管理層發言
Hello, everyone. Thank you for joining us, and welcome to GFL Environmental Inc. Second Quarter Earnings Call. I will now hand the conference over to Patrick Dovigi, Founder and CEO. Mr. Dovigi, 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 our forward-looking disclaimer before we get into 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'll be making some forward-looking statements within the meaning of applicable Canadian and U.S. securities laws, including statements regarding events or developments that we believe or anticipate may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set out in our filings with the Canadian and U.S. securities regulators. Any forward-looking statement is not a guarantee of future performance, and actual results may differ materially from those expressed or implied in the forward-looking statements. These forward-looking statements speak only as of today's date, and we do not assume any obligation to update these statements, whether as a result of new information, future events and developments or otherwise. This call will include a discussion of certain non-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. Our strong start to the year continued through the second quarter, yielding financial results ahead of expectations. Our ongoing exceptional performance in the face of an uncertain broader macro environment is a testament to the effectiveness of our growth strategies and the resilience of our business model. Moreover, the quality of our first half results allows us to raise our full year guidance for the second time this year. Once again, our price growth was ahead of plan. The outperformance from pricing in the first quarter was driven largely by tailwinds from our recent growth investments and the ongoing realization of incremental pricing opportunities within our portfolio, which continued through the second quarter. We now have a high degree of visibility towards ending the year with pricing above 6%. Volume was also better than expected as a rebound in winter-related volume delays and EPR benefits more than offset the impact of lower C&D-related activity and special waste volumes. Consistent with the first quarter, we believe the impact of broader economic uncertainty continues to be a drag on C&D volumes compared to prior periods, but we remain well positioned to participate in the upside when these volumes inevitably return. The significant rise in ongoing volatility in diesel prices has impacted margins due to the inherent lag in the fuel surcharge mechanism. The impact of elevated diesel pricing is seen not only in our direct fuel expense, but also in higher costs passed on to us from our third-party transportation providers. Excluding the impact of the sudden and significant rise in fuel costs, our operational and SG&A cost intensity as a percentage of revenue trended lower on a year-over-year basis for the sixth consecutive quarter. The ongoing realization of such operating leverage is a result of the growth and self-help initiatives we outlined at last year's Investor Day and was achieved despite headwinds from M&A and lower higher-margin landfill volumes. The successful execution of our operational strategies more than overcame fuel cost volatility and other headwinds faced in the quarter. The team's relentless focus on pricing discipline, cost efficiencies and the ongoing maturation of our asset base is translating into industry-leading underlying margin expansion. Our Canadian segment realized adjusted EBITDA margins of 34% in the second quarter, the highest adjusted EBITDA margin the segment has ever achieved. Consolidated adjusted EBITDA margins organically increased 35 basis points over the prior year despite a very tough comp. Recall, Q2 2025 was the highest Q2 EBITDA margins in our company's history. On M&A, we've been actively preparing for the closing of the SECURE acquisition. The final step before we can close the transaction is the Competition Bureau review, which remains on track and is well advanced. Integration planning is progressing well. And as we've been spending more time with Allen and the whole SECURE team, we grow incrementally optimistic about the opportunistic opportunities for the combined entity. We remain confident in our ability to close the acquisition by the beginning of the fourth quarter and achieving the pro forma financial framework we previously highlighted. We closed seven other acquisitions during the quarter, including Frontier and six tuck-ins, two of which are incremental to the base for which we previously updated guidance. Frontier's first quarter performance under our ownership has gone exceptionally well, and we remain excited about the many growth opportunities available to us in that fast-growing Texas market. As we said on the last call, the Q2 acquisitions would temporarily increase leverage 30 basis points before we naturally delever back to the mid-3s by the end of the year. Our M&A pipeline remains robust, and we still think we can deploy an incremental $300 million to $500 million before year-end. With the significant success in the first half, we are raising our full year outlook for the second time this year. Luke will walk through the details, but we are now expecting to deliver over 15% growth in adjusted EBITDA and nearly 20% growth in adjusted free cash flow over the prior year. Although the guide does not currently include any contribution from SECURE, if we were to close the acquisition in Q4, actual adjusted EBITDA growth could be greater than 20%. I'll now pass the call back to Luke, who will walk through the guidance update and the quarter in more detail, and I'll share some closing comments before we open it up for Q&A.
Thanks, Patrick. Revenue grew 16.3% in the quarter, inclusive of 6.4% organic growth, which was a 180 basis point acceleration over the first quarter. Continued price strength together with higher surcharge revenue tied to fuel cost recovery more than offset the anticipated headwinds from volume and commodity prices. Price growth in the quarter of 6.1% was 20 basis points better than planned, a result driven largely by accelerated realization of previously identified pricing opportunities, including the implementation of incremental fuel surcharges. Regionally, pricing was 6.2% in Canada and 6.1% in the U.S. Our pricing success in the first half, together with our expectations for the second half of the year, now expect to yield a full year pricing number nearly 50 basis points better than the original guide. Volume in Q2 was almost 100 basis points better than planned with positive transfer station and residential collection volumes offsetting headwinds from landfill and the lapping of transitory MRF processing volume in the prior year. We attribute the positive transfer station volume primarily to catch up from the Q1 winter weather impacts as broader C&D activity remains muted with external C&D and special waste landfill tons being down 10% in the quarter. With the ongoing macro environment, we now expect the C&D-related trends to persist for the balance of the year, and our full year volume outlook is being updated accordingly. The acceleration of commodity prices at the beginning of the year has continued, and we saw market pricing in the second quarter $12 per ton higher than what we had factored into our Q2 guide. Current market pricing is up another $13 over the Q2 average. And if pricing remains at these levels, Q3 pricing should be approximately 20% better than the prior year. While our exposure to commodity price fluctuations has been significantly reduced post transitioning most of our processing activities to relatively fixed fee-for-service contracts, the improvement in market pricing will provide incremental tailwinds to revenue, EBITDA and margins in the back half of the year. As Patrick said, the second quarter saw continued improvement in underlying operating leverage. Cost of sales before depreciation, amortization and integration costs as a percentage of revenue decreased 80 basis points, excluding the impact of elevated fuel costs. Ongoing efficiency and labor costs, supported by continued improvement in voluntary turnover as well as a 90 basis point reduction in repair and maintenance cost intensity more than offset the recent headwind from M&A. Looking specifically at fuel, as anticipated, our direct cost per unit of diesel in the quarter increased nearly 60% year-over-year. The second quarter also saw indirect diesel cost impacts as our third-party transportation providers implemented incremental fuel surcharge, which resulted in a $5 million headwind to our Q2 guide. We are now in a position where our surcharges are generating sufficient incremental revenue to offset the higher cost tied to diesel prices, although until diesel prices once again fall, our results will be burdened by the unrecovered costs associated with the initial inflection in diesel prices at the beginning of the year. SG&A cost intensity, excluding depreciation expense and other costs, improved 50 basis points over the prior year. As expected, we continue to realize operating leverage on our corporate segment as we continue to grow revenues off this relatively fixed cost base. Adjusted EBITDA margins were 30.4% for the quarter, inclusive of a 65 basis point headwind from M&A. Adjusted EBITDA margins were 34% in our Canadian segment, up 20 basis points over the prior year despite negative impacts from fuel and commodities, which were headwinds in both of our geographic segments. Excluding the impact of these exogenous factors and M&A, underlying consolidated Q2 margins were up 125 basis points from the prior year despite the mix impact of the lower high-margin landfill volumes and the 40 basis point margin headwind from the recognition of certain rebates in the prior year quarter that we previewed on the Q1 call. Adjusted free cash flow was $237 million for the quarter, ahead of our guide largely on account of the adjusted EBITDA outperformance as incremental investment in working capital was largely offset by lower-than-planned net CapEx and closure costs, all of which are expected to be timing differences that normalize by year-end. In June, we issued USD 750 million of new bonds in preparation for the closing of the SECURE acquisition. The bond offering was significantly oversubscribed and was executed at the tightest interest rate spread ever offered for a bond of this type in our rating category, once again demonstrating the confidence in our credit quality held by the debt markets. By taking advantage of underlying interest rate differentials in Canada and the U.S., we were able to swap the interest payments back to Canadian dollars at a rate of approximately 4.5%, thereby reducing our overall effective borrowing rate. Excluding the translational impact of the FX rate increasing 500 basis points versus our guide and ending the quarter at 1.42, we exited the quarter with net leverage of 3.9x, 30 basis points higher than Q1 on account of the second quarter acquisitions and exactly in line with the guidance we previously provided. Q3 leverage will remain consistent with Q2, and the business will then naturally delever by year-end. Any rebound of the Canadian dollar against the U.S. dollar will further improve our reported net leverage. Based on the strength of the first half and our positive outlook for the remainder of the year, we are pleased to be able to increase our guidance top to bottom for the second time this year. Assuming the current FX rate, commodity and diesel prices, we now expect the following amounts for the full year 2026. Revenue of $7.52 billion, adjusted EBITDA of $2.29 billion, adjusted free cash flow of $900 million, inclusive of cash interest of $445 million and a net CapEx spend of $850 million. The new guidance assumes full year pricing increases to just over 6% and volume decreases to approximately negative 50 basis points, an outlook we think is conservative yet appropriate given the current macro backdrop. Any improvement to C&D activity will be a source of upside to the guide. Contribution from M&A increases by $10 million on account of the two incremental tuck-in acquisitions and FX related to M&A. Adjusted EBITDA margin increases 10 basis points over our previous guide to 30.5% despite the significant headwind from elevated diesel prices, which we now assume to continue for the balance of the year. Absent the run-up in diesel prices, full year margin would have been more than 31%, more than a 100 basis point increase over the prior year despite headwinds from M&A and commodity prices. Any reduction in diesel prices in the second half of the year would be a source of incremental margin expansion. As Patrick mentioned, the updated guidance does not include the contribution from any further M&A in the year. SECURE alone could increase 2026 adjusted EBITDA by another 6%, and we also expect to close other tuck-in acquisitions before the end of the year, which will also be additive. Specifically, as it relates to the third quarter of 2026, we expect consolidated revenue of approximately $1.99 billion at an adjusted EBITDA margin of 31.2%, 60 basis points ahead of the prior year when excluding the anticipated 100 basis point drag from fuel and M&A. Q3 adjusted free cash flow is expected to be approximately $235 million, inclusive of $165 million in cash interest and about $200 million in net CapEx. I will now pass the call back to Patrick, who will provide some closing comments before Q&A.
Thanks, Luke. We believe our consistent financial performance in the face of ongoing macro uncertainty continues to demonstrate the quality of our platform and the effectiveness of our strategic plans. 2026 is shaping up to be another year of industry-leading growth and the setup for 2027 growth is even greater. Our business and growth prospects have never been better, and we continue to believe that GFL is uniquely positioned for exceptional value creation for all shareholders over the near term. I will now turn the call over to the operator to open the line for Q&A.
分析師問答
Your first question comes from the line of Sabahat Khan with RBC Capital Markets.
You mentioned in the release yesterday that the company has received some unsolicited potential take-private offers for GFL and some media outlets had headlines earlier as well. To the extent that you can comment, could you maybe share what you're considering, how you're thinking about potential outcomes here?
Yes. When there's a dislocation in share price versus intrinsic value, that can afford others the opportunity to consider a take-private transaction. From where we sit today, we feel slightly vindicated that we believe the intrinsic value we've created has attracted approaches to take the company private at a materially higher number than the company is currently trading for today. I'm very familiar with the private equity world — six private equity recaps before GFL went public and last year recapping the Environmental Services and GIP businesses at mid-teens type multiples — so we know that world well. Two of the parties that approached us were doing significant work on SECURE and believe SECURE is an exceptional acquisition. The Board has formed a special committee, and the committee has instructed management to explore the art of the possible. I'm less focused personally on an initial price. It's obviously materially higher than where we're trading today, but I'm not a seller. I'm not a seller at $40, $50, $60, or $70, and I'd be rolling 100% of my equity into whatever is proposed. There are two paths: one is an offer brought to shareholders, which would require a majority of the minority because I would be treated differently in terms of rolling 100% of my stake, and shareholders would have their say. Some short-term investors might find an offer compelling. We've had many conversations over the last few weeks with our largest holders, who have interesting views on value. This is a moment where we were caught up in the AI trade and SECURE and some parties entering the name pre-closing. The alternative is staying public, which is also a great alternative. The real question is whether shareholders would be happy with a price materially higher than today's trading level and whether management and insiders can create significantly more value in a shorter amount of time as a private company. My focus is not the next year or two, but years five, six and seven — how value will be realized. It's one thing to take a business private; it's another to realize the value you've created. We need clarity on how value will be realized: will it stay in perpetual private hands or be relisted after value creation? The Board and management feel vindicated that large institutions with big pockets believe the company is undervalued and can generate attractive IRRs even paying a premium to today's trading price. The special committee has instructed us to explore options, and we'll do that. My intent is to focus on getting SECURE closed, and we'll run these paths in parallel. There is no situation where we would walk away from SECURE inappropriately; the buyers who approached us also value SECURE highly. We'll aim to get answers relatively quickly and pick a path. Either path is a good path, and we'll decide what makes sense for me and for shareholders in the near to medium term.
Great. I appreciate all the color. Maybe just switching over to the outlook for the back half of the year, maybe a question more for Luke. What incremental growth CapEx are you assuming in your updated guide? And maybe if you can share some color on how we should think about the cadence for the remainder of the year.
Thanks, Saba. Great question. In Q1, we said we'd look to spend $200 million for the year. Other than a small FX adjustment, that number largely holds. In the quarter, we were a little behind on planned spending; some project timing is outside our control. With SECURE, if we close in Q4, SECURE's capital allocation approach includes deploying excess free cash into growth capital; they did some in Q2 and plan more in Q3, with possible spillover to Q4. Ultimately, pro forma for SECURE, we may be a bit higher than stand-alone GFL, but factoring in FX, the $200 million number is still in the same neighborhood — maybe a little less, maybe a little more, but broadly in that ZIP code.
Maybe just a quick one if I can sneak in. The pricing commentary across the sector has been pretty positive. Your commentary this morning is positive, pushing higher even relative to your initial guide. Is it just that customers are accepting the inflationary environment and it's been easier to pass through pricing? Maybe you can talk about what's happening in the industry with the positive pricing and whether it could continue into 2027 from GFL's perspective?
I like the way you frame it, Saba. It's difficult to speak about peers, but we've consistently seen an opportunity to price above cost inflation to generate the spread needed to deliver returns. In addition, we have opportunities within our portfolio beyond that as we continue to find mispriced books of business. The spread above cost inflation remains central to pricing strategies, and I don't see that changing. At Investor Day we identified $40 million to $80 million of incremental pricing opportunities; that range may be higher as we keep doing M&A and realizing those opportunities. A significant component of our outperformance is the effective realization of those pricing opportunities, and over a three-year period we expect to capture more than originally projected.
The next question comes from Tyler Brown with Raymond James.
Luke, there's quite a bit moving around in the guidance. You've got FX, M&A, volumes, commodities. Just in broad strokes, can you bridge the new guide versus the old guide? I'm feeling FX, fuel, M&A and commodities are all helps, but second half volume is a drag. Any color would be really helpful.
Great question. There are several moving pieces. Top line: pricing is now just above 6%, roughly 50 basis points up from our original guide. Volume we now expect about negative 50 basis points, roughly a 75 basis point decrease from the original guide that contemplated about 25 basis points of positive volume. Surcharge is now at 80 basis points positive, about 100 basis points over the original guide due to diesel pricing. Commodity is now about a 10 basis point drag year-over-year — an improvement from an initial minus 30 basis points to now minus 10. Our exposure to commodity fluctuations is reduced due to fixed fee-for-service contracts. M&A contribution, including Frontier and others, is about 770 basis points (7.7% from M&A), about 520 basis points higher than the original guide. FX is now a 40 basis point drag (minus 0.4%), about 170 basis points worse than originally contemplated; the original guide assumed 1.36 FX and we're roughly assuming a second half at 1.40. Those are the primary drivers.
Perfect. Extremely helpful. The new guidance calls for margins to be virtually unchanged, but the old margins didn't include a sizable headwind from fuel and non-leveraging FX revenues. Could one imply that you're actually raising underlying implied margins substantially? Or am I misreading that?
You're absolutely right. The original guide contemplated 30.5% and reflected underlying strength. Today we're maintaining 30.5% but now inclusive of a 60 to 70 basis point drag from fuel and a 30 to 40 basis point drag from M&A. Those two alone are a roughly 100 basis point drag compared to where we started the year. There are other moving pieces, like special waste and C&D landfill volumes, which are a net new headwind. The missing tons are high-margin flow-through, so when you account for all that, the underlying improvement is substantially greater than the headline suggests. That reinforces that the operations are performing very well.
And just quickly, Patrick, on volume: how does the competitive environment feel? Any pickup in churn or changes among small haulers that give you pause?
We're in a competitive business as always. Some markets have different competitive dynamics and in certain markets we must defend business and churn. But many other parts of our business continue to be strong on ticket and get pricing with churn at historically low levels. Nothing different than we've seen over the past 20 years. We continue picking the right markets to operate and deploy our strategy, and we will keep doing that.
The next question comes from the line of Kevin Chiang with CIBC.
If I could dig into the U.S. organic growth in the second quarter. It was up nicely sequentially. Outside of the elevated inflation period during the pandemic, this seems historically high. I get pricing is good, you have surcharges, but are you hitting an inflection point in the U.S. from initiatives you laid out at Investor Day that might be driving more outsized organic growth in the U.S. versus Canada, given Canada is a more mature market for you?
Great question. On organic growth and pricing, the U.S. has consistently been a good pricing market for us and continues to be. Pricing was around 6% in both geographies; some books in the U.S. were more mature on surcharge initiatives, while Canada saw outsized realization of previously identified opportunities. The U.S. pricing strength is driven by the underlying core rather than net new surcharges. Volume is the key. Post-M&A, we intentionally shed certain unprofitable or marginal work. As M&A activity paused in late 2024 into 2025, the subsequent shedding effect diminished, allowing the underlying volume metrics to reflect actual business performance rather than being distorted by M&A-related activity. Once you remove M&A-related noise, core volume is relatively stable, plus or minus 50 basis points.
Follow-up on corporate cost intensity: you're back down to a low 3% intensity. Can you remind us where that can get to? Are you at a level where you've maximized revenue absorption and further growth requires more investment in corporate? Or can you push below 3%?
Great question. Corporate costs are largely fixed and derived primarily from people and IT. Over the last several years we made meaningful cloud and systems investments that were transitory; those have rolled off to a more steady-state. AI-driven productivity enhancements and automation across back-end shared services — HR, payroll, treasury, IT — should allow this cost base to absorb larger amounts of revenue. I don't think 3% is a floor; we see a path, even pro forma into next year, to get below that level. This cost bucket remains relatively fixed, so continued revenue and EBITDA growth will provide meaningful operating leverage.
The next question comes from Tobey Sommer with Truist.
I wanted to ask about prospective M&A over the balance of the year. With the LBO news, is that influencing your conversations with businesses that you expect to be able to acquire over the balance of 2026?
No impact. We're running the business in the normal course. There's no change to our strategy or to the businesses we're speaking to. It doesn't matter whether we are private or public; we continue marching on and running the business as usual.
Tobey, to add, what's most impacting M&A right now is our commitment to leverage philosophy. The depreciation of the Canadian dollar has a temporary translational impact on our leverage and puts a slight constraint on deployable capital. So that's the balancing act we're managing. But to Patrick's point, we're continuing full force with our growth strategy.
If I could ask a follow-up: you mentioned the tight spread and attractive rates in your recent fixed income offering. What do you think contributed to that and how does that dovetail into the potential IRR of an LBO should that come to pass?
We've consistently done what we said we'd do for many years in the debt markets, and that builds goodwill. The transaction we did has no material impact on leverage as being proposed, so for our debt investors there's no real risk of a traditional LBO with high leverage and rating decreases. If more debt were needed, historically the market has supported us up to 6 to 6.5 turns of leverage, though at slightly higher rates. But that's not the market I worry about. We have deep relationships and many years of consistent performance that support us.
To add, the spread on the bond we did was 134 basis points over the underlying treasury. Investment-grade peers in the industry do fixed income offerings at about 70 to 90 basis points over treasury, so that's a 40 to 50 basis point gap. That's a pretax impact. The benefit of becoming an investment-grade company is more about perceived equity cost of capital than a large decrease in debt cost; the debt markets already view us close to investment grade and we'll continue marching toward that direction.
The next question comes from Trevor Romeo with William Blair.
Maybe another on M&A. Patrick, you said Frontier integration has gone exceptionally well. Could you update on how that transition is going and what growth opportunities you've identified for that business? Also, what types of assets might be in your intermediate-term pipeline for M&A?
Frontier integration went smoothly; we had time between signing and closing to prepare. They ran a back-office software we also use, so the integration was straightforward — payroll and benefits transitioned and the business now runs on our KPI program. We plan to double the size of that business over five years through a combination of organic and inorganic opportunities, including tuck-ins and organic opportunities across landfill, recycling and transportation. The lion's share of back-half M&A will be tuck-ins that fit into existing markets where we can internalize incremental volumes and leverage fixed-cost facilities. The M&A team also continues to work on opportunities for our ES and GIP divisions, both of which are posting record results. SECURE is performing very well too. Overall, GFL is firing on all cylinders and we are focused on accretive opportunities.
A quick one for Luke: the updated guide shows slightly better free cash flow conversion than your original guide. What's driving that? Looking beyond this year, any thoughts on organic improvements in cash flow conversion, especially as more RNG projects come online?
Great question. The incremental EBITDA flow-through, the refinancing and recent financings have effectively flattened a portion of interest expense, which helps free cash flow. Working capital benefited somewhat from FX dynamics. As EBITDA grows, leveraging fixed items like interest and taxes supports free cash flow conversion. Pro forma with SECURE, you'll see conversion north of 40% as SECURE brings a higher conversion profile. The real benefit comes from leveraging a relatively fixed component of interest as we self-finance growth and reduce interest intensity over time. That will provide a tailwind to free cash flow growth and conversion; expect a meaningful step-up in 2027 and beyond.
The next question comes from James Schumm with TD Cowen.
Patrick, you've built the fourth largest solid waste company in North America and done incredibly well financially. You've said you'll roll your stake. Can you comment on what you want to do in the future, maybe five or ten years down the road? Specifically, how much longer do you want to be CEO?
As long as I continue to see opportunity, I'll remain in the seat. I started over 20 years ago and don't see a better opportunity than what I have to continue compounding value. Looking at the next five to ten years, there's a real opportunity to double the size of the business again. We have best-in-class operating systems, management teams and markets with significant opportunity and many markets that are not fully optimized. I'm not a seller. Whether public or private, value can be created in both structures. The question is whether private ownership allows us to do things faster that we couldn't do as a public company. We have a record of making disciplined decisions that create value — sometimes unpopular at the time — but the decisions have proven correct over the long term. I'm here for the long run as long as people want me to be, and I see a clear path to materially increasing my equity value.
As you contemplate private versus public, what do you think is driving the discount in your stock today and how can you address it? Is it free cash flow conversion or other factors, or can staying public and doing X and Y improve valuation?
We've been public for almost six years. In 2022, levered growth became a concern and we were operating with higher leverage than peers, which needed to be rectified. Historically, decisions that increased leverage modestly were sometimes criticized, but those decisions — for example, the ES and Terrapure combination — created significant equity value when recapitalized. The market moves around and there have been periods where the industry traded down because waste was out of favor. In this instance, industry multiples compressed and we also experienced a widening discount relative to peers. That combination created an opportunity for others with significant capital. I feel vindicated that large, sophisticated institutions see intrinsic value here. We'll continue to run the business, drive margin expansion and free cash flow growth, and math will prevail over time. We are evaluating both paths — public and private — and will determine what makes sense for shareholders. I remain focused on creating long-term value.
To add, earlier concerns were around EBITDA adjustments and complexity when we went public. That has largely subsided as we executed. In 2022, leverage concerns were a factor. Free cash flow conversion remains an area that people discuss; it's going to improve at a rate faster than our industry peers as we scale and leverage fixed costs. That improvement will be clear in future guidance and is a source of confidence that valuation will realign over time.
The next question comes from Bryan Burgmeier with Citigroup.
You announced an update on a couple of RNG projects during the quarter. I assume those are part of the 7 million MMBtus under negotiation from Investor Day. Any details around the timing of those projects?
Yes, those were included as part of the remaining sites to come online. The expectation was late 2027, but given the pace, some slippage into 2028 wouldn't surprise me. Investor Day contemplated certain RNG revenue by 2028; it's probably more realistic to think of it as a run-rate level by the end of 2028 rather than having full amounts on January 1, 2028. One of the projects is with a partner we have strong confidence in and is part of the plan.
And last one: do you think SECURE opens the door for more bolt-on M&A going forward?
Nothing materially outside the norm. We see incremental organic opportunities in Western Canada driven by government and private investment, and we'll assess any M&A or organic opportunity on return on invested capital. SECURE is performing strongly, and we feel bullish about the opportunities it presents. We're targeting closing around October 1, plus or minus 30 days, and the Competition Bureau process is on track from where we sit.
The next question comes from Konark Gupta with Scotia Capital.
First, following up on go-private discussions: in light of those, are you expecting to ration usual initiatives like buybacks, dividend growth, or M&A, including the SECURE deal?
No. Business as usual, no change.
And then on the ES and GIP minorities: Luke, can you share your thoughts and outlook for 2026 in terms of EBITDA and leverage ratio?
Previously we've said ES at roughly $600 million with some M&A could be around $625 million of EBITDA with about 5.5 turns of leverage. GIP is roughly $360 million to $380 million of EBITDA with about 4.5 turns of leverage. Regarding the ES call option, the initial valuation done in December 2025 was close to the ES recap valuation, and we used the equity value at that recap. That call option's time decay value will be amortized quarterly until we revalue the equity annually. Both businesses are trending very positively and with accretive bolt-ons we anticipate revisiting marks at year-end.
The next question comes from Stephanie Moore with Jefferies.
You called out that underlying margin is running maybe two times your original expectations. Can you give more color on what's running better than expected? Is it labor? Pricing is strong, but we'd like more detail and your expectations for underlying margin expansion for the rest of the year.
Great question. It's not any single factor but many that we've been talking about. Start with the top line: pricing is 20 basis points better for the quarter and about 50 basis points better for the year than guide — that flows through. Volume mix is a headwind given missing high-margin landfill tons. On cost of sales, efficiency across major cost categories — transportation and labor — is driven by optimization and densification as well as self-help initiatives. We continue to capture post-M&A synergies through rerouting and integration. Procurement and fleet savings are meaningful. We're pleasantly surprised by the pace of realization. RNG and SECURE contributions are not fully reflected yet; adding those in will further enhance margin potential. Overall, a combination of pricing, operational efficiencies, and synergy realization is driving the outperformance.
The next question comes from Chris Murray with ATB Cormark Capital Markets.
On that margin discussion and extending into 2027 and beyond: you've talked about labor and maintenance improvements. Is this the best it's going to get and now it's just scale and leverage to drive margins? Or are there additional self-help opportunities?
I think the opposite — we're just getting started on self-help. We outlined five major items at Investor Day, but the team is working on many more initiatives. Procurement and fleet-related savings alone were $30 million to $50 million in that self-help bucket; early looks at SECURE show meaningful incremental procurement opportunities leveraging our scale. AI and technology-related initiatives are just beginning and could yield large savings across HR, pricing, FP&A and preventive maintenance. So we see a lot of runway, and as these initiatives mature and scale, we'll likely reveal additional meaningful upside in future presentations.
The next question comes from Shlomo Rosenbaum with Stifel.
A follow-up on AI and technology: are you working on dynamic routing, dynamic pricing, or other AI plays concurrently? Are you focused on executing the levers others have pulled, or do you have parallel work on advanced AI applications?
We have a lot of low-hanging fruit to execute before needing to reinvent the wheel. We're invested in AI across multiple facets — HR and recruiting, pricing, FP&A, preventative maintenance — but many AI initiatives are in early stages, so financial benefits are not yet visible in margins. We have an advantage in letting others experiment while we focus on proven self-help. That said, we're laying groundwork for full-scale AI implementations that could be a much larger driver of cost savings in the future.
And as a follow-up on volumes: many in the industry have higher pricing but volumes aren't as expected. Is this due to macro, geopolitical events, or anything else? What's your take on volume performance?
There's nothing structural — in slow markets volumes are down about 1%, in good markets up about 1%; that's the typical range. C&D and special waste volumes are soft due to higher rates for longer affecting builders and related activity. C&D projects tend to be last to pause and last to resume. We are pricing appropriately for cost inflation and maintaining returns. Pricing levels are not egregious; customers understand cost inflation and the industry remains disciplined and focused on returns on invested capital. Given the relatively small monthly bill amounts for customers, the typical price increases are not materially disruptive, and I don't see any structural disruption in demand.
The next question comes from Adam Bubes with Goldman Sachs.
On volume, can you parse performance this quarter between EPR-related volumes and underlying core volume? Within core, you mentioned residential outperformed; any more color by collection lines of business would be great.
Volume was about 100 basis points better than plan: roughly negative 0.7% versus an expectation nearer negative 1.5%. The quarter lapped a tough EPR comp, and C&D remains soft — external C&D and special waste tons were down about 10% year-over-year. In dollars, volume was minus $11 million, with landfill accounting for roughly $9 million and MRF processing related to a transitional contract about $2 million. IC&I collection was slightly down while residential collection was slightly up, offsetting each other. In Canada, volumes were up about 0.5% with EPR contributing roughly $5 million to $7 million of that growth related to collection contracts. Peel back the pieces and the normal course business was essentially flat with headwinds from C&D and lapping EPR processing volumes.
On 2027 conceptually, can you help us think about growth CapEx next year and the trajectory on the EPR and landfill gas side?
Conceptually, GFL's growth CapEx will step down materially next year — we previously said it would be roughly half of this year's level, in the range of $75 million to $100 million. SECURE historically deploys excess capital into organic growth, so pro forma we will evaluate totality. Some R&D dollars will manifest as investment contributions into joint ventures rather than traditional CapEx. But overall, growth CapEx peaked in 2025, '26 is materially less, and free cash flow is expected to inflect meaningfully into 2027.
The next question comes from Jake Kooyman from Wells Fargo.
Corporate costs were roughly $62 million in the quarter, roughly $250 million annualized. You mentioned intensity below 3% pro forma next year. On roughly $9 billion of pro forma revenue, that implies corporate costs under $270 million, essentially flat to today while absorbing SECURE's head office and about 2,000 employees. Does that mean you're assuming SECURE's corporate functions are substantially eliminated? Or is that saving already inside the pro forma framework you published?
I haven't checked the exact math in that degree of rigor. Conceptually, our corporate costs represent centralized head office functions that support our businesses and geographies. When we do acquisitions, much of the field-level support for those acquisitions is burdened within the segments, not corporate. So for SECURE, the vast majority of support costs will be in the field as opposed to in corporate. Corporate costs ex step changes from a large acquisition typically grow at a low to mid-single-digit rate while top line grows at a mid- to high-single-digit rate, which generates operating leverage. I'm not prepared to commit to specific 2027 corporate cost dollars today.
There are no further questions. We have reached the end of the Q&A session. I will now turn the call back to Mr. Dovigi for closing remarks.
Thank you, everyone, and we look forward to speaking with everyone after we report our Q3 results.
This concludes today's call. Thank you for attending. You may now disconnect.