Business Doing Waste Management

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Business Doing Waste Management Powered By Docstoc
					          By:   Jesal Jobalia
                Patrick Ripley

Recommendation: BUY 200 SHARES @ MKT

                                 March 27, 2001
          STERICYCLE, INC.

Stericycle's Mission:
To be the leading company dedicated to the
environmentally responsible management of medical
waste for the health care community
                  Who is Stericycle?

 Founded in 1989, Stericycle, Inc. has its HQ in Lake Forest, IL
 Largest provider of regulated medical waste management
  services in North America, serving over 251,400 customers
  throughout the United States, Canada, and Puerto Rico
 Network includes 33 treatment/collection centers and 87
  additional transfer and collection sites
 Services and Operations are comprised of collection,
  transportation, treatment, disposal and recycling of medical waste
 Also integrated with related training and education programs,
  consulting services, and product sales
 Stericycle trades on the Nasdaq, ticker SRCL, and is listed in the
  waste management services industry
            What is Medical Waste?

 Generally defined as any waste that can cause an infectious
  disease or that reasonably can be suspected of harboring human
  pathogenic organisms

 Needles, syringes, gloves, and laboratory, surgical, emergency
  room and other supplies which have been in contact with
  infectious agents
                         Eye Poppers!

 Fortune ranks Stericycle No. 10 among America’s fastest-growing
   companies (8/21/00)
 Only fully integrated medical waste management network
 Only company offering medical waste services nationally
 Provide the industry's broadest service offering
 Stericycle is 20x larger than its nearest competitor
 Strong presence in the global market place
 Since IPO in 1996, 18 CONSECUTIVE QUARTERS!, have met or
   exceeded Wall Street’s expectations for company’s performance
            How Has Stericycle

• Since year end 1996 investors have experienced an
average return of 34.83% over the past 4 years
        Stericycle Makes a Big Move!

 Stericycle has grown primarily through acquisitions– ―Roll Up‖
 Mission statement:
       To be the leading company dedicated to the environmentally
        responsible management of medical waste for the health care
 In November 1999, Stericycle completed the acquisition from
  Allied waste Industries, Inc. (―Allied‖) of the medical waste
  business of Browning-Ferris Industries, Inc. (―BFI‖) in the United
  States, Canada, and Puerto Rico.
 Prior to acquisition BFI had been the largest provider of regulated
  medical waste management services in the US
                 Business Description

Stericycle divides itself into 4 major lines of business:

Collection and Transportation- Collects containers of medical
   waste and transports to transfer stations or directly to treatment
Treatment and Disposal – Waste is treated using one of various
   treatment technologies then transported for resource recovery,
   recycling, or disposal
Consulting Services- Attempt to ―build in‖ efficiencies that will yield
   logistical advantages, i.e.) reduce volume of medical waste
Documentation – Provide complete documentation to customers for
   all medical waste collected – Steri-Safe!
            Treatment Technologies

 Autoclaving –
      Treats medical waste with steam at high temperature and
       pressure to kill pathogens

      65%-70% of medical waste was treated by autoclaving in1999

 Incineration –
      Burns medical waste at elevated temperatures and reduces it
       to ash
      15% - 20% of medical waste was treated by incineration in
              Treatment Technologies

 ETD Treatment Process –
     Electro-thermal deactivation system for grinding medical
     Uses oscillating fields of low-frequency radio waves to heat
      medical waste to temperatures that destroy pathogens
     Advantages vs. Other conventional treatment technologies
          Easier to get permits b/c does not produce fluid or air pollution
          More cost effective to construct
          Reduces volume of waste
          ETD-treated waste may be used for fuel in ―waste-to-energy‖
           electrical plants
     10% of medical waste was treated by ETD in 1999
         Overview of Medical Waste
           Management Industry
 Industry arose with the Medical Waste Tracking Act of 1988
 Large and fragmented
 In 1999 estimated size of regulated medical waste market in US
   approx. $1.5 billion
 Worldwide market approx. $3 billion
 In excess of $10 billion when services such as training, education,
   product sales, and consulting taken into account
 Less susceptible than most industries to effects of a general
   economic downturn
             Industry Growth Factors

 Pressure to Reduce Hospital Costs Leads to
  Outsourcing –
  Health care industry is under pressure to reduce costs
  and improve efficiency, to accomplish using outside
  contractors to perform medical waste management
         Outsourcing saves up to 50% on average for medium hospitals!!
 Aging of Population –
  ―Baby Boomers‖ 30% of US population, falling
  mortality, living longer, require more medical attention,
  more tests and procedures, all leads inc. generation of
  medical waste
             Industry Growth Factors

 Environmental and Safety Regulation –
  - Industry is subject to extensive regulation beyond MWTA
  - Clean Air Act 1997
          EPA estimates competitor closings by 2002:
          Small waste incinerators – 83-90%
          Medium waste incinerators – 60-95%
          Large waste incinerators -- 35%
  - Occupational Safety and Health Administration “OSHA”
      •   Steri-Safe
      •   Likely to expand beyond traditional health care: ie.) restaurants, casinos,
          hotels, etc., anywhere employees come in contact with blood borne
           Stericycle’s Competitive
 Market Leader – largest and only national provider of medical
  waste management services in US

 Vertically Integrated Services - offer broad range of services
  which allow customers to manage medical waste from point of
  generation through treatment and disposal

 Established National Network – 33 treatment/collection centers
  and 251,400 customers in 48 states

 Low Cost Operator – As a result of vertically-integrated network
  and broad geographic presence
            Stericycle’s Competitive
 Diverse Customer Base and Revenue Stability– Top 10
  customers account for less than 2.5% of revenues, and no single
  customer accounts for more than 1% of revenues

 Long-Term Customer Relationships – Long-term customer
  contracts of 1-5 years with substantially all customers

 Revenue Predictability – Over 95% of revenues are under long
  term contracts with automatic renewal (3-5 yrs)

 Strong Sales Network and Proprietary Database – Largest
  most well-established sales force in the medical waste industry,
  with over 220 sales and marketing personnel
            Stericycle’s Competitive
 ETD Treatment Process – Electro-thermal deactivation (―ETD‖)
  system for grinding medical waste

 Experienced Management Team – Four most senior executives
  and the Chairman of the Board of Directors collectively have over
  45 years of management experience in health care and waste
  management industries
               The Management Team

 Jack W. Schuler -- Chairman of the Board of Directors
      Served in current position since January 1990
      From January 1987 to August 1989, he served as President and Chief
       Operating Officer of Abbott Laboratories, he joined in 1972 and where he held
       a number of management and marketing positions and served as a director
       from April 1985 to August 1989
      He also served as a director of Chiron Corporation, Medtronic, Inc.,
       Somatogen, Inc. and Ventana Medical Systems, Inc., and several privately
       held companies
       He is the co-founder of Crabtree Partners, a private investment partnership in
       Lake Forest, Illinois, which was formed in June 1995
 Mark C. Miller – President, CEO, and a Director
      Served in current positions since joining in May 1992
      Vice President for Pacific, Asia, and Africa in the International Division of
       Abbott Laboratories from 1976-May 1989
      Director of, and Internet health care company
      Director of Lake Forest Hospital
               The Management Team

 Frank J.M. ten Brink -- Executive Vice President, Finance and
  Chief Financial Officer and Chief Administrative Officer
      Present role since joining the Company in June 1997
      He has over 16 years of finance experience in high growth environments,
       mergers and acquisitions
      Prior to joining Stericycle, he was Senior Vice President and Chief Financial
       Officer with Telular Corporation
      Between 1991 and 1995, he was Vice President and Chief Financial Officer
       of Hexacomb Corporation
 Richard T. Kogler -- Executive Vice President, Chief
  Operating Officer
      Present role since December 1998
      From 1995 until he joined the Company, Mr. Kogler served as Chief Operating
       Officer for American Disposal
      Prior to his position at American Disposal, he spent 11 years with Waste
       Management where he held a number of management positions prior to being
       promoted to Vice President of Operations
              The Management Team

 Anthony J. Tomasello -- Executive Vice President and Chief
  Technical Officer
      Present role since March 1999
      Joined Stericycle in August 1990 as Vice President, Operations,
      Five years prior to joining Stericycle, was President and Chief
       Operating Officer of Pi Enterprises and Orbital Systems, companies
       providing process and automation services
       From 1980 to 1985, he served as Vice President of Operations for
       Spang and Company, an operating service firm specializing in
       resource recovery and recycling for manufacturing and process
       Weaknesses, Opportunities, and
      Low margin large generator business
      Low internal revenue growth
      Heavily regulated industry
      Well positioned within industry with incredible growth opportunities
           20x Larger than nearest competitor
           Owns only 20% of an estimated $1.5 billion domestic market
           Big Fish in a Big Pond!
      Superior waste treatment and disposal technology (ETD Technology)
      Growth into global markets likely to continue through licensing of proprietary
       intellectual property (ETD Technology)
      Business mix shift to small waste generator business leading to long-term
       margin expansion
      EPA regulations should result in large hospitals and other smaller medical
       waste generators seeking less expensive methods of medical waste disposal
       rather than incur costs to comply to regulations
      Favorable acquisition environment
       Weaknesses, Opportunities, and
    Highly competitive industry
           Large number of regional and local companies
           On-site treatment of medical waste by hospitals
           Businesses who commercialize alternate treatment technologies
      Governmental Regulation
           Federal Regulation: EPA, OSHA, DOT, MWTA, CERCLA
           State and Local Regulation
           Foreign and Territorial Regulation\
      Patent Expiration
           Currently hold 9 US patents relating to the ETD treatment process and other aspects
            of processing medical waste
      Potential Liability and Insurance
           Significant risks of statutory, contractual, tort, and common law liability
            claims: clean up costs, personal injury, damage to environment, etc.
         Stericycle’s Customer Base

 Small Account Customers –
     Small groups of doctors, dentists, offsite & alternative health
      care providers

     Existing account base of approximately 247,000 small account

     Growth Area

     Offer higher profit potential vs. other potential customers
          Stericycle’s Customer Base

 Small Account Customers –
     Very concerned with compliance issues surrounding proper
      pick up and disposal of medical waste
         ―Cradle to Grave‖ Industry
         Doctors are ultimately responsible if medical waste is not handled
          in accordance with state and federal regulations
         ―What are we in the business of doing?‖ – basis for significantly
          higher gross margins vs. large account customers
            Do not produce sufficient volume of regulated medical waste to justify
             capital expenditures on their own medical waste
            More service sensitive, rely on fully integrated service providers
             (waste removal, staff training, record keeping, OSHA compliance
        Stericycle’s Customer Base

 Large Account Customers –
     Hospitals, blood banks, pharmaceutical manufactures
     Existing account base of approximately 4,400 large account
     Have been successful in serving and plan to continue to serve
      as long as satisfactory levels of profitability maintained
     Provide consulting services to health care customers
     Implementation of more stringent Clean Air Act and other
      federal regulations should significantly increase existing
      account base– ―What are we in the business of doing?
         Stericycle’s Business Model

 Target Higher Margin, Small Account Customers –
      Actively target and increase base of higher margin, small
       account customers

 Capitalize on Outsourcing due to newly enacted
  Clean Air Regulations –
      Clean Air Act 1997 expected increase capital costs required to
       bring existing incinerators into compliance
      Increased EPA regulations
      Anticipated movement by hospitals to outsource medical
       waste treatment presents significant growth opportunities
           Stericycle’s Business Model

 Expand Range of Services and Products –
      Inclusion of collection and treatment of materials like
       photographic chemicals, lead foils, and amalgam
      Expand operations Globally through joint ventures and
       licensing of Proprietary ETD Treatment Technology
      Offer broad range of OSHA compliance and consulting to
       dental and other types of customers
          Steri-Safe
 Continue the Evaluation and Integration of
  Acquisitions –
      Have completed 43 acquisitions
      BFI
      Projected approximately 24 in 2001
        Stericycle’s Successful Growth
         Through Its Business Model
 Selected Operating Statistics

                                 1996A    1997A    1998A    1999A     3Q2000    4Q2000
 Small Generator Contracts       26,370   40,270   76,600   233,000   247,000   247,000
 Revenues                        8,099    21,464   32,360   NA        42,218    NA
 Growth                                   167%     49%      NM        NM        NM

 Large Generator Contracts       630      730      1,200    4,200     4,300     4,400
 Revenues                        16,443   24,520   28,420   NA        31,848    NA
 Growth                                   49%      16%      NM        NM        NM

 The overall business mix stands at 57% small-quantity generator
  revenue and 43% large quantity generator revenue
 Base internal growth excluding acquisitions and international revenue
  was up 7% in Q4 2000 vs. Q4 1999
 Sequential 10.3% growth of small account customers in Q3 2000 brought
  the total number of small account customers to 247,000
 This number of small account customers remained level in Q4 2000,
  reflecting a 9% revenue growth in small accounts vs. Q4 1999
       Stericycle’s Successful Growth
        Through Its Business Model
 There were 4,300 new small account service agreements signed
  in Q3 2000
 Gross margins for small account customers are high, ranging from
 Growth in large account customers revenue was up 5% in Q4
  2000 vs. Q4 1999
 Gross margins for large account customers range from 12%-13%
 Management feels with EPA Regulations pending gross margins
  for large account customers should reach 20%
 Base internal growth stronger at 7% vs. historical levels of 5%
      Implies management cutting unprofitable contracts, and
       strengthening pricing
       Stericycle’s Successful Growth
        Through Its Business Model
 International Environment
       International Revenue grew substantially up $2.1 million sequentially
       to $2.7 million in Q3 2000

      Stericycle has also established a strong presence in the global

      Management is excited at its ability to leverage intellectual property
       of patents (ETD Treatment Tech.) to create value for shareholders
       without having to put major stake holds in various geographic areas
           Stericycle has entered into joint ventures and licensing agreements in
            Argentina, Brazil, South Africa, Canada, Japan, and Mexico

      Plan to open first facility in Kyushu area of Japan by yr end 2001
       Stericycle’s Successful Growth
        Through Its Business Model
 Acquisition Opportunities
      Consummated 3 small tuck-in acquisitions, with annual revenue $0.2
       million in Q3 2000

      Management has estimated up to $7.5 million in tuck-in acquisitions
       in 2001, ―…north of 2 dozen…‖

      2,000 companies with revenues of $65-70 million that represent
       pipeline for Stericycle

      Tight on acquisition criteria, favorable pricing of 3-4 times EBITDA

      Completed successful integration of BFI on schedule at yr end 2000
      Stericycle’s Successful Growth
       Through Its Business Model
     Dental offices and other customers must address a complex and often baffling
      array of OSHA safety issues - especially regarding medical and hazardous
      wastes. The Stericycle Steri-Safe™ Program offers comprehensive
      compliance services for dental offices (and other types of customers) and is
      designed to keep your office in total compliance - guaranteed.
     Steri-Safe™ Components
          Blood borne Pathogens Training CD-ROM
          OSHA Compliance Manual
          Complete Material Safety Data Sheets on CD-ROM
          Quarterly Audio Safety Meetings on CD-ROM
          OSHA Hazard Identification & Communication Poster
          OSHA Hazard Communication Labels
          Annual OSHA Training with Continuing Education Units
          Mock OSHA Inspection
          Hazardous* and Medical Waste** Containment and Collection
     ―Cradle to Grave‖ Process!!
      Stericycle’s Successful Growth
       Through Its Business Model
     Management is planning aggressive nation-wide roll out of
      Steri-Safe program in 2001
     Potential to re-shape fundamental business
         Has seen very strong acceptance from existing customers
         Vehicle for additional revenues
         Changes billing paradigm to payment in advance vs. payment in
         Currently only 2% penetration into current customer base
         Profitability– 55%-60% Gross Margins Range
            Management sees these margins only increasing as program gains
             critical mass with national customer base!!
           Going to Excel

 Ratio Comparison

 Discounted Cash Flow Model

 Buy 250 shares at the market
 Given yesterday’s closing
   price of $38.25, this will be a
   total outflow of ~ $10,000
 This will give us the flexibility to take an
  ―additional bite‖ in the future if we deem

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