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Presentation for RCMP 11/06/08

Presentation for RCMP 11/06/08. Brad Johnson Lucian Tira Evangelos Kalogiropoulos Gani Beket. Company History. Founded in 1989 after Medical Waste Tracking Act First acquisition of outside provider in 1993 Launched IPO in 1996 First International operation in 1998.

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Presentation for RCMP 11/06/08

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  1. Presentation for RCMP 11/06/08 • Brad Johnson • Lucian Tira • Evangelos Kalogiropoulos • Gani Beket

  2. Company History Founded in 1989 after Medical Waste Tracking Act First acquisition of outside provider in 1993 Launched IPO in 1996 First International operation in 1998

  3. Company Overview Offers collection, transportation, treatment, disposal, and recycling of medical waste Full service for nearly 400,000 customers Small customers include doctors’ offices and pharmacies Large customers include pharmaceutical companies, hospitals and blood banks Foreign customers nearly 23% of revenues

  4. Products and Services • Regulated Medical Waste Services • Handle possibly infected waste and prevent contamination and infection • Provided for both large and small customers • Service expanding greatly in International market

  5. Products and Services • Steri-Safe OSHA Safety & Compliance Program • Training for smaller customers to comply with regulations • Manual, website support, consulting and supplies • Very high margins

  6. Products and Services • Bio Systems Integrated Sharps Safety Solution • Provides containers for used needles • Collection and destruction of needles to prevent sticks • Pick them up along with other medical waste

  7. Products and Services • Returns Management Services • Removal of expired or unsafe products from customers • For manufacturers, hospitals, pharmacies and distributors • Handle the notification, processing, tracking and compliance reporting • Also handle medical recalls

  8. Macroeconomic Factors • Population is getting older and needing more healthcare • New president’s healthcare plan • Changing Government regulations • Tightening credit markets may affect growth

  9. Transaction History • Purchased 200 shares in May 2001 @ $19.47 • Stock split 2:1 in June 2002 • Sold 200 shares in March 2006 • Stock split 2:1 May 2007 • Currently hold 400 shares at $56.20 (11/5) with an effective cost basis of $9.73

  10. Industry overview Estimated market size: Global $10.0 Domestic $3.0-$3.2B “Frost & Sullivan Industry Study and Management Estimates” (including ancillary services & products) • Regulated medical waste = any medical waste that can cause an infectious disease such as needles, syringes, gloves etc • Five federal agencies supervise regulated waste under a variety of statues • U.S. Environmental Protection Agency (“EPA”) • U.S. Department of Transportation (“DOT”) • Occupational Safety and Health Administration (“OSHA”) • U.S. Drug Enforcement Administration (“DEA”) • U.S. Postal Service (“USPS”) • Different regulations in each state

  11. Industry overview Growth factors • Aging of population • Pressure to reduce Healthcare costs • Environmental and Safety Regulation Requirements of the Occupational Safety and Health Administration (“OSHA”) • Shift to Off-Site Treatment • Control of Drug Diversion The U.S. Drug Enforcement Administration (“DEA”) has recently emphasized on proper handling of expired or recalled pharmaceuticals.

  12. Company review • Market share: global 10%, domestic 22% • Operate in the U.S., Canada, Mexico, the U.K., Ireland and Argentina • No direct domestic competitors • Insulated from economic cycles • Revenue retention rate 95% • No large customer exceeds 2% of revenues • Over 95% of revenues under long term contracts with automatic renewal

  13. Risk Factors Governmental Regulation Low barriers to entry Technology and patents Potential environmental liabilities Foreign exchange Strengths Broad range of services Established National Network Diverse Customer Base and Revenue Stability Ability to integrate Acquisitions Strong sales Network and Proprietary Database Experienced Senior Management Team Risk Factors & Competitive Strengths

  14. Business Model Supply specially designed reusable leak-and puncture-resistant plastic containers to large and small-quantity customers Collect them at intervals specified mainly by contract Collection of regulated waste Temporarily hold small loads of waste until they could be consolidated into truckloads and transported to a processing facility. Transfer stations Disposal in a third party landfill. Complete documentation to customers for all regulated waste collected Processing Facility Recycling or permanent disposal First they scanned for unacceptable substances and then proceed to various treatments such as Autoclaving, ETD, chemical, Incineration

  15. Current Strategies • Expand Range of Services and Products • Regulated waste services to pharmaceutical companies and other large-quantity generators • Improve Margins • Increase the base of small-quantity customers • More efficient service strategies for large-quantity customers • Seek Complementary Acquisitions • Acquire businesses that expand its national and international networks Completed 135 acquisitions from 1993-2007, 100 domestic and 35 international

  16. SRCL vs. S&P 500

  17. Revenue breakdown • LQGs constitute around 37% of total revenues and account for 2.46% • of total number of customers • Continued penetration of BioSystems led to increase of revenue per LQG • Average gross margin in this segment is 21%

  18. Revenue breakdown • SQGs constitute around 63% of total revenues and account for • 97.54% of total number of customers • Increased adoption of SteriSafe program (including higher priced “select” and “premium” versions) • Average gross margin in this segment is 44.3%

  19. Past sources of growth Acquisitions have been fueling growth for years!

  20. Acquisitions pipeline Acquisition deal structures increasingly favor debt…

  21. Pro-forma P&L Source: 10K’s, team estimates

  22. DuPont Analysis

  23. Leverage

  24. Leverage – revised

  25. DCF inputs

  26. DCF model

  27. DCF results Market price as at 6-Nov-08 is $58 Current stock price implies growth rate of revenues over 20% in the following 5 years!!!

  28. Sensitivity analysis

  29. 1 yr stock performance “Flight to quality” since October as investors dump other stocks?

  30. Recommendation • SELL 200 shares of Stericycle (SRCL) at the market price of $55.00: • Tightcredit markets hinder growth at previous rates • “Flight to quality” baked into the current price • High profit margins and low barriers to entry may lure in competition

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