Clean Harbors, Inc. Q2 2008 Earnings Call Transcript

Aug.11.08 | About: Clean Harbors, (CLH)

Clean Harbors, Inc. (CLHB) Q2 2008 Earnings Call Transcript August 6, 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

David Manthey – Robert W. Baird

Jonathan Ellis – Merrill Lynch

Rich Wesolowski – Sidoti & Company

Jamie Sullivan – RBC Capital Markets

Operator

Good day everyone and welcome to Clean Harbors’ second quarter 2008 conference call. Today's call is being recorded. There will be an opportunity for questions and comments after the prepared remarks. At this time, if you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue.

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 very much Operator. 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 second 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, August 6, 2008. Information on the potential factors and detailed risk that could affect the company's actual results of operations is included in the company’s 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’ second 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 for our quarterly review. Alan?

Alan McKim

Thanks, Bill, and good morning, everyone. Clean Harbors delivered another quarter of strong results in Q2 with solid contributions across nearly all of our operations including a particularly a strong performance in our incineration business. Revenues for Q2 set a new quarterly record coming in at $265.3 million which is up 11% over last year. We also had a great quarter from a profitability point of view demonstrating the leverage of our network of assets our EBITDA grew more than double our revenue growth increasing 23% year over year to $43.4 million. I’ll provide some more insight into our EBITDA performance in a bit but first let’s discuss some of our growth drivers for Q2.

Tech Services delivered a strong year-over-year growth in the quarter. As more companies continue to turn to Clean Harbors for their waste disposal needs, overall utilization at our incinerators which included the additional capacity rolled out in the first quarter of the year came in at approximately 88% for the second quarter despite scheduled maintenance that was performed at several of our facilities. US incinerators ran at high capacity achieving 94% utilization. As many of you know, running at that high level is optimal for both revenue and profits as it enables us to better manage the mix of materials we are incinerating and thereby further improving our margins.

Incineration levels at our Canadian facility were not as strong coming in at approximately 75% for the quarter and this was primarily due to the comprehensive schedule maintenance at one of our sites which resulted in a $2 million investment and the plant was basically closed for the month of June as I mentioned during our first quarter call. In Q2 we made further progress on our plan to add at least 50,000 tons of incineration capacity to our network by mid 2009. If you may recall, we added the first 7000 tons of new capacity in Q1 and in Q2 we brought online an additional 14,000 tons of capacity and we are now well on our way of adding another 7000 tons of new capacity to our Deer Park facility in the third quarter. We expect that the remaining capacity should come online sometime between year end and mid 2009 depending on the permitting process and the construction schedules.

Landfill volumes were down this quarter both sequentially and on a year-over-year basis. Volumes were down 37% from the same period in 2007 and 31% from Q1. This decline was primarily due to the timing of projects and the typical lumpiness in the landfill business. Several large volume projects we expected to commence in the quarter were pushed back to Q3 and another factor for the lower volume was our strategic decision to selectively increase pricing which resulted in us passing on some less profitable business out there. We continue to be encouraged about the landfill opportunities that we are seeing in Canada and we believe that our Q3 volumes will pick up in the North and that our US volumes will continue to be relatively strong throughout the remainder of the year.

Before I turn to our Site Services segment, I want to update you on another area of expansion within Technical Services namely our solvent recovery business. With three solvent recovery plants now on our network including our El Dorado, Arkansas site, Chicago, Illinois and Hebron, Ohio we are confident about our long-term prospects for growth in this business. The Chicago and Hebron facilities which we purchased in March performed on plan in the quarter, the El Dorado plant is now up and running and is heading into the second phase of construction. There were some minor delays this past quarter in purchasing some of the necessary equipment for that plant but this has been resolved and we are expecting a good Q3 and Q4 performance from really all of these facilities.

Moving on to Site Services, our Site Service business continued to increase by approximately $10 million in the quarter as we saw continued growth within our core services. In particular, we saw strong contributions from our petrochemical, specialty chemical and refinery clients. Similar to recent quarters we continued to see limited emergency response revenues in Q2. For the quarter we recorded approximately $2 million in revenue from small scale emergency response projects, about half of which was from flood-related clean-up projects in the Midwest. We continued the expansion of our Site Services locations in Q2 a move that is central to our strategy to further extend our presence in key markets across North America with the opening of a branch in Memphis, Tennessee. The two branches locations we picked up from Universal Environmental acquisition, the branch we opened in Milwaukee in Q1 and now the Memphis location we opened this quarter, we are well on our way to meeting our annual goal of opening five to six new Site Service locations this year.

Let’s turn to our bottom line performance. In recent months Jim and I have routinely fielded questions concerning how the economy and rising gas prices are affecting our business and I would like to address these two points now. First as it relates to the overall economy, we continued to see solid growth across our operations despite the economic slowdown. We have seen some government sponsored projects being pushed out to later quarters. However, demand from our direct customers continues. We have not seen any significant sales delays or declines in any of the main verticals that we serve. Our verticals are fairly well diversified and fortunately for Clean Harbors the industries where we are concentrated such as utilities, refineries, petrochemical and specialty chemical are not experiencing the slowdown seen in some other sectors.

Now turning to oil prices, with record prices at the pump fuel costs are top of mind for all companies and we are no exception. This quarter we realized exceptionally high fuel costs. At our incinerators our fuel cost rose by more than 150% as the price of natural gases doubled year over year and we were burning higher volumes of material. Within our transportation fleet, we experienced significant increases in fuels costs amounting to several million dollars. Even our corporate travel expense rose by nearly $700,000 in the quarter so also feeling the pinch of high fuel prices. However we have been effectively mitigate most of these added expenses through price increases and fuel surcharges. As we have outlined on our last call, we implemented price increases April 1 at an average 4.5% while we are still in the process of fully rolling out that entire program, we have been pleased with the customer response to the initial lunge [ph] of increases. We have also continued to be consistent with our fuel surcharge program and our ability to pass these added fuel expenses on to customers. In fact we have pegged our fuel surcharge program to the national average price for a gallon of diesel as set by the Department of Transportation and this is to ensure that we keep up with the many fluctuations we are seeing in the price of diesel.

As we mentioned earlier, our EBITDA for the quarter reached a record $43.4 million which translates into an EBITDA margin of 16.4%. Our Q2 ’08 EBITDA margin was 160 basis points higher than Q2 ’07 and 270 basis points higher than Q1 ’08. Our entire team should be commended for this accomplishment especially in a quarter where we saw some weakness in our landfill volumes and also faced some external cost pressures.

Let me just conclude my comments by reiterating that we are very pleased with our Q2 results. In the first half of 2008, we have extended our business and operational momentum as we march towards our stated goal of $1 billion in annual revenues.

With that I will now turn the call over to Jim Rutledge so he can walk you through the financials in more detail and provide our outlook for the third quarter and year.

Jim Rutledge

Thank you Alan and good morning everyone. As Alan mentioned, Clean Harbors completed another excellent performance this quarter generating record Q2 revenue of $265.3 million. This is an increase of 11% from $238.7 million in the year-ago quarter. Gross profit for the quarter grew to $86.9 million translating into a gross margin of 33%. This compares with a gross profit of $73.4 million and margin of nearly 31% in the year-ago quarter.

Selling, general and administrative expenses were higher than anticipated in the quarter coming in at $43.5 million or 16.4% of revenue. This compares with 16% of revenue in Q2 of 2007. We had expected it to be closer to the 15.5% level. In Q2, we exceeded our internal targets for sales and as a result we accrued higher commissions and bonuses. Other factors behind our SG&A expenses in the quarter were higher legal costs primarily related to two legal matters, one of which we settled during the quarter as well as higher professional fees and costs associated with acquisition review work during the quarter. Accretion of environmental liabilities was $2.7 million in the quarter, compared with $2.6 million in Q2 of 2007. Depreciation and amortization expense rose to $10.8 million from $9 million in Q2 of ‘07 mainly due to acquisition-related additions.

Q2 '08 operating income was $29.8 million, up 26% from the $23.6 million we reported in the second quarter last year. This was driven by our revenue growth along with a continued healthy mix of higher margin business in the quarter. We exceeded our EBITDA guidance for the quarter with Q2 '08 EBITDA coming in at approximately $43.4 million, or 16% of revenue. This compares with $35.2 million or 15% of revenue in Q2 of 2007. Despite higher operating expenses, our expanded growth this quarter enabled us to leverage our network of assets and drive increased profitability.

Net interest expense in Q2 was $2.5 million, which was lower than last year's figure of $3.7 million, mainly reflecting interest earned on the proceeds from our recent follow-on offering. Our provision for income taxes was $11.4 million compared to $8.7 million in Q2 '07. Our effective tax rate for Q2 was 42%. FIN 48 related interest charges amounted to $1.4 million during the quarter representing about 5% of our effective tax rate. We anticipate our overall effective tax rate to be approximately 43% for the balance of the year.

Second quarter net income available to common shareholders grew substantially to $16 million or $0.70 per diluted share based on 22.9 million average common shares outstanding. Net income for Q2 '07 was $11.1 million, or $0.54 per diluted share based on 20.7 million average common shares outstanding.

Turning to the balance sheet, our balance of cash and marketable securities at the end of Q2 was approximately $282.3 million. This was significantly higher than the $87.7 million cash balance at the end of Q1 primarily as a result of the proceeds from our recent capital raise as well as our solid cash generation in the quarter. Total accounts receivables stood at $195.5 million on June 30, and DSO came down once again to 69 days compared with 72 days in Q1 and 75 days in Q2 of ’07. We are very pleased with this improvement which underscores the commitment across our organization to decrease our collection period and further improve our cash flow.

Capital expenditures approximated $10.9 million for Q2. This compares with approximately $10 million a year ago, and $19.2 million in Q1. For 2008, we continue to target CapEx of approximately $55 million to $60 million. Accounts payable balances declined to $72.3 million from $74.5 million during the quarter and we decreased our deferred revenue balance to $23.5 million during the quarter from the Q1 balance of $25.1 million. We're continuing to carefully manage our environmental liabilities and we are steadily reducing our exposure in this area.

At June 30, our balance of environmental liabilities stood at $187.3 million compared with $186.5 million at the end of Q1. This increase was mostly impacted by the effect of foreign exchange and asset retirement obligations during the quarter. Managing this area will remain a key focus for us in 2008. Environmental spending during the second quarter was $2.2 million compared to $1.7 million in Q2 of '07.

Looking forward to our guidance, we currently expect revenue in Q3 to be in the range of $270 million to $275 million, which represents a 10% to 12% rate of growth year over year. We expect EBITDA in the range of $45 million to $47 million, which represents year-over-year growth of 17% to 22%. For the full year, we now expect 2008 revenues to grow at the high end of our previously announced range of 8% to 10% and EBITDA to grow at the high end of our announced range of 20% to 22%.

Before we open this call up for questions, I wanted to update you on the status of our financing arrangements. As most of you know, we had the ability under our credit agreement to call $50 million of the $91.5 million of our 11.25% senior secured notes that we had outstanding. Based on the proceeds from our offering and after an in depth review of our financing needs, we exercised this redemption and paid off that $50 million portion of our senior notes at the end of July. In connection with this redemption, we will record a $4.3 million charge below the EBITDA line in Q3 consisting of the $2.8 million prepayment penalty which we paid in cash to call [ph] the notes and $1.5 million in non-cash expense for the unamortized discount and unamortized financing costs related to these notes. The annual reduction in interest expense from this redemption will be about $5.6 million.

With that operator, would you kindly open the call up for questions please?

Question-and-Answer Session

Operator

Thank you, sir. (Operator instructions) We will take our first question coming from of Ted Kundtz of Needham & Co.

Ted Kundtz – Needham & Co.

Hello Alan and Jim, that’s a very strong quarter. Good to see it.

Alan McKim

Thank you.

Ted Kundtz – Needham & Co.

Couple of questions for you if I have got two. One, just on your EBITDA guidance for the year, if I look at what you have done so far and your forecast for Q3, it appears that the Q4 number would come down pretty decently to reach your guidance level. So, I wonder if you could comment on that. I assume you are just being conservative here, but I just wanted to see what your thoughts on the Q4 implications are?

Jim Rutledge

Hi Ted, it is Jim. Again, as you know, our forecasting process is robust. We go through and basically when we do our guidance we put out there what we know we can do and there might be an element of conservatism in that but again what we are saying is with our annual guidance that we definitely see ourselves at the high end of that.

Ted Kundtz – Needham & Co

Okay but is there any reason why fourth quarter would be coming down sort of significantly? It seasonally is sort of down a little bit I guess over in the past but not that much.

Jim Rutledge

Yes. Usually with the winter months, there is a seasonable impact and it is tough to say just how the winter months, which as you know, affects our business the timing of when that all starts and weather. So, perhaps there is the little bit of an element of conservatism but generally there is some seasonal impact in the fourth quarter. Absolutely nothing like the seasonal impact that we see in the first quarter typically as you know but again there might be just a little bit of conservatism in there for that.

Ted Kundtz – Needham & Co.

So, nothing fundamental?

Jim Rutledge

Nothing fundamental.

Ted Kundtz – Needham & Co.

Okay and then one other question. Could you talk about what you are seeing with some of these captives, how is that evolving, those captives some of those captives coming off market and turning to you guys?

Alan McKim

We continue to see opportunities with that said and I think the timing of adding the capacity in our plants is coinciding nicely with some of the bidding opportunities we see out there today, so I think we are on track there.

Ted Kundtz – Needham & Co.

Terrific, thanks very much.

Alan McKim

Yes.

Operator

Thank you. Our next question is coming from Larry Solow of CJS Securities.

Larry Solow – CJS Securities

Hi, good morning guys.

Alan McKim

Good morning.

Larry Solow – CJS Securities

Could you briefly discuss on the capacity, first of all the Canadian project, the shutdown is that now complete?

Jim Rutledge

Yes, that’s completed. It probably costs us about $900,000 in EBITDA also. We had anticipated about $400,000 or $500,000 but it is actually came in quite higher than that. That project took a little longer, we expected a little more than three weeks and ended up being a little bit more than four. But we are in good shape up there now, running and seeing the improvements that we had expected.

Larry Solow – CJS Securities

Okay. So, I guess the $2 million was a capitalized expense that you referred to.

Jim Rutledge

That $2 million was real assets that we added. We rebuilt our incinerator up there with brand new equipment. The $900,000 was purely a P&L loss that we took.

Larry Solow – CJS Securities

Got you. Then could you just give, I think you said Site Services was up $10 million for the quarter, was that a sequential number or a year-over-year number?

Jim Rutledge

That was year over year.

Larry Solow – CJS Securities

Year over year, got you. Lastly, your guidance, did you guys do any work on the oil spill on the Mississippi?

Jim Rutledge

Yes we are actually in the middle of that right now and implied in our guidance is roughly $5 million plus for Q3 with that. But, it is hard to predict what that total will be because it is underway right now but that’s about where we are conservatively estimating right now for Q3.

Larry Solow – CJS Securities

Got you. Great. We look forward to seeing you next week at our conference. Thanks.

Alan McKim

Okay, thank you.

Operator

Thank you. Our next question is coming from David Manthey of Robert W. Baird.

David Manthey – Robert W. Baird

Hi good morning.

Alan McKim

Good morning.

David Manthey – Robert W. Baird

I was wondering if you could talk about the comment you had earlier about acquisitions, review work and professional services, is that related to future acquisitions or is that sort of an ongoing expense? I had not heard you flag that before and I was wondering if that’s an unusual event.

Alan McKim

Yes, that’s related to future acquisitions. When we did our equity offering, one of the key reasons for doing that was some opportunities that we see out there. So, we are in the throws of that kind of review right now.

David Manthey – Robert W. Baird

Okay. Then in terms of paying down $50 million of the 11.25 notes, does this signal anything regarding the acquisition environment in terms of the size of potential targets out there or as you looked at that medium term would you think about refinancing that anyway to try to get the rate down from where it was?

Jim Rutledge

It’s really refinancing it. The 11.25% rate, as you know obviously and implied by your question, is quite high and so we just wanted to get out of that. Clearly, it doesn’t throw any signal about the size of opportunities that we would be looking at because if it were large enough, we would definitely refinance it and still do a better rate than what we had.

David Manthey – Robert W. Baird

Great, thank you.

Alan McKim

Thank you.

Operator

Thank you. Our next question is coming from Jonathan Ellis of Merrill Lynch.

Jonathan Ellis – Merrill Lynch

Thanks and good morning guys.

Alan McKim

Good morning.

Jonathan Ellis – Merrill Lynch

I am wondering if you could talk a little bit about the landfill side of the business and specifically you mentioned that you are trying to walk away from some projects that carry lower margins and instituting some pricing discipline, can you talk a little bit about how your competitors are reacting to this move, whether they are trying to follow on the same path or still pricing aggressively for market share?

Alan McKim

I think where we see our large projects historically is some real aggressive pricing and I don’t think that’s really changed. When we are looking at 30,000, 40,000, 50,000 ton projects today, we have seen some real aggressive pricing out there and quite frankly our landfill space is valuable and it is really looking at how much of that airspace do we want to use and what is a good return on our investment. And so we tried to do a good analysis of these projects as we beat [ph] them and in some cases we have not been successful in some of these projects knowing that we are going in with a much higher price but realizing that our space is valuable and we want to have it available for the good projects and the profitable projects out there.

Jonathan Ellis – Merrill Lynch

Okay, great. Then maybe it came in one of the questions in a combined two in one here, can you talk a little bit about how the integration of Universal Environmental is going which you may have learned from that experience given it is the first Site Services acquisitions you’ve completed in over a decade and kind of following on that, the acquisition pipeline right now, what’s the mix between site services and Tech Services companies?

Alan McKim

I think the Universal Environmental acquisition worked really well for us. We are enjoying some nice relationships, new relationships with some key clients in that market out there, the northern California market, we’ve benefitted from some recent spill activity in that market that we would not have had in the past. I would think overall, we are quite pleased with the team that we have out there and the work that they are doing. There are a lot of opportunities like Universal Environmental out there but equally opportunities on the Tech Services side for us, our preference is to acquire some companies that can help drive some volumes into these fixed cost facilities that we have, particularly (inaudible) incineration our focus is much more on the collection side and for those Site Services type of companies who have good waste customers, waste generation customers that can help us fill our sites up.

Jonathan Ellis – Merrill Lynch

Great, thanks guys.

Alan McKim

Thank you.

Operator

Thank you. Our next question is coming from Rich Wesolowski of Sidoti & Company.

Rich Wesolowski – Sidoti & Company

Thanks a lot. Good morning.

Alan McKim

Good morning.

Rich Wesolowski – Sidoti & Company

Is there any way you guys can quantify how much of the April price increase was reflected in this June quarter?

Jim Rutledge

As you know, the price increase was effective in April but there are notice periods in contracts. So there certainly was some impact during the quarter but I think most of it we’ll see in the latter part of the year and into next year because our notice periods run from 90 days, 120 days depending upon the contract. Certainly new business is at the new prices.

Rich Wesolowski – Sidoti & Company

Okay, so at the very least you would expect at least whatever contribution you got in June in the subsequent quarters.

Alan McKim

Absolutely.

Rich Wesolowski – Sidoti & Company

Okay. Then secondly, my understanding of the landfill business is that once you get to covering your fixed cost, any volume you drive through there be at low-margin business or high-margin business really exploits the operating leverage and I am trying to reconcile that notion with the very volatile volume changes that you report quarter to quarter with your landfill business,

Jim Rutledge

Yes, I think Rich when you look at the landfill part of our disposable business, you are really talking about a combination of base business and project business and it really is the project business which is somewhere around half but it depends upon which quarter you are talking about because it is lumpy. You get sometimes delays in projects and sometimes you get large inflows of waste streams during particular quarters. So, it is a lumpy business and it is what causes that volatility if you will or lumpiness. It is not as volatile certainly like the emergency response which is not a big part of our business but there you see more volatile kind of activity where it is hard to predict and we tend to not even put that in our guidance unless we know about it. But on projects you will see a little bit of that lumpiness and as Alan pointed out, it is an ROI decision for us. We look at our landfills and we run a return on investment for each of them and we make decisions about projects and the bidding that we do to make sure that we get a good ROI for each particular landfill. I don’t know if that helps but that was just a little bit of background the way we look at it.

Rich Wesolowski – Sidoti & Company

No it certainly helps. Finally just to clarify on a previous point, your actions to ditch lower margin projects in landfill is distinct from pricing increases that you have on other projects or you are just getting higher prices because of the improved mix?

Jim Rutledge

When the base business is not there, that’s part of our normal business coming through from customers destined for landfill as you also see waste streams testing for incineration. So, there the pricing is with the normal increases that we have been talking about but the project business we make individual decisions about projects as they come in at the pricing level that we would be at.

Rich Wesolowski – Sidoti & Company

Thank you very much.

Jim Rutledge

Thank you.

Operator

Thank you. Our next question is coming from Jamie Sullivan of RBC Capital Markets.

Jamie Sullivan – RBC Capital Markets

Good morning, thanks.

Alan McKim

Hi Jamie.

Jamie Sullivan – RBC Capital Markets

Hi. Quick question on the M&A pipeline, can you just talk a little bit about some of that activity and how the opportunities are moving through and any changes there?

Alan McKim

We continue to look at a number of opportunities. We have been spending quite a bit of time with our teams here doing due diligence on some key targets out there and we were optimistic that there will be some nice opportunity for us that will fit well with our business and our model here.

Jamie Sullivan – RBC Capital Markets

Sure, what’s the pricing environment like for targets, reasonable?

Alan McKim

It’s really all over the place. As we’ve said in the past, we not only look at their historical profitability about how does putting the two companies together reduce costs across the two businesses and how do we really leverage again our infrastructure across our targets. So, I would say that since the credit crisis a year ago in August, we have seen less private equity involvement in our industry and maybe valuations coming down and being more realistic, we did pass on quite a few at the end of last year simply because the expectations were much higher but we are seeing some things come back today that we think are a fair valuation for us.

Jamie Sullivan – RBC Capital Markets

Okay great. Then just a quick question on the solvent recovery plant, do you think about those in terms of capacity and if so just what the capacity is today?

Alan McKim

Sure. I would say that all three of them are probably less than 50% if we looked at it from a capacity utilization we have a lot of growth opportunity there. Although we have made some nice improvements but when we acquired them, they are profitable, they are doing well for us but we see a lot of upside on the solvent side.

Jamie Sullivan – RBC Capital Markets

Great. Thank you.

Alan McKim

Yes.

Operator

(Operator instructions) Our next question is coming from Rich Wesolowski of Sidoti & Company.

Rich Wesolowski – Sidoti & Company

That was a pretty quick turnaround. Just want to circle back and ask you what your hearing on your weekly calls about the event driven landfill market for the next six months or so or at least as far as your forecast relative to what it would have been say two quarters ago.

Alan McKim

I think it is up by – we have a very strong pipeline of event business for our landfills. We have got a great team in place that manages that side of our business for us and as Jim mentioned sometimes the timing pushes from one quarter to the other but we have a good book of business right now and we are excited about it both in the US and Canada quite frankly.

Rich Wesolowski – Sidoti & Company

Okay. Then finally I know you had some atypical overhead or SG&A expenses in the quarter that propped it up a bit but it has been growing ahead of the sales rate for a full year now. Can you discuss how any of the cost containment efforts that you have going on noted in the press release is directed at that line item?

Alan McKim

Yes, I guess if I were looking at the rest of the year, I would say that we’re probably going to be in about the 16% right at about that level as opposed to the 15.5% that we were previously talking about only because we do have activities going on centered around acquisition, review and so forth. I will note to you though that last year we had about $1,5 of credit in environmental liability in the first quarter of last year and that kind of brought the SG&A rate down a little bit last year. So, we are bringing it down but not by as much as we had earlier guided because of some of the activities that we have going on here.

Rich Wesolowski – Sidoti & Company

Thanks again.

Alan McKim

You are welcome.

Operator

Thank you. Our next question is coming from Ted Kundtz of Needham & Company.

Ted Kundtz – Needham & Co.

Hi, general question for you. Are there any thoughts about paying down more of the debt?

Jim Rutledge

Yes, this is Ted?

Ted Kundtz – Needham & Co.

Yes it is.

Jim Rutledge

Hi Ted. Yes, the intention is to first get more visibility around what we will be doing on the acquisition front here rather than go straight out and do an amendment to our existing credit agreement to be able to go beyond that $50 million and do the other $41.5 million. We want to first see if we are going to be doing any refinancing of our entire credit agreement, say for example, if we were involved in significant acquisition activity, because it is expensive to do a (inaudible) these days and we think it is wiser right now to just give this a little more time. But clearly we want to get out of the high yield debt that we have right now.

Ted Kundtz – Needham & Co.

Alan, just a follow-up for you, can you give us any sense of the likelihood of some acquisitions before year end? Is that putting you on a spot too much or –

Alan McKim

Yes, I certainly think that we have enough opportunities far enough down the pipeline here that we hope that we will be seeing something this year but we don’t want to guarantee anything at this point until we know for sure.

Ted Kundtz – Needham & Co.

I understand.

Alan McKim

That’s certainly been our goal. We’ve been spending a lot of time in this area and that was one of the reasons for the secondary stock offering we did as you know.

Ted Kundtz – Needham & Co.

Okay, thank you.

Alan McKim

Okay.

Operator

At this time, we have reached the end of the Q&A session. I would now turn the conference back to management for any closing or additional remarks.

Alan McKim

Okay, thanks very much for participating in our call this morning and we look forward to speaking with you at the end of our third quarter and updating you and your partners. Thank you.

Operator

This concludes our conference call. Thank you for joining us today.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!