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Stericycle, Inc. Reports Results for the Second Quarter and Year to Date 2017

Lake Forest, Ill., Aug. 03, 2017 (GLOBE NEWSWIRE) -- Stericycle, Inc. (NASDAQ:SRCL) today reported financial results for the second quarter and year to date 2017.

SECOND QUARTER HIGHLIGHTS COMPARED TO PRIOR YEAR:

  • Revenues of $917.7 million, an increase of 2.9%, including a 1.3% unfavorable impact from foreign exchange
  • Gross profit of $381.8 million, an increase of 1.1%
  • Reached proposed settlement of class action lawsuit of $295.0 million to reduce uncertainty and expense of continued litigation
  • Loss per share of $1.74, due primarily to the impact of the proposed class action settlement, and Adjusted earnings per share (“Adjusted EPS”) of $1.15

SECOND QUARTER RESULTS

Revenues for the quarter ended June 30, 2017 were $917.7 million, an increase of 2.9% from $891.6 million in the second quarter of last year. Acquisitions contributed approximately $8.6 million to the increase in revenues. Divestitures reduced revenues by $0.8 million. On a constant currency basis, revenues increased 4.2% compared to the second quarter of last year after adjusting for unfavorable foreign exchange impacts of $12.1 million. Organic revenues increased 3.4%, or 4.1% when adjusted for Manufacturing and Industrial Services. See Tables 1-A, 1-B and 1-C.

Gross profit was $381.8 million, an increase of 1.1% from $377.6 million in the second quarter of last year. Gross profit as a percentage of revenues was 41.6% compared to 42.4% in the second quarter of last year. Adjusted gross profit was $381.8 million, an increase of 1.0% from $378.2 million in the second quarter of last year. Adjusted gross profit as a percentage of revenues was 41.6% compared to 42.4% in the second quarter of last year. See Table 2.

“This quarter we continued to see strong performance from our Secure Information Destruction Services and Communication and Related Services. We also reached a preliminary settlement to the small quantity medical waste customer class action lawsuit,” said Charlie Alutto, President and Chief Executive Officer. “This preliminary settlement not only reduces the uncertainty and expense of continued litigation, it is an important step toward putting this matter behind us and allowing our team to focus on our customers and the growth of our business.”

Loss per share was $1.74, due primarily to the impact of the proposed class action settlement, compared to earnings per share of $0.43 in the second quarter of last year. Adjusted EPS was $1.15 compared to $1.18 in the second quarter of last year. See Tables 3 and 4.

As previously reported, the Company has reached a preliminary resolution with the plaintiffs in a proposed settlement of the class action litigation In re: Stericycle, Inc., Steri-Safe Contract Litigation, Case No. 1:13-cv-05795 (N.D. Ill.). Under the proposed settlement terms, the Company will establish a common fund of $295.0 million from which will be paid all compensation to members of the settlement class, attorneys’ fees to class counsel, incentive awards to the named class representatives and all costs of notice and administration. The Company’s existing contracts with its customers will remain in force, while the Company will also establish guidelines for future price increases as part of the settlement. The Company is admitting no fault or wrongdoing, and is entering into this settlement to avoid the cost and uncertainty of litigation. In connection with the proposed settlement, which remains subject to court approval of a final agreement, the Company recorded a charge of $295.0 million in the second quarter ended June 30, 2017.

FIRST SIX MONTHS HIGHLIGHTS COMPARED TO PRIOR YEAR:

  • Revenues of $1.81 billion, an increase of 2.5%, including a 1.2% unfavorable impact from foreign exchange
  • Gross profit of $750.4 million, an increase of 0.8%
  • Loss per share of $1.12, due primarily to the impact of the proposed class action settlement of $295.0 million, and Adjusted EPS of $2.25

FIRST SIX MONTHS RESULTS

Revenues for the six months ended June 30, 2017 were $1.81 billion, an increase of 2.5% from $1.77 billion in the same period last year. Acquisitions contributed approximately $18.6 million to the increase in revenues. Divestitures reduced revenues by $1.5 million. On a constant currency basis, revenues increased 3.7% compared to the first six months of last year after adjusting for unfavorable foreign exchange impacts of $21.8 million. Organic revenues increased 2.8%, or 3.9% when adjusted for Manufacturing and Industrial Services. See Tables 1-A, 1-B and 1-C.

Gross profit was $750.4 million, an increase of 0.8% from $744.2 million in the same period last year. Gross profit as a percentage of revenues was 41.5% compared to 42.1% in the same period last year. Adjusted gross profit was $750.4 million, an increase of 0.7% from $745.0 million in the same period last year. Adjusted gross profit as a percentage of revenues was 41.5% compared to 42.2% in the same period last year. See Table 2.

Loss per share was $1.12, due primarily to the impact of the proposed class action settlement, compared to earnings per share of $1.21 in the same period last year. Adjusted EPS was $2.25 compared to $2.29 in the same period last year. See Tables 3 and 4.

Cash flow from operations for the six months ended June 30, 2017 was $237.1 million, a decrease of 3.4% from $245.4 million in the same period last year.

CONFERENCE CALL INFORMATION

We will hold a conference call on August 3, 2017 at 4:00 p.m. Central time – Dial 866-516-6872 at least 5 minutes before start time. A replay will be available for 30 days by dialing 855-859-2056 or 404-537-3406, access code 92841882. 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”), and supplementally provides certain non-GAAP financial measures to provide additional information based on measures that management uses to operate the Company’s business and to remove the impact of certain items that, in management’s view, do not reflect the Company’s underlying operating performance. 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 changes. 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 expenses, restructuring, plant conversion and other related expenses, and contract exit expenses, and asset impairment charges and loss on disposal of assets held for sale.

For the purpose of calculating the ultimate EPS 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 (loss) 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

Three Months Ended June 30,
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 $512.3 $523.3 $(11.0) (1.1%) 0.2% (1.2%) (2.1%)
Secure Information Destruction Services 212.4 190.5 21.9 9.7% 3.2% (1.5%) 11.5%
Communication and Related Services 102.9 82.5 20.3 24.3% 1.7% (1.3%) 24.6%
Manufacturing and Industrial Services 90.1 95.2 (5.1) (2.7%) (0.8%) (1.9%) (5.4%)
Total Revenues, as Reported 917.7 891.6 26.1 3.4% 0.9% (1.3%) 2.9%
Less: Manufacturing and Industrial Services (90.1) (95.2)
Total Revenues, as Adjusted $827.6 $796.4 $31.2 4.1% 1.1% (1.3%) 3.9%
Domestic and Canada revenues $737.7 $696.8 $40.9 5.1% 1.0% (0.2%) 5.9%
International revenues 180.1 194.9 (14.8) (2.7%) 0.4% (5.3%) (7.6%)
Total Revenues, as Reported $917.7 $891.6 $26.1 3.4% 0.9% (1.3%) 2.9%

Table 1 – B: RECONCILIATION OF REVENUES TO ADJUSTED REVENUES – SIX MONTHS ENDED

Six Months Ended June 30,
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 $1,023.5 $1,029.9 $(6.4) 0.2% 0.3% (1.1%) (0.6%)
Secure Information Destruction Services 416.5 375.2 41.3 8.9% 3.5% (1.4%) 11.0%
Communication and Related Services 196.4 170.5 25.9 15.0% 1.4% (1.2%) 15.2%
Manufacturing and Industrial Services 173.8 190.3 (16.5) (6.1%) (0.8%) (1.7%) (8.7%)
Total Revenues, as Reported 1,810.1 1,765.8 44.3 2.8% 1.0% (1.2%) 2.5%
Less: Manufacturing and Industrial Services (173.8) (190.3)
Total Revenues, as Adjusted $1,636.4 $1,575.5 $60.8 3.9% 1.2% (1.2%) 3.9%
Domestic and Canada revenues $1,448.5 $1,382.9 $65.6 3.7% 1.1% (0.0%) 4.7%
International revenues 361.6 382.9 (21.2) (0.5%) 0.6% (5.6%) (5.5%)
Total Revenues, as Reported $1,810.1 $1,765.8 $44.3 2.8% 1.0% (1.2%) 2.5%

Table 1 – C: DISAGGREGATED REVENUES CHANGE

In millions
Three Months Ended
June 30, 2017
Six Months Ended
June 30, 2017
Organic$30.4 $49.0
Acquisitions 8.6 18.6
Divestiture (0.8) (1.5)
Foreign exchange (12.1) (21.8)
Total Change$26.1 $44.3

Table 2: RECONCILIATION OF GROSS PROFIT TO ADJUSTED GROSS PROFIT

In millions
Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 2016
$ % of Revenues $ % of Revenues $ % of Revenues $ % of Revenues
Gross Profit, as Reported$381.8 41.6% $377.6 42.4% $750.4 41.5% $744.2 42.1%
Plant conversion and other related expenses - 0.0% 0.5 0.1% - 0.0% 0.8 0.0%
Gross Profit, as Adjusted$381.8 41.6% $378.2 42.4% $750.4 41.5% $745.0 42.2%

Table 3: RECONCILIATION OF NET (LOSS) 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
June 30,
Six Months Ended
June 30,
2017 2016 2017 2016
Net (Loss) Income Attributable to Stericycle, Inc. Common Shareholders, as Reported$(148.8) $37.3 $(95.4) $104.0
Adjustments:
Intangible amortization expense 29.5 50.9 58.6 69.2
Acquisition and integration expenses 23.7 25.2 43.6 47.4
Litigation and professional services expenses 304.4 2.7 308.1 4.0
Restructuring, plant conversion and other related expenses,
and contract exit expenses
5.1 13.6 7.5 13.9
Asset impairment charges and loss on disposal of assets
held for sale
12.7 - 13.2 -
Change in fair value of contingent consideration - - 0.4 (2.6)
Add back convertible preferred stock dividend 9.2 10.0 18.5 20.1
Total Adjustments 384.6 102.4 449.8 152.0
Tax effect of above adjustments (a) (132.1) (31.9) (151.3) (46.8)
Net Income Attributable to Stericycle, Inc. Common Shareholders, as Adjusted$103.8 $107.8 $203.1 $209.1
(Loss) Earnings Per Share - Diluted, as Reported$(1.74) $0.43 $(1.12) $1.21
Earnings Per Share - Diluted, as Adjusted$1.15 $1.18 $2.25 $2.29
Weighted average number of common shares outstanding - diluted 85,271,699 85,760,686 85,246,105 85,798,892
Additional dilution under if-converted method 5,151,160 5,624,138 5,207,080 5,637,758
Weighted average number of common shares outstanding
under if-converted method - diluted
90,422,859 91,384,824 90,453,185 91,436,650

(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 (LOSS) EARNINGS PER SHARE TO ADJUSTED EPS

Three Months Ended June 30, Six Months Ended June 30,
Change Change
2017 2016 $ % 2017 2016 $ %
(Loss) Earnings per Share, as Reported$(1.74) $0.43 $(2.17)nm $(1.12) $1.21 $(2.33)nm
Intangible amortization expense 0.23 0.39 0.45 0.52
Acquisition and integration expenses 0.17 0.19 0.32 0.36
Litigation and professional services expenses 2.30 0.02 2.33 0.03
Restructuring, plant conversion and other related expenses, and contract exit expenses 0.05 0.11 0.07 0.11
Asset impairment charges and loss on disposal of assets held for sale 0.10 - 0.11 -
Change in fair value of contingent consideration - - 0.01 (0.03)
Add back convertible preferred stock dividend 0.11 0.12 0.22 0.24
Impact of all adjustments under if-converted method (0.07) (0.08) (0.14) (0.15)
Earnings Per Share - Diluted, as Adjusted$1.15 $1.18 $(0.03) (2.5%) $2.25 $2.29 $(0.04) (1.7%)
Weighted average number of common shares
outstanding under if-converted method - diluted
90,422,859 91,384,824 90,453,185 91,436,650
nm - Percentage change is not meaningful.

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, completion and court approval of the proposed resolution of the class action litigation, 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, intangibles or other long-lived assets, 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 and subsequent Forms 10-Q. 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, 2017 December 31, 2016
ASSETS
Current Assets:
Cash and cash equivalents$44,191 $44,189
Accounts receivable, net 639,611 634,902
Prepaid expenses 66,907 46,214
Assets held for sale 8,797 9,134
Other current assets 36,608 39,179
Total Current Assets 796,114 773,618
Property, plant and equipment, net 733,770 723,894
Goodwill 3,637,182 3,591,020
Intangible assets, net 1,839,434 1,861,973
Other assets 30,997 29,556
Total Assets$7,037,497 $6,980,061
LIABILITIES AND EQUITY
Current Liabilities:
Current portion of long-term debt$111,400 $72,822
Accounts payable 150,043 152,881
Accrued liabilities 561,129 228,526
Deferred revenues 19,239 17,902
Liabilities held for sale 2,094 2,858
Other current liabilities 71,328 67,864
Total Current Liabilities 915,233 542,853
Long-term debt, net 2,749,818 2,877,315
Deferred income taxes 513,949 645,371
Other liabilities 97,681 98,136
Equity:
Preferred stock 7 7
Common stock 853 852
Additional paid-in capital 1,155,131 1,166,457
Accumulated other comprehensive loss (316,737) (367,643)
Retained earnings 1,910,684 2,006,064
Total Stericycle, Inc.'s Equity 2,749,938 2,805,737
Noncontrolling interests 10,878 10,649
Total Equity 2,760,816 2,816,386
Total Liabilities and Equity$7,037,497 $6,980,061


STERICYCLE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME
In thousands, except share and per share data
Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 2016
$ % of Revenues $ % of Revenues $ % of Revenues $ % of Revenues
Revenues$917,733 100.0% $891,621 100.0% $1,810,132 100.0% $1,765,802 100.0%
Cost of revenues ("COR") exclusive of depreciation 513,277 55.9% 488,950 54.8% 1,014,107 56.0% 972,701 55.1%
Depreciation 22,704 2.5% 25,030 2.8% 45,611 2.5% 48,880 2.8%
Total cost of revenues 535,981 58.4% 513,980 57.6% 1,059,718 58.5% 1,021,581 57.9%
Gross Profit, as Reported 381,752 41.6% 377,641 42.4% 750,414 41.5% 744,221 42.1%
Gross Profit, as Adjusted 381,752 41.6% 378,158 42.4% 750,414 41.5% 744,974 42.2%
Selling, general and administrative expenses ("SG&A") exclusive of depreciation 567,631 61.9% 271,252 30.4% 815,561 45.1% 490,619 27.8%
Depreciation 6,475 0.7% 6,681 0.7% 12,658 0.7% 12,971 0.7%
Total SG&A expense, as Reported 574,106 62.6% 277,933 31.2% 828,219 45.8% 503,590 28.5%
Total SG&A expense, as Adjusted 198,652 21.6% 186,055 20.9% 396,944 21.9% 372,519 21.1%
(Loss) Income from Operations, as Reported (192,354) (21.0%) 99,708 11.2% (77,805) (4.3%) 240,631 13.6%
Income from Operations, as Adjusted Exclusive of Adjusting Items Shown Below 183,100 20.0% 192,103 21.5% 353,470 19.5% 372,455 21.1%
Adjusting Items:
Plant conversion and other related expenses (COR) - 517 0.1% - 753 0.0%
Intangible amortization expense (SG&A) 29,481 3.2% 50,909 5.7% 58,570 3.2% 69,183 3.9%
Acquisition and integration expenses (SG&A) 23,738 2.6% 25,185 2.8% 43,558 2.4% 47,443 2.7%
Litigation and professional services expenses (SG&A) 304,430 33.2% 2,664 0.3% 308,050 17.0% 3,964 0.2%
Restructuring, plant conversion and other related expenses, and contract exit expenses (SG&A) 5,067 0.6% 13,120 1.5% 7,519 0.4% 13,125 0.7%
Asset impairment charges and loss on disposal of assets held for sale (SG&A) 12,738 1.4% - 13,177 0.7% -
Change in fair value of contingent consideration (SG&A) - - 401 0.0% (2,644) (0.1%)
Total Adjustments 375,454 40.9% 92,395 10.4% 431,275 23.8% 131,824 7.5%
Other Expense:
Interest expense, net (23,744) (2.6%) (24,358) (2.7%) (47,044) (2.6%) (48,399) (2.7%)
Other expense, net (1,607) (0.2%) (2,118) (0.2%) (3,151) (0.2%) (3,369) (0.2%)
Total Other Expense (25,351) (2.8%) (26,476) (3.0%) (50,195) (2.8%) (51,768) (2.9%)
(Loss) Income Before Income Taxes (217,705) (23.7%) 73,232 8.2% (128,000) (7.1%) 188,863 10.7%
Income tax (benefit) expense (73,513) (8.0%) 27,002 3.0% (42,365) (2.3%) 65,038 3.7%
Net (Loss) Income (144,192) (15.7%) 46,230 5.2% (85,635) (4.7%) 123,825 7.0%
Less: net (loss) income attributable to noncontrolling interests (150) (0.0%) 196 0.0% 218 0.0% 1,005 0.1%
Net (Loss) Income Attributable to Stericycle, Inc.$(144,042) (15.7%) $46,034 5.2% $(85,853) (4.7%) $122,820 7.0%
Less: mandatory convertible preferred stock dividend 9,185 1.0% 10,021 1.1% 18,549 1.0% 20,127 1.1%
Less: gain on repurchase of preferred stock (4,459) (0.5%) (1,280) (0.1%) (9,022) (0.5%) (1,280) (0.1%)
Net (Loss) Income Attributable to Stericycle, Inc. Common Shareholders$(148,768) (16.2%) $37,293 4.2% $(95,380) (5.3%) $103,973 5.9%
(Loss) Earnings Per Share - Diluted$(1.74) $0.43 $(1.12) $1.21
Weighted Average Number of Common Shares Outstanding - Diluted 85,271,699 85,760,686 85,246,105 85,798,892


STERICYCLE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands
Six Months Ended June 30,
2017 2016
Operating Activities:
Net (loss) income$(85,635) $123,825
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Stock-based compensation expense 11,880 11,557
Depreciation 58,269 61,851
Intangible amortization 58,570 69,183
Deferred income taxes (137,935) 4,515
Other, net 13,679 (634)
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures:
Accounts receivable 5,176 (12,888)
Accounts payable (4,538) (1,496)
Accrued liabilities 333,827 (13,303)
Other assets and liabilities (16,215) 2,830
Net Cash Provided by Operating Activities 237,078 245,440
Investing Activities:
Payments for acquisitions, net of cash acquired (21,159) (42,097)
Capital expenditures (63,092) (67,133)
Proceeds from sale of property and equipment 409 1,355
Other - 7
Net Cash Used in Investing Activities (83,842) (107,868)
Financing Activities:
Repayments of long-term debt and other obligations (33,344) (31,789)
Proceeds from foreign bank debt 1,907 27,619
Repayments of foreign bank debt (10,992) (36,953)
Repayments of term loan (50,000) (250,000)
Proceeds from senior credit facility 899,029 902,817
Repayments of senior credit facility (924,968) (715,653)
Payments of capital lease obligations (1,779) (2,605)
Payments for repurchase of mandatory convertible preferred stock (22,135) (5,025)
Payments for repurchase of common stock - (40,814)
Proceeds from issuances of common stock 4,415 30,308
Dividends paid on mandatory convertible preferred stock (18,549) (20,127)
Payments to noncontrolling interests (708) (6,961)
Net Cash Used in Financing Activities (157,124) (149,183)
Effect of exchange rate changes on cash and cash equivalents 3,890 297
Net change in cash and cash equivalents 2 (11,314)
Cash and cash equivalents at beginning of period 44,189 55,634
Cash and Cash Equivalents at End of Period$44,191 $44,320
Non-Cash Activities:
Net issuances of obligations for acquisitions$15,164 $23,069


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

Source:Stericycle, Inc.