Stericycle Inc (SRCL) 2005 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the Stericycle Inc. first-quarter 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. (OPERATOR INSTRUCTIONS). As a reminder, this conference call is being recorded. I would now to introduce your host for today's conference, Ms. Liz Brandel, Vice President of Finance for Stericycle. Ms. Brandel, you may begin.

Thank you. 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 for 10-K, 10-Q's as well as 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 commitment 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 shareholder equity and the denominator. We consider this ratio to be a good indicator of the strength of a 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 Stericycle's first-quarter 2005 conference call. With me today are Frank ten Brink, our Chief Financial Officer; Rich Kogler, Chief Operating Officer and you've heard from Liz, our Vice President of Finance. Once again, we're pleased to report the results achieved by our team in the first quarter.

Net income in the first quarter was 21.8 million and earnings per share was $0.48. For 35 consecutive quarters since our IPO in 1996, we've either met or exceeded expectations for our company's performance. With that brief overview, I'll turn the call over to Frank.

Thanks, Mark. Revenues grew 23 million in the quarter to 140.6 million, up 19.6% from 117.6 million in the first quarter of 2004. Of the 23 million growth, Small Quantity, our most profitable sector, was up approximately 6 million, or 9%. Large Quantity revenues were up over 1 million, or 3%. The International Equipment sales were down by approximately 2.8 million in the quarter and acquisitions less than 12 month old contributed approximately 17.8 million to the growth in the quarter. If you exclude the Equipment Sales and acquisitions, the internal growth total was 7% year-over-year. The customer revenue mix was approximately 63% in Small and 37% in Large, and as in the past, this mix is calculated excluding international operations, 3CI (ph) and acquisitions.

Year-over-year, gross profit as a percent of revenue was 43.3% in the quarter versus 45.2% last year due to the mix effect of our White Rose acquisition in the second quarter of 2004 and lower equipment sales. The domestic gross margins were sequentially up approximately 10 basis points in spite of operating cost headwinds of approximately 30 basis points related to the Baltimore plant startup and higher energy cost. This was offset by approximately 40 basis points mix impact from international resulting from an unscheduled plant outage and a weaker dollar.

SG&A excluding amortization was 15.3% of revenues or 21.5 million in the quarter. Income from operations in the quarter was 39.1 million, up approximately 13% versus last year and as a percent of revenue, income from operations decreased from 29.5% to 27.8%. Interest expense in the first quarter was 2.3 million versus 2.5 million in 2004. Other expense was 0.9 million versus 0.4 million in the prior year due to the non-cash mark-to-market on the intercompany loan with our UK subsidiary.

Net income from the first quarter was 21.8 million and the EPS was $0.48 for the quarter versus $0.42 last year which included 2.8 million more of equipment sales. Our debt to book capitalization at the end of the quarter was 29.8%. At the end of the first quarter, the revolver was 112 million and our Term Loan A was 62.4 million outstandings. During the quarter, we repurchased 748,600 shares of common stock on the open market in an amount of approximately 34.1 million. This differs from the cash flow due to funds going out in early April for the end of quarter purchases.

Cumulative, we have now bought back 1.880 million in shares. In the quarter, our CapEx was 6.3 million and the DSO in the quarter was 46 days versus 47 days a year ago and two days lower than the end of the fourth quarter.

And now some balance sheet numbers. Cash and equivalents, 13.3 million; accounts receivable, 73.5 million; current assets, 120.6 million; total assets, 838.9 million; short-term debt was 18.7 million and long-term debt was 187.6 million for a total debt of 206.3 million. Net worth of the Company was 486.3 million. Depreciation in the quarter was 4.9 million and amortization was 0.3 million. This concludes the financial picture, and I will now turn it over to Rich.

Thanks, Frank. We want to thank the operating team for all of their hard work and effort in the quarter. They faced significant operating challenges including higher energy costs, an unscheduled plant outage in the UK and the ramp-up of our Baltimore plant. During the quarter, we commenced operations in Baltimore and have started to redirect waste volumes into the plant. Our goal is to complete this process by the end of the summer.

We thank the sales team for their strong performance in the quarter. Our business continued to expand in all areas with increased Steri-Safe revenues and continued margin expansion in our large accounts. In addition, BioSystems is increasing its rate of market penetration in all of our rollout geographies.

During the quarter we made solid progress on our up-selling of new and existing accounts into the higher levels of Steri-Safe. In Q1, over 35% of the new Steri-Safe customers chose select or preferred and quarter-over-quarter, we raised the percent of all customers on the premium levels from 9.5% to over 10.5%. Also, we were pleased that approximately 40% of the total SQ revenues in the quarter came from Steri-Safe. Based on the results to date, we remain comfortable with our previously announced 2005 goal of 42% to 43% of the SQ revenues coming from the higher margin Steri-Safe program by year end.

In the quarter, our large account reps continued to improve the margins of the LQ business. They secured 49 new LQ med waste contracts all at or above our target margin level and they kept working on our LQG margin improvement program. At the end of the quarter, the blended gross margins for our LQG business was over 28%.

We congratulate the BioSystems sales team for their strong performance. In the quarter, they signed 57 new accounts and the new account pipeline remains very full. Based on their year-to-date results, we're comfortable that they will achieve their goal of capturing between 200 and 300 new accounts by the end of '05.

In summary, at the end of the quarter, we had signed up over 3900 new small customer service agreement. Thanks to the continuing hard work and efforts of our sales team, we ended Q1 with approximately 319,000 accounts, over 311,000 small and the remainder large. Now I will turn it back over to Mark.

Thank you, Rich. Clearly, we had another exceptional quarter and I would now like to provide some fine-tuning on our 2005 guidance. Please keep in mind that these are forward-looking statements.

In April, we closed on four new acquisitions; three of those in the U.S. and one in the United Kingdom. The combined revenue impact of these acquisitions will increase our revenues in 2005 by approximately $10 million and will increase our earnings-per-share in the last half of 2005 by approximately $0.02 per share. The dollar as you know has not strengthened as originally forecasted and our revised guidance assumes current exchange rates. For the balance of 2005, we anticipate gross margins to expand quarterly by 30 to 50 basis points, even with the impact of blending in the acquisitions that are lower initial margins and the international mix effect. Interest expense will obviously be higher as a result of the acquisitions, the share repurchases and the higher interest rates expected in the latter part of 2005.

Keeping these items in mind, we believe that analysts may increase their estimates for earnings-per-share from our previous guidance of $2.03 to $2.07 to a new range of $2.06 to $2.10 per share. This assumes and average share count of approximately 45.3 to 45.7 million shares for the year. We believe analysts may raise their revenue estimates for 2005 to a range of approximately 580 to 585 million with modest variations depending on assumptions on growth rates and foreign exchange rates. These estimates would include growth rates on our small-business accounts of 8% to 10%, of 4% to 6% on our Large accounts which includes the additional 200 to 300 new BioSystems accounts and 0 to 1 million in International Equipment revenues, all consistent with our prior guidance. We believe analysts will have estimates for net income between $93.5 and $96 million.

The new FAS rule 123R reporting guidance requires that the tax benefit from stock options can now be shown in the financing activities section versus the operating activities section of the cash flow statement. Analysts may need to adjust their free cash flow estimates to a range of 98 to 106 million which assumes a $6 million tax benefit from options exercising in 2005. And again, this is consistent with our prior guidance on free cash flow.

In closing, we're very excited about the tremendous opportunities in 2005 and beyond. We continue to grow our business on multiple fonts with stronger penetration in Steri-Safe, BioSystems and International, and collectively, they will drive our revenues, margins and cash flow and create significant shareholder value in the years to come. We thank you for your time today and we will now go to the question and answer session.

(Operator Instructions). Matthew Litfin, William Blair & Co.

Good afternoon. Congratulations on the quarter. I guess really only two questions. First, can you talk about fuel expense as a percent of revenue -- what was that versus the prior year and what are you doing in terms of patching that on? How much success are you having there?

Fuel and energy both as we normally bundle them were about -- close to 5%, a little over 5% of revenue. We have continued obviously to work on the pass-through. And as we said also in our prior call that there was a slight delay in it, but we feel we have been fairly successful with that and continue to obviously look at that carefully in the future.

So just as a follow-up there, you would not expect that to continue to increase as a percent of revenue, or how are you modeling I guess what is included in the '05 guidance?

At this point in our guidance assumes that it kind of holds even with roughly what we are right now.

Okay thanks. The only other question I had was, you mentioned the four smaller acquisitions. Can you just kind of walk through those and what they are and how you see them fitting in strategically? Thank you.

The four acquisitions -- the three in the U.S. are tuck-in acquisitions which fold into the infrastructure that we have. The one in the UK is a continuous geography expansion with some modest overlap. The mix on those businesses will help increase our small quantity mix in both of those sectors and purchase multiples consistent with our past practices.

Any treatment facilities, and was the UK actually in the city of London?

The UK was close to the city of London. On the treatment site, there was some treatment that came with it in one of the transactions; in fact, in two of them.

Thanks very much.

Amanda Tepper, J.P. Morgan.

Good afternoon. Just following up on the acquisitions, you say the multiples are consistent. Is that roughly around one times (ph) revenues, or what did you spend on these acquisitions?

Normally, we look at those as more as multiples of EBITDA. And on a pre-synergized basis, they were about 5 to 6. If you include the asset value just from a routes (ph) point of view, you're talking anywhere from 4 to 5. And again, that's multiples of EBITDA.

Okay. And you said it's 10 million of revenues that will hit Stericycle's revenues in '05, so it's more than that?

That is correct. On an annualized basis, it's a little over 13 million in revenues.

Okay. And then you raised your earnings guidance, but not your cash flow guidance. So is that just that there's a little more CapEx because of the acquisition or some onetime expenses that will eat up the extra cash flow?

You really have an aspect -- because the acquisitions have a factor where you don't get the working capital that came with it, like the receivables, so then after you do the deal, you have an increase as a result of that in your accounts receivable, which in the first year that picks up more than the actual flowthrough, so it kind of evens itself out.

Okay. And then on the cash flow side again on the buyback, which you did a lot more than we had been looking for in the first quarter, is this something -- this is now the second quarter in a row where you did a meaningful buyback. Would you be buying back more stock on a regular basis now and would you consider re-levering, or do you still want to keep a very clean balance sheet to be opportunistic on the acquisition site? How do you look at that these days?

Well, we obviously have capacity on our borrowing to keep doing transactions which we find accretive and our pool is very robust and we continue to look at acquisitions. And also as you saw in the 10-K, we have the capacity to continue to buy in the market. We have as of March 31, as Frank had mentioned, bought back 1.88 million and we have remaining capacity authorized for just under 2.6 million additional shares.

So I think at this point in time, I would expect that we would continue our current strategy, which is to focus our resource number one on the investment in our base business where we have very strong fall-through gross margins and give paybacks acquisitions and then be opportunistic on stock repo (ph).

Okay, thank you.

Robert Willoughby, Banc of America.

Thank you. That's a little bit more of a dramatic pause than I think I required. Mark, just a question. There has been some talk out of CMS about hospitals having to improve their infection control systems there as a quality measure. Can you maybe speak to that business that you've recently embarked on, as well as give us a one-liner on the JCAHO accreditation in pharmaceutical returns businesses?

Several things which we're highlighting. I think you're peg-on on the increased attention on infection control really arising awareness problem. It's not something that is a new issue that hospitals have dealt. But I think the external awareness and pressure is clearly on the rise. We see that we're able to help our customers through a variety of access. We think that obviously things like the BioSystems program can help reduce exposures. We think that the infection control software and other software modalities can help. So it's an area that today is a fairly small part of our total business, but we do think that is a big, big issue for our customers that we're going to continue to focus on.

On the primary returns business, we are getting some early traction. Still I think at this point in the guidance that we're given you at least for now to assume 1 to 2 million per annum in 2005, that at least in the accounts and the people that have looked at the program that I sit in on and participate, there's clearly a value add that we have and we have to go out and sell it to those various segments. But I think it's a powerful segment. And to refresh everybody's memory, it's about a $150, $200 million space and opportunity for us.

But none of the revised guidance here reflects a pickup in these businesses? It's much more the acquisitions driving the topline there?

Yes.

And any new services in the latest period that you've beta tested or anything you can comment on?

Nothing that would be big right now.

Okay, thank you.

(Operator Instructions) Alina Celura, Smith Barney.

Good afternoon. I just was wondering, I know Waste Management has recently indicated that they want to enter the market. Have you seen any movement by them at all or any change in the competitive landscape?

We haven't seen any meaningful change in the activity. We know that earlier this year that they had mentioned the services that they offer in the medical area during a conference at least from our understanding, these are the same types of services they've offered since the early '90s when I joined Stericycle in '92. But at least from our indication, it does not appear to be what I will call a top three or top five corporate focus from Waste Management and we just haven't seen any meaningful change in the dynamics. I mean, the things that they spoke of, of on-site treatment capability, that has been around since the beginning. Mailback capability has been around as well, so I really haven't seen any shift in the competitive environment.

And I was just wondering what was the actual share count at the end of the quarter?

At the end of the quarter, the number of shares -- it was outstanding -- 25.5 was the share count -- sorry -- 45.5 was the share count and EPS.

Just to clarify, you said the UK acquisition, that was mostly small customers?

The four acquisitions, we haven't done all of the parsing through them in terms of moving them into our databases. But as an approximation of that 10 million, we'd estimate maybe 50 to 60% of that 10 million will be what we would classify as Small Quantity and the remainder is Large Quantity. And the UK acquisition in the southwest portion of the country would have a similar mix.

Alright, thank you.

Tom Ford, Lehman Brothers.

Great, thanks, good afternoon. Mark, just while you're on the UK, just curious because obviously you guys are much closer to them than we are. You guys have always been very disciplined in terms of what you're willing to pay in the modeling that you do. Just curious about how comfortable you are with respect to the UK operations and how they conduct due diligence and what have you, or is that something that you have become very actively involved in?

In the way that the White Rose team has gone about the acquisition pool, that has been not only their team, but also augmented by our team as well. So there's personnel that have been assigned to help look at each of the transactions that we've considered, to look at the due diligence activities. So it's a joint effort between our group that does acquisition activity, the international management team here and the White Rose team in the UK. So it's one where everybody is involved.

Okay, great. Then just going back, I don't want to split hairs here, but I guess to a little bit, I will. If I remember correct, it looks like the earnings range has moved up a little but more than what the $0.02 contribution would imply?

Yes. You get $0.02 roughly from the acquisitions and then about a penny from overall share repurchase and general business.

Okay, great. Then Frank or Rich, I'm curious, what was the impact from this UK shutdown, and if you guys could just talk about that a little bit more?

If you look at overall the International side from an exchange and then the overall shutdown side of it, from a pre-tax point of view, that in fact was the primary factor why we were impacted in fact, exchange was the primary factor there. But it was roughly about 400,000 impact, but then the revenues were obviously a little bit higher so you have a factor of revenues higher, impact a little bit on the earnings side and overall the exchange impact.

Okay. And is that something that's going to persist for awhile? Do you guys have an idea on timing?

For the exchange obviously, our guidance is up because of the exchange. On the revenues side, you have seen that the guidance is up by approximately the acquisitions and then International about 5 million, and that is obviously mostly the exchange side. So you do have some mix going forward on the margin.

Okay. And then lastly, you guys had talked about the trend in margin and moving up, and I think that you were highlighting that it was despite the acquisitions. Even with the acquisitions occurring, you expected 30 to 50 basis points?

That is correct.

Just curious -- do you have an idea of what it would look like without the acquisitions?

It's probably, you're now getting into roundings a little bit. So it's getting all -- it's kind of tough to split a little bit. But I think if you really now combine it, we're looking for 30 to 50 basis points up quarter-to-quarter for the last three quarters of this year.

Okay, great. Thanks.

Mark Attalienti, Alliance Capital.

Thank you. Question on BioSystems. What is the total number of customers at this point?

The total number of customers that we have right now is about --.

211.

Well I was going to say, it's north of 500 total.

Okay. And I saw the BioSystems video on the Web site -- well done. And last question, you mentioned Baltimore. Is that facility -- has it been transferred, or what's the status of that?

It's a new autoclave facility that came online in the first quarter. We referenced it in our other call that we were staffing it and then beginning the ramp-up. And if you recall, that plant was under construction last year. We were outsourcing and moving waste all around, and now we're beginning to internalize that waste back in, in a phased approach. So we hope by the end of the summer to have all of the waste fully internalized and then realize the operating cost benefit of this new plant.

I just wanted to get the timeline on that. Thank you very much.

(Operator Instructions) Greg Halter, LJR Great Lakes.

Hi, guys, good results. You discussed the -- I think it was a plant outage, and I'm not sure if I got this right, but in the UK, and I don't know if you addressed that, but is that back up online now and running?

Yes. The plant's back up online. There was a plant interruption that caused the plant to be down for a period of time and we had to reroute waste and incurred some cost because of that. But the plant is up online now.

And that was in the UK, correct?

That was in the UK.

And do you have the Large Quantity growth ex-BioSystems for the quarter?

I think if you look at the growth for BioSystems but are excluding it, it's about half a percent down to 1% down.

Down 1%?

Yes.

And you've mentioned that your acquisition pool and size is about $40 million I think in revenues. With these acquisitions that you have made, has that changed or does that mean a new one has come in?

The pool remains robust and right now is over 40 million despite doing the closes on those deals.

Okay. And have you acquired any shares so far in April?

That we'll announce again in the next quarter at that time.

Alright, thank you.

Lorraine Maikis, Merrill Lynch.

Thank you. Could you guys -- I know we're seeing some incremental SG&A spending this year for some of your new programs. Can you just prioritize for us your focus for that? Are you focusing more on the BioSystems, upgrading the Steri-Safe pharmaceutical returns? Through what percentage of the incremental spending are you using for each of those specific programs?

In terms of the -- maybe the best way to address that -- our first priority is clearly on the Steri-Safe. We're putting a lot of resource into the sales and marketing question and I think it's one where that has huge potential for us. If you look at the trending for us, we're very, very pleased that we're now seeing, that putting that focus and emphasis, the movement of the mix of our customer base in the select and preferred not only in terms of the new captures, but also existing customers and upgrades. So that will continue to be a huge dynamic. As you know and for folks that are on the call but may not know the business implications, for us, a customer in a higher-level program like a preferred level has the potential to generate about three times the margin fall-through in a base level account. So it's a very, very important focus not only economically for us over the long-term, but strategically as well because those customers have a much broader ground (ph), we're getting excellent feedback in terms of the grading mechanism and customer satisfaction retention and I think it also bodes well long-term for upsell of additional programs.

BioSystems I'd say would be the second priority focus. And as you know, we have continued to invest heavily into that program. We're seeing good, solid traction. And I guess the pleasing part for me is where a year ago when we were talking about it, we were doing a whole bunch of assumptions with really no hard data and hard evidence. And now, we are clearly seeing the hard revenues in terms of multiple customers signing up. And although still very small, when we look back and say we started out with a group of 300 accounts and over last year and the first quarter this year, we've added 211 more to that book, we really feel that that system is proving itself on in the eyes of our customers. And then obviously, the pharma returns has a little less investment of that strategic spend in this early test marketing stage, but they are clearly chomping at the bit. They're going to show some early success I think in '05 and be back to the well looking for resource to grow that business because it could be a very profitable segment for us. That would be the batting order I would put them in.

Thanks. And then just a follow-up on Alina's question about Waste Management. I know their primary offering is an in-sourcing and you guys are traditionally outsourcing. Can you just talk about the trends that you've seen over the past five years, a hospital's willingness to bring the treatment back on-site or move toward outsourcing?

We tend to continue to see movement more towards outsourcing. There's obviously the handful of examples that anybody can work up of -- is it 5 or 10 examples throughout the last decade where people have gone the other way, but that tends to be more of an exception rather than the rule and a lot of that is driven by first and foremost the economics. The economics don't pan out unless it is a very, very large institution. Second is most of the really large institutions in this country tend to be in inner-city, have very high limitations in terms of space and capacity. And so it then becomes a space and infrastructure utilization. And if you think about a board that is saying we have to improve our outpatient procedure, we need to be able to offer more in terms of surgery capacity, all of the things which generate revenue and affect the long-term viability of that hospital, do you want to take that much space and dedicate it towards essentially an internalization that's not core to what they do. So that is a big determining factor as well. But we continue to see through time where people when I run the math, it just doesn't make economic sense. There's still people that do it and always will be.

Thank you.

(Operator Instructions). Matthew Litfin, William Blair & Co.

I think in your prepared comments, you referenced the other expense line. What should we look for going forward there? It was a little higher than I had modeled. And could you outline what that intercompany loan was that you referred to?

We have an intercompany loan with our UK subsidiary which was the funding for the White Rose transaction. And so depending on where the exchange rate is at the end of the quarter, that Sterling loan gets converted in dollars and you either have a non-cash book loss or a book gain. And so that factor can swing a little bit because both the Sterling to dollar is swinging all over the place. It's up, down and then the range has been probably 185 to 192.

So I think from a point of view, we are assuming right now that there is going to be a constant exchange rate with respect to the Sterling going forward because it's tough to predict those things. And from that point, if you look from Q1 to Q4, the total amount in other income and expense should be lower than what it is in the Q1 period that we just had.

Okay. And then have you guys had any more discussions regarding a potential dividend policy down the road?

Dividend policy is one of the things as we've talked in past calls, is one that we've considered but at this point, does not seem to be in the best interest right now. We think we have a tremendous amount number of opportunities for building shareholder value and may apply something that we can keep as an option longer-term, but there's been no formal decision.

Okay. Thanks, Mark.

Amanda Tepper.

Thanks. It really follows, Mark, with what you were just talking about. Out of all of those opportunities to add shareholder value from where you sit, really what's the biggest growth opportunity for Stericycle over the next couple of years, assuming your core business remains growing at the same kind of stable rate you have been at the last couple of years? What one or two things could happen to really move you up into a higher growth rate?

Growth rate in terms of earnings or in terms of revenues?

Either.

Well the most important is in doing what we're learning and doing in Steri-Safe. I think that if you look at the economic fall-through and impact of that and so some modeling, that has huge potential not only to kick up growth rate, but also more importantly a margin fall-through. Obviously, acquisitions will continue to be an area that we will be opportunistic on. BioSystems as we've rolled out when we'll add value and increase density, and then obviously cap structure management. I think in a year or two, I think pharma if it pans out the way we think it can, can also kick in. I'd encourage people to let us show you the hard evidence that we're getting traction in the pharma area and then grow that. But clearly for us, acquisitions have a big opportunity as well, and that's both domestic and internationally.

Okay, thanks, that's really helpful. And then just a nit (ph), and I apologize if you already said this. But currencies in the quarter -- did you say how much currencies were for revenue growth?

I think the currency in the quarter for revenue was a little over -- if you compare it to Q4, it was probably a couple of hundred to a little above that.

100?

Thousand.

Okay, thank you.

And that was versus Q4.

(Operator Instructions) Tom Ford, Lehman Brothers.

Frank, did you mention what the acquisition total proceeds were?

Total proceeds as in what we paid for them?

Yes, and was it all cash?

No. It was a combination of cash and notes. If you look at it from a purchase pricewith the notes, it was a total of about 33.4 million. If you NPV (ph) the notes, the amount of cash was 18.7 million and the remainder was notes over multiple years.

So it's the 18.7 plus 33.4?

No.

Oh, the total was 33.4.

Yes. The 18.7 and then the delta between that and the 33.4 was the notes, which on a gross basis were 19.5 and the NPV is the difference between the 33.4 and the 18.7, and that's 14.7.

Okay, thank you. And then Mark, I know in the past you had mentioned about the pharma returns business and I just wanted to make sure -- two questions there for you. One, when you were talking earlier, were you talking specifically about pharma returns staying 150 to 200 million?

Yes.

Okay. And then -- because in the past, you had mentioned about one of the pharmacy companies -- Walgreens -- is using it, or I think they were using your software, you had mentioned. Is this the type of product that you could see them move out to their pharmacies, or is this something that they just use more so at the high-level?

I think in terms of utilization of the product and service, for a large retail chain that's well organized and well integrated, some of them have their own central repository that they bring back and go through the sorting. So it would be licensing opportunities for use of the toolbox in that and then backup capabilities as we have done in the past. I think in many of the other locations where they may not have that same kind of infrastructure and footprint, it would be at an individual store level that they would then gather materials and then ship those materials to us, which we would then process in our facility.

So when you talk about the $150 to 200, you're not assuming that this is something that goes out to every little pharmacy that's out there in the U.S.?

Well, the 150 to $200 million opportunity would be the combination of what hospital pharmacies would do with us, what we would do with pharmaceutical and biotech companies. And then through the retail channel would be either what is driven by large integrated retail pharmacy chains to us for either licensing or backup capabilities or for the real small pharmacies that they would have the capability to send those through our system.

Okay, great. Thanks very much.

Mark Attalienti (ph), Alliance Capital.

A question on Steri-Safe. Does it travel in terms of -- would you be able to sell that in the UK as well, or they don't really have an OSHA compliance system, or do you have to tailor it to the country? How does that work?

Good question, Mark. The Steri-Safe program would not be exactly transferable because it has to be adapted both in terms of local rules and regs and in terms of language and who would be the speakers on the training videos and the like. Some there's some adaptation to the international arena, but the fundamental framework principles are the same and we see country to country there are regulations and guidelines in place on proper management and handling of infectious materials, of safety communication and the like, so we would just have to tailor that to that local country's modality.

And is that a big process and a large undertaking, or is that something you would be able to get up and running in a reasonable time?

It's not a monstrous undertaking. It's one that takes some time to do because you have to make sure that it's in the right format and translate it and then production time, but it's not a complicated process.

And does BioSystems travel well?

Yes. BioSystems is actually -- now we have -- the White Rose business has a reusable sharps program. We will be looking at that also in other international markets, so it is a capability that we will look at expanding not only geographically in the U.S. but geographically internationally as well.

And lastly, what is the dollar size of the UK market in terms of Large and Small Quantity?

The UK market we estimate to be in U.S. dollar basis in excess of $0.5 billion opportunity. The business of White Rose as you know has been predominantly concentrated in the large accounts and they're focus has been look at their growth is not only continuing to improve margins in that (ph) space, but really gain significant traction in the small accounts base which will help in diversification of the customer base and enhance their margin profile.

And the margins in the UK are better than the margins here on the waste side?

The margins for Large Quantity generators are very similar, and on the Small Quantity generators with density, very similar as well.

Thank you. Very much.

(Operator Instructions) Greg Halter, LJR Great Lakes.

Hi, guys, thanks for taking the follow-up. On that -- Frank, you mentioned the multiple on the acquisition side was 6 times EBITDA. Is that on the $33.4 million figure you provided?

Yes.

Okay, thank you.

(Operator Instructions) I'm showing no further questions.

Thank you, everyone. We appreciate your time and attention. It's a solid start to the year and we would be pleased to announce more new good news as we go through the year. And have a safe day. Take care.

Ladies and gentlemen, this concludes today's conference. You may now disconnect. Have a great day.