SRCL

Stericycle, Inc. (SRCL)

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Stericycle (SRCL)

Q1 2011 Earnings Call

April 27, 2011 5:00 pm ET

Executives

Frank ten Brink - Chief Financial Officer, Chief Accounting officer and Executive Vice President of Finance

Richard Kogler - Chief Operating Officer and Executive Vice President

Mark Miller - Chairman, Chief Executive Officer and President

Laura Murphy - VP, Corporate Finance

Analysts

Scott Levine - JP Morgan Chase & Co

Ryan Daniels - William Blair & Company L.L.C.

Vance Edelson - Morgan Stanley

Albert Kaschalk - Wedbush Securities Inc.

David Manthey - Robert W. Baird & Co. Incorporated

Jonathan Ellis - BofA Merrill Lynch

Presentation

Operator

Good afternoon. My name is Adrian, and I will be your conference operator today. At this time, I would like to welcome everyone to the Stericycle First Quarter Earnings Call. [Operator Instructions] Laura Murphy, Vice President of Corporate Finance, 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-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 ten Brink

Thanks, Laura. The results for the first quarter are as follows: revenues were $398.1 million, up 18.8% from $335.2 million in the first quarter of '10; domestic revenues were $290.6 million; domestic regulated waste and compliance services revenues were $254.8 million; the returns and recall revenues in the quarter were $35.8 million; and international revenues were $107.5 million, including a favorable exchange impact of $2.3 million.

The domestic internal growth, excluding returns management, was up approximately 7%, consisting of small quantity, up 8%, and large quantity, up 5%. International internal growth, adjusted for exchange, was up over 8%. Acquisitions less than 12 months old contributed $30.6 million to the growth in the quarter. The gross profit was $182.4 million or 45.8% of revenues, and SG&A expense was $75.3 million or 18.9% of revenues. And net interest expense was $11.2 million.

Net income attributable to Stericycle is $55.7 million or $0.64 per share on an as-reported basis and $0.68 adjusted for acquisition expenses and restructuring costs. At the end of the quarter, the revolver borrowings were approximately $97 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 $579 million.

Our capital spending was $11.7 million, and the DSO at the end of the quarter was 51 days. Cash provided from operations was $65.6 million for the quarter, and this includes a $17 million decrease in the balance of cash used for recalled product reimbursements. So adjusted for this, the cash provided from operations was $82.6 million.

And I will now turn it over to Rich.

Richard Kogler

Thanks, Frank. At the end of the quarter, we had approximately 489,000 accounts, of which over 475,500 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. And today, approximately 1/3 of our SQ customers utilize our multiple services, which leaves 2/3 of our customer base available for growth.

We want to thank each member of our worldwide team, especially our team members in Japan, 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 our insight and our current outlook for 2011. Please keep in mind that these are forward-looking statements.

During the first quarter this year, we completed 9 acquisitions: 3 domestic and 6 international. The incremental revenue impact in the first quarter of 2011 was $1.8 million. On April 18, we announced the completion of HWS acquisition, and the annualized revenues of all of these acquisitions is approximately $57 million. Now keep in mind that our guidance does not include future acquisitions, divestitures, acquisition-related expenses and integration expenses. And please note, we have not yet finalized the integration expense estimate for HWS.

We believe analysts' EPS estimates will be in the range of $2.79 to $2.82, which we are comfortable with. We believe analysts' revenue estimates will be in the range of $1.61 billion to $1.64 billion, depending on assumptions for growth in foreign exchange. We believe analysts will have estimates for free cash flow between $284 million and $288 million, and as reported free cash flow of $261 million to $265 million. CapEx is anticipated between $45 million and $55 million.

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