Stericycle, Inc. (Nasdaq: SRCL) today reported results for the first quarter ended March 31, 2021.

Revenues for the first quarter were $668.0 million, a decrease of 14.9% compared to $785.0 million in the first quarter of last year, primarily due to the impact of divestitures. Organic revenues increased 0.9% when excluding the impact of divestitures and foreign exchange rate. Income from operations was $59.1 million, compared to a loss from operations of $30.4 million in the first quarter of last year. Net income was $26.1 million, or $0.28 diluted earnings per share, compared to a net loss of $20.1 million, or $0.22 diluted loss per share, in the first quarter of last year. Adjusted income from operations was $110.0 million, compared to $93.8 million in the first quarter of 2020. Adjusted diluted earnings per share was $0.71, compared to $0.52 in the first quarter of last year. Cash flow from operations for the three months ended March 31, 2021 was $62.6 million, compared to $82.1 million for the same period in 2020. Free cash flow for the three months ended March 31, 2021 was $37.9 million, compared to $42.5 million for the same period in 2020.

KEY BUSINESS HIGHLIGHTS:

• Regulated Waste and Compliance Services (“RWCS”) organic revenues grew 6.0% in the first quarter compared to the first quarter of 2020.
• Adjusted income from operations as a percentage of revenues improved 460 basis points in the first quarter compared to the first quarter of 2020.
• Net debt was reduced by $38.3 million in the first quarter, decreasing total net debt to approximately $1.70 billion. The credit agreement defined debt leverage ratio was reduced to 3.28 times as of March 31, 2021, compared to 4.50 times as of March 31, 2020.

“Our first quarter performance builds on the commercial and operational momentum we achieved in 2020,” said Cindy J. Miller, Chief Executive Officer. “Regulated Waste and Compliance Services organic revenues expanded further this quarter, benefiting from our quality of revenue initiatives and the value of our essential services during the pandemic.”

FIRST QUARTER FINANCIAL RESULTS

U.S. Generally Accepted Accounting Principles (GAAP) Results

• Revenues in the first quarter were $668.0 million, compared to $785.0 million in the first quarter of last year. Of the $117.0 million decline, the impact of divestitures was $135.0 million and Secure Information Destruction (“SID”) revenues accounted for $26.8 million, reflecting pandemic related business disruption. These declines were offset by RWCS organic revenue growth of $34.1 million and the positive impact of foreign exchange rates of $10.7 million.
• Income from operations in the first quarter was $59.1 million, compared to a loss from operations of $30.4 million in the first quarter of last year. The $89.5 million increase was primarily due to the first quarter of 2021 having no net divestiture losses compared to the first quarter of 2020 having net divestiture losses of $58.3 million and lower operating expenditures of $31.4 million in the first quarter of 2021.
• Net income in the first quarter was $26.1 million, or $0.28 diluted earnings per share, compared to a net loss of $20.1 million, or $0.22 diluted loss per share, in the first quarter of last year. The difference was related to higher income from operations of $89.5 million, as explained above, and lower interest expense of $6.6 million. These were partially offset by an increase in income tax expense of $52.2 million compared to the first quarter of 2020, primarily as a result of a non-recurring U.S. Cares Act tax benefit of $39.4 million in the first quarter of 2020 and higher taxable income generated in the first quarter of 2021.
• Cash flow from operations for the first quarter ended March 31, 2021 was $62.6 million, compared to $82.1 million in 2020. The decrease of $19.5 million was primarily driven by an annual incentive compensation payout of $38.6 million in 2021 and higher accounts receivables of $9.2 million driven by increased revenues. These were partially offset by lower interest payments of $15.6 million, primarily as a result of lower debt balances and improved operating performance and other working capital changes of $12.7 million.
• Cash paid for capital expenditures for the first quarter ended March 31, 2021 was $24.7 million, compared to $39.6 million for the first quarter ended March 31, 2020, primarily driven by $22.0 million less in ERP capital expenditures in 2021 compared to the first quarter of 2020 and the timing of planned 2021 capital expenditures.

Non-GAAP Results

• For the first quarter of 2021, organic revenues increased 0.9%, which excludes the impact of divestitures and foreign exchange rates. In the first quarter, organic revenues of RWCS grew 6.0%, while SID declined 12.3%, both impacted by the pandemic.
• Adjusted income from operations was $110.0 million, compared to $93.8 million in the first quarter of last year. Adjusted income from operations as a percent of revenues improved 460 basis points. As a percentage of revenues, lower SG&A contributed approximately 280 basis points of the improvement, quality of revenue and operational efficiency initiatives contributed approximately 200 basis points, and divestitures of lower margin businesses contributed approximately 120 basis points. These improvements were partially offset by increased International RWCS third-party disposal costs of approximately 90 basis points and severe weather impact in North America of approximately 60 basis points.
• Adjusted diluted earnings per share was $0.71, compared to $0.52 in the first quarter of last year. The $0.19 improvement was primarily due to higher adjusted income from operations of $0.18 and lower interest expense and other of $0.06, and net favorable impact from foreign exchange rates of $0.01, which were partially offset by divestitures of $0.06.
• Free cash flow for the first quarter ended March 31, 2021 was $37.9 million, compared to $42.5 million for the first quarter ended March 31, 2020. The $4.6 million decrease was due to lower cash flow from operations, partially offset by lower capital expenditures, as described above.

CONFERENCE CALL INFORMATION

Stericycle is holding its first quarter earnings conference call on Thursday, April 29, 2021 at 8:00 a.m. central time.  Dial (888) 317-6003 in the U.S., (866) 605-3851 in Canada, or (412) 317-6061 if outside the U.S./Canada at least 10 minutes before the call begins. Upon dialing the number, you will be prompted to enter the Elite Entry Number 2098768. To access presentation materials, listen to the call via an internet webcast, or access an audio replay of the call, visit investors.stericycle.com.

NON-GAAP FINANCIAL MEASURES

Non-GAAP financial measures are reconciled to the most comparable U.S. GAAP measures in the schedules attached hereto.

ABOUT STERICYCLE

Stericycle, Inc., (Nasdaq: SRCL) is a U.S. based business-to-business services company and leading provider of compliance-based solutions that protects people, promotes health and safeguards the environment. Stericycle serves customers in the U.S. and 17 other countries worldwide with solutions for regulated waste and compliance services, secure information destruction, and patient engagement. For more information about Stericycle, please visit stericycle.com.

SAFE HARBOR STATEMENT

This document may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. When we use words such as “believes”, “expects”, “anticipates”, “estimates”, “may”, “plan”, “will”, “goal”, or similar expressions, we are making forward-looking statements. Forward-looking statements are prospective in nature and are not based on historical facts, but rather on current expectations and projections of our management about future events and are therefore subject to risks and uncertainties, which could cause actual results to differ materially from the future results expressed or implied by the forward-looking statements. Factors that could cause such differences include, among others, developments in the COVID-19 pandemic and the resulting impact on the results of operations, long-term remote work arrangements, which may adversely affect our business, precautions we have taken to safeguard the health and safety of our team members which may make certain of our business processes less efficient, measures taken by governmental authorities to prevent the spread of the COVID-19 virus which could disrupt our supply chain, result in disruptions in transportation services and restrictions on the ability of our team members to travel, result in temporary closure of our facilities or the facilities of our customers and suppliers, affect the volume of paper processed by our secure information destruction business and the revenue generated from the sale of SOP, disruptions in our relationships with our team members as a result of certain cost-saving measures, an economic slowdown in the U.S. and other countries resulting from the outbreak of the COVID-19 virus, changing market conditions in the healthcare industry, competition and demand for services in the regulated waste and secure information destruction industries, SOP pricing volatility, foreign exchange rate volatility in the jurisdictions in which we operate, changes in governmental regulation of the collection, transportation, treatment and disposal of regulated waste or the proper handling and protection of personal and confidential information, the level of government enforcement of regulations governing regulated waste collection and treatment or the proper handling and protection of personal and confidential information, decreases in the volume of regulated wastes or personal and confidential information collected from customers, the ability to implement our new ERP system, disruptions in or attacks on information technology systems, charges related to portfolio optimization or the failure of divestitures to achieve the desired results, failure to consummate transactions with respect to non-core businesses, the obligations to service substantial indebtedness and comply with the covenants and restrictions contained in our credit agreements and notes, a downgrade in our credit rating resulting in an increase in interest expense, political, economic, inflationary and other risks related to our foreign operations, the outcome of pending or future litigation or investigations including with respect to the U.S. Foreign Corrupt Practices Act, weather and environmental changes related to climate change, requirements of customers and investors for net carbon zero emissions strategies, and the introduction of regulations for greenhouse gases, which could negatively affect our costs to operate, failure to maintain an effective system of internal control over financial reporting, delays or failures in implementing remediation efforts with respect to potential future material weaknesses, as well as other factors described in our filings with the U.S. Securities and Exchange Commission, including our Annual Report on Form 10-K and subsequent Quarterly Reports on Forms 10-Q. As a result, past financial performance should not be considered a reliable indicator of future performance, and investors should not use historical trends to anticipate future results or trends. We disclaim any obligation to update or revise any forward-looking or other statements contained herein other than in accordance with legal and regulatory obligations.

FOR FURTHER INFORMATION CONTACT:
Stericycle Investor Relations 847-607-2012

STERICYCLE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)

STATISTICS - U.S. GAAP AND NON-GAAP ADJUSTED FINANCIAL MEASURES
(Unaudited)

STERICYCLE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

STERICYCLE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Table 1–A: REVENUES CHANGES BY SERVICE AND SEGMENT (UNAUDITED) –
THREE MONTHS ENDED MARCH 31, 2021 AND 2020

Table 1–B: COMPONENTS OF REVENUES CHANGE IN DOLLARS (UNAUDITED)

RECONCILIATION OF U.S. GAAP TO NON-GAAP FINANCIAL MEASURES (UNAUDITED)

Table 2-A: THREE MONTHS ENDED MARCH 31, 2021 and 2020

The following table provides adjustments to Income (Loss) from Operations categorized as follows:

Non-cash related adjustments include the following:

U.S. GAAP results for the three months ended March 31, 2021 and 2020 include:

⁽¹⁾ ERP Implementation: In 2021, Selling, General, and Administrative expenses (“SG&A”) includes $17.9 million of expenses related to our ERP implementation, of which $11.6 million related to consulting and professional fees, $3.1 million related to software usage/maintenance fees, $1.9 million related to internal costs, and $1.3 million of other related costs. In 2020, SG&A includes $18.0 million of expenses related to our ERP implementation, of which $10.4 million related to consulting and professional fees, $2.6 million related to software usage/maintenance fees, $3.6 million related to internal costs, and $1.4 million of other related costs.

⁽²⁾ Intangible Amortization: Intangible amortization expense from acquisitions.

⁽³⁾ Divestitures (including Divestiture (Gains) Losses, net): 2020 includes a $58.3 million impairment related to the divestiture of the Domestic Environmental Solutions business (inclusive of $10.8 million of related deal costs). SG&A in 2021 and 2020 includes consulting and professional fees associated with our Portfolio Optimization/Rationalization efforts of $1.2 million and $3.0 million, respectively.

⁽⁴⁾ Litigation, Settlements, and Regulatory Compliance: In 2021 and 2020, SG&A includes $2.0 million and $4.4 million, respectively, of primarily consulting and professional fees for certain litigation, settlement and regulatory compliance matters.

⁽⁵⁾ Asset Impairments: In 2020, SG&A includes $4.0 million of non-cash impairment charges related to intangible assets as a result of discontinuation of a certain service line in North America.

⁽⁶⁾ Other: In 2020, SG&A includes $4.6 million, of consulting and professional fees related to internal control remediation activities. Other expense, net includes a foreign exchange loss of $0.4 million related to the re-measurement of net monetary assets held in Argentina prior to divestiture in August of 2020, as a result of its designation as a highly inflationary economy.

⁽⁷⁾ U.S. CARES Act: In 2020, we recognized a $39.4 million tax benefit related to the U.S. CARES Act associated with our ability to carryback net operating losses to prior years that had higher tax rates.

^(a) The Non-GAAP financial measures contained in this press release are reconciled to the most comparable measures calculated in accordance with U.S. GAAP in the schedules attached to this release.  Management believes the Non-GAAP financial measures are useful measures of Stericycle’s performance because they provide additional information about Stericycle’s operations and exclude certain adjusting items, allowing better evaluation of underlying business performance and better period-to-period comparability.  The Non-GAAP financial measures contained in this press release may not be calculated in the same manner as certain other Non-GAAP financial measures used solely to evaluate management’s performance for incentive compensation purposes. All Non-GAAP financial measures are intended to supplement the applicable U.S. GAAP measures and should not be considered in isolation from, or a replacement for, financial measures prepared in accordance with U.S. GAAP and may not be comparable to or calculated in the same manner as Non-GAAP financial measures published by other companies.

^(b) Three months ended March 31, 2021 and 2020 exclude depreciation charges of $0.3 million and $0.6 million, respectively, that are included in ERP Implementation.

^(c) Adjusted Earnings Before Interest, Tax, Depreciation and Amortization (Adjusted EBITDA) is Income (loss) from operations excluding certain adjusting items, Depreciation and Intangible Amortization.

^(d) Under the Net Income (Loss) Attributable to Common Shareholders column, adjustments are shown net of tax in aggregate of $12.1 million and $57.3 million for the three months ended March 31, 2021 and 2020, respectively, based on applying the statutory tax rate for the jurisdictions in which the adjustment occurred or, by adjusting the tax effect to consider the impact of applying an annual effective tax rate on an interim basis. For purposes of reconciling adjusted diluted earnings per share with respect to taxes period-over-period, the company utilizes a “rate approach” to highlight the impact of the adjusted tax rate. It is computed by multiplying the prior period adjusted rate by the current period adjusted income before taxes to determine the expected tax expense. Such expected tax expense is then compared to actual tax expense. Expected tax in excess of actual tax variance is favorable; actual tax in excess of expected tax variance is unfavorable. The variance divided by diluted shares outstanding at the end of the period yields the impact on earnings per share. Management believes the use of this measure best aids in explaining the impact of a changing tax rate.