CASELLA WASTE SYSTEMS INC (CWST) FY 2023 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto, and other financial information, included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements and involves numerous risks and uncertainties. Our actual results may differ materially from those contained in any forward-looking statements.

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Discussion and analysis of our financial condition and results of operations for the fiscal year ended December 31, 2022 ("fiscal year 2022") compared to our financial condition and results of operations for the fiscal year ended December 31, 2021 is included under the heading Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 as filed with the Securities and Exchange Commission on February 17, 2023.

Company Overview

Casella Waste Systems, Inc., a Delaware corporation, and its wholly-owned subsidiaries (collectively, “we”, “us” or “our”), is a regional, vertically integrated solid waste services company. We provide resource management expertise and services to residential, commercial, municipal, institutional and industrial customers, primarily in the areas of solid waste collection and disposal, transfer, recycling and organics services.

We provide integrated solid waste services in nine states: Vermont, New Hampshire, New York, Massachusetts, Connecticut, Maine, Pennsylvania, Delaware and Maryland with our headquarters located in Rutland, Vermont. On June 30, 2023, we acquired the equity interests of four wholly owned subsidiaries of GFL Environmental Inc. ("GFL Subsidiaries"), which are the basis of our newly formed regional operating segment, the Mid-Atlantic region, that expanded our integrated solid waste services to the states of Delaware and Maryland, ("GFL Acquisition"). Operations under the Mid-Atlantic region commenced on July 1, 2023.

We manage our solid waste operations on a geographic basis through three regional operating segments, the Eastern, Western and Mid-Atlantic regions, each of which provides a comprehensive range of non-hazardous solid waste services. We manage our resource renewal operations through the Resource Solutions operating segment, which leverages our core competencies in materials processing, industrial recycling, organics and resource management service offerings to deliver a comprehensive solution for our larger commercial, municipal, institutional and industrial customers that have more diverse waste and recycling needs. Legal, tax, information technology, human resources, certain finance and accounting and other administrative functions are included in our Corporate Entities segment.

For financial information concerning our reportable operating segments and additional disclosure over the GFL Acquisition refer to “Item 8. Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

As of January 31, 2024, we owned and/or operated 64 solid waste collection operations, 71 transfer stations, 29 recycling and processing facilities, eight Subtitle D landfills, three landfill gas-to-energy facilities and one landfill permitted to accept construction and demolition materials.

Acquisitions and Divestitures

Acquisitions

We have made in the past, and we expect to make in the future, acquisitions to densify existing operations, expand service areas, and grow services for our customers. These acquisitions may include “tuck-in” acquisitions within our existing markets, assets that are adjacent to or outside of our existing markets, or larger, more strategic acquisitions. In addition, from time to time, we may acquire businesses that are complementary to our core business strategy. We face competition for acquisition targets, particularly the larger and more meaningful targets, but we believe that our strong relationships and reputation help to offset this factor.

We have a business development team that identifies acquisition candidates, categorizes the opportunity by strategic fit and financial synergies, establishes contact with the appropriate representative of the acquisition candidate and gathers further information on the acquisition candidate.

In the fiscal year ended December 31, 2023 ("fiscal year 2023"), we acquired seven businesses: the GFL Subsidiaries, which include solid waste collection, transfer and recycling operations in Pennsylvania, Maryland and Delaware; the assets of Consolidated Waste Services, LLC and its affiliates (dba Twin Bridges), which was completed on September 1, 2023 and consists of a collection, transfer and recycling business in the greater Albany, New York area (the "Twin Bridges Acquisition"); and five additional solid waste collection businesses that provide collection, transfer and recycling services. Our total consideration for acquisitions completed in fiscal year 2023 was $846.6 million, including $846.7 in cash, $2.7 million in holdbacks and additional consideration owed to sellers, partially offset by $(2.8) million of open working capital settlements due from sellers.

In the fiscal year 2022, we acquired fourteen businesses, primarily related to our solid waste collection, transfer, recycling and transportation operations, for total consideration of $82.7 million, including $76.6 million in cash, $1.3 million in non-cash consideration and $4.8 million in holdbacks to sellers.

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Divestitures

From time to time, we may sell or divest certain investments or other components of our business. These divestitures may be undertaken for a number of reasons, including: to generate proceeds to pay down debt; as a result of a determination that the specified asset will provide inadequate returns to us or that the asset no longer serves a strategic purpose in connection with our business; or as a result of a determination that the asset may be more valuable to a third-party. We will continue to look to divest certain activities and investments that no longer enhance or complement our core business if the right opportunity presents itself.

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Results of Operations

Revenues

We manage our solid waste operations, which include a full range of solid waste services, on a geographic basis through three regional operating segments, which we designate as the Eastern, Western and Mid-Atlantic regions. The Mid-Atlantic region, which was formed as a result of the GFL Acquisition on June 30, 2023, commenced operations on July 1, 2023. Revenues associated with our solid waste operations are derived mainly from fees charged to customers for solid waste collection and disposal services, including landfill, transfer station and transportation services, landfill gas-to-energy services, and processing services in the eastern United States. We derive a substantial portion of our collection revenues from commercial, industrial and municipal services that are generally performed under service agreements or pursuant to contracts with municipalities. The majority of our residential collection services are performed on a subscription basis with individual property owners or occupants. Landfill and transfer customers are charged a tipping fee on a per ton basis for disposing of their solid waste at our disposal facilities and transfer stations. We also generate and sell electricity at certain of our landfill facilities. We manage our resource renewal operations through the Resource Solutions operating segment, which includes processing services and non-processing services, which we previously referred to as our Customer Solutions business, but now refer to as our National Accounts business. Revenues from processing services are derived from customers in the form of processing fees, tipping fees, commodity sales, primarily comprised of newspaper, corrugated containers, plastics, ferrous and aluminum, and organic materials such as our earthlife® soils products including fertilizers, composts and mulches. Revenues from our National Accounts business are derived from brokerage services and overall resource management services providing a wide range of environmental services and resource management solutions to large and complex organizations, as well as traditional collection, disposal and recycling services provided to large account multi-site customers.

The table below shows revenue attributable to services provided (dollars in millions and as a percentage of total revenues) for the following periods:

Solid waste revenues

A summary of the period-to-period change in solid waste revenues (dollars in millions and as percentage growth of solid waste revenues) follows:

The most significant items impacting the change in our solid waste revenues during fiscal year 2023 are summarized below:

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•Price increased due to (i) $42.9 million, or 7.9%, from favorable collection pricing and (ii) $15.7 million, or 6.9%, from favorable disposal pricing associated with our landfills, transfer stations and, to a lesser extent, transportation services.

•Volume decreased due to (i) $(10.9) million from lower collection volumes associated with slowing economic activity, primarily in the roll-off business, higher customer churn due to increased pricing and fees charged to additional customers, particularly in our Western region, and, to a lesser extent, purposeful shedding of less profitable customers and (ii) $(4.3) million from lower disposal volumes, primarily lower landfill volumes related to slowing economic activity; partially offset by additional disposal volumes in our Western region related to flooding from a severe weather event in the summer; partially offset by $0.5 million from higher processing volumes.

•Surcharge and other fees increased primarily due to (i) new fees related to legacy fuel and environmental cost recovery programs associated with the GFL Acquisition and (ii) higher sustainability recycling adjustment fees ("SRA Fee(s)") revenues as a result of lower recycled commodity prices and a higher customer participation rate; partially offset by lower energy and environmental fees ("E&E Fee(s)") revenues associated with our fuel cost recovery program as a result of lower diesel fuel prices, partially offset by a higher customer participation rate. See Item 7A. “Quantitative and Qualitative Disclosures about Market Risk” included in this Annual Report on Form 10-K for additional information regarding our E&E Fee and SRA Fee;

•Commodity price and volume decreased primarily due to (i) unfavorable commodity and energy pricing and (ii) lower energy volumes; partially offset by higher commodity processing volumes; and

•Acquisitions increased due to (i) the partial year impact of the seven acquisitions completed in fiscal year 2023, including the GFL Acquisition and Twin Bridges Acquisition, as described above, and (ii) the rollover impact of the twelve acquisitions completed in fiscal year 2022.

Resource Solutions revenues

See “Segment Reporting” below for discussion over the period-to-period change in Resource Solutions revenues.

Operating Expenses

A summary of our cost of operations, general and administration and depreciation and amortization expenses is as follows (dollars in millions and as a percentage of total revenues):

Cost of Operations

Cost of operations includes: (i) direct costs, which consist of the costs of purchased materials and third-party transportation and disposal costs, including third-party tipping fees; (ii) direct labor costs, which include salaries, wages, incentive compensation and related benefit costs such as health and welfare benefits and workers compensation; (iii) direct operational costs, which include landfill operating costs such as accretion expense related to final capping, closure and post-closure obligations, leachate treatment and disposal costs and depletion of landfill operating lease obligations, vehicle insurance costs, host community fees and royalties; (iv) fuel costs used by our vehicles and in conducting our operations; (v) maintenance and repair costs relating to our vehicles, equipment and containers; and (vi) other operational costs including facility costs.

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A summary of the major components of our cost of operations is as follows (dollars in millions and as a percentage of total revenues):

These cost categories may change from time to time and may not be comparable to similarly titled categories presented by other companies.

The most significant items impacting the change in our cost of operations during fiscal year 2023 are summarized below:

•Direct costs increased in aggregate dollars due primarily to (i) acquisitions and (ii) higher third-party disposal rates and hauling charges reflecting inflationary pressures; partially offset in dollars, and more than offset as a percentage of revenues, by (i) lower purchased material costs in our Resource Solutions operating segment and (ii) lower hauling and transportation costs on lower base business disposal volumes in our Eastern region operating segment, which operates with a higher level of direct costs as a percentage of revenue.

•Direct labor costs increased due primarily to (i) acquisitions, with an increase as a percentage of revenues associated with acquired business mix, including more labor intensive rear-load operations, and (ii) higher wages and benefit costs reflecting inflationary pressures; partially offset by (a) improved routing efficiencies and (b) lower outside labor costs.

•Direct operational costs increased in aggregate dollars due to (i) acquisitions, (ii) higher accretion expense associated with changes in the timing and cost estimates of our closure, post-closure, and capping obligations, (iii) higher host community and royalty fees, primarily in our Western region, (iv) higher leachate disposal costs, and (v) general cost inflation; partially offset in dollars, and more than offset as a percentage of revenues, by lower other landfill operating costs related to lower volumes.

•Fuel costs increased in aggregate dollars due to acquisitions, partially offset in dollars, and more than offset as a percentage of revenues, by lower diesel fuel prices and lower fuel consumption related to lower base business solid waste volumes. See Item 7A. "Quantitative and Qualitative Disclosures about Market Risk" of this Annual Report on Form 10-K for additional information regarding our fuel costs.

•Maintenance and repair costs increased due to (i) acquisitions, (ii) higher personnel and parts costs reflecting inflationary pressures, and (iii) higher vehicle maintenance costs driven by delays in the delivery of fleet replacements.

•Other operational costs increased due to (i) acquisitions, (ii) higher spend associated with supporting acquisition-related growth, (iii) increased facility insurance costs, and (iv) general cost inflation; partially offset by a gain on resolution of acquisition-related contingent consideration associated with the reversal of a contingency for a transfer station permit expansion in our Western region that is no longer deemed viable.

General and Administration

General and administration expense includes: (i) labor costs, which consist of salaries, wages, incentive compensation and related benefit costs such as health and welfare benefits and workers compensation costs related to management, clerical and administrative functions; (ii) professional service fees; (iii) provision for expected credit losses; and (iv) other overhead costs including those associated with marketing, sales force and community relations efforts.

A summary of the major components of our general and administration expenses is as follows (dollars in millions and as a percentage of total revenues):

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These cost categories may change from time to time and may not be comparable to similarly titled categories presented by other companies.

General and administrative expense increased in fiscal year 2023 primarily due to (i) higher costs related to acquisitions, the establishment of the Mid-Atlantic region, and support of the company’s growth and acquisition strategy, including labor costs, professional fees and other costs, (ii) inflation of salary, wage and benefit costs, (iii) higher equity compensation costs, (iv) higher property taxes, and (v) higher sponsorship and advertising related costs; partially offset by lower accrued incentive compensation costs.

Depreciation and Amortization

Depreciation and amortization expense includes: (i) depreciation of property and equipment (including assets recorded for finance leases) on a straight-line basis over the estimated useful lives of the assets; (ii) amortization of landfill costs (including those costs incurred and all estimated future costs for landfill development and construction, along with asset retirement costs arising from closure and post-closure obligations) on a units-of-consumption method as landfill airspace is consumed over the total estimated remaining capacity of a site, which includes both permitted capacity and unpermitted expansion capacity that meets certain criteria for amortization purposes, and amortization of landfill asset retirement costs arising from final capping obligations on a units-of-consumption method as airspace is consumed over the estimated capacity associated with each final capping event; and (iii) amortization of intangible assets with a definite life, based on the economic benefit provided, or using the sum of years digits or straight-line methods over the definitive terms of the related agreements.

A summary of the major components of depreciation and amortization expense (dollars in millions and as a percentage of total revenues) follows:

Depreciation and amortization expense increased in fiscal year 2023 primarily due to (i) acquisitions, including the impact of accelerated amortization schedules of certain intangibles, (ii) net investment in property and equipment in our existing operations, and (iii) higher landfill amortization expense related to changes in cost and other assumptions from the prior year periods, more than offsetting lower landfill volumes.

Expense from Acquisition Activities

In fiscal years 2023 and 2022, we recognized expenses of $15.0 million and $4.6 million, respectively, comprised primarily of legal, consulting and other similar costs associated with the due diligence, acquisition and integration of acquired businesses, including the GFL Acquisition and the Twin Bridges Acquisition, in fiscal year 2023, as well as select development projects. See Note 5, Business Combinations, to our consolidated financial statements included under Item 8. "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K for disclosure regarding acquisition activity.

Legal Settlement

In fiscal year 2023, we accrued for a charge of $6.2 million in current liabilities due to reaching an agreement at a mediation held on June 20, 2023 with the collective class members of a class action lawsuit relating to certain claims under the Fair Labor Standards Act of 1938 as well as state wage and hours laws. The settlement agreement was executed July 24, 2023 and has received court approval.

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Landfill Capping Charge - Veneer Failure

In fiscal year 2023, we recorded a charge of $3.9 million consisting of both (i) the write-off of historical payments associated with capping work that has been deemed no longer viable due to a veneer failure and (ii) the related operating expenses incurred to clean up the affected capping material at a Subtitle D landfill we operate located in Seneca, New York. Engineering analysis is currently underway to determine root causes and responsibility for the event.

Southbridge Landfill Closure Charge, Net

In the fiscal year ended December 31, 2017, we initiated the plan to cease operations of our landfill located in Southbridge, Massachusetts ("Southbridge Landfill") and later closed it in November 2018 when Southbridge Landfill reached its final capacity. Accordingly, in fiscal years 2023 and 2022, we recorded charges associated with the closure of our Southbridge Landfill (in millions) as follows:

(1)We incurred legal costs as well as other transaction costs associated with various matters as part of the Southbridge Landfill closure.

(2)We recorded a landfill closure project charge associated with revised costs under the closure plan at Southbridge Landfill. See Note 10, Final Capping, Closure and Post-Closure Costs, to our consolidated financial statements included under Item 8. "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K for disclosure regarding our landfill final capping, closure and post-closure costs.

Environmental Remediation Charge

In fiscal year 2022, we recorded an environmental remediation charge of $0.8 million associated with the investigation of potential remediation at an inactive waste disposal site that adjoins one of our landfills. See Note 13, Commitments and Contingencies, to our consolidated financial statements included under Item 8. "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K for further disclosure over environmental remediation liabilities.

Other expenses

Interest Expense, net

Our interest expense, net increased $13.8 million in fiscal year 2023 due primarily to (i) entering into a $430.0 million aggregate principal amount term loan A facility (“2023 Term Loan Facility”) to fund the GFL Acquisition, (ii) the amortization of transaction, legal, and other similar debt issuance costs incurred associated with bridge financing activities related to the GFL Acquisition and the Twin Bridges Acquisition, (iii) rising interest rates, and (iv) the issuance of $35.0 million aggregate principal amount of Vermont Economic Development Authority Solid Waste Disposal Long-Term Revenue Bonds Series 2022A-1 (“Vermont Bonds 2022A-1”) in June 2022 and $35.0 million aggregate principal amount of New York State Environmental Facilities Corporation Solid Waste Disposal Revenue Bonds Series 2020R-2 (“New York Bonds 2020R-2”) in August 2023; partially offset by (i) higher interest income associated with the timing of financing activities resulting in a higher average cash balance and (ii) higher interest income rates.

For additional disclosure regarding interest expense, see Note 12, Debt to our consolidated financial statements included under Item 8. "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.

Loss from Termination of Bridge Financing

In fiscal year 2023, we wrote-off the unamortized debt issuance costs and recognized a loss from termination of bridge financing upon the extinguishment of both a secured bridge financing agreement in connection with the GFL Acquisition of $3.7 million, and an unsecured bridge financing agreement in connection with the Twin Bridges Acquisition of $4.5 million.

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Provision for Income Taxes

Our provision for income taxes was $11.6 million in fiscal year 2023 and $21.9 million in fiscal year 2022. For fiscal year 2023, the provision for income taxes includes $4.4 million of current income taxes and $7.2 million of deferred income taxes. The provision for income taxes in fiscal year 2022 included $5.4 million of current income taxes and $16.5 million of deferred income taxes. The effective rate for the fiscal year 2023 is 31.4% and is computed based on the statutory rate of 21% adjusted primarily for state taxes and nondeductible officer compensation.

On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJA”) was enacted. The TCJA significantly changed U.S. corporate income tax laws by, among other things, changing carryforward rules for net operating losses. Under the Internal Revenue Code, as amended by the TCJA, federal net operating loss carryforwards generated before the 2018 tax year continue to be carried forward for 20 years and are able to fully offset taxable income (“pre-2018 net operating losses”). Federal net operating losses generated following the 2017 tax year are carried forward indefinitely, but generally may only offset up to 80% of taxable income earned in a tax year (“post-2017 net operating losses”).

Depending on bonus depreciation and other elections made on the 2023 tax return when filed, we project to carry $7.2 million of pre-2018 net operating losses and $125.7 million of post-2017 net operating losses into the 2024 tax year.

In addition, the TCJA added limitations on the deductibility of interest expense that became more restrictive beginning in tax year 2022 and limits the deductibility of some of our interest expense in tax year 2023. Depending on elections made on the 2023 return when filed, we expect $25.1 million of interest expense to be disallowed. Any interest expense disallowed may be carried forward indefinitely and deducted in later years subject to said interest limitation.

Segment Reporting

We report selected information about our reportable operating segments in a manner consistent with that used for internal management reporting. We classify our solid waste operations on a geographic basis through regional operating segments, our Eastern, Western and Mid-Atlantic regions. The Mid-Atlantic region, which was formed as a result of the GFL Acquisition on June 30, 2023, commenced operations on July 1, 2023. Revenues associated with our solid waste operations are derived mainly from solid waste collection and disposal services, including landfill, transfer station and transportation services, landfill gas-to-energy services, and processing services in the eastern United States. Our Resource Solutions operating segment leverages our core competencies in materials processing, industrial recycling, organics and resource management service offerings to deliver a comprehensive solution for our larger commercial, municipal, institutional and industrial customers that have more diverse waste and recycling needs. Revenues associated with our Resource Solutions operations are comprised of processing services and services provided by our National Accounts business. Revenues from processing services are derived from customers in the form of processing fees, tipping fees, commodity sales, and organic material sales. Revenues from our National Accounts business are derived from brokerage services and overall resource management services providing a wide range of environmental services and resource management solutions to large and complex organizations, as well as traditional collection, disposal and recycling services provided to large account multi-site customers. Legal, tax, information technology, human resources, certain finance and accounting and other administrative functions are included in our Corporate Entities segment, which is not a reportable operating segment. Corporate Entities results reflect those costs not allocated to our reportable operating segments.

A summary of revenues by reportable operating segment (in millions) follows:

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A summary of operating income (loss) by operating segment (in millions) follows:

Eastern Region

A summary of the period-to-period change in solid waste revenues (dollars in millions and as percentage growth of solid waste revenues) follows:

Revenue increased in fiscal year 2023 as compared to the prior year, primarily driven by (i) favorable collection pricing of $22.5 million, or 9.6%, (ii) favorable disposal pricing of $8.2 million, or 8.3%, (iii) the contribution from acquisitions, (iv) higher surcharges and fees, and (v) higher processing volume of $0.6 million; partially offset by (a) lower disposal volume of $(8.0) million, or (8.1)%, due to slowing economic activity and landfill customer and material mix, as well as (b) lower collection volume of $(1.3) million, or (0.5)%.

Operating income increased in fiscal year 2023 by $10.6 million as compared to the prior year. The year-over-year increase was driven by revenue growth, described above, as well as intercompany revenues, and lower costs associated with lower base business disposal and collection volumes and improved routing efficiencies; partially offset by (i) higher costs associated with the acquired businesses, (ii) general cost inflation, including for disposal, labor, and maintenance costs, (iii) higher landfill amortization expense resulting from changes in cost and other assumptions from the prior year, and (iv) the legal settlement charge. See further discussion about the legal settlement charge above in "Operating Expenses".

Western Region

A summary of the period-to-period change in solid waste revenues (dollars in millions and as percentage growth of solid waste revenues) follows:

Revenue increased in fiscal year 2023 as compared to the prior year, primarily driven by (i) the contribution from acquisitions, (ii) favorable collection pricing of $20.4 million, or 6.7%, (iii) favorable disposal pricing of $7.5 million, or 5.8%, (iv) higher disposal volume of $3.7 million, or 2.9%, driven in large part by the flooding caused by severe weather in the summer, and (v)

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higher surcharges and fees; partially offset by lower collection volume of $(9.7) million, or (3.1)%, due to slowing economic activity, customer churn, and to a lesser extent, purposeful shedding of less profitable customers.

Operating income declined in fiscal year 2023 by $(3.2) million as compared to the prior year. The year-over-year decline was due to (i) an increase in costs due to acquisitions, (ii) the legal settlement charge, (iii) the landfill capping charge - veneer failure, (iv) general cost inflation, including for disposal, labor, and maintenance costs, and (v) higher landfill amortization expense resulting from changes in cost and other assumptions from the prior year; partially offset by (a) revenue growth, described above, (b) intercompany revenues, (c) lower costs associated with lower base business collection volumes, (d) improved routing efficiencies, (e) a gain on resolution of acquisition-related contingent consideration associated with the reversal of a contingency for a transfer station permit expansion that is no longer deemed viable, and (f) the environmental remediation charge taking place in fiscal year 2022. See further discussion about the expense from acquisition activities, the legal settlement, the landfill capping charge - veneer failure, and the environmental remediation charge above in "Operating Expenses".

Mid-Atlantic Region

A summary of the period-to-period change in solid waste revenues (dollars in millions and as percentage growth of solid waste revenues) follows:

Collection and transfer station operations for our Mid-Atlantic region operating segment commenced on July 1, 2023 following the GFL Acquisition. The operating loss of $(5.8) million was impacted by $5.3 million of expense from acquisition activities, comprised of legal, consulting and integration costs related to the GFL Acquisition, as well as the impact of accelerated amortization schedules of certain acquired intangibles.

Resource Solutions

A summary of the period-to-period change in Resource Solutions revenues (dollars in millions and as percentage growth of solid waste revenues) follows:

Revenue decreased in fiscal year 2023 as compared to the prior year, primarily driven by (i) the unfavorable impact of lower recycled commodity pricing on processing revenues of $(37.6) million, or (31.6)%, (ii) lower non-processing volumes of $(2.3) million, or (1.3)%, and (iii) lower non-processing surcharges and other fees; partially offset by (a) higher tipping fees and other processing pricing of $10.6 million, or 8.9%, (b) non-processing pricing of $8.1 million, or 4.5%, (c) higher processing volumes of $8.4 million, or 7.0% and (d) contribution from acquisitions.

Operating income declined in fiscal year 2023 by $(10.3) million as compared to the prior year, primarily driven by lower revenues, described above, as well as intercompany revenues, in combination with higher costs associated with (i) acquired businesses, (ii) the diversion of materials from our Boston, Massachusetts MRF, which underwent a retrofit during fiscal year 2023, and (iii) general cost inflation.

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Corporate Entities

Corporate Entities operating loss reflects those costs not allocated to our reportable operating segments, which typically consists of depreciation and amortization expense. Operating deficit increased $(6.3) million from the prior year due to unallocated acquisition related expenses, comprised primarily of legal, consulting and other similar costs.

Liquidity and Capital Resources

We continually monitor our actual and forecasted cash flows, our liquidity, and our capital requirements in order to properly manage our liquidity needs as we move forward based on the capital intensive nature of our business and our growth acquisition strategy. As of December 31, 2023, we had $272.3 million of undrawn capacity under our $300.0 million revolving credit facility ("Revolving Credit Facility") and $220.9 million of cash and equivalents to help meet our short-term and long-term liquidity needs. We expect existing cash and cash equivalents combined with available cash flows from operations and financing activities to continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities for at least the next 12 months and thereafter for the foreseeable future.

Our known current and long-term uses of cash include, among other possible demands: (i) acquisitions, (ii) capital expenditures and leases, (iii) repayments to service debt and other long-term obligations, and (iv) payments for final capping, closure and post-closure asset retirement obligations and environmental remediation liabilities. We have made in the past, and plan to make in the future, acquisitions to expand service areas, densify existing operations, and grow services for our customers. Future acquisitions may include larger acquisitions that may be inside or outside of our existing market, which could require additional financing either in the form of debt or equity.

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A summary of cash and cash equivalents, restricted assets and debt balances, excluding any debt issuance costs, (in millions) follows:

Current assets, excluding cash and cash equivalents, increased $69.1 million and current liabilities, excluding current maturities of debt, increased $74.5 in fiscal year 2023, resulting in a $(5.4) million decline in working capital, net (defined as current assets, excluding cash and cash equivalents, minus current liabilities, excluding current maturities of debt) from $(32.3) million as of December 31, 2022 to $(37.7) million as of December 31, 2023. We strive to maintain a negative working capital cycle driven by shorter days sales outstanding as compared to days payable outstanding in an effort to collect money at a faster rate than paying bills to facilitate business growth.

Summary of Cash Flow Activity

Cash and cash equivalents increased $149.7 million in fiscal year 2023. A summary of cash flows (in millions) follows:

Cash flows from operating activities.

A summary of operating cash flows (in millions) follows:

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Net cash provided by operating activities increased $15.8 million in fiscal year 2023 as compared to fiscal year 2022. This was the result of operational performance, partially offset by higher interest expense and an increase in the unfavorable cash flow impact associated with the changes in our assets and liabilities, net of effects of acquisitions and divestitures. For discussion of our operational performance in fiscal year 2023 as compared to fiscal year 2022, including discussions of our Loss from termination of bridge financing and Landfill capping charge - veneer failure, see "Results of Operations" included in this Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Annual Report on Form 10-K.

Cash flows from investing activities.

A summary of investing cash flows (in millions) follows:

A summary of the most significant items affecting the change in our investing cash flows follows:

Acquisitions, net of cash acquired. In fiscal year 2023, we acquired seven businesses for total consideration of $846.6 million, including $846.7 million in cash, and paid $5.1 million in holdback payments on businesses previously acquired, as compared to fiscal year 2022 during which we acquired fourteen businesses for total consideration of $82.7 million, including $76.6 million in cash, and paid $1.6 million in holdback payments on businesses previously acquired.

Capital expenditures. Capital expenditures were $24.0 million higher in fiscal year 2023 as compared to fiscal year 2022 primarily due to higher capital spend associated with (i) facility spend related to the retrofitting of our Boston, Massachusetts single-stream material recovery facility and the purchase of a transfer station that was formerly leased, (ii) development of rail side infrastructure at our Subtitle D landfill located in Mount Jewett, Pennsylvania, (iii) landfill development, (iv) acquisition activity, and (v) general inflation in capital costs; partially offset by timing of spend for vehicles, machinery, equipment and containers.

Proceeds from sale of cost method investment. In fiscal year 2022, we received proceeds associated with the sale of our minority ownership interest in a subsidiary of Vanguard Renewables.

A summary of financing cash flows (in millions) follows:

A summary of the most significant items affecting the change in our financing cash flows follows:

Debt activity. Net cash associated with debt activity increased $409.9 million in fiscal year 2023 compared to fiscal year 2022 due primarily to entering into the $430.0 million aggregate principal amount 2023 Term Loan Facility in June 2023 and the issuance of $35.0 million aggregate principal amount of New York Bonds 2020R-2 in August 2023, partially offset by the issuance of $35.0 million aggregate principal amount of Vermont Bonds 2022A-1 in the prior year.

Payments of debt issuance costs. We paid $12.8 million of debt issuance costs in fiscal year 2023 related primarily to bridge financing activities associated with the GFL Acquisition and the Twin Bridges Acquisition. We paid $1.2 million of debt issuance costs in fiscal year 2022 related to the issuance of Vermont Bonds 2022A-1.

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Payment of contingent consideration. We paid $1.0 million of contingent consideration in fiscal year 2022 associated with an acquisition based on the completion of a permit expansion application.

Proceeds from the public offering of Class A Common Stock. On June 16, 2023, we completed a public offering of 6.1 million shares of our Class A common stock at a public offering price of $85.50 per share. After deducting stock issuance costs, including underwriting discounts, commissions and offering expenses, the offering resulted in net proceeds of $496.2 million. The net proceeds from this offering were and are to be used to fund acquisition activity, including the GFL Acquisition and the Twin Bridges Acquisition, to pay certain costs associated with acquisition activities, and to repay borrowings and/or debt securities.

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Outstanding Long-Term Debt

Credit Facility

In February 2023, we entered into first and second amendments to our amended and restated credit agreement, dated as of December 22, 2021 (collectively with the third amendment and the Loan Joinder disclosed below, the "Amended and Restated Credit Agreement"). The first amendment provides, commencing in the fiscal year ending December 31, 2024, that the interest rate margin applied for drawn and undrawn amounts under the Amended and Restated Credit Agreement shall be separately adjusted based on our achievement of certain thresholds and targets on two sustainability related key performance indicator metrics during the prior fiscal year: (i) metric tons of solid waste materials reduced, reused or recycled through our direct operations or with third-parties in collaboration with customers; and (ii) our total recordable incident rate. The second amendment provides that loans under the Amended and Restated Credit Agreement shall bear interest, at our election, at term secured overnight financing rate ("Term SOFR"), including a secured overnight financing rate adjustment of 10 basis points, or at a base rate, in each case, plus or minus any sustainable rate adjustment plus an applicable interest rate margin based upon our consolidated net leverage ratio.

In April 2023, we entered into an equity purchase agreement pursuant to which we agreed to the GFL Acquisition. In connection with the GFL Acquisition, we entered into (i) a commitment letter to obtain short-term secured bridge financing of up to $375.0 million and (ii) the third amendment to the Amended and Restated Credit Agreement to, among other things, permit the draw down of the short-term secured bridge financing and authorize a delayed draw term loan facility to be executed with customary limited condition provisions. The short-term secured bridge financing was undrawn and subsequently terminated in May 2023 when we entered into the specified acquisition loan joinder, dated May 25, 2023 ("Loan Joinder"), which provided for a $430.0 million aggregate principal amount 2023 Term Loan Facility under the Amended and Restated Credit Agreement. In June 2023, we borrowed $430.0 million under the 2023 Term Loan Facility and paid certain fees and costs due and payable in connection therewith. Borrowings from the 2023 Term Loan Facility were used to fund, in conjunction with the net proceeds from the public offering of our Class A common stock completed on June 16, 2023, cash and cash equivalents and borrowings from our Revolving Credit Facility, the GFL Acquisition. See Note 14, Stockholders' Equity to our consolidated financial statements included in Item 8. "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K for further disclosure regarding the public offering.

In June 2023, we entered into an asset purchase agreement pursuant to which we agreed to the Twin Bridges Acquisition. In connection with the Twin Bridges Acquisition, we entered into a commitment letter to obtain short-term unsecured bridge financing of up to $200.0 million that was undrawn and subsequently terminated when we completed the public offering of our Class A common stock on June 16, 2023. Net proceeds from the public equity offering completed on June 16, 2023, together with cash and cash equivalents, were used to fund the Twin Bridges Acquisition. See Note 14, Stockholders' Equity to our consolidated financial statements included in Item 8. "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K for further disclosure regarding the public offering.

As of December 31, 2023, we are party to the Amended and Restated Credit Agreement, which provides for a $350.0 million aggregate principal amount term loan A facility ("Term Loan Facility"), a $300.0 million Revolving Credit Facility, with a $75.0 million sublimit for letters of credit, and a $430.0 million 2023 Term Loan Facility (collectively, the "Credit Facility"). We have the right to request, at our discretion, an increase in the amount of loans under the Credit Facility by an aggregate amount of $125.0 million, subject to further increase based on the terms and conditions set forth in the Amended and Restated Credit Agreement. The Credit Facility has a 5-year term that matures in December 2026. The Credit Facility shall bear interest, at our election, at Term SOFR, including a secured overnight financing rate adjustment of 10 basis points, or at a base rate, in each case plus or minus any sustainable rate adjustment of up to positive or negative 4.0 basis points per annum, plus an applicable interest rate margin based upon our consolidated net leverage ratio as follows:

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A commitment fee will be charged on undrawn amounts of our Revolving Credit Facility based upon our consolidated net leverage ratio in the range of 0.20% to 0.40% per annum, plus a sustainability adjustment of up to positive or negative 1.0 basis point per annum. The Amended and Restated Credit Agreement provides that Term SOFR is subject to a zero percent floor. We are also required to pay a fronting fee for each letter of credit of 0.25% per annum. Interest under the Amended and Restated Credit Agreement is subject to increase by 2.00% per annum during the continuance of a payment default and may be subject to increase by 2.00% per annum during the continuance of any other event of default. The Credit Facility is guaranteed jointly and severally, fully and unconditionally by all of our significant wholly-owned subsidiaries and secured by substantially all of our assets. As of December 31, 2023, further advances were available under the Credit Facility in the amount of $272.3 million. The available amount is net of outstanding irrevocable letters of credit totaling $27.7 million, and as of December 31, 2023 no amount had been drawn.

The Amended and Restated Credit Agreement requires us to maintain a minimum interest coverage ratio and a maximum consolidated net leverage ratio, to be measured at the end of each fiscal quarter. As of December 31, 2023, we were in compliance with all financial covenants contained in the Amended and Restated Credit Agreement as follows (in millions):

(1)The maximum consolidated net leverage ratio is calculated as consolidated funded debt, net of up to $100.0 million of unencumbered cash and cash equivalents in excess of $2.0 million (calculated at $954.5 million as of December 31, 2023, or $1,054.5 million of consolidated funded debt less $100.0 million total of unencumbered cash and cash equivalents), divided by consolidated EBITDA. Consolidated EBITDA is based on operating results for the twelve months preceding the measurement date of December 31, 2023. Consolidated funded debt, net and consolidated EBITDA as defined by the Amended and Restated Credit Agreement ("Consolidated EBITDA") are non-GAAP financial measures that should not be considered an alternative to any measure of financial performance calculated and presented in accordance with generally accepted accounting principles in the United States ("GAAP"). A reconciliation of net cash provided by operating activities to Consolidated EBITDA is as follows (in millions):

(1)Adjustments as allowed by the Amended and Restated Credit Agreement includes the estimated annual pro-forma impact of acquisitions on consolidated EBITDA.

In addition to the financial covenants, the Amended and Restated Credit Agreement contains a number of important customary affirmative and negative covenants which restrict, among other things, our ability to sell assets, incur additional debt, create liens, make investments, and pay dividends. We do not believe that these restrictions impact our ability to meet future liquidity needs. As of December 31, 2023, we were in compliance with all covenants contained in the Amended and Restated Credit Agreement.

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An event of default under any of our debt agreements could permit some of our lenders, including the lenders under the Credit Facility, to declare all amounts borrowed from them to be immediately due and payable, together with accrued and unpaid interest, or, in the case of the Credit Facility, terminate the commitment to make further credit extensions thereunder, which could, in turn, trigger cross-defaults under other debt obligations. If we were unable to repay debt to our lenders or were otherwise in default under any provision governing our outstanding debt obligations, our secured lenders could proceed against us and against the collateral securing that debt.

Based on the seasonality of our business, operating results in the late fall, winter and early spring months are generally lower than the remainder of our fiscal year. Given the cash flow impact that this seasonality, the capital intensive nature of our business and the timing of debt payments has on our business, we typically incur higher debt borrowings in order to meet our liquidity needs during these times. Consequently, our availability and performance against our financial covenants may tighten during these times as well.

Tax-Exempt Financings and Other Debt

As of December 31, 2023, we had outstanding $232.0 million aggregate principal amount of tax-exempt bonds, $53.1 million aggregate principal amount of finance leases and $0.2 million aggregate principal amount of notes payable. See Note 12, Debt to our consolidated financial statements included under Item 8. "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K for disclosure regarding our debt.

Contractual Obligations

The following table sets forth a summary of our significant contractual cash obligations (in thousands) as of December 31, 2023. These obligations are reflected in our consolidated balance sheet and include obligations with scheduled maturities, as well as significant obligations pertaining to accrued environmental remediation liabilities and final capping, closure and post-closure asset retirement obligations at our landfills. Accordingly, this table is not meant to represent a forecast of our total cash expenditures for any of the periods presented (in thousands).

(1)Based on debt balances as of December 31, 2023. Interest obligations related to variable rate debt were calculated using variable rates in effect at December 31, 2023.

(2)Contractual cash obligations do not include accounts payable or accrued liabilities, which will be paid in the fiscal year ending December 31, 2024.

We have no contractual obligations related to unrecognized tax benefits at December 31, 2023. For further description regarding contractual obligations, see Note 8, Leases, Note 10, Final Capping, Closure and Post-Closure Costs, Note 12, Debt, Note 13, Commitments and Contingencies, and Note 16, Employee Benefit Plans to our consolidated financial statements included in Item 8. "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.

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Inflation

Inflationary increases in costs, including current inflationary pressures associated primarily with labor, certain other cost categories, and capital items, have materially affected, and may continue to materially affect, our operating margins and cash flows. While inflation negatively impacted operating results and margins during fiscal year 2023 and fiscal year 2022, we believe that our flexible pricing structures and cost recovery fees are allowing us to recover and will continue to allow us to recover certain inflationary costs from our customer base. Consistent with industry practice, most of our contracts and service agreements provide for a pass-through of certain costs to our customers, including increases in landfill tipping fees and in most cases fuel costs, intended to mitigate the impact of inflation on our operating results. We have also implemented a number of operating efficiency programs that seek to improve productivity and reduce our service costs, and our fuel cost recovery programs, primarily the energy component of our E&E Fee, which is designed to recover escalating fuel price fluctuations above a periodically reset floor. Despite these programs, competitive factors may require us to absorb at least a portion of these cost increases. See Item 7A. "Quantitative and Qualitative Disclosures about Market Risk" of this Annual Report on Form 10-K for additional information regarding our fuel cost recovery programs. Additionally, management’s estimates associated with inflation have had, and will continue to have, an impact on our accounting for landfill and environmental remediation liabilities.

Regional Economic Conditions

Our business is primarily located in the eastern United States. Therefore, our business, financial condition and operational results are susceptible to downturns in the general economy in this geographic region and other factors affecting the region, such as state regulations, labor availability and severe weather conditions. We are unable to forecast or determine the timing and/or the future impact of a sustained economic slowdown or other factors affecting the region.

Critical Accounting Estimates and Assumptions

Our consolidated financial statements have been prepared in accordance with GAAP and necessarily include certain estimates and judgments made by management. On an on-going basis, management evaluates its estimates and judgments which are based on historical experience and on various other factors that are believed to be reasonable under the circumstances. The results of their evaluation form the basis for making judgments about the carrying values of assets and liabilities. However, even under optimal circumstances, estimates routinely require adjustments based on changing assumptions and circumstances, or new or better information becoming available. Accordingly, actual results may differ from these estimates under different assumptions and circumstances.

The following is a list of accounting policies that we believe are the most critical in understanding our consolidated financial position, results of operations and cash flows and that may require management to make subjective or complex judgments about matters that are inherently uncertain. Our significant accounting policies are more fully discussed in Note 3, Summary of Significant Accounting Policies of our consolidated financial statements included in Item 8. "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.

Landfill Accounting

Landfill Development Costs. We estimate the total cost to develop each of our landfill sites to its remaining permitted and expansion capacity (see landfill development costs discussed within the “Property and Equipment” accounting policy more fully discussed in Note 3, Summary of Significant Accounting Policies of our consolidated financial statements included in Item 8. "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K). The projection of these landfill costs is dependent, in part, on future events. The remaining amortizable basis of each landfill includes costs to develop a site to its remaining permitted and expansion capacity and includes amounts previously expended and capitalized, net of accumulated airspace amortization, and projections of future purchase and development costs including capitalized interest. The interest capitalization rate is based on our weighted average interest rate incurred on borrowings outstanding during the period.

Under life-cycle accounting, all costs related to acquisition and construction of landfill sites are capitalized and charged to expense based on tonnage placed into each site. Landfill permitting, acquisition and preparation costs are amortized on the units-of-consumption method as landfill airspace is consumed. In determining the amortization rate for each of our landfills, preparation costs include the total estimated costs to complete construction of the landfills’ permitted and expansion capacity. The average amortization rate per ton for our landfills during fiscal year 2023 and 2022 was $7.23 and $7.03, respectively.

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Final Capping, Closure and Post-Closure Costs. The cost estimates for final capping, closure and post-closure activities at landfills for which we have responsibility are estimated based on our interpretations of current requirements and proposed or anticipated regulatory changes. Our investment in final capping, closure and post-closure activities is focused on meeting these regulations, therefore, reducing emissions of air pollutants from our landfills.

We also estimate additional costs based on the amount a third-party would charge us to perform such activities even when we expect to perform these activities internally. We estimate the airspace to be consumed related to each final capping event and the timing of construction related to each final capping event and of closure and post-closure activities. Because landfill final capping, closure and post-closure obligations are measured at estimated fair value using present value techniques, changes in the estimated timing of construction of future landfill final capping and closure and post-closure activities would have an effect on these liabilities, related assets and results of operations.

Final capping activities include the installation of liners, drainage, compacted soil layers and topsoil over areas of a landfill where total airspace has been consumed and waste is no longer being received. Final capping activities occur throughout the life of the landfill. Our engineering personnel estimate the cost for each final capping event based on the acreage to be capped, along with the final capping materials and activities required. The estimates also consider when these costs would actually be paid and factor in inflation and discount rates. The engineers then quantify the landfill capacity associated with each final capping event and the costs for each event are amortized over that capacity as waste is received at the landfill.

Closure and post-closure costs represent future estimated costs related to monitoring and maintenance of a solid waste landfill after a landfill facility ceases to accept waste and closes. We estimate, based on input from our engineers, accountants, lawyers, managers and others, our future cost requirements for closure and post-closure monitoring and maintenance based on our interpretation of the technical standards of the Subtitle D regulations and the air emissions standards under the Clean Air Act of 1970, as amended, as they are being applied on a state-by-state basis. Closure and post-closure accruals for the cost of monitoring and maintenance include site inspection, groundwater monitoring, leachate management, methane gas control and recovery, and operation and maintenance costs to be incurred for a period which is generally for a term of 30 years after final closure of a landfill. In determining estimated future closure and post-closure costs, we consider costs associated with permitted and permittable airspace. See Note 10, Final Capping, Closure and Post-Closure Costs to our consolidated financial statements included under Item 8. "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K for further disclosure about final capping, closure and post-closure asset retirement costs, including revisions in estimates.

Remaining Permitted Airspace. Our engineers, in consultation with third-party engineering consultants and surveyors, are responsible for determining remaining permitted airspace at our landfills. The remaining permitted airspace is determined by an annual survey, which is then used to compare the existing landfill topography to the expected final landfill topography.

Expansion Airspace. We currently include unpermitted expansion airspace in our estimate of remaining permitted and expansion airspace in certain circumstances. To be considered expansion airspace all of the following criteria must be met:

•we control the land on which the expansion is sought;

•all technical siting criteria have been met or a variance has been obtained or is reasonably expected to be obtained;

•we have not identified any legal or political impediments which we believe will not be resolved in our favor;

•we are actively working on obtaining any necessary permits and we expect that all required permits will be received; and

•senior management has approved the project based on a review of the engineering design and determination that the financial return profile meets our investment criteria.

For unpermitted airspace to be included in our estimate of remaining permitted and expansion airspace, the expansion effort must meet all of the criteria listed above. These criteria are evaluated annually by our engineers, accountants, lawyers, managers and others to identify potential obstacles to obtaining the permits. Once the remaining permitted and expansion airspace is determined in cubic yards, an airspace utilization factor (“AUF”) is established to calculate the remaining permitted and expansion capacity in tons. The AUF is established using a process that considers the measured density obtained from annual surveys. When we include the expansion airspace in our calculation of remaining permitted and expansion airspace, we include the projected costs for development, as well as the projected asset retirement costs related to final capping, closure and post-closure of the expansion airspace in the amortization basis of the landfill. See Part I. Item 1. “Business” of this Annual Report on Form 10-K for more disclosure about permitted and permittable capacity at our landfills.

After determining the costs and the remaining permitted and expansion capacity at each of our landfills, we determine the per ton rates that will be expensed as waste is received and deposited at each of our landfills by dividing the costs by the corresponding number of tons. We calculate per ton amortization rates for assets associated with each final capping event, for assets related to closure and post-closure activities, and for all other costs capitalized or to be capitalized in the future for each landfill. These rates per ton are updated annually, or more frequently, as significant facts change.

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It is possible that actual results, including the amount of costs incurred, the timing of final capping, closure and post-closure activities, our airspace utilization or the success of our expansion efforts could ultimately turn out to be significantly different from our estimates and assumptions. To the extent that such estimates or related assumptions prove to be significantly different than actual results, lower profitability may be experienced due to higher amortization rates, higher final capping, closure or post-closure rates, or higher expenses. Higher profitability may result if the opposite occurs. Most significantly, if it is determined that the expansion capacity should no longer be considered in calculating the recoverability of the landfill asset, we may be required to recognize an asset impairment. If it is determined that the likelihood of receiving an expansion permit has become remote, the capitalized costs related to the expansion effort are expensed immediately.

Environmental Remediation Liabilities

We have recorded environmental remediation liabilities representing our estimate of the most likely outcome of the matters for which we have determined that a liability is probable. These liabilities include potentially responsible party investigations, settlements, certain legal and consultant fees, as well as costs directly associated with site investigation and clean up, such as materials and incremental internal costs directly related to the remedy. We provide for expenses associated with environmental remediation obligations when such amounts are probable and can be reasonably estimated. We estimate costs required to remediate sites where it is probable that a liability has been incurred based on site-specific facts and circumstances. Estimates of the cost for the likely remedy are developed using third-party environmental engineers or other service providers. Where we believe that both the amount of a particular environmental remediation liability and timing of payments are reliably determinable, we inflate the cost in current dollars until the expected time of payment and discount the cost to present value. See Note 13, Commitments and Contingencies to our consolidated financial statements included under Item 8. "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K for further disclosure about environmental remediation liabilities, including revisions in estimates, to the extent applicable.

Accounts Receivable, Net of Allowance for Credit Losses

Accounts receivable represent receivables from customers for collection, transfer, recycling, disposal and other services. Our accounts receivable are recorded when billed or when related revenue is earned, if earlier, and represent claims against third-parties that will be settled in cash. The carrying value of our accounts receivable, net of allowance for credit losses represents its estimated net realizable value. Estimates are used in determining our allowance for credit losses based on, among other things, our historical loss trends, the age of outstanding accounts receivable, and current and expected economic conditions. Additions charged to expense in fiscal year 2023 consider the current economic conditions and the potential impact to our customers’ ability to pay for services that we have provided. Our reserve is evaluated and revised on a monthly basis. Past due accounts receivable are written off when deemed to be uncollectible. See Note 6, Accounts Receivable, Net of Allowance for Credit Losses to our consolidated financial statements under Item 8. "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K for further disclosure about changes to the allowance for credit losses.

Goodwill and Other Intangibles

In testing for goodwill impairment, we estimate the fair value of each reporting unit, which we have determined to be our geographic operating segments and our Resource Solutions operating segment and compare the fair value with the carrying value of the net assets of each reporting unit. If the fair value is less than its carrying value, then we would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, noting that the amount is not to exceed the total amount of goodwill allocated to that reporting unit.

To determine the fair value of each of our reporting units as a whole, we use discounted cash flow analyses, which require significant assumptions and estimates about the future operations of each reporting unit. Significant judgments inherent in this analysis include the determination of appropriate discount rates, the amount and timing of expected future cash flows and growth rates. The cash flows employed in our discounted cash flow analyses are based on financial forecasts developed internally by management. Our discount rate assumptions are based on an assessment of our risk adjusted discount rate, applicable for each reporting unit. In assessing the reasonableness of our determined fair values of our reporting units, we evaluate our results against our current market capitalization.

We elected to perform a quantitative analysis as part of our annual goodwill impairment test for fiscal year 2023. As of October 1, 2023, our Eastern, Western, Mid-Atlantic and Resource Solutions reporting units indicated that the fair value of each reporting unit exceeded its carrying amount, including goodwill. In the case the fair value of our Eastern, Western, and Resource Solutions reporting units exceeded its carrying value by in excess of 30%. In the case of our Mid-Atlantic reporting unit, the fair value of the reporting unit exceeded its carrying value by approximately 10% due to the proximity of the acquisition date. We incurred no impairment of goodwill as a result of our annual goodwill impairment tests in fiscal years 2023 or 2022. However, there can be no assurance that goodwill will not be impaired at any time in the future.

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Intangible assets consist primarily of covenants not-to-compete, customer relationships and trade names. Intangible assets are recorded at fair value and are amortized based on the economic benefit provided or using the sum of years digits or straight-line methods over their estimated useful lives. Covenants not-to-compete, customer relationships, and trade names are typically amortized over a term of no more than 10 years. See Note 5, Business Combinations and Note 9, Goodwill and Intangible Assets to our consolidated financial statements included under Item 8. "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K for further disclosure.

Recovery of Long-Lived Assets

We continually assess whether events or changes in circumstances have occurred that may warrant revision of the estimated useful lives of our long-lived assets (other than goodwill) or whether the remaining balances of those assets should be evaluated for possible impairment. Long-lived assets include, for example, capitalized landfill costs, property and equipment, identifiable intangible assets, and operating lease right-of-use assets. Events or changes in circumstances that may indicate that an asset may be impaired include the following:

•a significant decrease in the market price of an asset or asset group;

•a significant adverse change in the extent or manner in which an asset or asset group is being used or in its physical condition;

•a significant adverse change in legal factors or in the business climate that could affect the value of an asset or asset group, including an adverse action or assessment by a regulator;

•an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset;

•a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group;

•a current expectation that, more likely than not, a long-lived asset or asset group will be sold or otherwise disposed of significantly before the end of its previously estimated useful life; or

•an impairment of goodwill at a reporting unit.

There are certain indicators listed above that require significant judgment and understanding of the waste industry when applied to landfill development or expansion. For example, a regulator may initially deny a landfill expansion permit application although the expansion permit is ultimately granted. In addition, management may periodically divert waste from one landfill to another to conserve remaining permitted landfill airspace. Therefore, certain events could occur in the ordinary course of business and not necessarily be considered indicators of impairment due to the unique nature of the waste industry.

If an impairment indicator occurs, we perform a test of recoverability by comparing the carrying value of the asset or asset group to its undiscounted expected future cash flows. We group our long-lived assets for this purpose at the lowest level for which identifiable cash flows are primarily independent of the cash flows of other assets or asset groups. If the carrying values are in excess of undiscounted expected future cash flows, we measure any impairment by comparing the fair value of the asset or asset group to its carrying value.

To determine fair value, we use discounted cash flow analyses and estimates about the future cash flows of the asset or asset group. This analysis includes a determination of an appropriate discount rate, the amount and timing of expected future cash flows and growth rates. The cash flows employed in our discounted cash flow analyses are typically based on financial forecasts developed internally by management. The discount rate used is commensurate with the risks involved. We may also rely on third-party valuations and or information available regarding the market value for similar assets.

If the fair value of an asset or asset group is determined to be less than the carrying amount of the asset or asset group, impairment in the amount of the difference is recorded in the period that the impairment occurs. Estimating future cash flows requires significant judgment and projections may vary from the cash flows eventually realized. We incurred no impairment of long-lived assets in fiscal years 2023 or 2022. However, there can be no assurance that long-lived assets will not be impaired at any time in the future.

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Self-Insurance Liabilities and Related Costs

We are self-insured for vehicles and workers’ compensation with reinsurance coverage limiting our maximum exposure. In fiscal year 2023, our maximum exposure per individual event under the workers’ compensation plan was $1.25 million. In fiscal year 2023, our minimum and maximum exposure per individual event under the automobile plan were up to $1.75 million and $3.88 million, respectively. The liability for unpaid claims and associated expenses, including incurred but not reported losses, is determined by management with the assistance of a third-party actuary and reflected in our consolidated balance sheets as an accrued liability. We use a third-party to track and evaluate actual claims experience for consistency with the data used in the annual actuarial valuation. The actuarial-determined liability is calculated based on historical data, which considers both the frequency and settlement amount of claims. Our estimated accruals for these liabilities could be significantly different than our ultimate obligations if variables such as the frequency or severity of future events differ significantly from our assumptions. Our self-insurance reserves totaled $22.4 million and $22.2 million as of December 31, 2023 and December 31, 2022, respectively. Our estimated accruals for these liabilities could be significantly different than our ultimate obligations if variables such as the frequency or severity of future events differ significantly from our assumptions.

Income Taxes

We use estimates to determine our provision for income taxes and related assets and liabilities and any valuation allowance recorded against our net deferred tax assets. Valuation allowances have been established for the possibility that tax benefits may not be realized for certain deferred tax assets. Deferred income taxes are recognized based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities, calculated using currently enacted tax rates. We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making this determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In the event we determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we will make an adjustment to the valuation allowance which would reduce the provision for income taxes.

We account for income tax uncertainties according to guidance on the recognition, derecognition and measurement of potential tax benefits associated with tax positions. We recognize interest and penalties relating to income tax matters as a component of income tax expense.

See Note 17, Income Taxes to our consolidated financial statements included under Item 8. "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K for further disclosure.

Contingent Liabilities

We are subject to various legal proceedings, claims and regulatory matters, the outcomes of which are subject to significant uncertainty. We determine whether to disclose or accrue for loss contingencies based on an assessment of whether the risk of loss is remote, reasonably possible or probable, and whether it can be reasonably estimated. We analyze our litigation and regulatory matters based on available information to assess the potential liabilities. Management’s assessment is developed based on an analysis of possible outcomes under various strategies. We accrue for loss contingencies when such amounts are probable and reasonably estimable. If a contingent liability is only reasonably possible, we will disclose the potential range of the loss, if estimable. We record losses related to contingencies in cost of operations or general and administration expenses, depending on the nature of the underlying transaction leading to the loss contingency. See Note 13, Commitments and Contingencies for disclosure about loss contingencies, as applicable. Contingent liabilities accounted for under purchase accounting are recorded at their fair values. These fair values may be different from the values we would have otherwise recorded, had the contingent liability not been assumed as part of an acquisition of a business. See Note 5, Business Combinations and Note 15, Fair Value of Financial Instruments to our consolidated financial statements included under Item 8. "Financial Statement and Supplementary Data" of this Annual Report on Form 10-K for disclosure about contingent consideration accounted for under purchase accounting.

Stock-Based Compensation

All share-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense-in general and administration expense over the employee’s requisite service period. For purposes of calculating stock-based compensation expense, forfeitures are accounted for as they occur. Our equity awards granted generally consist of stock options, restricted stock awards, restricted stock units and market-based performance stock units.

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The fair value of each stock option grant is estimated using a Black-Scholes option-pricing model. The fair value of restricted stock award and restricted stock unit grants is at a price equal to the fair market value of our Class A common stock at the date of grant. The fair value of market-based performance stock unit grants is valued using a Monte Carlo pricing model. See Note 14, Stockholders' Equity to our consolidated financial statements included under Item 8. "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K for further disclosure.

New Accounting Standards

For a description of the new accounting standards that may affect us, see Note 2, Accounting Changes to our consolidated financial statements included in Item 8. "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.