WASTE MANAGEMENT INC Q4 FY2024 earnings call

• WM achieved outsized operational and financial performance in 2024, with operating EBITDA growth over 10% in the Legacy Business and a 30% full year operating EBITDA margin.
• The Collection and Disposal business led growth, fueled by organic revenue growth, disciplined cost initiatives, and business mix optimization.
• Milestones in sustainability were reached, including five renewable natural gas facilities coming online and automation upgrades at 10 recycling facilities.
• The acquisition of Stericycle in November was completed, with integration efforts underway. Synergies of $250 million over three years are expected, with $100 million anticipated in 2025.
• WM Healthcare Solutions is projected to grow ~9% before synergies, driven by organic revenue growth and operations initiatives.
• Disciplined focus on pricing and cost management is in place to maintain margins in 2025, despite the expiration of alternative fuel tax credits.

WM has two main segments: the WM Legacy Business (excluding WM Healthcare Solutions) and the WM Healthcare Solutions segment. The Collection and Disposal business within the Legacy segment saw 10.4% operating EBITDA growth in 2024, achieving a 37.2% margin, its highest ever. The Collection and Disposal business contributed significantly to revenue growth, with a 4.5% yield and 6.7% core price. WM Healthcare Solutions is expected to grow about 9% before synergies, driven by organic revenue growth and operations initiatives. The Collection and Disposal business's revenue contribution is substantial, and WM Healthcare Solutions adds to the overall growth prospects.

• The Collection and Disposal business is expected to have over 7% operating EBITDA growth in 2025, facing a headwind from the expiration of alternative fuel tax credits but maintaining healthy margins through pricing and cost management.
• Renewable energy and recycling platforms are set to scale, with incremental contributions from sustainability investments adding $150 million to operating EBITDA growth.
• Total company operating EBITDA is expected to grow 15% at the midpoint in 2025 compared to 2024.
• Capital expenditures for 2025 are targeted between $3.175 billion and $3.275 billion, with ~$625 million directed toward high-return sustainability growth projects and ~$225 million for WM Healthcare Solutions.
• Free cash flow is expected to grow more than 17% to $2.725 billion at the midpoint of the outlook.

• Market uncertainties and regulatory changes that could cause actual results to differ materially from projections.
• Impact of natural disasters (e.g., wildfires, hurricanes) on volumes and operations, which are difficult to predict.
• Volatility in commodity prices, particularly for recycled materials, affecting the margins of the recycling business.
• Integration challenges with the acquired Stericycle business, although progress is being made.

Q: Tyler Brown asked about the C&D tax credit headwind and Stericycle EBITDA.

A: Devina Rankin responded that there is a $63 million headwind in dollars and a 30-basis-point headwind in margin for the C&D tax credit, and regarding Stericycle, there was a definitional change in EBITDA between the companies, with a 2024 run rate for the business and $4 million of realized synergies in Q4, expecting up to $100 million in synergies in 2025.

Q: Noah Kaye asked about the 2025 yield guide and Stericycle synergies.

A: Devina Rankin discussed the core price guide of 5.8% to 6.2% and yield of 4% to 4.2% in 2025, and Rafa Carrasco provided an updated breakdown of Stericycle synergies, highlighting SG&A and OpEx opportunities.

Q: Jerry Revich asked about the commercial opportunity and Stericycle internalization.

A: Rafa Carrasco talked about cross-selling opportunities and driving P&L accountability in the Stericycle business, with plans to generate P&Ls by customer and inform quality of revenue.

Q: Trevor Romeo asked about Stericycle's organic performance and Collection and Disposal volumes.

A: Devina Rankin and Rafa Carrasco discussed Stericycle's 9% EBITDA growth expectations, revenue outlook, and Collection and Disposal volume guidance of 0.25% to 0.75% growth in 2025.

Q: Faiza Alwy asked about quarterly cadence and ITCs.

A: Devina Rankin discussed the quarterly cadence of synergy capture and ITC expectations, stating ITC benefits are secure and not expecting changes in the near term.

Q: Kevin Chiang asked about Stericycle's revenue synergy opportunities and residential volume trend.

A: John Morris and Jim Fish provided insights on Stericycle's revenue synergy potential and the residential volume trend, indicating a focus on maintaining margins and reducing lower margin business.

Q: Konark Gupta asked about Stericycle's ERP challenges and leverage.

A: Devina Rankin and Rafa Carrasco discussed ERP investment plans and leverage targets, with a focus on reducing debt and improving cash flow through ERP initiatives.

Q: James Schumm asked about R&G delays, ITCs, and additional opportunities.

A: Tara Hemmer provided updates on R&G project timelines, ITC eligibility, and future opportunities, stating projects are on track and exploring partnerships or joint ventures for additional projects.

Q: Sabahat Khan asked about macro volume views and commodity prices.

A: Jim Fish and Devina Rankin discussed macro volume expectations, noting cautious optimism on industrial volumes, and Devina Rankin provided insights on recycled commodity price assumptions for 2025.

Q: Bryan Burgmeier asked about recycling earnings sensitivity and solid waste internalization.

A: Devina Rankin and Jim Fish talked about recycling earnings sensitivity and solid waste internalization, highlighting automation and network planning as drivers of internalization rates.

Q: Toni Kaplan asked about resi shedding rationale and California wildfire impacts.

A: Jim Fish and Devina Rankin explained the rationale for resi shedding due to cost pressures and inflation, and discussed the impact of California wildfires on volumes, with no significant immediate benefit factored into guidance.

Q: Tony Bancroft asked about Healthcare Solutions competitors and growth.

A: Rafa Carrasco discussed Stericycle's position in the market and growth potential, focusing on cross-selling and customer-centric approaches.

Q: Harold Antor asked about labor turnover and wage inflation.

A: Devina Rankin and John Morris provided updates on labor turnover, noting a 300-basis-point improvement in frontline turnover, and discussed wage inflation expectations in the 4% to 5% range.

Q: David Manthey asked about Stericycle's EBITDA math and pro forma figures.

A: Devina Rankin clarified the Stericycle EBITDA calculations, including the run rate and synergy contributions, to provide a clear picture of the business's projected performance.