Clean Harbors Inc (CLH) 2011 Q2 法說會逐字稿

Greetings and welcome to the Clean Harbors Inc. second quarter 2011 conference call. At this time, all participants are in a listen only mode. A brief question-and-answer session will follow the formal presentation.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael McDonald, General Counsel for Clean Harbors, Inc. Thank you, Mr. McDonald, you may begin.

Thank you, Rob 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 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, August 3, 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 reporting period. In addition, I would like to remind you that today's discussion will include references to non-GAAP measures. Clean Harbors believes is that the 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. And now I'd like to turn the call over to our Chairman and CEO, Alan McKim. Alan --

Okay -- thanks, Michael, and good morning everyone. Today we announced another quarter of solid results similar to Q1 of this year. It was a broad-based performance that drove our results. When you exclude the contributions from the gulf event in Q2 of last year, all 4 of our operating segments delivered double-digit year-over-year growth. From a geographic perspective, we saw strength in both the US and Canada. Market-wise, a number of our key verticals continue to generate a steady stream of activity and projects for us. Looking at our performance by segments, our technical services segment had an excellent quarter, as we benefited from high volumes of material coming into our disposal facilities. Incinerators utilization for Q2 was 92.2%, and rates were fairly uniform between the US and Canada. This is above the 91.2% we achieved in Q1 of last year and well ahead of the 85.2% level we were at in Q1. This high level of utilization is also important from an efficiency standpoint as it enables us to better manage our mix and pricing to maximize our profits.

Landfill volumes this quarter were up 7% compared with Q2 2010. For the second consecutive quarter, our TSDFs grew by approximately 30% year-over-year reflecting the level of volumes moving through our network of locations. And, lastly our wastewater treatment facilities were up nearly 20% year-over-year, as we continue to see high volumes related to the refinery waste and track waters.

Within our field service segment, business was steady throughout the quarter. When you exclude emergency response events from the numbers, this segment grew 20% year-over-year as we experienced a nice mix of base business and projects. In terms of emergency response, we saw only limited ER revenues in this year's second quarter, totaling less than $3 million, most of which was related to some flood damage work versus the $109 million in the Gulf related revenues in last year's second quarter. Also, as we noted in today's press release, we are currently involved in the response efforts related to an oil pipeline break that occurred in early July in Yellowstone River, and, as of today we have approximately 500 people on-site assisting with that cleanup. We expect that this event will generate more than $15 million in revenue and likely will be essentially completed by the end of Q3.

Turning back to our segment performance, our industrial segment had a solid quarter, especially since Q2 is historically its weakest quarter. That segment still stayed busy throughout a lot of turnaround work from our refinery customers and projects in the oil sands region. Our specialty industrial service also was strong this past quarter.

Moving to our lodging business, this performed nicely for us again, although we could've seen even a stronger quarter, had it not been for some of the major wildfires that Weston Canada experienced. We were forced to shut down some of our camps for a period of time in June until those fires brought under control.

And lastly, our oil and gas field service segments had an exceptional quarter, particularly in light of the excessive amounts of rain we saw in Q2 that slowed oil and gas production in certain areas of Canada. What hasn't slowed has been the level of investment we are seeing within the oil sands region and other parts of Western Canada, as well as across the Bakken and Marcellus shale gas formations in the US. As I outlined last quarter, these investments provide a double benefit to our Company. We are involved in both the initial production as well as in the long-term maintenance of these sites.

Another important factor in our rapidly growing oil and gas field service segment in Q2 was the acquisition of Peak Energy Services. We closed that acquisition on June 10, so our Q2 numbers have about 3 weeks of Peak contribution in it. We believe Peak is a great addition to Clean Harbors, and we're encouraged by the initial response we've have from their customers. Our strategy on the oil and gas side of our business has been to continuously enhance our one-stop shop approach for our energy customers. Peak does just that by complementing our existing offering with a diverse range of energy services, including sophisticated equipment -- including centrifuges complete with solids control tankage, well-side accommodations, wastewater treatment systems and fluids hauling tankers.

In total Peak's equipment fleet contains more than 4000 pieces of rental equipment. Peak, also, has brought to Clean Harbors its own lodging business complete with dorms, drill camps and catering services. Combined with the Peak assets, our total lodging now exceeds $100 million business for us. In addition to its lodging and oil and natural gas field support service, Peak offers industry-leading wastewater solutions through its sani-derm division. Sani-derm has been involved in more than 350 water and wastewater treatment installations in North America.

Following Peak, we've remained active on the acquisition front. Last friday, we completed the acquisition of Destiny Resource Services, which was a division of Logan holdings. Headquartered in Calgary, Destiny is a full-service front end seismic service provider that we purchased for approximately CAD38 million. Destiny brings deep expertise in a range of critical exploration and production services and is a recognized innovator. Destiny successfully operates in the most challenging terrains throughout North America, and it's geographic footprint which extends from the Northwest Territories to Houston aligns perfectly with the high-growth regions we have been targeting for our energy and industrial service business. In combination with Peak, we are strengthening our reputation as a leading provider of comprehensive field services for the oil and gas sectors.

Let me give you a little more that background on our Q2 results. I'd like to touch upon how we performed in our key vertical markets is quarter. The chemicals vertical was our largest in the quarter, accounting for 16% of total revenues, as we experienced significant growth in projects and our CleanPack business as well as our drum and bulk businesses. Refinery and Upgraders represented 15% of Q2 revenue, as we saw steady growth in our strategic refinery accounts and benefited from 2 large unplanned shutdowns.

Oil and gas production was also among our top verticals in Q2, accounting for 12% of revenue as our drilling rig utilization was at its highest levels in 5 years. General manufacturing was at 9% of revenues, as we experienced strong demand for waste related services across hundreds of manufacturing customers.

Other significant contributors in the quarter included our broker business at 7%, utilities at 5% and environmental engineering consulting at 5%. The vast majority of our verticals grew by double digit percentages from Q2 a year ago. The only exceptions were some of our smaller verticals, such as government. In oil gas exploration, where we had a slow season due to the spring break up.

Looking ahead, with cash of $378 million at the end of Q2, we are in a strong financial position with significant flexibility. Our strategy is to apply our capital resources to accelerate our growth through a combination of acquisitions and internal investments. Our acquisition pipeline today contains a wide range of potential candidates, both large and small. We're in the process of evaluating these acquisitions, along with a number of organic growth projects. We are excited about our outlook heading into the second half of the year. Our Q2 performance underscores our industry-leading position in many of the markets we serve. On the top line, our base business continued its momentum in all 4 of our segments, supported by strong project activity. Our pricing initiatives have proven effective. The trends across our segment remain favorable to the Company. Today Clean Harbors consists of a approximately 7750 employees, but we also have roughly 600 open positions we are recruiting to fill, which speaks to the growth prospects ahead. On the bottom line were pleased with our EBITDA margin performance of 18.2% this quarter but we believe there is still opportunity to continue to trim cost structure further. We also see opportunities for synergies from the acquisitions, which Jim will deal with in his remarks.

Let me just conclude my comments by reiterating how pleased we are with how well the Company performed in Q2. It is a credit to the wonderful team of talented professionals we have here. With that, I'll turn it over to Jim for his financial review.

Thank you, Alan, and good morning, everyone. Clean Harbors delivered another great quarter, achieving Q2 revenues of $447 million, reflecting strong performance across the board. Excluding the Gulf oil spill from our second quarter 2010 results, we grew 23% this quarter year-over-year. I should point out that this quarter's revenue includes $9.6 million from the acquired Peak businesses. Gross profit for the quarter was $139.5 million or a gross margin of 31.2%, which is flat with our gross margin of Q2 a year ago, even including the spell revenue and as well ahead of the 28.1% gross margin we reported in Q1. Pricing initiatives, favorable product mix, improving cost efficiencies and typical seasonality fueled the sequential increase.

Turning to expenses, our SG&A in Q2 was $58.3 million or 13% of revenue, compared to 10.8% a year ago, which included the leveraging effect of our work on the Gulf spill. Our as G&A percentage this quarter is more in line with the 12.6% we recorded in Q1 and consistent with the range of 13% to 13.5% we are targeting going forward. Also I mentioned, on last quarter's call, that we would be recouping some expenses associated with our attempt to acquire Badger. We received approximately $1.1 million in reimbursed expenses, $700,000, of which, flowed through the income statement and the remainder reduced our deferred financing costs in our balance sheet. We have continued to successfully lower our cost structure, and that remains our intention going forward.

For 2011 we are continuing to target $20 million in company wide savings, which will be used to offset the expected increases in labor costs and commodity expenses. At the midpoint of the year we are on track to reach this goal.

We also expect to capture synergies from the acquisitions we have made. For 2011, we initially targeted $5 million in incremental synergies from our 2009 Everready acquisition. Halfway to through 2011, we have already achieved this goal. With respect to the Peak acquisition, we are targeting $10 million in synergies over the next 9 to 12 months. We are in the process of subleasing the Peak headquarters in Calgary, which will account for more than $2 million of that synergy total.

Depreciation and amortization increased 22% year-over-year to $26.9 million, in line with our expectations and consistent with past -- the past several quarters. Given our higher level of capital spending and our acquisition activity, we anticipate our full-year D&A to be in the range of $118 million to $120 million, including the estimated D&A from the Peak acquisition. Income from operations was $51.9 million or 11.6% of revenues, far surpassing the year earlier period, excluding our Gulf response activity. We generated EBITDA of $81.2 million, compared with $96.6 million in Q2 of last year which included about $33 million in EBITDA related to the Gulf event. Adjusting for the Gulf spill response, EBITDA grew approximately 28% year-over-year. This increase resulted from a combination of higher volumes and the effect of our pricing initiatives as well as a $2 million EBITDA contribution from Peak in the quarter. From a margin perspective, as Alan mentioned, we were pleased to achieve 18.2% EBITDA margin this quarter. For the first half of the year, we are at an EBITDA of 16.9% and continue to target EBITDA in the neighborhood of 17% for the full year.

Our effective tax rate for the quarter was 34%. As we benefited from a $1.7 million solar energy credit related to the opening of our solar facility, we installed 6500 solar panels on a capped Landfill we own in New Jersey. The site is generating 1.5 megawatts of power, enough of to cover all of the sites annual electricity consumption. We are pleased with how successful this project has been and the collaboration we have had with both state and local authorities. We will continue to target additional alternative energy projects such as this, where we see a strong return on investment and an opportunity to be productive with a dormant assets such as a cap Landfill.

Turning back to our tax rate for the full year of 2011 we expect the tax rate in the range of 36% to 37%, which reflects a reduction of 100 basis points from our previous estimate, given the solar energy tax credit we are entitled to take this year as I just described. Q2 net income was $29.2 million or $0.55 per split adjusted diluted share compared with $57.9 million or a $1.10 per adjusted -- split adjusted diluted share last year.

A couple of items of note here. First, this quarter's net income including the $2.9 million pre-tax benefit related to the disposition of marketable securities in the quarter. Second, the Company recently completed a 2-for-1 stock split and the per share amounts I just mentioned for this year and last year's Q2 have been adjusted retroactively to reflect the split.

Our balance sheet remains solid with cash and marketable securities of $377.7 million as of June 30 compared with $305.4 million at year-end. We recently entered into a 5-year $250 million revolving credit facility that expanded our prior facility by $130 million and reduced are interest rate. Total Accounts Receivable were $383.4 million at quarter end. Our DSO for Q2, not including the late quarter addition of Peak Accounts Receivable, was 73 days compared with 76 days in Q1. Going forward, our target DSO remains at 70 days or less. We believe that we are still a few quarters away from hitting that level.

CapEx for Q2 was $31.4 million, compared with $34.1 million we spent in Q1. We are investing in a range of high return opportunities available to us. These include additions to our fleet of rolling stock, containers, intermodals, industrial equipment and the solar array project I mentioned, just as examples. As Alan said, we are continuing to evaluate a broad array of expansion projects. With the addition of Peak we are now targeting CapEx for 2011 in the $155 million to $160 million range. This is up from $140 million range we had been targeting, which includes maintenance CapEx of a approximately $50 million to $60 million.

Moving now to our guidance. Based on our first half performance, current market conditions and the addition of Peak and Destiny we are raising our 2011 annual revenue and EBITDA guidance. We now expect 2011 revenues in the range of $1.84 billion to $1.88 billion, up from our previous revenue guidance of $1.62 billion to $1.67 billion. We now expect EBITDA for 2011 to be in the range of $315 million to $320 million, an increase from our previous guidance of $275 million to $284 million. This guidance excludes any future potential acquisitions.

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

Thank you. We will now be conducting the question-and-answer session. (Operator Instructions) One moment please while we poll for questions.

Hamzah Mazara, Credit Suisse Group

The first question is just on pricing. Maybe if you could just comment on what you're seeing and pricing. You've taken in a pretty focused approach there. Are customers pushing back, or is that going through okay? At what point do you make a broader based emphasis on price, given your backlog and it seems like volumes beginning to come back in your base business?

Good morning, Hamzah, this is Jim. From a pricing perspective, clearly, in the areas of our business that have high utilization, as we talked about with incineration and certainly all that's gone on in Western Canada, where our facilities are fully utilized and we are investing, we have been able to pass along price increases. And, also, at the same time, as you know, commodity costs have been increasing and, going back to the recession, we certainly made some concessions in the way of pricing. So, generally, I think that the pricing that we have been passing along as has been there, and I think that even though you get the normal pushback from customers, of course. But I think, generally, it's been successful.

Year-over-year I estimate that probably our -- the quarter reflects probably close to a 3% price increase year-over-year compared to Q2 last year. As far as broad-based type pricing increases, given the economic situation where it is, and some uncertainties there are, although we're certainly not seeing it in the businesses that we service, the economy seems to be going okay and nice gradual increases, as we've said in the past. But, clearly, maybe we would look perhaps to next year when things settle down a bit to do something more broadly but still be fair. Hopefully that answers your questions there, Hamzah.

That's very helpful. And then on the acquisition side, could you maybe give a little more color as to -- is there any particular market --I know lately been focused on the energy side. Are there any particular other markets that you're focused in on, or is this sort of more just cross-selling related, and the market is not as big of a deal? And then maybe if you could talk about, within your pipeline, which is pretty robust, how and what stages of talks are you in with these targets?

I guess, Hamzah, we've been looking in all four segments of our business, both in Canada and US, to grow our business and to expand the services with our existing customers, and the cross-selling is clearly what our strategy is here to expand our relationship and be that one-stop shop. So our acquisition pipeline has really been focused really in those four key areas and some of the smaller businesses underneath them. We have some opportunities that were further ahead. We have been involved with due diligence and a number of deals, and we don't have anything, at this point, to announce, certainly. But we've got three people, basically full-time here, that work on a variety of opportunities that we're either proactively going after, or were reacting to opportunities to come into the door here.

All right, and then just the last question -- if you can comment on anything you're seeing in the month of July across your various businesses. Is everything performing up to expectations, or are you seeing the trends in Q2 continue into the early part of Q3 essentially?

We just had the team in last week for full P&L reviews from the quarter and talked about our forecast for the rest of the year, and we had real good strong feedback from the team, and people are feeling very good about the business.

Okay, great.

Matt Duncan, Stephens Inc.

Congrats on a great quarter. The first question I've got is on guidance, Jim. How much does guidance include the acquisitions of Peak and Destiny?

It's in the $120 million to $130 million range. Peak being roughly $100 for the last 6 months, We already had $9 million, as you know, as I mentioned, almost $10 million in Q2. And then Destiny in that $25 million to $30 million age.

How but EBITDA?

EBITDA, in that case of Peak, they are pretty solidly in that 22% to 25% range I would say, and some of our synergies will start taking hold. So we're talking about in excess of 20% EBITDA margins with that. Destiny, they are quite seasonal through the first quarter, so the rest of this year, probably won't see a margin as high as what -- they typically can do in the 20% range in Q1, but I think it'll probably more in the mid-teens for the rest of this year, which is rather typical there.

Okay. And then on Destiny, about -- roughly, how big is that business from a revenue and EBITDA perspective on an annual basis?

They've done -- they're probably right now in the state of business right now probably in that $60 million plus range in revenues, I would say. And EBITDA over all, before any synergies from us and what we can do in that business, probably in the almost 20% range -- probably roughly about 20% range EBITDA for full year. But, clearly, that acquisition I think gives us a better total North American presence, and will be able to use some underutilized assets in our existing exploration business. And, hopefully, we can drive that even further as we progress with that business.

Can you give us a breakdown of revenue and EBITDA by segment please?

Sure. Lets see --technical services in the quarter was $206.5 million in revenues. Field service was $67 million. Industrial services was $110.3 million, and oil and gas was $63.6 million. On the EBITDA side, tech service was $59.6 million. Fields was $12.5 million. Industrial services was $25.9 million, and oil and gas was $8.4 million. And corporate, obviously, which is a negative is $25.2 million.

Okay, and the last thing I've got. Alan, you touched briefly, in your prepared comments, on sort of your growth plans focusing on both organic and acquisitions. Can you expand a little bit on the organic plans? What areas of your business are you focusing on for investments, and what type of stuff are you spending on there.

Well, we have announced that we are going to add an additional incinerator to one of our existing facilities, and so that is a substantial project that is on the books right now. And we're going through the design and subsequent permitting phase. There are other treatment opportunities for us, particularly in the mobile treatment side. We are sort of waiting to see how these new frac water regulations come together across the market here. More on the waste disposal side and then, certainly, on the equipment side, there are is a strong demand for a lot of the waste disposal equipment that we have, the role off containers, the intermodal containers, more vacuum equipment to be on-site at our customers refineries and chemical plants. More on the equipment and vehicle side as well.

Okay, thanks.

Rich Wesolowski, Sidoti & Company.

Would you outlined a strategy for attacking frac water processing business in the Northeast North Dakota, maybe especially highlighting how Sanitherm fits into that plan?

I'd rather not go through our whole competitive strategy to have that out in the public, honestly, Rich. I think that we are working with our customers to try to provide solutions to various frac water disposal needs that they have. The Company is, I think, an industry expert in treating a wide range of industrial waste waters, and that is a business that we have been in for 25 years. And so whether it's handling frac water at our central treatment facilities, or providing mobile treatment technologies at various sites based on what their particular needs might be, we are trying to tailor our service offerings to meet those varying needs that customers have.

Okay, I appreciate that. Could you discuss the factors that are driving customers to undertake the remediation projects in the environmental business that were delayed in on '09 and '10. Are they primarily economic, or is it regulatory?

I think the regulatory drivers have always been there and, quite frankly, that the enforcement side has been even more robust over the last 2 to 3 years for both us and our customers. And so I think you are seeing a more driving force from a regulatory standpoint. I think on the -- it is somewhat discretionary spending for some customers, who may have some projects that are eating driven from a timetable -- from a regulatory timetable but maybe more towards moving property or closing down a particular facility. Unfortunately, plant closures have been more frequent; and, therefore, more remediation and closure work which is great on the short term, but, as you know, impacts our long-term relations with some of those accounts. There's a couple of factors like that, that are impacting the business.

Okay, and then lastly, maybe for Jim, what share of the pricing gains in your environmental business would you guess has accrued to profit versus offset cost inflation?

I would say probably about two-thirds -- a half to two-thirds in that initiative, and really that's why -- and also our cost reduction and has probably played a bigger role in that. But I would say, probably, a half to two thirds.

Rodney Clayton with JPMorgan Chase.

First question, on the guidance. It seems like your guidance has still implying about 17% EBITDA margin, which I believe you're tracking in line with that for first half of the year. So, when I think about the seasonality in the business and how environmental is typically stronger in the back half, how should we think about that? Is that just a touch of conservativism on your part, or are there acquisition related expenses involve in there, or are or what's the [durst] driving that kind of flash outlook?

Good question -- I think there is a bit of conservativism in there. On the environmental business, Q2 and Q3 are the strongest. Q4 is always a time in that business that, depending upon the weather and the winter, how soon that sets in, does tend to slow down the environmental business. So we have seen in the past that you can have little -- some headwinds there are in Q4. So there's a little bit of conservativism in the number there.

Secondly, can you give us an update on the roof leak at the lodging camp. I think last call you indicated that you had a bit of construction delay there -- just a status update there?

Our commercial camp won't be open till next year there, but we have relocated our own housing facility that was in Fort McMurray North to the [Rutlig] site. So we have approximately 200 bed facility there now, and it is our northernmost point for our service work in the oil sands. And that's more of an interim standpoint until the new camp gets constructed. But I think, on a commercial basis, where we will have an open camp there, it will be right after the first of the year at this point.

Okay, understood. One more if I may -- the incremental CapEx from the Peak deal -- can you give us a sense of what that capital is going towards. Is that just typical maintenance CapEx, or is there some proactive asset purchases that you're making? And is there any -- I don't know if that's Canada or US in terms of where the CapEx is being spent, but is bonus depreciation a driver there?

We have a brand-new camp being just delivered and actually being placed for one of our top accounts up and British Columbia. So, that's a nice add up there for one of our top accounts. In the US, we are also adding about $4 million of waste processing equipment to help with the expansion of our energy services businesses here. So, I think a nice mix of both lodging and waste processing centrifuges and other equipment for the Peak customers.

All right. Thank you.

David Manthey, Robert W. Baird

First off, Jim, could you talk about these items -- I guess there's a $2.9 million gain from Badger and then the $700,000 reimbursed expenses -- are those both running through other income?

The one, $2.9 million, which was the sale of -- or disposition of some marketable securities that we had, is in other income. The $700,000 is actually flowing through SG&A -- $700,000, rather, of what you mentioned on the reimbursed expenses. So, our acquisition expenses during the quarter were approximately $900,000 to $1 million. That is net of the $700,000. So, in other words it would have been $700,000 more in acquisition expenses in the quarter were it not for that reimbursement.

Okay, And the tax benefit -- could you give us what that was in dollars, and I'm assuming that's just a one-time deal?

That's right. It's a one-time deal. It's $1.7 million that we will take on our return this year. So it's just this year. About half of it was in Q2,and the remaining was spread over Q3 and Q4. That $1.7 million, roughly on a pre tax, is how we get the 100 basis points of reduced effective tax rate.

And then Alan you mentioned earlier the capacity expansion, and you gave us a brief status update there, but can you remind us what the incremental capacity is going to be? Where that's going to be and what the capabilities are when that's completed?

Sure. We are looking at least to add another 50,000 tons which would be about 10% more capacity than what we have today. As we mentioned, we're running at pretty strong utilization. We're also seeing some regulatory changes on emissions for some of the industrial boilers, and we anticipate to see as we've talked about, over the last several years, a further reduction of the cap there. So, we want to make sure that we've got capacity and to be able to handle the increased volume. The chemical industry has been well strong.

I think with the low price of natural gas, we're seeing a reinvestment in chemical industry here in the United States, particularly so, we want to be able to meet their demands with some -- to handle certain volumes and types of waste that have come out of the chemical industry. We haven't identified the site yet. We have gone to the process, and, like I said, were just finishing up, or I should say, working on the design and plans so that we'll be applying for those permits at the end of the year.

Okay, thank you. And then just one last quick one. Could you tell us what percentage of your revenues today are coming from the shale fields?

I don't have that here. I'm sorry.

We don't have a percentage on that.

It's not a huge amount. It would certainly be within the oil and gas which is, I think roughly, about 6% did we say in our script here?

Yes.

It's not a large percent.

So low single digits in shale anyway.

Oh, yes.

Yes I would say that.

Perfect. All right.

Larry Solow, CJS Securities.

On the gross margin, the $31.2 million is pretty phenomenal and actually matched the Q2 and Q3 of last year despite no limited emergency response. revenue. Is this something that's a sustainable level, assuming that, basically -- the main driver sounds like it's the incinerator business or one of the key drivers? Assuming that utilization holds up, is this number at least sustainable outside of some seasonality?

Absolutely Larry. I think that, with the operating leverage in the business, along with some of the cost reductions that we've been doing, that has been affecting gross profit along with some of the pricing. We believe that should continue.

Looking at the 2 acquisitions that you closed -- first, on Peak -- I don't know what their Q2 numbers would have been. Obviously, it's partially consolidated, so we won't get the break out there, but they did like $20 million EBITDA on the first quarter, and, if I remember correctly, when you had purchased it or announced the deal, the company itself was targeting close to $40 million EBITDA. It sounds like just with your guidance and hearing the comments from Q1, is this could be more like a $50 million EBITDA this year? Is that a ballpark number?

Yes I would say in that $45 million plus range. I think that, yes, you are right that there Q1 was almost $20 million. I'm thinking it was $19 million.

It was $19 million, right. I think the margin was like 30%. I know that Q1 is seasonally very strong, and I think normally it backs off a lot, but you had mentioned that you think margin in the back half would still be in the mid-20s range.

That's right. So I would say in that $45 million. And also I think some of these synergies taking hold. I talked about in my comments up front about the subleasing that we are doing and certainly the corporate infrastructure and some of the costs that are duplicative of with our own business. Once we get through all of that, t I think we should be able to maybe even take that a little higher.

So this number that you gave out, does that include some assumed realized synergies in the back half of the year?

Yes, a little bit. Not every bit of it. We try to be a little bit conservative.

Well, I didn't know if, you know -- It probably wouldn't be even much, knowing you guys. Okay. The higher D&A -- is that mostly from peak and some, I guess -- is there at any amortization related to the deal? I think that it was close to book value so I don't know if there's any tangible assets that you have to --.

Yes, there is some write up that we needed to do there. Just a point -- you mentioned Q1 for Peak before. It's interesting -- they had about $6 million, actually a little bit more than that, of depreciation and amortization that they had in their own business. We're thinking that on an annualized basis we're probably going to be about $23 million, and that includes amortization and the depreciation of the written up assets.

And then the Destiny or Logan -- I guess that adds a little bit of depreciation, too?

Yes, it's probably going to be $2 million to $3 million, but I'll tell you that's pretty -- it's probably premature to give a solid number on that.

Because you just closed on that one, really.

Yes, but we put -- that's what we were generally estimating like $2 million to $3 million on an annualized basis

The revenue number you gave-- is that an expectation for '11, or is that what they did in '10? That $60 million sort of annualized number -- is that what do you think you're going to do this year?

Yes, that's pretty much an annualized number.

For '11.

Yes.

So, then the margin -- the 20% margin sort of implies that $12 million in annual EBITDA this year.

If you're looking at that business on a stand-alone basis.

That's right, yes.

It looks like you paid like under 4 times EBITDA then, right? 3 times -- 3.5 times EBITDA, is that right?

If you look at a little bit ago forward there, yes. A combination of -- historically they didn't do as well as that.

Right. No, that's a great deal. Can you quantify the wildfire impact on the lodging business? Was it's several million dollars? Any way to sort of guesstimate that?

$3 million to $5 million we are anticipating, between the shutdown of some of our on site projects as well as the camps being evacuated.

Got you, and I imagine that's pretty leveraged because I guess you still have some overhead and staffing. So, that's probably a pretty good impact on profitability.

It is, yes. It certainly did. You can't send people home, but you have to take care of them.

Then just last question on the Marcellus shale -- I realize it's still a pretty small piece of your business but has been growing. Any comment -- this sort of pending regulation -- are a lot of exploration -- is that being held up or waiting to see what happens? Anything you could give on that? But, I imagine the business still seem to be growing pretty fast.

I think it is. And I think both Peak, Destiny and Clean Harbors all are participating in that market, and we anticipate to continue to expand our relationship And it's around the well. It's not just in the frac waters side. Certainly, that is an opportunity for us as that becomes more clear. But we're doing a lot of work for the drillers out there today on the waste disposal side to do with the drill cuttings and other waste. So, it's an area that is growing quite a bit for us. We have 2 offices in those areas, and we expect to continue to expand.

Got it. Excellent. Thanks a lot and congratulations again.

Michael Hoffman, Wunderlich Securities

Again congratulations. I may end up retracing some ground. I just want to make sure I understood everything. The pattern of the business in the base, which is sort of that most intimately tied to the industrial customer base -- its own business activity was an incremental improvement April, May, June and your see that improvement seasonally in July? Right? That's -- I understand that answer correctly?

Yes, particularly in environmental business, of course.

Right. That's what I mean -- the base one -- that base $1 billion revenue is sort of core original Clean Harbors

That's right Michael.

The other side of that statement is all the talking heads who are declaring the US economy or North American economy going over the side of the cliff, you just don't see that?

No we--.

(multiple speakers) slow growth.

That's right. We have seen that gradual and sustainable kind of growth going, so we're not seeing that at this point.

Okay, and you should see it relatively quickly if they are all retrenching business activity?

I would say so, yes.

And then on the price, just for clarification, how much was happening first from a mix on the driving ASP versus you all saying, I'm going to raise price per unit on a service line?

That one's a real tough one, Michael, only because we have so many service lines and so many customers, as you know -- tens of thousands of customers. It' s kind of hard to get that granular. So, we do kind of look at price and mix kind of together. But there isn't a huge shift in mix, so I think that 3% I talked about year-over-year is safe to say that it's really pricing initiatives.

And then I misunderstood one of the questions earlier, that I think I'm asking again. How much of the 3% or how much of your own internal inflation did you cover with productivity versus the 3%? Worded differently, how much real spread on pricing is tracking in the margins? Is it 25 basis points -- 50 basis points?

I would say that we've been able to, because we have our cost reduction programs going well on the pricing side. And obviously it all comes together for the same margin number, so it's kind of hard to bifurcated it that way. But I would say that a half to two-thirds of our pricing increases is improving our margin.

Okay. I did understand that correctly. And then on the deal side -- it is the nice thing that you guys are the 800 pound gorilla in the market, but, at some point, regulators start to say -- I'm not sure and I'm going to let you go in that direction. Are there places in the business model where you're pushing up against that? Where you limited relative to deal opportunities because of the market share position?

We haven't really bumped up to anything at this point. When we did the Everready deal, we did have to sell off one of the -- their only landfill because of its proximity to our existing landfill. Certainly, as maybe we look at some larger opportunities out there, there may be some additional divestitures that might have to take place if there was some government concerns. So, at this point we haven't been constrained.

Okay. And then, Jim, on the balance sheet relative to things like free cash flow, how would you characterize free cash flow through the second and first half, and what you think the outlook looks for the remainder of the year? And tying that, do you have a cash from ops number for the second quarter?

Absolutely. Our free cash flow for the second quarter has been in the low $40 million range. I would projects that, for the full year, we probably, with the increased CapEx that we just talked about, that the free cash flow would be in the $60 million to $70 million range. A little higher than what I had mentioned in last call obviously, given the accretive nature of the acquisitions that we had just done. And you had asked about the cash flow from operations. That was about -- let's see, that was 60 -- in the second quarter was $64.8 million.

Okay, and then as I follow through the cash flow -- free cash flow question. If I understood the capital spending statement, you're pulling some out '12 to '11 for bonus depreciation. So, in fact, the grace business free cash flow is more like $70 million to $80 million?

Yes, you could look at it that way, although, clearly, we are really geared into the opportunities that we see for ourselves at this point. We are not pulling too much from 2012 for the bonus depreciation, but we are certainly benefiting from that -- that 100% depreciation in the US.

Then, could you -- I realize you're not giving guidance. Could you characterize how I should think about capital spending in '12 relative to where we are in the second half of '11?

Were still working through that and clearly, with the acquisitions that we have had, and given the total North American strategy that we are doing, and the utilization of assets from the acquired businesses, it's kind of tough to say that at this point. We are still kind of working through that especially since these 2 acquisitions, in particular, so new just coming in this month and last month. But, I don't see a huge, huge change.

Okay. I guess that's it. Thank you.

Sean Hannan with Needham and Company

Congratulations on the quarter, guys. So, I figured now that you've closed the Peak deal, it might be a good time to just kind of more officially talk about your understanding -- what you've come to learn about the business in terms of the operations or customers or price-sensitivity of those customers that might make you a little bit more positive or perhaps adjust bit versus your initial announcement. We've obviously heard about some of the costs you're taking out, so that's understood, but any more color would be helpful.

Well I think looking at the peak acquisition, it just looks like a terrific opportunity for increasing our US presence. They have done a phenomenal job in growing the US business through the shale plays and conventional drilling activity. So, Peak really does take us right up to the drill bit, if you will, and all of the activities going on around the site and that does, also, open us up for the disposal in that business, which we really didn't have much before that close to the drilling sites. So, overall, I would just say very positive, and we think some of the cross-selling in getting on the ground floor with the shale plays -- we are real excited about that acquisition.

It's great. So, there is nothing necessarily that's emerging out of it that you're necessarily getting more excited about. We just remain as excited as we were before. Nothing has changed since we closed?

We've spent a lot of time with the management team. They've got a great team up there. We are pretty excited about working with them and supporting their efforts. They've got some great relationships with some major accounts and helping them service those accounts better with more services. I think they are excited. I think the opportunity of leveraging our technology -- a lot of our hand-held technology, a lot of our tracking technology is really going to complement their business. Where they had over 4000 pieces of equipment that they needed to do tracking and invoicing and management for their customers. So, we are pretty excited about what we've seen in the first 45 days here or so there.

Great, and then, Jim, your hit on part of this on the environmental services seasonal trend. So, I'm really going to look for the whole picture, now that you've added Peak and Destiny. Can you help to walk us through the four segments of your business and help to reset our expectations around how each major segment should really progress during a given year in terms of revenue and margin movement since there is some slight seasonality aspects and then how that really rolls up in a consolidated fashion?

Sure. From a very high level, clearly the environmental side and this is both the technical services and the field services I would say that Q3 with Q2 being very close are the strongest quarters of the year. And, clearly, the revenues are the strongest and all of that leverage drives to the EBITDA margin. So, you can see EBITDA margins very strong in those two quarters, followed by Q4 I would say, and Q1 is the weakest in the total environmental business.

When you move over to the industrial, and this is where I think where we now breakout the segments between industrial and oil and gas, you can see there is a little bit of a difference there. On the industrial side, Q2 and Q1 are very close, whereas on the oil and gas side Q1 is the strongest. But you see a little less seasonality in the industrial, because, what happens when you go to Q2 and Q3 in the industrial side, being that there's a lot of plant activity, you have a lot of turnaround activity going on at those sites. So, Q2 and Q1 are strong in the industrial business. And that's followed by I would say Q3 and then Q4 in industrial, because Q3 is also strong with turnarounds.

In the oil and gas side it's really Q1 that is the strongest, given the impact of Western Canada and the winter weather there that's very conducive to strong activity in the oil and gas there. Clearly, as we do more in the US that will become less seasonal, but right now, with the blend that we have of our businesses, Q1 is the strongest and I would say followed by Q4, because there's some winter weather in there as well cold weather in Western Canada and then Q3 and Q2 being probably the weakest seasonally.

On a consolidated basis it's amazing. They all seem to be offsetting quite a bit from a revenue standpoint to the point where the business -- our total business has become less seasonal on the revenue line, but still, with Q2 in Q3, given the impact of the environmental business and leveraging our facilities -- these utility grade facilities that we have -- the operating leverage that they can spinoff in Q2 and Q3 is very strong in the environmental business. So, those two quarters would always at least in the near-term have higher EBITDA margins. Does that help, Sean?

That's a terrific summary. Thank you.

Kevin Lee, Wedbush Securities.

Congratulations on a great quarter. Most of my questions have been answered, but one just to follow-up on the energy and kind of oil and gas business. Could you guys comment a little bit on what you're seeing in the pipeline in terms of the types of project mix going forward?

Just a continuing investment in expansion. A lot of our major customers are increasing their capital expenditures both this year, and we have -- all signs are that we're going to have a real strong 2012 in that space. You know, the momentum is there. We're seeing a lot of bookings already for the end of the year and next year, so it's looking pretty strong for us.

Okay, and lastly, just to clarify the CapEx guidance for this year was that $160 million to $165 million?

$155 million to $160 million, Kevin.

Okay, got it. Perfect, thank you.

Jamie Sullivan, RBC Capital Markets.

Most of my questions have been answered. I just wanted to just touch on the guidance for a second. I t looks like you did about $150 million in EBITDA in the first half, so you are looking at kind of an incremental $15 million to $20 million in the second half. You talked about Peak and Destiny maybe being about $25 million, you have the emergency response business. I just want to make sure that there is nothing to take away from what you're seeing in the core business, and its more just being conservative on your outlook?

That's correct Jamie. And I think the point that we made before about weather implications in Q4 is something that we've seen in the past, and we just thought it best advice to be a little conservative there.

Okay, that's helpful. I just guess just on the M&A side, wondering what's your current pipeline looks like for these deals where you are able to pay a lower multiple because of the business potential on a standalone basis. There's no real competition from other bidders, and then you bring it into Clean Harbors and make it highly accretive. I was just kind of wondering about the runway that you see there and how the pipeline sort of looks for those types of deals.

I think it's pretty solid out there. Certainly we have competition and there are other players out there that are looking at some of the deals that we are looking at. And we've walked away from one, as you know, the deal that we looked out last that we hoped to close in the second quarter. So I would say that it is pretty robust right now, and we see a number of private equity funded companies that are 4 or 5 year invested now and looking to find a liquidity event. And we are participating in a number of those opportunities today.

Okay. Thanks a lot.

We have passed the top of the hour and reached the end of our Q&A session for today. I would like to turn the floor back to Management for closing comments.

Thank you all for participating on our call today, and we look forward to updating you on our third quarter results.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation