What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-10-28 compared with 2024-07-25 · 143 added, 159 removed, 294 unchanged (51% of the section changed)

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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, including the planned Stericycle acquisition, or new lines of business;

failure to obtain the results anticipated from strategic initiatives, investments, acquisitions, including the pending 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;

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 pending Stericycle acquisition;

existing or new 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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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;

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failure of technology to perform as expected;

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

failure to prevent, detect and manage 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, 2023, as updated by Part II, Item 1A of this Quarterly Report on Form 10-Q.

negative outcomes of litigation or governmental proceedings, including those acquired through transactions, including the pending Stericycle acquisition;

and operations or management 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, as updated by Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2024.

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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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.

We believe that the pending 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

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.

Consistent with our Company’s long-standing commitment to sustainability and environmental stewardship, we have published our 2024 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.

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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 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.

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

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.

In our WM Renewable Energy segment, while the impacts of fluctuations are not currently material, the impact of fluctuations in the prices of electricity, Renewable Identification Numbers (“RINs”) and Renewable Energy Credits (“RECs”) could be significant as the segment continues to grow.

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;

recessionary fears and/or an economic recession;

size, location, and qualifications of the labor pool;

wage and price structures;

adoption of new or revised regulations;

geopolitical conflicts and responses and supply and demand for commodities.

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.

Variability in economic conditions, including inflation, interest rates, employment trends and supply chain reliability, can create risk and uncertainty in financial outlook.

We 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.

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 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.

During the third 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 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:

During the third quarter of 2024, we allocated $781 million of available cash to capital expenditures and $301 million to our shareholders through dividends.

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

● Revenues of $5,609 million, compared with $5,198 million in the prior year period, an increase of $411 million, or 7.9%.

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;

The increase is primarily attributable to higher yield in our Collection and Disposal businesses and an increase in market value for recycled commodities;

● Operating expenses of $3,399 million, or 60.6% of revenues, compared with $3,188 million, or 61.3% of revenues, in the prior year period.

The $211 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.

(ii) annual employee wage increases and higher incentive compensation;

(iii) our recent acquisition of a solid waste and recycling company in New York;

(iv) an increase in landfill operating costs largely due to wet weather driving leachate costs higher;

(v) an increase in volumes in our Strategic Business Solutions (“WMSBS”) business, which increases our subcontractor costs, and (vi) 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 second quarter of 2023;

● Selling, general and administrative expenses were $525 million, or 9.4% of revenues, compared with $470 million, or 9.0% of revenues, in the prior year period.

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;

The $55 million increase is primarily attributable to (i) increased labor costs from higher annual and long-term incentive compensation costs and annual wage increases and (ii) increased professional fees to support strategic initiatives, including our pending acquisition of Stericycle.

We focus on optimizing our costs and managing discretionary spending in order to drive continuous improvement in these costs as a percentage of revenue.

The increase in this measure in the current quarter is entirely attributable to transaction and advisory costs incurred to support the pending acquisition of Stericycle;

● Income from operations was $1,119 million, or 20.0% of revenues, compared with $1,021 million, or 19.6% of revenues, in the prior year period.

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;

The increase in the current year earnings was primarily driven by revenue growth and improved business performance in our Collection and Disposal businesses;

● Net cash provided by operating activities was $1,358 million compared with $1,263 million in the prior year period, with the increase driven by higher earnings in our Collection and Disposal businesses, which were partially offset by (i) unfavorable changes in working capital and (ii) higher cash interest payments;

● Free cash flow was $618 million compared with $612 million in the prior year period.

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 was relatively flat on a year-over-year basis despite the significant increase in net cash provided by operating activities discussed above due to higher capital expenditures in the current year.

The increase in capital expenditures was planned and is to support the growth of our business.

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

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

Three Months Ended June 30:

Three Months Ended September 30:

Other collection

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Corporate and Other

Six Months Ended June 30:

Nine Months Ended September 30:

Other collection

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Three Months Ended

June 30, 2024 vs.

September 30, 2024 vs.

Period-to-Period Change for the

Six Months Ended

June 30, 2024 vs.

Nine Months Ended

September 30, 2024 vs.

Collection and Disposal

Recycling Processing and Sales and WM Renewable Energy (c)

Energy surcharge and mandated fees (d)

Total average yield (e)

Energy surcharge and mandated fees

Total average yield (d)

Internal revenue growth

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(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.

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

(e) 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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Three Months Ended

Six Months Ended

June 30, 2024 vs.

Nine Months Ended

September 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.

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.

Average yield growth in our collection line of business was 5.1% and 5.6% for the three and nine months ended September 30, 2024, respectively.

We are also continuing to see growth in our disposal business with average yield in our municipal solid waste business of 3.1% and 3.2% for the three and nine months ended September 30, 2024, respectively.

Recycling Processing and Sales and WM Renewable Energy — Recycling Processing and Sales revenues attributable to yield increased $102 million and $219 million for the three and nine months ended September 30, 2024, as compared with prior year periods.

Average market prices for single-stream recycled commodities increased approximately 75% and nearly 65% for the three and nine months ended September 30, 2024, respectively, as compared with the prior year periods.

Yield from the WM Renewable Energy segment increased $6 million and $17 million for the three and nine months ended September 30, 2024, respectively, as compared with the prior year periods, primarily driven by increases in 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 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.

Energy Surcharge and Mandated Fees — These fees, which include our energy surcharge program and other mandated fees, decreased $19 million and $55 million for the three and nine months ended September 30, 2024, respectively, as compared with the prior year periods.

Our energy surcharge incorporates market prices for both diesel and CNG.

The decrease in energy surcharge revenues is primarily due to a decline of nearly 15% and nearly 10% in market prices for diesel fuel for the three and nine months ended September 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 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.

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

Our revenues from volume (excluding volumes from acquisitions and divestitures) increased $70 million and $75 million for the three and nine months ended September 30, 2024, respectively, as compared with the prior year periods.

Volume increases have been generated by our WMSBS business due to our continued focus on a differentiated service model for national accounts customers, special waste and municipal solid waste tons at our landfills, an increase in recycling activity, and our commercial collection business.

These increases were partially offset by a decline in our industrial and residential collection volumes.

Furthermore, our construction and demolition landfill volumes for the nine months ended September 30, 2024, declined as compared to prior year due to clean-up efforts in our East Tier from Hurricane Ian in the prior year.

Operating Expenses

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Labor and related benefits

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Risk management

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 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.

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 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.

Labor and Related Benefits — We have been driving optimization in these costs through technology that drives route optimization, improved driver retention, and efficiency.

The increase in labor and related benefits costs for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 was primarily driven by (i) annual employee wage increases and higher incentive compensation;

(ii) our recent acquisition of a solid waste and recycling company in New York, and (iii) higher employee benefits costs.

For the first six months of 2024, labor and related benefit costs decreased as compared to the prior year periods because of efficiency gains and improved driver retention.

While these productivity and operational efficiency gains continued to provide benefits in the third quarter, they were more than offset by the increases described above.

Transfer and Disposal Costs — The increase in transfer and disposal costs was primarily due to (i) inflationary cost increases, which includes increased disposal fees at third-party sites and higher rates from our third-party haulers and (ii) our recent acquisition of a solid waste and recycling company in New York.

These cost increases were offset, in part, by decreases in industrial and residential collection volumes.

Maintenance and Repairs — The increase in maintenance and repairs costs was primarily driven by (i) inflationary and acquisition related cost increases for parts, supplies and third-party services, although the impact of inflationary cost increases has moderated from the high levels observed during the first half of 2023 and (ii) annual wage increases and higher technician headcount.

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.

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 although this

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;

Cost of Goods Sold — The increase in cost of goods sold was primarily driven by an approximate 75% and 65% increase in single-stream recycling commodity prices for the three and nine months ended September 30, 2024, respectively, as compared to the prior year periods.

Fuel — The decrease in fuel costs was primarily due to a decrease of nearly 15% and nearly 10% in market prices for diesel fuel during the three and nine months ended September 30, 2024, respectively, as compared to the prior year 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.

(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.

Risk Management — Risk management costs increased primarily due to higher auto and workers compensation claims costs and increases in premiums for property coverage.

Additionally, for the nine months ended September 30, 2024, costs increased due to adjustments to our reserves for certain large loss claims offset, in part, by current year insurance recoveries for property claims associated with a hurricane in 2023.

Selling, General and Administrative Expenses

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Labor and related benefits

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Provision for bad debts

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.

Selling, general and administrative expenses increased for the three and nine months ended September 30, 2024 primarily due to (i) increased labor costs from higher annual and long-term incentive compensation costs, and annual wage increases and (ii) increased professional fees to support strategic initiatives, including our pending acquisition of Stericycle.

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 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 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

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

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 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.

The increase in depreciation of tangible property and equipment for the three and nine months ended September 30, 2024 as compared to prior year periods was primarily driven by accelerated investments in capital assets such as trucks, digital assets, and upgraded facilities and equipment.

The increase in depletion of landfill airspace for the three and nine months ended September 30, 2024 as compared to the prior year period, was driven by changes in amortization rates from revisions in landfill estimates and volume increases, partially offset by the closure of a 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 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.

(Gain) loss from divestitures, asset impairments and unusual items, net for the three months ended September 30, 2024 primarily relates to a $14 million loss associated with the divestiture of a minority investment in a medical waste company within Corporate and Other, in connection with our pending acquisition of Stericycle.

The nine months ended September 30, 2024 include 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 recorded during the second quarter of 2024.

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.

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

Income from Operations

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Period-to-Period

September 30,

Period-to-Period

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*Percentage change does not provide a meaningful comparison.

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.

The significant items affecting income from operations for our segments during the three and nine months ended September 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 (i) our focus on price increases that keep pace with inflationary cost pressures in our business alongside intentional efforts to improve efficiency and operating costs incurred to serve our customers;

(ii) gains on the sale of non-strategic assets and (iii) higher landfill volumes generated from special waste and municipal solid waste as well as an increase in volumes from our WMSBS business.

These increases were partially offset by (i) a decline in revenue from industrial volumes;

(ii) increased depreciation expenses with relation to our fleet, machinery and equipment as well as higher depletion costs at our landfills and (iii) an increase in landfill operating costs .

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

(ii) a gain on sale of a non-strategic asset in the second quarter of 2024 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.

● WM Renewable Energy — The increase in income from operations in WM Renewable Energy was primarily driven by increased revenue due to (i) higher RIN quantities and market values and (ii) increased beneficial use of landfill gas due to the completion of additional projects.

● Corporate and Other — The decrease in income from operations was primarily driven by (i) 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 recorded during the second quarter of 2024;

(ii) higher annual and long-term incentive compensation costs;

(iii) increased professional fees to support strategic initiatives, including our pending acquisition of Stericycle;

(iv) an increase in risk management costs due to an adjustment to our reserves for auto and workers compensation claims and increases in premiums for property coverage and (v) a loss arising from the divestiture of a minority-owned medical waste investment.

Interest Expense , Net

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.

Our interest expense, net was $131 million and $397 million for the three and nine months ended September 30, 2024, respectively, compared to $127 million and $372 million for the three and nine months ended September 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 20 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.

We recognized equity method investment income of $1 million and $4 million during the three and nine months ended September 30, 2024, respectively, compared to losses of $18 million and $41 million for the three and nine months ended September 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.

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Income Tax Expense

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.

Our income tax expense was $235 million and $611 million for the three and nine months ended September 30, 2024, respectively, compared to $210 million and $570 million for the three and nine months ended September 30, 2023, respectively.

Our effective income tax rate was 23.6% and 22.2% for the three and nine months ended September 30, 2024, respectively, compared to 24.1% and 24.0% for the three and nine months ended September 30, 2023, respectively.

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

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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.

legislative intent of the statute with respect to the investment tax credit.

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

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

Total restricted funds and other (b)

Total restricted funds and other (a)

Current portion

Long-term portion

(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) $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.

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

Debt — As of September 30, 2024, we had approximately $1.9 billion of debt maturing within the next 12 months, including (i) $1.2 billion of tax exempt bonds with term interest rate periods that expire within the next 12 months, which is prior to their scheduled maturities;

(ii) $422 million of 3.125% senior notes that mature in March 2025 and (iii) $254 million of other debt with scheduled maturities within the next 12 months, including $110 million of tax-exempt bonds.

As of September 30, 2024, we have classified $1.2 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”).

The remaining $676 million of debt maturing in the next 12 months is classified as current obligations.

During the nine months ended September 30, 2024, WMI issued $750 million of 4.950% senior notes due 2027 and $750 million of 4.950% senior notes due 2031, the net proceeds of which were $1.5 billion.

The net proceeds were used primarily to reduce outstanding borrowings under our commercial paper program.

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,

Balance Sheet Information:

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Other noncurrent liabilities

Six Months Ended

June 30, 2024

Nine Months Ended

September 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 six months ended June 30 (in millions):

The following is a summary of our cash flows for the nine months ended September 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 $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;

Net Cash Provided by Operating Activities — Our operating cash flows increased by $542 million for the nine months ended September 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 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.

● 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.

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

● Capital Expenditures — We used $2,116 million and $1,853 million for capital expenditures during the nine months ended September 30, 2024 and 2023, respectively.

The increase in capital spending is primarily driven by (i) our planned and ongoing investments in our Recycling Processing and Sales and WM Renewable Energy segments and (ii) an increase in truck spending in the current year due to supply chain constraints on truck deliveries in the prior year.

● Acquisitions — Our spending on acquisitions was $790 million and $139 million during the nine months ended September 30, 2024 and 2023, respectively, of which $782 million and $139 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):

● 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, 2024 and 2023, we used $38 million and $71 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 nine months ended September 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 nine months ended September 30 (in millions):

Commercial paper

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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 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.

● Common Stock Repurchase Program — During the nine months ended September 30, 2024 and 2023, we used $262 and $990 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.

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

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

We paid cash dividends of $909 million and $855 million during the nine months ended September 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.

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Net cash provided by operating activities

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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 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 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.

Variability in economic conditions, including inflation, interest rates, employment trends, and supply chain reliability, can create risk and uncertainty in financial outlook.

We 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 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.

Information about market risks as of September 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