scl-20230331

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

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, 2023

☐ 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 ☐

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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 24, 2023, there were 92,445,372 shares of the Registrant’s Common Stock outstanding.

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		Page No.
PART I. FINANCIAL INFORMATION

	Item 1. Financial Statements (Unaudited)	5

	Condensed Consolidated Statements of Income (Loss)	5

	Condensed Consolidated Statements of Comprehensive Income (Loss)	6

	Condensed Consolidated Balance Sheets	7

	Condensed Consolidated Statements of Cash Flows	8

	Condensed Consolidated Statements of Changes in Equity	9

	Notes to Condensed Consolidated Financial Statements	10

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

	Item 3. Quantitative and Qualitative Disclosure About Market Risk	25

	Item 4. Controls and Procedures	25

PART II. OTHER INFORMATION

	Item 1. Legal Proceedings	26

	Item 1A. Risk Factors	26

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	26



	Item 6. Exhibits	27

	SIGNATURES	28


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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
2022 Form 10-K			Annual report on Form 10-K for the year ended December 31, 2022
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
AICPA			American Institute of Certified Public Accountants




COVID-19			The global novel coronavirus disease 2019 outbreak, which the World Health Organization declared to be a pandemic
Credit Agreement			Credit Agreement dated September 30, 2021 and First Amendment dated April 26, 2022, 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 (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
CRS			Communication and Related Services (Divested December 2022)
DEA			U.S. Drug Enforcement Administration. The DEA is a division of the U.S. Department of Justice. 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, 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 DSO, divided by the Accounts Receivable balance at the end of the period
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

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 Securities and Exchange Commission, the Department of Justice 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 Europe, Middle East, Asia Pacific and Latin America (Divested our Brazil operations in April 2023, which was our last remaining Latin America business) Business operations outside of North America
IRS			U.S. Internal Revenue Service
North America			Operating segment in North America, 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 and CEI Holding LLC, a Delaware limited liability company and subsidiary of Harsco Corporation
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 Exchanges Commission
Senior Notes			5.375% ($600.0 million) Senior Notes due July 2024 and 3.875% ($500.0 million) Senior Notes due January 2029
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
SOP			Sorted Office Paper
SQ Settlement			Small quantity medical waste customers class action settlement of $295.0 million
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
TSA			Transition Services Agreement
U.S.			United States of America
U.S. GAAP			U.S. Generally Accepted Accounting Principles


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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

STERICYCLE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Unaudited)


In millions, except per share data
	Three Months Ended March 31,
		2023		2022
Revenues		$	684.3	$	664.2
Cost of revenues		423.3		419.7
Gross profit		261.0		244.5
Selling, general and administrative expenses		216.0		238.6
Divestiture losses, net		5.0		—

Income from operations		40.0		5.9
Interest expense, net		(20.4)		(16.3)

Other income (expense), net		0.2		(0.8)
Income (Loss) before income taxes		19.8		(11.2)
Income tax expense		(8.5)		(2.9)
Net income (loss)		11.3		(14.1)
Net income attributable to noncontrolling interests		(0.1)		(0.1)
Net income (loss) attributable to Stericycle, Inc. common shareholders		$	11.2	$	(14.2)

Income (Loss) per common share attributable to Stericycle, Inc. common shareholders:
Basic		$	0.12	$	(0.15)
Diluted		$	0.12	$	(0.15)
Weighted average number of common shares outstanding:
Basic		92.3		92.0
Diluted		92.7		92.0

See accompanying Notes to Condensed Consolidated Financial Statements.


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STERICYCLE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


In millions
	Three Months Ended March 31,
		2023		2022
Net income (loss)		$	11.3	$	(14.1)

Other comprehensive income (loss):
Currency translation adjustments		7.9		(8.9)
Total other comprehensive income (loss)		7.9		(8.9)

Comprehensive income (loss)		19.2		(23.0)
Less: comprehensive (loss) attributable to noncontrolling interests		(2.2)		(0.1)
Comprehensive income (loss) attributable to Stericycle, Inc. common shareholders		$	21.4	$	(22.9)

See accompanying Notes to Condensed Consolidated Financial Statements.


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STERICYCLE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


In millions, except per share data
	March 31, 2023		December 31, 2022
ASSETS
Current Assets:
Cash and cash equivalents	$	60.0	$	56.0
Accounts receivable, less allowance for doubtful accounts of $50.2 in 2023 and $53.3 in 2022	419.5		414.5
Prepaid expenses	34.7		33.2
Other current assets	49.5		55.0
Total Current Assets	563.7		558.7
Property, plant and equipment, less accumulated depreciation of $677.1 in 2023 and $657.7 in 2022	713.0		715.7
Operating lease right-of-use assets	414.7		398.9
Goodwill	2,787.8		2,784.9
Intangible assets, less accumulated amortization of $853.1 in 2023 and $823.3 in 2022	784.8		811.1
Other assets	68.0		64.8
Total Assets	$	5,332.0	$	5,334.1
LIABILITIES AND EQUITY
Current Liabilities:
Current portion of long-term debt	$	16.2	$	22.3
Bank overdrafts	2.4		2.9
Accounts payable	195.3		213.5
Accrued liabilities	220.7		244.1
Operating lease liabilities	95.4		91.2
Other current liabilities	50.5		47.9
Total Current Liabilities	580.5		621.9
Long-term debt, net	1,486.5		1,484.0
Long-term operating lease liabilities	340.2		329.0
Deferred income taxes	431.8		427.0
Long-term income taxes payable	11.4		11.8
Other liabilities	35.6		35.9
Total Liabilities	2,886.0		2,909.6

Commitments and contingencies

EQUITY
Common stock (par value $0.01 per share, 120.0 shares authorized, 92.4 and 92.2 issued and outstanding in 2023 and 2022, respectively)	0.9		0.9
Additional paid-in capital	1,289.2		1,285.4
Retained earnings	1,422.0		1,410.8
Accumulated other comprehensive loss	(266.7)		(276.9)
Total Stericycle, Inc.’s Equity	2,445.4		2,420.2
Noncontrolling interests	0.6		4.3
Total Equity	2,446.0		2,424.5
Total Liabilities and Equity	$	5,332.0	$	5,334.1

See accompanying Notes to Condensed Consolidated Financial Statements.


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STERICYCLE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


In millions
	Three Months Ended March 31,
	2023		2022
OPERATING ACTIVITIES:
Net income (loss)	$	11.3	$	(14.1)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation	26.6		27.3
Intangible amortization	28.2		32.4

Stock-based compensation expense	6.9		4.8
Deferred income taxes	4.7		0.7

Divestiture losses, net	5.0		—
Asset impairments, (gain) loss on disposal of property plant and equipment and other charges	(0.4)		0.3
Other, net	0.5		0.6
Changes in operating assets and liabilities:
Accounts receivable	(4.4)		(37.3)
Prepaid expenses	(1.4)		2.9
Accounts payable	(6.3)		(2.1)
Accrued liabilities	(17.4)		(40.9)
Other assets and liabilities	(3.8)		(13.4)
Net cash from operating activities	49.5		(38.8)
INVESTING ACTIVITIES:
Capital expenditures	(36.4)		(37.5)

Proceeds from divestiture of businesses, net	0.9		—
Other, net	1.0		0.7
Net cash from investing activities	(34.5)		(36.8)
FINANCING ACTIVITIES:
Repayments of long-term debt and other obligations	(7.8)		(5.6)

Repayments of foreign bank debt	(0.1)		(0.1)



Proceeds from credit facility	286.9		364.4
Repayments of credit facility	(283.0)		(272.5)
Repayment of bank overdrafts	(0.5)		(0.7)
Payments of finance lease obligations	(0.7)		(0.9)

Proceeds from issuance of common stock, net of (payments of) taxes from withheld shares	(4.9)		(5.2)

Payments to noncontrolling interest	(1.5)		—
Net cash from financing activities	(11.6)		79.4
Effect of exchange rate changes on cash and cash equivalents	0.6		0.2
Net change in cash and cash equivalents	4.0		4.0
Cash and cash equivalents at beginning of period	56.0		55.6
Cash and cash equivalents at end of period	$	60.0	$	59.6

SUPPLEMENTAL CASH FLOW INFORMATION:

Interest paid, net of capitalized interest	$	32.8	$	28.0
Income taxes paid, net	$	0.4	$	1.4
Capital expenditures in Accounts payable	$	18.8	$	17.5

See accompanying Notes to Condensed Consolidated Financial Statements.


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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, 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

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, 2021	91.9	$	0.9	$	1,261.8	$	1,354.8	$	(218.8)	$	4.1	$	2,402.8
Net (loss) income	—	—		—		(14.2)		—		0.1		(14.1)
Currency translation adjustment	—	—		—		—		(8.6)		(0.3)		(8.9)
Issuance of common stock for incentive stock programs, net of (payments of) taxes from withheld shares	0.2	—		(3.2)		—		—		—		(3.2)
Stock-based compensation expense	—	—		4.8		—		—		—		4.8
Changes in noncontrolling interest	—	—		—		—		—		—		—
Balance as of March 31, 2022	92.1	$	0.9	$	1,263.4	$	1,340.6	$	(227.4)	$	3.9	$	2,381.4

See accompanying Notes to Condensed Consolidated Financial Statements.


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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, 2023 and for the three months ended March 31, 2023 and 2022, 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 2022 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, 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.

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.

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, number and size of containers collected, and weight and type of shredded paper.

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.


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Disaggregation of Revenue

The following table presents revenues disaggregated by service and reportable segments:


In millions
	Three Months Ended March 31,
		2023		2022
Revenue by Service
Regulated Waste and Compliance Services		$	451.3	$	452.6
Secure Information Destruction Services		233.0		211.6
Total Revenues		$	684.3	$	664.2
North America
Regulated Waste and Compliance Services		$	368.7	$	362.1
Secure Information Destruction Services		204.7		181.6
Total North America Segment		$	573.4	$	543.7
International
Regulated Waste and Compliance Services		$	82.6	$	90.5
Secure Information Destruction Services		28.3		30.0
Total International Segment		$	110.9	$	120.5

Contract Liabilities

Contract liabilities at March 31, 2023 and December 31, 2022, were $8.7 million and $7.9 million, respectively. Substantially all of the contract liabilities as of March 31, 2023, are expected to be recognized in Revenues, as the amounts are earned, which is anticipated over the next 12 months.

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, 2023 and 2022, the Company amortized $4.0 million and $3.4 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, 2023		December 31, 2022
Other current assets	$	15.0	$	14.2
Other assets	43.4		40.5
Total contract acquisition costs	$	58.4	$	54.7

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 internal collection efforts have been exhausted.

The changes in allowance for doubtful accounts were reported as follows:


In millions
	Three Months Ended March 31,
	2023		2022
Beginning Balance	$	53.3	$	43.3
Bad debt expense, net of recoveries	2.2		5.4
Write-offs	(5.8)		(2.5)
Other changes (1)	0.5		2.0
Ending Balance	$	50.2	$	48.2

(1)Amounts consist primarily of currency translation adjustments.


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NOTE 3 — DIVESTITURES

North America Divestiture

On December 1, 2022, the Company completed the sale of our Communication Solutions business for cash proceeds of approximately $45.0 million. The transaction resulted in a divestiture gain of $15.6 million. In connection with the transaction, the Company entered into certain additional ancillary agreements including a TSA, for up to 12 months. The Company allocated and deferred $1.4 million of the proceeds, which will be recognized over the duration of the TSA period offsetting the expenses incurred to deliver TSA services not reimbursed by the buyer.

International Divestiture

On April 20, 2023, the Company entered into an agreement for the sale of its operations in Brazil for cash consideration to the acquirer of approximately $28 million. Revenues of operations in Brazil were approximately 1% of our consolidated annual revenues for 2022. The transaction is expected to result in a second quarter divestiture pre-tax loss of approximately $100 million, of which $72 million relates to the reclassification of non-cash accumulated currency translation adjustments to earnings. As of March 31, 2023, the operations in Brazil did not meet the assets held for sale criteria. In connection with the agreement, the Company entered into a TSA with the acquirer for a period of up to six months. The agreement provides for indemnifications to the acquirer against certain liabilities.

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 divestiture loss of $5.0 million. In connection with the transaction, the Company entered into certain additional ancillary agreements, including an exclusive two-year supply agreement for containers.

NOTE 4 — DEBT

The Company’s long-term debt consisted of the following:


In millions
	March 31, 2023		December 31, 2022
$1.2 billion Credit Facility, due in 2026	$	158.4	$	154.1
$200 million Term Loan, due in 2026	200.0		200.0
$600 million Senior Notes, due in 2024	600.0		600.0
$500 million Senior Notes, due in 2029	500.0		500.0
Promissory notes and deferred consideration weighted average maturity of 3.3 years at 2023 and 3.4 years at 2022	36.8		44.7
Foreign bank debt weighted average maturity 4.7 years at 2023 and 5.0 years at 2022	0.3		0.4
Obligations under finance leases	17.5		18.2
Total debt	1,513.0		1,517.4
Less: current portion of total debt	16.2		22.3
Less: unamortized debt issuance costs	10.3		11.1
Long-term portion of total debt	$	1,486.5	$	1,484.0

The estimated fair value of our debt approximated $1.4 billion and $1.4 billion as of March 31, 2023 and December 31, 2022, 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.

The weighted average interest rates on long-term debt, excluding finance leases were as follows:


	Three Months Ended March 31, 2023		Year Ended December 31, 2022
$1.2 billion Credit Facility, due in 2026 (variable rate)	6.24	%	5.92	%

SEC Form 10-Q filed by Stericycle Inc.