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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?. - PowerPoint PPT Presentation
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By: Jesal JobaliaPatrick 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 Performed?
• 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 community
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 facilities
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
1999
Treatment Technologies
ETD Treatment Process – Electro-thermal deactivation system for grinding medical
waste 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!!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 1997EPA 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 pathogens
Stericycle’s Competitive Strengths
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 Strengths
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 Strengths
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 AmericasDoctor.com, 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 industries
Weaknesses, Opportunities, and Threats
WEAKNESSES Low margin large generator business Low internal revenue growth Heavily regulated industry
OPPORTUNITIES 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 Threats
THREATS 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 customers
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 consulting—Steri-Safe)
Stericycle’s Customer Base
Large Account Customers – Hospitals, blood banks, pharmaceutical manufactures Existing account base of approximately 4,400 large account
customers 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-SafeSteri-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
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
Selected Operating Statistics
1996A 1997A 1998A 1999A 3Q2000 4Q2000Small Generator Contracts 26,370 40,270 76,600 233,000 247,000 247,000Revenues 8,099 21,464 32,360 NA 42,218 NAGrowth 167% 49% NM NM NM
Large Generator Contracts 630 730 1,200 4,200 4,300 4,400Revenues 16,443 24,520 28,420 NA 31,848 NAGrowth 49% 16% NM NM NM
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 15%-55%
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 marketplace
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
STERI-SAFE 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
STERI-SAFE 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
arrears 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
Recommendation
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 necessary
Recommended