What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-04-25 compared with 2023-10-25 · 186 added, 259 removed, 201 unchanged (69% of the section changed)

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This Quarterly Report on Form 10-Q contains certain forward-looking statements that are made subject to the safe harbor protections provided by the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are often identified by the words, “will,” “may,” “should,” “continue,” “anticipate,” “believe,” “expect,” “target,” “plan,” “forecast,” “project,” “estimate,” “intend,” “commit,” “potential,” and words of a similar nature and include estimates or projections of financial and other data;

Forward-looking statements are often identified by the words, “will,” “may,” “should,” “continue,” “anticipate,” “believe,” “expect,” “plan,” “forecast,” “project,” “estimate,” “intend,” and words of a similar nature and include estimates or projections of financial and other data;

comments on expectations relating to future periods;

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failure to identify acquisition targets, consummate and integrate acquisitions;

environmental and other regulations, including developments related to emerging contaminants, gas emissions, renewable energy and environmental, social and governance performance and disclosure;

increasing attention to sustainability matters and heightened scrutiny of sustainability measurements, objectives and disclosures, which could lead to increased litigation risk related to our sustainability efforts;

environmental and other regulations, including developments related to emerging contaminants, gas emissions, renewable energy, extended producer responsibility and our natural gas fleet;

significant environmental, safety or other incidents resulting in liabilities or brand damage;

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increases in labor costs due to union organizing activities or changes in wage and labor related regulations;

disruption and costs resulting from extreme weather and destructive climate events;

failure to achieve our sustainability goals or execute on our sustainability-related strategy and initiatives;

public health risk, increased costs and disruption due to a future resurgence of pandemic conditions and restrictions;

macroeconomic conditions, geopolitical conflict and market disruption resulting in labor, supply chain and transportation constraints, inflationary cost pressures and fluctuations in commodity prices, fuel and other energy costs;

disruption and costs resulting from severe weather and destructive climate events;

failure to achieve our sustainability goals or execute on our sustainability-related strategy and initiatives, including within planned timelines or anticipated budgets due to disruptions, delays, cost increases or changes in environmental or tax regulations;

focus on, and regulation of, environmental and sustainability-related disclosures, which could lead to increased costs, risk of non-compliance, brand damage and litigation risk related to our sustainability efforts;

macroeconomic conditions, geopolitical conflict and large-scale market disruption resulting in labor, supply chain and transportation constraints, inflationary cost pressures and fluctuations in commodity prices, fuel and other energy costs;

increased competition;

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failure to prevent, detect and address cybersecurity incidents or comply with privacy regulations;

inability to adapt and manage the benefits and risks of artificial intelligence;

negative outcomes of litigation or governmental proceedings;

and decisions or developments that result in impairment charges and other risks discussed in our filings with the SEC, including Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 as updated by Part II, Item 1A.

Risk Factors , included in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023.

We assume no obligation to update any forward-looking statement, including financial estimates and forecasts, whether as a result of future events, circumstances or developments or otherwise.

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In order to make disposal more practical for larger urban markets, where the distance to landfills is typically farther, we manage transfer stations that consolidate, compact and transport waste efficiently and economically.

Our business is operated and managed locally by our subsidiaries that focus on distinct geographic areas and provide collection, transfer, disposal, recycling and resource recovery services.

Through our subsidiaries, including our Waste Management Renewable Energy (“WM Renewable Energy”) business, we are also a leading developer, operator and owner of landfill gas-to-energy facilities in the U.S.

and Canada that produce renewable electricity and renewable natural gas, which is a significant source of fuel that we allocate to our natural gas fleet.

Additionally, we are a leading recycler

and Canada that produce renewable electricity and renewable natural gas (“RNG”), which is a significant source of fuel that

we allocate to our natural gas fleet.

Additionally, we are a leading recycler in the U.S.

and Canada, handling materials that include paper, cardboard, glass, plastic and metal.

Our “Solid Waste” business is operated and managed locally by our subsidiaries that focus on distinct geographic areas and provide collection, transfer, disposal, and recycling and resource recovery services.

Our senior management evaluates, oversees and manages the financial performance of our Solid Waste operations through two operating segments.

Our East Tier primarily consists of geographic areas located in the Eastern U.S., the Great Lakes region and substantially all of Canada.

Our West Tier primarily includes geographic areas located in the Western U.S., including the upper Midwest region, and British Columbia, Canada.

Each of our Solid Waste operating segments provides integrated environmental services, including collection, transfer, recycling, and disposal.

Our Solid Waste operating revenues are primarily generated from fees charged for our collection, transfer, disposal, and recycling and resource recovery services, and from sales of commodities by our recycling and landfill gas-to-energy operations.

Revenues from our collection operations are influenced by factors such as collection frequency, type of collection equipment furnished, type and volume or weight of the waste collected, distance to the disposal facility or material recovery facility and our disposal costs.

Revenues from our landfill operations consist of tipping fees, which are generally based on the type and weight or volume of waste being disposed of at our disposal facilities.

Fees charged at transfer stations are generally based on the weight or volume of waste deposited, considering our cost of loading, transporting, and disposing of the solid waste at a disposal site.

Recycling revenues generally consist of tipping fees and the sale of recycling commodities to third parties.

The fees we charge for our services generally include our environmental, energy surcharge and regulatory recovery fees which are intended to pass through to customers direct and indirect costs incurred.

We also provide additional services that are not managed through our Solid Waste business, described under Results of Operations below.

Our senior management evaluates, oversees and manages the financial performance of our business through four reportable segments, referred to as (i) Collection and Disposal - East Tier (“East Tier”);

(ii) Collection and Disposal - West Tier (“West Tier”);

(iii) Recycling Processing and Sales and (iv) WM Renewable Energy.

Our East and West Tiers, along with certain ancillary services (“Other Ancillary”) not managed through our Tier segments, but that support our collection and disposal operations, form our “Collection and Disposal” businesses.

Our fundamental strategy has not changed;

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Simultaneously, we believe that investing in automation to improve processes and drive operational efficiency combined with a focus on the cost to serve our customer will yield an attractive profit margin and enhanced service quality.

We are furthering our strategy of focused differentiation and continuous improvement beyond our traditional waste operations through our sustainability growth strategy that includes significant planned investments in our WM Renewable Energy and recycling businesses, while increasing automation and reducing labor dependency.

We are furthering our strategy of focused differentiation and continuous improvement beyond our traditional waste operations through our sustainability growth strategy that includes significant planned investments in our WM Renewable Energy and Recycling Processing and Sales segments, while increasing automation and reducing labor dependency.

We are also evaluating and pursuing emerging diversion technologies that may generate additional value.

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As North America’s leading provider of comprehensive environmental solutions, we are taking big, bold steps to catalyze positive change – change that will impact our Company as well as the communities we serve.

Consistent with our Company’s long-standing commitment to sustainability and environmental stewardship, we

published our 2023 Sustainability Report providing details on our environmental, social and governance (“ESG”) performance and outlining progress towards our 2030 ESG goals.

The Sustainability Report conveys the strong linkage between the Company’s ESG goals and our growth strategy, inclusive of the planned expansion of the Company’s recycling and WM Renewable Energy businesses.

Consistent with our Company’s long-standing commitment to sustainability and environmental stewardship, we have published our 2023 Sustainability Report providing details on our sustainability-related performance and outlining progress towards our 2030 sustainability goals.

The Sustainability Report conveys the strong linkage between the Company’s sustainability goals and our growth strategy, inclusive of the planned and ongoing expansion of the Company’s Recycling Processing and Sales and WM Renewable Energy segments.

The information in this report can be found at https://sustainability.wm.com but it does not constitute a part of, and is not incorporated by reference into, this Quarterly Report on Form 10-Q.

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Such negative economic conditions, in addition to competitor actions, can impact our strategy to negotiate, renew, or expand service contracts and grow our business.

We also encounter competition for acquisitions and growth opportunities.

We also encounter competition for acquisitions

and growth opportunities.

General economic factors and the market for consumer goods, in addition to regulatory developments, can also significantly impact commodity prices for the recyclable materials we sell.

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In line with our commitment to continuous improvement and a differentiated customer experience, we remain focused on our automation and optimization investments to enhance our operational efficiency and change the way we interact with our customers.

Enhancements made through these initiatives are intended to seamlessly and digitally connect all the Company’s functions required to service our customers in order to provide the best experience and service.

In late 2021, we began to execute on the next phase of this technology enablement strategy to automate and optimize certain elements of our service delivery model.

Our next and ongoing phase is to prioritize reduced labor dependency on certain high-turnover jobs, particularly in customer experience, recycling, and residential collection, while further elevating our customer self-service through digitalization and implementing technologies to enhance the safety, reliability and efficiency of our collection operations.

Additionally, in 2022, we implemented a new general ledger accounting system, complementary finance enterprise resource planning system and a human capital management system, which will continue to drive operational and service excellence by empowering our people through a modern, simplified and connected employee experience.

Macroeconomic pressures, including inflation and rising interest rates, and market disruption resulting in labor, supply chain and transportation constraints have impacted our results.

Significant global supply chain disruption has reduced availability of certain assets used in our business and inflation has increased costs for the goods and services we purchase, particularly for labor, repair and maintenance, and subcontractor costs.

Supply chain constraints have caused delayed delivery of fleet, steel containers and other purchases.

Aspects of our business rely on third-party transportation providers, and such services have become more limited and expensive.

With the significant decline in commodity prices that started in the second half of 2022 and has continued into 2023, we are currently experiencing margin pressures from our commodity-driven businesses, specifically within our recycling and WM Renewable Energy businesses.

While there may be short-term fluctuations in our commodity-driven businesses as prices change, we continue to focus on adjusting our business models to protect against the down-side risk by spreading the inherent risk of changes in commodity prices across the vertically integrated value chain.

Advancements made through these initiatives are intended to seamlessly and digitally connect all enterprise functions required to service customers and provide the best experience.

Macroeconomic pressures continue, including sustained inflationary pressures and high interest rates, with geopolitical events causing further market disruptions.

Inflation moderately improved from the high levels observed during the first half of 2023;

however, inflation remained above typical levels during the first quarter of 2024.

While supply chain activity has begun to normalize, risks persist related to higher operating costs, ongoing supply shortages, labor and transportation challenges and impacts from global events.

We continue to experience margin pressures from our commodity-driven businesses, specifically within our Recycling Processing and Sales and WM Renewable Energy segments.

While still below prices seen at the beginning of 2022, recycling commodity prices began to improve in the fourth quarter of 2023 and continued to improve in the first quarter of 2024.

While there may be short term fluctuations in our commodity-driven businesses as prices change, we continue to take proactive steps to adjust our business models to protect against the down-side risk of changes in commodity prices.

The extent and duration of the impact of labor, supply chain, transportation and commodity price challenges are subject to numerous external factors beyond our control, including broader macroeconomic conditions;

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As we experience inflationary cost pressures, we focus on our pricing efforts, as well as operating efficiencies and cost controls, to maintain our earnings and cash flow and facilitate growth.

With these macroeconomic pressures, we remain committed to putting our people first to ensure that

they are well positioned to execute our daily operations diligently and safely.

With these macroeconomic pressures, we remain committed to putting our people first to ensure that they are well positioned to execute our daily operations diligently and safely.

We remain focused on delivering outstanding customer service, managing our variable costs with changing volumes and investing in technology that will enhance our customers’ experience and provide operating efficiencies intended to reduce our cost to serve.

Current Quarter Financial Results

During the third quarter of 2023, we continued to focus on our priorities to advance our strategy—growing price to offset cost inflation, enhancing employee engagement, permanently reducing our cost to serve through the use of technology and automation, and investing in growth through our recycling and WM Renewable Energy businesses.

This strategic focus, combined with strong operational execution resulted in increased revenue, income from operations and income from operations margin during the third quarter of 2023.

We remain diligent in offering a competitive and differentiated service that meets the needs of our customers, and are focused on driving operating efficiencies and reducing discretionary spend.

We continue to invest in our people through market wage adjustments, investments in our digital platform and training for our team members.

During the first quarter of 2024, we continued to focus on our priorities to advance our strategy—enhancing employee engagement, permanently reducing our cost to serve through the use of technology and automation, and investing in growth through our Recycling Processing and Sales and WM Renewable Energy segments.

This strategic focus, combined with strong operational execution resulted in increased revenue, income from operations and income from operations margin.

We remain diligent in offering a competitively profitable service that meets the needs of our customers, and we are focused on driving operating efficiencies and reducing discretionary spend.

We continue to invest in our people through paying a competitive market wage, investments in our digital platform and training for our team members.

We also continue to make investments in automation and optimization to enhance our operational efficiency and improve labor productivity for all lines of business.

During the third quarter of 2023, we allocated $673 million of available cash to capital expenditures and $653 million to our shareholders through dividends and common stock repurchases.

Key elements of our financial results for the third quarter include:

During the first quarter of 2024, we allocated $668 million of available cash to capital expenditures and $557 million to our shareholders through dividends and common stock repurchases.

Key elements of our financial results for the first quarter include:

● Revenues of $5,159 million, compared with $4,892 million in the prior year period, an increase of $267 million, or 5.5%.

The increase is primarily attributable to (i) higher yield in our collection and disposal business;

(ii) acquisitions, net of divestitures and (iii) increased volumes.

These increases were partially offset by commodity price declines in our recycling and WM Renewable Energy businesses and decreased revenue from our energy surcharge program as a result of a decline in the price of fuel, particularly diesel;

The increase is primarily attributable to higher yield in our Collection and Disposal businesses and

Recycling Processing and Sales segment, partially offset by, (i) decreased revenue from our energy surcharge program due to a decline in the price of fuel, particularly diesel, and (ii) lower industrial and residential collection volumes;

● Operating expenses of $3,140 million, or 60.9% of revenues, compared with $3,086 million, or 63.1% of revenues, in the prior year period.

The $32 million increase is primarily attributable to (i) inflationary cost pressures, particularly for maintenance and repairs and subcontractor costs and (ii) labor cost increases from merit increases and frontline employee market wage adjustments.

These increases were offset, in part, by commodity-driven business impacts from lower recycling rebates reflected in costs of goods sold and lower fuel prices;

The $54 million increase is primarily attributable to (i) commodity-driven business impacts from higher recycling rebates;

(ii) an increase in volumes in our Strategic Business Solutions (“WMSBS”) business and (iii) inflationary pressures.

These increases were offset in part by (i) lower fuel prices and (ii) improved operating efficiency, reduced repair and maintenance costs due to improved truck deliveries and cost control;

● Selling, general and administrative expenses were $491 million, or 9.5% of revenues, compared with $476 million, or 9.7% of revenues, in the prior year period.

The 30 basis point improvement was due to the increase in operating revenues and managing expenses through intentional steps to rationalize costs in corporate functions;

The $15 million increase is primarily attributable to (i) increased labor costs from higher annual incentive compensation costs and annual wage increases and (ii) increased technology spend;

● Income from operations was $1,016 million, or 19.7% of revenues, compared with $825 million, or 16.9% of revenues, in the prior year period.

The improved earnings in the current quarter are driven by higher earnings attributable to our collection and disposal business partially offset by (i) reduced profitability in our WM Renewable Energy business due to lower energy prices and (ii) the decline in recycling commodity prices affecting profitability in our recycling business;

The increase in the current year earnings was primarily driven by revenue growth in our Collection and Disposal businesses partially offset by higher annual incentive compensation;

● Net income attributable to Waste Management, Inc.

was $708 million, or $1.75 per diluted share, compared with $533 million, or $1.30 per diluted share, in the prior year period.

The increase in income from operations discussed above was partially offset by increases in interest expense and income tax expense;

● Net cash provided by operating activities was $1,263 million compared with $1,182 million in the prior year period, with the increase driven by (i) higher earnings attributable to our collection and disposal business and (ii) favorable changes in working capital, net of effects of acquisitions and divestitures.

This increase was partially offset by higher interest and income tax payments;

The primary drivers of the increase in net income are the increase in income from operations, discussed above and, to a lesser extent, a reduction in income tax expense of $37 million, or $0.09 per diluted share, associated with federal tax credits expected to be realized from our RNG investments.

These increases were partially offset by higher interest expense and an increase in net losses of our unconsolidated entities.

● Net cash provided by operating activities was $1,367 million compared with $1,044 million in the prior year period, with the increase driven by (i) higher earnings in our Collection and Disposal businesses and Recycling Processing and Sales segment, (ii) favorable changes in working capital, net of effects of acquisitions and divestitures, and (iii) lower incentive compensation payments.

This increase was partially offset by higher cash interest payments;

● Free cash flow was $714 million compared with $395 million in the prior year period.

The increase in free cash flow is primarily attributable to (i) the increase in net cash provided by operating activities discussed above;

(ii) lower capital spending and (iii) higher proceeds from divestitures of businesses and other assets.

flow is a non-GAAP measure of liquidity.

The increase in free cash flow is attributable to the increase in net cash provided by operating activities discussed above.

Free cash flow is a non-GAAP measure of liquidity.

Refer to Free Cash Flow below for our definition of free cash flow, additional information about our use of this measure, and a reconciliation to net cash provided by operating activities, which is the most comparable GAAP measure.

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Operating Revenues

We also provide additional services that are not managed through our Solid Waste business, including both our Strategic Business Solutions (“WMSBS”) and sustainability businesses, which include landfill gas-to-energy services, environmental solutions services and recycling brokerage services.

We also offer certain other expanded service offerings and solutions.

The mix of operating revenues from our major lines of business are as follows (in millions):

Three Months Ended

Nine Months Ended

September 30,

The mix of operating revenues for the three months ended March 31 are as follows (in millions):

Other collection

Total collection

Intercompany (b)

(a) The “Other” line of business includes (i) certain services provided by our WMSBS business;

(ii) certain services within our sustainability business including our landfill gas-to-energy operations managed by our WM Renewable Energy business;

(iii) certain other expanded service offerings and solutions and (iv) the results of non-operating entities that provide financial assurance and self-insurance support for our Solid Waste business, net of intercompany activity.

Revenue attributable to collection, landfill, transfer and recycling services provided by our “Other” businesses has been reflected as a component of the relevant line of business for purposes of presentation in this table.

(b) Intercompany revenues between lines of business are eliminated in the Condensed Consolidated Financial Statements included within this report.

The following table provides details associated with the period-to-period changes in revenues and average yield (dollars in millions):

Total Collection and Disposal

Recycling Processing and Sales

WM Renewable Energy

Corporate and Other

Other collection

Total collection

Total Collection and Disposal

Recycling Processing and Sales

WM Renewable Energy

Corporate and Other

(a) Intercompany operating revenues reflect each segment’s total intercompany sales, including intercompany sales within a segment and between segments.

Transactions within and between segments are generally made on a basis intended to reflect the market value of the service.

The following table provides details associated with the period-to-period change in revenues and average yield (dollars in millions):

Period-to-Period Change for the

Three Months Ended

September 30, 2023 vs.

Period-to-Period Change for the

Nine Months Ended

September 30, 2023 vs.

March 31, 2024 vs.

Collection and Disposal

Recycling and WM Renewable Energy (c)(d)

Energy surcharge and mandated fees (d)(e)

Total average yield (f)

Recycling Processing and Sales and WM Renewable Energy (c)

Energy surcharge and mandated fees (d)

Total average yield (e)

Internal revenue growth

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(b) Calculated by dividing the increase or decrease for the current year period by the prior year period’s total Company revenue adjusted to exclude the impacts of divestitures for the current year period.

(c) Includes combined impact of commodity price variability in both our recycling and WM Renewable Energy businesses, as well as changes in fees in our recycling business.

(d) Beginning in 2023, Recycling and WM Renewable Energy includes changes in our revenue attributable to our WM Renewable Energy business.

Previously these changes in revenue were included in energy surcharges and mandated fees.

We have revised our prior year results to conform with the current year presentation.

(e) Our energy surcharge was revised in the second quarter of 2023 to incorporate market prices for both diesel and compressed natural gas (“CNG”).

(f) The amounts reported herein represent the changes in our revenue attributable to average yield for the total Company.

(c) Includes combined impact of commodity price variability in both our Recycling Processing and Sales and WM Renewable Energy segments, as well as changes in certain recycling fees charged by our collection and disposal operations.

(d) Our energy surcharge was revised in the second quarter of 2023 to incorporate market prices for both diesel and compressed natural gas (“CNG”).

(e) The amounts reported herein represent the changes in our revenue attributable to average yield for the total Company.

(f) Includes activities from our Corporate and Other businesses.

The following provides further details about our period-to-period change in revenues:

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Period-to-Period Change for the

Three Months Ended

Nine Months Ended

September 30, 2023 vs.

March 31, 2024 vs.

Total collection

Total Collection and Disposal

This is a capital and labor intensive business.

Our capital investments and operating costs needed to serve our customers are increasing.

Our overall pricing efforts are focused on keeping pace with these higher costs.

We experienced average yield growth in our collection line of business of 5.8% and 6.5% for the three and nine months ended September 30, 2023, respectively.

We are also continuing to see growth in our disposal business with our municipal solid waste business experiencing average yield of 4.1% and 5.0% for the three and nine months ended September 30, 2023, respectively.

Recycling and WM Renewable Energy — The downturn in market prices for recycling commodities that started in the second half of 2022 has persisted in 2023.

Decreases in the market prices for recycling commodities resulted in a revenue decline of $91 million and $339 million for the three and nine months ended September 30, 2023, respectively, as compared with the prior year periods.

Average market prices for single-stream recycled commodities were down more than 50% in the first nine months of 2023 when compared to the comparable prior year period.

The decrease is due to the slowdown in the global economy which reduced retail demand and the corresponding need for cardboard packaging to ship retail goods.

Additionally, revenue in our WM Renewable Energy business declined $17 million and $60 million for the three and nine months ended September 30, 2023, respectively, as compared to the prior year periods, primarily driven by decreases in the value of energy prices and renewable fuel standard credits.

Energy Surcharge and Mandated Fees — These fees decreased $54 million and $70 million for the three and nine months ended September 30, 2023, respectively, as compared with the prior year periods.

Our overall pricing efforts are focused on keeping pace with the increasing costs and capital needs of our business.

We are also continuing to focus on price increases in our disposal business with our municipal solid waste business experiencing average yield of 4.6% for the first quarter of 2024.

Recycling Processing and Sales and WM Renewable Energy — Recycling Processing and Sales revenues attributable to yield increased $58 million in the first quarter of 2024 as compared with prior year period.

During the first quarter of 2024, average market prices for single-stream recycled commodities were up 57% as compared with the prior year period.

Yield from the WM Renewable Energy segment was essentially flat with increases in Renewable Identification Numbers (“RINs”) values largely offset by a decrease in market prices for power.

While there may be short-term fluctuations in our commodity-driven businesses as prices change, we continue to take proactive steps to adjust our business models to protect against the downside risk of changes in commodity prices.

Energy Surcharge and Mandated Fees — These fees, which include our energy surcharge program and other mandated fees, decreased $28 million for the first quarter of 2024, as compared with the prior year period.

Beginning in the second quarter of 2023, our energy surcharge was revised to incorporate market prices for both diesel and CNG.

The decrease in energy surcharge revenues is primarily due to a decline of approximately 15% in market prices for diesel fuel for the three and nine months ended September 30, 2023, respectively, as compared with the prior year periods.

The decrease in energy surcharge revenues in the first quarter of 2024 is primarily due to a decline of approximately 10% in market prices for diesel fuel as compared to the prior year period.

The mandated fees are primarily related to fees and taxes assessed by various state, county and municipal government agencies at our landfills and transfer stations.

These amounts have not significantly impacted the change in revenue for the three and nine months ended September 30, 2023, as compared with the prior year periods.

Our revenues from volume (excluding volumes from acquisitions and divestitures) increased $27 million, or 0.5%, and $94 million, or 0.6%, for the three and nine months ended September 30, 2023, respectively.

These results reflect increases in special waste volumes at our landfills, primarily due to event-driven projects, and an increase in WMSBS volumes, which were partially offset by a decrease in temporary industrial collection volumes and the intentional shedding of low-margin residential collection business.

These amounts have not significantly impacted the change in revenue for the first quarter of 2024, as compared with the prior year period.

Our revenues from volume (excluding volumes from acquisitions and divestitures) decreased $1 million for the first quarter of 2024 as compared with the prior year period.

Special waste volumes at our landfills continue to be strong primarily due to higher contributions from event-driven projects.

In addition, our WMSBS business volumes grew as a result of our continued focus on a differentiated service model for national accounts customers.

However, these increases have been offset by a decline in our industrial collection volumes primarily due to lower contributions from temporary business as well as our intentional shedding of low-margin residential collection volumes.

Furthermore, our construction and demolition landfill volumes have declined on a year-over-year basis due to the impact of clean-up efforts in our East Tier from Hurricane Ian in the prior year.

Operating Expenses

The following table summarizes the major components of our operating expenses (in millions of dollars and as a percentage of revenues):

Three Months Ended

Nine Months Ended

September 30,

The following table summarizes the major components of our operating expenses for the three months ended March 31 (in millions of dollars and as a percentage of revenues):

Labor and related benefits

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Risk management

Our operating expenses increased primarily due to (i) inflationary cost pressures, particularly for maintenance and repairs and subcontractor costs and (ii) labor cost pressure from merit increases and frontline employee market wage adjustments.

These increases were offset, in part, by commodity-driven business impacts, particularly from lower recycling rebates reflected in costs of goods sold and lower fuel prices.

Our operating expenses for the first quarter of 2024 increased, as compared with the first quarter of 2023, primarily due to (i) commodity-driven business impacts from higher recycling rebates reflected in costs of goods sold;

(ii) an increase in volumes in our WMSBS business, which relies more extensively on subcontracted hauling and services than our Collection and Disposal businesses and (iii) inflationary pressures which have moderately declined from the high levels observed during the first half of 2023.

These increases were offset, in part, by (i) commodity-driven business impacts from lower fuel prices and (ii) improved operating efficiency and cost control initiatives in our Collection and Disposal businesses, as reflected in lower labor and benefits and maintenance and repairs costs as compared with the first quarter of 2023.

Although our operating expenses increased overall, efficiency gains, improved turnover, and momentum in truck deliveries combined with the benefit of price increases positioned us to significantly reduce our operating expenses as a percentage of revenue when compared with prior period.

Significant items affecting the comparison of operating expenses for the reported periods include:

Labor and Related Benefits — The increase in labor and related benefits costs was primarily driven by (i) merit increases and proactive market wage adjustments to hire and retain talent;

(ii) increased headcount primarily from acquisitions and (iii) increases in health and welfare costs and in medical care activity.

These increases were offset, in part, by lower annual incentive compensation.

Transfer and Disposal Costs — The increase in transfer and disposal costs was primarily due to inflationary cost increases, which includes increased disposal fees at third-party sites and higher rates from our third-party haulers, offset, in part, by a slight decrease in collection volumes.

Maintenance and Repairs — The increase in maintenance and repairs costs was primarily driven by (i) continued inflationary cost increases for parts, supplies and third-party services, although the impact of such inflationary cost increases has progressively moderated from earlier in the year to the third quarter of 2023 and (ii) labor cost increases for our technicians, including additional headcount, market wage adjustments and merit increases.

Through the first half of 2023, our maintenance and repairs costs were also elevated due to supply chain constraints that were causing delays in truck deliveries.

These constraints have moderated and, accordingly, the pressure on maintenance and repairs costs has lessened in the third quarter of 2023.

Subcontractor Costs — The increase in subcontractor costs was primarily due to (i) continued inflationary cost increases, particularly labor and fuel costs from third-party haulers, although the impact of such inflationary cost increases has progressively moderated from earlier in the year to the third quarter of 2023 due to lower diesel prices that reduced fuel surcharges from our third-party transportation providers and (ii) an increase in volumes in our WMSBS business and SES offerings, which rely more extensively on subcontracted hauling and services than our collection and disposal business.

Cost of Goods Sold — The decrease in cost of goods sold was primarily driven by an approximate 40% and 50% decrease in single-stream recycling commodity prices for the three and nine months ended September 30, 2023, respectively, as compared to the prior year periods.

Fuel — The decrease in fuel costs was primarily due to a decrease of approximately 15% in market prices for diesel fuel during the three and nine months ended September 30, 2023, as compared to the prior year periods.

In the third quarter of 2022, we recognized a $26 million catch-up benefit from the extension of alternative fuel tax credits that was retroactive to January 1, 2022.

In 2023, these alternative fuel tax credits have been recognized ratably throughout the year.

Accordingly, the timing of the regulatory decision in 2022 impacts the comparison of our fuel costs for the three months ended September 30, 2023 and the comparable prior year period, but has no impact on the comparability of the year-to-date periods.

Disposal and Franchise Fees and Taxes — The increase in disposal and franchise fees and taxes was primarily driven by an increase in landfill volumes and an overall rate increase in fees and taxes paid to municipalities on our disposal volumes.

Landfill Operating Costs — Landfill operating costs increased for the three months ended September 30, 2023, as compared with the prior year period, primarily due to higher costs for landfill accretion and site monitoring and testing.

The increase for the nine months ended September 30, 2023, as compared with the prior year period, was primarily due to higher expenses for (i) landfill site costs, including costs for leachate collection and treatment, maintenance, and monitoring and testing;

(ii) landfill accretion and (iii) remediation expense.

Within landfill operating costs, accretion expense was $32 million and $97 million for the three and nine months ended September 30, 2023, respectively, compared with $30 million and $84 million, for the comparable prior year periods.

The increase in remediation expense for the nine months ended September 30, 2023, as compared with the prior year period, was primarily due to changes in the measurement of our environmental remediation obligations and recovery assets in both 2023 and 2022.

Our measurement of these balances includes the application of a risk-free discount rate, which is based on the rate for U.S.

Treasury bonds.

During the nine months ended September 30, 2022, the increases in the discount rate were greater than the increase experienced in the third quarter of 2023, which contributed to an increase in remediation expense between the comparable periods.

Any increase in discount rate results in a reduction in the net liability and a credit to expense.

Risk Management — The decrease in risk management for the three and nine months ended September 2023, as compared with the prior year periods, was primarily due to lower claims expense.

An overall increase in insurance premiums partially offset this cost decrease.

Our claims costs for our risk management program were particularly elevated during the first half of 2022 due to unfavorable cost development on a limited population of severe cases.

The absence of these costs is the largest driver of the favorable variance for the nine months ended September 2023 compared to the prior year.

Other — Other operating costs decreased for the three months ended September 30, 2023, as compared with the prior year period, primarily due to a write down of assets and inventory related to Hurricane Ian during the third quarter of 2022 and net gains on the sale of certain assets during the third quarter of 2023.

These decreases were offset, in part, by (i) inflationary cost pressures, although the impact of such continued inflationary cost increases has progressively moderated from earlier in the year to the third quarter of 2023 and (ii) higher utility costs at our facilities.

In addition to the foregoing, other operating cost increases for the nine-month period ended September 30, 2023 were primarily due to an increase in business travel and higher equipment rental costs.

Labor and Related Benefits — The decrease in labor and related benefits costs was largely driven by efficiency improvements in the Collection and Disposal businesses as demonstrated by (i) lower headcount;

(ii) decreased overtime and (iii) a significant reduction in training hours.

Improved driver retention was an important contributing factor to accomplish this result.

The efficiency and turnover driven decreases in costs were offset, in part, by annual employee wage increases.

Transfer and Disposal Costs — The increase in transfer and disposal costs was primarily due to inflationary cost increases, which includes increased disposal fees at third-party sites and higher rates from our third-party haulers offset, in part, by decreases in industrial and residential collection volumes.

Maintenance and Repairs — The slight decrease in maintenance and repairs costs was largely driven by an improvement in new truck deliveries, which lowered average fleet age and reduced demand for third-party services, parts and supplies.

Subcontractor Costs — The increase in subcontractor costs was primarily due to (i) an increase in volumes in our WMSBS business, which relies more extensively on subcontracted hauling and services than our Collection and Disposal businesses and (ii) continued inflationary cost increases, particularly labor costs from third-party haulers.

These increases were offset, in part, by the impact of lower fuel prices on third-party subcontracted hauling and services as compared with the first quarter of 2023.

Cost of Goods Sold — The increase in cost of goods sold was primarily driven by a 57% increase in recycling commodity prices compared to the prior year period.

Fuel — The decrease in fuel costs was primarily due to a decrease of approximately 10% in market prices for diesel fuel.

Disposal and Franchise Fees and Taxes — The slight increase in disposal and franchise fees and taxes was primarily driven by higher franchise and host community fees paid to certain municipalities where we operate.

Landfill Operating Costs — The increase in landfill operating costs was primarily due to (i) certain adjustments to our environmental remediation reserve during the first quarter of 2024, and (ii) higher costs across our landfills for leachate collection and treatment.

Risk Management — Risk management costs increased during the first quarter of 2024 as compared with the first quarter of 2023 primarily due to expected increases in premiums for property coverage.

Other — Other operating cost increases were primarily due to a favorable litigation settlement during the first quarter of 2023, which reduced our expense, and an increase in property taxes.

These increases were offset, in part, by (i) lower equipment rental costs attributable, in part, to improved truck deliveries in late 2023 and early 2024 and (ii) security costs during the first quarter of 2023 attributable to a labor dispute which did not recur in 2024.

Selling, General and Administrative Expenses

The following table summarizes the major components of our selling, general and administrative expenses (in millions of dollars and as a percentage of revenues):

Three Months Ended

Nine Months Ended

September 30,

The following table summarizes the major components of our selling, general and administrative expenses for the three months ended March 31 (in millions of dollars and as a percentage of revenues):

Labor and related benefits

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Provision for bad debts

Selling, general and administrative expenses have decreased primarily due to lower annual incentive compensation costs and reduced professional fees in connection with investments in our digital platform, as certain strategic digital projects have now been implemented.

Partially offsetting these reductions are annual merit increases and increased litigation costs.

The effective management of our costs, along with the increase in revenue resulted in a significant reduction in our selling, general and administrative expenses as a percentage of revenues when compared with the prior year period.

Selling, general and administrative expenses have increased primarily due to (i) increased labor costs from higher annual incentive compensation costs and annual wage increases and (ii) increased technology spend.

Although our costs increased, the significant revenue increases positioned us to reduce our overall selling, general and administrative expenses as a percentage of revenue when compared with the prior period.

Significant items affecting the comparison of our selling, general and administrative expenses for the reported periods include:

Labor and Related Benefits — The decrease in labor and related benefits costs was primarily related to lower annual incentive compensation costs and lower contract labor expenses.

These decreases were partially offset by annual merit increases for our employees and market adjustments for deferred compensation plans related to investment performance.

Labor and Related Benefits — The increase in labor and related benefits costs was primarily related to (i) higher annual incentive compensation costs and (ii) annual employee wage increases.

These increases were partially offset by a reduction in the hourly workforce as we have leveraged automation and technology to address attrition, particularly in our customer experience function.

Professional Fees —The decrease in professional fees was primarily attributable to reduced expenses in connection with investments in our digital platform, as certain strategic projects have now been implemented.

Provision for Bad Debts — The increase in provision for bad debts during the three months ended September 30, 2023, as compared with the prior year period, is primarily related to an increase in the aging of certain receivables as well as customer-specific provisions required for bankruptcies of two of our WMSBS customers.

Other —The increase in other expenses was primarily related to litigation costs and higher advertising costs, which were partially offset by lower telecommunications costs.

Other — The increase in other expenses was primarily related to increased spend across multiple cost categories such as computers, travel, and other support costs.

Depreciation, Depletion and Amortization Expenses

The following table summarizes the components of our depreciation, depletion and amortization expenses (in millions of dollars and as a percentage of revenues):

Three Months Ended

Nine Months Ended

September 30,

The following table summarizes the components of our depreciation, depletion and amortization expenses for the three months ended March 31 (in millions of dollars and as a percentage of revenues):

Depreciation of tangible property and equipment

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Amortization of intangible assets

The increase in depreciation of tangible property and equipment for the three months ended September 30, 2023 was primarily driven by additional depreciation due to investments in capital assets to service our customers, including machinery and trucks.

The increase in depreciation of tangible property and equipment for the nine months ended

September 30, 2023 was primarily driven by additional depreciation due to investments in capital assets, including strategic investments in our digital platform and machinery and containers to service our customers.

The increase in depletion of landfill airspace for the three and nine months ended September 30, 2023 was primarily driven by increased volumes from the reopening of a previously closed landfill in our East Tier.

(Gain) Loss from Divestitures, Asset Impairments and Unusual Items, Net

(Gain) loss from divestitures, asset impairments and unusual items, net for the nine months ended September 30, 2023 were nominal.

During the first quarter of 2022, we recognized a $17 million charge pertaining to reserves for loss contingencies in our Corporate and Other segment to adjust an indirect wholly-owned subsidiary’s estimated potential share of the liability for a proposed environmental remediation plan at a closed site, as discussed in Note 6 to the Condensed Consolidated Financial Statements.

The increase in depreciation of tangible property and equipment during the first quarter of 2024, as compared with the first quarter of 2023, was primarily driven by additional depreciation due to investments in capital assets to service our customers, such as trucks, machinery and equipment, and containers.

The decrease in depletion of landfill airspace during the first quarter of 2024, as compared with the first quarter of 2023, was driven by the closure of a previously reopened landfill in our East Tier.

The decrease in amortization of intangible assets during the first quarter of 2024, as compared with the first quarter of 2023, was primarily driven by the amortization of acquired intangible assets.

Income from Operations

The following table summarizes income from operations for our reportable segments (dollars in millions):

Three Months Ended

Nine Months Ended

September 30,

Period-to-Period

September 30,

The following table summarizes income from operations for our reportable segments for the three months ended March 31 (dollars in millions):

Period-to-Period

Corporate and Other (b)

Collection and Disposal:

Other Ancillary

Collection and Disposal

Recycling Processing and Sales

WM Renewable Energy

Corporate and Other

Percentage of revenues

* Percentage change does not provide a meaningful comparison.

(a) “Other” includes (i) elements of our WMSBS business that are not included in the operations of our reportable segments;

(ii) elements of our sustainability business that includes landfill gas-to-energy operations managed by our WM Renewable Energy business, our SES business and recycling brokerage services and not included in the operations of our reportable segments;

(b) “Corporate and Other” operating results reflect certain costs incurred for various support services that are not allocated to our reportable segments.

These support services include, among other things, treasury, legal, digital, tax, insurance, centralized service center processes, other administrative functions and the maintenance of our closed landfills.

Income from operations for “Corporate and Other” also includes costs associated with our long-term incentive program.

The significant items affecting income from operations for our segments during the three and nine months ended September 30, 2023, as compared with the prior year periods, are summarized below:

● Solid Waste — Income from operations in our Solid Waste business increased primarily due to revenue growth in our collection and disposal business driven by yield.

These increases were partially offset by (i) inflationary cost pressures;

(ii) labor cost increases from frontline employee wage adjustments and annual merit increases and (iii) reduced profitability in our recycling business from the decline in recycling commodity prices.

In addition, fuel tax credits in 2022 were not recognized until August 2022 due to the timing of the Inflation Reduction Act of 2022 (“IRA”).

This created a $26 million negative impact to income from operations for the three months ended September 30, 2023, but is broadly flat for the nine months ended September 30, 2023.

● Other — The decrease in income from operations was due to (i) reduced profitability in our WM Renewable Energy business primarily driven by decreases in the value of energy prices and renewable fuel standard credits and (ii) the decline in recycling brokerage commodity prices affecting profitability in our recycling business.

● Corporate and Other — The improvement in income from operations was primarily driven by (i) lower annual incentive compensation costs;

(ii) lower professional fees in connection with investments in our digital program, as certain strategic projects have now been implemented and (iii) a charge during the first quarter of 2022 to adjust an indirect wholly-owned subsidiary’s estimated potential share of the liability for a proposed environmental remediation plan at a closed site.

These lower costs were partially offset by annual merit increases and litigation costs.

(a) From time to time, the operating results of our reportable segments are significantly affected by certain transactions or events that management believes are not indicative or representative of our results.

The significant items affecting income from operations for our segments during the first quarter of 2024, as compared with the prior year period, are summarized below:

Collection and Disposal — Income from operations in our Collection and Disposal businesses increased primarily due to intentional efforts to improve the efficiency and operating costs incurred to serve our customers.

Revenue growth from price increases, which translate into increased yield or average unit price, also contributed to the increase in income from operations.

These increases were partially offset by (i) increased subcontractor costs within our WMSBS business which relies more extensively on subcontracted hauling and services than other parts of our Collection and Disposal

businesses and (ii) a decline in industrial collection volumes primarily due to lower contributions from temporary businesses as well as our intentional efforts to reduce unprofitable residential collection volumes.

Recycling Processing and Sales — The increase in income from operations in Recycling Processing and Sales was primarily driven by an increase in the price for recycled commodities compared to the prior year.

WM Renewable Energy — The increase in income from operations in WM Renewable Energy was primarily driven by (i) increased revenue due to higher RINs pricing and (ii) a reduction in professional fees.

Corporate and Other — The decrease in income from operations was primarily driven by (i) higher annual incentive compensation and (ii) certain adjustments to our environmental remediation reserve during the first quarter of 2024.

The decrease was partially offset by a decrease in health and welfare costs attributable to a headcount driven decline in plan participants.

Interest Expense, Net

Our interest expense, net was $127 million and $372 million for the three and nine months ended September 30, 2023, respectively, compared to $91 million and $269 million for the three and nine months ended September 30, 2022, respectively.

The increase is primarily related to an increase in our weighted average borrowing rate of approximately 90 basis points due to increased rates on floating-rate debt and higher fixed rates on refinancing as well as an increase in average debt balances to fund growth.

To mitigate the impact of increasing interest rates and to provide certainty in cost, we elected to replace certain floating-rate debt, specifically our Term Loan and commercial paper borrowings, with longer-term, fixed-rate debt through our senior notes issuances as discussed within Liquidity and Capital Resources below.

See Note 3 to the Condensed Consolidated Financial Statements for more information related to our debt balances.

Our interest expense, net was $130 million and $120 million during the three months ended March 31, 2024 and 2023, respectively.

The increase is primarily related to an increase in our weighted average borrowing rate of approximately 15 basis points.

Equity in Net Losses of Unconsolidated Entities

We recognized equity in net losses of unconsolidated entities of $18 million and $41 million during the three and nine months ended September 30, 2023, respectively, compared to $17 million and $49 million for the three months and nine months ended September 30, 2022, respectively.

We recognized equity in net losses of unconsolidated entities of $19 million and $11 million during the three months ended March 31, 2024 and 2023, respectively.

The losses for each period were primarily related to our noncontrolling interests in entities established to invest in and manage low-income housing properties.

We generate tax benefits, including tax credits, from the losses incurred from these investments.

The losses are more than offset by the tax benefits generated by these investments as further discussed in Note 4 to the Condensed Consolidated Financial Statements.

We generate tax benefits, including tax credits, from the losses incurred from these investments which are discussed further in Note 4 to the Condensed Consolidated Financial Statements.

Income Tax Expense

Our income tax expense was $210 million and $570 million for the three and nine months ended September 30, 2023, respectively, compared to $189 million and $535 million for the three and nine months ended September 30, 2022, respectively.

Our effective income tax rate was 24.1% and 24.0% for the three and nine months ended September 30, 2023, respectively, compared to 22.8% and 23.5% for the three and nine months ended September 30, 2022, respectively.

Our income tax expense and effective income tax rates were $162 million, or 18.6%, and $164 million, or 23.6%, for the three months ended March 31, 2024 and 2023, respectively.

See Note 4 to the Condensed Consolidated Financial Statements for more information related to income taxes.

Tax Legislation — The IRA was signed into law by President Biden on August 16, 2022, and contains a number of tax-related provisions.

The provisions of the IRA related to alternative fuel tax credits secure approximately $55 million of annual pre-tax benefit (recorded as a reduction in our operating expense) for tax credits in each of 2022, 2023 and 2024.

The IRA contains a number of additional provisions related to tax incentives for investments in renewable energy production, carbon capture, and other climate actions, as well as the overall measurement of corporate income taxes.

Tax Legislation — The Inflation Reduction Act of 2022 (“IRA”) was signed into law by President Biden on August 16, 2022 and contains several tax-related provisions, including with respect to (i) alternative fuel tax credits;

(ii) tax incentives for investments in renewable energy production, carbon capture, and other climate actions and (iii) the overall measurement of corporate income taxes.

Given the complexity and uncertainty around the applicability of the legislation to our specific facts and circumstances, we continue to analyze the IRA provisions to identify and quantify potential opportunities and applicable benefits included in the legislation.

With respect to only the investment tax credit aspect of the IRA, we expect the cumulative benefit to be between $250 million and $350 million, a large portion of which is anticipated to be realized in 2024, 2025 and 2026.

Additionally, the production tax credit incentives for investments in renewable energy and the carbon capture provisions of the IRA will likely result in incremental benefit, although at this time the amount of those benefits has not been quantified.

Additionally, we incur an excise tax of 1% for common stock repurchases, which is reflected in the cost of purchasing the underlying shares as a component of treasury stock in our Condensed Consolidated Balance Sheet.

Note 11 to the Condensed Consolidated Financial Statements for additional information.

The current expectation is the IRA’s minimum corporate tax will not have an impact on the Company.

Additionally, numerous countries have agreed to a statement in support of the Organization for Economic Co-operation and Development model rules that propose a global minimum tax rate of 15%.

As legislation to enact a minimum tax becomes effective in countries in which we do business, we do not expect a material impact to our income taxes.

We will continue to monitor pending legislation and implementation by individual countries and evaluate the potential impact on our business in future periods.

With respect to the investment tax credit, as expanded by the IRA, we expect the cumulative benefit to be between $250 million and $350 million, a large portion of which is anticipated to be realized in 2024 through 2026.

The Company projects a full year investment tax credit benefit of approximately $145 million, which is derived from the projected completion of five new RNG facilities by the end of 2024.

The amount of the projected investment tax credit benefit for 2024 is based on a number of estimates and assumptions, including the timing of project completion and interpretation of the IRA.

Recently, however, the IRS issued proposed regulations applicable to the investment tax credits that could call into question our ability to realize some, or all, of this tax benefit, which would negatively impact financial expectations in connection with our significant planned and ongoing investments in sustainability growth projects in our WM Renewable

Energy segment.

The proposed regulations provide a public comment period to allow taxpayers to provide input prior to the issuance of final regulations.

In coordination with other members of the RNG industry, we are actively using this public comment period to work with external advisors, the U.S.

Congress, the current federal administration, and other biogas sector stakeholders to encourage the Treasury Department to further refine its analysis prior to publication of final regulations that more accurately reflect the express language and legislative intent of the statute with respect to the investment tax credit.

However, there is no guarantee that such efforts will be successful.

We expect that the production tax credit incentives for investments in renewable energy and carbon capture, as expanded by the IRA, will likely result in an incremental benefit to the Company, although at this time, the anticipated amount of such benefit has not been quantified.

Liquidity and Capital Resources

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The following is a summary of our cash and cash equivalents, restricted funds and debt balances (in millions):

September 30,

Cash and cash equivalents

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Long-term portion

(a) As of September 30, 2023 and December 31, 2022, $80 million and $83 million, respectively, of these account balances were included in other current assets in our Condensed Consolidated Balance Sheets.

Debt — As of September 30, 2023, we had approximately $2.4 billion of debt maturing within the next 12 months, including (i) $489 million of short-term borrowings under our commercial paper program (net of related discount on issuance);

(a) As of March 31, 2024 and December 31, 2023, $90 million of these account balances were included in other current assets in our Condensed Consolidated Balance Sheets.

As of March 31, 2024, we had approximately $3.1 billion of debt maturing within the next 12 months, including (i) $750 million of short-term borrowings under our commercial paper program (net of related discount on issuance);

(ii) $1.6 billion of tax-exempt bonds with term interest rate periods that expire within the next 12 months, which is prior to their scheduled maturities;

(iii) $156 million of 3.5% senior notes that mature in May 2024 and (iv) $174 million of other debt with scheduled maturities within the next 12 months, including $60 million of tax-exempt bonds.

As of September 30, 2023, we have classified $2.1 billion of debt maturing in the next 12 months as long-term because we have the intent and ability to refinance these borrowings on a long-term basis as supported by the forecasted available capacity under our $3.5 billion long-term U.S.

and Canadian revolving credit facility (“$3.5 billion revolving credit facility”).

(iii) $156 million of 3.5% senior notes that mature in May 2024;

(iv) $422 million of 3.125% senior notes that mature in March 2025 and (v) $180 million of other debt with scheduled maturities within the next 12 months, including $60 million of tax-exempt bonds.

As of March 31, 2024, we have classified $2.8 billion of debt maturing in the next 12 months as long-term because we have the intent and ability to refinance these borrowings on a long-term basis as supported by the forecasted available capacity under our $3.5 billion long-term U.S.

and Canadian revolving credit facility (“$3.5 billion revolving credit facility”), as discussed below.

The remaining $336 million of debt maturing in the next 12 months is classified as current obligations.

In February 2023, WMI issued $750 million and $500 million of 4.625% senior notes due February 2030 and February 2033, respectively, the net proceeds of which were $1.24 billion.

We used the net proceeds to reduce outstanding

borrowings under our commercial paper program, repay $500 million of WMI’s 2.4% senior notes upon maturity in May 2023, and for general corporate purposes, including our sustainability capital investment program.

In July 2023, WMI issued $750 million and $1.25 billion of 4.875% senior notes due February 2029 and February 2034, respectively, the net proceeds of which were $1.97 billion.

We used the net proceeds to reduce outstanding borrowings under our commercial paper program, repay $1.0 billion of outstanding borrowings under our Term Loan and for general corporate purposes.

Guarantor Financial Information

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In lieu of providing separate financial statements for the subsidiary issuer and guarantor (WMI and WM Holdings), we have presented the accompanying supplemental summarized combined balance sheet and income statement information for WMI and WM Holdings on a combined basis after elimination of intercompany transactions between WMI and WM Holdings and amounts related to investments in any subsidiary that is a non-guarantor (in millions):

September 30,

March 31, 2024

December 31, 2023

Balance Sheet Information:

5 unchanged sentences

Other noncurrent liabilities

Nine Months Ended

September 30, 2023

Three Months Ended

March 31, 2024

Income Statement Information:

1 unchanged sentence

Summary of Cash Flow Activity

The following is a summary of our cash flows for the nine months ended September 30 (in millions):

The following is a summary of our cash flows for the three months ended March 31 (in millions):

Net cash provided by operating activities

1 unchanged sentence

Net cash used in financing activities

Net Cash Provided by Operating Activities — Our operating cash flows decreased by $150 million as compared with the prior year period, driven by (i) higher interest payments;

(ii) unfavorable changes in working capital, net of effects of acquisitions and divestitures;

(iii) higher incentive compensation payments and (iv) higher income tax payments.

This decrease was partially offset by increased earnings attributable to our collection and disposal business.

Net Cash Used in Investing Activities — The most significant items included in our investing cash flows for the nine months ended September 30, 2023 and 2022 are summarized below:

● Capital Expenditures — We used $1,853 million and $1,725 million for capital expenditures during the nine months ended September 30, 2023 and 2022, respectively.

The increase in capital spending is primarily

driven by our intentional investment in sustainability growth capital spending on recycling and renewable energy projects, as well as inflationary increases in many fixed asset purchases made to support ongoing operations and intentional investments in the Company’s landfills to reduce greenhouse gas emissions.

The Company continues to maintain a disciplined focus on capital management to prioritize investments for expansion, the replacement of aging assets and assets that support our strategy of differentiation and continuous improvement through efficiency and innovation.

Net Cash Provided by Operating Activities — Our operating cash flows increased by $323 million for the three months ended March 31, 2024, as compared with the prior year period, driven by (i) higher earnings in our Collection and Disposal businesses and Recycling Processing and Sales segment, (ii) favorable changes in working capital, net of effects of acquisitions and divestitures, and (iii) lower annual incentive compensation payments.

This increase was partially offset by higher cash interest payments.

Net Cash Used in Investing Activities — The most significant items included in our investing cash flows for the three months ended March 31, 2024 and 2023 are summarized below:

● Capital Expenditures — We used $668 million and $660 million for capital expenditures during the three months ended March 31, 2024 and 2023, respectively.

The increase in capital spending is primarily driven by our planned and ongoing investments in our Recycling Processing and Sales and WM Renewable Energy segments.

● Other, Net — The year-over-year changes in other investing activities were primarily driven by changes in our investment portfolio associated with a wholly-owned insurance captive.

During the nine months ended September 30, 2023 and 2022, we used $71 million and $36 million, respectively, of cash from restricted cash and cash equivalents to invest in available-for-sale securities within our investment portfolio associated with a wholly-owned insurance captive.

Additionally, in 2022, we used $57 million to fund secured convertible promissory notes associated with an acquisition and $28 million to make an initial cash payment associated with a low-income housing investment.

Net Cash Used in Financing Activities — The most significant items affecting the comparison of our financing cash flows for the nine months ended September 30, 2023 and 2022 are summarized below:

● Debt Borrowings and Repayments — The following summarizes our cash borrowings (net of related discount) and repayments of debt for the nine months ended September 30 (in millions):

During the three months ended March 31, 2024 and 2023, we used $90 million and $85 million, respectively, of cash from restricted cash and cash equivalents to invest in available-for-sale securities.

Net Cash Used in Financing Activities — The most significant items affecting the comparison of our financing cash flows for the three months ended March 31, 2024 and 2023 are summarized below:

● Debt Borrowings and Repayments — The following summarizes our cash borrowings and repayments of debt for the three months ended March 31 (in millions):

Commercial paper

Tax-exempt bonds

Commercial paper

Tax-exempt bonds

Net cash borrowings

Net cash borrowings (repayments)

Refer to Note 3 to the Condensed Consolidated Financial Statements for additional information related to our debt borrowings and repayments.

● Common Stock Repurchase Program — During the nine months ended September 30, 2023, we repurchased $950 million of our common stock pursuant to three accelerated share repurchase (“ASR”) agreements and repurchased $41.5 million of our common stock in open market transactions, of which $1.5 million was paid in October 2023.

● Common Stock Repurchase Program — During the three months ended March 31, 2024 and 2023, we used $250 million and $350 million, respectively, to repurchase shares of our common stock under accelerated share repurchase agreements .

See Note 9 to the Condensed Consolidated Financial Statements for additional information.

During the nine months ended September 30, 2022, we repurchased $1.0 billion of our common stock pursuant to three ASR agreements and repurchased $63 million of our common stock in open market transactions, of which $2 million was paid in October 2022.

● Cash Dividends — For the periods presented, all dividends have been declared by our Board of Directors.

We paid cash dividends of $855 million and $811 million during the nine months ended September 30, 2023 and 2022, respectively.

The increase in dividend payments is due to our quarterly per share dividend increasing from $0.65 in 2022 to $0.70 in 2023.

We paid cash dividends of $307 million and $289 million during the three months ended March 31, 2024 and 2023, respectively.

The increase in dividend payments is primarily due to our quarterly per share dividend increasing from $0.70 in 2023 to $0.75 in 2024.

Free Cash Flow

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We believe free cash flow gives investors useful insight into how we view our liquidity, but the use of free cash flow as a liquidity measure has material limitations because it excludes certain expenditures that are required or that we have committed to, such as declared dividend payments and debt service requirements.

Our calculation of free cash flow and reconciliation to net cash provided by operating activities is shown in the table below (in millions), and may not be calculated the same as similarly-titled measures presented by other companies:

Three Months Ended

Nine Months Ended

September 30,

Our calculation of free cash flow and reconciliation to net cash provided by operating activities for the three months ended March 31 is shown in the table below (in millions), and may not be calculated the same as similarly-titled measures presented by other companies:

Net cash provided by operating activities

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Free cash flow

(a) These growth investments are intended to further our sustainability leadership position by increasing recycling volumes and growing renewable natural gas generation and we expect they will deliver circular solutions for our customers and drive environmental value to the communities we serve.

These growth investments are intended to further our sustainability leadership position by increasing recycling volumes and growing renewable natural gas generation.

We expect they will deliver circular solutions for our customers and drive environmental value to the communities we serve.

Critical Accounting Estimates and Assumptions

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Seasonal Trends

Our operating revenues tend to be somewhat higher in summer months, primarily due to higher construction and demolition waste volumes.

The volumes of industrial and residential waste in certain regions where we operate also tend

to increase during the summer months.

Our second and third quarter revenues and results of operations typically reflect these seasonal trends.

Our financial and operating results may fluctuate for many reasons, including period-to-period changes in the relative contribution of revenue by each line of business, changes in commodity prices and general economic conditions.

Our operating revenues and volumes typically experience seasonal increases in the summer months that are reflected in second and third quarter revenues and results of operations.

Service or operational disruptions caused by severe storms, extended periods of inclement weather or climate events can significantly affect the operating results of the geographic areas affected.

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While weather-related and other event-driven special projects can boost revenues through additional work for a limited time, due to significant start-up costs and other factors, such revenue can generate earnings at comparatively lower margins.

Macroeconomic pressures, including inflation and rising interest rates, and market disruption resulting in labor, supply chain and transportation constraints have impacted our results.

Supply chain constraints have caused delayed delivery of fleet, steel containers and other purchases.

Aspects of our business rely on third-party transportation providers, and such services have become more limited and expensive.

Macroeconomic pressures continue, including sustained inflationary pressures and high interest rates, with geopolitical events causing further market disruptions.

Inflation moderately declined from the high levels observed during the first half of 2023;

however, inflation remained above typical levels during the first quarter of 2024.

While supply chain activity has begun to normalize, risks persist related to higher operating costs, ongoing supply shortages, labor and

transportation challenges and impacts from global events.

We continue to take proactive steps to recover and mitigate inflationary cost pressures through our overall pricing efforts and by managing our costs through efficiency, labor productivity, and investments in technology to automate certain aspects of our business.

These efforts may not be successful for various reasons including the pace of inflation, operating cost inefficiencies, market responses, and contractual limitations, such as the timing lag in our ability to recover increased costs under certain contracts that are tied to a price escalation index with a lookback provision.

Quantitative and Qualitative Disclosures About Market Risk.

Information about market risks as of March 31, 2024 does not materially differ from that discussed under Item 7A in our Annual Report on Form 10-K for the year ended December 31, 2023.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis