Stericycle Inc (SRCL) 2005 Q4 法說會逐字稿

Welcome to the fourth quarter Stericycle earnings conference call.

[OPERATOR INSTRUCTIONS]

I would like to now introduce your host for today's conference, Ms. Liz Brandel, Vice President of Finance.

Ms. Brandel, you may begin.

Thank you very much.

I'll 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 Form 10K, 10Q's as well as with 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 in 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 principals and is not a measure of net income, cash flow, or liquidity. I would also call your attention to paragraphs in our press release under the caption "Use of non-GAAP financial measures".

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

Thank you, good afternoon and welcome to Stericycle's fourth quarter and full year 2005 conference call.

With me today are Frank Ten Brink, Chief Financial Officer, Rich Kogler, Chief Operating Officer, and Liz Brandel, our VP of Finance.

Once again we're pleased with the results achieved by our team in the fourth quarter. Our fourth quarter results include the impact of our previously announced preliminary settlement of the 3CI class action litigation, loan refinancing fees and the write off of a note receivable from our former South African joint venture.

GAAP net income in the fourth quarter was $71,000 and EPS was zero. Without the three charges mentioned above EPS would have been $0.56 cents per share.

For a brief overview I'll turn the call over to Frank.

Thanks Mark.

Revenues grew $27.7 million in the quarter to $166.6 million, up 19.9% from $138.9 million in the fourth quarter of 2004. Of the $27.7 million in growth SQ our most profitable sector was up approximately $6.7 million or over 9%.

LQ revenues were up approximately $2.4 million or approximately 6%. Acquisition less than 12 months old contributed approximately $16.9 million to the growth in the quarter.

Customer revenue mix was approximately 63% in small and 37% in large customers. As in the past this mix is calculated excluding international operations, 3CI and acquisitions.

Year-over-year gross profit as a percent of revenue was 44.6% in the quarter versus 43.6% last year. Gross margins were sequentially up by 50 basis points as a result of continued improvement in our base business both domestically and internationally, partially offset by continued operating cost head winds.

SG&A, excluding amortization, was 16.9% of revenues or $28.2 million in the quarter due to increased investment spending and the impact of new acquisitions in the quarter. Income from operations in the quarter was $45.3 million or 27.2% of revenues.

Net interest expense in the fourth quarter was $3.8 million versus $2.5 million in 2004 due to increased borrowings related to the acquisitions and stock repurchases and higher interest rates.

During the fourth quarter of 2005 we increased our senior unsecured revolver capacity from $400 million to $550 million and incurred costs of $250,000 in refinancing fees for the international operations.

Net income and EPS, GAAP net income for the fourth quarter was $71,000. The non-GAAP net income for the fourth quarter of 2005 was $25.2 million or $0.56 cents per share. Impact of the 3CI legal settlement was $0.52 cents per share, the refinancing expense were $0.01 per share and a South African note receivable write down was $0.03 per share.

Now to balance sheet, at the end of the fourth quarter the revolver borrowings were $291.7 million, the unused portion of our revolver is approximately $192 million. During the quarter we repurchased 237, 700 shares of common stock on the open market in an amount of approximately $13.3 million. We've bought back 2,381,930 shares, i.e., the available for repurchase still is 2,096, 500. In the quarter, our CapEx was $6.2 million and the DSO in the quarter was 56 days.

Now some balance sheet numbers. Cash and equivalent $8.5 million, accounts receivable $103.7 million, current assets $143.9 million, total assets $1.048 billion.

Short-term debt $12 million, long-term debt $348.8 million for a total debt of $360.9 million. Net worth $522.7 million. Depreciation in the quarter was $5.3 million and amortization was $0.4 million.

Now a brief recap of the year-to-date numbers. For the year ended December 31, 2005 revenues increased to $609.5 million, an increase of 18.1% from the same period a year ago. Gross profit as a percent of revenue was 44% for the year ended December 31, 2005, versus 44.2% for the year ended December 31, 2004.

GAAP earnings per share decreased 9% to $1.54 from $1.69 for diluted share in the same period a year ago. A Non-GAAP EPS was $2.07, up 17% versus $1.77 in 2004.

Cash provided from operations was $94.3 million after deducting $23.4 million net of tax for the preliminary settlement of the 3CI litigation.

Now, this concludes our financial picture, now I would turn it over to Rich.

Thanks Frank.

We want to recognize our worldwide operating team for all their hard work and continued efforts during the quarter. Throughout the entire year they faced rapidly escalating operating cost head wind and significant operational challenges ranging from transit strikes to multiple hurricanes.

In spite of these challenges the team consistently worked to contain cost, improve productivity and expand margins. We're extremely proud of our worldwide team and their performance in 2005 and we thank them for it.

During the fourth quarter as throughout the year we benefited again from strong sales growth in all key areas of our business. The sales team focused their efforts and attention on our most important growth drivers including SteriSafe and Bio Systems and once again delivered a solid performance in the quarter.

The SQG sales team continued to emphasize their proven upselling sales strategy moving new and existing accounts into the higher levels SteriSafe programs. In Q4 over 36% of the new SteriSafe customers chose the select and preferred programs and the percentage of total accounts on premium levels rose to a new high of 13.5%.

Thanks to dedication and determination of our SQG sales teams SteriSafe contributed over 43% of total SQ revenues in the quarter meeting our original 2005 year end goal of 42% to 43%. Looking ahead to 2006, we have set a new goal for the team of 47% to 48% of SQ revenues from SteriSafe by the end of 2006.

During the quarter our large account team secured 49 new LQG and Medwaste contracts and they also signed 70 new Bio Systems accounts.

We're very pleased by the performance turned in by our LQG sales team during Q4 and throughout all 2005. They consistently increased the penetration of Bio Systems as we continued our national rollout and met their 2005 goal by securing a total of 253 new customers. For 2006 we have set a new goal for the team of capturing between 250 and 300 new accounts.

In summary, we ended Q4 with over 333,000 accounts of which approximately 325,000 were small and the remainder were large accounts.

Now I'll turn it back over to Mark.

Thanks, Rich.

Clearly Stericycle had another solid year. I would now like to provide fine tuning for our 2006 guidance. Please keep in mind that these are forward-looking statements.

First, there are few items I would like to mention. During the fourth quarter we completed six acquisitions. We closed one domestic and two international medical waste acquisitions.

In addition we purchased three pharmaceutical services companies. The incremental revenue impact in the fourth quarter of these new acquisitions was approximately $9 million and the annualized revenues we are including in our revised 2006 guidance is approximately $48 million.

In order to facilitate comparison to 2005 and variety of analysts estimates for 2006, a revised guidance does not include the effects of FAS 123 R the expensing of stock options. We anticipate the range of impact to be between 7% and 8%, which is consistent with our prior periods.

Now keeping these items in mind, we believe that analysts may raise their estimates for earnings per share to a range of $2.41 to $2.47 from our prior guidance of $2.39 to $2.45 per share. We believe that analyst estimates for revenues for 2006 will be in the range of approximately $699 to $712 million depending on assumptions on growth and foreign exchange rates.

We believe analyst estimates for net income will be in the range of $109 to $112 million depending upon assumptions for margin improvement, interest expense and strategic spending.

We believe analysts will have estimates for free cash flow between $112 and $120 million depending upon assumptions of working capital, CapEx and tax. Please note that FAS 123 R adjustment to the cash from operations would be approximately $7.5 million.

Anticipating transition and integration expenses for the new acquisition and the timing of the 3CI integration, we believe analysts will model Q1 EPS of approximately $0.56 per share with earnings per share increasing throughout the remainder of 2006 as we begin to realize the anticipated synergies from these transactions.

In closing we're very excited about the tremendous growth opportunities in 2006 and beyond and we thank you for your time today. We're now prepared to switch over to the question and answer session.

Thank you sir.

[OPERATOR INSTRUCTIONS]

And our first question comes from Robert Willoughby from the Banc of America Securities.

Mr. Willoughby, you're line is open.

Hey guys, it's actually Matt Jackson in for Bob. Just looking at the deal spending line, does the incremental $90 plus million, is that just these six deals in the quarter?

Yes. The moneys that you see is expenditure of about $90 million in cash less $10 million which is in a separate line for one of the acquisitions where we sold off a portion of what we bought.

Right.

And the net present value on these six transactions is about $85 million of the purchases of those six.

Okay. From a housekeeping point, what was the 3CI revenue number in the quarter, international equipment number and the White Rose revenue number?

3CI was about $2.9 million. The machinery side was $0.3 million. And White Rose was approximately $17.5 to $18 million.

Okay. I think that is it, thanks.

Thank you, Mr. Jackson.

Our next question comes from Amanda Tepper from the JP Morgan group. Ms. Tepper, your line is open.

Good afternoon.

On the new acquisitions that you bought it looks like they're lower margin than the average. Is that more the pharma-sales bringing it down? Because you're revenue number went up a lot and the bottom line didn't go up that much.

Actually, the--breaking the new acquisitions into two groups, the Medwaste acquisitions are more typical profile of what you see from our med waste business.

On the three that are pharmaceutical services companies the gross margins are very comparable to our overall gross margins. We believe that can actually expand further to be superior to our base business.

The SG&A profile in this initial phase is higher, it's in the low 30s as far as a percent to revenue. So it brings up our SG&A ratios [inaudible] without amortization recorded was 16.9 and with amortization about 17.4..

As you model for 2006 I think if you assume about a 17% blended SG&A ratio with tapering in the latter part of the year because obviously right now in the first and second quarter we will be having transition and integration expenses occurring.

So with acquiring in here obviously you're sending a signal that you really like this market. Could you give us some commentary on what you're finding on the pharma services, presumably this is tying into what you have been trying to build with hospitals on managing their inventory of older drugs, right?

Yes, the pharma services sector, we are very excited about it. Macro for those on the call who haven't followed this base, we believe it's an opportunity that several hundred million dollars in size.

We also see a variety of service offerings emerging. As you recall our first entry into this a while back was into the direct returns management where pharmacies have products that may be expired, that need to be returned for credit management.

It's a variety of logistic services that are very highly regulated space that ties in nicely both through the hospital pharmacy and as well as our customers in the pharmaceutical and biotech space.

We have also now through the acquisitions expanded those offerings and added capabilities for doing recalls, as an example the implementation if a product is recalled from the market, all of the regulatory and compliance and logistics to move that product back as well as notification type activity so if there's notification that needs to go back but not necessarily physical product returned, then obviously destruction services.

The combined activity will give us a platform now going into '06 of about $50 million in this space. We think it has the potential long term to move into very solid EBITDA margins as we continue to grow and expand. You will see us continuing to drive this product line.

Okay, one last question around this. Is there going to be any capital spending around this or is it really all on the building out of the sales force?

Capital spending is within our ordinary guidance range. I think modeling for 2005 CapEx is 4.5%, 5%, and that would include this business as well.

Okay, thank you.

Thank you, Ms. Tepper.

Our next question comes from Alina Cellura from Citigroup. Ms. Cellura, your line is open.

Hi, sorry about that. I just had a quick question back on the acquisitions. I was just curious, the two international med waste businesses you acquired, I imagine that was in the UK market, is that correct?

Yeah, one was in the United Kingdom and one was in Mexico.

Okay. How is the, how is it going as far as adding larger customers to that, to the UK market, was that acquisition small customers or, I'm just curious, I'm sorry, are you going about adding smaller customers?

The UK business has made good progress as you recall when we first went into the business they had about 90% of their business in large, about 10% small.

They have progressed now to roughly about 15% coming from small, so they're making solid progression in terms of new account capture and as well as we look at acquisitions, if there's customer bases that are attractive that dove tail in those are attractive ways to expand as well.

And with your debt levels up now, are you looking to sort of, I mean do you see any pay down in debt coming up or do you think you might keep debt flat going forward or even increase it as acquisitions come along, I'm just curious what you will do with your cash.

The debt level really gives us all the flexibility to continue to do acquisitions. Obviously if we have a little bit of a period where you might not, then we will obviously reduce it. The unused portion is a nice size that we can use. Again we will continue as we did in the last quarter opportunistically repurchase shares, so again, it's all the idea that it gives us the flexibility to take advantage of.

Okay, thank you.

Thank you, Ms. Cellura

Our next question comes from Barry Mendel from the Mendel Money Management. Mr. Mendel, your line is open.

A couple questions. Number one, do you release the revenues for 2005 for Bio Systems?

2005 for Bio Systems was about $30 million.

Also for the year, I don't think you mentioned what your revenue growth was for small quantity generators versus large quantity, you did for the fourth quarter, but I don't recall you saying it for the year.

I think for the year it's not dissimilar, you're a little bit over 9% for the SQ and about 5% for the LQ.

Thanks.

Thank you, Mr. Mendel.

Our next question comes from Kevin Monroe from the Thomas Weisel company. Mr. Monroe, your line is open.

Good afternoon. Can you give us the revenue mix of the $48 million you acquired in terms of what portion was pharma and what portion was the med waste?

Yes, the mix of the incremental $48 million that we added on to guidance for next year. $44 is from pharma services and $4 is from med waste.

In the pharma services obviously one of the portions that you should take note of, we have taken in our guidance, kind of a middle of the road assumption on the product recall expected revenues. Obviously that's a very lumpy type business that's tough to predict, but put it in perspective a major recall of a product could generate close to $10 million or more of revenue.

And so there's no exact way to predict that as we do with our underlying business.

And different subject, Frank, the working capital is a bit of a drag on your cash flow in 2005 historically it's been more of a contributor. How should we think about that going forward into 2006 and was it acquisitions the reason it was a drag this year?

Yes, acquisitions is the major drag on it. There were some businesses we purchased where we did not purchase the working capital, so any working capital growth from those businesses come afterwards and flow through our cash from operation and not through the acquisition line. And that occurred to us in the fourth quarter, so really from that point of view it's really mostly acquisitions.

Thank you.

Thank you, Mr. Monroe.

Our next question comes from Mr. Tom Ford from Lehman Brothers. Mr. Ford, your line is open.

Thanks. Hey guys.

Hey Tom.

Got a question for you, Frank. Just going back to a question you had before, do you have a targeted range for debt to total cap or leverage?

I think if you look at right now we're at about 40. The trick is I think overall the range could easily be 40 to 50, even 55. We're only right now at a debt EBITDA of about 1.8 to 1.9. I think we have definitely room to grow into that one still.

Because obviously, If we do acquisitions there's EBITDA that comes along with that, we do get credit for that on an annualized basis in the calculations. From that point of view we still have some ample room from a debt point of view to grow.

I think cap structure optimum as we have always said, 40 to 50 to 55 is clearly an easy zone for us and would also be a good optimum to be in from a point of view of capitalization.

If you're at 50 as opposed to 40 does that make a buyback less likely or does that not matter?

No, I don't think it matters yet, I think again the business could sustain more. Remember that from that point of view in a three to six month period, debt can come down very fast again if we don't do any deals. I think it all depends again on outlook and what we're seeing.

Okay, great.

The other, Mark in reference to your comments about the first quarter, I'm not trying to get too into this, but I guess I am. I'm trying to figure out, it seems like there's--I'm trying to think of a way to ask this.

If I looked at the pharma business, because it sounds like you have start up costs and integration costs, if I looked at it as a normalized run rate is there anything you can say about margin or what would EPS look like instead of--instead of what you guided to, you know, that $0.56.

Actually I think there's several factors on Q1. First of all, if you take just the first quarter between transition expense and integration expense you probably have 2 to 300,000 in each category, so 4 to 600,000. But also remember on the 3CI preliminary settlement we had to fund the settlement amount, so we have interest expense which is occurring, but the transaction is not finalized through the court.

So, for example, through the first quarter just the carrying costs on the interest impacts probably $420-$430,000 or more depending on how LIBOR goes in Q1 where we don't have any integration synergy.

So if you add all those up you have what, one to $0.01 to $0.015 that's just occurring from that activity that's going on in the early period. That's why I had in the prepared script as you look at your model, the timing on when we begin to get integration synergies on 3CI is in the latter part of '06 because we have to wait through court approval process, etc., and then on the combination of the pharma returns business we're doing our investments now as we look at the marketing materials and the branding and the like.

Okay, great. Hey, Rich, question for you, why is the goal for Bio System sign-ups in '06 below the annualized rate that you saw in the fourth quarter?

Well, I think, again we have put a goal out there that says that the annualized rate would be about 280. I think if you look at Q4 and the goal right now is between 250, 300, we're seeing a nice progression in revenue per account and we typically meet or exceed any of the goals that we put out at this time of the year.

Did I hear you right, you said 79 sign-ups right?

No, I said 70.

I'm sorry.

70.

Oh, 70, I'm sorry, I misheard you then.

No, I'm sorry, I maybe mispoke, but it's 70.

Okay. Well, that makes more sense then. It looked like you were building a cushion in more than usual for yourself, Rich.

Tom.

Then the last thing is on the LQG I'm sorry I missed that, the account number?

49.

That was the new sign-ups, right?

Correct.

And what was the number year end, total?

I think it was 49 Q1, 52 Q2, 51 Q3, 49.

Sorry, Frank, I just meant the total number of accounts.

Total number of accounts was about 7,700 accounts, a little over that.

Okay. And then lastly as you guys expand out, Mark, into the other areas, I mean is there anything that you, have you guys thought about providing some insight or--what I'm asking, you have always kind of given LQG outlook, the growth should be X, SQG should be X, but as you're expanding out here you kind of get less and less insight into some of these other pieces. Have you guys thought about maybe expanding out sort of the stat data points that you provide?

Yeah, maybe on separate calls with everybody if anybody has input. It's an item that we're struggling with, because if you go back in history when our business was only domestic and when we really just had two functionalities in that business of small quantity and large quantity it was a simple metric and way to look at the business trend for modeling.

As you have said we now have a variety of arrows in the quiver but I think if you look at 2006 on a global basis excluding acquisitions we think our internal growth rates for the Company are about 7% to 8% and that would be similar international, probably 7% to 8% depending on what you assume exchange rate and domestic about 8%. And then obviously acquisitions would go on top.

We're trying to figure out what is the best way to have transparency and visibility of all of those metrics, because we have a lot of moving parts now.

Right, yeah. Separate P&L's would help, too, that would be great. Okay, thank you.

Okay.

Thank you Mr. Ford.

Our next question comes from Jason Rodgers from the Great Lakes Review. Mr. Rogers, your line is open.

Hello.

Hi.

Do you have -- I know you mentioned in the past looking at acquisition candidates, you mentioned a pool of about $50 million domestically. I just wondered what the size of that was currently?

Yeah, that's still the same. The pool in this case would be north of $50 million.

And for Bio Systems do you have a target for revenues for "06?

Yeah, in our last conference call we anticipated Bio as a business line to grow about 30% in '06 over 2005. And similar to the underlying growth rate of our direct returns piece.

Okay. And then I understand the pharmacy is hard to predict, but do you have an estimate for that, for '06?

Yeah, for the direct returns piece as we talked about in our Q3 call, we had built our '06 model with a growth of about 30% year-over-year from the small base as we add pharmacy services and in the guidance we have given 2006 we have added on top of that the 44 million of what we have acquired.

It's hard to predict in the recall portion, but if you look at the underlying drivers of pharmaceutical services it's driven by what happens with prescriptions and we view this as a long-term play, it's a space where as people age around the globe there's more and more prescriptions being written, there's more and more complexity for pharmacies both in the hospital and external. And we think that all of these services can provide a great growth platform for us.

Was there any carryover impact from the hurricanes in the quarter?

Modest amounts, but not huge.

Okay. And finally, looking just at the competition, have you seen any changes there either from Waste Management or upstarts like Med Serve?

Actually we have seen similar competitive activity in this quarter as we have seen in past periods. As you know it's a very competitive business and we compete with all of these companies in the past and we will do so in the future.

So part of our view is we have to have a very compelling value proposition and really focus on servicing our customers well and introducing new and innovative services. I think part of our view is as we continue to grow and innovate we have a size and scale advantage. We can invest in new R&D, in new programs and hopefully create, capture value proposition.

Okay, thank you.

Thank you Mr. Rodgers.

Our next question comes from Lorraine Maikis from Merrill Lynch. Ms. Maikis, your line is open.

Thank you, good afternoon. The 7% to 8% internal growth expectation for 2006, does that include the programs like Bio Systems and pharmaceutical returns?

Yeah, if you looked domestic, that would be--if we go back to what we did last call it would be small quantity growing at 8% to 10%, LQ growing at 4% to 6%, LQ encompasses the Bio so you get a blended rate of around 8%.

Okay, and then pharma returns, the nonacquired piece of that, is that an LQ as well?

That's separate. It's still small. If you take acquisition that we just did out of there that was still a small component.

Okay, and then in terms of looking at that growth, can you just give us a feel for how much of that is pricing and how much is volume?

Typically what we have seen in the small quantity in the past is if we look at growth of 8% or 9% we will have net 2% or 3% kind of CPI trimming in terms of pricing. Then the rest between new volume and capture.

And similar breakout for the large?

Actually probably a little bit less than CPI in terms of pricing.

Okay, can you just discuss the impact that higher diesel prices had on your results in the fourth quarter?

Sure. I think energy in total for us continues to be a challenge, it's one that the operating team works through. Currently, we are looking at total energy which for us is natural gas, electricity and diesel fuel pushing about 6.4% of revenue. That's up quite a bit, even from the prior quarter.

And what was it in the third quarter?

It was about 5.64%.

That's quite an increase.

It's been massive. If you look at just what's going on in comparables, go back look at a year and a half, two years ago, it's probably 200 basis points movement as a percent of revenue, of energy through revenue.

It's something that any transportation company faces and we're facing it and luckily able it to keep moving forward in terms of margin expansion. But it sure would be nice if it would stabilize for awhile.

Okay, and then finally on the pharmaceutical direct returns business, the recall business seems to be a little bit of a different strategy. I think when you originally went into it you were targeting mostly your own hospital customers. This seems like the pharmaceutical company is more your client. Can you just talk a little bit about how you expect that particular program to evolve?

The recall program has a lot of similar operating infrastructure capabilities and not too surprising has similar customer touch points. So if you think about what we were doing when we first started into this space we were going to a retail pharmacy or we were going to a hospital pharmacy and looking at how we could help them be more efficient in managing the return of those products for credit and return and proper handling for DEA purposes and destruction.

And when you look at the recall portion you're doing that and again where the endpoint of the credit is coming out of the pharmaceutical bio tech industry. You have added notification services and added accounting, tracking and compliance. A lot of the same types of infrastructure overlap.

We see longer term that if we can continue to build on our vision of the service offering you have the capability to provide the support and infrastructure to each of those customer segments and also the chance to gain efficiencies of size and scale of how you leverage phone systems, how do you leverage sorting centers and destruction, how do you manage the information flow and importance of that to all customer segments. So we see it as really something that dove tails very nice to the sector.

Do you have any competition from the large distributors?

There's a lot of competitors in this space, but it's not something that typically is viewed as a core skill set or infrastructure. There's some unique aspects to the return counting and then some of the areas we actually do some sub contracting work for the wholesale and distribution channel, because they view it as more efficient to outsource some of these functions.

And the same trend we see going on in the health care space, and the pharmaceutical and bio tech area, again this is not something that hopefully for those companies they view as a core skill set.

If you can imagine people sitting around saying well, let's make sure we have got geared up with the right people, and talent, and infrastructure, because we're going to have lots of recalls this year, that's not what people do and focus on. So it's hard to build a core competency and skill and be efficient at it. That's where we think it makes sense to outsource this type of functionality.

Thank you very much.

Thank you, Ms. Maikis.

Our next question comes from Mr. Matt Litfin from William Blair & Company. Mr. Litfin, your line is open.

Hi, good afternoon.

Hey Matt.

Hi. Question on SteriSafe, Rich, what is the penetration of your eligible SQG accounts for any level of SteriSafe?

For any level of SteriSafe?

Yes.

We talk about in terms of revenue and the total revenue penetration right now is in the low 40's moving up to next year probably the high 40's. I think we set our goal at about 47%, 48% of revenue.

Percent penetration right now though is probably mid-30's in terms of number of counts.

Okay, great. Second question is on the whole 3CI situation, is that behind you as of December 31 or will there be residual effects in early '06 at all from that?

Well, the residual effects in early '06 will have interest expense which occurs until the transaction is finalized and approved by the court. The preliminary settlement agreement was approved by the court. There's been mailings out to 3CI shareholders, but there's still follow up hearings for that to get finalized and approved.

As part of our agreement and settlement when all of those come in, then there has to be a merger activity. So there will be expenses, then there will be some legal expenses that occur just in going through those hearings and tidy up processes.

Okay. Well, I assume that's all tied up in the guidance you just gave, right?

Yes.

Okay, then last question is on the multiples being paid for the acquisitions. Can you give us a sense of that and is there any difference between the two categories?

If you look overall the multiple kind of pre-synergy and NPV was around 8. If you look post synergy it was less than 7.

Those are EBITDA multiples, Frank?

Yes, those are EBITDA multiples.

Will you get the same type of synergy turns as you might with the Med Waste acquisition in the pharma services?

It's a little bit slower because initially we are trying now to get some nice size companies together from this point. So I would say it's going to be more six to 12 month period on these initial ones.

Okay, great, nice quarter, thank you.

Thank you.

Thank you, Mr. Litfin.

[OPERATOR INSTRUCTIONS] Our next question comes from Mr. Matthew Cullen, Clovis Cap. Mr. Cullen, your line is open.

Okay, thank you very much. Just two quick questions. One is did you guys happen to say what the SteriSafe customers were as of the end of the quarter?

They were 95,000 customers at the end of the quarter.

Okay, and secondly, if I'm not mistaken you took up the EPS guidance, but you kept the net income guidance the same. Is that simply just a function of share count or is there something else going on there?

There's also some rounding, but it is share count too.

Thank you, Mr. Cullen. I'm showing no further questions, Mr. Miller.

Well, we thank everybody for your time and attention. I think 2006 is going to be a very exciting year for us. And we look forward to speaking to you on the next call, thanks so much.

Thank you ladies and gentlemen for partaking in the fourth quarter earnings. Your call has concluded, you may all disconnect and have a great day.