Jennifer Koenig - Vice President, Corporate Communications and Investor Relations Charlie Alutto - Chief Executive Officer Dan Ginnetti - Chief Financial Officer Brent Arnold - Chief Operating Officer

Ryan Daniels - William Blair Sean Dodge - Jefferies Scott Schneeberger - Oppenheimer Michael Hoffman - Stifel Gary Bisbee - RBC Hamzah Mazari - Macquarie Capital Kevin Steinke - Barrington Research Barbara Noverini - Morningstar Henry Chen - BMO Capital Markets Isaac Ro - Goldman Sachs

Good afternoon. My name is Sarah and I will be your conference operator today. At this time, I would like to welcome everyone to the Stericycle’s Third Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to introduce to your host for today, Ms. Jennifer Koenig, Vice President of Corporate Communications and Investor Relations. Ms. Koenig, the line is yours.

Thank you. Good afternoon and thank you for joining Stericycle’s call today. The discussion during today’s call includes forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those described in such forward-looking statements. Factors that could cause actual results to differ are discussed in the Safe Harbor statements in our earnings press release and in greater detail in Stericycle’s filings with the U.S. Securities and Exchange Commission. Past 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 make no commitment to disclose any subsequent revisions to forward-looking statements. On the call today, we will discuss non-GAAP financial measures. Please refer to the footnote and schedules on our earnings press release, which can be found at www.stericycle.com for additional information and reconciliations to the most comparable GAAP measures. Joining today’s call will be Charlie Alutto, Chief Executive Officer; Dan Ginnetti, Chief Financial Officer; and Brent Arnold, Chief Operating Officer. I will now turn the call over to Charlie Alutto.

Thanks, Jennifer and thank you everyone for joining us today. In the quarter, our Secure Information Destruction, hospital-regulated waste and retail and healthcare hazardous waste services all have strong performance. Our small quantity healthcare and communication related services performed consistent with our expectations. Also in the quarter, manufacturing and industrial came in lower than anticipated, we experienced cost pressures in Latin America and we were impacted by several hurricanes across the Gulf Coast, Florida and Puerto Rico. Prior to our detailed review of the quarterly results, I would like to introduce a comprehensive business transformation management initiative that we are undertaking to improve our long-term operational and financial performance. Since our inception, the company has grown through 490 acquisitions resulting in many different systems, business processes and resource redundancies across the organization. Although Stericycle has traditionally been a lean company, we see substantial opportunities to improve our operations. The transformation will impact all of Stericycle’s service lines and geographies. While the initiative is expected to take 3 to 5 years to complete, we anticipate positive contributions to the business starting into early 2018. The business transformation includes the following key initiatives. The implementation of an enterprise resource planning, or ERP technology platform to consolidated the company’s multiple systems, the restructuring of our organization and consolidation of select operations, the improvement of business processes across the organization, including route planning and logistics, and the reduction of spend through improved procurement processes. This business transformation will improve the long-term financial and operational performance of Stericycle. We will provide a more detailed review of the initiatives, the cost and expected savings during our Q4 earnings call in February. I will now turn the call over to Dan.

Thanks, Charlie. The results for the third quarter are as follows. Global revenues were $882.8 million, a decrease of 0.8% from $890.1 million in Q3 2016. Organic revenue, when adjusted for the impact of foreign exchange, acquisitions, divestitures and manufacturing and industrial services, increased 0.2%. Domestic and Canada revenues were $708.2 million. Organic revenue when adjusted for the impact of foreign exchange and acquisitions decreased 0.2%. Organic revenue was adversely impacted by manufacturing and industrial services. The international revenues were $174.6 million. Organic revenue, when adjusted for foreign exchange, acquisitions and divestitures decreased 2.2%. Organic revenue was adversely impacted by the exiting of certain patient transportation contracts in manufacturing and industrial services. Acquisitions contributed $6.8 million of revenue in the quarter and divestitures reduced revenues by $9.9 million. Gross profit was $368 million or 41.7% of revenues. Adjusted SG&A, excluding amortization, was $192.2 million or 21.8% of revenues. Adjusted income from operations or EBITDA was $175.9 million or 19.9% of revenues. Net interest expense was $24.5 million. The as-reported tax rate for the quarter was 41.6% versus an adjusted tax rate of 36.9%. Net income attributable to Stericycle was $35.4 million or $0.41 on an as-reported basis and $1.10 when adjusted for acquisition-related expenses and other adjustments. Now, for the balance sheet, our covenant, debt to EBITDA ratio was 3.48 at the end of the quarter. The unused portion of the revolver was approximately $712 million. In the quarter, we repurchased 145,000 shares of mandatory preferred convertible for $8.7 million. At the end of the quarter, we have authorization to purchase 2.7 million shares. Year-to-date as reported cash from operations was $392 million. When adjusted for recall reimbursement and other items, adjusted cash from operations was $462.1 million. Year-to-date CapEx was $91.7 million or 3.4% of revenues. Our DSO was 64 days. Finally, I would like to highlight that the company is in the process of renewing and extending its existing senior credit facility and term loans. We are capitalizing on current favorable debt markets and economic conditions. We appreciate the continued support from our banking partners and will provide further details when the financing is complete. I will now turn it over to Brent.

Thanks, Dan. This quarter, we closed 5 tuck-in acquisitions, including 4 in the U.S. and 1 internationally. These acquisitions contributed revenues of approximately $0.3 million in the quarter with projected annualized revenues of $3.1 million. Our worldwide acquisition pool remains robust with well over $100 million in annualized revenues in multiple geographies and lines of business. As Charlie mentioned earlier in the call, our Secure Information Destruction hospital-regulated waste and retail and healthcare hazardous waste services all had strong performance in the quarter. Small quantity healthcare and communication and related services performed in line with our expectations. Results in the quarter were adversely impacted by the weakness in the global manufacturing and industrial market, cost pressures in Latin America and several hurricanes. Starting with our regulated waste services, small quantity healthcare pricing pressures came in as expected. Our hospital sales team delivered another strong quarter driven by sales of Sharps Management, pharmaceutical waste and our new solution for controlled substance disposal. Our Secure Information Destruction service continued its organic revenue momentum, delivering 6.4% growth in the quarter. Our national accounts team signed 4 new accounts, all recognized leaders in their industries. Our integration of Shred-it and follow-on tuck-in acquisition remains on track. Our performance in the quarter was negatively impacted by the recent hurricanes in the Gulf Coast and Southeast regions. These storms temporarily closed many of our facilities and our customers’ locations. Hurricane Maria shutdown our operations in Puerto Rico for several weeks and we are still working to return to normal operations. We also saw a decrease in revenues across our global manufacturing and industrial portfolio resulting from weakness in the market and unexpected delays of project work. In addition, Latin American cost savings initiatives that were anticipated to be completed in Q3 are now extending into 2018. In closing, we would like to thank all of our team members who supported the recovery efforts related to the natural disasters. Our team members did a remarkable job preparing and protecting our sites and works tirelessly to reroute and service our customers. And finally, we would like to thank everyone in the Stericycle family who donated time, money or guest to support their fellow team members impacted by the hurricanes. I will now turn it over to Charlie.

Thanks, Brent. I would like to announce that we have revised our financial guidance policy. Consistent with industry peers and best practices, we will provide our full year 2018 financial guidance when we announced our fourth quarter results. This change will improve our visibility to the upcoming year prior to issuing initial guidance. The fundamentals of our markets remain strong. We are confident that we will continue to maintain and grow our business into the future. Although we are not giving detailed guidance for 2018, we anticipate that our 2018 results will be in line with our expected 2017 results. Now for our current guidance for the remainder of 2017, please keep in mind that these are forward-looking statements and our guidance does not include future acquisitions, divestitures, integration and acquisition-related expenses and other adjusted items. For 2017, we believe EPS will be in the range of $4.46 to $4.52 using a share count of approximately $91 million. This includes the impact from current foreign exchange rates, acquisitions and divestitures. We believe annual revenues for 2017 will be in the range of $3.54 billion to $3.6 billion using current foreign exchange rates. The worldwide revenue guidance for each of our service lines is: regulated waste and compliance services will be in the range of $2.01 billion to $2.03 billion, which includes the impact of the divested patient transport business. Secure Information Destruction services will be in the range of $820 million to $830 million. Communication and related services will be in the range of $370 million to $385 million depending on recall revenues. Manufacturing and industrial services will be in the range of $340 million to $360 million. We believe adjusted free cash flow in 2017 will be in the range of $450 million to $465 million. The 2017 CapEx is anticipated to be between $125 million to $145 million. We expect the 2017 full year adjusted tax rate to be at or slightly below 36.5%. Thank you for your time today. We will now answer your questions. Please keep in mind that we have many analysts who follow Stericycle. We ask that you limit yourself to a couple of questions. Sarah, you can now open the Q&A line?

Thank you. [Operator Instructions] Your first question comes from Ryan Daniels with William Blair.

Thanks for taking the question. I know you want to reserve a lot of the conversation about the business transformation initiative till February, but curious if you can talk maybe specifically about the ERP, I know that’s something that’s been topic on a lot of investor minds for a while. And I guess there specifically regarding the cost and timing and how you come for it and then what you think the potential SG&A savings over time could look like from that specific initiative?

Yes, Ryan, let me take that. I think on the ERP decision first and then we can talk about cost, but on the ERP decision, we went through a competitive selection process. We actually included second opinion validation that you have been going through this for a while and we identified a top tier software platform. We are now in the RFP process for the system integrator. So, when we think about cost, we are pleased with what believe will be the anticipated cost savings from the business transformation, but I think until the terms of the system integrator and as I said that’s currently going through an RFP are finalized, we will not go into detail on cost yet. Again, we will talk about cost and savings on the February call. However, when you think about cost associated with business transformation, including ERP implementation, we are going to capture these as an adjusted item. This is consistent I think with best practices for handling such investments and provide transparency to our shareholders and the hold the management team accountable to the numbers that we give out in February.

Okay, that’s helpful. And then Dan, can you just give us an EPS bridge between the prior and current guidance, I know there are some moving parts with the revenue, with FX, with the tax rate this quarter just the bridge is always helpful for us?

Yes. And I think Ryan, specifically you are asking about the revised guidance are you looking just specifically for the Q4 results?

The revised guidance.

Okay.

Or both if you want to offer it, I will take both, I am sure others would as well.

Sure. Let me take you through that. It will probably be easier if I first take you through the bridge to the current quarter, because that will have impact obviously in the Q4. So, when you think about Q4, the Street consensus was at $1.14 and our guidance was $1.13 to $1.19. The Q3 adjusted EPS came in at $1.10. EPS from operations fell short of street expectations by about $0.05 primarily due to the lower M&I volume, some higher costs in Latin America and the multiple hurricanes in the quarter. We had about $0.01 tax headwind that was more than offset by $0.02 of favorability of the repo or mandatory preferred convertible. So, that gets you to hit the current quarter. When you think about going forward, if you take the Q3 EBITDA miss, that was about $0.04 on the low end and $0.10 on the high end, so that gets factored into the go forward rate. We will add to that the repo, the $0.02 of repo that we got in Q3. The rest of these are impacts that we can carry forward into Q4. For M&I and the continuation of the weakness in the market, we see about $0.05 on the low end and $0.07 on the high end. If you saw the bridge that Charlie gave for the revenue, you saw that we tightened our regulated waste and compliance services revenue really taking the top end down, so that’s really no change on the bottom end and about $0.02 off on the high end. We anticipate that the hurricane, both in Puerto Rico as well as the impacts in the Gulf Coast region to be potentially another $0.01 headwind going into Q4. Our international business with some revenue impacts in EMEA as well as those cost pressures we discussed in Latin America to be about $0.05 on the low end, $0.07 on the high end. As you have seen, paper prices have come down and so what we are simply doing is trimming a couple of pennies off the top end of the range as a result of the direction paper is going, so that no change in the bottom end and $0.02 on the top. To offset this, we have anywhere from $0.03 to $0.08 of favorability and that will come as a result of some improved benefit costs we are experiencing as well as rationalizing our bonus program to account for the change in our guidance. And then finally, we have about $0.01, the $0.02 favorability due to lower interest rates. So, what you are seeing is the ultimate change is about $0.09 on the bottom end and $0.17 on the top for a midpoint of $0.13.

Okay, great. Thank you for all the color. I will hop back in the queue.

And just to add to that, so as you go into Q4, you would expect in the range of the $1.12 to $1.18.

Your next question comes from Sean Dodge with Jefferies.

Yes, good afternoon. Thanks. Charlie, maybe just going back to your comments on the initial outlook for ‘18 you may become that you expect the ‘18 results to be similar to 2017 without getting too far in the lead there, did you mean that growth trends that you are seeing in ‘17 you expect to carry into ‘18 or do you literally mean that you expect ‘18 range to be similar to the number you produced in ‘17?

Yes. I think if you think about we are faced with probably a $40 million headwind on SQ that’s our best estimate that hasn’t for 2018. So, if you think about that headwind that we are facing that was known that we are going to face it. What I am saying that will be flat from an EPS perspective. I don’t think there will be major changes, obviously some of the C&RS business, have some lumpiness with project and obviously M&I has some projects in it as well, but I am talking more about an EPS guidance flat ‘18 versus ‘17. Again, we have a headwind to make up on the pricing for SQ business, which remains about $40 million and it remains about $120 million to $130 million over this next 2.5 year period.

Okay, thanks. And then going back to the bridge for the quarter, Dan, could you sort of outsource the impact of the hurricanes alone I am sure it affected med waste, but I would imagine, it also had some impact on M&I as well. So, just back from the hurricanes maybe both revenue and EPS if you could?

Hey, Sean, this is Brent. I’ll go ahead and take that one. In the quarter, we had about a $0.02 impact with regard to the hurricane and that’s a very conservative impact. As you can understand there are certain things that are easier for us to quantify, we went to where we –we’re unable to do that what’s the normal revenue of those stocks, facilities that were closed and what’s normal revenue or cost associated with those facilities on a daily basis. Those are lot more straightforward and it’s important to get. The things that are more difficult are things like the time the team members spent preparing for the storms, team members that actually went to different districts to help out with the storms. So for instance our Northern Texas team all went to Southern Texas during Hurricane Harvey, really that was driven by the fact that most of our team members or many were impacted personally. So we needed to bring people in. So there’s just a lot of moving parts not impossible to quantify, but difficult. So again $0.02 in the quarter, we think that’s a conservative number and also I would just mention that we do feel when you heard that in Dan's bridge, we do feel another penny will also be an impact as we go into Q4. I think one of the thing that also that would makes it very difficult to quantify as we were experiencing the flooding and having to reroute or typical route around different routes to be able to get to the stocks as well as changing our routes and stores that are open and stores that aren’t. And challenges that are capture – hard to capture that is that dollar amount, it did make routing very difficult in both of those areas.

Understood. Very helpful. Thank you.

Thanks, Sean.

Your next question comes from Scott Schneeberger with Oppenheimer.

Thanks. Good evening. I will let take it outside the country for a moment. Could you elaborate on just the dynamic on Latin America? It sounds like some M&I projects pushed, but also just cost pressures, could you elaborate on each and then I am going to have a follow-up on patient transportation? Thanks.

Yes, I will let Brent jump in on the M&I, because the M&I number, Scott, is a global number. So, we are seeing weakness in the M&I sector, not just in the U.S., but also in Latin America. The Latin America cost issues though are related to saving plans that were primarily related to our Brazil operations and are delayed due to permit issues. We got a plan that we were going to close several disposable plans, but convert them to transfer stations in Q3. Those would require from modifications and they are just taking longer than anticipated. Of course, these planned conversions also have related restructuring savings that didn’t come to fruition, because of the delay in obtaining the permits. We will take this initiative like all other initiatives and push it into the business transformation, which also has some savings initiatives well above and beyond just the ERP implementation and those will move into our 2018 plan. On the M&I, I will let Brent kind of talk a little bit about the M&I volume reductions.

Hey, Scott, Brent. You know what I will also just talk about M&I just globally if you don’t mind, I am sure it’s on a lot of people’s minds. As we mentioned earlier came in below expectation again really driven by many factors Charlie start to hit on the fact that this is a global number and so you will have effects for industrial weakness in and outside of the U.S. especially in the markets where we participate. It was also driven by lower project volume overall and just lower project work and volume levels were down. Also destructions form hurricane, we’ve talked a lot about that, but many of our facilities on the east side were closed, as a matter of fact, our Houston TSD was closed almost 10 days, so a significant impact on our business there. And it is a competitive market. So, we continue to face different pressures in the market. So, those are some of the key drivers that account for the M&I coming in below expectations. I think I would be remiss though if I didn’t take a opportunity to step back and just reiterate that our M&I business is a component of our overall environmental solutions business. So, while we break M&I out to give that transparency and that visibility to the variability that the M&I business or revenue has is really part of our – it’s one piece of a much larger business and that infrastructure associated with M&I really what helps us enable the growth of our retail waste, which is actually growing in high single-digits. Our hospital has this waste which is growing in low-teens. Some of our pharmaceutical waste program, which is another big growth initiative for us, some of our opioid or take-back programs also rely on some of that infrastructure. So, I think it’s just important to keep in mind that while we are disappointed that M&I is below our expectations, there are some good external reasons for that, but the component in that infrastructure really enables a lot of our growth strategies and are key to overall success of Stericycle.

Okay, thanks for that and I got certainly at least two for one out of that one, but if I could follow-up with one more just on patient transportation you saw the divestiture impact in the quarter, could you just kind of give us the rehash on and I understand it’s in guidance I think we are done this year. But just a rehash on it anything uncommon or is that following as planned?

No, that came in as expected. There is two components to it, remember Scott, one was we divested certain assets and that had as we talked about in last call that had an $18 million impact to the second half of ‘17, it was up $36 million annualized business that was divested, so that $18 million obviously from a comparison standpoint $18 million in the second half of this year, $18 million first half of next year, nothing new there, but we still are managing a couple of variants that were not sold. And if you remember, we also exited some contracts. So, I think when you look at the international growth number, it’s really important, it came in as a negative 2.2%, but if you exclude the patient transport exits of certain contracts and our M&I business probably had some fluctuations in it. That actually had an organic growth of about 1.5%. But as far as your question, was there anything out of the ordinary in the quarter for PTS, or patient transport services, no, it came in as expected and obviously we announced the divestiture on the last call.

Got it. Alright. Thanks, guys.

Thanks.

Your next question comes from Michael Hoffman with Stifel.

Hi, thanks, Charlie and team. So, you have been on the road on many occasions, I have been with you on some of them, where you have talked about $150 million is sort of way to think about this ERP. Is there any change in that due?

Obviously, I don’t want to answer the cost question, Michael, because we are going through this RFP process and as you know the system integrator piece is the biggest piece of that puzzle, we want to get the best company in there that had experience in the implementation. So, I want to not get a comment on that. The only thing I would say is that this is going to be part of a broader business transformation initiative as we talked about process, improvements, restructurings that will happen, other projects above and beyond the ERP. So, again, so I want to get ahead of myself on giving a number at this point.

Okay. So, if you are going to go through big business transformation, are we finally going to take businesses that are using up 80% of your time, but are contributing zero to negative and so divest of things that are not working for you, the money on the ERP in there?

Absolutely, Michael. I think you made a very good point. We are going to go through this ERP implementation, which is a multiyear process and full implementation of the ERP really is 3 to 5 years and the first 2 years really is just focusing on design and blueprinting a lot of the backlog as functions that are common between all the businesses certainly before we implemented into a business or a country we want to make sure that, that’s’ going to be a long-term fit to the overall strategy at Stericycle. So, absolutely part of it is to continue to look at the portfolio of services in countries that we are in and we do need to make those decisions before we go through the expense of implementing that ERP in that service line or that business. Absolutely, we will be looking at that.

And when do we learn about that?

Well, I think we are a little premature now, because we are going to be obviously, we don’t start implementing some of our businesses. Obviously, we are going to look at our core businesses first in 2019 and 2020, but as soon as we make the decisions around that and if we were to classify anything as assets held for sale, certainly we would disclose that and we would share that with our shareholders.

Okay. If you pulled away the price compression that happened in the RMW business, could you share what the underlying domestic growth and the international growth organic growth was?

Yes, let me take you through two segments, Michael. Good question. Let me take you through that. Obviously, the SQ pricing falls into the regulated waste and compliance revenues on the revenue table and if you look at that, you see a Q3 organic growth of a negative 1.9% and remember going into this year, we said that category was either going to be flat or down a little bit, so that came in as anticipated. But if you exclude the patient transport contract data, which we talked about on a question earlier and you criticized the SQ pricing issue, we actually grew that segment by 4.1%, which really reiterates what Brent and I have said before, we had really strong growth. So what has contributed to that? What contributed to that is certainly retail has wasted in that number that’s growing at a high single-digit. Healthcare hazardous waste growth growing in the low-teens that control substances in some of the opioid take-backs contributed to that growth. So the underlying part of our business unfortunately it doesn’t show up on that number, because of the SQ issue. Again, it’s grown by about 4.1% for the quarter. Also on the international, the other thing at international let me reiterate that again, because I think I answered that earlier, but I’ll take you through that. The organic growth rate for the quarter was a negative 2.2%, but it’s again you exclude the patient transportation exiting of contract and M&I, which we know fluctuates and had a disappointing quarter. We actually had an organic growth of around 1.5% or a total growth around 2.7%.

Okay. On that one…

Is that helpful?

Yes, very helpful. And you have got a mixture of paper and medical and the remainder of that international, so did something…

No, Michael the paper actually would fall into the Secure Information Destruction service at the end of that.

No. I mean, paper meaning your Secure Information – sorry, so the document – there is document, international document destruction is that part of that number, that 15?

It’s in the – it would be in the overall international number that you are looking at, but that gets observed if you specifically looked at the regulated waste and then the Secure Information Destruction worldwide number, the paper would be in that number, when you look at the international, that does include that in there.

Alright. I have asked the question clumsily and I apologize, the data you just gave me the international 1.5% growth, is that all international or just RMW International?

All international. And then the different service lines includes the global revenues for all those service lines, I’m sorry to cut you off, Michael.

Yes, that’s alright. So where I was going is your – I think your RMW International business had been trending to the middle of the year 3% or 4% in a constant currency basis, are you still looking at that kind of number in the RMW part of that?

Yes, I don’t want to breakout a lot to look at up by the end of the call try to get back to you on that.

Okay. When the recalls, there is a big headwind in 4Q, right, we got to remember that, that’s something everybody should be paying attention to?

Absolutely. Last year was a record year C&RS driven by one very large recall that in Q4. We are on track to match that this year without that one big event and had no carryover to 2017, but you are right we have a big comparison in Q4 of ‘17 versus Q4 of ‘16 that’s correct.

Okay. And then what were the dollar sales of paper in 3Q?

If you look at paper, what are the dollar sales, you mean the gross revenue from paper?

Yes, it’s in total document destruction number, I am trying to understand what the sequential decline is going to be?

Yes, Michael, I think – in the organic growth rate of our Secure Information Destruction, it was about 1% of that 6.4% growth.

Okay, alright. Last question for me, I know I have run over the numbers, but if you put those things impresses you on anything given all of the misses is the free cash flow number. So, you are telling you are going to do $80 million to $95 million in free cash flow on the fourth quarter?

Yes, Michael, we are very pleased with our continued focus on cash flow and more importantly the flow-through of it. If you think about it and I know even when you look at the income from operations year-over-year being down, the year-over-year cash flow is much better than that and so what you see that is being able to convert, obviously it found less cash tax that you have to pay as a result of it, but really improved flow-through. So we’re pleased with our cash flow generation based on our results.

Okay. Thanks very much.

Thanks, Michael.

Your next question comes from Gary Bisbee with RBC.

Hi, guys. Good afternoon.

Hi, Gary.

The first question, Charlie, as you discussed the business transformation project there are lot of things you cited in addition to the ERP. And I guess I wanted to just ask about the genesis of this. Did this start with or come out of that consultant that you hired a year ago, have you been working on this for a long time and just getting to the point where you are getting ready to start talking about it or is this more reaction that more needs to be done. I am just trying to understand what got you to this point of talking about this?

Yes, I think the genesis was we brought in some talent. I think we talked about out that around over a year ago to look at our systems. And we knew that we are operating far too many systems and internally we struggled with the fact that we have done a good job of integrating acquisitions into a service line, Gary, but not necessarily into the broader Stericycle. So, we have known we have had challenges of integrating into and fully leverage our size and scale. And as we went through what is best in class, as we went through how can we transform the company not only from a system standpoint, you start looking at business processes, you start looking at organizational structure, so this has been a journey it is something we have looked at for the last year. Obviously, you don’t take this decision lightly, it is obviously a big initiative. I think we are up for the challenge, but as we looked at it, got a second opinion, that’s really the genesis of how we came to the decision at this time both on an ERP system and on the process improvements we think we can make the restructuring that we think we can do and some of the related procurement activities that we think can overall drive a better operation at Stericycle and obviously improve our profitability.

Just to add to that, one of the things that’s so important is to take this time prior to the implementation of an ERP really aligns our organizational structure and our processes not only does it create some opportunity to create efficiencies in advance of that, but it really highly increases the likelihood of having a very successful implementation by preparing the organization in advance not only led to a broader context of business transformation leading to work up to and then including the ERP implementation.

Okay. That makes a lot of sense. Do you guys feel like you have the right team at the company or are there areas we are going to need more talent to deliver on what sounds like a significant amount of effort here?

Yes, I think it’s a combination of both. I think we certainly over the course of the last year, we have supplemented our IP team with a group of professionals that have a proven track record of an ERP implementation. We have gone outside. We have realized there are some things that we may were out as good as we are looking at a broad organization or process improvements. We have aligned with the top tier consulting company to help us on that journey. And then really from the education I think we have all been through an executive team, it comes down to system integrator, right. There is a lot of different technologies you can put out there. They are all very good. There are some that you feel are better fit to your organization, but the integration is the one whereas the rubber hits the road and we haven’t got it yet, we are on the middle of an RFP again as the bigger expense item. That’s why we are going to wait on talking about cost after we have negotiated that agreement, but we are going to align ourselves with a top tier system integrator. We want to make sure that this is going to be successful. This is the future of Stericycle. I think we are going to be in really good shape 3 to 5 years from now, much more. We have always been lean, but we are going to be more operationally efficient now. So, it’s a combination of inside talent and getting help from the outside as well.

Okay, great. And then just the last one from me, I hear all your comments on the M&I business, but we have seen you as really global industrial activity pickup pretty strongly. I know there was a lag on the way down, but it strikes me that you should be seeing some lift from that. Is there anything specific to your business that would make that not come back as industrial activity improves in the U.S. or is it something just something to do with the end markets? Thank you.

Yes, I think it’s a combination of both. I think when you look at our total business overall with M&I, we grew 2.2% year-to-date. And I think if you compare us to other companies out there that might be a little bit below them, but certainly it’s not like the overall hazardous waste business is not doing well, obviously we are focused where we think we bring a lot of value to customers, right, retail has waste, healthcare has waste. The other thing that gets lost in this is that we have actually improved profitability in this business. We talk about last year remember we were thinking about potentially divesting, but we saw there is opportunities for profitability improvement and that business as a whole you saw, because we run, obviously we share a lot of those resources across all the different hazardous waste on service lines actually had an improvement about 140 basis points year-over-year. Now, the M&I miss, yes, I think we are trailing the market a little bit, it is a very competitive marketplace. We are in a niche player in M&I when you compare us to others. We are trying to be disciplined on the work we go after. Our focus is again on retail and healthcare has waste. And I think Brent talked about it really the reason we got into this business and we made these acquisitions and build the operational structure was not to go after the M&I business. We call it out now, because it does fluctuate. Our focus is on retail and healthcare has and I think we have proven that we have done really well on those markets and that’s why when you look at it, RW, our regulated waste and compliance revenues excluding setting aside the SQ and the PTS were growing by 4.1% because of that. So a long way to answer your question, but hopefully I answered for you.

Yes, just to add to that, as you recall and I think Charlie did a great job highlighting that the differences is that back when the M&I kind of retraction in that market began Stericycle lagged that for a couple of quarters. And so it’s not a complete surprise to us that if there is significant rebound, because of our niche orientation that we may lag on the way back up.

I appreciate all the commentary. Thank you.

Thanks, Gary. Sarah, anymore questions? Sarah?

I am sorry. Your next question comes from Hamzah Mazari with Macquarie Capital.

Good afternoon. The first question is just a clarification, are you giving 2018 guidance or did you guys call 2018 as being flagged, I recall you said you are not giving guidance, but then maybe you may have referenced something on 2018?

Yes, let me take that, Hamzah. First of all, as you know, the starts that we have giving guidance on this call, but obviously wanted to be consistent with industry peers and best practice standards. So, we are not to give guidance initial guidance until our Q4 results. Obviously, we will get improved visibility into the coming year because we will have Q4 and we will have January results. We will have greater visibility to our SQ pricing at that time and the business transformation savings and costs. So, those will have an impact on 2018. So, we are not giving official guidance. What you maybe jumped on the call and heard is that just directionally we think our end markets are strong, we are going to maintain and grow the business in the long-term and we feel at this point at a very, very high level from an earnings perspective anticipate that our ‘18 earnings will be flat versus ‘17. Again, we are going to get a lot more detailed guidance on the Q4 call in February.

Okay. And then any – you talked about the M&I business, but one of your competitors had flagged just U.S. chemical industrial customers asking for bigger discounts. Are you seeing pricing pressure in the M&I business, just curious because I know the earlier question asked about disconnect with global industrial activity and so any color there?

Yes, I think any time you want to characterize market is competitive like we have, it’s certainly is a competitive market and I think pricing comes in a play, when you’re talking about these projects. I don’t know if it’s got any worse over the last 3 to 6 months not really, I don’t think so, but it is, it remains a very competitive marketplace.

Okay. And just last question, I’ll turn it over. Do – should investors be thinking about any positive, negative on that neutral impact from Amazon getting into drug distribution, I don’t know how big your pharmacy business is, but is that a meaningful impact or should we just be ignoring that as it relates to Stericycle? Thanks.

Yes, I think it was no matter who distributes the pharmaceuticals, eventually, if I think I returned or where the distribution location takes place, they would have lost or damaged material that we would have to service. I don’t think right now any material impact whether they come into the drug space or not, I don’t want to comment on a particular potential customer, but I don’t think it really has a material impact on our pharma waste business Hamzah. Thank you.

Your next question comes from Kevin Steinke with Barrington Research.

Hi, so you did revise two of the service lines favorably Secure Information Destruction, it looks like the bottom end of guidance came up by 25 million that the top end by 5 million and then communication and related services the bottom end I believe came up by 15 million in terms of the revenue outlook. So just could you talk about what’s driving the changes in both of those two outlooks?

Sure. When I think when you look at our C&RS business, the $50 million really was a reflection of a strong year-to-date number. We’ve done really well, as we talked about and recalled automotive continues to do well for us, so we feel comfortable. As you know Kevin, you have followed us for a long time, when we called out, recall and returns, obviously as you go to Q4, you just have more visibility. You have three quarters done already. So, you can narrow the range and feel more comfortable about it. It’s still an unpredictable business, but certainly we feel good about it going into the last quarter. And on the Shred-it, on the Secure Information Destruction revenue line, again solid three quarters in a row. So, we feel good about that business again, newer service line for us, so we are trying to get comfortable with that business before we bring guidance up, but certainly three strong quarters more fine tuning and that one going up and bottom end and the top end of the range.

And just to add to that just in the overall changes to our range is remember we set some favorability in foreign exchange is built into those numbers across all four of those revenue streams, it’s about $8 million in foreign exchange and about $1 million due to the impact of acquisitions.

Okay. Did you make any Secure Information Destruction acquisitions in the quarter or what was the composition of those tuck-in deals you did?

Yes. I would classify all the deals in the quarter as tuck-in small tuck-in deals. We did 4 in the U.S. and 1 international and they were all in the Secure Information Destruction space.

Okay, perfect. Just one last one here for me. So, October ‘17 you had the 8-K announcing you had entered the settlement for the class action with the plaintiffs and their counsel and it looks like the next step is preliminary court approval of this settlement. So, I don’t know if you have gotten anymore insight into the timing of the court schedule or if that’s still kind of up in the air?

Yes. Actually, the court granted the preliminary approval of the settlement at the end of October, so right after the agreement was struck. Members of the settlement class will receive notification probably sometime, Kevin, late November through December and that time as you know class members have an opportunity to opt out or object to the settlement. And a final fairness hearing has been scheduled for February 23 just a little caution on that, that time would be the best case scenario. It doesn’t factor in a time for an appeal and if there is an appeal certainly it can push out that final fairness hearing and the final approval for several months or even a year from that February 23rd date.

Okay, that’s very helpful. Thanks for taking the questions.

Thanks, Kevin. Have a great day.

Your next question comes from our Barbara Noverini with Morningstar.

Hi, guys. Good afternoon.

Hello Barbara.

So another thing that kind of struck me about the quarter was that gross and EBITDA margins actually held up pretty well sequentially given the revenue challenges in the quarter. So, is this primarily because M&I was so weak and that’s a really low margin business for you or were there some other business lines that performed a little bit better than you expected in the quarter?

I think Barbara when you are looking at the EBITDA margins, certainly as you described it some of the shortfalls, remember a big impact of that is the $14 million and revenue shortfall and that kind of flows through. And as you indicated that some of those that flow through at less margins and then we had the impact of the Hurricane included partly to offset that though we did have some benefit from the C&RS business. They have about 21 basis points of better improvement or better flow-through and profitability at what they had and then we saw some favorability in the benefits, but also based off the results, we did rationalize our bonus approvals to get in the range of states the current performance of the company.

Got it. Okay, thanks. And then just quickly you mentioned your success at cross-selling services to hospital customers and that seems to be ongoing. Historically, this has been a pretty steady category for you gross margin wise. So, I am just curious if your success in layering multiple services on to these hospital customers, these LQ customers is actually translating into some margin expansion from that business?

, :

Okay, that’s great. Thanks so much.

Your next question comes from the line of Jeff Silber with BMO Capital Markets.

Hi good afternoon guys. It’s Henry Chen calling for Jeff. Hey, guys. Just a question on the regulated waste and compliance services side, I know you mentioned that organic growth excluding the transport and the SQ pricing headwind improved and you called out some of the retail impact or the growth from that business, just curious if you could provide more color on the core regulated medical business and if you are seeing an improvement there where that’s coming from and what’s driving that? Thanks.

Yes. I think certainly on the core regulated med waste business, I think that’s what you are referring to, Henry. Obviously, we have got challenges on the SQ side of the business and that headwind of $40 million is obviously impacting a negative 1.9%, but as Brent has alluded to and I think the question that Barb was right on is we have been really successful on the hospital side of the business and we highlighted on the call, we continue to sell Sharps management pharmaceutical waste, our controlled substances is being really well received in the marketplace. That LQ business is growing by about 4% to 5%, which historically is a great number at Stericycle and we sort of report on LQ, SQ, that was certainly a good number for us. So, I am giving you the U.S. number on that regulated waste, so that obviously is a 80% of our market. So, we continue to do really well on the hospital side. Obviously, the SQ pricing impacts came in as expected for the quarter. There was no big surprise there. We haven’t seen an increase in calls or discounts. So, we are pleased with that result as well.

Got it, okay. Yes, that is helpful. And in that business, are you – have you been consolidating any of your routes or divesting any of the businesses there?

In the medical waste side of the business.

Medical waste side, yes, okay.

No, absolutely not.

Got it. Okay, great. Thanks so much.

And your next question comes from Isaac Ro with Goldman Sachs.

Good afternoon, guys. Thanks. There has been a lot of talk about various guidance assumptions, but I wasn’t clear, why did your guidance for regulated waste for the year comes down, if you could just maybe simplify that specific logic point?

Yes, absolutely. So, if you look at where we are trending for the quarter and as we took the opportunity in the fourth quarter to really narrow our ranges, we have been operating to the mid to the low end of the range. So, when you see the adjustments that we did by bringing up the bottom or bringing your top-down to 20 which you are really seeing is just an adjustment only the top end of the range, but no change to the bottom end of the range. It’s just a result of tightening of ranges.

I understand that. But the midpoint is lower and so I am wondering, is something changing your pricing assumption or are there another dynamic here that’s new in the fundamentals of the business?

Yes, I think that would be in Latin American and Europe. And I think this is Charlie, I think Dan kind of spoke about it when you gave the bridge with respect to Q4 there is some softness in the growth in international, specifically Latin America. So, certainly that has an impact on it, because that falls into RWCS regulated waste and compliance revenue table as well.

Okay, that’s helpful. So, if Latin America was tracking better, you have heard us say your guidance would have been unchanged otherwise?

I think there was slight weakness in EMEA, which is our European and emerging markets on Asian market, but primarily it was Latin America. I don’t know if it would have been all mitigated by that, I think a good portion of it though would have, yes.

Okay, fair enough. Thank you.

And there are no further questions. Do you have any closing remarks?

I do, Sarah. Thank you so much. In closing, I would like to share that Stericycle has partnered with a National Safety Council on a public education campaign against prescription drug abuse. The campaign will feature a traveling memorial to the victims of the opioid crisis which will visit select cities over the next 6 months. The campaign memorial opens tomorrow in Chicago. We are please to be part of this important educational campaign. The campaign and the memorial will feature Stericycle’s seal and send medication mail bag envelopes. Our support of this campaign reinforces our commitment to provide safe solutions for the disposal of unused pharmaceuticals. Thanks for your time everybody and have a great night.

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