Clean Harbors Inc (CLH) 2009 Q1 法說會逐字稿

Good day everyone and welcome to Clean Harbors' first quarter 2009 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 for Public Affairs. Please go ahead, sir.

Thank you, Operator. Good morning everyone. Thank you for joining us this morning. On the call with me today are Chairman and Chief Executive Officer, Alan S. McKim 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 first quarter 2009 financial results, that are not historical facts are considered forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward looking statements including predictions, estimates, expectations, and other forward looking statements generally identifiable by the use of the words believes, hopes, expects, anticipates, plans to, estimates, projects, or similar expressions are subject to risks and uncertainties that could cause actual results to differ materially.

Accordingly, participants in today's call are cautioned not to place undue reliance on these forward looking statements which reflect management's opinions only as of this date, May 6th, 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, 2008 which was filed with the SEC on March 2nd. And form 10-Q which will be filed on May 8th. The Company undertakes no obligation to revise or publicly release the results of any revision to the forward looking statements made in our first quarter press release or this morning's conference call other than through the filings that will be made with the SEC concerning this reporting period.

In addition, I would like to remind you that today's discussion will include references to the acronym EBITDA which is earnings before interest, taxes, depreciation and amortization. EBITDA is a non-GAAP financial measure and is intended to serve as a compliment to results provided in accordance with the accounting principles generally accepted in the United States. Clean Harbors, believes that such information provides an additional measurement and consistent historical comparison of the Company's performance. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures, is available in Clean Harbors' first quarter news release. A copy of this release can be found on our website, cleanharbors.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 Alan McKim for our quarterly review. Alan?

Thanks, Bill and good morning everyone. As we have forecast on our Q4 conference call, the current state of the economy as well as the severe winter weather weighed heavily on our results in the first quarter. Q1 is historically our seasonally weakest quarter due to the timing of customer projects and the affect the weather can have on our operations and volumes. And this year was no exception. The weather had an even more pronounced impact on it this year because the severe cold temperatures that is typically occur early were still present in March and in the Northern US and across much of Canada. So we did not see our usual March pickup in demand and volumes until nearly the end of the month.

Due to the current economic environment, the slow down that we have witnessed in the -- in certain industry verticals such as chemical and manufacturing around the holiday season at year end carried into the first quarter. We saw customers temporarily closing plants or furloughing workers in an attempt to conserve their cash. At the same time we saw a variety of planned projects get pushed back during the quarter. Additionally, when you look at our results on a year-over-year basis, our revenues this quarter were negatively affected by the continued weakness of the Canadian dollar, as well as a reduction in fuel surcharges. So there were a lot of factors working against us in Q1.

Despite the weather and the economy the news was not all bad in the quarter, however. We did generate some notable areas of growth including our industrial services business, as well as in our healthcare and refinery verticals. Also our landfill business delivered a seasonally strong performance, as volumes equaled those in the first quarter of 2008.

During the past few quarters, we've done an excellent job of streamlining our entire organization and removing costs wherever possible. I mentioned on our Q4 call that we had eliminated more than 259 billable positions, mostly through process improvements, system enhancements, and organizational changes. Our head count reductions have enabled us to lower our fixed costs by more than $2 million per quarter. We are prudently managing our expenses across the board.

Jim will go through the financials in more detail, but I wanted to point out that our gross profit margin this quarter was the same as in Q1 of 2008 despite a 15% decline in revenue and some higher costs for chemicals and raw materials we require. That speaks to the progress we've made in lowering our cost structure. Reflecting our lower revenue totals this quarter, our EBITDA in Q1 was $25.4 million, down 23% year-over-year. Our EBITDA margin for the quarter was 12.3% compared with 13.7% in Q1 of 2008, reflecting a higher percentage of SG&A costs, which Jim will cover later in the call.

Turning to our business segments, our technical services segment delivered mixed results in the quarter. Our TSDFs and our wastewater treatment plants were down year-over-year. Utilization in our incinerators was 83.5% this year versus 92.8% in the first quarter of last year. This decline was due to seven additional down days in the quarter when we performed routine maintenance and repairs on our equipment.

On an absolute basis, incineration volumes were down only slightly to approximately 113,000 tons. As you may recall we added 40,000 tons of capacity during the past 12 months. In the US incineration volumes remain flat and utilization was 83.4% and in Canada incineration volumes were down slightly year-over-year with utilization coming in at 81.6% as we saw more outages in the quarter. In terms of our incineration capacity expansion we remain on track to meet our previously stated goal of adding at least 50,000 tons of capacity by mid this year.

Turning to our landfills, volume reached seasonally low levels typical for the first quarter of the year and as I mentioned were essentially in line with last year's Q1. Although pricing remains competitive in the landfill sector, we continue to see a considerable pipeline of opportunities. The performance of this business has relied on large projects to drive significant amounts of volume. And we see a number of those in the quarters ahead. We are continuing to strengthen our logistics capability to be even more competitive in this space.

As you may recall one area of expansion for us within tech services is solvent recycling. We continue to view this as a promising business line for us as two plants we acquired in 2008 continue to perform well. In Q1, we initiated the second phase of construction and at our third solvent recycling site at Eldorado, Arkansas. Our expansion plans for Eldo remain on schedule and on budget. We expect the completion of the second phase in September. We continue to believe that solvent recycling will be a steady contributor for us in the years ahead.

Turning to our site service segment, overall our site service business in the quarter largely mirrors our tech service performance, with most of our service lines down to a combination of weather and the economy. In addition, there were no emergency response events during the quarter to help off set the drop off in routine business. Opening branch offices has been a central component of our growth strategy for site services. During Q1 we did not open any office locations but we obviously had the Eveready transaction that we announced last week in mind and our focus was getting that deal signed.

One of the largest benefits to the transaction is that it greatly accelerates our geographic expansion plans. Each year we target adding approximately five to seven offices. While we are still in the process of closing with Eveready, of the 79 locations that Eveready will bring to Clean Harbors, the majority are in markets that we do not current operate. So needless to say, we will far exceed our targets for 2009.

During the first quarter we completed our acquisition of EnviroSORT a western Canadian company that provides specialized container management, waste management and recycling services. The transaction provided us with two wast management facilities, a service center and multiple satellite locations throughout Alberta to services the oil and gas drilling industry in the Canadian provinces of Alberta, British Columbia, and Saskatchewan. EnviroSORT which primarily services the oil and gas drilling industry also was an excellent compliment to the Eveready transaction.

Since we devoted an entire call to the Eveready announcement last week and there is not much new to report, I won't spend too much time on it in my prepared remarks this morning. We remain very optimistic about Eveready and the prospects for our combined organization. Eveready represents an ideal fit for Clean Harbors. Geographically they more than triple our Canadian presence and provide us with our first entrance into markets outside of North America. And culturally, we see a like minded organization with a high quality team lead by seasoned management.

From a service perspective Eveready will enhance and broaden our suite of service offerings enabling us to pursue significant cross selling opportunities among both Company's customer bases. And finally from a market standpoint, Eveready has a well established position in the industrial services market, which we have been targeting and steadily moving into for some time. It is a high growth market that has been estimated to be in the $12 billion to $13 billion range which is equally as large as our site services market. We look forward to completing the acquisition during Q3 and capturing the benefits of the combined Company beginning later this year.

Even though we believe that we will continue to gain traction and build momentum as the year unfolds, our Q1 performance has led us to re-set our guidance for the year. Jim will go into the specifics, but we continue to expect that our revenue and EBITDA in 2009 exclusive of the Eveready acquisition, will be skewed toward the second half of the year. Already we have seen a significant pick up in activities in our end markets, especially in chemical and manufacturing where many plants are back online.

As it happens each year as the weather warms we see demand for services significantly increase. We also see a return in our project business that also stalled in Q1. The household hazardous waste business is now in full swing and will continue into the fourth quarter. Beyond the rebound in customer activity, there are a number of reasons for our optimism for the full year 2009, including the expansion of our sales force and our incineration and solvent recycling expansion. We are committed to making an aggressive push in our sales and marketing activities in 2009.

On our Q4 conference call I outlined at length our vertical market profile and prospects in each of those areas. We have aligned our sales teams along these verticals. There are a number of verticals where our penetration rates are still low and we're confident that there are abundant opportunities for to us gain market share this year. More and more we are finding that customers particularly in challenging economic times, are seeing a single source supplier. Our broad array of services combined with our vertical market expertise and superior safety record is continuing to provide us with a significant competitive advantage. The addition of Eveready services such as decoking and catalyst change out later this year will only further strengthen that advantage.

At this point as I did in our Q4 call let they provide a brief update on how some of the -- our key verticals performed in Q1 and what we anticipate going forward. Our general manufacturing and chemical verticals were both negatively affected by the economic slow down in Q1. However, we believe we are beginning to see the first signs of stabilization. Inventories are being corrected, plants are coming back from furloughs, and producing is beginning again, though not at full capacity.

Although we have very little direct business with the automotive industry, we have felt the indirect affect of the lagging auto industry as our manufacturing suppliers and chemical commodity providers are feeling the pinch. We continue to be optimistic about our refinery business, which delivered double digit growth in Q1 2009 even though many refineries delayed discretionary spending for projects and major tank cleanings. With pharma and biotech, we experienced declines in Q1 as two major projects accounted for a majority of our loss compared with the prior year. We continue to believe that we will be able to leverage our new solvent recycling facilities that we've acquired in 2008 to capture this end market. I mentioned the healthcare vertical as one of the few bright spots inQ1. We see continued strong upside as states are focused on pharmaceutical waste management.

Finally in our government space, we have experienced growth in Q1. Looking ahead we see hundreds of millions of dollars have now been ear marked for areas in we specialize. These include $600 million ear marked for super fund cleanup. A recently published list of super fund sites that are under consideration for cleanup include many locations where Clean Harbors has done previous remediation or revitalization work.

The good news is that we have relationships with most EPA regions and remedial action subcontracts. This bodes well for our ability to win these contracts when they are officially put out for bid. %5 billion for Department of Energy defense related environmental cleanup and $500 million for DOE non defense cleanup. Another $200 million for EPA's leaking under ground storage tank program and $100 million aimed at remediating Brown Field locations. While it is still early in the process since much of these funds have not been released we are beginning to enter the proposal stage for some projects. We are confident that Clean Harbors will benefit from more engagements related to the federal stimulus later this year, but much more into next year.

In terms of our pricing we are implementing price increases on a surgical basis, rather than raising pricing across the board as we did at this time last year. We are strategically approaching this issue based on the current economic climate and will continue to work with our customers. So in summary, as we outline in today's press release the expansion of our sales force, the additional incineration capacity, the projects that we see, and the Eveready transaction should drive our top line and EBITDA performance in 2009 and beyond.

I will now turn the call over to Jim, so he can walk you through the financial in more detail and provide our guidance for the year. Jim?

Thank you, Alan and good morning everyone. Before I begin, I would like to point out that all of my guidance for the year in each of the line items is exclusive of the Eveready acquisition. As Alan mentioned, we expect the acquisition to close in Q3 and we will provide guidance on and the combined Company at a later date.

Clean Harbors faced a challenging quarter in Q1 revenues declined by 15% to $206.3 million compared with $242.5 million in the year ago quarter. As Alan outlined, our revenue was affected by a few major factors this quarter. First, as we had warned on our Q1 call we saw project delays and lower volumes in our tech services across many of our end markets, which resulted from the drop in economic activity in North America.

Second, we experienced very poor weather conditions in Q1 across most of the country and in Canada. And the difficult weather conditions continued through the first quarter and even into April. We also continued to see lower fuel surcharge revenue and finally the decrease foreign exchange translation rate negatively affected revenues as well. Despite the lower revenues gross profit for the quarter was $62.8 million, translating into a gross margin percentage of 30% which is slightly higher than last year's margin.

Selling general and administrative expenses in the quarter totaled $37.4 million, down $1.8 million or 5% from the first quarter of 2008. The year-over-year favorable reduction was largely due to lower payroll expenses reflecting less incentive compensation and commissions with the lower sales volumes this quarter, as well as reduced personnel costs since our staff reduction. This was partly off set by the cost of personnel in the businesses we acquired last year and the affect of expensing certain legal and professional fees associated with the Eveready and EnviroSORT acquisitions amounting to $600,000 in Q1.

As a percentage of revenues SG&A was 18% of revenue in Q1 of 2009, compared with 16% of revenue in Q1 of 2008. The increase was due to the relatively lower overall sales revenues. We expect this percentage to resume into the 15.5% to 16% range as we are seeing the expected pickup in volumes this quarter.

Accretion of environmental liabilities was $2.7 million in Q1 of 2009 which is flat with Q of 2008. Depreciation and amortization expense rose to $12.1 million, from $10.5 million in Q1 of 2008. Mainly due to the acquisitions we completed in the past 12 months. We continue to expect our depreciation and amortization expense to be in the $49 million to $50 million range for the full year 2009. Q1 2009 operating income decreased 46% to $10.7 million, from $20 million in the first quarter of last year.

In addition to lower revenue, the decrease in operating income was driven by higher operating expenses particularly due to higher employee healthcare costs as well as an increase in our allowance for doubtful accounts of about $600,000 associated with a couple of corporate bankruptcies in the chemical sector. We also saw an additional $600,000 in acquisition costs that I mentioned earlier.

We achieved EBITDA of $25.4 million or 12.3% of revenue. This compares with $33.1 million or 13.7% of revenue in Q1 of 2008. This quarter, volumes were soft for the reasons we spoke about earlier and the site services business was particularly affected by the weather. As a result EBITDA declined 23% year-over-year. It is note worthy that our EBITDA margin percentage has improved by nearly two percentage points since the last time we had Q1 revenues at this level back in 2007.

Net interest expense in Q1 was $1.4 million which was lower than last year's figure of $3.4 million reflecting the dramatic year-over-year reduction in our debt and our significant cash position. Our provision for income taxes was $4.4 million, compared to $7.6 million in Q1 of 2008. Our effective tax rate for Q1 was 47% compared with 46% in Q1 2008. FIN 48 expense during the quarter was $1 million, for the full year we project that our overall effective tax rate in 2009 will be between 41% and 42%. That includes the FIN 48 expense as well.

First quarter net income was $5 million or $0.21 per diluted share based on 23.9 million average common shares outstanding. Net income for Q1 2008 was $8.9 million or $0.43 per diluted share based on 20.9 million average shares -- common shares outstanding.

Turning to the balance sheet, we continue to have a very strong cash position. Our balance of cash and marketable securities as of March 31, 2009 was $227.2 million. This compares with $249.7 million at the end of Q4. The sequential decline in cash was due to a few factors, including the closing of the EnviroSORT acquisition in Q1, the payout of our 2008 year end incentive compensation, and the higher level of capital expenditures during the quarter which I will review in a moment. Our current cash position today is about $235 million.

Total accounts receivable stood at $156.7 million on March 31, and our day sales outstanding came in at 70 days which is flat versus Q4 2008 and down compared with 72 days in the year ago quarter. We are pleased that we have been able to maintain our DSO at 70 days for two sequential quarters as we are committed to limiting our collection period and further improving our cash flow. We continue to target DSO at 70 days or less going forward.

Capital expenditures came in as expected at approximately $23.9 million for Q1. This compares with $19.2 million a year ago and $18.2 million in Q4. Our capital expenditures this quarter included the buy out of some of our equipment leases amounting to about $8 million, as well as expenditures to upgrade our facilities and invest in future growth projects. We are now targeting Cap Ex in the range of $50 million to $55 million for 2009.

Accounts payable balances decreased to $48.9 million in Q1 from $63.9 million in Q4, as did our deferred revenue balance which decreased to $21.4 million compared with the balance of $24.2 million at the end of Q4. Environmental spending during the first quarter was $2.2 million compared with $1.9 million in Q1 of 2008. Overall we are continuing to carefully manage our environmental liabilities. At March 31 our balance of environmental liabilities stood at $178.9 million which is comparable to the beginning of the year. Managing this area will remain a key focus for us going forward.

Moving now to our guidance, due to the very slow start to the year and in light of the current economic uncertainty, we are reducing our previously announced annual guidance, exclusive of acquisitions. We currently expect that 2009 revenue will be flat to slightly down compared with 2008. Based on the trends we are seeing in our business and the initiatives that Alan referenced, we continue to be encouraged about our prospects for 2009 in total and we expect the year to be skewed to the back end half of the year.

We are also lowering our EBITDA guidance for 2009. We currently expect 2009 EBITDA to be in the range of $163 million to $167 million compared with $163.2 million in 2008. We have stream lined our cost structure and we are confident that our business model will enable us to continue to generate healthy EBITDA margins.

Clearly our revenue and EBITDA annual guidance doesn't take into account the Eveready acquisition we just announced. As we disclosed on our call last week the acquisition will be immediately accretive excluding any one time fees and acquisition related expenses. We will be able to give a better sense of how much incremental revenue and EBITDA we will gain from this deal as we finalize our integration plans and the transaction is complete.

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

Thank you. (Operator Instructions). Our first question is coming from Al Kaschalk of Wedbush Morgan. Please proceed with your question.

Good morning, guys.

Good morning, Al.

I guess I want to start maybe with the commentary about the Q2, how that started up. Particularly as you look at the project work that may have been delayed and then just some of the core business coming back online. Could you just give us a little bit of flavor on how that is working? I know you said it is not back up to full capacity yet but --

Yes, Al, we brought our full team together about 130 team key business development and sales people together in April. And subsequently after that, looked at our -- all of our verticals and really recast the rest of the year looking at both a conservative scenario and medium and then aggressive scenario based on feedback and information that we are getting directly from our front line people out there. And so I think the guidance that we gave for the year is reflective of the management team's perspective.

As Jim mentioned, April -- we just closed our billings for April yesterday. And we will have a better sense of where we are for the month over the next day or so here. But we felt pretty good about how things were starting to turn back on out there. The projects that we are mentioning are not federal projects, not the stimulus kind of projects. These are regular kind of projects. They could be large tank cleaning jobs or remediation projects that are typically led by our key Fortune 500 type customers out there. Those are the ones who really get slowed down with the weather and the ones that we see kicking back on here.

So would it be fair to characterize that the key projects that maybe at one time were hopeful would start mid to late Q1 have commenced or they are getting ready to commence and you should see that here in May start to kick in the full stride?

Right. Exactly. We are not anticipating any huge amounts on the stimulus, maybe $5 million at most this year. I would say more of the stimulus money on the super fund cleanup sites for example would be more into 2010. So our expectation on these projects we are talking about is the steady pipeline that we have built over the last couple years. And clearly companies have tried to conserve cash and push projects as far as they could. We are seeing some good steady business out there and that is one bright spot for us clearly is the projects business.

And then if I may just turn -- I know we haven't closed, but you are positive on the Eveready deal, but could you talk about actions you may be taking that could give us a sense of what could be forth coming? And that is on the permit process are you looking at opportunities to have waste come into the US or out of the US into Canada, et cetera, and do you see that as anything that could be troubling in terms of permit process?

Those permits that you are discussing will not have any impact on us closing the transaction, Al. There are prenote requirements that we live with day in and day out of moving waste back and forth between the states and Canada. And we know that process pretty well. So that won't be a hinderance.

I see in the US particularly the real opportunity is to work with their team that they have in their US location -- they have ten US location with their decoking operation and their catalyst business. And helping provide additional services to those service offerings to those refineries and petrochemical plants including disposal and recycling. So, I think at least in the US no permit requirements at all. But in Canada as you know we have a number of disposal facility across Canada and we don't anticipate any permit constraints to move waste to our sites.

Okay and one final one and a maintenance question for Jim. But Jim, maybe we can get it added at some point during the call the cash flow for operations during the quarter? But in context of the 10,000-ton expansion, I think you said mid year or September that would come online, can you talk about visibility in terms of volume of business that you may have signed or forth coming to absorb that capacity -- potential capacity?

Yes, I mean we are pretty pleased even in light of the lower revenues that we see in the first quarter here. Our incinerators ran very, very very well. I mean we have our normal shut down work that we did, in fact for the year, our number of shutdown days will be down but in the quarter they were up seven, I think days over last year's first quarter. But overall for the year, you will see less shut down days across all of our incinerators, and that is just the way it all fell this year.

But we are really excited about what we are seeing out there. I think the new M-A-C standards will have a positive impact on our business and will certainly be impacting both the captives and cement kilns. We don't know what those final rules and regulations will be. but certainly over the 12 tor 18 months we will see the benefit of the investments that we have made in our plants as those new standards for those industries take affect.

Great. Thanks a lot. Good job on the margin side.

And, Al, I just wanted to add, you had asked what the cash flow from operations was for the quarter. It came out to $12 million for the quarter.

Thanks, guys.

Thank you.

Thank you. Our next question is come from Larry Solow from CJS Securities.

Hi, good morning, Jim and Al. Can you discuss what has changed kind of since the end of Q4 when you give out guidance? Is it just weather and kind of a slow recovery in the economy? And maybe you can give us a brief rundown -- I know you expected for instance the chemical sector to grow 5%, and general industrial to grow more like 10%. Any kind of updated views on your two largest segments?

Sure. Maybe, Larry I can start and then Alan can add into that. I think when we were sitting back in February when we were going through that, clearly I think a lot was unfolding at that point in time and it is clearly a matter of degree. We were expecting some affect clearly in the economy affecting the chemical and manufacturing sectors. But what we have seen since then and bringing all of our people together and certainly there have been a few recent bankruptcies actually even in the chemical sector that have affected us, not from a credit standpoint but generally just in business terms. SO I think it is more a matter of degree. I think we saw certainly some negativity when we were back in February. I think we saw it worse and we are trying to build that now into our full year forecast there.

And then also, what I would point out is on the weather side, I mean we were all we feel here in the Northeast and I know you are in the Northeast as well it was terrible. And it got even worse into March and even early April. But that being said, it was also pretty bad in the Midwest and in Canada as well. So that continued a little longer than we thought it would. But that definitely had an impact on our business.

I think the other news that we got obviously is with the auto industry proposing the shut down for upwards of nine weeks this summer. The implications of that with the coatings and the plastics business and some other businesses is where our chemical guy has given us some feedback that that will have some negative impact on the business. So that is also sort of -- some feedback that we could direct from our head of chemical business.

Got you. So it sounds like you probably shifted some of your chemical growth 5% and manufacturing 10%, I imagine both of those have probably been modified down somewhat?

Yes, if we look at conservative scenario here we have modified down to like 2% growth in the chemical side rather than the 5%. But we are still optimistic that we can continue to grow that vertical, but I think but for providing the guidance we wanted to provide this morning, we took it down.

Got you. And then in terms of -- I remember back in the Q3 call I think you had given us kind of a -- you had a several month look into your backlog on your incinerator business is there any update in how are you looking today?

I think our backlog still continues, Larry. We had some shutdowns in Q1 that affected the overall utilization level. We see the utilization level continuing high after the next several months because of the backlog. And I would also like to point out because I think it is relevant to your question as well, Alan talked about the incineration percentage being in the mid-80% range. Just to point out, if we did not have the additional expansion that we did last year, that number would have been over 90% utilization, just so you realize that even in Q1.

Got you. So that is actually a pretty strong number. In terms of our guidance, are you including any impact from the stimulus in there or just a nominal or minimal number?

Minimal number, about $5 million and we actually received a purchase order actually for almost $2 million on an initial --

That's $5 million in revenue, right?

Yes, $5 million in revenue, right.

And is EnviroSORT -- it is in your guidance, I assume right?

Yes.

Okay. And then just last question, any update or outlook on potential closures of captives?

We still see -- we actually talked about this yesterday, we still see three to five closing in the next 12 to 18 months here, Larry. And that -- this whole focus on carbon emissions and this cap and trade debate that is going on, clearly that is going to have an impact particularly on captives. Because it is going to be a low hanging fruit for many companies to take out those emissions and not need those permits for CO2 emissions. So I see that down the road as being something that will continue to happen.

Okay. Great. Thank you very much.

Thank you, Larry.

Thank you. Our next question is coming from Richard Wesolowski of Sidoti & Company.

Good morning. How's it going?

Hi, Rich.

Good morning.

Can you talk about disposal and incineration pricing? It seems within the last two quarters we saw the pricing power recede and I would like to know whether or not you have reversed to an outright negative pricing trend with many of our customers?

No, actually we have had an increase in pricing so far this year in incineration type area, just because of the high utilization where we are at and we are successful with that.

Is that a part from the carry over from the price increase that you put through last spring?

It is a combination of both, Rich. It is new and what came in into the quarter from last year.

Our push back on that issue of pricing, our push back from customers has been that they have seen a significant reduction in their prices due to the fuel surcharge coming down so much. And it has worked both ways. It has been something that helped us during the crazy $4, $5 a gallon days. But now we are at a more modest level. Customers I think really have recognized that is a good way for us to deal with those rather than keep changing their pricing every month or quarter to deal with the high cost.

Okay. How about the mix of waste into your disposal facilities? Are you accepting waste now especially in incineration that we are crowded out when business was strong in 2007 and early 2008?

I don't think we have necessarily changed the mix. I would say that our drum business is down that is reflective I think of just the overall economic environment. We look at all of our customers and look at volumes by customer. And clearly you can see the volume of waste by customer being down in the first quarter because of the economy more than anything. But I wouldn't say that we necessarily have changed the mix in our plants. In fact, we continue to modify our facilities to go after the more difficult streams to handle.

Okay. And lastly along the same vein, and you mentioned the expansion of the sales force in an attempt to gain share. Landfill price we know is notoriously tight and it seems like you have a lot less room in incineration. Is it feasible to expect the Company to gain share in the markets in which you have not targeted in the past without diluting the Company wide disposal pricing?

No, I think if you look at it incrementally, the margin to the Company does not really get hurt. Clearly when you are aggressively going after new business, you have to be competitive on gaining share, we know that. But I think overall when we look at incremental basis Clean Harbors historically has seen about 30% EBITDA flow through on our revenue growth. And I don't think that will change moving forward even if we have to be a little bit more aggressive on some of these waste streams.

If you have Eveready ultimately in the mix talking about 2010 or 2011, et cetera, would you expect that 30% ratio to hold?

I personally would. Because their margins last year I think were about 16.5. And when you look at them being combined in with our organization and some of our efficiencies that is we can bring to the table here, I think you will continue to see some nice flow through to the EBITDA line. And I see no reason why you will not see that kind of leverage even in the industrial sector.

Excellent. Thanks.

Thank you, Rich.

Thank you. Our next question is coming from David Manthey of Robert W. Baird & Company.

Hi, good morning, guys. Did you talk about the top line impact specifically from currency and fuel surcharges? I don't know if you want to talk about it in terms of a percent growth rate year to year. And same thing for pricing. I guess you said pricing is up year to year. Is that a low single digit type of number?

Dave, if you look at the foreign exchange at the revenue level, we were between $5 million and $6 million negative impact in the quarter year-over-year. By the time you get down to EBITDA by the way with that, it was negligible affect because of our infrastructure up there and we had some cash in the earlier part of the quarter up there. On the fuel surcharge maybe a way to gauge that is our cost of fuel has decreased about $3 million, $3.5 million during the quarter versus a year ago. And I think that is indicative of the kind of negative affect on revenue from the fuel surcharge.

And then the last point that you were asking about, I'm trying to recall now. You said price. I would think during the first quarter we saw probably in about the -- maybe in the $2 million to $3 million range in overall revenues was price impact. I think we have some discussion around that in the MD&A that will come out in our 10-K. But it was somewhere around that area there year-over-year.

Okay. And you said also that from fourth quarter to first quarter there was no slippage. You actually might have seen a net positive price?

Yes, we had some parts of our business that were flat to down. But I was responding mostly to the higher utilization incineration area. And absolutely I think it was a net positive there.

Okay. All right. And second, do you know how much of your business is volume dependent? Meaning that if a customer's business is down 30%, their own revenues, that their business with you is also down a similar amount or in terms of volumes? Do you have an idea of what percentage of your business that is?

I don't think it is a lot. I think more in the drum waste, the manufacturing waste may correlate a little bit. But when you look at a lot of our larger accounts they need to clean their storage tanks out. Whether they are at 85% utilization or 90%, they need to perform maintenance and perform environmental cleanup work. And so it is really not necessarily volume related on all accounts. Maybe some of the chemical manufacturing you will see some volumes decline obviously as their production is less, but they still need to go and do the clean out work and the industrial services kind of business.

So the drum business and that kind of volume dependent, what is it a quarter of the business?

It is not that high. But when we look at volumes, the Company handles about 1.3 million drums year I think is our number here. We can see that off by 10% as the economy has taken a turn here. So that's where we would see maybe the greatest challenges in that side of the business.

Okay. Great. Thanks very much.

Thanks, David.

Thank you. Our next question is coming from Hamzah Mazari of Credit Suisse.

Thank you. Good morning. Just a couple questions. The first one is your gross margins stayed flat which is pretty good despite revenue coming off. We're just curious to get your thoughts on how to think about fixed versus variable costs in your business? And how much room do you have from here on out to improve the cost side? How much low hanging fruit has already been had, what is remaining? How should we be thinking about that?

Well, I think from an incremental margin standpoint, if you look at our disposal facilities, generally the incremental margins there at an EBITDA level are in the high 30%, 40% range. So that gives you an idea of the nature of fixed costs in our business. Clearly there is leverage there. There are still a lot more efficiencies we can bring into our overall network in our disposal network. We are continually making improvements to the system that we use to manage our waste streams including low cost routing, et cetera. And clearly with Eveready coming into the mix, it will even be better.

I think another area of cost reduction for us because we have grown so rapidly and we are adding to our Company, there are opportunities from the procurement side. Where we have two Directors of procurement that are involved in many projects to combine our buying power and to come up with national agreements with suppliers and vendors. So I still do believe there is margin improvement from a lot of these cost reduction and efficiency enhancements that we'll make into the future.

Okay. And then on -- after Eveready, how should we think about your balance sheet looking like and what is the pipeline of acquisitions after that deal is done? Are there any other complimentary businesses that you are thinking of that look attractive right now and have valuations come off enough in those businesses? How should we be thinking about that?

I will start it off and then Alan can go onto the second part of your question. But the balance sheet after this acquisition I had said in the last call that our debt could be up to $250 million and the amount of cash that we would have on hand would be about $130 million. And I think that is probably a worse case scenario. I think we can do better than that in terms of the amount of debt that we would have on the balance sheet and there could also be a little bit more cash there. But roughly those are the figures. And just to point out, we are also talking -- having very good conversations with the people in Canada and we're hopeful that we can roll some of the debt that is up there and I think there will be nice savings and a good financing plan.

To the second part of your question about future opportunities, Alan?

We continue to -- on the acquisition side, we continue to see and look at a lot of opportunities. Obviously a lot of our focus on the integration side now we will be working on the Eveready deal and working with that team. But we have done that before and I think collectively working together with their management team we'll implement our plan and get that deal closed and integrated.

But we will continue to look at other opportunities that are coming our way. And we still believe that we have a very strong balance sheet even after Eveready., And we would like to take advantage of that and continue to grow our business. We are really looking at how do we double the size of our Company. Because we have the infrastructure here in place to continue to grow our top line substantially and leverage our systems and as Jim mentioned our infrastructure. So that's what is exciting for me.

Okay, that is very helpful. And just lastly, you talked about the stimulus plan maybe being $5 million for you guys in 2009. How much is it for you guys in 2010 or what is your rough estimate right now?

It looks like based on at least our analysis of the listed sites on the super fund side, there is probably $25 million to 40 million of opportunity for us there that we feel confident about that we could see next year. It could get accelerated but we are not planning on it. But, at least on the list of sites that they have now disclosed, those are I think a good number that we can work with.

Okay. Great. Thank you very much.

Thank you.

Thank you. Our next question from Jonathan Ellis of Merrill Lynch.

Thanks and good morning, guys.

Morning.

Morning.

Wanted to just talk a little bit about you gave detail on landfill volumes that I think you said were fairly flattish year-over-year yet your incineration utilization rates were down pretty meaningful year-over-year. I know you sighted more down days on the incinerator side. But, putting the number of down days aside, is there any other reason why your volume trends on the landfill side of business were more moderate than what you saw on the incinerator side of the business?

Well, I think the incineration volumes were okay.

That is right, that's correct, Jim.

It was really just the utilization now with the added capacity coupled with the extra down days from a year ago. That's why the percentage was where it was at. But actually volume press good. That's right.

Okay. So it was really the number of down days and the added capacity that is attributable to the incineration rate change?

Yes. Exactly, right.

Okay. Great. And just on the outlook for the year. And I appreciate, you gave a little detail on the end markets and the chemicals business you said you are now anticipating, I think about 2% growth versus 5% previously. But just in kind of tying that back in to your overall guidance of flat to down revenues, can you help us understand where the weakness is going to come from? How you get to flat to down total revenue scenario if the chemical business is expected to be up slightly?

Sure. When we look at -- again looking at more of the conservative scenario, we have taken our utility business down a little bit. We were quite surprised by the slow down in spending by the utility sector quite frankly. The economy has hurt them obviously, but for a variety of reasons their spending really was significantly off for the first quarter. So we took them down for the year. But we are seeing real nice growth in the pharma and the healthcare services. Those tend not to be so impacted. We have gotten some nice wins there and we see good visibility moving forward in those two industries.

Our engineering consulting business is growing quite a bit this year which again is focusing on those large consulting engineering firms that led out projects for a lot of our key accounts. So they are sort of the middle people there that we deal with and we have had a real focus on that area. Educational area, the universities and colleges and other work that we do particularly with our lab pack business is up. Our broker business actually is even up. We do quite a business with our competitors so to speak and we very much like the chemical business. You do business both compete and do business together. And our broker business is actually up quite a bit. We see some nice growth there.

Our refinery business, we have a very good pipeline of business there. We have won some new contracts and we expect to see good growth this year in our refinery market. Hopefully, that gives you a little color anyway.

Sure. So just to kind of to recap, I mean it sounds like you are expecting some -- at least relative to your expectations in the beginning of the year -- some pretty healthy growth in the some of the markets with the biggest delta being the utilities business?

Exactly, yes.

And general manufacturing too, I am not sure Alan if you had mentioned general manufacturing and retail are both down compared to the others.

Yes.

Okay. And I know you have given numbers on general manufacturing in the past. Can you give us some sense of how large your retail business is right now?

Mid single digits down.

Okay. Great. And then just if you can update us, you referenced the number of non billable positions that you have eliminated. But I think last quarter you talked about cost savings of about $8 million from work force reductions and then layer on top of that perhaps a couple hundred dollars from transportation savings as you do more in sourcing? Should we still be thinking about cost savings for the fill year around $10 million or has that changed at all since last quarter?

Actually, it is probably move skewed a little higher than that with some of the procurement savings that we have been talking about. So I would probably say more closer to $15 million range, $10 million to $15 million in that range.

Okay, great. And then just on the backlog very quickly. You mentioned that you obviously have optimistic outlook for the second half of the year given what you have in your pipeline right now. To just make sure I understand, is there any difference in the mix of your backlog by end market relative to your current revenue profile?

No, not really. One thing other to mention here, the added cost to see in Q1 is reflective of bringing on quite a few more sales and business development professionals. And our expectation was it takes some time to get some traction with that group both in Canada and here in the US. That's why we look at the back half of the year as being higher growth than the first half because of those investments we are making. But as far as the mix goes, it really shouldn't be that much different.

Okay, great. Thanks, guys.

Okay.

Thank you. Our next question is coming from Ted Kundtz of Needham & Company.

Yes, hello Alan and Jim. Couple questions for you. You mentioned a price increase this year. Jim, what was that? Was that a specific number you can share with us?

Just an overall dollar figure of what we saw in Q1 of a few million dollars that I had mentioned before. Overall for the year, Ted -- by the way and Alan mentioned in his comments we are not doing an across the board increase , but clearly I see a percent or so in total that we will see for the

Okay. I wasn't expecting any.

That is a net figure.

Right. Thanks. And then your guidance, if you were to achieve flat revenues, I just wanted to take another thought at this, you are looking at the second half being up 11%, 12% over the second half of last year to get you back to kind of a flat number -- that is kind of a rough calculation. And, I am wondering if that -- one I know you have added incineration capacity in that, where would be the risk in that kind of number? It seems like it is fairly aggressive given the economy. And I am just wondering if you can share thoughts around that comfort level around that kind of growth in the second half of this year versus last year?

Yes, well one of the -- a couple things, Ted, right off the top. One, we have 50 more sales people in our sales force that are hitting the ground in a lot of our existing verticals as well as new verticals that Alan has been talking about. In addition to that, I would say that the first quarter, if we compare the first half of this year with the second half, clearly the first quarter is behind us. The weather implications and all that are behind us. And I'm not sure if I would add anything else to that. I think that is probably the main point

Just the natural increase in our volume of business because of the ramp up in the second, third quarters, those are our strongest quarters. So I think we just expect that kind of growth in our business with all the added people.

Are you expecting a recovery in the GDP? Are you expecting a positive GDP in the second half of the year to kind of get this business back on track?

No, that is not part of it, Ted. It is really doing a build up. And from hearing all of our sales organizations that we met with in April, going through all the customers, looking at the verticals of what the expectation based on existing conditions are looking forward. And then also to this increase, don't forget we had the EnviroSORT acquisition which wasn't in last year's numbers either.

Could you remind us how much -- how much would that add? I forgot, how much would that add?

About $10 million business for the year and that came in at the end of February.

Okay.

I think just the solvent recycling business that we have kicking in. We have the third plant coming online in September. We have got a lot of opportunity in that area, but right now quite frankly we don't have the technology and one of our plants is essentially full. So we need to expand to meet the growth that we see in that side of the business.

Okay. Great. Thanks.

Okay.

Thanks, Ted.

Thank you. Our next question is coming from Jamie Sullivan of RBC Capital Markets.

Morning.

Morning.

Morning.

Jim, can you talk about utilization, you mentioned based on the capacity changes, can you talk about what it would have been excluding the seven days of downtime?

Excluding the seven days of downtime we would have probably been more in the 87% range. And if you adjusted that for the 42,000 tons that we added last year you would probably be up in the 92% range if you adjusted it for that.

Great, thanks. And on the newer verticals and the sales folks you have brought on, can you talk a little bit about that pipeline? Is it already pretty active? Are you starting to get business pretty close or is that still in ramp mode where leads are being sought out?

We are definitely are seeing wins. The product line leader that we have who reports directly to me. I'm looking at leads on a real time basis, or I should say wins on a real time basis. We have a lot of leads out there. And we are involved here because in some cases there is capital requirements to invest in additional equipment and containers or trucks. And again, one of the nice things about Eveready that we see is that they have a big investment in hard assets that we believe across our customer base we can really put to work. And improve on their overall utilization while they have been down a little bit this year due to their markets being off. So we are really excited about the growth we are seeing about the focus on our verticals. And it is beginning to pay off for us, Jamie.

Okay. Great. And can you also talk a little bit about expanding the services and work with existing customers, how that is moving along, has it accelerated at all?

I believe so. The specialists that is we have added as part of that sales expansion this year is focused on cross selling and leveraging those relationships. And we are seeing some nice opportunities coming about there. And I think we are in the early stages. It is sort of the next avenue of growth for the Company as we continue to look out over the next three to five years. And I think that's how the Company is going to continue to grow organically is by cross selling. And so I would say something that was in place two or three years ago has just now been more accelerated and we will continue to make more and more investment in that area.

Okay. And then I guess just one on Eveready. You talk about some cross selling there in the release and the opportunities. I'm just wondering if we can get a sense from a volume standpoint how much of a benefit or potential business you could get simply by rerouting some of the volumes from their business to Clean Harbors disposal assets?

Yes. I think it is probably too early at this point. We -- while we are doing our due diligence, certainly a lot of confidential information wasn't -- couldn't be shared in regard to volume and customer information and so forth. So I think it is a little early for us to get into that detail. But I hope at the close that we will be able to share that with you.

Okay. Great.

Just one other point to your question on incineration volumes. Q1 of last year we handled 116,000 tons, this year 113,000 and in the US 78.9 versus 79.3 this year. So our volumes, considering we were down for the seven days we handled equal amount of volumes for last year. So I thought that was pretty good. Not only because of the seven down days but because of the revenues being down. So I'm very pleased with the work the folks have done on the incineration side of the business. Okay.

Thank you. Our next question is coming from Al Kaschalk of Wedbush Morgan.

Hi, Jim. Just a follow-up. Did you give or are you available to give the split on the revenues between tech and site services?

Yes.

I can't have the patience to wait for that Q to be filed.

No, I have some figures on that, Al. Tech was $151.1 million and site services was $55.8 million.

Okay, great. Thanks a lot.

Thank you.

Thank you.

Thank you. Our next question is coming from Larry Solow of CJS Securities.

Just a follow-up on Al's question, do you happen to have, Jim, the gross profit margin for the two sectors?

Yes, I can give you that, Larry. Let me take a quick look here. In tech we had 34.1% and in site we had 22.4%.

Okay, so clearly site was the more impacted one on sort of the negative leverage? Okay, just and then Alan, could you remind us some of the verticals that you think there is a good opportunity for you to expand your market shares in?

Well, clearly the chemical vertical we've mentioned that is about 22% of our business. But one that we see a lot of growth still in. The manufacturing side, even though manufacturing is somewhat flat, we have a lot of room to grow there, particularly geographically to leverage the large corporate account relationships we have by expanding geographically to penetrate some of their sites out there.

The government we are not doing a ton of business with the government. And that is one area we have accelerated our focus this year and beyond. Not just because of the stimulus money but because we see our ability to get into some of these government sites as a way to penetrate and get more disposal business for us directly rather than indirectly. The mining was another area, I think probably one the best challenges we have and most promising area for us I should say is in the oil and gas area. Because our focus has mainly been on distribution and refining. But moving up into the exploration, production side in the oil and gas area is one both here in the states and in Canada is one that we have been requested to do more work in. And we think we can grow that quite a bit. Because it is a very small part of our business right now and the utilities.

And the utilities. I mean clearly, our strength in utilities continues to be predominantly on the East and West coast but there are a lot of other utility accounts out there we have been developing corporate contracts with and starting to get some business from. But we still have a long way to go to get that business to that hundred million dollars level which we think would be the first step for us to get there.

Okay. And then I think -- couple -- few months back you mentioned the retail sector was a possible area you could increase your exposure. Jut correct me if I'm wrong, but you have minimal exposure to that now ; is that correct?

Yes, we have minimal exposure and we actually have forecasted that down. But there are a lot of opportunities in the retail space there but quite frankly it has not been a big part of our business. It is one we are looking at and beginning to focus on. But it has not been a focus for us right yet.

Okay, and then just one quickie for Jim on your SG&A guidance, I guess you said 15.5% to 16%, would that include the Q1 numbers or the remainder of the year?

That would include the Q1 numbers.

Okay so kind of full year --

Yes, full year and probably 16% pushing toward that number.

Got you. And then the cost of kind of acquisition, due diligence and what not. Obviously there was some in Q1 and I would imagine some of that would roll into Q2?

Yes, it will and in fact, all of that guidance that I have given excludes the one time kind of charges.

SO you are excluding the $600,000 this quarter and in Q1 and you probably have a similar number in Q2?

Well, with the -- I expect it will be larger than that with the Eveready acquisition given its sheer size.

Got you. And so you are excluding the numbers in your guidance and your EBITDA guidance too then for the year?

That's exactly right.

Okay. Got it. Great. Thank you.

Thank you.

Thank you. Our last question is coming from Rich Wesolowski of Sidoti & Company.

Thanks. A broad question brought up by the Eveready deal. As you see the Company in say five years does the industrial service business makeup a greater and greater share of the profit relative to disposal or are you still targeting disposal assets in your acquisition lists?

Definitely targeting disposal assets. We said that we believe we can get our site services and tech services business sort of equal -- where is it used to be at one time 50% of our revenues. I think certainly Eveready will help us get there. And we will also expand our segment reporting. And so we will break out by the end of the year our industrial services business from our site services reporting. And so that is something we have been talking about here as something to give our shareholders more understanding of our business. So we will hopefully give you more color on that as we move forward.

Thanks again.

Okay. Thanks, everybody.

I guess at this point we would like to thank everybody for being on the call this morning and we look forward on updating you all on our progress both on Eveready and our second quarter. Thank you.

And that concludes our conference call. Thank you for joining us today.