Q2 2025 GFL Environmental Inc Earnings Call

Sherry: Good morning, everyone. Thank you for attending today's GFL second quarter 2025 earnings call. My name is Sherry, and I will be your moderator today. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to our host, Patrick Dovigi, founder and CEO of GFL. Please go ahead.

Patrick Dovigi: Thank you, and good morning. I would like to welcome everyone to today's call, and thank you for joining us. This morning, we will be reviewing our results for the second quarter and updating our guidance for the year. I'm joined this morning by Luke Pelosi, our CFO, who will take us through the forward-looking disclaimer before we get into the details.

Good morning everyone, thank you for attending. Today's gfl second quarter 2025 earnings call. My name is Jerry and I will be your moderator today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers. At the end, if you would like to ask a question, please press star 1 on your telephone keypad, I will now like to pass the conference over to our host, Patrick dovigi founder and CEO of gfl. Please go ahead.

Thank you and good morning. I would like to welcome everyone to today's call and thank you for joining us this morning. We will be reviewing our results for the second quarter and updating our guidance for the year. I'm joined this morning by Luke Pelosi, our CFO who will take us through the forward-looking disclaimer before we get into the details.

Luke Pelosi: Thank you, Patrick. Good morning, everyone, and thank you for joining. We have filed our earnings press release, which includes important information. The press release is available on our website. During this call, we'll be making some forward-looking statements within the meaning of applicable Canadian and US securities laws, including statements regarding events or developments that we believe or anticipate may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set out in our filings with the Canadian and US securities regulators. Any forward-looking statement is not a guarantee of future performance, and actual results may differ materially from those expressed or implied in the forward-looking statements. These forward-looking statements speak only as of today's date, and we do not assume any obligation to update these statements, whether as a result of new information, future events and developments, or otherwise.

Thank you, Patrick. Good morning, everyone and thank you for joining. We have filed our earnings press release, which includes important information, the press release is available on our website

During this call, we'll be making some forward-looking statements within the meaning of applicable Canadian and US Securities laws including statements regarding events or developments that we believe or anticipate may occur in the future.

Luke Pelosi: This call will include a discussion of certain non-IFRS measures. A reconciliation of these non-IFRS measures can be found in our filings with the Canadian and US securities regulators. I will now turn the call back over to Patrick.

These forward-looking statements are subject to a number of risks and uncertainties including those that out in our filings, with the Canadian and US Securities Regulators. Any forward-looking statement is not a guarantee of future performance and actual results May differ materially from those expressed or implied in the forward-looking statements. These forward-looking statements speak only as of today's date. And we do not assume any obligation to update these statements, whether as a result of new information, future events and developments, or otherwise this call will include a discussion of certain non-ifrs measures. A Reconciliation of the Dawn, IRS measures can be found in our filings with the Canadian and US Securities Regulators. I will now turn the call back over to Patrick.

Patrick Dovigi: Thank you, Luke. This quarter saw the continuation of the broad-based outperformance with which we started the year, driving results ahead of expectations despite multiple external headwinds. We achieved solid ways to adjust the dividend margins in the second quarter of 34.7%, the highest Q2 in our company's history. And our revised outlook for the remainder of the year is better than we originally anticipated. This consistent delivery of record-setting performance once again demonstrates the ongoing dedication and capabilities of our employees, and I want to again thank each and every one of them for their commitment to Team Green. Our top-to-bottom beat against expectations was achieved despite FX rates and commodity prices moving against us since we provided the Q2 guidance back in May.

Thank you, Luke.

This quarter saw the continuation of the broad-based outperformance with which we started the year. Driving results, ahead of expectations, despite multiple external, headwinds,

We achieved Solid Waste adjusted even to margins in the second quarter of 34.7%, the highest Q2 in our company's history.

And our revised outlook for the remainder of the year is better than we originally anticipated. This consistent delivery of record setting performance, once again demonstrates the ongoing dedication and capabilities of our employees, and I want to again, thank each and every 1 of them for the commitment to Team Green.

Patrick Dovigi: We believe this is a continued demonstration of the quality of our asset base, the effectiveness of our value creation strategies, and the resiliency of our business model. Both pricing and volume were higher than expected for the quarter and continue to trend above our initial guidance. The intentional shedding of lower quality revenue and disciplined pricing strategy ensures we are generating appropriate returns for the high-quality services we provide. Because of this, we are increasing our pricing guidance and now expect to deliver over 5.5% pricing for the year. Volume was positive for the third quarter in a row and accelerated 150 basis points over the first quarter. This result was achieved even with macro headwinds impacting construction-oriented volumes and industrial demand.

Was achieved despite FX rates and commodity prices moving against us since we provided the Q2 guidance back in. May we believe this is a continued demonstration of the quality of our asset base, the effectiveness of our value creation strategies and the resiliency of our business model

Both pricing and volume were higher than expected for the quarter and continue to Trend above our initial Guidance, the intentional shedding of lower quality revenue and discipline pricing strategy ensures. We are generating appropriate returns for the high quality services. We provide because of this, we are increasing our pricing guidance. And now expected to deliver over 5 and a half percent pricing for the year.

Volume was positive for the third quarter, in a row and accelerated 150 basis points over the first quarter.

Patrick Dovigi: We believe the current tariff environment and broader economic uncertainty are limiting activity levels of many of our industrial customers, having a flow-through impact on volumes, especially in our roll-off collection. Tailwinds from our recent strategic growth investments in EPR, together with the positive underlying trends arising from our market selection, are more than offsetting these demand side pressures. Although our exposure to cyclical end markets is low overall, we remain well-positioned to benefit from any recovery in the macroeconomic environment. The effectiveness of our revenue-related strategies is also reflected in our margins, where we realized a 230 basis point expansion over the prior year. Lower labor turnover, together with continuing progress in implementing our self-help initiatives and M&A synergy realization, all continue to contribute to our industry-leading organic margin expansion.

This result was achieved even with macro headwinds impacting construction-oriented volumes and industrial demand.

we believe the current tariff environment, and broader economic uncertainty are limiting activity levels of many of our industrial customers having a flow through impact on volumes, especially in our rolloff collection,

Tailwind from our recent strategic growth investments in epr together with the Positive underlying Trends arising from our Market selection are more than offsetting these demand side pressures.

Oh, boar exposure to cyclical and markets is low. Overall, we remain well positioned to benefit from any recovery in the macroeconomic environment.

The effectiveness of our Revenue related strategies is also reflected in our margins where we realize a 230 basis point expansion over the prior year.

Patrick Dovigi: As highlighted at our investor day, we see a clear path in the near term to low to mid-30% adjusted EBITDA margins, which should result in higher free cash flow conversion and returns across all of our asset base. On M&A, we completed three small Tucken acquisitions for the quarter and are anticipating closing three more tomorrow. Our pipeline remains robust, and we remain highly confident in our ability to meet or exceed our M&A capital deployment targets for 2025 and beyond. The backend weighting of this year's M&A activity gives rise to a lower current year contribution, but sets us up for a larger rollover amount into 2026, positioning us for yet another year of exceptional growth.

Lower labor, turnover together with continuing progress and implementing our self-help initiatives and m&a. Synergy realization all continue to contribute to our industry-leading, organic margin expansion as highlighted at our investor day. We see a clear path in near-term to low to mid 30% adjusted. Eva margins which should result in higher free cash flow conversion and returns across all of our asset base.

On m&a, we completed 3 small tuck in Acquisitions for the quarter and are anticipating closing, 3 more tomorrow. Our pipeline remains robust and we remain highly confident, in our ability to meet or exceed, our m&a Capital deployment, targets for 2025 and Beyond.

Patrick Dovigi: The strength of our first half results, together with the opportunities we see in front of us, allow us to increase our full-year guidance, even in the face of economic uncertainty we see in many of our markets. Our 2025 guidance is industry-leading in organic revenue growth and adjusted EBITDA margin expansion. Luke will walk you through the updated guidance in more detail, but we are increasing our adjusted EBITDA target by 50 million, or 2.6%, considering the translation of impact of FX. I will now turn the call to Luke. We'll walk through the quarter in more detail, and then I'll share some closing comments before we open up for Q&A.

The back-end waiting of this year's m&a. Activity gives rise to a lower current year contribution, but CES sets us up for a larger rollover amount into 2026, positioning us for yet. Another year of exceptional growth

The strength of our first half results together with the opportunities we see in front of us, allow us to increase our full year guidance. Even in the face of economic uncertainty, we see many of our markets. Our 2025 guidance is industry-leading, organic Revenue growth and adjusted e but a margin expansion. Luc will walk you through the updated guidance in more detail. But we are increasing our adjusted Eva Target by 50 million or 2.6% before the, considering the translation of impact of FX, I will not turn the call to Luke, who will walk through the quarter in more detail and then I'll share some closing comments before we open up for Q&A.

Luke Pelosi: Thanks, Patrick. Similar to our first quarter discussion, all of our financial results and the associated analysis exclude the contribution from ES from the comparative prior year period. Consolidated revenue for the quarter of 1.675 billion was 9.5% ahead of the prior year pro forma for divestitures. Pricing and volume were both ahead of plan, whereas commodity prices, surcharges, and contribution from FX were all headwinds to plan, as the external factors on which these amounts are calculated changed significantly between the time we gave our guidance and the end of the second quarter. Second quarter revenues would have been approximately $10 million higher if not for these exogenous changes. The carry forward of our strong first quarter pricing, along with incremental pricing actions enacted in response to ongoing cost inflation in select markets, contributed to pricing of 5.8%, 30 basis points ahead of plan.

Thanks Patrick.

Similar to our first quarter discussion. All of our financial results in the associated analysis exclude, the contribution from es from the comparative prior year period, Consolidated revenue for the quarter of 1.675 billion was 9.5% ahead of the prior year, proforma for a devest

Pricing and volume were both ahead of plan, whereas commodity prices search charges and contribution from FX for all headwinds to plan. As the external factors on, which these amounts are calculated change significantly. Between the time, we gave our guidance and the end of the second quarter,

Second quarter revenues would have been approximately $10 million higher if not for these exogenous changes.

Luke Pelosi: For the full year, we now expect to realize pricing of 5.5% to 5.75%, 25 basis points better than our original guide. Volume was positive in both of our geographies, with over 200 basis points of sequential volume growth acceleration in our US geography as we move past the weather-related headwinds that impacted the first quarter. The positive volume was achieved inclusive of both roll-off poles and C&D landfill volumes being down in what we ascribe to macro-related slowdown. Consistent with the first quarter, recyclable volumes associated with EPR-related activities continue to be a tailwind. Second quarter adjusted EBITDA margin was 30.7%, 230 basis points higher than the prior year, and 60 basis points ahead of our guide. The 2024 Michigan residential divestiture, the net impact of lower fuel prices and R&G contributions were a tailwind to margins, whereas commodity prices and acquisitions were a headwind.

The carry forward of our strong first quarter pricing. Along with incremental pricing actions, enacted in response to ongoing costs inflation and select markets contributed to pricing of 5.8% 30 basis points ahead of plan for the full year. We now expect to realize pricing of 5.5 to 5.75% 25 basis points better than our original guide.

Volume was positive in both of our geographies. With over 200 basis points of sequential volume growth acceleration, in our US geography. As we move past the weather related headwinds, that impacted the first quarter, the positive volume was achieved. Inclusive of both rolloff, poles and C, and D landfill volumes being down and what we ascribe to macro related slowdowns.

Consistent with the first quarter for cyclable volumes associated, with epr related activities, continues to be a Tailwind.

Luke Pelosi: Excluding all these items, underlying solid waste margins expanded 170 basis points. Adjusted free cash flow was approximately $137 million, a result better than plan on account of the adjusted EBITDA outperformance and the timing of CapEx. The $190 million year-to-date investment in working capital is consistent with our typical seasonal cadence and is expected to largely reverse by the end of the year, although with the revenue growth outperformance, we now expect a modest investment in working capital for the year as a whole. As Patrick said, despite the multitude of external headwinds, the success of our first half results set us up to increase our guidance for the year. Revenue is now expected to be approximately 6.55 to 6.575 billion, based on the FX rate of 1.37 for the remainder of the year.

Potential. The vesture, the dent impact of lower fuel prices and RNG contributions where Tailwind to margins, whereas commodity prices and Acquisitions were a headwind. Excluding all these items underlying Solid Waste margins expanded. 170 basis points.

Adjusted free cash flow was approximately 137 million, a result better than plan on account of the adjusted. Evida outperformance and the timing of capex.

The 1990 million year-to-date investment in working capital is consistent with our typical seasonal, Cadence and is expected to largely Reverse by the end of the year. Although, with the revenue growth outperformance, we now expect a modest investment in working capital for the year as a whole

As Patrick said, despite the multitude of external headwinds, the success of our first half results, set us up to increase our guidance for the year.

Luke Pelosi: Recall our original revenue guidance of 6.5 to 6.55 billion was based on the then FX rate of 1.41. Every one point move in FX is about a $30 million impact to annualized revenues. Our updated guidance would have been 6.625 to 6.65 billion on a constant currency basis, representing a 1.7% increase over our original guidance. The updated guidance assumes pricing of 5.5% to 5.75%, volume of positive 25 to 75 basis points, and net M&A contribution of 40 to 50 basis points. The guide assumes today's commodity and RIN prices, and the current macro environment persists. Any improvement to these variables will provide upside to the guide. The contribution from M&A, incremental to what has been included in the guide, will also be additive.

Revenue is now expected to be approximately 6.55 to 6.575 billion. Based on the FX rate of 1.37 for the remainder of the Year recall, our original Revenue. Guidance of 6.5 to 6.55 billion was based on the then FX rate of 1.41. Every 1 Point move in FX is about $30 million impact to annualized revenues.

Are updated guidance, would have been 6.625 to 6.65 billion on a constant currency basis. Representing a 1.7% increase over our original guidance,

The updated guidance assumes pricing of 5.5 to 5.75% volume of positive. 25 to 75 basis points and net m&a, contribution of 40 to 50 basis points.

The guide assumes today's commodity and written prices and the current macro environment. Persists, any Improvement to these variables will provide upside to the guide.

Luke Pelosi: Adjusted EBITDA guidance increases to 1.95 to 1.975, a $25 million increase at today's FX rates, or a $50 million increase over our original guide on a constant currency basis. At the midpoint, year-over-year margin expansion increases to 120 basis points, an incremental 20 basis points over our original guidance, resulting in consolidated margins of just under 30%, as the strength of our base business performance more than offsets the industry-wide margin headwinds from muted industrial and construction-related volumes and lower commodity prices. In terms of adjusted free cash flow, the $25 million of incremental adjusted EBITDA gets offset by incremental cash interest expense associated with deploying the ES proceeds into share repurchases faster than originally anticipated and capital deployed into M&A.

The contribution from M&A, incremental to what has been included in the guide, will also be additive.

Adjusted ebit a guidance increases to 1.95 to 1.975 a 25 million. Increase at today's FX rates or a fifty million dollar. Increase over our original guide on a constant currency basis. At the midpoint year-over-year, margin expansion increases to 120 basis points, and incremental 20 basis points. Over our original guidance, resulting in Consolidated margins of just under 30% as the strength of our base, business performance, more than offsets, the industry-wide margin, headwinds from muted, industrial, and construction related volumes and lower commodity prices.

Luke Pelosi: As I previously said, we now expect a modest working capital investment for the year, as well as net CapEx of approximately $750 million, an increase over our original guidance, largely attributable to the acquisition of a strategic property that was previously being leased. The expectation is that these incremental investments will be largely offset by reduced cash taxes from recent changes to US tax legislation. We are therefore reaffirming our $750 million adjusted free cash flow expectation. As to the third quarter of 2025, we expect consolidated revenue of approximately 1.69 to 1.695 billion, an adjusted EBITDA of 525 million, which implies an adjusted EBITDA margin of about 31%, and continued margin expansion over the prior year pro forma for the ES sale.

In terms of adjusted free, cash flow. The 25 million of incremental adjusted ibida. Gets offset by incremental cash interest expense associated. With deploying, the es proceeds into share repurchases faster than originally. Anticipated and capital deployed into m&a.

As I previously said, we now expect a modest working capital investment for the year as well as net capex of approximately 750 million an increase over our original guidance, largely attributable to the acquisition of a strategic property that was previously being released.

Expectation. Is that these incremental investments will be largely offset by reduced. Cash taxes from recent changes to us tax legislation. We are therefore reaffirming our 750 million adjusted free cash flow, expectations.

Luke Pelosi: Q3 adjusted free cash flow is expected to be approximately $175 million, inclusive of $120 million in cash interest, $250 million in base CapEx, and $20 million net recovery from working capital and other operating cash flow items. I will now pass the call back to Patrick, who will provide some closing comments before Q&A.

As to the third quarter of 2025, we expect Consolidated revenue of approximately 1.69 to 1.695 billion, and adjusted ibido 525 million, which implies an adjusted ebit and margin of about 31% and continued margin expansion over the prior year, ProForm for the es sale.

Q3 adjusted free cash flow is expected to be approximately 175 million inclusive of 120 million in cash interest, 250 million in base capex and 20 million. Net recovery from working capital and other operating cash flow items.

I will now pass the call back to Patrick, who will provide some closing comments before Q&A.

Patrick Dovigi: Thank you, Luke. As I said in the quarter, our financial performance continues to prove the quality of our assets in market selection and the effectiveness of our strategic plan that we laid out at investor day. The operational resiliency of our business in the face of multiple external headwinds that we demonstrated with our results this quarter further reinforces our conviction that GFL is uniquely positioned for industry-leading financial performance and value creation for all of our shareholders in the near term. I'll now turn the call over to the operator to open up the line for Q&A.

Thank you, Luke. As I said in the quarter, our financial performance continues to prove the quality of our assets and markets election. And the effectiveness of our strategic plan that we laid out at investor day.

The operational resiliency of our business in the face of multiple external headwinds that we demonstrated with our results, this quarter further, reinforces our conviction. That gfl is uniquely positioned for industry-leading financial performance and value creation, for all of our shareholders, in the near term.

I'll now turn the call over to the operator to open up the line for Q&A.

Sherry: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you, if for any reason you would like to remove your question, press star followed by two. Again, to ask a question, press star one. Please limit to one question and one follow-up. As a reminder, if you are using a speakerphone, please remember to pick up your headset before asking a question. We will pause here briefly as questions are registered. Thank you. Our first question comes from Sabahat Khan from RBC Capital. You may now proceed.

Thank you. If you would like to ask a question please press star. Followed by 1 on your telephone keypad.

Remove your question. Press star, followed by 2 again to ask a question. Press star. 1 please limit to 1 question and 1, follow-up. As a reminder, if you are using a speaker-phone, please remember to pick up your handset before asking a question, we will pause here briefly as questions are registered.

Thank you. Our first question comes from

Our VC Capital, you may not receive.

Sabahat Khan: Great. Thanks, and good morning. Just before getting into the business, there are a bunch of headlines in the press over the recent months around the potential options the company might be considering for the GIP business. So maybe I just wanted to give you an opportunity to talk about, one, how you're thinking about that business and some options and kind of second part there. Maybe you can just give us some color on the current composition of that business across aggregates and some of the other business lines. And just sort of a third clarification question, there was a $24 million monetization or a gain that was reflected in the quarter. If you can just clarify that as well, thanks.

Great. Uh, thanks and good morning uh, just before getting into the the business. So there are a bunch of headlines in the Press over.

Recent months around the potential options. A company might be considering for the Gip business, so, maybe just want to give you an opportunity to talk about 1, how you're thinking about that business and some options and kind of second part there. Um maybe you can just give us some color on the current composition of that business across Aggregates and some of the other business lines and just sort of a third clarification question there was a 24 million dollar

Um, monetization or a game that was uh reflected in the core of things, just to clarify that as well. Thanks.

Patrick Dovigi: Yes, Abha. Yeah, so as you know, I mean, I think we carved that business out of the GFL book in 2022. You know, so I've had it owned it as a private business now for approximately three years. I think, you know, at the time, you know, our equity value in that business was valued, you know, on the books as somewhere around, you know, $250 million. I think you mentioned a footnote of just the rebasing of that. That $25 million is really nothing. It's really because we did an acquisition and one of the principals of that business that we bought, they actually ended up taking equity in GIP. So technically, we sold them equity at a, you know, much higher value. So it sort of got rebased.

Uh, yeah. So as you know, I mean, I think we we carve that digit out of, you know, the gfl book in in 2022. Um, you know, so how it owned it as a private business. Now for approximately 3 years, I think, you know, over the at the time, um, you know, our Equity value in that business was was valued, you know, on the books. It's somewhere around, you know, 250 million dollars. Um I think you, you mentioned a footnote of just the rebasing of that. Um, that 25 million is really nothing. It's really because we did an acquisition and and 1 of the

Patrick Dovigi: But by and large, I think what you'll see through the process that, you know, you've seen some headlines recently, you know, we're looking to conclude that process over the next two to three weeks. I think we're on the five-yard line. You know, we're down to two to two final bidders, and you know, we're in the process of just winding that process down. And I think you'll see a very favorable result, but you know, we'll share that when the final party is selected and we get to the market. But I think what you'll see is a rebasing of our equity significantly higher, consistent with what we thought values of that business could be over, you know, the near to sort of medium term. As we said, it would be, you know, I think from our perspective, partial monetization, not a full monetization.

Principles of that business that we bought, they actually ended up taking Equity, uh, in Gip. So, technically, we sold them Equity at a, you know, much higher value. So, it's sort of got rebates, but by and large, I think what you'll see through the process. That, you know, we've seen some headlines recently, um, you know, we're looking to conclude that process over the next

Um, 2 to 3 weeks, I think we're on the 5 yard line, you know, we're down to 2 to 2 final bidders. And, uh, you know, we're we're in the process of just winding that process down, and I think you'll see a very favorable result but, you know, we'll, we'll share that. Um, when the final party is selected and and we get to the market. But I think what you'll see is is a rebate of our Equity significantly higher consistent with what we um, thought values of that business.

this could be over, you know the the near to sort of medium-term

Patrick Dovigi: We continue to see a significant amount of opportunities in that business, but there will be a dividend that comes back to GFL to use, again, for further M&A within the existing portfolio. And certainly, at these levels, continued share buybacks with the proceeds that we get from that sale process. But like I said, nothing is 100% done until it's done, but we're feeling very good about it. And you know, we think that we'll have something to report in the next coming weeks.

Um, as we said it would be, you know, I think from our perspective partial monetization, not a full monetization, we just continue to see a significant amount of opportunities in that business, but there will be a dividend that comes back to gfl. Um, to use again for further m&a, within the existing portfolio, um, and certainly at these levels continue share BuyBacks, um, with the proceeds that we get from, from that sale process, but like I said, nothing is 100% done until it's done, but we're feeling very good about it. And, you know, we think that, uh, we'll have something to report in the, in the, in the next coming weeks.

Sabahat Khan: Great. And then just on the margin side, good progress this quarter. It sounds like you pointed 31% for the next quarter. If you can maybe just recap or give us an update on some of the self-help levers and the improvements that you sort of highlighted at the investor day, where you are on those, and you know, what you expect to contribute to this full-year guidance here for the rest of the year. So just a bit of an update on the margin side, please.

Luke Pelosi: Yeah. Hey, Saba. Good morning. It's Luke. It's a great question, and obviously something that we're sort of really excited about. You know, you can see it in the current quarter results, you know, exceeding what we're already, you know, we think, pretty sort of ambitious expectations or goals. And it's, as you said, a function of all of those levers, you know, contributing to the overall sort of cause. You know, I start to the top line. You can see the pricing outperformance of the current quarter. I mean, one of the self-help levers we had talked about at the investor day was on the surcharges line, right? And there's just a whole host of incremental fees that we should be getting for the services we provide. And we've talked about initiatives to get those in place and go out and harvest that opportunity.

Great. And then, um, just uh, on the, on the margin side, good progress, this quarter. It sounds like your point is 31% for the next quarter. If you can maybe just recap or give us an update on some of the, the self-help Believers, and the improvements that you sort of highlighted at the investor day, where you are on those and you know what, you expect to contribute to this uh folio guidance here for the rest of the year. So just a bit of an update on the margins side, please.

Yeah. Hey Sava. Good morning, it's Luke. It's a great question and obviously something that we're sort of really excited about. You know, you can see it in the current quarter results, you know, exceeding what we're already, you know, we think pretty sort of ambitious.

Luke Pelosi: And while we're early stages, it's starting to contribute. And so some of that price outperformance, I think we had articulated a $40 to $80 million opportunity for surcharges by the time we got to 2028. You know, very early stages, but we're starting to realize some of that benefit. And you're seeing that come through on the top line. You know, as you go down the P&L, you know, I think another key opportunity was labor turnover, right? And just the benefits that will come from attracting and retaining talent and keeping them in the doors for longer. And you're seeing that. A continued sequential improvement in the turnover rates, you know, still not where we ultimately want to be, but probably another 100, 200 basis points improvement, you know, in the current quarter versus on a year-over-year basis. And that accrues into that labor line, right?

Luke Pelosi: All in labor, you can think of it as 25, 35% of the P&L. And obviously, improving that turnover is a key part to driving productivity and cost savings, and you're seeing that come through. And then, you know, as you just think about the broader buckets of cost, right, we talked about synergy realization. We talked about procurement optimization. Each of those levers are being pulled, and the team is being able to deliver, you know, in excess of, as I said, what was already pretty ambitious 2025 expectations. So you're right, Q3, the expectation is it continues. for the guide, the year as a whole, we now see an incremental 20 basis points at the midpoint over what was already our starting 100 basis points.

Turn over, right? And just the benefits that will come from attracting and retaining talent and keeping them in the doors for longer and you're seeing that it continued sequential Improvement in the turnover rates, you know, still not where we ultimately want to be, but probably another 100 200 basis points Improvement, you know, in the current quarter versus on a year-over-year basis and that acrs into that that labor line, right? All in labor, you can think of is 25, 35% p&l,

Luke Pelosi: and we're, you know, really excited for the continued performance, and, you know, proud of how well everyone is executing on these strategic plans.

Patrick Dovigi: Thanks very much.

Um, and obviously improving that turnover is, is a key part to driving productivity and cost savings and you're seeing that come through. And then, you know, as you just think about the broader buckets of cost, right? We talked about Synergy, realization we talked about procurement optimization, each of those levers are being pulled and the team is being able to deliver, you know, in excess of, as I said, what was already pretty, ambitious 202, 256. So, you're right Q3 the expectation. Is it continues, uh, for the guide, the year, as a whole, we now see an incremental 20 basis points at the midpoint over, what was already, our starting 100 basis points uh, and we're, you know, really excited for the continued performance. Uh, and you know, proud of how well, everyone is executing on these strategic plans.

Thanks very much.

Sherry: Thank you. Our next question from Stephanie Moore from Jefferies. You may now proceed.

Thank you. Our next question from Stephanie, Moore from Jeffries.

You may now proceed.

Stephanie Moore: Hi. Good morning. Thank you. You know, Patrick, you noted previously, you know, that your M&A pipeline, you know, the majority of the pipeline you were looking at was, you know, Tucken acquisitions with an existing market. Just curious if maybe that has changed at all if you look at the back half, and then if you could maybe speak to the visibility, the M&A you have in the second half of this year. Thanks.

Hi, good morning. Thank you.

Patrick Dovigi: Yeah, no problem. Thanks, Stephanie. You know, I think from where we sort of sit today, I mean, it's been a very busy first half of the year, one, with the original, you know, the carve-out of the ES business, and then the, you know, I would say the recapitalization of the infrastructure business combined to sort of what we do every day on the solid waste side. I think we've deployed just, you know, just over $300 million of capital today into M&A. You know, I think we guided to $700 to $900 million spend this year on M&A and were fully on track to do that, fully on track to achieve the high end of that range. So visibility is very good.

Um, you know, Patrick you noted previously, um, you know, that your m&a pipeline, you know, the majority of the pipeline you're looking at was, you know, tuck in Acquisitions, um, with an existing Market, just curious if maybe that has changed at all. If you look at the back half and then if you could, maybe speak to the visibility to m&a, you have in the second half of the year, thanks.

Yeah, no problem. Thanks Stephanie. Um, you know, I think from where we sort of did today. I mean, it's listen, it's been a very busy, uh, first half of the year, um, 1 with the original, you know, the car vote of the yes business. And then the the, you know, I would say the the recapitalization of the infrastructure business combined to sort of what we do every day on the solid waste side. I think we've deployed

Patrick Dovigi: And, you know, although there won't be a large in-year contribution from the M&A, I think setting us up perfectly for an outsized, you know, year of growth in 2026 because of the rollover effect of that M&A that's going to close in the back half of the year here. So, very good visibility. In terms of moving to new markets, you know, nothing has changed on that thinking. Again, continued focus is on densifying existing markets where we have, you know, underutilized post-collection assets. we think that's going to get us the highest returns on our vested capital. And, you know, for the for the time being, that's where we're focused. And, you know, we don't see any reason to sort of step outside those markets that we're currently operating in today.

some you know just over hundred million dollars of capital today in m&a. Um you know I think we got it to 700 to 900 million, spend this year on m&a um and we're fully on track to do that fully on track to achieve the high end of that range. Um so visibility is very good um and you know all although there won't be a large in your contribution from the m&a, I think.

Setting us up perfectly for an outsized, you know, year of growth in 2026 because of the rollover effect of that M&A. That's going to close in the back half of the year here. So, um, very good visibility in terms of moving to new markets, you know, nothing has changed on that. Thinking again, continued focus is on densifying the existing markets, where we have, you know, underutilized post-collection assets. Um,

we think that's going to get us the highest Returns on our investor capital and you know,

For the for the time being, that's where we're focused. And, you know, we don't see any reason to sort of step outside those markets that we're currently operating in today.

Stephanie Moore: Got it. Thank you. And then maybe just a follow-up to the volume performance. You know, look, I think at this point, we've all seen or heard, you know, that obviously the industrial economy is really weak. There can be lumpiness with special waste volumes. But your volume performance, you know, definitely continues to be a clear standout. So if you could just kind of talk about the puts and takes for the volume performance in the quarter, specifically with, as you noted, both regions seeing positive contributions. Thank you.

Thank you. And then

Luke Pelosi: Yeah, thanks, Stephanie. It's Luke here. Happy to walk through it because, again, you know, performance that we're sort of proud of. And I think it speaks to, you know, some of the strategies that we've been talking about, both in terms of market selection as well as the strategic investments that we've been sort of making. I mean, on the market selection piece, again, we've spoken to the benefit we have of having large businesses in, you know, the US Southeast, where a lot of people are sort of moving to. And, you know, new houses yield new business, which yields new opportunities for us. And then also regulatory environment. Right? And Canada as a whole tends to historically have been a good volumetric business just by virtue of, you know, increased regulation that drives volumetric opportunities.

The volume performance. Um, you know, look I think at this point, we've all seen or heard, you know, that obviously, the industrial economy is really weak, there can be lumpiness with special waste volumes, but your volume performance, you know, it's definitely continues to be a clear standout. So if you could just kind of talk about the puts and takes for the volume performance in the quarter, specifically with, as you noted both regions saying positive contribution, thank you.

Yeah, thanks Stephanie, it's Luke here. Um, happy to walk through it. This is again, you know, performance that we're sort of proud of, and I think it speaks to, you know, some of the strategies that we've been talking about both in terms of Market selection, as well as the Strategic Investments that we've been sort of making, I mean, on the market selection piece. Again, we've spoken to the benefit, we have of having large businesses and, you know, the US Southeast where a lot of people are sort of moving to, and, you know, new house.

Luke Pelosi: And we're certainly seeing that with EPR, which ties into the sort of strategic investment, right? The regulatory change gave opportunity for capital deployment that we saw as an attractive return profile. And as you know, we have heavily invested in that. And, you know, there's been a couple of years we've been on these calls talking about all this investment we've been making. But now, fortunately, we're finally at the time where we get to reap the rewards from that. And it's sort of playing out as anticipated. I mean, Canadian volume was 6.3% for the quarter. Now it was 6.9% in Q1, but Q1 benefited from one large event-driven sort of destruction of a car plant, which was about $10 million of transfer station volume we called out. If you exclude that, Q1 was 4.6%. So you're really now sequentially increasing to 6.3% in Canada for Q2.

Luke Pelosi: Now, EPR is a big driver of that, as it was intended to be. And so if you back that out for Canada, it's about sort of 2.5% volume growth, which I think is just a sort of function of the quality of the business that we have and, you know, a little bit of the catch-up of Q1 because recall that was a little bit sort of muted by virtue of the real sort of winter that was experienced in many markets. The US is arguably the more sort of shining star in that, you know, volume growth returned positive from what we had in Q1. Now Q1 heavily weather-related impacts. But the current positive volume growth there, despite the industrial and construction-oriented slowdown, I think, you know, really speaks volumes, pardon the use of that word, to the business that we have there.

Updated. I mean Canadian volume was 6.3% for the quarter. Now, it was 6.9 in q1 but q1 benefited from a 1 large event driven, sort of Destruction of a car plant which about 10 million dollars of transfer station volume. We we called out if you exclude, that q1 was 46. So you really know sequentially increasing to 63 in Canada for Q2. Um, now epr is a Big Driver of that as it was intended to be and so if you back that out for Canada's but sort of 2 and a half percent volume growth um which I think is just a sort of function of the quality of the business that we have and, you know, a little bit of the catch up of q1 because recall that was a little bit sort of muted by virtue of the, the real sort of winter that was experienced in many markets. The US is arguably, the more sort of shining star in the, you know, volume growth return, positive from, uh, what we had in the q1. Now, q1 heavily weather related impacts but the print positive volume growth there. Just

Luke Pelosi: I mean, if I look at C&D waste, it was down 8% quarter over quarter, which I think is a function of that sort of macro piece. Now, as we said in the prepared remarks, we've never been able to grow a business that had a high degree of exposure to the most cyclical ends of the market. And that's really coming out of, you know, our historical leverage profile. So I think we have more de minimis exposure to some of the soft areas, but it's also just a function of benefiting from the investments that we've been made, both organically and inorganically. And we're excited to sort of continue as we go forward.

Despite the industrial and construction oriented slowdown. I think it, you know, really speaks volumes part of the use of that word, um, to the business that we have there. I mean, if I look at C and D waste, uh, I was down 8% quarter over quarter, which I think is a function of that sort of macro piece. Now, so we said, in the prepared remarks, we've never been able to grow a business that had, uh, High degree of exposure to the most cyclical ends of the market. And that's really coming out of, you know, our historical leverage profile. Um, so

So I think we have more Dominus exposure to some of the soft areas. Um but it's also just a function of benefiting from the Investments that we've been made, uh, both organically and inorganically and we're excited uh to sort of continue as we go forward.

Sherry: Thank you. Our next question is from Patrick T. Brum from Raymond James. You may now proceed.

Thank you. Our next question is from Patrick T Brougham from Raymond James.

You may not proceed.

Tyler Brown: Hey, guys. This is Tyler. Can you hear me?

Hey guys, this is Tyler. Um, can you hear me?

Patrick Dovigi: Yeah, we can hear you.

Tyler Brown: Hello? All right.

Yeah, we can hear you.

Patrick Dovigi: Yeah, Tyler, we can hear you.

Hello.

Tyler Brown: Sorry. I don't. Yeah, good deal. Hey, look, can we can we go back to volume thing? I just need some clarification because I think it's a little bit confusing. So you printed 2.5% volumes, but my hunch is the vast majority of that was EPR and R&G investments layering in. Is that correct? And two, on the 25 to 75 basis points on volume guidance, is that excluding EPR and R&G, or is that what we're going to see in the table? Does that make sense?

All right, we can hear you. Sorry. I don't

Ya, good deal. Hey, Luke can we can we go back to volume thing? I just need some clarification because I think it's a little bit confusing so you print it 2 and a half percent volumes but my hunch is the vast majority of that was epr and RNG Investments layering in is that correct and 2 on the 25th to 75 basis points on volume guidance.

Is that excluding epr and RNG or is that what we're going to see in the table? Does that make sense?

Luke Pelosi: Yeah, Tyler, I'm not sure if you just heard my response to Stephanie, as I just sort of covered a bunch of that. But just to reiterate, EPR, if you think about for the quarter, EPR is contributing about $20,025 million of the global volume number, right? So certainly, EPR is providing a tailwind to the consolidated volumes. Now, even without that, Canada volume's positive 2.6%, and the US volume's also positive. But yes, you got a big chunk of it for being EPR. Now, remember, EPR was in our base guide, right? So for the year as a whole, the initial guidance was assuming we were going to be, call it, roughly flat on volume. I think we said minus 25 to positive 25. The new guide takes that up 50 bips. So now we're saying 25 to 75.

yeah, Tyler I'm not sure if you just heard my response to Stephanie, as I just sort of covered a bunch of that but just to reiterate,

Luke Pelosi: A little bit of that outperformance over original guide is incremental EPR benefits, right? So we're doing a little bit better than what the pro forma was on EPR volume. But the balance of that incremental volumetric guide is just broad-based volume across the system. On R&G, just so you know, by virtue of our arrangement, a very de minimis amount of our R&G EBITDA is actually manifesting in the revenue line, right? It's just all the sort of JV EBITDA pickup. So R&G really is not factoring into the volume story. But EPR is, although I would say the guidance raise is less about EPR and more about broad-based outperformance.

Epr. If you think about for, if you think about, for the quarter epr is contributing about 2025 million of the global volume number, right? So certainly epr is providing a Tailwind to the Consolidated volumes now, even without that Canada volumes positive 2.6%, and the US volume is also positive. But yes, you got a big chunk of it for being epr. Now remember epr was in our base guide, right? So for the year as a whole the initial guidance was assuming we're going to be call it roughly flat on volume. I think we said mine is 25 to positive 25. The new guide takes that up 50 bits. So now we're saying 25 to 75 a little bit of that outperformance over. Original guide is incremental epr benefits, right? So we're doing a little bit better than what the performer was on. Epr volume, but the balance of that incremental, volumetric guide is just broad-based.

Volume across the system on RNG to see, you know, by virtue of our arrangement, very de minimis amount of our RNG. EBITDA is actually manifesting in the revenue line, right? It's just all the sort of JV EBITDA pickup, so RNG really is not factoring into the volume story.

Um but epr is, although I would say, the guidance raised is less about epr and more about broad-based outperformance.

Tyler Brown: Okay. Okay. That's very helpful. No, I appreciate that. And then I know the CapEx is obviously split between US and Canada, but just any broad color on the dollars of what bonus depreciation means in 25. And if I go back to the analysts' day, I think you said that you were expecting, call it, a mid-40s free cash conversion. But with bonus depreciation, does that maybe jog up, say, 100 basis points or something like that? Just any any color there?

Luke Pelosi: Yeah, great questions, Tyler, and obviously sort of very topical. For the current year, bonus depreciation is expected to be about $25,000, $30,000,000 tailwind, right? And that's really, as you said, coming out of the US dollar CapEx. But as we said in the prepared remarks, I really have a little bit of extra CapEx, really $25,000,000 associated with one transfer station site that we used to lease and we had to buy because we couldn't lose it. And then a little bit of working capital investment. So that's sort of a wash at the free cash flow line. But $25,000, $30,000,000 bonus depreciation benefit this year. And that ramps up, you know, $40,000,000 next year, you know, and then grows from there, obviously contingent on the US dollar qualifying CapEx spend.

Any color there.

Luke Pelosi: But to your point on the free cash flow conversion, and I think that's a very important one, you know, if you think about the page that you're referring to in the investor day deck, we said, hey, over the next couple of years, you get up to 28, you got roughly $9 billion revenue, $2.9 billion, $3 billion of EBITDA, and we're going to be converting sort of mid low to mid-40s free cash flow conversion. And what were the drivers of that? Well, it was the EBITDA margin expansion. The capital intensity is what it is. We're going to enjoy a reduction in cash interest intensity as we migrated towards a more industry norm level of cash interest burden. But partially offsetting that was going to be this ramp in cash taxes, right?

Yeah, great question, Tyler. And I was sort of the very topical, um, for the current year bonus depreciation is expect to be at 2530 million Tailwind, right? And that's really, as you said, coming out of the US dollar capex. But as we said in the prepared remarks, I really have a little bit of extra capex. Really 25 million dollars associated with 1, transfer station site that we used to lease and we had to buy because we couldn't lose it. Um, and then a little bit of working capital investment, so, that's sort of a wash at the free cash flow line. But 2530 million bonus depreciation benefits this year, and that ramps up, you know, 40 million next year. You know, and then grows from there, obviously contingent on the US dollar qualifying capex spend, but to your point on the free cash flow conversion. And I think that's a very important 1. You know our, if you think about the page that you're referring to the investor day deck, we said, hey, over the next couple of years, you get up to 28, you got roughly 9 billion Revenue 2.93 billion dollars of eida. And we're going to be converting, sort of mid

Luke Pelosi: Because we're now sort of cash taxpayer, and we were going to go from cash taxes historically being 30 to 40 basis points of revenue, that was going to ramp up to the sort of 200 basis points of revenue that it represents for all of our peers. What the bonus depreciation is going to do is materially slow down that ramp in the cash tax burden. So all other things being equal, if you go back to that investor day where we said $2.9 to $3 billion of EBITDA, I'd call it 43% to 45% free cash conversion, that would have been $12.75 to $13.25 of free cash. And now you'd say you'd be $50,000,000 better than that, right? And so to your point, I think it equals about 200 basis points of incremental free cash flow conversion.

Uh for low to mid-40s free cash flow conversion. And what were the drivers of that? Well it was the ibida margin expansion. Capital intensity is what it is. We're going to enjoy a reduction in cash interest intensity as we migrated towards a more industry Norm, level of cash interest burden, but partially offsetting that was going to be this ramp in cash taxes.

Luke Pelosi: That 28% is a long way away, and there's obviously a lot of moving pieces. But absolutely, wherever we were going to get to before, we probably now have a 100 to 200 basis point tailwind that's going to allow us to hit that forehandle and go through that in a free cash flow conversion faster than we otherwise would have.

Right? Because we're now sort of cash taxpayer and we were going to go from cash taxes. Historically being 30 to 40 basis, points of Revenue, that was going to ramp up to the sort of 200 basis points of Revenue that it represents for all of our peers. What the bonus depreciation is going to do is materially slow down that ramp in the cash tax burden. So all other things being equal if you go back to that investor day and where we said 2.9 to 3 billion dollars of ibida, I'd call it 43 to 45% free cash, conversion. That would have been 1275 to 13 and a quarter of free cash. And now you'd say you'd be $50 million better than that. Right? And so, to your point, I think it equals about 200 basis points of incremental free cash, flow conversion that 28 is a long way away. And there's obvious a lot of moving pieces, but absolutely. Wherever we were going to get to before. We probably now have a 100 to 200 basis, point Tailwind, um, that's going to allow us to hit that forehand handle and go through.

through that, at a free cash flow conversion faster than we, otherwise would have

Tyler Brown: Right. Okay. Nope. Great color. Thank you, guys.

Right. Okay, nope. Great caller. Thank you guys.

Sherry: Thank you. Our next question is from Kevin Chyan from CIBC, Budh Gandhi. You may now proceed.

Thank you. Our next question, is from Kevin Chen from CIBC would Gandhi. You may now proceed.

Sabahat Khan: Hey, thanks for taking my question. And good morning. Luke, you kind of highlighted the strong organic growth in Canada. EPR is obviously a contributor there. It does feel like EPR is coming in, you know, as expected, maybe a little bit better. Just wondering, I know in the past you've talked about as a team kind of upside to EPR, EBITDA, you know, relative to the base cases. Is that kind of what we're tracking to now? And or is that something we could see in future years, like in '26, '27, as you continue to build on this EPR revenue stream?

Hey, uh, thanks for. Thanks for taking my question. Um, and and good morning. Um, uh, Luke, you you kind of highlighted the, the, the strong organic growth in Canada, epr's obviously a contributor there. It, it does feel like epr's coming in, you know, as expected, maybe a little bit better. Just wondering, I know in the past. You've talked about as a team kind of upside to epr ibitta, uh, you know, relative to the base cases is that kind of what we're tracking to now and and uh, or or is that something we could see in in future years like in 2627 as as you continue to build on this epr, epr Revenue stream

Luke Pelosi: Yes. So, Kevin, what we're seeing in the current year is not those incremental opportunities. I just want to be clear. This is really a picture scenario of Montreal. We opened our MRF to deal with EPR. We're expecting to do volume of 100 in the first year. And we're actually doing volume of 110 because our customer base is using our facility on a sort of temporary basis as other sort of components of EPR get up and running. So I think we're benefiting from some transitional style volumes that effectively are going to allow us to ramp to the $130 million of EBITDA faster than we otherwise would have. Because if I use that Montreal example, this incremental volume that I'm enjoying today, I'm not going to have that necessarily into next year, but incremental contracts are going to come on that will effectively replace it.

Yes. So Kevin what we're seeing in the current year is not those incremental opportunities. I just want to be clear. This is really picture scenario. Montreal, we open our murf to deal with epr. We're expecting to do volume of 100 in the in the first year and we're actually doing volume of 110 because our customer base is using our facility. Um and so the temporary basis as other sort of components of the epr get up and running. So I think we're benefiting from some transitional style volumes that effectively

Luke Pelosi: So I'd say what we're enjoying today is a modest sort of pickup of just volume associated with the transition to EPR. Now, the broader opportunities remain. And I'm going to let Patrick speak to that. But we still see across the country incremental opportunities as we have before. Patrick, do you want to provide some color on that?

Patrick Dovigi: Yeah. So if you look at EPR, I mean, there was, you know, as we talked about, there was a couple of opportunities. One that was in sort of maritimes on Canada, which we were not successful on. There's still a couple of opportunities in Quebec that we feel we're very well positioned for. And then as Western Canada comes online, you know, again, very well positioned with our assets. But, you know, everything is tracking the plan. I think the investments we made are going well and are on plan. So I think if we can just keep up this trajectory, you know, it will play out as, you know, we anticipated.

There was, you know, as we talked about there was a couple of opportunities. Uh, 1 that was in sort of Maritime still in Canada, um, which we were not successful on, um, there's still a couple of opportunities in Quebec that we feel were very well positioned for, um, and then as western Canada comes online. Um, you know, again very well positioned with our assets but, um, you know, everything is tracking the plan. I think the Investments we made, um, are going well, um, and are on plan. So I think, uh, if we can just keep up this trajectory, you know, we're we're, it will play out as, you know, we anticipated.

Sabahat Khan: That makes sense. And maybe just a quick modeling question, I guess. And maybe this is for you, Luke. You know, obviously, a lot of M&A this year, and it seems like the pipeline is huge. You spoke of outside contribution in '26 from M&A completed this year. As I think of how that impacts the corporate line item, should we assume that stays flat? Because if I recall at the investor day, you kind of talked about, you know, as you build out the platform here, you know, that corporate cost gets a little bit more incremental leverage into the bottom line. Is that kind of the right way to think about it as we think about the earnings contribution on a consolidated basis from this elevated M&A activity?

Luke Pelosi: Absolutely, Kevin. I think you're thinking about it exactly right. I mean, we've made investments over the last years into the corporate office just as we grew as a public company. And then, you know, most significantly over the last couple of years in IT-related infrastructure and cloud, etc. But I think where we're at today is, you know, we have the corporate function that we need, and we do not see the need for material incremental investments. So now is the time to drive meaningful operating leverage on that line. Recall, we had, you know, levered that line down to sort of a 2.5%, 3% of revenue. But then with the divestitures, both, you know, the smaller pieces through '23 and then the ES divestiture, that cost bucket sort of jumped back up to the sort of 4% as we retained a lot of that sort of corporate infrastructure.

That that that makes sense. I mean, just just a a quick modeling question I guess and maybe this is for you, Luke. Uh you know obviously um uh a lot of m&a this year and it seems like the pipeline is huge. You spoke of uh outside contribution in 26. From m&a completed this year as I think of how that impacts the the corporate line items. So we assume that stays flat because if I recall at the investor that you kind of talked about, you know, as you build out, um, the platforms here, uh, you know, that corporate cost gets a little bit more incremental, leverage into the bottom line is, is that kind of the right way to think about it. As we as we think about the the earnings contribution on a Consolidated basis from, um, from this uh, from this elevated m&a activity.

Luke Pelosi: Now, we fully anticipate from a modeling perspective for that item to sort of grow organically at a sort of low to mid-single-digit number, whereas the top line will be able to grow, you know, at a faster clip by virtue of the M&A, and you should get the exact operating leverage that you're describing.

Absolutely. Kevin, I think you're thinking about exactly right. I mean we've made Investments over, you know, the last years into the corporate office, just as we grew as a public company and then you know, most significantly over the last couple years in it, related infrastructure and Cloud Etc. But I think we're we're at today is you know, we have the corporate function that we need and we do not see the need for material incremental Investments. So now is the time to drive meaningful operating leverage on that line. Recall we had, you know, levered that line down to sort of a 2 and a half, 3% of Revenue. But then with the divestitures, um, both, you know, the smaller pieces through 23 and then the EST of assets which are that cost bucket. So, to jump back up to the sort of 4%, um, as we retained. A lot of that sort of corporate infrastructure. Now, we fully anticipate from modeling perspective for that item to sort of grow organically at a sort of low to mid single digit number. Whereas, the Top Line will be able to grow, you know,

at a faster clip by virtue of the m&a and you should get the operating exact operating leverage that you're describing.

Sabahat Khan: Perfect. That's great clarification. Thank you very much, guys.

Perfect, that that's that's, that's great clarification. Thank you very much, guys.

Patrick Dovigi: Thanks, Evan.

Hey, Kevin.

Sherry: Thank you. The next question is from Connor Gupta from Scotiabank. You may now proceed.

Thank you. The next question is from Conor Gupta from Scotia Bank. You may now proceed.

Sabahat Khan: Thanks, Inda. Good morning, guys. Just probably first on the guidance for revenue and EBITDA. It looks like, you know, FX is shaving off 50 to like two-thirds, 50% to two-thirds of your revenue and EBITDA bump for the full year. What about the remaining items that are driving the guidance up? You know, I mean, I think you had some M&A sort of catch-up from Q1, I guess, and then you had some incremental M&A, I guess. You've seen to bump up volume and pricing assumptions as well. Can you put some numbers into the buckets in terms of, you know, what's driving those revenue and EBITDA attribution?

Thank you. Good morning guys. Um, just probably first on the guidance for for Revenue Anya. Uh, looks like, you know, FX um is shaving off 50 to like 2/3, 50% to 2/3 of your revenue and EBT bump for the full year. What about the remaining um items that are driving the guidance up? You know I mean I think you had some m&a sort of catch up from from q1, I guess. And then you had to make your mental Mna I guess uh you seem to bump up the volume and pricing assumptions as well. Okay. Can you put some numbers into the buckets in terms of you know what's driving those revenue and beta attribution?

Hello.

Tyler Brown: Hello.

Luke Pelosi: I'm sorry. I think we had some technical issues. Connor, can you hear me?

I'm sorry. I think we had some technical issues. Can Connor, can you hear me?

Tyler Brown: I can hear you. Can you hear me now?

Luke Pelosi: Yeah. I'm sorry, Connor. So I'm not sure where we cut off, but what I'll describe is for the update to the guidance. So really what you have, you know, incremental M&A completed. You know, as we've said, we have sort of $70 to $80 million of incremental M&A contribution. Recall when we gave the guidance for the year of the $105 million, we said roughly $30 million of that was already included in the base guide. Is that happened on January 1? So you have an incremental, call it $70 to $80 million coming out of M&A. You then have $75 million of FX headwinds going against you. And that's just the translational impact of FX. So those are a bit of a wash. So what are you left with?

I can hear you. Can you hear me now?

Should recall when we gave the guidance for the year of the 105 million. We said roughly 30 billion of that was already included in the base guide. Does that happen on January 1? So you have an incremental, call it 70, 800 million dollars coming out of m&a.

Luke Pelosi: You're left with organic growth, and we're effectively bringing up pricing 50 bips, bringing up volume roughly sort of 50 bips, right, are driving that. And then going against that on the organic side is really commodity and fuel surcharges, right? Commodity price about $10 million sort of headwind versus the original guide. And same with fuel surcharges, right? And that's just a function where the sort of diesel price went. And you have a $5, $10 million headwind on the fuel surcharge line just as that re-rates to tie to sort of diesel pricing. So you put those, those are the pieces that at the revenue line, and the EBITDA bridge just sort of follows accordingly, right? I mean, the M&A comes in at, you know, slightly decreative margins initially. You know, price all falls to the bottom line. Volume falls at an appropriate margin.

Luke Pelosi: You know, the fuel surcharge really doesn't have an impact falling down to EBITDA as you're getting an equal and offsetting change to sort of the diesel costs. And the commodity falls all to the bottom line, right? So that $10 million is a straight flow-through. The FX is at roughly the consolidated margins. And when you do that bridge, what you're going to be left with is an incremental EBITDA pickup. And that's less about the revenue, but just more about the sort of operational efficiency, productivity, and self-help levers we've been realizing and getting incremental benefit from that in the current year period.

You then have 75 million of FX headwinds going against you and that's just the translational impact of of FX. So those are a bit of a wash. So what are you left with? You're left with Organic growth and we're effectively bringing up pricing 50, bits bringing up, volume roughly, sort of 50 bits, right? Are are driving that. And then going against that on the organic side is really commodity and and fuel search charges right commodity price about 10 million dollars with a headwind versus the original guide and same with fuel search charges, right? And that's just a function where the disordered diesel price when you have a 510 million dollar headwind uh on the fuel search charge line just as that rewrites, the tie to sort of diesel pricing. So you put those those are the pieces that at the revenue line and the Eva Bridge just sort of follows accordingly, right? I mean the m&a comes in at you know slightly decreased of margins initially you know price all falls to the bottom line, volume Falls at an appropriate margin, you know, the the fuel search charge really doesn't

Have an impact falling down to ibida as you're getting an equal and offsetting change to your diesel costs.

And the commodity Falls all to the bottom line, right? So that ten million dollars is a, you know, straight flow through. The FX is at roughly the Consolidated margins. And when you do that bridge, what you're going to be left with is an incremental ibida pickup and that's less about the revenue, but just more about the sort of operational, efficiency, productivity and self-help levers, we've been realizing and getting incremental benefit from that in the current year period.

Sabahat Khan: Again, that's really helpful. Thanks so much for that. And then in terms of the second quarter margin drivers, I think you guys had a pretty solid margin expansion compared to the rest of the industry. I mean, I think you talked about, you know, sort of unique markets for you guys and, you know, some other levers. Is it possible to kind of, you know, attribute some of these margin expansions you saw in Q2 to some buckets like, you know, EPR to, you know, the volumes and, you know, I don't know, maybe some commodity impact and all that?

Again, that's that's really helpful. Thanks so much for that. Um, and then, um, in terms of the second quarter uh, margin drivers, I think you guys had a, pretty solid margin expansion, uh, compared to the rest of the industry. I mean, I think you talked about, you know, sort of unique, uh, markets for you guys and, um, you know, some other levels um, is there, is it possible to kind of, you know, attribute some of these margin expansions that you saw in Q2, uh, to, to some buckets like, you know, epr, uh, to, you know, the volumes. And, uh, you know, I don't know. Maybe some commodity impact and all that.

Luke Pelosi: Yeah, Connor. So great question. Again, margin expansion, industry-leading, we believe it's something we're sort of proud of. But also as anticipated, obviously, you can see the Canadian segment margin, you know, expanding significantly as we're sort of getting the benefits of those investments that we've been made. So that's sort of been beneficial. But, you know, what we historically do and happy to walk through is the sort of impact of the exogenous factors, right? So if you think for the quarter, commodities was about a 30 basis point headwind to margin, whereas R&G and fuel, you know, two other sort of externalities, if you were, were about a 25 basis point tailwind, right? Additionally, Q2 is the last quarter where we're getting the tailwind from the Michigan divestiture. So that was about a sort of 75 basis point tailwind year over year.

Luke Pelosi: And then the M&A contribution for this quarter came in about 20 basis point headwind. When you put those all together, you know, you're still left with sort of roughly 160, 170 basis points of underlying base business margin expansion. And in there, you have all the pieces. You have the price cost spread, you have EPR, you know, and you have the realization of the ongoing operational efficiencies, both synergy realization and the cost optimization efforts we've been undertaking.

Yeah, kind of so great question. Again, margin expansion industry-leading, we believe and something we're sort of proud of. But also as anticipated, obviously, you can see the Canadian segment margin. Uh, you know, expanding significantly, as we're sort of, getting the benefits of those Investments that we've been made. And so that's sort of been beneficial. But you know what? We historically do and happy to walk through is the sort of impact of the exogenous factors, right? So, if you think, for the, the quarter Commodities was about a 30 basis point, uh, headwind to margin, whereas RNG and fuel, you know, to other sort of externalities if you were, were about 25 basis point Tailwind, right? Additionally, uh, Q2 is the last quarter where we were getting the Tailwind from the Michigan divestiture. So that was about a sort of 75 basis, point Tailwind year-over-year. Um, and then the m&a contribution for this quarter came in, uh, about 20 basis point headwind. So, when you put those all together, you know, you're still left with sort of roughly 160 170 basis.

Points of underlying base business margin expansion and in there you have all the pieces. You have the price cost spread you have epr, you know, and you have the realization of the ongoing operational. Efficiencies both Synergy realization and the cost optimization efforts. We've been undertaking.

Sabahat Khan: Yeah, no, again, I appreciate the time. Thank you.

Ya know again I appreciate the time. Thank you.

Sherry: Thank you. Our next question is from Michael Dovig from National Bank of Canada. You may now proceed.

Thank you. Our next question, is from Michael domate from National Bank of Canada. You may now proceed.

Sabahat Khan: Hey, good morning, guys. Nice quarter. As it relates to margins and the investor day expectations, and I think you discussed some of this already, but you know, the guide to margin expansion in 2025 suggests you're moving obviously a little bit faster, particularly, you know, given some of the headwinds, the known headwinds this year, and some of the R&G benefits that you're expecting to realize in the outer years. Would you characterize it as executing more quickly and therefore maybe pulling forward some of that margin expansion, or are you just finding more ways to expand margins at this point?

Good morning, guys.

And I think you discussed some of this already, but you know, the guy from margin expansion in, 2025 suggests, you're moving obviously a little bit faster. Particularly, you know, given some of the headwinds the known headwinds this year. Um,

Some of the RNG benefits that you're expecting to realize in the outer years.

Would you characterize? Um, would you characterize it as executing more quickly and, therefore, maybe pulling forward? Some of that margin expansion or are you just finding more ways to expand margins at this point?

Luke Pelosi: Yeah, Mike, that's a great question. I think, you know, it's predicated on, you know, it was never an assumption that that march to the low to mid-30s margin that we articulated in investor day was going to be straight line, right? Because there's been some investments over the past few years into things like R&G and EPR that, you know, we're supposed to start bearing fruit in a material way as of '25. So I think you're getting this initial sort of pickup and lift from some of those investments that's going to, you know, give some significant tailwind to that walk to, you know, our margin goal, if you will. So that's certainly part of it. But look, we're raising the guidance another 20 basis points in the midpoint. And I think that is the acceleration, right?

Luke Pelosi: Because we are achieving higher margin than what the initial sort of plan was. And I think that could be viewed as the sort of acceleration component. But the outsized margin expansion of '25 was always sort of part of the plan. And I think '26 has an opportunity to be another one, right? Because you're going to continue to have sort of EPR and some of these other investments we made fully sort of come online at their margin accretive profiles. So I think we'd be remiss at this point, based on '25 performance, to now say the new bogey is something materially higher than mid-30s. But certainly, performance like this, you know, further enforces our confidence in the ability to execute on that plan that we put out.

Investments over the past few years into things like RNG and epr that, you know, we're still supposed to start bearing fruit in a material way as a 25. So I think you're getting this initial sort of pick up and lift from some of those Investments that's going to, you know, give some significant Tailwind to that walk to, you know, our our margin goal, if you will. Um so that's certainly part of it. But look, we're raising the guidance. Another 20 basis points in the midpoint and I think that is the acceleration right because we are um, achieving higher margin than what the initial sort of plan was. And I think that could be viewed as a sort of acceleration component, but the outside margin expansion of 25 was always sort of part of the plan. And I think 26 has an opportunity to be another 1, right? Because you're going to continue to have sort of epr and some of these other Investments remain fully sort of come online at their margin of creative profiles. Um, so I I

I think would be remissed that at this point, based on 25th to now say the new bogey is something materially higher than mid-30s. Um, but certainly performance like this, you know, uh, further enforces our confidence in the ability to execute on that plan that we put out.

Sabahat Khan: That's great. Thanks, Luke, for that. And I guess if I go back to the prior expectations for EPR-related EBITDA growth through '27, I mean, look, it seems to me that the EPR should provide, call it like a baseline organic growth of about $80 to $100 million per year. And I know that could deviate, you know, year to year. But does that not translate into the view that GFL should be a consistent 1% to 2% organic volume growth going forward, you know, before layering other expectations? Just wanted to get your thoughts on that.

uh that's all right and thanks Luke that I guess if I go back to the

To the prior expectations for epr related EPA growth through 27. I mean like it seems to me that the epr should provide um call it like a baseline organic growth of about 80 to 100 million per year and and I know that could deviate, you know, a year to year. But does that not translate to you? The gfl should be a consistent 1 to 2% organic volume growth,

Going forward um you know before layering other expectations just wanted to get your thoughts on that.

Luke Pelosi: Well, sorry, but just in terms of the growth, Michael, just to be clear, the majority of EPR is going to be in hand by the end of '25. We're going to have a sort of tail into '26 and then a little bit in '27. But, you know, the majority, if we quantified $130 million of EBITDA, you know, you're going to have, you know, a substantial majority of that in by the end of '26. So this is really a sort of near-term growth profile and not so much an ongoing source of growth over that sort of, you know, multi-year projection.

Well, sorry, but just in terms of the glove, Michael just to be clear. The majority of epr is going to be in Hand, by the end of 25, we're going to have a sort of tail into 26 and then a little bit in 27. But you know the majority if we if we quantify the 130 million dollars of ibida, you know you're going to have, you know, the substantial majority of that in by the end of 26. So this is really a sort of a near-term growth profile. Um and not so much uh ongoing source of growth over that sort of, you know, multi-year projection.

Sabahat Khan: Okay. No, thanks for the correction. Appreciate it.

Okay, no thanks for the correction. Appreciate it.

Sherry: Thank you. Next question is from James Shun of TD Cowen. You may now proceed.

Thank you. Next question, is from Jim shroom of TD Coen. You may now proceed.

Sabahat Khan: Hey, guys. Hey, guys. Good morning. Nice quarter. In the past, I believe you've noted exposure to economically sensitive businesses. It was only roughly 3% of your revenues versus like a much higher double-digit number at most of your peers. So this seems like an important competitive advantage right now. You know, what do you think drives the difference with peers? And can you sort of outline what your exposure is specifically to construction volumes and/or what your exposure is to industrial volumes separately?

Hey guys. Good morning. Nice quarter.

Um, in the past I believe you've noted uh, exposure to economically sensitive businesses. There's only roughly 3% of your revenues versus like a much higher double digit number at most of your peers.

So this seems like an important competitive Advantage right now. Um, you know, what do you think, drives the difference with peers and can you sort of outline what your exposure is specifically to construction volumes and or what your exposure is to Industrial volumes?

Patrick Dovigi: Yeah, I think the historical comment was largely driven around C&D-related volumes, right? C&D-related volumes at GFL have been sub sort of 5%. You know, industrial volumes are significantly more than that. So I think that'd be pretty consistent with, you know, our peers. I think some of the difference you're seeing is just regionally focused, right, and where there's more impacts coming from tariffs and tariff-related businesses. And so I think, you know, I don't think our business is materially different. I just, you know, I can't speak for what others have in terms of C&D volumes, but our C&D volumes, that reference was made to C&D volumes that were sub 5% of the overall sort of book of business.

Separately.

Yeah, I think the historical comment was largely driven around C and D-related volumes, right? C and D-related volumes at GFL have been...

Sub sort of 5%. Um you know industrial volumes are significantly more than that. So I think that'd be pretty consistent with um you know, with our peers. I think.

Some of the difference you're seeing is just is, is regionally focused, right? And where there's more impacts coming from tariffs and tariffs related to businesses. And so, I think, you know, I don't think our business is materially different. I just, you know, I can't speak for what others, um, have in terms of cnv volumes. But our cnv volumes that reference was made to to CND volumes that

For sub 5% of the overall sort of book of business.

Luke Pelosi: Okay. And then maybe could you just update us on your fleet conversion, either, you know, to automated trucks or CNG trucks? You know, what's going on with that at the moment and just how that's proceeding?

Patrick Dovigi: Yeah. I mean, if you go look back to the investor day, I mean, I think, you know, roughly sort of 20-ish percent, 20, 25 percent of the fleet today is CNG. We had the ability to move that to sort of somewhere between, you know, 50 and 55 reasonably within the book. I think that is, you know, largely in track over the next sort of three to four years. So, you know, I think we're 50% of the way there in terms of our CNG and automated fleet conversion. I think a lot of that will happen on some of the backs of these, you know, EPR collection contracts where we're moving away from rear load collection into more automated collection and moving those trucks off of diesel onto compressed natural gas and some of our largest residential contracts.

Okay, and then maybe could you just uh, update us on your Fleet conversion? Um, either you know, to automated trucks or or CNG trucks. Um, you know what, what's going on with that at the moment and, um, just how that's proceeding

yeah, I mean if you go look back to the investor day I mean I think

Patrick Dovigi: As well as on the City of Toronto renewals, you know, we basically renewed two of our largest municipal contracts that come on, you know, the renewal takes place in sort of mid-2026. So again, all of those trucks will be converted to compressed natural gas. So I think you'll see that number start moving up materially over the course of '26 and '27.

CPR collection contracts where we're moving away from rear load collection into more automated collection and moving. Those trucks off of diesel onto the compressed natural gas and some of our largest residential contracts. Um,

As well as on the city of Toronto renewals. Um, you know, we basically renewed, uh, 2 of our largest Municipal contracts that come on, you know, the renewals take place in sort of mid 2026. So again, all of those trucks will be converted to compressed natural gas. So I think you'll see that number start moving up materially um over the course of 26 and 27.

Luke Pelosi: Okay. Great. Thanks, guys.

Okay, great. Thanks, guys.

Sherry: Thank you. The next question is from Chris Murray from ATB Capital Markets. You may now proceed.

Thank you. The next question is from Chris Murray from ATP Capital markets. You may now proceed.

Sabahat Khan: Yeah, thanks. Thanks, guys. Good morning. Maybe just a quick kind of question on M&A and just what we're thinking about. If you look at M&A for the contribution for 2026 as it stands today, like let's not talk about future acquisitions, what's the rollover amount that you're thinking that you have today?

Yeah thanks. Thanks guys. Good morning. Um maybe just a quick kind of question on on m&a and just um what we're thinking about if you're looking at m&a for 20 uh the contribution for 2026, is it stands today? Like let's not talk about future Acquisitions. What what's the rollover amount that you're thinking that that you have today?

Luke Pelosi: Chris, it's Luke speaking here. So, I mean, you bought $105 million for the year. You know, the vast majority of that was bought very early in the year. So, you know, you call it roughly you're left with $30 to $40 million bought in Q2. So you're going to have roughly half a year conversion. I think where we sit today, the rollover is probably measured in a, call it, $10 to $30 million of revenue. I think what Patrick's prepared remark comment was really referring to, if you go and deploy another sort of $600 million on the, you know, last quarter of the year or back half, you know, say roughly round numbers, that means you're buying $300 million of revenue. The majority of that is going to be rolled over into next year.

Chris it's Luke speaking here so I mean he bought 105 million dollars for the year. You know, the M vast majority of that was bought very early in the year so you know you call it roughly

You're left with.

30 to 40 million dollars bought in Q2 so you're going to have roughly half a year conversion. I think where we sit today, the rollover is probably measured in uh, call it 10 to 30 million dollars of Revenue. I think, what Patrick's prepared remarks was really referring to if you go and deploy another sort of 600 million on the, you know,

Luke Pelosi: And that's what's going to give rise to a good head start as you think about 2026 growth.

Last quarter of the year or back half, you know, say, roughly around numbers that means you're buying hundred million dollars of Revenue. You're the majority of that is going to be rolled over into next year and that's what's going to be? Give rise to a, a good Head Start. Um as you think about 2026 growth?

Sabahat Khan: Okay. That's helpful. Thank you. And then, you know, another question just, you know, as I'm sitting here kind of listening to the call, you know, we've heard about, you know, potentially, you know, some proceeds from GIP. Certainly, maybe the cash flow conversion number moves up. And I start thinking about, you know, leverage, it sounds like, you know, you guys are probably comfortable running plus or minus three times now. So if we start thinking about capital allocation, the business is going to throw off probably enough cash, you know, fund what I would call normal course CapEx, probably allow for, you know, kind of an M&A bucket that's something where you're at right now. You know, outside of maybe proceeds from things like GIP being used for outside share repurchases or something like that, how are you guys starting to think about capital allocation?

Okay, that's helpful. Thank you.

Um, and then, you know,

In here, kind of listening to the call. Um, you know, we've heard about, you know, potentially, you know, some proceeds from Gip, certainly the, uh, maybe the cash flow conversion number, um, moves up. And I start thinking about, you know, leverage. It sounds like, you know, you guys are probably comfortable running plus or minus 3 times now. Um, so if we start thinking about Capital allocation, that business is going to throw off, probably enough cash, um, you know, fund what I would call normal.

Sabahat Khan: Because now as the business continues to mature, you know, is there room to start increasing the dividend to bring it more kind of in line with peers? I know historically it's always been, you know, it's there, but, you know, the focus was more on M&A. Is there more a thought around the balance and how you're going to deploy capital as you're kind of getting to be more stable and maybe better earnings and cash flow generation?

Patrick Dovigi: Yeah. I mean, we said that. We will, you know, as part of the capital allocation program and the de-leveraging program, and obviously with the continued repatriation of funds from some of these assets that we don't own and are not part of sort of our income statement today, I think that affords us ultimate flexibility, again, to continue executing on share buybacks and increase dividends. So that is part of the plan. You know, we think over the next sort of, you know, 12 to 24 months, that will continue to be part of sort of our capital deployment plan. So you are correct in saying that, and that dividend will start normalizing sort of over that period.

Course capex probably allow for you know kind of a an m&a bucket that something where you're at right now, um, you know, outside of, of maybe proceeds from things like a Gip being used for outside, share repurchases, or or or something like that. Um, how are you guys starting to think about Capital allocation? Because now as as the business continues to mature, you know, is a room to start increasing the dividend to bring it more kind of in line with tears. Um, I know historically, it's always been, you know, it's there, um, but you know, the focus was more on m&a, is there more a thought around the balance and how you're going to deploy Capital? Um, as you're kind of getting to be more stable and and maybe better better earnings and cash flow generation?

Sabahat Khan: I'll leave it there. Thanks, guys.

Yeah. I mean I we said that we will um you know as part of the capital allocation program and the D leveraging program um and obviously with the continued repatriation of funds from some of these assets that we don't own that are not part of sort of our income statement today. I think that affords Us Ultimate flexibility again to continue executing on share BuyBacks, um, and increased dividends. Um, so that is part of the plan. You know, we think over the next sort of, you know, 12 to 24 months that will continue to be, um, part of a sort of our Capital deployment plan. So you are correct in saying that and um, that dividend will start normalizing sort of over that period.

Patrick Dovigi: Thank you.

Thanks Chris.

Thank you.

Sherry: Thank you. The next question is from Joan Windham from UBS. You may now proceed.

Thank you. The next question is from John Windom from UPS. You may now proceed.

Sabahat Khan: Perfect. Hey, congratulations on the result bucking the trend here on a better than expected result. I actually had a very big picture question if we could talk about a little bit. The Canadian dollar-US dollar ratio has been more or less range-bound for about a decade between like 125 and 141, something like that. Given all the political uncertainty and a lot of changes, how do you feel and what is the strategy to how do you feel insulated to maybe bigger swings in that ratio? If you could just talk through how you might be insulated in your hedging mitigation strategy, should there be a bigger move outside of this sort of 10-year range? Thanks. Appreciate it.

Perfect. Take congratulations on the results, uh, the trend here, um, on better than expected results. Actually, I had a very big picture question. Um, if we could talk about...

a little bit, the Canadian dollar US dollar ratio has been more or less range Bound for about a decade to like 125 and 141 something like that. Um,

Given all the political uncertainty and a lot of changes. How do you feel? And what is the strategy to?

The bigger swings in that ratio. If you could just talk through how you, you might be um insulated and you're hedging mitigation strategies. Should there be a bigger move outside of this sort of semi range? Thanks appreciate it.

Luke Pelosi: Hey, John. Yeah, great question. I mean, often we're in the weeds of price or volume. It's nice to hear something a little bit sort of bigger picture. Certainly something we give a lot of thought to, particularly considering, you know, we are the one outlier to the peer group, right, in terms of the implications of changes in foreign currency as we're moving in the opposite direction. You know, underlying, when you look, there's a pretty good and nice natural underlying economic hedge when you look at across sort of interest expense, capital deployment, etc., between, you know, the cash flows that we bring in and those that go out. So from our perspective, where we're really at today is more sort of a translational type issue.

Luke Pelosi: You know, I think the reality of the business and direction of travel is Canada is, you know, still a massive growth market for us and will be, but the law of big numbers is going to have the US proportion business grow at a faster clip. And I think you're going to get to a point where a US dollar functional currency is probably the right choice for the business, and you would flip to be a US dollar reporter and be consistent with our sort of peer group. And, you know, I don't think that that's not a 2025 activity, but, you know, I'd say that's more in the sort of near to medium term versus the long term. In terms of the actual underlying economics, I mean, obviously, as our business mix changes between Canadian and US, that's something we'll continue to evaluate.

Hey, John. Hey, great question. I mean, often we're in the weeds of price or volume. It's nice to hear something a little bit sort of bigger picture. Um, certainly something we give a lot of thought to particularly considering, you know, we are the 1 Outlaw group, right? In terms of the implications of changes in foreign currency as we're moving in the opposite direction. Um, you know, underlying when you look, there's there's a pretty good and nice natural, underlying economic hedge. When you look at across sort of interest expense, um, Capital deployment, Etc, between, you know, the cash flows that we bring in and those that go out. So, from our perspective, we're really at today is more sort of translational type issue. Um, you know, I think the reality of the business and direction of travel is Canada, is, you know, still a massive growth market for us and will be, but the law of big numbers is going to have the US proportion business grow at a faster.

Luke Pelosi: As I said today, there's a pretty nice natural economic hedge between interest expense and CapEx, but obviously, as the ratios change, it's something we'll sort of stay on top of. And obviously, there's a whole magnitude of, you know, synthetic or direct hedging instruments that can be used to navigate, you know, to the extent our exposures are no longer naturally economically hedged.

And I think you're going to get to a point where a US dollar. Functional currency is probably the right choice for the business and you would flip to be a US dollar reporter and be consistent with our sort of peer group. Um, and you know, I I don't think that that's not a 2025 activity. But, you know, I'd say that's more in the sort of near to medium-term versus the long term in terms of the actual, underlying economics. I mean, obviously, as our business, mix changes between Canadian and us, that's something we'll continue to evaluate. As I said today. There's a pretty nice natural economic Edge between the interest expense and capex. But obviously, as the ratios change, it's something we'll sort of stay on top of. And obviously, there's a whole magnitude of, you know, synthetic or direct hedging instruments that can be used to navigate, uh, you know, to the extent, our exposures are no longer naturally economically hedged

Sabahat Khan: Really appreciate it. Thanks.

Really appreciate it. Thanks.

Sherry: Thank you. The next question is from Toby Somer from Choice Securities. You may now proceed.

Thank you. The next question is from Toby Summer from choice to Securities. You will. You may not proceed.

Sabahat Khan: Hi. Oh, it's Henry on for Toby here. Thanks for taking my questions. Maybe just to start with kind of going back to that, you know, industrial and construction activity on the macro, obviously, it's, you know, a soft. You mentioned a soft environment. Just your thoughts on how those areas look kind of progressing through the year and into '26. Do you see, you know, any sort of a rebound, or is it kind of too early to tell?

Hi, all its Henry on for to here. Thanks for taking my questions. Um, maybe just to start with, uh, kind of went back to that, you know, industrial and construction activity, and the Mac. Obviously, it's, you know, it's soft.

You mentioned the soft, uh, environment. Um, just just your thoughts on how those areas. Look, kind of progressing through the year and into 26. Do you see, you know, a sort of a, a rebound or a kind of too early to tell

Patrick Dovigi: I mean, listen, it's very hard to tell. Obviously, you know, we're in a very sort of uncertain environment just politically and, you know, what's happening sort of globally with tariffs, etc. And I think from my perspective, you know, I personally believe that, you know, I don't see C&D volumes recovering any time too soon. I think once we get more clarity on tariffs, etc., I think the industrial market will pick back up and people will figure out what the new norm is and how they're going to operate or how they can operate and what under what environment they will be operating under. I think just the uncertainty in the market of, you know, today a 10% tariff, tomorrow a 50% tariff, maybe a 30% tariff, I think that's just limiting people's ability to make real capital investments at the moment. And I think that will reverse.

Patrick Dovigi: It has to reverse. It'll just be a question of when, but I think we are, you know, months to a year away from that because, again, once those decisions are finally made, I think then it takes time to sort of ramp back up. So, you know, we're not anticipating anything material to come back for the balance of this year and sort of into the beginning of next year. But, you know, we'll see how it goes. It seems like there's some clarity coming forward, but, you know, I think people just need to get a really good handle on, you know, what environment we're going to be operating under.

I, I mean, listen, it's, it's very hard to tell obviously, uh, you know, we're in a very sort of Uncertain environment, just politically. And you know, what's happening sort of globally. What terrorists, Etc. And I think, from, from my perspective, you know, I personally believe that, you know, I don't, I don't see C and D volumes recovering any time, uh, too soon. I think once we get more clarity on tariffs, Etc, I think the industrial Market will pick back up and people will figure out what the new Norm is, um, and how they're going to operate or how they can operate and what under and the what environment they will be operating under. I think just the uncertainty in the market of, you know, today a 10% tariff tomorrow, 50% tariff, maybe a 30% tariff. I think that's just limiting people's ability to make real, uh, Capital Investments at the moment. And I think,

That will reverse it; it has to reverse. Um, it'll just be a question of when, but I think we are, you know?

Months to a year away from that. Because again, once those decisions are finally made I think then it takes time to sort of ramp back up. So, you know, we're not anticipating anything. Material will come back, um, for the balance of this year and sort of into the beginning of next year, but, you know, we'll see how it goes. Um, seems like there's some clarity coming forward but, um, you know, I think people just need to get a really good handle on, you know, what, environment, we're going to be operating under.

Luke Pelosi: That's very helpful. Thank you. And just a quick one. Within the new US administration, I'm just curious if you all are seeing, you know, anything around an easier path for M&A to, you know, more of an e-regulatory environment. Maybe anything around like a lack of second requests helping that out. And I guess in the long term, you're over the next, you know, three, four years, do you expect that environment to get easier?

Right, that's very helpful. Thank you. And, and just a a quick 1 um,

Patrick Dovigi: Yeah. I mean, I think under for large-scale M&A, you know, I guess in theory, you know, the process maybe will get made, you know, more straightforward and maybe a little bit less hoodany, but by and large, you know, we've never had a real issue getting through the sort of HSR process. I mean, when we look at M&A opportunities, you know, we assess, you know, our ability to move through that process relatively quickly, just given the number of opportunities we have. And keep in mind, you know, if we're doing 45 to 50 of the acquisitions a year, we may have one or two that cross that threshold of actually needing HSR approval.

Patrick Dovigi: So, you know, the lion's share of what we're doing is well under the, you know, the HSR cap today of, you know, I think it's today it's like $125 to $127 million of gross purchase price. And lion's share of what we're doing today is under that. So, not a huge differentiator today for us given the administration change, but, you know, if we were looking at some large-scale M&A, maybe the process would be a little bit quicker, but nothing material.

Yeah, I mean, I think under for large-scale m&a, um, you know, I guess in theory, um, you know, the, the the process maybe will get me made, you know, more straightforward and maybe a little bit less scrutiny. Um, but by and large, you know, we've never had a real issue getting through the sort of HR HSR process. I mean, when we look at m&a opportunities, you know, we assess, you know, our ability to move through that process relatively quickly. Just give it the number of opportunities we have. Um, and keep in mind, you know, if we're doing 45 to 50 of the Acquisitions a year, we may have 1 or 2 that cross that threshold of actually needing HSR approval. So, you know, the Lion Share of what we're doing is, is well under the, you know, the HSR cap today of, you know, I think it's today. It's like 125, 127 million dollars of of gross, purchase price, um, and lion, share of what we're doing today is is under that. So um, not a huge

Uh, differentiated today for us given the administration change, but you know, if we were looking at some large scale m&a, maybe the process would be a little bit quicker but nothing material.

Sherry: Thank you. The next question is from Charlie Vetalya from JP Morgan. You may now proceed.

Thank you. The next question is from Charlie. Zachary from JP Morgan. You may now proceed.

Stephanie Moore: Hey, good morning. Is my line on?

Patrick Dovigi: Yes, we can hear you.

Hey, good morning. Um, is my line on?

Stephanie Moore: Oh, hi. This is Tammy Zakaria from JP Morgan. Thank you so much for taking my question.

Yes, we can hear you.

Patrick Dovigi: Sure.

Stephanie Moore: Just one question. Given some of the labor strike that's ongoing in the industry, are you considering any scenario where there could be incremental wage pressure maybe in the future? And any thoughts on mitigating that? I heard that you're raising your pricing outlook, but any comments on what you could expect from a price-cost spread perspective in the medium term if there is, in fact, any wage inflation in the industry?

Oh hi. This is Tammy Zakaria from from JP Morgan. Thank you so much for taking my question. Uh sure. Uh just 1 question um given some of the labor strike that um, ongoing in the industry. Are you considering any scenario where there could be incremental wage pressure maybe in the future and any thoughts on mitigating that I heard uh that you you're raising your pricing Outlook.

But any comments on what uh you could expect from a price cost spread perspective. Uh in the medium term if there is, in fact, any wage inflation in the industry.

Patrick Dovigi: Yeah. So I think, you know, from where we sit today, I mean, some 10% of our employee base is unionized today. So, you know, a fairly de minimis amount of unionized workers. You know, that being said, where we sit today, you know, we think throughout the book, we're always constantly revisiting employee wages, etc. We don't think strike mandates are, you know, in the cards of GFL in any material way. And we think, you know, with the ramp in labor costs between, you know, late '21 and through '24, you know, we think the lion's share of our drivers are fairly compensated today and above market for where we're operating. So we don't see that as a material risk within the existing book today, but obviously, we're always constantly reevaluating it. And we continue to do that on a sort of on a quarterly basis.

Uh, yeah. So I think, you know, from from what we've said today, I mean, some 10% of our employee base is is unionized today. Um, so you know, fairly diminished amount of of unionized workers. You know, that being said, um, where we sit today, you know, we think,

Throughout the book, we're always constantly re revisiting, um, employee wages, Etc. Um, we don't think strike mandates are, you know, uh, in the cards of gfl of any material way? Um, and we think, you know, with the ramp in labor cost between, you know, late 21, and through 24. Uh, you know, we think the Lion Share of our drivers, um, are fairly competitive today and and

Patrick Dovigi: But, you know, I think we feel pretty good. And I think the turnover stats amongst all of the majors, you know, I think we sort of reinforce that point. You don't have drivers hopping around going and looking for an extra dollar here or there. You know, you have turnover rates coming down into more normalized levels that you would have seen pre-COVID. So, you know, with voluntary turnover rates in the high teens today at GFL, we think that is, you know, that is a comfortable place to be. It's a happy balance. Obviously, we want to continue pushing that as low as possible, but that's a very good indicator in terms of where we are on wages for the environment that we're operating in today.

Stephanie Moore: And this is wonderful. Thank you.

Above Market um, for where we're operating. So I we don't see that as a material risk within the existing book, uh today, um, but obviously we're always constantly reevaluating it, um, and we continue to do that on a sort of, on a quarterly basis. But, um, you know, I think we feel pretty good and I think the turnover stats amongst all of the, the majors, you know, I think sort of reinforce that point you don't have drivers hopping around going and looking for an extra dollar here or there. You know you have turnover rates coming down to more normalized levels that you would have seen preco. So you know with voluntary turnover rates and in the High Teens today. Uh, at gfl, we think that is, you know, that is a comfortable place to be. It's a happy balance. Obviously, we want to continue pushing that as low as possible, but, um, that's a very good indicator in terms of of where we are on wages, um, for the environment that we're operating in today.

Patrick Dovigi: Thank you so much.

I'm just wonderful. Thank you.

Thank you so much.

Sherry: Thank you. There are no questions waiting at this time. I will pass the conference back over to Patrick for any additional remarks.

Patrick Dovigi: Thank you very much, everyone. And we look forward to speaking to everyone after Q3 results. Thanks for joining.

Thank you. You have no questions waiting at this time. I will pass the conference back over to Patrick for any additional remarks.

Thank you very much, everyone. And we look forward to, uh, speaking to everyone after, uh, Q3 results.

Thanks for joining.

Sherry: This concludes the GFL second quarter 2025 earnings call. Thank you for participation. You may now disconnect.

This concludes the gfo second quarter, 2025 earnings call. Thank you for participation, you may now disconnect