Sean McMillan - Vice President, Corporate Finance Charles Alutto - President and Chief Executive Officer Daniel Ginnetti - Executive Vice President and Chief Financial Officer Brent Arnold - Executive Vice President and Chief Operating Officer

Nick Hiller - William Blair Gunnar Hansen - RBC Kevin Steinke - Barrington Research Shlomo Rosenbaum - Stifel Scott Schneeberger - Oppenheimer David Manthey - Robert W. Baird Al Kaschalk - Wedbush Securities Isaac Ro - Goldman Sachs Erin Wilson - Bank of America Adam Baumgarten - Macquarie Capital Sean Dodge - Jefferies Richard Close - Avondale Partners Scott Levine - Imperial Capital

Good afternoon. My name is Amy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Stericycle first quarter earnings call. [Operator Instructions] Thank you. Sean McMillan, Vice President, Corporate Finance, you may begin your conference.

Welcome to Stericycle's first quarter 2015 conference call. 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 Charlie Alutto, CEO.

We're pleased to report our first quarter results. We feel confident about our 2015 guidance, as all lines of business remain on track, despite headwinds from extreme weather in the quarter and the continued pressure from foreign exchange. Joining me on today's call to review our first quarter results will be Dan Ginnetti, CFO; and Brent Arnold, COO. I'll now turn it over to Dan.

Thanks, Charlie. The results for the first quarter are as follows. Revenues were $663.3 million, up 16.4% from $570 million in Q1 2014. Internal growth, excluding returns and recall revenues, was up 6.8%. Domestic revenues were $472.2 million, of which $452.3 million was domestic regulated waste and compliance services and $20 million was recalls and returns. Domestic internal growth, excluding recalls and returns revenues, was up 6.4%, consisting of SQ up 8% and LQ up 5%. International revenues were $191.1 million. And internal growth, adjusted for unfavorable foreign exchange impact of $23.1 million, was up 8%. Acquisitions contributed $86.3 million to the growth in the quarter. Gross profit was $281.3 million or 42.4% of revenues. SG&A expense, including amortization, was $128.3 million or 19.3% of revenues. Net interest expense was $18.6 million. Net income attributable to Stericycle was $75.5 million or $0.87 per share on an as-reported basis, and $1.08 adjusted for acquisition-related expenses and other adjusted items. Now for the balance sheet. Our covenant debt to EBITDA ratio was 2.09 at the end of the quarter. The unused portion of the revolver at the end of the quarter was approximately $867 million. In the quarter, we repurchased 100,713 shares of common stock on the open market in an amount of $13.8 million. At the end of the quarter, we have authorization to purchase 4.6 million shares. Our CapEx was $21.4 million. Our DSO was 63 days. Year-to-date, as-reported cash from operations was $132.6 million. When adjusted for recall reimbursement and one-timers, cash from operations was $145.3 million. I will now turn it over to Brent.

Thanks, Dan. Worldwide we continue to use our strong free cash flow to drive our growth through acquisition. In the quarter, we closed 15 acquisitions, four domestic and 11 international. The international acquisitions were three in South Korea, one in Brazil, one in Mexico -- I'm sorry, three in South Korea, two in Brazil, two in Mexico, two in Romania, one in Ireland and one in Spain. Revenues from the 15 acquisitions were $7.5 million in the quarter, and annualized are approximately $42.5 million. Our worldwide acquisition pool remains robust with well over $100 million in annualized revenues in multiple geographies and lines of business. This week marks the one-year anniversary of the PSC Environmental Services acquisition. We are very pleased to report the synergies we discussed in the areas of long-haul transportation, route density and disposal cost has been achieved. The integrated business, which will be branded as, Stericycle Environmental Solution, is positioned for future improvements, investments and growth. On the international front, the team continues to drive strong internal growth. We recently returned from a trip from Latin America, where we reviewed our strategic growth plans, numerous continuous improvement projects and newly acquired businesses. The international team has made significant progress in many areas, and we remain excited about our growth opportunities in all geographies. Looking ahead, we continue to see expanding growth opportunities, as Stericycle provides multiple services to help our customers improve their operations and achieve their goals. As we execute on this strategy, we can more than triple our customer revenues. As we celebrate Earth Day this week, we would like to thank all of our worldwide team members for their continued commitment to helping customers promote health and safeguard the environment. I'll 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. For 2015, we believe analyst EPS estimates will be in the range of $4.64 to $4.69. We believe analyst revenue estimates for 2015 will be in the range of $2.81 billion to $2.86 billion, depending on assumptions for growth and negative impact from foreign exchange rates. We anticipate 2015 internal growth rate 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 in the range of 34.5% to 35%. In closing, we are very pleased with our first quarter 2015 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. Amy, you can now open the Q&A queue.

[Operator Instructions] Your first question comes from the line of Ryan Daniels from William Blair.

This is Nick Hiller in for Ryan Daniels. I was just wondering if you could provide an update on the communication services business. I guess I had a two-fold question. One, how is the 2015 sales pipeline shaping up there? And two, any update on the new IT platform? As I think that's been piloted for some time now, so just curious what benefits you're seeing, and if it's ready for a broader rollout.

I think on the sales pipeline, Nick, obviously right now, Comm Sol, we talked about before is growing at domestic averages. With our new operational improvements that are ongoing and our recently trained sales force, we believe there is upside for that business. We're really excited about the building sales pipeline we see for Communication Solutions. With respect to your question on the platform, if you remember, we talked previously last year about the piloting and ongoing implementation of our infrastructure, how that was going to take place at the end of 2014 and also run through 2015. I'm really excited to report that that is on track. The team is making really good progress on the new systems and platform for the Communication Solutions business.

And a related question. Are the IT improvements here increasing your conviction about the ability to integrate this business more effectively and maybe thus increasing your appetite for acquisitions in that area?

Great follow-on question, Nick. Absolutely. I think its two things. Obviously, the platform -- we're buying a lot of companies that are running on antiquated and outdated systems, they lack scalability. So first benefit we get is running on a system that runs more efficiently is up and running, not running down. So it helps the existing business. We feel it gives a better customer experience to our customers. But in the end, as we get all of those systems aligned, get all the call centers on the same systems, it does make the ability to integrate much easier and hopefully reduces the turnaround time to integrate the Communication Solutions acquisition.

Your next question comes from the line of Gary Bisbee from RBC.

This is Gunnar Hansen in for Gary Bisbee. I just had a quick question. I guess, with regards to the U.S. business, obviously saw some deceleration there, excluding returns and recall. Could you help kind of bridge some of the deceleration there and what gives you confidence to kind of reaccelerate that throughout the year?

Yes, I think you're looking at really the revenue compared to guidance. We were about $13.8 million off of guidance. The majority of that was really due to the extreme weather impact that we had and its impact on seasonality, as well as the lower energy surcharges that we got in Q1. And that was combined about $11.1 million impact. We also had foreign exchange impact in the quarter that was unfavorable by about $3.5 million. The lower recall revenues were really offset by the Q1 acquisitions and improvements in the business, and the net of those was up about $800,000.

And I guess just more broadly speaking, can you guys kind of give an up update on the penetration, I guess, within Steri-Safe, particularly in the SQ customer base?

I think when you look at the growth drivers for our SQ customer base in the U.S., there are several growth drivers that drive our organic internal growth. Steri-Safe is one of them. Communication Solutions, our hazardous waste, our Environmental Solutions business Brent talked about, the recently completed integration of the PSC, really they all contribute. We continue to improve the Steri-Safe offering, which gives us an ability to increase value for our customers and opportunity to also accelerate revenue growth and profitability.

And just lastly, just kind of a housekeeping question. Any particular reason for the lower tax rate in the quarter? I guess, what kind of drove the lower tax rate there?

The tax rate really comes from some really great execution by our tax team on the entity structure and our tax optimization strategies. And so that had great impact within the quarter. That lowered it. Going forward, we don't give guidance to those one-time events, the releases of statute, or other entity structures. So I think for Q2, you were going to look in the range of about 35.5% to 36%; and again for the year, which will include the great work in Q1 of about a 34.5% to 35%.

Your next question comes from the line of Kevin Steinke from Barrington Research.

Congrats on getting the PSC synergies done and in place. Just kind of wondering what's next as you look forward with PSC. Do you expect to continue to see margin improvement there as the business is just further integrated into your overall operations?

Thanks, Kevin. As Brent alluded to on the opening comments, we feel really good about the integration. It is complete. The areas where we said we would get those integration expenses, we hit those. That's a long haul transportation. It's the route density. It's the disposal options that we have, the waste disposal business. Most of our legacy volume that Stericycle had pre-PSC acquisition has been integrated. We remain really excited about the future opportunity, because this new infrastructure gives us a unique ability in the marketplace. And obviously now going forward, we really want to go with the brand, which is Stericycle Environmental Solutions. We talked about on the last call certainly we think there is an opportunity to increase margins. Right now, those margins for ComSol are -- I'm sorry, Environmental Solutions is the mid-20s gross margins and even in the low teens. We think over a longer period of time, we can raise those to the high 20s and low 30s and EBIT margins in Environmental Solutions in the mid-to high teens, so certainly an opportunity there in the long run to improve the margins of that business.

And my second question is just around the gross margin sequentially, the puts and takes there. And I think on your last call, you talked about recall potentially helping that gross margin sequentially, but just wondering how recall impacted gross margin and just the puts and takes sequentially.

Let me take you through the Q-to-Q gross margin roll. We're very pleased with the performance in the quarter. Gross margin expanded 26 basis points Q-over-Q. You'll recall, Q4 gross margin was at 42.15. There was some unfavorability of about 45 basis points from acquisitions and the weather's impact on seasonality. Those were offset by favorable impact of about 44 basis points from foreign exchange and the lower revenues from our lower energy surcharges, or from the surcharges and project work. Our core business improved by about 27 basis points.

Your next question comes from the line of Shlomo Rosenbaum from Stifel.

Can you go over, what was the recalls revenue? From the front pages, kind of the organic growth calculation, it looks like its $16.1 million, but I thought I heard something like $20 million?

I'm going to repeat that a little bit, Shlomo, because you're coming in very low. I think your question was the front page of the press release --

Can you hear me now?

I can hear you much better now, yes.

Sorry. Front page of the press release, it looked like the recalls revenue was $16.1 million in the quarter, and I thought you said it was $20 million. So I'm wondering if I read something wrong or heard something wrong.

No, you got it right. The actual number came in at $20 million. The press release says $16.1 million, because the additional revenue came from that recall acquisition that we announced in Q4. And so that wound up in the acquisition bucket on the press release, but the actual number for RMS was $20 million.

So when I'm looking at the waste management kind of bucket of revenue, I'm looking at a sequential decline of revenue of like $11.5 million. And we don't usually see that in your business. So I'm just trying to understand -- I understand there was weather-related items, but I go back 10 years in the business, you just don't usually see that. Is there something particularly impactful in this last quarter?

Yes, Shlomo, I'll take that. When you're looking at just the raw numbers out there, you did see a quarter-to-quarter decline of $13.8 million. But rest assured there was really some good growth in our core business within that. So let me take you through the bridge to that $13.8 million. There was an $11 million of increase in revenue from acquisitions that was offset by $11.1 million decrease due to weather and its impact on seasonality, as well as the lower energy surcharge. Also, foreign exchange was a decrease of revenue by $12.6 million. And also, Shlomo, when you're comparing quarter to quarter, there was one less business day in Q1 compared to Q4, and that was about a $5 million impact. And so when you net that down, we had some organic growth of $3.9 million.

So I'm not looking at ForEx, I'm just looking at the domestic numbers right now. So when I take the domestic numbers, right, so last quarter, if I take everything excluding the recall, returns and recalls, you should be -- where was that, about 463.6 or something, and coming down to 452.2, I believe, this quarter. So that's what I'm comparing right now. I heard kind of a weather-related impact of kind of $11 million would get you around flat. I'm looking for the bridge to after that.

Yes, so with the growth that you saw in there, I think it was the $8.3 million decline, about $3.4 million of that was due to acquisitions. Obviously, there's no foreign exchange when we're talking strictly the domestic number. And about half of the working days was $2.5 million. And the rest of that is offset with the seasonality and then the growth within that. So the seasonality was a little bit larger, but the growth within it was really able to offset a good chunk of that.

And the $1.5 million approximately in the fuel surcharge that came off, Shlomo, in Q1 that came off in Q1, that was on in Q4.

And then I'm going to want to follow up on that offline, because I can't follow the numbers exactly. But can you give me more detail on what the planned conversion expenses are? Is this the incinerator in Utah or is this something to do with PSC?

You're talking about the restructure line?

Yes.

Yes, so that's a combination of a number of things. That restructure will reflect some facility and plant closures. That will be some write-off of some permits, as well as we took this opportunity from a restructure basis to really realign our business and better set us up for growth into the future.

Your next question comes from the line of Scott Schneeberger from Oppenheimer.

Following on the restructuring question, I'll go with that up front. Is that something that we're going to see again in next quarter? I don't anticipate you guys announce these things ahead of time. But will it have a sizable lag effect into the second quarter or perhaps --?

Let me take it a little deeper on t he restructure, and then I can answer your question around whether or not you'll see it in Q2, Scott. We have experienced, obviously, experienced a large growth over several businesses the last couple of years. Following the integration of the PSC acquisition, we took the opportunity to kind of balance and optimize our structure over all of our lines of business if the US. We intend to reinvest those savings, primarily in the area of sales and marketing, across all of the lines of business. And Scott, you know, we talk about this all the time, we continually kind of reassess where we are, feed the hot hand with respect to reassessing our resources and allocations. From time to time, we have things that happen in the Q. We don't expect anything sizable in the next quarter.

Switching it up, with the acquisitions in the quarter, certainly very geographically disbursed. Could you just address, four U.S., 11 international, kind of hone in a little bit on was it all med waste? Were there any more communication solutions, just kind of a feel for what types?

All 15 of the acquisitions we did was in the regulated waste and compliance services. And as we mentioned, four of them were domestic, 11 were international.

And when you say regulated waste, does that mean medical and hazardous, or were they all medical?

Yes, about two of those were in the hazardous area and the rest in the medical area.

And those were domestic, I would assume, on the hazardous?

Correct, Scott.

Your next question comes from the line of David Manthey from Robert W. Baird.

First off, I guess on this tax rate, as I'm looking at the adjusted EPS here, if the tax rate had been more of a mid-30s kind of number, you would have reported a number that would be less than $1 I think. And the reason that I ask is you say that everything's on track, but yet next quarter, if the tax rate goes back to that mid-30s range, operationally you have to get $0.09, $0.10 better than you were this quarter. Now, I'm just trying to square that circle in terms of it would seem like operationally this quarter there was some slippage. I didn't hear what's going to change $0.09 to $0.10 between this quarter and next quarter that's going to unwind that.

Let me take you through that. So the Street estimates was at $1.10. We did have $0.08 of favorable result in the quarter, with our continued tax optimization strategy. What that did is that really offset the lower recall volume, the FX headwinds that we experienced and the majority of the impact from the weather This was no doubt, a very tough quarter. I'm very pleased with the team. They did a magnificent job of pulling together and executing on our optimization strategy. But if you think about it, a lot of the areas where we adjusted down, we fully expect that to be rebound into the next quarter. And that's why what you've seen is our guidance has remained unchanged from an EPS standpoint.

Could you just run us down, just so I have this clear here, in terms of the negative impact, maybe EPS standpoint, if it's easier for you to talk about, the returns and recall business, FX, and then fuel, if there's any impact there. Could you give us those items in EPS just so we know what unwinds as we go forward?

So the weather and the seasonality, really the extreme weather was about $0.03. The recall was about $0.04. We really anticipate both of those to rebound very nicely. And then there's $0.01 in FX. That was all offset -- and so the seasonality and weather combined to be about $0.05. We call for FX, one, and we really expect the seasonality, the weather and the recall to rebound and really offset the impact of FX.

Last question, on the international 8%, remind me, is that local currency or does that include the impact of FX?

It's excluding FX. It's local currency.

That's what I thought.

Your next question comes from the line of Al Kaschalk from Wedbush Securities.

I want to focus on the strategic review that you guys did in Latin America. Can you give us a size of that business relative to just in probably percentage terms, what that business comprises? And then is that a market where you're, quote, most excited about? I would appreciate any additional color you could share on that.

Overall, we don't disclose what the size per country is. I would tell you that we are excited about things we saw both in Argentina and Brazil, where our trip took Charlie and I to both locations. One exciting thing we saw was the opening of a brand-new bio systems facility in Brazil. And it was nice to see them secure some customers for that new facility. We also saw the expansion of our clinical services business in both countries. But they're doing a really nice job, particularly in Argentina, of expanding that. So overall, I think we're excited about the different growth engines in South America, but also all of our countries. They've got a lot of exciting things going on in Europe, as well, with the different services they're expanding there, as well.

And as you know, Al, we break out Europe and other international. So LATAM is in obviously part of that other international. It's a big part of that other international business, because the other parts of that are the Asian market, which are much smaller.

And then my follow, or second part question, maybe it's a bigger picture, maybe we all already appreciated, but the weather impact, help me understand why this was so impactful here. Is this because sort of the Tennessee, Kentucky, down south and east, was freezing rain and therefore trucks and routes were disrupted, or add a little more maybe Business 101 commentary on that. And then if you could tie into that what percentage of your contracts have a fuel and energy surcharge associated with them.

Well, let's start with weather first. This was probably -- I've been here a decade, and this is probably the worst winter I have seen while being at Stericycle, especially from an operational perspective. It hit us both on revenue and from a cost perspective. So from a revenue perspective, you mentioned it, every single month, January, February, and March, we had several days in each of those months where we literally could not get the trucks out at several domiciles, whether it was ice storms -- and I would tell you the ice storms probably hurt you more than the snow storms, because as we know, those Midwest states, the Tennessee's, the Kentucky's of the world, the Missouri's, are just not prepared to handle that kind of weather. So we literally had several days we couldn't get the trucks out. And then when we did get the trucks out, only a small percentage of the trucks could actually make all the stops, which then kind of rolls over into the cost perspective. I'm now going and picking up those stops the day after, the day after that, the next week, and I'm paying overtime to get those pickups. Probably the most interesting cost that we incurred this year is that I've never seen before, we literally had to shovel the roofs of several of our facilities, both plants and transfer stations in different locations. And if you've never paid for shoveling a roof, it's a very big bill, as you not only have to shovel the roof, but you then have to haul the snow away. And I got the pleasure of seeing those bills over several states and several facilities.

I know as you sit in out California, Al, you kind of don't appreciate some of the weather out for the folks in the East Coast.

From a fuel and energy, you also asked that, as well. Overall, our fuel and energy was about 5.1% for the quarter. And as you know, we don't break out kind of how many of our customers have the surcharge. But as Charlie, I think alluded to earlier, we did face a $1.5 million headwind, as our surcharges, as we address by contract were reduced in the quarter.

Your next question comes from the line of Isaac Ro from Goldman Sachs.

Maybe just to switch gears a little bit and ask about the big picture environment for the business. I'd curious we've seen a couple of hospitals and labs report on overall healthcare volumes in the U.S. I'd be curious if you could maybe opine, I know it's not a direct correlation to your business, but in general what you're seeing both regards to the overall environment, but also just the extent to which healthcare consumption has become more seasonal. If we just kind of try to normalize for the weather impact, how you think healthcare volumes looked and what your expectation is moving into the middle part of the year.

Isaac, I think that's a good question around, is there a seasonality component now to healthcare. It's tough when you're dealing with all the things that Brent just talked about on weather, and how much truly is a weather impact and how much is it that there is a feeling out there that there could be some seasonality in healthcare and a growing seasonality component to healthcare. I think it's a little too early for us to say if there is seasonality and does it impact our business. Certainly on the SQ side, where we have fixed fees on some of the contracts, seasonality doesn't play into it. But when you're talking about large IDNs, large customers, you certainly, you want to look at that. I think it's a little difficult, given the quarter we just had on weather to say that it is definitely some more seasonality. I think seasonality for us, when we talk about seasonality it impacts a little bit more on the ESol business. We previously discussed ESol and the experiences that we have in seasonality in Q1. It's important to understand that seasonality is a function in Environmental Solutions on both volume and weather. And with the severe weather we had in Q1, it resulted in a larger than anticipated reduction in volume. And to Dan's point around the bridge and what we think is going to happen in the future, we fully anticipate, based on historical knowledge that we have in that space that a majority of that will rebound in 2015. And I think you see our overall confidence in the business for the year, we feel really good about the year. And that's what we want to kind of leave, that we are feeling good about the rebound in the business on both the weather and the seasonality.

Just one follow-up on M&A. You guys continue to build out the international footprint in multiple geographies. I'd be curious, now that you've had a few years here to sort of get some local knowledge in some of these markets and we're seeing some follow-on deals, and I think you said Spain, and other parts of the EU, et cetera. Can you talk a little about where you think it makes sense to deploy more resources versus less, given what you've learned and where we should expect you guys to be maybe more concentrated as you build the scale?

I think if you look at the strategy in Asia with the three small tuck-in acquisitions in South Korea, this also marks the one-year anniversary of our deal in South Korea. That integration is on track. We feel really good, at this point, to add in some of those acquisitions. From an investment standpoint, it does make sense to look at the markets that we're in today, because that brings on a better IRR versus the local hurdle rate. And then overall, we continue to look at new markets. As you know, we're disciplined and opportunistic when looking at those, and occasionally, we'll add on a new country. But really the focus is on the countries that we're currently in. And I think to your point, a good example of that is the 11 international acquisitions we closed in countries that we're in, in the last quarter. We had a really strong acquisition quarter. We're proud of the team, the M&A team and the integration team, what they pulled off in Q1.

Your next question comes from the line of Erin Wilson from Bank of America.

Can you speak to the impetus for the GXP acquisition? And can you also speak to what else you might add to that GXP business? Should we assume that this should help to explain future acquisitions potentially in that area or with that sort of customer base?

Yes, good question. That acquisition is a small acquisition we completed in Q1 in Ireland. And where it really fits is our expert solutions business. As you know, we're already serving the pharma market, as well as the device manufacturing market in that space. So this is just a complementary compliance and auditing service that we can add to that portfolio of services to further help those customers. Again, it's early on, we're still testing the space, but we're excited about the opportunity.

And then on the Environmental Solutions unit, I guess that's what you're calling it, is that something you'd be able to break out sometime in the foreseeable future or think about providing greater disclosure on? Does that even make sense to break it out?

It really doesn't. There is so much overlap in our business, both from a routing standpoint, the back office support we have. We share customers in both. It would be virtually impossible for us to be able to break that out to the level that would be able to give you any kind of credible information to make any kind of analysis on your part.

Your next question comes from the line of Adam Baumgarten from Macquarie Capital.

Just some of the moving pieces on margins, with weather and things like that. Can you walk us through how we should expect gross margins to ramp throughout the year, especially now that you're lapping the PSC acquisition?

I can take you through that. For Q2, I think we expect gross margins to be in the range of about 43.2% to 43.3%. And I think that would put you at a full year in the range of 43.4% to 43.5%.

Your next question comes from the line of Sean Dodge from Jefferies.

Going back to the Environmental Solutions business, how is the revenue in that part of the business split between small quantity and large quantity accounts, roughly?

I think when you look at SQ, LQ, Sean, the estimate is around 60% SQ and 40% LQ.

And then, in your recent filings, you guys cite this business as being one of the two primary drivers of organic growth in the small quantity base. Are you willing to put some book ends around that? Is Environmental Solutions now driving half of your domestic SQ growth now or is it more or less than that or is it a lot more or less than that?

No, I think if you look at the growth engines on the SQ side of the business, Steri-Safe still provides a majority of the growth on the SQ business. And then Com Sol, Communication Solutions and Environmental Solutions add some additional growth there. On the LQ side of the business, again, a majority of the growth is coming from our sharps management program and our pharmaceutical waste programs. We think over time there's a lot of overlap with pharmaceutical waste, where it lends us to get more hazardous waste out of the hospital business. But that's something that obviously we needed the infrastructure first, before we can really take advantage of that opportunity across the country.

And then, just my last one, you guys rolled out a broader suite of compliance solutions to the physician market. I think it was middle of last year. Can you talk a little bit about the initial adoption of the non-OSHA focused services? And maybe something about the incremental revenue opportunities you get physicians signed up for those?

One of the services we've expanded to now, and our suite of compliance services that we brand is overall Steri-Safe. Obviously, you're familiar with the OSHA compliance services. One that we've had a lot of success with is HIPAA services, where we can help our customers better understand those regulations, set them up with the policies and procedures they need to make sure that they are appropriately living up to the guidelines. So that's just one of many other compliance services that we're offering to our customers in the SQ space.

Your next question comes from the line of Richard Close.

You made the acquisition on, I guess, the hospital side, on the communications with Beryl, a couple years ago. Can you talk a little bit about how that expansion has gone over the last several years since you acquired it?

I think, as you know, the Beryl Health acquisition, probably over two years now, really got us into the more of a hospital or the LQ space in Communication Solutions. Prior to that, the platform that we had bought was NotifyMD, it was more of an SQ play. We've seen some good growth on Beryl. It's not really combined. So we don't look at it as LQ, SQ anymore, we kind of look at it together. And the reason for that, Richard, is really some of the services, like appointment reminders, are applicable to both the LQ and the SQ space. So again, those services can be sold to doctors' offices. They can be sold to medical practices that are associated with hospitals. They could be sold to hospitals. So we kind of look at them combined now. But the Beryl acquisition was an important acquisition for us a couple years ago, and it's done well for us.

And how do you guys get paid on all this? Is it on a per call basis? Just help us out with that.

It varies, depending on the service. For instance, on an after-hour answering service, a typical contract would be set up as a flat monthly fee per physician per month. And for that, they'd get so many minutes. And if they go over that minutes, there is overcharges they get for time that was over, what was included in the standard contract. For a same service, let's call it a service like an appointment reminder service, there might be a flat monthly fee, again, per physician per month. And we make so many outbound calls, texts or e-mails, and again there is so much that are allotted to that monthly fee. Any overage would be charged extra at the end of the month. So it's a combination of a flat fee and a fee for volume.

So as we think about Communication Services, I understand that its large quantity and SQ are combined. But how do you go to market on the hospital side? How do you sell that product? Is it just following along with the waste side of things or how do you get into the hospital to sell that product?

We use kind of an account manager specialist model. So as we talked about last quarter, all of our account managers have been trained and certified to introduce this new service to all of our hospital customers, and we do that typically to our key decision makers during business reviews. They then pull in the specialist for Communication Solutions, and then they do a joint presentation of the overall benefits of the service for the account.

Earlier you talked about weather being $0.03 negative impact, and then there was something about seasonality being $0.02. So the combination of, I guess, those two of $0.05. What exactly is seasonality?

Rich, I kind of talked about it a little bit on our earlier question. I think it's tough to figure out how much is seasonality and how much is weather. So if we think back to the previous call when we're talking about PSC and now our Environmental Solutions business, we had discussed that the Environmental Solution business does experience seasonality in Q1. And seasonality is a function of volume and weather. But because there was severe weather in Q1, it resulted in a larger than anticipated reduction in volume in Environmental Solutions. We fully anticipate that will come back. To give you a little color there, just on the Environmental Solutions side, there was some of our operating locations that we lost one to two days of business per week for two months straight, where we were just non-productive. So we had in our estimate, in our guidance, we thought there will be some seasonality. The severe weather made seasonality worse. That's why we're saying so much is weather, so much might be seasonality. We think the two are integrated and are connected. And that's why I think the look at that is $0.05. And we think all of that is going to come back, obviously, as the weather improves throughout the year.

And then with respect to the international internal growth, can you comment a little bit more in terms of what exactly is driving that? Is that just, once you get these acquisitions integrated and in for a year, you're able to really just ramp up and expand the current services or is that more layering in maybe the Steri-Safe and the sharps and stuff on the international front as well?

I think you nailed it at the last part of that question. Additional services, they really follow the same model that we do in the States, where we build that customer relationship and then we introduce new services, whether that's on the SQ side, clinical services and continuing to expand that offering with our customers. We haven't talked about it in this call, but we mentioned it in the past, the dosimetry services have been a real hit for us in the Spain market and Portugal market or the biosystems, the additional services in those regard. So what we like to do is follow the same playbook in the U.S., which is build that customer relationship, add additional compliance services and continue to expand that relationship with our customers.

Your next question comes from the line of Scott Levine from Imperial Capital.

Just a question on the RMS target. You're affirming the full year target, I believe, and came in at $20 million here for the quarter. Just traditionally with these large projects, I know are needle movers, I mean is there something with respect to the underlying business there that gives you the conviction in that target and/or do some of the recent acquisitions you've made? Maybe give you that confidence coming off of what looks like a somewhat light quarter operationally in RMS?

So Q1, we had a record number of new customers and a near record number of events. The revenue, as you see was up a little bit, it has to do with the acquisition we made, and that's more call center volume. So it does come in at a little lower margin. But I got to tell you, we're only three weeks into the second quarter, but we're doing really good. We're off to a great start there. And that's why we're confident to leave that guidance at $95 million to $120 million. So we feel really good about the start to Q2.

And then, maybe as a follow-up. Just the leverage you're kind of trending down towards 2x and very active on the acquisition side. But is there a level at which you feel like the business is maybe underlevered? And maybe just some thoughts about whether you might look to get more active in deploying capital to create value if leverage bleeds below, say, 2x or just some thoughts around that?

Yes, Scott. I think we've always felt very comfortable in the range to 2x to 2.5x. We certainly aren't going to spend money just for the sake of spending money. We continue to be very disciplined around our acquisitions. We have a very robust pipeline. And I wouldn't look at these from a quarter-to-quarter basis, really you got to look at the acquisitions that we do more on an annual basis. These things tend to come in surges. So we were good in the range there, and we feel very good about both our acquisition and our capital structure.

There are no further questions. I will turn the call back over to Sean McMillan. End of Q&A

Thank you, Amy. Well, we appreciate everyone taking time to participate on today's call. I want to remind everyone that this is Administrative Assistants Week, so if you've not already recognized those individuals that work so hard for you, often time behind the scenes, don't forget them. For the executive team at Stericycle, we want to thank Kelly, for everything she does to make us better. Have a great night. We look forward to seeing you out on the road in the next couple of months. Take care, guys.

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