Clean Harbors Inc (CLH) 2008 Q4 法說會逐字稿

Good day, everyone, and welcome to Clean Harbors' fourth-quarter and year-end 2008 conference call.

Today's call is being recorded. There will be an opportunity for questions and comments after the prepared remarks. (Operator Instructions).

At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Bill Geary, Corporate Counsel of Public Affairs. Please go ahead, sir.

Thank you very much, operator, and good morning, everyone. Thank you for joining us this morning.

On the call with me today are Chairman and Chief Executive Officer, Alan S. McKim, and Executive Vice President and Chief Financial Officer, Jim Rutledge.

Before we get started, I would like to remind everyone that matters we are discussing this morning and the information contained in the press release issued by the Company today announcing our fourth-quarter and full-year 2008 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, are generally identifiable by the use of the words believe, 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, February 25, 2009.

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, 2007, our Form 10-K for the year ended 2008 which will be filed March 2, 2009, as well as other recent filings with the SEC.

The Company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in our fourth-quarter press release or this morning's conference call other than through the filings that will be made with the SEC concerning this reporting period.

In addition, I would like to remind you that today's discussion will include references to EBITDA, which is the acronym for Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA is a non-GAAP financial measure and is intended to serve as a complement to results provided in accordance with accounting principles generally accepted in the United States. Clean Harbors believes that such information provides an additional measurement and consistent historical comparison of the Company's performance.

A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in Clean Harbors' fourth-quarter news release. A copy of this release can be found on our Web site, CleanHarbors.com. A copy has also been furnished as an 8-K with the Securities and Exchange Commission.

Now, I'd like to turn the call over to Alan McKim for our business review. Alan?

Thanks, Bill. Good morning, everyone.

First, let me say that we are proud of what we accomplished in 2008. We exceeded our goal of reaching $1 billion in revenue and 15.8% EBITDA margins. We expanded our incineration capacity by 8% and made a number of investments throughout our network of assets. We successfully completed several strategic acquisitions. We took a substantial amount of costs out of our business during the year and generated record EBITDA. Overall, it was a year of significant achievement for Clean Harbors and I want to thank all of our employees for these results.

Looking at our fourth quarter, our revenue and EBITDA fell short of our guidance due to several factors which I will speak to in a moment. At the same time, we generated very strong utilization levels at our incinerators, our landfill volumes picked up substantially in the quarter, we achieved a healthy EBITDA margin despite the revenue shortfall, and positioned our company's cost structure to allow the expansion of our sales force while reducing our general, administrative and facility overhead costs to meet the economic challenges in North America in 2009.

Our results for the fourth quarter truly reflect the strength of our operating model. A number of factors related to the financial crisis that are primarily outside of our control impacted our performance as we moved through the quarter, particularly on the revenue side.

The factors hindering our revenue in Q4 fall into roughly five areas -- first, the rapid decline in commodity prices affecting our resale of recycled oil, copper, and other metals. During the quarter, prices fell precipitously, particularly for copper, and by the end of November, those markets had nearly frozen, resulting in sharply lower revenues. We estimate that this phenomenon resulted in approximately $3 million in lost Q4 revenue within our transformer services line of business.

The second factor affecting our performance was the low price of crude, which declined sharply during Q4. While low fuel costs help us on the cost side, they resulted in lower-than-expected fuel surcharge revenue. Diesel prices started the quarter at $3.95 per gallon and ended at $2.30 per gallon.

The third factor was the declining value of the Canadian currency, which has weakened throughout the year and fell even further during Q4. Again, this has a two-pronged effect because it lowers our revenues from Canada but does create gains in the value of our US dollars held in Canada, which in turn creates EBITDA gains.

Fourth, we had an emergency maintenance shutdown at our El Dorado facility for 11 days in November. The El Dorado shutdown was unscheduled and required a nearly $800,000 investment to repair a portion of the kiln that was not expected to be replaced until this next planned shutdown in February of 2009.

The fifth factor that we saw was some business getting pushed out. Many customers tried to push business into 2009 as a way to conserve cash and curtail spending.

With the exception of the El Dorado shutdown, the factors impacting the fourth quarter are mostly effects of the economic slowdown that are not a reflection of our core business activity, which was strong in the quarter.

Within Technical Services, we had an outstanding quarter in our incineration and landfill businesses. Technical Services has been a strong performer throughout 2008, and we concluded the year with a solid Q4, excluding the factors that I mentioned already.

Overall utilization at our incinerators was a record 98% in the quarter. We were extremely pleased to see our Canadian facilities help drive that performance as they came in at a utilization rate of 108% to go along with a 93.5% contribution from our US facilities.

The upgrades and investments we made at one of our Canadian locations over the course of the year are paying off. We've now achieved a very high level of utilization at both our US and Canadian facilities for several consecutive quarters. As I've mentioned on previous calls, those high utilization rates really enable us to better manage our mix of materials and optimize our profits. Our utilization rate for the quarter is even more impressive when you consider two factors, that we've added incineration capacity to our network during the year and the El Dorado shutdown obviously lowered our US utilization.

In terms of the incineration capacity expansion, we remain on schedule to meet or exceed our previously-stated goal of adding at least 50,000 tons of capacity by mid 2009.

Looking at our landfills, our performance in Q4 was strong as this business produced its best quarter of the year. After experiencing some relative softness in Q2 and Q3, our landfill volumes were significantly higher this quarter. Several new business wins in some of the larger projects that slid in recent quarters grossed significant amounts of volume for us in Q4.

On a year-over-year basis, volumes were up 21% from Q4 of 2007. While this business has always been lumpy due to the timing of projects, we are very pleased to see it end with a solid performance.

For the full year, our landfill business was down 8.5%, compared to 2009, because we really held the line on pricing and didn't chase lower-margin business. Looking ahead, the pipeline of potential projects for our landfills is strong and we are encouraged about its prospects heading into 2009.

Just a quick update on our solvent recovery business -- the two Midwest facilities we acquired in 2008 continue to perform well. Based on our outlook for the solvent recovery business, we are continuing to move ahead with the second phase of expansion at our El Dorado solvent recovery plant, and we believe it will be a steady contributor for us in the years ahead.

Turning to our Site Services group, in Q4, we generated more than $75 million in revenue as we continue to benefit from our sales focus on key industries despite the challenging economy. Our performance in the quarter was driven by our continued expansion in new offices throughout the year and solid contributions in our core industrial cleaning and maintenance projects, as well as remediation in environmental construction services from our petrochemical, utility and refinery clients.

Looking at emergency response contribution, there was approximately $4 million in Q4 ER revenue. The bulk of that revenue was related to the final cleanup phases of work in the Gulf region related to the September hurricanes that we had forecasted.

In terms of our ongoing Site Service expansion, we achieved a high end of our goal for 2008 of opening five to six new site service locations. During the fourth quarter, we opened a new branch in Roebuck, South Carolina. Combined with two branches we acquired from Universal Environmental and the three offices with had earlier this year, we opened a total of six new service locations in 2008. Opening these branch offices has been a central component of our growth strategy for Site Services, and we are targeting adding approximately five offices in 2009.

Turning to our bottom line, we generated EBITDA in the quarter of approximately $41.3 million, which translates into a healthy margin of 16.5% and just above $700,000 shy of our guidance. We are pleased to achieve this level of EBITDA margin, given the revenue shortfall and some of the external pressures we faced in the quarter as a result of the economic turmoil. Also, the unplanned El Dorado shutdown I mentioned earlier likely cost us an estimated $1.9 million in EBITDA due to the extended length of time the facility was down.

Another factor that hindered our EBITDA in the quarter was the severance costs we incurred. On our third-quarter call, we projected the cost savings from headcount reductions would offset severance charges. In total, however, our severance was $2.9 million in the quarter, which was about $800,000 higher than our cost savings from the Q4 reduction in force. Our current headcount today is approximately 4,700 employees.

I'd now like to focus for a few minutes on the topic of acquisitions. As we announced earlier today, we signed a definitive agreement to acquire EnviroSORT, a privately held company that provides specialized container management, waste management and recycling services in Western Canada. We expect the acquisition to close within the next week to ten days. EnviroSORT is an ideal tuck-in acquisition that should overlay perfectly with our existing framework in Western Canada. The company, which has an outstanding reputation in the local markets it serves, has a great team of about 50 employees that will be joining Clean Harbors.

In 2008, EnviroSORT generated revenues of approximately CAD9.0 million and was profitable. It primarily services the oil and gas drilling industry. Its assets include two waste management facilities, a service center and multiple satellite locations.

At this time, our acquisition pipeline has a number of promising candidates, both in Tech and Site Services. We are looking at both large and small acquisitions. Overall, we see valuations have come down and multiples are at a far more reasonable level than they were in recent quarters when we were competing with a lot of private equity firms.

Today, we are not seeing the same level of competition we experienced as recently as six to nine months ago. Based on our strong cash position and the current condition of the credit markets, we believe there will be plenty of good opportunities available to us in 2009.

Let's now take a few minutes and talk about 2009, which I'm sure is most concerning to everyone due to the severe economic recession we are all facing. While we are not completely immune to the economic slowdown, we have a number of initiatives underway to help us extend our momentum into 2009. We believe, with the expansion of our sales groups, that we will gain share across many industries we service. We service a very diverse set of industries and offer many services to over 45,000 customers.

Let me discuss a few of our larger industries served and what our expectations are for the coming year regarding our lines of business. Some of the key lines of business are, for example, our transformer services business which services utilities. We expect to benefit from the investment in transmission infrastructure, and we would expect to grow this line of business by approximately 9% this year to over $50 million.

Our household hazardous waste business, which we are the number one provider in the country, will benefit from new funds focused on environmental cleanup. This is a $35 million business.

Apollo -- today, we have over 360 employees that work full-time, full-time on our customers' sites perform a full range of environmental services every day. With our new enhanced, web-based IT systems to support our customers' information needs, we see growth in this area as customers reduce their staff and look to companies like Clean Harbors to meet their regulatory needs. We expect this business to achieve double-digit growth in 2009.

Our project service business -- we see a strong pipeline of opportunities and we believe the government stimulus will help fund projects that have been dormant because of funding. Our growth projections are 10% this year at $80 million.

These are just four of the 22 lines of business we offer the diversified customer base we have. We have 18 different industry groups that we now have dedicated sales and marketing programs. Here is as a sample of the successes we feel we can achieve this year with a few of these verticals.

Chemical -- this industry is budgeted to grow by about 5% this year to approximately $250 million. We see marketshare gains, cross-selling, and volume from captive closures keeping this segment growing.

General manufacturing -- growth of 9.5% to $160 million based on our increasing market share, cross-selling and, as I mentioned earlier, our Apollo services.

Refineries -- we've had a traded over 100 refineries and upgraders. We can penetrate the remaining 65 refineries this year because these refineries are looking for companies like ours with broad service offerings and a safety record really second to none. We can exceed $100 million in revenue this year with huge upside growth in the coming years from refineries.

Pharma and Biotech -- we expect to grow this industry group by 14% to $90 million by leveraging our new solvent recycling facilities that we acquired in '08.

Finally, government -- the recently signed stimulus package contains funding in a number of areas that could directly benefit our business, including $600 million that's now ear-marked for Superfund; $5 billion for DOE defense-related cleanup, and $500 million for the DOE non-defense-related cleanup; $200 million for EPA's leaking underground storage tank program; and $100 million aimed at Brownfields.

We remain well capitalized, which will enable us to invest further in our network, pursue project opportunities as we've talked about here, and aggressively seek out strategic acquisitions. We look forward to sharing our developments on these fronts with you as the year progresses.

I will now turn the call over to Jim Rutledge so he can walk you through the financials in more detail and provide our current outlook for the year. Jim?

Thank you, Alan, and good morning, everyone. As Alan mentioned, Clean Harbors concluded a great year in 2008 with a challenging quarter delivering mixed results on a number of fronts in Q4.

Q4 revenue decreased 3% to $249.8 million, compared to $257.7 million in the year-ago quarter. As Alan outlined, our revenue was affected by several factors this quarter, including the foreign exchange impact of the weakening Canadian dollar; a sharp decline in commodities pricing that affected our resale of copper, metals and recycled oil; the unplanned shutdown of our El Dorado incinerator; and the shutdowns at some of our customers due to the economic slowdown.

Gross profit for the quarter was $77.6 million, translating into a gross margin percentage of 31.1%, which is ahead of last year's margin of 30.7%.

Selling, general and administrative expenses in the quarter totaled $36.3 million, down $5.3 million or 13% from the fourth quarter of 2007. This quarter, SG&A included nearly $3 million in severance costs, which was mostly offset by the beneficial impact of foreign exchange on our cost structure and US cash we maintain in Canada. I should also point out that the fourth quarter of 2007 included a $2.9 million charge primarily related to an environmental liability and litigation. That was last year. As a percent of revenues, SG&A was 14.5% of revenue in Q4 of 2008, compared with 16.1% of revenue in Q4 of 2007.

Accretion of environmental liabilities was $2.7 million in Q4 of '08, which was flat with Q4 of '07. Depreciation and amortization expense rose to $11.8 million from $9.8 million in Q4 of '07, mainly due to the acquisitions we completed in the last 12 months and the recent higher level of our capital investment. We expect our depreciation and amortization expense to be in the $49 million to $50 million range for the full year 2009.

Q4 of '08 operating income increased 7% to $26.9 million from the $25.1 million in the fourth quarter last year. The increase in operating income was primarily driven by a higher-margin product mix.

We achieved EBITDA of $41.3 million, or 16.5% of revenue. This compares with $37.6 million or 14.6% of revenue in Q4 of '07. Again, the mix of products this quarter and the overall leverage in our network is reflected in our expanding EBITDA margin as we continue to grow revenues at a far greater rate than our operating expenses.

Net interest expense in Q4 was $614,000, which was lower than last year's figure of $3.3 million, reflecting the dramatic year-over-year reduction in our debt and our significant cash position.

Our provision for income taxes was $7.1 million compared to $5.3 million in Q4 '07.

I would like to point out a few favorable factors that occurred during the quarter which reduced our effective tax rate. In Q4, we reversed a portion of our FIN 48 provision in Canada due to an expiring statute there, and we saw a legislative reduction in international withholding tax, that took effect during the quarter as well. In addition, we trued up our state-deferred tax liabilities, which was enabled by our improved tax-accounting framework we implemented during the quarter. These contributed to a favorable effective tax rate of 28% in the quarter.

We anticipate that our overall effective tax rate in 2009 will be between 41% and 42%. That includes FIN 48 expense as well.

Fourth-quarter net income available to common shareholders was $17.9 million, or $0.75 per diluted share, based on 23.9 million average common shares outstanding. Net income for Q4 '07 was $16.6 million or $0.81 per diluted share, based on 20.6 million average common shares outstanding.

Looking briefly at our full-year numbers, revenue in 2008 increased 9% to $1.03 billion from $947 million in 2007. Operating income for the year was $108 million or 10% of revenue. This compares with $85.3 million or 9% of revenue in 2007. Our earnings performance for 2008 clearly demonstrates the effect of our increasing margin performance throughout the year.

EBITDA growth outpaced revenue growth by 2.5 times. EBITDA for 2008 was $163.2 million, up 22% from $133.3 million for the full year 2007.

Net income for full year 2008 was $57.5 million, or $2.51 per diluted share, compared to net income of $44 million or $2.14 per share for 2007.

Turning to the balance sheet, we continue to have a very strong cash position. Our balance of cash and marketable securities as of December 31, 2008 was $249.7 million. This compares with $120.4 million at December 31, 2007 and $253.4 million at the end of Q3. The reason for the sequential decline from Q3 to Q4 is that we paid down $18.5 million in debt during the fourth quarter.

By the way, in connection with this debt pay-down in Q4, we recorded a $1.2 million charge below the EBITDA line for the call premium and related costs. So, for the year, we reduced our long-term debt by more than half. We began 2008 with approximately $120 million in long-term debt and concluded the year with approximately $53 million.

Total accounts receivables stood at $180.5 million on December 31. DSO came down once again to 70 days, compared with 74 days in Q4 of '07. We are pleased with this performance, which highlights the ongoing commitment across our entire organization to limit our collection period and further improve our cash flow. We continue to target DSO at 70 days or less, going forward.

Capital expenditures came in as expected at approximately $18.2 million for Q4. This compares with approximately $13 million a year ago and $9.1 million in Q3. CapEx for all of 2008 was $57.5 million, which is squarely in line with our annual CapEx projections of $55 million to $60 million. As we look ahead, we are again targeting CapEx in the range of $55 million and $60 million for 2009, as we continue to upgrade our facilities and invest in several growth projects in our landfills and transportation areas.

Accounts payable balances decreased to $63.9 million in Q4 from $73.3 million in the third quarter, as did our deferred revenue balance, which decreased slightly to $24.2 million compared with a balance of $25.8 million at the end of Q3.

Environmental spending during the fourth quarter was $1.7 million, compared with $1.6 million in Q4 2007. Overall, we are continuing to carefully manage our environmental liabilities and steadily lowering our exposure in this area. At December 31, our balance of environmental liabilities stood at $178.5 million compared with $184.5 million at the beginning of 2008. Managing this area will remain a key focus for us going forward.

Moving now to our guidance, breaking from past practice, we are no longer going to provide a specific range of quarterly guidance. Instead, we will continue to confirm or update our annual guidance each quarter, and provide some color and context on the upcoming quarter. As we outlined in today's press release, we are anticipating a slow start to 2009 for several reasons.

First, those of you that have followed Clean Harbors in years past know that the unpredictable weather conditions can affect our operations. That is more pronounced in Q1 than in any other quarter. Weather conditions so far this year have been unusually poor across most of our footprint in the Midwest and Northeast of the US and across nearly all of Canada. As a result, we are seeing some project delays and lower volumes on our Tech Services side and some lighter activity on the Site Services side due to weather.

Also, we are seeing some customer plant closures, particularly within our chemical and manufacturing verticals. Finally, we expect our year-over-year revenues to be in negatively affected by the weekend Canadian dollar and reduced fuel surcharge in 2009.

In terms of our annual guidance, we are updating our previously announced preliminary guidance as a result of the overall economic environment, the slow start to the year, softness in some of our end markets, the depreciated value of the Canadian dollar, and the challenging resale market for commodities. We now expect 2009 revenue, exclusive acquisitions, to grow 3% to 4% year-over-year, compared with the 5% to 7% growth we provided on our Q3 call in early November.

As Alan mentioned, we remain optimistic about our prospects for 2009 in total, but we expect the year to be more backend loaded. There are numerous opportunities for us on the horizon, as Alan mentioned, including the federal stimulus package and other large projects we are currently bidding on.

Although we are reducing our topline growth projections for the year, we are reaffirming our EBITDA guidance for 2009. We continue to believe that we will deliver 10% to 15% EBITDA growth. We've significantly streamlined our cost structure, and we are confident that our business model will enable us to continue to grow EBITDA at relatively high margins.

Finally, given that we are clearly involved in making acquisitions, I wanted to point out that the Financial Accounting Standards Board's statement #141R related to the accounting for business combinations took effect on January 1 of this year. This statement requires that accounting-related costs and -- I'm sorry, acquisition-related costs and associated restructuring costs be expensed as incurred rather than be capitalized as part of the purchase price of acquisitions. Clearly, the magnitude of these costs is difficult to predict and are dependent on the size of acquisitions. Hence, we have not included any estimates for such costs in our EBITDA guidance, although we will surely be incurring these costs as we continue our acquisition program.

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

Yes, sir. Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. (Operator Instructions). Al Kaschalk.

Good morning, guys. Alan, first of all, thanks a lot for the additional detail on the business. I think it is helpful to provide that granularity, given the conditions in the market but also the business, so I appreciate that.

If we could talk first on the El Dorado facility and what happened in Q4, so you are back up now and running full-speed. Would this imply that the normal shutdown in Q1 is completed and you don't have to go through another one? Can you talk a little bit about that?

No, the disappointing part for us is we had actually a planned outage for ten days in October for El Dorado, which we took. Three weeks later, we had a failure in our secondary unit out there and were down for another 11 days. That rebricking was planned to be done in the February '09 shutdown, which has now been obviously not needed, so we delayed that and we will go back to our normal turnaround work. So we had essentially two large shutdowns for El Dorado. But I will tell you that that plant and the team down there has done a wonderful job this past year and in many respects really exceeded all of our targets for the entire year.

So, it was a little disappointing, I think a little bit a result of some of the lack of maintenance may be prior to the acquisition that was made. Some of that refractory, from my understanding, was about five years old. So, I think we are in good shape down there now.

Are you able to quantify or are you willing to quantify what percentage or a dollar value that may have been, relative to your expectations, weaker in the quarter? I mean, you commented copper and recycling was about $3 million.

I think El Dorado we said maybe was about $1.9 million on -- was it EBITDA -- and about $1.6 million revenue, maybe, something like that, Al.

That's right.

The reason why the EBITDA was a little larger than impact is because the repairs were expensed.

Yes.

Second, I was wondering if we could -- I'm trying to square up the annual revenue guidance in the first half being a little bit lighter than the second half. How do we think about that guidance and maybe some commentary from your customers on the curtailing of spending or volume and the push-out? Do we see 60% type of numbers in the back half of this year? Because traditionally Q2 and Q3 have been your strongest quarters. I'm just trying to get setting up expectations for 2009.

Yes, there's a lot of moving parts, as you can imagine, with what we see out there. We have customers coming to us looking for extended terms. Some of our largest accounts that historically have been very quick payors have credit problems and are looking for 90/120 day terms. We see some customers that we were working on their site on December asking us to stop on a project that just lost funding because they were really trying to conserve cash.

So you know, the credit markets have had some impact on our customers out there and what they are spending, both on capital and expenses. So our anticipation, based on what we see at least in the credit markets, is they are starting to open up and people are getting, at albeit a very high interest rate, they are starting to get credit back.

But in talking with our sales organization, the feeling is these projects can get pushed. We are not sure which quarter they're going to go in but they're going to get done. You know, some of these tank projects or remediation objects that might have been partially even underway that now have been stopped due to funding and cash, they will get started back up again. So we are just a little bit unsure about which quarter they're going to hit, but that's why we're, to Jim's point, we were really feel it's probably more backended and probably more so this year than ever (inaudible) we have this sort of volatility that we haven't had in the past.

Would it be fair to say that Q1 '09 trends would be either flat or down from Q4 and to be flattish relative to Q1 of '08?

Jim?

I think the way to think about it, if you compare last year to this year, last year, we didn't have the weather issues that we have this year. Clearly, the economic downturn and some of the closures we saw at year-end affected the first quarter. So, I would say flat to down is the right way to think about the first quarter.

Yes.

Okay. Finally, I know the acquisition is small but I think it appears to me anyway as a pretty good use of capital or cash, given the denomination of the currency. But could you talk a little bit about how you see that business growing a little bit more?

Sure. They have a nice service offering up there where they provide essentially recycling on-site at these wellheads where they can provide customers with an alternative of just handling everything as a hazardous waste. They provide recycling bins that allow material to be sorted -- this whole idea of environmental sorting. It's been very, very successful in that market. Quite frankly, we think it would be a nice expansion in the US.

Today, we have 7000 roll-off containers are essentially one bin roll-off -- you know, one compartment roll-off containers. That's a big growth area for us. It's one of the lines of business that we target with our refinery and chemical and petrochemical clients.

This EnviroSORT technology is something we think we can bring into the States and complement that 7000-container business and grow it here quite a bit.

Great, thanks. Keep up the good work.

Ted Kundtz, Needham & Co.

A couple of questions -- could you guys kind of update us on the salesforce additions that you are planning and have already made, and kind of walk us through some of those areas that you are focusing on with them?

Sure. We decided to expand our verticals focus this year to 18. In the past, as we've talked about our chemical manufacturing, refinery, biotech and so forth, we've added some additional areas of focus.

Mining, for one, has been one that we've had some recent successes and one where we see some nice business for our landfills, for example. Transportation services, oil-gas terminals and pipelines is another area that we haven't had as much focus on than others.

So we see some nice opportunities there. Even in the insurance market, quite frankly, we see a lot of our customers who have emergency response being told who to use based on the carriers they have. So, we want to put a renewed focus out there on that particular industry.

From a line-of-business standpoint, you know, we are very strong in the Northeast, as everybody knows, particularly in our Site Services business. As we move across the country in opening up these offices, sometimes our initial penetration might be to provide transportation and disposal and maybe provide some back services, but there are many other lines of business that we offer where we can cross-sell our existing customers, particularly our disposal customers.

So we've put in specialists that understand those various lines of business. We have positioned them across the country to work hand-in-hand with our national account program and our vertical account managers. We are really excited about how those programs are starting to show some good results for us.

How many are you adding and how many have you added so far?

Jim, do you have those numbers?

Yes. The numbers on that, Ted, the total number of positions with what Alan just outlined is approximately 110 positions, about 60 of which, little bit more than 60 will come from outside, so we had some internal transfers. So far, we've hired to date 40 from the outside, and did all of the internal transfers. So we have another 20 or so (multiple speakers) hiring. (multiple speakers)

Terrific. Can you talk a little bit about the pricing trends? Do you plan on any price increases here? What's your thinking, given the current environment?

Sure. You know, we are thinking real strategically on the pricing in that we've got to work with our customers as they work through this economic situation, so we are working with them on credit and terms. We are really trying to help them lower costs rather than simply us lowering our price.

We seek opportunities to sit down with our customers where we can really identify ways of lowering their costs. That, right now, quite frankly, Ted, is more of a focus of ours to help our customers rather than raising prices. We typically look at pricing in the April timeframe, and I just don't see this year going across the board.

We've also been able to lower our fuel surcharge to our customers significantly year-over-year, so I think our customers appreciate how that surcharge has worked now, seeing crude go up and down as significantly as it did. That in itself is giving them really a nice reduction in price. So that's how we're looking at it right now.

Okay. Ex the fuel surcharge, which is just sort of a pass-through, I would think --

Right.

-- are you holding, are prices holding?

Yes, I would say prices are holding. You know, there's examples of customers coming back and saying "If we reduce the number of suppliers and give you more business, will you do this for us with credit? Will you do this with us, possibly, with price or discounts on volume?" So we are seeing customers being very proactive as they are trying to address their business issues with this slowdown out there. So we see that going on, but quite frankly, we haven't seen a deterioration on our pricing at this point.

Okay. Can you tell us what you're getting, price per pound, on the incineration side?

Yes. That's close to -- it's between $0.29 and $0.30 a pound roughly.

Okay. Has that roughly been sort of steady as well?

It's been growing a bit, maybe $0.01 or $0.02 over the last year or so.

Year and a half.

Year and a half, maybe, yes.

I think we've made some steady progress on that. Quite frankly, when Jim talked about our capital investment, we've put a lot of money into our incinerators and continue to do that to meet the needs of our customers. I think our customers have appreciated the fact that this capital is precious, and they've been willing to work with us.

Great. Thanks very much.

Larry Solow, CJS Securities.

Good morning, guys. Alan, thanks again for the color on the verticals. Very helpful.

Just on the incinerator, the 98% capacity utilization, does that include the 40,000 tons of additional you've added?

Yes. The way we calculate the incinerator utilization is based upon all of the increases in capacity that we did that are in place throughout the whole quarter. So about 30,000 tons are in that number, because that is what we opened the quarter with in terms of added capacity.

I got you. Then you now closed the quarter; I guess you have 40,000 on your way to --?

Yes, we have 41,500 and we are well on our way to 50,000 tons.

You mentioned that there potentially is even more than 50,000 expansion when you are through with this initiative. Is that --?

Our engineers are doing a real good job. They tell us that they might even be able to exceed our expectations there.

Great. Then, you guys gave us a little -- on your November call, you talked about how your backlog was kind of booked through April on the incinerator. I know that you mentioned this time that your backlog looks good. Is there any additional visibility beyond April?

You know, our incinerators are very much like chemical plants; they need a mixture of a lot of different materials. So every month, sometimes we are short on one type of waste stream versus another.

Our solids business materials coming in on our roll-off containers from projects has been very strung for us. Our drum business, which tends to be more derived from manufacturing and overall sort of economic activity is lower. So, some of that business, you know, is weaker for us.

We have quite a bit of inventory throughout our network to process through the facilities. You know, March really dictates how well we do on our quarter, as it does every year, and so our expectation is when we start getting up to that 90-day period when customers have to move the waste off their sites or they become in violation, we are hoping that we're going to see a nice uptick in some of that more routine waste stream.

Okay, great. Then could you just quantify maybe, on like particularly in the chemical segment where you actually expect growth despite the fact that obviously the chemical world is not doing great, is some of that revenue coming from closing down and remedial work at the facilities, sort of countercyclical work that can only last for a certain amount of time, or is it also being driven perhaps by a little more color on the captive side and the closing captives?

Yes, I think there are some chemical companies -- you know, when we look at chemical, we kind of look at them both from a commodity chemical versus a specialty chemical. Both of them are almost equal in revenues.

You know, what's going on with the commodity chemicals is certainly there's more pressure on their industry. They also tend to have more of the captive incineration capacity. As their utilization goes down, that's where we've seen them come to us and look for alternatives, because I think their overall costs go up higher than what it would be if they outsourced it to us. So we see opportunities there.

I wouldn't say growth in the chemical is anticipated from closure. I would say that we get a lot of different revenues from chemical companies, not just disposal, but our Apollo business is strong with chemicals, we do a lot of in-plant services, a lot of cleanup work.

So I think the real opportunity for us is to leverage the contracts that we have with the major chemical companies, expand our reach, add more service locations, and really offer them a better value by having less vendors to deal with.

Okay. Then could you maybe add a little more color? I think you had expected previously five captives closing, and I think three closed in 2008. What's your outlook for the next kind of 12 to 18 months?

Yes, we are still seeing five out there on top of that. We saw a couple close last year that were not in our original five. We saw one significant cement kiln close. We've seen recently another one announced that they will be closing April 1 for an indefinite period. We're not really sure how long that is going to be down.

But as the cement industry certainly has suffered, the volume of waste that they are handling has been reduced, so we've been seeing some increased volume as a result of that phenomenon, too. So I think you'll continue to see an opportunity for five additional, inefficient plants to come off-line. The price of natural gas being so low right now I think has maybe taken a little bit of the focus off of that effort where before, at $12 or $13, it was a huge cost for them. But I still think there's five out there.

Okay. Then you did a nice job actually; you gave some absolute numbers on the impact of the falling commodity prices. For instance, on the utility business with the falling price of copper, I know it was kind of a $3 million hit in revenue. Can I assume that a lot of that actually would have flowed to the bottom line? Is that how that works? Then you kind of got squeezed as the prices fell?

Yes, that's right. EBITDA was impacted by nearly a couple of million.

Right. Then net/net, I imagine obviously you have metals in most of the commodities probably with your resale, you probably are impacted a little bit, negatively. But just looking at oil in particular, would you say, net/net, you are more of a beneficiary of falling prices or is it kind of impacting you negatively?

I think, if you look at the fuel surcharge, we are probably indifferent, if you look at all of the ways that oil costs affect our costs at the Company. Clearly, diesel is the most impacted, but you have our incineration fuel; you have our utilities in general across our facilities. Even the travel of our sales force, etc., is affected by the cost of gasoline. So I tend to look at it as more of a wash.

I got you. Then last question and I will move on -- last quarter, you talked about the headcount reduction kind of offset by some additional sales (inaudible). You talked about kind of an $8 million annualized savings. It looks like you've maybe increased your headcount reduction a little bit but also added a little more sales in then than you thought. Would you still kind of think that $8 million annualized number is a good ballpark figure to use going forward?

Yes, that's about right, Larry.

Jonathan Ellis, Merrill Lynch.

Thanks and good morning, guys. First, just for fourth quarter, Jim, can you provide the actual total revenues, if you have it available, in Technical Services and Site Services as well as EBITDA margins for both businesses if we have them?

Absolutely. Tech Services was $175 million. Site Services was $75.4 million.

EBITDA margins, do you have that?

EBITDA margins were -- let's see, we had -- I can give you the EBITDA numbers actually. Tech was $46.8 million. Site was $10.2 million. That being said, we are still finalizing our 10-K which will be filed on Monday, March 2, so we are still working with our footnotes, etc. I don't expect any changes there, but we are finishing up our audit and all of that. So I just wanted to mention that as well.

Sure, I appreciate it. It's helpful.

Just to be clear on the captives that you talked about coming off-line as well as what contributed last year from so many unexpected shutdowns, is there any way to quantify exactly what the contribution was even maybe perhaps on an annualized basis? Since I realize it would be a partial benefit in '08, but an annualized benefit from some of the captives that came off-line in '08, and potentially what you may expect in terms of additional shutdowns in '09 in terms of an annualized impact to you?

Yes, I think even though we saw some come off-line, one side actually, as I mentioned earlier on our previous calls, I think, that the plant shutdown would also -- the incinerator shut down with the whole plant shutdown, so that volume never came to the market.

You know, I think I would be guessing, Jon, if a told you what the number is, but I would be prepared to have some more color for that on our next call. I'm sure it's not more than 20,000 tons or 30,000 tons at this point, but we will try to have some more information on our next call for you.

Okay, all right. I appreciate that.

Just to be clear, in terms of planned maintenance going forward, I mean, you spoke about El Dorado and the fact that you're not going to have to take that facility down in February now. Can you talk about other maintenance plans for 2009? Should it be any different than the kind of typical seasonality that we've seen in past years?

I think, if I looked at the schedule, I believe we have a good number of less days this year in down time than we did last year, if I'm not mistaken. I don't have that number right in front of me.

We do, we do.

But I believe it's about 20 less down days --

That's correct.

-- that Eric has planned for his plants this year. So I think we're going to see an improvement on that. I think it had to do with some of the major projects that we did to expand our incinerators last year.

Yes.

Okay, All right, great. Jim, do you have -- you provided CapEx in detail. Do you have cash flow from operations for the quarter?

Yes, I do. Cash flow from operations is $33.4 million.

Okay. As you think about 2009, and you talked about EBITDA growth, but is there any -- as you think about conversion of EBITDA into actual cash flow of operations, is there any reason why '09, the relationship in '09 should be any different than past years? Are there other factors that we should consider from a cash flow standpoint in '09?

No, not really. I think we talked about the CapEx being in that $55 million and $60 million range.

If you're talking about just -- I can't think of anything, actually, that is different.

Okay, very good.

Turning my attention just to the outlook, and I just want to make sure I'm clear on this, Alan. When you talked about pricing before -- and I am sensitive to obviously needing to work with your customers and given the hard times we are facing. But as of right now, the expectation is clearly not to implement any kind of increase similar to the 4.5% you did in '08, but is the intention probably to not implement any price increase this year, or something more scaled down? Just, if you can try to -- maybe a little more clarity on as of right now at least what you're thinking on that.

It's a much more targeted approach this year, looking at margins of our various waste streams, looking at margins of our contracts.

As we went through our pricing program over the last two years, some of our contracts had one-year price commitments and others might have even had longer-term. So, we are looking at a very targeted, very strategically, in some cases going to customers and offering them some firm pricing for an extended contract and maybe more business, so we are looking at it trying to help us gain that market share by sort of leveraging that relationship, so very, very targeted and strategic I think.

So just to be clear, arguably you could see perhaps some topline growth, but the mix obviously is much more tilted towards the volume as opposed to price during 2009?

Yes, that's safe, absolutely. Yes, I would say so.

All right, good. Just in terms of the backlog that you talked about, and I know you highlighted in the press release the backlog is really healthy right now, can you talk a little bit about, if you have it available, the mix of that backlog in terms of what I would call I guess more base business versus event type or project type business? Any sense there as to what the mix is, and is it different at all from what you've seen over the past few years?

Yes, I would characterize it more an event-project business. Some of the efforts our team has had out there over the last couple of years, working with engineering consulting firms, working on some of the government sites, working with some of our customers who have some large cleanup projects out there, we've just seen some real nice opportunities that have been being developed that now are coming to fruition. We are pretty excited about the work that team is doing. That's really the strength I think of our company, that as our base customers maybe shrink and they have less waste that they are generating simply because their business is down, we are hopefully offsetting that decline with some nice wins on some of these other lines of business.

Okay, great. Just my final question, you talked about the stimulus spending plan. I assume that where there's probably the most opportunity for you is related to the Superfund sites, but correct me if I'm wrong. If in fact Superfund is the biggest opportunity for you right now, can you give us some sense of what your market share is in that business, or what your presence is there already?

Most of the work on Superfund-related projects has been working on the private PRP groups, the responsible parties. That tends to be our clients that also do business with us on a day-in/day-out basis, if you would.

I think the Superfund has been underfunded for well over five years. To see more money now being injected into that program we think is really going to help get some of these projects that have been sort of waiting to get executed, to get those things moving. It puts people to work; it's something that the EPA wants to get done. They just haven't had, quite frankly, the money.

I would also say that the DOE has sort of been in the same boat. You know, when you look at the funding they get, I think their base funding of like $4.2 billion is just to keep the agency going as it relates to managing these cleanup sites. If you start looking at some of the added money that the government is going to put into those agencies, we hope it's going to provide cleanup. You know, we've got a low-level radioactive facility. We'd love to see some business as part of their spending program go into that site.

Great. Thanks, guys.

(Operator Instructions). Rich Wesolowski, Sidoti & Company.

Thanks, good morning. I look at your best incineration utilization of the year in 4q. You had a number of items -- the weather, the emergency shutdown, THE capacity, etc. You know, it's encouraging but it's also a little confusing. Were there projects or end-markets that did better in 4q than they were doing through the first nine months?

No. I think most of the weather comments that we made, Rich, were really directed to the first quarter. So fourth quarter, we had a nice strong quarter as far as the waste streams that were coming into our incineration. There were some project delays that we had talked about on the Q3 call, and those came to fruition in Q4 and got onstream. So overall, it was a nice quarter as far as what was coming through.

Okay, so there were project delays in the incineration end of it as well. I was under the impression that those were mostly landfill.

Mostly landfill, but it also affected incineration as well. There were some that was headed that way as well.

Okay. It seems market-share gains are a big part of your pretty constructive '09 outlook. Are there competitors out there, either in landfill or in incineration, that you judge are hurting to the extent where it's easier for you now to get share versus, say, a year or two ago?

No. I think that we can continue -- that the Company has grown in the last 29 years; only one year we did not grow revenues, and that was in '96. We believe we can continue to grow. We've grown through three other recessions, and we believe we can continue to grow. We are putting a lot of people out on the street. We are trying to leverage those national contracts we have. We think that certainly the smaller competitors out there that may have one or two locations of a major Fortune 500 Company may be very much negatively impacted by what's going on in the banking community, for example, and so we believe we can continue to do what we've done the last 29 years.

So it's more an internal focus on share growth rather than customers making it easier for you to do so?

Well, I think there's customers coming to us and saying, "Look, we will give you more business if you extend your terms, if you give us maybe a bigger discount based on volume." We see that coming from a lot of customers today. We think this is probably one of the things that the big Fortune 100 kind of companies are taking on as a way of lowering their costs and addressing this economic problem.

Okay. Then lastly, if I look at your base site service revenue, if you take out the emergency response, I get a low single-digit growth rate on a light comp for this fourth quarter. Previously in the year, you were running at a high-teens rate. Is this the normal quarter-to-quarter volatility, or maybe it is this segment a bit more dependent on a stronger economy than I thought?

Yes. Just to point out, Rich, the reason for that, the primary reason, is the comments that we made about the copper commodities side. It falls in that Site Services business, and so we suffered $3 million in Q4 for that.

$3 million. Perfect, thanks.

Jamie Sullivan, RBC Capital Markets.

I want to echo the thanks for the commentary on the segments. That's very helpful there.

I'm wondering, Alan and Jim, if you could just comment. What we are hearing from a lot of other companies is that visibility is as low at they've ever seen. Alan, you talked about some of your history as a company. Can you just comment on visibility at this point relative to other cycles and other years?

Well, there's no question that the downturn this time is far greater than what we saw in 2001. I think we are a much larger organization that is more geographically diverse with more service lines than ever before that we offer our customers.

I think we've been pretty -- you know, I think we've been doing a pretty good job of looking at what's going on within our regions in the US and Canada on a weekly basis. We've been looking at our verticals, looking at our lines of business. I would say that we have pretty good visibility, but we also know that there is uncertainty about timing. So when we look at our pipeline of opportunities and our wins and then try to predict when are they going to start, that's when we start getting into these uncertainties of what our customers are going to do to conserve cash and what have you.

But the volatility that we see this year is certainly greater than we've probably ever seen before, but I think, looking out over the year, we kind of feel confident that a lot is in our control to go out there and win the business and keep our growth going.

Okay. I was wondering if you could break out what the relative impacts of FX and fuel are on the growth for '09, if you have that?

Yes, maybe if we look at historically, Jamie, just to get a feel, I will take the fuel oil costs first. In 2007, our total diesel cost was roughly about $26 million or so. In 2008, it climbed to about $38 million or so. That gives you an idea, I think, year-over-year from 2007 to 2008, with the increasing fuel costs, the way that pass-through would be working on our revenue line.

If you look out to 2009, clearly if prices stay where they are at for fuel, we will stay probably with the diesel costs that I just talked about and maybe even lower. That's implied in our 2009 full-year guidance.

On the FX impact, we are just basing the FX rate on where it is now. It's been fluctuating between $0.79 to $0.82 there, so that's kind of what we are basing our 2009 projections on.

Okay, that's helpful.

On some of the stimulus that you talked about and the increased spending on environmental projects, when would you look to see some of those things be reactivated or start up?

You know, I think it's too soon to tell right now, to predict exactly. There are a lot of projects that have basically been designed with an action plan put in place and the bidding process in some cases is underway already. But I think we are going to see some of the stimulus money comes through pretty quickly. It's just hard for us to predict exactly when.

Then just one quick one on the tax rate -- Jim, what is the impact of FIN 48 on the tax rate? You said 41% to 42%. What would sort of be a normalized tax rate?

Yes, I would say the normalized tax rate would be about 36%, Jamie, probably in that 36% to 37%, but more towards the 36% side.

Okay, thank you.

Thank you. Our last question will come from [Chiro Omera], Robert W. Baird.

Good morning. Just to follow onto one of the last questions, could you quantify the revenue and EBITDA impact in the fourth quarter from foreign exchange and fuel, please?

The foreign-exchange was roughly, at the top line and the revenue line, it was approximately -- I am just trying to recall now. Yes, in the top line it was around $7 million in Q4. By the time it got to the EBITDA line with the offsets that we had with the cash that we have in Canada as well as our cost structure up in Canada, we probably gained close to $1 million.

Okay. And then for fuel as well?

Fuel -- I went through the costs on the diesel fuel. I couldn't give you a clear revenue number on the fuel there only because it crosses our invoices and depending upon the services that we are providing to customers, giving a complete, detailed picture on that. But clearly it had an impact during the quarter. I just can't estimate.

Several millions of dollars.

Yes, it's probably (multiple speakers) --

-- don't have a real number here.

Yes, it's probably a couple of million, but that's really just a round number.

Okay, great. Then in terms of salespeople, 100 into the new verticals, kind of net 40 add. How many salespeople total do you guys have now in the field?

This will bring us up I think close to 300.

That's right, yes.

Close to 300.

Well, thanks very much, everyone. We appreciate you participating on our call this morning. We look forward to updating you at the end of our first quarter.

That concludes our conference call. Thank you for joining us today.