SRCL

Stericycle, Inc. (SRCL)

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Stericycle, Inc. (SRCL)

Q4 2009 Earnings Call Transcript

February 4, 2009 5:00 pm ET

Executives

Frank ten Brink – EVP, CFO and Chief Administrative Officer

Rich Kogler – EVP and COO

Mark Miller – Chairman, President and CEO

Analysts

Ryan Daniels – William Blair & Company

Jonathan Ellis – Banc of America

Al Kaschalk – Wedbush Securities

Scott Levine – JP Morgan

Scott Schneeberger – Oppenheimer

Richard Skidmore – Goldman Sachs

David Manthey – Robert W. Baird

Jason Rodgers – Great Lakes Review

Presentation

Operator

Good afternoon. My name is Kim and I will be your conference operator today. At this time, I would like to welcome everyone to the fourth quarter 2009 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator instructions) Thank you.

I would like to turn the call over to the CFO, Frank ten Brink. You may begin your conference.

Frank ten Brink

Thank you. Welcome to Stericycle's quarterly conference call. Joining me on today's call will be Rich Kogler, COO, and Mark Miller, 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-Q, 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.

Now, into the results. The results for the fourth quarter are as follows: Revenues grew $39.5 million to $313.5 million, up 14.4% from $274 million in Q4 of 2008. Revenues grew 13.5% when adjusted for the favorable foreign exchange impact of $2.6 million. Domestic internal growth, excluding returns management, was up approximately 6% and international internal growth adjusted for foreign exchange was up over 5%. Domestic internal growth consisted of SQ up 8% and LQ up 3%. The regulated recalls and returns management services revenues were $16.1 million.

Gross profit was $147.1 million or 46.9% of revenues. Excluding the restructuring costs, the gross margin would have been 47.2%. SG&A expense was $61.8 million or 19.7% of revenues. Net interest expense was $8.8 million, and net income attributable to Stericycle was $44.6 million or $0.52 per share on an as-reported basis and $0.55 adjusted for transactional expenses related to acquisitions and restructuring costs.

At the end of the quarter, the revolver borrowings were approximately $382 million. Currently, $100 million of our revolver is hedged, at an average fixed 2.83% LIBOR rate plus 75 basis points. The remaining $282 million is floating at LIBOR plus 75 basis points or the prime rate, whichever is lower. The unused portion of the revolver debt at the end of the quarter was approximately $244 million.

We repurchased 93,670 shares of common stock on the open market in an amount of $4.5 million in the quarter. Cumulatively, we have purchased approximately 13.2 million shares. We still have authorization to purchase an additional 3.0 million shares.

Our CapEx was 10.3 million, and our DSO at the end of the quarter was 52 days. The cash provided from operations in the quarter was $63.3 million and $277.2 million for the year.

And now, I will now turn it over to Rich.

Rich Kogler

Thanks, Frank. We want to thank each member of our worldwide team for their solid performance and continued commitment to our customers and shareholders.

In the quarter, we enjoyed strong sales growth in all of our business segments. SQ growth was primarily driven by Steri-Safe, with 80% of new Steri-Safe customers choosing Select or Preferred programs. LQ sales growth was driven by the continued adoption of our Bio Systems offering and new service agreements.

In summary, we ended Q4 with over 459,000 accounts, of which approximately 447,900 were small, and the remainder large.

I will turn it over to Mark.

Mark Miller

Thanks, Rich. I would now like to provide insight on our current outlook for 2010. Please keep in mind that these are forward-looking statements.

During the fourth quarter, we completed six acquisitions, two domestic and four international. The incremental revenue impact in the fourth quarter of this year was approximately $6.3 million. The annualized revenues of these acquisitions is approximately $59.9 million. Now please keep in mind that our guidance does not include future acquisitions, divestitures and the related transactional expenses, but our guidance does include these items for the MedServe transaction completed at the end of Q4.

We believe analyst EPS estimates will be in the range of $2.34 to $2.40, which we are comfortable with. Please note that this guidance includes approximately $0.04 negative impact per share of acquisition integration expenses. We believe analyst revenue estimates for 2010 will be in the range of $1.32 billion to $1.35 billion, depending on assumptions for growth and foreign exchange. We believe analysts will have estimates for net income between $202 million and $208 million depending upon assumptions for margin improvement and interest expense. We believe analysts will have estimates for free cash flow of $245 million to $255 million, with CapEx anticipated between $45 million and $50 million.

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