Stericycle revenue down almost 30 percent in Q2 due to divestitures, COVID

Stericycle Inc., Bannockburn, Illinois, reported its results for the second quarter on Aug. 6.

Revenues for the quarter were $598.2 million, a decrease of 29.3 percent compared to its revenues of $845.8 million in the second quarter of 2019 due to multiple divestitures and the impact of the COVID-19 pandemic.

Organic revenues declined 10.6 percent when excluding the impact of divestitures, foreign exchange rates and changes in sorted office paper (SOP) pricing. Income from operations was $24.9 million, compared to $25.3 million in the second quarter of 2019. Net loss was $4.5 million, or 5 cents diluted loss per share, compared to a net loss of $30.5 million, or 33 cents diluted loss per share, in the second quarter of last year. Adjusted income from operations was $85.3 million, compared to $105.6 million in the second quarter of last year. Adjusted diluted earnings per share was 46 cents, compared to 56 cents in the 2019 comparable period. 

Cash flow from operations for the first half of 2020 was $207.3 million, compared to $71 million in the same period in 2019. Free cash flow for the first half of 2020 was $132.7 million, compared to an outflow of $37.2 million in the first half of 2019, an improvement of $169.9 million.

Other highlights include:

• The company reduced net debt by approximately $514 million in the quarter, leveraging divestiture proceeds and cash flow from operations, which lowered the adjusted debt to EBITDA leverage ratio to 3.89.
• Income from operations, normalized for divestitures and foreign exchange, improved $6.5 million, driven by operational efficiencies and cost reductions.
• Regulated Waste and Compliance Services (RWCS) revenues remained stable with the prior year as the COVID-19 pandemic continued.

“While Stericycle continued to be impacted by the COVID-19 pandemic and the limited reopening of many geographies, we delivered a strong second quarter with meaningful progress toward key business priorities,” Stericycle CEO Cindy J. Miller says. “We improved income from operations excluding divestitures and foreign exchange, generated significant cash, and lowered our leverage ratio.”

“We are extremely proud of our global team members and the support we provide to the healthcare communities and essential service providers,” Miller added. “The pandemic has served as a catalyst to accelerate our transformation as it forced us to think quickly and act differently.”

U.S. GAAP results

• Revenues for the quarter were $598.2 million, compared to $845.8 million in the second quarter of last year. Of the $247.6 million year-over-year change, the impact of divestitures and foreign exchange rates reduced revenues by $149.6 million and $9.9 million, respectively. Organic revenue excluding SOP pricing was down $89.4 million, due to the COVID-19 pandemic.
• Income from operations in the quarter was $24.9 million, compared to $25.3 million in the second quarter of last year. The impact of divestitures of $8.4 million, offset by a benefit from foreign exchange rates of $1.5 million, reduced income from operations by $6.9 million. This decline was partially offset by operational cost improvements of $6.5 million from compensation, transportation, and SG&A expense management.
• Net loss was $4.5 million, or 5 cents diluted loss per share, compared to a net loss of $30.5 million, or 33 cents diluted loss per share, in the second quarter of last year. The 2019 comparable quarter included a loss on early extinguishment of debt of $23.1 million. The second quarter this year included lower interest expense of $14.3 million due to reductions in debt and interest rates, which was partially offset by an increase in tax expense of $11.7 million, primarily due to higher discrete items, when compared to second quarter 2019.
• Cash flow from operations for the first half of the year was $207.3 million, compared to $71 million in the same period in 2019. The year-over-year improvement of $136.3 million primarily includes:
• lower payments for legal and professional fees, annual incentive compensation, prepaid software and interest totaling $54.8 million; 
• lower accounts receivable of $56.5 million driven by collections exceeding revenues due to the pandemic and collection process improvements
• lower accounts payable of $25 million primarily driven by reduced costs
• government relief tax-related payment deferrals of $15.7 million, roughly split between U.S. and international, and
• advances received on recently executed service agreements of $19.2 million, related to the domestic Environmental Solutions divestiture. 
• Cash paid for capital expenditures for the first half was $74.6 million as compared to $108.2 million in the first half of 2019, primarily driven by the timing of 2019 investments in the ERP and 2020 disciplined capital management.

Non-GAAP results

• Organic revenues of RWCS declined by only 0.3 percent, reflecting the essential services Stericycle provides to the healthcare industry, the company says. Organic revenues of Secure Information Destruction Services (SID) excluding the impact of SOP pricing declined by 33.6 percent, reflecting the closures and limited reopening of businesses during the COVID-19 pandemic. Organic revenues of Communication and Related Services (CRS) also declined by 17.1 percent as a result of lower demand for hospital scheduling services and lower recall volume compared to last year due to the COVID-19 pandemic.
• Adjusted income from operations was $85.3 million, compared to $105.6 million in the second quarter of last year. Excluding the impact of divestitures and foreign exchange rates of $14.7 million, adjusted income from operations declined only $5.3 million despite reduced revenues as a result of the pandemic. 
• Adjusted diluted earnings per share was 46 cents, compared to 56 cents in the second quarter of last year. The year-over-year decline includes the impact of divestitures and foreign exchange rates of 11 cents, lower revenue flow through of only 4 cents, and a higher adjusted tax rate of 3 cents. These factors were partially offset by lower interest expense of 8 cents.
• Free cash flow for the first half of the year was $132.7 million, compared to an outflow of $37.2 million in the first half of 2019. The significant year-over-year improvement of $169.9 million was due to higher cash flow from operations and lower capital expenditures..

Debt reduction

During the quarter, Stericycle reduced net debt by approximately $514 million using net proceeds of $427.7 million from the sale of its domestic Environmental Solutions business to Harsco and cash flow from operations. The company’s adjusted debt to EBITDA leverage ratio as defined by the company’s credit agreement declined to 3.89 times at the end of the second quarter.

Divestiture of business in Argentina

Stericycle also announced that it completed the sale of its operations in Argentina on Aug. 3 for cash proceeds of approximately $3.9 million, marking the seventh divestiture executed by Stericycle in the last 18 months. The company expects to incur a non-cash pre-tax loss of approximately $115 million in the third quarter, primarily attributed to the reclassification of accumulated currency translation adjustments to earnings.