Clean Harbors, Inc. (CLH) Q1 2015 Earnings Report, Transcript and Summary

Greetings, and welcome to the Clean Harbors First Quarter 2015 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Michael McDonald, General Counsel. Thank you. Mr. McDonald, you may begin.

Thank you, Rob, 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, Jim Buckley. We've posted our slides for today's call to the Investor Relations section of our website. We invite you to open the file and follow the presentation along with us. Matters we are discussing today that are not historical facts are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Participants are cautioned not to place undue reliance on these statements, which reflect management's opinions only as of this date, May 6, 2015. 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'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, as well as in the appendix of today's presentation. And now I'd like to turn the call over to our CEO, Alan McKim. Alan?

Thanks, Michael, and good morning, everyone. Beginning on Slide [Audio Gap] the first quarter of 2015, down 13% year-over-year. While Oil and Gas Field Services and Lodging were responsible for the majority of the decline, currency translation, severe winter weather and base oil pricing also adversely affected our performance. First quarter adjusted EBITDA of $78.3 million came in below the guidance we provided to you on our Q4 call in late February, but those of you who have followed Clean Harbors for years know that March is what makes our first quarter. That's when our environmental business, which is seasonal, typically picks up. This year, the pace of that acceleration was slowed by the lingering effects of a cold and snowy winter in some areas of the country, which caused major project delays in parts of our business, including tech services. Meanwhile, Oil and Gas and Lodging continued to un-perform, which was only exasperated by the winter drilling season in Western Canada being significantly impacted by capital budget reductions and ongoing headwinds in the energy market. I'll now go through the segments in more detail, beginning on Slide 4 with tech services. Segment revenue and profits increased modestly from a year ago, but frankly, we expected more growth. One factor that affected this segment in Q1 was prices on some of the materials and other recyclable materials we sell. This included materials from our transformer services business, which recycles copper and other materials from our utility clients; and catalysts, which we recycle from our chemical and refinery clients from catalyst change-outs. The impact of lower commodity prices in this area was largely offset by an increase in overall drum volumes and more incremental gains from Safety-Kleen as well as another strong quarter in landfill volumes. Tech services achieved an incineration utilization of 91%, driven by another solid contribution from our Canadian facilities. Even though we recently added 12,000 tons of annual practical capacity to our Lambton incineration facility that location still managed to exceed 100% utilization for the quarter. Overall, utilization could have been slightly higher in Q1, but there was one unplanned week-long March shutdown at our El Dorado, Arkansas plant. We're careful about scheduling our planned shutdowns and preventive maintenance for these facilities, but unplanned outages do occur. We are excited about the construction of our new incinerator at El Dorado. The time table for completion remains on schedule, and a lot of the concrete's been poured, and we expect several key components for the facility, such as the rotary kiln, to be delivered this summer. Budgeted at more than $100 million, this will be the single largest investment made in our history, and we're excited to share the progress with all our stakeholders. In the quarter, our landfill business extended its recent momentum, with volumes up more than 20% from a year ago based on a steady stream of projects across a number of vertical markets. Turning to Slide 5. Industrial and Field Services revenue was down 7% year-over-year but overall was in line with our expectation. The weaker Canadian dollar and the significantly slower oil sands environment continues to be factors. The Oil Sands, as you will see from our Lodging results, was a real challenge for us in the quarter. That said, we did see some strength in several areas, including Canadian specialty services and U.S. industrial. Overall, turnaround activity was lower than expected as some companies scaled back projects and pushed work out to Q2 and Q3, due mainly to the refinery worker strike and the turmoil in the energy environment because of the crash in crude pricing. Field services had a relatively soft quarter, but that business had some weather disruptions, particularly on the project side. We do not see any major response opportunities this quarter. Profitability and margins in the segment were lower than expected largely due to project mix, pushouts and pricing pressure from some energy customers. Softness in the segment and the turnaround delays affected overall utilization for our billable personnel, which decreased to 77% from 80% in Q1 of last year. Moving to Slide 6. Our revenue in Oil Re-refining and Recycling was nearly flat with the prior year. Our team has executed well on the Zero-Pay and Charge-for-Oil initiative that we announced in December. There is no question this initiative was necessary. Posted base oil pricing for Group II remains at $2.45 a gallon, and this is down over $2 per gallon since our acquisition of Safety-Kleen. Base oil pricing may rise at some point, but we continue to operate this business under a difficult pricing environment. The loss in the first quarter for our SK oil business was caused by 2 factors: first, the rapid change in base oil pricing that occurred late last year; second, the impact of high-priced waste oil being processed in the quarter. As we discussed on our Q4 call, we have about a 2-month turn in our waste oil inventory from the moment it's picked up at our customer's site to the point it's transported, processed and ultimately sold. So higher-priced inventory gathered in late 2014 was still being processed in the first quarter. Our percentage of blended in the quarter was consistent with the quarter 1 year ago although down from Q4, and this will continue to be a focus for SK oil going forward. Turning to Slide 7. Direct revenue in Safety-Kleen Environmental Services was down 18%, but this is due -- this is really a decline almost entirely due to the lower intercompany costs resulting from lower pay-for-oil. Outside revenue in this segment, as shown here on the slide, was essentially flat as the key elements of this segment, including parts washers and containerized waste, performed well in Q1, which helped drive our margins. Profitability was up 19%, reflecting a good mix of business and the cost reductions we implemented in the past year. Parts washer services increased 17% from a year ago, an encouraging trend that extends the recent momentum we've seen in that business. We remain aggressive in this area, and we expect to regain market share in 2015. As expected, used motor oil collection volumes declined from a year ago as the market reacted to our efforts, to our sharply lower price-for-oil pricing initiative and also the impact from a severe winter weather. We collected about 41 million gallons versus 47 million gallons a year ago. The acquisition of Thermo Fluids, TFI, which I'll talk about shortly, will also increase our used motor oil supply needs going forward. We lowered our average PFO costs significantly in Q1. And while we don't share a specific number for competitive reasons, I can say that we're rapidly approaching 0. The entire Safety-Kleen team has done a good job in working through the spread compression that we have suffered in that business since acquiring Safety-Kleen. We are now moving forward in some markets with charging for oil and also charging stop fees to address the excess transport costs incurred to service many remote customers. We also continue to expand our footprint and grow this segment, opening 3 new branch locations in new markets in the quarter as well as adding 10 new used motor oil trucks for growth. Now the next 2 segments, Lodging and Oil and Gas Field Services, really took a hit this quarter from market forces. The significant crude oil price decline, coupled with the emergency reactions taken by many of our customers to reduce capital budgets, stop any spending they could or demand for significant price concession for services that we perform, proved a major challenge for us. As you can see on Slide 8, Lodging Services revenue was down 40%, while adjusted EBITDA fell 61%. This segment was hit on 2 sides. The winter drilling in Western Canada was almost nonexistent, as this affected our mobile camps business, while a combination of lower occupancy and pricing pressure hurt our fixed lodging locations, too. Our camp manufacturing business was largely on plan in the quarter. Q1 was the first quarter in which our fixed lodges were materially affected by lower Oil Sands activity. Historically, our occupancy rates were reasonably strong even despite a challenging market, even while some of our peers may have faltered. We have maintained great relationships with our customers, and our lodges are many customers' top choice. However, desperate competitors and across-the-board cuts by energy companies have affected both our pricing and our occupancy levels. Occupancy at our fixed lodges was just 50% in Q1 compared with the low-70% range for several previous quarters. The combination of reduced occupancy and competitive pressure to lower our room rates caused the EBITDA and margins to fall substantially from a year ago. Turning to Oil and Gas Field Services on Slide 9. The 47% drop in revenue from the prior year was higher than anticipated. Reduced exploration budgets impacted our seismic support business, while the rapid decline in rig counts both in Canada and the U.S. hurt our surface rentals. In Western Canada, the monthly average rig count in Q1 was 270, which was nearly half of what it was in the first quarter of last year. Our production service group also was affected by the lack of any significant fluid rental and pipeline testing projects as well as lower day-to-day work, with energy companies really holding back on any spending. Nevertheless, we did continue to believe we're gaining some market share as small competitors are struggling, customers are looking to consolidate vendors. We started working with a lot of new customers and really have expanded even into some of the new shale plays. Average utilization of our key equipment, like centrifuges for processing waste, was only down slightly to 51% in the quarter versus 54% a year ago. However, we're experiencing pricing pressures from our customers, which is reflected in our profitability and our margins. Moving to our corporate initiatives on Slide 10. As we announced in this morning's news release, we have elected to expand the planned carve-out to include our entire Lodging Service segment, a move we believe will help simplify our service offerings to our customers and maximize the value of this strategic decision that we made. We have been moving forward with our carve-out program, and during our detailed discussions on this business, we concluded that splitting up our Lodging assets would not be in the best interest of our customers or our shareholders. We envisioned situations in which we could be competing against ourselves for opportunities and assets would be needed across the business, creating confusion with some customers. This is particularly true around our dorms and our camp manufacturing. The overall profile of our Lodging segment has evolved since we completed our strategic review last year given the changes in the energy market and the Oil Sands. As a result, we intend to include the entire Lodging Services segment in the carve-out, which we expect to be prepared to go public early next year. The next initiative I want to touch on is our recently completed acquisition of Thermo Fluids, which we purchased in an all-cash deal for $85 million. The strategic benefits of this acquisition are numerous. One reason TFI was so attractive is that it supports both our environmental and our waste oil collection business growth plan. On the environmental side, there's a significant opportunity to cross-sell our services into 20,000 customers that are essentially under-penetrated with the many services our environmental team has to offer. In addition, Thermo Fluids geographically complements Safety-Kleen's branch network. Thermo Fluids has a presence in 21 states, primarily in Western U.S., and its network includes 36 permanent facilities, many of these large terminals and a number of which have rail access. Thermo Fluids also has a well-maintained transportation fluid, including many trucks and railcars. And on the waste collection side, adding Thermo Fluids to our existing used motor oil business will make available new supply to our re-refineries from the most cost-effective locations across the country. In addition to those first 2 initiatives, we also recently expanded our existing share buyback program, raising the total capacity to $300 million. Looking at Slide 11, share repurchases remains an important element in our capital allocation strategy. We also intend to continue, though, to invest in our business, particularly where we see attractive long-term growth opportunities such as the new incinerator. We continue to evaluate M&A opportunities as well, with a focus on businesses in our core environmental or industrial markets and those we can acquire at a reasonable valuation. Moving to our outlook, starting on Slide 12. We have a range of initiatives underway aimed at revitalizing our revenue growth. Within tech services, we have some large remediation projects kicking off in Q2 and Q3, and we will look to build on our momentum in both incineration and landfill. We remain on target for the planned startup of our new incinerator in late 2016, which we continue to believe will be well timed. Within Industrial and Field, our primary emphasis in the near term is maximizing our resources during the upcoming turnaround season, both in the U.S. and Canada. For Field Services, increased collaboration with Safety-Kleen and expansion through collocated offices is expected to pick up as we move further into the year. Within Oil Re-refinering, we're focused on reducing transportation costs, increasing our blended product sales and moving forward with our pilot program to build a direct sales channel, where we sell our blended products directly back to our Safety-Kleen customer base. We've been successful in Ontario and Québec, and we will be expanding this program in several other markets this year. Turning to Slide 13. On the Safety-Kleen branch side, we're continuing to drive down our total cost for used motor oil while maintaining sufficient volumes to run our plants. Our primary focus near-term will be integrating Thermo Fluids, particularly in the optimization of network as well as training the Thermo Fluids sales force for cross-selling. For Lodging, we're continuing to seek opportunities for additional occupancy at reasonable room rates at our fixed locations. For our mobile camp business, we're seeking opportunities in regions such as British Columbia to deploy our assets. We were recently awarded some significant work within our camps and manufacturing business, all scheduled to begin in the second half of the year. Within Oil and Gas, our strategy is to continue to take additional market share in a challenging environment and pursue emerging opportunities such as the gas drilling and the support work in Alaska that we're doing. At the same time, we are moving forward with additional cost-cutting to counter some of the margin pressures we are facing in this business. So before I turn it over to Jim, let me finish by saying that we are really disappointed with our financial performance that we're reporting this morning. But I would tell you that our employees continue to go above and beyond in these very challenging times. We're exceeding our safety targets, and I couldn't be more appreciative of their efforts, particularly during this past brutal winter that we just came through. So thanks to our employees. And with that, let me turn it over to Jim for his financial review. Jim?

Thank you, Alan, and good morning, everyone. Starting on Slide 15. Let me briefly touch on our outside revenue by vertical in Q1. Refineries and Oil Sands was our largest vertical in the quarter, representing 14% of Q1 revenue. It is up 11% from a year ago, with a 24% increase in the U.S. due to some significant refinery project work. In Canada, activity in the Oil Sands remained somewhat muted. The chemical vertical accounted for 11% of total revenue in the quarter. Our base business remained solid, and our bulk business performed well. However, chemical revenue was down about 6% from the prior year as cold weather and timing affected several projects. The good news is that several large remediation projects are slated to kick off in Q2. General manufacturing accounted for 11%. Revenue from this vertical grew 9% year-over-year. The overall manufacturing sector remains strong, so we expect healthy growth the rest of the year through a good mix of projects and stable base business. Base oil, blenders and packagers, which represents 9% of Q1 revenue, was down nearly 30% from the prior year largely due to the decline in base oil pricing. Revenue from the automotive vertical was down about 5% from a year ago, affected by lower collection opportunities as well as the cold weather in the Eastern U.S. We have some good sales funnel opportunities in automotive dealerships and expect automotive to rebound. The next 2 verticals on the chart, oil and gas production and oil and gas exploration, were both off about 25% from the prior year based on the current energy environment. One of the smaller verticals I wanted to highlight this quarter is government, where we grew 32% from the prior year due to some project wins and sales in the Safety-Kleen business. Slide 16 displays direct revenue in Q1 from our 6 reporting segments, ranging from Lodging Services at 5% to Technical Services at 38% of total revenues. This revenue split is different from what we see in Q1 on a more normalized basis, where we would expect Oil and Gas Field Services to account for a larger portion of revenues as it is historically that segment's seasonally strongest quarter. For instance, Oil and Gas Field Services accounted for 14% of our total revenue in Q1 2014 compared with 7% in this year's first quarter. Turning to the income statement on Slide 17. As Alan mentioned, the year-over-year decline in Q1 revenue was related to the negative foreign currency translation impact, base oil pricing and the drop in Oil and Gas and Lodging revenue. Gross profit for the first quarter was $186 million or a gross margin of 25.4%, down 700 basis points from a year ago, reflecting the declines in our energy-related businesses. Of the $2.2 million of severance and integration costs we had in the quarter, just under $1 million affected cost of revenues. SG&A totaled $108 million in Q1 or 14.7% of revenues. This is down approximately $11 million from Q1 a year ago primarily due to changes in incentive compensation and cost reductions we implemented during 2014. Q1 2015 SG&A includes $1.2 million in severance and integration costs. For the full year, we continue to expect that our SG&A expense will be flat compared to last year as our cost savings programs will enable us to offset the typical increases we see in labor, health care and other related costs. In Q1, depreciation and amortization decreased slightly to $68.4 million. Looking ahead to the remainder of 2015, including Thermo Fluids, we continue to project full year depreciation and amortization to be approximately $270 million. Income from operations for Q1 decreased to $7.3 million from nearly $30 million in Q1 a year ago. This decline was entirely due to the lower revenue level in the energy-related businesses we described. Adjusted EBITDA was $78.3 million in Q1 or a margin of 10.7%. As Alan noted, this was below our guidance range as the ramp-up we typically experience in March was slower in developing this year. In addition, the decline in both Oil and Gas and Lodging was greater than we anticipated when we spoke with you back in February. Just a note that if we added back the $2.2 million in severance and integration costs to our adjusted EBITDA, we would have been north of $80 million in the quarter. Our effective tax rate for Q1 came in at 39.5% compared with 38.3% in Q1 a year ago. This tax rate was largely expected given our performance in Canada, where tax rates remain lower than the U.S. Given our current outlook in Canada, we continue to expect our effective tax rate for the full year of 2015 to be in the 39% to 40% range. Turning to the balance sheet on Slide 18. We continue to maintain a healthy balance sheet. Cash and marketable securities as of March 31 totaled $233.7 million compared with $246.9 million at year-end. Q1 is historically a cash-intensive period due to capital purchases, the timing of interest payments, the seasonality of our business and payment of incentive compensation and commissions during that quarter. That being said, our positive free cash flow in Q1 enabled us to repurchase shares amounting to $16 million during the quarter. Total accounts receivable were down considerably from year-end, however, DSO increased by 1 day to 72 days in Q1. We now have the systems in place with Safety-Kleen customers to capture items such as off-spec charges, fuel surcharges and rental fees. We are turning our attention toward collections and improving our billing processes to reduce DSO, and we continue to target bringing our DSO down to the mid-60-day range. Environmental liabilities at quarter-end were $200.9 million, down nearly $5 million from year-end as we continue to address our obligations at a number of sites and steadily reduce that total liability. CapEx net of disposals for Q1 was $52.2 million, well below the $74.1 million we spent in Q1 of last year. This quarter includes approximately $6 million that was invested in the construction of our new incinerator in El Dorado. We have been very selective in our capital spending as we remain committed to maximizing the returns we receive on our capital and are also focused on deploying the underutilized equipment that we currently have across our -- across several of our businesses. For 2015, we are continuing to target CapEx of $200 million, which excludes the construction of the incinerator, which we still believe will likely add approximately $50 million in 2015. We also intend to sell approximately $25 million to $50 million of nonessential assets so that our CapEx net of disposals in 2015 will be approximately $200 million to $225 million in total. In Q1, we had asset sales of about $1 million, but I expect that pace to pick up in the coming quarters. Cash flow from operations was strong at $84.8 million compared with just $4.6 million a year ago. For the full year, we expect working capital to be a positive for us as it was in Q1, with cash flow from operations north of $400 million in 2015. Moving to guidance on Slide 19. For the second quarter, we are expecting adjusted EBITDA in the range of $138 million to $145 million. For the full year, we are maintaining our previously announced guidance range of $530 million to $570 million. We acknowledge, however, that the current environment in our energy-related businesses will likely bring us to the lower part of this range. We expect the Thermo Fluids business, which we acquired in mid-April, to contribute $5 million to $10 million to our EBITDA in the final 3 quarters of this year, which will offset the miss we had in Q1. On our Q4 conference call, I provided some commentary on how we expected our segments would perform on an adjusted EBITDA basis in 2015. Most of what I said still holds true, with some adjustments. We continue to expect both Technical Services and SK Environmental to expand their adjusted EBITDA in the mid-single-digit range. Due to the continued worsening in the Oil Sands region, however, we now expect the adjusted EBITDA contribution of the Industrial and Field Services segment to grow at a single-digit level rather than in the low teens. Based on how rapidly we have brought down PFO and transportation costs, SK Oil should now exceed last year's adjusted EBITDA performance for the full year. In our Lodging segment, we continue to project adjusted EBITDA will decline at a double-digit pace from 2014 based on its Q1 results and the current Oil Sands environment. Oil and Gas Field Services experienced a sharp decline in adjusted EBITDA in Q1, and that trend is expected to continue. But in both Oil and Gas Field Services and Lodging, we are implementing significant cost reductions to help mitigate any adverse effects on our profitability. And with that, operator, could you please open up the call for questions?

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

Just first, an overall comment, if I may. It looks like with the new assets going into the carve-out that the underlying fundamentals and "the ongoing Clean Harbors businesses" performed relatively in line but, perhaps, even slightly better than your plan. I'm not sure if you want to comment on that, but just an observation as we look at what was a lot of moving parts in the quarter.

I'd probably think -- probably, a disappointment would be more on the industrial side, that we had a lot of booked turnaround work and we saw a lot of cancellations, particularly to do with the strike that was going on as the refinery worker strike expanded. And we saw a lot of planning and work that was due to happen pushed, and so those turnarounds have to take place. But I would say that would be the single biggest challenge that our industrial business had. And I think probably on the manufacturing side, with the port strike, we did see quite a bit of impact even with the port strike on some of our manufacturers. So some of the waste volumes that we were getting definitely got impacted from that -- those 2 significant things that happened in the quarter.

Yes. And the only thing I would add is that the weather clearly -- I believe that tech services would actually have been greater than where we were. So there's some pushes out to the rest of the year because of the weather -- severe winter weather that we had, particularly in Northeast in Canada.

A lot of office closings that happened, really, throughout the whole East.

But still, they did well, but...

Is it possible to, with those commentary, to shed some insight on which projects -- and this is more aggregate across the company, maybe in terms of within the guidance parameters, what you see now as "lost" or what is more delayed and, perhaps, still on track but the timing maybe a little less certain? I'm not sure if there's any way to provide that, and/or the currency impact in the quarter would be helpful.

I'll maybe start and let Jim add. But I would say it's one of the reasons why we're confident with our guidance, that we've got a lot of business contracted and pent up and a lot of demand we've got. Even in the Oil and Gas and Lodging business, we've got some contracts that have been signed. We're cautious even in that space with contracts because we've seen extreme measures being taken by our customers, even trying to cancel firm contracts. So we're trying to work with our customers. We understand that -- the issues that they're facing, with crude being half of what it was a year ago. So I would say we feel very good about the pent-up demand for our services. Jim, I don't know if you want to add any color to that.

No, absolutely. I think that a lot of the -- of what we saw, you will see pushed into the latter part of the year, and our backlog was good going into Q2. And maybe to put some numbers around this, you asked about foreign exchange and so forth. When I look at our revenues in Q1 and I try to break it up into the major buckets -- and here, I'm going to be at a high level here, so I'm not going to be real precise on these numbers but the major big movers. If you look at our revenues in the first quarter, the translation loss, just the translation year-over-year probably accounted for in the area of about $24 million. If you look at our base oil pricing just year-over-year, as you know, we saw about $1 in price declines from August through December last year. The effect of that year-over-year, Q1 to Q1, was about $23 million in base oil pricing. Then if you look year-over-year, Oil and Gas revenues were down about nearly $50 million, $48 million roughly, and that includes about $5 million of FX effect. And then Lodging was down about $23 million, including $4 million of FX effect. And then as Alan pointed out, the effect on Industrial and Field Services with the Oil Sands was probably about near $10 million, and that probably includes $1 million or $2 million of foreign exchange. So when you look at those, as far as translation, the base oil pricing, I think with the base oil pricing in SK oil, the fact that we brought down our PFO cost so much year-over-year, we're managing that spread very well. You don't see it all in Q1 because you're selling Q4 higher-priced inventory, so you have that inventory change to deal with. That was almost $20 million, by the way. It was nearly that, just to put a number around that. And then you look at the Oil and Gas and Lodging as a result of the energy environment that we have right now. That was really what was driving -- what was going on from last quarter to this quarter. And we're encouraged seeing the WTI up in the $60 million range. We think that, that bodes well for the markets here, particularly in the Oil Sands and some other of the plays that we're involved in in Oil and Gas, field services. But we're reluctant. We're not building any of that in, and we're not looking at that. But generally, $60 is a good place to be if there's not the volatility. If we stayed consistently there, that ought to bode well for our businesses. But we're not trying to add that credit for the rest of the year. So hopefully, those numbers help put some -- frame up some of the things that Alan just talked about.

Yes, very good. And my follow-up, if I may, then on that one question. On corporate costs in the quarter, it looked like there was some movement there. If you could shed any color on why that was lower and what you still think for the full year and if there's any other onetimers in the quarter.

Absolutely. Corporate costs, I mean, clearly, we have been reducing costs to offset some of the other things that we've been talking about. Clearly, the -- with the lower performance in the quarter, our incentive compensation was less, to the tune of $5 million to $6 million, somewhere in that range. But I still believe that the full year corporate costs will be roughly in the $140 million range for the full year and, perhaps, less than that as we continue to try to save costs there.

Our next question comes from the line of Adam Baumgarten with Macquarie.

It looks like base oil prices have remained pretty stable over the last few months, albeit at low levels. But crude oil prices have begun to increase. Do you see any risk to your Zero PFO strategy?

Go ahead, Jim.

It's all about managing the spread, and it's a great question. I think a lot of the services that we provide to our customers, being that this is -- and they are customers. We see them more as customers than suppliers of used motor oil. We service them. We quickly unload their tanks all across, in many cases, across the continent. So I believe a lot of the value of the services that we provide to that business remains, first and foremost, I think, in our relationship with them. And therefore, in managing that spread, we're not looking to immediately make changes to our PFO cost with the precise movements of crude oil because the service that we provide to those customers goes beyond just the Btu value of the product that we're taking away for them. So it's something that we're managing very closely. And certainly, the current environment helped us to get back on track to where it should be because, as you know, unprecedented -- the unprecedented departure of base oil pricing from crude pricing that we saw for the last couple of years, that has been a grind for us. We're finally helped by the currency -- by the energy markets. But we hope to see things get more in line between base oil pricing and crude oil pricing, and we hope to manage that spread very closely going forward.

Okay. And then just finally, can you talk about what sort of benefit you guys saw in SK Environmental from a margin perspective from lower diesel costs?

I don't know if I could give you a precise number on that. But there was definitely a savings on millions of gallons of diesel that we purchased. But the only thing I would alert you to is we do have fuel surcharges to our customers, and some of those -- and a lot of that does get passed through to our customers. But I would say, overall, because we run a lot of equipment that also uses diesel, it's not all transportation, there have been savings there. But if I was to venture a guess, it'd probably be somewhere in the $1 million or maybe less than $1 million if you're just talking about a quarter, but it's somewhere in that range. But I don't have a precise number on that.

The next question comes from the line of Michael Hoffman with Stifel. Michael Edward Hoffman - Stifel, Nicolaus & Company, Incorporated, Research Division: If I looked at your guidance in February and you stripped away all of Oil and Gas and Lodging and your assumptions then and then you look at -- the guidance range stays the same, but you've got, clearly, revising Oil and Gas' contribution to it, am I correct that the net of that change, if I pull Oil and Gas out of both those numbers, the residual is bigger, it's better?

Yes, I would say that in general, Michael -- and maybe another way to look at it is if you look at the total of our segments, excluding Lodging and Oil and Gas, so that would include tech services, Industrial and Field Services, SK oil and SK Environmental, we expect that the EBITDA growth year-over-year would be between 6% and 7%. Probably closer to 7% growth year-over-year is the way we essentially look at it. But clearly, we've seen some big declines in the other 2 businesses that are offsetting some of that. I think that kind of gets to the point that you're making there.

I think, Michael, when you think about even Safety-Kleen this year both on the Environmental and Oil and Gas, we believe they're -- those businesses are really doing strong. They're doing well, and we're excited about how those businesses are coming together for us. And by getting our spread, as Jim talked about, under control, we're partway there, but we're not where we need to be. And so we're going to hold the line. And we know that we need to improve that spread and not improve it based on base oil going up but getting our spread under control as well as a good spread even with the recycled fuel oil market because not all of our oil is going into our base oil business. So I think we're doing really well, and I think that's showing up probably in our guidance there.

Absolutely. Michael Edward Hoffman - Stifel, Nicolaus & Company, Incorporated, Research Division: Okay. I'm going to repeat it just so I'm clear that if Oil and Gas and Lodging had -- the accounts allowed you to treat that as discontinued for assets held for sale, you wouldn't have been walking guidance down?

No. Michael Edward Hoffman - Stifel, Nicolaus & Company, Incorporated, Research Division: Right. Okay. So that's, I think, a clear and important issue. Legacy assets are performing well x the stuff that is exiting stage right here [indiscernible].

But I would also say that the businesses that really are under pressure, there's a great business there. I mean, the facilities that we have, the assets we have -- I mean, there isn't anybody that's been untouched by the crash in crude oil, as you know, Michael. And I would say that we continue to be excited even in light of what we saw in the quarter, which was really unprecedented from what we've -- and we've been through a couple of these now, right? So this has really been unprecedented in regard to the severity of the price cuts and the severity of the capital that, literally, overnight, dried up. And so a lot of companies reacted, and there are billions, hundreds of billions of dollars taken out of the market because of what happened in this. So that is still a great business. We're just weathering the storm in it, and the team really has worked extremely hard as they weather this business right now. Michael Edward Hoffman - Stifel, Nicolaus & Company, Incorporated, Research Division: Okay, fair enough. You started the year with a target of around $150 million in free cash, much better working capital recovery in 1Q. I'm assuming you're reaffirming that number and maybe with a little upside given how much working capital you took out of daily operations.

Yes, I would say there's upside to that number. Yes. Michael Edward Hoffman - Stifel, Nicolaus & Company, Incorporated, Research Division: Okay. And then there was a time that you had visibility in the legacy portfolio. And I call legacy being Technical Services, Industrial and Field Services and Safety-Kleen Environmental, that you could look forward and see sort of incremental volume coming at you, that more seasonal volume, and that tends to create the operating leverage in the business to -- 2Q through the remainder of the year. What's your view of that today?

Volumes obviously pick up in the second and third quarter. Those are our seasonally strong quarters. We're carrying about a $60 million deferred right now, which is essentially a lot of inventory and deferred revenue from parts washer services and what have you. But our services are up. Our volumes are up. I think people would feel, looking at the pipeline for those businesses, that it's a pretty strong business right now for us. Michael Edward Hoffman - Stifel, Nicolaus & Company, Incorporated, Research Division: Okay. And then on the PFO, I appreciate you don't want to tip your hand from a competitor standpoint. But if I understood the model correctly, to have been flat EBITDA year-over-year you had to get down -- all the things being equal, the base oil didn't go back up, it's still $2.45, your selling prices for residuals, your transportation, all that stays the same. The only thing you controlled was the price for the oil. You had to get somewhere into the mid-$0.20 a gallon, that suggesting you're going to be up would mean that your -- pierce that $0.20 -- mid-$0.20 number, is that accurate?

Yes, we're close to 0, and in some cases, we've been working with customers, as I mentioned, more on the outlying areas where we have to charge because to get that delivered rate to our re-refineries or even to our terminals for RFO sales, we've got to look at the total cost, not just what we're paying for the oil but the quality of the oil and the cost of getting it there and processing it. And so we believe that the team is doing a good job, and we've put in some better systems and processes to help. We actually have changed our incentive plan effective the first month of the second quarter. And so we think that'll change and drive behavior. So we're getting there, Michael, but we're not where we want to be yet. Michael Edward Hoffman - Stifel, Nicolaus & Company, Incorporated, Research Division: Fair enough. And when I visited the plant in early February, in the conversations with the guys there, we had the sense that a bogey was delivered oil to the plant at $1 a gallon or better. How do you -- how close are we getting to that target?

Yes. And our posted rate is much lower than that to some of our plants. And I think that was Chicago maybe that you were speaking to. So we're significantly below that as our target, and we would expect that number to continue to come down because the spread that we've been talking about is still not where it needs to be, where both crude and base oil and RFO is today.

[Operator Instructions] The next question is coming from the line of Scott Levine with Imperial Capital.

So your last earnings call was in late February. You highlighted -- and guidance was given then. You highlighted some bad weather in March and deterioration in the oil businesses. And I'm just kind of wondering what -- where was the biggest delta specifically relative to your guidance. And have trends since stabilized in those areas, where maybe you have a higher degree of conviction in the guidance going forward now that we're in early May and maybe 5 weeks have passed since the end of the quarter?

So last week, we had the team in for 2 days to do full P&L reviews. We did a deep dive across the entire business and spent a considerable amount of time re-forecasting and looking at the business. And I think it's really what drove sort of the discussion here this morning as we're communicating it to you.

Got it. And maybe focusing specifically on the turnaround business, where it seems like maybe there's a little bit less growth this year but still healthy outlook. Was most of the -- is most of the downside versus what you initially expected there kind of tied with the strikes and, call it, onetime items that have since passed? And is the fundamental outlook or the factors that drove the optimistic fundamental outlook for that business this year essentially intact?

Yes, we believe so. In some cases, it wasn't simply just moving it from the first to the second quarter because, as you can imagine, not only does a lot of planning now have to be put back in place to do some of these 500-person turnarounds but also lining up all the contractors and kind of realigning the work schedules across the network. So some of that work is pushed off and even into the third quarter, but they're not canceled. We have seen one major shutdown where it was cut in half, where the other half is going to take place next year. So we've seen a little bit of that. But these customers and these maintenance requirements have to get done. But as you can imagine, particularly when crude was in the low 40s, mid-40s, there was a lot of panic going on with spending by our customer base out there.

Got it. And then one last, and I'm not sure if this was covered earlier or not. But in the press release, you say you expect to be at the low end for 2015 adjusted EBITDA. Should we be thinking more like $530 million? Or should we be more thinking $530 million to $550 million is kind of the new ZIP code for guidance for this year?

As we've mentioned that the energy-related businesses are driving us to the lower part of the guidance, I couldn't say exactly where we would land there. And certainly, seeing some stability in the price of crude, perhaps, could help. So it's kind of hard to predict that as we saw in Q1 the effect on the spending of our major customers in these -- in the Oil and Gas and Lodging areas. So it would be difficult for us to pinpoint that. I apologize that we can't do that right now.

It's fine. Basically favor the lower end of the range, I guess, is what I'm trying...

Yes, that's right. That's the way to look at it based on what I just said. Yes.

Our next question is coming from the line of Charles Redding with BB&T Capital Markets. Charles E. Redding - BB&T Capital Markets, Research Division: I was wondering if you could just talk a little more about the move to expand direct blended product sales. How should we think about the long-term opportunity here? And what are some of the next steps as you get through the pilot phase?

So today, we distribute our blended products to about 50 different distributors, and we want to continue to do that. We have good relationships, and many of those relationships, they, in turn, distribute directly to our customers for us. There are a number of markets where we also have customers that we have historically distributed directly to. And as you look at the infrastructure that the combined Clean Harbors and Safety-Kleen now has, there are several markets where it would be more efficient and we would be able to expand more if we service a lot of our existing, let's say, Safety-Kleen core environmental customers, which total over 200,000. And so as we look out over the next 3 years, we'd really like to get to that 80% blended level in our business. We really want to expand our blended business, and it would probably be broken down in the continuation of growth with our existing distribution network as well as the expansion of our direct sale business. So that's probably the number that you might want to measure us by. That 80% number is really where we'd like to get in the next 3 or 4 years. Charles E. Redding - BB&T Capital Markets, Research Division: Okay, great. And then against -- in terms of general manufacturing, I realize this was up 9% in the quarter. Can you, perhaps, outline a few drivers here? And maybe how do you foresee, or do you foresee any lag impact here from pullback in industrial production?

I think manufacturing was up. I think chemical was probably the one that get impacted a little bit by the strike in the port. But yes, manufacturing -- Jim, did you want to touch on that?

Absolutely. Manufacturing is doing well at many of our clients, whether you're talking about -- we typically don't about specific clients. I'm sorry. When you talk about some of the major corporations across America, we have very good relations to the extent, certainly, any of the expansions are going on with the lower price of natural gas and a little bit more manufacturing that we're seeing in North America, I think you'll see us grow right with that. And it's not only the industrial but it's also the waste, the hazardous waste that they generate regularly in their business. So we're excited about that, and you're seeing some evidence of that in the first quarter there.

[Operator Instructions] Gentlemen, we have no additional questions at this time. I would like to turn the floor back to management for closing comments.

Okay. Well, again, thanks again for joining us today. We really appreciate your questions and comments. We're going to be participating in several conferences and events in the next month here in Boston as well as in Las Vegas in conjunction with the WasteExpo, so we hope to see many of you at those events. Thanks very much.