Waste Management(WM) - 2024 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Waste Management, Inc. reported increased revenues and net income for the nine months ended September 30, 2024, with total assets growing to $34.73 billion and operating cash flow significantly improving Condensed Consolidated Balance Sheet Highlights (In Millions) | Account | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $4,259 | $3,804 | | Property and Equipment, net | $17,931 | $16,968 | | Goodwill | $9,822 | $9,254 | | Total Assets | $34,730 | $32,823 | | Total Current Liabilities | $4,779 | $4,226 | | Long-Term Debt | $15,977 | $15,895 | | Total Liabilities | $26,758 | $25,927 | | Total Equity | $7,972 | $6,896 | Condensed Consolidated Statements of Operations Highlights (In Millions, Except per Share) | Metric | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Operating Revenues | $16,170 | $15,209 | | Income from Operations | $3,144 | $2,790 | | Net Income Attributable to WM | $2,148 | $1,811 | | Diluted EPS | $5.33 | $4.44 | Condensed Consolidated Statements of Cash Flows Highlights (In Millions) | Metric | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $3,879 | $3,337 | | Net cash used in investing activities | $(2,839) | $(2,007) | | Net cash used in financing activities | $(903) | $(1,525) | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, business segments, and financial activities, including the pending Stericycle acquisition and significant RNG investments - The company's business is organized into four reportable segments: Collection and Disposal - East Tier, Collection and Disposal - West Tier, Recycling Processing and Sales, and WM Renewable Energy[16] - On June 3, 2024, the company entered into an agreement to acquire Stericycle for an enterprise value of approximately $7.2 billion, with the transaction expected to close in Q4 2024[89] - The company entered into a delayed draw Term Credit Agreement for up to $7.2 billion on August 28, 2024, to finance the pending acquisition of Stericycle[31] - For the nine months ended September 30, 2024, the company recognized a reduction in income tax expense of $111 million from federal tax credits related to its RNG investments, a significant increase from $6 million in the prior year period[42] Management's Discussion and Analysis (MD&A) Management attributes Q3 2024 revenue growth to strong pricing and higher recycled commodity values, improving operating income margin while investing in sustainability projects - Q3 2024 revenue increased by 7.9% YoY to $5.61 billion, primarily due to higher yield in Collection and Disposal and increased market value for recycled commodities[126] - Q3 2024 income from operations was $1.12 billion, or 20.0% of revenues, up from $1.02 billion, or 19.6% of revenues, in the prior year period, driven by revenue growth and improved business performance[126] - The company's strategy focuses on differentiation, continuous improvement, and significant investments in its WM Renewable Energy and Recycling Processing and Sales segments[117] - Free cash flow for the nine months ended September 30, 2024 was $1.86 billion, an increase from $1.55 billion in the same period of 2023, driven by higher operating cash flow despite increased capital expenditures[174] Results of Operations Q3 2024 revenue increased by $411 million (7.9%) year-over-year, driven by yield and volume growth, with improved operating expenses despite acquisition-related costs Q3 Revenue Change Analysis (2024 vs. 2023) | Component | Change (in millions) | % Change of Total Company | | :--- | :--- | :--- | | Total Average Yield | $277 | 5.3% | | Collection and Disposal | $188 | 4.1% | | Recycling & Renewable Energy | $108 | 28.1% | | Volume | $70 | 1.4% | | Acquisitions | $71 | 1.4% | | Total Revenue Change | $411 | 7.9% | Operating Expenses as a % of Revenue (Q3) | Expense Category | 2024 | 2023 | | :--- | :--- | :--- | | Labor and related benefits | 17.2% | 17.6% | | Subcontractor costs | 10.3% | 10.9% | | Cost of goods sold | 5.0% | 3.6% | | Fuel | 1.9% | 2.3% | | Total Operating Expenses | 60.6% | 61.3% | - Average market prices for single-stream recycled commodities increased approximately 75% in Q3 2024 compared to the prior year period, significantly boosting recycling revenues and cost of goods sold (rebates)[136][144] Liquidity and Capital Resources The company maintains strong liquidity with increased operating cash flow, managing debt, and prioritizing capital expenditures for sustainability over share repurchases Summary of Cash Flow Activity (Nine Months Ended Sep 30, In Millions) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $3,879 | $3,337 | | Net cash used in investing activities | $(2,839) | $(2,007) | | Net cash used in financing activities | $(903) | $(1,525) | - Capital expenditures for the first nine months of 2024 increased to $2.12 billion, including $571 million for sustainability growth investments in recycling and renewable natural gas[170][174] - Share repurchases were temporarily suspended in anticipation of the Stericycle acquisition, with spending decreasing to $262 million in the first nine months of 2024 from $990 million in the prior year period[172] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2024, with no material changes to internal control over financial reporting - The company's principal executive and financial officers concluded that disclosure controls and procedures were effective as of September 30, 2024[182] - There were no material changes to the company's internal control over financial reporting during the third quarter of 2024[183] PART II. OTHER INFORMATION Legal Proceedings Information regarding the company's legal proceedings is cross-referenced to specific sections within Note 6 of the financial statements - Details on legal proceedings are cross-referenced to the Environmental Matters and Litigation sections within Note 6 of the financial statements[185] Risk Factors The company reports no material changes to its previously disclosed risk factors from the Annual Report on Form 10-K and Q2 2024 Form 10-Q - The company reports no material changes to its previously disclosed risk factors[186] Other Information This section references the Stericycle acquisition and financing, and discloses the adoption of Rule 10b5-1 stock trading plans by two executive officers - Two executive officers, Tara Hemmer (SVP & Chief Sustainability Officer) and Devina Rankin (EVP & CFO), adopted Rule 10b5-1 stock trading plans in September 2024[189][190]