Waste Connections, Inc. Q2 FY2025 earnings call

• Extremely pleased with Q2 results, showing strength of solid waste regardless of economic environment.
• Operational execution supported by improved employee retention and safety, enabling pricing ahead of inflation and cost management.
• Overcame headwinds from commodities, RINs, and cyclical volumes, still achieving margins of 32.7%.
• Voluntary turnover stepped down for 11 consecutive quarters, safety results hit new historic lows.
• Continued acquisition activity with ~$200 million in annualized revenue already closed, with pipeline for more acquisitions.
• Focus on reinvesting in business, leveraging technology for margin expansion, and improving customer experience.
• Remediation efforts at Chiquita Canyon landfill making progress, with U.S. EPA taking a more active role.

In Q2, revenue was $2.407 billion, up 7.1% year-over-year. Core solid waste pricing was 6.6%. Volumes declined by 2.6%. Adjusted EBITDA for Q2 was $786.4 million, up 7.5% year-over-year. Landfill revenue was up about 4% on tons up 1.5%. MSW tons were up 3%, special waste was up 7%, and C&D tons were down 9%. Recycled commodities values were down year-over-year, RINs stepped down, and U.S. E&P waste was down, but Canada's R360 Canada revenue was up on price and volume.

• Full year 2025 outlook: revenue ~$9.45B, adjusted EBITDA ~$3.12B (33% margin), adjusted free cash flow ~$1.3B.
• Back half of 2025 expected adjusted EBITDA margin average 33.6%, up 60 basis points year-over-year, with Q4 expected to have easing comparisons for Chiquita and commodities.
• Acquisitions and improvements in commodity-related activity and solid waste volumes could provide upside to the outlook.

• Economic uncertainties and tariff-induced uncertainties.
• Fluctuations in commodity prices and RINs.
• Regulatory challenges at Chiquita Canyon landfill, including complex California bureaucracy.
• Potential impact of macroeconomic conditions on solid waste volumes, particularly in construction-linked activities.

Q: Tyler Brown from Raymond James asked about capital allocation, M&A pipeline, and share repurchases.

A: Ron Mittelstaedt responded that it's opportunistic, with capacity for both M&A and share repurchases due to firepower from free cash flow and available capital.

Q: Toni Kaplan from Morgan Stanley inquired about volume shedding, recovery, and long-term volume outlook.

A: Ronald J. Mittelstaedt explained components of negative volume, including price-volume trade-off, purposeful shedding, and underlying economic softness, noting M&A impacts and potential improvement with economic recovery.

Q: Noah Duke Kaye from CIBC asked about margin expectations for 3Q and revenue step-out.

A: Mary Anne Whitney stated 3Q adjusted EBITDA margin expected to average 33.6%, with muted seasonal ramp due to commodities and other headwinds.

Q: Kevin Chiang from CIBC asked about voluntary turnover and safety incident metrics' impact on margins.

A: Mary Anne Whitney mentioned about 100 basis points of margin opportunity from improving trends, with about 60-70 basis points realized so far, and risk costs still a headwind but abating.

Q: John Trevor Romeo from William Blair asked about solid waste pricing trajectory and fleet/equipment purchases.

A: Mary Anne Whitney said pricing is trending above original expectations, and Ron Mittelstaedt discussed fleet cost increases due to tariffs and efforts to accelerate fleet purchases to hedge costs.

Q: Sabahat Khan from RBC Capital Markets revisited volume discussion and E&P business.

A: Ronald J. Mittelstaedt and Mary Anne Whitney discussed volume components, E&P business mix, and regional variances in volume performance.

Q: Bryan Burgmeier from Citi asked about volume headwinds and recycled commodity price assumptions.

A: Ronald J. Mittelstaedt and Mary Anne Whitney discussed volume headwinds in different regions and recycled commodity price assumptions, with current prices lower than initial expectations.

Q: Adam Samuel Bubes from Goldman Sachs asked about underlying margin expansion and acquisition mix/margin profile.

A: Mary Anne Whitney discussed accelerating margin expansion due to improving trends, and Ronald J. Mittelstaedt discussed acquisition mix and margin profile, noting typical EBITDA margin for acquisitions.

Q: Christopher Allan Murray from ATB Markets asked about end markets and volume recovery outlook.

A: Ronald J. Mittelstaedt discussed inverse of end market trends, with commercial yardage growth but cyclical construction activity softness, and cautious outlook on volume recovery.

Q: Konark Gupta from Scotiabank asked about price cost spread and Chiquita cost obligation.

A: Ronald J. Mittelstaedt discussed price cost spread target and cautious optimism on Chiquita cost obligations with EPA involvement.

Q: Michael Doumet from National Bank asked about employee retention improvement and AI initiative impact.

A: Ronald J. Mittelstaedt discussed ongoing employee retention efforts and AI initiative potential to maintain price cost spread by reducing churn impact.

Q: Stephanie Moore from Jefferies asked about M&A leniency under current administration.

A: Ronald J. Mittelstaedt stated that current administration's leniency is an accelerant to M&A, with no inhibition to date.

Q: James Schumm from TD Cowen asked about Chiquita spending guidance and cost bucketization.

A: Ronald J. Mittelstaedt discussed Chiquita spending estimates, leachate costs (70% of total), and ongoing efforts to reduce costs.

Q: Tami Zakaria from JPMorgan asked about opportunistic buyback and M&A pipeline.

A: Mary Anne Whitney stated that there is optionality to continue both opportunistic share repurchases and M&A activity.