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Press Release

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

Company Release - 7/28/2016 4:03 PM ET

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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Source: Stericycle, Inc.