Stericycle Inc (SRCL) 2002 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter, year-end earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Ms. Liz Brandel (ph), Vice-President of Finance for Stericycle. You may begin.

Thank you. I'll be reading the Safe Harbor statement. Statement by Stericycle in this conference call, which are not strictly historical are forward-looking. Forward-looking statements involve known and unknown risks and should be viewed with caution. Factors described in the company's 10-K, 10-Q as well as other filings for the SEC could affect the company's actual results and could cause the company's actual results to differ materially from expected results. The company makes no commitment to disclose any revisions to forward-looking statements or any facts, events, or circumstances after this date that may bare upon forward-looking statements. I'll now turnover the call to Mark Miller.

Thanks, Liz. Good afternoon, welcome to our Stericycle year-end call. With me today are Frank ten Brink, Chief Financial Officer, Rich Kogler, chief operating officer and you just heard from Liz, our Vice-President of Finance.

Once again, we're very, very pleased with the record results we achieved in the fourth quarter and for the total year. On a comparative basis, net income in the quarter grew by more than 54 percent and EBITA reached over $31 million. And for the year, net income grew by more than 57 percent and EBITA reached over $117 million. We finished the fourth quarter with an EPS of 30 cents, 50 percent over prior year. For the year, our EPS came in at $1.09, up 47 percent, over the 74 cents in 2001. And once again, for 26 now consecutive quarters since our IPO in 1996, we have either met or exceeded expectations for the company's performance. With that brief overview I will turn the call over to Frank who will walk you through the financials.

Thanks. First we had outstanding quarter as revenue grew 9.9 million to 302 million, up 10.5 percent from 93.4 million in Q4 over one. Excluding international machinery revenues up .3 million in the quarter, revenues were up 12.9 percent. Excluding acquisitions, small customer revenues grew over 11 percent and large customers grew approximately 6 percent. The customer mix was about 58 percent in small and 42 percent in large customers.

The gross profit as a percent of revenue increased from 40 percent in the fourth quarter of 2001 to 42 percent in the fourth quarter of 2002. The improvement resulted from better margins on our LQG business, continues rollout of SteriSafe (ph), both penetration and mix, lower variable costs and partially offset by higher energy and insurance cost.

SG&A, excluding amortization was 14.6 percent of revenue versus 14.7 percent in the prior year. The absolute dollar spend was up primarily due to higher revenues and higher fringe costs. Operating income after the pro forma adjustment to 2001 results for the adoption of FAS-142 and excluding the acquisition related costs and non-cash charges for incinerator closures rose 21.4 percent to 27.9 million in the quarter. From 23 million in the fourth quarter of 2001. As a percent of revenue, operating income increased from 24.6 percent to 27 percent.

Net interest expense was lower in the fourth quarter of 2002 versus the fourth quarter of '01 by approximately $3.2 million, due to lower interest rates and lower debt outstanding. In addition, we had .3 million premium interest payment related to the repurchase of 2.1 million of our senior subordinated debt and a .4 million non-cash write-off of deferred financing fees related to the year-to-date reduction of 12.6 million in senior subordinated debts.

In addition, in January of 2003, we amended our credit agreement and revised a maturity dates of the revolver, term A and B loans by one year, improving the flexibility that we now have under our bank lines and also reducing our interest rates in the future. The balances of our term A loan are now $112.6 million and $47.2 million for the term B loan.

As a result of margin improvement and deleveraging the net income of EPS in the third quarter was as follows. Net income for the fourth quarter adjusted for FAS-142 and excluded items rose 54.3 percent to 13.7 million. From 8.9 million in the prior year. This quarter included approximately $2.9 million of non-cash charges related to the closure of two of our incinerators and writing off parts related to inventories for the equipment. Also, we had .7 million of special charges related to our repurchase of our bonds. On an apples to apples basis I adjusted for FAS-142 and excluded special charges, EPS increased by 50 percent from 20 cent in Q4 '01 to 30 cents per-share this quarter.

EBITA after other expenses increased at 31.3 revenues versus 26.1 million in the prior year. And our debt to EBITA ratio on a consolidated basis was 1.94. The balance sheet. During the quarter we continued to make significant progress in improving our balance sheets. Our debt to book cap at the end of the quarter was 39.1 percent, down from 40.5 percent at the end of the third quarter and 50.2 percent at the end of the fiscal 2001. Year-to-date through the fourth quarter our debt increased by 9.2 million due to the closing of the Bridgeview and the Micro-Med acquisitions.

During the quarter our capex was 3.3 percent revenues and DSO in the quarter was 55 days, down four days versus the third quarter. And selected balance sheet numbers. Cash and equivalence, $8.9 million; accounts receivable, $62 million; current assets, 99.7 million; total assets, 667.1 million; short-term debt, 1.5 million; long-term debt, 226.6 million with a total debt of 228.1 million; net worth, 326.7 million; depreciation in the quarter was 3.5 million; amortization in the quarter was .4 million.

Now a brief recap of the year-end numbers. For the year-end of December 31st, '02, revenues increased to 401.5 million, an increase of 11.8 percent from a year ago. Gross profit as a percent have of revenue expanded from 39.8 percent for the year-ended December '1 for one to 47 percent for the year-ended '02. Earnings per-share after pro forma options of FAS-142 and adjusting for excluded items increased 47.2 percent to $1.09 from 74 cents per diluted share in 2001. Cash from operations for the nine -- for the 12 months to date was 96.9 million versus 64.6 million in the prior year. During the year, we have had net repayments of 51.9 million of our debt. Capital spending for the year was 3.7 percent of revenues and our DSO was reduced by 11 days in 2002 from 66 days at the end of last year to 55 days at the end of this year. This conclusion our strong financial picture for the fourth quarter in the year and I will now turn it over to Rich.

Thanks, Frank. The operating team's strong performance was reflected in the quarter was a grow margins expanded again sequentially quarter-over-quarter. Team made progress on a number of specific projects. They successfully closed two redundant incinerator facilities and in addition they made substantial progress towards our goal of increasing the internalization of our waste processing. By shifting more volume to our existing and newly acquired plants in the northeast, Mid-Atlantic and Southeastern markets and while accomplishing these specific tasks, the team continued to focus on increasing productivity and lowering operating costs in all of our geographies at both the plant and the transportation level, which helped offset rising energy and insurance costs.

The ongoing efforts by the field operating organization contributed to the Q4 gross margin improvement. The sales team continued to deliver in the quarter helping us achieve strong internal growth in both our LGG and SQG business segments. At the end of the year we were very pleased by the achievements of the sales force in the rollout of the compliance program. The team made significant achievement in all of the areas of the rollout adding new customers, conversion of existing customers and upgrade customers to the higher levels of the program. At year-end we had approximately 50,000 customers on the subscription program and this equates to roughly 20 percent of our targeted SGG acts, a tremendous achievement by the sales force. Currently the subscription model customers account for approximately 24 percent of our targeted SQG revenues.

As we begin the year with a continued focus on new sales and conversions, along with increased emphasis on moving the existing customers into the higher levels of the program, we expect Stericycle to gulf coast an even larger percentage of our overall revenue base. In the quarter, a major account represents focused their efforts on new account growth and margin improvement in our existing customers. The sales team secured 57 new hospital contracts, all at marginal levels well above our current blended average.

Equally important the team systematically focused their efforts in increasing markets in the LQG business. Within the sales group they co-named the name the dirty dozen program. This is a company-wide efforts that involves having each account repetitive identifying their 12 most marginal accounts and develop and implement a specific action plan to improve gross margins. When an action plan is implemented the next lower number is added to the dirty dozen list and the process continues. Despite the best representatives we find a low margin account that cannot be improved to our target levels. And those instances, after exhausting all other options, our sales group must let the work go. Although over it is a difficult decision, we support the sales force in these instances because the entire organization is absolutely committed to bringing LQG margins back to an economically sustainable level.

At the close of the quarter, we signed up over 4,300 new small customer service agreements and thanks to continued heart hard work and dedication of the sales team, we increased our customer base to over 288,000 customers of which approximately 5000 are large and the remainder is small. I'll turn it over.

Thanks, Rich. Clearly we had another exceptional year with new record highs in revenues, gross margins, EBITA and EPS all contributing exceptional value creation for our shareholders. We were really excited about the multiple opportunities that lie ahead to expand the value for everyone. I would like to provide insight on our current outlook for fiscal 2003. Obviously keep in mind that these are forward-looking statements.

Our guidance now reflects and includes the share healthcare acquisition which we closed on January 9th of 2003. Now for the update by item. Current analyst EPS estimates for 2003 range from $1.29 to $1.33. We believe that analyst after detailed review of their models will potentially raise their estimates to a range of $1.32 to $1.36 which we are comfortable with. This assumes an average share count of slightly over 46 million for the year 2003.

Now I would like to go through some fine tuning for that outlook. Analyst estimates for revenues, we believe for 2003, will be in the range of 200 -- excuse me, of 457 to 466 million, with modest variations, depending on assumptions of international and acquisition revenues. We believe analyst will increase their estimates for net income to approximately 60.7 million to 62.7 million range and this range of net income would exclude the first quarter charges of approximately $2 million in the redemption premium on the senior subordinated notes we repurchased and put out the press release on and the $300,000 in cost to refinance our bank debt in the associated deferred finance amortization with those bonds. At 2003 analyst EBITA estimates may be increased to approximately 135 to 138 million and D&A expense of approximately 18 million.

That wraps up the formal section of our program. I'd like to thank the customers first and foremost for their rapport, all the employees for their incredible efforts. Just a great year in 2002 and finally to our shareholders, you have provided us the resources we needed to build this company to the industry reading, advantage that we have and that is all and we'll now switch over to Q&A, operator.

Very good, sir. Ladies and gentlemen, at this time, if you have a question, please press the one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. One moment, please, for questions. Our first question today is from Sheetal Mehta of Bear Stearns.

Good afternoon, gentlemen. Two quick questions. First on the gross margin side. They were definitely much higher than we were looking for and I think you explained kind of what your initiatives have been on the large customer base. Can you talk about what the average growth margins are for large customers right now and small customers and what your expectations are going forward? Is this -- this is 42 percent level, this is kind of a new standard going forward? Maybe I'll ask that question then I'll follow-up.

Well, first of all, in terms of 42 percent overall, we're very pleased with the results. I'll have Rich take you through some of the programs on dirty dozens and where we're running on large in just a moment. I think we continue to see margin expansion opportunities in our base business. First and foremost in the small accounts through increased penetration on Steri-Safe improve mix with Steri-Safe and then the large accounts really two initiatives, one, the dirty dozens program and just execution and then, two, with biosystems program, it gives us future opportunities to improve that book of business. Now, as far as modeling for next year, I think one of the things obviously is you have taken into account in your model, when we layer in Steri (ph) and Micro-Med which they have lower gross margins in total, it brings our blended down because of the mix effect of those new ones when they first start but we'll see margin expansion in both sectors going forward. Rich?

In terms of where we currently stand with the dirty dozen project having been implemented, we finished the quarter at blended average of about 19 percent for LQG gross margins and our SQG margins are in the high 50's.

Okay, great. And another question just regarding Steri-Safe, it looks like that is going really well. Can you talk about, you know, how does one -- how long does it take for customers to upgrade to the next level and, you know, the incremental revenues that come from that. Then did you guys talk about what your target would be for 2003 in terms of overall penetration in the small customer base? Thanks. That is it.

Yeah, in terms of -- to answer them in reverse open -- in terms of overall penetration objectives as we covered in the last conference call, our guidance for 2003 was kind of a pace of a point and-a-half to 2 percent up to a quarter-to-quarter. Obviously, we have had quarters where we have jumped higher than that due to the efforts of the sales force, the time of mailing, workshops, a wide number of activities that is going on. We have had a great quarter this quarter where we moved from 17 percent up to about 20 percent. So I think if -- from a modeling exercise, if you kind of -- or assumptions and guidance we're assuming about a point and-a-half to two-point per quarter move. Coming back to the rate of penetration, that is a tougher one to answer because you can have an account who may start on standard and then when they learn some of the other elements about material safety, data sheets or aproposed (ph) at a later date through another mailing or telemarketing activity or an invoiced effort, I'm not sure that there is a quote, uniform time line from when to approach to contact. I think what is very encouraging to us, we're still very much in the inning is the fact that where we used to be running, you know, 98 and-a-half, 99 percent of everybody in standard, we're now about 5 percent of that universe in select few that has moved into the higher levels. That is obviously at the same time a much bigger increase of people on to the programs. So we're excited about the potential for that to happen and the things we're learning in the sales equation and marketing positioning are helping us and we think we can accelerate that rate.

Our next question is from Howard Kapek of USB Warburg.

Good afternoon, Howard Kapek. Just a few questions if I could. Mark, maybe on the biosystem and the share acquisition, can you sort of lay out the core processes involved and converting some of your facilities to handle this new service line and sort of walk through incrementally near term what our expectations should be for sales -- the penetration of the service into either your accounts or flip that around, your service penetration into the sharer accounts?

Okay. First of all for -- from a macrostandpoint, the share data that we have covered on prior calls and those that are new to it, their revenue stream total company-wide is in excess of 20 million. We expected it just on the basic integration to be creative initially this year a Penny to two Pennies. That obviously does not assume much at all in terms of new growth in revenues in any meaningful way in 2003. As far as the platform and the activities, what we were working on as we speak is the first phases of integration where we combined the corporate office functions and the overhead functions, look at taking advantage of the low hanging fruit in the overlap where their operations coincide with ours. The basic service to customers in biosystems consists of contracting with -- let's say a hospital where they outsource the entire Sharps (ph) management system to biosystems. In that relationship under contract, biosystem's personnel would go to the hospital, install wall brackets throughout the organization, provide appropriate containers and then on a periodic basis, biosystems personnel go through the institution and change out the containers. Those are then put on to large wire racks. Those wire racks then for transport then go on to a permanent biohazardous waste truck, same kind of equipment that we run every day. They take a rack of very small containers of a few gallons in size. We take a truck and take large containers. They go through transfer stations like we have, same permitting structure, same transportation infrastructure and then once it arrives at a plant, instead of it being one of our plants where we might take out our large containers which are then the contents emptied and treated and then the large container washed and disinexpected (ph), there is the small container, they are treated and small containers, washed and disinexpected.

What does it take for us to roll it out across the nation? Clearly very little in terms of incremental structure whereby owe systems was a bit landlocked. They did not have the transfer stations and plant infrastructure and customer service and management infrastructure geographically. So any new geographic -- geography they looked at would require phenomenal amount of fixed and semi-fixed investment just to get in the game which for us we already have in place with 42 plants and 96 transfer stations. The time frame at a rollout is we will take each of the major markets then permit our existing plant infrastructure to add in the washing modifications for the small containers, then start marketing in that geography. So I think from an anticipation or modeling our guidance right now is based upon no new market entrees during 2003 because we are paced to some degree by that permitting time frame and the first focus of the operating side is to integrate the base business but we'll update the call as we get it in place and begin our rollout. From a macrostandpoint, if overtime we can achieve the same level of penetration across our infrastructure, that biosystems has, it's an opportunity of several hundred million dollars.

Thanks for the firmness. Just a follow-up on one more point of clarification. Most all of the charges, one time and otherwise, cash and non-cash were, I guess, largely expected. When I look on the income statement, there was no reclassification of any selling general and administrative expense or anything like that, were there?

No, there were not.

Okay. Thank you.

Our next question is from Loran Sterling (ph) of Merrill Lynch.

Sorry, it is Lorraine Malcus. Could you talk a little bit about pricing for small and large quantity any generators and give us some sort of an idea of a typical annual increase for each of those?

Yes. For the small quantity generators, it's slightly about CPI on the price side. On the large generators because of the contractual natures that sometimes lock in prices for a couple of years on average that would be slightly below the CPI.

Okay. Then for Steri-Safe, I assume most of your new customers now are anticipating the program. Can you just talk a little bit about how you're selling this program to existing customers, what type of sales force you're using and how the acceptance has been for your existing base?

Yeah, we're using the full-size of the sales force but primarily the ACR's as we refer to them are now CAR's, the compliance republics and they are -- reps, and they are through mail, direct phone contact, a variety of existing marketing and they are contacting our existing customer base an making them aware of the benefits and it is to stress that it is a bundle package which gives for a fixed fee a comprehensive medical waste collection and compliance training program which, you know, frankly has a good value proposition for existing customers who have been in the past going and outsourcing their compliance training needs. But we use invoice stuffers and we use any number of things we can, including just direct contact and targeted geographies, that type of thing. In terms of how it has been accepted, I think you are all aware as you follow the conference calls what our new sales have been and the high percentage of penetration we have had there. But if you look at the overall number today, which is 50,000 customers on the program, very many of our existing transactional customers have opted to switch. So I think it has been well received.

Thank you.

Our next question is from Bill Gibson, Banc of America securities.

Yeah. Just following up on that on the 50,000 customers on Steri-Safe, roughly how many of those are -- were existing customers that switched versus new customers that were assigned?

The existing customers, there were about 3300 of those that were new.

Okay. And in the hospital addictions in the fourth quarter -- additions in the fourth quarter, I assume that was a gross number not a net, the 57 new hospitals?

Yeah.

How many did you lose in the quarter? I know you're walking away from some.

I think in the quarter probably, oh, 15 to 16 customers that unfortunately because of the, you know, the heavy emphasis on dirty dozen, we are not able to retain them and had to make the difficult decision I alluded to.

Do you have any statistics as time passes how many of those guys come back?

[inaudible]Frankly, you know, as we saw in the past when we -- we have always had a program of analyzing LQG business and if it didn't meet our margins we would try to move it along. We have seen customers opt to go with smaller or to go for a lower price and when the service doesn't meet their expectations, you know, we generally get them back. Or sometimes we get them back through acquisition and the cycle kind of repeats itself.

I think a lot of times, Bill, it is affected by how bad the implosion of the mom and pop. We have had a service area where we lost three or four accounts and it may have taken a couple of years where we got 100 percent of them back where the small companies just gone belly-up or has just not met up to the service requirements but it is kind of a geographic specific.

Uh-huh. Given the -- I know you answered this one early on the rollout of biosystem so it doesn't -- you've got in the revenue guidance you've got zero in there from rolling that out to your existing hospital base.

Yeah. That's true.

And at the low end of that revenue guidance, is there any acquisition in there?

No.

But there is at the high-end?

No.

Oh, there is not?

No.

That is all internal?

All internal and depending on what you assume on -- when we made the comment on an assumption of acquisitions, timing and overall revenue, for example, some people may have played in share as a January 1 versus a January 9th, although it's only nine days differential, it is, you know, a meaningful Delta in terms of dollars per day. Also you may have differences in what people have played in an assumption of international equipment sales.

Okay, yeah. So that was really when you made the comment about acquisitions, that was related to already made acquisitions?

That is correct.

Great, thank you.

Our next question is from Bill Brady (ph) from Persidio (ph) Management.

Good afternoon. What is the internalization percentage now and, say, can you give us how it has grown the several last two or three years?

We're currently more than 90 percent internalized and in terms of how it has grown over sign, we're probably looking at having moved from the high 70 percent range initially to up to 90 percent.

Okay. And I didn't exactly get the number of -- the percentage of Steri-Safe. You say you now have 50,000 customers.

Uh-huh, yes.

But you have 283 small quantity generators and you said it was a 20 percent penetration. Can you resolve that for me?

If you look at the relationship, we have of that base of roughly 280,000 small accounts, there are certain areas where we are not mark marketing Steri-Safe right now 3 CI which is a company where we have a majority of owners in, those accounts do not have access to Steri-Safe. Canada and Mexico where we have accounts, we have not introduced Steri-Safe into those markets. Also when this we do acquisitions, there is a period of time that we do not expose those accounts to the Steri-Safe program until we get the customer history down and can profile, make sure that we understand and price those services appropriately and that would include, you know, share and Micro-Med and Bridgeview and several of the other resent ones. After they have been in a database for a while, they become eligible. There are certain accounts which we right now just do not intentionally market to but those will become potential targets in the future.

You're marketing about 250 of those now, I guess? Then aside from Connecticut and Massachusetts, Arizona and Utah, have you had any communication from any internal -- any states, A.G.'s?

No. We're very pleased we have had 91 from any state A.G.'s. As you're all aware the Utah matter was just recently finalized and it was in line with our expectations and fully reserved and will have no impact on 2003. There is one matter involving a private lawsuit that we just received from someone alleging to be a customer of ours in Arizona. This relates to the Arizona A.G. action. We reviewed it with our outside council in Arizona and in Washington and based on their review and understanding of the facts, we're very competent the suit is without merit and will not be material.

So all the regulatory pieces have been put to bed now, at least currently?

Yes, absolutely.

Okay, thank you.

Our next question is from Robin Braude (ph) of Alson (ph) Capital.

Hi, I was wondering if you guys could discuss your international operations, what is going on there, why the revenue was so low this quarter and what you see next year?

Yeah. Several questions. First of all, the international equipment revenues that happen within a given quarter is from when we sell a plant to a licensee, so that is as you look back in history, that has always been very choppy just because it is based upon permanent timing, when those permits are achieved, when installations are made. The opportunity for us really is in the following. If you look at ongoing operations, as those businesses come up and running we will have revenue streams as we permit new facilities, those expand and we have had great success with Mexico as far as 2003, the guidance that we had out there and continue to have out there is from an equipment side to assume various models of four to 7 million of revenues in '03 and, you know, that is driven by this whole permitting and installation timing process.

Great, thank you.

Our next question is from Tom Ford of Lehman Brothers.

Hi, good afternoon, guys.

Hi, Tom.

Rich, I had one question for you. The customer counts that you gave, did those include Micro-Med and Bridgeview?

Yes.

Do you know off the top of your head how much those were?

Say it again?

Customer accounts for bridge --

For Bridgeview it was -- hang on one second, Tom. The number of customers there were 53 LQGs and 475 SQG's. And for Micro-Med approximately 150 to 200 LQ and approximately four and-a-half thousand of SQ's, depending on which category you throw them in. Based on system, once they come in they might get reclassified.

Okay, great. And, Mark, I was curious about, you had mentioned about the wash systems and I know you had said before, it's not so much getting a new permit but kind of providing information to the local authority about an upgrade or a change to the system.

Uh-huh.

And I was just wondering if you kind of, do you have a sense of timing on that?

Yeah, I do.

How long that process would take.

Yeah. In each state or locale where we have a facility, any time we make any change and this doesn't -- a lot of times if we decide to move a wall or move an office or bring in different tower, relocate a doorway, same as you would with your house, you have a building plan approval process, we submit the drawings after we review it and stuff. This is isn't a public hearing processes, just what does it take time-wise to get through those reviews and installations. In the past depending on geography, once plans are submitted, if there were not many questions it may take anywhere from, you know, six weeks to 12 weeks if there is a question or request to add a different note or footnote to the drawing and may add another cycle. So generally you're looking at a quarter or two by geography.

Okay, great. And, frank, just curious about and Mark if you could just refresh my memory in terms of the percent of customers LQG and SQG where you have pass-through capability for energy type escalators.

I think all our SQG contracts have that exact. The LQG, some hospitals do and some hospitals don't so that depends on the contract. But our SQG contracts do have that capability and overall I think if you really take some micro percentages, it is probably a 5050 LQG where we have that.

Okay, great. Just curious, Frank, what your assumptions are for energy costs in the '03 guidance?

I think if you look on the energy, both sides of utilities as well as fuel, you are talking depending on the time of the year but it is gradually about a 15 to 20 percent increase in cost.

Okay, great. Thanks very much, guys.

Our next question is from Matt Lipkin of William Blair and company.

Good afternoon.

Good afternoon.

There was a number of times you guys discussed signing new large generator accounts at a 20 percent minimum gross margin so now you're pretty close to that at 19 percent. Where do you think that can go over time?

Actually, Matt, we have been signing up the accounts I referred to at 25 percent or higher so we reset the bar. I think if you look at the trend in terms of the whole blended margin, you know, we made some pretty good progress this year. I think we're still in the early stages, the dirty dozen project so we will have to see. But we believe an economically sustainable level is 30 plus percent gross margin for LQG work.

Okay. A couple of other clean up questions. One is, how many of the large quantity generator backup contracts did you have in place at the end of the quarter, and, you know, what is the trend there. And secondly, could you talk about the pipeline of potential new acquisitions from here, what kind of dollar amounts we're talking about in revenue?

We had at the end of the quarter over 140 backup contracts in place.

And on the acquisition pool, there is roughly right now about 40 million in the pool.

Great, thank you.

Once again, ladies and gentlemen, if you should have a question, press the one key on your touch-tone phone. Our next question is a follow-up of Bill Gibson from Banc of America Securities.

One quick follow-up. On the 42 plants, could you refresh me on the breakdown between ETD and autoclaif (ph) and incinerators.

From capacity less than 15 percent is in incineration. The rest is non-incineration. 15 percent of that is treatment capacity and the rest is auto-claif (ph).

Thanks.

Thanks.

Our next question is from Robert Willoughby (ph) from CSFB.

Sean Harrington actually. I have a quick housekeeping items as well. Can you just review your cash flow and capex estimates for next year as well as just an internal growth rate for the quarter? I may have missed that, thanks.

I think if you look at the capex for next year conservatively around four to 4.5 percent of revenues, if you look at the cash from operations for next year, you are looking roughly -- let meeting me cheat sheet here. Somewhere in the area of 87 to $90 million.

Was there an internal revenue growth rate number?

Yes. Last call what we had relayed was small, 8 to 9 percent and large 4 to 5 percent and even though we have been modestly increasing our actual achieved rates step-by-step, you know, we have had it modeled on that basis. In Q4 although we were 6 percent in large, that has been -- I think we have had one quarter in the last three years where we were at 6 percent and it was due to just bulk work where we had some other work and now in the West Coast we had about half a percent to three quarters of a percent of that tick where there had been dock shut downs in California due to strike issues and the like, some materials inbound where we a little so we had a little bit of abolis (ph) one time so we were concerned about the 5 percent and rising and we're capturing new work at improved margins and beginning to get Steri-Safe penetration so hopefully that will accede our expectations during time.

Thanks for the detail.

Our next question is from Michael Stanske from Tutor Investments.

I would like some information on the growth and top line next year. How much is from acquisitions and how much is organic? I think you said 466 which is up 31 million from estimates. How much of that 31 is from acquisitions and organic, please?

I think if you look at the carry over, we have not assumed any new acquisitions, but if you're looking at the carry over from a Bridgeview and a Micro-Med and a like, that is roughly from a year to year, comes to about a 32 million from those transactions on revenues in '03 that were not in '02.

So that encompasses the whole difference?

Revenues are up 65 million year to year.

Year-over-year we're going to -- we're ending the year at about 400.

Uh-huh.

Then the guidance as we have we have said was in the 460's.

Okay, thank you.

Our next question is from John Bossler of Fahnestock and Company.

I was a little confused on the numbers on Steri-Safe growth. I believe you said you had 50 some customers from Steri-Safe. What was from existing prior accounts and what was from new accounts?

Well, 50,000 is the cumulative from when we launched the program. In terms of new accounts that we have presented this to over the last several quarters we have been picking up three to 4000 every quarter and that has been going on for several quarters in the early period of time it was predominantly existing account conversions. So if you look at in the quarter, we went from last quarter to I think roughly 43,000 to about 50,000 and of that 7000 you would have about 4000 roughly that were new accounts and 3000 that would have been conversions.

Would have been conversions of existing business that you've owned for a period of time or I guess a better way of asking the question was, how much of it is coming from acquisitions? Are you very successful? --

91 of it is coming from acquisitions. Acquisitions, we don't even offer the Steri-Safe program to them until they have been a customer of ours for at least nine to 12 months period so we have -- until we have appropriate history. So any new acquisitions that are a year or less old are not in our base of eligible customers that are introduced to Steri-Safe, so it's strictly, you know, new accounts where we're presenting to a competitor's account or an existing customer that is upgraded to the Steri-Safe service.

Okay. Just to clarify on the Arizona situation you mentioned before. Was that a 3-party hauled or a customer?

It's allegedly a customer, not a third-party holler.

Was that covered under the A.G. agreement with Arizona or this is a different situation outside of the A.G. agreement?

It's a private party suit. The claims are based on the claims that the A.G. made which is as we communicated before, we have consistently denied. So we referred it to our attorneys and, as I said before, they feel that the suit is without merit and not material.

Okay, when that was that filed?

A couple of weeks ago.

A couple of weeks ago, I think.

Okay, thanks so much.

I'm showing no further questions.

Great, we appreciate everybody's time and energy on the call. We had just a father nominal quarter. I think again the proof of our basic business model of driving growth and cash flow, 2003 is exciting. We just got done having all of our sales team together for the very first time as a company and I came away even more energized about the potential for Steri-Safe penetration and Steri-Safe upgrade. It is a great team went through tremendous training curve and excited about the future. So we look forward to many exciting calls going forward and thanks for all your support. Take care.

Ladies and gentlemen, this concludes today's conference call. You may disconnect at this time. Thank you for your participation. Have a good day.