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Stericycle (NASDAQ:SRCL)

Q4 2011 Earnings Call

February 02, 2012 5:00 pm ET

Executives

Laura A. Murphy - Vice President of Corporate Finance

Frank J. M. ten Brink - Chief Financial Officer, Chief Accounting officer and Executive Vice President of Finance

Richard Kogler - Chief Operating Officer and Executive Vice President

Mark C. Miller - Chairman, Chief Executive Officer and President

Analysts

Ryan Daniels - William Blair & Company L.L.C., Research Division

Scott J. Levine - JP Morgan Chase & Co, Research Division

Jonathan Demchick - Morgan Stanley, Research Division

Albert Leo Kaschalk - Wedbush Securities Inc., Research Division

Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division

David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division

Richard C. Close - Avondale Partners, LLC, Research Division

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

Gregory W. Halter - LJR Great Lakes Review

Operator

Good afternoon. My name is Jessica, and I will be your conference operator today. At this time, I'd to welcome everyone to the fourth quarter 2011 earnings release conference call. [Operator Instructions] Thank you. Laura Murphy, Vice President, Corporate Finance, you may begin your conference.

Laura A. Murphy

Welcome to Stericycle's Quarterly Conference Call. Joining me on today's call will be Frank ten Brink, CFO; Rich Kogler, COO; and Mark Miller, Chairman and CEO.

I will now read the Safe Harbor statement. Statements by Stericycle in this conference call that are not strictly historical are forward looking. Forward-looking statements involve known and unknown risks and should be viewed with caution. Factors described in the company's Form 10-K, 10-Qs, as well as its other filings with the SEC, could affect the company's actual results and could cause the company's actual results to differ materially from expected results. The company makes no commitment to disclose any revisions to forward-looking statements or any facts, events or circumstances after this date that may bear upon forward-looking statements.

I will now turn it over to Frank.

Frank J. M. ten Brink

Thanks, Laura. The results for the fourth quarter are as follows. Revenues were $446.6 million, up 13.5% from $393.5 million in Q4 of '10, and internal growth excluding returns and recall revenues was up 7%. Domestic revenues were $316.9 million, of which $287.5 million was domestic-regulated waste and compliance services revenue, and $29.4 million was returns and recalls. Domestic internal growth, excluding returns recalls revenue, was up 8%, consisting of Small Quantity up 9% and Large Quantity up 6%. International revenues were $129.6 million, and internal growth adjusted for unfavorable exchange impact of $2.5 million was up 5%.

Acquisitions less than 12 months old contributed $48.9 million to the growth in the quarter. Gross profit was $201.5 million or 45.1% of revenues. SG&A expense was $84.3 million or 18.9% of revenues. Net interest expense was $12.7 million. We have the full quarter impact of the renewal of the senior revolver facility for $1 billion at a spread of 137.5 basis points over LIBOR versus 75 basis points over LIBOR on our prior facility. Net income attributable to Stericycle was $64.3 million or $0.74 per share on an as-reported basis, and $0.76 adjusted for acquisition expenses and other non-recurring expenses.

Now the balance sheet. At the end of the quarter, the revolver borrowings were approximately $528 million. The unused portion of the revolver debt at the end of the quarter was approximately $313 million. In the quarter, we repurchased over 549,000 shares of common stock on the open market in an amount of $42.9 million. And we have authorization to purchase an additional 4.3 million shares. Capital spending was $16.3 million in the quarter. Our DSO was 59 days. Excluding the third quarter acquisitions, the DSO was 53 days. Q4 year-to-date, the cash provided from operations was $306.1 million.

I will now turn it over to Rich.

Richard Kogler

Thanks, Frank. At the end of the quarter, we had approximately 522,000 accounts, of which over 506,000 were Small and the remainder were Large. We continued to see strong worldwide growth driven by the expanding portfolio services that complement our core regulated waste service. For our SQ customers, the growth drivers remain Steri-Safe and Clinical Service compliance programs. And for our LQ customers the growth drivers are Sharps Management and Pharma Waste services.

Worldwide, we continue to use our strong free cash flow to fuel growth through acquisitions. In the quarter, we closed 8 transactions, 5 of which were domestic and 3 international. For 2012, we anticipate internal growth rates for SQ to be at -- in the range of 8% to 10%; LQ, 5% to 8%; international, 5% to 8%; and recall and returns revenues between $95 million and $115 million. We remain very excited about our future growth opportunity because 80% of our LQ and 70% of our SQ customers only use one of our current service offerings. As customers adopt our multiple services, this can more than double or triple their revenues.

I want to close by thanking each member of our worldwide team for their strong performance and continued commitment to our customers and shareholders. And now I'll turn it over to Mark.

Mark C. Miller

Thanks, Rich. I'd now like to provide insight on our current outlook for 2012. Please keep in mind that these are forward-looking statements. Revenues from acquisitions completed in the quarter were approximately $2.2 million, and annualized are approximately $10 million. Keep in mind, our guidance does not include future acquisitions, divestitures and acquisition expenses.

For 2012, we believe analysts' EPS estimates will be in the range of $3.21 to $3.26, which we are comfortable with. We believe analyst revenue estimates for 2012 will be in the range of $1.8 billion to $1.9 billion, depending on their assumptions for growth and foreign exchange rates. We believe analysts will have estimates for free cash flow between $320 million and $325 million with CapEx anticipated between $60 million and $65 million.

In closing, we're very excited about the tremendous growth opportunities in 2012 and beyond. We thank you for your time. And operator, we'll now switch over to Q&A.

Question-and-Answer Session

Operator

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

Ryan Daniels - William Blair & Company L.L.C., Research Division

Let me start with a question on the gross margin. I think, Frank, you had mentioned last quarter that those could be down 50 basis points from M&A, offset by maybe 10, 20 basis points of organic leverage. But it came in much better. It was almost flat sequentially. Any color there and what allowed that to outperform your expectations a few months ago?

Frank J. M. ten Brink

Yes. So we ended last quarter with 45.15% in gross margin. The acquisitions in the third quarter did negatively impact it by 46 basis points. Foreign exchange, which in the quarter was kind of a negative to our guidance from a revenue point of view, In fact there was $5.9 million negative impact. That's had about a 20 bps positive impact. And the business itself, it's better by 24 basis points. So that gets to your 45.13%.

Ryan Daniels - William Blair & Company L.L.C., Research Division

Okay. Perfect. helpful color. And then given all the bevy of M&A activity, especially in the third quarter, can you just provide an update on how the integration activities are going and maybe especially in some of the novel markets over in Europe, how that business has been relative to your expectation?

Richard Kogler

This is Rich. The most recent new platform is Spain which we talked about last call is on track. There's lot of integration there, but we are pleased to announce that we completed our first follow-on acquisition of an SQG.

Ryan Daniels - William Blair & Company L.L.C., Research Division

Okay. Great. And then Frank, just on the financial, it looked like when you've got your adjusted EPS, you actually hit the GAAP EPS by $0.01 for acquisition expenses. Is that just a change in fair value consideration, contingent payments that's in there, netted against some transaction cost for FAS 141?

Frank J. M. ten Brink

Yes, that's exactly what it is. It was contingent that in this case, someone did not make their specific markers.

Ryan Daniels - William Blair & Company L.L.C., Research Division

Okay. Great. Last question I'll ask, and I'll jump back up. I'm just curious if the leap year will have any negative impact on you. Just having an extra day of operation, that seems that doesn't really impact revenue positively. But will that pressure margins at all in the first quarter? Anything to think about gross margin front as we head into Q1 of '12?

Frank J. M. ten Brink

No. Historically, it has not happened. We've been all here more than 15 years. I've seen a couple of those, and it has not.

Operator

Your next question comes from the line of Bob (sec) [Scott] Levine with JPMorgan.

Scott J. Levine - JP Morgan Chase & Co, Research Division

Scott Levine. With regard to the acquisition pipeline, it sounds like a slight tilt towards the U.S. with relatively small annualized revenue number. Any noteworthy changes in terms of the mix of the acquisitions? And how much of the U.S. deals were tuck-ins maybe versus other types?

Frank J. M. ten Brink

So in Q4 of those that we did, we did 8 in total, 5 domestic, 3 international. The 3 international, one was in Romania, one was in Spain and one in Japan. In total, the pipeline that we still have is over $100 million worldwide, and so there's no dramatic changes there.

Scott J. Levine - JP Morgan Chase & Co, Research Division

And the leverage calculation debt to EBITDA?

Frank J. M. ten Brink

Debt to EBITDA was 2.52 at the end of the fourth quarter.

Scott J. Levine - JP Morgan Chase & Co, Research Division

Got it. And then maybe a little bit of color on the add-in services. I was wondering if you could provide an update and just even qualitatively if you don't want to give numbers in terms of the uptake of the advanced service offerings within the SQ base. Will those continue at the same pace, accelerating, decelerating? Maybe a little bit of subjective color there.

Mark C. Miller

As we said before, I think the main drivers in SQ remains Steri-Safe and clinical services, and we're seeing good uptake on that. And it's reflected on the growth numbers. On the LQ side, the Sharps Management Service and the Pharma Waste have been particularly pleasing. We had one of our strongest quarters in Q4 for both those services. So I think the growth drivers were all hitting on all 8 cylinders.

Scott J. Levine - JP Morgan Chase & Co, Research Division

Got it. And the premium services within Steri-Safe, that's still continuing the pace, I suppose?

Mark C. Miller

Absolutely. On track.

Scott J. Levine - JP Morgan Chase & Co, Research Division

Okay. And then one last one. Any update with regards to patient notification, that program and your plans there. Or any qualitative color will be helpful.

Richard Kogler

Yes. I think as we've talked about, we're still in the trial stage. But we're obviously very excited about it because it's a very large market. And there's been some pieces written on the business, which I think show you that it has good synergy with what we do and leverages off of our current talents within the organization. We're going to build the platform this year. I think it'll have some impact in 2013, and we'll discuss that with next year's guidance.

Scott J. Levine - JP Morgan Chase & Co, Research Division

I see. When do you think the trial phase ends?

Richard Kogler

Well, I think the trial phase is not something that is like a 60- or a 90-day thing. You've seen us be fairly discriminatory when we moved into new areas, but I think what we're really saying here is that it won't have a meaningful impact on revenues this year. 2013 and beyond is something different.

Operator

Your next question comes from the line of David Lewis with Morgan Stanley.

Jonathan Demchick - Morgan Stanley, Research Division

This is Jon Demchick in for David. On acquisition competition, can you give us any color on what you're seeing on the deal landscape these days in terms of competition and valuation? And is there any indication that your solid waste competitors have been more active in trying to branch out into medical waste? In general, how has deal competition impacted valuation over the past several quarters?

Frank J. M. ten Brink

It really varies from country to country. There's obviously always financial buyers looking at transactions in our space. And depending on country, you could obviously have, and many times have, other companies. I wouldn't say that there's a dramatic change from the past. They've been there, and they continue to be there as competitors for transactions.

Jonathan Demchick - Morgan Stanley, Research Division

Okay. Very helpful. And also one on hospital and physician consolidation. Healthcare providers remain very fragmented, believed in seeing an acceleration in consolidation of healthcare practices, just on the extent among hospitals, but more importantly, among physician offices or if there's just that switch from independent practice to hospital employment. Given the higher margins that you have in smaller customers, is this something that we should be thinking about as potential price or margin pressure going forward?

Richard Kogler

Yes. I don't think so because, first off, consolidation is not a new trend. I mean, there's -- people are talking about it right now. The fact is-- there's always been consolidation in healthcare. When hospitals get involved, for example, in small practices, it actually benefits us because there is more focus on compliance. And as everybody knows, our higher-level services focus on compliance. We also have an opportunity to sell more of our services, so at this point, we haven't seen any negative impact.

Operator

Your next question comes from the line of Harold Kaschalk (sic) [Albert Kaschalk] with Wedbush Securities.

Albert Leo Kaschalk - Wedbush Securities Inc., Research Division

I don't know if my mother ever called me Harold, but it's Al. Just a follow-up on prior question. Does the team prefer consolidation in the end market customer base? Or is that a non-event? I mean, everyone seems to be concerned about what's happening in terms of increased service opportunities or visits to practitioner's offices versus the number of visits out there. But perhaps it's an opportunity just to clear off for everybody what you guys feel is a preference in terms of your own market.

Mark C. Miller

I think our service offering is such that we can benefit whether the market stays in its current state or whether there's an evolution of more patient access or whether there's consolidation. I think it was part of our idea as we started building out the breadth of services. As you consolidate small practices or as they combine, often there's an office manager or someone put in charge that gives us a new contact point who focuses on compliance in the office, allows us to upsell and upgrade. And the other pressure we're seeing is that as hospitals struggle to continue to be productive, our ability to have people inside their institution in-servicing them and helping them reduce their labor component in nursing and staffing is very important. And it's also on the patient communications. I think we'll see opportunities for us to make our customers more productive in their practice and be able to increase their volume and throughput.

Albert Leo Kaschalk - Wedbush Securities Inc., Research Division

On the guidance, at least a couple of things that stood out. First on CapEx, that looks like it was increased. And if I carry forward a prior commentary at the end of Q3, I think you extended the upper end of your returns business to about 115 from 105. So any incremental color there on what you're -- particularly the CapEx which I think was extended about $10 million

Frank J. M. ten Brink

NO. I think the CapEx was 60 to 65. It was -- in the guidance for '11, it was 50 to 55. So maybe that was misinterpreted. There were 2 numbers given last call, one for '11, and one for '12. But the number for '12 did not change. And I think for the RMS, it's really on the up ends. We continue to see good opportunities. The quantity of recalls is increasing. So again, we feel on the upper ends to bring it up 5.

Albert Leo Kaschalk - Wedbush Securities Inc., Research Division

Would you be willing to share, and I guess yes as a way of saying you would share, but are there things outside of healthcare market directly that you've had the benefit of the RMS business?

Richard Kogler

I think the RMS business for us, when we started, it was one where we wanted to kind of understand customer needs and build awareness and expand our services. And over the past 3 years, we've expanded services, better understood our customer, gotten the awareness. And we have moved into the consumer space. So I think what you've seen us do in RMS is sort of in some way is outside of the healthcare space. But even so, I mean, with that particular growth engine we still are accessing less than 10% of the domestic opportunity for recalls and for these other services.

Albert Leo Kaschalk - Wedbush Securities Inc., Research Division

And finally, a couple of those, unique or interesting services, it seem to be appearing upon your website which are short of nontraditional on the industrial side but tied, I guess, towards a little more towards the chemical component. Are you willing to talk a little bit about some of these additional opportunities you're developing?

Richard Kogler

Yes, I can describe one, which is an offer -- or a service recall StrongPak. And it's a service offering for retail waste at the small commercial level. Sometimes, this is prescription waste, Rx waste. Sometimes it's haz waste. But it's StrongPak is a unique service offering that helps the retail side dispose of Rx and haz waste. And these are typically sort of like SQG customers. So that's one, for example, that we're in. And we do have haz waste capability because it supports our Pharma Waste program.

Operator

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

Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division

I'll start with a follow-up on RMS. You mentioned that enough confidence to increase the guidance on healthy volumes. Can you just talk a little bit to the environment, the regulatory environment, what may be driving, where you're seeing that? And just a little more help with the enhanced comments.

Richard Kogler

Yes. I mean, the regulatory environment has been getting stiffer and stiffer over the last couple of years, which is helping us. And as customers react to that, they're turning to us, I think, more and more for all the menu of services that we have.

Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division

And is the way you provide the guidance, is it -- is there a base level you're certain of? And then maybe if you were to come through it, what -- this incremental move, was it just the environment and said, "Hey, we felt going into the year"? Or are there things that you can see and feel and touch right now that allow that to happen?

Frank J. M. ten Brink

As we said in the past, the low end of it is what we feel is a base, and the top end will depend on larger recalls.

Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division

With regard to the acquisitions starting domestically, generally what was the mix of Small versus Large for those 5?

Frank J. M. ten Brink

It was about 1/3 Small and those that we did, and it's not just domestic, that's for the total of the RMW that we did.

Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division

U.S. and internationally?

Frank J. M. ten Brink

Yes.

Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division

Okay. And then just curious about Spain. Could you tell us where you stand there? Was that a Large or Small acquisition? I think historically, you've been involved in JVs. So what's going on with your business in that country?

Frank J. M. ten Brink

Well, as Rick said, it's obviously on track. We closed it last quarter. The team is doing very well. We completed one follow-on acquisition in the country. The company we bought was predominantly almost north of 95% Large Quantity Generator revenue. It's a mix of public and private in that marketplace. And we think that market, as a whole, has several $100 million opportunity for us.

Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division

And then just one more for me. The -- anything -- I think historically, you said even though it's modeled by acquisition, first quarter is typically a seasonally soft quarter. A, could you just address that? And B, any onetime items we should be thinking about in the first quarter or in 2012 across any of your outlook?

Mark C. Miller

Yes. And we gave guidance for the total. What we indicated last quarter may be an update. Gross margin maybe starts in the high 44s, 45, SG&A for next year in the mid-18s are kind of broad guidelines.

Operator

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

David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division

First off, given the 5% to 8% organic growth target for international markets being equivalent to the Large Quantity growth in the U.S., does that say anything about the uptick of ancillary services in international markets? And if not, should that number accelerate as we move forward and the shift goes from Large Quantity to Small Quantity internationally?

Frank J. M. ten Brink

Yes. There's a lot of factors that go in. And obviously, adding Spain into that mix, and Spain being 95% Large, so you get a lot of mix factors in this growth. So that Spain should impact and pull that number maybe down a little bit. But the continued to focus on SQ internationally is not stopping and is on track. So I think in each individual country, they're growing to Small faster than the Large, and that's also a market dynamic. The growth market is growing faster and has always continued to do that.

David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division

And approximately what is the mix today internationally of Large Quantity to Small?

Frank J. M. ten Brink

I think we've given this for the U.K. where they're north of 30%. We have not given detail past that point.

David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division

North of 30% Small Quantity?

Frank J. M. ten Brink

In the U.K., yes.

David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division

Okay. All right. And then last quarter, I believe you gave us SG&A x acquisitions, sort of a core SG&A number. Can you give us that number again this quarter?

Frank J. M. ten Brink

SG&A excluding the acquisitions, well, I can maybe give it to you. SG&A, the raw numbers if you look at that, it was about 16.88%. And then you have to add to that the stock options and the amortization, and it gets you to about 18.99% or 19% to revenue in the quarter. What really increased in the quarter as a percent is the amortization as, obviously, doing a lot of deals adds to the amortization line, and that's why that has jumped a little bit up.

David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then finally, on the Patient Notification. Is that a service? Or is it a system, meaning, is it something that you do for your customers? Or is it something you install at their site and they do for themselves? The reason I ask, I'm wondering about the decision maker on -- something like that. Is it -- does it become a telecom or IT decision as opposed to a business manager, office manager-type person?

Richard Kogler

It's purely a service. We have all of the IT. And basically, the decision maker is somebody who says that I'm either the office manager or the doctor and I need to have this service. But we maintain all of the infrastructure ourselves.

Operator

Your next question comes from the line of Richard Close with Avondale Partners.

Richard C. Close - Avondale Partners, LLC, Research Division

A question. I saw an article recently about -- and I believe you guys are doing some hiring 100 full-time jobs -- 100 part-time jobs in Pennsylvania. Can you talk a little bit about that, what exactly that is for, any particular service?

Frank J. M. ten Brink

That really is for the patient communication side, and that is because we may remove centers, integrate centers. So you obviously maybe see hiring. You don't necessarily maybe see the other side of it.

Richard C. Close - Avondale Partners, LLC, Research Division

Okay. So did the patient communication already have a presence in that area? Or are you moving from...

Frank J. M. ten Brink

No. We have a presence in that area already.

Richard C. Close - Avondale Partners, LLC, Research Division

Okay. And overall in the domestic market, can you talk a little bit about the pricing environment? We saw one article where one of the counties mentioned getting a reduction in pricing, and I just was curious whether that was something widespread or just specific to that particular client.

Richard Kogler

We haven't seen any changes, and we're not aware of the details about those particular county you're talking about. But obviously, you win a few and you lose some occasionally, but we haven't seen any change or any trend in either direction. It's been pretty steady.

Richard C. Close - Avondale Partners, LLC, Research Division

Okay. And then I guess my final question here would be along the lines of the organic growth numbers. Is there any -- and for the various buckets, SQ, LQ and international, is there anything specific that you can point to that maybe takes you from the bottom end of each of the ranges to the top end of the ranges, just anything that you can point to with respect to that?

Frank J. M. ten Brink

Well, as we said many times, Stericycle is a marathon. It's not a sprint. So you're not going to see dramatic changes. And in effect, if you really do the numbers, the 1% change isn't that big a number. So I think -- in a quarter maybe have a slight influx of something more, as you maybe know or not, but we, at times, do some cruise ship work or things that can maybe move it around a little bit. But overall, it's very stable. And I would not read overall a lot into it, if it switches by 1%.

Richard C. Close - Avondale Partners, LLC, Research Division

Okay. And then internationally, anything going on with the financial situations over there that is negatively impacting you guys at all or anything you can point to?

Frank J. M. ten Brink

No. In fact, I think it could be an opportunity for us as I think in Spain, it was an opportunity for us. This was a business that was sold by an entity that really needed the cash. And maybe 4, 5 years ago, that would not have been the case. So I think it may create opportunities.

Operator

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

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

I just want to have just a few kind of small things here and there. I want to know how much you've added on in terms of acquisitions, to the original Notify acquisition, how many acquisitions have you done subsequent to that to kind of walk up in that space?

Frank J. M. ten Brink

We haven't totally broken it, but it's somewhere in the 4 to 5.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

And are those -- what you're doing now, is that kind of rationalizing call centers and stuff like that? Or you're still kind of figuring that out?

Frank J. M. ten Brink

That's, in fact, what Rich was saying. We're building both the platform, as well as the capabilities. And so '12 will be a year where we'll building a platform that will continue to do more acquisitions. But I think overall, it's building the platform and getting to know issues like integration and what it takes to do that.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

And so what I'm seeing like a closure of a facility, is that kind of -- is that something that popped up because of the Notify acquisition in the quarter.

Frank J. M. ten Brink

That could happen, yes.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

Okay. Then a couple of other just housekeeping things. How should we expect the AR DSO to decline as you move past the acquisitions that kind of bumped it up in the third quarter?

Frank J. M. ten Brink

Well, the third quarter was impacted by the acquisitions we did, and Spain had an impact on that. As we said from a guidance point of view, we anticipate to be between 58 and 61. Certain countries are definitely higher. Spain is one of those internationally. So when you acquire a business, and that your overall DSO will go up. So I think acquisitions may impact that in the future. But the business, as a whole, our guidance for this coming year is 58 to 61, kind of, as a range.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

To what -- is there something that took you by surprise? It seems like the free cash flow was lighter than what the annual guidance was calling for.

Frank J. M. ten Brink

No. It was a little bit of timing. As you know, we do have some businesses like the RMS business, which can have an influx in revenue in the last month, which was the case. And so timing was a big impact there, and that can make your receivables go up in that specific timeframe.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

So it really was a timing thing? Because it seems like vis-a-vis the annual there is maybe a $30 million difference versus expectations. And you're saying it's all in RMS?

Frank J. M. ten Brink

No. So if you compare -- you need to look at the guidance where we do have the adjust of the $23 million. So quickly for those that have not been on calls before, at the end of '10, we had a $23 million cash inbound, and this was for a recall reimbursement to their respective customers. It showed up as a cash from ops from us, and that cash moved out in the first half of '11. So if you really adjust for that and if you look on an as-reported basis, we really almost -- about $10 million that we were off compared to the guidance. And a lot of that was the timing, and the AR was specifically RMS driving some of that.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

Okay. That's very helpful. And then lastly, how should we think of the tax rate going forward?

Frank J. M. ten Brink

I think, overall, the tax rate, if you take the adjustment of the 141 out of there and the like, for next year, we would say it's probably about 37% for '12.

Operator

Your next question comes from the line of Brent (sic) [Greg] Halter with Great Lake Review.

Gregory W. Halter - LJR Great Lakes Review

I don't want to harp on the receivables, and I won't, so I'll look at the reserve, which was up to, I think, 6.1% of gross receivables versus 4.8% last year. Just wondered if you had any comment on that change.

Frank J. M. ten Brink

Yes. You'll see that, that increase already occurred in the third quarter, which was primarily the result of the larger acquisitions we did in that quarter. So the acquisitions there did make that number jump up.

Gregory W. Halter - LJR Great Lakes Review

Okay. And what was your fuel expense to revenues in the quarter?

Frank J. M. ten Brink

5.6%.

Gregory W. Halter - LJR Great Lakes Review

And any expectations on what that might be for 2012? Obviously, you're no experts in the oil markets, but...

Richard Kogler

I don't know anybody who can foreshadow that [indiscernible]. I study a whole lot of pundits and still we get surprised. But fortunately, our contracts and our operating methodology allow us to buffer it.

Gregory W. Halter - LJR Great Lakes Review

Okay. And with the acquisition of Healthway Solutions coming up on 9 months to almost a year now, just wondered if we could get your thoughts on how that has gone versus your initial expectations.

Richard Kogler

It integrated on schedule. The management team has stayed with us, and the employees have been very helpful. They had certain processes that have helped our LQG space. All in all it's performing as we thought, and we're very satisfied.

Gregory W. Halter - LJR Great Lakes Review

Okay. And I don't believe I heard the acquisitions, the 8 that were done in the quarter, what type those were, if they were traditional or other areas.

Frank J. M. ten Brink

Six were in the regulated waste, and 2 were in patient communication.

Gregory W. Halter - LJR Great Lakes Review

All right. And one last one, the returns business total for 2011 amounted to how much?

Frank J. M. ten Brink

It was 117.

Operator

There are no further questions at this time. I'll turn the call back over to the presenters.

Richard Kogler

Well, I appreciate everybody taking time. And a non-Stericycle but related comment, for those of you who have not seen the Hallmark Hall of Fame movie called A Smile as Big as the Moon, it's going to be repeated on the Hallmark Channel on Saturday at 7:00 p.m. and 9:00 p.m. Central Time. And the reason it's of interest is Frank ten Brink's son Peter plays the role of Ben Schmidt, a child with Down syndrome. And Peter just does a great job in this very touching movie, and hope you get a chance to watch it. Thank you, everyone.

Operator

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

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