Waste Management, Inc.

Good day and thank you for standing by. Welcome to the Waste Management Third Quarter 2021 Earnings Release Conference Call. At this time, all participants are in the listen-only mode. After the speaker's 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 Ed Eggle. Thank you. Please go ahead.

Thank you, Erica. Good morning, everyone, and thank you for joining us for our third 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. John will cover an operating overview. And Davina will cover the details of the financials. Before we get started, please note that we 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. 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 files with the SEC, including our most recent Form 10-K as updated by our subsequent Form 10-Q filings. John will discuss our results in 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 third quarter of 2020. Net income, EPS, operating EBITDA and margin, operating expenses, and SD&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 GAAP measures and additional information of our use of non-GAAP measures and non-GAAP projections. 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 November 9th. 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 6835518. Time-sensitive information provided during today's call, which is occurring on October 26, 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 Fish.

Thanks, Ed, and thank you all for joining us. Our third quarter performance highlighted the exceptional cash generation capability of our business model as we generated nearly $1.2 billion of cash from operations. Our solid results put us on track to meet the higher full-year financial outlook we provided last quarter, even as we face some of the highest inflation that we've seen in years, along with the labor and supply chain constraints. Virtually no segment of the economy, including government and the private sector, has been unaffected by these historically acute inflationary and supply chain challenges. This burst of inflation accelerated through the third quarter, and during the quarter, we saw roughly $60 million of labor inflation and about $100 million of inflation in other operating cost categories. Overall, our underlying labor inflation for the third quarter was 8.7%. So that's the tough news. The good news is... that the business continues to perform well, as demonstrated by the fact that we still expect to finish the year within our previously adjusted operating EBIT raise, adjusted operating EBITDA, and free cash flow guidance ranges, and we will be above our prior revenue range due to strong price execution and strengthening volumes. John Devine and I will discuss what we're doing about these labor and inflationary pressures in the short term and the medium term. Not surprisingly, Our discipline price programs are the primary lever to combat cost inflation. Our pricing programs delivered core price of 4.6% and collection and disposal yield of 3.5% in the third quarter. Standout performance continues to be the residential line of business with yield of 5% while MSW yield improved to 3.5%. But keep in mind that price escalations on about 40% of our revenue are tied to an index. often based on a look back over the prior year. So there's a timing lag in adjusting index pricing when costs step up as quickly as they have. And it's important to understand that a portion of the remaining 60% of our business won't get the full 7% to 10% price increases we believe we need to cover rising costs until their next price increase cycle. A customer who has increased 4% in May won't get the full cost recovery price increase until next May. That said, we're seeing a favorable price environment across our open market businesses, evidenced by our lowest level of rollbacks in more than a decade. We're very focused on directly addressing the labor challenges. John will discuss the quarterly impact and how we're working to address this immediately. Strategically, we're looking at this acute challenge as an opportunity to expedite the automation of certain jobs. We've said previously that we view the automation of certain high turnover positions as both a competitive advantage and a de-risking mechanism in today's labor market where certain jobs simply don't attract the interest they previously did. The most recent examples of that are the customer setup role, which we just finished fully automating, and the 35 plus percent reduction in labor we've seen where we've upgraded and rebuilt our single stream recycling plants. Given the success of these rebuilds and the labor inflation challenges of late, we've accelerated the retooling of the remaining single-stream plants and expect to address 90% of single-stream volume by the 2023-2024 timeframe. In the quarter, we saw some of the positive impacts of those new single-stream plants in our outstanding performance in our recycling business. Earnings contribution and margins for recycling were at their highest level ever, driven by strong demand for recycled material and great operating performance from the new state-of-the-art MERS. We were equally pleased with the results in our renewable energy business in the quarter, where robust growth continued, driven by more rents and sales at higher prices. With our longstanding expertise, continued growth in sustainability solutions, and unrivaled asset network, WM is uniquely situated to support our current and prospective customers in their evolving sustainability needs. Our customers are increasingly seeking circular solutions for their materials, which is causing growing demand for recycled content. Of note, our focus on unlocking more plastic from the waste stream drove a 25% increase in plastics we recycled since 2019. Recycling and renewable energy are two of our key growth areas highlighted in our annual sustainability report published earlier this month. The report outlines the progress WM has made against our sustainability goals and details investments we've made to advance our sustainability journey. In particular, this year's report focuses on the people behind the progress WM has made in the past year and how they are doing their part to take care of our customers, neighbors, and the environment and communities across North America. The bottom line for the quarter is this. We generated a higher than expected volume in revenue growth in the third quarter, which positions us well for 2022. At the same time, we faced an unexpectedly acute and fast-moving challenge from the inflation, supply chain, and labor shortage headwinds. And we managed our way through it well and still expect to achieve results within our 2021 guidance ranges. And this challenge presents an opportunity for us to move more decisively in those strategic areas of automation, sustainability, and workforce planning to further separate ourselves in this industry. In conclusion, I'd like to thank the nearly 50,000 people behind WM's success. They continue to deliver, driving another quarter of double-digit growth in revenue, operating EBITDA, and free cash flow. I'll now turn the call over to John to discuss our operational results for the quarter.