Frank ten Brink - Chief Financial Officer, Chief Accounting officer and Executive Vice President of Finance Richard Kogler - Chief Operating Officer and Executive Vice President Mark Miller - Chairman, Chief Executive Officer and President Laura Murphy - VP, Corporate Finance

Ryan Daniels - William Blair & Company L.L.C. Albert Kaschalk - Wedbush Securities Inc. Akil Marsh - Atlantic Equities LLP Scott Schneeberger - Oppenheimer & Co. Inc. Richard Close - Jefferies & Company David Manthey - Robert W. Baird & Co. Incorporated

Good afternoon. My name is Kyle, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the second quarter earnings conference call. [Operator Instructions] Thank you. Ms. Murphy, you may now begin your conference.

Welcome to Stericycle's quarterly conference call. Joining me on today's call will be Frank ten Brink, CFO; Rich Kogler, COO; and Mark Miller, Chairman and CEO. I will now read the Safe Harbor statement. Statements 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 10-K, 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 Frank.

Thanks, Laura. The results for the second quarter are as follows. Revenues were $410.4 million, up 18% from $347.7 million in the Q2 of '10. Domestic revenues were $300.7 million. Domestic regulated waste and compliance services revenue were $273.8 million. Returns and recall revenues were $26.9 million in the quarter. International revenues were $109.7 million, including a favorable exchange impact of $7.4 million. Domestic internal growth, excluding returns management, was up 8%, consisting of Small Quantity, up 9%; and Large Quantity customers, up 6%. International internal growth adjusted for exchange was up 4%. Acquisitions less than 12-month old contributed $34.9 million to the growth in the quarter, and gross profit was $186.7 million or 45.5% of revenues. SG&A expense was $78 million or 19% of revenues, and net interest expense was $12.9 million. And just a comment, in May, we repaid the remaining balance of the $76.9 million of our 2009 3-year term loan and accelerated the noncash unamortized term loan fees of $1.2 million. Net income attributable to Stericycle is $55.5 million or $0.63 per share on an as reported basis and $0.69 adjusted for acquisition expenses and the term loan fees. Now the balance sheet. At the end of the quarter, the revolver borrowings were approximately $387 million, and the unused portion of the revolver debt at the end of the quarter was approximately $297 million. We purchased 50,675 shares of common stock in the open market in an amount of $4.3 million in the quarter. Cumulatively, we've purchased approximately 14.7 million shares and still have authorization to purchase an additional 5.8 million shares. The CapEx in the quarter was $12 million, and our DSO was 53 days. The cash provided from operations year-to-date was $119.7 million. And I will now turn it over to Rich.

Thanks, Frank. At the end of the quarter, we had approximately 508,000 accounts of which over 493,600 were Small and the remainder were Large. We continue to see strong worldwide growth driven by new account acquisition, the adoption of our expanding portfolio of service offerings. Today, only 20% of our LQ and 30% of our SQ customers are using more than one of our multiple services. And the remaining pool of customers provides a long runway for future growth. We remain very excited about this opportunity because adoption of multiple services has the potential to more than double or triple the revenues per customer. We want to thank each number of our worldwide team for their solid performance and their continued commitment to our customers and shareholders. I'll turn it over to Mark.

Thanks, Rich. I'd now like to provide insight in our current outlook for 2011, and please keep in mind that these are forward-looking statements. During the second quarter, we completed 11 acquisitions; 7 domestic and 4 international, and this includes the Healthcare Waste Solutions or HWS acquisition, which we discussed in our last call. Revenues from acquisitions not previously announced were $1.2 million in the quarter and annualized were approximately $9.8 million. Now keep in mind that our guidance does not include future acquisitions, divestitures and acquisition-related expenses. We believe analyst EPS estimates after adjusting for the Healthcare Waste Solutions integration expenses will be in the range of $2.78 per share to $2.80 per share, which we are comfortable with. We believe analyst revenue estimates will be in the range of $1.62 billion to $1.65 billion depending on assumptions for growth in foreign exchange. Believe analysts will have estimates for free cash flow between $284 million and $288 million and an as reported free cash flow of $261 million to $265 million. CapEx is anticipated between $45 million and $55 million. In closing, very excited about the tremendous growth opportunities in 2011 and beyond. We thank you for your time. And operator, we'll now go to the Q&A session.

[Operator Instructions] Your first question comes from the line of a participant who did not leave their information. Please state your first and last name. Ryan Daniels - William Blair & Company L.L.C.: It's Ryan Daniels from William Blair. Let me ask quickly on the guidance. I know you were previously at $2.79 to $2.82, but we're pretty clear that that did not include the HWS integration expenses. Can you give us a feel for what that impact is so we can kind of make an apples-to-apples comparison to guidance?

Yes. The acquisitions that we did and the integration expenses were roughly about $0.02. And so on the bottom end, it's only came down $0.01, $2.79 to $2.78, and on the top end, $2.82 to $2.80. Ryan Daniels - William Blair & Company L.L.C.: Okay. So effectively the same or a little higher on the bottom line. That's helpful. And then, Frank, can you give us a little more color on the gross margins? I know we anticipated they were going to be down given the Healthcare Waste Solutions coming into the revenue stream. But I think in the past, you've helped us as with our models, talking about the fuel, the FX, the mix shift and acquisitions in the multicore business was.

Yes. So in the quarter Q1, we ended at 45.8%. As we discussed in the first quarter at our conference call, the Healthcare Waste Solutions impacted us by 50 basis points down. The foreign exchange and kind of the higher, slightly higher, revenues and RMS kind of mix was about 9 to 10 basis points. And then the remainder of the business did about 29 to 30 bps up on the business. And so if you now look forward, we anticipate that there's not a lot of impact in Q3 versus Q2 from acquisitions. So we anticipate kind of a 20, 30 basis points improvement, kind of excluding new acquisitions and foreign exchange in the quarters to come. Ryan Daniels - William Blair & Company L.L.C.: Okay, great. And then last question, I'll hop off. Just in regards to international, I know it was a bit weaker than the run rate coming in at 4%. Part of that's probably a really tough comp. I think you're at 9.4% in the year ago period. Is there anything else there beside the tough comp to seeing any weakness over in Europe or maybe in Japan post the disaster there?

Yes, Ryan, this is Rich. I'll address that. Actually, it's really the impact just comes in the U.K. from 2 areas. One is, we lost a regional LQG contract that was primarily an incineration contract. When it came up for bid, we bidded to improve the margins and we were not able to keep it. So you'll see some effect from that in the next couple of quarters. And then the other thing about the U.K. is, we lost effectively 2 collection days because of the additional holidays they had recently. Otherwise, the remainder of the business is doing very well. No problems in any other areas. And our guidance for the year will stay at a 5% to 7% growth. Ryan Daniels - William Blair & Company L.L.C.: Okay. Do you know the impact of that 2 collection day loss, the kind of anomaly there?

It's probably about somewhere around $1 million. Ryan Daniels - William Blair & Company L.L.C.: Okay, perfect. And was the big LQ contract even profitable for you, guys?

Well, it was incinerate only in the net market. Incineration capacity is very tight. We're obviously looking at our SQG business expanding. We're looking at other more profitable contracts. So for us it was a decision about either getting the right margin or moving away from it. Like the U.S., you'll see that we'll have a disciplined approach in the U.K. and other international markets through LQG. We need to get to the right margin level or we need to move on.

Your next question comes from Richard Close from Avalon. Richard Close - Jefferies & Company: Yes, it's Richard Close, Avondale Partners here. Just curious if you could talk a little bit about your acquisition pipelines. I guess you made an acquisition with a natural base company here and NotifyMD back in the spring. And can you talk about any other service areas that might make sense for you, guys, to expand into?

Yes, the acquisition pool, even though we did obviously the HWS transaction in the quarter, which was about $45 million in revenues is still over $100 million worldwide. And these are companies that we actively talk to. It's not a wish list. Your other part on the patient communication Notify, it was a platform acquisition for us. It's kind of a new area for existing customers. It is a service that services both our Small and Large customers. And again, what we like in that business, the relationship is very long term and contractual, so very similar to what we have elsewhere. And so it's kind of a start for us to add additional services with our customers. Richard Close - Jefferies & Company: Okay, and then when we think about the international opportunity, I believe you talked a little bit about expanding into other countries. For some reason, I want to say Brazil was near the top of your list. If you could talk a little bit about other geographic areas that could prove fruitful for you, guys, in the short term.

Yes. The countries and the areas that we're excited about obviously are, first of all, all the countries we're in. We did an acquisition this quarter in Romania, one in Canada, one in Argentina and one in Brazil. So nicely spread, and that continues to build density in those geographies and in those areas. If you look at new geographies, Brazil, we did enter last year, but newer ones could be Northern Europe, could be southern Europe, Spain, for instance, are areas. And then if you skip over to the South America, I mean, obviously, we're in all the major countries. We'll continue to look in Japan where we just have entered to continue to look for acquisitions. Those are kind of our main focus geographies.

Your next question comes from Akil Marsh from Atlantic Equities. Akil Marsh - Atlantic Equities LLP: Could you touch on how you're seeing the uptick rates on some of your premium offerings, in particular pharma waste?

Sure. I'll be glad to kind of speak to it. I mean, as you know, we don't give specific detail about quantities, but I can tell you that the program continues to have wide acceptance with our Large customers. The acceptance that we're kind of seeing right now is similar to what we saw with Bio Systems, which is once we get into all the markets, then our sales people become more adept at the sale. The customers become more aware of it from referrals. And I can say that we've had a couple of our strongest months here recently. We still believe that it's about a $200 million opportunity for us, and we have obviously a healthy pipeline of orders right now. Akil Marsh - Atlantic Equities LLP: And just one follow-up. On the communication/NotifyMD platform, I realized it's early days, but could you give us a sense of how large of an opportunity that could potentially be?

I think if you look for our existing customer base, if they would add all the services, we can grow the relationship almost two-fold. So 100% improved in revenues with that relationship.

Your next question comes from Al Kaschalk from Wedbush. Albert Kaschalk - Wedbush Securities Inc.: On the waste, the pharma waste side, $200 million, under 10% penetrated on that, or what's the -- can you square up a little bit on your progress?

That's not a bad assumption. Albert Kaschalk - Wedbush Securities Inc.: Okay. Second, fuel cost in the quarter. And what type of headwinds are you looking at or not looking at?

I think the total energy for the quarter was 5.7% of revenues. So very -- the same as prior quarter. It was 5.7% the prior quarter. There's no specific headwinds that we see. I mean, it keeps going up and down a little bit, but it's been fairly stable. Albert Kaschalk - Wedbush Securities Inc.: And is there -- I obviously cannot recall, but is there a hedging program there? Or how do you view that, Frank, going forward?

We do not hedge, and what we do obviously is, if we see these increases, we do have the ability to pass to our customers. Albert Kaschalk - Wedbush Securities Inc.: Okay. If I take a look at the FX and the returns business considered, and I looked at the growth rate, it looks sub 6% in my math, what seems a little bit lower than you have done historically. And so that's, I guess, a question at when you look at pricing for your customer base, have you seen some recent push back? Or are you experiencing any type of headwind on being able to get price given the economy, just given the market, et cetera?

Yes, I think it gets -- starting to get impacted with the returns management, obviously the growth rate. But we're right in line with our guidance that we set for Small Quantities, 8% to 10%, Large. And I think what you do see this quarter, as we've said, we're a little bit lower than the guidance we gave for international, which probably broader and then you have, a very small growth rate because we did $25.4 million second quarter of last year on the returns management; this year, $26.9 million, which again gets very impacted by other large recalls in it or not. We obviously have 2 very strong quarters in Q4 and Q1. Albert Kaschalk - Wedbush Securities Inc.: And just a nice segue, in terms of the guidance, what have you -- are you adjusting anything on the returns business given the $26.7 million you did in the quarter?

Yes, the guidance for the year is $100 million to $110 million for the returns and recall business.

Your next question comes from Scott Schneeberger from Oppenheimer. Scott Schneeberger - Oppenheimer & Co. Inc.: Just following up on that last one. I'm showing in my model guidance for RMS as of last quarter's call was 95 to 105. Is that correct? So we're going up $5 million on the low and the high end on RMS?

That is correct. Scott Schneeberger - Oppenheimer & Co. Inc.: Just if we go a little bit more detailed on acquisitions, the 4 international, I caught each country, but is that all core and med waste? Anything unique in those?

The international, yes, it's all med waste. On the 6 transactions domestically, we had 5 in the regulated waste and one in the patient communication. Scott Schneeberger - Oppenheimer & Co. Inc.: And then with regard to NotifyMD, you cited the size of the opportunity on a prior question. How quickly do you think that, that can be expanded? When should we start to see impact from that initiative?

Again, we're getting to know the marketplace. We're still testing things out, as you know. Stericycle is a marathon, but it's one that we try to learn what the business is about. I think that's going well. It helps the customers with inbound and outbound communication between a healthcare provider and their patients. And it's too early, but we'll give more guidance in '12 and beyond.

Your next question comes from the line of David Manthey from Baird. David Manthey - Robert W. Baird & Co. Incorporated: First question, on the 2 fewer days in the -- you mentioned in the U.K., is that year-over-year there's 2 fewer days?

It's really because of the wedding activities in the U.K. that the country shutdown and Easter, and all those combined Easter was obviously fell slightly different, but it's -- in total, it was about 2 days year-over-year and quarter-over-quarter. David Manthey - Robert W. Baird & Co. Incorporated: Got it, okay. And then second question, would you go on to talk about the relative profitability or, say, more specifically, the quantitative profitability of a one-service customer versus a customer that uses 2 or 3 of your services?

It depends a little bit what we're adding. So I think we've historically talked with everyone that if we add Steri-Safe, that can improve profitability with the customer. If we would add the Sharps Management, that's at a level similar to what the average is. The pharmaceutical waste is a slightly better margin and obviously improves because we also utilize services. Patient communication is promising and looks good. And then overall internationally, where we have the clinical services, which is kind of a similar package than our Steri-Safe, domestically, that one has better margins than the average for that sector. David Manthey - Robert W. Baird & Co. Incorporated: Okay. And you're speaking specifically about gross margin?

That is correct. David Manthey - Robert W. Baird & Co. Incorporated: Okay. So I would imagine just having a customer relationship, the contribution to EBIT or EBITDA would be even higher, right?

Yes. I mean, there's obviously investing that we do to stimulate these programs. Or earlier on, there's a little higher SG&A upfront for things like clinical services or like the development of the pharmaceutical waste program. But yes, we feel that that gets recouped fairly fast.

There are no further questions at this time.

Thanks, everyone, and we're looking forward to the next quarter.

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