Good morning, everyone. Thank you for attending today's GFL Second Quarter 2025 Earnings Call. My name is Jerry, and I will be your moderator today. [Operator Instructions] I would now like to pass the conference over to your host, Patrick Dovigi, Founder and CEO of GFL. Please go ahead.

Thank you, and good morning. I would like to welcome everyone to today's call, and thank you for joining us. This morning, we will be reviewing our results for the second quarter and updating our guidance for the year. I'm joined this morning by Luke Pelosi, our CFO, who will take us through the forward-looking disclaimer before we get into the details.

Thank you, Patrick. Good morning, everyone, and thank you for joining. We have filed our earnings press release, which includes important information. The press release is available on our website. During this call, we will 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-IFRS measures. A reconciliation of these non-IFRS 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.

Thank you, Luke. This quarter saw the continuation of the broad-based outperformance with which we started the year, driving results ahead of expectations despite multiple external headwinds. We achieved solid waste adjusted EBITDA margins in the second quarter of 34.7%, the highest Q2 in our company's history, and our revised outlook for the remainder of the year is better than we originally anticipated. This consistent delivery of record-setting performance once again demonstrates the ongoing dedication and capabilities of our employees, and I want to again thank each and every one of them for the commitment to Team Green. Our top to bottom beat against expectations was achieved despite FX rates and commodity prices moving against us since we provided the Q2 guidance back in May. We believe this is a continued demonstration of the quality of our asset base, the effectiveness of our value creation strategies and the resiliency of our business model. Both pricing and volume were higher than expected for the quarter and continued to trend above our initial guidance, the intentional shedding of lower quality revenue and disciplined pricing strategy ensures we are generating appropriate returns for the high-quality services we provide. Because of this, we are increasing our pricing guidance and now expect to deliver over 5.5% pricing for the year. Volume was positive for the third quarter in a row and accelerated 150 basis points over the first quarter. This result was achieved even with macro headwinds impacting construction-oriented volumes and industrial demand. We believe the current tariff environment and broader economic uncertainty are limiting activity levels of many of our industrial customers having a flow-through impact on volumes, especially in our roll-off collection. Tailwinds from our recent strategic growth investments in EPR, together with the positive underlying trends arising from our market selection are…

Thanks, Patrick. Similar to our first quarter discussion, all of our financial results and the associated analysis exclude the contribution from ES from the comparative prior year period. Consolidated revenue for the quarter of $1.675 billion was 9.5% ahead of the prior year pro forma for divestitures. Pricing and volume were both ahead of plan, whereas commodity prices, surcharges and contribution from FX were all headwinds to plan as the external factors on which these amounts are calculated changed significantly between the time we gave our guidance and the end of the second quarter. Second quarter revenues would have been approximately $10 million higher if not for these exogenous changes. The carryforward of our strong first quarter pricing, along with incremental pricing actions enacted in response to ongoing cost inflation in select markets contributed to pricing of 5.8%, 30 basis points ahead of plan. For the full year, we now expect to realize pricing of 5.5% to 5.75%, 25 basis points better than our original guide. Volume was positive in both of our geographies with over 200 basis points of sequential volume growth acceleration in our U.S. geography as we move past the weather-related headwinds that impacted the first quarter. The positive volume was achieved inclusive of both roll-off pulls and C&D landfill volumes being down in what we ascribe to macro-related slowdown. Consistent with the first quarter, recyclable volumes associated with the EPR related activities continues to be a tailwind. Second quarter adjusted EBITDA margin was 30.7%, 230 basis points higher than the prior year and 60 basis points ahead of our guide. The 2024 Michigan residential divestiture, the net impact of lower fuel prices and RNG contributions were a tailwind to margins, whereas commodity prices and acquisitions were a headwind. Excluding all these items, underlying solid waste margins…

Thank you, Luke. As I said in the quarter, our financial performance continues to prove the quality of our assets and market selection and the effectiveness of our strategic plan that we laid out at Investor Day. The operational resiliency of our business in the face of multiple external headwinds that we demonstrated with our results this quarter further reinforces our conviction that GFL is uniquely positioned for industry-leading financial performance and value creation for all of our shareholders in the near term. I will now turn the call over to the operator to open up the line for Q&A.

[Operator Instructions] Our first question comes from Sabahat Khan from RBC Capital.

Just before getting into the business, there are a bunch of headlines in the press over the recent months around the potential options the company might be considering for the GIP business. So maybe I just wanted to give you an opportunity to talk about, one, how you're thinking about that business and some options and kind of second part there. Maybe you can just give us some color on the current composition of that business across aggregates and some of the other business lines. And just sort of a third clarification question, there was a $24 million monetization or a gain that was reflected in the quarter? Can you just clarify that as well?

Yes, Sabahat. So as you know, I mean, I think we carved that business out of the GFL book in 2022. So owned it as a private business now for approximately 3 years. I think over the -- at the time, our equity value in that business was valued on the books of somewhere around $250 million. I think you mentioned a footnote of just the rebasing of that. The $25 million is really nothing. It's really because we did an acquisition in one of the principles of that business that we bought. They actually ended up taking equity in GIP. So technically, we sold the equity at a much higher value. So it's sort of that rebate. But by and large, I think what you'll see through the process that you've seen some headlines recently. We're looking to conclude that process over the next 2 to 3 weeks. I think we're on the 5-yard line, we're down to 2 final bidders and we're in the process of just winding that process down. And I think you'll see a very favorable result, but we'll share that when the final party is selected and we get to the market. But I think what you'll see is a rebase of our equity significantly higher, consistent with what we thought values of that business could be over the near to sort of medium term. As we said, it would be -- I think from our perspective, partial monetization, not a full monetization. We continue to see a significant amount of opportunities in that business, but there will be a dividend that comes back to GFL to use again for further M&A within the existing portfolio. And certainly at these levels, continued share buybacks with the proceeds that we get from that sale process. But like I said, nothing is 100% done until it's done, but we're feeling very good about it, and we think that we'll have something to report in the next coming weeks.

Great. And then just on the margin side, good progress this quarter. It sounds like you pointed a 31% for the next quarter. If you can maybe just recap or give us an update on some of the self-help levers and the improvements that you sort of highlighted at the Investor Day where you are on those and what you expect to contribute to this full year guidance here for the rest of the year. So just a bit of an update on the margin side, please.

It's Luke. It's a great question, and obviously something that we're sort of really excited about. You can see it in the current quarter results, exceeding what we're already, we think, pretty sort of ambitious expectations or roles. And it's, as you said, a function of all of those levers contributing to the overall sort of cost, it starts in the top line. You can see the pricing outperformance for the current quarter. I mean one of the self-help levers we had talked about at the Investor Day was on the surcharges line. right? And there's just a whole host of incremental fees that we should be getting for the services we provide. And we've talked about initiatives to get those in place and go out and harvest that opportunity and while we're early stages, it's starting to contribute. And so some of that price outperformance, I think we had articulated a $40 million to $80 million opportunity for surcharges by the time we got to 2028, very early stages, but we're starting to realize some of that benefit. You're seeing that come through on the top line. As you go down the P&L, I think another key opportunity was labor turnover, right? And just the benefits that will come from attracting and retaining talent and keeping them in the doors for longer, and you're seeing that continued sequential improvement in the turnover rates. Still not where we ultimately want to be, but probably another 100, 200 basis points improvement in the current quarter versus on a year-over-year basis. And that accrues into that labor line, right? All in labor, you can take them to 25%, 35% P&L and obviously, improving that turnover is a key part to driving productivity and cost savings and you're seeing that come through. And then as you just think about the broader buckets of cost, we talked about synergy realization, we talked about procurement optimization. Each of those levers are being pulled and the team is being able to deliver in excess of as I said, what was already pretty ambitious 2025 expectations. So you're right, Q3, the expectation is it continues for the guide the year as a whole. We now see an incremental 20 basis points at the midpoint over what was already our starting 100 basis points. And we're really excited for the continued performance and proud of how well everyone is executing on these strategic plans.

Our next question from Stephanie Moore from Jefferies.

Patrick, you noted previously that your M&A pipeline, the majority of the pipeline you're looking at was tuck-in acquisitions with an existing market. Just curious if maybe that has changed at all as you look at the back half? And then if you could maybe speak to the visibility to M&A you have in the second half of this year?

Yes, no problem. Thanks, Stephanie. I think from where we sort of sit today, I mean, of course it's been a very busy first half of the year, one with the carve-out of the ES business. And then the, I would say, the recapitalization of the infrastructure business combined to sort of what we do every day on the solid waste side. I think we've deployed just over $300 million of capital today into M&A. I think we guided to $700 million to $900 million spend this year on M&A and we're fully on track to do that, fully on track to achieve the high end of that range. So visibility is very good. And although there won't be a large in-year contribution from the M&A, I think setting us up perfectly for an outsized year of growth in 2026 because of the rollover effect of that M&A that's going to close in the back half of the year here. So very good visibility. In terms of moving to new markets, nothing has changed on that thinking. Again, continued focus is on densifying the existing markets where we have underutilized post-collection assets. We think that's going to get us the highest returns on invested capital. And for the time being, that's where we're focused, and we don't see any reason to sort of step outside those markets that we're currently operating in today.

Got it. And then maybe just a follow-up to the volume performance. Look, I think at this point, we've all seen or heard that, obviously the industrial economy is really weak. There can be lumpiness with special waste volumes, but your volume performance definitely continues to be a clear standout. So if you could just kind of talk about the puts and takes to the volume performance in the quarter, specifically with, as you noted, both regions seeing positive contribution.

Yes. Thanks, Stephanie. It's Luke here. Happy to walk through it because again, performance that we're sort of proud of, and I think it speaks to some of the strategies that we've been talking about, both in terms of market selection as well as the strategic investments that we have been sort of making. I mean on the market selection piece, again, we've spoken to the benefit we have of having large businesses in the U.S. Southeast, where a lot of people are sort of moving to new houses yields new business, which yields new opportunities for us. And then also regulatory environment, and Canada as a whole tends to historically been a good volumetric business just by virtue of increased regulation that drives volumetric opportunities. And we're certainly seeing that with EPR, which ties into the sort of strategic investment, right? The regulatory change gave opportunity for capital deployment and we saw as attractive return profile. And as you know, we have heavily invested in that. And there's been a couple of years. We've been on these calls talking about all this investment we've been making. But now, fortunately, we're finally at the time when we get to reap the rewards from that. And it's sort of playing out as anticipated. I mean Canadian volume was 6.3% for the quarter. Now it was 6.9% in Q1, but Q1 benefited from one large event driven sort of destruction of a car plant. It was about $10 million of transfer station volume we called out. If you exclude that, Q1 was 4.6%. So you really now sequentially increasing the 6.3% in Canada for Q2. Now EPR is a big driver of that as it was intended to be. And so if you back that out for Canada is about sort of…

Our next question is from Patrick Brown from Raymond James.

This is Tyler. Can you hear me?

Yes, we can hear you.

Luke, can we go back to volumes and I just need some clarification because I think it's a little bit confusing. So you printed 2.5% volumes, but my hunch is the vast majority of that was EPR and RNG investments layering in. Is that correct? And two, on the 25 to 75 basis points on volume guidance, is that excluding EPR and RNG? Or is that what we're going to see in the table? Does that make sense?

Yes. Tyler, I'm not sure if you just heard my response to Stephanie as I just sort of covered a bunch of that. But just to reiterate, EPR if you think about for the quarter, EPR is contributing about $20 million, $25 million of the global volume number, right? So certainly, EPR is providing a tailwind to the consolidated volumes. Now even without that, Canada volume is positive 2.6% and the U.S. volume is also positive. But yes, you got a big chunk of it for being EPR. Now remember, EPR was in our base guide, right? So for the year as a whole, the initial guidance was assuming we're going to be, call it, roughly flat on volume. I think we said minus 25% to positive 25%. The new guide takes that up 50 bps. So now we're saying $25 million to $75 million. A little bit of that outperformance over original guide is incremental EPR benefits, right? So we're doing a little bit better than what the pro forma was on EPR volume. But the balance of that incremental volumetric guide is just broad-based volume across the system. On RNG, this by virtue of our arrangement, very de minimis amount of our RNG EBITDA is actually manifested in the revenue line, right? It's just all the sort of JV EBITDA pickup. So RNG really is not factoring into the volume story but EPR is, although I would say the guidance raise is less about EPR and more about broad-based outperformance.

Okay. Okay. That's very helpful. I appreciate that. And then I know the CapEx is obviously split between U.S. and Canada. But just any broad color on the dollars of what bonus depreciation means in '25. And if I go back to the Analyst Day, I think you said that you were expecting, call it, a mid-40s free cash conversion. But with bonus depreciation, does that maybe jog up, say, 100 basis points or something like that? Just any color there?

Yes. Great question, Tyler, and obviously sort of very topical. For the current year, bonus depreciation is expected to be about $25 million, $30 million tailwind, right? And that's really, as you said, coming out of the U.S. dollar CapEx but as we said in the prepared remarks, I really have a little bit of extra CapEx really $25 million associated with one transfer station site that we used to lease and we had to buy because we couldn't lose it. And then a little bit of working capital investment. So that's sort of a wash at the free cash flow line. But $25 million, $30 million bonus depreciation benefit this year. And that ramps up $40 million next year and then grows from there, obviously, contingent on the U.S. dollar qualifying CapEx spend. But to your point on the free cash flow conversion, and I think that's a very important one. If you think about the page that you're referring to in the Investor Day deck, we said, hey, over the next couple of years, you get up to '28, you got roughly $9 billion revenue, $2.9 billion, $3 billion of EBITDA and we're going to be converting sort of mid -- low to mid-40s free cash flow conversion. And what were the drivers of that? Well, it was the EBITDA margin expansion. The capital intensity is what it is. We're going to enjoy a reduction in cash interest intensity as we migrated towards a more industry norm level of cash interest burden. But partially offsetting that was going to be this ramp in cash taxes, right? Because we're now a sort of a cash taxpayer and we're going to go from cash taxes historically being 30 to 40 basis points of revenue that was going to ramp up to the sort of 200 basis points of revenue that it represents for all of our peers. What the bonus depreciation is going to do is materially slow down that ramp in the cash tax burden. So all other things being equal, if you go back to that Investor Day where we said $2.9 billion to $3 billion of EBITDA, I call it, 43% to 45% free cash conversion. That would have been $12.75 to $13.25 of free cash. And now you'd say you did $50 million better than that, right? And so to your point, I think it equals about 200 basis points of incremental free cash flow conversion. That '28 is a long way away, and there's obviously a lot of moving pieces. But absolutely, wherever we were going to get to before, we probably now have a 100 to 200 basis point tailwind that's going to allow us to hit that 4 handle and go through that at a free cash flow conversion faster than we otherwise would have.

Our next question is from Kevin Chiang from CIBC Wood Gundy.

Luke, you've kind of highlighted the strong organic growth in Canada. EPR is obviously a contributor there. It does feel like EPR is coming in as expected, maybe a little bit better. Just wondering, I know in the past, you've talked about as a team kind of upside to EPR EBITDA relative to the base cases. Is that kind of what we're tracking to now? And -- or is that something we could see in future years like in '26, '27 as you continue to build on this EPR revenue stream?

Yes. So Kevin, what we're seeing in the current year is not those incremental opportunities, I just want to be clear. This is really picture a scenario of Montreal, we opened our MRF to deal with EPR. We're expecting to do volume of 100 in the first year, and we're actually doing volume of $110 million because our customer base is using our facility on sort of a temporary basis as other sort of components of EPR get up and running. So I think we're benefiting from some transitional style volumes that effectively are going to allow us to ramp to the $130 million of EBITDA faster than we otherwise would have. Because if I use that Montreal example, this incremental volume that I'm enjoying today I'm not going to have that necessarily into next year, but incremental contracts are going to come on that will effectively replace it. So I'd say what we're enjoying today is a modest sort of pickup of just volume associated with the transition to EPR. Now the broader opportunities remain, and I'm going to let Patrick speak to that, but we still see across the country, incremental opportunities as we have before. Patrick, do you want to provide some color on that?

Yes. So if you look at EPR, I mean, there was -- as we talked about, there was a couple of opportunities, one that was in sort of Maritimes in Canada, which we were not successful on. There's still a couple of opportunities in Quebec that we feel we're very well positioned for. And then as Western Canada comes online, again, very well positioned with our assets. But everything is tracking to plan. I think the investments we made are going well and are on plan. So I think if we can just keep up this trajectory, we're -- it will play out as we anticipated.

That makes sense. And maybe just a quick modeling question, I guess. And maybe this is for you, Luke. Obviously, a lot of M&A this year, and it seems like the pipeline is huge. You spoke of outsized contribution in '26 from M&A completed this year. As I think of how that impacts the corporate line item. Should we assume that stays flat because if I recall at the Investor Day, you kind of talked about as you build out the platform here that corporate cost gets a little bit more incremental leverage into the bottom line. Is that kind of the right way to think about it as we think about the earnings contribution on a consolidated basis from this elevated M&A activity.

Absolutely, Kevin. I think you're thinking about it exactly right. I mean, we've made investments over the last years into the corporate office just as we grew as a public company and then most significantly over the last couple of years in IT-related infrastructure and cloud, et cetera. But I think where we're at today is we have the corporate function that we need, and we do not see the need for material incremental investment. So now is the time to drive meaningful operating leverage on that line. Recall, we had levered that line down to sort of a 2.5%, 3% of revenue, but then with the divestitures, both the smaller pieces through '23 and then the ES divestiture that cost bucket sort of jump back up to the sort of 4% as we retained a lot of that sort of corporate infrastructure. Now we fully anticipate from a modeling perspective for that item to sort of grow organically at a sort of low to mid- single-digit number, whereas the top line will be able to grow at a faster clip by virtue of the M&A, and you should get the exact operating leverage that you're describing.

Perfect. That's great clarification.

The next question is from Konark Gupta from Scotiabank.

Just probably first on the guidance for revenue and EBITDA. It looks like FX is shaving off 50 to like 2/3 -- 50% to 2/3 of your revenue and EBITDA bump for the full year. What about the remaining items that are driving the guidance up? I mean I think you had some M&A sort of catch-up from Q1, I guess, and then you had some incremental M&A, I guess. You've seem to bump up volume and pricing assumptions as well. Can you put some numbers into the buckets in terms of what's driving those revenue and EBITDA attribution.

I'm sorry, I think we had some technical issues. Konark, can you hear me?

I can hear you. Can you hear me now?

Yes. I'm sorry, Konark. So I'm not sure where we cut off, but what I'll describe is for the update to the guidance. So really what you have incremental M&A completed, as we've said, we have sort of $70 million to $80 million of incremental M&A contribution. Recall when we gave the guidance for the year of the $105 million, we said roughly $30 million of that was already included in the base guide as that happened on January 1. So you have an incremental, call it, $70 million, $80 million coming out of M&A. You then have $75 million of FX headwinds going against you, and that's just the translational impact of FX. So those are a bit of a wash. So what are you left with? You're left with organic growth, and we're effectively bringing up pricing 50 bps, bringing up volume roughly 50 bps, right, are driving that? And then going against that on the organic side is really commodity and fuel surcharges, right, commodity price about $10 million sort of headwind versus the original guide and same with fuel surcharges, right? And that's just a function of where the sort of diesel price went. You have a $5 million, $10 million headwind on the fuel surcharge line just as that rerates are tied to sort of diesel pricing. So you put those, those are the pieces at the revenue line and the EBITDA bridge just sort of follows accordingly, right? I mean the M&A comes in at slightly decretive margins initially. Price all falls to the bottom line, volume falls at an appropriate margin. The fuel surcharge really doesn't have an impact falling down to EBITDA as you're getting an equal and offsetting change to sort of diesel costs. And the commodity falls all to the bottom line, right? So that $10 million is a straight flow through. The FX is at roughly the consolidated margins. And when you do that bridge, what you're going to be left with is an incremental EBITDA tick up, and that's less about the revenue, but just more about the sort of operational efficiency, productivity and self-help levers we've been realizing and getting incremental benefit from that in the current year period.

That's really helpful. And then in terms of the second quarter margin drivers, I think you guys had a pretty solid margin expansion compared to the rest of the industry? I mean I think you talked about sort of unique markets for you guys and some of the levers. Is there -- is it possible to kind of attribute some of these margin expansions you saw in Q2 to some buckets like EPR to the volumes and I don't know, maybe some commodity impact and all that?

Yes, so great question. Again, margin expansion industry-leading, we believe, and something we're sort of proud of. But also as anticipated, obviously, you can see the Canadian segment margin expanding significantly as we're sort of getting the benefits of those investments that we've been made. So that's sort of been beneficial. But what we historically do and happy to walk through is the sort of impact of the exogenous factors, right? So if you think for the quarter, commodities was about a 30 basis point headwind to margin, whereas RNG and fuel to other sort of externalities, if you were about a 25 basis point tailwind, right? Additionally, Q2 is the last quarter where we're getting the tailwind from the Michigan divestiture. So that was about a sort of a 75 basis point tailwind year-over-year. And then the M&A contribution for this quarter came in about 20 basis point headwind. So when you put those all together, you still left for sort of roughly 160, 170 basis points of underlying base business margin expansion. And in there, you have all the pieces. You have the price cost spread, you have EPR, you have the realization of the ongoing operational efficiencies, both synergy realization and the cost optimization efforts we've been undertaking.

Our next question is from Michael Doumet from National Bank of Canada.

Nice quarter. As it relates to margins and Investor Day expectations. And I think you discussed some of this already, but the guidance margin expansion in 2025 suggests you're moving obviously a little bit faster, particularly given some of the headwinds, the known headwinds this year, some of the RNG benefits that you're expecting to realize in the outer years. Would you characterize it as executing more quickly and therefore, maybe pulling forward some of that margin expansion? Or are you just finding more ways to expand at this point?

Yes, Mike, that's a great question. I think it's predicated on -- it was never an assumption that, that march to the low to mid-30s margin that we articulated in the Investor Day was going to be straight line, right? Because there's been some investments over the past few years into things like RNG and EPR that we're supposed to start bearing fruit in a material way as of '25. So I think you're getting this initial sort of pick up and lift from some of those investments. That's going to give some significant tailwind to that walk to our margin goal, if you will. So that's certainly part of it. But look, we're raising the guidance another 20 basis points at the midpoint and I think that is the acceleration, right? Because we are achieving higher margin than what the initial sort of plan was. And I think that could be viewed as the sort of acceleration component but the outsized margin expansion of '25 was always sort of part of the plan. And I think '26 has an opportunity to be another one, right, because you're going to continue to have sort of EPR in some of these other investments remain fully sort of come online at their margin accretive profiles. So I think we'd be remiss that at this point based on '25 performance to now say the new bogey is something materially higher than mid-30s. But certainly, performance like this further enforces our confidence and the ability to execute on that plan that we put out.

And I guess if I go back to the prior expectations for EPR related EBITDA growth through '27. I mean like it seems to me that the EPR should provide call it, like a baseline organic growth of about $80 million to $100 million per year. And I know that could deviate year-to-year. But does that not translate into view that GFL should be a consistent 1% to 2% organic volume growth going forward before layering other expectations? Just wanted to get your thoughts on that.

Well, sorry. But just in terms of the growth, Michael, just to be clear, the majority of EPR is going to be in hand by the end of '25. We're going to have a sort of tail into '26 and then a little bit in '27. But the majority if we quantify the $130 million of EBITDA, you're going to have sort of substantial majority of that in by the end of '26. So this is really a sort of a near-term growth profile and not so much ongoing source of growth over that sort of multiyear projection.

The next question is from Jim Schumm of TD Cowen.

Nice quarter. In the past, I believe you've noted exposure to economically sensitive businesses. There's only roughly 3% of your revenues versus like a much higher double-digit number at most of your peers. So it seems like an important competitive advantage right now. What do you think drives the difference with peers? And can you sort of outline what your exposure is, specifically, the construction volumes or what your exposure is to industrial volumes separately?

Yes. I think the historical comment was largely driven around C&D related volumes, right? C&D related volumes at GFL have been sub sort of 5%. Industrial volumes are significantly more than that. So I think that would be pretty consistent with our peers. I think some of the difference you're seeing is just -- is regionally focused, right, and where there's more impacts coming from tariffs and tariffs-related businesses. And so I think -- I don't think our business is materially different. I just -- I can't speak for what others have in terms of C&D volumes at our CMV volumes, that reference was made to C&D volumes that were sub 5% of the overall sort of book of business.

Okay. And then maybe could you just update us on your fleet conversion, either to automated trucks or CNG trucks? What's going on with that at the moment and just how that's proceeding?

Yes. I mean if you look back to the Investor Day, I mean, I think roughly sort of 20-ish percent, 20%, 25% of the fleet today is CNG. We had the ability to move that to sort of somewhere between 50 and 55 reasonably within the book. I think that is largely in track over the next sort of 3 to 4 years. So I think we're 50% of the way there in terms of our CNG and automated fleet conversion. I think a lot of that will happen on some of the backs of these EPR collection contracts where we're moving away from rear load collection into more automated collection and moving those trucks off of diesel on to the compressed natural gas in some of our large residential contracts as well as on the city of Toronto renewals, we basically renewed 2 of our largest municipal contracts that come on -- the renewals take place in sort of mid-2026. So again, all of those trucks will be converted to compressed natural gas. So I think you'll see that number start moving up materially over the course of '26 and '27.

The next question is from Chris Murray from ATB Capital Markets.

Yes. Maybe just a quick kind of question on M&A and just what we're thinking about. If you look at M&A, the contribution for 2026 as it stands today, like let's not talk about future acquisitions, what's the rollover amount that you're thinking that you have today?

Chris, it's Luke speaking here. So I mean you bought $105 million for the year. The vast majority of that was bought very early in the year. So you call it roughly, you're left with $30 million to $40 million bought in Q2. So you're going to have roughly half year conversion. I think where we sit today, the rollover is probably measured in, call it, $10 million to $30 million of revenue. I think what Patrick's prepared remark comment was really referring to, if you go and deploy another sort of $600 million on the last quarter of the year or back half, say, roughly round numbers, that means you're buying $300 million of revenue. The majority of that is going to be rolled over into next year, and that's what's going to be give rise to a good head start as you think about 2026 growth.

Okay. That's helpful. And then another question, just as I'm sitting here kind of listening to the call, we've heard about potentially some proceeds from GIP, certainly the maybe the cash flow conversion number moves up. And I start thinking about leverage, it sounds like you guys are probably comfortable running plus or amount 3x now. So if we start thinking about capital allocation, the business is going to throw off probably enough cash fund what I would call normal course, CapEx probably allow for kind of an M&A bucket that's something where you're at right now. Outside of maybe proceeds from things like a GIP being used for outside share repurchases or something like that. How are you guys starting to think about capital allocation? Because now as the business continues to mature, is there room to start increasing the dividend to bring it more kind of in line with peers? I know historically, it's always been it's there, but the focus was more on M&A. Is there more a thought around the balance and how you're going to deploy capital as you're kind of getting to be more stable and maybe better earnings and cash flow generation?

Yes. I mean, we said that. We will as part of the capital allocation program and the deleveraging program and obviously, with the continued repatriation of funds from some of these assets that we don't own and are not part of sort of our income statement today, I think that affords us ultimate flexibility, again, to continue executing on share buybacks and increased dividends. So that is part of the plan. We think over the next sort of 12 to 24 months that will continue to be part of sort of our capital deployment plan. So you are correct in saying that and that dividend will start normalizing sort of over that period.

The next question is from Jon Windham from UBS.

Congratulations on the result, bucking the trend here on a better-than-expected result. Actually had a very big picture question. If we could talk about a little bit. The Canadian dollar, U.S. dollar ratio has been more or less range-bound for about a decade, seem like 125 and 141, something like that. Given all the political uncertainty and a lot of changes, how do you feel and what is the strategy to -- how do you feel insulated to maybe bigger swings in that ratio? If you could just talk through how you might be insulated in your hedging mitigation strategy should there be a bigger move outside of this sort of 10-year range?

Jon. great question. I mean often, we're in the weeds of price or volume. It's nice to hear something a little bit sort of bigger picture. Certainly something we give a lot of thought to, particularly considering we are the one outlier to the peer group, right, in terms of the implications of changes in foreign currency as we're moving in the opposite direction. Underlying, when you look, there's a pretty good and nice natural underlying economic hedge when you look at across sort of interest expense, capital deployment, et cetera, between the cash flows that we bring in and those that go out. So from our perspective, what we're really at today is more sort of translational type issue. I think the reality of the business and direction travel is Canada is still a massive growth market for us and will be. But the law of big numbers is going to have the U.S. proportion business grow at a faster clip. And I think you're going to get to a point where a U.S. dollar functional currency is probably the right choice for the business and you would flip to be a U.S. dollar reporter and be consistent with our sort of peer group. And I don't think that's not a 2025 activity, but I'd say that's more in the sort of near to medium term versus the long term. In terms of the actual underlying economics, I mean, obviously, as our business mix changes between Canadian and U.S. that's something we'll continue to evaluate. As I said today, there's a pretty nice natural economic hedge between interest expense and CapEx. But obviously, as the ratios change, it's something we'll sort of stay on top of and obviously, there's a whole magnitude of synthetic or direct hedging instruments that can be used to navigate to the extent our exposures are no longer naturally economically hedged.

The next question is from Tobey Sommer from Truist Securities.

It's Henry on for Tobey. Maybe just to start with kind of going back to industrial and construction activity and the macro, obviously, soft, you mentioned the soft environment. Just your thoughts on how those areas look kind of progressing through the year and into '26. Do you see any sort of a rebound? Or is it kind of too early to tell?

I mean, listen, it's very hard to tell. Obviously, we're in a very sort of uncertain environment, just politically and what's happening sort of globally with tariffs, et cetera. And I think from my perspective, I personally believe that I don't see C&D volumes recovering anytime too soon. I think once we get more clarity on tariffs, et cetera, I think the industrial market will pick back up and people will figure out what the new norm is and how they're going to operate or how they can operate and what environment they will be operating under. I think just the uncertainty in the market of today, a 10% tariff, tomorrow, 50% tariff, maybe a 30% tariff, I think that's just limiting people's ability to make real capital investments at the moment. And I think that will reverse. It has to reverse. It will just be a question of when, but I think we are months to a year away from that because, again, once those decisions are finally made, I think then it takes time to sort of ramp back up. So we're not anticipating anything material to come back for the balance of this year and sort of into the beginning of next year. But we'll see how it goes. It seems like there's some clarity coming forward, but I think people just need to get a really good handle on what environment we're going to be operating under.

That's very helpful. And just a quick one. with the new U.S. administration, I'm just curious if you all are seeing anything around an easier path for M&A, more of a deregulatory environment, anything around like a lack of second request helping that out? And I guess, in the long term here over the next 3, 4 years, do you expect that environment to get easier?

Yes. I mean I think under -- for large-scale M&A, I guess, in theory, the process maybe will get more straightforward and maybe a little bit less scrutiny. But by and large, we've never had a real issue getting through the sort of HSR process. I mean when we look at M&A opportunities, we assess our ability to move through that process relatively quickly, just given the number of opportunities we have. And keep in mind, if we're doing 45 to 50 acquisitions a year, we may have 1 or 2 that cross that threshold of actually needing HSR approval. So the lion's share of what we're doing is well under the HSR cap today of -- I think it's today, it's like $125 million, $127 million of gross purchase price and lion's share of what we're doing today is under that. So not a huge differentiator today for us given the administration change. But if we were looking at some large-scale M&A, maybe the process would be a little bit quicker, but nothing material.

The next question is from Tami Zakaria from JPMorgan.

This is Tami Zakaria from JPMorgan. Just one question. Given some of the labor strike that's ongoing in the industry, are you considering any scenario where there could be incremental wage pressure maybe in the future? Any thoughts on mitigating that? I heard that you're raising your pricing outlook. But any comments on what you could expect from a price/cost spread perspective in the medium term if there is, in fact, any wage inflation in the industry?

Yes. So I think from where we sit today, I mean, sub 10% of our employee base is unionized today. So a fairly de minimis amount of unionized workers. That being said, where we sit today, we think throughout the book, we're always constantly revisiting employee wages, et cetera. We don't think strike mandates are in the cards of GFL in any material way. And we think with the ramp in labor costs between late '21 and through '24, we think the lion's share of our drivers are fairly compensated today and above market for where we're operating. So we don't see that as a material risk within the existing book today. But obviously, we're always constantly reevaluating it, and we continue to do that on a sort of on a quarterly basis. But I think we feel pretty good. And I think the turnover stats amongst all of the majors, I think, sort of reinforce that point. You don't have drivers hopping around going and looking for an extra dollar here or there. You have turnover rates coming down to more normalized levels that you would have seen pre-COVID. So with voluntary turnover rates in the high teens today at GFL, we think that is a comfortable place to be. It's a happy balance. Obviously, we want to continue pushing that as low as possible, but that's a very good indicator in terms of where we are on wages for the environment that we're operating in today.

There are no questions waiting at this time. I will pass the conference back over to Patrick for any additional remarks.

Thank you very much, everyone, and we look forward to speaking to everyone after our Q3 results. Thanks for joining.

This concludes the GFL Second Quarter 202 Earnings Call. Thank you for participation. You may now disconnect your lines.