Clean Harbors Inc (CLH) 2010 Q3 法說會逐字稿

Good day, everyone, and welcome to Clean Harbor's third quarter 2010 conference call. Today's call is being recorded . There will be an opportunity for questions and comments after the prepared remarks. (Operator Instructions.) At this time for opening remarks and introductions I would like to turn the call over to Mr. Bill Geary Corporate Council of Public Affairs. Please go ahead,

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, Executive Vice President and Chief Financial Officer Jim Rutledge. Before we get started, I would like to remind everyone that matters we are discussing this morning and the information contained in the press release issued by the Company today announcing our third quarter, 2010 financial results that are not historical facts are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of1995.

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 undo reliance on these forward-looking statements which reflects management's opinions only as of this date, November 3rd, 2010. Information on the potential factors and detailed risk that could affect the Company's actual results of operations is included in the Company's filings with the sec including, but not limited to form10-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 revision to the forward-looking statements made in today's press release for 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 reference to the acronym, EBITDA which is earnings before interest, taxes, depreciation or amortization. EBITDA is a non-GAAP financial measure and is intended to serve as a complement to results provided in accordance with accounting principals 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 news release. A copy of which can be found on our website, Clean Harbors.com. A copy has also been furnished as an 8-K with the SEC. And now I would like to turn the call over to our chairman and CEO, Alan McKim. Alan?

Thanks, Bill, and, go, everyone. Q3 was another outstanding quarter for Clean Harbors as we again set records in revenue and EBITDA. Similar to our second quarter, our results were driven by a combination of a strong performance across our three largest operating segments and our participation in the oil spill response efforts in the Gulf of Mexico and the Kalamazoo River in Michigan. Also keep in mind that our Q3 performance this year includes a full quarter of Eveready while Q3 of 2009 reflected just two months of Eveready results. Overall this quarter demonstrated the leverage of our industry-leading net work of assets, our growing national reputation and emergency response, and the phenomenal team of employees we have here at the Company. Before reviewing the performance of our four segments, let me provide a quick update our emergency response efforts this quarter beginning with the Gulf. Of the $124 million in total emergency response revenue we generated in Q3, approximately $95 million came from the gulf clean up, slightly ahead of the $90 million we had estimated. Over the course of the quarter, our work in the gulf evolved.

At the event's peak in Q2, we had more than 3500 response-related personnel in the gulf, many of them subcontractors and local workers. By the end of Q3, that number was closer to 500 people. Today we still have approximately 300 employees and contractors in the gulf region. It is still difficult for us to determine exactly how long and at what levels we will remain involved, but at this point our best estimate is that the work will continue winding down significantly in Q4 and transition into on going maintenance headed into 2011. As many of you know in late July we were called upon to assist in response to a major oil spill in battle creek, Michigan. Our spill related head count went as high as 450 people. The Michigan spill differed from the gulf. Instead of combating an oil spill on the shores and open water, we are dealing with river contaminations and boom skimming equipment and an entirely different setting. Our teams did an excellent job in the comprehensive clean up effort. The bulk of the primary containment and clean up work has now been completed, and we concluded the spill in Q3 and do not have remaining personnel on this event. These two major emergency events further strengthened Clean Harbor's growing reputation as a national provider for emergency response services.

Now I would like to talk about each of our segments performed in Q3. Looking at technical services, this segment accounted for 38% of our total revenues in Q3. And grew 5% from the same period a year ago. Utilization in our incinerators increased to 91% from 89% in Q3 of 2009. This increase was entirely driven by our Canadian Incineration facilities which achieved 99% in the quarter.

Our U.S. locations come in at 87% for the quarter, but that was in part due to a lengthily outage for maintenance at our Deer Park facility, which is our largest U.S. plant. The Company is finalizing plant to add additional capacity to handle the increased volume expected with the reductions and captives and the impact on cement kilns from new regulations. We expect to apply for additional permit at one of our existing sites to add an additional 50,000-ton kiln. This effort is expected to be a multi-year project. Our landfill business had a very strong quarter. Volumes increased 23% year over year and 28% from Q2. We've got some good momentum as we disposed nearly 270,000 tons in Q3 which is our highest quarterly level since 2007.

In terms of landfill pricing, same story as the past several quarters, highly competitive, but we are able to makes some market specific pricing gains. We are continuing to target new way streams at a number of sites and ensuing additional permitting. Here in Q3, we receive permits for our new thermal treatment unit Sadia landfill. This unit is going to start up and will provide 25,000 tons of pre treatment cap tee primarily aimed at streams. Looking at our TSDF's they were up compared to Q3 of 09 while the waste water treatment plants were up 6%. Turning to field services, as in Q2 this accounted for 36% of revenues this quarter driven by the Gulf and Michigan oil spills. If you take out the emergency response work for Q3 our field response group grew year over year in terms of base business. We are continuing to pursue opportunities for geographic expansion in field service, and that strategy has served us well over the past several years. In Q3 we opened a new field service location in Louisiana that further strengthens our presence in the Gulf and positions us to capitalize on a number of growth opportunities in that market.

Turning to industrial service, this segment delivered another solid quarter accounting for 24% of Q3 revenues. Margins for this business are improving as we continue to see the benefits of all of our integration work. In terms of projects there are a number of positive trends that are driving our performance. Billions of dollars of investment continue in both western Canada and in certain parts of the U.S. On both the oil and gas side, rate counts are increasing. We are starting to see a lot of transport business activity. The oil extraction and investments is continuing to elevate. As a result our plant services and specialty industrial services are in high demand.

We are seeing increased investments in the bark and oil field and gas formation, and we anticipate these will be growth areas for us going forward. Another strong performer for industrial services is our lodging business which currently consists of nine commercial lodges and approximately 2800 total beds. Our camps continue to operate at high utilization rates for a majority of the quarter and we continue improving the mix of use between our own employees and our customers. We view this as a growth business we intend to continue to expand. On our last call we announced our plans to construct a $25 million facility in the Ruth lake region of Alberta north of Fort Mcmurray. We anticipate opening the first phase, a 200-bed camp and training facility by the end of Q1 with a Q2 phase expansion of another 240 beds to follow during 2011.

Our fourth and smallest segment, exploration services accounted for 2% of our Q3 revenue. Q3 is always a weak operating period for this segment with the coldest periods being the busiest times. With that said, however, we have seen a lot of recent customer activity which is encouraging for Q4 and beyond. Now I would like to take a few minutes to discuss how our end markets performed in Q3. Our refine vertical accounted for 12% of our total revenue in Q3 based on turn around work and strength within both the environmental and industrial side of our business. In fact, refineries surpassed chemicals as our top vertical this quarter. The chemical industry accounted for just under 12% of Q3 revenue and was down 10% year over year due to a dropoff in project work. Our base business in chemical remains strong however and was actually ahead of last year. Other industries accounting for high percentages in Q3 were oil and gas production at 10%, terminals and pipelines at 8%, general manufacturing at 7% and our broker business at 5%. In addition to refineries, verticals that registered excellent year-over-year growth were our terminals manufacturing, utilities and healthcare. Let me touch on the last two.

Within utilities we received solid growth in transportation. Within healthcare which today only accounts for 1% of our overall revenue, we had nice success signing up hospitals for our pharmaceutical disposal services, healthcare is an important growth market for us. Now let me turn to our outlook. Heading into the final quarter of the year, we remain encouraged about our growth prospects based on the momentum we have in the three largest segments of our business. After several good quarters in a row now, we believe our base business has stabilized and we are focused on organic growth, particularly in industrial services where we see a lot of opportunity. Our large product business which had been way off earlier in the year has started to come back, but is still not on plan.

From a cost perspective, we are on schedule to achieve the targeted $15 million of Cynergies from the merger and another $20 million in additional company-wide expense reductions. We have more than $280 million in capital that we are looking to put to work through both acquisitions and internal investments. We are continuing to evaluate a wide range of strategic opportunities which enables us to be selective and pursue high rates of return. In summary we are excited about where we are as an organization today. We continue to deliver excellent financial results and our safety and compliance systems remain among the best in the industry. Eveready and it's employees are proving to be an outstanding addition to our Company. Overall we have an industry-leading asset base, highly diverse end markets and a loyal customer base. We believe we are well positioned for growth in Q4 and beyond. And Jim will provide you with our guidance in his commentary. With that, I'm going to turn the call over to Jim for his financial review.

Thank you, Alan. Good morning, everyone. Q3 was another outstanding quarter for the Company as we posted record revenue and EBITDA results for the second consecutive quarter. Revenues increased 60% to $487.7 million from $305.6 million in the year ago quarter reflecting gains across nearly all of our business segments, the addition of Eveready and the Company's oil spill response efforts in both the Gulf and Michigan. Gross profit for the quarter was $152.4 million or a gross margin percentage of 31.2% which is just ahead of the 31% we reported in the same period of 2009 and flat with Q2 of this year.

The slight improvement in gross margin stems from the affect of our emergency response revenues and related margins. Turning to expenses, SG&A expenses in the quarter increased $7.2 million or 16% to $53.6 million from Q3 2009. This increase is primarily due to having the Eveready workforce included for a full quarter versus only the months of August and September in last year's Q3 as well as costs associated with our emergency response efforts and higher incentive compensation costs. On a percentage of revenue basis, however, our SG&A improved dramatically for the second consecutive quarter. SG&A totaled 11% of revenue in the third quarter, down significantly from the 15.2% we reported in Q3 of 2009.

The emergency response revenue is clearly causing some distortion to our SG&A expense, and I should also point out that SG&A benefited from a favorable environmental credit of $1.5million, although we recognize the credit of similar magnitude in Q3 last year. But if you normalize our revenues, and take away the credit, our SG&A would be in the 13% to 14% range and that's what we anticipate going forward. Accretion of environmental liabilities was $2. 5 million in Q3, essentially unchanged from the $2.6 million we reported in Q3 2009. Our depreciation, and amortization was up 23% year over year to $22.9 million, but is consistent with the past several quarters where we are seeing the affect of the Eveready business. We remain on track to his our announced range of $90 million to $92 million in depreciation and amortization for the year.

Income from operations increased 172% to $73.4 million from $27 million in Q3 of 09 while EBITDA more than doubled to a record $98.8 million from $48.3 million in the third quarter of 2009. Demonstrating the leverage in our network, our EBITDA margin increased 20.3% of revenue in Q3, up 450 basis points from the 15.8% margin we reported in the same period of 2009. Net interest expense of $7.2 million in Q3 was up slightly from $6.6 million in the year earlier period reflecting the timing of our $300 million bond offering in mid-August 2009 related to the Eveready acquisition. Our interest expense going forward should be closer to 6. 5 million per quarter due to the pay down of $30 million in debt for Q3. Our provision for income taxes was $24.4 million this quarter compared to $6.9 million if Q3 2009. Our effective tax rate for the quarter was 38.6% compared with 44.1% in the same period last year. We are expecting a tax rate similar to what we had in Q3.

Our non cash thin 48 expense this quarter was $600. Driven by the record revenue this quarter, Q3 net income increased to $38.8 million or $1.47 per diluted share based on $26.5 million average common shares outstanding this compares with net income for the same period of 2009 of $9.2 million or $.36 cents per diluted share based on 25.6 million shares outstanding. Turning to the balance sheet, as Alan highlighted our cash position remains very strong. Our cash and marketable securities balance as of September 30th totaled $283.7 million up from $235.6 million at year-end 2009. This is down about $13 million from the $297 million we reported at the end of Q2. The reason behind this decline is that we paid down the $30 million of our $300 million senior, secured notes in late September but was partially offset by our positive free cash flow during the quarter. As a result of this redemption we reduced our long term debt balance to $264 million compared to $292.4 million at year end. Going forward we expect this redemption will lower our interest expense by approximately $2.3 million on an annualized basis. Total accounts receivable were $370.5 million at quarter end.

Our DSO for Q3 was at 72 days compared with 70 days at the end of Q2. Capital expenditures this quarter came in at $39.3 million compared with $18.9 million in Q2 and $12.2 million in Q3 last year. Some of the key growth projects included this quarter were the sonic technology investment and -- in industrial services. The buyout of certain leased equipment in Alberta, and some investments in our lodging camps. Through nine months this year we have spent 74.7 million in CapEx and currently expect our full year total to be in the $100 million range. During the course of this year we have incrementally increased our capital expending to accelerate the organic growth of our business. Obviously at this $100 million level we are seeing some tremendous high return opportunities as we invest capital into several areas of our business.

Accounts payable balances increased to $145.1 million at September 30th from $97.9 million at year-end 2009 mostly reflecting our work on the spills. Our deferred revenue balance rose to $28.7 million compared to $21.2 million at year-end. Environmental spending was approximately $4 million for the quarter compared with $2.6 million in Q2. Our balance of environmental liabilities at quarter end decreased to $176.2 million compared with $181.3 million at year-end. The reduction is mostly due to favor believe a changes and estimates associated with our environmental liabilities. Moving now to our guidance, based on our year-end performance, current market conditions and the impact of the oil response offense in the Gulf and Michigan, we are upwardly revising our 2010 annual revenue and EBITDA guidance.

We currently expect full year 2010 revenue in the range of $1.68 billion to $1.7 billion which includes Q4 emergency response revenue of approximately $25 million. We are now targeting EBITDA for 2010 in the range of $305 million to $310 million for the full year. In terms of our thoughts for fiscal 2011, based upon preliminary estimates of the vertical markets we serve, we expect 2011 revenues in the range of $1.52 billion to $1.57 billion which represents a 5% to 8% increase over our 2010 base revenues excluding the Gulf and Michigan spills.

We expect our EBITDA margin to be approximately 17% at this level of base business growth in 2011 which translates into an EBITDA range of $258 million, to $267 million. I should point out these revenues and EBITDA numbers assume no significant spill-related activity in 2011. As we complete our 2011 budgeting process in the coming months, we will update this preliminary guidance in conjunction with our fourth quarter results in February 2011. And with that, operator, could you please open the call up for questions?

Certainly, sir. Ladies and gentlemen, we will now be conducting a question-and-answer session. (Operator Instructions). Our first question today comes from the line of Al Kaschalk with Wedbush Securities. Please proceed with your question.

Good morning, guys. . Solid results, good to see. I want to focus first maybe on the incineration side, 91% versus 89%. Is there any volume in there that may be viewed as sort of event or project oriented that may not be

No, Al, that would be based -- the events don't drive much volume, if any, into incinerators. I think as Jim mentioned our deferred revenue actually increased. We actually saw an increase in a back up of volume into our plants.

If I recall right, or at least on might guest met, about a third is Canada oriented in terms of volume. If That's not right you can clarify, but Canada was pretty strong.

No.

Could you comment on maybe that particular component?

Again our Canadian incinerators are really servicing a base customer -- a customer base that is on going, liquid waste pre dominantly. I think it is a result of a strengthening Canadian economy.

Jim, on the guidance for 2011, is there any commentary you can provide in terms of splits by segment basis? In other words, should it follow what we are seeing in 2010 or with recovering and strength and industrial, or should that be any particular percentage that we should target in terms of our model for how you are seeing the business for next year?

Well, first of all the one segment, field services, you would have to back the spill revenues out of that. But since our guidance doesn't include any of that, I would say on the environmental side as well as the industrial side, we will see some nice growth. As you point out with a lot of the initiatives that we have going on in industrial services, particularly now that we are post integration with the acquisition and a lot of those initiatives, you might see slight higher growth in those segments as opposed to the core legacy business. But both will grow well. For example and maybe just to relate it back to this year, year over year if you look at the legacy Clean Harbors business, so far this year we are probably 5% up. If you looked at the industrial side of the business, we are probably are more in the low teens of an increase just this year, year over year going back to 2009. So that might be indicative of the future there.

So is 40% of the annual number which you have targeted for industrial not a bad place for the street to be sitting at?

Yeah, 35 to 40%, yeah.

And then just two clean up items. Are you able to quantify the dollar amount on the buyout of a third party leases and your progress there, and then the second component to that would be with the cash flow year to date or in the quarter?

First to the leased operator buyouts. During the quarter we had between $12 and $13 million we invested there which will clearly help margins. And then the cash flow from operations was roughly 50 -- wait, I could give you a number where we are now. It is about $56 million -- $56.6 million is what we will be reporting for cash flow from operations during the quarter.

Great, thank you very much.

Thank you, Al.

Thank you. ladies and gentlemen, our next question comes from the line of Jonathon Ellis with Bank of America Merrill Lynch. Please proceed with your question.

Thanks, and good morning, guys.

Good morning.

Good morning.

First off, Jim, do you have the EBITDA by segment for the quarter?

Yeah, I do. Tech was $46.8 million. Field services was $49.5 million, industrial services was $23.5 million. Exploration was $4.2 million and corporate was obviously negative, was $25.3million just to tie it to EBITDA. And Jon as long as you asked that I would like to give the gross numbers by revenue in the segment just to get that out there. Technical services was $183.4 million. The field services was $176 million. Industrial services was $119.2 million and exploration was $9.5 million.

Great. The gross margin which was flat sequentially, I'm trying to understand, is that just a function of the nature of the emergency response work you were doing this quarter versus last quarter? My understanding is this quarter the emergency response business was a little lower margin, or was there something in the core business in terms of mixed shifts that resulted in no sequential margin improvement given the volume growth?

Yeah, it was more the former, John. It was just the emergency response work. We had a little more of emergency response, but the margin was some what flattish. So the affect sequentially was flat on our overall margin.

Do you have just the estimate of the EBITDA contribution from the emergency response work in Q3 and what you are projecting for Q4 potentially?

Yeah, roughly I guess it was really not much of a change from Q2 in terms of the EBITDA percentage we got from the spills and stuff. That would be in the 30 -- you know, the roughly 30% to 31% range.

I see. I thought to clarify, you originally talked about a lower margin in the third quarter from the emergency response work from what you saw in the second quarter. Is there anything that happened that allowed you to achieve a more comparable margin?

Just the fact that there was an increase, the leverage of our fixed costs, everything from SG&A et cetera has an impact on that. They just get a little more leverage.

Sure, okay.

John, just one other point there to make though, as those events unfold, often times we work with our customers to sell them back rented equipment and other assets that basically come off our books as the project goes along. We work with our clients really as these unfold. And that's really why margins almost always go down the longer the events go on.

I see. Okay, That's helpful. Just quickly turning our attention to next year, we talked about 5% to 7% organic revenue growth. I realize you are still going through the budgeting process. Can you give us any sense of what the break down may be between price and volume? You already talked about a potential price increase, I am trying to get a sense of what you are making that into the growth assumptions for next year at this point?

I would say there are specific areas we are launching price increases in our business. But the affect on the total business is probably 1% to 2% in pricing and the rest is volume.

That's helpful. And just in that context, if my math is correct, again striping out the emergency response work, your guidance for 2011 implies an incremental EBITDA margin next year of revenue growth of only 15%. And just given that in past years you have been able to achieve a mix of price and volume your EBITDA -- your incremental EBITDA margin would approach 30%. I'm just trying to get a sense of this, is there an element of conservatism given the broader economic outlook? Or is there something that would leverage going into next year?

It is a bit of conservatism. If you took the spill out, we are running low 16% range, 16 to 16.5% range right now. We thought 17% was the right number to guide to.

Okay. Great, thanks, guys.

Thanks, John.

Thank you.

Thank you. Our next question comes from the line of David Manthey with Robert W. Baird. Please proceed with your question.

Thank you. Good morning, guys.

Good morning.

With emergency response taking the headlines here, I was wondering if you can talk about the planned assignments within field services, if you can discuss anything about win rate or the current run rate or the outlook for next year?

In field services?

Yes.

We continue to look to expand offices, David, and invest in that side of the business. Even though our guidance for next year doesn't have any emergency response, we are clearly in that business. We would be anticipating, it is just hard at least this early in the budgeting process to give you a number on it. We have made some big investments in additional emergency response assets this year and are setting up essentially five response centers to expand our presence in emergency response. So we would anticipate our field services business to continue to grow both through events as well as through more office openings.

Okay, I was referring more to the planned clean up, so where you would get an assignment something you can count on quarter in, quarter out as opposed to the ER work.

You mean like our base business growth expectations? It has typically been about 10%.

That's right with some growth geographically and having more offices now and trying to expand it to field services activity through them, we should continue to see that kind of 10% growth as we had before when we were continually opening up offices.

And also thinking about your underlining assumptions on the 2011 guidance. You said 1% to 2% pricing. Are you assuming a continuation of the incinerator rate in growth and landfill volumes, and I would imagine oil prices are around the same range. Is that same to assume?

Yes, those are all safe to assume.

And last question for me. I was at the analyst day. I don't remember you talking about ultrasonic industrial cleaning, I apologize. Can you give me 10 seconds on what that is and what that is and what's the opportunity there?

Sure. With the refinery and the chemical market we developed a partnership with a company that really has come up with a new technology that allows a lot of equipment to be cleaned on the customer's site using a sonic technology. We have been rolling that out across of number of different key refinery clients, and it has been well received. We are making upwards of a $20 million investment into those technologies to be able to place those units around the country.

Thanks very much.

Thank you.

Thank you. Our next question comes from the line of Hamzah Mazari with Credit Suisse. Please proceed with your question.

Good morning. This is Chris Parkins on behalf of Hamzah. On the acquisition landscape, how are evaluations trending and during your analyst day you mentioned medical and pharma as an opportunity. Can you update us how you view that organically versus acquisitions?

Sure. On the acquisition front we have a strong pipeline of opportunities out there. We've seen actually an increase in opportunities coming to us as well as we've been pro active on a number of cases. So that clearly is on the forefront for us. We're recognizing on the organic growth side, particularly with our healthcare vertical that the Company needs to expand its service offerings. We are looking pretty seriously at that market right now and how we can meet the needs of some of those customers, not only in the pharmaceutical side, but on the medical waste side. It is an area that we have been getting alot of inquiries on. We would probably be looking more at an organic growth strategy on that side of our business.

Perfect. And just a very quick kind of maintenance question regarding Eveready. If you are still looking for a $20 million in Cynergs in 2011 is the remaining $5 million low-hanging fruit and do you believe there is potential for additional -- Cynergies there or how should we look at that going forward?

One it is the initiatives we have done during 2010 during the course of the year that will have a full year affect next year. In that sense it is somewhat like low hanging fruit. But we also have some procurement activities that we are continuing and we are focusing on that, where we will see some savings in 2011. And then of course from a margin standpoint, some of this effort and work we have been doing with leased operators and others in Canada we are looking to get some margin improvement from that as well.

Perfect. Thank you very much.

Thank you.

Thank you. Our next question comes from the line of Larry Solow with CJS securities. Please proceed with your question.

Good morning, guys.

Good morning.

In terms it of the incineration and the outage at Deer Park, I assume that's back up and running now.

Oh yeah.

Is there anyway to quantify what the impact was in the quarter in terms of utilization? I assume it would be a little higher.

It would have been a lot higher. We were down 21 days. That was an extended period. I don't know exactly the number there, Jim, do you?

Yeah, that 87 would have been in the 90% range, I believe.

I know Alan you have talked about you thought utilization at the incinerators could and perhaps by 2011 reach into the mid-nineties. I guess that may chime in with your plans to look to increase capacity.

Right. I think between seeing the activity levels with the captives, the price of natural gas has slowed down. I think some of the discussions on out sourcing and winding down are some ofthe captives that have seen a benefit there. In the end I think between the air ranks from both the captives and the cement kilns that the increased volume is going to be -- it is going to drive the need for more capacity on the commercial side.

Got it. And this project will take several years to build this kiln, and any idea how much that will cost?

It is the $30 million to $50 million investment for us over a two or three-year period. Certainly the key is on the permit side. We feel comfortable with one of our four existing facilities will expand. The kind of capital is readily available. But I think the volumes are going to be there, and that's why we really need to kick that in gear now.

Got it. So you break down in 2011 or whatever,, but it seems like your CapEx in the $80 million to $100 million range could maintain that level of growth investment for the next couple years.

Yeah, I don't think we are doing ground breaking next year and would be more on the engineering and permitting side. But in 2012 that is something we could be looking at.

And I know you touched on pricing and it sounds like you have a 1% to 2% assumption for globally. In terms of any customer feedback or any resistance you are getting as you try to implement these price increases in the incinerator and on the ever ready side more recently?

Nobody wants to see their prices increase, but I think customers have recognized that we work with them during the real difficult market of 2008 and early 2009 certainly. And in some cases we lowered our prices. We worked to help all of our clients. We have gone back and shown them where our costs have increased and the investment we continue to need to make. I think the overall receptiveness has been pretty good.

Great, excellent, thanks.

Thank you. Our next question comes from the line of Matt Duncun with Stephens. Please proceed with your question.

Good morning, guys. This is Jack Atkins on for Matt.

Hi, Jack.

My first question is with record to incineration just to go back to that for a moment. Could you maybe remind us what your incinerating pricing was like in the third quarter, and do you expect to take price in that business in 2011 and what your expectations are for the types of price increases you can get there next year?

Yeah, our pricing in the quarter was in that range of $.29 cents per pound is where we were. And because of the varying types of streams it does have a fairly wide range to it. But --

certainly the mix has the biggest impact.

Yeah. I would say mid single digits, somewhere in there, maybe a little higher.

That's helpful. And as far as acquired revenue Jim, could you give us the total acquired sales?

By acquired you mean with the Eveready, you mean?

Right .

The impact there if you had ever ready in a pre organized way, it would be roughly about $120 million in Q3.

Okay. Thank you.

It might be $121 million I am thinking right now, but about $121 million. And that compared to $105 million previous year.

Last thing I've got here and I will jump back in cue. From what we can tell it sounds like this winter season , activity levels are really ramping up. We've got some new project development. It seems like it is going forward. Could you talk about the outlook for the oil sands and the outlook for that business both for this winter and then looking out to

That's exactly what we are seeing too. We are seeing an continued investment, an increasing investment. Our exploration business looks like after a couple of real soft years is going to be kicking in here in the first quarter which is a good sign for the future investments in new plants, new upgrades and expanded facilities is also happening, and so we are looking at expanding our operations. We opened a new service location in Saskatchewan to deal with the Balkan, and some of the other opportunities in that market. We see a continuing growth market there.

Great. And one last quick question, Jim, if I could, what is the base revenue growth for 2010 if you back out your expected contribution from this emergency response work?

You mean in 2010, right? Yeah, if you look at the environmental side of the business year over year, it was about 5% growth. And if you look at the industrial side it is between 13% and 14% growth year over year.

That's for full year so far or the third quarter?

I'm sorry. That's just for the third quarter. I don't have those figures for year to date, but it is roughly the same, actually. Q1 may have been in the environmental side, maybe 7% and then 3% but averaging 5% for the first six months and then adding the 5% for the quarter. It must have been 5% there and similar numbers to what I mentioned before in the industrial.

Thanks, guys.

Thank you.

Thank you. Our next question comes from the line of Jaime Sullivan with RBC capital markets. Please proceed with your question.

Hi, good morning.

Good morning.

A couple of quick questions on the emergency response work you mentioned . The margins tend to go down and tend to go on. Are you expecting in the fourth quarter the margins to tick down to the low 20 range

Yeah, that makes sense. That's a good number to use.

And on the pricing commentary. You have increases on the Eveready side by year-end, and is that primarily what you are talking about, the benefit in the 2011 guidance, or is there some assumption on the environmental side you get some pricing as well?

Both areas. Both environmental and industrial.

Okay, great. And then also on the outlook for next year you mentioned some shift in the verticals in Q3, chemical refinery et cetera. Can you talk directionally which verticals are some of the big drivers of the growth as you built up the outlook for next year?

First of all, Jaime I want to comment that we are going through the budget process now which is kind of a roll up and a bottoms up kind of budget where we go through major customers and verticals and so clearly I'm going to have a much better feel for answering that question when we go out with our guidance at theQ4 earnings release there. But I will tell you what it appears at this point is that the chemicals side you will see a pick up from this year. You will see that in manufacturing, pharmaceuticals and refineries will be the big verticals where you will see some nice increases.

Sure. Great. I guess just the last question, at this point as you are heading into the seasonally strong Q4-Q1 on the Eveready side, your level of confidence or visibility at this point?

You know, all information we are getting on our forecast call that we have regularly is that we expect to be extremely busy and we are essentially booked out with a lot of our planned work up there. We are planning on bringing on a lot more staff to deal with the opportunities that are there. We are looking at expanding our asset base up there as well to part of our capital plan next year . It will be to continue to grow. I think everything is looking strong for us right

Great, thanks a lot.

Thank you Jamie.

Thank you. Our next question comes from the line of Rick Skidmore with Goldman Sachs. Please proceed with your question.

Good morning. Just to follow-up on the Deer Park question, can you just quantify what the financial impact of the downtime was in the quarter or how we should think about the capacity being down for the 21 days in terms of the financial cost of that?

I would say probably in the million-dollar range, the costs associated with that with the extra downtime there.

Thank you. And just on your 2011 guidance, that does not include any emergency response revenue, is that correct?

Yeah, the only thing That's in there, Rick, is just the regular small scale projects, maybe $10 million that goes through our offices, but no significant event.

And lastly on the M&A pipeline you refer to, is there any specific segment where you have seen particular increases in the pipeline or specific area that you are targeting in terms of one of your segments?

No, both on the environmental and the industrial side, we've had some good inquiries and had some good discussions on going. So really some opportunities both across the U.S. and Canada as well.

And maybe just one last question, just as you look across your entire business, you are a number of industrial end markets, any particular areas where you have seen sequential improvement in demand for your services either on the chemical side or any particular verticals where you have seen that improve sequentially?

Part of the refinery I guess would be the top. Certainly chemicals has come way back from where it was. Our project business is still quite weak. We are very surprised with the weakness in our projects business this year. We thought some of the government spending would filter down to some of the clean up projects at supper fun sites and some other DOE and DOD kind of sites. And we ourselves have not seen any material amount from that and maybe we will see that in 2011, but that will be another area that is quite weak for us compared to what our expectations were.

Thank you very much. Thank you.

Thank you.

Thank you. Our next question comes from the line of Michael Hoffman with Wunderlich Securities. Please proceed with your question.

Hi, good morning. Could you help me with slide 131 out of your analyst day? It gave us nice details about the next year revs and the gross and then spill. You have an estimate going through the third quarter of about $230 million in revs and about $55 million in EBITDA. Could you reset those numbers based on actuals now?

I don't have it in front of me here, but Jim maybe you could --

For the quarter -- I'm just trying to see now without the affect of the spill. Let me just see. I can probably help you with that.

If we don't have it I can --

yeah, I just don't have it handy now. I will report it -- I will go through it if you have another question.

CapEx for 2011, I think if I heard everything correctly , there were $100 million this year, but it is coming

We were subject to any one off for any project we would go after here. Our CapEx is going to be less than the $100 million. We are still going through the budgeting for that as well.

Fair enough. That's actually a question around the guidance. Thank you very much for helping frame particularly with the spill. Get everybody's orientation right. But this is still a work in progress, the guidance.

Yes, it is, and we said that this morning. It was really preliminary. We have gone through a first pass on the revenue side. We have gotten a heads up from the various verticals and we are looking more at a sales standpoint at this point. We will tie our operating budgets in and have those complete by the first week in December.

On that vein in this preliminary number your 1q10 and we had an extra orb extraordinarily mild winter in Canada, so you ended up kind of melted out of the oil fields, early. How did you think about 1q11 with regards to that easy comp or the -- you know a year ago?

I think our expectation in the first quarter is certainly going to be a much improving one versus last year's first quarter in the oil sands, and then in our exploration business. We agree with you. That's obviously subject to weather and break up there. All things are looking quite positive right now.

And given that business has loosely a day rate-like activity to it, are there any significant differences at 4q 2010, numbers of days that could be worked versus numbers of days that could be worked in 4q 2009?

I don't believe so. As we saw in the fourth quarter of last year, weather does have an impact on the oil sands as well and some of the work we do, but also the way the holidays fall and we got caught off guard in December of last year, if you remember. We are planning this year in anticipation of similar activities but with a strong first quarter.

That was a leading question. Christmas falls on a Saturday, so does that mean you get more workdays, or do you think you will get more they will take time off around the holiday?

It is typical a similar amount of time does get taken off. Your camp utilization goes down and you end up having more shop time during that period of time as you prepare your equipment and gear up for that first start of the new year. So there is a little bit of that baked into our numbers for the rest of the year.

Switching gears, free cash flow, if I got the number right and capital spending that simple calculation, you are free cash positive, is that your message?

That's right. In Q3 we were about $15 million free cash flow even after that higher level of capital spending. And Michael just to get back to you on that One question, if you look at the full year then our spill work amounted to revenues of about $257 million, and our EBITDA was about $77 million.

Thank you very much, Jim. And what's your outlook for the remainder of the year on free cash flow and how should we think about it for 2011?

Well, our free cash flow for the full year this year will finish up close to $100 million -- right around a the $100 million range. And looking out to next year with clearly without the spills in there, we will probably be in the $80, $90 million range for free cash flow.

On the ASP, can you remind me if you did I think you did $0.29 cents a pound in the first quarter. What was the second quarter?

It was about $0.29 cents and it was relatively flat. There was a minor increase sequentially in our incineration pricing, but it went like $0,28.5 to $0.29 or something like that.

One of the other key indicators would be volume is coming out on the harder to handle or higher price per unit . Is there some mix opportunities here working forward to get counted as price when you get a

As the chemical industry comes back, That's where you tend to get a lot of those more difficult streams. As their utilization increases, their volumes increase to us. That does help in the overall price mix.

And so on that vein listening to Dupont or east man or Kodak quarters, they are under pounding their chest and happy. They are talking about price stable reliance. So are you starting to see the benefit of that?

I would say we are.

When you say the chemicals are off, that is the one off stuff and not the treatment stuff.

Absolutely. It was a project. We had some sizable projects last year that as Alan pointed out are slower this year.

All right. And in the guidance we don't have any of the $70 million to $90 million usual project activity for 2011?

As far as -- no, we just have the $10 million I mentioned on small scale projects built into there. Roughly $10 million.

Last question. You bought $30 million of debt back this year. Would you do it again in 2011 if given the opportunity?

We would, but that is dependent on the acquisition activity we have.

And with the intent then in 2012 you could call it then, that would be the ideal thing to do if interest rates are the way they are today?

Absolutely, but again dependent on the acquisition activity.

Great, thanks.

Thank you, ladies and gentlemen. We have no further questions at this time. I would like to turn the floor back to management.

Thanks so much for all the great questions, and we appreciate you joining us on the call this morning. We look forward to talking to you again in February. Have a great day.

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