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Waste Management Announces Second Quarter Earnings

July 25, 2019 7:07 AM

Strength of Collection and Disposal Business Drives Overall Revenue Growth of More Than 5%

Company Reaffirms Guidance

HOUSTON--(BUSINESS WIRE)-- Waste Management, Inc. (NYSE: WM) today announced financial results for its quarter ended June 30, 2019. Revenues for the second quarter of 2019 were $3.95 billion compared with $3.74 billion for the same 2018 period. Net income for the quarter was $381 million, or $0.89 per diluted share, compared with $499 million, or $1.15 per diluted share, for the second quarter of 2018.(a) On an adjusted basis, in the second quarter of 2019, net income was $470 million, or $1.11 per diluted share.(b) On an adjusted basis, in the second quarter of 2018, net income was $438 million, or $1.01 per diluted share.(b)

This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20190725005367/en/

2019 Q2 Earnings Overview (Graphic: Business Wire)

2019 Q2 Earnings Overview (Graphic: Business Wire)

The Company’s adjusted second quarter of 2019 results exclude: a $0.15 per diluted share loss on the early extinguishment of debt, $0.04 per diluted share of non-cash charges to write-off certain assets, and $0.03 per diluted share related to the planned acquisition of Advanced Disposal Services, Inc.

The Company’s adjusted second quarter of 2018 results exclude a $0.07 per diluted share tax benefit related to income tax audit settlements and a net $0.07 per diluted share benefit primarily related to the gain on divestiture of an ancillary business.

“Our employees continued to produce outstanding results in the second quarter, underpinned by organic revenue growth in the collection and disposal business of more than 7%,” said Jim Fish, President and Chief Executive Officer of Waste Management. “We leveraged growth in our collection and disposal business to expand operating EBITDA margins by 60 basis points.”

KEY HIGHLIGHTS FOR THE SECOND QUARTER OF 2019

Profitability

Revenue Growth

Recycling

Cost Management

Free Cash Flow & Capital Allocation

Taxes

Fish concluded, “Through the first six months of 2019 we are on track to achieve our full-year goals. In the second half of 2019, we expect that our collection and disposal business will continue to generate strong earnings and more than offset an anticipated decline in our recycling business from depressed commodity prices. Despite our updated expectation for a full-year recycling headwind of $0.01 to $0.02 per diluted share we are reaffirming our full-year 2019 guidance of adjusted earnings per diluted share of $4.28 to $4.38, adjusted operating EBITDA of $4.40 to $4.45 billion, and free cash flow of $2.025 to $2.075 billion.” (b)

-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(a)

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

(b)

Adjusted earnings per diluted share, adjusted net income, adjusted operating EBITDA, adjusted operating expenses, adjusted SG&A expenses and free cash flow are non-GAAP measures. Please see “Non-GAAP Financial Measures” below and the reconciliations in the accompanying schedules for more information.

(c)

Management defines operating EBITDA as GAAP income from operations before depreciation and amortization; this measure may not be comparable to similarly-titled measures reported by other companies.

(d)

Core price consists of price increases net of rollbacks and fees, excluding the Company’s fuel surcharge. It is a performance metric used by management to evaluate the effectiveness of our pricing strategies; it is not derived from our financial statements and may not be comparable to measures presented by other companies. Core price is based on certain historical assumptions, which may differ 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 a.m. (Eastern) today to discuss the second quarter 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 4598118 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) today through 5:00 PM (Eastern) on Thursday, August 8, 2019. 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 4598118.

ABOUT WASTE MANAGEMENT

Waste Management, based in Houston, Texas, is the leading provider of comprehensive waste management environmental services in North America. Through its subsidiaries, the Company provides collection, transfer, disposal services, and recycling and resource recovery. 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.

FORWARD-LOOKING STATEMENTS

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 2019 earnings per diluted share; 2019 operating EBITDA; 2019 free cash flow; and all statements regarding future performance of our collection and disposal business, recycling business or otherwise. 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 the acquisition of Advanced Disposal Services, Inc. or other acquisitions; failure to obtain the results anticipated from the acquisition of Advanced Disposal Services, Inc. or other acquisitions; environmental and other regulations; commodity price fluctuations; international trade restrictions; disposal alternatives and waste diversion; declining waste volumes; failure to develop and protect new technology; failure of technology to perform as expected; preventing, detecting and addressing cybersecurity incidents; 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 negative outcomes of litigation or 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 as updated by our subsequent quarterly reports on Form 10-Q, for additional information regarding these and other risks and uncertainties applicable to its 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.

NON-GAAP FINANCIAL MEASURES

To supplement its financial information, the Company, in some instances, has presented adjusted earnings per diluted share, adjusted net income, adjusted operating EBITDA, adjusted operating expenses, adjusted SG&A expenses and free cash flow, and has also presented projections of adjusted earnings per diluted share, adjusted operating EBITDA, and free cash flow; these are non-GAAP financial 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.

The Company’s projected full year 2019 earnings per diluted share, and operating EBITDA are anticipated to exclude the effects of events or circumstances in 2019 that are not representative or indicative of the Company’s results of operations. Such excluded items are not currently determinable, but may be significant, such as asset impairments and one-time items, charges, gains or losses from divestitures or litigation, and other items, including transaction costs related to the pending acquisition of Advanced Disposal Services, Inc. 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 or operating EBITDA to the comparable GAAP measures.

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 GAAP measure. The Company believes free cash flow gives investors useful insight into how the Company views its liquidity, but 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 and projected operating EBITDA. Non-GAAP measures should not be considered a substitute for financial measures presented in accordance with GAAP.

WASTE MANAGEMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Millions, Except per Share Amounts)

(Unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

2019

2018

2019

2018

Operating revenues

$

3,946

$

3,739

$

7,642

$

7,250

Costs and expenses:

Operating

2,443

2,313

4,741

4,497

Selling, general and administrative

391

365

800

738

Depreciation and amortization

409

384

775

731

Restructuring

—

1

2

3

(Gain) loss from divestitures, asset impairments and unusual items, net

7

(39)

7

(42)

3,250

3,024

6,325

5,927

Income from operations

696

715

1,317

1,323

Other income (expense):

Interest expense, net

(100)

(93)

(196)

(184)

Loss on early extinguishment of debt

(84)

—

(84)

—

Equity in net losses of unconsolidated entities

(16)

(13)

(25)

(20)

Other, net

1

—

(53)

1

(199)

(106)

(358)

(203)

Income before income taxes

497

609

959

1,120

Income tax expense

115

110

230

226

Consolidated net income

382

499

729

894

Less: Net income (loss) attributable to noncontrolling interests

1

—

1

(1)

Net income attributable to Waste Management, Inc.

$

381

$

499

$

728

$

895

Basic earnings per common share

$

0.90

$

1.16

$

1.71

$

2.07

Diluted earnings per common share

$

0.89

$

1.15

$

1.70

$

2.06

Weighted average basic common shares outstanding

424.8

429.9

424.6

431.6

Weighted average diluted common shares outstanding

427.5

432.3

427.2

434.1

WASTE MANAGEMENT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Millions)

(Unaudited)

June 30,

December 31,

2019

2018

ASSETS

Current assets:

Cash and cash equivalents

$

2,250

$

61

Receivables, net

2,260

2,275

Other

326

309

Total current assets

4,836

2,645

Property and equipment, net

12,665

11,942

Goodwill

6,512

6,430

Other intangible assets, net

547

572

Other

1,426

1,061

Total assets

$

25,986

$

22,650

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable, accrued liabilities and deferred revenues

$

2,730

$

2,676

Current portion of long-term debt

116

432

Total current liabilities

2,846

3,108

Long-term debt, less current portion

12,623

9,594

Other

4,050

3,672

Total liabilities

19,519

16,374

Equity:

Waste Management, Inc. stockholders’ equity

6,466

6,275

Noncontrolling interests

1

1

Total equity

6,467

6,276

Total liabilities and equity

$

25,986

$

22,650

WASTE MANAGEMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Millions)

(Unaudited)

Six Months Ended

June 30,

2019

2018

Cash flows from operating activities:

Consolidated net income

$

729

$

894

Adjustments to reconcile consolidated net income to net cash provided by operating activities:

Depreciation and amortization

775

731

Loss on early extinguishment of debt

84

—

Other

195

57

Change in operating assets and liabilities, net of effects of acquisitions and divestitures

117

102

Net cash provided by operating activities

1,900

1,784

Cash flows from investing activities:

Acquisitions of businesses, net of cash acquired

(440)

(263)

Capital expenditures

(1,049)

(836)

Proceeds from divestitures of businesses and other assets (net of cash divested)

20

96

Other, net

(96)

(7)

Net cash used in investing activities

(1,565)

(1,010)

Cash flows from financing activities:

New borrowings

3,971

83

Debt repayments

(385)

(196)

Premiums paid on early extinguishment of debt

(84)

—

Net commercial paper borrowings (repayments)

(1,001)

443

Common stock repurchase program

(248)

(550)

Cash dividends

(440)

(406)

Exercise of common stock options

45

33

Tax payments associated with equity-based compensation transactions

(30)

(28)

Other, net

(6)

(26)

Net cash provided by (used in) financing activities

1,822

(647)

Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents

2

(1)

Increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents

2,159

126

Cash, cash equivalents and restricted cash and cash equivalents at beginning of period

183

293

Cash, cash equivalents and restricted cash and cash equivalents at end of period

$

2,342

$

419

WASTE MANAGEMENT, INC.

SUMMARY DATA SHEET

(In Millions)

(Unaudited)

Operating Revenues by Line of Business

Three Months Ended

Six Months Ended

June 30,

June 30,

2019

2018

2019

2018

Commercial

$

1,052

$

986

$

2,078

$

1,941

Residential

655

632

1,295

1,246

Industrial

744

708

1,424

1,345

Other

122

115

231

216

Total collection

2,573

2,441

5,028

4,748

Landfill

1,023

915

1,887

1,720

Transfer

474

437

886

812

Recycling

264

305

555

617

Other

445

439

876

866

Intercompany (a)

(833

)

(798

)

(1,590

)

(1,513

)

Total

$

3,946

$

3,739

$

7,642

$

7,250

Internal Revenue Growth

Period-to-Period Change for the

Period-to-Period Change for the

Three Months Ended

Six Months Ended

June 30, 2019 vs. 2018

June 30, 2019 vs. 2018

As a % of

As a % of

As a % of

As a % of

Related

Total

Related

Total

Amount

Business(b)

Amount

Company(c)

Amount

Business(b)

Amount

Company(c)

Collection and disposal

$

87

2.7

%

$

169

2.7

%

Recycling commodities

(41

)

(14.2

)

(66

)

(11.3

)

Fuel surcharges and mandated fees

2

1.1

7

2.3

Total average yield (d)

$

48

1.3

%

$

110

1.5

%

Volume

146

4.0

263

3.7

Internal revenue growth

194

5.3

373

5.2

Acquisitions

59

1.6

116

1.6

Divestitures

(40

)

(1.2

)

(82

)

(1.2

)

Foreign currency translation

(6

)

(0.2

)

(15

)

(0.2

)

Total

$

207

5.5

%

$

392

5.4

%

Period-to-Period Change for the

Period-to-Period Change for the

Three Months Ended June 30, 2019 vs. 2018

Six Months Ended June 30, 2019 vs. 2018

As a % of Related Business(b)

As a % of Related Business(b)

Yield

Volume

Yield

Volume(e)

Commercial

2.3

%

2.7

%

2.3

%

2.5

%

Industrial

4.2

1.2

4.2

2.1

Residential

3.3

(0.4

)

3.5

(0.5

)

Total collection

3.0

1.7

3.1

1.9

MSW

3.6

6.1

3.5

6.0

Transfer

3.4

6.5

3.1

7.3

Total collection and disposal

2.7

4.4

2.7

4.3

__________________________
(a)

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

(b)

Calculated by dividing the increase or decrease for the current year period by the prior year period’s related business revenue adjusted to exclude the impacts of divestitures for the current year period.

(c)

Calculated by dividing the increase or decrease for the current year period by the prior year period’s total Company revenue adjusted to exclude the impacts of divestitures for the current year period.

(d)

The amounts reported herein represent the changes in our revenue attributable to average yield for the total Company.

(e)

Workday adjusted volume impact.

WASTE MANAGEMENT, INC.
SUMMARY DATA SHEET
(In Millions)
(Unaudited)
Free Cash Flow (a)

Three Months Ended

Six Months Ended

June 30,

June 30,

2019

2018

2019

2018

Net cash provided by operating activities

$

1,010

$

975

$

1,900

$

1,784

Capital expenditures

(578)

(436)

(1,049)

(836)

Proceeds from divestitures of businesses
and other assets (net of cash divested)

8

82

20

96

Free cash flow

$

440

$

621

$

871

$

1,044

Three Months Ended

Six Months Ended

June 30,

June 30,

2019

2018

2019

2018

Supplemental Data
Internalization of waste, based on disposal costs

66.6%

66.1%

66.4%

65.7%

Landfill amortizable tons (in millions)

32.5

29.7

60.4

55.9

Acquisition Summary (b)
Gross annualized revenue acquired

14

10

119

168

Total consideration , net of cash acquired

41

17

435

266

Cash paid for acquisitions consummated during the period,
net of cash acquired

40

15

431

258

Cash paid for acquisitions including contingent consideration
and other items from prior periods, net of cash acquired

48

21

442

269

Amortization, Accretion and Other Expenses for Landfills:

Three Months Ended

Six Months Ended

June 30,

June 30,

2019

2018

2019

2018

Landfill amortization expense:
Cost basis of landfill assets

$

133

$

113

$

243

$

213

Asset retirement costs

28

33

45

53

Total landfill amortization expense

161

146

288

266

Accretion and other related expense

25

25

50

49

Landfill amortization, accretion and other related expense

$

186

$

171

$

338

$

315

(a)

The summary of free cash flow 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.

(b)

Represents amounts associated with business acquisitions consummated during the applicable period except where noted.

WASTE MANAGEMENT, INC.
RECONCILIATION OF CERTAIN NON-GAAP MEASURES
(In Millions, Except Per Share Amounts)
(Unaudited)
Three Months Ended
June 30, 2019
Income from
Operations		 Pre-tax
Income (a)		 Tax
Expense		 Net
Income (b)		 Diluted
Per Share
Amount
As reported amounts

$

696

$

496

$

115

$

381

$

0.89

Adjustments:
Loss on early extinguishment of debt _

84

20

64

0.15

Non-cash charges to write-off certain assets

23

23

6

17

0.04

Advanced Disposal acquisition-related costs (c)

6

9

1

8

0.03

As adjusted amounts

$

725

$

612

$

142

$

470

$

1.11

Depreciation and amortization

409

Adjusted operating EBITDA

$

1,134

Three Months Ended
June 30, 2018
Income from
Operations		 Pre-tax
Income		 Tax
Expense		 Net
Income (b)		 Diluted
Per Share
Amount
As reported amounts

$

715

$

609

$

110

$

499

$

1.15

Adjustments:
Benefit primarily related to the gain on divestiture of an ancillary business

(38)

(38)

(10)

(28)

(0.07)

Tax benefit related to income tax audit settlements _ _

33

(33)

(0.07)

As adjusted amounts

$

677

$

571

$

133

$

438

$

1.01

Depreciation and amortization

384

Adjusted operating EBITDA

$

1,061

2019 Projected Free Cash Flow Reconciliation (d)

Scenario 1

Scenario 2

Net cash provided by operating activities

$

3,675

$

3,775

Capital expenditures

(1,750)

(1,750)

Proceeds from divestitures of businesses and
other assets (net of cash divested)

100

50

Free cash flow

$

2,025

$

2,075

___________________________________________________________
(a)

Pre-tax income excludes $1 million related to net income attributable to noncontrolling interests.

(b)

For purposes of this press release table, all references to "Net income" refer to the financial statement line item "Net income attributable to Waste Management, Inc."

(c)

Includes impact of reducing our common stock repurchases in 2019 from planned levels due to the pending acquisition of Advanced Disposal Services, Inc. ("Advanced Disposal").

(d)

The reconciliation includes two scenarios that illustrate our projected free cash flow range for 2019. The amounts used in the reconciliation are subject to many variables, some of which are not under our control and, therefore, are not necessarily indicative of actual results.

WASTE MANAGEMENT, INC.
RECONCILIATION OF CERTAIN NON-GAAP MEASURES
(In Millions, Except Per Share Amounts)
(Unaudited)
Three Months Ended
June 30, 2019 June 30, 2018
Adjusted Operating Expenses and Adjusted Operating Expenses Margin Amount As a % of
Revenues		 Amount As a % of
Revenues
Operating revenues, as reported

$

3,946

$

3,739

Operating expenses, as reported

$

2,443

61.9

%

$

2,313

61.9

%

Adjustment:
Non-cash charges to write-off certain assets

16

Adjusted operating expenses

$

2,427

61.5

%

Three Months Ended
June 30, 2019 June 30, 2018
Adjusted Selling, General & Administrative (SG&A) Expenses and Adjusted SG&A Margin Amount As a % of
Revenues		 Amount As a % of
Revenues
Operating revenues, as reported

$

3,946

$

3,739

SG&A expenses, as reported

$

391

9.9

%

$

365

9.8

%

Adjustment:
Advanced Disposal acquisition-related costs

6

Adjusted SG&A expenses

$

385

9.8

%

Waste Management

Web site

www.wm.com

Analysts

Ed Egl

713.265.1656

[email protected]

Media

Andy Izquierdo

832.710.5287

[email protected]

Source: Waste Management, Inc.

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