Stericycle Management Discusses Q2 2012 Results - Earnings Call Transcript

Stericycle (SRCL)

Q2 2012 Earnings Call

July 25, 2012 5:00 pm ET


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


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

Albert Leo Kaschalk - Wedbush Securities Inc., Research Division

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

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

Erin E. Wilson - BofA Merrill Lynch, Research Division

James Francescone - Morgan Stanley, Research Division

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

Gregory W. Halter - LJR Great Lakes Review

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

Kevin M. Steinke - Barrington Research Associates, Inc., Research Division

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

Jason A. Rodgers - Soleil Securities Corporation



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 Second Quarter 2012 Earnings Conference Call. [Operator Instructions] Thank you. Ms. Laura Murphy, Vice President 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 Alluto, 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 second quarter are as follows: Revenues were $468.9 million, up 14.3% from $410.4 million. In Q2 of 2011, an internal growth excluding returns and recall revenues was up 8%. Domestic revenues were $337.9 million of which $308.9 million was domestic regulated waste and compliance services revenues, and $29 million was returns and recalls. Domestic internal growth, excluding returns and recall revenues was up 9%, consisting of SQ, up 10%, and LQ, up 8%; International revenues were $131.1 million and internal growth, adjusted for unfavorable exchange impact of $8.1 million, was up 5%. Acquisitions contributed $36.6 million to the growth in the quarter, of which $2.7 million related to the Recalls and Returns business.

Gross profit was $209.5 million, or 44.7% of revenues. SG&A expense was $88 million or 18.8% of revenues. Net interest expense was $12.7 million, and net income attributable to Stericycle was $67.6 million or $0.78 per share on an as-reported basis, and 81% adjusted for acquisition and other non-recurring expenses.

Now the balance sheet. At the end of the quarter, the revolver borrowings were approximately $516 million. The unused portion of the revolver debt at the end of the quarter was approximately $328 million. Our capital spend in the quarter was $16.8 million. And our DSO was 58 days. Q2 year-to-date, the cash provided from operations was $188.8 million, which includes $9 million of cash received in the second quarter from a customer to be used for recall product reimbursement. 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 grow-through acquisitions. In the quarter, we closed 8 transactions, 3 domestic and 5 international. Our worldwide acquisition pool 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 535,000 accounts, of which over 519,000 were Small and the remainder were Large. Our customers continue to be excited about our expanding portfolio of services. For our SQ customers, these services include Steri-Safe and clinical compliance offerings. And for our LQ customers, the growth drivers are Sharps Management, Pharma Waste and Integrated Waste Services. The strong growth we experienced in the quarter was fueled by the continued adoption of these additional service offerings.

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. For 2012, we anticipate internal growth rates for SQ to be at 8% to 10%; LQ, 5% to 8%; International, 5% to 8%; and Recall and Returns revenues between $110 million and $120 million.

We want to thank each member of our worldwide team for their strong performance and continued commitment to our customers and shareholders. A special thanks to our Spanish team for their great cash collections efforts in the quarter. I'll turn it over to Charlie.

Charles A. Alutto

Thanks, Rich. I would 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 $3 million and annualized are approximately $41 million. Keep in mind our guidance does not include future acquisitions, divestitures and acquisition expenses.

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