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Text: You'll 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 Devina will cover the details of the financials.
John will discuss our results in the areas of yield and volume, which unless otherwise stated, are more specific references to internal revenue growth or IRG from yield or volume.
During the call, Jim, John, and Devina 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 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.
wm.com for reconciliations to the most comparable GAAP measures and additional information about our use of non-GAAP measures and non-GAAP projections.
Time-sensitive information provided during today's call, which is occurring on July 27, 2021, may no longer be accurate at the time of a replay.
Last quarter, we were feeling very good about the prospects for the year when we announced our Q1 results and raised our full-year guidance.
Now more than halfway through the year, all parts of our business have performed well above those revised expectations.
In the second quarter, we achieved an operating EBITDA of $1.31 billion, which we converted into strong cash from operations of more than $1 billion.
First and foremost, this superb performance is a result of our outstanding core business model.
In addition, this performance was driven by our continued focus on providing our customers with exceptional service, offering our employees a great place to work, and driving sustainability through our business model.
Our very strong results, in addition to our confidence in the transformative changes we're making to our business model, led us to increase our full-year guidance once again.
The size of our revisions in each of these first two quarters clearly demonstrates the earnings-producing potential of our strategy.
In the back half of the year, we expect continued strong volume, pricing that offsets inflationary pressures and record results from our commodity-based businesses.
With all of this powerful momentum, we now expect to generate 2021 adjusted operating EBITDA of at least $5 billion with free cash flow of at least $2.5 billion, all while continuing to make growth investments in our sustainable solutions and technology platforms.
At the core of these strong results is our recycling business, which is central to our sustainability and business strategy.
Our efforts to improve the recycling business, combined with robust demand for recycled commodities, led to second quarter delivering the recycling business' best ever financial performance by a considerable margin.
We've made substantial progress in derisking our recycling business by shifting to a fee-for-service contract structure, which has lifted the floor for recycled returns and created an economically sustainable business model.
We've also made significant technology investments to improve the cost structure and grow the business.
At our automated facilities, labor costs were 35% lower in the second quarter compared to our other single-stream MRFs.
These investments not only lower operating costs and improve plant efficiency but also allow us to adjust our equipment to respond to evolving end-market demands.
For example, we're now segregating out specific plastics that in the past were sold as a bundled lower-priced bales, reacting quickly as markets evolve for new recycled commodity types.
The capability to efficiently sort these materials allows us to extract more value for these commodities as demand increases for recycled material.
Overall, our investment in recycling technology -- our investments in recycling technology are generating solid returns, and we are accelerating our plans to roll out this new operating model across our MRF network.
Sustainability has been a central part of our strategy for many years, so I want to take some time to highlight how we're advancing our sustainability journey.
At the beginning of the month, Tara Hemmer transitioned into her new role as senior vice president and chief sustainability officer, bringing together our sustainable solutions and ESG efforts under one umbrella.
We believe this strong focus is critical to continuing to integrate environmental sustainability and social responsibility into a strategic business framework.
Our supply chain goals, which include increasing our spending, both with sustainable and diverse suppliers, are examples of how this focus is integrated in our day-to-day operations.
Next month, we're hosting a supplier diversity initiative called Share the Green, which will give women-owned businesses the opportunity to become a supplier for one or more of the 45 companies participating in the event.
This three-day nationwide event will provide great opportunities for diverse businesses and help participating companies to secure excellent suppliers.
And finally, we continue to make real progress on our digital transformation to differentiate our customers' experience.
In the past, I've mentioned our automated setup process that streamlines customers' orders and reduces our cost to serve.
Through our advanced technology, we're eliminating nearly all manual steps in setting up a customer account, allowing the setup to occur almost instantaneously after an order is processed.
This will save us several million dollars annually, improve setup accuracy and increase customer satisfaction.
This more accurate setup of customers also helps us to auto-route these customers, which increases operational efficiency and will optimize routes without manual processing.
We are now connecting our advanced technologies to automatically insert 90% of our new commercial customers into existing routes, reducing our cost to serve and improving our speed to service.
Our customer and digital teams continue to enhance the capabilities of our digital tools to provide a unique and engaging experience for our customers while, at the same time, connecting this front-end experience to our operational systems to allow for improved efficiency and lower costs.
We expect that these investments in technology will continue to benefit us for many years to come.
In conclusion, strong performance across all of our businesses, collection and disposal, recycling, and renewable energy generated outstanding results so far this year.
Our focus on disciplined pricing and cost management helped to offset the inflationary cost pressures that we've seen.
And we expect to continue this focus into the second half of the year to help us deliver on our newly revised outlook.
We're pleased with the excellent second-quarter results we achieved across our business.
We produced exceptional EBITDA growth of almost 24% in the collection and disposal business as the economy continues to recover from the pandemic's steepest impacts in the second quarter of 2020.
Collection and disposal volume climbed 9.6% in the quarter, which exceeded our expectations.
And our focus on disciplined pricing programs produced a substantive second-quarter collection and disposal yield of 3.7%.
Turning more specifically to our volume results.
Robust recovery in our highest-margin businesses, commercial, industrial, and landfill, drove our very strong performance.
In the second quarter, commercial and MSW volume reached pre-pandemic levels, and industrial volumes recovered to levels just shy of those before the pandemic.
While we're very pleased with the pace of volume recovery thus far, there remains opportunity for further volume improvement in the second half of the year from key areas of our business, including industrial, special waste, and certain geographies such as Canada.
Additionally, pockets of our commercial business, such as education and offices, have yet to fully recover.
For the full year, we now expect organic volume in the collection and disposal business to grow 2.5% or more.
Pivoting to price, our second-quarter results further demonstrate the focus the entire team has on overcoming our cost headwinds as well as improvements following the intentional customer-focused steps we took in the second quarter of 2020.
This focus is particularly evident in our residential core price of 5.4%, landfill core price of 4.7% and transfer core price of 3.4%.
We continue to be committed to pricing programs that are aligned with our cost structure, which is even more important as we see pressure on labor, transportation, supplies, and capital costs.
Our new full-year outlook for collection and disposal yield is 3.7% or greater.
Our strong revenue growth was also supported by great results in our customer metrics.
Churn was 8.8% in the quarter, and service increases outpaced service decreases by more than twofold.
Additionally, we increased our net customer growth rate, driven by the optimization of our sales force and investments in technology.
Looking at operating costs.
Second-quarter operating expenses as a percentage of revenue improved 10 basis points to 61.1%, demonstrating that we are continuing to manage our cost as volumes recover even in the face of inflationary cost pressures.
It's no surprise to anyone who follows economic indicators that most businesses are experiencing inflation in their costs throughout 2021, and our business is no exception, particularly with regard to labor.
We expect to overcome these pressures by increasing operating efficiencies and executing on our disciplined pricing programs.
There's no silver bullet when it comes to attracting and retaining talent, and we are using a multifaceted approach that includes addressing wages, offering flexible schedules, and broadening benefits.
Our long-term focus is on keeping our people first so that we are the employer of choice.
Overall, inflation trends are something we are watching very closely and managing very proactively with our area, supply chain, and revenue management teams.
We continue to make progress on the integration of the Advanced Disposal operations.
To date, we've combined around 45% of the ADS operations into our billing and operational systems, which has allowed us to capture synergies and provide additional services to those customers.
We are on track to migrate virtually all the ADS customers by the end of the year.
Year to date, we have achieved more than $30 million of annual run-rate synergies, and we expect cost synergies of between $80 million and $85 million in 2021.
This will bring the annual run-rate synergies to around $100 million at the end of 2021, and we continue to forecast another $50 million to be captured in 2022 and 2023 from a combination of cost and capital savings.
And finally, as Jim mentioned, our recycling team set new highs in the second quarter with record contributions to earnings and margins.
We also achieved strong growth in our renewable energy business as we generated and sold more RINs and sold them at higher prices.
We've made significant investments in these businesses in recent years, and we're pleased with the strong returns they're generating.
Our people really are the foundation of our success.
And with that, I'll hand off to Devina to discuss our financial results in further detail.
Our team once again delivered a strong performance in the second quarter.
Robust volume growth since last year's peak pandemic impact, dynamic pricing efforts, record recycling results, disciplined integration of the ADS business, and our continued focus on cost management combined to deliver 28% operating EBITDA growth and 50 basis points of operating EBITDA margin expansion.
As Jim mentioned, these outstanding results and our confidence in the continued strength of our business model have led us to raise our 2021 financial guidance yet again.
Full-year revenue growth is now expected to be 15.5% to 16%, with organic growth in the collection and disposal business of 5.5% or greater.
For adjusted operating EBITDA, we expect to generate between $5 billion and $5.1 billion, an increase of $225 million at the midpoint from the original guidance we provided in February.
Our business is exceeding the strong outlook we established at the beginning of the year on a number of fronts.
Volume has recovered, particularly in the commercial collection business at a faster rate than we expected.
Market values for recycled commodities and RINs have increased.
Our integration of the ADS business has generated more synergy value.
And certain of our technology investments focused on reducing our cost to serve have delivered more savings than planned.
While the bridge from our initial guidance to the current guidance has a number of puts and takes, the most significant drivers have accelerated price and volume recoveries in the collection and disposal business of about $135 million; improved recycling profitability of another $135 million; renewable energy increases of about $55 million; and additional ADS synergies of around $25 million.
These increases are partially offset by elevated cost inflation and incentive compensation costs that we currently estimate to be about $125 million.
The increase in adjusted operating EBITDA guidance is expected to translate directly into incremental free cash flow, and we now expect that we will generate between $2.5 billion and $2.6 billion of free cash flow for the year.
Turning to our second-quarter results.
SG&A was 9.6% of revenue in the second quarter, a 30-basis-point improvement over 2020.
This result demonstrates our success-making incremental technology investments that will benefit our customer engagement and cost to serve over the long term.
At the same time, we're realizing benefits from the integration of ADS and returns on certain of our new technology solutions.
We also continue to focus on managing our discretionary spending to optimize our costs.
Second-quarter net cash provided by operating activities grew more than 20%.
This increase was driven by our extremely strong operating EBITDA growth.
There was an unfavorable working capital comparison in the second quarter, but we attribute that to timing differences in tax payments and cash received from CNG credits.
We are encouraged to see continued progress on our DSO and DPO measures.
In the second quarter, capital spending was $396 million, bringing capital expenditures in the first half of 2021 to just over $665 million.
While capital spending in the first half of the year was expected to be less than the prior year due to timing differences in truck delivery schedules, our 2021 pace of capital expenditures has been slower than we planned.
The slower pace is due to supply chain and labor constraints impacting some of our vendors, and we've made deliberate decisions to defer spending in some categories as we observe what we expect to be temporary dislocation in certain markets.
To offset these delays, we're proactively pulling forward capital investments in areas we can and also where we know the returns will be strong.
As Jim mentioned, we're in the process of accelerating recycling investments as we have strong proof points of technology and equipment upgrades, reducing the cost structure of the business, and improving delivered quality of processed materials.
We continue to target full-year capital spending within our $1.78 billion to $1.88 billion guidance range.
In the first half of 2021, our business generated free cash flow of $1.5 billion, a conversion from operating EBITDA of 61%.
This very strong result positions us well to achieve our new higher free cash flow outlook even as we target capital spending increases in the second half of the year.
Our capital allocation priorities continue to be a strong balance sheet, prudent investment in the growth of our business and strong and consistent shareholder returns.
In the second quarter, we paid $242 million in dividends and allocated $250 million to share repurchases.
Our leverage ratio of 2.84 times has improved even more quickly than expected due to our strong operating EBITDA growth, and it's tracking well toward our target leverage of 2.75 times by the end of the year.
At the same time, our robust cash generation in the first half of the year positions us to increase our full year share repurchase expectation up to our full $1.35 billion authorization.
With this increase, we expect our weighted average share count for the full year to be approximately 422 million shares.
The successes of the first half of 2021 position WM to deliver on our commitments to our people, our customers, the communities we serve, and our shareholders.

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total company revenue growth in 2021 is expected to be 15.5% to 16.0%.
free cash flow is projected to be between $2.5 billion and $2.6 billion in 2021.
adjusted operating ebitda is expected to be between $5.0 billion and $5.1 billion in 2021.

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