SRCL

Stericycle, Inc. (SRCL)

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Stericycle (SRCL)

Q3 2012 Earnings Call

October 24, 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 T. Kogler - Chief Operating Officer and Executive Vice President

Charles A. Alutto - Executive Vice President and President of Stericycle Usa

Analysts

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

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

Albert Leo Kaschalk - Wedbush Securities Inc., Research Division

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

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

Erin E. Wilson - BofA Merrill Lynch, Research Division

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

Stewart Scharf - S&P Equity Research

Barbara Noverini - Morningstar Inc., Research Division

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

Presentation

Operator

Good afternoon, my name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the Stericycle's Third Quarter 2012 Earnings Conference Call. [Operator Instructions] Ms. Laura Murphy, VP of Finance, you may begin your conference call.

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; Charlie Alutto, CEO-elect; 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 third quarter are as follows: Revenues were $480.5 million, up 14.2% from $420.9 million in Q3 '11. And internal growth, excluding returns and recall revenues, was up 8.5%. Domestic revenues were $348.2 million, of which $319.5 million was domestic regulated waste and compliance services and $28.7 million was returns and recalls. Domestic internal growth, excluding returns and recalls revenues, was up over 10% consisting of SQ up 11%, and LQ up 9%. International revenues were $132.3 million and internal growth, adjusted for unfavorable exchange impact of $8 million, was up 4%. Acquisitions contributed $31.5 million to the growth in the quarter, of which $0.6 million related to the recalls and returns business.

Gross profit was $215.6 million or 44.9% of revenues. And SG&A expense was $90.2 million, or 18.8% of revenues. Net interest expense was $12.9 million and the net income attributable to Stericycle was $65.5 million or $0.75 per share on a reported basis and $0.84 adjusted for acquisitions and other nonrecurring expenses.

Now the balance sheet. Our covenant debt-to-EBITDA ratio was 2.22 at the end of the quarter. The unused portion of the revolver debt at the end of the quarter was approximately $610 million. On October 22, we signed 2 private placements for a total of $250 million. This includes a $125-million, 7-year note at a rate of 2.68% and a $125-million 10-year note at a rate of 3.26%. The proceeds will be used to reduce existing borrowings.

In the quarter, we repurchased 43,500 shares of common stock in the open market in an amount of $3.9 million, and we have authorization to purchase an additional 4.2 million shares. Our capital spending was $17.8 million, our DSO was 60 days and Q3 year-to-date cash provided from operations was $277 million.

And I will now turn it over to Rich.

Richard T. Kogler

Thanks, Frank. Worldwide, we continue to use our strong free cash flow to drive our growth through acquisitions. In the quarter, we closed 12 transactions, 3 domestic and 9 international. Our worldwide acquisition pool room remains robust with over $100 million in annualized revenues in multiple geographies and lines of business. At the end of the quarter, we had approximately 537,000 accounts, of which over 521,000 were small and the remainder were large.

The strong internal growth rates we experienced in this quarter resulted from more and more customers adopting our expanding portfolio of offerings. For our SQ customers, these include Steri-Safe and other compliance services; and for our LQ customers, the growth drivers are Sharps Management, Pharma Waste and Integrated Waste Solutions. We remain very excited about our future growth because today, 80% of our LQ and 70% of our SQ customers only use one of our current service offerings. And as customers adopt our multiple services, this can more than double or triple their revenues.

We want to take this opportunity to thank each member of our worldwide team for their strong performance and continued commitment to our customers and our shareholders. I'll now turn it over to Charlie.

Charles A. Alutto

Thanks, Rich. I would now like to provide insight on our current outlook for 2012 and 2013. Please keep in mind that these are forward-looking statements.

Revenues from acquisitions completed in the quarter were approximately $3.8 million, and annualized, are approximately $33.7 million. Keep in mind, our 2012 guidance does not include future acquisitions, divestitures, acquisition-related and other nonrecurring expenses. For 2012, we believe analysts' EPS estimates will be in the range of $3.27 to $3.29, which we are comfortable with. We believe analysts' revenue estimates for 2012 will be in the range of $1.87 billion to $1.9 billion, depending on assumptions for growth and foreign exchange rates. We believe analysts will have estimates for free cash flow between $319 million to $327 million, with CapEx anticipated between $65 million to $68 million.

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