Washington, D.C. 20549
________________________________________________________
FORM 10-Q
________________________________________________________
[Mark One]
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-37556
________________________________________________________
 | ||||||||||||||
| Delaware | 36-3640402 | ||||
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification Number) | ||||
2355 Waukegan Road
Bannockburn, Illinois 60015
(Address of principal executive offices, including zip code)
(847) 367-5910
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| Common Stock, par value $0.01 per share | SRCL | Nasdaq Global Select Market | ||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒
Smaller reporting company ☐
Accelerated filer ☐
Emerging growth company ☐
Non-accelerated filer ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
On April 22, 2024, there were 92,785,315 shares of the Registrant’s Common Stock outstanding.
Table of Contents
| Page No. | ||||||||
| 2024 Q1 10-Q Report | Stericycle, Inc. ● | 3 | ||||||
Glossary of Defined Terms
Unless the context requires otherwise, the “Company”, “Stericycle”, “we”, “us”, or “our” refers to Stericycle, Inc. on a consolidated basis. The Company also uses several other terms in this Quarterly Report on Form 10-Q, most of which are explained or defined below:
| Abbreviation | Description | ||||
| 2023 Form 10-K | Annual report on Form 10-K for the year ended December 31, 2023 | ||||
| Adjusted Income from Operations | Income from Operations adjusted for certain items discussed in Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | ||||
| AI | Artificial intelligence | ||||
| Credit Agreement | Credit Agreement dated September 30, 2021, First Amendment dated April 26, 2022, and Second Amendment dated June 15, 2023, among the Company and certain subsidiaries as borrowers. Bank of America, N.A., as administrative agent, swing line lender, a lender and a letter of credit issuer and the other lenders party thereto, as amended | ||||
| Credit Agreement Defined Debt Leverage Ratio | As of any date of determination, the ratio of (a) (i) Consolidated Funded Indebtedness as of such date minus (ii) Unrestricted Cash as of such date to (b) Consolidated EBITDA (each as defined in the Credit Agreement) for the period of four fiscal quarters most recently ended on or prior to such date | ||||
| Credit Facility | The Company's $1.2 billion credit facility due in September of 2026 granted under the terms of the Credit Agreement | ||||
| DEA | U.S. Drug Enforcement Administration. The DEA is a division of the DOJ. It is the federal agency which regulates the manufacture, dispensing, storage, and shipment of controlled substances including medications with human abuse potential | ||||
| DOJ | U.S. Department of Justice | ||||
| Domestic Environmental Solutions | Hazardous Waste Solutions and Manufacturing and Industrial Services (Divested April 2020) | ||||
| DSO | Days Sales Outstanding as reported, defined as the average number of days that it takes a company to collect payment after revenue has been recorded, computed as the trailing twelve months of Revenues for the period ended, divided by the Accounts Receivable balance at the end of the period. Days Sales Outstanding, net of Deferred Revenues is similarly computed except Accounts Receivable balance is netted with Deferred Revenues. | ||||
| DTSC | U.S. Department of Toxic Substances Control | ||||
| EBITDA | Earnings Before Interest, Taxes, Depreciation & Amortization. Another common financial term utilized by Stericycle to analyze the core profitability of the business before interest, tax, depreciation and amortization | ||||
| Enviri | Enviri Corporation, a Delaware Corporation, formerly known as Harsco Corporation | ||||
| ERP | Enterprise Resource Planning | ||||
| Exchange Act | U.S. Securities Exchange Act of 1934 | ||||
| FASB | Financial Accounting Standards Board | ||||
| FCPA | U.S. Foreign Corrupt Practices Act | ||||
| FCPA Settlement | FCPA settlement with the SEC, the DOJ and Brazil authorities of approximately $90 million and engagement of an independent compliance monitor for 2 years and self-reporting for additional year | ||||
| International | Operating segment including Belgium, France, Germany, Ireland, Luxembourg, Portugal, Spain, and U.K. The following countries were divested in 2023: Australia, Brazil, Republic of Korea, Romania, Singapore, and United Arab Emirates | ||||
| IRS | U.S. Internal Revenue Service | ||||
| LIBOR | London Interbank Offered Rate - benchmark interest rate that was replaced by SOFR | ||||
| Net Debt | As defined in the Credit Agreement, adding back unamortized debt issuance costs, less cash and cash equivalents | ||||
| North America | Operating segment including U.S., Canada and Puerto Rico | ||||
| NOV | Notice of Violation | ||||
| Other Costs | Represents corporate enabling and shared services costs, annual incentive and stock-based compensation | ||||
| Purchase Agreement | Stock Purchase Agreement, dated as of February 6, 2020, by and between Stericycle, Inc., and the Harsco Corporation (now known as Enviri) and CEI Holding LLC, a Delaware limited liability company and subsidiary of Harsco Corporation (now known as Enviri) | ||||
| PSU | Performance-based Restricted Stock Unit | ||||
| RSU | Restricted Stock Unit | ||||
| RWCS | Regulated Waste and Compliance Services, a business unit that provides regulated medical waste services | ||||
| SEC | U.S. Securities and Exchange Commission | ||||
| Senior Notes | 5.375% ($600.0 million) Senior Notes due July 2024 and 3.875% ($500.0 million) Senior Notes due January 2029. July 2024 Senior Notes were redeemed in March 2024. | ||||
| SG&A | Selling, general and administrative expenses | ||||
| SID | Secure Information Destruction Services, a business unit that provides confidential customer material shredding services and recycling of shredded paper | ||||
| SOFR | Secured Overnight Financing Rate - benchmark interest rate that replaced LIBOR | ||||
| SOP | Sorted Office Paper | ||||
| Term Facility | Aggregate amount of commitments made by any lender under the terms of the Credit Agreement | ||||
| Term Loans | Advances made by any lender under the Term Facility | ||||
| U.S. | United States of America | ||||
| U.S. GAAP | U.S. Generally Accepted Accounting Principles | ||||
| 2024 Q1 10-Q Report | Stericycle, Inc. ● | 4 | ||||||
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
STERICYCLE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| In millions, except per share data | |||||||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Revenues | $ | 664.9 | $ | 684.3 | |||||||||||||||||||
| Cost of revenues | 410.0 | 423.3 | |||||||||||||||||||||
| Gross profit | 254.9 | 261.0 | |||||||||||||||||||||
| Selling, general and administrative expenses | 216.0 | 216.0 | |||||||||||||||||||||
| Divestiture losses, net (Note 4) | — | 5.0 | |||||||||||||||||||||
| Income from operations | 38.9 | 40.0 | |||||||||||||||||||||
| Interest expense, net | (18.4) | (20.4) | |||||||||||||||||||||
| Other income, net | — | 0.2 | |||||||||||||||||||||
| Income before income taxes | 20.5 | 19.8 | |||||||||||||||||||||
| Income tax expense | (7.4) | (8.5) | |||||||||||||||||||||
| Net income | 13.1 | 11.3 | |||||||||||||||||||||
| Net income attributable to noncontrolling interests | — | (0.1) | |||||||||||||||||||||
| Net income attributable to Stericycle, Inc. common shareholders | $ | 13.1 | $ | 11.2 | |||||||||||||||||||
| Income per common share attributable to Stericycle, Inc. common shareholders: | |||||||||||||||||||||||
| Basic | $ | 0.14 | $ | 0.12 | |||||||||||||||||||
| Diluted | $ | 0.14 | $ | 0.12 | |||||||||||||||||||
| Weighted average number of common shares outstanding: | |||||||||||||||||||||||
| Basic | 92.6 | 92.3 | |||||||||||||||||||||
| Diluted | 93.0 | 92.7 | |||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
| 2024 Q1 10-Q Report | Stericycle, Inc. ● | 5 | ||||||
STERICYCLE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| In millions | |||||||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Net income | $ | 13.1 | $ | 11.3 | |||||||||||||||||||
| Other comprehensive (loss) income: | |||||||||||||||||||||||
| Currency translation adjustments | (11.5) | 7.9 | |||||||||||||||||||||
| Total other comprehensive (loss) income | (11.5) | 7.9 | |||||||||||||||||||||
| Comprehensive income | 1.6 | 19.2 | |||||||||||||||||||||
| Less: comprehensive income (loss) attributable to noncontrolling interests | — | (2.2) | |||||||||||||||||||||
| Comprehensive income attributable to Stericycle, Inc. common shareholders | $ | 1.6 | $ | 21.4 | |||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
| 2024 Q1 10-Q Report | Stericycle, Inc. ● | 6 | ||||||
STERICYCLE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| In millions, except per share data | |||||||||||
| March 31, 2024 | December 31, 2023 | ||||||||||
| ASSETS | |||||||||||
| Current Assets: | |||||||||||
| Cash and cash equivalents | $ | 31.0 | $ | 35.3 | |||||||
| Accounts receivable, less allowance for doubtful accounts of $47.2 in 2024 and $44.7 in 2023 | 616.4 | 553.9 | |||||||||
| Prepaid expenses | 33.6 | 31.6 | |||||||||
| Other current assets | 47.8 | 50.7 | |||||||||
| Total Current Assets | 728.8 | 671.5 | |||||||||
| Property, plant and equipment, less accumulated depreciation of $680.2 in 2024 and $675.4 in 2023 | 722.6 | 708.3 | |||||||||
| Operating lease right-of-use assets | 497.2 | 464.3 | |||||||||
| Goodwill | 2,758.0 | 2,755.6 | |||||||||
| Intangible assets, less accumulated amortization of $948.8 in 2024 and $925.8 in 2023 | 661.3 | 686.5 | |||||||||
| Other assets | 67.8 | 66.4 | |||||||||
| Total Assets | $ | 5,435.7 | $ | 5,352.6 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current Liabilities: | |||||||||||
| Current portion of long-term debt | $ | 17.3 | $ | 19.6 | |||||||
| Bank overdrafts | — | 1.0 | |||||||||
| Accounts payable | 198.3 | 212.1 | |||||||||
| Accrued liabilities | 210.9 | 259.5 | |||||||||
| Operating lease liabilities | 109.1 | 105.4 | |||||||||
| Deferred revenues | 70.1 | 72.6 | |||||||||
| Other current liabilities | 49.2 | 47.8 | |||||||||
| Total Current Liabilities | 654.9 | 718.0 | |||||||||
| Long-term debt, net | 1,398.6 | 1,277.8 | |||||||||
| Long-term operating lease liabilities | 407.8 | 378.9 | |||||||||
| Deferred income taxes | 417.0 | 420.5 | |||||||||
| Other liabilities | 34.3 | 34.5 | |||||||||
| Total Liabilities | 2,912.6 | 2,829.7 | |||||||||
| Commitments and contingencies (Note 9 - Commitments and Contingencies) | |||||||||||
| EQUITY | |||||||||||
| Common stock (par value $0.01 per share, 120.0 shares authorized, 92.8 and 92.6 issued and outstanding in 2024 and 2023, respectively) | 0.9 | 0.9 | |||||||||
| Additional paid-in capital | 1,315.3 | 1,316.7 | |||||||||
| Retained earnings | 1,402.5 | 1,389.4 | |||||||||
| Accumulated other comprehensive loss | (196.0) | (184.5) | |||||||||
| Total Stericycle, Inc.’s Equity | 2,522.7 | 2,522.5 | |||||||||
| Noncontrolling interests | 0.4 | 0.4 | |||||||||
| Total Equity | 2,523.1 | 2,522.9 | |||||||||
| Total Liabilities and Equity | $ | 5,435.7 | $ | 5,352.6 | |||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
| 2024 Q1 10-Q Report | Stericycle, Inc. ● | 7 | ||||||
STERICYCLE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| In millions | |||||||||||
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| OPERATING ACTIVITIES: | |||||||||||
| Net income | $ | 13.1 | $ | 11.3 | |||||||
| Adjustments to reconcile net income to net cash from operating activities: | |||||||||||
| Depreciation | 25.7 | 26.6 | |||||||||
| Intangible amortization | 27.8 | 28.2 | |||||||||
| Stock-based compensation expense | 2.7 | 6.9 | |||||||||
| Deferred income taxes | (2.7) | 4.7 | |||||||||
| Divestiture losses, net | — | 5.0 | |||||||||
| Asset impairments, loss (gain) on disposal of property plant and equipment and other charges | 1.0 | (0.4) | |||||||||
| Other, net | 1.3 | 0.5 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | (64.4) | (4.4) | |||||||||
| Prepaid expenses | (2.1) | (1.4) | |||||||||
| Accounts payable | (12.5) | (6.3) | |||||||||
| Accrued liabilities | (41.1) | (17.4) | |||||||||
| Deferred revenues | (2.4) | 0.7 | |||||||||
| Other assets and liabilities | (0.9) | (4.5) | |||||||||
| Net cash from operating activities | (54.5) | 49.5 | |||||||||
| INVESTING ACTIVITIES: | |||||||||||
| Capital expenditures | (43.1) | (36.4) | |||||||||
| (Payments) proceeds from (acquisition) divestiture of businesses, net | (14.0) | 0.9 | |||||||||
| Other, net | 0.3 | 1.0 | |||||||||
| Net cash from investing activities | (56.8) | (34.5) | |||||||||
| FINANCING ACTIVITIES: | |||||||||||
| Repayments of long-term debt and other obligations | (5.7) | (7.8) | |||||||||
| Repayments of foreign bank debt | — | (0.1) | |||||||||
| Repayments of senior notes | (600.0) | — | |||||||||
| Proceeds from credit facility | 951.0 | 286.9 | |||||||||
| Repayments of credit facility | (228.1) | (283.0) | |||||||||
| Repayments of bank overdrafts, net | (0.9) | (0.5) | |||||||||
| Payments of finance lease obligations | (0.6) | (0.7) | |||||||||
| Proceeds from issuance of common stock, net of (payments of) taxes from withheld shares | (6.4) | (4.9) | |||||||||
| Payments to noncontrolling interest | — | (1.5) | |||||||||
| Net cash from financing activities | 109.3 | (11.6) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (2.3) | 0.6 | |||||||||
| Net change in cash and cash equivalents | (4.3) | 4.0 | |||||||||
| Cash and cash equivalents at beginning of period | 35.3 | 56.0 | |||||||||
| Cash and cash equivalents at end of period | $ | 31.0 | $ | 60.0 | |||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | |||||||||||
| Interest paid, net of capitalized interest | $ | 35.1 | $ | 32.8 | |||||||
| Income taxes paid, net | $ | 4.9 | $ | 0.4 | |||||||
| Capital expenditures in Accounts payable | $ | 22.7 | $ | 18.8 | |||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
| 2024 Q1 10-Q Report | Stericycle, Inc. ● | 8 | ||||||
STERICYCLE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
| In millions | |||||||||||||||||||||||||||||||||||||||||
| Stericycle, Inc. Equity | |||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2023 | 92.6 | $ | 0.9 | $ | 1,316.7 | $ | 1,389.4 | $ | (184.5) | $ | 0.4 | $ | 2,522.9 | ||||||||||||||||||||||||||||
| Net income | — | — | — | 13.1 | — | — | 13.1 | ||||||||||||||||||||||||||||||||||
| Currency translation adjustment | — | — | — | — | (11.5) | — | (11.5) | ||||||||||||||||||||||||||||||||||
| Issuance of common stock for incentive stock programs, net of (payments of) taxes from withheld shares | 0.2 | — | (4.1) | — | — | — | (4.1) | ||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 2.7 | — | — | — | 2.7 | ||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2024 | 92.8 | $ | 0.9 | $ | 1,315.3 | $ | 1,402.5 | $ | (196.0) | $ | 0.4 | $ | 2,523.1 | ||||||||||||||||||||||||||||
| In millions | |||||||||||||||||||||||||||||||||||||||||
| Stericycle, Inc. Equity | |||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2022 | 92.2 | $ | 0.9 | $ | 1,285.4 | $ | 1,410.8 | $ | (276.9) | $ | 4.3 | $ | 2,424.5 | ||||||||||||||||||||||||||||
| Net income | — | — | — | 11.2 | — | 0.1 | 11.3 | ||||||||||||||||||||||||||||||||||
| Currency translation adjustment | — | — | — | — | 10.2 | (2.3) | 7.9 | ||||||||||||||||||||||||||||||||||
| Issuance of common stock for incentive stock programs, net of (payments of) taxes from withheld shares | 0.2 | — | (3.1) | — | — | — | (3.1) | ||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 6.9 | — | — | — | 6.9 | ||||||||||||||||||||||||||||||||||
| Changes in noncontrolling interest | — | — | — | — | — | (1.5) | (1.5) | ||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2023 | 92.4 | $ | 0.9 | $ | 1,289.2 | $ | 1,422.0 | $ | (266.7) | $ | 0.6 | $ | 2,446.0 | ||||||||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
| 2024 Q1 10-Q Report | Stericycle, Inc. ● | 9 | ||||||
STERICYCLE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 — BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Summary of Significant Accounting Policies
Basis of Presentation: The accompanying unaudited condensed consolidated financial statements include the accounts of Stericycle, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company's condensed consolidated financial statements were prepared in accordance with U.S. GAAP and include the assets, liabilities, revenues, and expenses of all wholly-owned subsidiaries and majority-owned subsidiaries over which the Company exercises control. Outside stockholders' interests in subsidiaries are shown on the condensed consolidated financial statements as “Noncontrolling interests”.
The accompanying unaudited condensed consolidated financial statements as of March 31, 2024 and for the three months ended March 31, 2024 and 2023, have been prepared pursuant to the rules and regulations of the SEC for interim reporting and, therefore, do not include all information and footnote disclosures normally included in audited financial statements prepared in conformity with U.S. GAAP. In the opinion of management, however, all adjustments, consisting of normal recurring adjustments necessary to present fairly the results of operations, financial position and cash flows have been made. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the 2023 Form 10-K. The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for the full year or any other period.
Use of Estimates: The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Some areas where the Company makes estimates include allowance for doubtful accounts, credit memo reserves, contingent liabilities, asset retirement obligations, stock compensation expense, income tax assets and liabilities, accrued employee health and welfare benefits, accrued auto and workers’ compensation self-insured claims, leases, acquisition related long-lived assets, goodwill and held for sale impairment valuations. Such estimates are based on historical trends and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates.
Accounting Standards Issued But Not Yet Adopted
Improvements to Reportable Segment Disclosures
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”). ASU 2023-07 requires disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more decision-useful financial analyses. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact on disclosures in our Notes to Condensed Consolidated Financial Statements.
Improvements to Income Tax Disclosures
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”). ASU 2023-09 requires greater disaggregation of information in the rate reconciliation and the disclosure of income taxes paid by jurisdiction. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact on disclosures in our Notes to Condensed Consolidated Financial Statements.
NOTE 2 — REVENUES FROM CONTRACTS WITH CUSTOMERS
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.
| 2024 Q1 10-Q Report | Stericycle, Inc. ● | 10 | ||||||
The Company’s customers typically enter into a contract for the provision of services on a regular and scheduled basis, e.g., weekly, monthly or on an as needed basis over the contract term, e.g., one-time service. Under the contract terms, the Company receives fees based on a monthly, quarterly or annual rate and/or fees based on contractual rates depending upon measures including the volume, weight, and type of waste.
Amounts are invoiced based on the terms of the underlying contract either on a regular basis, e.g., monthly or quarterly, or as services are performed and are generally due within a short period of time after invoicing based upon normal terms and conditions for our business type and the geography of the services performed.
Disaggregation of Revenue
The following table presents revenues disaggregated by service and reportable segments:
| In millions | |||||||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Revenue by Service | |||||||||||||||||||||||
| Regulated Waste and Compliance Services | $ | 447.8 | $ | 451.3 | |||||||||||||||||||
| Secure Information Destruction Services | 217.1 | 233.0 | |||||||||||||||||||||
| Total Revenues | $ | 664.9 | $ | 684.3 | |||||||||||||||||||
| North America | |||||||||||||||||||||||
| Regulated Waste and Compliance Services | $ | 376.5 | $ | 368.7 | |||||||||||||||||||
| Secure Information Destruction Services | 192.7 | 204.7 | |||||||||||||||||||||
| Total North America Segment | $ | 569.2 | $ | 573.4 | |||||||||||||||||||
| International | |||||||||||||||||||||||
| Regulated Waste and Compliance Services | $ | 71.3 | $ | 82.6 | |||||||||||||||||||
| Secure Information Destruction Services | 24.4 | 28.3 | |||||||||||||||||||||
| Total International Segment | $ | 95.7 | $ | 110.9 | |||||||||||||||||||
Deferred Revenues
Deferred revenues are recognized when cash payments are received or when the Company bills for services in advance of performance. Deferred revenues as of March 31, 2024 and December 31, 2023, were $70.1 million and $72.6 million, respectively. Beginning in the third quarter of 2023, the Company advanced billings for certain Regulated Waste and Compliance services. Deferred revenues are classified within current liabilities since the revenues are earned within 12 months and there are no significant financing components.
Contract Acquisition Costs
The Company’s incremental direct costs of obtaining a contract, which consist primarily of sales incentives, are deferred and amortized to SG&A over a weighted average estimated period of benefit of 6.5 years. During the three months ended March 31, 2024 and 2023, the Company amortized $4.4 million and $4.0 million, respectively, of deferred sales incentives to SG&A.
Total contract acquisition costs, net of accumulated amortization, were classified as follows:
| In millions | |||||||||||
| March 31, 2024 | December 31, 2023 | ||||||||||
| Other current assets | $ | 16.4 | $ | 16.1 | |||||||
| Other assets | 46.9 | 46.1 | |||||||||
| Total contract acquisition costs | $ | 63.3 | $ | 62.2 | |||||||
Allowance for Doubtful Accounts
The Company estimates its allowance for doubtful accounts based on past collection history and specific risks identified among uncollected amounts, 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 written off when the Company’s collection efforts have been exhausted.
| 2024 Q1 10-Q Report | Stericycle, Inc. ● | 11 | ||||||
The changes in allowance for doubtful accounts were reported as follows:
| In millions | |||||||||||
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Beginning Balance | $ | 44.7 | $ | 53.3 | |||||||
| Bad debt expense, net of recoveries | 5.9 | 2.2 | |||||||||
| Write-offs | (3.9) | (5.8) | |||||||||
Other changes (1) | 0.5 | 0.5 | |||||||||
| Ending Balance | $ | 47.2 | $ | 50.2 | |||||||
(1)Amounts consist primarily of foreign currency translation adjustments.
NOTE 3 — ACQUISITION
The Company acquired a southeastern U.S. regulated waste business on January 31, 2024, which is considered to be complementary to existing operations and aligns with the Company’s strategic capital allocation strategy. There were no acquisitions in 2023.
The results of operations of this acquired business has been included in the Condensed Consolidated Statements of Income from the date of the acquisition. Pro forma results of operations for this acquisition are not presented because the pro forma effects were not material to the Company’s consolidated results.
The following table summarizes the acquisition date fair value of consideration transferred for the acquisition completed during the three months ended March 31:
| In millions | |||||
| 2024 | |||||
| Cash | $ | 14.0 | |||
| Promissory Notes | 1.8 | ||||
| Total purchase price | $ | 15.8 | |||
The total purchase consideration has been preliminarily allocated to the assets and liabilities acquired based upon their estimated fair values as of the acquisition date, with the excess of the purchase price over the net assets acquired recorded as goodwill based on the strategic benefits to be achieved and is deductible for tax purposes. We are in the process of valuing all of the assets acquired in the acquisition and until we have completed our valuation process, there may be adjustments to our estimates of fair value and resulting preliminary purchase price allocations, specifically those related to intangibles.
The following table summarizes the preliminary purchase price allocation for the acquisition completed during the three months ended March 31:
| In millions | |||||
| 2024 | |||||
| Fixed assets | $ | 1.2 | |||
| Intangibles (Customer Lists) | 6.1 | ||||
| Goodwill | 8.2 | ||||
| Other assets and liabilities, net | 0.3 | ||||
| Total purchase price | $ | 15.8 | |||
The customer lists intangible has an estimated useful life of 15 years.
NOTE 4 — RESTRUCTURING AND DIVESTITURES
Restructuring – Operational Optimization:
In February 2024, the Company recognized Operational Optimization severance charges of approximately $5.6 million related to a workforce reduction, within our North America and International segments.
Divestiture
On January 19, 2023, the Company exited its International container manufacturing operations, for cash proceeds of approximately $2.2 million. The transaction resulted in a first quarter of 2023 divestiture pre-tax loss of $5.0 million.
| 2024 Q1 10-Q Report | Stericycle, Inc. ● | 12 | ||||||
NOTE 5 — DEBT
The Company’s long-term debt consisted of the following:
| In millions | |||||||||||
| March 31, 2024 | December 31, 2023 | ||||||||||
| $1.2 billion Credit Facility, due in 2026 | $ | 753.6 | $ | 31.0 | |||||||
| $125 million Term Loan, due in 2026 | 125.0 | 125.0 | |||||||||
| $600 million Senior Notes, due in 2024 (redeemed in March 2024) | — | 600.0 | |||||||||
| $500 million Senior Notes, due in 2029 | 500.0 | 500.0 | |||||||||
| Promissory notes and deferred consideration weighted average maturity of 2.5 years at 2024 and 2.6 years at 2023 | 29.0 | 32.9 | |||||||||
| Obligations under finance leases | 14.8 | 16.3 | |||||||||
| Total debt | 1,422.4 | 1,305.2 | |||||||||
| Less: current portion of total debt | 17.3 | 19.6 | |||||||||
| Less: unamortized debt issuance costs | 6.5 | 7.8 | |||||||||
| Long-term portion of total debt | $ | 1,398.6 | $ | 1,277.8 | |||||||
The estimated fair value of our debt approximated $1.4 billion and $1.3 billion as of March 31, 2024 and December 31, 2023, respectively. These fair value amounts were estimated using an income approach by applying market interest rates for comparable instruments and developed based on inputs classified as Level 2 in accordance with the fair value measurements accounting guidance.
The weighted average interest rates on long-term debt, excluding finance leases, were as follows:
| Three Months Ended March 31, 2024 | Year Ended December 31, 2023 | ||||||||||
| $1.2 billion Credit Facility, due in 2026 (variable rate) | 6.93 | % | 6.85 | % | |||||||
| $125 million Term Loan, due in 2026 (variable rate) | 6.63 | % | 6.66 | % | |||||||
| $600 million Senior Notes, due in 2024 (fixed rate) (redeemed in March 2024) | 5.38 | % | 5.38 | % | |||||||
| $500 million Senior Notes, due in 2029 (fixed rate) | 3.88 | % | 3.88 | % | |||||||
| Promissory notes and deferred consideration (fixed rate) | 3.43 | % | 3.54 | % | |||||||
The Credit Agreement contains, among other covenants, a financial covenant requiring maintenance of a maximum Credit Agreement Defined Debt Leverage Ratio of 4.00 to 1.00 which includes, among other provisions, $50.0 million of cash add-backs to EBITDA with respect to any four fiscal quarter period ending on or before December 31, 2023. As of March 31, 2024, the Company was in compliance with its financial covenants. The Credit Agreement Defined Debt Leverage Ratio was 3.51 to 1.00, which was below the allowed maximum ratio of 4.00 to 1.00 as set forth in the amended Credit Agreement. Expiration of the $50.0 million of such cash add-backs to EBITDA contributed approximately 30 points of increase to the Credit Agreement Defined Debt Leverage ratio as of March 31, 2024 compared to December 31, 2023.
On February 1, 2024, the Company issued a redemption notice to 2019 Senior Notes holders for redemption of all of the $600 million aggregate principal amount of the outstanding 2019 Senior Notes, and on March 14, 2024 completed the redemption with borrowings from the Revolving Credit facility. The refinancing of the 2019 Senior Notes using the Revolving Credit Facility converted the long-term debt from fixed rate to variable rate as of the redemption date.
On June 15, 2023, we entered into a Second Amendment to the Credit Agreement. Among other provisions, the Second Amendment modifies the pricing reference from the Eurocurrency Rate Loans (LIBOR) to Term SOFR Loans as defined in the Credit Agreement and allows for higher capital leases capped at $200 million in the aggregate.
Amounts committed to outstanding letters of credit and the unused portion of the Company's Senior Credit Facility were as follows:
| In millions | |||||||||||
| March 31, 2024 | December 31, 2023 | ||||||||||
| Outstanding letters of credit under Credit Facility | $ | 55.2 | $ | 59.0 | |||||||
| Unused portion of the Credit Facility | 391.2 | 1,110.0 | |||||||||
| 2024 Q1 10-Q Report | Stericycle, Inc. ● | 13 | ||||||
NOTE 6 — INCOME TAXES
The Company reported income tax expense of $7.4 million and $8.5 million for the three months ended March 31, 2024 and 2023, respectively. The effective tax rates for the three months ended March 31, 2024 and 2023 were 36.1% and 42.9%, respectively. The effective tax rate for the three months ended March 31, 2024 reflects equity-based compensation awards expiring without a tax benefit. The effective tax rate for the three months ended March 31, 2023 reflects (i) equity-based compensation awards expiring without a tax benefit and (ii) losses in jurisdictions that are not eligible for tax benefits on account of valuation allowances.
NOTE 7 — EARNINGS PER COMMON SHARE
Basic earnings per share is computed by dividing Net income by the number of weighted average common shares outstanding during the reporting period. Diluted earnings per share is calculated to give effect to all potentially dilutive common shares that were outstanding during the reporting period, only in the periods in which such effect is dilutive.
The following table shows the effect of stock-based awards on the weighted average number of shares outstanding used in calculating diluted earnings per share:
| In millions of shares | |||||||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Weighted average common shares outstanding - basic | 92.6 | 92.3 | |||||||||||||||||||||
| Incremental shares outstanding related to stock-based awards | 0.4 | 0.4 | |||||||||||||||||||||
| Weighted average common shares outstanding - diluted | 93.0 | 92.7 | |||||||||||||||||||||
Anti-dilutive stock-based awards excluded from the computation of diluted earnings per share using the treasury stock method include the following:
| In thousands of shares | |||||||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Option awards | 477 | 815 | |||||||||||||||||||||
| RSU awards | 102 | 1 | |||||||||||||||||||||
PSUs are offered to key employees and are subject to achievement of specified performance conditions. Contingently issuable shares are excluded from the computation of diluted earnings per share based on current period results. The shares would not be issuable if the end of the quarter were the end of the contingency period. If such goals are not met, no compensation expense is recognized, and any previously recognized compensation expense is reversed.
NOTE 8 — SEGMENT REPORTING
The Company evaluates, oversees, and manages the financial performance of two operating and reportable segments – North America and International.
The following tables show financial information for the Company's reportable segments (see Note 2 – Revenues from Contracts with Customers for segment revenues):
| In millions | |||||||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Adjusted Income from Operations | |||||||||||||||||||||||
| North America | $ | 149.1 | $ | 160.3 | |||||||||||||||||||
| International | 12.4 | 10.3 | |||||||||||||||||||||
| Other Costs | (71.0) | (85.9) | |||||||||||||||||||||
| Total Adjusted Income from Operations | $ | 90.5 | $ | 84.7 | |||||||||||||||||||
| 2024 Q1 10-Q Report | Stericycle, Inc. ● | 14 | ||||||
The following table reconciles the Company's primary measure of segment profitability, Adjusted Income from Operations, to Income from operations:
| In millions | |||||||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Total Reportable Segment Adjusted Income from Operations | $ | 90.5 | $ | 84.7 | |||||||||||||||||||
| Adjusting Items: | |||||||||||||||||||||||
| ERP and System Modernization | (4.4) | (2.7) | |||||||||||||||||||||
| Intangible Amortization | (27.8) | (28.2) | |||||||||||||||||||||
| Operational Optimization | (5.6) | — | |||||||||||||||||||||
| Portfolio Optimization | (1.6) | (5.6) | |||||||||||||||||||||
| Litigation, Settlements and Regulatory Compliance | (12.2) | (8.2) | |||||||||||||||||||||
| Income from operations | $ | 38.9 | $ | 40.0 | |||||||||||||||||||
The Company is currently evaluating the impact of ASU 2023-07 on disclosures to our Condensed Consolidated Financial Statements, which is not expected to be material. See Note 1 – Basis of Presentation and Summary of Significant Accounting Policies for further information.
NOTE 9 — COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company operates in highly regulated industries and responds to regulatory inquiries or investigations from time to time that may be initiated for a variety of reasons. At any given time, the Company has matters at various stages of resolution with the applicable government authorities. The Company is also routinely involved in actual or threatened legal actions, including those involving alleged personal injuries and commercial, employment, environmental, tax, and other issues. The outcomes of these matters are not within the Company’s complete control and may not be known for prolonged periods of time. In some actions, claimants seek damages, as well as other relief, including injunctive relief, that could require significant expenditures or result in lost revenue.
In accordance with applicable accounting standards, the Company establishes an accrued liability for loss contingencies related to legal and regulatory matters when the loss is both probable and reasonably estimable. If the reasonable estimate of a probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a loss is not probable or a probable loss is not reasonably estimable, no liability is recorded. When determining the estimated loss or range of loss, significant judgment is required to estimate the amount and timing of a loss to be recorded. These accruals represent management’s best estimate of probable losses and, in such cases, there may be an exposure to loss in excess of the amounts accrued. Estimates of probable losses resulting from litigation and regulatory proceedings are difficult to predict. Legal and regulatory matters inherently involve significant uncertainties based on, among other factors, the jurisdiction and stage of the proceedings, developments in the applicable facts or law, and the unpredictability of the ultimate determination of the merits of any claim, any defenses the Company may assert against that claim, and the amount of any damages that may be awarded. The Company’s accrued liabilities for loss contingencies related to legal and regulatory matters may change in the future as a result of new developments, including, but not limited to, the occurrence of new legal matters, changes in the law or regulatory environment, adverse or favorable rulings, newly discovered facts relevant to the matter, or changes in the strategy for the matter. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.
Government Investigations. As previously reported, the Company entered into a deferred prosecution agreement (“DPA”) with the DOJ in 2022 in connection with its resolution of investigations by the DOJ, SEC, and various authorities in Brazil relating to the Company’s compliance with the FCPA or other anti-corruption laws with respect to operations in Latin America. Under the settlements with the DOJ and with the SEC, the Company has engaged an independent compliance monitor for two years and will undertake compliance with self-reporting obligations for an additional year. If the Company remains in compliance with the DPA during the remainder of its three-year term, deferred charges against the Company will be dismissed with prejudice.
| 2024 Q1 10-Q Report | Stericycle, Inc. ● | 15 | ||||||
The Company is cooperating with an investigation by the office of the United States Attorney for the Southern District of New York (“SDNY”) and the United States Environmental Protection Agency into the Company’s historical compliance with federal environmental statutes, including the Resource Conservation and Recovery Act, in connection with the collection, transportation and disposal of hazardous waste by the Company’s former Domestic Environmental Solutions business unit. The Company has made an accrual in respect of this matter consistent with its accrual policies described above, which is not material.
Environmental, Regulatory and Indemnity Matters. The Company is subject to various federal, state and local laws and regulations. In the ordinary course of business, we are routinely involved in government enforcement proceedings, private lawsuits, and other matters alleging non-compliance by the Company with applicable law. The issues involved in these proceedings generally relate to alleged violations of existing permits or other requirements, or alleged liability due to our current operations, pre-existing conditions at the locations where we operate, and/or successor or predecessor liability associated with our portfolio optimization strategy. From time to time, the Company may be subject to fines or penalties in regulatory proceedings relating primarily to waste treatment, storage or disposal facilities.
Enviri Indemnification. Effective April 6, 2020, the Company completed the divestiture of its Domestic Environmental Solutions business to Enviri Corporation. Pursuant to the Purchase Agreement, the Company may have liability under certain indemnification claims for matters relating to the Domestic Environmental Solutions business, including potentially with respect to the SDNY investigation described above, the DEA Investigation matter discussed below, and other matters. Consistent with its accrual policies described previously, the Company has made accruals on various of these matters, which are neither individually nor collectively material.
Rancho Cordova, California, NOVs. On June 25 and 26, 2018, the California DTSC conducted a Compliance Enforcement Inspection of the Company’s former Domestic Environmental Solutions facility in Rancho Cordova, California. On February 14, 2020, DTSC filed an action in the Superior Court for the State of California, Sacramento County Division, alleging violations of California’s Hazardous Waste Control Law and the facility’s hazardous waste permit arising from the inspection. The Company has reached a settlement in principle with the DTSC, subject to final documentation, with respect to these claims and any potential claims stemming from the search warrant executed in conjunction with the DEA inspection of the Rancho Cordova facility described below. The Company has made an accrual in respect of the settlement consistent with its accrual policies described above, which is not material.
Rancho Cordova, California, Permit Revocation. Separately, on August 15, 2019, the Company received from DTSC a written Intent to Deny Hazardous Waste Facility Permit Application for the Rancho Cordova facility. Following legal challenges, that DTSC action became final as of April 8, 2022, triggering an obligation to execute the closure plan set forth in the facility's permit. Consistent with its accrual policies described previously, the Company has made an accrual in the amount of its estimate of closure costs reasonably likely to be incurred and indemnified to Enviri under the Purchase Agreement, which is not material.
DEA Investigation. On February 11, 2020, the Company received an administrative subpoena from the DEA, which executed a search warrant at the Company’s former Domestic Environmental Solutions facility at Rancho Cordova, California and an administrative inspection warrant at the Company’s former facility in Indianapolis, Indiana for materials related to the former Domestic Environmental Solutions business of collecting, transporting, and destroying controlled substances from retail customers (the “ESOL Retail Controlled Substances Business”). On that same day, agents from the DTSC executed a separate search warrant at the Rancho Cordova facility. Since that time, the U.S. Attorney’s Office for the Eastern District of California (“USAO EDCA”) has been overseeing criminal and civil investigations of the ESOL Retail Controlled Substances Business. The USAO EDCA has informed the Company that the investigations relate to the Company’s operation and sale of its former ESOL Retail Controlled Substances Business and that the Company and some of its current or former employees may have civil and criminal liability under the Controlled Substances Act and other federal statutes related to that business. The Company is cooperating with the investigations, which are ongoing.
The Company has not accrued any amounts in respect of these investigations and cannot estimate the reasonably possible loss or any range of reasonably possible losses that the Company may incur. The Company is unable to make such an estimate because, based on what the Company knows now, in the Company’s judgment, the factual and legal issues presented in this matter are sufficiently unique that the Company is unable to identify other circumstances sufficiently comparable to provide guidance in making estimates.
| 2024 Q1 10-Q Report | Stericycle, Inc. ● | 16 | ||||||
European Retrovirus Investigations. During the Covid-19 pandemic and in conjunction with Europol, governmental authorities of Spain conducted coordinated inspections at a large number of medical waste management facilities, including Stericycle facilities, relating to the transportation, management and disposal of waste that may have been infected with the virus, and related matters. The inspections have resulted in proceedings, in which the Company is vigorously defending itself.
The Company has not accrued any amounts in respect of these investigations, as it cannot estimate the reasonably possible loss or any range of reasonably possible losses that the Company may incur. The Company is unable to make such an estimate because, based on what the Company knows now, in the Company’s judgment, the factual and legal issues presented in this matter are sufficiently unique that the Company is unable to identify other circumstances sufficiently comparable to provide guidance in making estimates.
| 2024 Q1 10-Q Report | Stericycle, Inc. ● | 17 | ||||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Safe Harbor Statement
This document may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. When we use words such as “believes”, “expects”, “anticipates”, “estimates”, “may”, “plan”, “will”, “goal”, or similar expressions, we are making forward-looking statements. Forward-looking statements are prospective in nature and are not based on historical facts, but rather on current expectations and projections of our management about future events and are therefore subject to risks and uncertainties, which could cause actual results to differ materially from the future results expressed or implied by the forward-looking statements. Factors that could cause such differences include, among others, decreases in the volume of regulated wastes or personal and confidential information collected from customers, disruptions resulting from deployment of systems, disruptions in our supply chain, disruptions in or attacks on data information technology systems, labor shortages, a recession or economic disruption in the U.S. and other countries, changing market conditions in the healthcare industry, competition and demand for services in the regulated waste and secure information destruction industries, SOP pricing volatility or pricing volatility in other commodities, changes in the volume of paper processed by our secure information destruction business and the revenue generated from the sale of SOP, inflationary cost pressure in labor, supply chain, energy, and other expenses, foreign exchange rate volatility in the jurisdictions in which we operate, changes in governmental regulation of the collection, transportation, treatment and disposal of regulated waste or the proper handling and protection of personal and confidential information, the level of government enforcement of regulations governing regulated waste collection and treatment or the proper handling and protection of personal and confidential information, the outcome of pending, future or settled litigation or investigations, self-insurance claims and settlements, charges related to portfolio optimization or the failure of acquisitions or divestitures to achieve the desired results, the obligations to service substantial indebtedness and comply with the covenants and restrictions contained in our credit agreements and Senior Notes, rising interest rates or a downgrade in our credit rating resulting in an increase in interest expense, political, economic, war, and other risks related to our foreign operations, pandemics and the resulting impact on the results of operations, long-term remote work arrangements which may adversely affect our business, restrictions on the ability of our team members to travel, closures of our facilities or the facilities of our customers and suppliers, weather and environmental changes related to climate change, requirements of customers and investors for net carbon zero emissions strategies, and the introduction of regulations for greenhouse gases, which could negatively affect our costs to operate, failure to maintain an effective system of internal control over financial reporting, as well as other factors described in our filings with the SEC, including our 2023 Form 10-K and subsequent Quarterly Reports on Form 10-Q. As a result, past financial performance should not be considered a reliable indicator of future performance, and investors should not use historical trends to anticipate future results or trends. We disclaim any obligation to update or revise any forward-looking or other statements contained herein other than in accordance with legal and regulatory obligations.
| 2024 Q1 10-Q Report | Stericycle, Inc. ● | 18 | ||||||
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.
Key business highlights include:
•Improved diluted earnings per share by $0.02 compared to the first quarter of 2023.
•Grew RWCS organic revenues(1) 2.1% compared to the first quarter of 2023.
•Completed our previously disclosed workforce reduction in the first quarter of 2024 and are on track to realize an estimated $40-$45 million of in-year cost savings.
(1) See Results of Operations, Revenues for a reconciliation between total U.S. GAAP Revenues and Organic Revenues.
Key Business Priorities
In 2024, we are pivoting to our next generation of key business priorities to drive margin expansion and deliver value:
•Commercial and Service Excellence – We will focus on driving profitable revenue growth by delivering a differentiated value proposition and a seamless customer experience as a trusted compliance partner.
•Operational Excellence – We plan to drive margin improvement, harnessing a streamlined and talented workforce, modern technologies, updated and new facilities, and a refreshed fleet.
•Digital Implementation – We will begin to leverage digital, data, and AI capabilities to further deliver commercial and service excellence and efficiencies across our network and shared services, using the foundation of the modern ERP.
•Strategic Capital Allocation – We now have the cash generation and strong balance sheet to allow us to continue to invest in ourselves, consider tuck-in acquisitions in our core businesses, and evaluate the potential for share repurchases, while maintaining a targeted debt leverage ratio between 2.5X-3.0X.
Certain Key Priorities and Other Significant Matters
The following table identifies certain key priorities and other significant matters impacting our business and how they are classified in the Condensed Consolidated Statements of Income:
| In millions | |||||||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Pre-tax items: | |||||||||||||||||||||||
| Included in COR | |||||||||||||||||||||||
| Operational Optimization | $ | 2.2 | $ | — | |||||||||||||||||||
| Total included in COR | 2.2 | — | |||||||||||||||||||||
| Included in SG&A | |||||||||||||||||||||||
| ERP and System Modernization | 4.4 | 2.7 | |||||||||||||||||||||
| Intangible Amortization | 27.8 | 28.2 | |||||||||||||||||||||
| Operational Optimization | 3.4 | — | |||||||||||||||||||||
| Portfolio Optimization | 1.6 | 0.6 | |||||||||||||||||||||
| Litigation, Settlements and Regulatory Compliance | 12.2 | 8.2 | |||||||||||||||||||||
| Total included in SG&A | 49.4 | 39.7 | |||||||||||||||||||||
| Divestiture losses, net | — | 5.0 | |||||||||||||||||||||
| Total included in Income from operations | $ | 51.6 | $ | 44.7 | |||||||||||||||||||
| 2024 Q1 10-Q Report | Stericycle, Inc. ● | 19 | ||||||
ERP and System Modernization
For the periods presented of the ERP and System Modernization, we have recognized the following, reported in Other Costs:
| In millions | |||||||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| North America | |||||||||||||||||||||||
| Operating expenditures | $ | 2.7 | $ | 2.6 | |||||||||||||||||||
| Capital expenditures | 1.8 | 2.9 | |||||||||||||||||||||
| Total North America | $ | 4.5 | $ | 5.5 | |||||||||||||||||||
| International | |||||||||||||||||||||||
| Operating expenditures | $ | 1.7 | $ | 0.1 | |||||||||||||||||||
| Capital expenditures | — | — | |||||||||||||||||||||
| Total International | $ | 1.7 | $ | 0.1 | |||||||||||||||||||
| Total operating expenditures | $ | 4.4 | $ | 2.7 | |||||||||||||||||||
| Total capital expenditures | 1.8 | 2.9 | |||||||||||||||||||||
| Total ERP and System Modernization | $ | 6.2 | $ | 5.6 | |||||||||||||||||||
Upon 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. North America continues to invest in certain ERP enhancements. Our international ERP system modernization 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 businesses during the system modernization.
Intangible Amortization
See table above of certain key priorities and other significant matters for intangible amortization expenses from acquisitions for the periods presented and how they are classified in the Condensed Consolidated Statements of Income. The decrease in amortization expense is a result of divestitures and certain intangible assets that have reached the end of their useful lives.
Operational Optimization
See table above of certain key priorities and other significant matters for operational optimization for the periods presented, and how they are classified in the Condensed Consolidated Statements of Income.
In February 2024, the Company recognized Operational Optimization severance charges of $5.6 million related to a workforce reduction, split between our North America and International segments, which is expected to provide annual savings of approximately $21.0 million to $24.0 million beginning in the first half of 2024. We had also reduced our overall workforce in our retained businesses through careful hiring and managing attrition which will provide annual savings of approximately $11.0 million to $13.0 million 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. These workforce reduction actions are expected to provide annual savings of approximately $8.0 million in 2024.
As we continue to consider each Operational Optimization activity, the amount, the 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. For additional information, see Part I, Item I. Financial Statements; Note 4 — Restructuring and Divestitures in the Condensed Consolidated Financial Statements.
Portfolio Optimization
See table above of certain key priorities and other significant matters for portfolio optimization (including Divestiture losses, net) for the periods presented, and how they are classified in the Condensed Consolidated Statements of Income. Consulting and professional fees are reported in Other Costs, while Divestiture losses, net are included in their respective segment.
| 2024 Q1 10-Q Report | Stericycle, Inc. ● | 20 | ||||||
Acquisition
We regularly evaluate the competitive environment and consider opportunistic acquisitions to strengthen our core businesses. We believe acquisitions, when appropriately valued and constructively integrated, are an efficient way to gain customers, scale treatment operations, and build customer density for transportation. We expect to focus on accretive tuck-in acquisitions. For additional information, see Part I, Item I. Financial Statements; Note 3 — Acquisition in the Condensed 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. Resulting divestitures 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, see Part I, Item I. Financial Statements; Note 4 — Restructuring and Divestitures in the Condensed 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 I, Item I. Financial Statements; Note 9 — Commitments and Contingencies in the Condensed 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 2023), contingent liability provisions and settlements, indirect tax provisions and credits impacting our business for the periods presented, primarily in Other Costs. See Part I, Item I. Financial Statements; Note 9 — Commitments and Contingencies in the Condensed Consolidated Financial Statements for additional details.
Results of Operations
Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023:
Revenues (including Segment Revenues)
We analyze revenues by revenue service category and reportable segment which were as follows:
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||||||||||
| In millions | Components of Change (%)(1) | ||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change ($) | Change (%) | Organic Growth(2) | Acquisition | Divestitures | Foreign Exchange(3) | ||||||||||||||||||||||||||||||||||||||||
| Revenue by Service | |||||||||||||||||||||||||||||||||||||||||||||||
| Regulated Waste and Compliance Services | $ | 447.8 | $ | 451.3 | $ | (3.5) | (0.8) | % | 2.1 | % | 0.2 | % | (3.5) | % | 0.5 | % | |||||||||||||||||||||||||||||||
| Secure Information Destruction Services | 217.1 | 233.0 | (15.9) | (6.8) | % | (6.3) | % | 0.1 | % | (1.1) | % | 0.3 | % | ||||||||||||||||||||||||||||||||||
| Total Revenues | $ | 664.9 | $ | 684.3 | $ | (19.4) | (2.8) | % | (0.8) | % | 0.1 | % | (2.7) | % | 0.4 | % | |||||||||||||||||||||||||||||||
| North America | |||||||||||||||||||||||||||||||||||||||||||||||
| Regulated Waste and Compliance Services | $ | 376.5 | $ | 368.7 | $ | 7.8 | 2.1 | % | 1.9 | % | 0.2 | % | — | % | — | % | |||||||||||||||||||||||||||||||
| Secure Information Destruction Services | 192.7 | 204.7 | (12.0) | (5.9) | % | (6.0) | % | 0.1 | % | — | % | — | % | ||||||||||||||||||||||||||||||||||
| Total North America Segment | $ | 569.2 | $ | 573.4 | $ | (4.2) | (0.7) | % | (0.9) | % | 0.2 | % | — | % | — | % | |||||||||||||||||||||||||||||||
| International | |||||||||||||||||||||||||||||||||||||||||||||||
| Regulated Waste and Compliance Services | $ | 71.3 | $ | 82.6 | $ | (11.3) | (13.7) | % | 3.0 | % | — | % | (18.5) | % | 2.3 | % | |||||||||||||||||||||||||||||||
| Secure Information Destruction Services | 24.4 | 28.3 | (3.9) | (13.8) | % | (8.4) | % | — | % | (8.7) | % | 2.7 | % | ||||||||||||||||||||||||||||||||||
| Total International Segment | $ | 95.7 | $ | 110.9 | $ | (15.2) | (13.7) | % | (0.2) | % | — | % | (16.0) | % | 2.4 | % | |||||||||||||||||||||||||||||||
(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 impacts of divestitures, an acquisition, and foreign exchange rates.
(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 this measure aids in the understanding of changes in Revenues without the impact of foreign currency.
| 2024 Q1 10-Q Report | Stericycle, Inc. ● | 21 | ||||||
Revenues for the first quarter of 2024 were $664.9 million, a decrease of $19.4 million, or 2.8%, compared to $684.3 million for the first quarter of 2023. The decrease was primarily due to divestitures of $17.7 million, which was partially offset by favorable foreign exchange rates of $2.8 million and an acquisition of $0.9 million. Organic revenues in RWCS grew $9.0 million, while SID organic revenues were lower by $14.4 million. The decline in SID was mainly due to lower commodity-indexed revenues of $19.8 million, which was partially offset by higher SID service revenues of $5.4 million, excluding the impact of fuel and environmental surcharges.
North America revenues decreased $4.2 million, or 0.7%, for the three months ended March 31, 2024, to $569.2 million from $573.4 million for the three months ended March 31, 2023. Organic revenues decreased $5.1 million, or 0.9%, mainly a result of decreased SID organic revenues driven by lower SID commodity-indexed revenues due to lower SOP and lower SID fuel and environmental surcharges. We continue to see headwinds in SID service stops with our national customers, driven by both recent competitive losses of mostly low margin stops within existing customers and site closures. This decrease was partially offset by increased RWCS organic revenues, which was mainly driven by our pricing levers.
International revenues decreased $15.2 million, or 13.7%, for the three months ended March 31, 2024, to $95.7 million from $110.9 million for the three months ended March 31, 2023. The decrease was primarily due to the impact of a divestiture of $17.7 million, or 16.0%, and decreased organic SID revenues due to lower SOP rates and volume. These decreases were partially offset by higher organic RWCS revenues due to pricing levers and favorable foreign exchange rates of $2.8 million, or 2.4%.
Gross profit:
| $ In millions | |||||||||||||||||||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||||||||||||||||||||
| $ | % Revenues | $ | % Revenues | $ | % | ||||||||||||||||||||||||||||||
| Gross profit | 254.9 | 38.3 | % | 261.0 | 38.1 | % | (6.1) | (2.3) | % | ||||||||||||||||||||||||||
For the three months ended March 31, 2024, compared to the 2023 comparable period, the decrease in gross profit was primarily due to lower SID commodity indexed revenues and the corresponding margin flow through impact, partially offset by cost savings and other margin flow through.
SG&A:
| $ In millions | |||||||||||||||||||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||||||||||||||||||||
| $ | % Revenues | $ | % Revenues | $ | % | ||||||||||||||||||||||||||||||
| SG&A | 216.0 | 32.5 | % | 216.0 | 31.6 | % | — | — | % | ||||||||||||||||||||||||||
For the three months ended March 31, 2024, compared to the 2023 comparable period, we incurred higher SG&A, as a percentage of revenues, associated with certain key priorities and other significant matters discussed above including (i) Operational Optimization and (ii) Litigation, Settlement and Regulatory Compliance matters. Additionally, SG&A was impacted by higher bad debt expense, primarily due to a lower first quarter of 2023 bad debt expense level as a result of improved North America SID collections, partially offset by the impacts of cost savings and lower incentive and stock-based compensation expense.
Divestiture losses, net:
| $ In millions | |||||||||||||||||||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||||||||||||||||||||
| $ | % Revenues | $ | % Revenues | $ | % | ||||||||||||||||||||||||||||||
| Divestiture losses, net | — | — | % | 5.0 | 0.7 | % | (5.0) | (100.0) | % | ||||||||||||||||||||||||||
For additional information, see Part I, Item I. Financial Statements; Note 4 — Restructuring and Divestitures in the Condensed Consolidated Financial Statements.
| 2024 Q1 10-Q Report | Stericycle, Inc. ● | 22 | ||||||
Segment Profitability:
Segment profitability and a reconciliation of total segment profitability to Income from operations was as follows:
| In millions | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change 2024 versus 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| $ | % Segment Revenues | $ | % Segment Revenues | $ | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjusted Income from Operations | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| North America | 149.1 | 26.2 | % | 160.3 | 28.0 | % | (11.2) | (7.0) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| International | 12.4 | 13.0 | % | 10.3 | 9.3 | % | 2.1 | 20.4 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Costs | (71.0) | nm | (85.9) | nm | 14.9 | 17.3 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | 90.5 | 13.6 | % | 84.7 | 12.4 | % | 5.8 | 6.8 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reconciliation to Income from operations | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjusted Income from Operations | 90.5 | 84.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjusting Items Total (1) | (51.6) | (44.7) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income from operations | 38.9 | 40.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
nm - percentage change not meaningful for comparison
(1)See Part I, Item I. Financial Statements; Note 8 — Segment Reporting in the Condensed Consolidated Financial Statements for more detail.
Adjusted Income from Operations for North America decreased for the three months ended March 31, 2024, compared to the 2023 comparable period, primarily the result of lower SID commodity-indexed revenues driven by lower SOP and lower SID fuel and environmental surcharges and higher bad debt expense, which were partially offset by cost savings and other margin flow through.
Adjusted Income from Operations for International increased for the three months ended March 31, 2024, compared to the 2023 comparable period. This increase was primarily due to favorable RWCS pricing levers, the impact of divestitures, and foreign exchange rates, which were partially offset by lower SID revenues due to lower SOP rates and volume.
Adjusted Loss from Operations for Other Costs decreased for the three months ended March 31, 2024, compared to the 2023 comparable period. This decrease was primarily driven by cost savings, including operational optimization initiatives, and lower incentive and stock-based compensation expense.
Interest expense, net:
| $ In millions | |||||||||||||||||||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||||||||||||||||||||
| $ | % Revenues | $ | % Revenues | $ | % | ||||||||||||||||||||||||||||||
| Interest expense, net | 18.4 | 2.8 | % | 20.4 | 3.0 | % | (2.0) | (9.8) | % | ||||||||||||||||||||||||||
Interest expense, net decreased for the three months ended March 31, 2024, as compared to the 2023 comparable period, primarily due to the decrease in our net debt, partially offset by higher interest rates.
Other income, net:
| $ In millions | |||||||||||||||||||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||||||||||||||||||||
| $ | % Revenues | $ | % Revenues | $ | % | ||||||||||||||||||||||||||||||
| Other income, net | — | — | % | 0.2 | — | % | (0.2) | (100.0) | % | ||||||||||||||||||||||||||
Other income, net is primarily comprised of foreign exchange gains (losses).
| 2024 Q1 10-Q Report | Stericycle, Inc. ● | 23 | ||||||
Income tax expense:
| $ In millions | |||||||||||||||||||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||||||||||||||||||||
| $ | Effective Rate | $ | Effective Rate | $ | % | ||||||||||||||||||||||||||||||
| Income tax expense | 7.4 | 36.1 | % | 8.5 | 42.9 | % | (1.1) | (12.9) | % | ||||||||||||||||||||||||||
For further information, see Part I, Item I. Financial Statements; Note 6 — Income Taxes in the Condensed 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 March 31, 2024, we had approximately $0.4 billion of available capacity in the $1.2 billion Credit Facility.
The Credit Agreement contains, among other covenants, a financial covenant requiring maintenance of a maximum Credit Agreement Defined Debt Leverage Ratio of 4.00 to 1.00 which includes, among other provisions, $50.0 million of cash add-backs to EBITDA with respect to any four fiscal quarter period ending on or before December 31, 2023. As of March 31, 2024, the Company was in compliance with its financial covenants. The Credit Agreement Defined Debt Leverage Ratio was 3.51 to 1.00, which was below the allowed maximum ratio of 4.00 to 1.00 as set forth in the amended Credit Agreement. Expiration of the $50.0 million of such cash add-backs to EBITDA contributed approximately 30 points of increase to the Credit Agreement Defined Debt Leverage ratio as of March 31, 2024 compared to December 31, 2023.
On February 1, 2024, the Company issued a redemption notice to 2019 Senior Notes holders for redemption of all of the $600 million aggregate principal amount of the outstanding 2019 Senior Notes, and on March 14, 2024 completed the redemption with borrowings from the Revolving Credit facility. The refinancing of the 2019 Senior Notes using the Revolving Credit Facility converted the long-term debt from fixed rate to variable rate as of the redemption date. For further details concerning these matters, see Part I, Item I. Financial Statements; Note 5 — Debt in the Condensed Consolidated Financial Statements.
Cash Flow Summary:
The following table shows cash flow information for the Company by activity:
| In millions | |||||||||||
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Net cash from operating activities | $ | (54.5) | $ | 49.5 | |||||||
| Net cash from investing activities | (56.8) | (34.5) | |||||||||
| Net cash from financing activities | 109.3 | (11.6) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (2.3) | 0.6 | |||||||||
| Net change in cash and cash equivalents | $ | (4.3) | $ | 4.0 | |||||||
Operating Cash Flows: Net cash provided from operating activities decreased $104.0 million in the first three months of 2024, to an outflow of $54.5 million from an inflow of $49.5 million in the three months ended March 31, 2023. The decrease was mainly due to an increase in accounts receivable, net of deferred revenues of $63.1 million due to expected billing and collection delays from the prior U.S. RWCS ERP launch in September 2023; higher annual incentive plan payments of $17.1 million; and other net working capital changes of $23.8 million.
DSO as reported for March 31, 2024 was 85 days or 76 days, net of deferred revenues. During the third quarter of 2023, Stericycle advanced billing for certain RWCS subscription services, which contributed to the higher as reported DSO for March 31, 2024. DSO as reported for March 31, 2023 was 56 days or 55 days, net of deferred revenues. The March 31, 2024 DSO, net of deferred revenues, was higher as compared to the same period in 2023, 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.
| 2024 Q1 10-Q Report | Stericycle, Inc. ● | 24 | ||||||
Investing Cash Flows: Net cash from investing activities decreased $22.3 million in the first three months of 2024, to an outflow of $56.8 million from $34.5 million in the three months ended March 31, 2023, primarily driven by cash payments for an acquisition of $14.0 million in 2024. Cash paid for capital expenditures increased by $6.7 million to $43.1 million in the first three months of 2024 from $36.4 million in the three months ended March 31, 2023.
Financing Cash Flows: Net cash from financing activities increased $120.9 million in the first three months of 2024, to an inflow of $109.3 million from an outflow of $11.6 million in the three months ended March 31, 2023. Net borrowings on our Credit Facility and Term Loan were $722.9 million in the three months ended March 31, 2024, compared to net borrowings of $3.9 million in the three months ended March 31, 2023. The Company redeemed all of the $600 million aggregate principal amount of the outstanding 2019 Senior Notes on March 14, 2024 with Revolving Credit facility borrowings.
Critical Accounting Policies and Estimates
As discussed in our 2023 Form 10-K, the preparation of the Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the amount of reported assets and liabilities and disclosure of contingent liabilities at the date of the Condensed Consolidated Financial Statements and revenues and expenses during the periods reported. There were no material changes from the information provided therein.
| 2024 Q1 10-Q Report | Stericycle, Inc. ● | 25 | ||||||
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, we are exposed to market risks, including changes in interest rates, certain commodity prices, including SOP, diesel fuel, utilities and foreign currency rates. We do not specifically hedge our exposure to these risks.
We are subject to market risks arising from changes in interest rates which relate primarily to our financing activities. We performed a sensitivity analysis to determine how market rate changes might affect the fair value of our market risk-sensitive debt instruments (variable rate debt), which in aggregate as of March 31, 2024 were 62.4% of total aggregate debt. Our potential additional interest expense over one year that would result from a hypothetical, instantaneous and unfavorable change of 100 basis points in the interest rate on all of our variable rate debt would be approximately $8.8 million on a pre-tax basis.
We are subject to market risks arising from changes in the prices for commodities such as SOP, diesel fuel, and utilities. For example, historically diesel fuel has been approximately five percent of our Cost of Revenues. As the market prices for these commodities increase or decrease, our revenues, operating costs and margins may also increase or decrease. Variability in commodity prices can also impact the margins of our business as certain components of our revenue are structured as a pass through of costs, including fuel surcharges as changes in diesel costs may offset in Revenues through our indexed fuel surcharges at certain levels of pricing.
There were no other material changes from the information provided in our 2023 Form 10-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) are effective as of March 31, 2024, based on the evaluation of these controls and procedures required by Rule 13a-15(b) or 15d-15(b) of the Exchange Act.
Changes in Internal Control Over Financial Reporting
During the quarter ended March 31, 2024, there were no changes that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
| 2024 Q1 10-Q Report | Stericycle, Inc. ● | 26 | ||||||
| PART II – OTHER INFORMATION | ||
Item 1. Legal Proceedings
Further information pertaining to legal proceedings can be found in Part I, Item I. Financial Statements; Note 9 — Commitments and Contingencies in the Condensed Consolidated Financial Statements and is incorporated herein by reference.
Item 1A. Risk Factors
In addition to the other information included in this report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in the 2023 Form 10-K and subsequent Quarterly Reports on Form 10-Q and the factors identified under “Safe Harbor Statement” at the beginning of Part I, Item 2 of this Quarterly Report on Form 10-Q, which could materially affect our business, financial condition, cash flows, or results of operations. The risks described in the 2023 Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently considers immaterial also may materially adversely affect its business, financial condition, and/or operating results. There have been no material changes to the risk factors included in the 2023 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no sales of unregistered equity securities during the three months ended March 31, 2024.
Item 5. Other Information
During the three months ended March 31, 2024, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act or any non-Rule 10b5-1 trading arrangement (as defined in the SEC’s rules).
| 2024 Q1 10-Q Report | Stericycle, Inc. ● | 27 | ||||||
Item 6. Exhibits
The following exhibits are filed or furnished as part of this report:
Exhibit Index
| Exhibit Index | Description | |||||||
| 3.1 | ||||||||
| 3.2 | ||||||||
| 3.3 | ||||||||
| 3.4 | ||||||||
| 3.5 | ||||||||
| 3.6 | ||||||||
| 3.7 | ||||||||
| 3.8 | ||||||||
| 3.9 | ||||||||
| 3.10 | ||||||||
| 10.1 | ||||||||
| 10.2 | ||||||||
| 10.3 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32 | ||||||||
| 101 | The following information from our Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, formatted in Inline XBRL: (i) Condensed Consolidated Statements of Income; (ii) Condensed Consolidated Statements of Comprehensive Income; (iii) Condensed Consolidated Balance Sheets; (iv) Condensed Consolidated Statements of Cash Flows; (v) Condensed Consolidated Statements of Changes in Equity; (vi) Notes to Condensed Consolidated Financial Statements, and (vii) the information under Part II, Item 5, “Other Information” | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||
| 2024 Q1 10-Q Report | Stericycle, Inc. ● | 28 | ||||||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: April 25, 2024
| STERICYCLE, INC. | |||||
| (Registrant) | |||||
| By: /s/ JANET H. ZELENKA | |||||
| Janet H. Zelenka | |||||
| Executive Vice President, Chief Financial Officer & Chief Information Officer | |||||
| 2024 Q1 10-Q Report | Stericycle, Inc. ● | 29 | ||||||