Clean Harbors Inc (CLH) 2011 Q3 法說會逐字稿

(Operator Instructions). Greetings and welcome to the Clean Harbors Incorporated third quarter 2011 conference call. It is now my pleasure to introduce your host David Musselman general counsel for Clean Harbors Incorporated. Thank you Mr. Musselman you may begin.

Thank you, Jackie, and good morning everyone. Thank you for joining us today, on the call with me are Chairman and Chief Executive Officer Alan S. McKim, and Vice Chairman and Chief Financial Officer Jim Rutledge. Matters we are discussing today that are not historical facts are considered forward looking statement 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 November 2, 2011. Information on the potential factors and risks that could affect the Company's actual results of operations is included in our filings with the SEC. The Company undertakes no obligation to revise or publicly release the results of any revision to the forward looking statements made in today's press release or this morning's call other than through SEC filings that will be made concerning this reporting period.

In addition I would like to remind you that today's discussion will include references to non-GAAP measures. Clean Harbors believes that such information provides additional measurement and consistent historical comparison of its performance. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is available in today's news release, a copy of which can be found at our website CleanHarbors.com. And now I would like to turn the call over to our Chairman and CEO Alan McKim,

Thanks David, and good morning everyone. Q3 was another outstanding quarter for Clean Harbors as we set a number of financial records including revenue and EBITDA. As we have seen throughout 2011 our growth was driven by broad based contributions across our business lines. We saw strong activity in both the US and Canada in the quarter. Our results were driven by a combination of organic growth and acquisitions as well as some emergency response work.

When you exclude the emergency response contributions from this year and Q3 of last year we grew by 41% with all four of our operating segments delivering healthy double digit year over year revenue growth. We are also proud to have reached a significant financial mile stone Q3 by exceeding the $100 million in quarterly EBITDA for the first time in our history. I believe this says a lot about the leverage within our business model, and more importantly the quality of the team we have here at Clean Harbors. Due to the efforts of our employees we have been able to make additional productivity gains lower our cost structure and seamlessly integrate our acquisitions all while rapidly growing the organization.

Turning to our performance by segments our technical services segment had another solid quarter. We continued to benefit from a good mix of volumes coming into our facilities. Incinerator utilization for Q3 was 89%. It would have easily been higher but we have had an unplanned two-week shutdown at our largest facility, Deer Park, early in the quarter. This year's utilization rate is down from 91% we had in Q3 of last year but had Deer Park been on normal schedule we certainly likely would have been north of that 90% this quarter.

During the year through expansion and acquisition we have added about 65,000 tons of thermal desorption treatment capacity. With this expanded capacity we are increasing our efficiencies and redirecting waste streams within our network. This new capacity along with local market conditions in Quebec has led us to the decision to temporary idle our Mercier Quebec incinerator. The customers serviced by Mercier will not see a disruption in service and the volumes will be redirected throughout our network of disposable assets. While this plan has approximately 65,000 tons of capacity it has generally handled lower priced, lower margin waste streams, and it has operated about a third of our blended average billing rate and typically contributes only $10 million in annual revenue.

Our landfills had a particularly strong quarter. Volumes this quarter were up 16% compared to Q3 last it year and it up 40% from Q2 of this year. This performance was driven by our U.S. locations especially our Sawyer facility in North Dakota which continues to receive high volumes from all the activities in the Bakken. In fact our volumes at Sawyer for Q3 alone were equal to the volumes of that location for all of last year in 2010.

Our TSVFs were up approximately 15% year-over-year as we continue to benefit from another number of Q3 waste projects and remediation work. Our field service segment had been a consistent growth trajectory in recent quarters and that continued in Q3. We saw a nice mix of base business and projects throughout the quarter. We also benefited from our involvement in the Yellowstone River cleanup efforts. On our last call we estimated this to be about $15 million assignment for us, but we were deeply involved throughout much of the quarter as every effort was made to contain the limited damage from that spill. We generated $42 million in the ER work from this event.

Our involvement is now complete and we don't anticipate any meaningful Q4 revenue from Yellowstone. In a year ago third quarter we had $124 million in ER revenue due to the Gulf and Michigan spills. So when you exclude all emergency response events from our numbers the field service segment grew 38% year- over-year.

Our industrial segment had another solid quarter due to the addition of the acquisitions and steady stream of projects this segment grew over 40%. Similar to Q2 we kept busy with a significant amount of turnaround work for refinery customers, projects in the oil sand region and our specialty industrial services. Turning to lodging we continue to be enthusiastic about the prospects of this business. With the addition of Peak and internal investments we have made lodging now represents more than $150 million in annual business for us. Despite the typical Q3 seasonality lodging had another great quarter. We will continue to invest in this component of our industrial business and have added internal manufacturing and refurbishment capabilities to support our growth.

And finally our oil and gas field service delivered tremendous growth this quarter. Supported by the additions of Peak and Destiny, the segment more than doubled growing its year-over-year revenue by 131%. Activity levels remain very high in both the US and Canada. Rig counts are continuing to climb as investments on both side of border are showing no signs of slowing down. Here in the US the Bakken oil field and Marcellus Shale gas formation continue to offer us to offer us a broad variety of opportunities. The expansion of our service offerings particularly around the drill rig continues to be attractive to our customers.

To support our growth in the Bakken region we recently opened up a new office location there, and we are encouraged by growth prospects in this segment and looking forward to the colder weather season in western Canada. We are excited about the expanding capabilities that Peak and Destiny afford us. The integration of both companies has been proceeding smoothly and right on plan. We are on track to realize the synergies we had expected from these transactions as Jim will high highlight later in the call.

I'd like to comment for a moment about how ideal these acquisitions have been for Clean Harbors. Each Company has an excellent fit already within a great team of employees led by outstanding management of Dale Kauffman and Peter Scott. They are recognized experts in their respective fields with deep knowledge of industry trends. With all the promising activities we have going on in the energy space, we expect them and their entire teams to be valuable assets for us going forward.

To give you some more perspective on our Q3 results here's how our key vertical markets performed this quarter. Oil and gas production became our largest vertical this quarter accounting for 16% of revenue. This was driven by the additional of surface rentals, camps and catering from Peak. We also saw good growth in our legacy transport down hole and exploration services. The chemicals vertical was our second largest in the quarter at 13% as we experienced solid growth across all areas.

We have also benefited from cross selling initiatives we undertook in the chemicals vertical this year. Refineries and upgraders represented 10% of Q3 revenues, and we saw a steady stream of turnaround work within our strategic refinery accounts. Oil and gas exploration increased 8% of revenue news this quarter, reflecting the addition of Destiny along with a solid growth in our directional drilling business. General manufacturing was at 7% of revenue as we delivered a strong performance across the sector and one several large contracts.

Other significant contributors in the quarter included our broker business at 6%, utilities at 4% and environmental engineering consulting at 4%. So the vast majority of our verticals grew by significant percentages from Q3 a year ago. The only vertical with a notable decline was our government business, which was down as a result of the lack of government spending on environmental projects.

Looking ahead even with all the acquisitions we recently completed and the high level of capital we are investing internally we concluded Q3 with nearly $260 million in cash which we plan to put to work. For the year we now anticipate capital expenditures of approximately $160 million the majority of which is related to growth capital. We also intend to remain very active and selective on the acquisition front. Our acquisition pipeline today continues to contain a wide range of potential candidates both large and small. We are in the process of evaluating these candidates with the criteria of targeting accretive opportunities that can accelerate our growth and enhance our competitive position.

We exited the third quarter with considerable momentum and are optimistic about the outlook of each of our four segments. Industry trends remain favorable particularly the levels of investment in the energy sector. Following our recent acquisitions our head count has increased to more than 8,200 full time employees and over a thousand seasonal workers. We also have several hundred open full time positions we are looking to fill. On the bottom line the 18.7% margin we achieved this quarter was encouraging although we still see room for further improvement by reducing costs and improving efficiencies. We also see opportunities for synergies from our recent acquisitions.

In conclusion, we are excited about where Clean Harbors is as an organization today. Overall we have an industry leading asset base, highly diversified end markets and diverse customer base. While the timing of the winter weather always plays a role in our Q4 performance, we believe we are well positioned for growth this quarter and beyond. Jim will provide you with our updated 2011 guidance and preliminary 2012 guidance in his remarks. And so 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 Q3 revenue of $556 million and reflecting a strong performance across the board. Excluding the $42 million in emergency response revenue at the Yellowstone River this quarter and the $124 million generated by the Gulf of Mexico and Michigan oil spills from our Q3, 2010 results, we grew 41% this quarter. Also if you go back and remove all of the revenues related to 2011 acquisitions, our year over year revenue still tops more than 20% growth.

Gross profit for the quarter was $169.5 million or a gross margin of 30.5%, which is down slightly 31.2% in the same period last year when we benefited from the $124 million in higher margin emergency response revenue.

Turning to expenses, our SG&A in Q3 was $65.7 million or 11.8% of revenue compared with 11% a year ago. Our SG&A percentage this quarter was well below our target range of 13% to 13.5% due in part to the Yellowstone River contribution. However as a result of the economies scale we gained through the acquisitions and our ongoing cost reduction efforts, we are now targeting a range of 12.5% to 13% going forward.

At the start of 2011 we set a goal of eliminating $20 million in companywide expenses as a way of offsetting higher labor and commodity costs. As we advance toward year end we are on track to reach this goal. We also expect to capture synergies from the acquisitions we have made. As we highlighted on our last call we exceeded the $5 million in incremental synergy's we expected from our Eveready acquisition. With respect to the Peak acquisition, we are still targeting 10 million in synergies over the next 6 to 9 months and may even exceed that. We recently subleased Peak's former headquarters in Calgary, which accounted for more than $2 million of that total.

Depreciation and amortization increased 51% percent year over year to $34.6 million, which primarily reflects the 4,000 pieces of equipment we added from Peak. Given our higher level of capital spending and all of our recent acquisition activity, we now anticipate our full year D&A to be in the range of $120 million to $125 million. We expect our D&A in 2012 to be in the $138 million to $140 million range including a full year of D&A related to our 2011 acquisitions.

Income from operations was $66.8 million or 12% of revenues compared with $73.4 million or 15% of revenue in Q3 2010, which reflected the Gulf and Michigan oil spills response activity. We generated EBITDA of $103.8 million compared with $98.8 million in Q3 of last year and as Alan mentioned it was our first quarter ever above the $100 million mark.

Our third quarter EBITDA margin was 18.7% and when you exclude the effect of the Yellowstone spill our margin for the quarter was still a healthy 18.3%. This reflects the success of our pricing initiatives, productivity gains within our asset base, economies of scale from our acquisitions, and ongoing cost control initiatives. Year to date we are at an EBITDA margin of 17.6%, well above our goal of 17% for the full year. Our effective tax rate for the quarter was 34%. This is slightly better than our target range as we benefited from the release of some foreign tax credit valuation allowances. For the full year, 2011 we now expect the tax rate of approximately 35% which reflects a reduction in our prior tax guidance for 2011 given the energy credit from Q2 and valuation allowance release we achieved this year.

We expect our effective tax rate in 2012 to be in the range of 37% to 37.5%. Q3 net income was $37.1 million or $0.70 per diluted share compared with $38.8 million or $0.73 per diluted share last year. As a reminder, the Company completed a 2 for 1 stock split in July and the per share amounts I just mentioned from last year's Q3 have been adjusted retroactively to reflect the split.

Our balance sheet remains healthy with cash and marketable securities of $257.3 million as of September 30th compared with $305.4 million at year end and $377.7 million at the end of Q2. The decrease is directly related to our acquisition activity which totaled a use of cash of nearly $138 million in Q3.

Total accounts receivable were $455.8 million at quarter end. Our DSO for Q3 was 74 days compared with 73 days in Q2. This quarter's DSO reflects a couple days increased from the newly acquired businesses.

Going forward, our target DSO remains at 70 days or less. Sue to the acquisitions we believe that we are still a few quarters away from achieving that goal. CapEx for Q3 was $48 million and year to date it was a $114 million. We continue to invest in a range of high return opportunities and as Allen mentioned we have a broad pipeline of expansion projects available to us. We are targeting CapEx for 2011 to be approximately $160 million. The majority of this CapEx is related to growth capital and within our full year number is approximately $65 million of maintenance CapEx.

Moving now to our guidance based on our year-to-date performance, current market conditions, and recent acquisitions we are raising our 2011 annual revenue and EBITDA guidance. We now expect 2011 revenues in the range of $1.92 billion to $1.94 billion up from our previous revenue guidance of $1.84 billion to $1.88 billion. We now expect EBITDA for 2011 to be in the range of $335 million to $340 million an increase from our previous guidance of $315 million to $320 million.

While we are still completing the budgeting process we wanted to give investors an early snapshot of 2012. Based on our preliminary estimates, we expect revenues in the range of $2.15 billion to $2.2 billion and EBITDA margin of approximately 18% at this level of growth. This translates into an EBITDA range for the year of $390 million to $400 million. With that Jackie, could you please open the call up for questions.

(Operators Instruction). Thank you our first question is coming from Hamzah Mazari of Credit Suisse.

Thank you good morning. The first question is just on your guidance, if you could maybe give some color on what your baking in on price and volume growth and your base incineration business for next year and how that compares to the current run rate? And then any additional cost savings you guys have baked in the 2012 guidance or you're not really baking that in as of yet.

Absolutely good morning, Hamzah. Looking at next year, clearly coming off a year when our targeted price increases have fallen in the into the range of roughly 3% coming off the great recession, we are thinking that we based upon our plans looking across our businesses that we could probably do that or perhaps a little better than that. Much depends of course upon the economy. We are not seeing any weakness in the businesses that we service in terms of economic trends. So we are continuing to believe that there will not be an economic slowdown. So that certainly could have an effect on this if there were to be an economic slowdown.

From the incineration standpoint, we are expecting that our utilization will are exceed 90% next year. As Alan mentioned there's one smaller unit of lower priced volume that we will be moth balling for now that will have an impact on that number and probably drive it up a little higher. But I think on an equalized basis it would still exceed 90% next year.

And finally you asked about cost savings. We typically have in our business a program where we come up with roughly $15 million to $20 million of cost savings that we of course need to do to just offset increases in labor costs and other cost increases that we typically see in our business. That again is the range that we are shooting for and we are going through the budgeting process right now where we outline all that in detail. So we are in the process of doing that. I think it's safe to say that that $15 million to $20 million is where we will be on that. That's on top of the synergies we talked about just a few minutes ago from the acquisitions.

That's very helpful. And second question is, if you could just give some color on where you are spending your growth CapEx and are there any verticals, if you will, that you are not in right now that you would potentially like to be in order to cross sell more or is the bulk of your focus going to be on energy services going forward.

Hamzah, I think we have been expanding across a number of verticals and we have seen some real growth inform those areas that we have targeted. Certainly the health care and pharmaceutical area is one that we are seeing a lot of success on and we expect to continue to grow and expand that side of our business which is our environmental business. Our environmental organization is really benefiting from the cross selling of our energy service customers and that's been a big part of our success, particularly in the two in Pennsylvania and North Dakota as an example and that's going to be another area of growth. So I think from a growth capital as far as anything particular major, nothing probably at this point that we have talked about as one major project, but really growth capital across all four sides of our business and I would think Jim that that would be consistent year over year.

Absolutely.

Yeah.

And to your point about the cross selling, you know, investing in containers and inter models and all that is definitely helping on the environmental side with our industrial customers.

That's great. And just last question, Alan and Jim, if you could just remind us on your government exposure, I know it's not that big, but how we should think about that business going forward, thank you.

It's relatively small.

It's roughly about 4%.

4% most of our government work is with municipalities pertaining to our household hazardous waste collections. Some DOE and DOD work, but relatively consistent contracts where we have people on military basis full time managing their waste management needs under our Apollo banner so it's not too much impacted by government in that area. Those are predominantly where our -- what we do see periodically is large super funded related expenditure and cleanup but even those initiatives are passed through engineering consulting firms. So you will tend to see it more so on that area.

Great, thank you.

Yes.

Thanks.

Thank you next questions is coming from Matt Duncan of Stephens Incorporated

Good morning, guys. Congrats on a great quarter. The first question I have got is just to kind of help us with modeling a little bit, Jim, can you give us the breakdown of sales and EBITDA by segment and then also if you could tell us how much acquisitions added to revenue and which segments those flowed there.

Sure. Just to go through the numbers on the revenue in EBITDA first, revenues tech service was $213.9 million. Field service was $111.2 million, industrial services was $117.9 million and oil and gas field services was $113.5 million. And on the EBITDA side, tech services was $59 million, field services $22.7 million, industrial services also $22.7 million, Oil and gas $28.4 million and corporate was the expense of $29 million.

The acquisitions in the quarter contributed roughly about $72 million of revenues and where you see the bulk of that coming through is in the oil and gas side, although there is a smaller amount in the tech services piece related to the one acquisition that Allen mentioned, but most of it of the Q3 acquisitions are in oil and gas. Whereas the Q2 acquisition that we had of Peak that's actually in both of those segments the industrial services and the oil and gases segment, but to your question specifically Q3 those acquisitions were mostly oil and gas.

Okay. Is there any way you could break out for you us on the $72 million how much is oil and gas versus tech?

The bulk of it, the vast majority of it of 95%.

Moving on, Alan, you talked about the tail winds you had from turn around services in the quarter. Can you talk about sort of which geography were strongest for you guys there and remind us what kind of services you guys are providing in turn around projects.

Well, we do a lot of specialty work with our turn around work everything from high pressure cleaning to catalyst service work. We have with an acquisition that we did make in the third quarter expand our catalyst recycling and disposal capabilities to kind of compliment that specialty line of business. We saw a lot of turnaround work both in western Canada and in the US. And so we actually going into September have 10 turnarounds booked for next year, which is very unusual for us to have even that strong of a look into 2012 already going out even to September of next year. So we anticipate some of that built up demand we talked about a couple years ago starting to flow through now and would expect to continue to participate in some of those large turn around jobs.

Okay. And on the oil sands market we are entering the seasonal strong point for that business. Remind us real quick the seasonality there. I know December typically is up and March would be the strongest quarter. What type of outlook are you seeing in that oil sands market here in the key winter period.

We are clearly booked out and we are maxed. Our bookings are solid. We haven't seen any reductions in bookings in the last 30 or 45 days. So we are in the hiring mode, continuing to add more capacity and expand in trying to even increase some of our capital, put some of our capital orders in earlier than typical for 2012 so that we can be maybe even increase some capacity and particularly in the first quarter. But certainly weather dependent, we expect to have a very strong oil sands and western Canada drilling season.

Okay. Thanks guys, Congrats again on great for quarter.

Matt, just one other thing. Just coming back to you to refine what I mentioned on the $72 roughly million in Q3 about 3-quarters of that is in the oil and gas because Peak did service both industrial and oil and gas. So I just wanted to refine that. It wasn't 90%, it was more like 75%.

So Jim there is some in the industrial services business as well then.

Yes, from the Peak acquisition which occurred in, Q2 but my $72 million is from all acquisitions in Q3 there.

Okay. Okay thank you.

Perfect thank you.

Thank you our next question is coming from Rodney Clayton of JPMorgan Chase and Company.

Hi, good morning gentlemen.

Good morning Rodney.

Congrats on another nice quarter.

Thank you.

So it looks like you are guiding for 2012 to approximately a 100 basis points of margin expansion year-over-year. Obviously, I know some of that is related to operating leverages you have scale in the energy industrial side. How much of that is relate you had to operating leverage versus maybe some mixed issues as those businesses grow faster than your legacy environmental?

I would say there is some mix, clearly given the acquisitions and growing the oil and gas side of the business there. Peak certainly generated some nice margins and we continue to improve that. You do have the synergies coming in from those acquisitions so that's a big contributor to the margin increase and also our continuing pricing improvements and cost reductions are all in there too. So I would say operating leverage overall is probably less than half of it I would say but it clearly is a component of it.

I think the driving utilization improvement across our asset base is something we are anticipating. We have been able to take advantage of some of the reporting and the tools that we have to share with some of the firms that we have acquired and help them improve on the overall utilization and mange their life cycles so I think you are going to see improvement there.

Great, yes, I agree.

Okay that makes sense so when I look at end of segment results that you just gave us I think you had a 25% EBITDA margin in oil and gas field services. Is that sustainable level many that's quite a bit higher than with we have seen in recent quarter for that business?

Yeah, I think that the businesses that we have acquired now and the way we are now spread across North America in these businesses, not only operating in western Canada but also participating in some of the shale plays here in the US and just a broadening approach and with the synergies with the acquisitions, yes, we do believe that that's sustainable.

Okay , very good. And mentioning the shale plays, can you just take talk a little bit about how that business is progressing. I know it's, I'm guessing still a relatively small part of your business, but just particularly as it relates to the frac water handling initiatives. How is that progressing and have you kind of I guess fully determined what your industry is going to be

Sure. So certainly the frac water is something we are keenly focused on but is not necessarily a big part of what we have seen yet. A lot of our activities there pertain to the environmental work we are doing whether it managing the drill cuttings and other waste disposal needs of our clients to the service work that the solids control and processing of waste as well as some of the needs that our clients have around the drilling rigs whether it be well sites or roll off containers or other waste disposal needs that they have. As well as some of the emergency response work and the service work that we do on a day in day out basis. As I think as we get more clarity on the fracing side and more consistent regulations we will have a better answer I think in regard to mobile treatment technologies or our offsite treatment technologies but certainly those are the areas we are focused on right now in these different plays.

Okay very good. One more, just the acquisition pipeline, you said it remains strong. Are there particular segments where you're more likely to do deals than others and then on Mercier, which you idled, what are your plans going forward there is a sale of that facility a possibility?

No it wouldn't be -- we wouldn't be in selling that facility and so we have lost a major -- one of our major refineries customers up there shut down and they are going through closure and so from a local economic standpoint as well as to strengthen the Canadian dollar we don't see a lot of exporting waste up to that facility we are going to sit tight with that asset for a while and see how the market plays out. I think there is some it great growth opportunities for us across all of our verticals next year and I don't know if there's any other thing we should add on that.

No, I think that was perfect yeah.

Okay. Well, thanks a lot, nice quarter.

Thanks, Rodney.

Thank you our next question is coming from Richard Wesolowski of Sidoti & Company.

Thanks a good morning.

Morning.

With regard to the pricing gains you made in the western Canadian industrial business so far in 2011, would you guess the improvement is weighted more toward still a cyclical catch-up factor, an external factor or are you still reforming inefficient pricing practices of your acquires.

I think it's a combination much both Rich. Clearly -- to give one example on one of the things that we work with. The way Clean Harbors has typically dealt with most of our customers has to have fuel surcharge, be a surcharge as opposed to something that constantly affects the pricing going up and down so that it is somewhat automatic so that as price of fuel goes up and down, so will that surcharge on the invoice. So we have kind of introduced practices like that into western Canada, which certainly has helped us in this regard from an efficiency standpoint, but there also was some catch-up. I think when the price of crude was way down into the $35 range there were some price concessions made so clearly we were doing a little bit of a catch-up there. So I would say it's probably a combination of both probably even, somewhere around there.

Yeah and that pricing initiative continues as we speak. We have put in seven full time people just focusing on price and margin improvement across all our lines of business. So I would anticipate that we are going to continue to see some progress in that area, Rich.

Would you guess that the market-wide pricing up in that region for industrial services is still well below, even with, or even above what was the good times in 2007, 2008?

I think we see there's still a number of discounting going on and maybe some of those legacy contracts that were in place and we have been meeting with a lot of our key accounts up there to talk about what their needs are going to be in the future, the investment that they are looking for us to make. And certainly pricing is a big part of that discussion. So I would say that pricing has still not yet got to that level that it used to be at its peak in 2008, but I believe that the clients up there are willing to pay a higher rate for quality and safety and for companies to put the kind of investment in that they are going to be looking for.

That's helpful. Secondly staying within that region the investments in Peak and Ruth Lake and now the 3Q11 bolt on in the lodging area have really bolstered that business from where you started with Eveready. Looking out 3 years or 5 years is lodging even greater share of the business than it is today?

It's probably going to be in that 10%, 12% of revenue area. It's a business that is very strategic for us for our own purpose to support our own needs for our own staff, and so it's an integral part of lowering our turnover and keeping high quality people working for us. But it's also a very it's a very strong business for us financially, so it's one that will probably be in that range, I suspect.

I appreciate it. Best of luck.

Okay.

Thanks.

Thank you next question is Mr. Al Kaschalk from Wedbush Securities.

Good morning, guys.

Good morning Al.

Strong performance there. I want to focus on something we haven't talked about in a while, but was clearly a strength in the quarters is that landfill I believe is up 16% but sequentially it was up pretty well. Can you talk about, no pun intended here, the tail on this volume increase that you saw going forward and is that largely related to shale or are you seeing some other fundamental.

I think certainly in the Western area of the country in the US we are seeing nice growth as to some of the shale activity we mentioned there. Our Sawyer in North Dakota landfill is enjoying some nice growth because of the growth in the Bakken there. Our Ryley Alberta landfill is equally as impressive as a result of a lot of the opportunities there. And so I would say that that's a continuing focus. We now have over 10,000 roll off containers in the network. We are adding another 1,000 to our fleet because we believe that the volumes of solids coming out of our drilling activities and our refinery and upgrade our customers will drive more solid volumes into our plants. And so I would say that consistent based business is what we are really focused on and any of the projects or larger events will be just additions to the volumes in our landfills.

Then switching a little bit on gears here, I think with Peak it was a very well round company, large fleet of assets. Can you talk a little bit about sort of balancing integration there with the strong growth that you are seeing and the opportunities in terms of keeping the utilization rates up high, I think it's sold out is what you used for the next several quarters here.

Yes, I mean it Peak has got a great team of folks. They've got some wonderful facilities a great brand in the market place. We are a great partner with them because of our US presence where there is a lot of opportunity to improve on the overall utilization of some of those rental assets and waste treatment assets like their center fuses but because we are stronger financial partner for them help in increasing their capital spending and improve their investment and improve their overall asset base to support the needs of their clients. So, we are basically just backing the management team there and we are excited about what we can do together.

And then finally, could you talk a little bit about just the commodity or inflation cost if you are seeing it, and then if you do have available what percent fuel was of the business.

The fuel side, Jim, I don't have.

Yeah, fuel is still running like diesel for us still is up there on an annualized rate of $60 million plus so we are, that's a big, expense for us clearly. But the fuel surcharge as we talked about before being a pass through. That's how we cover that, an increase there. And I think year over year the increase in fuel for us was probably in about the $6 million, $7 million range. Other commodity costs clearly we used chemicals and neutralizers and things like that in our business that are affected by fuel price so we see some cost go up there. By far the largest cost but important asset are the people and labor and clearly with increases and normal turnover that you have just going from year to year particularly coming off the great recession, clearly that's one of our bigger increases and that's why we have our cost reduction programs. Does that help?

Yeah, it does. Thank you very much.

Okay, thank you.

Thank you next question is coming from Sean Hannan of Needham & Company.

Yes, good morning.

Good morning.

So you've been successful in cross selling with different sides of your business and also through the additional acquisitions and landfill is obvious example. I was looking to see if you could share specifically what services are benefiting the most from the cross selling and then part B realistically what could still stand to benefit more from cross selling but perhaps the momentum still isn't there yet for whatever reason and how could you potentially drive that?

Well, certainly in western Canada, a number of the services that we offer today are new services that we've grown from acquisitions we have expanded through acquisitions. A lot of the legacy services of treating waste and disposing of waste is still in its infancy in that market. So we have a lot of opportunity to now build on these relationships that we have with these clients of ours to add more treatment, more disposal, more recycling technology to meet their needs. And conversely in the US, a lot of their opportunities that we have is to expand our environmental capabilities across this growing energy and gas shale markets where they are looking for whether it be onsite treatment for frac water or the management of drill cuttings or the cleaning out of their storage tanks or providing solids control or frac tank rentals. There's a whole host of cross selling going on in the oil and gas area upon both sides of the fence. The chemical industry has been seeing some real benefits in our cross selling. We have some key specialists that are basically enjoying some of the relationships we have on the waste disposal side with some of our key chemical clients by going in with our specialty group and helping with their turn around work with their catalyst work and I think we saw overall about $37 million of increased revenue from cross selling standpoint just across the chemical vertical alone.

That's correct.

So it is working for us.

That's helpful. And then also you talked before expanding your lodging business, so roughly 150 million run rate. Your building some manufacturing capabilities in order to expand, I think you are hoping to get to about 200 million by 2012. When I see the news there is obviously a lot of attention around the lack of housing in North Dakota creating a number of problem.

right.

Was looking to see if you can discuss the degree that you are helping or actively discussing the ability to help more on the lodging front there and could this be a meaningful part of driving that incremental growth is that a lot of what the manufacturing is geared toward or, and then I guess part B is really when you are looking at that manufacturing is there a specific geographic region where you are looking to solve the problem more substantially.

Yeah, our manufacturing is a couple hours south of Calgary so it's not too far from US border when the moratorium is lifted in North Dakota we expect to build and relocate some capabilities into North Dakota to support our growth because we along with a lot of the oil companies are struggling both to find workers and house them. Our business is broken down into three categories. We have our lodges which tend to it be 400, 500, 600 person permanent lodges that work right on customer sites or adjacent to customer sites whether they are an open or closed camp. So we have a number of those facilities. We also have over 60 drill camps that range in size anywhere from 50 man drill camp to 24 man drill camp and those tend to be a little bit more mobile and transportable. And then we have over 400 well site units that work alongside the drilling companies right at the well head, and so each of those three areas requires growth capital to expand because of the demand, refurbishment, and replacement capital. So over the next three to five years we would anticipate in those three areas to continue to expand and grow our business. And it would be in North Dakota as well as it would be throughout western Canada.

Great, thank you so much for the color.

Okay.

Thank you next question is coming from Larry Solow of CJS Securities.

Hi, good morning.

Hi Larry.

Congratulations as well. Most of my questions have been answered, but I'll just throw a couple out there. Your EBITDA margin year-to-date is a little north of 17.5. I sense perhaps there's a little bit of conservatism in your 18% number for next year. Is that fair to say? Any comments on that?

Yeah, well actually when we set the guidance, we like to be able to do what we know is achievable and can draw a nice line to programs that we have. Clearly not having finished the budgeting process yet, we are still doing some refinement, so if we do need to do that, we will do that after the Q4 call. But, yes, there is an element much conservatism in there at this point.

Got you. It just seems like there's a lot of individual things you pointed to that could enhance margins and obviously I'm not saying it would be a perfect world to get them all, it seems if you get some of them and you do achieve your revenue targets it seems like your 18% number I would say seems highly attainable.

We appreciate the feedback.

No absolutely, better to under promise and over deliver we all like that. In terms of, Alan mentioned this has been growing team of improving utilization of assets that you have acquired and some also your legacy assets. Can you talk about how you have done that a lot with expansion into the US, I guess particularly on the oil field services area and anything in it particular could you highlight.

Moving center fuse packages down into Wyoming or into our US energy businesses head quartered out of Denver so the team out there is expanding their presence in a number of different oil and shale plays there and so as you would imagine, the business is a little bit softer in western Canada during the spring and summer growing and expanding in the US so moving assets across border and taking advantage of improving the overall utilization of some of those key packages I think is important to help them and that's where we hope to be a good partner with them.

I know Peak that has been a big piece of their growth. Are they still sort of running -- I remember when you acquired them sort of a little north of $40 million EBITDA run rate for 2011 is that still sort of where they are they still beating those numbers.

No that's roughly right they there probably a little ahead, but in that range.

Okay. And follow up in the pricing chat, I know we were a little early in the 2012 outlook where you stand today do you think it would be more of the targeted price increases and the higher demand areas particularly in the incinerators in western Canada or do you think potentially you could expand those initiatives.

I think we are focusing pricing across our business today more than we were six months ago and I think we continue to look at replacement costs for the incinerator let's say and realize that our current pricing does not support the kind of amount of capital needed for replacement of one of those units and to build out further expansion capacity which we know we are going do need in the states. So pricing is important part of our ongoing initiatives here. We realize that to improve our overall EBITDA margins to that 20% and beyond pricing has got to play a role in that. So that's part of our plan for sure.

Okay. And I jumped off the call for a couple minutes I know you talked about your CapEx and a lot of that is growth capital. It seems like a lot of these projects are high return and some of them multiyear projects would you expect this number to remain in that vicinity looking out into 2012 in terms of CapEx.

Yeah, I think so Larry. We are going through that now in the budget and trying to look at during our budget what CapEx is needed to be able to achieve some of the growth but from a very preliminary standpoint I would say yeah probably that $160 million level next year is about right.

Last it question, I know in terms of any update on, I guess it was the plan or potential to open up a new kiln is that still proceeding on schedule or.

We are still looking at it certainly the first budgets that came back from the engineering design was considerably higher than from a return on investment capital we just weren't going to get there. And so we are looking at that and I think it kind of speaks to the pricing issue still on the incineration side there's a long way to go to get that back up to more normalized rates.

I appreciate it.

Thank you Larry.

Thank you our next question is coming from Michael Hoffman of Wunderlich Securities.

Thank you very much for taking my call.

Thank you.

On the incineration utilization for remainder of 2011, where do you think you will end up?

I think that we will be at that roughly 90% level for the rest of the year. As you know we dipped down a little bit below that in Q3 because we had an unplanned shutdown at one of our sites, but we think that going through Q4 we should be right around that 90% level even though in the environmental business we start getting seasonally slower but we are saying that over all around that the 90% level.

Given that is regulated on BTU basis is there ability to maybe catch up some of that two weeks in the fourth Q activity?

I think the plant was scheduled for one of the trains on there was scheduled for a normal shutdown in the fourth quarter which was now pushed up into the third so we should see a number of down days improve substantially in the fourth quarter also.

Great and can you remind us what's in the fourth quarter from the Gulf and Michigan last year?

That was about 20 million.

Okay. And then on the lodging I would think lodging could be being pretty good indicator for you so there's pre-selling of space so could you talk about utilization if you will of that pre-selling of the lodging capacity.

Yeah, and our exploration and survey business also is a great business that looks out two or three years at what's going on in some of the different markets and we are seeing real strong demand in that space as well. So our lodging business, the team is doing a nice job of getting more longer-term contracts to try to look well beyond 2012 and 2013. Most of, you know, the changes that we have put in place, if we are going to be build out a $20 million camp we it have to have a 5year kind of deal and look at it more of a longer term and we are certainly seeing that kind of visibility in some of the major projects and investments that are being made.

Okay. And on that vein, in your mind, what level does the commodity fall before you would see any change in activity.

Well, for most of the work that we do up in the oil sands is for sites up and running and permanently in place except for the winter drill programs and some of the growth that's going on with construction of new mines or new upgraders, I think if you saw a capital markets problem or a price of crude in the $50, $55 range maybe there would be curtailment of new CapEx being invested but for all the stuff that's in the ground and needs to be maintain and serviced which encompasses about 600 of our employees up there, I wouldn't see commodities having too much of an impact on that stuff.

Okay. That's what I thought. And then you have a target of 20% on your EBITDA. Given the pace of improvement here, does the time line for hitting that target move, come sooner and can you talk about that?

I think when you look at the margins from the incremental revenues and the leverage in our business coupled with some of the cost reduction initiatives, you are seeing that will be in that 20%, 25% range right now and so that certainly helps it drive us overall to get to that 20% level. But the timing is certainly going to be out, certainly beyond next year. But that's certainly our short term goal.

Okay. And then just I'm picking up on a question earlier. Your fuel surcharges, what percent of your quarterly cost in fuel did it, cost increase did it overcome.

Well, I don't have, it generally was, I mean before I said the diesel went up about if $7 million, quarter over quarter and that's about how much the fuel charge went up as well.

Okay. So to do the margin comparison it's a zero margin pass through that's the number we should take out of sales take out of expenses and that's another sort of 25 basis points improvements in your margins.

Yes.

Just to be clear, your $15 million to $20 million a year in cost saves is greater than the structural inflation you have been seeing, is that correct?

I don't have that number. Just across all the businesses. I mean some businesses have more inflation than others. I don't have a specific figure on that Michael.

But instinctively, would you think that's a truth that you cover your inflation plus something?

Absolutely, yeah. I do it believe that.

Okay, and then on the cross selling, I have a sense that you sort of have three disciplines of it disposal cleaning and maintenance or maintaining. Can you sort of point to either a place where you have a lot of room left to leverage in one of those three buckets or have made extraordinary strides so we understand the next round of this opportunity?

Well, I think there's still a lot of cross selling to be done. We got into the industrial services business and the oil and gas business in a big way only within the last two years. So there's still a lot of cross selling to be done. I don't know what.

Yeah, no, I would say of that we are in, that's going to be an ongoing forever type thing where we are going to look at the customer base that we have and expand the lines of business with them when ever those services certainly are needed. Obviously the types of services that the hospitals and universities for example need we're pretty much providing all of them we will be expanding more of waste capability to service more of pharmaceutical waste and med waste side as an example. Most of the services that they need, we already provide for them. Where as in the chemical industry or the oil and gas refinery industry, there's a lot of additional services that we can offer. So I would say Michael we are in the early game there.

Okay, so it's early innings. So that's good to know. Lastly, the EPA has talked about now wanting to regulate fracing water, do you have any thoughts sort of the direction they are going to take this. I think what they did on boiler rules or on coal ash, they seem to have taken fairly aggressive views of how to characterize that. Do you have a sense where this is going on the fracing water side?

I think there's a lot of talk both of locally and by state as well as at the federal level and I think it's going be quite some time before people really have a clear idea of where they are going to go with it. And what how clean is clean in regarding reusing water and what's going to be acceptable to offsite treat certain types of waters. I think it's too soon to tell.

All right very good. Thank you much.

Thank you.

Thank you Mike.

Thank you next question is coming from Jamie Sullivan of RBC Capital Markets.

Hi guys. I just have one question. It sounds as if you're seeing a little bit more visibility with some of the longer contracts. You talk about the turn around you talked about some of the longer visibility in lodging in those areas. I'm just wondering about some of the more cyclical areas like chemical and manufacturing just sort of your initial thoughts next year whether you have some confidence in cross selling or just what your thoughts are on some of those end markets.

We haven't seen any slow down with the chemical industry or the manufacturing industries that we service and I think low cost of natural gas has certainly played a role in helping keep those plants running and being maybe an exporter now rather than importer of both plants and jobs as well as products. So I think at least from the meetings that we have recently had with our sales leadership here, people feel pretty good about the economic activity across the majorities of verticals out there today.

Okay thanks a lot.

Okay, thanks, Jamie.

Thank you. Our last question coming from Luke Junk of Robert W. Baird.

Good morning, first just on the oil and gas field services. I know you discussed the second acquisition relating to catalyst capabilities. Were there any other areas that you saw some tuck-ins during the quarter that would be worthy of noting?

I guess in the exploration side, the surveying, line clearing, those of parts of the business that are part of exploration, we had a very nice tuck-in during the quarter and clearly that is giving us more of a North American presence whereas before we were pretty much concentrated in western Canada so that was a key add there to oil and gas.

Okay. And then just on technical services, did you by chance have utilization numbers between US and Canada.

Yes the let's see here, the US was a little over 86% and Canada was 95%.

Okay, thanks guys.

Thanks Luke.

Thank you. At this time I would like to hand the floor back over to management for closing comments.

Thanks everybody for participating in our call this morning and we look forward to updating you on year end at our next quarterly conference call. Thank you.

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