Clean Harbors Inc: Form 10-Q for the period ended Mar 31, 2023

Forward-Looking Statements

In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements, which are generally identifiable by use of the words "believes," "expects," "intends," "anticipates," "plans to," "seeks," "should," "estimates," "projects," "may," "likely" or similar expressions. Such statements may include, but are not limited to, statements about future financial and operating results, the Company's plans, objectives, expectations and intentions and other statements that are not historical facts. Forward-looking statements are neither historical facts nor assurances of future performance. Such statements are based upon the beliefs and expectations of Clean Harbors' management as of this date only and are subject to certain risks and uncertainties that could cause actual results to differ materially, including, without limitation, those items identified as "Risk Factors,” in this report under Item 1A and in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 1, 2023, and in other documents we file from time to time with the SEC. Therefore, readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Clean Harbors undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements other than through its filings with the SEC, which may be viewed in the "Investors" section of the Clean Harbors website.

Overview

We are North America’s leading provider of environmental and industrial services supporting our customers in finding environmentally responsible solutions to further their sustainability goals in today's world. 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 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.

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. 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, TSDFs and landfills, the utilization rates of our incinerators, equipment and workforce, including billable hours, and the number of parts washer services performed, and 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. GDP, U.S. 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 - 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 and product offerings. 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 products 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 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. 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 between product pricing and the overall costs associated with the collection of used oil. 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 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.

Highlights

Total direct revenues for the three months ended March 31, 2023 were $1,307.4 million, compared with $1,169.1 million for the three months ended March 31, 2022. Our Environmental Services segment direct revenues increased $123.3 million or 13.0% from the comparable period in 2022 driven by continued demand for our services as well as pricing initiatives designed to recover increased operating costs. In the three months ended March 31, 2023, our Safety-Kleen Sustainability Solutions segment direct revenues increased $14.9 million or 6.7% from the comparable period in 2022, predominately due to revenues from recently acquired businesses and higher volumes of base oil products sold. Foreign currency translation of our Canadian operations negatively impacted our consolidated direct revenues by $10.0 million in the three months ended March 31, 2023.

Income from operations for the three months ended March 31, 2023 was $121.0 million, compared with $87.1 million in the three months ended March 31, 2022. Net income for the three months ended March 31, 2023 was $72.4 million, compared with net income of $45.3 million in the three months ended March 31, 2022. The increases in these earnings measures were 38.9% and 59.8%, respectively.

Adjusted EBITDA, which is the primary financial measure by which we evaluate our segments, increased 19.3% to $215.1 million in the three months ended March 31, 2023 from $180.3 million in the three months ended March 31, 2022. This improved performance was driven by the increased revenue levels and focused pricing initiatives in the Environmental 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 contributed to this increase in consolidated Adjusted EBITDA and Adjusted EBITDA margin. 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 the three months ended March 31, 2023 was $28.0 million, as compared to net cash used in operating activities of $38.6 million in the comparable period of 2022. Adjusted free cash flow, which management uses to measure our financial strength and ability to generate cash, was an outflow of $51.8 million in the three months ended March 31, 2023 as compared to an outflow of $107.6 million in the comparable period of 2022. This change is due to increases in net cash from operating activities, partially offset by incremental spend on property, plant and equipment net of proceeds from sale and disposal of fixed assets. 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."

Segment Performance

The primary financial measure by which we evaluate the performance of our segments is Adjusted EBITDA. The following table sets forth certain financial information associated with our results of operations for the three months ended March 31, 2023 and March 31, 2022 (in thousands, except percentages):

N/M = not meaningful

(1) Direct revenues are revenues allocated to the segment performing the provided service.

(2) Cost of revenues are shown exclusive of items presented separately on the consolidated statements of operations which consist of (i) accretion of environmental liabilities and (ii) depreciation and amortization.

Direct Revenues

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, 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

(in thousands, except percentages)

Environmental Services direct revenues for the three months ended March 31, 2023 increased $123.3 million from the comparable period in 2022 due to organic growth across our service offerings. Technical services revenue increased $42.9 million with contributions across our portfolio of waste disposal facilities driven by higher value waste streams and broad based pricing initiatives, including fuel and other surcharges. These increases more than offset unplanned outages at some of our incinerator and landfill facilities. Utilization at our incinerators for the three months ended March 31, 2023 was 80% as compared to 85% in the prior year due to unplanned outages for required maintenance and significant weather events. Landfill volumes also decreased in the first three months of 2023 as compared to the first three months of 2022 predominantly due to flooding at our landfill site in California; however, pricing of these services more than offset the lower volumes. Direct revenues for the Safety-Kleen core service offerings increased $34.1 million from the comparable period in 2022 due to greater demand and improved pricing for our containerized waste, vacuum and parts washer services. Industrial Services revenues increased $27.5 million and Field Services revenues increased $15.7 million from the comparable period in 2022. The Canadian operations of the Environmental Services segment were negatively impacted by $7.6 million due to foreign currency translation.

Safety-Kleen Sustainability Solutions

(in thousands, except percentages)

In the three months ended March 31, 2023, Safety-Kleen Sustainability Solutions direct revenue increased $14.9 million from the comparable period in 2022. This increase was largely driven by $12.2 million of incremental revenues from operations acquired in the second half of 2022. In addition, base oil product revenues increased $11.0 million due to incremental volumes sold during the period. These increases were partially offset by a $5.4 million decrease in blended oil sales as higher pricing of our blended products could not offset lower volumes sold. Revenue from the collection of used motor oil also decreased $1.4 million despite a higher volume of used oil collected. This decrease in direct revenue from the collection of used motor oil is in line with expectations 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 $2.4 million in the three months ended March 31, 2023 due to foreign currency translation.

Cost of Revenues

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

(in thousands, except percentages)

Environmental Services cost of revenues for the three months ended March 31, 2023 increased $68.0 million from the comparable period in 2022, however as a percentage of revenue these costs decreased 1.9%. Overall, labor and benefit related costs increased $42.5 million, equipment and supply costs increased $18.5 million and external transportation, vehicle and fuel related costs increased $6.5 million. These increases in costs are commensurate with the overall revenue growth in the segment.

Safety-Kleen Sustainability Solutions

(in thousands, except percentages)

Safety-Kleen Sustainability Solutions cost of revenues for the three months ended March 31, 2023 increased $23.8 million from the comparable period in 2022 and as a percentage of revenues, these costs increased by 5.7%. The cost of used oil as the primary raw material in our recycled base and blended oil products was higher in the first quarter of 2023, as compared to the prior year, driving a cost increase, both in total and as a percentage of revenue. We expect these costs to decrease in the second quarter of 2023 in response to our efforts to manage the spread between the pricing of base oil products and our used oil collection services. Additionally, the increase in costs from the comparable period in 2022 was driven by the operations acquired in the second half of 2022.

In total, the increase in cost of revenues was driven by external transportation, vehicle and fuel costs which increased $8.9 million, costs of raw materials which increased $7.0 million, more than half of which was due to increased costs to obtain used oil through our used oil collection services, and labor and benefit related costs which increased $5.7 million.

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 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

(in thousands, except percentages)

Environmental Services SG&A expenses for the three months ended March 31, 2023 increased $10.5 million from the comparable period in 2022, however as a percentage of revenues, these costs remained consistent as a result of cost control initiatives. The overall cost increase was due to higher labor and benefits related costs of $10.4 million in the three months ended March 31, 2023, predominately due to investments in our employees and higher incentive compensation resulting from revenue growth and profitability.

Safety-Kleen Sustainability Solutions

(in thousands, except percentages)

Safety-Kleen Sustainability Solutions SG&A expenses for the three months ended March 31, 2023 increased $1.5 million from the comparable period in 2022, however as a percentage of revenues these costs remained relatively consistent. The overall cost increase was primarily due to a $1.4 million increase in labor and benefit costs as we expanded our sales team for the segment in mid-2022.

Corporate Items

(in thousands, except percentages)

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. Corporate SG&A expenses for the three months ended March 31, 2023 improved as a percentage of total Clean Harbors' direct revenues when compared to the same period in the prior year which has also contributed to Clean Harbors' overall profitability. The SG&A expenses for the three months ended March 31, 2022 include a benefit of $3.0 million related to the breakup fee received from Vertex Energy, Inc. for the termination of the proposed asset acquisition.

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 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.

(in thousands, except percentages)

We use Adjusted EBITDA to enhance our understanding of our operating performance, which represents our views concerning our performance in the ordinary, ongoing and customary course of our operations. We historically have found it helpful, and believe that investors have found it helpful, to consider an operating measure that excludes certain expenses relating to transactions not reflective of our core operations.

The information about our operating performance provided by Adjusted EBITDA is used by our management for a variety of purposes. 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 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. Adjusted EBITDA should be viewed only as a supplement to the GAAP financial information. We 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.

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

Depreciation and Amortization

(in thousands, except percentages)

Depreciation and amortization for the three months ended March 31, 2023 remained relatively consistent with the comparable period in 2022.

Loss on Early Extinguishment of Debt

(in thousands, except percentages)

During the three months ended March 31, 2023, we recorded a $2.4 million loss on early extinguishment of debt in connection with the repayment of the remaining $614.0 million principal amount of the 2024 Term Loans. For additional information regarding this repayment, see Note 11, "Financing Arrangements," to the accompanying financial statements.

Interest Expense, Net of Interest Income

(in thousands, except percentages)

Interest expense, net of interest income for the three months ended March 31, 2023 decreased $4.4 million from the comparable period in 2022 due to the $8.3 million benefit recognized from settling interest rate swaps in connection with repaying certain of our variable rate debt in January 2023. Absent this benefit, interest expense, net of interest income, increased $3.9 million due to higher interest rates on our portfolio of debt obligations. For additional information regarding the financing events during the first quarter of 2023 and our current portfolio of debt, see Note 11, "Financing Arrangements," to the accompanying financial statements.

Provision for Income Taxes

(in thousands, except percentages)

For the three months ended March 31, 2023, the provision for income taxes increased $8.2 million from the comparable period in 2022 due to an increase in income before provision for income taxes. Our effective tax rate for the three months ended March 31, 2023 decreased 1.6% when compared to the three months ended March 31, 2022.

Liquidity and Capital Resources

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing, and financing activities. Our primary ongoing cash requirements will be to fund operations, capital expenditures, interest payments and investments in line with our business strategy. We believe our future operating cash flows will be sufficient to meet our future operating and internal investing cash needs. We monitor our actual needs and forecasted cash flows, our liquidity and our capital resources, enabling us to plan our present needs and fund items that may arise during the year as a result of changing business conditions or opportunities. Furthermore, our existing cash balance and the availability of additional borrowings under our revolving credit facility provide additional potential sources of liquidity should they be required.

Summary of Cash Flow Activity

(in thousands)

Net cash from (used in) operating activities

Net cash from operating activities for the three months ended March 31, 2023 was $28.0 million as compared to net cash used in operating activities of $38.6 million in the comparable period of 2022. This $66.6 million increase in operating cash flows was attributable to increased income from operations and improved working capital balances, partially offset by an increase in income taxes paid.

Net cash used in investing activities

Net cash used in investing activities for the three months ended March 31, 2023 was $197.9 million, an increase of $139.1 million from the comparable period in 2022 primarily driven by a $113.5 million increase in cash used for acquisitions. During the three months ended March 31, 2023, the Company paid $108.5 million to acquire Thompson Industrial Services, LLC ("Thompson Industrial"), while in the three months ended March 31, 2022, the Company had received a working capital adjustment of $5.0 million related to the acquisition of HydroChemPSC. The remaining change in net cash used in investing activities was due to a $14.7 million increase in cash paid related to the timing of investment transactions within our wholly owned captive insurance company and a $10.8 million increase in additions to property, plant and equipment, net of proceeds from the sale and disposal of fixed assets.

Net cash used in financing activities

Net cash used in financing activities for the three months ended March 31, 2023 increased $2.4 million from $16.1 million in 2022 to $18.4 million in 2023. During the three months ended March 31, 2023, the Company repaid $614.0 million of senior term loans with the proceeds from issuing $500.0 million of unsecured senior notes and borrowing $114.0 million under the revolving credit facility. The overall increase in net cash used in financing activities is due to the incremental deferred financing costs paid for these transactions of $5.8 million partially offset by a $2.5 million cash inflow caused by the change in the level of uncashed checks.

Adjusted Free Cash Flow

Management considers adjusted free cash flow to be a measure of liquidity which provides useful information to management, creditors and investors about our financial strength and ability to generate cash. 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, 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. Adjusted free cash flow is not calculated identically by all companies, and therefore our measurements of adjusted free cash flow may not be comparable to similarly titled measures reported by other companies.

The following is a reconciliation from net cash from (used in) operating activities to adjusted free cash flow for the following periods (in thousands):

Summary of Capital Resources

At March 31, 2023, cash and cash equivalents and marketable securities totaled $376.1 million, compared to $554.6 million at December 31, 2022. This reduction was primarily attributable to the payment of $108.5 million on March 31, 2023 for the acquisition of Thompson Industrial. At March 31, 2023, cash and cash equivalents held by our Canadian subsidiaries totaled $26.1 million. The cash and cash equivalents and marketable securities balance for our U.S. operations was $350.0 million at March 31, 2023. Our U.S. operations had net operating cash inflows of $25.9 million for the three months ended March 31, 2023.

We also maintain a $400.0 million revolving credit facility of which, during the three months ended March 31, 2023, $114.0 million was borrowed, the proceeds of which were used to repay a portion of the secured senior term loans (see discussion in "Net cash used in financing activities" above). As of March 31, 2023, the $114.0 million remained outstanding, with letters of credit of $132.1 million also outstanding and an additional $153.9 million available to borrow under the facility.

Material Capital Requirements

Capital Expenditures

Capital expenditures during the first three months of 2023 were $81.7 million as compared to $70.3 million during the first three months of 2022. We anticipate that 2023 capital spending, net of disposals, will be in the range of $400.0 million to $420.0 million, including $90.0 million of capital spending for our new incinerator construction 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.

During the first three months of 2023, capital spending on the construction of our new incinerator at our Kimball, Nebraska facility was approximately $13.0 million. The current capital expenditure estimate for this project is approximately $180.0 million and we anticipate the project to be complete in early 2025. As of March 31, 2023, a total of $65.1 million has been spent on the project.

Financing Arrangements

In January 2023, we issued $500.0 million principal amount of 6.375% unsecured 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.

As of March 31, 2023, our financing arrangements include (i) $545.0 million of 4.875% senior unsecured notes due 2027, (ii) $987.5 million of senior secured term loans due 2028, (iii) $300.0 million of 5.125% senior unsecured notes due 2029 and (iv) $500.0 million of 6.375% senior unsecured notes due 2031. We also maintain our $400.0 million revolving credit facility. As of

March 31, 2023, under the revolving credit facility, we had an outstanding loan balance of $114.0 million, $153.9 million available to borrow and outstanding letters of credit of $132.1 million.

The material terms of these arrangements are discussed further in Note 11, “Financing Arrangements,” to the accompanying financial statements.

As of March 31, 2023, we were in compliance with the covenants of all of our debt agreements, and we believe we will continue to meet such covenants.

Common Stock Repurchases Pursuant to Publicly Announced Plan

The Company's common stock repurchases are made pursuant to the previously authorized board approved plan to repurchase up to $600.0 million of the Company's common stock. During the three months ended March 31, 2023 and March 31, 2022, the Company repurchased and retired a total of approximately 22.3 thousand and 41.1 thousand shares of the Company's common stock, respectively, for total expenditures of approximately $3.0 million and $3.7 million, respectively.

Through March 31, 2023, the Company has repurchased and retired a total of approximately 8.2 million shares of its common stock for approximately $497.7 million under this program. As of March 31, 2023, an additional $102.3 million remained available for repurchase of shares under this program.

Environmental Liabilities

(in thousands, except percentages)

Total environmental liabilities as of March 31, 2023 were $236.0 million, relatively consistent with the balance as of December 31, 2022. During the three months ended March 31, 2023, changes in estimates for the environmental liabilities, including those related to liabilities assumed in prior period acquisitions, of $5.1 million and accretion of $3.4 million, were partially offset by expenditures of $8.3 million.

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.

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.

Letters of Credit

We obtain standby letters of credit as security for financial assurances we have been required to provide to regulatory bodies for our hazardous waste facilities and which would be called only in the event that we fail to satisfy closure, post-closure and other obligations under the permits issued by those regulatory bodies for such licensed facilities. As of March 31, 2023, there were $132.1 million outstanding letters of credit. See Note 11, "Financing Arrangements," to the accompanying financial statements.

Critical Accounting Policies and Estimates

Other than as described below, there were no material changes in the first three months of 2023 to the information provided under the heading “Critical Accounting Policies and Estimates” included in our Annual Report on Form 10-K for the year ended December 31, 2022.

Goodwill and Other Long-Lived Assets. Pursuant to the previous succession announcement, effective March 31, 2023, Michael L. Battles and Eric W. Gerstenberg, were appointed co-CEOs and as a result, the Company’s new Chief Operating Decision Maker (“CODM”) is a committee comprised of both co-CEOs, who, going forward, will manage the business, make operating decisions and assess performance. The Company does not expect that the new CODM structure will change how the Company is managed and as such will continue to report as two operating segments; (i) the Environmental Services segment and (ii) the Safety-Kleen Sustainability Solutions segment and assess the recoverability of goodwill under three reporting units; (i) Environmental Sales and Service, (ii) Environmental Facilities and (iii) Safety-Kleen Sustainability Solutions.

There were no material changes in the first three months of 2023 to the information provided under Item 7A. “Quantitative and Qualitative Disclosures about Market Risk” in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

Evaluation of Disclosure Controls and Procedures

Based on an evaluation under the supervision and with the participation of our Co-Chief Executive Officers and Chief Financial Officer, as of the end of the period covered by this Quarterly Report on Form 10-Q, our Co-Chief Executive Officers and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined under Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were effective as of March 31, 2023 to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to our management, including our Co-Chief Executive Officers and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in the Company's internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that was conducted during the three months ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

There have been no material changes to the risk factors from the information provided in Item 1A. in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.