Stericycle Earnings Call INSIGHTS: Gross Margin Performance, Acquisition Revenue

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On Wednesday, Stericycle, Inc. (NASDAQ:SRCL) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Gross Margin Performance

Ryan Daniels – William Blair: Let me get a couple of quick housekeeping out of the way. Frank, can you walk through the gross margin performance during the quarter going through some of the various puts and takes that moved that up and down with FX and make shift in acquisitions?

Frank J.M. ten Brink – EVP, CFO and Chief Administrative Officer: So, we ended the last quarter at 44.6%. The large retail and healthcare contracts that we also talked about last had about 0.2% negative impact. Foreign exchange was about an 8 basis points positive, and then, growth in the business and other factors added about 0.2% and that gets you to your 44.7%.

Ryan Daniels – William Blair: Then, any more color on the M&A activity? It sounds like not a lot contribution this quarter, but a pretty good acquired run rate. I’m curious if you can go through internationally maybe where those are located? And then, in the U.S. the three – are those medical waste, patient communications, any color there?

Frank J.M. ten Brink – EVP, CFO and Chief Administrative Officer: Yeah. So there were eight acquisitions, there were three domestic, five international. The international ones, there were three in Spain, one in the U.K., one in Argentina. Then, the $41.6 million that was the total for annualized revenue, in total there were six regulated waste and two PC, patient communication deals.

Ryan Daniels – William Blair: Then you mentioned the strong collection efforts in Spain. I’m curious outside of the FX headwinds, you saw – are you having any issues with the macro storm over there, be it collections or slowing organic growth, just kind of what’s the outlook for the international operations at Stericycle?

Frank J.M. ten Brink – EVP, CFO and Chief Administrative Officer: So, we had a very collection quarter in Spain which resulted in our DSO coming down two days. Spain is performing totally on track. They completed, as I mentioned, three additional acquisitions in Q2. On the overall European marketplace, we do think that the assets that potentially are available that that’s positive in a turbulent market. That may be come for sale and it gives us an opportunity and I think Spain is a good example of that. We see opportunities into new services. Overall, the volumes are fairly steady and our multiple services strategy is helping us reduce cost for our customers.

Ryan Daniels – William Blair: Then last one and I’ll hop off into the queue. Healthcare Waste Solutions, I know we’re anniversarying that in the second quarter with the year since it’s been close and I think you’ve had (somewhat of) approach to be more hands off on cross-selling and up-selling within the first year. So, I’m curious now that you’ve anniversaried that. Is it helping drive growth in the LQ where you’re selling more into that customer base?

Frank J.M. ten Brink – EVP, CFO and Chief Administrative Officer: So, Healthcare Waste Solutions on track, did perform as per the synergies that we thought out of that transaction. Cross-selling started there probably a little bit sooner, but they already had a strong cross-sell with their own resource management tool that we have not blended with ours. So, it’s a little bit less of a timing thing there.

Acquisition Revenue

Al Kaschalk – Wedbush: Just a fairly soft question actually. In the first quarter’s Q you disclosed deposit for pending acquisition. Was that utilized in the quarter or applied in the quarter or what did that relate to?

Frank J.M. ten Brink – EVP, CFO and Chief Administrative Officer: We had a small escrow there its associated with the future acquisition, has not yet closed at this time. But it’s not that material.

Al Kaschalk – Wedbush: Then just to clarify the acquisition revenue in the quarter was what?

Frank J.M. ten Brink – EVP, CFO and Chief Administrative Officer: $3 million. So the deals we closed in the quarter contributed $3 million to the revenues.

Al Kaschalk – Wedbush: Okay, then on the press release though that was last year the $36 million is that right?

Frank J.M. ten Brink – EVP, CFO and Chief Administrative Officer: That is year-over-year, yes.

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