Clean Harbors Inc (CLH) 2012 Q3 法說會逐字稿

Greetings, and welcome to the Clean Harbors Incorporated third-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 introduce your host, David Musselman, General Counsel for Clean Harbors Incorporated. Thank you, sir. You may begin.

Thank you, Dan, and good morning, everyone. Thank you for joining us today. On the call with me are Chairman and Chief Executive Officer, Alan S. McKim; Vice Chairman and Chief Operating Officer, Jim Rutledge; and Chief Financial Officer, Rob Gagnon.

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, November 7, 2012. 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 which will be made concerning this reporting period.

In addition, I would like to remind you that today's discussion will include references to non-GAAP measures. Clean Harbors believes that such information provides an additional measurement and consistent historical comparison of its performance. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is available in today's news release, which can be found on our website, CleanHarbors.com. Now, I'd like to turn the call over to our COO, Jim Rutledge. Jim?

Thanks, David, and good morning, everyone. Let me start with an agenda for today's call. I will make some brief remarks about Q3 and then provide a more detailed discussion about how our individual segments performed, and an overview of our verticals. Rob will walk through our financials in more detail, and then Alan will do a quick recap on our recently announced acquisition of Safety-Kleen and provide our outlook, before we open it up to Q&A.

Starting with our results, our Q3 performance reflected the diversity of our business model. We had a number of areas of strength, including our landfills and incinerators on the environmental side, and our oil sands and lodging business on the energy and industrial side. At the same time, the seasonal slowdown in Oil and Gas Field Services that we discussed on our Q2 call continued. And, unlike last year, we had no emergency response revenue in Field Services. Rob is going to talk more about our results in more detail, but I did want to highlight our EBITDA performance this quarter. We topped $100 million for only the third time in our history this quarter.

Equally important, we delivered a high EBITDA margin for the quarter of 18.7%. The third quarter is typically the strongest period for our environmental business, so business mix was certainly a factor in our high-margin performance. The other primary reason was execution. In addition to our ongoing cost-reduction initiatives, our team has done an excellent job at capturing efficiencies and economies of scale from our acquisitions. We have been able to achieve productivity gains across our enterprise, due to the investments we have made in technology and processes. At the same time, we have been successful in carefully implementing market-specific price increases. In total, those efforts resulted in our strong EBITDA results in Q3.

Drilling down on our segment performance, Technical Services was a strong performer for us in Q3. Utilization at our incinerators was a robust 91.3% in Q3. This is up 130 basis points from Q3 2011, when we recorded utilization of 89%. As a reminder, it is at these high levels when utilization is in that high 80%s to low 90%s range that we are able to maximize our profitability by managing our waste streams, increasing our efficiencies through product mix, and gaining opportunities for spot pricing.

Our very high level of utilization this past quarter was primarily the result of our US locations, which averaged 92%. Our Canadian operation, which currently consists of our Sarnia incinerator, was strong at 88.2% utilization. Our landfill business had a tremendous quarter, setting a new record for volumes by a wide margin. In fact, we achieved a 78% increase in volumes from Q3 of last year, and we were up more than 50% from Q2. This strong performance was driven by several large-scale projects, as well as Bakken-related work, which we saw manifested at our Sawyer landfill in North Dakota. Volumes at Sawyer were more than double what we recorded in Q3 of last year. Overall, our landfill team continues to do an excellent job at capturing considerable waste streams from a variety of projects.

Within our Field Services segment, we saw a steady stream of routine maintenance and project-related work. When you exclude the $42 million in revenue related to the Yellowstone River oil spill in 2011, this segment was flat year over year. I should point out that Q3 was our fourth consecutive quarter in which we had not recorded a major emergency response event. I know that a number of you have been inquiring about what Hurricane Sandy might mean to us in terms of emergency response work, but let me start by saying that our thoughts and prayers are with all of the people affected by Hurricane Sandy. Based on our history, we know firsthand about the type of devastation that can be caused by a weather event of this magnitude.

We are proud of the efforts of our team in responding to those affected by the storm. As we noted in today's news release, we currently have about 500 Clean Harbors-related personnel on the ground at a number of sites. We have done some initial work for a variety of customers, including some of our utility clients and terminal operators. While the storm happened more than a week ago, the true scope and scale of our involvement is something we cannot precisely quantify at this time. In many cases, we are still in the early stages of the clean-up process, as the floodwaters have finally receded in some areas, the power is just now coming back at a number of sites, and access in some affected areas is only just now becoming possible.

Turning back to our segments, our Industrial Services segment had another great quarter. This segment grew 15% from a year ago, which reflects a mix of organic growth and acquisitions. It also delivered significantly improved margins, and was a key element in our strong EBITDA performance. The driving force behind this segment was activity in the oil sands region and our lodging business, particularly our fixed lodging locations. We also saw a high level of cross-selling activity at our refinery customers, and steady demand for many of our in-plant services. Our lodging business continues to be a real source of strength for us. As the cold winter weather approaches, we are headed into our strongest operating periods in the Northwest US and Western Canada. Our bookings in this business are continuing at a high level, and we expect lodging to extend its momentum into the quarters ahead.

Within our Oil and Gas Field Services segment, we are involved in a broad range of projects from seismic and surveying work, to drilling and completion services, to ongoing production and maintenance. As we outlined on our Q2 call, we began repositioning some of our solids-control assets and rental equipment, as a result of the shift earlier this year by many energy producers away from some dry-gas wells toward liquid-rich gas and oil plays. At this time, our repositioning is nearly complete, and we expect to be fully utilized by the end of the year. Our revenue in Q3 was also negatively affected by the unfavorable rain and weather conditions in western Canada. As we head into the winter months, we are looking forward to the seasonally strong quarters for this segment.

Turning to our key vertical markets, here's a snapshot of how those shaped up in Q3. Just as in Q2, chemicals remains our largest vertical in the quarter, accounting for 15% of total revenue, and up 18% from a year ago. We experienced solid growth in our base business, supported by comprehensive cross-selling to our chemical customers. In addition, the low price of both natural gas and raw materials were favorable to overall US production in this vertical, which led to increased incineration and waste volumes. Oil and gas production was our second-largest vertical, also at 15% of revenue but down from a year ago. While overall drilling activity is down, we have been successful at winning a number of new accounts, driven by our legacy transport and down-hole maintenance services.

Refineries and upgraders were our third-largest vertical at 13%. This vertical grew about 25% from a year ago and the majority of that can be traced to a cross-selling program we implemented that generated approximately $11 million in revenue. Oil and gas exploration accounted for 9% of revenue. We reported incremental growth in this vertical versus a year ago. General manufacturing had a strong quarter, due to some nice project wins. This vertical accounted for 9% of revenue, and was up nearly 30% from a year ago. Some of the other significant contributors in Q3 included brokers at 5%, utilities at 4%, and government and pharmaceuticals, each at 3%.

One of the smaller verticals I want to highlight is our healthcare services vertical. While it still represents only 1% of our revenue, it is growing for us, and we are seeing some traction with new accounts, particularly hospitals setting up pharmaceutical waste programs there. We expect this vertical to deliver double-digit organic growth going forward. I hope that detail on the segments and verticals gives you some better insight into our Q3 performance. With that, let me turn it over to Rob for the financial review and guidance. Rob?

Thank you, Jim, and good morning, everyone. We reported Q3 revenue of $533.8 million versus $556.1 million in the same period a year ago. As Jim pointed out, Q3 last year included approximately $42 million in emergency response revenue related to the Yellowstone River oil spill. Excluding that event for a more normalized comparison, revenues were up nearly $20 million year over year, driven by solid performances in our Technical Services and Industrial Services segments. Also, please note that in the financial section of today's news release, we included the segment revenue and EBITDA information that is in our 10-Q each quarter. Gross profit for the quarter was $160.9 million, or a gross margin of 30.1%, compared with a gross profit of $169.5 million, or a gross margin of 30.5% in the same period last year. The decrease in gross margin is primarily due to the mix of business in the quarter and the lower revenue year over year.

Turning to expenses, SG&A was $60.3 million, or 11.3% of revenue, compared with $65.7 million, or 11.8%, in Q3 year ago. Our SG&A percentage this quarter is well below our target range of 12.5% to 13% of revenues. Clearly, our ongoing cost-reduction initiatives, combined with the efficiencies and economies of scale we are gaining from our 2011 acquisitions, are proving to be effective. Our SG&A results also reflected lower incentive compensation. On the past several calls, Jim has outlined a number of those cost-reduction programs that we are targeting in areas such as outside transportation, procurement, and recruitment costs. The Company has made some great progress with these initiatives.

We have also completed the remaining synergies from the Peak acquisition. Again, these savings were designed to offset the increases we are experiencing in labor, commodity, and healthcare costs. And, to date, we have been able to successfully mitigate most of those increases. Depreciation and amortization increased 19.4%, year over year, to $41.3 million, primarily reflecting our acquisitions of the past 12 months, many of which brought a significant amount of equipment and higher landfill volumes. Given that we are currently at $116.8 million at the nine-month mark, we now expect our 2012 depreciation and amortization to be in the $155 million to $160 million range. That figure, obviously, excludes anything related to Safety-Kleen or any additional acquisitions we may complete.

Income from operations was $56.7 million, or 10.6% of revenues, compared with $66.8 million or 12% of revenues in Q3 2011. This decrease reflects the higher level of depreciation and amortization that I just mentioned, and slightly lower revenue and SG&A expense this quarter. As Jim mentioned, we delivered strong Q3 EBITDA results, generating $100.5 million, or a margin of 18.8%. This compares with $103.8 million, or a margin of 18.7%, we recorded in Q3 of last year. Our effective tax rate for the quarter was essentially flat with the year-ago period, coming in at 33.8%, compared with 33.7% in Q3 of last year. For the full-year 2012, we are currently estimating our effective tax rate to be 36%, which is slightly lower than our previous estimate.

Q3 net income was $12.4 million, or $0.23 per diluted share, compared with $37.1 million, or $0.70 per share last year. The third quarter of this year included a $26.4 million pretax charge related to our senior debt refinancing completed this quarter. When you exclude that charge from the calculation, our adjusted net income for Q3 was $28.8 million, or $0.54 per diluted share. The decline in earnings year over year is primarily related to the increase in depreciation this quarter and the higher revenue a year ago.

We continue to maintain a clean and healthy balance sheet. We are well capitalized following our successful bond offering. Cash and marketable securities, as of September 30, were $534.7 million, up from $306.5 million at the end of Q2. Obviously, a large portion of that capital will be put to use as part of the Safety-Kleen transaction. Total accounts receivable increased to $433.8 million at quarter end, from $427.6 million at the end of Q2. In Q3, our DSO remained the same as Q2 at 75 days. Our target DSO level remains at 70 days or less. But, given our acquisition activity in the past year, it will still take a few more quarters to get to that level. We continue to work closely with our acquired companies to improve collections and make billing enhancements. We are also still working through the existing contract cycles we inherited through those acquisitions.

CapEx for Q3 was approximately $47.4 million, down slightly from the $55 million we spent in Q2. Given where we are at, the nine-month mark, we anticipate hitting our 2012 target of $108 million, and we may, in fact, be closer to the $190 million level. As a reminder, of that total, approximately $70 million consists of maintenance capital. The remainder is targeted toward higher-return internal investments.

Moving, now, to our guidance, based on current market conditions and our year-to-date performance, we are revising our 2012 annual revenue and EBITDA guidance. We now expect 2012 revenues in the range of $2.15 billion to $2.16 billion, revised from $2.2 billion to $2.25 billion. We now expect 2012 EBITDA in the range of $375 million to $380 million, revised from $400 million to $410 million. I should point out that this guidance does not include the revenues from our emergency response efforts associated with Hurricane Sandy. It is still too early to know the duration of the cleanup activities presently being performed by more than 500 Clean Harbors personnel at various sites.

Based upon our preliminary estimates, I should stress that we are still in our annual budgeting process. We currently expect 2013 revenues in the range of $2.3 billion to $2.35 billion. We anticipate our EBITDA margin to be approximately 18.5% at this level of growth in 2013, which translates into an EBITDA range of $425 million to $435 million. This guidance is exclusive of Safety-Kleen or any other potential future transaction. We will complete our budgeting process for 2013 in the coming months. Therefore, in conjunction with the announcement of our Q4 and year-end results in February 2013, we plan to update this preliminary guidance. With that, let me turn the call over to Alan for some final remarks before we open up for Q&A.

Thanks, Rob. Good morning, everyone. I wanted to make some brief remarks about our pending Safety-Kleen acquisition. It's been nine days since we announced the transaction, and the feedback we have received on all sides has been extremely positive. That includes customers, partners, employees, and shareholders. They are excited about the value we can drive in combining our two organizations.

I don't plan to spend time this morning going over the specifics of the Safety-Kleen business, as I did in last week's call. I would like to reiterate some of the points we've made about the prospects for the combined company, and why we are eager to move forward with this deal. Safety-Kleen has a number one market position and significant scale in three markets -- the small-quantity waste generators; parts cleaning and used oil collection; and re-refining. We view the small-quantity generator market as a major source for growth for us, both in terms of new customer exposure and additional waste streams.

Clean Harbors' approach has been to provide a one-stop shop for customers. That's why we are vertically integrated in our environmental business from collection, to transportation, to recycling and disposal. We are always looking for opportunities to add services that broaden our portfolio. This acquisition does just that. It deepens our waste-treatment capabilities to include re-refining waste oil and expanded solid recycling capabilities. Our environmental business operates at its peak efficiency, and generates its highest margins, when we are able to consistently deliver high volumes into our disposal treatment network. Safety-Kleen handles a substantial amount of waste volumes that we will be directing into our facilities.

There is a growing demand for recycled products, including re-refined oil, and this deal enables us to capitalize on this trend in a very meaningful way. The addition of Safety-Kleen, with its closed-loop recycling approach, greatly enhances Clean Harbors' commitment to sustainability, and that's an area that is only going to get stronger in the years ahead. After integrating our organizations, we believe that there will be meaningful cross-selling opportunities for our combined sales force, particularly given the limited overlap between our services in key markets today. Those are just some of the reasons why we are excited. We believe it's a great cultural fit as well. We are confident that we can unlock the potential of the combined organization, and we look forward to completing the acquisition prior to year end.

Looking ahead, we remain encouraged about our overall prospects as we enter the final quarter of 2012. During the year, we extended our track record of strong growth and momentum across many of the markets we serve. While we experienced some temporary disruption this year, such as a shift from dry gas to liquids play, the underlying industry and outsourcing trends remain favorable to us. Within our environmental business, we continue to have an active pipeline of projects and ongoing engagements, and we see numerous opportunities for growth and expansion. Within our energy and industrial business, we are heading into our strongest operating periods during the cold winter months, particularly in western Canada and the more remote locations.

We're looking forward to completing the Safety-Kleen acquisition. Our focus in the near term will be gaining the necessary approvals, planning our integration, and lining up the ideal financing structure for the deal. We believe the merger of our two organizations should extend our growth momentum in 2013 and beyond. This deal should increase our cash flow going forward and ultimately enhance shareholder value. So with that, Dan, could we please open the call up for questions?

(Operator Instructions)

Our first question comes from Rodney Clayton of JPMorgan. Caller, please proceed with your question.

First, I wanted to try to dig in a little bit to your assumptions behind the 2013 guidance. Could you tell us maybe what you are expecting for drilling activity, particularly in Canada this year? Secondly, the margin profile. On the oil and gas field services segment, we know with your equipment redeployment there, may have been some impact to pricing. Any color you can give us there would be helpful. And third, as we think about you having $20 million in your preliminary guidance for 2012 for emergency response, what do you have baked in for 2013 for the same business?

Sure, Rodney. I can start off. This is Jim, and certainly, if Alan and Rob want to add to it. First of all, we were in our guidance for 2013, we were very conservative in the oil and gas field services segment. In fact, the growth rate year-over-year is somewhere in 2% to 3%. Clearly, to the second part of your question about the relocation and the repositioning of assets, our team proved that they can sell very well into that market, that it would have otherwise been growth were we not repositioning from what happened on the gas side. It's interesting that gas prices are also coming up a little bit too, so we have our eye on that as well.

But I think the key thing in that area, with the repositioning of those packages, is what you see in our cross-selling on the disposal side. We talk about the landfill increase that we had in our Sawyer landfill, where we have more than doubled the volume, there, and certainly, that's coming from this vertical. Prior to our being a player in this industry, we weren't getting any of that disposal. So, we have also tried to factor that a little bit into the Technical Services side of our Business.

Also, I would say also on the relocation of those packages, we are also diversifying our customer base. It used to be, in that business in the drilling and completion side, that the Peak Energy Services Company had pretty much a handful of customers. We have now expanded that from just a handful. I think we are around 20 customers now. So, I think we are successful there. Regarding the field services event activity, Rob, I think -- where are we in the budget?

Yes, good morning Rodney, it's Rob. So basically, I think you probably know. We budgeted about $20 million since our 2012 targets. At this point for 2013, we have a pretty modest number in there in the $10 million to $20 million range. That compares to -- I think if you looked at our historical averages, we have been above that. We've been closer to the $30 million range.

Okay. Just to play it back to you. 2% to 3% growth, was that for drilling activity or was that for the segment in general?

That was for the segment overall. That is our conservative estimate. Clearly, with the growth that we're -- the repositioning that we are doing, we have kind of proven that we can do that growth. Certainly, the cross-selling will help, but we decided to keep it conservative, although, certainly, there might be upside to that.

Okay. Got it. And then $10 million to $20 million of event work for 2013, is that right?

That's right.

Okay. Secondly, with respect to your involvement with Hurricane Sandy cleanup, certainly appreciate the fact that it's a little early to try to quantify the impact there, but can you remind us how a number of, 500 personnel compares to some of your -- what you had mobilized for some of your past notable events? Whether it be -- well, BP was obviously a very large event. But maybe some of your past hurricane events, or maybe some of your smaller spills, like Yellowstone.

Yes. Significantly larger staff than Yellowstone. When we look at the Gulf spill that happened a couple years ago, we were at a peak 3500 personnel there. Similar in size to Rita and Katrina, I think, and the size right now, that 500 to 600 person range. The question will be is the amount of equipment and the duration at this point is certainly up in the air.

Okay, great. Finally for me, your guidance for 2013, it looks like it implies about 100 basis points of margin expansion in 2013. Can you tell us which segments are contributing most to that margin expansion? Are there any overhead rationalization initiatives behind that, or just a little more color on the drivers behind the margin expansion.

Absolutely, Rodney. On the tech services side, we are with some efficiencies there, and some of the additional disposal that we are getting as, resulting from all the verticals we are operating in. We are expecting an improved margin there next year. Also, in our industrial services area, with the activity going on in Western Canada, we are expecting margin improvement there, as well. Certainly, in the oil and gas side, with the repositioning that we had in the middle quarters of this year, when the margin was so low, you won't see margins at that lower level in next year. So is actually the three areas that we are all contributing a bit to that overall margin increase.

All right. Thank you very much.

Your next question comes from Al Kaschalk of Wedbush Securities. Caller, please proceed with your question.

On the Technical Services side, I just want to drill down a little bit on that. Maybe you can talk on the business trends, but landfill volumes were up significantly. I think that is some of the shale but also some large-scale projects. Talk a little bit maybe about the duration of those projects. Are they multi-quarter? Should we continue to see this favorable trend, which is, certainly, very good on the margin profile?

Yes. We have done extremely well this year on our waste projects and remediation business, so we have been, as you know, been really successful in driving a strong pipeline in that area. I continue to believe that the organization has some great opportunities out in front of them and working those through the pipeline, so that project business is lumpy.

It's hard to know exactly which period it's going to fall in, but I would say the general trend now has been real positive in that business over last several years. Particularly, in our Western Canada. Our Western Canada landfill, which has gone through a large expansion, and our Sawyer, North Dakota landfill, which has also gone through an expansion, we are now able to take on more volumes. Those markets are very strong for us, but our other landfills are also doing well. I'd like to think that we are going to continue to see good volumes there.

Okay. In essence, the industrial services side, given the presence in the oil sands in Western Canada, are driving some of this volume toward these key positioned assets.

Yes, exactly. We have expanded, certainly, more on the industrial side in Western Canada, but the oil and gas market there, which really isn't driven by the oil drilling activities, but more to do with the service work in the oil and gas fields. We are doing a lot of production-related support services. We see a lot of waste coming out of that, a lot of the SAGD facilities generate quite a bit of waste volumes that are an ongoing waste stream.

We think our strategy of focusing on the oil and gas area is not just great for the rental side of our business, which is relatively small, but really great for our Environmental business, because every drilling activity, every well provides a need from an environmental standpoint. That is really the business we are in, is to provide those environmental services to those oil and gas customers. They are becoming more and more sensitive to environmental regulations, more concerns about waste disposal, emissions, and it's really what's driving our focus on that area.

My second question or follow-up would be, just a little bit of the walk-through on guidance in the event business in general, given the size of the organization now. It looks like, if you wanted just to parcel the math out, about a $20 million adjustment on EBITDA for fiscal 2012 relative to where you started the year. A lot of that, I think, chunks is the Event business, right? And also the other head wind is the repositioning in oil and gas. Are you seeing structurally any other changes in the business that would warrant some of this very, very near-term cautionary? And with that, does it make sense going forward to just exclude any of the Event business in guidance given it is now less than, clearly, 1% of corporate revenue?

I think it's safe to say that in the past, due to our size that Event business was very important to discuss. As you mentioned, it's smaller and smaller. As we combine it with Safety-Kleen, it will even be much smaller. But it is one of those businesses that the Company has a real strong brand, and it's one that we have historically reported on. We'll have to take a look on that on whether we're going to break that out further, moving forward.

But I think you're absolutely right. I think when you look at the miss this year, and quite frankly we are not through the year, so the fourth quarter could be on the events side, could be very good for us. We might would make up on that shortfall, but we won't know until the quarter is over. But you're absolutely right. A good percentage of that miss is on the events side and the repositioning and some of the slow down in the oil and gas side.

But the team in general, when you look across the 40 lines of business that we are in, has done extremely well this year. Really, the team has done a great job. I think it is reflective of some great numbers we will have. We will have a great year this year.

Thank you.

Our next question comes from Larry Solow with CJS Securities. Caller, please proceed with your question.

Just a couple of question. Could you talk a little more about your pricing? I know you set up a team of executives for pricing initiatives and how much price increases are implied in your 8% sales growth guidance for next year. Could you parse that out a bit?

It's true, at this early stage of the budgeting, what we are seeing is that the pricing will be similar to this year, and this year we are roughly in that 2% range. And that includes a little offset that we had done this year in being aggressive with some of that repositioning of assets, which was more of a strategic decision that we made there. So, maybe there's some upside to that, but right now we are being somewhat conservative and having it be comparable to this year.

Clearly, SG&A was the surprise number this quarter. The low number. You mentioned there was some lower incentive comp expense. If I look into your guidance in Q4, it does imply that your margins do come down 200 BPs, I guess. I imagine there is some seasonality in part of your business, but I thought it would be offset. Could you discuss maybe, is SG&A, was that a little artificially low and did you rob Peter to pay Paul for Q3 or Q4 a little bit there?

Okay, Larry. I will start it and I will turn it over to Rob. Clearly, with the revision that we made in the guidance and our plans, clearly, those plans, there is incentive compensation when we're able to exceed our targets, et cetera, being lower, we certainly reduced the accrual for incentive compensation. Rob, I don't know if you would add anything about SG&A going forward?

I was just going to add, I think you are thinking about that the right way. Part of it was just timing and expenses for the quarter, but as you think about Q4, I certainly wouldn't expect a repeat again. In terms of modeling, how you think about Q4, I would expect it would be a bit higher.

Can you quantify what the reverse accrual was?

It wasn't a reverse, it was just not a booking of any extent, there was no credit. Where we started to look at where the year was going to be, we still got significant incentive compensation being paid out to employees, both on the sales side and on the operating side. But it's just because we have now taken down our forecast for the whole year, the booking in the third quarter just didn't happen as much as it normally would have on the operating side, so I don't think it's stealing from Peter to pay Paul at all, Larry.

Got you. If I could make one quick follow-up. Just on your CapEx, if you could give us some update on your larger growth projects, and independent of Safety-Kleen, who I know has their own growth initiatives planned. Do you expect, it seems like you have a lot of projects out there and a lot of good spending to do. Is it fair to say, this level will be sustained in 13?

Larry, it's Rob. I think some of the larger additions that we found in capital this year have to do with tractor-trailers and specialty equipment. We have had a number of vehicles, and those amounted to about $50 million or so. On the specialty equipment side, that is probably closer to $30 million. We've also added a number of containers, roll-offs of various sizes closer to the $10 million mark. That's really to support a lot of the cross-selling that is going on between the Industrial Services business on the environmental side.

In terms of expansion projects, we are just in the early stages of the incinerator expansion project, which will really go on for a few years. As we think about it next year, we also have our Ruth Lake facility that we will be constructing the first half of next year. That is probably in the $25 million to $35 million range, the Ruth Lake project, but that is a snapshot of Clean Harbors. In terms of Safety-Kleen, I think it's probably a little bit early for us to comment on capital guidance going forward, but I know if you were to take a look at their S-1, you could get some pretty good details on how they have performed in the past around capital.

Okay. Thanks a lot.

Our next question comes from Richard Wesolowski with Sidoti and Company. Caller, please proceed with your question.

I was hoping to ask a previous question in a more pointed way. The $27 million difference in your 2012 EBITDA guidance at the midpoints, is that all from the field oil and gas, taking out the emergency response, or are there any other of the three segments below your budget?

Again, we report four segments, right? But we also have over 40 lines of business. When we think about some of the lines of business that are softer for us this year, it may include our like our transformer services business, which is a lot of work that we do for the utility industry. That business is behind plan this year. Not a huge part of our business, but it's one of the businesses.

So as you go through some of those, and we won't go through all 40, but some of the Rental businesses we have been talking about, the solids control packages or what we call the Rental business is soft this year based on the repositioning. But I wouldn't say, of the 27 -- if I use your number there -- I would say at least half of that or maybe close to half of that is more related to our event and project business, I would think at this point, wouldn't you, Jim?

I would say so, or maybe it's two-thirds, the oil and gas slow down and a third, the events somewhere around there. Almost roughly half.

Okay. There has been a lot of discussion about the CapEx been trimmed in some of the bellwether producers in Western Canada. I understand your implant services would not really be affected there, but I am wondering whether that prompts you to look harder at the planned additions in lodging area and just your overall view on the multi-year growth outlook in Western Canada?

We could continue to see $15 billion to $20 billion per year being invested there. I think every year you are going to hear some cutting back on their capital spending campaigns, and others readjusting their portfolio, and maybe investing even more. And so when you look at it from our perspective over the next three to five years, it is in that $15 billion to $20 billion spending level that we anticipate, as they continue to look at building out their infrastructure to generate that 4 million and 5 million barrels of oil per day, where today they are almost at the 2 million barrels.

That investment that continues to be made is really our focus in the oil sands, and with our lodges. We continue to see high demand, high level utilizes 10. We are making more investment, as Rob mentioned, in Ruth Lake and some of the other markets out there. I think hearing the feedback like you are probably hearing in regards to some of these capital projects, I think it's going to be ongoing, and we are going to continue to hear that kind of information year-in and year-out. But that's our long-term trend.

So, Clean Harbors doesn't need that $15 billion to $20 billion to continue to go up and up every year in order to grow your industrial service?

Those are certainly capital investments they're making to expand their capacity, whether it's a phased approach on a mine or one of these upgraders, but we have got well north of 700 people there. We are adding people. We are short-staffed, and so we are looking at further expanding our training and recruiting efforts to keep up with the growth opportunities there. We don't see that gyration in capital spending by one company or another necessarily having a direct impact on our Business up there.

I appreciate your time. Thanks a lot.

Your next question comes from Stephen Ragard of Stephens Incorporated. Caller, please proceed with your question.

Can you just remind us what the revenue and associated margin impact from Katrina and Rita were on you, and what was the duration of that work?

Yes, the Katrina-Rita was roughly about $37 million. That spanned about four months. That's why we don't know that the Sandy hurricane yet is going to go into anything like that duration, because clearly with Katrina-Rita, that, with the retention wall that broke and a lot of that area being below sea level, it was a much longer, drawn-out project. We don't see this one going that long, but it is a little early to tell.

Okay. And just one other question I had on the gross margin being down 40 basis points. I know you called out some unfavorable mix in the quarter. Was that just due to pricing on the oil and gas side?

More to do with the Yellowstone event, I would think.

Absolutely, that was part of it. Also, if you look at even within tech services, for example, on our landfill improvement, if you look at price per pound, that tends to be lower than the incineration, for example, so you do get a little bit of a mix effect that way, as well.

Okay. Thanks for taking my questions.

Our next question from Jamie Sullivan of RBC Capital Markets. Caller, please proceed with your question.

Just a follow up on the 2013 outlook. Maybe directionally how you are thinking about the growth in tech services and industrial services as you look into next year, and some of the things that you are considering. Whether it's discussions with customers or actual book to business that kind of help form that view into next year.

Jamie, I will start it, and if Alan and Rob want to add anything. Clearly, we remain very excited with what is going on in the environmental side of the business. The growth rate there, we were a little conservative there, too, and that was in the mid to upper single digits. I think 6% or so. Clearly, what we are seeing in the landfill side, we see, as Alan was just talking about, we see a lot of that continuing, and also with the trends that we see in the incinerated materials and our cross-selling that we are doing to be able to ensure that at least that growth rate takes place.

On the industrial side, we are very excited there. That's probably in the 11%, year-to-year 10%, 11% range that we've assumed at this point year-over-year. Clearly, some of the extensions that have been going up there in Western Canada that Alan alluded to, that $25 billion that was invested last year, we see growth coming out of that in our oil sands activity and in our lodging activity up there, and the cross-selling. I keep adding that, because that certainly is something that boosts these growth rates as we cross sell between the environmental and industrial sides of our Business.

The only other thing I would point out there on seasonality, clearly, what we saw last year or this year in 2012, and even if you look back to 2011, you will see that seasonality shift a bit. It used to be that it was just the Environmental business that was seasonal, and we saw, typically, a weak Q1 followed by a stronger Q2 and Q3.

I just wanted to alert folks that with the oil and gas Western Canadian side, it is not unusual, and you should expect that going from Q1, which is the strongest quarter up there, to Q2, over the last couple of years, in our Businesses, if we owned all of the acquired businesses throughout those two years, the reductions are in the $60 million to $70 million range from Q1 to Q2, whereas in the environmental side, what we saw over the last couple years is an increase going from Q1 to Q2 of roughly $30 million. I just wanted to get that out there, because there was seemingly -- although we were doing acquisitions at the same time, there were seemingly some surprises around the seasonality that would have. I wanted to point that out.

That's helpful. And maybe one quick one on kind of what we are looking at for 4Q. On the revenue side, the obviously, oil and gas field is being impacted on the comparisons there. Is there growth in the other businesses that you are looking at year-over-year, or are you being conservative there, and not assuming much into year end?

We are being conservative going into year end, particularly since last year, the oil and gas part of the business I think with the Marcellus expansion that was taking place at that time that went into Q1, caused Q4 to be a bit stronger last year. We are being conservative actually in our outlook for Q4 here. As Alan pointed out, there could be some upsides there. Certainly, the emergency response would add to that.

Thank you.

Your next question comes from Brian Butler of Wunderlich Securities. Caller, please proceed with your question.

Just to revisit the 2012 -- to pin it down. Half of that change is kind of the Event business. The other half coming from the oil and gas, is that really the repositioning, or how does that demand look going into the fourth quarter?

It was pretty much the repositioning, because gas went so low in price. The positive about that is that we were able to reposition those assets into the oil side and liquid rich side of gas, which would otherwise have been growth. That is why we are continuing to believe that it would be more an upward trend going into next year as opposed to a downward trend.

Okay. Taken about the seasonality of that oil and gas fourth-quarter, is it still expected to be that seasonality be strong enough that you see an improvement from third quarter to fourth quarter, or is the repositioning really still impacting that and you end up more flattish when you think of how that trends in the fourth quarter and then improving into the first quarter of 2013.

Yes, absolutely, you would see an upward trend, and here is where the seasonality kicks in. If you think about the oil and gas field services segment, probably 75% of that segment is in Western Canada. As you approach the winter months, for example, in the fourth quarter, in November, it starts getting colder. That is when you see activity pickup there, and then it is the strongest in Q1.

So the normal seasonality in the oil and gas field services segment, what you should expect is Q1 to be the strongest for the year, followed by Q4, then Q3, and then Q2 being the weakest, when you have break-up up in Western Canada and the spring muddy weather tends to make that Q2 the weakest quarter of the year seasonally.

Even with the repositioning, that should hold up for the fourth quarter 2012, that kind of seasonality where fourth-quarter is still kind of the second strongest?

Absolutely. We are nearly complete on the repositioning, so we're through that problem through the end of the year.

Okay. What was your cash from operations in the third quarter? If you have it.

Yes, that was -- I think that was $56 million. I think I have that here. Yes, I can give you a figure on that. The cash flow from operations was nearly $57 million, and the free cash flow was roughly $21 million or $22 million, right in that area. For free cash flow.

$21 million, $22 million. Great.

Cash flow from operations was about $57 million in the quarter.

Thank you very much.

Our next question comes Yilma Adebe of JPMorgan. Caller, please proceed with your question.

One balance sheet question for me. Looking at the business profile pro forma for Safety-Kleen, through the cycle and any change in terms of your views from a financial policy perspective, in terms of how you look at leverage of the enterprise through the cycle?

As far as debt leverage, as we do this acquisition you mean, Yilma?

Yes, exactly.

Clearly, we need to maintain and we want to maintain a strong balance sheet for the Company, so we have looked at leverage in the 2.5 times EBITDA range -- that's maybe 3 times EBITDA to be the very highest we would ever go. Even if we get up to 3, we maybe see a path of getting back to 2.5. That's kind of what's on the drawing board for how we will do the ultimate financing for the Safety-Kleen acquisition, which we are working on right now.

Just wanted to add to that. As we discussed last Monday on the call, this will be a combination of cash on our balance sheet, as well as debt and equity. We are sort of thinking the cash around $400 million range and equity would be something similar to what we had done around the Eveready transaction. Probably about 25% in terms of your modeling.

Yes, I thank you, that's helpful. One follow up to that. So if you are looking at the cyclical business profile, the cyclical nature of Safety-Kleen, would you say pro forma for that overall credit profile is improved, about the same, in terms of how much the enterprise can support leverage. Does the business profile of Safety-Kleen change the overall credit profile of the enterprise?

We think of Safety-Kleen as an environmental business and recycling business. I think we would think about it very comparable to how we think about our Environmental business. I don't think we think about it as changing all the different on a combined basis.

And the only thing I would add is the part of the business that is exposed to oil prices, because, clearly there, part of the business is collecting oil. I think the Safety-Kleen management has done a terrific job over the last couple years in trying to put indexes into their customer's contracts to cover that. Also, they put in a nice hedging strategy that incorporates, basically, a costless collar around movements and crude prices to be able to protect themselves on the downside. I think it fits in quite well from what we have seen. We think from a balance sheet perspective and credit profile, it's actually very good.

Thank you. That's all I had.

And it appears there are no further questions at this time. I would like to turn the floor back over to management for closing comments.

Thank you all for joining us this morning. We look forward to discussing our year-end report with you in February. Have a great day.

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