Stericycle, Inc.

Good day, and welcome to the Stericycle Fourth Quarter 2021 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference call over to Mr. Andrew Ellis, Vice President of Investor Relations. Mr. Ellis, the floor is yours, sir.

Good morning, and thank you for joining StairCycle's 2021 Fourth Quarter Earnings Call. On the call today will be Cindy Miller, our Chief Executive Officer, and Janet Zelenka, our 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're making forward-looking statements. Forward-looking statements are 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. Our actual results could differ significantly from those described in such forward-looking statements. Factors that could cause our actual results to differ are discussed in the Safe Harbor Statement and our 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 in our earnings press release, which can be found on Stericycle's Investor Relations website at investors.staircycle.com. The prepared comments for today's call correspond to an investor presentation, which is also available at StairCycle's 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 March 24th, 2022. To access a replay of the call, dial 877-344-7000. and enter replay access code 3871221. A replay of the webcast will also be available on StairCycle's Investor Relations website. Time-sensitive information provided during today's call, which is occurring on February 24th, 2022, may no longer be accurate at the time of a replay. Any redistribution, retransmission, or rebroadcast of this call in any form without the express written consent of StairCycle is prohibited. I'll now turn the call over to Cindy.

Thank you, Andrew, and welcome to our fourth quarter earnings call. I'd like to start off today's discussion by thanking all of our team members, and especially our frontline workers, for supporting our customers and protecting what matters. In the fourth quarter, like many organizations, we were faced with the impact of COVID-related illnesses tied to the Omicron variant. As a result of the variant and associated quarantine protocols, we experienced unprecedented absences, exacerbating driver and worker shortages. However, through these extraordinary times, our team members came together to support our customers, helping to keep the healthcare network running. We had another positive quarter of organic growth, which increased 3.5% and was in line with the mid-single-digit organic growth guidance Janet shared on last quarter's earnings call. We completed our 10th divestiture since 2019, closed on our first regulated waste and compliance services acquisition in over three years, and generated strong free cash flow of $69.8 million. Expanding on our key business priorities, I'll start with the quality of revenue. As I previously mentioned, organic revenues increased 3.5%, primarily led by secure information destruction, which grew 7.4%. We are pleased that North America secure information destruction had organic revenue growth of 7.6% year-over-year in the quarter after the ERP implementation. Additionally, we continue to see organic revenue growth in the regulated waste and compliance services of 1.9%, primarily led by North America at 2.6%, which was mainly driven by the partial return of our cruise industry customers and encouraging trends in the higher average weight per container, which we believe was due to increased elective surgeries. We continue to demonstrate to our customers the value of the services we provide. However, in the fourth quarter, we continue to see inflationary pressures in our cost to serve. One of the strengths of our quality of revenue initiatives has been working to create a more flexible pricing model with the necessary levers to adjust to these inflationary cost challenges. We have the following pricing levers. One, for multi-year contracts, we have been focused on standardizing contractual language and building in pricing flexibility, which affords us the opportunity to adjust pricing in several ways at contract anniversary and renewal. Two, for all new customers and purchasers of our one-time services, we have the ability to adjust our rates at point of sale, And three, for many of our customers, we also have the ability to adjust surcharges and fees that provide inflationary cost protection for commodity and other price volatility. Examples of these include our fuel, recycled paper, and environmental surcharges, and a new service cost recovery fee. Currently, we are utilizing all of these pricing levers with the intention of offsetting the existing supply chain and labor inflationary cost pressures, though there may be a lag between when we experience higher costs and when they are offset through pricing. Moving on to operational efficiency, modernization, and innovation, our engineering and operations teams have been incredibly focused on managing through a complex inflationary environment that has been further challenged by supply chain disruptions and labor shortages. Although we have seen productivity gains associated with our process standardization and modernization efforts these past couple of years, these results, along with our quality of revenue initiatives, were not sufficient to offset the rapidly accelerating cost and staffing pressures experienced in the fourth quarter. Let me share with you some of our efforts in 2021. We completed a comprehensive, long-range planning process focused on strategic capital investments. Over the next several years, we plan to invest in ourselves to continue to upgrade and build new facilities to drive growth, efficiencies, improve sustainability and safety, and replace end of life assets. We made strong progress in our modernization efforts in 2021, including five new and upgraded autoclaves and new regulated waste facilities in the United Kingdom, Ireland, and California. Additionally, we have several facility projects that have been delayed due to supply chain disruptions that we expect to complete in 2022. Transitioning to our North America ERP system, I'd like to provide some perspective on how this has evolved since we spoke a few months ago. Regarding our ERP implementation from August, the technology is stable and our team members continue to improve and hone their operating skills in the system. The business impacts associated with the ERP deployment as seen in August and September, have waned, as evidenced by our higher revenue performance of North America's secure information destruction in the fourth quarter. As we look to our North America ERP deployment for regulated waste and compliance services, we are keenly focused on leveraging lessons learned from the secure information destruction deployment. In 2022, we plan to start a phased rollout of the technology to a subset of North America regulated waste and compliance services. This is consistent with our disciplined deployment approach and allows us to mitigate risk and test data and functionality before deploying it across all targeted customers and facilities. Now turning to debt reduction. Our strong free cash flow generation and divestiture proceeds helped reduce net debt by $48.2 million in the fourth quarter. We finished 2021 with a debt leverage ratio of 3.61 times. Reflected in this calculation is $80.7 million, which we accrued in the second half of 2021 for the FCPA settlement with the SEC and DOJ, with whom we have reached an agreement in principle. If we did not have this settlement expense in 2021, we would have finished the year with a debt leverage ratio at 3.28 times. On December 1st, we divested our environmental solutions business in Canada for $24.4 million, which marks our 10th divestiture since 2019. Proceeds from this divestiture were applied toward debt reduction. As part of our portfolio optimization priority, over the past two years, we have been building our expertise to assess and analyze our core business markets while we have been divesting non-core assets and reducing debt. These efforts, which have strengthened our balance sheet, now afford us the opportunity to consider thoughtful, strategic tuck-in acquisitions in our core businesses in certain markets where synergies are believed to be strong. Acquisitions, when appropriately integrated, are an efficient way to scale operations and build critical customer density for transportation and treatment operations. On December 31, 2021, We completed an accretive acquisition of a Midwest-based regulated waste business that adds to our customer base with a strong focus on the independent market, which allows us to expand service offerings and scale our operations to increase overall route density in the region. We anticipate completing integration of this business into our operations, processes, controls, and technology in the first half of 2022, leveraging our new and disciplined integration playbook. I'll now turn the call over to Janet to review our financial results. Thank you, Cindy.