Clean Harbors Inc (CLH) 2011 Q1 法說會逐字稿

Good day everyone and welcome to Clean Harbors first quarter 2011 conference call. Today's call is being recorded. There will be an opportunity for questions and comments after the prepared remarks. At this time for opening remarks and introduction I'd like to turn the call over to Mr. Michael McDonald, general counsel. Please go ahead sir.

Thank you, Shay 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 the date of this day, May 4, 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 the SEC filings that will be made concerning this recording period.

In addition, I would like to remind you that today's discussions will include references to non-GAAP measures. Clean Harbors believes 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 which can be found on our website CleanHarbors.com. Now I'd like to turn the call over to our chairman and CEO, Alan McKim. Alan?

Thanks Michael and good morning, everyone. Clean Harbors delivered an outstanding first quarter posted better-than-expected revenue and profits. Each of our segments generated strong year-over-year results as the broad-based growth that drove our performance in the second half of 2010 carried into this year. Many of our key vertical markets showed positive momentum throughout the quarter we benefited from a steady flow of activity throughout North America.

Within our environmental business we achieved good results in both our Tech Service and Field Service segments. On the Technical Services side come we saw strong contribution from our TSDFs which grew nearly 30% in the quarter. Wastewater treatment facilities were up more than 50% year-over-year. Our wastewater plants received much higher volumes this year related to refinery wastewaters and frac waters. The regulations on frac water disposal continue to be debated and we suspect several more quarters of uncertainty surrounding this issue.

Incineration utilization for Q1 was 85.2% which is steady with the 85.7% in Q1 of last year. This is about the level we expected given the fact that Q1 is typically when we do a lot of routine maintenance shutdowns. While volumes were flat, we saw an increase in our incineration revenue and EBITDA as the pricing initiatives we implemented in the past several months have taken to effect.

Within our landfill business it was a similar story. Year-over-year our landfill volumes were essentially flat and were seasonally down from Q4 when we recorded the highest quarterly level of landfill tonnage in our history on the strength of project work. We also saw higher EBITDA margins in our landfill business in Q1 based on some market specific pricing gains and a better mix of volumes.

Our Field Services segment had an exceptional quarter going more than 25%. This growth came primarily from our base business as we experienced a healthy uptick within a number of geographies. Our strategy of adding offices throughout North America during the past several years is proving to be effective. In terms of emergency response, we saw limited ER revenue in the quarter, totaling approximately $5 million and the bulk of that was the residual work in the Gulf.

Within the Energy and Industrial business we are engaged in steady production activities across western Canada which benefited from cold weather all quarter and a breakup extended a few extra weeks which gave us a little stronger month of March than expected. With oil prices remaining high, we are seeing continuing investments in the oil sands and other parts of western Canada as well as across the Bakken oil field and Marcellus shale gas formation in the US. These investments continue to benefit Clean Harbors from an initial production and long-term maintenance perspective. We also saw a nice increase in exploration in Q1. In fact exploration doubled both its revenue and EBITDA from Q1 of last year and continues to have opportunities to increase utilization.

And lastly, lodging delivered another really solid quarter which is a good indicator of all the activity we saw in western Canada in Q1. Across our vertical markets, the combination of strong organic growth and effectiveness of pricing and initiatives led to outstanding results in Q1. Refineries and upgraders represented our largest vertical in the quarter accounting for 17% of revenues.

This vertical benefited from a couple of unplanned projects in Canada and the US, but even without these, refineries and upgraders generated healthy organic growth of 12% year-over-year. With the investments I mentioned in the oil sands in western Canada, oil and gas production was also was among the largest verticals, accounting for 15% of Q1 revenue. The chemical vertical, where we've capitalized on a number of cross selling opportunities, was also at 15%. Other significant contributors included general manufacturing at 8%, oil and gas exploration which accounted for 7% of revenue on a positive momentum in Canada and in the US.

Before discussing our outlook, I would like to spend a moment talking about our acquisition activity. The completion of the Peak Energy Services acquisition remains on schedule. Peak will significantly expand our presence in oil or natural gas drilling and production support. Peak services directly complement our current offerings and will enable us to further enhance our one-stop shop approach for our customers. We expect to complete the Peak acquisition by the end of this quarter as the company is holding its shareholder meeting in late May. We currently have agreements in place with shareholders representing nearly 54% of Peak shares, so we are confident about this transaction moving forward. Last week, as you know, we did not get the outcome we were hoping for at the Badger Daylighting shareholders meeting.

Despite the support of the Badgers board, the management team and two independent advisory firms, we did not reach the required 66.6% vote needed to close the transaction. This outcome has not diminished our intention to continue expands through acquisition. During Q1, we raised $250 million to an offering of senior notes at favorable rates.

We concluded the quarter with more than a $0.5 billion of cash on our balance sheet with about $200 million now target for the Peak transaction, we have a substantial amount of capital available to us to pursue additional opportunities in our active acquisition pipeline and continuing to invest in internal growth. In summary, we are encouraged by our Q1 performance and our outlook for the remainder of 2011 is very positive. The trends across our business segments are favorable.

Our revenue prospects look strong as result of the improvements in our base business, supplemented by project activity in both the Environmental and Energy Industrial side of our business. In addition, based on our Q1 results on a year-over-year basis, our pricing initiatives across a number of business lines are working. Our comprehensive efforts to reduce our cost infrastructure even while investing in our business are proving effective.

The proof of that effectiveness is in our margins which continue to expand. We are excited about the addition of Peak later this quarter and I had mentioned we plan to achieve, excuse me, we plan to be active on the acquisition front in the quarters ahead. So with that I will turn it over to Jim for his financial review. Jim?

Thank you, Alan and good morning, everyone. Before going through the financials, let me point out that beginning with the 10-Q that will be filed this Friday there will be a change in our reporting segments as we realigned our management reporting structure. Within our Environmental business, we will continue to report our Technical Services and Field Services segments which are essentially unchanged from our prior reporting.

Within our Energy and Industrial business we will now have two segments which are Industrial Services and Oil and Gas Field Services. A new segment, Oil and Gas Field Services, consists of the previous Exploration Services segment as well as oil and gas related field services that were reassigned from the previous Industrial Services segment. We believe this better reflects the way we view and run our business after owning Eveready for more than a year now, we have decided that some modifications to our segments were necessary and we believe this is a better representation of the alignment of our present business activities.

As Alan mentioned, Clean Harbors achieved another outstanding financial performance generating a Q1 revenue record of $435 million, up 23% from the year-ago quarter. Each of the four reporting segments I just mentioned reported double-digit growth in Q1, with Oil and Gas Field Services registering the largest increase at 36%. Gross profit for the quarter was $122.4 million, or a gross margin of 28.1%, which is 150 basis points ahead of the 26.6% we reported in the same period of 2010. The gross margin improvement is the result of three components, higher revenue, a favorable product mix and increased cost efficiencies.

Turning to expenses, as expected with the jump in revenues, SG&A expenses in Q1 increased 20% to $54.8 million from Q1 a year ago. On a percentage of revenue basis however, our SG&A decreased to 12.6% of revenue versus 12.8% in the same period last year. Going forward, we expect SG&A to be in the range of 13% to 13.5% of revenues.

I should point out that one of the factors behind the year-over-year increase in SG&A on an absolute dollars basis was higher professional fees, much of which would related to our acquisition activity including Badger. As part of the Badger definitive agreement we are entitled to recoup as much as CAD1.5 million in expenses including those related to financing. Our lower SG&A on a percentage basis this quarter demonstrates that our expense reduction initiatives have been effective.

As we noted in our Q4 call, we realized the $15 million in synergies we expected from Eveready in 2010. We remain on track to reach or even exceed our target of an additional $5 million in Eveready synergies this year. For 2011, we are also continuing to target $20 million in additional company-wide savings which will be use to offset the expected increases in labor costs and commodity expenses.

Depreciation and amortization in Q1 was up 12% year-over-year to $25.5 million, but was in line with what we've seen in the past several quarters. In light of our growth and higher level of capital investment in recent quarters and the outlook for the remainder of 2011, we anticipate our full-year depreciation and amortization to be in the range of $102 million to $104 million. This estimate has been updated for the higher Canadian dollar exchange rate that we have been seeing this year.

Income from operations increased 68% year-over-year to $39.7 million. EBITDA were 38% to $67.6 million. Our EBITDA margin increased to 15.5% of Q1 revenue, up 170 basis points from the 13.8% margin we reported in the same period of 2010. This increase is primarily the result of a combination of higher volumes and the effect of our pricing initiatives.

Our effective tax rate for the quarter was 37.1% compared with 41% in the same period of 2010. For 2011, we continue to expect the tax rate in the range of 37% to 38%.

Q1 net income more than doubled to $22.7 million or $0.86 per diluted share. One item of note is that our net income included $2.9 million of other income which is shown below income from operations and EBITDA amounting to $0.07 per share. This net benefit to the quarter was mostly impacted by a $3.4 million pre-tax gain related to compensation for the release of certain rail rights to the state of California through an eminent domain settlement.

Turning to the balance sheet, a few items of note, as Alan mentioned, our cash position remains very strong. Our cash and marketable securities balance as of March 31 was $535.9 million. This includes the proceeds from our successful $250 million senior secured notes offering conducted in March on very favorable terms. Total accounts receivable was $364.4 million at quarter end and our DSO for Q1 was 76 days compared with 78 days in the same period a year ago. We expect this number to improve over the course of the year and our target DSO remains at 70 days or less, we believe we are likely still a few quarters away from hitting that target level.

CapEx for Q1 was $34.1 million, down slightly from the $41.7 million we spent in Q4. We continue to have a broad array of high return internal investment opportunities available to us. While we are in the process of evaluating a range of expansion projects, we continue to target CapEx for 2011 in the $140 million range. Which includes maintenance CapEx of approximately $50 million to $60 million.

I would like to provide an update on one of the CapEx projects we've discussed in prior conference calls, our Ruth Lake facility north of Fort McMurray in Alberta. This facility is significantly behind schedule, as the building contractor has been unable to meet the agreed-upon timetable. At this point we don't anticipate that location being operational until later this year at the earliest.

Moving now to our guidance, based on our Q1 performance and current market conditions, we are raising our 2011 annual revenue and EBITDA guidance. We currently expect revenues in the range of $1.62 billion to $1.67 billion, up from our previous guidance of $1.54 billion to $1.59 billion. We now expect EBITDA in the range of $275 million to $284 million, an increase from our prior guidance of $262 million to $270 million. It is important to note that this guidance excludes the impact of any potential future acquisitions including Peak Services. With that, Shay, could you please turn the call open for questions?

We will now be conducting and a question-and-answer session. (Operator Instructions) Hamzah Mazari, Credits Suisse.

The first question is on your acquisition pipeline. Could you give us some further color on how you are looking at that? In terms of priority, is it still building critical mass within business you are in or are you looking to get into some further complementary businesses? If you could give a sense of what you are looking at?

When we look at the 4 segments of our business we are seeing opportunities across each 1 of those segments, as well as in Canada and the US. I think first and primarily it would be to continue to expand and grow geographically and capabilities across those 4 segments. However, if there are some unique niche businesses that would expand a certain line of business within 1 of those 4 segments we are certainly looking at those. Interested in taking a way of leveraging our relationship with our customers and expanding our service offerings to them. So it wouldn't be unforeseen for us to be looking at something outside of the existing service offering. But those are the primary areas that we are focused on today.

And then on pricing, it is our understanding you've taking sort of a measured approach to increasing price within your portfolio. How much additional room is there for you to increase price? At what point do you do a broad-based price increase rather than picking specific pockets, and are we in the early stages of your price initiative here?

We are in our early stages. We are looking at pricing across our entire business right now. We have been reorganizing some of our pricing structure and management here to have a deeper focus across pricing across all lines of business, all 35 lines of business, if you would.

And we've also been very aggressive in regard to our fuel surcharge program with the price of diesel and gas sky-rocketing over the last 6 months. We've been aggressive with our customers who may have not been receiving a fuel surcharge and moving forward with price increases with them or implementing fuel surcharges to help us offset that rising energy cost.

Okay, and then just lastly, if you could just provide an update on any potential involvement of you guys in the Japanese nuclear tragedy whether you -- last we checked you guys were doing an assessment, but is that off the table or how should we think about that?

At this point it is been off the table. Early on we were getting inquiries and having conversations with contractors and others because we've had an experience working with the refinery clients in Japan in the past. And so early on we were involved with discussions with them. But since the nuclear side of it has really heated up to the point where it is at today we have not been actively involved and probably don't anticipate anything for the short term anyway.

Al Kaschalk, Wedbush Securities.

Excellent quarter. I wanted to maybe Allen and Jim to ease out some of the fuel surcharges. Phenomenal top line. But it looks a little bit of the revenue may have come in a little bit lighter margin or in the case of fuel surcharges maybe not much margin at all. Can you just make a comment on that specific item?

Absolutely. The fuel surcharge, well first of all, our fuel cost during the quarter was probably between $8 million and $10 million higher than it was last year. And I would say that the pricing part of that as opposed to volume was probably $5 million or so. And that was fully recovered through our fuel surcharge. That's roughly the number we are talking about.

But you haven't seen any deterioration in any of the margin performance in any of the business. In fact, maybe it is the other; your getting price, you're getting operating leverage and you've got strong performance on what is generally a seasonally weak period for the incineration side.

That's exactly right. And in the environment side of the business, as you know, this is typically our seasonally weakest quarter. That's an awful lot of assets in our disposal side of the business that as we leverage that going into the second and third quarter you see a nice improvement in the margin, operating leverage comes through. And that's why we are saying that our guidance for 2011 will be at least for the whole Corporation 17%.

Meanwhile the industrial services side of the business had strong margins in the first quarter; clearly their busiest time of the year. But as you point out, going back to that fuel surcharge, that part being that it is a pass-through we don't recognize margin on and that has been a significant increase over the prior year.

Alan, can you talk about the downtime or both on the technical services side, environmental services side, and then also as you look at last year I think there was some significant project work on the industrial side. And it sounded as if you are seeing that continue in the second quarter and third quarter of this year or are least expecting it to continue.

So could you comment on how downtime was in the business in Q1 from your expectations? And then what's the -- are we still consistent with prior periods where we would look for a little bit more downtime in Q3? At least in line with seasonal expectations?

Yes and absolutely. So the second and third quarters from a downtime turnaround work that we are seeing on the industrial side really should be picking up. We've done a lot of activity there and a lot of book business on the industrial side. I would comment, though, that on our, even though our field services business was up nicely in the first quarter, the weather really had a negative impact on our overall business, particularly in the US and in the Northeast, we had a real difficult winter.

Our costs always are much higher, whether it be utility costs, heating, just overall productivity is less in the severe weather. And although weather really is a benefit in the Western Canada area because it allows access and allows a lot of activity there, you still do have a lower margin because of the nature of your cost structure. But we would expect the turnaround business to be robust in the second and third quarter and our waste project business is also expected to pick up once the ground thaws and you get out and started work on the field, so we expect a nice improvement there in that side of our business.

If I may sneak one last one in, on the Badger costs that you hope to recover, is this you anticipate recovering it? And if so, when? And how should we think about that non-operating item?

We will recover that in Q2. We're just going through preparing all the documentation of our expenses as we fully expect that to be in Q2.

Will that just show up on SG&A or does that go below the line? How do we --

Yes. Probably about half of it. The $1.5 million you will see above the line there.

David Manthey, Robert W. Baird.

Looking at the guidance relative to the current quarter, it looks like you beat estimates by maybe $7 million or $8 million and you are basically full-year by $13 million to $16 million. Just trying to get my head around how much of that is conservativism and how much of the beat this quarter may have been something that you view as one-time? It seems like you are seeing good momentum across the business and relative to the size of the guidance increase it seems a little light. I'm kind of figure out if there was something that happened this quarter you see a shorter term in nature or not?

I think if you look at our overall guidance the way we looked at it for the year I would say there is an amount of conservatism built into it. I think if you look at Q1 as Alan pointed out, we did have an extended winter up in Western Canada and a cold winter at that so it was very good for business work up there. So maybe $5 million roughly I would say of our revenues up there was due to that.

So clearly that's kind of incremental to the quarter. But overall, I do think there's good strength in the business. We're looking at our environmental business and we are thinking that our growth year-over-year should be in that 6% to 9%, perhaps 10% range. And we look at our industrial business, the 2 segments I talked about there that are included there as growing probably 15% to 17% year-over-year.

So we feel pretty confident about that. Clearly I think from an economic standpoint the economy has certainly improved. I do think that we are seeing project work come through the pipeline more like it used to prior to the recession. I don't think we are completely out of the woods from a business activity standpoint given that I don't think we are back to, our customers are back to the pre-great recession levels of production, etc.

As you know, unemployment is still high, although clearly by some statistics we saw today that things are stabilizing and the outlook is good. But we don't see any reason to jump ahead of ourselves here and so there is a little bit of conservativism in there. And I also think some of the leveraging that we can do on the incremental revenues could bode well for our margin. And that's why I say at least 17% for our gross margin, our margin percentage. Hopefully that helps.

Yes, it does, thank you. I think when you were talking about the harsh winter weather being a negative in the US, was that more of a profitability comment or would think there might've been some revenue slippage there?

Probably actually both, maybe a little bit of revenue slippage. But probably more on the cost side because it is just a little bit more expensive to get work done.

Then Jim, the numbers you were talking about in terms of growth in the segments, were those volume growth numbers? Would that include any price increases?

Yes, that includes the effect of price increases.

Good, okay. And then in terms of those, the price increases come you give us the magnitude of the fuel surcharges; were there other more routines energy type recovery price increases that went in a certain percentage?

We did definitely put energy price increases through and one of the targeted areas was Western Canada, where previously there had been concessions made in pricing as you know, when things were little tougher up there when the prices of oil was down was so low. So we were recouping some of that as well as certain parts of our environmental business. I would say the overall effect for the year I would say if you look at our total business, was probably 2% maybe a little bit more than that in terms of pricing.

One more quick one, does the Peak Energy acquisition require a super majority vote?

It requires a two-thirds of the votes cast for that, and as Alan pointed out, we presently have 54% of total shares outstanding in agreement to vote for it.

Larry Solow, CJS Securities.

A quick follow-up on the pricing initiatives, basically I think you guys were talking about at least initially going after sort of the incinerators in Western Canada, or the former Eveready Peak. I would assume that those increases have been elevated across those 2 areas already or is it still rolling in?

I would say rolling in, Larry. I think for the last several months we've been working as a team across the organization and instituting a wide range of changes both in structure as well as communications to our customers and I think we've got some nice successes that are starting to roll in. But I do know that some of the contracts and some of the amendments to purchase orders and basic order agreements and so forth take a little time to implement so are still in the process of being implemented.

Okay, and that sort of 2% I realize it is a rough estimate, if you will, on pricing impact for the full year. Does that take into account what you've, what you are implementing now or does that also assume that you will do something else in the across other areas?

I think that 2% plus is indicative of what we've already achieved and we continue to work in that area. So there could be a little bit of upside to that.

Okay, and then just looking just at the incinerators, I realize the seasonally 85% is probably on par with your normal and your expectations, do you see, Alan, I know you've talked about utilization rising up into the mid-90s, do you see that happening in the back half of the year? Maybe if you can also add an outlook on any recent or pending closing captives or --

We certainly have a pretty significant backlog showing up in that deferred revenue line, as you know. And we have significant inventory at our plants and quite frankly we are selective in slots right now because of the volumes of material coming in. So we see an active volume of material.

We expect our utilization to be very good moving forward. We've got a lot of our turnaround work of the first quarter behind us which is a heavier time for us to do our maintenance work on our own plans. So I would say that we will be in that high, mid to high 90% level as we go through the rest of the year.

As far as the captives go we continue to focus on that area and look and discuss with our customers and we don't have anything in this quarter to report but we certainly continue those discussions as customers look at deciding whether to continue invest in their own plants or outsource. I think the outsourcing trend in general it is been in our favor, not only for incineration, but also for in-plant service work and we've seen particularly our Apollo program grow significantly, adding new accounts, adding more people that work every day at our customer sites as part of their outsourcing trends. So we are excited about what's happening out there.

We notice across industrial landscape companies are consolidating vendors more and more. Obviously if that were the case with you guys I think that is would've a competitive advantage, but are you seeing that trend more where your customers are looking to sort of consolidate their vendors and their suppliers more and where your able to get bigger, better, broader-based contracts?

Certainly the larger oil customers that we have, larger companies in general in both the US and Canada, are trying to leverage their buying power and give out larger and larger contracts with companies that can provide a broader range of services. I think that's a trend. And it is really a strength that we have.

We've seen some customers discussing with us recently some very large contract opportunities across over the US and Canada and in some cases sole-source. So it is a trend that we are targeting and one of the reasons why we reorganized and taken the segments as we have moving forward this year is to really focus on those trends.

Matt Duncan, Stephens Inc.

Good morning guys, congrats on the great quarter.

Thank you.

Jim, the first question I've got for you is, kind of back on price for a second. Just maybe asking this a little more directly, you've got 2% guidance so far; sounds like you're in the very early stages of that. What does your guidance for the rest of the year assume in terms of price?

It has kind of what I described, a little north of 2%.

In theory there's upside there as you roll out pricing throughout the year?

Yes. We believe there is assuming that does work through. As you know we've concentrated on the 2 primary areas where utilization is high.

In Western Canada and in the incineration area where we have made some concessions previously in both of those areas and also utilization is high. So clearly the bigger areas where it is deserved, if you will, we've been successful. But certainly we are trying to do more, but we didn't want to count that in just yet here.

Alan you mentioned the impact of FX a little bit out of Canada. Can you guys talked about how that is impacting your sales and profitability?

Yes, Jim can do it.

Sure, Matt. In Q1 there the foreign exchange impact on the revenue line was probably in the $7 million to $8 million dollar rang given the big increase year-over-year. And I would say that at the earnings level, at the EBITDA level, about a $1.5 million roughly.

Jim, can you give us the breakdown of sales in EBITDA by segment?

I was hoping you would ask that question. Very good. I'll go through it and obviously this is a new segment, so what we are doing right now is we are finalizing that for our 10-Q that we will file on Friday. But I think these are pretty much final so I don't expect any real variation of any significance to these numbers. So I'll just go through and give you each this quarter in 2011 and I will give you a comparable last year, because we realigned them also to the new segments.

In technical services the revenues were $190.6 million in Q1 2011. Last year in Q1 2010 it was $158.5 million. In field services, revenues were $58.3 million in Q1 2011. It was $46.5 million in Q1 2010.

Industrial services was $105.7 million in Q1 2011, compared with 91.1 million in Q1 2010. Oil and gas field services was $80.8 million in Q1 2011 and it was $59.4 million in Q1 2010. For EBITDA in Q1 2011, tech service was $45.3 million; in 2010 Q1 it was $33.2 million. Field services was $6.3 million in 2011; and in last year, in 2010, it was $5 million.

Industrial services was $23.3 million in this year's quarter; last year it was $19.9 million. And oil and gas field services was $14.7 million in Q1 2011 and it was $11.5 million in Q1 2010. And I will also mention corporate expenses in 2011 Q1 was $22.1 million and it was $20.6 million last year.

P&L interest expense on a go-forward basis with the new bond. Where do you think that's going to run on a quarterly basis?

I think it'll be about $10.5 million. Its up almost $4 million from where it was before given the new bonds that we have.

Okay, lastly, on the acquisition price, Alan, can you talk a little bit more about what happened with the Badger deal? I know you had been talking to them for probably at least a year and felt like you were paying a pretty fair price and then talk about sort of how quickly you think you might be able to redeploy the capital you had set aside for that deal. And do you feel like you can do it as accretively as you were doing with Badger?

Yes, I really can't speak to much on Badger other than there was almost a year process that Badger had gone through. And there had been ongoing discussions even prior to Clean Harbor's involvement with Eveready. And I think Badger has a tremendous opportunity to grow, particularly in the States and we are looking for a partner that can help them do that and that's where we got together with them and really felt we could help them grow their business and it could complement some of our needs. I think we are certainly disappointed. We spent an awful lot of time together, both pre and post the signing of that agreement and they've got a good team there and we really were disappointed that the vote didn't go our way. But in any event, there are other opportunities for us to continue to expand our business and achieve our growth objectives.

And we have a solid pipeline of opportunities. Brian Weaver, who is really heading up our internal staff here, looking at various opportunities, has got a number of deals on his plate that he's working on right now. And we fell confident that we can deploy the capital that we've recently raised and continue to grow our business both through the organic expansion that we've done in the past investing, in capital, as well as through the acquisitions.

Rodney Clayton, JPMorgan Chase.

Hi, good morning gentlemen, nice quarter.

Thank you. Good morning, Rodney.

I hope you can elaborate a little bit more on the upcoming project work that you are seeing and specifically are there any particular industry verticals where that's taken off more than others or has there been fairly broad-based up to today?

I think probably on the energy and excuse me -- the engineering consulting firms have been more active. That's really where we saw a real reduction during the great recession, but more active now there is more RFP's coming up, more paper that we're putting out on the street, so I would say in that area has been healthy.

And our refinery business and some of the big projects that go on in that area has been healthy for us. Some of the large ponds and other holding ponds, settling ponds, it is been a concern of EPA here in the States, there's been another active area for us so I would say it is relatively broad at this point.

One more refinery thing. You mention a couple of unplanned projects in your refinery business. Can you just tell us the nature of those jobs was in the quarter?

Typically when a refinery has upset condition where they take down their plant maybe in an uncontrolled way and they're required us to come in and really bring in the troops and work 24 hour day to help them get back up on track and that's certainly a real strength that the company has to handle those emergency response activities.

Not necessarily spill-related, but an event where they need to have catalyst change-out or they've had coping problems. So we've had a couple of events in that area. Not un-typical, though, to be honest with you. Throughout the year we tend to get those kind of calls, they are just unplanned.

Moving to the hydro vac, obviously with Badger not closing, when the deal was still on track it sounded like and area that you were really positive on. Now that Badger didn't close, what's the strategy here? Is there still a business where you are specifically looking to expand? Would you be looking at additional acquisition opportunities or is that this is where you might invest some internal capital to grow it?

We continue to look externally at other opportunities. We have over 80 hydro vacs in our own fleet, as you know. And it is an area that we have in the past investing into and will continue to invest and there are other opportunities out there. Badger had a unique business where they manufactured their own equipment, which was very desirable for us because of the nature of the equipment they created. But that doesn't prohibit us from continue to grow in that space moving forward.

And one more on the margin front. It sounds like fuel was maybe a bit of a margin hit in the quarter given that the tax rates moved through essential real margin. Your guidance still contemplates 17% margin here or thereabouts. Should we interpret that to mean that some of the upside you've seen in the core business will offset the margin headwinds that you might experience from fuel throughout the rest of the year?

Absolutely. We will see margin improvement from here on out. From the slower period of the first quarter. So yes, I think we will at least hit what we've got in there.

Rich Wesolowski, Sidoti & Company.

Your landfills are known as one of the more competitively priced areas in your environmental business. But recently one of your landfill competitors noted the potential for pricing gains in the sector, if only by a rate necessary to keep up with fuel and turbine additives, etc. Do you see any pricing power in the landfill business, and if so, is this a change relative to we've seen in the past?

I think you always are going to have more pricing competition on very large projects that can logistically be moved across the country. But I think in some local markets you do see a better opportunity today on pricing than we've had in the past. Customers are more receptive to understanding the cost of landfill cell construction and fuel to operate a lot of your heavy machinery within the landfills.

The cost, particularly, for the liners and other necessary environmental costs when your building our your different cells is significantly higher now with energy costs being where they are at. So, I think we are seeing an improvement there on the local basis, but still competitive on the large projects.

What you think separates the landfill arena from the incinerators where you have a lot more pricing power, given that there is a fixed number of landfills, there is very few competitors that shares a lot the same industry characteristics as you see in incineration?

I would say your incineration facilities as an industry operating at very high levels utilization but also requiring -- the material that goes into the incinerators as you know is predominately dictated by regulation and therefore has to go there where on the landfill side there are varying types of waste that are in these large projects, some of them industrial waste; others are hazardous; some have more hazardous constituents that require other costs for stabilization and treatment. The landfill is just a little bit of a different animal than the real high cost of operating an incinerator.

I know you don't own Peak yet, but having knowledge of them, back in 2005 and 2007 in that era, Peak was posting EBITDA margins of some 25% to 40%. Their management forecasted 20% for 2011; even that was a big improvement from what they've had in recent years. Is the GAAP between these rates explained by mix of service, pricing, something else? And is there the potential to really improve upon the EBITDA margin that Peak is expected to generate in 2011?

I think some of it has to do, Rich, with the fact I think in the earlier time period you talked about that 2005 to 2007 time frame, there was a lot being done in the gas area in Western Canada and clearly with pricing coming down I believe the Peak folks concentrated more on the oil side and actually expanded into the US.

I think in the process of doing that and with all that happened with the price of oil going so low that they saw some margin compression, but I think the outlook is very good for that business and they're great management team. We've spent time with them and I think things look very good for them.

I would say that conventional gas market in Western Canada still is very, very flat and I think Peak really has focused on repositioning a lot of their equipment into some of the other oil and gas plays here in the States, and once again I think we can really help them in that area and complement their business and help them with their margins. We are really excited about the capacity and capabilities they have. Their level of utilization with some of their assets is still quite low so I think we can get them back up to those margins as we help them to in the next year here.

Jonathan Ellis, Bank of America Merrill Lynch.

Just getting back to the first quarter, I know in the fourth quarter you talked about some of the catch-up effect, there was some pent-up demand. I'm wondering if the -- I realize sometimes it is hard to disaggregate, but did you get the sense that there was still somewhat of a catch-up affect that was benefiting the first quarter that probably will fade in coming quarters and obviously there may be some offset from new demand, but just in terms of some of the legacy projects?

I don't think so. I think we are off to a good start this year. We actually had a slow January relatively slow speaking because of the weather particularly in the start up in Western Canada. So I would say that we've, every month has gone by has seen a nice ramp-up and the opportunities that we look at every 2 weeks has been growing.

So our pipeline of opportunities, sales force has been doing a great job of bringing a lot of new leads and the cross-selling that we are seeing is starting to pay off for us, particularly with our refinery and chemical markets. And so I think it is much do with that than necessarily some of this pent-up demand per se.

On the growth, the healthy growth in field services you talked about opening new sites. Is there any way to aggregate for us the same-store growth versus the expansion-related growth?

We really haven't opened up -- because of the acquisitions that have been pending and some of the opportunity for consolidation across both Badger and Peak at the time -- we really have not opened up additional offices with the hope that first let's put the businesses together and then grow from there our field services business. So at this point it's pretty much organic year-over-year growth that you are seeing.

And I assume that your guidance also does not factor in additional site openings this year?

No, not at this point. Not really. We did expand in the Gulf and particularly in Louisiana as the spill wound down. We did open up a new response into down there which is predominantly going to be our to handle our large emergency response activities. But from a field services day in and day out, we have really not added offices per se.

Turning quickly to pricing. First on the landfills, at least in my recent memory this is the first quarter you've talked about some emerging pockets of strength in pricing. I'm wondering, though, from your perspective is that really more a function of elevated fuel cost and so it's obviously more difficult or costly to transport which means to other sites. Or do you feel this is the beginning of more sustained pricing power and some local markets?

I would say it is probably more to do with recovery of additional cost associated both with fuel on the transport site as well as construction cost and operation costs at the landfill. I think it is more pertaining to that at this point. I still think there is some capacity out there that in the next couple years will close where those sites have reached their permanent capacity.

It is a pretty small group of hazardous-waste landfills, as you know. I also think that you're seeing some nice volume come out of some of the drilling activities in the US and maybe a focus more on some of the norm-related waste streams that you have a higher price. So there's a few moving parts here, but I think overall its more focused on fuel and energy.

Then on the outlook, I'm sorry, another question on pricing. Normally the past you typically go out to your customers in March with notification of price increases; last year you went out in late summer, early fall. My question is to the extent that you are looking at other price increases this year, can you help us understand potentially what the timing would be? Is it more conceivable that if you do raise prices again it would probably be the second half of the year with notification to customers than in the typical spring period?

Just a little bit of color on that. The way we are approaching this, clearly we talk about Western Canada and talk about parts of our business that have high utilization where we've gone out and have been doing that as you characterized late last year. And clearly that's built into the guidance and all that.

We continue to build and improve our overall strategy with regard to pricing. As you know, we're in many areas and different lines of business and in fact we've even had some consulting work done, working with others to look at how we deal, for example, in the spread business versus some of the services business versus businesses based on volume. And we want to continue improving our strategy and make sure we're doing the right thing out there in making sure that in cost increases we are able to pass those along and make appropriate margins.

So it is something that's more broad-based so it is not something that I think I can tell you that we are going to have some announcement that's going to go out. Its going to be something we going to working on continually throughout the rest of the year and perhaps its 2012 when we get back to the normal pre-recesession kind of strategy of doing across-the-board price increases and more formal announcements about it. Hopefully that color helps a little bit, but that is basically the strategy that we are taking here.

Last 2 questions. I know you give us a little bit of insight into what you are thinking about for top line growth of the 4 segments for the full year. Anything you'd be willing to share from an EBITDA margins standpoint to get to that 17% across the 4 business lines?

Clearly, I think that in the industrial services business they're at an EBITDA level north of that 20% range and clearly the synergies that we brought in when we merged Eveready into our business and some of the cost improvements that we've made on our platform have certainly helped there. They were in the high teens, I think, in 2008, which was a good year. But we are comfortably above that 20% range, I would say, in both the industrial services side and in the oil and gas services side we are close to that.

Clearly on the environmental side I think the team is making some really nice improvements from a cost standpoint. And what used to be for the full year a margin of 22% or 23%, they are starting to push that to an EBITDA margin approaching mid 20%'s. So we feel that's pretty much how it breaks down for the company and we feel very strong about that.

My final question is just on the cost savings, you guys laid out the numbers that you discussed in the past. I think for this year you've talked about $5 million of savings for Eveready. The legacy business you had $20 million with about a third to a half of that flowing through, so let's say $7 million of the $20 million actually falls to the bottom line.

Then I believe another $2 million to $3 million of savings from operator lease buy-outs. So if my math is correct we should be expecting on the order of at least $15 million of savings this year? And as I think you mentioned there could be upside from the Eveready business, but is the minimum expectation for savings of $15 million, is that a reasonable assumption factoring in those 3 components?

Yes, flowing through, yes, I would say that's accurate.

Jamie Sullivan, RBC Capital Markets.

A quick question on EBITDA in the quarter. Jim, can you quantify the impact of merger acquisition expenses on EBITDA?

Yes, that hit, the EBITDA line was probably about $800,000 or so that hit that line.

And then generally can you talk about the industrial services pipeline that you see in the bookings you've got there? Can you talk about the visibility and outlook for the seasonal pick up in the environmental business overall?

It should be very strong for Q2 and Q3 on the environmental business. We should see a really nice increase there.

So feeling good about that?

Absolutely.

And then just last one on Ruth Lake. Maybe just some additional details on the delays and maybe when you expect that to come on line?

Yes, we are quite disappointed with our contractor and we have a 2-phased camp being built up there for 440 beds that was for our own needs as well as for our customers in that market. So we are behind on getting delivery on our first phase. And we've been dealing with a situation where our contractor is at over capacity because of all the growth that's going on in that market.

But in any event, we are regrouping and our expectation is at least by the end of this year we will have a camp there for own needs and whether it will be an open camp or maintain a closed camp there is subject to review at this point. And we should have some color on that by the second quarter, we hope at this point.

Was there any material EBITDA contribution that you were expecting in the prior guidance from Ruth Lake -- the new facilities?

I would say it certainly was in our budget and in our guidance but I think with the strength in some of our other business we are okay. We are taking that into account.

Michael Hoffman, Wunderlich Securities.

Following through on the margin issues, all of the us are trying to grasp and grapple with the operating leverage issue. I guess what I'm hearing is you don't expect a seasonal dip in energy that is fairly steep, Q1 to Q2, but the seasonal uptick in environmental more than offset.

And the turnaround business picked back up again in the second quarters. The whole thought process here as we've looked at legacy Eveready business moving forward is that really helps us smooth out our first quarter, as you know.

With regards to fuel, can you share with your total gallons consumed in Q1 2011 versus Q1 2010 and your average price?

We don't have a here in front of us here, I don't think, Jim do you?

No I do not.

Jim has a pile of paper here, but --

I'm thrilled I stumped him, that's great. I will follow up. In Q4 you talked about 82 turnarounds on the refining side, so what's the outlook of that 82 number? Has it gone up; how many of them have happen?

Those are the ones that we are actively involved in and they will take place here in the next 3, 4, 5 months, so we are well on our way and staffing up for that. We've got an active recruiting effort going on as well as reallocating people and equipment to help deal with the scale of some of the sites that we are working on.

On the project market, you all were a beneficiary of GE Phase 1 for Hudson River. They've announced they are going to do Phase 2 and 3? Any visibility on Phase 2?

We really wouldn't comment at this point on what the customers are going to be doing out there, particularly any particular customer at this point. Sorry.

Okay, lots of bids are in the market. If you looked at larger pool, could you frame total numbers you are seeing bid levels versus a year ago and then maybe aggregate tonnages that they are encompassing to give us the scope of this?

Are you still talking about the Hudson job?

No, this is broadly. The project market broadly. There's lots of bid activity so--

Yes, absolutely. As I mentioned earlier that the pipeline of opportunities and the dollar size of them are quite substantial this year and we are seeing every couple weeks strong reports from the head of our sales organization and we are pretty excited about that.

Okay, could you scope -- if you wrapped a ribbon around a segment of the larger ones, is there a million tons of potential biddable market? Or is it 2 million tons? What are the numbers we're looking at?

We don't look at it on tonnage basis per se, and those projects include both incineration, landfill, water treatment side of our business and so I don't think we would have a quantifiable tonnage number. But it is in the tens of millions of dollars in size. We are not a company that really has a big backlog like an engineering consulting firm would. But we do tend to look at these large opportunities on a regular basis because they certainly are incremental to a lot of the base business that goes into our landfills and incinerators, as you know.

I hate to come back to price like everybody has done so far, but as you think about the price that's in the guidance now, how much have you actually raised real price versus its mix at this juncture?

I would tell you that what we have in our guidance is real price.

Real price. And as you think about the psychology of the customer base in the aggregate, what I'm picking up in your tone is it is far more receptive to pricing in particular since they are seeing real price in their business as well, is that an accurate statement?

We just got through the recession and I think we worked with our customers pretty well. So we are trying to get back there and recoup some of that. And overall I think our customers realize that our costs are going up just as theirs are.

How do you feel about the inflation in your business? At this juncture, are you comfortable between productivity and price, you're staying ahead of it, or has been happening so fast you're a little bit behind?

I don't think -- maybe a little bit behind but I think we are doing okay though.

Then on the financials, Jim, can you give us your cash flow from operations for the first quarter?

Yes, our cash flow from operations was a little over $14 million.

What do you think it looks like for the fiscal year?

In terms of -- we should be taking a spill out of last year. I think we will probably be at about the $150 million dollar range for cash flow from operations. Free cash flow probably north of $50 million, somewhere around there.

Then on that vein, I get that there's lots of deal activity in the market hearing from others, that the sellers seem to be in a selling mood. But other uses of capital, would you consider a buyback?

With all the opportunities that we see out there to grow the business and add to services and acquisitions and so forth, that's not something we are considering right now.

And the stock's had one heck of a run, and well deserved, but would you contemplate splitting it?

That is something that we do look at from time to time. And that's something that we have to go through our Board on and that is something that would be a topic of conversation, clearly.

All right, and lastly on Badger, did the owners get control of enough of this stock that they were the influence there trying to see if they can squeeze you and [you stayed] disciplined and that's why this doesn't get over 66.6%?

I don't know that I could be real specific, but I will say that there was some shareholders that did not, recent shareholders that I don't think were as intimately familiar with either of our businesses that we noted that in some of the discussions we had. But I couldn't give you a very specifically whether or not they were our folks or what.

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

Thank you for much for participating in our call this morning. We look forward to updating you on our second quarter. And thanks for your questions and we will talk with you again.

Thank you, this does conclude today's teleconference. Thank you for joining us today. You may now disconnect your lines.