Waste Management, Inc.

Thank you for standing by and welcome to the WM Second Quarter 2022 Earnings Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentations, there will be a question-and-answer session. To ask a question at that time, press 2-star-1-1 on your touch-tone telephone. At this time, I'd like to turn the call over to your host, Ed Eggle, Senior Director of Investor Relations. Please go ahead.

Thank you, Valerie. Good morning, everyone, and thank you for joining us for our second quarter 2022 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 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 of 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 of the SEC, including our most recent Form 10-K. John will discuss our results in the areas of yield and volume, which, unless stated otherwise, are more specifically references to internal revenue growth, or IRG, from yields or volume. During the call, Jim, John, and Davida 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 2021. Net income, EPS, operating EBITDA on margin, and operating and SG&A expense results have been adjusted to enhance comparability by schooling 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 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. To hear or replay the call, access the WM website at www.investors.wm.com. Time-sensitive information provided during today's call, which is occurring on July 27, 2022, 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 WM is prohibited. Now I'll turn the call over to WM's President and CEO, Jim Fish.

Thanks, Ed, and thank you all for joining us. The strength and resiliency of our business was clearly on display in the second quarter as we built on our first quarter momentum to deliver results that exceeded our expectations. Our teams remain focused on recovering inflationary cost pressures with our strongest ever core price and yield results. Our pricing results combined with volume growth and sustainability contributions drove quarterly revenue above $5 billion for the first time. our robust revenue growth translated into adjusted operating EBITDA growth of 7.8%, which is above the upper end of our long-term growth profile of 5% to 7%. Cash from operations remained strong in the second quarter, positioning us to return more than a half billion dollars of cash to our shareholders to bring the year-to-date total of shareholder returns to more than a billion dollars. You'll hear more details from Davina, but our strong start to the year gives us confidence to increase our 2022 outlook for revenue, adjusted operating EBITDA, and free cash flow. In the second quarter, we continue to see strong volumes, an encouraging sign for economic activity across the areas we serve. Currently, our key business indicators point to continued positive economic activity. That said, WM is well positioned in any economic environment. Our resilient business model is underpinned by our diverse customer base, the essential nature of our service, and the annuity-like characteristics of about 75% of our revenue. We continue to advance our long-term strategic priorities of providing the best workplace for our employees, investing in technology and automation that differentiates WM and permanently reduces our cost to serve, and leveraging our sustainability platform for growth. Investing in making WM a great place to build a career while also reducing our labor dependency through attrition and automation together position us to navigate this tight labor market. In our sustainability growth journey, we achieved two exciting milestones in the second quarter. We opened our fifth WM-owned and operated RNG plant in Oklahoma, the first of the 17 new RNG facilities we announced that are expected to add 21 million MMBtu of RNG to our renewable energy portfolio by 2026. We expect to complete construction on the next RNG facility by the end of the year. On the recycling front, we brought online our Houston MRF, the sixth redesigned recycling facility utilizing advanced technology to reduce labor and improve product quality. Our advanced technology MRFs are yielding tangible benefits, resulting in about a 30% labor cost savings per ton compared to the rest of the single stream network. In the second half of the year, we expect to open two additional advanced technology recycling facilities and enter a new recycling market, keeping us on track to meet our recycling investment goals. I want to take a moment to discuss our capital allocation priorities, particularly related to M&A. Our strong operating EBITDA growth has allowed us to absorb the $4.6 billion acquisition of advanced disposal and quickly return our balance sheet to pre-ADS leverage levels. We consider a typical M&A year to be between $100 and $200 million of acquisitions. This year, we have the strongest pipeline we've had in a long time and expect to close between $300 and $400 million of acquisitions. We will remain disciplined in our approach to traditional solid waste tuck-in and recycling acquisitions to maintain our strong financial position and generate industry-leading returns. Our cash generation plus our strong balance sheet affords us the ability to allocate capital to our priorities, investing in organic growth and sustainability initiatives, predictably growing our dividends, completing accretive acquisitions, and returning cash through share purchases. In conclusion, I want to thank the entire WM team for their hard work and dedication. I'm excited about the remainder of 2022 as we continue to deliver our commitments to our team members, customers, communities, and shareholders. I'll now turn the call over to John to discuss our operational results for the quarter. Thanks, Jim, and good morning, everyone. Once again, we achieved exceptional organic revenue growth in the second quarter, led by collection and disposal yield of 6.2%. Our pricing accelerated sequentially as we continue to address persistent inflationary cost pressures throughout the business. Second quarter core price increased 20 basis points from the first quarter to a record 7.5%. Core price was strong across every line of business, and we had standout performance of 10.6% in our industrial business and 9.4% in our commercial business. Customer receptivity to our pricing remained strong as second quarter churn adjusted for the intentional loss of an unprofitable national account contract was 9%. time value. Our teams continue to be focused on discipline pricing in the second half of the year, and we now expect 2022 core price up more than 7%, and collection and disposal yield approaching 6%. Key indicators in our business continue to signal healthy economic activity in the quarter. Second quarter collection and disposal volume grew 2.3%, with commercial volumes growing 1.6%, and special waste volumes up more than 19%. Additionally, new business exceeded lost business, and service increases continue to outpace service decreases by a wide margin. Second-half volumes are expected to remain strong, and for the full year, we expect collection and disposal volume growth of about 2.5%. Our teams remain focused on controlling operating costs. Adjusted operating expenses were 62.4% of revenue in the second quarter, 130 basis point increase from the second quarter of 2021. The year-over-year increase in operating expenses as a percentage of revenue was largely driven by fuel and commodity price impacts. 70 basis points from higher fuel costs, 30 basis points related to the alternative fuel tax credits received in 2021 that have not yet been renewed for 2022, and 30 basis points from the impact of higher commodity prices on our recycling brokerage business. In the second quarter, we again saw high single-digit inflation in our costs, and we are managing through this with both pricing and cost controls. Our core price is recovering our cost of inflation in each line of business, except residential, where the impacts of higher labor costs are most pronounced. In that line of business, our conversion of approximately 2,000 railroad routes to automated side loaders will both reduce labor and significantly improve efficiency. This is one of the ways we are investing in technology to reduce our dependency on certain high turnover positions. Additionally, early results from our pilot programs to fully optimize our roll-off routes are showing efficiency gains in the range of high single to low double-digit percentage increases. As we move into the second half of the year, we expect inflationary cost pressures to ease on a year-over-year basis, given the proactive steps we took to raise frontline wages in the second half of 2021. As Jim mentioned, we're excited about growth opportunities in our recycling and renewable energy businesses, and both businesses continue to deliver strong results. Together, recycling and renewable energy contributed $19 million of operating EBITDA growth in the second quarter. The recycling business is on track to deliver results on par or modestly higher than the record earnings we achieved in 2021. Our blended average recycling stream commodity price was $131 per ton in the second quarter, And we continue to expect a full year average of $125 per ton. In the renewable energy business, better pricing for renewable natural gas, electricity, and environmental credits is driving our full year outlook for this business higher than our original guidance by $35 million to $45 million. Overall, our second quarter results exceeded our expectations as we demonstrated our ability to execute on our discipline pricing programs and manage costs. I'm extremely proud of how the entire WM team worked together to provide safe and reliable service to our customers. I'll now turn the call over to Davina to discuss her financial results in further detail.