Clean Harbors Inc (CLH) 2007 Q1 法說會逐字稿

Good day, everyone, and welcome to Clean Harbors' first quarter 2007 conference call. Today's call is being recorded. There will be an opportunity for questions and comments after the prepared remarks. At this time, for opening remarks and introduction, I would turn the call over to Mr. Bill Geary, Executive Vice President and General Counsel for Clean Harbors.

Thank you, operator. 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 the matters we are discussing this morning and the information contained in the press release issued by the Company today announcing our first-quarter 2007 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 9, 2007.

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, 2006, which was filed with the SEC on March 16, and the 10-Q for this quarter, which will be filed tomorrow, May 10. The Company undertakes no obligation to revise or publicly released 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, E-B-I-T-D-A, 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 Web site, CleanHarbors.com. A copy has also been furnished as an 8-K to the Securities and Exchange Commission.

Now, I would like to turn the call over to Alan McKim for our quarterly review.

Thanks, Bill. Good morning, everyone. Clean Harbors delivered another consecutive quarter of solid revenue growth, with revenues once again to the $200 million mark, posting the highest Q1 revenues in our history. Revenues increased 11% year-over-year to $205 million, driven by strong growth across our Site Service segment and a steady performance in Technical Services, which included another full quarter of contributions from our Teris acquisition.

Our record top line is a testament to our people, who did a great job this quarter, as Q1 is a time of year when weather conditions can make the challenging work we do even more difficult in Canada and in parts of the U.S. As a result of the seasonal slowdown and the scheduled maintenance shutdown of six of our nine incinerators, overall incineration utilization was 84% in the quarter. Our Canadian incinerators, which experienced extremely poor weather conditions, recorded utilization of approximately 72%, while our U.S. incinerators topped 90%. We are completing a major $5 million upgrade to our incinerator in Arkansas, which we acquired from Teris, and believe we will see improved utilization and results of a new pollution control system and many upgrades that are being made. We expect this two-week shutdown to be completed by May 15.

Volumes in our landfill business was off about 6% from Q1 of last year. I should point out that last year's landfill volume benefited from some of the warmest weather months on record, which helped these facilities turn in the best first-quarter performance since we acquired them in 2002. The good news is that we've already seen a notable pickup in volumes in our landfills since the end of Q1 and we have a solid pipeline of opportunities that bode well for this business as we move through the remainder of the year.

Although we had no major emergency response events in Q1, Site Service continued its steady expansion and delivered a $13 million increase in core revenue, essentially offsetting the $13 million in the Gulf Coast cleanup-related revenue that we booked in the first quarter of last year.

We opened a new Site Service office during the quarter in support of our goal to open five or six Site Service branches this year to further broaden our presence across North America. As a reminder, new office locations are central to our Site Service growth strategy as they reinforce our brand and offer us the opportunity to cross-sell Site Services to our Technical Services customers. This strategy paid off for us in 2006 and we expect to continue our efforts in this area in 2007 and beyond. Additionally, with the acquisition of Ensco Caribe in Puerto Rico we see opportunities to grow our Site Services and remediation business throughout the Caribbean.

From an expense perspective, we have succeeded in driving out significant costs of our operations, but we're still facing outside cost pressures in labor and health care and insurance expenses, as well as increased costs for many goods and services we purchase. In order to help mitigate the rise of these operating expenses, we implemented a 3.6% average price increase for 2007 and this went into effect near the tail-end of Q1. We should see the full effect beginning in Q2.

We also experienced some unforeseen costs related to the Thorold, Ontario facility fire this quarter. As many of you know, a fire erupted at a storage warehouse at a Clean Harbors Canadian TSD facility in Thorold, Ontario on February 19. The assigned team did a wonderful job in managing the event and, most importantly, nobody was hurt in this accident. Thanks in large part to our extensive network and our transportation capabilities, we were able to redirect the materials slated for that facility to our other operations during the event and have not lost much revenue as a result of a shutdown. The facility is now open and receiving waste.

While the fire had minimal effect on revenues, there was a more measurable impact on EBITDA for the quarter. Fortunately, the facility was insured and our insurance is covering property damage and business interruption. So we currently estimate our expenses related to the fire, including insurance deductibles and costs related to the clean-up, to be approximately $350,000. We may at some point be able to recoup some of that $350,000 through insurance, but at this time in accordance with GAAP, we have booked the entire amount.

In the first quarter we also saw higher costs associated professional fees primarily relating to compliance with new accounting pronouncements, specifically FIN 48, and also for tax consulting services. In Q1, we implemented FIN 48, which became effective January 1, and Jim will provide more detail as to how FIN 48 affected our results this quarter.

Q1 '07 EBITDA came in at $22.1 million, which was within our guidance range. The combination of the events I just described with a product mix that was skewed toward lower margin business compared with Q1 last year led to the year-over-year decline in EBITDA. Looking ahead, we are off to a solid start in Q2. We feel optimistic about the remainder of the year. A return to higher incineration utilization and landfill volume should boost revenues, while the price increases that went into effect will help stem rising operating expenses and support our operating profitability in the coming quarters.

We anticipate the cost reductions related to our head count reductions coupled with our focus on reducing costs in the procurement areas and outside transportation will help us achieve our goal of 15% EBITDA margins this year. Our second-quarter guidance of $33 million to $36 million in EBITDA implies an EBITDA margin in excess of 15%. We continue to believe we have more opportunities to improve on our margins by improving the performance of our landfills and our Teris incinerator and by driving revenue across our key verticals.

We are enthusiastic about our ability to grow our top line. We have three growth areas -- organic growth, which includes the continuing expansion of our geographic coverage and growing our current lines of business; second, expanding new lines of business across our network; and finally, continuing our acquisition of complementary businesses.

We continue to see significant flow of good acquisition opportunities and we are pursuing several at this time. Our goal is to grow our top line to over $1 billion in revenues, which should be available achievable based on our IT systems infrastructure and our balance sheet. And I'm very excited about our position in the industry.

I will now turn the call over to Jim Rutledge so he can walk you through the financials in more detail and provide our guidance for the second quarter of 2007.

Thank you, Alan, and good morning, everyone. As Alan mentioned, Clean Harbors turned in another solid financial performance, generating a Q1 revenue record of $205 million. This is an 11% increase from the $184.5 million in the year-ago quarter. Gross profit for the quarter grew to $53.4 million, translating into a gross margin of 26%. This compares with a gross margin of 28.8% in the year-ago quarter when we benefited from higher-margin event work, including the hurricane-related cleanup. First quarter's gross profit percentage was also impacted by the planned turnarounds at many of our facilities and the weather-related reduction in our Canadian incineration utilization, as Alan talked about.

Selling, general, and administrative expenses were $31.4 million, or 15.3% of revenue, in Q1 2007. This is flat on a percentage basis year-over-year, but an increase of $3 million in terms of absolute dollars. The SG&A increase in terms of dollars is primarily due to the additional headcount and expenses of the acquired Teris business, which was obviously not part of last year's figures, and also higher professional fees related to our implementation of the new FIN 48 tax accounting standard.

SG&A in Q1 included a credit for an environmental change in estimate of $1.8 million, which was nearly offset by the cost of the headcount reduction during the quarter. Last year's SG&A in the first quarter included an environmental credit of $1.1 million. Accretion of environmental liabilities was $2.5 million in the quarter, flat from the $2.5 million incurred in Q1 2006. Depreciation and amortization expense of $8.9 million in Q1 of 2007 is up over last year's figure of $7.3 million mainly as a result of the additional depreciation associated with the Teris facilities that we acquired in August last year.

Q1 '07 operating income was $10.7 million, down 29% from the first quarter last year, resulting from the absence of higher-margin event business this year and the facility turnarounds and lower Canadian incineration utilization we've been talking about. We met with -- we met our EBITDA guidance for the quarter, with our Q1 '07 EBITDA coming in at approximately $22.1 million, or 10.8% of revenue. This compares with $24.8 million, or 13.4% of revenue, in Q1 2006. Again, we had a stellar Q1 quarter last year, when landfill volumes were higher, our incinerators ran at a higher capacity, and we benefited from the Gulf Coast cleanup.

Interest expense in Q1 was $3.2 million, approximately the same as the comparable quarter of '06. Our provision for income taxes was $4 million, compared only $695,000 in Q1 of '06. $1.2 million of this amount represents non-cash expenses associated with uncertain tax positions resulting from our adoption of FIN 48, which drove our effective tax rate for Q1 up to 53%. If we strip out the FIN 48 effect, our effective tax rate would have been 37%. For the full year 2007, we project our tax rate will be approximately 44%, including the FIN 48 related tax expense.

Net income available to common shareholders was $3.4 million, or $0.17 per diluted share, based on 20.6 million average common shares outstanding during the first quarter '07. Net income for Q1 '06 was $2.7 million, or $0.14 per diluted share, and included a charge of approximately $8.3 million resulting from the early extinguishment of debt.

Turning to the balance sheet, our balance of cash and marketable securities was approximately $69.1 million at the end of the quarter. This was lower than our cash balance at year-end as a result of four main factors -- the payout of incentive compensation for fiscal 2006; the acquisition of Ensco Caribe in Puerto Rico; our semi-annual interest payment; and an estimated tax payment for 2007. Total accounts receivable stood at $160.8 million on March 31 and DSO was approximately 77 days for the quarter, which was impacted by the seasonal slowdown.

Capital expenditures approximated $5.7 million for Q1. This compares with $10.2 million a year ago. We expect CapEx for 2007 to be approximately $40 million as we continue to upgrade our facilities and invest in several growth projects at our landfills and transportation areas and continue to improve our safety and service reliability. Accounts payable balances declined during the quarter to $69.7 million and deferred revenue was essentially flat at $28.8 million on March 31, 2007.

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 $173.2 million, which is down approximately $200,000 since the beginning of the year. This will remain a key focus for us in 2007. Environmental spending during the first quarter was $1.7 million, compared to $1.6 million in Q1 of 2006.

Looking forward at our guidance, we currently expect revenue in Q2 to be in the range of $225 million to $230 million, which represents a steady 13 to 15% rate of growth year-over-year. We expect EBITDA in the range of $33 million to $36 million, which represents year-over-year growth of 17% to 27%.

For the full year, we're reiterating the guidance that we provided on our year-end call. We expect an annual revenue increase of 8 to 9% and an annual EBITDA growth in the range of 12 to 13% over 2006.

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

(OPERATOR INSTRUCTIONS) Mark Grzymski, RBC Capital Markets.

Wondering if you could talk in more detail about the mix and obviously the seasonal aspect of it hurt you, but if you could just talk about, more specifically about the mix.

Well, I would say that with the lower incineration utilization, as you can see, that certainly impacted our mix. Our revenues for incineration were lower. We have, tend to have higher margin as we incinerate that waste materials, so with the utilization being low, that did impact us.

I think when we also have the emergency response business, we tend to have a much higher margin, which in many times is 40% contribution margin. And when we're looking at our base field service type work, it tends to be in the low 20, mid-20 range. So that is another example of the mix that impacted our business.

But could talk maybe more end-market mix that is -- was there any shift there that was hurting you?

In what way do you mean for end-market?

Well, was it less oil and gas business? Was it more -- less chemical?

I understand. Certainly the seasonality in our business in the first quarter impacts a lot of the work that we do outside. And that tends to impact the remediation side of our business and our landfill business, so a lot of our engineering consulting business slows down. Our projects business, particularly on the government side, slows down.

What we did see in the warmer areas of the country is a very strong refinery business for us, so that was good. Our petrochemical business is continuing to perform. We've also had some nice swings on the retail side which helped our business, but things like our household hazardous waste are pretty much nonexistent in the first quarter and that tends to be a higher margin business for us. So that kicks in basically from April right through the end of the year. So there are some examples of our end-markets.

Okay, then last question before I turn it over to someone else. What was the contribution from Teris in the quarter on a topline?

Mark, it's so folded-in with our other incinerator network, so when waste streams come in, it kind of goes into the total network. It is kind of hard to break out specifically, but I could tell you that it is somewhere in the range of the high teens to $20 million in revenues. Again, it is hard to come up with an exact figure on that.

Okay, great. Thank you for taking my questions.

Al Kaschalk, Wedbush Morgan.

Just to follow up on Mark's question on the mix, you shared with us the end-markets. Were there any particular markets that were lighter than your expectations, or perhaps even better than your expectations?

I think the project side of our business was probably the weakest, what we call our facilities projects, which are some of the large remediation type jobs that we do that drive volume into our landfills. Some of it impacted our incinerators, but our incinerators are pretty much full, as we've mentioned in the past. We're having a very strong demand, but we also had a very strong fourth quarter with our incinerators and we had to take them down.

The Teris incinerator, particularly, had a very strong March going into shutdown and we expect that plant to contribute much better in the third quarter, particularly now that we've got this big investment essentially behind us. But I would say, Al, that the landfill and the remediation business is most impacted by the weather and, basically, that is one of the impacts on our business in the first quarter.

Okay, then just picking out on the comments in the press release, you indicated that you had some favorable wins on large projects and they are certainly plural, at least in the press release. Are you able to share any color on those projects, what that means, whether duration, end-market? I realize there may be limited information you want to disclose, but maybe --?

I think most of these projects that we reference and that we're focusing on are in the 1 to $10 million range and we have been tracking a number of projects, both here in the U.S. and Canada, and that has been a focus of ours now for the last couple of years. It paid off for us very well last year, because our facilities projects business was about $35 million or so.

We expect this to continue to operate again at that level this year. Sometimes those projects are $10 million. Sometimes they are $3 million or $4 million, so I think the projects that we referenced in the press release are in line with those kind of numbers.

Okay, and then if we could switch over to costs, or cost reduction efforts. I think you highlighted some employment changes, transportation, procurement. How would you assess, maybe, progress you either made in the quarter or where should we start to see some of that improvement, because clearly the seasonal pattern impacted, I think, the results in Q1?

Yes, I think, also, regarding the employment, after doing a number of acquisitions -- basically, three acquisitions in the last four plus years -- we have recognized, from a structural standpoint, that there was some realignment that we could make that would allow us to be more efficient. And I think it was prudent for us to go through the headcount reviews that we did and move forward to position ourselves for growth. That is really what we did.

That savings should be about $5 million this year, excluding the -- including, I guess, the severance, Jim. So we have other areas of cost reductions that we're certainly focused on across the whole variety of spend categories.

I would say that we are well positioned here in the second quarter. I think we have given some solid guidance for the second quarter and I think we're well positioned, from a cost structure standpoint, right now for the rest of this year.

Should we view the quarter's SG&A minus, maybe, one or two of these one-timers as an appropriate level for SG&A, or how should we think about that?

Al, I think that the 15 to 15.5% range of revenues is appropriate.

Okay, then just one little housekeeping item, which I couldn't help to notice. On the balance sheet, other liabilities went up about $42 million on the long-term side. Could you clarify what that is?

Absolutely. That is the effect of implementing the financial accounting interpretation, FIN 48. So that is the effect of looking at your tax positions, etc. and, in accordance with the very strict provisions of FIN 48, of putting that unrecognized benefit, if you will, onto your balance sheet as a liability.

And as long as we're talking about that, how that interacts with the P&L is that in accordance with that standard, you recognize interest on that potential liability and run it through your P&L. So that $1.2 million that we talked about affecting our tax expense, that is specifically the interest on that liability that we put on the books.

I will comment that under a FAS 5 approach, which was the previous standard, we did not see that liability as probable, or a very small portion of that $40 million as probable. But in accordance with the standards, that is what was put on the books.

Is this something we're probably going to see a little bit of noise over the balance of this year, in terms of adjustments to this number, or are these -- is this a number that over the next couple years works its way down? How do we think about this?

You won't see -- I'm predicting that you will not see much noise in this. It is pretty much well-defined, the amounts in there. There are a couple of large amounts that make up the whole total and it is just a matter of it running its course through the statute of limitations period.

As far as the P&L impact, that interest will be pretty much -- it will compound, obviously, because you add the interest to the liability as you go along. But it is not huge. I will try to always report what the separate effect is of FIN 48 on the tax expense and then what our normalized effective tax rate is on the base earnings.

Great, I will turn it over to someone else. Thank you.

Arnie Ursaner, CJS Securities.

I would like to try focus a little more on the margin impact in Q1 of a couple of items. You mentioned utilization in hazardous waste. Obviously, it was pretty well known that you were going to have some of your facilities shut. Can you give a little better feel for -- you mentioned Canada was 72%, 90 in the US. How much of a --? Try to put it in an EBITDA-type of number. What was the margin impact of utilization being that low?

I would say incineration, we lost about $2 million of EBITDA at a minimum. Wouldn't you, Jim?

Yes, that is about right.

Okay, and the same approach, you mentioned landfill volumes were down 6%. Given, again, the incremental margins there are incredibly high, can you give us a feel for what you think the margin impact was for that volume being down?

That would be a lower amount. That is probably not quite $1 million, because among the landfills, it was a mix. Some were up. Some were down. Our California landfill was down, in particular, this quarter versus first quarter of last year. I would put that at maybe $0.5 billion to $1 million.

I think probably another piece of it, Arnie, is probably about a $2 million delta in EBITDA on the ER-related revenues versus the base Field Services revenues that we supplemented that $13 million with.

Great point, because, to Alan's point, in the first quarter of last year, that hurricane related business was approximately 40% margin business.

We basically, and I think the industry saw this as well, there were very few incidences in the first quarter really throughout the country. I think I can only think of one in the South that was of any size. So our spill business was significantly off in the first quarter than typical, even unrelated to the fact that we had spillover of cleanup work going on in the Gulf from Rita and Katrina. So that was probably about $2 million of EBITDA that impacted us in the quarter.

Focusing again on landfill for just a minute, I know it is a question that has been out there for quite a while about that piece of your business, given the volume shortfall in Q1, what factors give you confidence that we will see some improvement either in Q2 and in the balance of the year, and perhaps give us a better feel, if you could, for what is embedded in your guidance for volume trends in landfill?

Certainly, the weather now is on our side, regarding our Canadian facilities. Our two Canadian landfills, particularly, they have a big slowdown, because it's simply just bitterly cold and you don't have a lot of remediation going on. And a good part of the northern United States gets impacted certainly by that. We have a landfill in North Dakota. We have one up in Utah. Those all are impacted quite a bit with the weather, so we're pretty confident that we will go back to our normal volumes not only for our base business, but also our projects business picks up because people want to get back out in the field and start getting the work done now that the weather has turned.

We're pretty confident about that. We've got a good team that is full-time focused on business development for our landfills. They have been in place now for well over a year and [Barry Fogel] is the gentleman that oversees that for us. He has done a terrific job and we're excited about the work that we have lined up for this year.

Two more real quick questions. You mentioned some expenses incurred to do the analysis on FIN 48. I'm assuming those were onetime expenses. Can you quantify those?

Yes, Arnie, that would be approximately roughly $0.5 million, but we also had an addition to that that would take it a little higher than that, maybe 2 or $300,000 more of tax planning. Because, as you know, we are working off the NOLs this year. Probably toward the end of the year, we will be paying taxes, rather than using the NOLs. So we've been focusing our efforts on some good tax planning here.

My final question is, real quick, any captive work that you can comment on that you may have won in the quarter or have going forward?

We have -- the captives today are down about 78 from our last count. We did see a continuing reduction in that area. And we also continue to see some additional captives, although we have kind of met our target of seeing five come off-line in the past, say, 18 months to two years. There are a continuing focus on that and with our capacity utilization being where it is at, we're looking at expanding our capabilities as a Company, certainly, by process improvements at our Deer Park facility, with this investment we made in Teris, and probably we will need to make some additional investments to meet the needs over the next couple years as more captives come off-line.

But have you won any actual work yet from these captives?

Yes, we have. It is just starting to come in, but we have had some recent wins in that regard.

Okay, thank you.

Richard Wesolowski, Sidoti & Co.

The 125 people mentioned in the press release, was that all related to the Teris acquisition?

No, as Alan pointed out, actually, that goes back to looking at, after our several acquisitions, just looking more strategically at where people are positioned. It is pretty much across the organization.

Was either the number of people or the related severance expense, was that more than you had expected, say, three or six months ago?

Not too much more. Maybe a little bit, but I was thinking it would be somewhere close to $1 million. It was north of that a little bit.

Okay, are you through with at least a majority of the changes?

Absolutely, yes.

Do you have the figures you provided last call for the supplies expenses, the outside transportation expenses as a proportion of sales, or just on an absolute dollar figure?

We were running on the outside transportation roughly 6, 6.5% of revenues. We're still in that level. We see that coming down as we get into later in the year.

Want to hit that 5% number.

We want to bring that down, that's right, to 5%. That's our target.

Just to get the idea of what achievement of that goal would do to the income statement, you get a 15, 20% savings on the difference?

That's right.

Is there a goal for the procurement, some sort of quantitative goal as to the cost savings you're aiming for?

You know, in the procurement side, we have basically broken down our various kinds of materials that we use, whether they be chemicals, consumables, materials, and supplies. We've kind of organized that all among category owners at the Company. And what we're targeting for this year is to try -- what we have on our overall cost savings plan is $5 million for the year, so that is what we are working on. But that includes some of the things that we're talking about with the outside transportation, for example.

Okay, with the ongoing expansion of your Site Service network, what type of emergency response revenue do you think you'll do this year and, probably more importantly, what do you think is a normal revenue contribution?

Historically, if you look back now, it's been averaging about $40 million plus a year, but you never know which quarter and how big the emergency revenues are from a particular event. But that has been our predictable revenue on the emergency response side of our business. And so the first quarter was very weak in that regard. We do not typically give guidance in a quarter, unless an event is actually ongoing where we can predict what the revenue is on that event. So we do not have anything in our numbers for the second quarter, as well.

Right, okay. Two more. Just what level of disposal revenue from El Dorado would you expect once you get the baghouse and the [network] and all the investments behind you?

Was it a revenue number did you ask?

Yes, just for the disposal portion.

It is about $60 million for that incinerator, approximately, but we have been -- I just visited that site last week. Really pleased with the team that we have down there. They're doing a terrific job with the turnaround that they're going through and pleased that the Company is making the kind of investment in the plant that we are making, because this was long overdue. When we saw the level of productivity before the shutdown, it was quite significant. So we're excited about the potential there at that site.

We expect to continue to invest in that. That is a very, very large site with a lot of capabilities that we never had before. We will continue to go for permit changes there to enhance our productivity and run that plant more efficiently.

I think '08 will be the year for that site. We'll see a continuing improvement this year, but not until '08 will we probably have all the necessary permit and process changes in place to get it up to the levels that our other incinerators operate at.

Okay, excellent. Finally, do you still expect to reach a 30% incremental EBITDA number -- margin in '07?

It does work out to almost 30%, yes.

Not EBITDA, though --

The incremental --

I just didn't want him to set me up here. (multiple speakers) we would be years ahead if we were talking about it.

I would have put that in the book. Thank you.

Ted Kundtz, Needham & Co.

A couple of questions for you. Could you talk about -- just review what your maintenance plans, your scheduled maintenance plans are for the balance of the year and when you are going to do them?

I do not have a schedule here in front of me, but we typically will take down our incinerators two times the year. One is usually for annual testing and normal maintenance and another is for refractory work and other changes to the process, if you would. So we tend to have a couple of weeks shutdown twice a year at most of our larger plants. The smaller plants less. The turnaround is a little bit less, maybe only ten days. Every year, for the most part, we're required to do annual testing and as part of setting up and doing those tests for our air pollution control permits, we take the plants down and do maintenance.

Okay, and when's the next grouping of the shutdowns? Would you group another six or so or more in a particular quarter or will these be kind of spread out more evenly?

This is unusual that we had so many. We just had such a strong year last year and we went into the end of the year, so we just couldn't postpone it any longer. That is why it kind of bundled together, but we typically try not to have them down at any one -- more than one at one time.

That's right, and to Alan's point of coming off last year and trying to take advantage of the slower seasonality of the first quarter, we decided to go ahead and do the major.

Okay, that makes some sense. Could you go over the pricing once again for me? You talked about a 3.5 price increase. Is that across the board or where is that focused on?

It is really an average and it includes higher price increases in some aspects of our business. And there are some contracts that we cannot raise due to contractual obligations, if you would. So there are time frames that we have to live by before we can raise prices. So we consider that an average across all our lines of business and our revenues.

Okay, both incineration and landfills and virtually all of it?

Yes, we increased our costs for labor and equipment, as well, in our Site Services business. Our regional rates we have increased, because we are seeing pass-through costs into the purchasing of the things that support our Site Service business, so we need to be prudent and pass those along.

Okay, and you think pretty high likelihood that they will stick, I would assume?

I think at this point the feedback we're getting is that it was a modest increase from our customers and they are seeing it in other parts of their business and I don't think they felt like we were trying to get too much. That is my sense.

Great, you talked your average tax rate for the year being -- this effective tax rate,44%. Would we assume that for the next year as well? Is that going to continue?

Yes, Ted, it would be roughly that.

Just one last question, kind of organic growth, any more thoughts on what your organic growth rate is or will be?

We typically look at our Tech Service as being GDP-plus kind of growth and Site Service to be double-digit, low double-digit growth rate, particularly with our geographic expansion. So that would bring you somewhere around 5% or so overall. And then certainly anything in terms of price increases, etc., would be additive to that.

Right, okay, and then hence your guidance for the year. The other thing that could benefit that would be, what, more aggressive shutdowns by some of the captives?

It could, yes. It could, although we feel that we have got a pretty good volume of business right now. So we're hoping that we don't see a lot more captives close very quickly here.

Great, thanks very much.

Vito Menza, Sandler Capital Management.

All my good questions have been asked, but I have one for you. You really sit at a unique vantage point in the U.S. economy. You cover so many different sectors and spaces and I was just wondering from where you sit, what are you seeing just general economically out there right now from the companies that you service? Does it feel consistent with last year? Does it feel a little weaker? What's your $0.02 on it?

Pretty consistent, Vito, I would say. Again, coming out of a seasonally slow period, it is a little bit hard to tell in some of the business that we do. I would say it is pretty consistent.

Our utility business, we expect that to continue to grow. There's more investments going on in that area, so I think if you look at certain parts of, or certain industries, that we service, we are seeing more growth than others.

We are continuing to be concerned with manufacturing. We still see offshore movement of manufacturing. We see it in Puerto Rico. We're seeing it here in the States, so that is a concern for general manufacturing. But most of our other business, our refinery business, petrochemical business, those businesses are very strong for us right now.

Alan, if you had to estimate right now where the capacity utilization at the incinerators are, where we stand now in Q2, what estimation would you give?

We're probably 2 to 3% higher in the month of April than where we were at in the first quarter, so we're pushing back up overall into that 90% range. We're in the high 80s now.

Great, thanks a lot.

Pat [McLaughlin], UBS.

I have just got one question. There was a filing of some description in Adams County relating to waste hauling from Denver, Colorado. Can you explain what that is all about?

Yes, this is Bill Geary. We generally do not discuss in great detail litigation, but disclosed in the 10-K and in the 10-Q, which will be filed tomorrow, will be a reference to that latest filing. It is really kind of a continuum. We had filed for a declaratory action with respect to the validity of the radioactive materials license which was issued to our Deer Trail facility by the state Colorado.

The State of Colorado Department of Environment and Public Health and the Colorado Attorney General are both on record as saying that the license which was issued to us is valid. Adams County has challenged that and we are -- we believe that the latest filing by the County is without merit and we intend to contest it vigorously. The court has not yet set a hearing date on that particular matter, but we expect it to be set in the near future.

Thank you.

(OPERATOR INSTRUCTIONS) a follow-up from Arnie Ursaner, CJS Securities.

Just want to clarify one thing related to the margins on the hurricane-related work. If I recall, you had also incurred unusual expenses to do some of that work. You were outsourcing and hiring people away from you -- and had actually talked about that holding back your margin there -- plus you had more fixed contracts of some of that. I just want clarify, could you, again, walk us through some of those issues relative to the work you did there?

Sure, Arnie, actually when the hurricanes first occurred, which was in September, before that first quarter, so it was September of '05. We were doing the mobilization then. So most of those expenses that affected our margin occurred in the fourth quarter of 2005 and we had, I am thinking, about $17 million of revenues in that fourth quarter. Then by the time got into the first quarter, we were running pretty -- we were beyond mobilization and working down there. And that was probably the higher margin work that we were doing in that first quarter.

Have you significantly reduced the number of people you're hiring from outside sources to do some of the work on your contracts?

We certainly have added quite a bit of staff. We're at 4500 today overall, close to 3000, what we would call, direct, or billable, people. We have been adding field technicians, chemists and drivers particularly, and we recognized that last year, we did not have the staffing for the revenue growth that we were enjoying. So our subcontracting, in general, was up a lot last year, not necessarily just on that project, but really across the board. That also impacted our first quarter here, because we wanted to be positioned to take advantage of what we saw as a pretty strong book of business for the rest of the year. And although we really had to manage our overtime and non-billable time, we needed to keep that staff on, because we have been adding to that staff for the future growth of the Company here. So I think we're in a much better position than we were a year ago with subcontracting.

Okay, thank you.

A follow-up from Mark Grzymski, RBC Capital Markets.

Obviously, east of the Mississippi, from a competitive standpoint, you have a great position. And West, you would like to grow. Aside from getting permit changes, for example, what else can you do west of the Mississippi to kind of put a chokehold on some of your competitors?

Well, we've got a number of office openings and those are predominantly in the west and in Canada, in the Midwest as well. I would say that that is one of the key things we're focused on. We are also looking at some new business initiatives. We've been reviewing complementary lines of business that our customers have been asking for us to supply that we currently do not supply.

And so those are things that, as part of our strategic plan, we're looking at. We haven't launched any at this point, but we're getting close to making some final determinations on which lines of business we want to grow into and cross-sell our existing customer base. There are other services out there that are pretty significant that our customers are buying and they like the idea of this one-stop shopping. So we think we can continue to gain some marketshare out there.

Okay, and then from an acquisition standpoint, are you seeing any potentials west of the Mississippi that look reasonable from a purchase price standpoint?

We certainly are seeing some. We're trying to be selective, I guess, in regard to cultural fit and certainly price and the quality of the assets we're looking for and how they complement what we need. But we are seeing some nice opportunities in the west and, really, throughout the country. That is something that we want to take advantage of

And just finally, a follow-up to that, do you think that, given your size, that making an acquisition as opposed to opening up the avenues of revenue would kind of hurt your competitors more out west or less? In other words, it is probably better off -- better for you to make an acquisition, am I correct here, as opposed to competing organically?

I think in the end, you're probably right. If you're talking about expanding our Site Services business, you're probably true, that we are better off joining forces with a good regional player that can help us get in the market quicker and where we could share sort of our Technical Services customers with their capabilities, if you would.

But on the Tech Services side, where you're really trying to get capabilities and treating of waste or storage of waste, the permits are really the key there. And you really can't organically grow those. Those permits take too long and so acquisition is really the only way for us to expand in that area.

Okay, great. Thanks, Alan.

At this time, I would like to turn the floor back over to management for any additional or closing comments.

Thanks, everybody, for joining us on our call this morning. We look forward to updating you on our second-quarter conference call. Thank you.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.