Clean Harbors Inc (CLH) 2010 Q2 法說會逐字稿

Good day, everyone, and welcome to Clean Harbors' second-quarter 2010 conference call. Today's call is being recorded. There will be an opportunity for questions and comments after the prepared remarks. At this time, for opening remarks and introductions I would like to turn the call over to Mr. Bill Geary, Corporate Counsel for Public Affairs. Please go ahead, sir.

Thank you, operator, and good morning, everyone. Thank you for joining us 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 second quarter 2010 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, August 4, 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, and subsequent periodic filings with the SEC. The Company undertakes no obligation to revise or publicly release the results of any revisions 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 the accounting principles generally accepted in the United States. Clean Harbors believes that such information provides an additional measurement and consistent historical comparison of the Company's performance. A reconciliation of the non-GAAP financial measures to the most-directly comparable GAAP measures is available in today's year end -- today's quarterly 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. Alan?

Thanks, Bill, and good morning, everyone. By all measures, the second quarter of 2010 was a milestone quarter for Clean Harbors, as we achieved record results across all our key financial metrics. Revenues more than doubled, income from operations more than quadrupled, our net income for the quarter substantially exceeded our net income for all of 2009. Our EBITDA for the quarter was nearly $100 million. So as a result in the quarter was -- excuse me -- our results in the quarter were driven by a combination of excellent performance across nearly all of our operating segments and our participation in the oil spill response in the Gulf of Mexico. Keep in mind that our Q2 performance this year also includes Eveready, which we acquired in July of 2009. All in all it was an outstanding quarter for the Company and we're all proud of what we've accomplished. We have an amazing team here at Clean Harbors and I'd like to take this opportunity to thank our employees, who made this quarter's results possible. It was only through their exceptional contributions that we're able to respond to the Gulf crisis at the level that we did and generate the momentum we achieved in our core business, all while continuing with the integration of Eveready.

Before taking you through how our individual segments performed in the quarter, let me start with some comments about our involvement in the Gulf, the Eveready integration and our safety record. Our participation in the Gulf spill response efforts exceeded our initial expectations and the guidance we provided through a news release in mid-May. For the quarter, revenues from the event totaled $109 million, accounting for approximately 23% of revenue. Our work essentially came through seven customers that range from private companies to the US Coast Guard. The work itself fell into four primary areas, skimming, decontamination, water treatment and onshore cleanup. At the height of the event we had more than 3,500 response-related personnel working in the region, consisting of our own employees and a temporary workforce that our subcontractors recruited, typically from the affected areas. Today that number stands in the range of 800 to 1,000, as some of the onshore cleanup work, which has continued to be unpredictable throughout this event, has slowed. We also supplied a broad array of equipment that includes boats, containment booms, skimmers and vacuum trucks. In addition, we have a number of recovery and water treatment systems in place. As we noted in today's release, we expect our Gulf response-related activities to continue through this quarter at a slightly reduced level before winding down significantly lower to lower levels in the Q4.

While the Gulf spill has certainly been significant in scale, from an earnings perspective it's fairly typical of the incremental margins we achieve in our base business. There's several key reasons that our emergency response business is successful. One is certainly the highly-qualified personnel we have to manage these events, and we really so have the best of the best. Our information systems to support these events are critical to meet our customers' demands for timely information and reporting. Third, we've done intensive training across the country over the years with our clients and we know what is expected when events like this happen. Fourth, we have a large inventory of very specialized equipment and we've made significant investments in equipment to meet the requirements under Open 90 and our customers' preparedness planning. And finally, we have a vast network of subcontractors that we've developed solid relationships with over the past 30 years.

Turning to our integration of Eveready, we've made substantial progress on the integration in Q2. The quarter began with the divestiture of the Pembina Area Landfill and another non-core business line. Throughout the quarter we continued with our rebranding program, including new signage and lettering on the truck fleet. Rebranding will be beneficial to our cross-selling efforts and we now expect to be fully complete the program by the end of Q3. One of the most attractive elements of the acquisition of Eveready was their impressive fleet of specialized vehicles and unique equipment. During the quarter, we reallocated a number of Eveready's assets to further improve equipment utilization and capitalize on opportunities in other geographic regions. This included shifting dozens of trucks and specialized vehicles to the US, some of which participated in our Gulf response. We have already implemented a number of enterprise-wide changes at Eveready that'll enhance our operational efficiencies going forward. The latest system we are rolling out is aimed at simplifying the administration of the oil field service line of businesses. So while there's still a lot of initiatives underway at Eveready, we're pleased with the substantial progress we've made at assimilating the two companies.

We believe strongly another factor behind our performance is our safety record. Safety is our number one commitment to our employees, a critical element for our customers, and an underlying driver to our results. Two of the most important safety metrics in our industry are TRIR, or Total Recordable Incident Rate, which measures injury and mishaps that require medical treatment, and EMR, or Experience Modifier Rate, which is used to calculate workman's comp insurance premiums. We are mid-way through 2010 and our TRIR is down year-over-year, our EMR rating is excellent at 0.54, which puts us in a very strong position when dealing with many of our Fortune 500 customers from a safety and insurance standpoint.

I'd like to briefly take you through how each of our four segments performed in Q2, beginning with Technical Services. This segment accounted for 37% of total Q2 revenues. This segment achieved year-over-year growth of 7%, as we saw continued signs of recovery in some of our business lines. Margins within the segment were essentially flat year-over-year. Utilization in our incinerators increased to 91% from 88%, in the same period of 2009. Our geographic base -- on a geographic basis, utilization was fairly level between our Canadian and US locations. In addition to a favorable mix of business in the quarter, our volumes in Q2 were helped by the fact that a customer's captum incinerator was down for a six-week period and we're also getting a good amount of business from the impacted idle cement kilns.

Within our Landfill business volumes were up 17% year-over-year. On a sequential basis, however, volumes were down 11%, which is primarily due to the timing of some projects. In terms of landfill pricing, similar to Q1, overall pricing remains highly competitive, although we did experience some market-specific pricing gains. Our strategy going forward for this business is to pursue additional permitting to help capture additional volumes and potentially add new waste streams at some of our sites. We expect to receive permits soon for a new thermal treatment unit at our Sarnia facility that will add another 25,000 tons of pretreatment capacity for our Sarnia Landfill, which enables us to meet Ontario's new land disposal requirements, primarily from the refinery waste streams. We currently expect this unit to come online this month. Our TSDFs and water treatment plants were up 16.5% during the quarter on a year-over-year basis.

Our Field Services segment accounted for one-third of Q2 revenues, driven by the Gulf oil spill. Margin in this segment increased substantially because of this emergency response work. However, if you strip out the effect of the Gulf event, this segment was still up more than 10% from Q2 of last year and was ahead of our results in the first quarter of this year. Our improving performance continues to be driven by a significant amount of routine maintenance remedial work, which many of our customers are still catching up on after delaying them during the recession. I should note that there was no other significant emergency response events beyond the Gulf oil spill in Q2, but we were recently engaged to participate in the oil spill cleanup in Battle Creek, Michigan. We've had a few investor calls about this already; however, at this time we're not certain about our level of involvement. It has the potential to be a sizeable job for us, but we don't want to speculate at this time. Even with our participation in the Gulf we have got highly-experienced spill-response people and equipment available for this assignment.

Turning to Industrial Services, this segment delivered stronger-than-anticipated results in Q2, accounting for 28% of revenues from what has historically been it's seasonally weakest quarter. Margins for that business were good and they remained flat with the busier Q1 period. Obviously, with all the integration work at Eveready we believe there is still considerable margin upside to this segment. In terms of projects, we continue to see excellent growth fueled by billions of dollars of investment in new spending and investment in western Canada. Activity in the oil sands region remains extremely high. For the second consecutive quarter we also saw experience -- we also saw and experienced a surge in refinery turn-out work, which helped us maintain momentum in what is typically a down quarter.

The other major driver for Industrial Service this quarter was our lodging business, which currently consists of about 2,500 beds. Despite the historically soft seasonality during Q2, our camps operated at high utilization rates for the majority of the quarter and continue to deliver high-margin revenue. On the past two conference calls I've talked about our intention to continue to invest in this business to support both our customers and our own workforce. As we announced in this morning's press release, we intend to do just that with the construction of a $25 million facility in the Ruth Lake region of Alberta, just north of Ft. McMurray. The site will consist of a new Energy and Industrial Service location, a 400-bed open camp, a training facility and maintenance shops. Once completed it'll serve as the Company's northern-most service location in Alberta. Site preparation at the facility is already underway, permits are in hand and we anticipate opening the first phase, a 200-bed camp and training facility, later this year followed by the completion of our service location. We believe this location has excellent long-term potential for us in an area where we really have a lot of familiarity and a number of contracts in place.

Our fourth and smallest segment, Exploration Services, accounted for only 2% of our Q2 revenues and not suprisingly, its margins were down considerably from Q1. Due to the cold temperatures and frozen ground that are needed to reach some the remote locations, where much of the oil and gas exploration work is performed, Q2 is always a weaker operating quarter for this segment. Its performance in the quarter was also affected by the continued depressed price of natural gas, which is dampening natural gas investments in Canada. However, some of that slowdown was offset by continued strong investment activity, particularly in the Marcellus Shale area. Our strategy is to continue to pursue additional avenues of growth for the segment, including the unconventional gas plays here in the US.

To provide you with some additional perspective on Q2, as I've done in the past quarters, I'd like to take a few minutes to discuss how our end markets performed. The Chemical sector was an excellent source of revenue yet again this quarter, accounting for 13% of our total. This vertical has been a strong performer for several quarters now and has recovered nicely from the recession. Other end markets accounting for high percentages in the quarter were refineries at 12%, oil and gas production at 8% and general manufacturing at 7%. While it only accounted for 4% of our revenues in the quarter, we experienced a nice resurgence in our Utility vertical. This end market grew 40% year-over-year, and when you exclude the effect of Eveready it still registered double-digit growth in our legacy Clean Harbors business. This was significant for us, as this reverses a decline we've seen in this vertical for several quarters. Hopefully, that segment and end market detail gives you a good framework for understanding and evaluating our performance in Q2.

Now let me turn to our outlook. Heading into the second half of the year we're optimistic about our prospects for 2010, as we exited the quarter with some really nice momentum. We continue to see promising signs in a number of our key verticals and a stabilization across the board. I would describe our current project pipeline as robust, with some sizeable opportunities, and the outlook for our base business looks encouraging, as well. As I mentioned earlier, while it's difficult to accurately predict a revenue contribution for the remainder of the year, we expect our work in the Gulf to continue during much of Q3 before tapering off significantly in Q4. Looking at our outlook from a cost perspective, we remain committed to our ongoing expense reduction and margin improvement initiatives. We intend to leverage our network of assets, particularly the Eveready-Clean Harbors combination, continue to grow our EBITDA faster than revenues. We remain on track to achieve our previously-announced targets of $15 million in synergies from the Eveready merger and $20 million in additional Company-wide expense reductions.

In summary, Q2 was an outstanding quarter for our Company, both financially and operationally. We're encouraged that we're able to grow our core business at the same time we took on the largest emergency response event in the Company's history, and Eveready is realizing the potential we saw when we purchased it last year. We're excited about the remainder of 2010, as well as our Company's long-term outlook.

I'll turn the call over to Jim Rutledge so he can take you through the financials in more detail and provide you with our revised guidance for the year. Jim?

Thank you, Alan, and good morning, everyone. As Alan mentioned, Q2 was an outstanding financial quarter for the Company. Revenue increased 119% to $471.6 million in the second quarter of 2010 from $215.3 million in the year-ago quarter, reflecting gains across nearly all of our business segments, our emergency response to the Gulf oil spill, and the addition of Eveready, which was not in our Q2 '09 results. Gross profit for the quarter was $147.4 million, or a gross margin percentage of 31.2%, which is slightly below the 32.1% margin in the same period of 2009, but well ahead of the 26.6% margin in the first quarter of this year. The year-over-year variance in gross margin resulted from the significant top-line contribution of our Industrial Services business, which generates a lower gross margin than our legacy Environmental business. However, this variance was minimized by the seasonal strength of our Environmental business, as well as the value of our emergency response efforts in the Gulf.

Turning to expenses, selling, general and administrative expenses in the quarter totaled $50.7 million, up $12.9 million, or 34% from Q2 2009. This increase is primarily due to the larger workforce resulting from our Eveready acquisition in the third quarter of last year. However, as a percentage of revenue, our SG&A continues to demonstrate the leverage within our model, as we expand our revenue base. SG&A totaled 11% of revenue in the second quarter of this year, down significantly from 17.5% in Q2 of '09 and 18.1% in Q1 of this year. Clearly, the added revenues from our emergency responses efforts have helped reduce this percentage in Q2, but even so, we still expect SG&A as a percentage of revenues to be in a normalized range of 13% to 14% going forward. I should also point out that SG&A benefited from a favorable environmental credit of $3.1 million in Q2.

Accretion of environmental liabilities was $2.6 million in Q2 of 2010, essentially unchanged from the second quarter of '09. The addition of Eveready resulted in a year-over-year increase in depreciation and amortization expense in Q2, consistent with Q1 of this year and Q4 of 2009. Depreciation and amortization expense was up 81% to $22.1 million in the second quarter. We continue to expect 2010 depreciation and amortization expense in the range of $90 million to $92 million, which reflects a full year of Eveready's depreciation and amortization at the current exchange rate.

Income from operations increased fourfold to $71.9 million in Q2 from $16.4 million for the same period last year, while EBITDA tripled to $96.6 million from $31.3 million. Our EBITDA margin increased to 20.5% of revenue in Q2, up 600-basis points from a 14.5% margin in Q2 '09. Net interest expense of $7.6 million in Q2 increased $6 million from the year-earlier period, reflecting the completion in mid-2009 of a $300 million bond offering related to the Eveready transaction. Our provision for income taxes, excluding taxes on income from discontinued operations, was $11.5 million this quarter, compared with $6.2 million in Q2 '09.

Our effective tax rate for the quarter was 17% compared with 42% in the same period last year. Our tax rate this quarter was considerably lower due to the favorable resolution of some unrecognized tax benefits amounting to $13.7 million, which includes previously-accrued interest and penalty charges. Without this favorable tax benefit, our effective tax rate would have been approximately 38%, which is about what we expect the rate to be for the remaining two quarters of the year. Our non-cash FIN 48 expense this quarter was $800,000.

Driven by the higher revenue across our business, net income for the second quarter increased to $57.9 million, or $2.19 per diluted share, based on 26.4 million average common shares outstanding. This compares with net income for Q2 of '09 of $8.6 million, or $0.36 per diluted share based on 23.9 million shares outstanding. The effective tax rate of 17% this quarter was also an important factor in our record EPS. Below EBITDA we also recorded about $2.7 million under the caption, other income, resulting from gains on the sale of fixed assets and marketable securities during the quarter and $2.4 million in income from discontinued operations, mostly related to gains on the sale of the two Eveready businesses that Alan mentioned.

Turning to the balance sheet, our cash position grew even stronger this quarter. Our cash and marketable securities balance as of June 30, totaled $296.6 million, up from $235.6 million at year-end 2009 and $211 million at the end of Q1. The increase in cash was generated from operations, including work on the spill and also improved working capital from collected receivables. We intend to put that capital to work to accelerate our growth through a combination of strategic acquisitions and internal investments, such as Ruth Lake. On the acquisition side we remain engaged on several fronts. We are fortunate to have opportunities in a variety of areas, both geographically and within different segments of our business. We are currently evaluating a number of strategic opportunities, both large and small, but with many options available to us we intend to be extremely selective with our capital. Our total long-term debt balance as of June 30, was $293 million, essentially unchanged from year end, total accounts receivable were $369.6 million at quarter end, and our DSO for the quarter was at 70 days compared with 78 days at the end of Q1 this year and 74 days in Q4.

Capital expenditures came in at $18.9 million compared with $16.6 million for Q1 2010 and $10 million in Q2 last year. During the quarter we spent about $6 million in CapEx related to the spill, primarily on additional boats, skimmers, and replacing boom, but also to replace some pieces of equipment that we ultimately sold to BP to make it more cost effective for them. For our new $25 million facility in Ruth Lake we expect about half of that spend to fall into this year. So for the year, we are currently expecting our total CapEx to be in the mid $80 million range up from our previous guidance of $65 million to $70 million.

Accounts payable balances increased to $145.7 million at June 30, from $97.9 million at year-end 2009, mostly reflecting our work on the spill. Our deferred revenue balance rose to $28.1 million compared with $21.2 million at year end. Environmental spending was $2.6 million for the quarter, up from $1.9 million in Q2 2009. Our balance of environmental liabilities at quarter end was $178.1 million compared with $181.3 million at year end. The reduction is mostly due to favorable changes in estimates associated with our environmental liabilities.

Moving now to our guidance, based on our year-to-date performance, current market conditions, and the impact of the emergency response event in the Gulf, we are revising our 2010 annual revenue and EBITDA guidance. This guidance continues to exclude the effect of any potential future acquisitions. We currently expect full-year 2010 revenue in the range of $1.6 billion to $1.65 billion, which includes anticipated revenues related to the Gulf oil spill through the third quarter. We are now targeting EBITDA for 2010 in the range of $270 million to $280 million for the full year.

And with that, operator, could we please open up the call for questions?

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

Morning, guys.

Morning.

Congratulations on a pretty robust quarter. Jim, I wanted to ask a two part, but let's try and tackle the first part of this. If you look at pretax income of about $67 million there's a couple items that obviously benefited the quarter there.

Right.

But if you strip it out and try to strip out the Gulf contribution, is there a range or something that we can look at from the legacy or core businesses so that the nonevent and non -- two items, which I think would be about $5.8 million. So is it fair to say with the Gulf that pretax income would have been closer to the $60 million, $61 million level? And I'm stripping out $2.7 million for --

Yes, before those two you would be at that level. If we tried to -- maybe look at it this way. If you take the pretax of $67 million, you take even the environmental credit -- let's take that out of there and if you took out the other income gain that we had in the pretax of the $2.7 million you'd be at roughly $61.2 million. Now if you took the -- we had the $109 million of emergency response that we did and the margin on that was in the high 20% range, almost 30%, with the initial phase of that with our mobilization. And I should mention here that the margin on that will come down and it has come down already, but at the very start of it was higher with the nature of the work that we were doing. So if you took that out at, say -- let's just round that to 30%, that would be roughly about $32 million that you would come off of pretax

Right, okay. So I guess, then, if we look at the guidance -- and maybe this is directed to Alan -- but it seems, Alan, that the core business, including the Industrial component, is actually performing better than you had signaled based on the prior guidance. Is that a fair take away for investors that we certainly have seen some strength there?

Yes, absolutely. Our core business -- and we can't -- I think to Jim's point, too, we can't lose sight of the fact that it's all hands on deck when you have an event of that size and so we mobilized equipment from all over our network and still our base business was very strong. So we've been operating at very high utilization rates across the network and that continues as we speak

And my final, I know you said that you had about 800 to 1,000 personnel in the Gulf today and that's down, obviously, pretty substantially. How much of those -- of that quantity is sustainable through the end of the quarter and how much is -- or do you anticipate to be sustainable, and how much is your personnel versus subcontracted? Thanks.

So our work assignments in the Gulf change almost daily and we're pretty flexible in regard to what the expectations are down there from our customers. We certainly are getting new assignments as oil is found in different areas and as they continually reduce the size of the response groups down there. So, it's really hard for us to predict and that's why, I think, when we gave the guidance for the rest of this year we kind of assumed the event was substantially over by the end of the third quarter. Our July efforts were very strong down there up until recently, probably until the first major storm went through there, our staffing was well over 2,000. So, I would say that the majority of the work is behind us and that will continue to wind down. There will be a point when the project will go into much more of a maintenance mode and a lot of the specialized equipment and work that we tend to do really good at will probably end and that's why we placed it through the end of the third quarter. Okay?

Yes, thanks.

Thank you. Our next question is from Jonathan Ellis with Banc of America. Please proceed with your question

Thank you. First question, I just wanted to go back to the guidance that you're giving for the full year and, Alan, you just mentioned that part is reflected in base business improvement. But I just -- I want to clarify because if we look at the change in your revenue and EBITDA outlook it implies about $200 million of upside in revenue running at about a 25% EBITDA margin. And correct me if I'm wrong, but ultimately the contribution from the Gulf work could ultimately be around $200 million in total, recognizing it's somewhat hard to predict right now, but based on, at least, your qualitative commentary for 3Q and 4Q. Can you just help us to understand then, is there actually a portion of the guidance, either revenue or EBITDA, that you can "ring-fence" it really is upside tied to the base business, or is all of the adjustment to the full-year guidance really reflective of what you expect from the clean-up work for the balance of the year, in addition to what you generated in the second quarter?

Jon, I can start this off and then if Alan wants to add anything, and this might be helpful. If you look at the original guidance that we put out for this year, which was $1.4 million to $1.45 -- billion, rather, for the full year, we're trending to the top side of that and that's implied in the guidance. As far as the Gulf spill work that we're doing right now, we're being very conservative there in terms of just stopping the guidance at the end of the third quarter and trying to recognize the ramp down that is currently taking place. Clearly, there could be more activities that go on, depending upon what the future unfolds here, but we decided to be conservative on that side. But as far as the base business and everything excluding the Gulf, we're trending both in revenues and EBITDA toward the higher side of what we said of the range there earlier in the year. I don't know if you want to --

Yes. No, I think that was just good to point out, but I think the high end on the EBITDA level, as well.

Yes.

Okay, that's what I figured. I wanted to make sure I was looking at it correctly. Second question is related to some of the -- Alan, you talked in the past -- the last few quarters, at least -- about some of the pent-up demand that has been coming through and obviously, we saw the pick up in utilization rates through incinerators sequentially. Can you give us a sense, based on what you see in the project pipeline right now to the extent possible? I know it may be hard to disaggregate somewhat, but how much of the business is still potentially catch-up work that may flow through in the third quarter from projects that didn't take place last year or the beginning of this year, and how much is actually new work as we think about seasonality in the base business going forward?

Well, it is hard to say whether this project that's kicking off in the second or third quarter, or fourth quarter is the result of being pushed last year or whether it was just a natural way that a project is coming in the door from a permitting and funding standpoint. I don't think we really track that, Jon, and it's -- I'd be guessing to answer your question. I would say that we saw in the second quarter a lot of turnaround work that absolutely was the result of work being pushed off in the refineries over the past year, and so some of those turnarounds were substantially larger than they typically would have been. So, I would say more on the size than the timing. But I don't think I have a real good feel for that right at the moment. I think our business, just in general, has been relatively strong and the base business is really -- moving in a really good direction right now

Okay. If I could just sneak in one related question. The sequential improvement in the utilization rates in the incinerators, was that all driven by improvements in the underlying business or was part of that a function of -- I know El Dorado was offline for a couple weeks in the first quarter. Was there some of -- a little bit of an artificial depression in the first quarter that allowed for more of a boost in utilization sequentially?

It was a combination of both, Jon.

Okay, got you. Thanks, guys.

Thank you.

Thank you. Our next question is from Jamie Sullivan with RBC Capital Markets. Please proceed with your question

Hi, good morning.

Morning.

Jim, wondering if you could walk through the EBITDA contribution of the segments real quick that you do for us?

Sure, absolutely. The EBITDA in total, obviously, was the $96.6 million and the Tech Services was $46.2 million, Field Services was $43 million, Industrial Services was $25.8 million, and Exploration was about $1 million. And the corporate component of that, which is a deduction, of course, is $19.4 million

Okay, thanks. Then just doing some math on the core business, excluding the spill, I'm getting to something to the mid 17% range on an EBITDA margin basis, is that -- am I doing the math correctly, and is that something that is sustainable as we go with the cost saves that you're doing and some of the growth that we're getting?

Yes, you're doing the math correctly there, Jamie. Clearly, we had a lower margin in Q1 because that is not the busy time of the year for the Environmental Services. So clearly, to make our guidance at 16% and we're thinking even plus 16%, clearly the key quarters of Q2 and Q3 need to be well above that. So you're right, we had a nice -- excluding the spill, we had a margin in that range

Okay, great, and then just one last quick one. Can you give us an update? I think last quarter you talked about the environmental ENC is one area that was a bit slow, but you were seeing nice pipeline opportunities there. Has there been any movement on that front?

On the consulting engineers --

Right

-- side of the business? Yes, we've been awarded some contracts. They're kicking-in in the third quarter here and they should continue into the fourth quarter. On the first half of the year, our waste projects business has been off, but that now is kicking in for us and I think that's going to help us nicely in the latter half of the year here.

Okay, thanks a lot

Okay, thanks.

Thanks, Jamie.

Thank you. Our next question is from Hamzah Mazari with Credit Suisse Group. Please proceed with your question.

Good morning, this is Chris Parkins on behalf of Hamzah. Can you add a little more color on the revenue streams deriving from the Gulf spill on a monthly basis sequentially? And then also, which geographies you are currently operating at? When I've previously spoken to you you've been in Alabama and Florida. Is there anything more in Louisiana?

Yes, we're working -- the Gulf operations that we're involved in span the whole Gulf region, Alabama, Mississippi, Louisiana, and Florida. Clearly, that has come down in the eastern states of the Gulf. I would say that of the $109 million, I would say probably about two-thirds of that was in the latter month -- the month of June and May had the rest there. I would say it was probably like 60% in the latter month, roughly.

All right, and just a quick follow up. Can you add a little more color on the acquisition landscape and which types of complimentary businesses you're currently looking at and then also where valuation levels are currently trending?

We have been looking at ways of expanding our disposal capabilities on the environmental side, as well as geography. And then on the industrial side looking at some opportunities there to expand our footprint in the US as a way of continuing leveraging the solid foundation now that we have with the Eveready business and both management and equipment being able to leverage that, maybe across some other smaller regional players. So we're really looking at it on both sides of the business, but particularly here in North America

Great. Thank you very much

Thanks, Chris.

Thank you. Our next question is from Rich Wesolowski with Sidoti & Company. Please proceed with your question

Thanks, good morning

Good morning, Rich.

Would you please discuss the mix of waste that went into that 91% utilization for your incineration fleet? Are the lower margin classes beginning to be crowded out or are there still waste streams that you're accepting that perhaps are not in there in a good economy?

We're still at a point where clearly with our 50,000-ton expansion that we're taking all waste. We're not turning down waste streams, so you do have everything from soils through to spent fuels, as well as our normal hazardous waste streams going through. So it's pretty much a broad array. I don't know, Alan, if you wanted to give any more color to that?

No, I think it's probably pretty consistent right now at this point. We haven't -- we certainly see from a historical standpoint, looking at some of the waste streams that we've historically handled, there's still opportunity for some of those waste streams to come back as manufacturing or production comes back, particularly in the specialty chemical and chemical side

Okay, that helps a lot. Secondly, it looks like the substantial completion of your Gulf work is going to pretty neatly coincide with the heavier seasonal activity for Eveready. Would you still expect the Eveready fleet is going to remain un-utilized in December and the March quarters, or would you suspect there's going to be enough activity to occupy the equipment?

Well, I think their strongest quarter is the first quarter and so what's nice about their strength is that's a weaker quarter on our environmental side. As we saw last year in the fourth quarter, they had a very, very slow December and a lot of that it was weather related. From all that we've been able to gather at this point, we expect to have a very strong fourth quarter with our Eveready business. They didn't have the typical real slowdown in the second quarter. It's been a little wet up there so some of the field -- oil field work they've been waiting to do has been held up a little bit, but for the most part the business up there is very strong right now.

Okay, and then just a clarification. You mentioned getting a typical incremental margin on your Gulf work, does that translate to 20%, 25% EBITDA margin for both the 2Q and expectation throughout the year?

Yes, when we -- and you've got to remember, in our budget this year, we had about $10 million. So in our -- in our original guidance we had about $10 million of event-related and certainly we've far exceeded that. But over the last three, four, five years the Company has handled $30 million, $40 million on average of event revenue. We just had a very slow last 18 months, 24 months. And so that's typically what you see because of the leverage in the business and you put a lot of equipment to work that normally is basically on standby that is on standby for customers for these kinds of events. So, it is very typical of the kind of margins that happens, as Jim mentioned initially. But as you get further into it, in the case of this event, you reach a point like with rental where you essentially give ownership of that equipment to the customer because it's going to be there indefinite. And you really try to work with your customers and in turn your margins do start getting squeezed a little bit as the job winds down

Okay. Thanks, I appreciate it

Okay.

Thank you. Our next question is from Larry Solow with CJS Securities, Inc. Please proceed with your question

Hi, good morning, gentlemen. Alan, just a follow up on that question. In terms of the Gulf oil spill, obviously your emergency response business is generally a $30 million, $40 million business a year, do you think there's any residual? Obviously, it's a major spill that might -- will probably take years to clean up entirely, but do you think that residual as being a few million a year, or maybe you've gotten new relationships down there, just from being exposed to a lot more people down there?

Clearly, we have a strong presence down there. We're in the midst of opening up some new offices in the Gulf because we do expect to be there in a long term. We do expect to continue to support the needs of our customers down there. But it's very hard for us I think on a call like this to predict and have people write down a number because it does change.

Right.

But we're almost -- we're through July, we're into August here. We have a good sense of, at least, where we are now and I think we felt comfortable enough to talk about where we thought the third quarter was going to be with the winding down of the business. But there's no question that we can continue to go forward over the next three, six, nine months if the customers continue to want us there.

Right. Okay, and then switching gears a little bit. Could you maybe just talk a little bit more about underlying trends in the Eveready business in western Canada? I know -- for instance, I know in Q4 last year you had some sort of surprisingly more pressure on pricing than you thought was out there. And I think in the last quarter you felt prices were firming up a little bit, and maybe it's really hard to tell until you get into the busy season, but any more color on that you could provide?

I think overall, utilization in western Canada across a lot of contractors is improving. I think that the real price reductions that took place during the big capital markets issue and when a lot of projects shut down up there, everybody was dropping price to try to maintain some level of utilization. That certainly has stopped. There is a much larger demand now for people and equipment and so our hope certainly is that margins will continue to improve and pricing will continue to improve in that business over the next six-to-12 months. It still is operating at what I would consider a depressed level.

Right. Okay. And then just lastly, looking at--what can you give us some of that color on the verticals and it looks like one of the biggest laggers, utility, is starting to show some turnaround there. Can you just maybe highlight a couple more of the -- some the markets of the areas that are still really not turning around much and maybe could provide upside as things improve, hopefully, over the next few quarters?

I don't know if there's anything specific that -- Jim, can you recall anything specific that sticks out from our analysis?

Yes, nothing specific. Just overall we've seen a trending up. There's some minor variations with retail and engineering, heavy construction, engineering, consulting in those areas but nothing that's hugely down

Just some minor areas like that.

and that's what impacts the project side of our business, some of the large landfill streams and (inaudible) streams. So we expect that to come back in the latter half of the year here

Right, because that was more timing related than anything else?

Yes.

Okay, well, great. Thanks again and we look forward to seeing you guys at our conference in a couple weeks.

Great. Thanks, Larry

Thank you. Our next question is from Rich Skidmore with Goldman Sachs. Please proceed with your question.

Thank you, good morning. Just to follow up on the M&A question, can you just talk about maybe the relative sizes that you might be looking at and/or how comfortable you are leveraging the balance sheet and where you might take the balance sheet?

We have had discussions with companies that have in excess of $100 million in revenue and others that are small, regional, $15 million, $20 million size revenue companies, so we're certainly looking at all opportunities in those ranges. And, Jim, you might want to touch on the leverage side?

Absolutely. Clearly, Rick, right now we are carrying a good fair amount of cash, but clearly, there's a lot of debt capacity. I think that the debt to total cap in the 35% to 40% range might be a limit because, again, we want to keep a strong balance sheet for our customers with the long-term relationships that we have with them, as well as just being prudent. So we clearly have quite a bit of debt leverage. Right now we're net positive cash here, even after our $300 million of bonds. But that is where I would say the limit is. We wouldn't want to over-leverage the balance sheet, but clearly, there's a lot that we can do.

Okay, and then maybe just to follow up on the Eveready acquisition. I believe the synergy total that you had talked about was $15 million, and I apologize, I don't recall the timing that you expect to realize that. Can you talk about what you've achieved so far and then the path to get to the $15 million over the next six to 12 or 24 months?

Yes, we're well on the way, Rick, of achieving that. We're probably a little less than half through it now because it didn't all start right in the beginning of the year. But here's where the governance costs -- with Eveready having been a public company clearly we don't have those expenses anymore. There is a lot that we're doing in the procurement area, everything from fuel to office supplies, the whole gamut. We're just trying to leverage our size and get economies to scale with that business. And then the third area is, of course, all the systems operating off our single platform and reducing their many payroll systems that they had. They were somewhat decentralized like that to consolidate it all is generating savings. So I would say we're probably a little less than half so far in the first half and I don't see any issue finishing up the year with the total $15 million of synergies. And that will -- there will be another $5 million next year. We still are confident about that, so it will be $20 million next year with the incremental $5 million.

That's great, thank you

Thank you, Rick.

Thank you. Our next question is from Matt Duncan with Stephens. Please proceed with your question

Good morning, guys.

Morning.

The first question I've got is, again, staying on the Eveready topic. You gave us some idea of how that business has been doing, but can you tell us what the revenue and EPS contributions were from Eveready this quarter?

Well, the -- let's see, the revenue -- well, Alan did give the Industrial Services and I believe I also gave that number. The Industrial Services was $132 million and the Exploration was $7.9 million, okay? And the --

In terms of EPS accretion from that acquisition, can you break that out for us?

Don't have a break out of that, but clearly it's accretive. And just to give you maybe a color on the EBITDA, I believe I mentioned before that the EBITDA contribution was combined, Industrial Services and the Exploration side, of nearly 30 -- $27 million.

Okay. But I guess you guys also were able to redeploy some of those assets and use them in your business here, so theoretically it's added more than that?

Absolutely

Okay. And then the last thing I've got is, cross selling was something you guys talked a lot about on Eveready as an opportunity down the road and, clearly, you've already benefited some there on the Gulf. But I'm curious if you've had any success as cross selling some of Eveready's industrial services here? And then also as you look at oil sands-type activity, one thing that's been cropping up lately as a big opportunity potentially would be tailings pond reclamation work. I know some cores announced about $1 billion of work there and I'm curious what Eveready's opportunity may be for that?

Just on the cross selling, we have been doing quite a bit of that, particularly in the refinery side of the business. We've been winning some new opportunities on the catalyst front. We've got a pretty strong September and October lined up, from what I've been told, in the US refinery catalyst business. The tailing ponds, the ability to handle large remediation-type projects like that, bringing in centrifuges and filter presses and things, is right up our alley. It depends on, obviously, the size and nature of some of those contracts that are going go up, but that will be, certainly, the type of work that we'll be chasing with Eveready and Clean Harbors capabilities.

Okay. Thanks, guys

Yes, thank you.

Thank you. Our next question is from David Manthey with Robert W. Baird. Please proceed with your question

Thanks, good morning, guys.

Morning.

Could you tell us what your assumption is for revenues and EBITDA from the Gulf in the third quarter relative to your full-year guidance?

We had put a conserv -- it's a conservative estimate that we had put in there. As I mentioned before, we're expecting to be close to the high side of our original guidance for the base business, which is approaching $1.45 billion And we already had $109 million in Q2. So, the difference there is basically what we're saying Q3 and we'll just see how that proceeds

About $90 million, $91 million I think --

Yes, I guess it's somewhere around there, $90 million, in the range.

But a lower margin than what we've historically seen because of the issues that we've been talking about.

That's right, probably closer to the 20% margin.

Okay, all right. And then were there any benefits in the quarter from pricing actions in any of your segments, and if you'd talk about currency?

Currency, there was some impact going Q1 to Q2, not material. The exchange rate improved a bit, but it's -- at the EBITDA level it's only hundreds of thousands of dollars, so there was some benefit there. Pricing overall has been stable. Clearly, as Alan alluded to before, last year with the credit crunch and when the recession was at its peak, pricing was difficult. We saw stabilization coming in for the latter part of the year and certainly in Q1 and Q2. We've had some pluses and some minuses in pricing, but overall I would say it was relatively flat

Okay. And then, Jim, finally the 38% tax rate. You're saying that's what we should use for the third and fourth quarters?

Yes, that's right, David. We clearly are benefiting as Canada is improving. There's a lower effective tax rate there that's helping us a bit, so we're looking at that 38% range being somewhat normalized

Okay, and then just one more for Alan. In terms of the waste streams that might have traditionally gone to the cement kilns, is there anything that you're hearing of there that would you to believe there's a change in that trend?

The fuel markets certainly aren't as tight as they were, so I would suspect that the big buildup in demand is subsided somewhat, which is fine for us at this point because we certainly have a large inventory and backlog to manage through here. So I don't anticipate to get -- to see that get any worse

Okay, thank you

Yes.

Thanks.

Thank you. At this time we have reached the end of our Q&A session. I would now like to turn the conference back over to Mr. McKim for any closing or additional remarks

Well, thanks everybody, for joining us on our conference call today and we look forward to updating you on our third quarter and, thanks again.

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