Clean Harbors Inc (CLH) 2012 Q1 法說會逐字稿

Greetings and welcome to the Clean Harbors, Inc. first quarter 2012 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 introduced your host, David Musselman, General Counsel for Clean Harbors, Inc. Thank you. Mr. Musselman, you may begin.

Thank you, Melissa, and good morning everyone. Thank you for joining us today. On the call with me our 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 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, May 2, 2012. Information on the potential factors an risks which 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 additional 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, which can be found on our website, Clean Harbors.com.

And now, I would like to turn the call over to our Chairman and CEO, Alan McKim. Alan?

Thanks, David, and good morning everyone. In Q1, we saw a continuation of many of the same trends we've experienced in recent quarters. It was another solid quarter for the Company and a good start to the year.

Our revenue increased 32% due to a combination of the acquisitions we completed in 2011, and steady organic growth across nearly all of our segments. The quarter's results also continue to reflect the leverage in our business model with both net income and EBITDA growth outpacing revenue.

Q1 was historically a lower revenue in March and quarter for us as it is a seasonally slower period for our environmental business. However, with our expansion in the energy and industrial space, we've offset much of that seasonality and adopted more of a balance for Q1 in terms of both revenue and margin.

This year we delivered an EBITDA margin of 17.6%, which we were very pleased about. We saw a good mix of business in this quarter, but our results were largely driven by our energy and industrial business.

Geographically, as expected, the west and Canadian region was extremely busy this quarter, but we also experienced healthy levels of activity throughout much of the US and Canada. Unseasonably warm weather in the quarter benefited our environmental business, which led to increased volumes and an early start for some client scheduled for the second quarter.

Turning to our segments the technical services segment had a strong Q1 in what can typically be a weaker quarter. Incineration, utilization was 90%, with both our US and Canadian locations performing well. This rate is up from 85% in Q1 a year ago and consistent with Q4.

Our landfill business had a very good Q1, increasing volumes by 19% from a year ago as we benefited from activities in the oil patch in western Canada and particularly the Bakken oil field. Our field services segment had a steady quarter in Q1.

In what is frequently a weaker quarter for this segment, we did not generate any year-over-year growth. We did see a consistent stream of routine maintenance and project-related work, however,there was no emergence response revenue related to major events this quarter. Our industrial services segment grew nearly 40% from Q1 a yea ago.

While some of that growth was acquisition-related, we did generate some nice momentum in the business. Heightened activity in the oil sands region was a significant contributor to this segment in Q1. Demand for our broad array of specialty services also remained high in the quarter.

And lastly, we had another strong quarter in lodging, particularly our camps business. The acquisitions and internal investments we have made in lodging continue to benefit us both from a customer demand perspective, as well as managing our own workforce needs.

While discussing the industrial services segment, I did want to point out that we recently divested our catalyst business outside of North America. It was a very small line of business for us in the neighborhood of only about $10 million to $11 million in annual revenues and the business did not fit our long-term strategic plan. In addition, it would have required significant investment in order to properly scale it, so we sold it to the current management team.

Turning back to our segments, oil and gas field services achieved significant year-over-year growth, nearly doubling from Q1 a year ago. While acquisitions played a large role in that growth, our core oil and gas field service business had a great quarter. Activity in western Canada was at consistently high levels, as investments by major energy companies continues unabated. This segment also benefited from shale play related work throughout the US.

Here's a quick snapshot of our how our key vertical markets performed in Q1. Not surprisingly, oil and gas production remained at our largest vertical this quarter at 21% of revenue. This was driven by the seasonal Q1 activity and our legacy transport downhole and exploration services combined with our Peak acquisition.

Oil and gas exploration essentially tripled from a year ago to account for 16% of revenue. This increase reflects the addition of Destiny, along with solid growth in our legacy exploration and directional drilling business. Refineries and upgraders were our third largest vertical at 12%, down slightly year-over-year due to one large project that we did, a one-time project we did back in 2011.

The chemicals vertical was also at 12% of revenue as we saw activity rebound from a soft Q4. Other significant contributors in Q1 included our general manufacturing at 6%, our broker business at 5%, as well as utilities, government, and several others that were at 3%.

Looking ahead, we remain encouraged about our prospects for profitable growth in 2012. From a margin perspective, we intend to drive increased efficiencies and capitalize economies at scale across the organization as we continue to grow. We are seeing further anecdotal evidence that a general economic recovery is ongoing in North America. We see positive industry trends supporting our growth, particularly in the energy and industrial areas of our business.

Rate counts continue to rise and levels of investment by energy companies and liquid-rich plays are showing no signs of slowing down. We have a variety of internal growth initiatives underway to extend our top line momentum, including cross-selling programs, marketing outreach, and growth-orientated capital investments.

In addition, as we did throughout 2011, we intend to remain active on the acquisition front. We have several small strategic opportunities in our pipeline and we also continue to evaluate more sizeable opportunities across all four of our operating segments. Even with the acquisitions we completed in 2011, and the levels of capital we are investing internally, we concluded the quarter with more than $247 million in cash and equivalents, which we plan to put to work in the near-term.

With that, I will turn it over to Jim for the financial review and guidance. Jim?

Thank you, Alan, and good morning everyone. We delivered another excellent quarterly performance, achieving Q1 revenues of $572 million, which reflected strong results across the board. As Alan outlined, the 32% increase in revenue was driven by internal growth as well as the contributions of our 2011 acquisitions.

While we are not able to provide a precise percentage of organic growth due to the full integration of the acquired companies into our organization, we estimate it to be nearly 10%. Gross profit for the quarter was $171.7 million, or a gross margin of 30%, which is up 190 basis points from 28.1% in the same period last year. This improvement is due to the higher revenues, as well as our cost control programs and comprehensive margin improvement initiatives.

Turning to expenses, SG&A in Q1 was $70.8 million, or 12.4% of revenue, compared with 12.6% a year ago. Our SG&A percentage this quarter was just below our target range of 12.5% to 13% of revenues going forward. We are seeing the benefit of our ongoing cost reduction efforts and the additional economies of scale we are gaining from our recent acquisitions.

On our Q4 call, I discussed our ongoing cost reductions initiatives, such as internalizing vehicle and equipment maintenance costs, lowering recruitment costs, reducing procurement costs, and decreasing turnover. For 2012, we are continuing to target $30 million in overall cost reductions, which includes some remaining synergies from the Peak acquisition. We believe these reductions will offset increases we expect in labor, commodity, and healthcare costs.

Depreciation and amortization increased 45% year-over-year to $36.8 million, primarilyreflecting our acquisitions, in particular Peak, which added more than 4,000 pieces of equipment. We expect our 2012 depreciation and amortization to be in the $145 million to $150 million range, excluding any additional acquisitions we might complete.

Income from operations was $61.7 million, or 10.8% of revenues, compared with $39.7 million, or 9.1% of revenues in Q1 2011. We generated EBITDA growth of 49%, surpassing the $100 million mark for the second time in our history. We came at $100.9 million, or a margin of 17.6%, compared with $67.6 million, or a margin of 15.5% in Q1 of last year. This 210 basis point improvement reflects economies of scale resulting from our revenue growth, the success of our pricing initiatives, productivity gains across the organization, and ongoing cost control initiatives.

Our effective tax rate for the quarter was 36.1%, compared with 37.1% in Q1 of last year. This reflects the strong contribution in the quarter from our Canadian businesses where the effective tax rate is marginally lower. For the full year, we are estimating our effective tax rate to be in the range of 36.5% to 37%, which is lower than our previous estimate by 50 basis points.

As a result of our strong revenue growth in the quarter and the leverage in our business model, Q1 net income increased to $32 million, or $0.60 per diluted share, from $22.7 million, or $0.43 per diluted share last year. We continue to maintain a healthy and clean balance sheet.

Cash and marketable securities were $246.5 million as of March 31, down from $260.8 million at year-end. This sequential decrease was largely expected as the first quarter is generally a cash intensive period due to the payment of annual employee bonuses and commissions and the timing of our interest payments. Our cash position has already begun to increase moving into the second quarter and as of today, it is approximately $260 million.

Total accounts receivable increased to $493 million at quarter end from $479 million at year-end. On the Q4 call, I spent some time discussing a spike we experienced in our days sales outstanding in Q4 related to customer arrangements having longer payment terms in some of the acquired businesses and many of these new customers being on a month end billing cycle.

In Q1, we decreased DSO to 80 days from 82 days we recorded in Q4. However, we continue to believe it will take us several more quarters to work our way to our target DSO level of 70 days or less. We are still working through the existing contract cycles we inherited through acquisitions.

CapEx for Q1 was approximately $28 million, down from the $35 million we spent in Q4. We are continuing to estimate CapEx for 2012 in the $180 million range, and of that total, approximately $70 million would be designated as maintenance CapEx. The remaining $110 million would be targeted toward the numerous high return opportunities we believe we have available to us across our segments.

Moving now to our guidance, our first quarter was stronger than we expected and some of that was at the expense of Q2. As Alan mentioned, with the warmer weather, we saw some pull forward in activity as some Q2 projects got an early start in Q2. Conversely, due to the warmer weather in western Canada, we also experienced an early and rapid break up season, which will reduce some of our Q2 activity up there.

We are maintaining our previously announced annual guidance. We continue to expect 2012 revenues in the range of $2.2 billion to $2.25 billion. We continue to expect EBITDA in the range of $400 million to $410 million, which implies an EBITDA margin greater than 18% for the full year. I should point out that this guidance is exclusive of any potential acquisitions.

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

Yes, thank you. We will now be conducting a question-and-answer session. (Operator Instructions). Our first question comes from the line of Al Kaschalk with Wedbush Securities. Please proceed with your question.

Good morning, guys.

Morning.

I guess, Alan, if you could add a little bit more color on the last comment there that Jim was making on the rapid break up at the end of -- or early March and that transition into Q2. Does that necessarily change your expectations from a revenue perspective? And then also maybe you could add some color as to the specific segments that you're going to see the pushes and the pulls and the drags, but also the rate of intensity on the business for the balance of 2012.

Okay. Certainly with the business now being more balanced, particularly in the first quarter, April will tend to be more of a transitional month for the Company. You tend to bring a lot of assets back in from the field, you tend to have more maintenance, turnaround of that equipment, and sort of readying those assets to be redeployed back for the spring and summer work, as well as particularly the heavy shutdown part of our business.

You do have, not only the road bands that impact our business out in the field as far as accessing to maintenance work, particularly out in the oil fields, and, quite frankly, even our own plant. So we wait until after the first quarter to do shutdown work at our incinerators, to do turnaround work at our incinerators, so there is -- April is always going to have that transitional piece to it. And I think what also is certainly true in our business is moving more from the gas-focused work to more liquid-rich or the oil drilling and the oil activities, particularly out in North Dakota.

So we, as the price of natural gas shifted and deteriorated below $2, we saw a shift of our customers into newer areas and so we're transitioning our equipment to meet those needs. So you have a little bit of that activity going on and this year, as you know, we had just a very mild winter and across all of North America and that really benefited our workforce, it helped us be much more productive, I think, and completed a lot of work in the field even sooner than expected.

So I don't think we missed out on anything like we typically would have done in the past where you have major storms that shut us down for literally days on the East Coast type thing. We didn't have any of that this year. So that, I hope, gives you a little color about what's happening, Al, in the business out there.

Did that help -- does that imply that your -- or suggest maybe your utilization rates was something you had to deal with but given perhaps some of the adjustments you made in prior periods plus working with your customer base, you were able to shift equipment at a -- sort of as expected given the events, namely weather, that broke up the season early and maybe pulled forward some of the turnaround on the refining work?

I don't necessarily think the turnaround work had pulled forward but certainly some of the environmental projects, we were able to get shovels in the ground earlier this year because you didn't have that significant frost and snow and we didn't have the floods like we it last year. It's been real dry across the network here.

So weather certainly impacts our business and I think each year we will probably have a little different story as the impact to our business is somewhat driven by weather, but I think all-in-all, we're really pleased with the first quarter, we're ahead of plan, and feeling really good about the year. But it's still early in the year and so we felt leaving our guidance where it is for the full year was appropriate since it's just the first quarter, but the business is very strong.

The team did a great job executing the issues of filling the roles. The key positions that we had over the last couple years I think has improved, sowe're able to bring on more seasonal workers and have more staff that we needed and I think that each year we're just going to get better and better at doing that.

Okay. And then, Jim, I'm sure you can get ready for the revenue and EBITDA by segment, but my question is is there any change in the allocation of capital of the $180 million for 2012 or maybe you could just refresh, and I probably asked the question last quarter, but refresh where that spending is going for 2012?

Maybe I will just make a quick comment and then Jim can certainly chime in, but absolutely, we have curtailed some of our CapEx spending for the gas side of our business. We were expecting to expend more capital on that and we pulled back some of that capital knowing where that side of the business is going with some of our key customers curtailing some of their CapEx spending, but I think redeploying that capital into other areas. So we don't have a limitation on investments that our team is looking to make. The question is what gives us the best return on that investment and the whole issue of resiliency of some of these assets. But, Jim, maybe I will let you follow-up with that.

Sure, absolutely. And besides what Alan had talked about where our changing the timing of some of the centrifuge equipment and equipment that supports the gas side of the business as that shifts over to the liquid-rich and oil gas plays, clearly the need for some of that CapEx will fall into the later part of the year, and that's why you kind of see it light in the first year.

It's less than $30 million but yet we are still sticking with the $180 million. But aside from that, there's still the -- we're doing some landfill expansions, that's probably about $15 million, we're buying rolling stock that supports a lot of cross-selling and the growth of the business, that's probably in the $60 million range, we're investing in our containers, that's probably in the $10 million to $15 million range. We're expanding some of our lodging and drill camps, as well. That, we're looking at right now, but right now presently may be somewhere in the mid-teens.

So it's those kind ever projects and the continuous facility improvements and typical improvements that we make across our business. But really no substantial change in what we're looking at. But to Alan's point, we're doing a lot more in terms of ROIC and looking at our projects and really getting our business folks to compete for capital expenditure dollars because, clearly, there's a lot of areas we can invest in, but we want to make sure we maintain our hurdle rates and really have those growth projects pay for themselves quickly. So hopefully that helps, Al.

Excellent. Thank you.

All right, thank you.

Thank you. Ladies and gentlemen, to allow for as many questions as possible, we ask that you keep to one question and one follow-up and then rejoin the queue. Our next question comes from the line of Rodney Clayton with JPMorgan Chase. Please proceed with your question.

Hi. Good afternoon, gentlemen.

Morning.

Good morning.

So first I want to ask about pricing. You mentioned I guess in the last couple calls that you are targeting about 3% price initiative across the business. Just looking to get some color on how that's progressing. I would imagine just given the strength that you are citing across the business that you've got some pretty good traction there, so just some color on how that's going.

Sure, Rodney. This is Jim. We definitely have good traction here. I talked in the earlier call about our VPs of Commercial Operations that are completely engaged in the various parts of our business to look at pricing and do what's fair out there, and as I mentioned before, we look at our businesses in three major components, the volume-related businesses, which is pretty much the way streams that we take in, the services side, that includes the field service and the industrial services that we do at our clients, which is obviously time, equipment, and materials pricing, and then in the spread businesses, which is mostly the recycling, that what we're bring in that we make good margin when we sell recycled products, so that's moving right along.

We had talked about back in Q4 that we estimated three-plus percent, which is about what we achieved last year, about 3% going forward this year, and we still stick with that. We think we're going to be fine.

Okay. Good.

Excellent.

Secondly, I just want to cross-check a couple of things with you relative to what we have heard from some other companies this week. Were there any -- have you seen any deferrals in your refinery turnaround business? And then, secondly, one of your competitors mentioned the EPA was reviewing their thermal desorption business with respect to the agreement they have set up with the city or with the state there in Texas. Have you seen anything similar to that? I'm just trying to get a sense for if that's a one-off or if this is part of a broader EPA crackdown.

No, we -- this is Alan. We haven't seen any change. I mean EPA has certainly been very active in inspections and regulatory oversight over the last several years and we continue to see a lot of activity regarding visits and audits of our sites, but it's nothing unusual for us. And that's true in both US and Canada.

And we're excited to hear some of the activity going on in the east regarding the refinery business. We know that we've had a lot of shutdowns, there's been some recent activity going on in the last week or so here. But, overall, our refinery business was roughly flat with a year ago, but we had about a $20 million large event in the first quarter of last year that was due to a fire and a major issue at one of our clients, so putting that aside, our refinery business grew and we've got a strong turnaround schedule in front of us.

Okay. That sounds good. I will jump back in the queue. Thank you.

Okay.

Great. Thanks, Rodney.

Thank you. Our next question comes from the line of Jamie Sullivan with RBC Capital Markets. Please proceed with your question.

Hey. Good morning.

Good morning.

Just a question on the outlook. If we take the -- if we just analyze the first quarter EBITDA, we're sort of at the mid-point of the range, and you typically get higher margins as you go throughout the year. Are we looking at the usual conservatism that you account for and maybe you can just comment on the level of seasonality that you have now for the overall business with the current mix?

Sure, Jamie. First of all, there is conservatism built into this and as I probably described before that we try to, when we look forward for the year, to try to estimate that business that we know we can get to that we see a clear path to getting there and certainly anything like emergency response or anything of significance beyond that would be upside. So definitely there's an element of conservatism in here.

The seasonality question is a great one, and as Alan alluded to, it is interesting when prior to 2009 when we were only in the environmental side of the business, there was that strong seasonality factor in Q1 where the winter months affect the business in a negative way and then really pick up in the spring. Now, with the western Canadian piece of the energy and industrial side of the business, you see the opposite impact where winter is very good up there and oil fields and with the work that's done up in the oil sands. So you do have the opposite impact there and it does kind of level us out.

So to your point, it is somewhat leveling. But it makes Q2 to be more of a transition quarter, as Alan alluded to, with April because you have one set of businesses working its way down and the other set working its way up. I mean not materially the way, even what we talked about before, any potential pull through, that's probably $10 million. We're not talking about big numbers here that we're pulling from Q2 even in that sense, but Q2 becomes more of a transition and Q3 should be very, very strong followed by Q4.

So it has changed the seasonality a little bit, but I would say that the difference now is immaterial from quarter to quarter because there is that balancing. Hopefully, that color helps, Jamie.

That is helpful. And then just a quick question about the longer-term. Alan, around chemical manufacturing in the US, the low nat gas prices, obviously, a lot of discussion around chemical projects, manufacturing expansion, as well. Just what you are seeing today relative to those trends and how you see those potentially benefiting Clean Harbors' over time.

Well we had a national sales meeting the last couple weeks and the feedback is absolutely positive in regard to the impact that the natural gases had on manufacturing and chemicals. It is driving volumes, which is in turn driving the utilization of our incinerators. We saw some price improvements in our incineration business, and so all of that is absolutely behind that and we expect that to last and continue to drive both productivity improvements, as well as new plant construction.

Great. Thank you.

Thank you.

Thank you. Our next question comes from the line of Rich Wesolowski with Sidoti & Company. Please proceed with your question.

Thanks a lot. Good morning.

Good morning.

Jim, related to the discussion of cost inflation in labor and commodities, I'm wondering if you have an estimate of the percentage inflation you're facing absent any cost increase from volume?

Well, it depends upon the area of cost, but clearly, I will just take a shot at some of the areas. I mean if you take healthcare, for example, that's definitely in the 10% range, I would say, the increases that we have seen. And then clearly on the commodity side, clearly the cost of diesel and any oil-related products that we use clearly has gone up substantially. We do have that fuel surcharge that we put on our invoices so we do cover ourselves that way, but you also have commodities such as the PPE that we use that has its roots in some of the commodities like oil, plastics, and so forth that comes into the business that we use at our sites.

That has all seen inflation, so there, you're probably in the mid-single digits growth year-over-year, but that's why it's so important that we have our cost reduction plan and that $30 million that I talked about, which includes some of the Peak synergies, probably $6 million or $7 million of Peak synergies, but we need to have those cost reduction programs in place to offset a lot of these other cost increases and I would estimate, though, that probably half is eaten up by other increases in our business as you were alluding to and probably half falls to our EBITDA line.

The other big area, just to mention this because it's so important, I mean at the end of the day, we're a service company and our labor costs, if you add all of our labor and labor-related costs, they're probably $700 million or $800 million, so even a modest increase of, let's say, 3%, is a lot of money. So there's a lot to cover there and that's why it's so important to have these cost reduction plans in place. So does that give you a sense of that there, Rich?

Gives me an excellent sense. Is the 3% labor on the $700 million, $800 million is that about what you're facing right now?

Roughly. Yes, ifyou include turnover and so forth. The whole thing, it probably averages somewhere around there.

Okay. And then secondly it seems there's now a wider opening to go after 2012 volume from the GE Hudson River project. Is the Company still vying for work there and do you have any idea if the field of potential disposal providers has widened from the three companies that were sanctioned from bidding in 2011?

You know, we typically wouldn't comment on a particular contract like that, but we're certainly a national provider for landfill waste and we expect to continue to be in that business for a long time.

Right. Last quick one, just broadly, encapsulating all of the discussion of the pull forward and the spring break up, etc., is it reasonable to assume your Q2 is going to be similar to your Q1?

Well, I think there is probably that pull through that I mentioned before of $10 million so without giving exact figures on Q2 because we clearly only do the annual guidance, but probably somewhere around there is the $10 million difference, I would say.

Understood. Thank you very much. Best of luck.

Thank you.

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

Thank you. Hi, good morning.

Morning.

First off, I was wondering if you could discuss the future impact of the energy production shift from dry to weight plays. It sounds like you're in the midst of that if I'm hearing you correctly. It seams like that's been going on for a while, the natural gas price has been falling for a while. Could you tell us are you in the eighth inning of that or are we in the middle of it right now.

I think in western Canada, that's long behind us. I mean, that's been impacting the conventional gas up there for a long time. And in the US, we are certainly seeing a shift from the Marcellus area, let's say for example, to moving mover to Utica or another place so. In the US, I would say we're sort of midway through that transition. With that being said, we're moving with the rigs, we're moving with the crews.

Our asset utilization continues to be very good in that business. The expected growth I think is where we reduce some of the capital this year in anticipation of expected slowdown in the Pennsylvania area particularly. But I think, we're doing very, very well. Our team is extremely focused on driving the high levels of utilization for all of our assets in the field.

I think you're quoted as saying less than $100 million of your revenues are related to natural gas end markets, is that still the case and is that number bottoming out or does it go lower from here?

I think that's sort of a good directional number I think in regard to the exposure that we have in some of those gas plays that I have talked about in the past. And the business, obviously, doesn't go away overnight. It just is -- it does get impacted and it does shift, and so it might grow more in some of the other liquid-rich areas than it currently is today, but there's still a very high demand for the services that the Company offers and we're moving to meet those demands.

Right, okay. Thank you. And then just finally, could you talk about your cross-selling efforts and maybe any estimate for incremental growth this quarter from the effort. I think initially you were targeting chemical and you were talking about utility and ultimately refining, but what are your goals there, what are you targeting, and if there's any metrics you can give us.

Probably no metrics because we're doing a lot of cross-selling across a lot of different industries, as you know, but we used chemical last year as an example where we saw probably $40 million plus of cross-selling revenues in that vertical alone. But, again, thinking about the sales meeting we had and discussing the opportunities that we have in the various markets that we're servicing, there is a lot of cross-selling and we're really in the early stages there.

Some of the acquisitions that we've made have only begun to really see that cross-selling taking place with their customer bases, with environmental, for example. So we're pretty excited about the future there from an organic growth standpoint. I think Jim mentioned probably about 10% of organic growth in the quarter. That's going to continue and a lot of that is a result of the cross-selling.

Sounds great. Thank you.

Thank you.

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

Good morning, guys. Jim, as usual, first question I've got is just a breakdown of sales in EBITDA by segment if you can give that to us, please.

Oh, absolutely. The Q1 revenues were of the $572 million, tech was $219.5 million, field was $47.5 million, industrial services was $152.6 million, and oil and gas was $152 million. EBITDA in Q1 was -- the total, obviously, was $100.9 million, tech was $50.8 million, field was $2.3 million, industrial was $34.7 million, oil and gas was $38.4 million, and corporate, obviously, a negative, was $25.2 million.

I also wanted to mention that what we had done, there were some branches that we moved from -- within the environmental area, we moved from the field to the technical area because it had more to do with waste treatment than field services. If you looked at Q1 of 2011 last year, we moved about $9 million of revenues from field to environmental. And then within the energy and industrial side of our business, we moved about $4 million from our oil and gas segment to our industrial services segment because the nature of what they were doing was more turnaround work than oil and gas.

So I want to just quickly just give the revenues and EBITDA numbers for Q1 of last year just so that you have these restructured numbers, if you will, with those changes so you can do your comparisons. So last year's revenues was $435 million, tech was $199.4 million, field was $49.5 million, industrial was $109.4 million, oil and gas was $77.1 million. and on the EBITDA side, of the $67.6 million total in EBITDA, tech was $47.7 million, field was $4.0 million, industrial was $24.3 million, and oil and gas $13.7 million, and corporate was a minus $22.1 million. Thank you, Matt, for asking that there.

That's helpful. So one follow-up I've got with regard to the refinery business, Alan, you mentioned it was down about 1% in terms of the overall mix of the business year-over-year and that was mostly tied to a large project from last year. Can you remind us how big that large project was last year and if you exclude that, how did the refinery business grow year-over-year for you guys?

Well, I don't have the specific numbers here, Matt, but our refinery and upgrader business is roughly about $70 million in the quarter, which last year was about $74 million. And as I mentioned, I think that big project was close to $20 million. I just don't know if it was all covered in that first quarter or whether some of that went over into the second quarter.

I think some of it did go over to the second quarter, so there would have been growth and probably to the tune of probably high single-digit if you took that out.

Yes.

That's helpful. The last thing I've got is on M&A pipeline. Alan, you made reference to it in your prepared comments, but is there anymore detail you can give us around sort of the what the focus is for you guys right now or is it really that you're casting a wide net and trying to take whatever the best opportunity is at the time regardless of which segment it's in?

Well, I think, certainly, more strategic than that. We're looking at a lot of deals and we see a lot of deal flow. We have passed on a number of them. Some of it has got to do with multiples, others cultural fit. But I think we constantly are looking at ways to continue to expand geographically to drive more waste volumes into our plants.

Anything around those two areas where we have leverage in the business, we can leverage our systems and our infrastructure is a real focus of ours. And as you know, we're a billion dollar environmental waste disposal company and we really enjoy some tremendous margins as we drive more volumes into those fixed facilities and that, I think, from -- and the first standpoint is what our effort is and our focus is. But that being said, there are opportunities across all four segments, the field service segment, we see deal flow, in our industrial segment, our oil and gas, and certainly in the waste disposal side of the business.

Alan, what kind of M&A multiples are you seeing and remind us what your target is that you're willing to pay just to kind of help us gets a sense for the ones you're passing on how high they're getting.

They're somewhat all over the board, as you would imagine. Some of the less -- some of the businesses that don't have significant barriers to entry or permits, the multiples are in the five plus range times EBITDA and others that may have a significant permit or technology, you're looking at eight or nine times expectations out there.

And so looking at combining companies, synergies, trying to justify those higher multiple sometimes is just not possible even with the synergies that you think you can gain, and so we've had to walk away on some of those higher multiple deals out there. But that sort of gives you an idea, that five to eight times range is a range that we're seeing in the market today.

Okay. That's helpful. Thanks.

Thanks, Matt.

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

Morning, Jim.

Morning.

Thank you taking the questions. Can I follow up, if I may, on your (inaudible) about the transition from 1Q to 2Q, is it fair to interpret 17.6 is the margin, slight dip in Q2, strengthens in three and four, and you exit the year at something greater than the Q1 EBITDA?

Yes, absolutely. That's right, Mike.

All right. Thank you on that. And then within the context of the deal market, are you seeing an increased level of seller interest because of the changing tax curve coming at us?

Not necessarily. I think, particularly in the field service business, we have a lot of mom and pop or $15 million or $20 million size field service companies. You do see it in that pace, but pretty much not anywhere else than that.

Okay. Just one last, if I may. You were asked about this cross-selling, but can you talk about it in a context of geographic issues?You've done a very good job of developing field services operations in the eastern part of the United States. An area you'd like to concentrate is sort of the western part of the United States and how is that happening and can you talk about the development of that?

Yes. Geographically, I mean we've got I think over a thousand people on the West Coast right now and we have been growing significantly there. The California market is a very large market for us, as you know. We've got significant assets there, as well as great staff. So that is part of our growth area for sure in the West Coast. And if you look back, you know, probably five years ago, it was half that. So that continues to be a nice area for growth for us.

Thank you very much.

Thanks, Michael.

Thank you. (Operator Instructions). Our next question comes from the line of Larry Solow with CJS Securities. Please proceed with your question.

Hi. Good morning, guys.

Good morning, Larry.

A lot of my questions have been answered. Just a couple of follow-ups. You had spoke about pricing on incinerators, which I imagine is driving a good portion of the increases in price. Could you just maybe discuss the sort of the industry outlook?I don't believe anybody else has added capacity, but where we stand there and what you're doing in terms of El Dorado, an update on that, and if there's any updates on possible closures of any incinerators.

Sure. As you know, we track closely what our customers are doing onsite with what their own incinerators and we continue to field a lot of inquiries regarding capacity needs that they're going to have as they contemplate shutting down those facilities and that really hasn't changed that much other than we continue to feel that we will have a need to put additional capacity in place over the next three to four years, thus, the reason for us to build a new plant.

We are in the design phase of that, as we have mentioned in the past. We have allocated capital this year for that, and we, over the next two or three years, will be building out that capacity and, hopefully, timing it at a time when customers will need that extra capacity. We are extremely busy in our incineration business right now and we know that the market is very tight, and we anticipate that to continue going forward and we're doing all we can to make sure that we can meet the needs of our customers.

Okay. Anything sort of on the imminent six to 12 months outlook in terms of closures that you know of or are potentials out there?

You know, it's hard to say. I mean, I think in the past, we have said that there's probably three, four, five of these units out there that aren't running very efficiently and we've been able to convince customers that on a price per pound basis it's much better to outsource. And so I think there are a number of customers today, both here in the states, as well as in Puerto Rico, that are contemplating moving to an outsource model, and I think it's going to be a cost-savings for them and it's just going to be added volume for the market.

Okay. Great. Thanks a lot.

Thanks, Larry.

Thank you. Our next question comes from the line of Robert Stephenson with J.P. Marvel. Please proceed with your question.

It's actually, guys, it's Joe Patton asking the question. By the way, we really -- we followed you for along time, you've really done your strategy and I congratulate you in building the Company out.

Thank you.

With a that question, one of the things that was really important when we got in was the leverage in the incinerator business. The question is what are you doing price per pound now and, Jim, what does that mean for per share? That's the first question. And then the second question is going to be about natural gas, but go ahead and answer the first question.

Absolutely. Our price per pound now is in the $0.31 to $0.32 per pound range and clearly as we increase that, that could mean $10 million of EBITDA each time -- each penny that we do there, so it's a nice leverage there.

And next question is you have tons of vehicles operating now and have you changed any of those to natural gas to reduce your cost? Is that on the play plan to do that?

It is, and we have purchased natural gas vehicles and we will be continuing to invest in these alternative energy vehicles, particularly those vehicles that work on our college campuses and a lot of hospitals and universities where they're there permanent. You know, today we have over a thousand employees throughout US and Canada that report to our customers' sites every day and just work at those sites as an outsourced service company and a lot of vehicles are at those sites.

We're converting those vehicles; we would like to convert all those over to electric, and particularly the universities and the hospitals are very excited about that because it drives improvements in their sustainability efforts, as well as ours, and so a great partnership. But certainly, this whole issue with battery safety and electric vehicle recharging, what have you, that we're struggling through, so right now, our focus is on natural gas vehicles, but we would very much like to convert most of our vehicles over to a hybrid vehicle in the future.

Now, just a follow-up to that is Cummins engine is coming with a 15 liter big rig. Have you taken that into account as far as the big rigs?

We have and we've been certainly working with Boone Picken's group as they build out the infrastructure across the US, every 300-mile refueling facilities there, so they can accommodate the refueling that we need. And I think as that infrastructure continues to build out, we'll continue to buy more of those engines and we have hundreds and hundreds of these long-haul tractors out there running and that's a goal of ours.

That could be a huge saving. Thank you very much, as I said, for your strategy and for your commitment.

Thank you.

Thanks, Joe.

Thank you. Our income question comes from the line of Sean Hannan with Needham and Company. Please proceed with your question.

Thank you and good morning.

Good morning.

Good morning, Sean.

I apologize if this may have already been asked. Alan, I was looking to see if you perhaps elaborate on where specifically you're seeing signs of recovery in your business that might be a bit more evident than others as we are taking about from a macro standpoint and how it flows through into your specific offerings.

As far as vertical markets go, Sean, is that what you're thinking?

Yes.

Well, when we think about manufacturing, for example, that's almost entirely all environmental-related work and that's -- we saw that grow for us about 11% year-over-year, and so I think that's a good snapshot of growth, at least from our perspective, that represents waste and volumes of waste being generated is probably the ongoing manufacturing.

Our broker waste, our broker volume is up about 14% year-over-year and, again, most of the work that our brokers do with us is waste-related driven from small (inaudible) generators and the overall general market out there, if you would, of waste creation as a result of economic activity. So does that help a little bit, those two?

That's very helpful, the second one, particularly.

Yes.

And then I think you had also made some comments that the project business was coming through in the first quarter pulling forward and some of that appears to continue to be steady and that is your general outlook I think at this point. Is there anything at this point in the year that provides perhaps an upside to where that project business could come in for you or is it fairly well-bracketed in your mind?

I think we've got a very strong project pipeline and we've been winning some major contracts recently, certainly nothing material that we would be reporting, but just some great contracts out there. But when you look in that first quarter, for example, like our construction industry segment, which is sort of the building-related trades is up 46%, but that's only $4 million.

So when we think about some of the stuff that gets pushed forward or some of the potential size of it all, we don't want to kind of misinform that some of these project are not real big projects, but we've seen some early activity, as you would expect. People want to get out and start doing work because the weather was just so great that by the end of February, people were thinking about let's start digging in March instead of waiting until April or May. So it's that kind of mentality that we were just trying to communicate here this morning.

Particularly when you have 85 degree days up there in Boston.

Yeah, yeah.

Thank you very much.

Thank you, Sean.

Thank you. Our next question is a follow-up from Rodney Clayton with JPMorgan Chase. Please proceed with your question.

Hi, thanks. Just a couple of follow-up questions here. First, the free cash flow, Jim, can you tell us where that was in the quarter and remind us what your expectations are for the year?

Sure. Our free cash flow in the quarter was roughly almost $10 million, so it was $9 million or so. Cash flow from operations was about $31 million, and you'll see that in our cash flow when we file our Q. And for the year, I would say we expect to exceed $100 million in free cash flow this year and cash flow from operations in probably in the high 200s, maybe $270 million or so.

Okay, that's very helpful. And then lastly, the pharmaceutical waste, can you tell us how that's progressing, remind us kind of where you think you fit in to the competitive landscape in that business. And then to what extent can you utilize existing infrastructure in building that out versus needing new CapEx to do that?

There's not a lot of CapEx needed, certainly, for us to continue to provide pharmaceutical return services. Our healthcare business was up 12%, our educational business up 4%, our pharmaceutical and biotech was up 10%. I think all those numbers sort of speak to expanding more capabilities with those industries, some to do with return pharmaceuticals, others to do with medical waste. So I think the Company has a great infrastructure from a service standpoint, (inaudible), handling those small quantity pickups, and we'll continue to leverage that existing infrastructure.

All right, great. Thanks a lot.

Okay, thank you.

Thank you. Our next question is another follow-up from Michael Hoffman with Wunderlich Securities. Please proceed with your question.

Thank you. DuPont was shutting down the deep water facility at the end of March. Can you talk about if you benefited from that? And if so, how that should layer out through the year?

Michael, specifically, we're seeing a lot of requests for proposals as it relates to one of those sites closing down, and we, along with two or three other companies out there, I think are probably benefiting the most from the change in strategy for them. So I wouldn't say it was material, certainly, but at the end of March, I think those operations were finally closed down. So we expect to continue to focus on servicing those customers that are being displaced.

Thank you very much.

Okay, thank you.

Thank you. Mr. McKim, there are no further questions at this time. I'd like to turn the floor back over to you for any closing comments.

Well, thanks very much for your questions and we appreciate your interest and we look forward to updating you on our Q2 conference call soon. Thank you.

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