Clean Harbors Inc (CLH) 2010 Q4 法說會逐字稿

Good day, everyone, and welcome to Clean Harbors Fourth-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 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. Matters we are discussing today that are not historical facts are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Participants are cautioned not to place undue reliance on these statements which reflect Management's opinions only as of this date, February 23, 2011.

Information on the potential factors and risks that could affect the Company's actual results of operations is included in our 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 or this morning's call, other than through SEC filings that will be made concerning this reporting period. In addition, I would like to remind you that today's discussion will include references to non-GAAP measures. Clean Harbors believes that such information provides an additional measurement and consistent historical comparison of its performance. A reconciliation of the non-GAAP 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, cleanharbors.com. And now, I'd like to turn the call over to our Chairman and CEO, Alan McKim. Alan?

Think, Bill. Good morning, everyone. Q4 was another great quarter for Clean Harbors, capping a highly successful 2010. The fourth quarter continued the positive momentum we experienced in Q3. Our environmental business continued to improve as several key verticals extended the recovery that began in the first half of 2010. Environmental growth was also fueled by a considerable ramp up in our projects business, which had been relatively slow throughout much of the year. Within Energy and Industrial, we began to see a pickup in production activities across Western Canada as the cold weather kicked in. In fact, our lodging business had an outstanding quarter, which was indicative of the overall activity we saw in Q4.

Let me touch on some of the quarter highlights. Incinerator utilization at more than 93% was our highest level of the year and was up considerably from the 87% we recorded in Q4 of 2009. This increase was led by our US incinerators which achieved 95% utilization, while our Canadian facilities were also strong at 90%. At these levels, we're able to optimize our product mix and really maximize our efficiencies at these plants. Similar to our incinerators, our landfill business had an exceptional quarter, benefiting from the pickup in project business which tends to drive large volumes into our disposal network. Volumes increased 63% year-over-year and 49% from Q3 to the highest quarterly level of landfill tonnage in our Company's history. In terms of landfill pricing, consistent with prior quarters, we've been able to make some market-specific pricing gains, but overall pricing remains competitive.

Our Field Service segment continues to perform steadily. Even when you exclude the Gulf spill, the base business grew by more than 10% as our efforts to expand geographically are succeeding. The Field Services team did a remarkable job last year handling two major events and still growing the core business. In the Gulf, as expected, the spill cleanup effort began to significantly wind down over the course of Q4. And for the quarter, we generated Gulf spill revenues of approximately $20 million. While we still have some employees and contractors in the Gulf region, we do not expect to generate significant revenues from that event going forward.

Turning briefly to Industrial Services -- this segment delivered another quarter of solid results. On the past several conference calls, we've highlighted how billions of dollars are being invested in the oil sands region and other parts of Western Canada, as well as in the Bakken oil field and Marcellus Shale gas formation in the US. We continue to benefit from those investments as well as the increase in the rate counts. Looking at the full year for the legacy Eveready, the team did a super job with integration and improving profitability. Eveready exceeded our profit expectations last year, and we're looking forward to continued top line and bottom-line growth from this acquisition.

To provide you with some additional perspective on our results, I'd like to touch upon how our end markets performed in Q4. Chemicals, our largest vertical in the quarter, accounted for 17% of our revenues. We're seeing not only an overall rise in our ongoing chemical business, but we really are capitalizing on a number of cross-selling opportunities. Refineries accounted for 14% of Q4 revenue based on turnaround work and the strength in Western Canada. Other industries accounting for high percentages of total Q4 revenues were oil and gas production at 13%, general manufacturing at 10%, and our broker business at 7%. And our star performance, certainly, from the quarter from a growth perspective was our environmental engineering consulting vertical which was up 60% from Q4 of '09.

Before concluding with some comments on our outlook, let me spend a moment talking about our pending acquisition of Badger Daylighting, which we announced in late January. Badger is a recognized innovator in the hydrovac field , and we believe we'll significantly expand our field service and industrial services business across the US and Canada. Badger generated $135 million Canadian revenues, along with $35 million in EBITDA in 2009. With a customer base of more than 5,000, we expect this transaction to create cross-selling opportunities for us, but more importantly, provide new service capabilities to our US customers. We're hopeful for a second quarter close in this acquisition and we're excited to have Badger employees and franchisees join the Clean Harbors team.

In summary, our outlook for 2011 remains very positive. The ongoing recovery in our base business continues as we've delivered several quarters in a row of improving core results. We also continue to see a wide range of growth opportunities across many lines of business, and we have an active pipeline of potential new projects in both the Environmental and Energy Industrial side of our business. We're excited about the prospects for Badger, and we're continuing to evaluate additional strategic acquisition opportunities. So with that, I'm going to turn the call over to Jim for his financial review.

Thank you, Alan, and good morning, everyone. As Alan mentioned, Q4 was another excellent quarter for the Company. Revenues increased 20% to $417.1 million, reflecting gains in both the US and Canada and across nearly all of our business lines. Gross profit for the quarter was $126.3 million, or a gross margin percentage of 30.3%, which is well ahead of the 27.1% we reported in the same period of 2009. The improvement in gross margins stems from our higher revenue as well as a more favorable product mix.

Turning to expenses -- SG&A expenses in Q4 increased $14.4 million to $56 million from Q4 2009. On a percentage of revenue basis, our SG&A totaled 13.4% of revenue in the fourth quarter versus 12% in the same period a year ago. The increase in our SG&A percentage mostly reflects higher commissions and bonuses as we exceeded our sales targets for the year. Going forward, we continue to expect SG&A along the lines of this quarter in the 13% to 14% range. From an expense reduction perspective, we were successful in achieving our targets for 2010. We realized the $15 million in synergies we expected from Eveready and are on track for an additional $5 million in synergies in 2011. We also reached our goal of $20 million of Company-wide expense reductions for the year.

For 2011, we are targeting an additional $20 million in cost savings which will be used to offset expected increase in labor and labor-related costs such as health care. Depreciation and amortization, in Q4 was up 13% year-over-year to $24.8 million, but was essentially in line with the past several quarters. For the year, our D&A expense was $92.5 million, which was just above our previously announced range for 2010. We anticipate our 2011 D&A to be in the $98 million to $99 million range given our recent higher level of capitol investment. Income from operations increased 54% to $43 million. EBITDA grew 34% to $70.3 million. Our EBITDA margin increased to 16.9% of revenue in Q4, up 180 basis points from the 15.1% margin we reported in the same period of 2009.

Our effective tax rate for the quarter was 37.2%, compared with 39.5% in the same period last year. For 2011, we are targeting a tax rate of nearly 38%. Q4 net income increased 68% to $23.3 million or $0.88 per diluted share. And just a quick recap on our full-year results in 2010. We grew our revenue by 61% to $1.73 billion. Our income from operations rose by more than 150% to $211.9 million. EBITDA doubled to $314.7 million, while our net income more than tripled to $130.5 million or $4.93 per share.

With a full year of Eveready contributions, the Gulf and Michigan oil spills, and the economic recovery in our legacy environmental business, it was an outstanding year of growth for the Company. Turning to the balance sheet, a few items of note -- our cash position remains very strong. Our cash and marketable securities balance as of December 31 was $305.4 million. This is up about $22 million from the end of Q3, due to our positive free cash flow during the quarter. Total accounts receivable was $351.8 million at quarter end. Our DSO for Q4 was 77 days exclusive of the spill, compared with 72 days at the end of Q3.

Capital expenditures for the fourth quarter were $38.2 million, consistent with Q3 when we spent $39.3 million. For the year, our CapEx totaled $112.9 million as we pursued a range of high return opportunities to further expand our business. In fact, we estimate that several of the areas we have invested in are going to give us a two-year pay back on our capital. For 2011, we are currently targeting CapEx in the $140 million range. Before moving onto guidance, I'd like to touch on our pending Badger acquisition. It will be an all cash transaction valued at CAD247 million, which includes the assumption of CAD25 million in net debt. We expect the deal to be immediately accretive, excluding fees and acquisition-related expenses, and we're on track to complete the deal in Q2 of this year.

Moving now to our guidance, based on our 2010 performance and current market conditions, we are raising our 2011 annual revenue and EBITDA guidance. We currently expect 2011 revenues in the range of $1.54 billion to $1.59 billion. We are now expecting full-year EBITDA in the range of $262 million to $270 million. I should point out that this guidance excludes the effect of any acquisitions, including our planned purchase of Badger. With that, Jovy, could you please open the call for questions?

Thank you. We will now be conducting a question and answer session. (Operator Instructions) Thank you. Our first question is coming from Matt Duncan with Stephens, Inc. Please proceed with your question.

Good morning, guys, and congrats on a very nice quarter and year.

Thank you. Good morning.

The first question I've got is with regard to price and mix and volume. If you could break those out in terms of the revenue growth in the quarter, that'd be helpful.

It's -- Matt, it's substantially volume. The price, a little bit of an increase, I would say, but it's mixed across our product lines. I would say that the areas of high utilization, for example, in incineration and in some of the things that we're doing in Western Canada that we saw some pricing gains in those areas. But then there were others that offset that, so I would say it is not a large increase in price, maybe 1% or something like that, but mostly volume.

Can you quantify for us, Jim, what kind of price increases you've gotten in incineration and in the Eveready business?

It's in multiple percent range. I don't have those figures right in front of me right now.

A lot of it is still in the early -- it was in the early phases by the fourth quarter. We've been, certainly, working hard moving forward into the first quarter here and into this year focusing on that effort to look at pricing in Western Canada as we've mentioned, and in incineration. I think those efforts are underway and we're seeing some good results there now, moving forward.

I agree.

Okay. And then in Western Canada, can you talk a bit more about which specific end markets are driving the strength? Is it primarily oil sands or is the conventional oil and gas helping as well? Just flush that our a bit for us, if you could.

I think just the overall level of activity where there was such a significant downturn in the late '08 timeframe and the '09. And so, we saw last year quite an improvement in utilization across all different types of services. Quite frankly, everything from our lodging business, even our in-plant service work on the industrial side to the oil and gas field service side of our businesses all improved. And certainly, in the fourth quarter and now in the first quarter, a lot of the drilling programs have been really driving high levels of utilization. So, I think customers are realizing that a lot of the price that was given back during those real tough times, is -- now it's time to take a hard look at the margins and the costs up there because, certainly, labor costs have increased. And so we've gone back to a lot of our key accounts in those areas that I just mentioned. I think we've been successful in moving pricing back up to a more normalized level.

Okay. And then last thing, Jim, can you give us a breakdown for your segments in terms of sales and EBITDA in the quarter?

Absolutely. And obviously, we're putting this all together for our K, which we'll be issuing on Tuesday, but they're pretty much -- fairly final at this point. So, Tech Service was $203.3 million in revenues. Field Service was $80.9 million. Industrial Services was $119.6 million. And Exploration was $13.8 million. And on the EBITDA side, Tech Service was $55 million. Field Service was $16.5 million. Industrial Services was $18.3 million, and Exploration was $2.1 million. And I'll note that the corporate charge there for the quarter was $21.6 million.

Okay. Thanks, guys.

Thank you.

Thank you.

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

Thanks, good morning.

Good morning.

Good morning.

Could you comment on what is driving your landfill customers to undertake projects that were presumably put on the shelf in 2009?

I think there's just a lot of different activities out there that are going on, Rich, to be honest with you. There's no one particular motivation. I think we saw, as you know, really in the first three quarters of last year, real slowness in that side of our business. So, I think there's a pent up demand that all just kind of hit us in the fourth quarter. So, I think it was more that than any particular driver.

I would agree.

Am I wrong in thinking that those are predominantly not return generating projects for your customers? They're more government mandated or property redevelopment or something like that?

Each one has a little different story, but many, many customers, including us -- many companies out there, have reserves on their balance sheets for environmental liabilities, and they're all in various stages of doing evaluations and coming up with the best technology to deal with those environmental liabilities. And so, many customers are performing those kinds of projects on a regular basis. We tend to budget our accounts with a plug budget, but it might not be the same project every year, but each account that we have tends to spend a pretty consistent amount of money on these remediation projects of theirs. Very similar to Clean Harbors where every year we spend $8 million to $10 million on environmental --

Right.

-- and very much the same that you would see with many of our other accounts out there.

Okay. And secondly, where would you rank hydrovac in terms of your industrial services and the value that it brings to the customers? On the high end or toward the low end of your portfolio in that realm?

Certainly, the high-end services on the industrial side is a lot of our specialty work, our decoking, our catalyst work that we do, a lot of our pigging technology. We really bring a lot of technology to our industrial clients, and that's where our most -- our significant margins are. I would say though, that Badger in general provided a superior piece of equipment in performing a lot of in-plant service work, work out in the field for utility customers for their excavation and daylighting, as well as oil and gas field work for work performed at the wellhead, whether it's drill cuttings or mud -- drilling muds and other needs that take place in those areas. So, I believe that Badger has a superior technology in their hydrovac systems to do that work faster, safer, certainly more cost efficient. And I would put it up in that mid- to high level of profitability for us.

Okay. Thank you.

Yes.

Thank you. Our next question is coming from Rodney Clayton with JPMorgan Chase. Please proceed with your question.

Hi, good morning.

Good morning.

Good morning, Rodney.

Congratulations on a nice quarter.

Thank you.

So, first, I want to ask about the pace of the emergency response work. We've seen reports of some smaller incidents throughout the country. Just wondering if you've seen an uptick in that part of the business thus far?

Nothing unusual at this point. Nothing certainly like last year, but we tend to respond to events, as you know, regularly throughout the US. And we've been gaining some share in Canada with our growth now and particularly in Western Canada, but nothing significant at this point.

Okay. You've mentioned the refining end market there was strong in the quarter and particularly on the turnaround side. We've seen an improvement in crack spreads here in recent months. Wondering if you think the uptick you saw last quarter is something that would be sustainable outside of the turnaround season or was it mostly turnarounds that drove that higher?

Turnarounds certainly were part of it. We're tracking, at least the first six months, about 82 turnarounds this year that we're tracking and we'll be participating in a good number of those in some small way or large way, but, so, we're tracking that. But we're also seeing a lot of other in-plant service work as a result of requirements for tank inspections or change-outs that's going on by product mix and some of our clients' facilities. So, I would say it's just not turnaround and not spread related but just a backup in maintenance that needs to take place on the refinery side.

Okay. That's helpful. The EPA has been focusing a little bit more on the safety and potential environmental impact from frac and fluids and water associated with the expiration process. Is that something that has impacted your business either positively or negatively thus far?

The positive side is we've been treating quite a bit of frac water coming from Marcellus.The downside is that it's certainly creating some reservations on expansion of that use of that technology, particularly in New York State. But I think those things should be sorted out in the next year or two, and I think Clean Harbors will play a role in providing customers with treatment technologies to handle the frac water that they use.

Okay. So, some pros and some cons there. And then, one more, if I may, on the balance sheet here, following the Badger closing in Q2 expected here, that's obviously going to eat up a good portion of your cash. And I know you have some LCs outstanding that kind of have the handcuffs on your credit facility there. As you look forward, are you comfortable with how much flexibility you have, or is that something you might -- an area you might look to free up some space?

Actually, looking at the Badger transaction itself, clearly, we have enough cash to do the transaction. But, as you point out, we like to maintain a strong balance sheet to be ready for the next acquisition, so we have some alternatives in front of us. For example, adding on to our existing secured notes is one possibility, and we can probably get a good interest rate there. We're also looking at expanding our revolver that we have, which as you point out, we use LCs on. But that being said, there is $35 million of availability right now there, but maybe expanding that further and potentially even into Canada. So, we have some nice possibilities that we're kind of working on now, but we do like to be ready for the next one, so we'll be looking at that and we'll be keeping everyone updated if we do pursue something like that.

All right. Thanks, gentlemen.

Thank you.

Thank you.

Thank you. Our next question is coming from Al Kaschalk with Wedbush Morgan. Please proceed with your question, sir.

Good morning, guys.

Good morning.

Congratulations to you and the team on really a very strong 2010.

Thank you.

What I wanted to focus on, because historically we've been concerned -- our investors have about the economy, but you've got $140 million of CapEx. So, could you maybe just touch on a couple of those major items in that number that's growth related?And then, specifically how we should expect that relative to what you've guided for the year?Because if I recall correctly in the comments that Jim made, the return on capital is certainly in a very short time for a Company of your nature.

Sure, absolutely. Some of the things that we have in there, Al, in our CapEx, the growth projects -- one is we've talked about that Ruth Lake expansion up in Western Canada that will be a -- not only a lodging camp, but also a training facility and an industrial services facility, and that's going to add probably about $15 million to $20 million of CapEx. That's kind of one time, but growth -- and has nice growth to it. We're going to continue to do some of these lease buyouts, and that could be anywhere from $7 million to $10 million of what we're working on there. We're also adding to our environmental business intermodals and rolloff containers for some of these cross-selling opportunities that we see into the industrial side of the business. And that is an investment that is in the tens of million range, but very, very good paybacks, as I talked about before.

And then we're also -- some of the technologies in industrial services, we've certainly invested in 2010 in Texonics and we're looking further at that and expanding that further and considering that. And also, we're doing some cell expansion at a couple of our landfills, so we have some nice growth projects. The maintenance CapEx, I think you probably know this, but I'll just verbalize it, for the whole Company is about $55 million, roughly, maintenance CapEx and the rest of it is growth there.

Okay. That's helpful. And then just to turn to the revenue components and with some of the recent acquisitions, a little hard to maybe triangulate all of this, but how do we think about industrial business as a percentage of the overall revenue? Is it roughly one-third, and then basically, Tech Services is three X or two to three X, whatever Field Services is? Could you just maybe comment about the mix there on 2011?

Yes. Without the spills, roughly, you're about right. If you take the spills out in 2010, about two-thirds is the environmental business, which includes both Tech and Field, and then, third is including the Industrial and the Exploration side.

But clearly, the growth is coming -- the double-digit growth, is coming on the industrial side.

Yes, it is. In fact, if you look at the quarter year-over-year, we've seen -- certainly, Q4 was very strong. And the year-over-year growth, if you look at all of the environmental, has actually been double-digit year-over-year with the post-recession or at least this intermediate period, if you will, of utilization picking up in our environmental customers. So, that's been probably been in the 11% to 12% range. If you look at the industrial side of our business year-over-year, that has been more like mid-teens, like 15% increases. But then if you look at the total year, it's obviously a little less than that because Q4 was exceptionally strong. I would say that on the environmental side, we've seen a nice 7% to 8% increase, and in the industrial, as you point out, probably in the low teens, probably in the 12%, 13% range.

Okay. And then finally --

That's excluding this spill, of course, Al.

Yes, yes. Right. Right.

With the spill, yes.

Maybe at some point, Jim, you could just either give Q4 or full-year numbers for cash flow from ops and investment and financing. But my final question is, within the cost environment that we're seeing, how are you coping with that in terms of being able to sustain the recent, and what you suspect is a continued margin expansion story helped by mix, but also your pricing?So, maybe you could just talk about some of the costs that you're seeing where inflation may start to be creeping on you and areas on the radar.

Sure. Certainly, the fuel cost has been our number one concern, as it is for anybody that runs a large fleet. Our fuel surcharge has been in place for years, and that's been successful in helping us deal with that on a month-to-month basis with our customers. We have been trying to introduce that to a greater number of customers in Canada, where Eveready didn't historically have a fuel surcharge. And so, in those cases, that we're not passing along the surcharge, we've been more aggressive in going after some price increases to address both that cost, as well as other costs that are creeping into the business, particularly labor costs with the level of utilization going on up there. So, we're very much attacking costs across the network here. And as Jim mentioned in his opening comments, we're targeting a minimum of $20 million.

But certainly now with our size, we have even a greater opportunity to drive costs out of our business because we've got some big buckets of cost, particularly to do with maintenance. We're seeing a lot of maintenance costs across the network, a lot of leases, rentals. I think some of the capital that we're investing will reduce our short-term rental costs, which should help us significantly. And that's where you get that two-year pay back that Jim mentioned. As Jim talked about, our container business, for example, that's part of our -- we do a lot of short-term rental there. We have over 9,000 containers. We really want to continue to grow that because it not only services our customers, but drives a lot of waste into our incinerators and landfills which is doing extremely well for us right now. So, I think just focusing on those parts of the business where we're seeing costs and driving some costs out of it either with the capital that we're going to deploy or with cost reduction efforts.

Thank you. I'll hop in queue.

Oh, and the cash flow from operations, Al, was $71.1 million in Q4.

Okay.

Thanks.

Do you have the financing and investing numbers, by chance?

Don't have that handy right in front of me.

Okay. Very good.

Yes. Sorry.

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

Good morning. Thank you. First question, just touching on price, is it fair to say that you're going to continue to dig sort of a measured approach on pricing?When can we expect it to be more broad-based? How should we think about pricing in the normalized environment? Right now you're running at 1%, is it fair to say that a 4% price, given barriers to entering your business seems reasonable as the recovery gets stronger going forward?

I'll just start it and if Alan wants to add anything. But the way we're looking at 2011, we are taking a bit of a measured approach and concentrating on those areas with the high utilization. As I mentioned before, the incineration, Western Canada and areas where we've worked with customers through the great recession and made some concessions there of trying to recoup some of that. So, but, I would tend to look, at least from where the vantage point we have today, more toward next year. We used to do across-the-board price increases in the 3.5% to 4.5% range, and we hope the economy continues to improve and things can get back to normal. Because clearly, our costs are going up and we need to cover those.

Okay. And the next question, just if you could just touch on your acquisition pipeline, I think you'd spoken on the pharma and medical side trying to get more aggressive there. But your balance sheet, clearly even after Badger, will be in pretty good shape for the next deal. How should we think about where you're looking, what end markets you're looking into, and then also, as you get into complementary businesses, have your customers so far been receptive to cross-selling? How effectively can you bundle your product? Is that early days, or can you point to some areas of success?

Sure. So, I think if you look at the four main segments of our business, which is our Tech Service segment, our Field Service business, our Industrial business, and our Energy and Oil Gas Field Service business, I think there are growth opportunities through acquisition across the US and Canada in those four areas. And the Company has a lot of opportunities coming in, both from direct relationships with those firms to folks bringing opportunities to us that are being represented by banking. And we're taking this serious look at a number of those. We have full-time people working on that here, and I think we're pretty good at growth through acquisition, but also expanding organically as Jim talked about with our capital investment being accelerated moreso this year to keep that organic growth going.

Customers, I think from a cross-selling standpoint love the opportunity for a company like us to come in and help eliminate a lot of the management of multiple vendors. Having a company come in that not only can provide the on-site service work but also the off-site transportation and disposal. And that, in itself, saves them money without having multiple mark-ups and other costs that they have to carry. So, I think we've been very successful in the cross-selling, and I continue to see that as a nice opportunity for growth.

Okay. Thank you very much.

Okay, Hamzah.

Thank you.

Thank you. Our next question is coming from Larry Solow with the CJS Security. Please proceed with your question.

Hi. Good morning, guys, and congratulations. Alan, just sticking with that theme on the cross-selling opportunities and whatnot, with Badger and the hydrovac services, are a lot of your existing customers using similar type services, or is it more going to be a penetration and a new type of equipment that will help drive some of these opportunities?

Certainly in the US it's much more of new opportunities to introduce the technology and to help grow that business with the Badger technology. We really want to leverage our sales force, particularly our utility and refinery sales organization can help introduce that technology. So, I would say that it is really in the early stages in the US. In Canada, much more of a -- what would you say, mature technology. We offer very similar kinds of services that Badger does, although Badger has a broader utility market than we do. So, we'll be, certainly, looking at expanding in Western Canada, but moreso in the US.

And is their competitive advantage more that they're just one of the few bigger organizations that has a national-type presence, or do they have -- is their equipment better, is their a manufacturing advantage?

Well, they certainly have a manufacturing advantage where they have their own manufacturing facility. I think their cost of manufacturing is lower than, certainly, what we've been able to achieve by acquiring similar kind of equipment. I think it's also a premier piece of equipment. I think that Badger has an excellent reputation, a real strong brand for quality. Their equipment has 10, 12-year lifecycle at a minimum, and so we're pretty excited about taking a lot of the strengths that they have.

Got you. And then, just switching gears, if I may, into the incinerator outlook, obviously, you had a great quarter. And excluding -- I imagine you will see the normal seasonal slowdown in Q1, but fair to say that as we head into 2011, you think you could maintain the 90 plus utilization numbers and maybe give us an update on any closing captives, some end [cums]? And obviously, the oil prices are certainly not appearing to be going down in the near future, so that creates more pressure.

We have a tremendous backlog, as you know, at our plants. And in the first quarter we tend to have more turnaround work for our incinerators, particularly in the US, and that's why you saw, in the fourth quarter, real strong utilization. That'll tail off a little bit in the first quarter because we've got some work to do, as we always do, on routine maintenance. But I expect that our incineration facilities will continue to operate at very high level utilization. We've got some capital going into our existing plants to improve the facilities, try to get some more tonnage, and on a longer-term basis, as we've talked about, we're moving forward with [premining] and expanding with another unit, so we're optimistic about the incineration business.

On the captive front, we haven't seen anything in the past quarter. We're certainly still tracking five units that we've had some discussions with over the past year or so on shutting down. So, we're anticipating more captive closures and more waste coming in the commercial market that will either come to us or our competitors, but overall, it will be outsourced.

Okay. And then, just on your guidance, is it fair to say that in terms of the revenue, if I strip out the oil contributions, it looks like it's like a 4% to 8% growth. Is that like a 1% of that price, is that a good ballpark number to use on average?

Yes. I would say, Larry, 1% to 2% in there is price. Clearly, I think -- were you're using the low or the midpoint? --

I think if I take the range, and I strip out the 250 from 10, it's like a 4% to 8%.

That's exactly right. I was just going to point out, that the high side, it's in the 7% to 8% range and price would be 1% to 2%.

And if I do that on EBITDA basis too, using a 30% or maybe a high 20s margin for the oil spill, it looks like it's like a 8% to 12% EBITDA growth, so it doesn't seem like there's a lot of leverage there this year. Is that just because of some margin pressure due to the rising raw materials? Or is there anything in there that I'm missing?

Well, the EBITDA margin on the revenues is 17%. --

Right.

-- which if you strip out the spill work that we did in 2010, it was roughly 16%. So, we're increasing by 1% our margin --

Right.

-- on the overall business. And that does imply in increase in our environmental side to get closer to the middle 20% range in EBITDA margin.

Right.

And bringing the industrial business into the 20% EBITDA range, and then, of course, you have corporate after that, that brings it down to the 17% margin. But we continue to grow that EBITDA margin.

Right.

I guess depending upon how you look at the range, you could come up with the kind of numbers that you're talking about.

Right.

But we're looking at the margin.

Right. Okay. One question, if I may, lastly, just on your CapEx outlook, obviously, it's a high class problem with a lot of good return investments that you're making and there's probably a lot more to go, opportunities for you, as things improve. Do you think this 140 number maybe give or take a little bit, but over the next couple years you might keep that number pretty high looking out beyond 2011? Or do you think that will come back a little bit?

Well, you mentioned the CapEx. I think with some of this growth I think that it provides some upside. I don't know whether it will all be in this year, but it definitely provides some upside.

Right. And in terms of spending on CapEx, do you think that 140 number as we look out into 2012 --

I think it'll probably come down.

Okay.

I think it will come down. Because, for example, as I mentioned, Ruth Lake and some of the other things are big investments that we're making. That's going to establish more growth in the region, so you won't see that. But I suspect maybe down to 120 or something like that maybe the following year.But it's early to tell into next year.

Got you. Great.

Subject to the acquisition as well.

Of course. Okay. Great. Thank you very much.

That's right. Great.

Thank you, Larry.

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

Hi, good morning.

Good morning.

Good morning.

Jim, can you just tell us what the EBITDA contribution from the spills were in either -- in the quarter?

Yes. Well, the margins that we've been making have been in a 30%, 31% range. So, I think what we had said originally for the full year on the Gulf and Michigan spills that we would be, I think we said in the $77 million range. We're probably a little north of that, $78 million or so, more than that. But that reflects that 30% to 31% margin.

Okay, great. And then, when we think about margins going into next year, you talked about some of the $20 million in savings across the board. Can we assume a portion of that will fall to the bottom line, or is that largely to offset the increase in costs that you mentioned like health care?

I would say a one-third to a half should fall down. But clearly, a lot of it will be half roughly, and maybe even a little bit more to cover costs that we expect to go up.

Okay. And then on the headcount front, are you in hiring mode to meet this growth, or are you fully ramped at this point?

We're hiring on the direct side right now. We're actually short people in some of the markets we're at, so we have accelerated our hiring. We're up to about 6,800, I think.

6,800. That's right.

Where we're at right now. So, we've been adding quite a bit. Certainly, in anticipation of a strong second quarter as well.

Right. Sure. And any targets there on where you'd like to be?

We're just running short. With the added capital investment, particularly on the vehicle side, we'll be looking to hire more operators and do more training. We've established five -- or are in the process of establishing five training centers, including the Ruth Lake facility which will help accelerate on-boarding and getting more people into our Company and keeping them. So, that is a big focus of ours this year, Jamie.

Okay, great. And then one last one, just on the Marcellus and the Bakken shales that you've talked about, can you just update us on where that push stands?

It's really early stage in both areas. We opened up a branch in Estevan, and that branch is doing very well. And it is growing. But again, labor needs there are significant. Housing is an issue, and so we're -- we're growing in that market. We expect, in the spring here, particularly in the Pennsylvania area, that that will pick back up again. We're making some investments out there. We've opened up a new office in Pennsylvania recently, so I would say we're in the early stages, certainly.

Okay. Thanks a lot. That's all I had.

Okay. Thank you.

Thank you.

Our next question is coming from Jonathan Ellis with Bank of America. Please proceed with your question.

Thanks, and good morning, guys.

Good morning.

I wanted to first ask about utilization rates in Canada. I realize that last quarter they were fairly high. If I have the number correct, I think it was 99%. Anything that is creating quarter-to-quarter volatility in utilization rates?And just for purpose of clarity, all the pre-treatment capacity, is that now up and running and is fully factored into the utilization rates, or at least the landfill volumes up in Canada?

Well, certainly, our Canadian landfills, we had a real strong performance in Ontario -- excuse me, in Alberta. Our Ontario landfill was way behind plan last year, and we got some delays, as you know, in our pre-treatment system up there, our thermal treatment unit. And that has been going through shakedown and should be up and running here for a solid year now. We should have a good year up there this year. But last year that facility was way behind plan. So, I think all in all, we're going to see some nice improvements in utilization on the landfill side in Canada, but also our incinerators, I think, are continuing to perform very strong up there as well.

Okay. And just on the exploration business this quarter, if I have my numbers correct, it looks like EBITDA margins were down quite a bit, probably in the mid-teens. I think last quarter they were about 40%. My impression had always been EBITDA margins in that exploration business are typically 30% to 40% plus. Just help us understand, were there any factors that influenced margins this quarter?And how we should think about a normalized margin for exploration heading into 2011?

I think that the margin -- you're right, the margin was in the mid-teens in Q4. And the business, certainly, is picking up nicely there in the exploration side. And I think we will see an increase going into 2011 for sure, because it has taken hold. The business pickup has taken hold. So, I think what you're seeing a little bit is just the kind of startup in Q4 with things getting busy again. And also, we were staffing folks in anticipation of Q1, and that caused a little bit of a drag on margins in the overall Western Canada business just being prepared for the busy season up there.

Okay, great. Just as we look to 2011, any unusual scheduled outages for the incinerators this year? I realize you typically do a lot of the work in 1Q, but anything that we should be aware of as we head either through the year or through the quarters that would create volatility in the incinerator volumes?

I don't believe so, Jamie, at this point.

Okay. Okay, great. Okay. And then the only other question I wanted to just ask about was in terms of the cost savings, you talked about; the $5 million from Eveready, a third to a half of the legacy savings targeted.And then, on the operator lease buyouts, if I have my numbers correctly, you should be able to achieve somewhere at least of about $2 million to $3 million savings there.

Yes. I think that's reasonable. Yes.

Okay. So, I just -- and I think somebody else had asked the question sort of a different way. Let me try to pose it again. If I take those savings from Eveready, the legacy business and then operator lease buyouts and I look at what you're anticipated EBITDA is going to be in 2011, excluding the spillage, the spill work, I'm getting to an incremental EBITDA margin of basically less than 20%. And I just know that in the past you've talked about particularly when price and volume are moving in the same direction, incremental margins of 30% plus. Is it just a matter of being somewhat conservative because we are early in the year?Or is there a reason why you may not get as much incremental leverage based on where the revenue comes from in 2011?

Well, John, our approach is to look at this year and to give guidance that we believe is very achievable, and there is some conservativism built into that. And we have seen incremental EBITDA margins in that 25% to 30%, and that certainly is doable, we think, but again, we want to put something out there that's achievable and workable through the year.

Great. I appreciate it, guys. Thank you.

Thank you.

Thank you.

Thank you. Our next question is coming from Alex Ovshey with Goldman Sachs. Please proceed with your question.

Thanks. Good morning, guys.

Good morning.

Good morning, Alex.

Most of my questions have already been asked. One question, over the next couple of days, the EPA should be out with their revised standards around emissions for industrial boilers under the boiler MACT legislation.And I think some of the key verticals that would be most impacted would be chemicals, pulp and paper which are key customers of yours. As you talk to your customers, has this issue come up? And how do you anticipate this boiler MACT -- the rules around boiler MACT potentially impacting your business over the next couple of years?

There's a lot of noise going on in Washington right now regarding the budget and there's some amendments right now going around that would stay some of these regulatory changes particularly for the cement kilns and other furnaces that, like you mentioned.So, I think it's all up in the air at this point because I think you're going to see a lot of activity out of Congress over the next two to three weeks here. So, we have been in discussions with our customers, as well as following what's going on there on a regular basis, so we'll have to wait and see here.

Okay. Thank you.

Yes.

Thank you.

Hello?

Yes.

Hi, our next question is coming from Michael Hoffman with Wunderlich Securities. Your line is open.

Very good. Good morning, great numbers.

Thank you.

I apologize if some of this has been touched on, I was trapped on another call. Economic growth in your guidance, what are you making, what's your assumption for -- between Canada and the US in your guidance?

The -- in our guidance, we're definitely looking for growth on the industrial side, predominantly in Canada in that 11%, 12% range from 2010 actual. And in the environmental side, assumed in our guidance is growth in the roughly 5% range.

Okay.

And that's US and Canada, but as you know, substantially in the US.

Okay, that's great. And then how do you think about Badger's impact on that growth incrementally? Is there incremental growth opportunities to the guidance based on Badger? I don't think I worded that well.

Yes. Badger is not included in our guidance.

There you go. That's what I was trying to get at.

That's right. And so, there would be an increment there with that acquisition.

Okay. And then, I think what I heard in some of the questions earlier is great energy activity in Alberta, and there's an opportunity for that like leverage in the US, but, basically, I need the weather to improve to be able to do that in the US?

Yes. To some extent, that's true.

Okay. Refining capacity utilization's being reported by lots of trade mags at significantly high levels. You talked about the 82 turnarounds. Is this -- even the trade rags are saying, are they finally going to do the maintenance? Where's your view on, are they finally going to do the maintenance?

I think we've seen a pickup in maintenance activities, and we expect that to continue this year.

Okay. On the incineration side on pricing, how much of it now is being held by the quality of the mix since this is BTU driven by the individual boiler units? Are you starting to get quality upgrades that's helping as well as absolute pricing?

The higher-margin type streams that are tended to be generated by the chemical industry certainly have improved, and that's going to improve our mix. So, we would expect that to continue as the chemicals market comes back.

So -- and that's sort of connecting the dots to the economy. Generally speaking, if that activity's coming back, even if it's albeit modest levels, it's just an ongoing reaffirmation of it's growing, albeit slowly.

Yes. And as you know, the chemical industry probably took the greatest hit, from our experience at least, from our side of the business. And that has come back the best and we expect it to continue to improve.

Okay. And then, as you think about your industrial volumes across the asset base on the environmental side -- landfill versus drum and fuel versus incineration, how would you characterize both your customer as well as your capacity utilization related to the volume activity?

Well, I think as we talked about with the incineration side, we're in the low 90s in utilization, and we see that continuing strong for the year. And I think overall for our equipment with this growth, our utilization is going to go up in the usage of our equipment. And even with the landfills, as Alan pointed out, particularly with the Canadian landfill that we have up there. So, we see things improving.

And on that landfill side, I think somebody else asked a question earlier about discretionary activity, but what about the recurring volume activity?

Yes, we believe both. That we will continue to see the pipeline that we have coming to fruition on the project side and the base business to grow at the kinds of rates that we were talking about and implied in our guidance.

All right. And then, two more, on Canada last year, the weather was so warm you had to come out of the oilfield early because it melted. Now it looks like the weather's so cold you might be able to stay longer. Is the stay longer contemplated in your guidance?

Not a material amount. But I would say that just the overall activity is. And I think that captures the most of that, Michael.

Okay. And then, can you give us what your cash provided from operating activities was for the full year of 2010?

Oh, yes. I have that if you just give me a second. Just one moment, Michael.

All right.

I'll get that for you. It was $225 million.

So, given what you've talked about, it seems like it would be a reasonable assumption that, that number's up 10%, 15% in 2011?

Yes. That's what we're thinking.

Okay.

Wait. Hold on for just a second, though. Over the -- ex the spill, we would expect that kind of growth of 10%, but not over the number I just read to you. Because that has the Gulf and Michigan spill in there, so you would have to remove that.

What do you think I'd take out for the -- ?

Well, for the full year, probably in the 70s. The EBITDA contribution of that was in the -- like I said before, about $70 million. To get to the real cash effect of that, I think we probably generated cash in the $50 million to $55 million range after taxes, because there is a tax bill with that too. So, I would say probably $50 million to $55 million is the cash that came from that.

Okay. Great. That's super. Thanks a lot. Oh, one quick question. Is bonus depreciation influencing part of why you're spending $30 million, $40 million more in CapEx this year?

Well, it's certainly a benefit. These growth projects do take into account the future cash flows and pay back, and we definitely have a cash benefit of having that. That's very helpful.

Okay. Good. All right. Cool. Thanks.

Thanks very much.

Thanks very much. Okay.

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

No closing remarks. Thank you all very much for participating in our call this morning.We look forward to updating you on the first quarter at our next scheduled call. Thank you very much.

And that concludes our conference call. Thank you for joining us today.