Q2 2026 Waste Connections Inc Earnings Call

Speaker #2: Earnings call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad.

Operator 2: Earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. To withdraw your question, please press star one again. I will now hand the call over to Ron Mittelstaedt, President and CEO. Ron, please go ahead.

Speaker #2: To withdraw your question, please press star 1 again. I will now hand the call over to Ron Mittelstaedt, president and CEO, Ron, please go ahead.

Speaker #3: Okay, thank you, operator. And good morning, everyone. I'd like to welcome everyone to this conference call to discuss our second quarter results. And increased outlook for 2026.

Ron Mittelstaedt: Okay. Thank you, operator, and good morning, everyone. I'd like to welcome everyone to this conference call to discuss our Q2 results and increased outlook for 2026. I'm joined this morning by members of our senior management team, including our CFO, Mary Anne Whitney. We'll first provide our forward-looking disclaimer and other housekeeping items.

Speaker #3: I'm joined this morning by members of our senior management team, including our CFO, Marianne Whitney, who will first provide our forward-looking disclaimer and other housekeeping items.

Speaker #4: Thank you, Ron, and good morning. The discussion during today's call includes forward-looking statements made pursuant to the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, including forward-looking information within the meaning of applicable Canadian securities laws. Actual results could differ materially from those made in such forward-looking statements due to various risks and uncertainties.

Mary Anne Whitney: Thank you, Ron, and good morning. The discussion during today's call includes forward-looking statements made pursuant to the Safe Harbor Provisions of the U.S. Private Securities Litigation Reform Act of 1995, including forward-looking information within the meaning of applicable Canadian securities laws. Actual results could differ materially from those made in such forward-looking statements due to various risks and uncertainties. Factors that could cause actual results to differ are discussed both in the cautionary statement in our 22 July 2026 earnings release and in greater detail in Waste Connections' filings with the U.S. Securities and Exchange Commission and the securities commissions or similar regulatory authorities in Canada. You should not place undue reliance on forward-looking statements, as there may be additional risks of which we are not presently aware or that we currently believe are immaterial, which could have an adverse impact on our business.

Speaker #4: Factors that could cause actual results to differ are discussed both in the cautionary statement in our July 22nd earnings release and in greater detail in Waste Connections filings with the U.S.

Speaker #4: Securities and Exchange Commission and the Securities Commission's or similar regulatory authorities in Canada. You should not place undue reliance on forward-looking statements. As there may be additional risks of which we are not presently aware, or that we currently believe are immaterial, which could have an adverse impact on our business.

Speaker #4: We make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances that may change after today's date. On the call, we will discuss non-GAAP measures such as adjusted EBITDA, adjusted net income on both a dollar basis and per-diluted share, and adjusted free cash flow.

Mary Anne Whitney: We make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances that may change after today's date. On the call, we will discuss non-GAAP measures such as adjusted EBITDA, adjusted net income on both a dollar basis and per diluted share, and adjusted free cash flow. Please refer to our earnings releases for a reconciliation of such non-GAAP measures to the most comparable GAAP measures. Management uses certain non-GAAP measures to evaluate and monitor the ongoing financial performance of our operations. Other companies may calculate these non-GAAP measures differently. I will now turn the call back over to Ron.

Speaker #4: Please refer to our earnings releases for a reconciliation of such non-GAAP measures to the most comparable GAAP measures. Management uses certain non-GAAP measures to evaluate and monitor the ongoing financial performance of our operations.

Speaker #4: Other companies may calculate these non-GAAP measures differently. I will now turn the call back over to Ron.

Speaker #3: Okay. Thank you, Marianne. We are extremely pleased by the strength of our first half performance, which positioned us for an increase to our full year 2026 outlook, with momentum for upside from improving trends in commodities and ongoing acquisition activity.

Ron Mittelstaedt: Okay. Thank you, Mary Anne. We are extremely pleased by the strength of our H1 performance, which positioned us for an increase to our full year 2026 outlook, with momentum for upside from improving trends in commodities and ongoing acquisition activity. Q2 growth of over 6% in both revenue and EBITDA exceeded our expectations in spite of the macroeconomic effects related to ongoing uncertainty in the geopolitical environment. Our results reflect continued benefits from both multi-year improvements in employee retention and record safety performance, and more recent investments in AI technology, all underpinned by disciplined operational execution. Most notably, adjusted EBITDA margin expanded to 32.8% on 70 basis points of underlying margin expansion, overcoming cost pressures primarily from rapidly spiking fuel and related costs, in addition to ongoing drags from lower commodity values compared to last year's Q2.

Speaker #3: Q2 growth of over 6% in both revenue and EBITDA exceeded our expectations, in spite of the macroeconomic effects related to ongoing uncertainty in the geopolitical environment.

Speaker #3: Our results reflect continued benefits from both multi-year improvements in employee retention and record safety performance, and more recent investments in AI technology. All underpinned by disciplined operational execution.

Speaker #3: Most notably, 32.8%, on a 70 basis-point underlying margin expansion, overcoming cost pressures, primarily from rapidly spiking fuel and related costs, in addition to ongoing drags from lower commodity values compared to last year's Q2.

Speaker #3: Solid waste organic growth from total price of 6.7% in Q2, included core pricing of 5.6% plus fuel and material surcharges of 1.1%, which outpaced our expectations.

Ron Mittelstaedt: Solid waste organic growth from total price of 6.7% in Q2 included core pricing of 5.6%, plus fuel and material surcharges of 1.1%, which outpaced our expectations. On average yield of 4.6%, volumes were down 1.9%, reflecting the ongoing macroeconomic uncertainty which has limited growth in the solid waste activity. Further, recent elevated fuel costs have impacted the pace and magnitude of construction-related activity, some of which was paused during Q2. In addition, customer sensitivity to higher overall pricing resulting from fuel-related surcharges likely exacerbated churn in certain markets. Acknowledging these dynamics, while special waste tons were down year over year in Q2, we have been impressed by activity in July, which may be an indication that the slowdown was temporary.

Speaker #3: On average yield of 4.6%, volumes were down 1.9%, reflecting the ongoing macroeconomic uncertainty, which has limited growth in the solid waste activity. Further, recent elevated fuel costs have impacted the pace and magnitude of construction-related activity, some of which was paused during Q2.

Speaker #3: In addition, customer sensitivity to higher overall pricing resulting from fuel-related surcharges likely exacerbated churn in certain markets. Acknowledging these dynamics, while special waste terms were down year over year in Q2, we have been impressed by activity in July, which may be an indication that the slowdown was temporary.

Speaker #3: Additionally, we were encouraged to see C&D tons up year over year in Q2 for the first time in 10 quarters, with some projects continuing thus far in Q3.

Ron Mittelstaedt: Additionally, we were encouraged to see C&D tons up year over year in Q2 for the first time in 10 quarters, with some projects continuing thus far in Q3. Looking at other lines of business, we saw a slightly elevated seasonal ramp in E&P waste revenue in Q2, up 12% from Q1 and up 18% year over year. Organic E&P waste growth was led by the US, up 7% following a nominal pickup in rig count. Activity in Canada, while more production-oriented and therefore considered less sensitive to crude values, was down nominally, but about flat year over year when normalized for an outsized remediation project in the prior year. Looking next at trends for other commodities in Q2. Recycled commodity revenues stepped up sequentially for the second consecutive quarter, with the overall basket up 10% to 15% from year-end.

Speaker #3: Looking at other lines of business, we saw a slightly elevated seasonal ramp in E&P waste revenue in Q2, up 12% from Q1 and up 18% year over year.

Speaker #3: Organic E&P waste growth was led by the U.S. up 7% following a nominal pickup in rig count. Activity in Canada while more production-oriented and therefore considered less sensitive to crude values was down nominally, but about flat year over year when normalized for an outsized remediation project in the prior year.

Speaker #3: Looking next at trends for other commodities in Q2. Recycled commodity revenues stepped up sequentially for the second consecutive quarter, with the overall basket up 10 to 15% from year-end.

Speaker #3: Landfill gas sales have also improved, stepping up sequentially by 15% from Q1 as a result of both higher gas generation and higher values for renewable energy credits or RENs.

Ron Mittelstaedt: Landfill gas sales have also improved, stepping up sequentially by 15% from Q1 as a result of both higher gas generation and higher values for renewable energy credits, or RECs. Looking at our renewable natural gas projects, we're pleased to report progress ahead of our expectations on the remaining development projects in 2026. Coming into the year with about a third of our RNG portfolio already operational, we have come through startup and ramp production at several other projects, including one own facility brought online in July. RNG capital outlays are on track to be essentially complete by year-end, and we expect that all plants will be operational by early next year. We're also tracking in line with our expectations with respect to the impacts from managing the elevated temperature landfill, or ETLF event at Chiquita Canyon Landfill.

Speaker #3: Looking at our renewable natural gas projects, we're pleased to report progress ahead of our expectations on the remaining development projects in 2026. Coming into the year with about a third of our RNG portfolio already operational, we have come through startup and ramped production at several other projects, including one owned facility brought online in July.

Speaker #3: R&G capital outlays are on track to be essentially complete by year-end, and we expect that all plants will be operational by early next year.

Speaker #3: We're also tracking in line with our expectations with respect to the impacts from managing the elevated temperature landfill, or ETLF, event at Chiquita Canyon Landfill.

Speaker #3: As we described last quarter, we continue to make progress mitigating the reaction, which is stable controlled and decelerating. There's no change to our projections regarding related free cash flow impacts to 2026 or our expectations for a sequential decline in impacts in '27.

Ron Mittelstaedt: As we described last quarter, we continue to make progress mitigating the reaction, which is stable, controlled, and decelerating. There's no change to our projections regarding related free cash flow impacts to 2026, or our expectations for a sequential decline in impacts in 2027. Moving next to M&A. As expected, year to date, we have completed acquisitions totaling approximately $100 million in annualized revenue, and we have another $30 million of exclusive model franchise transactions anticipated to close very soon during Q3. With almost half the year still ahead of us and dialogue ongoing, we remain on pace for what we would call another above average M&A year. We've also remained active buying back our own shares in what we consider an opportunistic environment.

Speaker #3: Moving next to M&A. As expected, year to date, we have completed acquisitions totaling approximately $100 million in annualized revenue, and we have another $30 million of exclusive model franchise transactions anticipated to close very soon during Q3.

Speaker #3: With almost half the year still ahead of us and dialogue ongoing, we remain on pace for what we would call another above-average M&A year.

Speaker #3: We've also remained active, buying back our own shares in what we considered an opportunistic environment. In our busiest year ever, we've deployed approximately $692 million year to date and bought back over 1.5% of shares outstanding pursuant to our normal course issuer bid.

Ron Mittelstaedt: In our busiest year ever, we've deployed approximately $692 million year to date and bought back over 1.5% of shares outstanding pursuant to our normal course issuer bid, which authorizes the repurchase of up to 5% of shares annually and which will be renewed in August. Following an active H1, our leverage remained virtually unchanged at 2.76 times debt to EBITDA. As such, we retain flexibility for acquisitions and returning capital to shareholders through additional repurchases, as well as another increase to our dividend, which we will consider when we undertake our annual review in October. I'd like to pass the call to Mary Anne to review more in depth the financial highlights of Q2, to review the elements of our increased full year 2026 outlet, and what that implies for the H2.

Speaker #3: Which authorizes the repurchase of up to 5% of shares annually and which we will be renewed in August. Following an active first half of the year, our leverage remains virtually unchanged at 2.76 times debt to EBITDA.

Speaker #3: As such, we retain flexibility for acquisitions and returning capital to shareholders through additional repurchases as well as another increase to our dividend, which we will consider when we undertake our annual review in October.

Speaker #3: And now, I'd like to pass the call to Mary Ann to review more in depth the financial highlights of the second quarter to review the elements of our increased full year 2026 outlet and what that implies for the back half of the year.

Speaker #3: I will then wrap up before heading into Q&A.

Ron Mittelstaedt: I will wrap up before heading into Q&A.

Speaker #1: Thank you, Ron. In the second quarter, revenue of 2.562 billion exceeded our expectations and was up 155 million dollars or 6.4% year over year.

Mary Anne Whitney: Thank you, Ron. In Q2, revenue of $2.562 billion exceeded our expectations and was up $155 million, or 6.4% year over year. Contributions from acquisitions net of divestitures totaled $46 million in the quarter. Organic growth in solid waste collection, transfer, and disposal was led by 5.6% core price, which ranged from about 4% in our mostly exclusive market western region to 7% in our competitive regions. Total price is 6.7%, included 1.1% in fuel and material surcharges, or approximately $25 million, which represents the majority of the incremental direct costs in the quarter. We remain on track for full year core price at or above 5.5%, with pricing for 2026 largely complete or otherwise known, and expect to fully recover higher fuel costs over time through surcharges, with the timing determined by the pace and magnitude of changes in diesel pricing.

Speaker #1: Contributions from acquisitions net of divestitures totaled 46 million dollars in the quarter. Organic growth in solid waste collection, transfer, and disposal was led by 5.6% core price, which ranged from about 4% in our mostly exclusive market western region to 7% in our competitive regions.

Speaker #1: Total price is 6.7% included 1.1% in fuel and material surcharges or approximately 25 million dollars. Which represents the majority of the incremental direct costs in the quarter.

Speaker #1: We remain on track for full year core price at or above 5.5% with pricing for 2026 largely complete or otherwise known. And expect to fully recover higher fuel costs over time through surcharges, with the timing determined by the pace and magnitude of changes in diesel pricing.

Speaker #1: Yield of 4.6% was consistent with Q1 levels and continues to reflect the benefits from our AI price optimization tool deployed late last year. And solid waste volumes were down about 1.9%, reflecting the following year over year results in the second quarter on a same store basis.

Mary Anne Whitney: Yield of 4.6% was consistent with Q1 levels and continues to reflect the benefits from our AI price optimization tool deployed late last year. Solid waste volumes were down about 1.9%, reflecting the following year over year results in Q2 on a same-store basis. Roll-off pulls were down 2%, similar to recent quarters, on rates per pull up 5%, which is about 150 basis points higher than in the past several quarters, primarily resulting from surcharges. With the exception of our western region, pulls were down in all regions on sluggish construction activity and likely reflect some price/volume trade-off following increased surcharge activity, a trade-off we're comfortable taking.

Speaker #1: Rolloff pulls were down 2%, similar to recent quarters, on rates per pull up 5%, which is about 150 basis points higher than in the past several quarters, primarily resulting from surcharges.

Speaker #1: With the exception of our Western region, pulls were down in all regions on sluggish construction activity, and likely reflect some price-volume trade-off following increased surcharge activity.

Speaker #1: A trade-off we're comfortable taking. Landfill tons were essentially flat, reflecting flat MSW and special waste down nominally on tough comparisons with C&D tons up 1%, halting the downward trends we've noted and led by a 10% increase in our central region where we highlighted strong special waste activity in Q1.

Mary Anne Whitney: Landfill tons were essentially flat, reflecting flat MSW and special waste down nominally on tough comparisons, with C&D tons up 1%, halting the downward trends we've noted and led by a 10% increase in our central region, where we highlighted strong special waste activity in Q1. Adjusted EBITDA for Q2, as reconciled in our earnings release, was $840.1 million, up 6.8% year over year. At 32.8% of revenue, our adjusted EBITDA margin exceeded our expectations and was up 10 basis points year over year, driven by 70 basis points underlying margin expansion, offset by about a 40 basis point drag from fuel and another 20 basis points drag from lower commodity values.

Speaker #1: Adjusted EBITDA for Q2 is reconciled in our earnings release was 840.1 million, up 6.8% year over year. At 32.8% of revenue, our adjusted EBITDA margin exceeded our expectations and was up 10 basis points year over year, driven by 70 basis points underlying margin expansion, offset by about a 40 basis point drag from fuel and another 20 basis points drag from lower commodity values.

Speaker #1: Our outsized underlying solid waste margin expansion reflected favorable price-cost spread dynamics in spite of additional cost pressures indirectly related to fuel. And was magnified by benefits from employee retention and safety, most notably savings in risk management costs, which accounted for about half of our underlying margin expansion.

Mary Anne Whitney: Our outsized underlying solid waste margin expansion reflected favorable price/cost spread dynamics in spite of additional cost pressures indirectly related to fuel, and was magnified by benefits from employee retention and safety, most notably savings in risk management costs, which accounted for about half of our underlying margin expansion. Finally, year-to-date adjusted free cash flow of $703 million was in line with our expectations and consistent with our full year 2026 outlook for double-digit growth in adjusted free cash flow per share. Year to date capital expenditures of approximately $600 million, up more than $100 million year over year, were also in line with our expectations. CapEx outlays to date are following a more normalized cadence than last year, when the pace of spending reflected slower progress on RNG projects and delayed fleet deliveries.

Speaker #1: And finally, year to date adjusted pre-cash flow of 703 million was in line with our expectations and consistent with our full year 2026 outlook for double-digit growth in adjusted pre-cash flow per share.

Speaker #1: Year-to-date capital expenditures of approximately $600 million, up more than $100 million year over year, were also in line with our expectations.

Speaker #1: Capex outlays to date are following a more normalized cadence than last year, when the pace of spending reflected slower progress on R&G projects and delayed fleet deliveries.

Speaker #1: I will now review our updated outlook for the full year 2026 and provide some thoughts about what that implies for the back half of the year.

Mary Anne Whitney: I will now review our updated outlook for the full year 2026 and provide some thoughts about what that implies for the back half of the year. Before I do, we'd like to remind everyone once again that actual results may vary significantly based on risks and uncertainties outlined in our safe harbor statement and filings we've made with the SEC and the securities commissions or similar regulatory authorities in Canada. We encourage investors to review these factors carefully. Our outlook assumes no change in the underlying economic trends. It also excludes any impact from additional acquisitions that may close during the remainder of the year and expensing of transaction-related items during the period. Looking first at our updated outlook for the full year as provided for and reconciled in our earnings release.

Speaker #1: Before I do, we'd like to remind everyone once again that actual results may vary significantly based on risks and uncertainties outlined in our Safe Harbor statement and filings we've made with the SEC and the Securities Commission's or similar regulatory authorities in Canada.

Speaker #1: We encourage investors to review these factors carefully. Our outlook assumes no change in the underlying economic trends. It also excludes any impact from additional acquisitions that may close during the remainder of the year and expensing of transaction-related items during the period.

Speaker #1: Looking for us at our updated outlook for the full year is provided for and reconciled in our earnings release. Given the strength of our performance in the first half of the year and updating for recent values for recycled commodities, rims, and fuel, as well as acquisitions completed to date, we are increasing our full year 2026 outlook as provided in February as follows.

Mary Anne Whitney: Given the strength of our performance in the first half of the year and updating for recent values for recycled commodities, RINs, and fuel, as well as acquisitions completed to date, we are increasing our full year 2026 outlook as provided in February as follows. Revenue is now estimated in the range of $10.02 billion to $10.05 billion, up $100 million to $120 million from February. Adjusted EBITDA for the full year is now estimated in the range of $3.33 billion to $3.34 billion, up from a range of $3.30 billion to $3.325 billion, putting full year margin in the range of 33.2% to 33.3%.

Speaker #1: Revenue is now estimated in the range of 10.02 billion to 10.05 billion, up 100 million to 120 million dollars from February. Adjusted EBITDA for the full year is now estimated in the range of 3.33 billion to 3.34 billion, up from a range of 3.30 billion to 3.325 billion.

Speaker #1: Putting full year margin in the range of 33.2% to 33.3%. As Ron noted, there is no change to our expectations for adjusted pre-cash flow for 2026 in the range of 1.4 billion to 1.45 billion dollars, including impacts related to closure at Chiquita Canyon Landfill in the range of 100 million to 150 million, and capital expenditures of 1.25 billion.

Mary Anne Whitney: As Ron noted, there is no change to our expectations for adjusted free cash flow for 2026 in the range of $1.4 billion to $1.45 billion, including impacts related to closure at Chiquita Canyon Landfill in the range of $100 million to $150 million, and capital expenditures of $1.25 billion. The closing of additional acquisitions would provide upside to our increased 2026 outlooks, as would further improvement in commodities and related activity. Further movement in fuel prices and the timing of recovery of higher fuel costs will also continue to impact results. Looking next at the quarterly margin cadence. Adjusted EBITDA margin in the second half of the year is expected to average about 33.7%, as implied by our full-year outlook, and could exceed 34% in Q3, depending on fuel and other commodities in the quarter.

Speaker #1: The closing of additional acquisitions would provide upside to our increased 2026 outlooks, as would further improvement in commodities and related activity. Further movement in fuel prices, and the timing of recovery of higher fuel costs, will also continue to impact results.

Speaker #1: Looking next at the quarterly margin cadence, adjusted EBITDA margin in the second half of the year is expected to average about 33.7%, as implied by our full-year outlook, and could exceed 34% in Q3.

Speaker #1: Depending on fuel and other commodities in the quarter. As noted earlier this year, the toughest quarterly comparisons are in Q4, when we would expect a more typical seasonal step-down in margin than we experienced in 2025.

Mary Anne Whitney: As noted earlier this year, the toughest quarterly comparisons are in Q4, when we would expect a more typical seasonal step-down in margin than we experienced in 2025. Now let me turn the call back over to Ron for some final remarks before Q&A.

Speaker #1: And now, let me turn the call back over to Ron for some final remarks before Q&A.

Speaker #2: Thank you, Marianne. As we've said, we're extremely pleased with our first half results and our increased outlook for the year. We believe the most challenging quarter for fuel recovery is behind us, and we see potential for upside ahead from improving commodity-related trends and incremental acquisitions.

Ron Mittelstaedt: Thank you, Mary Anne. As we have said, we're extremely pleased with our H1 results and our increased outlook for the year. We believe the most challenging quarter for fuel recovery is behind us, and we see potential for upside ahead from improving commodity-related trends and incremental acquisitions. Along with the benefits we've enjoyed from improved employee retention and record safety performance, we've already seen the potential to unlock opportunities in AI-driven projects impacting our operations. We're reaching the inflection point on the outlays impacting our free cash flow conversion, most notably our RNG facilities, moving from a CapEx headwind this year to a tailwind from contributions from operations next year, along with a continued decline in cash flows or outflows at Chiquita Canyon Landfill.

Speaker #2: Along with the benefits we've enjoyed from improved employee retention and record safety performance, we've already seen the potential to unlock opportunities in AI-driven projects impacting our operations.

Speaker #2: And we're reaching the inflection point on the outlays, impacting our free cash flow conversion. Most notably, our R&G facilities are moving from a capex headwind this year to a tailwind from contributions from operations next year.

Speaker #2: Along with a continued decline in cash closure outflows at Chiquita Canyon Landfill. In short, we're set up for double-digit adjusted free cash flow per share growth in 2026, and already looking ahead for more of the same in 2027.

Ron Mittelstaedt: In short, we're set up for double-digit adjusted free cash flow per share growth in 2026 and already looking ahead for more of the same in 2027. The consistency and projectability of our industry-leading results, despite the macroeconomic backdrop, reflects our differentiated approach and is ultimately a testament to operational excellence and fundamentals that define us. Safety, integrity, and customer service all make Waste Connections a great place to work, and we are most grateful for the dedication of our 25 plus employees, which is what truly sets us apart. We appreciate your time today and will now turn this call over to the operator to open up the lines for your questions. Operator?

Speaker #2: The consistency and projectability of our industry-leading results, despite the macroeconomic backdrop, reflects our differentiated approach and is ultimately a testament to the operational excellence and fundamentals that define us.

Speaker #2: Safety, integrity, and customer service all make Waste Connections a great place to work. And we are most grateful for the dedication of our 25,000-plus employees which is what truly sets us apart.

Speaker #2: We appreciate your time today. I will now turn this call over to the operator to open up the lines for your questions. Operator?

Speaker #3: Thank you, Ron. We will now begin the question-and-answer session. Please limit yourself to one question. If you would like to ask a question, please press star one on your telephone keypad.

Operator 2: Thank you, Ron. We will now begin the question and answer session. Please limit yourself to one question. If you would like to ask a question, please press star one on your telephone keypad. To withdraw your question, please press star one again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Tyler Brown with Raymond James. Your line is open. Please go ahead.

Speaker #3: To withdraw your question, please press star one again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device.

Speaker #3: Please stand by while we compile the Q&A roster. Your first question comes from the line of Tyler Brown with Raymond James. Your line is open.

Speaker #3: Please go ahead.

Speaker #4: Hey, good morning.

Tyler Brown: Hey, good morning.

Speaker #5: Morning, Tyler.

Ron Mittelstaedt: Morning, Tyler.

Speaker #4: Hey, Ron, I want to maybe pack a couple questions into one. But at first, I just want to kind of come back to the competitive landscape.

Mary Anne Whitney: Hi.

Tyler Brown: Hey, Ron. I want to maybe pack a couple questions into one. First, I just want to come back to the competitive landscape. I'm just curious, is the move in fuel causing some increases in churn? What I mean by that are the smaller haulers who maybe don't have sophisticated surcharge mechanisms using your move in surcharges maybe as a pathway into new customers? Is that frankly different than what you've seen in the past, or is there any bigger changes in the competitive landscape? Two, Mary Anne, just what is the rollover impact from M&A in 2026, and would there be any lingering leftover in 2027 based on what's closed? Thank you, guys.

Speaker #4: So I'm just curious, is the move in fuel causing some increases in churn? And what I mean by that, are the smaller haulers who maybe don't have sophisticated surcharge mechanisms using your move in surcharges maybe as a pathway into new customers?

Speaker #4: And is that, frankly, different than what you've seen in the past? Or are there any bigger changes in the competitive landscape? And then, two, Marianne, just what is the rollover impact from M&A in '26?

Speaker #4: And would there be any lingering leftover in '27 based on what's closed? Thank you, guys.

Speaker #5: So, Tyler, I'll take the first part. You know, Tyler, number one, I would say that we're not seeing anything different than historical with regard to fuel surcharges and churn activity.

Ron Mittelstaedt: Tyler, I'll take the first part. Tyler, number one, I would say that we're not seeing anything different than historical with regard to fuel surcharges and churn activity. There's probably some nominal increase in the competitive activity because of the pace of this increase in fuel. We went from 60 to over $120 a barrel in a very short period of time. Time that would typically take 6 to 8 months took about 4 to 6 weeks. The strategics and the public companies reacted very quickly, as I think you see and will see. The private companies react slower. They'll take 3 to 9 months and eat it and use that as some competitive inroad. I would say it's just that this was such a fast spike is what probably makes it look a little different.

Speaker #5: You know, there's probably some nominal increase in the competitive activity because of the pace of this increase in fuel. You know, we went from 60 to over 120 dollars a barrel in a very short period of time that would typically take six, eight months to four to six weeks.

Speaker #5: And so the strategics and the public companies reacted very quickly, as I think you see and will see. And the private companies react slower.

Speaker #5: They'll take, you know, three to nine months and eat it and use that as some competitive inroad so I would say it's just that this was such a fast spike, is what probably makes longer this wears on, the less difference between those public and private companies will happen.

Ron Mittelstaedt: The longer this wears on, the less difference between those public and private companies will happen. It's not anything material, but it probably accounted for an additional 10 to 15 basis points of volume churn in the quarter related to that.

Speaker #5: So it's not anything material, but it probably counted for an additional 10 to 15 basis points of volume churn in the quarter related to that.

Speaker #6: And then, in response to the second question, even though you're violating the rules, Tyler, I'll be brief. But acquisition contribution, the rollover contribution, the next year would be about 30 million dollars.

Mary Anne Whitney: In response to the second question, even though you're violating the rules, Tyler, I'll be brief. Acquisition contribution, the rollover contributions in next year would be about $30 million. The increase to our full-year outlook included an increase of about $50 million associated with 2026.

Speaker #6: The increase to our full year outlook included an increase of about 50 million dollars associated with '26.

Speaker #4: Okay, perfect. Thank you, guys.

Tyler Brown: Okay, perfect. Thank you, guys.

Speaker #3: Your next question comes from the line of Kevin Chiang with CIBC. Your line is open. Please go ahead.

Operator 2: Your next question comes from the line of Kevin Chiang with CIBC. Your line is open. Please go ahead.

Speaker #4: Hi, good morning. Thanks for taking my question. Just one on, you know, we're hearing a lot more on, you know, in Canada, up here, you know, nation-building projects.

Kevin Chiang: Hi. Good morning. Thanks for taking my question. Just one on, we're hearing a lot more in Canada up here, nation-building projects, more energy infrastructure projects. I guess when I think of your R360 Canada operations, just how you think that might benefit from this increased CapEx, and maybe how many idle facilities do you have today that maybe could be reopened if activity does pick up in Western Canada here?

Speaker #4: More energy infrastructure projects. And I guess, when I think of your R360 Canada operations, I'm wondering how you think that might benefit from this increased capex, and maybe, how many auto facilities do you have today that could potentially be reopened if activity picks up in Western Canada?

Speaker #5: Sure. Well, Kevin, the second part of your question. First, there's still two to three idle facilities that could be reopened of the original five from when we acquired the security vested assets up there in February of '24.

Ron Mittelstaedt: Well, Kevin, to the second part of your question first, there's still two to three idle facilities that could be reopened of the original five from when we acquired the Secure Energy assets up there in February of 2024. That'd be the first part. Look, there's a lot of discussion, as you know better than we, in Canada of increased energy production, Export pipeline construction from the country and throughout the country. Obviously we think we're extremely well-positioned to benefit from that if and when it happens. From all the operations that we've got there. We have not yet seen that. As we said in our comments, Canada was relatively flat, but coming off a very strong comp in Q2 of last year.

Speaker #5: We and so that'd be the first part. And, you know, look, there's a lot of discussion, as you know better than we, in Canada of increased energy production various export pipeline construction from the country and throughout the country.

Speaker #5: And obviously, we think we're extremely well positioned to benefit from that, if and when it happens. And from all the operations that we've got there, but, you know, we have not yet seen that.

Speaker #5: As we said in our comments, it's been Canada was relatively flat, but coming off a very strong comp in Q2 of last year.

Konark Gupta: Thank you for taking my questions.

Speaker #4: Thank you for taking my questions.

Speaker #5: Of course.

Ron Mittelstaedt: Of course.

Speaker #3: Your next question comes from the line of Faiza Alwi with Deutsche Bank. Your line is open. Please go ahead.

Operator 2: Your next question comes from the line of Faiza Alwi with Deutsche Bank. Your line is open. Please go ahead.

Speaker #6: Yes, hi. Thank you. Good morning. Ron, you made some comments about the macro environment and the fact that you’ve been impressed with activity in July, indicating that the slowdown is temporary.

Faiza Alwi: Yes. Hi. Thank you. Good morning.

Ron Mittelstaedt: Good morning.

Faiza Alwi: Ron, you made some comments around the macro environment and the fact that you've been impressed with activity in July, indicating that the slowdown is temporary. Maybe talk a little bit more about that. Did you see a broad-based pickup? Did the competitive environment improve? Just give us a little bit more perspective on what you're seeing differently in July versus what you saw in Q2.

Speaker #6: So maybe talk a little bit more about that. Is that did you see a broad-based pickup? Did the competitive environment improve? So just give us a little bit more perspective on, you know, what you saw differently.

Speaker #6: What you're seeing differently in July versus what you saw in Q2.

Speaker #5: Yeah, well, first off, Faiza, I mean, we don't want to overgeneralize. We, you know, had three weeks or so of July. So far, but, you know, we have seen some continued pickup in both special ways and in several of our regions of C&D.

Ron Mittelstaedt: Yeah. Well, first off, Faiza, we don't want to overgeneralize. We've had three weeks or so of July so far. We have seen some continued pickup in both special waste, and in several of our regions of C&D. MSW has been up nominally so far for the last four consecutive weeks, which is an improvement relative to the May-June timeframe. Some of that can be timing. It's hard to understand. As you're hearing from other industrial service providers and equipment providers, there does seem to be an accelerating pickup in rental equipment and construction-related equipment demand and activity, which would indicate that that is coming. We tend to probably lag, because it takes time for that to happen, to start generating waste. We're cautiously optimistic, but we have not baked any of that into our guidance that was just provided for H2.

Speaker #5: MSW has been up nominally so far for the last four consecutive weeks, which is an improvement relative to the May-June timeframe. You know, some of that can be timing is hard to understand.

Speaker #5: I mean, as you're hearing from other industrial service providers and equipment providers, there does seem to be an accelerating pickup in rental equipment and construction-related equipment demand and activity which would indicate that that is coming.

Speaker #5: We tend to probably lag because it takes time for that to happen, to start generating waste. But we're cautiously optimistic, but we have not baked any of that into our guidance that was just provided for the second half of the year.

Speaker #6: Great. Thank you so much.

Faiza Alwi: Great. Thank you so much.

Speaker #3: Your next question comes from the line of Jim Schoen with TD Cowen. Your line is open. Please go ahead.

Operator 2: Your next question comes from the line of James Schumm with TD Cowen. Your line is open. Please go ahead.

Speaker #4: Hey, good morning. Can you guys just good morning. Could you just help me with the Chiquita accounting? You had a 58 million impairment there.

James Schumm: Hey, good morning.

Ron Mittelstaedt: Good morning.

James Schumm: Good morning. Could you just help me with the Chiquita accounting? You had a $58 million impairment there. I thought Q1 was sort of the true up. Is that impairment reflective of the Q2 spend? Could you just give us an update on where you are in the Chiquita spend year to date versus your guidance?

Speaker #4: Is that reflect like, I thought Q1 was sort of the true up and then so is that impairment reflective of the two Q spend and could you just give us an update on where you are in the Chiquita spend year to date versus your guidance?

Speaker #5: Okay, so I'm happy to take that, Jim. First off, no, that is not indicative of the Q2 spend. What this is, is the matching of the closure accrual liability to the projected run-rate cash outflows, okay?

Ron Mittelstaedt: Okay. I'd be happy to take that, James. First off, no, that is not indicative of the Q2 spend. What this is the matching of the closure accrual liability to the projected run rate cash flow outflows. Okay? As we move along, we true that up, but there is no change at all to our $100 to $150 million of cash outflows in 2026, and the stepping down of those in 2027, and again into 2028. This is purely the matching of the liability to the run rate, is what that is. It's the difference between cash and GAAP accrual accounting.

Speaker #5: So as we move along, we accrue that up, but there is no change at all to our $100 to $150 million of cash outflows in 2026.

Speaker #5: And the stepping down of those in '27 and again into '28. This is purely the matching of the liability to the run rate is what that is.

Speaker #5: It's the difference between cash and gap accrual accounting.

Speaker #4: Got it. Okay. And Ron, would you be able to say where you're tracking year-to-date versus the $100 to $150 guidance?

James Schumm: Got it. Okay. Ron, would you be able to say where you're tracking year to date versus the 100 to 150 guidance?

Speaker #5: Well, we're tracking probably somewhere between the middle 125 and 150 at this point in time. But comfortable in that range for the full year.

Ron Mittelstaedt: Well, we're tracking probably somewhere between the middle, 125 and 150 at this point in time. Comfortable in that range for the full year.

Speaker #4: Okay, great. Thank you very much.

James Schumm: Okay, great. Thank you very much.

Speaker #3: Your next question comes from the line of Conar Gupta with Scotiabank. Your line is open. Please go ahead.

Operator 2: Your next question comes from the line of Konark Gupta with Scotiabank. Your line is open. Please go ahead.

Speaker #5: Thanks, sir. Good morning. Marianne, I just wanted to dig into the underlying margin trends for you guys. I understand, obviously, that the comps are changing every quarter.

Konark Gupta: Thanks. Morning. Mary Anne, just wanted to dig into the underlying margin trends for you guys. I understand obviously that the comps are changing every quarter, just seeing this trend where your underlying margin, I think, expanded about 150 basis points in Q4 of last year. Then we saw 110 in Q1, now it's 17 Q2. Is this deceleration in underlying margin expansion purely on the comps, or is there something else we should be thinking about as well as we look into the H2?

Speaker #5: But just seeing this trend where your underlying margin, I think, expanded about 150 basis points in Q4 of last year. And then we saw 110 in Q1 now, 17 Q2.

Speaker #5: Is this deceleration in underlying margin expansion purely on the comps, or is there something else we should be thinking about as well, as we look into the second half?

Speaker #2: Sure. It really is about comps and what we've communicated with respect to the benefits from the employee retention and safety-related margin drivers that we said there'd be about 100 basis points, and then we came back around and said it's probably even north of that, and that the final piece would be the risk component, which would lag.

Mary Anne Whitney: Sure. It really is about comps and what we've communicated with respect to the benefits from the employee retention and safety-related margin drivers, that we said there'd be about 100 basis points. Then we came back around and said it's probably even north of that, and that the final piece would be the risk component, which would lag. You've now seen three quarters of 30 to 40 basis points benefit from risk. In addition, you saw the benefits from internalization. Last year, we talked about the benefits at Arrowhead, for instance. We were internalizing more tons and our disposal costs were going down. It really is just that we are now lapping or anniversarying those. As you point out, Q4, I would argue, was anomalistic because you had 100 basis points benefit just from between disposal and risk in Q4 last year.

Speaker #2: And you've now seen three quarters of 30 to 40 basis points benefit from risk. You know, in addition, you saw the benefits from internalization last year.

Speaker #2: We talked about the benefits at Arrowhead for instance. We were internalizing more tons in our disposal costs for going down. So it really is just that we are now lapping our anniversary in those and as you point out, Q4, I would argue, was anomalistic because you had such you had 100 basis points benefit just from between disposal and risk in Q4 last year.

Speaker #2: And so that's why when we describe the more typical step-down, it really is with seasonality. And that will impact Q4. As we expected when we gave our guidance at the beginning of this year, we're just reminding folks of that sequential decline that you'll see.

Mary Anne Whitney: That's why when we describe the more typical step down, it really is with seasonality, and that will impact Q4 as we expected when we gave our guidance at the beginning of this year. We're just reminding folks of that sequential decline that you'll see.

Speaker #5: And also last year in Q4, you anniversaried the closure of the Chiquita landfill. So that was a sequential step as well. So again, it is just comps, as Marianne said.

Ron Mittelstaedt: Also last year in Q4, you anniversaried the closure of the Chiquita landfill, so that was a sequential step as well. Again, it is just comps, as Mary Anne has said.

Speaker #4: Thank you.

Konark Gupta: Thank you.

Speaker #3: Your next question comes from the line of Tony Kaplan with Morgan Stanley. Your line is open. Please go ahead.

Operator 2: Your next question comes from the line of Toni Kaplan with Morgan Stanley. Your line is open. Please go ahead.

Speaker #7: Thanks so much. I was hoping you could talk about free cash flow and the investments that you're making into fleet and landfills. R&G and also whether the Chiquita outlays are relatively straight line across the quarters or if there's more sort of seasonality on some of the quarters versus others.

Toni Kaplan: Thanks so much. I was hoping you could talk about free cash flow and the investments that you're making into fleet and landfills, RNG, and also whether the Chiquita outlays are a relatively straight line across the quarters or if there's more seasonality on some of the quarters versus others.

Speaker #2: I would say, first of all, with respect to the second part, I wouldn't place too much emphasis on exactly what outlays are in a given quarter.

Mary Anne Whitney: I would say, first of all, with respect to the second part, I wouldn't place too much emphasis on exactly what outlays are in a given quarter. It can be lumpy for a variety of reasons. For modeling purposes, probably fine to do a kind of straight line with respect to the Chiquita piece. More broadly, to your question about CapEx, as we noted in our prepared remarks, our spending is trending in line with our expectations in terms of CapEx. We just pointed out that it's up year-over-year, largely because of delays last year. I'd say it's really ordinary course where you'd expect us to be investing in fleet and building out our landfills, which are always the bulk of CapEx in any given year.

Speaker #2: It can be lumpy for a variety of reasons. For modeling purposes, probably fine to do it kind of straight line. With respect to the Chiquita piece, more broadly to your question about CapEx, you know, as we noted in our prepared remarks, our spending is trending in line with our expectations in terms of CapEx.

Speaker #2: We just pointed out that it's up year over year largely because of delays last year. And I'd say it's really ordinary course where you'd expecting us to be you'd expect us to be investing in fleet and building out our landfills, which are always the bulk of CapEx in any given year.

Speaker #2: You know, beyond that, R&G—which you asked about—we've mentioned that there were $75 million in R&G that we expected this year, and the update is we expect to spend that amount.

Mary Anne Whitney: Beyond that, RNG, which you asked about, we've mentioned that there were $75 million in RNG that we expected this year, and the update is we expect to spend that amount, and therefore, we expect that what's left on RNG in 2027 would be de minimis. We're essentially done with those CapEx outlays that we've talked about over a multi-year period, and it's one of the drivers for the inflection in free cash flow in 2027. The absence of continued CapEx in RNG and the benefits from those projects coming online, which we've mentioned we've already started to see this year, which we factored some of that into our expectations coming into the year, and it's exceeded that, which is again, one of the other drivers for the pickup in EBITDA from our previous guidance.

Speaker #2: And therefore, we expect that what's left on R&G in '27 would be de minimis. We're essentially done with those CapEx outlays that we talked about over a multi-year period.

Speaker #2: And it's what is one of the drivers for the inflection in free cash flow in '27. The absence of continued CapEx in R&G and the benefits from those projects coming online which we've mentioned, we've already started to see this year, which we've factored some of that into our expectations coming into the year.

Speaker #2: And it's exceeded that, which is, again, one of the other drivers for the pickup in EBITDA over, you know, from our previous guidance.

Speaker #5: And Tony, I would just add that, look, you're always going to have—in the second and third quarter—you're going to have your landfill construction projects capital and your facility construction project capital, because you cannot do that in the winter months.

Ron Mittelstaedt: Toni, I would just add that, look, you're always going to have in Q2 and Q3, you're going to have your landfill construction projects capital and your facility construction project capital because you cannot do that in the winter months. We're going to put more truck purchases in Q1, Q2, and beginning of Q3 to offset and manage that flow more evenly and to get the trucks delivered early in the year to our field to impact the P&L in variable and safety. That's sort of how we think through how CapEx flows.

Speaker #5: And so we're going to have—we're going to put more truck purchases in the first, second, and beginning of the third quarter to offset and manage that flow more evenly, and to get the trucks delivered early in the year to our field, to impact the P&L in variable and safety.

Speaker #5: So, you know, that's sort of how we think through how CapEx flows.

Speaker #7: Thanks a lot.

Toni Kaplan: Thanks a lot.

Speaker #3: Your next question comes from the line of Brian Bergmeier with Citi. Your line is open. Please go ahead.

Operator 2: Your next question comes from the line of Bryan Burgmeier with Citi. Your line is open. Please go ahead.

Speaker #4: Good morning. Thanks for taking the question. Just on the updated outlook for 2026, I was just wondering if we can maybe frame your expectations for cost inflation, you know, just for wages, you know, maintenance repair, other items, just maybe what do you expect now versus the original guide in February?

Bryan Burgmeier: Good morning. Thanks for taking the question. Just on the updated outlook for 2026, I was just wondering if you can maybe frame your expectations for cost inflation, just for wages, maintenance and repair, other items. Just maybe what do you expect now versus the original guide in February? Just kind of thinking about that net price-driven margin expansion and how we should be modeling that in H2.

Speaker #4: You know, just kind of thinking about that net price-driven margin expansion and, you know, how we should be modeling that in the second half.

Speaker #5: Sure.

Ron Mittelstaedt: Sure.

Speaker #2: Oh, sorry. The observation that I'd make so first of all, in our guidance, we've maintained the underlying solid waste margin expansion in the range of 50 to 70 basis points.

Mary Anne Whitney: Sorry. The observation that I'd make, first of all, in our guidance, we've maintained the underlying solid waste margin expansion in the range of 50 to 70 basis points. There's no change to that expectation. All that changed is we're acknowledging that fuel is a little more punitive than certainly we knew coming in February. It's down 20 to 30 basis points, and commodities are offsetting a portion of that because they've improved. What that tells you about the underlying margin expansion is I would say that we're actually outperforming our original expectations because we'd acknowledge that there's cost creep in a number of areas indirectly related to fuel. Anything that's being delivered to us is more expensive than it was before you saw that spike in fuel.

Speaker #2: There's no change to that expectation. Really, all that changed is we're acknowledging that fuel is a little more punitive than certainly we knew coming in February.

Speaker #2: It's down 20 to 30 basis points, and commodities are offsetting a portion of that because they've improved. So, what that tells you about the underlying margin expansion is, I would say that we're actually outperforming our original expectations.

Speaker #2: Because we'd acknowledge that there's cost creep in a number of areas indirectly related to fuel. You know, anything that's being delivered to us is more expensive than it was before you saw that spike in fuel.

Speaker #2: So, you know, so broadly speaking, we came into the year thinking that cost pressures are kind of in that three and a half to four percent range.

Mary Anne Whitney: Broadly speaking, we came into the year thinking that cost pressures are kind of in that 3.5% to 4% range, and the primary driver, of course, is wages, but these other pressures have creeped a little. I'd say wages have behaved in line with our expectations, which is that the year-over-year increases were moderating slightly as we moved through the year.

Speaker #2: And the primary driver, of course, is wages. But these other pressures have crept up a little. And I’d say wages have behaved in line with our expectations, which is that the year-over-year increases were moderating slightly as we move through the year.

Speaker #4: Got it. Thanks a lot. I'll turn it over.

Bryan Burgmeier: Got it. Thanks a lot. I'll turn it over.

Speaker #3: Your next question. Comes from the line of Jerry Rivich with Wells Fargo. Your line is open. Please go ahead.

Operator 2: Your next question comes from the line of Jerry Revich with Wells Fargo. Your line is open. Please go ahead.

Speaker #4: Hi, good morning. This is Andrew Ozion for Jerry. I just wanted to start off maybe with, you know, if we could outline some of the AI initiatives that are running through '27.

Andrew Azion: Hi, good morning. This is Andrew Azion for Jerry. I just wanted to start off maybe with if we can outline some of the AI initiatives that are running through 2027. Would you be able to walk us through where each of the initiatives are kind of sitting in their life cycle now and the EBITDA contribution captured to date?

Speaker #4: Would you be able to walk us through where each of the initiatives are kind of sitting in their life cycle now and the EBITDA contribution captured to date?

Speaker #5: Yeah. Well, I'll take them in some broad buckets for you, Andrew. You know, in '25, we fully deployed our AI-linked what we call pro-pricing commercial pricing tool.

Ron Mittelstaedt: Well, I will take them in some broad buckets for you, Andrew. In 2025, we fully deployed our AI-linked, what we call pro pricing, commercial pricing tool, and that is fully deployed by the Q4 of 2025 and has yielded about $20 million of EBITDA improvement on a run rate basis at this point through 2026. That is number one. We are putting in what I would call a dynamic real-time AI-driven algorithm for routing. We began beta testing or pilot testing that in late Q2 of 2026, and that is not set to be fully deployed till the end of 2027, so really not impactful to the P&L until 2028. As we go through 2028 and 2029, we expect roughly $40, maybe up to $50 million of route-related savings from that initiative as we come through 2028 and 2029.

Speaker #5: And that is fully deployed by the fourth quarter of '25 and has yielded about 20 million dollars of EBITDA improvement on a run rate basis at this point through '26.

Speaker #5: So that's number one. We are putting in what I would call a dynamic real-time AI-driven algorithm for routing and we began beta testing or pilot testing that in late Q2 of '26.

Speaker #5: And that is not set to be fully deployed until the end of '27, so really not impactful to the P&L until '28. As we go through '28 and '29, we expect roughly $40 million, maybe up to $50 million, of route-related savings from that initiative as we come through '28 and '29.

Speaker #5: And then we are beginning in the end of Q3, beginning in Q4 of this year, '26, what we is some AI technology. We are putting in some agentic AI into our customer service approach and a mobile application for customers, particularly residential customers.

Ron Mittelstaedt: We are beginning in the end of Q3, beginning in Q4 of this year, 2026, is some AI technology. We are putting in some agentic AI into our customer service approach and a mobile application for customers, particularly residential customers. That will not begin being deployed until the Q2 of 2027, and will be fully deployed as we come through the early part to the mid part of 2028. Again, we are expecting probably somewhere in that $20 to $35 million initial cut is the impact from EBITDA. As we said, we are investing about $100 million in the AI-related technologies across seven programs, and we expect about $100 million or 100 basis points, which is about the same, of improvement in EBITDA as we come through 2028 into 2029.

Speaker #5: And that will not begin being deployed until the second quarter of '27, and we'll be fully deployed as we come through the early part to the mid-part of '28.

Speaker #5: And again, we're expecting probably somewhere in that 20 to 35 million dollar initial cut is the impact from EBITDA. As we said, we're investing about 100 million dollars in the AI-related technologies across seven programs.

Speaker #5: And we expect about 100 million dollars or 100 basis points, which is about the same, of improvement in EBITDA as we come through '28 into '29.

Speaker #4: I really appreciate all that quantitative breakout. That's great to hear. I guess secondly, on special improvement as of late. Can you talk about some of the verticals that are driving that strength and how you think about the durability of the contribution to both volume and margin into '27?

Andrew Azion: I really appreciate all that quantitative breakout. That is great to hear. I guess secondly, on special waste tons, we have seen a lot of improvement as of late. Can you talk about some of the verticals that are driving that strength and how you think about the durability of the contribution to both volume and margin into 2027?

Speaker #2: Well, what I'd say is that, you know, we mentioned last quarter that we saw pickup and special waste. We mentioned this quarter that there was actually a slowdown, which is a reminder that it can be lumpy.

Mary Anne Whitney: Well, what I would say is that, we mentioned last quarter that we saw a pickup in special waste. We mentioned this quarter that there was actually a slowdown, which is a reminder that it can be lumpy and that, as we have said, perhaps that the spike in fuel put a little pause on some projects, but that the demand is out there, and ultimately it will come to market. I would say keep in mind that it is a very small piece. A couple of points of revenue is what special waste is, but it is more about being indication of the underlying economy and the fact that there is some cyclical growth, which we just really have not seen. Similarly, C&D tons, as we said, they were positive really for the first time in a couple of years.

Speaker #2: And that, you know, as we've said, you know, perhaps that the spike in fuel put a little pause on some projects, but that the demand is out there and ultimately it will come to market.

Speaker #2: You know, I'd say keep in mind that it's a very small piece—a couple of points of revenue is what special waste is. But it's more about being an indication of the underlying economy and the fact that there's some cyclical growth, which we just really haven't seen.

Speaker #2: And then, similarly, C&D tons—as we said—were positive really for the first time in a couple of years, and that's encouraging. It's not a surprise that it's in our Central region, where we saw high special waste in Q1, which should be an indicator of construction and demolition debris in subsequent periods.

Mary Anne Whitney: That's encouraging, and it's not a surprise that it's in our central region where we saw high special waste in Q1, which should be an indicator of construction and demolition debris in subsequent periods.

Speaker #3: Your next question comes from the line of Chris Murray with ATB Cormac Capital Markets. Your line is open. Please go ahead.

Operator 2: Your next question comes from the line of Chris Murray with ATB Cormark Capital Markets. Your line is open. Please go ahead.

Speaker #6: Yeah, thanks, folks. Maybe just taking a stab at thinking about cash flow conversion as we go into 2027. And you referenced the fact that, you know, you've got some normalized spending coming over R&G, maybe Chiquita.

Chris Murray: Yeah, thanks, folks. Maybe just taking a stab at thinking about cash flow conversion as we go into 2027. You've referenced the fact that you've got some normalized spending coming, lower RNG, maybe Chiquita rolls off. How should we be thinking about between the margin improvement that it'll start to develop, and some of these things coming off? How do we think about the cash flow conversion? Is there anything unusual to be thinking about as we start entering that period?

Speaker #6: Rolls off. How should we be thinking about, you know, between the margin improvement that it'll start to develop and some of these things coming off?

Speaker #6: How do we think about the cash flow conversion? Is there anything unusual to be thinking about as we start entering that period?

Speaker #2: Hi, Chris. Obviously, it's early days to be talking with any specificity about '27. We'll look forward to giving guidance. But what we know now is that we have visibility on the R&G spend.

Mary Anne Whitney: Hi, Chris. Obviously, it's early days to be talking with any specificity about 2027. We'll look forward to giving guidance, what we know now is that we have visibility on the RNG spends, that's $75 million, that informs our thinking. We also have reiterated that the Chiquita outlays will be less in 2027 than they were in 2026. Again, those two pieces on their own certainly take us north of the 41% to 42% free cash flow conversion you see in the current period and gets us more in the direction of where we'd expect to land, which would be in that 48% to 50%, which is historically where we've been. For some periods where we were anomalistically higher, we've gotten as high as 52% or 53%, we would encourage people to think of more normalized being 48% to 50%.

Speaker #2: And so that's 75 million. And so that informs our thinking. And we also have reiterated that the Chiquita outlays will be less in '27 than they were in '26.

Speaker #2: So again, those two pieces on their own certainly take us north of the 41 to 42 percent free cash flow conversion. You see in the current period.

Speaker #2: And gets us more in the direction of where we'd expect to land, which would be in that 48 to 50 percent, which has historically where we've been but for some periods where we were anomalously higher.

Speaker #2: You know, we've gotten as high as 52 or 53 percent. But we would encourage people to think of more normalized being 48 to 50.

Speaker #6: Okay. And so there's no real expectation for special spend or anything like that. In fact, kind of it feels like '27 is shaping up to be the first of a normal year and maybe a few in a row.

Chris Murray: Okay. There's no real expectation for special spend or anything like that? In fact, it feels like 2027 is shaping up to be the first of a normal year and maybe a few in a row. Is that the right way to kind of frame it or think about it?

Speaker #6: Is that the right way to kind of frame it or think about it?

Speaker #2: That's fair. I mean, we've mentioned the AI spend continues. Again, that's not, you know, a big number. But, you know, ongoing spending there. But no, I think you're observation that the lumpier piece, which was specifically R&G, is behind us.

Mary Anne Whitney: That's fair. We've mentioned the AI spend continues. Again, that's not a big number, but ongoing spending there. No, I think your observation that the lumpier piece, which was specifically RNG, is behind us.

Speaker #6: Okay. I'll leave it there. Thank you.

Chris Murray: Okay. I'll leave it there. Thank you.

Speaker #3: Your next question comes from the line of Trevor Romeo with William Blair. Your line is open. Please go ahead.

Operator 2: Your next question comes from the line of Trevor Romeo with William Blair. Your line is open. Please go ahead.

Speaker #7: Good morning. Thanks for taking the question. I just had one on PFAS. I think there was a recent announcement about a new treatment facility you're working on at one of your landfills in North Carolina.

Trevor Romeo: Morning. Thanks for taking the question. I just had one on PFAS. I think there was a recent announcement about a new treatment facility you're working on at one of your landfills in North Carolina, and I think you have a few other treatment plants that are at other landfills, too. Question is, how are you thinking about being proactive and getting ahead of regulations versus being reactive? Can you just talk about the economics of building an on-site treatment plant versus sending leachate elsewhere and kind of the return on that capital? Thank you.

Speaker #7: I think you have a few other treatment plants that are other landfills too. So question is, you know, how are you thinking about being proactive and getting ahead of regulations versus being reactive?

Speaker #7: And can you just talk about the economics of building an onsite treatment plant versus sending leachate elsewhere, and kind of the return on that capital?

Speaker #7: Thank you.

Speaker #6: Yeah. Well, Trevor, I mean, I think the, you know, the opening of a treatment plant in the Carolinas that we talked about and that you're referencing is an example of trying to be proactive versus reactive.

Ron Mittelstaedt: Yeah. Well, Trevor, I think the opening of a treatment plant in the Carolinas that we talked about, and that you're referencing, is an example of trying to be proactive versus reactive. It is an example of rising leachate costs at POTW related to PFAS and other requirements that are being put on by state and federal regulators. Knowing that, this is something we've been doing for four to five years, quite honestly. We deploy multiple mobile, relatively inexpensive technologies that, depends on which one we use, basically separates the PFAS and solidifies it through a foam fractionation process, allowing us to ultimately bury it in the landfill and clean the leachate to a point of acceptable discharge. These are internal projects. We're not out there marketing this to third parties.

Speaker #6: It is an example of, you know, rising leachate costs at POTW related to PFAS and other requirements that are being put on by state and federal regulators.

Speaker #6: And so knowing that, you know, this is something we've been doing for four to five years, quite honestly, we deploy multiple mobile relatively inexpensive technologies that depends on which one we use, basically separates the PFAS and solidifies it through a foam fractionation process, allowing us to ultimately bury it in the landfill and clean the leachate to a point of acceptable discharge.

Speaker #6: So you know, these are internal projects. We're not out there marketing this to third parties. We will, you know, send landfills in surrounding areas that we have to this one.

Ron Mittelstaedt: That we will send landfills in surrounding areas that we have to this one, and use it sort of as a hub to treat PFAS. It's ultimately sort of a hedge against a rapidly rising leachate treatment cost at POTWs that is going on everywhere. We recognized this many years ago and started investigating and investing and deploying these technologies. We have these at several of our sites. You'll see them continue to come at several more. They're sort of a normal course of CapEx at this point in time for us. They drop that treatment cost, relative to third party, quite significantly.

Speaker #6: And use it sort of as a hub to treat PFAS. And it's ultimately sort of a hedge against, you know, a rapidly rising leachate treatment cost at POTWs that is going on everywhere.

Speaker #6: You know, we recognize this many years ago and started investigating and investing and deploying these technologies. So we have these at several of our sites.

Speaker #6: You'll see them continue to come at several more. They're sort of a normal course of CapEx at this point in time for us. And they drop that treatment cost, you know, relative to third party quite significantly.

Speaker #7: Okay. Thank you very much, Ron.

Trevor Romeo: Okay. Thank you very much, Ron.

Speaker #3: Your next question comes from the line of Sabah Khan with RBC Capital Markets. Your line is open. Please go ahead.

Operator 2: Your next question comes from the line of Sabah Khan with RBC Capital Markets. Your line is open. Please go ahead.

Speaker #5: Hi, good morning. This is Balvin on the line for Sabah.

[Analyst] (RBC Capital Markets): Hi. Good morning. This is Bhavin on the line for Sabah.

Speaker #2: Good morning.

Ron Mittelstaedt: Good morning.

Speaker #5: My question was more related to M&A activity. You already noted that you're going to have an outsider there. Can you talk a little bit about the type of assets that are in your pipeline, kind of what's in the market today, and what the cadence is for the back half of the year?

[Analyst] (RBC Capital Markets): My question was more related to M&A activity. You already noted that you're going to have an outsized year. Can you talk a little bit about the type of assets that are in your pipeline, kind of what's in the market today, and what the cadence is for the back H2?

Speaker #6: Sure. Happy to. I mean, obviously, the cadence will be determined by, you know, seller timing and getting through consents and the other typical closing procedures.

Ron Mittelstaedt: Sure. Happy to. Obviously, the cadence will be determined by seller timing and getting through consents and the other typical closing procedures. I think if you imagine that, we've already talked about there's an additional $30 million that will be closing here over the next few weeks of exclusive franchises. There'll be additional that close throughout Q3, and then a normal course that will close in Q4, getting us to north of our sort of outsized year or minimum year, I would say. These are all typical singles and doubles Waste Connections deals in solid waste. There may be some one or two small E&P deals in there in either Canada or the US, these are traditional solid waste deals, nothing varying from that. They are in both our competitive and our exclusive footprint. They are collection, transfer, processing, and, in some cases, disposal.

Speaker #6: But I think if you imagine that, you know, we've already talked about there's an additional 30 million that will be closing here over the next few weeks.

Speaker #6: Of exclusive franchises, there'll be additional that close throughout Q3. And then, in the normal course, some will close in Q4, getting us to north of our sort of outsized year—or minimum year, I would say.

Speaker #6: These are all typical singles and doubles, waste connections, deals, in solid waste. You know, there may be some one or two small E&P deals in there in either Canada or the US.

Speaker #6: But these are traditional solid waste deals, nothing varying from that. They are in both our competitive and our exclusive footprint. They are collection and transfer and processing, and in some cases, disposal.

Speaker #6: So what I would just sort of call down the middle of the fairway M&A deals for waste connections. That is, you know, we believe compounds and creates the most value over time.

Ron Mittelstaedt: What I would just sort of call down the middle of the fairway, M&A deals for Waste Connections.

[Analyst] (RBC Capital Markets): Okay.

Ron Mittelstaedt: That is, we believe, compounds and creates the most value over time. Nothing abnormal coming in the pipeline, the balance of this year or in the foreseeable future.

Speaker #6: So nothing abnormal coming in the pipeline. The balance of this year or in the foreseeable future.

Speaker #5: Thank you. That’s all the questions I had. I’m turning back.

[Analyst] (RBC Capital Markets): Thank you. That's all the questions I had. I'll turn it back.

Speaker #3: Your next question comes from the line of Toby Sommer with Truist. Your line is open. Please go ahead.

Operator 2: Your next question comes from the line of Tobey Sommer with Truist. Your line is open. Please go ahead.

Speaker #6: Thank you. I wanted to get your perspective on rail opportunities and how that integrates into the network. You've got experience in that arena. And I wanted to get sort of your term and longer-term perspectives for how much that is going to grow as a component of your business.

Tobey Sommer: Thank you. I wanted to get your perspective on rail opportunities and how that integrates into the network. You've got experience in that arena, I wanted to get sort of your nearer-term and longer-term perspectives for how much that is going to grow as a component of your business.

Speaker #6: Sure. Happy to, Toby. Well, you know, first off, as we've said, for quite some time, rail is today a fairly geographic centric modality that is being used, predominantly off the upper northeastern seaboard.

Ron Mittelstaedt: Sure. Happy to, Tobey. Well, first off, as we've said for quite some time, rail is today, a fairly geographic-centric modality that is being used predominantly off the upper northeastern seaboard, due to both limitations of available landfill capacity and expansion and the economics of higher tip fees in that region. That continues to be the primary driver. We've grown our Arrowhead landfill rail network over the last 2 years by effectively 300% now, all of that is moving off the eastern seaboard, from sort of New Jersey north, through our intermodal facilities. We'll continue to grow that as we go forward. I mentioned on last quarter's earnings call that we would begin a rail project in the Southeast. It is specific to Florida.

Speaker #6: Due to both limitations of available landfill capacity and expansion and the economics of higher tip fees in that region. So that continues to be the primary driver.

Speaker #6: We've grown our arrowhead landfill, rail network over the last two years by, you know, effectively 300% now. And all of that is moving off the eastern seaboard.

Speaker #6: From sort of New Jersey north. Through our intermodal facilities. And we'll continue to grow that as we go forward. I mentioned on last quarter's earnings call that we would begin a rail project in the southeast.

Speaker #6: It is specific to Florida. It's specific to some disposal incineration issues that happen down in Miami-Dade County. And us and one of our public peers have been awarded long-term agreements to take volumes north of Miami in true north central Florida on rail at our landfills.

Ron Mittelstaedt: It's specific to some disposal incineration issues that happened down in Miami-Dade County, us and one of our public peers have been awarded long-term agreements to take volumes north of Miami in through North Central Florida on rail at our landfills. We began that in mid to late Q2. It's continuing to start to ramp in Q3 as we speak, will continue to do so throughout the balance of the year as that operation becomes smoother and the customer receives more and more rail cars from the supplier. It's an opportunity that's now in the lower Southeast due to a unique situation. You don't really see it being an opportunity in other geographies today. It has been an opportunity in the Pacific Northwest for a long time, for about 25 years now. A third of the waste in the upper Northwest moves via rail.

Speaker #6: We began that in mid to late Q2, and it's continuing to ramp in Q3 as we speak. We'll continue to do so throughout the balance of the year, as that operation becomes smoother and the customer receives more and more rail cars from the supplier.

Speaker #6: So it's an opportunity that's now in the, you know, the lower Southeast due to a unique situation. You don't really see it being an opportunity in other geographies today.

Speaker #6: It has been an opportunity in the Pacific Northwest for a long time, for about 25 years now. A third of the waste in the upper northwest moves via rail.

Speaker #6: That will continue to expand. Over time. So you know, this is never going to grow to be an enormous portion of our business. But it certainly is a small portion that is growing nicely at this time.

Ron Mittelstaedt: That will continue to expand over time. This is never going to grow to be an enormous portion of our business, but it certainly is a small portion that is growing nicely at this time.

Speaker #6: Thank you.

Tobey Sommer: Thank you.

Speaker #3: Your next question comes from the line of Adit Shrestha with Stifel. Your line is open. Please go ahead.

Operator 2: Your next question comes from the line of Aadit Shrestha with Stifel. Your line is open. Please go ahead.

Speaker #7: Hi. Good morning. Thank you for taking my questions. Just on the core price and yield spread, I think that improved again, like sort of 30 bips from one Q, you know, one Q was 130 bips and this quarter was around 100 bips.

Aadit Shrestha: Hi. Good morning. Thanks for taking my questions. Just on the core price and yield spread, I think that improved again sort of 30 bits from Q1. Q1 was around 130 bits, and this quarter was around 100 bits. I understand there could be a mix factor impacting that, but could you just talk about maybe the spread going forward, if this is sort of a reasonable expectation? What makes your business so unique that the spread being so much better than your peers, which who usually report closer to 100 bits. Thank you.

Speaker #7: I understand, you know, there could be a mixed kind of factor impacting that. But could you just talk about maybe like the spread going forward if this is sort of a reasonable expectation?

Speaker #7: And you know, what makes your business so unique that, you know, so and the spread being so much better than your peers, which who usually report closer to 200 bips?

Speaker #7: Thank you.

Speaker #2: Sure. So, with respect to the sequential differences, I would attribute those to mix. I would say that what you have always—in the, of course, the difference between core price and yield—will be mix.

Mary Anne Whitney: Sure. Aadit, with respect to the sequential differences, I would attribute those to mix. I would say that what you have always in the, of course, the difference between core price and yield will be mix, and not just mix by line of business, but also mix by geography. Dramatically different wins and losses in different markets. For instance, in the eastern part of the country versus the southeast. The other point being churn, which we said churn is an impact. I wouldn't encourage you to think that something improved in Q2 versus Q1. In fact, we pointed out that we think the introduction or the increase in fuel surcharges has probably increased churn we were seeing in the business. I really can't speak to our peers and what they see in their business.

Speaker #2: And not just mix by line of business, but also mix by geography. There are dramatically different wins and losses in different markets—for instance, in the eastern part of the country versus the Southeast.

Speaker #2: The other point being churn, which we said, you know, churn is an impact. And so I wouldn't encourage you to think that something improved in Q2 versus Q1.

Speaker #2: In fact, we pointed out that we think the introduction or the increase in fuel surcharges has probably increased. We were seeing in the business.

Speaker #2: And I really can't speak to our peers and what they see in their business. But we would always remind folks that our strategy is purposeful in thinking about the competitive intensity of markets and the ability to retain price.

Mary Anne Whitney: We would always remind folks that our strategy is purposeful in thinking about the competitive intensity of markets and the ability to retain price. You would expect that, as it has historically, to impact how much price we keep, which is what you see in yield.

Speaker #2: And so you would expect that as it has historically to impact how much price we keep. Which is what you see in yields.

Speaker #7: Thanks a lot.

Aadit Shrestha: Thanks a lot.

Speaker #3: Your next question comes from the line of Christina Bettnick with BNP Paribas. Your line is open. Please go ahead.

Operator 2: Your next question comes from the line of Christina Bentenk with BNP Paribas. Your line is open. Please go ahead.

Speaker #8: Good morning. Hi. This is Christina on for Seth Weber. Thank you so much for taking our questions. So I just have a quick one for you guys.

Christina Bentenk: Good morning. Hi, this is Christina on for Seth Weber. Thank you so much for taking our questions. I just have a quick one for you guys. Could you update us on the Seneca Meadows expansion that was filed recently earlier this month, and where you guys kind of see the permitting timeline from here, and how you guys are thinking of managing the airspace and volumes at the site in the meantime, whether it be by rail or truck? Thanks.

Speaker #8: Could you update us on the Seneca Meadows expansion that was filed recently earlier this month? And where are you guys kind of see the permitting timeline from here and how you guys are thinking of managing the airspace and volumes of the site in the meantime?

Speaker #8: Whether it be by rail or truck. Thanks.

Speaker #6: Sure. Let's take the second part of that first. We are managing the airspace there. To make certain that we have adequate airspace for customers, external as well as internal, until we are able to get the expansion permit and construct the first expansion airspace.

Ron Mittelstaedt: Sure. Let's take the second part of that first. We are managing the airspace there to make certain that we have adequate airspace for customers, external as well as internal, until we are able to get the expansion permit and construct the first expansion airspace. We are doing that both by rail and truck. We are moving some of our volumes out of Seneca down by rail through our network to Arrowhead and elsewhere, to help manage those timelines. Most of the volume into Seneca, of course, is all by truck. Secondly, the process is moving along well. We've had some very important recent legal victories and rulings and regulatory rulings in our favor. In fact, all of them at this point in time. We feel very good about it. We're still working our way through a state technical process on the permit.

Speaker #6: We are doing that both by rail and truck. We are moving some of our volumes out of Seneca, down by rail through our network to Arrowhead and elsewhere.

Speaker #6: To help manage those timelines. And so most of the volume into Seneca, of course, is all by truck. Secondly, you know, the process is moving along well.

Speaker #6: We've had some very important recent legal victories and rulings. And regulatory rulings in our favor. In fact, all of them. At this point in time, and so we feel very good about it.

Speaker #6: But we're still working our way through a state technical process on the permit. And you know, we would expect that relatively soon. But you know, you're probably looking at somewhere closer to the end of this year or thereabouts for final achievement of that is our current expectations.

Ron Mittelstaedt: We would expect that relatively soon. You're probably looking at somewhere closer to the end of this year or thereabout for final achievement of that is our current expectation. There can be nothing guaranteed about this. This is a technical process. It is also, there's a political process involved in it. The vast majority of the political and legal process we are through at this point in time.

Speaker #6: You know, there can be nothing guaranteed about this. This is a technical process. It is also there's a political process involved in it. But the vast majority of the political and legal process we are through at this point in time.

Speaker #8: Got it. Thanks so much.

Christina Bentenk: Got it. Thanks so much.

Ron Mittelstaedt: Got it.

Speaker #3: Your next question comes from the line of John Wyndham with Union Bank of Switzerland. Your line is open. Please go ahead.

Operator 2: Your next question comes from the line of John Wyndham with Union Bank of Switzerland. Your line is open. Please go ahead.

Speaker #7: Yeah. Generally referred to as UVS. But hey, thank you so much for taking the questions. And you know, nice result. Nice raise. On the guidance.

John Wyndham: Yeah, generally referred to as UBS. Hey, thank you so much for taking the questions. Nice result. Nice raise on the guidance. My question's around interest rates. The 10-year's been sort of steadily trending upwards. The way I've thought of a rising interest rate in the past is it further enhances your funding advantage compared to private players, which could be helpful to both pricing and to M&A. Ron and Mary Anne, I would love your thoughts on the impact of a rising rate environment. Thanks.

Speaker #7: My questions are on interest rates. The 10-year has been steadily trending upward. The way I've thought of a rising interest rate in the past is that it further enhances your funding advantage compared to private players.

Speaker #7: Which could be helpful to both pricing and to M&A. Ron and Marianne, I would love your thoughts on the impact of a rising great environment.

Speaker #7: Thanks.

Speaker #2: Sure. Hi John. Yeah, you know, I wouldn't disagree with you that we always feel good about being well positioned with respect to our balance sheet, our access to low-cost capital.

Mary Anne Whitney: Sure. Hi, John. Yeah, I wouldn't disagree with you that we always feel good about being well-positioned with respect to our balance sheet, our access to low-cost capital. We do think it is a differentiator. Certainly as between public and private, privates are more impacted when you see rates rise. I would agree with that. It is a competitive advantage to us. The other factor that I'd point out is what interest rates do, for instance, to the more cyclical component of the business and the fact that could be something discouraging growth and development, which leads to more volume. There, we'd be like everyone else in that the overall macro is arguably impacted by interest rates as well. A double-edged sword.

Speaker #2: We do think it is a differentiator. And certainly as between public and private, private's are more impacted. When you see rates rise. And so I would agree with that.

Speaker #2: So, it is a competitive advantage to us. But the other factor that I'd point out is what interest rates do, for instance, to the more cyclical component of the business and the fact that could be something discouraging growth and development, which leads to more volumes.

Speaker #2: So there, we'd be like everyone else. And the overall macro is arguably impacted by interest rates as well, so it's a double-edged sword.

Speaker #6: Yeah. And I would say, John, to your comment, you are accurate. Look, we have always talked about there are, you know, at least three factors outside our control that help improve or decelerate external M&A from private companies.

Ron Mittelstaedt: Yeah, I would say, John, to your comment, you are accurate. Look, we have always talked about there are at least three factors outside our control that help improve or decelerate external M&A from private companies. Rising interest rates help, they help for reasons different than you might think. They help because sellers perceive they can take their after-tax proceeds and reinvest in low volatility investment and derive the same or better lifestyle than taking it from their company. They can't do that in a low-interest rate environment. It helps in that way. Secondly, a rising tax rate helps because sellers fear of sitting in neutral on a net basis even after they grow their business several years. That's an accelerant. Lowering taxes is the reverse. The third is the macroeconomy.

Speaker #6: Rising interest rates help, but they help for reasons different than you might think. They help because sellers perceive they can take their after-tax proceeds and reinvest in low-volatility investments and derive the same or better lifestyle than taking it from their company.

Speaker #6: They can't do that in a low-interest rate environment. So it helps in that way. Secondly, a rising tax rate helps because sellers fear of sitting in neutral on a net basis, even after they grow their business several years.

Speaker #6: So that's an accelerant. Dropping lowering taxes is the reverse. And then the third is the macroeconomy. Sellers want to sell in a rising macroeconomic environment when they believe their business has fair and full value.

Ron Mittelstaedt: Sellers want to sell in a rising macroeconomic environment when they believe their business has fair and full value. Those are three things outside our control, and that's how it affects M&A.

Speaker #6: So those are three things outside our control, and that's how it affects M&A. Thank you so much—that was great.

John Wyndham: Thank you so much. That was great.

Speaker #3: Your next question comes from the line of Noah Kaye with Oppenheimer & Co. Your line is open. Please go ahead.

Operator 2: Your next question comes from the line of Noah Kaye with Oppenheimer & Co. Your line is open. Please go ahead.

Speaker #7: Hey, morning Ron, Marianne, Joe, and team. Thanks for taking the question. Just going back to capital allocation—you spent, I think, $51 million on undeveloped land near existing facilities.

Noah Kaye: Hey, morning, Ron, Mary Anne, Joe, and team. Thanks for taking the question. Just going back to capital allocation. You spent, I think, $51 million on undeveloped land near existing facilities. That's the first time in six years. Anything strategic associated with that that you could help us understand? Was that the landfill expansion or something else? Maybe just give it a little call there. The follow-on was just the incremental RNG contribution next year, since you're already pacing ahead of your expectations for this year. Thanks.

Speaker #7: That's the first time in six years. Anything strategic associated with that that you could help us understand? Was that for landfill expansion or something else?

Speaker #7: Maybe just give it a little call there. And then the follow-on was just the incremental R&G contribution next year since you're already pacing ahead of your expectations for this year.

Speaker #7: Thanks.

Speaker #2: Sure. So I’ll start with the undeveloped land. Noah, that is strategic, and it’s opportunistic. Episodically, we have the opportunity to buy something for future development.

Mary Anne Whitney: Sure. I'll start with the undeveloped land. Noah, that is strategic, and it's opportunistic. Episodically, we have the opportunity to buy something for future development, and it's an example, in this case, of future development for facilities as opposed to landfills in a market in Florida that's been growing as a result of acquisition and other impacts. There's a unique opportunity real estate-wise, so it's an expensive real estate market with limited opportunities. That's what you saw in the $51 million purchase there. Secondly, with respect to RNG, the way I'd think about it is we've talked about this $100 to $150 million in contribution and kind of bucket it in thirds, and that we're on the second of the thirds. Two-thirds of the way in this year is what we're expecting.

Speaker #2: And it's an example in this case of future development for facilities as opposed to landfills in a market in Florida that's been growing as a result of acquisition and other impacts.

Speaker #2: And there's a unique opportunity, real estate-wise. So, an expensive real estate market with limited opportunities. And so that's what you saw in the $51 million purchase there.

Speaker #2: Secondly, with respect to R&G, the way I'd think about it is we've talked about this $100 to $150 million in contribution, and kind of bucketed it in thirds.

Speaker #2: And that we're on the second of the thirds, so kind of two-thirds of the way into this year is what we're expecting. And so, when we communicated in our outlook for the full year, we stepped it up partly because we're getting a little more—call it on the order of $15 to $20 million more in contribution from R&G this year.

Mary Anne Whitney: When we communicated in our outlook for the full year, we stepped it up partly because we're getting a little more, call it in the order of $15 to $20 million more in contribution from RNG this year than we had factored into our full-year guidance. The way we think about it leaves the final third next year. I would also say final third with a little better margin contribution because we're absorbing a lot of the startup costs this year, and so it's less impactful from a margin standpoint.

Speaker #2: Then we had factored into our full year guidance. And so the way we think about it, it leaves the final third next year. And I would also say final third with a little better margin contribution because we're absorbing a lot of the startup costs this year.

Speaker #2: And so it's less impactful from a margin standpoint.

Speaker #6: Yeah, great. Thank you so much.

Noah Kaye: Yeah, great. Thank you so much.

Operator 2: Your next question comes from the line of Stephanie Moore with Jefferies. Your line is open. Please go ahead. As a reminder, if you are muted locally, please remember to unmute your device.

Speaker #3: Your next question comes from the line of Stephanie Moore with Jefferies. Your line is open—please go ahead. As a reminder, if you are muted locally, please remember to unmute your device.

Speaker #8: Sorry about that. I was indeed muted. And then my headphones died. Welcome to the beginning of earnings season. I think, you know, one question I think, you know, we keep getting, you know, quite a bit would just be on underlying volume performance.

Stephanie Moore: Sorry about that. I was indeed muted. Then my headphones died. Welcome to the beginning of earnings season. One question I think we keep getting quite a bit would just be on underlying volume performance. I think, there's a lot of moving pieces when you think about just what the overall health of the economy is doing, maybe even just industrial economy. Then also, I think, what is the industry's actions to be really concerted about which type of volumes you bring on. Maybe just to level set, how should we think about just the underlying volume growth of the industry, with all those things and taking into account as we think over the next several years? Thanks.

Speaker #8: I think, you know, there's a lot of moving pieces when you think about just what the overall healthy economy is doing. Maybe even just industrial economy.

Speaker #8: And then also I think what is the industry's actions to be really concerted about which type of volumes you bring on. So maybe just a level set.

Speaker #8: You know, how should we think about just the underlying volume growth of the industry? You know, with all those things and taking into account, you know, as you think over the next, you know, several years.

Speaker #8: Thanks.

Speaker #6: Sure. Well, I mean, there's a lot of parts to that question you asked. So I'll try to answer them as clear as we can.

Ron Mittelstaedt: Sure. Well, there's a lot of parts to that question you asked. I'll try to answer them as clear as we can. First off, historically, Stephanie, I would tell you that, look, there's only two things that affect the underlying volume growth since everybody has what our industry does, whether they be commercial, residential, or otherwise. That is true GDP spending, non-federal government spending in GDP, and population growth. Where are we in that cycle right now? Population growth is effectively zero, actually perhaps negative. GDP in Q2, non-government spending was about 1.3%. You start with, you can't be much better than 1% in total volumes with that if there's a little bit negative population growth. If you look at our Western region, remember. That's 100% exclusive. We get every drop of waste in our franchise.

Speaker #6: First off, historically, Stephanie, I would tell you that, look, there are only two things that affect the underlying volume growth, since everybody has what our industry does, whether they be commercial, residential, or otherwise.

Speaker #6: And that is true GDP spending, you know, non-federal government spending in GDP. And the population growth. So where are we in that cycle right now?

Speaker #6: Population growth is effectively zero—actually, perhaps negative. And GDP in Q2, non-government spending, was about 1.3%. So, you start with, you can't be much better than 1% in total volumes with that, if there's a little bit of negative population growth.

Speaker #6: If you look at our Western region, remember that's 100% exclusive. We get every drop of waste in our franchise. A customer cannot use anyone else—residentially, commercially, industrial, manufacturing, and construction.

Ron Mittelstaedt: A customer cannot use anyone else residentially, commercially, industrial, manufacturing, and construction. We had 1% volume growth in Q1. That's about as good as it gets in this economic environment. Last year, that region had growth of two and a half to three. It did step down some, at least that as an indicator from last year at this point. That region typically runs between two and three and a half %. If you're getting everything, which doesn't happen in competitive markets, that's where your cap is. The public companies, the strategic companies, have been very consistent on price-cost spread and not being all things to all people. There are segments of this business that the privates are very good in. They live on a 5% to a 10% EBITDA margin.

Speaker #6: We had 1% volume growth in Q1. So that's about as good as it gets in this economic environment. Last year, that region had growth of 2.5 to 3.

Speaker #6: So it did step down some, at least as an indicator from last year at this point. That region typically runs between 2% and 3.5%.

Speaker #6: So if you're getting everything, which doesn't happen in competitive markets, that's where your cap is. The public companies, the strategic companies, have been very consistent on price-cost spread and not being all things to all people.

Speaker #6: There are segments of this business that the privates are very good in. They live on a 5 to a 10% EBITDA margin. That is not a margin the public companies are looking at.

Ron Mittelstaedt: That is not a margin the public companies are looking at. The public companies are not pursuing a residential subscription. They're not pursuing low-price HOAs and municipal residential contracts. That's where the privates are getting a lot of their growth, both small privates and private equity companies, and we're happy to let them have that. That's not a business that we could convert to a 30% to 35% EBITDA business. You're going to see that volumes are going to be somewhat flat to negative unless there's a macro change. I think the market would see that's okay. If margins are moving up and volumes are nominally negative, you should be happy. If margins are moving backwards when volumes are negative, well then there's some trade-off happening that's not worth it.

Speaker #6: And so you know, the public companies are not pursuing residential subscription. They're not pursuing low-price HOAs and municipal residential contracts. That's where the privates are getting a lot of their growth, both small privates and private equity companies.

Speaker #6: And we're happy to let them have that. That's not a business that we could convert to a 30 to 35% EBITDA business. So you know, you're going to see that volumes are going to be somewhat flat to negative unless there's a macro change.

Speaker #6: And I think the market would see that's okay. If margins are moving up and volumes are nominally negative, you should be happy. If margins are moving backwards when volumes are negative, well, then there's some trade-off happening that's not worth it.

Speaker #6: That's not where we're at as a company or as an industry on the publicly traded side, I would argue. So again, not all EBITDAs created equally.

Ron Mittelstaedt: That's not where we're at as a company or as an industry on the publicly traded side, I would argue. Again, not all EBITDA is created equally, not all volumes are created equally, and we don't want all volumes. I think that's really important to understand.

Speaker #6: And not all volumes are created equally. And we don't want all volumes. And I think that's really important to understand.

Speaker #8: Thanks, Ron. Really appreciate all the insight.

Stephanie Moore: Thanks, Ron. Really appreciate all the insight.

Speaker #3: There are no further questions at this time. I will now turn the call back to Ronald Mittelstaedt for closing remarks.

Operator 2: There are no further questions at this time. I will now turn the call back to Ron Mittelstaedt for closing remarks.

Speaker #6: Well, if there are no further questions, on behalf of our entire management team, we appreciate your listening to and interest in the call today.

Ron Mittelstaedt: Well, if there are no further questions, on behalf of our entire management team, we appreciate your listening to and interest in the call today. Mary Anne and Joe Box are available today to answer any direct questions that we did not cover that we're able to cover under Regulation FD, Regulation G, and applicable securities laws in Canada. Thank you again, and we look forward to connecting with you at an upcoming investor conference or on our next earnings call.

Speaker #6: Marianne and Joe Box are available today to answer any direct questions that we did not cover that we're able to cover under regulation FD, regulation G, and applicable securities laws in Canada.

Speaker #6: Thank you again, and we look forward to connecting with you at an upcoming investor conference or on our next earnings call.

Operator 2: This concludes today's call. Thank you for attending. You may now disconnect.