Waste Management, Inc.

Good morning. My name is Thea, and I will be the conference operator today. At this time, I would like to welcome everyone to the Waste Management Fourth Quarter and Full Year 2018 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question at that time, simply press star and the number one on your telephone keypad. If you would like to withdraw the question, press the pound key. Thank you. At this time, I would like to turn it over to Ed Eggle, Director of Investor Relations. Please go ahead, sir.

Thank you, Thea. Good morning, everyone, and thank you for joining us for our fourth quarter 2018 earnings conference call. With me this morning are Jim Fish, President and Chief Executive Officer, John Morris, Executive Vice President and Chief Operating Officer, and Davina Rankin, Senior 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 an operating overview. And Divina will cover the details of the financials, including guidance for 2019. Before we get started, please note that we have filed a Form 8K this morning that includes the earnings press release and is available on our website at www.wm.com. Form 8K, the press release, and the schedules for 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. Such 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. Jim and Davina will discuss our results in the areas of yield and volume, which, unless otherwise stated, are more specifically references to internal revenue growth, or IRG, from yield or volume. All four top quarter volume results discussed are on a workday-adjusted basis. During the call, Jim and Davina will discuss our earnings per diluted share, which they may refer to as EPS or earnings per share, and they will also address operating EBITDA, which is income from operations before depreciation and amortization, and operating EBITDA margin. Any comparisons, unless otherwise stated, will be with the fourth quarter of 2017. Net income, effective tax rate, EPS, income from operations, EBITDA for both the fourth quarter and full year of 2018 and 2017 have been adjusted to enhance comparability by excluding certain items that managers believe do not reflect a 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 footnote and schedules, 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 the use of our non-GAAP measures. This call is being recorded and will be available 24 hours a day beginning at approximately 1 p.m. Eastern Time today until 5 p.m. Eastern Time on February 28th. To hear a replay of the call over the Internet, access the Waste Management website at www.wm.com. To hear a telephonic replay of the call, dial 855-859-2056 and enter reservation code 6496795. Time sensitive? Information provided during today's call, which is occurring on February 14, 2019, will no longer be accurate at the time of a replay. Any redistribution, retransmission, or re-broadcast of this call in any form without the express written consent of Waste Management is prohibited. Now I'll return the call over to Waste Management's President and CEO, Jim Fish.

Thanks, Ed, and thank you all for joining us this morning. At this time last year, I was telling you that 2017 was arguably the best year we've seen. I'm pleased to report that 2018 results were even better. Through our continued focus on customer experience, our cost management, and our price discipline, to name a few, we had a great year. For the year, the business produced a record high in operating EBITDA, which is the best reflection of the health of our business. We grew operating EBITDA by more than 5% in spite of the strongest recycling headwinds we've seen in over a decade. Overall, in 2018, we produced $4.20 per of EPS, another year of double-digit improvements. Davina will cover our 2019 guidance in more detail, but we are forecasting another record year in operating EBITDA this year, with our growth rate expected to be about 5%. Included in our 2019 forecast is our expectation that the strong recycling headwinds from last year will turn into a tailwind, thanks to our focused efforts on reducing operating costs on our plants and charging fees for contamination. To the extent that waste management is a good proxy for the overall U.S. economy, our 2019 guidance of another record year in operating EBITDA clearly demonstrates the strength of our own business and of the economy as a whole. As we mentioned, operating EBITDA is the best reflection of the health of our business and our strong growth translated into the strongest free cash flow we've seen ever, with the exception of 2014 when we sold our waste energy business. We allocated close to 90% of that free cash flow to shareholder returns, growing our dividend for the 15th consecutive year and spending $1 billion on share of purchases. We also spent $466 million on acquisitions, an indicator of the active M&A environment we're in and our ability to complete transactions at our targeted returns. In 2018, we continue to focus on our people, disposal optimization, technology, and profitable growth, all while delivering exceptional customer service. Our strong 2018 results validate that our execution on our focused differentiation and continuous cost improvement strategies drive strong growth in our business, and we expect further progress in 2019. Our strategic direction in 2019 will look very much like 2018 as we move forward with a cultural transformation that places waste management employees at the head of the class in terms of focus and importance. In December, we announced the hiring of our Chief Human Resources Officer, Tamra Osborne, who was formerly an HR executive at GE. Tamla is moving forward quickly in putting world-class processes in place, upgrading talent, and helping to direct this valuable cultural shift at waste management. Similarly, after only 15 months under the leadership of Nikolai Schokvist, our new digital team is beginning to show how our investment in operating, customer-facing, and back-office technologies, as we migrate towards more agile cloud-based systems, can serve to differentiate waste management going forward and propel profitable growth. Lastly, on the strategic front, our 2019 Sustainability Forum, which was held two weeks ago in conjunction with the Waste Management Phoenix Open, broke all previous forum attendance records and built on our message of sustainability that is collectively good for the environment, good for our customers, and good for our investors. That's best demonstrated by the shift in our fleet from higher cost, higher emission diesel trucks to quieter, much cleaner burning, lower cost, CNG trucks. To complement and aid the shift towards sustainability and benefit from the geographic breadth of our landfill assets, waste management is investing in high-return renewable energy plants at our landfills in 2019 and beyond. This investment provides an avenue to close the loop between our renewable energy plants and CNG fleet, creating favorable returns for the company. Our strategic focus on people, technology, and growth through a superior customer experience is moving waste management from a leader in the waste business to being a leader in the Fortune 250. That was no better acknowledged than with our recent recognition by Fortune as one of the world's most admired companies. Finally, as part of our strategic growth plan, we will continue to invest in acquisitions that surpass our return criteria and create value for our shareholders. Our pipeline looks robust, and there are plenty of opportunities to invest in acquisitions at a rate similar to what we achieved in 2018. So in 2019, we expect another year of above-average M&A activity. To that point, you may have seen that we recently received our Scott Rodino antitrust clearance to proceed with the acquisition of landfill assets in West Texas. We will be buying these assets at an operating EBITDA multiple well below the are trading multiple and we're excited about a core waste management service offering. We hope to close in March and we will provide additional details once the deal is closed. In summary, our hardworking employees made 2018 a very successful year and we expect to see strong growth again in 2019. We will continue to make investments in our employees in technology and in capital equipment this year to further grow our business improve customer service, and generate strong returns. We're confident that these investments will position us well for 2019 and into the future. And with that, I'll turn the call over to John and Davina to discuss our results and our 2019 guidance in more detail. Thanks, Jim, and good morning. We're very pleased with our fourth quarter results as we executed extremely well on our core price disciplines growth strategies. Our industry-leading organic revenue growth continued to drive strong income from operations and operating EBITDA growth, both around 7% in the fourth quarter. Throughout 2018, and particularly in the second half of the year, we've been very focused on our pricing programs to overcome inflationary cost pressures and grow margins. As we continue to experience cost pressures in 2019, particularly labor, transportation, and landfill operating costs, we will ensure that these increases are being passed along to our customers so that we can continue to generate appropriate returns and grow margins. This strategy is best demonstrated by our collection line of business. We generate strong growth in 2018 and expect that trend to continue into 2019. As we think about the year ahead in our collection line of business, we expect to see the benefit from our investments in people, fleet, and technology. First, as Jim mentioned, focusing on our people is the most important priority in 2019. Last year, we invested a portion of our tax savings in our employees, and this year, in addition to upgrading and automating our fleet, we will continue to invest in our employees through proactive wage increases, facility improvements, and additional training at our new driver and technician training facility, which will open in the first half of this year. In regard to fleet investment, 2018 truck purchases and further fleet investments planned in 2019 are beginning to drive meaningful improvement in our maintenance costs. By the end of 2019, we expect to have over 60% of our routed vehicles running on natural gas. And we know there is a significant maintenance savings with natural gas as compared to diesel trucks as they age. 2018 proved to be another solid year with respect to our efforts around continuous improvement and modernizing the work environment for our employees. We believe the steps we're taking to move towards an automated fleet will continue to drive not only safety performance, which is paramount, but also efficiency and employee retention. This was again validated with several recent contracts that we were able to convert from the traditional rear load model to an automated side load service offering. we recognized almost immediate improvement in all those critical elements of our performance. We're also advancing our fleet strategy through partnerships with the truck manufacturers to implement the same safety technology we have on many of our cars today. We're looking to implement features like lane departure warnings, brake assist, and collision detection that are worthwhile for enhanced safety alone, and they have the added benefit of making our operations more efficient as we avoid lost time and costs associated with incidents. Finally, the use of technology is important to the continued growth of our collection business. We've been collecting and using data from the technology on our vehicles to anticipate and respond to our customers' growth and needs. This is translating into lower customer churn, volume growth above U.S. economic levels, and it's creating value for our customers and shareholders. Looking at our disposal network, as we have discussed, we have the best position assets in North America, but we are seeing cost pressures from our third-party haulers at our transfer stations and higher landfill operating costs. We're focused on disposal pricing opportunities that will continue to create healthy margin in a rising cost environment. In addition, we look to continue to make technology investments, like our pilot with Caterpillar for remote operated equipment that will continue to increase the returns on these valuable assets. Turning to recycling, we performed well in the fourth quarter as a direct result of our continued focus on improving operating costs, restructuring of municipal contracts, and successfully battling contaminations. In 2019, we will look to continue to improve on recycling by investing in the MER for the future to further improve operating costs and optimizing our plants by being thoughtful about meeting our customers' requirements. In addition, we will continue making progress on reducing contamination, assessing fees to cover our cost of service, and reduce costs of managing materials. Lastly, we closed on an above-average amount of acquisitions in 2018, and as Jim mentioned, the pipeline looks strong for 2019. Integrating these acquisitions is a key priority for our operating teams to ensure that we manage costs, extract the value of these transactions, and deliver superior service to our customers. I'm excited about the future opportunity for waste management as we believe that focusing on our people, optimizing our disposal network, better using technology, and growing our business will provide strong returns for many years to come. I'll now turn the call over to Davina to further discuss our financial results in 2019 Outlook.