SRCL

Stericycle, Inc. (SRCL)

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Stericycle (SRCL)

Q2 2011 Earnings Call

July 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

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

Albert Kaschalk - Wedbush Securities Inc.

Akil Marsh - Atlantic Equities LLP

Scott Schneeberger - Oppenheimer & Co. Inc.

Richard Close - Jefferies & Company

David Manthey - Robert W. Baird & Co. Incorporated

Presentation

Operator

Good afternoon. My name is Kyle, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the second quarter earnings conference call. [Operator Instructions] Thank you. Ms. Murphy, you may now 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 second quarter are as follows. Revenues were $410.4 million, up 18% from $347.7 million in the Q2 of '10. Domestic revenues were $300.7 million. Domestic regulated waste and compliance services revenue were $273.8 million. Returns and recall revenues were $26.9 million in the quarter. International revenues were $109.7 million, including a favorable exchange impact of $7.4 million.

Domestic internal growth, excluding returns management, was up 8%, consisting of Small Quantity, up 9%; and Large Quantity customers, up 6%. International internal growth adjusted for exchange was up 4%. Acquisitions less than 12-month old contributed $34.9 million to the growth in the quarter, and gross profit was $186.7 million or 45.5% of revenues. SG&A expense was $78 million or 19% of revenues, and net interest expense was $12.9 million. And just a comment, in May, we repaid the remaining balance of the $76.9 million of our 2009 3-year term loan and accelerated the noncash unamortized term loan fees of $1.2 million. Net income attributable to Stericycle is $55.5 million or $0.63 per share on an as reported basis and $0.69 adjusted for acquisition expenses and the term loan fees.

Now the balance sheet. At the end of the quarter, the revolver borrowings were approximately $387 million, and the unused portion of the revolver debt at the end of the quarter was approximately $297 million. We purchased 50,675 shares of common stock in the open market in an amount of $4.3 million in the quarter. Cumulatively, we've purchased approximately 14.7 million shares and still of authorization to purchase an additional 5.8 million shares. The CapEx in the quarter was $12 million, and our DSO was 53 days. The cash provided from operations year-to-date was $119.7 million.

And I will now turn it over to Rich.

Richard Kogler

Thanks, Frank. At the end of the quarter, we had approximately 508,000 accounts of which over 493,600 were Small and the remainder were Large. We continue to see strong worldwide growth driven by new accounts acquisition, the adoption of our expanding portfolio of service offerings. Today, only 20% of our LQ and 30% of our SQ customers are using more than one of our multiple services. And the remaining pool of customers provides a long runway for future growth. We remain very excited about this opportunity because adoption of multiple services has the potential to more than double or triple the revenues per customer.

We want to thank each number of our worldwide team for their solid performance and their 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 in our current outlook for 2011, and please keep in mind that these are forward-looking statements. During the second quarter, we completed 11 acquisitions; 7 domestic and 4 international, and this includes the Healthcare Waste Solutions or HWS acquisition, which we discussed in our last call. Revenues from acquisitions now previously announced were $1.2 million in the quarter and annualized were approximately $9.8 million. Now keep in mind that our guidance does not include future acquisitions, divestitures and acquisition-related expenses.

We believe analyst EPS estimates after adjusting for the Healthcare Waste Solutions integration expenses will be in the range of $2.78 per share to $2.80 per share, which we are comfortable with. We believe analyst revenue estimates will be in the range of $1.62 billion to $1.65 billion depending on assumptions for growth in foreign exchange. I believe analysts Would have estimates for free cash flow between $284 million and $288 million and an as reported free cash flow of $261 million to $265 million. CapEx is anticipated between $45 million and $55 million.

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