Ladies and gentlemen, thank you for standing by, and welcome to the Heckmann Corporation 2012 Second Quarter Conference Call. [Operator Instructions] Today's conference is being recorded, August 6, 2012. I would now like to turn the conference over to Kathy Price, Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us to discuss Heckmann Corporation's 2012 Second Quarter Financial and Operating Results. Some of the comments we will make today are forward-looking. Generally, the words: aim, anticipate, believe, could, estimate, expect, intend, may, plan, project, should, will be, will continue, will likely result, would and similar expressions identify forward-looking statements. These statements involve a number of other risks and uncertainties that could cause actual results to differ materially from those anticipated by these forward-looking statements. These risks and uncertainties include a variety of factors, some of which are beyond our control. These forward-looking statements speak as of today, and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call. Please refer to our filings with the United States Securities and Exchange Commission, including our Annual Report on Form 10-K, as well as our earnings release posted on the Heckmann Corporation website for a more detailed description of the risk factors that may affect our results. Copies of these documents may be obtained from the SEC or by visiting the Investor Relations section of our website, www.heckmanncorp.com. Also, please note that certain financial measures we may use on this call, such as adjusted EBITDA, earnings before interest, taxes, depreciation and amortization, are non-GAAP measures. Please see our press release for a reconciliation of these non-GAAP financial measures to GAAP. Joining us on the call today from Heckmann Corporation are Dick Heckmann, Chairman and Chief Executive Officer; Chris Chisholm, Chief Financial Officer; James Devlin, President and Chief Operating Officer of Heckmann Environmental Services; Chuck Gordon, President and Chief Operating Officer of Heckmann Water Resources; and Brian Anderson, Executive Vice President of Finance. With that, I would now like to turn the call over to Dick Heckmann.

Good afternoon, everybody. I went back over the weekend and read previous quarter earnings and releases and the comments and questions and concluded that building a company from scratch is fairly messy business. I do understand some of the confusion as to what we're doing, so I'm going to try and bring some perspective to our actions and show you where we're headed through the rest of the decade. Our second quarter reported revenues of $91 million, and adjusted EBITDA of $19.3 million was a bit shy of our projections given 5 months ago, primarily because several completion jobs slid into July after the Fourth of July holiday. However, we do expect them to be back online in the second half. Without question, our customers have pulled back capital spending and competition for the remaining jobs has intensified. But as you'll hear on this call, we think we're well-positioned to ride it out. It continues to be difficult finding, recruiting and retaining people, especially in the remote areas in which we operate, and internal growth as fast as we're experiencing is just difficult to manage. Along with the significant swings in price of oil and gas over the last 6 months, we've delayed action on several transactions until we get a better view of economic conditions generally and pricing conditions in each basin. But managing growth beats the hell out of the alternative. We think, under any circumstances, that it was a great quarter. We had sequential growth of 10% in revenues and 19% in adjusted EBITDA over last quarter. Gross margins improved from 13% to 17% sequentially. Our adjusted EBITDA margin grew from 19% to 21% sequentially. We continue to create a very difficult competitive advantage, especially for the independent truckers and smaller oilfield services companies. Our Marcellus/Utica revenues…

[Operator Instructions] And our first question comes from the line of Hamzah Mazari with Crédit Suisse. Hamzah Mazari - Crédit Suisse AG, Research Division: The first question is just on some of the completion jobs that you referenced that got pushed back from Q2. Maybe if you could talk about what trends you are seeing in Q3 and whether -- what gives you confidence that you're going to see some of these jobs hit in the second half?

This is Chuck Gordon. Thanks for the question, and I'll answer that. What happened in June and particularly in Q2 is, we had a couple of major customers or producers in the Marcellus that we had, had frac schedules that looked like they were going to be pretty robust beginning around the first of June. In fact, in both cases -- in 1 case, they relocated and are doing more business in the wet gas area of the Marcellus and are just beginning to pick up now. In the second case, they went to multiple frac crews on July 7. So we're seeing the delay probably cost about a month, maybe 6 weeks. But we see both companies’ activity peaking up dramatically as we move into August. Hamzah Mazari - Crédit Suisse AG, Research Division: Okay. That's very helpful. And then maybe a question for James on the Thermo business. Could you maybe talk about how long you think RFO yield is going to continue to outperform some of the energy indexes? Is this essentially a short-term phenomenon for you guys? Or do you see this continuing given some of the markets that you're in?

Thanks for the question. I don't think it's a momentary phenomenon. We've had 9 sequential quarters of which our RFO price has outpaced WTI or Platts, which are the major indexes which we compare against. And I think it's really due to the allocation strategy that we've got, putting them into the most -- the highest contribution markets and the flexibility of our contracts that price looking backward, so we know what the forward pricing will be so we have a high degree of confidence that we can continue to outpace that and that we've got over 2 years of -- almost 2 years of track record in doing so. So we're comfortable with it.

Our next question comes from the line of Scott Graham with Jefferies. R. Scott Graham - Jefferies & Company, Inc., Research Division: A couple of questions. First one is for Chuck. Chuck, is the entire shortfall from $100 million down to $92 million in revenue due to the pushbacks of these jobs?

No. We had -- that's a significant portion of -- because we also had nice growth in the Eagle Ford. It wasn't quite what we projected and the challenges in the Eagle Ford are building our organization fast enough to keep up with market demand and provide a quality product. So it was a combination of very nice growth in the Eagle Ford, but not quite where we projected along with some of the challenges that we saw on the Marcellus due to the delays. R. Scott Graham - Jefferies & Company, Inc., Research Division: Okay. The startup costs, we’re kind of excluding them from the EBITDA, yet this is a fairly dynamic market where things change fairly frequently within 3 and 6 months periods. What gives you guys the confidence of essentially taking the -- what is an item at is increasingly looking like a recurring item and kind of saying that it's nonrecurring, will it really be a nonrecurring item going forward? Will it reduce? Do you see it going away next year? Kind of help us understand that a little bit?

We're in the process of building out our platform in both the Marcellus and the Eagle Ford. I think if you looked at both those shale plays in Q2 of last year, we had almost no revenue in either plays. What will happen is our business has gained a little bit of maturity, and we're still in the process of having that happen is that the organizations become much more stable. And in both cases, we have significant businesses now in the Marcellus and in the Eagle Ford, and we don't expect to have the reoccurring startup costs as we go forward. Although the market’s very dynamic and that could -- we certainly could be upset. But the actual reason is just if you look at the growth in both those areas, it's phenomenal. And we finally, I think, are getting to the a point where we have some organizational stability in both plays.

Scott, I'd go a little step further and say that if you look at the quarter-over-quarter growth of 23% in Marcellus and 57% in the Eagle Ford, I mean, we're not going to grow 57% a quarter in the Eagle Ford, and we're not going to grow at 23% forever in the Marcellus. To get 57%, there's a lot of hiring, there's a lot of training, there's a lot of driver's training for 2 and 3 weeks in the right seat. There is -- we brought in literally trailer after trailer after trailer for affordable housing. We run vans from San Antonio to the Eagle Ford until we can get people housing. We do the same thing in the Marcellus. So I don't think it's fair to say that these are costs that are going to be there every quarter, because we just have so much growth. And until the infrastructure gets in place up there, we don't have any choice but to spend money that you wouldn't ordinarily spend if you were adding 5 drivers, but we're adding 50. R. Scott Graham - Jefferies & Company, Inc., Research Division: I don't question that, I'm just asking why it would be considered a nonrecurring item when it seems like it's going to recur for a little while. That was all.

We didn't have any of it in the Haynesville this quarter, and that's our most mature field. We didn't have any of it there. R. Scott Graham - Jefferies & Company, Inc., Research Division: Okay. Next question is around the -- I guess I'm looking carefully through the press release and maybe I missed it, but I don't think I did. Have we dropped giving guidance?

No. Well, our view is that we know that the following quarters will be larger than this quarter. The problem is we're having a hard time figuring out where the producers are going with their budget. And it's just become very difficult with the stops and start that we're seeing to plan as far out as we thought we could plan 6 months ago. So you're right, we don't have guidance in there. I can't -- I wouldn't rule out the kind of year we thought we were going to have, but I wouldn't bet on it either because I just don't know where things are going here. And I know in terms of growth and in terms of the budgets of the customers, I know our business gets better every quarter, it'll be better next quarter than it was this quarter, it's just getting very difficult with the economic issues and with the budget issues, it's getting very difficult to figure out where they're going. R. Scott Graham - Jefferies & Company, Inc., Research Division: Okay. Last question is would you mind telling me if we were able to strip out the acquisitions in each business? I know that there's not much with on the TFI side, but what does the organic growth look like in the water business and what does it look like in the -- on a pro forma basis in TFI this quarter, year-over-year?

This is Chuck Gordon. In the water business, the organic growth rate was around 8% quarter-over-quarter. And the rest of the growth rate was due to a full quarter of the KBI [ph] acquisition and a partial quarter of the Harmony acquisition. R. Scott Graham - Jefferies & Company, Inc., Research Division: Okay. How did the -- on a pro forma basis, how did the TFI business do?

Yes, year-over-year, Q2, including what we brokered through third-party oil was up almost 3% and most of that to your point is organic.

Our next question comes from the line of Gerard Sweeney with Boenning and Scattergood.

CapEx, you said you're cutting it in 1/2, so I'm assuming about $36 million, $37 million for the year. And where will the focus of that money be, on the environmental side or the water side?

We're going to cut it in half for the second half. We're already -- we're at $26 million year-to-date. And virtually all of that will come from just not adding as many trucks and not doing the kind of things we had expected to do until we see -- until we get a better view of what the customers are doing.

Okay. You also -- did you say you're seeing some increased competition? Or is it just increasing levels of margins getting squeezed because people are tightening down a little bit and getting a little bit more aggressive in terms of going after business?

I think it's both. We actually didn't see any pressure in the Haynesville for the quarter. And I would say if there was -- and the pressure we saw the most was in the Eagle Ford and the Barnett especially, but Chuck, you might want to deal with this.

As we looked at pricing quarter-over-quarter, certainly we saw pricing pressure in the Barnett. And I think that's to be expect with the lower gas prices and virtually all the completion work has come to a stop in the Barnett. So there's a lot of competition to haul the produced water. The pricing in the rest of the areas was relatively stable quarter-to-quarter. We didn't see a lot of pricing pressure in the Haynesville, the Eagle Ford or the Marcellus quarter-over-quarter. The challenge that we had was that some of our volume moved out from the second quarter to the third quarter as I discussed earlier.

Our next question comes from the line of Eric Stine with Craig-Hallum.

Just wondered if we could just touch on NGL pricing, lots of talk about declines there. Just curious if you've seen any changed activity levels in the liquid-rich plays?

We have not. We're following those also, but we still see a lot of activity in Western Pennsylvania and Eastern Ohio as they go after liquids. We've actually seen some activity in the Haynesville, where rather than drilling to the Haynesville formation, they're drilling to a Cotton Valley formation, which is above the Haynesville. And they're actually drilling for liquid natural gas. So we have not seen a reduction in activity yet. It still seems fairly robust.

And do you -- I mean, how do you see that playing out going forward? I know that's tough to predict, but just any thoughts there would be great.

I think what most people expect is that the price is going to be -- the liquids will probably be stable to slightly declining over about the next year and then we think that some of the demand will start catching up. But it's going to be, I think, a challenging price point over the next year or so.

Okay. Maybe we could just shift gears to a comment you made about the environmental services side of the business and talking about, that 8 of the 10 customers from the water side you expect to have those by the end of the year. Just any thoughts on what that could mean on kind of an annual revenue basis and what the overall opportunity is?

We've approached or in dialogue more advanced discussions with 3 of the Heckmann water side top 10 customers, 1 is in the contracting stage, 1 is in the exploratory stage and the other ones are preliminary in nature. We’re probably not prepared to give any estimates now, but we're very optimistic based upon our early engagement with this customer set. It's been well-received, and they are looking to consolidate vendor bases, and they're interested in it, in a total services offering. So we're very encouraged by what we see so far.

Okay. I guess, we’ll, stay tuned on that. Then last thing just on the water treatment facility, just curious the size of that, what kind of CapEx spend that is and just what that does for the overall operations in the Marcellus?

There's -- in the Marcellus piece, the facility is actually operating at roughly 30% of capacity right now. It's treating drill water, which tends to be fairly laden with suspended solids, and that's what it's treating. In discussion with a couple of the majors in the area, we expected to see a lot more flow backwater over the next year. And it should have a nice impact on our margins.

Our next question comes from the line of Joe Giamichael of Global Hunter.

You've mentioned several times about the number of acquisition opportunities that are out there. Could you talk a little bit about how you intend to fund any of those opportunities and/or the possible size of them given your current debt level and the current share price?

Well, the size -- I mean, there is some fairly large, dramatically large transactions out there. We have a lot of room, I mean, we have all the room under our existing credit lines. And we wouldn't do anything that wasn't significantly accretive to us. But I think that the transactions aren't going to be limited by our ability to do them. They're going to be -- I mean, we have wanted to be sure of pricing in the markets. We wanted to be sure that they’re markets that can take our technology advantage because it's a massive advantage. And unless the customers are prepared to hook into our IT system and let us do this electronically, we lose a huge advantage. But there's a lot of them, and I -- it would be hard to look at a lot of transaction, it would have been hard to look at a lot of transactions with oil and gas both pretty volatile for the last several months. I think we are more comfortable now with who the competition is, what the competition’s spending, what they're going to offer the customer vis-à-vis our ability to offer a suite of services to the customer. And I think we're comfortable with the state of the market now, where we weren't 3 or 4 months ago.

So even with guidance essentially hold at this point, you would be comfortable in taking or at least increasing the leverage ratios to secure some of these opportunities?

Well, no. I mean it depends on -- if you're -- it doesn't follow that if you borrow money to buy a company that your leverage ratio goes up, it depends on what the company's earnings are. So no, I would not be comfortable increasing our leverage ratio. I would not be comfortable diluting anything we're doing. I would only do a transaction that reduced our leverage ratio and increased the accretion.

Our next question comes from the line of Brian Post with Roth Capital Partners.

Most of my questions have been answered, but I guess last quarter you gave some detail of some of large contracts you've signed. I'm curious to see how that bid and contract pipeline looks now relative to last quarter? Are there other big fish out there to sign? Or were those kind of onetime items?

We just signed a contract in the Marcellus with a second major producer. It's a first-call contract for 3 years with price escalators in it, where we basically are assured of somewhere between 80% and 90% of their frac tank rental and trucking business for the next 3 years on a first-call basis. We also are in the process of bidding several significant jobs in the Eagle Ford right now. So we see a nice pipeline of opportunities, all these opportunities are with major companies.

Okay. Building on that...go ahead.

And Brian, I just can't -- I can't emphasize enough that part of the strength there is the other suites of services we bring to these transaction.

Okay. Noted. Yes, talking about the Eagle Ford, you mentioned in an earlier question that the Eagle Ford wasn't as robust as you'd hoped it -- to just getting infrastructure and assets in place, that's the way I interpreted it. What -- aside from hiring labor and getting people situated, is it LNG infrastructure not there yet to get the trucks going, what are the key limiting factors there?

Right now it's mostly around hiring and training drivers. And as Dick mentioned, we have to get them hired, take them through to safety training, take them through driver training and even on the heels of that, you have a significant period of time before they're fully productive once they're out in the field on their own. And so most of our infrastructure challenges in the Haynesville have been around hiring drivers.

In the Eagle Ford.

I'm sorry, in the Eagle Ford, have been bringing our driver core up to speed, both from a training, safety and productivity perspective.

Our next question comes from the line of Russell Lynde with Park West.

So you guys raised $325 million 3 months ago and were providing quarterly and full year guidance at the time. But now 3 months later you've withdrawn guidance. Can you help me understand what's changed over that period?

Well, I'm not so sure we -- I wouldn't put it that way. I think that anybody who has watched what's happened in the oil and gas business over the last 6 months knows lots has changed. And I think that, that I was surprised to see gas at $3.25, and now it's dropped back down below $3. We watch the volumes very closely. One of the reasons we like the environmental business is because it's a much more stable business. And I can only say that I know business gets better from here, but it's just hard to determine where the customers are going to go here and where their capital budgets are going to go and can you tell me if we're going to go over the fiscal cliff? If we go over the fiscal Cliff, what do you think is going to happen?

Let me ask it this way, I mean, how can you possibly make acquisitions and you made one in this past quarter without knowing -- without the visibility you think you need to make a projection on your own business?

In the businesses that we acquire -- again, remember, we're buying companies with customer lists, and with customers that they operate with every day. And that business doesn't change much. The question is, how many rigs are going to be drilling? How much completion is there going to be? What is the overall economic demand going to be that's going to drive the price of the commodity, that drives the price of the drilling. And when we make acquisitions in new basins, there with established customers, and we don't make them unless we've talked to those customers to know that, that business is an ongoing business. But it's a complicated game out there right now to determine what in fact the market is going to give us. I'm happy that the -- even from our own capital equipment -- our own capital expenditures, we decided as we said to cut it in half in the second half until we see what's going on in this economy. I don't know a CEO out there that isn't telling you that they're getting very careful about what happens in the second half and about where we're going with everything that's going on in D.C. And if they want to drive off the cliff, let them, but they're just not going to take us with them.

So should we expect guidance ever from you guys?

Yes. I mean -- I think as visibility gets better, we'll get more specific. All I can tell you now, and I've said it a couple of times, that the balance of the year will be stronger than the first half of the year. It's just hard to figure out how much stronger. It depends on how many people we can hire. It depends on how many people we can train. And it depends on what's going to happen with the economy. I mean, I don't know of any business at this stage that can give you much comfort about what's going to happen in the next 6 months.

Our next question comes from the line of David Rose with Wedbush Securities.

A couple of follow-up points. If you could -- what was the D&A number for TFI for the quarter?

It was about -- right at about $4 million.

$4 million?

Yes, there's significant amortization expense in the period.

Why did that jump up? I understood it wasn't supposed to be that high, is there something that jumped up in the period?

No, I mean, it came about from a valuation of the intangibles for the business. But I don't think it was that much different than what has been experienced historically, actually.

David, this is the customer list, and the customer list, it's just something you got to put on, you got to amortize it. It amortizes faster in the early year than it does in the later years. I think it's a crazy number, because I don't know that customer lists last very long if you don't do a good job. But it is a fact of life. We had to put it on there. We had to amortize it. But it's obviously noncash.

The same testing methodology as our previous auditor.

Yes, KPMG has the same methodology as the previous auditor.

Okay. And then on the onetime tax benefit, what sort of benefit should we expect in the third quarter? Or will there be a benefit that you clear from TFI?

This is not going to be a recurring item. This came about -- this is very consistent with the 8-K we filed to show the pro forma effects of the TFI acquisition. But it really is a situation where deferred tax liabilities came along with the TFI acquisition, those offset some of our deferred tax assets, and we were able to reduce the valuation allowance, but that's not something you see very often.

Okay. So for modeling, there's no reason that we should -- that's basically it for now?

Yes, that's correct. I think what we've said in the past with kind of getting back to a cash taxes, state tax kind of situation is what we'll probably see going forward.

Okay. And of the $18 million increase in DSOs, how much was attributable to TFI, sequentially, I mean?

In terms of hard dollars, we’re $4 million of the total, and that was due to 1 arrangement with 1 customer, which will become current by the end of September. So it's a onetime $4 million in total AR increase on the Thermo Fluids side.

So the bulk of it's coming out of -- on the HWR side? My impression was that was going to drop sequentially, so should we not expect that to drop? What are your customers doing besides producing CapEx? Are they holding off on payments, delaying payment?

The AR for WHR actually declined quarter-over-quarter.

DSOs.

That's right. And the DSOs are relatively stable. Actually their amount declined some. But what we've seen is certainly we have to push to get paid. We don't see -- we think that the receivables aren't going to go up in terms of the payment, days outstanding, but certainly we have to keep pushing the producers to collect.

And in fact, the paperless system that we are now implementing is going to cut -- we believe cuts a minimum of 20 days out of our DSO. And that's another reason why we're implementing the system because it cuts an enormous amount of time out of the time between the time the water is picked up and when all of the paperwork is checked off and signed off and then sent to the producers. So the paperless -- the move to the paperless transaction is going to have a fairly good effect on that also. But our receivables didn't go up in the quarter.

So it sounds like clearly, paperless is a big benefit for you. Should we expect additional onetime training or costs associated with implementing the system or implementation costs?

You won't see onetime costs for implementing the system. It's certainly a cultural change for the drivers, certainly a different way for them to doing business versus what they've had in the past. But typically, we haven't seen significant costs associated with implementing it. It's just sort of a grind to implement the culture that we need and to change in business process. But we don't anticipate additional driver cost and labor cost because we're implementing the system.

Okay. And Chuck and then lastly on that note, what about the new treatment plant that will be built? Should we expect additional onetime costs associated with those?

No. The treatment plant that we're putting together is in startup right now as we speak. It's a fairly straightforward system. It's technology that we're very comfortable with. And we don't anticipate significant startup expenses with that system.

[Operator Instructions] Our next question comes from the line of Lou Nardi with Global Hunter Securities.

I was just curious, the treatment plant that's being purchased in the third quarter, did you give a acquisition press on that?

I didn't hear the question.

What was the question?

The treatment plant that -- I thought you were buying another treatment plant in the third quarter. I was just wondering what the cost of that was?

We're buying a majority interest in it. We actually haven't disclosed that until after we get the deal. We're still finishing up the deal.

Okay. And then I just want to make sure I understand the CapEx situation. I think the budget for the rest of the year was something in the neighborhood of $40 million, so is that now down to $20 million? Is that correct?

Yes. Ballpark, you're correct.

Okay. And I think on one of the previous conference calls, there was discussion of about $15 million in acquisitions at TFI. Was any of that in the second quarter? Is that still on the docket?

It's -- none of it -- really, there was just a tiny one in the second quarter and yes, we are still in negotiations on the balance of them.

And ladies and gentlemen, that does conclude our question-and-answer session for today. I'd like to turn the conference back to management for any closing remarks.

Was there a question from Evan Templeton?

And Mr. Templeton. Evan S. Templeton - Jefferies & Company, Inc., Research Division: Just curious about, just with all the volatility that we've seen in oil markets. What are you seeing in terms of re-refining capacity? Have you seen any pullback there as maybe financing has become a little bit more difficult?

No. What we've seen is quite the opposite. Our top 2 or 3 re-refining customers are all expanding in capacity, significant capital investments. And that does somewhat help to explain if you look at our overall RFO reprocess fuel oil pricing, it's up 23% when WTI actually dropped by about 8% year-over-year. So we're comfortable with what we see. We see continued expansion. Again, all the numbers that we're looking at in terms of announced projects suggest that there's going to be 53% capacity expansion between now and 2013. So we think there's still a lot more headroom on pricing and volume into that vertical market. Evan S. Templeton - Jefferies & Company, Inc., Research Division: Great. You're still seeing a strong pull-through then on price?

Yes, our single largest customer has approached us for a significant uptick in volume to fuel their expanded capacity plans.

And management, you may continue with any closing remarks.

Okay. Thanks. I would reiterate that we think our business is strong. It's growing. We've got lots of opportunities to continue to drive everything we're doing. I just am very sensitive to what's going on in the second half this year. I don't want to get picked off base, and I'd much rather surprise than disappoint. So until we can get a better view of where things go here, as always we'll talk to anybody who calls us and wants to discuss the business. But right now, I just don't know how we could be in a better position than we are now. So with that, we'll be available if you need us through the rest of the week. Thanks, operator.

Ladies and gentlemen, this does conclude our conference for today. If you'd like to listen to a replay of today's conference you may do so by dialing 1 (800) 406-7325 or (303) 590-3030 and entering the access code of 4553656 followed by the pound sign. Thank you for your participation. You may now disconnect.