Waste Management, Inc.

Good day and thank you for standing by. Welcome to the WM fourth quarter 2022 earnings conference call. At this time, all participants 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 will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ed Eggle, Senior Director of Investor Relations.

Thank you, Josh. Good morning, everyone, and thank you for joining us for our fourth 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, Davina Rankin, Executive Vice President and Chief Financial Officer, and Tara Hammer, Senior Vice President and Chief Sustainability Officer. During their prepared comments, Jim will cover high-level financials and provide a strategic update, Dara will cover an operating overview, and Davina will cover the details of the financials. Following comments, Jim, John, Davina, and Tara will be available to answer questions. Before we get started, please note that we have filed a form, aka this morning, that includes the earnings press release and is available on our website at www.wm.com. In addition, we have published a supplemental presentation with additional information about our multi-year plan for investments in our renewable energy and recycling businesses, and it is also available on our form 8K and our website at investors.wm.com. The form 8K, the press release, the supplemental presentation, and the schedule 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 at the SEC, including our most recent form 10K. 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 fourth quarter of 2021. Net income, EPS, operating EBITDA and 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 operation. 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 reconciliation 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. To hear a replay of the call, access the WM website at investors.wm.com. Time-sensitive information provided during today's call, which is occurring on February 1st, 2023, 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. 2022 was another very successful year at WM. Coming into an uncertain 2022, I wouldn't have predicted that we would grow adjusted operating EBITDA by more than 9.5% for the year and 8.8% for the fourth quarter, all while recycling was down $59 million for the year on a sharp drop in commodity prices. That's exactly what happened. Strong operational execution and an unwavering commitment to our strategic priorities led to our full year adjusted operating EBITDA growth of $480 million. We achieved this tremendous growth in the face of elevated inflation, a tight labor market, and a downturn in the recycled commodity price market. So we're very proud of our results. Our robust operating EBITDA translated into record cash from operations of more than $4.5 billion, which allowed us to return more than $2.5 billion to our shareholders through dividends and share repurchases. As 2023 kicks off, we're confident that our long-term focuses on sustainable growth, transforming our business through technology and automation, are setting us up to meet the changing needs of our customers, our people, and our business environment while leveraging our competitive advantages. Turning to our high-level outlook for 2023, we expect to deliver adjusted operating EBITDA of between $5.825 and $5.975 billion in the year ahead, representing growth of just over 7% at the midpoint, which continues the trend of robust operating EBITDA growth that we've delivered since 2019. Since then, we've grown operating EBITDA almost 26%, and at a time when the economic outlook is increasingly uncertain, we're pleased to be anticipating another strong year of earnings growth in 2023. The essential nature of our service, our diverse customer base, and recurring revenue streams provide stability in times of economic uncertainty. Much of the growth in our 2023 outlook comes from deliberate steps that we've already taken to grow revenue and efficiently manage costs. Overall, we're anticipating between 40 and 80 basis points of adjusted operating EBITDA margin expansion in the year ahead, driven by our collection and disposal business. Moving now to our sustainability growth investments, let me give you an abbreviated overview of the supplemental deck that was posted to our investors' website. The investment in our renewable energy business is a unique opportunity that we simply couldn't afford to miss. You're all aware that since the passage of the Subtitle B and associated air quality regulations in the 1980s and 90s, landfill has been required to install gas collection systems. Historically, we've been collecting our landfill gas, converting much of it into electricity, which provides an earning stream for us. Fast forward to present day, with landfill gas designated as a renewable resource, we are increasing the value of the gas That's an inevitable byproduct of most landfills. These RNG plants are simply taking gas that's naturally produced from the landfill and converting it into a cash generating machine with a three-year projected payback and a far better environmental outcome than the status quo. And our returns far surpass those of our competition by virtue of our C&G fleet, which today represents 74% of our routed vehicles. As a result, were better positioned to close the loop and capture extremely valuable regulatory RIN credits. At the same time, the recently enacted Inflation Reduction Act will provide tax credits and benefits that serve to amplify the value creation of WM's renewable energy business. The supplemental presentation to the earnings press release provides details on the investments and our projections for cash flow and operating EBITDA growth. But suffice it to say, We view this as a very strong positive for shareholders. We have a number of attractive options for our renewable energy portfolio. Internally, we said there are three possible outcomes from this opportunity. Good, really good, or great. And we're heading down the great path by owning the landfill gas and renewable energy facilities, generating RENs through our CNG fleet, and maximizing the value of new tax benefits to increase the resulting earnings and cash flows. We're also advancing our planned recycling investments and have provided more details in the supplemental presentation on our website. Our portfolio of projects to automate existing and build new material recovery facilities have three key financial benefits. Reduced labor costs, improved product quality that commands a price premium, and capacity growth. In the fourth quarter, labor costs per ton at our single stream automated MRFs improved by 35%. The automation of these plants enabled us to reduce 137 positions through attrition in 2022, and in 2023, we expect to reduce labor dependence by another 200 positions. By the end of 2023, we're anticipating about a 15% increase in processing capacity from our automated facilities and new markets. We will host a virtual information session for investors on April 5th to provide even more insight into our recycling and Renewable Energy Growth Plans. Davina will discuss our 2023 capital allocation plans in more detail. But I want to emphasize our confidence in our ability to continue to allocate capital to all of our priorities, including investing in these high return sustainability growth projects, returning cash to shareholders through dividends and share purchases, and acquiring accretive businesses. In closing, I want to thank the entire WM team for another fantastic year. We look forward to 2023 as we continue to execute on our operating plans and progress our investments in renewable energy, recycling, and automation to drive growth. I'll now turn the call over to John to discuss our operational results.