SRCL

Stericycle, Inc. (SRCL)

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Stericycle (SRCL)

Q4 2011 Earnings Call

February 02, 2012 5:00 pm ET

Executives

Laura A. Murphy - Vice President of Corporate Finance

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

Richard Kogler - Chief Operating Officer and Executive Vice President

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

Analysts

Ryan Daniels - William Blair & Company L.L.C., Research Division

Scott J. Levine - JP Morgan Chase & Co, Research Division

Jonathan Demchick - Morgan Stanley, Research Division

Albert Leo Kaschalk - Wedbush Securities Inc., Research Division

Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division

David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division

Richard C. Close - Avondale Partners, LLC, Research Division

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

Gregory W. Halter - LJR Great Lakes Review

Presentation

Operator

Good afternoon. My name is Jessica, and I will be your conference operator today. At this time, I'd to welcome everyone to the fourth quarter 2011 earnings release conference call. [Operator Instructions] Thank you. Laura Murphy, Vice President, Corporate Finance, you may begin your conference.

Laura A. 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 J. M. ten Brink

Thanks, Laura. The results for the fourth quarter are as follows. Revenues were $446.6 million, up 13.5% from $393.5 million in Q4 of '10, and internal growth excluding returns and recall revenues was up 7%. Domestic revenues were $316.9 million, of which $287.5 million was domestic-regulated waste and compliance services revenue, and $29.4 million was returns and recalls. Domestic internal growth, excluding returns recalls revenue, was up 8%, consisting of Small Quantity up 9% and Large Quantity up 6%. International revenues were $129.6 million, and internal growth adjusted for unfavorable exchange impact of $2.5 million was up 5%.

Acquisitions less than 12 months old contributed $48.9 million to the growth in the quarter. Gross profit was $201.5 million or 45.1% of revenues. SG&A expense was $84.3 million or 18.9% of revenues. Net interest expense was $12.7 million. We have the full quarter impact of the renewal of the senior revolver facility for $1 billion at a spread of 137.5 basis points over LIBOR versus 75 basis points over LIBOR on our prior facility. Net income attributable to Stericycle was $64.3 million or $0.74 per share on an as-reported basis, and $0.76 adjusted for acquisition expenses and other non-recurring expenses.

Now the balance sheet. At the end of the quarter, the revolver borrowings were approximately $528 million. The unused portion of the revolver debt at the end of the quarter was approximately $313 million. In the quarter, we repurchased over 549,000 shares of common stock on the open market in an amount of $42.9 million. And we have authorization to purchase an additional 4.3 million shares. Capital spending was $16.3 million in the quarter. Our DSO was 59 days. Excluding the third quarter acquisitions, the DSO was 53 days. Q4 year-to-date, the cash provided from operations was $306.1 million.

I will now turn it over to Rich.

Richard Kogler

Thanks, Frank. At the end of the quarter, we had approximately 522,000 accounts, of which over 506,000 were Small and the remainder were Large. We continued to see strong worldwide growth driven by the expanding portfolio services that complement our core regulated waste service. For our SQ customers, the growth drivers remain Steri-Safe and Clinical Service compliance programs. And for our LQ customers the growth drivers are Sharps Management and Pharma Waste services.

Worldwide, we continue to use our strong free cash flow to fuel growth through acquisitions. In the quarter, we closed 8 transactions, 5 of which were domestic and 3 international. For 2012, we anticipate internal growth rates for SQ to be at -- in the range of 8% to 10%; LQ, 5% to 8%; international, 5% to 8%; and recall and returns revenues between $95 million and $115 million. We remain very excited about our future growth opportunity because 80% of our LQ and 70% of our SQ customers only use one of our current service offerings. As customers adopt our multiple services, this can more than double or triple their revenues.

I want to close by thanking each member of our worldwide team for their strong performance and continued commitment to our customers and shareholders. And 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 2012. Please keep in mind that these are forward-looking statements. Revenues from acquisitions completed in the quarter were approximately $2.2 million, and annualized are approximately $10 million. Keep in mind, our guidance does not include future acquisitions, divestitures and acquisition expenses.

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