STERICYCLE, INC. 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, precautions we have taken to safeguard the
health and safety of our employees which may make certain of our business
processes less efficient, measures taken by governmental authorities to prevent
the spread of COVID-19 which could disrupt our supply chain, result in
disruptions in transportation services and restrictions on the ability of our
employees 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 employees as a result
of certain cost-saving measures, an economic slowdown in the
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personal and confidential information collected from customers, the ability to
implement our ERP system, charges related to portfolio rationalization 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
The following discussion of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and related notes in Part I, Item 1. Financial Statements (Unaudited) of this Quarterly Report and our Consolidated Financial Statements and related notes thereto and Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations included in our 2019 Form 10-K.
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Overview
We are a
Key business highlights for the three months ended
• The Company delivered organic growth in the quarter, the first time since
2017, as it continues to drive results from its quality of revenue
initiatives. Growth in RWCS and SID, excluding the impact of SOP pricing,
was 3.3% and 1.4%, respectively.
• Cash flow from operations for the first quarter was $82.1 million ,
compared to $36.2 million for the first quarter of 2019.
• Stericycle completed the divestiture of the Domestic Environmental
Solutions business on April 6, 2020 , for approximately $462.5 million in
cash, achieving a significant milestone in its portfolio rationalization
and debt reduction efforts.
• Stericycle's regulated medical waste transportation and treatment
facilities are federally designated as essential facilities and remain
open to provide safe, compliant disposal of medical waste to healthcare
customers.
COVID-19
In
The Company's COVID-19 response has included efforts to protect the health and
well-being of our workforce and our customers. We worked proactively with the
The Company is taking a leadership position related to COVID-19 to support our customers and provide industry expertise regarding the effective management of COVID-19 waste.
The impact of COVID-19 across our revenue service categories is as follows:
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Revenue COVID-19 Economic Impact Service Services Offered Considerations
Category
•Medical waste management services RWCS's transportation and
(including reusable sharps disposal treatment facilities have
management services) remained open to provide safe
•Pharmaceutical waste services and compliant disposal of
Regulated •Compliance programs under the medical waste. RWCS may be
Waste and Steri-Safe®, Clinical Services, impacted due to the
Compliance First Practice Management, postponement of preventative
Services SeguriMed, and EnviroAssure brand care or elective surgeries and
names the temporary closure of
•Retail and Healthcare - Hazardous smaller, independent
waste and compliance solutions healthcare practices.
SID started to see the impactSecure •Secure information destruction of COVID-19 toward the end of
Information (including document and hard drive the first quarter of 2020 and
Destruction destruction services) is impacted by the closure of
Services customers' sites as a result
of shelter-in-place orders.
M&I's results for the quarter
showed modest growth and did
not experience a significant
Manufacturing impact related to COVID-19.
and •Manufacturing and Industrial See Divestiture section below,
Industrial hazardous waste management services as the U.S. revenue in this
Services service category will be
impacted by the Domestic
Environmental Solutions
Transaction on April 6, 2020.
•Appointment reminders, secure
messaging, event registration, and There is lower demand for
other communications specifically hospital scheduling servicesCommunication for hospitals and integrated due to the focus on COVID-19
and delivery networks. patients.
Related •Regulated recall and returns
Services management communication, logistics, Expert Solutions may be
and data management services for impacted by lower volumes in
expired, withdrawn or recalled recall events.
products
We further considered the COVID-19 impact across our five key initiatives.
1. Portfolio rationalization - We will continue to evaluate our portfolio of
services and service line-by-service line approach to assess long-term
potential and identify potential business candidates that are not
vertically integrated, are not essential to our RWCS and SID services,
and/or present the opportunity to reduce debt; however, the impact of
COVID-19 on the economy may limit our ability to close future
transactions.
2. Quality of revenue - See discussion above regarding COVID-19 impacts on
our revenue service categories. COVID-19 may impact our customers' ability
to operate and make timely payments and certain customers may be
challenged to continue after all non-essential businesses are re-opened
globally. We will continue to monitory customer specific risks and cash
collection efforts.
3. Operational cost efficiencies - The Company's efforts over the last twelve
months to build performance dashboards, centralize decision-making and
standardize operations proved effective to help quickly implement
necessary changes to ensure continuity of service to customers while
tightly managing costs. We instituted central oversight and controls to
quickly drive down costs including restricted travel, lower routine
operational purchasing, lower spending on consultants, fleet reductions,
and the renegotiation of key sourcing contracts and leases. We deferred
capital expenditures while supporting critical maintenance for our
facilities. Finally, we managed our
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staff expense using multiple levers, including a freeze on hiring, merit
increase deferrals, reduction in overtime, and by furloughing
approximately 2,300 team members, a large percentage of which were within
Secure Information Destruction.
4. Debt reduction and leverage improvement - We have reduced debt by
approximately $115 million during the fourth quarter 2019 through the
first quarter 2020. We applied approximately $430 million in net proceeds
from the divestiture of the Domestic Environmental Solutions business to
the repayment of debt during April 2020 . With the divestiture proceeds and
our continued focus on managing cash, we anticipate we will maintain a
debt leverage ratio below our debt covenant of 4.75 times, effective with
the sale of the Domestic Environmental Solutions business. We have
approximately $450 million currently available in line of credit, which
matures in November 2022 .
5. ERP implementation - We entered 2020 with a schedule to begin the staged
deployment of the commercial, operational and financial systems in the
U.S. and Canada . However, guided by our commitment to protect what
matters, we concluded that the health and travel risks associated with a
field deployment in the COVID-19 environment were substantial, and given
our priority on serving our customers and keeping our team members safe,
we made the decision to defer the ERP deployment. We have flexibility and
will re-assess the deployment timing as conditions improve.
The following table identifies key strategies and other significant matters impacting our business and how they are classified in the Condensed Consolidated Statements of (Loss) Income:
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