Waste Connections (TSX:WCN) reported second-quarter financial results on Thursday. The transcript from the company's second-quarter earnings call has been provided below.

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Summary

Waste Connections reported Q2 2026 revenue of $2.562 billion, a 6.4% increase year-over-year, exceeding expectations.

Adjusted EBITDA margin expanded to 32.8%, overcoming cost pressures such as rising fuel costs.

The company increased its full-year 2026 outlook, with expected revenue between $10.02 billion and $10.05 billion, and adjusted EBITDA ranging from $3.33 billion to $3.34 billion.

Organic growth in solid waste collection was driven by a 5.6% core price increase, while volumes declined by 1.9% due to macroeconomic uncertainty.

Renewable natural gas projects are ahead of schedule, with most capital outlays expected to be complete by year-end 2026.

M&A activity remains strong, with acquisitions totaling approximately $100 million in annualized revenue year-to-date.

The company is managing Chiquita Canyon Landfill impacts within expectations, with no change to 2026 free cash flow projections.

AI initiatives are contributing to financial performance, with pricing tools already yielding $20 million in EBITDA improvements.

Management maintains a positive outlook for the remainder of the year, citing improving commodity trends and potential acquisition synergies.

Full Transcript

OPERATOR

Hello everyone. Thank you for joining us, and welcome to the Waste Connections 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 1 on your telephone keypad. To withdraw your question, please press star 1 again. I will now hand the call over to Ron Mittelstadt, President and CEO. Ron, please go ahead.

Ron Mittelstadt, President and CEO

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. I am 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.

Mary Anne Whitney, EVP - CFO

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 July 22 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. 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.

Ron Mittelstadt, President and CEO

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. 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. 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 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.

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 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.

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. 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. 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 owned 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.

As we described last quarter, we continue to make progress mitigating the reaction, which is stable, controlled, and decelerating. There is no change to our projections regarding related free cash flow impacts to 2026, or our expectations for a sequential decline in impacts in '27. 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. 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, which 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. 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. And now I'd like to pass the call to Marianne to review more in depth the financial highlights of the second quarter, to review the elements of our increased full year 2026 outlook, and what that implies for the back half of the year.

I will then wrap up before heading into Q&A.

Mary Anne Whitney, EVP - CFO

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 region. Total price of 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. 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, 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.

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 $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. 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, 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%. 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.

Ron Mittelstadt, President and CEO

Thank you, Mary Anne. As we have 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. 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, and 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 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. 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 25,000-plus employees, which is what truly sets us apart. We appreciate your time today. I will now turn this call over to the operator to open up the lines for your questions.

OPERATOR

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.

Ron Mittelstadt, President and CEO

Hey, good morning, Tyler.

Tyler Brown, Analyst at Raymond James

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. 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, Mary Anne, just what is the rollover impact from M&A in '26, and would there be any lingering left over in '27 based on what's closed? Thank you, guys.

Ron Mittelstadt, President and CEO

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. 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 a barrel in a very short period of time. Time that would typically take six to eight months took four to six weeks.

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. 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 it look a little different. Longer this wears on, the less difference between those public and private companies will happen. So 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.

Mary Anne Whitney, EVP - CFO

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 to next year would be about $30 million. The increase to our full-year outlook included an increase of about $50 million associated with '26.

Tyler Brown, Analyst at Raymond James

Okay, perfect. Thank you.

OPERATOR

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

Kevin Chiang, Analyst at CIBC

Hi, good morning. Thanks for taking my question. Just one on, you know, we're hearing a lot more on, you know, in Canada, pure nation-building projects, more energy infrastructure projects, and 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?

Ron Mittelstadt, President and CEO

Sure. 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 secured assets up there in February of '24. 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, you know, various export pipeline construction from the country and throughout the country.

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. As we said in our comments, Canada was relatively flat but coming off a very strong comp in Q2 of last year.

Kevin Chiang, Analyst at CIBC

Thank you for taking my questions.

Ron Mittelstadt, President and CEO

Of course.

OPERATOR

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

Faiza Alwi, Analyst at Deutsche Bank

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 that — did you see a 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 2Q.

Ron Mittelstadt, President and CEO

Yeah, well, first off, I mean we don't want to overgeneralize. We’ve had three weeks or so of July so far. But, you know, 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. You know, some of that can be timing. It's hard to understand. 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, you know, which would indicate that that is coming. 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.

OPERATOR

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

Jim Schum, Analyst at TD Cowen

Hey, good morning. Can you guys just—

Mary Anne Whitney, EVP - CFO

Good morning.

Jim Schum, Analyst at TD Cowen

Could you just help me with the Chiquita accounting? You had a $58 million impairment. Is that—like, I thought Q1 was sort of the true-up—and then—

Mary Anne Whitney, EVP - CFO

Okay, so I'm happy to take that, Jim. So 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. Okay, 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 ’27 and again into ’28. 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.

Jim Schum, Analyst at TD Cowen

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

Ron Mittelstadt, President and CEO

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.

Jim Schum, Analyst at TD Cowen

Okay, great. Thank you very much.

OPERATOR

Your next question comes from the line of Konark Gupta, Scotiabank. Your line is open. Please go ahead.

Konark Gupta, Analyst at Scotiabank

Thanks. Morning, Mary Anne. 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 I think expanded about 150 basis points in Q4 of last year and then we saw 110 in Q1, now 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 second half?

Mary Anne Whitney, EVP - CFO

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. You know, in addition, you saw the benefits from internalization last year.

We talked about the benefits at Arrowhead, for instance. We were internalizing more tons than 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 such—you had 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.

Ron Mittelstadt, President and CEO

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 Mary Anne has said.

Konark Gupta, Analyst at Scotiabank

Thank you.

OPERATOR

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

Tony Kaplan, Analyst at Morgan Stanley

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 sort of seasonality on some of the quarters versus others.

Mary Anne Whitney, EVP - CFO

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, you know, 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 be 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. You know, 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 ’27 would be de minimis.

We're essentially done with those CapEx outlays that we talked about over a multi-year period. And it is one of the drivers for the inflection in free cash flow in ’27: 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 over—from our previous guidance.

Ron Mittelstadt, President and CEO

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

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

Tony Kaplan, Analyst at Morgan Stanley

Thanks a lot.

OPERATOR

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

Brian Bergmeier, Analyst at Citi

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—you know, just for wages, maintenance, repair, other items—just maybe what do you expect now versus the original guide in February? 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.

Mary Anne Whitney, EVP - CFO

Sure. 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. There's no change to that expectation. Really all that changed is we're acknowledging that fuel's a little more punitive than certainly we knew coming in in February; 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 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. So, you know, 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, 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.

Brian Bergmeier, Analyst at Citi

Got it, thanks a lot. I'll turn it over.

OPERATOR

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

Andrew Ozzie, Analyst at Wells Fargo

Hi, good morning, this is Andrew Ozzie on 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. 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?

Ron Mittelstadt, President and CEO

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, and that is fully deployed by 4Q25 and has yielded about $20 million of EBITDA improvement on a run-rate basis at this point through ’26. 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 and that is not set to be fully deployed till the end of ’27.

So really not impactful to the P&L until ’28. And as we go through ’28 and ’29, you know, we expect roughly $40, maybe up to $50 million of route-related savings from that initiative as we come through ’28 and ’29. And then we are beginning at the end of Q3, beginning Q4 of this year, ’26, what we—some AI technology. We are putting in some generative AI into our customer service approach and a mobile application for customers, particularly residential customers.

And that will not begin being deployed until 2Q27 and will be fully deployed as we come through the early part to the mid part of ’28. And again we're expecting probably somewhere in that $20 to $35 million initial cut as the impact to EBITDA. As we said, we're 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 ’28 into ’29.

Andrew Ozzie, Analyst at Wells Fargo

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?

Mary Anne Whitney, EVP - CFO

Well, what I'd 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've 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. 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.

And then similarly C&D tons, as we said, they were positive really for the first time in a couple of years, and 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.

OPERATOR

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

Chris Murray, Analyst

Yeah, thanks, folks. Maybe just taking a stab at thinking about cash flow conversion as we go into 2027. And you've referenced the fact that, you know, you've got some normalized spending coming, lower RNG, maybe Chiquita 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, how do we think about the cash flow conversion? Is there anything unusual to be thinking about as we start entering that period?

Mary Anne Whitney, EVP - CFO

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 RNG spend, 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. So, 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.

But for some periods where we were anomalously higher, you know, we've gotten as high as 52 or 53%. But we would encourage people to think of more normalized being 48 to 50.

Chris Murray, Analyst

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. Is that the right way to kind of frame it or think about it?

Ron Mittelstadt, President and CEO

That's fair. I mean, we'd mentioned the AI spend continues. Again, that's not a big number, but ongoing spending there. But no, I think your observation that the lumpier piece, which was specifically RNG, is behind us.

Chris Murray, Analyst

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

OPERATOR

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

Trevor Romeo, Analyst at William Blair

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. I think you have a few other treatment plants that are 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 kind of the return on that capital?

Thank you.

Ron Mittelstadt, President and CEO

Yeah. Well, Trevor, I mean, I think, 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. It is an example of, you know, rising leachate costs at POTWs related to PFAS and other requirements that are being put on by state and federal regulators. 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. So, you know, this is an internal, these are internal projects. We're not out there marketing this to third parties that we will, you know, send landfills in surrounding areas that we have to this one 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.

You know, we recognized this many years ago and started investigating and investing and deploying these technologies. So 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. And they drop that treatment cost, you know, relative to third party quite significantly.

Trevor Romeo, Analyst at William Blair

Okay, thank you very much.

OPERATOR

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

Balin, Analyst at RBC Capital Markets

Hi, good morning, this is Balin on the line for Saba.

Ron Mittelstadt, President and CEO

Good morning.

Balin, Analyst at 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 half of the year?

Ron Mittelstadt, President and CEO

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. 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 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, you know, sort of outsized year or minimum year.

I would say 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 U.S. 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. 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.

So nothing, nothing abnormal coming in the pipeline, the balance of this year or in the foreseeable future.

Balin, Analyst at RBC Capital Markets

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

OPERATOR

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

Toby Sommer, Analyst at Truist

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 nearer term and longer term perspectives for how much that is going to grow as a component of your business.

Ron Mittelstadt, President and CEO

Sure, thanks. 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 due to both limitations of available landfill capacity and expansion and the economics of higher tipping fees in that region. So that continues to be the primary driver. 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 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. 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 into north central Florida on rail at our landfills.

We began that in mid to late Q2 and it's continuing to start to ramp in Q3 as we speak and will continue to do so throughout the balance of the year as that operation becomes smoother and the customer receives more and more railcars from the supplier. So 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 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.

Toby Sommer, Analyst at Truist

Thank you.

OPERATOR

Your next question comes in the line of Adit Shrestha with Stifel. Your line is open. Please go ahead.

Adit Shrestha, Analyst at Stifel

Hi, good morning. Thanks for taking my questions. Just on the core price and yield spread, I think that improved again, like sort of 30 bps from 1Q. You know, 1Q was around 130 bps. You know, this quarter was around 100 bps. I understand, you know, there could be a mix kind of factor impacting that, but could you just talk about maybe like, you know, the spread going forward, if this is sort of a reasonable expectation and, you know, what makes your business so unique that, you know, so and the spread being so much better than your peers, which usually report closer 200 bps.

Thank you.

Mary Anne Whitney, EVP - CFO

Sure. So with respect to the sequential differences, I would attribute those to mix. I would say that what you have always and 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, you know, churn is an impact.

And so 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 or exacerbated the churn we were seeing in the business. 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.

And so you would expect that, as it has historically, to impact how much price we keep, which is what you see in yield.

Adit Shrestha, Analyst at Stifel

Thanks a lot.

OPERATOR

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

Christina Betnik, Analyst at BNP Paribas

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. 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.

Ron Mittelstadt, President and CEO

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're moving some of our volumes out of Seneca, down by rail through our network to Arrowhead and elsewhere 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. 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. 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.

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.

Christina Betnik, Analyst at BNP Paribas

Got it. Thanks so much.

OPERATOR

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

John Windham, Analyst

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. My question's around interest rates. The 10-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 Mary Anne, I would love your thoughts on the impact of a rising rate environment.

Mary Anne Whitney, EVP - CFO

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. And that the overall macro is arguably impacted by interest rates as well. So a double-edged sword.

Ron Mittelstadt, President and CEO

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. 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.

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. So that's an accelerant. Dropping, lowering taxes is the reverse. And then the third is the macro economy. Sellers want to sell in a rising macroeconomic environment when they believe their business has fair and full value. So those are three things outside our control and that's how it affects M&A.

John Windham, Analyst

Thank you so much. That was great.

OPERATOR

Your next question comes from the line of Noah Kay with Oppenheimer and Company. Your line is open. Please go ahead.

Noah Kay, Analyst at Oppenheimer & Co.

Hey, morning Ron, Mary Anne, Joe and team. Thanks for taking the question. Just going back to capital allocation. You spent 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 with that for landfill expansion or something else. Maybe just give a little color 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.

Mary Anne Whitney, EVP - CFO

Sure. So I'll start with the undeveloped land. No, 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. 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. Secondly, with respect to RNG, the way I think about it is we've talked about this 100 to 150 million in contribution and kind of bucketed in that thirds and that we're on the second of the third. So kind of two-thirds of the way in 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, you know, call it on the order of 15 to 20 million more in contribution from RNG this year than 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. And so it's less impactful from a margin standpoint.

Noah Kay, Analyst at Oppenheimer & Co.

Great, thank you so much.

OPERATOR

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.

Stephanie Moore, Analyst at Jefferies

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. Underlying volume performance. 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. And then also I think what is the industry's actions to be really concerted about which type of volume to bring on. So maybe just a level set, you know, how should we think about just the underlying volume growth of the industry, you know, with all those things that in taking into account, you know, to think over the next, you know, several years. Thanks.

Ron Mittelstadt, President and CEO

Sure. Well, I mean, 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, restaurants, residential or otherwise. And that is true GDP spending, non-federal government spending in GDP and population growth. So where are we in that cycle right now?

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. If you're 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. A customer cannot use anyone else residentially, commercially, industrial, manufacturing and construction.

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 two and a half to three. So it did step down some, at least as that as an indicator from last year. At this point, that region typically runs between 2 and 3.5%. 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.

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. And so, you know, 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. So, you know, you're going to see that volumes are going to be somewhat flat to negative unless there's a macro change. 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. 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 EBITDA is created equally and not all volumes are created equally. And we don't want all volumes. And I think that's really important to understand.

Stephanie Moore, Analyst at Jefferies

Thanks, Ron. Really appreciate all the insight.

OPERATOR

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

Ron Mittelstadt, President and CEO

Well, 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.

OPERATOR

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

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