Stericycle(SRCL) - 2024 Q1 - Quarterly Results

First Quarter 2024 Financial Highlights This section provides an overview of Stericycle's financial performance and key business achievements for the first quarter of 2024 Overview of First Quarter 2024 Results In the first quarter of 2024, Stericycle reported revenues of $664.9 million, a 2.8% decrease year-over-year, with net income increasing to $13.1 million and adjusted diluted EPS improving to $0.57, despite a negative free cash flow of $97.6 million Q1 2024 Key Financial Metrics (GAAP vs. Non-GAAP) | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Revenues | $664.9 M | $684.3 M | -2.8% | | Income from Operations | $38.9 M | $40.0 M | -2.8% | | Net Income | $13.1 M | $11.2 M | +16.8% | | Diluted EPS (GAAP) | $0.14 | $0.12 | +16.7% | | Adjusted Income from Operations | $90.5 M | $84.7 M | +6.8% | | Adjusted Diluted EPS (Non-GAAP) | $0.57 | $0.49 | +16.3% | | Cash from Operations | ($54.5 M) | $49.5 M | -210.1% | | Free Cash Flow | ($97.6 M) | $13.1 M | -845.0% | - Management stated they are pleased with Q1 results, highlighting improvements in adjusted EBITDA and adjusted EPS, and confirmed they are on track to achieve full-year 2024 guidance[5] Key Business Highlights The company highlighted several key achievements for the quarter, including a $0.08 year-over-year increase in adjusted diluted EPS to $0.57 and a $4.9 million rise in adjusted EBITDA to $116.2 million, alongside 2.1% organic revenue growth in the core RWCS segment and completion of a workforce reduction - Adjusted diluted EPS improved by $0.08 to $0.57 compared to Q1 2023[6] - Adjusted EBITDA expanded by $4.9 million to $116.2 million year-over-year[6] - Regulated Waste and Compliance Services (RWCS) organic revenues grew 2.1% compared to Q1 2023[6] - The company completed its workforce reduction in Q1 2024 and anticipates realizing an estimated $40-$45 million of in-year cost savings[6] Detailed Financial Performance This section provides a detailed analysis of the company's financial performance under both U.S. GAAP and Non-GAAP measures U.S. GAAP Results First quarter GAAP revenues decreased to $664.9 million, primarily due to $17.7 million from divestitures, partially offset by favorable foreign exchange rates, while net income increased by $1.9 million largely due to reduced interest expense, despite a significant $104.0 million decrease in cash flow from operations - The decrease in Q1 revenue was primarily driven by divestitures ($17.7 million), partially offset by favorable foreign exchange rates ($2.8 million); organically, RWCS grew by $9.0 million while SID declined by $14.4 million[9] - The $1.1 million decrease in income from operations was mainly due to lower SID commodity-indexed revenues and higher adjusting items, which were mostly offset by cost savings of $14.8 million[9] - Cash from operations decreased by $104.0 million year-over-year, mainly due to a $63.1 million increase in accounts receivable caused by billing and collection delays from the new U.S. RWCS ERP system[9] Non-GAAP Results On a non-GAAP basis, organic revenues decreased by 0.8%, with RWCS growth offset by SID decline, while adjusted income from operations increased by 120 basis points as a percentage of revenue, leading to a rise in adjusted diluted EPS to $0.57, despite a significant free cash flow outflow of $97.6 million - Overall organic revenues decreased 0.8%; RWCS organic revenues increased 2.1%, while SID organic revenues decreased 6.3%, mainly due to an 8.6% decline in commodity-indexed revenues[9] - Adjusted income from operations as a percentage of revenues increased by 120 basis points, primarily due to cost savings (230 bps) and divesting lower-margin businesses (40 bps), partially offset by lower SID commodity-indexed revenues (180 bps)[9] - The $0.08 increase in adjusted diluted EPS was mainly driven by cost savings (+$0.11) and lower taxes/interest (+$0.04), partially offset by lower SID commodity revenues (-$0.09) and higher bad debt expense (-$0.03)[9] Consolidated Financial Statements This section presents the company's condensed consolidated statements of income, balance sheets, and cash flows Condensed Consolidated Statements of Income For the first quarter of 2024, Stericycle's revenues were $664.9 million, a 2.8% decrease from $684.3 million in Q1 2023, with gross profit seeing a slight decline to $254.9 million, but net income attributable to common shareholders increased by 17.0% to $13.1 million, resulting in diluted EPS of $0.14 Q1 2024 vs Q1 2023 Income Statement Highlights (in millions) | Line Item | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $664.9 | $684.3 | (2.8)% | | Gross Profit | $254.9 | $261.0 | (2.3)% | | Income from Operations | $38.9 | $40.0 | (2.8)% | | Net Income Attributable to Stericycle, Inc. | $13.1 | $11.2 | 17.0% | | Diluted EPS | $0.14 | $0.12 | 16.7% | Condensed Consolidated Balance Sheets As of March 31, 2024, Stericycle's total assets stood at $5.44 billion, a slight increase from $5.35 billion at year-end 2023, driven by higher accounts receivable and property, plant, and equipment, while total liabilities also rose to $2.91 billion from $2.83 billion, primarily due to an increase in long-term debt Balance Sheet Summary (in millions) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $728.8 | $671.5 | | Total Assets | $5,435.7 | $5,352.6 | | Total Current Liabilities | $654.9 | $718.0 | | Long-term debt, net | $1,398.6 | $1,277.8 | | Total Liabilities | $2,912.6 | $2,829.7 | | Total Equity | $2,523.1 | $2,522.9 | Condensed Consolidated Statements of Cash Flows For the first quarter of 2024, the company reported a net cash outflow from operating activities of $54.5 million, a significant reversal from the $49.5 million inflow in the prior-year period, primarily due to a $64.4 million increase in accounts receivable, resulting in a free cash flow outflow of $97.6 million for the quarter Q1 2024 vs Q1 2023 Cash Flow Highlights (in millions) | Cash Flow Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash from operating activities | ($54.5) | $49.5 | | Net cash from investing activities | ($56.8) | ($34.5) | | Net cash from financing activities | $109.3 | ($11.6) | | Net change in cash and cash equivalents | ($4.3) | $4.0 | | Free Cash Flow | ($97.6) | $13.1 | Segment and Revenue Analysis This section analyzes the company's revenue performance across different services and geographical segments Revenue by Service and Segment Total revenue declined 2.8% to $664.9 million, with an organic revenue decrease of 0.8%, as 2.1% organic growth in Regulated Waste and Compliance Services (RWCS) was offset by a 6.3% organic decline in Secure Information Destruction (SID) services, while the International segment's revenue dropped 13.7% due to divestitures Q1 2024 Revenue by Service (in millions) | Service | Revenue | Change (%) | Organic Growth (%) | | :--- | :--- | :--- | :--- | | Regulated Waste and Compliance Services | $447.8 | (0.8)% | 2.1% | | Secure Information Destruction Services | $217.1 | (6.8)% | (6.3)% | | Total Revenues | $664.9 | (2.8)% | (0.8)% | Q1 2024 Revenue by Segment (in millions) | Segment | Revenue | Change (%) | Organic Growth (%) | | :--- | :--- | :--- | :--- | | North America | $569.2 | (0.7)% | (0.9)% | | International | $95.7 | (13.7)% | (0.2)% | - The total revenue decrease of $19.4 million was composed of a $5.4 million organic decline, a $17.7 million impact from divestitures, partially offset by a $0.9 million contribution from an acquisition and a $2.8 million positive foreign exchange effect[25] Reconciliation of U.S. GAAP to Non-GAAP Financial Measures This section details the reconciliation of U.S. GAAP financial measures to non-GAAP metrics, highlighting key adjustments Non-GAAP Financial Metrics Summary In Q1 2024, Stericycle's adjusted (Non-GAAP) financial metrics showed operational improvement despite lower revenues, with adjusted income from operations growing to $90.5 million and adjusted EBITDA increasing to $116.2 million, leading to a 16.3% increase in adjusted diluted EPS to $0.57 Q1 2024 vs Q1 2023 Non-GAAP Metrics (in millions, except per share data) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Adjusted Gross Profit | $257.1 | $261.0 | | Adjusted Income from Operations | $90.5 | $84.7 | | Adjusted EBITDA | $116.2 | $111.3 | | Adjusted Net Income | $53.1 | $45.5 | | Adjusted Diluted EPS | $0.57 | $0.49 | Reconciliation Details and Adjustments To arrive at its non-GAAP figures for Q1 2024, Stericycle made total adjustments of $51.6 million to its GAAP income from operations, with significant adjustments for intangible amortization, litigation and regulatory compliance, operational optimization, and ERP and system modernization, reconciling the GAAP income from operations of $38.9 million to the adjusted figure of $90.5 million Reconciliation from GAAP Income from Operations to Adjusted EBITDA Q1 2024 (in millions) | Description | Amount | | :--- | :--- | | U.S. GAAP Income from Operations | $38.9 | | ERP and System Modernization | $4.4 | | Intangible Amortization | $27.8 | | Operational Optimization | $5.6 | | Portfolio Optimization | $1.6 | | Litigation, Settlements and Regulatory Compliance | $12.2 | | Adjusted Income from Operations | $90.5 | | Depreciation | $25.7 | | Adjusted EBITDA | $116.2 | - Total adjustments to income from operations increased from $44.7 million in Q1 2023 to $51.6 million in Q1 2024, with cash-related adjustments more than doubling to $22.9 million[31] Explanation of Adjustments The adjustments primarily consist of several key categories, including ERP and System Modernization, Intangible Amortization, Operational Optimization (severance costs), Portfolio Optimization (strategic business reviews and divestiture costs), and Litigation, Settlements, and Regulatory Compliance (professional fees and state tax provisions) - Operational Optimization adjustments in Q1 2024 amounted to $5.6 million, primarily related to severance costs associated with headcount reductions[28][31] - Litigation, Settlements, and Regulatory Compliance adjustments in Q1 2024 totaled $12.2 million, which included $9.3 million in consulting/professional fees (including FCPA monitor fees) and a $2.9 million provision for multi-year state unemployment tax matters[28][31] - Portfolio Optimization adjustments in Q1 2023 included a $5.0 million loss related to the divestiture of the company's International container manufacturing operations[29][31]