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Executives

Donald Newman - Chief Financial Officer

Tricia Ross - Analyst Contact, Financial Relations Board

William Gehrmann - President of Headwaters Resources Inc

Murphy Lents - President of Eldorado Stone

Kirk Benson - Chairman and Chief Executive Officer

Sharon Madden - Vice President of Investor Relations

Analysts

Kevin Lee

Daniel Orr

Daniel Mannes - Avondale Partners, LLC

John Quealy - Canaccord Genuity

Edward McCabe - Clean Value Partners

Headwaters (HW) Q2 2011 Earnings Call May 9, 2011 11:00 AM ET

Operator

Good morning, ladies and gentlemen, thank you for standing by. Welcome to the Headwaters Inc. Second Quarter 2011 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Monday, May 9, 2011. I would now like to turn the conference over to Ms. Tricia Ross of Financial Profiles. Please go ahead, ma'am.

Tricia Ross

Thank you. Welcome, everyone, to the Second Quarter Fiscal Year 2011 Headwaters Inc. Conference Call. Before we begin, I'd like to make note that -- and apologize that we have had a technical glitch on the slides, if you are trying to access them through headwaters.com. This should be resolved within an hour or so. But in the meantime, if you would like to follow along with the slides, we suggest you either go to earnings.com, streetevents.com or Yahoo Finance and you will be able to access the webcast through one of those methods by putting in Headwaters' ticker, HW. Alternatively, if you do not want to go through that, you can e-mail me at tross@finprofiles.com, and I can e-mail you a PDF of the slide presentation while the call is going on.

Again, apologies for that technical difficulty. I would now like to turn over the call to Ms. Sharon Madden, Vice President, Investor Relations of Headwaters.

Sharon Madden

Thank you, Tricia. Good morning, everyone, and thank you for joining us today as we report Headwaters' fiscal 2011 Q2 results. Today's call will be conducted by Kirk Benson, who is Headwaters' Chairman and Chief Executive Officer; and Don Newman, Headwaters' Chief Financial Officer. Joining us will be Bill Gehrmann, who is President of Headwaters Resources and Heavy Construction Materials Segment; and Murphy Lents, who is President of Eldorado. Dave Ulmer, President of Tapco International will be available during the question-and-answer session of the call.

Before we get started today, I'd like to remind you that certain statements made during this call including statements relating to our expected future business and financial performance may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both as amended. Forward-looking statements by their nature, address matters that are, to different degrees, uncertain. These uncertainties which are described in more detail in the annual and quarterly reports filed with the SEC may cause our actual future results to be materially different from those expressed in our forward-looking statements whether as a result of new information, future events or otherwise, except as may be required by law. You may find Headwaters’ annual report on Form 10-K, quarterly report on Form 10-Q and other SEC filings readily available from the SEC's website, Headwaters’ website or directly from the company.

I'll now turn the call over to Kirk Benson. Kirk?

Kirk Benson

Thank you, Sharon. Good morning, everyone, and thank you for joining us on our quarterly conference call.

All of us on the call this morning want to express appreciation for your interest in Headwaters. As we've gone through the down cycles over the last 5 years, our employees have demonstrated a consistent dedication to make the business better. We continue along that path.

Although at first blush the March quarter appears quite complicated, it can be summarized into 3 elements: first, we had multiple nonroutine charges that affected net income; second, reported revenue was essentially flat year-over-year, up a little in building products and down a little in the service area of coal combustion products; third, although revenue was flat, costs particularly in Light Building Products increased, putting pressure on margins. Those are the 3 things that tell the story of the quarterly financial statement.

Well, we also accomplished several important things during the quarter that benefited Headwaters. First, we refinanced our senior debt, pushing out maturities, improving free cash flow by $6.8 million and reducing risks. Second, we restructured administrating functions, closed facilities, the result of which should be an increase to free cash flow of about $4.3 million.

We successfully instituted a price increase in Light Building Products to offset raw material costs. We settled IRS audits with no impact on Section 45 credits reducing our risk to credit carry forwards. And we obtained a final judgment in the Boynton matter, capping the exposure at $60 million and reducing the risk of a potentially higher amount allowing us to be somewhat more aggressive in our cash management.

We felt good about the $11 million in improvement to free cash flow and the continuing efforts that we have undertaken to improve the company. After Don has finished the review of the financials, Murphy Lents, the President of Eldorado Stone, will talk about Light Building Products, and Bill Gehrmann will talk about coal combustion products and coal cleaning. Don?

Donald Newman

Very good. Thank you, Kirk. Good morning, and thank you, everybody, for joining us. Before discussing Slide 3, I wanted to mention that we'll file our 10-Q later today. My comments will be directed to the slides that were sent out this morning. And to a lesser extent, to the condensed consolidated balance sheet and statements of operations that were attached to the press release.

As Kirk mentioned, Q2 continues – Q2 reflects the continued overall stabilization of sales volumes, but also the impact of changes in sales mix, weather and increases in raw materials and other costs. Our results were also significantly impacted by nonrecurring items, which I'll talk about in a moment.

Year-to-date, our revenue is $282 million, a 5% increase from the prior year revenues of $268 million. Revenue for the second quarter was $127 million, a 1% decline from the prior year revenues of $128 million.

This quarter, we recognized nonroutine charges totaling $127 million. We recorded a $69 million charge related to refinancing the 11 3/8% senior secured notes. The charge represented redemption fees, the write-off of issuance costs and discounts for the old notes, and other fees related to the redemption. There are a number of ongoing benefits from this refinancing and we'll talk about those benefits in a few minutes.

We recorded a $37 million non-cash charge related to impairing certain coal cleaning assets. We recognized a charge to reflect that we have several idled facilities, and a number of plants operating at processing levels well below their capacity.

The net book value of the coal processing plants after the impairment is roughly $45 million. Sale of the coal cleaning portfolio continues to progress; however, we can't be certain when the sales process will be completed or the ultimate cash proceeds from the sales effort.

We reached a milestone, as Kirk had mentioned, related to the Boynton litigation, when the court upheld the jury verdicts. We recognized a $15 million charge in the quarter to bring our legal reserves up to the amount of the final judgment. And we posted a bond for $16 million in order to preserve our rights to appeal the judgment.

Adjusted EBITDA for the second quarter was $4 million, down from $13 million in 2010. We're going to give color regarding the Q2 performance as we progress through the presentations. Our liquidity remains strong with $51 million of cash in the bank and $50 million of availability under the ABL Revolver at the end of the quarter.

Let's look at Slide 4. Slide 4 reflects year-to-date earnings. The year-to-date results were significantly impacted by the Q2 results including the nonroutine items. As you recall, the Q1 results were favorable to the prior year, with revenue up 11% and adjusted EBITDA up 23% over the prior year.

On a year-to-date basis, revenue for the first 6 months of 2011 of $282 million exceeds the prior year by 5%, but adjusted EBITDA of $22 million again, this is for the 6 months ended, adjusted EBITDA of $22 million is 19% below EBITDA for the first 6 months of 2010.

Let's move to Slide 5 for a closer look at the second quarter results. Revenue for the quarter ended March 31 was $127 million, which is consistent with the prior year. Adjusted EBITDA was $4 million in the quarter, which is down $9 million from the same period last year.

I draw your attention to the bridge in the lower right corner of Slide 5. This bridge highlights some key drivers on the year-over-year decrease. Increases in Light Building Products costs were responsible for roughly $3.5 million of the EBITDA decline.

Heavy Construction Materials revenue and bad debt drove roughly $2 million of the decline. And finally, the 2010 Energy segment results included $2.5 million of nonrecurring income.

Murphy and Bill will talk more about these dynamics in their presentations.

Let's move to Slide 6. In March, we completed the refinancing of our $328 million of outstanding 11 3/8% senior secured notes. The notes were originally scheduled to mature in 2014, along with approximately $150 million of subordinated debt, bringing total 2014 previously scheduled maturities to nearly $500 million.

As a result of the refinancing, we were able to push $328 million of those scheduled maturities out to 2019 significantly reducing our refinancing risk profile. We were also able to reduce coupon rates on the senior secured notes from 11.375% to 7.625%, a rate near historic lows.

As a result of the refinancing, our annual free cash flows will increase approximately $7 million, and our annual interest expense will decrease approximately $8 million. The refinancing also enables us to be opportunistic about retiring our outstanding subordinated debt. Of course, subject to cash availability.

Let's go to Slide 7. Slide 7 shows net debt to adjusted EBITDA. Our net debt to adjusted EBITDA was 5.5:1 at the end of the current quarter, which is consistent with the ratio as of March 31, 2010, but higher than the ratio at the end of the last fiscal year. The increase from last September reflects the increase in debt with the recent refinancing, the seasonal decline in cash balances, as well as the decline in LTM adjusted EBITDA, which I've just mentioned.

Net debt to adjusted EBITDA will change throughout the fiscal year, largely due to changes in our cash balances, which is reflective of our seasonal working capital pattern, as well as the changes in LTM EBITDA.

Starting on Slide 8, Murphy will cover Light Building Products.

Murphy Lents

Thanks, Don. Good morning, everybody. Starting on Slide 8, revenues from our Light Building Products segment in the March 2011 quarter were $62.7 million, an increase of $1.4 million compared to the March 2010 quarter. Year-to-date, the Light Building Products revenue of $132.4 million is flat to the March 2010 year-to-date revenue. The increase in revenue for the quarter was primarily a result of increased sales from manufactured architectural stone and regional concrete block category, where sales increased $2.5 million in the quarter, compared to the prior year, partially offset by a $1.1 million decrease in our siding accessories category.

Revenue for the Light Building Products segment included a $1.2 million increase in our regional concrete block category in the 2000 -- March 2011 quarter compared to the March 2010 quarter.

This was the second consecutive quarterly increase in 8 quarters for this product category, pointing to a stabilization of the Texas market. We're excited about our opportunities in the concrete block category as the Texas market returns to the cycle of growth, and we benefit from new business with the big box stores and our new retail location for brick and stone veneer sales.

In addition, our vinyl siding tool category, which tends to be a leading indicator for remodeling, was up 4% year-to-date over the March 2010 year-to-date revenues. On material, production and transportation costs related to oil prices had a negative impact on adjusted EBITDA of about $2.1 million.

Miscellaneous SG&A made up the difference in the total decline of $3.6 million. Costs on our primary resin material increased in the March 2011 quarter, but we've been successful in mitigating some of this upward pressure through the use of alternative suppliers and recycled materials. We'll continue to pursue cost reductions in all of our input through improved sourcing and alternative materials.

We've implemented an upper price adjustment for our resin-based products, which will capture the raw material price increases. And our price increase is being accepted in the marketplace. The price increase will be effective for part of our third quarter and all of the fourth quarter.

Looking at Slide 9. Over the last several years, continuous improvement has become an important part of our culture. During the quarter, we executed restructuring activities that will result in very positive returns.

We eliminated duplicate administrative functions and moved towards consolidation of several locations. The total cost reflected in our income statement was $6.2 million but the cash cost is only $1.6 million. Benefits from the restructuring totaled $5 million in operating income with a positive cash savings of $4.3 million. The savings relates primarily to salaries, transportation, costs and rent.

Slide 10 graphically shows the change in revenue in EBITDA for the quarter year-over-year.

I would now like to turn the time over to Bill Gehrmann.

William Gehrmann

Thanks, Murphy. Good morning, everyone.

Starting on Slide 11. Revenue for the March 2011 quarter in our Coal Combustion Products business was $45.1 million compared to $47.3 million for the March 2010 quarter. Headwaters' planned services provide site services to many of its utility clients. These services include constructing and managing landfill operations, operating and maintaining material handling systems and equipment maintenance. While these services typically have lower operating margins than our product sales, they are not as seasonal and are not as impacted by declines in construction spending.

Site service revenues for the March quarter were down $2.3 million on a year-over-year basis, accounting for the entire decline in revenue for the quarter. The decline was primarily due to the completion of the work being done to install material handling systems at Macquarie State generating station in anticipation of commercial start-up later in the year.

Also, a client where we provided site services has declared bankruptcy and idled its plans. We anticipate that Prairie Site [ph] will begin commercial operation in the December 2011 quarter, and we will begin providing long-term site services so the decline in the March quarter is temporary.

Site service revenue was 31% of our overall revenue for the quarter. In February, we announced that Headwater's planned services signed a long-term contract to manage coal ash produced at Dominion’s Virginia City Hybrid Energy Center.

We now anticipate that we will begin providing site services in the December 2011 quarter, as the Virginia City plant begins commercial operation. The plant will use coal and up to 20% biomass to produce approximately 2 million tons of coal ash annually.

Overall, product revenues for the quarter were up slightly year-over-year. However, product revenues continue to be impacted by lower cement consumption in the 3 largest cement consuming regions of the United States with the largest weaknesses coming from California, Arizona and the Nevada market.

Gross profit for the March quarter was $7.6 million compared to $8.9 million for the March 2010 quarter. The year-over-year drop in gross profit was driven by the impact of abnormal winter weather experienced and a loss of service revenue. This weather impacted business in our higher margin product revenue markets including the Gulf Coast.

Adjusted EBITDA for the March 2011 quarter was $3.9 million compared to $5.9 million for the March 2010 quarter. Again, due to the decline in revenue and the site services client bankruptcy.

Moving to Slide 13. Development of proposals by the U.S. Environmental Protection Agency to regulate coal ash disposal continues at a slow pace. More than 450,000 public comments on the proposals were submitted to the EPA during 2010. A significant portion of those comments, including comments from other federal agencies, opposed the subtitle because the implied hazardous waste designation under that subtitle could create barriers to beneficial use.

EPA has since stated the agency needs time to consider those comments and does not anticipate proposing a final rule before 2012 at the earliest and more likely in early 2013. The agency has also indicated that it may request additional comments on information received during the previous public comment period.

Members of Congress have expressed interest in resolving the Subtitle C controversy through legislation. Two bills filed in the U.S. House of Representatives during April, HR 1391 and HR 1405, would allow EPA rule-making activities to continue but prohibit the use of Subtitle C in those proceedings.

HR 1391 has attracted 33 bipartisan co-sponsors and has already been the subject of a subcommittee hearing.

Moving to Slide 14. I will now update you on our Coal Cleaning Business. March 2011 quarter revenues were $12.1 million and were essentially flat year-over-year. Total sales revenues would have been $2.8 million higher in the March 2011 quarter, except for a change in the approach of reporting revenue beginning in the current quarter for one facility.

Headwaters has determined that it would be more appropriate to show revenue from the Pinnacle facility net of certain revenue sharing cost rather than reflecting the revenue growth and reporting the revenue sharing cost separately.

The average revenue per ton for the non-saline coal sold in the March quarter was $34, an increase of $1 per ton year-over-year. Headwaters sold 349,000 tons of coal in the March 2011 quarter compared to 340,000 tons in the March 2010 quarter. Adjusted EBITDA was a loss of $767,000 compared to a breakdown – a breakeven adjusted EBITDA for the March 2010 quarter.

The primary change in adjusted EBITDA was because of a property tax adjustment. During the March 2011 quarter, Headwaters recorded asset impairments of $37 million in the Energy Technology segment as Don previously discussed.

We issued a press release on May 2 discussing the impairments. As we have discussed before, we continue to focus our sales efforts on the metallurgical coal market, all of the plants that have access to reserves that meet metallurgical coal specifications.

We also continue to lower our ash content in order to improve quality and increase value. During the quarter, we idled Alabama 5 due to low production rates and began operating Alabama 7, a plant which has been idle since 2009.

Production rates at Alabama 7 continue to increase. Work began in March on a project that should give us more flexibility and allow us to continue to increase production at Alabama 7. That project should be completed this month.

The overburden removal project at our Pinnacle plant should now be completed by the end of the June quarter. Completion of that project will allow us to expand our production capabilities, allowing for more volume to be sold into the metallurgical coal market.

We could see increases in monthly production in June and the September quarters from that project. We continue to work closely with our site host to increase the value of our metallurgical coal product by blending it with the coals being produced by them.

On the Steam Coal side of the business, we continue to reduce our cost structure. We are matching production to sales in order to manage inventory. We continue to look for opportunities to introduce new utility customers to our refined coal so that we are positioned when the market for steam coal rebounds.

During the quarter, we signed a sales agreement in [indiscernible] that provides us sales for our base loaded production rates there. Section 45 tax credits continue to be a focus of our steam coal operation. While the domestic steam coal market remains soft, we anticipate that the continued acceptance of our refined coal in the thermal markets will create additional sales opportunities.

Our increased focus on the metallurgical coal market and our efforts to improve quality and blend with other high-quality metallurgical coal will continue to increase the acceptance and value of our met products.

We are committed to selling our coal cleaning assets and focusing on Light and Heavy Construction Materials.

During the quarter, we have shown the facilities to multiple parties. Some are interested in one or 2 facilities and we have had discussions with multiples parties that have expressed interest in the entire 11-plant portfolio.

We anticipate selling the facilities in due course and using the proceeds from the sale to pay down debt.

Now, I'll turn it over to Kirk Benson.

Kirk Benson

Thanks, Bill. On Slide 17 are some highlights from our Energy segment outside of coal cleaning.

First, we reported revenue flat year-over-year, but after adjusting for the Seoul, South Korean venture and RINS credits, revenue was up 25%. HCAT revenue increased from $0 to $4.5 million year-over-year.

We have generated revenue from 2 refineries with Neste focused on continued long-term use of HCAT. We've all submitted 2 commercial proposals to additional refineries. And we anticipate an increase in coal cleaning revenue and stable HCAT revenue while we get additional long-term customers.

Finally, our outlook is on Slide 18. We reaffirm our 2011 guidance for EBITDA in the range of $85 million to $100 million. Sales appear to have stabilized but 70% to 75% of our EBITDA is in the second half of the year. So the next 6 months will be determinative relative to achieving our guidance.

We expect benefits from our recent price increase in siding accessories and from our restructuring cost reductions. We are looking for additional continuous improvement opportunities. We will continue to monitor the performance of our business closely and provide guidance updates as appropriate.

So thank you very much for your participation in the call, and I would now like to turn the time over to the operator for the question-and-answer period.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of John Quealy with Canaccord Genuity.

John Quealy - Canaccord Genuity

Quickly on the EBITDA guidance. Obviously, demand is going to determine the range, I guess, Kirk, is what you just said the next 6 months, how it shakes out. On the cost side of things, can you talk about -- we've had a pretty high increase or big increase in polypropylene in the past several months. Can you talk about what sort of costs you're covered to with the new price increase in Light Building Products?

Kirk Benson

I think that the -- what we would anticipate depending on, of course, what happened with polypropylene prices, is that the cost increases are going to be in the range of say $3.5 million to $5.5 million depending on what happens. And we think that our price increase should be adequate to cover that range of costs.

John Quealy - Canaccord Genuity

And then secondly, on the math. The restructuring charges I think it was about $5 million, again in light duty. Given that we're halfway in the year, is that going to be $2.5 million of benefit this year from a run rate perspective or do we need to wait to get into fiscal ’12 to start seeing the OpEx benefits?

Kirk Benson

Don, yes, share a little bit.

Donald Newman

Okay. Let me give you a sense as to how this would stage for the second half of this year and for 2012. As mentioned, the restructuring activities should benefit us about $5 million from an earnings standpoint, and in excess of $4 million from a cash standpoint. For the second of this year, what I would expect is that we would see about $1 million, excuse me, about $1.6 million largely of cash-related benefit. When you look at how that stages for 2012, I would expect first half 2012 to be a bit between $1.6 million, $2 million of overall benefit. And then we should be seeing the full benefit of that $5 million pace for the second half of 2012. So $1.6 million second half of this year and reaching the $2.5 million half year pace by the second half of 2012.

John Quealy - Canaccord Genuity

Okay. And then my last question, Kirk, on monetization of coal cleaning, you laid out some good details for us, but can you talk about your expectations? Obviously, there's time value of money here and what you want to do with that capital. Can you talk about what you're thinking in terms of when to sell those assets and at what price?

Kirk Benson

Yes. We're clearly focused on getting these assets sold. And as we've indicated, it depends a little bit upon whether you have a strategic buyer that will purchase 1 or 2 of the facilities or whether you can find someone who will purchase the entire portfolio. We've identified a couple of prospective purchasers that are interested in the entire portfolio. And frankly, it facilitates the sale of the assets, if we can conclude a single transaction rather than multiple transactions. And so we've been a little bit biased towards a single transaction. The result of that is that it's taking a little bit longer because we've got folks that are interested in one or 2 type facilities, but it would certainly make it a lot easier if we could have a single transaction. From a value perspective, we haven't -- our book value before this current impairment was in the $80 million to $90 million range. And I think we're still pretty comfortable that the value is in that range or higher than that range. Of course, we don't have a deal done yet and so we don't know for sure. We do think that the impairment was basically to comply with generally accepted accounting principles, and we feel real comfortable with what we've done from that perspective. But the value of the facilities continue to be at least in the range of the net book value prior to this current impairment. So we'll see if we can get it done. From a timing perspective, we would like to move forward as quickly as we can so that we can focus all of our efforts in the light and heavy construction material.

Operator

And our next question comes from the line of Kevin Lee with Wedbush Securities.

Kevin Lee

Just one housekeeping question. In terms of the cash flow in the quarter, could you guys provide the cash flow from ops, financing and investing? Breakdown?

Kirk Benson

Well, one thing we're going to do is we're going to get the 10-Q filed today. So let's just wait until that Q gets out to you because we're going to file it sometime like mid-day today. So you'll have the Q in your hands.

Kevin Lee

Sure. And lastly, just for either Kirk or Bill, obviously we've seen some municipalities award contracts to companies who expand landfill capacity for coal ash or disposal of coal ash or coal combustion products. Should we read anything into that in terms of implications as to which way the EPA could potentially be ruling down the road when it comes to fly ash?

Kirk Benson

No. I think that the EPA is absolutely focused on a set of rules that will sustain the beneficial use of fly ash. EPA understands that the highest and best use of this material is to get it beneficially placed. And so I think that the direction of the EPA is going to be to support this Recycling business. And so it's going to take them a fair amount of time to get through the 450,000 comments. So unless there is a legislative change or unless there's a change in the administration's desire to get a rule in place earlier than, say, late 2012 or early 2013, it's most likely that nothing is going to happen. So I think the direction is generally going to be to support beneficial use of fly ash. But it's going to be -- it's going to take some time for them to get a rule put in place.

Kevin Lee

All right.

Operator

And our next question comes from the line of Dan Mannes with Avondale Partners.

Daniel Mannes - Avondale Partners, LLC

A couple of follow-up questions. First, primarily, on the Heavy Construction Materials, can you give us an indication of how meaningful the bankruptcy was? And the reason I ask is it sounds like there’s a service contract, which theoretically are lower margin. And two, my understanding is it's a fairly small plant. So I'm kind of surprised that it's that big an impact in the total. So can you give us a little color around that?

Kirk Benson

Sure. It had an impact on us from 2 different perspectives: one is that -- impacted revenue; and then the second impact was that we had receivable in -- on our balance sheet. And we reserve to get that receivable because of the uncertainty arising out of bankruptcy. So it -- of the approximately $2 million decline in adjusted EBITDA for the Heavy Construction Materials, you had those 2 elements combined to make up a fairly significant portion of the decline, approximately a $1 million decline in revenue and about $400,000 of write-off. Bill, why don't you -- you want to add some additional color?

William Gehrmann

Yes. I think, Dan, as you mentioned, it is a smaller plant but the issue is, it’s all the by-product is removed by rail from that site. Hence, you got a pretty good transportation piece in there and site work, off-site, so even though the plant itself is small, it is, for a long time, been a fairly significant site service opportunity for us.

Daniel Mannes - Avondale Partners, LLC

Is there a risk that given the current profitability and the bankruptcy, will that reduce the profitability of this specific plant even when it restarts or do you not view that as an issue once the plant restarts?

William Gehrmann

At this point, we haven't looked at it. It's such [ph], obviously, for that plant to come back online, we're the primary service provider for that plant to operate. And our discussions up to this point, that really hasn't been a topic of conversation, Dan.

Daniel Mannes - Avondale Partners, LLC

Okay. And then secondly, also on the service side, so with the step-down on, I think you said Pleasant Prairie and the start of the Dominion, Virginia later this year, I guess I'm just trying to understand on the service side, are any of these truly short term contracts or are they really just sort of bridges to a longer term service agreement? I'm just trying to understand if – we’re just in a little bit of a gap between the start-up or if this is indicative of a little bit of a different business then you've been in before?

William Gehrmann

Well, in both of those -- starting with Prairie Sites [ph] both are greenfield plants. So there was a lot of infrastructure at Prairie Sites [ph] that was required prior to start-up. Obviously, they wanted to make sure all that equipment was put in place long before they want to introduce fire into the boiler. So that's what you're looking there. So we expected this. It's no surprise. They're continuing to finish the plant itself. But, yes, once that plant goes into commercial operation, that is a long-term site services contract for us. Not -- in the reason -- because of the delay that you're seeing, most of the material there is going to be moved from the plant site to the landfill by rail. And hence, all the additional infrastructure that had to be placed on that site. The Dominion once again is another greenfield opportunity for us. Not near the site infrastructure required for us to provide site services. That once again as we announced in the press release earlier this year is a long-term opportunity for us. But once that comes on, you won't see a gap or a break like we've experienced at Prairie Site [ph].

Daniel Mannes - Avondale Partners, LLC

So is it fair to say on your service agreements that the majority of them are long-term in nature? Or do you have any sort of shorter-term just construction only-type arrangement?

William Gehrmann

Most of the thing -- we are through Headwaters plant services actively taking a look at opportunities to just move in and put infrastructure in, potentially build new landfills. But most of our work is going to be of a longer term nature like you've seen in the past.

Daniel Mannes - Avondale Partners, LLC

Okay. And then briefly on the ash marketing side, it looked like overall cement shipments in the quarter were actually up nicely year-over-year or at least through January and February, particularly given it looked like the weather was a lot worse last year than this year. I guess, I was a little bit surprised we didn't see more of an uptick in your ash marketing. Is there anything going on in your specific markets or competitively we should be aware of?

William Gehrmann

No. Not anything out of the usual, Dan. Obviously, this is a slow quarter for the industry from a seasonality perspective. And just the abundance of snow in the Northeast and the Upper Midwest obviously impacted. And the major impact was probably down into Texas. The snow we had as deep as Houston and the rain just impacted the numbers. But in markets where we have 2 or 3 other competitors obviously, a slide for market share is always going to take place. But in a lot of the markets we've had opportunities to raise prices, some have been significant increases. So we continue to look for those opportunities to increase prices.

Daniel Mannes - Avondale Partners, LLC

Got it. And then the last thing. This is for Kirk on HCAT. It looked like a pretty nice revenue increase. Can you give us some indication of how much of that relates to the ongoing contract versus the new? And what's a reasonable run rate given the interest levels you're seeing? I mean, can we sustain at this level? Can it even move higher in the near-term? Understanding in the long-term, you expect a lot more out of the business.

Kirk Benson

I think in the near term, as we get the -- the revenues from the Neste agreement will be stable. And so the run rate is probably closer to a -- probably in the range of $3 million per quarter would be a reasonable run rate from the Neste contract. It could be a little bit higher than that but that $3 million is probably a pretty good run rate estimate.

Daniel Mannes - Avondale Partners, LLC

$3 million?

Kirk Benson

Yes. Until the difference related to the second refinery. The second refinery needs to go through an evaluation process before that becomes a stable part of the revenue growth.

Daniel Mannes - Avondale Partners, LLC

Got it.

Operator

Our next question comes from the line of Ed McCabe with Queen Value Partners [ph].

Edward McCabe - Clean Value Partners

A couple of questions. Kirk, in your opening remarks you mentioned placing the bond with bank regarding Boynton would free you up to be somewhat more aggressive in terms of cash management. Can you be more specific about what you mean by that?

Kirk Benson

One of the reasons -- I don't think we need to have $50 million on our balance sheet to manage the company. I think we can manage the company with a lower cash balance. Particularly, if we have the availability of the ABL. One of the reasons that we've been conservative or reluctant to buy back more debt is because we wanted to wait until the Boynton litigation matter had reached a final judgment. But now that it's reached final judgment, one of the things that we'll be able to do is to look at our cash balance to make a determination as to whether or not we have some additional cash that we'll be able to use to pay down more debt. We're in the process of doing that now.

Edward McCabe - Clean Value Partners

Okay. And then just a little more color on the coal cleaning asset. Really, when I looked at the press release from May 2, you talked about and you mentioned on this call, you have interest in strategic buyers looking to buy onesies twosies on this. And then you've got a couple of people looking to buy the whole portfolio. And then in that press release, and you kind of confirmed it today, you talked about $100 million of value or better. That $100 million, is that something that you've estimated based on indications of interest from potential buyers?

Kirk Benson

Yes.

Edward McCabe - Clean Value Partners

And is that number based on aggregating the type of people who would buy them on a onesie twosie basis? Or is that the type of indication, I mean, just from 1 or 2 players that would buy the whole portfolio?

Kirk Benson

The latter.

Edward McCabe - Clean Value Partners

The latter. So I mean, if we're at a point where you have 1 or 2 who have indicated interest around $100 million and then I'm sure there's some conservatism built into this because these processes have their own kind of windy paths, but when you talk about 18 to 24 months being how long it could take, is there something other than conservatism that would push the transaction that far out if you ended up doing it with one of these large buyers?

Kirk Benson

No. We were just trying to – the 18 to 24 months was an attempt to be conservative.

Edward McCabe - Clean Value Partners

Okay. And then the only other thing I'd mention, is I know Don bought some stock recently. But with the stock here, I assume that -- I won't ask if you're going to buy, but should I assume that management believes their stock is undervalued at this point?

Kirk Benson

Yes.

Edward McCabe - Clean Value Partners

Okay.

Operator

And our next question comes from the line of Dan Orr with BAM.

Daniel Orr

Quick question on the Coal Cleaning business. Can you help me understand within your EBITDA guidance what percentage of the EBITDA would come from these assets that you're looking to sell?

Kirk Benson

If you think there's -- in the press release, we break down LTM EBITDA by segment. So the information is there. I think that the one thing that is included in our adjusted EBITDA are credits. And there's about -- we're in the range of $5 million to $7 million of credit generation in these -- from these facilities. And so that's included in the adjusted EBITDA and in the guidance.

Daniel Orr

Okay. Would you sell the credits along with the assets?

Kirk Benson

The way that the transactions are -- we really have 2 sets of facilities. One set of facilities produce a metallurgical coal. And these credits, you don't generate any credit from met coal. So the sale of the met coal facilities would be rather straightforward. The sale of the steam coal facilities, however, we're looking at structures where we could retain the credit after a transaction. And so the likelihood is that on the steam side, we would maintain those credits going forward.

Daniel Orr

Okay. And in your press release, you don't break -- I see the Energy Technology segment. Would all the EBITDA be coming from the Coal Cleaning business? Or do the other Energy businesses contribute a portion of that?

Kirk Benson

There was a portion contributed to the other Energy businesses.

Daniel Orr

Could you quantify that to some extent?

Kirk Benson

It's probably in the range of -- as I said, there's like $5 million to $7 million in credits. And so there's probably in the range of $1 million to $2 million that comes from the other energy activities. So it's probably -- it's the bulk of the other $3 million actually comes from the other energy activity.

Daniel Orr

Got you. And then with assuming that $100 million’s the base case for the sales, call that a 10x to 12x multiple based on how you want to look at it. Do potential buyers, are these more the types that own the coal assets that doesn't want to buy the assets? Are they more private equity? What type of buyer would it make sense to pay that great of a multiple for you guys?

Kirk Benson

There's 2 characteristics of a buyer that are important. One is that they've got access to waste coal feedstock. And so if that was kind of what your question was, that is exactly right. You need to have access to waste coal. And then the other characteristic is you've got to be able to sell the refined coal either into the net market or into the steam market. So those are 2 characteristics that we are quite interested in and a prospective buyer would need to be able to do both of those things. So one of the reasons that it appears -- it may appear to be a higher multiple but there's 2 things going on, one is the generation of credit. And so that's an important aspect that is in addition to a normally defined EBITDA. Then the other aspect is that, we're not running these facilities at capacity yet. And so as we look for a buyer, one of the things that will be important will be this relationship with the waste coal feedstock material. And that feedstock material are providing us with the opportunity to increase the utilization of the facility. The contribution margin on these facilities is probably in the 65% range. It’s a very high contribution margin. So as you start to increase the capacity and the throughput in these facilities, it has a tremendous impact on EBITDA. And so looking at the historical EBITDA figure, you’ve got to look at it in -- with the perspective of how these facilities will be operated going forward.

Daniel Orr

Okay, great. That's perfect.

Operator

And our next question comes from the line of Dan Mannes with Avondale Partners.

Daniel Mannes - Avondale Partners, LLC

Just a quick follow-up on the coal cleaning sale because you actually brought up an issue I hadn't thought about. So on the steam coal facilities, if you're going to sell them to keep the tax credits, are you assuming the $100 million of proceeds is just for the asset or is that also the PV of the credits? Because you're only producing, I don't know, $1.7 million in the quarter, not to mention, you currently don't have any tax appetite. So I'm trying to understand the structure of the sale and how keeping the tax credits is net beneficial?

Kirk Benson

Well, one of the things that, as I said, the approach to the net facilities will probably be different than the approach to the steam facilities. I think it's probably worthwhile to clarify one issue related to the sale of these assets and that is we do not anticipate receiving $100 million in cash for the sale of these facilities. I want to make sure that it's really clear to everybody that the cash proceeds are going to be much less than $100 million. What makes up a lot of the value is the retention of these credits. And so in this valuation that we're talking about, retention of those credits is an important element in the valuation. And so from a cash perspective, it facilitates someone purchasing these assets because a lot of the consideration that we will receive will be in the form of credit retention.

Daniel Mannes - Avondale Partners, LLC

Would you actually be retaining the credits or would it be similar to the old 29 sales where you'd be getting a cash flow stream that's tax -- that's actually taxable rather than the credit itself?

Kirk Benson

The way we're contemplating this current structure is that we would be the monetizer of these credits. And so we would be using the credit to offset our tax liability.

Daniel Mannes - Avondale Partners, LLC

Okay. Let's follow up on this offline because, I guess, I'm still a little confused.

Kirk Benson

Okay.

Operator

And there are no further questions at this time. I'll now turn it back to Headwaters for closing comments.

Tricia Ross

Thank you for joining our call today. Again, we'd like to apologize for the confusion regarding our Slide deck. We will have them uploaded to our website very shortly. Thank you.

Operator

Ladies and gentlemen, that does conclude today's conference. If you’d like to listen to a replay of today's conference, you can dial 1 (800) 406-7325. For international participants, you can dial 1 (303) 590-3030 and enter the access code 4438031 followed by the pound key. And that replay will be available until May 16, 2011. Thank you for your participation. You may now disconnect.

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