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Item 7. Management’s Discussion and Analysis

2023-03-01 compared with 2022-02-23 · 175 added, 204 removed, 318 unchanged (54% of the section changed)

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Everywhere industry meets the environment, we strive to provide eco-friendly products and services that protect and restore North America's natural environment.

We believe we operate, in the aggregate, the largest number of hazardous waste incinerators, landfills and treatment, storage and disposal facilities ("TSDFs") in North America.

We serve a diverse customer base, including Fortune 500 companies, across the chemical, energy, manufacturing and additional markets, as well as numerous government agencies.

We believe we operate, in the aggregate, the largest number of hazardous waste incinerators, landfills and treatment, storage and disposal facilities in North America.

We serve over 300,000 customers, including the majority of Fortune 500 companies, across various markets including chemical and manufacturing, as well as numerous government agencies.

These customers rely on us to deliver a broad range of services including but not limited to end-to-end hazardous waste management, emergency response, industrial cleaning and maintenance and recycling services.

We are also the largest re-refiner and recycler of used oil in North America and the largest provider of parts cleaning and related environmental services to commercial, industrial and automotive customers in North America.

During the first quarter of 2021, we reorganized our Safety-Kleen business.

The collection services for waste oil, used oil filters, antifreeze and related items as well as bulk blended oil sales operations were combined with the Safety-Kleen Oil business to form the Safety-Kleen Sustainability Solutions business.

Under this structure, Safety-Kleen Sustainability Solutions operations focus on the life-cycle of oil, from the used oil collection services through the ultimate sale and delivery of base and blended oils so that we can more directly manage both sides of the spread in our re-refinery business.

We expect this change to drive additional growth in our sustainable lubricant products and related services.

Concurrently with this change, we consolidated Safety-Kleen branch core offerings, including containerized waste, parts washer and vacuum services, into the legacy Clean Harbors Environmental Services sales and service operations.

We expect this change to foster enhanced cross-selling opportunities within the environmental businesses and increase market presence with small quantity generators of hazardous waste.

In restructuring the operations of the Company in this manner, the information that the chief operating decision maker regularly reviews for purposes of allocating resources and assessing performance changed to conform to this new operating structure of the business and we reevaluated the identification of our operating segments.

In accordance with ASC 280, Segment Reporting, Environmental Services and Safety-Kleen Sustainability Solutions are the Company's operating segments and reportable segments starting in the first quarter of 2021, with the operations not managed through these operating segments described above continuing to be recorded as Corporate Items.

Segment financial information has been retrospectively adjusted to reflect these changes for all periods presented herein.

Performance of our segments is evaluated on several factors of which the primary financial measure is Adjusted EBITDA, as reconciled to our net income and described more fully below.

Beginning in the first quarter of 2021, we revised our calculation of reported Adjusted EBITDA to add back stock-based compensation, a non-cash item, to other charges which are added back to net income determined in accordance with generally accepted accounting principles ("GAAP").

See Adjusted EBITDA section below for additional details regarding this change and our considerations of this metric.

All prior period amounts have been recast to conform to this presentation.

The following is a discussion of how management evaluates its segments including key performance indicators that management uses to assess the segments’ results, as well as certain macroeconomic trends and influences that impact each reportable segment:

• Environmental Services - Environmental Services segment results are predicated upon the demand by our customers for waste services, waste volumes generated by such services and project work for which waste handling and/or disposal is required.

Environmental Services results are also impacted by the demand for planned and unplanned industrial related cleaning and maintenance services at customer sites, environmental cleanup services on a scheduled or emergency basis, including response to national events such as major chemical spills, natural disasters, or other events where immediate and specialized services are required.

As a result of the Coronavirus ("COVID-19") pandemic, the business has seen increased demand for response services relative to contagion disinfection, decontamination and disposal.

With the addition of the Safety-Kleen branches' core service offerings, including containerized waste disposal, parts washer and vacuum services, the Environmental Services results are further driven by the volumes of waste collected from these customers, the overall number of parts washers placed at customer sites and the demand for and frequency of other offered services.

the utilization rates of our incinerators, equipment and workforce, including billable hours, and number of parts washer services performed, among other key metrics.

The following is a discussion of how management evaluates its segments in regards to other factors including key performance indicators that management uses to assess the segments’ results, as well as certain macroeconomic trends and influences that impact each reportable segment:

• Environmental Services - Environmental Services segment results are predicated upon the demand by our customers for our wide variety of services, waste volumes managed by delivering such services and project work for which responsible waste handling and/or disposal is required.

Environmental Services results are also impacted by the demand for planned and unplanned industrial related cleaning and maintenance services at customer sites, environmental cleanup services on a scheduled or emergency basis, including response to large scale events such as major chemical spills, natural disasters, or other instances where immediate and specialized services are required.

The Environmental Services segment results include the Safety-Kleen branches' core environmental service offerings of containerized waste disposal, parts washer and vacuum services.

These results are driven by the volumes of waste collected from these customers, the overall number of parts washers placed at customer sites and the demand for and frequency of other offered services.

In managing the business and evaluating performance, management tracks the volumes and mix of waste handled and disposed of or recycled, generally through our incinerators, treatment, storage and disposal facilities ("TSDFs") and landfills, the utilization rates of our incinerators, equipment and workforce, including billable hours, and number of parts washer services performed, pricing realized by our business and peer companies as well as other key metrics.

Levels of activity and ultimate performance associated with this segment can be impacted by several factors including overall U.S.

industrial production, economic conditions in the automotive and manufacturing markets, weather conditions, efficiency of our operations, technology, changing regulations, competition, market pricing of our services, costs incurred to deliver our services and the management of our related operating costs.

• Safety-Kleen Sustainability Solutions - Safety-Kleen Sustainability Solutions segment results are impacted by our customers' demand for high-quality, environmentally responsible recycled oil products and their demand for our related service offerings and products.

Safety-Kleen Sustainability Solutions offers high quality recycled base and blended oil products to end users including fleet customers, distributors and manufacturers of oil products.

Segment results are impacted by overall demand as well as product mix as it relates to these oil products.

industrial production, economic conditions in the chemical, manufacturing and automotive markets including efforts and economic incentives to reshore operations to the U.S., available capacity at waste disposal outlets, weather conditions, efficiency of our operations, technology, changing regulations, competition, market pricing of our services, costs incurred to deliver our services and the management of our related operating costs.

Safety-Kleen Sustainability Solutions offers high quality recycled base and blended oil products, including our KLEEN+ brand of Group II+ base oils, to end users including fleet customers, distributors and manufacturers of oil products.

Segment results are impacted by overall demand, market pricing and the mix of our oil product sales.

Segment results are also predicated on the demand for Safety-Kleen Sustainability Solutions' other product and service offerings including collection services for used oil, used oil filters and other automotive fluids.

These fluid collections are used as feedstock in our oil re-refining to make our base and blended oil products and our recycled automotive related fluid products or are integrated into the Clean Harbors' recycling and disposal network.

In operating the business and evaluating performance, management tracks the volumes and relative percentages of base and blended oil sales along with various pricing metrics associated with the commodity driven margin.

Management also tracks the volumes and pricing of used oil and automotive fluid collections.

These fluid collections are used as feedstock in our oil re-refining to produce our base and blended oil products and our recycled automotive related fluid products or are integrated into the Clean Harbors' recycling and disposal network.

Levels of activity and ultimate performance associated with this segment can be impacted by economic conditions in the automotive services and manufacturing markets, efficiency of our operations, technology, weather conditions, changing regulations, competition and the management of our related operating costs.

Costs incurred in connection with the collection of used oil and other raw materials associated with the segment’s oil related products can also be volatile.

Costs incurred in connection with the collection of used oil and other raw materials associated with the segment’s oil related products can also be volatile and can be impacted by global events and their relative

impact on commodity products and pricing.

The overall market price of oil and regulations that change the possible usage of used oil, including the International Maritime Organization's 2020 regulation ("IMO 2020") and other regulations related to the burning of used motor oil as a fuel, impact the premium the segment can charge for used oil collections.

Total direct revenues for 2021 increased 21.0% to $3.8 billion, compared with $3.1 billion in 2020.

Our Environmental Services segment direct revenues increased $396.6 million in 2021 compared with 2020.

Our acquisition of HydroChemPSC on October 8, 2021, contributed $166.1 million to the direct revenues of the Environmental Services segment.

In 2021 we also saw a rebounding demand across our portfolio of services within the Environmental Services segment as well as favorable pricing and mix of waste processed at our incinerator facilities which drove the remaining revenue increase in the Environmental Services segment.

Direct revenues recorded by Safety-Kleen Sustainability Solutions increased $264.9 million in 2021 compared to 2020 due to increased prices and higher volumes sold of our base and blended oil products.

Prior year operations across both segments, were negatively affected by the impact of the COVID-19 pandemic.

Foreign currency translation of our Canadian operations positively impacted our consolidated direct revenues by $34.7 million in 2021 as compared to 2020.

In 2021, costs have increased in both the Environmental Services and Safety-Kleen Sustainability Solutions segments when comparing to the prior year given the increase in business levels, revenue mix, as well as inflationary and supply chain pressures seen across several cost categories.

Additionally, the current period reflects lower benefits received from the Government Programs as described below under "Impact of Government Programs".

Despite the increased costs seen in 2021, annual gross margins for the Environmental Services and Safety-Kleen Sustainability Solutions segments are relatively consistent with or improved from pre-pandemic levels.

Income from operations in 2021 was $347.9 million, compared with $251.3 million in 2020.

Total direct revenues for 2022 increased 35.8% or $1.4 billion to $5.2 billion, compared with $3.8 billion in 2021.

Our Environmental Services segment direct revenues increased $1.1 billion in 2022 compared with 2021 driven by both organic growth in the segment and growth from the acquisition of HydroChemPSC.

Environmental Services saw nearly 20% organic growth from 2021 to 2022 due to continued demand for our disposal network capabilities and services as well as pricing initiatives designed to recover increased operating costs.

Direct revenues recorded by Safety-Kleen Sustainability Solutions increased $221.6 million in 2022 compared to 2021 primarily due to higher pricing of our base and blended oil products.

Foreign currency translation of our Canadian operations negatively impacted our consolidated direct revenues by $26.1 million in 2022 as compared to 2021.

In 2022, our business continued to see costs increase in both the Environmental Services and Safety-Kleen Sustainability Solutions segments when compared to the prior year given the increase in business levels and revenue mix, as well as inflationary pressures seen across several cost categories and supply chain constraints.

Supply chain challenges for additives and other materials used in the oil re-refining process have delayed production, added costs and shifted the product mix within our Safety-Kleen Sustainability Solutions segment.

Similarly within the Environmental Services segment, supply chain challenges have delayed fleet and equipment delivery, increasing rental and external transportation costs.

Strategic decisions made in connection with these challenges drove increased investment in certain supplies related inventory resulting in higher working capital balances.

We believe that this investment will help to mitigate future potential supply chain constraints.

Also to combat inflationary pressures across both segments and our Corporate operations in 2022, we executed upon cost control initiatives, to the greatest extent possible, as well as strategic pricing initiatives with customers.

Income from operations in 2022 increased 82.5% to $634.7 million, compared with $347.9 million in 2021.

We reported net income in 2022 and 2021 of $411.7 million and $203.2 million, respectively.

Adjusted EBITDA, which is the primary financial measure by which we evaluate our segments, increased 51.1% to $1,022.1 million in 2022 from $676.6 million in 2021.

This improved performance was driven by the increased revenue levels in both segments noted above, including the acquisition of HydroChemPSC, focused pricing initiatives in the Environmental Services segment, strong spread management as it relates to the pricing of base oil products and used motor oil collection services in the Safety-Kleen Sustainability Services segment.

Cost control initiatives across the entire Company, which were aided by the ability to leverage our fixed costs structure particularly relative to general and administrative costs also drove this increase.

Additional information regarding Adjusted EBITDA, which is a non-GAAP measure, including a reconciliation of Adjusted EBITDA to net income, appears below under "Adjusted EBITDA."

Net cash from operating activities for 2022 was $626.2 million, an increase of $80.2 million from 2021.

Adjusted free cash flow, which management uses to measure our financial strength and ability to generate cash, was $326.3 million in 2021, which represented a $61.3 million increase over 2020.

This improved performance was primarily driven by greater levels of operating income partially offset by an increase in capital expenditures, net of disposals.

Adjusted free cash flow, which management uses to measure our financial strength and ability to generate cash, was $289.9 million in 2022, which represented a $36.4 million decrease over 2021.

This decrease is due to $116.6 million of additional spend on property, plant and equipment net of proceeds from sale and disposal of fixed assets in 2022 driven by increased spend on the new incinerator being built in Kimball, Nebraska as well as the HydroChemPSC operations.

Higher working capital balances, which developed as a result of the significant growth we saw across the business, also contributed to the cash flow change, however greater levels of operating income partially offset these decreases in adjusted free cash flow.

Additional information regarding adjusted free cash flow, which is a non-GAAP measure, including a reconciliation of adjusted free cash flow to net cash from operating activities, appears below under " Adjusted Free Cash Flow ."

Acquisition of HydroChemPSC

On October 8, 2021, we acquired HydroChemPSC, a leading U.S.

provider of industrial cleaning, specialty maintenance and utility services, for a cash purchase price of approximately $1.23 billion.

The acquisition was financed with net proceeds from the Company's issuance of $1.0 billion of senior secured term loans, also occurring on October 8, 2021, with the remaining being funded through existing cash.

Refer to Note 4, "Business Combinations" and Note 11, "Financing Arrangements," to our consolidated financial statements included in Item 8 of this report for further information on this acquisition and the related issuance of the senior secured term loans.

The HydroChemPSC business serves customers across a broad range of markets and provides solutions to customers focused on cleaning, maintenance and environmental compliance of essential, mission critical equipment and infrastructure.

The acquired operations, including more than 4,500 employees, over 240 service locations and a fleet of specialized vehicles and equipment, expand the Company's existing presence within the industrial services market and enhance the Company's Environmental Services Segment.

The Company's consolidated results of operations for the year ended December 31, 2021 include $166.1 million of revenue and $166.4 million of expense from the HydroChemPSC acquisition, including $12.3 million of incremental depreciation and amortization and related severance and integration costs of $6.0 million since the acquisition.

In 2021, we also incurred costs related to issuing the $1.0 billion of senior secured term loans necessary to fund the acquisition and our future financial results will be impacted by the increased interest and principal payments on the new senior secured term loans and amortization of related discount and deferred financing costs.

Successful integration of the HydroChemPSC business and operations into our business will be necessary to realize the anticipated synergies and benefits from combining HydroChemPSC with Clean Harbors.

As of December 31, 2021, the integration is being executed according to our plan with no material issues impeding the process.

We are on target to exit 2022 with $40.0 million net synergies on an annual basis.

Continued focus by our management team will be necessary as we continue with the integration plans into 2022.

We believe that HydroChemPSC was a strategic acquisition for Clean Harbors.

The acquisition immediately expands our market share of industrial services, increased capabilities and technologies available to us and added to our results of operations for the year ended December 31, 2021.

Beyond expanding the size and scale of our operations, HydroChemPSC is an established leader in industrial services, with proprietary technology and a manufacturing center dedicated to fabricating tools aimed at reducing costs and increasing efficiency and safety.

We expect that the combined company will benefit from (i) enhanced technologies aimed at increasing safety, (ii) incremental waste volumes through Clean Harbors' network of waste disposal facilities, (iii) long-established customer relationships that bring opportunities for cross-selling of Clean Harbors' suite of services and (iv) synergistic opportunities within customer service, corporate functions, transportation, real estate, asset rentals and vehicle maintenance.

Impact of Government Programs

In 2020, the governments of Canada and the United States enacted the Canada Emergency Wage Subsidy ("CEWS") and the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), respectively (collectively referred to as "Government Programs"), in response to the widespread economic impact of the COVID-19 pandemic.

Both Government Programs were extended into 2021 and as such, management continued to consider and analyze the Company's eligibility under such Government Programs.

The table below summarizes the benefit of these Government Programs recorded in the statement of operations for the years ended December 31, 2021 and December 31, 2020 (in thousands):

For the year ended December 31, 2021 For the year ended December 31, 2020

Environmental Services Safety-Kleen Sustainability Solutions Corporate Items Total Environmental Services Safety-Kleen Sustainability Solutions Corporate Items Total

Cost of revenues $ 8,263 $ 810 $ 80 $ 9,153 $ 26,192 $ 2,300 $ 611 $ 29,103

Selling, general and administrative expenses 1,950 583 348 2,881 9,411 1,399 2,370 13,180

Total $ 10,213 $ 1,393 $ 428 $ 12,034 $ 35,603 $ 3,699 $ 2,981 $ 42,283

In addition to the credits and subsidies outlined above, which do not require any repayment to be made by the Company, the CARES Act also allowed for the deferral of payment related to certain payroll taxes during 2020.

In total, we deferred the remittance of the employer portion of federal payroll tax withholdings of $35.4 million during the year ended December 31, 2020.

We remitted half of the deferred payroll tax withholding in the third quarter of 2021 and the remaining half is subject to repayment by the end of 2022.

Segment Performance

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There are many factors which have impacted and continue to impact our revenues including, but not limited to:

overall levels of industrial activity and economic growth in North America, existence or non-existence of large scale environmental waste and remediation projects, competitive industry pricing, miles driven and related lubricant demand, impacts of acquisitions and divestitures, the level of emergency response services, weather related events, base and blended oil pricing, market changes relative to the collection of used oil, our ability to manage the spread between oil product prices and prices for the collection of used oil, the number of parts washers placed at customer sites and foreign currency translation.

In addition, customer efforts to minimize hazardous waste and changes in regulation can also impact our revenues.

overall levels of industrial activity and economic growth in North America, existence or non-existence of large scale environmental waste and remediation projects, competitive industry pricing, miles driven and related lubricant demand, impacts of acquisitions and divestitures, the level of emergency response services, captive incinerator closures, government infrastructure investment, weather related events, base and blended oil pricing, market changes relative to the collection of used oil, our ability to manage the spread between oil product prices and prices for the collection of used oil, the number of parts washers placed at customer sites and foreign currency translation.

In addition, customer efforts to minimize hazardous waste and changes in regulation can impact our revenues.

Environmental Services

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Direct revenues $ 4,171,706 $ 3,032,454 $ 2,635,901 $ 1,139,252 37.6 % $ 396,553 15.0 %

Environmental Services direct revenues for the year ended December 31, 2022 increased $1,139.3 million from the comparable period in 2021, split almost equally between organic growth of the legacy operations and incremental revenues from the HydroChemPSC operations.

More specifically, direct revenues of our industrial service offerings increased $605.1 million, most predominately in revenue streams associated with the HydroChemPSC operations.

Technical services and Safety-Kleen Environmental services revenues, which were not impacted by the acquisition of HydroChemPSC, grew by 23.6% and 18.5%, respectively.

Technical services revenues increased $285.6 million with revenue growth across our portfolio of waste disposal facilities driven by higher throughput, higher value waste streams at our incinerators and broad based pricing initiatives, including fuel surcharges.

In 2022, utilization at our incinerators was 86% as compared to 85% in 2021, largely due to increased volumes and throughput efficiencies offsetting an increase in down days due to weather related events, most notably in the fourth quarter of 2022.

We also saw a 29% increase in landfill volumes in 2022 when compared with 2021.

Direct revenues for the Safety-Kleen core service offerings increased $119.4 million from the comparable period in 2021 due to improved pricing and greater demand for our containerized waste, vacuum services and parts washer services.

Field and emergency response services revenues increased $108.9 million largely due to contributions from the HydroChemPSC operations and as legacy base business returned to pre-pandemic levels despite a $39.3 million decrease in decontamination services.

The Canadian operations of the Environmental Services segment were negatively impacted by $19.4 million due to foreign currency translation.

Environmental Services direct revenues for the year ended December 31, 2021 increased $396.6 million from the comparable period in 2020.

As noted in the Acquisition of HydroChemPSC section above, the Environmental Services segment benefitted from $166.1 million of direct revenues contributed by the HydroChemPSC operations since the acquisition on October 8, 2021.

The Environmental Services segment benefitted from $166.1 million of direct revenues contributed by the HydroChemPSC operations since the acquisition on October 8, 2021.

Excluding the HydroChemPSC revenues, Environmental Services revenues increased by $230.5 million or 8.7%, driven primarily by higher demand throughout our portfolio of services, including technical, industrial and base field services, and higher value waste streams at our incinerator and landfill facilities.

The revenue growth across these aspects of the Environmental Services segment was partially offset by lower demand for our COVID-19 decontamination services in 2021, which decreased $65.0 million.

Direct revenues for our technical services increased $146.9 million primarily due to revenues for waste disposal services at our incinerators, TSDFs and recycle centers.

The revenue growth across these aspects of the Environmental Services segment was partially offset by lower demand for our decontamination services in 2021, which decreased $65.0 million from 2020.

Direct revenues for our technical services increased $146.9 million from 2020 to 2021 primarily due to revenues for waste disposal services at our incinerators, TSDFs and recycle centers.

Pricing and mix drove the increase in our incinerator facilities with utilization slightly increasing from 84% to 85%.

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The Canadian operations of the Environmental Services segment were positively impacted by $27.6 million due to foreign currency translation.

Environmental Services direct revenues for the year ended December 31, 2020 decreased $160.1 million from the comparable period in 2019 driven primarily by lower demand throughout our portfolio of services partially offset by direct revenues from our COVID-19 decontamination services.

Lower economic activity throughout the COVID-19 pandemic reduced the demand for industrial and technical related services as customers postponed and/or reduced the levels of industrial turnarounds, environmental remediation projects and other waste disposal services.

In addition, revenues for Safety-Kleen core service offerings decreased $61.0 million from the same period in 2019 due to lower demand for the containerized waste, parts washer and vacuum services.

In the year ended December 31, 2020, the Company generated $120.4 million of revenues from COVID-19 related emergency response decontamination services, which partially offset the revenue decreases noted above.

Higher value waste streams being disposed of in our incinerator facilities did offset some of the decreases in technical services noted above.

Utilization at our incinerator facilities remained relatively consistent with the prior year at 84%.

Also impacting the year over year change in revenues within this segment was the negative impact of foreign currency translation on our Canadian operations of $3.5 million.

Safety-Kleen Sustainability Solutions

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Direct revenues $ 994,392 $ 772,813 $ 507,906 $ 221,579 28.7 % $ 264,907 52.2 %

Safety-Kleen Sustainability Solutions direct revenues for the year ended December 31, 2022 increased $221.6 million from the comparable period in 2021.

The overall growth was largely driven by a $154.1 million increase in base oil revenue predominately due to higher pricing across slightly lower volumes sold.

Revenues from recycled fuel oil and refinery byproducts increased $53.1 million and revenues from blended oil sales increased $30.0 million due to higher pricing which more than offset lower volumes sold relative to these products.

During 2022, the volume of used oil collected increased in line with the expansion of our network through two acquisitions, (see Note 4, "Business Combinations," to our consolidated financial statements included in Item 8 of this report) however, revenue from the collection of used oil decreased $10.0 million.

This decrease in revenues from used oil collections is expected given the inverse correlation between movements in base oil pricing and the market prices associated with our used oil collection services.

The Canadian operations of the Safety-Kleen Sustainability Solutions segment were negatively impacted by $6.7 million in 2022 due to foreign currency translation.

Safety-Kleen Sustainability Solutions direct revenues for the year ended December 31, 2021 increased $264.9 million from the comparable period in 2020 predominately due to higher pricing and volume of base and blended oil product sales, partially offset by a reduction in direct revenues from used motor oil collections.

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The impact of foreign currency translation was a $7.1 million benefit to our Safety-Kleen Sustainability Solutions' Canadian operations in 2021.

Safety-Kleen Sustainability Solutions direct revenues for the year ended December 31, 2020 decreased $107.2 million from the comparable period in 2019.

Customer shut downs and overall lower automotive travel in response to the COVID-19 pandemic reduced the demand for oil related products sold and collection services provided by the business in 2020.

Base oil direct revenues decreased $69.2 million from the comparable period in 2019 due to lower volumes, and to a lesser extent lower prices.

Lower volumes also drove a $34.8 million decrease in blended oil direct revenues in 2020.

Recycled fuel oil and refinery byproducts revenue decreased $36.4 million, driven by lower volumes and pricing.

Partially offsetting these decreases was a $41.1 million increase in direct revenue from used motor oil collections due to increases in fees charged for these services despite lower collection volumes.

The impact of foreign currency translation on our Safety-Kleen Sustainability Solutions' Canadian operations was minimal.

Cost of Revenues

We believe that our ability to manage operating costs is important to our ability to remain price competitive.

In recent periods, we have seen inflationary pressures across several cost categories, but most notably related to internal and external labor, transportation, general supplies and energy related costs.

We have continued to manage these increases through constant cost monitoring as well as our overall customer pricing strategies.

We also continue to upgrade the quality and efficiency of our services through the development of new technology and continued modifications and expansion at our facilities, invest in new business opportunities and aggressively implement strategic sourcing and logistics solutions in the face of these inflationary pressures, while also continuing to optimize our management and operating structure in an effort to maintain and increase operating margins.

We believe that management of operating costs is vital to our ability to remain price competitive.

We continue to experience the current macroeconomic inflationary pressures across several cost categories, but most notably related to internal and external labor, transportation, general supplies and energy related costs.

We aim to manage these increases through constant cost monitoring as well as our overall customer pricing strategies designed to offset the negative inflationary impacts on our margins.

We continue to upgrade the quality and efficiency of our services through the development of new technology and continued modifications and expansion at our facilities, invest in new business opportunities and aggressively implement strategic sourcing and logistics solutions in the face of these inflationary pressures, while also continuing to optimize our management and operating structure in an effort to manage our operating margins.

Environmental Services

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As a % of Direct revenues 69.6 % 69.5 % 66.0 % 0.1 % 3.5 %

Environmental Services cost of revenues for the year ended December 31, 2022 increased $796.2 million from the comparable period in 2021 primarily due to the increase in direct revenues noted above, including additional costs from the HydroChemPSC operations.

Cost of revenues as a percentage of direct revenues remained relatively consistent with 2021 despite lower decontamination services and the growth of our industrial services offerings which typically operate at a lower margin than our waste disposal focused offerings.

Overall, labor and benefit related costs, including travel, increased $386.4 million, equipment and supply costs increased $199.7 million and external transportation, vehicle and fuel costs increased $132.8 million.

These increases were driven by a combination of overall business growth, including the addition of HydroChemPSC, and inflationary pressures.

Environmental Services cost of revenues for the year ended December 31, 2021 increased $367.7 million from the comparable period in 2020;

however, excluding the incremental costs from the operations of the HydroChemPSC acquisition and the $17.9 million reduction in benefits recognized under Government Programs in 2021 as compared to 2020, these costs increased $220.5 million or 12.7%.

Costs as a percentage of revenues, excluding the impacts of HydroChemPSC and the Government Programs, increased 2.3% primarily due to the mix of services being performed, including lower COVID-19 decontamination services, as well as inflationary pressures across several cost categories including incentive compensation.

however, excluding the incremental costs from the operations of the HydroChemPSC acquisition and the $17.9 million reduction in benefits recognized under the government programs which had been enacted in the U.S.

Canada in response to the COVID-19 pandemic (the “Government Programs”), these costs increased $220.5 million or 12.7%.

Costs as a percentage of revenues, excluding the impacts of HydroChemPSC and the Government Programs, increased 2.3% primarily due to the mix of services being performed, including lower decontamination services, as well as inflationary pressures across several cost categories including incentive compensation.

More specifically, excluding HydroChemPSC and the Government Programs, equipment and supply costs increased $80.5 million, labor and benefits related costs, including incentive compensation, increased $74.8 million and transportation, vehicle and fuel related costs increased $54.7 million.

Environmental Services cost of revenues for the year ended December 31, 2020 decreased $195.4 million from the comparable period in 2019.

The overall reduction in costs was comprised of a $78.6 million decrease in labor and benefits related costs, including travel costs, a $59.6 million decrease in external transportation, vehicle and fuel costs and a $52.2 million decrease in equipment and supply costs.

These decreases were mainly attributable to lower direct revenues and successful cost control initiatives, as well as a $26.2 million benefit from the employee retention credits and subsidies recorded in 2020 under the Government Programs which is reflected in the reduction to labor and benefit related costs above.

Absent the benefit of these Government Programs, cost of revenues as a percentage of direct revenues improved 2.2% primarily due to a favorable mix of revenues and certain cost reduction strategies which provided better leverage of our employee and asset bases and drove lower external transportation, equipment rental and subcontractor spending.

Safety-Kleen Sustainability Solutions

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As a % of Direct revenues 61.9 % 62.7 % 73.8 % (0.8) % (11.1) %

Safety-Kleen Sustainability Solutions cost of revenues for the year ended December 31, 2022 increased $130.6 million from 2021 and as a percentage of revenue continued to improve.

The cost of raw materials used in production of our oil products increased $74.5 million, more than half of which was due to increased costs to obtain used oil through our used oil collection services.

The increase in base oil pricing has resulted in a correlating increase in the cost we now pay for used oil feedstock.

Other primary costs that contributed to the overall increase include external transportation, vehicle and fuel costs which increased $25.3 million, labor and benefit related costs, including travel, which increased $9.7 million and equipment and supply costs which increased $2.8 million.

Safety-Kleen Sustainability Solutions cost of revenues for the year ended December 31, 2021 increased $109.8 million from the comparable period in 2020 predominately due to the revenue growth experienced by the business.

As a percentage of revenues these costs decreased 11.1%.

This margin improvement was largely driven by the increased pricing of our products which outpaced the relative cost of revenues as the business successfully managed its spread and capitalized on these favorable

market conditions.

Production efficiencies also led to this lower cost structure as our re-refineries had greater utilization and output in 2021 as compared to 2020 when certain of the re-refineries were temporarily shuttered for a portion of the year.

Overall, significant increases were noted in the cost of oil additives and other raw materials, including the costs associated with used motor oil collected, which increased $64.9 million, transportation, vehicle and fuel costs which increased $25.4 million and labor and benefits related costs which increased $21.9 million.

Safety-Kleen Sustainability Solutions cost of revenues for the year ended December 31, 2020 decreased $55.9 million from the comparable period in 2019.

The overall reduction in costs was comprised of a $29.0 million decrease in costs of oil additives and other raw materials, a $13.0 million decrease in transportation, disposal and fuel costs and a $9.1 million decrease in labor and benefits related costs, including travel costs.

These decreases were mainly attributable to lower direct revenues and cost reduction strategies, as well as a $2.3 million benefit related to employee retention credits and subsidies recorded in 2020 under the Government Programs which is reflected in the decrease in labor and benefits related costs above.

Absent the benefit of the Government Programs, costs of revenues as a percentage of direct revenues increased 4.3%.

This increase resulted from certain labor and benefits related costs and operating costs which were not reduced proportionate to the overall lower business activity, including the costs incurred while temporarily shuttering certain re-refineries.

These costs were partially offset by reductions in transportation costs and other cost reduction strategies.

Selling, General and Administrative Expenses

We strive to manage our selling, general and administrative ("SG&A") expenses commensurate with the overall performance of our segments and corresponding revenue levels.

We believe that our ability to properly align these costs with business performance is reflective of our strong management of the businesses and further promotes our ability to remain competitive in the marketplace.

We believe our ability to properly align these costs with business performance is reflective of our strong management of the businesses and further promotes our ability to remain competitive in the marketplace.

Environmental Services

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As a % of Direct revenues 7.6 % 8.8 % 8.8 % (1.2) % — %

Environmental Services SG&A expenses for the year ended December 31, 2022 increased $49.7 million from the comparable period in 2021, however improved 1.2% as a percentage of revenues driven by leveraging our SG&A base in the midst of the revenue growth discussed above.

Increased labor and benefits related cost, including travel, of $35.4 million was the largest contributor to the overall cost increase, predominantly due to the addition of the HydroChemPSC business operations, investments in our employees and higher incentive compensation.

The remaining increases were spread across various other cost categories.

Environmental Services SG&A expenses for the year ended December 31, 2021 increased $35.1 million from the comparable period in 2020.

However, excluding the incremental costs from the operations of HydroChemPSC, these costs increased $21.2 million, or 9.2%, primarily due to a $7.5 million reduction in benefits recognized under the Government Programs when compared to the prior year, as well as the overall growth in the business, with the most significant increase in labor and benefits related costs.

Excluding the incremental costs from the operations of HydroChemPSC, these costs increased $21.2 million, or 9.2%, primarily due to a $7.5 million reduction in benefits recognized under the Government Programs when compared to the prior year, as well as the overall growth in the business, with the most significant increase in labor and benefits related costs.

Excluding HydroChemPSC and the reduction in the benefits from the Government Programs in both periods, SG&A expenses as a percentage of revenues were relatively consistent at 8.9% in 2021 as compared to 9.1% in 2020.

Environmental Services SG&A expenses for the year ended December 31, 2020 decreased $30.2 million from the comparable period in 2019 primarily due to lower direct revenues and therefore lower related costs, such as travel and other selling related costs, as well as a benefit of $9.4 million in labor and benefits related costs associated with the employee retention credits and subsidies recorded in 2020 under the Government Programs.

Partially offsetting these year over year reductions was a $5.5 million favorable resolution of a litigation matter and recovery of certain trade receivables of $5.4 million, both of which were recorded in the first quarter of 2019 and favorably impacted the SG&A expenses for the year ended December 31, 2019.

Absent the impacts from the Government Programs in 2020 and litigation and receivable matters in 2019, Environmental Services SG&A expenses as a percentage of direct revenues remained relatively consistent with the comparable period in 2019.

Safety-Kleen Sustainability Solutions

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As a % of Direct revenues 7.3 % 7.9 % 9.8 % (0.6) % (1.9) %

Safety-Kleen Sustainability Solutions SG&A expenses for the year ended December 31, 2022 increased $12.0 million from the comparable period in 2021 primarily due to a $9.9 million increase in labor and benefit costs, including travel, as we expanded our sales team for the segment and made other incremental workforce investments to support its growth.

The remaining increases were spread across various cost categories.

As a percentage of revenue, these costs improved slightly when compared to the same period in the prior year.

Safety-Kleen Sustainability Solutions SG&A expenses for the year ended December 31, 2021 increased $11.0 million from the comparable period in 2020 primarily due to the overall growth in the business, with the most significant increase in labor and benefits related costs.

Safety-Kleen Sustainability Solutions SG&A expenses as a percentage of revenue improved

1.9% most notably due to a $1.8 million environmental liability charge for a Superfund site recorded in the second quarter of 2020 which did not recur in 2021.

Safety-Kleen Sustainability Solutions SG&A expenses for the year ended December 31, 2020 decreased $6.2 million from the comparable period in 2019.

These decreases were primarily attributable to lower direct revenues and therefore lower sales related costs, as well as a reduction in labor and benefit related costs of $1.4 million for the year ended December 31, 2020 attributable to employee retention credits and subsidies under the Government Programs.

Absent the benefit of the Government Programs, Safety-Kleen Sustainability Solutions 2020 SG&A expenses as a percentage of direct revenues remained relatively consistent with the prior year despite a $1.8 million environmental liability charge for a Superfund site recorded in the second quarter of 2020.

Safety-Kleen Sustainability Solutions SG&A expenses as a percentage of revenue improved 1.9% most notably due to a $1.8 million environmental liability charge for a Superfund site recorded in the second quarter of 2020 which did not recur in 2021.

Corporate Items

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We manage our Corporate SG&A expenses commensurate with the overall total Company performance and direct revenue levels.

Generally, as revenues increase, we would expect some increase in these costs, however as a percentage of revenue these costs have remained relatively consistent in 2022, 2021 and 2020.

In total, Corporate Items SG&A expenses increased by $27.7 million in 2022.

Overall cost increases include a $23.3 million increase in labor, benefits and travel related expenses, including incentive compensation, driven by investments in our workforce, and an $8.0 million increase from higher stock-based compensation costs.

The increase in stock-based compensation expense is driven by the timing of grants issued in 2022 and higher expense associated with the achievement of performance metrics.

Overall grants for 2022 were slightly lower than 2021.

Additional drivers of the overall increase in Corporate Items SG&A include a $6.7 million increase in cyber security information technology related costs and a $2.2 million closure reserve estimate increase for an inactive non-landfill site.

Partially offsetting these cost increases were a reduction in professional fees of $6.8 million and a reduction in severance costs of $6.0 million, both related to costs from the acquisition of HydroChemPSC in 2021 which did not recur in 2022.

Additionally, in 2022 we recognized the $3.0 million breakup fee received for the termination of the proposed asset acquisition from Vertex Energy, Inc.

Corporate Items SG&A expenses for the year ended December 31, 2021 increased by $40.9 million when compared to 2020.

As a percentage of revenue, these costs remained relatively consistent.

Overall cost increases include a $20.4 million increase in labor and benefits related expenses, including incentive compensation, a $15.0 million increase in professional fees related to the acquisition of HydroChemPSC and some strategic initiative projects, an increase in severance costs of $3.2 million and a $2.7 million increase of cyber-security information technology related costs.

Partially offsetting these increases was a $3.3 million charge related to an environmental remediation liability for an inactive site recorded in 2020 which did not recur in 2021 and a $3.1 million decrease in marketing expenses.

Corporate Items SG&A expenses for the year ended December 31, 2020 increased by $3.4 million when compared to 2019 primarily due to increased marketing expenses of $3.8 million to expand brand awareness, increased investment in our technology infrastructure of $3.8 million and a $3.3 million charge related to an environmental remedial liability for an inactive site.

These costs were partially offset by a $4.1 million decrease in travel and real estate related expenses and a $2.4 million reduction in labor costs for the employee retention credit and subsidies recorded under the Government Programs.

Adjusted EBITDA

Management considers Adjusted EBITDA to be a measurement of performance which provides useful information to both management and investors.

Adjusted EBITDA should not be considered an alternative to net income or other measurements under GAAP.

Adjusted EBITDA should not be considered an alternative to net income or other measurements under generally accepted accounting principles ("GAAP").

Adjusted EBITDA is not calculated identically by all companies, and therefore our measurements of Adjusted EBITDA, while defined consistently and in accordance with our existing credit agreement, may not be comparable to similarly titled measures reported by other companies.

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We regularly communicate Adjusted EBITDA results to our lenders since our loan covenants are based upon levels of Adjusted EBITDA achieved and to our board of directors and we discuss with the board our interpretation of such results.

We also compare our Adjusted EBITDA performance against internal targets as a key factor in determining cash and equity bonus compensation for executives and other employees, largely because we believe that this measure is indicative of how the fundamental business is performing and is being managed.

We also provide information relating to our Adjusted EBITDA so that analysts, investors and other interested persons have the same data that we use to assess our core operating performance.

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We also believe, however, that providing this information in addition to, and together with, GAAP financial information provides a better understanding of our core operating performance and how management evaluates and measures our performance.

Beginning in the first quarter of 2021, we revised our calculation of reported Adjusted EBITDA to add stock-based compensation, a non-cash item, to other charges which are added back to GAAP net income for purposes of calculating

Adjusted EBITDA.

We made this change in order to be more consistent with how certain of our peer group companies report their non-GAAP results, to align with how management evaluates the operating performance of the Company and performance metrics for certain incentive compensation awards issued in 2021 and beyond and to be consistent with the definition of “Adjusted EBITDA” used for covenant compliance purposes in our outstanding financing agreements as amended to date.

The amount added back each period matches the line item for stock-based compensation as recorded on the Company's GAAP consolidated statements of cash flows.

We have recast the prior period Adjusted EBITDA amounts below to provide comparative information.

The following is a reconciliation of net income to Adjusted EBITDA for the following years (in thousands, except percentages):

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Depreciation and amortization 347,594 298,135 292,915

Other expense (income), net 515 290 (2,897)

Other (income) expense, net (2,472) 515 290

Loss on early extinguishment of debt 422 — —

Loss (gain) on sale of businesses — 3,376 (687)

(Gain) loss on sale of businesses (8,864) — 3,376

Interest expense, net of interest income 107,663 77,657 73,120

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Total depreciation and amortization $ 347,594 $ 298,135 $ 292,915 $ 49,459 16.6 % $ 5,220 1.8 %

Depreciation and amortization for the year ended December 31, 2021 increased from the comparable period in 2020 due to the incremental depreciation and amortization of $12.3 million associated with the tangible and intangible assets associated with the acquisition of HydroChemPSC.

Depreciation and amortization for the year ended December 31, 2022 increased $49.5 million from the comparable period in 2021 predominately due to the depreciation and amortization of the HydroChemPSC tangible and intangible assets which were acquired in the fourth quarter of 2021 as well as increased depreciation and amortization associated with the acquisition completed in the second quarter of 2022.

For additional information regarding the acquired balances, see Note 4, "Business Combinations," to our consolidated financial statements included in Item 8 of this report.

Depreciation and amortization for the year ended December 31, 2021 increased $5.2 million from the comparable period in 2020 due to the incremental depreciation and amortization of $12.3 million associated with the HydroChemPSC tangible and intangible assets.

This increase was partially offset by decreases from the prior year related to accelerating a landfill permit amortization in 2020 and certain assets becoming fully amortized.

We expect 2022 depreciation and amortization expense will increase to between $330.0 million and $340.0 million driven by the incremental depreciation and amortization from the HydroChemPSC assets acquired.

Depreciation and amortization for the year ended December 31, 2020 decreased from the comparable period in 2019 due to certain assets becoming fully depreciated, slightly offset by an increase in amortization of finance lease right-of-use assets.

Other (Expense) Income, net

Gain (Loss) on Sale of Businesses

For the years ended December 31, 2022 over 2021 2021 over 2020

(in thousands, except percentages) 2021 2020 2019 Change % Change Change % Change

Other (expense) income, net $ (515) $ (290) $ 2,897 $ (225) 77.6 % $ (3,187) (110.0) %

For the year ended December 31, 2021, other (expense) income remained relatively consistent with the prior year.

For the year ended December 31, 2020, other (expense) income, net decreased $3.2 million from 2019 to 2020 primarily due to insurance proceeds received in 2019 which did not recur in 2020.

(in thousands, except percentages) 2022 2021 2020 Change %

Change Change %

Gain (loss) on sale of businesses $ 8,864 $ — $ (3,376) $ 8,864 100.0 % $ 3,376 (100.0) %

During the years ended December 31, 2022 and December 31, 2020, we recorded a $8.9 million gain and a $3.4 million loss, respectively, on the sale of non-core lines of businesses within our Environmental Services segment.

No businesses were sold during the year ended December 31, 2021.

For additional information regarding the gain on sale of business in 2022, see Note 5, "Disposition of Business," to our consolidated financial statements included in Item 8 of this report.

Other Income (Expense), net

For the years ended December 31, 2022 over 2021 2021 over 2020

(in thousands, except percentages) 2022 2021 2020 Change %

Change Change %

Other income (expense), net $ 2,472 $ (515) $ (290) $ 2,987 (580.0) % $ (225) 77.6 %

For the year ended December 31, 2022, other income (expense), net increased $3.0 million from 2021 primarily due to gains recognized on the sale of fixed assets.

For the year ended December 31, 2021, other income (expense) remained relatively consistent with the prior year.

Provision for Income Taxes

For the years ended December 31, 2022 over 2021 2021 over 2020

(in thousands, except percentages) 2021 2020 2019 Change % Change Change % Change

(in thousands, except percentages) 2022 2021 2020 Change %

Change Change %

Provision for income taxes $ 126,254 $ 66,468 $ 39,713 $ 59,786 89.9 % $ 26,755 67.4%

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For the year ended December 31, 2022, the provision for income taxes increased $59.8 million from the comparable period in 2021, largely due to the increase in pre-tax earnings.

The effective tax rate for 2021 was 24.6% as compared to 22.8% in the prior year.

For the year ended December 31, 2020, provision for income taxes decreased $10.8 million from the comparable period in 2019, despite an increase in income before provision for income taxes, largely due to the release of a valuation allowance on certain companies in Canada and amended federal and state returns filed.

The effective tax rate for 2022 was 23.5% which is relatively consistent with the 2021 effective tax rate of 24.6%.

For the year ended December 31, 2021, provision for income taxes increased $26.8 million from the comparable period in 2020, largely due to the increase in pre-tax earnings.

The effective tax rate for 2021 was 24.6% as compared to 22.8% in 2020.

The 2022 and 2021 effective tax rates have benefited from the utilization of previously unbenefited losses in certain of our Canadian entities for which we had previously recognized valuation allowances.

These entities had historically generated operating losses but began to generate profits due to discrete events, including government subsidies and the gain on sale of a business, but more recently due to operational profits.

As of December 31, 2022, these net operating losses have been nearly fully utilized and the remaining valuation allowance, which was nominal, was released.

As such, the effective tax rate for 2023 is expected to increase.

Liquidity and Capital Resources

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Net cash used in investing activities (388,944) (1,507,602) (199,460)

Net cash from (used in) financing activities 898,249 (88,946) (53,425)

Net cash (used in) from financing activities (187,315) 898,249 (88,946)

Net cash from operating activities

Net cash from operating activities for the year ended December 31, 2022 was $626.2 million, an increase of $80.2 million compared to the year ended December 31, 2021.

The operating cash flows were most notably impacted by greater levels of operating income partially offset by an increase in working capital caused by the recent significant growth in the business, strategic inventory management and higher payments for interest, income taxes and incentive compensation.

With approximately 30% of our debt being subject to variable interest rates during 2022, the LIBOR rate increases during the year, as well as a full year of interest payments for the incremental debt issued in October of 2021, have resulted in the increase in interest payments when compared to the prior year.

The increased tax payments were attributable to increased profits.

Net cash from operating activities for the year ended December 31, 2021 was $546.0 million, an increase of $115.4 million compared to the year ended December 31, 2020.

The increase in operating cash flows was most notably impacted by the increase in operating income in 2021 when compared to 2020 and improved working capital management in 2021 offsetting higher cash taxes and payroll taxes paid in 2021.

Cash income taxes paid, net of refunds, increased $12.1 million due to a $7.7 million tax refund received in 2020 associated with prior year amended returns previously under audit and higher pre-tax net income in 2021.

Additionally, starting in the second quarter of 2020, we deferred certain US payroll tax remittances under the CARES Act.

Additionally, starting in the second quarter of 2020, we deferred certain US payroll tax remittances under the Coronavirus Aid, Relief and Economic Security (CARES) Act.

For the year ended December 31, 2020, we had deferred a total of $35.4 million.

In 2021, we both remitted our normal 2021 US payroll taxes and half of the US payroll taxes we had previously deferred in 2020.

In addition, HydroChemPSC had also elected this payroll deferral in 2020 and upon acquisition, we recognized $11.4 million of accrued 2020 payroll taxes and we repaid half prior to the end of 2021.

The remaining payroll taxes deferred in 2020 under the CARES Act by both Clean Harbors and HydroChemPSC must be remitted in 2022.

Net cash from operating activities for the year ended December 31, 2020 was $430.6 million, an increase of $17.4 million compared to the year ended December 31, 2019.

The increase was most directly attributable to greater levels of operating income and deferring the payment of certain employer payroll taxes amounting to $35.4 million as allowed for under the CARES Act, partially offset by $26.1 million increase in income taxes paid net of refunds.

In addition, HydroChemPSC had also elected this payroll deferral in 2020 and upon acquisition, and we recognized $11.4 million of accrued 2020 payroll taxes and we repaid half prior to the end of 2021.

The remaining payroll taxes deferred in 2020 under the CARES Act by both Clean Harbors and HydroChemPSC were remitted in 2022.

Net cash used in investing activities

Net cash used in investing activities for the year ended December 31, 2022 was $388.9 million, a decrease of $1,118.7 million compared to the year ended December 31, 2021.

Cash paid for acquisitions, net reflected a decrease of $1,167.0 million due to the acquisition of HydroChemPSC in 2021 for $1.23 billion compared to $86.3 million paid for acquisitions in 2022.

Also contributing to the overall decrease was an $18.8 million cash inflow from the net sale of marketable securities compared to a $30.8 million cash outflow from the net purchase of marketable securities in 2021.

This change in cash flows is largely due to timing.

In 2022 we received $16.8 million for the sale of a business which decreased the net cash used in investing activities for 2022.

Amounts spent on additions to property, plant and equipment, net of proceeds from the sale and disposal of fixed assets increased $116.6 million which partially offset these decreases.

The higher spend on property, plant and equipment was driven by incremental spend on the new incinerator being built in Kimball, Nebraska as well as for the HydroChemPSC operations.

Total spend in 2022 related to the construction of the new incinerator in Kimball, Nebraska was $44.9 million.

Net cash used in investing activities for the year ended December 31, 2021 was $1,507.6 million, an increase of $1,308.1 million compared to the year ended December 31, 2020.

This increase was due to the acquisition of HydroChemPSC for $1.23 billion in 2021.

Absent this significant investing cash outflow in 2021, the increase in net cash used in investing was $77.7

million most notably due to a $45.6 million increase in additions to property, plant and equipment and a $21.2 million increase in net purchases of marketable securities.

Net cash used in investing activities for the year ended December 31, 2020 was $199.5 million, a decrease of $18.4 million compared to the year ended December 31, 2019 most notably due to the decreases in cash paid for acquisitions and additions to property, plant and equipment.

These overall cash decreases were partially offset by an increase in net purchases of marketable securities.

Cash paid for additions to property, plant and equipment in 2020 included the $21.1 million purchase and capital improvements of our corporate headquarters.

Net cash from (used in) financing activities

Absent this significant investing cash outflow in 2021, the increase in net cash used in investing was $77.7 million most notably due to a $45.6 increase in additions to property, plant and equipment and a $21.2 million increase in net purchases of marketable securities.

Net cash (used in) from financing activities

Net cash used in financing activities for the year ended December 31, 2022 was $187.3 million as compared to net cash from financing activities of $898.2 million for the year ended December 31, 2021.

The primary drivers of this change were the $995.0 million of cash received in 2021 from the issuance of debt, net of discount, which did not recur in 2022, and the $108.1 million of higher principal payments of long term debt in 2022.

In addition to $10.0 million of incremental principal payments required for the aforementioned debt, in November 2022 we also repaid $100.0 million of long term debt due in 2024.

Partially offsetting these were higher deferred financing costs paid in 2021 associated with the debt issuance.

Net cash from financing activities for the year ended December 31, 2021 was $898.2 million, as compared to net cash used in financing activities of $88.9 million for the year ended December 31, 2020.

The primary driver of this change was the $995.0 million of cash received from the issuance of debt, net of discount.

This cash inflow was partially offset by related higher deferred financing costs paid in 2021.

This cash inflow was partially offset by related

higher deferred financing costs paid in 2021.

In addition, cash paid for repurchases of common stock in 2021 decreased $20.4 million.

Net cash used in financing activities for the year ended December 31, 2020 was $88.9 million, an increase of $35.5 million compared to the year ended December 31, 2019.

The increase was primarily driven by a $53.4 million increase in cash paid to repurchase common stock, partially offset by a $9.1 million change related to uncashed checks and a $7.9 million reduction in deferred financing costs paid.

Adjusted Free Cash Flow

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Additionally, adjusted free cash flow is a metric on which a portion of management incentive compensation is based.

We define adjusted free cash flow as net cash from operating activities excluding cash impacts of items derived from non-operating activities, such as taxes paid in connection with divestitures, less additions to property, plant and equipment plus proceeds from sales or disposals of fixed assets.

We define adjusted free cash flow as net cash from operating activities excluding cash impacts of items derived from non-operating activities, less additions to property, plant and equipment plus proceeds from sales or disposals of fixed assets.

Adjusted free cash flow should not be considered an alternative to net cash from operating activities or other measurements under GAAP.

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operations was $517.2 million, and our U.S.

operations had net operating cash flows of $456.3 million for the year ended December 31, 2021.

operations had net cash from operating activities of $455.3 million for the year ended December 31, 2022.

We also maintain a $400.0 million revolving credit facility, of which approximately $288.6 million was available to borrow at December 31, 2022.

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Capital Expenditures

In 2021, our capital expenditures, net of disposals, were $219.7 million, including $19.0 million spent in December 2021 for the purchase of a previously leased HydroChemPSC facility in Deer Park, Texas.

We anticipate that 2022 capital spending, net of disposals, will be in the range of $310.0 million to $330.0 million and will be funded by cash from our operations.

In 2022, our capital expenditures, net of disposals, were $336.3 million.

We anticipate that 2023 capital spending, net of disposals, will be in the range of $400.0 million to $420.0 million, including approximately $90.0 million of capital spending for our new incinerator in Kimball, Nebraska.

We anticipate that the capital spending will be funded by cash from our operations.

Unanticipated changes in environmental regulations could require us to make significant capital expenditures for our facilities and adversely affect our results of operations and cash flow.

In 2021, we began the permitting and planning for a new incinerator at our Kimball, Nebraska facility, which we intend to construct with an estimated completion date in early 2025.

We are endeavoring upon this project in response to continued increasing demand for disposal outlets for regulated waste materials and we expect the new incinerator to have an annual practical capacity of approximately 70,000 tons.

The current capital expenditure estimate for this project is approximately $180.0 million, of which approximately $7.2 million was spent in 2021.

We expect 2022 capital spending for the new incinerator will be between $40.0 million and $45.0 million, which is included in the range noted above.

The highest concentration of spending is expected in 2022 and 2023.

As noted above, we expect to fund the new incinerator with funds from operations.

In 2022, we continued with the construction of our new incinerator at our Kimball, Nebraska facility, which we intend to complete in early 2025.

The current capital expenditure estimate for this project is approximately $180.0 million, of which $44.9 million was spent in 2022.

As of December 30, 2022, a total of $52.1 million has been spent on the project.

Financing Arrangements

As of December 31, 2021, our financing arrangements include (i) $719.6 million of senior secured term loans due 2024, (ii) $545.0 million of 4.875% senior unsecured notes due 2027, (iii) $1.0 billion of senior secured term loans due 2028 and (iv) $300.0 million of 5.125% senior unsecured notes due 2029.

As of December 31, 2022, our financing arrangements included (i) $614.0 million of senior secured term loans due 2024 ("2024 Term Loans"), (ii) $545.0 million of 4.875% senior unsecured notes due 2027, (iii) $990.0 million of senior secured term loans due 2028 ("2028 Term Loans") and (iv) $300.0 million of 5.125% senior unsecured notes due 2029.

We also maintain our $400.0 million revolving credit facility, of which nothing was owed as of December 31, 2022.

The material terms of these arrangements are discussed further in Note 12, “Financing Arrangements,” to our consolidated financial statements included in Item 8 of this report.

In 2022, we expect to pay $17.5 million in principal payments on the senior secured term loans and approximately $90 million in interest payments on the entire portfolio of financing arrangements noted above, taking into account the interest rate swaps that were executed in early 2022.

These payments will be funded through cash flows generated from the operations of the business.

We expect that future payments of interest will continue to be funded through cash flows from operations and any principle payments will either be funded through operations or through available financing alternatives.

We continue to monitor our debt instruments and evaluate opportunities where it may be beneficial to refinance or reallocate the portfolio.

In January 2023, we issued $500.0 million principal amount of 6.375% senior notes due 2031.

The net proceeds of the issuance, along with a $114.0 million borrowing under our existing revolving credit facility and cash on hand, were used to repay the aggregate principal balance of our 2024 Term Loans.

After taking these transactions into account, in 2023, we expect to use available cash to pay $10.0 million in principal payments on the 2028 Term Loans and an estimated $110.0 million in interest payments on the entire portfolio of financing arrangements.

This estimate assumes that variable rates remain consistent with the rates as of December 31, 2022.

We expect that future payments of interest will continue to be funded through cash flows from operations and any principal payments will either be funded through available cash from operations or through available financing alternatives.

We will continue to monitor our debt instruments and evaluate opportunities where it may be beneficial to refinance or reallocate the portfolio.

As of December 31, 2022, we were in compliance with the covenants of all of our debt agreements, and we believe we will continue to meet such covenants.

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Total environmental liabilities as of December 31, 2022 were $235.1 million, an increase of $24.1 million compared to December 31, 2021.

This increase was primarily due to annual accretion of $11.7 million, new liabilities, including those assumed in our acquisitions, and changes in environmental liability estimates recorded to the consolidated balance sheet of $8.8 million, and changes in environmental liability estimates resulting in charges to the consolidated statement of operations of $3.0 million, partially offset by expenditures of $15.5 million made during 2021.

We anticipate our environmental liabilities, substantially all of which we assumed in connection with our acquisitions, will be payable over many years and that cash flow from operations will generally be sufficient to fund the payment of such liabilities when required.

This increase was primarily due to annual accretion of $12.9 million, new liabilities, including those assumed through acquisition of $11.9 million, and changes in environmental liability estimates resulting in charges to the consolidated statement of operations and balance sheet of $8.3 million and $5.0 million, respectively.

Expenditures of $13.9 million made during 2022 partially offset these increases in the environmental liabilities.

We anticipate our environmental liabilities, substantially all of which we assumed in connection with our acquisitions, will be payable over many years and that cash flow from operations will be sufficient to fund the payment of such liabilities when required.

We have included a schedule of our expected payments as of December 31, 2022, in Note 10, “Closure and Post-closure Liabilities" and Note 11, "Remedial Liabilities,” to our consolidated financial statements included in Item 8 of this report.

Events not anticipated (such as future changes in environmental laws and regulations) could require that payments to satisfy our environmental liabilities be made earlier or in greater amounts than currently anticipated, which could adversely

affect our results of operations, cash flow and financial condition.

Conversely, the development of new treatment technologies or other circumstances may arise in the future which may reduce amounts ultimately paid.

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Landfill Final Closure and Post-Closure Liabilities.

The balance of landfill final closure and post-closure liabilities at December 31, 2021 and 2020 was $53.4 million and $48.4 million, respectively.

Landfill final closure and post-closure liabilities recorded at December 31, 2022 and 2021 were $62.3 million and $53.4 million, respectively.

We have material financial commitments for the costs associated with requirements of the EPA and the comparable regulatory agency in Canada for landfill final closure and post-closure activities.

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Included in our cost estimates are our interpretation of current regulatory requirements and proposed regulatory changes.

These cost estimates may

change in the future due to various circumstances including, but not limited to, permit modifications, changes in legislation or regulations, technological changes and results of environmental studies.

These cost estimates may change in the future due to various circumstances including, but not limited to, permit modifications, changes in legislation or regulations, technological changes and results of environmental studies.

We perform zero-based reviews of these estimated liabilities based upon a planned schedule, typically every five years or sooner if the occurrence of a significant event is likely to change the timing or amount of the currently estimated expenditures.

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Final closure costs are the costs incurred after the site ceases to accept waste, but before the landfill is certified as closed by the applicable state or provincial regulatory agency.

These costs generally include the costs required to cap the final cell of the landfill (if not included in cell closure), dismantle certain structures for landfills and other landfill improvements and regulation-mandated groundwater monitoring and leachate management.

Post-closure costs involve the maintenance and monitoring of a landfill site that has been certified closed by the applicable regulatory agency.

These costs generally include groundwater monitoring and leachate management.

These costs generally include the costs required for capping the final cell of the landfill (if not included in cell closure), dismantling certain structures for landfills and other landfill improvements and regulation-mandated groundwater monitoring and leachate management.

Post-closure costs involve the maintenance and monitoring of a landfill site that has been certified closed by the applicable regulatory agency, generally including groundwater monitoring and leachate management.

Regulatory post-closure periods are generally 30 years after landfill closure.

Final closure and post-closure obligations are accrued on a units-of-consumption basis, such that the present value of the final closure and post-closure obligations are fully accrued at the date the landfill discontinues accepting waste.

Changes in the determination of when the landfill will cease accepting waste, either through a business decision by management, determination that expansion capacity should no longer be considered probable or changes in estimates on annual airspace consumption, will accelerate accrual of these costs.

Non-Landfill Closure and Post-Closure Liabilities.

The balance of our non-landfill closure and post-closure liabilities at December 31, 2021 and 2020 was $45.7 million and $39.5 million, respectively.

Non-landfill closure and post-closure liabilities recorded at December 31, 2022 and 2021 were $56.6 million and $45.7 million, respectively.

We base estimates for non-landfill closure and post-closure liabilities on our interpretations of existing permit and regulatory requirements for closure and post-closure maintenance and monitoring.

Our cost estimates are calculated using internal sources as well as input from third-party experts.

We estimate when future operations will cease and inflate the current cost of closing the non-landfill facility using the appropriate inflation rate and then discounting the future value to arrive at an estimated present value of closure and post-closure costs.

We estimate when future operations will cease and inflate the current cost of closing the non-landfill facility using the

appropriate inflation rate and then discounting the future value to arrive at an estimated present value of closure and post-closure costs.

The estimates for non-landfill closure and post-closure liabilities are inherently uncertain due to the possibility that permit and regulatory requirements will change in the future, impacting the estimation of total costs and the timing of the expenditures.

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Remedial Liabilities.

The balance of our remedial liabilities at December 31, 2021 and 2020 was $111.9 million and $114.8 million, respectively.

Remedial liabilities recorded at December 31, 2022 and 2021 were $116.3 million and $111.9 million, respectively.

Remedial liabilities are obligations to investigate, alleviate and/or eliminate the effects of a release (or threat of a release) of hazardous substances into the environment and may also include corrective action under RCRA or the corresponding Canadian regulations.

Our remediation obligations can be further characterized as legal, Superfund, long-term maintenance and one-time projects.

Legal liabilities are typically comprised of litigation matters that involve potential liability for certain aspects of environmental cleanup and can include third-party claims for property damage or bodily injury allegedly arising from or caused by exposure to hazardous substances originating from our activities or operations or, in certain cases, from the actions or inactions of other persons or companies.

Superfund liabilities are typically claims alleging that we are a potentially responsible party ("PRP") and/or are potentially liable for environmental response, removal, remediation and cleanup costs at/or from either a facility we own or a site owned by a third-party.

As described in Note 17, "Commitments and Contingencies," to our consolidated financial statements included in Item 8 of this report, Superfund liabilities also include certain liabilities payable to government entities for which we are potentially liable to reimburse the sellers in connection with our 2002 acquisition of substantially all of the assets of the Chemical Services Division (the "CSD assets") of Safety-Kleen Corp.

Long-term maintenance liabilities include the costs of groundwater monitoring, treatment system operations, permit fees and facility maintenance for inactive operations.

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The estimates consider such factors as the nature and extent of environmental contamination (if any);

the terms of applicable permits and agreements with regulatory authorities as to

cleanup procedures and whether modifications to such permits and agreements will likely need to be negotiated;

the terms of applicable permits and agreements with regulatory authorities as to cleanup procedures and whether modifications to such permits and agreements will likely need to be negotiated;

the cost of performing anticipated cleanup activities based upon current technology;

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Acquisitions.

In accordance with the acquisition method of accounting, the purchase price paid for an acquisition is 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.

the purchase price over the net assets acquired recorded as goodwill.

Intangible assets acquired in a business combination may consist of patents, trademarks and tradenames, developed technology, customer relationships and other intangibles.

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Valuations are performed by management or third-party valuation specialists under management's supervision, where appropriate.

We applied these approaches to the valuation of the intangible and tangible assets acquired in the acquisition of HydroChemPSC with the assistance of a third-party valuation specialist.

In this transaction, the most significant personal property acquired was the equipment used in the performance of the revenue generating operations.

We estimated costs to replace these assets considering the factors noted above.

The most significant intangible assets acquired were the customer relationship asset and the developed technology asset.

Specific to these intangibles, the critical accounting estimates used in determining the fair value of the intangible assets were the estimates of market participant future cash flows driven by estimated revenue growth, operational performance including company specific synergies, estimated customer attrition, assumed obsolescence rates and royalty rates.

In addition, the net cash flows were discounted using an appropriate discount rate that requires judgment by management.

In total, the estimated preliminary fair value of the tangible and intangible assets associated with the acquisition of HydroChemPSC are $313.5 million and $289.0 million, respectively.

The Company expects to finalize the valuation and complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date.

These judgments and estimates are subject to uncertainty as future cash flows may differ from those assumed in the valuation of these intangible assets.

Due to the nature of valuing a business combination, any significant differences between the estimates made in determining the fair value of the tangible and intangible assets discussed above and the actual future cash flow of the acquired businesses may result in future impairments of the underlying assets.

See Goodwill and Other Long Lived Assets section below.

Goodwill and Other Long-Lived Assets.

We have a significant amount of goodwill associated with previous acquisitions, including approximately $683.5 million from the acquisition of HydroChemPSC in the fourth quarter of 2021.

We conducted our annual impairment test of goodwill as of December 31, 2021 in which we assessed our Environmental Sales and Services, Environmental Facilities and Safety-Kleen Sustainability Solutions reporting units.

We have a significant amount of goodwill associated with previous acquisitions.

We conducted our annual impairment test of goodwill as of December 31, 2022 in which we assessed the recoverability of the goodwill associated with our Environmental Sales and Service, Environmental Facilities and Safety-Kleen Sustainability Solutions reporting units.

We compared the fair value of the reporting units to their respective carrying values and determined that no adjustments to the carrying value of goodwill were necessary.

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When no amount within a range of estimates is more likely, the minimum is accrued.

As of December 31, 2021, we had reserves of $36.1 million consisting of (i) $24.1 million related to pending legal or administrative proceedings, including Superfund liabilities, which were included in remedial liabilities on the consolidated balance sheets and (ii) $12.0 million primarily related to legal claims as well as federal, state and provincial enforcement actions, which were included in accrued expenses on the consolidated balance sheets.

As of December 31, 2022, we had reserves of $37.1 million consisting of (i) $24.1 million related to pending legal or administrative proceedings, including Superfund liabilities, which were included in remedial

liabilities on the consolidated balance sheets and (ii) $13.0 million primarily related to legal claims as well as federal, state and provincial enforcement actions, which were included in accrued expenses on the consolidated balance sheets.

The inherent uncertainty related to the outcome of these matters can result in amounts materially different from any provisions made with respect to their resolution.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis