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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 third quarter earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. 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.

Thank you, Livia. 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 www.wm.com. The Form 8-K, the press release, and the schedules for 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 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 24 hours a day, beginning at approximately 1:00 P.M. 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 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 express written consent of WM is prohibited. Now I'll turn the call over to WM CEO, Jim Fish.

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. We continue to pursue talk and 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 multi-state 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's 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. Though growth was lower sequentially due to the timing of wind 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 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.

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 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 remains right in the 9% range. 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. 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 cost 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 2023, 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. I'll turn the call over to Devina to walk through our financial results in more detail.

Thanks, John, and good morning. Total company operating EBITDA margin was 30.6% in the third quarter, which is the best quarterly result in our history. 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 this result 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 the quarter was 3.3x, and we continue to track toward our target ratio of between 2.5x-3x, 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 in 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%-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 Reid, 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, Livia, let's open the line for questions.

Thank you. Ladies and gentlemen, to ask a question at this time, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw questions, simply press star one one again. Please stand by while we compile the Q&A roster. Now, first question coming from the line of Tyler Brown with Raymond James. Do you want to smell open?

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. 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? 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.

Yeah, let me take them in pieces. First, with respect to the wildfire volumes, I think it's important to 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. 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% range. As you can imagine, landfill volumes and special event volume tend to be at the higher end. You have to extrapolate that in order to think about total EBITDA impact.

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. With regard to the landfill impairment that we took in the quarter, that was a really long-term pursuit of expansion at a hazardous waste landfill in the Northeast. 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 cost for the site.

On Natura, it is absolutely market conditions. We built this plant and demonstrated that we could produce a high-quality pellet that customers would buy. 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. 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.

Okay. Very, very helpful. Appreciate that. Jim, I very much appreciate the early look on the 2026 free cash. Can you give us any help on some of the pieces to get there? Would a mid, to call it mid-high single-digit improvement in EBITDA, which I think is pretty consistent with the analyst state, make sense? Will part of the improvement in free cash be a sizable drop in green CapEx? Any broad strokes there?

Yeah. It's coming from a number of different places, Tyler. 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. You'll see that as well, and we'll give you 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. That's above our normal spend on fleet. We'll ratchet back to more of a normal-looking year with about 1,500 trucks. You'll see maintenance capital be a piece of that.

You'll also see, and I can talk about this too, healthcare solutions. There are 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 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. There are a number of reasons why healthcare solutions will be a nice contributor to free cash flow. There's quite a bit going into that.

I don't know that that helped you fill out the model, 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.

Yeah. No, I totally get there's a lot of pieces. If I can squeeze one last one, I think at the beginning of the year, you guys said that sustainability EBITDA would be up, call it $280 million at the midpoint this year. It does appear year to date on my math, again, this is my math, but that it is tracking pretty well below that. I assume there's going to be a step up in Q4. I thought, Jim, I heard you say that you are expecting to hit that target for 2025. Is that right? Two, and Tara, this is my bigger picture question.

With where commodity prices are, where rents 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 hair cutting that a little bit or pushing it out a little bit further? Appreciate it.

Let me take this in pieces. First, I'll start with the renewable energy business. 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 upticking a bit. 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've doubled the amount of RNG production. We're seeing the benefits flow through from those plants. 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.

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. Our EBITDA margins are more than doubling at those automation plants. 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-$150 a ton for what we might expect out of the recycling business. For the automation investments, we expect roughly a $10 change to equate to about $8 million. You would have to add to that for our base business, a $10 change is about $20 million. All in, somewhere between $25 million-$30 million would be our new $10 change. 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 $220-$230 range. Still within our investment thesis.

Okay. Perfect. Great color as usual. Appreciate it. Devina, again, congrats.

Thank you. Our next question coming from the line of Noah Kaye with Oppenheimer, you'll let us know.

I'll add the congratulations, Devina, for a long career at WM. Thanks for all the dialogue over the years, and we wish you well on your retirement.

Now that we know that landfill volume didn't benefit from wildfire in Q3, can we double-click on the strength in Municipal Solid Waste (MSW) as well as what drove the positive inflection in industrial volumes?

Yeah. If volume was a good picture for us this quarter, when you think about industrial, it's been negative for several years now. The fact that it ticked up was encouraging. It was pretty evenly spread geographically. Part of that industrial pickup was the conversion of WM Healthcare Solutions' hospital customers that moved from other companies to us. That was a piece of it. I guess you could call that cross-selling. I don't know. It certainly is a benefit of acquiring the business. Temp roll-off was slightly stronger across a couple of geographies as well, so that contributed. You didn't ask about RESI, but RESI has been negative for a number of years. I think, John, we've talked about it kind of starting to flatten out at the back half of next year. The margins have certainly been strong there.

Yeah. I mean, if you look at quarter to date, year to date, the revenue, despite the volume headwinds, is up in the quarter and the date. I think for the quarter, we're still at $10 million in revenue and about 155 basis points. That math is still working. To your point, Jim, about the outsized volume impact, if you remember last quarter, we talked about one big franchise. It's affecting about 250 basis points of that negative landfill, excuse me, residential print. It's about 50-60 basis points on the commercial side because that'll be another question. It's that franchise business. We should lap that at the end of Q4. To your point, we've said we think we'll see continued improvement in trends in residential and probably get sub 3% by the first quarter of next year and continue to improve from there.

Noah, on landfill volumes, not only was MSW positive, really all waste streams showed nice positive movements. MSW, in particular, I think is reflecting the strength of our network more than anything else. It was not kind of similar to the industrial line of business. It was not something you could point to specifically in one place. It was pretty universal. We are pleased with it. It certainly was not a case of us trading price for volume because if you look at the price numbers, they were very strong as well. Particularly, MSW, I think, was at 6.7% yield. We are pleased with it. I wish I could give you a better answer other than just the network is very strong on why it is coming to us. The pipeline on special waste, we just heard from our area leaders last week, continues to look good.

Overall, we are pleased with volume numbers.

Okay. Thanks. Nice to see the margin guide raised for the year. There's still a, I think, a fairly sizable range there for one quarter implied. Just broad thoughts on, you know, what would take you to the low end versus the high end of that margin guide?

Yeah, it's a good question. What I could tell you is we're optimistic about the margin outcomes. I think that what you're left with is recognizing that with softness on the revenue line, there had to be outperformance in our execution, particularly in the collection and disposal business on margin. That's what lifts our confidence in the top end of that range. I don't anticipate much that would drive us to underperform on that range. I do think you're looking at midpoint to the upper end being the most likely outcome for the fourth quarter. With respect to what gives us that confidence, I really think it's important to reiterate that when you look at the 32% collection and disposal margin in the quarter, it's the result of the retention benefits that we've talked about driving efficiency and safety.

It's the fleet investment, it's improved price-cost spread, and it's improved mix, which Jim just gave you color on, particularly with those landfill volumes being so strong. That's what gives us confidence, combined with the fact that, as Tara mentioned, Q4 will be a strong quarter of rent sales, and those are effectively 100% accretive to margins. Really expect the fourth quarter to be another strong quarter of margin performance.

Okay, great. Lots more, but I'll leave the questions to others. Thank you.

Thank you. Our next question coming from the line of Trevor Romeo with William Blair. You'll let us know.

Hey, good morning. Thanks for taking the questions. First one I had was just on the healthcare solutions business. If you could maybe just touch a little more on the deferral of the pricing increases, just maybe like what kind of customers are pushing back and why, and then in terms of maybe the long-term pricing power of that business, what's your confidence in the ability to eventually get those price increases and achieve the kind of mid-single-digit revenue growth you expect for that business?

Yeah, Trevor, apologies for kind of a long answer coming here, but I'll touch on the price increase piece. Let me give a little bit of perspective for everybody here on Stericycle after 12 months of owning the business. First of all, and we talked about this in our prepared remarks, strategically, we view this as being even better than the original business case. It's hard to, the secular trends absolutely support this. It's hard to read an article these days about the next 10 years of, kind of 10+ years of economic growth in the U.S. without reading something about lower birth rates or an aging population here. All of that supports this business. We know that what happens as we get older is that there's higher demand for healthcare services. The market position of this business, too, is incredible.

I'm not sure we realized that coming in, how strong their market position is geographically. I think, regarding pricing, and it's really related to the ERP implementation itself, Devina can comment on this as well. Overall, as a comment about the ERP, it's moving along well. I think it's worth mentioning every single company that's ever implemented an ERP, including ourselves, by the way, has measured this in years, not in months. There are always some challenges with it. This one in particular, our ERP rolled out a few years ago off of a well-run system. This was not a well-run system. We had some challenges coming in. What we saw with the top line really was that it was affected by a couple of things. You mentioned one of them, which is deferred price increases.

The other was credits given to customers as we're trying to clear up this AR. By the way, we've cleared up a third of the past due accounts receivable just over the last three months. Some of that's coming in the form of cash collection. Some of it's coming in the form of credits. The good news there is that those credits, for the most part, are going to be one-timers. It's not as if we'll never give another credit, but a lot of those are one-time credits that we're giving to customers. We're seeing a bit of churn as well. It's not excessive churn, but we are seeing some churn. It's really those three things. It's deferred price increases. It's some credits we're giving to customers to clear up old AR. It's some churn with the business and a bit of volume as well there.

Overall, we think that we talked about the synergies outperforming. Devina mentioned that in her script. Those are outperforming for us. By the way, this ERP, we absolutely have the right team on it right now. We have a super strong team on it. They are focusing on a whole bunch of different work streams. We're doing things like rolling out a new invoice to customers shortly. The systems are now finally talking to each other. SAP and Salesforce are talking to each other. I'm not sure that was the case before. This becomes not an if anymore. This is a when. I think the when is still well into 2026. What we can say is that this quickly becomes transparent to our customers. It's all internal work that's being done. Things like the new invoice, those aren't transparent to the customer. They'll see that and they'll like it.

Long answer to your short question there, but we do feel really good about this. I know a lot of you wrote about it in your early remarks, but strategically, it's a great business and we're making a ton of progress on all fronts.

Trevor, I'd just like to underscore one thing, I think, to address your question very directly. This was not a step that we took as a reaction to pushback from customers, quite the opposite. It was a step that we took because WM does the right thing for our customers. Whether it's the credits or the customer-centric evaluation of service and contract that was necessary for us to ensure that we're taking the right steps with price increase, those were things that we did because we do things the right way. You'll just see effectively a restabilization of revenue as we get into the 2026 outlook.

I think this housekeeping that you're seeing in the third quarter was necessary for us to focus on customer lifetime value and a long-term growth portfolio that we know exists because this is the best platform in the business for regulated waste service, particularly in North America.

Maybe, Trevor, to add to Jim's long answer, I'll extend it just a minute. At the end of the day, the strategic value of the healthcare business, Jim and Devina spoke to in their comments. The other thing I would tell you is when you look at it, it's about 10% of our business when the dust settles. If you look at the legacy business or the core solid waste business with margins over 38%, SG&A in kind of a soft revenue quarter at 9%, there's a lot of strength in the legacy and core business. We think that that's going to continue to perform well through the balance of the year and next year. We're going to get the tailwind, if you will, of all the improvements that the team's working on with regard to this healthcare business.

That's another reason why we feel so good about, in particular, what our free cash flow is going to look like for next year.

All right. Thanks so much to all three of you for that. That was really helpful. John, I guess that's a good segue into a follow-up question I had, which is maybe looking at your price-cost spread into next year. It sounds like things are kind of tracking well. If you look at your pricing, maybe the yield is tracking maybe toward the low end of what you expected this year, but still pretty solid on costs. It sounds like your turnover and incident rates are improving. You see potential maybe for wage inflation to go down further next year. Just kind of how are you thinking about both pieces of that spread into, you know, beyond this year?

That's a good point there, Trevor. I spent a good bit of time looking at it. I looked at it a few different ways. If you look at sort of the yield for the traditional solid waste business for the quarter, it's 4.1%. If you look at core price at 6%, and you compare that to sort of CPI, CPI for at least our math is right around 2.93%. I think we continue to see a good spread between core price yield and operating expense pressure. As I mentioned in my prepared remarks, another quarter under 60% and with a little momentum on a year-to-date perspective. We feel good about the cost-price spread.

The other thing we've talked about for the last number of quarters is that our commercial and industrial pricing has always been solid and consistent, but you're seeing continued improvement and consistent levels of pricing across our landfills, across our entire post-collection network, and still in our residential business. I think the fact that we've syndicated sort of our pricing strategy in a more effective way gives us a lot of confidence going into next year on that spread you mentioned.

You might mention, John, driver turnover, because that's been an incredibly good story for us.

Yeah, that's worth noting. I mean, if you look at our risk cost, our safety metrics, there's a number of metrics. Our labor ratios are all benefiting from the fact that we, as a team, have worked really hard over the last couple of years, really post-pandemic, to get that number, A, under control and, B, to make it, to improve it quarter in and quarter out. As I mentioned, the driver and technician turnover is at an all-time company low. That shows up in a bunch of different metrics, as I mentioned in my prepared remarks.

All right. Really appreciate it. Davina, my congratulations to you as well. Thanks.

Thank you. Our next question coming from the line of Toni Kaplan with Morgan Stanley. You'll let us know open.

Thanks so much. I was hoping you could talk a little bit more on what's going on with yield, also just in the quarter, but also looking into 2026, how your conversations with customers have been going at the end of the year here. Thanks.

I would say yield is what we talked about with yield, and I mentioned a couple of them earlier. MSW was very strong at 6.7%, Commercial at 4.7%, RESI 6.5%. We're happy with yield and core price. We tend to focus on both. I think the primary focus with respect to pricing is to cover our cost and then tack on some margin over and above that. I think that what we're showing, when you look at our margin results, even with some of the headwinds that we've faced, I believe that's really kind of showing up there. I don't know that that answers your question, but right now we don't just focus on the absolute number. As our cost comes down, we've said all along that our yield will tick down slightly. We just want to make sure we maintain that delta between cost and price.

Got it. I was sort of curious on the industrial yield. I think it was like the lowest since COVID. I think you've talked about mix and temporary roll-off being a little bit weak in past quarters. I know you said it was a little bit better this quarter, but were those still similar drivers? Or is, on the industrial one, was there a reason why 2.3 was, you know, we saw a lower one?

I think you picked it off, Tony. I think a few things are affecting it. One, we, you know, in terms of we mentioned that some of the volume increases coming from the healthcare side as we internalize some of that. To your point, the temporary business is actually rebounding a little bit. It's less negative. Historically, that's lower priced than permanent work, but that doesn't mean it's not as profitable. That's one I would certainly point to. I think the other thing we saw is a little uptick in our permanent hauls too from some of our permanent customers. Not meaningfully, but it was an uptick. That is what's affecting the yield. I think, as Jim mentioned, when you look at our core price at 5.7% for industrial and the overall margin in our collection and disposal business at 38.4%, I think that the math puts out pretty well.

It may also be a bit of a mixed issue with respect to national accounts when you look at yield. That's why core price is an important metric for us to look at also.

Okay, great. Just as a follow-up, when you think about the M&A pipeline, how is that looking? How are valuations looking? Should we expect 2026 to be sort of a bigger year or still digesting the healthcare business? Where are we on sort of M&A strategy?

I think you heard a good bit of color from Jim and Devina on what we're doing in healthcare and where we are sort of in the integration there. We made a big step. The business is now fully integrated into our 16 areas, so we feel good about the momentum there. Separately, on the traditional solid waste side, I think we've closed about $450 million year to date. We said that number could be as big as $500 million by the end of the year, and it could still be. We've got a handful of transactions that are out there that could close in Q4 or could roll into next year. With regard to 2026, sitting here today, I think probably somewhere in the normal $100 million to $200 million is what we're looking at now.

As we've demonstrated over the last couple of years, when the right strategic solid waste asset pops up, we've certainly got the capacity to do that. We're going to take the same approach into next year. Yeah.

I think, John, maybe one last add there. When you think about M&A for next year, it really kind of brings into the conversation capital allocation and what does capital allocation look like next year? We'll give you some specifics on it when we get to January. At $3.8 billion in free cash flow, as we really harvest the cash from these sustainability businesses and the healthcare solutions and then continue to drive good strong cash from our legacy business, it probably indicates that you're going to see, obviously, the dividend will be, you know, come out of that first. There could be some M&A and very likely will be a substantial share purchase next year. We'll figure out exactly what that number is going to be when we get to January. One of those J months.

Thank you. Our next question is coming from the line of James Schumm with TD Cowen. You may go ahead.

Hey, thanks and good morning, guys. I was wondering, on the WM Healthcare, would you be able to give us a sense of how the medical waste is performing and how the document destruction businesses are performing?

Two things there. First of all, addressing a little bit of the remarks that Devina made earlier regarding some of the credits we've issued to the customers. Those credits have been primarily on the regulated medical waste side of the business. A lot of that is acknowledging frustration over the years with the ERP system implementation. It has been sort of maintaining our customer-first focus there and making sure that we establish a firm foundation from which to grow. We have experienced a little bit of churn there on the hospital side of the business. However, the addition of customers continues to be pretty strong. I will say, I think it's worth noting that we've renewed nearly $200 million worth of business on our large customers there, and that average PI has been in the low double digits. I think we have a good runway there.

As we stabilize that side of the business and we have a firm foundation to grow, you'll see those PIs begin to realize towards the back half of 2026. On the auto shred side, the purge business gave us a little bit of challenge at the beginning of the year. That was mostly having to do with disconnects between commercial and operations. We fixed those, and we've seen us bringing that high margin business back in line. The auto shred, actually, this is the place where we've implemented our sales coverage optimization the soonest, the fastest, and we're seeing a lot of productivity in terms of pipeline rate of closure. We like what we're seeing there. Quite frankly, the whole melting ice cube concern is not that much of a concern for us anymore.

Okay. Thanks a lot, Rafael. On the positive side, you noted basically legacy Stericycle volumes going into your landfills. Is there any way you could quantify that benefit for us?

Basically, when we think about how we outline synergy value, we talked about $80 million-$100 million in 2025 of synergy value. You can think of it being about a fifth of the synergy realization to the year.

Okay. On the hazardous waste landfill, I just want to make sure I understand correctly. You were pursuing an incremental hazardous waste landfill. Is that right? That didn't come to fruition, or are you closing an existing hazardous waste landfill? Can you just, I forget, how many do you guys have, four or five hazardous landfills? Where do you stand there? Thanks.

Yeah, I mean, the answer to the question is that the site that we're referencing that was shuttered has actually not been operational. We've kept it on life support, if you will, while, as Devina mentioned, we were pursuing a permanent expansion. It's not a loss from our existing portfolio. It hasn't been operating in a meaningful way in a number of years.

It is in the count. We've always disclosed that we have five hazardous waste landfills. We will now disclose that we have four.

Okay. Great. Thank you. Good luck to you, Devina. Thanks for everything. Bye.

Thank you. Our next question coming from the line of Rob Wertheimer with Melius Research. You'll let us know, open.

Yeah. Hi. Thank you and good morning. I just had a quick clarification on an earlier comment with respect to Healthcare Solutions doing more traditional waste. I think you said, you know, I guess you could call it cross-selling. It sounded a whole lot like cross-selling. I was wondering if I missed a subtlety there. Just more generally, how does your cross-selling kind of sales effort ramp up over time? Thank you.

Yeah, you're probably referring to the comment I made about our industrial volumes and how we were taking volumes from what would have been under the old company going to a competitor and then internalizing them into us. That's really what that is. Our solid waste volumes are coming to us in the industrial line of business through internalization of that volume.

Okay. Perfect. In general, your progress along cross-selling on healthcare?

It's been very strong. There are some great examples where we've had exactly what we've talked about, where the National Accounts Business platform for WM has been a long success story for us. The healthcare sector was one of those where we were underrepresented relative to our share in other important segments of our customer base. We've seen great success in leveraging, I would say, the WM Healthcare Solutions customer base in order to extend traditional solid waste performance across that National Accounts platform. We've also seen success the other way, where we've taken legacy WM customers and thought about shred opportunities or even, you know, using the healthcare solutions platform in order to deepen the customer relationship. I think what's really important there is that when you become that single source provider for a customer, that customer relationship will be longer and provide incremental value.

That's another leg of that focus on customer lifetime value that we've been talking about.

Waste Management (WM) Q3 2025 Earnings Call Transcript

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