The operator introduces the WM Fourth Quarter 2023 Earnings Conference Call and the speakers, including the Senior Director of Investor Relations, President and CEO, Executive Vice President and COO, and Executive Vice President and CFO. The speakers will cover high-level financials, strategic updates, operating overview, and financial details and outlook. A Form 8-K has been filed and contains important information. Forward-looking statements will be discussed, with risks and uncertainties mentioned. The results in yield and volume will be discussed, specifically in reference to internal revenue growth.

The WM team had a successful fourth quarter in 2023, with operating EBITDA increasing by 15%. This led to full-year operating EBITDA exceeding expectations and achieving the midpoint of original expectations. The strong financial results were driven by the collection and disposal business.

The company's disciplined organic revenue growth exceeded expectations and their focus on optimizing cost structure and executing sustainability growth projects has led to increased profitability. They anticipate continued growth in 2024, with a 7.7% increase in operating EBITDA, driven in part by their investments in renewable natural gas and recycling. The company remains confident in their ability to allocate capital to various priorities, including investing in sustainability projects, acquiring businesses, and returning cash to shareholders. They have a strong acquisition pipeline and anticipate heightened activity in this area in 2024.

The company is committed to acquiring companies in a disciplined manner to ensure appropriate returns, particularly in sustainability opportunities. The CEO thanks the team for their hard work and highlights their success at the WM Phoenix Open, which is recognized as the largest zero waste sporting event in the world. The company's operational performance in 2023 was strong, with a significant improvement in operating expenses in the fourth quarter. This was achieved through proactive measures such as leveraging technology and optimizing cost structures. As a result, the company's cost to serve metrics improved and estimated unit cost inflation was low.

The company's pricing initiatives and focus on reducing turnover have led to improved margins and operating expenses. Labor and repair and maintenance costs have also been effectively managed through automation and streamlining processes, resulting in lower expenses and improved fleet quality. The company expects these positive trends to continue in 2024.

The company's strong financial results were fueled by disciplined organic revenue growth, with pricing programs focused on maximizing customer lifetime value and increasing prices to cover higher costs. The company expects sustained momentum in its pricing programs in 2024, with core price and yield projected to increase. Volumes also saw growth, driven by MSW landfill and commercial collection, while residential collection volumes declined due to shedding low margin contracts. The company's focus on acceptable returns for all parts of the business has resulted in improved revenue and earnings in the residential collection line. Overall, organic revenue growth and operating EBITDA continue to be positive in all collection lines of business.

The company saw growth in new business and net services in the fourth quarter, with a positive outlook for 2024. The team's focus on cost optimization led to the company's best ever SG&A as a percentage of revenue. This was achieved through investments in technology and efficiency measures. The company also saw improvements in labor efficiency and maintenance costs, leading to a higher adjusted operating EBITDA margin. The CEO expressed appreciation for the frontline teams' efforts and their role in the company's success. The CFO will now discuss the 2023 financial results and 2024 financial outlook in more detail.

The company exceeded expectations in 2023, with a 30 basis point increase in margins and strong cash flow. They returned $2.44 billion to shareholders and made strategic investments while maintaining a strong balance sheet. For 2024, they anticipate 6-7% revenue growth and $450 million in operating EBITDA, with collection and disposal growth weighted towards the first half of the year and sustainability business growth towards the second half.

The company expects a balanced operating EBITDA growth for the year, with a total capital spending of $2.25 billion and an additional $875 million invested in sustainability growth projects. They remain committed to investing in renewable energy and recycling assets, with a projected contribution of $800 million in run rate adjusted operating EBITDA by 2026. The company is confident in the value of these projects and their potential to complement their existing business.

The speaker concludes by stating that the company has seen growth in 2023 due to their focus on optimizing their business, investing in technology and automation, and growing their leadership and sustainability. They express gratitude to their team members and open the line for questions. In response to a question about cost optimization and productivity efforts, the speaker explains that they have made progress in reducing labor dependency and are about 75% through their planned automation in the customer experience group, 40% through in truck deliveries, and 20% through in recycling plants. They are making great progress overall.

The speaker discusses the company's margins and labor in the fourth quarter and the opportunities they have for growth. They mention that the EBITDA margins will be more heavily weighted towards the front half of the year due to collection and disposal, while SG&A margin expansion will be even throughout the year. They also mention that the sustainability businesses will have some margin compression due to commodity prices, but they expect margin expansion in the back half of the year. The collection and disposal business is expected to have the most significant impact on margins in the year ahead.

The speaker announces a question from Bryan Burgmeier regarding the company's guidance for 2024. Burgmeier asks about the flat growth in collection and disposal yields and the reasons behind the strong pricing. The speaker responds that residential and disposal pricing showed increases and that pricing will continue to be a strength for the company. Burgmeier also asks about the event driven business and the speaker confirms that the guidance assumes a return of this business.

The company's outlook revision in the middle of the year was due to some softness in the special waste part of the business, but there was a strong recovery in the fourth quarter. They are expecting some momentum to carry over in the coming year, but not at an outsized level. However, there was a benefit from Hurricane Ian volumes in the first quarter of 2023 that will impact comparisons in 2024. In the fourth quarter, the company had an outstanding performance with margins over 30%, but their full-year guidance for 2024 is about 1 point lower. There are no one-off items in the fourth quarter that would impact margins, but the company wants to make sure they have room to execute in the coming year.

Rankin and James C. Fish discuss the company's margin expectations for the year ahead. They have confidence in their cost improvement work and truck deliveries, but are cautious due to weather impacts and inflationary pressures. They highlight the positive results in their repair and maintenance line and operating expenses. They believe it is prudent to be conservative in predicting full-year margins.

The company had a strong margin in Q4 and January, and there is some conservatism in their margin forecast for 2024 due to uncertainty in the economy and forecasting. The company is pleased with their performance and open to the option of monetizing some of their landfill gas assets, but there are multiple options available.

The company is pleased with the progress they are making on building new plants and have several at different stages of construction. The five plants set to come online in 2024 are expected to make a strong contribution to the business. The updated sustainability CapEx figures have increased due to inflation, primarily in renewable natural gas build and related supply chain costs. The new WM renewables segment reporting includes the impact of changes in commodity prices and likely includes a volume component.

The speaker provides further clarification on how the addition of the Eco Vista facility will impact the company's internal revenue growth calculations and segment reporting. They explain that the volume from new projects, including Eco Vista, will be reflected in the volume line, while the renewable energy business will pay a royalty to the collection and disposal business for landfill gas production. The speaker also mentions that the volume outlook of 1% only refers to collection and disposal volume, and the renewable energy business will see an increase in revenue.

In the upcoming year, the company expects a combined impact of 30 to 60 basis points on margins, attributed to changes in commodity prices and volume. The strong margins in Q4 were mainly due to efficiency in the collection and disposal business, as well as reductions in fuel costs. The company's efforts to reduce labor dependence and use technology have helped them achieve their aspirational metrics, with EBITDA margin, SG&A, and OpEx all close to their targeted levels. The team is proud of their execution and progress towards their goals.

The speaker expresses satisfaction with the company's progress in achieving their goals. They plan to continue setting higher goals, but are pleased with their current achievements. The speaker also discusses the company's margin and cost spread, mentioning that they have been able to drive operating efficiencies and reduce labor dependency. They also mention the positive impact of recycling and GDP on their performance.

The speaker adds some details to clarify some points mentioned by Michael. They mention that higher recycling prices can lower margins, and wage inflation is expected to be around 4% with additional spot increases. The company's outlook for GDP is muted, as there is still a lot of uncertainty. Michael asks about the potential for federal agencies to recognize the benefits of renewable natural gas and offer incentives, and the speaker responds by saying that they are optimistic about the future of RNG and the potential for credits to offset costs.

The federal government's decision to set a three-year RVO for 2023-2025 has brought stability to the program and is seen as a positive. There is some optimism regarding the ITC, with the expectation that Treasury will issue further guidance later this year. The company remains optimistic about the ITC and the production tax credit for 2025. In terms of housekeeping, the company has provided increased transparency in its reporting and will continue to evaluate whether to include more operational measures in the future.

The company is focused on strong reporting and wants the industry to follow suit. The K will be released early today and quarterly data will be provided throughout the year. The 2024 guidance assumes RINs at $3, with about two-thirds of off-take already locked in through a mix of long-term contracts and forward selling.

The company has a mix of contracts that range from five to 20 years. They are making incremental investments in sustainability, including two projects in Canada related to extended producer responsibility. These investments showcase their automation and differentiated assets, and they expect to win more business in the future. The timing for sustainability EBITDA is not specified.

Devina A. Rankin and James C. Fish discuss the impact of project delays on the company's trajectory in 2024 and 2026. They mention that there will be 40 projects under construction in 2024 and that the company will approach $300 million in run rate EBITDA by the end of that year. They also mention that supply chain constraints have contributed to a slowdown in 2022 and the first half of 2023, but that they are starting to see some relief. The next question asks about the company's acquisition expectations, and James C. Fish responds that their acquisition pipeline is robust.

The speaker discusses the challenges faced by companies they have acquired, including lack of succession plans and labor shortages. They mention their focus on organic growth projects before pursuing tuck-ins, and mention that they are catching up on renewing their fleet, with plans to be fully caught up by the end of 2024. They also mention the positive impact on their operating performance.

During a question and answer session, Tobey Sommer thanks the operator and asks for clarification on the updated sustainability investments and EBITDA profile up to 2026. Kevin Chiang asks for confirmation on the 90% free cash flow conversion from EBITDA into free cash flow mentioned at the Sustainability Investor Day. Devina A. Rankin cannot confirm the exact number but states that the free cash flow conversion in these businesses is stronger due to lower maintenance capital. Chiang also asks about the two facilities in Canada related to EPR and the potential for more investments in cycling facilities across Canada and in the United States. Tara J. Hemmer confirms that the two facilities are in Ontario and they are actively tracking EPR legislation in both Canada and the United States.

During a conference call, James Schumm from TD Cowen asked a question about the monetization of D-3 RINs credits. Tara J. Hemmer from WM explained that their company has a unique advantage because they have their own fleet of compressed natural gas vehicles, which allows them to close the loop and produce renewable natural gas. This enables them to monetize and create RINs without giving up any of their value. Hemmer also clarified that they get the full value of the RINs and are actively looking at forward selling them.

The speaker discusses the company's presence in the hazardous waste industry and their efforts to grow this business. They mention their national coverage and strong network of transportation assets, particularly in the Southeast and Gulf Coast regions. The speaker also mentions that the price cost spread has improved in 2023 and they hope to maintain this trend in the future.

The speaker discusses the price cost spread in 2022 and 2023, noting that inflation may affect it. They also mention their control over wage inflation and predict that the price cost spread will stay similar in 2024. They then address the risk of commodity price variability and assure investors that they have methods to lock in prices. They also mention the risk of permitting and construction delays and express confidence in managing this risk.

The company has implemented a fee-for-service model and locked in contracts for 95% of its recycling business, which has helped insulate it from commodity price fluctuations. The company is also working towards a goal of 80% of its renewable energy volume being locked in within one year, and currently has a third of its off-take already secured. The company is confident in its project timelines and expects to hit its targets for 2024. The expected EBITDA from RNG has been adjusted to $510 million, compared to the previously projected $500 million without e-RINs and third-party projects.

The speaker discusses a $10 million increase in the target for the renewable natural gas business and mentions that it is partially due to two new projects in Canada. They also mention being proud of the quarter and year and look forward to the future.

This summary was generated with AI and may contain some inaccuracies.