Michael Robert McDonald - Clean Harbors, Inc. Alan S. McKim - Clean Harbors, Inc. Michael L. Battles - Clean Harbors, Inc..

Mario Cortellacci - Macquarie Capital (USA), Inc. Michael E. Hoffman - Stifel, Nicolaus & Co., Inc. David J. Manthey - Robert W. Baird & Co., Inc. Jeffrey Marc Silber - BMO Capital Markets (United States) Noah Kaye - Oppenheimer & Co., Inc. Sean K. F. Hannan - Needham & Co. LLC.

Greetings, and welcome to the Clean Harbors, Inc. Second Quarter 2018 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Michael McDonald, General Counsel for Clean Harbors, Inc. Thank you. Mr. McDonald, you may begin..

Thank you, Dana, and good morning, everyone. With me on today's call are Chairman, President and Chief Executive Officer, Alan S. McKim; EVP and Chief Financial Officer, Mike Battles; and SVP of Investor Relations, Jim Buckley. Slides for today's call are posted on our website and we invite you to follow along.

Matters we are discussing today that are not historical facts are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Participants are cautioned not to place undue reliance on these statements, which reflect management's opinions only as of today, August 1, 2018.

Information on potential factors and risks that could affect our actual results of operations is included in our SEC filings. The company undertakes no obligation to revise or publicly release the results of any revision to the statements made in today's call other than through filings made concerning this reporting period.

In addition, today's discussion will include references to non-GAAP measures. Clean Harbors believes that such information provides an additional measurement and consistent historical comparison of its performance.

Reconciliations of non-GAAP measures to the most directly comparable GAAP measures are available in today's news release on our website in the appendix of today's presentation. And, now, I'd like to turn the call over to our CEO, Alan McKim.

Alan?.

Thanks, Michael. Good morning, everyone, and thank you all for joining us. Starting on slide 3, Q2 was our second consecutive quarter of strong operating results that exceeded our expectations. Both our reporting segments were key contributors this quarter.

Growth in Environmental Service was driven by higher volumes and an improved mix of waste streams as well as better-than-expected results from the Veolia Industrial business we acquired in February. Safety-Kleen's results were again very encouraging as we have now had eight consecutive quarters of revenue and EBITDA growth in this segment.

Overall, our financial performance reflects the leverage in our disposal and re-refinery networks as we grew our adjusted EBITDA at a higher rate than revenue. Turning to Environmental Services on slide 4, we generated 15% top-line growth.

Nearly two-thirds of that came from the Veolia acquisition, with the remainder resulting from higher waste volumes, pricing improvements and organic growth in our base business, including Industrial and Field Services.

The industrial economy remains robust and the expansion activity in several of our key verticals, particularly chemical and manufacturing, is driving greater waste volumes. Looking at this segment's profitability, adjusted EBITDA was up 15%, while margins remain consistent with a year ago. Incineration utilization was a healthy 90%.

Equally important was the improved mix and the quality of the waste streams into our incineration network, which resulted in a mid-teens year-over-year increase in our average price per pound. We continue to set new records in drum volumes to help improve that mix.

Our landfill business was off slightly this quarter, with tonnage down 10% due to the timing of projects. Year-to-date, landfill volumes are ahead of 2017. The Industrial Services portion of our ES segment had another good quarter, with a busy turnaround schedule in both the U.S. and Canada.

The Veolia Industrial group continues to perform well, and we remain encouraged about its long-term prospects. Our Field Service teams are a steady flow of business at the regional level, though no major emergency response work in this quarter.

Moving to slide 5, Safety-Kleen grew revenue by 9% largely due to higher base oil and blended pricing, supported by incremental growth in our branch network. Parts washer services for the quarter were down slightly, while waste oil collection volumes were strong.

In fact, the record 62 million gallons that we gathered this quarter is even more impressive when you consider that we continued to maintain an average charge-for-oil position with customers in Q2. Our plants ran well again in the quarter, with healthy production levels up from a year ago.

Safety-Kleen's adjusted EBITDA increased 21% due to higher pricing and the team's ability to manage the spread in a rising oil environment. In terms of sales mix, direct lube sales accounted for 6% of Safety-Kleen's total volume sold, up from 5% in Q1 and 4% a year ago.

Blended product sales accounted for 27% of total volume in the quarter, down from a year ago, but up from Q1. Moving to our corporate update on slide 6, profitable growth and margin enhancements remain our focus in 2018. Growth will be driven by incineration volumes, our closed-loop program, an increase in the base business, as well as Veolia.

You can see from our Q2 results just how quickly improvements in price and mix in our incinerators translate to profitability. The new kiln in El Dorado is improving, and we've also made enhancements and productivity improvements at several other locations.

With new or expanded chemical waste streams expected to enter the commercial marketplace in the years ahead, we see numerous opportunities to capture additional volume going forward. Looking at closed-loop, our goal remains doubling the volume of direct lubricants sold from 2017.

We continue to have steady success, and we've now surpassed 20,000 unique direct customers sold. The medium and large accounts who can drive more substantial volumes require a longer sales cycle.

But we have a sizable pipeline of those opportunities and are confident that those wins will come based on the continued high level of interest among our customers. The recent strategic realignment of our sales and service organization within our Environmental Services group is going to be a strong driver for us.

We're still in the early innings with the structure, but the results in the first half are encouraging. More closely aligning our sales, service and operations team to the same playbook on a regional basis is working very well for us. The integration of Veolia's U.S. Industrial business is moving ahead smoothly.

The team has done an excellent job in the early going. A lot of work remains to capture all the revenue and cost synergies that we envision for this business; however, we have certainly hit the ground running with that team and their customers and the assets we acquire have been a welcome addition to our fleet.

Turning to our capital allocation strategy on slide 7, the board and our management team remain closely aligned on maximizing shareholder value. And you may have seen in our recent proxy, our senior management now has a return on invested capital as a key performance measurement and our executive incentive plans are partly based on ROIC improvement.

We continue to expect our net CapEx to be up slightly this year, as we are prudently investing in some growth areas, including Veolia. On the acquisition front, we will remain selective in evaluating acquisition candidates. And at the same time, we're continuing to seek opportunities to divest smaller non-core assets or businesses.

As Mike will touch on in his remarks, we're also continuing to execute on our stock buyback program. So, let me close with our outlook. We entered the second half of the year with momentum from positive external factors such as the industrial economy, as well as multiple internal growth and margin initiatives.

Within Environmental Services, we have a considerable backlog of projects that really should drive volumes into our facilities. Veolia should continue to open doors for our Industrial Service business and support the growth opportunities for our specialty lines of business.

Elevated crude prices and greater drilling activity are supporting a mild recovery in our energy-related businesses. And within Safety-Kleen, our focus in the back half of 2018 will be on margin enhancements through pricing, blended lubricant sales and cross-selling.

Overall, we continue to anticipate a strong adjusted EBITDA and adjusted free cash flow performance in 2018. So with that, let me turn it over to Mike.

Mike?.

Thank you, Alan, and good morning, everyone. Before I go through our financial statements, I want to touch upon our recent debt refinancing activities here on slide 9. We are refinancing about a quarter of our long-term debt. In June and into early July, we conducted a tender process on our $400 million of Senior Unsecured Notes due 2020.

Debtholders tendered more than 80% of that total and we intend to call the remaining portion today. We are placing those 5.25% notes with a $350 million expansion of a variable rate Term Loan B facility we put in place last year, which currently trades at LIBOR plus 1.75%.

We also intend to draw $50 million on our revolver to complete today's activities and that carries a rate of LIBOR plus 1.25%. To eliminate the variable rate nature of the new Term Loan B instrument, we plan to put in place an interest rate swap. We expect these activities, in aggregate, to save us more than $2 million in annual interest expense.

These actions also push out the debt tenor by four years to 2024, affording us greater flexibility to reduce the debt or refinance without prepayment penalties. Turning to slide 10, and our income statement, we followed up a strong Q1 with another good performance in Q2. On the top-line, we grew more than $96 million from the year or 13%.

The acquired Veolia assets accounted for nearly half of our top-line growth in the quarter. We have been very pleased with the early performance of that business. The remaining growth in Q2, which is almost all organic, was split nearly evenly between Environmental Services and Safety-Kleen.

The 40 basis point improvement in gross margin year-over-year reflected a favorable revenue mix, including record drum volumes and pricing gains we made across several businesses, particularly in S-K Oil. We also benefited from productivity initiatives put in place in our incinerators and an overall strong performance in our plants.

We believe that our ongoing focus on pricing and shifting toward higher margin waste volumes in our disposal network will enable us to continue to improve our gross margin performance going forward.

SG&A expenses were up on an absolute dollar basis mostly due to increased benefits and incentive compensation, but as a percentage of sales, were down slightly in the quarter. Our 10-basis-point improvement in SG&A came from higher revenue and improved leverage from our new regional structure.

Given where our financial performance is trending this year and the associated incentive compensation, we now anticipate full-year SG&A expense as a percentage of revenue could be slightly up from 2017. Depreciation and amortization were up slightly from a year ago, primarily reflecting the addition of Veolia.

For the full-year 2018, we continue to expect depreciation and amortization in the range of $295 million to $305 million. Income from operations for the second quarter increased by 38% to $64.4 million, largely as a result of the higher level of revenue and improved margins.

Q2 2018 adjusted EBITDA increased 16% as we benefited from the better mix of waste in our network, improved pricing, and leverage from higher revenues. Looking at the bottom-line, we reported GAAP EPS of $0.54 per diluted share for the quarter.

Adjusted EPS was also $0.54 as the effect of non-cash valuation allowances on tax loss carry-forwards in Canada, for the quarter, were de minimis. Q2's adjusted EPS has more than doubled the number we reported a year ago.

Turning to the balance sheet on slide 11, we ended the quarter with cash and short-term marketable securities of $233.9 million, up from our Q1 balance of $224.1 million. The $38 million increase in receivables from Q1 mostly reflects higher revenue in the second quarter. DSO, on the other hand, came in at 72 days, a 4-day improvement from Q1.

Our DSO level is now essentially back to where we were at year-end. And if you factor out Veolia, we would be down 2 days to a DSO of 70. We remain committed to improving our DSO by maintaining our internal emphasis on collections and improving contract terms, particularly with our industrial and energy customers.

Turning to our cash flow highlights on slide 12, Q2 cash from operations was $77.8 million, was up 30% from a year ago. Q2 CapEx, net of disposals, was $48.1 million, leading to an adjusted free cash flow of $29.7 million, more than double a year ago.

For the full-year, we continue to target CapEx, net of asset disposals, of $170 million to $190 million, which includes our plans for Veolia. During Q2, we repurchased $12.2 million of stock or approximately 252,000 shares and have purchased more than 530,000 shares year-to-date at a cost of $26.5 million.

Moving to guidance on slide 13, based on our first half results and current market conditions, we are raising our 2018 adjusted EBITDA target from a range of $440 million to $480 million to $460 million to $490 million. The midpoint of that revised annual range represents a 12% increase from 2017.

Looking at our Q3 adjusted EBITDA guidance, we expect an increase of about 10% versus prior year, which puts our expected Q4 adjusted EBITDA growth in the low- to mid-teens on a percentage basis. Here's what our revised annual 2018 guidance means from a segment perspective.

We currently expect adjusted EBITDA for our Environmental Services segment to increase in the low-teens in 2018. This growth will continue to be driven by a combination of pricing, mix of waste, and margin enhancements in our disposal business supported by Industrial and Field Service opportunities. We currently expect the addition of Veolia's U.S.

Industrial business to add $10 million to $13 million in adjusted EBITDA this year. Safety-Kleen is now on track to generate an increase approaching mid-teens growth in adjusted EBITDA driven by higher base oil and blended pricing and steady contributions from the core S-K branch network as well as the closed-loop.

We expect negative adjusted EBITDA in our corporate segment to also increase at a rate approaching mid-teens from 2017 due to costs from acquisitions and higher incentive compensation and benefits, including 401(k), outweighing our ongoing cost saving programs.

Given the expectations of higher adjusted EBITDA for the year, we are also raising our 2018 adjusted free cash flow guidance to the range of $135 million to $165 million. In summary, during Q2, we extended the positive momentum we saw toward the end of the first quarter.

Market conditions have remained favorable, and we have a wealth of top- and bottom-line initiatives ranging from pricing actions to cost reductions to cross-selling that should underpin our profitable growth in the back half of the year.

As I mentioned last quarter, we're focused not just on putting together a few good quarters, but delivering predictable, profitable growth over the long-term. We've taken some important steps down that path in the first half of 2018. And with that, operator, please open up the call for questions..

Thank you. We will now be conducting a question-and-answer session. Our first question comes from the line of Hamzah Mazari from Macquarie Group. Please proceed with your question..

Hey, guys. This is Mario Cortellacci filling in for Hamzah.

Could you walk us through what you're seeing in terms of pricing in disposal on the Technical Services segment, and maybe how that compares to prior cycles where the economy has been as strong as it is now?.

Yeah, I would say that particularly in the incineration front, as we were building the new plant and bringing on new capacity, we held back on a number of pricing initiatives during that period of time, as we probably have mentioned.

And so, we really look at our volumes, we looked at the increase in utilization, and felt that we had an opportunity to offset some of the increasing costs that we're seeing, particularly in the energy space to go back and begin some modest increases in pricing, particularly on that incineration side of our business.

I would say, though, that we have been looking at pricing across the board in every line of business. And through biweekly calls with the team, we are driving price improvements that have yet really to be seen in the numbers here. But those are ongoing initiatives that we will continue to drive throughout the rest of this year and into next year..

Great. And just a quick follow-up.

Could you comment on how you're thinking about the current balance sheet leverage and where your appetite might be to do larger deals, or maybe whether any are in the pipeline currently?.

So, as we've said before, we're constantly looking at transactions and M&A opportunities, and we're prudent and trying to make sure we get a good return on our investments in that area. And so, there's always a steady pipeline; nothing imminent, but certainly a steady pipeline. On the leverage factor, we've tried to keep it around 3 times levered.

Obviously, for the right acquisition, we would go higher. But I think that a good strong balance sheet having it 3 times levered, even under a little bit, is not a terrible idea..

Great. Thank you so much..

Thank you..

Our next question comes from the line of Noah Kaye from Oppenheimer & Company. Please proceed with your question. Noah, your line is now live. Our next question comes from the line of Michael Hoffman from Stifel. Please proceed with your question..

Hi. Thank you for taking my questions this morning.

On the Environmental Services margin side, could you help us bridge – and I start with, hey, great quarter and good number there, but can you bridge why there's not margin leverage, just profit leverage? What's going on in the mix to help us because I believe there probably is margin leverage, but it's being masked by, maybe it's Veolia or some other things?.

Hi, Michael. Thanks. This is Mike. So it is certainly a good margin story in ES. We're getting some good leverage overall. Flat quarter – year-over-year is where we stand today which has been nice because this has been trending down. Really, if you take out the impact of Veolia, we'd be up 80 basis points in ES.

And so, obviously, we need to improve the margins of Veolia. We bought a business that had negative EBITDA, as you know, and we've turned that business around and, now we're generating, let's say, good margins. We need to get them better and get them above the average and above the ES average for it to be a meaningful contribution.

That's the plan in the back half and into 2019..

Okay. So, that's the powerful statement. You did have 80 basis points on a like-to-like business given the amount of volume, mix and absolute price increase and Veolia just dampened that..

Correct..

Okay. All right. I think that's a good message.

And then, within working capital, where is your DPOs? Are you paying your bills too fast?.

We get that question from the leadership team quite often. I think we do do a good job of trying to stretch our payments as much as possible. And we have kind of worked with some of our vendors to extend terms. Our receivables are growing faster than payables, which is always concerning when we have to get after that.

The two things we have to do really, Michael, is continue to hold payables in a reasonable level and work with our customers to extend terms – work with our vendors to extend terms.

But more importantly, let's get after those receivables and kind of work on our working capital because it has been – as we know, in a rising revenue organization, working capital is going to be a bit of a drain, but we need to kind of ride that ship. It's been probably more than what we expected here in the first half..

Okay.

And then, Alan, why do you think your service cycles were down in 2Q? Do you think there were some weather-related delays and some of the activities that might have led to service cycles? How do you think about why service cycles in the branches were down slightly?.

I think we've done a lot of work in cleaning up our service plants within Safety-Kleen as part of our ongoing initiative here to deal with route density and an improvement in the overall margin in that business. And so, we are changing a lot of service plants. The third quarter we get one less day, so you'll see a little bit negative there as well.

But I think overall it's probably more reflective of the clean-up that we're doing on these service plants and the shifting that we're making..

And you would anniversary that by when?.

When you mean anniversary, it's....

Also from a comparative statement, next year at the same time, the benefit of all this should lead to 3%, 4% service cycle growth?.

Yeah, probably, I would think, because you are seeing a flattening or a reduction simply because we are dealing with sort of the data that we now have. If you remember, we centralized our call center and we're handling about 40,000 calls through the call center.

And as we analyze that, we realized through both those calls as well as the data that some of the service plants needed to be shifted and changed. And so, we're just improving our customer service with our customers and that I think is reflected maybe in the services that you're seeing as a reduction there..

Okay.

And based on – just sort of backing into the numbers, am I correct thinking that used oil is going to be $100 million EBITDA contributor this year, the KPP business?.

We don't break that out separately anymore, Michael, because the business is so consolidated with the closed-loop, with the S-K branch business, but – so, it's hard for me to kind of speak specifically. Certainly up quite a bit from prior year, given our management of the spread.

And so, certainly could get to that answer, but honestly I can't give you a hard and fast answer because we really just don't have that segment broken out anymore..

All right. And the last one for me on closed-loop. Are you at a point where you're starting to begin to see the operating leverage from it? I get there is an investment in marketing and sales to get customers to buy into this idea and that might have eaten away some of that incremental margin.

But are we starting to begin to see the benefit of – because I have always thought of it as every gallon you move should lead to approximately $1 of incremental margin?.

So, Michael, good observation. Look, we've put a lot of money into the closed-loop. The team is doing a nice job of kind of hitting all the targets to double our volume here in 2018, so we're really pleased. The margins are certainly improving from where they were last year or even in the back half of last year.

And so, they're improving, they're not at the Safety-Kleen average yet. So that's the goal certainly as we go into the end of 2018 and into 2019 to improve those margins. But the answer is improving, but not to where we need them to be..

All right. And then one last one, (26:26).

You're getting both absolute price increase as well as the benefit of mix?.

That is factual. True..

Great. Thank you very much. Nice quarter..

Thanks..

Thanks, Michael..

Our next question comes from the line of David Manthey from Baird. Please proceed with your question..

Hi, guys. Good morning. First off, Mike, I believe you said that SG&A as a percentage of sales is expected to be higher in 2018 overall versus 2017.

And I guess based on your guidance that implies that gross margin will be higher in the second half year-to-year as well?.

That's true, yeah..

Okay.

And then on Veolia, with the better-than-expected results there, is it because the operations are more profitable, is it better revenue trends, synergies coming in faster? What's the benefit there? And did you say that you've planned to get Veolia's margins greater than the core Clean Harbors' margins? Did I hear that correctly?.

Well, I think probably one of the key things with Veolia is we put them on our platform day one. And what we found through initiating our contract management system, our whole quote-to-cash process is that there was real opportunity to improve the business.

From an overhead standpoint, we benefited from the new regional structure that we put together for the whole entire ES business, as you know. And so when the Veolia acquisition came in, it fit quite nicely into an existing corporate structure. So there was a significant amount of cost savings and head count savings as part of that.

I think when we look at the nature of that business, also it's very repetitive. About 70% – 80% of that business is in site locations where we have, yeah, repetitive revenue stream and we can do a lot when we have a business like that to make it more profitable and efficient. So, I think those are the key drivers with Veolia..

Okay. All right. That's helpful. And then, a final question. Alan, I think you mentioned that there's one less selling day in the third quarter, but I also seem to remember that last year there was a whole lot of random items. There was Deer Park and Puerto Rico shutdowns and some shakedown costs and a facility fire and a number of items there..

Yeah..

Should we assume that on the revenue line, maybe that's a wash? And then, in terms of ES profitability, I would imagine you'll be able to make up whatever downdraft you experienced last year on better trends plus the elimination of those items assuming nothing repeats?.

Hey Dave, this is Mike. I'll take a shot, and Alan, feel free to jump in. So, at the end of day, we are guiding to a 10% increase in EBITDA. So yes, there were a fair amount of headwinds last year, as you know, Dave, with hurricanes and fires and so forth. But we are trying – increasing our EBITDA by 10% on one less day.

And so the other point that I wanted to mention since you asked around Q2 versus Q3 is that there are more turnaround days, there are more down days in our incinerators in Q3 versus Q2. So that is a bit of a – just a Q2 versus Q3 timing issue. That's all that is..

Yeah..

Okay. Very good. Thank you..

Thank you..

Thanks, David..

Our next question comes from the line of Jeff Silber from BMO Capital Markets. Please proceed with your question..

Thank you so much.

I know it's early, but I'm just wondering if you're hearing any noise from your customers about the potential impact of trade wars, tariffs, et cetera?.

At this point, we have not had any impact on our business and nothing meaningful that we would be able to share with you today..

Okay. Great. That's helpful. And then shifting gears over to Safety-Kleen, if I heard you correctly, I think you said the majority of the customers are still on a charge-for-oil basis.

Do you think over time that will be shifting to the opposite model of the pay-for-oil? Is that something that we should kind of put in our models?.

As you know, the crude oil pricing continues to go up and down quite a bit. Over the last 30 days here, particularly, down 7% and trading down a little bit this morning.

So we think, quite frankly, over the long-term that oil will be in a charge-for-oil position due to changing regulations that are going to be driving more high sulfur bunker oil back into the market.

And so, even though there may be some short-term swings in some customers to a pay-for-oil position, particularly in maybe some of our large national accounts that have very high-quality oil that will improve our mix and help us get to that Group III level faster, we really think in the long-term a CFO position is going to be the trend..

Okay. Great. That's helpful.

And then, just sticking with the oil price theme, I know it's tiny, but can you give us an update of what's going on with your Lodging business in Western Canada?.

Our utilization in Lodging is ahead of a year ago by 2% or 3%. We continue to believe that as the discount in Canada shrinks a little bit here as more pipelines get budgeted and start under construction and certainly get put in service, then the Canadian – the Western Canada business will be better.

But they continue to have a significant discount with their oil, as you know, and that has impacted their capital spending up there. So, a couple three points better than a year ago, but not where we need it to be..

And is that business profitable on a standalone basis?.

It is. It's certainly better than – the Oil and Gas and Lodging business as a former segment, if you will, is doing better than last year; slightly profitable..

Yeah..

Okay. Great. Thanks so much..

Okay..

Our next question comes from the line of Noah Kaye from Oppenheimer & Company. Please proceed with your question..

Good morning. Yes. Good morning.

Can you hear me?.

We can hear you now..

Hi, Noah..

We can hear you..

All right. Fantastic. I'm delighted that we were able to get on, and sorry for the phone troubles. Hey, a three-part but short three-part question on closed-loop. You talked about doubling direct sales versus last year.

One, can you just remind everyone of what that number was so we have the baseline? Two, can you do that without adding some of these medium and larger accounts? And three, you mentioned that there is a longer sales cycle here for these larger accounts.

Where do you see the company in that sales cycle and when do you think you'll be able to announce some bigger ones?.

Sure. So I think the doubling will get us to about 12 million gallon, so that's our target for this year on the direct side. Overall, we also are targeting to sell through a number of other channels, around 40 million gallons is really our goal there.

But as we've said, on the long-term, what we're trying to do is shift more from our base oil into our blended products, because it's more stable for us. But it also ties nicely into the process of going out and collecting waste and giving back re-refined products.

And we think, in the end, that's what many customers, particularly customers who are interested in greenhouse gas emissions and being green, are really interested in. I think on some of the larger accounts that you speak of, the market, it's a several billion-gallon market.

And so overall, as we think about the kind of numbers that we're looking for, we're not looking for a significant market share. We do have a fair number of large multi-million gallon kind of customers in our pipeline. We're certainly excited about them.

We know that in some cases they have long-term contracts and relationships that we need to wait for those to change. But I would say you'll see some good shifts. Our goal next year is certainly we get closer to 20 million gallons on the direct side. So, I think you'll continue to see us track closely to our targets..

Very helpful. Thanks. And then, you called out a little bit of a timing issue on landfill volumes this quarter.

I understand it's a relatively smaller part of kind of the revenues versus some of the other streams, but can you just speak to expectations on timing for the rest of the year? Maybe you got a little bit easier comps because of some of the headwinds mentioned last year, but should we expect kind of a nice trend up in volumes over the course of the rest of the year?.

I'll start, maybe Mike might chime in. But certainly, a number of our landfills continue to be negatively impacted because of the oil and gas market, particularly our Western Canada landfill, our North Dakota landfill and, to some extent, our Western – our California Buttonwillow landfill.

And so, we've been certainly aggressively going after new types of waste streams and driving different types of customers into those landfills that really have suffered quite a bit over the last three or four years with the crash that happened in the crude business. So, those volumes are coming back. We've won a couple of projects in them.

But I think, overall, we'll continue to see I think volumes improving on the landfill for the rest of this year, but not at the level that we saw probably three or four years ago.

Mike?.

Yeah. That's exactly right, Alan.

So, we see waste projects in remediation improving in the back half, but certainly not to the kind of the years, let's say, three or four years ago, right?.

Yeah..

Certainly kind of first half versus second half, Noah, it's certainly better..

Yeah..

Yeah. So that suggests there maybe still some room to run if we start to see a little bit more strengthening in those regions economically..

Absolutely. Absolutely..

But you're not at your high point by any means. Okay. That's very helpful. Thank you..

Okay..

Our next question comes from the line of Sean Hannan from Needham & Company. Please proceed with your question..

Yes. Good morning. Thanks for taking the question here. The first one I wanted to see if I could hit on, and a lot of us are obviously kind of honed in on some very similar topics, but closed-loop, did I hear 20,000 unique customers at this point? Number one. And, number two, geographically, I think a lot of those efforts have been more so out west.

So just want to see if we could get maybe a little bit of color about how that has been making progress in terms of kind of the geographic expansion and how you're focusing that a bit more for driving the incremental growth. I think there were some earlier questions tied to larger customers.

I'm assuming that we'd still have a lot of runway with smaller ones here as well. Thanks..

Sure. So, I think 20,000 unique customers is the right number. Many of those customers that are selling – that we're selling packaged products to, whether it would be drum containers, totes or other smaller packaged quantities are really throughout the network. We're really selling oil out of all of our branches.

However, our bulk customers, the ones that we're going after to really drive that larger gallon number that we talked about, as you would expect, the greater success we're seeing is in those markets where environmental interests are strong like in Eastern Canada, particularly in California and in states that are more sensitive to the greenhouse gases and the recycling side of our service offering here.

So, on the bulk side, I would say that it's more limited. We do now have 13 bulk distribution facilities. And those are distributed across U.S. and Eastern Canada and we expect to expand on that with existing facilities we have by adding more capabilities to bulk distribution..

Okay. All right. Thank you, Alan. And then in terms of within what was the old sort of Industrial segment, can you folks elaborate a little bit more on what you're seeing within turnaround activity? I'm not sure if I heard much specificity during the course of the prepared comments, et cetera.

I'm just trying to get a sense here as we kind of round out the year, what you folks might be looking at and how that general landscape continuous to look for you. Thanks..

I think the turnaround will probably be quieter in the third quarter, which is sort of seasonal and then will pick up again more in the fourth quarter. We have had some emergency turnaround work that's helped us in Western Canada or – but I would say overall you'll see it less so in the third quarter and more in the fourth quarter which is seasonal..

In terms of comparisons versus what's been pretty sluggish turnaround actually the last few years, I think we are getting nominal improvements and feel that that type of at least kind of uptrend would or should continue into 2019 based on conversations you have or what you observe or even the incidence rate around the emergency turnarounds?.

I think so, because I think as the major oil customers, particularly as they really got severely impacted by the downturn, they held on to cash and really tried to push out maintenance and push out turnarounds as long as they could and really run the plants out, as long as they could, quite frankly.

And we have seen an improvement and a higher number of opportunities now. It is getting more back to normal. But I still believe that it's not where historically it would have been. But I think 2019 certainly should be better than 2018..

Okay. Thanks very much..

Okay..

Mr. McKim, there are no further questions at this time. I would like to turn the floor back over to you for closing comments..

Okay. Great. Well, thank you all for joining us today. We are participating in a number of investor relation events in the coming months, starting with the Canaccord Conference in Boston next week. So we look forward to seeing many of you at these events. Have a great rest of the summer. Thank you..

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation..