Clean Harbors Inc (CLH) 2009 Q3 法說會逐字稿

Good day, everyone, and welcome to Clean Harbors' third-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 Council for Public Affairs. Please go ahead, sir.

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

Before 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 third-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, estimate, 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 reflects management's opinions only as of this date, November 4, 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 and quarterly reports filed in 2009, including the report to be filed for Q3, as well as information filed with the SEC in August in conjunction with our 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 EBITDA, which is earnings before interest, taxes, depreciation and amortization. EBITDA is a non-GAAP financial measure and is intended to serve as a complement to results provided in accordance with accounting principles generally accepted in the United States.

Clean Harbors believes that such information provides an additional measurement and consistent historical comparison of the Company's performance. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in today's third-quarter news release, a copy of which 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. Our financial results for the third quarter reflect the initial contributions from the Eveready acquisition we completed at the beginning of August. Within Clean Harbors' legacy operations, we did start to see some sequential improvement and pickup in certain lines of business this quarter. Incineration was strong and landfills were up. Our large projects and our general transport and disposal businesses were off, and Field Services had another challenging quarter, including the third consecutive quarter of relatively minor emergency response events.

Clearly, the weakened economy continued to have an impact on our overall business. As a result, we delivered lower-than-expected revenue in the third quarter. Revenues come in at $305.6 million. This is up 12% from Q3 of '08, when we reported $273.2 million, but that includes a two-month contribution of approximately $78 million from Eveready. When you strip out the Eveready piece, our legacy business is down year-over-year, although up 6% from our Q2 revenue level of $215.3 million.

So we are continuing to trend in the right direction as we move through 2009, but we are expecting a stronger sequential ramp-up, particularly since Q3 is typically one of our strongest quarters.

Now turning to EBITDA, a clear highlight of this quarter, despite the revenue shortfall, we generated solid EBITDA margins. The ongoing productivity and cost reduction initiatives that we have implemented during the past several quarters are working. For the quarter, we reported EBITDA of $48.3 million, which translates into an EBITDA margin of 15.8%.

However, this does not accurately reflect how well we did from a margin perspective. There was approximately $4.1 million in acquisition-related costs in the quarter, as well as a number of other puts and takes. And if we exclude just the acquisition-related costs alone, our EBITDA margins would have been approximately 17.2%, which reflects the lean cost structure we've created in the past and the leverage in our business model.

From a bottom-line perspective, there were a number of factors that clouded our earnings performance, as well. In addition to the $4.1 million in direct acquisition-related costs I just mentioned, we also incurred $4.9 million in expenses related to the early extinguishment of our debt. If you total those, on a tax-affected basis, those expenses lowered our net income by approximately $6 million, or $0.23 per diluted share. And Jim will certainly discuss our financial performance in more detail later in the call.

Now I would like to discuss Eveready and how it performed in Q3. Given the economic environment, we were pleased with the results that Eveready delivered in the quarter, which were essentially on plan. Eveready accounts for the vast majority of our newly-formed Industrial Service and Exploration Service segments. For those two segments, Q3 is seasonally one of the lightest operational periods, as a lot of the activity in northern Alberta does not get underway until the ground freezes.

So as we highlighted in today's press release, we exited the quarter with good momentum in these two segments, as we followed up a soft August with a fairly strong month of September.

We remain as excited about the Eveready acquisition today as we were when we announced the deal back in April. The integration process with Eveready is proceeding smoothly and on plan. And on our Q2 call, I mentioned that all of their business was being transacted on our information management systems just two days after the deal was closed. We really are proud of how well our integration teams made the transition happen. And since that time, we've continued to implement more of our back office systems and processes, and we've started to move in other areas, such as procurement and equipment and asset management.

We've begun the process of rebranding most of Eveready's services under the Clean Harbors brand. We've also realigned our organizations, as we've established our internal reporting structure for the combined company going forward.

We still have a lot of work to do this year and into 2010 and beyond so that we can capture the synergies we intend to realize from this transaction. We look forward to capitalizing on the opportunities that made this acquisition so attractive to us.

Now I would like to talk about our four segments in a little more detail, starting with our Technical Services segment. Tech Services accounted for 57% of our total revenue in the quarter. Similar to Q2, our TSDF's wastewater treatment plants and general labor and transport business were down substantially year-over-year, which more than offset the positive results at our incinerators and landfills. Utilization at our incinerators was 88.8% in Q3, with a slightly stronger contribution from our US facilities versus our Canadian locations. This compares favorably with the 93% we reported in Q3 2008, when you factor in the additional capacity we brought online during the past 12 months.

Within our landfill business, volumes were up 15% on a year-over-year basis and up 21% sequentially from Q2. Landfill pricing remains highly competitive, but we were happy to see some previously delayed projects get released. We still see a considerable pipeline of opportunities for our facilities, and we are continuing to pursue additional permitting at some of our sites.

Our solvent recovery business continued its momentum with steady streams of work at both our Ohio and Arkansas locations, and our expansion plans at our El Dorado, Arkansas site remains on schedule and should be completed by the end of the first quarter in 2010.

Let's turn to our Field Service segment, which accounted for 17% of our revenues in Q3. As you recall, this segment is our former Site Service group. Just as we saw in Q2, the down economy continued to drive down our Field Service performance as virtually all of our business lines in this segment experienced weakness. So much of what we do in Field Service is relied on certain industry verticals, and we've found that companies, especially in our utility and refinery verticals, are still restricting their spending and delaying projects, except for work that absolutely is necessary.

The fact is that many of these projects, whether it is tank cleaning or demolition or remedial work, can only remain discretionary for so long, and we are confident that a considerable backlog of opportunity now exists in the marketplace, as these companies have repeatedly delayed work at their sites.

In terms of Q3, another factor working against our Field Service group was the third consecutive quarter which we are not seeing any sizable emergency response events. And while we never count on emergency response revenue, it can serve as a nice buffer for our routine business when that is down. So for the quarter, we did not open up any additional Field Service branches, given the additions of the Eveready offices.

Turning to our Industrial Service segment, essentially we folded the majority of Eveready services into this segment and combined it with our small existing Industrial Services lines of business. It is an area that we've been targeting in recent years, and we see it as an attractive area of growth in the years ahead.

In Q3, Industrial Services accounted for 23% of our revenues, which includes only two months, two seasonally weaker months, of Eveready. On an annual basis, we expect this to move up to the low 30% range. And as I mentioned, the Eveready assets performed on plan in Q3, so this business was where we expected it to be initially.

We are looking forward to moving into the busy season for this segment in Q4 and in Q1. Our intention is to seek expansion opportunities in both Eastern Canada and in the US. Collectively, we believe our Industrial Services segment, which has 8500 trucks, trailers and specialty equipment, has a substantial amount of upside as we plan to better utilize those assets in the years ahead.

We are also seizing an opportunity to expand our camp business by building out a 250-bed camp up in Conklin, Canada, and that will support our growth in that market.

Our fourth and final segment is Exploration Services, where we provide exploration and directional boring services, primarily to the energy sector, serving oil and gas exploration, production and power generation. As our smallest segment, Exploration Services accounted for only 3% of our revenues. This segment is also moving into its busy season. However, I should note that we are seeing some pressure being put on this segment by the currently depressed price of natural gas.

However, on the other hand, we are benefiting from these low prices on the disposal side, as many of our major facilities run on natural gas.

So hopefully this gives you a good snapshot of Q3 and how our four segments performed during that period. Before I talk about our outlook, I wanted to spend a few minutes talking about how our end markets are changing, as well. To give investors a better sense of the markets in which we now operate, we went back and looked at the end market profile of our Company over the trailing 12 month period ending in July. The results were informative, and there were several key takeaways I would like to highlight.

First, with the addition of Eveready, we greatly diversified our end markets, which was a strategy we have been pursuing at Clean Harbors. We are not as concentrated in certain markets as before, and less susceptible to disruptions in any given industry. We are now much less reliant on the chemical manufacturing industries, two sectors that were extremely hard hit by this recent recession.

If you look at Clean Harbors as a stand-alone company in 2008, chemicals accounted for 23% of our revenues, and general manufacturing was our second highest at 14%. No other industry represented more than 10% of our revenue. However, if you look at our current profile using the pro forma 12-month July numbers, chemical is still our top industry, but it does drop to 17% of our revenue, and manufacturing is now only fourth, the fourth largest, at 9%.

Oil and gas production and refineries are now our second and third largest end markets. According to these pro forma July numbers, oil and gas production accounted for 15% of revenues during that 12-month period and refineries are now 14%.

In 2008, for Clean Harbors as a stand-alone company, refineries were 8% of our revenue, and oil and gas production was zero.

So due to the acquisition, annual revenues from oil and gas production, exploration and refineries has grown from just 8% to 32%, and we view this shift as a positive for Clean Harbors and its shareholders. Expanding our presence to strategic markets that are here to stay, markets like oil production and refineries that won't be outsourced overseas like manufacturing, has long been a focus of Clean Harbors, and today we are better positioned in domestic markets that are continuing to grow where the services we provide are critically important.

And for any investor that is interested in seeing the full comparison of these July pro forma numbers with our 2008 and 2007 numbers, we are including all of that information in a chart within the slideshow that we will be presenting tomorrow at the Goldman conference. Our slides will be available as part of our webcast at 2.45 Eastern time tomorrow, and we will also be posting them to the Investor Relations section of our website shortly thereafter.

Now let me turn to our outlook. We believe that Eveready is an excellent addition to Clean Harbors and lays the foundation for growth in the years ahead. The transaction expanded our core revenue base, broadened our service offerings, particularly within the multibillion-dollar Industrial Services market. Clean Harbors' footprint is now larger than ever before.

We now have a presence in international markets beyond North America for the first time in our history. In fact, we just won a nice refinery turnaround project in Norway. So overall, we see considerable cross-selling opportunities for our combined organization as we extend the range of services we offer customers of both companies.

Looking at our outlook from a cost perspective, we are confident that we will capture the $15 million in cost synergies we had planned for 2010 and an additional $5 million that we had planned in 2011. We are targeting economies of scale in areas such as procurement, information technology and human resources management, as well as other process improvements.

Eveready's cost structure also will benefit from the elimination of public company costs, as well as much lower corporate expenses.

Outside of Eveready's synergies, we are targeting an additional $20 million in expense reductions for 2010 that will help further drive our EBITDA margin improvement and also help offset other rising costs, such as health care.

So turning to our guidance, we had consistently expected 2009 to be back-end loaded for us, and while Q3 did show some sequential growth, it obviously fell short of our expectations. Our year-to-date performance and our current market conditions have led us to reset our guidance for the year, and we are also issuing guidance for the fourth quarter.

So for Q4, we expect revenue in the range of $345 million to $360 million and EBITDA in the range of $59 million to $63 million. For the full year, Clean Harbors now expects revenue in the range of $1.07 billion to $1.09 billion, with EBITDA of about $164 million to $168 million, and again, which was negatively impacted by $8.1 million of acquisition-related expenses.

We had previously guided to revenues of $1.13 billion to $1.16 billion and 2009 EBITDA of $173 million to $180 million.

So while 2009 has continued to be a challenging year for us, we remain optimistic about our long-term prospects. We believe that 2010 will be more representative of what our combined company can deliver, particularly as the sum of our core business lines stabilize and in some cases return to growth.

While it's still early in our budgeting process, we elected to provide preliminary full-year 2010 guidance in today's press release. We are anticipating a return to revenue and EBITDA growth due to the Eveready acquisition, expected synergies and cost reduction initiatives and a small rebound in our core markets. For 2010, we currently expect revenues of $1.4 billion to $1.45 billion and EBITDA margins of approximately 17%.

I will now turn the call over to Jim Rutledge so he can take you through the financials in more detail. Jim?

Thank you, Alan, and good morning, everyone. As Alan mentioned, the economic downturn continued to affect our results in the third quarter. However, the contribution from Eveready helped offset our organic revenue decline year-over-year, and we delivered 12% top-line growth for the quarter.

Although our core business was down year-over-year, core revenues were sequentially up from Q2, as Alan talked about, a sign which gives us confidence that we are seeing the early signs of a recovery.

Since we have integrated the Eveready businesses within Clean Harbors, it is difficult to precisely separate the legacy Clean Harbors results out of the combined figures. However, we have estimated that Clean Harbors alone contributed about $228 million of revenues in Q3 compared with $273 million in the third quarter of 2008.

In addition to the adverse economic impacts, as Alan talked about, several additional factors challenged this year-over-year top-line comparison. First, we had approximately $8 million in lower fuel recovery fees in Q3 of this year versus last year, when the price of oil spiked in the summer months.

Second, we had minimal emergency response revenue in the quarter. Last year, we recorded a little more than $9 million compared to about $1.5 million this quarter.

Finally, we were unfavorably impacted by about $2 million from 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 costs from a cost perspective, and our Canadian costs are translated at a lower level this year as well.

Gross profit for the quarter was $94.7 million, translating into a gross margin of 31%, which is nearly flat with last year's gross margin of 31.5%.

Selling, general and administrative expenses in the quarter totaled $46.4 million, up $5.7 million, or 13.9%, from the third quarter of 2008. The year-over-year increase was primarily due to the $4.1 million of acquisition expenses during the quarter, along with higher personnel costs, given our expanded employee base and increased health care costs.

As a percentage of revenues, SG&A was 15.2% of revenue in Q3 of '09 compared with 14.9% of revenue in Q3 of '08. We are pleased to see SG&A come in around our 15.5% targeted range despite the drop-off in core revenues and the addition of Eveready.

Accretion of environmental liabilities was $2.6 million in Q3 of 2009, which is slightly lower than $2.7 million in Q3 of '08.

Depreciation and amortization expense rose to $18.6 million from $11.4 million in Q3 of '08, mainly due to the acquisition of Eveready. We expect our depreciation and amortization expense to be in the $64 million to $66 million range for the full year 2009, which includes an estimated $15 million to $17 million from Eveready for five months.

The annualized rate of depreciation and amortization expense for Eveready is expected to be in the $38 million to $40 million range, bringing the total annualized rate for the combined company to $87 million to $89 million. Depreciation for Eveready includes the depreciation on their equipment assets, as well as the amortization of intangibles.

As a result of lower sales leverage and higher SG&A costs, Q3 '09 operating income decreased 14% to $27 million from $31 million in the third quarter of last year. But again, without the $4.1 million of acquisition costs, our operating income would have been flat against last year's third-quarter figure.

In Q3 we achieved EBITDA of $48.3 million, or 15.8% of revenue. This compares with $45.4 million, or 16.6% of revenue in Q3 '08. As Alan mentioned in his commentary, our EBITDA margin is even more impressive if you add back the $4.1 million of Eveready acquisition costs. Adjusted EBITDA excluding these costs was $49.5 million, which translates to an EBITDA margin of 17.2%.

This EBITDA margin is especially significant considering our revenue performance and speaks to our ability to lower our cost structure to increase our leverage.

Net interest expense in Q3 was $6.6 million, which was higher than last year's figure of $1.9 million, and reflected the higher debt level associated with our successful bond offering in mid-August.

Our provision for income taxes was $6.9 million compared with $10.4 million in Q3 '08. Our effective tax rate was 44.1% in Q3 '09 versus 41.5% in Q3 of last year. This higher tax rate is indirectly related to the acquisition-related expenses, which are not currently tax deductible, but rather are capitalized as part of the acquisition for tax purposes.

FIN 48 expense during the quarter was $800,000. For the full year 2009, we project that our overall effective tax rate will be closer to 42%, even with the FIN 48 expense.

Third-quarter net income was $9.2 million, or $0.36 per diluted share, based on 25.5 million average common shares outstanding. This compares with net income for Q3 '08 of $14.6 million, or $0.61 per diluted share, based on 23.8 million average common shares outstanding. I should point out that we expect our share count next quarter to be approximately 26.3 million shares.

As Alan mentioned, there was $9 million in total expenses related to Eveready and the early extinguishment of debt. On a tax-affected basis, those expenses lowered our net income by about $6 million and our EPS by $0.23 in the quarter. Without these expenses, our EPS for the quarter would have been $0.59 per diluted share.

Turning to the balance sheet, we are in a very strong cash position, with cash and equivalents of $221.1 million as of September 30. As most of you know, on August 14, we issued $300 million aggregate principal amount of 7 5/8 Senior Secured Notes, due 2016, for net proceeds of $292.1 million. Approximately $175 million of the net proceeds were used to repay all amounts outstanding under Eveready's existing credit facility, as well as certain capital leases, along with fees, expenses and other costs related to the repayment of these debt obligations.

The 7 5/8 rate we secured speaks to our solid credit rating and our ability to secure financing even in this challenging credit market.

Total accounts receivable stood at $275.6 million on September 30, and our days sales outstanding came in at 71 days, up from 66 days in Q2 of '09 and 68 days in Q3 of '08. As expected, DSO increased in the quarter, stemming from the higher DSO in Eveready's business. We are optimistic that improvements in our billing processes and our conservative credit practices will enable us to improve our DSO to a more normalized level as we continue to move through the integration process.

Capital expenditures came in, as expected, at approximately $10.6 million for Q3. This compares with $9.1 million a year ago and $10 million in Q2. Year-to-date CapEx is $44.5 million, and we now expect our full-year CapEx to be in the range of $55 million to $60 million, slightly lower than our original target of $60 million to $65 million for 2009.

Accounts payable balances increased to $83.9 million at September 30 from $63.9 million at year-end '08, mostly due to the addition of the Eveready business, while our deferred revenue balance decreased to $21.9 million compared with a balance of $24.2 million at year-end.

We are continuing to carefully manage our environmental liabilities and steadily lowering our exposure in this area. At September 30, our balance of environmental liabilities stood at $181.6 million, which is slightly up from $180.8 million at the end of June. This slight increase resulted from the effect of currency translation and an increase in new asset retirement obligations.

Our spending was on track and consistent with recent quarters. Managing this area remains a focus for us.

In closing, let me echo Alan's optimism about our prospects for 2010. Eveready is a great addition to our company. We have an excellent track record of integrating acquisitions and maximizing their value through our first-class systems.

We've diversified our end markets even further through this acquisition. Our balance sheet is strong and affords us considerable financial flexibility to pursue additional growth opportunities. And we've created a lean organization that positions us well to capture profitable growth as our key markets return to more normalized levels.

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

(Operator Instructions) Al Kaschalk, Wedbush Securities.

I guess where I would like to try to start is maybe on the synergy side of the commentary. Because it looks like you have really quantified 2010 and 2011, but I didn't much see much for the way of the next couple of months in 2009. Could you comment on that, or is that just something that is going to be sub $5 million, and you will take that as you get it?

We will take that as we get it. It will be in the sub $5 million range. Clearly, we are benefiting from the -- not having the public company costs right off the bat, and some of the systems costs. But that being said, there is also quite a bit of travel and training and things like that going on that are part of this phase of the acquisition. So the net is probably a couple or $3 million, maybe somewhere around there.

Okay. And then secondly, expanding on that, it sounded as if you were talking an additional $20 million -- or a new $20 million of cost savings out of the business as you now become a combined entity related to corporate costs and core Clean Harbors businesses. Could you comment on that? Is that correct?

Absolutely. We still see some great opportunities in the procurement area for the whole company, not just the Eveready side. We continue to make our facilities more efficient. We have some programs that we are looking at in that area.

We are looking to further internalize some of the leasing that we do to take some of that out of EBITDA there, where it makes good economic sense to do it.

And then I think overall with our systems, we continue to make improvements there that should be able to give us some nice cost savings as we go forward. And clearly, we need to do that to offset the health care cost increases and wage increases and things like that that we might see ahead. So we are trying to get ahead of that curve a little bit there.

Okay. And then on the core business and the projects, Alan, I was wondering if you could -- do you feel like you have pulled out of the revised guidance maybe some things you were a little bit more optimistic about at the end of Q2 that -- where we've sort of bottomed?

Because it sounds from other companies, other opportunities out there, that projects are really pushed out until 2010. I was wondering if you could just help us, not that you are calling a bottom, but do you feel like it is based enough here with what you've commented from a financial perspective.

Al, I would say that we are really pretty pleased with the volumes going into the incinerators and the landfills, and those -- we've been pretty strong. And I think our utilization would've been about 98% if we looked without the added 50,000 tons we brought on. So I think utilization-wise and the landfill volumes are pretty strong, both in the US and Canada.

I think the projects that we really see getting pushed is a lot of the large refinery spends out there. The refinery margins have really been hurt this year, and so a lot of their maintenance and capital projects have been really pushed, outside of anything that might be an emergency for them. So that is where I would say more of the projects that we were expecting on have gotten delayed or pushed. And the remediation projects, I think it is safe to say, we saw are loosening up and actually saw some nice projects come in in the third quarter for us.

Okay. And then my final question, if I may. There has been a lot of commentary in the market about fly ash being reconsidered or evaluated to perhaps be classified as hazardous waste, I guess Class C. Could you care to comment on what you -- how you are following that? Are you doing anything short-term to prepare for potential? What are your expectations on that potential of what could be a pretty large market opportunity?

I think it is too soon for us to know exactly where the administration is going to come down on this. But we would know that there would have to be some kind of phased approach, because we can't possibly think that it could be implemented overnight, because of the magnitude of the volume.

There are going to be, I think, probably some off-site opportunities, but also some potential on-site opportunities for constructing monofills or other Subtitle C type landfills that may be required to be built for customers who generate such a huge amount that it has to be kept on-site.

So I think we will have to look at it almost on a site-by-site basis, but I think it is all depending on where the administration comes in in the next month. And then I'm sure there will be a lot of public hearings involved to that regulatory change. So I wouldn't want to get us ahead of anything here, that we think there might be some opportunity, but I think it is too soon yet to develop any plan.

Okay, well, we'll follow along with you.

Rich Wesolowski, Sidoti & Company.

On the extra $20 million in cost savings you are banking on for 2010, were those identified as a result of the acquisition, or were those centered only on the legacy Harbors' business?

Rich, they were pretty much centered on the legacy Clean Harbors business. But clearly, with Eveready, it just gives us a little more economy of scale.

Okay, and of that, you mentioned procurement. Is that the biggest category? What else is in there?

I would say probably the work at the facilities and the internalizing of some lease costs is probably the biggest area. But procurement is right up there -- is a big piece of that. I would say probably we are still working on some of the details here, but I am thinking it is probably somewhere in the $5 million to $7 million, maybe even more, area.

Okay. We had heard elsewhere that the event-driven cleanup work for landfills was very, very slow. Yet this is the second straight quarter for you of double-digit volume gains. Is this the base business getting better for everyone or are you competing for a greater share of the same-size pie?

I don't think the pie is growing. I think we've been successful. We've got a team focused on these types of projects and they've done an awesome job this year. We had our management team in for a couple days a week ago, top 80 people that run the company. And I think the message we are getting from them is that we are holding our own out there. Pricing is competitive. But between our logistics capabilities by truck and by rail, and we think we've got a pretty good cost structure, particularly in the landfills, that we've been able to win our fair share of the business that is out there.

Lastly, on the cross-selling, I realize it is early, but how adept would you say your salesforce has become in discussing the new services with customers? And how much leeway would you plan to give them with pricing as they try to get Clean Harbors into some of those other customers?

It's very early in the process. And I would say that we have seen some nice wins with the cross-selling opportunities, both in Canada and the US. And I think that is reflective in what we are seeing in our guidance here.

But we have a lot of work to do to be able to cross-sell across the Eveready customer base. In the first 60, 90 days here, while we've been together, a lot more of it has been internal focused, and we've kind of dealt with all the integration issues, like payroll management and systems and policies.

But our sales force is working together, and it is expanding. And I would expect throughout 2010 and beyond, quite frankly, that that educational process will continue on both sides.

Okay. And I'm sorry -- one more. If you mentioned it, I missed it -- do you have a 2010 CapEx estimate?

We are expecting in 2010 to be in that $60 million to $65 million range, which is similar to this year -- a little bit more than this year, and that will include a full year of Eveready.

Great. Thank you.

Hamzah Mazari, Credit Suisse.

Just touching on your projects for a second, they have been back-end loaded for quite some time now. Could you comment on the timing of these projects hitting your P&L and add some more color to the delays you're seeing? At what point can they not be delayed anymore? You talk about a strong backlog. How does that essentially flow into your P&L? What is your best guess there?

Well, we certainly have a nice pipeline of projects, and there are some limits to how long some of these can go. There are statutory limits. For example, for waste held on site, hazardous materials held on site. And also, clearly, some of the maintenance programs that have been pushed off, clearly there is only so long you can do that, that we've seen in some of the verticals.

So what we do is we look at our pipeline on a biweekly basis, at the projects that we have out there, and we track delays. Clearly, some of the delays that we talked about in the last quarter, many of them got started, as Alan talked about. Particularly in remediation, we saw some come through.

But then projects that the normal cycle of what we were thinking would be occurring in Q3 is being pushed out a little further. So it is sort of like a pipeline that maybe just got slowed up a little bit, and maybe we've just got caught as things were bottoming out with a lag there. But still, there is a rather healthy pipeline that we are looking at.

I don't know if you'd add anything more to that, Alan.

Yes, and I think probably more in the turnaround side, whether it is on the power plant or the refinery side, that the next outages is probably going to be bigger than they normally would have expected. There will be more to get done, where some of this work just got pushed off this time.

Okay. And then you talk about being more diversified, but you are also now 30% of your business is levered to oil and gas and refineries. Is it fair to say that you are comfortable with that exposure rather than chemicals and manufacturing? And then how do we think about your business as levered to the price of crude and also natural gas, if you can touch on that?

I would say on the concentration that we have, for the most part, is for facilities that are in place that need to be maintained, that need continuing services that Clean Harbors offers. So I think for consistency today, I think we are stronger and better off than we were before.

As the price of natural gas certainly has fluctuated significantly, that does impact some of our billing, like -- our revenues like our core hole drilling work gets impacted, because people are not spending as much on the exploration and development side. So do that does impact a smaller part of our revenues.

But as the price of crude certainly continues to increase, more projects are getting turned on in the oil sands and in Western Canada, and even in the States. And we see growth opportunities there as those plants get constructed and the maintenance work is required. And that is a growth area for us.

So I would say that the price of crude will negatively be an impact on new development, but really not necessarily on the infrastructure that is in place that needs to be maintained now, which is really what our focus is.

Okay, and just lastly, on Eveready's business, bringing that to Eastern Canada, what is the timeframe and hurdles associated with that? Is that more of a 2011 event, or is that late 2010? Thanks.

Well, we are doing business today there. But what is, I think, very helpful for the legacy Eveready folks is that we have a number of offices in Ontario, Quebec, out in the Atlantic, and we want to leverage our infrastructure out there with Eveready's capabilities and assets. And so it is working through the plan this year on which locations, which markets. But today, we are currently working in those provinces with Eveready's capabilities, but we want to substantially increase it as we do, particularly in Eastern United States is another area for growth with their capabilities.

Okay. Thank you.

Ted Kundtz, Needham & Company.

A couple questions for you. One, could you guys address any pricing pressure you might be seeing in the incineration side? And if you could give us a sense of what the price per pound you are getting on the incineration side and any trends in that?

On the incineration side, we really have not seen too much pricing pressure. Now that being said, with the reduced recovery fee, our customers have experienced the lower invoice because there is reduced recovery fees on there. But essentially the prices have held up.

Where we have seen some pricing pressure is more on the labor side, within our Field Services, on the transportation side of the business. And certainly, as Alan pointed out, some of the -- in the TSDFs, in the wastewater treatment area, we've seen some pricing pressure.

On a year-over-year basis, looking at landfill, I think it has been somewhat stable, the pricing. And I think we have favorable mix, too, that helped that a bit. But overall, I would say on a net basis, maybe we are down a little bit in overall pricing, but incineration has certainly held up a bit there.

Okay, that's good to hear. So there is no -- you are not seeing any particular trends going forward in that? What would you expect?

I mean, clearly, much will determine the direction -- the economy will clearly have an impact there. But I think that recovery fee, that fuel recovery fee, I think helps us a bit in terms of when prices go up and down with diesel, which is obviously a significant part of the cost, that that is automatic, that that goes up and down, I think that helps from a pricing standpoint.

And we will just see how the economy turns out, if we get to a point where there can be some further price increases, and we will be looking into that early 2010.

Okay. Anything on the stimulus spending package? Are you guys seeing any impact of that yet? I guess the sense is that it is all being pushed out a bit. But maybe your thoughts on that, if that could -- what you think that could benefit you.

You know, I think ultimately we will see that $5 million of stimulus money this year in a couple of projects that are ongoing. But it really has been slow to come, at least through the Superfund pipeline. And we don't have any major expectations next year for big stimulus spending, quite frankly, in our side of the business at this point yet.

Okay. So nothing really of any significance to build in for next year?

I would mention, back to the pricing, too, and then on the volumes is that the cement kiln industry really experienced a big downturn, with construction being down and the economy being off. And so we saw a big uptick in volume as a result of a lot of incineration -- cement kilns closing. And some of those are closing indefinitely, some [grooming] and out to 2011 2012, maybe some not opening ever.

Coupled with a fact that we've seen good opportunities with the captives. We continue to see customers looking at alternatives of outsourcing. We've seen a couple of major consolidations take place in the pharmaceutical area. Some of that is going to lead to the divestiture or the shutdown of incineration capacity. We've been bidding on volume, new volume that is coming into the commercial market.

So I think that is going to overall help our utilization. And again, it was part of our plan of putting that investment in over the last 12 to 18 months.

Right. Alan, could you talk about -- you're seeing consolidation. Do you know how many? Because I know we've talked about in the past about you're looking at three or four possibly consolidating in the next 12 months, roughly in that range. Is that -- maybe you could just give us your thoughts.

We are down, I think, to 73 now. And I think we've talked about an additional five. And I continue to believe that is in the works. And we've been meeting as a team, looking at those opportunities.

Granted, some of the volume coming from those shutdowns is not going to come to us because of our proximity to their locations. But overall, as it relates to the market, we think it is a positive for the market.

Terrific. Okay. Thanks very much.

Larry Solow, CJS Securities.

A lot of my questions have been answered. Maybe you guys can give us a little help just looking out, comparing 2009 to 2010, would you see more of a recovery from your legacy business or it sounds like more on the Eveready side. Any way to kind of look at that?

Well, I think we are certainly going into a much stronger period for Eveready in the fourth and first quarter. And our first quarter, as you know, has been historically our weakest. So that is going to help smooth out our business.

I would say that we should see a much better environment for the legacy business for Clean Harbors next year. Because the first quarter of this year, as everybody knows, with the number of shutdown of chemical plants, a lot of reduction in manufacturing, the really big, big changes out there, with the automotive industry and what took place there. So we have got to forecast some modest improvement.

Now it is modest. Could it be better than what our forecast is? Absolutely. But I think the guidance and sort of the targets that we've established, both internally and communicated here this morning, are reachable and exceedable. But the economy certainly is something that will play a role in that.

Okay. And now that you've had sort of a few months to kind of get your hands around Eveready, any positive surprises, anything -- negative surprises?

As any kind of deal where you are merging two companies together, and there were a lot of other mergers that took place within Eveready prior to our involvement, there are a few surprises here and there. But I would say much on the positive side. We've really got a chance to spend a lot of time with the team, and they've got some wonderful folks up there that are doing a great job running that business. They've got wonderful relationships with the major corporations in Canada, and many of those customers are US-based, so we've got good relationships with them, too. So from everything we've seen so far, all systems go and we are excited about how these companies are working well together.

Okay. And just in terms of quests on opportunities, and I imagine it is still early in the game. But just talking to existing customers, new customers, and you mentioned you signed a new contract, I guess, in Norway. Any other significant new contracts on the Eveready side that you are close to or actually have signed since closing the deal?

Well, we certainly have won -- the team up there was working on a couple of major contracts that they've been successful on winning. We don't have any customers that exceed 10% of our revenues, but we certainly have some now that are probably 5% plus of revenues for us. Considering what our guidance is for next year, those are pretty sizable accounts.

Historically, Clean Harbors has only had about a 2% size account for us, 2% of revenue. So they have very large contracts with some very substantial international companies, and we are excited about not only what they are doing there but how we can grow with them internationally.

And just back on the follow-up on the stimulus and the Superfund that you said you have $5 million this year and it sounds like you don't expect too much in 2010 where we stand today. But I believe you guys had, at one point, thought that you maybe could see $40 million to $50 million in revenue, but that is not in your -- that is not included it sounds like in your 2010 guidance.

No. In our guidance for next year, we did not include that. We did not include any major events for next year. We really tried to clarify that the currency translation that we felt with Canada was in our release, and the fact that our business was going to be pretty consistent with this year. We certainly are optimistic and hope that we will improve on that, but that is really where our starting point was.

Right. So, hopefully, you left a couple of things on the table that actually you can achieve. And then just a couple of clarifications. On your revised guidance on EBITDA for 2009, you were at $173 million to $180 million, and now you're at $164 million to $168 million. Did that $173 million to $180 million number, that prior guidance, did that include the $8 million in acquisition-related expenses?

Yes, only a small portion of it that we had already passed in Q3.

Right, that was like the $3 million number.

Yes, it was like $3 million. That was about it.

So essentially, the $5 million.

Yes.

So you could argue it is really on an apples-to-apples basis, the $164 million to $168 million is $170 million to $173 million or something, right?

Yes, we're pretty close.

Probably at the bottom end of our --.

Yes, I got you. And then just for clarification, the $20 million sort of additional potential cost savings, that is not really an incremental number. That is sort of a number baked in where there is some puts and takes with health care costs rising and this kind of offset that. But it is not an actual incremental $20 million, where the $15 million in synergies is. Is that a fair statement?

I think we are hoping that some of that we will see in the margin, maybe as much as half of it that we will see in the margin (multiple speakers). It might be a half to a third of it or something like that, we hope will fall to the margin. There will be other costs that will offset a part of it.

Right, only because if I look at those numbers, sort of if I take the synergies and then I -- and even taking a third of that $20 million or half of it, it seems like the 17 -- I know it's not an exact science, and not to pin you up against the wall -- but the sort of 17% EBITDA margin guidance next year could be somewhat conservative in light of the fact that you are going to do about the 15.5%, 16% this year. You did a 17% this quarter. So adding these synergies, it seems like that 17 number may be at least highly achievable. We won't call it conservative, but --.

No, that is what we are thinking. And we are going to be going through -- everyone is working now on the bottoms-up budgeting we typically do. And we think that will be proved out at a detail level, as well. But we are feeling kind of the way you do.

Got you. And then the Eveready, in other words, talk of sort of buying out some of these capitalized leases and saving some money on the operating side, is that more of a longer-term event?

Annually, we like to look at that and see if it makes good economic sense, and we will continue to do that. We will probably have some early next year as well.

Okay. Just one more thing. On the incinerator business, it seems like that probably by itself, I imagine, is driving some of the higher EBITDA margin. I know we had talked about -- you guys had talked about that the incremental EBITDA margin, additional sales and as you increase capacity, could be up into the 30 to 40 or even greater range on a percentage basis. And it looks like that seems to be playing itself out, as capacity is 90% and 98% X the additional capacity. So is that a fair statement --?

I think that is a fair analysis, yes.

Okay, good. Great. I appreciate it. Thanks a lot.

Jonathan Ellis, Bank of America Merrill Lynch.

First off, just -- and, Alan, thank you for providing the segmentation of revenues by division. I am wondering do you also have the segmentation of EBITDA by division.

We're going through the segment right now for the Q that we will be filing on Monday. But I could give you the estimates of where we are at at this point, just so you can kind of see the profitability of the segments.

In Q3 '09, Tech was about $49 million. Field was a little over $8 million, $8.2 million. The Industrial Services is about $9 million, maybe $9.2 million, in that range. And Exploration was about $1 million. And then offsetting that, of course, there are corporate costs that were about $19 million. So that brings you to the $48.3 million in the quarter. Again, we are refining that, but I am not expecting any huge changes, so those are pretty good estimates.

Okay. That's helpful. And then just as you talk through the guidance for 2010 -- and I know that you said it is hard to parse the Eveready contribution from the legacy Clean Harbors business. But maybe in lieu of that, can you give us some sense of what you are modeling or forecasting for each of those -- the four major divisions going into 2010, so we kind of have some sense of how you are thinking about revenue growth from those different areas?

We are kind of working through that bottoms-up budget right now, and we think that is important to refine first, before we talk about the individual segments.

This only includes two months, too.

That's right.

Sure, understood.

We'll try to have more color for you at our next call on that.

Okay. One other just sort of housekeeping question here, in terms of cash flow from operations. Jim, do you have that for the quarter or for the nine-month period?

Yes, the cash flow from operations was about $15 million. And obviously, that was impacted a little bit by an investment in working capital, with bringing on the Eveready receivables, that the DSO is a little higher.

And just looking to fourth quarter, do you anticipate from a cash flow standpoint any difference in typical seasonal trends? I know Eveready may distort that somewhat, but anything you are anticipating that would deviate from past seasonal trends?

No, I don't think there will be. I think clearly what we will be seeing is as Eveready gets quite busy, and it has been part of their business model that they do generate a fair amount of cash flow in the earlier part of the year. So I am expecting when those receivables are being collected in first quarter into second quarter and thereabouts is their strongest cash flow period there.

Great. Do you have an update on the utilization rate for the US versus Canadian incinerators in the quarter?

I think I can give you some color on that. Let me see here.

Maybe while you're looking that up, Alan, any update on just in terms of utilization maintenance work? Do you expect over the next few quarters to be any different in terms of the pattern in maintenance work versus past years at your incinerators?

As far as the number of outage days and turnaround work? I think the only major outage we have in January planned in Arkansas is to do -- I believe a 20-day outage there, which would be an unusually long one for us. But we are totally rebricking and refurbishing our secondary combustion unit out there. And outside of that, I think all of the other plants would be pretty consistent.

Okay, all right. So clearly, we should assume some -- a lower sequential utilization rate in the first quarter relative to the fourth quarter because of that major outage in Arkansas?

Well, I wouldn't say for the whole quarter. I am just saying for January on that one plant. But we can't -- at the level of utilization we are operating at right now, we can't take some of the other plants off-line; we wouldn't be able to handle the volume, quite frankly. So we are pushing out some of the other 10-day type turnaround work into the second quarter to offset that. So I would say we will be okay. It is one major shutdown that we have to take.

Got you. Okay.

We've been planning that for about six months now.

Okay.

And Jon, the incineration numbers, it was 90 -- almost 90.5% in US and a little over 85% in Canada.

Okay, great. That's helpful. Just on the 2010 guidance and just looking at the incremental EBITDA margins -- and I recognize that cost savings is not going to fully flow through. But I guess the question I have, Alan, at this point, what is your thinking as it relates to pricing? I know in 2009, you did not raise prices across the board. Given what you know right now -- and I realize it is early on in the planning process -- but what are your thoughts on price increases in 2010?

I don't think at this point we are anticipating any significant increases in pricing next year, outside of some selective contracts maybe that we will take a hard look at, that from a margin standpoint aren't operating at the levels that we need to be.

And to Jim's point, the fuel recovery fee has sort of been our method of dealing with customers' demands on reducing costs because of their downturn in their companies. But I think when we look at our guidance both in Canada and the US, we are essentially thinking pricing is going to be pretty flat.

Okay, great. And then just my final question, I know in the past you had factored about, you said, $10 million of emergency response revenues into your full-year '09 forecast. Given you said, I think, $1.5 million in the third quarter, does that imply you are assuming $8.5 million in the fourth quarter or are you revising down the full-year expectation for emergency response?

Yes, we are not expecting any large amount. Maybe just small-scale stuff, $5 million -- not even that, I don't think.

I would say the shortfall on our full-year guidance this year is predominantly -- at the end of the day here, it is going to be a lot of that emergency work never came through this year.

We had a little bit in the third quarter. We've got a couple of small jobs going on right now, but nothing like prior -- the prior two or three years, even five-year average, was considerably higher than what we have seen. And I think even the insurance companies, I think, benefited from lack of significant events. Their payouts have been way down.

So we experienced the same situation, quite frankly. We are hopeful that next year that business will bounce back to some of the historical levels but it is not in our guidance.

That's right. And obviously, as we grow, it is becoming such a smaller part of our business. It is certainly good when it happens. We get nice margins, and it gives us an opportunity to show what we can do in new geographic regions. But it is not a major part of our revenues.

Great. Thanks, guys.

David Manthey, Robert Baird.

In relation to the guidance for the fourth quarter, the $59 million to $63 million, does that include any acquisition-related expenses?

No, it does not, and we are not anticipating anything there.

Okay, and that doesn't include any expenses related to Eveready, but does it include the normal quarter-in, quarter-out sort of acquisition-related expenses that are going through the P&L right now?

I'm not sure -- I thought I had answered that. I'm not sure I understood the last part of your question there, Dave.

I would just assume that even irrespective of Eveready, you have sort of periodic costs related to looking at deals and reviewing them (multiple speakers).

Oh, absolutely. Yes, we continue those kinds of costs, but they are not -- it is our team looking at it here, and clearly, we are looking at opportunities. We are not saying anything is imminent or anything like that, but clearly -- Alan is always looking at good possibilities out there. That is an ongoing thing at the Harbors.

Okay, and if your full-year guidance of $164 million to $168 million includes $8.1 million acquisition-related expenses, by my calculations, you had about $3.3 million in the second quarter and then $4.1 million in the third. Was the remainder in the first quarter related to some acquisition, or --?

Yes, we had -- that's correct, Dave. With EnviroSORT, I think we had about $600,000 or something like that, somewhere around there.

Okay, that makes up the difference. Great. Okay, and then final question, on the [GVA] cleanup, I think you had some -- you were bidding on some work out there. Any movement on that particular project?

Not our way at this point, that we see at this point.

Okay. All right. Thanks a lot.

Matt Duncan, Stephens Incorporated.

Good morning, guys. This is Jack Atkins on for Matt. I just got a couple questions for you here. If you look at your balance sheet, you guys have a lot of dry powder still on the balance sheet to go out and make acquisitions. You briefly touched on this in the last question, but are you still actively pursuing acquisitions, and can you maybe tell us what your priorities are for your cash?

We are still looking at opportunities. We've had quite a few inquiries from some of our competitors and others in the marketplace, and we have a team of people that are full-time almost working on those. And they are in various stages of review, both in Canada and the US, both in our industrial business, as well as in our disposal or our Tech Services business.

And Jim, you want to comment on the cash side?

Absolutely. Our cash requirements, our normal cash requirement is probably -- we would like to have maybe $50 million plus on our balance sheet, just to keep our balance sheet nice and strong. So clearly, we are ready and poised well to be able to work with acquisitions, and I think there is dry powder there. We also have another $30 million on our revolver if we needed to tap into that.

Okay, great. Thanks for the color on that. And then can you talk a bit about what your outlook for the oil sands is for next year? We've been hearing some more positive chatter coming out of the region regarding activity levels and maybe the potential for moving forward on some new projects and some projects which were deferred either late last year or early this year. Can you talk about what you are seeing there?

Yes, we recently spent quite a bit of time there, and I think different than maybe what was happening a couple years ago, some of the new projects that will come back online will be kind of on a one-by-one basis rather than all of them jumping in at the same time.

I think what happened is they drove their costs so high that there were so many projects altogether being built at the same time, that everything from labor costs to housing -- cost of materials, everything was skyrocketing for them.

And so I think they are looking now more, I think, of trying to smooth out some of that construction cost over a period of years. We do believe that there are many projects that were under construction that stopped construction that will be coming back online. And the management team up there and one of our board members has kind of shared with us that it will probably be more steady this time, rather than this big huge ramp-up of multiple projects.

So I think the good news for us is that there will be a steady level of new sites being constructed where there will be more opportunity, both on the construction side, but also on the maintenance side of those plants once they are built.

Okay, great. And then just a couple of housekeeping items here. Jim, if you look at your annual interest expense now following the bond offering and the acquisition of Eveready, what do you expect that to be on an annualized basis?

On an annualized basis, I am expecting our interest expense to be at about $28 million. And that includes everything from the interest expense on the new bonds, as well as the cost of our letters of credit that go against our revolver, as well as any amortization of financing costs and discount amortization. So that is like fully loaded.

And then whatever your assumption is on the interest income side, some of the -- we invest only obviously in good, solid, no-risk type investments. And the rate that we've been getting is a half a percent plus. I mean, it really hasn't been that good. So I will leave that to you what you would like to assume in your model. But on the expense side, that is where we will be.

Okay, great. And one last thing here. You gave us percentages for each of the four segments as a percent of revenue. Could you give us the hard dollar numbers, if possible?

Sure. Again, we are finalizing those numbers now for our Q. I don't expect any changes of any significance here. But the numbers that were assumed in the percentages that Alan talked about are $173.9 million in Tech Service, $53.9 million in Field Service, $69.7 million in Industrial Services, and $8.3 million in Exploration Services.

And again, I am sharing these numbers with you on a preliminary basis because there is the change in the segments, and I wanted to make sure that -- we wanted to make sure that everyone had some good color around the new segments that we have in our business.

Great. Thanks, guys.

Jamie Sullivan, RBC Capital Markets.

Thanks for taking the question. Just in doing some math on the 2010 guidance, the pro forma, assuming Eveready was part of Clean Harbors for a full 2009, I am getting to something in the range of 3% to 5% growth, which includes a 2% benefit from currency. Does that sound about right?

Not too far off. I think the modest growth that we were talking about was probably in that 3% area, around that. Not exactly, but you are in the right ballpark from what I could tell.

Again, I really want to see the bottoms-up budget and really be able to look at the mix that we will have to see what the growth rates are. But I think you are in the ballpark.

Okay, great. And for the 4Q, it looks like there is some underlying core Clean Harbors sequential improvement in the fourth quarter. Is that based on projects you are doing today? Just wondering where the visibility is on that portion of the business.

Yes, it does. It includes some of the projects that we are currently working on. The projects that we have going, we feel we have good visibility there. And obviously on the Eveready side, there is an extra month in there also, because there was only two months in Q3.

Right. Okay. And then, I guess just lastly, if you could update on the new vertical initiatives that you announced earlier in the year, any progress there. Just an update would be helpful.

You know, I think the program has worked for us. There has been some nice wins across a number of the key verticals that we've been focused on. And our refinery business, even outside of the Eveready business, has been growing.

And I think our -- well, without going through them all, I would say it has been a pretty good program for us and it is one that we hope to leverage with the Eveready verticals, as well.

All right. That's all I had. Thank you.

(Operator Instructions) Thank you. Ladies and gentlemen, at this time, we have reached the end of the Q&A session. I will now turn the conference back to Mr. McKim for any closing or additional remarks.

Okay. Well, thanks everybody for joining us this morning, and we look forward to updating you all on our year-end and move into 2010. Thank you.

Thanks.

And that concludes our conference call. Ladies and gentlemen, thank you for joining us today.