Clean Harbors, Inc. Q1 2008 Earnings Call Transcript

May.16.08 | About: Clean Harbors, (CLH)

Clean Harbors, Inc. (CLHB) Q1 2008 Earnings Call Transcript May 7, 2008 9:00 AM ET

Executives

Bill Geary – EVP and General Counsel

Alan McKim – Chairman, President and CEO

Jim Rutledge – EVP and CFO

Analysts

Ted Kundtz – Needham & Co.

Larry Solow – CJS Securities

Rich Wesolowski – Sidoti & Co.

David Feinberg – Goldman Sachs

Jonathan Ellis – Merrill Lynch

Jamie Sullivan – RBC Capital Markets

Operator

Good morning and welcome to Clean Harbors first quarter 2008 conference call. Today's call is being recorded. There will be an opportunity for questions and comments after the prepared remarks. (Operator instructions) At this time, for opening remarks and introductions, I'd like to turn the call over to Mr. Bill Geary, Executive Vice President and General Counsel of Clean Harbors. Please go ahead, sir.

Bill Geary

Thank you, Operator, and good morning, everyone. Thank you for joining us this morning.

On the call with me today are Chairman and Chief Executive Officer, Alan S. McKim, and Executive Vice President and Chief Financial Officer, Jim Rutledge.

Before we get started, I would like to remind everyone that matters we are discussing this morning and the information contained in the press release issued by the company today announcing our first quarter 2008 financial results that are not historical facts are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements including predictions, estimates, expectations, and other forward-looking statements generally identifiable by the use of the words believes, hopes, expects, anticipates, plans to, estimates, projects, or similar expressions, are subject to risks and uncertainties that could cause actual results to differ materially.

Accordingly, participants in today's call are cautioned not to place undue reliance on these forward-looking statements which reflect management's opinions only as of this date, May 7, 2008. Information on the potential factors in detailed risk that could affect the company's actual results of operations is included in the filings with the SEC, including but not limited to our Form 10-K for the year ended December 31, 2007, which was filed with the SEC on March 11, and our Form S-3, which was filed April 17, 2008.

The company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in our first quarter press release or this morning's conference call other than through the filings that will be made with the SEC concerning this reporting period. In addition, I would like to remind you that today's discussion will include references to the acronym EBITDA, which is earnings before interest, taxes, depreciation and amortization. EBITDA is a non-GAAP financial measure and is intended to serve as a complement to results provided in accordance with accounting principles generally accepted in the United States.

Clean Harbors believes that such information provides an additional measurement and consistent historical comparison of the company's performance. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in Clean Harbors first quarter news release. A copy of this release can be found on our Web site, cleanharbors.com. A copy has also been furnished as an 8-K with the Securities and Exchange Commission.

And now I'd like to turn the call over to Alan McKim for our quarterly review. Alan?

Alan McKim

Thanks, Bill, and good morning, everyone. Clean Harbors achieved another period of solid results in the first quarter. Our performance was driven by strong contributions across the entire company. Tech Service had a great quarter. Incineration rates remained high. Landfill volumes grew substantially in what is oftentimes a seasonally weak period. Site Services had another excellent quarter. All of our geographic regions came in above plan. We saw strength within many of our vertical markets in the quarter, particularly chemicals, pharmaceuticals, and refineries. Overall, the team did a good job managing costs during a typical slow period for us.

In looking at our performance, I think the most telling statistic from this quarter is the fact that once again we recorded EBITDA growth that far outpaced our revenue growth. That speaks directly to the leverage that exists in our business model to our extensive network of disposal assets. You'd likely heard me reference in prior calls the economies of scale available to us, and this quarter's performance validates that concept.

We grew revenues by 18% to $242.5 million, while increasing our EBITDA by 50% to a first quarter record of $33.1 million. Our EBITDA performance is even more impressive when you take into account the numerous cost pressures that our business is facing. Like most companies, we're encountering considerable increases in fuel costs, healthcare expenses, and prices for chemicals and other raw materials we require. We have instituted a broad array of cost control initiatives which has succeeded in driving down significant costs within our operations.

Advances in our procurement and other strategies are also helping to incrementally improve our margins. We held the line on our outside transportation costs which reflect as a percentage of revenue. We continue to be extremely proactive during the quarter with our fuel surcharge program in an effort to recover increases in fuel costs. Also, as I mentioned in our year-end call, we notified our customers that we were implementing a price hike averaging about 4.5% effective April 1 in order to help mitigate the overall rise of our operating expenses. While it's still early, our initial assessment is that the price hike is sticking. We should see the effect beginning in Q2, and more fully in Q3.

Turning to our business segments, as I mentioned, Tech Services recorded another excellent quarter. Utilization of our incinerators was 92.8% in the U.S. We achieved utilization of 94.3% despite an extended period of down days at our Deer Park location. In Canada, we rebounded from several quarters of softness to record utilization of 89%. These higher utilization levels are extremely beneficial to the company, as they enable us to improve our revenue mix at these facilities and maximize efficiencies.

Within our Landfill business, we benefited from favorable weather and a strong influx of project business. As we highlighted in this morning's press release, our U.S. landfills did not experience the typical first quarter seasonality. We saw volumes increase approximately 40% from the same period in 2007, with the bulk of that growth coming from these U.S. locations.

During the quarter we also made measurable progress on our plan to add 50,000 tons of incineration capacity to our network over the next 18 months. We added the first 7,000 tons of new capacity in Q1. The next stage of expansion will be over the course of the second and third quarters, when we anticipate adding 14,000 more tons. Of that total, close to 4,000 tons is on track to be added to our Kimball facility in the very near term. The remaining 29,000 tons should come online sometime between year end and mid-2009, depending on the permitting process and construction schedules.

Another area of expansion within Tech Services is solvent recovery, which we continue to view as a promising business line for us. We kicked off our efforts in this marketplace when we announced the construction of a solvent recovery plant at our El Dorado, Arkansas facility. We followed this up with the acquisition of two solvent recovery facilities from Safety-Kleen in February. We have been extremely pleased with our initial experience with these two plants, which are strategically located in Chicago and Hebron, Ohio.

At our El Dorado plant, we recently completed the first phase of construction. Equally important, we recently were awarded our first base account for this new plant. We are hopeful that this contract award is indicative of the types of opportunities we see for Clean Harbors in this market going forward.

Looking at our Site Service segment, we continue to execute on our two-prong strategy of opening up branch locations in strategically important markets and supplementing that organic growth with select acquisitions. In Q1, we followed through on both areas of that strategy. In support of our annual goal of opening up 5 to 6 new site service locations, we opened a branch in Milwaukee, and we're excited about promoting the Clean Harbors brand in that market. Towards quarter end we also announced the acquisition of Universal Environmental, which provided us with a team of nearly 100 seasoned service employees in two mature service branches that were located in California and Nevada.

The Universal transaction greatly enhanced our Site Service presence in the west and is an ideal complement to our Tech Service accounts in that region. And, lastly, I should note that our Site Service results in Q1 did not involve any significant emergency response events. Looking ahead, we're enthusiastic about our prospects in 2008 and the opportunities available for Clean Harbors in our target markets. Our growth strategy has proven successful and we continue to set the pace in our industry.

Our recent public offering generated approximately $173 million in proceeds, and today we have more than $250 million in cash and cash equivalents on our balance sheet. This capital affords us considerable financial flexibility to pursue potential acquisitions, aggressively invest in our business, and reduce our debt. While Jim and I were out on the road for the road show, the first question we were typically asked was, what are you buying next? While we're not prepared to answer that today, I can say that the acquisition pipeline is very good. We see potential opportunities in a number of areas both in Tech Services and Site Services arenas.

There is a diverse mix of healthy businesses as well as some distress assets on our radar screen. We're in the process of carefully evaluating candidates, but we are going to be very selective as in the past. We'll keep you posted on our acquisition activities in the quarters ahead.

Let me just conclude my comments by reiterating that we are very pleased with our Q1 results. It was a great way to start the year. It puts us one step closer to our stated goal of $1 billion in revenue, which is a substantial milestone for our entire organization. In particular, it's a significant goal for our approximately 5,000 employees, many who have been with us for a long time and weathered some extremely turbulent times in the mid-'90s. Their valuable contribution helped us through the challenging period.

Today we're embracing our leadership position in our industry. We're excited about the remainder of the year and the long-term outlook for Clean Harbors.

I'll now turn the call over to Jim, so he can walk you through the financials in more detail, and provide our outlook for the second quarter and the year. Jim?

Jim Rutledge

Thank you, Alan, and good morning, everyone. As Alan mentioned, Clean Harbors completed another excellent performance this quarter generating record Q1 revenue of $242.5 million. This is an increase of 18% from the $205 million in the year-ago quarter. On the strength of our sales, gross profit for the quarter grew to $72.3 million, translating into a gross margin of 30%. This compares with a gross profit of $53.4 million and a margin of 26% in the year-ago quarter.

Selling, general and administrative expenses were $39.2 million, or 16.2% of revenue in Q1 2008. This compares with $31.4 million, or 15.3% of revenue in Q1 '07. The higher level of SG&A during the quarter is due to increased headcount and related labor costs to support our business growth, and higher incentive compensation costs. Accretion of environmental liabilities was $2.7 million in the quarter, compared with $2.5 million in Q1 2007.

Depreciation and amortization expense of $10.5 million in Q1 of 2008 is up over last year's figure of $8.9 million, mainly due to acquisition-related additions and increased landfill amortization associated with our growth in that part of the business.

Q1 '08 operating income was $20 million, up 88% from the $10.7 million we reported in the first quarter last year. Again, this was driven by our revenue growth along with a good mix of higher margin business in the quarter.

We exceeded our latest EBITDA guidance for the quarter with Q1 '08 EBITDA coming in at approximately $33.1 million, or 13.6% of revenue. This compares with $22.1 million for 10.8% of revenue in Q1 of 2007. Again, as Alan highlighted, our expanded growth this quarter enabled us to leverage our network of assets and drive greater profitability.

Net interest expense in Q1 was $3.4 million, which was slightly higher than last year's figure of $3.2 million, mainly reflecting less capitalized interest recorded this quarter. Our provision for income taxes was $7.6 million, compared to $4 million in Q1 '07. Our effective tax rate for Q1 was 46%. FIN 48 expense during the quarter was $1.6 million. For the full year of 2008, we projected our tax rate will be approximately 43%, which includes FIN 48 related tax expense.

Net income available to common shareholders grew substantially to $8.9 million, or $0.43 per diluted share based on 20.9 million average common shares outstanding during the first quarter of '08. Net income for Q1 '07 was $3.4 million, or $0.17 per diluted share.

Turning to the balance sheet, our balance of cash and marketable securities at the end of Q1 was approximately $87.7 million. This was lower than the $119.5 million cash balance at year end. That decrease resulting from numerous factors including the acquisitions of the two solvent recovery facilities from Safety-Kleen and the site services operations of Universal Environmental during the quarter. Also, the payout of incentive compensation for fiscal 2007 and our semi-annual interest payment in January was part of that decrease during the quarter.

As Alan mentioned, we are at more than $250 million in cash today due to the recent stock offering. Total accounts receivables stood at $180.4 million on March 31, and DSO came down to 72 days compared with 74 days in Q4, and 77 days in the year-ago quarter. While we are pleased with this incremental improvement, we continue to target lower day sales outstanding going forward.

Capital expenditures approximated $19.2 million for Q1. This compares with $5.7 million a year ago, and $12.7 million in Q4. A substantial portion of the increase is related to the buyout of some of our equipment leases, as well as expenditures to upgrade our facilities and invest in the growth projects that Alan referenced in our solvent recovery and incineration businesses.

For 2008, we continue to target CapEx of approximately $55 million to $60 million. Accounts payable balances declined year over year to $74.5 million from $81.3 million, and we were able to decrease our deferred revenue balance to $25.1 million from the year-end balance of $29.7 million. We're continuing to carefully manage our environmental liabilities and reducing our exposure in this area.

At March 31, our balance of environmental liabilities stood at $186.5 million, compared with $184.5 million at the beginning of the year. This increase reflects the approximate $3 million liability recorded as part of the solvent recovery acquisition which was partly offset by a favorable Canadian currency exchange during the quarter. Managing this area will remain a key focus for us in 2008. Environmental spending during the first quarter was $1.9 million compared to $1.7 million in Q1 of '07.

Looking forward at our guidance, we currently expect revenue in Q2 to be in the range of $260 million to $263 million, which represents 9% to 10% rate of growth year over year. We expect EBITDA in the range of $41 million to $43 million, which represents a year-over-year growth of 16% to 22%.

For the full year we are updating our guidance. We now expect to increase revenues in the range of 8% to 10% and achieve EBITDA growth in the range of 20% to 22%. On our year-end call we provided guidance of 6% to 8% revenue growth, and EBITDA growth in the range of 17% to 20%. And one final housekeeping item before we open the call for questions.

As a result of the follow-on equity offering in April, we have increased our shares outstanding by 2.9 million common shares, which includes the 2.5 million shares sold in the offering, and the additional 375,000 shares from the exercise of the overlapping option as part of the offering. So, with this offering our new fully diluted total share count is 23.8 million shares on a go-forward basis. Because the offering occurred during Q2, it will result in a blended number of new shares for the quarter as we prorate those 2.9 million shares for EPS calculations.

For those of you modeling the company, we would suggest you use a share count of approximately 22.8 million weighted average shares in the second quarter, fully diluted share calculation. With that, Operator, would you please open the call for questions?

Question-and-Answer Session

Operator

Thank you, sir. (Operator instructions) Our first question today is coming from the line of Ted Kundtz with Needham & Co. Please proceed with your question, sir.

Ted Kundtz – Needham & Co.

Thanks. Hello, Alan and Jim. Great to see a terrific quarter. Could you talk a little bit about – just looking forward, the incineration utilization issue? It was extremely high this quarter. What about scheduled maintenance going forward? What are you looking at in terms of that?

Alan McKim

I would say probably an extended shutdown in one of our smaller sites in Canada as we rebuild one of our plants up there, and that’ll be starting effective June 1. But I would say that the negative EBITDA from that one month would be about $400,000 for the company, and that's in our guidance.

Ted Kundtz – Needham & Co.

Okay.

Alan McKim

But the remaining of our plants are basically scheduled through their normal shutdown work for the year.

Ted Kundtz – Needham & Co.

Okay. So, nothing new will jump in the quarter there?

Alan McKim

That's right, other than Canada.

Ted Kundtz – Needham & Co.

Terrific. Secondly, just about landfill guidance. Could you give us a little more color as to what drove growth there?

Alan McKim

Our Canadian landfills were seasonally soft. With the weather and the frozen temperatures up there, if you would, we just didn't see a lot of remediation in landfill volume. But in the U.S., particularly in our West Coast landfills, we saw some nice strong project growth and some strong base business growth there. So, we are excited about some opportunities that we are seeing in Canada, so we think our second and third quarter volumes will pick up like historical, and that our U.S. volumes will continue to be pretty strong this year.

Ted Kundtz – Needham & Co.

Okay. Is there any particular what's driving the volume increase out West? Is it gaining market share? Any particular big contracts you're winning or what –?

Alan McKim

No, nothing. I wouldn't say anything very particular. As we noted in our call, our pharmaceutical business – excuse me, our Refinery business was very strong in chemical, and part of our revenue growth was associated with some project in remediation work that we are getting from refinery spending, but nothing out of the ordinary that you wouldn't see on an ongoing basis.

Ted Kundtz – Needham & Co.

Okay. And the pricing on the Landfill side, how is that holding up?

Alan McKim

It has been relatively steady in comparison to previous years. We are not seeing significant upside in pricing in Landfill, as we've mentioned in the past, and competitive certainly on larger projects, but no significant deterioration at all in pricing there.

Ted Kundtz – Needham & Co.

Okay. And last question, any slowdown in any industries that you're seeing from the weaker economy, manufacturing, anything expected?

Alan McKim

Nothing at this point yet, other than just cost. With the cost of fuel coming through with our outside transportation, for example, is continuing to add more cost. But I think on the customer side, we're not really seeing, at least in the industries that we are focused on in servicing, we are not seeing a lot of economic slowdown.

Ted Kundtz – Needham & Co.

Okay, terrific. Thanks.

Operator

Your next question comes from the line of Larry Solow with CJS Securities. Please proceed with your question, sir.

Larry Solow – CJS Securities

Good morning, guys. Can you just give us an update on the capital outlook? I know I think the last time we spoke, or last call you had said I think there were five expected closures in 2008 and one had already given actual notification for June?

Alan McKim

Yes, we continue to see some nice opportunities being bid for materials that’s currently being incinerated on customer sites. So, we are anticipating those five to work their way through and be closing. We are expecting to see some new volume coming in June, and part of our expansion program has been designs, if you would, to be able to support future growth from the captives. The price of natural gas certainly is adding further cost pressures for our captive customers, and so nothing new to add, but I would say just reaffirming that their costs continually go up with this natural gas and crude price increases.

Larry Solow – CJS Securities

Okay, great. And then just a quick question on gross margin. I know the quarter is seasonally slower, but the really nice increase, probably even better than you've seen previous quarters. Is pricing getting more traction on price increases from last year, anything addition besides obviously you have great leverage and (inaudible) color to that?

Jim Rutledge

Definitely, Larry. We are seeing the effect of the price increases. Last year we had the average of about 3.5% price increase that we instituted early in the second quarter. And as those prices roll through in our contracts toward the latter part of the year, we're now seeing some of that benefit.

Larry Solow – CJS Securities

Okay. And then last question, I see on the El Dorado, you've already got your first contract. When is that facility actually going to be up and running? Is it –?

Alan McKim

It's running now. It's in the first phase construction has been completed and they're going through shakedown and startup.

Larry Solow – CJS Securities

Okay. So, you've actually got part of it up and running already even though construction is not fully completed?

Alan McKim

That's right. Yes, by the end of this year we will have our second phase completed, but right now they did a wonderful job of getting that plant constructed over the wintertime and we are ready to go there. And so, we're pretty excited to pick up some new business and take advantage of that new facility there.

Larry Solow – CJS Securities

Okay, great. And then just a housekeeping question. On the $19.2 million capital expenditures, you said some of it was due to buyout equipment leases. Do you have an approximate number on that?

Jim Rutledge

Yes, we did a little over $8 million. And we typically have some buyouts that we do during the course of the year, but we did a little more than typical this time around, and looking at our overall lease program and looking at the economics, we thought from a cash flow perspective it made sense for us to buy out some of these, particularly in the case where we are now a taxpayer, as you know, and owning some of these and getting the benefit of that accelerated depreciation is of a benefit to the company. So, we did some of that in the first quarter.

Larry Solow – CJS Securities

Okay, great. Thanks, guys.

Alan McKim

Thank you.

Operator

Our next question is coming from the line of Rich Wesolowski with Sidoti & Co. Please proceed with your question.

Rich Wesolowski – Sidoti & Co.

Thanks. Good morning.

Alan McKim

Good morning.

Rich Wesolowski – Sidoti & Co.

Alan, on the capacity additions in incineration, how much of that incremental 50,000 tons is coming from new equipment, which presumably represents all the capital investment versus new permits that wouldn't require any investment at all?

Alan McKim

I would say that about 14,000 tons is simple permit changes that the capital investments have already been made and it's basically getting regulatory approval. In fact, it's close to 18,000 tons is permit changes. And then the remaining balance of that pertains to actual permit and capital investments, to get that additional expansion. So, say, 32,000 tons and about 18,000 tons would be permit-related only.

Rich Wesolowski – Sidoti & Co.

Okay. As you look out into the distant future, are there any other opportunities to really raise the throughput of the incinerators just through additional permits?

Alan McKim

We are constantly looking at that, and we have asked one of our – the top Vice President of Compliance here to really take that on as a full-time effort, to look at ways of working with the regulators across all nine incineration facilities. And we really look at that as our top priority in the next 3 to 5 years. One broad change we could make is putting a new kiln up at one of our sites, and that would be a much longer term larger capital investment. But, again we're going to look at how the captives play out and what our needs would be to meet those requirements, those needs. And so the answer is, yes, we see some opportunity there, but it is a very time-consuming and in some cases capital-intensive effort and we're going to really take our time with it.

Rich Wesolowski – Sidoti & Co.

I'm just trying to get a leverage on how your view are?

Alan McKim

Sure.

Rich Wesolowski – Sidoti & Co.

You've spoken about targeting acquisitions with the cash and refinancing, the high rate paper. First, how much debt do you feel comfortable with and to what degree is that level influenced by the current bullish market outlook?

Jim Rutledge

I guess in looking at our debt, obviously it's very important for us to have a good strong balance sheet, particularly with the customers that we are working with and doing a lot of one-stop shopping and having long-term relationships with them. So, we look at debt to total cap in the 40% range as reasonable target. Clearly, if we did an acquisition that made sense and we went a little bit over that, the way we typically do acquisitions in being accretive very quickly, we would want to see in the short term for that debt to total capital come down, or total debt to total capital come down to that reasonable 40% range. With that being said, I think right now we have a lot of cash, as we talked about during the call. But we also have good debt to capacity that we probably have at least, I would say $300 million that would give us of debt capacity that would give us still a very strong balance sheet to be able to do things.

Rich Wesolowski – Sidoti & Co.

Okay. Finally, as you look around the incinerator fleet out there, it appears that you own all the best facilities, maybe save down the ones out at Port Arthur, and your pricing power is already very good. As you look at the other ones, can you discuss the benefits that you would expect to get from acquiring another site that was – that you didn't perhaps view as one of the crown jewels of the market?

Alan McKim

Yes. Certainly, I'd say that we do have some wonderful assets that we own and we have some competitors out there that have some impressive assets as well, and I think there's been such a change in the marketplace in the last 10 years with a shutdown of about six plants and probably 20 captives closing. So, the whole landscape has changed quite a bit. And, quite frankly, some of our competitors made some substantial investments to meet the new max standards. And I think I would characterize the market out there as everybody is on equal playing ground now, all working under the same regulations and meeting the same rules and requirements. We'd like to participate in any further consolidation that may take place in the marketplace, but at this time we don't have anything to share.

Rich Wesolowski – Sidoti & Co.

Great. Thanks a lot.

Alan McKim

Okay. Operator?

Operator

Our next question is from the line of David Feinberg with Goldman Sachs. Please proceed with your question, sir.

David Feinberg – Goldman Sachs

Good morning, gentlemen, how are you?

Alan McKim

Good morning.

Jim Rutledge

Good morning.

David Feinberg – Goldman Sachs

A few housekeeping, I might have missed it. I had to hop off early on. Did you state what the emergency response revenue was in the quarter?

Jim Rutledge

Yes, it was very insignificant, hardly none.

David Feinberg – Goldman Sachs

Okay. And then one other thing I picked up on, you talked about you were able to reduce your outside transportation costs on a year-over-year basis, but you did mention higher fuel costs. I'm curious what's going on there. Are you just able to internalize more of the transportation or are you transporting way shorter distances? How are you managing that cost?

Jim Rutledge

Actually, we are, David, internalizing hiring drivers and adding to our fleet. Partly offsetting that obviously are the additional fuel costs of those outside providers that we still use.

David Feinberg – Goldman Sachs

And is it fair to assume, though, on anything that gets internalized you're able to charge a fuel surcharge as opposed to being charged it by an outside vendor?

Jim Rutledge

Yes, we continue to do that. Our fuel surcharge is on our invoice and it's part of our cost recovery. That's correct.

David Feinberg – Goldman Sachs

And then a question on the added incineration capacity. I think I heard you say you added 7,000 tons in the quarter and we heard a little bit about the split between what that in permits versus capital investment. Are you still on tack to spend $10 million to $20 million on that project alone?

Alan McKim

Yes.

Jim Rutledge

Yes.

David Feinberg – Goldman Sachs

How much of that has been spent year to date?

Alan McKim

I think it was only $2 million at this point, and it will ratchet through the rest of this year and into 2009. The total should be completed by the middle of 2009.

David Feinberg – Goldman Sachs

Okay, so the $10,000 to $20,000, it will be spread over this next year?

Alan McKim

That's exactly right.

David Feinberg – Goldman Sachs

And then last question. With regard to the use of proceeds, the repurchase of debt, there was some debt covenants that needed to be renegotiated in order for you to be able to buy back all of the 11.25 senior notes. How is that going?

Jim Rutledge

It's going well. And just for everyone's benefit, we have the ability to call $50 million of the $91.5 million that is outstanding, and the amendment to our credit agreement would increase that capability by the $41.5 million. We're working through that now and figuring out the best strategy to employ particularly if we look ahead and depending upon the acquisition front what we do. We're trying to also take that into account, what needs we would have from a financing standpoint, and whether or not we would replace some of the financing that we have now. So, we're working through that process now internally to be able to ultimately get what you're asking about.

David Feinberg – Goldman Sachs

Yes, and the first call date even for the $50 million is what, July 1?

Jim Rutledge

It's July 15.

David Feinberg – Goldman Sachs

July 15.

Jim Rutledge

Yes.

David Feinberg – Goldman Sachs

That's it. Most of my questions were answered. Thank you.

Jim Rutledge

Thanks David.

Operator

Our next question is coming from the line of Jonathan Ellis with Merrill Lynch & Company. Please proceed with your question, sir.

Jonathan Ellis – Merrill Lynch

Thanks and good morning, guys.

Alan McKim

Good morning.

Jim Rutledge

Good morning.

Jonathan Ellis – Merrill Lynch

Wondering, just to follow-up the previous question on fuel. Can you quantify what the margin headwind in the quarter was related to higher fuel costs?

Alan McKim

I don't know the margin number, but I do know that our fuel cost was $2 million more quarter over quarter, roughly.

Jim Rutledge

That's right.

Jonathan Ellis – Merrill Lynch

Of course that’s on a sequential basis?

Alan McKim

Yes. I don't know what would equate on the margin side because we're offsetting that would certainly be our fuel surcharge that had changed quarter over quarter as well. But we are thinking we are staying pretty neutral with our fuel surcharge. We don't get it across all our business. About 75% of our clients receive some form of a fuel surcharge. Some of our fixed price jobs, like some of our landfill projects, if you would, typically have a bundled on rate, so we don't break out fuel surcharge in some of those one-off jobs. But that's a dollar amount that we're seeing as an increase.

Jonathan Ellis – Merrill Lynch

Okay, great. And on the acquisition front, can you talk a little bit about the size of the pipeline right now?

Alan McKim

Well, there are some opportunities both larger regional or even some national firms that would make good partners for us, and also some small firms that may have single or two site locations within a geographic area that we are interested in expanding our presence in. And over the years we've had relationships with many of these firms and we've had ongoing discussions with them. And we think that we can be a little bit more aggressive in expanding our business at this time frame realizing what's going on in the credit markets out there, and also valuations seem to have come down from the more aggressive days of the early part of '07, where we saw multiples much higher, particularly from private equity players. So, we looked at our opportunities today both from a valuation and credit market standpoint to be in a very good position to be more aggressive.

Jonathan Ellis – Merrill Lynch

Okay, great. And maybe if you can just characterize, would you say right now in terms of the acquisitions that you're looking at, are they more skewed toward the site services than the technical services side of business?

Alan McKim

It's really on both sides, but the real leverage in our business is on the Tech Services side. The barriers to entry are there, the assets, the permits from our standpoint what our focus really is. Although with the Universal Environmental acquisition that we made, it was really the first time in well in excess of 10 years that we made a meaningful acquisition in Site Service. So, we see some opportunities to grow that way, on the site side of the business, but the Tech Service side is probably one that we can gain more leverage on our network.

Jonathan Ellis – Merrill Lynch

Okay, great. And then just, Jim, do you have a cash flow from operations for the quarter?

Jim Rutledge

Yes, it was about $12 million.

Jonathan Ellis – Merrill Lynch

Okay. And then just on the guidance for the year. SG&A, do you anticipate that SG&A will continue to track north of 16% for the balance of the year, or do you think some of the spending moderates in the back half of the year after you've done some of the hiring that you talked about?

Jim Rutledge

Yes, I think if you look at the overall rate, Jonathan, for the year, we'll be at about 15.5%, so we'll see that coming down for the remaining quarters of the year.

Jonathan Ellis – Merrill Lynch

Great. And then just my final question. In terms of the guidance for the year on EBITDA, it looks like for the first quarter if you compare the actual results to your original guidance, it was about $5 million of upside. And if you compare your revised full year guidance to what you had spoken of previously, it looks like only about $3 million or $4 million of upside. So, I'm wondering, can you speak to the difference between the first quarter upside and what you're implying for the full year?

Jim Rutledge

Well, I think looking at the first quarter and looking at the comparison to Q1 of last year, I think Q1 of last year, the landfill pipeline isn't what we've built it up to today with our project team. And we were also somewhat integrating Teris last year and some Romic assets coming in this year, which although that's blended into our business, probably $4 million to $5 million of revenues came at the Q1 that wasn't there last year. So, looking at the overall for the year, we feel comfortable with the guidance both in revenues and EBITDA for the full year. We try to put our guidance to what we think we can achieve, and maybe at times we're conservative, but we do think that we have figures out there that we can achieve.

Jonathan Ellis – Merrill Lynch

Great. Thanks, guys.

Jim Rutledge

Thank you.

Operator

Our next question will be coming from the line of Jamie Sullivan with RBC Capital Markets. Please proceed with your question.

Jamie Sullivan – RBC Capital Markets

Good morning.

Jim Rutledge

Good morning.

Jamie Sullivan – RBC Capital Markets

Most of my questions have been answered, just wondering, I didn't see a breakdown of Site Services and Tech Services. Do you have that handy?

Jim Rutledge

Yes, I could help you with that. We had, let's see here. We had on Tech Service, it was $172 million, and in Site Service it was $71 million.

Jamie Sullivan – RBC Capital Markets

Okay, great. Thanks a lot.

Jim Rutledge

Thank you, Jamie.

Operator

(Operator instructions) Our next question is a follow-up from the line of Rich Wesolowski with Sidoti & Co. Please proceed with your question, sir.

Rich Wesolowski – Sidoti & Co.

Thanks. Even using the high end of the revenue guidance and the low end of EBITDA, you're at the 15.5% EBITDA margin, which is meeting a target you have held out over the long term. Do you plan to issue another type of yardstick that the market can look towards over a period of years, would you expect that any acquisitions that you have would pull you back a bit before you integrate them and improve the operations and boost the margin of the company?

Jim Rutledge

Yes, I would not think they would pull it back any. If we were going to do some acquisitions, we really want to continue with the momentum that you're seeing here. I think the Teris acquisition is a great example. The team out there has done a wonderful job. When we took that plant down in the middle of the year last year and upgraded that plant, the folks out there really have been doing an awesome job. And I think that's indicative to sort of the deals that we want to do out there. We don't want to go backwards, and certainly we want to continue to grow our EBITDA margins. And, quite frankly, our discussions with a lot of our customers is such that from a profit after tax would not – would certainly not, at the very high end of where most companies are operating at. We have a long way to go, we're making a lot of investments in our business to be from a liability standpoint to really protect these customers that we service. And so we want to continue to drive margin improvement because we know we have to continue to make investments in our plan. So, I would like to think that we can keep growing that margin.

Rich Wesolowski – Sidoti & Co.

Okay. And, Alan, historically, I mean, you built the business organically and also by buying companies that have prior to you buying them have been maybe a little down on their luck and improving the operations. What would draw you to a company that's performing very well and presumably be a good deal more expensive than some of the ones you have bought in the past, multiple-wise [ph]?

Alan McKim

I think if we could leverage our information management systems cross the business that has great resources and people, but yet maybe has antiquated systems that we could drop in our platform and really help manage the business more efficiently. One of the real strengths that the company has is a centralized business model that has some great systems that we've built over the last 20 years. So, I would think that would be the key thing on a good business out there.

Rich Wesolowski – Sidoti & Co.

Okay. Finally, one of your competitors on the landfill side has announced plans to introduce thermal desorption services down along the Gulf Coast. Would you expect that to at all disturb the favorable pricing that you're now seeing in that market?

Alan McKim

We do handle some of that material and there have been some other thermal desorbers operating in that market over the last 15, 20 years. So, we've been competing with them. And I'm not anticipating a major change in the marketplace down there. The primary facility that we handle that material is in the Gulf, that we have our Deer Park plant. At this point we are not anticipating a big change in the marketplace there.

Rich Wesolowski – Sidoti & Co.

Excellent. Thanks.

Operator

Our final question today is coming from the line of Ted Kundtz with Needham & Co.. Please proceed with your question.

Ted Kundtz – Needham & Co.

Yes, Alan and Jim, couple more questions. Could you size for us the capability that you're going to have in the solvent recovery side when you finish the expansion and you have these two acquisitions integrated? So, I'm really asking more for next year, what do you think their potential capability of that business?

Alan McKim

Yes. It is well north of $20 million. I think at this point is probably our short-term goal considering what we picked up from Safety-Kleen and coupled with our growth expansion at El Dorado.

Ted Kundtz – Needham & Co.

That would be for '09 capability?

Alan McKim

Yes.

Ted Kundtz – Needham & Co.

Okay. And the other question I had was, just looking at your growth, what's coming – just talking about the cross-selling that you do with your current customers to helping spur growth, what growth is coming from that existing customer base versus new customers? Can you shed any light on that?

Alan McKim

Probably on the call it would be difficult maybe to give you some real exact – I would say that our history of revenue growth has been exactly that. We've been cross-selling and expanding our relationships with our existing customers, and that is really part of our strategy moving forward. But we're also gaining new business out there and winning new customers. We certainly win some and we lose some, as in this business some of these customers put out annual bids and we are winning them and losing them like all of our competitors here. But I would think for the most part, the top accounts that we have, we've had them for 10, 15, 20 years, and we're cross-selling to them and we're expanding geographically to meet their needs, and that is going to continue for us.

Ted Kundtz – Needham & Co.

So, is the bulk coming from the existing customer base, the bulk of your growth, do you know, or maybe you don't even break it down that way?

Alan McKim

We don't break it down. I mean, on average we add about 500 new accounts a week but some of those are one-time, (inaudible).

Ted Kundtz – Needham & Co.

Yes.

Alan McKim

But when you look at the top 10 customers, for example, the majority of that business doesn't change year over year, and we just keep adding to those top 10. So, I would say there's a little bit of a mix of new business as well as growing existing customers.

Ted Kundtz – Needham & Co.

Okay, thanks.

Operator

At this time we have reached the end of the Q&A session. I will now turn the conference back over to Mr. McKim for any closing or additional remarks.

Alan McKim

Well, thanks, everybody, for the questions and participating in our call this morning and we look forward to updating you on our second quarter. Thanks again.

Operator

And that concludes our conference call. Thank you for joining us today.

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