Clean Harbors Inc (CLH) 2009 Q4 法說會逐字稿

Good day, everyone, and welcome to Clean Harbors' fourth-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 now 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 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 fourth quarter and full-year 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, estimates, projects or similar expressions, are subject to risks and uncertainties that could cause actual results to differ materially.

Accordingly, participants in today's call are cautioned not to place undue reliance on these forward-looking statements which reflect management's opinions only as of this date, February 24, 2010. Information on the potential factors and detailed risks that could affect the Company's actual results of operations is included in the Company's filings with the SEC, including but not limited to our Form 10-K for the year ended December 31, 2009, to be filed on March 1, and subsequent periodic filings with the SEC, including information filed with the SEC this past 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 the acronym EBITDA, which is earnings before interest, taxes, depreciation and amortization. EBITDA is a non-GAAP financial measure and is intended to serve as a complement to results provided in accordance with accounting principles generally accepted in the United States. Clean Harbors believes that such information provides an additional measurement and consistent historical comparison of the Company's performance. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in today's year-end 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'd like to turn the call over to our Chairman and CEO, Alan McKim.

Thanks, Bill, and good morning, everyone. Our Q4 financial results were mixed as we concluded what was a challenging year for Clean Harbors due to the economic environment in 2009. In the quarter we achieved the bottom end of our revenue guidance while falling short of our EBITDA guidance. Q4 was our first full quarter of combined operations for Clean Harbors and Eveready, which we purchased at the end of July. As a result of the acquisition, our year-over-year revenues grew roughly 40% from Q4 of '08.

Within our four segments, we saw divergent top-line performance. In our Tech Service and Field Service segments, which consist predominantly of the legacy Clean Harbors business, we saw a stabilization of revenues despite the still weakened economy. These two segments generated an approximate 5% sequential increase from Q3 as incineration levels remained healthy, landfill volumes rebounded and our TSDFs and wastewater treatment plants improved incrementally.

Within our newly formed Industrial Service and Exploration segments, which consist mostly of the Eveready operations, we experienced a lower than anticipated revenue performance in the quarter, and I'll talk about some of the reasons behind that in a moment. Overall, our EBITDA was up 27% year-over-year, primarily due to the addition of Eveready. However, our EBITDA margin in the quarter was down from the prior year. Our margin in Q4 2009 was 15.1% versus 16.5% in the same period of 2008.

Several factors contributed to the margin decline. Q4 is typically one of the stronger operating periods for Eveready, particularly as the colder weather temperatures set in throughout Canada. Therefore, we ramped up internal staffing levels and retained outside contractors in anticipation of this seasonal demand. However, this demand did not materialize as quickly as anticipated; and, quite frankly, in particular we saw a sharp decline in demand during the last two weeks of December.

We experienced several customers pushing projects into 2010. And with the warmer than usual weather in the first quarter, we saw some projects being delayed now until fall.

At the same time, our margins were coming under pressure in certain areas from what is a highly competitive pricing environment in Western Canada, which really was the result of a severe slowdown that took place in the oil sands at the end of 2008 and at the beginning of 2009. The end result was that our EBITDA for the quarter came in below our expectations.

In terms of our overall integration at Eveready, the process continues to run relatively smoothly. We've already implemented the bulk of our primary back-office systems and processes at this point, and we are still moving into the full assimilation of other areas such as procurement and the equipment and asset utilization process. The re-branding and marketing of Eveready's services under the Clean Harbors brand is also underway, and this will be a key component in our cross-selling efforts going forward.

We still have a substantial amount of work ahead of us for the remainder of 2010 to fully integrate Eveready, but we remain confident that we can capture the synergies we envision from this transaction. Despite an uneven fourth-quarter performance, we remain positive about the long-term prospects for the combined Company and are looking forward to capitalizing on the various opportunities that made this acquisition so attractive to us.

I'll turn now to Technical Services, which accounted for 52% of our total revenues in Q4. Overall, we continue to see a slow recovery in many of our Tech Services business lines. Our customer base primarily serviced by Tech Service began generating waste again, and we exited December with a strong close. While our large projects in general transport and disposal business have still not returned to 2008 levels, we saw our second sequential quarter of sequential improvement. And utilization at our incinerators was relatively strong at 87.4% in Q4, down slightly from the 88.8% we reported in Q3 with a slightly higher contribution from our Canadian facilities versus our US locations.

In terms of margin we saw a little slippage here in the quarter due to the higher fuel volumes that we're handling as a result of the cement kiln closures and increased volumes and the lower margin mix.

Our TSDFs and water treatment plants, which weathered a challenging sales environment in the second and third quarters, saw some incremental improvements in Q4 as well.

Within our landfill business, volumes rebounded from a weak Q3 with a double-digit sequential increase. This was due primarily to the release of some projects that had been pushed out during the year. On a year-over-year basis volumes were down significantly, but we had an extraordinary strong Q4 at our Button Willow facility in 2008. On a positive note, while highly competitive pricing is generally the norm in the landfill business, we saw some minor pricing gains in the quarter, and going forward we are continuing to pursue additional permitting at some of our sites to help capture more volumes and new waste streams.

Our solvent recovery business continued its steady contribution as consistent volumes moved through our Ohio and Illinois locations, and this business has proven to be a reliable performer for us during the past 18 months. Our Field Services segment accounted for 17% of our revenues in Q4,. Similar to our Tech Service segment, we saw overall sequential improvement and some promising signs in this business. Field Services has been challenged all year by weaknesses across a number of key verticals. Our utility customers, chemical customers and refineries have all been delaying projects and restricting any spending to the bare minimums for only the most necessary work.

During the past several conference calls we have talked about how a lot of projects and even the remedial work we do can only be put off for so long. In Q4 we saw some of that come back, and we are confident that a sizable backlog exists in the marketplace. At the same time, we believe customers are going to remain reluctant to spend and still only allocate resources to the most pressing assignments. I should also note that Q4 was the fourth consecutive quarter in which we did not see any major emergency response events.

Turning to Industrial Services, this segment accounted for 28% of our Q4 revenues. Given that the fourth quarter is one of the strongest operating quarters for Industrial, we anticipated that number to be higher. The level of spending in Western Canada has improved and we've seen several projects that were mothballed come back to life. Over $6 billion in new spending has been announced in recent months, and we expect to gain our share of work from these new projects. The conventional gas business is still soft, and therefore our maintenance side of the business has been slower.

One bright spot in Industrial Services during the quarter was our lodging business. While it still represents a small portion of the total segment, that business performed ahead of plan in Q4 and delivered excellent margins. We've added two new camps and expect to continue to invest in this side of the business to support our customers' needs and our own workforce needs in the oil sands of Valverde and the surrounding provinces. The unconventional gas plays in the US has also created some nice opportunities, and we expect to continue to ship resources to meet these customers' on-site water treatment and fluid handling needs.

The Exploration Services business, which accounted for only 3% of our Q4 revenues, will also benefit from this unconventional gas play. This business primarily serves the oil and gas and exploration sector through services like line clearing, seismic survey and directional boring. Q4 is typically a stronger operating quarter for Exploration Services. However, due to the continued depressed price of natural gas, demand was off over 50% from historical levels in Western Canada.

Hopefully, that segment discussion gives you some context for our Q4 performance. Before I talk about our outlook, I wanted to spend a minute or two talking about our end markets. Obviously, with the addition of Eveready we have diversified our end markets and decreased our alliance in certain sectors. We are now far less susceptible to disruptions in any one particular industry, are better situated with stable long-term strategic markets that won't be outsourced to move overseas like manufacturing.

I went through all the specific industry percentages on our Q3 call, and I won't repeat that exercise today. But I did want to give you some brief overall comments. For full year 2009 excluding Eveready, seven of our key verticals were down to approximately $100 million in 2009 due to the recession. The industry verticals that were hardest hit were general manufacturing, pharmaceuticals, chemicals and utilities. If you look at Clean Harbors' legacy business for 2009, we were down approximately 13%. A portion of that decline was related to lower fuel recovery charges of approximately $32 million. If you exclude those lower sewer charges, our legacy business would have been off approximately 9% in the year.

Fortunately, through our Eveready acquisition, we added several key verticals including oil and gas exploration and production, and these two verticals accounted for $80 million of new business in the five months in 2009.

Our best performing vertical for the year in terms of our legacy business was health care where we've made some really nice inroads. Our refinery business held up well in 2009 even when you consider the spending reductions that took place in that market and the margin squeeze that our refinery customers experienced.

In terms of Q4 specifically, we started to see some encouraging signs late in the year but not yet across the board. Starting in November we've seen some positive year-over-year revenue trends in the chemical and manufacturing sector as well as growth in our base bulk business.

Now let me turn to our outlook. And as we stated in our press release this morning, we remain cautious about the sales environment in 2010. There have been some signs of recovery for us, particularly on the environmental side of our business. Just as important, we've seen a stabilization of many of our key industry verticals. So, even though they all have not begun to improve, it appears that the worst part of this economic storm that we have just passed through is over.

With that said, however, the environment in a number of our businesses is fiercely competitive, particularly when it does come to pricing. Given that climate and the lower EBITDA margins we delivered in Q4, we are initiating a series of margin improvement initiatives. We are confident that we will capture the $15 million in cost synergies that we had planned for Eveready for 2010, as well as the additional $5 million that we had outlined for 2011. We announced on our Q3 call that we were targeting an additional $20 million in expense reductions for 2010 to help offset other rising costs, like our health care costs.

We now have identified a roadmap to achieve these reductions and will be implementing them throughout this year. We are going to continue to take our cost structure down, further streamlining our entire organization and focusing on improving efficiencies. We are rationalizing our entire North American footprint and will be consolidating several branches and offices in areas where we believe we can be addressed by adjacent locations. We continue to implement technologies to simplify our customers' complex administrative requirements, and more overhead reductions can be made with these new technologies. We see additional cost savings opportunities in the areas of procurement across Eveready and our entire organization. We've also developed a good relocation plan for our network of equipment and assets, particularly some of our underutilized Eveready Specialty Equipment. Within Eveready we are training the senior management team and staff to better capitalize on our industry-leading systems, which are now really installed across the entire Company. We believe this will help them more efficiently manage personnel and asset utilization levels going forward.

We now have six months of data on our systems, and we have already begun to make the necessary changes to improve the Company's profitability.

Turning to our guidance, even with all the turmoil in some of our end markets this past year, our revenue outlook remains positive for 2010. We are maintaining our annual revenue guidance in the range of $1.4 billion to $1.45 billion. I should point out that our guidance is exclusive of any acquisitions. We currently have more than $230 million of capital at our disposal, and we continue to look at a variety of acquisition opportunities across a number of our business lines.

In terms of EBITDA, we had previously provided preliminary EBITDA margin guidance for 2010 of approximately 17%. We can get the Company to that level and beyond, but we still have work to do to get there. I would say that we are about a quarter or two behind plan with the Eveready acquisition at this time. The first quarter has been challenging because of the unseasonably warm weather in Canada and cold weather throughout the US. In Canada a number of our Eveready contracts were delayed due to the lack of access to some of the remote areas that we work in. And in the US, the unusual cold and snowfall slowed down a lot of the outdoor work and, quite frankly, impacted a number of our plants in the mid-Atlantic and Midwest areas.

As a result, we are now targeting EBITDA for the year in that range of $224 million to $232 million.

With that, I'll now turn the call over to Jim Rutledge so he can take you through the financials in more detail.

Thank you, Alan, and good morning, everyone. Our fourth-quarter revenue increased by 39% to $347 million compared with $249.8 million in the year-ago quarter. As Alan mentioned, our year-over-year revenue growth was driven by the Eveready acquisition. Gross profit for the quarter was $94.2 million, translating into a gross margin percentage of 27.1%, which is below last year's margin of 31.1% and our Q3 margin of 31%.

Margins in the quarter were negatively affected by the lower than expected margin contribution from Eveready, some product mix effects and a competitive pricing environment. Selling, general and administrative expenses in the quarter totaled $41.6 million, up 15% from $36.3 million in the fourth quarter of 2008. This was to be expected, given the higher personnel costs related to our larger employee base since the Eveready acquisition as well as rising health care costs.

However, as a percentage of revenue our SG&A declined significantly. In Q4 of 2009 SG&A represented 12% of revenue, which was favorably impacted by approximately $2 million of environmental credits compared with 14.5% of revenue in Q4 of 2008.

For 2010 we are anticipating SG&A as a percentage of revenues to be in the range of 13% to 14%, which demonstrates the leverage that we have achieved within SG&A as we acquire businesses. Accretion of environmental liabilities was $2.7 million in Q4 of '09, which was flat with Q4 of 2008.

As expected, depreciation and amortization expense rose significantly, up 86% to $21.9 million. This increase was entirely due to the addition of Eveready to our business. Our full-year depreciation and amortization expense came in at $64.9 million, squarely in line with the $63 million to $66 million range we had expected.

For 2010 we expect our depreciation and amortization expense to be in the $89 million to $90 million range, which includes a full year of Eveready's depreciation and amortization as opposed to only five months in 2009.

Q4 '09 operating income increased to $27.9 million from $26.9 million in the fourth quarter last year. The increase in operating income was essentially driven by our larger revenue base. EBITDA increased by 27% to a record $52.6 million. As Alan discussed, this was below our expectations, and on a percentage basis at 15.1% of revenue, which was below the 16.5% we reported in Q4 of 2008.

Net interest expense in Q4 was $6.5 million, which increased significantly over the $614,000 we recorded in Q4 of 2008. The increase is associated with the $300 million bond offering we had done last August in refinancing all the assumed debts of Eveready. In addition, our cash balance of about $234 million, which is earmarked for future growth of our Company, is not generating significant interest income to offset interest expense in this current interest rate environment.

Our provision for income taxes was $8.7 million compared to $7.1 million in Q4 2008. Our effective tax rate for the quarter was 40%. Non-cash FIN-48 expense during the quarter was $1 million. For the full year our effective tax rate was 42.6%. For 2010 we are expecting this to decrease to an effective tax rate of about 40%, in combination with Eveready's reduced tax rate.

Our Q4 net income was $13.9 million or $0.53 per diluted share, based on 26.4 million average shares outstanding. Net income for Q4 '08 was $17.9 million or $0.75 per diluted share, based on 23.9 million average common shares outstanding. The decrease in net income was due to the areas I just mentioned, significantly higher depreciation and amortization expense since the acquisition coupled with the higher interest expense associated with our bond offering, partly offset, of course, by the additional earnings on the increased revenues year-over-year.

Before we turn to our balance sheet, let me give you a high-level summary of our performance for the year. Revenues came in at a record $1.07 billion versus $1.03 billion in 2008. Our 2009 EBITDA was $157.8 million versus $163.2 million in 2008. While there are a number of items that factor into our EBITDA performance, I'd like to call three of these to your attention. First, we recorded $8.1 million of acquisition-related expenses in 2009. Second, the effect of foreign exchange for the year was a negative $2.5 million. Lastly, EBITDA of our Pembina Landfill, which was acquired with the Eveready acquisition, amounted to nearly $2.5 million. But this result is not included in our consolidated EBITDA result since the landfill is classified as an asset held for sale associated with the requirements of the Canadian Competition Bureau at the time of the acquisition.

Turning to the balance sheet, we continue to have a very strong cash position. Our balance of cash and marketable securities as of December 31, 2009 was $235.6 million. This compares with $249.7 million at December 31, 2008, and $221.1 million as of September 30, 2009. The year-over-year decline reflects our acquisition of Eveready in July. The sequential increase of $14.5 million speaks to our ability to generate strong cash flow even in a challenging business environment.

Our total long-term debt balance at year end was $292.4 million compared with $52.9 million at the end of 2008. This increase reflects our successful $300 million bond offering in mid-August. These notes, as part of this bond offering, carry an interest rate of 7.625 and are not due until 2016.

Total accounts receivables stood at $287.2 million on December 31, and DSO came in at 74 days compared with 70 days in Q4 '08. The increase in DSO was due to the higher average DSO in our Industrial Services business. We are working to improve that as we move through this year, and we continue to target DSO at 70 days or less going forward. But it may take us a couple quarters to reach that level again.

Capital expenditures came in at about $16 million for the quarter compared to approximately $18.2 million in Q4 of '08. For the year CapEx came in on plan at $62.2 million. As we look ahead our CapEx expenditures for 2010 are $60 million to $65 million, which is essentially flat compared to 2009 despite including a full year with Eveready, as we focus our efforts on optimizing the utilization of its assets post-acquisition.

Our accounts payable balance increased to $97.9 million in Q4, from $83.9 million in the third quarter. This increase is simply due to the fact that, beginning with this quarter, we have taken the line item on our balance sheet previously called uncashed checks and combined its balance into our accounts payable line, which is a more common approach to categorizing this liability on a corporate balance sheet.

Our deferred revenue balance decreased slightly to $21.2 million compared with a balance of $21.9 million at the end of Q3. Environmental spending during the fourth quarter was $2.4 million compared with $1.7 million in Q4 2008. Overall, we are continuing to carefully manage environmental liabilities and our spending has been fairly consistent as we steadily lower our exposure in this area. At December 31, our balance of environmental liabilities stood at $181.3 million compared with $181.6 million at the end of Q3. Managing this area will remain a focus for us going forward.

In closing, let me echo some of Alan's thoughts. Clearly, 2009 was a challenging year in many ways for Clean Harbors and our entire industry. Despite the economic factors that weighed on our performance, it was a year of great achievement. We successfully raised a significant amount of capital in a difficult market, enabling us to acquire Eveready, which gives us a larger geographic footprint and roadmap for future growth over the next several years. We completed the expansion of our incineration capacity and added new service offerings.

And, most importantly, we continued to generate substantial free cash flow during the year, which speaks to the resilience of our business model.

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

(Operator instructions) Matt Duncan, Stephens Inc.

If we look at Eveready, can you give us what the Eveready revenues were this quarter? And then was it accretive or dilutive to earnings?

I can actually, right at the outset here, give you what we have in our segments. Obviously, we're still going through our 10-K report, but it will be helpful to show these revenues out there.

Tech Service, on the environmental side, had $178.8 million in Q4. Our field service, also in environmental, was $60 million in Q4. Industrial services, which was part of Eveready, clearly, was $98.6 million, and exploration services, which was also part of Eveready, was $10 million in the quarter.

I would say that in the fourth quarter with the reduced margin that we've had, that from an earnings per-share basis it was slightly dilutive. But from a cash flow standpoint, I would say it's accretive. And, obviously, the major reason it's driving the EPS dilution is that depreciation is high. It's higher than our than our cap spending, almost double our cap spending in the Eveready businesses. Does that answer your question, Matt?

Yes, that helps, Jim, thanks. And then, if you look at the customers that were most responsible for the slower than expected increase in demand at Eveready, was that more conventional oil and gas related than oilsands? Was it both? Just give us a sense what exactly underperformed relative to your expectations.

I would say, certainly, on the conventional gases -- and this is way down there -- the amount of (technical difficulty) the amount of service work that we're doing out at the drill bit is certainly significantly lower. The oilsands -- we knew going into this discussion a year ago with Eveready that a lot of the larger oil sands projects, whether they are upgraders or SAGD or mines that had been closed eventually will come back to life when the capital markets improved and when the price of crude came back. And quite frankly, at the latter half of the year we saw that. And we are seeing new projects, and that is, I think, evidence of -- the camps that we have up there that are full -- I think it's evident that a lot of those projects are kicking on, and money is being spent and started up again. But I would say it's more on the drill bit side that we really got hurt quite a bit there. And that's, quite frankly, where we did a lot of ramp up as well.

So what kind of corrective actions have you guys taken on the cost side? Are you seeing enough of an increase in revenues to justify the increased staffing levels at this point, or have you pulled that back?

Right now, we're in the heaviest season right now. We are the busiest. The first quarter is the strongest for Eveready, and it's strong all around. We certainly have some work to do when the business does slow down because there will be a need in some of the business up there that we are not getting the kind of utilization to reposition some equipment and maybe move some of our survey capability and some of our exploration capability down into the Western Pennsylvania/West Virginia market, which we are penetrating and we are getting business there today, but we can probably do a lot more.

So I think we'll move more towards the unconventional gas areas in the US and take advantage of our know-how and our equipment and reposition that. But right now, quite frankly, we are very, very busy. And we will continue to support the business up there. It won't be making a significant amount of changes because we have a lot of -- and I should mention this, is that there's a lot of outage work that's being planned, a number of major shutdowns that are now coming to fruition. So we will be, I think, extremely busy over the next three, four, five months up there.

Okay, that's helpful. Along that vein of Eveready, it sounds like the government of Alberta has changed the regulation relating to the reclamation of material and tailings pond associated with mining operations. And it sounds like there's a pretty big opportunity there. Are you guys seeing some of that work? And what do you think that that opportunity could be for you?

I think it's early to tell. Clearly, the cross-selling opportunity that exists across the Eveready customer base is really just in its infancy right now, and expanding our disposal capabilities in Alberta is something that, clearly, we want to do so that we'll fully integrate our service offering to our customers so that we are not only doing the service side of the work but we'll be doing the hauling and disposing, and that's what we know how to do best. And, quite frankly, the margins are better in that business, too.

So I think we'll see some opportunities there, but I think it's too soon to tell just what the size is going to be.

As you look at what you've seen so far in 2010 here in the first couple of months, talk a little bit about sequential changes in tone of the business and what you're seeing from your various customer groups and maybe where are you seeing things pick up and then what's lagging behind a little bit.

It's so unusual certainly for us to see the kind of weather conditions, quite frankly, and that's really what has made it so odd. The whole world seems to be turned upside down here, that throughout the lower states here, where we were covered with snow and cold and some of our water plants have been frozen up, in some cases for a week at a time because they're just dealing with significant difficult weather conditions. And so that really has slowed down quite a bit of our business in the states.

And equally, which is very, very odd, and people see it even on TV watching the Olympics, it's just very warm in Western Canada. And it's typically a very bitter cold up there, and that's when they do a lot of work out in the fields. And that has certainly impacted that business. So we have been fighting battles on both sides here, which has been highly unusual. And so it's not normal, I guess, to characterize what we are seeing in the marketplace right now. But we do know that the business has been picking up, and we'll get through this first quarter, and things will be, I think, back on track for us.

As a quick follow-up, how should we think about revenue sequentially from the fourth quarter into the first, given the weather trends?

I think, typically, Matt, as you know, on the environmental side of the business Q1 is the weakest quarter. And for Eveready, as Alan just pointed out, or in the Industrial Services side of our business, that's the strongest quarter. So we believe it will offset, and so we are looking somewhat at flattish performance.

But we are still new a little bit to the Industrial Services business. We've got six months under our belts here. This will be the first Q1 with them, so we'll see how much, to the extent they can offset what normally is just a weaker quarter in the environmental side. But I would say flattish.

Certainly flattish.

I don't know if you want to add anything to that answer.

No; and I think that's exactly right. The whole idea here was it was going to smooth out our revenues because our first quarter, because of the way that the business trends have always been, the environmental has been slower. And so -- and certainly it's going to help flatten out that revenue decline that we normally would see. So that's why we feel good about that revenue guidance for '010.

Al Kaschalk, Wedbush Morgan.

Just to follow up on that, that was the revenues flattish on a sequential basis --

Right.

-- for the Company, not necessarily a segment commentary?

That's right.

Given a little bit of six-month seasoning with Eveready, I was hoping maybe you could comment, Alan, on the target utilization rates of the fleet. I guess that would be a single rate, given utilization has one rate -- as a fleet of assets for Eveready, and whether that's over a year, over the high utilization period. Maybe you could just comment on that. Because I tried to square up the revenue guidance, which was maintained, but you dropped EBITDA largely, I think, on this business, about 16%.

Yes. Well, I guess I'd characterize a couple things here. One is before the acquisition we certainly was made aware that the utilization levels were lower and a lot of capital investment had been made in the Company. And that was exciting for us, quite frankly, because we saw a lot of great people and a lot of great equipment that we could help put to work.

A lot of that utilization data was manually kept, and by having six months of data now on our systems we are able to get some real definitive data, and it's significantly less, I think, than even our expectations were in regard to what the utilization is. I think we used to look at the Company and say, geez, in 2008 it did CAD660 million, and this year about CAD500 million, let's say, just rough numbers.

And so you will obviously know that there's a lot of capacity still in the business, both on the exploration side as well as in the specialty and in the industrial side of the business. But I've always felt that this business probably had the assets capable of generating CAD800 million of Canadian revenue. And so when we look at the level of utilization for a lot of the equipment, it's certainly running at less than 50% and some of it even significantly below that. Particularly, again, with our exploration equipment there's a lot of stuff sitting. So we've got to reposition some of that and also go after some new opportunities here. But I think it's been unprecedented what took place in the oil patch throughout '09 because of the price of crude and also because of the freezing up of the capital markets.

And I think both of those things have improved with crude close to $80, money being lent again and a lot of projects, as we mentioned, about $6 billion of projects now kicking back on again. So we have the capacity, and we are going to aggressively go after that new business and get that utilization up. But it's pretty low right now.

So if I try to triangulate that, I guess the [CAD800 million], given the exchange rate, you are probably in the neighborhood of around 50%, maybe even a little bit lower than that?

Oh, yes, on a utilization basis, yes.

Second thing, just as a follow-up to that, is on the competition front. I was wondering if you could share a little bit more in light of this call, who maybe that competition is coming from. Is it previous owners of Eveready? Is it just a broader market? Is it a function also, I imagine, of the slowdown in the economy and that people are being a bit more aggressive on asset utilization?

I think what we've seen in Western Canada is very similar to what we saw in the environmental business in the '90s. You had a high-growth market, a lot of people investing a lot of capital, a lot of companies getting into the business. And then all of a sudden the growth slowed and it actually declined. And so with a lot of equipment and companies up there in that market with unutilized assets, they were cutting price. And again, we weren't privy to price, necessarily, during our due diligence, because of the competitive nature of the two companies. We're both competing in each other's markets there. Now that we've been able to look again, getting all that pricing in one place, clearly Eveready had to discount pricing to maintain its share with some of those more aggressive competitors up there that were on the edge.

And we still see them out there. We have really tried to take a policy of not driving that pricing to the ground and parked our trucks, in some cases, because we can't do it for the rates that some of the small mom and pops are offering. But I think that's changing again because a lot of these majors are looking for companies with solid health and safety programs, with good backing, with programs that can meet their administrative requirements. These are very complicated projects that we are working on up there, multi-billion-dollar projects. So I think that business is coming back.

And I should mention that we've put a sales organization in place now that's going after new business, where Eveready for the most part enjoyed all their revenue growth operationally because they could meet the customers' needs. But they weren't necessarily a big sales and marketing driven company. And so I think the pricing side, probably in late 2008, early 2009, did change quite a bit. And quite frankly, our plan is to reverse that trend.

I guess, importantly, you reiterated that while things may be a little bit slower than you anticipated, the synergies remain on target for 2010.

Yes, absolutely.

(Operator instructions) Rich Wesolowski, Sidoti & Company.

Did the margins in either your Tech Service or the field service drop sequentially to any considerable degree, or was it all Eveready?

No; it was pretty much Eveready. There was a small, less than 1% at the gross margin level in the overall environmental business, which is somewhat standard as you go from Q3 into Q4 time frame. But clearly, of the margin decline I calculate about 2.5% of the whole gross margin decline was really on the Industrial Services side.

So did Eveready -- by my math, they generated less gross profit in the December quarter than they did in September. Would that be right?

That's right. And it's probably -- I can give some EBITDA margin information on the segments which might be helpful there. From an EBITDA standpoint, in Tech Service we had $48.8 million in EBITDA, field services was $8.1 million, Industrial Services was $9.6 million and Exploration was pretty much breakeven to a couple of hundred thousand dollars loss. So that Exploration side, as Alan pointed out, which is about 3% of our revenues, was really kind of breakeven.

Secondly, I know the comparison of '10 to 2009 might not be the best indicator of your incremental margin of this new business. But it is expected to be a good deal below what you typically shoot for, especially if you consider the acquisition costs that are in the '09 numbers. Would you expect Clean Harbors to still shoot for a 30% incremental margin with the Eveready and maybe even other Industrial Services businesses in the mix?

I'm thinking that, overall, Clean Harbors' gross margin is probably going to wind up in that, I would say, 29% to 30% range. I think that's where we would be at the gross profit level.

Over a longer period, or just for 2010?

2010.

But I think the leverage that's in the business, when you look at the margins, when you drive the utilization levels up like we've been talking about, it might not be as great as an incinerator or as a landfill, but those are north of 30% also.

Absolutely.

When you look at the whole mix of driving incremental revenue across this Company, the 29%-30% is not a bad number.

Jonathan Ellis, Banc of America.

I wanted to talk a little bit more about pricing. I know you spoken in the past, and I think you just referenced it, a desire to rationalize pricing across the Eveready customer base, which in the past may have been a little bit more inconsistent than what you [did] on the legacy side. So I think my first question really is, can you talk about where that stands, given your comments about competitive pressures? And then, in sort of a related question is, pricing in the legacy business for this year -- any expectations to potentially raise price? Or, given where we are right now, do you plan to just really hold pricing flat?

We have been analyzing a lot of the pricing and working with the management team out there. Because we have all the pricing and all of the contracts laid out now, collectively we can work together to raise prices when we can to look at other areas of margin improvement like fuel surcharges for our equipment that we operate, which is significant there.

I would say that our expectation would be to go back to some of the customers now that the market has turned and utilization is going to be improving in certain areas, to try to raise some prices back into more normalized levels because I think customers realize that this is a capital-intensive business that requires a fair return on that investment. And I would say that we want to play a leadership role. We have a very strong position in a lot of the markets in Western Canada, and we want to continue to grow that and play a leadership role in pricing.

We ourselves got involved, and I have personally been reviewing opportunities over $1 million, as I normally do. And I've gotten involved in some cases where we didn't lower the price, we did lose the business, and 30 days later we get called back to perform the work because the low price guy doesn't always necessarily perform the service that the customer expects. That's been our experience.

And I would comment that it's no different than what we went through in the '90s, where you have to work through the shakeout. And there will be one there. And we're experiencing how to get through that and come out a stronger company and a more profitable company. That's one of the things, I think, that we can help the Eveready management team work through because they've never gone through a market like that before.

And, I'm sorry, just on the legacy business?

Yes.

Pricing in your legacy disposal business for Clean Harbors -- how does that shape up for 2010?

I would say in the legacy Clean Harbors world we're also looking at that to see our strategy this year. I think at this point we're looking at some targeted areas where we see opportunities for pricing. We haven't made any decisions about overall price increases or across-the-board kind of stuff. But we do see some opportunities out there where we believe it's deserved, particularly where utilization is high in certain areas. And we're kind of working through that.

And we usually, right after the first quarter, which is seasonally slow for the legacy business, that's usually and we come out with our strategy on that.

You talked a little bit about the acquisition opportunities and, I think in the past, you've mentioned potentially some opportunities specifically up in Canada to help bolster your presence there. Given what has happened over the last quarter and your comments about 2010, has that resulted in any revisiting of potential multiples or valuation in your discussions? And I guess if you can talk about whether you are any closer or further away from consummating transactions now than you were a quarter ago?

No closer or farther away. We continue to look at opportunities both in Canada and in the US to help further expand our service offering or our geographic reach. We do believe that some further consolidation would be a good thing for the marketplace in Canada, and we hope to participate in that. We've tried to position ourselves with our balance sheet to take advantage of that consolidation. We also see some real nice opportunities here in the states.

And so, at any given time, we have 10 or 12 opportunities that we are looking at here. That's about the most that we can work on at any given time, with the team that we have on it. And I would expect this year to do one or two acquisitions. They might be small, but we certainly are looking at some larger ones as well.

Jamie Sullivan, RBC Capital Markets.

So, quick question on -- just to understand the Eveready margin impact, the shortfall that happened in the fourth quarter -- was it based on pricing that you came to understand as you absorbed the business? Was it incremental pricing pressure? And then the lower billings utilization -- I guess maybe if you can kind of talk about those three and which contributed to the margin impact in the Eveready business?

I'll take the first -- I'll give a swing at it, and then I'll turn it over to Jim for the second half. But I'll tell you, the big -- this is our first year, obviously, with Eveready and the first December. And the last two weeks, last three weeks of December -- quite frankly, it was very surprising how that business slowed down up there. And so I don't think it was necessarily pricing, per se; it was really utilization, Jim.

I would say so. And when you look at that whole staffing level of bringing additional work force on, including contract workers and even -- there was some warm weather that started in the last half of December, and the way the holiday fell, it was like a weekend to a weekend that put a lot of business up there, really slowed down in that very last week. There were a lot of little things, Jamie, but I think if you look at the amount of shop time that we had and in some cases in certain areas where overtime was even going on, where certain pockets were busy, it was just a very inefficient period of time from a utilization standpoint, and it really depressed the margin.

I think the pricing thing is more longer-term, and I don't think it was anything unique that stood out in the fourth quarter.

And I would say, since our involvement in August, from a pricing standpoint we've certainly tried to stop the change and the lowering of the pricing and get back to the more realistic pricing based on cost and margins. And that's something that, quite frankly, should start improving as we move forward into the new year.

And certainly, we have a broader service offering now that we can bring more to the table now, as a total combined Company.

Okay, that's helpful. In the environmental business, it sounds like what you are saying is some of the volumes -- you have a bit of a mix issue that's impacting margins there, it's just lower margin waste and work that you are doing in the environmental business; is that right?

Yes, but minor. It's not much of a margin decline there. It's not too much.

And then I guess, just a general question. I'm struggling with where the EBITDA margins are in the fourth quarter of this year. And as we think into next year, you have all of the unfavorable seasonal things are happening right now with Eveready -- the lower utilization, the seasonality in the environmental business and whether that hurt in the fourth quarter. And we think, into next year, you have the synergies coming out, potentially some more cost cuts and consolidation in the business. It seems like that right there might get you to the margins that you are talking about.

But with the improvement in the environmental business, you have additional volumes, potentially a more favorable mix. And the incrementals should be pretty high on that business. So sorry for the long question, but it seems like the margins could be higher, given all the headwinds you are facing right now and the moving parts in 2010.

Well, I think we've said, at least on the long-term, the Company really thinks it could continue with the improvement in EBITDA margins even beyond the 17% and up into the 20% range. That's certainly our long-term goal here, that the Company really should be operating at that level. The investment we are making really requires that kind of return, and I think, on the short-term, we are disappointed where we are at. But there's no question that the points that you make are all relevant and that the Company could continue to improve and execute here. We'll do a good job.

I agree, yes.

Ted Kundtz, Needham & Co.

If you look at the incineration utilization rates going forward, where do you think the trends are going to be here?

I think they are going to continue to improve. When you look at that 87% utilization, that's on the new volume that we added. So that would have put us in the higher 90%, 98%-99%, I think, Jim.

Without it, it would have been probably 98%; that's right, yes.

And we've seen -- even with this economy being as bad as it was, with a lot of our chemical customers down and, as I mentioned, about $100 million down across seven key verticals, a lot of those customers generated a lot of large bulk waste streams that really impacted our incineration business. But we still maintain good volumes, good utilization. If that comes back, we think that that's going to be real positive for that side of our business.

So you would think, this quarter, and maybe a gradual improvement going forward from even within this quarter itself?

Yes, because we are a little bit shellshocked after this economy. Through all the recessions we've done pretty well -- keep growing and getting share and what have you. But this economic downturn has been, obviously, the worst that anyone has ever seen in a long, long time. So if this economy continues to improve and the chemical plants continue to ramp up and so forth, then we'll be fine on the incineration side. And that level of utilization will continue to improve.

Now, what was the $100 million, again, that you just referenced? You referenced it before, too; I didn't quite get what that was.

Yes. I was just trying to really give people a little color that when you look at Clean Harbors' legacy business and you look at some of the key markets that we service, the combined -- there are seven of those combined verticals we're down over $100 million in total revenue.

In the -- for what period?

For '09.

For '09; okay, the total was down $100 million for you guys?

'09 to '08; right.

That's a yearly number? Okay.

Yes, and we don't believe, based on the feedback we get from our sales force, that there is market share losses going on there. It's really just volume reductions based on the economic conditions our customers faced.

Is your pricing holding up okay in the incineration side, even with the lower volumes?

We are still at about the 20 per bulk pound, in that $0.29 per pound range.

And that has been fairly steady; right?

It has been fairly steady. You get some product mix impact in there because, as you bring in fuel-like waste streams from some of the cement kilns, you get some effect there. But it's not really -- it's more product mix than anything. But that's about where we are at right now.

Larry Solow, CJS Securities.

Just to follow up a little bit on the incinerators, it sounds like you are still relatively optimistic going forward. Alan, I think you had talked about in 2010, actually, spending a little more CapEx and trying to drain out a little bit more capacity through some more throughput expansion. Can you maybe talk about that a little bit? And then the outlook for -- I think you had mentioned a couple of captives where you got pending closure?

Yes, we certainly still have expectations that the captives will continue to be impacted and be closing. And I think there still is some more engineering and permit modifications that we can make to tweak out a little bit more capacity out of our existing network. And I've said before that there may be a point down the road here where we would look at another kiln. But we haven't yet started that permitting process yet as we speak, just really more focused on those smaller incremental improvements.

And our expectation, though, is between the cement kilns moving to different technology and the captives winding down and some of their operations, that that's going to continue to be favorable for our incineration business.

Now, would the cement kiln waste -- I know that's a little bit of a different ways than you guys have normally used and maybe a little bit lower margin. So would, going forward, that maybe crimp the margin expansion a little bit?

Yes. I think if we look at it, if we have some surplus BTU capabilities, some of our plants will take it. If the waste isn't recyclable and can't go to our solvent recycling plants, then we will certainly handle that. But the pricing will probably change in that market as well. We saw a big a lot of fuels at the end of the year, a lot of material looking for a home. And so we started raising prices, quite frankly, on fuels because of that.

So we'll definitely make sure that we are not going to be handling that volume without pricing it properly.

Just on the project side, I know these plant turnarounds on the industrial side, you are seeing -- it sounds like you are seeing some improvement? Any more color on that or --?

Absolutely. I met with the team this morning, actually, before the call. And right now the issue is, how do we address all of the opportunities that are all coming at us at the same time. And that was always our concern is that a lot of the majors tend to plan outages so that they are able to get labor at a reasonable price and an adequate amount of equipment and labor out there. But we are seeing a very strong demand for that, and we are going to have to work hard to meet the customers' expectations. And so that's why I think the volumes overall are pretty good right now.

You mentioned that, although it was more utilization than anything else on the Eveready side, it sounds like pricing maybe was a little bit less than you had thought just because you didn't have the proper systems in place. Now you've got a better grip and a better handle on it. What gives you the confidence that you can, A, stabilize that pricing and then maybe start to drive it higher as we look out?

Just before, I think more pricing was done at the local level, and we continue to allow managers to price their services locally. They are empowered to do that. But we also are trying to give them better information about the margins and how some of those areas are performing. And so doing P&L's at the local branch level they hadn't had, up until recently. Now they are on our financial systems. We are reviewing P&L's. They are seeing the performance of the business. We are setting goals and targets that are much higher than they are currently operating at and giving them the tools on how to improve those things that they are doing.

You spoke about these margin improvement initiatives. And I imagine some of that, a lot of that, is going to be focused on Eveready. Now that you see sort of demand maybe a little bit less than expected, do you have the flexibility to wind down at least the contract side of your expenses in the near-term? Or, is it something you can't flip the switch on that fast?

I don't think there's anything out there other than leases, you know, your property leases and things like that, that have a little bit of a tail to them, certainly. But I think we definitely have in our control the ability to address the issues that are there. We have the visibility now. We've got the team working together with us, and I think collectively I think we've got a good plan moving forward. And I feel confident we'll get there.

The reason I asked is because, just a follow-up to someone else's question about margins. If you add up all the numbers, you did about 27% gross profit margin this quarter, and you think it could be more 29% to 30% for the year. Your EBITDA was like the low 15's, if you think that's 16. But if utilization sort of improved then you can cut expenses more than increase them, it all boils down to -- your SG&A was 12% of rev this quarter. And if you add back the credit, the environmental credit, it would have been about 12.5%. So why do you think it's going to go up to 13% to 14% for the full year?

On the SG&A?

We're looking at our SG&A, and there could be some opportunities there to even do better than that. But this is what we would like to project out there at this point from what we are seeing after coming through this quarter.

Now, the number this quarter -- did you already achieve some of your synergies?

Oh, absolutely. Some came in -- I mean, for example, the corporate governance cost with Eveready no longer being a public company. But to be honest with you, on the procurement side and really taking advantage of the systems that we've implemented, there's still a lot more that will come in this year. And that's why we feel very comfortable with the $15 million of synergies.

So you don't think you would actually reach that $4 million quarterly run rate, or slightly less than that, for the $15 million yet?

No; I think we are going to come in there. I think we'll be all right this year.

But I'm saying this quarter, it probably didn't fully reflect that, is what I'm saying. So you have some more potential improvement there?

That's right.

Oh, yes.

In summary, would you say looking out into 2010 and your guidance, it sounds like maybe Eveready -- from where you gave guidance last to where you gave guidance this, forgetting the profitability side but just on the revenue side, keeping that flat, is the legacy business maybe doing a little bit better than you thought and the Eveready business doing a little bit worse? Is that a fair statement?

Yes, I think that's fair.

Rick Skidmore, Goldman Sachs.

Just wanted to follow up on the pricing discussion, just for a moment. Alan, have you empowered your local managers to walk away from business in order to get better pricing, or how should we think about what's happening in Western Canada, given your statements that there's some overcapacity in that region and yet you're trying to get pricing?

Yes, absolutely, they certainly know that -- and they have margin information now, where before they weren't given that information. And we've been rolling this out as we speak. So they are empowered. We are looking at taking out some of the underutilized assets and repositioning those assets.

Jim mentioned that our CapEx this year is going to be $60 million to $65 million. That's the same as last year. Eveready in '08 had a CapEx of about $70 million, I think it was.

That's correct, and the year before and the year before that.

Yes, so there's a lot of equipment that's good equipment, that's transferable. So that's one of the reasons that we've lowered our CapEx for this year to the $60 million level, because we're going to take some of that underutilized assets and get it out of there rather than having people just take it and go throw it out to work for cheap dollars. Because we can find other markets to put that equipment to work by cross-selling our existing customer base, even if it's in eastern Canada or in the states.

As you [give somewhere to stand] on pricing in Western Canada, are you seeing any impact to your volumes here in the first quarter as result of that?

No. I would say that we are seeing a nice improvement in utilization right now. It's coming back, and it's certainly, I think, going to be much longer than what we've seen, like we did in the fourth quarter. Our fourth quarter Eveready business, I think Jim mentioned, is about $108 million. I think, rough number for the fourth quarter in '08 was probably close to $150 million.

Oh, I would say, yes.

And, so you can kind of see the huge disappointment that we had on the top line. So I would say that top-line revenue quarter over quarter was the biggest factor for us in, certainly, December in general, in reporting these numbers this morning.

Brian Butler, Wunderlich Securities.

You mentioned a shakeout needing to occur in the Eveready marketplace. Any sense of -- is that occurring right now? How far along are we? How long, if you look back at the incinerator shake out that occurred in the '90s, how long did that play out?

That took a few years, certainly, to play out. And I think it was a much more difficult shakeout. The one that I think we're seeing and will experience here had more to do with the significant growth that took place in the market up there, due to crude going up to $130, $140 a barrel; but also, the income trust structure that was in place at the time that has gone away and will be gone by 2011.

But I don't think it's going to take that long, and I don't think it would be anywhere as severe as we saw in the environmental industry in the '90s.

Okay. And then, on the cost initiatives, you talked about that additional $20 million. Is that already in your 2010 guidance, and what's the timing on that?

Yes, that is already in our 2010 guidance, and the timing will be, I would say, in the last half of Q1 and then even throughout the rest of the year.

Is there any cost associated with it?

There could be some. There's some areas where we're looking at some reductions, that there could be some cost there. But I don't have any firm numbers at this point.

Do you have a tax rate for 2010 that we should be using?

Yes, 40%, which is down from our 42.5%, roughly, this year. And if you look at the overall mix now, and Eveready had a lower tax rate, we are going to benefit from that.

And then, last, do you have a cash from operations number for the quarter and the year?

Yes, I sure do. I can give you that. We're working through the K right now, and cash flow from operations for the quarter was almost $26 million. And for the year, that winds up being about $92 million.

At this time we've reached the end of the Q&A session. I will now turn the conference back over to Mr. McKim for any closing or additional remarks.

Thanks, everyone, for joining us again in our fourth-quarter call. And we look forward to updating you all after the end of our first quarter here. Thank you.

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