Stericycle Inc (SRCL) 2013 Q1 法說會逐字稿

Good afternoon. My name is Jay, and I will be your conference operator today. At this time, I would like to welcome everyone to the Stericycle first-quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. Ms. Laura Murphy, Vice President of Finance, please go ahead.

Welcome to Stericycle's quarterly conference call. Joining me on today's call will be Frank ten Brink, CFO; Rich Kogler, COO; and Charlie Alutto, CEO. I will now read the Safe Harbor statement. Statements made by Stericycle in this conference call that are not strictly historical are forward-looking. Forward-looking statements involve known and unknown risks and should be viewed with caution. Factors described in this Company's form 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. I will now turn it over to Frank.

Thank you, Laura. The results for the first quarter are as follows. Revenues were $513.8 million, up 11.7% from $460.1 million in Q1 of '12. And internal growth, excluding returns and recall revenues, was up 8.1%. Domestic revenues were at $363.6 million, of which $341.1 million was domestic regulated waste and compliance services, and $22.5 million was recalls and returns. Domestic internal growth, excluding recalls and returns revenues, was up over 9%, consisting SQ up 10% and LQ up 8%. International revenues were $150.2 million, an internal growth adjusted for unfavorable exchange impact of $4.2 million was up 5.4%. Acquisitions contributed $37.1 million to the growth in the quarter. Gross profit was $232.1 million, or 45.2% of revenues. SG&A expense, including amortization, was $97.7 million, or 19% of revenues. Net interest expense was $13.4 million, and net income attributable to Stericycle was $74.6 million, or $0.85 per share on an as-reported basis, and $0.88 adjusted for acquisition and other nonrecurring expenses.

Now to balance sheet. Our covenant debt-to-EBITDA ratio was 2.1 at the end of the quarter. The unused portion of the revolver debt at the end of the quarter was approximately $675 million. In the quarter, we repurchased 79,602 shares of common stock in the open market in an amount of $7.6 million, and we have authorization to purchase an additional $3.7 million. Our capital spend was $16.5 million and our DSO was 61 days. Q1 year-to-date cash provided from operations was $98.2 million. And I will now turn it over to Rich.

Thanks, Frank. Worldwide we continued to use our strong free cash flow to drive our growth through acquisitions. In the quarter, we closed 12 transactions, 11 international and 1 domestic. The international acquisitions consisted of one in Spain, two in Japan, four in the UK, one in Canada, one in Romania, one in Portugal, and one in Chile. Our worldwide acquisition pool remains robust, with well over $100 million in annualized revenues in multiple geographies and lines of business. At the end of the quarter, we had approximately 544,000 accounts, of which approximately 527,000 were small; the remainder were large.

The strong internal growth rates we experienced in this quarter resulted from more customers adopting our multiple services, which includes StrongPak, Steri-Safe, Pharma Waste, and Sharps Management. Increased regulatory scrutiny and fines for non-compliance have driven customer demand for these regulated waste and compliance services. For example, US EPA, state EPA's and Joint Commission are more focused on pharma waste in the healthcare sector. This scrutiny creates customer demand for our pharma waste program. We are excited about our future growth, because when customers adopt multiple services, this can more than double or triple customer revenues.

In closing, we want to thank each member of our worldwide team for their strong performance and continued commitment to our customers and shareholders. Now I will turn it over to Charlie.

Thanks, Rich. I would now like to provide insight on our current outlook for 2013. Please keep in mind that these are forward-looking statements. Revenues from the 12 acquisitions were approximately $2.4 million in Q1, and annualized are approximately $20 million. Keep in mind, our 2013 guidance does not include future acquisitions, divestitures, integration, acquisition-related and other nonrecurring expenses. We believe analyst EPS estimates will be in the range of $3.66 to $3.69. We believe analyst revenue estimates for 2013 will be in the range of $2.11 billion to $2.14 billion, depending on assumptions for growth and foreign exchange rates. We anticipate 2013 internal growth rates to be SQ 8% to 10%, LQ 5% to 8%, international 5% to 8%, and recall and returns revenues between $95 million to $110 million. We believe analysts will have estimates for free cash flow between $353 million to $357 million. CapEx is anticipated to be between $65 million to $70 million.

In closing, we are very pleased with our Q1 results and excited about the multiple growth opportunities for 2013 and beyond. Thank you for your time. We will now answer any questions. Jay, you can open up the Q&A line.

(Operator Instructions)

Ryan Daniels, William Blair and Company.

Let me start on the M&A front. Obviously a very strong quarter given the number of transactions, but the diversity also surprised me. Are you seeing more opportunities over in Europe in OUS markets given some of the financial struggles, or is that just timing that a lot of these deals in different markets hit during the first quarter?

Again, we do deals opportunistically, and I would say that maybe the tax law changes in the US maybe accelerated some deals into Q4 of 2012. The pipeline continues to be very robust, and that is both in the US and international.

And then any color on over all the deals, what portion of that was regulated medical waste? And then within that, the SQ versus LQ mix?

They were all in the regulated waste side, and it was about 60% SQ and 40% LQ.

Great, and then a couple other questions on the patient communications business. I know you did a fairly sizable inpatient acquisition in that space last quarter. And I'm curious, one, how the integration has gone, and then number two, have you begun to see any cross-selling opportunities where you are able to go to systems that own larger physician practices and can offer a bundled service across the continuum of care?

Yes, just to educate everybody, Ryan, that large acquisition was BerylHealth in the fourth quarter of 2012. It expanded our capabilities in the patient communication space. For instance, physician referrals, enhanced scheduling ability and post-discharge calls. They were the market leader in the LQ space. We're still integrating that as we are integrating the Beryl piece with that platform acquisition that we had done about two years ago of NotifyMD. We do think we have got a unique position in the marketplace, not only in offering services to the physicians that are affiliated or owned by hospitals, but in the hospitals themselves, especially in the lines of businesses we added with the Beryl deal.

Got you, that's helpful color. I saw a recent news release about a relationship with Premier in the GPO. I'm curious is that's something that's been long-standing. I think you had some exclusive relationships with them in the past, at least with their ASCEND members? So any color there would be helpful just to provide a little clarity. Thank you.

Yes, the Premier deal is nothing new. There was a renewal of the opportunity. They usually have multiple vendors on that contract. I think you probably saw that in the same press release. That really is a hunting license now that we have always had, so there's really no change to the business with that recent re-award with Premier.

Scott Schneeberger, Oppenheimer.

Could we speak a little bit to the geographies? I believe you said two in Japan, and I think we have been quiet there for a while. Can you talk to what you are seeing? The last question hit on Europe, but Japan specifically.

Well we did three deals in Japan in '11. We did one deal in Japan in '12. And so this was a continuation. Really in '12 they did a lot of work on integrating both the transportation and the treatment site that we acquired there, and that allowed them to now continue to do acquisitions on top of that.

Thank you. The recall guidance I think now for the year is adjusted a little bit lower than what you had been saying on the fourth-quarter call. Could you frame that for us and confirm that is accurate? And then I have a follow-up.

The guidance last time was $105 million to $120 million, now $95 million to $110 million, with the shortfall in Q1 being about $7 million to $8 million. Yes that's exactly the difference roughly and the total that we took the guidance down by.

Thank you, I know that one is tough to predict. Is there anything that you see building? I guess the guidance implies that status quo from here. Moving on from that one, the last thing I wanted to touch upon is the organic growth was quite solid. Could you touch on premium offerings? How are things going on the premium area?

Yes, I think as Rich said, Scott, the premium offerings are StrongPak. We continue to be on track on that. The customer uptick on that continues to be strong. Rx waste and sharps management continue be drivers on the LQ side of the business, and then SteriSafe on the SQ side of the business with a little bit of StrongPak as well, moving that forward and we continue to see good growth rates there. So it's a good start to the year.

I'm sorry, Charlie, you guys might have said it. I might have missed it. I know you mentioned last time what the contribution was of StrongPak specifically to the quarter. Have you touched upon that and would you?

No, we did not break that out last time.

Al Kaschalk, Wedbush Securities.

A quick question or one-part question, could you talk about with this focus on regulation and pharma waste demand, how we should think about the adoption rates of that service or market opportunity? And if there is a so-called size of that market, just help us with that.

I think as we have said before, we look at it of about $200 million plus market opportunity in the LQ space. Adoption rates, as you can tell from our LQ growth rates overall have been pretty strong and then they are being driven by enforcement and compliance, both at the federal and the state level.

Is this something your sales force can reach in to clients to help them take on the service, or is this one where you have them come forth to you?

No, they usually come to us. They are getting a lot of scrutiny right now, not only from EPA both on the state and the federal level, but Joint Commission now as they go and do their reviews for the accreditation to look at it. Obviously, our salespeople are talking to our customers. We have got very good relationships on our LQ accounts, so we talk to them about this service offering and then it is their decision to make whether or not they want to try to do something in-house themselves on the characterization or have us do a full service Rx waste program within the hospital. We are seeing good adoption at the IDN level as hospitals now are large entities where they're making the decision for all of the hospitals. We do see some uptick in some of the larger IDN's taking the program on.

Within the relative range of product offerings, how does this one fit margin profile wise?

I think the margins for this one are in the high 20s, low 30s, the gross margins.

Michael Hoffman, Wunderlich Securities.

On the organic growth, can we talk in the US, can you help us understand the proportioning of that total growth between your auxiliary services versus pricing coming in on the base legacy businesses?

I think as we have said before, on the base legacy businesses, if I'm understanding your question right, price is usually around CPI plus or minus depending on the customer type and then the rest of it is organic growth.

And that remaining organic growth is predominantly the auxiliary services, that is what I was really trying to understand.

Yes, so Michael on the SQ side it's StrongPak and it is SteriSafe. Volume does have a little bit on the SQ side, and then on the LQ side, it is mostly sharps management, Rx waste, and again, a little bit of StrongPak in there. Is that helpful?

Yes, that's helpful. And then I get it. It's a pending lawsuit, but can you talk a little bit about what this group is trying to accomplish? Do you have any commentary about the lawsuit that was filed?

If you are referring to the class-action lawsuit?

Yes, from the veterinary group.

Yes, that was filed in Pennsylvania on March 12, 2013. We disclosed that in our 8-K. It seems to me to be and to our attorneys to be [simply] a follow on from the settlement we reached with the New York Attorney General, and also a 2008 whistleblower lawsuit that has been out there some time. Since that time, we have been served with three similar class-action lawsuits that all have basically the same allegations. This is not unexpected. Our attorneys tell us that most of these cases end up being consolidated and tried as one; that is what we expect. As we said, we think the lawsuits are without merit; we will defend ourselves vigorously. Beyond that, it is really inappropriate to comment because this is pending litigation.

Fair enough, I just wanted to understand if there was any other aspects of it. And then can you comment on customer churns, particularly in the domestic business, US business, and even more finitely on the small generator side? Given where we are in this economic cycle, how would you frame the customer churn in the small generator market?

Really, we don't see a major difference in churn. We have a very good revenue retention, about 95%. And the rest of 5% leaves us some customers don't pay their bills. Obviously we stop service. There's doctors, dentists, that close their shops and retire, some consolidate. That's a 2%, and then your normal revenue, maybe 1% or 2%, is obviously it's a competitive market, and we lose some to competition.

Erin Wilson, Bank of America, Merrill Lynch.

On patient communications, we keep hearing about progress there. Would you say this is moving ahead of expectations at this point? And what percent of your targeted customer base is already on board? I assume it is still small, but and has that addressable market changed at all in your view as far as who can actually benefit from this?

Yes, Erin, I would say that it is meeting our expectations. So it is on track. Obviously, we are new into this, so this is one with a great upside for us with respect to our target. The only thing that has changed on the market opportunity side is obviously with the acquisition of Beryl, that increased our capability, and hence increased the market size. I know before Beryl we were looking at $1 billion plus opportunity, and now it is greater than $2 billion.

In Spain, I saw that you did another acquisition there, and it seems like you are building up to some sort of critical mass. Are you beginning to roll out any ancillary services there and is the customer base still primarily LQ? How much in the way of SQ is in that particular region?

Yes, we are still building the SQ business. Obviously, all the follow-on deals we did besides the one large deal in 2011, we have done now 10 additional deals in Spain, mostly smaller deals. So we are starting to build the SQ customer base. As we said last time, we were starting to pilot the clinical service offerings. To remind those again, that's the SteriSafe equivalent in the international market we are in now. We are starting to roll out SteriSafe in Spain since we now have a good base of SQ customers. We still have some ways to go there, but we like the opportunity in Spain, and we are starting to launch the clinical services in that region.

What regions now, as of now, do you have some rollout ancillary service offering?

If you look at clinical services, we are in Canada, the UK, Ireland, Spain, and Portugal. And from a sharps-management perspective, we are in Canada, Ireland, and we at the end of last year just finished our first sharps-management plant in the UK.

Shlomo Rosenbaum, Stifel Nicolas.

Last quarter you guys highlighted StrongPak a little bit more. Is there any change in that trajectory of that business? Or is it just you guys have already alerted us to that, and therefore, you haven't focused on it as much in your prepared comments?

That is exactly it, Shlomo. We spoke about it last time. It remains on track. I think the market opportunity we spoke about last time is $1 billion opportunity. I think the important thing to stress these are multi-year agreements with many locations and a recurring revenue stream. Customers just remain very high, and we are on track with our plan. So everything is moving along. Don't read anything into the comments about it. Everything is on track with respect to that offering.

Where are you guys in the platform build for the communications business? You've done a bunch of different acquisitions, and I know others have big investment in the platform. Where are you in terms of having a unified platform that you want to be able to go out with?

I think we are on the platform with respect to the service capabilities, we feel very comfortable where we are now. There might be a few additional capabilities we will look at in the next year or so. From a systems platform, we are making progress. We like what we've seen so far on some of the integration that we've done. We've got some work to do in that area. We've also seen some nice gross-margin lift in that business on some of the low-hanging fruit as we've started to integrate some of these businesses.

And then Frank, the ARDSO ticked up a tad in the first quarter. Does that have anything to do with more of the acquisitions in Spain?

Well no, the DSO was up to 61, and that is really two factors there. It was a weekend cut off; we also had Easter right before that, so there were some bank holidays in some of the European and Latin American countries. That was really the main driver of, we feel, the increase.

Gary Bisbee, Barclays.

I guess the first question, the guidance for organic growth for the SQ and LQ units, and you continue to be trending at the high end of those, does that remain conservative or is there anything we might look for that could lead to some slowing in those growth rates as we move through the year?

No, I think you know our guidance. We're always conservative in guidance. Obviously there are a lot of changes going on in healthcare right now, so I think it's prudent to be conservative with our growth rates. Growth rates obviously vary quarter to quarter based on the days in the quarter, influx of large contracts and holidays. But I think we are consistent to where we have been in the past, which is conservative.

And then looking at the international business, I realize it's early in the adding on of ancillaries, but can you give us any sense if you look at international as a total portfolio, what would the penetration of those be, either as a percent of revenue or just directionally relative to what it is in the domestic market? I guess what I'm getting at is how early in the game are we? And maybe the follow on to that is how material could that be over five years or something like that in terms of providing some gross margin lift?

I think we're very early in the stages on the international front. And I've told individuals, I've been at Stericycle for many years, the international business to me looks like Stericycle did in the late '90s. So we've got a ways to go on the opportunity. We do think we can double or triple the revenue over a long period of time. We think we can move gross margins; every market will be different. Healthcare is different in every region and geography that we're in, but obviously we feel really good about the international business over the long run.

One last one, in terms of following up on the patient communication question, when will you be at the point in terms of the offerings and everything that you'll start to really ramp the strategy for up-selling this to existing customers? And how do you go about doing that? Thank you.

As I've said before, I think from a patient communication standpoint, 2013 will be a year we continue to make investments and look at acquisitions. I think the internal growth and the go-to-market will be finalized this year and you'll see it in 2014 and beyond.

Isaac Ro, Goldman Sachs.

First off on M&A, just wondering, you mentioned the 11 deals you did ex-US. Is it fair to say that all those are margins dilutive to the core franchise in the near term? Just trying to understand or see if we can quantify a little bit of how we should look at the margin impact from those deals over the next few quarters.

Normally acquisitions have in the past been slightly margin dilutive, depending obviously on the size of what they are coming in at the quarter. This quarter, two of those deals that we did a lot of international, two slightly margin dilutive. You also have a factor maybe that you need to think about for the rest of the year. Obviously foreign exchange rates are different right now than they were when we gave guidance the last time. And so FX impact in the remainder of the year is probably $8 million to $9 million, unfavorable from a revenue point of view. So that is one to take into account too.

Great, and then maybe a second one on M&A. If you maybe looked at your funnel from here on potential pipeline deals, can you maybe give us a sense of how the US versus ex-US pipeline looks? Is it fair to say we're going to keep seeing a vast majority of your deals flow ex-US?

Again, we do deals opportunistically. We don't have a specific number for the US or international, and the pipeline is robust in both areas. I would never read into one quarter what a trend is. It is robust on both sides.

Great, and just last one for me on PCS, a little bit more of a big-picture question with regards to the healthcare system in the US. We've seen a pretty steady consolidation of individual physician practices into larger group practices over the last few years. I'm just wondering if you had any examples you could share or point to where that market dynamic has driven maybe accelerated adoption of PCS, just given that you already had, in some cases, relationships on waste management? And just wondering if that has been a fruitful way in which you can up-sell as the physician market consolidates?

Overall, we think in the consolidation it's good to be a positive for Stericycle. We think there'll be an opportunity to consolidate vendors to Stericycle. We have seen one large system that actually went to Stericycle for all their physician-owned after-hour answering services, so that was a nice win for the team. I think the other thing you have to do though, as these systems get larger and they consolidate, it could slow up a little bit on the sales cycle. It is plus or minus, but overall we think there will be consolidation to vendors. We think Beryl will be a great opportunity for leveraging the relationship that they have at hospitals already. But we've already seen one nice win from the team on an after-hour answering service that was affiliated with a very large IDN.

Kevin Steinke, Barrington Research.

Just want to follow up on the pharma waste opportunity. Now that you see regulatory scrutiny picking up in that area, do see that your pharma waste offering being able to perhaps start to gain some traction on the SQ side as well, or are you going to continue to focus on the LQ for the foreseeable future?

We are focusing primarily on LQ, because it is a $200 million plus opportunity. There's certainly the potential exists to move this into SQ and we're always experimenting with different offerings and tweaking our offerings. So maybe keep an eye on this space.

Where are you now in terms of the SQ, LQ mix in the UK specifically and then how does that compare to the rest of your international markets?

The UK has right now approached the mid-30s from a revenue point of view that is SQ-related. Again, we don't disclose it for each of the countries, but each country continues to focus on that. Obviously, as Charlie said like a sharps management now going overseas in these countries also will give a nice lift for the LQ side.

Frank on the gross margin up 10 basis points sequentially, can you give us any puts and takes there, as well as energy as a percent of revenue in the quarter?

Yes, the energy as a percent was 5.6%, same as last quarter. If you break down the gross margin, acquisitions was at like a 5 BP basis-points reducer. Foreign exchange offset that a little bit with 4 BPs up, and then the business itself, the remainder was 12 BPs up.

For the full year, should we continue to expect in that range of 40 to 60 basis points of gross margin improvement that you mentioned last quarter?

Yes, consistent with what we have done in the past, 40 to 60 basis points year end over year end.

Richard Close, Avondale Partners.

With respect to the BerylHealth, if we can go into that a little bit more, it seems like they have some rather than just the patient communications aspects, they have some analytics and different technology platforms. I am wondering if you could talk a little bit in and around the margin opportunity there in terms of what type of gross margins do they have compared to maybe some of the other add-on businesses, such as SteriSafe and the sharps management and some of those other add-ons?

Yes, so Richard, it is not a technology play. I have seen that out there. Beryl is a call center type of business. Now they do have data analytics where they take some of the information on some of their physician referrals and feed that back to the hospital, help them with their marketing strategy. And if they are putting their marketing dollars in the right place, so they do have some data analytics that go along with their service offering, but it is not a technology. When we look at the business itself from Beryl and compare it to other patient communications, the gross margins are very similar and EBIT margins are very similar, which is right now close to our corporate margins. But obviously the EBIT margins are a lot lower since you got a higher SG&A spend to it.

With respect to the acquisitions that have been put in place or completed in the most recent quarter, I think you said $20 million in annualized revenue contribution. That seems maybe a little bit lower amount than some of the most recent quarters, although I know that number bounces around. Can you talk a little bit about that in terms of the size of the acquisitions? Are you seeing anything different? I know you reaffirmed your $100 million in annualized pipeline, but if you talk a little bit about the size of the acquisitions.

I wouldn't read anything into that. Again, as I said, the tax law changes in the US have accelerated some deals into Q4. The pipeline, as we said, is robust. Both US, international, there's again, definitely north of $100 million in that pipeline. So no, I would not read anything into this quarter. It is not uncommon for us that Q1 is a little bit slower. For the last almost two to three years, we have had the scare that tax rates would go up, and as a result people did deals in Q4.

Final question for me, is there any opportunity near term, do you see patient communications on the international front at all?

Right now, long-term, we think there are some opportunities. But right now the focus is on patient communications in the US business. We do think from a call-center standpoint, the recall and returns business could do some things internationally. But right now on the patient communication, that business is going to be mostly US. And I think the reason we are focusing on that is, as you know, with the changes in the healthcare law and the Affordable Care Act, patient satisfaction is important to long-term reimbursement rates for hospitals. So there is a lot of focus right now around the patient experience, and part of that is how hospitals and healthcare providers communicate with their patients.

Stewart Scharf, S&P Capital IQ.

Basically, most of my questions have been answered. Where would you focus on in Europe? Is there any area of concern, or are you just looking opportunistically, as you said, or is there any specific area in Europe that is worse than other areas?

No, I think there are opportunities, definitely in Spain with the number of transactions we have done. There's opportunity for integration and improvement in the margins there. In the UK, there is some obviously with them now being in newer products like sharps management and clinical services. There is room for growth there. In the same time, there is bits obviously all the time going that they have done a very good job at. In Portugal, not dissimilar to Spain, good opportunities for integrations still. No, we see opportunities here. We don't see specific issues that head us right now. It looks like from a pricing point of view, that we have had some contracts that were CPI-related; that seems to have bottomed out a little bit, too.

And I think, Stewart, if you were asking about new geographies in Europe, we continue to look at new countries not only in Europe but Latin America and Asia for expansion as well. And when those opportunities become available to us, we will look at them and potentially do deals in those new geographies as well.

Do you have the number of shares bought back again? I didn't catch that.

The number of shares repurchased?

Yes.

That was, hang on one second. We had 79,602.

Sean Dodge, Jefferies.

Charlie, just following up on your last comment, can you give us some sense of how you guys think about or prioritize entering new international markets versus back-dealing existing ones? And maybe what I am trying to get at here is over the next couple of years, is there going to be more focus on building out your existing footprint? Or are the majority of your resources going to be placed toward identifying and entering these new geographies?

No I think we always have balanced both. We look at what are the opportunities, we know what countries we want to look at to expand into. Obviously, we look at countries we're in first. That is where a lot of the M&A spend their time, because we do get the synergistic value of those deals when we close them. When we're looking at a new country though, we look at tier-one countries. Obviously there needs to be a base around regulated waste regulations for us to even think about that market. We look at the stability of the country, the currency, and then also look at the management team. If it's our first entry into a new market, we want to be able to grow with that management team and do other deals. So there's a lot of factors that go in there, but certainly we need a base regulations there and a good healthcare market and those are some of the things that go into the decision-making process.

Okay, that's helpful. And then on the sales force in general, are there any planned changes to the size or structure of the sales force or your marketing spend, for that matter, now that you are trying to ramp into less traditional services lines like patient communications and StrongPak?

Well I think we've done a pretty good job, those who have followed us, in seeing how we use the existing force to cross sell and sell multiple services. We're certainly SG&A-conscious, and I think at this point, what you have seen occasionally is our SG&A as a percent of revenue will move up a little bit, if we've got a hot hand to feed. And then once we've gotten the sales force used to that, we put those dollars somewhere else or move them back into the pot. I don't think you're going to see anything dramatic with spend, and right now I think the growth rates reflect the sales team is doing a great job.

David Manthey, Robert W Baird.

A question for you on the non-GAAP presentation and the guidance. Historically it has been Stericycle's practice not to exclude integration expenses, and I see that you are adding them back this quarter. I am just wondering if you could talk about that. And then when you gave the guidance of $3.65 to $3.69 for this year, were you assuming a level of integration expenses in that or not?

Yes, if you go back to the script of last quarter, we said that in our prior guidance we would adjust for it. We think it is better comparability; it gives more clarity and transparency to shareholders. It also matches how we run the business and how we review people. So we, as a result of that, made that change and then said so in the last quarter and the guidance.

Right, so non-GAAP presentation for starting first quarter of this year, you are excluding not only acquisition-related expenses but integration-related expenses routinely going forward?

Yes, and we do it for both obviously this year and last year. So last year we will adjust up from that point. The comparable is $3.34 from an EPS point of view.

And then second, Frank, on the tax rate are we still 36%?

Yes, that is good for guidance.

Finally, within these newer areas you are getting into the patient communications, the Rx waste, StrongPak, primarily the last two, the waste-type services offerings, have you seen any change in the competitive landscape at all? It would seem like when you get these large potentially rapidly growing regulatory change type markets that you would have some rush of entrance into those markets. Can you talk about the competitive landscape and how you expect to deal with that going forward?

Yes, I think on the regulated waste side, Dave, obviously we see a lot of competition for both the Rx waste and the StrongPak business, both in a local and a regional level. I think for both offerings though, we're in a unique position given our relationship, not only in the healthcare side but on the retail side as well. I think our core competencies fit well in both Rx waste and StrongPak, and that is what makes us successful in selling in this space.

James Francescone, Morgan Stanley.

This is James in for David. I think just one question on international, even as domestic SQ and LQ growth have been consistently hitting the high end of the range in those businesses, international has been a little bit of the laggard. Obviously there's some fundamental reasons for that, business mix and things like that. Could you help us understand how much going forward, how much of the priority in the international business is increasing the organic growth rate versus getting growth through M&A versus profitability? How does that develop going forward?

In fact we were very pleased to see the international ones start to come up a little bit again. The team is doing a good job. Obviously the last 1 year, 1.5 years, the European escalators have slowed that growth a little bit. And one or two those geographies affected was, for some quarters, negative. So now having bottomed out on that, it comes up a little bit. I think we are pleased that it is starting to come up a little bit, and the team is doing a good job.

Barbara Noverini, Morningstar.

I think you might have touched upon this briefly before, but just for clarification sake, how should we think about StrongPak's service offerings? Is this more an event driven business, like RMS, or is this more of a recurring program that you are offering customers where you are billing them on a regular basis?

This is not like RMS, so this is not project-driven. This is a recurring revenue stream. They are multi-year agreements with many locations with recurring revenue. So very similar, identical to our core regulated waste offerings.

Are there different tiers of services within these programs?

Not like SteriSafe, if that's the question, is there a standard, select and preferred. Obviously every client has different needs, so the pickup schedules and the level of service we might give one customer might differ, but there aren't different levels of service like a SteriSafe offering.

Gary Bisbee, Barclays.

Just one quick numbers follow-up, can you break down the $34.2 million? I think that was the year-to-year growth in organic revenue across international versus US and within US SQ and LQ.

We do that in the Q, so you'd have to wait for that one at that time.

There are no further questions.

Thank you, Jay. In closing, I just want to remind everyone that today is Administrative Professional Day. Make sure you acknowledge those administrative professionals that contribute to the success of your organization. On behalf of the Stericycle executive team, we want to thank Kelly, Rhonda, and Sandy for all of their hard work this past year. Have a great evening, and we look forward to speaking to everyone again on our next call. Thank you.

This concludes today's conference call. You may now disconnect.