Waste Management Aktie

Good day, and thank you for standing by. Welcome to the WM Second Quarter Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

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

[indiscernible] earnings conference call. With me this morning are Jim Fish, Chief Executive Officer; John Morris, President; David Reed, Executive Vice President and Chief Financial Officer; and Tara Hemmer, Executive Vice President and Chief Operating Officer. [indiscernible] strategic update. John will cover an operating overview [indiscernible] our prepared remarks, each of these members of our leadership team will be available during the Q&A portion of the call.

Before we get started, please note that we have filed a Form 8-K that includes the earnings press release and is available on our website at www.wm.com. The Form 8-K, the press release and the schedules in 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-K and Form 10-Qs.

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 David will discuss operating EBITDA, which is income from operations before depreciation, depletion, amortization and accretion. Beginning this year, landfill accretion expense was moved from operating expense to depreciation, depletion, amortization and accretion to enhance comparability and better reflect operating performance. For comparability purposes, 2025 actuals have been updated to reflect this change. Any comparisons, unless stated otherwise, will be with the prior year period.

Net income, EPS, income from operations and margin, operating EBITDA and margin and SG&A expense and 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. 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 24 hours a day beginning approximately 1:00 p.m. 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 July 29, 2026, may no longer be accurate at the time of a replay. Any redistribution, retransmission or rebroadcast of this call in any form without the express written consent of WM is prohibited.

Now I'll turn the call over to WM's CEO, Jim Fish.

Okay. Thanks, Ed, and thank you all for joining us. We're pleased to report another quarter of strong earnings growth, margin expansion and robust cash flow generation. In the second quarter, operating EBITDA grew 5.5% or 9.1%, excluding last year's wildfire cleanup contributions. Operating EBITDA margin expanded by 40 basis points, overcoming a 60 basis point headwind from wildfire volumes and a 40 basis point headwind from higher energy surcharges. The strong underlying margin expansion was led by the collection and disposal business, where continued price discipline, cost optimization and business mix improvements drove better profitability. Importantly, this earnings growth, combined with lower capital spending and working capital benefits led to a 35% free cash flow growth for the quarter.

Taken together, our higher earnings, margin expansion and free cash flow results once again demonstrate the strength and consistency of our operating model and our team. Additionally, our second quarter results reinforce the power and value of WM's integrated business model. Our collection and disposal operations serve as a powerful foundation, providing the scale, network, customer relationships and operational discipline that serve the broader enterprise.

We continue to expand the value created by that foundation and strengthen the long-term earnings profile of the company through our investments in recycling, renewable energy and Healthcare Solutions. For example, our recycling automation projects are driving a sustained 30% improvement in labor cost per ton compared to legacy facilities. And in the second quarter, we processed 12% more recyclables year-over-year. We also produced an additional 1.6 million MMBtu of renewable natural gas, leading to combined recycling and renewable energy operating EBITDA growth of nearly 33% and a 30 basis point uplift to total company margin.

Healthcare Solutions delivered a strong quarter, expanding operating EBITDA margin by 200 basis points through cross-selling and cost synergy capture, which reinforces our confidence in the platform's long-term growth and earnings potential.

Stepping back, WM's advantage is how all these businesses work together. Our network allows us to operate more efficiently, deliver better customer outcomes and invest in attractive growth opportunities from a position of strength as our complementary assets and capabilities reinforce one another and allow us to capture more value across the waste stream and generate attractive returns for shareholders.

This integrated approach is supported by disciplined capital allocation. We're directing capital to opportunities where our existing network, customer relationships and operating capabilities give us a clear advantage, including the $235 million of solid waste tuck-in acquisitions we closed during the quarter. These transactions strengthen our route density, expand our customer base and enhance the value of our existing disposal network, making them a natural extension of the integrated model we've built.

Looking ahead, we continue to see an attractive pipeline of solid waste acquisition opportunities. Given our quick work returning leverage to within our targeted range following the acquisition of Stericycle, we expect to increase core acquisitions in the future.

As we close out the second quarter, our results reflect the strength of WM's integrated operating platform and the consistency of our strategy. We continue to execute well in the core business, extend the value of our network through disciplined investments in recycling, renewable energy and health care solutions and strengthen our market position through targeted acquisitions. Together with our balanced approach to capital allocation, these actions support continued growth in earnings, cash flow and long-term shareholder value. I want to thank our employees for their dedication and hard work, which make these results possible.

And now I'll turn the call over to John to discuss our operational results and progress against our strategic priorities.

Thanks, Jim, and good morning, everyone. The second quarter again demonstrated the durability of our earnings growth formula. Despite a tough comparison due to elevated wildfire-related activity last year, we delivered strong underlying profitability through above-average price-to-cost spread, disciplined expense management and efficiency gains. Our team continues to deliver outsized performance in optimizing our business.

Operating expenses remained below 60% of revenue for the sixth consecutive quarter despite a combined 120 basis point headwind from last year's wildfires and increased fuel prices. This performance reflects the benefits of our technology investments, automation initiatives, process discipline and performance management. The impact is especially evident in our collection business. Despite ongoing inflationary pressures, including labor cost increases of approximately 4%, we limited the increase in collection operating costs to less than 1.7% compared to the second quarter of 2025. This highlights our ability to offset inflation through productivity improvements and pricing designed to recover cost increases while continuing to deliver high levels of customer service.

Our results reflect the value being created by the technology investments we've made over the past decade. WM has long been a leader in innovation from deploying our proprietary onboard computing system to deploying AI and machine learning across our operations today. One example is our SmartTruck, which now generates more than $300 million of annual run rate EBITDA through service upgrades, optimized routing and lower operating costs. Importantly, we are still in the early innings of capturing the full value of these capabilities. By combining AI, automation and operational data at scale, we're improving execution, reducing costs and enhancing the customer experience.

We are also continuing to innovate for the future through AI-enabled tools, autonomous long-haul vehicles and remote-operated heavy equipment, all of which we expect to support higher revenue capture, lower operating costs and sustained margin expansion over time.

We're applying the same disciplined operating approach that has driven success in the collection and disposal business to Healthcare Solutions, and the results are increasingly evident. In the second quarter, Healthcare Solutions operating EBITDA margin expanded 200 basis points to 19%, while SG&A expense declined 15% and improved 290 basis points as a percentage of revenue, demonstrating the earnings power we expected at acquisition. Momentum is building in the second half with improving revenue quality supporting top line growth and core price expected to exit 2026 above 5.5%.

Cross-selling initiatives are also contributing, generating $32 million of annual operating EBITDA to date, and we remain on track to deliver more than $300 million of synergies by the end of 2027. This progress reinforces our confidence in the long-term value of this business.

Turning to overall revenue growth in the second quarter. Both core price and yield exceeded our expectations and supported our continued success in maintaining strong price-to-cost spread. On volumes, second quarter comparisons were impacted by last year's elevated wildfire-related activity as Collection and Disposal volumes declined 0.4%, excluding those impacts.

While overall volumes remained softer than we anticipated entering the year, we saw encouraging trends across several areas of the business. Special waste volumes increased 4.5%, excluding prior year wildfire activity and industrial collection volumes continue to demonstrate modest growth. Residential volume declines improved 200 basis points sequentially to negative 2.9% as anticipated. We expect the residential losses to continue to moderate over the coming quarters. Our focus remains on disciplined profitable growth through prioritizing returns over lower margin volume.

Looking ahead to the balance of 2026, our outlook continues to reflect strong pricing execution and disciplined operating performance. Collection and Disposal yield is tracking toward the high end of our guidance range and energy surcharge revenue is higher than expected. At the same time, volume trends have been softer than planned with Collection and Disposal volumes expected to be relatively flat in the second half, resulting in full year decline approaching 1% or approximately 50 basis points, excluding the impact of 2025 wildfire cleanup activity.

We're also seeing modest pressure from lower recycling brokerage activity and the timing of RNG plant connections to pipelines. And as a result, we are narrowing our full year revenue outlook by about 0.5% to $26.275 billion to $26.475 billion. Importantly, this update does not change our confidence in the profitability and cash flow outlook for the year, supported by strong pricing, disciplined execution and the underlying strength of the business.

Taken together, our second quarter performance reinforces the strength of our operating model and our confidence in the path ahead. With that, I want to thank our entire team for their continued strong performance. And now I'll turn the call over to David to walk through our financial results in more detail.

Thanks, John, and good morning. Operating EBITDA margin was one of our standout aspects of our second quarter results. As Jim noted, margin expanded 40 basis points, driven by a strong price-to-cost spread and continued cost reductions from technology and automation in our Collection and Disposal business. These improvements added 140 basis points of margin growth, while recycling, renewable energy and Healthcare Solutions contributed a combined 40 basis points to the company margin. These benefits were partially offset by approximately 40 basis points from higher technology investments and the timing of risk management costs in our corporate and other segment.

As noted, our results overcame a 60 basis point headwind from prior year wildfire cleanup activity and a 40 basis point headwind from energy surcharges. Despite these headwinds, we delivered strong earnings growth and margin expansion in the quarter, demonstrating the durability of our business model and our ability to consistently create value.

Turning to SG&A. Expenses improved 60 basis points to 9.9% of revenue in the second quarter, returning to below 10% for the first time following our 2024 acquisition of the Healthcare Solutions business. Diligent cost management across the company and ongoing synergy capture from the integration drove this result, and we anticipate full year SG&A as a percent of revenue of around 10%, including SG&A in Healthcare Solutions improving to a run rate of between 15% and 16% of revenue compared to more than 24% of revenue when we acquired the business.

Our earnings growth continues to drive robust cash generation. In the first 6 months of the year, operating cash flow was $3.23 billion an increase of more than 17% compared to the same period in 2025. As planned, capital spending was more than 18% lower than prior year, reflecting normalized spending on collection vehicles and lower sustainability capital as we near the end of our planned investments.

Free cash flow totaled $2.02 billion growing more than 56% in the first 6 months of the year, representing operating EBITDA conversion approaching 52%. We allocated the majority of our free cash flow to shareholder returns in the first half of the year, repurchasing $1 billion of our shares and paying $764 million in dividends. As forecasted, we are within our target leverage range of between 2.5x to 3x, finishing the quarter at 2.96x. We expect leverage to come down in the back half of the year.

And finally, pulling together the outlook for 2026, as you heard this morning, we delivered excellent second quarter results and remain confident in the strength and consistency of our business. We're on track to achieve our full year operating EBITDA and free cash flow guidance. At the same time, we are increasing our 2026 margin expectations by 20 basis points to between 31% and 31.2%, demonstrating our ability to flex cost, drive productivity and continue growing earnings in a dynamic operating environment.

While earnings calls naturally focus on the current quarter and year, our focus extends well beyond the near term. We are executing a long-term strategy designed to drive growth and shareholder value for years to come. That means creating the industry's best employee experience, delivering differentiated service to our customers, expanding our disposal advantage, increasing our technology leadership and continuing to allocate capital in ways that maximize returns. As a result, we remain confident in achieving our 2026 objectives and in our ability to deliver sustainable long-term growth and shareholder value well into the future.

In closing, I want to thank the entire WM team for their hard work in the first half of 2026. We are well on our way to another year of strong results. With that, Olivia, let's open the line for questions.

[Operator Instructions] Our first question coming from the line of Toni Kaplan with Morgan Stanley.

I was hoping you could talk about maybe the Healthcare business. Just what are you seeing in terms of sort of volume or price there? And how should we think about growth going forward? I think it was just a little bit lighter than what we were expecting.

Toni, yes, good question. And look, I would tell you, overall, I'll give you may be a bit more than you just asked for. I'll give you more of a holistic picture here. But overall, the WM HS story is a good one. It was one of the drivers of our strong EBITDA pricing, SG&A performance for Q2. So we were pleased with that. I think we can finally say the business is integrated, and that was -- maybe took a bit longer than we initially thought when we bought it. But we can say it's integrated now that we're seeing things like DSO dropping DSOs down 5 days, which was a nice improvement and continuing to drop.

We did talk about customer credits last quarter, and we said they would peak in Q4. They did. They came down in Q1 and came down again in Q2. And then that really turns into a tailwind, a pretty significant tailwind for us in the back half of the year, which we had indicated last quarter. That will affect both top line and bottom line. And so that's a positive for us.

I think to your question about volume, again, that was really going to be -- always going to be more of a back half of the year story, and we're already starting to see that. We had our quarterly business reviews with all of our area leaders, including WM HS last week. And we're hearing that cross-selling -- cross-selling did pick up again in Q2, up to $32 million, I think, was the number.

We said $50 million when we originally gave those -- that synergy number of $300 million. $250 million would be cost related and $50 million would be related to cross-selling, and we're up to $32 million. Fully expect to get to that $50 million number, and it probably is going to happen in the first quarter -- by the first quarter of next year. So that's been a positive, and that certainly is going to affect volume in the back half of the year.

We also heard our national accounts team talking positively about WM HS volume that's starting to grow. I think they gave a $15 million win number on the call last week. We're seeing things like speed to close improve nicely. And then I guess, lastly, even though you didn't ask about it, but look, the cost synergy line has been a success story all along. We did talk a bit in our scripts about SG&A and our SG&A within WM HS has dropped from 24%, 25% when we first bought it down to 18% at the end of the quarter. We expect that to be 15% to 16% by the end of the year.

And you really don't have to look any further than our overall number that we talked about. I mean, 9.9% gets us back below 10% where we were before we bought the Stericycle business. I think it kicked us up to almost 11% the quarter after we bought them, and now we've chopped away at that, and we're back down at 9.9% and continuing to go down from there. So that's a real positive.

And lastly, I think I would tell you that OpEx, after rolling the business into our existing field operations, we've really seen a benefit from OpEx, and that's been part of the success story with OpEx as well. So overall, I think long answer to your short question. But overall, I think we feel like we've fixed the business now and integrated it, and this is really turning into exactly what we hoped when we bought it initially.

Okay. Terrific. And maybe just a follow-up on C&D. I think it sounded like you sound like it's going to accelerate in the back half of the year and be towards the higher end of your expectation. I guess, are the -- what trends are you sort of seeing that, that gives you the confidence in the recovery and/or does something have to change in the market to get you to that level?

Toni, I think when you look at overall landfill volumes, you saw that we still have positive landfill volumes across MSW in the quarter, moderated a little bit from Q1 to Q2, but still positive. I think a bright spot was certainly special waste because even net of the wildfires, which was significant volume, particularly in Q2 last year, we're still showing positive 4.5% volume there. I think that's a pretty good indicator of at least what's happening specifically in the industrial sector.

And our next question in queue coming from the line of Noah Kaye with Oppenheimer.

Maybe just want to understand a little bit more on the revenue guide pieces following up on your prepared remarks, David. So it sounds like we're going to have some uplift here, obviously, from energy surcharges that weren't contemplated in the guide. If I run rate that from 2Q, I don't know maybe it's $300 million higher. So kind of we're looking at something like $450 million pre-impact of surcharges and it seems like roughly $350 million of that would be just from lower solid waste volumes and then the balance is from recycling brokerage and RNG. Is that the right way to think about it? Is there any change to WM HS? Can you kind of help refine those moving pieces for us?

So thanks. Good question. Let me take a bit of it, and then I'll pass it over to David. First of all, if you think about the revenue for the second quarter, really kind of break down revenue into 3 pieces. First of all, the half -- about half of it was on the collection, disposal side. And really, that was related to what happened in the first quarter with the winter weather. What we said at the end of the first quarter was we thought -- what we normally see when we have a bad winter is that we recover it in Q2, especially on things like roll-off and some of the landfill volumes. And we just didn't see that recovery in the second half. What is that attributed to? It's a little bit hard to say. Is it the economy? I mean we don't see a hugely growing economy, but we also don't see any red flags. So that was about half of the revenue piece for the quarter.

The other half, you can break into 2 pieces. Part of it -- about half of that was our brokerage business, which was slower on volumes, doesn't really have much impact. It's a bit of a pass-through business. It doesn't really have much impact on the EBITDA line. And then the other half was related to RNG, specifically a couple of plants. Those 2 plants are built. So they're standing ready, but we're not able to push gas into the pipeline yet. And that's related to a couple of third parties the gas lines are being kind of prepared for the gas to come in, but it's not something that we have a ton of control over. We do think that we will be there and we will be pushing gas out of those plants by the end of the year. That's the hope. So that's really the breakdown of revenue. And then I'll let David talk a bit more specifically about the back half of the year.

Yes. So I mean, as you just heard, this is really a volume-driven adjustment. And so with our pricing plans, our cost management and our ongoing optimization plans, we really feel like we're mitigating the earnings impact. On the volume side on the Collection and Disposal business, you referenced the energy surcharges. So call it, the $250 million of lower revenue due to volume is being offset by the higher energy surcharges. We're estimating for 2026 about $175 million of higher energy surcharges, so to get to a net impact of $75 million.

The things that are going well, again, to help close the gap from an earnings perspective that also give us confidence on our EBITDA and free cash flow guidance, again, is that better-than-planned pricing execution, the cost and controls. We also have an improving Healthcare Solutions outlook, as Jim just alluded to, and then also lower cost in our corporate and other.

Yes. Great. I mean that plays into the next question, which is there are some puts and takes for the raise in margins here with some of the noncore solid waste pieces. But it feels also like core solid waste margins are performing better versus the guide. And I want to understand kind of what the main drivers of that are? And then in particular, as you look at the full year, any change to corporate expense expectations? Or is this really a story about better leverage in C&D?

I think, Noah. It's John. I think you hit it right there at the end, which is if you look at the margins and the OpEx for the quarter and you think about the wildfire and fuel impact on margins, it really does highlight exactly what a great job the team has been doing on controlling costs for all the things I talked about through my prepared remarks. And we -- and despite the volume challenges that David referenced that we'd see in the back half of the year, the only thing that's changing really is the volume -- excuse me, the revenue adjustment we just spoke to. But obviously, upping margins and keeping our EBITDA and free cash flow targets intact, I think, just speaks to the strength and the resiliency of the business model we've built.

And I think on corporate and other, we saw improved performance sequentially from Q1 to Q2. It's largely driven by timing of certain expenses, which can create some of that variability quarter in, quarter out. But I think what's important, if you step back is from a full year perspective, while we see variability in various segment contributions, we remain confident in our full year outlook of overall operating EBITDA. And like we alluded to a lot of times with the operating costs in terms of flexing according to the conditions of the business, we do the same thing on SG&A as well.

Our next question in queue coming from the line of Kevin Chiang with CIBC.

Maybe just more of a macro volume question. Just wondering the tone, maybe a little bit softer on volumes. Just wondering, as you've talked to your customers over the past 90 days, whether you've seen a change in sentiment just given how volatile the overall macro has been and commodity prices have been all over the place here. Just are you sensing that from your customers versus maybe what they would have been messaging entering 2026?

We're really not. I'll tell you, Kevin, I just looked at our volumes this morning and 2 of the best indicators for us of the health of the economy are roll-off, which is our industrial line of business and then special waste. So John talked about special waste being 4.5% positive if you exclude the wildfires and continuing to show strength.

And looking at the -- over the last 4 weeks compared to the same 4-week period from the prior year on roll-off volumes, industrial volumes, they were -- it looked like they were up 50 basis points. That's a pretty good indication that the economy is doing okay. As I said kind of early on in the first question, we don't see it blowing and going, but we also don't see it kind of falling off a cliff in any way. So I'm not sure the macro economy is really a driver here. Some of it has been a bit of national accounts lost business on the commercial side. So it is a bit of a mixed picture for us if you look at it by line of business. But if it gives you any comfort, we're not seeing the economy show signs of weakness.

Okay. That's helpful. Just wondering, as we kind of enter the back half of this year, we've seen a little bit of volatility in D3 RIN prices and maybe arguably upside volatility given we saw a couple of 52-week highs in the past couple of months. Does that change how you think about, let's say, hedging out your exposure as we look out into 2027? I know you typically think of like, call it, 80%, 40%, 20% kind of 1-, 2-, 3-year split. Does that change just given the recent volatility in RIN prices we've seen?

No, not at all. Our approach remains the same. And just to give you some context on where we are today, we have 90% of our volume locked up for 2026. So very little impact from the rise in RIN prices in 2026. However, it will have an impact in 2027 and should be positive. And as we look at 2027, we have roughly 1/3 of our RINs presold. So we're doing a nice job of making sure that we are locking in some of our offtake and making sure that we have a little bit of an opportunity to see some of the upside. Really pleased with where we're at.

Our next question coming from the line of Trevor Romeo with William Blair.

First one I had was just on the free cash flow outlook. I think just maintaining the guidance despite some strength in the first half. So I think if you look at the last few years, you've generated more than half of the kind of the year's free cash flow in the back half. I think this year, you're already over 50% in the first half. So maybe you could just help us kind of with the cadence you're expecting? Are there any items, working capital or otherwise that would make conversion step down in the second half? Or is there may be some conservatism there?

Sure. Sure. I'll jump in. We're very pleased with the performance of free cash flow through the first 6 months, and we do feel like we're in a strong position to deliver our full year expectations. As we alluded to in our remarks, Q2 was up 35%. First half was up 57%. Our guide does call for free cash flow being up 29% year-over-year. This will be our third year in a row between 20% and 30% increases. And as we exit this year, we will have doubled the free cash flow in the last 3 years. So those are all really strong points to highlight. This growth is driven by strong earnings growth, lower CapEx, which we alluded to.

Working capital, you highlighted that. It has been really strong the first half of this year, including things like accounts payable. So we're keeping an eye on that. There could be some upside there, but we're obviously -- we're tracking kind of what our historical trends with AP, and that's one element that's keeping us within our guidance range. But we'll give further update in the fourth -- excuse me, in the third quarter as the year continues to progress.

Okay. And then maybe a follow-up on the recycling business, which really good results in the quarter. I think, Jim, you mentioned you processed 12% more recyclables year-over-year. So maybe how much of that is new facilities versus improving throughput at your existing facilities? And then maybe just a quick update on kind of where the commodity markets stand with green shoots in the fiber market you called out earlier in the year, and we've already seen some improvement in prices in the first half. But where do you think -- where are you expecting that to come out for the full year at this point?

Thanks, Trevor. Yes, we're very pleased with the performance of our recycling facilities. And at this point, we've built out 38 of our 39 that we originally had in our capital plan. Our last one will come online in 2027. And it really is coming from all angles. Our new facilities are performing really well. If you look at our 2 new facilities in Canada, really strong performance in that extended producer responsibility market. And then we are seeing volume improvements at our automated facilities. And you're seeing that show up. We were just talking a little bit earlier about our internalization rate, and some of that is coming from the recycling facilities that we've built.

All in, this is just a really great story in our automation journey. We had committed to roughly 1,200 roles that were hard to fill, and we've exceeded that number at this point. And you're seeing it translate into our EBITDA performance despite the fact that commodity prices were down year-over-year. So the trajectory is really strong on the recycling business and will be so that we can support our customers.

On the outlook for commodity prices, we had started the year with a full year outlook at $70 a ton. We're a bit higher in Q2, which you saw, and we're seeing OCC prices creep up, which we had somewhat expected for the back half of the year, and we're starting to see a little bit of positive movement on plastics. So I think what you'll see from us is that our full year outlook on commodity prices might be slightly higher, but it will likely be offset by some operating issues primarily related to the fire that we had at one of our Arizona facilities.

Our next question coming from the line of Tami Zakaria with JPMorgan.

I think you recently purchased a landfill in Florida. Can you just remind us whether it was already planned? If not, how much tonnage do you expect this to run rate at and over what time frame? And how strategic this might be in that region overall?

Tami, you broke up a little bit. I think I got most of it, though. I think first, I'll start where you finished, which is strategically. We've got obviously a terrific set of assets down in South Florida and I have been down there, gosh, for 50 years. And the real estate we bought is obviously an extension of our investment in that market. We've had the Medley landfill down there for decades and the real estate we purchased is tied to the opportunity we see to continue to perform in that market. So what was the other part of your question?

When do you expect that to be operational? And what run rate tonnage would you expect in that landfill?

I don't know the tonnage there off top of my head, what I would tell you is we do have a decent amount of airspace left at Medley landfill, but we didn't want to -- we want to take the opportunity to obviously get the property under the WM moniker now. So we've got a number of years before we're going to be required to move over, which frankly gives us the latitude to go about doing what we have to do between now and then and get that site ready well in advance of when day 1 comes.

The way I would think about it is just extending our competitive advantage in that market, and the Miami market is clearly 1 that's going to grow long term.

I think, too, part of the extension of that competitive advantage was what the Florida team did with building out that rail line. So we built out a couple of years ago, probably 2 years ago, built out a rail line with a rail partner. And we -- so we're moving volume at actually either the same or lower transportation cost from South Florida up to a landfill that has over 100 years of life in Central Florida.

And so all of that is part of kind of the strategy of furthering our really strong disposal position. It's a bit of what we talked about at Investor Day last year, how important that moat is around our business, which is disposal, whether it's recycle centers, whether it is transfer stations or in this case, whether it's landfills. And with the steps that we've taken in South Florida now, including the purchase of this property, we really have a good position in disposal for the long term.

Understood. That's very helpful. And my second question is I was hoping to get some help with the modeling. How should we think about C&D volume growth or volume decline in 3Q versus 4Q?

I think we're kind of saying it's flattish in the back half. Collection, disposal should be flattish in the back half of the year. And so it takes us for the whole year to about negative 0.8%, I believe. Our original guidance was positive 0.4%. So a bit of a falloff, most of which, as I explained, was related to not recovering the volume loss from that strong winter.

Our next question coming from the line of Faiza Alwy with Deutsche Bank.

Yes. I had a few clarifying questions just on the guidance change on the revenue line. So one, I just want to confirm, I think, David, you said that you're anticipating $175 million of fuel -- higher fuel surcharge revenues. And I believe you already got $100 million this quarter. So one, I want to confirm that, and that seems a little bit conservative. So it sounds like you're anticipating that fuel prices would kind of normalize at some point this year?

And then secondly, I believe you said $250 million of lower volumes, which seems to be a combination of the lower solid waste, lower brokerage and lower RNG. So I just want to understand what the positive then $25 million delta is.

Yes, I'll start with the second part. The $250 million is really just in the Collection and Disposal business on volume impact to lower revenue. The $175 million for higher energy surcharges, which equates to about a 20 basis point margin headwind really is kind of carrying us through Q3, and then we start to see some decel or normalization of diesel prices and other prices that go into the calculation of the energy surcharge. So depending on your view of kind of how long we're going to be at this higher level that I just wanted to give that clarity as well.

Okay. And then the positive -- it sounds like there's a positive $25 million delta.

Not from our side, sorry, I'm not sure what you're referring to.

Okay. No, I think you said $250 million lower revenues, right, and then $175 million of the surcharges, so that's $75 million and then -- sorry.

Sorry, a net-net $75 million impact on that piece on the Collection and Disposal side. And then on the sustainability businesses, we called for about $75 million of a reduction related to the volumes, both on the recycling brokerage, which Jim alluded to, which doesn't have necessarily that much of an EBITDA impact. And then we also talked about the lower RNG volume associated with some of the plant delays and the pipeline interconnects. Those are the 2 pieces.

Okay. Got it. And then just on the volume piece within solid waste, like is this -- I know you made some comments around -- you're not sure if this is related to macro. Like do you think it's related to just the higher fuel surcharges? And like if you could give us a bit more context around where you're seeing kind of where the volume recovery didn't happen? Is it more around the residential commercial side, more industrial side, any particular regions? Just any additional color there would be helpful.

Yes. I don't think it's so much of a kind of a price elasticity issue here with higher fuel surcharges, particularly when we look at the volume, we -- as John mentioned, we did see a nice -- a fairly nice pickup in industrial volumes. I mean we've been negative in industrial for 5 consecutive quarters. And so to see that kind of get back to flat and slightly positive, as I mentioned, over the last 4 weeks, that is -- that's a good news picture for us.

The volume negativity was, for the most part, was in the commercial line of business. And that commercial line of business was driven more than anything else by some lost national accounts. Typically, when we lose national accounts, it ends up being as a result of kind of price. So -- but when we win national accounts, it ends up being something other than price, which tends to be things like data and analytics.

So our national accounts team is pretty optimistic about what national accounts holds for the back half of the year. But the front half of the year, we did see some -- and last -- back half of last year did see some losses in commercial, which impacted that commercial line of business. So to answer your question, I don't think this volume has anything to do with the fuel surcharge.

And our next question in queue coming from the line of Jerry Revich with Wells Fargo.

I'm wondering if you folks can just talk about with the digital investments that you folks have made over the years and lots of AI processes that you've spoken about in the past. Anything that you're able to do now that the AI models have accelerated over the past 6 months and even 3 months that you folks are thinking about as an opportunity for WM to accelerate some of the initiatives that you folks laid out at the Analyst Day?

Yes, Jerry, I think the example I gave in my prepared remarks about our SmartTruck platform, which is a combination of artificial intelligence and other forms of technology, certainly, $300 million of run rate EBITDA is significant. And I would tell you that we look at it not just from an AI perspective, but if you look at our road map and how we're going to modernize the business, it's really a technology road map that includes artificial intelligence, right? We talked about -- Tara talked about the great results we're having even in a $70 recycling market on the recycling business. A lot of that has to do with the technology investments we've made to modernize those plants and a component of that is artificial intelligence, right?

So I don't look at it as just AI, I don't think we do as a team. I think we look at it as more of a broad technology road map. And I will tell you that when you look at the operating performance of the business, collection, disposal, recycling and you look at what we're able to do to compress the operating cost pressure. I made the comment in my opening remarks that we're under 1.7% on the collection side. I think that's a combined demonstration of where this technology road map and investments are paying off.

Got it. And then, Tara, can I ask for the landfill gas outlook? Can you just give us an update on the earnings ramp '27 versus '26? Nice to see D3 RIN prices moving in the right direction. How are we doing operationally? Are you folks scaling as you expected as additional facilities come online?

Yes. We're pleased with the results when our facilities come online and the ramp of those. What we're seeing right now, the couple of facilities where we're having issues getting into the pipeline that will have an impact on volumes for 2026. So our volumes will be a bit lighter than we had anticipated at the beginning of the year. But as we roll to 2027, we'll give updates, obviously, as we get closer, but we feel confident about our ability to deliver when those plants are built.

Super. And last one, Jim, can I get your views on what you're seeing within residential? We've seen across the group, greater churn, I think, over the past, call it, year or so, it feels like competitive intensity in rolling up some of those residential assets might be increasing. Would love to get your take on where the industry is at regarding PE involvement in those areas or when we might see a slowdown in the residential churn?

So I can probably give you a good answer, Jerry, but I bet, John can give you a great answer, so I'm going to pass it over to him.

Yes, Jerry, I think what you've seen over for, gosh, the last 8 quarters, 10 quarters, 12 quarters is volume losses that have been 4%, 4.5%. And we talked to everybody at the end of the year about us starting to see that moderate. So I think 2 things are happening. You're starting to see the front end of that moderation, obviously, the 200-plus basis points in defection improvement.

More importantly, though, is I think when you look at the performance of that business, not just because what we've done about being selective on the top line of what we would take and the contract improvements, et cetera, but what we've done in the middle of the P&L there to make that a much more competitive cost model. We've more than doubled the EBITDA margins in the last 4 years in that business.

And we said that when we got to the point where that line of business started to compete for investment with our other opportunities that we saw that turn into an opportunity for growth. Now we're not there yet, but you're starting to see the moderation. And we do think probably sometime middle to end of '27, we could see a pathway to us getting to flat to positive, and that's where that starts to become a growth opportunity. But it's important to note, it's not just price on the top line. It's really what the team has done to modernize that business model in the middle and make us that much more competitive.

Our next question coming from the line of Konark Gupta with Scotia Capital.

I just wanted to dig into the margin outlook for the second half. So if you look at the first half, I think your margins were up 60 basis points versus prior year. The guidance implies, I think, 30 basis points for the second half improvement over last year. I'm just thinking like in the second half, you have wildfire comps, which are easier. You have recycled commodity prices are higher, surcharges are lesser than the first half. So what could potentially be weighing on the second half margin improvement versus the first half?

Yes. I mean I think -- yes, as we guided to the 20 basis point improvement for the full year earlier on the call, Q2 was by far our toughest comp. I mean margins improved 110 basis points sequentially to 30.9% and really proud of the team's efforts to get that number. What you should expect to see as margins progress in the back half of the year, they should progress from that level into the back half of the year. It may not be a straight line, but we do expect to see elevated margins for the back half of the year. And again, you highlighted really the key contributors, which is we have only a small wildfire impact in the third quarter. It's pretty de minimis. And then we are assuming that the fuel surcharge becomes less of an impact as we get late into the year.

You also heard other commentary like around commodity pricing. If you think about on the renewable energy side, as Tara alluded to, a lot of that is kind of locked in already. So we have that kind of baked in as well. And then if you step back and just look over the last 3 years, we have improved margins by 70 basis points on average. And this -- our expectation for this year is this will be the fourth year of margin expansion as well.

I think, David, one other thing that I would mention also is WM HS. I mean if you think about the price side of it, we'll exit the year at 5.7%, finished this quarter at 4.5%, and we continue to see improvement on the cost side. So WM HS is really starting to flex its muscles a little bit in terms of adding to the good picture.

And while we are at WM HS, any thoughts, Jim, on the revenue outlook for that business now? It seems like it's almost fully integrated here. You're hitting some strides on the cross-selling side of things as well. Do we see some growth in the back half heading into '27?

Yes. If you recall, we talked about the headwinds we knew we were going to be facing that business in the first half of the year. I think the number we gave was about $40 million of known losses on the hospital side of the house, which are obviously starting to sunset. And I think we're going to obviously see that. And I made the comment in my prepared remarks, we're going to see price continue -- price performance continue to improve for all the revenue quality issues that Jim addressed earlier.

I think we're continuing to see strong SG&A improvements, too. We talked about that, and that relates back to the margin commentary you just heard from David and Jim. And Jim commented on, we just got a $15 million win out of one of the national account businesses. So there's a lot of detail, but not that I'll bore you with it, but we feel very confident that not only is the price going to accelerate through the back half of the year, but a lot of the volume wins we've talked about for the last couple of quarters really have moderated in the first half of the year, and we're going to -- we're confident we're going to see that benefit in the second half.

Our next question coming from the line of Sabahat Khan with RBC Capital Markets.

Jim, maybe taking the discussion maybe to the medium term, I heard a lot of the comments around the healthcare business accelerating through the back half of the year. Now that it's fully integrated, you had some time to look at it. Could we maybe revisit your sort of medium-term outlook for that business? Do you still expect it to grow sort of maybe in line or whatever the current view is relative to the rest of the base business? Maybe just talk to us about what you've seen in the last little while on the top line opportunities, maybe just focusing on the growth versus the margin side for maybe the next few years?

Great question, Sabahat. And we focused so much over the last couple of quarters when we talk about WM HS on kind of things like the billing and kind of short-term items, which were the right things to focus on because there was this longer integration going on. But now that we feel like we're integrated, we can really focus on what this business, to your question, what the business looks like for the medium and long term.

And I've said it before, but if you think about this space, meaning healthcare and the aging population, all of those reasons why this was an attractive business for us, none of those are changing. All of those are still good stories for this business specifically. So we're -- I don't know whether relieved is the right word. We are relieved to have this business largely integrated now. And now we can really focus our sales team, our national accounts team, our operating team on all those things that we do well, our pricing team. And then when you add to that, the kind of the macro effect of demographics and growing healthcare expenses, this really is going to end up being a fantastic business for us, exactly what we thought. So I haven't changed my optimism when I think about the medium term and the long term.

Jim, the one thing I might add that we're seeing is as we get better integration into the business, to your point, now this does become more and more of sort of the scrambled egg, which is a lot of the benefits of the business. We talk about -- for instance, we commented on what's coming -- what benefits are coming from cross-selling, right, $32 million going to $50 million probably getting there a little quicker than we anticipated.

Keep in mind, that's not just going to show up in the Healthcare segment. A lot of those benefits and some of the go-forward benefits we've identified, whether it's back office, real estate, all those things are going to accrue to WM, but they're just -- they're not going to be necessarily specific to what you see in the Healthcare segment by itself.

Great. And then just for my follow-up, not meant to be a throwaway, but just as we think about capital allocation, this business largely integrated, you're doing dividends, buybacks. I guess what does the sort of the medium-term focus look like on the capital allocation front? Sort of what's next for WM on maybe any larger investments as sort of the RNG projects, recycling facilities in [ STRL ] are sort of getting wrapped up?

Sure. Yes, I'll start. Kind of if you think about with the acquisition of Stericycle and you also kind of look even back to when we acquired ADS, what we've demonstrated is really a good track record of being able to delever really quickly and get back to our targeted long-term leverage range and maintain that healthy credit profile. And kind of with that as the backdrop, our capital allocation framework really hasn't changed.

We alluded to earlier that we're going to index a bit higher on tuck-in M&A activity as an example. But in terms of the prioritization in terms of how we are focused on funding and investing in the base business to maintain the best assets in the industry, supporting the dividend, prioritizing and funding growth that's in line with our strategies and our competencies and then always having kind of an outlet for returning excess cash to shareholders. None of that really changes.

It's really just tuning the dial based on the opportunities that we have. You alluded to our heavy push in sustainability. I mean we do have some additional investments going into those areas, but it's on a much smaller scale right now, but we are continuing to invest in the business as we see opportunities.

Our next question in queue coming from the line of Adam Bubes with Goldman Sachs.

First question is on RNG. And what we've seen from a lot of landfill gas developers is that the facilities can take several years to reach sort of normalized utilization levels once online. Does the 25 million MMBtu production run rate, does that represent like a normalized production level? Or should we think about that as a conservative base from which volumes can continue to grow?

So you're right, there is a ramp period when we bring online an RNG plant, and that's something that our team has done a fantastic job of really accelerating compared to our industry peers, and we also have one of the highest uptimes in the industry when you look at how we operate our RNG plants compared to others. So the 25 million is really a focus on, one, what those plants look like once they've gotten through their sort of 6-month shakedown period and then also how we're looking at the ramp of landfill gas volumes at those sites.

Got it. And then just a follow-up on the margin outlook for the back half of the year. So I think the full year margin guidance implies 30 basis points of margin expansion in the back half. In 2Q, you did 40 basis points of margin expansion, and you'll have an absence of the wildfire comparison in the back half, which should be a tailwind relative to 2Q expansion. And it sounds like the impact from the fuel impact is easing as well in the assumption. So just trying to -- what's driving like the lesser margin expansion in the back half than the 2Q level?

I mean -- so we're calling for -- I mentioned the 30.9% that we posted in Q2. We're calling for Q3, Q4 to be higher than that level. It won't be a smooth straight line in terms of Q3, Q4, but we are showing net-net expansion for the second half of the year.

Remember, last year, Adam, that the back half of the year was our strongest margin year. So we're going to have a tougher comparison as we go through the rest of the year. But as David pointed out, we're expecting to see continued margin expansion as we go through.

Next question in queue coming from the line of Bryan Burgmeier with Citi.

You flagged some labor cost increases in your prepared remarks. I think it's up maybe 4% in the first half of the year. I guess just how did that compare to your original expectations? And are you assuming a step up or step down in the second half?

I would tell you, Bryan, I looked at this actually just in the last 24 hours, it's about what we expected. We said 4% to 4.5% was sort of the wage inflation. If you look back what it was a handful of years ago, it was higher than that. But in terms of what we expected, I think we're right in the range that we thought we would be. And that's why I think it's that much more impressive when you look in particular at the collection business, the comments I made that our folks were able to push the cost increases sub-2% when, as one example, labor is just north of 4%.

Got it. Got it. And last quick question for me, and I'll turn it over just curious the outlook for Healthcare in the second half of the year. Do you think we start to see some revenue growth in the third quarter after you lap those pricing actions? I think the EBITDA growth starting to come through, but just curious on the revenue side.

Yes, Bryan. I think if you look at some of the friction that was still there in the second quarter, we talked about that's going to moderate in the second half of the year and for us to still grow margin and EBITDA, I think is really strong. I think the momentum on SG&A being sub-20% ticking down towards 15%, 16% EBITDA margin growth. And then you couple that with the headwind on the revenue side that should -- is moderating and the pricing performance that Jim in particular, has talked about the last couple of quarters that's really starting to show itself in a good way. I think we feel good about the second half of the year.

Next question in queue coming from the line of Stephanie Moore with Jefferies.

Maybe talking on the margin performance in the quarter and then the outlook for the second half of the year, particularly the underlying margin improvement, it would be helpful if you could maybe bucket the areas where you are seeing strength. Maybe talk through some of the price cost spread, the benefits you're seeing from your productivity and AI tools. Any way you can maybe bucket the drivers of the strong underlying improvement, that would be helpful.

Yes, Stephanie, I think you hit on a couple of points that are really important. I think the cost price spread is 1 of them we talked about sort of 250 basis points being a milepost, if you will. And the reality is, at least in this quarter, we outperformed that. I think -- if you look at just the Collection and Disposal business, net of wildfire impact, net of fuel, and there's always puts and takes, but those are 2 pretty significant ones for the quarter. Really impressed with how the team has performed.

And as Jim mentioned, from a volume perspective, I mean, while we've got some green shoots, it wasn't a huge tailwind and yet you look at the performance of the business, from an EBITDA standpoint, EBITDA margin, OpEx and the outlook for the back half of the year, still maintaining our guidance is terrific. And we just talked about, I think, the other momentum builder that we've been working hard at, which is really starting to show is the Healthcare business.

And I think as I mentioned, you're going to see -- you're seeing the benefit in the Healthcare segment performance, but you're also going to continue to see the benefits accrue to the broader WM portfolio.

The only other thing I think we should amplify is that all of our businesses are contributing to margin enhancement, not just for the first 2 quarters, but for the rest of the year. So it really speaks to the diversified nature of our business and we're able to pull levers in all of our spots.

Our next question in queue coming from the line of Connor Cerniglia with Bernstein.

Great. Earlier in the Q&A, you mentioned within the commercial segment, a lost national account. It seems like this is the first time you all have really commented on weakness in the segment related to price. I don't want to blow things out of proportion, but is this a one-off? Or do you think this is early signs of maybe greater competition in the commercial segment. I know residential has been that way for quite some time. But do you see increased competition from residential starting to bleed over into commercial? Or is it just more of a one-off?

I think it's probably more of a one-off. I mean, we always have a lot of competition in the small and medium business segment. There's a whole host of competitors for that business within commercial. National accounts is really what I was referring to where we lost some business. And I don't see any additional competitors there.

We have maybe a couple of national competitors, and it's that few. And then we have a couple of brokers that can cobble together network. And so they can compete with us. Typically, they compete on the price side, the brokers do. So we tend to see that business ebb and flow. It's been more of a flow than an ebb, but for the first half, it was a little bit of a negative impact from some accounts that we lost back half of last year and maybe into the front half of this year.

Overall, the national accounts business from both a volume and a price and therefore, an earnings standpoint has been growing significantly for us over the last probably 3 to 4 years. So I would not read anything into my comments about losing a bit of business in national accounts in the commercial line.

And I'm showing no further questions in the queue at this time. I will now turn the call back over to Mr. Jim Fish, WM CEO, for any closing remarks.

All right. Thank you. Well, I don't have a lot of closing remarks. I'll just say thank you all, as always, for joining us, and thank you for your very good questions, and we'll see you next quarter.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.

Well, thanks, everybody, for joining. My name is Trevor Romeo. I'm the analyst here that covers waste and recycling at William Blair. Before we start, I'm required to inform you for a full list of disclosures and conflicts of interest, you can visit our website at williamblair.com.

Today, we're very excited to welcome WM to the William Blair Growth Stock Conference. WM, I'm sure many of you know, is the North American leader in waste and recycling services. Very happy to have him here. So I'm pleased to introduce CFO, David Reed; Chief Customer Officer, Mike Watson; and Ed Egl from Investor Relations is out in the audience as well.

So we'll start here. I believe you have a couple of slides, and then we'll do some fireside Q&A. And then after this, there is a breakout session in the Mar Room upstairs for anybody in the audience who would like to ask some questions. So I think just to start, I mean, I think a lot of people are familiar with the green and yellow trucks. I see them around Chicago all the time. But maybe you could kind of speak to where WM is today, what's changed in the story in the last 5 or 10 years? And take it from there.

Absolutely.

No, happy to be here, and thank you for having us. We have a cautionary slide here. I'll move past that. But we have a slide here highlighting some of our investment highlights. Obviously, the company has been around quite a long time. We were founded in 1968, went public in '71. As Trevor mentioned, we are the largest environmental services company in North America. And that's really -- if you look at our asset base, these are really hard to replicate assets. If you think about landfills, some of our recycling facilities, we're the largest recycler in North America as well. If you think about what people like about investing in our business, it's the predictability of our cash flows or revenue stream. About 75% of our revenues have annuity-like characteristics. We also have a lot of protections, and we're very nimble in terms of how we perform in different economic environments.

And so if you think about the recent fuel spike that happened late in the last month or 2, we've had things like fuel surcharges that we're able to absorb those with minimal impact economically to our business. And so really recession-resilient, like qualities, really good cash flow characteristics. We'll talk a lot more about that because to your point about some of the journey we've been on, one of the things we'll talk about is some of the sustainability investments we've been making over the last 4 or 5 years. We've deployed about $3 billion into 2 different verticals. One is recycling automation and new markets to further expand that market. And then also with our landfills, we naturally generate landfill gas. And for many years, for 40-plus years, we've been converting that to electricity. The last handful of years, we've been investing in renewable natural gas plants to convert that. And this is a really good circular story for the company.

We have the largest CNG fleet in North America, heavy-duty CNG fleet in North America. And so this is a way for us to essentially close the loop. And there are several ways we can monetize the value of that renewable natural gas, one being through the RINs market and the other through a voluntary market, which we can talk about. So we're kind of nearing the end of that sustainability push. We also closed an acquisition of Stericycle at the end of 2024. We funded that acquisition with debt. And so for -- from a capital allocation standpoint, we were kind of on hold with our share repurchase program while we were letting the leverage come down. We're now at a point where that leverage is in our long-term targeted range between 2.5 and 3x. And so we -- this year, we did commence our share repurchase program in addition to a nice dividend increase for the year.

And so this is -- we talked about this year being the year of harvest because some of these investments have come to fruition, and you're seeing our free cash flow conversion get back to really normal levels, and we see improvements from here. We're calling for about 46% to 47% free cash flow conversion for this year with a pathway to improve that over time. Move on to the next slide. Just a little bit of snapshot I covered on some of this. But last year, we printed over $25 billion in revenue with EBITDA -- adjusted EBITDA of $7.6 billion. We have about 60,000 employees. You can see that collection and disposal is really the lion share of our business. That's over 80% of our business. And then you can see some of these other growth areas that I referenced, both Healthcare Solutions, which is the Stericycle asset I mentioned, along with recycling and renewable energy. I talked about some of these. I talked about the recession resiliency, recurring revenue. I also talked about the flexible cost and capital spending.

We really can be nimble, even though we're a large company, we can be nimble. And if you think about our customer diversification and our asset base. It's a very local business fundamentally. And so no single event really has a material impact on the business quarter in, quarter out. And so I don't know, Mike, if you want to touch a little bit maybe on the customer base?

No, I think the customer base is quite diverse, and I think it allows us to have flexibility, and we'll talk a little bit more later on today about our opportunities to cross-sell across our different segments. But ultimately, based on any economic impacts to certain segments, we're definitely insulated, whether it's construction, other parts of the business. And I feel that just plays a critical role in our value proposition and steady, consistent earnings and cash flow.

And then our last slide is just -- I always love a map, a good map. And so this one is great. It's obviously a lot of dots on here. One thing that maybe just to point out, and I know, Trevor, I know you've written some research about this, too. But if you think about landfills, those are really hard to replicate. In many geographies, there hasn't been a greenfield landfill permitted in decades. And so we're really good about getting expansions. And if you think about the 253 active landfills that we do have, they are strategically positioned. In 9 of the top 10 MSAs, we feel like we have the best strategically positioned asset.

We're also with -- as you have capacity coming offline in certain geographies, we feel like we're well positioned to absorb incremental volumes in the future, whether it's rail or other mechanisms to get those tons to our landfills. You'll also see that our route count is higher than we previously reported. That is because of the health care solutions. We run about 15,000 commercial traditional collection routes and then about 4,000 additional health care solutions routes as well.

I think the one thing I would add, David, if you look at the medical waste incineration, our post-collection assets, the scarcity of those, it really provides us with an asset network moat and for us to really provide the most comprehensive suite of services across North America and any environmental service, whether it's hazardous waste, medical waste, traditional solid waste or recycling. So we feel we have multiple platforms for growth as well.

So with that, I'll pause and maybe turn it over to you.

Yes. I appreciate that very efficient intro and really honestly, leading right into my first set of questions here, which was on the asset network because you look at these dots on the map and you have an industry-leading portfolio of assets of post-collection assets, which are scarce nowadays. So I guess several different ways you could go with this question, but maybe we'll talk on the pricing side. And I think your MSW landfill yields have been very good lately. You really want to make sure you're preserving that kind of scarce air space. And you also have to balance high-volume customers that bring volumes into your landfills.

So how do you think in a world where you look out 10 years, 20 years, we had many more landfills closing across the country. How does your asset network, your ability to move waste in a variety of different modalities and just the scarcity and quality of your asset base, how does that kind of accrue to WM as a benefit?

One of the things we're doing, and we do this with our customer segments as well, but we're looking at the airspace lifetime value. And so we are evaluating we're forecasting what we think the pricing could look like 10, 15 years out and seeing what the price is today. And are we better off preserving some of that air space, particularly in those close-in landfills or do we take that volume in today. Some of this is new volumes. We have a lane in Florida where we're basically just moving existing WM volumes from a closer in landfill and then transporting instead on rail to a much larger landfill that has a tremendous amount of useful life. And so that's just a trade-off we evaluated and we felt it made sense.

The rail connectivity was already in place. So that's a great example. We also have, to your point about you can lock up strategic long-term customers because you're helping provide solutions that they're facing. We have a landfill in Indiana that we have rail access to, and we're taking volumes out of the Northeast. And that was new volume to WM. So this is -- I think our capabilities in managing complex logistics helps us find new opportunities to grow.

Yes. That's great. So those 2 are great examples. I know you also have a very high quality, I think, rail served landfill in the Pacific Northwest. So maybe, I guess, this is kind of a topic we've had several of your peers here this week, and rail seems to be a topic that's gaining a little steam among the investor base, especially in areas like the Northeast. So maybe you can talk about the economics a little bit there. Like how far away does it have to be for it to economically make sense? What's the CapEx versus OpEx, those kind of kind of decisions that you go through?

Sure. I do think if you start -- if you think about miles, and if you think of like 150 to 300 miles, anything kind of inside that or shorter, you can use transfer stations and over-the-road tractor trailers to transport to a landfill. But when you kind of get beyond kind of 300 miles, you need to start looking at some other alternatives, including rail. The other thing that we have to look at is obviously with the railroads, like what is -- what are your options? What does the turnaround time look like? Because, for instance, if you're able to turn a unit train around in 6 days, that's a different capital story than if it's 2 to 3 weeks in terms of the number of containers that you're going to need in terms of evaluating that. The good news is once you secure some long-dated volume, the actual unit cost really starts to come down.

And so that upfront capital cost to build out the site at your landfill to take the containers off and then get them up the landfill, that starts to absorb away over time if you've got enough volume and it's sticky enough over time.

Great. Maybe I would like to shift over to pricing a little bit. So I know we kind of came through the last few years from a period of higher inflation, and we've been kind of decelerating. Now it looks like at least with energy costs rising, the overall CPI bucket is a little bit higher. So maybe you could kind of talk about -- you have some exposure to CPI kind of index contracts, some open market, how you could see pricing playing out maybe over the next year or 2 given that? And then maybe for Mike, how does WM because you kind of have industry-leading data and analytics capabilities. How do you leverage that? Does AI play into maybe optimizing that further?

Yes. There's a lot in that question. But I think most importantly, as we look at our pricing, we want to make sure we focus, as David mentioned, on the value. And we've taken a customer lifetime value approach, and that's really been our philosophy and really has been a durable and sustainable model for our pricing. But we back that up with making sure we have a price cost spread. And we target about 150 to 200 basis points in that process. And our index-based pricing allows a baseline to protect ourselves. Most of that is CPI, WST.

About 40% of our business is indexed. The other 60% allows us flexibility to earn a premium based on the value propositions that we put forth. A perfect example is what we just talked about in disposal. Our disposal yield for MSW is almost 7% in Q1 with positive 2.7% volume. So we really have a strong understanding of the analytics, the next best alternatives for this business. But as we think about our traditional business, we're using customer analytics. We have artificial intelligence on our trucks that provides us information to help us manage our revenue management. We take customer sentiments, attributes and how they compare to peer groups. That's allowed us to be much more sophisticated in how we price our customers. And that's why I think we've seen a consistent core price over many years, no matter what the environment, but also making sure we understand the trade-offs between rollbacks and defection. But we're always looking for ways to improve automation.

We have a lot of machine learning processes. I mentioned AI and even some predictive analytics that we've been employing in this space for quite some time. We're starting to move those up the customer journey a little bit more to understand how we can increase that willingness to pay.

Great. Okay. And then maybe we can switch to volume for a second. So it's been kind of an area of maybe cautious optimism among some of the peer group that the special waste category at least has started to improve. Now some of the construction activity might still be a little weaker, maybe depends which part of the country you are and so forth. But it's been a tough 3, 4 years for kind of the cyclical pieces of your volume. So maybe you could give us a sense of what you're seeing? Are you hoping for some improvement as we kind of exit this year...

Yes. And I'll try to maybe take it around different parts of our business. I'll start first with residential because there's some intentional actions that we've been taking that are still coming to fruition. And so we've been culling some of that portfolio to remove less profitable work. And so you've seen intentional volume declines for a number of years. Q1 was a little bit higher than we were anticipating or planning for. We did have one -- we did lap one large franchise loss at the end of Q1. We do expect that segment of the business to be down, call it, around 3% for the year. And -- but we do expect those volume losses in '27 and beyond to continue to get smaller and smaller and then potentially turn positive as we move from more of a business improvement mindset to a disciplined growth mindset in that line of business. We've really demonstrated tremendous value in terms of improving margins in that business notably while also actually growing EBITDA even though we're reducing volumes.

So we're making the right decisions for the long-term viability. It's of the 3 collection categories, it's the lowest margin of the 3. Industrial is one we've had some positive volumes of late, and we're still forecasting for this year kind of low single-digit growth. Some of that is related to the Healthcare Solutions business as we're putting more of some of that material on our backs versus third parties. And so we have a little bit of momentum from that, but then there's also some green shoots of potential opportunity of upside there. Commercial is one where it's slightly negative, and it still kind of looks that way this year, but hopefully, it becomes less so. Disposal is a positive story. You mentioned special waste. With us, you have to unpack and maybe one of our competitors, there was that large wildfire event last year in Los Angeles.

We had a lot of volume, particularly in Q2. I think about 75% of that activity shows up in Q2 for us. But if you strip that out in Q1, we did see special waste, call it, close to 7%, which is a really good sight to see. Our pipelines in that line of business also look decent. So that gives us a little bit of constructive optimism as well there.

And special waste can be a little bit of a leading indicator for potential new project activity as well, right?

Yes, it's event-driven and it's -- and so yes, usually your project managers in those -- are bullish when they're pulling the trigger to move those projects forward.

Okay. Excellent. Maybe another question for Mike. I know you had a whole kind of section dedicated to this at the Investor Day last year. But just talk about how you think about the customer experience, sales, go-to-market? What are some things you're doing to kind of increase customer stickiness and sort of unlock better wallet share?

Yes. Ultimately, our goal there is to improve the reliability and responsibility of our customers. That's the overarching goal. But some of the investments we made have been a lot of in the self-service and customer experience side. We've introduced 15 new self-service applications for our customers. That's been met with a lot of fanfare, excitement, utilization. Our self-service has improved just about 25% year-over-year and our high-cost call channels, the phone has come down 20%. So it's been a positive from a customer experience standpoint, a positive from a cost to serve standpoint, but it's also provided us with stickiness with our customers. I think the last point, and I think this is a connection to our focus on our frontline operators and technicians. We've had the lowest turnover we've had in years at [ 17%. ] I think that consistency has really improved our reliability.

So our service has improved dramatically in all the key categories, whether it's miss pickups, reschedules and the like. So I think that component of how we're performing on the street, along with the ability for us to service our customers better, it's really been a good way to keep that stickiness and that customer lifetime value, which plays a role into the pricing that we talked about earlier.

Excellent. Okay. Well, maybe we've got 12 minutes left. I want to make sure we hit on both the sustainability businesses and the health care solutions. So maybe let's take sustainability first. So you're coming toward the end of this multiyear sort of investment cycle. You talked about the $3 billion in RNG and recycling, I guess.

So maybe starting with the RNG. I think you've already announced recently 2 additional projects to the -- incremental to the original 20. We still have plenty of landfills out there on the map that do not have RNG facilities out there. So maybe at this point, we do have a new [ RVO ] out there for the next 2 years renewable volume obligation from the EPA. And how are you kind of thinking about potential future opportunities to monetize some of that landfill gas once this first kind of tranche of projects is finished?

Sure. So these are great projects. They're some of our highest returning projects that we've invested in over the last decade. There's also some additional knock-on benefits that we didn't originally underwrite. If I think about tax credits with these RNG investments, we have both investment and production tax credits that we've been able to monetize that have further enhanced those returns. If I also think about of the 20, particularly, the amount of volume that we're going to be producing, about half of that is going to be consumed in our fleet that I was talking about, so more in the RIN market.

The other half is in voluntary market, which is more of a global market phenomenon where folks are paying to decarbonize or to buy the environmental attributes of that natural gas. And so we've got customers in Japan, U.K., Canada as well as here in the U.S. That's a market that we also look to derisk. And so we have a risk management policy because commodity volatility in that business is a little bit different than our core operations. And so we have a policy or a framework where we're trying to lock in, in the current year, 80% of that price exposure and then in year 2, lock in 40%, year 3, 20% and then continue to manage that as we go forward.

In terms of -- yes, there's still a lot of landfills. We do have over 100 sites that already have some form of beneficial reuse. The majority of that is landfill gas to electricity. And that's actually an interesting kind of full circle phenomenon just given what's going on with data centers and electricity demand in the United States. We're finding that we're evaluating many landfills where we could potentially put more of a landfill gas to electricity operation to again sell power to the grid as well.

And those have lower capital requirements, you can get them faster to start. And so that's something we're also evaluating as well in addition to like looking at incremental RNG projects if the returns make sense and they match up versus our other alternatives for investment.

So it may come down to just sort of what is -- because you're already closing a loop on a lot of I guess, all of your fleet, the CNG fleet may come down to what is sort of the demand for the voluntary RNG market versus what's kind of a data center electricity type.

That's correct.

It will be interesting to see how that plays out, I think.

But I don't think in terms of the -- we spent $1.6 billion on RNG. I don't think investors should expect that it will be anything of that magnitude in the near term.

Yes. Makes sense.

And then on recycling, just real quick, we spent $1.4 billion, and that was broken into 2 different investment stories. One is automation of our existing processing facilities, and this was really to accomplish several things. One is you can think about it as a line of manual labor hand sorting materials to separate material. It was a hard job to fill, if you can imagine. And so it had high turnover. And so we wanted to, one, improve that dynamic, lower our labor cost, with this automation investment, we're able to increase throughput, also improve the quality that's coming out on the back end of that material and sell it at a premium. Those investments have performed really well.

We're also -- some of those investments are being made in geographies where there's strong regulatory backdrop with things like extended producer responsibility or minimum content legislations developing. The other investment wave was in new markets, so broadening -- finding markets where recycling is not as penetrated and building assets there for future growth as well.

And on those new projects, in particular, would you say that the that you've been able to fill up all that capacity, I guess, to the amount that you originally had expected in those new markets?

It's mixed. I mean we've made good headway, and I do think this is kind of the long-term plan. And many of those are also in geographies where we do have the regulatory backdrop. If I point to Canada as a great example. In Ontario, we built 2 plants. And the other benefit of those is that there's no commodity risk that's really a processing fee and it's long-term contracts. And so we just have to make sure when we do make those new investments that we're putting it in positions where we can be successful.

Okay. Great. So then maybe with -- we'll see if we take up the last 7 minutes, but let's move over to the Healthcare Solutions business. So maybe people in this room will be familiar with Stericycle. They used to attend this conference back in the day. It sounds like kind of from a customer perspective, the ERP integration is starting to move along nicely.

The billing process has improved. You've kind of walled off the customer from that in the back end. The customer credit activity that happened kind of in the latter part of last year sounds like it's peaked. So kind of can you just tell us how is the core Healthcare Solutions customer feeling today? What can you kind of do from a price and volume perspective as you move second half and beyond?

Yes, Trevor. I think one thing that's most important is we're very, very excited about the opportunities we have in the health care business when we acquired Stericycle and Shred-it at the end of '24, we are focused on the secular trends of health care, the way we can combine a group of assets that we have demonstrated here that are unparalleled, but also provides us for multiple platforms for growth, and we still feel very strongly about that. We have had some issues with the ERP, which have been stabilized. We've rolled off the customer, as you mentioned, and we're focusing on things that can really set this up as a platform for growth.

As we look at our long-term perspective for this, we expect to have 5% to 6% revenue growth. We're building '26 as a bridge to that, mostly price, a little bit of negative volume as we had some losses in 2025 that crept into 2026. We feel really good about introducing all the things we've talked about that WM does well into this business, and it's been very successful. We're on track for our synergies, which is great. As I look at some of the key customer metrics, our defection is down, our customer satisfaction is up. Our calls to our call center are down 30%. And I think most importantly, we've increased our service reliability from the mid-80s to upper 90s. So all those key metrics make us feel comfortable and confident that we'll be able to use this as a platform for growth that we expected. We still have opportunities on the SG&A side.

When we acquired this business, it was in the upper middle 20s. We brought that down to the upper teens. And we -- that's -- quite a bit of work has been done there, but we still feel very comfortable that we have a plan to bring it down to -- eventually down to where WM is, but it's going to take us some time. We've got some integration opportunities on the technology side that are a little duplicative. But I think overall, the top line, we feel really good about. Cross-sell is a big win for us. We've already been having some success there. About $28 million of EBITDA has been generated from cross-sell in just a short period of time. I think that's a combination of selling WM services to Stericycle customers and vice versa. So really feel good about the trajectory, maybe a little slow out of the blocks on the ERP, but we're really starting to catch our wind. And I think all the impacts that we have are just going to be accelerated as we look into the future?

I think it's been interesting to see if we talk about the -- particularly on the cost side, the $250 million of synergies, as it's been -- those are things we could point to pretty clearly and identify. But as this business has been integrated into our existing area structure, we're seeing a lot of additional ideas come to fruition and particularly given that our areas manage profitability all the way down to the site level. And so they're coming at it from a different angle. And so I do think there's some optimism about continued momentum as well on the cost and opportunity side.

Yes.

Well, that's great. I guess one question that I have over kind of the longer term, you have talked about officially $300 million of total synergies, including the cross-selling. I think Jim on the last call kind of hinted it could be a little bit higher than that. But take all that into consideration, you look out maybe 5 years from now for this Healthcare Solutions business. I know some of the synergies are realized in the collection and disposal line. But what is a realistic margin profile for this business kind of over the very long term?

Yes. It's -- so it's -- right now, it's kind of in the mid-teens or upper teens for this year. We do see a pathway in the next several years to get it to that kind of mid-20s. And then to Mike's point earlier about continuing to make improvements in things like SG&A, we could continue to see to have it march up closer to our company average.

Okay. Great. We've got 2 minutes left. I guess one topic that I think has been discussed a lot with WM in the past has been kind of automation and efficiency. You guys have been working on this for many, many years, obviously. So I think one thing that's gained more steam in the investor discussion lately is AI as well. You touched on this with maybe some of the pricing opportunities, Mike. But from a labor cost side, from an efficiency, from a profitability side, what are some things that you can do to drive higher margins with AI? And is that something that could potentially enhance price/cost spreads? Or is it kind of just the next layer of your automation journey?

The one thing I forgot to mention in the customer experience, we have introduced AI into our customer experience to help that. But if I think about AI over the periods of our evolution, as I mentioned, our Smart Truck technology, which we've been talking about for probably close to 10 years. We've introduced artificial intelligence to help us evaluate hundreds of millions of images and understand what our customers are disposing are they overserviced, -- are they underserviced -- are there revenue opportunities? I think that's kind of on the top line in addition to some of the things we talked on pricing.

We have implemented AI specifically on our driver and safety coaching where they use artificial intelligence on activities and behaviors in the cab, which I think ultimately provides a more safe operating environment, which includes a cost reduction in our recycling facilities, as David mentioned, state-of-the-art. We've invested significantly in a lot of robotics, AI to help identify those commodities and continuously learns on how to extract more and more value. So we have been implementing AI for quite some time. But I think as leaders in the industry, we've always been on the cutting edge of innovation.

And that all plays into whether it's predictive analytics, whether it's the automation, machine learning and/or AI. I think we are well along that journey, and we want to make sure it's fit for purpose for our employees and our customers. And I think that's been our philosophy.

And I think one other thing just to add on to that. What excites me is many of these journeys that we're on, we're kind of still in the midst of them or -- and if you think about the scale of our business and you talk about the 19,000 routes, like we're just starting like with route optimization. We're starting in like the industrial line of business, but you still -- you got other -- health care, you've got commercial, you've got residential that you can apply those to. So there's just -- with the scale, there's -- you can really monetize the value of these investments over time.

Excellent. Well, that was an absolutely perfect use of time. I think you ticked through all my questions. So thank you guys so much. The breakout is Mar for anyone who would like to join.

Welcome back to Day 4 of Oppenheimer's 21st Annual Industrial Growth Conference. I'm Noah Kaye, Managing Director in Oppenheimer's Industrial Innovation Research Practice. We're really happy to welcome back to the conference, the management team of Waste Management, WM. We've got Tara Hemmer, Chief Sustainability Officer and SVP, Mike Watson, Chief Commercial Officer, SVP. Welcome to you both. Thanks so much for the time.

It's great to be here. Thank you.

Thanks for having us.

So I would love to start with solid waste, which is, I think, is still a pretty big part of the business. And maybe just kind of kicking off with looking at this past quarter, the 1Q price yield came in stronger than you previously anticipated. I think on the call, Jim called out resi and MSW as being drivers. So maybe can we benchmark where you are in the journey on shedding unprofitable resi volumes? And how you think about price growth across the collection lines of business on a sustainable basis?

That's a great question. We're really proud of our price performance for Q1. I think the highlight that you mentioned, which I think is really important is our ability to drive both yield and volume in our MSW line. I think that just helps really -- everybody understand how we can leverage our best-in-class assets and making sure we can get the price we deserve for that line of business, but also keep the volume so that upper 6s yield and 2.7% volume is a great story.

But getting back to residential, we really are committed to the strategy we have been for the last several quarters. We've had great core price to the upper 6s. That has been at the expense of some volume degradation. But I'd say we're in probably the last 1/3 of that journey. But when I look at the results of improved margins. Actually, I think John mentioned this on our call, about 200% improvement in EBITDA over the last few years, but we also have grown revenue with less volume. So the profitability there has been great. We've introduced automation, better contract terms and improved revenue per unit. So I think it's a win all the way around the board for our employees, our customers and our shareholders.

But as I look at the back half of 2026, we had some spikes in early in this year around negative volume. That will subside. We'll still be a little bit negative at the tail end of 2026, maybe negative 2% or 3%. But as we look into '27 and '28 and beyond, we'll see that start to level out. But it's a strategy we're committed to, and it's yielded great results. and we're proud of what we've accomplished.

And on the pricing question across the different lines of business here. I mean we used to think about C&I being where you'd see the most sort of natural price growth to see resi pace price is -- again, it's a testament to what you talked about with improving the profitability. But if we sort of normalize through the cycle, and obviously, depending on what's happening with inflation. How do we think about kind of where pricing should be for the different lines of business?

I think the way we're looking at price, frankly, is the price/cost spread, and I think you've heard us talk about that. And for 2026, we looked at about 250 basis points of spread between our core price and inflation. We're actually delivering in excess of that. There are some indices that are pretty clear, whether it's CPI or CPI-WST that have an impact in our business. But for the most part, our goal is to make sure we use our analytics or customer lifetime value to really understand how we can move price where we can, where we can't.

And I think that's been really the success that we've had at WM is utilizing these tools and understanding customer lifetime value, still having a really strong core price but not having the degradation in volume, which I think we've stood out from a volume standpoint compared to our peers, the way I look at it. I think that's just a testament of how we're balancing our price/volume equation.

Yes. You mentioned the MSW volume strength. And I think Jim had talked as well about the increasing tightness in the industry's landfill capacity as a driver. That was the theme at Investor Day as well. But this is a trend that's been going on for decades. So what if any inflections are you seeing now around tightness in capacity? Is that rate of tightness in the industry? Is that increasing as you see it? Is it set to what's driving that? Maybe just some color.

Well we've been pretty clear, we have in 9 of the 10 largest markets, really strong landfill competitive advantage when you look at it across our peer group. And that's something that we're looking to grow and expand.

And what that's going to come down to is as capacity comes off-line in some constrained markets, if you think about New England, primarily the Northeast, but we're seeing it in other spots, too, is how do we make the connection between these large centers of waste to more regional landfills. So we've invested quite a bit and looking at how do we connect the dots between our transfer station network and our landfill network, whether it's through trucking or rail based connections that we've been at for the last 20 years.

We think that if you look forward to 2030 and beyond, we'll be even better positioned then than we are today to be able to ensure that we have longer-term capacity that will meet our customers' needs, something that we've invested heavily in.

So you're kind of tying the link, the logistics linked to these major metro areas. And that's with some of the investments that you've called out. And it's at the same time that the capacity around those markets is shrinking. And that's the best way to think of it going forward that you're investing while like the rest of the market is pulling back basically on this.

I can't speak for what others are doing with their own investment strategy, but I can say that we have a enterprise network planning function now that their sole purpose is to look at this and do scenario planning on when our landfills might be closing when competitors landfills might be closing and making sure that we have the long-term connections between the regional markets. That's going to be a differentiator for us moving forward.

I think it's a great point, Tara. And I think that information of the enterprise network planning group is providing is helping us understand where we have the opportunities for price and volume. I think that's why you're seeing such a staunch performance in both yield and volume, understanding the next best alternative for these waste flows. Short and long term, I think, is where we're making the investments appropriately.

It's a very helpful point. Looking at the January guidance, which assumed volumes of -- headline volumes, right, of 0.2%, 0.6%, you're overcoming I think, 50 basis points wildfire headwind.

So you talked on the call -- on the earnings call about underlying special waste activity as a positive leading indicator this quarter. Can you give us some more color on the drivers for underlying volumes to turn cleanly positive? How that might play out, whether it's this year or following?

So the conversation we just had about landfills and our landfills being strategically positioned. That speaks to what we saw related to special waste volume, but also our MSW volume being so strong. and that's something that we expect to continue through the balance of the year.

For 2026, it's very much a first half, second half story. The first half of the year, we had some significant impacts related to weather that we didn't anticipate. That was about half of the volume impact for the quarter. And then, of course, most of the volume from the wildfires last year was in Q2.

So what we anticipate seeing is volume in the second half of the year be close, if not positive. And that's going to be driven again by special waste and landfill volumes, but also we've talked a lot about residential Shred-it -- shredding -- shedding. Thinking about Shred-it there for a second.

We do Shred-it as well. But residential shedding and we're not at the complete end of that. We still have some customer losses that we're navigating. But what we're really proud of is as that volume has declined, if you look at what's happened with our resi EBITDA and then also our margins, it's been a turnaround story. And it's going to position us well for volume growth with those residential municipalities or other customers.

I think the market is seeing this is a service that is necessary. There's a cost for this service, and it's something that has to be valued moving forward, and those are the markets we're going to play in.

Thinking about and exploring customer value and how you can get and retain more price is actually a good segue to what I want to talk about next. And Mike, I think I'd be very, very curious to hear how you're implementing this.

We've seen some of the industry players in the space, right, implementing AI as a tool to get and retain more price. I think WM has been sort of focused on analytics to drive stronger pricing for -- well, as long as we've been covering you, which is over a decade now.

But can you talk about what you might be using AI for on the pricing front and more broadly at a customer-facing level? And what goals do you have for pricing related to these initiatives?

Yes, that's a really good question. I think first things first, I think there's the utilization of predictive analytics, then machine learning, then AI. And I think we're using those in very different fashions. I think we've been leading, as you mentioned, on a lot of the predictive analytics and really what that comes down to if we think about our ability to get core price and have minimal impacts to rollbacks of those pricing as well as not having significant volume shed excluding the residential, which is much more demonstrative.

I think it kind of -- it comes down to the information that we ascertain in the customer journey, what our customers are experiencing and what they look like compared to their peer groups, what kind of service experience have they had, all of those play a role into our analytics suite, and then we apply some machine learning and some AI around how we implement that.

We do not let the artificial intelligence actually execute the PIs. And I think that's where we want to make sure we have some controls. But as Jim mentioned on the call, too, we've been using artificial intelligence to evaluate the volume that's coming into our containers and ascertaining how much of that is contamination. Do we have overages. So all those mechanisms play a role in, I think, the overarching revenue management approach that we have at a WM.

But I think because we have some maturity, we're bringing that up the customer journey more as far as prioritizing customers, how we provide information to our sales organization to focus on specific sales processes or action. So all the information we are using and really evaluating is help us drive a better customer lifetime value.

And I think there are certain things in the customer lifetime value that are friction points. We're trying to remove those. We also understand that they will have an impact on our customers' willingness to pay or readiness to accept a price increase. So we look at all that information to make sure we aren't exceeding the value that our customers are receiving.

It's never perfect, but I think that's what's helped us maintain a strong core price with minimal impact on volumes.

There's a lot of interesting things I'd like to follow up on there. So you said you don't let the AI execute the price increases. I think we would have assumed that does it help you to generate any kind of base case or sort of estimated -- have you used it as a tool at all to help guide the sales force? Or is this sort of being more applied at sort of a higher level to gauge effectiveness?

Well, the utilization of AI starts to branch into multiple disciplines in the organization, whether that's in our customer experience. We use our artificial intelligence to help our sales team evaluate the calls and the interaction with our customers. So it's just the information. I think that's where AI is -- I'm using the information and you're letting the machine make the decision for you and replace human intelligence. We're using the information to help sort the data like a human, but do it at a much more rapid pace. And because of the scale of the information we have, we're using artificial intelligence to help us make decisions quicker and implement those along the customer journey.

Yes. And you mentioned the friction points. I mean I remember at Investor Day, you had a goal to triple your digital customer transactions. And you talked about these friction points in the customer journey. It's extending customer lifetime value. And you had some real numbers around it, right? I think you said over $100 million over 5 years. So just -- what are the most important friction points to be cognizant of, first of all? And where are you in that journey?

Sure. It's a great question. I think when we think about friction points, I always think about this inside the customer journey with WM. There's -- it's how a customer is onboarded is the container delivered on time in the right location? Are we providing a reliable service throughout that customer journey? And then are there any reschedules? Those are the three main friction points. It's really around reliability. And if we're reliable, we extend the customer lifetime value, but it -- as I mentioned earlier, if we have some reliability issues we had to reschedule due to weather the like that plays a role into some of our evaluation.

But those friction points are something that we focus in on every day, but we review those with our areas every quarter at our corporation, but we've reduced those friction points significantly over the last several years. And that's what I'm really excited about, those friction points are coming down. And if we provide better service, it's an extension of customer lifetime value.

Getting back to the digitalization part, we've invested significantly over the last 5 years in our self-service capabilities, and that's been a big win for us. Win for the customer because they can engage with us with a channel of choice, but it's also reduced our cost to serve. And just a quick stats. Even if I look at compared to last year, our calls in our call center are down 19% quarter-on-quarter year-on-year. Our digital interactions are up 2x that. So we've utilized technology for customers to engage with us quickly on their own time.

We've also -- we've done a lot on our digital chat, artificial intelligence for customers to get their information they need. For example, what's the estimated time of arrival, when is my pickup day I need to exchange my container or I need to order a bulk pick up at my residential home. All those things are quick transactional elements that we've invested in, that has really helped us provide a better customer experience, but also bring down the cost to serve because the call into WM is the most expensive channel. The more we can push to the low cost, very high customer experience channels is a win for us.

But where I would say we're about 1/3 of the way there. My goal is to triple it by the end of 2030. And we're making some great progress. I think it's a little bit of a balance of our customers' choice and us making sure that we can meet them where they are and guide them to a better customer experience in digital transactions. We're constantly trying to make that better and better with technology and AI as well.

I mean I think we all intuitively get the appeal of that as customers, right? I would much rather just punch it up on my phone and find out what my pickup days. I don't want to wait on hold for 5 or 10 minutes to find out. And so that's a win-win, right? And so I think that's a good example.

Thinking about national accounts specifically, they've grown, I think, 12% annually as of your last Investor Day. And you reported a really high retention rate, if I remember right, 99%. This is a $5 billion TAM.

With that strong baseline, what's your ceiling for national accounts growth over the next couple of years? And are you seeing any signs of wallet share saturation among your largest customers?

That's a good question. I think that's been a bright spot for us where we've really differentiated WM in the eyes of our customers. If you think about that national account space, they want a scalable service provider. They want reporting. They want a sustainability partner, which we play a big role in. But the reporting and regulatory support over North America is really the value prop that's allowed us to grow this space.

We think that $5 billion TAM is quite conservative, but what's interesting is you're seeing a lot of consolidation of some of these retail establishments. There's also growth inside of our existing customer base. And lastly, with our connection with Stericycle and Shred-it, it's allowed us to expand a larger addressable market and really provide a comprehensive environmental solutions to these large retailers that might be medical waste, will need document destruction as well as the legacy WM. So being able to provide that is really an exciting augmentation to our cross-sell, which we talked a lot about.

And our pipeline is rich. We've already had a lot of new business coming from cross-selling between legacy WM and now our Healthcare Solutions group and bringing that together has been quite powerful.

So we still feel that there's upside for that got industry consolidation. You've got growth just naturally in the TAM. But I think our value proposition there has been strong, and we're seeing that growth continue in 2026 as well.

Yes. I would love actually to dive into WMHS in a minute, but I did want to ask one more question more broadly on the solid waste customer base. And this may also be a question for Tara. In fact, I'm pretty sure it is.

You've talked about WM's brand as synonymous with sustainability, right? And I think in the past, it's been a clear driver of open market residential and SMB growth.

It is fair to say that some large corporates have paused or in some cases, pulled back on ESG commitments. And so how are you tracking whether sustainability as a sales differentiator is actually strengthening for you? And how are the shifting demand trends around sustainability change your go-to-market approach?

I'll take this one. first. I spend a lot of time with other Chief Sustainability Officers and we all get this question right, given the current climate and environment, in particular, in the United States, what's really happening. And there's a lot of companies who are still doing the work behind the scenes. They're just not as vocal about it for a variety of reasons. But when you pull it back to our business.

For a lot of our customers, sustainability means recycling as a service. And most people still want recycling as a service. Their customers, our customers' customers want recycling as a service, whether it's in their stores or they want to know that at the back of a big box retailer that all that cardboard is getting recycled.

And so WM is in a position where we can help them with those needs. I always like to say the one thing that WM does really well is we do complicated really well. If you're a large customer and you have many different types of waste, whether it's medical waste or hazardous waste or core solid waste or recyclables. We know how to handle it. We know how to get it to the right spots. We know how to track and report for you that what the greenhouse gas emissions might be or how the material ended up getting turned into something else. And that really comes back to being a trusted brand.

So it's -- now there are some customers where that is not their priority sustainability, but I would say all of our customers have one of the same priorities, which is reliability. And WM is incredibly reliable.

If you think about the number of customers we touch every day and our ability to pick up your waste and recyclables every day, day in and day out, and to improve upon that through our routing capabilities, that's something that any customer is going to want.

I think it's well said, Tara, I think the only thing I would add is that when we looked at our brand, we wanted to be synonymous with sustainability. We also wanted to stand out from our peer group as a beacon brand in our industry. And I think we've accomplished that through leadership and sustainability, but that it's wrapped up in responsibility and reliability that Tara mentioned, and that's where we get the brand awareness and favorability that drives the growth.

I think you could talk about super complex sustainability programs that Tara mentioned. But if you think about the average customer, they want reliability and responsibility, but our brand has created that awareness and favorability to drive those sales channels as really a differentiator in the industry. I think that all wraps up into our go-to-market strategy around sustainability leadership.

But if you break that down in simplest form, it's we're responsible and we're reliable and we're a trusted partner. And that's what resonates no matter where you are in that chain of sustainability awareness or part of the business. But they just want a partner to help them with their needs.

Great segue because speaking of reliability, and responsiveness to the customer. Can we talk about WMHS? And specifically, some of the key initiatives to improve the customer experience and customer satisfaction. How are you measuring that progress? And what can you share with us?

Yes. It's -- we're excited and we really are seeing the growth potential in WMHS and the Stericycle, Shred-it being something that's going to give a step function growth, and we're still committed to the 5% to 6% revenue growth that we talked about at Investor Day, getting that stabilized and specifically the ERP is something we've spent pretty much since the close -- and we still have some work to do for further refinement of those processes, but we have stabilized the ERP. And we're seeing that in the conversations we're having with customers, and our customers at risk have come down significantly over the last year.

Our past due balances have come down. Our DSO is reduced by 14, 15 days. over the last couple of quarters. But more specifically, if I think about our satisfaction scores, those improved 5% this year. Our calls into our call center are down 30% and we're starting to see a net positive customer growth in almost all the channels. So I think all the work we've done and we definitely had some history of some inaccurate bills that had some customer impact. And that's having a little bit of a volume impact for 2026. We feel like we've stemmed that tide. And now we've stabilized the system and we're starting to build sales processes, operational improvements that we've proven at WM are starting to integrate into the WMHS, both Shred-it and medical. And even our on-time performance has moved up 5 basis -- really 5%, close to 97%. So all the key -- at least the way I look at the customer initiatives, are we on time servicing our customers, what are our customers telling us when they talk to an agent -- all the key metrics from a overall satisfaction are trending in the right direction.

You said on time has moved up to close to 97%.

97%, and that's moved up significantly.

What was it when you acquired the business?

It was in the upper 80s, lower 90s as far as on-time performance. So that's been -- and that's something we worked on early is how we provided information from the system to the operations team. That was a big improvement because we're moving customers around a lot. It was a big impact to customer satisfaction.

So really excited about how we're performing operationally. That's very solid. We've stabilized the billing. Now we're ready to turn the corner and start to use this as the growth platform that we knew it was, and we're seeing each quarter a better improvement in our net customer growth.

So how does that translate to the ability to go get price. When do you actually start implementing the price increases? And how does that roll out across the customer base?

Well, I think that might be another myth buster. We have been implementing price increases along since the acquisition. It's the opportunity for those price increases that are overshadowed by some of the volume losses that we are experiencing for some of the large hospitals.

So we've been implementing price increases. We have been giving -- I think Jim mentioned on the call some credits back to customers for previous billing periods in '24 and '25. Those are starting to come down each and every quarter. And the way we look at WMHS for 2026, it's a first half, second half, where first half still cleaning up some of the customer credits implementing price increases.

So price increases continue to trend up as we implement WM's pricing activity, credits coming down, and we're starting to see a net customer churn moving in the right direction. So our plan is to really commit to a overall, a little bit less around 3% revenue growth for 2026 as a bridge to 5% to 6% in '27 and '28 as we had through our plan.

Well, mathematically, it would imply that if you're going to go to close to 3% for the full year, you're going to be close to mid-single digits for the back half. Is that not correct?

Yes. And that's going to be mostly price.

So that's your exit rate going into '27 as a base case. So you effectively be running that way?

Yes, if you think about moderate price in second half, pricing increasing in 2026, back half less volume impact, less credits that starts to build the bridge to 5% to 6%.

And I feel really comfortable and confident that the environmental service suite that WM has put together with this business is unparalleled. I think it's really going to set us up for some great growth in '27 and beyond.

Forward to that. I think turning in the last segment to some of the growth initiatives around sustainability, specifically RNG and recycling. In January, you'd guided to 21 million to 22 million MMBtu of RNG production for the year. I think you mentioned some timing considerations on the earnings call last week. So does that production target still roughly hold? And just to give us a sense of how much more incremental production you -- we should expect to see once the fleet is fully built out.

So first and foremost, we're really pleased with how the construction and commissioning has gone related to our plants. We've just experienced through recently some delays in interconnects with the utility to be able to push the renewable natural gas into the pipeline, which has been the cause of some of the volume shortfalls that we're anticipating.

So that 21 million to 22 million, we expect that to come in below the lower end at this point, but will be more than made up by the pricing that we're seeing.

And the most important thing that I want people to take away is that our long-term volume targets are in place, that 27 million to 28 million MMBtus. We're pleased with the performance of the plants and the volume that's coming out of the 20 landfills that -- where we put the RNG assets.

And should we be more or less at that run rate by the time we get to '27, the '27 and '28?

Yes.

Okay. And I think you mentioned on the earnings call that you've already contracted 80% of RNG production for '26. Just -- can you share with us where blended average prices have gone to I think in January, it was 27% per MMBtu.

Sure. So our framework, our risk framework has always been to be between 70% to 90% contracted in the current year. 30% to 50% contracted in the next year and then 10% to 30% contracted in that second, third year out, however you want to view it.

And we're in 80% today, which is exactly where we want to be and roughly on that 80%, a smid shy of $28 per MMBtu, which really speaks to, one, how our team is able to do contracting a little bit forward. And also RIN pricing has held up since the RVO was finalized, and we've been in that $2.40 per RIN range.

So all of this tees up nicely for us to be long term at or above our $26 per MMBtu target that we had really framed up back in late '22, early '23.

Very helpful. And I guess sort of a more strategic look at this is, as you mentioned, there's been a little bit higher demand for RINs following the RVO finalization. There's longer-term visibility on that.

Maybe just walk through the decision-making framework for how much to contract future obligations versus leaving contracted -- and how you might be managing that book in the future? You talked about the framework that you've been applying the 7% to 9%, 10% to 30% for the following year, might you consider increasing that percentage on forward just given we know that the demand is strong.

The short answer is no. I mean I think we're pretty comfortable with our risk framework. And basically, if you look at it over 3 years, it has us 50% contracted and 50% uncontracted. So it still leaves some ability to get the upside of RIN prices, if RIN prices were to improve and also to give us some upside on the voluntary market as the voluntary market further evolves.

As a reminder, roughly -- it's roughly half and half. Half of our volume will be in the transportation market and half of it will be in the voluntary market. So that gives us the ability to get some benefit as prices rise.

Makes sense. And then just around the CapEx that you've been investing. I think you said $85 million on the call around sustainability CapEx for two RNG facilities and recycling project. Just kind of help us understand the IRR hurdle you're applying to these new growth projects. And if at all, that threshold has evolved given commodity price movements.

Well, I'll start this question by talking a little bit about our new CFO, David Reed. And what I will say about David is he is no less disciplined than Devina Rankin was. And so we're putting these investment decisions through a similar lens.

But I would also say that we're -- now these projects they're competing against other WM capital projects. And it's important to remember that with new RNG projects, we really have to look at them in the transportation -- sorry, the voluntary market. And that's going to be a lower price point compared to the transportation market. And the payback periods, if you look at the RNG projects, there are probably any future ones and these two, in particular, are probably going to be more like in the 4- to 5-year range as opposed to 3 to 4 years previously.

Recycling projects are a little bit different because our investments, the one recycling project that's on the page here is one in Edmonton, which is really in response to extended producer responsibility. And those projects, the two that we just did and completed in Ontario, they have almost no commodity price risk. And we've demonstrated those two projects are performing extremely well for us, exceeding our expectations. So those payback periods are in the 6- to 7-year range, which is what the recycling projects were before.

Very helpful. Tara, thank you. So I think we're about at the end of our scheduled time here. There's a lot more that we could and will be talking about in the future with the company. It's great to see the progress on these initiatives.

Tara, Mike, thank you both for the time. And we hope everyone has a great rest of the day and the rest of the week at the conference. Thank you.

Thank you so much, Noah. Appreciate it.

Thank you.

Thank you for standing by, and welcome to the WM's First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded.

And now I'd like to introduce your host for today's program, Ed Egl, Vice President, Investor Relations. Please go ahead, sir.

Thank you, Jonathan. Good morning, everyone, and thank you for joining us for our first quarter 2026 earnings conference call. With me this morning are Jim Fish, Chief Executive Officer; John Morris, President and Chief Operating Officer; and David Reed, Executive Vice President and Chief Financial Officer. You will 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 David will cover the details of the financials.

Before we get started, please note that we have filed a Form 8-K that includes the earnings press release and is available on our website at www.wm.com. The Form 8-K, 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-K and Form 10-Qs. Jim and 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 David will discuss operating EBITDA, which is income from operations before depreciation, depletion, amortization and accretion.

Beginning this year, landfill accretion expense was moved from operating expense to depreciation, depletion, amortization and accretion to enhance comparability and better reflect operating performance. For comparability purposes, 2025 actuals have been updated to reflect that change. Any comparisons, 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&A expense and 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.

These adjusted measures, in addition to free cash flow are non-GAAP measures. Please refer to our 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 24 hours a day beginning approximately 1:00 p.m. 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 April 29, 2026, may no longer be accurate at the time of a replay. Any redistribution, retransmission or rebroadcast of this call in any form without the express written consent of WM is prohibited.

Now I'll turn the call over to WM's CEO, Jim Fish.

All right. Thanks, Ed, and thank you all for joining us. The WM team again delivered strong quarterly results with earnings and cash flow results that achieved our expectations. What continues to set us apart is our ability to consistently achieve strong performance regardless of external factors. Q1 operating EBITDA grew by nearly 6% compared to the first quarter of 2025, driven by solid performance in our collection and disposal business and further supported by growth in our sustainability businesses and ongoing optimization of health care solutions.

This momentum to start the year, combined with our proven operational execution and resilient business model, reinforces our confidence in achieving our full year financial guidance. In the first quarter, our results clearly advanced each of our 4 strategic priorities for 2026. First, we grew our collection and disposal business, achieving 6.4% operating EBITDA growth, supported by our focus on customer lifetime value, operational excellence and network advantages. Our strategically positioned post-collection network is driving profitable MSW volume growth, while our technology leadership leads to differentiated services and lower costs.

Additionally, our people-first culture and disciplined approach to retention are driving meaningful improvements in safety, service reliability and operational efficiency. As we look ahead, we continue to see opportunities for tuck-in acquisitions that complement our existing portfolio that we expect to close in 2026. Second, our sustainability investments continue to generate meaningful returns, underscoring the value of the capital we've deployed over time. In renewable energy, operating EBITDA more than doubled in the quarter, driven by the completion of 7 new renewable natural gas facilities since the first quarter of 2025.

In the Recycling segment, even though pricing for single-stream commodities declined 27%, operating EBITDA grew by 18% as we realized automation benefits that lower labor costs and higher quality material and processed 9% more volume. In 2026, we're on track to substantially complete the sustainability capital expenditure program we laid out in 2023. Third, in Healthcare Solutions, we continue to advance the business towards scalable accretive growth. While revenue was impacted by volume losses from last year, effective cost management and synergy capture drove operating EBITDA growth of nearly 12% in the quarter. Importantly, we expect an inflection in revenue growth in the second half of 2026 as the ERP has stabilized and the benefits of our integrated offering become more evident.

And finally, turning to capital allocation. Our strong operating performance translated into significant free cash flow generation with Q1 free cash flow of $920 million, nearly doubling from the prior year. This enabled us to return about $730 million to shareholders through dividends and share repurchases. As we close out the first quarter, our performance reinforces both the strength of our strategy and its alignment with the long-term trends shaping our business.

We're delivering consistent results in our core operations, realizing returns from years of disciplined investment in sustainability, advancing health care solutions towards scalable growth and pairing that execution with a thoughtful shareholder-focused approach to capital allocation. As we progress through 2026, we're well positioned to continue to produce strong results and harvest the benefits of our investments. I want to thank our employees for their continued dedication and hard work.

Now I'll turn the call over to John to discuss our operational results.

Thanks, Jim, and good morning. The first quarter once again demonstrated the strength and resilience of our operating model and the progress we continue to make in optimizing our business. Despite a softer volume environment driven largely by winter weather impacts and the absence of last year's wildfire-related volumes, we delivered strong financial performance by remaining focused on disciplined price execution, technology-enabled efficiency and cost control. This is clearly visible in our collection and disposal business, where we delivered operating EBITDA growth of more than 6% year-over-year with margin expanding approximately 110 basis points.

From a cost perspective, our focus on operational excellence continues to drive meaningful results. Operating expenses as a percentage of revenue improved 70 basis points and came in below 60% for the fifth consecutive quarter, underscoring the durability of the structural changes we're making across the business. Automation and technology continue to help us flex costs and drive efficiency as volumes fluctuate. As an example, whole dollars repair and maintenance costs were actually lower year-over-year and improved by approximately 30 basis points as a percentage of revenue. This improvement reflects innovative solutions and disciplined fleet actions, including the use of augmented reality tools to improve technician efficiency and continued benefits from rightsizing the fleet.

Together, these initiatives are improving asset utilization and delivering sustainable cost savings. Equally important, our people-first approach continues to show up in our results. Total driver and technician turnover, both voluntary and involuntary, remained low at 17.2%, improving 130 basis points year-over-year. The strong retention supports safer operations, higher service reliability and greater efficiency across the business. And notably, our first quarter safety performance was our best ever Q1 performance for safety-related incidents, which is particularly impressive given the challenging winter weather conditions.

Together, these results reflect the engagement, consistency and dedication our teams bring to executing our strategy every day. Turning to the top line. Pricing execution remains strong. Each of collection and disposal core price of 6.3% and yield of 3.9% exceeded our expectations with pricing dollars up year-over-year. Core price growth in our commercial and landfill lines of business each exceeded 7.5%, reflecting the value of our service offerings, consistent execution in the field and focus on price-to-cost spread.

Shifting to volumes. We began the year softer than expected with about half of the shortfall in collection and disposal volumes driven by severe winter weather. We did see several areas of underlying strength and stability. MSW volumes were 2.7% and special waste volumes were 6.7% when excluding wildfire volumes from the prior year. Industrial collection volumes returned to modest growth in the quarter, supported by continued internalization of solid waste from Healthcare Solutions customers. While volumes were a headwind early in the year, we expect improvement from seasonality as well as the lapping of a couple of larger low-margin contract losses in the balance of the year. In Q1, our energy surcharge program recovered the increase in both direct and indirect fuel costs we saw in the first quarter. Higher revenue from fuel recovery created a 20 basis point drag on operating EBITDA margin. Putting together these pieces on pricing, volume and energy surcharges, we expect to achieve our full year revenue guidance in 2026.

Turning to Healthcare Solutions. We continue to see the benefits of integration into our core operating structure. Operating EBITDA margin improved by 200 basis points in the quarter, while SG&A costs decreased roughly 20% year-over-year, reflecting discipline, operational alignment and the benefits of WM's integrated business model. We remain on track to achieve a run rate of $300 million of total synergies at the end of 2027 with results reflected across all of our business segments.

So in closing, I want to thank our teams for their continued focus, discipline and commitment to serving our customers. The strong start to the year reinforces our confidence in our strategy, operating model and ability to perform consistently in a dynamic operating environment.

And with that, I'll turn the call over to David to walk through our financial results in more detail.

Thanks, John, and good morning. We are pleased with our strong start to 2026, particularly when looking at the drivers of our first quarter operating EBITDA margin expansion, which reflects solid contributions from across the business. The collection and disposal business expanded margin by 110 basis points, driven by strong pricing and our success using technology and automation to reduce costs. This growth includes the 20 basis point headwind John mentioned from the impact of higher fuel prices. Our recycling and renewable energy businesses together contributed approximately 50 basis points of margin expansion, reflecting accretive growth from investments in renewable natural gas facilities and recycling automation and new market projects.

Healthcare Solutions contributed another 20 basis points of margin expansion due to effective cost management and synergy capture. These contributions partially offset -- were partially offset by 40 basis points of increased spending on technology initiatives and 70 basis points related to higher cost and timing-related impacts from incentive compensation and employee benefit costs. The strong execution translated into robust cash generation. Operating cash flow was $1.5 billion in the quarter, an increase of nearly $300 million compared to the first quarter of 2025. The increase was driven by working capital improvements and our strong earnings growth.

Capital expenditures totaled $650 million in the quarter, including $61 million directed to sustainability growth investments. Capital spending was approximately 22% lower year-over-year as expected, reflecting normalized spend on collection vehicles and lower sustainability capital as several projects reached completion during 2025. Combining all of this, first quarter free cash flow nearly doubled to $920 million, putting us on track to achieve our full year guidance. As Jim mentioned, we allocated the majority of our free cash flow to shareholder returns in the first quarter. We returned $385 million to shareholders in dividends, and we resumed share buybacks, repurchasing $344 million of our shares.

Our leverage ratio at the end of the quarter was 2.94x, returning to within our target range of between 2.5x and 3x. Our effective tax rate was approximately 18% in the first quarter, lower than planned, driven largely by the benefit of production tax credits related to our renewable natural gas business. During the quarter, the IRS clarified the qualification for these credits, and we now expect to realize benefits during the next several years, another value add from our strategic decision to grow our renewable natural gas portfolio. That benefit is approximately $27 million for the 2025 tax year and $30 million to $35 million annually from this year through 2029.

As a result of receiving 2025 and 2026 production tax credits, we now expect a full year effective tax rate of approximately 23% in 2026. In closing, I want to thank the entire WM team for their continued focus and execution. Their dedication has driven a strong start to the year and positions us well to deliver on our full year financial guidance. Through our disciplined approach to operations, capital allocation and investment, we remain confident in our ability to create long-term value for shareholders.

With that, Jonathan, let's open up the line for questions.

And our first question comes from the line of Jerry Revich from Wells Fargo.

I just want to unpack the really strong margin performance despite the lower volumes in the quarter, really nice price cost. As we think about the volume cadence over the balance of the year, can we just double-click on what gives us confidence that volume trends will be better in the back half of the year? Can we just expand on how you would quantify the weather impact? And I don't know if you want to talk about it month by month or just give us more visibility on that point.

Yes, go ahead on the margin piece, David.

Yes. Just in terms of the margin trajectory for the back half of the year, I mean, you do know that Q2 will be a tough comp for us with the wildfire volumes, but we do expect EBITDA margin to lift nicely from there in the second half and follow a pattern similar to what we saw in 2025. And we had obviously a strong start to our pricing plan for the year, and that also gives us confidence with the margin trajectory.

Yes. And then, Jerry, as far as volume goes for the remainder of the year, I mean, first quarter, because of the weather impact, and look, we don't normally talk about weather because it happens every year. But this year, in particular, along that East Coast, 3 feet of snow in Boston is -- I don't think they've had that in 15 years. So it did impact us, and we had a number of facilities that were shut down. John could tell you the more direct numbers. But I think some of our facilities were shut down for as many as 10 days, including, by the way, our Stericycle facilities that were shut down. So it did have a significant impact on volume.

As we look at volume going forward, there's a couple of things that give us reasons to be optimistic. Specifically, and John mentioned it, special waste, which we knew was going to be a difficult comp because of Southern California fire volume last year. Including the fire volume, it was down, I think, about 1.5%. But excluding it, as John mentioned, it was actually up 6.7%. And the reason that's meaningful is because it gives us an indication of what special waste will look like. What's the pipeline look like? And what is -- what are the special -- what will they look like? What do the special waste volumes look like when we anniversary this fire volume, which is for the most part at the end of Q2.

We did get some fire volume in Q3 in the month of July, and then it almost all went away at the end of July. So we will get to kind of a clean year-over-year for special waste by the time we get to the month of August. And this gives us a bit of an indication that, that special waste volume should be pretty strong for us. 6.7% is a pretty decent number. And then John also mentioned MSW volume. Just looked at the numbers for last week, MSW volume was over 4% positive for us. So that's a positive for us.

And then the other one that I would mention is industrial volumes, which have finally shown a reversal of probably a 6- or 7-quarter trend. We've been negative on roll-off volumes for at least kind of 1.5 years. And we finally got to a point where we're showing -- it was -- I think the real number was like 0.2% positive. So it was just slightly positive. And last year it was like 1.5% negative. So I think we're fairly encouraged with volume numbers. Are we going to hit our guidance for the year? Don't know, and we'll give -- we'll really kind of take a refresh of our guidance numbers at the end of Q2. But we are encouraged with what we're seeing on the volume side.

Okay. I appreciate the color. And then just to unpack the comments about the tough margin comp in 2Q, David, I think normally, you folks are up somewhere around 150 to 200 basis points margins 2Q versus 1Q. And given the weather that we just stepped through, it does look like you should be in a position for good year-over-year margin expansion in 2Q even with the tough comps from a wildfire standpoint, just given the run rate in 1Q. I just want to make sure we're on the same page with you and not missing any moving pieces in the 1Q results as we think about the normal seasonality for 2Q.

Yes, Jerry, I would tell, it's John. I think the outsized impact of the wildfires in Q2 is really worth noting again. I think the revenue number was $85-ish million and probably strong flow-through on that EBITDA. So if you take that out, what I would point you to, if you look back in the tables, you can see whether it's collection, disposal, recycling, renewable energy, health care, you can see the margin improvement in Q1. But I think net of the wildfire headwinds, I think we're going to see good margin improvement in Q1 and Q2, but it will be muted somewhat by that volume not repeating in the landfill line of business.

Our next question comes from the line of...

[Technical Difficulty]

Can you hear me?

Yes, we can hear you now.

Yes, overall, really strong margin expansion in the quarter. The only item that sort of jumped out at us in a negative way was just the magnitude of the increase in corporate expense. I think you had been flagging that, that was going to be up because of some technology-related investments. Just curious if the level of increase in 1Q is sort of appropriate for 2Q or if maybe we think about that sort of moderating throughout the year?

Yes. No, thanks for the question. Like you said, we did expect Q1 to be a tougher comp in this segment, and I'll break it down into 2 pieces. There was a health and welfare cost aspect to an unusually favorable Q1 last year. So we had some onetime benefits, and so that made the year-over-year comp a bit difficult. We also had higher annual incentive compensation and annual wage increases, along with the increased technology costs that you mentioned. And those costs are to support strategic initiatives of other -- that benefits other segments. And so if you look at the overall performance of those other segments, I think you're seeing some of the returns on those investments.

In terms of your question about kind of the cadence for the rest of the year, Q1 is indicative. It's a normalized kind of rate for the remainder of the year. It's pretty flat throughout the rest of the year at that level in Q1.

Okay. Understood. And then just, John, you mentioned some surcharges for rising fuel costs. Do you anticipate any drag on EBITDA in 2Q given maybe potential timing differences between rising costs and surcharge implementation? Or is this sort of happening in real time?

It's almost real time, [ Brian ]. I mean we've got -- there's a little bit of drag. We said 20 basis points on the margin side. But based on the way our billing cycles work, we said it's about a month lag, but it's really -- from an EBITDA standpoint, it's not going to be anything material.

And our next question comes from the line of Jim Schumm from TD Cowen.

Just looking at the solid waste volumes up quite a bit and transfer station volumes down. What's driving that? Does that have something to do with WM Healthcare?

No, Jim. Probably -- the transfer volume, honestly, that's probably as much about the Northeast and the weather. I know that in -- for instance, in the New York metro area, there was obviously a significant impact due to the weather. So that's really what's driving the transfer volume, not the Healthcare business.

Okay. I see. And then on the Healthcare business, can you just give us a sense of -- you talked about some customer credits in the past. And just what did that look like in Q1? What does it look like in Q2? How is that trending?

Well, so we knew that customer credits, we said they peaked in Q4, which they did, and then fell off a little bit in Q1 and Q2, and then they will really reverse when we get to Q3 and Q4. So the year-over-year comp becomes quite a bit different, quite a bit easier in Q3 and Q4. I think overall, Jim, as I look at the Healthcare business, it's really turning out to be exactly what we hoped it would be with EBITDA improving by almost 12%. We were better than our own business plan by about 3%. And just about everything we look at, whether it's pricing, which we did say back last quarter that the year on the top line was largely going to be about price, not about volume. That volume would be negative.

And that was mostly a function of losing -- I think we projected to lose 3 hospitals. We actually only ended up losing 1. So that was a real positive for us. I think the reason we only lost one is because our customers are now getting a very payable invoice. And so all the work that continues to happen, by the way, we're still working on ERP, but all of that is behind the scenes. And so it's kind of been visible to the customers, and that's a real positive for them. So the ERP is progressing, but what we really wanted to make sure was that it was not visible to the customer. And then we would continue to do the technology work, the systems work and the process work, which is ongoing.

We think a lot of that will be done by the end of the year. Some of it will carry over into next year. But my biggest concern was with the customer, and now the customer is getting a good bill. So that's why I think we only ended up losing 1 of the 3 hospitals. And then I guess, as I think about -- you didn't ask about the cross-selling or synergies, but I'll go ahead and as I'm talking about WMHS, cross-selling has been a positive for us. We had 2 big cross-selling closes for the quarter that kind of benefited -- half of it benefited Healthcare Solutions, half of it benefited solid waste.

Pricing is right on track with where we thought it would be, and that's a good thing, and we think pricing continues to improve even as we get into the rest of the year. Synergies are at or even potentially ahead of plan. We're moving fleet maintenance in-house. That should be a positive on the cost line. So I think overall, we're very pleased with this. And you mentioned the credit memos. I mean, look, I think the -- that in large part was -- in Q4 was really kind of cleaning up the mess from prior periods.

And that mess should, for the most part -- I mean, we will always have credit memos. We have credit memos on our regular business, on the solid waste business. But if you look at things like DSO down 14 days, that is a major, major change for us. If you look at past due receivables down by 2/3. I mean the balance has come down 2/3 over less than a year. So all of those are positive signs, and we think that the Healthcare Solutions business is shaping up to be exactly what we hoped it would be when we bought it.

Great. And Jim, since you brought it up, on the synergies on the path to $300 million, like roughly where are you now? Are you in $130 million, $140 million? Or where are you?

Well, so the total number, which we think -- we said would be $300 million, and I think $50 million of that was cross-selling benefits. So -- and as I said, we're on track with that number. And you could argue that maybe we're even ahead of that number a little bit. Right now, we're targeting $300 million still. But we think that potentially, we could end up ahead of that number and maybe as high as $325 million.

And our next question comes from the line of Faiza Alwy from Deutsche Bank.

So I wanted to ask what you're seeing from a recycling commodity pricing perspective. Just given higher oil prices, I'm curious if you're expecting an improvement in those prices? And if you could help sort of frame that for us in terms of upside. I know you're typically hedged. So I just want to understand potential upside to revenue and EBITDA.

Sure. This is Tara Hemmer. We were pleased with where we exited the quarter. March was at about $69 a ton. And as you recall, what we guided to was $70 a ton. So we feel positive about where that's heading. Two things I just want to point out. One is about 80% of our commodities stay domestic between the U.S. and Canada. But we do have some exposure to what's happening globally, which really is about freight disruptions given what's going on in the Middle East. So we have no qualms about demand for our products. It's really about us tracking what those freight costs might look like, and that's going to be really a function of how long this goes on in the Middle East. So that being said, we feel really positive about the $70 a ton that we guided on. We'll give more of an update in Q2 on where we think it could head up or down.

All right. And then just a follow-up on the Healthcare cross-selling opportunities. Could you frame for us how much of the improvement that you're seeing on the industrial volume side is kind of related to the cross-selling benefits? And kind of how much better are you doing relative to like the underlying market there?

That's a good question. I don't know that I know the answer to that. So we'll have to get back to you on how much of that cross-selling actually impacts the industrial line of business. I can tell you that the number in terms of an annualized EBITDA benefit was about $27 million from cross-selling. But I can't -- I don't know offhand how much of it was in the industrial line of business.

And our next question comes from the line of Trevor Romeo from William Blair.

I wanted to ask one on collection disposal pricing. I think you said both core price and yield were coming in a little bit ahead of what you'd expected. So maybe first, where are you kind of seeing pricing stick a little better than you thought? What are the drivers of that? And then if you think about CPI maybe starting to trend higher, we'll see what happens with the Middle East and maybe it takes a while for some of your contracts to reset higher CPI. But would just love your thoughts on ability to price to get into a little bit of a higher inflationary environment. Could we see those pricing and spread metrics sort of move up maybe moving into '27?

Sure. So I'll take the second part of your question first on CPI. We tend to say that there's about a 2-quarter lag -- 1- to 2-quarter lag on the adjustments for CPI. So as CPI trends up, which it has a bit, that is -- tends to be -- most of our resets there in terms of price and about -- I think about 40% to 45% of our total revenue is based on an index, and those indexes tend to reset on a quarterly basis, and it often takes 2 quarters for that reset to take place. So any movement in CPI that we would have seen in Q1 probably won't have much of an impact on us until we get to the back half of the year. So that's the second half of your question.

The first half of your question is really about price as a whole. Two of the lines of business that -- I think, first off, everything was on track for us with 2 exceptions, which are resi and MSW, and those were actually ahead of our expectations. Resi yield was up 110 basis points versus Q1 of 2025 and yield was 6.3%. That's really strong for residential. We've been talking about residential for quite a long time as we've really tried to pare down some of the unprofitable business there. And so that is certainly part of that exercise. MSW was another -- MSW might have been the single most kind of impressive performer for the entire quarter, both on the volume line and on the price line. The MSW yield was 6.9%.

I think what you're seeing with MSW yield, and this takes place slowly over a period of years, we talked about it last June on Investor Day. But as you see landfill capacity slowly come offline for the industry or some of it doesn't come offline, but it moves to more kind of center of the U.S. locations away from these big cities. But as you see that happening, we end up in a better position because our lives -- our landfill lives are a bit longer than the rest of the industry. And it gives us the ability to raise price to preserve airspace really. And that's what you're seeing with MSW going up by 6.9% is a bit of cost recovery, but also airspace preservation. So those were both surprises to the upside. The rest were pretty much on track.

Okay. That is helpful color. And then I would love to get either maybe your perspective or John's perspective on AI and new technologies. Obviously, WM has been leaning into automation for a long time at this point. But just in terms of AI, there's a lot of hype out there. So would love your views on whether there are any new tools you're looking at that could accelerate your efficiency going forward?

Yes, it's a good question. I think, obviously, we've spoken to where we've embedded technology into the business, right? And a lot of what we're doing in the recycling facilities that Tara and team have talked about with AI and robotics and automation, what we're doing from a routing and logistics perspective with the now, call it, 19,000 trucks we have on the street with the Healthcare business. And by the way, worth noting that a lot of the technology benefits that we've -- we're seeing in our traditional collection and disposal business are yet to show up in the Healthcare business. So we see some other upside there.

But I would tell you, we still feel like we're in the early innings in terms of our ability to embed technology to drive not only efficiency. But if you think about things like making these jobs more palatable, look at our turnover, it's 17-plus percent. That's the lowest it's ever been. I think part of it is we're changing the scope of these roles and making them less labor dependent, if you will. If you look at our safety results, I mentioned in my earlier comments that those are -- that's the best Q1 safety numbers we've posted. And part of what's helping us do that is we're using AI as one example from a coaching perspective with the 20-plus thousand drivers we have. So as much benefit as we've seen that showing up in our OpEx numbers and our collection and disposal margins, I think we still see a good bit of runway there to continue to accelerate those investments.

And our next question comes from the line of Noah Kaye from Oppenheimer.

Well, that last question took a little bit of thunder, but I'm going to continue on the same thread, John. We're sitting here with risk management at 1.5% of sales, which is very good. But we think about that as a lagging indicator of safety performance. So just how sustainable are kind of some of these gains on safety in your view? Could we get further benefit? And then how should we think about that translating to kind of risk management going forward?

Well, I think, no, what I would tell you is this is not something that happens over a quarter or 2 or a year. I think what you've seen is slow and steady improvement in our safety results. And to your point, you're starting to see it show up in the risk numbers over time. So while we're -- I think our recordable injury rate for the quarter was about 2.7. It was under 3, which is a big milestone for us. We still see plenty of opportunity with respect to that. And I think to your point, it's going to translate to our risk going forward in a positive way.

Question on Renewable Energy segment contributions, maybe for David or Tara. Just you had the projects come online, but how did sort of the mix of lower RIN and higher energy commodities impact results in the quarter?

Well, if you look at the quarter, we doubled -- almost doubled our renewable energy production from our renewable natural gas plants, which was excellent and what we were anticipating coming out of 2025 with the plants that had come online in that year. We didn't have any new plants come online in Q1. We expect 3 more to come online in Q2 and then the rest of them in the back half of the year. We did see higher pricing, and that is a testament to what the team has been able to do locking in volumes. And we are now -- 80% of our volume is locked in for the year. That's up from 60% when we announced guidance in January. So really pleased with our performance, how we're tracking and seeing the benefit of some higher commodity prices, too.

Okay. Just one quick one for David. I just may have missed the exact answer before, but the weather headwinds in the quarter, I think you said those were half of the delta on volumes. Was that basically half of the 1.5% volume decline or kind of half of the delta versus what you'd originally thought on volumes? I just want to clarify.

It's half of the 1.5%.

And our next question comes from the line of Connor Cerniglia from Bernstein.

I know we already had a question on AI investments, but I just wanted to follow up. Others in the industry have talked about some of the benefits they've seen from a pricing standpoint. I think there's been commentary that there's -- they expect a 100 basis point improvement in margins over the next few years. Have you all seen similar benefits mainly on pricing? And do you have a sense of maybe what that number could be? Or it sounds like it's a bit still too early to tell, but any color there would be helpful.

As it relates to AI and pricing, we've been using AI-enabled cameras, for example, on trucks to -- it both helps us with the quality of the material. So as you think about a can being dumped into -- a recycled can being dumped into the top of a truck, we've been using these AI-enabled cameras now for probably 6 or 7 years on. And it is interesting watching the word because they're able to identify pretty accurately nonrecycled materials coming out of that can. And then we're able to contact the customer and clean up their recycle stream. So -- and if they choose not to clean up the recycle stream, then we'll bill them for it. So it has been a positive on the price line. It's also been a positive on the quality of the material coming into the recycle plants.

And our next question comes from the line of Rob Wertheimer from Melius Research.

You touched on Healthcare a couple of times. And you mentioned, I think, in your opening remarks, 2H revenue growth as the ERP stabilizes. If you were to sort of break that down, is that mostly the absence of customer credit? Or are you seeing more price and volume opportunity come through already as you improve service quality? And if not, when do those 2 factors start to make a bigger difference?

Yes, Rob, I think it's all of the above. Certainly, credits improve as these pass-through receivables are cleaned up, and I mentioned that they've dropped by 2/3 in a fairly short period of time. And we will continue to see the year-over-year change on that be positive, particularly as we get to the back half of the year. So that's part of it. But pricing -- I mean, if you think about pricing last year, it was -- we were kind of getting our sea legs a little bit last year. And this year, I think we're in a very good spot. We understand the customer a lot better than we did last year. I think our customer service stats are as good, if not better, than some of our solid waste customer service stats, and that gives you the ability to put a price increase.

It's a little hard to put a price increase through to a customer if your customer service has been very poor. And I think we've completely turned that corner. So part of it is credit, part of it is price. And we think part of it is volume as well. I mentioned a couple of the cross-selling opportunities that are starting to manifest themselves, and that manifests on not only the top line but on the volume line, too. And then, of course, those losses that presented, I think we said a $40 million headwind to us coming into '26. That was mostly going to be a front half of the year issue.

So if I think about Healthcare Solutions, really, we are super optimistic about this because it really does -- we knew it was going to be a front half versus the back half, whether you look at volume, whether you look at credits, whether you look at just about any metric, and we are encouraged with that. We think it's going -- we absolutely believe that the story we were telling last year of front half and back half is starting to show up for us.

And our next question comes from the line of Sabahat Khan from RBC Capital Markets.

And maybe if I could just follow up on the discussion there on the Healthcare side. I think you're talking to roughly flattish type volumes, most of the gains coming from pricing this year. And I think longer-term number is about 3% to 5% sort of top line growth. I guess based on what you've learned about the business, the customer mix and the progress you've made, how are you thinking about the price versus volume opportunity going forward? Over the medium term, does this align more with the solid waste business where still maybe primarily pricing driven? Just some comments on the long-term mix of the top line.

Yes. I think what we're seeing with price, particularly as we think about what Q2, Q3, Q4 will look like, that looks about like what we would expect for the long term. Volume, we knew was going to be the one where we'd have the most ability to improve. And so that's why we're encouraged about that front half, back half. I think the front half, we knew was going to be soft from a volume standpoint, whether it was with customer losses, encouraged, by the way, as I mentioned early on, that those customer losses are lower than we thought they would be. So I do think that this becomes a -- over the -- probably as we get into next year where we don't have this kind of front half, back half thing, a business where we really can expect a nice level of volume growth. And then the top line is not just solely reliant on price. But the price component was quite good and volume, we see it coming.

Great. And then just maybe sort of clarifying the commentary on sort of the back half of the year guidance and the outlook there. With RINs and commodities maybe in a better position than we were a few months ago, from your perspective in terms of the guide, are you assuming volume probably okay in line with what you were initially expecting with potential upside from RINs and commodities through the back half? Or do you see those maybe as offsetting at this point of the year? Just wondering if there is upside in the back half, could that come from those 2 sort of areas outside of just the core business?

Well, just to clarify on the sustainability-related businesses, we're still expecting to come in at that $240 million to $250 million benefit to EBITDA from the sustainability businesses. And while we expect, at least on the renewable energy side, pricing to come in a bit better, one of the things that we're tracking is we feel confident that our plants will commission. We're just navigating some interconnect delays with the utilities that might have been unexpected. All of that said, we're in a great spot to achieve our goals for 2026 and really positions us nicely for 2027 when all the plants are online and our ability to meet or exceed the $26 per MMBtu number. So how that stacks with the rest of the business, David can speak to.

Yes. I think it's still in line with what we guided to last quarter in terms of -- it's a little bit more weighted in the second half in terms of the contribution from EBITDA. And then we talked earlier about the margin trajectory for the remainder of the year does look similar to 2025 in terms of the slope. You do see sequential and year-over-year improvements in the back half of the year on margin as well.

And our next question comes from the line of Konark Gupta from Scotia Capital.

First of all, my condolences for Dean Buntrock for his legacy. Maybe the first question on the volume side. The residential volumes have been obviously soft as you guys are shedding. Just curious where do you see the shedding kind of maybe slowing down substantially? Is it still more like a second half story or more of a 2027 now? And the industrial rebound wasn't a lot, but still positive in Q1. Do you think that would be an indication along with the special waste volume turnaround you're seeing of the macro turning more positive?

I'll kind of answer those backwards. I think Jim mentioned it, and I mentioned in my prepared remarks about what strength we saw in the special waste line, net of the benefit of the wildfires last year. And we just did our quarterly business reviews of all our 16 areas last week, and there was some optimism around the special waste pipeline. So we feel good about that for the balance of the year. On residential, I know we posted, I think it was about a 5% negative volume for the quarter. And again, that does fluctuate.

But I went back and I looked at 2023 and every quarter since 2023 with about a 3.5% volume decrease, we have seen revenue and EBITDA improvement. And to put it in perspective, if you go to Q1 of '23 to Q1 of '26, our EBITDA was up 211%. So while we've traded off some volume, we've obviously seen the financial benefit. We've seen it in a bunch of different ways. We've automated the majority of that fleet. We've seen improved safety numbers, efficiency numbers. We focused on quality of revenue, contract terms, et cetera.

And to the first part of your question, we did say at the end of the year that we do see some moderation in that coming in the second half of the year, not to positive, but we're going to see some positive movement as we move through Q2 and Q3 in terms of the volume degradation. But to this -- to date, if you go back, like I said, every quarter for the last 3 years, we've shown substantial positive EBITDA dollar and margin improvement. So I feel good about where we are, but we do see it becoming more of a tailwind over the next handful of quarters as opposed to the negative headwind on the volume front.

Okay. And as a follow-up on the margin side, I think you mentioned the fuel is being a headwind of about 20 basis points for now. When you look out for the full year, I know the EBITDA dollars are not impacted much given the fuel revenue and the fuel costs are roughly an offset. But do you think the top end of the guidance range for margin, which was I think 31% for the full year, do you think that still is attainable in this fuel environment or that might be a little bit impacted just given the mathematical influence?

Yes. I mean, based on where we're at right now, we're very comfortable with the whole range that we gave for margin. Just to give a little bit of context on surcharge revenue, about $1 increase in the price of diesel equates to about $200 million of annualized surcharge revenue. And if you assume like a one-to-one trade-off with fuel cost in surcharge revenue, that's about a 20 to 25 basis point headwind. But we do have that factored into our overall forecast for the remainder of the year and still feel comfortable with our guidance range.

And our next question comes from the line of Adam Bubes from Goldman Sachs.

I appreciate all the clarity on drivers of higher corporate expense year-over-year. How should we be thinking about what normalized corporate expense as a percent of sales looks like beyond 2026 and your ability to achieve leverage on that line item beyond 2026?

Yes. I think because it is showing up in that segment, but the benefits are showing up elsewhere. I do think that at least for the Q1 print that we had in terms of corporate and other for the remainder of this year, that is relatively stable. But you kind of have to look at the whole picture in terms of the returns that we're getting, particularly on the technology investments we're making in our business. So that's where I would point you to. It may mean that like SG&A as a percentage of revenue is more in that kind of 10% range long term versus something south of that. But you would hope to see the improvements in OpEx to -- so the overall margin improvement of the business as a result of those investments.

Part of that 10%, David, is having the Stericycle business on board because prior to Stericycle, the number was approaching 9%. If you recall that Stericycle's number was actually as high as, I think, 25%. So now we've chopped away at that. And I think, David, that's down to 17%...

Yes, high teens.

High teens. So -- but it still is -- it's certainly not down where the business was prior to the acquisition. So I think David's number of 10% is a reasonable -- actually quite good number considering you've got a high teens business there at Stericycle. As we continue to get synergies and a lot of the synergies do come out of the SG&A line, we think it's possible to get the WM Healthcare Solutions business down in the low teens and maybe even below that. Devina used to talk about getting it down to our own number. And so I think there's a long-term pathway to getting total SG&A back in that kind of low 9s. But for now, we're still focused on sub-10% because of the Stericycle business.

Got it. And then just wondering if you could talk about free cash flow conversion trajectory from here. I think excluding growth investments as a percent of EBITDA, you'd be at high 40s this year. Where can that trend beyond 2026? You'll have landfill gas, which is high free cash flow conversion ramping and continuing to focus on working capital improvements in Stericycle. You talked about some incremental production tax credits. So just wondering about the trajectory there.

Yes. I mean, obviously, just given the quarter we had with the $920 million of free cash flow, it is actually close to 50% for the quarter. I know it's just 1 quarter. But for the year, it's around 46%, including all investments. We do see a path to continuously improve that. And I do think 50% is a good number to aspire to. And I think we're charging forth in terms of our plans and our investments that should enable us to do that.

And our next question comes from the line of Toni Kaplan from Morgan Stanley.

This quarter, it looks like you started -- restarted your buyback program with over $340 million of buybacks. I was hoping you could just refresh us on your capital deployment strategy going forward and how you're thinking about M&A and also just the pipeline for deals and how you're sort of -- how you'd want to balance M&A versus buybacks?

Sure. Yes, we commenced our share repurchase program right after our earnings call last quarter, and we are on track for the $2 billion for the year. It's going to be a little bit more back-end weighted, call it, 55% to 60% in the second half of the year. Our capital allocation strategy for this year is really balanced. It is a year of harvest. And so we're really focused on returning that cash to shareholders. Over 90% of our free cash flow will be deployed in the form of dividends and share repurchases this year.

We do have a decent tuck-in pipeline. We previously said $100 million to $200 million. It's likely we'll be at the high end of that, if not above that, but we'll give more guidance next quarter in terms of that. And then there was a reference to our leverage target being back within our long-term range. That gives us a lot of capacity and a lot of flexibility in terms of acquisitions longer term. But again, this year, I think it's primarily focused on the harvest theme.

David, one thing I'd add to your point on -- we did talk about a few acquisitions, Toni, that we're going to either close in Q4 or Q1, and they obviously haven't closed yet, but we expect in the next days or weeks, one of those will close. But to one of some of the other questions, that was a little bit of the revenue headwind in Q1. It was just under $20 million of a headwind. So we expect that we're not going to get that $20 million back, but it's going to be part of our run rate going forward here sometime in Q2.

That's helpful. And just as a follow-up on the technology and automation theme, you talked about that a few times during the prepared remarks in terms of the benefits that you're seeing in terms of reducing costs from those initiatives. And I was hoping you could maybe just talk about which initiatives, whether it's robotics or automation or the cameras and the coaching that you talked about, just which of the technology benefits are you seeing the most benefit right now and sort of when you look forward continuing to benefit from those?

Yes, I'll try and be brief because that could be a really long answer. But if you think what I commented on earlier, if you look at what we've done in the recycling business, right, and Tara commented on despite really low commodity prices, we're still making more money and better margins. A lot of it has to do with the fact that we've structurally lowered the operating cost model in those recycling plants, and we're a lot less susceptible to commodity prices now than we were. And that's really -- that's not so much robotics, but it's automation and forms of artificial intelligence that we put in those plants. Jim mentioned, you've heard us talk about smart truck, right?

We've got all of our commercial and residential trucks outfitted with technology that allows us to capture over 300 million images a year. We could never do that manually. We couldn't put enough people anywhere to be able to do that, but we're using different forms of technology and AI to process about 95% of those images without a human having to touch them, and it's given us tremendous amounts of data that we can use, whether it's to evaluate safety, contamination, pricing opportunities, overserviced, underserviced customers, et cetera. And those have been in place for years. That technology on the truck I'm speaking of has been around for probably closer to a decade.

And then you think from a safety perspective, I think a lot of what we're able to do using artificial intelligence to capture data on how our folks are operating inside the cab has given us the information to go out and coach our folks. And I do think that's a true contributor to the historically low rates we're seeing or the high retention rates we're seeing, if you will, and turnover rates being as low as they've ever been. So those are all in place. Going forward, I think we've got tremendous opportunity in terms of routing and logistical capabilities that our folks continue to work on. We're actively right now piloting remote heavy equipment in a number of spots. We see that as a potential pathway down the road to forms of autonomy at some of our landfills, et cetera, et cetera. I can go on, Toni, but those are a few sort of examples that are in place now and a few that we see as driving benefits as we move forward.

And our next question comes from the line of Tami Zakaria from JPMorgan.

Probably a question for Tara. Your sustainability EBITDA dollars was robust, but margin sequentially ticked down to, I think, 45% from 50% in 4Q. Is that due to seasonality? And related to that, what margin are you expecting in 2Q and for the rest of the year for sustainability?

So we saw strong margin improvement year-over-year on both the Renewable Energy business and the Recycling business, and we were really pleased at where we came in. What we had said previously was on the recycling line of business that we would anticipate roughly 300 basis points of margin expansion this year, and we're still on track for that. And the Renewable Energy business, what we were anticipating was 200 basis points of margin expansion related to the growth investments. And that might be offset slightly related to our third-party fuels program. What I'll say is, given that pricing is a bit higher in the Renewable Energy business than we anticipated, we would expect that margins would tick up a bit based on what we had guided to. So all in all, what I would say is we're in a really good spot. We're performing the way that we had anticipated and feel positive about where we're headed this year.

Understood. That's very helpful. And I appreciate all the color on the Healthcare business. I was wondering if you could quantify the price versus volume you saw in Healthcare this quarter?

I probably can't do that. I don't know. Maybe Ed and Heather could offline take that.

Yes. We can answer offline on how we're handling that right now.

And our next question comes from the line of Seth Weber from BNP.

Just a quick one. Just I'm curious on the special waste strength. In your experience, is that typically -- have you seen that as a good leading indicator of just sort of the broader macro? Or how do you kind of think about special waste as an indicator of the business?

Yes, I think you're right on with that. That is one of the leading indicators for us is the special waste business because the customers, while they have these special waste projects, they have some flexibility in terms of timing. And so when we see that pipeline start to materialize in the form of volume growth for us, that is a good sign. It tells us that our customer base is relatively optimistic. So yes, I would say that's one of the best forward-looking metrics that we have.

And our next question comes from the line of Shlomo Rosenbaum from Stifel.

Could you talk a little bit about the current price/cost spread within collection and disposal and where that's running versus your outlook and maybe how we should think about that spread running as we go through the year?

Yes. Good question. I think, first and foremost, you could see what the collection and disposal margins have done. EBITDA margins up 110 basis points, and that's overcoming a 20 basis point headwind from the fuel side. I think when you look at operating expenses being again sub-60% and in the 59% range for Q1, obviously, we're showing good spread between the 2. I think what we've talked about 150 to 200 basis points, it's probably a little bit more than that over 200 basis points now. And what that's translated to is the 70 basis point EBITDA margin you saw across the business.

And as I mentioned, 110 basis points in the collection and disposal business. I think Jim touched on CPI. I think from an inflationary standpoint, 3%, 3.5% is sort of the range that we're still experiencing a little bit more pressure on the labor side, probably closer to 4% for obvious reasons, just the scarcity of some of that talent we need to keep bringing in. I do think that's part of where the -- we talked about safety and turnover where that's showing up. I think what I back up from is I look at what our core price performance has been quarter in and quarter out, how that's translated to yield and how it's translated to margin. And I think we feel good about our ability to still continue to drive some margin expansion as we go forward.

Okay. And then if I could just follow up, can you comment a little bit about the churn rate in the quarter versus last quarter and then year-over-year? And maybe the role of technology and the AI advancements and how does that play into the improvements in customer and price stickiness?

So I think from a -- we didn't comment on the service increases were still positive for the quarter. So that's always something that we look at. The churn rate, I don't have it in front of me, but I think it was right around 10%. It varies quarter in and quarter out. National account business can affect that, but we haven't seen any wide swings there. I think what's encouraging, again is if you look at our price performance across all the collection and disposal lines, we're driving strong core price, strong yield conversion, and we're doing without really driving defection.

And I think, as Jim mentioned, if you look at a few spots, our MSW volume, our special waste volumes continue to be net of some of the anomalies we spoke to, continue to be strong. From an AI perspective, I would tell you it's a little broader. We do use some artificial intelligence in our process, but it's really about our predictive analytical capability that our customer teams worked on building over the years and using a lot of that data that we're gathering, filtering it through those technology tools and being able to give our folks a better predictive position to make decisions on when and where pricing is warranted and how it will be received and accepted by the customer. And I think you're seeing the results of that show up in our financial performance.

And our next question comes from the line of William Grippin from Barclays.

I'll just keep it to one here. But coming back to the Renewable Energy business, the EPA obviously recently finalized the RVO for '26 and '27. Just wondering if you could provide some color on maybe how that's impacted your discussions with customers in terms of forward selling of RNG and also in terms of pricing expectations on voluntary offtake.

Sure. So we were really somewhat pleased with what the EPA did with the RVO because they slightly raised the renewable volume obligation. And you've really seen prices hold and stay steady at $2.40 per RIN, and that's good for us and well above what we had anticipated for our long-term investment thesis at $2. You've seen us be able to go into the market and forward-sell RINs, and the fact that we have 80% of our volume locked up for 2026. Some of that is in the RIN market. What we're tracking more broadly is what's happening in the voluntary market.

Roughly half of our long-term offtake will be in the transportation market and the other half in the voluntary market. And we've seen outside the U.S., whether it's Canada, the U.K., Europe, even Asia have strong voluntary markets that we can tap into. And then we're continuing to look at what public utilities might do in the U.S. They're passing along what they can to ratepayers and having more options in the U.S. voluntary market. All that being said, we feel confident that we can sell all of our volume in the voluntary market, and that will come in at or above our $26 investment thesis.

And our final question for today comes from the line of Kevin Chiang from CIBC.

Maybe this is also for you, Tara. Just wondering what you're seeing in the recycled plastics market. I mean virgin plastic has gone parabolic here since the onset of the conflict in the Middle East. And you did shutter a facility, I guess, the Natura plastic film processing facility. Just wondering if the economics of that facility changes just given what we've seen in the broader plastics market.

Yes. Brent would love your word parabolic. That's the new one to some other words for what's happened in the plastics market. Clearly, what's happening in the Middle East and what's happening with virgin pricing will potentially have some impact on recycled commodities, and it could be positive. We're tracking that closely, and it's starting to creep back up, but the word that I would emphasize is creep. So we're not anticipating any significant benefit from plastics pricing right now nor would it change our tune on some of the facilities that we've shuttered at this point.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Jim Fish, President and CEO, for any further remarks.

Okay. Thank you. Well, I guess one last comment here. We didn't really talk much about kind of the geopolitical environment. But even with all of the geopolitical uncertainty and then some of what we did talk about, which is weather, what we're most proud of here is that our 60,000 folks have been able to produce good results for us, and we're on track to hit our guidance for the year. So we're very proud of that. Thank you all for joining us, and we look forward to talking to you next quarter.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Good day, and thank you for standing by. Welcome to the WM Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Ed Egl, Vice President of Investor Relations. Please go ahead.

Thank you, Olivia. Good morning, everyone, and thank you for joining us for our fourth quarter and full year 2025 Earnings Conference Call. With me this morning are Jim Fish, Chief Executive Officer; John Morris, President and Chief Operating Officer; and David Reed, 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 our operating overview, and David will cover the details of the financials. Before we get started, please note that we have filed a Form 8-K that includes the earnings press release and is available on our website at www.wm.com. The Form 8-K, 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 the most recent Form 10-K and Form 10-Qs. John will discuss our results in the area of volume, which unless stated otherwise, are more specifically references to internal revenue growth or IRG from volume. During the call, Jim, John and David will discuss operating EBITDA, which is income from operations before depreciation, depletion and amortization.

References to the legacy business are total WM results, excluding the Healthcare Solutions segment. Any comparisons, unless otherwise stated, will be prior year period, net income, EPS and income from operations and margin, operating EBITDA and margin, operating expense and margin and SG&A expense and 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. 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 24 hours a day beginning approximately 1:00 p.m. Eastern time today. To hear a replay of the call accessed the WM website at www.investor.wm.com. Time-sensitive information provided during today's call, which is occurring on January 29, 2026, may no longer be accurate at the time of a replay. Any redistribution, retransmission or rebroadcast of this call in any form without the express written consent of WMs prohibited. Now I'll turn the call over to WM CEO, Jim Fish.

Okay. Thanks, Ed, and thank you all for joining us. We're pleased to report another year of outstanding results in 2025, including a record performance in operating expenses as a percent of revenue. This performance, combined with our disciplined approach to pricing drove full year operating EBITDA margin 150 basis points higher in the legacy business.

Strong [indiscernible] performance translated to double-digit growth in cash flow from operations and nearly 27% growth in free cash flow. Our results highlight the strength and momentum we built in our business model through operational excellence, scaling sustainability businesses and integration of health care solutions. You've heard me talk about the strength of our collection and disposal business with our differentiated assets and the best people in the industry.

All of these were on display in 2025 and as we drove our best ever operating leverage in our collection and disposal business, reflecting the intentional investments we've made in our people, technology and fleet. Better frontline retention and a decreased average age of our trucks delivered improvements in labor and maintenance costs. Meanwhile, we continue to drive organic revenue growth from both price and volume. By using data and analytics, we're offering pricing that reflects the premium value of our service, our leading commitment to environmental sustainability and the strength of our asset network.

It's our unmatched network, particularly our transfer and disposal assets that drove volume growth in 2025, more than offsetting the residential volume declines as we shed some low-margin business. In our Healthcare Solutions business, 2025 was a year of teamwork, focus and execution to build momentum to our integration. Our service delivery metrics and customer service scores have improved to levels above our legacy business.

Customer call volume has been trending down and the standardization and enhancement of customer-facing processes and invoices are all leading to rising customer satisfaction. Just last week, we received an acknowledgment from one of our largest health care solutions customers for the improvements we've made on invoicing, which is a great indicator of the significant progress we've made in the last year in our systems and back-office processes.

At the same time, we continue to significantly reduce SG&A and operating costs, streamline our operations and greatly improved asset efficiencies. While there's still work to do, the progress we've made to date puts us in a good position to grow the earnings and cash flow from this business with a lean and efficient cost structure a healthy pricing environment and new opportunities for volume growth through both cross-selling and market share expansion. On the sustainability front, we drove notable strategic expansion in our sustainability businesses. We commissioned 7 new renewable natural gas facilities, expanding our renewable energy network and further positioning WM as a leader in environmental sustainability.

We completed automation upgrades at 5 recycling facilities and added facilities in 4 new markets, which are enhancing the performance of our recycling network and creating new opportunities with customers. The value of our recycling investments is clear, particularly when you consider our recycling segment delivered over 22% operating EBITDA growth despite nearly 20% lower commodity prices in 2025. This combination of operational excellence and strategic investment across our business has produced record margin performance and accelerated cash duration. As we enter 2026, we're well positioned to convert more of our earnings into long-term shareholder value.

Turning to our outlook. We expect continued strong growth in the year ahead. Our guidance is operating EBITDA growth of 6.2% at the midpoint or 7.4% when you normalize for wildfire cleanup volumes in 2025. Free cash flow is expected to grow nearly 30% at the midpoint, reflecting structural earnings strength and the benefit of our investments.

As announced in December, our Board approved a 14.5% increase in the planned quarterly dividend rate in 2026, our 23rd consecutive year of dividend growth. We also authorized a new $3 billion share repurchase program. We plan to return about $3.5 billion to shareholders through dividends and share repurchases in 2026, representing more than 90% of free cash flow we expect to generate. We will continue to balance these returns with disciplined reinvestment, tuck-in M&A and a solid investment-grade credit profile.

Looking ahead, our priorities are clear: First, growing the core business by leveraging our focus on customer lifetime value, operational excellence and network advantages; second, capturing and maximizing returns from our investments in our recycling and renewable energy businesses; and third, driving accretive growth in health care solutions as we take the business from integration to scalable growth.

Finally, executing our disciplined capital allocation plan to deliver compelling long-term shareholder value. Our results reflect the hard work of our entire team who serve our customers with pride every day. Their commitment fuels our performance and sets the foundation for the opportunities ahead. In 2026, we will build this momentum strengthening the core, scaling our growth platforms and creating meaningful value for all our stakeholders. I'm incredibly proud of what we've accomplished and excited for what's ahead.

And with that, I'll turn the call over to John to provide more detail on our operational performance.

Thanks, Jim, and good morning. WM delivered another fantastic quarter to close 2025, driven by disciplined pricing and continued cost efficiencies across the business. In the fourth quarter, operating EBITDA in our collection and disposal business grew more than 8% and operating EBITDA margin expanded by 160 basis points, supported by strong execution in the ongoing benefits of automation and technology across our operations. The strength in Q4 was driven by operating expenses as a percentage of revenue improving 180 basis points to 58.5%, marking our third consecutive quarter below 60%. And for the full year, our cost management is just as impressive.

we finished 2025 at 59.5%, which is the first time in company history that operating expenses have come in below 60% for a year with each quarter of 2025 improving sequentially. As I said on Investor Day, we are fundamentally changing our cost structure through the investments we're making in our people, technology and processes. 2025 was the year we proved the change is real and durable and we're well positioned to continue capturing these benefits for years to come. The improvement in operating cost was led by substantial improvement in repair and maintenance costs on both a dollar basis and as a percentage of revenue. driven by operational and fleet strategies that are yielding tangible benefits.

Accelerated investments in new trucks over the last 3 years has improved our average fleet age, significantly reducing unplanned repairs and they need third-party maintenance support. And at the same time, our disciplined focus on fleet optimization and a more streamlined maintenance model, increased technician productivity and reduce reliance on rental units and external services. These structural improvements were complemented by enhanced route automation and resource planning tools that lessen wear on the fleet and improve overall asset utilization.

Taken together, these initiatives reflect our strategic commitment to operational excellence and are driving sustained cost efficiencies that strengthen our performance. Our repair and maintenance costs were not the only cost category reflecting the strength of our operating model as we saw a similar story in labor.

In Q4, labor costs improved as we continue to see benefits from our people-first culture across our frontline teams. Driver turnover reached its lowest level of the year at 15.7%. The demonstrating our ability to sustain our meaningful improvements in frontline retention. We've implemented a people-centric approach to onboarding, training and accountability, which is improving retention, safety, and operating efficiency while also reducing overtime hours and training needs. We also benefited from our connected truck platform, which gives leaders real-time visibility into sequencing, downtime and efficiency to help reduce labor dependency while improving service reliability. And it's also worth noting that our connected truck benefits are not limited to cost advantages as the technology enables rightsizing service levels and other revenue opportunities. These people, process and technology-driven improvements extend beyond our legacy business.

And now that we have successfully integrated the health care solutions business into our existing field operations management structure, we expect to extend these improvements we've already seen in on-time service delivery, driver turnover, asset rationalization and network optimization. In both the legacy business and the Healthcare Solutions business, we are structurally lowering our labor cost base, strengthening day-to-day execution, enhancing service reliability, and delivering continued opportunities for long-term operating improvements.

Turning to the top line. We delivered another quarter of strong balanced growth. Pricing continues to be a strength for us with core price of 6.2% in the fourth quarter not just because of disciplined execution, but because of our strong customer focus and the consistent value we provide to our customers. Our asset positioning at scale service reliability and the investments we've made in technology and automation differentiate our service offering, which all support our pricing.

And on the volume front, we've seen notable growth in 2025 in special waste, renewable energy and recycling. In residential collection, intentional shedding moderated in the fourth quarter, and we continue to drive operating EBITDA and margin growth. We anticipate steady residential volume improvement as we move through 2026.

In closing, I'll close by thanking the entire WM team for their commitment and execution throughout 2025. We're entering 2026 with strong momentum, an optimized operating model and clear opportunities to continue delivering value to our customers and shareholders. And now I'll turn the call over to David to discuss our 2025 financial results and 2026 financial outlook in further detail

Thanks, John, and good morning. Our 2025 performance demonstrates the meaningful progress we're making toward our long-term strategic goals. Operating EBITDA margin expanded 40 basis points to 30.1% for the full year which is a result that overcame a 140 basis point margin headwind from the combined impact of the acquisition of the Healthcare Solutions business and the expiration of alternative fuel tax credits. This result significantly exceeded the margin outlook we provided at the beginning of 2025 as we outperformed our own high expectations for cost optimization in our legacy business and synergy capture in the Healthcare Solutions business during each quarter of the year.

Normalized for these known headwinds I just mentioned, our legacy business delivered 180 basis points of margin expansion for the year. This was driven by 120 basis points of growth in the collection and disposal business from the benefits of price, cost optimization in business mix, particularly growth in landfill volumes and the shedding of low-margin residential business. Margin growth was also bolstered by a combined 60 basis points from lower commodity pricing and the recycling brokerage business, recycling automation benefits the growth of our high-margin renewable natural gas business and the lower risk management cost.

Cost optimization remained a central theme in 2025. We SG&A expense for the legacy business was 9.2% of revenue for the full year, a 10 basis point improvement compared to 2024 as we continue to rationalize discretionary spending. Within Healthcare Solutions, we are making consistent progress in reducing SG&A expenses as we integrate and optimize the business.

Fourth quarter 2025 Healthcare Solutions SG&A of revenue is a notable improvement of 350 basis points from the prior year period and a significant step toward our long-term ambition to get the SG&A of this business in line with the rest of the company. At 10.4% for the full year, it is clear that we are on track to get total company SG&A as a percentage of revenue below 10% in short order. Our strong execution translated into robust cash flow generation in 2025.

Cash flow from operations grew more than 12% to $6.04 billion, and free cash flow reached $2.94 billion an increase of nearly 27%. These results showcase our success in driving margin expansion and disciplined approach to capital investment. For the year, we spent just under $2.6 billion on capital to support the business and $633 million on sustainability growth investments.

In 2025, we allocated $1.3 billion to dividends and paid down $1 billion in debt reaching a leverage ratio of 3.1x. We expect to reach a leverage ratio within our targeted range of between 2.5 and 3x during 2026. We also invested more than $400 million in tuck-in acquisitions to expand our traditional solid waste and recycling footprint.

Moving to the outlook. We expect operating EBITDA to be between $8.15 billion and $8.25 billion in 2026. This projection reflects an update to the classification of accretion expense, a change we are making to enhance the comparability with our industry peers and to better reflect operating performance. As a result, our 2026 operating EBITDA guidance excludes projected accretion expense of approximately $150 million. Our plan calls for a typical quarterly cadence of operating EBITDA contributions across the year.

Additionally, we expect an effective tax rate of approximately 24% and a share count at the end of the year of about 402 million shares. We anticipate capital expenditures for 2026 to be between $2.65 billion and $2.75 billion, which is inclusive of about $200 million directed towards high-return sustainability projects. Sustainability growth capital includes spending of about $85 million on 2 recently approved renewable natural gas facilities and 1 new recycling growth project, each expected to be completed and to begin contributing operating EBITDA by [indiscernible] These projects are attractive opportunities to extend our network while bolstering WM's industry-leading return on invested capital.

In 2026, we expect free cash flow growth of nearly 30% to $3.8 billion at the midpoint of the outlook, which drives our projected operating EBITDA to free cash flow conversion above 46%. Our guidance includes an anticipated benefit from investment tax credits of about $110 million which is about a $75 million headwind from the prior year.

In closing, 2025 underscored the strength of our business model, the resilience of our operations and the discipline with which our teams execute every day. We are proud of our progress toward our long-term strategic goals, driving margin expansion, strong cash flow generation and continued optimization across the enterprise.

I want to thank our dedicated team members whose commitment makes these results possible. As we look ahead to 2026, we are confident in our ability to sustain this momentum to continue delivering operational excellence and to generate long-term value for our shareholders. With that, Olivia, let's open up the lines for questions.

[Operator Instructions] Our first question coming from the line of Sabahat Khan with RBC Capital Markets.

Great. Just maybe starting with sort of the top line guidance. Can you maybe give us some perspective on the industrial activity has been weak for some time. There's some views just broadly out there that the economy picks up this. Maybe just what you've embedded in terms of the macro backdrop. Obviously, we see the sort of the directional volume and pricing commentary. But if you can just delve into what you're seeing in your local markets and as an industrial C&D type market picking up at all?

Yes. Regarding kind of the macro economy, I would say that we've said for the last few quarters that we're cautiously optimistic, and I think that we stay with that. I might even remove the word cautious I think we're optimistic about the macro economy. When we look at our own internal figures and you mentioned the industrial line of business, that's a line of business that has been pretty soft over the last couple of years. I think we've been down 3% or 4% volume each of the last probably 7 or 8 quarters. And that business actually has bounced back to almost flat. So that's an encouraging sign for us. I think similarly, as John mentioned in his remarks about the residential line of business, that's been negative for some time, that's been much more by design. But he also mentioned that, that is starting to come back to more of a normalized number. And we think by the time we get to kind of the back half, I think, John, of 2026, we'll -- we should see that down [indiscernible] so all of those are encouraging signs. If you look at the landfill line of business, that's been a source of strength for us. for a number of reasons, special waste, as John mentioned in his remarks as well, has been good. So all of that would tell me that the economy is on pretty firm footing.

Great. And then just a follow-up on the health care side a little bit. Can you talk about -- it sounds like the integration is largely there. But can you just talk about '26. What you're sort of thinking on the pricing front, maybe some of the larger initiatives on the cost refinement, getting that percentage more to where you want it to be on the SG&A side. So maybe you can delve into some of the commentary shared earlier on the initiatives for this year on the health care side? And what could those margins look like sort of over the next 12, 24 months?

Yes. So a lot with Healthcare Solutions, we've made a ton of progress just in the last quarter. There's a lot going on between Q3 and Q4, even if you look at Q3 to Q4, there was -- we talked about some lost accounts last quarter that would carry forward into this quarter and carry forward into 2026. And so that did, in fact, happen. But as I said in my remarks, we've made a ton of progress on our customer service -- the customer service side of our business. In fact, the metrics that we use to measure those have actually jumped above our legacy business, which is very, very encouraging. Similarly, from Q3 to Q4, we saw credit memos, we think they peaked in Q4. And so as you know, those credit members have been used to in part, take care of some of these past due accounts that we've had. I think what I would say is we've really kind of built a wall now between all that is continuing to go on on the back office side of that business and the customer themselves, and that's a real positive. And the result of that, as we think about 2026 is going to be I think, better price realization. We've been getting price all along, but we just haven't realized as much of it. And a lot of that has been these credit memos that we've been giving that has offset some of that price. I think when you get into 2026, we're expecting 4.2% price in 2026. Top line is going to be 3%. And that is a reflection of those lost accounts that will anniversary for the most part in the back half of '26. So that's the reason why it looks like all of our growth is coming from price. It is, in fact, coming from price and it's due to those lost accounts. And then when you think about the expense side of the business, John mentioned that we've rolled that in. And I think Rob, the last quarter talked about how we've rolled that business into our areas. And so we're seeing the real benefits of that. We're seeing that what we've owned on the legacy business over the last probably 10 years, some of it through technology, some of it through process. All of that gets brought to this routing logistics business, which is WM Healthcare Solutions. So we're really encouraged about what we're seeing as we roll the business into the areas. I guess the last thing I'll mention here is that cross-selling, which we put $50 million of cross-selling in the EBITDA synergy number back in June of last year. And I would tell you that if I were a betting man that I would take the over on that because talking to our area leaders last week, almost to a person, they were very encouraged by what they're seeing from their sales folks. In terms of cross-selling, I think it's important to keep in mind that some of that cross-selling benefit though, does show up in the collection and disposal line of business, not all of it shows up necessarily in the Healthcare Solutions business.

Our next question coming from the line of Bryan Burgmeier with Citi.

I appreciate all the detail in the press release [indiscernible] really helpful I thought that footnote seemed to say that maybe discussion on the 2027 financial targets would be put on hold for a little while. I'm not sure if I'm sort of interpreting that correctly? And if I am, maybe from a level, can you help us understand sort of what went into that decision? I guess there have been sort of some accounting changes. It's a pretty dynamic macro environment, but just kind of hearing in your own words would be really helpful.

We did debate, [indiscernible], whether we'd get a question on footnote age. So Heather's the winner on this one. But here's what I would say about the 2027 number, on Investor Day, we gave some high-level estimates. I would -- what I would say about those is that they weren't detailed guidance as we're giving today for 2026, and we will give detailed guidance on 2027 and a year from now. So I would tell you that those were estimates. They're kind of the best estimates we can make at the time. I mean our business typically about as far out as we can look as 12 months. It's hard to look at things like commodity prices 18 to 24 months out. So those estimates, I wouldn't rely on those as guidance. I would rely on them as what they were intended, which is estimates. But I will tell you this about '27 we don't see anything on the horizon that's concerning for us. And I would also say that if there's one thing you know about us over the last number of years, the consistency of our performance has been one of our strong suits, and I think that continues going forward.

Got it. Got it. That's really helpful. And then maybe just digging into the guidance for

'26 a little bit more. Maybe John, can you give us an idea of maybe the level of margin expansion that you're looking for in collection and disposal this year on sort of an apples-to-apples basis? I guess is kind of noise with the landfill accretion and the wildfire comps, but your thoughts on net price and maybe some key cost buckets could be quite helpful.

Yes.

Yes, Bryan, you saw the guidance we gave in terms of yield and core price. And what we've really been focused on was really showing up well in Q4 and this year, as I mentioned in my prepared remarks, is sort of -- is the spread between price and cost, and we're continuing to expand margins. So we're really pleased. Directly to your question, there is a little bit of noise [indiscernible]. We talked about the wildfires being one of those things that really showed up in Q2, but 50 basis points on a same-store sales basis is kind of what we're targeting from a margin improvement standpoint across the portfolio.

So grading down by calling the wrong name, I think equity [indiscernible]

And our next question coming from the line of Trevor Romeo with William Blair.

First one I had was maybe on the 2026 outlook for Healthcare Solutions, particularly on EBITDA because I know you did give kind of a revenue outlook. You talked about kind of continuing to optimize the business. So I was hoping maybe you could level set how much cost synergy capture you realized in 2025? And then how much is baked in for incremental in 2026. And then along with that, how much sort of underlying growth and margin expansion you expect from the business ex energy?

There's probably a couple of us could take this one, but I'll start and then maybe David or John can jump in. But first of all, as far as '25 goes, we did say at least on the SG&A synergies we gave a range initially of 80 to 100, and we finished above the top end of that. So we're encouraged by that, and that ends up being a benefit -- carryover benefits for us. Some of it is -- well, it all carries over, but some of it's happened [indiscernible] throughout 2025. So that ends up being a carryover benefit for us as we come into 2026. The original synergy goal of $300 million, and that, of course, mentioned the $50 million that's included in that for cross-selling, we feel very comfortable with that. I think there's a little bit of a scrambled egg happening here with these businesses because some of this, and I mentioned in cross-selling, some of that ends up showing up in collection and disposal. The same thing happens on the cost side. particularly operating cost but also SG&A. I will say this about SG&A, which is kind of kind of the long pole of the tent here. that David mentioned it in his remarks, but as you look at SG&A pre-acquisition, and that's been something that [indiscernible] and I spent a ton of time on all of us, but [indiscernible] in particular, were very focused on getting SG&A down. And that number pre-acquisition had gotten down to -- I think the third quarter of last year was -- or 2024 was 8.9%. And as for a year, I believe 2024 was 9.4% and then that jumped up after the acquisition to a high of 11% in Q1 of last year of 2025. We have -- through the synergy capture have really kind of chopped away at that. It ended the year at, I believe, 10.3%. But as David said, there's a near-term pathway to getting that continuing to get that thing down as a corporation. That includes Healthcare Solutions down to below 10%. And as we've said many times, that business was running at a much higher SG&A. I think it was as high as 25% when we bought it it has come down to 20%. I think the number that was in our synergy capture was 17%. And then [indiscernible] said a number of times, look, we think that there's no reason we couldn't expect that number to be down close to to our own number, which is kind of 9%. And as it gets down there, you can -- could expect to see that SG&A number continue to come down. And then maybe, John, on the operating side?

Yes, I would say from a synergy perspective, cross-selling and internalization, those avenues are going very well. And as Jim mentioned, Trevor, we're seeing a good bit of the benefit right now showing up sort of in the core solid waste business. I commented on our rollout volume last quarter being a portion of it, about 60 basis points being driven by simply taking that work and putting on WM trucks. That's not something that's going to show per se in the health care segment. And like I said, in terms of internalization and other synergies, we're getting out of the business. That's all going extremely well.

Yes, makes sense. And then I did want to follow up on the RNG business. I don't know, maybe [indiscernible] the call, but I appreciate the, I guess, the 60% of volumes contracted for 2026. That's encouraging. For the 40% of the uncontracted volumes, I think the comment in the press release was an expectation for $24.50 per MMBtu on the pricing side. I think if you use today's spot prices, that would imply something decent amount higher than that, let's say. So maybe you could just talk about that a bit. Is that kind of where you see the voluntary market right now? Or is there some conservatism built in there? Or just thoughts on [indiscernible]

Yes. So I'm hearing -- we're really pleased with the progress that we've made on selling a portion of our volume a pretty significant portion and it's a testament to how we've been managing the risk that's in this business. On the 40% that remains unsold, this is going to be the first year, if you look at it, our volume is doubling year-over-year from about 40 million MMBtus to now 21 to 22 plus. So we're going to have a portion that is not allocated to our fleet that will be sold in the voluntary market. and that's what you're seeing in there. From a pricing perspective, we're anticipating [indiscernible] pricing to hold steady in that $230 million to $240 million range. So that's what it's all based on.

Our next question coming from the line of Tyler Brown with Raymond James.

I'll reiterate, lots of good detail was in the release. But David or Tara, I just wanted to unpack the comments about the approaching $1 billion in sustainability EBITDA by $27 million. So I think in the release, you provided a baseline now. So I think that baseline is $300 million. I just want to make sure that I have it right, but are you basically expecting the investments to yield, call it, slightly less than $700 million of incremental EBITDA over the time frame. And can we comp that to the $760 million to $800 million that you laid out at the Analyst Day? And if so, can we just talk about what's driving that delta?

You absolutely have the parts right. And let me just take a step back on 2 key points. First, we're incredibly pleased with the progress on the recycling and the renewable energy investments. It bears repeating what was in Jim's script with 18% lower commodity prices and delivering 22% higher EBITDA on the recycling business. That's a testament to what we're delivering in labor savings, in premium savings and we've had strong volume growth, which has a halo effect with our customers. And then likewise, really having a lot of momentum on the RNG business. I mentioned before that we're going to be doubling our output. What you can bridge from the $700 million to the $760 million is really just in 2 buckets. The first is a difference in recycled commodity prices. What was in our Investor Day materials was $125 a ton and now what is in the number is 70 days, which we do view as a low point. So you can consider that there could be some upside if and when commodity prices come back. And that's over half of it. The other piece is, if you go back to 2023 when we had come out with this broader platform, we've learned a lot. And one of the things that we've learned is that there have been some different differences in operating costs, primarily related to electricity costs, which is a bit of a headwind, but also in the medium and long term a potential tailwind for us because we do have a robust landfill gas to electricity platform. And that is something that we can lean into as we look at whether or not we expand those types of facilities on our landfill.

Tyler, this is kind of case in point to my earlier comment about trying to predict things in our business way out. And then that Investor Day was the 2025 Investor Day, and you can go all the way back to the 2023 Investor Day about sustainability, just really difficult. So we're kind of dealing with what we have at the time. And so yes, commodity prices have dipped. And hence, the $700 million. But I think it kind of makes the point for us that, a, is tariffs, I mean, these businesses are incredibly good investments [indiscernible] on them, particularly the renewable natural gas plants. Well, I think we originally said they were 2.5% to 3%, now they maybe 3% to 4%, but still incredibly good paybacks. But this -- anything that's commodity related, as you can imagine, it's just really hard to predict that far out.

Yes. No, I just was trying to get the delta. That was extremely, extremely helpful. John Morris, a question for you. So if I look at the normal course CapEx, it looks like that CapEx number is running at less than 9.5% of sales. It just feels maybe a bit light. I realize that Stericycle is less capital intensive, so that's part of it. But is this kind of a good call it, forward capital plan. Is there something unique in '26 that keeps the budget down? I think you and Jim mentioned the lower fleet age, but I just want to just try to level set on where that CapEx will run longer term.

I think probably a little higher than that, Tyler, probably the 10-ish percent off the cuff. There's a few things [indiscernible] 1,500 trucks is what we said is probably a normal run rate for the traditional solid waste business. And as Jim mentioned, we've been obviously catching up and advancing some of those investments, which by the way, are clearly paying off, as I mentioned in my prepared remarks. We got -- we do have some work to do on the fleet with the health care -- on the health side is because they leased virtually every one of their vehicles. But we are systematically unwinding that where it makes sense and when it makes sense, right? So there's a timing aspect of when we peel back some of those leases. And then lastly, obviously, the sustainability investments, as you saw in the release and the remarks here is coming down by roughly $400 million to $200 million. So there's some puts and takes. But back to where we started, I think that 10-ish percent range is probably a good mile marker in terms of go-forward capital.

Next question coming from the line of Toni Kaplan with Morgan Stanley.

I also wanted to ask about the Healthcare business. You talked about the 3% growth next year, the 4.2% pricing. It sounds like you're still having some of the issues with the Stericycle customers. You mentioned the credit memos do you expect all this to be resolved this year? And how are you thinking about growth in this segment for future years? And just maybe if you could talk about market conditions within the medical waste space and if that's proceeding, how you sort of saw when the deal was launched or when you announced the transaction where you were talking about sort of a higher market growth for the health space.

Yes. So fair question here. And one thing I would maybe correct you on a little bit is the customer -- that's why I wanted to make sure I mentioned that we're getting to, and I would argue we're there where the customer is getting a good invoice, they're getting a payable invoice. There's a lot going on behind the scenes for that, especially for the larger customers. By the way, there is a lot going on behind the scenes for our larger customers in the legacy business in our national accounts. There's a lot of manual effort that is ongoing there. But our intention was to really kind of build a wall between the back office work that is ongoing, and we'll be ongoing through and what the customer sees. And that's why in my remarks, I talked about the improvement in our customer service stats to levels above our legacy business. That is all super encouraging and tells us, and I think I mentioned that one of our customers recognize us for really improving our invoicing. That was a big customer. I didn't name the customer or a big customer. So all of that tells me that we've done an effective job of putting that kind of all in place. So the customers -- they really don't care what goes on in the background as long as they're getting good service and good invoice and then we will take care of the system issues, we'll take care of the process issues, all of that. And that is all. We're making big progress on that. It's all ongoing. So all that's part of the ERP that we've talked about many times. It also gives us the ability to, as I mentioned, and you asked about kind of the growth of this business. Look, I would tell you this, I think we said 5% to 6%. And really, as you think about what we gave for 2026, 4.2% price, but only 3% top line and that negative volume piece, as I mentioned, is largely related to these accounts that we've lost. And we knew we had lost them, and we knew that it was going to have an impact on Q4 and we know it's going to have an impact on the first half of 2026. As we get to the back half of 2026, that actually turns into potentially a tailwind for us on a year-over-year basis. And then the last thing I'll mention about this, so I guess to finish that point, we do feel very good about the strategic business case for this. I know there's been some skepticism out there about well, is this business not going to grow at the 5% to 6%. You take those lost accounts and you're almost there right now. So when we get to the back half of next year and into 2027. When you look at that -- the pricing power that we have across the entire organization and when you look at the fact that this business demographically. I mean if I were to ask you what business should you be in over the next 20 years, I would think that health care is one of those with this aging population in the U.S. and in Canada and the U.K. So that has to be a beneficiary of it. So I think my long answer is, yes, we're very confident in the growth trajectory for the business. And we're also very pleased with the progress we've made, not done yet, but we've built this wall and the customer is now seeing a good invoice and a good service level.

Great. And just moving to -- you mentioned some technology and automation improvements that you've made. When you think about 2026, which areas are you most focused on for efficiency or technology? Just anything to highlight with level of automation that you're able to continue to do and which areas have the most runway for that?

Maybe I'll start with and Tara can chime on the recycling side, I think you've seen the benefits Tara commented in some of our answers about the progress we've made from the investments we've made in recycling, a lot of that has driven sort of the middle of the P&L, and that's where technology enablement and AI are paying off already, and we've made a lot of progress there. When you think about the 15,000 [indiscernible] vehicles, we run in now another called another 4,500 on the health care side, building out technology enablement as a logistics service is where you -- I think that's paying off, too. When you look at the margins and the OpEx in particular and momentum that we've built in '24 into '25 and into Q4, I think you're going to see that continue to carry forward into into 2026. And then lastly, on the post-collection side, we've talked a lot about the value of our network and having strategically placed assets in the post-collection side, whether it's transfer facilities, recycling facilities, landfill facilities we're taking a kind of an IoT approach at our landfills to by embedding technology in those facilities that's going to give us visibility to the operation in a much more efficient manner than we traditionally have done. And those are complex operations, as you know. So we still see a lot of opportunity on the post-collection side, particularly landfills to embed technology to to really drive down operating costs there as well.

Our next question coming from the line of Faiza Alwy with Deutsche Bank.

I wanted to ask about just volumes in the collection and disposal business in the fourth quarter. I thought they came in a little bit light relative to what we've seen. And I know we've had some obviously, special waste volumes. And I know earlier in the call, you talked about sort of the industrial business and the macro environment there and that you're optimistic. So I'm just curious, is there anything more to consider as it relates to collection and disposal volumes in the quarter relative to trend other than just special waste?

Yes. Look, we don't talk much about weather just because we choose to make it up. I would tell you the weather impacted us in December and likely is going to impact us this week when we get to first quarter results, but we make that up. I mean, we don't let our area folks say, well, weather impact [indiscernible] I'm going to be coming in under my budget. But it did impact volume a bit. As you see with the numbers, it didn't impact the overall numbers. So we made it up on the EBITDA line. But when you think about volume, it did have a bit of an impact on volume. MSW was a bit soft and much of that was a result of -- the 2 lines of business that are most impacted negatively by weather, our MSW and the industrial business. And so those were clearly impacted by the weather in early December. I suspect that they'll be impacted this week, too. So that would be my answer that may have caused a little bit of softness there, but it doesn't impact the EBITDA line.

The only thing I'd add on there, Jim, is residential is the one that sticks out. It's been negative for a number of quarters. And I would tell you, while we see that starting to turn into more of a growth engine in 2026, when you look at 2025 we finished the year at high teens on the EBITDA margin side and over 20% for the quarter on residential, which has always been a high watermark for us. So I kind of look at the volume attrition there a little bit different than it would be the other pieces of volume. But again, I think it's important we see that -- we see the teams pivoting from using that is shrinking to greatness to now growing to even better margins as we go forward in that particular line [indiscernible]

Well, I think it's been mentioned today, Faiza also, if it hasn't, we should reiterate the fact that on the volume line, when we look at 2026, we have 50 basis points headwind on volume from that fire volume that we got last year on the West Coast. The tough part about that is that we don't -- look, unfortunately, natural disasters seem to be happening fairly regularly, but we don't forecast them for obvious reasons. So right now, we don't have anything built in. We have asked our field operations to figure out how to make up that. That's a tough makeup because it was a pretty big headwind on volume, also a big headwind on EBITDA, $82 million was the number from last year on the EBITDA line. So when you look at -- whether you look at volume, whether you look at EBITDA, you may say, well, gosh, a lot of the reports are saying a bit soft on guidance. Keep in mind that that's why I pointed out the 7.4% EBITDA growth if you take out that that onetime impact from the fires. Unfortunately, these things do happen so something else may happen. It may not be as big. Hopefully, it's not. Hopefully, we don't have anything this year. But if we do we have the assets, the geographic coverage, the people we have all of that to take care of our customers.

Yes. Understood. Makes sense. And then I was going to ask about just the margin guide for next year. And was hoping there are a few moving pieces, in particular, with the wildfires. And also, I guess, this is the roll-off the sustainability projects. So maybe you can help us a little bit around the quarterly cadence of margins at a high level and how to think about that.

Sure. I'll give you some of the components. This is David. I'd be remiss if I didn't talk just about the records that was mentioned previously, both in the quarter of 31.3% and for the full year, 30.1%, which I do think is a testament to how our team members focus and dedicate on this throughout the year. But as we look to 2026, we're calling for our fourth consecutive year of EBITDA margin expansion of 30 basis points at the midpoint. But as Jim just alluded to, 50 basis points on an adjusted basis. The biggest contributor to that is going to be from our collection and disposal business. So as we execute our pricing programs, while continuing our strategies around operational excellence and leveraging our network, that's a big piece. We also have some business mix as we've alluded to continued shedding of some lower margin residential business relative to our volume growth in the landfill line of business. And then on sustainability, there's about 30 basis points collectively of benefit in '26 in terms of the bridge as we bring new plants online. We've got 4 recycling facilities and 6 RNG facilities coming online in 2026. There is a modest decline in recycling commodity prices year-over-year, that will have a minimal impact on margin. And then health care solutions, as we've been discussing, will contribute to margin expansion overall for the year as we capitalize on our value capture opportunities, execute our pricing plan continue our cross-sell efforts, even though that will show up most likely in the C&D business and then continue our progress on lowering our cost structure. And then in terms of cadence throughout the year, it's, call it, 47% in the first half, 53% on the back half in terms of mix, but that's in line with our historical averages.

Our next question coming from the line of Adam Bubes with Goldman Sachs.

Just had one more follow-up on margins. Really impressive in the quarter. And I think if you just compare your 4Q margin prior exit rates to where you typically ended the next year, it would sort of imply that this 4Q exit rate points to potential for better than 30 basis points of margin expansion in 2026. So I'm just wondering out of the 230 basis points of margin expansion in this fourth quarter, how much of that expansion would maybe more one-off? I know you called out the outsized RIN sales that were going to happen this quarter?

I think for the most part, these are sustained initiatives that we've been executing on, and it just highlights our focus on disciplined cost management. And so we're just seeing it come to fruition. And I think, as Jim alluded to, with the volume, some of it which we can't control, like just the ability of the the business to flex accordingly in the environment that we're operating in, it allows us to maintain and sustain that margin going forward. So for most of it, I think we can carry that forward versus a number of one-offs that we idiosyncratic to the quarter.

So I'm probably going to make his point form here, but one thing we haven't really talked too much about is the fact that if you look at our core price for next year, 5.6%. It's a 250 basis point delta, and we typically have gotten this question, so we haven't gotten here today, but a 250 basis point delta to our forecasted cost inflation. I don't know how that measures up historically, but it's going to be one of the bigger ones for us. So I'm kind of making your point for you, but still, we do think that 30 basis points is reasonable considering the 20 basis points of of headwind from the fire volume. So that's where we came out.

Terrific. And then on the landfill gas side, can you just update us on voluntary offtake discussions I think eventually 50% of your production will go into voluntary market. So what's your confidence level that, that 50% will be absorbed by those markets? And how are those discussions going?

We're confident that we'll be able to absorb that in the voluntary market. While the U.S. market right now is a bit softer than it had been. There are other markets that are strong. If you look at Canada, the U.K. and some other international markets, we're able to tap into those as well. And then still in dialogue with some larger utility companies across the U.S. as their public utility commissions pass their rulemaking that, that should free up more of the voluntary market in the future.

Our next question coming from the line of Noah Kaye with Oppenheimer.

I'm sorry to beat the margin math, hopefully, not the debt here. But just I'm a little confused. So the walk here is 50 bps on an adjusted basis ex wildfires. But I think you said that sustainability was maybe 30 bps benefit in the bridge. And then I think just with the synergies capture on health care and the pricing, that has to be another 10, 20 bps or so, at least. So what am I missing here? Because it seems like collection and disposal is going to be positive based off of what Jim and Dave just said. Just trying to understand what moving pieces there are that we're not accounting for?

Yes. There's some normalization of certain expenses in corporate and other, that we've baked into the guide. Those may or may not materialize, but just we felt prudent just based on on how we finish the year to adjust for that. There's also some technology costs that show up in there that are for the benefit of other parts of the organization. And so that's offsetting some of the points that you're highlighting.

Okay. That's helpful. And then just a quick one on the recycling outlook. The basket was $62 a ton in 4Q and I think we're kind of maybe at or slightly below that, maybe you can update us. But just the thought around the $70 per ton outlook for '26, can you help us understand that?

So 2026 -- the way to look at it is the first half, second half story. And so exiting 2025 at $62 a ton, what we're anticipating for the first half is in that $60 to $65 range and then ramping in the back half of the year. Why is that? Well, what we're starting to see is a little bit of green shoots on the fiber side. The headlines previously were that a lot of capacity has been taken out of the U.S. market, which is true. That was more inefficient [indiscernible] but the larger mills that remain are going to be looking for material, some of the cloud around tariffs has been lifted. So we're anticipating that OCC prices should bounce back in the back half of the year. We're not expecting any material movement on plastic pricing moving forward.

Our next question coming from on James Schumm with TD Cowen.

For WM Healthcare, can you give us revenue split between document destruction and medical waste? And then maybe give some color on document destruction profitability and whether you see this as a core business for you going forward?

So James, I think the answer to your question is about 2/3, 1/3 between health care and document destruction business. And then, sorry, could you repeat the second part of the question?

Yes, sure. Just in terms of like the profitability and document destruction, any color there? I think you talked about in the past that maybe you had an advantage here with your recycling business. Maybe you got better paper pricing. But do you see this as a core business going forward?

Yes. I mean, first to start on the recycling side, it's interesting. Both of those businesses are collection disposal and our processing businesses, right? And I think you heard some of that commentary from us earlier. So from that perspective, it lays nicely over whether it's on the [indiscernible] side or on the health care side to what we see as some of our core competencies. The commodity side of Tara spoke to what we're going to see from a commodity side and probably some more green shoots on the fiber side in the '26, which certainly benefit that business. And then when you look at the health care side, it is a collection and disposal and processing business and Jim gave a good bit of commentary on where we're at. I would tell you that the integration into the areas, which has just occurred over the last, call it, 120 days, I think it's going to be a great platform for us to continue to drive some real expansion in margins now that our field leadership teams have sort of a full purview of the business at the local level, which not dissimilar to the WM core business, there's a lot of elements to this from an operating perspective that are [indiscernible] international teams. And Jim mentioned, we just had our quarterly business reviews last week and got a lot of good commentary and a lot of positive commentary on where that business is going.

Okay. Great. And then Jim kind of touched on this. But collection and disposal core price in 2026 is expected to be like 5.6% at the midpoint, which seems very conservative off of 2025, 6.3% level. So just curious like what was the customer churn number in Q4? And what do you see as the right number for churn?

We see that, obviously, bounce around a little bit quarter-to-quarter for a litany of different reasons, but we've talked about churn being in and around that 10% range, and we're still bouncing around in that range, although it varies from quarter-to-quarter, and you've heard us comment at times it's been as low as 8 and change. It's been a little bit as high as 11. But when you stretch the tape-out, that 10-ish percent churn number is kind of what we anchor on. In terms of the price side, when we think about core price and yield and the conversion, obviously, the numbers bounced around, it's been the high 50s, high 60s I think what I would point to is when we break it down by line of business and the margin profile of those businesses, what you're seeing is our operating expense under 59% in Q4, under 60% for the full year. So that's showing that we're making progress on the middle of the P&L. And then we look at that relative to customer lifetime value and what's the long-term perspective on pricing that we should take with each of those individual customer segments. And I think you're seeing it translate to all-time high margins. I mean the collection and disposal business was 39%, which I think that's an all-time high as well.

Maybe one last point here on pricing, James, because you mentioned that you can but maybe 5%, 6% conservative. Can you remind that as CPI or some of these indexes come down, we've talked about this many times that there is a lag in those index-based price increases that we can take largely on the resi side of the business, but sometimes on other lines of business as well. And so that lag can be up to 6 months. And so we do expect that as CPA has come down throughout 2025, that we will see a bit of a lag there that will negatively impact 2026 pricing. So hence, the 5.6% as opposed to something in the 6s for 2025. But as John just said, look, we're certainly making up for that on the margin line.

Our next question coming from the line Jerry Revich with Wells Fargo Securities.

John, I wonder if you could just go back to your prepared remarks, you mentioned some benefits from connected trucks and other. Can you just give us an update? Are you focusing an acceleration in terms of the savings that you're seeing from logistics management. And obviously, you had the session with Caterpillar at the Consumer Electronics Show. Is -- are the returns from your tech investments accelerating as we head into this year?

Yes. I think, Jerry, starting with connected truck, we've had that technology on all our commercial fleet for some time now. We've actually expanded that to the automated components of our residential business. So we still see that there's there's runway there. So we'll continue to build on that. And I think to your point about the -- I mentioned connected land only in particular, the heavy equipment side, we see plenty of opportunity that we're starting to unpack with this connected landfill. There was a good bit of detail laid out at Investor Day about what that pathway looked like going forward. So if you think sort of late middle innings on some of the connected truck elements that you mentioned, I'd say we're in the early innings on the post-collection side and see a lot of opportunity to drive cost out of that part of the business as well.

Okay. Super. And then from a margin standpoint, just really impressive performance over the course of even as recycling commodity prices got worse over the course of the year. David, I just want to make sure I'm not missing anything heading into the first quarter because normal seasonality and the accounting change implies that you're going to be at roughly, I don't know, [ 30.5% ] margins in the first quarter, which is typically your seasonally weakest margin quarter. So I just want to make sure there are no moving pieces off of the really strong run rate that you folks have achieved as the year unfolded last year.

Yes. I'm kind of thinking accretion aside, Jerry, to keep this kind of same-store sales, but you're right. Q1 is usually one of our softer quarters, and I don't know off the top of my head whether that's the right number, not it feels a little bit high to me. I think it's a little lower than that, but we could circle back with you to confirm.

Our next question coming from the line of Konark Gupta with Scotiabank.

Just maybe one question on the top line. For the full year, you guys are expecting about 5% at the midpoint just looking at the puts and takes on the quarterly side. You have probably Stericycle more like a second half story, Jim, I think you said. And then second quarter you're expecting or seeing maybe tough comps from the wildfire last year. How should we think about the growth guidance for the year by quarter? I mean, especially in terms of how the volumes kind of shake out on the C&D side.

Yes. I mean it's pretty balanced over the year, but you do see more of a pickup in the second half of the year to, call it, kind of below 5% or below in the first half and then above that in the second half in terms of the revenue bridge across the year. And the Q2, to your point, is the toughest comp with the wildfire volumes.

And then volumes, do you expect that to be more evenly spread out throughout the year? Or it's going to be more skewed to the second half?

I think the one area that we'll stick out is we mentioned our residential volume has been negative 4-plus percent print. and we see that ratably declining. And by the end of the year, we should be right around 2%, maybe a little bit south of that in Q4. So that will be a clear tailwind to volume in the second half of the year.

Our next question coming from the line of Seth Weber with BNP Paribas.

Just wanted to go back to the health care cross-selling opportunity. I think on the third quarter call, you guys mentioned that it's largely been focused on small- and medium-sized customers. I wanted to see if that's still the case or if you're getting any better traction with the large hospital networks at this point?

I think this ultimately it's going end up being more of a large customer opportunity for us. We -- what we've heard from our folks on the sales side is when they're going out and talking to the decision-makers at these customers, typically, these large customers, it ends up being the same decision maker on solid waste as it is on health care waste. So that's a positive for us and the fact that we feel very good about the services that we have now on both sides that ends up being good for us. I do think it's going to be more of our -- we've stratified our customers, [indiscernible] by size. And so you can imagine the [indiscernible] are the bigger ones. I think this is going to be more of an ABC thing than it is [indiscernible].

Got it. Okay. And then kind of a related question, just can you update us on your national accounts business just across the whole company. It's been sort of low double-digit CAGR for the last few years. Is that still kind of running at that -- improving at the same level in 2025?

I mean, look, I would tell you, National accounts has been one of our real success stories. And both on the volume side but also on the price side. I think we've done well with getting price increases based on really differentiated service and differentiated data and analytics that we provide our customers. So we're real pleased with the results of national accounts. I mean, gosh, I would tell you a decade ago, the national accounts was kind of a mess for us. And today, it is one of our success stories.

Our next question coming from the line of Shlomo Rosenbaum with Stifel.

I want to jump back to what you started kind of the questioning with -- on the call, just in terms of the healthy economy and you said that it's things are looking, you say, not cautiously optimistic, just optimistic. Can you give us just delve in a little bit more into some of the -- like the metrics on that. Is the service interval trends. What are you seeing on scale report on some of the mature routes. And then on residential also scale reports and the trucks that are coming through how is the temp roll-off activity doing in prices and poles. If you can just go through some of that, then I have one follow-up.

Yes. So as we look at what might be considered leading indicators because we are kind of at the back end of the cycle, so the business cycle. But we do have some business that that tends to be leading indicators. I would argue that the special waste waste stream is kind of a leading indicator for us because while those jobs have to be done companies have some discretion as to when they have to be done. And the pipeline, as we talk to our sales team, is good on the special waste streams. So that's a bit of a leading indicator for us that and what we're hearing from them is that they're those jobs, and we heard it from our area folks last week that those jobs are starting to manifest themselves. So that is one of the indicators that we do look at. The roll-off line of business as well, although a portion of roll off, the permanent roll-off is is kind of more analogous to our commercial business. So I'm not sure that's so much a leading as a lagging indicator. But you mentioned roll-off and roll-off has been has been pretty good for us. The C&E business. If I look at C&D, and that's been one that has been -- has really bounced around over the years. And C&D for the year was $0.34. And if I looked at last year, for the year, last year, it was a negative number last year. It was bounced around in '23 and '22 as well for some reasons related to pandemic. But I think [indiscernible] is somewhat of a leading indicator as well, if you think about the -- about homebuilding. So it's a tough one because I'm trying to read some of the tea leaves that are kind of macro. And as I look at GDP, it looks like it could be strengthening. I don't know. I guess what I would tell you is the business performs well, whether in good times or in bad. And I'm feeling, I guess, a bit more optimistic than maybe I have in the past.

Okay. Great. And then just I wanted to follow up a little bit more just on a question that was -- excuse me, the comment that was made last quarter. in terms of suspending kind of the pricing initiatives in the Healthcare Solutions area, that would be expected to be done by the end of the first quarter of this year. Are you still on track for that? I mean, obviously, from your commentary, it looks like pricing is going to pick up this year based on your discussion of 4.2%. But is it a matter of like really hitting that end of the first quarter were done with those issues that we're having that was preventing the pricing? Or is that going to extend a little bit further? Or have you already started?

Yes. So here's what I would say about about last quarter's comment. I mean that was not a universal comment. I mean, some customers, yes, we had some customers we had suspended price increases. But the large majority of our customers are getting price increases. But as I said earlier, it was really being diluted by these credit memos. And so we believe that those credit memos, which are really just a tool to try and clean up some of these past due receivables, those credit memos, we believe, peaked this quarter or last quarter, I should say, Q4. And those start on a nice downward trend, which ends up being a tailwind for us as we think about the whole year of 2026 versus 2025. So pricing, look, we have, I think, a fantastic price team, and they are definitely looking at the opportunities that are in front of us. But a lot of those opportunities are not so much a price execution as it is just less dilution to the overall gross number.

Our next question comes from the line of Tobey Sommer with Truist.

From a capital deployment perspective, are you shifting broadly to share repurchase? Or as you look into '27, '28 sort of a longer period of time, you're supposed to take in about -- produce about $12 billion in free cash over that 3-year period. How do you see it shaking out between acquisitions and the core acquisitions and investments outside the core and repurchase?

Sure, sure. Yes. I mean as we alluded to in the last quarter and also with our December announcement on some of our shareholder returns. We do view 2026 as a year of harvest and a balanced capital allocation program. But to your point, the beauty of our business is that it does generate a lot of excess cash flow. And you could expect a pretty balanced approach going forward. We do want to continue to return capital to shareholders. So you should expect that our share repurchase program is not a onetime event in 2026, we'll continue it going forward, but it's going to be governed by kind of what opportunities we have in terms of investment opportunities, both organically and also inorganically. But the keyword here, I think, is balanced from a shareholder perspective, and that's what we should expect.

I'm curious what you're hearing from health care customers about there for tolerance for price increase, particularly this year, given the various declines in federal funding ranging from the exchange subsidies, the Medicaid cuts that may come in a year that could pressure hospital margins?

I guess I would just say, I haven't heard anybody say there's an intolerance for price increases. So if that's a good sign, then that's what I've heard.

I think with the handful of customers I've visited with, I would tell you that I think what's encouraging is the fact when you combine what we kind of core services with the ability to integrate those with the additional health care services. I think the value proposition is something that's really resonating with the customers, especially the ones that Jim was referring to earlier. These big hospital networks, we sit here in Houston, obviously, one of the centers of the universe, if you will, on that front. And when you walk in the door with a comprehensive set of capabilities that these combined organizations have now. I think there's a value proposition that is not going to be matched out there.

Yes, I think these -- [indiscernible] we've talked about [indiscernible]. This is going to end up looking like they're similar in so many respects to our big national accounts on the legacy side. So it's going to be a -- it's a negotiation. They have a contract that's going to be a negotiation on price. What's the price increase going to be? And a lot of that ends up on how much they appreciate the differentiated service offering. So I think that's -- going forward, I don't think it will look much different than what we see with other big national accounts.

Appreciate that. What are you seeing in the hazardous waste business? Is that industrial optimism that you kind of mentioned already palpable?

I think probably our special waste line that we've all commented on is probably a good spot to look. And we've said our pipeline is strong. Our results would demonstrate that through 2025. And I think going into 2026, we haven't seen any indications that that's going to solve. And that's probably the one barometer that I would point to that's probably most closely aligned with your question.

Our next question coming from the line of William Grippin with Barclays.

I just wanted to come back to some of the incremental disclosure you gave on the sustainability business. So you gave us the parts to kind of get to sort of your $700 million implied sustainability growth EBITDA in '27, obviously, a little below the target you gave at prior Analyst Days. But if I adjust for this sort of lower recycled commodity price environment based on your sensitivity. It implies that was maybe $150 million EBITDA headwind. And so sort of x out the commodity headwind, it feels like maybe this business is actually performing well ahead of your initial expectations. Is that a fair characterization?

We're really pleased with how the recycling business is performing absolutely. I think the number that you rattled off was really more for the aggregate of our recycling business versus the $700 million number relates to the growth projects of recycling and renewable energy, but the comments still stand. We've been very pleased with the investments that we've made in automation and everything that we expected and then some is being delivered coming out of those automation investments, whether it's higher throughput at those facilities, whether it's higher price points on the commodities that we sell, whether it's labor, which was huge for us and has been over a 30% improvement. So really pleased with those investments.

I appreciate that. And just the follow-up here. You gave the sustainability growth, EBITDA breakout or contribution for the 2026 guide, I think, $235 million to $255 million. Have you broken that out between recycling and RNG?

We have not. But the way to think about it, including the royalty, it's about 60% renewable energy, 40% recycling.

Our next question will come from line of [indiscernible] with JPMorgan.

So the sustainability EBITDA growth of $2.35 to $2.55. Can you help us with the cadence of this as we think about 1Q versus the rest of the year?

You're going to -- a similar story, the way to think about it first half, second half, so you're going to have more of a ramp in the second half than the first half when you have the carryover effect of what we brought online in the back half of 2025 and then we're bringing new projects online 3 in the first half of 2026. So you'll see a bigger half -- bigger impact in the second half than the first half.

So for modeling purposes, is 40, 60 first half versus back half is a good proxy?

I think Ed can get back to you on that on some of the modeling questions.

Our next question will come from the line of Kevin Chiang with CIBC.

It's Alexander on for Kevin here. I believe the EPA is set to finalize the renewal fuel blending rules in I was wondering if you could share any thoughts or insights into potential changes they could make to the volume obligations from their original proposal.

Sure, yes, we had -- we're hoping that they issued in Q1. We were hoping it would come out in late Q4, but the government shutdown delayed that a bit. What we've seen is pretty much the market has priced in the current RVO. And if anything, we're cautiously optimistic, maybe there might be some changes around the edges that could be constructive for pricing. We're not anticipating anything dramatic coming out of the RVO. I think that's the most important point. And we've really seen stability in RIN pricing, which is the most important thing for our business and our team has done a great job in navigating selling our RINs ratably over time.

Our last question in queue coming from the line of Stephanie Moore with Jefferies.

I wanted to follow up on a prior question that was just asked on capital allocation priorities. I mean I appreciate the commentary regarding keeping a balanced approach. But I also think as we think about 2027 and 2028, just the share cash flow that's going to be kind of runoff from this business, especially with the R&D investments coming through, you should be back to your targeted leverage this year. So as you think about that balance and maybe looking specifically at the M&A component, you're going to have, again, a lot of optionality. So as you think about that optionality any areas that are particularly interesting as you think about the next couple of years?

I mean I think as far as M&A goes, David can comment more on the capitalization piece or the share purchase dividend. But those are kind of dividends kind of stuff. But M&A, look, I guess what I would say, and John can reiterate here that there's still plenty of good strategic acquisition opportunities out there. I wouldn't expect to see us kind of stray outside of that. We have used typically $100 million to $200 million as our estimate for acquisition acquisitions throughout the year, and that's a number we have baked in for this year that range. So it could be at the high end of that range. But I think for the next few years, that's the number I would -- if I were modeling, that's the number I would use is kind of $100 million to $200 million in acquisitions. And then David, dividend [indiscernible] the increase is going to be but dividends and capital allocation to make up the rest. Because really, the balance sheet, I think, would say is in good shape.

Yes. The balance sheet is in great shape. I think the one thing just to your point about now that we have the share repurchase program is going to start back up this quarter. Obviously, we look at acquiring our own shares versus -- if we're looking at larger opportunities, we have a very biased view on kind of what the value of our company is. And so that's -- I think you're going to see us to continue our share repurchase program just from that point alone. But we're very disciplined in terms of our pricing approach to acquisitions.

And I'm showing no further questions in the queue. I will now turn the call back over to Mr. Jim Fish, WM CEO, for any closing remarks.

All right. We had a 15-minute closing remark plan, but in light of the time, I'll just say thank you all for your great questions today, and we will talk to you next quarter.

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

Good day, and thank you for standing by. Welcome to the WM Third Quarter Earnings Conference Call.

[Operator Instructions]

Please note that today's conference may be recorded. I will now hand the conference over to your speaker host. Ed Egl, Vice President of Investor Relations. Please go ahead.

Thank you, Olivia. Good morning, everyone, and thank you for joining us for our third quarter 2025 earnings conference call. With me this morning are Jim Fish, Chief Executive Officer; John Morris, President and Chief Operating Officer; and Devina Rankin, Executive Vice President and Chief Financial Officer. You will 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.

Before we get started, please note that we have filed a Form 8-K that includes the earnings press release and is available on our website at www.wm.com. The Form 8-K, 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-K and Form 10-Qs. 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 comparisons, unless otherwise stated, will be with the prior year period. Net income, EPS, income from operations and margin, operating EBITDA and margin, operating expansion margin and SG&A expense and 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.

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 24 hours a day beginning approximately 01:00 p.m. 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 October 28, 2025, may no longer be accurate at the time of a replay. Any redistribution, retransmission or rebroadcast of this call in any form without the the expressed written consent of WMS prohibited.

Now I'll turn the call over to WM CEO, Jim Fish.

Okay. Thanks, Ed, and thank you all for joining us. Our team delivered another strong quarter of operational and financial performance. This led to third quarter operating EBITDA growth of more than 15% and free cash flow -- free cash flow growth of nearly 33%. These strong results reflect the hard work of our teams, the resilience of our business model and the value of the intentional investments we've made across our business. Our collection and disposal business continues to be the engine behind our growth, contributing more than half of the year-over-year increase in operating EBITDA. The business drove strong organic revenue growth and we're particularly pleased with our ability to attract robust disposal volumes to our network.

MSW grew 5% in the quarter and special waste volumes grew 5.5%, driven by new event work. We also remain focused on maximizing customer lifetime value through our pricing strategies and leveraging technology to optimize our cost structure, and we continue to pursue tuck-in acquisition opportunities to extend our network and drive further internalization.

Turning to WM Healthcare Solutions. The strategic value of the medical waste platform within WM's portfolio is more evident than ever. We've successfully integrated the people and operations of health care solutions into the existing management and operating structure of our 16 areas. This not only streamlines our operating model, but also allows us to apply our playbook, the WM way across the acquired business, fostering a culture of customer focus, continuous improvement and accountability. This aligned structure accelerates collaboration and unlocks new opportunities for growth. As an example, one of our top hospital customers has increased their annual spend with us by over $5 million after choosing us as their single provider solution across their multistate network. This is precisely the type of cross-selling opportunity that gives us confidence in the long-term value of our combined offering.

In our sustainability businesses, our solid performance is the direct result of success in managing contract structures and leveraging innovative technologies. Even as recycled commodity prices declined nearly 35% compared to last year, our Recycling segment operating EBITDA grew by 18%, which is a phenomenal result. Our new renewable natural gas facilities drove higher year-over-year contributions from the Renewable Energy segment. The growth was lower sequentially due to the timing of RIN sales. Our full year growth expectations remain consistent with our initial outlook.

I'm proud of the momentum we're building in this final stretch of and even more excited about the opportunities ahead. These last several years, including this one, have been years of deliberate and disciplined investment in technology and automation in our fleet in new recycling and renewable energy, renewable natural gas facilities and in a premier medical waste platform. Each of these investments was made with intention. And with a long-term view, positioning us to serve our customers better while structurally lowering our cost to serve. We're pleased to share that 2026 is setting up to be a year of harvesting the benefits of our investments, which will be partially evident in our free cash flow as our early view for next year suggests free cash flow approaching $3.8 billion. We remain thoughtful and disciplined in our capital allocation, and we fully expect to translate this performance into commensurate returns for our shareholders.

In closing, WM is exceptionally well positioned for future success. Our long-term strategy is delivering, and the investments we've made are paying off. As always, our results are a testament to the hard work and dedication of our people I sincerely appreciate the contributions of each and every team member. I'll now turn the call over to John to discuss our operational results.

Thanks, Jim, and good morning, everyone. In the third quarter, our team expanded margins by maintaining discipline on price to cost spread, leveraging advanced fleet and maintenance technology to reduce operating costs and realizing returns from our sustainability investments and strategic acquisitions. Our results affirm that our strategy is working and our disciplined organic and inorganic investments deliver long-term value. In the third quarter, we saw continued growth in our core collection and disposal business, increased contributions from our sustainability businesses and sequential margin growth and synergy capture from our Healthcare Solutions segment. In our collection and disposal business, we delivered strong performance in the third quarter with operating EBITDA margins expanding 100 basis points to a record 38.4% and operating EBITDA growing more than 7%, with every line of business contributing to that growth.

Both results are consistent with our operating EBITDA growth and margin expansion objectives and reflect the strength of our post-collection assets, increased landfill volumes and our disciplined focus on optimizing price to cost spread through customer lifetime value. We're also realizing the returns on strategic investments we've made to enhance efficiency and structurally drive costs lower. Looking at our top line, we delivered solid organic revenue growth in Q3 driven by disciplined pricing and improving volume trends in several lines of business. Core price was 6%, exceeding our plan with residential and disposal pricing leading the way.

Collection and disposal yield came in at 3.8% which was in line with expectations. Volume increased in the quarter with industrial up 1.2%, our first positive quarter since 2022. We remain focused on differentiating our services and maximizing customer lifetime value and our customers see the value of our service as churn remain right in the 9% range and service increases outpace service decreases. Additionally, landfill volumes rose 5.2% with broad strength across MSW, special waste and construction and demolition, mostly all unrelated to wildfire cleanup. As we mentioned at Investor Day, our strategic post-collection network continues to drive value both now and over the long term as we have seen both strong price and volume contributions, and our results keep us on track to meet our organic growth expectations for the full year.

Turning to operating expenses. Q3 marked our second consecutive quarter with operating expenses below 60% of revenue. This improvement was driven primarily by our collection and disposal business, which contributed 90 basis points of margin expansion through lower maintenance and risk management costs. On the fleet side, investments in trucks and technology improved our maintenance processes, reduced repair and maintenance costs by 60 basis points. Additionally, our focus on retention and training and development contributed to a 7% year-to-date improvement in the total recordable incident rate, lowering our risk management cost as a percentage of revenue. The strategic investments we've made in our team, our fleet, cutting-edge technology and comprehensive training are showing meaningful results. Turnover improved by an impressive 300 basis points bringing the combined rate for drivers and technicians down to a record low of 16.8%. These results underscore that when we invest in our people, we invest in the future of our business.

These same investments in people, process and technology are showing up in the WM Healthcare Solutions business as well. Since the beginning of 2025, the team has improved turnover by 21% while also improving on-time service delivery to the highest level in over 4 years. As we close the third quarter, our results reflect not only strong execution, but also the innovative mindset that continues to set WM apart. From advancing operational efficiency to strengthen our customer relationships, our progress is driven by the ingenuity and commitment of our team. Thank you to all of our employees for the work you do every day to move us forward.

And with that, I'll turn the call over to Devina to walk through our financial results in more detail.

Thanks, John, and good morning. Total company operating EBITDA margin was 30.6% in the third quarter, which is the best quarterly results in our history and that is despite the expected margin headwind from the acquisition of the Healthcare Solutions business. WM's legacy business achieved operating EBITDA margin of 32% in the quarter, meaningfully surpassing our long-standing ambition of sustained operating EBITDA margins above 30%. We achieved these results while overcoming a known 30 basis point headwind from the expiration of the alternative fuel tax credit. Our legacy business achieved 120 basis points of margin expansion in the quarter from 4 primary things: one, continued optimization of business mix with strong municipal solid waste volumes, taking the place of low-margin residential volumes; two, our focus on operational efficiencies in our collection and disposal business; three, the scaling of our sustainability businesses; and four, our dedicated focus on reducing costs. The remaining 60 basis points of margin expansion was driven by lower recycled commodity prices in our brokerage business and a reduction in incentive compensation costs.

As I mentioned, the Healthcare Solutions business created an expected headwind for our consolidated margins. Our focus on optimizing this business will lessen this pressure over time and we can already see the benefits of the team's integration and optimization efforts on the margins of this segment, which have improved each quarter since we acquired the business and are now at 17.5%. The key takeaway from all of this is that WM's disciplined focus on driving efficiency and investing in high-return opportunities is benefiting our financial results.

Our strong performance continues to translate into robust operating and free cash flow growth. Through the first 9 months of 2025, we generated $4.35 billion in cash from operations, an increase of 12% compared to the same period in 2024. This increase reflects our significant earnings growth, partially offset by higher cash interest due to the debt issued last year to fund the acquisition of Stericycle.

Capital spending to support the business and our sustainability growth investments are both tracking according to plan, totaling $2.34 billion for the year-to-date period. Putting these pieces together, free cash flow has grown 13.5% to $2.11 billion. Notably, our operating EBITDA to free cash flow conversion approached 42% in the third quarter, reflecting that we have moved from peak investment levels in sustainability growth projects, landfill infrastructure and our fleet into a period where we will harvest strong returns on these investments.

Through the first 3 quarters of 2025, we've returned $1 billion to our shareholders and dividends. and allocated more than $400 million to solid waste acquisitions. Our leverage ratio at the end of the quarter was 3.3x and we continue to track toward our target ratio of between 2.5 and 3x, which we expect to achieve by the middle of 2026.

Turning to WM Healthcare Solutions. As Jim mentioned, we're as confident as ever in the strategic value of the acquisition, and we are committed to fully capturing its long-term potential. Revenue trends for this business reflect a more measured pace than our initial projections. This is because we are using a disciplined approach to customer engagement, which means we have offered credits and deferred planned price increases for some of our customers. All of this reflects our focus on maximizing customer lifetime value and building a strong foundation for sustainable long-term growth.

Despite the moderation and the anticipated pace of revenue growth in the second half of 2025, we're on track to achieve the targeted operating EBITDA contributions from the acquisition across our total company results because synergy capture has exceeded our initial expectations, internalization of waste into our landfill network has been effective, and cross-selling opportunities are proving to be strong.

Turning to our total company outlook for the remainder of the year. We remain confident in our ability to deliver the operating EBITDA and free cash flow guidance we provided last quarter. Full year revenue is projected to be at the low end of our prior guidance range, reflecting incremental weakness in recycled commodity prices and our revised expectations for Healthcare Solutions.

With our outstanding year-to-date operating EBITDA margin results and confidence in our continued execution as we close out the year, margin expectations have increased to between 29.6% and 30.2%. In short, we are well positioned to achieve another year of strong earnings, margin and cash flow growth in 2025 and to build on our success as we go into 2026.

Finally, as many of you know, this is my final earnings call as CFO before my upcoming retirement from WM. Over the past 23 years, I've had the privilege of being part of this extraordinary team. Together, we work hard each day to care for each other and our communities and to deliver value to all of our stakeholders. In closing, I must say that my favorite thing about our business has always been the people. I want to thank the entire team for leading the way in service to our customers, the environment and to our shareholders. To our shareholders, thank you for your trust and support. I have complete confidence in the Wm team and in David Reid, our incoming CFO, who knows this business deeply and has been instrumental in shaping our financial strategy. I know the future is bright, and I look forward to watching WM's continued success.

With that, Lydia, let's open the line for questions.

[Operator Instructions]

Our first question coming from the line of Tyler Brown with Raymond James.

Devina, I've got a couple of housekeeping items. But just year-to-date, how much have you guys benefited from the onetime cleanup work at the landfill. Just want to make sure I have that right for next year? And then secondly, can you go through a couple of the charges this quarter? Has that plastic still plant just been idled based on commodities? Or was that a technology issue? And then what was the genesis of the landfill closure and the charge in renewables? I'm sorry. I know that's a lot, but I appreciate it.

Yes. Let me take them in pieces. So first, with respect to the wildfire volumes, I think it's important to first highlight what John mentioned in his prepared remarks, that there was virtually no impact of that in the third quarter. That really was mostly a Q2 item. There was some in Q1. Total revenues for that were around $115 million for the year. And as we've talked about, the flow-through on that revenue is higher than our portfolio flow-through on incremental volume, which tends to be in the 45-ish percent range. As you can imagine, landfill volumes and special event volume tends to be at the higher end. So you have to extrapolate that in order to think about total EBITDA impact, but I want to reiterate that the strength of Q3 solid waste results really indicates that we accomplished about $145 million in EBITDA growth in that segment. without any meaningful impacts from the wildfires.

With regard to the charges, I'm going to let Tara address the Natura activities because you'll do that better than I could. But with regard to the landfill impairment that we took in the quarter, that was a really long-term pursuit of expansion at hazardous waste landfill in the Northeast, and we had some news this quarter that indicated that our pursuit would no longer be worth moving forward with. And both recorded an impairment of the existing net book value of that and then also reported the impact of an acceleration from former estimates in the expected closure and post closure cost for the site.

So on Natura, it is absolutely market conditions. We built this plan and demonstrated that we can produce a high-quality pellet that customers would buy. But with virgin prices being at all-time lows and some of the minimum content legislation being a bit delayed the buyers were just not there for the product that we were producing. So we made the decision to temporarily close the operations. We could start it back up, but we're going to monitor what happens with those market conditions going forward.

Okay. Okay. Very, very helpful. Appreciate that. And then, Jim, I very much appreciate the early look on the '26 free cash. But can you give us any help on some of the pieces to get there? I mean, what mid- to call it mid, high single-digit improvement in EBITDA, which I think is pretty consistent with the Analyst Day makes sense. And then will part of the improvement in free cash be a sizable drop in green CapEx? Just any broad steps there?

Yes. So it's coming from a number of different places, Tyler. I mean if you think about the wind down of the sustainability investments and then a ramp-up in the related EBITDA, that's a big piece of it. You'll see the normal strong performance of our legacy business, which tends to perform year in and year out. And so you'll see that as well, and we'll give you kind of the exact number when we get to next quarter. In addition, we bought -- I think, John, correct me if I'm wrong here, about 6,000 trucks over the last 3 years, and that's above our normal spend on fleet. So we'll ratchet back to more of a normal looking year with about 1,500 trucks. So you'll see maintenance capital be a piece of that. You'll also see, and I can talk about this to Healthcare Solutions. There's a number of reasons why healthcare Solutions is going to be a nice contributor to free cash flow next year, not the least of which is reducing the cost of integration, which has been substantial this year. You'll see some carry -- a fair amount of carryover from synergies that we were collecting throughout the year this year that we'll get the full year of next year. You'll see some additional synergies in that business next year. So there's a number of reasons why Healthcare Solutions will be a nice contributor to free cash flow. So there's quite a bit going into that. I don't know that, that helped you kind of fill out the model. But I think you'll be able to -- when you hear us in January, be able to recognize that this is not just one thing that's causing us to be bullish on free cash flow.

Yes. No, I totally get there's a lot of pieces. And just if I can squeeze one last one. So I think at the beginning of the year, you guys said that sustainability EBITDA would be up, call it, [ 280 ] at the midpoint this year. It does appear year-to-date on my math. Again, this is my math, but it is tracking pretty well below that. I assume there's going to be a step-up in Q4. And then I thought, Jim, I heard you say that you are expecting to hit that target for '25. Is that right? And then two, and Tara, this is my bigger picture question, but with where commodity prices are where RINs are. Do you still have that full confidence in achieving that near $800 million of total incremental by '27? Or should we start thinking about maybe haircutting that a little bit or pushing it out a little bit further? Appreciate it.

So let me take this in pieces. And first, I'll start with the renewable energy business. So we're making great progress on our projects. As Jim mentioned, you might have noticed that our earnings might have looked a little muted in the quarter. But that really is because we made the decision to defer really selling some of our RINs in Q4 because we saw pricing uptick -- upticking a bit. And on the volume side in 2025, just to give you a little bit of color, we're on track through the first 9 months of the year where we doubled the amount of RNG production. So we're seeing the benefits flow through from those plans.

As far as what we guided in 2025, we're expecting our renewable energy business to be on track. What's lagging is the recycling business, which is primarily commodity price driven. We've made a lot of great strides on our automation investments. And if you look at what Jim mentioned that commodity prices were down nearly 35% and EBITDA was up 18%. That is a testament to the benefit that we're driving out of these investments in labor costs and operating expenses and our EBITDA margins are more than doubling at those automation plans.

So what you might see going forward into '26 and '27, on the recycling side, you'll recall we gave you a range of between $75 a ton and $150 a ton for what we might expect out of the recycling business. And so for the automation investments, we expect roughly a $10 change to equate to about $8 million. And then you would have to add to that for our base business, a $10 change is about $20 million. So all in, somewhere between $25 million and $30 million would be our new $10 change. But we're -- we remain very confident on where we're headed. We're looking at renewable energy pricing and what's happening in the RINs market, and we're seeing prices for 2026 in that [ 220 to 230 ] range. so still within our investment thesis.

our next question coming from the line of Noah Kaye with Oppenheimer.

I'll add the congratulations to Devina for a long career at WM. Thanks for all the dialogue over the years, and we wish you well on the retirement.

Thanks, Noah.

So now that we know that landfill volumes didn't benefit from wildfire in 3Q, can we double-click on the strength in MSW as well as what drove the positive inflection in industrial volumes?

Yes. So volume was a good picture for us this quarter. When you think about industrial, it's been negative for several years now. And so the fact that it ticked up was encouraging. It was pretty evenly spread geographically. Part of that industrial pickup was the conversion of of WM Healthcare Solutions hospital customers that moved from other companies to us. So that was a piece of it. I guess you could call that cross-selling, I don't know. But it certainly is a benefit of acquiring the business. Temp roll-off was slightly stronger across a couple of geographies as well. So that contributed. And then you didn't ask about resi, but resi is has been negative for a number of years. And I think, John, we've talked about it kind of starting to flatten out at the back half of next year, but the volume -- the margins have certainly been strong there.

Yes. I mean if you look at quarter-to-date, year-to-date, the revenue despite the volume headwinds is up in the quarter and the date. And I think for the quarter, we were still up $10 million in revenue and about 155 basis points. So that math is still working, but to your point, Jim, about the outsized volume impact. If you remember last quarter, we talked about 1 big franchise. It's affecting about 250 basis points of that negative landfill -- excuse me, residential print and it's about 50 to 60 basis points on the commercial side because that will be another question. It's that franchise business. So we should lap that at the end of Q4. To your point, we've said we think we'll see continued improvement in trends in residential and probably get sub-3 by the first quarter of next year and continue to improve there.

And then, Noah, on landfill volumes, not only was MSW positive, really all waste streams showed nice positive movements. And MSW in particular, I think, is reflecting the strength of our network really more than anything else. It wasn't kind of similar to the industrial line of business. It wasn't something you could point to specifically in 1 place. It was pretty universal. And so we're pleased with it, but it certainly wasn't a case of us trading price for volume because if you look at the price numbers, they were very strong as well, particularly MSW, I think, was a 6.7% yield. So we're pleased with it. I wish I could give you a better answer on other than just the network is very strong and why it's coming to us. The pipeline on special waste, we just heard from our area leaders last week is it continues to look good. So overall, we're pleased with volume numbers.

Okay. Nice to see the margin guide raised for the year. There's still, I think, a fairly sizable range there for 1 quarter implied. So just broad upon what would take you to the low end versus the high end of that margin guide.

Yes, it's a good question. And what I can tell you is we're optimistic about the margin outcomes. I think that what you're left with is recognizing that with softness on the revenue line, there had to be outperformance in our execution, particularly in the collection and disposal business on margin, and that's what lifts our confidence in the top end of that range. I don't anticipate much that would drive us to underperform on that range. So I do think you're looking at midpoint to the upper and being the most likely outcome for the fourth quarter.

With respect to what gives us that confidence, I really think it's important to reiterate that when you look at the 32% collection and disposal margin in the quarter. It's the result of the retention benefits that we've talked about driving efficiency and safety. It's the fleet investment, it's improved price/cost spread and its improved mix, which Jim just gave you color on, particularly with those landfill volumes being so strong. So that's what gives us confidence, combined with the fact that, as Tara mentioned, Q4 will be a strong quarter of RIN sales, and those are effectively 100% accretive to margins. So really expect the fourth quarter to be another strong quarter of margin performance.

Our next question coming from the line of Trevor Romeo with William Blair.

First one I had was just on the Healthcare Solutions business. If you could maybe just touch a little more on the deferral of the pricing increases. Just maybe like what kind of customers are pushing back and why? And then just in terms of maybe the long-term pricing power of that business, what's your confidence in the ability to eventually get those price increases and achieve the kind of mid-single-digit revenue growth you expect for that business?

Yes. Trevor, apologies for kind of a long answer kind of here, but I'll touch on the price increase piece. But let me give a little bit of perspective for everybody here on Stericycle after 12 months of owning the business. First of all -- and we talked about this in our prepared remarks, but strategically, we view this as being even better than the original business case. It's hard to -- the secular trends absolutely support this. It's hard to read an article these days about the next 10 years of kind of 10-plus years of economic growth in the U.S. without reading something about lower birth rates or an age population here. And all of that supports this business. We know that what happens is we get orders that there's demand for higher demand for health care services. And the market position of this business, too, is incredible. There -- I'm not sure we realize that coming in, how strong their market position is geographically. I think regarding pricing, and then it's really related to the ERP implementation itself, Devina can comment on this as well. But overall, as a comment about the ERP, I mean, it's moving along well.

I think it's worth mentioning, every single company that's ever implemented in ERP, including ourselves, by the way, has measured this in years, not in months. And there are always some challenges with it. And this one, in particular, our ERP rolled out a few years ago off of a well-run system. This was not a well-run system. And so we had some challenges, I think, coming in. What we saw with the top line really was that it was affected by a couple of things. You mentioned one of them, which is deferred price increases. The other was credits given to customers as we're trying to clear up this AR. By the way, we've cleared up 1/3 of the past due accounts receivable just over the last 3 months, about -- some of that is coming in the form of cash collection. Some of it is coming in the form of credits.

The good news there is that those credits are, for the most part, are going to be one-timers. It's not as if we'll never give another credit, but a lot of those are onetime credits that we're giving to customers. And then we're seeing a bit of churn as well. It's not excessive churn, but we are seeing some churn. So it's really those 3 things. It's deferred price increases. It's some credits. We're giving to customers to clear up old AR and it's some churn with the business and a bit of volume as well there. But overall, look, we're -- we think that -- we talked about the synergies outperforming, Devina mentioned that in her script. Those are outperforming for us. And by the way, this ERP, I mean, we absolutely have the right team on it right now.

We have a super strong team on it. They are focusing on a whole bunch of different work streams. We're doing things like rolling out a new invoice to customers shortly. The systems are now finally talking to each other. So SAP and Salesforce are talking to each other. I'm not sure that was the case before. And so this becomes not an IF anymore. This is a when. And I think the when dwin is still well into '26. And -- but what we can say is that this quickly become transparent to our customers. It's all internal work that's being done, things like the new invoice, those aren't transparent to the customer. They'll see that and they like it. But again, long answer to your short question there, but we do feel really good about this. I know a lot of you wrote about it in your early remarks, but strategically, it's a great business, and we're making a ton of progress on all fronts.

And Trevor, I'd just like to underscore one thing, I think, to address your question very directly. And that's that this was not a step that we took as reaction to pushback from customers, quite the opposite. It was a step that we took because WM does the right thing for our customers. And so whether it's the credit or the customer-centric evaluation of service and contract that was necessary for us to ensure that we're taking the right steps with price increase. Those were things that we did because we do think is the right way. And you'll just see effectively a restabilization of revenue as we get into 2026 outlook. But I think this housekeeping that you're seeing in the third quarter was necessary for us to focus on customer lifetime value and a long-term growth portfolio that we know exists because this is the best platform in the business for regulated waste service, particularly in North America.

And maybe, Trevor, one -- again, to add to Jim's long answer, I'll extend it just a minute. I mean, listen, at the end of the day, the strategic value of the health care business, Jim and Devina spoke to, in their comments. The other thing I would tell you is when you look at it, it's about 10% of our business when a dust settles, and if you look at the legacy business or the core solid waste business with margins over 38%, SG&A and kind of a soft revenue quarter at 9%. There's a lot of strength in the legacy and core business, and we think that that's going to continue to perform well through the balance of the year next year. And again, we're going to get the tailwind, if you will, of all the improvements that the team is working on with regard to the health care business. So that's another reason why we feel so good about in particular, what our free cash flow is going to look like for next year.

All right, thanks so much to all 3 of you for that. That was really helpful. And then, John, I guess that's a good segue into a follow-up question I had, which is maybe the -- looking at your price cost spread into next year, it sounds like things are kind of tracking well. Now if you look at your pricing, maybe the yield is tracking maybe toward the low end of what you expected this year, but still pretty solid on costs, it sounds like your turnover and incident rates are improving. So you see potential maybe for wage inflation to go down further next year? Just kind of how are you thinking about both pieces of that spread into -- beyond this year?

It's a good point there. Trevor, I spent a good bit of time looking -- I looked at a few different ways. If you look at sort of the yield for the traditional solid waste business for the quarter, it's 4.1%. If you look at core price at 6% and you compare that to sort of CPI, CPI for, at least our math, is right around 2.93%. So I think we continue to see a good spread between core price yield and operating expense pressure. And I think as I mentioned in my prepared remarks, another quarter under 60% with a little momentum on a year-to-date perspective. So we feel good about the cost price spread. And I think the other thing we've talked about for the last number of quarters is that our commercial and industrial pricing has always been solid and consistent, but you're seeing continued improvement and consistent levels of pricing across our landfills across our entire post collection network and still in our residential business. So I think the fact that we've syndicated sort of our our pricing strategy in a more effective way, gives us a lot of confidence going into next year on that spread you mentioned.

You might mention, John, driver turnover because that's incredibly good story.

Yes, that's worth noting. I mean if you look at our risk cost, our safety metrics, there's a number of metrics. Our labor ratios are all benefiting from the fact that we, as a team, have worked really hard over the last couple of years really post-pandemic to get that number, a under control; and B, to make it -- to improve it quarter in and quarter out. As I mentioned, the driver and technician turnover is at an all-time company low and that shows up in a bunch of different metrics, as I mentioned in my prepared remarks.

All right. Really appreciate it. And Devina, and my congratulations to you as well.

Our next question coming from the line of Toni Kaplan with Morgan Stanley.

I was hoping you could talk a little bit more on what's going on with yield and also just in the quarter, but also looking into 2026, how your conversations with customers have been going at the end of the year here.

Well, I would say yield is -- we talked about with yield, and I mentioned a couple of them earlier. MSW was very strong at 6.7%, commercial at 4.7%, resi 6.5%. So we're we're happy with yield and core price. We tend to focus on both. And I think the primary focus with respect to pricing is to cover our costs and then tack on some margin over and above that. And I think that what we're showing, whether you look at -- when you look at our margin results, even with some of the headwinds that we faced, I believe that's really kind of showing up there. So I don't know that, that answers your question. But right now, we're -- we don't just focus on kind of the absolute number as our cost comes down. We've said all along that our yield will tick down slightly. So -- but we just want to make sure we maintain that delta between cost and price.

Got it. Yes. I was sort of curious on the industrial yield. I think it was like the lowest since COVID, and I think you've talked about mix and temporary roll-off being a little bit weak in past quarters. I know you said it was a little bit better this quarter, but were those still similar drivers? Or is like, I guess, on the industrial one, was there a reason why 2.3 was -- we saw a lower.

I think you picked it off, Toni. I think a few things are affecting that. One, in terms of -- we mentioned that some of the volume increases coming from the health care side as we internalize some of that, but to your point, the temporary business has actually rebounded a little bit is less negative. And historically, that's lower priced than permanent work, but that doesn't mean it's not as profitable. So that's one I would certainly point to. And I think the other thing we saw is a little uptick in our permanent [indiscernible] from some of our permanent customers, not meaningfully, but it was an uptick. But that is what's affecting the yield. But I think as Jim mentioned, when you look at our core price at 5.7% for Industrial and the overall margin in our collection and disposal business at 38.4%, I think that the math flips out pretty well.

May also be a bit a mix issue with respect to national accounts when you look at yields. So -- and that's why core price is an important metric for us to look at also, yes.

Okay. Great. And then just as a follow-up, when you think about the M&A pipeline, how is that looking? How are valuations looking? And should we expect '26 to be sort of a bigger year or still digesting the health care business? Just where are we on sort of M&A strategy?

Well, I think you heard a good bit of color from Jim and Devina on what we're doing in health care and where we are sort of any integration there. We made a big step. The business is now fully integrated into our 16 areas. So we feel good about the momentum there. Separately, on the traditional solid waste side, I think we've closed about $450 million year-to-date, and we said that number could be as big as $500 million by the end of the year. And it could still be we've got a handful of transactions that are out there that could close in Q4 or could roll into next year. I think with regard to '26, sitting here today, I think probably somewhere in the normal $100 million to $200 million is what we're looking at now. But as we've demonstrated over the last couple of years, when the right strategic solid waste asset pops up, we've certainly got the capacity to do that. We're going to take the same approach into next year.

And I think, John, maybe one last add there. When you think about M&A for next year, it really kind of brings into the conversation capital allocation and what does capital allocation look like next year. We'll give you some specifics on it when we get to January. But free cash flow as we really harvest the cash from the sustainability businesses in the health care solutions and then continue to drive good strong cash from our legacy business.

It probably indicates that you're going to see, obviously, the dividend will be -- come out of that first, but there could be some M&A and very likely will be a substantial share repurchase next year. We'll figure out exactly what that number is going to be when we get to July -- to [indiscernible] months.

And our next question coming from the line of Jim Schumm with TD Cowen.

I was wondering on the WM Health care, would you be able to give us a sense of how the medical waste is performing and how the document destruction businesses are performing?

Well, two things there. First of all, addressing a little bit of the remarks that Devina made earlier regarding some of the credits we've issued to the customers. those credits have been primarily on the regulated medical waste side of the business. A lot of that is acknowledging frustration over the years with the ERP implementation. It has been sort of maintaining our customer-first focus there and making sure that we establish a firm foundation from which to grow. We have experienced a little bit of churn there on the hospital side of the business. However, additional customers continues to be pretty strong. I will say, I think it's worth noting that we've renewed nearly $200 million worth of business on our large customers there and that average PI has been in the low double digits. So I think we have a good runway there. And as we stabilize that side of the business, and we have a firm foundation to grow, you'll see those PIs begin to realize towards the back half of 2026.

On the auto shred side, the purge business gave us a little bit of challenge at the beginning of the year. That was mostly having to do with disconnects between commercial and operations. We fixed those we've seen us bringing that high-margin business back in line. And the auto shred, actually, this is the place where we've implemented our sales coverage optimization the soonest, the fastest. And we're seeing a lot of productivity in terms of pipeline, rate of closure and we like what we're seeing there. Quite frankly, the whole melting ice cube concern is no -- not that much of a concern for us anymore.

Okay. And on the positive side, you noticed -- you noted like basically legacy Stericycle volumes going into your landfills. Are there any -- is there any way you could quantify that benefit for us?

So basically, when we think about how we outlined synergy value, we talked about $80 million to $100 million in 2025 of synergy value. You can think of it being about 1/5 of the synergy realization to the year.

Okay. Okay. And then just last one for me. on the hazardous waste landfill, like I just want to make sure I understand correctly, you were pursuing an incremental hazardous waste landfill. Is that right that didn't come to fruition? Or are you closing an existing hazardous waste landfill. And then can you just -- can you just -- I forget how many -- you guys have 4 or 5 hazardous landfills, where do you stand there?

The answer to the question is that the site that we're referencing that was shuttered has actually not been operational. We've kept it on life support, if you will, as Devina mentioned, we were pursuing permit expansion. So it's not a loss from our existing portfolio. It hasn't been operating in a meaningful way in a number of years.

But it is in the count. We've always disclosed that we have 5 hazardous waste landfills. We will now disclose that we have 4.

Okay. Great. And good luck to you, Devina. Thanks for everything.

Our next question coming from the line of Rob Wertheimer with Melius Research.

I just had a quick clarification on an earlier comment with respect to Healthcare Solutions doing more traditional waste. I think you said, I guess you could call it cross-selling. Sound a whole lot like cross-selling. So I was wondering if I missed a subtlety there. And then just more generally, how does your cross-selling kind of sales effort ramp up over time?

Yes. You're probably referring to the comment I made about our industrial volumes and how we were taking volumes from what would have been under the old company going to a competitor and then internalizing them into us. So that's really what that is. our solid waste volumes coming to us in the industrial line of business through internalization of that volume.

Okay. Perfect. And then just in general, your progress on cross-selling on health care?

It's been very strong. There are some great examples where we've had exactly what we've talked about, where the national accounts business platform for WM has been a long success story for us. But the health care sector was one of those where we were underrepresented relative to our share in other important segments of our customer base. And we've seen great success in leveraging, I would say, the WMHS customer base in order to extend traditional solid waste performance across that national accounts platform.

And then we've also seen success the other way, where we've taken legacy WM customers and saw about shred opportunities or even using the health care solutions platform in order to deepen the customer relationship. I think what's really important there is that when you become that single source provider for a customer that customer relationship will be longer and provide incremental value. So that's another leg of that focus on customer lifetime value that we've been talking about.

Maybe, Rob, one more finer point there. Jim referenced in his script, 1 particular customer that has increased their annual spend by about $5 million across their multistate network. But that's certainly an evidence of cross-sell there. By the way, there are several customers that have increased our spend in the 7-figure annual revenue range with us. But maybe what's even more exciting is that we're also seeing cross-sell in our independent RMW shred it, small and medium-sized customers.

We've actually completed cross-sales for over 7,000 customers. Now those are small customers, but those end up becoming the backbone. And what we've seen is that customer split is basically 50-50 between WM and Stericycle original books of business.

And our next question coming from the line of Faiza Alwy with Deutsche Bank.

I wanted to follow up on the same topic. It seems like you're talking about success around cross-selling. But at the same time, you're also talking about higher churn on the health care side. So I'm just curious if you could give us a bit more color on what type of -- is there a specific type of customer, maybe a region or like where are you seeing other strength with cross-selling versus where you're seeing higher churn?

Well, the success -- Faiza, if I understood your question correctly, the success that we're seeing on cross-sell is across all of the channels. I just mentioned 7,000 customers that we've cross-sell. Those are small and medium-sized customers. We've also had some success with some of the larger, more complex hospital networks the churn that we've seen in the hospital side really relates to those customers that have experienced the most frustration over the last couple of years. They were the ones that maybe weren't getting their bills correctly earlier in the Monarch, which is what they used to call their project implementation back in late 2023 and early '24. And so we've seen some uptick there. But we've also seen our addition of customers on the hospital side remain pretty healthy.

I think too, Rafa, it's worth mentioning that -- okay. So yes, we've seen some churn here. But I mentioned kind of in my long answer there that this network that Stericycle has is unsurpassed. Nobody is close to this network. So while we may have seen a bit of churn, it's not extraordinary churn by any stretch. And so once we get this ERP kind of ironed out once we really kind of bring this entire business under us, which we've done now, John mentioned bringing it into our operational structure in our 16 areas. I think you can expect to see all those numbers that you've been focused on that we've been focusing on as well, which is 5% to 6% revenue growth, and the synergy is really showing up as opposed to being a little bit obscured by the top line all of that will begin to show. And then I guess, John's point is an important one, too, which is again, this is 10% of our business. The 90% is killing it. So we're overall pleased with the way things have progressed.

I think the only thing I'd add to that, Jim, and I mentioned earlier is worth highlighting here is the service is good. I mean, when we look at the health care portfolio of services. Rafa and the entire team have done a nice job, as I mentioned, improving 1 KPI, which is on-time delivery. So service, if it were at challenges, the harder one is hard to fix. In this case, we have the benefit of providing solid service.

I think their numbers end up being better than our own numbers on the legacy side.

And by the way, that churn number is also better on that segment than on the legacy side anyway. Yes.

Understood. Very helpful. And then just maybe pivoting to the core business. You mentioned lower maintenance, lower risk management costs. So how much more runway do you think you have in this as we look ahead to 026 and beyond?

So I would tell you, there wasn't that many handful of years ago, we were at the 63-plus percent range and gradually and systematically we've worked our way down under 62, 61 and now under 60 and we think that's obviously a pretty big accomplishment for us. To answer your question, is there room to run there? Absolutely. I think you've seen the momentum from above 60 to below 60. We have some numbers aspirationally over the next handful of years that we'd like to achieve that are better than the 59.4% that we printed this quarter.

I think it's going to require. So John, to your point, it's going to require a different way of doing business. And that -- and so John has a team that's working on this. So it's not just run fast or jump higher. It's doing things differently than we've done them. So if all we're doing is just doing this kind of trying to squeeze dollars out of the existing business the same way, then I would argue, yes, we probably squeezed a lot of those SG&A dollars out and the OpEx dollars out. But in order to get to those aspirational figures that John's referred to, I think you'll see us doing things a bit differently. That means using technology to supplement our operations and using AI, which every company is talking about these days, to replace labor that leaves us.

Our next question coming from the line of Tami Zakaria with JPMorgan.

One follow-up question on the topic of churn. I found your comments quite interesting. Could you comment on where these customers that are churning are going to? The reason I asked that question and like you mentioned earlier, Stericycle had very strong market share. Hence, I'm curious, are they turning for price, network, something else. And related to that, would you expect to win some of these customers back once the ERP is in a good spot? Or are these customers not profitable enough to go after?

Well, there's a lot in that question. I'm going to try to give you some nuggets that you can take away here. But first and foremost, we're having -- we're having exit interviews with those customers. And by the way, a lot of times, what we're losing is not the entire customer but a piece of the customer and the reason for that is that there is no other competitor out there that can actually handle the entire network of hospitals that is associated with the customer. And so -- when you ask the question, do we have the ability to go back and gain that customer? The answer is absolutely yes because they're going to want to gravitate back to a single provider.

Our next question coming from the line of Konark Gupta with Scotia Capital.

Just want to kind of address the same 10% business, Jim, you talked about it's kind of like important in the grand scheme of things. But your SG&A intensity at health care, if I look at the GAAP versus the legacy business, I think it stood at 10 points. In Q3, you were 12% or 12 points in Q2, 14 points in Q1. I mean it's been coming down sequentially the gap versus legacy. And I think at this clip, I mean, you might hit your target -- underlying target for synergy in the next few quarters, perhaps. So I just wanted to get the sense of are we thinking it correctly that the SG&A intensity is coming down quite nicely here and it's kind of going to hit your targets soon enough? Or is there something else in the mix that has held to SG&A intensity much faster in the first 3 quarters?

Yes. Well, I would say to that, I mean, just to frame it maybe in more pointed fashion, I think what you've seen is since Q3 of last year, you've seen that SG&A go down by essentially 700 basis points, which is a pretty dramatic shift down. Now there were some parts of that business that were clearly low-hanging fruit. We are now taking a much more surgical approach to how we do that. So particularly so we can do 2 things: one, maintain the improvement and the fixes that we are doing on the ERP 1, change a little bit of the customer care level approach that we're using with that larger complex customer base and then facilitate more collaboration across the sales and operations side of the business. So we saw a really good improvement in 2025. We're going to see that improve in 2026 and then taper down. But I think what we've said is over the -- we see, over the 3-year horizon, we are intended to take that down to 17%. And we think we're going to end up there, and there's opportunities for more.

By the way, I want to add there is that, that SG&A performance is even more impressive then Rafa gives a credit there because the softness on the top line. So -- and we're measuring it as a percent of revenue there. So Rofa and his team have made huge progress on the cost side of this. And as we have discussed with the top line, there's been some things that some of them are one-timers, some of them are recoverable. But as we see top line really start to tick back up, that improves SG&A as a percent of revenue as well.

I appreciate the color on that. And if I can follow up on the recycled commodities. I think you guys see a 35% decline in Q3. What are you seeing now based on the book that you are left with? What kind of basket of commodity prices you're looking at heading into Q4.

Well, as you all saw, commodity prices have dipped and a couple of reasons for that. If you're looking at OCC prices, we've seen some mills closed down domestically, about 10% of capacity has been taken out, and we're seeing weaker box demand. So certainly, if the economy picks back up and we see more consumer spending we would see an uptick in OCC prices. And you heard my previous comments related to plastics. Plastics are at all-time lows. But when you look at commodity price trends, typically from peak to trough, roughly 12 to 24 months. So we would expect a bit of a bounce back sometime in 2026. We're not expecting that in Q4 2025. We're expecting commodity prices to remain around that $65 to $68 a ton basket, and that's what has been included in our recent update. But overall, still feel very optimistic about the investments we've made. We've been taking out labor out of our facilities, which is good in any commodity price environment. and certainly creating cleaner material, which we can sell at a higher price point.

Okay. That's great for thanks for the color and time and all the best to you, Devina and David.

Our next question is coming from the line of Kevin Chiang with CIBC.

Echoing the congratulations, Devina, best of luck in your future endeavors. Maybe just on RNG, I think at the Investor Day, you had mentioned, I guess, in 2026, you had secured about 30% of the volume at a fixed price, WM prices have moved up a little bit here in Q4. Just wondering if that ratio has changed as we think about the fixed versus variable into next year.

So for 2026, we've presold about 45% of our offtake, so it's up from our last update. And just to give you a balance, what we're anticipating is a little less than half of that will be sold in the transportation market and a little more than 50% will be sold in the voluntary market. 2026 will be a year where we will fully allocate the -- our fleet to WM's RNG production. We're seeing RIN prices for 2026 in the again, $220 million to $230 million range and still seeing some buyers on the voluntary market, and we're making some headway there.

Okay. That's super helpful in the update. And just -- I know you've had a lot of questions on health care here. Maybe if I just ask a bigger picture question. When you look at the price elasticity of this business, as you try to put through price increases and pursue your revenue strategy. Is it -- is it in line with what we would have thought a year ago? And maybe how does it compare to solid waste as you've kind of had this under your belt, just interested from a higher level perspective, just how you view kind of the pricing and demand dynamics just having on this almost a year now?

Well, lots has happened in that year. I think what I would say is we start maybe with our long-term vision and then move backwards. We've talked about that maybe aspiration of 5% to 6% growth overall being realizable, long term. What we found is that, as Devina mentioned, we're taking a slower, more deliberate approach with that, particularly in the price increase because the last thing you want to do is put a PI through to a customer, particularly a large complex customer that has been going through a tremendous amount of frustration with their billing with our reporting over the last couple of years. That said, once we have offered that credit and baseline that customer better, we don't see any reason to doubt that we're going to be able to put in the particular PIs increase that we are entitled to. And I would just point you once again to the example I gave earlier about some of the renewals we've had about $200 million worth of that business that we've been able to renew with an average low double-digit PI.

I would just double down on that and say there are some really important fundamentals there. One is the secular trend that we've discussed. So from a supply and demand perspective, the demand for our business is just going to continue to grow. Two is the quality of the customer service, the quality of the customer service, our on-time delivery, all of that is strong. And that's really supported by a best-in-class Net Promoter Score for that part of the business.

And then three, I just think of it in terms of the strong execution, data-driven approach that WM has established and that we show quarter in and quarter out for the collection and disposal business, we're going to be able to leverage that know-how for this business segment. We're just going through this period of housekeeping, I would call it, that is appropriate and doing the right thing for our customers. So I think those things bolster our confidence in that long-term price outlook for the business. And I think we're more confident in that today than we were a year ago.

Our next question coming from the line of Shlomo Rosenbaum with Stifel.

I wanted to talk a little bit about the industrial volumes turning up. And if you kind of exclude the internalization of the health care solutions, are we starting to see an uptick just in general? Do you feel like we're just kind of bouncing around a little bit off the bottom. It's certainly notable that it's the first positive number in 3 years. I want to see what you think that is indicative of just in general in your customer base?

So I think if you look at that in industrial, I think you hit on the key point, which is the first quarter in many that we've seen a positive uptick. And if you if you discount out the health care service volume, it's about 50 basis points of the increase. So net of that, we've still seen an increase in our volume. And I mentioned a little bit of less of a drag from the temporary business. And Jim mentioned, we're seeing some of that flow through to our landfills in the construction and we've also seen an uptick in some of the business our permanent customers are doing. So think about the same customer falling a little bit more per week per month than they were before. Those are the 2 contributing factors, net of the health care and like I said, that's about half of the improvement.

So it feels like the underlying business -- just to make clear, the underlying business is getting better. It's not just a kind of bouncing around awful finally hitting the bottom. I'm just trying to put a little finer point on that.

I think you got it. Like I said, half of it's health care and half of it is unrelated to that. And as I mentioned, part of the yield push was the fact that the temp business is profitable, but it doesn't bring the same top line revenue. So it does put a little pressure on yield. But as you think about our margins in the collection business or our collection and disposal business, I think they'll speak for themselves.

It could be interesting to see how the housing market does. I mean every home builder you talk to would tell you that we're short houses, unlike years ago during the Great Recession where we had too many and so hence, the big crash. Now we've kind of gone 180 degrees. And so it will be interesting to see how what the homebuilders do, how that affects our business because it is a piece of our business for sure, and it will affect our roll-off volumes.

Okay. Great. I just wanted to follow up just a little bit more on the ERP impacts on the health care business. Where do you feel you are in terms of stabilizing that whole system so that we're kind of clean the customers are seeing what they would expect to see and we can kind of baseline off of there. I mean is it another few quarters that we need to go. I'm just trying to understand kind of timing wise, how long we should think about this kind of interim period before you get back to being able to implement the normal kind of pricing you would expect? And then just a housekeeping convert to [indiscernible]. Is there a difference between issuing credits for past dues and write-offs? Or is it just semantics there?

Yes, it's a great question. So I'm going to take that easy one first. So customer credit has to be recognized as a reduction to the revenue rather than a write-off, which is recognized as incremental SG&A cost and so our write-off actually were pretty well in hand in the quarter for the health care business. It was more direct steps that we took to credit for the top line with our customers in the quarter where we saw an outsized impact. With respect to where we are in the ERP journey, I think Jim's comments about the fact that these these implementations and journeys are measured in years, not months is the right way to think about it. But I think to put a finer point on that, what's really exciting about where we are and kudos to the team that's working diligently on this each and every day in order for us to get there. But we're calling the current environment, and you actually use the word in asking the question, our stabilization period, and we expect to be through our stabilization period by the end of the first quarter.

We're then going to move into a scalable and growth period, and we think that scalable and growth period starts with Q2. So we're really optimistic that we've got the right people working on this, we've got the right plan, and we are seeing really good traction on the work streams that are in place. And while there may be a quarter bump or bump in the road with regard to the revenue that we provided, we know that the bump in the road is temporary, and we're going to be on a stronger foundation going forward for the growth of the business long term.

Great. If you don't mind me sneaking in one more. Just if you renewed $200 million at low double-digit PIs, how do I think about that in terms of kind of the flow through for the business? Is that kind of you take that divided by revenue and assume that the rest of it is flat, and then you're in kind of the 3% to 4% range or so you're already kind of narrowing in on your 5% to 6%? Or how should I take that in the context of what's going on?

Yes, I think it's early to kind of think about that in the context of the 4% to 6%. I think those numbers are the aggregation of annualized revenue renewal and terms of contract that might extend well into 2 and 3 years. So it's just -- take it for what it is an indication that there is price to go get out there in this large complex network of customers.

And our next question coming from the line Brian Burgmeier with Citi.

I just had 1 question maybe for Tara. I appreciate the details on Natera PCR earlier in the call. Maybe just kind of zooming out, it seems like nobody has really cracked the code on flexible plastic recycling yet. What do you think maybe it takes to make flexible plastic recycling work at scale? Do you think we need EPR legislation? Is it kind of about the consumer packaged goods companies? And maybe what is the best way for WM to try to take advantage of that as Natura PCR is kind of on the sidelines right now.

So I just want to clarify, we did crack the code on making a quality product. What we were not able to crack the code on is getting customers to divorce their expectations for the price of that product from Virgin. And that is absolutely what has to happen in order for this to be a broader, sustainable business model. So there's a couple of ways that, that could happen. It could happen through minimum content legislation. That is one, and that exists in certain markets, but not across the whole country, and there needs to be broader enforcement and and penalties and teeth to that. And then two, the companies that would buy PCR, if their customers are expecting products that are put on shelves to be made from PCR, they're going to have to buy it at a higher price. If you think about our recycling business, our traditional recycling business is a fee-for-service model. And we're manufacturing a product in the Natura PCR plant, and we have to get an appropriate margin on that product, and that's independent of virgin pricing. That's just the reality of where we are in that space.

Our next question coming from the line of Stephanie Moore with Jefferies.

Great. Maybe just circling back on the M&A piece. I appreciate the commentary in terms of just all the work and integration behind the health care deal and also your commentary about the traditional solid waste deals completed or planned to be completed this year. I wanted to get a gauge of your appetite as you think about 2026 and even 2027 about looking at deals or opportunities outside of the traditional solid waste space.

I think we've always stayed pretty close to home on M&A, probably the farthest we've ventured out would have been Stericycle, and we did, I think, make a pretty good case that that's very similar to our existing core business. So we don't expect us to buy a semiconductor company in a couple of years. I think we'll continue to do what we do best, which is operated within our core. Our core it includes -- it includes solid waste, it includes hazardous waste. And for now, I think medical waste, I think we have enough on our plate to try and not do anything else in the near term.

And there are no further questions in the queue at this time. I will now turn the call back over to Mr. Jim Fish, CEO, for any closing remarks.

All right. Well, thank you very much. Before I sign off, I just -- I want to express my gratitude to my friend, Devina Rankin here. Devina is 23 years with a company that's amazing. She's got me by a couple 9 years, and I have worked together more than 9 years. She and I worked together since 2012 directly. And she's been an incredible, not only friend Diana and Devina to Tracy and me, but also confidante for these, I guess, it'd be 13 years since 2012. Everybody at this company thinks so highly ever and we're all going to miss her, but we know she'll do incredibly well in whatever you choose to do following her retirement. But thank you, Devina, for all you've done for this company.

Thank you, Jim. Thank you so much.

With that, I will -- I'll just say we'll see you next quarter. Thank you very much.

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