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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, including our 2021 outlook.
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 fourth quarter of 2019.
Net income, EPS, operating EBITDA and margin and SG&A expenses have been adjusted to enhance comparability by excluding certain items that management believes do not reflect our fundamental business performance or results of operations, including costs incurred in connection with our fourth-quarter acquisition of Advanced Disposal Services or ADS.
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 February 18, 2020, may no longer be accurate at the time of a replay.
We're extremely pleased with our fourth quarter and our full-year 2020 results.
In many ways, our fourth quarter was a continuation of our strong third-quarter performance.
Once again, despite the impacts from the pandemic, our team delivered strong and consistent operating EBITDA in the fourth quarter that exceeded the fourth quarter of 2019.
If you set aside the $38 million of operating EBITDA contribution from ADS and the $60 million fuel tax credit benefit in the fourth quarter of '19 versus 2020, our legacy WM operating EBITDA grew 4% versus Q4 of 2019.
This was our seventh consecutive quarter to generate operating EBITDA of more than $1 billion, showcasing the strength and consistency of our business.
As with the third quarter, our fourth-quarter operating EBITDA margin was impressively strong at 28.1% when you consider that it included 50 basis points of dilution from ADS.
For the full year, 2020 matched our highest annual operating EBITDA margin of 28.4%.
And excluding ADS, we set a new record with 2020 operating EBITDA margin of more than 28.5%.
So in a year where many companies have suffered significant financial impacts from the pandemic and resulting economic crisis, at Waste Management, the resilience of our people and our business model delivered full-year 2020 results within one and a half percent of our record-high 2019 operating EBITDA.
As we look to 2021, in addition to the strong, continuous improvement measures we're taking in our collection and disposal business, WM is in a perfect position to leverage our focus on ESG and our accelerated investments in technology to benefit all of our constituents, employees, customers, shareholders, communities and the environment.
WM made the decision in March to accelerate technology spending, and we're more confident than ever that our investments in customer service digitalization, or CSD, are the right approach to propel us forward in the post-COVID world.
We've made considerable progress toward transforming our business model by seamlessly connecting the front-end customer experience to our back-end processes.
Our online sales channel is growing at a triple-digit rate.
Most importantly, we're receiving positive feedback from our customers.
In 2021, the value creation of CSD will step up as we further differentiate our service to our customers, automated -- automate manual processes and drive further efficiencies and reliability in our operations.
On the ESG front, WM has emerged as a true leader in sustainability, and we're doing so in a manner that will benefit both shareholders and the environment.
Possibly like no other year, this year's WM Phoenix Open pointed to our ability to demonstrate our expertise and leverage our brand recognition for sustainability.
This was highlighted during our Sustainability Forum panel discussion with two other ESG-focused CEOs, Satya Nadella of Microsoft and Doug McMillon of Walmart.
His note was flattering personally to me, but it was also an important statement about where WM stands reputationally with large companies like Walmart with regard to sustainability and where we can help them and our other customers to achieve their sustainability goals.
As corporations build road maps to address their own climate impacts, WM is well positioned to assist through an array of service offerings, including recycling and other beneficial uses such as composting and renewable energy generation.
Looking at the potential impact on our financials.
So far in 2021, commodities are on a strong upward trajectory, and many experts believe this to be the start of a long-term trend.
And as North America's largest recycler and one of the largest producers of renewable natural gas for landfill gas, WM should benefit disproportionately from that long-term trend.
We're able to close the loop by using that renewable gas to power our natural gas fleet, redefine the processing business with our next-gen recycling technology enhancements and our fee-based pricing strategy, make new investments in innovative solutions for low-value commodities and expand our portfolio of renewable natural gas plants, all of which position us perfectly to benefit our shareholders over the next three to five years.
In addition to the E in ESG, we're taking the S, our social responsibility, very seriously, too.
Whether it's our long-established focus on inclusion and diversity, our commitment to our employees to enhance benefits and guaranteed hours during COVID or our efforts to help the underserved and unemployed through our work with organizations like UpSpire and Concordance Academy, we believe in these causes, and we're very confident in the long-term value add for our shareholders.
It's rewarding to see that our focus on ESG as a strategic value creator for our shareholders as well as being the right thing to do is getting recognition.
At the beginning of February, we were named to Fortune magazine's World's Most Admired Companies List for the third year in a row, claiming the top spot in our industry category.
During the fourth quarter, we were named to CDP's prestigious A List for tackling climate change.
The global environmental nonprofit recognized Waste Management for the fifth consecutive year for our actions to cut emissions, mitigate climate risks and help develop the low-carbon economy.
We were also named to the Dow Jones Sustainability Indices for North America and the World.
For the third year in a row, we are in the title of Sector Leader for Commercial Services & Supplies.
Our view is that our strategic approach to ESG will complement our investments in technology and our core business process improvements as the key ingredients of our future success.
Last year, we laid the foundation for lowering our operating cost model and for offering greater choice to how our customers interact with us, and we completed the sizable acquisition of ADS.
All of this positions us well for growth in 2021.
In the year ahead, we expect to deliver organic revenue growth of four and four and a half percent as we continue to execute on our disciplined pricing programs and expect volume growth to improve in 2021 as the impact from the pandemic lessens.
From an operating cost perspective, we've learned how to operate our business with a lower cost structure, and we remain -- we expect to retain that lower cost structure in 2021 and beyond.
As a result, we anticipate overall operating EBITDA growth between 10 and 13 and a half percent in 2021.
We expect this substantial growth as we realize the value of synergies from continuing to integrate ADS and improve the profitability of its business, all while we increase our investment in CSD.
The benefits from these technology investments and the full integration of ADS will provide runway for further margin expansion in the future.
In closing, we performed exceptionally well in 2020 despite the difficulties presented with COVID-19, and we're poised for another strong year in 2021.
For that, I'm eternally grateful to our teammates who have made it happen this year in the face of difficult circumstances.
We're very pleased with our strong finish to 2020, both the performance of the legacy Waste Management business and our progress in integrating the ADS operations.
As Jim said, our quarterly and full-year results really underscore the strength and resiliency of our business model.
Improving volumes, healthy pricing and better recycling performance produced organic revenue growth for the first time since the pandemic began.
As expected, legacy Waste Management collection and disposal volumes improved sequentially in the fourth quarter from a decline of 5.5% in the third quarter to a decline of 2.7% in the fourth.
Fourth-quarter MSW volume grew 1.2% and C&D volume, excluding hurricane cleanup, grew 1.8%, both strong indicators of continued economic recovery.
While the rate of volume recovery did moderate during the quarter, we did not see a backslide when COVID cases increased in the fall.
In fact, as we look at volumes in January, we're encouraged to see improvement from the lull in late November and December.
Collection and disposal yield was 2.3% in the fourth quarter, and core price was 3.2%.
Adjusted for the impact of lower volume, core price would have been 3.8%.
In the collection business, we continue to make progress improving the residential line of business.
Our residential yield improved 60 basis points to 3.7% in the fourth quarter compared to the same period in 2019 and was up again sequentially from 3.5% in the third quarter.
Residential volumes declined 1.4% as we shed business that does not meet our return requirements.
Overall, our actions to improve the residential line of business in 2020 resulted in $40 million of operating EBITDA benefit, and we expect this to carry forward into 2021.
In the post-collection business, fourth quarter landfill core price was 3.3% and transfer station core price was 3.1%, demonstrating our continued pricing discipline in these key lines of business.
Operating costs were 61.5% of revenue in the fourth quarter compared to 60.2% in the fourth quarter of 2019.
There were some noise in the fourth quarter results.
Let me walk you through the difference.
In the quarter, as expected, the ADS acquisition increased operating expense as a percentage of revenue by 40 basis points.
Additionally, the timing of government approvals for fuel tax credits, which benefited the fourth quarter of 2019 with two years worth of credits, resulted in a 150-basis-point headwind to operating expense as a percentage of revenue in the fourth quarter of 2020.
Aside from these impacts, operating costs as a percentage of revenue improved 60 basis points, demonstrating that we are laser-focused on cost control and continue to benefit from a lower cost structure.
As an example, commercial yards and industrial halls declined between 5% and 6% during the fourth quarter, yet overtime decreased in the range of 15% to 18%, and we see additional opportunities.
We also have plenty of opportunity to improve operating costs as a percentage of revenue in the ADS business as we further integrate operations and work to exceed our planned synergies.
Devina will cover our 2021 financial guidance in more detail, but I want to spend a minute on some key components of growth as we look at the year ahead.
We are extremely confident in the aspects of our outlook that we can control, and we based our guidance on a stabilizing economy, moderate volume growth and disciplined pricing.
We expect organic revenue growth from yield and volume in the collection and disposal business of between four and four and a half percent and overall revenue growth between 10.75% and 11.25% during 2021.
We hit the ground running on the ADS integration on October 30, and it's progressing very well.
We expect to achieve between $50 million and $60 million in synergies during 2021.
Combined with the $10 million to $15 million of annualized synergies already achieved in the fourth quarter, our run rate synergies exiting 2021 is expected to be between $60 million and $75 million.
We are extremely confident in achieving these synergies and that we'll be able to capture the remaining synergies in the first half of 2022.
About one-third of the 2021 synergies will come from route optimization, which will begin early in the second quarter.
We estimate that our onetime cost to achieve these synergies will be $50 million in 2021.
And as we've mentioned, we plan to adjust the majority of these costs from our results.
As Jim discussed, our recycling and renewal energy businesses are central to our strategy, and we're anticipating strong growth from these businesses in the year ahead.
We expect continued improvement in recycling from our fee-for-service model, improved operating cost structure at new MRFs and stable demand for recycled materials, which, together, provide a tailwind of between $40 million and $50 million to 2021 operating EBITDA.
We also expect an incremental $10 million of year-over-year contribution from our renewable energy business from the sale of RINs as pricing for those credits has increased over the last several months.
Devina will talk more about our plans to invest in these key businesses in 2021.
The team has done an exceptional job managing our operations, and I know this will continue in the year ahead.
Our 2020 results demonstrate strong execution from our frontline teams across North America, serving our customers throughout the pandemic and doing so in an increasingly cost-effective way.
The same focused execution and cost discipline extended to our team members in sales and back-office functions, which delivered strong SG&A results for the year.
Excluding $25 million of SG&A for the ADS business, SG&A improved by $56 million in 2020 to 10.2% of revenue, a 10-basis-point improvement over 2019.
We achieved these results while accelerating our technology investments and despite the revenue decline from the pandemic.
I'm proud of our team for this cost discipline in a difficult economic environment.
Fourth quarter capital spending was $394 million, and that included $29 million of capital to support [Inaudible] ADS and about $30 million of capital that we intentionally pulled forward given the strong recovery in our operations during the third and fourth quarters.
2020 capital spending was $1.632 billion.
Our team showed tremendous discipline throughout 2020 as we focused on reducing capital spending in a targeted manner given the volume declines from the pandemic.
Waste Management generated free cash flow of $2.656 billion in 2020.
Given the significant impact of the ADS transaction on this result, let me provide detail on some of the moving pieces.
After-tax proceeds from the divestitures of ADS and Waste Management businesses to GFL were $691 million.
These proceeds were partially offset by after-tax transaction and advisory costs to support the acquisition of $117 million.
Normalizing for these two items, 2020 free cash flow was $2.082 billion.
This result demonstrates the resilient nature of our business and the strength of capital discipline as we nearly achieved our original 2020 free cash flow guidance of $2.15 billion despite the impact of COVID-19.
Given the strong result, at the end of 2020, we were positioned to forgo relief provided by the CARES Act, and we elected to pay approximately $120 million of payroll taxes that we had planned to defer.
As we repay that amount in 2021 and 2022, as anticipated, 2020 free cash flow, excluding the ADS impact I mentioned, would have been about $2.2 billion for the year, which is better than we expected at the end of the third quarter.
In the fourth quarter, we used our free cash flow to pay $231 million in dividend.
For the full year, we returned $1.33 billion to shareholders, comprised of $927 million in dividends and $402 million in share repurchases.
In November, we issued $2.5 billion of senior notes at an extremely attractive pre-tax weighted average cost of less than one and a half percent.
This allowed us to repay short-term borrowings used to fund the ADS acquisition at close.
2021 cash interest savings are expected to be more than $90 million.
Fourth quarter total debt-to-EBITDA of 3.19 times and forecasted leverage ratios are both well within the financial covenants of our revolving credit facilities.
We are committed to returning to our long-term targeted range of two and a half to three times total debt-to-EBITDA during 2021.
Our balance sheet and liquidity remain strong, and we are well positioned to continue our practices of sound investment and strong shareholder returns.
Moving to our 2021 outlook.
As John mentioned, we anticipate 10.75% to 11.25% revenue growth in the year ahead with solid organic growth in the collection and disposal business of between four and four and a half percent.
This underpins our 2021 operating EBITDA guidance of $4.75 million and $4.9 million.
We expect this strong earnings growth to drive free cash flow of between $2.25 billion and $2.35 billion.
Capital expenditures are expected to be between $1.78 billion and $1.88 billion in 2021.
Excluding about $90 million of capital planned to support the ADS integration, this expectation is in line with our long-term capital spend as a percentage of revenue target of nine and a half to 10 and a half percent even while we step up our investments in CSD.
As Jim mentioned, we also see potential incremental investment opportunities in our recycling and renewable energy businesses, both of which aid in our sustainability efforts and generate strong returns.
As we've now seen improved returns in our state-of-the-art MRFs, we are taking plans to deploy the latest technology and additional MRFs in our network and moving those forward.
We're also planning to invest in more renewable energy plants at our landfills.
This investment extends our ability to close the loop between our renewable energy plant and our CNG fleet and does so with very strong economic returns for the company.
We remain committed to a capital allocation plan that maximizes long-term value and total shareholder returns.
As announced in December, we are pleased to be increasing our planned quarterly dividend for the 18th consecutive year.
We expect our dividend payments to be about $975 million in 2021.
Given our focus on the ADS integration, we expect tuck-in acquisitions to be on the lower end of our typical range of $100 million to $200 million.
With more than $1 billion remaining from our free cash flow guidance, we plan to allocate that to a combination of debt repayment, share repurchases and the high-return, sustainability-focused, capital investment opportunities I described earlier.
We are stronger than we were a year ago, and we're looking forward to a better 2021.

user
total 2021 co revenue growth is expected to be between 10.75% and 11.25%.
adjusted operating ebitda is expected to be between $4.75 and $4.9 billion for full year 2021.
fy 2021 capital expenditures are expected to be in range of $1.78 to $1.88 billion.

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