Stericycle, Inc. (SRCL) June 19, 2020 UNIVERSITY SECURITIES INVESTMENT TEAM

Written by: BUY Kelly Zhou [email protected] Strategic Capital Group

Stericycle, Inc. provides regulated and compliance solutions to healthcare, retail, and commercial businesses in the U.S. and internationally. Notably, medical disposal | Bannockburn, IL and destruction of documents. During fall 2019, a SHORT thesis was developed based on three factors: debt servicing lessens revenue growth, healthcare consolidation reduces pricing power, and declining SOP prices lowers SIDS revenue. COVID-19 has Stock Rating: BUY since positioned SRCL to capitalize on the increased demand for medical waste disposal Industry Rating: HOLD services, push out of small competitors, and SOP pricing spikes. Price Target: $60.94 PRICE TARGET STOCK RATING INDUSTRY RATING Last Close: $56.78 $60.94 BUY HOLD Market Capitalization: $5.19 B 52-Week Range: $38.45 - $67.94 Investment Thesis 1. Stericycle is well-positioned to experience organic growth in the RWCS and Shares Purchased: -20 SIDS revenue service segments due to the impacts of COVID-19 on the Cost Basis: -$1,226.20 Market Value: -$1,072.20 medical waste disposal sector. In Q1 2020, SRCL was rewarded contracts with critical temporary and testing centers around the world, Realized G/L: +$154.00 demonstrating the company’s breadth of industry knowledge, infrastructure (%): 12.56% scale, and relationships with entities across the healthcare industry. SIDS is Dividend Earned: $0.00 expected to recover as office buildings and businesses restart operations. Total Return: $154.00 2. While management has shifted focus towards deleveraging its high amount of (%): 12.56% debt from past M&A, the competitive landscape of the industry has also changed. COVID-19 is likely to force smaller competitors out of the industry, Portfolio Recommendation: enabling Stericycle to capture greater market share despite its lack of liquidity BUY to increase future M&A activity. 3. Stericycle maintained organic revenue growth in its SIDS sector and negative impacts associated with COVID-19 were not as bad as expected (40% revenue This report was created for the purposes of an internal decline when accounting for SOP price impacts). Due to COVID-19, SOP portfolio review for the University Securities Investment prices spiked in April, rising by 193%. Team (USIT). USIT currently holds a long-term position in SRCL. As a result, USIT may have a conflict of interest in releasing this report. Information about the structure of USIT and its portfolio can be found online at Company Overview texasusit.org Stericycle, Inc. was founded in 1989 as a compliance company that specializes in collecting and disposing regulated substances, such as medical waste and sharps, pharmaceuticals, , and providing services for recalled and expired goods. The company operates in three segments: North America RWCS (formerly Domestic & ; ~76% 2019 Revenue), International RWCS (~18% 2019 Revenue), and Domestic CRS (~6% 2019 Revenue). Stericycle’s RWCS division helps clients maintain compliance with complex government regulations which require proper handling and disposal of items such as medical waste, hazardous waste, pharmaceutical waste, and personal confidential information. Its ancillary CRS business provides live voice and automated communication services regulated recall and returns management communication, logistics, and data management services for expired, withdrawn, or recalled products. The majority of Stericycle’s customer base are healthcare businesses, but the company also services retailers, manufacturers, financial services providers, professional services providers, governmental entities, and other businesses. Their operating revenue segments are further broken down into four service categories: Regulated Waste & Compliance Services (medical, pharmaceutical, retail, and healthcare waste management/compliance programs), Secure Information Destruction Services, Manufacturing and Industrial Services (hazardous waste management), and Communication and Related Services (for hospitals & IDN’s, management services).

Portfolio Review: Stericycle, Inc.

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Competitive Landscape Stericycle is the largest medical waste management service provider in North America, eclipsing competitors in size and scope of its operations. The industry is dominated by privately owned local companies, although Stericycle has a few publicly traded direct competitors, Sharps Compliance & Waste Management Inc., at 1/60 its size. Companies that operate in the Waste Management sector rely on M&A to survive because the industry is highly fragmented with low barriers to entry. Because of this, small players likely can’t survive as large players have access to economies of scale, low demand fluctuations mean sudden spikes in consumer growth are unlikely, regulatory moat, and lack of capital inhibits large scale of operations via distribution networks and needed infrastructure. These combined factors limit Stericycle’s meaningful competition and enables the company to operate within a niche industry specializing in medical waste disposal. Additionally, unlike its competitors, Stericycle offers a broad range of complementary services which aid in relieving the administrative burden of its customers. Post-COVID-19, Stericycle management anticipates potential growth opportunities because of smaller competitors being unable to recover from the impacts of COVID-19. The risk of small competitors being acquired by larger competitors of Stericycle is also mitigated due to COVID-19 consequences freezing M&A activity within the medical waste industry.

Original Investment Thesis Validity

1. Debt Servicing Lessens Revenue Growth

With $2.49 B in Long-term debt, Stericycle has experienced pressure via debt obligations for the past few years. Nearly 50% of this debt is due by 2022, causing management to shift focus from revenue generation to debt de-levering and divestiture investments (which the company has executed for the past few quarters). While the market is rewarding Stericycle for servicing its debt and selling off non-core assets to better focus on the core of its business segments, lack of focus in its historically successful acquisition-based strategy may result in negative effects in the long-term. Repeatedly low growth numbers will subsequently prevent Stericycle from successfully executing its business transformation plan involving portfolio rationalization and ERP system.

The Waste Management Industry is highly fragmented due to low barriers to entry which result in a highly competitive market. Because of this, companies that operate within this sector rely on Mergers & Acquisitions to survive and generate growth as small players lack the economies of scale, steady consumer activity, capital for infrastructure/distribution, and regulatory power needed to capture a large market share. Stericycle has a proven history that demonstrates how acquisitions are “a steady and efficient way to scale operations, build critical customer density for transportation and treatment operations, and enter new markets or geographies, as well as provide opportunity to introduce our additional services to the acquired customers.” (10-K). While this may have been true in the past, the company’s M&A activity has come to a halt as they shift focus towards de-levering via servicing debt obligations. Since its largest acquisition of Shred-It in 2015, Stericycle has failed to make any meaningful acquisitions to contribute to top-line growth. Despite the acquisition providing SRCL entrance into the SIDS market, the resulting debt has offset the benefits of this additional revenue stream. Acquisition ROI has decreased 95.6% since 2013 (Appendix).

In Q317, Stericycle announced a business transformation initiative that would focus on restructuring the business in hopes of generating organic revenue growth. This strategic plan includes portfolio rationalization, debt reduction/leverage improvement, operational optimization, revenue quality improvement, and ERP system introduction. To address portfolio rationalization and deleveraging, Stericycle has completed several divestitures of non-core assets, the most recent concluded in April 2020 (Domestic Environmental Solutions Divestiture which resulted in $430 million in net proceeds towards debt repayment). SRCL was able to accomplish a $115 million net debt reduction over Q4 2019 and Q1 2020, maintaining a Net Debt to Adj. EBITDA ratio of 4.5x. With a declining interest coverage ratio and exorbitantly high goodwill from divestitures, Stericycle has fundamental issues with their balance sheet which make near-term M&A activity impossible. Furthermore, the ERP system (built to standardize back-office IT systems for acquisitions) is costly and Stericycle lacks the cash needed to effectively complete this initiative. As anticipated, the ERP rollout for 2020 has been delayed until further notice.

Portfolio Review: Stericycle, Inc.

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While these aspects of the original thesis remain true, there have been changes to Stericycle’s near-term performance due to the COVID-19 health pandemic. Stericycle is well-positioned to capitalize on the anticipated demand increase for medical waste management services associated with COVID-19. In Q1 2020, SRCL was rewarded contracts with critical temporary hospitals and testing centers around the world that are fighting to mitigate the spread of coronavirus. These include USNS Comfort, the Javits Center in New York, Principality Stadium in Wales, large grocery stores turned into hospitals in and converted hotels in and . Furthermore, organic growth in the RWCS segment may result as medical waste goes beyond its traditional customers due to the pandemic. The Q120 earnings also revealed that the RWCS and SIDS segments experienced slight organic growth, excluding several external factors, and COVID-19 impacts were “not as bad” as expected by analysts, demonstrating the company’s resilience to the market crash that occurred earlier this year. In fact, SIDS revenue is expected to recover as businesses reopen and work trends toward normalcy.

Key Catalysts: Organic growth in the RWCS/SIDS segments in Q2/Q3 2020 and slight revenue recovery. Demand for medical waste management services slightly offset COVID-19 impacts. Long-term: Weak growth in all segments in 10-Ks & 10-Qs.

2. Healthcare Consolidation Hurts Pricing Power

Consolidation of independent healthcare providers and increased price scrutiny resulting from the $295 million SQ-class action lawsuit settlement in 2017 and rapidly rising operating costs have limited Stericycle’s pricing power when entering contracts with customers. The growing trend of large hospitals acquiring small practices and emergence of “mega-mergers” creating GPOs force Stericycle to discount their contractual offerings in order to retain its customer base.

Many individual hospitals have rolled up hundreds of smaller medical providers into an integrated network of satellite locations or “blended accounts.” As contracts renew, Stericycle has experienced a 35% discount on average due to large groups leveraging high bargaining power in favor of newly rolled-up small practices. Furthermore, Stericycle is dealing with pushback amongst independent SQ customers for greater discounts (15% on average for renewals). Intense regulations have forced independent offices to turn towards cost- saving strategies, further increasing demand for discounted waste management services. While initially argued that GPO contracts will continue to increase and Stericycle will be forced to yield to discount pushbacks, data shows that 73% of hospital purchases are GPO contracts. In fact, hospitals belong to 2-4 GPOs on average which compete with each other in the hospital sector, indicating that this segment is already highly competitive. Within the next few years, it is highly unlikely that Stericycle will experience continued pricing pressure from LQ customers. COVID-19 has also destroyed the hospital/healthcare industry as a whole as hospitals lack the capacity to hold and treat the influx of patients. It is likely that there will not be much consolidation in the near-term as those operating in the healthcare industry are more focused on addressing the needs of patientcare and vaccine development. Recovery on the economic side of things is also required before any significant consolidation is likely to be carried out.

Regarding Stericycle specifically, the company may be able to capitalize on industry benefits as smaller players are pushed out due to the devastating impacts of the pandemics. Furloughs have also relieved some expense obligations for Stericycle to better focus on carrying out their turnaround strategy. Decreased competition at an industry-wide level would enable SRCL to increase market share capture and drive growth without having to worry about the lack of M&A activity typically carried out by successful players. As a reminder, Stericycle is the largest medical waste management service provider in North America ready to address increased demand for services due to the pandemic.

Key Catalysts: Smaller players are pushed out, RWCS revenue growth via increased contracts

3. Declining SOP Commodity Prices Hurt SIDS Revenue

Stericycle’s Secured Information Destruction Services revenue segment trades on SOP commodity pricing (i.e. declines in SOP prices results in declines in the SIDS revenue segment). Sorted office paper (PS 37) prices declined 14.2% from $162 per ton to $139 per ton in May 2019. During Q120, SIDS experienced 1.4% organic growth, excluding SOP pricing impacts. COVID-19 caused SOP prices to spike

Portfolio Review: Stericycle, Inc.

UNIVERSITY SECURITIES INVESTMENT TEAM because paper production halted while demand remained high. PS 37 averaged at $184 per ton (39.39% increase) in May 2020 with a price of $225 per ton in certain areas of the . Benefits from these price spikes for Stericycle were likely offset by the drastic decrease in customer activity within the SIDS segment due to closing of office buildings, corporations, and other entities. As quarantine continues throughout the rest of 2020, SOP pricing is predicted to remain relatively high to historic performance within the past few years as paper production either remains temporarily stopped or recovers at a slow rate. Weakness in SOP prices going forward is a potential headwind for the SIDS segment, but it is anticipated that as the market recovers, the SIDS segment will return to prior conditions.

Key Catalysts: Slight increased growth in SIDS segment, 2020 Earnings

Major Events Stericycle garners a high degree of volatility and trades on anticipated organic revenue growth, medical waste industry trends, and news regarding debt paydowns. EPS & Revenue misses/beats may have immediate effects on trades, but these are short-lived.

Portfolio Review: Stericycle, Inc.

UNIVERSITY SECURITIES INVESTMENT TEAM

Intrinsic Valuation A Discounted Cash Flow model was used to value Stericycle, both for a near and long-term thesis. For the near-term thesis, an Exit multiple of 14.0x was derived using a conservative view of the company’s current premium multiple in comparison to the industry average (direct competitors of SRCL trade at much higher premiums to the industry average). Cash flows and terminal value were discounted at a WACC of 4.68%, resulting in an implied upside of 7.30%.

Year 2015A 2016A 2017A 2018A 2019A 2020P 2021P 2022P 2023P 2024P Revenue 2985.90 3562.30 3580.70 3485.90 3308.90 3,302.85 3,356.20 3,401.26 3,459.13 3,459.04 Less: COGS 1729.6 2066.4 2117.1 2091.1 2128.1 1,981.71 2,013.72 2,040.76 2,075.48 2,075.42 Gross Profit 1256.30 1495.90 1463.60 1394.80 1180.80 1,321.14 1,342.48 1,360.50 1,383.65 1,383.62 % Gross Margin 42.07% 41.99% 40.87% 40.01% 35.69% 40.00% 40.00% 40.00% 40.00% 40.00% Less: SG&A 594.3 777.1 840.2 804.9 768.5 759.66 771.93 782.29 795.60 795.58 % of Revenue 19.90% 21.81% 23.46% 23.09% 23.23% 23.00% 23.00% 23.00% 23.00% 23.00% Less: R&D 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 EBITDA 661.80 718.58 623.17 589.67 412.07 561.25 570.32 577.98 587.82 587.81 Less: D&A 127.40 252.50 249.50 255.90 272.80 309.26 275.50 253.95 235.72 220.38 EBIT 534.40 466.08 373.67 333.77 139.27 251.99 294.82 324.03 352.10 367.43 Less: Taxes 185.85 170.75 150.90 29.80 16.80 68.04 79.60 87.49 95.07 99.21 % Effective Tax Rate 34.78% 36.64% NM NM NM 27.00% 27.00% 27.00% 27.00% 27.00% NOPAT 348.55 295.33 222.77 303.97 122.47 183.95 215.22 236.54 257.03 268.22 Less: CAPEX 114.80 136.20 143.00 130.80 194.20 132.11 134.25 136.05 138.37 138.36 Less: Δ NWC 0.00 72.12 (382.10) 191.20 18.20 75.47 9.28 11.48 1.49 4.68 Add: D&A 127.40 252.50 249.50 255.90 272.80 309.26 275.50 253.95 235.72 220.38 UFCF 361.15 339.51 711.37 237.87 182.87 285.63 347.20 342.96 352.90 345.56 PV Factor 1.00 0.96 0.91 0.87 0.83 PV of UFCF 285.63 331.67 312.96 307.62 287.75

Implied Upside

PV of UFCF 1525.64 Exit Mult. 14.0X WACC Calculation TV 8,229.30 RFR 0.70% PV of TV 6,546.08 Beta 0.85 Ent. Val. 8,071.72 MRP 5.6% TV % of EV 102% Ke 5.46% Net Debt 2500.7 % Equity 62.7% Eq. Val 5,571.02 Shares Out. 91.4 Kd (pretax) 4.66% Tax Rate 27% Implied SP $ 60.94 % Debt 37.3% Current SP $ 56.78

WACC 4.68% Implied Upside 7.3%

Exit/WACC Sensitivity 7% 11 12 13 14 15 16 17 2% -4.4% 5.9% 16.1% 26.4% 36.6% 46.9% 57.2% 3% -10.4% -0.6% 9.2% 18.9% 28.7% 38.5% 48.2% 4% -16.0% -6.7% 2.6% 11.9% 21.2% 30.5% 39.8% 5% -21.4% -12.5% -3.6% 5.3% 14.1% 23.0% 31.9% 6% -26.4% -18.0% -9.5% -1.0% 7.4% 15.9% 24.4%

Portfolio Review: Stericycle, Inc.

UNIVERSITY SECURITIES INVESTMENT TEAM

Assumptions used for the Revenue Build (table below) remained overall conservative due to the uncertainty caused by COVID-19 and volatility of SRCL’s stock in comparison to the market. Because the M&I and CRS revenue segments are both small portions of SRCL’s overall revenue and not the focus of the company’s core business and restructuring strategy, it was assumed that these would decline at a historical average rate going into the next five years. The most aggressive assumptions were geared towards he RWCS and SIDS segments (SRCL’s core business focus). Management’s debt payments and portfolio rationalization should promote long-term growth within these segments because they are the company’s priority when considering future growth initiatives. Slight positive growth over the next two years within the RWCS segment should result from increased demand in the medical waste disposal sector due to COVID-19 and increased hospital operations for non-COVID related services. The greatest growth was assumed to be in the SIDS segment due to SOP price spikes and office reopening’s during market recovery.

Revenue by Service Year 2015A 2016A 2017A 2018A 2019A 2020P 2021P 2022P 2023P 2024P Period Ended 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024

Total Revenue $2,985.92 $3,562.35 $3,580.70 $3,485.90 $3,308.90 $3,302.85 $3,356.20 $3,401.26 $3,459.13 $3,459.04 % Growth 19% 1% -3% -5% 0% 2% 1% 2% 0% Regulated Waste & Compliance Services $2,064.87 $2,061.42 $2,023.60 $1,932.60 $1,892.80 $1,881.44 $1,919.07 $1,899.88 $1,880.88 $1,862.07 % of Revenue 69.15% 57.87% 56.51% 55.44% 57.20% 56.96% 57.18% 55.86% 54.37% 53.83% % Growth -0.17% -1.83% -4.50% -2.06% -0.60% 2.00% -1.00% -1.00% -1.00% Secured Information Destruction Services $178.09 $747.51 $823.40 $911.00 $901.90 $937.98 $984.87 $1,083.36 $1,191.70 $1,239.37 % of Revenue 5.96% 20.98% 23.00% 26.13% 27.26% 28.40% 29.34% 31.85% 34.45% 35.83% % Growth 319.74% 10.15% 10.64% -1.00% 4.00% 5.00% 10.00% 10.00% 4.00% Manufacturing/Industrial Services $408.82 $382.92 $351.10 $329.20 $295.00 $286.15 $274.70 $258.22 $242.73 $228.16 % of Revenue 13.69% 10.75% 9.81% 9.44% 8.92% 8.66% 8.18% 7.59% 7.02% 6.60% % Growth -6.34% -8.31% -6.24% -10.39% -3.00% -4.00% -6.00% -6.00% -6.00% Communication Related Services $334.14 $370.50 $382.60 $313.10 $219.20 $197.28 $177.55 $159.80 $143.82 $129.44 % of Revenue 11.19% 10.40% 10.69% 8.98% 6.62% 5.97% 5.29% 4.70% 4.16% 3.74% % Growth 10.88% 3.27% -18.17% -29.99% -10.00% -10.00% -10.00% -10.00% -10.00%

When considering putting on a LONG position, these assumptions may not be aggressive enough in terms of growth within the RWCS segment and competitor landscape. It must also be considered that SRCL currently trades at a premium to its industry competitors and whether this will continue in the long-term. The medical waste disposal industry is relatively resilient to economic changes which has proven beneficial for the company when facing coronavirus headwinds, however in the long-term this also means there aren’t large spaces of growth that aren’t attributed to strategic acquisitions. Taking this into consideration when contemplating a LONG position is also needed and would likely require more relevant M&A assumptions.

Portfolio Review: Stericycle, Inc.

UNIVERSITY SECURITIES INVESTMENT TEAM

Relative Valuation In comparison to its peers (which include general waste management companies and medical waste disposal direct competitors), we find that SRCL still remains as one of the largest players that operates in this niche sector. SRCL trades at a premium to its peers at roughly 25% above the mean EV/EBITDA multiple of the comp set.

SRCL Comparables Analysis $ Dollars in USD Millions

5 Year 5 Year Mkt Cap LTM Net LTM NTM LTM LTM NTM Levered Unlevere Company Name Ticker (USD) EV (USD) Debt EV/EBITDA EV/EBITDA NTM P/E P/E EV/Rev EV/Rev D/E Tax Rate Beta d Beta Clean Harbors, Inc. (NYSE:CLH) CLH $3,403.1 $4,779.9 $1,376.8 8.7x 11.0x 78.4x 31.7x 1.4x 1.6x 1.55 30.45% 1.52 0.73 Republic Services, Inc. (NYSE:RSG) RSG $25,445.9 $34,500.6 $9,051.7 11.9x 12.8x 28.4x 23.6x 3.3x 3.5x 1.14 17.00% 0.63 0.32 Waste Connections, Inc. (NYSE:WCN) WCN $23,710.5 $27,978.7 $4,263.5 16.6x 17.9x 38.9x 41.0x 5.1x 5.2x 0.81 20.20% 0.76 0.46 Waste Management, Inc. (NYSE:WM) WM $42,949.5 $53,278.5 $10,327.0 12.3x 13.1x 27.7x 25.8x 3.4x 3.6x 1.99 20.22% 0.75 0.29 Advanced Disposal Services, Inc. (NYSE:ADSW) ADSW $2,809.2 $4,649.0 $1,839.8 12.0x 12.3x 231.6x NM 2.9x 3.1x 2.02 28.59% 0.31 0.13 US Ecology, Inc. (NasdaqGS:ECOL) ECOL $1,082.5 $1,919.9 $837.4 11.9x 10.3x 60.2x NM 2.4x 2.0x 1.52 27.88% 0.95 0.45 Casella Waste Systems, Inc. (NasdaqGS:CWST) CWST $2,322.2 $2,942.7 $620.5 20.3x 18.9x 90.4x 67.7x 3.9x 3.8x 5.37 33.93% 1.02 0.22 Heritage-Crystal Clean, Inc (NasdaqGS:HCCI) HCCI $417.9 $479.7 $61.8 8.6x 20.3x NM 25.8x 1.1x 1.3x 0.44 24.32% 1.64 1.23 Harsco Corporation (NYSE:HSC) HSC $989.2 $1,825.5 $788.3 7.2x 6.7x 21.1x 110.9x 1.2x 0.9x 1.11 32.17% 2.63 1.50

Current Premium to Comps Mean ($6,268.2) ($6,522.8) ($252.2) 3.1x 4.7x (41.7x) NM (0.2x) 0.4x -0.44 1.35% 0.01 -0.01 Mean $11,458.9 $14,706.1 $3,240.8 12.2x 13.7x 72.1x 46.6x 2.7x 2.8x 1.77 26.08% 1.13 0.59 Median $2,809.2 $4,649.0 $1,376.8 11.9x 12.8x 49.5x 31.7x 2.9x 3.1x 1.52 27.88% 0.95 0.45 Low $417.9 $479.7 $61.8 7.2x 6.7x 21.1x 23.6x 1.1x 0.9x 0.44 17.00% 0.31 0.13 High $42,949.5 $53,278.5 $10,327.0 20.3x 20.3x 231.6x 110.9x 5.1x 5.2x 5.37 33.93% 2.63 1.50 Stericycle, Inc. (NasdaqGS:SRCL) SRCL $5,190.70 $8,183.3 $2,988.6 15.3x 18.4x 30.4x NM 2.5x 3.2x 1.33 27.43% 1.14 0.58

Beta Calculation Mean Unlevered Beta 0.59 Target D/E 0.59x Tax Rate 27% Re-levered Beta 0.85

Risks to Investing:

1. Risk: COVID-19 will experience a second wave of infection rate spikes in the latter half of 2020 which will impact the global economy. Stericycle may experience reduced revenue growth as contracts/partnerships with pandemic related initiatives may be unable to offset the revenue loss from small -to-medium business shutdowns, office/corporation closures, and temporary delay in typical hospital operations.

Mitigant: A second wave is “not inevitable” according to global health experts and the U.S. may be experiencing the second wave in the present. Most likely there will continue to be a rise in infection rates due to reopening of businesses and lifting of quarantine regulations. Stericycle may experience benefits from a second wave as RWCS demand warrants increased revenue growth and extended time to pay off debt obligations without the worry of rising competitors within the industry.

2. Risk: Stericycle is close to breaching its debt covenants at a 4.5x Net Debt to Adj. EBITDA ratio vs. 4.75x debt covenant. The company closed a successful refinancing in late 2019, and it is now subject to a 4.75x leverage ratio covenant through 2020. If there is any significant impact on cash liquidity and the company’s ability to service their debt obligations, Stericycle may easily violate certain debt covenants. Furthermore, these continued high levels of debt pressure management into focusing solely on divesting rather than growth opportunities to ensure long-term stability. Large restructuring programs, especially those linked to ERP rollouts, could also prove costly and distracting.

Portfolio Review: Stericycle, Inc.

UNIVERSITY SECURITIES INVESTMENT TEAM

Mitigant: Assuming the company does not incur any major unexpected costs (ex. major legal settlement), it should be able to pay off its debt. In addition, Stericycle has already invested a significant amount into its business transformation, and these improvements could potentially drive long-term revenue growth. Stericycle has already managed to decrease its leverage ratio to below the 2020 debt covenant and is on track to retain below a 3.0x ratio within 2-3 years. Q120 was also the first quarter in years where Stericycle experienced overall organic revenue growth within its service segments, indicating that there has been meaningful progress in portfolio rationalization and debt servicing.

Portfolio Review: Stericycle, Inc.

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Appendix

Portfolio Review: Stericycle, Inc.

UNIVERSITY SECURITIES INVESTMENT TEAM

Paper Pricing https://www.paperindex.com/product-listings/sop-37-sorted-office-paper-grade-37-waste-paper/8068/19 https://resource-recycling.com/recycling/2020/05/12/paper-prices-spike-across-the- country/#:~:text=Sorted%20residential%20papers%20(PS%2056,ton%20over%20the%20past%20year.

Waste Management Market https://www.gminsights.com/industry-analysis/medical-waste-management-market

Portfolio Review: Stericycle, Inc.