SRCL

Stericycle, Inc. (SRCL)

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Stericycle, Inc. (SRCL)

Q1 2010 Earnings Call Transcript

April 28, 2010 5:00 pm ET

Executives

Laura Murphy – VP, Corporate Finance

Frank ten Brink – EVP, CFO and Chief Administrative Officer

Rich Kogler – EVP and COO

Mark Miller – Chairman, President and CEO

Analysts

Jonathan Ellis – Bank of America/Merrill Lynch

Rodney Clayton – JP Morgan

Al Kaschalk – Wedbush Securities

Ryan Daniels – William Blair & Company

David Manthey – Robert W. Baird

Scott Schneeberger – Oppenheimer & Company

Jason Rodgers – Great Lakes Review

Michael Hoffman – Wunderlich Securities

Richard Skidmore – Goldman Sachs

Presentation

Operator

Good afternoon. My name is Mason and I will be your conference operator today. At this time, I would like to welcome everyone to the Stericycle first quarter 2010 earnings 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’d now like to turn the call over to Ms. Laura Murphy, Vice President of Corporate Finance for Stericycle. You may now begin.

Laura Murphy

Welcome to Stericycle's quarterly conference call. Joining me on today's call will be Frank ten Brink, CFO; 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.

I will now turn it over to Frank.

Frank ten Brink

Thanks, Laura. The results for the first quarter are as follows: Revenues grew $58.1 million to $335.2 million, up 21% from $277.1 million in the first quarter of ’09. Revenues grew 19.1% when adjusted for the favorable foreign exchange impact of $5.2 million. Domestic internal growth, excluding returns management, was up 7%; and international internal growth adjusted for foreign exchange was up 7%. Domestic internal growth consisted of SQ up 8% and LQ up 5%. Regulated recalls and returns management services returns revenues were $26.3 million.

Gross profit was $155.3 million or 46.3% of revenues. Excluding the regulated returns management services restructuring cost, the gross margin would have been 46.5%. SG&A expense was $66 million or 19.7% of revenues. Net interest expense was $8.9 million, and the net income attributable to Stericycle was $48.1 million or $0.56 per share on an as-reported basis and $0.57 adjusted for after-tax transaction expenses related to acquisitions and restructuring costs.

At the end of the quarter, the revolver borrowings were approximately $405 million, which is floating at LIBOR plus 75 basis points. The unused portion of the revolver debt at the end of the quarter was approximately $251 million.

We repurchased 207,114 shares of common stock on the open market in an amount of $11.3 million, of which cash in the quarter to settle was $10.6 million. Cumulatively, we have repurchased approximately 13.4 million shares, and we still have authorization to purchase an additional 2.8 million shares.

Our capital spending in the quarter was $12.8 million, the DSO in the quarter was 51 days, and the cash provided from operations was $81.1 million for the quarter.

And I will now turn it over to Rich.

Rich Kogler

Thanks, Frank. Our team delivered strong results worldwide highlighted by the following areas. We continue to see growth of our small quantity service offerings, and we increased adoption of our reusable sharps management and pharma waste services. We experienced a solid recall quarter, and all the countries delivered strong operating performance.

I want to take this time to thank each member of our worldwide team for their solid performance and continued commitment to our customers and shareholders. I’ll turn it over to Mark.

Mark Miller

Thanks, Rich. I’d now like to provide insight on our current outlook for 2010. And please keep in mind that these are forward-looking statements. At the end of the first quarter, we completed six acquisitions, two domestic and four international. The annualized revenue of these six acquisitions is over $37 million. Keep in mind our guidance does not include future acquisitions, divestitures and the related transaction expenses, but our guidance does include these items for the MedServe transaction we spoke about in the last call.

We believe analyst EPS estimates will be in the range of $2.38 per share to $2.44 per share, which we are comfortable with. And please note that this guidance includes approximately $0.04 per share negative impact from the acquisition integration expenses for MedServe. We believe analyst revenue estimates for 2010 will be in the range of $1.35 billion to $1.38 billion, depending on assumptions for growth and foreign exchange.

And we believe analysts will have estimates for net income between $206 million and $211 million depending on assumptions for margin improvement and interest expense. We believe analysts will have estimates for free cash flow of between $245 million to $255 million, with CapEx anticipated between $45 million and $50 million.

In closing, we are very excited about the tremendous growth opportunities in 2010 and beyond. We thank you for listening to our prepared comments. And we’ll now answer your questions.

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