Q1 2021 Stericycle Inc Earnings Call
All participants will be in a listen only mode.
Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions.
To ask a question you May press Star then one on the Touchtone phone towards.
To withdraw your question. Please press Star then two please.
Please note. This event is being recorded I would now like to turn the conference over to Andrew Ellis Vice President of Investor Relations. Please go ahead.
Good morning, and thank you for joining Stericycle 2021 first quarter earnings call on the.
Call today will be Cindy Miller, our Chief Executive Officer, and Janet Zelenka, Chief Financial Officer, and Chief Information Officer.
The discussion today includes forward looking statements that involve risks and uncertainties. When we use words such as believes expects anticipates estimates may plan will goal or similar expressions, we are making forward looking statements.
We're looking statements of our prospective in nature and are not based on historical facts.
But rather on current expectations and projections of our management about future events and are therefore subject to risks and uncertainties.
Actual results could differ significantly from those described in such forward looking statements factors that could cause our actual results to differ are discussed and the safe Harbor statement and the earnings press release and in greater detail within the risk factors and our filings with the U S Securities and Exchange Commission.
Our past financial performance should not be considered a reliable indicator of our future performance and investors should not use historical results to anticipate future results or trends.
We disclaim any obligation to update or revise any forward looking statement other than in accordance with legal and regulatory obligations on the call. We will discuss non-GAAP financial measures for additional information and reconciliation to the most comparable U S. GAAP measures. Please refer to the schedules and our earnings press release, which can be found on our Investor Relations website.
At investors that Stericycle dot com.
And the prepared comments for today's call of correspond to an earnings presentation, which is also available at Stericycle Investor Relations website throughout the call. We may reference specific slides from the presentation.
This call is being recorded and a replay will be available approximately one hour. After the end of the conference call today until May 27, 2021 to access a replay of the call dial 877, and 3447 and five to nine and enter the replay access code 10153262.
A replay of the webcast will also be available on the Stericycle Investor Relations Web site time sensitive information provided during today's call, which is occurring on April 29, 2021 may no longer be accurate at the time of the replay any redistribution retransmission or rebroadcast of this call in any form of without expressed written consent of Stericycle is prohibited.
And I'll turn the call over to Cindy Miller.
Thank you Andrew Good morning, everyone and thank you for joining us I would like to recognize our team members and the essential role Stericycle plays and protecting what matters the.
Health and wellbeing of our team members customers and communities throughout.
Throughout the first quarter, we continued to innovate to match customer demands and strengthened customer relationships and a safe and sustainable way and.
They continue to fight the pandemic.
As a result of those efforts in the first quarter, we delivered strong and continued organic revenue growth and regulated waste and compliance services and generated solid cash flow driven by operational performance.
Secure information destruction revenue improved sequentially quarter over quarter. Despite continued disruption from the pandemic.
Stericycle and plays a key role in managing the reverse logistics associated with COVID-19 vaccination related waste, which contributed to our organic revenue growth this quarter in.
And the U S over 200 million doses have been administered and medical waste from many of those are coming to stericycle for disposal through our mail back solutions and from the mass vaccination centers, we support such as the United Center in Chicago, and the city fields in New York.
On today's call I will start off by providing an update on our behavior based safety culture transformation and then provide perspective on a few of our five key business priorities. As a reminder, they remain quality of revenue operational efficiency modernization and innovation ERP implementation.
Net reduction in debt leverage improvement and portfolio optimization.
I'll, then turn the call over to Janet who will discuss our first quarter financial results.
Following our opening remarks, we will take your questions first let's discuss our behavior based safety culture transformation Casey its fundamental of the Stericycle as the organization.
And the first quarter of 2021 we continued to build on the significant safety improvements, we made in 2020 and further improved our vehicle incident rate, 5% on a rolling 12 month basis.
We completed the defensive driving program and training and North America and are well on our way to roll this out and the international market.
Turning to the quality of revenue, we delivered a strong first quarter and regulated waste and compliance services.
With organic revenue growth of 6% driven by a combination of the net positive impacts of our COVID-19 services and quality of revenue initiatives that I have shared on prior calls the 6% organic revenue growth is comprised of three 8% growth and North America and $16 four per se.
Rent growth and international.
Turning to operational efficiency modernization and innovation.
And I previously described the modernization of our facility to manufacture mail back kits, which significantly increased our productivity and our capability to meet the demands of our customers, providing COVID-19 vaccinations.
As a result of this modernization we increased our production capabilities by 400% we are well positioned to continue to provide strong support of this important global vaccination effort.
And I'm proud of how engineering and operations optimize the manufacturing processes and continue to stay in front of vaccine related waste the demand and.
And our mail back service represents only one of several ways. We are supporting the reverse logistics of vaccine related waste when considering all of the services, we offer to dispose of sharps, including mail back we could handle well over 700 million needles in North America on a monthly basis.
And our existing capacity.
This highlights our ability to handle the entire U S vaccine rollout, even if it was accelerating.
The transformation of our operations goes well beyond our mail back center, we have developed a systematic approach for optimizing and standardizing the design of our medical waste facilities.
And North America, we are implementing larger autoclave and five of our facilities along with automated solutions that will improve safety increase productivity reduce operating cost and increase capacity.
We are on track to complete these optimization of upgrades and three more north American facilities in 2020 one.
Internationally, we just completed two similar upgrades in key locations to support our U K business.
I will now turn to our North American ERP deployment.
And as previously communicated we shifted the majority of our planned deployment of our North American ERP system into 2020 one hour.
Our current expectation is that this summer we will start deploying the north American finance and accounting procurement and secure information destruction portions of the ERP system subject to passing several go no go gates that our standard leading up to deployment.
The plan that finance accounting and procurement and deployment includes our North American General Ledger, the integration of our source to pay platform with the ERP and implementation of enhanced budgeting and forecasting functionality.
The secure information destruction deployment will be conducted and several phases and includes commercial.
Operational and order to cash functionality the.
New commercial tools and functionality will automate existing processes and enhance our quality of revenue initiatives.
The new operational functionality will include routing software that integrates with our ERP platform and will provide enhanced container management and tracking which supports our operational efficiency modernization and innovation priority.
We anticipate completing the phase of deployment to all of North American secure information destruction facilities by the end of the fourth quarter.
Following this deployment, we plan to implement the North American ERP for regulated waste and compliance services and early 2020 two.
We will continue to monitor deployment readiness and timing along with the evolving pandemic dynamics that could impact their business customers internal control environment and the safety of our team members and we'll factor that into our deployment timing decisions.
Lastly, I want to provide a quick update on our credit defined debt leverage ratio.
Generating $62 $6 million and operating cash flow in the quarter.
We were able to further pay down debt and we lowered our leverage ratio to 3.28 times compared to four five times at the end of the first quarter 2020.
This improvement continues our progress towards achieving our long term debt leverage outlook.
I'll now turn the call over to Janet to review our financial results.
Thank you Cindy.
I will start by summarizing our first quarter results.
As noted on slide four revenues and the first quarter were $668 million compared to $785 million and the first quarter of last year.
Of the $117 million decline the impact of divestitures was the $135 million and secure information destruction revenues accounted for $26 8 million, reflecting pandemic related business disruption. These declines were offset by regulated waste and compliance services organic revenue growth of 30.
The $4 $1 million and the positive impact of foreign exchange rates of $10 7 million.
As noted on slide five regulated waste and compliance services revenues, which now include the remaining part of communication solutions were $473 $6 million compared to $566 9 million and the first quarter of 2020.
Excluding the impact of divestitures and foreign exchange rates organic revenues grew 6% and the first quarter North American regulated waste and compliance services organic revenues grew three 8%.
Of this 3.8% growth communication solutions contributed one 3% as the health care industry turned the stericycle to support vaccination and test related communications and scheduling services.
We estimate that the remaining two 5% organic growth was primarily driven by quality of revenue initiatives.
Positive and negative pandemic related revenue dynamics netted to a minimal impact on overall growth as gains achieved from our COVID-19 related waste and mail back volumes temporary testing centers and non health care of P. P E services offset declines and waste from elective surgeries.
And cruise ship related maritime services and.
International regulated waste and compliance services organic revenue growth was 16, 4% and the first quarter with the vast majority of the gains attributable to higher pandemic waste volumes as we support our customers through the pandemic.
Secure information destruction services delivered revenues of $194 $4 million compared to $218 1 million and the first quarter, 2020, which reflects a 10, 9% decline.
Of the $23 7 million dollar decline organic revenues accounted for $26 8 million or of 12, 3% decline, reflecting pandemic related business disruption and North America secure information destruction revenues declined $19 $1 million or 10, 3% from.
To the first quarter of 2020.
For secure information destruction, we generate revenue in two ways.
We're seeing our customers through stocks, which comprised over 90% of revenues and North American and the first quarter and recycling paper, which comprised the remainder.
And the first quarter the revenues related to service stops declined nine 8% as many customers still had staff working from home.
North American recycled paper revenues were down 19, 4% or about $3 $4 million compared to the first quarter of 2020. This decline is inclusive of positive trends and S. O P pricing of zero point $6 million compared to the first quarter of last year as a reminder.
We have been working to add S. O P surcharges to customer service contracts as we continue to renew contracts and win new business. The surcharges are now included and approximately 40% of North American customer contracts and offset of approximately 60% of paper price volatility.
On a sequential quarter basis, North American secure information destruction revenues increased five 6% when normalized for working days.
And the international secure information destruction of organic revenues declined 21, 2% compared to the first quarter of 'twenty 'twenty and included a modest zero point $1 million benefit from that Sop pricing.
The decline in organic revenues was primarily due to the duration and severity of international Lockdowns and many of which continue today on a sequential quarter basis International secure information destruction revenues increased about 1% when normalized for working days and foreign exchange rates.
Income from operations was $59 $1 million from the first quarter compared to a loss from operations of $30 4 million and in the first quarter of last year of the $89 5 million dollar increase the change was primarily due to one the first quarter 2021, having no net divestiture of losses.
Compared to net divestiture of losses of $58 3 million and the first quarter of 2020.
Two lower selling general and administrative expenses of $27 3 million after excluding the reduction in SG&A associated with divestitures of $29 1 million and three operational efficiency improvements of approximately $5 million.
These were offset by one higher third party disposal costs and international regulated waste and compliance services of approximately $6 million to the combined revenue flow through and cost impact of severe weather in North America of approximately $4 million and three lower operating income due to divest.
The truth of $2 1 million.
And the first quarter, we spent $23 million related to the ERP and line with the overall spend and I share it on the last call.
And with about 90% and operating expenditures and 10% and capital expenditures.
U S. GAAP net income was $26 $1 million or 28 cents diluted earnings per share compared to a net loss of $20 $1 million or 22 cents diluted loss per share and the first quarter of last year.
And the difference was related to higher income from operations of $89 $5 million. That's explained earlier and lower interest expense of $6 6 million, mainly driven by a lower debt balance. These were partially offset by an increase in income tax expense of $52 $2 million compared to the first quarter of 2020.
Primarily as a result of the nonrecurring tax benefit from the cares act of $39 4 million and the first quarter of 2020, and a higher taxable income generated in the first quarter of 2021.
Cash flow from operations for the first quarter was $62 $6 million compared to $82 1 million and the first quarter of 2020 the year over year decrease of $19 $5 million was primarily driven by a higher annual incentive compensation payout of $38 $6 million and.
The higher accounts receivable of $9 2 million driven by increased revenues. These were partially offset by lower interest payments of $15 6 million, primarily as a result of lower debt balances and improved operating and working capital performance of $12 7 million.
Adjusted income from operations was $110 million or 16, 5% as a percentage of revenues compared to $93 8 million or 11, 9% as a percentage of revenues and the first quarter of last year.
Lower SG&A contributed approximately 280 basis points of the improvement quality of revenue and operational efficiency initiatives contributed approximately 200 basis points and divestitures of lower margin businesses added approximately of 120 basis points. These improvements were partially offset by higher third party.
Disposal costs and international regulated waste and compliance services of approximately 90 basis points and severe weather impacts and North America of approximately 60 basis points.
Adjusted diluted earnings per share was 71 cents compared to 52 cents and the first quarter 2020 as illustrated on the bridge on slide seven the 19th sense of improvement was due to the following.
18th sense favorability from higher adjusted income from operations six cents favorability from interest and other expenses, which was mainly a result of lower debt balances.
<unk> favorability from a net positive benefit of foreign exchange rate offset by six cents on favorability from the impacts of divestitures.
Our first quarter DSO as reported was 55 days compared to a DSO of 47 days and the first quarter of 2020, when excluding divestitures as of March 31, 2021 from the trailing 12 months DSO calculations DSO was 57 days and the first quarter 2000 and <unk>.
'twenty, one compared to 55 days and the first quarter 2020.
Capital expenditures and the first quarter were $24 $7 million compared to $39 6 million and the first quarter of 2020.
The difference was mainly driven by 22 million less and ERP capital expenditures in 2020, one compared to the first quarter of 2020 and the timing of planned 2021 capital expenditures as a reminder, for the full year of 2021, we anticipate spending of 162 180 million.
And capital expenditures free cash flow and the first quarter was $37 $9 million compared to $42 5 million and in the first quarter of 2020 the.
$4 6 million dollar decrease was due to lower cash flow from operations, partially offset by lower capital expenditures.
As shown in slide eight at the end of the first quarter, our credit agreement defined debt leverage ratio was 3.28 times and improvement from 4.50 times as of March 31, 2020, and well below our maximum allowable ratio of 475 times.
Net debt was reduced by $38 $3 million and the first quarter and total net debt is approximately $1 seven zero billion.
As of March 31, 2021, we had $978 million available and our revolving line of credit.
Although we still operate with disruption and uncertainty due to the pandemic I would like to provide some insights into what we see emerging related to the second quarter revenues as well as anticipated the ERP related expenditures.
As a reminder of the pandemic significantly impact portions of our business and the second quarter 2020, Shredding service stops declined its workers were sent home to shelter and place cruise ship stopped failing and many elective surgeries were deferred because of those prior year dynamics, we expect that portions of our business may be.
And if it from favorable revenue comparisons if the trends from the first quarter of this year continue into the second quarter. After normalizing for the impact of divestitures on our revenues and the second quarter of 2020, which was approximately $27 million from the divested environmental solutions expert solutions and Argentina Biz.
We may generate organic growth and the low teens and the second quarter of 2020. One we do not anticipate this level of organic revenue growth to continue through the second half of 2021 as we begin to lap the impact of the pandemic.
Regarding the ERP as Cindy mentioned, we will continue to monitor deployment readiness, along with the evolving pandemic dynamics and we will factor those into our ERP deployment and timing as noted on slide nine we are on track to spend approximately $75 million to $85 million on the ERP implementation in 2020, one which.
In line with the ERP spending range I shared last quarter, beginning in the third quarter through the remainder of 2021, and we also estimate having approximately $30 million to $35 million of ongoing <unk> operating expenses, beginning in 2020 two we estimate the total annualized ongoing operating expenses for running the new system.
And we'll be $50 million to $60 million, the 2021 and 'twenty 'twenty two ongoing I T. Operating expenditure ranges are in line with the estimates I provided last quarter.
Finally, we remain committed to our long term outlook is summarized on slide 10, I will now turn the call back to Cindy.
Thank you Janet this is an exciting time to be part of Stericycle every day, our team members show up do the work and continue to transform stericycle.
We remain confident our five key priorities are the right ones to unlock long term shareholder value and we remain focused on successful execution and before we open it up for questions I'd like to thank our team members our customers the communities, we serve and our shareholders for their continued trust and have.
The stericycle protect what matters operator, please open the line for Q&A.
We will now begin the question answer session to ask a question you May Press Star then one on you touched on the phone if you're using a speakerphone. Please pick up your handset before pressing the keys.
And if at any time and your question has been addressed and you would like to withdraw your question. Please press Star then two.
And the interest of time, please limit yourself to one question and one follow up.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Sean Dodge with RBC capital markets.
Please go ahead.
Thanks, Good morning.
And and congratulations on the on the Great performance this past quarter maybe.
And then maybe on the the revenue quality initiatives and Cindy you mentioned that being a meaningful contributor to the organic growth and the quarter can you give us a sense of of where you are and working through that opportunity and gave you.
<unk> been able to re price most of the larger.
The customer contract and or do you think youre still kind of and the earlier or mid innings are there.
Yeah, I think Sean Thanks for that question a couple of things that was the key component you know when we were early days in quality of revenue movements. It was it was kind of like the one that we could get our hands wrapped around first we started the deal review committee, where many of those large deals were brought into a central location, where we took a ton.
Away from you know the field two of degrees. So that we could help them you know get more standardized in terms of of the services and the value of that we were gonna put forth since that time, we've done many other things we've evolved Cory white, our chief commercial officer, and his team and we've realigned the.
All of incentive plan, we've put in a centralized RFP process, which we never had before that's yielding great dividends for us and we're still early days of couple of months into pipeline management, which was one of the latest technology engagements that we've put out for quality of revenue and I can tell you.
All of those collectively are helping to contribute to the growth that we're seeing this last quarter. We were estimating about 2.5% of the growth came from quality of revenue and the other the other and of 1.3 per cent from console, which was another great story for us, but but I think where we're past just makes.
I'm sure that where we're pricing for value on contract renewals right. Now I think we are selling value we are negotiating to value and quite frankly, I think we're becoming a better partner to our customers as we learn more about all of the capabilities that we're doing for them and being able to tailor to the to the <unk>.
Forward look of of the customer demand so very excited about the efforts and and certainly excited about the results for Q1.
Okay, Great and then on the the secure information destruction of business. Good good sequential progress there on the other.
I think first quarters tend to be big purged quarters, maybe could you comment on how much of that her work contributed to the COVID-19 and then maybe how that compared year on year I'm curious was there a big the claim purge related demand.
This is the kind of of the pre pandemic.
First quarter, two and I was wondering.
You know Sean that's it that's of Great question and one of the things that we find is is it is it is some you know purged naturally from a sequential perspective is you know is the first quarter, but it's all in and it also kind of rolls into the second quarter post a income tax day, if you will but but I think you know our.
Sure we've got the the automatics you know the the the customers that that we come to regularly and then purge I think where we're positive in terms of of seeing sequential quarter over quarter improvement as you had mentioned that's key to US right now and it's telling us that as the businesses come back and they are open.
They still see our service and as in the central part of of that opening. So that's that's good news for us. So I I don't have the breakdown in terms of purge versus purge of but I can tell you. We are we are we are very positive about them continuing to see steady.
Increases and steady improvement and that business since its precipitous decline in Q2 of the of last year.
Okay, Thanks and.
And congrats again.
Sean.
Our next question comes from David Manthey with Baird.
Please go ahead.
Yeah. Thank you good morning.
Janet and I appreciate the confirmation of the Opex dynamics on slide nine and as we look at and <unk>.
The quarter SG&A and <unk>.
And think about how that tracked relative to the first quarter should we assume some moderate upside there and it looks like you're guiding to sequentially revenues being a little bit higher and then from there we probably add in that 15 to 17 or $18 million per quarter for that $60 million to $70 million run rate.
Bob.
So I'm looking at your total SG&A somewhere in the ballpark of 200 million is that the.
We have the right track there and so.
The the where we're pleased with the performance and SG&A, where and you know dynamic times with puts and takes that are going through the year I think the key thing here to know is the ERP expenditures, which will hit SG&A will be they're adjusted out you know for the year, but and sort of the GAAP basis, but then also when we turned.
And the switch you're going to see a flip of about $30 million to $35 million. This year and tests G&A for the new system going live. So that's the key dynamic and the second half of the year for SG&A. You know certainly we hope that there's revenue flow through but note the international dynamic that with the pandemic related.
Waste, we also have and some higher costs going on and internationally. So that will be we actually should see improved margins and international if we have less COVID-19 waste and the other way around us are the the way to think about that dynamic.
Okay. So it sounds like there's nothing unusual that we should anticipate other than the the.
30% to $35 million and the second half of the year that you've outlined so the right there's others that plus the ongoing cost of implementing the ERP through the year plus there is the uncertainty that comes with putting in and ERP, but yes. That's those are the key dynamics.
Okay, but as far as the the the first piece there the deal.
And the implementation of that you're spending today ongoing that's not stepping up the 30 to 35 of the represent that represents the amount of and stepping up and the back half right that is correct.
Okay, Alright, it's helpful and then.
Just quickly to close the loop on that Janet could you tell us how youre preparing the people side of ERP implementation.
Updates on the training that Youre doing for data capture and analytics and are you expecting any short term inefficiencies before you start seeing benefits from the system next year.
It's a great question. Thank you for it so of business readiness and change management to keep part of any ERP and it's an area. We're acutely focused on we have a whole team focused on change management business readiness is actually when we talk about go no go gates business readiness is one of them as well as your technical I T. Go go no go gates like production et cetera, we are.
The deeply engaged and that we and we have power users. We are building deep knowledge of the system through the testing we're doing and we're also have a training program there'll be natural inefficiencies as you train a work force such as drivers out and the field and take them offline to understand how they use the handheld differently than they use today or you know with new capabilities.
They don't have today. So you know that is that is built and how we're thinking about the second half. You also may have extended call times you know initially with call centers, you know, helping customers get through some changes that they will see even though they may be upgrades of their different. So we have factored that into our thinking and it's a really important part of the planning for the ERP.
Thank you very much.
Okay.
Our next question comes from Brian Butler with Stifel.
Please go ahead of them.
Good morning, Thanks for taking my questions.
Good morning, Jeremy.
And makes it yeah, Aramark and we have you Brian.
And just the first one.
Think about the divestitures, what what remains out there it looks like communication was rolled into the regulated medical waste and compliance services. So is that still for sale I'm just a little color on what I guess, what is still for sale and maybe some thoughts on timing of that.
Yeah, I think you know that's always a great question. We we've left the portfolio optimization is one of our five key priorities for a reason.
And where we're focused on making sure that we take a really and a disciplined approach to capital and disciplined approach to the core businesses and and really managing.
And that way I think the divestitures, we've had up to this point and time and certainly helped they've they've helped them they've helped the balance sheets are and certainly helped to reduce debt.
That I think what we're looking at as we've always said we of core businesses and then we've always said that we wanted to be and markets, where we felt we.
We had a strong commercial opportunity to grow you know quality revenue. So so for US we continue to look at that too.
To see and make sure that we're in markets, where you know if you will the the juice is worth the squeeze and so price I think we're taking the disciplined approach you know two to looking at all things and evaluating certainly with US having had our largest company. The best picture last year and I think it was in the Q2 of last year.
We've developed the the you know the the muscle memory and order to be able to to be flexible and I think where we're leveraging that to make sure that where we're capturing what we might think would be the best deals out there. So for US right now, where we're sitting back and being pretty opportunistic and.
And I just wanted to add to that that are you know we put comps all into the our WCS business service line for a reason is that it has a high overlap and hospital customers with what we have today and it's been a real gem of a performer as you can see and the first quarter contributing to the overall growth of the heart.
Bottles and other major medical providers see the value.
Yeah, and and if I'm in the brain if I just may with reference to console. Since you brought it up I just think it's important for us to talk about one of the things. We know from that Divesture of question. You had we did divest and we divested of the telephone answering service and the expert and recall business and from underneath that C. N. R. S umbrella, we've had an opportunity to restructure.
Of that organization income saw communication solutions, I think I think the team under Cory whites direction is done the great job and better aligning costs and.
We've enhanced and upgrade some of the service offerings and we've got live voice. We have you know natural language processing, we've got multi language support and and I think what we're seeing and console is you know provides intelligent the scheduling capabilities and various channels, whether its on live ly voicemail and live voice email.
The chat and it's great from referral management of which has really.
Been key to our customers right now communication reminders with reference to appointments and and other engagements with the with hospital patients or Doctor office patients.
And we've got and post discharge services patient hotlines, so for US Dan It was mentioning it's it's a great synergy where it's affording us the opportunity to stay connected with our strong customer base, where we are kind of on the back half of the logistics provides us an opportunity to get upfront and get engage with customers and the interesting thing that we're really seen.
And right now is we have seamless integration with our customer networks, we've got a comprehensive platform and lastly, where we're finding we of about 300000 daily patient engagement and experiences of day on behalf of that large customer base that we have and I think our I think we're learning more about it as of.
Result of the divestiture and I think with it contributing the 1.3 of the of the growth that we had the organic growth and North America out of the $3 eight and where we're excited about where that's going.
Okay. So it would be fair to say that beyond the normal business pruning of.
No of noncore assets that you find theres really no large chumps remaining to be divested.
I I I stand by what I said, you know we continue to to know the core and evaluate our options. So I I think hum.
And I think we'll we'll see we'll see where that shakes out.
Okay second question just on the ERP.
Great detail on kind of the expand to can we review maybe the expected benefits.
And as the rollout go out and how to how to think about maybe modeling that and what the potential is.
And the remainder of either 2021 are as we head into 2020 two.
Sure and it's a great question and I'll start off and turn it is anything else that she'd like to add that'd be great, but I think I think when we tried to take a look at them putting in and ERP. There's there's been an awful lot of the technical debt I think in terms of of all of the disparate systems that we've had up to this point in time, so we've realized that Oh.
Good bit of us everything for us being able to make it and.
Make our long term guidance plan, we've got to have this this ERP implemented and successful a good bit of you know, whether we're talking about $400 million and in the free cash flow. If we were talking about the continued debt leverage if we're talking about you know being able.
And to grow all of those requires the infusion of the technology capabilities that the ERP is going to provide for us. So while we have you know where we're doing our best to continue to to work efficiently and optimize what we're doing and standardize processes and we're doing our best to make sure that we're continuing to drive the quality of revenue, but you know the capable.
All of these of the ERP will bring you know that's what's going to the that's what's going to take us into the numbers that we've put out there Jan and any any other anything that I've missed and I think.
And you covered it basically the the business cases, the whole life and term guidance that we've given because it's so foundational to the business.
Okay, great. Thank you.
Thanks, Brian.
Our next question comes from Alexander Lach from Bahrenburg capital markets. Please go ahead.
Good morning, and congrats on the quarter much of my first question sort of around the of the vaccine work that you guys mentioned you know how much of a benefit are you seeing from that exactly and do you expect that to roll of and H two.
And on the flip side and of the sort of conversation that we may have to get annual pieces of the vaccine going forwards and opportunity and some upside to rookie for you guys.
You know that's and that's that it really is of great question, Here's here's what we're very pleased with them.
We felt we have we are of a large portion of a portion b of a portion of our regulated waste and whether it's the the the decline in the elective surgeries people staying away from hospitals, and doctors offices, and and and a complete shutdown of another portion of the business and maritime when we talk about you know those pieces being down and yet.
And what we've seen is our ability to be nimble enough to capture this.
And this opportunity called COVID-19 or the this opportunity called the pandemic. So for US we see COVID-19 really coming in whether it was the nimbleness. We showed when it was all about testing and all about non health care P. P E disposal and now we're looking at it I'm just being attitude with reference to vaccine.
And logistics. So we think you know that portion of the business is really helping to offset what we're seeing in declines and other key portions of the business with elective surgeries and maritime and then on top of that our growth. We're seeing are certainly is based off of or quality of revenue initiatives. So so for us.
Here's what I know I think I think we are prepared we've got strength and our quality of revenue right now.
We're seeing we're seeing growth we are positioned if some of this this the pandemic related.
You know, whether it's vaccinations are testing if some of that of portion of that continues into the future. That's terrific and we're prepared as I had mentioned we are we are well prepared with capacity and operations at the ready to handle it.
So I think that's that's the that's an opportunity and upside for us, but right now I think we are well positioned to make sure we can hit our 3% to 5% long range.
Revenue growth targets based on the foundations that we have at this moment.
Okay, Great and then looking ahead, how how are you viewing inflation and you know sort of rest of that impacting the the shred of business tool on the S&P pricing and have you seen and impacts on and sort of Q1 like the construction.
And so inflation is a interesting dynamics that we're watching and the business actually inflation and sorted office paper pricing would be of benefit for us because as you can see of the dynamic and recycled paper is the price times volume dynamics. So we would get more for the paper in terms of inflation across the other aspects of it.
Predominantly of service industry. So it's a fuel, though that's a very modest part of our overall spend and you know something materials, which we have good contracts in place, but we're monitoring. So so we're watching the inflation dynamics going on but were also of low interest rates to that is the.
The the other side of the whole economic dynamic that you know I think will benefit from sort of sorted office paper pricing going up would be and upside for us.
Okay, great. Thanks, guys.
Thanks Alexandra.
Our next question comes from Scott Schneeberger with Oppenheimer.
Please go ahead.
Thanks, very much good morning, Cindy curious on an international and and regulated waste of very strong quarter, I know of lower base, but a strong quarter of organic growth just curious what's behind that and if that ties into the comments about the the.
And the third party disposal issues internationally Frank.
Yeah, Scott, you're you're spot on with that so one of the things. We see there is Europe is in the different position than the U S is and then most of the world is with reference to the pandemic.
And not as much vaccine rollout longer stays and hospitals you know so it is it's a completely different dynamics for us. So what we have talked about what we've been able to unpack is we believe there is some over classification of waste you know, meaning not just COVID-19 waste, but in the room with the patient you know, it's it's all things are kind of being.
Classified as regulated waste and we are seeing them and an uptick now the you know the good news is where we have the capability, where we're and Ah we're collecting it.
But it's it's pushing us to a little bit more dependence on third party and anytime you get engaged with third party and you know the revenue that you're bringing in isn't necessarily the same quality that the revenue you bring in when you handle it on your own. So so that's the dynamic there, but you know we're proud of the <unk>. We're proud of the international team. We're certainly proud of the team.
Now in the throes of things.
In and being able to do the things that they're doing we have we've upgraded I think we mentioned we upgraded two.
Two of the facilities two key facilities for us and the U K market and so that we can we can help our folks and you.
You know continue.
To handle the waste that they're seeing and I think that that's going to continue to be key for us and the future.
Great. Thanks, It sounds like a go forward opportunity the.
It's been a very impressive job you're all done with regard to our two deleveraging and getting very close to or below three target just curious Janet and thoughts on on how soon you could get there from our math it looks like you're getting pretty close and thoughts on other you.
Uses of capital besides the debt reduction and since we are getting so close just any any upstate and consideration there thank you and well.
Thank you you of where we're pleased with the continued the paydown of debt as you know that's one of our top five priorities and are the cash flow generation that we're seeing and the business. So you know we have.
We have the target to get below three and our long term guidance, a little farther out than what you're you're indicating and and that's because we have to get through the ERP and some other considerations that you know we're monitoring what that means in terms of cash outflow and.
In terms of a more sophisticated capital allocation strategy than pay down debt that is something that we're excited to consider and the future as as this engine of cash continues to generate opportunities for us where we're not we're not ready yet where we're thinking about what that will be but you're you're correct that the cash.
Cash engine of the business could generate additional opportunities for us and you know and the future of at some point, we'll be talking about those options.
Great. Thanks, good job I'll turn it over.
Okay.
Our next question comes from Gary Bisbee with Bank of America. Please go ahead.
Hi, good morning.
Asked earlier about SG&A, but I wanted to circle back to that for just a minute.
When I look at the last three quarters, I guess of 2020.
And you had talked about $3 million to $5 million of cost savings and I think.
All of that roughly 80 basis points of the efficiency of couple of quarters, and ROE, which which I think was effectively of that $5 million.
And yet this quarter.
All of that 280 basis points of SG&A, and 200 basis points of operational efficiency. So it seems like those those savings.
Savings programs stepped up materially, but what else is involved there and is there any of that the.
Should think there's more Q1 specific and not something that would continue as we move through the year and I heard you loud and clear on the incremental ERP. So you don't have to repeat that but what are the other puts and takes the.
This quarter.
The that drove the margin. Thank you and thank you. We're pleased with the S T and a performance too and I. Thank you for here and the ERP because that will be a factor and SG&A performance going forward and the other will be you know we believe travel walk you know to continue to ramp up as and the opportunity to open right. Now internationally you know travel is very <unk>.
Restricted and we can't even get over the you know the ocean to see our people over there. So you know there's some opportunity for increased travel expense and the second half of the year. We did have dynamics as you heard of that in the overall margin some of that as more and cost of revenue that related to international.
And disposal and weather, but SG&A is something we're watching but the big story is the I T and the second half of the year that we will see and maybe some increase return to travel and some other expenses as the economies open up.
And and so excluding the ERP and we'll layer that and for sure is this a decent jumping off point or were there. Some other factors because of its Dan.
And I worried a bit from the last couple of quarters. You know, it's it's with all the puts and takes we've got going on and the business and from the dynamics. It's a I would say the divestiture piece of structurally and ongoing piece set of 120 basis points I believe that we quoted that that is structurally of change and how you can think about SG&A the rest of it.
And so that's why we continue to monitor it but given the dynamics you know I'm I'm reluctant to make predictions, but we're pleased with the the discipline that we see.
Okay, and then and then just one follow up on the ERP. So it sounds like the the regulated waste business facilities is now of 2020 two story.
Does that does that change at all and you know sort of course timing of timing of going live when you might achieve some of the efficiencies not only cost side, but you've talked a lot about the operating.
The potential get better data you can make better decisions should we think that it's really a you know.
The 23 story of this at this point or or.
Is that how you thought about it all along and that's just really so.
Construction of today. So thank you appreciate that question just to give the the history of the ERP. So as you know where we're going to go live last year and then the pandemic hit and then the ability to serve our customers was important as well as the safety with the shelter and place rules et cetera to put it out and it had been largely created.
As an in person appointments so.
What we're what we're seeing going forward is that we're going to deploy and the summer. It seems like it's an open and enough time to do that we have created a virtual our ability to manage the the ERP and we are going to start and it's more than just shred. It. It is the entire general ledger and financial systems at the procure to pay.
And so it's all of the major processes plus the shred of facilities and as you cascade through doing that plus the shredder facilities and maintain and and stabilize the control environment to maintain our effect of control environment. Just naturally flows that the or WCS facilities will hit into next year in terms of costs most of the development.
And we believe will occur this year there may be some costs, we're still evaluating that eek into next year as we finish and deploy our WCS. We will learn a lot from the first appointment and terms of benefits. We are you know the benefits or the long range guidance and we commit and remain committed to that and we are.
We're continuing to get benefits of the parts of the ERP, we've already deployed and remember we have the procurement system. We have the HR system. We have deployed the tax system and we continue to evolve our data and analytics platforms. So those help us continue to provide benefits as we continue to deploy.
Thank you.
Our next question comes from Jeff Silber with BMO capital markets. Please go ahead.
Thanks, So much I wanted to go back to an earlier question. I think you were asked if you could quantify the impact of the vaccine and anything else related to the pandemic and I think you just said it basically offset some of the negative but you're still getting from that is it possible just to put a number around it what is the positive impact you've gotten from some of the Panther.
<unk> related work and the first quarter.
Yeah. So if you look at the how we unpack the the North American growth you know and you started with the the three 8% growth on the the comp store growth of one 3% is is a good part of that is driven by us helping with vaccine related outbound patient portal and other calling that is that.
Creating contracts and new customers and existing customers and showing the value proposition.
And so it could be sustainable it could be vaccine related and and are testing related and then you unpack the rest of two and a half percentage of that we think of as you know due to the sustainable quality of revenue initiatives that we've put in place to great growth in and the business and then the you know the rest of sort of the washout and our WCS.
And North America between the declines and elective surgeries and maritime where the cruise ship stopped selling against the upsides, we've seen from our mail back programs or vaccination programs are testing programs etcetera. When you go to international most of that growth was fueled by the the pandemic related waste and vaccination programs that are going on.
And I'm, there and then and that's what's fueling at some increased costs as well.
Okay, I realize it's difficult to quantify I appreciate that.
Generally those type of businesses related to the pandemic did you say earlier that there are lower margin businesses than your typical core business.
And we did not say that.
And I Must've Misheard you, Okay, and how does the compare margin wise to your core business the.
And the vaccine and the vaccination and testing related bid for assets.
Yeah, I you know yeah, there's some mix in there, but they basically I'm very impressed the out of the commercial team has been very customer responses and are focused and but also been able to build pricing mechanisms to retain margin value.
Okay, great. Thanks for your help.
Okay.
As a reminder, if you have a question. Please press Star then one.
Our next question.
And just from Ryan Daniels with William Blair.
Please go ahead.
Hey, guys next mixed readout and for Ryan. Thanks for taking my question I guess, if you could provide just like the little color on how the selling season is going.
And with a particular I guess focus on.
The cross selling.
<unk> said two of our WCS client.
Yeah, I think that's a.
And that's a great question, Nick and and one we're very excited about we continue to you know.
And as we as we are creating a stronger commercial organization and all the training you know all of the quality of revenue improvements and one of the keys is really.
Putting forth.
A a bundled solution the solution, where we can.
We've got a tremendous amount of of products and services that we can help our customers with them and making sure that we we we cross sell or that we we present that to them has been a key focus for us. So what I can say is yeah and when you take a look at businesses and let's say our WCS as an example, and you see all the years of the.
Klein of of revenue really no organic revenue growth at all and we saw the first signs of positive organic revenue growth and I think it dated back to either sometime in 2016 of our early 2017, I forget exactly when but when you take a look at last quarter last year Q1 of 2020 was the first time.
We had turned the corner and saw some some growth and now here. We are a year later and with all the uncertainties. The that came from this pandemic and and all of the the work that the team has done and I couldn't be prouder of the fact that where we're now talking about them you know quality of revenue initiatives that we believe we're about 2.5% of the.
And three 8% growth.
And that we saw in North America. So to me what the what that's telling me is where were selling regulated waste well and I when I see us sequentially growing quarter over quarter with secure information destruction I've I have confidence that it's also because of the combined efforts are four and a lot of the.
Cross selling cross.
Cross selling training that we've put in and so so more to come but but very positive anytime and organization can really get some some momentum behind organic growth. It's a it's it's good it's good news.
Yeah.
Great. Thanks, and then I guess the.
The next one just kind of a clarification question I think last quarter, you targeted or are you pointing to about $60 million and revenue locked and.
And that Crs business that was rolled into.
RWC as of this quarter is that a is that kind of still the case and Oh.
The good baseline and go off of them yeah. So the the the baseline for the communication solutions is what we called the remaining business was about $60 million and you know that's the baseline from last year.
Okay, great. Thanks, guys. Congrats on the solid quarter. Thank you. Thanks Nick.
This concludes our question and answer session I would like to turn the conference back over to Cindy Miller for any closing remarks.
Thank you Betsy and the to everyone listening on this call and we greatly appreciate your interest and Stericycle and your shared excitement for our future. So thank you much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.