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Stericycle, Inc. Reports Results for the Second Quarter and Year to Date 2016

/EIN News/ -- Conference call to be held July 28, 2016 4:00 p.m. Central time – Dial 866-516-6872 at least 5 minutes before start time. If you are unable to participate on the call, a replay will be available through August 28th by dialing 855-859-2056, access code 21516790. To hear a live simulcast of the call or access the audio archive, visit the investor relations page on www.stericycle.com.

LAKE FOREST, Ill., July 28, 2016 (GLOBE NEWSWIRE) -- Stericycle, Inc. (NASDAQ:SRCL), today reported financial results for the second quarter and year to date 2016.

SECOND QUARTER RESULTS

Revenues for the quarter ended June 30, 2016 were $891.6 million, up 24.6% from $715.7 million in the second quarter of last year. Acquisitions contributed approximately $185.9 million to the current period’s growth in revenues.  Revenues increased 27.4% compared to the prior period when adjusted for unfavorable foreign exchange impacts of $20.0 million. Organic revenues grew 1.4%, or 3.3% when adjusted for manufacturing and industrial services. See Tables 1A-1C below.

Gross profit, reported in accordance with U.S. generally accepted accounting principles (“GAAP”), was $381.1 million, up 25.0% from $304.8 million in the second quarter of last year.  GAAP gross profit as a percentage of revenue was 42.7% compared to 42.6% in the second quarter of 2015. Non-GAAP gross profit, when adjusted for plant conversion expenses as identified in Table 2 below, was $381.6 million, an increase of 25.0% from $305.3 million in the second quarter of last year. Non-GAAP gross profit as a percentage of revenues was 42.8% compared to 42.7% in the second quarter of 2015.

GAAP earnings per diluted share decreased 57.3% to $0.43 from $1.02 in the second quarter of 2015. Non-GAAP earnings per diluted share, when adjusted for various items, decreased 1.6% to $1.18 from $1.20. See Tables 3 and 4 below.

FIRST SIX MONTHS RESULTS

Revenues for the six months ended June 30, 2016 were $1.77 billion, up 28.0% from $1.38 billion in the same period last year. Acquisitions contributed approximately $380.4 million to the current year’s growth in revenues. Revenues increased 31.2% compared with the prior period when adjusted for unfavorable foreign exchange impact of $43.8 million. Organic revenues grew 3.7%, or 5.2% when adjusted for manufacturing and industrial services. See Tables 1A-1C below.

GAAP gross profit was $750.3 million, up 28.0% from $586.2 million in the same period last year. GAAP gross profit as a percentage of revenues remained flat at 42.5% for the six months ended June 30, 2016 and 2015. Non-GAAP gross profit, when adjusted for plant conversion expenses as identified in Table 2 below, was $751.0 million, up 28.0% from $586.7 million in the same period as last year. Non-GAAP gross profit as a percentage of revenues remained flat at 42.5% for the six months ended June 30, 2016 and 2015.

GAAP earnings per diluted share decreased 10.5% to $1.21 from $1.35 in 2015. Non-GAAP earnings per diluted share, when adjusted for various items, decreased 1.7% to $2.29 from $2.33. See Tables 3 and 4 below.

Cash flow from operations for the six months ended June 30, 2016 was $245.4 million, up 37.4% from $178.7 million in the same period last year.

PRESENTATION OF NON-GAAP INFORMATION

This press release includes certain non-GAAP financial measures, as defined in the SEC’s Regulation G. The Company reports its financial results in compliance with GAAP, but believes that also discussing non-GAAP financial measures allows for a better period over period comparison by removing the impact of items that, in management’s view, do not reflect the Company’s underlying operating performance. These measures are also used to evaluate senior management and are a factor in determining their at-risk compensation.

Adjusted diluted earnings per share, adjusted net income, adjusted gross profit, and adjusted sales growth are described in the Reconciliation of Certain Non-GAAP Measures section of this document.

These non-GAAP financial measures should not be considered in isolation or as a substitute for GAAP financial results, but should be read in conjunction with the unaudited condensed consolidated statement of income and other information presented herein. The non-GAAP financial measures in the press release may differ from similar measures used by other companies. A reconciliation of each non-GAAP financial measure to the most directly comparable GAAP measure is included in the accompanying tables.

DISCUSSION OF ADJUSTING ITEMS FOR NON-GAAP MEASURES

For the purpose of evaluating revenues, we present non-GAAP revenues to show the impact of foreign currency, revenues from acquisitions and Manufacturing and Industrial Services (“M&I”). Management reviews and analyzes revenues excluding the effect of foreign currency translation and revenue from acquisitions because we believe this better represents the Company’s underlying business trends, including organic revenue growth. Separate presentation of M&I allows for visibility of a revenue stream that has shown greater volatility than our other service lines.

For the purpose of evaluating operating performance, we present our financials to show the impact of income and expenses in our non-GAAP earnings related to acquisitions. These adjustments include acquisition expense, integration expense, amortization expense, and change in fair value of contingent consideration. This allows comparison of period over period results without the impact of acquisitions-related expenses.

 For the purpose of evaluating operating performance, we additionally present our financials to show the impact of expenses in our non-GAAP earnings related to litigation expense, restructuring and plant conversion expenses, and contract exit costs to allow for period over period comparison of financials without the impact of charges that may not occur each year and if so, are due to different factors.

For the purpose of calculating the ultimate impact of our mandatory convertible preferred stock, we show the impact to our EPS by excluding the mandatory convertible preferred stock dividend and using the “if-converted” method of share dilution. This provides the reader insight to how our diluted shares will be affected after these preferred shares are converted to common shares.

RECONCILIATION OF CERTAIN NON-GAAP MEASURES

The following tables show our reconciliation of GAAP Revenue growth to Non-GAAP Revenue growth:

Table 1 - A

      Three Months Ended June 30,  
      In millions     Percentage Growth (%)  
Global Revenue Details by Service     2016     2015     Growth     Organic   Acquisitions   Foreign
Exchange
  Total  
Regulated Waste and Compliance Services     $ 517.2     $ 516.0     $ 1.2       2.2 %   0.7 %   (2.6 %)   0.2 %
Secure Information Destruction Services       190.5       -       190.5     N/A   N/A   N/A   N/A  
Communication and Related Services       82.5       82.1       0.5       (1.3 %)   3.1 %   (1.2 %)   0.6 %
Manufacturing and Industrial Services       101.4       117.6       (16.3 )     (8.9 %)   (0.2 %)   (4.7 %)   (13.8 %)
Total Global Revenues, as Reported       891.6       715.7       175.9       1.4 %   26.0 %   (2.8 %)   24.6 %
Less: Manufacturing and Industrial Services       (101.4 )     (117.6 )                                  
Total Revenues, as Adjusted (Non-GAAP)     $ 790.2     $ 598.0     $ 192.2       3.3 %   31.3 %   (2.4 %)   32.1 %
                                                     
Domestic Revenues     $ 657.1     $ 518.2     $ 139.0       (0.2 %)   27.0 %       26.8 %
International Revenues       234.5       197.5       37.0       5.6 %   23.2 %   (10.1 %)   18.7 %
Total Global Revenues, as Reported     $ 891.6     $ 715.7     $ 175.9       1.4 %   26.0 %   (2.8 %)   24.6 %
                                                     

Table 1 - B

      Six Months Ended June 30,  
      In millions     Percentage Growth (%)  
Global Revenue Details by Service     2016     2015     Growth     Organic   Acquisitions   Foreign
Exchange
  Total  
Regulated Waste and Compliance Services     $ 1,021.2     $ 1,013.4     $ 7.8       3.1 %   0.7 %   (3.0 %)   0.8 %
Secure Information Destruction Services       375.2       -       375.2     N/A   N/A   N/A   N/A  
Communication and Related Services       170.5       154.4       16.1       8.5 %   3.3 %   (1.4 %)   10.4 %
Manufacturing and Industrial Services       198.9       211.2       (12.3 )     (5.4 %)   4.9 %   (5.3 %)   (5.8 %)
Total Global Revenues, as Reported       1,765.8       1,379.0       386.8       3.7 %   27.5 %   (3.2 %)   28.0 %
Less: Manufacturing and Industrial Services       (198.9 )     (211.2 )                                  
Total Revenues, as Adjusted (Non-GAAP)     $ 1,566.8     $ 1,167.8     $ 399.0       5.2 %   31.7 %   (2.8 %)   34.2 %
                                                     
Domestic Revenues     $ 1,306.8     $ 990.4     $ 316.4       2.8 %   29.2 %       31.9 %
International Revenues       459.0       388.6       70.4       6.1 %   23.3 %   (11.3 %)   18.1 %
Total Global Revenues, as Reported     $ 1,765.8     $ 1,379.0     $ 386.8       3.7 %   27.5 %   (3.2 %)   28.0 %
                                                     

Table 1 - C

In millions  
    Three Months Ended June 30,
2016
        Six Months Ended June 30,
2016
 
Organic   $ 10.0         $ 50.2  
Acquisitions     185.9           380.4  
Foreign Exchange     (20.0 )         (43.8 )
Total Growth   $ 175.90         $ 386.80  

             
The following table shows our reconciliation of GAAP Gross Profit to Non-GAAP Gross Profit:

Table 2

In millions                                                          
      Three Months Ended June 30,     Six Months Ended June 30,  
      2016     2015     2016     2015  
      $   % of Rev     $   % of Rev     $   % of Rev     $   % of Rev  
Gross Profit, as Reported     $ 381.1     42.7 %   $ 304.8     42.6 %   $ 750.3     42.5 %   $ 586.2     42.5 %
Plant Conversion Expenses       0.5     0.1 %     0.5     0.1 %     0.8     0.0 %     0.5     0.0 %
Gross Profit, as Adjusted (Non-GAAP)     $ 381.6     42.8 %   $ 305.3     42.7 %   $ 751.0     42.5 %   $ 586.7     42.5 %
                                                           

The following tables show our reconciliation of GAAP Net Income Attributable to Stericycle, Inc. Common Shareholders to Non-GAAP Net Income Attributable to Stericycle, Inc. Common Shareholders:

Table 3

In millions, except share and per share data  
    Three Months Ended June 30,     Six Months Ended June 30,  
    2016   2015     2016   2015  
Net Income Attributable to Stericycle, Inc. Common Shareholders, As Reported   $ 37.3    $ 87.8     $ 104.0    $ 116.8  
Adjustments:                            
Acquisition Expenses     2.6     3.0       5.6     6.3  
Integration Expenses     22.6     8.9       41.8     17.8  
Litigation Expenses     2.7     (0.2 )     4.0     75.5  
Changes in Fair Value of Contingent Consideration     -     0.0       (2.6 )   (0.6 )
Restructuring and Plant Conversion Expenses     0.9     3.1       1.2     15.4  
Contract Exit Costs     12.7     -       12.7     -  
Amortization Expense a     50.9     8.9       69.2     17.7  
Add Back Convertible Preferred Stock Dividend     10.0     -       20.1     -  
Total Adjustments     102.4     23.8       152.0     132.0  
Tax Effect of above adjustments b     (31.9 )   (8.2 )     (46.8 )   (48.0 )
Net Income Attributable to Stericycle, Inc. Common Shareholders, as Adjusted (Non-GAAP)   $ 107.8   $ 103.4     $ 209.1   $ 200.8  
EPS, as Reported   $ 0.43   $ 1.02     $ 1.21   $ 1.35  
EPS, as Adjusted (Non-GAAP)   $ 1.18   $ 1.20     $ 2.29   $ 2.33  
Weighted average number of common shares outstanding - diluted     85,760,686     86,221,034       85,798,892     86,292,816  
Additional Dilution Under If-Converted Method     5,624,138     -       5,637,758     -  
Diluted Weighted Average Number of Common Shares Outstanding Under If-Converted Method     91,384,824     86,221,034       91,436,650     86,292,816  
                             
a) Beginning in the quarter ended March 31, 2016, the Company has started to exclude amortization expense from non-GAAP EPS. For comparable reporting, the Company’s previously reported 2015 results are adjusted to reflect the change.  
b) The tax effect of the adjustments is calculated based on applying the appropriate tax rate for the jurisdictions in which the adjustment occurred for the respective periods.  
                             

The following table shows our reconciliation of GAAP EPS to Non-GAAP EPS:

Table 4

    Three Months Ended June 30,     Six Months Ended June 30,  
                    Change                   Change  
    2016     2015     $   %     2016     2015   $   %  
EPS, as Reported   $ 0.43     $ 1.02     $ (0.58 )   -57.3 %   $ 1.21     $ 1.35   $ (0.14 )   -10.5 %
Acquisition Expenses     0.02       0.03                     0.04       0.06              
Integration Expenses     0.17       0.07                     0.31       0.13              
Litigation Expenses     0.02       (0.01 )                   0.03       0.53              
Changes in Fair Value of Contingent Consideration     0.00       0.00                     (0.03 )     (0.01 )            
Restructuring and Plant Conversion
Expenses
    0.01       0.03                     0.01       0.12              
Contract Exit Costs     0.10       0.00                     0.10       0.00              
Amortization Expense     0.39       0.07                     0.52       0.14              
Add Back Convertible Preferred Stock Dividend     0.12       0.00                     0.23       0.00              
Reallocation of EPS Related to Convertible Preferred Stock     (0.08 )     0.00                     (0.15 )     0.00              
EPS, as Adjusted (Non-GAAP)   $ 1.18     $ 1.20     $ (0.02 )   -1.6 %   $ 2.29     $ 2.33   $ (0.04 )   -1.7 %
Diluted Weighted Average Number of Common Shares Outstanding Under If-Converted Method     91,384,824       86,221,034                     91,436,650       86,292,816              
                                                           

For more information about Stericycle, please visit our website at www.stericycle.com.

Safe Harbor Statement: This press release may contain forward-looking statements that involve risks and uncertainties, some of which are beyond our control (for example, general economic and market conditions). Our actual results could differ significantly from the results described in the forward-looking statements. Factors that could cause such differences include changes in governmental regulation of the collection, transportation, treatment and disposal of regulated waste or the proper handling and protection of personal and confidential information, increases in transportation and other operating costs, the level of governmental enforcement of regulations governing regulated waste collection and treatment or the proper handling and protection of personal and confidential information, our obligations to service our substantial indebtedness and to comply with the covenants and restrictions contained in our private placement notes, term loan credit facility and revolving credit facility, our ability to execute our acquisition strategy and to integrate acquired businesses, competition and demand for services in the regulated waste and secure information destruction industries, political, economic and currency risks related to our foreign operations, impairments of goodwill or other indefinite-lived intangibles, variability in the demand for services we provide on a project or non-recurring basis, exposure to environmental liabilities, fluctuations in the price we receive for the sale of paper, disruptions in or attacks on our information technology systems, compliance with existing and future legal and regulatory requirements, as well as other factors described in our filings with the U.S. Securities and Exchange Commission, including our most recently filed Annual Report on Form 10-K. As a result, past financial performance should not be considered a reliable indicator of future performance, and investors should not use historical trends to anticipate future results or trends. We make no commitment to disclose any subsequent revisions to forward-looking statements.

STERICYCLE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
         
    June 30,   December 31,
    2016
  2015
ASSETS        
Current Assets:        
Cash and cash equivalents   $    44,320     $ 55,634  
Short-term investments       64       69  
Accounts receivable, net       627,135       614,494  
Prepaid expenses       58,566       46,740  
Other current assets       40,277       44,891  
Total Current Assets       770,362       761,828  
Property, plant and equipment, net       707,060       665,602  
Goodwill       3,558,283       3,758,177  
Intangible assets, net       2,078,234       1,842,561  
Other assets       32,429       36,995  
Total Assets   $    7,146,368     $ 7,065,163  
         
LIABILITIES AND EQUITY        
Current Liabilities:        
Current portion of long-term debt   $    109,868     $ 161,409  
Accounts payable       145,069       149,202  
Accrued liabilities       182,814       197,329  
Deferred revenues       17,132       16,989  
Other current liabilities       62,221       62,420  
Total Current Liabilities       517,104       587,349  
         
Long-term debt, net of current portion       3,008,588       3,040,352  
Deferred income taxes       705,873       608,272  
Other liabilities       85,724       81,352  
Equity:        
Mandatory convertible preferred stock       8       8  
Common stock       850       849  
Additional paid-in capital       1,183,140       1,143,020  
Accumulated other comprehensive loss       (297,558 )     (282,631 )
Retained earnings       1,931,807       1,868,645  
Total Stericycle, Inc. Equity       2,818,247       2,729,891  
Noncontrolling interests       10,832       17,947  
Total Equity       2,829,079       2,747,838  
Total Liabilities and Equity   $    7,146,368     $ 7,065,163  
         

 

STERICYCLE, INC. AND SUBSIDIARIES
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
                         
    Three Months Ended June 30,   Six Months Ended June 30,
    2016
  2015
  2016
  2015
    $ % of Rev   $ % of Rev   $ % of Rev   $ % of Rev
                         
Revenues   $    891,621     100.0 %   $ 715,689     100.0 %   $    1,765,802     100.0 %   $ 1,379,008     100.0 %
Cost of revenues ("COR") exclusive of depreciation       486,915     54.6 %     396,793     55.4 %       969,271     54.9 %     764,133     55.4 %
Depreciation       23,611     2.6 %     14,072     2.0 %       46,252     2.6 %     28,720     2.1 %
Total cost of revenues       510,526     57.3 %     410,865     57.4 %       1,015,523     57.5 %     792,853     57.5 %
                         
Gross profit, as reported       381,095     42.7 %     304,824     42.6 %       750,279     42.5 %     586,155     42.5 %
Gross profit, as adjusted (non-GAAP)       381,612     42.8 %     305,338     42.7 %       751,032     42.5 %     586,669     42.5 %
                         
Selling, general and administrative expenses ("SG&A") exclusive of depreciation       273,287     30.7 %     145,673     20.4 %       494,049     28.0 %     369,333     26.8 %
Depreciation       8,100     0.9 %     4,387     0.6 %       15,599     0.9 %     8,505     0.6 %
Total SG&A expense, as reported       281,387     31.6 %     150,060     21.0 %       509,648     28.9 %     377,838     27.4 %
Total SG&A expense, as adjusted (non-GAAP)       189,509     21.3 %     126,823     17.7 %       378,577     21.4 %     246,372     17.9 %
                         
Income from operations, as reported       99,708     11.2 %     154,764     21.6 %       240,631     13.6 %     208,317     15.1 %
Income from operations, as adjusted (non-GAAP) exclusive of adjusting items shown below       192,103     21.5 %     178,515     24.9 %       372,455     21.1 %     340,297     24.7 %
                         
Adjusting items:                        
Plant conversion expenses (COR)       517     0.1 %     514     0.1 %       753     0.0 %     514     0.0 %
Acquisition expenses (SG&A)       2,607     0.3 %     2,986     0.4 %       5,597     0.3 %     6,282     0.5 %
Integration expenses (SG&A)       22,578     2.5 %     8,924     1.2 %       41,846     2.4 %     17,810     1.3 %
Litigation expenses (SG&A)       2,664     0.3 %     (173 )   0.0 %       3,964     0.2 %     75,450     5.5 %
Change in fair value of contingent consideration (SG&A)       -      0.0 %     35     0.0 %       (2,644 )   -0.1 %     (640 )   0.0 %
Restructuring and plant conversion expenses (SG&A)       412     0.0 %     2,544     0.4 %       417     0.0 %     14,846     1.1 %
Contract exit costs (SG&A)       12,708     1.4 %     -     0.0 %       12,708     0.7 %     -     0.0 %
Amortization (SG&A)       50,909     5.7 %     8,921     1.2 %       69,183     3.9 %     17,718     1.3 %
Total adjustments       92,395     10.4 %     23,751     3.3 %       131,824     7.5 %     131,980     9.6 %
                         
Other income (expense):                        
Interest expense, net       (24,358 )   -2.7 %     (16,390 )   -2.3 %       (48,399 )   -2.7 %     (34,988 )   -2.5 %
Other income/ (expense), net       (2,118 )   -0.2 %     (1,604 )   -0.2 %       (3,369 )   -0.2 %     (2,202 )   -0.2 %
Total other expense       (26,476 )   -3.0 %     (17,994 )   -2.5 %       (51,768 )   -2.9 %     (37,190 )   -2.7 %
                         
Income before income taxes       73,232     8.2 %     136,770     19.1 %       188,863     10.7 %     171,127     12.4 %
                         
Income tax expense       27,002     3.0 %     48,493     6.8 %       65,038     3.7 %     53,558     3.9 %
                         
Net income       46,230     5.2 %     88,277     12.3 %       123,825     7.0 %     117,569     8.5 %
                         
Less: net income attributable to noncontrolling interests       196     0.0 %     447     0.1 %       1,005     0.1 %     799     0.1 %
                         
Net income attributable to Stericycle, Inc.       46,034     5.2 %     87,830     12.3 %       122,820     7.0 %     116,770     8.5 %
                         
Less: mandatory convertible preferred stock dividend       10,021     1.1 %     -     0.0 %       20,127     1.1 %     -     0.0 %
Less: gain on repurchase of preferred stock       (1,280 )   -0.1 %     -     0.0 %       (1,280 )   -0.1 %     -     0.0 %
                         
Net income attributable to Stericycle, Inc. common shareholders   $    37,293     4.2 %   $ 87,830     12.3 %   $    103,973     5.9 %   $ 116,770     8.5 %
                         
Earnings per share - diluted   $    0.43       $ 1.02       $    1.21       $ 1.35    
                         
Weighted average number of common shares outstanding - diluted       85,760,686         86,221,034           85,798,892         86,292,816    
                         

 

STERICYCLE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
    Six Months Ended June 30,
     2016     2015 
Operating Activities:        
Net income   $    123,825     $   117,569  
Adjustments to reconcile net income to net cash        
provided by operating activities:        
Stock compensation expense       11,557         10,904  
Excess tax benefit of stock options exercised       -          (10,899 )
Depreciation        61,851         37,225  
Amortization       69,183         17,718  
Deferred income taxes       4,515       (8,390
Other, net       (2,644 )       5,686  
Changes in operating assets and liabilities, net of        
effect of acquisitions and divestitures:        
Accounts receivable       (12,888 )       (51,041 )
Accounts payable       (1,496 )       21,019  
Accrued liabilities       (13,303 )      51,071  
Deferred revenue       305         (3,156 )
Other assets and liabilities       4,535         (9,046 )
Net cash provided by operating activities       245,440         178,660  
         
Investing Activities:        
Payments for acquisitions, net of cash acquired       (42,097 )       (61,766 )
Proceeds from investments       7         271  
Proceeds from sale of property and equipment       1,355         -   
Capital expenditures       (67,133 )       (46,794 )
Net cash used in investing activities       (107,868 )       (108,289 )
         
Financing Activities:        
Repayments of long-term debt and other obligations       (31,789 )       (39,590 )
Proceeds from foreign bank debt       27,619         18,363  
Repayments of foreign bank debt       (36,953 )       (43,769 )
Proceeds from term loan       -          250,000  
Repayments of term loan       (250,000 )       -   
Proceeds from senior credit facility       902,817         879,024  
Repayments of senior credit facility       (715,653 )       (1,072,468 )
Repayments of capital lease obligations       (2,605 )       (1,951 )
Payment for hedge       -          (8,833 )
Payments for repurchase of common stock       (40,814 )       (85,149 )
Payments for repurchase of convertible preferred stock       (5,025 )       -   
Dividends paid on mandatory convertible preferred stock       (20,127 )       -   
Proceeds from issuances of common stock       30,308         39,208  
Excess tax benefit of stock options exercised       -          10,899  
Payments to noncontrolling interests       (6,961 )       (2,603 )
Net cash used in financing activities       (149,183 )       (56,869 )
Effect of exchange rate changes on cash and cash equivalents       297         (2,782 )
Net (decrease)/ increase in cash and cash equivalents       (11,314 )       10,720  
Cash and cash equivalents at beginning of period       55,634         22,236  
         
Cash and cash equivalents at end of period   $    44,320     $   32,956  
         
Non-cash activities:        
Net issuances of obligations for acquisitions   $    23,069     $   47,827  
         
FOR FURTHER INFORMATION CONTACT:
Investor Relations 847-607-2012

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