Clean Harbors Inc (CLH) 2009 Q2 法說會逐字稿

Good day everyone and welcome to the Clean Harbors second 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 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 the closing of our Eveready acquisition and our second 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, and 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 our cautioned not to place undue reliance on these forward-looking statements which reflect management's opinions only as of this date, August 3, 2009.

Information on the potential factors and detailed risk that could affect the company's actual results of operations is included in the company's filings with the SEC including but not limited to our Form 10-K for the year ended December 31, 2008 which was filed with the SEC on March 2, as well as information that will be filed in conjunction with our planned senior secured notes offering. The company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today's press release or this morning's conference call other than through the filings that will be made with the SEC concerning this reporting period.

In addition, I would like to remind you that today's discussion will include references to the acronym EBITDA, which is earnings before interest, taxes, depreciation and amortization. EBITDA is a non-GAAP financial measure and is intended to serve as a complement to results provided in accordance with accounting principles generally accepted in the United States. Clean Harbors believes that such information provides an additional measurement and consistent historical comparison of the company's performance.

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

And now, I would like to turn the call over to Alan McKim. Alan?

Thanks Bill and good morning everyone. On our call this morning I'm going to share with you my thoughts on the closing of the Eveready acquisition and what this means for Clean Harbors. I also will provide some color on our integration strategy. After that I will provide some insight into our second quarter performance and provide revised guidance for 2009 inclusive of Eveready. Then Jim will give you some transactional details, go into further detail on our Q2 financial results.

With that as our agenda, let me begin with some comments about the acquisition of Eveready which we successfully completed late Friday. The Eveready transaction is a landmark event in our company's history and lays the foundation for growth in the years ahead. It enables us to a large our core revenue base, expand our geographic footprint and broaden our service offerings.

Closing this transaction so rapidly required a substantial commitment of time, energy and resources over the past several months. I am proud of how both teams rose to the challenge and worked tirelessly to close the deal within our aggressive schedule. We hope it is an early indication of how well we can collaborate and work together as a combined organization.

I'm also proud to announce that today, only two days after the official close of the transaction, essentially all of Eveready's business is being transacted through Clean Harbors' information management systems. I would now like to take a moment to review the primary reasons why we find this deal so compelling and why we are so excited for what this means for Clean Harbors going forward. We talked about some of these on our April conference call so let me just recap those here.

First and foremost, the acquisition greatly expands our geographic reach and provides our first entry into international markets beyond North America. Eveready has performed services for customers in 42 different countries. Through our site service expansion we have steadily been introducing the Clean Harbors brand into new geographic regions throughout the US and Canada. This transaction greatly accelerates those efforts and provides an immediate strong presence in several markets where we do not currently have significant operations, particularly in Western Canada. It also enhances our presence and provides us with greater efficiencies in many markets where we do operate.

Second, this acquisition immediately provides us with a substantial increased presence in the Industrial Services market and a strong foundation upon which to grow that business over time. We have seen Industrial Services as an attractive area of growth for quite some time. It is a market that has been estimated to be in the $12 billion to $13 billion range. It is an area that we have been targeting in recent years and steadily moving into through small steps. Acquiring Eveready immediately provides us with critical mass in Industrial Services and a meaningful foundation upon which to grow that business over time.

Third, we see significant cross-selling opportunities within each of our customer bases. Eveready provides a wide array of Industrial Services that will complement our current service portfolio. Together we have an extensive portfolio of services to offer customers of a combined company. Eveready has a relatively small sales force and we see a significant opportunity to take our lines of vertical sales programs and expand those within Eveready.

The combination of our customer service capabilities, industry-leading expertise and the combined companies' broad service platform will provide Eveready's customers an opportunity to streamline their industrial environmental service vendor base. Cross-selling will also enable us to achieve further operating leverage by improving utilization of our existing assets and Eveready [service fully].

And finally, while we found this acquisition so compelling is the transaction provides greater critical mass to Clean Harbors' existing operations by adding Eveready's modern fleet of nearly 2000 trucks and trailer mounted units, over 1400 specialized pieces of equipment. In addition we expect to realize meaningful cost synergies by achieving economies of scale in areas such as procurement, information technology and human resources management.

With the acquisition now complete, we move into the integration phase. We see a strong cultural fit between Eveready employees and ours, giving us even more confidence in our ability to integrate our two teams. Again, as an early indicator of this cultural fit, I would point out how well we have worked together on both sides of the border to get the deal closed on schedule. We are proud to welcome Eveready employees to the Clean Harbors family and we are certain that we're strengthening our management team with the addition of some really talented folks up in Alberta.

We're also strengthening our Board of Directors with the appointment of Rod Marlin, formerly Eveready's President and Chief Executive Officer. Rod's deep understanding of the Canadian environmental and industrial services market place will be invaluable as we enter this next phase of our growth. We believe that our board only stands to benefit from Rod's appointment.

Post-closing, Clean Harbors' footprint is broader than ever before. We have added nearly 80 service locations in Canada, the US and internationally along with more than 2100 motivated entrepreneurial employees which brings our total workforce to over 6800 employees. At this point, let me give you a sense of what the new Clean Harbors will look like from both a reporting an operational perspective.

Currently, we report operating results in two segments, Technical Services and Site Services. Based on the makeup of Eveready's business units, we intend to realign and expand our operating segments into four reporting segments. Technical Services, Field Services, Industrial Services and Exploration Services. So, beginning with our Q3 results, our SEC filings will be broken out this way.

Let me give you some more detail on the types of service we provide under these categories. Technical Services includes the packaging, collecting, transportation, treatment and disposal of hazardous and non-hazardous waste. We conduct these disposal services at our incinerators, landfills, waste water treatment and other treatment facilities.

If we look at the combined company and using the estimated full-year revenue for 2009 had the acquisition closed on January 1 of this year that we provided in today's press release, the Technical Services segment would have accounted for approximately $650 million or 45% of total revenues in 2009.

Our second reporting segment is Field Services. Now these are the services we provide on customer sites or other locations on both a scheduled or emergency response basis. These include small tank cleaning, decontamination, remediation and spill cleanup as examples. This is essentially the segment that we used to call Site Services. Again, in order to give you a sense of the size of this segment, estimated full-year revenues in 2009 for Field Services for the combined company would have been approximately $250 million or 17% of revenue.

Under the third reporting segment, which is Industrial Services, we provide industrial and specialty services such as high-pressure and clinical cleaning, catalyst handling, decoking, material processing, industrial lodging services primarily to the refineries, chemical plants, pulp and paper mills and other industrial facilities. We have folded the majority of Eveready services into the segment as well as our own Industrial Services which we carved away from the former Site Services segment. Pro forma revenues for this segment in 2009 would've been approximately $475 million or about 33% of revenues.

And finally, our Exploration Services which provide exploration and directional boring services primarily to the energy sector serving oil and gas exploration, production in power generation. Pro forma 2009 revenues for the segment would have been approximately $100 million or about 5% of revenue.

From a marketing perspective going forward, all of our services will now be offered under the Clean Harbors brand. We intend to re-brand all of the services provided by Eveready under the Clean Harbors name. However, the rebranding process will not take place overnight. It will be a gradual process but we believe should be complete by the year's end.

Now let's turn to a discussion on Q2. Clearly we are not pleased with our second quarter results, particularly with our topline performance. Revenue came in at $215.3 million, which is down significantly from the record we had with our topline we achieved in Q2 of last year. Sequentially, we did see in small uptick in sales, up about 4% in Q1 as we rebounded from the challenging start of the year. However clearly we are expecting a stronger rebound than that.

Our topline results for Q2 were primarily affected by the following four factors. First, we saw extended project delays as our customers opted to postpone projects in order to conserve cash. In total, we estimate that these delays pushed out approximately $18 million in revenue from Q2.

The good news is that only about $3 million of that total was canceled and the remaining $15 million is expected to be performed this year. Some of these projects are necessary activities at some of our customer sites that can only be put off for so long. We expect we will capture the majority of that lost revenue in the second half of 2009.

The second factor in our performance was the steep drop-off we saw in some of our key verticals, particularly from our petrochemical, specialty chemical, manufacturing utility customers. These declines have extended longer than we initially anticipated due to the prolonged negative affect of the recession. As a result of the economic pressure, some of our customers are simply just manufacturing less so they are generating less hazardous waste for us. In addition, we believe many customers are delaying maintenance which was especially pronounced in our utility accounts in the second quarter.

Third, we continue to see emergency response work. It is not a reliable source of revenue for us, but in times of a slow down such as Q2, emergency response work can help offset weakness in our core Field Service segment. There have not been any major events for several quarters now, which is highly unusual for us.

And finally, when we began 2009 we made the strategic decision to significantly expand the size of our sales force. Our objectives were to target industry verticals that had not previously been areas of focus for us and try to gain market share during this economic downturn.

The positive news is that the key performance indicators that we carefully track indicate that are broadened sales team has done an excellent job at getting out there, meeting existing and prospective customers, targeting cross-selling opportunities and introducing our full suite of services. Our pipeline is the largest it has ever been in our history. However, we are not seeing that sizable pipeline of activity translate into the corresponding levels of revenue that we would expect in a normalized environment.

In the current economic climate we have seen a lengthening of the sales cycle. Longer-term we believe these added feet on the street will be a significant contributor to revenue though. Overall, the state of the economy continued to weigh heavily on our revenues in the second quarter.

Reflecting on our lower revenue this quarter, EBITDA in Q2 was $31.3 million which was down 27.8% from Q2 of 2008. Despite substantially less year-over-year revenue, we still generated an EBITDA margin of 14.5% in Q2 due to our ongoing focus on streamlining our cost structure.

I should point out that our EBITDA of $31.3 million includes $3.3 million in costs related to the Eveready acquisition. So if you calculate our EBITDA margin for Q2 excluding those costs, it exceeded 16%. Our EBITDA margin was 16.4% in Q2 of 2008 and 12.3% in the Q1 of 2009.

Turning to our business segments, our Technical Services segment delivered mixed results in the quarter but was down significantly overall. Our TSDFs, our water treatment plants and general labor and transport business were down substantially year-over-year, more than offsetting the growth we generated at our incinerators and landfills.

Utilization at our incinerators was 88% for both this past quarter and the second quarter of last year. This comparable utilization rate is especially positive when you consider the additional capacity we rolled out during the past year. In terms of our incineration capacity expansion, we have met our goal of adding at least 50,000 tons of capacity. There may be some incremental additions in the quarters ahead but our major expansion program is now essentially complete.

Turning to our landfills, volumes were up 10% on a year-over-year basis but were down sequentially from the first quarter of this year. We were expecting to see higher volumes this quarter, but we were affected by the combination of the projects delay that I referenced earlier and a lack of really large projects in Q2. Pricing remains competitive in the landfills sector but we continue to see a sizable pipeline of opportunities.

As always, we are continuing to strengthen our logistics capability and pursuing additional permitting at some of our sites to be even more competitive in the landfill space.

One bright spot in our Technical Services segment this quarter was solvent recovery business. In Q2 we made some enhancements to our solvent recovery facility in Ohio which further capitalized on the momentum, we believe, in this area and our expansion plans for our Eldorado facility in Arkansas remain on track. We now expect completion of the second phase in Q1 of next year. We continue to believe that solvent recovery will be a steady contributor for us in the years ahead.

Turning just briefly to our site service segment, overall Site Services' performance in the quarter mirrored the down economy. We experienced softness across all of our site service business lines driven by weakness in the industry verticals I outlined earlier. As I also mentioned, there was a lack of emergency events to help offset the drop-off in routine business.

While opening branch offices continues to be a central component of our long-term growth strategy for Site Services, we did not open any branch offices in Q2 and light of the Eveready acquisition and the new locations that it provides us. Despite our Q2 results, we believe we will continue to gain traction and rebuild momentum as the year unfolds. We have consistently expected 2009 to be back-end loaded for us, but our first-half performance along with the addition of Eveready has led us to reset our guidance for the year.

First, let me give you what we think Clean Harbors will achieve in 2009 excluding the Eveready acquisition and Eveready acquisition related costs. Based on our results in the first half of the year and in light of the current market conditions, we expect revenues for just Clean Harbors to be in the range of $925 million to $950 million. We expect EBITDA for just Clean Harbors to be in the range of $143 million to $150 million.

Now let me provide what we expect for the combined company, which is how we will be reporting our results and guidance going forward. Based on the closing of the Eveready acquisition, financial results for the first half of 2009 for Clean Harbors and for Eveready in the current market conditions, we now expect 2009 revenue of $1.13 billion to $1.16 billion and EBITDA of $173 million to $180 million.

Our guidance reflects a five-month contribution from Eveready which we're estimating in a range of $205 million to $210 million in revenue and approximately $30 million in EBITDA. We are also beginning to put together our model for the combined company in 2010. Our intention is not to give any specific guidance on 2010 today.

We intend to provide our first starts in terms of numbers on our Q3 conference call. However, let me echo some commentary we made in today's press release. Assuming that the Eveready acquisition had been consummated on January 1, 2009, we estimate that full-year 2009 revenue for the combined company would have been in the range of $1.41 billion to approximately $1.44 billion in revenue and pro forma full-year 2009 EBITDA would have been in the range of $211 million to $218 million. And these figures exclude any synergies as well as any acquisition related costs.

We expect the Eveready acquisition to greatly benefit us in 2010 and beyond. We expect there to be a rebound in many of our end markets in 2010, and that partly be driven by an improvement in our project business which really has fallen off so far this year. These projects typically drive large volumes into our disposal facilities.

We expect that demand for many of these services we acquired from Eveready including industrial maintenance, production, lodging and exploration will all increase in 2010. We are targeting approximately $15 million in cost synergies in 2010 through reductions in redundant headcount, economies of scale and procurement, and the implementation of our back-office systems and processes. The combination of these synergies, and more importantly, a pickup in some of our core business lines should drive the growth we are anticipating in 2010.

I will now turn the call over to Jim Rutledge so he can walk you through the specifics of the Eveready transaction and our Q2 financials in more detail.

Thank you Alan and good morning everyone. First, I will provide the details of the financing for the Eveready transaction and then I will provide some additional color on our second quarter financial results. Please note that all amounts I reference in my remarks are in US dollars.

To start, let me just walk you through the particulars of the transaction. We acquired 100% of Eveready's outstanding common shares in exchange for $56 million in available cash, $118 million in Clean Harbors common stock which equates to 2.4 million shares. This translates 0.1304 Clean Harbors shares for each Eveready share, and we assumed approximately $235 million of Eveready debt. With the closing of the Eveready acquisition and our recent debt refinancing, our cash position has changed significantly since the end of Q2.

As I just mentioned, we paid out $56 million in cash when we closed the deal, but they were a number of other components as part of the acquisition that I should point out. As part of the transaction, we repaid our $30 million term notes; we discharged the remaining $23 million of the 11.25 senior secured notes.

We repaid Eveready's $46 million in outstanding convertible notes. We secured a new four-year US dollar $120 million revolving credit facility to replace our previous revolver and synthetic letter of credit facility. And finally, we incurred acquisition related fees and expenses including certain related prepayment premiums of approximately $10 million.

Also, I would like to note that as we announced in our press release this morning, we are intending to offer approximately $250 million of senior secured notes. We plan to use the proceeds of the offering for general corporate purposes and to repay substantially all of our outstanding debt, including the debt we assumed as part of our acquisition of Eveready and repay acquisition related transaction fees and expenses.

So, with that, let's turn to the quarter. As Alan covered in his remarks, Clean Harbors faced a challenging quarter in Q2. While revenues were up slightly on a sequential basis, they declined by 19% to $215.3 million compared with $265 million in the year ago quarter.

As Alan outlined, our revenue was affected by project delays and lower volumes in our Tech Services and Site Services across many of our end markets which resulted from the drop in economic activity in North America. Our revenues were also reduced from last year by lower fuel recovery fees, particularly given the record level of diesel prices last year. And they were also impacted by the relatively weaker Canadian exchange rate in this year-over-year comparison.

Both the fuel recovery fee and the foreign exchange translation effects were mitigated at the EBITDA line since we are certainly benefiting from the lower fuel prices from a cost perspective, and our costs in Canada are translated at a lower level this year as well.

Despite our lower revenues, gross profit for the quarter was $69.1 million translating to a gross margin of 32.1% which is nearly flat with last year's gross margin of 32.8%. Our ability to hold the line on our gross margin speaks to our ability to carefully manage our expenses especially when you consider the large fixed cost base of our network of disposal facilities.

Selling, general and administrative expenses in the quarter totaled $37.8 million, down $5.7 million or 13.1% from the second quarter of 2008. The year-over-year reduction was largely due to lower payroll expenses, reflecting less incentive compensation and commissions on the lower sales volume this quarter as well as reduced personnel costs since our staff reductions. The decrease in payroll expenses and personnel costs more than offset an increase in legal and professional fees associated with the Eveready acquisition totaling $3.3 million in Q2.

As a percentage of revenues, SG&A was 17.5% in Q2 2009 compared with 16.4% of revenue in Q2 of 2008. The increase was due to the relatively lower overall sales volume and the acquisition related expenses. We expect SG&A expenses to return to the 15.5% to 16% range as we begin to see a pickup in volumes in the second half of this year, although Q3 will incur -- will include some additional acquisition related expenses related to Eveready roughly in the $5 million range.

Accretion of environmental liabilities was $2.6 million in Q2 of 2009 which is slightly lower than $2.7 million in Q2 of 2008. Depreciation and amortization expense rose to $12.2 million from $10.8 million in Q2 of 2008 mainly due to the acquisitions we completed in the past 12 months. We expect our depreciation and amortization expense to be in the $63 million to $66 million range for the full year 2009 which includes an estimated $15 million to $17 million from Eveready for the last five months of the year.

The annualized rate of depreciation and amortization expense for Eveready is an estimated to be in the $37 million to $40 million range, bringing the total annual rate for the combined company to $85 million to $89 million.

As a result of lower sales leverage, Q2 2009 operating income decreased 45% to $16.4 million from $29.8 million in the second quarter of last year. We achieved EBITDA of $31.3 million or 14.5% of revenue. This compares with $43.4 million or 16.4% of revenue in Q2 of 2008.

As a result of the drop off in year-over-year revenue, EBITDA declined 27.8%. As Alan pointed out, if you look at it from an EBITDA margin basis, we were pleased with our results. If you strip out the total acquisition related fees and costs of $3.3 million, our EBITDA margin would've been a healthy 16.1%, a number which again speaks to our ability to streamline our cost structure in a challenging environment.

Net interest expense in Q2 was $1.6 million, lower than last year's figure of $2.5 million reflecting the dramatic year-over-year reduction in our debt and our significant cash position. Our provision for income taxes was $6.2 million compared with $11.4 million in Q2 2008. Our effective tax rate was 42% for both Q2 of 2009 and Q2 of 2008.

FIN 48 expense during the quarter was $800,000. For the full year, we project that our overall effective tax rate in 2009 will be closer to 40% even with FIN 48 expense as we are anticipating that Eveready's effective tax rate will be in the low 30% range.

Second quarter net income was $8.6 million or $0.36 per diluted share based on 23.9 million average shares outstanding. This compares with net income for Q2 2008 of $16 million or $0.70 per diluted share based on 22.9 million average common shares outstanding. For modeling purposes, please note that with the issuance of the 2.4 million shares, our share count will be increasing to 26.3 million. For the third quarter this year, our weighted average share count will be 25.5 million for EPS purposes.

Turning to the balance sheet, as of June 30 we had a very strong cash position with cash and equivalents of $255.9 million. This strong cash position enabled to us to complete the Eveready deal. Even with the close of the transaction, we maintain a highly liquid balance sheet with considerable capital available.

Our cash position today is about $90 million and our total remaining debt is $188 million including $21 million of capital leases. With the notes offering we announced this morning, we intend to replace nearly all of that debt and add to our cash position.

Total accounts receivables stood at $155 million on June 30 and our days sales outstanding came in a record 66 days down from 69 days in both Q1 2009 and Q2 2008 as a result of improvements in our billing processes and our conservative credit practices. This tightening of our credit policy is in response to the current economy and has in fact constrained our revenue to some degree. There have been some deals we have walked away from due to concerns about a customer's ability to pay us.

We are pleased that we have maintained our DSO at 70 days or below for five quarters in a row and we are committed to limiting our collection period and maintaining our healthy cash flow. In light of the higher DSOs in Eveready's business, we anticipate that DSOs may rise into the mid-70 day range in the near-term. We hope to improve that as we move through the integration process.

Capital expenditures came in as expected at approximately $10 million for Q2. This compares with $10.9 million one year ago and $23.9 million in Q1. As a reminder, we bought out some equipment leases for around $8 million in Q1 of this year. We are targeting CapEx in the range of $60 million to $65 million for 2009 which includes approximately $10 million for Eveready.

Accounts payable balances decreased to $54.9 million in Q2 from $63.9 million in Q4, as did our deferred revenue balance which decreased slightly to $23.6 million compared with a balance of $24.2 million at the end of Q4. Environmental spending during the second quarter was $1.9 million compared with $2.2 million in Q2 2008.

Overall, we are continuing to carefully manage our environmental liabilities. At June 30 our balance of environmental liabilities stood at $180.8 million, which is slightly up from $178.5 million at the end of 2008. Spending was consistent with the prior year. The slight increase in environmental liability was the result of currency translation and an increase in new asset retirement obligations. Managing this area remains a key focus for us.

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

(Operator Instructions) Al Kaschalk, Wedbush Morgan Securities.

Congratulations on getting the deal done. Jim, just a clarification, so the way to summarize the debt position or cash before the note offering is $98 million or $100 million of net debt?

That is correct.

And then on the $21 million of lease assets, does that imply -- and buying them out that we now own those? Or what is the -- could you just add a little color on that?

Absolutely. Eveready has equipment leases that have been capitalized. And our intention is to go through those and we will likely pay several of those off, kind of along the lines of what we have been doing on the Clean Harbors side with purchasing some of them. Some might be very economic that we would not buy them out. But my expectation at this point is that probably a majority of them we will buy out.

And then of course we will take out all of the debt that they have there in terms of their term loan and their revolver. We are contemplating perhaps having a small line of credit facility up there prospectively. But we are still looking at whether or not we need that.

And then Alan, if I may, appreciate all of the color in particular the commentary on the core business. Can you help us move along the thought process that depending on your customers' willingness that the -- you should see volumes pick up? Because what I hear you saying is that they're not canceled in particular on these 15 contracts -- projects, but is there any indication that you could share with us that it's actually started in Q3? Or are there specific milestones to get this started near-term?

We have certainly been tracking them closely. We are disappointed that some of some of them were pushed in the second quarter, as I mentioned. I would say that as we got probably the third week into May, things were going pretty good and then that Memorial Day weekend, coming back from that holiday that business just dropped off. And some of it was weather-related.

We have a couple of projects that, because it is construction orientated, there have been some weather-related delays that are normal. But in other cases just people telling us we have the work, hesitant about giving us a purchase order until they have their financing squared away and we have seen a lot of examples of that from a number of customers, both quite frankly very large and small. We have seen some of that now opening up.

We are mobilizing on some projects that are working and we have been, on our Thursday call, hearing positive updates from the organization that feel this stuff is starting to break a little bit.

Okay. And in terms of the Eveready business, should we -- how do we think about that in terms of forward revenues? I know you gave us an EBITDA and a revenue number. But is that also more project dependent? Is it ongoing work that this is just going to continue along? What is maybe dependent on financing or availability of customers to spend capital?

I would say the smaller segment we talked about this morning, the exploration segment and maybe even a little bit of that industrial which includes the lodging would be more impacted on oil price and maybe growth in the oil sands.

But a lot of their business is long-term contract work where they are out in the plants performing services day in and day out 24/7. We were amazed over the weekend just how busy they are, even though this is a holiday weekend, a big holiday weekend in Canada, extremely busy in a number of areas. So they have a lot of base business and support in the ongoing plants that they have. But there is a piece of it. Probably about $100 million of that business I would say is probably more impacted by the price of oil and future growth.

And one final thing and I will hop back into queue. Jim, at some point can you just provide the cash flow from operations number for the quarter? Thanks.

Yes. The cash flow from operations was $37.2 million in Q2.

(Operator Instructions) Hamzah Mazari, Credit Suisse.

Could you comment a little on the strength and the solvent recycling business? What is driving that? What you doing there exactly to grow that business? Just a little color on that would be good.

Sure. I think part of it is with the cement kilns significantly reducing the volume of hazardous waste solvents they're burning because of the reduction in cement use, we are seeing some solvent streams that may have typically been used as a fuel now coming back into the market and looking at recycling alternatives.

I also think customers just with their whole initiative, the green initiative of looking at ways of recycling and reusing material, they are more open to looking at an alternative maybe than just simply fuels blending and incinerating. I think maybe some of the competitors are out there also having some difficulty with the meeting some of the specifications or requirements that customers want. So some of the new equipment we're putting in and expansion we're putting in is really to improve the product quality of these solvents that we toll or sell for our customers.

And just a follow-up question, could you talk about next steps in terms of integration of Eveready? You talked about billing is going through Clean Harbors. What are the next steps in the process, the timing of the $15 million of synergies? Is that $15 million -- could you break that out in buckets how much is coming from cross-selling, how much is coming from admin? And what does your acquisition pipeline look like after Eveready?

Sure. The $15 million in synergies we are anticipating next year, we have approximately 80 Clean Harbors people today up at the various offices within Eveready helping train and help the staff up there get up to speed on the new systems and there is certainly going to be a learning curve for that first 30 are 60 days. The $15 million really does not include any cross-selling synergies.

I think when we talk about synergies, really more on the cost and redundancy. Clearly, Eveready was a public company and they no longer have all those expenses of maintaining -- of being a separate public entity as an example. There is some headcount reductions and redundancy. But for the most part, the cross-selling side, we really haven't quantified and I think that's the exciting part. We have not put any number out there.

But a lot of their customers are using competitors for disposal services and our goal certainly is to get our field sales people out there working with their field sales people and cross-selling and gain some nice revenue momentum there.

Okay, thank you.

Matt Duncan, Stephens, Inc.

The first question I've got is if you look at how your business tracked month-to-month throughout the quarter, and Alan you made a little bit of a reference to this, but what did it look like? And what does it look like so far in July? It sounds like June was probably a tick down from May. What does July look like so far?

You know we exited the quarter strong, stronger. I think the end of May, the very end of May was probably weakest. June was the strongest of in the quarter, exited strong and into July that continued.

And just as my follow-up if I look at your guidance for the rest of 2009 it implies second half revenue about $80 million to $100 million above the first half. And it sounds like about $15 million of that is project work. Where does the other $65 million to $85 million increase in revenue come from?

Our just overall volumes in general between our small customers are seeming to generate more material again. We're seeing more waste flows. As I mentioned, the pipeline is very, very strong for us right now. We've been getting some new business and new contracts kicking in. So we referenced the projects because that really did hurt our landfill business particularly in some of our incineration volume in the second quarter.

But as I mentioned, our sales expansion out there has really generated a lot of new leads and opportunities for us and we expect those to turn into revenues for us in the third and fourth quarter. And quite honestly that was part of our plan this year. We began in October last year of taking out some headcount and adding sales and marketing and business development people and we have put on over 100 people. And we are adding people in proposal development and some other areas that are just seeing the huge uptick in opportunities out there. We expect that to materialize.

Okay, great. Thanks. And Jim, real quick, can you give us the revenue breakdown by segment? Then I will hop back in the queue. Thanks.

Sure. The revenue breakout Tech Service was $158.1 million and Site Service was $57.7 million.

And I also wanted to add one thing to Alan's comment about the revenues for the rest of the year. As he pointed out in his remarks earlier, it is unusual not to have any emergency response work like we have had historically. But a lot of the emergency response work tends to occur in the last couple of quarters of the year. So we are still including as part of our guidance a little over $10 million of emergency response work that is part of that guided figure in revenues there for Clean Harbors.

Thank you. That is very helpful.

Richard Wesolowski, Sidoti & Co.

Are the $8 million or so in deal expenses reported in the second quarter and expected for the third quarter combined included in the guidance for the combined companies?

The only thing that is in the guidance for the full year is that $3.3 million that we have had so far, but the rest is not included there.

Okay. Was disposal price degradation a factor in your lower 2009 guidance for Clean Harbors?

I don't think so. I think we look at pricing this year as one where we have been strategic on some parts of our business, but recognizing that with the economy where it is and the volumes being down that customers are struggling. And so we have been addressing their demands or desires to see lower pricing. Quite frankly, the fuel surcharge reduction has really played well into that discussion with them because they realized they have been getting a substantial price concession, if you would, already.

So, I would say that pricing in general outside of the landfill business which is always competitive has been relatively flat this year for us. And I think that is reflective of the margins you are seeing.

So the delta between your guidance was more opportunity for market volume and perhaps the sales force incremental volume coming more in the second half than in the first.

Yes, absolutely.

And then finally, your 2009 guidance for the combined company anticipates $30 million in Eveready EBITDA for the last five months of the year, an amount equal to they reported for the first half. Are you confident the first half 2009 is going to mark a cyclical bottom for their profit?

Yes. The one thing I should point out, the exchange rate has changed dramatically from where it was in the first half of this year. So, that is part of the reason.

But clearly their second quarter is their weakest quarter and what we saw in both -- all three months of their second quarter was weakness there. Their business will be picking up and they have a good book of business going into September and October. A number of new projects as I mentioned are also going to be kicking in that have been funded and announced. And so their fourth and first quarters tend to be their real strong quarters, which will be helpful for us to flatten out a bit of our lumpiness.

I'm sorry just one more. The tax rate, I assume for the second half is high 30s, say 38%. Is that the best 2010 rate to use?

We're looking at that now. I would probably push you just a little that higher than that maybe in the 39% range. But we are still going through that, Rich. There are a few issues in Canada, some changes that they are talking about in terms of withholding taxes, etc. that we are looking for that affect. So maybe just a little higher than what you just said.

Great. Thank you again.

David Manthey, Robert W. Baird.

I was wondering if you could talk about contribution margins. You have given the guidance on the revenue and EBITDA so we can back into this qualitatively -- I should say quantitatively. But, when you look at the cost structure, actually this quarter in spite of the top line shortfall your gross margin percentage and your SG&A dollars were actually pretty close to our expectations. So I'm wondering if you could talk qualitatively as you ramp the incremental 10%, let's say, run rate into the back half of this year could you talk about contribution margins or what types of variable costs you will need to layer in to capture that level of revenue?

David, clearly as we ramp up we will see some further improvements in the gross margin line in addition to what we have seen. Specifically in the landfill side where projects hurt us the most, I think that as we see that improve. Given the high fixed cost structure at our landfills we see margins 40 to 50% -- contribution margins that high. So clearly, we will see some ramp up, I think. Probably pushing 33%, between 32 and 33% seems rational at this point.

Okay, final question on regulation. Is there anything from the EPA or any other regulatory bodies that has come out that is helping you or is expected to? I know you discussed the cement kiln's volume being lower just because of the production. But is there anything regulatory impacting that, or any other areas of your business?

I think there are a couple of things going on with the cement industry. We have seen the number of cement kilns burning hazardous waste fuels drop from 28 to less than 14 now. We would expect that to even drop further as a result of new air pollution regs that they will have to fall under in the next couple of years. So, I guess our forecast would be less than 10 plants.

We're still certainly up in the air with regard to how cap and trade will impact our customers burning hazardous waste, particularly in the incineration side and the BIF side, the boiler industrial furnace side. Both of those are certainly staring at us and we are not sure what the impact will be on volumes, but we would think that our customers would be looking at taking advantage of reducing their greenhouse gas emissions and not wanting to buy the permits to operate those plans, would be more efficient to use ours. And subsequently we would probably be able to pass along more easily the added cost of meeting cap and trade.

So those are the two hot ones right now that I think would be most pressing for us.

Okay, thanks a lot guys.

Larry Solow, CJS Securities.

Good morning. Alan, the previous couple of quarters you had given us some information on verticals, particularly chemicals and manufacturing, which I think you had reduced expectations a little bit last quarter. Could you maybe give us a little more color on that?

Sure. The call we had this morning, as you heard, we had a lot of information here to shares, so we didn't get that in because it just would have bogged us down. But clearly the key verticals that we talked about continue to see real pressure.

Probably the most surprising one to me is the utility vertical because it is off substantially for us. We would've expected them to be less impacted by the recession. But what we certainly saw is as utilization has come down, obviously on a power generation side the amount of maintenance and work going on has been really slow there.

Manufacturing no question has been off quite a bit for us, probably over 25% I would say at this point. Our chemical has been down although we have seen some life in chemical again.

We have been pleased with some of the growth we have seen on the refineries side. We have been picking up some share there. We have won some contracts. The pharma and the biotech side has also been one area that has been less impacted. We have seen some wins in that area.

But quite frankly it is probably safe to say that all of our customers because of either the economy or because of the tight credit markets back at the end of the year and the beginning of this year really curtailed spending. And I think we're finally starting to see that change where people are feeling more confident about going out and spending money because maybe they have their own credit facility squared away or least feeling like they can start spending some money again.

Is it safe to assume -- I know last quarter you were still expecting albeit modest but full-year growth in both chemical and manufacturing. Clearly, it would be fair to assume that is not the case, and anyway you can kind of quantify? I think you said chemicals were going to be up 2% and manufacturing in the mid-single digits for the full year. Any way to give a little more color to that?

I would say at least looking at the information that I have here in front of me is that chemicals is going to be down probably about between 10 and 14% at this point unless we see a big, big turnaround there. I think that is simply because of the hole that we have got ourselves in in the first six months. We saw plants shut down, furloughs, things that certainly we were not anticipating to last as long as we were. Some plants even today, they have moved manufacturing offshore and they have capacity there still and so there are mothball plants here in the states and we haven't even seen them kick back on again.

I think probably the biggest surprise to us was the demise of the auto industry and how that filtered back between the parts suppliers and the chemical companies, and the plastic companies and paints, how that all filtered its way back. It really took quite a while to work its way through, but now maybe with auto starting to come back a little bit here we will see an improvement in that. But we are cautious in saying it has not been pretty out there at all.

Is chemical down about the same (inaudible) around the 20%, 25% year to date?

Year-to-date I don't think it is down that far, but it's certainly -- no is not down that far actually. It is down about 17% right now. We are seeing like I said some signs of improvement, utilization coming up a little bit. And I would also say we have gained a couple of new accounts and new contracts there. So we are pleased again with some of the things we see in the pipeline but we are being pretty cautious here based on sitting here in July or the beginning of August.

One quick follow-up, on preliminary is there any thoughts on what the coupon range might be on the new debt?

I couldn't -- we have some estimates that we are thinking. But clearly this -- having not officially kicked that off, I could not share those at this point. But I will tell you that the markets have definitely improved and they have improved steadily from the beginning of the year and we are hoping to be able to do well out there.

Thank you.

Jamie Sullivan, RBC Capital Markets.

Good morning. Just wondering if you could talk a little bit about the guidance range and what are your thoughts on the low end versus the high-end and what happens there.

I'm not sure what you mean Jamie. We gave the guidance figures.

Sure. What happens in the economy, does the significant economy significantly pickup in order to reach the high-end? Or what happens, what gets you from the difference between the low end to the high-end?

I see. I will start it off and if Alan wants to add anything to it. But one of the things clearly that we saw during Q2, particularly toward the end of May, was that a lot of customers really began working off their inventories again and reducing production. To the extent that that does recover is where you have that range. That is kind of what we're looking at.

If that does begin to recover -- although still we're being conservative in what we're putting out there and that is down from our original guidance. But that is probably I think the biggest factor. Are the production levels going to come back and how much of those projects that were delayed, how much of that is going to get into this year? We believe the majority of it but some of that is covered by the range as well.

And I would also say there is a lot of upside with the Eveready acquisition. Clearly all we are doing is taking their five-months' forecast and putting it out there for our guidance, and Eveready has a lot of resources, a lot of equipment. They had a lot of momentum going in their own business.

They went through very difficult time, as everybody knows, in the last three or four months of last year when the price of crude crashed. They have certainly rebounded and have been aggressive out there with some contracts. And so, I think there is a lot of upside potential with Eveready but we are only into day three at this point.

Okay, that's helpful. Thanks. If you can you just update us on stimulus, you said you expected a small amount this year maybe in the $5 million range. Have you seen any movement there and any updated thoughts?

I think we still say the $5 million is probably a good number. I know, Jim, we just got some information on that recently. You want to comment on that?

Absolutely. The $5 million, as Alan pointed out, is what we're sticking with. We are looking at the rest of it into next year. It is moving a little slower than we thought as far as many of the projects we thought would kick in next year so we're watching that carefully. We had originally thought we would see about $40 million next year. But again, things are not going as fast as we had anticipated. So that could be aggressive. But we will give more color on that as we proceed forward the rest of this year.

Okay, great. And then just wondering on the, you mentioned there was some additional headcount reductions in the quarter. Can you quantify that for us?

(multiple speakers) Within Q2 I think it was approximately 30 that we had during Q2.

Okay, thanks a lot.

Jonathan Ellis, BAS-ML.

I wanted to just ask, with respect to the emergency response business and you talked about your expectations for the second half of the year, I'm wondering can you give me a little sense? Have been there been emergency response projects at this point that because of aggressive bidding by competitors or other factors you have not been winning to the same extent you have in the past? Or has the market really been nonexistent through the first half of the year?

John, the market basically just hasn't existed. Although I will point out that if you look over history over the last five or six years most of the events do occur in the second half of the year. But typically we would see small-scale projects going on in the first half and they just really have been nonexistent.

Typically John they are not bid either. The events happen and we position ourselves with both our private clients as well as the government to have contracts in place so that we have a good probability of getting called on these large events. They're typically not bid at all. So we're pretty familiar with the ones that are going on and I would say that it has just been a very dry spell for the industry.

Okay, great. And on the guidance you provided for Eveready. Does that include the landfill in Canada that you're going to need to sell? Or does that exclude the earnings contribution from that site?

It includes the landfill. Now, we are looking right now at the accounting rules for this, whether or not we need to break it out as discontinued operations. It appears that it will be broken out. But until we make that determination we just included it in the total.

My final question, and I realize we are -- 2010 is still we're pretty far off at this point. But based on what you know today given the market environment and your commentary regarding improvement in the second half of the year, is your expectation that you would be able to potentially raise pricing across your customer base? Perhaps not the same magnitude but at least to a certain extent consistent with the 2007 and 2008 levels. Or do you still feel at this point that there is not enough sustainability or predictability in the business to warrant a price increase as you move into next year?

I would say it's probably too soon at this point for us to be thinking about pricing strategies. We typically wait until the first quarter, which is our historical slow period. I think one thing that, just looking at over the weekend which was sort of exciting from my standpoint, we have not -- because the deal hadn't closed we had not been able to look at any pricing information until Saturday and Sunday. And then looking at pricing that came over with Eveready, a lot of opportunity there we think to get them all on a consistent pricing strategy.

Because they had done so many acquisitions over the past two years it appears that their rates and prices are really all over the place, if you would. So, I would say that we have a greater opportunity with Eveready's business than we do probably even with our base business here next year. That would be my initial thinking at this point anyway.

Great, thanks guys.

Ted Kundtz, Needham & Co.

Hello Alan and Jim. Most of my (technical difficulty) maybe you could talk a little bit about the additional charges you're planning on in the second half and could you highlight those for us again? I think you said it was $8 million but I wasn't sure if I caught that and when they would be occurring.

We have -- I guess the costs that we'll be having fall into a few categories. First of all there is integration costs and we use a nationally -- a well-known firm that helps us with integration processes and they have been helping us through the month of July and are helping us on some related projects as we move through here. Then you have, of course, legal costs and professional fees.

And then in the last category you have banking fees. We have merger advisory fees that we'll be paying. We used Goldman Sachs for this transaction. And then we will also have on the $250 million offering we are doing, we will have fees related to that as well. But those particular fees on the financing we will be able to capitalize and write off or amortize over the life of the issue. Does that help?

What is the total again and when will it occur?

We have already seen $3.3 million.

Right, I know you had some (multiple speakers)

Right, so I guess I would look at it that the total, if we did the offering all totaled including the $3.3 million, and this is just cash recognizing that some of this will be capitalized, I would say would be in the area of $15 million for this entire transaction and all of the refinancing that we have done.

And the bulk of that will be taken in the third quarter?

That is exactly right.

(multiple speakers) And as I said, some will be able to capitalize and that is why -- where you see the difference.

And they could you just remind us again, it sounds like the Eveready business is down about 20% or almost 30% so far this year. Is that what you're looking out for the full year? I just forgot if you could remind us what they did last year what you are anticipating for them this year.

We are expecting pretty much a consistent level where they have been this year in terms of the reduction from last year, and that is what we have implied in our guidance.

Okay. And for next year is there any other -- what should we be focusing on in terms of the recovery for them? I think you indicated you thought they could recover fairly faster than you might be able to. Any thoughts on that a little more specifically?

Not necessarily. The recovery I might have been talking about was that there are some projects that have been discussed that might be kicking back off again that will help both on their exploration and launching business. But their industrial services business, from everything we have been seeing, is strong and going to get stronger simply because they are going to go back into their busy season. There have been a lot of opportunities for improving utilization of a lot of the assets.

Today we're sitting here with 5000 tractor and trailer units, over 3000 pieces of heavy equipment. Our fleet management guy says we're probably going to be in the top 15 private fleet operators in North America now that this deal is complete. We have a lot of stuff to put to work and there is a lot of opportunity to grow the business with these assets now.

Okay, thanks very much.

Craig Bell, SMH Capital.

Good morning. I'm just wondering on your new segment breakout you gave the details on what the pro forma breakdown of revenue would be. As we go forward, do you expect the Industrial Services segment will move up significantly as a percentage of the total?

I would say so that there are a lot of growth opportunities within the current geographic area that Eveready operates in as well as Eastern Canada and the US. That is a big market. As we think it is probably in that $12 billion, $13 billion market. They are probably two or three other competitors that are equal or larger in size but still very fragmented. And so I think there's a lot of room for growth there.

Okay. And earlier you were talking about how your pipeline of business looks strong. Are you seeing any concerns there that the projects are not going to be pushed out but they'll be delayed or they will be canceled outright? Or do you think it's going to be more like what you saw in the second quarter where you have some push out but not much in the way of cancellation?

You always see projects either have been accelerated or pushed because sometimes there is extenuating circumstances. So we're very used to that. But to see the extent and the size of what we saw getting pushed was highly unusual in the second quarter for us. And to have upwards of $3 million actually cancel and go away entirely was -- now they might come back next year or the year after, but I think -- I guess I would say we have a higher probability that those projects are going to happen this year. Unless we see some second dip in this recession, I think there is a feeling that these things are going to get done.

Great, thank you.

Michael Hoffman, Wunderlich Securities.

Thank you very much. Good morning. I was trying to reconcile the guidance. It would look like that on a core Clean Harbors business, given all the numbers you gave, that you are looking for EBITDA margins to improve in the second half by about 400 basis points. And I was hoping you could help us. It cannot be just the operating leverage of incremental (inaudible) (technical difficulty) revenues. So there must be more to it. Can you help us understand that?

Yes I think one of the things you should do is also take into account the margin in the second quarter included those acquisition costs, that if you take that out you're looking at a 16% plus margin. And although we will have some additional one-time costs in the third quarter, other than that we do expect an improving margin for the rest of the year.

But did I not -- did I understand correctly? I think someone just asked one or two questions before that. That $15 million is in your guidance and it is probably $9 million that actually goes through the P&L and $6 million of it is capitalized. So $9 million of it is in the P&L right?

Yes, it will be about $5 million that will hit the P&L because the $3.3 million was included as part of the $15 million so that is already behind us.

Okay, but that is still a pretty healthy improvement in the second half.

That's right. And our guidance excludes those acquisition fees.

Oh, excludes it I'm sorry. Okay I misunderstood that. (multiple speakers) And then, again, I realize trying to help us with all of this data, backing into it is a dangerous thing. But interestingly enough, you can triangulate around July on Eveready based on the numbers you gave. And it looks like you did $48 million -- or it did $40 million in revenue $8 and million in EBITDA. That seems unrealistic given what Alan suggested about what was happening in the second quarter at Eveready.

The only thing -- and I have not done that triangulation and we will not hear about the July revenues. We don't have those yet for Eveready. But one of the things just to be careful with. In the first six months the exchange rate was 0.83 and it is now 0.92. So there is a big difference in the exchange rate that can move numbers around quite a bit. So although all of the numbers I've been talking about are US dollars, recognize that they are at different conversion rates depending upon when they occurred during the year.

I will take a look at that and do that triangulation myself. But I will be having the real numbers in the not-too-distant future.

Sure. What you do think for the guidance for forex? What is implied in the guidance?

Implied in the guidance is the current level, which is 0.92.

And then, most of the chemical companies have reported already and one of the things they talked about was a fair amount of destocking that happened. So they expect a little bit of uptick in utilization but they are trying to talk the market into whatever that level is their new mean and don't expect a lot of plans to reopen and things like that. Somewhat of a somber approach and that is consistent with what we are hearing. Can you help us? Have you looked at the correlation of chemical industry utilization rates and sort of what your revenue trend looks like and help us think about that a little bit?

Absolutely. I think that has been part of our thinking. We have I think 17 different industry verticals that we focus on and target and clearly chemical is about 20% of that or it was before this acquisition. But, yes, chemicals by far is as I mentioned I think earlier when Ted was on that it is tracking a lot less this year than we had hoped for. We had hoped for some growth and we are now forecasting probably 14% down or even a little bit more than that. So, we're definitely seeing what you're talking about.

I would say that we have seen some opportunities to gain some new business. Some of the chemical companies have been in some major mergers as you know. Another major company went bankrupt. They are out soliciting for new suppliers right now trying to reduce their costs. We have seen some opportunity for growth even in the chemical companies that we are not currently in today. So that is part of our strategy is to go after that business even though they are down a little bit.

Lastly, can you bring us up to date on where you are in your permit submission for [Sonia]?

We have been going through a number of permit modifications at the Sonia facility and the most recent permanent modification I believe has been submitted. There have been public hearings up there and our hope is that we would be constructing a thermal plant there by the end of this year.

Okay, thank you.

Matt Duncan.

Hey guys, just wanted to clarify couple of things. First of all, the D&A guidance that you gave for Eveready, that $37 million to $40 million, does that include the amortization of intangibles created by this acquisition?

Yes it does. We tried to model that and we're going through that process right now. But yes it does. It includes the depreciation on their equipment assets as well as the amortization of intangibles.

Okay, great. And then last thing, and Alan you touched on this a little bit. In terms of additional acquisitions from this day forward, it sounds like your balance sheet is going to be in a position where you can continue to look at deals. If so, are you trying to target more on the Industrial Services side of the business or maybe acquiring some additional hazardous waste assets? Or are you really impartial to -- either one is okay?

I think either one would be okay, and we have had some discussions on some other acquisitions in both areas. But quite frankly our focus as a management team right now is to make sure that the Eveready acquisition is a great success. And we have the business working well and we are taking advantage of their capabilities and expertise across our business and vice versa. By the end of this year I would hope to report to everybody the success we see and the opportunity for 2010.

Okay, great. Thank you very much.

Thank you. And I guess thanks everybody for getting on the call with us this morning. We look forward to updating you on our third quarter.

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