Waste Management Q1 2025 Earnings Call Transcript

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April 29, 2025
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Operator

Good day, and thank you for standing by. Welcome to the WM First Quarter Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please note that today's conference is being recorded.

Operator

I will now hand the conference over to your first speaker today, Ed Eggel, Vice President of Investor Relations. Please go ahead.

Edward Egl
Edward Egl
Vice President of Investor Relations at Waste Management

Thank you, Olivia. Good morning, everyone, and thank you for joining us for our first quarter twenty twenty five earnings conference call. With me this morning are Jim Fish, President and Chief Executive Officer John Morris, Executive Vice President and Chief Operating Officer and Devina Rankin, Executive Vice President and Chief Financial Officer. You'll hear prepared comments from each of them today. Jim will cover high level financials and provide a strategic update, John will cover an operating overview, and Devina will cover the details of the financials.

Edward Egl
Edward Egl
Vice President of Investor Relations at Waste Management

Before we get started, please note that we filed a form eight k that includes the earnings press release and is available on our website at www.wm.com. The Form eight ks, the press release, and the schedules of the press release include important information. During the call, you will hear forward looking statements, which are based on current expectations, projections or opinions about future periods. All forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties are discussed in today's press release and in our filings with the SEC, including our most recent Form 10 ks and Form 10 Qs.

Edward Egl
Edward Egl
Vice President of Investor Relations at Waste Management

John will discuss our results in the areas of yield and volume, which unless stated otherwise, are more specifically references to internal revenue growth or IRG from yield or volume. During the call, Jim, John and Devina will discuss operating EBITDA, which is income from operations before depreciation and amortization. References to WM legacy business are total WM results excluding the WM Healthcare Solutions segment. Any comparison, unless otherwise stated, will be with the prior year period. Net income, EPS, income from operations and margin, operating EBITDA and margin, operating expense and margin, and SG and A expense margin have been adjusted to enhance comparability by excluding certain items that management believes do not reflect our fundamental business performance or results of operations.

Edward Egl
Edward Egl
Vice President of Investor Relations at Waste Management

These adjusted measures, in addition to free cash flow, are non GAAP measures. Please refer to the earnings press release and tables, which can be found on the company's website at www.wm.com, for reconciliations to the most comparable GAAP measures and additional information about our use of non GAAP measures. This call is being recorded and will be available twenty four hours a day beginning approximately 1PM Eastern Time today. To hear a replay of the call, access the WM website at www.investors.wm.com. Time sensitive information provided during today's call, which is occurring on 04/29/2025, may no longer be accurate at the time of a replay.

Edward Egl
Edward Egl
Vice President of Investor Relations at Waste Management

Any redistribution, retransmission, or rebroadcast of this call in any form without the expressed written consent of WM is prohibited. Now I'll turn the call over to WM's President and CEO, Jim Fish.

James Fish
James Fish
President and Chief Executive Officer at Waste Management

Okay. Thanks, Ed, and thank you all for joining us. The WM team again delivered quarterly results that exceeded our expectations. The one thing I'm most proud of over the past few years is that we've truly become a predictably strong performer on a quarter in and quarter out basis. So once again, I'm pleased to report that we had a strong start to the year with first quarter results exceeding our expectations on several fronts.

James Fish
James Fish
President and Chief Executive Officer at Waste Management

Total company operating EBITDA grew by more than 12% in the first quarter compared to the first quarter of twenty twenty four, driven by solid operational performance in the collection and disposal business, meaningful contributions from WM Health Care Solutions, and increases in our sustainability businesses, largely related to our growth investments. Our momentum so far, as well as our demonstrated operational execution and the strength and resiliency of our business model, gives us confidence in our ability to achieve all of our financial guidance we outlined last quarter. Our focus remains on growing customer lifetime value while leveraging technology to optimize our cost structure, delivering on our strategic investments in sustainability and extracting increased value from our acquisition investments. At a time when The US workforce is aging and shrinking, moving quickly to deploy technology to supplement our workforce could prove to be a significant differentiator for WM. At the same time, the leadership position we've taken with our very profitable sustainability investments is positioning the WM brand to be synonymous with sustainability and is not easily matched by our competitors.

James Fish
James Fish
President and Chief Executive Officer at Waste Management

Of course, we continue to identify opportunities to scale the core business through acquisitions. We have a very robust pipeline of tuck in opportunities and anticipate another outsized year of solid waste M and A. Turning to our sustainability businesses. In Q1, combined operating EBITDA from recycling and renewable energy grew by over 20% year over year, keeping us on track to meet full year targets. Automated recycling facilities delivered nearly double the operating EBITDA margin compared to our non automated facilities.

James Fish
James Fish
President and Chief Executive Officer at Waste Management

We added two new facilities in California and Texas with seven more next gen recycling plans scheduled to come in 2025. In renewable energy, growth was fueled by new RNG plants we brought online in late twenty twenty four and strong pricing for natural gas and renewable electricity. We're currently advancing construction on eight additional RNG facilities that are all on track for completion this year. The strategy is working as our investments in sustainability are delivering strong, high return growth. During the first quarter, we also made significant progress in our integration of WM HealthCare Solutions into the broader WM organization.

James Fish
James Fish
President and Chief Executive Officer at Waste Management

Our new customers are excited by the expanded level of environmental expertise that WM brings to their organizations, including an industry leading reporting and analytics platform and an unmatched asset network that will help health care industry customers manage and track their waste streams more efficiently. We continue to focus on identifying and capturing synergies and are on track to achieve $250,000,000 of annual run rate synergies in 2027. We're very pleased with the progress we've made in a short period of time and are excited about the long term value we're creating. In closing, I want to thank our employees for their dedication and hard work. Your efforts drive our success, and we're grateful for your commitment.

James Fish
James Fish
President and Chief Executive Officer at Waste Management

Looking ahead, I'm excited about the opportunity to share more about our strategic priorities and long term vision at our upcoming Investor Day in June. We hope you'll join us in New York or tune in to the event via the webcast. I'll now turn the call over to John to discuss our operational results.

John Morris
John Morris
Executive VP & COO at Waste Management

Thanks Jim, and good morning. The first quarter further demonstrates the consistent progress being made in our core collection and disposal business. Through our focus on customer lifetime value and optimization of our cost to serve, we again grew both operating EBITDA and margins in the quarter. First quarter operating EBITDA for the collection and disposal business was up almost 5% and margin expanded 10 basis points. We achieved this growth in what we knew would be the most challenging quarter from a comparison standpoint.

John Morris
John Morris
Executive VP & COO at Waste Management

This success is particularly impressive when you consider the impacts of tough winter weather in our Southeast And Gulf Coast regions during the quarter and the expiration of the alternative fuel tax credits. Revenue has once again grown across all lines of business, driven by collection and disposal yield of 4% and core price of 6.5%, with churn remaining stable at around 9%. We continue to achieve solid pricing across all of our revenue streams. Commercial collection, transfer stations and landfill core price were particularly strong in the quarter, as we continue to leverage data driven decision making to offer pricing that reflects the value of our service, the strength of our asset network and our commitment to providing differentiated customer solutions. Regarding volumes, our first quarter collection and disposal results were flat on a workday adjusted basis.

John Morris
John Morris
Executive VP & COO at Waste Management

Positive landfill and commercial collection volumes were offset by our strategic exit from low margin residential business, as well as continued economic pressure on the temporary segment of our industrial business. While the California wildfire cleanup positively impacted our special waste volumes in Q1, these gains were largely offset by impacts of winter weather events I mentioned earlier. Overall, we remain confident in our volume outlook for 2025 because our special waste pipelines remain strong, service intervals remain positive, and we expect fire volumes in Southern California to continue through at least the end of the third quarter. Turning to operating costs and margin, Q1 marked our sixth consecutive quarter with operating expenses as a percentage of revenue below 61%. We delivered operating expenses at 60.5% of revenue, which is a 40 basis point improvement from Q1 of twenty twenty four.

John Morris
John Morris
Executive VP & COO at Waste Management

Our commitment to the operating fundamentals of the WMA continues to drive margin improvement. The first quarter's performance was driven by focusing on frontline retention and the use of automation and technology to drive efficiency and operating improvements. The investments we have made in our people, including human centered leadership, coaching and facility upgrades, continue to deliver improved driver retention, with Q1 seeing an 80 basis point improvement compared to the prior year period. When retention improves, it benefits safety, customer service, and efficiency. We also continue to create an optimized cost to serve with the ongoing adoption of automation and technology, including routing and resource planning tools.

John Morris
John Morris
Executive VP & COO at Waste Management

Cost optimization focuses combined with targeted contract renegotiations and the intentional shedding of low margin customers in the residential line of business continue to deliver strong results. This is evident in our first quarter operating EBITDA margin in the residential line of business, which grew more than 130 basis points, achieving 20% for the first time in six years. We remain confident in our ability to execute our plans and achieve our full year targets, including operating EBITDA of between 7,450,000,000 and $7,650,000,000 In closing, I would like to extend my sincere gratitude to our employees for their unwavering dedication over the last quarter. Their hard work and commitment to excellence have been instrumental in our success. I'll now turn the call over to Davina to discuss our 2025 financial results in further detail.

Devina Rankin
Devina Rankin
Executive VP & CFO at Waste Management

Thanks, John, and good morning. We're pleased with our strong start to 2025, which is particularly evident when looking at the drivers of our first quarter operating EBITDA margin results. WM's legacy business achieved 30% margin for the fourth consecutive quarter. This is an increase of 40 basis points compared to the first quarter of twenty twenty four, and the improvement was driven by a 50 basis point contribution from favorable price to cost spread in the collection and disposal business, which is due to our success in optimizing and flexing our cost structure. We also saw a positive 20 basis point contribution from our recycling automation projects.

Devina Rankin
Devina Rankin
Executive VP & CFO at Waste Management

These margin expansion contributions were partially offset by a 30 basis point headwind from the expiration of alternative fuel tax credits that benefited the prior year period. Total company margin was 28.5% in the quarter due to the 150 basis point impact of the addition of the WM Healthcare Solutions business. With our focus on optimizing this business, including through synergy capture, we've expanded the margin of WM Healthcare Solutions by 20 basis points in only one quarter's time. There is a clear path to additional cost optimization, and we are on track to achieve our full year expectations. As Jim mentioned, we're pleased with the progress we have already made as we begin to integrate and optimize the medical waste and secure information destruction businesses within WM's comprehensive set of offerings.

Devina Rankin
Devina Rankin
Executive VP & CFO at Waste Management

As in other parts of our business, we're committed to using technology to make processes and people more efficient. We've got a cross functional team engaged to optimize the ERP system as a tool to improve all elements of the customer journey, from onboarding to service delivery, and then from billing to cash collection. The team is off to a great start and we're encouraged by their early progress. Turning to cash flow results. Operating cash flow was $1,210,000,000 in the first quarter.

Devina Rankin
Devina Rankin
Executive VP & CFO at Waste Management

This is a decrease compared to the first quarter of twenty twenty four, but it is in line with expectations as we had a planned increase in cash interest payments due to additional debt issued last year to fund the acquisition of Stericycle. We also had a headwind from working capital due in part to particularly strong customer receipts at the end of twenty twenty four. We remain confident in our outlook for cash flow from operations for the full year. Capital expenditures totaled $831,000,000 in the quarter, with both capital spending to support the base business and our investments in sustainability growth in line with expectations. Given tariff and trade negotiations, it's worth mentioning that we are particularly well positioned to complete our sustainability growth investments at targeted capital investment levels because we've been deliberate in procuring the equipment needed for these projects ahead of time.

Devina Rankin
Devina Rankin
Executive VP & CFO at Waste Management

We're also well positioned for fleet replacement with first quarter of twenty twenty five being a particularly strong quarter for truck deliveries. First quarter free cash flow of $475,000,000 is also on plan, and we're on track to achieve our full year free cash flow outlook of between $2,675,000,000 and $2,775,000,000 In the first quarter, we returned $336,000,000 to our shareholders through dividends. Share buybacks currently paused as we focus on getting back to targeted level of leverage through a combination of earnings growth and debt reduction. That said, we continue to focus on identifying tuck in acquisitions in our core business, and we currently expect to close on more than $500,000,000 of solid waste acquisitions in 2025. This is a nice step change relative to our typical 100,000,000 to $200,000,000 of tuck in acquisitions each year, showing our continued confidence in identifying attractive transactions at the right price.

Devina Rankin
Devina Rankin
Executive VP & CFO at Waste Management

Our leverage ratio at the end of the quarter was 3.58 times. When considering our earnings outlook, disciplined approach to allocating capital, and the healthy acquisition pipeline I mentioned, we expect leverage will be approximately 3.15 times at the end of twenty twenty five. In closing, I want to extend my sincere thanks to the entire WM team for all of their hard work thus far in 2025. Our continued ability to deliver strong operational and financial performance puts us on track to achieve all of our financial guidance and this is a testament to the team's dedication, focus, and talent. With that, Olivia, let's open the line for questions.

Operator

First question coming from the line of Brian Birchmeier with Citi. Your line is now open.

Bryan Burgmeier
Bryan Burgmeier
Analyst at Citigroup

Good morning, Thank you for taking my questions. And maybe to start a question for Davina. I was wondering if you could shed maybe a little bit more light on your outlook for 2Q. I know you don't normally give kind of quarterly guidance, but just trying to think through, I suppose, the normal seasonality for healthcare, considering that's new business. And then, you have any detail on maybe the quarter over quarter kind of margin improvement for solid waste relative to normal seasonality, that would be helpful.

Devina Rankin
Devina Rankin
Executive VP & CFO at Waste Management

Sure, and great question. So, what I would tell you is there's not anything that we're seeing from a seasonality perspective that is really unusual, with the exception of the impacts of the California wildfires. In terms of what will drive margin expansion, what I mentioned is that the solid waste business contributed 50 basis points of EBITDA margin expansion in the quarter. And when you consider that that's overcoming 30 basis points from the alternative fuel tax credits, you're looking at an 80 basis point year over year expansion in margins for traditional solid waste businesses. You combine that with the strong execution on recycling automation of another 20 basis points, and that shows you 100 basis points of margin expansion from the base business.

Devina Rankin
Devina Rankin
Executive VP & CFO at Waste Management

When we look forward to Q2, we're really optimistic that we'll see another step change in margin on a year over year basis and normal seasonal uptick in the operating margins of the business. When I think about the Healthcare Solutions business particularly, it's not so much seasonality in the revenue outlook that we're looking at. It really is continued momentum in synergy capture and the realization of incremental value from optimizing the cost structure of that business that will start to accelerate as we approach the second quarter. We think that Q3 will be our strongest quarter from a margin perspective, and that really will show momentum behind the traditional business combined with value capture running at more peak levels for full realization over the course of the year of that 85,000,000 to $90,000,000 in total synergies for the Stericycle business in 2025.

Bryan Burgmeier
Bryan Burgmeier
Analyst at Citigroup

Got it. Got it. Thank you for that detail. And then maybe a question for John. You're just curious how kind of yield in the solid waste business in 1Q compared to your expectations.

Bryan Burgmeier
Bryan Burgmeier
Analyst at Citigroup

It just seems like the spread maybe between core price and yield is widening a little bit. So if you can shed any light on kind of what's taking place there, maybe it's kind of just a function of like mix or region, but any detail you had would be great. Thank you. I'll turn it over.

John Morris
John Morris
Executive VP & COO at Waste Management

Yeah, Brian, think it dropped out 400 basis points in the quarter. But what I would tell you, what I would point to is that if you look at our core price performance, it was really strong across all lines of business and it translated to margin expansion. There were some anomalies in there on the yield conversion. I mentioned some of the California wildfire volume, is hitting special waste, which runs all through volume. And there was a little bit of pressure from some of the industrial business that was a little softer in the quarter, but what I will tell you is even though that trend was negative, it was better quarter over quarter, so we're seeing some sequential improvement, that's part of why we feel confident to me and made some comments about how we feel going into Q2.

John Morris
John Morris
Executive VP & COO at Waste Management

So, the yield conversion, it's one data point, but I think margin and core price performance is really where we're focused.

Operator

Thank you. And our next question coming from the line of Kevin Chiang with CIBC. Your line is now open.

Kevin Chiang
Director - Institutional Equity Research at CIBC World Markets

Hi, good morning. Thanks for taking my question. Maybe I'll ask a yield question as well. I did notice, I guess, year over year increase in your commercial yield was effectively flat from the growth rate you saw in the fourth quarter. Resi though was down about resi and industrial were down a little bit, maybe 100 basis 150 basis points sequentially from the Q4.

Kevin Chiang
Director - Institutional Equity Research at CIBC World Markets

Just wondering if you could call out anything specific in the commercial pricing strategy that yielded relatively better performance on a sequential basis?

Devina Rankin
Devina Rankin
Executive VP & CFO at Waste Management

So what I'd point out, I would say that our pricing strategy is strong across all three of those lines of business. It really is a mix difference that John was mentioning that has led to some of the variability, and that's about unit differences, particularly in the industrial business, as we've seen some variability in temporary roll off. And we see that as being largely weather related. You know, when we think about 2024 and the trends we were seeing, we were seeing some softness in industrial halls in 2024, but had some enthusiasm about the fact that we had cycled through the worst of those trends and we're looking for some moderation in those levels in the current year. When we look at March and April in particular, we're happy to say that those trends are proving to be more consistent with our expectations coming into the year.

Devina Rankin
Devina Rankin
Executive VP & CFO at Waste Management

And the extreme winter weather that we saw in February in particular, is something that had more of an outsized impact on Q1, but we're moving past that. And then, the other thing that I would mention on commercial conversion of core price to yield that was particularly interesting for us, and it did have some impact on industrial as well, is some unexpected losses from large national accounts customers that experienced bankruptcies and therefore some store closures that we hadn't anticipated in our guidance.

Kevin Chiang
Director - Institutional Equity Research at CIBC World Markets

Okay, that's super helpful. Maybe just my second question, it looks like Health Terra Stericycle revenue was down year over year and I know you don't adjust everything the same way Stericycle did, but maybe you can just speak to the volume and pricing trends you saw in the quarter versus last year, appreciating that you didn't own the business there. And was there any purposeful shedding as you look to improve the revenue quality within Stericycle or improve the overall margin performance within that the healthcare business?

Rafael Carrasco
Rafael Carrasco
Senior VP, Enterprise Strategy & President at Waste Management

Certainly, Brian. This is Rafael. I'll take that one. I just want to remind the group that over the course of the quarter, we did shed our Spain and Portugal businesses and that actually accounts for the majority of the draw on the revenue basis. Actually the revenue story is not a bad one for us.

Rafael Carrasco
Rafael Carrasco
Senior VP, Enterprise Strategy & President at Waste Management

Actually the regulated medical waste business is actually slightly up. We're actually ahead about 1% in regulated medical waste stops, for example. The churn in the national and hospital channels is actually right at 3% consistent with what it's been. Despite some of the ERP challenges that Devine actually referenced, we're making good headway in putting forward the plan to resolve, we haven't seen an uptick there. So we feel pretty confident on the revenue side.

Rafael Carrasco
Rafael Carrasco
Senior VP, Enterprise Strategy & President at Waste Management

On the Secure Information Destruction side, we did see a little bit of a dip there, but again, on the fact that it's not structural. It really had to do with a little weakness on the event work, what we call the purges there. And we've got a good plan to kind of connect our sales and operating folks a little bit better there to perform better on time on that and recapture those volumes.

Kevin Chiang
Director - Institutional Equity Research at CIBC World Markets

That's great color. I appreciate it. I'll get back into the queue. Thank you very much.

Operator

Thank you. Our next question coming from the line of Tyler Brown with Raymond James. Your line is now open.

Tyler Brown
Tyler Brown
Financial Advisor at Raymond James Financial

Hey, good morning.

Devina Rankin
Devina Rankin
Executive VP & CFO at Waste Management

Good morning, Tyler.

Tyler Brown
Tyler Brown
Financial Advisor at Raymond James Financial

Hey, Rafa, just on that, how much synergy capture was in the 95,000,000 of reported EBITDA in q one? And I know this is splitting hairs, but I think you guys said the updated synergies are 80 to a hundred from up to a hundred. Are you messaging anything with that?

Rafael Carrasco
Rafael Carrasco
Senior VP, Enterprise Strategy & President at Waste Management

Not really. Look, we really are feeling very comfortable with achieving that midpoint of the range right now. We produced about 16,000,000 in value capture in Q1, dropping straight into the P and L. That's going to, of course, continue to generate benefits. And I'll tell you, a lot of that came from our first execution on rationalization of SG and A for us, particularly on the sales coverage side.

Rafael Carrasco
Rafael Carrasco
Senior VP, Enterprise Strategy & President at Waste Management

I can tell you that the reason for the confidence on delivering is that if we just execute on a little bit more of the planned sales coverage optimization there and we execute on our internalization goals, which by the way contributed very little in Q1, that's probably or not probably, that's definitely because we are waiting for contracts to expire, we have to put in line equipment and so forth, that's going to start paying dividends towards the latter part of Q2 and on through the back half of the year. We feel very comfortable with achieving the guidance.

Devina Rankin
Devina Rankin
Executive VP & CFO at Waste Management

Okay. And then Tyler, just really quickly, what I would tell you is we wanted to be clear with the investor community that our targeted execution on value capture for the year is $90,000,000. And so our midpoint of a range is always our best estimate of the outcome. And so approaching $100,000,000, we felt like, was a little more vague than what would be beneficial. So we wanted to give you clarity that the range is 80 to a hundred.

Devina Rankin
Devina Rankin
Executive VP & CFO at Waste Management

We think 90,000,000 is the most likely outcome.

Tyler Brown
Tyler Brown
Financial Advisor at Raymond James Financial

Okay. Perfect. We love clarity. Devina and I don't know if Tara's in there as well, but I think you guys were expecting, call it, 190,000,000 of incremental EBITDA from R and G and recycling. This is my view.

Tyler Brown
Tyler Brown
Financial Advisor at Raymond James Financial

Does it feel like maybe that's a little bit behind schedule in Q1? So I guess a couple of questions. One, are you still confident in that number? Maybe my read is wrong. And two, I think you addressed this upfront, but at this point, you don't expect any RNG CapEx related delays or increased spend due to tariffs.

Tyler Brown
Tyler Brown
Financial Advisor at Raymond James Financial

Would that be correct?

Tara Hemmer
Tara Hemmer
Senior VP & Chief Sustainability Officer at Waste Management

Yes. So I am in the room, Tyler. I'll take the back half first. We are very confident because we had most of our equipment delivered well in advance of even any of these tariff discussions happening. So, no impacts related to project schedules related to tariffs or related to capital costs.

Tara Hemmer
Tara Hemmer
Senior VP & Chief Sustainability Officer at Waste Management

Related to your question about the performance of the business, we are performing according to plan. If you look at the recycling line of business, it contributed about $11,000,000 in EBITDA performance from those growth projects. And that was the majority of the benefits that we saw in recycling. And we're delivering on what we said we would deliver 30% improvement in labor, 20 plus percent improvement on operating costs and just having visited our Baltimore recycling plant. I mean, these are transformative assets that are delivering volume improvements to communities that need it.

Tara Hemmer
Tara Hemmer
Senior VP & Chief Sustainability Officer at Waste Management

On the RNG side, we brought a lot of plants on at the back half of '20 '20 '4. So, what you're seeing in our results is some improved performance related to pricing. Also, a lot of volume coming online and some of that was offset by some operating costs in start up that was planned.

Tyler Brown
Tyler Brown
Financial Advisor at Raymond James Financial

Okay. Okay. So it sounds like it's it's largely tracking.

Tara Hemmer
Tara Hemmer
Senior VP & Chief Sustainability Officer at Waste Management

Yeah.

Tyler Brown
Tyler Brown
Financial Advisor at Raymond James Financial

Real quick. Yeah. Okay. Perfect. And then, Devin, just real quick.

Tyler Brown
Tyler Brown
Financial Advisor at Raymond James Financial

The 30 basis point drag in CNG, that's gonna be every quarter of the year based on what we know today. Is that right?

Devina Rankin
Devina Rankin
Executive VP & CFO at Waste Management

That's correct. And 30 basis points for the full year was included in our guidance for EBITDA margin for 2025.

Tyler Brown
Tyler Brown
Financial Advisor at Raymond James Financial

Yes. Okay. All right. Thank you for the clarification. Thank you, guys.

Operator

Thank you. Thank you. And our next question coming from the line of Trevor Romeo with William Blair. Your line is now open.

Trevor Romeo
Research Analyst at William Blair

Hi, good morning. Appreciate you taking the questions. One, had on M and A, I guess, if I heard you right, Devine, it sounds like you're now expecting $500,000,000 or so of solid waste acquisitions, which is up from last quarter. So one, I guess, is the full $500,000,000 included in your guidance now? And then two, we just love kind of a qualitative update on what kind of opportunities you're seeing?

Trevor Romeo
Research Analyst at William Blair

And are you finding in this type of environment with you know, some additional economic uncertainties there? Is there more willingness to sell from some of these smaller companies?

Devina Rankin
Devina Rankin
Executive VP & CFO at Waste Management

Sure. So I'll take the first part of the question, then turn it over to, John in order to, address the second part. What I would tell you is, when we came into 2025, a lot of this pipeline had developed, but we were in DOJ review processes. We were in contract negotiation processes, and so the pipeline was available to us, but we didn't have it fully. Path to close wasn't as clear to us as it is today, and so we're really happy with the progression of the transactions that we have in our pipeline, and with the benefit of where those things stand, able to say that those transactions are in the upside of our guidance relative to midpoint, and we had contemplated those, and they stand today.

Devina Rankin
Devina Rankin
Executive VP & CFO at Waste Management

What I would say is incremental tuck in acquisition revenue, depending on the timing of close, could now be in the ballpark of 80,000,000 to $125,000,000 and that's up from about $35,000,000 to $80,000,000 in our original guidance and midpoint.

John Morris
John Morris
Executive VP & COO at Waste Management

Trevor, I would just add to what Davina said. Think a few things. One, there is certainly some uncertainty out there, and I think the other challenge, as you see, is labor. The cost of labor and scarcity, I think, is certainly something that's pressuring some of the organizations we're looking at. And then lastly, would say, in some of the markets, the value of our network, we talk about that a lot, our ability to move material in and out of markets is becoming more and more prevalent challenging, and I think in some cases, the long term outlook for disposal options is probably pushing some folks to the forefront in terms of now being ready to sell.

John Morris
John Morris
Executive VP & COO at Waste Management

So as Davina said, the pipeline is strong, we did about 800,000,000 last year, and as we said, we've got a good runway between here and the end of the year to close some more of these deals.

Trevor Romeo
Research Analyst at William Blair

Great, that's super helpful, thank you both. And then for my follow-up, maybe one for, another one for Rafa, I guess, on the healthcare solutions business. It's still early, but just wondering if you could share any anecdotes you've had from conversations with customers about sort of the combined value proposition, any early wins or new opportunities? Just we'd kind of love to hear what customers are saying and how that's tracking.

Rafael Carrasco
Rafael Carrasco
Senior VP, Enterprise Strategy & President at Waste Management

Absolutely, Trevor. I actually participated in an entire West Coast swing recently and talked to several of the very large hospital networks there. I think Jim referenced it in his script, but a lot of folks excited about the increased ability to help them in their sustainability journey, about being able to provide sort of that best in class reporting and analytics tool, that platform that's going to help them manage their waste a lot better. Frankly, I've been pleasantly surprised about how patient the customer base is, and that has a lot to do with the fact that it is WM stepping into the shoes as the owner and having the ability to provide that increased level of confidence. I can tell you that a lot of the conversation has also centered around the fixes to the ERP.

Rafael Carrasco
Rafael Carrasco
Senior VP, Enterprise Strategy & President at Waste Management

We've communicated very transparently that this was about analyzing the entire customer journey and having work streams that would facilitate not only the collections and the billing side, but also the delivery of the service. So a lot of excitement there. We've not framed at the moment what the cross sell opportunity looks completely. We're still working on the playbooks and we're waiting to have the right fixes on the ERP. But again, I'll remind the group, if you look at sort of the shared wallet customers that we have right now where we have solid waste that WM had and regulated medical waste or SID services that Stericycle had, that's only about 17% of the total customer book.

Rafael Carrasco
Rafael Carrasco
Senior VP, Enterprise Strategy & President at Waste Management

That doesn't even include customers that neither of us have.

Trevor Romeo
Research Analyst at William Blair

All right. That's great. Thank you very much.

Operator

Thank you. And our next question coming from the line of Sabahat Khan with RBC Capital Markets. Your line is now open.

Sabahat Khan
Sabahat Khan
Managing Director at RBC Capital Markets

Great. Thanks, and good morning. I just wanted to get a bit more color on the residential margins and the journey there. It sounds like it's something you've been working on for a while. If you can just maybe talk about how those discussions are going, how if there's more volume to shed or is it more from a pricing perspective that you want to maybe drive those margins higher?

Sabahat Khan
Sabahat Khan
Managing Director at RBC Capital Markets

Maybe where we are in that journey with the margins there now in and around 20%. Thanks.

John Morris
John Morris
Executive VP & COO at Waste Management

Well, think it's a good question. I think us getting back over 20% for the first time in six years has been a good milestone. I give the team a lot of credit. There's been a lot of work done to do that, both on the revenue quality side and the operating expense side. So I would tell you, I think for '25, we're gonna see probably the same level, give or take, 50 basis points of volume that'll be negative.

John Morris
John Morris
Executive VP & COO at Waste Management

And we've always said we want the residential line of business to compete with the others in terms of margin and return. And while we've made a lot of progress, we still have some work to do there. So I think for 2025 and probably into early twenty twenty six, we're going to see some additional negative volumes. But again, when you're shedding three plus percent volume, revenue and EBITDA are both up, it's still the right path for us to continue down.

Sabahat Khan
Sabahat Khan
Managing Director at RBC Capital Markets

Great. And then just one quick one, think, Davina, you mentioned earlier that some of the larger lifting on the synergies related to the Stericycle side is going to be in and around Q2 and Q3. And if we think about the EBITDA flow through of that business, should we expect that to be the Q2 or Q3 to be the biggest quarter? And then just associated, if you can just talk about some of the initiatives you are planning on undertaking midyear that are going to drive that? Thanks.

Devina Rankin
Devina Rankin
Executive VP & CFO at Waste Management

Sure. So when we think about value capture, it really is a second half of twenty twenty five ramp for us. Some of the actions will start in the second quarter that will bring a lot of that to bear, really beginning in the third quarter. And what I would tell you is it's it's the things that you have heard Rafa talk about, whether it's sales coverage optimization efforts or back office streamlining. Some of as an example, some of what we're doing in the in the back office includes migration of systems so that we have one platform for our human capital and all of those processes.

Devina Rankin
Devina Rankin
Executive VP & CFO at Waste Management

That will unlock some incremental value for us that starts late in the third quarter. So, a lot of it has to do with streamlining our back office processes, and we think that some of the technology steps that we're taking that come in Q3 will really start to create some momentum in long term value capture in the SG and A part. And I'll remind everyone that we started with this business above 24% SG and A in the fourth quarter of twenty twenty four. We got 70 basis points of expansion in that margin sequentially in a single quarter, which is a great result. And we know that there's more to come on our pathway to getting them to 15% at the end of that three year period that we've got targeted for the $250,000,000 of that value capture.

Rafael Carrasco
Rafael Carrasco
Senior VP, Enterprise Strategy & President at Waste Management

Maybe I will add, this is Ralfas, but I'll add one more point. It's not just about value capture in the back end of the year, it's also about process discipline, operational discipline. We also just were able to put online our McCarran incinerator as of the end of Q1. We are now taking in about 70% of our total incinerator waste generation in the West Coast. As you can imagine, that's saving us an enormous amount of transportation for disposal costs.

Rafael Carrasco
Rafael Carrasco
Senior VP, Enterprise Strategy & President at Waste Management

We expect that by the end of the year, we'll be internalizing 100% of that waste. The other aspect of that is the process discipline around fleet management, the reduction of spare ratios. Those were not optimal in Q1, but that's because we were framing and laying down the groundwork to be able to start doing that in Q2 and beyond.

Sabahat Khan
Sabahat Khan
Managing Director at RBC Capital Markets

Great, thanks very much for the color.

Operator

Thank you. Our next question coming from the line of Toni Kaplan with Morgan Stanley. Your line is now open.

Toni Kaplan
Toni Kaplan
Executive Director, Senior Equity Research Analyst at Morgan Stanley

Thank you so much. I want to start out with a broad question, basically looking at the company and how resilient it is versus prior downturns. And so wanted to get your updated thoughts on that overall and also maybe specifically how you would expect the sustainability business as well as the new healthcare business to perform in a potentially slower macro environment. Thanks.

James Fish
James Fish
President and Chief Executive Officer at Waste Management

Great question, Tony. This is Jim. I would tell you, part of the reason we're so happy with the sustainability investments and the healthcare investments is that they do provide a level of diversification that we may not have had as much of with just a solid waste company. And we like the growth trajectory of both. It tends to be viewed as a bit higher than solid waste.

James Fish
James Fish
President and Chief Executive Officer at Waste Management

At the same time, this business, whether it's this company industry, is very resilient to economic downturn. We don't see an economic downturn, and maybe I'll reemphasize a couple of Devina and John's comments about volume for the quarter. We weren't sure how much that we were really impacted in January and February by weather versus are we seeing an economic downturn. And I think the answer to that question came in our volumes for March and April, which turned back up nicely. That led us to believe that that truly was that January, February truly were just two very bad weather months.

James Fish
James Fish
President and Chief Executive Officer at Waste Management

I know the other guys have talked about it on their calls as well. You know, when you get six inches of snow in Houston, Texas, and I've lived in Houston for eighteen years, I've never seen that kind of weather here. It stayed on the ground. I mean, it's not snowing at 32 degrees, it's snowing at 21 degrees. It feels like, you know, more like Denver, Colorado than Houston.

James Fish
James Fish
President and Chief Executive Officer at Waste Management

And then it spread all the way over to Louisiana. So those areas in the South that don't normally anticipate weather shutdowns saw quite a bit of that. So the encouraging part about that was for the quarter was that we saw our volumes turn back up in March and then through the first three weeks of April. I think we are to your question though, I think we're insulated from we're not recession proof as an industry, but we're certainly recession resistant. And again, not that we see a recession on the horizon, but to the extent that something does turn down, I mentioned in my kind of first statement, we seem to meet the expectations that we provide quarter in and quarter out regardless of what the economic climate is or the political climate or what have you.

James Fish
James Fish
President and Chief Executive Officer at Waste Management

So it's part of why this business, this company and this industry have done as well as they have. And there's my sales pitch for the industry.

Toni Kaplan
Toni Kaplan
Executive Director, Senior Equity Research Analyst at Morgan Stanley

Great. And then as a follow-up, I wanted to ask, Davina, you mentioned you're in good shape on the fleet for this year. But maybe how should we think about potential impacts assuming that tariffs are implemented? Just maybe it's more of a 26 CapEx kind of question, but any stats or anything you can provide on cost of fleet and how an impact of higher tariffs might be on your business? Thanks.

John Morris
John Morris
Executive VP & COO at Waste Management

Yeah, Tony, this is John. I think Devina made the comment early on. We're in really good shape from a truck delivery standpoint. We front loaded the schedule and we've got about a third of our trucks already delivered and on the ground. And for the balance of '25, we don't see very little cost pressure there.

John Morris
John Morris
Executive VP & COO at Waste Management

Heavy equipment, same story. We're in pretty good shape through 2025. We've worked with the supply chain group to really put a ring around what we thought that tariff impact could be in its low, low single digits in a few buckets just because we got out in front of it. And as Tara mentioned, most of our recycling and RNG assets are already committed to for 2025. So we're in really good shape for 2025.

John Morris
John Morris
Executive VP & COO at Waste Management

To Jim's point earlier and with DaVinus, if it rolls into 2026, we might have to revisit it. But right now, as we sit here in 2025, we feel good about our position.

Toni Kaplan
Toni Kaplan
Executive Director, Senior Equity Research Analyst at Morgan Stanley

Thank you.

James Fish
James Fish
President and Chief Executive Officer at Waste Management

Single digits you mean like in the millions, not $7

Edward Egl
Edward Egl
Vice President of Investor Relations at Waste Management

Yeah, no, no, no, yeah, yeah, yeah.

Operator

Thank you. Our next question coming from the line of Noah Kaye with Oppenheimer. Your line is now open.

Noah Kaye
Senior Research Analyst at Oppenheimer & Co. Inc.

Thanks for taking the questions folks. Know, hopefully you had a chance to look at the EPA release from yesterday around PFAS. It seemed like the language was pretty conciliatory or even constructive around trying to protect passive receivers and really adhering to polluter pays. Wonder if you had a chance to review that, your thoughts on that and what it may mean for the industry and solid waste landfill.

Tara Hemmer
Tara Hemmer
Senior VP & Chief Sustainability Officer at Waste Management

Our team is still looking at it, Noah. We've been very clear all along that a passive receiver exemption would be positive for the industry and is warranted for a number of different reasons. So, we still believe that PFAS is more broadly an opportunity for WM when you think about special waste and other industrial waste that could come in and we still believe that.

Noah Kaye
Senior Research Analyst at Oppenheimer & Co. Inc.

Thanks. A bit of housekeeping, just want to make sure I got it on that 1Q synergies number for WMHS. Raffi, you said $60,000,000 of value capture. Is that annualized? Are we talking $15,000,000 of synergies capture in the quarter?

Noah Kaye
Senior Research Analyst at Oppenheimer & Co. Inc.

Or can you give me the real number?

Rafael Carrasco
Rafael Carrasco
Senior VP, Enterprise Strategy & President at Waste Management

Those are $16,000,000 of synergy value that's actually dropped into the bottom line in Q1. Does that help?

Noah Kaye
Senior Research Analyst at Oppenheimer & Co. Inc.

Yeah, 16, one-six, right? Okay, great. And then I assume, know, sorted office paper prices being down modestly impacted the secure information structure line. Maybe you can confirm or qualify that, but then just talk to us about the game plan for, reducing commodity exposure or really raising the baseline for profitability on that side? Obviously, it's something this company has a lot of experience with.

Rafael Carrasco
Rafael Carrasco
Senior VP, Enterprise Strategy & President at Waste Management

Yeah, absolutely, Noah. So what I can tell you is yes, there was an impact on the commodity side. A little bit of an impact, as I referred to earlier, also on the volume side primarily from the event work being down a little bit. We've discovered that that was mostly a bit of a breakdown between the sales and operational channel for delivery of on time service. We've now corrected that and actually we are expecting to be at or slightly above budget on that front in the month of April and beyond.

Rafael Carrasco
Rafael Carrasco
Senior VP, Enterprise Strategy & President at Waste Management

In terms of what Stericycle had done previously on trying to limit exposure, though they had begun to move to a fee for service kind of model, but it had some constraints, some limits, depending on the fluctuation of the commodity. We, of course, as you pointed out, have experience driving a full fee for service model. And it's early days, but we're beginning to explore on how we're going to be able to do that. Obviously, as we begin to offer services that are part of a broader suite, it'll enable us to do that more readily.

Noah Kaye
Senior Research Analyst at Oppenheimer & Co. Inc.

All right, thank you very much.

Operator

Thank you. And our next question coming from the line of Konark Gupta with Scotiabank. Your line is now open.

Konark Gupta
Equity Research Analyst at Scotiabank

Thanks, and good morning. Just a quick question on revenue cadence for the full year. You know, The first quarter seasonality was pretty much in line with what you had last year despite some of the headwinds you talked about from weather, etcetera. As we look forward from like three sixty degree perspective, how should we think about pricing and volume? This should be kind of roughly offsetting each other into sort of decelerating pricing and accelerating volume and some of the other initiatives you have, like recycling, ramping up and started cycle as well.

Konark Gupta
Equity Research Analyst at Scotiabank

Like, should we follow the seasonal balance we saw last year in revenue, or we should see some sort of abnormal seasonality in some of the quarters?

Devina Rankin
Devina Rankin
Executive VP & CFO at Waste Management

Yeah. So what I would say is the only item that would cause any unusual seasonality is the impact of the LA wildfires, which I mentioned earlier. And we do think that the second quarter is a peak quarter for that. So when you step back and think about normal seasonality, we tend to see more q three being peak levels for volumes. So that's the only outlier.

Devina Rankin
Devina Rankin
Executive VP & CFO at Waste Management

When we look at overall revenue guidance for 2025, really we always start with the discipline that we have in executing our core price programs, and we talked about those being in the range of 5.8 to 6.2% for 2025, and we remain confident in achieving that guidance. On the volume front, we had flat volumes in the collection and disposal business in the first quarter, but we remain confident in our ability to approach the midpoint of our volume guidance of 0.25% to 0.75% for the year. And when you add to that rollover acquisition contributions combined with the incremental tuck in spending that I mentioned earlier, we really are optimistic that our revenue guidance in total remains intact. There is some small noise associated with our recycling brokerage revenue, and that is down relative to expectations, but I'll remind everyone that that has very low margin and flow through to EBITDA. It's something that we do to bolster the strength of our recycling business overall.

Devina Rankin
Devina Rankin
Executive VP & CFO at Waste Management

As Tara has mentioned, we're on track for recycling and renewable energy both in terms of getting our new facilities online and seeing the profitability and flow through of those facilities provide the returns that we anticipated. So, all in all, nothing significant in the recycling business either from a seasonal perspective other than year over year comparisons on commodity prices, which we expected to be more pronounced in the first half of the year than the second half of the year.

James Fish
James Fish
President and Chief Executive Officer at Waste Management

So just one add there, and it's on the price side. And we've said this since way back in 2022, which was the peak of CPI. But we've been expecting price to come down as CPI was coming down. Of course, 9.1% was the peak back in 'twenty two, and now we're down around 2.5%. So exactly what we said would happen has happened.

James Fish
James Fish
President and Chief Executive Officer at Waste Management

And what we also said was that we anticipated that price would come down slower than cost has come down and hence margin growth. And that's exactly what you've seen over the last two years with this company as we've grown margin. Some of it has just been what John Morris has talked about, which is a lot of technology being brought to bear on the OpEx side. But some of it is the fact that we're maintaining price at a slightly higher level than cost in terms of increases, and therefore, you get some margin accretion.

Konark Gupta
Equity Research Analyst at Scotiabank

That's great color. Thanks. And can quickly follow-up on Stericycle. So congrats achieving some of the synergies early on here, but it seems like SG and A improved by 70 bps sequentially, but the Stericycle margin itself was up only 20 bps from Q4. Is there any puts and takes behind the the gap and why the margin did not expand to the full 70 bps?

Devina Rankin
Devina Rankin
Executive VP & CFO at Waste Management

Sure. So, really, that had to do with two things, and it was disposal costs and fleet costs. And, really, this is about our strategic steps that Rafa mentioned earlier in order to optimize this business and some of the realization of the long term value creation that we know that we'll get as we internalize the fleet, use our practices with the WM way, think about internalizing disposal volumes. Those things are going to really start to pay dividends as we get more into the second half of the year into 2026. But that's one of the things that muted the overall expansion of margin for the business from Q4 to Q1.

Konark Gupta
Equity Research Analyst at Scotiabank

That's great. I appreciate the time. Thank you.

Operator

Thank you. And our next question coming from the line of Tobey Sommer with Choice. Your line is now open.

Tobey Sommer
Tobey Sommer
Managing Director at Truist Securities

Thanks. Many of my questions have been answered already. Wanted to ask you from a high level. What are the learnings that you have, Stericycle? We've been you've given us an awful lot of details, but sort of what's the biggest sort of couple of surprises from when you started looking at the transaction a while ago to where you sit today?

Rafael Carrasco
Rafael Carrasco
Senior VP, Enterprise Strategy & President at Waste Management

Well, maybe I'll start and maybe Jim can put a button on it or whatnot. This is Ralph Hattobbe. I don't know that there's been a huge surprise that we've encountered. We anticipated that there was going to be a significant amount of opportunity on the SG and A side. We just didn't know how much.

Rafael Carrasco
Rafael Carrasco
Senior VP, Enterprise Strategy & President at Waste Management

We've been very pleased with how quickly we've been able to optimize, for example, the sales coverage on the secure information destruction side of the business, and how readily our workforce there has moved to use our tools and our processes to actually deliver on that. That's been really good. Also, resiliency of the network of Stericycle is really, really strong. Frankly, the customer base, while they had experienced some issues with the ERP, continue to do so, although we'll be much more transparent about the way forward. They just find that having that kind of comprehensive ability to cover all of their waste streams on the regulated medical waste site, including their RXPro, their hazardous waste incinerator waste, all of that just provides a tremendous amount of resiliency.

Rafael Carrasco
Rafael Carrasco
Senior VP, Enterprise Strategy & President at Waste Management

So those are things that we expected but we've been able to confirm. The other aspect I would highlight is that as we move forward with McCarran into the network providing some capacity there, is we're going to be able to expand our RxPro initiatives, which is that sort of commingle service where it facilitates for nurses and practitioners commingling regulated medical waste with biohazardous waste for incineration. That waste actually provides better margin and as we increase capacity in our incinerator network, that's going to be dropping to the bottom line. Jim, anything from you?

James Fish
James Fish
President and Chief Executive Officer at Waste Management

Well, I think you said it all. The only thing I would say is that you're always coming into an acquisition like this looking for what are the negatives that we didn't foresee. And to Rapha's point, we haven't found any of those, which is good. We are seeing that Rapha gave me a figure earlier in the week that I think Rapha you're talking about, you've talked to some hospitals and what they've talked about is they're all talking about adding capacity, the ones that he's spoken to. So I think what we're seeing is that this is even a bigger affirmation of our kind of our strategic approach to the business when we came into it, which is this has a stronger growth trajectory than does solid waste.

James Fish
James Fish
President and Chief Executive Officer at Waste Management

Not to take anything away from solid waste, but we were looking for something that had an even stronger growth trajectory. And while you may not see it in the first quarter that we own the business because we're in the process of cleanup, we'll definitely see this over time. And that affirmation is very important to us.

Tobey Sommer
Tobey Sommer
Managing Director at Truist Securities

Appreciate that. Could you as my follow-up, could

Tobey Sommer
Tobey Sommer
Managing Director at Truist Securities

you comment on whether or not

Tobey Sommer
Tobey Sommer
Managing Director at Truist Securities

we should

Tobey Sommer
Tobey Sommer
Managing Director at Truist Securities

anticipate ongoing and incremental international divestitures as you look at your portfolio?

Rafael Carrasco
Rafael Carrasco
Senior VP, Enterprise Strategy & President at Waste Management

Yeah, look, I think I've been asked that question a number of times already. We are actually very happy to observe and see the trajectory of our UK and Ireland business there. There's plenty of opportunity to improve the performance of that business, and it's actually already performing better than it did last year. It gives us a very interesting perch from which to observe what is happening in the solid waste business, as well. We have a much smaller piece of business in Western Europe, in France and Germany, that frankly we're looking at what's the best way to optimize the performance of that business and we'll consider, how that fits within the overall portfolio later on.

Tobey Sommer
Tobey Sommer
Managing Director at Truist Securities

Thank you.

Operator

Thank you. And our next question coming from the line of Jerry Ripers with Goldman Sachs. Your line is now open.

Jerry Revich
Jerry Revich
Senior Investment Leader & Head of US Machinery, Infrastructure, Sustainable Tech franchise at Goldman Sachs

Yes. Hi. Good morning, everyone.

Devina Rankin
Devina Rankin
Executive VP & CFO at Waste Management

Good morning.

Devina Rankin
Devina Rankin
Executive VP & CFO at Waste Management

Good morning.

Jerry Revich
Jerry Revich
Senior Investment Leader & Head of US Machinery, Infrastructure, Sustainable Tech franchise at Goldman Sachs

Just want to ask you, on the legacy business, the costs were really impressive in the quarter, backing out the alternative fuel tax headwind. Inflation was in the low 3s on what looks like your toughest cost comp of the year. And so is it fair to think about inflation as the comps get easier actually slowing, considering the comments you made about having your costs locked in as it relates to tariff and other moving pieces? Devina?

Devina Rankin
Devina Rankin
Executive VP & CFO at Waste Management

Yes. Everything we're seeing Jerry, I actually think you framed it really well. We were very pleased with our first quarter operating expense margin, and we knew that Q1 was going to be a particularly tough quarter for us on a year over year basis. When you have a headwind, like we did from the winter weather volumes, taking margin, you know, accretive volume out of the equation. We're even that much more impressed, gives us confidence going into the second quarter.

Devina Rankin
Devina Rankin
Executive VP & CFO at Waste Management

So I agree with you. I think that when we look forward to achieving our overall margin objectives for 2025, which are to be at the upper end of our long term range of 50 to a hundred basis points in margin expansion and traditional solid waste. We're really, we feel good about the traction that we made in the first quarter, and we think we're well positioned to continue to build on that for the remainder of the year.

Jerry Revich
Jerry Revich
Senior Investment Leader & Head of US Machinery, Infrastructure, Sustainable Tech franchise at Goldman Sachs

Super. Can I ask, Tara, in terms of what we're seeing on voluntary market pricing for landfill gas, looks like that stayed steady in the low 20s even as D3 RIN prices have come down? Is that consistent with what you're seeing in your business? And any views on the biofuel task force and what that could mean?

Tara Hemmer
Tara Hemmer
Senior VP & Chief Sustainability Officer at Waste Management

Sure. We're tracking very closely what's happening with the renewable fuel standard. And we do still believe that there's broad bipartisan support for that continuing when we have conversations with Congress. On the voluntary market, as you can imagine, there's a lot of uncertainty in many different markets, not just this market. So, the pricing that we've seen has been in the low 20s, a little bit of a holding pattern on buyers right now, but we expect that to pop back once the administration comes out with their new RVO as they're somewhat interrelated.

Tara Hemmer
Tara Hemmer
Senior VP & Chief Sustainability Officer at Waste Management

Just a little color. Other piece of color Jerry that I think would be helpful for the group. We have for 2025 locked in about 5% of our volume, which is up from what we had described in our last call. And so our $0.25 change in RIN pricing now only represents about $5,000,000 So I think that should give you some confidence on our ability to take care of off takes.

Jerry Revich
Jerry Revich
Senior Investment Leader & Head of US Machinery, Infrastructure, Sustainable Tech franchise at Goldman Sachs

Can I just ask a clarification? So based on the royalty disclosures that you folks made and the pricing updates, it looks like your volumes were up about 50% in the quarter year over year. Is that about right? Just as we think about relative to the full year targets?

Tara Hemmer
Tara Hemmer
Senior VP & Chief Sustainability Officer at Waste Management

Yes, yes. When you look at volume that was monetized, it's an even better number when you look at how much RNG we actually generated and produced, which should give you some confidence in the trajectory for the year. We generated 75% increase in volume from our RNG plants. So you'll start to see that carry through. It's one of the reasons why we expect more performance really back loaded to the back half of the year as we get more momentum on those plants coming online.

Jerry Revich
Jerry Revich
Senior Investment Leader & Head of US Machinery, Infrastructure, Sustainable Tech franchise at Goldman Sachs

Well done. Thank you.

Operator

Thank you. And our next question coming from the line of David Mentor with R. W. Baird. Your line is now open.

David Manthey
Senior Research Analyst at Baird

Yeah, thank you. Good morning, and thanks for clarifying on the spot versus forward RINs. That was the question I was going to ask. My other question, is there anything relative to tariffs that could impact OCC or other materials in your commodity basket? We should be thinking about pricing as we go forward.

Tara Hemmer
Tara Hemmer
Senior VP & Chief Sustainability Officer at Waste Management

Sure. This is something that we're obviously tracking closely. We think that depending upon what happens with tariffs, it could have a positive impact on some of our non fiber. If you think about aluminum and steel as more of that is domestic on the OCC and fiber side. The thing that we're really tracking more closely is what could happen with retaliatory tariffs, because we do ship materials to other markets in Southeast Asia and India.

Tara Hemmer
Tara Hemmer
Senior VP & Chief Sustainability Officer at Waste Management

But again, our team, our brokerage team does a fantastic job really making sure that we have a wide variety of markets that we can tap into. That includes domestic and it includes a whole host of markets across the entire world. So we're in a good spot.

James Fish
James Fish
President and Chief Executive Officer at Waste Management

I'm not sure, Tara, whether it was precocious or just luck, but the fact that that's not that long ago, five years ago, all of ROCC was going to And virtually none of it is going to China. Whether it was luck or whether it intentional, we'll take it.

Tara Hemmer
Tara Hemmer
Senior VP & Chief Sustainability Officer at Waste Management

Yeah. And our brokerage team, I can't say enough positive things about them. It's a true differentiator for WM.

David Manthey
Senior Research Analyst at Baird

We'll chalk it up to good foresight. Thank you.

John Morris
John Morris
Executive VP & COO at Waste Management

Appreciate it.

Operator

Thank you. And our next question coming from the line of James Schul with TD Cowen. Your line is now open.

James Schumm
James Schumm
Analyst at Cowen

Hey, thanks and good morning, everyone. Devina, so it's clear on the SG and A opportunity getting down to 15% after three years. But just is there anything structurally different about Stericycle such that you would not be able to get SG and A down to more of your corporate level of 9% or 10% over maybe several years? If so what's the ultimate destination here and the timing there?

Devina Rankin
Devina Rankin
Executive VP & CFO at Waste Management

Yes. It's a great question. And you know, the 9.5%, call it, for WM total company that we've talked about would definitely be the ultimate goal. Though we've also talked about, if you think about Stericycle and the WM Healthcare Solutions business more like one of our geographic areas where ultimately we should have a corporate back office for WM Healthcare Solutions just the same way that we have a back office that serves our Florida area. That means that the roadway should be to an even lower SG and A as a percentage of revenue.

Devina Rankin
Devina Rankin
Executive VP & CFO at Waste Management

For context, those businesses operate in sub 5% territory. Structurally, the one thing that is fundamentally going to be different for those two businesses is that they run on their own ERP system and they won't be integrated for some time for the foreseeable future into the WM ERP system. There will be two distinct systems. So, that is the one structural difference that I think is important as we've evaluated all other elements. We really do think that total path to realizing an optimized cost structure should exist and we're working hard to get there.

James Schumm
James Schumm
Analyst at Cowen

Got it. Thank you. And then, so, just on the longer term outlook for the Staricycle or healthcare or really, Stericycle businesses. I mean, outlook was longer term revenue growth of 3% to 5% on the top line and EBITDA growth of 13% to 17% annually. I know those were their targets, but they were in your slides.

James Schumm
James Schumm
Analyst at Cowen

Like are those something that we should look at? Or how are you guys thinking about that?

Rafael Carrasco
Rafael Carrasco
Senior VP, Enterprise Strategy & President at Waste Management

Don't think that there's anything wrong or different with those targets. Obviously, the first opportunity that we are taking on is the reduction of the operating expenses and the SG and A. So on the cost side, you're beginning to see that show up a lot sooner. We've talked about the fact that we're still framing the cross selling opportunities. We think those are going to be vast.

Rafael Carrasco
Rafael Carrasco
Senior VP, Enterprise Strategy & President at Waste Management

I kind of framed for you a little bit of what the shared wallet looks like today. I think to look at it a little bit differently, if you look at percentage of revenue from our collection and disposal business that comes from the same customer base, it's about 5% low single digits, so a lot of opportunity there. I think it's important also to remember that some of what has inhibited sort of the top line growth here has to do with the ERP implementation. What it should be facilitating better delivery of the service, it actually took them backwards. And so now we're kind of unraveling and solving foundationally for that.

Rafael Carrasco
Rafael Carrasco
Senior VP, Enterprise Strategy & President at Waste Management

That's going to unlock a lot of opportunity. I'll give you one interesting example. As we kind of developed the contract data mart for the WM Healthcare Solutions business. We've now added every single customer with over $50,000 in annual revenue. And we're seeing a vast opportunity of over 1,000 contracts, almost $200,000,000 in revenue that has lagging PIs or overlooked PIs, for example.

Devina Rankin
Devina Rankin
Executive VP & CFO at Waste Management

Jim, one thing that I just want to clarify really quickly is, in terms of confirming or clarifying what our long range outlooks both for top line and EBITDA growth of the business in the next three to five years. We plan to really outline that at the Investor Day. So, at this point in time, we don't want to confirm or adopt the previous Stericycle EBITDA growth. We will instead give you specifics about what we see that being in the next three to five years when we're together in June.

James Schumm
James Schumm
Analyst at Cowen

Okay, great. Understood. Thank you very much.

Operator

Thank you. And our next question is coming from the line of Stephanie Moore with Jefferies. Your line is now open.

Stephanie Moore
Stephanie Moore
SVP - Equity Research at Jefferies

Hi, thank you. Just one for me. I wanted to touch on this maybe progress you're making on the labor force. I know it's been a multi year initiative all in the backdrop of what's been a pretty challenging labor force or labor environment. So, if you could talk a little bit about where labor turnover stands today, an update on your journey of optimizing labor, I believe, through attrition and the implementation of technology?

Stephanie Moore
Stephanie Moore
SVP - Equity Research at Jefferies

Give us an update on the labor journey and then maybe at the same token, what technology or any other technology you've rolled out to help you achieve your targets? Thanks.

John Morris
John Morris
Executive VP & COO at Waste Management

Yeah, Stephanie, this is John. Couple of questions there. One, to date we've reduced about 2,600 rolls, or the need to refill 2,600 rolls. And that's important because what we've done is done this, as Jim has said, I've said, Davina said at different points, we've done this through natural, attrition. And for, 2025, we look to, have the same repeat to the tune of about nine forty roles that we won't replace as we go through 2025, and the majority of that's gonna come through the efforts of Tara's team in automating some of the recycling facilities, and another large contingent will come from the continued automation of our residential business.

John Morris
John Morris
Executive VP & COO at Waste Management

So those are two of the big buckets. But I think when you look further out about what we're doing with technology, I won't bore you with all the details, but there's a lot going on, for instance, in fleet planning and scheduling, we're bringing some technology to bear that's gonna allow us to more efficiently move our assets in and out of the repair facilities to improve efficiency, reduce labor dependency. We're using technology to help augment some of the skill gaps as we upskill some of these employees and using technology, for instance, to be able to help technical folks work collectively across the network to be able to make some of the repairs. So, I would tell you we're very excited about what's going on on the technology front that's gonna further augment this effort around reducing labor dependency.

Stephanie Moore
Stephanie Moore
SVP - Equity Research at Jefferies

Great. Thank you so much.

Operator

Thank you. And I'm showing no further questions in the q and a queue at this time. I will now turn the call back over to mister Jim Fiss, president and CEO, for any closing remarks.

James Fish
James Fish
President and Chief Executive Officer at Waste Management

Okay. Thank you all for your questions this morning. The themes we really wanted to convey today, I think we did a good job of getting them across. We wanted to convey that we were consistent with our performance and have been for quite a long time and that didn't change this quarter and we're certainly on track for our guidance for the year. We're encouraged by what we saw in terms of volume in March and April after a couple of pretty tough months in January and February, relatively little impact in 2025, single digits, John, right, very low And then definitely on track for our sustainability investments and our WM Healthcare Solutions.

James Fish
James Fish
President and Chief Executive Officer at Waste Management

So hopefully that all came across. Thank you all for joining us this morning. We look forward to seeing you in June, hopefully at our New York City Investor Day.

Operator

This concludes today's conference call. Thank you for your participation and you may now disconnect.

Executives
    • Edward Egl
      Edward Egl
      Vice President of Investor Relations
    • James Fish
      James Fish
      President and Chief Executive Officer
    • John Morris
      John Morris
      Executive VP & COO
    • Devina Rankin
      Devina Rankin
      Executive VP & CFO
    • Rafael Carrasco
      Rafael Carrasco
      Senior VP, Enterprise Strategy & President
    • Tara Hemmer
      Tara Hemmer
      Senior VP & Chief Sustainability Officer
Analysts
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Key Takeaways

  • First quarter operating EBITDA grew 12% year-over-year driven by strong core collection and disposal performance, WM Healthcare Solutions contributions, and sustainability business growth, supporting full-year guidance.
  • Sustainability segment EBITDA climbed over 20% as automated recycling facilities delivered nearly double the margins of non-automated sites and new renewable natural gas (RNG) plants ramped online, with eight additional RNG projects on track for 2025 completion.
  • Integration of WM Healthcare Solutions achieved $16 million in synergies in Q1 and expanded its margin by 20 basis points, positioning the company to reach $250 million of annual run-rate synergies by 2027.
  • Core collection and disposal margins improved with 4% yield and 6.5% core price growth, operating expenses at 60.5% of revenue (40 basis-point improvement), and residential margins surpassing 20% for the first time in six years.
  • Liquidity and capital strategy remain robust with $1.21 billion of operating cash flow, $475 million of free cash flow, leverage expected to fall to ~3.15× by year-end, and over $500 million earmarked for tuck-in acquisitions in 2025.
AI Generated. May Contain Errors.
Earnings Conference Call
Waste Management Q1 2025
00:00 / 00:00

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