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

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

Source:Stericycle, Inc.