Waste Connections Q2 2026 Earnings Call | Organic Price Realizations Shield Solid Margins

Hello everyone. Thank you for joining us and welcome to the Waste Connections Inc. Q2 2026 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.

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 US 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 discussed both in the cautionary statement in our July 22nd earnings release and in greater detail in waste connections filings with the US Securities and Exchange Commission and the Securities Commission 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. 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.

Thank you, Ron. In the second quarter, 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 of 6.7% included 1.1% in fuel and material surcharge charges 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 surcharge charges with the timing determined by the pace and magnitude of changes in diesel pricing. 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 the same store basis. 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. 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. 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. 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. And finally, year-to-date adjusted free cash flow of 773 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.

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. Given the strength of our performance in the first half of the year and updating for recent values for recycled commodities, RECs 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 10.055 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%. 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 outlook 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. 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. And now, let me turn the call back over to Ron for some final remarks before Q&A.

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.

Hey, good morning.

Hey Ron. I want to maybe pack a couple questions into one, but I first I just want to kind of come back to the competitive landscape. 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 and is that frankly different than what you've seen in the past or is there any bigger changes in the competitive landscape? And then two, Maryanne, just what is the rollover impact from M&A in 2026 and would there be any lingering left over in 2027 based on what's closed? Thank you guys.

And then in response to the second question, even though you're violating the rules, Tyler, I'll be brief. The acquisition contribution, the rollover contribution the next year would be about $30 million. The increase to our full year outlook included an increase of about $50 million associated with 2026.

Okay, perfect. Thank you guys.

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

Good morning. Thanks for taking my question. Just one on, you know, we're hearing a lot more on, you know, in Canada up to, you know, nation building projects, more energy infrastructure projects. And I guess when I think of your E&P Canada operations, just how you think that might benefit from this increased capex and how many idle facilities do you have today that could be reopened if activity does pick up in Western Canada here.

Thank you for taking my question.

Of course. Your next question comes from the line of Fisa Ali with Gisha Bank. Your line is open. Please go ahead.

Yes. Hi. Thank you. Good morning. 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. So maybe talk a little bit more about that. Is it broad-based pickup? Did the competitive environment improve? So just give us a little bit more perspective on what you saw differently in July versus what you saw in Q2.

Great. Thank you so much.

Your next question comes in the line of Jim Schum with TD Cohen. Your line is open. Please go ahead.

Hey, good morning.

Could you just help me with the Chiquita accounting? You had a $58 million impairment there. Is that reflective of Q2 spend? And could you just give us an update on where you are in the Chiquita spend year to date versus your guidance?

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 flow outflows. So 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.

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

Okay, great. Thank you very much.

Your next question comes from the line of Corner Gupta with Scotia Bank. Your line is open. Please go ahead.

Thanks. Morning. Maryanne, just wanted to dig into the underlying margin trends for you guys. I understand obviously the comps are changing every quarter, but just seeing this trend where your underlying margin expanded about 150 basis points in Q4 of last year, then we saw 110 in Q1, now 70 in Q2. Is this deceleration in underlying margin expansion purely on the comps or is there something else we should be thinking about as we look into second half?

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 and 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. So it really is just that we are now lapping or anniversarying those. And as you point out, Q4, I would argue, was anomalistic because you had a 100 basis points benefit just from between disposal and risk in Q4 last year. 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.

Thank you.

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

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 relatively straight line across the quarters or if there's more seasonality on some quarters versus others.

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 it 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. And 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. 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 what is 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.

Thanks a lot.

Your next question comes from the line of Brian Bergmire with City. Your line is open. Please go ahead.

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

Got it. Thanks a lot. I'll turn it over.

Your next question comes from the line of Jerry Reevich with Wells Fargo. Your line is open. Please go ahead.

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

I really appreciate all that quantitative breakout. That's great to hear. I guess secondly on special waste tons, we've 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 27?

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

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

Okay. And so there's no real expectation for special spend or anything like that. In fact, kind of it feels like 27 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?

Okay, I'll leave it there. Thank you.

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

Morning. Thanks for taking the question. I just had one on P5. I think there was a recent announcement about a new treatment facility you're working on at one of your landfills in North Carolina. I think you have a few other treatment plants at other landfills too. So question is, how are you thinking about being proactive and getting ahead of regulations versus being reactive? And can you just talk about the economics of building an on-site treatment plant versus sending leachate elsewhere and the return on that capital? Thank you.

Okay. Thank you very much.

Your next question comes from the line of Sabat Khan with RBC Capital Markets. Your line is open. Please go ahead.

Hi, good morning. This is Bowman on the line for Sabah.

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 half of the year? Sure.

Thank you. That's all the questions I had. I'll turn it back.

Your next question comes from the line of Toby Smer with Truist. Your line is open. Please go ahead.

Thank you. I want 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 near term and longer term perspectives for how much that is going to grow as a component of your business.

Thank you.

Your next question comes from the line of add. Your line is open. Please go ahead.

Hi good morning. Thanks for taking my questions. Um just on the core pricing yield spread, I think that improved again like sort of 30 bits from Q1, Q1 was 130 bits and this quarter were 100 bits. I understand there could be a mix 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 and what makes your business so unique that the spread is so much better than your peers which usually report closer to 200 bits. Thank you.

Excellent.

Your next question comes from the line of Christina Betnik with BNP Paria. Your line is open. Please go ahead.

Good morning. Hi, this is Christina on for L. Thank you so much for taking our questions. So, 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 of the site in the meantime whether it be by rail or truck? Thanks.

Got it. Thanks so much.

Your next question comes from the line of John Windham with Union Bank of Switzerland. Your line is open. Please go ahead.

Generally referred to as UBS, but hey, thank you so much for taking the questions. And, you know, nice result, nice raise on the guidance. My question is around interest rates. The ten-year has 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 Maryanne, I would love your thoughts on the impact of a rising rate environment. Thanks.

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. We do think it is a differentiator and certainly as between publics and privates, privates are more impacted when you see rates rise and so I would agree with that. 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 that could be something discouraging growth and development which leads to more volumes. So there we'd be like everyone else in that the overall macro is arguably impacted by interest rates as well. So a double-edged sword.

Thank you so much.

Your next question comes to the line of Noah K with Oenheimer and Co. Your line is open. Please go ahead.

Hey morning Ron, Maryanne, Joe and team. Thanks for taking the question. Just going back capital allocation. You spent I think 51 million on undeveloped land near existing facilities. That's the first time in 6 years. Anything strategic associated with that that you could help us understand for landfill expansion or something else. Maybe just give a little call there and then the follow on was just the incremental RNG contribution next year since you're already pacing ahead of your expectations for this year. Thanks.

Okay, great. Thank you so much.

Your next question comes from the line of Stephie Moore with Jeff. Your line is open. Please go ahead.

As a reminder, if you are muted locally, please remember to unmute your device.

Sorry about that. I was indeed muted and then my headphones died. Welcome to the beginning of earning season. I think you know one question I think you know we keep getting quite a bit would just be on underlying volume per underlying volume performance. So I think you know 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, and then also I think what is the industry's actions to be really considered about which type of volume you bring on. So 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 you think over the next several years. Thanks.

Thanks Ron. Really appreciate all the insight.

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

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