Waste Management, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Waste Management Second Quarter 2020 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Ed Eggles, Senior Director, Investor Relations. Thank you. Please go ahead, sir.

Thank you, Marianne. Good morning, everyone, and thank you for joining us for our second quarter 2020 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, Executive 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 details of the financials. Before we get started, please note that we have filed a Form 8-K this morning that includes the earnings press release and is available on our website at www.wm.com. The Form 8-K, 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. We will also be discussing our updated financial outlook for 2020. This outlook excludes transaction and advisory costs and post-closing financial contributions resulting from our planned acquisition of Advanced Disposal Services Incorporated, which may be also referred to as ADS. Once we complete this acquisition, we expect to provide an updated outlook. All forward-looking 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 and subsequent Form 10-Qs. John 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. During the call, Jim, John, and Davina will discuss operating EBITDA, which is income from operations before depreciation and amortization. Any comparisons, unless otherwise stated, will be with the second quarter of 2019, Net income, EPS, operating EBITDA margin, and SG&A expense results have been adjusted to enhance comparability by excluding certain items that management believes do not fundamentally, that do not reflect our fundamental business performance or results of operations, including costs incurred in connection with the pending acquisition of ADS. These adjusted measures, in addition to free cash flow or non-GAAP measures. Please refer to the earnings press release in the tables, which can be found on the company's website at www.wm.com. for reconciliation to the most comparable gap measures and additional information about our use of non-gap measures and non-gap 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 August 13th. 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 today. and enter reservation code 9164328. Time-sensitive information provided during today's call, which is occurring on July 30, 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 for joining us. The strength and resilience of our business was clearly demonstrated in the second quarter as our results exceeded our expectations. At the outset of the quarter, governments and businesses across the continent were responding to the pandemic with stay-at-home orders and shutdowns of broad sections of the economy, resulting in sharp volume declines in our collection and disposal business. Our immediate priorities were protecting our employees and providing safe and reliable service to our customers and communities. With a framework in place to achieve those early priorities, we then focused on optimizing our business for the new environment, and we saw measurable improvements as we progressed through the quarter. Year-over-year declines in operating EBITDA in the collection and disposal business improved each month of the quarter as we were able to successfully flex down our operating costs, eliminate discretionary spending, and improve productivity. I'm extremely proud of our team. Clearly, the shutdown of the entire economy had a dramatic impact on the top line of our business. Yet even with a 10% decline in our second quarter revenues, our team was able to improve operating expenses as a percent of revenue by 30 basis points, hold SG&A expenses as a percent of revenue relatively flat, and most importantly, deliver 10 basis points of operating EBITDA margin expansion. As we progress through the third quarter, we are firmly confident in our operating model and are well positioned to deliver on the revised expectations we have for the remainder of the year. Our second quarter results prove that putting our people first so they can take care of our customers, communities, and the environment is the right approach to ultimately rewarding our shareholders. Putting people first is fundamental, not just to our ESG philosophy, but to our business strategy. On our first quarter call, we discussed the actions we took to protect our employees' health, safety, and financial well-being. We also took steps to support our customers, particularly the small and medium-sized businesses that have been impacted most adversely during the COVID-19 pandemic. We helped our customers right-size their service levels, temporarily paused price increases, extended payment terms, and gave a free month of service to qualifying open market small and medium business customers. While these actions had a short-term impact on our price metrics, we've strengthened our customer relationships and increased customer loyalty. Our customer churn for the second quarter was our lowest on record at 6.9%. We've also seen significant increases in our net promoter scores, a measure of customer loyalty Overall, second quarter net promoter scores increased 82%, and our commercial line of business score tripled. We are now turning our focus to the longer term to ensure that we come out of this pandemic a stronger, more differentiated company. At our investor day last year, we laid out our plan to continue to invest in technology to enhance our customers' experience with us and increase the lifetime value of a WM customer. At that time, we felt we had a strong plan to achieve some big technology wins over the next several years. However, during this pandemic, several things have become abundantly clear to us. First, our customer service digitalization investment, otherwise referred to as CSD, is unquestionably the right approach. This end-to-end digitalization of our entire customer experience, from the first customer contact to the service confirmation, will be unmatched. And as we've seen during COVID-19, the companies with a superior end-to-end online model will truly be differentiated in the post-COVID world. Second, it became very clear to us early in this pandemic that when we all move in unison as one organization towards the accomplishment of a goal, there is nothing we can't accomplish and accomplish quickly. No one within waste management thought we could move thousands of employees to a work-from-home environment in one week's time, but we did. This gave us confidence that we can be more ambitious and agile when it comes to technology advances. That's why we are now accelerating our efforts around CSD. Using the onboard units, the Smart Truck platform, and our data and analytics capabilities, all of which we've discussed for several years, we will seamlessly connect all the WM functions required to service our customers so we can give them a completely digitalized customer experience. This will put us on par with other great companies and other industries who have separated themselves through their own digitalization efforts. We'll have more details as we roll this out, but we expect to see some early wins this year. And finally, we're excited about the milestone we reached on the advanced disposal acquisition last month. At the end of June, we announced a revised agreement with ADS. Additionally, earlier this week, we and ADS introduced to an agreement to an amendment to the previously announced agreement with GFL Environmental. And GFL is now contracted to purchase all anticipated regulatory divestitures for $863.5 million. We expect both transactions to close by the end of the third quarter of 2020, once we receive regulatory approval and the approval of the ADS shareholders. With all the additional work we've done since the deal was announced in April of 2019, we're confident in our projection to achieve more than $100 million in synergies, even though divestitures are greater than we originally expected. We are looking forward to completing this transaction integrating the ADS team and operations, and creating long-term value for our shareholders as we add 3 million additional customers to our platform and service capabilities. Turning to our full-year outlook, our second quarter results, combined with the early stages of economic recovery, provide greater clarity for our 2020 financial results. This has allowed us to again provide full-year guidance based on current economic conditions and before the contribution from ADS. We now expect a revenue decline of between 4% and 5% when compared to 2019, adjusted operating EBITDA margin in the range of 28% to 28.5%, and free cash flow approaching $2 billion, again, completely exclusive of the impact from ADS. Our impressive cost flexing in the second quarter, combined with the recovery from the reopening of North America, both of which we anticipate will carry into the back half of the year, mitigates what certainly would have been a more significant impact from the pandemic. In closing, despite the challenging backdrop, we're confident in our ability to continue to meet our commitments to our customers and deliver solid 2020 results. During these unprecedented times, our business model has once again proven its resilience, and we remain focused on using this opportunity and our technology investments to create a differentiated customer experience that puts our customers at the center of everything we do to increase workplace flexibility for our people. With that, I'll turn the call over to John to discuss our operational results for the Corps.