Waste Management Announces Third Quarter Earnings

Double-Digit Growth in Net Income and Net Cash Provided by Operating Activity

Company Raises Full Year Earnings and Cash Flow Guidance

FOR MORE INFORMATION

Waste Management

Web site

www.wm.com

Analysts

Ed Egl

713.265.1656

eegl@wm.com

Media

Toni Beck

713.394.5093

tbeck3@wm.com

HOUSTON — October 26, 2017— Waste Management, Inc. (NYSE: WM) today announced financial results for its quarter ended September 30, 2017. Revenues for the third quarter of 2017 were $3.72 billion compared with $3.55 billion for the same 2016 period. Net income for the quarter was $386 million, or $0.87 per diluted share, compared with net income of $302 million, or $0.68 per diluted share, for the third quarter of 2016.(a) On an as-adjusted basis, net income was $398 million, or $0.90 per diluted share, in the third quarter of 2017, compared with $374 million, or $0.84 per diluted share, in the third quarter of 2016.(b)

The Company’s as-adjusted third quarter 2017 results exclude pre-tax charges of $11 million related to the withdrawal from an underfunded multiemployer pension plan and $9 million related to an increase in environmental remediation reserves.(b)

Jim Fish, President and Chief Executive Officer of Waste Management, commented, “An impressive year-over-year improvement in our traditional solid waste business powered a strong third quarter, continuing the positive momentum we have seen all year.  Operating EBITDA grew more than 17% when compared to the third quarter of 2016, or almost 7% on an as-adjusted basis.(b) This is the second consecutive quarter of record-high adjusted operating EBITDA.  More importantly, that operating EBITDA performance converted into strong cash flow growth. Our net cash provided by operating activities was also the highest that we have seen in our history.  The combination of our strong core price results, higher volumes, and continued cost improvement focus led to adjusted earnings per diluted share growth of more than 7%, despite an estimated negative $0.01 per diluted share impact from hurricanes Harvey and Irma.(b)”

KEY HIGHLIGHTS FOR THE THIRD QUARTER 2017

·     Overall revenue increased by 4.7%, or $168 million. The revenue increase was primarily driven by positive yield and volume in the Company’s collection and disposal business, which contributed $93 million to revenue growth, and higher recycling commodity prices, which contributed $60 million of revenue growth.

·                  Core price, which consists of price increases net of rollbacks, plus fees other than the Company’s fuel surcharge, was 4.7%.(c)

·                  Internal revenue growth from yield for collection and disposal operations was 2.0%.

·                  Internal revenue growth from volume in the Company’s traditional solid waste business was 1.6% and 2.0% on a workday adjusted basis.  Total Company internal revenue growth from volume was 0.7% and 1.1% on a workday adjusted basis.

·                  As a percent of revenue, operating expenses were 61.9% in the third quarter of 2017, as compared to 62.5% in the third quarter of 2016.  Adjusting for the withdrawal from a multiemployer pension plan, operating expenses as a percent of revenue were 61.7% in the third quarter of 2017.(b)  Operating expenses as a percentage of revenue in the Company’s traditional solid waste business improved about 125 basis points during the quarter, despite the impact of hurricane related expenses and higher fuel costs.

·                  As a percent of revenue, SG&A expenses were 9.6%, compared to 9.3% in the third quarter of 2016.  The increase is largely attributable to a prior year favorable insurance recovery.

·                  Net cash provided by operating activities was $856 million, compared to $758 million in the third quarter of 2016, an increase of 12.9%.  The increase was driven by the Company’s strong operating income growth and working capital improvements.

·                  Capital expenditures were $350 million, compared to $333 million in the third quarter of 2016.

·                  Free cash flow was $512 million, compared to $433 million in the third quarter of 2016, an increase of 18.2%.(b)

·                  The Company returned $685 million to shareholders during the quarter, paying $185 million in dividends and repurchasing $500 million of its common stock.

·                  The effective tax rate was approximately 35.7%, or 35.8% on an as-adjusted basis.(b)

Fish concluded, “Based on our results through the first nine months of the year, we are raising our full-year 2017 guidance of adjusted earnings per diluted share to between $3.19 and $3.21 and free cash flow to between $1.7 and $1.75 billion, despite an anticipated negative $0.03 per diluted share impact from our recycling operations in the fourth quarter. (b)  The strength of our business is evident in the growth of our operating EBITDA and our cash conversion rate, and we expect our strong performance to continue into the fourth quarter and 2018.”

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(a)     For purposes of this press release, all references to “Net income” refer to the financial statement line items “Net income attributable to Waste Management, Inc.”.

(b)     This press release contains a discussion of non-GAAP measures, as defined in Regulation G of the Securities Exchange Act of 1934, as amended. The Company reports its financial results in compliance with GAAP, but believes that also discussing non-GAAP measures provides investors with (i) additional, meaningful comparisons of current results to prior periods’ results by excluding items that the Company does not believe reflect its fundamental business performance and are not representative or indicative of its results of operations and (ii) financial measures the Company uses in the management of its business. Accordingly, net income, earnings per diluted share, operating expenses as a percentage of revenue, effective tax rate, and operating EBITDA have been presented in certain instances excluding items identified in the reconciliations provided. The Company defines operating EBITDA as income from operations before depreciation and amortization; this measure may not be comparable to similarly titled measures reported by other companies.

The Company’s projected full-year 2017 earnings per diluted share is not based on GAAP net earnings per diluted share and are anticipated to be adjusted to exclude the effects of events or circumstances in 2017 that are not representative or indicative of the Company’s results of operations, including the items excluded from our as-adjusted first and third quarter results.  Projected GAAP earnings per diluted share for the full year would require inclusion of the projected impact of future excluded items, including items that are not currently determinable, but may be significant, such as asset impairments and one-time items, charges, gains or losses from divestitures or litigation, or other items. Due to the uncertainty of the likelihood, amount and timing of any such items, the Company does not have information available to provide a quantitative reconciliation of adjusted projected full year earnings per diluted share to a GAAP earnings per diluted share projection.

The Company also discusses free cash flow and provides a projection of free cash flow. Free cash flow is a non-GAAP measure. The Company discusses free cash flow because the Company believes that it is indicative of its ability to pay its quarterly dividends, repurchase common stock, fund acquisitions and other investments and, in the absence of refinancings, to repay its debt obligations. Free cash flow is not intended to replace “Net cash provided by operating activities,” which is the most

comparable U.S. GAAP measure. However, the Company believes free cash flow gives investors useful insight into how the Company views its liquidity. Nevertheless, the use of free cash flow as a liquidity measure has material limitations because it excludes certain expenditures that are required or that the Company has committed to, such as declared dividend payments and debt service requirements. The Company defines free cash flow as net cash provided by operating activities, less capital expenditures, plus proceeds from divestitures of businesses and other assets (net of cash divested); this definition may not be comparable to similarly titled measures reported by other companies.

The quantitative reconciliations of non-GAAP measures used herein to the most comparable GAAP measures are included in the accompanying schedules, with the exception of projected earnings per diluted share.  Non-GAAP measures should not be considered a substitute for financial measures presented in accordance with GAAP, and investors are urged to take into account GAAP measures as well as non-GAAP measures in evaluating the Company.

(c)     Core price is a performance metric used by management to evaluate the effectiveness of the Company’s pricing strategies; it is not derived from the Company’s financial statements and may not be comparable to measures presented by other companies.  Core price is based on certain historical assumptions, which differs from actual results, to allow for comparability between reporting periods and to reveal trends in results over time.

The Company will host a conference call at 10:00 AM (Eastern) today to discuss the third quarter 2017 results. Information contained within this press release will be referenced and should be considered in conjunction with the call.

The conference call will be webcast live from the Investor Relations section of Waste Management’s website www.wm.com. To access the conference call by telephone, please dial (877) 710-6139 approximately 10 minutes prior to the scheduled start of the call. If you are calling from outside of the United States or Canada, please dial (706) 643-7398. Please utilize conference ID number 93100733 when prompted by the conference call operator.

A replay of the conference call will be available on the Company’s website www.wm.com and by telephone from approximately 1:00 PM (Eastern) Thursday, October 26, 2017 through 5:00 PM (Eastern) on Thursday, November 9, 2017. To access the replay telephonically, please dial (855) 859-2056, or from outside of the United States or Canada dial (404) 537-3406, and use the replay conference ID number 93100733.

The Company, from time to time, provides estimates of financial and other data, comments on expectations relating to future periods and makes statements of opinion, view or belief about current and future events. This press release contains a number of such forward-looking statements, including but not limited to statements regarding 2017 earnings per diluted share; 2017 free cash flow; and all statements regarding future business performance and growth. You should view these statements with caution. They are based on the facts and circumstances known to the Company as of the date the statements are made. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those set forth in such forward-looking statements, including but not limited to, increased competition; pricing actions; failure to implement our optimization, growth, and cost savings initiatives and overall business strategy; failure to identify acquisition targets and negotiate attractive terms; failure to consummate or integrate such acquisitions; failure to obtain the results anticipated from acquisitions; environmental and other regulations; commodity price fluctuations; disposal alternatives and waste diversion; declining waste volumes; failure to develop and protect new technology; significant environmental or other incidents resulting in liabilities and brand damage; weakness in economic conditions; failure to obtain and maintain necessary permits; labor disruptions; impairment charges; and exposure to  litigation and governmental proceedings.  Please also see the Company’s filings with the SEC, including Part I, Item 1A of the Company’s most recently filed Annual Report on Form 10-K, for additional information regarding these and other risks and uncertainties applicable to our business.  The Company assumes no obligation to update any forward-looking statement, including financial estimates and forecasts, whether as a result of future events, circumstances or developments or otherwise.

ABOUT WASTE MANAGEMENT

Waste Management, based in Houston, Texas, is the leading provider of comprehensive waste management services in North America. Through its subsidiaries, the company provides collection, transfer, recycling and resource recovery, and disposal services. It is also a leading developer, operator and owner of landfill gas-to-energy facilities in the United States. The company’s customers include residential, commercial, industrial, and municipal customers throughout North America. To learn more information about Waste Management, visit www.wm.com or www.thinkgreen.com.

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 Quarters Ended September 30, 

2017

2016

Operating revenues

$

3,716

$

3,548

Costs and expenses:

Operating

2,302

2,216

Selling, general and administrative

356

330

Depreciation and amortization

350

336

Restructuring

(2)

-

Expense from divestitures, asset impairments and unusual items, net

9

106

3,015

2,988

Income from operations

701

560

Other income (expense):

Interest expense, net

(90)

(94)

Equity in net losses of unconsolidated entities

(8)

(9)

Other, net

-

-

(98)

(103)

Income before income taxes

603

457

Income tax expense

215

153

Consolidated net income

388

304

Less: Net income attributable to noncontrolling interests

2

2

Net income attributable to Waste Management, Inc.

$

386

$

 302

Basic earnings per common share

$

0.88

$

 0.68

Diluted earnings per common share

$

0.87

$

 0.68

Basic common shares outstanding

437.8

442.9

Diluted common shares outstanding

440.8

445.7

Cash dividends declared per common share

$

0.425

$

 0.41

Quarters Ended September 30,

2017

2016

EPS Calculation:

Net income attributable to Waste Management, Inc.

$

 386

$

 302

Number of common shares outstanding at end of period

434.2

442.0

Effect of using weighted average common shares outstanding

3.6

0.9

Weighted average basic common shares outstanding

437.8

442.9

Dilutive effect of equity-based compensation awards and other contingently issuable shares

3.0

2.8

Weighted average diluted common shares outstanding

440.8

445.7

Basic earnings per common share

$

 0.88

$

 0.68

Diluted earnings per common share

$

 0.87

$

 0.68

 Nine Months Ended September 30, 

2017

2016

Operating revenues

$

10,833

$

10,149

Costs and expenses:

Operating

6,758

6,339

Selling, general and administrative

1,099

1,032

Depreciation and amortization

1,034

988

Restructuring

-

4

Expense from divestitures, asset impairments and unusual items, net

10

107

8,901

8,470

Income from operations

1,932

1,679

Other income (expense):

Interest expense, net

(272)

(282)

Equity in net losses of unconsolidated entities

(53)

(32)

Other, net

-

(53)

(325)

(367)

Income before income taxes

1,607

1,312

Income tax expense

561

466

Consolidated net income

1,046

846

Less: Net loss attributable to noncontrolling interests

-

(1)

Net income attributable to Waste Management, Inc.

$

1,046

$

847

Basic earnings per common share

$

2.37

$

1.91

Diluted earnings per common share

$

2.36

$

1.89

Basic common shares outstanding

440.3

444.3

Diluted common shares outstanding

443.3

447.1

Cash dividends declared per common share

$

1.275

$

1.23

 Nine Months Ended September 30, 

2017

2016

EPS Calculation:

Net income attributable to Waste Management, Inc.

$

 1,046

$

847

Number of common shares outstanding at end of period

434.2

442.0

Effect of using weighted average common shares outstanding

6.1

2.3

Weighted average basic common shares outstanding

440.3

444.3

Dilutive effect of equity-based compensation awards and other contingently issuable shares

3.0

2.8

Weighted average diluted common shares outstanding

443.3

447.1

Basic earnings per common share

$

 2.37

$

1.91

Diluted earnings per common share

$

 2.36

$

1.89

September 30,

December 31,

2017

2016

(Unaudited)

Assets

Current assets:

Cash and cash equivalents

 $

35

 $

32

Receivables, net

2,002

2,132

Other

263

212

Total current assets

2,300

2,376

Property and equipment, net

11,136

10,950

Goodwill

6,267

6,215

Other intangible assets, net

561

591

Other assets

685

727

Total assets

 $

20,949

 $

20,859

Liabilities and Equity

Current liabilities:

Accounts payable, accrued liabilities, and

deferred revenues

 $

2,409

 $

2,377

Current portion of long-term debt

850

417

Total current liabilities

3,259

2,794

Long-term debt, less current portion

8,495

8,893

Other liabilities

3,895

3,852

Total liabilities

15,649

15,539

Equity:

Waste Management, Inc. stockholders’ equity

5,278

5,297

Noncontrolling interests

22

23

Total equity

5,300

5,320

Total liabilities and equity

 $

20,949

 $

20,859

Nine Months Ended September 30,

2017

2016

Cash flows from operating activities:

Consolidated net income

 $

1,046

 $

846

Adjustments to reconcile consolidated net income to net cash

provided by operating activities:

Depreciation and amortization

1,034

988

Other

185

309

Change in operating assets and liabilities, net of effects of

acquisitions and divestitures

125

109

Net cash provided by operating activities

2,390

2,252

Cash flows from investing activities:

Acquisitions of businesses, net of cash acquired

(80)

(600)

Capital expenditures

(981)

(962)

Proceeds from divestitures of businesses

and other assets (net of cash divested)

19

32

Other, net

58

(20)

Net cash used in investing activities

(984)

(1,550)

Cash flows from financing activities:

New borrowings

122

2,536

Debt repayments

(749)

(2,210)

Net commercial paper borrowings

501

-     

Common stock repurchase program

(750)

(500)

Cash dividends

(566)

(546)

Exercise of common stock options

92

57

Tax payments associated with equity-based compensation transactions

(47)

(30)

Other, net

(7)

(18)

Net cash used in financing activities

(1,404)

(711)

Effect of exchange rate changes on cash and cash equivalents

1

-     

Increase (decrease) in cash and cash equivalents

3

(9)

Cash and cash equivalents at beginning of period

32

39

Cash and cash equivalents at end of period

 $

35

 $

30

Quarters Ended

September 30,

June 30,

September 30,

2017

2017

2016

Operating Revenues by Lines of Business

Collection

Commercial

  $

936

  $

917

  $

881

Residential

635

632

630

Industrial

673

654

633

Other

107

123

110

Total Collection

2,351

2,326

2,254

Landfill

884

864

831

Transfer

412

414

397

Recycling

375

375

325

Other

443

437

432

Intercompany (a)

(749)

(739)

(691)

Operating revenues

  $

3,716

  $

3,677

  $

3,548

Quarters Ended

September 30, 2017

September 30, 2016

.

Analysis of Change in Year Over Year Revenues

Amount

As a % of
Total Company

Amount

As a % of
Total Company

Average yield (i)

  $

133

3.8%

  $

74

2.2%

Volume

24

0.7%

53

1.6%

Internal revenue growth

157

4.5%

127

3.8%

Acquisition

12

0.3%

65

1.9%

Divestitures

(9)

-0.3%

(5)

-0.1%

Foreign currency translation

8

0.2%

1

0.0%

  $

168

4.7%

  $

188

5.6%

Amount

As a % of
Related
Business

Amount

As a % of
Related
Business

(i) Average yield

Collection and disposal

  $

61

2.0%

  $

60

2.1%

Recycling commodities

60

18.9%

25

8.7%

Fuel surcharges and mandated fees

12

10.0%

(11)

-8.5%

Total

  $

133

3.8%

  $

74

2.2%

Quarters Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Free Cash Flow Analysis (b) (c)

Net cash provided by operating activities

  $

856

  $

758

  $

2,390

  $

2,252

Capital expenditures

(350)

(333)

(981)

(962)

Proceeds from divestitures of businesses

and other assets (net of cash divested)

6

8

19

32

Free cash flow

  $

512

  $

433

  $

1,428

  $

1,322

(a)

Intercompany revenues between lines of business are eliminated within the Condensed Consolidated Financial Statements included herein.

(b)

The summary of free cash flows has been prepared to highlight and facilitate understanding of the principal cash flow elements. Free cash flow is not a measure of financial performance under generally accepted accounting principles and is not intended to replace the consolidated statement of cash flows that was prepared in accordance with generally accepted accounting principles.

(c)

Prior year information has been revised to reflect the adoption of ASU 2016-09 and conform to our current year presentation.

Quarters Ended

September 30,

June 30,

September 30,

2017

2017

2016

Balance Sheet Data

Cash and cash equivalents

  $

35

  $

32

  $

30

Debt-to-total capital ratio:

Long-term indebtedness, including current portion

  $

9,345

  $

9,057

9,261

Total equity

5,300

5,507

5,383

Total capital

  $

14,645

  $

14,564

  $

14,644

Debt-to-total capital

63.8%

62.2%

63.2%

Capitalized interest

  $

5

  $

3

  $

2

Acquisition Summary (a) 

Gross annualized revenue acquired

  $

16

  $

34

  $

23

Total consideration

  $

31

  $

48

  $

32

Cash paid for acquisitions

  $

29

  $

41

  $

28

Other Operational Data

Internalization of waste, based on disposal costs

65.6%

66.3%

65.8%

Total landfill disposal volumes (tons in millions)

28.7

29.0

28.0

Active landfills

247

247

248

Sites accepting waste at the end of each period presented

233

233

233

Amortization, Accretion and Other Expenses for Landfills Included in Operating Groups:

Landfill amortization expense -

Cost basis of landfill assets

  $

104.7

  $

104.4

  $

98.3

Asset retirement costs

23.4

32.8

18.7

Total landfill amortization expense (b) (c) 

128.1

137.2

117.0

Accretion and other related expense

20.0

19.5

19.6

Landfill amortization, accretion and other related expense

  $

148.1

  $

156.7

  $

136.6

(a)

Represents amounts associated with business acquisitions consummated during the indicated periods except for Cash paid for acquisitions, which may include cash payments for business acquisitions consummated in prior quarters.

(b)

The quarter ended September 30, 2017 as compared to the quarter ended June 30, 2017 reflects a decrease in amortization expense of approximately $9.1 million, primarily due to changes in landfill estimates identified in both quarters.

(c)

The quarter ended September 30, 2017 as compared to the quarter ended September 30, 2016 reflects an increase in amortization expense of approximately $11.1 million due to increased volumes and changes in landfill estimates identified in both quarters.

Quarter Ended
September 30, 2017

Quarter Ended
September 30, 2016

Adjusted Net Income and Diluted Earnings Per Share

After-tax
Amount

Per Share
Amount

After-tax
Amount

Per Share
Amount

Net Income and Diluted EPS, as reported

$

386

$

0.87

$

302

$

0.68

Adjustments:

Withdrawal from a multiemployer pension plan

7

0.02

-

-

Expense from divestitures, asset impairments and unusual items

5

0.01

72

0.16

Adjusted Net Income and Diluted EPS (a)

$

398

$

0.90

$

374

$

0.84

Quarter Ended
September 30, 2017

Quarter Ended
September 30, 2016

Adjusted Operating EBITDA and Adjusted Operating EBITDA as a
Percent of Revenues

Amount

As a% of
Revenues

Amount

As a% of
Revenues

Operating Revenues, as reported

$

3,716

$

3,548

Income from Operations, as reported

$

701

$

560

Depreciation and amortization

350

336

Operating EBITDA, as reported (b)

$

1,051

$

896

Adjustments:

Withdrawal from a multiemployer pension plan

11

-

Expense from divestitures, asset impairments and unusual items (c)

9

106

Adjusted Operating EBITDA (b)

$

1,071

28.8%

$

1,002

28.2%

Quarter Ended
September 30, 2017

Adjusted Tax Expense Reconciliation and Effective Tax Rate

Pre-tax Income

Tax Expense

Effective Tax
Rate (d)

As-reported amounts

$

603

$

215

35.7%

Adjustments:

Withdrawal from a multiemployer pension plan

11

4

Expense from divestitures, asset impairments and unusual items

9

4

As-adjusted amounts

$

623

$

223

35.8%

Quarter Ended
September 30, 2017

Quarter Ended
September 30, 2016

Adjusted Operating Expenses as a Percent of Revenues

Amount

As a% of
Revenues

Amount

As a% of
Revenues

Operating Revenues, as reported

$

3,716

$

3,548

Operating Expenses, as reported

$

2,302

61.9%

$

2,216

62.5%

Adjustment:

Withdrawal from a multiemployer pension plan

11