What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-25 compared with 2024-04-25 · 196 added, 130 removed, 257 unchanged (56% 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,” “plan,” “forecast,” “project,” “estimate,” “intend,” 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,” “target,” “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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These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those set forth in such forward-looking statements, including but not limited to failure to implement our optimization, automation, growth, and cost savings initiatives and overall business strategy;

failure to obtain the results anticipated from strategic initiatives, investments, acquisitions or new lines of business;

failure to identify acquisition targets, consummate and integrate acquisitions;

failure to obtain the results anticipated from strategic initiatives, investments, acquisitions, including the planned Stericycle acquisition, or new lines of business;

failure to identify acquisition targets, consummate and integrate acquisitions, including our planned integration of Stericycle;

our ability to consummate and finance the Stericycle acquisition and achieve the anticipated benefits therefrom, including cost synergies;

legal, regulatory and other matters that may affect the costs and timing of our ability to complete, integrate and deliver all of the expected benefits of the planned Stericycle acquisition;

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

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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, 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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We own or operate the largest network of landfills throughout the U.S.

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.

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 (“RNG”), which is a significant source of fuel that

we allocate to our natural gas fleet.

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.

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

The Company continually evaluates potential acquisitions that provide the opportunity for strategic growth.

On June 3, 2024, we announced that we have entered into an Agreement and Plan of Merger (the “Merger Agreement”) to acquire all outstanding shares of Stericycle, Inc.

(“Stericycle”) for $62.00 per share in cash, representing a total enterprise value of approximately $7.2 billion when including approximately $1.4 billion of Stericycle’s net debt.

Stericycle is a U.S.

based leading provider of compliance-based solutions for regulated waste, including medical waste, and secure information destruction.

Stericycle serves customers in North America and Europe.

We believe that the planned Stericycle acquisition will expand the Company’s comprehensive environmental solutions in the growing healthcare market while advancing the Company’s sustainability commitments.

Business Environment

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This includes expanding traditional recycling services, increasing organics collection and processing, and expanding our renewable energy projects to meet the evolving needs of our diverse customer base.

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 have published our 2023 Sustainability Report providing details on our sustainability-related performance and outlining progress towards our 2030 sustainability goals.

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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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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.

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

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

We sometimes experience margin pressures and variability in earnings and margins from our commodity-driven businesses, specifically within our Recycling Processing and Sales segment.

While recycling commodity prices have recovered nicely in 2024 from the low levels experienced in 2023, commodity values are still below prices seen at the beginning of 2022.

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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Current Quarter Financial Results

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.

During the second 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.

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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 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:

During the second quarter of 2024, we allocated $667 million of available cash to capital expenditures and $313 million to our shareholders through dividends and common stock repurchases.

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

● Revenues of $5,402 million, compared with $5,119 million in the prior year period, an increase of $283 million, or 5.5%.

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;

The increase is primarily attributable to higher yield in our Collection and Disposal businesses and the increase in market value for recycled commodities, which increased revenues for our Recycling Processing and Sales segment;

● Operating expenses of $3,291 million, or 60.9% of revenues, compared with $3,186 million, or 62.2% of revenues, in the prior year period.

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;

The $105 million increase in operating expenses is primarily attributable to (i) higher recycling rebates from an increase in the market value for the commodities we process;

(ii) an increase in volumes in our Strategic Business Solutions (“WMSBS”) business, which increases our subcontractor costs, (iii) an increase in landfill operating costs, largely due to wet weather driving leachate costs higher, and (iv) and increase in risk management costs.

These increases were offset in part by (i) lower diesel fuel prices and (ii) improved operating efficiency and cost control initiatives in our Collection and Disposal businesses.

Although our operating expenses increased overall, efficiency gains, improved employee retention, and momentum in truck deliveries, positioned us to significantly reduce our operating expenses as a percentage of revenue when compared to the second quarter of 2023;

● Selling, general and administrative expenses were $501 million, or 9.3% of revenues, compared with $467 million, or 9.1% of revenues, in the prior year period.

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;

The $34 million increase is primarily attributable to (i) increased labor costs from higher annual and long-term incentive compensation costs and annual wage increases;

(ii) increased professional fees to support strategic initiatives, including our planned acquisition of Stericycle and (iii) increases in our bad debt expenses.

These increases were offset, in part, by lower litigation costs;

● Income from operations was $1,009 million, or 18.7% of revenues, compared with $944 million, or 18.4% of revenues, in the prior year period.

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 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;

The increase in the current year earnings was primarily driven by revenue growth and improved business performance in our Collection and Disposal businesses partially offset by a $54 million charge associated with an investment in a waste diversion technology business;

● Net cash provided by operating activities was $1,154 million compared with $1,030 million in the prior year period, with the increase driven by higher earnings in our Collection and Disposal businesses, which were modestly offset by an unfavorable change in working capital;

● Free cash flow was $530 million compared with $545 million in the prior year period.

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

As described above, cash provided by operating activities increased by $124 million during the quarter, but this was more than offset by a $147 million increase in capital expenditures.

The increase in capital expenditures is related to our strategic focus on sustainability growth investments in recycling and renewable energy.

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

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Operating Revenues

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

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

Three Months Ended June 30:

Other collection

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Corporate and Other

Six Months Ended June 30:

Other collection

Total collection

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.

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Three Months Ended

March 31, 2024 vs.

June 30, 2024 vs.

Period-to-Period Change for the

Six Months Ended

June 30, 2024 vs.

Collection and Disposal

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Period-to-Period Change for the

Three Months Ended

March 31, 2024 vs.

Six Months Ended

June 30, 2024 vs.

Total collection

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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.

Average yield growth in our collection line of business was 5.7% and 5.9% for the three and six months ended June 30, 2024, respectively.

We are also continuing to see growth in our disposal business with average yield in our municipal solid waste business of 2.1% and 3.2% for the three and six months ended June 30, 2024, respectively.

Recycling Processing and Sales and WM Renewable Energy — Recycling Processing and Sales revenues attributable to yield increased $60 million and $118 million for the three and six months ended June 30, 2024, as compared with prior year periods.

Average market prices for single-stream recycled commodities increased nearly 60% for the three and six months ended June 30, 2024, as compared with the prior year periods.

Yield from the WM Renewable Energy segment increased $7 million and $9 million for the three and six months ended June 30, 2024, as compared with the prior year periods, primarily driven by increases in Renewable Identification Numbers (“RINs”) values.

While there may be short-term fluctuations in our commodity-driven businesses as prices change, we believe that our business models and processes appropriately 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 $8 million and $36 million for the three and six months ended June 30, 2024, respectively, as compared with the prior year periods.

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 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 decrease in energy surcharge revenues is primarily due to a decline of approximately 2% and 6% in market prices for diesel fuel for the three and six months ended June 30, 2024, respectively, as compared to the prior year periods.

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 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.

These amounts have not significantly impacted the change in revenue for the three and six months ended June 30, 2024, respectively, as compared with the prior year periods.

Our revenues from volume (excluding volumes from acquisitions and divestitures) increased $5 million and $3 million for the three and six months ended June 30, 2024, respectively, as compared with the prior year periods.

We have experienced volume increases in special waste projects at landfills, recycling, and our WMSBS business as a result of our continued focus on a differentiated service model for national accounts customers.

However, these increases were largely offset by a decline in our industrial and residential collection volumes.

Furthermore, our construction and demolition landfill volumes have declined due to the 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 for the three months ended March 31 (in millions of dollars and as a percentage of revenues):

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

Three Months Ended

Six Months Ended

Labor and related benefits

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Risk management

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.

Our operating expenses increased primarily due to (i) higher recycling rebates from an increase in the market value of the commodities we process;

(ii) an increase in volumes in our WMSBS business, which relies more extensively on subcontracted hauling and services than our Collection and Disposal businesses;

(iii) an increase in landfill operating costs, largely due to wet weather driving leachate costs higher, and (iv) an increase in risk management costs.

These increases were offset, in part, by (i) lower diesel fuel prices and (ii) improved operating efficiency and cost control initiatives in our Collection and Disposal businesses.

Although our operating expenses increased overall, efficiency gains, improved employee retention, and momentum in truck deliveries positioned us to significantly reduce our operating expenses as a percentage of revenue when compared to the prior year periods.

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

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;

Labor and Related Benefits — The slight increase in labor and related benefits costs for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, was primarily driven by annual employee wage increases, offset, in part, by (i) lower headcount;

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

The decrease in labor and related benefits costs for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, was primarily driven by (i) lower headcount;

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

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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.

Maintenance and Repairs — The increase in maintenance and repairs costs was primarily driven by inflationary cost increases for parts, supplies and third-party services, although the impact of such inflationary cost increases has moderated from the high levels observed during the first half of 2023.

These cost increases were offset in part by an improvement in new truck deliveries, which lowered average fleet age and reduced demand for third-party services, parts and supplies and has resulted in improvements in operational efficiencies.

impact has moderated from the high levels observed during the first half of 2023.

These increases were offset, in part, by the impact of lower fuel prices on third-party subcontracted hauling and services.

Cost of Goods Sold — The increase in cost of goods sold was primarily driven by a nearly 60% increase in recycling commodity prices as compared to the prior year periods.

Fuel — The decrease in fuel costs was primarily due to a decrease of approximately 2% and 6% in market prices for diesel fuel during the three and six months ended June 30, 2024, respectively, as compared to the prior year periods.

Disposal and Franchise Fees and Taxes — The slight decrease in disposal and franchise fees and taxes was primarily driven by a decrease in disposal tons at certain West Tier landfills.

Landfill Operating Costs — The increase in landfill operating costs was primarily due to (i) leachate collection and treatment which can largely be attributed to particularly wet weather in the first half of 2024 in certain markets;

(ii) methane collection and treatment and (iii) site maintenance.

Additionally, certain adjustments to our environmental remediation reserve during the first quarter of 2024 increased costs for the six months ended June 30, 2024, as compared to the prior year period.

Risk Management — Risk management costs increased primarily due to (i) adjustments to our reserves for certain large loss claims and (ii) increases in premiums for property coverage.

These increases were offset, in part, by current quarter insurance recoveries for property claims associated with a hurricane in 2023.

Other — Other operating cost decreases were primarily due to (i) gains on the sale of real estate in 2024;

(ii) lower equipment rental costs attributable, in part, to improved truck deliveries in late 2023 and during the first half of 2024 and (iii) security costs during the first quarter of 2023 attributable to a labor dispute which did not recur in 2024.

These decreases were offset, in part, by (i) a favorable litigation settlement during the first quarter of 2023, which reduced our expense;

and (ii) an increase in property taxes.

Selling, General and Administrative Expenses

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):

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

Six Months Ended

Labor and related benefits

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Provision for bad debts

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.

Selling, general and administrative expenses increased for the three and six months ended June 30, 2024 primarily due to (i) increased labor costs from higher annual and long-term incentive compensation costs and annual wage increases;

(ii) increased professional fees to support strategic initiatives, including our planned acquisition of Stericycle and (iii) increases in our bad debt expenses.

Partially offsetting these increases was a decline in litigation costs.

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

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.

Labor and Related Benefits — The increase in labor and related benefits costs was primarily related to (i) higher annual and long-term 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.

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

Professional Fees — The increase in professional fees was related to legal, consulting and accounting costs incurred to support strategic initiatives, including our planned acquisition of Stericycle.

Other — The increase in costs for the six months ended June 30, 2024, as compared with the prior year period, was related to (i) miscellaneous credits and rebates received in 2023;

(ii) accelerated timing of seminars and (iii) increased spend across multiple cost categories including, travel, bank charges, technology and telecommunications.

These cost increases were partially offset by a decline in litigation costs.

Depreciation, Depletion and Amortization Expenses

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):

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

Six Months Ended

Depreciation of tangible property and equipment

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Amortization of intangible assets

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.

The increase in depreciation of tangible property and equipment for the three and six months ended June 30, 2024 as compared to prior year periods was primarily driven by additional depreciation due to investments in capital assets to service our customers, such as trucks and machinery and equipment.

The increase in depletion of landfill airspace for the three and six months ended June 30, 2024 as compared to the prior year period, was driven by changes in amortization rates from revisions in landfill estimates, partially offset by the closure of a previously reopened landfill in our East Tier and changes in amortization rates from revisions in landfill estimates.

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

(Gain) loss from divestitures, asset impairments and unusual items, net for the three and six months ended June 30, 2024 primarily relates to a $54 million charge required to increase the estimated fair value of a liability associated with the expected disposition of an investment the Company holds in a waste diversion technology business.

This charge is reflected in our Corporate and Other measures within our segment reporting.

(Gain) loss from divestitures, asset impairments and unusual items, net for the three and six months ended June 30, 2023 were not material.

Income from Operations

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

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

Three Months Ended

Six Months Ended

Period-to-Period

Collection and Disposal:

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*Percentage change does not provide a meaningful comparison.

(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.

The significant items affecting income from operations for our segments during the three and six months ended June 30, 2024, as compared with the prior year periods, are summarized below:

● Collection and Disposal — Income from operations in our Collection and Disposal businesses increased primarily due to our focus on price increases that keep pace with inflationary cost pressures in our business as well as intentional efforts to improve the efficiency and operating costs incurred to serve our customers.

Additionally, in the second quarter of 2024, we recognized $30 million of gains on the sale of non-strategic assets, which were recognized as a reduction of operating expenses.

These increases were partially offset by (i) a decline in industrial collection volumes primarily due to lower contributions from temporary activity such as construction projects;

(ii) an increase in landfill operating costs;

and (iii) increased depreciation expenses for our fleet, machinery and equipment as well as higher depletion costs at our landfills .

● Recycling Processing and Sales — The increase in income from operations in Recycling Processing and Sales was primarily due to (i) improved commodity pricing compared to prior year;

(ii) a gain on sale of a non-strategic asset recognized as a reduction in operating expenses and (iii) benefits from our growth investments and cost management.

These improvements were partially offset by the impact of higher facility shutdown costs incurred during our capital investment programs targeted at automating and upgrading our single stream recycling business across North America.

● WM Renewable Energy — The increase in income from operations in WM Renewable Energy was primarily driven by (i) increased revenue due to higher RINs and blended power pricing and (ii) increased volumes due to the completion of additional projects that increased the beneficial use of landfill gas.

● Corporate and Other — The decrease in income from operations was primarily driven by (i) a $54 million charge associated with an investment in a waste diversion technology business as discussed above in (Gain) Loss from Divestitures, Asset Impairments and Unusual Items, Net ;

(ii) an increase in risk management costs due to an adjustment to our reserves for certain large loss claims and increases in premiums for property coverage and (iii) higher annual and long-term incentive compensation costs.

Interest Expense , Net

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 $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 which are discussed further in Note 4 to the Condensed Consolidated Financial Statements.

Our interest expense, net was $136 million and $266 million for the three and six months ended June 30, 2024, respectively, compared to $125 million and $245 million for the three and six months ended June 30, 2023, respectively.

The increase is primarily related to an increase in our average debt balances to fund growth as well as an increase in our weighted average borrowing rate of approximately 10 basis points.

Equity in Net Income (Losses) of Unconsolidated Entities

We recognized equity method investment income of $22 million and $3 million during the three and six months ended June 30, 2024, respectively, compared to losses of $12 million and $23 million for the three and six months ended June 30, 2023, respectively.

These financial statement impacts are largely related to our noncontrolling interests in entities established to invest in and manage low-income housing properties.

In 2024, we adopted Accounting Standards Update (“ASU”) 2023-02, and, as a result, beginning in 2024, the amortization of these investments is recognized as a component of income tax expense.

Refer to Note 4 to the Condensed Consolidated Financial Statements for further discussion.

Income Tax Expense

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.

Our income tax expense was $214 million and $376 million for the three and six months ended June 30, 2024, respectively, compared to $196 million and $360 million for the three and six months ended June 30, 2023, respectively.

Our effective income tax rate was 23.9% and 21.3% for the three and six months ended June 30, 2024, respectively, compared to 24.2% and 23.9% for the three and six months ended June 30, 2023, respectively.

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

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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.

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.

In coordination with other members of the RNG industry and external advisors we are engaging directly with 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.

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The Company consistently generates cash flow from operations that meets and exceeds our working capital needs, allows for payment of our dividends, investment in the business through capital expenditures and tuck-in acquisitions, and funding of strategic sustainability growth investments.

We continually monitor our actual and forecasted cash flows, our liquidity and our capital resources, enabling us to plan for our present needs and fund unbudgeted business requirements that may arise during the year.

We continually monitor our actual and forecasted cash flows, our liquidity and our capital resources, enabling us to plan for our present needs and fund unbudgeted business requirements

that may arise during the year.

The Company believes that its investment grade credit ratings, diverse investor base, large value of unencumbered assets and modest leverage enable it to obtain adequate financing and refinance upcoming maturities as necessary to meet its ongoing capital, operating, strategic and other liquidity requirements.

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Cash and cash equivalents

Restricted funds:

Restricted funds and other:

Insurance reserves

Final capping, closure, post-closure and environmental remediation funds

Total restricted funds (a)

Total restricted funds and other (b)

Current portion

Long-term portion

(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);

(a) Includes $778 million of investments in certain WM tax-exempt bonds as discussed further in Note 1 to the Condensed Consolidated Financial Statements.

These investments are classified as current because we have the intent and ability to remarket the bonds within the next twelve months.

The related tax-exempt debt is included in our Condensed Consolidated Balance Sheet as of June 30, 2024 as a component of long-term debt.

In July 2024 we received $349 million from the successful remarking of these tax-exempt bonds and expect to successfully remarket the remaining bonds held within the third quarter of 2024.

(b) As of June 30, 2024 and December 31, 2023, $868 million and $90 million, respectively, of these account balances were included in other current assets in our Condensed Consolidated Balance Sheets.

Debt — As of June 30, 2024, we had approximately $3.8 billion of debt maturing within the next 12 months, including (i) $1.6 billion 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;

(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.

(iii) $422 million of 3.125% senior notes that mature in March 2025 and (iv) $167 million of other debt with scheduled maturities within the next 12 months, including $30 million of tax-exempt bonds.

As of June 30, 2024, we have classified $3.6 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”) and our issuance of $1.5 billion of senior notes in July 2024, the proceeds of which were used primarily to reduce outstanding borrowings under our commercial paper program and the remainder were used for general corporate purposes.

The remaining $242 million of debt maturing in the next 12 months is classified as current obligations.

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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):

March 31, 2024

December 31, 2023

Balance Sheet Information:

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Other noncurrent liabilities

Three Months Ended

March 31, 2024

Six Months Ended

June 30, 2024

Income Statement Information:

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Summary of Cash Flow Activity

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

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

Net cash provided by operating activities

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Net cash used in financing activities

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.

Net Cash Provided by Operating Activities — Our operating cash flows increased by $447 million for the six months ended June 30, 2024, as compared with the prior year period, driven by (i) higher earnings in our Collection and Disposal businesses;

(ii) favorable changes in working capital 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.

Net Cash Used in Investing Activities — The most significant items included in our investing cash flows for the six months ended June 30, 2024 and 2023 are summarized below:

● Capital Expenditures — We used $1,335 million and $1,180 million for capital expenditures during the six months ended June 30, 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 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):

● Acquisitions — Our spending on acquisitions was $250 million and $118 million during the six months ended June 30, 2024 and 2023, respectively, of which $243 million and $118 million, respectively, are considered cash used in investing activities.

The remaining spend is cash used in financing activity related to the timing of contingent consideration paid.

Substantially all of these acquisitions are related to our solid waste and recycling businesses.

● Other, Net — During the six months ended June 30, 2024, we repurchased $778 million in certain WM tax-exempt bonds as discussed further in Note 1 to Condensed Consolidated Financial Statements.

The remaining 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 six months ended June 30, 2024 and 2023, we used $61 million and $76 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 six months ended June 30, 2024 and 2023 are summarized below:

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

Commercial paper

Tax-exempt bonds

Commercial paper

Net cash borrowings (repayments)

Tax-exempt bonds

Net cash borrowings

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 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.

● Common Stock Repurchase Program — During the six months ended June 30, 2024 and 2023, we used $262 and $620 million, respectively, to repurchase shares of our common stock under accelerated share repurchase agreements and open market transactions.

The decrease in share repurchase activity in 2024 relates to our temporary suspension of share repurchase activity in anticipation of the acquisition of Stericycle.

We expect to resume share repurchases once the Company’s leverage returns to targeted levels, which is currently projected to be about 18 months after the acquisition closes.

See Note 11 to the Condensed Consolidated Financial Statements for additional information about our share repurchase activity.

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

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.

We paid cash dividends of $608 million and $572 million during the six months ended June 30, 2024 and 2023, respectively.

The increase in dividend payments is 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 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:

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

Six Months Ended

Net cash provided by operating activities

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Free cash flow

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

(a) 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.

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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.

O ur 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.

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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.

Inflation moderately declined from the high levels observed during

the first half of 2023;

however, inflation remained above typical levels during the first half 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.

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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.

Information about market risks as of June 30, 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