Real-time Form 4 intelligence. Smarter insider tracking.
YoY shift: Neutral
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is -0.03pp more bearish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
+0.01pp
Flat
Net-tone change vs last year's 10-K.
MD&A
-0.07pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
adversely+5
against+3
negatively+3
harm+3
damage+2
Positive rising
improvements+3
efficiency+3
opportunities+2
improvement+2
innovation+2
Risk Factors (Item 1A)
9,440 words
Item 1A. Risk Factors
Risk Factors
Our consolidated results of operations, financial position, cash flows and reputation can be adversely affected by various risks. These risks include the principal factors listed below and the other matters set forth in this Form 10-K. There may be additional risks of which we are not presently aware or that we currently believe are immaterial that could have an adverse impact on our business.
BUSINESS, STRATEGY AND MARKET RISKS
Fluctuations in the commodity market related to the demand and price for recycled paper affects our business, financial condition and results of operations.
We sell nearly all of the shredded paper from our secure information destruction business to paper companies and recycled paper brokers. SOP is marketed as a commodity and is subject to significant demand and price fluctuations beyond our control. Additionally, the market demand for recycled paper can be volatile due to factors beyond our control. Historically, economic and market shifts, fluctuations in capacity and changes in foreign currency exchange rates have created cyclical changes in prices, volume, revenues, and margins for pulp and paper products. The length and magnitude of industry cycles have varied over time and by product, but generally reflect changes in macroeconomic conditions and levels of industry capacity. The overall levels of demand for the pulp and paper products reflect fluctuations in levels of end-user demand, which depend in part on general macroeconomic conditions in North America and worldwide. We have experienced a in paper tonnage collected over the past several years which we believe is a reduction in the consumption of paper due to an increase in the use of computers and digital technology and pandemic related impacts, such as a shift to remote work and virtual learning, and it remains unclear what the future long-term impact will be on the paper volume we collect. of demand for our shredded paper material or increasing uses of substitutes for SOP could affect our business, our results of operations and financial condition.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
divestitures+3
stops+2
loss+1
claims+1
restructuring+1
Positive rising
improved+1
successfully+1
greater+1
leading+1
despite+1
MD&A (Item 7)
7,708 words
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and related notes in Part II, Item 8. Financial Statements and Supplementary Data of this 2023 Form 10-K. For further discussion regarding operating and financial data for the year ended December 31, 2022, as compared to the year ended December 31, 2021, refer to Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations , in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Overview
Stericycle, Inc., is a U.S. based business-to-business services company and leading provider of compliance-based solutions that protect people and brands, promote health and well-being and safeguard the environment. Through our family of brands, Stericycle serves customers in North America and Europe with solutions to safely manage materials that could otherwise spread disease, contaminate the environment, or compromise one’s identity. To our customers, team members and the communities we serve, Stericycle is a company that protects what matters.
Our service offerings appeal to a wide range of business customers. Our customers are primarily in the following industries: enterprise healthcare (i.e., hospitals, health systems, and non-affiliate hospitals; national and corporate healthcare), practices and care providers (i.e., physician offices, surgery centers, veterinary clinics, nursing and long-term care facilities, dental clinics, clinics and care, dialysis centers, home health organizations), and pharmacy, lab and research centers. We also provide services to airports and seaports, education institutions, funeral homes and crematories, government and military, banks and professional services, and other businesses. While we manage large volumes of waste and other materials, the average volume per customer site is relatively small.
Unfavorable market conditions, including those driven by economic or social trends, may impact the volume of regulated wastes or personal and confidential information we collect from customers.
The compliance-based services we provide rely on the generation of regulated wastes or personal and confidential information by our customers. The volume of material collected from our customers may be impacted by macro-economic trends associated with manufacturing and industrial markets, healthcare market dynamics, and trends associated with an increase in work-from-home arrangements and electronic and digital record keeping. Some of our services are provided on a subscription basis with a monthly fee to minimize short-term or cyclical variability associated with these factors. However, certain of our services are provided on a transactional basis, and long-term trends resulting from these factors could reduce the demand for our services, whether we provide them on a subscription or transactional basis. It can also negatively impact our ability to adequately forecast the demand for our services, which can negatively impact our results of operations and financial condition. In addition, an economic recession would likely impact the general business environment and the capital markets, which could, in turn, affect the Company.
Changing market conditions in the healthcare industry, healthcare consolidation and healthcare reform, could adversely affect our results of operations.
In the U.S. and elsewhere, the healthcare industry is evolving to meet competing demands for increased healthcare coverage of a growing and aging population and economic pressures to reduce healthcare costs. As a result of these dynamics, hospital networks are consolidating physician practices into their networks, independent practices are consolidating together, and healthcare providers are focused on cutting costs within their businesses. These changes exert downward pricing pressure, including the impact of GPO rebates and administrative fees, on services that we provide to healthcare customers, which could adversely affect our results of operations. The consolidation of this customer base also increases the competitive nature of the healthcare waste industry, which could significantly and adversely affect our results of operations and financial condition
Aggressive pricing by existing competitors and the entrance of new competitors could significantly and adversely affect our results of operations.
The industries in which we participate are highly competitive. Some of our competitors may have lower financial expectations, allowing them to reduce their prices to expand sales volume or to win competitively bid contracts. Some of our competitors may also have large national accounts and/or exclusive waste franchise agreements with
2023 10-K Annual Report
Stericycle, Inc. • 18
Table of Contents
PART I
municipalities. This competition has required us in the past to reduce our prices to our customers, may require us to reduce our prices in the future or may affect our ability to increase prices in the future. We may also lose customers or be unable to execute our pricing strategy. We may elect to exit or not participate in certain markets or to disengage with low margin customer relationships. Price reductions or our inability to increase prices due to competition or regulation could significantly and adversely affect our results of operations and financial condition.
Some of our larger competitors in the markets that we serve are national companies with substantial resources, or companies funded by private equity firms. In addition to our larger competitors, there are many regional and local companies in the regulated waste and secure information destruction industries. We face direct competition from a large number of small, local competitors. Competition from regional or local companies is likely to exist in new locations to which we may expand in the future or may limit our ability to extend into those markets at all. We may also face competition from competitors employing new or alternative technologies which may include technologies intended to reduce the carbon emissions attributable to the services offered by the Company and its competitors. For example, competitors may outpace our ability to adopt alternative vehicle technology or alternative technology to treat medical waste.
Our business is subject to risks arising from infectious disease outbreaks and pandemics.
A significant outbreak, epidemic or pandemic of contagious diseases in any geographic area in which we operate could result in a health crisisadversely affecting the economies, financial markets and overall demand for our services in such areas. Increased needs for regulated waste collection, treatment and disposal can have a positive effect on our business and may increase the demand for our services. However, any preventative or protective actions that governments implement or that we take in response to a health crisis, such as travel restrictions, quarantines, or facility closures, may interfere with the ability of our employees and vendors to perform their responsibilities. Such results could have a material adverse effect on our results of operations.
The extent to which disease outbreaks, such as the coronavirus pandemic, mpox (formerly monkeypox), Ebola virus and Disease X, impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the outbreak; governmental, business and individuals’ actions, vaccination and quarantine requirements, waste treatment and disposal requirements, economic activity that effects our customers’ demand for our services; our ability to provide our services; the ability of our customers to pay for our services; any closures of our and our customers’ facilities; staffing levels at medical facilities; and the need for enhanced health and hygiene requirements or other measures taken in an attempt to counteract future outbreaks in our or our customers’ facilities.
OPERATIONAL RISKS
Complications could occur with the implementation of system modernization that could adversely impact our business and operations.
We rely on information systems and technology to manage our business and summarize operating results. We intend to continue to modernize our systems and associated infrastructure. Integrated systems are designed to accurately maintain the Company’s financial records, enhance operational functionality and provide timely information to the Company’s management team related to the operation of our business. The system modernization process has required, and will continue to require, the investment of personnel and financial resources. We may not be able to successfully complete any system modernization without experiencing increased costs and other difficulties and our planned timeline to implement the system modernization may be delayed. If we are unable to successfully implement system modernization as planned, our business, results of operations, and financial condition could be negatively impacted. The SID North America ERP deployment in 2021 impacted earnings in the third quarter of 2021 and the timing of billing and collections also impacted bad debt reserves in 2021 and 2022. The RWCS North America deployment in 2023 impacted timing of billing and collections in Q4 2023. These impacts were due to typical ERP start-up challenges, which included team members learning new processes and technology across every aspect of the business and onboarding and tuning the flow of data elements through the system. To the extent we experience billing and collections challenges, lower levels of revenue or higher levels of bad debt expense or customer concessions may result. Additionally, if we do not effectively implement systems modernization as planned or system modernizations do not operate as intended, we may experience higher levels of customer disputes and attrition, savings from systems may not be achieved, or the effectiveness of our internal control over financial reporting could be adversely affected or our ability to adequately assess and operate those controls could be delayed.
2023 10-K Annual Report
Stericycle, Inc. • 19
Table of Contents
PART I
We may not realize the expected financial benefits within the anticipated timeline from our continuous improvement efforts including operational efficiency, modernization and innovation actions, among others.
We remain focused on continuous improvements including operational efficiency, modernization, and innovation to control costs and improve performance and efficiencies. We analyze opportunities in areas such as facility footprint, processing capabilities, equipment needs, team member requirements, fleet replacement and route and long-haul network improvements, managed service opportunities, and container rationalization and modernization. We will continue to evaluate our operating needs and may prospectively adjust our workforce to align. Some of our infrastructure and facilities have been in service for many years, which may result in a higher level of future maintenance costs and unscheduled repairs. Further, a portion of our infrastructure and facilities may need to be improved or replaced to maintain or increase operational efficiency, sustain production capacity, or meet changing regulatory requirements. We may incur more charges and cash expenditures than estimated and may not realize the expected improvements or cost savings in the planned timeframe or at all. As we continue to consider each Operational Optimization activity, the amount, the timing and recognition of charges may be affected by the occurrence of commitments and triggering events as defined under U.S. GAAP, among other factors. We may incur more charges and cash expenditures than estimated and may not realize the expected improvement or cost savings on its planned time frame or at all.
Increases in transportation costs and technological transitions may adversely affect our business and reduce our earnings.
We maintain an extensive transportation network and fleet of vehicles. A significant increase in market prices for trucks or fuel could adversely affect our business through higher transportation costs and reduce our operating margins and reported earnings. Vehicle and parts shortages due to a reduction in the availability of raw materials, supply chain challenges, and manufacturing delays are expected to continue to drive higher prices for vehicles, parts and supplies. In addition, any increases in the prices of fossil fuels are expected to put pressure on our fuel expense, as well as parts and supplies derived from fossil fuels, such as engine oil, diesel exhaust fluid, tires and other rubber and plastic parts.
As an operator of an extensive fleet of vehicles, most of which are heavy-duty trucks that utilize fossil fuels, we will be impacted by emerging regulations that require the transition to different engine technologies, such as electric powered vehicles. Depending upon the scope and pace of such regulations, we may need to direct future capital investments toward alternative fuel and zero emission fleet assets to meet vehicle requirements and accelerated transition timelines. Our operational processes could be impacted, and we could experience increases to our operational costs as well as increased expenditures to acquire the vehicles and infrastructure.
We are subject to legislation and extensive governmental regulation, which is frequently difficult, expensive, and time-consuming with which to comply; noncompliance could adversely affect our operations and efforts to grow our business results.
The regulated waste management and secure information destruction industries are subject to extensive federal, state and local laws and regulations relating to the collection, transportation, packaging, labeling, handling, documentation, reporting, treatment and disposal of regulated waste and the proper handling and protection of personal and confidential information. Our business requires us to obtain many permits, authorizations, approvals, certificates, and other types of governmental permissions and to comply with various regulations in every jurisdiction in which we operate. Federal, state and local laws and regulations change often, and new requirements are frequently adopted. Changes in applicable laws and regulations could require us to obtain new permits or to change the way in which we operate our business.
We might be unable to obtain or maintain the permits that we require, and/or the cost of compliance with new or changed regulations could be significant. Many of the permits that we require, especially those to build and operate waste processing and treatment plants and transfer facilities, are difficult and time-consuming to obtain and they may not be issued as quickly as we need them or be issued at all. For example, permitting availability and timelines may be impacted by emerging environmental justice regulation aimed at expanding opportunities for public participation in the process, and restricting or prohibiting industrial uses of certain locations. Even where permits are obtained, they may contain conditions or restrictions that limit our ability to operate efficiently. If we cannot obtain the permits, or if they contain unfavorable conditions, it could substantially impair our operations and reduce our revenues and/or profitability. For additional information, please see Part II, Item 8, Financial Statements and Supplementary Data; Note 19 – Legal Proceedings in the Consolidated Financial Statements.
2023 10-K Annual Report
Stericycle, Inc. • 20
Table of Contents
PART I
If we encounter regulatory compliance issues in the course of operating our businesses, we may experience adverse publicity, which may intensify if such non-compliance results in legal liability. Any legal liability for non-compliance or adverse publicity from such non-compliance may harm our reputation, and result in difficulties in attracting new customers, or retaining existing customers which would impact our results of operations and financial condition.
The level of governmental enforcement of regulated waste and certain other regulations has an uncertain effect on our business and could reduce the demand for our services.
We believe that strict enforcement of laws and regulations relating to regulated waste collection, treatment and disposal and the handling and protection of personal and confidential information, can have a positive effect on our business, as these laws and regulations may increase the demand for our services. Relaxation of enforcement, government shutdowns, or other changes in governmental regulation of regulated waste and personal and confidential information could increase the number of competitors we face or reduce or delay the need for our services.
Cyber incidents or malicious attacks on our information technology systems could damage our reputation, negatively impact our businesses and expose us to litigation risk.
We use computers in substantially all aspects of our business operations. We also use mobile devices, social networking and other online activities to connect with our team members and our customers. We rely heavily on various proprietary and third-party information systems. Our reputation for the secure handling of customer and other sensitive information is critical to the success of our business. Like other large, global corporations, we are potentially subject to a range of cyber attacks, including but not limited to state-sponsored cyber-attacks, industrial espionage, insider threats, computer denial-of-service attacks, computer viruses, ransomware and other malware, data leakage and compromise, wire fraud, phishing incidents and other cyber incidents. Further, bad actors around the world use increasingly sophisticated methods, including the use of AI, to engage in illegal activities involving the theft and misuse of personal information, confidential information, and intellectual property. In any cyber incident that we may experience, our ability to detect an incident, incident response capabilities, business continuity procedures and disaster recovery planning may not be entirely effective as our information technology and network infrastructure may still be vulnerable to attacks or breaches due to employee error, malfeasance, computer viruses, power outages, natural disasters, acts of terrorism, breaches with respect to third-party systems or vendors or other disruptions. A cybersecurity incident and breach of our information systems could lead to theft, destruction, loss of life, damage to property, environmental issues, misappropriation or release of sensitive and/or confidential information or intellectual property, which could result in business disruption, negative publicity, violation of privacy laws, loss of customers, brand damage, adverse financial and operational results, and potential litigation. Although we maintain insurance coverage for various cybersecurity risks, there is no guarantee that all costs or losses incurred will be fully insured.
Our management depends on relevant and reliable information for decision-making purposes, including key performance indicators and financial reporting. Any significant loss of data, failure to maintain reliable data, disruptions affecting our information systems, or delays or difficulties in transitioning to new systems could adversely affect our business, financial condition and results of operations. In addition, our ability to continue to operate our businesses without significant interruption in the event of a disaster or other disruption depends in part on the ability of our information systems to operate in accordance with our disaster recovery and business continuity plans. If our information systems fail and our redundant systems or disaster recovery plans are not adequate to address such failures, or if our business interruption insurance does not sufficiently compensate us for any losses that we may incur, our revenues and profits could be reduced and the reputation of our brands and our business could be adversely affected. In addition, remediation of such problems could result in significant, unplanned capital investments.
2023 10-K Annual Report
Stericycle, Inc. • 21
Table of Contents
PART I
Issues related to the development and use of AI present new risks and challenges and could adversely affect our business and operating results.
Issues in the development and use of AI, including generative AI tools and large language models, combined with an uncertain regulatory environment, may result in reputational harm, liability, or other adverse consequences to our business operations. AI presents risks, challenges, and unintended consequences that could affect our and our customers’ and vendors' adoption and use of this technology. If we, our customers or vendors, or our third-party partners experience an actual or perceived breach of privacy or security incident because of the use of AI, we may losevaluable intellectual property and confidential information and our reputation and the public perception of the effectiveness of our security measures could be harmed. AI-related issues, deficiencies and/or failures could (i) give rise to legal and/or regulatory actions, including with respect to proposed legislation regulating AI in jurisdictions such as the European Economic Area; (ii) damage our reputation; or (iii) otherwise adversely affect our business and operating results.
The handling of secure information for destructionexposes us to potential data security risks that could result in monetary damagesagainst us and could otherwise damage our reputation, and adversely affect our business, results of operations, and financial condition.
The protection of customer, employee, and other company data is critical to our business. The regulatory environment regarding information security and privacy in the U.S. and other countries in which we operate is continuously evolving and becoming increasingly demanding, with the frequent imposition of new and regularly changing requirements. Certain legislation, including FACTA, HIPAA, the Economic Espionage Act in the U.S., the Personal Information Protection and Electronic Documents Act in Canada and the GDPR in the U.K. and EU, require documents to be securely destroyed to avoid identity theft and inadvertent disclosure of confidential and sensitive information. In addition, an increasing number of countries and states in the U.S. have introduced and/or increased enforcement of comprehensive privacy laws or are expected to do so. The continued emphasis on information security as well as increasing concerns about government surveillance may lead customers to request us to implement additional safeguards or controls to enhance our security and/or assume higher liability under our contracts. As a result of legislative initiatives and customer demands, we may have to modify our operations, as well as our internal compliance programs, to further improve data security. Any such modifications may result in increased expenses and operational complexity, and adversely affect our reputation, business, financial condition and operations. A significant breach of customer, employee, or other company data could attract a substantial amount of media attention, damage our customer relationships and our reputation, and result in lost revenues, fines, expenses, or lawsuits.
We depend on third parties to provide a variety of services.
We depend on third parties to provide a variety of services including information technology, finance and accounting and transporting and processing a portion of the regulated waste we collect from our customers, among others. We may continue to increase our dependence on third-party providers for services. The failure of these service providers to meet their obligations or the development of significant disagreements or other factors may disrupt our ongoing relationship with these providers or the services they provide, which could adversely affect our business, financial condition or results of operations. In addition, failure by waste disposal vendors to properly handle or dispose of the regulated waste we collect from customers could expose us to liability, increase our costs, damage our reputation and generally have an adverse effect on our business, financial condition or results of operations.
2023 10-K Annual Report
Stericycle, Inc. • 22
Table of Contents
PART I
Risks from our International operations could adversely affect our business, financial condition and results of operations.
We have operations in the U.S. and 10 other countries. Foreign operations carry specific risks including: (i) exchange rate and interest rate fluctuations; (ii) substantial inflation in certain markets; (iii) dependence in certain markets on government entities as customers; (iv) delays in the collection of accounts receivable related to certain government funding practices; (v) government controls; (vi) import and export license requirements; (vii) political or economic instability, social unrest, and public safety and security; (viii) changes in or compliance with U.S., local or other applicable laws and regulations, including laws and regulations concerning anti-corruption, anti-bribery (i.e . FCPA, U.K. Bribery Act and similar laws), global trade, trade sanctions, competition, privacy and data protection; (ix) trade restrictions; (x) changes in tariffs and taxes; (xi) tax and foreign investment policies; (xii) industry or macro-economic trends; (xiii) permitting and regulatory standards; (xiv) differences in local laws, regulations, practices, and business customs; (xv) restrictions on repatriating foreign profits back to the U.S. or movement of funds to other countries; (xvi) difficulties in staffing and managing international operations; (xvii) increases and volatility in labor costs; (xviii) property ownership restrictions in certain countries; and (xix) emerging trends or regulations related to reducing the impact of climate change. Any of the foregoing or other factors associated with doing business abroad could adversely affect our business, financial condition and results of operations.
LEGAL, REGULATORY, AND COMPLIANCE RISKS
We are subject to pending legal proceedings that may result in material liability or otherwise harm our business.
We are a defendant in pending lawsuits and other legal proceedings involving private litigants and governmental authorities. See Part II, Item 8. Financial Statements and Supplementary Data; Note 19 – Legal Proceedings in the Consolidated Financial Statements. These current and future matters may result in significant liabilities and diversion of our management’s time, attention, and resources. Given the uncertain nature of litigation generally, we are not able in all cases to estimate the amount or range of loss that could result from an unfavorable outcome in these matters. In view of these uncertainties, the outcome of these matters may result in charges that materially exceed any accrued liabilities for contingent losses and, to the extent available, liability insurance. We engage an outside actuary twice a year to assist us in estimating these liabilities. Litigation outcomes may include civil, administrative or criminalpenalties as well as other remedies that could materially harm our reputation, business, financial condition or results of operations, adversely affect our liquidity and ability to service our indebtedness, or require us to restructure or amend the terms of our indebtedness. While we generally carry liability insurance intended to cover these contingencies, instances may occur that are not insured against or that are inadequately insured against. An uninsured or underinsuredloss could be substantial and could impair our profitability and reduce our liquidity.
We are subject to extensive government imposed requirements; noncompliance may result in significant liabilities.
Our operations are subject to extensive federal, state and local laws and regulations. The consequences of failure to comply with government-imposed regulations, other requirements and contractual terms, including uncapped liability provisions in government customer contracts, can impact our ability to service our customers, and thus our operational results. Compliance with government regulations can also be costly, which can negatively impact our overall financial condition.
We are involved in government investigations, enforcement proceedings, private lawsuits and other disputesalleging non-compliance with applicable regulations, including possible noncompliance with the Controlled Substances Act and other statutes involving our former Domestic Environmental Solutions business of collecting, transporting, and destroying controlled substances from retail customers. See Part II, Item 8. Financial Statements and Supplementary Data; Note 19 – Legal Proceedings in the Consolidated Financial Statements. These matters may result in material liability against us, including permit revocations or denials, civil, criminal and administrative penalties, and other adverse consequences .
Under previously reported settlements with governmental authorities relating to our compliance with the FCPA and other foreign or domestic anti-corruption laws with respect to operations in Latin America, we have engaged an independent compliance monitor through 2024 and will undertake compliance with self-reporting obligations through 2025. See Part II, Item 8 Financial Statements and Supplementary Data; Note 19 – Legal Proceedings in the Consolidated Financial Statements. Other matters may arise in the future involving allegedviolations of the FCPA, other anti-corruption and anti-bribery laws, or laws prohibiting doing business with sanctioned parties. These could subject us to enforcement actions by the SEC or the DOJ or other regulatory bodies, fines, penalties, further
2023 10-K Annual Report
Stericycle, Inc. • 23
Table of Contents
PART I
oversight by an independent compliance monitor and/or self-reporting obligations, litigation, or orders of suspension or debarment, which could adversely affect our business, financial condition and results of operations.
We face risk associated with regulated waste services and the potential regulation of emerging contaminants that may be present in materials historically and presently collected for treatment and disposal. We also face the risk of incurring significant environmental cleanup liabilities for our current operations, pre-existing conditions at the locations where we operate, and/or successor or predecessor liability associated with our portfolio optimization strategy.
Requirements of governments, customers and investors for net zero greenhouse gas emissions strategies, and the introduction of regulations restricting emissions of “greenhouse gases” aimed to limit climate change, could negatively impact our costs to operate.
Around the world, there are a wide range of legislative and regulatory efforts at the state, provincial, regional and federal levels focused on reducing greenhouse gas emission and minimizing the impact of climate change. These emerging legislative and regulatory efforts include, among other things, initiatives to reduce the use of fossil fuels, single use plastics, and waste volumes sent to landfills. We monitor the regulatory landscape and the potential impacts to our operations of such efforts. These evolving regulations and expectations could also affect certain management estimates, including long-lived asset useful lives and asset retirement obligations, which could adversely impact results of operations.
We monitor emerging climate-related regulations potentially impacting the Company on an ongoing basis. Specifically, the Company is monitoring regulations related to required emissions reporting, country mandates applied to industries that are related to carbon emissions reductions (for example, the U.K.’s sixth Carbon Budget, which expands the scope of industries covered by the U.K.’s carbon emission reduction goals), and regulations that limit the purchase or use of fossil fuel powered vehicles (for example, California’s Advanced Green Fleets regulation requiring medium- and heavy-duty vehicle fleets to transition to zero-emission vehicles and the UK’s policy that 80% of new cars and 70% of new light commercial vehicles must be zero emission by 2030, increasing to 100% by 2035).
The Company engages with customers to better understand their current approach and future strategies in response to climate-related regulation and business trends. Certain of the Company’s customers have established, or are in the process of establishing, goals for their organizations to be carbon neutral or reduce waste levels, especially wastes that go to landfills, and have extended such goals to their key vendors and business partners. For example, the National Health Service (“NHS”) in the U.K. established a goal for its suppliers to be net zero by 2045, and, in August 2022, introduced standard contract clauses relating to supplier sustainability which include incremental requirements such as undertaking ‘evergreen supplier’ assessments and the appointments by suppliers of ‘net zero champions’. This increased focus by customers on minimizing climate change impacts may require the Company to invest in incremental and higher-cost technologies for more efficient waste processing, collection services through our fleet of vehicles, or other operational impacts.
Increased focus on minimizing climate change from regulatory bodies, customers, and investors may impact our revenues as well as our cost of operations in the future.
Tax interpretations and changes in tax regulations and legislation could adversely affect us.
Tax interpretations, regulations and legislation in the various jurisdictions in which we operate are subject to measurement uncertainty and the interpretations can impact net income, income tax expense or recovery, and deferred income tax assets or liabilities. Tax rules and regulations, including those relating to foreign jurisdictions, are subject to interpretation and require judgment by us that may be challenged by the applicable taxation authorities upon audit. Furthermore, as a result of portfolio optimization efforts through which we may acquire new assets or businesses, sell existing assets or businesses, or exit particular markets, there may exist tax rules, regulations, or other matters that may be the focus of examination and challenge by applicable taxation authorities. Similarly, we may periodically restructure our legal entities and if taxing authorities were to disagree with our tax positions in connection with any such restructurings, our effective tax rate could be materially affected. In connection with such portfolio optimization, we could also incur additional charges associated with consulting fees and other charges.
Legislatures and taxing authorities in various jurisdictions in which we operate may propose changes to their tax rules. Furthermore, international tax norms that determine each country’s jurisdiction to tax are subject to change. In particular, a project undertaken by the Organisation for Economic Co-operation and Development (“OECD”) focuses on redefining jurisdictional taxation rights in market countries and establishing a global minimum tax. In December 2022, the European Union (“EU”) approved a directive requiring member states to incorporate a 15% global
2023 10-K Annual Report
Stericycle, Inc. • 24
Table of Contents
PART I
minimum tax into their respective domestic laws effective for fiscal years beginning on or after December 31, 2023. Important details of these minimum tax developments are still to be determined and, in various countries, enactment and timing remain uncertain. These changes could include modifications that have temporary effect, and more permanent changes. The impact of these potential new rules on us, our long-term tax planning, and our effective tax rate could be significant. Although we believe our assumptions, judgments and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the resolution of any tax audits could significantly impact the amounts provided for income taxes in our Consolidated Financial Statements.
We have accumulated NOLs arising from our operations and foreign and domestic acquisitions of approximately $115.6 million as of December 31, 2023. We have recognized valuation allowances to reduce these amounts to our current estimate for NOLs that will be recoverable against future taxable income prior to their expiration in accordance with the appropriate tax regulations. If our estimates change or we do not generate sufficient taxable income prior to the expiration of these NOLs, we may have to record additional valuation allowances resulting in higher income tax expense. For additional information, please see Part II, Item 8. Financial Statements and Supplementary Data; Note 10 – Income Taxes .
Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated bylaws, which were adopted in December 2022, provide that, to the fullest extent permitted by law, the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a claim of breach of a fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law or any action asserting a claim against us that is governed by the internal affairs doctrine. The exclusive forum provision does not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Our amended and restated bylaws also provide that the U.S. federal district courts are the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended (the “Securities Act”). Any person or entity purchasing or otherwise acquiring any interest in any security of the Company shall be deemed to have notice of and consented to the provisions of our amended and restated bylaws described above. Under the Securities Act, federal and state courts have concurrent jurisdiction over all suits brought to enforce any duty or liability created by the Securities Act, and investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Accordingly, there is uncertainty as to whether a court would enforce such a forum selection provision as written in connection with claims arising under the Securities Act. We believe these provisions may benefit us by providing increased consistency in the application of Delaware law and federal securities laws by chancellors and judges, as applicable, particularly experienced in resolving corporate disputes, efficient administration of cases on a more expedited schedule relative to other forums and protection against the burdens of multi-forum litigation. However, these provisions may have the effect of discouraging lawsuits against our directors, officers, employees and agents, as it may limit any stockholder’s ability to bring a claim in a judicial forum that such stockholder finds favorable for disputes with us or our directors, officers, employees or agents. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, financial condition and results of operations.
FINANCIAL AND CONTROL RISKS
Market conditions could adversely change and our earnings could decline resulting in charges to impair intangible assets, such as goodwill.
As a result of our various acquisitions, the Consolidated Balance Sheet at December 31, 2023, contains goodwill of $2.76 billion and other intangible assets, net of $686.5 million. We evaluate on an ongoing basis whether facts and circumstances indicate any impairment to the carrying value of indefinite-lived intangible assets such as goodwill. As circumstances after an acquisition can change, we may not realize the value of these intangible assets. Historically, we have recognized non-cash impairment charges related to our reporting units. The Company has historically recognized aggregate non-cash goodwill impairments of approximately $650 million, of which, approximately $550 million was related to divested reporting units. During 2023, 2022, and 2021 we recognized non-cash impairment charges of $3.1 million, $0, and $4.6 million, respectively, of operating permits, tradenames, and customer relationships. We recognized these impairments due to a reduction of forecasted future cash flows in each reporting unit, as discussed in the Impairment section of Part II, Item 7. Management’s Discussion and Analysis of Financial
2023 10-K Annual Report
Stericycle, Inc. • 25
Table of Contents
PART I
Condition and Results of Operations and Part II, Item 8. Financial Statements and Supplementary Data; Note 7 – Goodwill and Other Intangible Assets . The recognition of any potential future impairments could have a material adverse impact on our results of operations.
If we fail to maintain an effective system of internal controls over financial reporting, including increased risk associated with our ERP and system modernization, we may not be able to report our financial results timely and accurately or prevent fraud, which could adversely affect investor confidence in our company, our results of operations and our stock price.
Internal controls related to the operation of technology systems are critical to maintaining adequate internal control over financial reporting. We are implementing remedial measures and new systems and there can be no assurance that our efforts will be successful. These efforts and measures will result in additional technology and other expenses. If we are unable to maintain effective internal control over financial reporting or disclosure controls and procedures, our ability to record, process and report financial information accurately, and to prepare financial statements within required time periods, could be adversely affected, which could subject us to litigation or investigations requiring management resources and payment of legal and other expenses, negatively affect investor confidence in our financial statements and adversely impact our stock price.
Some of our customers have suffered or may suffer financial difficulties affecting their credit risk, which could negatively impact our operating results.
We provide service to a number of customers, including governmental entities and municipalities, some of which have suffered or may suffer significant financial difficulties. Some of these entities could be unable to pay amounts owed to us, resulting in increased bad debt expense, or renew contracts with us at previous or increased rates. The inability of our customers to pay us in a timely manner or to pay increased prices could negatively affect our operating results.
We may incur significant charges as a result of portfolio optimization; portfolio optimization may not achieve the desired results.
We continue to evaluate the performance of our portfolio of assets and businesses. Based on this evaluation, we may acquire new assets or businesses and may sell certain existing assets or businesses or exit particular markets. Acquisitions and divestitures may not yield the targeted improvements in our business. Divestitures involve risks, including difficulties in the separation of operations, services, products and personnel, disruption in our operations or businesses, finding a suitable purchaser, the diversion of management’s attention from our other businesses, the potential loss of key team members, the erosion of employee morale or customer confidence, and the retention of contingent liabilities, including pursuant to indemnification provisions related to the divested business. Any charges, including those arising from indemnification provisions, that we are required to record or the failure to achieve the intended financial results associated with divestitures of businesses or assets could have a material adverse effect on our business, financial condition or results of operations. Any impairments and losses on divestiture resulting from this process may cause us to record significant charges, including those related to goodwill, other intangible assets, and accumulated currency translation adjustment losses. See Part II, Item 8. Financial Statements and Supplementary Data; Note 4 – Restructuring, Divestitures, and Asset Impairments in the Consolidated Financial Statements. Acquisitions also involve certain risks, including our ability to realize operating efficiencies, synergies and other benefits expected from an acquisition, diversion of management’s time and attention from other business concerns, difficulties in retaining key employees, customers and suppliers of the acquired business, difficulties in maintaining uniform standards, controls, policies and procedures throughout acquired companies, and adverse effects on existing business relationships with customers and suppliers. We may also face liability with respect to acquired businesses for violations of environmental laws occurring prior to the date of acquisition, and some or all of these liabilities may not be covered by environmental insurance secured to mitigate the risk or by indemnification from the sellers from which we acquired these businesses. See Part II, Item 8. Financial Statements and Supplementary Data; Note 3 – Acquisitions in the Consolidated Financial Statements.
Restrictions in our Credit Agreement and our Senior Notes could adversely affect our business, financial condition, results of operations, ability to make distributions and the value of our securities.
Our Credit Agreement contains customary affirmative covenants, including, among others, covenants pertaining to the delivery of financial statements; certain financial covenants; notices of default and certain other material events; payment of obligations; preservation of corporate existence, rights, privileges, permits, licenses, franchises and intellectual property; maintenance of property and insurance and compliance with laws, as well as customary negative covenants, including, among others, limitations on the incurrence of liens and entering into capital leases, investments and indebtedness; mergers and certain other fundamental changes; dispositions of assets; restricted
2023 10-K Annual Report
Stericycle, Inc. • 26
Table of Contents
PART I
payments; changes in our line of business; transactions with affiliates and burdensome agreements. These covenants could affect our ability to operate our business, increase the amount of interest expense we ultimately pay pursuant to the Credit Agreement, and may limit our ability to take advantage of potential business opportunities as they arise. Our Senior Notes also contain certain covenants that could have a similar effect on our ability to operate our business. Our Credit Agreement also includes a springing maturity provision whereby it springs to maturity 91 days prior to the maturity of the Senior Notes. As a result, if our $600.0 million Senior Notes due on July 15, 2024 are still outstanding on April 25, 2024, then the maturity date under our credit facility will spring to that date. The Company has the ability and intent to refinance the 2019 Senior Notes on a long-term basis through available capacity under its Revolving Credit Facility. Therefore, as of December 31, 2023, the 2019 Senior Notes remain classified as long-term debt in the Consolidated Financial Statements. On February 1, 2024, the Company issued a redemption notice to 2019 Senior Notes holders for redemption of all of the $600.0 million aggregate principal amount of the outstanding 2019 Senior Notes with a redemption date of March 14, 2024. See Part II, Item 8. Financial Statements and Supplementary Data; Note 9 – Debt in the Consolidated Financial Statements.
Our ability to comply with the covenants and restrictions contained in our Credit Agreement, along with certain of the covenants and restrictions contained in our Senior Notes, may be affected by events beyond our control, including prevailing economic, financial, and industry conditions. If market or other economic conditions deteriorate, our ability to comply with these covenants may be impaired. A failure to comply with these provisions could result in a default or an event of default. Upon an event of default, unless waived, the lenders could elect to terminate their commitments, cease making further loans, require cash collateralization of letters of credit, cause their loans to become due and payable in full, forecloseagainst any assets securing the debt under our Credit Agreement and force us and our subsidiaries into bankruptcy or liquidation. If the payment of our debt is accelerated, our assets may be insufficient to repay such debt in full, and the holders of our stock could experience a partial or total loss of their investment. See Part II, Item 8. Financial Statements and Supplementary Data; Note 9 – Debt in the Consolidated Financial Statements.
Servicing debt and funding other obligations requires a significant amount of cash, and our ability to generate sufficient cash depends on many factors, some of which are beyond our control.
Our ability to make payments on and refinance our indebtedness and to fund our operations and capital expenditures depends on our ability to generate cash flow and secure financing in the future. Our ability to generate future cash flow depends, among other things, on future operating performance, general economic conditions, competition, and litigation, legislative and regulatory factors affecting our operations and business.
Some of these factors are beyond our control. There is no assurance that our business will generate cash flow from operations or that future debt or equity financings will be available to us to enable us to pay our indebtedness or to fund other needs. As a result, we may need to refinance all or a portion of our indebtedness on or before maturity. There is no assurance that we will be able to refinance any of our indebtedness on favorable terms, or at all. Any inability to generate sufficient cash flow or refinance our indebtedness on favorable terms could have an adverse effect on our financial condition.
The amount of our indebtedness could adversely affect our business.
As of December 31, 2023, we had a total of $1.31 billion of outstanding indebtedness, including long-term debt and short-term debt and excluding unamortized debt issuance costs. We also have the ability to incur additional indebtedness subject to our financial covenants.
Our outstanding indebtedness could have adverse consequences on our business, including the following: (i) we may be required to dedicate a substantial portion of our available cash to payments of principal and interest on our indebtedness, (ii) our ability to access credit markets on terms we deem acceptable may be impaired, and (iii) we may be limited in our flexibility to adjust to changing market conditions.
Our participation in multi-employer pension plans may subject us to liabilities that could materially adversely affect our liquidity, cash flows and results of operations.
We participate in multi-employer pension plans administered by employer and union trustees. To the extent that those plans are underfunded, ERISA may subject us to substantial liabilities in the event we, whether partially or totally, cease to have obligations to contribute to the plans. Under current law regarding multi-employer defined benefit plans, circumstances such as a plan’s termination, an employer’s partial or complete withdrawal from, or the mass withdrawal of all contributing employers from, an underfunded multi-employer defined benefit plan can trigger our obligation to make payments to the plan for our proportionate share of the multi-employer plan’s unfunded vested liabilities. Furthermore, the Pension Protection Act added new funding rules generally applicable to plan years beginning after 2007 for multi-employer plans that are classified as “endangered”, “seriouslyendangered”, or
2023 10-K Annual Report
Stericycle, Inc. • 27
Table of Contents
PART I
“critical” status. If plans in which we participate are in critical status or underfunded, we could be required to make additional contributions.
Based upon the information available to us from plan administrators, one of the multi-employer pension plans in which we participate is underfunded. The Pension Protection Act requires that underfunded pension plans improve their funding ratios within prescribed intervals based on the level of their underfunding. We have been notified that one plan is in "critical" status and this plan may require additional contributions. The amount of additional funds we may be obligated to contribute in the future cannot be estimated, as such amounts will be based on future levels of employee work that require the specific use of the union team members covered by these plans, investment returns and the level of underfunding of such plans. Additional funding could adversely affect our liquidity, cash flows, and results of operations. For more information, see Part II, Item 8. Financial Statements and Supplementary Data; Note 13 – Retirement and Other Employee Benefit Programs in the Consolidated Financial Statements .
RISKS RELATED TO HUMAN CAPITAL
An inability to retain our executive officers or other key personnel or difficulties in recruiting qualified personnel may adversely affect our business.
Our future success depends to a significant degree on the skills, experience and efforts of our executive officers and key personnel. The unexpectedloss of the services of any of our executive officers or other key personnel through retirement or otherwise could have an adverse effect on our operations. In addition, like many other route-based businesses, we are being impacted by our industry’s driver and facility team member shortages.
We depend on the skills, working relationships, and continued services of key personnel, including our experienced management team. We must hire, train and develop effective drivers and other team members. We compete with other companies both within and outside of our industry for talented personnel. In addition, employee turnover increases our cost of operations and makes it more difficult to operate our business. A significant number of our executive officers are currently retirement eligible or will soon become retirement eligible. Upon becoming retirement eligible, time-based RSU and time and performance-based PSU awards held by such employees will no longer be at risk of forfeiture and, therefore, the Company must recognize the expense of these RSU and PSU awards at the time our employees become eligible for retirement, and such expense may be substantial. There can be no assurance that our executive succession planning, retention, or hiring efforts will be successful. Difficulty in replacing or adding personnel and increased compensation costs could have an adverse effect on our business, results of operations and financial condition.
A change or deterioration in our relations with our team members or an increase in labor and employment costs could have a materially adverse effect on our business, financial condition and results of operations.
Labor and employment is one of our highest costs and increases in employment costs could materially affect our cost structure and our profitability. We compete with other businesses in our markets for qualified team members and the labor supply is sometimes tight in our markets. A shortage of qualified team members or further unionization would require us to incur additional costs related to wages and benefits; inefficiencies in operations; unanticipated costs in sourcing temporary or third-party labor; legal fees and interference with customer relationships. Due primarily to increased demand for truck drivers and competition from other employers, we have experienced difficulties hiring a sufficient number of qualified truck drivers. If this condition persists, it could affect our ability to service our customers and affect our results of operations.
As of December 31, 2023, 10% of our total global workforce was covered by collective bargaining agreements. There are 19 collective bargaining agreements in the U.S. and Canada, covering approximately 720 team members, or 7% of our North American workforce. An additional approximate 680 team members of the workforce outside of North America are covered by collective bargaining agreements or work councils. Collective Bargaining agreements expire on a scheduled basis depending upon the negotiated length of the contract’s term. Collective bargaining agreement negotiations occur every year depending upon which agreements expire and whether one or both parties seek the modification of terms.
There can be no assurance that we will be able to negotiate the terms of future agreements with unions in a manner acceptable to us. There is also no guarantee that current non-union team members will not seek union representation resulting in additional collective bargaining agreements with associated increased costs to us. Potential work disruptions from labor disputes may disrupt our businesses and adversely affect our brand, customer relations, financial condition, and results of operations.
2023 10-K Annual Report
Stericycle, Inc. • 28
Table of Contents
PART I
The handling, transportation, and treatment of regulated waste carries with it the risk of personal injury to team members and others.
Our business requires our team members to handle regulated waste which may still be infectious or hazardous to life and property. While we try to handle such materials with care and in accordance with accepted and safe methods, the possibility of accidents, leaks, and spills (including those caused by natural disasters) always exists. Examples of incidents that may present possible exposure to contaminated or infectious waste or other hazardous materials include truck accidents, damaged or leaking containers, improper storage of regulated waste, placement of prohibited materials into the waste stream, or malfunctioning plant equipment, such as power outages, or ineffective backup systems.
Human beings or animals could be injured or sickened, or property could be damaged by exposure to regulated waste. This in turn could result in lawsuits in which we are found liable for such injuries, and substantial damages could be awarded against us. We engage an outside actuary twice a year to assist us in estimating these liabilities.
While we generally carry liability insurance intended to cover these contingencies, instances may occur that are not insured against or that are inadequately insured against. An uninsured or underinsuredloss could be substantial and could impair our profitability and reduce our liquidity.
GENERAL RISK FACTORS
Increasing occurrences of natural disasters or other catastrophic events caused by climate change or otherwise could negatively affect our business, financial condition, and results of operations.
Natural disasters such as hurricanes, typhoons or earthquakes could negatively affect our operations and financial performance. Such events could result in physical damage to one or more of our facilities or equipment, the temporary lack of an adequate work force in a market, and the temporary disruption in transportation services which we rely on to deliver waste to our facilities. These events could prevent or delay deliveries and reduce both volumes and revenue. Weather conditions and other event driven special projects may also cause variations in our results of operations. We may be required to suspend operations in some of our locations, which could have a material adverse effect on our business, financial condition, and results of operations. While we have protocols in place for operating regions frequently impacted by severe weather changes, continued climate change may require additional protocols, processes, physical equipment, and training to minimize risks to team members, physical property, and operations, which could have an adverse effect on our results of operations and financial condition.
Inflationary cost environment and supply chain disruption.
For the last several years we have experienced inflationary cost increases in our underlying expenses, including labor, supply chain related, and other expenses. We may continue to experience inflationary cost increases in labor, commodities, vehicle procurement, facility and vehicle leases, third party expenditures, plant equipment and construction expenditures, and other expenses. We may not be able to pass all of these cost increases on to our customers. We may also experience delays in completing certain capital projects and have additional challenges due to macroeconomic supply chain disruptions. Should these conditions persist, our business, financial condition, results of operations and cash flows could be negatively impacted.
Geopolitical tensions, military conflict and the global community’s response may create substantial political and economic disruption, uncertainty and risk.
U.S. and global markets may experience volatility and disruption following the escalation of geopolitical tensions and the military conflicts, such as those between Russia and Ukraine and in the Middle East. Although the length and impact of the ongoing military conflict is highly unpredictable, such conflicts could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions, increased cyber-attacks and social unrest in certain regions in which we operate.
We are subject to risks associated with the current interest rate environment.
Changing interest rates may have unpredictable effects on markets, may result in heightened market volatility and may detract from our performance to the extent we are exposed to such interest rates and/or volatility. An adjustment in rates would impact our variable rate debt. If interest rates increase or remain elevated, we could face higher debt service requirements, which would adversely affect our cash flow and could adversely impact our results of operations. If we are unable to generate sufficient cash flow to service our debt or to fund our other liquidity needs, we could need to restructure or refinance all or a portion of our debt. Any refinancing of indebtedness could be at higher interest rates, thereby resulting in an overall increase in interest expense.
2023 10-K Annual Report
Stericycle, Inc. • 29
Table of Contents
PART I
urgent
Highlights for the year ended December 31, 2023, compared to the prior year include:
• Grew organic revenues 1 2.2%, driven by increases in RWCS of 4.2% for the year ended December 31, 2023, compared to the prior year;
• Improved Gross Profit as a percentage of revenues 30 basis points compared to the prior year;
• Improved cash flow from operations by $43.1 million for the year ended December 31, 2023, compared to prior year.
(1) See Results of Operations, Revenues for a reconciliation between total U.S. GAAP Revenues and Organic Revenues.
For additional information, see Part II, Item 8, Financial Statements and Supplementary Data; Note 4 – Restructuring, Divestitures, and Asset Impairments, Note 9 – Debt, and Note 19 – Legal Proceedings in the Consolidated Financial Statements.
Other Developments
In 2023, within RWCS, we saw evolving dynamics among our national accounts, which includes customers like retail pharmacies and nationwide healthcare service providers. Our national account customer base generally remained consistent, despite the economic headwinds they're facing. As some of these customers reduce their footprint, our service stops in this segment have also contracted, mainly in the third quarter of 2023. Similar to RWCS, our national SID customers are experiencing a reset in their post-COVID pandemic office footprint. Across the SID business, we believe we remain an essential service and are retaining these customer relationships, but have seen service stopsdecline, mainly driven by customer site closures and reduced service frequencies.
Key Business Priorities
In 2023, our five key business priorities were the following:
• Quality of revenue – We have been executing against our foundational initiatives we launched to drive revenue quality and are executing on: (i) expanding service penetration, (ii) improving customer implementation velocity, and (iii) deepening customer partnerships by developing enhanced solutions.
• Operational efficiency, modernization, and innovation – We have been executing on our foundational initiatives we launched to drive operational efficiency, modernization and innovation and are executing on: (i) infrastructure and system modernization, (ii) fleet replacement and route and long-haul network improvements and (iii) SafeShield container rationalization and modernization.
2023 10-K Annual Report
Stericycle, Inc. • 33
Table of Contents
PART II
• ERP implementation – W e successfully deployed the North America ERP to the U.S. RWCS business in the third quarter of 2023. Almost all of our U.S. team members are now leveraging the new technology. We continue to observe improvement in our team members' performance as they leverage the technology and data flow. We commenced activities for the international system modernization in 2022.
• Portfolio optimization – We expect to continue evaluating opportunities to further optimize our portfolio through a combination of asset rationalizations and strategic accretive tuck-in acquisitions, which streamline our portfolio of businesses and allow us to focus more deeply on our core businesses. 2023 divestitures primarily included an International container manufacturer joint venture in Spain; our businesses in Brazil, Singapore, Australia, and Republic of Korea; dental recycling business in the Netherlands; SID joint venture in the UAE; and our business in Romania for net proceeds of approximately $85 million.
• Debt reduction and leverage improvement – We have reduced total net debt to $1.27 billion as of December 31, 2023. In the second quarter of last year, we successfullyachieved our goal of reducing our debt leverage below 3 times and have continued to maintain our debt leverage target, finishing 2023 with a debt leverage ratio of 2.85 times.
Certain Key Priorities and Other Significant Matters
The following table identifies key priorities and other significant matters impacting our business and how they are classified in the Consolidated Statements of (Loss) Income (amounts are stated pre-tax except when noted):
In millions
Year Ended December 31,
Pre-tax items:
Included in COR
Operational Optimization
Asset Impairments
Total included in COR
Included in SG&A
ERP and System Modernization
Intangible Amortization
Operational Optimization
Portfolio Optimization
Litigation, Settlements and Regulatory Compliance
Asset Impairments
Total included in SG&A
Divestiturelosses (gains), net
Total included in income from operations
After-tax items:
Other Tax Matter
Total after-tax
The Key Priorities and Other Significant Matters include the following types of activities:
Cash Charges
Consulting and Professional Fees
Other (1)
Non-Cash Charges (2)
ERP and System Modernization
Operational Optimization
Portfolio Optimization
Litigation, Settlements and Regulatory Compliance
(1) Includes other costs related to each priority (e.g., software maintenance fees, litigation, settlement and regulatory compliance charges, changes in contingent consideration and environmental provisions).
(2) Includes impairments, accelerated depreciation and/or amortization, gain/loss on disposal and changes in deferred consideration.
2023 10-K Annual Report
Stericycle, Inc. • 34
Table of Contents
PART II
ERP and System Modernization
For the years presented of the ERP and System Modernization, we have recognized the following, reported in Other Costs:
In millions
Year Ended December 31,
North America
Operating expenditures
Capital expenditures
Total North America
International
Operating expenditures
Capital expenditures
Total International
Total operating expenditures
Total capital expenditures
Total ERP and System Modernization
Upon the deployment of the ERP in our U.S. RWCS business in the third quarter of 2023, certain costs became incremental information technology ongoing costs for running the new system, including maintenance, licensing, and depreciation expenses. Our international ERP system modernization commenced in 2022, which includes enhancements and upgrades associated with European based RWCS and SID operations. We will continue to incur the current level of costs to maintain the legacy suite of applications also used by our European businesses during the system modernization.
Intangible Amortization
See table above of certain key priorities and other significant matters for intangible amortization expense from acquisitions for the years presented and how they are classified in the Consolidated Statements of (Loss) Income. The decrease in amortization expense is a result of divestitures and certain intangible assets that have reached the end of their useful lives.
For intangible amortization by segment see Part II, Item 8. Financial Statements and Supplementary Data; Note 17 – Segment Reporting in the Consolidated Financial Statements.
Operational Optimization
See table above of certain key priorities and other significant matters for operational optimization for the years presented and how they are classified in the Consolidated Statements of (Loss) Income .
In February 2024, the Company recognized approximately $6 million of Operational Optimization severance charges, primarily within our North America and International segments, related to workforce reduction. These measures are expected to provide annual savings of approximately $21 million to $24 million beginning in the first half of 2024. We have also reduced our overall workforce in our retained businesses through careful hiring and managing attrition which will provide annual savings of approximately $11 million to $13 million beginning in 2024.
In the fourth quarter of 2023, the Company recognized Operational Optimization charges of $4.1 million primarily related to severance associated with workforce reduction, split between North America and International segments, and closure of an International facility, which is expected to provide annual savings of approximately $8 million.
We will continue to evaluate our operating needs and prospectively adjust our work force to align with our needs. As we continue to consider each Operational Optimization activity, the amount, timing and recognition of charges will be affected by the occurrence of commitments and triggering events as defined under U.S. GAAP, among other factors. We may incur more charges and cash expenditures than estimated and may not realize the expected improvement or cost savings on its planned time frame or at all.
For additional information, see Part II, Item 8. Financial Statements and Supplementary Data; Note 4 — Restructuring, Divestitures, and Asset Impairments in the Consolidated Financial Statements.
2023 10-K Annual Report
Stericycle, Inc. • 35
Table of Contents
PART II
Portfolio Optimization
See table above of certain key priorities and other significant matters for portfolio optimization (including Divestiturelosses (gains), net) for the years presented, and how they are classified in the Consolidated Statements of (Loss) Income. Consulting and professional fees and acquisition related charges are reported in Other Costs, while the various Divestiturelosses (gains), net are included in the respective segment.
Acquisitions
As part of our portfolio optimization business priority, we regularly evaluate the competitive environment and consider opportunistic acquisitions that strengthen our core businesses. We believe acquisitions, when appropriately valued and constructively integrated, may be an efficient way to gain customers, scale treatment operations, and build customer density for transportation. We expect to focus on smaller accretive tuck-in acquisitions. Details of the acquisitions completed, can be found in Part II, Item 8. Financial Statements and Supplementary Data; Note 3 – Acquisitions in the Consolidated Financial Statements.
Divestitures
We evaluate our portfolio of services on an ongoing basis with a country-by-country and service line-by-service line approach to assess long-term potential and identify potential business candidates for divestiture. Divestitures resulting from this evaluation may cause us to record significant charges, including those related to goodwill, other intangible assets, long-lived assets, and cumulative translation adjustments.
For additional information regarding Divestiturelosses (gains), net , including significant impacts of foreign currency translation adjustments, net, see Part II, Item 8. Financial Statements and Supplementary Data ; Note 4 – Restructuring, Divestitures, and Asset Impairments in the Consolidated Financial Statements.
Litigation, Settlements and Regulatory Compliance
We operate in highly regulated industries and must address regulatory inquiries or respond to investigations from time to time. We have also been involved in a variety of civil litigation from time to time. Certain of these matters are detailed in Part II, Item 8. Financial Statements and Supplementary Data ; Note 19 – Legal Proceedings, in the Consolidated Financial Statements. Our financial results may also include considerations of non-recurring matters including settlements, environmental remediation, and legal related consulting and professional fees.
See table above of certain key priorities and other significant matters for litigation, settlements and regulatory compliance charges. Among other things, the table reflects consulting and professional fees (including FCPA monitoring fees which commenced in late 2022), contingent liability provisions and settlements, net of insurance recoveries, impacting our business for the years presented, primarily in Other Costs. For the year ended December 31, 2022, we accrued an additional $9.6 million for the FCPA Settlement, bringing the total cumulative charge to approximately $90 million. For the year ended December 31, 2022 we paid $81 million due to the DOJ, the SEC, and Brazil authorities in accordance with the FCPA Settlement. In the year ended December 31, 2023 the Company paid substantially all of the remaining settlement amounts due to the DOJ and Brazil authorities.
See Part II, Item 8. Financial Statements and Supplementary Data ; Note 19 – Legal Proceedings, in the Consolidated Financial Statements for additional details.
Asset Impairments
See table above of certain key priorities and other significant matters for asset impairments for the years presented and how they are classified in the Consolidated Statements of (Loss) Income. Impairment charges may be recognized in future periods to the extent changes in factors or circumstances occur, including deterioration in the macroeconomic environment or in the equity markets, including the market value of our common shares, deterioration in our performance or our future projections, or changes in our plans for one or more reporting units or specified long-lived assets, among other factors.
For additional information on asset impairments, see Part II, Item 8. Financial Statements and Supplementary Data ; Note 4 – Restructuring, Divestitures, and Asset Impairments and Note 7 – Goodwill and Other Intangible Assets in the Consolidated Financial Statements.
2023 10-K Annual Report
Stericycle, Inc. • 36
Table of Contents
PART II
Other Tax Matter
In 2023, we recognized a $2.0 million tax benefit associated with the conclusion of an examination of pre-acquisition tax years of an acquired business.
For further discussion, see Part II, Item 8. Financial Statements and Supplementary Data; Note 10 – Income Taxes in the Consolidated Financial Statements.
Results of Operations
Revenues (including Segment Revenues)
Year Ended December 31,
In millions
Components of Change (%) (1)
Change ($)
Change (%)
Organic Growth (2)
Divestitures
Foreign Exchange (3)
Revenue by Service
Regulated Waste and Compliance Services
Secure Information Destruction Services
Total Revenues
North America
Regulated Waste and Compliance Services
Secure Information Destruction Services
Total North America Segment
International
Regulated Waste and Compliance Services
Secure Information Destruction Services
Total International Segment
(1) Components of Change % in summation may not crossfoot to the total Change % due to rounding.
(2) Organic growth is change in Revenues which includes SOP pricing and volume and excludes the impact of divestitures and foreign exchange.
(3) The comparisons at constant currency rates (foreign exchange) reflect comparative local currency balances at prior period’s foreign exchange rates. We calculated these percentages by taking current period reported Revenues less the respective prior period reported Revenues, divided by the prior period reported Revenues, all at the respective prior period’s foreign exchange rates. This measure provides information on the change in Revenues assuming that foreign currency exchange rates have not changed between the prior and the current period. Management believes the use of this measure aids in the understanding of changes in Revenues without the impact of foreign currency.
Revenues for the year ended December 31, 2023, were $2.66 billion, a decrease of $45.4 million, or 1.7% compared to $2.70 billion in the prior year. The decrease was primarily due to impacts of divestitures of $101.6 million or 3.8%, which includes the divestiture of CRS in the fourth quarter of 2022 and International businesses in 2023, and unfavorable foreign exchange rates of $0.1 million. O rganic revenues increased $56.3 million, or 2.2%. RWCS organic revenues growth was mainly driven by our pricing actions, which include pricing in existing contracts, new customer pricing, surcharges and fees. SID organic revenues decreased primarily due to lower commodity indexed revenues, including lower recycling revenues and lower SID fuel and environmental surcharges.
North America revenues decreased $7.3 million, or 0.3%, for the year ended December 31, 2023, to $2.26 billion from $2.26 billion in the prior year. The decrease was primarily driven by the impact of the CRS divestiture of $55.4 million, or 2.4%, and unfavorable foreign exchange rates of $4.7 million, or 0.2%. Organic revenues increased $52.6 million, or 2.4%, primarily due to RWCS organic revenue increases which were mainly driven by our pricing actions, which include pricing in existing contracts, new customer pricing, surcharges and fees. SID organic revenues decreased due to lower recycling revenues and lower SID fuel and environmental surcharges.
International revenues decreased $38.1 million, or 8.6%, for the year ended December 31, 2023, to $403.5 million from $441.6 million in the prior year. The decrease was primarily due to the impact of divestitures of $46.2 million or 10.5%, and decreased organic SID revenues due to lower recycled paper rates and volume. These decreases were partially offset by higher organic RWCS revenues due to pricing levers, which include pricing in existing contracts, new customer pricing, surcharges and fees.
2023 10-K Annual Report
Stericycle, Inc. • 37
Table of Contents
PART II
Gross Profit
In millions
Year Ended December 31,
Change 2023 versus 2022
% of Revenues
% of Revenues
Gross profit
The decrease in gross profit for the year ended December 31, 2023, as compared to 2022, was primarily due to lower SID commodity indexed revenues and the corresponding margin flow through, the impacts of divestitures, and higher fleet costs, partially offset by margin flow-through, including cost savings from productivity initiatives.
In millions
Year Ended December 31,
Change 2023 versus 2022
% of Revenues
% of Revenues
For the year ended December 31, 2023, compared to the prior year, we incurred lower SG&A charges associated with certain key priorities and other significant matters discussed above. Additionally, the remaining change in SG&A was due to the impacts of divestitures and lower bad debt expense related to higher bad debt expense in 2022 as a result of continued elevated past-due SID accounts receivable balances in 2022, due to the timing of North America SID billing and collection efforts primarily related to the SID ERP deployment. These decreases were partially offset by increased annual incentive and stock based compensation expense.
DivestituresLosses (Gains), Net
In millions
Year Ended December 31,
Change 2023 versus 2022
% of Revenues
% of Revenues
Divestiturelosses (gains), net
nm - percentage change not meaningful
For additional information regarding Divestiturelosses (gains), net, including si gnificant impacts of foreign currency translation adjustments, see Part II, Item 8. Financial Statements and Supplementary Data ; Note 4 – RestructuringDivestitures, and Asset Impairments in the Consolidated Financial Statements.
2023 10-K Annual Report
Stericycle, Inc. • 38
Table of Contents
PART II
Segment Profitability
The Company uses Adjusted Income from Operations as its measure of segment profitability – see Part II, Item 8. Financial Statements and Supplementary Data; Note 17 – Segment Reporting in the Consolidated Financial Statements for an explanation of this measure. Segment profitability and a reconciliation of the total for segment profitability to income from operations was as follows:
In millions
Year Ended December 31,
Change 2023 versus 2022
% of Segment Revenues
% of Segment Revenues
Adjusted Income from Operations
North America
International
Other Costs
Total
Reconciliation to Income from operations:
Adjusted Income from Operations
Adjusting Items Total (1)
Income from Operations
nm - percentage change not meaningful
(1) See table above of certain key priorities and other significant matters and Part II, Item 8. Financial Statements and Supplementary Data; Note 17 – Segment Reporting in the Consolidated Financial Statements for more detail.
Adjusted Income from Operations for North America increased compared to the prior year primarily due to our pricing levers, lower bad debt expense and cost savings. These increases were partially offset by lower SID commodity indexed revenues and the corresponding margin flow-through impact, and higher fleet costs and the impact of the CRS divestiture.
Adjusted Income from Operations for International increased compared to the prior year primarily due to favorable RWCS pricing levers and foreign exchange rates, which were partially offset by lower SID revenues due to lower recycled paper rates and volume, and higher supply chain and other inflationary costs.
Adjusted Loss from Operations for Other Costs increased compared to the prior year primarily driven by higher incentive compensation and timing of stock-based compensation expense.
Interest Expense, Net
In millions
Year Ended December 31,
Change 2023 versus 2022
% of Revenues
% of Revenues
Interest expense, net
Interest expense, net decreased for the year ended December 31, 2023, as compared to the prior year. The decrease was primarily due to the decrease in net debt; partially offset by higher weighted-average interest rates on the variable portion of debt. The year ended December 31, 2022 also included $1.1 million in interest income associated with income tax refunds. For further information see Part II, Item 8. Financial Statements and Supplementary Data; Note 9 – Debt in the Consolidated Financial Statements.
Other (Expense) Income, Net
In millions
Year Ended December 31,
Change 2023 versus 2022
% of Revenues
% of Revenues
Other (expense) income, net
Other (expense) income, net is primarily comprised of foreign exchange (losses) gains.
2023 10-K Annual Report
Stericycle, Inc. • 39
Table of Contents
PART II
Income Tax Expense
In millions
Year Ended December 31,
Change 2023 versus 2022
Effective Rate
Effective Rate
Income tax expense
For further information, see Part II, Item 8. Financial Statements and Supplementary Data; Note 10 – Income Taxes in the Consolidated Financial Statements.
Liquidity and Capital Resources
The Company believes that it has sufficient liquidity to support its ongoing operations and to invest in future growth to create value for its shareholders. Operating cash flows and the Company’s $1.2 billion Credit Facility are the Company’s primary sources of liquidity and are expected to be used for, among other things, payment of interest and principal on the Company’s long-term debt obligations, and capital expenditures necessary to support growth and productivity improvements. As of December 31, 2023, we had approximately $1,110.0 million of available capacity in the $1.2 billion Credit Facility. The Company has the ability and intent to refinance the 2019 Senior Notes on a long-term basis through available capacity under its Revolving Credit Facility. Therefore, as of December 31, 2023, the 2019 Senior Notes remain classified as long-term debt in the Consolidated Financial Statements. On February 1, 2024, the Company issued a redemption notice to 2019 Senior Notes holders for redemption of all of the $600.0 million aggregate principal amount of the outstanding 2019 Senior Notes with a redemption date of March 14, 2024. The refinancing of the Senior Notes using the Revolving Credit Facility will convert the debt from fixed rate to variable rate. If the Company's 2019 Senior Notes were to remain outstanding 91 days (April 15, 2024) prior to their maturity date (the “Springing Maturity Date”), then the Credit Agreement maturity date will be the Springing Maturity Date. For the year ended December 31, 2022 , the Company paid $81.0 million due to the DOJ, the SEC, and Brazil authorities in accordance with the FCPA Settlement. As of December 31, 2023 the Company has paid substantially all of the remaining settlement amounts due to the DOJ and Brazil authorities. For further details concerning these matters, see Part II, Item 8. Financial Statements and Supplementary Data; Note 9 – Debt and Note 19 – Legal Proceedings, in the Consolidated Financial Statements.
Working Capital
At December 31, 2023, our working capital increased $16.7 million to a negative working capital of $46.5 million compared to a negative working capital of $63.2 million at December 31, 2022. This change is primarily driven by increased accounts receivable, net of higher deferred revenues, partially offset by lower cash and cash equivalents, and increased accrued liabilities, operating lease liabilities, and other current liabilities.
Current assets increased $112.8 million in 2023, to $671.5 million from $558.7 million in 2022, primarily driven by an increase in accounts receivable (excluding deferred revenues), partially offset by lower cash and cash equivalents.
Current liabilities increased $96.1 million in 2023, to $718.0 million from $621.9 million in 2022, primarily driven by higher deferred revenues, increased accrued liabilities, operating lease liabilities, and other current liabilities, partially offset by lower current portion of long-term debt and decreased accounts payable.
Cash Flow Summary:
The following table shows cash flow information for the Company by activity:
In millions
Year Ended December 31,
Net cash from operating activities
Net cash from investing activities
Net cash from financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
2023 10-K Annual Report
Stericycle, Inc. • 40
Table of Contents
PART II
Operating Cash Flows: Net cash provided from operating activities increased $43.1 million for the year ended December 31, 2023, to $243.3 million, compared to $200.2 million in 2022. The year-over-year increase of $43.1 million was primarily driven by lower FCPA settlement payments of $72.8 million and lower annual incentive compensation payments of $22.3 million, partially offset by increased accounts receivable, net of deferred revenues of $68.5 million.
DSO as reported for December 31, 2023 was 76 days or 66 days, net of deferred revenues. During the third quarter of 2023, Stericycle advanced billing for certain U.S. RWCS subscription services, which contributed to the higher as reported DSO for December 31, 2023. DSO as reported for December 31, 2022 was 56 days or 55 days, net of deferred revenues. The December 31, 2023 DSO, net of deferred revenues, was higher as compared to 2022, mainly driven by the timing of U.S. RWCS customer billing and subsequent collections associated with the ERP implementation. Stericycle continues to identify and enhance North America billing and collections processes certain of which are associated with the ERP implementation.
Investing Cash Flows: Net cash used from investing activities decreased $40.8 million for the year ended December 31, 2023, to net cash used of $43.8 million from $84.6 million in the prior year. This decrease was primarily driven by cash proceeds from divestitures of $84.6 million in 2023, compared to $46.7 million in 2022. Cash paid for capital expenditures decreased by $0.9 million to $131.3 million from $132.2 million for the year ended December 31, 2022 .
Financing Cash Flows: Net cash used from financing activities increased $109.4 million in the year ended December 31, 2023, to a use of funds of $220.4 million from $111.0 million in the prior year. Net repayments on our Credit Facility and Term Loan were $208.9 million in the year ended December 31, 2023, compared to $103.0 million in the prior year.
Contractual Obligations
The Company’s contractual obligations and cash commitments at December 31, 2023, consisted of long term debt, finance and operating lease liabilities, and estimated purchase obligations.
Long term debt: For details regarding long term obligations, see Part II, Item 8. Financial Statements and Supplementary Data; Note 9 – Debt in the Consolidated Financial Statements.
Lease liabilities: For details regarding short and long term finance and operating lease liabilities, see Part II, Item 8. Financial Statements and Supplementary Data; Note 6 – Leases in the Consolidated Financial Statements.
Estimated purchase obligations: The Company’s estimated purchase obligations consist of agreements to purchase goods and services that are entered into in the ordinary course of business. As of December 31, 2023, the Company's short and long term estimated purchase obligations were $63.7 million and $61.0 million, respectively.
The Company establishes asset retirement obligations for the present value of estimated future costs to retire long-lived assets at the termination or expiration of a lease. Most of these obligations are not expected to be paid until many years in the future and are expected to be funded from general company resources at the time of removal. For further details concerning asset retirement obligations, see Part II, Item 8. Financial Statements and Supplementary Data; Note 12 – Commitments and Contingencies in the Consolidated Financial Statements.
Based on the uncertain nature of our liability for unrecognized tax benefits, we are unable to make an estimate of the period of potential settlement, if any, with the applicable taxing authorities.
As of December 31, 2023, the Company had $59.0 million of stand-by letters of credit outstanding against our credit facility, $32.8 million of surety bonds and $16.5 million of bank guarantees. The bank guarantees are issued mostly by our international subsidiaries for various purposes, including leases, seller notes, contracts and permits. The surety bonds are used for performance guarantees. Neither the bank guarantees nor the surety bonds affect our ability to use our various lines of credit.
We anticipate that our operating cash flows, together with additional borrowings available under our Credit Facility, will be sufficient to meet our anticipated future operating expenses, key business priorities, other capital expenditures and debt service obligations as they become due during the next 12 months and the foreseeable future.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts
2023 10-K Annual Report
Stericycle, Inc. • 41
Table of Contents
PART II
of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities. Although management believes that its estimates and assumptions are reasonable, they are based upon information available when they are made and therefore, actual results may differ from these estimates under different assumptions or conditions. Our most critical accounting policies are those that may be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and those policies that have a material impact on the financial condition or operating performance of the Company. Part II, Item 8. Financial Statements and Supplementary Data ; Note 1 – Basis of Presentation and Summary of Significant Accounting Polices in the Consolidated Financial Statements provides a detailed description of all of our material accounting policies; however, we have identified the following as our most critical accounting policies and estimates.
Revenue Recognition
Revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these good or services. Revenue is recognized net of revenue-based taxes assessed by governmental authorities.
The Company provides RWCS, which provide collection and processing of regulated and specialized waste, including medical, pharmaceutical and hazardous waste, for disposal and compliance programs; and SID services, which provide for the collection of personal and confidential information for secure destruction and recycling of shredded paper. The associated activities for each of these are a series of distinct services that are substantially the same and have the same pattern of transfer over time; therefore, the respective services are treated as a single performance obligation.
We recognize revenue by applying the right to invoice practical expedient as our right to consideration corresponds directly to the value provided to the customer for performance to date. Revenues for our Regulated Waste and Secure Information Destruction Services are recognized upon waste collection. Our compliance services are recognized over the contractual service period.
The Company records estimated reserves for credits based on customer accommodations, changes in customer circumstances, credit conditions, and historical trends.
Allowance for Doubtful Accounts
The Company reports accounts receivable at their net realizable value, which is management’s best estimate of the cash that will ultimately be received. The Company maintains an allowance for doubtful accounts to reflect the expected uncollectability of accounts receivable based on past collection history and specific risks identified among uncollected accounts, as well as management’s expectation of future economic conditions. If current or expected future economic trends, events, or changes in circumstances indicate that specific receivable balances may be impaired, further consideration is given to the collectability of those balances and the allowance is adjusted accordingly. Past-due receivable balances are generally written off when the Company's collection efforts have been exhausted. The adequacy of allowances for uncollectible accounts is reviewed quarterly and adjusted as necessary based on such reviews. Management’s judgment is required to assess the collectability of an account, based on detailed analysis of the aging of the receivables, existing customer account set up and remediation efforts, the creditworthiness of the Company’s customers, historical collection trends, and current and future expected economic trends.
Allowance for doubtful accounts was $44.7 million and $53.3 million as of December 31, 2023, and 2022, respectively.
Impairment of Goodwill and Intangible Assets
Determining the extent of impairment, if any, typically requires various estimates and assumptions including using management's judgment, cash flows directly attributable to the asset, the useful life of the asset and residual value, if any. When necessary, the Company uses internal cash flow estimates, quoted market prices and appraisals as appropriate to determine fair value. Actual results could vary from these estimates. In addition, the remaining useful life of the impaired asset is revised, if necessary.
For additional information, see Part II, Item 8. Financial Statements and Supplementary Data; Note 7 – Goodwill and Other Intangible Assets in the Consolidated Financial Statements.
2023 10-K Annual Report
Stericycle, Inc. • 42
Table of Contents
PART II
Intangible Assets (indefinite-lived): Indefinite-lived intangibles consist primarily of permits and tradenames. Indefinite-lived intangibles are assessed for impairment annually, as of October 1, or more frequently if an event occurs or circumstances change and are not subject to amortization but are assessed for impairment in the same manner as goodwill. Indefinite lived intangibles may be assessed using either a qualitative or quantitative approach. The qualitative approach first determines if it is more likely than not that the fair value of the asset is less than the carrying value. If no such determination is made, then the impairment test is complete. If, however, it is determined that there is a likely impairment, a quantitative assessment is performed. In the fourth quarter of 2023, we performed our annual impairment test on indefinite-lived intangibles, other than goodwill, using the qualitative approach for certain assets and the quantitative approach for the remaining assets. The calculated fair value of our indefinite-lived intangibles is based upon, among other things, certain assumptions about expected future operating performance, internal and external processing costs and an appropriate discount rate determined by management.
Future changes in our assumptions or the interrelationship of the assumptions described above may negatively impact future valuations that would require non-cash charges and may have a material effect on our financial condition and operating results.
We have determined that certain of our operating permits and certain tradenames have indefinite lives due to our ability to renew them with minimal additional cost and therefore they are not amortized.
Goodwill: Goodwill is assessed for impairment annually as of October 1, of each year, or more frequently if an event occurs or circumstances change that could reduce the value of a reporting unit below its carrying value. We used a quantitative and qualitative approach to assess goodwill for impairment.
As of October 1, 2023, the Company performed a qualitative assessment of its RWCS U.S. reporting unit goodwill, assessing economic, industry and market considerations in addition to the reporting unit's overall financial performance. Key factors used in the qualitative assessment included: macroeconomic conditions, industry and market conditions, expense factors, overall financial performance of the reporting unit, and other relevant reporting unit-specific events. It was determined that the fair value of the RWCS U.S. reporting unit was, more likely than not, greater than the carrying value and a quantitative analysis was not necessary.
As of October 1, 2023 the Company performed a quantitative assessment of its Domestic SID and Europe reporting units. The Canadian reporting unit's accumulated goodwill impairment balances equals the goodwill gross balance, or net zero goodwill carrying value). Latin America and Asia Pacific were fully exited in April 2023 and June 2023, respectively, due to divestitures. The fair value of each reporting unit is calculated using the income approach (including DCF) and validated using a market approach with the involvement of a third-party valuation specialist. The income approach uses expected future cash flows of each reporting unit and discounts those cash flows to present value. Expected future cash flows are calculated using management assumptions of revenue growth rates, including long-term revenue growth rates, EBITDA margins, capital expenditures and cost efficiencies. Future acquisitions or divestitures are not included in the expected future cash flows. We use a discount rate based on a calculated weighted average cost of capital which is adjusted for each of our reporting units based on size, country and company specific risk premiums. The market approach compares the valuation multiples of similar companies to that of the associated reporting unit. In addition, we analyze differences between the sum of the fair value of the reporting units and our total market capitalization for reasonableness, taking into account certain factors including control premiums.
The fair value is then compared to its carrying value including goodwill. If the fair value is in excess of its carrying value, the related goodwill is not impaired. If the fair value is less than its carrying value, we recognize an impairment charge in the amount that the carrying value exceeds the fair value but not to exceed the carrying value of any goodwill.
We performed our annual goodwill assessment as of October 1, 2023. As a result of this assessment, no goodwill impairment charges were recognized in 2023.
A measure of sensitivity of the amount of goodwill impairment charges to key assumptions is the amount by which each reporting unit's fair value exceeds its respective carrying value. As of the October 1, 2023 assessment, the estimated fair value of each reporting unit exceeded its carrying value by at least 40%. We performed sensitivity analysis on our estimated fair values, noting that a 50 basis point increase in the discount rate or a 50 basis point reduction in the long-term growth rate would not result in impairments for any of our reporting units.
2023 10-K Annual Report
Stericycle, Inc. • 43
Table of Contents
PART II
Assets and Liabilities Held-for-Sale
We classify Long-lived assets or disposal groups as held-for-sale when management having the appropriate authority, generally our Board of Directors or certain of our executive officers, commits to a plan of sale, the disposal group is ready for immediate sale, an active program to locate a buyer has been initiated and the sale is probable and expected to be completed within one year. Once classified as held-for-sale disposal groups are valued at the lower of their carrying amount or fair value less estimated selling costs. Where the disposal group constitutes substantially all, generally more than 90% of the assets and liabilities of our operations in a foreign country, the balance in the cumulative currency translation adjustment associated with that country is included in the carrying value of the disposal group. If the carrying value, including any amount associated with the cumulative currency translation adjustment, exceeds the fair value less estimated selling costs, a held-for-sale impairment charge is recorded to reduce the carrying value.
The estimate for fair value is reviewed at the end of every reporting period that the disposal group is classified as held-for-sale and the carrying value is adjusted whenever the estimated fair value less costs to sell is less than the carrying value.
Contingencies and Litigation
We are subject to various legal proceedings, claims and regulatory matters, the outcomes of which are subject to significant uncertainty. We determine whether to disclose or accrue for loss contingencies based on an assessment of whether the risk of loss is remote, reasonably possible or probable, and whether it can be reasonably estimated. We analyze our litigation and regulatory matters based on available information to assess the potential liabilities. Management’s assessment is developed based on an analysis of possible outcomes under various strategies. We record and discloseloss contingencies pursuant to the applicable accounting guidance for such matters. For additional information, see Part II, Item 8. Financial Statements and Supplementary Data; Note 19 – Legal Proceedings in the Consolidated Financial Statements.
Income Taxes
We record a provision for income taxes for the anticipated tax consequences of our reported results of operations using the asset and liability method. Deferred income taxes are recognized by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis as well as net operating loss and tax credit carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits for which future realization is uncertain.
Although we believe our assumptions, judgments and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the resolution of any tax audits could significantly impact the amounts provided for income taxes in our Consolidated Financial Statements.
In evaluating our ability to recover our deferred tax assets, in full or in part, we consider all available positive and negative evidence, including our past operating results, and our forecast of future earnings, future taxable income and prudent and feasible tax planning strategies. The assumptions utilized in determining future taxable income require significant judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. Actual operating results in future years could differ from our current assumptions, judgments and estimates. However, we believe that it is more likely than not that most of the deferred tax assets recognized on our Consolidated Balance Sheets will ultimately be realized. We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized. At December 31, 2023, and 2022, our valuation allowances were $36.8 million and $67.2 million, respectively.
We did not recognize certain tax benefits from uncertain tax positions within the provision for income taxes. We may recognize a tax benefit only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. At December 31, 2023, our estimated gross unrecognized tax benefits were $5.6 million, of which $4.3 million, if recognized, would favorably impact our future earnings. Due to uncertainties in any tax audit outcome, our estimates of the ultimate settlement of our unrecognized tax positions may change and the actual tax benefits may differ significantly from the estimates.
2023 10-K Annual Report
Stericycle, Inc. • 44
Table of Contents
PART II
The Tax Act established GILTI provisions that impose a tax on foreign income in excess of a deemed return on intangible assets of foreign corporations. We recognize the taxes on GILTI as a period expense rather than recognizing deferred taxes for basis differences that are expected to affect the amount of GILTI inclusion upon reversal.
For further information see Part II, Item 8. Financial Statements and Supplementary Data; Note 10 – Income Taxes in the Consolidated Financial Statements.
Insured and Self-Insured Claims
The Company’s insurance for workers’ compensation, auto/fleet, general liability, property and employee-related health care benefits is obtained using high deductible insurance policies, if any, meaning that the Company has retained a significant portion of the risks related to the claims associated with these programs. The estimated exposure for unpaidclaims and associated expenses, including incurred but not reported losses, is based on a calculation performed by a third-party actuarial specialist. We use a third party to track and evaluate actual claims experience and supply the data used in the semi-annual actuarial valuation. The actuarial-determined liability is calculated using the Company’s historical claims experience. The accruals for these liabilities could be revised if future occurrences or loss developments significantly differ from the assumptions used. Estimated recoveries associated with insured claims are recognized as assets when the receipt of such amounts is probable. At December 31, 2023, and 2022, we accrued $80.2 million and $78.8 million, respectively, for self-insurance claims.
