Clean Harbors, Inc. (CLH) Q2 2012 Earnings Report, Transcript and Summary

Greetings, and welcome to the Clean Harbors Inc. Second Quarter 2012 Conference Call. [Operator Instructions] A 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, Claudia, and good morning, everyone. Thank you for joining us today. On the call with me are our Chairman and Chief Executive Officer, Alan S. McKim; and Vice Chairman and Chief Financial Officer, Jim Rutledge. Matters we are discussing today that are not historical facts are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Participants are cautioned not to place undue reliance on these statements, which reflect management's opinions only as of this date, August 8, 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 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 on our website, cleanharbors.com. And now I'd like to turn the call over to our Chairman and CEO, Alan McKim. Alan?

Thanks, David, and good morning, everyone. In Q2, we generated excellent results in our Environmental and Industrial businesses, while our Energy business was impacted by the winter break up in Western Canada, the unfavorable weather conditions in Canada and the repositioning of our solids control assets and surface rental equipment in the U.S., and I'll discuss more in a moment. We view much of the slowdown in energy as seasonality, as well as timing related. Therefore, we are reiterating our full year 2012 guidance. We're confident that we can achieve the full year financial targets we set for ourselves based on expected growth across our business lines and the current conditions we see in the marketplace. Q2 is the weakest operating period for our Oil & Gas Field Services segment. Because it depends on the timing of the spring breakup, the sensitivity to wet weather is heightened due to the mud season that ensues. As we highlighted on our Q1 call, the spring breakup came early this year, about a month earlier than in 2011, due to the warm conclusion to the winter in Western Canada. The breakup, which includes road bans, weight restrictions on the movement of heavy equipment, was also lengthier than normal this year. The remote regions of Western Canada, where we operate, had a tremendous amount of rain and snow melt, which greatly extended the wet season and stalled operations for us and our customers. While travel restrictions are no longer in effect today and the fields around the drill sites out in the prairie regions has since dried out, it heavily curtailed our activity in Q2. The other factor behind the results in our Oil and Gas Field Service segment this quarter is the ongoing shift in the U.S. by major energy companies from dry gas wells to liquid-rich and oil plays. This trend, which we touched on during our Q1 call, continued during the quarter. What that shift means to Clean Harbors is that in addition to winning the business, we have to relocate our equipment from the dry gas sites that we're servicing to these new liquid-rich plays. Unfortunately, that process takes time and money. The solids control assets and surface rental packages that we are repositioning to new drilling locations includes a variety of equipment, such as centrifuges, frac tanks, fluid control, pumps, generators, light towers [ph], well site trailers, et cetera. So much of this is made up of the Peak assets that we acquired in mid-2011. We're aggressively moving ahead with redeploying these packages. And while I don't want to view specific numbers for competitive reasons, about 1/3 of our surface rental packages are in the process of being repositioned. We are fully confident that all of them will be in position to be fully utilized again in the fourth quarter. Let me now turn to our other segments, which generally had strong results, especially our Environmental business, which extended the momentum we saw in 2011. Within our Technical Services segment, utilization at our incinerators surpassed 90% for the quarter, and at these high levels, where we achieved, we are able to maximize our profitability. Our U.S. locations generated 88% utilization. In Canada, our Sarnia incinerator was essentially 100% utilized this quarter. While our overall rate of 90% is down from 92% we reported in Q2 of last year, this is a result of a 17% increase in down days at our incinerators this year compared with 2011. Otherwise, we would have had even greater incineration performance, particularly in the U.S. Our landfills had an equally strong story in Q2. Volumes were up 60% from prior year, as we benefited from activities in the Bakken oil field in the U.S. and Projects. In fact, this quarter was the second-highest quarterly volume in Clean Harbors' history. Our landfill team continues to do an excellent job at capturing significant waste streams from a variety of projects. Our Field Services segment had another solid quarter in Q2, achieving 9% growth, despite having no major emergency response events. This segment continues to grow organically, due to a steady pipeline of routine maintenance and project-related work. Our Industrial Services segment grew roughly 27% from Q2 a year ago. We saw a nice mix of business in this segment. Activity in the Oil Sands region was certainly a significant contributor to the segment's performance. In addition, our broad array of in-plant services remained in high demand this quarter. The other strong driver for our Industrial segment was lodging, particularly our fixed lodging business. We're extremely pleased with the demand we're experiencing for our accommodations. And the investments we've made in lodging, combined with the acquisitions we completed, have positioned us well in the marketplace, as well as helping us to manage the needs of our own workforce. And we continue to see strong bookings for this business going forward. I should point out that this is also the first quarter for our Industrial segment without our International Catalyst business, which we divested at the conclusion of Q1. It was a small business for us, roughly $10 million in annual revenue. Here's a quick snapshot of our key vertical markets in Q2. Chemicals was our largest vertical in the quarter, accounting for 15% of total revenues, as it benefited from a strong bulk in Specialty Services performance as a result of our cross-selling. In addition, the low price of natural gas was favorable to overall production for our customers in the chemical vertical. Oil and gas production was our second largest vertical at 14% of revenue, and grew nearly 40% from a year ago. This was driven by our legacy Transport Downhole and Exploration services, combined with the assets that we acquired from Peak. Refineries and upgraders were our third largest vertical at 13%, and were flat with a year ago, which is quite an accomplishment, given that we had nonreoccurring event revenue of $16 million in Q2 of last year, and again, we sold our International Catalyst business. Oil and gas exploration accounted for 11% of revenue, and was more than 4x larger than a year ago, which reflects the addition of Destiny, along with healthy growth on our legacy Exploration and Directional Drilling business. Other significant contributors in Q2 included General Manufacturing, which had a nice quarter at 8% of revenue, Utilities at 5%, Government at 4% and several others, including Pharmaceutical at 3%. The majority of our verticals performed well in the quarter, with one outlier being our broker business, which declined approximately 11% from a year ago. But we attribute that to the shutdown of our Mercier incinerator, which had a heavy broker customer base. Turning to our outlook. As I mentioned, we're confirming our full year guidance because we are seeing a strong second half of the year. There are positive indicators and underlying trends that support our outlook in each of our 4 segments. Within Environmental, we are entering our strongest operating quarter of the year. We've got a great pipeline of business. We see opportunities for growth and expansion in both Tech and Field Services segments. We're experiencing steady demand within our Industrial segment, including the solid bookings for our Lodging business I mentioned, as well as an array of cross-selling opportunities. Within our Oil and Gas Field Service segment, we're seeing a considerable pickup in activity, and projects that were delayed due to weather have been restarted. Our growth strategy for the past several years has consisted of 6 key elements. First, expanding our service offerings and our geographic coverage; second, cross-selling across our 4 segments; third, pursuing selective acquisitions; fourth, cost pricing and productivity improvement initiatives; fifth is expansion of our throughput capacity through investments in capital and permitting; and lastly, building a healthy backlog of projects. Today, we are well capitalized to continue this approach. We recently raised $800 million in a highly successful bond offering, which also retired some of our existing debt. With more than $500 million now in available cash, we intend to continue to invest internally and pursue acquisitions. We remain on track to hit our full year CapEx target of $180 million, over $100 million of which is allocated for growth investments. In terms of acquisitions, we are currently evaluating potential candidates of various sizes within all 4 of our operating segments. Overall, we expect acquisitions to play an important role in helping us to extend our growth momentum in 2012 and beyond. And with that, I'll turn it over to Jim for the financial review and guidance. Jim?

Thank you, Alan, and good morning, everyone. We reported Q2 revenues of $523.1 million, driven by strong performance in our Environmental and Industrial businesses, which was partially offset by our Energy business. The 17% increase in revenue was driven by internal growth, as well as contributions from acquisitions we've completed in the past 12 months. As I mentioned on our Q1 call, the 2011 acquisitions are fully integrated into our various segments at this point, and we can no longer accurately break out their contributions. Gross profit for the quarter was $155.5 million, or a gross margin of 29.7%, compared to a gross profit of $139.5 million, or a gross margin of 31.2% in the same period last year. The year-over-year decrease in gross margin is primarily due to the mix of business and the underlying -- the underutilized assets in our Oil and Gas Field Services segment that Alan detailed in his remarks. Turning to expenses. SG&A in Q2 was $66.8 million, or 12.8% of revenue, compared with 13% a year ago. Our SG&A percentage this quarter is within our target range of 12.5% to 13% of revenues. Clearly, we are continuing to see the benefit of our ongoing cost reduction efforts and the economies of scale we are gaining from our 2011 acquisitions. On our past several calls, I've discussed our ongoing cost reduction initiatives, including reducing outside transportation expenses, lowering recruitment cost and decreasing turnover. We remain on track to achieve our target of $30 million in overall cost reductions, which include some remaining synergies from the Peak acquisition. We view these reductions as offsetting increases we are experiencing in labor, commodity and health care costs. Depreciation and amortization increased 44% year-over-year to $38.7 million, primarily reflecting our 2011 acquisitions, particularly Peak, which brought with it more than 4,000 pieces of equipment. We currently expect our 2012 depreciation and amortization to be in the $150 million to $155 million range. That figure obviously excludes any additional acquisitions we complete. Income from operations was $47.5 million, or 9.1% of revenues, compared with $51.9 million, or 11.6% of revenues in Q2 2011. This decrease reflects the increased level of depreciation and amortization that I just mentioned. We generated EBITDA growth of 9.2% in the quarter, with a total of $88.7 million, or a margin of 17%, compared with $81.2 million, or a margin of 18.2% in Q2 of last year. Our effective tax rate for the quarter was 35.8%, compared with 33.9% in Q2 of last year. In the second quarter of 2011, we benefited from a solar energy credit related to the opening of our solar facility at a capped landfill we own in New Jersey. For the full year 2012, we are currently estimating our effective tax rate to be in the range of 36% to 36.5%, which is lower than our previous estimate. Q2 net income was $23.4 million, or $0.44 per diluted share, compared with $29.2 million or $0.55 per diluted share last year. The decline in the EPS was related to performance of our Oil and Gas Field Services segment, the increase in depreciation in the quarter and the fact that the second quarter of last year included $2.9 million pretax benefit related to the disposition of marketable securities. We continue to maintain a healthy balance sheet. And as Alan mentioned, we are well capitalized following our recent bond offering. Cash and marketable securities as of June 30 were $306.5 million, up considerably from the $246.5 million at the end of Q1. As of today, we are -- we have approximately $515 million in available cash and equivalents, which we intend to put to work. With respect to the bond offering, I would like to point out that in the third quarter of this year, we will recognize a pretax charge for the early extinguishment of the $520 million in debt we've refinanced through this bond offering. The pretax charge will be $26.5 million, of which $5.3 million is noncash, related to the deferred financing cost of our previous debt. The new debt that we now have in place carries an interest rate of 5.25%, which is about 240 basis points less than the coupon of the debt we paid off, for a savings of over $12 million per year going forward, with a maturity in the year 2020. These savings enabled us to increase the size of our bond offering to $800 million for our growth plans, with little incremental borrowing cost. The total accounts receivable decreased to $427.6 million at quarter-end from $493.3 million at the end of Q2, reflecting our focus on collections and working capital management. In Q2, we lowered our DSO to 75 days from the 80 days we realized in Q1. This favorable decline in our DSO mostly reflects our efforts to improve collections and billing enhancements in the businesses we acquired last year. We are drawing closer to our target DSO level of 70 days or less, but we continue to believe it will take us a few more quarters to get there. We are also still working through the existing contract cycles we inherited through our acquisitions. CapEx for Q2 was approximately $55 million, up significantly from the $28 million we spent in Q1. We are expecting a high level of CapEx in the second half of the year, and we are continuing to estimate a full year CapEx for 2012 in the $180 million range. Of that total, approximately $70 million consists of maintenance CapEx, the remaining $110 million approximately is targeted toward high return opportunities we believe we have available to us within our segments. Moving now to our guidance. As Alan mentioned, we are maintaining our previously announced annual guidance despite our oil and gas business being below expectations in Q2, due to the early spring breakup and the extended wet weather conditions in Western Canada. We are confident in our prospects for the second half of the year. Therefore, we continue to expect 2012 revenues in the range of $2.2 billion to $2.25 billion and EBITDA in the range of $400 million to $410 million, which implies an EBITDA margin of greater than 18% for the full year. I should point out that this guidance is exclusive of any potential acquisitions. And with that, Claudia, could you please open the call up for questions?

[Operator Instructions] Our first question is coming from the line of Al Kaschalk with Wedbush Securities.

I was hoping, I wanted to obviously drill out -- drill down on the Oil and Gas side. I was hoping to hear if there's a breakout of the components that contributed to probably a shortfall relative to your own internal plans? And if I could try to direct you more towards A, the seasonal breakup, and then B, the component that was related to the transition of assets to the more liquid-rich plays in the U.S.?

Sure, Al, this is Jim. I'll start it and if Alan wants to add anything. With the repositioning that we're doing of the assets from the dry gas to the liquid rich and oil plays, I would estimate that in the quarter, that was probably about 10 to -- affected us by probably about $10 million to $15 million in revenues. And regarding the seasonal impact, the fact that it was much wetter, very wet May and June up in Western Canada, I would say that, that probably curtailed our businesses up there probably in the $5 million to $10 million range in revenues.

Right. And then, so with that, you probably don't want to share, but can you talk about a utilization rate, whether it's basis points from your own internal plan? And then, as a follow-up to the revenue numbers you provided, with the confirmation of guidance for '12, it would suggest that you were not that far off from your internal plan, or at least not as far off as the consensus number was to the quarter. Could you just maybe address that?

I think if you look at it from a year-to-date anyway, where the company's revenues are up 24% and EBITDA is up 27%, which is a record for us, we as a company are essentially on plan. We're a couple of million, a few million dollars off on EBITDA, excluding the -- an FX spend -- a hit from FX. But overall, the company, from an overall plan standpoint, is on track, and that's why we're confirming our guidance. I think the seasonality that we experienced is typical for the Oil and Gas. You typically, as we mentioned in the Q1, you do have -- I'll bring in a lot of equipment back on the field, from the field because you do have the road bans. And the length of time between those road bans going into effect and then redeploying those assets and when their drill rigs go back up, we really look at that business based on the drill rig count, and that has been significantly curtailed up in Canada because of the weather. And so the utilization of our packages, which go along with many of those drilling rigs, is significantly down, both in Canada and in the U.S. But the U.S. is really, because we're shifting them out of Pennsylvania particularly, and moving them more West to some of the oil-rich plays. And we're finding great opportunities to do that. We have customers that we're shifting with, both producers, as well as drilling companies. So we're confident we're moving them. But it is expensive. Our expenses were probably up close to $3 million more than we had budgeted just to relocate assets. And so we're seeing a little bit of that in that oil and gas market as well. But the biggest issue there is certainly utilization.

And maybe to just -- in support of Alan's comments there a little bit. If you recall that for us, the Oil and Gas segment, its strongest quarter is Q1, and its weakest quarter of the entire year is Q2. Even absent all of these other things, the extended wet weather and the repositioning of assets, you would still normally see that decline just because of the wet spring that usually you have in Q2.

Our next question is coming from the line of Matt Duncan with Stephens.

Just before my questions, Jim, can you give us the breakdown of revenues by segment and EBITDA by segment?

Absolutely, Matt. Matt, I'll also give the prior year because we had those small restatements that we talked about in the first quarter and last year's, when we shifted our management of some of the operations there. So I'll give you that as well. Q1 of this year, Tech Services was $237.2 million, compared to last year's second quarter of $222.6 million. Field was $59.1 million, compared to last year of $54 million, even. Industrial was $141.8 million, last year, $111.4 million. Oil and Gas was $85.2 million, compared to last year, $59.3 million. And the EBITDA for those periods, the second quarter this year, Technical Services was $66.7 million, compared to last year, $63.8 million. Field was $7.6 million, compared to $8.2 million last year. Industrial was $34.9 million, compared to $27.4 million last year. Oil and Gas was $7.8 million, compared to $7 million even last year. And corporate was $28.3 million this year, compared to $25.2 million last year.

Okay. So to get on to the question, then, I want to drill down a little bit more on the Oil and Gas and sort of what you guys are seeing and doing there. So I think on the first quarter conference call, you had told us that you thought the transition would probably be, maybe that $10 million was sort of the impact. It sounds like it was more like $10 million to $15 million. Talk a little bit about maybe why it's taking as long as it is to move those assets? Is it taking longer than you thought? And can you talk about, are you moving with existing customers? Are you having to go find new business as you relocate these assets and find new customers?

In a couple of examples, we've had to find new business or find new customers because we saw a couple of our key accounts cancel their projects and literally take their rigs out of even the Bakken and move them out. And so there's been -- when natural gas went under $2 there for a while, we certainly saw a lot of hesitation and a lot of concern, both on the exploration side, which is forward looking 3 years from now, work that we're doing, but also on the current drilling programs. And so it's been quite a, I would say, a surprise in the Marcellus area particularly, with how quickly that shift took place and how quickly those assets either laid down or moved or campaigns were dropped, capital spending projects were dropped.

Okay. And then maybe to think through sort of some of the activity in the fourth quarter before those assets are all fully redeployed. So can help us think through what the revenue build for the next 2 quarters ought to look like, given that you're not going to be fully redeployed in the 3Q? Is it just a sequential bill at each quarter into the end of the year to get to your guidance? Is that the way to think about it?

From my standpoint, if you think about the first quarter, that's typical of what our fourth quarter would probably kind of look like and maybe even a little stronger, and that's sort of my thinking. I don't know, Jim, if you had some thoughts on that.

Yes, because we won't be fully positioned in Q4, probably, we won't see the full benefit of that. But I think Alan is right, that you'll see a progressive build through the rest of the year. Because -- just to get this out there, the Oil and Gas segments, the strongest quarter is Q1. the next strongest is Q4, the next after that is Q3 and then the weakest is Q2. So you'll see a buildup. And then, certainly, Q1 is the strongest quarter above all the others.

Okay. And then last 2 things, then I'll jump back in the queue. Jim, if you could tell us what you think quarterly interest expense on the P&L will be, given the refi? And then on the Industrial Services business, maybe if you could talk about the Refinery turnaround period you had in the spring and what the outlook is for the fall?

Yes, I'll touch on the -- turnaround work is extremely -- look, it is looking extremely well for us, particularly September, October. We've got strong bookings. We're bringing back our seasonal workers sooner than expected. And so that is something that we're working on and looking at our bookings right now. So I think on that end, feel very good about the fall. Jim, you want to touch on the interest?

Oh, absolutely. Our interest expense we're estimating will be roughly about -- I'm sorry, here, just dropped that there, about $11.8 million per quarter. Which is maybe only $700,000 roughly higher than our quarterly interest before, but we were able to, obviously, with that small increment, to be able to get to $300 million, almost $300 million more of a nice low barring cost debt there. So that's roughly will be -- so maybe be roughly about $700,000 increase per quarter than what you've seen in the last quarters.

And obviously, you're going to use that cash to make acquisitions. So the story's not finished yet on what the actual impact's going to be on the bottom line, correct?

Absolutely.

Our next question is coming from the line of Arnold Ursaner with CJS Securities.

I want to focus a little on the oil and gas group. You obviously mentioned the weather impact, but you were up 40% in revenues in Oil and Gas. What was the organic growth trend in Oil and Gas?

Obviously, you're right, Arnie, that we had the acquisitions that came into that segment that we acquired in Q2 and Q3. So we built that segment up and got scale in that segment during the middle of last year. I would say, organically, it was probably a slight decrease, organically in the Oil and Gas. And that was mostly because of the existing Production Services business that we have from the legacy Eveready business, as well as some of the other oilfield services work was, had weather delays in it. And that was, as Alan talked about, and that's what caused a slight decrease.

I think that's an excellent point, too, because a lot of the maintenance work that we do on existing wells through our Production Services group was slower than a year ago because they could not get out into the fields.

Absolutely.

And that was really due to the mud season and the wet weather. And we saw that, as we went through our biweekly forecast calls, we saw that continuing push, as weather just didn't break for us up there.

Yes, they couldn't get the equipment out. It was about, I think about a 4% decrease, Arnie.

Okay. And my second question, you have obviously, highlighted the growth-oriented expenditures for internal investments, $100 million or so in the back half of the year. I'm sure you're going to balance competitive issues and disclosure. But can you talk to us a little bit more about what some of these growth-oriented internal investments are targeted for? And more importantly, how we should think about the returns you're likely to achieve in 2013 from the investments you're making this year?

Sure, Arnie. I'll take a start at it and if Alan wants to add anything. One of the bigger areas is adding to our rolling stock. And here, clearly, with the growth of the business, whether it's tractor trailers, Specialty Equipment vehicles, we're adding roughly about $50 million geared toward growth in Specialty Equipment. And this includes also replacing some equipment that is currently being rented on short-term basis, where it makes good financial sense to own that equipment. But our total equipment for growth is probably about in the $30 million area. Then we're investing in our containers, intermodals, as well as roll-off containers, various sizes, and the investment there is roughly about $10 million. And clearly, this supports a lot of that cross-selling that we're doing into the Industrial Services business from our Environmental business. And then after that, you have some improvements at our facilities and so forth, but those are the primary drivers.

And probably at a -- also, the incineration expansion project, which is in its early phase of permitting and design. But we will probably start ordering equipment for that next year, would be another major project for us over the next 3 or so years, Arnie.

That's a great point. And then just to mention, you asked about returns. What we basically do as part of our capital plan, we have 3 categories, ranging from CapEx, growth CapEx that we consider highly resilient, whereas it can bounce back well from economic conditions and, or its multi-customers or backed by customer -- by government that we consider highly resilient, to lower resilient, which is more cyclical. And in that range, our -- the hurdle rates that we generally look for, when we do these capital expenditures, ranges from 20% in the high resiliency type projects to commanding a higher return in the 40% range for the lower resilient projects. Because what we are trying to do, obviously, is to have there be some competition for capital in the company from various businesses, and we're using those hurdle rates to get there.

Your next question is coming from the line of Michael Hoffman with Wunderlich Securities.

Talk -- can we talk about visibility across the 2 groups and in the 4 segments? Clearly, in your defense, you did give us all a heads up that the profits should be down, marginalized 1Q to 2Q. And clearly, we overestimated that as the sell side. So where would you point us to, to have better understood what was happening in your Oil and Gas segment and have modeled that smarter? And there's certainly lots of data points to be gleaned for your Environmental business, but it appears maybe we don't have as many for the Oil and Gas.

Yes. And I think, also, the company did budget $20 million in event, major spill event. And as you know, we don't predict -- we can't predict when that's going to happen. But it's been highly unusual through, now August that we haven't had any major event, so but Jim, you want...?

Yes, that's a great point, Alan, because that is usually by now, you'd see some events occurring in the business. I think, Michael, I don't know if it's, some of it's a little unexpected. I mean, the, that we could not have predicted obviously, going back to the Q1 call, how severe all that wet weather was going to be in Western Canada. It almost seems like the drought conditions that we have in the U.S., it was all the moisture was being pushed north and it was so wet up in Canada. So clearly, there, that, if you want to call that a mess [ph], I mean, that's really what happened, weather-wise. I do think in the repositioning of assets, we probably underestimated the length of time that would take. We thought we were in the middle of it by then. We thought that some of our customers were just going to make that transition. And as Alan pointed out, we had a couple of customers who went back to conventional, back to California and pulled out, even out of the Bakken when -- during that period of time. So there was some -- I think had those events not happened, we would've been a heck of a lot -- we would've been very close, I think, to where the consensus is. And certainly, if any events, as Alan pointed out, that would have helped as well. I think looking at the last half of the year, if you look at the margins, we're confident that in the last half of the year, that we're going to have 19% margins in that region. And that's what gets us to the over 18%. We're running it -- for the first 6 months, 17.3% margin in EBITDA. And last year, just by reference, we were 16.8%. So there's growth of 0.5% in March and if you look at the first 6 months and take out the seasonality of the Oil and Gas, even with the current results. So I'm not sure -- I hope those points help what you're saying there, Michael.

Yes, they do. So following through on that, what are you seeing that you can put -- tangibly put your hands on visibility-wise, that gives you comfort about the Oil and Gas segment? Because clearly, and we've traveled together, Jim, every -- by the time you walked into a meeting, people say are you seeing an industrial slowdown, and the first thing you'd say is no. And so, clearly, your data says no, you're not seeing that. But on the Oil and Gas, what are you seeing today?

I think we did a second quarter P&L review, as we do every quarter. And through that, we view across the entire business and meeting with the management team and looking at their forecast and their guidance and meeting with the sales leadership and talking about the pipeline and the projects, looking at utilization and looking at revenue by job type, we kind of pull all these different metrics together and these are the key performance indicators that we look at. And that's really where we come up with our guidance to you and to the company.

Absolutely.

And just looking at some of the activity, it's drier now in Western Canada and our equipment's out there and working. We've got some, a nice project pipeline in the Environmental business that's going strong. We had some nice waste projects that we're working on. And certainly, if there is any events, that's going to be upside. So I don't know, we feel pretty confident, Michael.

And has GE started shipping?

We typically don't talk about individual customers on the phone there. But we do certainly have a nice pipeline of projects that we're very actively involved in.

Our next question is coming from the line of Rich Wesolowski with Sidoti & Company. Richard Wesolowski - Sidoti & Company, LLC: A few of the oilfield service companies have discussed heavier competition, even in the more active oil-rich basins, would you relay in which regions or field Oil and Gas service lines you've seen pricing pressure, if anywhere? And discuss if there's any reason why Clean Harbors would be insulated from an influx of competition, if it's happening today or were to occur in the future?

Certainly, I think in North Dakota, I mean, we've got a land fill there that we're actually adding more capital spending this year and also, adding an expansion of our permit data to do more thermal treatment of materials. We're just seeing a tremendous growth there. And I think that is a significant barrier to entry that we have, I think, to other competitors. And we haven't seen any pricing issues in that market. I think in the Marcellus area, there is an oversupply there. And certainly, we're seeing pricing issues as it relates to the solids control packages, our centrifuges packages and some of our rental items. So there would probably be more of a pricing issue in that market. But we are moving our assets out of there, not all of them, but moving significant amount of them, as we mentioned. In Canada, we have tried to take a leadership role in pricing across both our Industrial and our Oil and Gas business there. And I think we've shown and been very successful on that. And I think the margin improvement that Jim's talked about is not just a leverage, but also both incineration in Western Canada price improvements. And I don't see that under any pressure at all right now. Richard Wesolowski - Sidoti & Company, LLC: Great. You mentioned, either Jim or Alan had mentioned that about 1/3 of your Peak assets were in transit and, and excuse me if I misquoted that, but I was wondering, what share of that has already been moved? Going after really, what share of your field Oil and Gas assets will have had to have been moved during the past year?

Yes, we would say roughly maybe about 2/3 of that. And we're kind of, now being in the third quarter and it should continue into the fourth quarter. But probably about 2/3, somewhere around there. Richard Wesolowski - Sidoti & Company, LLC: Okay. And then, lastly, given the widening discount to WTI that oil sands producers are receiving for their product, is that $60 a barrel WTI that we've always looked at as a level at which activity would slow, still valid? Or is that higher now?

I think it's typical. But I think in Western Canada, particularly in the Oil Sands, we have seen no curtailment in capital investment there, and we are building out more capacity. And as Jim talked about some of our capital spending, we're adding 50 hydrovacs over the next couple of years there. We've ordered 25, and we expect to continue to invest both through acquisition, as well as investment in hydrovacs because the oil sands is growing, and we think the capacity to transport is going to be resolved. And so either further growth, we'll see. So we're really excited about the business. And even at $60, we see that continuing investment up there. Richard Wesolowski - Sidoti & Company, LLC: The hydrovacs are the badger-type business, correct?

It's like that type of equipment, yes.

Our next question is coming from the line of Rodney Clayton with JPMorgan. Rodney C. Clayton - JP Morgan Chase & Co, Research Division: So first, just to go back to the margin discussion for a second. Could you try to quantify maybe what the impact of your relocation of assets is to margins? I mean, I'm guessing, you're impacted both by obviously, the increased spend to do that, as well as the fact that you're getting low utilization on the equipment. So any color there you could give us would be good. And then, obviously, you affirm the guidance, as well as the margin assumption. Maybe which segments are you seeing the most incremental strength to offset that margin headwind from the Oil and Gas side?

Rodney, I would say that, of the repositioning that I've mentioned before that $10 million to $15 million range, if you add in some of the additional cost, like for example, subcontracting with cranes and equipment like that being used, I would say that the de-leveraging, if you will, or the effect on EBITDA of that is probably in the 40% to 50% range, the effect on the EBITDA line in dollars. With respect to the other segments, I mean, clearly, the Environmental business is seeing a nice improvement in margins. They continue to have that solid improvement at -- through the mid-20% range, and even exceeding that at an EBITDA level. Also, in the Industrial Services, we're seeing some nice gains with a lot of those assets that are highly utilized. For example, in our Lodging business. And in -- it was more Q2 in the Exploration business, where we saw some nice increases in pricing. So we're seeing some nice incremental margins there, although it was offset by this seasonal impact in Q2, as we talked about. Rodney C. Clayton - JP Morgan Chase & Co, Research Division: Okay, good. And then you mentioned Lodging. And I think, earlier on, when you got the question about your internal investment plans for the year, I don't think Lodging was mentioned. That business appears to be performing quite well for you and has been for some time. Could you maybe refresh us on what your investment plans are in that business? Maybe what you're doing now? What you plan to do in the next 12 months? And then, previously, you mentioned plans to maybe expand your Lodging business into North Dakota, for the Bakken play there. And so maybe some color there as well.

Sure, I can start than Rodney and Alan, if you want to add anything. There is nearly $10 million geared toward the Lodging expansions that we're doing up in Western Canada. We have one big project right now that we're looking out, though, in Ruth Lake that will likely have a lot of spending toward the end of the year, but there could be a carryover into next year. That will be, in total, probably in the $20 million to $30 million range. But we might see the bulk of that in the very early part of next year. And that's probably why our CapEx is probably going to stay in that $180 million range next year rather than ramping down a little bit, because of that. So those are the things that we're working on right now.

But the Lodging business in general is, we really have 3 components to it. We have these fixed lodges, then we have our drill camps. And our drill camps are seasonal. They're very strong, particularly at the end of the fourth quarter in, and the first quarter. And we have approximately 70 of those drill camps that go out to these rigs, and then we have all these well site units. We have well over 400 of these well sites. So we are we refurbishing and redeploying those well sites, and moving some of those into the states. As you've mentioned, we are -- we haven't yet built our lodge yet or our camp yet in North Dakota. We did bring a temporary camp down into Oklahoma to support a large event that we have, a project event that we have there. But we are going to reposition one of our lodges into North Dakota and build out some additional capacity there. So it's about a $200 million plus business for us now, and it's a very profitable business. And there is a forecast of upwards of 15,000 rooms short in the oil sands, looking out over the next 5 years. So we continue to want to make sure that we have an adequate amount of capacity for ourselves and our customers, but not probably more than 10% or so of our overall revenue exposed there.

Our next question is coming from the line of Luke Junk with Robert W. Baird. Luke L. Junk - Robert W. Baird & Co. Incorporated, Research Division: So first question, appreciate the color on the second half EBITDA margin. Just trying to think about the revenue ramp in the second half. If we look to last year and kind of trying to figure the seasonality here, it looks like the, normally, we'd expect the third quarter to be a little stronger than the fourth quarter. But with the Oil and Gas business ramping through the rest of the year, as you finish redeploying the assets, would it be fair to think of the fourth quarter maybe being as more similar to the third quarter this year because of that?

Overall, I would say that that's probably right there, Lou [ph]. I think you're thinking correctly there, overall. Luke L. Junk - Robert W. Baird & Co. Incorporated, Research Division: Okay. That's helpful. And then second, relative to some of your comments on the call, and the press release as well, that you have seen a nice pickup in the Oil and Gas business here early in the third quarter. Just wondering if you could quantify that comment relative to maybe what your plans are, whether that's in line with plans so far, better than plan, or something other than that?

I'm not sure if I'm following the question.

Yes, Lou [ph]. Could you go to that again? I'm sorry. Luke L. Junk - Robert W. Baird & Co. Incorporated, Research Division: Yes. So on the Oil & Gas Services business specifically, your comment that things are off to a good start in the third quarter. Just wondering if you could quantify relative to what your budget for that is in the third quarter, whether or not it's tracking more in line now? Or potentially something better than that, early in the quarter?

Well, it certainly -- it's still behind where our budget was, but it's certainly on its way up the right, it's heading in the right direction. As we said, we're ramping up through the third quarter and expect that to continue to do better every month here as we're looking at our forecast. But it's not really until the fourth quarter, where you really see the full benefit of all that repositioning.

Our next question is coming from the line of Jamie Sullivan with RBC Capital Markets.

Just wondering with the movement of the assets that you talked about. what the -- can you give us the total exposure to kind of the U.S. Energy side of things related to that?

That's a good question, Jamie. The interesting thing when we acquired Peak, one of the things that we brought to the table, certainly, is the facilities and the infrastructure that we have in the U.S. Peak had only recently had moved about 50 packages into the states. And those packages, because of the explosive growth in the states, were all working. And so part of the capital investment was to build even more packages for the states and even reposition more from Canada into the states. And so in the -- since the acquisition, which was really, I think, June of last year, we have really tried to put in place some, or tried to help them in basically achieving that goal. And during that period of time is where we saw natural gas pricing really tank. And so taking those 50 plus packages, repositioning those into other parts of the country, is something now that we're really helping them with, and using our existing facilities, existing network of branches that we now have. And so I think although we have the subcontractor reposition, we've got the infrastructure to help do this. Where before, it really, really would've hurt them very bad if they were a stand-alone. So I think we've done a good job of working with them, and we would expect to continue to invest in more of these packages moving forward.

Okay. That's helpful. And is it -- have you had success with some of the new customers? Were you moving the equipment? Or is it too early to tell at this point?

Yes, we absolutely have. We absolutely have. We have -- I mean, you've read some of the oil and gas companies and some of the problems they've had in the oil patch and that, and their problems have turned into our problems, from a capital standpoint. But we also have done a good job, I think, of building new relationships and leveraging customers that are based in Calgary, who are now in the states doing their programs. And so, I think we're doing a very good job there. This is not a long-term issue for us.

Okay, great. And then I guess maybe just overall, as a follow-on to an earlier question. Just maybe how you characterize the overall, kind of macro environment versus 3 months ago, as you're feeling it across your different businesses?

I think, as you look at the industries that we service, we have felt very good about the -- outside of government, which is not a big part of our business, but certainly impacts spending from some of our customers. We feel really good about where the industry is right now and the volumes, our waste volumes are good, our day-to-day from waste volumes are strong. When we look at, again, the key performance indicators that sort of govern or drive our business decisions, I think it's all is looking relatively strong right now. I mean, it's not the economy is by no means going gangbusters. But at least in the industries that we're servicing, things are going pretty well.

Okay. That's helpful. And then maybe just one last one on M&A, obviously, you have the cash. Can you maybe just talk about where the pipeline is weighted in the portfolio? And any trends you're seeing in terms of multiples?

It's a little bit all over the board on multiples. We've seen on the Environmental side, particularly those permitted assets are much higher multiple, and we understand that, the reason, and we need to be able to participate in those sale processes, so we are. And realizing that it's going to be higher than the 5x to 7x that we'd like to be at. But we also see some opportunities out there, in our sweet spot, some companies that are looking for a solid partner who have the capital, as well as maybe the investment in systems and capital to help them grow their business. U.S. and Canada, equal in regard to opportunities, I would say, at this point. But it really, across all 4 segments, as we said earlier, Jim?

Yes, absolutely.

We're seeing a steady pipeline. Brian, who's our business development lead here, sees a steady pipeline of opportunities coming in and certainly, I've tried to stay active and proactively approaching customers and competitors, I should say so. I think you're going to continue to see the company do acquisitions as it has in the last 10, 15 years.

[Operator Instructions] Our next question is coming from the line of James Kitchell with Goldman Sachs.

I just wanted to clarify one thing. I know you mentioned in your press release that the guidance that you're reiterating for the full year doesn't include the impact of acquisitions. And you may have mentioned this, but I didn't understand. But the acquisitions that you've announced in the month of June and that are, I guess, sort of being completed in the month of July, are those included in the guidance for EBITDA and revenues for the full year or not?

We had 2 small acquisitions, one on the Lodging side and one on the Industrial side. And in looking at the potential EBITDA on the short amount of time left in the year here, and considering that we haven't seen any Environmental events at this point, and the fact that we're not through with the repositioning of assets in the -- that we talked about in the solids control business in Oil and Gas, we thought that, that kind of offset to some degree, but there could be some upside there.

Our next question comes from the line of Michael Hoffman with Wunderlich Securities.

Well, he just kind of asked it, which is this guidance, what did not include or include, so if I'm understanding correctly, that you've -- you're balancing the moving pieces, and that's why you can reaffirm it, even though $20 million of emergency response hasn't happened.

That's right, that's right.

All right. And then, can we get more -- a little more specific about the price and volume, more about price, but price and volume in the Environmental side, sort of the patterns you've been witnessing. You've started seeing improving price in incineration. But even on the Disposal side, it appears that pricing has firmed as well. But can we sort of talk across the service platform of what's happening in price and volume?

Sure, Michael, I'll start it. And if Alan wants to add anything. If you look at our -- what we were targeting as far as our pricing plans for 2012, we're on target in many of those businesses, as you just mentioned, that are at high utilization. For example, you had mentioned incineration, where utilization is clearly very high. Some of the Western Canadian business for sure, as I've mentioned previously, Lodging and Exploration and Production Services. We've had some nice gains there. Partly offsetting that is clearly, we're giving some discounts as we increase volume in the solids control business that we referred to, and also, some waste projects. And here, it's probably more, it's more like some product mix as opposed to a pricing loss, if you will. I think some of the pipeline of projects is strong, and we're being competitive. We're going aggressively for some of these waste projects. So you probably -- you might call it a decline there, but it's more -- in price, but that -- it's more a product mix, I would say.

Okay. But the reads through on this is pricing leverage is holding up, supported by good capacity utilization, with structurally is -- means that volumes are good in the market?

Absolutely, absolutely.

That concludes our Q&A session. I'd like to turn the floor over to management for closing remarks.

Well, thank you very much for your questions, and we look forward to update you on our third quarter conference call. Have a great day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and we thank you for your participation.