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Stericycle Incorporated (SRCL -0.45%)
Q2Â 2019 Earnings Call
Aug 1, 2019, 9:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, and welcome to the Stericycle Second Quarter 2019 Earnings Conference Call.
[Operator Instructions]. At this time, I'd like to turn the conference over to Jennifer Koenig, Vice President of Corporate Communications and Investor Relations. Please go ahead.
Jennifer Koenig -- Vice President of Communication And Investor Relation
Hello, and thank you for joining Stericycle's Second Quarter 2019 Earnings Call. On the call today will be Cindy Miller, Chief Executive officer; Janet Zelenka, Chief Financial Officer; and Bill Seward, Chief Commercial Officer. The discussion today includes forward-looking statements that involve 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 in 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 statements other than in accordance with legal and regularly obligations. 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 schedules in our earnings press release, which can be found on Stericycle's investor relations website.
Please note that we provide guidance on an adjusted non-GAAP basis because it is not possible to predict or provide without unreasonable effort a reconciliation reflecting the impact of future acquisitions, divestitures, certain litigation settlements and regulatory compliance matters, business transformation, intangible amortization, operational optimization or certain other items and unanticipated events, which would be included in GAAP reporting results and could be material. Finally, the prepared comments for today's call correspond to our second quarter earnings presentation, which is also available on our investor relations website. Throughout the call, we may reference specific slides from this presentation.
I'll now turn the call over to Cindy Miller.
Cindy J. Miller -- President And Chief Executive Officer
Thank you, Jennifer, and welcome to our second quarter 2019 earnings conference call. Since our last call, we've made important progress against several of our key priorities, as we continue our work to transform the company. As a new management team, we recognize that a lot of hard work lies ahead, but we remain confident and excited about the prospects of our business going forward. On today's call, we'll highlight the progress we've made and address key areas of focus, as we work to drive improved performance and shareholder value. Focusing on the quarter.
Our revenue performance was in line with expectations excluding the macroeconomic impacts of the significant decline in sorted office paper pricing and foreign exchange rates and reflects the early impact of revenue quality initiatives that we began implementing earlier this year. From a profitability perspective, we were disappointed by our performance, which was primarily influenced by the macroeconomic factors and cost pressures in the business primarily related to third-party hazardous waste disposal.
We are actively executing plans to offset these pressures in the short- and long-term through revenue quality and operational cost efficiency effort, which I'll touch on in a moment. As a result of current factors and year-to-date results, we are adjusting 2019 guidance downward. This in no way diminishes our confidence in the longer-term opportunity of our core businesses. As we continue our efforts to refocus the business on our core services, we must capitalize on our strength in this growing regulated market. Our customers value the services we provide and appreciate the differentiation that we offer.
We have a strong foundation from which to drive growth and long-term value. Our 2019 focus remains on Stericycle's 5 key priorities, which include: portfolio rationalization, debt restructuring and leverage improvement, quality of revenue, operational cost efficiencies and the ERP implementation readiness. For portfolio rationalization, we remain committed to further sharpening our focus on our core businesses. A significant portion of my time is devoted to portfolio rationalization, and we continue to pursue opportunities. These initiatives do take time, and I look forward to providing updates in the future.
Focusing on debt restructuring and leverage improvement. We completed debt refinancing earlier this quarter, which provided for a balanced capital structure and additional financial flexibility. Janet will review the restructuring in more detail in a few moments. To drive the quality of revenue, our commercial organization remains committed to a multi-staged plan. Just one quarter following the implementation of new pricing initiatives and contract governance, we are already beginning to see favorable results. Bill will share more details on the impact and expansion of these plans as well as provide additional highlights.
For operational cost efficiencies, the team is aggressively focused on challenging everything we do and how we do it, from work standards to labor metrics, to riling practices, to billing practices, just to name a few. We continue to execute on several operational initiatives, which I mentioned to you on the first quarter call. We are implementing new dashboards in advance of the ERP to help us identify performance improvement opportunities, and we continue to expand route improvements in the use of our new mobile collection truck fleet.
And as we look at our operations with a critical eye, we continue to identify additional opportunity to reduce costs. And finally, the cornerstone of our Business Transformation is the implementation of our global ERP system. During the second quarter, we completed the primary development of the ERP and continue to advance our progress on readiness activities. We remain on track for implementation in the U.S. and Canada next year. The leadership team and I are committed to these key priorities in our steadfast pursuit of improving the long-term performance of the company.
While it will take time and focus, we remain confident in the company's strong foundation, our value proposition and our ability to transform the business. We'd like to thank the many customers, team members and shareholders for their continued support. And finally, before I turn the call over to Bill, I'd like to welcome Janet Zelenka, who has joined Stericycle as our Chief Financial Officer. Since starting on June 1, she has become immersed in our business and is already helping to shape our future. Now Bill will provide an overview of the top line performance of our service lines.
William J. Seward -- Executive Vice President And Chief Commercial Officer
Thanks, Cindy. This quarter, I had the privilege to connect with a cross-section of Stericycle customers. And these interactions confirm the preliminary thoughts I shared with you last quarter, that they value the expertise and differentiated service Stericycle brings to the market. It is clear our customers rely on Stericycle as a trusted partner to help protect their people, their businesses and the communities they serve.
That trust and expertise is the foundation upon which we're building our quality of revenue initiatives. Now I'd like to review revenue results for the second quarter. Total revenues for the second quarter were $845.8 million compared to $883.3 million in Q2 2018. Organic revenue growth in Secure Information Destruction and Regulated Waste and Compliance Services was offset by the impact of foreign exchange rates and a significant decline in SOP pricing. Previously closed divestitures net of acquisitions reduced revenues by $10.6 million for the quarter, and our Communications and Related Services revenue was negatively impacted by fewer Recall events during the quarter.
Regulated Waste and Compliance Services revenues were $475 million reflecting organic growth of $6.6 million. Importantly, this is the first quarter in 2 years that we've delivered organic growth in this business. This growth reflects the progress we're making to refocus the commercial organization on value selling. The RWCS business benefited from the changes in our pricing and contract governance processes that were introduced earlier this year. We also continued to see encouraging trends among small healthcare customers including lower discounting. Next, Secure Information Destruction Services delivered revenues of $229.4 million.
Organic revenue growth in the quarter was 0.5% or 4.3% when accounting for the steep decline in recycled paper pricing, continuing a steady growth trend. In August, we implemented recycling recovery surcharge to help offset the ongoing headwinds created by the declining recycled paper prices. The surcharge will be indexed to the fluctuating paper market and will partially offset declining SOP pricing. Communication and Related Services revenues were $63.2 million, down $18.1 million from Q2 2018. This reflects fewer and smaller Recall events compared to 1 year ago as well as the divestiture of the U.K. casting business.
Manufacturing and Industrial Services revenues were $78.2 million, down $0.6 million from Q2 2018 when excluding for $9.4 million in unfavorable impact due to foreign exchange and the divestiture of the U.K. hazardous waste business. As mentioned by Cindy, we are beginning to see the benefit of changes in our pricing initiatives and the contract governance process. We continue to expand the use of contract governance committees through additional business lines and geographies, and we recently invested in training that emphasizes leveraging the value and expertise that Stericycle brings to the market. In the second quarter, we also realigned our marketing teams to support the U.S. and Canada.
These new teams support our go-to-market strategies, product development, digital marketing, brand development and our pricing. This new structure will enable us to leverage our deep expertise and investment across the enterprise as compared to our previous more siloed approach. With realigned commercial teams and a heightened focus on the quality of revenue in place, our next step will be driving new customer growth. We have been over reliant on growth from existing customers.
Going forward, we will capitalize on the strength and expertise of our people to convert new customers, and we will be targeting our sales and marketing initiatives to ensure new customers play a much bigger role in our future growth. Before I turn the call over to Janet, I'd like to acknowledge and thank our commercial teams for the work they've done supporting our commercial transformation. We have much work to do. However, I'm encouraged by the growth we are showing in our core businesses and by the willingness of our teams to embrace the changes we are implementing. I now welcome Janet to this call to review additional financial results for the quarter.
Janet H. Zelenka -- Executive Vice President and Chief Financial Officer
Thank you, Bill. I'm pleased to be part of the new leadership team at Stericycle. I've been fortunate to lead business transformations in the past, and I joined Stericycle with a clear appreciation of the value we bring to our customers and society and for the great opportunities ahead. Like Bill and Cindy, I see the strength of the brand, the growth potential in the core markets and the possibilities that can become reality with a well-executed transformation.
During my first 2 months on the job, I've had the chance to jump right into the business. I've been impressed by the strength and commitment of the team and the comprehensive planning approach associated with the business and technology transformation. The company is focused on the right areas to drive performance, and I'm excited to be part of the next phase in Stericycle's evolution, as we drive execution discipline into all parts of the business. I have 3 priorities as CFO. First, we must continue to advance efforts for an effective, efficient and stable controlled environment including material weakness remediation.
While the ERP will provide many built-in and automated controls, our team will continue to focus on improving the current state of design and execution of our controls this year. Second, I'm committed to driving free cash flow through margin expansion, cost reduction and cash management initiatives. I'm focused on reducing our debt leverage and improving the balance sheet. Third, as a former CIO, who has worked in organizations with multiple operating systems, I share the company's commitment to a successful ERP implementation with focus on the financial processes including planning, forecasting, reporting and finance shared services.
After experienced 1 quarter of Stericycle's current manual intensive processes, the benefits of moving to a global ERP system are clear. With that, let's shift the focus back to financial results for the second quarter. As Bill noted, total revenues for the second quarter were $845.8 million. Income from operations in the quarter was $25.3 million compared to $62.4 million in the second quarter of last year. This variance was primarily due to the flow-through of SOP pricing and pricing pressure in RWCS and higher operating costs, which increased as a percent of revenue including third-party hazardous waste disposal and equipment maintenance and rental costs.
Selling, general and administrative or SG&A expenses as a percent of revenue were slightly favorable. GAAP diluted loss per share was $0.33 including a one-time pre-tax charge of $26.7 million related to the loss on early extinguishment of debt and related charges and higher operating costs. This compares to diluted earnings per share of $0.31 in the second quarter of last year. Cash flow from operations year-to-date was $71 million compared to $231 million last year.
That decrease was primarily result of the net loss for the period and a change in net working capital. Capital expenditures year-to-date were $108.2 million including $40.8 million for the ERP implementation. This compares to $64 million last year, which included $3.7 million for the ERP implementation. An increase in capital expenditure was expected in 2019 to the rent billed of the ERP. Adjusted EBITDA was $137.7 million compared to $190.9 million in the second quarter of last year.
This variance was primarily driven by macroeconomic factors impacting revenues and higher operating costs and $12 million in higher SG&A expenses, which increased as a percent of revenues and were primarily driven by higher comparative bad debt expense, investments to improve our internal controls and processes and a one-time adjustment to our insurance reserves for older claims. As Cindy mentioned, pursuit of operational efficiencies remains a priority for Stericycle's new leadership team.
Our operations and engineering teams are focused on numerous operational activities to reduce costs through efficient use of labor, mileage reduction, standardized operating procedures and metrics-based score cards for operations. To address the current hazardous waste cost pressures, we are pursuing more cost-effective third-party long haul and disposal providers and more efficient routing. Adjusted EPS was $0.56 compared to $1.17 in the second quarter of 2018. As illustrated on the bridge on slide 12, the year-on-year variance in adjusted EPS is due to the following:
$0.14 from higher operating costs; $0.11 from RWCS pricing and C&RS $0.10 from macroeconomic factors; $0.10 from higher SG&A expenses; $0.09 from higher interest expense and tax; and $0.08 from the absence of gains on share repurchases this quarter compared to 2018. Our DSO was 66 days compared to 65 days in the second quarter of 2018. Free cash flow inclusive of capital expenditures was an outflow of $37.2 million as a result of the net loss for the period. The expected increase in capital expenditures due to the ERP implementation and a change in net working capital.
Our debt-to-adjusted-EBITDA ratio is defined under the amended debt agreement was 4.36 at the end of the quarter. As Cindy mentioned in the opening, in June, we closed refinancing of our debt to provide the company with a balanced capital structure along with financial flexibility. We raised $600 million in senior unsecured 5-year notes and an incremental $365 million in our term loan. Combined with an additional draw from our revolving line of credit, Stericycle paid off its more restrictive $1.075 billion private placement notes.
As part of the refinancing, we amended terms of our credit facilities to allow for a covenant limit of 4.5x debt-to-adjusted-EBITDA through March 2020. We are mitigating the risk of exceeding our debt to leverage ratio covenant through additional controls on spending and continued focus on portfolio rationalization. The proceeds of any divestitures will be used to pay down a portion of our term loan. Given the financial performance through June, we are updating guidance for the full year 2019 to reflect the continued challenges of our commodity SOP pricing, foreign exchange rates and operating cost increases.
Additionally, EPS is impacted by higher interest expense and a year-to-date higher effective tax rate. A revised 2019 guidance is shown on slide 15. We expect revenue for the full year 2019 to be in the range of $3.345 billion to $3.405 billion. Adjusted EBITDA is expected to be in the range of $575 million to $615 million. We expect adjusted EPS will be in the range of $2.50 to $2.85. We expect capital expenditures to be in the range of $170 million to $190 million including our investments in the ERP. I will now turn the call back to Cindy.
Cindy J. Miller -- President And Chief Executive Officer
Thank you, Janet. While results from the quarter were disappointing, our team remains focused on the key parties: portfolio rationalization, debt restructuring and leverage improvement, quality of revenue, operational cost efficiencies and ERP implementation readiness. We have a lot of work to do, but we continue to approach each of our priorities with a deliberate plan of attack. With the help of our dedicated team, we firmly believe we can change our trajectory and drive long-term value for our shareholders.
Operator, please open the line for Q&A.
Questions and Answers:
Operator
[Operator Instructions] Our first question today will come from Scott Schneeberger of Oppenheimer. Please go ahead.
Scott Schneeberger -- Oppenheimer -- Analyst
Thanks very much. Good morning everyone. I guess where I'd like to start, obviously used paper prices had a big impact in the quarter and its on -- in the release some discussion of a surcharge being implemented. If you could just elaborate a little bit on what the impact is to the guidance for the full year? And what's occurring with the surcharge?
Janet H. Zelenka -- Executive Vice President and Chief Financial Officer
This is Janet. We did factor in a modest continued decrease in the paper pricing in the guidance and then we built a range around that. And so a good portion of the revenue range and the EBIT range, part of the EBIT range is driven by our forecast of paper pricing. Given the impact on the business, we thought it was prudent to include that in our guidance forecast. And then I'll turn over to Bill for an explanation of the surcharge.
William J. Seward -- Executive Vice President And Chief Commercial Officer
Yes. So the surcharge actually takes effect today. The surcharge will come in at about 7% at today's paper price. The information on the surcharge is available on our website, and we were very sensitive to the fact that we need to be competitive and we want to continue the growth of our Shred-it business. We had a acceptable quarter of growth. We want to maintain that momentum, and we feel good about it.
Scott Schneeberger -- Oppenheimer -- Analyst
I guess, save some of the operational questions for others later. But on working capital, capex, I noticed some issues in working capital. If we could address that, please. And then I was curious to see capital expenditures guidance decrease this year. If you could elaborate a little bit on that.
Janet H. Zelenka -- Executive Vice President and Chief Financial Officer
This is Janet. The capital expenditures, we took the guidance down in the range because we think we can save some money on capital expenditures this year and wanted to reflect that in our guidance. In terms of working capital, the challenges of working capital are a combination of a variety of things, but operating performances by far is the biggest driver of our cash flow change from the year-to-date '18 to year-to-date '19. And then you can look at some of the other fees that have been flowing through over time in the adjusted item.
Scott Schneeberger -- Oppenheimer -- Analyst
And Janet, just to be clear, the savings on capex this year, is that a pushout to next year or is that an absolute saving?
Janet H. Zelenka -- Executive Vice President and Chief Financial Officer
Right now, looking into -- looking for absolute savings. As you know, we've put in an engineering and procurement team, and they're actually looking for better ways and cheaper ways to accomplish what we want to accomplish, so I am planning for those to be savings.
Scott Schneeberger -- Oppenheimer -- Analyst
Thanks very much.
Operator
Our next question today will come from Ryan Daniels of William Blair. Please go ahead.
Ryan Daniels -- William Blair -- Analyst
This is Nick in for Ryan. I am just wondering if you could expand a little bit on kind of where you're at in the ERP rollout and the kind of goals you've set or you expect to set in the coming quarters. I know you're kind of in the middle of that, but if you can just expand on that a little bit.
Cindy J. Miller -- President And Chief Executive Officer
Yes. This is Cindy. Thanks, Nick, for the question. As I've mentioned before, I think, along with many of the bright spots that we do have in the business, core business, revenue growth, quality of revenue, those types of things, the other bright spot for me really is the ERP. This is the year I've talked many, many times about build, testing and training and how important those -- this particular year is.
The primary build has been completed by May and it has actually enabled us to finish. We're just wrapping up our third mock testing phase. So we are well into the testing portion of it. And that hasn't been without its bumps. We certainly have found defects. We are declaring them as defects that can be fixed in a day or 2 and then critical defects, which are the bigger items that are taking little bit more efforts. That's been a much smaller percentage. And I believe we are under a handful of critical items that still need to be worked on.
But for me, I think all of those things are very positive because those are the exact things that if they aren't found prior to implementation can have the potential to affect really the day-to-day running of the business, whether it's in your ability to collect, your ability to order, your ability to book revenue, all those types of things. So we're still very pleased and very encouraged and the team is working on our transformation, the specifics. I just think that they're doing a tremendous amount of work, and we're very proud of those efforts. Thanks for asking.
Ryan Daniels -- William Blair -- Analyst
Thanks for asking. Great thanks. That's helpful. I'll hop in right now. I got to take off right now.
Operator
Our next question will come from Michael Hoffman of Stifel. Please go ahead.
Michael Hoffman -- Stifel -- Analyst
Thank you very much. Can we bridge with specifics the midpoint of the prior sales and EBITDA to the current midpoint? What are the major dollar numbers of change that -- so we understand what's going on?
Janet H. Zelenka -- Executive Vice President and Chief Financial Officer
Good morning, Michael. This is Janet.
Michael Hoffman -- Stifel -- Analyst
Hi, Janet, welcome aboard.
Janet H. Zelenka -- Executive Vice President and Chief Financial Officer
Thank you, thank you. So on the revenue side, the primary drivers are paper. You do have a divestiture we have in there that wasn't in our prior guidance and you have FX impact. And the paper as we -- so the paper impact is the largest impact. It's propping the FX, which are the 2 external ones, are probably the majority of the changes that we're seeing in the revenue guidance. On the adjusted EBITDA side, it's about half on external factors and about half on the cost pressures that we're seeing.
Michael Hoffman -- Stifel -- Analyst
Okay. That helps. Cindy, on the portfolio rationalization in the balance sheet, so you bought yourselves sort of 9 months to go to 4.5. If I do the maths right, on the midpoint of guidance on the current debt, you're at 4.7. So what are we doing between now and the end of March not to trigger the 4.5?
Janet H. Zelenka -- Executive Vice President and Chief Financial Officer
Michael, I'll take that question. So we're looking at the debt-to-EBITDA ratio closely in our modeling and I'll tell you that this guidance range keeps us below our covenants, and we are comfortable that we will achieve this guidance and not have an issue with our covenants.
Cindy J. Miller -- President And Chief Executive Officer
Michael, thanks for that question. And I think your first portion truly was also referencing some portfolio rationalization efforts. I talk about it as being one of the 5 key priorities, and certainly, a tremendous amount of my time and the team's time has been put into and continues to be put into bringing something to fruition with reference to portfolio rationalization. So I'm sure there will be continued efforts even today as we move forward. So it is front and center for all of us in terms of our focus.
Michael Hoffman -- Stifel -- Analyst
So can I take the 2 answers and put them together and you've to sell something to able to accomplish what Janet suggested? And it has to be done together.
Cindy J. Miller -- President And Chief Executive Officer
No. I don't -- and again, for our second half, Michael, and for how we are working, its -- we are looking to make sure that we believe our second half numbers are obtainable. We have the momentum, We have the things that we need to do in order to accomplish them. And as you can imagine, even if tomorrow, even if today, we were to say, hey, we're going to sell X, we all know that depending on the size of it, there would be an opportunity.
here's no guarantee that it would close. Agreeing to something to sell versus the time and the effort that it would take to get to the closing, we will be carrying any of those assets for up to that whole period of time, which could include for the rest of the year. So for us, yes, it helps, yes, it is the focus, yes, it is the goal. But even in -- we're still figured in and based on second half numbers and the covenants and that is not with any type of divestiture coming off of the books.
Michael Hoffman -- Stifel -- Analyst
Okay thank you.
Operator
And our next question will come from Jeff Silber of BMO Capital Markets. Please go ahead.
jeff silber -- analyst
Thanks so much. Sorry just to continue the prior discussion. After March 2020, what's the covenant in terms of leverage ratio?
Janet H. Zelenka -- Chief Fianancial Officer
Yes. Let me pull that up. It does keep going down. So I think, after March 2020, it's 4.25.
jeff silber -- analyst
Okay. Great. I can follow up off-line to get the details...
Janet H. Zelenka -- Executive Vice President and Chief Financial Officer
Yes, there's detail on that in our disclosures in our 10-Q. So...
Cindy J. Miller -- President And Chief Executive Officer
Sure, yes, we have that out there, but we'd be more than happy to give that to you afterwards. That's fine. Thank you.
jeff silber -- analyst
I can look into 10-Q. I appreciate it. Moving back to operations. You talked about the impact of the third-party hazardous waste disposal cost. Was that something different that just happened this quarter? I don't remember that kind of discussion in prior quarters. And if you can elaborate, it would be great.
Cindy J. Miller -- President And Chief Executive Officer
Yes, no. And that's a great question. And I think it goes to the broader efforts and focus of now a finally a complete executive leadership team. Let me give you an example. So Bill joined and we started to get after the commercial side of the business. Bill jointed in the middle of Q1, immediately recognized some big rocks that needed to change immediately. And now 5 months later, we are seeing the impact and really the results of his initial discovery and what he has put into improve it.
And I would say, on the cost side, we are not at the same speed at which we've developed, let's say, that sophistication, but about mid -- very beginning to the end of the first portion of Q2, as you will know, we brought on an engineering team. The engineering leaders along with operations right now are taking our systems that didn't provide us a whole lot of drill down capability and analysis from a full system to system because we patch a lot of them together.
But right now, we are in the early stages of what we've identified in terms of some of the costs that we've seen. And it isn't limited to the third-party disposable cost in our hazardous material business, that's a large portion of it. But what we are also looking at is, we've found -- in peeling back, we've had some issues in terms of how we are looking at our leasing, of our truck structure. Remember the engineering group, we bought in some folks to specifically target our fleet strategy, and in that second quarter about midway through even up till just in the last couple of weeks, we've identified some really big errors that we have been making in terms of leasing, rental and the maintenance programs that we have going on.
And a part of -- I don't want to say part, but a good bid of my confidence in second half numbers is the fact that, that level of sophistication absent any changes in our systems is affording us an opportunity to have greater visibility into the cost like anybody and like any other business, once you know you have a problem, then you can put all hands on deck to fix it and that's exactly what we've done on the commercial side. And we're early stages there but reaping benefits.
And I have the same amount of confidence in our team's ability to address the costs we have identified for second half. Improvements are built into those second half numbers, which is why I think based on positive signs in the core business and this executive leadership team really getting its sea legs, if you will, and driving change, I believe that we're in good shape to make second half of this year.
jeff silber -- analyst
I really appreciate the color. It sounds like you're prepared for that question.
Cindy J. Miller -- President And Chief Executive Officer
I think we knew one of those was coming.
Operator
Our next question today will come from Gary Bisbee of Bank of America Merrill Lynch.
Gary Bisbee -- Bank of America Merrill Lynch -- Analyst
This is Jay Hanna on for Gary this morning. I guess, just from a broader perspective, what's really changed in terms of the guide down from last quarter in May when we last spoke to you guys?
Cindy J. Miller -- President And Chief Executive Officer
And if you don't mind, Jay, I'll start on that and then I'd love for Janet to be able to share a little bit more insights into it. But here is one of the things that I can tell you that I'm not quite sure, and I think we all need to -- even me, we had to get our head wrapped around it. Facts have changed a good bit from end of -- what we knew end of first quarter to end of second quarter. I'll give you one example. April paper was about $164 a ton. July just finished at $114. That's a $50 drop in paper.
I know you've all taken a look at that, but the ramification to that are, that $50 ton decline in a quarter, not over a couple of months, like half a year, but in the quarter, I've been looking back through some and I haven't been able to see that much of a drastic drop in a 3 month time period in quite some time. And when you think about the fact that paper flows direct to our EBITDA line, it makes it -- it makes a beeline right to the bottom line with no cost associated to it at all.
When we talk about any operational things that we were doing, whether it's looking at dashboards, it's controlling over time hours, it's rerouting for mileage optimization, it's -- we're trying to balance workloads from plant to plant, all of those things are incremental improvements and just could not match the speed at which $50 a ton went direct to the bottom line. And I think that while there are other underlying issues that obviously we've uncovered and we're looking to mitigate, those aren't insurmountable but certainly the speed at which that delevering happened in that quarter, I would have to say that, that's the bulk of what we've been faced with. And I hope that helped answered your question, Janet, I don't know if you have anything else to add.
Janet H. Zelenka -- Chief Fianancial Officer
Yes, I agree completely. We will see if he has a follow-up.
Gary Bisbee -- Bank of America Merrill Lynch -- Analyst
No, no. That's good. And then, I guess, my second one would be just with regard to the pricing pressure within regulated ways. Could you shed a little more light on that? I saw in the queue that U.S. medical waste declined again by 2%. So maybe a little more detail there as well.
William J. Seward -- Executive Vice President And Chief Commercial Officer
Pricing pressure in medical waste, could you be a little more specific on that question, I am wondering where you're coming from.
Gary Bisbee -- Bank of America Merrill Lynch -- Analyst
Well, you called out pricing pressure within regulated waste, and we haven't really discussed it in much detail on this call. So I was hoping you could explain maybe some workarounds you guys are focusing on there, some initiatives to help out alleviate some of that pressure going forward?
William J. Seward -- Executive Vice President And Chief Commercial Officer
Yes. So I am sorry, I misunderstood, in terms of the -- if you're asking specifically about what we often refer to as our SQ space, what I want to comment on first of all is that we feel encouraged by the trends. We had a long-range plan, and we are right now in line with our long-range plan. Discounting, in particular, is coming in at better than planned in most instances. So we feel good about that.
And the bottom line is, we're overall encouraged with the RWCS showing its first growth in 2 years. So we feel good about that and shifting out of the medical waste to the Shred-it business, we also feel good about the trends there. We had a first quarter growth of 2%. We know that was somewhat diluted by weather and in the second quarter we saw that growth move up to 4.3% when you exclude for paper. So we feel good about where we're headed with price, we've got a significant number of pricing initiatives, which I can go into more detail, if you like.
Gary Bisbee -- Bank of America Merrill Lynch -- Analyst
Yes. That would be great.
William J. Seward -- Executive Vice President And Chief Commercial Officer
Yes, so I would say that number one is, we've instituted a deal review committee throughout our organization. We started with our hospital space and we feel really good about what we've seen for the first couple of months. That team has embraced a lot of change, and I can give you maybe 1 data point. So for the hospital group where we spent the most time changing not just pricing, but also changing our comp plans there. We've got a team of folks who have been trained on kind of leveraging the value that we bring to the market.
Last year in the first half of the year for the first 6 months on the contracts we renewed in our hospital space, we saw an aggregate decline in price of about 5%. This year in the first 6 months following some changes to the deal review committee, I mentioned some pricing governance, we've seen an increase in price that's double digits or more in the aggregate. So we feel like the changes we're making to our pricing scheme are having an impact in the hospital space, and we're looking to take those impacts across the rest of our business to Shred-it outside the U.S. to our international teams, etc.
Gary Bisbee -- Bank of America Merrill Lynch -- Analyst
Thank you.
Operator
Our next question today will come from David Manthey of Baird. Please go ahead.
David Manthey -- Baird -- Analyst
good morning. Thank you. First of all on the paper shredding business, if you set paper prices on the side for a minute and think about the volume growth in that segment. You've seen 4% to 5% average growth over the last 2 years. How much of that is to the service pricing versus actual volume growth? The reason I ask, I think, you've been talking about 750,000 tons of collected material since you acquired Shred-it. I'm just trying to get a handle on the actual volume growth, I don't know if you track bin tips or number of stops or anything like that, that would help us understand that in detail.
Cindy J. Miller -- President And Chief Executive Officer
Yes. I think I'll let Bill jump in just for a minute. But David, a great question. And one of the things that we're looking at is Bill is extremely focused. The business has really done quite a bit in terms of, I want to say, forming, continuing to drive more value with the current set of customers that we have and that's been across -- it's really been really -- I want to say that the commercial focus, if you will.
Bill is really expanding the discipline and that is certainly evident in the Secure Information Destruction side when we see that so much of the market is still unvended. The estimate is anywhere from 50% to 60% of businesses that are out there with really no type of a Secure Information Destruction policy. So I think, from what I can say, I know that Bill's efforts have been in the commercial side has been, hey, we get and we see where we are in terms of that to your point 750,000 tons in terms of volume.
We still believe that there is opportunity for us to grow. And I think in terms of the efforts that Bill is doing it, making our folks not just farm but now hunt for new business. I think he can give a little bit more color and detail toward that.
William J. Seward -- Executive Vice President And Chief Commercial Officer
Yes. Thanks for the question. So we are absolutely looking to pivot our teams in not just on the Shred-it side of the business, but across the board to acquiring new customers and converting new business. I would say that we've been somewhat over reliant on our existing base of customers.
And so as I said in my opening comments, we've done a lot of work to kind of reorganize the commercial teams around pricing. We've added staff into pricing to create a disciplined function in pricing, but the next step in our evolution as a commercial team is to focus our teams on winning new customers and converting competitive business to the Stericycle label.
David Manthey -- Baird -- Analyst
Okay. And second, within the RWCS, that 1.4% organic, is it safe to assume that SQ revenues are still declining? And I'm wondering if you could also just address as you get these new contracts in place, are the price escalation terms of the contract consistent with what you've done historically or have they changed in anyway?
William J. Seward -- Executive Vice President And Chief Commercial Officer
So a couple of things. First of all, as we've mentioned on previous calls, our commercial restructure and focus is on the total revenue stream. I mentioned earlier that the discounting is very much online. And in terms of where we're going with price and restructuring, we are still proceeding as we have historically with price increases in that market. We are taking a look at those prices, but right now, we're on plan with what we've done previously.
Cindy J. Miller -- President And Chief Executive Officer
But I'll say one thing to add to that, David. While we are talking about pricing in terms of, whether it's capturing a CPI or some of those types of things, but I can tell you probably as might have been discussed many years ago, in terms of the actual pricing practices, those have been completely revamped from several years ago, and to Bill's point, we are continuing with the upgraded and the acceptable pricing practices that we've instituted from several years ago moving forward. So I want to make sure that if you were looking at it from a historical perspective, I wanted to kind of set the line of demarcation in terms of when -- what history we would be referring to.
David Manthey -- Baird -- Analyst
Okay. When you say that Cindy are you inferring that the pricing practices going forward are more or less than history?
William J. Seward -- Executive Vice President And Chief Commercial Officer
So here's what I'd say on that. So one of the ironies about our pricing and the kind of the word on the street, if you will, about our pricing approaches. I would argue historically there were some places where we were a little over reliant on price and some places where we were under-reliant. We've talked about trying to go at the entire business across all revenue streams with the right go-to-market approach to ensure we're getting paid for the value in an approximate fashion.
I'd say that's kind of our emphasis right now when we've moved in that direction. So as an example, we've made a number of changes to our governance in terms of how we renew contracts and what we can do with contracts. We are no longer doing contracts in our hospital space without price increases. We are no longer retroactively putting in price changes that were not beneficial to our bottom line.
And I'll just pivot a little bit to mention that we are also adjusting our compensation programs in some of the sales arenas where we found that the outcomes for Stericycle were not in line with the highest payments. So we're now going to be paying our folks when they're achieving the best outcomes for Stericycle. The design there is not to pay our people less, it's designed to make sure that we are paying our people the highest payouts for the best outcome for Stericycle.
Cindy J. Miller -- President And Chief Executive Officer
And Dave, I think just one thing to that, that I've been made aware of. I think coming out of the SQ settlement were a specific parameters based on pricing operations and how that works. That's been established for a while ago, but I will tell you, the way I can sum it up is, for Bill's experience in terms of on the commercial side and pricing practices, we are certainly -- we believe in the principles and how things are set up at this moment and feel comfortable in terms of comparing that to other practices that are done currently in the market in terms of our -- the competitive landscape.
So I really don't -- I want to make sure that we are very comfortable with those and any kind of historical perspective would come from having set the new guidelines as opposed to anything discussed from a historical perspective. I hope that helps, Dave?
David Manthey -- Baird -- Analyst
Yes. Thank you.
Operator
Our next question is a follow-up from Michael Hoffman of Stifel. Please go ahead.
Michael Hoffman -- Stifel -- Managing directory
So Bill, I just want to clarify the 1.4% organic growth, does that exclude the 12% upside that occurred in hazardous waste solutions?
William J. Seward -- Executive Vice President And Chief Commercial Officer
No.
Michael Hoffman -- Stifel -- Managing directory
Okay. So ex that you're not, but that's not necessarily a negative, you are absolutely seeing a slower rate of decline in SQ and improving quality of revenue in LQ?
William J. Seward -- Executive Vice President And Chief Commercial Officer
Both of those things are true, Michael. And the first part of your comment, it's accelerating at a faster rate as times going on. So we had our best movement. And as I said earlier, for the first time in a couple of years, we are able to show growth in aggregate.
Cindy J. Miller -- President And Chief Executive Officer
And Michael, I think, just one thing too and I did mention it, just kind of referenced it a little earlier. Bill came on board, evaluated some big rocks pretty quickly, put this in place and has just started the rollout of a good bit of intensive value proposition and negotiating, training for the sales team. We've not had a chance to put everybody through that yet, but the key teams that we have put through, I think, there was just a class completed this week if I'm not mistaken.
William J. Seward -- Executive Vice President And Chief Commercial Officer
We've got a team probably listening to the call down in Atlanta, there are 60 folks that are being trained this week in our hospital space, and those are folks who have embraced the change. And we feel really good about the fact that they're going out and the design again is just to make sure that we are getting paid for the value and expertise that we're bringing to our customers.
Cindy J. Miller -- President And Chief Executive Officer
So Michael, to the point is, we are so excited about that continuing to take hold, the folks that are involved in the change are really embracing it and that is, I said earlier, that the core business continues to show positive signs and it's -- while we talked about the fact that there was disappointment in the overall points that we had to share today, deep down -- I don't -- it masks and it really doesn't show how we feel as a management team looking at what the future holds in terms of the key priorities and our ability to really change the business. So very excited about that and really appreciative of the questions, so we had a chance to discuss that.
Michael Hoffman -- Stifel -- Managing directory
And then one last follow-up is the whole $600 million, roughly $600 million of hazardous waste revenues, I think you call ESol internally, which is a mix of hazardous waste solutions and M&I had challenges around disposal. It's not unique to M&I, it's the whole book of hazardous waste. You're dealing with this critical issue.
Cindy J. Miller -- President And Chief Executive Officer
Correct, and you know...
Michael Hoffman -- Stifel -- Managing directory
Real issue of that then is...
Cindy J. Miller -- President And Chief Executive Officer
Yes, and you are spot on. And for us the -- one of the things I want to say is, we cannot sit and be victim to anything. We now have visibility to issues, third-party disposal. We also have things in terms of Secure Information Destruction. I talked about in terms of our fleet strategy. But across the board, the more visibility we get into and we can lay out plans to mitigate issues and improve the cost picture that's what has me excited in terms about second half.
And I believe that we've got strong operators and strong folks in the field that given the appropriate direction, given the appropriate guidance and held accountable to getting results, that's built into the optimism of the second half, which will lend itself to us hitting our full year guidance. So hope that helps, but Michael, you're spot on in terms of environmental solutions and how that is not just in the M&I portion of the business.
Michael Hoffman -- Stifel -- Managing directory
Okay. Thanks
Operator
Our next question will come from Matt Young of Morningstar. Please go ahead.
Matt Young -- Morningstar -- Analyst
Good morning guys. Thanks. Just a quick follow up on the SQ pricing. It sounds like the discounting is tracking as you expect, but just to clarify, do you think that still means that you feel good about the initial guidance that was put out several years ago, for call it, $130 million of total losses. And I think that was for roughly a 4-year period, '16 to '19 and that the bulk of your discounting will mostly work through the portfolio this year?
Cindy J. Miller -- President And Chief Executive Officer
I think, Matt, that's a very fair question and for all the -- for our abilities internally to be able to track it with what we can see and the systems that we have, we believe your statement to be true. The question would be, could it be a plus or minus a certain percentage, there's always that possibility in terms of is it exactly $130 million. But I think the important thing in the numbers and moving forward is that trends have continued to go in the right direction.
It's not as if they've been volatile over the last couple of years. And the fact that we are seeing that steady trend continues to give us encouragement that we are very close. But more importantly, whether it's $130 million, whether it's $120 million, whether it turns out to be $140 million, it did put margin pressure on the business.
We are now in control of that. We are now in control of our destiny in terms of changing that, and I think one thing to be fair in terms of anybody that's doing business, discounting and churn along with winning new business, farming and hunting, those are all factors of the game. But to your point, I don't want to negate the fact that it was quite an issue, and I'm encouraged, as I know, Bill is and the rest of the leadership team in terms of the signs that we are seeing along the revenue streams in over RW -- in our Regulated Waste business.
Matt Young -- Morningstar -- Analyst
That sounds good. So, in general, it's -- whether or not we're off by a few million dollars here and there, but the general idea is that the bulk of this is about where you guys have expected it to be?
Cindy J. Miller -- President And Chief Executive Officer
You're spot on Matt.
William J. Seward -- Executive Vice President And Chief Commercial Officer
Yes.
Matt Young -- Morningstar -- Analyst
Okay. And then another question on the commercial initiatives, Bill, is -- so just to clarify, it sounds like you're working on both the LQ, would that also include the SQ?
William J. Seward -- Executive Vice President And Chief Commercial Officer
Yes.
Matt Young -- Morningstar -- Analyst
In terms of the commissions and the incentive structure?
William J. Seward -- Executive Vice President And Chief Commercial Officer
Yes. Yes. In terms of the incentive structures, we've probably -- I wouldn't say probably, we've got way too many. We probably got north of 6. It's not easy to change sales commission plans mid year. We've gone ahead and done that in 2 or 3 cases, and I commend our people for embracing those changes, and as I mentioned earlier, particularly the hospital team.
So right now, we have probably 55 or 60 other plans that are under evaluation for change next year. And to answer your question, in a word, yes. They're all being examined to make sure that they reward the best outcomes for the company and that the best payouts align with the best outcomes.
Cindy J. Miller -- President And Chief Executive Officer
And if I can, Matt, just one thing to add to that, and I want to make sure that our folks understand that are potentially listening, as anybody who runs an organization that has a sales force within it, our folks, there's a lot of folks that asked me about the culture and our people embracing the change and is it too much change and all those things.
I can tell you, as we see, in evidence of the growth rates, the organic growth rates that Bill has talked about, and the change that we've seen just with the deal review committee, that wasn't easy and it wasn't easy for the folks that have had to change, but those successes are breeding success within that group and there is a belief, and my hats are off to all the folks who one day came in to work and did something following a set of rules called A, and now, Bill has come in, and they're now following a set of marching orders called B, and they're actually doing well with it.
And that to me is going to build continued success and momentum into all the folks that we have out there that have embraced the change. That's what we are here to do, transform and change the company, whether it's with the ERP implementation or a lot of the other disciplines that we're looking to do. And that's a very positive sign for me in terms of over culture moving forward in this time of transformation.
William J. Seward -- Executive Vice President And Chief Commercial Officer
And on that sales comp question, I just want to add that the design is not to pay less. We are not worried about paying as long as it aligns with the outcomes that drive the bottom line for the company. And the other thing to your question, I think, which is important, and Cindy was hinting at this pretty hard, I think our people are starting to realize that we are investing in them.
So as I mentioned, we've got a group of people now getting trained today. And I think they feel as if the organization is going to invest in them to be successful under these new guidelines and this new structure. So we're optimistic and more to come on that.
Matt Young -- Morningstar -- Analyst
Right. That's helpful. And I had one last question on the paper prices. Could you just talk about real quick what's behind the SOP price decline? I know there's been issues with OCC and China imports, but I'm guessing that's not the same thing?
Cindy J. Miller -- President And Chief Executive Officer
No. I think all of it is tied in terms of any of the factors that anybody has looked at in terms of the RISI rate and followed it and taken a look. Any time that there's any discussions in terms of trade wars, any potential tweets that go back and forth, it affects everything, potentially whether 2% of the paper goes into China or 102% of the paper is dependent on China, it has had a ripple effect that -- as we all know, as the ripples get further out from the actual core issue, they get bigger.
So for us, that's where we're looking at in terms of paper rate. And I think the one thing to that helps is the fact that we are building. We used to take just a general run rate stating that we couldn't forecast paper. And what we looked at for the second half of this year, now caveat, we didn't plan it at 0. Just -- and I am -- with tongue-in-cheek, but I can tell you that we did plan conservatism into the range, so that we believe we've done our best in terms of mitigating that portion of the problem.
But then our main focus has to be continuing to drive the value drivers of the business. We need to continue to grow the revenue, and we need to get after all of the costs that we are now having better line of sight to see. So our -- we've got a full plate for the second half, but we are eager to get started and we are eager to get results.
Matt Young -- Morningstar -- Analyst
That's all I have.
Operator
Thanks guys. Ladies and gentlemen, this will conclude our question-and-answer session. At this time, I'd like to turn the conference back over to Cindy Miller, President and Chief Executive Officer for any closing remarks.
Cindy J. Miller -- President And Chief Executive Officer
Thank you very much, Allison. What we would like to say is to everyone listening on this call, we appreciate your time and your continued interest in Stericycle. Thanks.
Operator
[Operator Closing Remarks]
Duration: 56 minutes
Call participants:
Jennifer Koenig -- Vice President of Communication And Investor Relation
Cindy J. Miller -- President And Chief Executive Officer
William J. Seward -- Executive Vice President And Chief Commercial Officer
Janet H. Zelenka -- Executive Vice President and Chief Financial Officer
Janet H. Zelenka -- Chief Fianancial Officer
Scott Schneeberger -- Oppenheimer -- Analyst
Ryan Daniels -- William Blair -- Analyst
Michael Hoffman -- Stifel -- Analyst
jeff silber -- analyst
Gary Bisbee -- Bank of America Merrill Lynch -- Analyst
David Manthey -- Baird -- Analyst
Michael Hoffman -- Stifel -- Managing directory
Matt Young -- Morningstar -- Analyst
