 9% and EBITDA growth in the range of 12% to 13%. And with that, operator, would you open the call for questions, please?

(OPERATOR INSTRUCTIONS). Arnie Ursaner, CJS Securities.

The first question I have is in looking at your revenue guidance for the upcoming year, I am trying to get a balance between the price increases you mentioned that went in on March 15 and sort of organic volume growth that you expect. The 8% to 9% revenue growth given those two dynamics seems pretty conservative. Could you comment on that, please?

We think we are conservative. We just implemented our price increase and the full effect of that across our entire business certainly will take a little bit of time and considering that we did start out slower in the first quarter here, we think it is a pretty conservative number for us.

What is the price increase you did put in place?

It was 3.6% on average.

And my second question relates to the margin you had, the gross margin. You gave a couple of reasons -- more outside transport, higher materials and supply costs. But I would like to try to get a little better feel for your view of gross margin in the upcoming year and where you think that may settle out.

I think that looking at this past year with that 28% to 29% gross margin, we are looking to drive that up a little bit. Certainly it doesn't come through in the first quarter because it is a slower quarter for us, but we think we are going to be pushing into that 30% range.

Clearly the first quarter, we have had some shutdowns because of the high volume that we had in the fourth quarter. Six of the nine of our incinerators were shut down for turnarounds in the first quarter, so you don't really see it coming through then, but I think that pretty much gets to your question.

You had some deferred revenue and hazardous incineration waste that should've been processed in Q4 and that tends to be a much higher-margin business. Did that in fact occur?

Well, we certainly have a lot of deferred. Deferred is at $29 million in the end of the year and I think a more normalized rate would probably be closer to 25 or even less, but, as Jim mentioned, we took six of the nine incinerators that we own down for shutdown in the first quarter.

We are extremely busy as you can tell by the revenues at the end of last year and continue to be extremely busy in our incineration, but we just had to take the plants down for routine maintenance and we will have a major upgrade at our Teris incinerator in the second quarter. We are investing $4 million of capital into that plant to basically remove a key bottleneck that that facility had. We are basically replacing the air pollution control system there that was a problem with that plant when we acquired it. So you will see one more shutdown, a two-week shutdown there.

But overall to Jim's point, the key issues that impacts our first quarter is the slow volumes into our landfill and that is really due to the seasonality of the remediation business, the lack of any major emergency response work and the six of the nine incinerators being down for shutdown.

I'll jump back in queue. I had a few others, but I will go back in queue. Thank you.

Mark Grzymski, RBC Capital Markets.

I am wondering if you can comment a little bit more on the materials and goods that are rising in price for you guys and affecting obviously the gross margin line.

It is one of those areas that we have been focused on throughout the year because we have seen an increase in costs. I think we are seeing sort of a flow-through in increases of fuel costs from some of our suppliers not just directly to our transport suppliers, but we are also seeing it in price pressure on the goods and services that we acquire, both materials and supplies and quite frankly as well as subcontractors.

To offset some of the costs certainly on the subcontracting, we have added a lot of people. We were behind in our adds last year as we went into the September and October busy season for us. We were doing a lot of subcontracting and quite frankly our expenses were much higher than normal and I think a lot of that had to do with their increased costs for fuel and energy. So we are seeing still some of the remnants of that particularly now in materials and supplies.

We have been diligently working on consolidating our supplier base out there to try to leverage our buying power in a number of key areas, as well as looking at alternatives to some of the things that we buy particularly to operate our landfills and incinerators like stabilization materials and carbon and things like that that tend to be very expensive for us.

So I would tell you that the senior management team is very focused on some key areas of spend that we are seeing these increases coming through as a result of the higher energy costs out there in the marketplace.

Thank you for the color there. Next, if you are looking at your business here and assuming that a portion of it is tied to certain cyclical markets and obviously some of them are strong and some may show some signs of weakness coming into '07, I'm wondering if you are seeing any of those traditional markets softening.

When you look at the key verticals that we operate in, we are very strong right now. Our refinery business is extremely strong. Our utility business is doing very well. Our chemical business is doing really well. We always see a slowdown in the first quarter with some of our government business. Particularly our household hazardous waste business for the most part stops in the first quarter simply because all the communities for the most part don't do anything. So our municipal and government service business tends to be real weak in the first quarter, but that will pick right up again here in March and April.

Our pharmaceutical business has been under pressure. We've been seeing that both through the consolidation that has been going on in pharma, but also changes with the laws in Puerto Rico, the tax laws in Puerto Rico. So we are seeing plant shutdowns and pharmaceuticals moving their operations off the island, so that has hurt our business a little bit.

Manufacturing of any part of our vertical approach has been impacted by offshore movement of the manufacturing and so we continue to see some reductions in plant volumes or waste volumes from those manufacturing plants.

Thank you. And Jim, last question, could you just break down the revenue by segment?

Absolutely. In the fourth quarter there, our Technical Service was $156 million, a little bit north of that actually and our Site Service was $75.6 million, so they both had some nice growth rates. The growth rate in Tech Service was about 25% year-over-year and Site Service was about 9% year-over-year.

Thanks, guys. Thanks for taking my questions.

Al Kaschalk, Wedbush Morgan.

Just since everyone has asked the materials question, I might as well follow suit here, but maybe on a little bit more macro side. From the things that you are putting in place, how should we think about incremental margin, whether that its operating or EBITDA margin because based on the Q4 number, it looks like margins maybe weren't where they wanted to be given some of the things you have highlighted? So in terms of '07, maybe even out a little bit longer, how should we think about your targets there?

I would say the EBITDA margin might be the best to focus on there because that would encompass what you asked about in terms of supplies and other costs there and we would say that our incremental EBITDA margin would still be in that 30% range. We were maybe a little less than that in 2006. If you look at the year, probably about 26% plus there if you take out the environmental credits, which I typically do as we have talked before. So I would still say pushing into that 30% area of incremental EBITDA margins. Does that help?

Yes. What is the expected run rate for D&A and if that is changing from where you saw in the Q4 number? How much should we think about in terms of Teris (multiple speakers)?

Q4 is probably representative. I would say that the rate that we would be at for the full year would be approaching $40 million because Teris adds about $6 million. So it is about $1.5 million a quarter.

So we should think about 10 or so per quarter?

Yes, I think that would be reasonable.

And then Alan, in terms of -- we're sitting here on March 14 Q1 in the relative guidance. Can you comment at all on how you feel the quarter is either going? I assume based on the guidance there that it is in line I guess with what you set out?

Yes, March always is a big month for us because we typically make our quarter in this month, so I think we feel pretty confident with our guidance. On a top-line number at least in January, we were right on budget. We haven't closed our February month. We will have that probably tomorrow, but I think at this point, we feel pretty good about our guidance and quite frankly with the incineration capacity coming off-line as much as it has, we will probably see our deferred revenue be consistent or even grow a little bit.

We are extremely backed up on a couple of our plants. We are rerouting material and addressing any service-related issues out there. We saw one captive close in the fourth quarter and two are closing here in the first quarter, so that will total four captives over the past 2.5 years that have closed and so we are trying to be positioned well to be able to take that excess volume and we are in the midst of rerouting some material out of our incineration capacity to free up some higher-margin volume through those plants. So we are pretty excited about the future here and how we are positioned. It is just, once again in the first quarter, you have slower volumes in your landfills and this year, we did not see the big ERs like we had last year, which was about 13 million, Jim, I think.

That's correct.

And then on the Teris acquisition here and the integration, I know you feel that that's going well. Although it probably impacted the numbers. Should we look to that as really driving in '07? Is there something there relative to your expectations and getting in there and the coverage there that there was something that maybe wasn't as accurate or there was a fundamental problem with the business in terms of your acquisition of it?

Well when we acquired it, it was pretty much a breakeven EBITDA business as we have mentioned in the past and so we have got a great team down there. The people that are running the plant are doing a great job. There is some fundamental issues with the plant itself. There was well over a $30 million investment made in that plant prior to our acquiring it and part of that investment really was the wrong technology and so we are replacing some of that. That has been under construction and we expect to make that upgrade in April/May timeframe and so we think that is the real key thing to help reduce the bottleneck.

So we are optimistic that we can get that plant up this year to 75,000 tons and really take a look at going into '08 with higher volumes through the facility, but also operating margins consistent with our other incinerators where today it is probably about five percentages points below what are other incinerators are operating at.

That's right, conservatively.

Just to follow, the bottleneck, can you refresh our memory what the bottleneck issue is there?

It is basically a baghouse issue. They have had a number of issues with the construction and the design of the baghouse, so part of our $4 million capital investment there is to replace that whole baghouse and do that in a way where we have minimal downtime and so the team is working really hard on planning and doing the design work and we are expecting delivery of that so that we can deal with that mechanical issue.

And then finally with AR up relatively I guess in line with sort of the receivables or sales, excuse me, how did collections or how has collections shown in Q1?

Actually we are operating at a DSO level of 71 and Teris is a bit higher than that, so we have probably decreased our DSO by nearly a day in the rest of the business, so we see that trend continuing at about that rate into the first quarter.

And longer term, is 70 or 65 to 70 the right --?

I think that is exactly the right spot now.

Thanks, guys. Good quarter.

(OPERATOR INSTRUCTIONS). Rich Wesolowski, Sidoti & Co.

Pretty close. Are you guys still targeting $15 million in incremental cost savings from headcount, transportation rerouting, etc. from Teris?

We are and we have made a substantial bite into that number. There is still more costs that are coming out not only of that part of the business, but really the total business. We have a number of cost reduction initiatives underway and we will continue to report on those as we progress.

Was the baghouse investment -- was that originally scheduled to go forth in the second quarter or was that originally earlier?

It is a long lead item from a construction standpoint, so unfortunately that is one of the bottlenecks that was out of our control so to speak to resolve in a short term. So we are pretty much on target with that.

Okay. To what degree maybe even qualitatively is that holding back the capacity of the facility?

It's probably not a huge amount, but I think it is just when we want to try to get that operation up to a consistent volume of drums, whether it is 30,000 or 35,000 drums a month, I don't know the exact number on the call, but I do know that it is constraining our through-put through the plant and with that investment, we will see an improvement in our through-put and we will then be able to redirect more material to that facility that otherwise we can't send there today.

Can you comment on the strength of the bidding opportunities in the landfill business maybe in comparison to two or three quarters ago?

I pretty much look at anything over $1 million and I have been looking at a lot of business out there both in Canada, in a number of provinces in Canada and in the U.S. and we have been winning our fair share of some of that business. The first quarter is always typically the slowest because of -- basically remediation work in the colder parts of the country certainly slows down. People just don't go out and dig in this weather. But we have some nice business lined up. Our facilities projects business is a little behind budget for this year, but they had a wonderful year last year. They blew out their budget and we expect them to come on strong here in the second, third and fourth quarter.

You mentioned that the pricing on the landfill is competitive. Has it improved at all in the last couple of quarters?

I would say not. I think it is still quite competitive. We need to really be very, very efficient transportation-wise to reach out to greater distances when some of our landfills might not be positioned in a good spot to go after some of these large projects. So we are really working on making our rail more efficient and our transportation overall more efficient, but because it is a tight pricing market.

Okay. Finally, the price increases you cite in the press release across various service lines, is this the culmination of a couple of years of market strength or is this rather the beginning of a longer string of mid-single digit price increases?

Well, I think, as we mentioned, we are seeing costs increase in our business, inflationary costs, both wages, healthcare and other costs. We have been successful at passing along our energy and fuel surcharges to a substantial number of our accounts, but quite frankly it got to a point where we were not just looking at one segment, but saying that we need to raise our gate rates for our labor and equipment materials and supplies because we're not keeping up with the increased costs that we are seeing in our business. So we're going to closely monitor that and work with our customers so that they are fully informed as we continue to look at our margins and the costs that we are incurring.

Okay. But it does appear that if the costs that you face continue to increase, you have the pricing leverage to continue to make that up?

I think we have to and I think we do.

Great. Thank you.

David Goldsmith, Baron Capital.

This is actually Cliff Greenberg. Alan, you mentioned that there were a couple of incinerators. One closed in the fourth quarter and two that closed or are closing -- captives that closed in this quarter. How much total capacity is that and are we geographically positioned or business positioned to win some of that business on an incremental basis?

Actually the site that closed in the fourth quarter, we will probably get very little out of that. They went out for bid. It was very close to two of our other competitors and they were successful in winning that business and that was really forecasted from our standpoint. There may be some small quantities of business we will get, but we are seeing some gains from a couple of the other sites that are closing, particularly in the Gulf and I think overall you are looking at about 50,000 tons from those three plants that is going to be outsourced.

Now some of that volume may end up in an alternative technology like a cement kiln or industrial furnace, but for the most part, these kilns that we saw close down were burning your classic [rec] or hazardous material that needs to be incinerated. So I think the good news is that the overall capacity in the market is good and based on the trends that we are seeing with our competitors, they are strong and I think that bodes well for us as an industry.

And what are the particular prospects for additional closures of some of the captives? Is there talk or discussion of more near term and does the fact that three just closed ode towards over time many more to come?

We are kind of at that number that we had expected when we looked out -- when we look back to 2.5, 3 years ago, but we still are being asked by customers who are operating plants for us to take a hard look at our pricing or maybe at our ability to handle their business more efficiently.

We have to believe that over a period of time that you will see more reductions because of natural gas costs, environmental regulatory costs and quite frankly their business is changing where their utilization ultimately gets impacted simply because they're not generating as much waste to warrant having their own captive plant anymore. So I would like to think so, but I wouldn't forecast anything right now. I think we are pretty much where we thought we were going to be.

Alan Mitrani, Sylvan Lake Asset Management.

How much did Teris do in revenues in all of '06 regardless of what -- you said it was $27 million for you, but how much was it for all of '06?

I will have to estimate that. I think probably around $85 million, something around there.

And how much do you think -- I realize it's hard to do, but how much do you think it will generate in '07?

Roughly about the same I would say in its first year, first full year with us.

So basically you're looking then if I pull out, call it, the $60 million or so of revenues that you didn't have last year of it, you're looking for closer to, call it, 835 to about 840, 840 plus, for this coming year ex Teris, ex the additional Teris that you didn't have in this past year. Is that right?

That's right.

And the pricing -- what kind of pushback have you seen on pricing now that you've put it in -- you started putting it in a few weeks ago from your customers?

I think it is all over the board as you would expect. In some cases, the pushback from our customers is pretty significant, but some of the alternatives we are offering our customers is looking at the recovery fee or reducing restrictions. For example, now that we've got such a larger network of plants, we are still restricted in using the full capabilities that we have with some of our key customers. So we will simply get a price increase or a cost reduction if we are able to route materials in the most efficient Clean Harbors' location. So we are seeing it sort of the full gamut out there on a pushback, but we are also seeing customers who are very understanding of what is going on in the marketplace from a cost standpoint and we think a 3.6% increase is pretty modest. Most people think it is pretty fair.

Arnie Ursaner, CJS Securities.

A couple of follow-up or bookkeeping questions. Your Niagara, Ontario plant -- can you give us a real quick update on what is happening there, please?

The Niagara facility -- as you know, we had a fire at that plant a couple of weeks ago. The team did a wonderful job in dealing with that issue. Nobody was hurt as part of the fire. We have redirected the materials that were going to that facility to our other operations. That plant should be coming back online here shortly and we are in the midst of taking care of the remaining cleanup of that site. But we are pretty -- we are very fortunate obviously.

There was a -- from what we can tell at this point, it was lithium battery waste that we had the problem with at that site and so we have implemented quite a bit of changes in our packing guidelines for our customers in shipping and delivering lithium material, which is a water reactive material to us. But financially, that site was about $6 million in revenues, modest EBITDA and we will not lose that. That revenue base is not a material issue for us.

What do you think the EBITDA impact in Q1 might be?

I think there will be minimal EBITDA impact. We of course have insurance. We have property insurance, third-party liability and business interruption, but as you know, there are deductibles in those insurances, so there could be some effect there, but we just don't have any estimate at this point of what those numbers might be. So there might be some impact, but we are not thinking it is material.

The warehouse was like a 50 foot by 60 foot-type warehouse. It was not a significantly large building, but it was still a key part of our operation up there. So we need to rebuild and get the plant squared away.

The next follow-up if I could is you mentioned a change, a little bit of a change in strategy regarding Latin or the Caribbean where you bought the 50% ownership in Teris' JV that you didn't have and are setting up a sub. Question one is what did you pay to buy the other 50% and could you elaborate a little bit more on what your strategy may be in '07 and '08?

We spent roughly $2 million to $3 million for the rest of the share there and it brings up our revenues down there in not only Puerto Rico, but in the Caribbean. It's not real significant, but you are talking probably in the $5 million plus range, may be $5 million to $7 million range. As Alan pointed out though with some businesses moving offshore due to tax incentives running out there, it is still a little questionable as to what kind of margin we will get down there, but it is something that we are focused on.

Also it allows us to expand -- we have been on the island since '92, so we have had a long-term relationship, but it has been predominately doing waste disposal and now with this acquisition, the team down there is expanding into doing more lab pack services and field services and we have some pretty nice business lined up with some of the refineries down there today and we hope to expand that into some of the islands down there where we have been hauling waste materials off of and bringing it back to the states. There is no disposal capabilities in Puerto Rico and so we offer logistically I think a real nice solution to a lot of our customers down there who generate a lot of material on the island.

Give us an update on your three underperforming or problematic landfills, freshen that up for us if you would, please.

Those probably cost us close to $2 million in EBITDA last year. We are now in business in Denver and open for business there. We have been bringing material into that site and we are optimistic in its opportunities this year. We have won some nice contracts and expect that business to be a nice turnaround story for us at our Deer Trail site.

We have received our draft permit in Texas for an expansion of our site there as well and finally our third landfill, we hope to soon be the beneficiary of a new contract that will help us turn that one particular site around. So I think the things that we set out to do, although we are probably six months behind, I think we have made some real nice progress on.

My final question -- you mentioned you are shutting six of your ninth incineration facilities in Q1. What do you believe or estimate the EBITDA impact of that shutdown would be in the quarter?

Hard to say precisely, but I would estimate it is probably in margin a point or two it probably costs us if you look at it grand total, maybe one to two points of EBITDA.

Of consolidated EBITDA margin?

Of the total facilities' EBITDA, I would say yes.

And they are not all down obviously at once, but we have had to take them down both in Canada and the U.S. and we just had a great year last year. The team that runs the incinerators -- [Don Matter] and Eric Gerstenberg have done a fabulous job last year not only integrating Teris, but all the incinerators did a super job, but we just had to go to maintenance with some of those.

Final question -- I know you have been buying back or would like to retire some of the expensive debt you have out when you can buy it in the open market, but your stock is also reacting to perceptions of disappointment today. Can you remind us if you have a share repurchase authorization and if so, how you evaluate that versus debt repurchase?

We do not have a specific authorization open at this point, but it is something that of course the Board considers from time to time and just don't have anything at this point.

Mark Grzymski, RBC Capital Markets.

You talked about the environmental liabilities and excluding Teris, you reduced them this year. I am wondering -- in 2007 there are some larger liabilities within that. Are there any plans to get rid of any of those or could you elaborate more?

Absolutely, Mark. Just to say that there are several categories within those environmental liabilities as you know and there are some big opportunities there that we are working on where we feel that we can make reductions in costs and other actions like for example sales of certain properties, etc. These are things that we are working on, but nothing that is at that point where we would be including them in our estimates.

What is the potential though for those kind of major reductions if you had to quantify it and I know the probability is --?

We had said that looking at the 170 that is on our books that you are probably looking at more like $120 million now of a realistic number on a go-forward basis once we resolve some of the larger sites that we have on our books and we are working on all of those. We just don't have anything that is estimable and probable at this point to disclose.

Great. And Jim, just to follow up on the -- what was the operating cash flow number for the year?

Cash flow from operations turned out to be -- let me just make sure I give you a correct number here. We were at, for the year, at $59 million and looking at our free cash flow for the 12 months of 2006, we are estimating that was about $44 million.

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

Thank you and thanks for participating on our call today. We look forward to updating you on our progress on our next conference call. Thank you.

This concludes today's conference. We appreciate your participation.