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F500 2021-202-Waste Management Inc.

Waste Management offers environmental services to nearly 21 million residential, industrial, municipal, and commercial customers in the U.S., Canada, and Puerto Rico. The company experienced a modest downturn in 2020 as sales fell 1.5% and profits dropped by 10.4% compared to the year before, but Waste Management still rose five spots in the Fortune 500 rankings to No. 202 on relative strength.

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F500-2020-207-Waste-Management

Creeping six spots up this year's ranking, Waste Management collects, recycles, and disposes of garbage in the United States and Canada. It also owns and operates landfill gas-to-energy facilities via subsidiaries in the U.S.

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Waste Management is an environmental solutions and waste management company that provides collection services for residential, commercial, industrial, and municipal customers. It owns and operates hundreds of active landfills and transfer stations and offers materials processing and recycling; it also operates landfill gas-to-energy facilities for renewable electricity and gas. Waste Management completed a $7.2 billion acquisition of Stericycle in 2024.

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Waste Management (WM): Company Profile, Stock Price, News, Rankings

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Waste Management

waste management

Good day, and thank you for standing by. Welcome to the WM First Quarter Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please note that today's conference is being recorded.

I will now hand the conference over to your first speaker today, Ed Eggel, Vice President of Investor Relations. Please go ahead.

Thank you, Olivia. Good morning, everyone, and thank you for joining us for our first quarter twenty twenty five earnings conference call. With me this morning are Jim Fish, President and Chief Executive Officer John Morris, Executive Vice President and Chief Operating Officer and Devina Rankin, Executive Vice President and Chief Financial Officer. You'll 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 filed a form eight k that includes the earnings press release and is available on our website at www.wm.com. The Form eight ks, the press release, and the schedules of 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 ks 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 WM legacy business are total WM results excluding the WM Healthcare Solutions segment. Any comparison, 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 and A expense 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 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 twenty four hours a day beginning approximately 1PM Eastern Time today. To hear a replay of the call, access the WM website at www.investors.wm.com. Time sensitive information provided during today's call, which is occurring on 04/29/2025, 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 President and CEO, Jim Fish.

Okay. Thanks, Ed, and thank you all for joining us. The WM team again delivered quarterly results that exceeded our expectations. The one thing I'm most proud of over the past few years is that we've truly become a predictably strong performer on a quarter in and quarter out basis. So once again, I'm pleased to report that we had a strong start to the year with first quarter results exceeding our expectations on several fronts.

Total company operating EBITDA grew by more than 12% in the first quarter compared to the first quarter of twenty twenty four, driven by solid operational performance in the collection and disposal business, meaningful contributions from WM Health Care Solutions, and increases in our sustainability businesses, largely related to our growth investments. Our momentum so far, as well as our demonstrated operational execution and the strength and resiliency of our business model, gives us confidence in our ability to achieve all of our financial guidance we outlined last quarter. Our focus remains on growing customer lifetime value while leveraging technology to optimize our cost structure, delivering on our strategic investments in sustainability and extracting increased value from our acquisition investments. At a time when The US workforce is aging and shrinking, moving quickly to deploy technology to supplement our workforce could prove to be a significant differentiator for WM. At the same time, the leadership position we've taken with our very profitable sustainability investments is positioning the WM brand to be synonymous with sustainability and is not easily matched by our competitors.

Of course, we continue to identify opportunities to scale the core business through acquisitions. We have a very robust pipeline of tuck in opportunities and anticipate another outsized year of solid waste M and A. Turning to our sustainability businesses. In Q1, combined operating EBITDA from recycling and renewable energy grew by over 20% year over year, keeping us on track to meet full year targets. Automated recycling facilities delivered nearly double the operating EBITDA margin compared to our non automated facilities.

We added two new facilities in California and Texas with seven more next gen recycling plans scheduled to come in 2025. In renewable energy, growth was fueled by new RNG plants we brought online in late twenty twenty four and strong pricing for natural gas and renewable electricity. We're currently advancing construction on eight additional RNG facilities that are all on track for completion this year. The strategy is working as our investments in sustainability are delivering strong, high return growth. During the first quarter, we also made significant progress in our integration of WM HealthCare Solutions into the broader WM organization.

Our new customers are excited by the expanded level of environmental expertise that WM brings to their organizations, including an industry leading reporting and analytics platform and an unmatched asset network that will help health care industry customers manage and track their waste streams more efficiently. We continue to focus on identifying and capturing synergies and are on track to achieve $250,000,000 of annual run rate synergies in 2027. We're very pleased with the progress we've made in a short period of time and are excited about the long term value we're creating. In closing, I want to thank our employees for their dedication and hard work. Your efforts drive our success, and we're grateful for your commitment.

Looking ahead, I'm excited about the opportunity to share more about our strategic priorities and long term vision at our upcoming Investor Day in June. We hope you'll join us in New York or tune in to the event via the webcast. I'll now turn the call over to John to discuss our operational results.

Thanks Jim, and good morning. The first quarter further demonstrates the consistent progress being made in our core collection and disposal business. Through our focus on customer lifetime value and optimization of our cost to serve, we again grew both operating EBITDA and margins in the quarter. First quarter operating EBITDA for the collection and disposal business was up almost 5% and margin expanded 10 basis points. We achieved this growth in what we knew would be the most challenging quarter from a comparison standpoint.

This success is particularly impressive when you consider the impacts of tough winter weather in our Southeast And Gulf Coast regions during the quarter and the expiration of the alternative fuel tax credits. Revenue has once again grown across all lines of business, driven by collection and disposal yield of 4% and core price of 6.5%, with churn remaining stable at around 9%. We continue to achieve solid pricing across all of our revenue streams. Commercial collection, transfer stations and landfill core price were particularly strong in the quarter, as we continue to leverage data driven decision making to offer pricing that reflects the value of our service, the strength of our asset network and our commitment to providing differentiated customer solutions. Regarding volumes, our first quarter collection and disposal results were flat on a workday adjusted basis.

Positive landfill and commercial collection volumes were offset by our strategic exit from low margin residential business, as well as continued economic pressure on the temporary segment of our industrial business. While the California wildfire cleanup positively impacted our special waste volumes in Q1, these gains were largely offset by impacts of winter weather events I mentioned earlier. Overall, we remain confident in our volume outlook for 2025 because our special waste pipelines remain strong, service intervals remain positive, and we expect fire volumes in Southern California to continue through at least the end of the third quarter. Turning to operating costs and margin, Q1 marked our sixth consecutive quarter with operating expenses as a percentage of revenue below 61%. We delivered operating expenses at 60.5% of revenue, which is a 40 basis point improvement from Q1 of twenty twenty four.

Our commitment to the operating fundamentals of the WMA continues to drive margin improvement. The first quarter's performance was driven by focusing on frontline retention and the use of automation and technology to drive efficiency and operating improvements. The investments we have made in our people, including human centered leadership, coaching and facility upgrades, continue to deliver improved driver retention, with Q1 seeing an 80 basis point improvement compared to the prior year period. When retention improves, it benefits safety, customer service, and efficiency. We also continue to create an optimized cost to serve with the ongoing adoption of automation and technology, including routing and resource planning tools.

Cost optimization focuses combined with targeted contract renegotiations and the intentional shedding of low margin customers in the residential line of business continue to deliver strong results. This is evident in our first quarter operating EBITDA margin in the residential line of business, which grew more than 130 basis points, achieving 20% for the first time in six years. We remain confident in our ability to execute our plans and achieve our full year targets, including operating EBITDA of between 7,450,000,000 and $7,650,000,000 In closing, I would like to extend my sincere gratitude to our employees for their unwavering dedication over the last quarter. Their hard work and commitment to excellence have been instrumental in our success. I'll now turn the call over to Davina to discuss our 2025 financial results in further detail.

Thanks, John, and good morning. We're pleased with our strong start to 2025, which is particularly evident when looking at the drivers of our first quarter operating EBITDA margin results. WM's legacy business achieved 30% margin for the fourth consecutive quarter. This is an increase of 40 basis points compared to the first quarter of twenty twenty four, and the improvement was driven by a 50 basis point contribution from favorable price to cost spread in the collection and disposal business, which is due to our success in optimizing and flexing our cost structure. We also saw a positive 20 basis point contribution from our recycling automation projects.

These margin expansion contributions were partially offset by a 30 basis point headwind from the expiration of alternative fuel tax credits that benefited the prior year period. Total company margin was 28.5% in the quarter due to the 150 basis point impact of the addition of the WM Healthcare Solutions business. With our focus on optimizing this business, including through synergy capture, we've expanded the margin of WM Healthcare Solutions by 20 basis points in only one quarter's time. There is a clear path to additional cost optimization, and we are on track to achieve our full year expectations. As Jim mentioned, we're pleased with the progress we have already made as we begin to integrate and optimize the medical waste and secure information destruction businesses within WM's comprehensive set of offerings.

As in other parts of our business, we're committed to using technology to make processes and people more efficient. We've got a cross functional team engaged to optimize the ERP system as a tool to improve all elements of the customer journey, from onboarding to service delivery, and then from billing to cash collection. The team is off to a great start and we're encouraged by their early progress. Turning to cash flow results. Operating cash flow was $1,210,000,000 in the first quarter.

This is a decrease compared to the first quarter of twenty twenty four, but it is in line with expectations as we had a planned increase in cash interest payments due to additional debt issued last year to fund the acquisition of Stericycle. We also had a headwind from working capital due in part to particularly strong customer receipts at the end of twenty twenty four. We remain confident in our outlook for cash flow from operations for the full year. Capital expenditures totaled $831,000,000 in the quarter, with both capital spending to support the base business and our investments in sustainability growth in line with expectations. Given tariff and trade negotiations, it's worth mentioning that we are particularly well positioned to complete our sustainability growth investments at targeted capital investment levels because we've been deliberate in procuring the equipment needed for these projects ahead of time.

We're also well positioned for fleet replacement with first quarter of twenty twenty five being a particularly strong quarter for truck deliveries. First quarter free cash flow of $475,000,000 is also on plan, and we're on track to achieve our full year free cash flow outlook of between $2,675,000,000 and $2,775,000,000 In the first quarter, we returned $336,000,000 to our shareholders through dividends. Share buybacks currently paused as we focus on getting back to targeted level of leverage through a combination of earnings growth and debt reduction. That said, we continue to focus on identifying tuck in acquisitions in our core business, and we currently expect to close on more than $500,000,000 of solid waste acquisitions in 2025. This is a nice step change relative to our typical 100,000,000 to $200,000,000 of tuck in acquisitions each year, showing our continued confidence in identifying attractive transactions at the right price.

Our leverage ratio at the end of the quarter was 3.58 times. When considering our earnings outlook, disciplined approach to allocating capital, and the healthy acquisition pipeline I mentioned, we expect leverage will be approximately 3.15 times at the end of twenty twenty five. In closing, I want to extend my sincere thanks to the entire WM team for all of their hard work thus far in 2025. Our continued ability to deliver strong operational and financial performance puts us on track to achieve all of our financial guidance and this is a testament to the team's dedication, focus, and talent. With that, Olivia, let's open the line for questions.

First question coming from the line of Brian Birchmeier with Citi. Your line is now open.

Good morning, Thank you for taking my questions. And maybe to start a question for Davina. I was wondering if you could shed maybe a little bit more light on your outlook for 2Q. I know you don't normally give kind of quarterly guidance, but just trying to think through, I suppose, the normal seasonality for healthcare, considering that's new business. And then, you have any detail on maybe the quarter over quarter kind of margin improvement for solid waste relative to normal seasonality, that would be helpful.

Sure, and great question. So, what I would tell you is there's not anything that we're seeing from a seasonality perspective that is really unusual, with the exception of the impacts of the California wildfires. In terms of what will drive margin expansion, what I mentioned is that the solid waste business contributed 50 basis points of EBITDA margin expansion in the quarter. And when you consider that that's overcoming 30 basis points from the alternative fuel tax credits, you're looking at an 80 basis point year over year expansion in margins for traditional solid waste businesses. You combine that with the strong execution on recycling automation of another 20 basis points, and that shows you 100 basis points of margin expansion from the base business.

When we look forward to Q2, we're really optimistic that we'll see another step change in margin on a year over year basis and normal seasonal uptick in the operating margins of the business. When I think about the Healthcare Solutions business particularly, it's not so much seasonality in the revenue outlook that we're looking at. It really is continued momentum in synergy capture and the realization of incremental value from optimizing the cost structure of that business that will start to accelerate as we approach the second quarter. We think that Q3 will be our strongest quarter from a margin perspective, and that really will show momentum behind the traditional business combined with value capture running at more peak levels for full realization over the course of the year of that 85,000,000 to $90,000,000 in total synergies for the Stericycle business in 2025.

Got it. Got it. Thank you for that detail. And then maybe a question for John. You're just curious how kind of yield in the solid waste business in 1Q compared to your expectations.

It just seems like the spread maybe between core price and yield is widening a little bit. So if you can shed any light on kind of what's taking place there, maybe it's kind of just a function of like mix or region, but any detail you had would be great. Thank you. I'll turn it over.

Yeah, Brian, think it dropped out 400 basis points in the quarter. But what I would tell you, what I would point to is that if you look at our core price performance, it was really strong across all lines of business and it translated to margin expansion. There were some anomalies in there on the yield conversion. I mentioned some of the California wildfire volume, is hitting special waste, which runs all through volume. And there was a little bit of pressure from some of the industrial business that was a little softer in the quarter, but what I will tell you is even though that trend was negative, it was better quarter over quarter, so we're seeing some sequential improvement, that's part of why we feel confident to me and made some comments about how we feel going into Q2.

So, the yield conversion, it's one data point, but I think margin and core price performance is really where we're focused.

Thank you. And our next question coming from the line of Kevin Chiang with CIBC. Your line is now open.

Hi, good morning. Thanks for taking my question. Maybe I'll ask a yield question as well. I did notice, I guess, year over year increase in your commercial yield was effectively flat from the growth rate you saw in the fourth quarter. Resi though was down about resi and industrial were down a little bit, maybe 100 basis 150 basis points sequentially from the Q4.

Just wondering if you could call out anything specific in the commercial pricing strategy that yielded relatively better performance on a sequential basis?

So what I'd point out, I would say that our pricing strategy is strong across all three of those lines of business. It really is a mix difference that John was mentioning that has led to some of the variability, and that's about unit differences, particularly in the industrial business, as we've seen some variability in temporary roll off. And we see that as being largely weather related. You know, when we think about 2024 and the trends we were seeing, we were seeing some softness in industrial halls in 2024, but had some enthusiasm about the fact that we had cycled through the worst of those trends and we're looking for some moderation in those levels in the current year. When we look at March and April in particular, we're happy to say that those trends are proving to be more consistent with our expectations coming into the year.

And the extreme winter weather that we saw in February in particular, is something that had more of an outsized impact on Q1, but we're moving past that. And then, the other thing that I would mention on commercial conversion of core price to yield that was particularly interesting for us, and it did have some impact on industrial as well, is some unexpected losses from large national accounts customers that experienced bankruptcies and therefore some store closures that we hadn't anticipated in our guidance.

Okay, that's super helpful. Maybe just my second question, it looks like Health Terra Stericycle revenue was down year over year and I know you don't adjust everything the same way Stericycle did, but maybe you can just speak to the volume and pricing trends you saw in the quarter versus last year, appreciating that you didn't own the business there. And was there any purposeful shedding as you look to improve the revenue quality within Stericycle or improve the overall margin performance within that the healthcare business?

Certainly, Brian. This is Rafael. I'll take that one. I just want to remind the group that over the course of the quarter, we did shed our Spain and Portugal businesses and that actually accounts for the majority of the draw on the revenue basis. Actually the revenue story is not a bad one for us.

Actually the regulated medical waste business is actually slightly up. We're actually ahead about 1% in regulated medical waste stops, for example. The churn in the national and hospital channels is actually right at 3% consistent with what it's been. Despite some of the ERP challenges that Devine actually referenced, we're making good headway in putting forward the plan to resolve, we haven't seen an uptick there. So we feel pretty confident on the revenue side.

On the Secure Information Destruction side, we did see a little bit of a dip there, but again, on the fact that it's not structural. It really had to do with a little weakness on the event work, what we call the purges there. And we've got a good plan to kind of connect our sales and operating folks a little bit better there to perform better on time on that and recapture those volumes.

That's great color. I appreciate it. I'll get back into the queue. Thank you very much.

Thank you. Our next question coming from the line of Tyler Brown with Raymond James. Your line is now open.

Hey, Rafa, just on that, how much synergy capture was in the 95,000,000 of reported EBITDA in q one? And I know this is splitting hairs, but I think you guys said the updated synergies are 80 to a hundred from up to a hundred. Are you messaging anything with that?

Not really. Look, we really are feeling very comfortable with achieving that midpoint of the range right now. We produced about 16,000,000 in value capture in Q1, dropping straight into the P and L. That's going to, of course, continue to generate benefits. And I'll tell you, a lot of that came from our first execution on rationalization of SG and A for us, particularly on the sales coverage side.

I can tell you that the reason for the confidence on delivering is that if we just execute on a little bit more of the planned sales coverage optimization there and we execute on our internalization goals, which by the way contributed very little in Q1, that's probably or not probably, that's definitely because we are waiting for contracts to expire, we have to put in line equipment and so forth, that's going to start paying dividends towards the latter part of Q2 and on through the back half of the year. We feel very comfortable with achieving the guidance.

Okay. And then Tyler, just really quickly, what I would tell you is we wanted to be clear with the investor community that our targeted execution on value capture for the year is $90,000,000. And so our midpoint of a range is always our best estimate of the outcome. And so approaching $100,000,000, we felt like, was a little more vague than what would be beneficial. So we wanted to give you clarity that the range is 80 to a hundred.

We think 90,000,000 is the most likely outcome.

Okay. Perfect. We love clarity. Devina and I don't know if Tara's in there as well, but I think you guys were expecting, call it, 190,000,000 of incremental EBITDA from R and G and recycling. This is my view.

Does it feel like maybe that's a little bit behind schedule in Q1? So I guess a couple of questions. One, are you still confident in that number? Maybe my read is wrong. And two, I think you addressed this upfront, but at this point, you don't expect any RNG CapEx related delays or increased spend due to tariffs.

Yes. So I am in the room, Tyler. I'll take the back half first. We are very confident because we had most of our equipment delivered well in advance of even any of these tariff discussions happening. So, no impacts related to project schedules related to tariffs or related to capital costs.

Related to your question about the performance of the business, we are performing according to plan. If you look at the recycling line of business, it contributed about $11,000,000 in EBITDA performance from those growth projects. And that was the majority of the benefits that we saw in recycling. And we're delivering on what we said we would deliver 30% improvement in labor, 20 plus percent improvement on operating costs and just having visited our Baltimore recycling plant. I mean, these are transformative assets that are delivering volume improvements to communities that need it.

On the RNG side, we brought a lot of plants on at the back half of '20 '20 '4. So, what you're seeing in our results is some improved performance related to pricing. Also, a lot of volume coming online and some of that was offset by some operating costs in start up that was planned.

Okay. Okay. So it sounds like it's it's largely tracking.

Real quick. Yeah. Okay. Perfect. And then, Devin, just real quick.

The 30 basis point drag in CNG, that's gonna be every quarter of the year based on what we know today. Is that right?

That's correct. And 30 basis points for the full year was included in our guidance for EBITDA margin for 2025.

Yes. Okay. All right. Thank you for the clarification. Thank you, guys.

Thank you. Thank you. And our next question coming from the line of Trevor Romeo with William Blair. Your line is now open.

Hi, good morning. Appreciate you taking the questions. One, had on M and A, I guess, if I heard you right, Devine, it sounds like you're now expecting $500,000,000 or so of solid waste acquisitions, which is up from last quarter. So one, I guess, is the full $500,000,000 included in your guidance now? And then two, we just love kind of a qualitative update on what kind of opportunities you're seeing?

And are you finding in this type of environment with you know, some additional economic uncertainties there? Is there more willingness to sell from some of these smaller companies?

Sure. So I'll take the first part of the question, then turn it over to, John in order to, address the second part. What I would tell you is, when we came into 2025, a lot of this pipeline had developed, but we were in DOJ review processes. We were in contract negotiation processes, and so the pipeline was available to us, but we didn't have it fully. Path to close wasn't as clear to us as it is today, and so we're really happy with the progression of the transactions that we have in our pipeline, and with the benefit of where those things stand, able to say that those transactions are in the upside of our guidance relative to midpoint, and we had contemplated those, and they stand today.

What I would say is incremental tuck in acquisition revenue, depending on the timing of close, could now be in the ballpark of 80,000,000 to $125,000,000 and that's up from about $35,000,000 to $80,000,000 in our original guidance and midpoint.

Trevor, I would just add to what Davina said. Think a few things. One, there is certainly some uncertainty out there, and I think the other challenge, as you see, is labor. The cost of labor and scarcity, I think, is certainly something that's pressuring some of the organizations we're looking at. And then lastly, would say, in some of the markets, the value of our network, we talk about that a lot, our ability to move material in and out of markets is becoming more and more prevalent challenging, and I think in some cases, the long term outlook for disposal options is probably pushing some folks to the forefront in terms of now being ready to sell.

So as Davina said, the pipeline is strong, we did about 800,000,000 last year, and as we said, we've got a good runway between here and the end of the year to close some more of these deals.

Great, that's super helpful, thank you both. And then for my follow-up, maybe one for, another one for Rafa, I guess, on the healthcare solutions business. It's still early, but just wondering if you could share any anecdotes you've had from conversations with customers about sort of the combined value proposition, any early wins or new opportunities? Just we'd kind of love to hear what customers are saying and how that's tracking.

Absolutely, Trevor. I actually participated in an entire West Coast swing recently and talked to several of the very large hospital networks there. I think Jim referenced it in his script, but a lot of folks excited about the increased ability to help them in their sustainability journey, about being able to provide sort of that best in class reporting and analytics tool, that platform that's going to help them manage their waste a lot better. Frankly, I've been pleasantly surprised about how patient the customer base is, and that has a lot to do with the fact that it is WM stepping into the shoes as the owner and having the ability to provide that increased level of confidence. I can tell you that a lot of the conversation has also centered around the fixes to the ERP.

We've communicated very transparently that this was about analyzing the entire customer journey and having work streams that would facilitate not only the collections and the billing side, but also the delivery of the service. So a lot of excitement there. We've not framed at the moment what the cross sell opportunity looks completely. We're still working on the playbooks and we're waiting to have the right fixes on the ERP. But again, I'll remind the group, if you look at sort of the shared wallet customers that we have right now where we have solid waste that WM had and regulated medical waste or SID services that Stericycle had, that's only about 17% of the total customer book.

That doesn't even include customers that neither of us have.

All right. That's great. Thank you very much.

Thank you. And our next question coming from the line of Sabahat Khan with RBC Capital Markets. Your line is now open.

Great. Thanks, and good morning. I just wanted to get a bit more color on the residential margins and the journey there. It sounds like it's something you've been working on for a while. If you can just maybe talk about how those discussions are going, how if there's more volume to shed or is it more from a pricing perspective that you want to maybe drive those margins higher?

Maybe where we are in that journey with the margins there now in and around 20%. Thanks.

Well, think it's a good question. I think us getting back over 20% for the first time in six years has been a good milestone. I give the team a lot of credit. There's been a lot of work done to do that, both on the revenue quality side and the operating expense side. So I would tell you, I think for '25, we're gonna see probably the same level, give or take, 50 basis points of volume that'll be negative.

And we've always said we want the residential line of business to compete with the others in terms of margin and return. And while we've made a lot of progress, we still have some work to do there. So I think for 2025 and probably into early twenty twenty six, we're going to see some additional negative volumes. But again, when you're shedding three plus percent volume, revenue and EBITDA are both up, it's still the right path for us to continue down.

Great. And then just one quick one, think, Davina, you mentioned earlier that some of the larger lifting on the synergies related to the Stericycle side is going to be in and around Q2 and Q3. And if we think about the EBITDA flow through of that business, should we expect that to be the Q2 or Q3 to be the biggest quarter? And then just associated, if you can just talk about some of the initiatives you are planning on undertaking midyear that are going to drive that? Thanks.

Sure. So when we think about value capture, it really is a second half of twenty twenty five ramp for us. Some of the actions will start in the second quarter that will bring a lot of that to bear, really beginning in the third quarter. And what I would tell you is it's it's the things that you have heard Rafa talk about, whether it's sales coverage optimization efforts or back office streamlining. Some of as an example, some of what we're doing in the in the back office includes migration of systems so that we have one platform for our human capital and all of those processes.

That will unlock some incremental value for us that starts late in the third quarter. So, a lot of it has to do with streamlining our back office processes, and we think that some of the technology steps that we're taking that come in Q3 will really start to create some momentum in long term value capture in the SG and A part. And I'll remind everyone that we started with this business above 24% SG and A in the fourth quarter of twenty twenty four. We got 70 basis points of expansion in that margin sequentially in a single quarter, which is a great result. And we know that there's more to come on our pathway to getting them to 15% at the end of that three year period that we've got targeted for the $250,000,000 of that value capture.

Maybe I will add, this is Ralfas, but I'll add one more point. It's not just about value capture in the back end of the year, it's also about process discipline, operational discipline. We also just were able to put online our McCarran incinerator as of the end of Q1. We are now taking in about 70% of our total incinerator waste generation in the West Coast. As you can imagine, that's saving us an enormous amount of transportation for disposal costs.

We expect that by the end of the year, we'll be internalizing 100% of that waste. The other aspect of that is the process discipline around fleet management, the reduction of spare ratios. Those were not optimal in Q1, but that's because we were framing and laying down the groundwork to be able to start doing that in Q2 and beyond.

Thank you. Our next question coming from the line of Toni Kaplan with Morgan Stanley. Your line is now open.

Thank you so much. I want to start out with a broad question, basically looking at the company and how resilient it is versus prior downturns. And so wanted to get your updated thoughts on that overall and also maybe specifically how you would expect the sustainability business as well as the new healthcare business to perform in a potentially slower macro environment. Thanks.

Great question, Tony. This is Jim. I would tell you, part of the reason we're so happy with the sustainability investments and the healthcare investments is that they do provide a level of diversification that we may not have had as much of with just a solid waste company. And we like the growth trajectory of both. It tends to be viewed as a bit higher than solid waste.

At the same time, this business, whether it's this company industry, is very resilient to economic downturn. We don't see an economic downturn, and maybe I'll reemphasize a couple of Devina and John's comments about volume for the quarter. We weren't sure how much that we were really impacted in January and February by weather versus are we seeing an economic downturn. And I think the answer to that question came in our volumes for March and April, which turned back up nicely. That led us to believe that that truly was that January, February truly were just two very bad weather months.

I know the other guys have talked about it on their calls as well. You know, when you get six inches of snow in Houston, Texas, and I've lived in Houston for eighteen years, I've never seen that kind of weather here. It stayed on the ground. I mean, it's not snowing at 32 degrees, it's snowing at 21 degrees. It feels like, you know, more like Denver, Colorado than Houston.

And then it spread all the way over to Louisiana. So those areas in the South that don't normally anticipate weather shutdowns saw quite a bit of that. So the encouraging part about that was for the quarter was that we saw our volumes turn back up in March and then through the first three weeks of April. I think we are to your question though, I think we're insulated from we're not recession proof as an industry, but we're certainly recession resistant. And again, not that we see a recession on the horizon, but to the extent that something does turn down, I mentioned in my kind of first statement, we seem to meet the expectations that we provide quarter in and quarter out regardless of what the economic climate is or the political climate or what have you.

So it's part of why this business, this company and this industry have done as well as they have. And there's my sales pitch for the industry.

Great. And then as a follow-up, I wanted to ask, Davina, you mentioned you're in good shape on the fleet for this year. But maybe how should we think about potential impacts assuming that tariffs are implemented? Just maybe it's more of a 26 CapEx kind of question, but any stats or anything you can provide on cost of fleet and how an impact of higher tariffs might be on your business? Thanks.

Yeah, Tony, this is John. I think Devina made the comment early on. We're in really good shape from a truck delivery standpoint. We front loaded the schedule and we've got about a third of our trucks already delivered and on the ground. And for the balance of '25, we don't see very little cost pressure there.

Heavy equipment, same story. We're in pretty good shape through 2025. We've worked with the supply chain group to really put a ring around what we thought that tariff impact could be in its low, low single digits in a few buckets just because we got out in front of it. And as Tara mentioned, most of our recycling and RNG assets are already committed to for 2025. So we're in really good shape for 2025.

To Jim's point earlier and with DaVinus, if it rolls into 2026, we might have to revisit it. But right now, as we sit here in 2025, we feel good about our position.

Single digits you mean like in the millions, not $7

Thank you. Our next question coming from the line of Noah Kaye with Oppenheimer. Your line is now open.

Waste Management (WM) Q1 2025 Earnings Call Transcript

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