Stericycle, Inc.

Ladies and gentlemen, hello and welcome to the Q4 2022 Stericycle Earnings Conference Call. My name is Maxine and I'll be coordinating the call today. If you would like to ask a question during the presentation, you may do so by pressing star flow by one on your telephone keypad. I will now hand you over to Andrew Ellis, Vice President of Investor Relations to begin. Andrew, please go ahead when you're ready.

Good morning and thank you for joining Stericycle's 2022 Fourth Quarter Earnings Call. On the call today will be Cindy Miller, our Chief Executive Officer, and Jan Selenka, 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 other similar expressions, we are making forward-looking statements. Forward-looking statements are perspective 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 described in the Safe Harbor Statement and our earnings press release and in greater detail within the risk factors in 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.stericycle.com. The prepared comments for today's call corresponds 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 23, 2023. Replay information is available in the events section on StairCycle's investor relations website. Time-sensitive information provided during today's call, which is occurring on February 23rd, 2023, 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. I'm pleased to share that our fourth quarter results were in line with our expectations. Our quarterly results included organic revenue growth at 5.7%, free cash flow generation of $130.9 million, expanded margins, reduced debt, improved leverage, and continued portfolio optimization. As a company, we continue to focus on executing on our five key business priorities, and I'll start with quality of revenues. Organic revenues increased 5.7% led by secure information destruction, which grew 12.2%. Regulated waste and compliance services grew 2.8%, and in North America, organic revenues grew 7.6%, with secure information destruction increasing 13.2%, and regulated waste and compliance services increasing 4.9%. These results include the benefits from our service cost recovery fee and the enhanced recycling revenue surcharge that started in the first part of 2022. These two pricing levers contributed approximately $10 million of revenue in the fourth quarter and $24 million of incremental revenue for the year. Since 2019, we have been working on transforming the commercial function to drive greater consistency and accountability throughout the sales process. The foundation of our commercial excellence model includes the following. One, harmonizing over 120 global sales commission plans to a handful of sales commission plan types that standardize performance expectations and incentivize revenue growth and margin expansion while simplifying overall performance and plan administration. Two, improving governance over contractual language to include competitive standard terms and conditions. Three, redefining our value proposition to drive competitive differentiation and providing extensive training on value selling with a disciplined organic growth mindset. Four, implementing a new deal review committee to ensure consistent, disciplined value-based pricing, contracting, sales practices, and governance. Five, launching a pipeline management process and tools to better forecast and manage opportunities and performance throughout the sales cycle, resulting in pipeline growth, improved conversion rates, and higher quality sales, and six, creating a data infrastructure as part of our ongoing ERP deployment that allows us to draw greater insights into sales opportunities and service performance across the customer lifecycle. With these foundational elements now in place, we are advancing to the next phase of our commercial evolution to support our organic compounded annual revenue growth rate of 3% to 5%. which focuses on three key areas. Expanding service penetration, improving customer implementation velocity, and deepening customer partnerships by developing enhanced customer solutions. The first area is expanding service penetration. Drawing from our newly created data infrastructure, we will leverage insights to win, grow, and retain customers through cross-sell and up-sell initiatives and targeted sales offerings, which we expect will increase the value we provide to our customers. The second area is improving customer implementation velocity. This is focused on accelerating speed to revenue by decreasing the amount of time it takes from closing a deal to initially servicing customers. The third area is deepening customer partnerships by developing enhanced customer solutions. We plan to continue to commercialize innovative solutions and products we expect will drive additional revenue opportunities as we create safer and more sustainable working environments for our customers, their employees, and the communities in which we operate. I'll now move on to our next key business priority, operational efficiency, modernization, and innovation. This has been a keen focus for our operations and engineering teams over the past four years as we opened four new greenfield autoclaves facilities and have made upgrades to existing autoclaves, incinerators, shredders, and facilities throughout our network and improved our fleet. In 2023, these teams will concentrate their efforts on three areas, infrastructure and system modernization, fleet replacement and route and long-haul network improvements, and SafeShield container rationalization and modernization. The first area, infrastructure and system modernization, continues to progress. In 2023, our operations and engineering teams will be focused on finalizing the construction of our new state-of-the-art incineration facility in Nevada. We believe this facility will set the bar for high capacity medical waste incineration facilities in North America through its sustainable water usage design and technology aimed at minimizing emissions. In 2023, we also plan to upgrade over 20 facilities and leverage and deploy new system capabilities. The second area is fleet replacement and route and long-haul network improvements. We are focused on replacing and modernizing our trucks and trailers with more efficient vehicles. While this was hampered in 2022 by supply chain disruptions, we are starting to see more equipment deliveries. Route and long-haul network improvements began in 2022. We have reduced long-haul routes through a combination of removing routes from our network, strategically locating new facilities near our customers, consolidating facilities, and internalizing some third-party hauling. These investments are expected to improve our operational service model, which we anticipate will contribute to margin expansion over time. The final area is our SafeShield container rationalization and modernization projects. As a reminder, we are transitioning from over 150 container types to less than 20. To date, over 250,000 SafeShield containers have been deployed in North America, and we anticipate completing the rollout over the next four years. These award-winning containers are coated with an antimicrobial protective, which reduces the potential spread of infection while minimizing odor. They also feature an improved and more durable design in standard sizes that are nestable and stackable, allowing for more efficient transportation and storage. Turning to our ERP deployment, we are now four months into our regulated waste and compliance services pilot in Puerto Rico. I'm excited to share that the ERP is running smoothly as we have been able to onboard, service, bill, and collect cash from our customers. Based on this successful pilot, we continue to plan our ERP rollout to the U.S. regulated waste and compliance services commercial and operational functions in the second half of 2023. Now turning to debt reduction. As a result of strong free cash flow generation and divestiture proceeds, we reduced debt by $175.4 million and finished 2022 with a debt leverage ratio of 3.28 times. a year-over-year improvement of 33 points. We anticipate getting close to or hitting our three-times debt leverage ratio objective by the end of the first quarter of 2023. Finishing with portfolio optimization, in December, we divested our communications solutions business in North America for $45 million, and in January, we divested our Sanipic Plastics joint venture in Spain for $2.2 million. These are our 11th and 12th divestitures since 2019, and we applied the proceeds towards debt reduction. As a result, it has afforded us the opportunity to focus on core businesses and our key business priorities, like the ERP deployment and other investments in the company. Communication Solutions is the fourth and final divestiture from our legacy communication and related services business. I'll now turn the call over to Janet to review our financial results. Thank you, Cindy.