Good day. Thank you for standing by. Welcome to the WM Second Quarter 2023 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 this session, you will need to press star one one on your telephone. You will hear an automated message advising you that your hand is raised. To withdraw your question, please press star one one again. Please be advised, today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ed Egl, Senior Director of Investor Relations. Please go ahead. Thank you, Michelle. Good morning, everyone, and thank you for joining us for our second quarter 2023 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 Devina 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 Devina will cover the details of our financials. Before we get started, please note that we have filed a Form 8-K this morning that includes the earnings press release and is available on our website at www.wm.com. The Form 8-K, the press release, and the schedules 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 filings with the SEC, including our most recent Form 10-K. John will discuss the results in the areas of yield and volume, which, unless stated otherwise, are more specifically 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 2022. Net income, EPS, operating EBITDA and margin, and operating expense and margin 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. 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 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 1:00 P.M. Eastern Time today. To hear a replay of the call, access the WM website at www.investors.wm.com. Time-sensitive information provided during today's call, which is occurring on July 26, 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. Our team continues to advance our 2023 priorities, including increasing the profitability of our business through strong price discipline and an optimized cost structure. As I said in February, 2023 will be a year of pricing and cost control. It's a year of continuing to set ourselves up for the long term by delivering on what we can control. In the second quarter, our adjusted operating EBITDA margin expanded 60 basis points, driven by pricing in the collection and disposal business and diligent SG&A cost control. We delivered this result despite some things that we can't control: stubborn cost inflation, slower event-driven volumes, and lower-than-expected renewable energy prices. Notably, cleanup volumes from Hurricane Ian came in significantly lower than anticipated, which had a $9 million operating EBITDA impact in the quarter. We're pleased with our pricing results for the first half of the year, as our team is executing well to ensure that our pricing is keeping pace with the pressure from rising costs. Overall, our volumes are also tracking at or above our expectations, though the mix of volumes across our businesses is different than we had planned. Event-driven landfill and industrial volumes in the quarter were lower than we anticipated, which we see as a short-term moderation in this business. Some customers seem to be taking a more cautious wait and see approach regarding the timing of large jobs, given the economic backdrop, with many anticipated projects moving into 2024. Our pipeline remains strong, so we view this as a temporary shift in project timing. The impact to our special waste and Construction and Demolition volumes has been mitigated by strong growth in our strategic accounts business, where we continue to differentiate our service offering. We're overcoming margin pressure from this temporary change in volume mix with continued momentum in pricing, optimization of costs, and efficiency improvements. You'll hear more from John and Devina about the success we're having in managing our operating costs and SG&A, where we have opportunities ahead. Turning to recycling. We're now expecting a slower-than-planned recovery in recycled commodity prices in the second half outlook. The investments we're making in automating our recycling facilities position us well in any commodity market environment as they drive lower labor costs, processing costs, improved efficiency, and enhanced material quality. In the second quarter, our fully automated recycling facilities delivered differentiated results relative to the rest of the network, with 33% lower labor costs per ton and 18% lower total operating costs per ton. During the quarter, we're pleased to have opened a new recycle facility in the Greater Toronto area and also completed technology and automation upgrades at an existing facility in Arizona. Recycling is a service with strong customer demand, and our intentional shift to a fee-for-service business model, as well as our high return technology investments, make it a profitable business for WM in any economic environment, with margins now well above our prior commodity cycle lows. On the renewable energy front, we opened our Eco Vista Renewable Natural Gas facility in Arkansas during the quarter, the sixth WM-owned RNG facility, and the second of our 20 planned projects in our sustainability growth program. Last month, the EPA announced its three-year Renewable Fuel Standard rule, which provides strong demand and visibility to the market for Renewable Fuel Standard credits, or RINs. This robust demand provides support for our blended average pricing assumption of $26 per MMBtu, used to develop our investment strategy and strengthens the case for potential upside. Shifting to our full year outlook, we're updating our 2023 guidance ranges to consider first half results and a slower recovery in commodity prices in the second half of the year. We now expect an adjusted operating EBITDA growth of 5.7% at the midpoint of our guidance range, which is still well within the 5%-7% long-term growth range that we provided in May of 2019. Devina will walk through the key pieces of the outlook in further detail. The WM team continues to step up to the challenges of each day, while at the same time, progressing investments in our business that positions us to further differentiate our industry-leading asset network and capabilities and reduce our cost structure. I want to thank each of our team members for their hard work and dedication. I'll now turn the call over to John to discuss our operational results for the quarter. Thanks, Jim, and good morning. Pricing remained a bright spot in the second quarter as we continue to execute on our revenue management programs to recover cost increases and improve margins. Our second quarter organic revenue growth in the collection and disposal business was 6%. This growth was led by core price of 6.9%, with collection and disposal yield of 5.8%. We have and continue to emphasize the importance of post-collection pricing, and in Q2, we delivered yield of 7.5% at our transfer stations and 6% for landfill MSW, both improvements in the growth rates from last year. Our team's collective focus continues to be on maximizing customer lifetime value. That focus led to second quarter churn improving to 8.3%. This lower churn has allowed us to convert more core price into yield, driving our full year outlook for collection and disposal yield to increase to more than 5.5%. Looking at volumes, second quarter collection and disposal volume grew by 0.2%. As expected, volume growth was weighted to the landfill line of business, with modest declines in the collection business. MSW volume stood out with an increase of almost 4%. As Jim mentioned, some of our event-driven landfill volumes, particularly special waste tons, have been tracking below our expectations and below the very strong levels we saw in 2022. Our collection volumes were down modestly in the quarter due to the intentional steps we continue to take to price every contract to achieve acceptable returns, as well as the impact of lower volumes from temporary roll-off. Net new business and net service increases were firmly positive and improved from first quarter 2023 levels, underscoring that commercial conditions remain solid. Though collection volumes are down, both revenue and operating EBITDA grew in each line of business, demonstrating that we are prioritizing profitable volume growth. For full year, we continue to expect collection and disposal volumes to be flat at the midpoint of our guidance. Turning to operating expenses, we realized benefits from our optimization efforts in the second quarter, leading to 20 basis points of improvement in operating expenses as a percentage of revenue to 62.2%. The improvements that we made in Q2 are being partially offset by higher costs due to inflation. While we experienced some impact of lingering inflation into Q2, signs of easing continued as the quarter progressed. The areas experienced the most pressure are labor costs and repair and maintenance costs. There's cause for optimism in both of these categories. Labor costs have continued to moderate during the second quarter, settling in the mid-single digit range from the double-digit levels that we have seen over the last year. This improvement can be attributed to better employee retention, as evidenced by over 50% fewer driver openings and driver turnover improving 250 basis points compared to the same period in 2022. We have robust strategies in place to optimize labor efficiency, particularly in our collection line of business, which we expect to further diminish these cost pressures as the year progresses. We are seeing the benefits of these efforts as we progress through the second quarter, with June marking the lowest cost to serve month of the quarter. This is a promising sign as we move through the remainder of the year. As noted, another significant factor impacting our operating costs has been repair and maintenance expenses. The effects of not receiving a full allotment of trucks over the last few years are still being felt. The good news is we are now receiving more trucks, and it's leading to improved costs. Since the beginning of the year, our maintenance costs per unit have either improved or remained stable across all collection lines of business. Similar to our approach to labor costs, we have comprehensive plans in place to drive continued improvement in our repair and maintenance performance as we progress through the rest of 2023. Our efforts in these two key areas, as well as broader operating expense categories, give us confidence that we can continue to improve overall operating costs as a percentage of revenue as we progress through 2023. I want to thank the entire WM team for continuing to provide safe and reliable service to our customers. I know they're all working hard to deliver strong results through the remainder of this year and beyond. I'll turn the call over to Devina to discuss our financial results and guidance in further detail. Thanks, John, and good morning. The first half of 2023 and our revised outlook for the full year is best framed as a story with two primary themes. One, of executing well on our top priorities to profitably grow our business, and the other, a pressure from market factors beyond our control that we are working to ensure we navigate from a position of strength. Our team's diligent efforts delivered two particularly strong outcomes in the second quarter. First, revenue growth from price and our focus on cost optimization translated into an increase in collection and disposal operating EBITDA of $95 million, or 6.2% in the quarter. Second, SG&A costs as a percentage of revenue improved by 30 basis points to 9.1%, and this is the best result in our company's history. Our commitment to managing discretionary spending and investing in automation to reduce our cost of service is paying off. We're seeing strong outcomes from our investment in a customer experience model that leverages technology to communicate with customers in their channel of choice. Customer feedback has been strong, giving us confidence that with these investments, we've permanently reduced our SG&A cost structure, and we will continue to drive improved customer satisfaction that will only bolster customer lifetime value from here. Organic growth in the collection and disposal business and our focus on SG&A optimization delivered 50 basis points of operating EBITDA margin expansion in the quarter. Operating EBITDA margin improved 60 basis points overall. You can see that these two things delivered almost all of this strong result. This is what gives us confidence in our ability to continue to grow margin in the back half of the year and into 2024. Year to date, cash flow from operations was about $2.1 billion. As expected, higher cash interest, taxes, and incentive compensation payments more than offset the benefit of operating EBITDA growth in the first half of the year. We expect to see those impacts lessen in the second half of 2023. Capital spending in the first six months of the year totaled almost $1.2 billion, with $963 million related to normal course capital to support our business and $217 million of spending on sustainability growth projects. As Jim mentioned, we're pleased with the continued progress on our sustainability growth program, with three new projects coming online so far this year. Customary construction and permitting delays for certain recycling and renewable energy projects will push about $200 million of our planned 2023 sustainability growth capital into future years. Free cash flow through the first half of the year was $940 million. Free cash flow before sustainability growth investments was $1.157 billion. Year to date, we've returned $572 million to shareholders through dividends. We've repurchased $620 million of our stock. Dividends will total a little more than $1.1 billion this year. We expect to repurchase about $1.25 billion of our shares over the course of the year. Our leverage ratio at the end of the quarter was 2.8 x, which is well within our targeted ratio of between 2.5 and 3 x. About 21% of our total debt portfolio is at variable rates, and our pre-tax weighted average cost of debt for the quarter was about 3.8%. Our balance sheet is strong, and we remain well positioned to fund growth. Turning to our updated 2023 guidance, we now expect revenue growth of between 3.25% and 4.25%. The revision from our initial expectations is entirely related to commodity prices in our recycling and renewable energy businesses and the pace of contributions relative to plan for our recycling acquisitions. The key takeaway here is that core price, yield, and volume outlook in our collection and disposal business are intact and even performing slightly ahead of our initial expectations. We now expect adjusted operating EBITDA to be in the range of $5.775 billion-$5.875 billion, which is a $75 million decrease at the midpoint. About $50 million of the revised outlook relates to our performance in the first half of the year relative to our plan, and $20 million relates to a slower recovery in recycled commodity prices in the back half of the year relative to our expectations. The operating EBITDA shortfall in the first half of the year primarily relates to three things: inflationary cost pressure that has taken longer to abate in 2023 than we expected, a softening in event-driven volumes at our landfills, and lower than expected commodity prices in our renewable energy business. These are market-driven pressures, giving us confidence that our collective performance on the company's top priorities over the first half of the year delivered the intended outcomes. With the strength of our collection and disposal operations and the success from our SG&A optimization efforts, in 2023, we will again deliver on our target of growing operating EBITDA by 5%-7% annually. In addition, we expect to expand our operating EBITDA margin 40 to 60 basis points for the year. Both measures demonstrate the resilience of solid waste and the benefits of pricing discipline, focused differentiation, and cost optimization to drive long-term growth. In closing, the WM team is delivering well to safely and reliably serve our customers and to optimize our costs. We will deliver another year of strong financial growth in 2023 and position ourselves for continued success on the road ahead. I can't thank our hardworking team members enough for all of their contributions to our success. With that, Michelle, let's open the line for questions. Thank you. As a reminder, to ask a question at this time, please press star one on your telephone and wait for your name to be announced. To withdraw your question, please press star one again. Please stand by while we compile the Q&A roster. Our first question is going to come from the line of Tyler Brown with Raymond James. Your line is open. Please go ahead. Hey, good morning. Good morning. Hey, Devina. Lots moving around in the margins, can we just talk a little bit about that margin walk in more detail? How we bridge that 60 basis points year-over-year? Talk about fuels, commodity, the CNG tax credits, M&A. I know there's quite a bit in there. Yeah, you're right, Tyler. There are a lot of moving pieces. Similar to what we talked about in the first quarter, when you combine recycling and renewable energy prices, that had a negative impact to margin of about 30 to 40 basis points. The dilutive impact of M&A, this is half recycling and half solid waste, was about 40 basis points. What we had is an offset from fuel that you didn't see in the first quarter. We're really pleased that when you look at those 2 things, which are more timing and commodity related, and focus on the real substance of the margin expansion that we produced in the quarter, that is 2 things, and it's solid waste, and it is SG&A cost optimization. Right. Maybe fuel kind of offset the commodities and M&A. Is that kind of what you're saying? Exactly. Okay, perfect. I think last quarter, you guys did talk about 4%-5% unit cost inflation for fiscal 2023. I'm just curious if that number still feels about right, or if it is coming in a touch higher. How should we think about Q3 margins? Will they be up something like 50 to 70 basis points sequentially, and then maybe tick down in Q4 just to help us with the modeling? Tyler, I'll start, and then I'll leave the second part to maybe to Devina. I would tell you that when I look at probably the best barometer for that inflation question is probably labor. I think the good news is, you heard in my prepared remarks, it continues to moderate. We came down, I think we're right around 6% for the quarter, which is obviously a tad higher than what we had projected in the number that you referenced. I think the good news is that we continue to see that moderate, and it continued to moderate through the quarter, as we looked at each of the progressive months, as we're anniversarying some of the peak labor increases. The second part would be on the M&R side. As you heard also in my prepared remarks, I guess, you know, the good news is that we're on track to receive about 90% of our trucks this year, as opposed to less than half the last few years. That's another place where we've seen a little bit of persistence in inflation, but as evidenced by my commentary and Devina's, we feel good about the balance of the year and our ability to continue to drive OpEx down. On the second part of your question, Tyler, you know, when we look at 28.7% in Q2, we're really confident in our ability to deliver 29% in the back half of the year in the EBITDA margin and the incremental benefit we expect to come from the traditional solid waste side that John just discussed. What we're really looking at here is long-term, being able to target 29% that is based on 62% operating expenses, a percentage of revenue, and 9% SG&A as a percentage of revenue. We think that that's just when we look at, when I say long term, that's what we think we can start to produce in 2024, and there's upside potential from there. Excellent. Very good. My last one, real quick. Jim, it sounds like the $740 million of incremental EBITDA from RNG and recycling is intact. You did mention that the timing may fluctuate, and we did have the $200 million CapEx deferral. At this point, how much incremental EBITDA are you expecting in 2024 from those? If I look back at the Investor Day, it was something like $225 million incremental. Is that still the case, or has that been pushed out a little bit? Thank you. Thanks, Tyler. I look, as far as the end number for both RNG and recycling, which was $740 million, we're still comfortable with that. The interim years were really designed to kind of give some insight into the buildup of that. We knew things would change, whether it was timing of CapEx, supply chain related, you know, third-party delays, permitting, things like that. What we'll do is update that number, the 2024 number, when we give guidance, to incorporate some of those shifts that have taken place over the last few months. Okay. That's helpful. Thank you. Thank you. One moment for our next question. Our next question comes from the line of Toni Kaplan with Morgan Stanley. Your line is open. Please go ahead. Thanks so much. You mentioned that collection and disposal will exceed 5.5% this year. We did see a little bit of a decel in 2Q. Can you just talk about what should cause that to, you know, sort of accelerate from this level? Hey, good morning, Tony. you know, I would tell you, I think the one thing I would point to is when you look at the conversion rate between core price and yield, that's where we really have seen an improvement as we looked at the first two quarters of the year. Now we're converting close to 85% of what we're putting through in core price into yield, that's given us confidence that as we go through the back half of the year, we're gonna see something better than the 5.5% we originally guided to. Terrific. wanted to ask a little bit more on the SG&A optimization. thanks for calling that out. just any additional color on what's going on there and how much maybe you have left to do with regard to that? Sure. As I mentioned in my prepared remarks, we've seen really strong traction, particularly in our customer experience part of our back office, and that really underpins the success of our automation and optimization efforts across the business. That's been the most significant driver of the change in SG&A optimization overall. We expect similar things to happen in other parts of our business as well. You know, while we're looking at a 9% SG&A number, Jim and I talk about the fact that either of us, if we had said that we could achieve that when we both started the CFO position, we would have told you that was a really hard thing to achieve. We're pleased to be at this level. How much more room there is in it? It's, you know, still to be determined, but what I think you see here is WM's commitment to continuous improvement, and we're seeing success, really motivate our teams to figure out how to leverage the success in other parts of our business. Terrific. Thanks a lot. Thank you. one moment. Our next question comes from the line of Bryan Burgmeier with Citi. Your line is open. Please go ahead. Good morning. Thanks for taking the question. you know, just following up on Tony's question. There, there's a comment in the press release and prepared remarks about exceeding, you know, yield growth 5.5%. What level of yield growth do you assume at the midpoint of your revenue guidance now? Is it 5.5%, or is that, you know, above 5.5%? Just any detail you can add on kind of what's baked into the guide would be great. Sure. It's specifically 5.6% is we're looking at the midpoint. That's about a 20 basis point increase from where we started the year. Got it. Got it. Thank you. You know, I appreciate the updated view on the recycled commodity basket. Can you maybe just provide some detail on what the average was during 2Q or maybe where you are, you know, in June, July? Just trying to think about how much improvement we need to see in the second half. Thanks. Yeah, Bryan, I've, I'm gonna let Tara Hemmer. She's sitting here with us. I'll let her take that for you. Excellent. Our commodity price for recycling for Q2 was $60. I think what you have going on in the second half of the year is really a tale of two different commodity types. If you think about our fiber pricing, we're expecting a slow ramp in fiber pricing. That's really being driven by some mill capacity coming online domestically. The bigger story really is on the non-fiber pricing and related to plastics, which is a smaller part of our volume, but a higher value commodity. We've seen prices decline roughly 30%-55% from May to July. That's really what's driving our recycled commodity price outlook for the second half of the year. We're expecting the second half of the year to now be about $60 a ton. Really, the same as Q2. Okay, got it. Thanks a lot, Tara. I'll turn it over. Thank you. One moment, please. Our next question comes from the line of Michael Hoffman with Stifel. Your line is open. Please go ahead. Hi, good morning, Jim, Devina, Ed, John, and Tara. I was in steaming Houston yesterday. I don't know how you all live there in the summer. Devina, what was the value of the assumption for a sequential improvement in all things combined? Not just recycling, RINs, nat gas, electricity in the original $5.9 billion. Yeah. We look at that as a $40 million. What I would say is, we were expecting about an $85 million headwind from commodity price impacts in the recycling and renewable energy businesses. That's now expected to be more like $125 million at the midpoint. About a $40 million headwind relative to initial expectations, with half of that in the front half of the year, and that's related to the renewable energy businesses, and really specifically in electricity and net gas prices specifically. On the back half of the year, as Tara just articulated, pressure from recycling commodity prices, particularly plastic, being lower than our expectations, which is causing a $20 million decline in the back half of 2023. Okay, I didn't ask that question very well. You all in your prepared comments, I think, are inferring this, but I'm trying to tease it out in numbers. If you got a mulligan, and we went back to February, and you were giving guidance, and you didn't have any of the sequential improvement. What would have been the midpoint have been? I think it's like $5.7 billion, which means you were raising guidance in 2Q, 'cause of the strength of garbage. No, I think you're right on there, Michael. I mean, I think if we'd had a crystal ball and said, "Hey, commodity prices are not going to improve the way we thought they would in the back half of the year." If we'd known that natural gas pricing was gonna come down significantly, which we didn't expect that, or electricity would come down, or even rent pricing would come down in the front half, obviously, it's improved in June. I think if we had known all those things, clearly, we would've given lower guidance than we gave. But still, you know, as I said in my prepared remarks, and we're still coming in at 5.7%, which is in that range of 5%-7% EBITDA growth. By the way, when we gave that back in 2019, that assumed average commodity prices. We are 45%, 40% under average commodity prices. I feel I walk away from this quarter. Well, initially, I'm not gonna sit here and tell you I wasn't disappointed when I first looked at the numbers, then I started looking at what we're controlling and thinking, gosh, normally, when you crush it on SG&A, and pricing, and margins, normally, that's a beaten race. Why are we having to lower? It's all what we've just been talking about. It's all these commodity-based things that are sometimes hard to predict. We, you know, we used history to predict, for example, commodity price rebound. It's gonna come back. It's just gonna be 2024 now. I think you're absolutely right. The guidance would have been lower, still would have been within the 5%-7% range. I walk away feeling pretty good about things. Might sound crazy, and, you know, today, I walk away feeling good that those things that we're controlling, we're doing a darn good job of it. Right. I'm repeating the obvious, but core recurring collection and disposal is performing as planned or better. That's the conclusion? Yeah, that's right. I mean, actually, I would say you could argue a little better, right? Devina just talked about SG&A being 9%. I tell you, when I was CFO there, I mean, I'm sitting here wondering how we get below 12. 10. You guys said 10. Yeah, exactly. She's got bragging rights. She is. She's way better at this than I was. On special waste, John, are you below a normal baseline as well? This is not only you didn't get hurricanes, but the normal sort of recurring stuff that happens over and over again, even though it's not terribly predictable, there's a certain baseline. Are you below the baseline, too, 'cause of deferrals? Two things, Michael. First, the answer is, I don't think. No, we're not. I would tell you that on the hurricane piece, I mean, when you look back, that was a little bit of a headwind in the first half of the year, a little bit more in Q2. Again, when we were predicting what we were gonna do back last year with respect to Hurricane Ian, we've cleaned up a lot of it. It just moderated a little bit more in the first half and a little bit more in the second half. That's answer number one. I think on the special waste side, I've done a lot of homework on this and talked to the team here. I would tell you, no, I don't think we're below the baseline. I think what we saw is historic highs in the first two quarters of last year in special waste. I'm going back till 2017, I think, is as long. Those are two of the strongest quarters we've had. In fact, Q2, I think, was our strongest quarter in recent history for special waste. No, and really, it was a handful of events, a little bit in the Rust Belt. We saw a little bit of moderation on some really big projects. When you look outside of that, I'm pretty confident about what's going on in special waste. Well, I think, Michael, it probably makes sense that, I mentioned that these, a lot of these companies went into somewhat of a holding pattern here, until they got better visibility on the economy. You think about what was going on, you know, potential for a real banking crisis here. They put a little bit of a lock on the checkbook, with some of these projects, which they have timing discretion on. They will do those projects. The pipeline is still strong. We've been talking about that for several quarters. Still strong pipeline, still really good customers that are all still there, but they just put a lockdown on some of these projects. Down, you know, look, down 1.9 million year-over-year tons in special waste and C&D for the first half, and down very significantly versus our budget. That mattered. Again, the good news is, all these things that were kind of out of our control, they will reappear. It's not as if they're not gonna do those projects. They will do them. It's not as if commodity prices won't come back. They will. That's why I'm walking out of here feeling better about this than you might think. Okay. Tara, how does the delay, and you maybe have answered this, but so much information was given, I missed it. How does the delay in spending impact capturing the ITC, since that's time-sensitive? It doesn't impact it at all. We're confident that we've done the work that we need to do to ensure that we get the benefit of the ITC. Then what are the probability that you can work it up from 30% to 50%, based on content and all that stuff? We're actively looking at which locations can get the energy community benefit, which would take it up to 50%, and then also looking at domestic content, which would apply to 17 of the 20. We don't have definitive confirmation there. Working closely with Devina's tax team on that, but hope to have some more information, perhaps later this year or early next. That's another upside, pleasant thing. Instead of spending $1.2 billion, you're gonna spend anywhere from $500 million-$700 million. Exactly. What I can tell you is our teams have been working really hard to figure out how we can maximize the benefit across the portfolio. Anywhere where we think we can get the 40% or the 50%, they're doing the work to get there. Okay, cool. Devina, If you said it, I missed it: What was the impact of less pass-through fees on margins? ... on the fuel surcharge, the impact was about 60 basis points. Okay. What are the chances we might get segment reporting with more details, just because this is a learned experience from what happened this quarter? Yeah, absolutely. What I think is important is you hear of the close coordination that's happening between Tara's team and my team on every aspect of growing this portfolio. I would say the systems, processes, financial reporting associated with this, the business, is something that we're bolstering at the same time that we're building out the asset network. We have expectations that we'll be able to build SEC quality level financial information in the near term, and that's our goal, and we'll keep working toward it over the course of the rest of this year. Terrific. Thank you so much. Thank you, Mike. Thank you. Thank you. One moment. Our next question comes from the line of Noah Kaye with Oppenheimer. Your line is open. Please go ahead. Thanks so much. You know what? I'll pick it up there on the sustainability investments. You know, to be clear, permitting delays are absolutely nothing new in the RNG industry, and I think we understand why. I'd be curious for your color on the development environment, to what extent any, you know, incremental challenges are presenting, either from a permitting or construction perspective? You know, how sort of temporary do you view this, you know, in this growing industry? Well, I think it's important to set some context here. We have a large number of projects in flight at the same time, and we're really taking a portfolio-based view. If you think about it, some of them are going to delay, some of them we're working to accelerate. If you think about what's happening in 2024, we'll have well over 10 projects under construction, and so we're working with utilities to figure out how we can advance our interconnects. We're working with local permitting agencies to ensure that we get building permits. A lot of this is. Mm. like you said, really normal course, things that happen on large construction programs and projects, and we're going to continue to evaluate, and that's why later this year, really, when we announce Q4, we'll give a bit more color on what the impact will be. Okay. Just to follow up around the RIN assumptions for the full year, obviously, you know, for the first half of the year, south, the original guide, kind of in the low $2s, you know, RINs being north of $3 now, just is there some sort of impact to the blended average for the year from hedging? If so, can we kind of tease that out? Or, you know, could there still possibly be a little bit of upside from where RINs are penciling out today? That's exactly the right way to look at it. It really is a tale of two halves. If you think about the second half of the year, with RIN prices now at around $3, you have to remember that we've been selling ratably over the course of the year. We had some of our volume locked in for the second half of the year, but on a blended average basis, we expect the second half of the year to be more like $2.70. Okay, super helpful. I guess just a question for perhaps Jim and John. If you look at the disparity in volumes between MSW and the collection lines, I mean, what is the story that tells? Obviously, you went into some of the detail earlier on special waste around, you know, tough comps and some of the pocketbook deferrals. Just looking at that disparity, you know, help us make sense of it. Well, it's a little bit hard to tell what is causing the disparity. I mean, I think there's a number of different factors. You know, you might look at even the kind of the commercial real estate market in downtowns. You know, those have declined a bit because... Yeah ... you know, the work from home movement has taken hold and kind of held there since COVID. Mm. If you look at, you know, MSW volumes were quite good, but what may have been more encouraging is that MSW price was very good. I mean, you know, forever, we talked about the fact that we weren't able to get price on MSW, and MSW price is sequentially up. It's up significantly year-over-year. While we're getting MSW volume, we're also getting MSW price, and that is very encouraging for us. I'm not overly concerned with roll-off volume being down. Some of it is related to these special waste projects. Yep. Commercial volume is kind of what we expected, kind of flattish, maybe a little bit down. Resi is a bit by design. I mean, we've lost a few contracts, but that was because we weren't willing to go where they wanted us to go in order to retain them. I think we're, from a volume standpoint, basically where we expected. It's just that there was a bit of a shift, especially as you thought more about our national accounts business. I mentioned that in my prepared remarks, that business is doing very well. We're truly differentiating ourselves there, hence the pickup in national accounts. It does come at a different margin than, for example, the special waste business that we've talked about. The only thing I'd add- Go ahead, John. Sorry. On the franchise, playing residential well. If you look at residential, and you saw it in the back, Noah, if you look at the 4% volume versus a revenue improvement, we've seen a similar, a similar trend there last couple of quarters. We try and rightsize that business and continue to get those margins up. ...On the commercial side, I did go back and looked at what printed in terms of the volume, and if you net out some of the franchise impact in addition to one national account loss we talked about, that we're actually anniversarying ironically, and at the same time, putting about 15,000 containers back on the street to take that business back, we actually end up about 0.2% positive for the quarter. There's some noise in there, and sorry for the level of granularity, but I think that's why you hear from Jim and I some confidence in our answer to you. No, we appreciate that granularity. Thanks so much. You bet. Thank you. One moment for our next question. Our next question comes from the line of Sean Eastman with KeyBanc Capital Markets. Your line is open. Please go ahead. Hi, everyone. Thanks for taking my questions. I just wanted to come back to the confidence in that core 5%-7% EBITDA growth going into next year. I wondered that, you know, just in light of the, you know, the great pricing story, good signs on inflation from an OpEx trend perspective, more opportunity on the SG&A cost optimization, you know, is that a conservative range going into next year in light of how the model is setting up over the next 12-24 months, in your view? I guess based on this quarter, I wouldn't say it was conservative. I don't know. look, I think. You said this quarter was the commodities, right? I'm, you know. I know. I'm kind of half kidding here, but look, I think the 5%-7% that we gave in 2019 is a good range. Those components that you talked about, we're feeling very confident in those. I mean, SG&A, we've talked about, you know, pricing has been a very good story for us and continues to be a good story for us. OpEx, John talked a lot about OpEx today, while we had maybe a little more stubborn inflation in the front half, we're starting to see some moderation, as you said. We're starting to see things like training hours come down. We're starting to see overtime come down a bit. We're getting efficiency improvements, cost per unit on maintenance, truck deliveries. All of those things cause us to be fairly optimistic, and Devina mentioned 29% margins as a decent jumping off point. Look, I would say, yeah, that, you know, we've talked about 30% being a number that we felt was achievable for probably the last couple of years. Now we're finally getting to a point where we say, okay, we really do believe that. I mean, we're looking at 60 basis points of improvement in margins in the face of some really strong headwinds that were a bit out of our control. We'll give you a lot more detail on that as we, as we give guidance, I would tell you that, you know, barring a big downturn in the economy, that 5%-7% still looks like a very good range for us. Okay, thanks for that, Jim. You know, it sounds like maybe stay tuned on this, but in terms of the $200 million of sustainability growth CapEx that has slid, I mean, for now, is it a good assumption to layer that into, you know, the prior expectation for 2024, just kind of layer that $200 million on top, or is that not the right way to think about it? Any, you know, sort of preliminary thoughts on that would be helpful? Yeah, Sean, I think you're thinking about it the right way. Layering that on top of what we plan for 2024 is the best view that we have right now. We'll give more clarity on that when we give 2024 guidance. Based on our expectations right now, I think what's important for you all to hear is that the teams are working really hard to accelerate projects where we can, because the returns on these are so strong, and a 3-year payback period means that we want to get these facilities up and running as quickly as possible. While there are some places where we're seeing delays and deferrals, like you said, there are others where we're working to see what we can accelerate. Right now, our best outlook is to layer the $200 million on to the prior outlook for 2024. Understood. Thanks very much. Thank you. Thank you. One moment, please. Our next question comes from the line of Jerry Revich with Goldman Sachs. Your line is open. Please go ahead. Yes, hi, good morning, everyone. Good morning. Good morning. Jim and Tara, can I ask you your views on the EPA's outlook for landfill gas? Really interesting decoupling from other credit classes. You know, landfill gas really has to ramp up to hit their targets. Based on what you're seeing, do you think the transportation fleet that consumes natural gas is on pace to grow fast enough to absorb those credits? You know, given the visibility that the requirements lay out for your business, how does that impact, you know, the potential shadow pipeline beyond the 20 initial projects that we discussed with the panelists today? Thanks. I'll give a little bit, and then I'll think I'll let Tara answer the rest of it. I do believe that there is plenty of demand out there. From that standpoint, I mean, there's been a little bit of discussion. I've heard that, well, are you going to kind of run up against a ceiling here in terms of demand? I think the answer is: there's plenty of demand here as we think about the natural gas fleets, for example. I mean, our natural gas fleet is about 70% of routed vehicles. I think, Tara, I'll let you kind of give a bit more detail, but I feel optimistic about the demand side of this. Yeah, just to add a little bit of color onto that, you know, if you think about what the EPA did by setting a multiyear renewable volume obligation, it did 2 key things. One is they raised the volume, so that provided a strong demand signal, 2, they provided multiyear certainty, That's something that ... obligated parties like refiners were looking for, and so are the producers like WM. We really feel like there's a strong demand signal from that, and it has a halo effect into the voluntary market. We're seeing a lot more interest in the voluntary market, and we're actively working with our teams, to figure out what's the right way to transact going forward. To that point, given the visibility on a multi-year basis, how are you folks thinking about the pipeline beyond the initial 20 projects as a result? Are we looking at potentially accelerating the next batch of projects beyond these 20? We absolutely have a pipeline of projects that goes beyond the 20. We haven't yet determined how we're going to approach that pipeline. We'll provide some more information down the road. A lot of opportunity to think about our landfill gas. It's a phenomenal resource and something that we think we can monetize long term. Super. Can we shift gears? Devina, I just wanted to ask, just to make sure I'm on the same page with you. You know, if I'm looking at the second quarter results from a top-line standpoint and apply normal seasonality and, you know, the 270 D3 RIN and current OCC prices to the back half of the year, you know, I would get towards the high end of your revenue range. I just wanna make sure I'm not missing any headwinds or any differences versus the normal seasonality that could drive you towards even the midpoint, let alone the low end of the range. Are there any moving pieces that we need to keep in mind? I think that you're looking at it the right way. To really give some clarity on our revenue guide relative to where we started, the commodity businesses, we expect to be down $125 million in revenue over the course of the year, with a lot of that already in the first half, and then about a $100 million decline in revenue from the recycling acquisitions relative to expectations. Our expectations for the back half are normal with regard to seasonality impacts. The only thing that you could see is we did start to see Hurricane Ian impacts in Q4 of 2022, and those will not repeat. Okay, super. Then, can I ask you a similar question from margins? You know, normally, your margins are up half a point, 3Q versus 2Q. You know, this year, we're gonna have the higher D3 prices and OCC prices as well. That could add maybe half a point to that. Is that how you're thinking about 3Q versus 2Q, or anything else we need to keep in mind in terms of the margin cadence? Sure. You know, in terms of the margin cadence, what we were looking at going from Q2 to Q3 in 2023 is a typical margin expansion, but the offset will be the timing difference on the alternative fuel tax credits from a year ago. As a reminder, that wasn't concluded from a regulatory perspective until Q3, so we took all of that benefit in Q3 of last year. That's the one thing that will dilute the margin upswing that we traditionally will see. Got it. Thank you. Thank you, one moment for our next question. Our next question is gonna come from the line of Stephanie Moore with Jefferies. Your line is open. Please go ahead. Hi, this is Hans Hoffman on for Stephanie Moore. I was just wondering if you could comment a bit on, you know, pricing, just in terms of, you know, where you're kind of exceeding relative to kind of your internal expectations, and then just anything you're seeing from a churn standpoint? Yeah, I think you could we would argue that we're probably exceeding almost across the board, which is why our expectation is slightly higher than our original guidance, both on yield and on core price. To be a bit more specific about it, and I think I mentioned it earlier, the two places where maybe we're most pleased would be on the MSW waste stream, which I mentioned was up sequentially and year-over-year, and to a pretty handsome number, and then also on residential. Both of those, by the way, in years past, were a bit of a struggle to see good, core price or yield, and now we feel good about the fact that not only are they at the absolutes, really good numbers, but the trend has been quite good. Got it. That's helpful. Then could you just maybe comment on the M&A environment, just in terms of how valuations look like and any change in activity level there? Sure. I think the valuations have crept up a bit. I mean, as you look at a couple of things, one is, you know, a lot of these smaller businesses are seeing an uptick in their businesses coming out of COVID. There's also an expectation from some of these businesses that now is the time to sell, whether it's because they don't have, you know, succession plans behind them or because of some of the labor pressures that they're anticipating. There's been a, you know, certainly an uptick in M&A activity. I think for us, it's a double-edged sword. We wanna make sure we do have a nice pipeline of M&A opportunities.... We don't want to fall into the trap of paying way up for these. We'll be patient when it comes to those. I would rather it's not as if the opportunities are going to go away. I'll sit back and wait, as opposed to paying, you know, a multiple of 15 x. I'll wait for that to come down to a more reasonable number, unless somebody's willing to sell it to me today at a more reasonable number. Thank you. We'll move to our next question. One moment, please. Our next question comes from the line of Tobey Sommer with Truist. Your line is open. Please go ahead. Thanks. I was hoping you could discuss your labor turnover and compensation growth in the second half versus the first half, and then maybe from a longer-term perspective, how does that sort of comp and expense growth interplay with your 5%-7% EBITDA growth target over the next several years? Do you model it being a little, you know, diminishing over that period? Toby, I think a couple things I'll note for you. One, I referenced that, you know, labor rates trended at just over 6% for the quarter, and if you go back a year ago, that was probably 9%, 10%, depending on what part of the country you're looking at. It moderated. We had expected it to moderate a tad more, but I think what you heard from all three of us is that we have good momentum on the OpEx side, and in particular, on labor. What's driving that is just a couple of things we've all commented on, which our driver turnover is down 250 basis points. Why is that significant? It takes a lot of the cost friction out from a labor line, and we're seeing it not only in our quality of service and our safety results, but on a labor cost per unit, we're continuing to see that trend down. When you think about kind of where we are first half to second half, and what Devina added some color around about what kind of the exit margins look like and what the exit OpEx margins look like, we, you know, you're seeing that momentum build in the second half of the year and helping us build into momentum for 2024. I'll speak to the 5%-7% for a moment, because I think what's interesting is when you look at 2023 specifically, we're guiding about $325 million of EBITDA growth at the midpoint. That includes a $125 million decline from the sustainability businesses. When you adjust that's $450 million of growth from the combination of strong execution in the solid waste business and the optimization of SG&A costs. That's over 8% EBITDA growth in our business. I think it indicates that 5%-7% outlook does have some upside potential when we start to see the momentum of the optimization efforts that we are putting forth. When we see the stabilization in labor, which John just spoke about, it really helps drive that forward even more. I appreciate that discussion. What kind of rate in underlying comp growth is there, you know, taking the turnover, the hiring, training kind of out of the equation? I'm not sure. Could you take one more crack at that? Yeah. I want to make sure I understand the question. What is your compensation growth, Maybe you could take a look at your existing employees, like what's the underlying trend there as opposed to your training and hiring costs? Yeah, that's, you know, that's a good question. That 6.1% that I commented was looking at average unit rate per hour. That is probably the best barometer for what's happening. That's what I was mentioning last year. That was, you know, 9, 10, 11%, depending on what part of the world you were looking at. On an hourly rate, that's where we see the moderation coming down. The growth of that rate has come down almost in half. I think this is. Part of this was the impetus behind looking to take positions out through technology. Not take them out, but not choose to replace them, because there is a concern, and there has been for three or four years now, that this labor pool is shrinking, particularly on the trade-type positions. John talks a lot about that, but that's why just in 2022 and 2023, there's 1,500 positions so far that we've chosen not to replace. Most of those, as Devina said, are on the customer experience side, through adding technology, our call volume is down significantly in customer experience. There still are a number of those left. We said kind of 5,000-7,000 positions, so at the low end of that 5,000, over a period of a couple of years, John has some operating positions to take out as he moves from traditional rear load equipment, for example, to automated side loaders. Obviously, a rear loader has a person on the back, and not only is there an added labor component there, but there's a safety issue, too. It's much more dangerous to be on the back of a truck than to be sitting in the cab operating a joystick. There are, we've taken out only 100 of those so far, really having to do more than anything with truck deliveries. There's another 400 that are geared up and ready to go as soon as those trucks come in. I think over the next couple of years, you could see something, you know, north of 1,000 that we take out. Not only do you get a person off the back, but you also get a 25% or 30% pickup in productivity. The one thing I would add, Jim, is that we skipped over recycling. And if you look at the benefits we're showing in the recycling business and these automated plants and the margin expansion and the labor dependency and ratio reductions, that's a clear place where it's showing up. And it takes a little longer to do it over 15,000 plus routes, but in the recycling business, Brent and Tara team have done a nice job of really demonstrating where automation drives real dollars out of the business. All these reduce that risk that you're talking about, which is this kind of inflationary risk on labor. ... Excellent. I appreciate you tying in the recycling comments. Just one brief follow-up, I know we're late. With respect to the acquisition pipeline and what you're seeing, you kind of gave an anecdote of a really high kind of mid-teens multiple. Is there really that kind of disconnect, or was that just a single example, but maybe not representative of the pipeline as a whole? No, I mean, that's, you know, look, I think I guess my point was, you're starting to see some of these valuations creep up. Really my primary point was, we're gonna be disciplined about that. I mean, particularly as you think about these investments we're making in RNG and recycling, I mean, if you put a multiple on that, it's a multiple of 3 or 4 compared to a multiple, anything in double digits seems to not make sense compared to those. It doesn't mean we're not going to do acquisitions, but I think we're gonna be disciplined about how we go about that, particularly when it comes to some of these higher multiples. Thank you. Very clear. Thank you. One moment for our next question. Our next question comes from the line of Stephanie Yee with JP Morgan. Your line is open. Please go ahead. Hi, good morning. I wanted to ask about the plastic commodity prices being down. It sounds like on the OCC fiber front, that wasn't so much of a surprise. But if you can just comment on what's driven the decline in the plastics piece and what your expectations are, not necessarily for this year, but just maybe perhaps for 2024. Sure. If you look at what's happening with plastics, it really comes down to the virgin price for plastics is low, which is putting pressure on the recycled, pricing. We think long term, if you think about what's happening with brands, they all have commitments to buy recycled content, and we think that will come back. They are gonna come back into the market to buy, to meet their commitments. We would expect that we would see a ramp longer term. It's one of the reasons why we're excited about some of our investments that we've made in plastics recycling and advancing those, and it's one of the things that our automated recycling plants do. They help capture more plastic, which will go to those markets longer term. Okay, great. Just a question again on kind of the longer-term EBITDA margin expansion potential, the 40-60 basis points, I think, was mentioned and the 5%-10% EBITDA growth. Is that premised on yield being higher than that 2% level that was presented back in May of 2019? Just because average yield is tracking higher than that right now, and it seems like there is momentum behind pricing generally, both on the resi and both on the collection and also the post-collection side. It's a great question, Stephanie. I think the way that we're looking at that is not a specific yield number, but instead the spread between our yield and our cost inflation. What we're really satisfied with is that we've seen flexibility in our pricing programs to be responsive to different cost environments. Whether the yield in that initial guidance in 2019 was 2% or we're closer to the 5.5% today, what we're focused on is ensuring that we get the right spread from optimizing the business, as well as continuing to price to cover cost inflation for long-term growth. Okay, that makes a lot of sense. Thank you. Thank you. Thank you, and one moment. Our next question comes from the line of Jim Schumm with TD Cowen. Your line is open. Please go ahead. Hey, good morning, and thanks for squeezing me in. Good morning, Jim. Good morning. You cited inflation in the sustainability growth program. Is it fair to assume that the total CapEx to achieve the 26 targets will be higher than what you laid out in April? Can you give any indication of what that magnitude might be? We are expecting that there will be an increase in the overall program, but because of the size of the program and the multiyear nature of executing upon it, we are going to wait to give specific updates with regard to the magnitude of that. It's difficult for us to update this a quarter at a time. What we look to do is ensure that we give you clarity as we have significant or any meaningful revisions in near-term outlook. The most material one that we have at this point is just the shift of the $200 million from 2023 to 2024. Everything else is quite inconsequential to the overall outlook at this point. Okay, great. Thank you. Then just lastly for me, you mentioned a couple of the permitting issues, maybe some interconnects. Are you seeing any supply chain issues for equipment or any third-party constraints with, like, pipeline companies or anything like that? On the equipment side, we did a good job, in particular on the RNG side, of making sure that we really procured our longer lead time items and those critical components related to our build. We feel good about that. One of the things that we've been watching on both sides is really electrical components. The team has done a good job of getting out in front of that. Those tend to be a year-out lead time like items, and then working in close coordination with the pipeline and then electrical interconnect. Those are typically very local in nature and very site-specific. You know, we've seen some issues here and there that we're trying to navigate through. Again, this is pretty normal course when you think about what we're trying to build and the scale and the size of our portfolio. Yep. Okay, that makes sense. Thanks a lot. Thank you. One moment. Our next question comes from the line of Kevin Chiang with CIBC. Your line is open. Please go ahead. Thanks for taking my questions here. Maybe just two quick ones for me, given, you know, I appreciate all the detail on this call already. Just to confirm the ITC expectations that you laid out at the Sustainability Investor Day, the $250 million-$350 million, that's still the right range we should be thinking about, just to confirm that number? Yes. We'll provide greater detail in the future once we have a bit more clarity from the IRS, but we feel confident in those ranges. Okay, that's helpful. Then, you know, you mentioned, I think, churn in the prepared remarks, not churn, sorry, the conversion rate in your prepared remarks, you know, from core price, between core price and yield, 85%. That's obviously tracked nicely here over the past couple of years, if not longer. Just wondering how you think about that conversion rate, you know, as you crest this inflation we've seen, and it sounds like you're starting to see a little bit of, you know, disinflation or deflation in some of these buckets, or at least things aren't rising as fast. Do you think that makes, you know, smaller players a little bit more competitive if they're not seeing the same inflation, you know, they become a little bit more competitive on pricing and that conversion rate could slip a little bit? Or do you think you've structurally changed how you think about core price and yield to kind of hold on to that, even in an inflation environment that's, you know, let's say 3%-4% versus, you know, 6%-7%? Jim said it last quarter or the quarter before, you know, trying to expand margin when inflation's 8%, 9% is not ideal. As we see inflation tick down, and CPI is probably a good example of that, we see our ability to grow margin, obviously get a little bit stronger as inflation comes down. CPI obviously is tailing off. I look at that two ways, one of which is the cost side, which I commented on. The second piece of it is, as you look back on a lot of our index price contracts, we've still got a bit of a tailwind, and we talked about that when we gave guidance of about 5.5% conversion rate there. Lastly, I think it, whether it's been an inflationary environment, high CPI, lower CPI, if you look at our historic pricing strategy, we've priced to get to get margin on top of operating expenses, regardless of what's happened on the CPI side. No, that's excellent. Thank you for the color. I'll leave it there. Thank you very much. Thank you. I would like to turn the conference back over to Jim Fish, President and CEO, for his closing remarks. Okay, thank you so much. Really appreciate your detailed questions this morning. It helped us to explain why we're feeling good about this quarter coming out. Thank you for those. Thank you all for joining us. Looking forward to talking to you again next quarter. This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.