Okay, we're live. All right. Well, thanks everybody for joining. My name's 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. I'm very happy to have him here. 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. We'll start here. We have a couple of slides, and then we'll do some fireside Q&A.
After this, there is a breakout session in the Mar room upstairs for anybody in the audience who would like to ask some questions. I think just to start, I think a lot of people are familiar with the green and yellow trucks.
Yeah.
I see them around Chicago all the time. Maybe you could speak to where WM is today, what's changed in the story the last five 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. We have a slide here highlighting some of our investment highlights. Obviously, the company's been around quite a long time. We were founded in 1968, went public in 1971. As Trevor mentioned, we are the largest environmental services company in North America. 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 our 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.
If you think about the recent fuel spike that happened in the last month or two, we've had things like fuel surcharges that we're able to absorb those with minimal impact economically too, to our business. 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 four or five years. We've deployed about $3 billion into two different verticals. One is recycling automation and new markets, to further expand that market. Also, with our landfills, we naturally generate landfill gas, and for many years, for 40+ 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. 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. We're 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 from a capital allocation standpoint, we were 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 . This year, we did commence our share repurchase program in addition to a nice dividend increase for the year. We talk 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%-47% EBIT 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 some of this. Last year, we printed over $25 billion in revenue with Adjusted EBITDA of $6.6 billion. We have about 60,000 employees.
You can see that Collection and Disposal is really the lion's 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. 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. 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. 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 to cash flow.
Our last slide is just, I always love a good map, this one is great. It's obviously a lot of dots on here. One thing that maybe just to point out, Trevor, I know you've written some research about this too, if you think about landfills, those are really hard to replicate. In many geographies, there hasn't been a greenfield landfill permitted in decades. We're really good about getting expansions, if you think about the 253 active landfills that we do have, they are strategically positioned. In nine of the top 10 MSAs, we feel like we have the best strategically positioned asset. 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've previously reported. That is because of the Healthcare Solutions. We run about 15,000 commercial, traditional collection routes, and then about 4,000 additional Healthcare 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 in any environmental service, whether it's hazardous waste, medical waste, traditional solid waste, or recycling. We feel we have multiple platforms for growth as well.
With that, I'll pause and maybe turn it over to you.
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 post-collection assets, which are scarce nowadays. 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 airspace. You also have to balance high-volume customers that bring volumes into your landfills.
How do you think, in a world where we look out 10 years, 20 years, we have 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, we do this with our customer segments as well, we're looking at the airspace lifetime value, we're forecasting what we think the pricing could look like 10, 15 years out, and seeing what the price is today and say, are we better off preserving some of that airspace, 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. That's just a trade-off we evaluated, and we felt it made sense. The rail connectivity was already in place. 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 a rail access to, and so we're taking volumes out of the Northeast. That was new volume to WM. I think our capabilities in managing complex logistics helps us find new opportunities to grow.
Yeah, that's great. Those two are great examples. I know you also have a very high quality, I think, rail-served landfill in the Pacific Northwest. Maybe, I guess this is kind of a topic, we've had several of your peers here this week.
Rail seems to be a topic that's gaining a little steam among the investor base, especially in areas like the Northeast. Maybe you talk about the economics a little bit there. How far away does it have to be for it to economically make sense? What's the CapEx versus OpEx? Those kinds of decisions that you go through.
Sure. I do think if you think about miles, and if you think of 150 to 300 mi, anything inside that or shorter, you can use transfer stations and over-the-road tractor-trailers to transport to a landfill. When you get beyond 300 mi, 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, what are your options? What does the turnaround time look like? For instance, if you're able to turn a unit train around in six days, that's a different capital story than if it's two to three 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. It's 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.
Mm-hmm. Great. Maybe I would like to shift over to pricing a little bit. I know we came through the last few years from a period of higher inflation, and we've been decelerating. Now it looks like at least with energy costs rising, the overall CPI bucket is a little bit higher. Maybe you could talk about, you have some exposure to CPI index contracts, some open market, how you could see pricing playing out maybe over the next year or two, given that. Then maybe for Mike, how does WM, because you have industry-leading data and-
Sure.
...analytics capabilities, how do you leverage that? Does AI play into maybe optimizing that further?
Yeah, there's a lot in that question, I think most importantly is 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. We back that up with making sure we have a price-cost spread.
We target about 150-200 basis points in that process and our i ndex-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 + 2.7 volume. We really have a strong understanding of the analytics, the next best alternatives for this business. 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 in how they compare to peer groups, and that's allowed us to be much more sophisticated in how we price our customers.
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. 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.
Yep. Great. Okay, maybe we can switch to volume for a second. It's been 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. It's been a tough three, four years for the cyclical pieces of your volume. Maybe you could give us a sense of what you're seeing. Are you hoping for some improvement as we exit this year?
Yeah, sure.
On the volume side?
Yeah, 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. We've been culling some of that portfolio to remove less profitable work. You've seen intentional volume declines for a number of years. Q1 was a little bit higher than we were anticipating or planning for it. 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.
We do expect those volume losses in 2027 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, and while also actually growing EBITDA, even though we're reducing volume.
We're making the right decisions for the long-term viability. Of the three collection categories, it's the lowest margin of the three. Industrial is one. We've had some positive volumes of late. We're still forecasting for this year 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. We have a little bit of momentum from that. There's also some green shoots of potential opportunity of upside there. Commercial's one where it's slightly negative, and it still looks that way this year, but hopefully it becomes less so. Disposal's 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, but I think about 75% of that activity shows up in Q2 for us. If you strip that out and 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.
Special waste can be a little bit of a leading indicator for potential new project activity as well, right?
Yeah, it's event-driven, and so yeah, 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 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 increase customer stickiness and sort of unlock better wallet share?
Yeah. Ultimately, our goal there is to improve the reliability and responsibility to our customers. That's the overarching goal. 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%. 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, 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.
Our service has improved dramatically in all the key categories, whether it's missed pickups, reschedules, and the like. I think that component of how we're performing on the street, along with the ability for us to service our customers better, has 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. We've got 12 minutes left. I want to make sure we hit on both the sustainability businesses and the Healthcare Solutions. Maybe let's take sustainability first. You're coming toward the end of this multi-year investment cycle. You talked about the $3 billion in RNG and recycling, I guess.
Yes.
Maybe starting with the RNG, I think you've already announced recently two additional projects incremental to the original 20.
Correct.
You still have plenty of landfills out there on the map that do not have RNG facilities out there. Maybe at this point, we do have a new RVO out there for the next two years, Renewable Volume Obligation from the EPA. How are you thinking about potential future opportunities to monetize some of that landfill gas once this first tranche of projects is finished?
Sure. 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. 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.
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 de-risk, and so we have a risk management policy because commodity volatility in that business is a little bit different than our core operations. We have a policy or a framework where we're trying to lock in the current year, 80% of that price exposure, and then in year two, lock in 40%, year three, 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, 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. Those have lower capital requirements. You can get them faster to start. That's something we're also evaluating as well, in addition to looking at incremental RNG projects if the returns make sense and they match up versus our other alternatives-
Right.
...for investment.
It may come down to just what is. You're already closing the loop on a lot of, I guess all of your fleet.
Yes.
The CNG fleet.
Yep.
May come down to what is the demand for the voluntary RNG market versus what's a data center electricity type-
Correct.
...demand in the future.
That's correct.
It'll be interesting to see how that plays out, I think.
We spent $1.6 billion on RNG. I don't think investors should expect that it'll be anything of that magnitude in the near term.
Yep. Makes sense.
Then on recycling, just real quick, we spent $1.4 billion, and that was broken into two different investment stories. One is automation of our existing processing facilities, and this was really to accomplish several things. One is, you could 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. It had high turnover. 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. Some of those investments are being made in geographies where there's strong regulatory backdrop with things of Extended Producer Responsibility or minimum content legislation developing.
The other investment wave was in new markets, so broadening, finding markets where recycling is not as penetrated, and then building assets there for future growth as well.
On those new projects in particular, would you say 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. We've made good headway. I do think this is the long-term plan. 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 two plants. The other benefit of those is there's no commodity risk. That's really a processing fee, and it's long-term contracts. 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.
Yeah. Okay, great. Maybe with We'll see if we take up the last seven minutes, but let's move over to the Healthcare Solutions business. Maybe people in this room will be familiar with Stericycle if they used to attend this conference back in the day. It sounds like from a customer perspective, the ERP integration is starting to move along nicely.
Yeah.
The billing process has improved. You've walled off the customer from that in the back end. The customer credit activity that happened in the latter part of last year sounds like it's peaked. Can you just tell us how is the core Healthcare Solutions customer feeling today? What can you do from a price and volume perspective as you move second half and beyond?
Yeah, Trevor, I think one thing that's the most important is we're very excited about the opportunities we have in the healthcare business. When we acquired Stericycle and Shred-it at the end of 2024, we were focused on the secular trends of healthcare, 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 walled off the customer, as you mentioned, and we're focusing on things that can really set this up as a platform for growth.
We look at our long-term perspective for this, we expect to have 5%-6% revenue growth. We're building 2026 as a bridge to that, mostly price, a little bit of negative volume. 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. 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. 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 upper middle 20s. We've brought that down to the upper teens. Quite a bit of work's been done there, but we still feel very comfortable that we have a plan to bring it 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. 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. Those were things we could point to pretty clearly and identify. As this business has been integrated into our existing area structure, we're seeing a lot of additional ideas come to fruition, particularly given that our areas manage profitability all the way down to the site level. They're coming at it from a different angle. I do think there's some optimism about continued momentum as well on the cost and opportunity side.
Yep.
Yep.
Well, that's great. I guess one question that I have over kind of the longer term, and 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. Take all that into consideration. You look out maybe five years from now for this Healthcare Solutions business. I know some of the synergies are realized in the Collection and Disposal line.
What is a realistic margin profile for this business over the very long term, let's say?
Yeah. 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 the mid-20s, and then to Mike's point earlier about continuing to make improvements in things like SG&A, we could continue to have it march up closer to our company average.
Okay, great. We've got two minutes left. I guess, one topic that I think has been discussed a lot with WM in the past has been automation and efficiency. You guys have been working on this for many, many years, obviously. 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. 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 with that. 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 over-serviced, are they under-serviced? 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 it continuously learns on how to extract more and more value. We've 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. 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.
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. If you think about the scale of our business and you talk about the 19,000 routes, we're just starting with route optimization. We're starting in the industrial line of business, you got other line. You got healthcare, you got commercial, you've got residential that you can apply those to. With the scale, 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.
Thank you.
Thank you guys so much.
Thank you.
The breakout is Mar for anyone who would like to join.
Excellent.
Thanks, guys.