Stericycle Inc (SRCL) 2014 Q4 法說會逐字稿

Good afternoon. My name is Jennifer, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Stericycle fourth-quarter earnings 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. I would now like to turn the conference over to Sean McMillan, Vice President of Corporate Finance. Mr. McMillan, you may begin your conference.

Welcome to Stericycle's fourth-quarter 2014 conference call. 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 the Company's form 10K, 10-Qs, 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 Charlie Alutto, CEO.

Thanks, Sean. We are very excited to report our fourth quarter and year-end results. As you will see, our strong fourth quarter closed out another successful year for Stericycle. Our business continues to do well on a number of fronts, especially in the areas of internal growth, acquisitions, and free cash flow. Joining me on today's call to review our fourth quarter and year-end results will be Dan Ginnetti, CFO, and Brent Arnold, COO. I will now turn it over to Dan.

Thank you, Charlie. The results for the fourth quarter are as follows. Revenues were $676.9 million, up 19.2% from $567.9 million in Q4 2013. And internal growth, excluding returns and recall revenues, was up 8%.

Domestic revenues were $479.7 million of which $462.7 million was domestic regulated waste and compliance services and $17 million was recalls and returns. Domestic internal growth, excluding recalls and returns revenues was up 7.3% consisting of SQ up 8% and LQ up 7%.

International revenues were $197.2 million. And internal growth, adjusted for unfavorable foreign-exchange impact of $17 million, was up 10%.

Acquisitions contributed $93.1 million to the growth in the quarter. Gross profit was $285.4 million or 42.2% of revenues. SG&A expense, including amortization, was $124.2 million or 18.3% of revenues. Net interest expense was $18.1 million, net income attributable to Stericycle was $82.5 million or $0.96 per share on an as reported basis and $1.12 adjusted for acquisition related expenses and other adjusted items.

Now for the balance sheet. Our covenant debt to EBITDA ratio was 2.22 at the end of the quarter. The unused portion of the revolver at the end of the quarter was approximately $577 million.

In the quarter, we repurchased 264,574 shares of common stock in the open market in the amount of $33.7 million. At the end of the quarter, we have authorization to purchase 4.7 million shares.

Our CapEx was $20.2 million. Our DSO was 63 days. Year to date, as reported, cash from operations was $448.5 million. When adjusted for recall reimbursement and one-timers, cash from operations was $502.6 million. I will now turn it over to Brent.

Thanks, Dan. In 2014, the team made great progress in all areas of the business. Let me highlight a couple of the accomplishments. We increased our regulated waste, operational infrastructure, enabling the continued growth of our retail and SQ regulated waste business. We expanded our international operations, completing 27 acquisitions in 10 countries, including a new geography, South Korea. We upgraded the pollution control systems across our US network of incinerators, and complied with new EPA Title V standards, reducing our emission significantly.

In the quarter, we closed nine acquisitions, five domestic, and four international. The international acquisitions were two in Brazil and two in Argentina. The revenues from the nine acquisitions were $7 million in the quarter and annualized approximately $43 million. Our worldwide acquisition pool remains robust with well over $100 million in annualized revenues in multiple geographies and lines of business.

I am pleased to report that the integration of the PSC acquisition continues to be on track and that the business is performing well. As we have mentioned in previous calls, as PSC synergies take effect, our margins will continue to improve.

Our international business delivered strong internal growth in the quarter. The team remains focused on multiple revenue opportunities in all geographies. At the end of the quarter, we had approximately 601,000 accounts, of which 579,000 were small and the remainder were large.

Looking ahead, we remained excited about our expanding growth opportunities, whether the customer is a physician practice, a large hospital system, a Fortune 1000 company, or a retail chain, Stericycle provides multiple services to help them improve their operations and to achieve their goals. As we execute on this strategy, we can more than triple our customer revenues.

In closing, I would like to thank each member of our worldwide team for their focus on our core values, commitment to our customers, and strong performance for our shareholders. I will now turn it over to Charlie.

Thanks, Brent. I would now like to provide insight on our current guidance for 2015. Please keep in mind that these are forward-looking statements and our guidance does not include future acquisitions, divestitures, integration, acquisition related and other adjusting items. Our current 2015 guidance does include an unfavorable impact in foreign exchange of approximately $70 million in revenue and $0.06 and earnings per share.

For 2015, we believe analysts' EPS estimates will be in the range of $4.63 to $4.69. We believe analyst revenue estimates for 2015 will be in the range of $2.8 billion to $2.85 billion, depending on assumptions for growth and negative impact from foreign-exchange rates. We anticipate 2015 internal growth rates to be -- SQ, 8% to 10%; LQ, 5% to 8%; international, 6% to 9%; and recall and returns revenues between $95 million to $120 million. We believe analysts will have estimates for 2015 free cash flow between $445 million to $456 million. 2015 CapEx is anticipated to be between $96 million to $100 million. We expect the full year as reported tax rate to be approximately 36%.

In closing, we are very pleased with our fourth-quarter and full-year 2014 results and remain excited about our multiple growth opportunities for 2015 and beyond.

Thank you for your time today. We will now answer any questions. As a reminder, please limit yourself to one question and one follow-up question as necessary. Jennifer, you can now open the queue.

(Operator Instructions) Ryan Daniels, William Blair.

Dan, given all the moving parts in the quarter, I was hoping you could start with maybe the gross margin bridge sequentially to give us the various puts and takes.

Yes, absolutely. So versus the prior quarter, gross margins were up 30 basis points. We were favorably impacted by about 45 points when you combine the PSC synergies and our normal business improvements. The acquisitions in the quarter were unfavorable for about six basis points and we had an unfavorable nine basis point impact. With fuel and energy reduction, they were offset by increases in insurance and benefits. So a nice 30-point improvement for the quarter.

Okay. That's helpful. And then, Charlie, I guess my follow-up is just a bigger question for your bigger picture question. With all the stuff we are hearing about in ACOs and shifting risk to providers and Medicare Advantage, capitation rates for providers, are you changing your patient communication strategy to help hospitals with HCAHPS scores or do patient surveys or drive more preventive visits? Just, how are these macro trends that appear pretty big shifting your view on that opportunity as you look forward? Thanks.

Yes. Great question, Ryan. I think, obviously, we have talked about this before. Some of the benefits of the communication solution offering that we have are to increase customer satisfaction and outcomes. And that has -- whether to do with the post discharge call or making sure that somebody shows up on time for an appointment. As an example of that opportunity, we were just recently awarded a significant communication solution contract for a very large Midwest IDN, really centered around our automated appointment reminder. So that obviously gets the patient there and it helps the healthcare facility in making sure their productivity remains high, but also in increasing productivity and satisfaction.

David Manthey, Robert W. Baird.

First off, Charlie, by my calculations, looking at currency back in October relative to where it finished the year, looking like maybe you lost $0.01 relative to that. And then, when we look at the RMS shortfall, it looks pretty similar to last quarter where I think you said it was about $0.04 relative to your expectation, and it should be kind of in the low to mid $20 million range. Are those fair?

Yes. I will take that, David. Good question. The recall business was down about $0.04, as you expected, from the quarter. The foreign-exchange was -- combined with a little bit of impact on our international recall was about $0.02, actually, when you combine the two. Cash in the quarter offset that and our core business was right at guidance.

Right. Okay. Great. Thanks, Dan. And then, second, maybe if you could give us a status update on the communication solutions IT platform unification. And then if there has been any consolidation of facilities yet or if there is a timeline that you can talk about.

Sure, David. In fact, I just got came back from our national sales meeting last week where the ComSol team -- communications solutions team presented to our team members on the service capabilities and our operational improvements. And of course, those operational improvements include the platform infrastructure. It is important because as we make improvements in our operation, it really -- we've said this before, it differentiates our service in the marketplace.

Certainly, we are on track. We gave a lot of detail to it on the last call on all the different aspects of that operational infrastructure, how we are going to piloting that now and implementing some of that through 2015. And I will tell you, we are right on track of that and I was really pleased on the presentations that took place last week at our national sales meeting.

That was great. All right. Thank you.

Al Kaschalk, Wedbush Securities.

I wanted to start with the PSC acquisition and get an update on the integration. I know you have said it is, quote, going well, but where -- we are probably now in the phase 2, and maybe if you could just take a step back and give us some of the pluses and minuses that you have seen from the transaction.

Yes. I think when you think about PSC, certainly Brent having the opening comments are on track, but to give you a little bit more color on what do we mean by that, most of our legacy regulated waste volume has now been internalized. So we have internalized that into the TSDF structure -- TSDF, a structure that we acquired in PSC. Really, we remain excited about the future opportunity that that infrastructure has given us. So from that standpoint, I think the high expectations we had about the growth of this business with the infrastructure that PSC had, is coming to fruition. The teams are fully integrated, although teams are working together and we really kind of under a one umbrella now which we have newly branded, Stericycle Environmental Solutions.

The one thing I would remind everybody about is the seasonality in that business. We talked about it a little bit, Al, on the call right after the PSC acquisition. The project work of that, which is about 20% of the PSC revenue, does tend to come out slow in the first quarter and it builds up as the year goes on. So, we anticipate that same seasonality going into 2015 and that project work building as the year goes on.

Right. My follow-up would be, can you comment based on some of the input or fuel costs, energy costs? I would have thought you would have seen or we should be getting to see some benefit in the model. If not, if the case, could you help us appreciate the contract structures and whether it is surcharges or fuel benefit, or how that works in terms of the contracts? Thank you.

Yes. I think it is important, just to remind everyone, when we look at fuel, we actually look at total energy and that was 5.3% for the quarter. And that is calculated only on the sectors where we have fuel and energy apply. So that is kind of the impact on the quarter. I think it is also important to remember that we have got surcharges for our fuel and energy and those will fluctuate, and really they are mandated by the contract and we adjust those appropriately. As you probably saw in Q4, while gasoline dropped pretty significantly, diesel lagged behind it. It really didn't have that big of impact in the quarter.

Brent, can you remind us, though, what should the services or businesses or contracts have the energy component to it?

Sure. It is around our regulated waste and compliance solutions. So it would be things like med waste, the PSC acquisition that we have in the United States. Those are ones where they are a heavier transportation business, Al.

Better hop back in queue before I get in trouble. Thank you.

Gary Bisbee, RBC Capital Markets.

In the prepared remarks, you made a comment we have heard before that if you sold everything to your customers you could triple revenue. I guess, can you give us a sense, just an update -- I haven't heard one in a while -- how that breaks down? How much of that is more of the regulated medical waste in compliance versus stuff like the hazardous waste and patient communications? And is there plenty of room in all three areas really is the question.

Yes. I think if you look -- and I will guide you to our investor relations slide, we have a pretty good detail on how that breaks out and that really hasn't fundamentally changed. On the medical waste side, for a small practice, the Steri-Safe program, at the highest levels, can more than double our revenues. When you add in things like appointment reminders, live call-center work, after-hour answering, that adds an opportunity to take that up almost six times and in haz waste, even on the SQ side, for certain pharmaceutical drugs that are hazardous upon disposal or even nonhazardous pharmaceutical drugs, that can add additional revenue as well. So on the SQ side, it is probably conservative saying that it can more than triple the revenue. And a lot of those -- really, virtually all of those additional services still have plenty of runway to go. And some of them are new service offerings for Stericycle.

On the hospital side of the business it's a little bit different. You are dealing with contracts that have an annual revenue of $30,000 to $35,000 on medical waste. Sharps management can more than double that revenue. Pharmaceutical waste can more than double that revenue as well. And hazardous waste can go anywhere between $15,000 to $25,000 in revenue, not double it, but certainly increase it. And then the communication solutions, which, on that slide that we give in the investor relations presentation, doesn't really account for that, although we are looking to update that slide because we are getting some nice wins with some IDNs on the ComSol side.

So I think it is a conservative number. Certainly not every medical waste customer can be sold every one of those services, but there are a lot of customers that can be upsold to those additional services.

And how are you progressing overseas layering in more stuff? Any real update there? Is it incremental at this point? Or did you make some good progress in 2014?

Well, you know, overseas, we don't call it Steri-Safe. We call it Clinical Services. And we have really seen some really nice adoption internationally. The last country we rolled it out in was Spain, and we are really pleased with the adoption we are seeing to date.

And I think it is evident since some of the internal growth numbers you have seen in the last couple of quarters internationally.

And can I just sneak in one quick numbers one? What is the breakdown of the $93 million LTM acquired revenue between domestic and international? Thank you.

Yes. In the quarter, the nine deals there were five domestic deals, four international, that was $7 million in acquired revenue in the period. And $43 million for the year.

Yes, it is not a -- it is $43 million number for the quarter, Gary.

And we don't have that break out.

The LTM $93.7 million LTM contribution to revenue growth, I think in the past sometimes you have given us how much of that was within the US business versus the international business.

We are going to come back to you and get that for you.

Okay, all right. Thank you.

Shlomo Rosenbaum, Stifel Nicolas.

I actually want to follow up a little bit of more on what Gary was talking about. Something that you had improved strength internationally. Could you talk about some of the drivers over there and what is taking the hold? You have mentioned in the last couple of calls, but maybe is there anything in addition over there and maybe just review what is driving some of the strength there?

Sure. I think, obviously, a good international growth number of 10% for the quarter. International growth rates continue to be strong. Across really multiple geographies. We are not just seeing it in one area. It is slightly lower from Q3, but it was slightly impacted due to lower international recalls. Remember that we do not break out recalls on the international segment. It is included in the business. And quarter to quarter, when acquisitions roll into the base it might impact the growth rate calculation, but organic growth is very good. I think -- obviously, we talked about patient transport services in the UK. Brent touched on Clinical Services being adopted now in Spain. There are some markets overseas like Canada, Ireland, and the UK where we have our sharps management program. It just depends where we are on the maturity of a country and how many different additional services are rolled out. But we are seeing growth -- good growth across the board, to sum up.

Okay. And then, I would like to just follow up one more on the PSC acquisition. Could you talk about progress you have made in terms of growing that business? I know you don't break it out separately, but you had your own StrongPak business. You have got that business. Are you seeing any kind of revenue synergies in putting that under the Stericycle name after about nine months or so?

Yes. I think, from a very high level of business, it's on track to the expectations with respect to revenue. Right now we are integrating both PSC and the StrongPak, or the legacy Stericycle business. So it is tough to say, is the Stericycle name helping us? We think it is. We think branding it Stericycle Environmental Solutions will help. Obviously, the retail is in that business and, with respect to upside, you have seen now two quarters in a row where the project work has been a surprise for us. A little bit higher. It has had a negative impact a little bit on gross margins. But certainly, we have evidence over the last couple of quarters that the revenue is doing a little bit better than expected.

And, this is Dan. I would like to hop in and clear up Gary's question. Gary, I think what you are talking about beyond just the revenue and the acquisitions in the quarter, what you are looking at is the acquired revenue in the quarter which would include other acquisitions coming in. That split is about 70% domestic; about 30% international.

Scott Schneeberger, Oppenheimer.

I wanted to hit on RMS briefly, obviously a little light in the quarter. Yet, I see you maintained the 2015 outlook revenue guidance. Just if you guys could provide a little bit of color on -- it was soft, I think, in third quarter as well, but feeling confident going into next year, just thoughts there.

Yes. And, Scott, you have followed Stericycle for a long time. If you think back to 2009, it was slow on the recall business as well. We were lacking large recalls in 2009, like we have in 2014, but 2010 rebounded to be a record year for that business. So it is an uneven business, but obviously, in our guidance in 2015, we believe that we are going to be within that guidance and we are confident and comfortable with the guidance that we put forward on today's call. $95 million to $120 million. We are at a record number of events in 2014, and I think this demonstrates that our awareness campaign is gaining traction. We are just missing those -- we are lacking those large recalls. We always think they are happening in the marketplace. We are not losing them to anybody. It is just that they are not out there right now.

And just following up, on that, are you seeing indication that those are coming, or is that just the guidance as well just by our past history, we would expect one or two probably coming in the future year? So there is perhaps some risk, but not a huge amount of risk. Just whether you see it now or whether it is just assumed over the 12 months.

Yes. I think, obviously, the high end of our guidance assumes a two to four large recalls in 2015. You don't get much visibility when those come. They tend to come right away, but obviously, I think by our guidance we have sent the message that we feel really good about the number for 2015, even though we have had two slower recall quarters the last two quarters.

Thanks. And then just following up on Shlomo's question on international drivers, obviously, ticked up the growth rate in international organic growth rate. In third quarter, you announced the big patient transportation win. And in response to his question, you talked about some other things that were going well. Is the move higher purely that the patient transportation or are there other components that are contributing? Thanks.

It is certainly a contributor, but there are other contributing factors. As we said before, Clinical Services and multiple services in other countries and, as I said, the international growth rate strong across multiple geographies. Thanks, Scott.

Okay. Thanks, guys.

Isaac Ro, Goldman Sachs.

Just a quick question on the tax rate guidance you gave. I mean, if I look at the numbers here, your tax rate has kind of come down steadily over the last four or five years. And your guidance here is calling for a pretty sharp rebound. I was curious why that was the case. And is there something to do with the geographic mix this year or another dynamic here that would drive it higher?

Well, if you remember, we gave you guidance last quarter of 35.5% to 36%. And the reason for that is we don't give guidance on one time non-reoccurring events and those would be such things as tax rate changes that we don't know about, some of our work on our international entity structure, our tax optimization plan, or even things that are released from statute that we don't know until they actually reach. The tax rate that we gave you is strictly off our core business. Now, going into the rest of the year, I think it is better to move your tax rate up a little bit closer to 36%. And the reason for that shift to the higher end of the range we gave you is, in fact, due to the foreign-exchange changes that are taking place.

Got it. Okay. And then just a follow-up on the FX dynamic. Really, as it relates to your M&A plans, the current kind of exchange rate picture would suggest that maybe some of the assets you are looking at overseas are perhaps less expensive. So do you feel like the current rates environment give you a little more opportunity to be aggressive on M&A overseas?

Certainly there is an advantage with the strengthening of the dollar when we look a certain markets. All of our deals go through the necessary IRR calcs. Is it a strategic fit for the Company? But there is certainly a benefit now with the strengthening dollar to be maybe more aggressive on acquisitions. But as you know, Isaac, sometimes it is a timing issue when a seller is ready to sell a business and really we can't give any more guidance other than that.

Sure, I understand. Okay, thanks a bunch.

Barbara Noverini, Morningstar.

With StrongPak and PSC doing well domestically, can you talk a little bit about your expectations for replicating that kind of business internationally? Which of your international markets most closely resemble the US with respect to retail and retail pharmacy, hazardous waste, and will this be an important strategy in growing the international SQ customer base in the future?

I think it is too early to start rolling out across the board in the international markets, but certainly, from a country that is very similar now to the US with respect to the framework of regulations, same type of retailers. In fact, sometimes the same retailer would be Canada as one of those marketplaces. But we continue to explore other markets. We think longer term there could be an opportunity. Right now the focus is on the US and Canada.

Okay, thank you.

Adam Baumgarten, Macquarie.

Just wondering if you could break down the nine acquisitions by service type?

Yes. Eight of those acquisitions were in the regulated waste field and there was one recall acquisition.

Great. Thanks, guys.

Erin Wilson, Bank of America Merrill Lynch.

You gave some color on the sequential trend in the gross margin. What was the underlying gross margin trend on a year-over-year basis, like excluding the acquisition related impacts? And how should we think about the quarterly progression of that trend?

I think it is very difficult, Erin, to look at it that way. With all the acquisitions and the movements, especially in a year where we have the PSC acquisition, they really move that up and down. So I think you would be better to look at the sequential improvement that we looked at in the fourth quarter.

Okay. And how should we think about the quarterly progression going into 2015 on that trend?

I think going into Q1, we think we have moved to about a 43.15. And then, after that, you're going to get your about 10 to 15 basis points after that. The reason for the jump in the first quarter is there is expectation that the recall business will come back. Also, that some of that project work that is a question whether it will come back or not, if it doesn't that gross margin will go up. And then foreign-exchange impact will benefit about 25 basis points. And then, there is a little bit of a headwind or unfavorable from acquisitions of 11 basis points. And then our core business of PSC will go up.

I think, at this point, also it would be very good when you go into Q1, it is very important to look at it flat as we have given guidance before. And, in this case, also, for EPS, I think I would like to guide you to about $1.10 and the reason for that is we certainly just shared with you some foreign-exchange headwind. We're going to have some normalization of our tax rate and then, with recall coming back and our core business improvements, I think $1.10 is a very good starting point. And then, the three quarters following that, about a $0.04 per quarter increased quarter over quarter and that should put you right into our guidance level.

Great. That is excellent color. And then, we have seen some high profile data breaches in healthcare of late with the news of Anthem today. Do you have any exposure there, particularly on the patient communications side? Or maybe is that even an opportunity for you as potential customers seek HIPAA compliant communication services.

Obviously, we don't feel we have an exposure. We monitor it closely. We have safeguards for our communication solutions business. As an opportunity as a business, Erin, we have looked at it. There are a lot of players in that space. We continue to monitor it, but I don't see us entering that space anytime soon or possibly never entering that space from a compliance standpoint.

Okay, great. Thanks so much.

David Lewis, Morgan Stanley.

It is actually Scott Wang in for David. Dan, how should we expect SG&A to trend over the coming years? On one hand, we might expect some G&A leverage on a company that is growing sales so quickly. On the other hand, you do run a fairly tight ship to begin with. To what extent -- can you share with us to what extent will investments and ancillary services or other growth drivers start to show up in the P&L?

Yes. I think, if you were looking into 2015, about 18.5% really throughout the year is a comfortable level. I think you hit the nail on the head and that you will see a little bit of both. You will see some investments. At the same point in time you're going to see us as we are moving into some of these new avenues with PSC and other, we begin to see leverage. And I think right now about 18.5% is a good position for us for the year to accomplish both our leverage and our investment.

And I think, Scott, certainly we are a good discipline of SG&A, but we have shown in our history that if we have got a hot hand, we are willing to make some of those investments over time to feed the hot hand in the business.

That's perfectly understandable. And then, Charlie, I guess, for you, as you think about future targets for M&A, can you share with us how you think about it in terms of balancing investments to build scale in markets that you already have a presence in versus, say, entering into new markets or new verticals?

Yes, I think to answer that question from a regulated waste standpoint, when we enter a new market, we try to buy a larger player. You want to buy some of that infrastructure. And you've seen that in recent acquisitions in Japan, in Brazil, in South Korea, the most recent. And then from there, look at strategic acquisitions that could leverage off that infrastructure from a tuck-in strategy. It varies by country. We try to test first before we double down, but certainly when it comes to buying scale, we have done it before in communications solutions and we have done it in our international strategy for our regulated waste business.

That's great. Thanks, guys.

Kevin Steinke, Barrington Research.

Just wanted to clarify with the 2015 guidance. Basically, you are taking $0.06 out of the previous guidance for currency on EPS, right? That is the way to think about it?

Correct, Kevin.

Yes, that is correct.

And then revenue, you are increasing by the acquisitions completed in the quarter plus some better performance internationally and then you take out $70 million in currency.

Yes. Let me bridge you on both of those. Those are great questions. To start with the revenue first, if you looked at our prior guidance acquisitions contributing next year about $43 million and then approximately $70 million of headwinds due to foreign-exchange. That is how you're going to get to the $2.8 million to the $2.85 million. From an EPS guidance, you're absolutely right. Prior guidance was for $4.69 to $4.75. We had the $0.06 of foreign-exchange headwind. And then the acquisition of about $0.02. That was offset by some higher cost in benefits and stock options. So that is where you're going to get to $4.63 to $4.69.

Okay. Thanks for clarifying that. That's all I have.

Richard Close, Avondale Partners.

Congratulations on a solid year. As we look at 2015, I guess try to get your perspective on what do you think are the biggest opportunities for you as the year progresses. And as you look out, what are you most concerned with in the coming year?

I think, from an opportunity standpoint, obviously, the PSC platform or the Stericycle Environmental Solutions gives us a great opportunity to grow that part of the business and stay within that internal growth rate, obviously. All the growth rates that we have are very important so I think the opportunities are environmental solutions, our compliance services, and our communication solutions helping us get to our internal growth rates. Remaining focused on M&A and making sure that when we do deals that those deals are a strategic fit for the business.

To your point around what are some of the uncertainties, certainly there are business risks in anything that we do. We want to make sure that, as we continue to grow, we have the right people in place and the right culture to continue to grow this business for many years to come.

Okay. And then with acquisitions, are there any countries or additional services that you think may come into the fold over the next year?

We certainly are looking at countries that we are not in today. And regions that we are in today would be the most logical expansion for us. We obviously don't disclose which countries they are. And it is hard to predict timing of when we would enter those countries. But, certainly, it wouldn't be out of the realm of possibility that in a couple of years we are in new countries.

From a service aspect, we have talked about this before. Sometimes we have services that work in the US and that we can take those overseas. They can cross into other countries. Sometimes we find services, like in Spain with the dosimetry services, that work in that country that also work maybe in that region. So, we are open to not only taking stuff from unique the US that sharing it overseas, but also learning in some of the markets that we are in and taking those services and taking them into other countries in those regions.

Sean Dodge, Jefferies. Sean Dodge^ Going back to the patient transport contracts that you guys signed in the third quarter, last we spoke, you mentioned some structural changes to that market that could possibly create some more opportunities like that. Has anything changed about the outlook there and what is the likelihood we see some additional transport wins over the next couple of quarters?

Yes. Think what you are referring to is I commented about how we have a combo of communication solutions and patient transport opportunity. We are taking some of the different Stericycle capabilities -- communication solutions with our patient transport -- and we are really offering a differentiated product in the marketplace. That remains on track. There is really no fundamental change from that premise.

From the ERS perspective, it continues to be a contributor to the international growth rate. We have talked about how we have had success on NHS contract and the team is really implementing those contracts well, and so we are excited about building on our multiple service strategy in all the different geographies that we are in.

Okay. And then, realizing your international segment is spread over a bunch of countries that are all in various stages of being built out, if we looked at just the most mature of the foreign markets, so maybe like in Ireland or a UK, how did the margins in those countries compare to what you are earning in the United States currently?

I think we look at it regionally, so obviously, from a regional perspective, the margins are different. They are less. We are not as mature in some of the service offerings that we have in the United States. Certainly, when you look -- and we have talked about this before. In some of those markets the LQ margins are better than the LQ margins in the US. But our SQ margins in the US are better than those SQ margins internationally. As we roll out additional services, we help to bring up the entire margin profile of our international business.

Got it. Thanks, and congratulations on the quarter.

And we have no further questions in queue at this time. And I would like to turn the conference back over to our presenters.

Thank you, Jennifer. Thank you for your time. We appreciate your continued support of Stericycle. We will speak to you again in April and, hopefully, see you on the road over the next couple of months. Take care and have a great evening.

Thank you for your participation in today's conference. This does conclude today's call. You may now disconnect.