Stericycle (SRCL)

Q3 2011 Earnings Call

October 26, 2011 5:00 pm ET

Executives

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

Laura A. Murphy - Vice President of Corporate Finance

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

Analysts

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

Albert Leo Kaschalk - Wedbush Securities Inc., Research Division

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

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

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

Michael E. Hoffman - Wunderlich Securities Inc., Research Division

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

James Francescone - Morgan Stanley, Research Division

Presentation

Operator

Good afternoon. My name is Amanda, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Stericycle, Inc. Third Quarter 2011 Earnings Call. [Operator Instructions] Thank you. Laura Murphy, Vice President of Corporate Finance, you may begin.

Laura A. Murphy

Welcome to the 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 third quarter are as follows: Revenues were $420.9 million, up 16% from $363 million in Q3 of '10. Domestic revenues were $303.9 million. Domestic regulated waste and compliance services revenues were $278.7 million. International revenues were $117.1 million including a favorable exchange impact of $4.1 million. Domestic internal growth, excluding returns management was up 7%, consisting of SQ up 8% and LQ up 6%. International internal growth adjusted for exchange was up 5%.

The returns in recall revenues were $25.1 million versus $31.9 million the prior-year quarter. Acquisitions less than 12 month old contributed $43.9 million to the growth in the quarter. Gross profit was $190.1 million or 45.2% of revenues. Acquisition mix unfavorably impacted gross margin percent by 50 basis points, offsetting a sequential 20 basis-point improvement.

SG&A expense was $79.1 million or 18.8% of revenues. Net interest expense was $11.8 million. And then late September, we closed on 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 $59.2 million or $0.68 per share on an as-reported basis, and $71 million 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 962,000 shares of common stock in the open market in an amount of $76.9 million, and we have authorization to purchase an additional 4.9 million shares.

Our CapEx was $13.3 million in the quarter. Our DSO was 58 days. However, excluding the third quarter acquisitions, it was 53 days. With the full impact of these acquisitions in Q4, the DSO is anticipated to be in a range of 51 days to 61 days. Q3 year-to-date, the cash provided from operations was $215.2 million. And I will now turn it over to Rich.

Richard Kogler

Thanks, Frank. At the end of the quarter, we had approximately 517,000 accounts of which over 501,600 were Small and other major were Large. We continue 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 are 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 our growth through acquisitions. In the quarter, we closed 17 transactions. 16 of these acquisitions enhanced our existing platforms and the 17th was our first acquisition in Spain. We also continued to invest in new service offerings such as patient communications and additional recall services.

As we head into 2012, we anticipate internal growth rates for SQ at 8% to 10%, LQ at 5% to 8%, and international at 5 to 8%. 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.

We want to take time to thank each member of our worldwide team for their strong performance and continued commitment to our customers and shareholders. And I'll turn it over to Mark.

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