SRCL

Stericycle, Inc. (SRCL)

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Stericycle (SRCL)

Q4 2012 Earnings Call

February 06, 2013 5:00 pm ET

Executives

Laura A. Murphy - Vice President of Corporate Finance

Frank J. M. Ten Brink - Chief Financial Officer, Chief Accounting Officer and Executive Vice President of Finance

Richard T. Kogler - Chief Operating Officer and Executive Vice President

Charles A. Alutto - Chief Executive Officer, President and Director

Analysts

Ryan Daniels - William Blair & Company L.L.C., Research Division

Albert Leo Kaschalk - Wedbush Securities Inc., Research Division

Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division

Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

Jason Rogers

Kevin M. Steinke - Barrington Research Associates, Inc., Research Division

Robert M. Willoughby - BofA Merrill Lynch, Research Division

Gary E. Bisbee - Barclays Capital, Research Division

Stewart Scharf - S&P Equity Research

David R. Lewis - Morgan Stanley, Research Division

David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division

Presentation

Operator

Good afternoon. My name is Kyle, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Fourth Quarter 2012 Stericycle Earnings Call. [Operator Instructions] Thank you. I'd now like to turn the call over to Laura Murphy, Vice President of Finance.

Laura A. Murphy

Welcome to Stericycle's quarterly conference call. Joining me on today's call will be Frank Ten Brink, CFO; Rich Kogler, COO; and Charlie Alutto, CEO.

I will now read the Safe Harbor statement. Statements by Stericycle in this conference call that are not strictly historical are forward-looking. Forward-looking statements involve known and unknown risks and should be viewed with caution. Factors described in the company's Form 10-K, 10-Qs, as well as its other filings with the SEC, could affect the company's actual results and could cause the company's actual results to differ materially from expected results. The company makes no commitment to disclose any revisions to forward-looking statements or any facts, events or circumstances after this date that may bear upon forward-looking statements.

I will now turn it over to Frank.

Frank J. M. Ten Brink

Thank you, Laura. The results for the fourth quarter are as follows: Revenues were $503.6 million, up 12.8% from $446.6 million in Q4 of '12; and internal growth, excluding returns and recall revenues, was up 8.4%. Domestic revenues were $355.6 million, of which $332.7 million was domestic regulated waste and compliance services and $22.8 million was recalls and returns. Domestic internal growth, excluding recalls and returns revenue, was up 10%, consisting of SQ up 11% and LQ up 9%.

International revenues were $148.1 million, and internal growth adjusted for unfavorable exchange impact of $2.3 million was up 5%. Acquisitions contributed $31.1 million to the growth in the quarter. The gross profit was $227 million or 45.1% of revenues. SG&A expense, including amortization, was $95.6 million or 19% of revenues. Net interest expense was $13 million. Net income attributable to Stericycle was $70.1 million or $0.80 per share on an as-reported basis and $0.88 adjusted for acquisitions and other nonrecurring expenses.

On the balance sheet. Our covenant debt-to-EBITDA ratio was 2.24 at the end of the quarter. The unused portion of the revolver debt at the end of the quarter was approximately $616 million. In the quarter, we repurchased 457,156 shares of common stock in the open market in an amount of $41.2 million, and we have authorization to purchase an additional 3.8 million shares. Our capital spend was $13.6 million, and our DSO was 59 days. The full year cash provided from operations was $387.4 million.

And I will now turn it over to Rich.

Richard T. Kogler

Thanks, Frank. Worldwide, we continue to use our strong free cash flow to drive our growth through acquisitions. In the quarter, we closed 10 transactions, 5 domestic and 5 international. The international acquisitions consisted of 2 in Spain, 2 in the United Kingdom and 1 in Chile. Our worldwide acquisition pool remains robust with over $100 million in annualized revenues in multiple geographies and lines of business. At the end of the quarter, we had approximately 541,000 accounts, of which, approximately 525,000 were small and the remainder were large.

The strong internal growth rates we experienced in this quarter resulted from more and more customers adopting our multiple services. One of our newer services contributing to growth is StrongPak. StrongPak is one of our regulated waste service offerings which helps retailers manage hazardous and pharmaceutical waste in a compliant manner. Increased regulatory scrutiny and fines for noncompliance have driven demand for StrongPak. We're excited about our future growth because our customers continue to adopt additional services such as StrongPak. These additional services can more than double or triple existing customer revenues.

In closing, we want to thank our worldwide team for their strong performance in 2012. We're especially proud of our team members who were impacted by Hurricane Sandy. They continue to support our customers while their own lives were disrupted by the storm. Their actions demonstrate their strong commitment to our customers and their fellow team members.

Now I'll turn it over to Charlie.

Charles A. Alutto

Thanks, Rich. I would now like to provide insight on our current outlook for 2013. Please keep in mind that these are forward-looking statements.

Revenues from the 10 acquisitions were approximately $8.4 million in Q4, and annualized are approximately $50.5 million. Keep in mind, our 2013 guidance does not include future acquisitions, divestitures, integration and acquisition-related and other nonrecurring expenses. We believe analysts' EPS estimates will be in the range of $3.65 to $3.69, including the impact of the private placement which was funded in Q4. We believe analysts' revenue estimates for 2013 will be in the range of $2.11 billion to $2.14 billion, depending on assumptions for growth and foreign exchange rates.

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