Waste Management, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Waste Management 4th Quarter Full Year 2019 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. After the speaker's remarks, we will be opening lines for Q&A. To ask a question during the session, you will need to press star 1 on your telephone keypad. To withdraw a question, please press the pound key. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. It is now my pleasure to turn today's program over to Mr. Ed Eggle, Director of Investors Relations. Sir, please go ahead.

Thank you, Jay. Good morning, everyone, and thank you for joining us for our fourth quarter 2019 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 Davina will cover the details of the financials. 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. The form 8K, the press release, and the schedules for the press release include important information. During the call, you'll hear forward-looking statements which are based on current expectations, projections, or opinions about future periods. We will also be providing our outlook for 2020. This outlook does not include the impact of our planned acquisition of Advanced Disposal Services Incorporated, which we may also refer to as ADS. Once we complete this acquisition, we plan to provide an updated outlook. All 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 funds with the SEC, including our most recent Form 10-K. Jim and John will discuss our results in areas of yield and volume, which, unless otherwise stated, are more specifically references to internal revenue growth or IRG from yield or volume. In addition, beginning in the fourth quarter of 2019, we updated our calculation of core price. With advancements in technology, we collect additional transactional customer-level data, which provides us improved clarity of the impact of our pricing activities. While this does not change the year-over-year core price performance results, the new measure reflects a more precise calculation in evaluation of our revenue change. Please refer to the press release tables where we have provided two years of quarterly core price data using the new methodology. 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 it will also address operating EBITDA, which is income from operations before depreciation and amortization. Any comparisons, unless otherwise stated, will be with the fourth quarter of 2018. Net income, ETS, operating EBITDA and margin, operating expense and SG&A expense results have been adjusted and projected 2020 measures are anticipated to be adjusted to enhance comparability by excluding certain items that management believes do not reflect our fundamental business performance or results of operations, including costs incurred in connection with the pending acquisition of ADS. In prior quarters, the adjustment for ADS included the reduction of common stock repurchases from planned levels. We are no longer adjusting for this. These adjusted measures, in addition to free cash flow, are non-GAAP measures. Please refer to the earnings press release and tables, which can be found on the company's website at www.wm.com, for reconciliations to the most comparable GAAP measures and additional information about our use of non-GAAP measures and non-GAAP projections. This call is being recorded and will be available 24 hours a day, beginning approximately 1 p.m. Eastern time today until 5 p.m. Eastern time on February 27th. 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 855-859-7000. and enter reservation code 9977058. Time-sensitive information provided during today's call, which is occurring on February 13, 2020, may no longer be accurate at the time of a replay. Any redistribution, retransmission, or rebroadcast of this call in any form without the express written consent of Waste Management is prohibited. Now, I'll turn the call over to Waste Management's President and CEO, Jim Fish.

Thanks, Ed, and thank you all for joining us this morning. We're proud of how waste management performed in 2019. We continued our focus on optimizing our traditional solid waste business, developing our people, and investing in technology to better serve our customers. And we're confident these are the right focus points to deliver long-term growth for the company. The results are evident in our full-year top-line growth, which was 3.6%, despite a negative $318 million drag from commodity prices in our recycling line of business. and a negative $23 million swing from the sale of renewable energy credits. Landfill pricing was one of the bright spots in 2019 and is also a great example of what the Waste Management Organization can achieve when we have a shared focus. Together, the team achieved our best-ever full-year landfill MSW pricing in 2019 as we exceeded 3% MSW yield in every quarter, with each quarter surpassing the previous one, culminating in fourth-quarter MSW yield of 4.5%. We expect to continue to drive improved MSW pricing for the foreseeable future as our price increases keep pace with the increasing costs at our landfills. But we won't just focus on MSW pricing. We're pricing all our lines of business to ensure that we generate appropriate returns on invested capital, including our recycling and residential lines of business. John will share more about our 2020 plans for those two areas. The strong revenue growth that we generated in 2019 translated into robust operating EBITDA. Our collection and disposal business saw operating EBITDA grow by 8.5% and operating EBITDA margin expand by 70 basis points, both of which were better than we expected when we gave guidance at the beginning of the year. In 2019, our overall operating EBITDA grew by 4%, despite lower than expected market prices for recycled commodities and renewable energy credits. We also produced $4.40 of EPS in 2019. We're forecasting another record year in operating EBITDA in 2020 with growth of 5.2% at the midpoint of our guidance range. We expect to achieve this growth from continued strong performance in our collection and disposal business through a combination of price, volume, and cost controls. Last quarter, I spoke of a lack of visibility in our special waste pipeline. as we were seeing hesitation from some industrial customers in committing to event work. I'm pleased to report that we're seeing more companies commit to event work so far in the first quarter, and concerns of a recession around the industrial economy have mostly abated. We've been awarded a large coal combustion residual remediation project starting this spring with our well-positioned asset network and expertise. we've developed a strong reputation in managing all aspects of these clean closure projects. We expect that our differentiated service offerings will result in additional jobs throughout this year. Turning to free cash flow, we've said operating EBITDA is the best reflection of the health of our business and provides the foundation for generating free cash flow. 2019 was no exception as our robust operating EBITDA once again translated into exceptional free cash flow. We allocated more than $1.1 billion of that free cash flow to shareholder returns, growing our dividend for the 16th consecutive year. We also spent $527 million on acquisitions, an indicator of the active M&A environment we're in and our ability to complete transactions at targeted returns. Davina will discuss capital allocation in the year ahead, but suffice it to say, that we expect to continue to reward our shareholders in 2020 by allocating a substantial portion of our free cash flow back to shareholders. On the M&A front, obviously closing the advanced disposal acquisition is expected to be the highlight for the year. We are excited as we near the close of this transaction, and we have great confidence in the potential of the combined organization. We anticipate that we will obtain antitrust regulatory approval by the end of March and close soon thereafter. We've received a high level of interest from other companies in acquiring any potential businesses we might be required to divest, and we expect to complete the sale of any required divestitures shortly after the closure of our purchase of ADS. Our integration team has been working hard preparing for this close, and the team is positioned to move quickly to integrate ADS operations and to achieve our targeted synergies. Overall, the lead story at Waste Management and within the industry as a whole is one of consistency and predictability of earnings and cash flows resulting in excellent returns to shareholders. Davina will go through our guidance in detail, but we expect that consistency to continue into 2020 where we see a highly efficient customer and employee-centric core engine driving a continuation of what we've seen for the past three to four years. When you look at our annual financial results for 2017 to 2019, and now through our guidance for 2020, you'll see revenue growth in the three to four percent range, EBITDA growth in the four to five and a quarter percent range, and cash from operations, less CapEx, in the five to 12 percent range, all within the bands that we've communicated over the past three years. The amazing part about our results is that we have had some challenges in parts of our business, like recycling and renewable energy sales, yet the core business continues to churn out earnings and cash at a strong pace. This industry and this company in particular have been a model of strong, predictable results. With a very strong consumer segment of the economy and what appears to be a recovering industrial segment so far in the new year, We are confident that this rock-solid trend will continue. Lastly, I want to thank all of our hardworking team members who continue to make waste management both a great place to work and a fantastic long-term investment for our shareholders. With that, I'll turn the call over to John and Davina to discuss our results and our 2020 guidance in more detail.