SRCL

Stericycle, Inc. (SRCL)

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Stericycle, Inc. (SRCL)

Q3 2010 Earnings Call

October 27, 2010; 05:00 pm ET

Executives

Mark Miller - Chairman and Chief Executive Officer

Frank Ten Brink - Chief Financial Officer

Rich Kogler - Chief Operating Officer

Laura Murphy - Vice President of Corporate Finance

Analysts

Ryan Daniels - William Blair

Jonathan Ellis - Bank of America

Al Kaschalk - Wedbush Securities

Scott Levine - JPMorgan

Scott Schneeberger - Oppenheimer

Richard Skidmore - Goldman Sachs

Sean Dodge - Jefferies & Company

Jason Rogers - Great Lakes Review

David Manthey - Robert W. Baird and Company

Presentation

Operator

Good afternoon, my name is Danny and I will be your conference operator today.

At this time, I would like to welcome everyone to the Third Quarter 2010 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).

Vice President of Corporate Finance, Laura Murphy, you may begin your conference.

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, Chairman and 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 have caused the company's actual results to materially differ 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 third quarter are as follows. Revenues grew $65.2 million to $363 million, up 21.9% from $297.8 million in the third quarter of ‘09. Revenues grew 22.4% when adjusted for the unfavorable foreign exchange impact of $1.6 million.

Domestic internal growth excluding returns management was up 8.4% and international internal growth adjusted foreign exchange was up approximately 6%. Domestic internal growth consisted of SQ of 10% and large quantity of 6%. Regulated recalls and returns management services revenues were $31.9 million.

Gross profit was $168.1 million or 46.3% of revenues excluding the regulated returns management services restructuring costs, the gross margin would have been 46.4%.

SG&A expense was $69.4 million or 19.1% of revenues and net interest expense was $8.4 million. Net income attributable to Stericycle was $56.7 million or $0.65 per share on an as-reported and adjusted basis.

At the end of the quarter, the revolver borrowings were approximately $375 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 $290 million.

On October 15, we received 400 million private placements. The proceeds were used to repay 100 million of the term debt and 300 million of the revolver.

We repurchased 308,588 shares of common stock on the open market in an amount of 19.3 million in the quarter. Capital spending was $10.9 million and our DSO in the quarter was 53 days. Finally, the cash provided from operations was $205.4 million for the first nine months of 2010.

And I will now turn it over to Rich.

Richard T. Kogler

Thanks, Frank. At the end of the quarter, we had approximately 476,000 accounts of which approximately 463,500 were small and the remainder were large. We continue to see strong growth worldwide, driven by new account acquisition and the adoption of our expanding portfolio of service offerings.

With our large quantity customers, we have multiple service offerings which add to the value of each account, and today less than 20% of our LQ customers are using our multiple services, leaving more than 80% of our LQ customer base available for growth. Likewise, with our small quantity customers, we offer multiple services that increase the value of an account. Today, approximately a third of our SQ customers utilize our multiple services, leaving two thirds of our customer base available for growth.

We do remain excited about the recently launched Rx Waste program for our domestic large and small customers, and we continue to receive favorable feedback from customers about our unique in-service capability, which helps them stay compliant.

In closing, we want to thank each member of our worldwide team for their solid performance and continued commitment to our customers and our shareholders.

I will turn it over to Mark.

Mark C. Miller

Thanks, Rich. I’d now like to provide insight on our current outlook for 2010 and preliminary outlook for 2011. Please keep in mind that these are forward-looking statements.

At the end of the third quarter, we completed six acquisitions, three domestic and three international. The annualized revenue of these six acquisitions is approximately $18 million.

Keep in mind our guidance does not include future acquisitions, divestitures and related transaction expenses, but our guidance does include those items for transactions that are closed.

For 2010, we believe analyst EPS estimates will be in the range of $2.45 and $2.46, based on an as-reported GAAP EPS for the first three quarters of the year, and we’re comfortable with this range. We believe analyst revenue estimates for 2010 will be in the range of 1.4 billion to 1.41 billion, depending on assumptions for growth rate in foreign exchange. And we believe analysts will have estimates for free cash flow of 241 million to 243 million with capital expenditures anticipated between $46 million and $47 million for the year.

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