Good morning, everyone, and welcome to the Waste Connections, Inc. Q2 2025 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I'd now like to turn the floor over to Ron Mittelstaedt, President and CEO. Sir, please go ahead.

Okay. Thank you, operator, and good morning. I would like to welcome everyone to this conference call to discuss our second quarter results and updated outlook for 2025, along with providing a framework for the back half of the year. I'm joined this morning by Mary Anne Whitney, our CFO; and several other members of our senior management. As noted in our release, we once again delivered results above the high end of our outlook for the quarter. In spite of incremental headwinds in Q2 from lower-than-expected contributions from higher-margin, commodity-related activities and continued sluggishness in the economy along with tariff-induced uncertainties. As anticipated, we have already completed an outsized year of acquisition activity at approximately $200 million in annualized revenue with a robust pipeline and almost half the year still ahead of us. The strength of our financial profile and free cash flow generation keeps us well positioned for additional acquisitions while maintaining the flexibility for increased return of capital to shareholders including through opportunistic share repurchases, which are already underway. Moreover, in spite of incremental and growing headwinds, our full year 2025 outlook remains within the ranges from February. Providing for approximately 6% revenue growth and 50 basis points of adjusted EBITDA margin expansion to 33%. We remain well positioned for upside from contributions from additional acquisitions, improvements in commodity-related activity and incremental solid waste volumes. Before we get into much more detail, let me turn the call over to Mary Anne for our forward-looking disclaimer and other housekeeping items.

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 included in our July 23 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 attributable to Waste Connections 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.

Okay. Thank you, Mary Anne. We're extremely pleased with our second quarter results, which reflect the enduring strength and consistency of solid waste regardless of the economic environment. Moreover, our operational execution was augmented by continued improvement in employee retention and safety to support pricing ahead of inflation and effectively manage costs. Most notably, we overcame headwinds from incremental weakness in commodities, RINs and cyclical volumes and still delivered margins of 32.7%, consistent with our Q2 guidance. Remember, this also includes 20 basis points year-over-year headwinds from our decision to close to Chiquita Canyon landfill as of January 1st. During the quarter, revenue growth of 7.1% was driven by 6.6% core solid waste pricing, comfortably exceeding our cost of inflation to drive 70 basis points of underlying adjusted EBITDA margin expansion in solid waste. Reported volume declines of 2.6% reflected the purposeful price volume trade-off and ongoing shedding of underperforming contracts that we have described in previous periods. Beyond that, they reflect the trends we've noted over the past several quarters. That is underlying flat to negative volumes from continued sluggishness and roll-off pulls and lower disposal volumes primarily from construction-oriented activity, both of which showed continued moderation during the quarter. Most importantly, we saw continued improvement in operating trends and the associated benefits. In Q2, voluntary turnover once again stepped down sequentially, marking our 11th consecutive quarter of improvement. On total turnover now below 22%, our voluntary turnover of less than 11% is down almost 60% from mid-'22 and has dropped below in voluntary turnover for the first time in recent years. And safety results, which are highly correlated to turnover, once again hit new historic lows. Incident rates were down 15% year-over-year, with momentum for continued improvement. In fact, year-over-year monthly incidents were down over 20% in June…

Thank you, Ron. In the second quarter, revenue of $2.407 billion exceeded the high end of our outlook and was up $159 million or 7.1% year-over-year. Acquisitions completed since the year ago period contributed about $113 million net of divestitures. Core pricing of 6.6% was as expected in Q2 and reflected the typical cadence of seasonality. For the full year, core pricing of over 6% is now effectively complete or contractually provided for. Volumes down 2.6% reflect the following year-over-year results in Q2 on a same-store basis. Roll-off revenue was down about 1% and pulls down 3% and rates per pull up 2%. Looking at regional variances, pulls range from down high single digits in our Southern region to up mid-single digits in our Western region, with most regions down slightly. Activity levels during the quarter, which would typically reflect a seasonal ramp of as much as 5% showed only about a 1% sequential improvement between April and June. We would note the constantly changing tariff schedules during this period, which we believe contributed to uncertainty for customers. Landfill revenue was up about 4% on tons up 1.5%. Looking by waste type, MSW tons were up 3%, special waste was up 7% and C&D tons were down 9%, slightly below recent quarters, an indicative of limited construction activity. Values for recycled commodities are already down year-over-year coming into the quarter, declined another 10% to 15% during Q2. Renewable energy credits or RINs also stepped down by about 15% during Q2. And our U.S. EPA waste activity, which is highly correlated to crude prices and related drilling activity, was down about 10% year-over-year, most notably in June as crude volatility was magnified by ever-changing policies. By way of contrast, we did not see a corresponding decline in Canada, where our business…

Thank you, Mary Anne. As we have described, we are extremely pleased with our first half results which highlights the strength and resilience of our business and specifically the outperformance of our core solid waste operations and what is arguably a volatile economic backdrop. In fact, in a more normalized environment, our strong first half performance and operating trends would have prompted us to raise our full year guidance. However, given the uncertainty of today's environment and the impact of lower commodities, we view maintaining our 2025 guidance as prudent and as a win. And while the macro environment remains dynamic, we are well positioned to navigate that uncertainty as our Q2 results demonstrate. As we have consistently maintained our greatest differentiator is human capital and a purposeful approach to a culture of accountability. We're most grateful for and extremely proud of the dedication of our over 25,000 employees and the local leadership team is responsible for the consistency of operational execution. We will continue to focus on operational excellence, building on a proven track record and legacy of outsized value creation while also recognizing the value of innovation and the opportunities from leveraging technology and new ideas. Before going into Q&A, I'd like to take a moment to thank and acknowledge my Waste Connections Co-Founder, our Executive Vice President and Chief Operating Officer of nearly 28 years and one of my closest friends ever, Darrell Chambliss. Darrell has announced his retirement from his role as COO, effective August 8, 2025. While we're not making any other announcements at this time, they will be forthcoming over the next few weeks. Darrell can never truly be replaced. He's been the heartbeat of Waste Connections for 28 years. Our Board of Directors, our leadership team at every level and all of our 25,000 employees owe an enormous debt of gratitude to Darrell. He will be missed every day and will never be forgotten. There's not enough time on this call for me to adequately express all that Darrell has met to everyone within the Waste Connections family or across the broader solid waste industry. I wish Darrell, his beautiful wife, Andrea, and their son Nate, a wonderful, healthy fun next chapter that is so richly deserved. We'll all miss you terribly Darrell, and we all love you. Now getting back to all of you. We appreciate all your time today. I will now turn this call over to the operator to open up the lines for your questions. Operator?

[Operator Instructions] Our first question today comes from Tyler Brown from Raymond James.

First, congrats, Darrell. Incredible career. See you on an Arkansas Lake one day. But curious, we could -- maybe if we could double quick a little bit on capital allocation. Ron, just -- it sounds like the M&A pipeline is solid, but you also restarted to buy back. And I just want to make sure that I have the message right here because I think $235 million in the quarter is maybe the second largest repo in your history, and we're only 24 days in. So just to be clear, is this you being more opportunistic versus a change in the M&A opportunities out there?

Yes, Tyler, I mean, number one, it absolutely is. As we tried to say in our remarks, we try to be opportunistic when we think that there are abnormal dislocations in either our or our sector's stock and we feel that as there's been recent pullback for a variety of reasons in the sector and in us as well. We have tremendous firepower, both through free cash flow and available capital. As we've demonstrated, we've done a record amount of acquisitions last year. We're on pace to have an enormous year this year, and we've kept leverage flat to down. So it is not a change in capital allocation strategy whatsoever. It's just that we have the capacity to do both. And we believe the combination creates in this environment, even better performance alternative going forward.

Okay. Perfect. And then just a little clarification. So I think you said that there was something like $100 million to $200 million under LOI that could close in the second half, but was that a revenue number or an outlay number?

That was a revenue number.

Okay. Perfect. And then just quick modeling, Mary Anne, just so we have it, but what is the expected M&A impact in '25, just basically based on what's in the guidance?

So the -- coming into the original -- the year, the original guidance included $300 million. We've closed about $75 million in deals. And so the acquisition contribution from the previous year's rollover and deals done had been $300 million, and that stepped up by $75 million with the incremental closing of $125 million during the course of the first 2 quarters.

Okay. Perfect. And then my last one, just can we talk a little bit about E&P. I know it doesn't get a ton of airtime. But actually, if I look at the numbers, it did something like, call it, $180 million in revenue this quarter, which was -- which was really good. It was up something like $50 million year-over-year, but that is kind of counter to the cautious rig count. So one, was that secured? Because I thought that we had already lapped that. So I could be wrong there. Was there another acquisition? And then two, just given the rig -- where the rig count is and your U.S. drilling exposure, should we assume that, that hangs around this $180 million per quarter, just for a little help on the model?

Yes. So a couple of things there, Tyler. Yes, I think that's a fair way to think about the run rate and it reflects to your point, not only secure, but the subsequent acquisitions we did last year, we mentioned that we've done a couple in Canada, and we've also done some in the U.S. And so you're seeing in the rollover contribution from those deals. And as we said on the call, what stood out in Q2 was the step down in activity in the U.S., but that -- it had been more than offset by the increases in Canada, where at the legacy secure business, for instance, we saw growth both in price and volume during the quarter on a year-over-year basis.

Okay. So $180 million, though roughly is a good place marker?

Yes. I think it's between $160 million and $170 million. I mean depending on seasonality, it's -- I think you got to meter that a little bit.

Our next question comes from Toni Kaplan from Morgan Stanley.

I wanted to drill down a little bit into the volume shedding. So last quarter, you had called out a large contract from Progressive that you didn't renew in October. So I was wondering if it's fair to assume a similar drag in volume in 3Q similar to 2Q, but then maybe 4Q just gets back to sort of more normal shedding. And I know Chiquita is also sort of a factor in here? So like maybe they're still a little bit below normal volume in 4Q and then maybe the normal starts in 1Q of '26. I just wanted to understand the dynamics of how you think about the volume?

Sure, Toni. So as you know, we think in terms of we have the shedding. Of course, we have Chiquita, which we kind of bucket separately, and that does anniversary at the end of the year, but we started diverting tons in Q4, so the impact is smaller in Q4. But when I think about the ongoing impact, you're right, some of the shedding does anniversary. I think the way to think about it is the most negative quarter would therefore be Q3, because you have the combined impact of those ongoing impacts plus what we talked about that lower seasonal ramp impacting the revenue growth Q3 versus Q2. So most negative in Q3 getting back to more like Q2 and Q4. And yes, I agree with your expectation that some of those pieces anniversary as we look ahead to '26.

Yes. And Toni, the one specific contract we did call out last year, former Progressive contract, actually in North Texas, it does anniversary on October 1, as you pointed out.

Great. And I guess maybe just longer term, when you think about volumes, Ron, like I guess you made the comment that when volumes do recover, like that will be accretive. Do you expect like that volumes recover in '26? Or like when does that happen? Or because of all the M&A, like maybe it's even pushed out further than that, just wanted to sort of get a longer-term picture.

Yes. Well, I think you got to break apart the components, Toni, of the negative volume. And again, I'm just rounding here. We've said there's been about -- if you take a negative 2.5, I'm rounding for the quarter, that was a little more than that. You've got about 100-point price volume trade-off that's been conscious. So depending on how the economy is and how hard we want to push that and where inflationary indexes are, that can get better. You have about 100 points from purposeful shedding we just outlined that a lot of that will get better, specifically Chiquita and a large contract we did not renew purposely in North Texas. However, we have done a lot of M&A in '24 and continue in '25. So some of that will continue, obviously. And then right now, I'd say you got about 50, 60 basis points of just underlying economic activity that is soft, particularly in construction linked activities. So it affects roll-off and it affects C&D, which you saw down 9% in the quarter. So that is tough to say. We would hope now that the bill has been passed in Congress that maybe as interest rates potentially decrease some over the second half of the year into next year. These are somewhat fuel for construction activity at all levels. And then that -- we see a corresponding real-time benefit from that. But we're not obviously sitting here trying to predict that. We've been in effectively a flat to negative take out government spending, take out federal government spending. We've been in a flat to negative GDP environment for approaching 3 years now. And so is '26 going to break that? Well, I would hope so, but we don't know.

Our next question [Audio Gap]

All right. We just didn't hear our name called. So appreciate everyone taking the question. Mary Anne, just maybe trying to bridge from the $9.45 million you saw in 4Q on the revenue side to how you see it now, because you pointed out the mix has changed, you got the $75 million higher M&A revenues. Maybe give us the other kind of moving pieces here because I think that will help us and investors kind of understand some of the mix shift a little bit better? I mean, how much more is the impact from commodities and potentially kind of underlying volumes versus what you thought?

Sure. So as you pointed, so $75 million incremental and acquisition contribution, a little bit of a good guide from FX because it's in our view, improved by about 1 point, which is about $20 million. And then the offset are primarily those commodity-driven reductions where you've got recycled commodities down about $25 million RINs, down another $5 million. And then we have about 0.5 point less in terms of overall solid waste volumes. And so those are the moving pieces that effectively net to neutral. But the really important part of that is the differences in the margin contributions from each of those and the fact that, that -- what that really requires is that the underlying business improved by 30 basis points in order to offset the fact that there's a little margin dilution, sub-10 basis points -- sub-10 basis points from the incremental M&A, but it's primarily the 30 basis points incremental headwinds from those lower recycled commodities and RINs.

And Noah, I would add that you also have about another approximately $20 million to $25 million in E&P volumes lower in the second half based on current rig count in the U.S. versus Canada. Meaning that's not happening in Canada. It is happening in the Permian and the Louisiana on and offshore.

Yes. Thanks, Ron, yes.

To $20 million, $25 million lower versus what you thought in February?

$50 million annualized, $25 million in the second half.

Okay. And then for -- again for our models, I appreciate you giving us sort of the margin expectations for 3Q. You did also comment not much of a sort of sequential ramp expected in kind of underlying macro. So -- just some rough guidepost on how to think about the revenue step out because typically, it is a seasonally strong quarter. But between the commodities step down and some of the other headwinds you mentioned, perhaps we don't see as big of a step up as usual.

Yes. That's the right way to think about it, because the typical seasonal ramp could be as much as 3% to 4%. And so this would be muted and there would be that step down in commodities. So you could certainly work your way to more like 1.5% in terms of the step up Q3 versus Q2.

And just one last one. I mean, Tyler, I think, as always, asked a great question earlier around capital allocation. I just want to follow up on the buyback. Should we think about additional buyback activity and any way to dimension that over the back half of the year? I understand that you're being opportunistic. You're -- but kind of given where the stock is and your view on the multiyear growth opportunity, fair to think about additional buyback activity in any way to dimension it?

Yes. We always think in terms of being opportunistic, now on -- yes, rather than being programmatic. And so the way we approach it is that we have tremendous optionality given the magnitude of our free cash flow and where our leverage sits. And we'll continue to evaluate all the alternatives for capital allocation.

Yes. And the only thing I would say, add, Noah is, look, you saw us in a very short period of time as we thought there was a disproportionate dislocation spend close to $0.25 billion. And so we remain positioned to do that in the same manner.

Our next question comes from Kevin Chiang from CIBC.

Congratulations, Darrell. Echoing what others have said already. Maybe just 2 quick ones for me. You're obviously making great progress on your voluntary turnover and safety incident metrics and trends. If memory serves me correct, I think that was a 100 basis point margin opportunity. I think you've achieved about 2/3 of that. Just given the trends you're seeing, should we expect that additional 1/3 or let's call it 33, 34 basis points. Does that fully materialize in 2026 just given the trends you're seeing through '25 here?

Sure. So you're right, Kevin. We've talked a lot about -- as we described it, there was about 100 basis points of margin that we thought we'd get unlocked by these improving trends. And then we actually revisited that and said it's probably a little north of that given the magnitude of the headwinds we are still absorbing from those lagging improvements associated with risk management costs. I think last quarter, we said we're about halfway through the 100 basis points we realized about 50. And the update is now we're north of that, maybe 60 to 70 basis points in terms of good guys that we're seeing. It's interesting. We look across about 10 different cost items every quarter. And I can't remember a time where they had all been green. Up until now, meaning that margin, the cost as a percentage of revenue was improving and so many of them are related to third-party costs, whether it's subcontracting, contract labor, whether it's over-time compared to street time, all the benefits, third-party repairs, et cetera, all the benefits that we thought over time should start to accrue to us. So what we haven't seen yet, as I said, is that risk costs, while they are abating, meaning it's been less of a bad guy, less of a headwind on a year-over-year basis. It hasn't become a tailwind. So to answer your question, there's still more to come. Tough to say that we would get it all in '26, because of the way that the risk costs lag, but we expect to continue to realize the benefits and the trends we've seen make us bullish about seeing more by the end of the year than we're seeing right now.

That's super helpful. Maybe just my second question here. Ron, you talked about the EPA taking a more active role at Chiquita, and you think that's a favorable outcome or development. Just if you can -- maybe just provide a little bit of detail in terms of how that benefits your remediation efforts and maybe some of the challenges you have been facing, I suspect, dealing with multiple agencies and trying to deal with the ETLF issue at Chiquita?

Sure. Well, we have been dealing with approximately 12 to 13 state and local agencies in California. Each of those have their own staff. Each of those have their own elected Boards and each of those have their own objectives. There is literally no coordination amongst those agencies at any level. And the objectives from them are often at crosscurrents with the other agencies. So trying to navigate for anyone that morass is extremely difficult and complex and slow at best. You are talking about agencies who would politically and through the media like to describe things as a crisis, but have difficulty responding to an e-mail in an under a 90-day period. I think that indicates to you what real crisis they think it is. So we really sort of need an adult in the room. And that's what the EPA will bring. They have -- one of the reasons we wanted their involvement is -- an ETLF is not a new phenomenon in the waste industry, by any means. And the EPA has quite an advanced depth of knowledge on best practices to mitigate, remediate and move forward in the ETLF relative to any other government agency out there. And so it was something that we look forward to and request. We believe that it was, as we said, streamline the process and help determine the prioritization of issues and allow us to make even faster progress that, quite honestly, just -- I don't think I have to explain, the California bureaucracy just disallows, to be very honest. I mean take no look further than the 4,000 homes burned down in Pacific Palisades, and 95% of those that have applied for a rebuilding permit are nowhere. And that's a housing situation. So imagine their response to a landfill type crisis. So yes, this is something we have been seeking for quite some time. The California politicians and tremendous media out there will probably spin that as a negative to bolster their political position, but it is -- we can tell you we are strongly encouraged by it.

Our next question comes from Trevor Romeo from William Blair.

I wanted to hit on price first for solid waste. So still kind of, call it, upper 6s range to start the first half. Anything from a regional or a line of business perspective that you'd call out as kind of stronger than you expected? And then any thoughts on the trajectory of the cadence for the second half? It seems like maybe you're trending above 6% for the full year, even if you do see some deceleration, but maybe any specific thoughts on that would be great.

Sure. So Trevor, as we said, coming into the year, we guided to about 6% price. And then following our Q1 results, we talked about the fact that price retention had been a little better than we had anticipated and therefore, pricing in Q1 at 6.9% was a little bit higher. We've now since said that pricing effectively done for the year and maintained, that it will be above 6%. So really nothing to point out. Of course, we have our CPI-linked markets, and then we've got our competitive markets. But as I said, we're trending to better than we originally anticipated. We attributed that at least a portion of it to better pricing retention and the fact that all those trends in employee retention and open positions had all improved so well that we're not surprised that retention was a little better than expected. As we move through the year, in general, the cadence of our pricing and really the math around what the denominator is that we're measuring the dollar amount of price increases on by math -- by definition, that does step down sequentially through the course of the year. And that's why you started 6.9%, we did 6.6%. You're right, it implies that it steps down a little bit between now -- if you are modeling it and you put it somewhere between the 6.6% and the 6% over the course of the rest of the year. That's probably the right way to think about it.

Okay. That is helpful. And then for my follow-up, I just wanted to touch on, I think you mentioned with the bonus depreciation comments, maybe some opportunistic fleet or equipment purchases to get ahead of, maybe potential changes with the tariffs. Could you maybe just give a little bit more color or detail on your latest thoughts, maybe on what your suppliers are telling you? What the potential impact could be with the latest deals and guidance in place?

Yes. Trevor, well, as you know, first off, that's dynamic and could change by the end of this call. But the reality is that right now, our suppliers look particularly on the truck and -- truck body and chassis side, which is obviously the largest part of our capital. They are expecting about a 2% to 3% price increase related to the tariffs for '26 and an overall increase of 4% to 5%, so meaning just a little bit more in addition to the tariff. So 4% to 5% total increase in fleet cost is what they're telling us with about half of that, not quite half being the tariff impact as they know it today. So that is not, by any means, I think we said last quarter, we would expect it to be relatively de minimis in '25, that is the case. But knowing the uncertainty that still exists or potentially exists with things not yet being finalized in many places, we have looked to accelerate some fleet, as Mary Anne mentioned, which that will offset some of that bonus depreciation that we otherwise would have seen in the free cash flow line. In order to sort of hedge and blend down our '25, '26 overall cost to something hopefully below that 4% to 5% we would have otherwise expect from the manufacturers. So a number we're very comfortable with. And you have to remember, there was also somewhat of -- there were delays in fleet in '23 and '24 that happened. And so there's still not a catch-up but there was a little bit of a backlog that we were still taking delivery of in '25, too. So it's a combination of those things.

Our next question comes from Sabahat Khan from RBC Capital Markets.

Just wanted to revisit the discussion earlier around some of the components around volume. I think before some of the Chiquita volume drag, I think we're talking about the progress or the historical sort of volume shedding, largely getting to the tail end. Can you just help us think through as you get into '26 and beyond, putting the GDP or the economic growth aside, how sort of the leftover shedding volume is going to look like in the next couple of years from your vantage point?

Well, it's obviously a little bit hard to say because that to an extent depends on the pace of M&A. As I have said or as we have said, look, you should want us to have a little bit of a higher shedding number because it means that the implied pace of M&A is higher, right? We have said that when we do private company M&A on the solid waste side, somewhere around 10%, maybe up to 15%, 20% of that revenue over the first 1 to 3 years post M&A, we will look to either re-bid at a price we make money or walk away. And that is what that shedding is. So I would tell you, it has been larger to your exact point because of legacy progressive contracts which we do believe we are effectively at the end of as of October of '24, the one we mentioned earlier in this call, that will anniversary this year. And so that will -- that has been the largest piece to answer the question. So I would tell you, I would expect it to come down some 30% to 50% on a go-forward basis because that was the largest piece. That still probably leaves it in that 50 to 75 basis points on a normalized basis if we're doing quite a bit of M&A.

Got it. And then just following up on the E&P side of the business a little bit. As you think about the sort of the volume trends and things like that there, sort of maybe just talk us through sort of the flexibility on the cost structure there, obviously, just small blip here this year. But just over the long run, how do you think about the cost structure there? How much of that is variable and just the ability to sort of tweak that and over more of a multiyear basis, not just in reaction to the short-term blip we might see in H2 this year. Just wanted to understand sort of how you think about that business.

We think of it as a very high fixed cost business. The reality is that, that is a relatively high fixed asset business, low variable business, and it is a volume throughput business in the U.S., certainly as it is drilling linked much less so in Canada where it is 85-plus percent production linked. So I wouldn't -- it would be misleading to tell you or anyone that in that 6% of our total revenue, which is E&P, that we are expecting margin expansion to come from cost reduction in E&P. That would be misleading. But as that volume improves, whether it's because of crude price and drilling activity or increased production in Canada, you've obviously -- you see the margin contribution in that business. So that's how we do think about the cost in the E&P business.

And just to be clear, when we think about that business, as I mentioned earlier, that's part of the rationale for de-risking the business more broadly because only about half of that 6% or 6.5% is drilling oriented. It's the U.S. piece of the business. And as we mentioned, the Canadian business is holding up fine and in fact, was up year-over-year, really in line with our expectations. We haven't seen an impact there.

Our next question comes from Bryan Burgmeier from Citi.

Maybe just on the volume headwinds that are impacting your '25 guidance, is it accurate to say that sort of really concentrated in a 3Q event, just kind of focused on construction activity? Or did you start to see a slowdown in 2Q? And would you say there's any sort of meaningful difference between the activity in U.S. and Canada? Or is it just kind of the same everywhere?

Well, to give you some context, if you look at C&D tons, so that piece of our business year-over-year, Q2 was the seventh quarter in a row for those being down year-over-year, and it's averaged between 7% and 8% Q1 to Q2. Q1 was down 6%, Q2 was down 8.5%. So there was some incremental weakness. But the point is even though the comps are easy, we're not seeing increases year-over-year. So we did see what we called out as being a little different in Q2 where for that activity and also for our roll-off activity, which, again, if I just look at pulls down, this was the sixth quarter in a row where pulls were down and those have been down in the order of kind of an average of about 3% year-over-year in each of those quarters. So we wouldn't say this is a new trend, but what we saw during the quarter was some continued moderation, as we would say, some incremental weakness, meaning June was tougher than April was, and we called out the fact that ordinarily, between April and June, you would see more of a seasonal ramp and the fact that, that was missing is what informed our expectations for the back half of the year, specifically Q3, which is typically your seasonally strongest quarter. These are the pieces of the business where you see it because they're more construction driven.

Got it. Got it. And just to follow up, would you say there's any sort of difference between activity in between U.S. and Canada or just kind of the same everywhere. And then just as a follow-up, just kind of for modeling purposes, are you able to share sort of the recycled commodity price assumption that you started the year with? And then what you're kind of assuming now for the back half given the recent decline?

Yes. We -- let's take the second part of that first, Bryan. We assumed -- when we started in February, we assumed a basket of about $105 to $110 on OCC, excuse me, which is the largest piece of our basket. And we're now seeing that more in that $85 to $90, closer to $90 as I look down in sort of the second half in real time right now.

And shifting to your question about differences across Canada or other regions, I'd say if I look across, again, these more cyclically exposed pieces, that markets that are holding up a little better on a relative basis do include Canada actually being a little better and our West Coast markets and the softest -- the greatest weakness we saw in our Southern region, which includes like Florida, Texas, Louisiana and then also our Eastern region, which includes the Northeast and then some of the Southeastern markets.

Our next question comes from Jerry Revich from Goldman Sachs.

This is Adam on for Jerry today. I think the 2025 margin guidance implies over 100 basis points underlying margin expansion compared to 70 basis points in the first half of the year. What are some of the moving pieces driving that accelerating underlying margin expansion in the balance of the year? Is that the improvements in voluntary turnover? Any color there?

Yes. Thanks for pointing that out. Yes, we are bullish based on the trends we've seen. And as I described, all of those indicators trending positive for us as we move through Q2, that we see acceleration there and see the increased margin expansion. Then, of course, more broadly, you'll see a bigger increase in Q4 because the comps in other areas get easier. And so the headwinds abate. But looking sequentially, we'd expect margin to continue to improve as we move through the year, primarily because of those improving trends.

Great. And then you closed on the $75 million of annualized revenues, incremental in the quarter and then expect potential to close on the $100 million to $200 million later this or early next year. Can you just comment on the mix and margin profile of these acquisitions and how we should think about the incremental in-year EBITDA associated with the $75 million in incremental revenues acquired in 2Q?

Sure. Let's take the first part of that first, if we could. So the $100 million to $200 million that we have, I'm very confident in our closing components of that in Q3 and Q4 is all traditional solid waste. There's no E&P in that or anything else. It is a mix of transactions through several of our geographies, so relatively well dispersed. You have franchises in there on the West Coast, you have competitive markets in the South and Midwest and the East. And typically, the margin profile of that comes on nominally dilutive to our corporate average, obviously. We typically tell people to think of that as about 25% as a guideline as an EBITDA margin. You got a few that will be higher. You have some that based on perhaps if they're on the Eastern Seaboard with very high tip fees, they are just structurally a little lower on a margin basis. And we have a mix of all of those in there. So I think that was the first part of your question, at least. I think the second part was the incremental $75 million that has been closed since we reported Q1 and what we would tell you is we -- again, same commentary on margin. We had a smaller, although very nice E&P acquisition in Canada that we did in that $75 million. So that was a little accretive to margins, but it was the smallest component of the $75 million. So again, I would tell you if you use 25% to 30% for that basket because of that E&P acquisition, that would be a fair assumption on that $75 million.

If you assume some dilution on the order of 10 to 15 basis points from incremental M&A, given our size and the relative contribution, that's probably the right way to think about it.

Our next question comes from Chris Murray from ATB Markets.

Maybe -- I don't know who wants to take this one, but we've had a lot of discussion about volumes. But one of the things that at least we've seen is a bit of a split between kind of the construction manufacturing world of services. Just wondering if you have any thoughts about what you're seeing from some of the end markets? If you're seeing kind of some of the volume decline in the services, like I'm thinking like restaurants, different things that we're seeing just on consumer behavior versus what you've been calling out for like C&D and manufacturing?

Yes. Chris, we actually -- it's actually inverse of that question from what we're seeing. We are -- we have fairly nicely positive commercial yardage across our system -- on commercial yardage growth, commercial customer growth on a net basis and fairly nice revenue growth on the commercial side. So we're not seeing it there. It is the larger manufacturing industry and more cyclical construction activity, both commercially and residentially that the slowing is happening in. We marked -- we noted that special waste, which is -- can be cyclical was, up in the quarter, but again, don't get left that mislead you. That can be one or two big jobs that skew things. We are seeing states that are trying to get budgets passed that have put holds on projects that had been going. So some of that's just a temporary thing. But it's more related to larger projects stalling or not getting released than it is the -- what I'd call Main Street America commercial business.

So I guess the reason I ask the question is, if I think about kind of a volume recovery, it feels like we're kind of in a period of -- we get by the uncertainty the whole bit, but the underlying majority of the economy still feels like it's doing okay. Is that the right way to approach it or how you guys are seeing how this happen so that the volume recovery could happen maybe faster than we expect?

Yes. I mean, again, we are -- we have said for quite some time now, as we pointed out on a few of the comments on the call, it has just been flat sort of up 1%, down 1% for 10 to 11 consecutive quarters with really the economy sort of a neutral, and that continues to be. We aren't saying there's any difference than that, maybe it's down 1.5% instead of 1%. But that can also be -- we've had pretty significant weather in the South, as an example. We pointed out the South was weaker in an area I would tell you, which has been very strong. So we're just -- we're hesitant to make a call on what -- look, we have never guided okay? We have never guided saying while our guidance assumes a dramatic recovery in the economy. That -- we don't do that. We're sort of telling you what we're seeing in real time and assuming it marches forward and that if it improves, that's all upside. And so I think we're cautious after 11 quarters of flat line.

Right. Sounds good. Maybe one more question, if you don't mind. As I listen to the call, and I listened to some of the things you talked about in terms of turnover, in terms of technology, we really haven't talked about RNG development and things like that. But you go back a few calls, and we've been talking about outsized margin expansion as we went into '26, '27. Given where you're sitting, and I appreciate volumes may be going to hurt, but I think as you pointed out, second half margin expansion is already kind of aiming at 100 basis points, which probably carries you into the early part of '26. How should we be thinking about that margin cadence as we go into sort of the later years as you get some of the benefit of some of the investments you made over the last little while of some of the new initiatives that you're implementing?

Well, we certainly think about setting ourselves to have tailwinds that would be incremental to the typical 20 to 40 basis points of price-led organic growth and you look at this year, delivering 50 basis points in spite of the fact that there are incremental headwinds from commodities. And so we talked about that opportunity for just when that normalizes for another, in this case, 50 basis points from commodities alone. So, look, we're -- that is certainly the thought behind making the investments we're making now, Chris, and we do look forward to in subsequent periods, continuing to realize those benefits. And so we're certainly bullish about being north of that 20 to 40 basis points.

Our next question comes from Konark Gupta from Scotiabank.

Maybe on the price cost front, it seems like you guys are still heading as an industry, maybe near the high end of the typical ranges or maybe above the 6.5% pricing and whatnot. Heading into '26 like exiting '25, do you feel like the price/cost spread can potentially come down or normalize to what sort of the normal levels? Or is that still kind of like a farfetched idea? And if at all, the spread narrows or stays the same? Would it be more driven by the price or the cost?

Well, I think it would be driven by both, to answer the question. I mean, look, if you go back 15 years, so all different types of economic cycles that have happened in that, we've averaged about 150 basis points spread of our price to at least the CPI if you want to use that as a proxy for cost. Some years, costs have been a little higher than CPI, some may be right at, but that's a fair proxy. So as the CPI continues to step down, which it has been and is projected to continue to do so or maybe flatten out in the 2.5% to 3% level coming down from 9%, 24 months -- 24 to 30 months ago, you will see the aggregate price or reported price come down accordingly as you have been. But I think you will see that spread continue because that's what we target as a company and have for long periods. Now I think the higher the CPI that does help a little bit on the margin to increase that spread a bit that you have. So -- but I think that's pretty de minimis, to be honest. We are seeing our costs aggregately fall in total each quarter for the last 1.5 years. We saw it step down again in aggregate. We saw our labor cost go to the sort of 4.2%, 4.3% level, and our total costs come in about 3.4% to 3.5%. So still a little bit above the CPI, but coming down. So if you use that as a proxy, 150 to 200 basis points on top of that would get to sort of 5%, 5.5-type percent price to get you the same performance that 6.5% had been getting in 2025.

That's great color on. And just a follow-up, Chiquita, just kind of like understanding here, you said having the EPA as [ they all ] in the room should help, obviously. Do you see an opportunity to reduce your cost obligation for the next several years with the EPA involved here? Or that's pretty much a given?

Well, look, I think what we said is that we don't have any changes to the cost assumptions and the cash outflow assumptions and closure assumptions that we have provided. We do a multiyear model on that. There are quarters that are higher, there are quarters that are lower. But none of the assumptions have materially changed. We just believe that -- look, a lot of these costs are legal and consulting and a lot of that is driven by regulatory framework in California. So if that alone is streamlined through the EPA, that will get better right there irregardless of remediation cost. So look, I would tell you, we're cautiously optimistic on doing better. But we're going to fulfill whatever our regulatory legal requirements are to whatever agency is over us. and we have been doing that, and we'll continue to do that. So it's a little bit hard to predict, but I would tell you we feel incrementally better.

Our next question comes from Michael Doumet from National Bank.

So obviously, nice job on the employee retention improvement. I wonder, Ron, if you'd characterize that improvement is largely complete, obviously, understanding the impact to margins lagged. And if that's the case, what are your thoughts on some of the other call it, buckets of potential efficiencies that you can drive incremental price/cost spread going forward, I think, such as the AI initiative you mentioned at the top of the call?

Yes. Well, first, thank you for your comments there. I appreciate it. Well, first, I'd tell you that when you talk about the turnover and the employee piece, it's never done. Obviously, you do get to a point of diminishing returns, but our objective is to drive total turnover below 20% by year-end and into '26 and total voluntary to well under 10% as we go into '26. So we're not done, but we're getting close. Look, I would tell you that the opportunities that we see that are the largest impact going forward are the use of technology and specifically AI and I wouldn't say that it's necessarily the ability to increase the price cost spread, I think it's the ability to maintain the price cost spread and reduce churn and therefore, impact to reported volumes. That is the opportunity. And that is, we believe, can be fairly significant based on the pilots that we've been doing for the last several quarters. And so that will start to play out fully in '26 as we will be fully using it by the fourth quarter of this year. So those are the projects like that, projects like real-time routing, which think of it as sort of ways for garbage trucks, which we really don't have the ability to do in our system today in the manner that we want to avoid traffic, to avoid construction, to reroute dynamically to affect productivity and incremental new stops. So those are the type of things. Complete digitization of our maintenance program and systems which I think allow us for greater inventory control, greater projectability and preventative maintenance and scheduled maintenance and a flexing of costs with projectability. These are all things we are rolling out in real time over '26 and '27 that I think are -- may not individually be the margin drivers 100 basis points that turnover reduction has, but combined, they're significant.

Really interesting comments on the price optimization. I mean, Ron, just to follow up on that. Does that in your opinion, could that change the calculus for the typical price cost spread that you guys historically had?

Again, I would want to say if we could maintain the typical price spread we have had, and we could reduce by 20% to 40% the churn impact of that, meaning you have to sell 20% to 50% less customers to stay neutral, I'll take that all day long.

Our next question comes from Stephanie Moore from Jefferies.

Just one question for me. In this -- it does appear that this current administration could potentially be a little bit more lenient in terms of large M&A than at least the prior administration. So I wanted to maybe ask a higher-level thought and if the current, I guess, backdrop would make you a bit more amenable to doing maybe larger deals or anything that might be outside of kind of the core average deals that you look at on an annual basis?

Yes. No, thank you, Stephanie, for the question. Look, the first thing I would tell you is that in the course of 28 years, we have never been through a second request with the Department of Justice or the antitrust division. And I think that's indicative of our market model, number one. There is nothing that we are looking at that or have been looking at that we have shied away because of fears of Justice Department clearance, concentration, et cetera. So I wouldn't want to say that -- I believe for us, that a more lenient justice process is an accelerant to M&A because it hasn't been an inhibition to M&A. Now I will say that I think, in general, that probably broadens the scope of things in some markets for us. You have to remember that the filing requirement is about $125 million of purchase price, not revenue. So remember, in our sector, that could be $40 million of revenue, okay, depending on profitability of a deal. So that's what you got to remember as far as where does this HSR requirement apply to. That's how low -- that's what it goes down to. But I would not tell you that it has been an inhibition for us, but it's certainly we welcome the more favorable regulatory environment, I would say.

Our next question comes from James Schumm from TD Cowen.

With respect to free cash flow, you mentioned you're on track to hit your Chiquita Canyon spending guidance. But can you update on your best estimate for next year's spending on Chiquita? Was that $50 million where -- was that the last update? And can the EPA give you some relief on leachate disposal? Or does that have to come from the state? And maybe just give us a sense of the $100 million to $150 million that you spend this year. Give us a sense like how much is leachate, if you could bucket some of the costs, that would be super helpful.

Sure. Well, what I would tell you is, I think it's too early to make any changes up or down to our '26, '27 estimates because it is a dynamic situation, and we are looking at this potential sort of lead coordination change, okay? And so it'd be speculative, I think, to do that. To the part of your question regarding how much is leachate, that's about 70% of the cost, okay? The cost of treatment and disposal and transportation. So obviously, any impacts that we can make operationally or outlet-wise or transit wise, help that. We have made some changes that have recently reduced that in real time we will begin seeing throughout this third quarter as somewhat of a step change for us.

And they were contemplated by.

And yes, and they were contemplated. And that is not a result of anything new. That's a result of ongoing efforts. So that is what we can tell you about that, James.

And then, Ron, just -- I mean, as you look for different options to sort of ameliorate those costs, like will you be appealing to the EPA? Or would that still have to go through the state? In terms of getting some.

I think the answer depends on what that cost is, James. I mean, the EPA is not going to come in and direct to do -- direct the state to do things that are against state laws or regulations or objectives. That is not what they are intended to do, okay? So we will still have to and still are in compliance with all of those things. But there are things that reside under the EPA's purview that I would say, it's not clear whether it is a federal state or local issue on some decisions. And in those areas, I think the clarity, the EPA can be helpful to us. So stay tuned for how that plays itself out.

Okay. Very good. And then just lastly, for recycling, what does your overall book of business look like right now? Is it majority fee- for-service? Or are you assuming the full commodity price risk? What does the book look like currently?

Yes. Most of the recycling we do as part of a broader service provision. And so we have the exposure, which is why we communicate what the sensitivity is on the total recycling basket. And you see that move through our numbers every quarter.

Our next question comes from Tobey Sommer from Truist.

It's [ Henry ] on for Tobey here. I just have a quick one on M&A. You touched on this briefly before, but what's the typical time line we should look at for tuck-ins to reach kind of company average margins? And then has that average time line change to your as you've stepped up these acquisitions?

Yes. Yes. So I would tell you, everybody's definition of the tuck-in is a little different. So a little bit of commentary there. But typically, a tuck-in, we're going to be able to bring up the company margin and average within a 12- to 18-month period. It's a relatively quick time frame because you're shutting down a facility that exists, you're consolidating routes, you're doing things that happen in a relatively quick order. Now again, that was tend to be your very small transactions where you're just densifying a market area. When you're talking about something that is more of a stand-alone and that could be something $20 million, $30 million in revenue, and you're going to build out around, that's a longer time frame, right? You're probably talking probably more of like a 3- to 4-year type period to move that closer to the company average. Now remember, if we're buying a company that's a 23%, 24% EBITDA margin, that's 1,000 basis points below our margin. So even if you're moving at 200 basis points a year, you're mathematically 4.5 to 5 years. So it somewhat depends on -- Henry, on your definition of what a tuck-in is.

And our next question comes from Tami Zakaria from JPMorgan.

I just have one quick clarification question about the opportunistic buyback. So if the $100 million to $200 million M&A in the pipeline closes this year, could we still expect some opportunistic repo? Or will it be sort of an either/or outcome?

We view ourselves as having the optionality to continue to do all aspects of capital allocation. So no, we don't see it as either/or.

Ladies and gentlemen, with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Ron Mittelstaedt for any closing remarks.

If 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 are allowed to answer under Regulation FD, Reg G and applicable securities laws in Canada. Thank you again. We look forward to connecting with you at upcoming investor conferences or on our next earnings call.

Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. Thank you for joining. You may now disconnect your lines.