Stericycle Inc (SRCL) 2006 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Stericycle third 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 like to introduce your host for today's conference, Ms. Liz Brandel, Vice President of Finance. Ma'am, you may begin.

Thank you very much, and welcome to Stericycle's third quarter conference call. On today's call will be Frank ten Brink, Chief Financial Officer; Rich Kogler, Chief Operating Officer; and Mark Miller, Chief Executive Officer.

I will now read the Safe Harbor statement -- statements by Stericycle in this conference call that are not strictly historical or forward-looking. Forward-looking statements involve known and unknown risks and should be viewed with caution. Factors described in the Company's Form 10-K, 10-Q 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.

I will now pass the call to Frank.

Once again we're pleased with the results achieved by our team in the third quarter. Please note that our third quarter results include the impact of FASB 123R, the expensing of stock compensation.

Revenues in the quarter grew $50.1 million to $203.3 million, up 32.7% from $153.2 million in the third quarter of 2005. Internal growth for the Company was $16.6 million or over 13%. Growth from acquisitions less than 12 months old contributed approximately $30 million, and domestic SQ revenues grew $9.1 million or approximately 12%. Domestic LQ revenues grew $4.4 million or over 9%. International revenues adjusted for exchange grew approximately 10%.

Gross profit was $90.5 million or 44.5% of revenues, and SG&A expenses were $37 million or 18.2% of revenues. Income from operations in the quarter was $53 million or 26.1% of revenues. Net interest expense in the third quarter was $7.3 million versus $3 million in 2005, due to the increased borrowings related to acquisitions, stock repurchases and higher interest rates.

Net income for the third quarter was $27.5 million or $0.61 per share. Now the balance sheet -- at the end of the third quarter, the revolver borrowings were $360 million. The unused portion of our revolver is approximately $229 million.

During the quarter we repurchased 174,858 shares of common stock on the open market in an amount of approximately $11 million. The cash-flow statement also includes $1.2 million from second quarter repurchases that were settled in the third quarter.

Since beginning the repurchase program, we have purchased a total of 2.8 million shares, and we still have authorized to purchase an additional 1.6 million, 65,000 shares remaining. In the quarter our capital spending was $9.8 million, and our DSO was 60 days.

Now some additional balance sheet numbers. Our current assets in the quarter were $183.6 million; total assets, $1.27 billion. Total debt was $451.6 million; depreciation in the quarter was $5.9 million; and amortization in the quarter was $1.2 million.

Now a brief recap of the nine-months numbers. For the nine months ended September 30, 2006, revenues increased to $580.9 million, an increase of 31.2% from the same period a year ago. Gross profit as a percent of revenue was 44.2% for the nine months ended September 30, 2006, versus 43.8% for the same period the year before. Earnings per share, including the FAS 123R impact in 2006, increased to $1.68 from $1.50 per diluted share in the same period a year ago.

Cash provided from operations was $114.7 million for the first nine months of 2006.

This concludes the financial picture, and I will now turn it over to Rich.

Thanks, Frank. I will begin by taking time to thank our worldwide operating team for another successful quarter. Due to their continued hard work and commitment, we once again saw margins expand sequentially in the face of operating costs headwinds as well as the challenges posed by a number of new acquisitions. They delivered as promised.

We are all very proud of their performance. We thank them for their dedication to our customers and our shareholders.

In the third quarter we experienced very strong sales growth. Our SQG and LQG sales teams stayed focused on their respective growth drivers, SteriSafe and Bio Systems, and the team delivered another solid performance in all respects. The SQG sales team continued to emphasize their proven strategy of migrating customers into higher-levels of SteriSafe.

In Q3, over 50% of the new SteriSafe customers chose Select and Preferred, and a percentage of total accounts on the premium levels increased to 16.1%. Thanks to the hard work and efforts of the SQG sales team, SteriSafe contributed over 47% of total SQ revenues in the third quarter.

In the quarter, our LQG sales team secured 57 new Medwaste contracts and 75 new Bio Systems accounts. As we approach year-end, we remain very pleased by the sales team's year-to-date performance, and we thank each team member for contributing to our strong sales growth.

In summary, we ended the quarter with over 346,000 accounts, of which approximately 337,800 were small and the remainder were large accounts.

Now I'll hand it over to Mark.

Thanks, Rich. I would now like to provide insight on our current outlook for the remainder of 2006, and provide our preliminary guidance for 2007. Please keep in mind that these are forward-looking statements.

During the third quarter, we completed four domestic and two International tuck-in acquisitions. The incremental revenue impact in 2006 for these latest acquisitions will be approximately $3.7 million, of which $1.3 million was in the third quarter. The annualized revenue of these six acquisitions is approximately $9.7 million.

Our guidance for 2006 includes the effect of FAS 123R, the expensing of stock option compensation, so care should be taken when comparing 2006 to 2005. Keeping these items in mind, we believe that analysts may fine-tune their fourth quarter of 2006 models to reflect revenues between $203 million and $205 million, and estimates for EPS of $0.62 to $0.64 per share.

I would now like to provide our preliminary outlook for 2007. Keep in mind that preliminary guidance does not include future acquisitions or divestitures. We believe that analysts' EPS estimates will be in the range of $2.68 to $2.72, which we are comfortable with. We believe that analysts' estimates for revenue for 2007 will be in a range of approximately $854 million to $865 million, depending on assumptions of growth in foreign exchange rates.

These estimates include domestic growth rates on our small accounts of between 8% and 10%, between 6% and 8% on our large account base, and international growth rates of 7% to 8%. It also includes margin expansion of 20 to 40 basis points per quarter and additional strategic investment of $6 million to $7 million in sales, marketing and R&D in 2007.

We believe analysts will have estimates for net income between $121 million and $124 million, depending on their assumptions for margin improvement in interest expense, and we believe analysts will have estimates for free cash flow between $130 million and $137 million with CapEx anticipated between $35 million and $40 million.

In closing we're very excited about the tremendous growth opportunities in 2007 and beyond, and we thank you for your time today. Operator, we would now like to switch it over to question-and-answer.

(OPERATOR INSTRUCTIONS). Matthew Litfin, William Blair and Company.

Congratulations on a very strong quarter. I have a question on the pharmaceutical returns and recalls. What was the third quarter contribution, topline, there? What have you implied in this 2007 guidance for that new business?

The Pharma services business, we had a real strong Q3, so we're well on track to meet our $50 million or higher for the year. In terms of 2007, we would anticipate that business growing approximately 10% next year to a little over $60 million.

Mark, was it strong more on the recall side or on the return side in the third quarter?

The strength was predominantly in the recall notification area. We had several notification programs that hit and gave us probably about $1.5 million bubble in Q3.

Shifting gears to energy, what was that as a percent of revenue in the third quarter, and then how did that compare to earlier in the year? What I'm also interested in is, did you get the full benefit of the recent drop in energy prices, or is some of that yet to come in the fourth quarter?

In the quarter itself we had about 5.93% was in energy; that's fuel and energy and combined. That's about 15 to 20 basis points more than the prior quarter. The fuel came off really late, late in September. We might see some effect of that in the next quarter. However, diesel is really a factor here that is not coming down as much compared to what you see at the pump.

Mark, could you give us a little more detail on these acquisitions? They are obviously small. I'm talking about the six third-quarter acquisitions. Obviously, they are small. But are they haulers, or what are we buying here? Then, Frank, can you just address the big accrued liability increase in the third quarter that helped cash flow?

Sure, let me do both. They were tuck-ins. There were four domestic, two international. The two international were in Mexico. In the domestic side there were three Medwaste and one in the Pharma returns business. If you look really now at the accrual side, that is one where we overall, if you look at the accrued comp, was about $6.2 million. You had a cut-off in the prior quarter that was exactly at the quarter end.

Tax and stock options was about $13.8 million. FASB now with the 123 forces you to put $7.7 million into cash flow on the top and then add it to the accrued liabilities. So then there was a smaller one, value-added tax internationally was a couple of million. Those were really the main contributors.

Well, congratulations again on the acceleration.

Jason Rogers, Great Lakes Review.

What percent of revenues for the first nine months came from outside the U.S.?

I think, if you look at internationally, roughly in total, we look percentage-wise -- I mean if I just do it in the quarter, roughly, it's about 22%.

That's for the quarter?

Yes. I mean the year doesn't really -- it's not as valid a number because you had a partial STG in for the first quarter.

Looking at your customers in the U.K., about what percent of those are small quantity accounts or small accounts?

If you look at the split from a point of view, we're right now roughly about 84% large, 16% small.

Have you introduced either the SteriSafe or the Bio Systems programs to those U.K. customers?

Now, in the U.K. we're still focused on capturing new accounts and building out the small quantity base. We have not yet rolled out a SteriSafe equivalent program that would be adapted and modified for that market.

The same holds true with Bio Systems?

Yes.

Finally, do you have any comment on the U.K. Commission's ruling that they think the STG acquisition may lead to some antitrust concerns? I know the final ruling is not until December, but I just wanted to get your comment on that.

For those on the call who may or may not be attuned to it, as we have gone through the process with the Competition Commission in U.K., they have issued provisional findings which were recently published. The focal point of where they believe there is a potential for a substantial lessening of competition revolves around the medical waste incinerator, the high-temperature incinerator technology, concentrated in some specific areas in North England, Wales, Midlands.

The process that we're about to go through between now and November 1st, we will be going through our options on what we go into the hearing -- Remedies hearing -- for. We then have the ability to provide written comments on their preliminary findings, either where we feel there may be errors in calculations or proposals, and also to comment on the possible remedies that they have put forward. That is written comments due in by November 10.

Now the Competition Commission put forward possible remedies in their -- were issued, and one was full divestiture of STG. A second was divestiture of the STG incinerators, of which they had four, or a subset was divestiture of three specific sites that STG had in the affected area and then obviously any other practical remedies which may be proposed by us or others.

I think it's important to note that the remedies must be able to address the substantial lessening of competition and also be proportional in their consideration of which solution they pick. So, we will have to wait through it and go through this process, and they will issue their report by mid-December.

Are you still expecting about $46 million in revenues for 2006?

Out of STG?

Right.

Yes.

Jonathan Ellis, Merrill Lynch.

Just on your 2007 guidance, I'm trying to understand, what are your assumptions related to SteriSafe revenues as a percentage of total SQG revenues?

Well, I think what we're looking at for percent of total revenues is probably 52% to 55%.

That's, again, a percent of SQ total revenues.

If we step back for a second, and look at the bigger picture, what do you think longer-term is kind of a targeted mix, SteriSafe revenues as a percentage of SQG revenues? What do you think is the ultimate long-term target here?

I don't think we have seen the ceiling yet. If you go back through time, even a couple of years ago, if you go back to early 2004, for example, it was about a third of our small-quantity revenues. We've now hit 47% and had a record quarter in the number of Select and Preferred this quarter was over 50%. So, I don't think we have yet experienced a ceiling.

I think, most importantly is, as we have not only continued to grow the mix of SteriSafe in small quantity is a huge opportunity in the higher level program. So we're making good progress; but still, as Rich had mentioned in the prepared comments, only about 16% of the accounts we have today are on the higher level program. So, that can give us a huge opportunity to grow our revenues and margins very substantially in that sector.

Then just in terms of any seasonality, I'm wondering, do you get the sense that doctors may kind of revisit the current service offering that they're contracting for in SteriSafe towards year-end and they think about, as they look into the following year in their own business, possibly upgrading to higher levels? Do you think that trend may play out at all?

We haven't seen a true seasonality in terms of level of program. Although we view this as a very important service offering that we have, this is still, again, relative to our group practice a very small item in their total budgetary scheme. So we think it's a continuous process, and we capture thousands of accounts per quarter. So I'm not sure that we could point to seasonality other than those things where you have offices closed during Thanksgiving or over Christmas or New Year's holidays, where there isn't a decisionmaker around.

A similar question on the Bio Systems business. I'm wondering if, again, as hospitals go through their year-end budgeting process for 2007, if you think they may start to consider -- increasingly consider -- outsourcing Sharps disposal through the Bio Systems program.

It's really not, again, time-dependent, like we were just talking about with small quantity. It really is, it's still a long decision process that they go through. It's a process that involves a committee approach where infection control and many decisionmakers have to be involved. Then sometimes it's affected by things that are going on, maybe a JACO inspection or whatever.

But in essence, like small quantity, it's really our sales teams' focus on talking to the customer, explaining the benefits, that really drives the thing to conclusion. So I think consistently we have been in the number of new accounts, 70 plus per quarter here. I think the consistency really says that it's not seasonal; it's really the salespeople's ability to get out to the right decisionmaker.

Then, just turning our attention to the international side of the business. You mentioned earlier that you currently don't have the SteriSafe or Bio Systems programs rolled out in the U.K. I'm just wondering what is the kind of catalyst or trigger for introducing those programs abroad? Do you need to have a certain scale first before you feel comfortable rolling out those kinds of initiatives?

It's actually more just driven by focus of energy and time. When we look at the timeframe we have been in the market, when you're just in the early stages and you only have 10% or 11% or 12% of your revenues coming from that sector, we want the salespeople focused on continuing to penetrate that space.

And parallel, the marketing's group is looking at, okay, what are the local regs and how could we modify and adapt our programs to that market. But it's really not a catalyst that you have to be at a certain size before you launch it or you have to be at a certain set of conditions before you launch it.

And then just last question for me. In terms of Japan, I understand you guys currently have two plants where you have a royalty arrangement and there's a third plant where I think there's some equity ownership potential. I'm just wondering if you can kind of talk about the current footprint and expansion plans in Japan going forward?

There's no equity ownership yet in Japan with the third plant. There's some support through a guarantee that we have in that facility, but there's no -- and we do have a convert in place with them, so it's more a loan arrangement from that point of view. Maybe, Mark, you want to comment on the longer-term?

For Japan, for us we view it as a very big potential long-term market for us. For the services provided, you have a marketplace that is potentially the same size or larger than the U.S. even though you have smaller populations, about half. But you have a very diversified delivery mechanism of health-care.

So for us, we wanted to be in the market, be able to learn. We have very great relationships with the three operations that are based in Hokkaido and Kyushu and outside of Tokyo. So it gives the ability to learn about those various geographic areas. But I think it's a big and complicated market, and we want to make sure when we do enter we do it right and do the right moves. But you'll see continued activity in that space.

Leone Young, Citigroup.

It's actually Alina Cellura for Leone. I had a question about SG&A. I was just curious what the trend is going to be relative to what we saw in the third quarter. I know you mentioned in 2007 there's going to be $6 million to $7 million additional. But going forward, is it going to be, overall, an increasing trend?

I think from a trend, depending on how you have your model, we started out 2006 at about 19% SG&A. So right now for our preliminary guidance, we would guide you to about a 19% level for the year in 2007. Obviously, if we grow faster because of those additional spends, then that ratio will drop. But right now we're going with the process of feed-the-hot-hand. We've got so many good things going on with record growth in terms of conversion in SteriSafe, tremendous opportunity with the Pharma returns business, continued to hit our numbers and our goals and Bio Systems and making it happen. We're just excited about the potential, so we're going to fuel those opportunities and we're going to keep the pedal down.

Also, at a recent conference you guys discussed two new programs that you were piloting. One was managing pharmaceutical waste and also helping hospitals manage waterborne pathogens and offer water treatment services. I was just wondering if you can provide an update on these programs, the pilot programs, and just sort of give us an idea if they are going to go live anytime soon.

Well, both of those programs are still in what we would call internally in R&D our pilot program phase. They're ones where we are working with specific customers that have agreed and they are wanting to try to tackle these issues. None of the guidance includes those programs, so those would be upside, should we go live with them. But at this point I think it would be premature for us to put them into the guidance, since we're still in the early stages.

Also, just one more quick modeling question. Looking into the fourth quarter of this year, should we assume that a similar type of margin improvement, 20 to 40 basis points per quarter?

Yes. That's what, again, from a broad picture point of view, yes.

Scott Levin, JP Morgan.

I was wondering, Rich, you mentioned in your comments some cost headwinds and most power we've been looking at diesel fuel. I was wondering if there are any other significant cost trends or costs that you guys are particularly concerned with at this particular point in time. I know the margin progression on the gross margins has been fairly steady, but you mentioned acquisitions, I think, and some cost headwinds. Hoping you might be able to elaborate a bit.

No, I think what we were referring to, obviously, is sequentially our energy costs were up. Then energy drives some of our supply costs. We're all dealing with insurance issues, and I think what I was referring to there was that my team consistently delivers margin improvement even in the face of things like energy, which is very volatile, and then just steadily rising costs. Then we layer on top of it all of the integration activity from all of these deals, and they still perform. So, I just want to recognize that effort.

With regard to the Bio Systems, we've got new additions reaching the mid '70s here and trending up steadily. I was hoping you could quantify the implications on LQ growth of growth in Bio Systems specifically, and also talk a bit about where margins are in that program now versus where you see them ultimately headed with the increased route density and so forth.

If you look at the total Bio, it was a little over 9% -- Bio and LQ combined, a little over 9%. If you take LQ only in that, it was probably a little over 5%.

Where are the margins currently on that business? How much expansion potential do you see?

I think the margins are right now in the high 20's.

And lastly with regard to acquisitions, one last one -- you guys are expanding aggressively in the U.K. I was wondering if there were any other markets in Western Europe or any other ones internationally you might point to where you don't have a presence now, where you foresee the potential to get more actively involved near-term?

I think right now we're looking at a number of marketplaces, both in Western Europe and Latin America and Asia markets. But I think, for the focal point, now be inappropriate for us to discuss which specific countries. Clearly, as we look at acquisitions, whether they be in the domestic or international space, there's so many permutations. We can look at medical waste companies, hauling, tuck-ins, we can look at companies that may augment our service offering with Pharma services. So there's a very healthy, robust pool of deals that we're constantly looking at that can fit into a variety of pieces as well as new geographic entries.

And you're still seeing opportunities domestically in the core Medwaste space as well?

Yes. Very much so.

Matthew Litfin, William Blair and Company.

A few follow-ups. I noticed DSO was up seven days year over year, which was a little surprising, given the strength that's SteriSafe. Why was that, and what range are you satisfied with on DSO?

I think if you look at DSO versus the prior quarter, we were up about three days. International, over time, has grown dramatically with STG and White Rose. So that in itself, compared to last year, clearly impacted it. You get a higher DSO in those countries because you get value-added tax embedded in it.

From a quarter-to-quarter point of view, if you look last quarter to this quarter, quarter ended on a Saturday; you don't get that extra day. So timing is about a day, day and a half, based on both revenue size and the month and also the cut off. Then you get your mix. Internationally is the remaining. We have annually a very decent prepay out of the health system in the U.K. that happens in the early part of the year and then kind of weeds itself down over the year, so you will automatically have some increase in DSO, just from a mathematics point of view, as that prepaid comes down.

Are the SQG and LQG revenue growth ranges that you offered out for 2007 internal growth rates -- are they internal? Or are they total revenue growth rates to be expected?

Internal.

Internal.

Bio Systems has been growing at a very high clip the last couple of years including, I believe, close to 30% this year if not over that. What kind of growth rate is implied by the new revenue guidance for the Bio System piece.

I think you're still going to be in the high 20s, potentially into the 30s, because it's still, from its size, really clipping away nicely.

From an account capture standpoint, we're looking to kind of replicate what we did this year or better.

Which is what, Rich?

We had set a target of 250 to 300 this year, and we're obviously going to be very comfortable in making that.

Last one, if I might. As you know, there's been some equity invested in the domestic medwaste space recently. Can you just remind us as to your appetite for domestic medical waste acquisitions, remind us what your pricing discipline has been and whether that will be modified at all?

I think, first of all, in terms of our appetite, we're still looking at deals and have several that are in the pool. Very disciplined in terms of our purchase price. I think that, as everybody goes through this process, it's not new to this industry or specific to this industry. But if you apply capital towards acquisitions, the end result better generate returns that are in excessive of your cost of capital. So I think in many marketplaces, not only the U.S. but others, where we have a strong footprint, we can offer a very competitive price to those companies because we have significantly more synergies.

So from our standpoint, if somebody wants to overpay and then end up paying something that doesn't generate returns that meets their cost of capital, then so be it. That's not our game.

Jason Rogers, Great Lakes Review.

I just have a few quick follow-ups. You might have said this but, what was the stock option expense on a dollar basis for the quarter on a pretax basis?

I think in total it was about $2.7. Let me verify that. Yes, $2.7 rounded, pretax.

Do you have the figure for the total number of SteriSafe accounts?

Total number of accounts for SteriSafe were 101.7. So 101,007.

Were there some labor agreements that expired this month? If so, what's the status on those?

There's one labor agreement that is expiring at the end of this month, and we're in negotiations at this time. We don't foresee any issues.

Scott Schneeberger, CIBC.

A follow-up on the earlier question about the U.K. Commission on antitrust. Is that -- Mark, from your comments, is it the findings and what you have to present on November 10, is the tone a little bit more negative now than what you had previously anticipated? Or are you comfortable with where everything stands?

Well, the whole process I wouldn't characterize as a comfortable process, by any means. But from where we stand we still are in the midst of the process. We have to go through the sequence of providing our comments to these provisional findings, and I think there's several points which we think maybe offpoint or have difference of opinions as to the definition and scope and calculations, which we'll lay out in our answer to it.

But at the end of the day, there has to be some proportional relationship to the definition. You can look at their website and see the way they define it as a 100-mile radius of incinerators. That's not, as you know, the core essence to our business strategy is not the medical waste incinerator. That's not what drives our long-term business success.

Resolution? You still anticipate in December everything's tracking timewise as you would expect it?

Yes. Timewise, we anticipate mid-December.

Herb Khaner from KhanerCapital.

Congratulations on a good quarter. I just want to get proper perspective. At the last conference that I attended, I was encouraged to believe that the global market for medwaste is $10 billion. You guys have got about 7% of that. Is that relatively correct?

That's correct.

I guess my question follows on a number of the questions, but I would like more perspective to the degree that -- does your techniques capability -- does it travel? Do you have to do dramatic alterations to reference new markets, new countries, et cetera?

I think in terms of the knowledge or know-how, the items that do travel are how to look at efficiencies, how to look at the routing systems and programs, how to evaluate the economic business model, the skill sets of how to properly integrate businesses, the billing and collection and data management aspects of it. Obviously, those have to be adapted to local market regulations, local language and practices.

But even with the theory that the U.S. is very granular, if you look at the U.S., there are specific rules and regs that apply to even down to the county level. So we have to adapt to those in our base business today. But I think it's like any type of business model; you have to make sure you're tuned in to what are the nuances of that local geography and what is the competitive landscape, and what are the ways to differentiate vis-a-vis your competitors?

The follow-up then would be, it would be more practical to acquire than to startup in new locales around the world?

I think it's really a make-versus-buy type decision. If there is an appropriate acquisition that's priced properly, then if you can buy a well-run company and help that company improve at the right price as an economic buyer, then that's a good entry-level. If, however, it was beyond the point that it made economic sense, then we would go in via a different method.

Take our history. Look at Mexico; we went into that one originally through a joint venture licensing arrangement. Because at the time there really wasn't a clear set of winners or potential leaders in the marketplace. Nobody at that time had a huge infrastructure or had a good cash flow. So there wasn't a platform that made sense to buy.

Then, as time went on, we were able to increase our ownership. That entity has done very well and is now the leading entity in Mexico.

Compare that to the United Kingdom. There we entered through an acquisition because there was one available but it was at a price that made economic sense to us and gave us a strong group of people and platform to enter the market. So, it's really a case-by-case analysis.

Vincent Damasco, Sentinel Asset Management.

Just once again, getting back to the Sterile Commission review. Could you provide us some insights on looking at the incineration capacity that you have? Does any of that overlap with what you have from White Rose in the region? Also, what's the magnitude, if you guys actually have to divest those incinerator facilities in the region?

Well, the overlap of the incinerators is really based on the analysis that was done by the UK Competition Commission where they looked at the physical locations of the STG, Sterile Technologies Group, incinerators as well as the White Rose physical incinerators, and saw that in these specific geographies that were mentioned there were two incinerators within a 100-mile radius of each other in those geographic areas. So there are overlap in those areas.

As far as the second part of the question of how to guesstimate or what it all means, I think there are a couple of analysts' reports that have been written that range the impact of this from an ongoing annualized impact of $0.01 to $0.07. But I think, for our point of view, it's probably inappropriate to speculate right now because on this call we still haven't gone through and determined what is going to be the detailed response that we put in. We're still going through this hearing on November 1st. So there's a lot of steps yet, and we went to leave our options open and be able to do what's in the best interests of our shareholders.

So that may cause some heartburn or confusion for people that we haven't been able to give you a pinpoint as to exactly here's what's going to happen, but we don't know what's going to happen.

If I could follow up on that -- you're looking at the potential closings. Were any of those part of your initial synergies that you guys outlined when you announced the Sterile acquisition?

In terms of the synergies, when we announced the acquisition we didn't disclose which plants. Clearly, if you look at the long-term combination, you would have synergies from getting optimization of plant utilization, consolidation of transportation logistics and the like. If you look at our past practices in other marketplaces, such as the United States and others, over time we would optimize that infrastructure and gain synergies from them. We hadn't talked about which specific facilities, but there's lots of capacity in the United Kingdom. This is really concentrated on one specific type, the incineration capacity. There's also non-incineration capacity that we have.

(OPERATOR INSTRUCTIONS). I'm showing no further questions at this time, sir.

Well, thank you, everybody. We have great support and we appreciate your help, and we will talk to you after the fourth quarter. Thanks so much.

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program for today. You may all disconnect and have a wonderful day.