Stericycle Inc (SRCL) 2004 Q1 法說會逐字稿

Welcome to the Stericycle Incorporated conference call on first quarter earnings. At this time all participants are on a listen-only mode. Later we will conduct a question and answer session and instructions will follow at that time. (OPERATOR INSTRUCTIONS). As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Vice President of Finance, Ms. Liz Brandel.

Thank you very much. I will be reading the Safe Harbor statement. Statements 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 formed 10-K, 10 Qs, as well its other filings with 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 commitments to disclose any revisions to forward-looking statements or any facts, events, or circumstances after this date that may bear upon forward-looking statements.

During the conference call, we may refer to our total debt to capitalization percentage. This is calculated by using the total debt as numerator, and the total debt plus preferred stock plus shareholder equity in the denominator. We consider this ratio to be a good indicator of the strength of the Company's balance sheet. It is not a measure in accordance with GAAP accounting principles and is not a measure of net income, cash flow or liquidity.

With that, I would like to pass the call to Mark Miller.

Thanks, Liz. Good afternoon, and welcome to our first quarter 2004 conference call. With me today are Frank Ten Brink, our Chief Financial Officer, Rich Kogler, our Chief Operating Officer, and you heard from Liz, our Vice President of Finance.

Once again we're very pleased with the record results achieved by our team in the first quarter. On a comparative basis, net income in the first quarter grew by over 30 percent. Stericycle finished Q1 of 2004 with an earnings per share of 42 cents, up 29.8 percent over the 32 cents reported in the first quarter of last year. For 31 consecutive quarters since our IPO in 1996, we have either met or exceeded expectations for our company's performance. With that brief overview, I'll turn the call over to Frank.

Thank you, Mark. Revenues grew 5.2 million in the quarter to 117.6 million, up 4.7 percent from the 112.3 million in Q1 of '03. Of the 5.2 million of growth, small quantity, our most profitable sector, was up 5.4 million, or 9 percent. Large quantity revenues were down 2.9 million, or 7 percent. International sales were up by approximately 1.4 million due to equipment sales in Japan offset by primarily unfavorable Mexico peso exchange rates.

Acquisitions less than 12 months old contributed approximately 1.6 million. The customer revenue mix was approximately 63 percent in small and 37 percent in large customers. As in the past, this mix is excluding international operations, 3 TI (ph) and acquisitions.

Gross profit as a percent of revenue increased from 42 percent in the first quarter of 2003 to 45.2 percent in the first quarter of 2004, a 320 basis point improvement. The improvement resulted from continued success of our Steri-Safe program, improved margins in our LQ business due to our progress on the large quantity margin improvement project, and productivity improvements offset by higher energy costs.

SG&A excluding amortization was 15.1 percent of revenues versus 14.6 percent in the prior year, due to higher investment spending related to new programs such as Biosystems and Steri-Safe. Income from operations rose 14.3 percent to 34.7 million in the quarter, from 30.4 million in the first quarter of 2003. As a percent of revenue, the income from operations increased from 27 percent to 29.5 percent.

Net interest expense was lower in the first quarter of 2004 versus the first quarter of '03 by approximately 1.3 million, due to lower debt outstanding and modestly lower interest rates. At the end of the first quarter, the balances of the revolver were 2 million, our term loan A was 62.4 million and 27.3 million was outstanding for the term loan B. The total outstanding for our senior subordinated bonds at the end of the quarter was 50.9 million. Net income for the first quarter rose 30.3 percent, to 19.1 million from 14.7 million last year. Earnings per share was 42 cents for the quarter, up 29.8 percent from a year-ago quarter.

During the quarter, we continued to make consistent progress in improving our balance sheet. Our debt to book capitalization at the end of the quarter was 25.6 percent, down from 28.1 percent at the end of the year and 38.7 percent at the end of the first quarter of 2003. In the first quarter, our total debt decreased by 18.6 million due to repayments.

During the quarter, we repurchased 100,000 shares of common stock on the open market in an amount of approximately 4.3 million. In the quarter, our capital spending was 4.5 percent of revenues, or $5.3 million. The DSO in the quarter was 47 days versus 55 days a year ago quarter and 2 days lower than the previous quarter.

The net cash provided from operations was 28.2 million in the first quarter of 2004, and at the end of the quarter, we completed the acquisition of American Waste in Virginia. The purchase price was paid for in cash and notes, and the estimated annualized revenues are slightly over 5 million.

And now some selected balance sheet numbers. Cash and equivalents, 3.4 million; accounts receivable, 59 million; current assets, 84.4 million; total assets, 707.7 million; short-term debt, 5.3 million; long-term debt, 148.9 million, for a total debt of 154.3 million. The net worth of the Company was 448.8 million. In the quarter we had depreciation of 4.1 million and amortization of 600,000. And as mentioned, our DSO was 47 days.

I will now turn it over to Rich Kogler.

Thanks, Frank. In spite of rising energy costs in the quarter, we're extremely pleased that our gross margins improved by 60 basis points from the prior quarter and 320 basis points year-over-year. The team continued to successfully execute in three important areas -- the Steri-Safe program, our large customer margin improvement project, and improved operating productivity.

We saw continued penetration of our Steri-Safe service offering this quarter, and are pleased to have over 75,000 customers on the program. Steri-Safe now represents over a third of our SQG revenues.

In the quarter, our major account reps were focused on improving the LQG margins. They secured 46 new LQG contracts, all at or above our target margins. And they also continue to work on the margin improvement project to address our low margin large customers. As we previously stated, the purpose of the margin improvement project is to increase the absolute margin dollars of our LQ business.

Margins increase overtime as we work in cooperation with our customers to improve the price service equation of each low margin account. Our margin improvement project continues to deliver the expected benefits. In this quarter, while the annualized revenue impact due to service adjustments and culling (ph) was $1.7 million, the revenue, or the project, resulted in a 14 percent increase in LQ gross margin dollars versus Q1 of last year.

Now I would like to provide an update on the Biosystems rollout. We concentrated this quarter on launching in each of our target markets with a dedicated Biosystem sales team. Our sales specialists, now fully trained, hit the streets and began full-scale marketing of the program to our LQG customers. Based on initial feedback from the customers and early results from several of the targeted geographies, we remain extremely excited about the opportunity that Biosystems offers us to grow our LQ revenues and margins. Although we're in the early innings of the Biosystems sales and marketing effort, we remain confident we will achieve our 2004 goal of capturing between 100 and 200 new Biosystem accounts in addition to the 300 existing customers we currently have.

I would also like to update you on the progress of our strategy to reduce the amount of waste incineration in North America. We have started the process of converting our Baltimore facility from a medical waste incinerator to an autoclave. Upon completion of this project in Q4 this year, we will have reduced the amount we incinerate and we will improve our operating cost going forward. In addition, we're finalizing the closure of our Terrell, Texas incinerator. After completing our analysis, we anticipate that we will have a onetime noncash pre-tax charge in the second quarter of approximately 1 to 1.4 million to write off the old incinerator equipment.

In summary, at the end of the quarter we had signed up over 4000 new small customer service agreements, and thanks to the continuing hard work and efforts of our sales teams, we currently have over 304,000 customers with approximately 298,500 small, and the remainder are large. I will turn it back over to Mark.

Thanks, Rich. I would like to now provide some fine-tuning on our current outlook for 2004, and just as a reminder, these are forward-looking statements.

The guidance for 2004 does include the impact of the incinerator closures mentioned earlier by Rich, but does not include the assumption of additional repurchases of our bonds. Should we elect to repurchase in Q4 of this year the remainder of those bonds, the pre-tax charge would be approximately 4.5 million, of which 1.3 million is noncash and 3.2 million is in the cash premium.

Essential EPS impact of the repurchase charge in Q4 would be approximately 6 cents per share, and this would provide a benefit after 2004 of approximately 5 cents per share per year due to lower interest expense.

In our February conference call we provided 2004 EPS estimates of $1.69 to $1.74. We believe that analysts, after detailed review of their models, will potentially adjust their estimates to a range of $1.70 to $1.75, which we are comfortable with. This assumes an average share count of slightly over 46.3 million shares for the year.

I would like to provide some additional fine-tuning for that outlook. We believe that analysts may adjust their 2004 revenue estimates to between 478 to 483 million. These estimates would include internal growth rates on small accounts of between 8 and 10 percent, and of -2 to -4 percent on large accounts. Incremental Biosystems revenues remain the same between, 1.5 to 4 million, and international equipment at 5 to 7 million.

We believe that analysts will have estimates for net income between 78.5 million and 81 million, depending on their assumptions for improved margins, acquisitions, interest expense and strategic spend. Depreciation and amortization expense we estimate will be approximately 19 million.

In closing, we're very pleased with our results to date, and I would like to thank our customers, employees and shareholders for their support in building the leading company in our industry. Thank you for your time; we'll now switch to the Q&A period. Operator, we're ready to take questions.

(OPERATOR INSTRUCTIONS).

Thanks for all the detail, as always. Just comparing the bits of guidance you just laid out, Mark, versus what you guys said last quarter, very similar except for the bottom-line moving up a little bit. And I am wondering is American Waste in there? Is that where some of the upside is coming from? Are margins going to be a little stronger than you thought? It looks like the only piece that's a little bit higher is international.

In terms of the international guidance, the range -- top end of the range is the same, we just updated the bottom of that. American, we think, will be accretive. And then, obviously, that's offset by the headwinds we are facing in terms of the cost of energy and the like. So in the guidance, we took the guidance up by a penny, but that also included in that guidance 1 to 2 pennies of write-down effect from the incinerator closures that we anticipate to happen in Q2, but does not include the bond repurchase in Q4.

Can you talk a little bit about the energy headwind? How much was it in the quarter, and is it more diesel fuel for the trucks or is it natural gas at the incinerators that is hurting?

The headwinds is predominantly the fuel, which in Q1 was up about 15 percent versus Q4. We haven't seen as much pressure on the natural gas and electricity, but clearly the fuel has been the biggest issue. That was rich cochlear.

Do you contemplate any kind of surcharge or pass-through of that?

(multiple speakers) how we have historically managed it, if we are approaching a time for an adjustment in rates, we go ahead and build that into an adjustment. If in the future we have dramatic rise in energy costs and we had just recently done rates, then we would contemplate doing something as a surcharge up through. And again, just to put this all in perspective for folks, the fuel cost for us in a given geography range around 2.5 percent of revenues. So on a small account, this isn't a big dollar change in terms of what they're spending per month to adjust to try to recoup that.

One last question. The new software that you guys had in your 10-K with compliance and infection needs for hospitals; can you address that a little bit, what any kind of earnings impact we might see from that this year?

On the three new programs that were disclosed in the K, the direct returns program, the infection control software and the JCAHO J repository compliance tool, will go into test marketing in the latter part of '04, and are not included in this guidance. They're really programs that would have impact in the years to come.

Lorraine Maikis, Merrill Lynch.

What is the gross margin up to for your large quantity generators at this point?

In the first quarter we're now up to about 26 percent; that's about a full percentage point up from where we were in Q4.

So is your target for the underperforming accounts still 25?

We're trying to get to 25 or 26 percent. Obviously, the look at any new business or renewal would be dependent also on what are the escalator provisions over the life of the contract. So if somebody is looking to not have increases in the first two years, and then some type of CPI adjusted in years 3 through 5, then we'll be looking to start at a higher rate; vice versa if there's ability to have more rapid increase, we might start at 25 or 26.

Of the customers that you approach, what percentage do you typically keep and rework the cost structure, and what percentage do you lose?

We are generally keeping about 8 to 8.5 of the 10s, so 80 to 85 percent that we're keeping. And the beauty of the program is often we can make it a win-win scenario. For example, we might have an account that historically billed 25 or $30,000 of revenue; we may be able to take their expenditures down by 5 to 10 percent, but at the same time dramatically improve our gross margins by adopting the service frequency, the type of containers utilized, the other variables that dramatically affect our cost structures, particularly in the transportation side.

And then finally, what was the number of new Biosystems signups during the quarter?

We are now in the (indiscernible) of 26 accounts as we speak, so we feel very good in terms of how we're tracking on Biosystems. I think the main thing that we're seeing is that the prospects and the people that have made decisions in this early process clearly see the value proposition that's resonating through all of the functionalities that we interface in the account. The other thing that I think is still too early to tell, but (indiscernible) are projections of the 5 to 10 month selling cycle -- when we are approaching prospective customers we're finding that they're very receptive to the value proposition and starting to go through the analytical work and committee formation. So the early signs of what we're seeing are good. We have to convert those into orders to hit our 100 to 200 new closes this year, but we're on track to achieving that goal.

Kevin Monroe, Thomas Weisel.

A couple of questions. First on the large customer growth. It's been a couple of quarters now where we have seen fairly significant declines in internal growth in that customer base. Are we coming up on an anniversary anytime soon of maybe a particularly big contract loss or anything like that? Do you expect any improvement in that growth rate over the next couple of quarters?

I think the comment on -- a comment on the growth rate, as we have talked about in prior quarters, we still have about 15 percent of our large quantity generator business which falls below the standards. We are generally able to touch roughly 5 percent. So we have about three or three to four quarters to work through it. What will help us in terms of the math on comparables as we move later in '04 is that much of the activity that we have been doing over the prior years kind of messes up the comparable calculation. So we anticipate and still feel that our guidance range of total year being kind of -2 to -4 percent seems reasonable, based on what we are seeing.

In terms of the gross margin expansion, you had a pretty significant expansion this quarter. Is that something sustainable in terms of a rate of expansion for the next couple of quarters, or do we taper down a bit?

I think our guidance would be based on a more tapered view. We had a tremendous quarter as you know. Historically we're typically on a year-to-year basis kind of 200 to 250 basis points, and I'm very, very pleased with the results of the team in this quarter, particularly given the energy impact in terms of the comparables. I think if you look, as we talked about in the last call, depending on how the new programs and Ste-Safe (ph) takes off and energy costs, we're probably looking to go out of the year north of 46 percent into the mid 46s, as far as percent gross margins. So as far as you look at -- any of you out there that are looking at modeling in terms of sequential -- generally I would say up 10, 20 basis points per period. And as we move further in the year and Biosystems starts to take a little bit more hold, we may see that expand at a little faster clip.

Neil Guimere (ph), Oppenheimer.

Congratulations on a great first quarter. I have three questions actually, one regarding your revenue mix. As far as your revenue mix is concerned, how many -- what percentage would be the systems and which percent would be services, as far as the revenue mix breakdown?

By mix of services, the vast majority of our revenues are services-driven. The international equipment that was in Q1 would be the only that would be equipment. I would say about what 2. -- what was it?

2.8 million.

Second question is regarding a repeat order. When a customer deals directly with you regarding your medical waste collection services or systems, do they have to do the deal exclusively with you or they're able to integrate your services and products?

Our service arrangements with our customers are multi-year exclusive agreements, so they contract with us typically on a five-year basis for providing them whatever they contract for. So that may include access to our training and compliance materials like in Steri-Safe, proper containers, packaging, transportation, treatment, documentation fees for dealing with their infectious waste stream.

Excellent. Regarding your backlog, as far as your customer sales are concerned, I believe you made reference to the fact that you retained about 85 percent of your customers. As far as orders are concerned, do you actually report a backlog number?

We don't report a backlog, and just for clarity, the 85 percent retention is strictly on the accounts that we have targeted as being unacceptable margins that we need to either fix or lose the business. On our overall business, our revenue retention rates are 95 percent.

Leone Young.

My questions have really been answered. But not to beat a dead horse, but your new guidance to 170 to 175, you said it did include 1 to 2 cents from the incinerator charge. So apples to apples, it's actually whatever -- 171 to 176 versus your prior year guidance?

Yes.

Tom Ford, Lehman Brothers.

Just a few questions. Rich, could you give the -- what was the Steri-Safe penetration again?

The Steri-Safe penetration? Right now we're probably at about -- we're north of 30 percent at this point, in terms of our revenue.

It's 75,000 accounts.

What is the -- you guys didn't mention the premium level.

Currently, premium makes up about -- well, we're probably in the low teens at this point.

For the quarter, we're probably over 14 percent in the quarter, and that compares to year ago we were about 7 to 8 percent.

We're starting to see the learning process of how to move towards higher level programs, but we still have a lot of opportunity ahead of us. And Tom, as you well know, if we can move an account from basic service into preferred service, that is equivalent of adding 10 or 11 new accounts; so it has huge impact in terms of the margin impact and (indiscernible). And now with it being over 1/3 of our revenue stream, we have solid traction in this program.

Mark, one thing I was curious about. When you were talking about -- I think it was Lorraine that asked the question about the LQGs, and -- is it fair to say -- I'm just kind of curious as to what you thought is. Is it fair to say that the margin program keeps going, so that you keep kind of replenishing the low margin accounts to be worked on as you keep moving everything up?

I think, clearly, as we have talked about in the past, our long-term goal is we think that the basic service to the LQG, or large quantity, marketplace should be into the mid-30s. We had set our objective to say, if we can't get to the mid-20s or higher it's really not worth having. Because at 25 percent gross margin and 15 percent SG&A, and playing banker on the working capital, it just does not generate interesting returns of the sector. So I think as we look in the years to come, we will continue to raise that bar. But our fundamental focus over the last couple of years has been just to say, okay, of that roughly 5600 account base, let's not be chewing up our resources in time and energy in terms of servicing work that's not there. Obviously, we would love to retain the business if it's economically viable. But if it's not, it's not strategically important for us. And if a competitor takes that work at those levels, we know that they're going to be chewing up their own cash. They can't produce cash flow returns in excess of their cost of capital. And then clearly, we're trying to get this as much as we can done in this first space as we're beginning the Biosystems launch.

If I remember correctly, I know there was a component of it that you said, but in terms of the accounts that you lose, I think you had kind of referenced 15 to 20 percent of the customers approached you lose?

Roughly about 15 to 20 percent.

How many of those do you see over the next 18 months?

Typically it takes longer than 18 months before we see it again, because they may go into a five-year service agreement. The ones that we see before the 18 months -- and we have had that happen -- are ones where the vendor that is servicing them has gone bankrupt or has had some type of major regulatory issue that the potential fines would put them under, or they have come back to the account and either just stopped servicing or tried to renegotiate and it comes back to bid. But yes, many times it may take a couple of years into it before they realize that it's -- the drain its having on cash. Again, this is maybe a small mom and pop company that may not have very sophisticated financial systems, and is strictly looking at revenue and feeling that there's no such thing as a bad revenue dollar, and it may take a couple of years for the cash drain to really sink in.

Last but not least -- Frank, on the cash flow statement; deferred taxes had a fairly notable change from, I think, sort of the historical trend?

Last year we had benefits on the front of depreciation. There are some and were some favorable depreciation for tax purposes. We also the had a little bit of NOL left from that point of view, is one of them. And if you look at this year with that depreciation, we have less benefit from that. And some of the deductions we maybe got last year, they are over time reducing from a size point of view a little bit in the total scheme, too. But a lot of this had to do with depreciation and with the NOLs that were left last year.

Last question for you. In terms of putting your budget together for 2004, what was the assumption for energy cost inflation?

We had assumed about 5 to 10 percent spread over the year, so we were pushing pretty hard in Q1, with as rapidly as diesel went up -- a 15 percent rise over Q4. And we're anticipating some modest increase over the rest of the year in that guidance. So if for some reason there's huge swings in energy cost, which there always can be, then we'll need to, obviously, do the programs that we do either get additional increases or modify our productivity ratios to make sure we hit our numbers.

Steve Benelski (ph), Copper Arc (ph) Capital.

(inaudible) 7.6 million you used for acquisition? What was the -- what is the annual revenue contribution from those acquisitions?

A little over 5 million.

So is that -- I guess for the remaining three quarters that's about 3. -- or close to $4 million contribution; is that in the guidance? How does that work?

We included that in the guidance, because as you will recall we had about 1.7 million annualized on revenue down from our culling and service price adjustments in Q1. And as we look out across the year, if we continue with that program, that offsets each other. Now the benefit for us is that on the revenue side historically, if you look at the LQG program, roughly for every dollar that we have lost or had reduction in revenue on the LQG side, through modifying the program we have typically picked up on average 50 cents or more of absolute gross margin dollars through that change.

So the future acquisitions that you do in the next quarters, are they in the guidance as well?

No. If we do acquisitions in subsequent quarters, then those would be additive to our numbers.

Okay. Am I wrong to assume that, I guess, revenue guidance should have gone up $4 million?

Yes. It would have gone up had all other variables stayed the same. For example, had we not been doing as much culling (multiple speakers) the range would have ticked up.

I don't have the acquisitions from last quarter so I can't calculate the internal growth, but what was that?

The acquisition from which aspect, the growth side of it?

No. Just internal growth, because I don't know what the acquisitions were from last --

There were really no acquisitions added in the last quarter, no.

So the internal growth was about 3 percent?

The internal growth combined between the two of SQ and LQ for the quarter was 2.5 percent.

Lastly, it looks like there was a reduction in allowance for a doubtful account. Was there a reversal in the quarter, or was there a collection of an account that you didn't think you were going to get?

No. There was a small -- overall, our reserves are not as high what we need to take. So in that sense it's lower. And we had a small reversal in the quarter itself, but overall we have a far better track record, so going forward that's going to be in essence a positive.

So the commentary is that the book of business is getting better from a collection standpoint so you can lower that. But how much was the reversal in the quarter?

It was a little bit over 3, 400.

(OPERATOR INSTRUCTIONS). Matt Litfin, William Blair.

A question on the American Waste acquisition. Is that your basic medical waste service, and could you comment on the pricing environment out there? And also lastly, the general acquisition pipeline; what is the dollar amount of that? What does that look like post this purchase?

I will try to kind of answer your questions. American was a medical waste operation, and what we were able to get there, obviously, besides the customer base, is we got three very strategic locations that we can operate from in that geography. So overall as it integrates in it's going to help us reduce our operating costs in that market. In terms of the overall pipeline, the pipeline remains about $40 million, a couple of dozen acquisitions that we worked through of varying sizes. And like we've always said before and I think you kind of see with American here, we're a very disciplined and strategic buyer; so when we find something that is accretive, we can integrate it quickly, if the purchase price makes sense, then we're going to make our move. And that's why we did this deal.

One unrelated follow-up. The incinerator that you are closing down this quarter, I think you said it was in Texas, where will that waste be treated now and what was kind of behind that decision?

We still have an existing network of incinerators in the country that we can direct the waste to, but I think more importantly, the reason that we are able to make this progress is we are building additional non incineration capacity and we're working with the customers very diligently to have them do better segregation, which reduces the amount of incinerate-only waste they generate. The end result is just a win-win. It's a win for them obviously, and for us we can use a lower cost treatment methodology like autoclaving or ETD.

Robert Willoughby, Banc of America Securities.

This is actually (indiscernible) Jackson for Bob Willoughby. I missed the last question. Did you say that you still expect acquisition spending for the year to be around the $40 million range?

On acquisition spending our guidance doesn't assume any additional acquisitions beyond American. If we were to do additional ones throughout the year of that pipeline, then that would go in. But the guidance that we gave does not have additional acquisitions beyond that.

Greg Halter, LJR Great Lakes.

Good quarter. I wondered if you could comment on the preferred stock which is down -- I know there was some indication in your 10-K and proxy, but give us an update on how that stands with Bain and Madison and the preferred stock.

For those of you who may not be familiar, the preferred stock was a transaction that we did split equally between Bain Capital and Madison Dearborn Partners back in 1999. That number goes down as over the years they have taken and (technical difficulty) to common and then gone to liquidity to bring value back to their limiteds. The combined numbers ownership-wise I think is roughly about 1.5 million equivalent shares. And obviously, in all of our fully diluted calculations, those are on an as-converted basis. So it's really just the format that it sits on the balance sheet.

Of that 14 percent, taking the premium service on the Steri-Safe, is that 14 percent of the 1/3 or 14 percent of the overall?

That's 14 percent of the people that signed up in the quarter, and that's comparable to Q1 of last year. We had about seven to eight percent of the people that were signing up in the program. On a total basis, we're probably like 6 or 7 percent of the 75,000. But that continues to step up as we're learning how to sell the upgrades.

Thank you for that clarification. Back to the cash flow statement, the payments for acquisitions, 7.62 million -- was that all American Waste, or was some hangover (multiple speakers) --

No. That was all related pretty much to American.

Back on the cash flow statement on cash from operations, it looked like there was a fairly significant change in the Accounts Payable line which contributed to the flat year-over-year cash flow. Anything of note going on there?

Two things there. At year end we had more capital spending before the end of December 31, so some of those things were paid with respect to that. And the other part is at year end we normally slow down the payables a little bit on the December year end point for balance sheet, and we normally, as you have seen, pretty much every year there's a little bit of a catch-up of that the other way in the first quarter.

Last question. Just wondering if you could run me through -- and this is on an annual basis -- your cash payments for income taxes were about 16, 17 million in 2003, but on the income statement about 43 million. Can you run me through the differential there?

The main part in that differential is really two things. Historically it's been obviously the net operating loss carryforwards, and a big one is also the goodwill is tax-deductible, even though because of the FASB that was implemented a couple of years ago it's not anymore deducted on the income statement. And for tax purposes, most of our goodwill is tax-deductible and is taken over a 15-year life for the tax side. So that's where you get your significant difference between the two.

Tom Ford, Lehman Brothers.

Two quick follow-ups. With the changes on the incinerators does the CapEx change for the year at all?

No. CapEx guidance remains the same.

What was that, Rich?

21 to 24.

The question I had was with respect to Biosystems, Mark, have you said anything about quarterly progression in terms of account signups?

We haven't given external guidance in terms of that build, but if you can kind of think through it -- if we look at our goal which we're still comfortable with of adding 100 to 200 accounts this year, which over the base of 300 is a meaningful uptick -- if you look in kind of back-end to it of five to ten-month close cycles, most of the geographies -- some launched in January, some February, some March; so most of them are really only into the active phase a few months into it. So we had really not anticipated a big load or a big close rate in the first part of the year because of just the cycle time it takes for hospitals to go through the committee reviews and process. So if you kind of work through the numbers, if we continue at this pace we're going to be on track to be well within our guidance range.

Because you did mention a number before, right?

We had -- at our February call we had eight contracts that we had brought in, and where we're at now is 26 contracts.

I'm showing no further questions at this time sir.

Thank you, everyone, for your time. And we appreciate you listening in on the call and we look forward to many great quarters to come. We were joking a little bit earlier about 31 for 31; it's a little bit like Groundhog Day, so we'll try to keep you bored and keep meeting or exceeding expectations. Talk to you next quarter. Bye-bye.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation.