Clean Harbors Inc (CLH) 2013 Q1 法說會逐字稿

Greetings and welcome to the Clean Harbors, Inc. first-quarter 2013 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, Inc. Thank you. Mr. Musselman, you may begin.

Thank you, Kevin, 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, President and Chief Financial Officer, Jim Rutledge; and our SVP of Investor Relations and Corporate Communications, Jim Buckley.

Matters we are discussing today that are not historical facts are considered forward-looking statements within the meaning of Private Securities Litigation Reform Act of 1995. Participants are cautioned not to place undue reliance on these statements, which reflect managements' opinions only as of this date, May 1, 2013. Information on the potential factors and risks that could affect the Company's actual results of operations is included in our filings with the SEC. The Company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today's press release or this morning's call, other than through SEC filings that will be made concerning this reporting period.

In addition, I would like to remind you that today's discussion will include references to non-GAAP measures. Clean Harbors believes that such information provides 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 at our website, www.CleanHarbors.com. And now I'd like to turn the call over to our CEO, Alan McKim. Alan?

Thanks, David, and good morning, everyone. Q1 was our first quarter as a combined organization with Safety-Kleen. It's also our first quarter where we're reporting our five new reportable segments. Going forward we'll be reporting our performance through these five reportable segments, which we have included at the back of today's news release. These segments are Technical Services, Oil Re-refining and Recycling, Safety-Kleen Environmental Services, Industrial and Field Services, and finally, Oil and Gas Field Services. These segments map to our internal operating structure under our four precedents that I outlined on our last call, with Oil Re-refining and Recycling being further broken out of Safety-Kleen as a fifth segment for SEC reporting purposes.

Before going through how each segment performed this quarter I'd like to provide an update on the integration of Safety-Kleen, which we've now owned for four months. Since our Q4 call in February, we have made significant progress in advancing the multiple integration initiatives we have underway. The folks at Safety-Kleen have experienced a tremendous amount of change since the beginning of the year, including new leadership. In April we announced that Jerry Correll had been promoted to President of Safety-Kleen. Jerry is a seasoned industry executive who has spent more than a decade here at Clean Harbors following 16 years at Safety-Kleen and Laidlaw. He has a strong sales and operational background and is familiar with both organizations and that's really made him my ideal fit to succeed Bob Craycraft.

Today we are more confident than ever that the combination of our two organizations will be an advantage from both a competitive and financial standpoint. While an integration of this scale is always complex and challenging, we're convinced that the cultural and strategic fit between our two companies is a strong one. We've gained a far greater understanding of Safety-Kleen's business processes in the past four months, which have reinforced our belief that this was an excellent deal for Clean Harbors and our shareholders. We continue to be excited about the valuable assets and customers we've gain. On our last call I outlined how we have identified more than 500 projects or tasks that our integration teams are executing against to generate the cost synergies this year. At this point, we feel confident enough in the synergies available to us that we're raising our expected total from -- for 2013 to a range of $70 million to $75 million.

By streamlining a number of functions and gaining efficiencies we're unlocking the full value of our combined organization, but I would like to share two key reference points at a high level that we're tracking. One is the ratio of billable to nonbillable headcount and the other is corporate SG&A. With our billable ratio, prior to the Safety-Kleen acquisition we had approximately 2.5 billable heads to every billable -- every nonbillable head, while Safety-Kleen had a ratio of one-to-one at the time of the acquisition. At the same time Clean Harbors' corporate SG&A was $102 million in 2012, and Safety-Kleen carries a similar amount on a much lower revenue base, which has essentially doubled our corporate SG&A on an annual basis. Many of the synergies we expect to deliver this year will come from a reduction in both of these metrics.

On the cost side, our initiatives include, first, eliminating redundant personnel and processes, so of the $70 million to $75 million total approximately one-half will come from headcount reductions. Many of these have been completed in the past six weeks. Second, internalization of disposal of Safety-Kleen waste volumes into our network. We expect this will generate approximately $8 million of annualized savings and we essentially began capturing that during the quarter. Third, internalizing certain outside transportation costs that Safety-Kleen is incurring, which should result in $4 million to $6 million in annualized savings. Fourth, internalizing maintenance for vehicles for the Safety-Kleen fleet. It had a number of outsourced maintenance programs that we believe we can internalize with a resulting savings of up to $4 million annually.

Fifth, we targeted a reduction in our combined professional fees of approximately $4 million. Sixth, we expect to save $3 million to $4 million annually from the internalization of our total project management business, a $50 million business of Safety-Kleen's. We can utilize Clean Harbors' resources to perform the field services and clean pack work that would've been outsized by Safety-Kleen in the past as part of this business. Seventh, we see opportunities for economies of scale in areas such as procurement. We have national programs in place with suppliers for certain items, as does Safety-Kleen for others, so we're adopting the most cost-effective programs for each side based on our combined volumes, such as office supplies, tires for vehicles and so forth. Lastly, we are nearing completion of the process of moving all of the Safety-Kleen systems to our single platform that uses our proprietary [WIN] system as its backbone and PeopleSoft layered in. Safety-Kleen was running SAP and purchased a number of expensive packages to support its systems. We believe we'll not only generate considerable savings from transitioning Safety-Kleen to our flexible system, our WIN system, but we'll gain efficiencies, increase asset utilization and enhance our tracking capabilities.

The $70 million to $75 million synergies this year is strictly on the cost side. In addition, we see multiple cross-selling opportunities across both the organizations. We're in the process of training our combined salesforce about our broad service offerings. Whether it's selling Clean Harbors' Industrial and Field Services or disposal capabilities into an existing Safety-Kleen customer or promoting Safety-Kleen's parts washing business into the plants of our existing customers, we see a number of opportunities that are ripe for cross-selling. However, we do not expect cross-selling to be -- to move the needle too much this year as we complete the integration and the sales training process. We expect that our cross-selling efforts will be a source of meaningful growth for us in late 2013 and into 2014 and beyond.

Turning now to Q1 results, on balance Q1 was a soft quarter for us. As we forward with the integration of Safety-Kleen we also experienced a less-than-robust winter drilling season in Western Canada and the pricing environment in the refining business remained under pressure throughout the quarter. At the same time, our environmental-related businesses were in their seasonally slow period so any pockets of strength we saw were not sizable enough to offset the weakness we experienced in Re-refining and Oil and Gas Field Services.

So looking at our quarter from a segment level, Technical Services continued to be a steady performer for us this quarter as we generated organic growth of nearly 10% from Q1 a year ago. Utilization at our incinerators was 88.9%, down slightly from 89.7% in Q1 of last year, but still at high level of throughput. Geographically, our Canadian operations had an excellent quarter with 95% utilization, while our US locations came in at 87.3%, in part due to an unplanned outage we had during the quarter at the El Dorado facility in Arkansas. Following two record-setting quarters, volume in our landfill business were down 12% from Q1 of 2012, primarily because of the timing of some large-scale projects and slower Bakken-related work due to weather. We view this as a typical quarterly lumpiness within that business and we continue to have a positive outlook for our landfills in 2013. Activity levels were high within our network of transfer, storage and disposal facilities and wastewater treatment plants as we said -- as we saw steady waste streams in the quarter and an increase overall with customer drum volumes.

Within our Oil Refining and Recycling segment we faced a challenging pricing environment throughout Q1. Fortunately, pricing trended upward as the quarter progressed. After a $0.38 drop in Group II base oil pricing in January we saw about a $0.15 price jump in March. Although Group II pricing is stable, it is still down over $0.90 per gallon from June of last year. While we were affected by the downward spike in Group II lube pricing we are taking several important steps to mitigate the volatility going forward. First, we're blending more product, and as margins in the blended market are higher and less subjected to these severe price movements versus Group II, we're targeting getting our blended output to cross that 50% threshold this year. This has been ongoing for several years at Safety-Kleen, but it is a process at Safety-Kleen that continues to produce what the market is demanding. Just three years ago only 38% of Safety-Kleen's output was blended and last year it was closer to 44%. Our blending activities range from mixing in certain additives to generating our own blended -- branded line of recycled products sold as EcoPower. As I mentioned on our Q4 call, Safety-Kleen added a $15 million blending facility to its Indiana site last year and that is helping with our expansion in this area.

The second element in lowering our exposure to the base oil spread is on the input side. Safety-Kleen uses no bridging crude so we have more control over our feedstock than traditional refiners. We're gathering waste oil from thousands of accounts. We're looking at more rapidly adjusting our pay-for-oil program to combat pricing pressures and abnormalities in market. Together we believe these two steps will lower volatility in the effects of the near-term pricing swings in the Group II marketplace. Within our Safety-Kleen Environmental Service segment we achieved solid results. This segment is made up of the Safety-Kleen branches, and work primarily consists of its small quantity generator business, parts washers and waste oil collection. We continue to feel strongly that Safety-Kleen's environmental business can leverage our waste treatment and disposal network. Within the small quantity generator market, we were able to see firsthand this quarter how diverse and deep of a customer base Safety-Kleen has built during the past several decades. The parts washer business achieved good results this quarter and we continue to see cross-selling opportunities for us, particularly as we introduce these product offerings to our Canadian customer base.

And lastly on the Safety-Kleen environmental side is the waste oil collection business, where we pick up more than 200 million gallons of used oil annually from customers to supply our re-refining operation as well as resell the excess in the market as a recycled fuel oil. This business delivered another steady performance this quarter and we see opportunities for expansion, greater efficiencies as we leverage the Clean Harbors' rail infrastructure in collection network with Safety-Kleen.

Turning to our Industrial and Field Services, this segment was a solid contributor this quarter. Within the segment we saw typical results within our turnaround service business for the first quarter and better-than-expected activities in the oil sands, where we continue to be well-positioned as a go-to provider for industrial services at the mines, upgraders and refineries. Bookings at our lodging business remained at a high level this quarter and continue to generate good margins for us. Field Services, which used to be its own segment, is now combined with our industrial business. Field Services grew in the quarter, as we saw a healthy mix of large projects and routine maintenance work this quarter.

And finally, within our Oil and Gas Field Service segment we saw a continuation of the trends we experienced in Q4, with the winter drilling season less robust than we had experienced in 2011. In Western Canada rig counts remained down about 15%, which continued to affect our rental business in the quarter. In the US market, activity in the quarter was better than it had been for the past several quarters. We have improved our position in the marketplace now that we have successfully repositioned some of our solids control assets and rental equipment in response to the shift in the marketplace towards liquid rich gas, oil and oil plays. And as we discussed on our Q4 call, we've diversified our client concentration in this market, growing our roster from mid single digits to approximately two dozen key customers. While we experienced a challenging 2012 we believe this business has now stabilized and during the first quarter we announced industry veteran Laura Schwinn will be heading up this segment and we are optimistic about its opportunities under her leadership.

With that, let me turn to our outlook. The Safety-Kleen integration is proceeding at a rapid pace and we're encouraged by what we've seen so far. The combination of our two organizations will create numerous opportunities for margin enhancement and ultimately profitable growth. During Q2 we're entering the stronger period for our environmental business and many of our key verticals. However, we continue to expect our revenue and EBITDA growth to be weighed toward the second half of 2013 as we are able to better leverage the Clean Harbors-Safety-Kleen combination as we move through the year. We also will begin to pursue more and more cross-selling opportunities with each of our segments with the continuation of our ongoing sales force training, as I mentioned earlier. However, given the revenue shortfall here in Q1 and our expectations about pricing in the oil re-refining segment, we decided to be conservative and lower our revenue guidance for 2013 by $100 million.

On the cost side, however, we remain committed to our ongoing expense reduction and margin improvement initiatives. We are confident that we can capture the $70 million to $75 million in planned cost synergies for Safety-Kleen in 2013. Overall we believe that we can generate enough cost savings in our business to achieve our adjusted EBITDA guidance, despite the lower revenue. So with that let me turn it over to Jim for the financial review. Jim?

Thank you, Alan, and good morning, everyone. With the addition of a full quarter of Safety-Kleen results, we reported Q1 revenue of $862.2 million versus $572 million in the same period a year ago. As Alan mentioned, within Safety-Kleen the re-refining business underperformed as a result of the sharp decrease in base oil pricing early Q1. The remainder of Safety-Kleen delivered a solid quarter. In looking at our legacy Clean Harbors business we achieved growth in both our Industrial and Field Services and Technical Services segments, while the results of our Oil and Gas Field Services segment largely reflected the slow winter drilling season in Western Canada. Gross profit for the quarter was $226.1 million, or a gross margin of 26.2%, compared with a gross profit of $171.7 million, or a gross margin of 30% in the same period last year. We were expecting a decline in our gross margin due to the addition of Safety-Kleen and the higher-margin contributions we enjoyed in Q1 2012 within our Oil and Gas Field Services segment.

Turning to expenses, SG&A was $128.5 million, or 14.9% of revenues, compared with $70.8 million, or 12.4% of revenues in Q1 a year ago. SG&A was well above our target range of 12.5% to 13% of revenues, primarily because of the relatively higher level of SG&A as a percent of revenues added from Safety-Kleen, as well as expenses related to its acquisition and integration during the quarter. In fact, a large portion of the Safety-Kleen synergies we are targeting will come from the area of SG&A, as Alan alluded to, and we would fully expect our SG&A percentage to decline sharply in the quarters ahead. In Q1 depreciation and amortization increased 63% year over year to $60 million. The reason behind this increase is the addition of Safety-Kleen and other acquisitions that we have completed in the past 12 months, which combined to introduce a significant amount of depreciable assets. For the full year, we are continuing to target D&A in the range of $255 million to $265 million.

Income from operations for Q1 was $34.8 million, or 4% of revenues, compared with $61.7 million, or 10.8% of revenues in Q1 2012. This decrease was expected and reflects the higher level of depreciation, as well as near-term expenses, such as severance cost and outside consultant fees related to the Safety-Kleen integration. Safety-Kleen integration-related expenses, which totaled about $5.7 million in the quarter also weighed on our adjusted EBITDA results. Our Q1 adjusted EBITDA was $111.2 million, or a margin of 12.9%, which is consistent with the margin guidance I gave on our Q4 call. For clarification I should point out that our adjusted EBITDA includes those $5.7 million of integration cost, but excludes the $13.6 million of one-time, non-cash acquisition accounting adjustments.

Turning to our taxes, our effective tax rate for the quarter was 32.2% compared with 36.1% in Q1 of last year. This lower rate reflects the relatively-higher level of Canadian earnings subject to lower income tax rates during the quarter. For the full-year 2013 we are continuing to forecast our effective tax rate to be in the range of 36.5% million to 37.5%. For the first quarter we reported net income of $10.5 million, or $0.17 per diluted share, compared with $32 million, or $0.60 per diluted share in the same period last year. First-quarter 2013 net income included the $13.6 million of non-cash acquisition accounting adjustments I just mentioned and the $5.7 million in integration costs associated with Safety-Kleen.

Turning to our balance sheet, cash and marketable securities as of March 31 were $233 million, down from $241.6 million at year end. We expected this decrease, as the first quarter is generally a cash-intensive period due to the payment of annual employee bonuses, commissions and the timing of our interest payment. Our cash position has increased since the quarter to the present level of about $263 million. Total accounts receivable were $595.9 million at quarter end compared with $568.5 million at year end. In Q1 our DSO, or day sales outstanding, declined to 63 days from the 72 days we reported in Q4. This nine-day improvement is primarily due to the addition of Safety-Kleen, which carries a shorter sales cycle. During the next few quarters we hope to achieve a target DSO level below 60 days. Environmental liabilities at the end of Q1 were $219.9 million compared with approximately $221.5 million at year end. CapEx for Q1 was $72.2 million, which is up from the $65.4 million we spent in Q4. For 2013 we are continuing to target CapEx in the range of $260 million to $270 million, which includes maintenance CapEx of approximately $120 million and nearly $150 million of high return internal investments. Our cash flow from operations in the quarter was strong at approximately $39.6 million compared with $29.6 million in Q1 2012.

Moving now to our guidance, we are lowering our 2013 revenue guidance as a result of our Q1 top-line performance and the ongoing pricing environment in the re-refined oil space. We currently expect 2013 revenues in the range of $3.62 billion to $3.67 billion compared to our previous range of $3.72 billion to $3.77 billion. As Alan mentioned, based on ongoing initiatives and expected Safety-Kleen synergies we expect that we can improve our margins enough to still achieve our previous adjusted EBITDA guidance of $605 million to $620 million. With that, Kevin, could we please open the call for questions?

Certainly.

(Operator Instructions)

Richard Wesolowski, Sidoti & Company.

Other initial service contractors have voiced a softening of demand in Western Canada, even those that are focused on maintenance of existing facilities as you are, would you comment on how your outlook there has changed, if at all?

Rich, I would say that our volumes are strong there, we've been adding people and equipment. We expect to complete the Ruth Lake camp at the end of the second quarter, which is about a $35 million investment, as well as a large maintenance and training facility is also due to be completed. And we have seen strong interest in those new assets that we have and we expect to be increasing our business going into the third quarter. So, outside of the Voyageur project that was canceled, we continue to see significant investments and demands for the services that we have.

Regarding Suncor, commented yesterday that they're not seeing the inflation that they had expected to attend their building activity, have you recently raised prices in Western Canada either for lodging or plant services or both?

We've had some areas where we have been able to increase prices, but in other areas I would say more flat. And I would say in the -- moving to the US -- although you asked about Canada, moving to the US we have done some discounting to be able to expand our business in the US shale plays beyond what we had before. So I would say it's kind of mixed if you look across North America.

Yes.

And just to follow on, I assume you -- by this point you've reattained by whatever pricing was given back by Eveready during the downturn?

Yes, I would say so yes, and we've been actively going back to customers and getting that back and I think customers worked with us during the downturn and I think we're back at least to where we were if not better.

I would agree.

I appreciate your time. Best of luck with the rest of the year.

Jim Giannakouros, Oppenheimer & Co

On the oil re-refining you did cite that we were seeing virgin producers increase their prices over the last couple of months and I'm just curious as too what exactly has changed, either on the outlook there or in the competitive marketplace or in your ability to get price relief from customers that tempered your outlook on the pricing environment going forward?

Well, I think what we've seen really is somewhat unprecedented to see the disconnect between Group II lube pricing and crud. And going back to June of last year, that initial separation took place and I think a lot of people felt in the market that, that was going to be a short duration anomaly and, quite frankly, it continued through November, and then right after the first of the year it actually accelerated again further. And I think most folks would've thought that we would've seen pricing come back considering where crude continues to be. There was some price movement back in March giving back some of the price decline, but I think people were optimistic that in the second quarter and certainly in the third quarter that pricing would come back to where it was or at least improve consistent with the way it trended in the past with crude oil.

That hasn't materialized yet and our certain hope is that things will get straightened out in the market. We're a very small player, as you know only a small percentage of the market, so we absolutely trail the majors and their pricing strategies and so we're planning for the worst, so in anticipation that pricing doesn't change. But if it does continue to improve then that's certainly is going to be a positive for the business.

Okay. And tacking on, I guess, a longer term, how should we be thinking about it, or how could you frame for us how we should be thinking about potential pricing effects of capacity additions that are coming online over the next year or two in Group II specifically?

Yes, Jim, you want to --?

Yes, I can start just to say that from what we understand a lot of the capacity additions that are coming on are substantially in the virgin loop area and a lot of it is destined for export with the growth in Asia and with Europe eventually coming back that that's really mostly what it's geared towards. And the fact that we're in the re-refining space and as we see a growing interest from a sustainability standpoint of customers wanting a re-refined product given its higher performance level and its environmental friendliness from a sustainability standpoint that we believe that the demand for re-refined will increase going forward, at least that's our view given the two point's --.

And I think Safety-Kleen offers lowest-cost manufacturing due to its input cost and the size of its re-refining business. And I think the sustainable product is a very important one for a lot of our major customers and that's something that we're going to exploit. They also have some great products. I think that it's proven and they've tested out that the products that Safety-Kleen is making now, the blended products, is superior to many of the blended products that are being manufactured today. So our goal, we've just brought on a new leader on our sales organization for the lube oil side of our business. Our goal is to sell more blended products and to move that from that 15% level to 60% and even beyond, converting not only our own fleet but going after all the major fleet operators out there and really expanding their marketing efforts across the Clean Harbors customer base, which is a wonderful opportunity for Safety-Kleen, to be honest with you. So I hope that gives you some color on that.

It does, thank you very much.

Al Kaschalk, Wedbush.

I just want to focus on Technical Services in particular and a current view and then the outlook as it relates specifically to pricing, if you could share color there across the various service offerings you have?

Sure. Well, I think pricing on incineration I think we've been doing very well. I think that there was some upset conditions with one of our customers. There was a major fire at one of our largest customers down in Texas in the first quarter and that. We do some volumes of some high margin streams that we have, but in general our volumes from our chemical industry and our refinery industry have been very strong. Our landfill volumes have been equally as strong, although in the first quarter, as we mentioned, not as strong as the last couple of quarters, record quarters that we've been enjoying. But whether it's in Alberta or it's in North Dakota, even in Eastern Canada with our thermal treatment unit, we've seen some really nice business.

So I think -- as you saw in our numbers 10% organic growth I think we're going to continue to see our business grow simply because manufacturing is growing, chemical industries are strong. We continue to put capital to build out a third incinerator at our El Dorado site. We're also putting additional processing capital at our Kimball, Nebraska facility. We're in the second phase of a build out at that facility. And through the internalization of a lot of the Safety-Kleen waste from their small quantity generators, the Technical Services side of the business is going to really see a very strong year this year.

If I may my follow up would be, I think you commented that the refining business was under some pressure -- and if you commented on this and I missed it my apologies -- but could you help us understand if that's behind you and or is it just seasonal, is it timing? What happened there relative to your expectations?

Sure. When we first got engaged with the discussion when Safety-Kleen was marketing itself, we certainly saw some pricing pressure from the June timeframe of last year. But I think it was everybody's best understanding of where pricing was going to go is that it was going to be somewhat lower than June, but nothing like we've seen from further price declines through November and then subsequently again in January. And so, as I mentioned earlier, that Group II pricing is about $0.90 a gallon off of where was in June and when you're handling about 60 million gallons or so it's a pretty significant decline for us. And so we're hopeful and anticipating that pricing is going to come back. We've heard some noise in that area and we're watching it weekly, but we only saw a little bit of uptick in March and so beginning in April we'll be able to -- in May be able to increase our pricing again. But pricing has definitely been very difficult and considering where crude has been this disconnect has been somewhat unprecedented from everything that we hear.

I guess the point though right, Alan, is the decline that you've given in revenue guidance of basically 2% at the midpoint implies though that your EBITDA margin is heading closer to 17% for the full year, which is up from 16%, 16.2%, so on margin I think that 's one isolated business, the rest seems very healthy.

Yes, and I think when you think about even a couple of other pieces, as I mentioned earlier, our Ruth Lake facility, we've put a lot of capital on that. That's going to be coming online here and they've done a wonderful job. We built that facility with our own manufacturing facility so we had no outside revenue with our manufacturing, and now that Ruth Lake is complete we will enjoy some nice revenue and margin from manufacturing, as well as from the Ruth Lake Camp. So there's a good mix of business in the second half of this year, as well, that's going to improve our overall margin. And we're not going to be satisfied at 17%. I think you know that there's a lot of leverage in the business here and we've had this target of driving that EBITDA margin improvement through leveraging our whole network and I think you're going to continue to see that through next year, as well.

Great, I'll hop back in queue. Thank you.

Larry Solow, CJS Securities.

Just a couple of follow ups to Al's questions. Alan, you mentioned the outage in El Dorado can you -- and it sound like it had somewhat of an impact, can you quantify that?

I think it was a 10 day. We took the plant down unexpectedly with an event in one of our augers out there so we were scheduled to do one in April. We tried -- as you know, all of our plants we try to take them down periodically to do routine preventative maintenance and so that did impact us, coupled with the customer that had a problem down in Texas. So those two events hurt our incineration business a little bit in the quarter.

Right, so those are two separate events; one was internal and one was up customer itself?

That's right.

Okay. And then just in terms of Safety-Kleen I wanted to clarify. So basically it sounds like most of the revenue cuts are coming, if not all of them -- predominantly most of them are coming from in terms of your guidance on the Safety-Kleen refining business. Just curious, was the -- is it because what your prices that you're realizing are less than expected, because I thought when you cut guidance or when you updated guidance in January or at the last call it was based on current pricing. So, has -- current pricing in the market. So have things -- and pricing actually, obviously you had a little bit of a price benefit, which I know hasn't come in yet into your numbers because it just happened in March. But just sort of give me any color. Is it the external pricing or is it what you guys are getting that's less or anything -- any color on that would be helpful?

Sure. Yes, Al -- or Larry, I'll start this and then if Alan wants to add anything to it. If you look at the overall revenue drop that we put in there, obviously that's incorporating the actual results of Q1 and as we talked about, pockets of areas were less robust than we had anticipated. So to some degree we're kind of being a little bit more conservative for the rest of the year on our revenue outlook. But as you mentioned, there is a piece of Safety-Kleen in there on the re-refining business. But what I will tell you is that when we had done our guidance going back at the end of February when we were doing Q4, we had incorporated the price declines that we saw into our EBITDA guidance.

But in working with the Safety-Kleen folks and doing a reforecasting of the entire business, we saw that the revenue -- what was implied in our revenue guidance was at the higher side and so we moved that to where it should be to be in line with the EBITDA guidance. That's why you don't see any change that we're doing on the EBITDA guidance. Plus the other things that Alan talked about, the mix of some of our nice higher-margin services being also implied that guidance. So that's roughly an answer to your question. Alan, was there something --?

Just a couple of points probably. One is that there is some low-margin business that we're walking away from that we've analyzed and we're walking away from. And the second is, because we are changing the val -- the price that we're paying for oil on the street to lower our cost, our recycled fuel oil volume, which we sell as a recycled fuel, is probably going to be down about 10 million gallons now this year than what we had forecasted and so that's about $20 million of that decline. That -- but those are the actions that we knowingly are taking because we need to reduce the price that we're paying for the oil. Even though those prices have been indexed on number two and number six oil we need to reduce those prices and most of the customers appreciate what's going on in the marketplace here, that this is a short-term phenomenon, that they're working with us.

Right. Since your guidance does assume -- outside of cost cuts and all, does assume that you're paying less for the oil itself from customers?

We put some of that in there and it also doesn't assume beyond what price increases that we know about and what we're selling. It doesn't assume anything beyond that. We're not -- we're trying to hold the pricing level for the rest of the year to be conservative.

Okay, great. And then just lastly, you mentioned the Ruth Lake facility, which is nearing completion and that -- hopefully that should help -- (inaudible) help good returns on some of your CapEx expenses. Can you just review some of the other -- of the $150 million some of the other big ticket items in there?

Yes, I can do that. Clearly the Ruth Lake one is a project that's $30 million plus and that is not only a Ruth Lake facility for lodging, but it is also an Industrial Services center and also a training center for employees that work there, so it's actually beyond that a little bit. When you look at -- in our landfill area we're doing expansions at our landfills that exceed $20 million. It's between $20 million and $25 million and I would say two-thirds of that is geared toward growth and then a third of it is geared toward maintaining existing business. Within Safety-Kleen we're investing in our parts washer business, we're manufacturing those, that's over $10 million in that area. We're also spending between $10 million and $15 million for vac trucks and hydro-vacs. And then beyond that it's additional tractors, it's additional containers, it's roll-off trucks, it's specialty equipment, standalone specialty equipment, as well as truck-mounted equipment geared toward growth. That's the other parts of it.

Okay, great. Thanks a much.

David Manthey, Robert W. Baird.

First up on the synergies of $70 million to $75 million in 2013, the incremental $10 million is that because you're finding more, or is it just that you're getting at them faster, first of all? And then second, could you talk about what will be the run rate of those synergies as you exit 2014? I'm trying to figure out what the incremental benefit of those synergies might be in 2014 specifically.

Hi, Dave, it's Jim. I'll start and then if Alan wants to add anything. Clearly it's a combination of both. We see opportunities that we thought would take a little longer and we're encourage that we're able to get in there and address them sooner. Plus we're also just -- it's amazing. When you look at two corporate organizations of two long-standing companies, very successful companies, coming together and recognizing that Clean Harbors, just as Safety-Kleen was, operates from a central platform of systems and management that clearly a doubling of our corporate costs, to use one example, is something that we just don't need in a combined company. In fact, to gain a lot of the margin expansion, even beyond this year, we would want it to be combined, to be able to maximize -- to optimize routing, for example, and to share offices and do things like that, that will last long into the future. So this is a key part of the integration to get on one single platform, to get on one central control of both of those previous two separate corporate -- corporations there. Regarding the run rate, it obviously would be higher than what we would achieve in $70 million and I would say that we're pushing $100 million in that area of synergies of a run rate there. Alan, did you have anything?

No, I think that's --

Okay, great. And those are costs, that's not including the top-line revenue synergies, but we're really not expecting a lot -- significant this year, but we see some real opportunity there.

Yes, and, Alan, that was my next question. Maybe you can just discuss -- I know it's in the future and it's probably a 2014 situation, but could you talk about what the major sales synergies as you see them because I'm not clear on what those cross-selling opportunities will be?

If we just take Field Services, for example, Safety-Kleen had a business called Total Project Management, or TPM, and they built that to about $50 million and we have put that business under the Clean Harbors organization. Part of it is Field Services, part of it is part of our Tech Services business, but they use to outsource a lot of that, so subcontracting a lot of that, so that is one area where we see some cost savings. But more importantly, the amount of opportunities in calls that they get across their network, really gives us confidence that we can accelerate the opening up of Field Services locations and growing our Field Service business across the Safety-Kleen network.

As you know, up until recently we were opening up three, four, five offices a year. Not only do we want to open up at least 10 new Safety-Kleen branches this year to expand their typical lines of business, like parts washers, waste oil, but we also want to open up additional Field Services locations across their platform and take advantage of those customers that they have very good relationships with that they were trying to grow this TPM business with. Does that help give you --

Yes, so it's -- sounds like it's primarily cross-selling Clean Harbors' Field Services into Safety-Kleen customers that are asking for it.

Yes, and that's just one example. There are many examples that -- there, but I wanted to give you color for one.

And I would add one other one, Alan, if I could. On the Technical Services side, now having consolidated that capability of being able to address the needs of small quantity generators. In the past when Clean Harbors would get calls from companies that had drums as opposed to bulk waste streams, we couldn't handle it because we didn't have that kind of infrastructure to be able to do that. But now with Safety-Kleen's infrastructure, we can address a larger amount of waste volumes, particularly hazardous waste volumes that are out there among small quantity generators that previously Safety-Kleen couldn't handle because it was hazardous, or we couldn't get to because of the equipment. So with that consolidation we should see a growth in our overall hazardous waste business. That's another example.

Yes, absolutely.

Great, that's helpful, and one last question. On the management change at Safety-Kleen, it was a --seemed to bit abrupt and relative to recent signaling and I'm just wondering if you could talk about what was behind that decision and what made that happen so soon?

True. Bob Craycraft was a terrific leader and really I think after successfully executing the sale process for the prior private equity owners of Safety-Kleen, and certainly helping us not only with the initial integration planning but helping us with some of the early integration work, I think basically Bob wanted to be CEO and lead and find a CEO position and felt that it would be better to do that sooner rather than later, quite frankly. And we were certainly sorry to see him go, but I would tell you that Jerry Correll, who has been on my staff for 11 years, is a terrific leader who is going to help bridge these two organizations together. It was one of the key roles that he played when we bought the Chemical Services division of Safety-Kleen based out of South Carolina and so Jerry, we're not going to lose any momentum hear at all. And like I said, Bob was a terrific guy and he wanted to make that move and that was his call.

Got it. All right, thank you guys.

Sean Hannan, Needham & Company.

Yes, good morning, a few parts to my first question here. So you have a number of different viscosities you're selling in that re-refined oil, but if you look at not posted but spot pricing within the industry across all the lube products, I think that at least some of the moderate price improvements we've seen to date puts you at the level we had exiting December, so I wanted to see if you could confirm that? And then when you think about your pay-for-oil program, could you explain exactly when that was implemented, how successful that has been in some regional versus others? Because obviously there are some regional competitive impacts in some cases and it sounds like you can incrementally make our progress. Just want to get a sense of how that could materialize given that there are competitors also vying for that used oil? Thanks.

So there are three based products that Safety-Kleen manufacturer's and then there are 90 other products that are package-blended products. And I think that Safety-Kleen has done a tremendous amount of work, particularly with their additive suppliers, to create branded products that really are differentiated in the marketplace and have proven through the million-mile tests that they've done, that these are excellent products, and I think they can enjoy a better price for those products today than they have historically through a lot of that effort that they've made.

Getting back to your question about pricing and whether we're back to where we were in January, I don't -- we're certainly are not there yet. We saw about a $0.35 decline, we're back up $0.15, $0.20, $0.25 in some cases. You're right, there is some spot market pricing out there, but the way that the contracts that have been, at least written to date with Safety-Kleen, these tend to lag. To get three of the majors to change their pricing it sometimes takes a two or three or four week period of time before we're able to increase our prices to our end users. So, I would say we're lagging behind a little bit there and we're not at the price we were in January just yet, Sean.

Okay. And then the other part there in terms of the pay-for-oil, how that's working and being implemented?

I think for as long as we've all been in this business, the pay-for-oil program is always subject to constant change and dealing with market changes, both from competitors and as well as simply the price of oil. And I think that Safety-Kleen has done a very good job, but because of this disconnect, as I mentioned earlier, with Group II pricing from crude oil, I think the way that their indexes have worked, it really has shown a weakness, quite frankly. Now maybe this won't ever happen again, because in talking with some of the folks that have been in this business for 30 plus years, they've only seen this happen two or three times. So we need to be mindful that if this happens again, we've got to have a different way of reacting to the pay-for-oil. But I think Safety-Kleen is doing a good job of moving customers to address the pricing issues that we're facing.

Okay, and then a follow-up question on a different topic. When you look at gas pricing, we've moved above $4, that's been holding pretty well. I think off your last call there were some positive indications you were starting to see a little bit. Just wanted to get an update there in terms of -- on the gas side of the market there for you in North America? Thanks.

Yes, and I would say that certainly it's positive. It's double almost of where was a year ago. As you remember, it was almost under $2 there and really shut a lot of rigs down. I would say the bigger opportunity that Laura has been sharing with us is really expanding our presence into more of the gas and oil plays. Taking her relationships, expanding our presence into three or four additional plays. And as we've said in the past, we've predominately been in the Bakken and the Marsalis area. She sees and we agree that we're going to reposition more of our surplus assets and we still -- we're running at less than 50% utilization in oil and gas. Clearly, we have the capacity to run an $800 million, $900 million business there and we're only at $455 million, $500 million right now. The bigger opportunity is not just the price of gas, but it's really getting our assets in a different location and that's part of the plan this year, for sure.

Great, thanks very much for the update, Alan.

Michael Hoffman, Wunderlich Securities.

Yes, thanks very much for taking my questions. If we could come back to the refining business for a minute, can you help us balance the top-line pressure that's there because base crude prices are lower and therefore the sale to the third party's less, versus your ability to manage margin now that the crude lube spread is actually widening again so it's almost $1.50 and help us about the direction of the margins with that backdrop?

So you're talking about with the overall drop in the revenue, $100 million, and why no effect on the EBITDA, is that what the gist of your question is?

It's just -- the question is you managed your profitability so it's -- there's a volatile top line, you've managed - help us understand why that you were able to do that and then where could go? If the backdrop is boat, the pricing have today, where could it go with what you're doing?

Absolutely. Well, going back -- as I mentioned before, even going back to February when we were talking about our EBITDA guidance, we already factored in the price declines that we saw from an EBITDA level. But then as I also mentioned before, in reforecasting Safety-Kleen under our ownership all the way through, revenues right through EBITDA, what we saw was that we were at the very high-end of the revenue range that we're bringing that down now to be appropriately connected with the EBITDA guidance that we had been given with those price declines. Going forward obviously any price increases beyond this point are not reflective in that. So to your question about where can this go, I think with price increases that would be upside for us clearly.

Regarding the other businesses as I mentioned before, we saw some businesses that weren't as robust during Q1 that we toned down the remainder of the year as far as what we were expecting just to be conservative and that brought down our revenue guidance. But also as Alan pointed out, we have some higher-margin services that we're going to be performing as we go through the year. For example, with the new lodging camp coming on right past midyear and some of our projections around Tech Service volumes coming into our network, so that's how we got there and that's aside from the synergies. Clearly, the synergies are incorporated into there, as well, our increase of $10 million in synergies.

Well -- and, Jim, I apologize I probably didn't answer my --ask my question very clearly. I was trying to be more narrowly focused on the re-refining business itself. Since virtually all of this revenue reduction's coming from there and yet I anticipate that your profit performance exceeded even your own expectations of that business and despite the loss of the revenues because of things you're doing. And can you talk to us about how you can continue to manage good and better margins in re-refining even if the base lube prices stay where they are?

Absolutely. Well, we talked a little bit about the pay-for-oil side, which is clearly a lever of -- obviously our customers who are buying clean lubricants are enjoying a lower price with the price of base stock being down, that we're working and trying to make a win-win out of our negotiations with customers on the collection side to be able to have the prices be equalized with what's going on in the lubricant market overall. And then also, as Alan alluded to, on the blended stock of doing more of our own branded product, EcoPower for example, and also selling more blended product that carries with it a higher EBITDA and a higher margin.

I think also we're taking advantage of the expansion plans that were put in place. Safety-Kleen invested quite a bit of money in Breslau to expand another 10 million gallons in that facility. I think it was about $25 million, Jim, if I'm not mistaken total?

It ended at another 10 million gallons of capacity.

How much capital you remember off hand because it was a made investment before our ownership, but --

Yes, it was about $20 million I think, Alan.

So that 10 million gallons went into effect and basically just starting in the beginning of year. The other thing is the blending facility, which is internalizing what was a third-party blender to create those blended products. And then the third really is to expand the blending sale of products. So we're adding and we're growing -- we expect to grow our EcoPower product line this year considerably and so the mix of business, so to speak, is going to help our margins because of those three things in the refining business.

Okay, and then one other follow up around that. Of the $100 million how much is what you didn't do in 1Q and then how much should we take out of two, three, four, to get to the $100 million?

And I don't think all $100 million is for the re-refinery, too. You've got (inaudible) on the recycled fuel oil. Some of it's refinery and then a little bit of shortfall on the oil and gas side of our business due to the first quarter and the rig count.

That's right. I would say probably about a third of it is related to the re-refining so it may be a little north of that and then the rest of it is some of the softness that we did see in Q1 and on the oil and gas side, as Alan just pointed to.

Right. And so if you're taking guidance down $100 million for the year, how much is a shortfall of total 1Q and then how much has got to be spread out over two, three and four?

I think the short -- I think we were estimating -- and I don't have real exact numbers in front of me as we're sitting getting down to this detail level, Michael, but I would say probably -- I would say $20 million to $25 million was less than what we were expecting in Q1 there.

Okay, that helps, and one housekeeping request. Now that you have these new divisions and you're combining things, could we get restated 2012 quarters revenues and EBITDA be for the second quarter so everybody's got a good set of comps to think about?

Yes, that's a great suggestion, let us look at how we can do that. That's a very good suggestion, Michael, I appreciate that.

Thank you very much.

Hamzah Mazari, Credit Suisse.

My question is a little more big picture question. Maybe if you could talk about how your acquisition strategy currently is different from what you guys have done in the past. In the past you've tried to drive more volume through your disposal facilities and now you've gotten into a lot of different businesses and cross-selling seems like the major strategy. Maybe if you could talk about how your strategy is different than the past? Is your business much more cyclical than it used to be? How should investors think about where you guys are going now?

No different than where we've been and that is our goal is to continue to drive waste volumes into our disposal and recycling facilities. And the lines of business, the 55 lines of business, the predominant number of those lines of business that we're in today drive waste volumes into our plants. And so even when we think about our Oil and Gas Field Service business, and putting center fuses next to a drilling rig and putting sludge tanks and roll-off containers, we're processing waste and our goal is to get as much waste from those drilling initiatives into our disposal facilities. And so I think our acquisition strategy has been to leverage those fixed assets facilities to drive volumes.

And there are some ancillary things that we do, like in the oil sands, where we're performing industrial cleaning and we're generating waste and we're hauling that waste back to our landfill in Alberta or processing that waste. And we are in an ancillary business like lodging to support our duties there because it is in such a remote area we need to have those facilities for our workers and it's better for us to control the quality than to have it outsourced, at least from where we are today. But, Hamzah, I don't think our strategy has changed at all.

Okay.

And it won't change in the future. When we look at acquisitions today we're all about how do we manage and process waste materials, how do we provide the cleaning, the maintenance of disposal of waste across a diverse customer base.

Okay, that makes sense. And then just a followup to the same question, Alan. Do you feel the need to have a Chief Operating Officer in your business? I note Jim stepped up to that role. Your business has gotten much more complicated over the years, do you feel like you need to have that role, or do you not need that role as you have gotten larger and more complicated?

Well, I think when we look at the structure we really have four pillars of our business today, as we mentioned earlier. We have our Safety-Kleen business led by Jerry Correll. We have our environmental business, which is led by Eric Gerstenberg, and Eric also has all of the 100 plants as part of his organization. We have our energy business, our oil and gas business, which is with Laura Schwinn. And finally our Industrial and Field Services business, which really dates back to our early beginnings, which is led by David Parry. And between those four leaders, Jim, myself, and several other key executives here, we're all hands-on managers. We're running the business, we're driving these initiatives, driving costs and driving sales and customer service and safety and quite frankly, I think the Board and the leadership team I think are intimately involved in decision making on structure and if it needs to change we'll certainly take a look at that.

Okay. Thank you, appreciate it.

Adam Thalhimer, BB&T Capital Markets.

Just one question for me, You actually had a great quarter, the only issue was the higher SG&A and I just wonder when do you think you can get that back to 13% of revenue?

I would say, Adam, if you take into consideration the synergies that we're doing that is the intention for this year. We want to get that back down to that 13% level and if you work through most of those synergies, I would say probably two-thirds to three quarters of them, Adam, are addressed on the corporate side, and that should get us clo -- very close to that 13% range there.

Great. That's it for me, thanks.

Jeff Osborne, Stifel.

Just two quick ones for me. It sounds like you had some good progress on the oil and gas side into diversifying the customer count. But I was wondering if you can give us a sense of the exposure, both in 2012 but your anticipation for 2013 in terms of mix of Canada versus the US?

Yes. Right now we are probably about three-quarters Canadian in the Oil and Gas Field Services business and 25% here. And as Alan alluded to, I believe that with the -- our expanding into additional shale plays, in the US, as you know, we went into the Bakken more heavily, Utica, we're now talking about the Barnett area, around that area there. And with Laura's involvement and her knowledge of both the US, as well as Canadian Oil and Gas Field Services business, we're actually expecting that we'll grow our US side probably faster than Canada. So you will see more balancing, I would say, over the longer term.

That's great to hear, and then the last one from me. You had the $5.7 million of integration charges this quarter, should we anticipate a couple million here in 2Q as there's any residual and then tailing off to zero in the second half, or is everything kind of done on that site?

Jeff, that was a good analysis there. I would say a couple million or so, maybe a little more than that in Q2 and then definitely tapering off beyond that.

Perfect. Thanks much.

Barbara Noverini, Morningstar.

You keep talking about increasing business near the shale plays and regarding your disposal of business in these area, other than coming down on price, can you describe any special features or services that might attract volumes away from disposal facilities that are closer to drilling activity? For example, I understand your Bakken facility is further from the activity than some of your competitors, could that explain some of the landfill volume weakness in Q1?

No, that was probably more weather related. There has been more shifting of drilling west of our site then there was a year ago. One of the things that we're doing is putting a thermal treatment unit there to be able to extract oil from the drill cuttings prior to us landfilling and so we're -- we believe we're offering an alternative treatment method there. And that's a mobile unit and we expect to expand our use of mobile thermal treatment technology in these other areas, because certainly the oil is valuable and rather than just putting it in our landfill we can get more out of it. I would say, though, that we 're providing more of a closed loop system. A lot of companies have in the past relied on open pits. Our methodology is to come in with an approach where we actually have a closed loop system with frac tanks and vac boxes and be able to manage all of the liquid for the drilling activities. And we've certainly seen a lot of success in the east with our closed loop systems because people are more concerned about it on the environmental front and I think that's going to help drive our package products, our package services in this new areas. So I think it's more of a technological benefit that we think we can provide.

Got you, thanks. And just for clarity's sake, our portion of services that you're offering in your Oil and Gas segment are they be able to be cross-sold through Technical Services well? In other words, is the business you're doing in Oil and Gas also driving some volumes to Technical Services in these areas?

Absolutely. Yes, we responding to a lot of regular needs that customers have, whether it's cleaning out their tanks or helping them reposition equipment or responding to oil spills that they have, helping them on the compliance and environmental side. So our Field Services business under industrial is working alongside the oil and gas folks with those customers. Obviously it's a different decision making. It might be the drill rig owner who's calling us on the field service side where we're working for the producer on the solids control packages. So it's a complicated sale that I think we've done a good job of figuring it out.

Got it. Thanks very much for the detail.

Sean Hannan, Needham & Company.

Yes, hanks for letting me jump back in here real quick. So I just wanted to see if my math is right. I think if we were to back out all of the charges, which are little bit more unique to the transaction, so we've got about $13.6 million and then another $5.7 million, I think on a pro forma basis that should put your earnings for the quarter around $0.39, is that roughly on par with your thinking?

That sounds about right, Sean.

Okay, great, that's a solid quarter. Thanks so much.

Thank you. I'd now like to turn the floor back over to management for any further or closing comments.

Okay, thanks again for everyone -- to everyone joining us today. We look forward to updating you on our progress throughout 2013 and we'll be presenting at several conferences this month. And we will speak with most of you again on our Q2 call the summer. So have a great day. Thank you.

Thank you. This does concludes today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.