Waste Management : 3Q 2025 Transcript

About this update from Waste Management, Inc.

28-Oct-2025 Was te Management, Inc. (WM) Q3 2025 Earnings Call CORPORATE PARTICIPANTS Ed Egl Vice President-Investor Relations & Financial Analysis, Waste Management, Inc. James C. Fish, Jr. Chief Executive Officer & Director, Waste Management, Inc. John J. Morris President & Chief Operating Officer, Waste Management, Inc. Devina A. Rankin Executive Vice President & Chief Financial Officer, Waste Management, Inc. Tara J. Hemmer Senior Vice President & Chief Sustainability Officer, Waste Management, Inc. Rafael Carrasco Senior Vice President-Enterprise Strategy & President-WM Healthcare Solutions, Waste Management, Inc. ..................................................................................................................................................................................................................................................................... OTHER PARTICIPANTS Patrick Tyler Brown Analyst, Raymond James & Associates, Inc. Noah Kaye Analyst, Oppenheimer & Co., Inc. Trevor Romeo Analyst, William Blair & Co. LLC Toni Kaplan Analyst, Morgan Stanley & Co. LLC James Schumm Analyst, TD Cowen and Company Rob Wertheimer Analyst, Melius Research LLC Faiza Alwy Analyst, Deutsche Bank Securities, Inc. Tami Zakaria Analyst, JPMorgan Securities LLC Konark Gupta Analyst, Scotia Capital, Inc. Kevin Chiang Analyst, CIBC World Markets, Inc. Shlomo H. Rosenbaum Analyst, Stifel, Nicolaus & Co., Inc. Bryan Burgmeier Analyst, Citigroup Global Markets, Inc. Stephanie Moore Analyst, Jefferies LLC MANAGEMENT DISCUSSION SECTION Operator : Good day and thank you for standing by. Welcome to the WM Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there'll be a question-and-answer session. [Operator Instructions] Please note that today's conference may be recorded. I will now hand the conference over to your speaker host, Ed Egl, Vice President of Investor Relations. Please go ahead. ..................................................................................................................................................................................................................................................................... Ed Egl Vice President-Investor Relations & Financial Analysis, Waste Management, Inc. Thank you, Olivia. Good morning, everyone, and thank you for joining us for our third quarter 2025 earnings conference call. With me this morning are Jim Fish, Chief Executive Officer; John Morris, President and Chief Operating Officer; and Devina Rankin, Executive Vice President and Chief Financial Officer. You will hear prepared comments from each of them today. Jim will cover high-level financials and provide a strategic update, John will cover an operating overview and Devina will cover the details of the financials. Before we get started, please note that we have filed a Form 8-K that includes the earnings press release and is available on our website at https://www.wm.com . The Form 8-K, the press release and the schedules in the press release include important information. During the call, you will hear forward-looking statements, which are based on current expectations, projections or opinions about future periods. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties are discussed in today's press release and in our filings with the SEC, including our most recent Form 10-K and Form 10-Qs. John will discuss our results in the areas of yield and volume, which, unless stated otherwise, are more specifically references to internal revenue growth or IRG from yield or volume. During the call, Jim, John and Devina will discuss operating EBITDA, which is income from operations before depreciation and amortization. References to the WM Legacy Business are total WM results excluding the WM Healthcare Solutions segment. Any comparisons, unless otherwise stated, will be with the prior-year period. Net income, EPS, income from operations and margin, operating EBITDA and margin, operating expense and margin and SG&A expense and margin have been adjusted to enhance comparability by excluding certain items that management believes do not reflect our fundamental business performance or results of operations. These adjusted measures, in addition to free cash flow, are non-GAAP measures. Please refer to the earnings press release and tables, which can be found on the company's website at https://www.wm.com , for reconciliations to the most comparable GAAP measures and additional information about our use of non-GAAP measures. This call is being recorded and will be available 24 hours a day beginning approximately 1:00 pm Eastern time today. To hear a replay of the call, access the WM website at https://www.investors.wm.com . Time-sensitive information provided during today's call, which is occurring on October 28, 2025, may no longer be accurate at the time of a replay. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of WM is prohibited. Now, I'll turn the call over to WM's CEO, Jim Fish. ..................................................................................................................................................................................................................................................................... James C. Fish, Jr. Chief Executive Officer & Director, Waste Management, Inc. Okay. Thanks, Ed, and thank you all for joining us. Our team delivered another strong quarter of operational and financial performance. This led to third quarter operating EBITDA growth of more than 15% and free cash flow growth of nearly 33%. These strong results reflect the hard work of our teams, the resilience of our business model and the value of the intentional investments we've made across our business. Our Collection and Disposal business continues to be the engine behind our growth, contributing more than half of the year-over-year increase in operating EBITDA. The business drove strong organic revenue growth and we're particularly pleased with our ability to attract robust disposal volumes to our network. MSW grew 5% in the quarter and special waste volumes grew 5.5%, driven by new event work. We also remain focused on maximizing customer lifetime value through our pricing strategies and leveraging technology to optimize our cost structure and we continue to pursue tuck-in acquisition opportunities to extend our network and drive further internalization. Turning to WM Healthcare Solutions. The strategic value of the medical waste platform within WM's portfolio is more evident than ever. We've successfully integrated the people and operations of healthcare solutions into the existing management and operating structure of our 16 areas. This not only streamlines our operating model, but also allows us to apply our playbook, the WM way, across the acquired business, fostering a culture of customer focus, continuous improvement and accountability. This aligned structure accelerates collaboration and unlocks new opportunities for growth. As an example, one of our top hospital customers has increased their annual spend with us by over $5 million after choosing us as their single provider solution across their multistate network. This is precisely the type of cross-selling opportunity that gives us confidence in the long-term value of our combined offering. In our sustainability businesses, our solid performance is the direct result of success in managing contract structures and leveraging innovative technologies. Even as recycled commodity prices declined nearly 35% compared to last year, our Recycling segment operating EBITDA grew by 18%, which is a phenomenal result. Our new renewable natural gas facilities drove higher year-over-year contributions from the Renewable Energy segment. The growth was lower sequentially due to the timing of RIN sales, our full-year growth expectations remain consistent with our initial outlook. I'm proud of the momentum we're building in this final stretch of 2025 and even more excited about the opportunities ahead. These last several years, including this one, have been years of deliberate and disciplined investment in technology and automation in our fleet, in new recycling and renewable energy, renewable natural gas facilities and in a premier medical waste platform. Each of these investments was made with intention and with a long-term view, positioning us to serve our customers better, while structurally lowering our cost to serve. We're pleased to share that 2026 is setting up to be a year of harvesting the benefits of our investments, which will be partially evident in our free cash flow as our early view for next year suggests free cash flow approaching $3.8 billion. We remain thoughtful and disciplined in our capital allocation and we fully expect to translate this performance into commensurate returns for our shareholders. In closing, WM is exceptionally well positioned for future success. Our long-term strategy is delivering and the investments we've made are paying off. As always, our results are a testament to the hard work and dedication of our people and I sincerely appreciate the contributions of each and every team member. I'll now turn the call over to John to discuss our operational results. ..................................................................................................................................................................................................................................................................... John J. Morris President & Chief Operating Officer, Waste Management, Inc. Thanks, Jim, and good morning, everyone. In the third quarter, our team expanded margins by maintaining discipline on price-to-cost spread, leveraging advanced fleet and maintenance technology to reduce operating costs and realizing returns from our sustainability investments and strategic acquisitions. Our results affirm that our strategy is working and our disciplined organic and inorganic investments deliver long-term value. In the third quarter, we saw continued growth in our core Collection and Disposal business, increased contributions from our sustainability businesses and sequential margin growth and synergy capture from our Healthcare Solutions segment. In our Collection and Disposal business, we delivered strong performance in the third quarter with operating EBITDA margins expanding 100 basis points to a record 38.4% and operating EBITDA growing more than 7%, with every line of business contributing to that growth. Both results are consistent with our operating EBITDA growth and margin expansion objectives and reflect the strength of our post-collection assets, increased landfill volumes and our disciplined focus on optimizing price-to-cost spread through customer lifetime value. We're also realizing the returns on strategic investments we've made to enhance efficiency and structurally drive costs lower. Looking at our top line, we delivered solid organic revenue growth in Q3, driven by disciplined pricing and improving volume trends in several lines of business. Core price was 6%, exceeding our plan, with residential and disposal pricing leading the way. Collection and Disposal yield came in at 3.8%, which was in line with expectations. Volume increased in the quarter with industrial up 1.2%, our first positive quarter since 2022. We remain focused on differentiating our services and maximizing customer lifetime value and our customers see the value of our service as churn remain right in the 9% range and service increases outpace service decreases. Additionally, landfill volumes rose 5.2% with broad strength across MSW, special waste and construction and demolition, mostly all unrelated to wildfire cleanup. As we mentioned at Investor Day, our strategic post-collection network continues to drive value both now and over the long term, as we have seen both strong price and volume contributions. And our results keep us on track to meet our organic growth expectations for the full year. Turning to operating expenses, Q3 marked our second consecutive quarter with operating expenses below 60% of revenue. This improvement was driven primarily by our Collection and Disposal business, which contributed 90 basis points of margin expansion through lower maintenance and risk management costs. On the fleet side, investments in trucks and technology improved our maintenance processes, reduced repair and maintenance costs by 60 basis points. Additionally, our focus on retention and training and development contributed to a 7% year-to-date improvement in the total recordable incident rate, lowering our risk management costs as a percentage of revenue. The strategic investments we've made in our team, our fleet, cutting-edge technology and comprehensive training are showing meaningful results. Turnover improved by an impressive 300 basis points, bringing the combined rate for drivers and technicians down to a record low of 16.8%. These results underscore that when we invest in our people, we invest in the future of our business. These same investments in people, process and technology are showing up in the WM Healthcare Solutions business as well. Since the beginning of 2025, the team has improved turnover by 21%, while also improving on-time service delivery to the highest level in over four years. As we close the third quarter, our results reflect not only strong execution, but also the innovative mindset that continues to set WM apart. From advancing operational efficiency to strengthening our customer relationships, our progress is driven by the ingenuity and commitment of our team. Thank you to all of our employees for the work you do every day to move us forward. And with that, I'll turn the call over to Devina to walk through our financial results in more detail. ..................................................................................................................................................................................................................................................................... Devina A. Rankin Executive Vice President & Chief Financial Officer, Waste Management, Inc. Thanks, John, and good morning. Total company operating EBITDA margin was 30.6% in the third quarter, which is the best quarterly results in our history. And that is despite the expected margin headwind from the acquisition of the Healthcare Solutions business. WM's legacy business achieved operating EBITDA margin of 32% in the quarter, meaningfully surpassing our long-standing ambition of sustained operating EBITDA margins above 30%. We achieved these results while overcoming a known 30 basis point headwind from the expiration of the Alternative Fuel Tax Credit. Our legacy business achieved 120 basis points of margin expansion in the quarter from four primary things. One, continued optimization of business mix with strong municipal solid waste volumes taking the place of low-margin residential volumes; two, our focus on operational efficiencies in our collection and disposal business; three, the scaling of our sustainability businesses; and four, our dedicated focus on reducing costs. The remaining 60 basis points of margin expansion was driven by lower recycled commodity prices in our brokerage business and a reduction in incentive compensation costs. As I mentioned, the Healthcare Solutions business created an expected headwind for our consolidated margins. Our focus on optimizing this business will lessen this pressure over time, and we can already see the benefits of the team's integration and optimization efforts on the margins of this segment, which have improved each quarter since we acquired the business and are now at 17.5%. The key takeaway from all of this is that WM's disciplined focus on driving efficiency and investing in high-return opportunities is benefiting our financial results. Our strong performance continues to translate into robust operating and free cash flow growth. Through the first nine months of 2025, we generated $4.35 billion in cash from operations, an increase of 12% compared to the same period in 2024. This increase reflects our significant earnings growth, partially offset by higher cash interest due to the debt issued last year to fund the acquisition of Stericycle. Capital spending to support the business and our sustainability growth investments are both tracking according to plan, totaling $2.34 billion for the year-to-date period. Putting these pieces together, free cash flow has grown 13.5% to $2.11 billion. Notably, our operating EBITDA to free cash flow conversion approached 42% in the third quarter, reflecting that we have moved from peak investment levels in sustainability growth projects, landfill infrastructure and our fleet into a period where we will harvest strong returns on these investments. Through the first three quarters of 2025, we've returned $1 billion to our shareholders in dividends and allocated more than $400 million to solid waste acquisitions. Our leverage ratio at the end of quarter was 3.3 times, and we continue to track toward our target ratio of between 2.5 times and 3 times, which we expect to achieve by the middle of 2026. Turning to WM Healthcare Solutions. As Jim mentioned, we're as confident as ever in the strategic value of the acquisition, and we are committed to fully capturing its long-term potential. Revenue trends for this business reflect a more measured pace than our initial projections. This is because we are using a disciplined approach to customer engagement, which means we have offered credits and deferred planned price increases for some of our customers. All of this reflects our focus on maximizing customer lifetime value and building a strong foundation for sustainable long-term growth. Despite the moderation and the anticipated pace of revenue growth in the second half of 2025, we're on track to achieve the targeted operating EBITDA contributions from the acquisition across our total company results, because synergy capture has exceeded our initial expectations, internalization of waste into our landfill network has been effective, and cross-selling opportunities are proving to be strong. Turning to our total company outlook for the remainder of the year, we remain confident in our ability to deliver the operating EBITDA and free cash flow guidance we provided last quarter. Full year revenue is projected to be at the low end of our prior guidance range, reflecting incremental weakness in recycled commodity prices and our revised expectations for Healthcare Solutions. With our outstanding year-to-date operating EBITDA margin results and confidence in our continued execution as we close out the year, margin expectations have increased to between 29.6% and 30.2%. In short, we are well positioned to achieve another year of strong earnings, margin and cash flow growth in 2025, and to build on our success as we go into 2026. Finally, as many of you know, this is my final earnings call as CFO before my upcoming retirement from WM. Over the past 23 years, I've had the privilege of being part of this extraordinary team. Together, we work hard each day to care for each other and our communities and to deliver value to all of our stakeholders. In closing, I must say that my favorite thing about our business has always been the people. I want to thank the entire team for leading the way in service to our customers, the environment and to our shareholders. To our shareholders, thank you for your trust and support. I have complete confidence in the WM team and in David Reed, our incoming CFO, who knows this business deeply and has been instrumental in shaping our financial strategy. I know the future is bright, and I look forward to watching WM's continued success. With that, Olivia, let's open the line for questions. QUESTION AND ANSWER SECTION Operator : Thank you. [Operator Instructions] And our first question coming from the line of Tyler Brown with Raymond James. Your line is now open. ..................................................................................................................................................................................................................................................................... Q Patrick Tyler Brown Analyst, Raymond James & Associates, Inc. Hey, good morning. ..................................................................................................................................................................................................................................................................... A Devina A. Rankin Executive Vice President & Chief Financial Officer, Waste Management, Inc. Good morning. ..................................................................................................................................................................................................................................................................... A James C. Fish, Jr. Chief Executive Officer & Director, Waste Management, Inc. Hello, Tyler. ..................................................................................................................................................................................................................................................................... Q Patrick Tyler Brown Analyst, Raymond James & Associates, Inc. Hey, Devina, I've got a couple of housekeeping items. But just year-to-date, how much have you guys benefited from the one-time cleanup work at the landfill? I just want to make sure I have that right for next year? And then secondly, can you go through a couple of the charges this quarter? Has that plastics film plant just been idled based on commodities? Or was that a technology issue? And then what was the genesis of the landfill closure and the charge in renewables? I'm sorry, I know that's a lot, but I appreciate it. ..................................................................................................................................................................................................................................................................... A Devina A. Rankin Executive Vice President & Chief Financial Officer, Waste Management, Inc. Yeah. Let me take them in pieces. So first, with respect to the wildfire volumes, I think it's important to first highlight what John mentioned in his prepared remarks, that there was virtually no impact of that in the third quarter. That really was mostly a Q2 item. There was some in Q1. Total revenues for that were around $115 million for the year. And as we've talked about, the flow-through on that revenue is higher than our portfolio flow-through on incremental volume, which tends to be in the 45-ish percent range. As you can imagine, landfill volumes and special event volume tends to be at the higher end. So you have to extrapolate that in order to think about total EBITDA impacts. But I want to reiterate that the strength of Q3 solid waste results really indicates that we accomplished about $145 million in EBITDA growth in that segment without any meaningful impacts from the wildfires. With regard to the charges, I'm going to let Tara address the Natura activities, because she'll do that better than I could. But with regard to the landfill impairment that we took in the quarter, that was a really long-term pursuit of expansion at hazardous waste landfill in the Northeast. And we had some news this quarter that indicated that our pursuit would no longer be worth moving forward with and both recorded an impairment of the existing net book value of that and then also recorded the impact of an acceleration from former estimates in the expected closure and post closure costs for the site. A Tara J. Hemmer Senior Vice President & Chief Sustainability Officer, Waste Management, Inc. So on Natura, it is absolutely market conditions. We built this plan and demonstrated that we can produce a high-quality pellet that customers would buy. But with virgin prices being at all-time lows and some of the minimum content legislation being a bit delayed, the buyers were just not there for the product that we were producing. So we made the decision to temporarily close the operations. We could start it back up, but we're going to monitor what happens with those market conditions going forward. ..................................................................................................................................................................................................................................................................... Q Patrick Tyler Brown Analyst, Raymond James & Associates, Inc. Okay. Okay. Very, very helpful. Appreciate that. And then, Jim, I very much appreciate the early look on the 2026 free cash. But can you give us any help on some of the pieces to get there? I mean, what a mid- to call it mid-high single-digit improvement in EBITDA, which I think is pretty consistent with the Analyst Day, makes sense. And then will part of the improvement in free cash be a sizable drop in green CapEx? Just any broad strokes there? ..................................................................................................................................................................................................................................................................... A James C. Fish, Jr. Chief Executive Officer & Director, Waste Management, Inc. Yeah. So it's coming from a number of different places, Tyler. I mean, if you think about the wind down of the sustainability investments and then a ramp-up in the related EBITDA, that's a big piece of it. You'll see the normal strong performance of our legacy business, which tends to perform year in and year out. And so you'll see that as well, and we'll give you kind of the exact number when we get to next quarter. In addition, we've bought - I think, John, correct me if I'm wrong here, about 6,000 trucks over the last three years... ..................................................................................................................................................................................................................................................................... A John J. Morris President & Chief Operating Officer, Waste Management, Inc. That's right. ..................................................................................................................................................................................................................................................................... A James C. Fish, Jr. Chief Executive Officer & Director, Waste Management, Inc. ...and that's above our normal spend on fleet. So we'll ratchet back to more of a normal looking year with about 1,500 trucks. So you'll see maintenance capital be a piece of that. You'll also see, and I can talk about this too, Healthcare Solutions. There's a number of reasons why Healthcare Solutions is going to be a nice contributor to free cash flow next year, not the least of which is reducing the cost of integration, which has been substantial this year. You'll see some carry - a fair amount of carryover from synergies that we were collecting throughout the year this year that we'll get the full year of next year. You'll see some additional synergies in that business next year. So there's a number of reasons why Healthcare Solutions will be a nice contributor to free cash flow. So there's quite a bit going into that. I don't know that, that helped you kind of fill out the models. But I think you'll be able to - when you hear us in January, be able to recognize that this is not just one thing that's causing us to be bullish on free cash flow. ..................................................................................................................................................................................................................................................................... Q Patrick Tyler Brown Analyst, Raymond James & Associates, Inc. Yeah. No, I totally get there's a lot of pieces. And just if I can squeeze one last one. So I think at the beginning of the year, you guys said that sustainability EBITDA would be up, call it, [ph] 280 (00:23:35) at the midpoint this year. It does appear year-to-date on my math. Again, this is my math, but it is tracking pretty well below that. I assume there's going to be a step-up in Q4. And then I thought, Jim, I heard you say that you are expecting to hit that target for 2025. Is that right? And then two, and Tara, this is my bigger picture question, but with where commodity prices are, where RINs are. Do you still have that full confidence in achieving that near $800 million of total incremental by 2027? Or should we start thinking about maybe haircutting that a little bit or pushing it out a little bit further? Appreciate it. ..................................................................................................................................................................................................................................................................... A Tara J. Hemmer Senior Vice President & Chief Sustainability Officer, Waste Management, Inc. Well, let me take this in pieces. And first, I'll start with the Renewable Energy business. So we're making great progress on our projects, as Jim mentioned. You might have noticed that our earnings might have looked a little muted in the quarter. But that really is because we made the decision to defer really selling some of our RINs in Q4 because we saw pricing uptick - upticking a bit. And on the volume side in 2025, just to give you a little bit of color, we're on track through the first nine months of the year where we doubled the amount of RNG production. So we're seeing the benefits flow through from those plans. As far as what we guided in 2025, we're expecting our renewable energy business to be on track. What's lagging is the recycling business, which is primarily commodity price driven. We've made a lot of great strides on our automation investments. And if you look at what Jim mentioned, that commodity prices were down nearly 35% and EBITDA was up 18%. That is a testament to the benefit that we're driving out of these investments, in labor costs and operating expenses, and our EBITDA margins are more than doubling at those automation plans. So what you might see going forward into 2026 and 2027, on the recycling side, you'll recall we gave you a range of between $75 a ton and $150 a ton for what we might expect out of the recycling business. And so for the automation investments, we expect roughly a $10 change to equate to about $8 million. And then you would have to add to that for our base business, a $10 change is about $20 million. So all in, somewhere between... ..................................................................................................................................................................................................................................................................... Q Patrick Tyler Brown Analyst, Raymond James & Associates, Inc. Okay. ..................................................................................................................................................................................................................................................................... A Tara J. Hemmer Senior Vice President & Chief Sustainability Officer, Waste Management, Inc. ...$25 million and $30 million would be our new $10 change. But we're - we remain very confident on where we're headed. We're looking at renewable energy pricing and what's happening in the RINs market, and we're seeing prices for 2026 in that [ph] $2.20 to $2.30 (00:26:33) range, so still within our investment thesis. ..................................................................................................................................................................................................................................................................... Q Patrick Tyler Brown Analyst, Raymond James & Associates, Inc. Okay. Perfect. Great color as usual. Appreciate it. And, Devina, again congrats. .....................................................................................................................................................................................................................................................................

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