Ladies and gentlemen, thank you for standing by and welcome to the GFL Environmental Q2 Earnings Call. At this time all participants lines are on mute. Please be advised that today's conference is being recorded. After the speaker’s presentation there will be a question-and-answer session. [Operator Instructions]. I would now like to turn the call over to your speaker today, Patrick Dovigi, CEO of GFL. Please go ahead.

Good morning and thank you for joining the call. I hope everyone is staying safe as we continue navigating through these unprecedented times. This morning, we will be reviewing our results for the second quarter of 2020. I will provide an overview and then Luke Pelosi, our CFO will take us through Q2 financials. We will also spend some time today to update you on what we are seeing in the current operating environment. But before we get started, I'll pass the call over to Luke who will provide some disclaimers.

Thank you, Patrick and good morning everyone. Before we get started, please note that we have filed our earnings press release, which includes important information. The press release is available on our website. Also, we have prepared a presentation to accompany this call that is also available on our website. During this call, we'll be making some forward-looking statements within the meaning of applicable Canadian and U.S. Securities Laws, including statements regarding events or developments that we believe or anticipate may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set out in our filings with the Canadian and U.S. Securities Regulators. Any forward-looking statement is not a guarantee of future performance, and actual results may differ materially from those expressed or implied in the forward-looking statements. These forward-looking statements speak only as of today's date and we do not assume any obligation to update these statements whether as a result of new information, future events and developments or otherwise. This call will include a discussion of certain non-GAAP measures and a reconciliation of these non-GAAP measures can be found in our filings with the Canadian and U.S. securities regulators. I will now turn the call back over to Patrick who will start off on Page 3 of the presentation.

Thank you, Luke and thank you for everyone for joining us. We are very pleased with the results that we are sharing with you today that continue to prove out the resilient growth profile of our business. In the face of significant impact on general economic activity resulting from COVID-19, we delivered the highest revenue, adjusted EBITDA, and adjusted EBITDA margins in GFL's history. We attribute our success in the quarter to three key factors; first, the revenue profile of our business. As we have said many times before, the larger proportion of revenue coming from our service-based collection activity yields a more favorable variable cost structure that we can flex in response to lower volumes. Second, that we generate almost two thirds of our solid waste revenue in secondary markets. We typically saw less volume impact in these secondary markets as compared to the larger metro areas like Toronto and Montreal. Third and most importantly, the dedication and capabilities of our employees to adapt to the changing operating environment. I am humbled by the performance of our operators in the face of these unprecedented conditions. Truthfully, Luke, myself and the rest of the senior leadership team have largely been cheerleaders during the past few months. It is our almost 14,000 employees who deserve the credit for this successful quarter. Our top priority continues to be ensuring the health and safety of our workforce. The incremental risk management steps and the protocols we outlined in our first quarter conference call continue to prove effective in keeping our employees safe and we are continuing to update them as we navigate the complex process of market-specific re-openings. I remain inspired by the dedication of our frontline workers, and I once again extend my sincerest gratitude to them. In addition to the strong…

Thanks, Patrick. Turning to Page 5, we have provided a summary of results by operating segment. In solid waste, core price and surcharges drove 3.7% revenue growth as compared to 4.9% in the first quarter of this year and 4.4% in the prior year comparable period. As we've told you, our pricing activities are front-end loaded, and this year's plan anticipated a step down in pricing levels throughout the year. Obviously, the COVID-related disruptions were not in our original plan, and our decision to temporarily suspend the majority of our pricing initiatives in an effort to support our small and medium-sized customer base during these challenging times impacted overall pricing. However, we expect these impacts will be temporary in nature, and we believe we still have a meaningful latent pricing opportunity within our legacy customer base. Overall, we continue to see pricing discipline in the industry, and we remain confident in our ability to deliver on our stated pricing goals for this year and beyond. In addition to growth in core pricing, we realized an incremental 40 basis points tied to commodity prices, where we realized a blended basket priced nearly 40% higher than that of the prior year, largely driven by the spike in OCC that occurred during the quarter. OCC prices have come down since the May peak, but current pricing remains above that realized in the prior year. Patrick walked you through the overall solid waste volume decline, but I'll give you a little bit more color on the components. Overall volume was down 8.3%. 80% of that decline came from IC&I collection, and the decline in IC&I collection in Canada was twice what we saw in the U.S. Again, recall that for the first 10 weeks of the year, volume was running positive 100 basis points…

[Operator Instructions]. Your first question comes from the line of Hamzah Mazari with Jefferies. Hamzah, your line is open.

Hey, good morning. Thank you. My first question is just on pricing. I realize pricing was a bit weaker due to COVID. But how do you think about the sustainability of long-term pricing, is it closer to 4.5%, 5% or is it closer to 3%, 3.5% as you look forward in a normalized environment, I realize, historically you were building route density focused on M&A and integrating assets and then there was this little bit of a pricing catch-up, and we saw Q1 pricing very strong, how do you think about just normalized pricing going forward when we come out of COVID eventually?

Yes. So good morning Hamzah, its Luke. I think what we have said for our plan and our model going forward, we were targeting sort of 3.5% to 4% pricing. We thought that was the right level and a sustainable level for us to be able to continue on our volume growth expectations as well as achieve the pricing we need to sort of cover our internal cost inflation and drive the margin. So what we said is, in addition to that, we have the sort of latent pricing opportunity that we'd be harvesting over the sort of 12 to 18 months, which would drive on the short-term basis, pricing in excess of those levels, but really living in the sort of 3.5% to 4% was where we wanted to play. So what you saw in Q1 was the rollover effect of last year's sort of latent catch-up opportunities, a lot of which was done in April of last year. We started harvesting across our Canadian legacy book of business. So the benefit of that plus just regular-way Q1 price increases for this year. Q2, as we mentioned, we paused a lot of those pricing initiatives in light of the sort of backdrop. And into Q3, we've continued to be very tempered. We have started implementing in certain situations, but still a more tempered approach. So I think what you're going to see, what we said in Q1, is throughout the year, the PIs would step down after the Q1 high of 4.9% and end the year somewhere in the 4s range. And again, going forward, when we look at our existing book, we think that's a sustainable level for the sort of midterm, again that sort of 3.5% to 4% on a recurring run rate basis.

Got you. Very helpful. And my follow-up question, I'll turn it over, is -- I may have missed it, but could you talk about what you saw in July, either from a revenue perspective? I know you mentioned sequential activity increases since the April bottom. But just any color on what you're seeing in July in your markets, that would be helpful.

Yes. I mean from our perspective, there was -- it's been an interesting chart to watch as we sort of have gone through this. As the shutdowns -- as things started opening up, we saw a fairly large spike in revenue, and then that sort of flat lined because there was sort of a bunch of pent-up work that needed to get done and then things sort of tapered off a little bit. But then you sort of look at the trend now, the last sort of three weeks post, I would say, the July long weekend, we've seen the business significantly uptick and is trending much closer to budget than we've been for the whole year. So all signs are pointing in the right direction. I mean there's a lot of noise in media, watching CNN and FOX News, about what's actually happening in the world. But I can tell you, on the street, I think people are going about their life and trying to get back to normal as quickly as possible. But we are seeing those trends trend much closer to budget. Similar to what we saw through April through June, we continue to see those upticking closer to the budget now for the last sort of three weeks, from week 28 through 30.

Great, thanks so much guys.

Your next question comes from the line of Walter Spracklin with RBC Capital Markets. Walter, your line is open.

Yeah, thanks very much operator. Good morning everyone. I just wanted to focus a little bit on as volumes start to rebound. I mean you've seen that since April. Incremental -- I mean has there been -- have the incremental margins come in as expected or are you seeing the need for additional costs to come back a little bit quicker, is traffic levels on the streets causing some pressure there, any of the things that might have artificially benefited you during COVID-19 from a cost perspective, is there anything unexpected coming back on that cost view here as volumes return?

No. I mean, I think you'll see, over time, a little bit start creeping back in just because of the fact things are getting bigger. But we've made our routes so much more efficient today and parked so many trucks, and that would be sort of natural cadence so you'll start seeing some overtime creep back in. But other than that, listen, a lot of the costs we took out are winning [ph]. It's our expectation they will come back a lot slower than the revenue comes back in. So I think this three months of sort of sitting and really looking at the business will benefit us. And like I said previously, I think we come out of this stronger than we went into it. So there'll be some costs, but I think the revenue is coming back much faster than some of those -- some of the costs.

Makes sense. Okay. And then turning to your tuck-in. You were indicating in the prepared remarks that you're reengaging your tuck-in program. What do you think is the limiter here, is there a lot of interest out there, has that picked up selling interest I mean or are you more mindful I think your results has demonstrated that you can certainly tolerate higher debt levels through the cycle, how do you look at your balance sheet capacity and square that off with the willingness for sellers out there today?

Sure. So we got this question a lot when we marketed the IPO, and investors are always concerned with leverage. I think people ask the question what happens in a recession. And I think we sat back and said, well, nothing could be worse than September of 2008. And I think what you've just seen is significantly worse than 2008 in the quarter. And I think what you're able to see and what we've been able to demonstrate is that leverage didn't move in probably the biggest downturn that anyone's seen on this call. So I think when you look at the leverage perspective, that is the sort of case study of the -- that leverage is not an issue for us. Again, like we've told investors, we will maintain leverage in low to mid-4s, lever up as high mid-4s for the right opportunity. We feel very comfortable with that. We continue to feel comfortable with that. The business, like we said, in the back half of the year, is going to generate almost $275 million to $300 million of free cash flow. And I turn my attention to -- you look at what our debt is trading today. I think the repricing opportunity will continue to be something that sort of leads the way for us. And our capital structure today, our bonds and term loan are trading all sort of in the low 3s to just above 4. So I think as we continue to expand, it's a bit of a perfect storm for a company that has -- it's a defensible growth story. Number one, we can protect our base earnings. And number two, we can finance M&A at very attractive prices today because of where the cost of capital has gone. So all of that --…

Okay. Appreciate the color, and congrats on the great quarter.

Thanks, Walter.

Your next question comes from the line of Mark Neville with Scotiabank. Mark, your line is open.

Hi, good morning guys. Great quarter. First, maybe just on the business itself, maybe you can just speak to some of these primary markets in Canada, sort of where they're at in terms of sort of getting back to budget or getting back to close to normal, whatever you want to call it. And then within the U.S., again, we're seeing resurgence in certain states. Maybe we have some -- if there's any sort of impact or if you've seen any noticeable change in trends in those parts or regions of your business?

I mean outside of I would say really Montreal, Toronto and Vancouver, the markets were far less impacted. I was -- I still look at the large primary markets of Toronto, Montreal. I mean Montreal is tracking actually 101% of budget through July. So again, they recovered. How much of that is sort of pent up and -- how much of that is pent up and are you going to see that little dip after the work gets done, I don't know, but it seems to be really much, much better. I mean Toronto -- again, Toronto, it's again a bit of the revenue mix. We do a lot of work in downtown core in Toronto, so again, the office buildings, etcetera. So that's been, I think, slower to come back, and I still think it's off 10% plus. And I think the same in Vancouver, we're still off sort of 10-plus percent. But as we enter into these phase 3 stages now and hopefully, people start getting back out, that those are going to recover quicker. And the secondary markets have largely been on plan for the last sort of six weeks. So I think we're moving in the right direction. Obviously, if there's incremental shutdowns that happen, we can't control that. But where we sit today, things are all trending right back to where we thought they would be.

Okay. And the U.S, sorry, any impact from sort of a resurgence in certain geographies of COVID cases?

We're seeing a little, I mean we're seeing a little bit on the sort of on the roll-off side of the business in the Southeast. The budget, we're guiding still off sort of 5% to 6% on roll-off pulls. Commercial seems pretty stable meanwhile, but I think it's been fairly minimal in our U.S. operations today.

Okay. That's helpful. Can I just ask one more? Luke, you gave a few numbers and bridges, one on free cash flow for the second half and one on just the margin impact and sort of the puts and takes through the quarter. If you can go through those or at least the free cash walk, it would be helpful.

Yes. So Mark, in terms of the free cash flow, what I gave were the sort of components of the sort of costs. And we haven't come out and said an EBITDA number, but I mean, I think during the year, pre WM, with the COVID reduction, people's numbers were sort of $1,040 million to $1,050 million of EBITDA for the year. So if you think about that as the number for the year and that you've done $485 million for the first six months, that's leaving you with $555 million to $565 million of EBITDA due in the back half before considering incremental M&A. So from that, if you take off $150 million for CAPEX, take off $145 million for interest, if you assume working capital gets back to flat, which I think there's a little bit of upside on but assuming it gets back to flat for conservatism, that's -- you add $80 million in the back half of the year and then deduct $50 million for all the sort of other sort of loose ends, odds and sorts, that's basically getting you to a free cash -- adjusted free cash flow number for the back half of the year somewhere between $275 million and $300 million.

Okay. That helps. And so maybe just to sort of sneak one last, Patrick, you said $80 million revenue offer late-stage diligence?

Yes.

Okay. Yes. Maybe just remind us sort of what it -- instead of late stage, just sort of curious how close or how far away they may be in versus a couple of hundred million at early stage?

Yeah, I mean from our perspective, that's stuff that will close over the next sort of two to three months could be quicker. I'm just taking the conservative bet and some of that other $200 million will close this year, for sure as well. So I think we're very sort of well positioned. And like we talked about previously, and we talked about two larger opportunities. One has been done, and there's potentially one other one. We continue to work through that as well. So I think we're set up very favorably here. When you sort of look at the numbers Luke just talked and sort of look at some of the analyst consensus numbers for 2021, I'm sort of looking at what the consensus numbers are showing with $1.250 billion to $1.30 billion of EBITDA for 2021. I think from our perspective, that number is very reasonable. And I think if some of the stuff crosses like we're talking about, the number will be in excess of that, but it would be M&A dependent. But I think we're very comfortable with sort of the base business and where we are, and there's upside to the base business as well as upside to the M&A case that we've discussed previously. We've been conservative previous to this, but I think there's no reason to sort of sugarcoat it. That's what we're expecting. That's what we're seeing, and I think that's what you're going to see us deliver over the balance of the year and into sort of Q1 of next year. And I think we're just setting ourselves up very favorably for that.

Okay. That's very helpful. And again, great job managing through this.

Thanks, Mark.

Thanks, Mark.

Your next question comes from the line of Michael Hoffman with Stifel. Michael, your line is open.

Hey Patrick, Luke. Thanks for taking the questions.

Good morning Michael.

Good morning. Can we circle back to free cash just so I'm -- to make sure I'm hearing everything correctly, the $270 million to $300 million is the second half generation, so if I add the first, then I'm ending up in the 300 million to 325 million or is it the full year $275 million to $300 million, I just want to make sure I understood that correctly?

Yes. So Michael, the numbers I was giving was the second half of the year. My issue is normalizing of Q1 with the debt levels and the pre delevering is just -- it's a little bit difficult for me to sort of normalize that. So the way I would think about a full year is if you take -- let's just use the $1,050 million number of EBITDA. You have $360 million of CAPEX. You have $250 million of interest. And I'm saying $250 million there versus the $280 million because really, the $280 million of interest is burdened by the new debt to finance WM/ADS. The $1,050 million excludes that. So like-for-like normalized, I would say, you have $250 million of interest expense against the $1,050 million of EBITDA and then another $50 million for the sort of other odds and ends. So if you do that on a normalized basis, that's a number -- I think that math gives you like $390 million or $400 million. So Q1 is difficult to sort of normalize by itself. If you look at a normalized Q2, it's about a $45 million number. And then you're adding in the back half $275 million to $300 million, and then you would add a normalized Q1, if that makes sense.

Yes. That was -- what I was trying to get at is you had talked about a $400 million number coming out of the year pre any ADS or the $80 million or $200 million incremental contribution, so we're still on that $400 million run rate out of the year. And there's upside from $100 million EBITDA from ADS and whatever you think you end up getting, $20 million from the other $80 million, another $50 million from the $200 million. Is that the right way to think about it?

Yes. Correct.

Okay. On the PIs, what was the budget for 2Q before the world changed? And therefore, is the difference between the budget and the 3.7% how we think about what you did to be responsive to your customer?

Yes. So the budget was low 4s. I think it's important to understand that 3.7% is really a blend of the Canadian, really driven by Toronto and Montreal, being a low 3s number and the U.S. business being a mid-4s number. So the U.S. business was largely on plan, a little bit off. The U.S. business budget was a high mid-4s. And so it was really the Canadian business that was off. So that 3.7% would compare to a budget number on the blend like I think was 4.2%. And so yes, I think you can think of that delta as what we didn't do in working with our customer base.

And so that is about 50 basis points, some of it's going to walk back through net normal sequential compression in the pricing anyway because of things like CPI and the like?

Yes, correct. You'll have some of that. I mean part of it is driven -- yes, you're correct, Michael.

Okay. And then last one for me at over $30 Canadian, are you at a price that the TSX would consider putting you in the big index?

I think there's no guarantees. I think TSX 60 inclusion if we were going to be indexed, it would come in December. That's the next available entrance point for us. So we would know, I think -- I don't know. It's probably a guesstimate, but I think we're guessing that potentially we would get TSX 60 inclusion in December, but it's not really a decision for us to make, it's someone else's to make. But I'm guessing with a $10 billion market cap in Canada that we probably will be included, but I don't know.

And that's a 4 million to 6 million share of incremental buy to do that, right?

Yes, roughly, I think. Yes, that's about right today.

Okay, cool. Thanks, nice job.

Thanks Michael.

Your next question comes from the line of Rupert Merer with National Bank. Rupert, your line is open.

Thank you, good morning guys. So Patrick, you gave us some color on the M&A pipeline. Wondering if you could give us an update on how COVID is changing the dynamic in M&A, how is it impacting your activity levels or pricing, and how are you managing through the pandemic?

I'm a people person so I like to get in front of people, and that's -- I find that always a more constructive way to get acquisitions done. We've never been ones to sort of sit back and try and do it remotely, but that's been a -- I would say that's been the biggest impediment truthfully, is just getting people mobile and trying to get people in the same room. So I would say from a valuation perspective, it's always trying to understand what the earnings were pre-COVID, what the earnings were during COVID, and what we think the earnings are going to be post-COVID, right and what that expectation is and coming up with an adjusted number that sort of makes sense, which is probably a hybrid of the two. From a multiple perspective, I haven't really seen much change now. There's been a few desperate sellers that have business models in specific regions that just aren't going to make it, so you buy that revenue, stick it on your back. And those will be highly accretive to us, but there's been a few of those. But I think largely, managing M&A through the pandemic is just time. I just feel like everything takes more time today because you can't get people together and it's harder to do things. I mean we have been doing environmental diligence, site visits, etcetera. It just takes more time to move those people around, and that's been the sort of biggest impediment. I don't -- from an integration perspective and from a diligence perspective, it's all the same work streams, just taking more time. So that's what I think is the biggest impediment of managing through the COVID dynamic.

And is it causing you to look more at the U.S. than Canada today, are things easier there, much like it is with your activities in the solid waste business?

I wouldn't say that. I mean Canada, I mean listen, Canada is a great place to be today given the number of COVID cases. So I think there's more angst around people traveling to certain parts of the U.S., just given sort of some of the outbreaks. But I think again, as I've said before and I've said in the past, the number of acquisitions we do will probably still be more weighted to Canada, but they're significantly smaller than, I would say, the revenue weighting to the U.S. So 60% of our deals will probably still get done in Canada, 40% in the U.S. But on a volume and a revenue basis, it will be significantly more weighted to the U.S., just given the size of the opportunities in the U.S.

Great, I will leave it there. Thank you.

Your next question comes from the line of Adam Wyden with ADW Capital. Adam, your line is open.

Hey guys, congratulations on a great quarter. I just kind of wanted to sharpen your answer on the M&A pipeline. I guess the last few years, you guys have gone very quickly -- obviously, I guess, went from 0 to whatever $1.3 billion in 13 years. The last couple of years, you've been averaging about U.S. $150 million to $200 million EBITDA. Now obviously, the COVID has slowed down the M&A pipeline for all businesses, I guess, with the exception of the Internet. So obviously, the pipeline we have today is probably not necessarily reflective of kind of the pipeline in a normalized year. I mean can you try and edify like if you think that it's possible that you could do U.S. $125 million, $150 million, $200 million EBITDA kind of for the intermediate term once things kind of normalize in terms of M&A?

I mean I don't know if I'd characterize it as this. I think we had a pause but if you take into consideration the sort of Waste Management acquisition at, call it, $95 million to $100 million of EBITDA and then layer on the other opportunities I'm talking about, I think you get back to that number. And so this year, I think, will be another outsized year. Anything is possible. I think from our perspective, like I said we've acquired between $100 million and $200 million of EBITDA a year for the last as we've said, the last three to four years. So is it impossible? No. Is it very possible? Yes. I mean we haven't modeled that because we've taken the under-promise and over-deliver approach. But from our perspective, that's what we've done in the last four years. So no, I don't think that's a stretch.

Okay. Let me follow up with something else. So I guess obviously a lot of the waste management companies have already reported. So I've had the benefit of being able to kind of read through the analyst reports and I think obviously, you have Casella and Waste Connections as kind of the closest comparables from kind of a business mix perspective. But I mean I'm thinking of one analyst report in particular, has a 35x 2021 free cash flow estimate as a kind of a target price. If you look at the consensus number for this specific company, Casella, Casella's trading at roughly 40x levered free cash flow. So if I kind of back out kind of free cash flow in Canadian dollar of roughly $600 million in 2021 and then obviously going to $700 million plus in 2022, I put a 40 multiple on $600 million, that's $24 billion Canadian and I own Yankee stock, right but if I multiplied that by $0.71 on the dollar, that gets me to a U.S. $17 billion market cap divided by 314 million shares that's roughly a $55 stock. I think I'm doing my math right. And obviously, more going forward, as you kind of get the benefit of a full year of refinances into 2022, how do you think about that disconnect, I mean Casella, it's taken them 30 years to get to $150 million in EBITDA, and you've effectively gone in 13 years from 0 to $1.4 billion Canadian and clearly, you're not stopping, you did the Advanced Disposal deal, and you obviously are on the hunt for these $100-plus million EBITDA deals. I mean what do you think is going on, I mean what is it that the sell-side likes about Casella that they don't like about you, I mean you're doing it, they're just kind of doing nothing, they're telling people to stop doing anything?

Yes. I mean I said this in the past. I can't control the stock price, and I can't control what other people write about the company. What I can do is control how we operate the company and how we create significant amount of shareholder value over the sort of foreseeable future. I mean it's a marathon, not a sprint. So from my perspective, where I sort of sit today, I think it's getting people comfortable with our business and with our business model. We're new to the public market. I think over time, as we continue doing what we say we're going to do, I think we will get -- take another 30 years to trade at 18 to 20 times EBITDA, right? And we all aspire to be Casella and Waste Connections. I'm sure everybody on this call wants us to be Casella and Waste Connections. And between you and I, I want to be Casella and Waste Connections. And I think we have that ability to do that. I think our business model, as we've shown, is resilient, and we know how to do M&A. So you have a resilient profile with a great sort of M&A backdrop. And I think -- I mean just to touch on a couple of these. 2021, I think $600 million of free cash flow in 2021 would be aspirational. I think its $500 million plus. And then as you sort of work through the refinancing and you bring down interest cost, you pick up another $40 million to $50 million going into 2022. So I think there's significant upside to that by the end of 2022, and we can refinance out the entire capital structure. But I think relatively quickly, you get to $700-plus million. So I think you're right.…

Good. Well, look, I think you guys have done an excellent job. And I think if you look at the cadence of Casella's results over 30 years, clearly, the results have improved materially over the last four to five. But I mean, I think if you look at the kind of the compendium over the last 30 years, I think you guys have done a lot more in 14 than they've done in 30. So maybe they should aspire to be you and you should trade at a higher multiple than them. But that's for everyone else to decide, not me.

Well, maybe we're going to give you a job in IR because you're pretty good, Adam.

Alright, take it easy guys.

Your next question comes from the line of Keith Rosenbloom with Cruiser Capital. Keith, your line is open.

Hi guys, when you offer Adam Wyden that IR job, let me know. He's a very good analyst. Guys, I wanted to ask a question for those who aren't as familiar with the Canadian rules in terms of what your growth path can be in terms of acquiring other businesses there. Are there Hart-Scott-Rodino issues in Canada in terms of what market share you can be that may limit your growth at all? And when do you bump up against those?

Yes. I don't -- we won't -- I mean again, so think about the Canadian market, $10 million market. Big three control 30%, 35%; 60%, 65% is fragmented. Our equivalent of the Hart-Scott-Rodino, HSR filing is called the Competition Bureau in Canada. Competition Bureau of Canada only reviews transactions that are more than $95 million of enterprise value today. So I would say 99% of what we do in Canada is less than $95 million of enterprise value. So we won't -- shouldn't bump into that issue moving forward.

Also, when you look in the Canadian versus the U.S., a lot of the U.S. focus of HSR tends to be around landfill concentration and private ownership of landfills. In Canada, a lot of the M&A in the secondary markets, these are disposal-neutral markets where the municipality or county or regional authority owns the landfill. So that's also just a very sort of different dynamic when you think about it.

That's very helpful. Guys, thank you. You just keep delivering on what you say you're going to do. Thanks a lot.

Thank you.

Gentlemen, your final question comes from the line of Brian Maguire with Goldman Sachs. Brian, your line is open.

Hey, good morning. Thanks for squeezing me in. Just a couple of questions. Just wondering if you could comment on the churn rate you're seeing, any -- whether it's bankruptcies or customers defecting, just sort of what trends you're seeing there. I know we saw one of the larger peers talk about kind of an all-time low on that rate. Just wondering if you're seeing similar trends? And then sort of related to that, what are you seeing on DSOs and collections, I know you saw -- said you took a little bit of a charge for bad debt, it didn't sound like much but are you seeing any change in trends there?

Churn has been status quo in commercial and clearly, residential, residential less. I mean churn on the commercial has been still sitting at this sort of 6%, 7%, 8% range, it has been pretty low. I just don't think people have been active during COVID or too focused on switching service providers. So I think that's consistent with what we're seeing today. And from a working capital perspective in collections, I mean, Q2 was -- we weren't sure what to expect, but it was, again, on plan with expectations. So yes, we did take a little bit of a charge and a provision for some incremental bad debt just to be prudent, but nothing sort of out of the ordinary today. But Luke do you have anything differently.

No. Brian, as Patrick said, obviously concerns around collection. There's a little bit of softness in Toronto and Montreal, which is where the majority of that bad debt provision has been taken. But again, some of the friction is just driven by people not being in the office and just still the complexities of working remotely because we see what used to be big collections on June 30th coming in sort of early July. So I think where we sit right now, we don't anticipate a material drag on the sort of the bad debt side, but obviously, an area that we're actively monitoring.

Great. And I guess one on some of the recent M&A that you were able to complete before the pandemic broke out, the County Waste and the like. Can you just comment on how the integration of those has gone, any surprises or are things generally just going along with your expectations there?

I'd say along with the revised expectations associated with COVID. And what I mean by that is we paused on bringing them on to some of our financial systems just because, in doing so, we'd like to have our boots on the ground training with folks there. We feel that yields the best results since we've paused some of that and are just translating their results from their system into ours. But operationally, the plan and the integration from an operational perspective, I'd say, has gone completely as expected. Some certain outperformance, particularly when we started thinking about what the COVID-related adjustments should have been for those businesses. So I think very pleased with how that's come together in the face of the COVID-related disruptions.

Okay. And look, I think I heard you say that the lower diesel costs, I think you said they were 110 basis point benefit for margins year-over-year is that right? And just remind me how long do you get to keep that forward, do you get -- I think on the residential contracts, you keep them for some time, but commercially, you pass it through pretty quickly, is that right?

Well, I mean, that's part of it. If you think about where some of our latent pricing opportunity in Canada is around surcharges and customers we don't have surcharges with. So meaning you're not getting such a delta now, so that's why you're passing it back. So yes, it was 110 basis points for the year benefit on those residential contracts that reset at their anniversary date. Yes, we'll give some of that back. But on balance, lower -- if you think about the residential book of business, if we have $1 billion of residential revenue, you have a large subscription book of business in the U.S., you have a bunch of U.S. contracts that have been decoupled from CPI. So you're left with, call it $400 million or so of revenue that really has a sort of true CPI-type link. And so I think on balance, the lower diesel cost, I mean today, we're sort of 30% less on diesel year-over-year. On balance, it's still a net benefit. But yes, as you get the resets, you will give some of that back.

Okay. Good luck closing the deal and good luck in the quarter.

Thank you, Brian.

This concludes our question-and-answer session. I will now turn the call back over to Patrick Dovigi for closing remarks.

Thank you, everyone. Look forward to speaking with you in the near future. Thanks.

Thanks, everyone.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.