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Stericycle Incorporated  (NASDAQ:SRCL)
Q3 2018 Earnings Conference Call
Nov. 01, 2018, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Diedra and I will be your conference operator today. At this time, I would like to welcome everyone to the Stericycle's Third Quarter 2018 Earnings Conference Call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions)

I will now turn the call over to our host Ms. Jennifer Koenig, Vice President of Corporate Communications and Investor Relations. Ma'am, you may begin your conference.

Jennifer Koenig -- Vice President of Corporate Communications and Investor Relations

Good afternoon, and thank you for joining Stericycle's third quarter 2018 earnings call. This afternoon's discussion will feature Charlie Alutto, Chief Executive Officer; Dan Ginnetti, Chief Financial Officer; and Cindy Miller, Chief Operating Officer.

The discussion this afternoon includes forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those described in the forward-looking statements. Factors that could cause these actual results to differ are discussed in the Safe Harbor statement in our earnings press release and in greater detail within the Risk Factors section in Stericycle's filings with the U.S. Securities and Exchange Commission.

Past performance should not be considered a reliable indicator of future performance and investors should not use historical trends to anticipate future trends or results. To the extent permitted under applicable law, we make no commitment to disclose any subsequent revisions to forward-looking statements.

On the call, we will discuss non-GAAP financial measures. For additional information and reconciliation to the most comparable GAAP measures, please refer to the footnotes and schedules in our earnings press release, which can be found on Stericycle's Investor Relations website.

Finally, the prepared comments for today's call correspond to our third quarter earnings presentation, which is also available on the Investor Relations website. Throughout the call, we will be referencing specific slides from the presentation.

I'll now turn the call over to Charlie Alutto.

Charles A. Alutto -- Chief Executive Officer

Thank you, Jennifer. Welcome, everyone, to our third quarter 2018 earnings conference call. We are pleased to report that both our Regulated Waste and Compliance Services and Secure Information Destruction businesses exceeded our expectations in the quarter. Once again, our core businesses have met or exceeded expectations. This performance was offset by C&RS, which experienced further challenges. As a result, adjusted EBITDA and adjusted EPS were in line with our expectations. In the quarter, we continued to make progress executing on our business transformation and the implementation of the new ERP system. Before we review our quarterly results in more detail, I'd like to highlight a few recent developments.

First, Cindy Miller joined Stericycle as President and Chief Operating Officer On October 1. Cindy comes to our Company following an impressive 30-year career of global leadership in Transportation, Logistics and Operations at UPS. She'll be leading the global medical waste and hazardous waste and Secure Information Destruction businesses, as well as the execution of our business transformation. We are excited to have an executive with Cindy's strong track record of driving growth and innovation, joining our team during this important and transformational time.

Focusing on the business transformation. As reflected on slide 8, Stericycle has realized year-to-date adjusted EBITDA benefit from business transformation initiatives of $39.8 million. The recurring impact of these year-to-date initiatives is projected to deliver $57.1 million in run rate benefits for 2018. These completed initiatives combined with our fourth quarter initiatives, place us on track to deliver our goal of $60 million to $65 million for full-year 2018. Expenses for business transformation were $21 million in the third quarter and totaled $64.9 million for the year. Capital expenditure payments for business transformation were $4.5 million in the quarter and $8.2 million for the year.

Importantly, we remain within budget and on track to achieve our business transformation milestones. We also completed the detailed design of the ERP system. This included hosting workshops to map our end-to-end future state processes. We've now begun the build phase of our ERP. We remain confident in our ability to reduce the 450 plus information technology and operating systems to approximately 50 and reduce our financial systems from 65 down to one global financial system.

As a reminder, in 2019, refocusing on building, testing and training for the new ERP system. In 2020, we expect to deploy the ERP system in the US and Canada and then continue to roll out internationally in 2021. The business transformation EBITDA benefits we expect to achieve in 2019 will come from the tailwind of initiatives implemented in 2018. The majority of the expected benefits from our business transformation initiatives that will drive our long-term growth rates will materialize following the ERP deployments beginning in 2020. Another aspect of business transformation is portfolio rationalization. In the quarter, we completed the divestiture of the non-core US clean room service. We continue to explore strategic alternatives for C&RS and evaluate other non-core service lines and geographies.

And now, for the first time I'd like to turn the call over to Cindy for a review of our performance in the quarter. Cindy, welcome to the Stericycle team.

Cindy J. Miller -- President & Chief Operating Officer

Thanks, Charlie. I appreciate the warm welcome. And I'm very excited to join Stericycle during such an important and evolutionary time. As reflected on slide 11, total revenues for the third quarter were $854.9 million, a decrease of 3.2% from Q3 2017. Strength in Secure Information Destruction and other core services was offset by a further reduction in C&RS recall revenue resulting from smaller events, as well as expected declines in the SQ medical waste business, foreign exchange, and divestitures. When adjusted for manufacturing and industrial services, revenues were $775.8 million down 2.6%. As compared to the same quarter last year, acquisitions contributed $7.7 million of revenues and divestitures and reduced revenues by $10.4 million.

Revenues for each of our service lines in the third quarter were as follows. Regulated waste and compliance services, $476.6 million, secure information destruction services, $227.6 million. communication and related services $71.6 million and manufacturing and industrial services $79.1 million. This quarter we closed four tuck-in acquisitions, all in the US, three were secure information destruction businesses and one was medical waste. These acquisitions contributed revenues of approximately $0.4 million in the quarter and projected annualized revenues of $4.8 million. We also completed the previously announced divestiture of the US clean room service business. This divestiture reduced revenues in the quarter by $1.5 million with a projected annualized revenue impact of approximately $9 million.

Regulated waste and compliance services revenues came in above our expectations and we are encouraged by the trends we see across the business. In the quarter, healthcare hazardous waste and our programs for unused pharmaceuticals and controlled substances, continue to have strong growth. In addition, our SQ medical waste business came in above our expectation, due to slightly less discounting in the quarter. Secure Information Destruction services exceeded our expectations. Organic revenue growth in the quarter was 9.1% or 4.7% when adjusted for recycled paper pricing. Over-achievement was driven by continued expansion of recurring services in the US and by growth in the UK, in response to the newly implemented GDPR privacy regulations.

Communication and related services revenues declined due to the continuation of the smaller recall events. We managed more events in Q3 '18 compared to the prior year. However, the events involved a smaller number of units in significantly lower revenue per event. While we are disappointed in the overall results, our market position remains very strong and the business is well positioned to support global brands if future recall events occur. Although Manufacturing and Industrial Services revenues were down, organic revenues when adjusted for divestitures and foreign exchange were up 6.8%.

Dan will now discuss our financial performance for the third quarter in greater detail.

Dan Ginnetti -- Chief Financial Officer & Executive Vice President

Thanks, Cindy. Looking at slide 13, the results for the third quarter were as follows. Quarterly revenues were $854.9 million and adjusted EBITDA was $183.9 million. Both were driven by growth in Secure Information Destruction and other core services and offset by decline in C&RS, Latin America and divestitures.

GAAP EPS was $0.20, due to business transformation charges and other adjusting items. Adjusted EPS was $1.03 versus our midpoint guidance of $1.

As you will see on slide 14, the bridge between guidance and actual results includes the following, $0.05 from the performance of operations including SOP paper favorability, $0.01 from lower depreciation expense and $0.02 from the purchase of the mandatory preferred convertible shares. These were offset by $0.05 in C&RS.

As reported cash flow from operations was negative $141.1 million in the quarter, which includes the $295 million SQ settlement payment. Excluding the settlement payment, cash flow from operations was $153.9 million. CapEx was $32.9 million or 3.8% of revenues. Free cash flow was negative $174 million in the quarter, which again includes the SQ settlement payment. Excluding the settlement, free cash flow was $121 million.

Our debt-to-adjusted EBITDA ratio under the amended debt agreement was 3.58 at the end of the quarter, inclusive of the settlement payment. The unused portion of the revolver was $466.8 million at the end of the third quarter. And in the quarter, we repurchased 50,000 shares of mandatory preferred convertible for $2.5 million. At the end of the quarter, we have authorization to purchase 2.4 million common shares.

As a reminder, the mandatory preferred convertible stock converted on September 14. There is no impact on the reported adjusted EPS, as we have been using the if-converted method. Our DSO was 63 days.

I will now turn it back to Charlie, who will provide an update on Stericycle's 2018 full-year guidance.

Charles A. Alutto -- Chief Executive Officer

Thanks, Dan. Now for our updated guidance for 2018, which is included on slide 17. Please keep in mind that these are forward-looking statements. Our guidance is based on currently known items and does not include future items such as acquisitions, divestitures or adjusted litigation matters.

Following the close of the third quarter, we believe the annual revenues for 2018 will be in the range of $3.44 billion to $3.52 billion using foreign exchange rates at the end of the third quarter.

The worldwide revenue guidance for each of our service lines is, Regulated Waste and Compliance Services is expected to be in the range of $1.91 billion to $1.93 billion. Secure Information Destruction Services is expected to be in the range of $900 million to $920 million. Communication and Related Services is expected to be in the range of $310 million to $330 million depending on recall revenues. Manufacturing and Industrial Services is expected to be in the range of $320 million to $340 million. We believe adjusted EBITDA will be in the range of $736 million to $756 million. We expect adjusted EPS would be in the range of $4.31 to $4.41 using a share count of 90.5 million shares. This reflects an adjusted tax rate of approximately 25.5% to 26%.

On slide 19, we present a revised 2018 adjusted EPS guidance bridge. Strength of operations including paper pricing contributed $0.03. Lower depreciation expense and share repurchases from Q3 contributed an amount -- an additional $0.03. These were offset by $0.04 in Latin America from lower revenue in Brazil, cost pressures for a temporary plant closure and foreign exchange and $0.11 from C&RS which includes $0.05 from the Q3 actual results, $0.06 from lower recall revenues, we expect will continue through year-end.

We believe cash flow from operations will be in the range of $160 million to $195 million, which includes the payment for the SQ settlement. We expect CapEx to be between $145 million to $160 million and free cash flow will be between 0 (ph) to $50 million.

In closing, we remain confident in the fundamentals of our business. Key trends including a large aging population and heightened focus on information security continue to drive growth in our markets. Additionally, our strong leadership position, the benefits of our business transformation and the expected efficiencies from our new ERP system will provide Stericycle with a robust, long-term growth platform.

Our team is excited about the future and committed to our customers, our core values and our business transformation.

We'll now answer your questions. Diedra, you can now open the line for Q&A.

Questions and Answers:

Operator

(Operator Instructions) And our first question comes from Sean Dodge with Jefferies.

Sean Dodge -- Jefferies -- Analyst

Hi, good afternoon. Thanks for taking the questions. Maybe starting with CRS, Charlie you told us last quarter that's up for sale. Any update you can provide on that process and then having another tough quarter everyone should know the recall business is inherently lumpy. Maybe you can talk about any impact if at all that potentially has on your ability to sell the business and what you'd hope to get for it.

Charles A. Alutto -- Chief Executive Officer

Sure, Sean. We touched on our last call that we are seeking strategic alternatives for the C&RS business. (inaudible) that it's during a time that we were down and we know when you fall at the stock for a long time that has been an unpredictable business for us. I think we're encouraged by a couple of things there. The number of recall events, if you look year-over-year, is actually up by 25% and we continue to get a 98% reoccurring rate from our customers, meaning that when a customer uses our recall platform, has another recall, and that might even be a smaller recall event they come back to us. So we're encouraged by that. And we all know that this is an unpredictable business. The average revenue per recall I think Cindy discussed it in her comments was down something like 70% when you look at it year-over-year. So this is more of a matter that we are not losing any competitive deals out there, it's just the size of the recall event is significantly lower. The fundamentals in the business is still there, we are still a market leader. Yes, it's not a perfect timing with respect to the results. But it is an ongoing process as we go through this portfolio rationalization and looking at alternatives for this business.

Sean Dodge -- Jefferies -- Analyst

Okay, that's helpful. Thank you. And then, Cindy mentioned slightly less discounting in the quarter. I've heard the checks, some people talk about getting checks in late August, so having that behind us, without any obvious impact on that is encouraging. Can you give us a sense of the run rate you're running at now and then, is there anything you're seeing incrementally there that maybe give you more or less confidence that this is something you can put behind you sometime mid-late 2019?

Charles A. Alutto -- Chief Executive Officer

Yeah, Sean, I think we had a couple of questions. I am going to touch on discount and I'll let Cindy touch on the fact that checks were mailed in this last quarter. SQ discounting actually came in slightly better than expected in order of magnitude, which I think was your question, it was about $1 million less than discounting than we had anticipated for the quarter. We're really encouraged. We know it's only one quarter, so we don't want to say that we're -- for the rest of the year we feel confident. Certainly I think our estimate that we gave out, we have discounting of about $120 million to $130 million through 2019, we're sticking with that even though we had a slightly better quarter. I think we're encouraged about some of those strategic initiatives that we put in for SQ. We will continue to evaluate it for the year. I'll turn it over to Cindy to talk about anything that came out from the checks being mailed.

Cindy J. Miller -- President & Chief Operating Officer

Thank you, Charlie. And Sean what we've seen is obviously checks went out and we were prepared. We anticipated calls, we needed to be prepared in order to handle any of the customers' questions that they may have had. And for the calls that we did get, they were smaller in number than we had anticipated. They were -- the majority of them were concerned about normal things, things like they were focused on the actual nature of the check and just making sure that they were valid and had some questions surrounding that. So I think we did the -- the Group did a great job in handling their concerns and we feel very comfortable with the responses that we've given up to this point in time.

Sean Dodge -- Jefferies -- Analyst

Okay, that's great color. Thank you.

Charles A. Alutto -- Chief Executive Officer

Thanks, Sean.

Operator

And our next question comes from Nick Spigaot (ph) with William Blair.

Nick Spigaot -- William Blair -- Analyst

Hey, guys. Nick here in for Ryan. If you can go back to kind of the CRS EPS guidance bridge that kind of $0.06 -- that $0.06 for the rest of the year, is that -- because it's so volatile, is that coming just from you think volume is basically going to be decreasing or anything else there you can kind of provide color on?

Dan Ginnetti -- Chief Financial Officer & Executive Vice President

Yeah, let me take you through that Nick. Obviously we saw a lower volume in Q3. That is really -- we saw more calls but the volume was about 70% down from the normal size that we saw a year ago. When we look at it in Q2, we saw disruption there, it was really one quarter we came off a strong quarter and so we only adjusted really for the recall event in the quarter plus a little bit more. In Q3, we've added a little bit more of a line of sight, we saw the results of Q3 and being month into it and not having line of sight of any large recall events, we thought it was prudent to adjust Q4 for the volume that we're at now, it's really two things, it's the lower -- the smaller size plus without having any large recall events that have tails that would bleed into Q4, that's not happening. So as a result of that we thought very responsible to just not just for Q3, but the run rate of the volume going through the balance of the year.

Nick Spigaot -- William Blair -- Analyst

Got you. Got you. And then on that with the sale process, if you can provide a little bit more color on how that's going and whether or not you might be losing some focus if there is a disruption there after kind of the announcement of the sale?

Dan Ginnetti -- Chief Financial Officer & Executive Vice President

Yeah, as I mentioned before, it is an ongoing process, Nick. I think the disruptions is a good question. Obviously, the team is focused on running the business day-to-day. But they are also looking at strategic alternatives, so just to say that there's no distraction there I don't think would be fair. But again if you look at the last eight quarters, we had more events this quarter than any quarter we've had. So we're winning events, the team is focused on winning events, events are up 25% year-over-year. It's just that they are a lot smaller events and they are 70% less from a revenue per event size and they were year-over-year. So I think the distraction, I think it's human nature to be distracted a little bit by but based on the number of events that we won in the quarter, I think the team is doing a good job of trying to focus on maintaining and increasing their market.

Nick Spigaot -- William Blair -- Analyst

Got you, thanks, I'm good here. I'll jump back in. Thanks guys.

Operator

And our next question comes from Gary Bisbee of Bank of America Merrill Lynch.

Dan Ginnetti -- Chief Financial Officer & Executive Vice President

Hey, Gary welcome back.

Gary Bisbee -- Bank of America Merrill Lynch -- Analyst

Yeah, thank you. Good to be back. I guess one follow-up, just quick one on the CRS business. We've heard a lot about recall, we know that's volatile. What's going on in the patient communications portion of that? If I go back 18 months to the Investor Day you had, there was a story at the time of cross selling that of leveraging the new technology to try to grow that. Has that changed as well or is this really been more just the recall volatility in the last few quarters?

Dan Ginnetti -- Chief Financial Officer & Executive Vice President

Yeah, let me take that one. I want to give you a visibility of when we talked about last quarter, I know you weren't in the call that you would have followed. Last quarter we did say that there was a reduction in volume on those calls. I will say that that has stabilized now in Q3, we think that stabilized in Q4 as well. We have gone on the -- we have gone on the LiveAnswer platform is what we spoke about that on that Investor Day in New York almost 18 months or two years ago. We have not converted all the customers onto that new platform. We want to be careful about putting existing customers on new technology. So that continues to be an opportunity we think for the business. And obviously the automation growth including our automation that does take away a little bit from the call volume on the LiveAnswer or what you call is that patient-communication side of that business.

Gary Bisbee -- Bank of America Merrill Lynch -- Analyst

Okay, thanks. And then if I just take a step -- take a step back, one of the challenges I think you faced in the last few years is the international build-out has come with substantially lower margins than the US business and obviously hazardous waste has had much lower margins as well. But I don't think you've given a real update on where haz margins or really just what the strategy is from here over the next few years to improve the profitability of international and of hazardous waste. Is there -- can you give us some thoughts on how we should think about -- I know the ERP probably helps and clearly pruning the portfolio is something you've said you're still evaluating. But is there anything else that's sort of the key driver over several year window to improve those businesses? Thank you.

Dan Ginnetti -- Chief Financial Officer & Executive Vice President

Yeah, I'll give you some color there. I think if you look at our results over the last 18 months, we've incrementally improved the EBITDA margins of our international operations that come with Secure Information Destruction internationally, efficiencies across some of our geographies, our hazardous waste business just for everybody our hazardous waste business now internationally, predominantly from Latin America. We really -- we did the divestiture of the UK hazardous waste business and actually the Latin America hazardous waste business had a really do quarter that's one of the reasons we had a strong M&I number for the Q3 results. I think you touched on, it Gary. I mean we run -- I talked about it earlier on, we have 450-plus systems, 65 financial systems, a lot of that has to do with our international operations. Long term, once we get on the global ERP and we've implemented that international, it will drive both in SG&A savings and at cost of revenue efficiencies. And then lastly we're looking at the portfolio, we've made decisions like South Africa shredding, patient transport, UK haz waste operations, the UK haz waste operations and the patient transport business had a very, very low EBITDA margin. So we continue to look at the portfolio with respect to the financial performance as well.

Operator

And our next question comes from David Manthey with Baird.

David Manthey -- Baird -- Analyst

Hey, good afternoon. First off, if pricing is stabilizing and the maximum of customer churn is probably behind you, is there any reason to believe that our WCS shouldn't start to see growth or even moderate growth at some point in the next few quarters here?

Dan Ginnetti -- Chief Financial Officer & Executive Vice President

Yeah, I think, listen, we're encouraged by Q3. SQ discounting was better than we had anticipated. I think we want to wait another quarter or two, I think the initiatives that we implemented are starting to take impact and I don't think we want to declare victory there yet. I think you have to remember, though we got discounting that still occurring in the business. Although it's better than we anticipated it's still incurring. And we had anticipated that to continue through at least an elevated amount through the first half of '19. So I think realistically looking at it, our goal along is to start to see growth in that beginning in 2020 that's still the goal and this is a long-term opportunity for us to turn around this business. I mean again encouraged by Q3, but I think it's going to be another quarter or so we want to see those results continue before we get definitive on that. But the plan all along was 2020 growth and we feel better about that today than we did just three months ago.

David Manthey -- Baird -- Analyst

And Charlie you've been saying it's better than your expectations, but is it getting better? I mean is the rate of change going the other direction now?

Charles A. Alutto -- Chief Executive Officer

Well, the way I'd say it's getting better is that we have discounting that we had anticipated. Remember that $40 million to $45 million for the year and then we have estimates for what that will be each quarter, David. So they came in lower than we anticipated. So it is getting better, discounting is lower than we thought, our churn rate is better and trending in the right direction. So that's what I mean by better. I think we've added a lot. We talked about that $30 million investment, I think Cindy maybe can touch on that to give some color on that as well. We're encouraged again, good quarter. But again this is a long-term journey for us so we don't want to get out ahead of ourselves on that.

Cindy J. Miller -- President & Chief Operating Officer

Yeah.

David Manthey -- Baird -- Analyst

Just so I don't misquote you, Charlie, you're not saying that discounting is getting better, you're saying it's getting better than you thought it was going to be, but we don't know what you thought it was.

Charles A. Alutto -- Chief Executive Officer

Yeah, that's correct. Again, we had a number that we thought we are going to discount and we discounted a $1 million less in Q3.

David Manthey -- Baird -- Analyst

Is it still getting worse quarter-to-quarter or not?

Charles A. Alutto -- Chief Executive Officer

No, it is not.

David Manthey -- Baird -- Analyst

Okay. That's what I was getting at, thank you.

Charles A. Alutto -- Chief Executive Officer

No, I got it, yeah, I got you David.

Cindy J. Miller -- President & Chief Operating Officer

And David, this is Cindy, just a little bit of follow-up. Charlie had mentioned some of the investments, just a general overview of a couple of things that we also think is very positive. It was laid out earlier this year that we've been focused on a number of initiatives for strengthening -- really strengthening the relationships and improving the long-term performance of the business. And just kind of an update, we are seeing the positive results from limiting or forgoing some of the price increases to specific customers. And I think that plays specifically to what Charlie was just mentioning. We also talked about changing the account management sales model and getting engaged a little bit more one-on-one with some of the field customers and we're seeing some very positive results from that. But then I think the other investments that we had talked about was additional marketing investments. And early on, which I think these are indicators that I think would predict, maybe some future opportunities, we're seeing some measurable traction in brand promotion and in some of our digital channel work. So when you look at that macro level, we think that's also very encouraging, when we take everything into consideration.

David Manthey -- Baird -- Analyst

Okay.

Charles A. Alutto -- Chief Executive Officer

Thanks David.

David Manthey -- Baird -- Analyst

Great.

Operator

And our next question comes from Michael Hoffman with Stifel.

Michael Hoffman -- Stifel Nicolaus -- Analyst

Hi, thank you all for taking -- how are you doing Charlie?

Charles A. Alutto -- Chief Executive Officer

Good.

Michael Hoffman -- Stifel Nicolaus -- Analyst

Cindy, welcome on board. Let me lead with -- so you've been there what three weeks, months, what's the first impressions? What are the things that you think you bring then will make an impact and how do we see and measure those, since you're coming in with you know the a perimeter of understanding what KPIs are? What are the KPIs we are going to be looking for as a result of your being there?

Cindy J. Miller -- President & Chief Operating Officer

Well, I think -- and Michael, thank you for the welcome. Just a couple of things. First you know I've been attracted originally to the industry, because I believe my background is pretty well suited to help Stericycle maintain market leadership position. When we talk about reaping benefits from an ERP and reaping benefits from a business transformation, we're talking about getting the results expected from synergies and productivities and anything else that comes from technology. And I think that, that certainly is something I've been raised on for the last 30 years. So I think that falls right in line. And I think just some overall observations, I think the team, of course, has been very welcoming and supportive, very pleased to see that there is a -- there's just a feeling of openness to change, and I get the feeling of folks being eager to engage with me, which I'm excited about. And referencing business transformation in that whole -- the ERP and Business Transformation efforts, there is a very strong team and I think they've got an extensive and pretty diverse business experienced backgrounds. I've taken a look at initial plans and designs, I think they are very comprehensive, quite thorough and I'm very confident coming into this with know four weeks under my belt. And I feel very confident in our ability to deliver the planned results that are out there. So it's an honor to be part of the Stericycle team and I look forward to help and contribute in any way that I can.

Michael Hoffman -- Stifel Nicolaus -- Analyst

Okay. Charlie, the $40 million to $45 million target for this year, what's the year-to-date run rate of the $40 million to $45 million?

Charles A. Alutto -- Chief Executive Officer

Yes, I would say that we're tracking according to plan, so it will be three quarters on that, less maybe about $1 million or $2 million from the slightly better quarter that we had. I don't have the exact number. I can follow up and get the exact number, Michael. We were slated to happen in quarterly increment and we're -- again Q3 came in slightly better, Q1, Q2 came in as expected. So year-to-date, we're trending a little bit better than we thought by about $1 million.

Michael Hoffman -- Stifel Nicolaus -- Analyst

Right. So I take $42.5 million and multiply it by 75%, subtract $1 million, and I kind of get the buffer (ph) that would be ?

Charles A. Alutto -- Chief Executive Officer

That's correct.

Michael Hoffman -- Stifel Nicolaus -- Analyst

So in the light of that, when I think of the underlying, you gave an interesting table, Table 1C called disaggregated revenue changes and -- you showed us $42.6 million year-to-date organic growth. If I do that math, and go take out of $42 million -- just the three quarters number and then think about paper and adjust for that, and so on and so forth, I can back away pieces and I come away -- this is a complicated way to get there, but there is organic growth in everything else and medical waste.

Charles A. Alutto -- Chief Executive Officer

Yes, so let me give you some of the things that we've given you before. If you think about Regulated Waste and Compliance revenues, and you take out the SQ pricing and you still have a little bit of overhang from the patient transport exists. Year-to-date, Michael we're roughly at about 2% growth in that segment. And then as you look at -- our M&I number came in probably better than we had expected as well. We're in the high end of the range, on the high end of the range for the year and certainly exceeded our expectations for the quarter. A lot of that's being driven by international. So and -- of course, Secure Information Destruction had a great quarter, where we continue to be at the high end of the range, where we thought we were going to be from a year ago. So, yes, there's a lot of growth in the business, I mean we are still struggling obviously, still dealing with SKU pricing pricing, but there is growth in the underlying business.

Dan Ginnetti -- Chief Financial Officer & Executive Vice President

Michael, I want to add -- just to add and it appears you're looking at the disaggregated revenues. And keep in mind within that to get down to an organic growth, we're taking out things like acquisitions, divestitures, and foreign exchange. But remember when we're talking about that we still haven't (ph) comparable to 2017 that includes those patient transportation contracts that we're exiting as well. And those have been a headwind and continue to be through this quarter. Now in Q4, you'll begin to see those fall off. So that doesn't get captured in that, it does affect the organic growth and once those are fully behind us and then over a year, you'll see an improvement there as that comparable grows.

Michael Hoffman -- Stifel Nicolaus -- Analyst

Okay. Dan, I think, you might have just confused me. But let me repeat back to make sure -- the $42.6 million, which is just the organic, it's just organic. The $34.6 million would include the impact of selling South Africa and patient trends in the clean room business.

Dan Ginnetti -- Chief Financial Officer & Executive Vice President

Yes, Mike, I didn't want to confuse you. So yes, if you recall on the patient transportation, we divested a portion of that and we retained a certain number of contracts that were -- that we had carved out that we ran throughout. Those were not divested and so those contracts that remained will remain within our organic growth as those are coming off. So that's why I tried to give highlight to that.

Michael Hoffman -- Stifel Nicolaus -- Analyst

So that's what you're referring to. And if my memory serves, that was about $15 million, $20 million.

Charles A. Alutto -- Chief Executive Officer

Yes, that's correct.

Michael Hoffman -- Stifel Nicolaus -- Analyst

Yes. So this $42.6 million also reflects that you're winding down those organically?

Charles A. Alutto -- Chief Executive Officer

That's correct.

Dan Ginnetti -- Chief Financial Officer & Executive Vice President

That's correct.

Michael Hoffman -- Stifel Nicolaus -- Analyst

Okay, OK. So the rest of the organic growth overcoming that is that much better. Okay

Charles A. Alutto -- Chief Executive Officer

You are right.

Michael Hoffman -- Stifel Nicolaus -- Analyst

I'll move on. The convert contribution in FY 2018 year-to-date to the earnings per share year-over-year change. What is that number, so we all make sure we think about that when we start building 2019?

Dan Ginnetti -- Chief Financial Officer & Executive Vice President

Yes, I think what you're referring to is the repos that we did. I believe of (inaudible) convertible I think is what you're asking and that was yes $0.19 for the year in total. We had guided to $0.17, it wasn't an additional $0.02 in the quarter.

Michael Hoffman -- Stifel Nicolaus -- Analyst

Okay, and then well, you made a point of telling us that you have open authorization so given where the stock is sitting, are you prepared to be in the market and buy stock?

Dan Ginnetti -- Chief Financial Officer & Executive Vice President

Yes, Michael, the share repos does remain a part of our capital allocation strategy. Obviously, debt reduction is very important to me at this point in time as we are investing in the future state of our Company and we're devoting a certain amount of cash, being able to invest in our business transformation in our ERP system. We do need to continue to delever from the point of where we are today, but we will continue to do acquisitions, and we'll continue to consider repo as a part of our capital allocation strategy and remain opportunistic when the opportunity exists and when we're comfortable with the cash flow that we have.

Charles A. Alutto -- Chief Executive Officer

I think right now the priorities on debt reduction to get the leverage down Michael. And then, we'll be opportunistic on the common share as well.

Operator

And our next question comes from Hamzah Mazari with Macquarie Capital.

Charles A. Alutto -- Chief Executive Officer

Good evening, Hamzah.

Hamzah Mazari -- Macquarie Capital -- Analyst

Good evening. How are you doing?

Charles A. Alutto -- Chief Executive Officer

Good.

Hamzah Mazari -- Macquarie Capital -- Analyst

My first question is just if you just step back right from medical waste, we realize we've had these repricings due to --- forget about self-inflicted, but maybe the market structure change with hospital acquisition, but maybe frame for us what is the barrier to entry in this business today going forward? And then if you look at technology, we will cover the solid waste business, the disposal tends to be barrier to entry. I think you can build an autoclave for 25,000 or 50,000. So just help us frame barrier to entry in this business. Clearly, it's had an impact on the stock, so maybe help us understand that. Thank you.

Charles A. Alutto -- Chief Executive Officer

Yes, I think you are building a very small autoclave for 25,000, 50,000 may be in a doctor's office to do instruments. I mean it's more expensive to that. You got four little operating units, you got material handling, so there's a lot more that goes into (inaudible) just the unit. The formats to get the autoclave. As I've always explained to folks, I think when you think about medical waste, I hear people say, lower barrier toe entry and they are right. On the hospital side of the business, it's a higher barrier to entry because a portion of the hospital waste has to be incinerated and hospitals generally won't do business with somebody that doesn't have their own disposal RFS2 incineration. So from that aspect, the barrier to entry to get into the hospital business is going to be higher. On the SQ business, the barrier entry has always been small, you even have to (inaudible) Hamzah. If you want to debate the cost of an autoclave, you don't even really need an autoclave, you can go out and you can get permits for truck and you can go and you can bring ways to a third party to treat that waste. And most of the SQ waste that a small hauler would pickup up from does not have to be incinerated, so can't go to autoclave. The real barrier to entry there is route density. You can start it out, everybody has a contract, Stericycle contract. Most of our competitors have contracts. So the barrier to entry is building that route density and it takes you a long time to one account at a time to build out global route density. So I think that is somewhat of a barrier to entry for the SQ customer.

Dan Ginnetti -- Chief Financial Officer & Executive Vice President

Yes, Hamzah, I would add to that. One of the other barriers to entry is really that intangible direct customer relationship we have and the breadth of services that we have. A vast majority of our customers use us for multiple services and they enjoy the fact that we can help them with, yes, if you thinking about hospital with not just their medical waste needs, but their hazardous means, their pharmaceutical needs, we have resources inside the hospital helping service. We can handle their Secure Information Destruction, and even in the SQ we can handle their compliance needs as well. And I would tell you that the more services we have in, really we're solidifying that relationship with the customers and that's a big barrier to entry because of the breadth of services we can do versus our competitors.

Hamzah Mazari -- Macquarie Capital -- Analyst

Great. And then maybe I missed this, but can we frame again in terms of med waste pricing, we called out $130 million headwind. How much is remaining now in Q4 next year and then once this headwind is behind us, is this a CPI plus business? We see a lot of labor inflation. We see the solid waste guys pricing pretty aggressively. Just frame for investors sort of how much pricing headwind do we have left and then is this a business with pricing power?

Charles A. Alutto -- Chief Executive Officer

Yes, I think (inaudible) elevated like retains elevated. This time we think there's another $20 million to $30 million in pricing that gets us through the middle of next year, 2019. We do think it's a CPI plus type of business where we can get better than CPI like increases. There is always going to be some pricing in the business, Hamzah. We've talked about this. We have hundreds of thousands of customers in the SQ space, those customers, some are price sensitive and there's always a level of discounting and churn in the market given the large number of customers that we have, but we think though that once we get through this, we can price and get price in CPI plus range.

Operator

And our next question comes from Scott Schneeberger with Oppenheimer.

Scott Schneeberger -- Oppenheimer -- Analyst

Thanks. Good evening, everyone. Hey, could we speak a little bit about the guidance for cash from ops and CapEx? It looks like both were decreased. Could you get a little bit into drivers there? Thanks.

Dan Ginnetti -- Chief Financial Officer & Executive Vice President

Yes, thanks. I'll take that one, Scott. So you'll remember, obviously, we started the year at $330 million to $400 million of free cash flow. At that time we did not consider and did not know if we will be making a settlement payment. Last quarter, we did announce that we will be making that settlement payment and then we had a few other puts and takes. In our revised guidance going into this quarter for the full year was a midpoint of $43 million. We are -- and you saw in our CapEx numbers, we are trending a little bit less than where we had anticipated we would be for the full year, although we do expect a higher quarter in Q4, but we're lowering our CapEx expectations by about $10 million. With this C&RS challenge in Q3 as well as the expectation that it's going to continue for the balance of the year, we adjusted out about $11 million on our EBITDA from there. And then you'll remember when we're talking about unknown onetime adjusting items, we did not and don't have the ability to forecast or give guidance to those. And we did see about $17 million in cash related -- for our Q3 related to legal and regulatory compliance. And so because we don't forecast that would come out of that. (inaudible) the midpoint of our guidance would be about $25 million. Certainly, we had a very strong quarter and we're pleased with the quarter. We had an improvement of our DSO of about two days, but just to make sure that we don't assume Q4 is going to be a replication of Q3, we saw we were very pleased to implement a new purchase order system, which is part of our future state. We are very excited to have that. As a result of that, it did slow down outflows of cash in Q3, which gave us a little bit of a benefit. We expect that will flip a little bit next quarter, but that was a great step in our Company to work toward our remediation of material weaknesses in advance the future state of our systems.

Scott Schneeberger -- Oppenheimer -- Analyst

Thanks Dan. That was helpful. I remember talking about legal last quarter and so is this the reminiscence? Are we done? Is there a lot more trickle into fourth quarter? Is there trickle into next year on these unique one-time items like legal? And then how should we think about the CapEx budget next year considering you were a little lower than expected this year?

Charles A. Alutto -- Chief Executive Officer

Yes, thanks. Let me take both of those. I mean, we did have higher legal expenses through the first two quarters. We do anticipate that those legal expenses will be lower in Q4. It's unpredictable as you know we're going through the FCPA investigation as well. So it's unpredictable, but we can -- we're going to manage those as diligently as possible. I think to your point, though we do anticipate that those will be lower in Q4. As far as the

CapEx, we've always run 3.5% to 4% to revenue. I think cumulatively for the year we are at 3.7%. So we're right in the middle of it. We do anticipate Q4 will be higher than Q3 in capital for the line of sight that we have and the projects that are committed to closing get paid in the quarter, but again I think 3.5% to 4% is a good anticipation with respect to CapEx for next year.

Dan Ginnetti -- Chief Financial Officer & Executive Vice President

I remember also next year, we'll have some CapEx devoted to the future state of our business transformation that could bring it up a little bit, that's an expectation that we put out there, but it will be up, but it shouldn't be dramatically up, and I think as we're operating sounds that the 4% of our revenue is a realistic number.

Scott Schneeberger -- Oppenheimer -- Analyst

Thanks. I appreciate it. I'll turn it over.

Dan Ginnetti -- Chief Financial Officer & Executive Vice President

Thanks, Scott.

Operator

And our next question comes from Isaac Ro with Goldman Sachs.

Isaac Ro -- Goldman Sachs -- Analyst

Good afternoon guys. Thank you. I wanted to just maybe -- by the way, thanks for putting that bridge on the free cash flow guidance this quarter. That was helpful. If I look at that bridge, two items, one was the $70 million reduction, tighter litigation and the rest. Could you maybe just give us a sense of (inaudible) that was new versus last quarter, what was it, why was that? And then on the EBITDA, the $11 million change, if we kind of consider the fact that you got a little bit of a tailwind from paper pricing, what was the actual underlying reduction in EBITDA for a little bit of context?

Charles A. Alutto -- Chief Executive Officer

Yeah, let me take. I believe, your question was, what was the litigation change from Q3 to Q4. Most of that had to do with the ongoing FCPA investigation that is winding down but that continued in Q3. So I think that was your question of what was the amount in Q3 over Q2. And then with respect to SOP, on the impact of paper pricing, I'll let Dan answer that one. Just everybody knows, I mean it is an elevated level, that the market remains strong for SOP 37, the Chinese band on mixed paper and contaminated paper coming into that market has helped elevate SOP 37, although most of our paper stays in the US, it does have an impact on pricing. We started the year with a range of $135 to $165 a ton. Our current guidance is for a year range of $185 to $195 a ton.

Dan Ginnetti -- Chief Financial Officer & Executive Vice President

Yeah, I'll touch on the EBITDA impact. You saw that we did bring on the midpoint, when you look at in our press release of that the EBITDA guidance that you gave, we -- the midpoint came down by about $17 million (inaudible) fact that that's about $11 million in cash. Some of the big movers in that is you saw, we had some temporary impacts in Latin America that was probably about $4 million of our changing guidance. Foreign exchange continued to be a headwind. It's only about $1 million, but as it flows through that to the combination about $30 million comes from CNRS, obviously with the reduction of that you have to have maintain a certain staffing level to be able to handle the increased number of events that we're having even though they're happening at a smaller amount, that's about $30 million there. SOP is going to contribute to the midpoint of the guidance of about $6 million to EBITDA. And then you did see as we refine our ranges going into Q4 we came off the top, a little bit and that squeezes it down to about $4 million of EBITDA. So, as you're thinking about Q4, from an EPS standpoint, I think you would get to about 89 to 99 (ph) based off the adjustments of the other things on the EBITDA.

Isaac Ro -- Goldman Sachs -- Analyst

Great, thank you. And then just a follow-up, I noticed on slide 22 you guys gave us ranges for your long-term goals for revenue and earnings growth rates and all that. And correct me if I'm wrong, I think that's the first time you guys have gotten into that level of detail on all those items. So it would be helpful to know kind of what led to your reasoning to commit to those ranges. And then maybe just clarify the periods over that five-year period what's the sort of starting to end year period for those ranges? And (technical difficulty) can we assume that we might get a little more detail in the fourth quarter call or on a rolling basis? Thank you.

Charles A. Alutto -- Chief Executive Officer

Actually, those numbers have been out there and we introduced business transformation earlier this year. So that's not the first time. I think we've always had it on a slide. We now put it on the closing slide as well. A lot of those benefits come after the ERP is implemented. Dan can add a little more color to that.

Dan Ginnetti -- Chief Financial Officer & Executive Vice President

Yeah, yeah, we share those on a graph when we rolled out the business transformation and those are the five-year graph. Obviously, the majority of the plan is reliant on implementing our ERP system. Just to remind you, in 2019 we will be focusing on building testing and training and the ERP. In 2020, we expect to deploy the ERP system in the US and Canada and they continue that rollout in 2021. The majority of the BT EBITDA that you're going to see savings in 2019 comes from a tailwind of initiatives that we've completed in 2018. But long term EBITDA growth rate that you're seeing out there and all of the long-term growth rates really will be following the ERP implementation. So you're going to see a bit of a spike up in 2020, 2021 and 2022 and that was really as we communicated that '18 and '19 is really about build, test, train, prepare ourselves as we try to capture those BT initiatives that we're on track for, but again the spike up in those growth rates and getting within those really is a 2020 and beyond that once we deploy.

Isaac Ro -- Goldman Sachs -- Analyst

Okay, got it. Thank you, guys.

Charles A. Alutto -- Chief Executive Officer

Thanks, Isaac.

Operator

And we have a question from Hamzah Mazari with Macquarie Capital.

Hamzah Mazari -- Macquarie Capital -- Analyst

Thank you. I just had a follow up, thank you, was one, if you guys divest assets more material assets does the ERP cost go down? I guess it was to $275 million to $300 million. That was one. And then two, I know Cindy just joined and so does -- and I know she didn't sort of deal with the restructuring plan but does the restructuring plan change also that you have a new COO now? Just those two questions. Thank you.

Charles A. Alutto -- Chief Executive Officer

Yes, I'll take the first one. I mean it depends on what assets we're selling. Obviously, we never really -- we early on made the decision that C&RS we were going to probably do something strategic with that, we didn't put a lot of time, effort or cost into building ERP for that. We're looking at the mega processes that we're building. Certainly if we divest some assets I think it derisks the implementation Hamzah. That's where I look at. I don't know how significantly it depends on again what we divest and how -- what kind of an impact it would have on the cost and the savings we will get from that when -- and if we divested assets. But if we do divest, there is one thing for certain. I think it derisks the implementation because we will be not updating a system, an operating system, or a financial system. So we'll look at that as we make decisions on whether or not an asset stays in the portfolio. Certainly ERP is one lens, we put on that. On the restructuring, Cindy, any thoughts on that?

Cindy J. Miller -- President & Chief Operating Officer

Yes, Hamzah, thanks for the question. And one of the things that I'm most excited about is getting a chance to get into and join the Company to help with the continued restructuring. I don't think the restructuring is not going to change at all. I just think that it provides me an opportunity to engage with the team to a greater detail to then help the teams and the field operations really drive the synergies and efficiencies and the productivity results that we should get from all of the work that the team is doing. So, I think it's been great for me to get here in the beginning, not to change things, but to help support and augment field engagement as we go forward.

Hamzah Mazari -- Macquarie Capital -- Analyst

That's great. Thank you for taking my question last minute. Appreciate it.

Charles A. Alutto -- Chief Executive Officer

Thanks Hamzah. No problem.

Operator

And we have a question from Michael Hoffman with Stifel.

Michael Hoffman -- Stifel Nicolaus -- Analyst

Thank you. The follow-up would be to just tease out the other guy's question about the $850 million to $1 billion. Just to be clear, there's two pieces to that business transformation has a component ERP. Am I right, the business transformation, if I take the low end, it's probably about $650 million of $850 million, ERP is about $200 million if you think about the peak year and business transformation we're probably somewhere between $125 million (ph) in the quarter and $150 million in that annualized savings and the ERP is probably $75 million to $100 million and at extensively comes out of SG&A?

Charles A. Alutto -- Chief Executive Officer

I think if you look at business transformation we kind of refer it internally to pay the way and you think about that as the $60 million to $65 million that will incur over five which will reoccur over a five-year period. So we just took $60 million if you want and you say that $300 million and then -- so I'd say the majority of the savings is actually coming from the implementation of the ERP, a majority of that obviously is some back office and shared savings and being on, obviously a lot fewer systems. I don't think we've broken our SG&A, cost of revenue at this point. Obviously SG&A is an important component when we think about ERP, when we think there are benefits in cost of revenue as well and part of the ERP is routing, inefficiencies in the marketplace. So if you -- just as a simple math, Michael on the $60 million to $65 million, yes, we're going to have some tailwind into 2019 on that as well. And you can always do the math on that because we put a table out there. I believe it was on the slide 9, it's a BT slide that actually tells you each quarter. So you can do the tailwind yourself. So you take that tailwind times four and you'd probably get to a number that's around $400 plus million related to business transformation and the rest ERP, hopefully that helps out.

Dan Ginnetti -- Chief Financial Officer & Executive Vice President

It was slide 8.

Charles A. Alutto -- Chief Executive Officer

Slide 8. I'm sorry. Slide 8 gives you a you good breakdown now of when those savings occur. So you can do the tailwind on what's going to happen in '19.

Speaker A-Michael Hoffman

All right. Well, if I take that approach, $400 million and $450 million, how do you think about roughly that $450 million splits between OpEx and SG&A?

Dan Ginnetti -- Chief Financial Officer & Executive Vice President

And it's really early to tell on that. I would lean more heavily on the SG&A, it's really taking our end-to-end processes that's being able to consolidate our systems, our IT improving the processes and flows, being able to remediate our material weakness and take some of that manual transactional level work that we do, but certainly a big part of this is being able to optimize the routing and our (inaudible). And then one of the things we haven't added to this, but certainly the ERP offers us data analytics like we've never enjoyed in this Company and to be able to have real-time feedback and daily revenue recognition. Cindy can probably talk about the advantages of having, being a truly metrics-driven organization and what that's done for her career and being able to drive efficiencies and operations.

Cindy J. Miller -- President & Chief Operating Officer

Yeah. Thanks, Dan. Yes, Michael, I think you know one of the things we look at when we talk about then data analytics in any of the routing optimizations that we have, there is a tremendous opportunity for us to take a look at across the businesses and across all the various routes we have out there to take a look and see how we can get even greater density, how we can reduce miles, how we can get more predictive in when we need to make particular pickups for accounts because right now, they all kind of run independent with real no crossover visibility between the two or between any of them that are routed and on the road and I think having daily visibility to that, so that we can maximize, we can get more predictive, I think that the savings, whether it's in fuel savings, whether it's in vehicles, whether it's in miles bringing down over time, better utilization of our drivers, there is a tremendous amount of opportunity that having real-time data to day engagement will make just a huge difference on how we manage this business moving forward.

Michael Hoffman -- Stifel Nicolaus -- Analyst

Okay. Thank you very much.

Dan Ginnetti -- Chief Financial Officer & Executive Vice President

Thanks, Michael.

Operator

And we have no further questions at this time.

Charles A. Alutto -- Chief Executive Officer

Thank you, operator. In closing, I want to thank each and every member of our worldwide team. Our Regulated Waste and Compliance services and Secure Information Destruction businesses exceeded our expectations for the latest quarter and are on track to deliver solid performance in 2018. In addition, the team continues to work together to ensure that our business transformation remains on track and on budget. Your work and dedication is truly appreciated and provides for a bright and successful future at Stericycle. Thank you, everyone. Have a great evening.

Operator

This does conclude today's conference call. Thank you for your participation. You may now disconnect.

Duration: 60 minutes

Call participants:

Jennifer Koenig -- Vice President of Corporate Communications and Investor Relations

Charles A. Alutto -- Chief Executive Officer

Cindy J. Miller -- President & Chief Operating Officer

Dan Ginnetti -- Chief Financial Officer & Executive Vice President

Sean Dodge -- Jefferies -- Analyst

Nick Spigaot -- William Blair -- Analyst

Gary Bisbee -- Bank of America Merrill Lynch -- Analyst

David Manthey -- Baird -- Analyst

Michael Hoffman -- Stifel Nicolaus -- Analyst

Hamzah Mazari -- Macquarie Capital -- Analyst

Scott Schneeberger -- Oppenheimer -- Analyst

Isaac Ro -- Goldman Sachs -- Analyst

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