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NASDAQ: ECOLJason A. Moser

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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.

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.

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Market opportunity

Source: Company presentation

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Market opportunity

Source: S&P Capital IQ

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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

“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.”

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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

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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.

Cradle to grave and the long tail

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ManagementJeffrey Feeler, CPA

CEO/President/DirectorCEO since May 2013; former COO &

CFO; with company since 2006.

Eric Gerratt, CPACFO since October 2012With ECOL since 2007

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Outlook

Source: Company presentation

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EV/EBITDAECOL – 11.2x Industry mean – 10.6x

P/EECOL – 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.

What’s it worth?

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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.

What can go wrong?

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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.

Competition

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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.

Further thoughts

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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.