WASTE MANAGEMENT INC Q2 FY2025 earnings call

• Driven by a disciplined strategy, WM achieved 19% operating EBITDA growth in Q2, with collection and disposal business leading growth.
• Landfill volumes were strong, including from wildfire cleanup in California, and special waste volumes grew. Completed acquisition of a regional solid waste player in D.C. area, with over $500 million M&A spending expected for the year.
• Sustainability platform strong, with recycling and renewable energy segments showing margin enhanced growth. Commenced operations on 3 new projects: renewable natural gas facility in Illinois, recycling automation project in Pennsylvania, and new market recycling facility in Oregon.
• Progress in integrating WM Healthcare Solutions, on track to achieve upper end of $80M-$100M synergies in 2025. Reduced operating expenses as % of revenue, with operating expenses below 60% of revenue in Q2.
• Connected fleet and telematics improved repair and maintenance costs, and turnover for drivers and technicians improved 370 basis points to 18.8%.

WM's legacy business delivered 130 basis points of margin expansion in the second quarter, resulting in an operating EBITDA margin of 31.3%. WM Healthcare Solutions saw a 190 basis point improvement in operating EBITDA margin since acquisition. The recycling segment operating EBITDA grew by 17% despite a nearly 15% decline in recycled commodity prices. The renewable energy segment also delivered margin enhanced growth. The collection and disposal business contributed more than half of the year-over-year increase in operating EBITDA, with landfill volumes strong and special waste volumes growing due to wildfire cleanup in California. Revenue contribution percentages weren't explicitly stated in absolute terms but the segments' performances were detailed.

• Revised free cash flow guidance to between $2.8B and $2.9B, upwardly revised. Operating EBITDA midpoint maintained at $7.55B. Revenue for the year about 1% below initial expectations due to recycled commodity prices and harsh winter weather.
• Operating EBITDA margin increased by 40 basis points at midpoint, with 30 basis points from collection and disposal and 10 basis points from recycling. M&A spending target of over $500 million for the year, with pipeline of tuck-in opportunities strong.

• Commodity price fluctuations, particularly impact on recycling segment. Integration challenges with WM Healthcare Solutions, including system interconnectivity issues. Risks associated with M&A execution, such as successfully integrating acquired companies and realizing expected synergies.

Q: Bryan Burgmeier asked about margin cadence in back half of year and volume expectations.

A: Devina said margin expansion in legacy business exceeded expectations, projecting 110 basis points for full year collection and disposal margin, with Healthcare Solutions business having less pressure in second half. John said volume expectations remain between 0.25% and 0.75% Q: Toni Kaplan asked about volume strength outside wildfires and resi loss.

A: James said volume was encouraging, with June being strongest month, and John said resi franchise loss was due to not performing at acceptable margins Q: Sabahat Khan asked about EBITDA margin update.

A: Devina said margin increase of 40 basis points at midpoint, with 30 basis points from collection and disposal and 10 from recycling due to commodity prices Q: Noah Kaye asked about sustainability and RNG off-take.

A: Tara said 90% of off-take locked up for 2025, margins expected similar for rest of year, and 30% contracted for 2026 Q: James Schumm asked about WMHS revenue split and EBITDA growth.

A: Rafa said revenue split 2/3 medical waste, 1/3 info destruction, long-term aspirational growth 5%-6%, and Jim mentioned progress in fixing systems for better customer onboarding Q: Patrick Tyler Brown asked about lifetime customer value and Stericycle synergies.

A: James said focus on differentiation via technology, Rafa said $50M cross-sell additive to $250M cost synergies over 3 years, Devina said free cash flow guide retained statutory rate but not bonus depreciation Q: Trevor Romeo asked about landfill volume strength and Healthcare Solutions turnover.

A: John said internalization benefits starting to hit, James said improved turnover in Healthcare Solutions due to human-centered leadership Q: Konark Gupta asked about residential contract loss domino effect and SG&A bridge.

A: John said volume loss to moderate by end of year, Rafa said SG&A rate driven to lower rate, aiming for 17% by end of 3-year horizon Q: Tobey Sommer asked about landfill advantage manifestation and WHS fleet internalization.

A: James said landfill capacity constraint impact starts to be visible in early 2030s, Rafa said working on fleet internalization and maintenance support for WHS fleet Q: Stephanie Moore asked about second half margin cadence and M&A pipeline.

A: Devina said second half margin expectations considering seasonality and synergy ramp, John said M&A pipeline strong with over $500M spending expected, pipeline remains strong Q: Faiza Alwy asked about collection and disposal margins and EBITDA contribution from Stericycle.

A: Devina said collection and disposal margin improvement details, and only recycling business had slight decrease in EBITDA expectations due to commodity prices and cost increases