A closer look at US Ecology as a potential investment idea.

1. NASDAQ: ECOL
Jason A. Moser
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2. Hazardous waste disposal and
environmental services represent a large
and reliable domestic market opportunity.
US Ecology’s recent acquisition of The
Environmental Quality Co. (EQ) has created
a fully-integrated services provider with a
large and growing customer base that will
fuel growth for years to come.
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The idea

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What does US Ecology do?
US Ecology provides treatment,
disposal and recycling of
hazardous, non-hazardous and
radioactive waste, as well as a wide
range of complementary field
and industrial services.

4. Market opportunity
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Source: Company presentation

5. Market opportunity
5Source: S&P Capital IQ

6. How does US Ecology make money?
Base Business
• More predictable
• Recurring in nature
• Higher fixed costs
• About 60% of sales
Event Business
• One-time in nature
• Variety of services
• Variety of pricing
• About 40% of sales
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“When Base Business covers our fixed overhead costs, a
significant portion of disposal revenue generated from Event
Business is generally realized as operating income and
net income. This strategy takes advantage of the
favorable operating leverage inherent to the largely
fixed-cost nature of the waste disposal business.”

7. The EQ acquisition
• More than doubles ECOL’s sales as a combined entity.
• Adds another hazardous waste landfill to the portfolio
giving the combined cos. 25% share in hazardous volume
industry capacity.
• Opens up much wanted presence in the eastern US.
• Tremendous customer base in EQ (around 6,000) with 70%
of sales coming from long-term contracts that command
predictable, recurring revenue.
• Brings additional services to the table making the “new”
ECOL the total package with a full suite of offerings for a
broader customer base.
• Read more: Hidden Gems’ coverage of the deal.
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The EQ acquisition
Source: Company presentation

9.  US hazardous waste is regulated under the RCRA (Resource
Conservation and Recovery Act).
 This sets a “cradle to grave” system with “long tail liability”
for the disposal of hazardous waste.
 This means that whoever actually makes the hazardous waste
is responsible for it indefinitely, even after disposal.
 So once the producer finds a worthy disposal site, they will
tend to stick with it in order to minimize this liability.
 Remember ECOL now holds approximately 25% market share
for hazardous waste industry capacity.
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Cradle to grave and the long tail

10. Management
Jeffrey Feeler, CPA
CEO/President/Director
CEO since May 2013; former COO &
CFO; with company since 2006.
Eric Gerratt, CPA
CFO since October 2012
With ECOL since 2007
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Outlook
Source: Company presentation

12.  EV/EBITDA
ECOL – 11.2x
Industry mean – 10.6x
 P/E
ECOL – 28.5x
Industry mean – 24.7x
 Cash flow positive ($48.4M TTM)
 Balance sheet - $10.2M cash/$378M debt
 Coverage ratio – 5
 At the mid-point of earnings guidance for 2015 shares are
trading at about 25x full-year estimates.
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What’s it worth?

13.  Competition: US Ecology is still a small fish in a big pond.
Though the hazardous waste assets are extremely valuable.
 Integration issues: The EQ acquisition is a major one and
while it was over a year ago, it needs to work.
 Regulation: Just as a highly regulated environment offers
barriers to entry, it also means ECOL is subject to keeping
with these regulations.
 Hazardous: This is specialized work. Cradle to grave mitigates
some liability, however if ECOL develops a reputation as a
poor provider it could be fatal.
 Un-eventful: Extended periods of low event driven revenue
can make the bottom line lumpy.
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What can go wrong?

14. Waste Management: Public, $21B MC.
Clean Harbors: Public, $3B MC.
Heritage Env. Services: Private, $50M sales.
PSC, LLC: Private, $1 billion sales.
Veolia Env. Services: Public, $11B MC.
Energy Solutions: Private, $1.8B sales.
Waste Control Spec.: Private, <$5M sales.
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Competition

15.  This is a buy-to-hold investment, not one that we’d look to
sell unless the story fundamentally changed.
 With this in mind, valuation concerns can be somewhat
mitigated. We need to ascertain whether or not today’s is a
fair price.
 As a BBN for Hidden Gems today (July 2015), their team
seems to believe that today’s price is indeed fair.
 How attractive is this as an acquisition target? It’s a small fish
in a big pond for sure.
 Tremendous barriers for entry and high switching costs are
very attractive traits ECOL possesses.
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Further thoughts

16. Remember, investing is all
about the future. There are
never any guarantees and you're
taking a measure of a leap of faith
every single time.
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