Clean Harbors Inc (CLH) 2007 Q4 法說會逐字稿

Good day, everyone, and welcome to Clean Harbors' fourth quarter and year end 2007 conference call. Today's call is being recorded. There will be an opportunity for questions and comments after 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 for Clean Harbors. Please go ahead, Sir.

Thank you, Operator, and good morning, everyone. Thank you for joining us today. On the call with me today are Chairman and Chief Executive Officer Alan S. McKim and Executive Vice President and Chief Financial Officer Jim Rutledge.

Before I 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 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 opinions only as this date February 27, 2008. Information on the potential factors and the 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, 2007 which will be filed with the SEC no later than March 14, 2008.

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 and year end 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 today's fourth quarter news release. A copy of this release can be found on our web site, www.Clean Harbors.com. A copy has also been furnished as an 8-K with the Securities and Exchange Commission.

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

Thanks, Bill, and good morning, everyone. 2007 proved to be another record year for Clean Harbors as we carefully executed our growth strategy, we built momentum as we moved through the year and capped it off with a strong performance in Q4. Since this is our year-end conference call, allow me to provide a quick recap of 2007.

During the year, we improved utilization at our network -- extensive network of treatment and disposal assets to generate strong sales growth and profit leverage. We continued to prudently manage our operating cost to deliver solid EBITDA growth. We implemented price increases across many of our service lines to better counter outside cost pressures we are facing. We expanded our large and diverse customer base as we continued to increase our brand recognition nationwide. We opened up eight new site service locations in the United States. We deepened the breadth of our management team with several key executive hires in areas such as human resources, business development and vertical markets. We completed the acquisition of Ensco Caribe, an environmental services and emergency response company based in Puerto Rico, and we successfully integrated the Romic asset acquisition, a strategically important acquisition that gave us considerable presence in the drum and small container market on the West Coast.

And finally, we planned diligently for our future growth by launching several key capital projects including throughput capacity expansion at a number of our commercial incineration facilities, as well as the construction of a new (inaudible) and recovery plan.

Clearly 2007 was a busy time for all of us. We are proud of our accomplishments as an organization and none of those would have been possible without the exceptional team of people we have in place here at Clean Harbors. Once again, it was their hard work and dedication that ultimately translated into another year of record results for our Company.

Turning back to Q4, quarterly revenues came in at a record $257.7 million, which is up 11% over Q4 of 2006. We delivered solid results across our operations with steady contributions from both our Technical Services and Site Services business segments this quarter. We generated strong EBITDA growth of 20% bringing our EBITDA to $37.6 million this quarter.

Now let's discuss some of the growth drivers for Q4. Tech Service delivered strong year-over-year growth in Q4 as the overall demand environment for our disposal facilities remained healthy. Overall utilization at our incinerators came in at 95% for the fourth quarter, despite scheduled downtime for maintenance that was performed at some of our facilities. And as most of you know, running at such high levels is optimal for both revenues and profits as it enables us to improve the mix of materials we are incinerating in increasing our margins.

Our U.S. incinerators ran at nearly full capacity and even in Canada where our incineration has slowed in recent quarters, due to above average volumes of highly corrosive materials, we still produced utilization rates in the mid 80s. And I might add that we renegotiated higher prices for that corrosive materials burned thus allowing us to recover some of the margins we lost at that facility.

All in all it was a great quarter for -- from an incineration perspective.

Turning to our landfills. Volumes reached seasonally low levels typical for the final quarter of the year and remained essentially flat year over year. Although pricing remains fiercely competitive in the landfill sector, we continue to see a considerable pipeline of opportunities. We are continuing to strengthen our logistics capability to be even more competitive in this space.

Turning to Site Services, our site service business generated close to $74 million in revenue in the quarter, driven by growth in our core industrial cleaning and maintenance projects as well as remediation and environmental construction services from our petrochemical, specialty chemical and refinery clients.

For the quarter, approximately $4.5 million of our site service revenue was related to emergency response and project revenue, the majority of which was associated with the effort following the Cosco Busan's oil spill in San Francisco Bay last November.

We frequently get asked questions by our -- excuse me, we frequently get asked by investors about our emergency response projects. I think it is important to point out that most of our growth in Site Services is generated from our core industrial cleaning and maintenance work with emergency response, and small events typically accounting for less than 10% of our total Site Services contributions in any given quarter.

In Q4 it was about 6%. For 2007 in total it was only about 2.5%. Our focus within Site Service is on geographic expansion.

In Q4, we opened a new service center in Phoenix, Arizona, bringing our total -- our tally of new service locations opened this year to eight and exceeding our goal of five to six service centers in 2007. We continue to expand our reach nationwide and we are now far beyond our traditional stronghold in the Northeast corridor.

This year we entered previously underpenetrated markets in the Pacific Northwest and in the Southwest. Our Site Service strategy is paying off. New branch locations not only generated field service and cleanup work in 2007, but more locations afforded us the opportunity to cross sell our Tech Services and generated more volumes for our disposal facilities.

We will further broaden our presence across North America in 2008 by opening additional Site Service offices.

While growth continues to be a paramount to our success, Clean Harbors is an organization that is focused on the bottom line as it is on the topline. We are still facing increased expenses and pricing pressures from many goods and services we purchase as well as rising labor, health care, and insurance costs.

We sent to all of our customers a price increase letter this past month and intend to increase our prices across many of our lines of business on average of 4.5%, effective April 1st. We continually closely manage our operating costs and have many initiatives under way to help in this area. But a price increase is necessary for us to offset our cost pressures and improve on our margins.

An example of driving costs out of our businesses outside transportation, we continue to hire drivers and expand our fleet of vehicles. We saw in the fourth quarter outside transportation spend at 6% of sales and we can expect to improve in this area in 2008. We have also talked in prior calls about our success in addressing the rising cost of fuel with surcharges and we are continuing to push forward with that program.

Allow me to switch gears at this point and share with you some more detail on the acquisition that we announced this morning in conjunction with our earnings release. We signed a definitive agreement to acquire two solvent recycling facilities in the businesses associated with those facilities in Chicago, Illinois and Hebron, Ohio for $12.5 million in cash, plus the assumption of approximately $3 million of environmental liabilities.

We are acquiring these sites from Safety-Kleen Systems and as a result have formed two new entities within our organization -- Clean Harbors Recycling Services of Ohio and Clean Harbors Recycling Services of Chicago.

In 2007, these two solvent recovery facilities generated a positive EBITDA and approximately $16 million in revenue. The closing of the acquisition is subject to certain conditions, including the receipt of certain government approvals. We anticipate receiving these government approvals and closing the acquisition by the end of March.

So why the emphasis on solvent recycling? Simply put we believe that solvent recovery services will provide a good source of growth in the coming years. As the cost of solvents continue to rise, companies that use solvents are turning to recycling spent solvents for [use]. In acquiring these two recycling facilities by constructing our own solvent recovery plant at our El Dorado location, we are now better positioned on a national basis to offer our customers a broad spectrum of choices for addressing their solvent waste streams, thus enabling us to capture the growth we are seeing in this marketplace. We currently expect the transaction to be accretive to earnings during 2008.

Before I turn the call over to Jim, here's a quick update on where we stand on the incineration capacity enhancements and the construction of the solvent recovery plant we announced last quarter.

We are on track with the expansion of our throughput capacity at a number of our hazardous waste incineration facilities. As we highlighted on our Q3 call, we are planning to add approximately 10% of our total incineration capacity or 50,000 tons to our network. Approximately 7,000 tons of capacity came online in January of this year. We will begin to see the increase capacity effect on our incineration rates beginning in the second quarter of this year. We expect to phase in an additional 14,000 tons of capacity during the second and third quarters of this year with the remaining 29,000 tons coming online sometime during the final quarter of this year and into mid-2009.

This increase will provide us with the capacity we need to better handle the growth that we are experiencing in our markets and address the clients who are planning to shut down their captive incinerators or outsource certain waste streams. We expect the capital cost necessary to add this capacity will be approximately $15 to $20 million and will be funded through operational cash flow.

Regarding the El Dorado solvent recovery plant, we are on track with its construction and we expect the first phase of this to be completed at the end of March with the whole plant coming online by year's end.

We are excited about our prospects for 2008. With significant momentum, favorable industry trends and our established positioned as a leader in the Environmental Service sector, we are confident that 2008 will be another year of strong growth for Clean Harbors.

So with that, I will turn the call over to Jim Rutledge so he can take you through the Q4 financials and provide our financial outlook for Q1 and full year 2008. Jim?

Thank you, Alan, and good morning, everyone. Before we discuss our results for the quarter and the year, I wanted to mention the filing extension we announced in our press release.

As you know this is the first year Clean Harbors is classified as a large accelerated filer. And therefore we are not required to file our annual report on Form 10-K within 60 rather than 75 days after the end of the year. Together with our auditors, we have agreed that we will be unable to file our 10-K by February 29 and have therefore decided to file for a permitted extension on Form 12-B-25 with the SEC. We expect to file our Form 10-K no later than March 14, 2008.

In Q4, Clean Harbors achieved another record quarter, generating revenue of $257.7 million. This is an 11% increase from the $231.8 million we recorded in the year ago quarter.

As Alan outlined, we benefited from solid operating excellence in both our Tech and Site Services businesses in Q4. Gross profit for the quarter grew to $79.1 million, translating into a gross margin of 30.7%. This compares with 28.4% in the same quarter last year.

Selling, general, and administrative expenses were $41.5 million or 16.1% of revenue in Q4 2007. This compares with $34.5 million or 14.9% of revenue in Q4 2006. This quarter's SG&A as a percentage of revenues would have been comparable with last year's figure, were not for a $2.9 million charge we recorded this quarter related to an environmental, liability and litigation.

In January of this year, January 2008, we received an adverse court decision pertaining to one of the liabilities we took on from the CSD acquisition. Although we have appealed the decision, we booked the full charge during the fourth quarter.

Accretion of environmental liabilities was $2.7 million in the quarter compared to $2.6 million in Q4 of 2006. Depreciation and amortization expense was $9.8 million in Q4 of 2007 compared with last year's figure of $9 million. Q4 '07 operating income was $25.1 million, up 27% from $19.8 million in the fourth quarter of 2006.

As Alan mentioned Q4 '07 EBITDA came in at $37.6 million or about 14.6% of revenues, which exceeded last year's fourth quarter EBITDA of $31.4 million. And in terms of guidance for this quarter, we were just below the range we provided of $38 to $39 million, but we would clearly have exceeded guidance were it not for the $2.9 million net charge in the environmental litigation matter, which I described a few moments ago.

Excluding this environmental charge, our EBITDA margin as a percent of revenues would have been 15.7% during the quarter. I should also point out that our incremental EBITDA margin in Q4 this year, versus Q4 last year, was 34% of revenues excluding environmental charges.

Interest expense net of interest income in Q4 was $3.3 million, up from $3.1 million in the comparable quarter of '06.

Our provision for income taxes was $5.3 million this quarter translating into an effective tax rate of 24% during the fourth quarter of this year compared to 29% last year. Our lower effective tax rate this quarter was mainly due to favorable one-time tax adjustments recorded in Q4 and the favorable impact related to the recognition of certain landfill amortization deductions.

Our effective tax rate for the year 2007 was 39% compared to only 12% in 2006. The increase year over year in our effective tax rate is mostly due to our recognizing the full impact of U.S. Federal taxes without NOLs this year and the effect of our implementing the FIN 48 Accounting Standard this year as well.

Net income available to common shareholders for Q4 was $16.6 million or $0.81 per diluted share. Based on 20.6 million average common shares outstanding. Net income for Q4 '06 was $11.4 million or $0.56 per diluted share based on 20.6 million outstanding shares as well.

Looking briefly at our full year numbers, revenue in 2007 increased 14% to $947 million from $830 million in 2006. Operating income for the year was $85.3 million or 9% of revenues. This compares with $74.4 million or 9% of revenues in 2006.

Looking at our earnings performance for 2007 really showcases the leverage within our extensive network of assets. EBITDA for 2007 was $133 million, up 11% from $119.9 million for the full year of 2006. I should point out that EBITDA in 2006 included a favorable environmental credit of $9.6 million while this year in 2007, we had a net environmental charge of $600,000. If you exclude these environmental changes and estimates from both years' figures, our EBITDA growth was 21% year over year.

Net income for full year 2007 was $44 million or $2.14 per diluted share compared to net income of $46.4 million or $2.26 per share for 2006.

From a balance sheet perspective, our cash and marketable securities totaled $120.4 million at the end of the quarter. Our year end cash balance was $37 million higher than our cash balance at the end of 2006. But this year's growth in cash and investments was actually about $45 million higher than last year since we classified for accounting purposes $8.5 million of AAA investments in auction rate securities as a long-term investment on our balance sheet.

Our increased cash position was mainly generated from enhanced productivity in operations and careful management of our environmental and capital spending. Total accounts receivable stood at $207.8 million on December 31 and our DSO was 74 days in the quarter. We are continuing to target lower DSOs going forward.

Capital expenditures approximated $12.7 million in Q4 compared to nearly $10.4 million in Q4 of last year. CapEx for 2007 was approximately $37 million as we upgraded our facilities and invested in several growth projects in our landfills and transportation areas, as well as continued to improve our safety and service reliability.

In 2008, we would expect to raise our CapEx level to approximately $55 to $60 million as we roll out our new solvent recovery facility and the 50,000-ton expansion of our throughput capacity at our incinerators in addition to our usual capital expenditures.

During the fourth quarter our accounts payable balance decreased by $2.1 million to $81.3 million and deferred revenue was marginally lower at $29.7 million on December 31, 2007. We are continuing to benefit from carefully managing our environmental liabilities. At December 31, our balance of environmental liabilities stood at $184.5 million -- an increase of approximately $4 million during the quarter which includes the charge for the environmental litigation matter I mentioned earlier which we accrued at year end.

Managing these liabilities and reducing our exposure in this area remains a key focus for us.

Environmental spending during the fourth quarter was $1.6 million compared to $2.4 million in Q4 2006. For the year our environmental spending was $6.5 million versus $7.6 million in 2006.

Moving on to 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 $225 million to $230 million, which represents a 10 to 12% growth year over year. We expect Q1 EBITDA in the range of $27 to $29 million, which represents a 22 to 31% growth rate year over year.

For the full year 2008, we expect revenue growth of 6 to 8%, allowing us to exceed the $1 billion benchmark in revenues. We anticipate EBITDA growth in the range of 17 to 20%.

And with that, Operator, would you please open the call for questions?

(OPERATOR INSTRUCTIONS) Rich Wesolowski. Sidoti & Company.

Good morning. Alan, what type of contribution did the guidance anticipate for the capacity added throughout the year? It sounded like you were a little hasty towards the fourth quarter to mid-2009 on that last 29,000 tons.

In regard to the expansion of the incineration capacity?

Right.

The 29,000. Well, we had mentioned that we've got 7,000 in now and we will have an additional 14 coming into the second quarter and then the remaining 29 will be at the latter half of this year and into the midpoint of next year. Does that answer your question?

Yes, it's just -- I'm just wondering how you go about handicapping how much that is going to contribute to 2008 versus 2009?

Yes, I think -- Rich, this is Jim -- just to make sure that we are answering your question -- embedded in the guidance in our growth in revenues is the capability to be able to process waste streams through our incinerators. That includes this expansion because we are at a -- in the U.S. we are at a very high utilization level.

So I just wanted to make sure that I understood your question there. But that is how we are being able to satisfy our growth rate in to 2008.

Okay and I gather from the EBITDA margin and the incremental EBITDA margin implied in the first quarter guidance that you will be spreading the maintenance shutdowns a little more evenly across the year than was the case in 2007?

We certainly have tried to do that, but we did once again run really strong into the end of the year which is typically the generation cycle that our customers have and so we have been in a long outage in Texas right now. Close to three weeks on one of our plants down there, but that is in our guidance.

But we are not going to see as many plants in the first quarter down as we did last year's first quarter, but we did have an extended shutdown at one of our kilns that was due for a longer maintenance.

Can you elaborate on the state of the landfills today versus a year ago? How many are contributing up to your expectations? How many material below? Has there been any regulatory changes or at least the regulatory changes that you had cited in the last call? Are those panning out in extra business, etc.?

We received a permanent [expansion] at our Texas facility at the end of last year. And we expect that to contribute positively this year and that will leave really one remaining landfill in Southern California that is a negative drain on our EBITDA of about $2 million a year. That facility is still one that we are working on changing our permit and will be investing capital in it in the future.

But at this point all of our landfills save that one are contributing positively and will be in '08.

Great and finally, just if you could elaborate on the pricing, competitive trends in the landfill markets?

Our base business continues to be fairly priced and I would say it has been relatively consistently priced and then on large events or project out there where we are competing on a national basis, they are continually being aggressively priced in the marketplace. And we would expect that to continue this year.

Ted Kundtz. Needham & Company.

Hello. Couple of questions for you. Could you comment a little bit more on the outlook for the captive marketplace? Are some of those guys coming offstream?

And you mentioned, I think on the last call, you'd thought that you had identified five that could possibly come off market this year and turn their business over to the outsourcers like yourselves.

Right.

Do you still feel that's the correct number and if so is any of that built into your current forecast for '08?

Clearly some of it is because we have been notified at least by one client that they will be down by June and we also are seeing other business that's being rerouted that was going to a captive facility, where they are now looking for outlets across the U.S. for that [waste] stream.

So we are convinced that the cost that our customers are seeing for managing those wastes internally is much higher than if they send it off-site to us. And we continue to have expectation that more volume is going to be coming into the commercial marketplace, which is why we went down the path of expanding our plants last year.

So I don't think anything has changed. And I would say that the additional capacity that we are bringing on this year is into our guidance for next -- and in '08.

You're right. I'm just wondering if the captive business could be greater than you -- coming off market could be greater than what you are anticipating? I don't know what you are anticipating how much is coming off market, how many tons that could be coming into the outsourced market.

But could that be a greater number than you are looking at? Are you hearing anything more about these captives deciding at the threshold of making decisions to shut down their own facilities?

Nothing since our call last time. It's been pretty much consistent with that as we are looking out where they are today.

Jim, could you give us a little guidance on the tax rate? It surprised me a little bit in the quarter. What your thoughts are for next year for '08?

Yes. We are going through that now and obviously when we complete our K, we will be going through our reconciliation of the effective tax rate so you'll see that. But one positive -- well, I mentioned during my comments that we had some onetime adjustments during the quarter and we also had the benefit of certain landfill amortization deductions in there. And I think there will be some future benefit of these landfill amortization deductions to the tune of probably 1 to 2%.

So I had historically been mentioning to you that our tax rate has been in the 43 to 44%. It'll probably be 1 to 2% less than that because of these amortizations and that includes FIN 48.

That does include FIN 48. (multiple speakers) FIN 48 was in the fourth quarter, too, as well, right?

Absolutely. There was almost $2 million of FIN 48 in the fourth quarter there.

One final question. Are there any areas out there that you see at risk from a recession? Any of the specific customers that you do serve that could be slowing down if we do enter a recession or perhaps if we are in one? What is being affected? Are you seeing any areas of weakness?

We just had our national corporate account folks in two weeks ago and through our discussions, at least with them, as it relates to the various industries that they manage, we are not seeing any slow down at this point with our top vertical markets.

What would you say would possibly be at risk? Or could you identify your top vertical markets for us and give us some sort of sizing?

Sure, I mean our chemical and petrochemical market is a strong market for us. Our refinery market has been very strong and actually growing. We had a very good year in '07 with our refinery business. Our utility market has picked up quite a bit in the last year and we are seeing further growth opportunities there, because our share -- particularly of the utility market -- is relatively small.

Manufacturing is probably one vertical that could be more impacted than maybe the others that I just mentioned.

How big is that?

About 11% of revenues.

11%, okay.

Yes and we've really done an analysis across all of our key verticals to trite and understand what the sensitivity might be based on a recession and how deep our recession might be, but whether it's healthcare, colleges, universities, pharmaceutical companies -- a lot of the industries we service provide critical products and services.

So I would like to think that outside of probably manufacturing where we've got a pretty solid diverse customer base, that hopefully will not be that impacted by any significant recession at this point.

And you are seeing no signs of any slowdown whatsoever right now?

Not in our end at this point. When we put out our guidance for the first quarter this morning here, that was based on the visibility that we have looking out on our forecast call that we have on a weekly basis and we are not seeing it.

Terrific. Thanks very much.

Jonathan Ellis. Merrill Lynch.

Good morning. Want to talk a little bit, just in during the quarter you mentioned the impact from land to amortization revisions. Did that have any impact above the operating line? Or did that just flow through the tax line?

No. It was just through the tax line basically. Yes.

On SG&A, I think if you look at 2006, in the fourth quarter it looks like SG&A as a percentage of revenues came down a little bit more than what you saw in 2007. Just wondering if there is something this quarter that could create a little more of a headwind from an SG&A standpoint? And then, I guess more importantly how you think about SG&A going into 2008?

Yes, we -- during my comments I had mentioned that the percentage as a percentage of revenues went up a little bit in the fourth quarter just due to that charge that we had, but you're right. If we excluded we have could roughly 15% of revenues as our SG&A percentage. And I would look out to the future. First of all, let me say that I think that that reflects the leverage that we have, that we are holding a line in SG&A, the fixed cost components of that.

Looking out beyond this year, 2008, I would say that that 15% -- that's our target. To be at the 15%. It might be a little bit more than that in certain quarters, perhaps in the first quarter, but I think that that is our target and I feel pretty good actually about that percentage. Does that answer your question?

It does, yes, thank you. And then just on the solid recovery plans that you are acquiring, are those factored into your guidance currently for 2008?

Only to a minor, very minor degree, because we are looking at implementing those into our facilities. And as Alan pointed out during 2008, it will become accretive so we were conservative in what we put into our guidance there.

But it is included both in revenue and to the extent it contributes to EBITDA in that line as well?

Only at a very low-level because we are talking about ranges in the to revenue and the EBITDA, so we felt that the range was okay. I mean clearly we haven't closed on the facilities yet, although there's no doubt in my mind that we will close. But we wanted to be very conservative in there and with the range I think that would cover it.

Great. Maybe just more broadly speaking if you can talk about it. I know you mentioned in the past what you're doing at El Dorado in terms of the solvent recovery facility, but more broadly about the solvent recovery market -- how large it is; what you think you can accomplish from it from a market share standpoint or from a competitive standpoint over the next few years there?

Yes. I mean, we think it's larger than a $100 million market. It's not a huge market, but it does provide options for customers who have solvent streams, particularly our pharmaceutical clients. A lot of our chemical clients have large solvent streams and in some cases those have been used as fuel and cement kilns and even in some cases we've been burning them.

And as we displace those with higher margin hazardous waste, that also gives us the same energy value. We want to have an alternative to recycle and reuse those streams. And we have been successful in that using third party [tollers] and other recyclers over the last couple of years. But we think we can have a lot more success by having our own capacity and tying it in with our whole collection and sales force network out there.

And so like I said, it's over 100 million in market size, but obviously it's not that big of a market in the whole scheme of things.

Just on the guidance of revenue for 2008 of 6 to 8%, what does that factor in terms of acquisitions, meaning the carryover from what you've completed in 2007?

It really doesn't factor that much in outside of the solvent plans that we announced which we put some modest revenue numbers in our guidance for the year. It really doesn't factor in other acquisitions that we see out there as a potential.

So I guess what that implies, given the 4.5% price increase you mentioned earlier is that your guidance implies something on the order of 2 to 4% volume growth for the year if I'm doing that correctly?

I would say that roughly half of that price increase, I would say, would be cost recovery, somewhere in that range, Jon. And then the other half would generate margin.

Final question for me on the incremental EBITDA. And, again, if I am doing the math correctly, it seems like you are assuming a $23 to $27 million of incremental EBITDA in '08. Wondering if you can talk either quantitatively or qualitatively about how that would be split up from a pricing versus a cost-saving standpoint?

Yes, I don't think I could give precise figures on that right here and now. I don't have those parts of our budget in front of me. There certainly is both, clearly as we've been talking about, but I just don't have that breakdown at this point.

Arnie Ursaner. CJS Securities.

It's actually Larry Solow sitting in for Arnie. Just a couple quick questions. The gross margin year over year improved nicely but just sequentially, I thought maybe it might improve considering you have $4.5 million in emergency response revenue which is generally a much higher margin.

I would have to look at that, Larry, and to look at the puts and takes on that. But again to beef up that 30%, 30.5%, I think is a nice margin there. Still the event is pretty small.

Yes, even if it's 10 points higher it's not a lot of many.

That's a good point, Alan.

Then just on the Site Services, if I kind of back out that $4.5 million you probably did about 70 million or so and then I don't believe you did any emergency response last year. So that would put the segment down about 10%. Is that just more a timing-related issue on a year-over-year bases in the quarter?

No, there was some event in last year's figures and I can give you an idea of what that was last year in the fourth quarter. If you'd give me just a second. We had event business last year in the fourth quarter of '06 about of about $7 million. (multiple speakers)

So, net net was about flat and X emergency response in both years?

Yes the Site Service was relative -- if you take out the emergency response, Site Service was flat year over year in the fourth quarter. And I think what that reflects, if you look across the regions that we have, the South region last year in the fourth quarter had some nice follow-on work from the hurricanes. So it was a little bit higher in the fourth quarter last year. So that's what makes it look kind of relatively flat.

So it's almost like a continual emergency related to the emergency response in a sense.

Well it was actually follow-on work at various facilities. Not really part of the emergency. (multiple speakers)

Right, which is part of the business model and certainly a positive.

Absolutely.

Could you just discuss a little bit more on the pricing outlook? You mentioned the 4.5% price increases and that is an average number. Is that going to be kind of implemented across the board or is that just an average? Meaning some are higher, some are lower. Like I would expect maybe incineration maybe would be a little higher than average?

Yes, our communication to our clients were that there may be some higher increases whether it be in certain regions for our labor and equipment material and supplies or disposal or transportation. So we really are looking at all of our selling components and particularly focusing on those clients that may not have been receiving a surcharge of fuel energy surcharge or have highly restricted routing that causes us to take on a lot more cost from a transportation standpoint.

And so it's probably a good average that we would like to see this year.

And then the Teris facility. Is that pretty much now up to speed with the rest of your incinerators on a performance level?

I think Teris had a wonderful year. That was a great story for us in '07. The team out there did a great job. They did a big capital investment there in the second quarter; and that plant ran very strong for the last two quarters. We would like to continue to invest more into that facility. We've got a great work force there, a nice infrastructure. It is one of the reasons why we chose that site for our solvent recovery plant, and from a margin standpoint it was almost at the same level of margins as our other incinerators.

There's still some room out there. We've got a couple of permanent modifications that we are waiting on, that will allow us to eliminate some of our handling costs there and improve our processing costs. But I expect 2008 to see continuing benefits from the Teris site.

Al Kaschalk. Wedbush.

Good morning. Just to follow up. A couple of questions have been already answered, but on the cost side, Alan, where do we stand in terms of your multi-year program to maybe internalize some of these costs? And how much is still yet to maybe be recovered, if you will?

Yes. There -- we have our cost reduction initiatives on track again for '08. We saw some nice pickups in '07. I think that was part of the driving -- the drivers in our performance last year. But as the Company has continued to grow as it has, outside transportation continues to be one area of spend that we just didn't make the kind of progress that we wanted to.

On a total dollar standpoint, we are still in that $60 million number. So can we get that done [with] $30 million? We believe we can, but adding more drivers, getting more equipment out there is still the theme here on the transportation side.

We hired a new manager of our procurement who is working with Jim and through her initiatives, we think this year will be more successful on a lot of the strategic procurement initiatives regarding our purchasing of chemicals, materials, supplies -- those things which really are several hundred million dollars in spend for us.

So I think, Al, we still have more to go in regard to being more efficient in our purchasing.

If I look at the guidance in terms of the full year EBITDA growth, it looks strong. And then I understand seasonally Q1 is weak. But if I could just ask, it looks like EBITDA margins in the quarter are expected to be closer in the low low double digits -- 12, 13%. And I was just wondering if there's either volumes expected to be down, costs up? What's driving that assuming my read is correct?

The regular seasonal slowdown that we have in the first quarter as you know is the main driver of why that is below the 15% range. If you compare to last year, we were at 10 or 11% margin in the first quarter. And so what we're thinking is that the growth that we've had, the cost savings that we've put in place, and the effect of our price increase last year I think is going to show up in the first quarter that we're seeing. And that is why we are looking at that 13% range.

So we are a couple of hundred basis points over where we were last year.

Just back to the cost side, if I may and maybe it is a two-parter, but on utilization rates, you've had a very strong incineration level here the last couple of quarters. Any reason to think that we have more than the norm on shutdowns and maintenance work in '08? And then secondly on the labor front, are you seeing any cost increase just from a competitive standpoint?

Could you explain maybe that last question just a little bit more detail in regard to the competitive standpoint?

Well I just -- given just in the general industry that you operate in and the locations of various facilities, I would expect some of the -- your customers are certainly having pretty good business opportunities.

Is it just that labor rates are going up? Or are you seeing you have to pay people more money to keep them so to speak?

I think we are -- we are always under the -- on pressure for good people. You know our labor rates at least internally here have gone up quite a bit in the last year or two. And we've been investing a lot more in training and making more investments, I should say, in our work force.

So, yes we are obviously trying to hold onto all of the people that we can. We've got a great organization here.

But I guess in regard to the utilization rates, your first question there -- I don't see anything different this year from last year other than a steady improvement out of Teris; and no major changes from a shutdown standpoint.

As I mentioned we had a long shutdown in February here at one of our plants. We also are going to take an extended shutdown at one of our Canadian incinerators where we are investing about $3.5 million to rebuild that kiln and that was planned for this year. And outside of those, I don't see anything major different in the utilization rates.

[Jamie Sullivan]. RBC Capital Markets.

Good morning. Just a quick question on the guidance, again, just looking at the EBITDA growth and margin expansion and wondering if you could just give us a feel directionally of, if the majority of that is coming from price standpoint or more on the cost side?

Yes, I think it is a combination of both, Jamie. Clearly the price increase that we are looking at during 2008, about half of it of that 4.5, roughly 4.5% is cost recovery and the other half is -- will be contributed to our margin.

Then I think in addition, I think the balance there is volume.

Did you give CapEx for '08?

Yes. '08 CapEx will be in the $55 to $60 million range and the reason why that is higher than our spending in the past is that we are estimating $15 to $20 million for the 50,000-ton incineration expansion that we're doing. And also the solvent recovery facility in El Dorado is added in there too. So we are at a little higher. Last year we were at about $37 million. So that's -- $55 to $60 million is what we are projecting for next year.

I guess this is on the Site Services side. Can you talk about the pipeline for event business and how that looks?

Clearly we are always doing small-scale projects at all of our branches. The events as you know are unpredictable in the ER area. We are very excited about the -- although the ER work, event work that we did on the West Coast, in the San Francisco Bay in and of itself was not of a great magnitude. It was roughly $4 million.

It was the first large event that we responded to on the West Coast and as you know, that is a targeted area of expansion for us. So we believe there will be some nice follow-on work out there so we think that that is exciting for the Site Services business.

Which is not unlike what we experienced in the Gulf region when we responded to the hurricanes a couple of years ago. So that -- we really -- it gives us an opportunity to really show how could we are at what we do in terms of emergency response which leads to other work in the region.

Sure and then how about on the larger cleanup side? How does the pipeline look there?

You mean as far as like remediation projects?

Right.

Yes we had a very strong year with our Waste Projects group in '07 and looking at the first quarter, volumes that they are forecasting, they are ahead of plan from where they were last year. So we see a nice steady flow of large projects and I'm pretty excited about the work that that team continues to do out there.

Vito Menza. Sandler Capital Management.

Very strong quarter, congratulations. Just a couple of questions. I guess it seems like something really has fundamentally changed in the incineration market in the last -- call it, one to three years. You had (inaudible) Environmental for the first time I've ever seen them specifically call out the North American incineration market and obviously they are the number two player behind you guys [through Onyx].

Just wondering, we are also hearing anecdotally about prices that are approaching $0.30 per pound. Just wondering if you could speak a little bit more about what is actually driving back and where do you see that going to in the future?

Clearly, the incineration market has been in a real depressed state for many years and a lot of investment that was put into that market back in the late '80s and even '90s was not getting a very good return, if you would. And I think since Safety-Kleen took some actions in shutting down four or five plants back in the late '90s and, subsequently, our acquisition, what we have tried to do is put in some discipline that -- in our pricing strategy so that we could get a fair return on the investments that we continuously need to make in our incineration facilities.

And so I think utilization has improved. I think customers are willing to pay more because they realize to meet things like the new [MAC] standards and to meet their needs that we need to continue to invest more capital and get a good return on that capital like any good business people do.

I think that's really what is happening. I mean we are just into a better -- we are in a better position today than we were 10 years ago, for sure.

Understand. And Alan and Jim, if you could just speak quickly about the incremental margin on some of that capacity expansion that you are doing on some of your incinerators? Is that going to be north of 50%? Any idea where the range is going to be on that?

Absolutely it would be in excess of 50% because most of the expansion projects are debottlenecking, increasing permits and activities that are less the cost than if you were to build a facility on a greenfield kind of basis. I mean, to build a facility that would have 50,000 tons of capacity could be --

$100 million.

$100 million -- so it's a nice incremental margin here. This will pay for itself in a year to a year and a half.

Even at the current pricing it does not support $100 million investment to build a new plant. So you are still in a depressed pricing state.

Alan, have you guys done any recent work on -- I think you're now north of 550,000 tons of capacity? With this new addition you will be well north of that, but have you done any studies that show if somebody were to go ahead and greenfield that many tons, how much approximately it would cost?

Yes. I think first, just to clarify, we were at about 500,000 and we are going to about 550,000 with this expansion and certainly through our -- looking at out three, five and seven years and trying to predict what is going to happen with the captives -- because there still are 78 captives out there -- trying to predict what needs our customers are going to have, we've looked at the overall capital investment to build a new plant. And quite frankly with the pricing it is at today, it doesn't make sense to do it.

So we still think that we've got a long way to go to convince our customers that the pricing today that they are enjoying is still less than what really the cost of running these plants and reinvesting the capital that we constantly need to make.

Alan, if I wanted to go out and build 50,000 tons of capacity, what would I have to pay today, approximately? (multiple speakers) I'm not going to compete with you.

There hasn't been a new plant, a new incinerator built in 12, 15 years. So if you could get a permit, it would be safe to say it would be about $100 million for 50, 50 to 60,000 tons. (multiple speakers) would be a good (multiple speakers).

So well over $1 billion total then. I don't have that kind of pocket change lying around. Thank you.

[Robert Littlehill]. Bear Stearns.

Good morning. I don't know whether you had mentioned the number of Site Service centers you plan to open in 2008 and whether there will be any particular geographic focus?

Continuing in the Gulf and in the West as well as in Canada, particularly in Alberta, we just expanded our landfills in Alberta and in the Oil Sands area of that province, we see some real nice opportunities to grow there. But right now those are the expansion areas and I would say in the 5 to 7 number is safe on the Site Services side.

I would also like to say that we probably have a fair shot of making a couple of acquisitions this year in the Site Services area. We have been looking at a lot of competitors out there. We have been talking to a lot of them. We are enjoying a steady pipeline of opportunities for acquisitions, and we haven't really done anything in the Site Services area in probably close to 20 years. We did a very small one 20 years ago down in Jersey.

So I think you'll hear us expand more in the Site Services area this year with acquisitions.

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

Thanks very much for participating in our call this morning and we look forward to updating you in our first quarter. And thanks for your questions. Have a great day.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect at any time.