Stericycle Earnings Call Nuggets: Patient Communications and Geographic Expansion

Stericycle, Inc. (NASDAQ:SRCL) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Patient Communications

Nick – Williams Blair: Yeah. This is Nick in for Ryan. I was just wondering do you feel that you have a fairly complete platform built out for patient communications now or do you think you’ll be doing anymore decent size deals in that space during the second half or is the focus now going to be more on go-to-market and driving organic growth?

Charles A. Alutto – President and CEO: Yeah, I think from a platform perspective and the services that we offer we have a fairly complete service offering. We’ll continue to make investments in infrastructure and platform in 2013. Long-term we see a great opportunity to grow this business and we’re encouraged because we’re seeing hospitals outsourcing some of their communication services.

Nick – Williams Blair: And it looks like you’re branding some of the communications assets now as a Stericycle Communications Solutions Company, I’m just curious if you could discuss your go-to-market strategy in that space and if you found that leveraging the Stericycle brand in tandem with the existing operator brand is driving more market awareness of the services or helping drive a higher win rate?

Charles A. Alutto – President and CEO: I think from a go-to-market strategy, we still are using the Beryl name. But we are introducing the Stericycle name under the Communications Solutions umbrella. We would see we really get feedback from our customers, they’ve been very positive about Stericycle becoming a leader in this space.

Nick – Williams Blair: Just one quick housekeeping question. On the acquisitions this quarter, could you give any breakout between SQ and LQ or what business lines I was wondering?

Charles A. Alutto – President and CEO: So it was 35% SQ and 65% LQ revenues and 11 of the acquisitions were in regulated waste and 1 was in the recalls and returns area.

 

Geographic Expansion

Al Kaschalk – Wedbush Securities: You changed my name from Al to Bill. Just on the acquisition there on the recall and returns, Frank, is that geared geography wise or another service opportunity or another type of recall?

Frank J.M. ten Brink – EVP, CFO and Chief Administrative Officer: No, that was a geographic expansion and it was an international one and is expanding our capabilities internationally in the recalls and returns.

Al Kaschalk – Wedbush Securities: That’s one of the – in terms of international though, is this your initial acquisition internationally on the returns/recalls business or…?

Frank J.M. ten Brink – EVP, CFO and Chief Administrative Officer: Yeah, we’ve had some recalls in the past where we’ve done some international capabilities where we’ve subcontracted some of that work. This acquisition created an opportunity for us to build infrastructure, specifically in the European market place.

Al Kaschalk – Wedbush Securities: That would suggest that there are some opportunities to wrap some share and there’s some growth in that type of business?

Frank J.M. ten Brink – EVP, CFO and Chief Administrative Officer: Absolutely.

Al Kaschalk – Wedbush Securities: Then just one other item. I wanted to try and adjust here, Charlie – on the margins, it looks like you’re getting some good pull through on some of the developments of some of the new initiatives. I was wondering if you could just maybe give us an update on how you feel where you’re at. I know there is a lot of work to be done, but just in terms of the overall contribution to gross margin as you move out and where you are at on the expansion of these services?

Charles A. Alutto – President and CEO: I will let Frank, bridge a little bit on the quarter-to-quarter margin, but I think the opportunity for margin expansion hasn’t changed. We continue to look long-term to increasing our gross margins in the international markets. That will come by focusing on the SQ business, adding additional services like Medical Services and Sharps Management and in the U.S. side of the business, where we did see relatively nice uptick in margins in Q2, again the focus is on those additional services that do have higher incremental gross margins than our base business. Frank, maybe walk you through the puts and takes for the quarter with respect to the margin in Q2 versus Q2.

Frank J.M. ten Brink – EVP, CFO and Chief Administrative Officer: Acquisitions were just a slight drag, only four basis points. Foreign exchange kind of offset that. Because international grew a little bit faster than historically that because of margins in general being a little bit less there, brought margin to be down but the general business has a nice uptick somewhere between 11 and 15 basis points quarter-over-quarter.

Al Kaschalk – Wedbush Securities: Then just back to the more broader question. If hospitals are outsourcing little more, what should we think through that as eventually getting more scale on your operating leverage for that segment or is that going to be sort of consistent with your historical terms on performance there?

Charles A. Alutto – President and CEO: I think maybe consistent. I mean, operating leverage on the Communications Solution business will come from building out our infrastructure, getting on a common platform and being more productive with respect to the centers that we’re today out. Anytime you can add more activity into the center. Obviously, you’ll get some lift as well.

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