Waste Management, Inc.

Good afternoon. Thank you for standing by. And welcome to the Waste Management National Service's first quarter 2021 earnings release. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone keypad. To withdraw a question, press the pound key. Please be advised, today's conference is being recorded. If you require any operator assistance, press star zero. I would now like to hand the conference over to Ed Eggle, Director of Investor Relations. Sir, I give it to you.

Thank you, Holly. Good morning, everyone, and thank you for joining us for our first quarter 2021 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 will hear prepared comments from each of them today. Jim will cover high-level financials and provide a strategic update. Dawn 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 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. 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 our filings with the SEC, including our most recent Form 10-K. John will discuss the results in the areas of yield and volume, which, unless stated otherwise, 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 first quarter of 2020. 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 reflect our 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 and tables, which can be found on the company's website at www.wm.com, for reconciliations to the most comparable gap measures and additional information of 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 May 11th. 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 1299110. Time-sensitive information provided during today's call, which is occurring on April 27, 2021, 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 Fisch.

Thanks, Ed, and thank you all for joining us. It was said many times last year that 2020 was a year like no other. For many reasons, it was an incredibly difficult and trying year. Yet our positive message internally was that great companies use tough times to better themselves, and that's precisely what WM did. And the first quarter of 2021 showed that with an exclamation point. We had an exceptionally strong start to the year as we kept our focus on those fundamentals that have always made us great. Our people first, then our customers, and then we focused on the details of our business. And that order inevitably produces the best results. In Q1, it sure did, as we achieved record operating EBITDA of $1.16 billion and robust cash from operations of $1.12 billion. Typically, during our first quarter earnings call, we reaffirm our full-year guidance. However, as we viewed these strong results, in addition to our confidence in the transformative changes we're making to our business model and the fact that we have yet to see a full recovery in our critical landfill commercial and industrial volumes, it became clear that we're on track to outperform our guidance from only two months ago. Combine this with the broader economic trends, and all indicators show that our full year revenue adjusted operating EBITDA, and pre-cash flow are on track to meet or exceed the upper end of the guidance ranges we provided in February. Davina will discuss our updated guidance, but it's safe to say we're very excited about our performance for the first quarter, and we expect to show continued strength throughout the year. We're seeing tangible benefits from the investments that we've made in recycling and renewable energy. In our recycling line of business, we've developed a model for all new plants, which with the addition of sophisticated technology produces far better returns through a combination of added efficiencies, a higher quality of saleable material, and less residual material for disposal at the end of the process. All while our basket of recycled commodity prices have climbed back nicely to historical average price levels. Additionally, three years ago, we made the decision to close the loop between our natural gas fleet and the gas produced at our landfills by investing in the renewable energy business. We're now seeing those investments pay healthy dividends with approximately two to three year paybacks on our four plants in tandem with greater stability and higher pricing in the renewable energy markets. As we discussed last quarter, WM is also well positioned to leverage our ESG leadership and particularly our focus on environmental sustainability to help our customers meet their own climate goals through recycling and other beneficial uses, such as renewable energy generation. We're in a unique position to help key stakeholders rise to the challenge, and we can do this while growing our business at the same time, collaborating with our stakeholders to find new ways to create value together. Continuing to integrate environmental sustainability into our strategic business framework for long-term sustainable and profitable growth requires strong focus, which is why we've taken the step to dedicate a member of our senior team to this effort. I'm pleased to announce that Tara Hemmer, Senior Vice President of Operations, will be taking this new role as Senior Vice President, Chief Sustainability Officer, reporting directly to me, effective July 1st. With Tara's move, our Area Vice President, leading the greater mid-Atlantic area, Rafa Carrasco, will be promoted to a member of the senior leadership team as senior vice president of operations. We've also launched a new exciting education benefit for our team members this month that will provide development and upskilling opportunities for our workforce. These changes underscore how the tenets of ESG are embedded into our broader business strategies. As digital transformation sweeps across nearly every industry in the wake of the pandemic, we're making strides in differentiating our customers' experience through end-to-end digital transformation. Today, our customers can manage their relationship with us through our online MyWM platform, which is connected operationally through our Smart Truck technology and supported by our customer analytics and data management tools. Our newly automated setup process streamlines customer orders and accelerates the speed at which we can deliver on our commitments while also reducing our cost to serve. These developments, combined with continued growth of our e-commerce channel, give us confidence that our decision to accelerate technology investments was the right one, and we will emerge from the pandemic a stronger, more agile company. In closing, I want to thank the entire waste management team for their hard work and dedication that has positioned us for a record setting 2021. WM is well positioned to benefit from the continued reopening as more states and provinces emerge from the pandemic, and we expect our commercial, industrial, and landfill businesses, our three most profitable lines of business, to benefit from further volume recovery and produce robust financial results with high incremental margins over the remainder of the year. I'll now turn the call over to John to discuss our operational results for the quarter. Thanks, Jim, and good morning. Before reviewing the terrific operating results that we achieved in the first quarter, I want to provide an update on the integration of ADS. Over the last six months, we've made significant progress on combining the two businesses, and we've been able to accelerate some of our integration plans. The teams have worked tirelessly to make sure that this combination goes smoothly, and based on the success of the integration so far, we are increasing our synergy expectations to $150 million of total annual run rate synergies, $130 million coming from operating costs and SG&A savings, and $20 million coming from capital savings. For 2021, we now expect synergies of between $75 and $85 million, all coming from cost savings. With approximately $15 million of annualized synergies captured in 2020, we expect to exit 2021 on an annual run rate synergy level of around $100 million. The remaining $50 million is expected to be captured in 2022 and 2023 from a combination of operating costs, SG&A, and capital expenditures. Turning to our first quarter results, organic revenue grew 2.1% as disciplined pricing and approved recycling results overcame modest volume declines. Pricing performance for the quarter was very solid, with both core price of 3.4% and collection and disposal yield of 2.8%, outpacing our expectations. Notably, our commercial yield rebounded sequentially from 3.1% to 3.1% from 1.9% in the fourth quarter. As economic reopening progressed during the first quarter, collection and disposal volumes improved again sequentially to a decline of 2.3% from 2.7% in the fourth quarter. In the first quarter, net new business turned positive, churn improved meaningfully to 8.2%, and service increases expanded. While volumes have recovered meaningfully from the second quarter of 2020, collection and disposal From the second quarter 2020 collection and disposal decline of 10.9%, as Jim pointed out, WMS positioned a benefit from further improvements in North American economies. For example, at the end of the first quarter, we had recovered about 72% of the commercial yards lost due to COVID, providing room for considerable improvement in commercial lines as we progress through the year. Similarly, Our other highest margin businesses, industrial and landfill, have volume upside opportunity as visibility into the economic reopening continues to improve and more event work is scheduled and completed. Looking at the lines of business, we're making improvements with the help of a very deliberate pricing focus, residential, landfill, and recycling. I'm happy to report that we have had standout performance in each of these areas during the quarter. Residential yield doubled year-over-year to 4.2% as we make strides to improve the profitability in this line of business. This is the highest residential yield we've achieved since 2008 and showcases our success in demonstrating the value of our service and pricing it appropriately. The increased yield drove operating EBITDA margins in the residential line of business to the highest level in the past 12 months, despite still elevated residential container weights. Landfill core price was 3.2%, a strong result when you consider the impact of lower volumes related both to the pandemic and severe winter weather. In recycling, operating EBITDA doubled year over year to achieve earnings that rank in our top five best quarters ever. These results are truly a reflection of our work to improve the business model while creating a sustainable solution for our customers, and not simply the result of an increase in recycled commodity prices. While our other top recycling quarters had an average commodity price of $127 per ton, we achieved our strong first quarter results with a price of $79 per ton. Finally, turning to costs, first quarter operating expenses as a percentage of revenue improved 130 basis points to 61.1%, demonstrating that we are maintaining our cost discipline as volumes recover. In the first quarter, we saw 40 basis point improvement in our labor costs as we continue to manage overtime spending. We also saw efficiency improvements in both the commercial and industrial lines of business, which we were able to identify and capture as our investments in technology helped make us nimbler. In closing, I want to thank the waste management team for the exceptional job they have done in managing our operations to position us for success in 2021. I'll now turn the call over to Davina to discuss her financial results in further detail.