Clean Harbors Inc: Form 10-Q for the period ended Jun 30, 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 market pricing, overall demand 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 or burning of used oil as a fuel, impact the premium the segment can charge for used oil collections.

Highlights

Total direct revenues for the three and six months ended June 30, 2023 were $1,397.9 million and $2,705.3 million, compared with $1,356.3 million and $2,525.4 million for the three and six months ended June 30, 2022. Our Environmental Services segment direct revenues increased $81.3 million and $204.6 million or 7.5% and 10.0% from the comparable periods in 2022 driven by continued demand for our services and growth from the recent acquisition of Thompson Industrial Services, LLC ("Thompson Industrial") on March 31, 2023. In the three and six months ended June 30, 2023, our Safety-Kleen Sustainability Solutions segment direct revenues decreased $39.7 million and $24.8 million or 15.0% and 5.1% from the comparable periods in 2022, due to lower market-based pricing on our base oil product sales. The segment has increased the pricing on our collection of used oil services. Foreign currency translation of our Canadian operations negatively impacted our consolidated direct revenues by $8.5 million and $18.6 million in the three and six months ended June 30, 2023.

Income from operations for the three and six months ended June 30, 2023 was $189.8 million and $310.8 million, compared with $211.2 million and $298.3 million in the three and six months ended June 30, 2022, representing a decrease of 10.1% and an increase of 4.2%, respectively. Net income for the three and six months ended June 30, 2023 was $115.8 million and $188.2 million, compared with net income of $148.2 million and $193.5 million in the three and six months ended June 30, 2022, representing decreases of 21.9% and 2.7%, respectively.

Adjusted EBITDA, which is the primary financial measure by which we evaluate our segments, decreased 7.0% to $287.5 million in the three months ended June 30, 2023 from $309.1 million in the three months ended June 30, 2022 predominately due to lower revenue in the Safety-Kleen Sustainability Solutions segment. For the six months ended June 30, 2023, Adjusted EBITDA increased 2.7% from $489.3 million in the six months ended June 30, 2022 to $502.6 million in the six months ended June 30, 2023 due to the increased revenue and focused pricing initiatives in the Environmental Services segment. 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 six months ended June 30, 2023 increased $103.6 million from $132.0 million in 2022 to $235.6 million in 2023. Adjusted free cash flow, which management uses to measure our financial strength and ability to generate cash, was an inflow of $34.2 million in the six months ended June 30, 2023 as compared to an outflow of $13.0 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 and six months ended June 30, 2023 and June 30, 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.

(3) Calculated as a percentage of individual segment direct revenue.

(4) Calculated as a percentage of total Company revenue.

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, overall market incineration capacity including captive incinerator closures, miles driven and related lubricant demand, impacts of acquisitions and divestitures, the level of emergency response services, government infrastructure investment, weather related events, the number of parts washers placed at customer sites, base and blended oil pricing, market supply for base oil products, 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 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 June 30, 2023 increased $81.3 million from the comparable period in 2022 primarily due to growth in our industrial service offerings and Safety-Kleen core service offerings. The $38.7 million increase in our industrial service offerings revenue was driven by contributions from the acquisition of Thompson Industrial on March 31, 2023, as well as growth in the legacy industrial operations. Direct revenues for the Safety-Kleen core service offerings increased $25.9 million from the comparable period in 2022 due to improved pricing and greater demand for our containerized waste, parts washer and vacuum services. Field and emergency response service revenues increased $9.5 million. Within our technical services operations, utilization at our incinerators for the three months ended June 30, 2023 was 84% as compared to 90% in the prior year due to outages for required maintenance early in the second quarter of 2023. The Canadian operations of the Environmental Services segment were negatively impacted by $7.0 million due to foreign currency translation.

Environmental Services direct revenues for the six months ended June 30, 2023 increased $204.6 million from the comparable period in 2022 due to growth across our service offerings. Revenue from our industrial services operations grew $66.2 million due to organic growth as well as contributions from the acquisition of Thompson Industrial. Safety-Kleen core services offerings contributed $60.0 million to the overall growth of the Environmental Services segment in the first six months of 2023 as compared to the first six months of 2022. This increase was generally due to greater demand and improved pricing for our containerized waste, parts washer and vacuum services. Technical services revenue increased $45.7 million with contributions across our portfolio of waste disposal facilities more than offsetting slightly lower revenues at our incinerators. Utilization at our incinerators for the six months ended June 30, 2023 was 82% as compared to 88% in the prior year due to unplanned outages for required maintenance and significant weather events early in the year. Pricing at the incinerators for the six months ended June 30, 2023 improved when compared to 2022 partially offsetting this lower utilization. Field and emergency response service revenues $25.2 million from the comparable period in 2022. The Canadian operations of the Environmental Services segment were negatively impacted by $14.7 million due to foreign currency translation.

Safety-Kleen Sustainability Solutions

(in thousands, except percentages)

In the three months ended June 30, 2023, Safety-Kleen Sustainability Solutions direct revenue decreased $39.7 million from the comparable period in 2022. This decrease was driven by a $42.8 million decrease in base oil sales due to lower pricing despite increased volumes sold. Revenues from the collection of used oil and blended oil sales partially offset this decrease by $4.1 million and $2.3 million respectively. The increase in revenues from the collection of used oil was driven by higher collection volumes and pricing increases for these services, while the increase in blended oil sales was driven by higher volume which offset a lower price for these products. The Canadian operations of the Safety-Kleen Sustainability Solutions segment were negatively impacted by $1.5 million in the three months ended June 30, 2023 due to foreign currency translation.

In the six months ended June 30, 2023, Safety-Kleen Sustainability Solutions direct revenues decreased $24.8 million from the comparable period in 2022 largely due to a $31.7 million reduction in revenues from base oil sales due to lower pricing despite increased volumes sold. Revenues from contract packaging and blending decreased $7.6 million and blended oil revenues decreased $3.1 million. Partially offsetting these decreases were incremental revenues of $12.4 million from our recycled fuel oil and refinery byproducts driven by operations acquired in mid-2022 and an increase of $2.7 million in revenues from the collection of used oil due to higher collection volumes and pricing increases for these services. The Canadian operations of the Safety-Kleen Sustainability Solutions segment were negatively impacted by $3.9 million in the six months ended June 30, 2023 due to foreign currency translation.

Cost of Revenues

We believe that operating cost management is vital to our ability to remain price competitive. As we experience cost increases, including those driven by macroeconomic inflationary pressures such as internal and external labor, transportation, general supplies and energy related costs, we manage these costs through diligent cost monitoring and 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 June 30, 2023 increased $37.6 million from the comparable period in 2022, however as a percentage of revenue these costs decreased 1.5%. Overall, labor and benefit related costs increased $32.4 million and equipment and supply costs increased $7.1 million, commensurate with the revenue growth in the business. External transportation, vehicle and fuel related costs decreased $4.4 million which, along with the pricing increases noted above, drove the improvement in these total costs as a percentage of revenues.

Environmental Services cost of revenues for the six months ended June 30, 2023 increased $105.6 million from the comparable period in 2022, however as a percentage of revenue these costs decreased 1.7%. Overall, commensurate with the revenue growth in the business, labor and benefit related costs increased $74.0 million and equipment and supply costs increased $27.3 million. External transportation, vehicle and fuel related costs also increased $2.1 million, however these costs improved as a percentage of revenue driving overall improvement in the segment's costs as a percentage of revenue.

Safety-Kleen Sustainability Solutions

(in thousands, except percentages)

Safety-Kleen Sustainability Solutions cost of revenues for the three months ended June 30, 2023 increased $2.9 million from the comparable period in 2022. As a percentage of revenues, these costs increased by 11.3% predominately due to the market related pricing decreases discussed in the revenue section above. Overall, labor and benefit related expense increased $5.2 million, transportation, vehicle and fuel costs increased $4.8 million and equipment and supply costs increased $2.0 million. These cost increases were driven by the increased collection and production volumes and the additional costs from businesses acquired in mid-2022. The cost of used oil as the primary raw material in our recycled base and blended oil products decreased by $9.7 million driven by our efforts to manage the spread between the pricing of base oil products and our used oil collection services. We expect these raw material costs to continue to decrease in the third quarter of 2023.

Safety-Kleen Sustainability Solutions cost of revenues for the six months ended June 30, 2023 increased $26.7 million from the comparable period in 2022 and as a percentage of revenues, these costs increased by 9.1% mainly due to the market related pricing decreases discussed in the revenue section above. Overall, external transportation, vehicle and fuel costs increased $13.6 million, labor and benefit related expense increased $10.9 million and equipment and supply costs increased $3.3 million also driven by increased collection and production volumes and the incremental costs from businesses acquired mid-2022. Similar to the discussion in the preceding paragraph, costs of oil additives and other raw materials decreased by $2.6 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 and six months ended June 30, 2023 increased $7.4 million and $17.9 million, respectively, from the comparable periods in 2022 however, as a percentage of revenues, these costs remained relatively consistent as a result of cost control initiatives. The overall cost increases were due to higher labor and benefits related costs of $6.9 million in the three months ended June 30, 2023 and $18.2 million in the six months ended June 30, 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 and six months ended June 30, 2023 increased $1.0 million and $2.5 million from the comparable periods in 2022 and as a percentage of revenues, these costs increased from the prior period, mainly due to the revenue reductions discussed above. The overall cost increases were primarily due to higher labor and benefit costs in the three and six months ended June 30, 2023, 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 and six months ended June 30, 2023 remained consistent as a percentage of total Clean Harbors' direct revenues when compared to the same periods in the prior year. The SG&A expenses for the six months ended June 30, 2022 includes 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)

(1) Environmental Services and Safety-Kleen Sustainability Solutions calculated as a percentage of individual segment revenues. Corporate Items calculated as a percentage of total Company revenues.

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. Adjusted EBITDA margin for the Environmental Services segment improved due to the revenue pricing increases and cost management in both cost of revenues and SG&A expenses. Adjusted EBITDA margin in Safety-Kleen Sustainability Solutions segment decreased mainly due to the reduced revenue amounts. Corporate Items Adjusted EBITDA margin remained relatively consistent as a percentage of total Company revenues with the slight increase due to insurance related charges in cost of revenues.

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 and six months ended June 30, 2023 increased by $1.8 million and $2.3 million from the comparable periods in 2022 due to increased depreciation and amortization from new finance leases in the period and the Thompson Industrial tangible and intangible assets acquired on March 31, 2023.

Loss on Early Extinguishment of Debt

(in thousands, except percentages)

During the six months ended June 30, 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 12, "Financing Arrangements," to the accompanying financial statements.

Gain on Sale of Business

(in thousands, except percentages)

During the three and six months ended June 30, 2022, we recorded an $8.9 million gain on the sale of a non-core line of business within our Environmental Services segment. For additional information regarding this gain on sale of business, see Note 5, "Disposition of Business," 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 June 30, 2023 increased $3.8 million from the comparable period in 2022 due to higher interest rates on our portfolio of debt obligations. Interest expense, net of interest income for the six months ended June 30, 2023 decreased $0.6 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 $7.7 million due to higher interest rates on our portfolio of debt obligations. The effective interest rates on our long-term debt for the three and six months ended June 30, 2023 were 5.52% and 5.30%, respectively. The comparable rates for the three and six months ended June 30, 2022 were 4.24% and 3.90% respectively.

For the remainder of 2023, we anticipate the effective rate will be approximately 5.96% given the current interest rate environment and our portfolio of long-term debt. For additional information regarding the financing events during 2023 and our current portfolio of long-term debt, see Note 12, "Financing Arrangements," to the accompanying financial statements.

Provision for Income Taxes

(in thousands, except percentages)

For the three months ended June 30, 2023, the provision for income taxes decreased $4.2 million from the comparable period in 2022 due to a decrease in income before provision for income taxes. For the six months ended June 30, 2023, the provision for income taxes increased $4.0 million from the comparable period in 2022 due to the utilization of unbenefited losses in certain of our Canadian entities which benefitted the expense in 2022. Our effective tax rate for the three and six months ended June 30, 2023 increased 2.9% and 1.7% when compared to the three and six months ended June 30, 2022 also due to the utilization of unbenefited losses in 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 operating activities

Net cash from operating activities for the six months ended June 30, 2023 was $235.6 million as compared to $132.0 million in the comparable period of 2022. This $103.6 million increase in operating cash flows was attributable to improved working capital balances and increased income from operations, partially offset by an increase in income taxes paid and an increase in environmental expenditures.

Net cash used in investing activities

Net cash used in investing activities for the six months ended June 30, 2023 was $347.3 million, an increase of $159.8 million from the comparable period in 2022. Additions to property, plant and equipment, net of proceeds from the sale and disposal of fixed assets increased $56.3 million, largely driven by incremental capital spending for our new incinerator construction in Kimball, Nebraska. Cash used for acquisitions increased $51.9 million, while cash paid relative to the timing of investment transactions within our wholly owned captive insurance company increased $33.8 million. Additionally, during the six months ended June 30, 2022 we received $17.5 million in proceeds from the disposition of a line of business.

Net cash used in financing activities

Net cash used in financing activities for the six months ended June 30, 2023 increased $91.4 million from $51.4 million in 2022 to $142.9 million in 2023. During the six months ended June 30, 2023, the Company repaid $614.0 million of secured senior term loans with the proceeds from issuing $500.0 million of unsecured senior notes. Associated with this refinancing the Company also paid an additional $6.0 million of additional finance costs in the first six months of 2023. Partially offsetting this the Company spent $25.7 million less for repurchases of common stock.

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 operating activities to adjusted free cash flow for the following periods (in thousands):

Summary of Capital Resources

At June 30, 2023, cash and cash equivalents and marketable securities totaled $326.1 million, compared to $554.6 million at December 31, 2022. This reduction was primarily attributable to the net reduction of $114.0 million in long-term debt obligations and the payment of $111.9 million for the acquisition of Thompson Industrial in 2023. At June 30, 2023, cash and cash equivalents held by our Canadian subsidiaries totaled $29.3 million. The cash and cash equivalents and marketable securities balance for our U.S. operations was $296.9 million at June 30, 2023. Our U.S. operations had net operating cash inflows of $226.0 million for the six months ended June 30, 2023.

We also maintain a $400.0 million revolving credit facility of which, as of June 30, 2023, approximately $274.8 million was available to borrow under the facility, with letters of credit of $125.2 million outstanding.

Material Capital Requirements

Capital Expenditures

Capital expenditures during the first six months of 2023 were $204.3 million as compared to $148.0 million during the first six 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 $85.0 million to $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 six months of 2023, capital spending on the construction of our new incinerator at our Kimball, Nebraska facility was approximately $35.4 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 June 30, 2023, a total of $87.5 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. In the three months ended June 30, 2023, we repaid the $114.0 million borrowing on the revolving credit facility.

As of June 30, 2023, our financing arrangements include (i) $545.0 million of 4.875% senior unsecured notes due 2027, (ii) $985.0 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. As noted above, we also maintain our $400.0 million revolving credit facility with no amounts owed as of June 30, 2023.

The material terms of these arrangements are discussed further in Note 12, “Financing Arrangements,” to the accompanying financial statements.

As of June 30, 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 and six months ended June 30, 2023, the Company repurchased and retired a total of approximately 36.5 thousand and 58.7 thousand shares of the Company's common stock, respectively, for total expenditures of approximately $5.0 million and $8.0 million, respectively. During the three and six months ended June 30, 2022, the Company repurchased and retired a total of approximately 0.3 million and 0.4 million shares of the Company's common stock, respectively, for total expenditures of approximately $30.0 million and $33.7 million, respectively.

Through June 30, 2023, the Company has repurchased and retired a total of approximately 8.3 million shares of its common stock for approximately $502.7 million under this program. As of June 30, 2023, an additional $97.3 million remained available for repurchase of shares under this program.

Environmental Liabilities

(in thousands, except percentages)

Total environmental liabilities as of June 30, 2023 were $232.9 million, relatively consistent with the balance as of December 31, 2022. During the six months ended June 30, 2023, expenditures of $16.3 million were partially offset by accretion of $6.9 million, changes in estimates for the environmental liabilities, including those related to liabilities assumed in prior period acquisitions, of $4.7 million, and new liabilities of $1.9 million, including those assumed in current period acquisitions.

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 June 30, 2023, there were $125.2 million outstanding letters of credit. See Note 12, "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 six 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 six 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 June 30, 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 six months ended June 30, 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.