Clean Harbors, Inc. (CLH) Q2 2013 Earnings Report, Transcript and Summary

Michael R. McDonald - Former Senior Vice President of Clean Harbors Environmental Services, Inc and General Counsel of Clean Harbors Environmental Services, Inc Alan S. McKim - Founder, Chairman and Chief Executive Officer James M. Rutledge - Vice Chairman, President and Chief Financial Officer

Albert Leo Kaschalk - Wedbush Securities Inc., Research Division Richard Wesolowski - Sidoti & Company, LLC Michael E. Hoffman - Wunderlich Securities Inc., Research Division Jamie Sullivan - RBC Capital Markets, LLC, Research Division David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division Lawrence Solow - CJS Securities, Inc. Flavio S. Campos - Crédit Suisse AG, Research Division Sean K.F. Hannan - Needham & Company, LLC, Research Division Adam R. Thalhimer - BB&T Capital Markets, Research Division Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division Barbara Noverini - Morningstar Inc., Research Division Jack Atkins - Stephens Inc., Research Division

Greetings, and welcome to the Clean Harbors Second Quarter 2013 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Michael McDonald, Assistant General Counsel for Clean Harbors. Thank you. Mr. McDonald, you may begin.

Thank you, Manny, 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 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 7, 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 can be made concerning this reporting period. In addition, I'd 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 CEO, Alan McKim. Alan?

Thanks, Michael. Good morning, everyone. Let me start my remarks this morning by making 3 points. First, we're obviously disappointed with our Q2 results, even though we achieved record results in both revenues and EBITDA. We encountered a variety of headwinds this quarter, which I'll discuss shortly. Second, all of the challenges we faced were either temporary, such as the historic flooding in Western Canada, or we can readily address, such as the selling of more blended products from our re-refineries. Third, none of the industry dynamics or the underlying fundamentals have changed in a meaningful way, nor has our long-term outlook for the combination of Clean Harbors and Safety-Kleen. While the Re-Refinery business has been negatively impacted by pricing and mix, we remain confident that the acquisition of Safety-Kleen will prove to be a winner for our shareholders. With that said, let me discuss our Q2 results and how each of our segments performed. Overall, we had a multitude of negative factors influencing the quarter with the unprecedented flooding in Western Canada being one of the largest. Following the typical spring break up in Alberta, heavy rainfall triggered catastrophic flooding throughout that region. We were directly affected as our High River and Calgary offices were both without power for well over a week. And employee who was off-duty was one of the fatalities related to these horrible floods. This flooding was essentially that region's Hurricane Katrina type of event. Business activity plummeted in Alberta over a multi-week period, and many of our customer sites, ranging from drill rigs to oil sand mines to industrial plants were directly affected. While we ultimately picked up some clean-up work due to the flooding, we estimate that the net EBITDA impact to us in the quarter was a loss of several millions of dollars. Turning to the segments. Let me start with Technical Services, which continues to benefit from the acquisition of Safety-Kleen. Utilization at our incinerators was 92.3% in Q2, which is particularly impressive, considering that Deer Park had a 3-week unplanned shutdown in June. This shutdown reduced our EBITDA in the quarter by approximately $3 million. By region, our Canadian operations essentially ran at maximum utilization in Q2, while our U.S. locations came in just shy of 90%. Our landfills business rebounded from a slow Q1 with a 50% sequential increase in volumes, which was also 17% higher than Q2 of 2012. Bolstered by Safety-Kleen, overall disposal volumes remained high across our network during the quarter, and we enter Q3 with momentum in this segment. Revenue in our Safety-Kleen Environmental Services segment grew sequentially in the second quarter, with strong margin improvements as the segment began to realize some initial synergies from the transaction. Our waste oil volumes are up in the quarter, increasing more than 10% from Q1 levels. To effectively leverage our waste treatment and disposal network, we also focused on expanding the segment's share of work and small quantity generator and parts washer business. Cross-selling opportunities in this area abound particularly as we introduced these product offerings to our legacy customers in Canada. Turning to Oil Re-refining and Recycling. While the base oil pricing environment remained stable in Q2, this price is substantially lower than a year ago. We have not seen a major improvement in pricing in this line of business since our acquisition late December. In Q2, we saw lower-than-expected volumes of blended products, which also reduced the segment's revenues and EBITDA contribution. There were 2 primary factors behind the lower blended volumes. First, a drop-off in volumes from the U.S. government, a key buyer of our products. And second, we chose not to renew the contract of a larger customer who was unwilling to meet our new posted pricing. Since one of our team's main objectives is to sell more blended products, particularly our EcoPower motor oil, the drop-off in volume is disappointing. But the Safety-Kleen team has been working diligently to develop a strong pipeline of prospective customers and expects volumes to rebound. In fact, EcoPower was recently selected by Nestlé USA as the motor oil for its entire fleet of tractor-trailers. And we are in discussions with a number of other well-known brands that are pursuing sustainability initiatives and want to reduce their carbon footprint. At the midpoint of the year, our blended volumes are only at 38% of our total lubricants. As a result, it will likely not be until next year when we reach our goal of achieving a 50/50 split between base oil sales and blended oil sales. Another ongoing and important effort within the re-refining operation is to lower our input costs by reducing the prices we pay for waste oil. As a reminder, Safety-Kleen uses no virgin crude. We're gathering waste oil from thousands of accounts. In the second quarter, we continued to make incremental progress on lowering our pay for oil costs, but the process of reindexing some accounts to base oil pricing and going beyond simple price relief is going to take several more quarters. In the interim, we continue to look for less expensive sources of waste oil in new geographic areas and among the Clean Harbors' legacy customer base. We're confident that over the next several quarters, we can continue to enhance the margin in this segment, even without any improvement in the currently depressed price of Group II base oils. Industrial and Field Services segment performed well in the quarter, especially in light of the flooding and turnaround delays. Segment revenue increased year-over-year by 22%, while EBITDA grew 34%. This demonstrates that we captured some high-margin business while efficiently leveraging our assets. Lodging, again, contributed strongly, particularly as flooding in the region drove demand for remote accommodations. Overall, we were pleased with the performance of our turnaround services. Results could have been better, however, had some refineries elected to delay shutdown because they're running so efficiently. Fortunately for our business, these plants can delay maintenance turnarounds for only so long before the risk of a major upset. So garnering additional business in the segment is more about timing than anything else. In addition to Refineries, Industrial and Field Services saw a reasonably strong level of activity within the oil sands market. Our Field Service group also contributed nicely in the quarter, generating a solid mix of projects and maintenance work. Although for the second consecutive quarter, we did not participate in any major emergency response event. Severe flooding in Western Canada significantly affected our Oil & Gas Field Service segment, which performed poorly in Q2, exasperating the segment's seasonally weakest quarter. Wet conditions delayed project kickoffs throughout much of the quarter. Rig counts in Alberta, which number in the 500 to 600 range during the winter drilling season, lagged last year's Q2 levels and were actually below 100 for much of the quarter, even into early June. One consequence of the severe slowdown in Canada is that it masks some of the success we are having expanding our presence in the U.S. surface rental markets. We've established a growing reputation in the Bakken, the Utica and Marcella shales, and recently began work on some rigs in Wyoming and Colorado. And our teams are also targeting moving into additional plays in Texas and Oklahoma. Before moving on to our outlook, let me briefly discuss the progress we have made on the integration of Safety-Kleen. Since our call in early May, we have made tremendous progress in combining our 2 organizations, as well as beginning to realize the synergies and cross-selling opportunities available to us. As I've outlined on previous calls, hundreds of integration initiatives are underway, including conversion of their systems to our proprietary wind platform. We believe moving to wind not only generates considerable savings, but will enable us to gain efficiencies, increase asset utilization, really enhance our waste and internationalization initiative. We remain confident that we can still achieve our synergy guidance. More importantly, we remain fully on track to realize $100 million of annualized cost synergies in 2014. With that, let me turn to our outlook. Based on our performance through the first 6 months of 2013 and the second quarter in particular, we concluded that we needed to revise our guidance and reset the bar for this year. It's important to point out that we expect the second half of 2013 to be much stronger than the first. But the backlog of activity that was delayed because of the flooding in Western Canada, our lower percentage of blended product sales and other factors made achieving our current guidance unattainable. Only now, for example, are dry conditions leading to a pickup in drilling activity. A similar story exists for our Industrial business in Western Canada, where the flooding and extraordinary rainfall delayed some of our customers' plans and projects. The weather even affected us directly there, as our plans to open our new 600-person Ruth Lake Lodge in July was pushed back into this month. So we'll be opening the first wave of rooms later on this month. And as we move through September, we expect to approach being fully booked there. For Safety-Kleen, we're working to revive our growth in blended volumes at our re-refineries in the next few quarters. As I mentioned earlier, we believe that the industry and market fundamentals across our business remain strong. The management team here is taking action, and we're focused on more effectively leveraging the Clean Harbors/Safety-Kleen combination as we move to the remainder of 2013. We expect to finish the year on a strong note with record results and are poised for success entering 2014. So with that, let me turn it over to Jim for the financial review. Jim?

Thank you, Alan, and good morning, everyone. Revenue in the second quarter of 2013 was $860.5 million, up 64% from the $523.1 million we reported in Q2 a year ago. As Alan mentioned, our revenue performance fell well short of our expectation based on a confluence of factors, including the flooding in Western Canada, the Deer Park shutdown, delayed refinery turnarounds, lower-than-expected volumes of blended lubricants and lackluster results in oil and gas. To provide some additional perspective on Q2, here's a snapshot of how our key verticals performed. This is the first quarter in which the percentage of revenue by vertical includes Safety-Kleen. General manufacturing was our largest vertical in the quarter, accounting for 18% of total revenue. We saw a nice contribution from high-tech customers, and our overall manufacturing customer base remain stable. For comparison, before the Safety-Kleen acquisition, general manufacturing hovered around 8% of revenue. Looking ahead, given the availability of inexpensive domestic natural gas, manufacturing customers are cautiously optimistic about their prospects. Refineries and Oil Sands customers accounted for 16% of revenue in Q2 and generated double-digit growth over the same quarter last year. Even if you exclude the businesses we acquired in the past year, organic growth in this vertical was 8%. And it could've been even stronger had some refineries not delayed their turnarounds. The automotive vertical, historically not a meaningful contributor for Clean Harbors, now accounts for 11% of revenue. Given Safety-Kleen's expensive waste collection -- I'm sorry, waste oil collection business and the many services performed for customers such as auto shops, the prominence of this vertical in Q2 was expected and complements our diverse customer mix. The chemical vertical represented 10% of revenues in Q2, essentially flat with the same period a year ago, as we experienced solid base business in incineration volumes, but a lower level of remedial and industrial projects in the quarter. At 8% of revenue, oil and gas production was up slightly from the same period in 2012, as we saw some growth in our U.S. Service Rentals business. Other notable contributors in Q2 included utilities, brokers and government, each at about 3% of total revenues, along with a number of smaller verticals, including the pharmaceutical and biotech vertical, which accounted for 2% of revenue. Within that vertical, we are seeing demand for more sustainable solutions, which aligns well with our new assets, such as the Safety-Kleen recycling centers. Our team has closed several new pieces of business in this vertical, further diversifying our biopharma customer base. Returning to the income statement. Gross profit for the quarter was $246.2 million or a gross margin of 28.6%, compared with a gross profit of $155.5 million or a gross margin of 29.7% in the same period last year. We anticipated a lower gross margin this quarter due to the addition of Safety-Kleen, which carries a lower margin presently. In addition, many of the assets within our Oil & Gas Field Services segment, particularly on the Canadian side, were severely underutilized this quarter. We see a backlog of potential activity in oil and gas, which should help to accelerate asset utilization as the company moves through the second half of 2013 and beyond. Turning to expenses. SG&A was $122.6 million or 14.2% of revenues, compared with $66.8 million or 12.8% of revenue in Q2 of 2012 and 14.9% in the first quarter of this year. While we had expected an even greater sequential reduction in SG&A percentage, we also had anticipated higher revenue in Q2. The modest decline from Q1 to Q2 is just the initial effect of cost synergies, a large portion of which fall in the area of corporate costs. Excluding integration and severance costs of about $5.5 million that were recorded in SG&A in Q2, our SG&A percentage would have been 13.6%. We're still north of our original target SG&A range of 12.5% to 13% of revenues. However, as those synergies continue to take hold, we fully expect our SG&A percentage to decline in the quarters ahead. In Q2, depreciation and amortization increased 75% year-over-year to $67.5 million. Clearly, the addition of Safety-Kleen and several smaller acquisitions in the past year are playing a major role in this increase. At the midpoint of the year, we are currently at $127.5 million, so we remain on target for our full year expectation of D&A in the range of $255 million to $265 million. Income from operations for Q2 was $53.2 million or 6.2% of revenues, compared with $47.5 million or 9.1% of revenues in Q2 2012. This decrease reflects the higher depreciation, as well as near-term expenses. Integration-related expenses, including severance costs, totaled $6.8 million in Q2. Our Q2 adjusted EBITDA was $123.6 million or a margin of 14.4%. This is a 39% increase from the $88.7 million we reported in Q2 a year ago, which had a margin of 17%. I should point out that our adjusted EBITDA includes the $6.8 million of integration and severance costs as well, so our EBITDA margin without these costs would have been 15.2%. Turning to our taxes. Our effective tax rate for the quarter was 35.1% compared with 35.8% in Q2 of last year. The decrease in the effective tax rate was primarily attributed to lower accrued interests, costs related to unrecognized tax benefits in 2013 as compared to the same period in 2012. We have reduced the forecast of our expected effective tax rate for 2013 by 100 basis points to be in the range of 35.5% to 36%. Second quarter net income was $22.9 million or $0.38 per diluted share, compared with $23.4 million or $0.44 per diluted share that we reported in the same period a year ago. Our Q2 2013 net income was certainly affected by the lower-than-anticipated revenue in the quarter and the large increase in depreciation. It also included the pretax $6.8 million in integration and severance costs I previously mentioned. We continue to maintain a healthy balance sheet and are well capitalized. Cash and marketable securities as of June 30 were $273.8 million, up substantially from $233 million at the end of Q1, as we had excellent cash flow and cash collections this quarter. Total accounts receivable were $584.2 million at quarter end, down slightly from the $595.9 million we reported at the end of Q1. In Q2, our days sales outstanding were 62 days compared with the 63 days we reported in Q1. This improvement reflects our ongoing focus on collections and continually improving our billing processes. We continue to target achieving a DSO level below 60 days. Environmental liabilities at the end of Q2 were $218.3 million, down from $219.9 million at the end of Q1. CapEx for Q2 was $69.2 million, which is similar to the $72.2 million we spent in Q1. For 2013, we are targeting CapEx in the range of $280 million, which includes maintenance CapEx of approximately $130 million and about $150 million of high-return internal investments, such as our Ruth Lake Lodge. Our cash flow from operations in the quarter was strong at $98 million, compared with $39.6 million in Q1. Moving on to guidance. We are lowering our 2013 revenue and EBITDA guidance based on Q2 performance and our outlook for the second half of the year. We now expect 2013 revenues in the range of $3.5 billion to $3.55 billion. For adjusted EBITDA, we now expect 2013 to be in the range of $535 million to $545 million. It should be noted that this range of adjusted EBITDA includes the effect of integration and severance costs for the full year of approximately $15 million, $12.5 million of which we already recognized in the first half of this year. With that, Manny, could you please open up the call for questions?

[Operator Instructions] Our first question is from Al Kaschalk of Wedbush Securities.

I'd like to start on the positive side. On Technical Services, the volumes look pretty good in terms of the business. Could you chat a little bit about price and in particular, the outlook for the next couple of quarters?

Absolutely, Al. Pricing, I think earlier in the year, I was thinking that pricing overall for the company would be in that 1% to 2% range, probably closer to 2%. But now we're thinking, just looking across some of the price competition that we're seeing certain parts of our business, for example, in Oil & Gas, and some projects that we were bidding on, that the increase probably be in the 1% to 1.5% range. Clearly, some parts of our business that have high utilization, for example, parts of our Technical Services business, pricing is going well and is higher than that, of course. But what I was responding to is the overall company there.

Are you seeing it more geographically mixed in terms of pricing strength, in other words, Canada is better or less? Or -- how do you -- how should we think about where your pressure points are?

Absolutely. I would say, probably right now most price competition that we're seeing is more in Canada. But I will say that in the Oil & Gas U.S. business, although we are clearly expanding, there is good price competition there that we're up against.

Okay. Let me transition to Oil & Gas Field Services. Alan, it sounded as if this was a timing issue, but is it also a function of utilization in terms of the equipment? Can you talk about maybe your degree of confidence on Q3 and Q4?

I think, as we look at the challenges we had last year in the U.S., I think the team really did a great job this year of diversifying its customer base and we're ahead of budget with our Surface Rental business in the U S. Our utilization is ahead of where we had expected. And we expect to continue to grow -- I think Laura and the team have really done a good job of growing the business here in the States. In Canada, certainly it was weather-impacted. And although we're now starting to see a good pickup in utilization of a lot of our rental assets, we still have a long way to go to get our utilization up there back on track. But again, I think overall, I would say, for the second half of the year, we feel pretty good about the momentum we have in that business now.

Okay. And then I'm sure you'll get a few more questions, then I'll hop back in the queue here, but hopefully you can address maybe on the re-refining side. I know you talked about lowering costs and the blended issue mix is going to take some time. But was it -- in terms of correcting that business, for lack of a better word, is that a function of getting it to the right size, such as firing certain customers because they're not up to the pricing gate that you're trying to establish? Could you talk about maybe a little bit of how that business gets corrected in your mind?

Yes, we really -- I think in the Environmental business, the company really has taken a leadership role on pricing and really trying to go to our customers and deal with getting a fair margin for the business that we do. And I think in the area of the Oil business, particularly we're doing the same thing. That certainly impacted our short-term volume on the blended side, as we mentioned. But I think when you look at what happened with crude oil in the second quarter going from low 90s to now 105, 108, that certainly was a headwind for us on our efforts to go back and reprice our oil collection customers, especially our national account customers who had typically been indexed off of -- or closely aligned with crude. That didn't help us at all. But you're absolutely right, we have walked away from some volume. We have pushed really hard on pricing. There's been a significant disconnect between June of last year and June of this year and how base lube oil has correlated to crude, and it's been a significant issue for us. And the team has really worked extremely hard to lower its cost structure to deal with that margin squeeze that we've been dealing with. And so by now, we would have hoped that we would have seen some improvements. And we've just recently, even this morning, seen a little bit of price talk, but we've got a long way to go. And so we've got to address our cost structure and we're going back to our customers and talking to them specifically about this very issue.

The next question comes from Rich Wesolowski of Sidoti. Richard Wesolowski - Sidoti & Company, LLC: It seems from your release that the activity in Western Canada is back up and running. I'm wondering if the flooding is affecting your back half estimates, either for the Field Oil & Gas or the Industrial Service.

I think, to some degree, the flooding and all that wet weather caused a slow start in Western Canada, in general. I do, though, also want to point out that the rig counts in Western Canada are not as robust as they were last year, so that is also a factor. So we're being conservative with the outlook for the rest of this year, clearly better than Q2. Q3 and Q4 will certainly have improvement there in Western Canada, but not -- it's not going to be as robust as last year. I do think that on the U.S. side, it's a more positive story because on the leadership of our President and that business there, we're expanding into various shale plays that Alan talked about before and we're diversifying further. So expect to see some strength there. Richard Wesolowski - Sidoti & Company, LLC: Okay. Speaking of the second half outlook again, you have -- I understand in the second quarter, you had the incinerator shutdown, you had the integration costs, the floods, et cetera, but there's a wide gap left for the second half, and I'm wondering if you'd flesh out, even qualitatively, where the surprise came from? Because we're speaking about the Re-Refining and the Field Oil & Gas, but those are divisions that were kind of known to be weak as we headed into the year.

Maybe to just walk through the segments might be a little helpful, and I'll just give some qualitative kind of points. In Tech Services, clearly, we've done well. Safety-Kleen has certainly helped the volumes coming into our plants. But I will say that given -- if you look at industrial production or GDP or the chemical industry indices and manufacturing more -- in more recent months, in the last quarter or so, they're down from the beginning of the year. And I think, overall, that has affected our legacy volumes, not to make them down but to -- they're not as robust as where we thought they would be in the beginning of the year. So in other words, rather than talking about mid to upper single digits kind of growth, I'm more below middle single digits on waste volumes there. So that's one of the big things there. And then also -- and I think it's somewhat related is that the projects, the waste projects, which also affects the Industrial side, we've seen delays out there. Some weather-related, but they are delays nonetheless, and we're being conservative about what we're projecting out for the second half of the year, as far as catching up on that. Talking a little bit about -- I think we talked about facilities. Alan mentioned the reduced blended lube percentage that we're at right now. We're also forecasting some lower RFO sales because we're being conservative on waste oil collections, as we identified those partners that we're going to be working with going forward. So there's some conservativism there. In Industrial and Field Services, Alan talked about the turnarounds being pushed off because the refineries and upgraders are record at -- not all-time highs, but at least the highs in the last 7 to 10 years of efficiency, and so we're seeing some delays in maintenance turnarounds due to that. So that clearly -- while not a surprise, we've been through that cycle before. It's a reason for us to be cautious about how much will come into this year. And then also, we're not within that segment forecasting any events. I mean, we're -- we have, as Alan pointed out, we haven't seen any significant events come through this year, so we're not forecasting any for the rest of the year, and that would be upside if we were to participate in any. In Oil & gas, I think we talked about the weather issues, the sluggish rig activity in Western Canada, although partly offset by stronger activity in the U.S. So hopefully, that gives you a little -- at least, a qualitative analysis of why, even though we see a stronger second half, it's not as strong as we originally thought it would be back in the earlier part of the year due to the reasons I just mentioned. Richard Wesolowski - Sidoti & Company, LLC: A very helpful rundown. And then lastly and more briefly, it seems Ohio and maybe Colorado are the only areas where the U.S. rig count is growing. And I'm wondering if you drill a little deeper into how you position the rental fleet and how that's working out.

Certainly, we've positioned our assets in those areas, and we're gaining share. We know that there's a growth going on in those markets, so we absolutely are participating in that and expect to continue to grow in those regions.

The next question is from Michael Hoffman of Wunderlich Securities.

If we could start with Oil & Gas. If I recall, you had about 80 out of 150 packages were deployed previously, so 50 in Canada -- U.S. and 30 in Canada. How did you finish the second quarter? And what are your thoughts about that sort of positioning with the 150 into the second half?

Michael, we're looking at how we define packages and trying to correlate that with rig counts, to give a better measure of how we're proceeding, and that would be helpful to the analyst community. For example, you can have a rig and a package deployed, but the number of directions that a particular well is drilling, number of feet drilled could be more important a measure for us in terms of disposal. All that being said, I think the way to answer your question the best would be to say that in the U.S., I would say we're probably in the 80% -- 70% to 80% utilization level of the packages and the types of centrifuges that we employ in the U.S. But in Canada, I think we're probably, Alan, would you say maybe in the 50% area?

Or less.

Or less, yes.

Yes.

Okay. So -- and that 70%, 80% is up sequentially because you weren't at that pace, given you're just focused really in the Utica, Marcellus and the Bakken up really until gallons work anymore, right?

Yes, last year, that's right. Last year was more like the way Canada is right now. We were down into pretty low utilization levels. And now we've gotten that up.

Okay. And then is there a certain amount of pressure on the margin and in that business is because equipment titles you've got all the personnel costs. So there's a lot of fixed costs that you carry without any offsetting revenues. And therefore, there's a sort of upswing of activity coming in the second...

Yes. We certainly try to share resources across the business, whether it's turnaround work or other work in the Western Canada market. But you're absolutely right. We typically incur a lot more maintenance in the second quarter because of the breakup anyway, but that even exasperated itself even more this year because those maintained items that were ready to go or kind of sitting there. And in Saskatchewan particularly, we've had a lot of business there put aside. And it's there for us. We just need to have a little break in the weather to put it to work.

Okay. Switching gears to cash from ops. Last year, you did $146 million. This year, you're doing $98 million. You did have a big swing between net income and D&A year-over-year. But there's still about a $15 million, call it, working capital gain that was in last year that's not in this year. So can you -- can we talk about the cash conversion of the business model? You're kind of running in that low 20% of EBITDA getting converted into free cash. What is a reasonable objective? And how fast can you get to that objective as far as the cash conversion of the model? And to that point, isn't capital spending -- shouldn't it be coming down going into '14?

Absolutely, absolutely. All of the above, Michael. And just to hit some of the major points. First off, these cost synergies that we are working on are improving our margins. And clearly, that is going to have a direct impact on our cash flow from operations. So what you've seen so far in Q1, particularly Q1 and Q2 with where we were at before you really see the full impact of synergies, that had an impact on the cash flow from operations. Also, we had those $12 million or so in integration and severance costs that we're spending. So there's an amount of spending that's going on as we're investing in this new business and integrating it. I think also from the standpoint of CapEx, with the teams, our 4 teams here are working very diligently on ROIC and looking at our capital programs. And we're expecting in 2014 to be at a lower level. Now there might be some timing with the new incinerator that we're putting in, that will come live the end of 2015. There might be some incremental investment there probably later in the year in 2014. But overall, we're looking at a drop that without that incinerator, that could be as low as a couple of hundred million. We're kind of going through that now. We're just trying to play favoritism with more -- the projects with the higher ROIC and have -- and that have good sustainability and are more resilient. I don't know, Alan...

I just think we're all aware that we need to get our ROIC to double-digit levels. In fact, whether it's 10.5%, 11%, that really has to be our short-term target here. And our management team met over the last month here and really talked specifically about free cash flow, ROIC, CapEx and really focusing on what we need to do in 2014. And we feel very good about how we position ourselves now to kind of achieve those kind of goals.

Okay. So if I can push on that a little bit, so the maintenance capital in '13 looks like it's about $130 million. I've heard you talk in other forums about maintenance being sort of $120 million. So is it $120 million, $130 million as maintenance? And then there's growth. So x El Dorado, what's really in front of you growth-wise in '14?

Well, we see some nice growth investments. And as I said, we're kind of going through that process right now. But the reason why we're putting it at a $130 million at maintenance, and we're being maybe a little conservative there, but it's after a lot of scrutiny of each of our investments that we're making to say, okay, is this really growth? Is this going to have sustainable growth in the future? Or are we just replacing current revenues, replacing equipment and all that? So we're taking a harder stance here. I may have -- the $130 million might be a little high or a little conservative. But nonetheless, that's the approach we want to take. And we really want to make sure that our growth projects are pushing a good ROIC. And so by difference there, I'm saying $70 million is what we're looking at right now, growth projects other than the incinerator for next year.

And the incinerator is sort of $60 million to $80 million in total split between '14 and '15, right?

Yes.

Exactly. So in other words, it would be in total about $70 million to $75 million. That would be split between those 2 years.

Yes, that's right. Yes.

Okay. And then can you help us a little bit with the revised guidance? If you thought about a waterfall across your business units, and there's a couple of parts to this. One, the EBITDA is down proportionately a lot more than the sales. I mean, if I look at the sales number and then the difference in EBITDA, you're suggesting that 60% margin EBITDA off the $120 million sales reduction. But where do I put or take out of buckets, that $120 million, on the sales side between technical oil and used oil, Safety-Kleen, Environmental, Industrial and Oil & Gas? How do you think about that?

Yes. It's hard to quantify that in detail there. But I would say that probably the effect on revenues of the blended and the lower blended percentage and also what we're forecasting for reduced RFO, that could be probably about 1/3 of the total in revenues. Not as much as in the EBITDA impact, not a substantial EBITDA impact there, but that's what that would be. And then if you look at the other businesses, being that the effects that I talked about before about pricing, about some of our growth rates in line with industrial production and chemical and manufacturing indices, I think that you'd see revenue kind of across-the-board. In Oil & Gas, that was brought down substantially, maybe 15-or-so percent. And that had a high impact on EBITDA due to the lower utilization. So that's -- it's the pricing just across what I talked about before, maybe not having such an aggressive total price increase for this year. And also Oil & Gas, the utilization, those are the things that may be proportionate share of the EBITDA to revenues to be a little higher. Hopefully, that adds a little color for you.

Yes, it does. And then on the used oil business, we're hearing that there's this oversupply in the fuel market, the RFO market. And so why, if that's the case, why isn't the collection part starting to come down? Because there's -- I mean, 70% of used oil goes into a fuel market not into refining. So why aren't we just seeing more pressure despite the fact the crude pricings are higher?

We are -- well, that's certainly the headwind there. But we are seeing lower prices. And we've been tracking that every month. And our pricing is coming down and will continue to come down this year. And we agree with you.

[Operator Instructions] And the next question comes from Jamie Sullivan of RBC Capital.

Maybe if we can just go right at re-refining and Oil & Gas for the year, could you maybe just help us on sort of revenue ranges and EBITDA ranges as we think about the sensitivity? It's obviously a difficult business to forecast, but sort of what's baked into the guidance at this point for those 2?

Well, clearly, the Oil & Gas is down from last year. I mean, we expect that to be down for the year. In EBITDA, that could be between $10 million and $15 million down from the previous year, what we were talking about there. On the re-refining, being that we're not reporting 2012, and we acquired it only since the very beginning of the year, that's a tough question to answer. I think I don't know that I can give a comparison right here off the top of my head here.

But it's significantly below our expectations from the time that we acquired Safety-Kleen or when we signed our agreement in early November to where we are. And we have been dealing with the cost structure in the business to basically address the margin squeeze that we just talked about. But I think a substantial amount of our margin miss this year is in that space. I mean, we're seeing great volume coming from the Safety-Kleen customers. Our internationalization is working. The Tech Services business is strong. We've got a lot of volume. We've got a lot of inventory. We're going to have a very strong second half of the year. So our Tech Service business is really benefiting. The total project management business that came along with Safety-Kleen also is a nice business for us that we've moved into the Clean Harbors' Field Services and Tech Service business. That business is also doing extremely well. But let's face it, we've had a real difficult time. And that's really where the big margin squeeze has been for us on -- from an EBITDA standpoint, Jamie.

Right. No, I understand that. I'm just trying to figure out. Is it -- should we think about it more as sort of a 2Q run rate for the re-refining business as what that range is -- the range for the whole company is contemplating? Or I'm just trying to get a little help on the modeling side or what's baked into the numbers so we know what -- how to benchmark that against expectations going forward.

Yes. I don't know. I would say that the expectation is that we'll do a little better than Q2, as we go into Q3 and Q4 in the re-refining business. So I think that, that run rate is kind of low in Q2. But it'd be hard to say at this point and of giving specific guidance down to that level, Jamie, right now.

I understand, that's helpful. And then maybe just on the cost synergy side, what did you get in the quarter? It sounds like you had maybe $6 million in severance integration costs in the quarter as well. Can you just update us on synergy side and the trajectory there?

Yes, absolutely. And this is clearly the key thing that helps, to Alan's point, of the cost reduction that we're doing to offset some of the unfavorable things that we are exposed to in the re-refining market. We estimated it was about $17 million that we saved in cost synergies that we had in Q2.

And then, I guess, it ramps up to the $75 million run rate for -- or $75 million for the year?

Exactly.

The next question is from David Manthey of Robert W. Baird. David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division: Along the same lines here, the seasonality and how things play out from the second quarter going forward. I guess, if I'm piecing this together and we've got Deer Park cost you, say, $3 million in EBITDA. Weather was several million. You're going to pick up Ruth Lake, which should be a couple of million. You get additional Safety-Kleen synergies. I'm coming up with something in the $10 million-plus range of incremental EBITDA run rate as you go from second quarter to third quarter. And given the guidance you've given, it looks like it's maybe $20 million into the back half. So maybe half of that can be explained by some of these items, which only leaves about $10 million for the normal seasonality in the Canadian Oil & Gas uptick. Some of these projects and turnarounds in the core business just seems a little light to me. And I'm trying to justify this. Are you -- is there something else that I'm missing between the second quarter and what you expect to be your second half run rate of EBITDA that I didn't describe there that we haven't talked about yet this morning?

No, I think that you're kind of right in what you're saying. And I did try to point out in my earlier comments that in certain areas, we're being conservative. That it doesn't -- we're basing our guidance based upon what we're seeing out there. We're not looking for any events to help us. We're not looking for any price increases in refined lubricants to help us. We're being conservative in what our outlook is. And as you can tell by the numbers, that if you take the last half of -- given our first half results, it means that the EBITDA would be -- would average over $150 million for each of the third and fourth quarter. So it is a nice increase over the first half of the year, but it does have an element of conservatism in it. David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division: Right. It would just seem that just the uptick in Oil & Gas Field Services alone in the last couple of years would be -- would make up that or more. So it just seemed a little light to me. So that being said, just looking at the severance piece that went from $5.7 million to $6.8 million, I thought it was expected to decline in the second quarter. Maybe I had that wrong. But could you talk about how that's going to roll off here excluding third quarter and fourth quarter? I know you said, what, $15 million for the full year. And then related to that, can you talk about the run rate of corporate items as we enter 2014? That number specifically, I know it spiked up after Safety-Kleen, but where should that number be as you enter 2014?

Yes. What we would like to do is to get that corporate number to be around $200 million or less on a run rate in 2014. As you know, we are over that run rate right now. Regarding the synergies, the rest of the year I think -- I'm sorry, the integration in severance costs, we do expect that to be $3 million for the rest of the year to bring us to the $15 million that I mentioned in my comments. So that was pretty much it.

There was a $3 million termination fee in that integrations cost that we had in the second, which was basically getting out of a contract that allowed us to get a significant savings going into next year. So that was part of that. It wasn't all severance to your question.

Right, yes. David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division: Well, Jim, in terms of we were talking $200 million. If I'm looking at the right line here, was that $50 million -- was it $50.8 million in the current quarter? Because that doesn't seem like much of a decline between here in 2014. Is it significantly less than $200 million you're targeting?

Yes. We're looking in the $180 million -- I don't have all the details in front of me right now, Dave, but it's down in that $180 million range.

The next question is from Larry Solow of CJS.

Most of my questions have been answered. Just a couple of follow-ups. On the Technical Services, I know you mentioned Deer Park and the shutdown impacted EBITDA by about $3 million. If we add that back, year-over-year margin was still down on the EBITDA basis like almost 200 bps. Is there anything else in there that's sort of impacting the quarter? I realized pricing maybe not quite as good as you thought, but that doesn't seem to be from that segment? So if you can just give a little more color on that, that will be great.

Yes. Just some of the margins on the -- with the addition of the Safety-Kleen business. Some of the margins are lower. And that's where you would see it on some of the disposal that we're taking in. And clearly, that's an area of focus. So that's one of it.

Okay. And then just on the positive side. Industrial's still with some of the impacts perhaps late in the quarter in Western Canada maybe going forward a little bit, some delay in projects, but still pretty good remark, pretty good growth at 20% to 22%. I don't know if you have the organic number? And maybe just give us a little more color on that?

Organic, you just mean excluding acquisitions?

Correct.

I would say mid-single digits in there, if you exclude the acquisitions. And that includes Safety-Kleen. We're doing some industrial work since -- we've added Industrial Services work since the Safety-Kleen acquisition, excluding that as well and any of the other acquisitions we did. It's about mid-single digits there.

Okay. And in Oil & Gas, I know we started the year. We thought maybe it could be close to breakeven on a revenue basis, slightly down. Clearly, it got a little worse in Q1 and Q2 maybe. And the outlook is a little bit worse because of the Canadian side. Do you expect growth in the back half of the year, just on an absolute year-over-year basis in the Oil & Gas services?

Yes, we do expect that. And that's -- we'll still be down for the full year, but as you know Q1 and Q2 were down so severely. But with the getting out of the wet season in Western Canada, that will add volume of services, as well as the U.S. is picking up well. So we do expect first half -- or second half to be better than the first half there.

Okay. And year-over-year, you expect growth too, though, that's...

Absolutely. Wait, on that last point, Larry, on the year-over-year, I think it's more flattish on revenue and down. I think I said that earlier that we'd be down in the $10 million to $12 million range when you do it year-over-year.

On EBITDA.

On EBITDA.

Yes.

Yes, $10 million to $15 million down.

And that corporate run rate would probably be on the $180 million to $185 million based on the December run rate. So that corporate number, right about that $180 million, $185 million.

The next question is from Hamzah Mazari of Credit Suisse. Flavio S. Campos - Crédit Suisse AG, Research Division: This is Flavio. I'm standing in for Hamzah today. I think my first question was how much do you think that from this EBITDA guidance cut is from items that you consider to be onetime and out of your control and just behind you already? And how much of it is just a slowdown that you've been talking about?

I would say a majority of it is due to -- when you consider weather factors, the fact that we had an unplanned several weeks shutdown at our largest incinerator, I think things like that, as well as some of the pushout of projects related to weather, I would say that probably the majority is what I would say really out of our control. And certainly in the re-refining business, as you know, price is out of our control there. Although that didn't affect the second quarter. But certainly, it's affected the overall business since the beginning of the year. And that's out of our control as well. To some degree. The margin is not out of our control. And that's what we're working on. That's what we're working very diligently on within that business. Flavio S. Campos - Crédit Suisse AG, Research Division: That makes sense. And on that line, how successful have you been with that initiative of trying to change the pricing for the used motor oil that you buy from being tied to crude to being more tied to the base oil prices?

I would say we're in the early innings on that, that the crude price has certainly had an impact on our ability to move faster in that area. So early innings. Flavio S. Campos - Crédit Suisse AG, Research Division: Perfect. And just a final one really quick, on the synergy side, which are the more lower hanging fruit in the synergy side that you already have seen, materializing and asking about mental services, as you mentioned? And can you give us some color on which items that you talked about before are already materializing?

Certainly, the internalization of disposal is going nicely. We're seeing that today in our plants and in the backlog and in the deferred revenue. And we're down overall, staffing is down about 600 people. And that's across both organizations, a combination of 130 or so direct non-billable people and another 260 or so SG&A indirect kind of folks. And that includes contractors and temporary. So we've -- we're hovering right around 13,000 in our workforce, which is down quite a bit from the acquisition date. So I would say those are a couple of areas that are behind us now.

The next question is from Sean Hannan of Needham & Company. Sean K.F. Hannan - Needham & Company, LLC, Research Division: First, for Jim, I just wanted to see if I could verify, if we were to pull out the integration severance cost, I think we're looking at about a $0.45 number. If we could just kind of check that as we go through the Q&A. And then...

That's right. That's right, Sean. Sean K.F. Hannan - Needham & Company, LLC, Research Division: Okay, great. And then in terms of Evergreen Oil, I wanted to see if we can get some color in terms of what's next or what is the next decision with the courts, where we stand with that? And then also if you can elaborate from your perspective the benefits of bringing on some of those assets?

Sure. Sean, I guess at this point, we're in a process. As you know, Evergreen was a, for those on the call, they might not know that it's a re-refiner out in California that had been put into bankruptcy early part of the year. And we participated in that process. That was a targeted acquisition that Safety-Kleen had for the last couple of years. And so we're very familiar with the assets. And so we've been participating in that auction process. And that process may end this month. We're really not sure totally on the timing. And so it would probably -- premature for us to talk too much about what, if anything, it's going to bring to the table here. I would like to just say though that one of the lowest priced oil markets is California. And Safety-Kleen exited that market because waste oil is a hazardous waste in California. Safety-Kleen exited that market back in 2005. Clean Harbors has a number of facilities today in California, over 1,000 employees there. We're very familiar with the operations of that market and manage a lot of hazardous waste. So we want to tap into that market and be able to handle that lower-priced oil to provide a better -- and better feedstock, if you would, at a lower cost to our re-refineries. So this is one way for us to enter that market. It's not the only way, certainly, but that has really been our focus, is getting into the California market, which is exclusively what Evergreen focuses on today. Hopefully, I've given you enough color for now. Sean K.F. Hannan - Needham & Company, LLC, Research Division: That's helpful, Alan. And then my next question, just in terms of the synergies we've talked about with Safety-Kleen, these are really the explicit costs and redundancies that come out. We haven't been talking, too, too much in terms of financial model benefits from really other ways to think about synergies, what's basically optimized in the combined operations. And wanted to see, is there a way to talk a little bit either qualitatively or quantitatively about the benefits you could see as we kind of go into 2014 about the optimized operations and to the timing of how some of that could actually materialize?

That's a great question. We've been doing literally branch-by-branch reviews with every single area manager, general manager of Safety-Kleen and their counterparts at the legacy Clean Harbors company, as well as a number of other parts of the organization, particularly focused on transportation logistics and efficiencies there. And I would tell you that in participating in a lot of those discussions, there's just an enormous amount of opportunity there that is not baked into our synergy number. They're in the early stages of looking at optimization of the networks and dealing with the redundancies and the growth. And I think we certainly see a tremendous opportunity to grow the Safety-Kleen business and to take advantage of that infrastructure that they have. And so I would say that we're just beginning that piece. Most of what we've been focused on is just combining the 2 businesses together more from a corporate standpoint in systems and processes there. But now we're getting into that detailed level, Sean.

The next question is from Adam Thalhimer of BB&T Capital Markets. Adam R. Thalhimer - BB&T Capital Markets, Research Division: Alan, what are your thoughts about the refinery end market in general? I mean, the crack spreads have come down a lot over the past couple of months. Is that a good thing for you? I mean, with the crack spreads being lower do the refineries now get back to maintenance that have been deferred?

Yes, it's a good question. Sometimes when -- we get that question quite a bit. When the spreads are down, they don't want to spend any money. But when the spreads are good, they don't want to spend any money because they want to keep running really strong, right? So I don't necessarily look at it either way. These planned outages have to get done. I mean, these outages have to get done. And these turnarounds have to get done. And there may be some timing and pushing that goes on within their decision-making from a capital or maintenance spend, but they have to get done. Adam R. Thalhimer - BB&T Capital Markets, Research Division: And do you have any sense from those customers, I mean what their appetite is for CapEx? Are they concerned about their crack spreads or no?

I guess I personally don't have any color to share with you myself. Maybe our head refinery guy would have better color on that. But overall, our Refinery business this year, I think, could grow close to $450 million, and which is getting close to their $500 million target here for us. So it's -- we're doing very well with the Refinery business. And I just can't give you any color on that particularly. Adam R. Thalhimer - BB&T Capital Markets, Research Division: Okay. And then lastly, I just wanted to ask about the Technical Services margins. It came up full that they were down a little bit year-over-year. What would be your expectation for the back half?

I would think with Q3 being the strongest quarter, and I think it does come up a little bit, and Q4 will probably be similar to what we saw this Q2. But clearly, we're looking to, as with all the margin enhancements that we're doing through synergies and so forth. We hope to be able to improve that, continue to improve that margin into next year.

The next question is from Jeff Osborne of Stifel. Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division: I was wondering if you could give us a sense of what the utilization rate was in the re-refinery or what volumes were and what the internal collections were versus buying from third parties?

We were running -- with the blended percentage coming down, we offset that clearly with running more base volume. So we've been running at full capacity. Our RFO sales of excess that we've collected beyond our capacity has come down a little bit. And we're projecting that to remain down for the rest of the year. That might be a little conservative. But with all that we're doing on the front end with waste oil, we're just being conservative with volumes there. Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division: Got you. And, Jim, with the 38% blended, was that for 2Q or a mix between 1Q and 2Q?

It was Q2. And for the full year, it actually is expected to be at that level. Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And so Q1 was a similar number, then?

Q1 was higher. Q1 was a little higher than that, yes. Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division: Got you. And then the last question is just can you give a sense of what Lodging revenue was for the quarter and what your expectations for the year is given that Ruth Lake is opening?

We expect Lodging to go up. I don't have a precise figure on that, but that's had a run rate of about $220 million in that range for Lodging. And we expect Ruth Lake to add to that. Next year will be north of that $220 million clearly because we'll have a full year probably in the $230 million-plus range.

The next question is from Barbara Noverini of MorningStar.

When you think about your expansion towards the other shale plays, Wyoming, Texas, Oklahoma, Colorado, what would you say is the main factor that gives you a foothold in these new markets for you? Is it your ability to provide disposable management? Or is demand greater for some of your other ancillary well site support services?

Clearly, we're focused on the disposal management. That's where we think we can bring our assets and to provide solids control and -- but in processing waste on site. But the logistic side, tying it into our disposal network, our rail capabilities, our transportation network is what we think we can differentiate.

The next question is from Jack Atkins of Stephens.

I'll keep this brief. Just a quick question here on your role, potential role and involvement in the cleanup activities in Québec after the Lac Megantic crude-by-rail explosion earlier in July. Are you all planning to play a role on that cleanup? And if so, could maybe help us sort of bracket what you expect the total cleanup cost to be there?

We have been playing a role there. We've been handling some material. It's not been significant. There are some contracts. And the RFP is out right now on some of the remediation disposal. I don't have a number necessarily, but it's -- I don't believe it's significant. I think it's certainly a catastrophic event. But from the kind of work that probably involves our capabilities, it's not as big.

Thank you. We have no further questions in queue at this time. I'd like to turn the floor back over to management for closing remarks.

Okay. Thanks, again, to everyone for joining us today. We look forward to updating you on our progress in the second half of the year. We are planning on hosting and webcasting an Investor Day in September, which will include presentations from our extended management team. We'll be issuing a news release with more details as the event gets closer. So with that, have a great day. Thank you.

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