SRCL

Stericycle, Inc. (SRCL)

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Stericycle, Inc. (SRCL)

Q4 2010 Earnings Call

February 3, 2011 5:00 pm ET

Executives

Frank J.M. ten Brink - Executive Vice President, Chief Financial Officer and Chief Administrative Officer

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

Mark C. Miller - Chairman, President and Chief Executive Officer

Analysts

Jonathan Ellis - Banc of America - Merrill Lynch

Ryan Daniels - William Blair & Company

David Manthey - Robert W. Baird

Scott Levine - JPMorgan

Scott Schneeberger - Oppenheimer & Co.

Daniel Owczarski - Avondale Partners

Greg Halter - Soleil Group

[Kevin Lee] - Wedbush Securities

Richard Skidmore - Goldman Sachs

Presentation

Operator

Good afternoon, my name is Jessica and I will be your conference operator today. At this time I would like welcome everyone to the Stericycle Fourth 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) Thank you.

Laura Murphy, Vice President of Corporate Finance. You may 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, 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’s, 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 $393.5 million, up 25.5% from $313.5 million in the fourth quarter of ’09. Domestic revenues were $292.6 million. Domestic regulated waste and compliance services revenues were $250 million, and the returns and recall revenues were $42.6 million. The international revenues were $100.9 million, including an unfavorable exchange impact of $1 million.

Domestic internal growth, excluding returns management, was up approximately 8%, consisting of small quantity up 9%, and large quantity up 6%. International internal growth adjusted for exchange was up approximately 8%. Acquisitions, less than 12 months old, contributed $32.5 million to the growth in the quarter. Gross profit was $182.5 million or 46.4% of revenues, and SG&A expense was $75.7 million or 19.2% of revenues.

Net interest expense was $10.7 million. Net income attributable to Stericycle was $50 million or $0.50 per share on an as-reported basis, and $0.69 adjusted for after-tax transaction expenses related to various – and related also other adjustments. At the end of the quarter, our revolver borrowings were approximately $175 million and is floating at LIBOR plus 75 basis points.

The unused portion of the revolver debt at the end of the quarter was approximately $491 million. As we mentioned before on October 15, 2010, we received a $400 million private placement, and those proceeds were used to prepay part of the term debt that we have and reduce the revolver. We purchased 709,867 shares of common stock on the open market in the quarter in an amount of $50.7 million.

Capital spending was $12.4 million. And our DSO at the end of the quarter was 51 days. The cash provided from operations was $325.7 million for the year, which includes $23 million of cash received in the fourth quarter from our customers to be used for recalled product reimbursements. Those were my comments, I will now turn it over to a Rich.

Richard T. Kogler

Thanks, Frank. At the end of the quarter, we had approximately 485,400 accounts, of which over 472,000 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. And today approximately a third of our SQ customers utilize multiple services, leaving two-thirds of our customer base available for growth. In closing, we want to thank each member of our worldwide team for their solid performance that led to a record year in 2010. And we especially want to recognize our recall team for successfully managing the large spike in volume we experienced on a few major recalls.

Now, I’ll turn it over to Mark.

Mark C. Miller

Thanks Rich. I’d now like to provide insight on our current outlook for 2011. Please keep in mind that these are forward-looking statements. During the fourth quarter, we completed 17 acquisitions, six domestic, and 11 international. The incremental revenue impact in the fourth quarter of 2010 from these acquisitions was $8.8 million. The annualized revenue of these acquisitions is approximately $65 million.

Now keep in mind, our guidance does not include future acquisitions, divestitures and transactional expenses related acquisitions. Now I’d like to provide you the outlook for 2011. We believe the analyst EPS estimates will be in the range $2.76 to $2.80 per share, which we were comfortable with. We believe analyst revenue estimates for 2011 will be in the range of $1.55 to $1.58 billion depending on assumptions for growth in foreign exchange.

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