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Stericycle, Inc. Reports Results for the First Quarter of 2017

LAKE FOREST, Ill., May 04, 2017 (GLOBE NEWSWIRE) -- Stericycle, Inc. (NASDAQ:SRCL) today reported financial results for the first quarter of 2017.

/EIN News/ -- FIRST QUARTER HIGHLIGHTS COMPARED TO PRIOR YEAR:

  • Revenues of $892.4 million, an increase of 2.1%, including a 1.1% unfavorable impact from foreign exchange
  • Gross profit of $368.7 million, an increase of 0.6%
  • Earnings per diluted share (“EPS”) decreased 19.7% to $0.62 and Adjusted earnings per diluted share (“Adjusted EPS”) decreased 1.2% to $1.09.

FIRST QUARTER RESULTS

Revenues for the quarter ended March 31, 2017 were $892.4 million, an increase of 2.1% from $874.2 million in the first quarter of last year. Acquisitions contributed approximately $10.0 million to the current period’s increase in revenues. Divestitures reduced current period revenues by $0.7 million. Revenues increased 3.2% compared to the first quarter of last year when adjusted for unfavorable foreign exchange impacts of $9.7 million. Organic revenues grew 2.1%, or 3.6% when adjusted for Manufacturing and Industrial Services. See Tables 1-A and 1-B.

“We are off to a great start for 2017,” said Charlie Alutto, President and Chief Executive Officer.  “Our Secure Information Destruction business grew 8% organically from an increase in sales of ongoing and one-time services combined with higher revenues for recycled paper.  Additionally, the market-leading position and unique capabilities of our Communication and Related Services business enabled the team to deliver solid year-over-year organic growth of greater than 6%.”

Gross profit was $368.7 million, an increase of 0.6% from $366.6 million in the first quarter of last year. Gross profit as a percentage of revenues was 41.3% compared to 41.9% in the first quarter of last year. Adjusted gross profit was $368.7 million, an increase of 0.5% from $366.8 million in the first quarter of last year. Adjusted gross profit as a percentage of revenues was 41.3% compared to 42.0% in the first quarter of last year. See Table 2.

EPS decreased 19.7% to $0.62 from $0.78 in the first quarter of last year. Adjusted EPS decreased 1.2% to $1.09 from $1.11 in the first quarter of last year. See Tables 3 and 4.

Cash flow from operations for the three months ended March 31, 2017 was $175.3 million, an increase of 11.7% from $156.9 million in the same period last year.

CONFERENCE CALL INFORMATION

Conference call to be held May 4, 2017 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 for 30 days by dialing 855-859-2056 or 404-537-3406, access code 92841381. To hear a live simulcast of the call or access the audio archive, visit the investor relations page on www.stericycle.com.

PRESENTATION AND DISCUSSION OF NON-GAAP INFORMATION

The Company reports its financial results in compliance with U.S. Generally Accepted Accounting Principles (“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. This press release includes certain non-GAAP financial measures, as defined in the SEC’s Regulation G. These non-GAAP measures are also used to evaluate senior management and are a factor in determining their performance-based compensation.

Adjusted EPS, Adjusted net income attributable to Stericycle common shareholders, Adjusted gross profit, and Adjusted revenues are described in the Reconciliation of Certain Non-GAAP Measures section of this document.

We present our change in revenues separately to show the impact of foreign currency, acquisitions, and divestitures because we believe that exclusion of these items better represents the Company’s underlying business trends, including organic revenue growth. We also present revenues excluding Manufacturing and Industrial Services (“M&I”) which allow for visibility to 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 certain acquisition-related items in our adjusted earnings. These adjustments include acquisition and integration expenses, intangible amortization expense, and the change in fair value of contingent consideration. This allows for comparison of period over period results without the impact of acquisition-related items. Further, we show the impact of certain other items in our adjusted earnings to allow for period over period comparison of results without the impact of items that may not occur each year and, if so, are due to different factors. For the periods presented, these adjustments include litigation and professional services and restructuring, contract exit and plant conversion related items.

For the purpose of calculating the ultimate impact of our mandatory convertible preferred stock, we show the impact 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 share count will be affected after these preferred shares are converted to common shares.

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.

RECONCILIATION OF CERTAIN NON-GAAP MEASURES

Table 1 – A: RECONCILIATION OF REVENUES TO ADJUSTED REVENUES

    Three Months Ended March 31,  
    In millions     Percentage Change (%)  
Global Revenues Details by Service   2017         2016     Change     Organic   Acquisitions,
Net of
Divestiture
  Foreign
Exchange
  Total  
Regulated Waste and Compliance Services   $ 511.2         $ 506.6     $ 4.6       1.5 %   0.4 %   (1.0 %)   0.9 %
Secure Information Destruction Services     204.1           184.6       19.4       8.0 %   3.8 %   (1.2 %)   10.5 %
Communication and Related Services     93.5           87.9       5.6       6.3 %   1.0 %   (1.0 %)   6.3 %
Manufacturing and Industrial Services     83.6           95.0       (11.4 )     (9.6 %)   (0.8 %)   (1.6 %)   (12.0 %)
Total Revenues, as Reported     892.4           874.2       18.2       2.1 %   1.1 %   (1.1 %)   2.1 %
Less: Manufacturing and Industrial Services     (83.6 )         (95.0 )                                  
Total Revenues, as Adjusted   $ 808.8         $ 779.2     $ 29.6       3.6 %   1.3 %   (1.1 %)   3.8 %
                                                       
Domestic and Canada Revenues   $ 710.8         $ 686.2     $ 24.6       2.2 %   1.2 %   0.2 %   3.6 %
International Revenues     181.6           188.0       (6.4 )     1.8 %   0.7 %   (5.9 %)   (3.4 %)
Total Revenues, as Reported   $ 892.4         $ 874.2     $ 18.2       2.1 %   1.1 %   (1.1 %)   2.1 %
                                                       

Table 1 – B: DISAGGREGATED REVENUES CHANGE – 2017

In millions  
  Three Months Ended
March 31, 2017
 
Organic $ 18.7  
Acquisitions   10.0  
Divestiture   (0.7 )
Foreign Exchange   (9.7 )
Total Change $ 18.2  
       

Table 2: RECONCILIATION OF GROSS PROFIT TO ADJUSTED GROSS PROFIT

In millions                          
  Three Months Ended
March 31,
 
  2017     2016  
  $   % of
Revenues
    $   % of
Revenues
 
Gross Profit, as Reported $ 368.7     41.3 %   $ 366.6     41.9 %
Plant Conversion Expenses   -     0.0 %     0.2     0.0 %
Gross Profit, as Adjusted $ 368.7     41.3 %   $ 366.8     42.0 %
                           

Table 3: RECONCILIATION OF NET INCOME ATTRIBUTABLE TO STERICYCLE COMMON SHAREHOLDERS TO ADJUSTED NET INCOME ATTRIBUTABLE TO STERICYCLE COMMON SHAREHOLDERS

In millions, except share and per share data  
  Three Months Ended
March 31,
 
  2017     2016  
Net Income Attributable to Stericycle, Inc. Common Shareholders, as Reported $ 53.4     $ 66.7  
Adjustments:              
Intangible Amortization Expense   29.1       18.3  
Acquisition and Integration Expenses   19.8       22.3  
Litigation and Professional Service Expenses   3.6       1.3  
Restructuring, Contract Exit and Plant Conversion Expenses   2.9       0.2  
Changes in Fair Value of Contingent Consideration   0.4       (2.6 )
Add Back Convertible Preferred Stock Dividend   9.4       10.1  
Total Adjustments   65.2       49.5  
Tax Effect of above adjustments (a)   (19.2 )     (14.9 )
Net Income Attributable to Stericycle, Inc. Common Shareholders, as Adjusted $ 99.4     $ 101.3  
EPS, as Reported $ 0.62     $ 0.78  
EPS, as Adjusted $ 1.09     $ 1.11  
Weighted average number of common shares outstanding - diluted   85,572,409       85,845,501  
Additional Dilution Under If-Converted Method   5,264,188       5,651,376  
Diluted Weighted Average Number of Common Shares Outstanding              
Under If-Converted Method   90,836,597       91,496,877  

(a) The tax effect of the adjustments is calculated based on applying the tax rate for the jurisdictions in which the adjustment occurred for the respective periods.

Table 4: RECONCILIATION OF EPS TO ADJUSTED EPS

  Three Months Ended
March 31,
 
                  Change  
  2017     2016     $   %  
EPS, as Reported $ 0.62     $ 0.78       (0.15 )   -19.7 %
Intangible Amortization Expense   0.22       0.14                
Acquisition and Integration Expenses   0.15       0.16                
Litigation and Professional Service Expenses   0.03       0.01                
Restructuring, Contract Exit and Plant Conversion Expenses   0.03       0.00                
Changes in Fair Value of Contingent Consideration   0.00       (0.03 )              
Add Back Convertible Preferred Stock Dividend   0.11       0.12                
Total Impact of All Adjustments Including Convertible Preferred Stock Dividend   (0.07 )     (0.07 )              
EPS, as Adjusted $ 1.09     $ 1.11       (0.01 )   -1.2 %
Diluted Weighted Average Number of Common Shares Outstanding Under If-Converted Method   90,836,597       91,496,877                

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, the outcome of pending or future litigation, 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  
  March 31, 2017     December 31, 2016  
ASSETS              
Current Assets:              
Cash and cash equivalents $ 47,023     $ 44,189  
Accounts receivable, net   615,348       634,902  
Prepaid expenses   51,926       46,214  
Assets held for sale   9,628       9,134  
Other current assets   35,999       39,179  
Total Current Assets   759,924       773,618  
Property, plant and equipment, net   725,420       723,894  
Goodwill   3,622,793       3,591,020  
Intangible assets, net   1,857,209       1,861,973  
Other assets   31,510       29,556  
Total Assets $ 6,996,856     $ 6,980,061  
               
LIABILITIES AND EQUITY              
Current Liabilities:              
Current portion of long-term debt $ 96,301     $ 72,822  
Accounts payable   133,119       152,881  
Accrued liabilities   243,871       228,526  
Deferred revenues   17,974       17,902  
Liabilities held for sale   3,172       2,858  
Other current liabilities   85,124       67,864  
Total Current Liabilities   579,561       542,853  
               
Long-term debt, net   2,767,035       2,877,315  
Deferred income taxes   657,865       645,371  
Other liabilities   99,914       98,136  
Equity:              
Preferred stock   7       7  
Common stock   853       852  
Additional paid-in capital   1,161,983       1,166,457  
Accumulated other comprehensive loss   (341,119 )     (367,643 )
Retained earnings   2,059,452       2,006,064  
Total Stericycle, Inc.'s Equity   2,881,176       2,805,737  
Noncontrolling interests   11,305       10,649  
Total Equity   2,892,481       2,816,386  
Total Liabilities and Equity $ 6,996,856     $ 6,980,061  


STERICYCLE, INC. AND SUBSIDIARIES  
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME  
                           
In thousands, except share and per share data  
  Three Months Ended March 31,  
  2017     2016  
  $   % of
Revenues
    $   % of
Revenues
 
Revenues $ 892,399     100.0 %   $ 874,181     100.0 %
Cost of revenues ("COR") exclusive of depreciation   500,830     56.1 %     483,751     55.3 %
Depreciation   22,907     2.6 %     23,850     2.7 %
Total cost of revenues   523,737     58.7 %     507,601     58.1 %
                           
Gross profit, as reported   368,662     41.3 %     366,580     41.9 %
Gross profit, as adjusted   368,662     41.3 %     366,816     42.0 %
                           
Selling, general and administrative expenses ("SG&A") exclusive of depreciation   247,930     27.8 %     219,367     25.1 %
Depreciation   6,183     0.7 %     6,290     0.7 %
Total SG&A expense, as reported   254,113     28.5 %     225,657     25.8 %
Total SG&A expense, as adjusted   198,292     22.2 %     186,464     21.3 %
                           
Income from operations, as reported   114,549     12.8 %     140,923     16.1 %
Income from operations, as adjusted exclusive of adjusting items shown below   170,370     19.1 %     180,352     20.6 %
                           
Adjusting items:                          
Plant conversion expenses (COR)   -     0.0 %     236     0.0 %
Intangible amortization expense (SG&A)   29,089     3.3 %     18,274     2.1 %
Acquisition and integration expenses (SG&A)   19,820     2.2 %     22,258     2.5 %
Litigation and professional services expenses (SG&A)   3,620     0.4 %     1,300     0.1 %
Change in fair value of contingent consideration (SG&A)   401     0.0 %     (2,644 )   -0.3 %
Restructuring, contract exit and plant conversion expenses (SG&A)   2,891     0.3 %     5     0.0 %
Total adjustments   55,821     6.3 %     39,429     4.5 %
                           
Other income (expense):                          
Interest expense, net   (23,300 )   -2.6 %     (24,041 )   -2.8 %
Other expense, net   (1,544 )   -0.2 %     (1,251 )   -0.1 %
Total other expense   (24,844 )   -2.8 %     (25,292 )   -2.9 %
                           
Income before income taxes   89,705     10.1 %     115,631     13.2 %
                           
Income tax expense   31,148     3.5 %     38,036     4.4 %
                           
Net income   58,557     6.6 %     77,595     8.9 %
                           
Less: net income attributable to noncontrolling interests   368     0.0 %     809     0.1 %
                           
Net income attributable to Stericycle, Inc. $ 58,189     6.5 %   $ 76,786     8.8 %
                           
Less: mandatory convertible preferred stock dividend   9,364     1.0 %     10,106     1.2 %
Less: gain on repurchase of preferred stock   (4,563 )   -0.5 %     -     0.0 %
                           
Net income attributable to Stericycle, Inc. common shareholders $ 53,388     6.0 %   $ 66,680     7.6 %
                           
Earnings per share - diluted $ 0.62           $ 0.78        
                           
Weighted average number of common shares outstanding - diluted   85,572,409             85,845,501        


STERICYCLE, INC. AND SUBSIDIARIES  
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
               
In thousands  
  Three Months Ended March 31,  
  2017     2016  
Operating Activities:              
Net income $ 58,557     $ 77,595  
Adjustments to reconcile net income to net cash provided by operating activities:              
Stock compensation expense   5,999       6,105  
Depreciation   29,090       30,140  
Intangible amortization   29,089       18,274  
Deferred income taxes   8,722       6,932  
Other, net   3,020       (2,644 )
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:              
Accounts receivable   25,546       (3,918 )
Accounts payable   (15,162 )     (15,203 )
Accrued liabilities   14,138       21,151  
Other assets and liabilities   16,321       18,517  
Net cash provided by operating activities   175,320       156,949  
               
Investing Activities:              
Payments for acquisitions, net of cash acquired   (16,871 )     (24,884 )
Proceeds from investments   -       7  
Proceeds from sale of property and equipment   250       766  
Capital expenditures   (33,136 )     (34,185 )
Net cash used in investing activities   (49,757 )     (58,296 )
               
Financing Activities:              
Repayments of long-term debt and other obligations   (12,779 )     (6,879 )
Proceeds from foreign bank debt   301       15,607  
Repayments of foreign bank debt   (2,936 )     (18,721 )
Repayments of term loan   (30,000 )     (171,000 )
Proceeds from senior credit facility   383,929       457,959  
Repayments of senior credit facility   (446,248 )     (353,520 )
Payments of capital lease obligations   (940 )     (1,381 )
Payments for repurchase of common stock   -       (37,693 )
Payments for repurchase of mandatory convertible preferred stock   (9,570 )     -  
Proceeds from issuances of common stock   3,503       22,310  
Dividends paid on mandatory convertible preferred stock   (9,364 )     (10,106 )
Payments to noncontrolling interests   -       (4,997 )
Net cash used in financing activities   (124,104 )     (108,421 )
Effect of exchange rate changes on cash and cash equivalents   1,375       (211 )
Net change in cash and cash equivalents   2,834       (9,979 )
Cash and cash equivalents at beginning of period   44,189       55,634  
               
Cash and cash equivalents at end of period $ 47,023     $ 45,655  
               
Non-cash activities:              
Net issuances of obligations for acquisitions $ 13,945     $ 13,013  
               


FOR FURTHER INFORMATION CONTACT:
Investor Relations 847-607-2012

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