Waste Connections, Inc. 2026 Q3 Earnings Call

Ron, please go ahead. Thank you, operator, and good morning.

I would like to welcome everyone to this conference call to discuss our third quarter results and increased outlook for 2026, along with some thoughts about the setup for 2027. I am joined this morning by members of our senior management team, including our CFO, Mary Anne Whitney, who will first provide 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 October 21st 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 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.

Thank you, Mary Anne. We are extremely pleased to deliver third quarter results above expectations, setting up another increase to our full-year outlook and demonstrating once again the durability of our model, regardless of the macroeconomic environment. Most notably, underlying margin expansion of 50 basis points drove adjusted EBITDA margin of 34%, despite surging diesel costs late in the quarter. Solid waste organic growth in Q3, including core pricing of 5.5% plus fuel and material surcharges of 1.3%. On average yield of 4.3%, unit volumes declined 1.2%, a sequential improvement of 70 basis points from Q2, primarily as a result of a pickup in more cyclical landfill volumes, with Q3 special waste up 7% year-over-year and construction and demolition debris up 5%. We are also encouraged by trends in our other lines of business.

We saw continued strength in E&P waste revenue, up another 6% sequentially, and in certain recycled commodities, including OCC, where values have improved in each of the past three quarters to now up 35% from year-end levels. Additionally, we are benefiting from increased RNG generation from the new facilities we have brought online, as we have discussed earlier this year. Moving next to M&A. Year to date, acquisitions of $130 million in annualized revenues include two West Coast solid waste collection franchises closed during Q3. The pipeline remains robust with dialogue ongoing that will result in the closing of additional transactions later this year or early in 2027.

With liquidity of over $1 billion and leverage remaining at about 2.75 times debt to adjusted EBITDA, we continue to have capacity for outsized acquisition activity while funding our growth strategy, sustainability-related projects, and expanding our return of capital to shareholders. As announced yesterday, our board of directors authorized a 10% increase to our regular quarterly per share cash dividend, our 16th consecutive double-digit increase since the initiation of our dividend in 2010. Year to date, we have completed record levels of share repurchases totaling over $1 billion or 2.5% of shares outstanding as we have and will continue to take an opportunistic approach to buybacks. Additionally, as highlighted in our recently released 2026 sustainability report, we remain on track to achieve our long-term aspirational sustainability-related targets.

Since 2018, we've invested over $500 million in sustainability-related projects and are benefiting from the expansion of our network of RNG facilities and the introduction of enhanced automation in new and existing recycling facilities. Moreover, we continue to enjoy the results from three years of improvement in employee retention and, most importantly, record safety performance. Our continued progress and ongoing investments in sustainability-related projects reflect our commitment to the environment, our employees, and the communities we are truly privileged to serve. We consider these efforts an enduring part of our corporate culture rather than a program with a defined endpoint, as we view sustainability as integral to our strategy for long-term value creation. Now I'd like to pass the call to Mary Anne to review more in depth the financial highlights of the third quarter, our increased full-year 2026 outlook, and what that implies for Q4.

I will then provide some preliminary thoughts about 2027 before heading into Q&A.

Thank you, Ron. Third quarter revenue of $2.638 billion exceeded our expectations and was up $180 million, or 7.3% year-over-year. Contributions from acquisitions, net of divestitures, totaled $53 million in the quarter. Organic growth in solid waste collection transfer and disposal was led by 5.5% core price, which range from below 4% in our mostly exclusive market western region to above 6% in our competitive regions. Fuel and material surcharges of approximately $30 million, or 1.3%, stepped up sequentially from Q2 by about 20%, reflecting higher diesel costs in Q3, and they will continue to be impacted by the pace and magnitude of changes in diesel pricing. Yields of 4.3% on solid waste unit volumes declined 1.2% reflect the following year-over-year results in the third quarter on a same-store basis. Roll-off pulls were down about 2.5% on rates per pull up 5.5%.

Consistent with activity in recent quarters, pulls were down year-over-year in all regions, except in the Western U.S., where pulls were up 2.5%. Landfill tons were up 3% on rates per ton up about 4%. Q3 reflects a step-up from Q2 when landfill tons were effectively flat year-over-year, and it represents the first quarter in the past two years during which all three waste types showed year-over-year improvement: MSW, C&D, and special waste. Activity was led by strong special waste in C&D tons, along with a nominal increase in MSW. Special waste was up 7% in Q3 on multiple jobs across many geographies, ranging from New York and Pennsylvania in the northeast to Oregon in our western region. C&D tons were up 5% on similarly widespread increases, most notably in our southern region, led by Texas and in California in the west.

Looking at other lines of business, as Ron noted, E&P waste revenue continued to ramp during Q3. Year-over-year, organic growth of about 5% was led by a 9% increase in the U.S., most notably in the Permian, where rig count has increased by about 10% since early this year. Activity in Canada, while more production-oriented and therefore considered less sensitive to crude values, remains about flat year-over-year when normalized for an outsized remediation project in the prior year. Moving to other commodity-related revenues, recycling revenues were up about 12% year-over-year, driven by higher OCC values, particularly offset by ongoing weakness in plastics. Landfill gas sales were up 35% year-over-year due to the combination of higher volumes from new RNG facilities and higher values for RINs, up about 10% year-over-year to an average of about $2.50.

Adjusted EBITDA for Q3 as reconciled in our earnings release was $895.8 million, up 7.9% year-over-year. At 34% of revenue, our adjusted EBITDA margin was up 20 basis points year-over-year. Excluding a margin drag of about 30 basis points for higher fuel costs, underlying adjusted EBITDA margin was up 50 basis points. Said another way, adjusted EBITDA margin would have been 34.3%, excluding fuel impacts. Once again, our outsized underlying solid waste margin expansion reflected favorable price-cost spread dynamics magnified by benefits from employee retention and safety, most notably savings and risk management costs. Finally, year-to-date adjusted free cash flow of $1.09 billion was in line with our expectations, and we remain on pace for full-year 2026 outlook of at least $1.4 billion.