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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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Q4 2024

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

legacy

Waste Management

waste management

Good day, and thank you for standing by. Welcome to the WM fourth quarter 2025 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 one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please note that today's conference is being 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 fourth quarter and full-year 2025 earnings conference call. With me this morning are Jim Fish, Chief Executive Officer; John Morris, President and Chief Operating Officer; and David Reed, 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 our operating overview, and David 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 the most recent Form 10-K and Form 10-Qs. John will discuss our results in the area of volume, which, unless stated otherwise, are more specifically references to internal revenue growth or IRG from volume. During the call, Jim, John, and David will discuss Operating EBITDA, which is income from operations before depreciation, depletion, and amortization. References to the legacy business are total WM results, excluding the 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 www.wm.com, for reconciliation 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 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 January 29th, 2026, 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. We're pleased to report another year of outstanding results in 2025, including a record performance in operating expenses as a percent of revenue. This performance, combined with our disciplined approach to pricing, drove full-year Operating EBITDA margin 150 basis points higher in the legacy business. Strong operational performance translated to double-digit growth in cash flow from operations and nearly 27% growth in free cash flow. Our results highlight the strength and momentum we built in our business model through operational excellence, scaling sustainability businesses, and integration of Healthcare Solutions. You've heard me talk about the strength of our Collection and Disposal business with our differentiated assets and the best people in the industry.

All of these were on display in 2025 as we drove our best ever operating leverage in our Collection and Disposal business, reflecting the intentional investments we've made in our people, technology, and fleet. Better frontline retention and a decreased average age of our trucks delivered improvements in labor and maintenance costs. Meanwhile, we continue to drive organic revenue growth from both price and volume. By using data and analytics, we're offering pricing that reflects the premium value of our service, our leading commitment to environmental sustainability, and the strength of our network. It's our unmatched network, particularly our transfer and disposal assets, that drove volume growth in 2025, more than offsetting the residential volume declines as we shed some low-margin business. In our Healthcare Solutions business, 2025 was a year of teamwork, focus, and execution to build momentum to our integration.

Our service delivery metrics and customer service scores have improved to levels above our legacy business. Customer call volume has been trending down, and the standardization and enhancement of customer-facing processes and invoices are all leading to rising customer satisfaction. Just last week, we received an acknowledgment from one of our largest Healthcare Solutions customers for the improvements we've made on invoicing, which is a great indicator of the significant progress we've made in the last year in our systems and back-office processes. At the same time, we continue to significantly reduce SG&A and operating costs, streamline our operations, and greatly improve asset efficiencies. While there's still work to do, progress we've made to date puts us in a good position to grow the earnings and cash flow from this business with a lean and efficient cost structure...

A healthy pricing environment, and new opportunities for volume growth through both cross-selling and market share expansion. On the sustainability front, we drove notable strategic expansion in our sustainability businesses. We commissioned 7 new renewable natural gas facilities, expanding our renewable energy network and further positioning WM as a leader in environmental sustainability. We completed automation upgrades at 5 Recycling facilities and added facilities in 4 new markets, which are enhancing the performance of our Recycling network and creating new opportunities with customers. The value of our Recycling investments is clear, particularly when you consider our Recycling segment delivered over 22% Operating EBITDA growth, despite nearly 20% lower commodity prices in 2025. This combination of operational excellence and strategic investment across our business has produced record margin performance and accelerated cash generation.

As we enter 2026, we're well positioned to convert more of our earnings into long-term shareholder value. Turning to our outlook, we expect continued strong growth in the year ahead. Our guidance is for Operating EBITDA growth of 6.2% at the midpoint, or 7.4% when you normalize for wildfire cleanup volumes in 2025. Free cash flow is expected to grow nearly 30% at the midpoint, reflecting structural earnings strength and the benefit of our investments. As announced in December, our Board approved a 14.5% increase in the planned quarterly dividend rate in 2026, our 23rd consecutive year of dividend growth. We also authorized a new $3 billion share repurchase program.

We plan to return about $3.5 billion to shareholders through dividends and share repurchases in 2026, representing more than 90% of free cash flow we expect to generate. We will continue to balance these returns with disciplined reinvestment, tuck-in M&A, and a solid investment-grade credit profile. Looking ahead, our priorities are clear. First, growing the core business by leveraging our focus on customer lifetime value, operational excellence, and network advantages. Second, capturing and maximizing returns from our investments in our Recycling and Renewable Energy businesses. And third, driving accretive growth in healthcare solutions as we take the business from integration to scalable growth. Finally, executing our disciplined capital allocation plan to deliver compelling long-term shareholder value. Our results reflect the hard work of our entire team, who serve our customers with pride every day.

Their commitment fuels our performance and sets the foundation for the opportunities ahead. In 2026, we will build up this momentum, strengthening the core, scaling our growth platforms, and creating meaningful value for all our stakeholders. I'm incredibly proud of what we've accomplished and excited for what's ahead. With that, I'll turn the call over to John to provide more detail on our operational performance.

Thanks, Jim, and good morning. WM delivered another fantastic quarter to close 2025, driven by disciplined pricing and continued cost efficiencies across the business. In the fourth quarter, Operating EBITDA on our Collection and Disposal business grew more than 8%, and Operating EBITDA margin expanded by 160 basis points, supported by strong execution and the ongoing benefits of automation and technology across our operations. The strength in Q4 was driven by operating expenses as a percentage of revenue, improving 180 basis points to 58.5%, marking our third consecutive quarter below 60%. For the full year, our cost management is just as impressive.

We finished 2025 at 59.5%, which is the first time in company history that operating expenses have come in below 60% for a year, with each quarter of 2025 improving sequentially. As I said on Investor Day, we are fundamentally changing our cost structure through the investments we're making in our people, technology, and processes. 2025 was the year we proved the change is real and durable, and we're well positioned to continue capturing these benefits for years to come. The improvement in operating costs was led by substantial improvement in repair and maintenance costs on both a dollar basis and as a percentage of revenue, driven by operational and fleet strategies that are yielding tangible benefits.

Accelerated investments in new trucks over the last three years has improved our average fleet age, significantly reducing unplanned repairs and the need for third-party maintenance support. At the same time, our disciplined focus on fleet optimization and a more streamlined maintenance model increased technician productivity and reduced reliance on rental units and external services. These structural improvements were complemented by enhanced route automation and resource planning tools that lessen wear on the fleet and improve overall asset utilization. Taken together, these initiatives reflect our strategic commitment to operational excellence and are driving sustained cost efficiencies that strengthen our performance. Our repair and maintenance costs were not the only cost category reflecting the strength of our operating model, as we saw a similar story in labor. In Q4, labor costs improved as we continue to see benefits from our people-first culture across our frontline teams.

Driver turnover reached its lowest level of the year at 15.7%, demonstrating our ability to sustain our meaningful improvements in frontline retention. We've implemented a people-centric approach to onboarding, training, and accountability, which is improving retention, safety, and operating efficiency, while also reducing overtime hours and training needs. We also benefited from our connected truck platform, which gives leaders real-time visibility into sequencing, downtime, and efficiency to help reduce labor dependency while improving service reliability. It's also worth noting that our connected truck benefits are not limited to cost advantages, as the technology enables right-sizing service levels and other revenue opportunities. These people, process, and technology-driven improvements extend beyond our legacy business.

And now that we've successfully integrated the Healthcare Solutions business into our existing field operations management structure, we expect to extend these improvements we've already seen in on-time service delivery, driver turnover, asset rationalization, and network optimization. In both the legacy business and the Healthcare Solutions business, we are structurally lowering our labor cost base, strengthening day-to-day execution, enhancing service reliability, and delivering continued opportunities for long-term operating improvements. Turning to the top line, we delivered another quarter of strong, balanced growth. Pricing continues to be a strength for us, with core price of 6.2% in the fourth quarter, not just because of disciplined execution, but because of our strong customer focus and the consistent value we provide to our customers.

Our asset positioning and scale, service reliability, and the investments we've made in technology and automation differentiate our service offering, which all support our pricing. On the volume front, we've seen notable growth in 2025 in special waste, renewable energy, and Recycling. In residential collection, intentional shedding moderated in the fourth quarter, and we continue to drive operating EBITDA and margin growth. We anticipate steady residential volume improvement as we move through 2026. In closing, I'll close by thanking the entire WM team for their commitment and execution throughout 2025. We're entering 2026 with strong momentum, an optimized operating model, and clear opportunities to continue delivering value to our customers and shareholders. Now I'll turn the call over to David to discuss our 2025 financial results and 2026 financial outlook in further detail.

Thanks, John, and good morning. Our 2025 performance demonstrates the meaningful progress we're making toward our long-term strategic goals. Operating EBITDA margin expanded 40 basis points to 30.1% for the full year, which is a result that overcame a 140 basis point margin headwind from the combined impact of the acquisition of the Healthcare Solutions business and the expiration of alternative fuel tax credits. This result significantly exceeded the margin outlook we provided at the beginning of 2025, as we outperformed our own high expectations for cost optimization in our legacy business and synergy capture in the Healthcare Solutions business during each quarter of the year. Normalized for these known headwinds I just mentioned, our legacy business delivered 180 basis points of margin expansion for the year.

This was driven by 120 basis points of growth in the Collection and Disposal business from the benefits of price, cost optimization, and improved business mix, particularly growth in landfill volumes and the shedding of low-margin residential business. Margin growth was also bolstered by a combined 60 basis points from lower commodity pricing in the Recycling brokerage business, Recycling automation benefits, the growth of our high-margin renewable natural gas business, and the lower risk management cost. Cost optimization remained a central theme in 2025. SG&A expense for the legacy business was 9.2% of revenue for the full year, a 10 basis point improvement compared to 2024, as we continued to rationalize discretionary spending. Within Healthcare Solutions, we are making consistent progress in reducing SG&A expenses as we integrate and optimize the business.

Fourth quarter 2025 Healthcare Solutions SG&A of 20.8% of revenue is a notable improvement of 350 basis points from the prior year period, and a significant step toward our long-term ambition to get the SG&A of this business in line with the rest of the company. At 10.4% for the full year, it is clear that we are on track to get total company SG&A as a percentage of revenue below 10% in short order. Our strong execution translated into robust cash flow generation in 2025. Cash flow from operations grew more than 12% to $6.04 billion, and free cash flow reached $2.94 billion, an increase of nearly 27%. These results showcase our success in driving margin expansion and disciplined approach to capital investment.

For the year, we spent just under $2.6 billion on capital to support the business, and $633 million on sustainability growth investments. In 2025, we allocated $1.3 billion to dividends and paid down $1 billion in debt, reaching a leverage ratio of 3.1x. We expect to reach a leverage ratio within our targeted range of between 2.5x and 3x during 2026. We also invested more than $400 million in tuck-in acquisitions to expand our traditional solid waste and Recycling footprint. Moving to the outlook, we expect operating EBITDA to be between $8.15 billion and $8.25 billion in 2026.

This projection reflects an update to the classification of accretion expense, a change we are making to enhance the comparability with our industry peers and to better reflect operating performance. As a result, our 2026 operating EBITDA guidance excludes projected accretion expense of approximately $150 million. Our plan calls for a typical quarterly cadence of operating EBITDA contributions across the year. Additionally, we expect an effective tax rate of approximately 24% and a share count at the end of the year of about 402 million shares. We anticipate capital expenditures for 2026 to be between $2.65 billion-$2.75 billion, which is inclusive of about $200 million directed towards high return sustainability projects.

Sustainability growth capital includes spending of about $85 million on two recently approved renewable natural gas facilities and one new Recycling growth project, each expected to be completed and to begin contributing operating EBITDA by 2028. These projects are attractive opportunities to extend our network while bolstering WM's industry-leading return on invested capital. In 2026, we expect free cash flow growth of nearly 30% to $3.8 billion at the midpoint of the outlook, which drives our projected operating EBITDA to free cash flow conversion above 46%. Our guidance includes an anticipated benefit from investment tax credits of about $110 million, which is about a $75 million headwind from the prior year.

In closing, 2025 underscored the strength of our business model, the resilience of our operations, and the discipline with which our teams execute every day. We are proud of our progress toward our long-term strategic goals, driving margin expansion, strong cash flow generation, and continued optimization across the enterprise. I want to thank our dedicated team members, whose commitment makes these results possible. As we look ahead to 2026, we are confident in our ability to sustain this momentum, to continue delivering operational excellence, and to generate long-term value for our shareholders. With that, Livia, let's open up the lines for questions.

Finally, ladies and gentlemen, as a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, simply press star one one again. Please stand by while we compile Q&A roster. Our first question coming from the line of Sabahat Khan with RBC Capital Markets. Your line is now open.

Great. Thanks, and good morning. Just maybe starting with sort of the top-line guidance, can you maybe give us some perspective on, you know, the industrial activity has been weak for some time. There's some views just broadly out there that the economy picks up there. So maybe just what you've embedded in terms of the, the macro backdrop. Obviously, we see the, the sort of the directional volume and pricing commentary, but if you can just delve into what you're seeing in some of your local markets and is the industrial C&D type market picking up at all? Thanks.

Yeah. Good morning. Regarding kind of the macroeconomy, I would say that we've said for the last few quarters that we're cautiously optimistic, and I think that we stay with that. I might even remove the word cautious. I think we're optimistic about the macroeconomy. When we look at our own internal figures, and you mentioned the industrial line of business, that's a line of business that has been pretty soft over the last couple of years. I think we've been down 3% or 4% in volume, each of the last probably seven or eight quarters.

And that business actually has bounced back to almost flat. So that's an encouraging sign for us. I think, similarly, as John mentioned in his remarks about the residential line of business, that's been negative for some time. That's, that's been much more by design. But he also mentioned that that is starting to to come back to more of a normalized number. And, and we think by the time we get to kind of the back half, I think, John, of 2026-

So all of those are encouraging signs. You look at the landfill line of business, that's been a source of strength for us for a number of reasons. Special waste, as John mentioned in his remarks as well, has been good. So, all of that would tell me that the economy is on pretty firm footing.

Great. And then just a follow-up on the Healthcare side a little bit. Can you talk about... It sounds like the integration is largely there, but can you just talk about for 2026, what you're sort of thinking on the pricing front, maybe some of the larger initiatives on the cost refinement, getting that percentage more to where you want it to be on the SG&A side? So maybe you can delve into some of the commentary you shared earlier on the initiatives for this year on the Healthcare side, and what could those margins look like sort of over the next 12, 24 months? Thanks.

Okay. Yeah. So a lot, a lot with Healthcare Solutions. We've made a ton of progress just in the last, in the last quarter. You know, there's a lot going on between Q3 and Q4. Even, if you look at Q3 to Q4, there was, we talked about some lost accounts last quarter that, that would carry forward into this quarter and carry forward into 2026, and so that did in fact happen. But, but as I said in my remarks, we've made a ton of progress on our customer service, the customer service side of our business. In fact, the metrics that you use to, to measure those have actually, jumped above our legacy business, which is very, very encouraging. Similarly, from Q3 to Q4, we saw credit memos. We think they peaked in Q4.

As you know, those credit memos have been used to, in part, take share of some of these past due accounts that we've had. I think what I would say is we've really kind of built a wall now between all that is continuing to go on on the back office side of that business and the customer themselves, and that's a real positive. And the result of that, as we think about 2026, is going to be, I think, better price realization. We've been getting price all along, but we just haven't realized as much of it, and a lot of that has been these credit memos that we've been giving that has offset some of that price. I think when you get into 2026-...

We're expecting 4.2% price in 2026. Top line is gonna be 3%, and that's, that is a reflection of those, of those lost accounts that will, that will anniversary, for the most part, in the back half of 2026. So that's the reason why it looks like all of our growth is coming from price. It is, in fact, coming from price, and it's, and it's due to those lost accounts. And then when you think about the expense side of the business, John mentioned that we've, that we've rolled that in, and I think Rafael, last quarter, talked about how we've rolled that business into our areas. And so we're seeing the real benefits of that.

We're seeing that what we've honed on the legacy business over the last probably 10 years, some of it through technology, some of it through process, all of that gets brought to this routing and logistics business, which is WM Healthcare Solutions. So we're really encouraged about what we're seeing as we roll the business into the areas. I guess the last thing I'll mention here is that cross-selling, which we put $50 million in cross-selling in the EBITDA synergy number, back in June of last year. And I would tell you that if I were a betting man, that I would take the over on that, because in talking to our area leaders last week, almost to a person, they were very encouraged by what they're seeing from their sales folks in terms of cross-selling.

I think it's important to keep in mind that, that some of that cross-selling benefit, though, does show up in the Collection and Disposal line of business. Not all of it shows up necessarily in the Healthcare Solutions business.

Great. Thanks very much. I'll pass the line.

Thank you. Our next question coming from the line of Bryan Burgmeier with Citi. Your line is now open.

Hi, good morning. Thank you for taking the questions. You know, I appreciate all the detail in the press release, really helpful. I thought that, you know, footnote H seemed to say that maybe discussion on the 2027 financial targets would be put on hold for a little while. I'm not sure if I'm sort of interpreting that correctly, and, you know, if I am, you know, maybe from a high level, can you help us understand sort of what went into that decision? I guess there have been sort of some accounting changes. It is a pretty dynamic macro environment, but just kind of, you know, hearing it in your own words would be really helpful.

We did debate, Tony, whether we would get a question on footnote H, so Heather's the winner on this one. But here's what I would say about the 2027 number. You know, when on Investor Day, we gave some high-level estimates. I would... What I would say about those is that they weren't detailed guidance as we're giving today for 2026, and we will give detailed guidance on 2027, you know, a year from now. So I would tell you that those were estimates. They're kind of the best estimates we could make at the time. I mean, our business, typically, about as far out as we can look is 12 months. It's hard to look at things like commodity prices, you know, 18-24 months out.

So, those estimates, I wouldn't rely on those as guidance. I would rely on them as, as what they were intended, which is estimates. But, but I will say this, about 2027, we don't see anything on the horizon that's concerning for us, and, I would also say that, you know, if there's, if there's one thing you know about us over the last, you know, number of years, the consistency of our performance has been one of our strong, strong suits, and, and I think that continues, going forward.

Got it. Got it. Thanks. Thanks for that. It's really helpful. And then, you know, maybe just digging into the guidance for 2026 a little bit more. You know, maybe, John, can you give us an idea of maybe the level of margin expansion that you're looking for in Collection and Disposal this year on sort of an apples-to-apples basis? I guess it's kind of noisy with the landfill accretion and the wildfire comps, but, you know, your thoughts on, you know, net price and maybe some key cost buckets could be quite helpful. Thank you. I'll turn it over.

Yeah, Bryan, you saw the guidance we gave in terms of yield and core price. And what we've really been focused on and was really shown up well in Q4 and this year, as I mentioned in my prepared remarks, is sort of the spread between price and cost, and we're continuing to expand margins, so we're really pleased. Directly to your question, there is a little bit of noise in there. We talked about the wildfires being one of those things that really showed up in Q2, but 50 basis points on a same-store sales basis is kind of what we're targeting from a margin improvement standpoint across the portfolio.

Don't grade me down by calling me the wrong name. I think I called you Tony. Yeah. Thanks, Bryan, for your question.

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

Morning. Thank you for taking the questions. First one I had was maybe on the 2026 outlook for Healthcare Solutions, particularly on EBITDA, because I know you did give kind of a revenue outlook. You talked about kind of, you know, continuing to optimize the business. I was hoping maybe you could level set how much cost synergy capture you realized in 2025, and then how much is baked in for incremental in 2026. And then along with that, how much sort of underlying, you know, growth and margin expansion you'd expect from the business, ex synergies?

Yeah, there's probably a couple of us could take this one, but I'll start, and then maybe David or John can jump in. But first of all, as far as 2025 goes, we did say, at least on the SG&A synergies, we gave a range initially of 80-100, and we finished above the top end of that. So we're encouraged by that, and that ends up being a benefit, a carryover benefit for us. Some of it is, you know... Well, it all carries over, but some of it's happened ratably throughout 2025. So that ends up being a carryover benefit for us as we come into 2026.

We – the original synergy goal of 300, and that, of course, mentioned the 50 that's included in that for cross-selling, we feel very comfortable with that. I think there's a little bit of a scrambled egg happening here with these businesses because some of this, and I mentioned in cross-selling, some of that ends up showing up in Collection and Disposal. The same thing happens on the cost side, you know, particularly operating costs, but also SG&A.

I will say this about SG&A, which is kind of the long pole in the tent here, that David mentioned it in his remarks, but as you look at SG&A pre-acquisition, and that's been something that, you know, Devina and I spent a ton of time on all of this, but Devina and I, in particular, were very focused on getting SG&A down. And that number, pre-acquisition, had gotten down to, I think, the third quarter of last year was, or of 2024, was 8.9%. And as for a year, I believe 2024 was 9.4%. And then that jumped up after the acquisition to a high of 11% in Q1 of last year, of 2025.

We have, through this synergy capture, have really kind of chopped away at that. It ended the year at, I believe, 10.3%. But as David said, there's a, there's a near-term pathway to getting that... continuing to get that thing down as a t- as a corporation, that includes Healthcare Solutions, down to below 10%. And as, as we've said many times, that business was running at a much higher SG&A. I think it was, as high as 25% when we bought it. It has come down to 20. I think the number that was in our synergy capture was 17.

And then, as Devina said a number of times, look, we think that n- there's no reason we couldn't expect that number to be down close to, to our own number, which is, you know, kind of 9%. And as it gets down there, you could expect to see that SG&A number continue to come down. And then maybe, John, on the operating side?

Yeah, I would say from a, you know, a synergy perspective, cross-selling, and internalization, those, those avenues are going very well. And as Jim mentioned, Trevor, we're seeing a good bit of the benefit right now showing up sort of in the core solid waste business. I commented on our roll-off volume last quarter being, a portion of it, about 60 basis points being driven by simply taking that work and putting it on WM trucks. That's not something that's gonna show, per se, in the Healthcare segment. And like I said, in terms of internalization and other synergies we're getting out of the business, that's all, all going extremely well.

Yep, makes sense. Okay, thank you both for that. And then I did want to follow up on the RNG business. I don't know if maybe Tara's on the call, but appreciate the, I guess, the 60% of volumes contracted for 2026. That's encouraging. For the 40% of the uncontracted volumes, I think the comment in the press release was an expectation for $24.50 per MMBtu on the pricing side. I think if you use today's spot prices, that would imply something, you know, a decent amount higher than that, let's say. So maybe you could just talk about that a bit. Is that kind of where you see the voluntary market right now, or is there some conservatism built in there, or just thoughts on pricing?

Yeah, so I'm here, and, we're really pleased with the progress that we've made on selling a portion of our volume, a pretty significant portion, and it's a testament to how we've been managing the risk that's in this business. On the 40% that remains unsold, this is gonna be the first year, if you look at it, our volume is doubling year-over-year from about 40 million, 40 million MMBtu to now 21-22+. So we're gonna have a portion that is not allocated to our fleet that'll be sold in the voluntary market, and that's what you're seeing in there. From RIN pricing perspective, we're anticipating RIN pricing to hold steady in that $2.30-$2.40 range, so that's what it's all based on.

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

Hey, I'll reiterate, lots of good detail was in the release. But David or Tara, I just wanted to unpack the comments about the approaching $1 billion in sustainability EBITDA by 2027. So I think in the release, you provided a baseline now, so I think that baseline is $300 million, and I just wanna make sure that I have it right. But are you basically expecting the investments to yield, call it, slightly less than $700 million of incremental EBITDA over the timeframe? And can we count-- comp that to the $760 million-$800 million that you laid out at the Analyst Day? And if so, can we just talk about what's driving that delta?

So you're absolutely have the parts right, and let me just take a step back on two key points. First, we're incredibly pleased with the progress on the Recycling and the renewable energy investments. It bears repeating what was in Jim's script, with 18% lower commodity prices and delivering 22% higher EBITDA on the Recycling business. That's a testament to what we're delivering in labor savings, in premium savings, and we've had strong volume growth, which has a halo effect with our customers.

And then likewise, really having a lot of momentum on the RNG business. I mentioned before that we're gonna be doubling our output. What you can bridge from the 700 to the 760 is really just in two buckets. The first is a difference in recycled commodity prices. You know, what was in our Investor Day materials was $125 a ton, and now what is in the number is 70, which we do view as a low point, so you can consider that there could be some upside if and when commodity prices come back, and that's over half of it.

The other piece is, if you go back to 2023, when we had come out with this broader platform, we've learned a lot, and one of the things that we've learned is that there have been some differences in operating costs, primarily related to electricity costs, which is a bit of a headwind, but also in the medium and long term, a potential tailwind for us, because we do have a robust landfill gas to electricity platform, and that is something that we can lean into as we look at whether or not we expand those types of facilities on our landfills.

Tyler, this is this is kind of case in point to my earlier comment about, about, you know, trying to predict things in our business way out. And that Investor Day, you know, was the 2025 Investor Day, and you could all go all the way back to the 2023 Investor Day about sustainability, just really difficult. So we're, we're kind of dealing with what we have at the time. And so, you know, yes, commodity prices have dipped and hence the, you know, the 700.

But I think it kind of makes the point for us that, as Tara said, I mean, these businesses are incredibly good investments, and the paybacks on them, particularly the renewable natural gas plants, you know, well, I think we originally said they were 2.5-3, now they may be 3-4, but still incredibly good paybacks. But then, anything that's commodity related, as you can imagine, is just really hard to predict that far out.

Yeah, no, I just was trying to get the delta. That was extremely, extremely helpful. John Morris, question for you. So if I look at the normal course CapEx, it looks like that CapEx number is running at less than 9.5% of sales. That just feels maybe a bit light. I realize that Stericycle is less capital intensive, so that's part of it. But is this a kind of a good, call it forward capital plan? Is there something unique in 2026 that keeps the budget down? I think you and Jim mentioned the lower fleet age, but I just wanna try to level set on where that CapEx will run longer term. Thanks, guys.

I think, I think probably a little higher than that, Tyler, probably the 10-ish% off the cuff.

There's a few things to mention. One, 1,500 trucks is what we said is probably normal run rate for the traditional solid waste business, and as Jim mentioned, we've been obviously catching up and advancing some of those investments, which, by the way, are clearly paying off, as I mentioned in my prepared remarks. We got. We do have some work to do on the fleet with the Healthcare. On the Healthcare side, 'cause they leased virtually every one of their vehicles.

But we are systematically unwinding that where it makes sense and when it makes sense, right? So there's a timing aspect to when we peel back some of those leases. And then lastly, obviously, the sustainability investments, as you saw in the release and the remarks here, is coming down by roughly $400 million-$200 million. So there's some puts and takes, but back to where we started, I think that 10%-ish range is probably a good mile marker in terms of go forward capital.

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

Thanks so much. I also wanted to ask about the Healthcare business. You talked about the 3% growth next year, the 4.2% pricing. It sounds like you're still having some of the issues with the Stericycle customers. You mentioned the credit memos. Do you expect all this to be resolved this year? And how are you thinking about growth in this segment for future years? And just maybe if you could talk about market conditions within the medical waste space, and if that's proceeding, how you sort of saw it when the deal was launched, or when you announced the transaction, where you were talking about sort of a higher market growth for the health space.

Yes, so fair question here. One thing I would maybe correct you on a little bit is the customer. That's why I wanted to make sure I mentioned that we're getting to, and I would argue we're there, where the customer is getting a good invoice, they're getting a payable invoice. There's a lot going on behind the scenes for that, especially for the larger customers. By the way, there is a lot going on behind the scenes for our larger customers in the legacy business, too, in our National Accounts. There's a lot of manual effort that is ongoing there. But our intention was to really kind of build a wall between the back office work that is ongoing, and will be ongoing through 2026, and what the customer sees.

And that's why in my remarks, I talked about the, you know, the improvement in our customer service stats to levels above our legacy business. That is all super encouraging and tells us, and I think I'm. You know, I mentioned that one of our customers recognized us for really improving our invoicing. That was a big customer. I didn't name the customer, but a big customer. So all of that tells me that we've done an effective job of putting that, you know, kind of wall in place. So the customers, they really don't care what goes on in the background, as long as they're getting good service and a good invoice, and then we will take care of the system issues, we'll take care of the process issues, all of that, and that is all...

We're making big progress on that. It's all ongoing. So all that's part of the ERP that we've talked about many times. It also gives us the ability to, as I mentioned, and you asked about the growth of this business. Look, I would tell you this—you know, I think we said 5%-6%. And really, as you think about what we gave for 2026, 4.2% price, but only 3% top line.

And that negative volume piece, as I mentioned, is largely related to these accounts that we've lost, and we knew we had lost them, and we knew that it was going to have an impact on Q4, and we know it's going to have an impact on, you know, the first half of 2026. As we get to the back half of 2026, that actually turns into potentially a tailwind for us on a year-over-year basis. And then the last thing I'll mention about this, so I guess to finish that point, we do feel very good about the strategic business case for this. I know there's been some, you know, some skepticism out there about, you know, well, is this business not going to grow at the 5%-6%?

You take out those lost accounts, and you're almost there right now. So when we get to the back half of next year and into 2027, when you look at, you know, the pricing power that we have across the entire organization, and when you look at the fact that this business demographically... I mean, if I were to ask you, what business should you be in over the next 20 years, I would think that Healthcare is one of those with this aging population in the U.S., and in Canada, and the U.K. So, that has to be a beneficiary of it.

So I think my long answer is yes, we're very confident in the growth trajectory for the business, and we're also very pleased with the progress we've made. Not done yet, but we've built this wall, and the customer is now seeing, you know, a good invoice and, you know, a good service level.

Great. Just moving to, you mentioned some technology and automation improvements that you've made. When you think about 2026, which areas are you most focused on for efficiency or technology? Just anything that to highlight with level of automation that you're able to continue to do, and which areas have the most runway for that? Thanks.

Maybe I'll start with, and Tara can chime in. On the Recycling side, I think you've seen the benefits. Tara commented in some of her answers about the progress we've made from the investments we've made in Recycling, and a lot of that has driven sort of the middle of the P&L, and that's where technology enablement and AI are paying off already, and we've made a lot of progress there. When you think about the 15,000 refuse vehicles we run and now another, call it another 4,500 on the Healthcare side, building out technology enablement as a logistics service is where you're I think that's paying off, too.

When you look at the margins in the OpEx in particular, and the momentum that we've built in 2024 into 2025 and into Q4, I think you're gonna see that continue to carry forward into 2026. Then lastly, on the post-collection side, we've talked a lot about the value of our network and having strategically placed assets in the post-collection side, whether it's transfer facilities, Recycling facilities, landfill facilities. We're taking a kind of an IoT approach at our landfills, too, by embedding technology in those facilities. That's gonna give us visibility to the operation in a much more efficient manner than we traditionally have done.

And those are complex operations, as you know, so we still see a lot of opportunity on the post-collection side, particularly landfills, to embed technology to really drive down operating costs there as well.

Thank you. Our next question coming from the line of Faiza Alwy with Deutsche Bank. Your line is now open.

Yes. Hi, thank you. I wanted to ask about, you know, just the volumes in the Collection and Disposal business in the fourth quarter. I thought they came in a little bit light relative to what we've seen, and I know we've had some, you know, obviously, special waste volumes. And I know earlier in the call you talked about, you know, sort of the industrial business and the macro environment there, and that you're optimistic. So I'm just curious, is there anything more to, you know, consider as it relates to Collection and Disposal volumes in the quarter relative to trend other than just special waste?

Yeah, look, we don't talk much about weather just because we choose to make it up. I would tell you that weather impacted us in December, you know, and likely is gonna impact us this week when we get to the first quarter results. But we make that up. I mean, you know, we don't let our area folks say, "Well, weather impacts me, therefore I'm gonna, you know, I'm gonna be coming in under my budget." But it did impact volume a bit. As you see with the numbers, it didn't impact the overall numbers. So we made it up on the EBITDA line, but when you think about volume, it did have a bit of an impact on volume.

MSW was a bit soft, and much of that was a result of... The two lines of business that are most impacted negatively by weather are MSW and the industrial line of business. And so those were clearly impacted by the weather in early December. I suspect that they'll be impacted this week, too. So that would be my answer, that may have caused a little bit of softness there, but it doesn't impact the EBITDA line.

The only thing I'd add on there, Jim, is residential is the one that sticks out. It's been negative for a number of quarters.

I would tell you, while we see that starting to turn into more of a growth engine in 2026, when you look at 2025, we finished the year at high teens on the EBITDA margin side and over 20 for the quarter on residential, which has always been a high watermark for us. I kind of look at the volume attrition there a little bit different than I would the other pieces of volume. But again, I think it's important we see that, we see the teams pivoting from using that as shrinking to greatness to now growing to even better margins as we go forward in that particular line of business. Well, I think it's been mentioned today, Faiza, but also, you know, if it hasn't, we should reiterate the...

The fact that on the volume line, when we look at 2026, we have a 50 basis points headwind on volume from that fire volume that we got last year on the West Coast. The tough part about that is that we don't- you know, look, unfortunately, natural disasters seem to be happening fairly regularly, but we don't forecast them for obvious reasons. So, so right now, we don't have anything built in. We have asked our field operations to figure out how to make up that. That's a tough makeup because it was a pretty big headwind on volume, also a big headwind on EBITDA. $82 million was the number from last year on the EBITDA line.

So, so when you look at, whether you look at volume, whether you look at EBITDA, you may say, "Well, gosh, you know, a lot of the reports were saying a bit soft on guidance." Keep in mind that's, that's why I pointed out that 7.4% EBITDA growth, if you take out that, that, that one-time impact from the fires. Unfortunately, these things do happen, so something else may happen. It may not be as big. Hopefully, it's not. Hopefully, we don't have anything this year, but if we do, we have the assets, the geographic coverage, the people, we have all of that to, to take care of our, of our customers.

Yeah. Understood. Makes sense. And then, you know, I was gonna ask about, like, just the margin guide for next year, and was hoping, you know, there are a few moving pieces, in particular with the wildfires, and also, I guess, this is the roll-in of the sustainability projects. So, you know, maybe you can help us a little bit around the quarterly cadence of margins at a high level and how to think about that.

Waste Management (WM) Q4 2025 Earnings Call Transcript

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