GFL Environmental Inc. Q1 FY2026 Earnings Call

Hello, everyone, and thank you for joining the GFL First Quarter 2026 Earnings Call. My name is Lucy, and I'll be coordinating your call today. Operator provided instructions. It is now my pleasure to hand over to Patrick Dovigi, Founder and CEO of GFL to begin. 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 first quarter. I am 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 will be making some forward-looking statements within the meaning of applicable Canadian and U.S. securities laws, including statements regarding events or developments that we believe or anticipate may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set out in our filings with the Canadian and U.S. securities regulators. Any forward-looking statement is not a guarantee of future performance, and actual results may differ materially from those expressed or implied in the forward-looking statements. These forward-looking statements speak only as of today's date, and we do not assume any obligation to update these statements, whether as a result of new information, future events and developments or otherwise. This call will include a certain 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 financial results for the first quarter exceeded our expectations from top to bottom. Adjusted EBITDA margins expanded 180 basis points to 29.1%, the highest first quarter adjusted EBITDA margin in our history. We achieved this record-setting result in the face of notable headwinds that arose after we provided our guidance as well as increased uncertainty of the broader macro environment. The strength of our start to the year once again demonstrates the quality of our asset base, the effectiveness of our growth strategies and the resiliency of our business model. Most importantly, it highlights the capabilities and commitment of our employees who make all of these achievements possible. Pricing was ahead of plan, driven by strong customer retention and ongoing tailwinds from our recent growth investments, including EPR. We think that this early outperformance should carry forward through the rest of the year and represent upside to our original guide. We expect that our continued focus on realizing incremental pricing opportunities that are available within our portfolio will continue to support pricing at an appropriate spread above our internal cost of inflation. Volumes were better than expected, considering the incremental headwinds from significant winter storms experienced in many of our markets later in the quarter. Excluding the impact of hurricane and one-time transfer station volumes realized in the prior year, volumes were up 80 basis points as special waste and EPR volumes more than offset the impact of lower C&D-related volumes and winter storms. We believe that the ongoing industry-leading volume performance demonstrates the quality of our market selection and the effectiveness of our returns-focused capital deployment strategy. The impact of broader economic uncertainty continues to be a drag on C&D volumes compared to prior period, but we remain well positioned to participate in the upside when these volumes inevitably return. On the cost side, we saw our fifth consecutive quarter of year-over-year reductions in both operational and SG&A cost intensity as a percentage of overall revenue. Greater operational efficiency, improving labor turnover, fleet optimization and procurement benefits are some of the initiatives that we highlighted at last year's Investor Day, which all have contributed to these results. The benefit of these cost efficiencies and our top line outperformance are reflected in the over 200 basis points of underlying solid waste adjusted EBITDA margin expansion that we achieved in the quarter. We believe that our continued sequential exceedance of our already industry-leading margin expansion guidance demonstrates that we are on path to realizing our stated goal of low to mid-30s margins by 2028. On M&A activity, we've had an active start to the year as expected. We have completed 8 acquisitions year-to-date, including Frontier Waste Solutions, which closed at the beginning of this month. Frontier is a leading vertically integrated solid waste business with operations across the Texas Triangle, one of the fastest-growing regions in the United States. Frontier's assets are highly complementary to GFL's existing assets in the region and will densify our Texas footprint and further strengthen our presence there. The region's favorable demographics when combined with the deep market and operational expertise that the Frontier management team brings to GFL are expected to drive outsized growth for the coming years. The contribution from these 8 acquisitions allows us to increase our guidance by nearly 5%, and Luke will walk you through the details shortly. We still have a robust pipeline of actionable opportunities where we think we can deploy an incremental $300 million to $500 million before year-end. The contribution from any additional M&A that we complete this year will be further upside to our guide. Additionally, earlier this month, we announced the proposed acquisition of SECURE Waste Infrastructure. SECURE operates a network of permitted waste processing and disposal assets that will complement and densify GFL's existing geographic footprint in Western Canada, a market that has very strong structural tailwinds to support the combined business' growth prospects over the near and long term. Combining SECURE's hard-to-replicate infrastructure network with GFL's broader platform strengthens our ability to capture more waste streams across the value chain and to more fully participate in the significant growth investments that are expected in this region by both public and private sectors. I will now pass the call to Luke, who will walk us through the guidance update and the quarter in more detail, and then I'll share some closing comments before we open it up for Q&A.

Thanks, Patrick. Q1 revenues grew 8.5% before considering the translational headwinds from FX, largely on account of strong pricing and underlying volume, which more than offset greater-than-anticipated headwinds from adverse weather conditions in the quarter. Pricing was 7% for the quarter, which was approximately 25 basis points better than planned and attributable to higher retention rates and ongoing realization of the incremental pricing opportunities we articulated at Investor Day. Pricing was 8.5% in Canada and 6.3% in the U.S. The strength of the first quarter's pricing results provide a high degree of visibility on the path to meet or exceed the high end of our pricing guidance for the year. Q1 volumes were 120 basis points behind the prior year, but better than expectations even in the face of the impacts of outsized winter storms experienced in several of our markets. Lapping hurricane and one-time transfer station volume in the prior year period were the primary drivers of the anticipated negative volume print for the quarter. Average commodity prices in the quarter were in line with plan, but we saw sequential increases over the last few months and market pricing is now $15 per ton higher than our initial 2026 outlook. This is the first time in a while where it feels like commodity prices may have bottomed. While there was no meaningful impact to the quarter, if pricing remains at or above current levels, that will result in incremental upside for the year. Our current commodity price sensitivity is that every $10 change in the gross basket price yields a $6 million change to annual revenue and adjusted EBITDA. Looking at operating costs. Cost of sales before depreciation, amortization and integration costs as a percentage of revenue decreased 90 basis points to 60.7%. Ongoing efficiency in labor costs, in part driven by continued improvement in voluntary turnover as well as reduced repair and maintenance cost intensity more than offset the impact of higher fuel and transportation costs. In terms of fuel, diesel costs in the quarter were up nearly 10% year-over-year and 40% up in March alone. The sudden inflection in diesel pricing created a $10 million cost headwind versus our guidance, only $1 million of which was recovered in the quarter due to the timing lag inherent in our fuel surcharges, which are often billed in advance based on the prior month's diesel pricing. We expect that by the end of the second quarter, our surcharges should generate sufficient incremental revenue to offset the additional fuel expense tied to diesel prices, although the cost recovery nature of the surcharge mechanism will be a headwind to margins. SG&A cost intensity also significantly decreased as compared to the prior year, primarily driven by operating leverage of our corporate cost segment in line with expectations. As we had previously indicated, the temporary increase in the percentage of revenue represented by corporate costs resulting from the divestiture of the Environmental Services business is expected to reverse as we continue to grow revenues and leverage this relatively fixed cost segment. Adjusted EBITDA margins were 29.1%, representing a 180 basis point improvement over the prior year, about 30 basis points better than planned and a 300 basis point improvement over 2024, a definitive illustration of the success of our strategies. Adjusted EBITDA margins were up 340 basis points in our Canadian segment and up over 100 basis points in the U.S., excluding the impact of hurricane volumes, acquisitions and the winter storms, as mentioned earlier. Fuel and commodity prices were a drag on margins in both segments. Excluding the impact of these exogenous factors, underlying consolidated Q1 margins were up over 230 basis points from the prior year. Adjusted free cash flow for the quarter was approximately $20 million ahead of plan on account of EBITDA outperformance. Q1 cash flows were inclusive of the investment in working capital we typically make in the first half of the year. In January, we opportunistically issued $1 billion of new bonds to provide flexibility to execute our growth strategy. The bond issuance was significantly oversubscribed and the interest rate offered represented one of the tightest spreads ever offered for our rating category, another testament to the conviction institutional lenders have in our corporate credit quality. The cash proceeds from this issuance were on hand at the end of the quarter and were partially used to fund Frontier and the other acquisitions that closed in April. We exited the quarter with net leverage of 3.6x, inclusive of the translational impact of the FX rate running up to 1.393 at quarter end. Using the average FX rate for the quarter, net leverage would have been 3.5x, exactly in line with our expectations. The second quarter acquisitions will temporarily increase leverage about 30 basis points, and the business will then naturally delever back down to mid-3s by year-end. As is typical for our industry, we will wait. We will update our full year guidance for our base business when we release our second quarter results. However, with the strong start to this year, we see multiple avenues of upside to our current guide that gives us confidence in our ability to meet and potentially exceed the expectations for the year. Nevertheless, given how successful we have been in our M&A program in the first 4 months of the year, we are updating our full year guidance to reflect the expected in-year contribution from the 8 acquisitions completed year-to-date. Again, this update does not change our previous guidance for our base business. As a result of the new acquisitions, we now expect the following amounts for full year 2026. Revenue of $7.32 billion to $7.34 billion, adjusted EBITDA of $2.23 billion, adjusted free cash flow of $850 million, inclusive of cash interest of $445 million and net CapEx of $825 million. Specifically, as it relates to the second quarter of 2026, we expect consolidated revenue of approximately $1.89 billion to $1.9 billion and an adjusted EBITDA margin of 30.4%. As previewed in Q1, the Q2 adjusted EBITDA margin is modestly behind the prior year on account of the impact of commodities, fuel price and M&A. Q2 adjusted free cash flow is expected to be approximately $225 million, inclusive of $85 million in cash interest and $265 million in net CapEx. I will now pass the call back to Patrick, who will provide some closing comments before Q&A.

Thanks, Luke. I want to finish by talking a bit more about our proposed SECURE acquisition. This acquisition represents an opportunity to acquire a best-in-class network of hard-to-replicate waste disposal assets in a region with highly compelling market characteristics at a fair value. We first started looking at SECURE business in 2023 when they were divesting a small set of assets coming out of a review by the Canadian Competition Bureau related to the Tervita merger. While we saw a lot of opportunity in this asset package, we had limited balance sheet capacity at that time of the sale process, and we were ultimately unsuccessful with our bid. Since that time, we have observed the resilient financial performance of SECURE through several years of macro-related headwinds, including the rapid interest rate hikes of 2021 and 2022, the inflationary environment in 2022 and 2023 and then the tariff-related uncertainty of '25 and oil price volatility along the way. The financial performance has been exceptional, illustrating the consistent and durable cash flows that characterize high-quality solid waste assets. SECURE's business is unlike other E&P disposal businesses that operate in other regions of North America. First off, the permitting process in Canada is such that it is truly difficult to replicate these assets. New disposal assets of this quality simply do not come online. Secondly, over 80% of their business is tied to ongoing production rather than new drilling activity, which generates stable recurring and highly predictable volumes of waste. The financial performance is largely insensitive to drill rig counts and drilling activities that drive volumes in the E&P disposal assets in other regions across North America. And thirdly, the ownership of the disposal capacity in the region yields an attractive competitive dynamic. We believe the Western Canada region in which SECURE operates is on the precipice of the largest investment cycle of the region's history as the Canadian federal government looks to fast track nation building critical energy infrastructure projects. Private sector capital is already flowing into the region with new multibillion-dollar investments being publicly announced with increasing regularity. We expect Western Canada will be the growth engine of Canada for the foreseeable future. The combination of SECURE's post-collection network with GFL's existing asset base strategically positions us to participate in this growth. Operational cost and revenue synergies are expected to be material and could represent an incremental $25 million to $50 million of opportunity above the $25 million of largely SG&A cost savings already identified. SECURE's revenue in 2026 is expected to be $1.5 billion to $1.6 billion. Approximately half of this amount is derived from normal post-collection activities with the other relating to tangential energy-related services, namely specialty chemicals and energy infrastructure. These other energy-related revenue is expected to represent less than 8% of our pro forma 2027 revenues and will decrease further in time as we continue to grow in solid waste. And grow is exactly what we plan to do. The enhanced scale and free cash flow generation of the pro forma combined business will allow us to materially increase our returns-focused growth capital deployment without compromising our net leverage commitment. While this breadth and depth of our M&A pipeline suggests that most of this capital will be invested in the future solid waste acquisitions as well as high return on invested capital organic opportunities. The enhanced scale will accelerate the opportunity for share buybacks to become a more frequent and sustainable component of our capital allocation strategy going forward. I will now turn the call over to the operator to open up the line for Q&A.

Operator provided instructions. The first question today comes from Sabahat Khan of RBC Capital Markets.

Maybe just a question first to start off on the pending transaction. I think there's a vote coming up later in May and one investor came out somewhat opposed to the transaction in some form. Maybe from your vantage point, can you just maybe share your thoughts on sort of getting the transaction completion and your confidence in getting the vote?

Thanks, Saba. Yes, as you said, there has been one investor that has publicly expressed their desire to not vote for the transaction. I think I don't personally know Abrams. For everything we've learned and know they're a highly respected great performing money manager. But I think the one thing we agree with Abrams on is the quality of the asset that we're buying and their passion for owning this asset given the amount of work that they've done over a long period of time, studying and understanding the asset. Obviously, we don't agree on the fact that we believe there's more value to create as one versus two. But that being said, I've never met them, never had a conversation with them, reached out to them recently and plan to have a fruitful discussion with them next week, and we'll see where that goes. That being said, that's one investor out of a multitude of many. When you look at the transaction, you have a very experienced management team that has been at both of these assets, SECURE and GFL, for over 20 years. And you have a Board here that, again, is highly sophisticated, has been alongside both of us building the business for a long period of time. And most importantly, put their money where their mouth is. Around this board table, there's about $6 billion of invested capital in the combined entities, right? So they all believe in the strategy. They believe in the combination of these two businesses. And over the last week, we've had 60 to 70 investor calls with both GFL investors as well as a number of SECURE holders. And it's been very positive. So from our perspective, we believe the transaction is going to go over the line. Obviously, shareholders can vote however they want. But I think once particularly the GFL investors got comfortable with the strategy, got comfortable with the assets, we underestimated and probably underappreciated the lack of knowledge of some of our investors in terms of what the profile of this asset was, where it was, what the opportunities were coming in Western Canada on the backdrop of a lot of the Canadian infrastructure and government investment. So I think we're very well positioned to sort of move this across the line. Again, we're going to continue speaking to both investors over the course of the next few weeks. But I keep reiterating the fact, when you look at these businesses on a combined basis, when you look at next year, you're approximately going to have $9.5 billion of combined revenue, call it, $3.2-ish billion of EBITDA, $1.3 billion to $1.4 billion of free cash flow next year. I mean, if you look where the business is trading today on a combined basis, we're probably trading at 17 to 18x 2027 free cash flow, probably 10 to 10.5x EBITDA when historically, we've traded at 25 to 30x free cash flow and multiple EBITDA has been somewhere between 13 and 16x, right? So from our perspective, this will catch up. Yes, a little bump in the road, but there's significant upside to the combined business. So for all those reasons, we believe that this is the right thing to do.

Great. And then just on my follow-up, maybe on the guidance outlook and maybe more for Luke. I appreciate the color that you shared on the guidance. I guess when you think about the base business, can you help us maybe think about the puts and takes at least on the organic business outside of the completed M&A that you've baked in, RINs and commodity prices, at least directionally are stabilizing. Maybe just talk us through the opportunity in the back half. Is there potential for upside to the numbers you've shared for 2026?

Yes, Saba. Great question. I mean, as we said in the prepared remarks, we'll wait to Q2 before we provide. But if you think about directionally, obviously, the strength of our pricing to start the year coming in 25, 30 basis points better than expected should flow through to the balance. So if you think of the original guide of being a mid-5s or 5.5% price, I think you can see a path to 25 basis points better than that. That should yield, in dollars, that's $15 million to $30 million incremental dollars coming out of that. Now the offset is volume, and this is really why we need to wait to Q2 to see because as much as we outperformed in Q1, it's difficult to see between winter weather and some special waste tailwinds that we had as to what's actually going to transpire in the underlying core volumes. C&D continues to drag. And the outlook for the year, I don't think has been improved by virtue of the incremental uncertainty that has arisen on a geopolitical basis since we started. And so if you think about from an interest rate perspective, from an oil price perspective, the expectations for incremental C&D activity to ramp, I think, still has a high degree of uncertainty. So that's really, I think, the unknown piece on volume. I mean the guide was 25 to 50 basis points, right? That's representing $15 million to $30 million of incremental revenue. I think that's the part we want to wait and see. Now obviously, some of the exogenous factors being commodities, fuel surcharge and FX all have opportunities to be meaningful upside above and beyond the guide. Obviously, with the commodity price recovery, there would be a tailwind in there and provided the sort of sensitivity. We'll see where fiber prices go. Certainly, on the fuel surcharge piece, if today's diesel prices persist through the balance of the year, there's another, call it, $50 million to $75 million of incremental revenue that would come online to offset that incremental diesel cost. And then FX, recall, I mean, FX was a 210 basis point headwind against us. The Canadian dollar has been bouncing around quite significantly. But that $135 million headwind, you could see some improvement to that number depending on where it ultimately shakes out. So we'll wait to Q2, but certainly very optimistic based on the strength of Q1, and we see multiple avenues to upside.

Operator provided instructions. The next question comes from Patrick T. Brown of Raymond James.

This is Tyler. Luke, I appreciate all the color and the guidance. I want to make sure I understand. I know you've put a lot of work into fuel surcharges over the last couple of years. Based on where you are today, do you view fuel primarily as a margin-dilutive issue rather than an EBITDA dollar drag over the year? And second, can you talk about the momentum on price? What was the delta there? Was it better pricing in the market, improved retention, or a bit of both? A little color would be helpful.

Yes, great question, Tyler. On fuel: the surcharge mechanisms and our efficiency will recover incremental fuel costs, although there can be temporary delays or lags like we saw in March. We expect those surcharges to catch up by Q2, so overall there is no EBITDA impact, just margin dilution. If diesel spikes significantly higher from here, there could be another lag, but assuming some stability, the surcharge should recover all incremental costs. Regarding base pricing, we have additional opportunities across the portfolio because we're slightly behind the industry on price optimization, and we're actively pursuing that with success. We've also seen very high retention. The base plan assumed putting out pricing and giving back a component of it, but retention has been higher than expected, allowing us to realize higher prices. If you recall the original guide, we started at mid-6s or better and expected to step down ratably through the year; that cadence remains the same. In Q2 pricing should step down to the high 5s and continue down thereafter, but all else equal we should finish the year 20 to 30 basis points higher on overall price than originally anticipated because of the strong Q1 start.

Okay. Excellent. This is a bigger-picture question. I want to return to the prospect of reaching investment grade. I think the secured deal will substantially improve the cash-generating profile of the business. How quickly do you think the rating agencies would factor that in? And I do not know mechanically how it would work, but how quickly would you be able to actually refinance the balance sheet? You mentioned a very tight spread on your bond issuance of $1 billion this year. On a big-picture basis, how much of a coupon differential would there be? Sorry, I know there is a lot there, but broadly on the investment-grade opportunity and cash flow.

Yes, it's a great question, Tyler. It's something we focus a lot on, and I think our offering in the bond market demonstrates our borrowing rate today is already closer to investment grade than our actual rating represents. So pro forma for SECURE, you're absolutely right, a bigger business, better free cash flow generation, larger scale is all highly credit positive. The rating agencies, as you know, are a little bit more backward looking than we are. And so it would take some time for the pro forma combined business to perform and the sort rate adjustments to roll off before I think you were at a place where you started getting those credit rating upgrades. To your point on refinancing of the balance sheet, as we have alluded to, our borrowing rate today on an after-tax basis is just modestly higher than what we would be borrowing at on an investment-grade level. So we've continued to highlight that we view this less as a cost of debt capital, while there is benefit. That's not really the idea. I think it's more of the cost of equity capital that one can achieve by having the perception of higher quality by virtue of the investment-grade rating. So if you look at our spread I mean we are borrowing at 140 basis points over the underlying treasury and an investment-grade peer would be doing it at 70 to 80 basis points, so the 60 to 70 basis point spread on a pretax basis. I think that probably represents what the interest efficiency opportunity is. However, as we've said, we continue to really believe this is more about cost of equity capital than about cost of debt capital.

Operator provided instructions. The next question comes from Kevin Chiang of CIBC Wood Gundy.

Maybe just one clarification question. Just on the Frontier deal, you noted it improves your density in Texas and you're tied to these high-growth markets in the Texas Triangle. Did you mention that you saw internalization benefit? Or was that something I might have missed in the prepared remarks?

No, we have internalization benefits in the area. Obviously, we have landfill capacity in Houston, which we've been to. So there are a bunch of internalization opportunities around that full disposal asset.

Okay. Okay. Cool. Yes, I thought that would be the case. Maybe just a more conceptual question. And Luke, you alluded to this in your previous answer. I realize you make strategic decisions with the long-term view in mind rather than reacting to near-term gyrations in your share price. But if we look back over the last 18 months, you saw your cost of equity improve as you went through deleveraging, and clearly the market is penalizing your equity a bit here, even as you've seen elevated M&A activity to start this year. I'm wondering, when you look back, does that change how you think about the pace of future M&A, given how this one specific issue can swing your cost of equity quite dramatically in a short period of time?

I'm looking at Patrick, but I'll respond, Kevin. Look, it's obviously something we think about, and I think truthfully is probably one of the flaws of the public equity markets that it forces you to maybe be a little bit more short-termism in your thinking than long-term thoughts that we believe are actually the foundation for equity value creation. So obviously, coming out of '23 and '24, we reevaluated our capital allocation strategy and came to the view that operating in a sort of 3 to 3.5 leverage level is ultimately what's going to yield the best sort of path for ideal cost of equity. And that's what we're sticking to and maintaining. I think while we may continue to see hopefully, temporary dislocations in the current share price, over the long term, we are large believers in driving incremental free cash flow per share generation at rates above and beyond the industry by virtue of our return-focused capital deployment strategy, that is going to tell you the path to long-term equity value creation and short term sort of share swings, as you said, may come and go and obviously not something that we aspire to, but very much attempt to not allow that to cloud the vision that Patrick started with nearly 20 years ago and has been highly, highly successful at creating material equity value.

And I think, Kevin, the industry for whatever reason was out of favor for Q4 of last year and into Q1 of this year. And the stock has sold off before we announced any sort of M&A and then actually recovered a bit with some of the actual M&A. Listen, we don't know what makes the stock go up or down. I think over time, the capital allocation decisions we've made have made investors a significant amount of money over a long period of time and compound their rates above and beyond each and every one of their expectations. So we're going to keep making smart financial decisions. Like I said, you have a Board on the GFL side that probably today owns around $5-plus billion of equity, and you have a SECURE Board that owns between TPG and Solus another $1 billion of equity, it's over $6 billion of equity. So I think we are making prudent financial decisions, and we have our money where our mouths are. And we're going to keep doing the things that we think will yield the best results for us and shareholders. I might not be, listen, we had, we knew that the share price could maybe suffer 4% or 5% at the time when we did the SECURE deal, but it will recover. And if we keep printing quarters like SECURE printed this quarter, as you saw this morning, I think each and every one of our investors are going to be very thankful of what we're doing and what we continue to do to drive exceptional results and exceptional performance. So we're just going to keep doing the things that we know how to do, albeit with what we've heard over and over and time and time again, maintain leverage between 3 and 3.5 because that is going to yield the best results for the equity account. And we're going to keep doing that. We're going to live within that. So you'll continue to see that from us.

I appreciate the response there. Congrats on a solid start to the year here.

Thanks, Kevin.

Operator provided instructions. The next question comes from Stephanie Moore of Jefferies.

I wanted to touch on SECURE again. Maybe just talk a little bit about, I think a lot of the questions that we get and may be helpful to get a little bit of color would just be about the commodity exposure under the assets? How do you think about how the exposure has changed over time and at the same time, the position that GFL can make as a new owner here and really kind of addressing the quality of the assets and really looking at GFL's legacy services and how they can enhance the business under GFL's umbrella?

Stephanie, great question. On the commodity price exposure, we've highlighted in the call and certainly, I believe in SECURE's call today, they're doing the same. It's really limited in the short term on the basis that they derive a very small amount of revenue from the sale of oil and oil-related products. And in the short term, that's what gives rise to the commodity price exposure. So if you think about SECURE's guidance for the year of $525 million to $550 million of EBITDA in light of WTI running as much as it has, I think they're now suggesting that they're at the high end of their guidance, right? So meaning a relatively de minimis in-year impact. Where the exposure could be more significant is that an elevated level of WTI over the longer term does that drive multiyear changes in production volumes in the area in which they operate ultimately generating higher volumes of waste. And conversely, the same is true. If you entered a period of prolonged suppressed WTI pricing, say, something below $45, that could see a reduction in the production activities that give rise to the steady state volumes that SECURE processes. But again, unlike some of the other basins or areas of energy exploration where the volumes are very much tied to rig counts and those rig counts can be much more volatilely tied to WTI swings, the production focused nature of SECURE's waste streams that it processes does not yield any of that sort of short-term volatility, thereby creating much more stable cash flow characteristics, very much alike to what GFL has today. In terms of the overlap in that region, if you really think about it at the highest level, SECURE operates a best-in-class network of post-collection assets and GFL in the area is very focused on collection. And so if you think about just the market as it exists today, there will be overlap opportunities whereby GFL currently collects wastes and brings them to a disposal site that is not SECURE, that could ultimately be internalized. And the opposite is true, whereby SECURE uses or benefits from collectors that bring the waste to their facilities that are not GFL and that can be internalized. So just with the existing footprint today, I think there's those internalization opportunities. Obviously, when we look at the expected capital investment into this region over the near, medium and short term, which is looking to be in tens and tens of billions of dollars as more energy production comes online and more transmission and pipelines to get that energy to the West Coast and other markets is developed, we think there'll be a massive opportunity for incremental participation in both the collection activities that GFL does today and the post-collection activities that SECURE does today. So we're feeling very optimistic for just the base business status quo. But when you layer in the potential growth opportunities in this region, we think there could be meaningful upside and that's where I think to Patrick's point, the combined boards and shareholders believe the business is much more valuable on a combined basis than it was stand-alone.

And the regulatory environment in Canada for these assets, you just can't replicate them. To try and get a landfill permanent, get a deep well permitted — you just can't do it. The metals recycling facility permits, the rail that goes into those facilities, the network of storage and pipeline facilities that they own — these are impossible to replicate assets, which yields the margin profile that these assets come with and the returns on invested capital that come with them. So I think the transaction worked perfectly because it's highly complementary to both businesses. I think from an M&A perspective, there's limited opportunities on the SECURE side, and they would have to diversify outside of their core today into more lines of business that we're in, that would come in at significantly lower margins because we've been identifying and rationalizing the businesses around them for almost 16 years. So again, strategically, it makes total sense, financially it makes total sense, and it's in a market where we want to be and a market selection we want to be in, a market that we're going to be sharing a big part of with Waste Connections. That's a market profile that we like. So we'll continue driving through. And again, like I said, I think we, as shareholders, will all be rewarded handsomely on both sides of the transaction, both SECURE shareholders and GFL shareholders over time.

I appreciate the color. Just one quick follow-up on M&A in general. And I think you touched on this, but I think it's worth emphasizing. So maybe just talk a little bit about let's just say this deal does close, what is the enhanced flexibility for doing additional M&A on a combined basis? I think that's an important aspect that's not being considered.

Great question. If you look at it today, we said we could effectively deploy somewhere between $800 million and $1 billion on incremental M&A while still deleveraging sort of 10 to 20 basis points. That's the sweet spot we've been modeling. Now when you put the two businesses together, you're basically going to be able to deploy somewhere between $1.8 billion and $2 billion a year, so we can materially ramp up the solid waste M&A spend because our pipeline is very deep. As you've seen this year, we have a significant amount of opportunities that we can continue deploying capital. And then on the SECURE side, when they were thinking about diversifying into incremental M&A, we don't need to spend those dollars anymore on that incremental M&A. We can just spend the capital on their internal organic, high-return-on-invested-capital projects that you've seen them spend on the year, which has been a $50 million to $100 million a year spend. So you put those together, that will then keep the solid waste business growing, continue identifying the markets where we're operating in the U.S. And we have an incremental $800 million to $1 billion a year that we can continue spending with the free cash flow generation off of the combined businesses, which is highly compelling. If the share price continues to remain low, you have ultimate flexibility to buy back a significant amount of stock at these levels, and obviously, share buybacks when the stock is trading at these kinds of levels is highly compelling. So we have ultimate flexibility with the capital structure to basically do whatever we want. And I think, again, that is a tangential benefit of the transaction.

Operator provided instructions. The next question comes from Jim Schumm of TD Securities.

Just wanted to get your thoughts on landfills and logistics. Your competitor noted that rail may play an increasing role in disposal, and another competitor believes that available landfill disposal capacity will gravitate towards the central U.S. So just curious how you see things playing out? And how is GFL positioned for any shifts in the landscape?

I think that's more of a geographic discussion than anything else. If you're thinking about the Northeast, particularly, that's where a lot of waste-by-rail volumes are happening. From our perspective in the regions that we're operating — keep in mind, we're 75% secondary, 25% primary. The big primary markets where we're operating, again, if you think about Houston, Atlanta, Detroit, those are big primary markets in the U.S. There's a lot of disposal capacity in those markets. So that's not a major issue for us. And in the secondary markets where we're operating, our landfills have significant capacity for the next number of years. We're not going to have to worry about waste-by-rail. As you know, we don't operate very much in the Northeast. So the waste-by-rail thesis for us is less relevant because we just don't have operations in those geographic regions.

Right. Okay. And then could you just give us an update on the EPR and maybe on the sustainability growth CapEx? Is that like $100 million next year sort of ballpark the right way to think about it?

So on EPR, with the exception of some of the stuff in Western Canada, the lion's share of EPR continues to come online throughout 2026. Obviously, the growth CapEx spend associated with those has come down significantly, yes, to the tune of $100 million to $125 million as we go into next year. There will be some modest CapEx spend around Alberta as those collection contracts and processing contracts continue to come online throughout now and into the end of 2027. But that program is materially winding down now and those contracts are live. The largest collection contracts came on in the first half of 2026. So we're largely through the lion's share of the major CapEx spend around those initiatives.

Okay. And then forgive me, but was there — were there still some opportunities in the Maritimes or did that already come fast?

There's still some collection opportunities in the Maritimes, but the processing ones have been let already.

Operator provided instructions. The next question is from Bryan Burgmeier of Citi.

I was wondering if you could maybe just call out some of the bigger items for the 2Q margin bridge to kind of get to that 30.4%. I think we've talked about kind of the timing of EPR from last year and then maybe some fuel headwinds then you've got the M&A integration now. So just if you can provide color on some of the big items, that would be helpful.

If you look sequentially going from Q1 to Q2, contemplating that 30.4% level, it's an 80 basis point increase. Last year, Q1 to Q2 increased sequentially 280 basis points, which was outsized and atypical. In 2024, the sequential increase from Q1 to Q2 was 170 basis points, which is more of a normal cadence. Going into Q2 this year, you have fuel, commodity and M&A headwinds. Fuel at today's pricing is going to be a 40 to 45 basis point headwind, commodities if they stay where they are today is about 20 to 25 basis points, and then you have M&A with what we've done so far at about 40 to 45 basis points. When you add those together, you get roughly a 110 to 120 basis point headwind. Normalizing for that, the 80 basis point sequential increase from Q1 to Q2 is closer to about 200 basis points, which is more in line with a normal cadence. Also, Q2 of last year had a benefit of around 40 to 50 basis points related to certain accruals and WSI rebates in Canada, which is not repeating. So it's a combination of all those pieces. We knew about this going into the year with the cadence and notwithstanding the headline number slightly behind on a year-over-year basis, the underlying story is that we continue to generate margin expansion by pulling on all the levers we've been talking about.

Operator provided instructions. The next question comes from Trevor Romeo of William Blair.

I wanted to follow up a little bit on Frontier and then the Texas market. Maybe I appreciate the comments on internalization opportunities. But just thinking about Texas being a good population growth market, from a growth perspective, how are you thinking about that from potential for future deals now that you have a bigger footprint across the space? And then I know Frontier had done several acquisitions of their own over the years. So just what are your thoughts on how they've integrated all those deals and where they are from an efficiency standpoint?

They're running a very well-oiled machine. Historically, we were generally around the Houston area. This has opened up Dallas, San Antonio and Houston for us now. If you look at our plan, we plan to double the revenue of the Texas market over the next five years. We feel pretty comfortable with that operating model. That's a model shared by ourselves and the Frontier team that has come along with the business. The plan is to double the size of the revenue in Texas over the next five years.

While M&A is obviously part of our playbook, the nice thing about an entrepreneurial and growing business like Frontier is there are meaningful opportunities for organic M&A deployment as well. One of the opportunities in flight when we closed the transaction is adding a new C&D recycling facility at the front end of their C&D landfill, which will benefit the whole region. That's in flight and will be up and running toward the end of the year, providing incremental benefit. So there's outsized growth expectations not only from M&A but from high-return organic growth opportunities available in that market.

That's great. And then a quick follow-up on volumes. Did you specifically call out any headwind from weather in the quarter? And then just if you have any thoughts on kind of if you take out the hurricane tough comp, what was underlying volume activity across your regional areas and if there were any differences?

Weather — we operate in Canada, we operate in northern climates. We try not to call out weather, but this first quarter was exceptional and certainly beyond what we had anticipated. When you look at the volume, we anticipate about an $11 million headwind related to weather. It wasn't just in Canada; you had weather in the Carolinas and other markets that aren't typically affected. In actual dollars, volume was negative $18.5 million. Prior year we had a one-time transfer station volume of $10 million that benefited Q1, and we also had hurricane-related volumes of $21 million last year. If you normalize for those two items, you actually had positive $12.5 million of underlying volume. Weather was about an $11 million headwind, but you also had EPR, which provided about a $10 million tailwind. Those largely offset. So on net you had $12.5 million of underlying volume, roughly an 80 basis point improvement. We had a great performance in special waste in the quarter, which can be lumpy. C&D volumes have been negative for the past few quarters; C&D at the landfill was negative 7.5% in Q1. Typically special waste is a precursor to subsequent C&D volume growth. At the beginning of the year, we expected that ramp, but with today's macro uncertainty there's more to wait and see. We are seeing some encouraging signs: roll-off pulls in Q1 were organically down about 1%, and they've flipped to positive in April. We'll wait until the balance of Q2 before recasting what that means for a full year basis.

Operator provided instructions. The next question comes from Jerry Revich of Wells Fargo.

On the SECURE synergy build, you've laid out roughly $25 million of low-hanging operational cost synergies and a path to $50 million to $75 million over 18 to 24 months once the broader operational components are factored in. I was hoping you could walk us through what gets you from the $25 million to the higher end of that range.

Great question. The $25 million is primarily SG&A-related cost savings — public company and other corporate costs where we see efficiency. The next leg is operational cost — internalization opportunities whereby today SECURE is subcontracting collection activity to third parties and the ability to internalize that collection activity provides cost savings. Conversely, where GFL is disposing of waste at a third party, we can internalize that too. The third bucket is revenue opportunities: cross-selling where GFL services customers who need SECURE's capabilities today and vice versa. That wallet-share capture is a real opportunity. So while the first bucket is the $25 million we underwrote, the incremental $25 million to $50 million is across operational cost internalization and revenue synergy capture. And if growth in the market is above and beyond what's expected due to public and private capital investment, there could be meaningful upside beyond those numbers.

And then my second question would be on RNG. On the Q4 call, you sized RNG in the roughly $125 million to $150 million range. I was hoping you could give us an update on where you sit today on RNG run-rate contribution, and how much of the 2026 step-up in the bridge is RNG versus EPR?

The original plan for RNG was $175 million, then we talked it down to about $125 million after deeper dives at each facility and what's feasible. We are doing roughly $50 million today out of the five facilities that are generating benefit, roughly flat with last year. In this year's guide there was no meaningful incremental step-up in RNG-related contribution because the incremental volume from maturing facilities was offset by slightly lower RIN prices — today's $2.40 versus the higher blended average in 2025. Looking forward to 2027, there are four facilities expected to come online, which takes you up toward roughly $85 million to $100 million. In 2028, the remaining facilities are expected to come online to get near the $125 million target. So minimal incremental contribution in '26, but we're focused on the path to that $125 million target.

Operator provided instructions. The next question comes from Adam Bubes of Goldman Sachs.

Can you update us on the 2026 EBITDA outlook for GIP and Environmental Services, respectively, and any changes in net leverage on those assets since the last mark-to-market?

No material changes. Environmental Services this year exiting the year run rate is probably $600 million to $625 million. There's been some incremental M&A and no change in net leverage, which sits around 5.5 to 6. On the GIP business, we recently signed another transaction; pro forma EBITDA is probably exiting the year in the neighborhood of $350 million to $375 million and net leverage in that business has been sitting around 4.5 to 5. Keep in mind, we own just under 40% of ES and roughly a quarter of GIP; our equity value creation initiatives in those businesses continue to prove out. They'll be monetized at some point over the next few years.

To follow up on disclosure, the values from when we last marked the equity in 2025 have not changed materially. You have that roughly $1.7 billion to $1.8 billion value on the ES investment and the $1 billion mark on GIP; those are still relatively fresh. As we get towards the end of this year, we'll look at incorporating ongoing disclosure so the market can keep tabs on that incremental stored value.

Got it. Super helpful. And then can you just talk about how you're thinking about the magnitude of transaction and integration costs over the next 12 months as you digest a higher level of M&A? Just trying to think through what that bridge between adjusted and free cash flow — actual free cash flow might look like to consider how much capital on hand you might end the year with?

That will be somewhat binary depending on whether the SECURE transaction happens. There's a vote at the end of May; we're feeling good we'll have certainty before we update that for the year. Ex-SECURE, you'll have the same level of acquisition integration costs as the last couple of years; that number doesn't move around much. If SECURE is layered on, you could have something greater, although it's often easier to integrate large organized businesses versus a bunch of small ones. The SECURE team is highly capable and that will minimize the need for incremental third-party costs. We'll wait until Q2 and then provide more visibility and a number. For the guidance provided today on $7.32 billion to $7.34 billion of revenue, assume a commensurate level of integration costs as you've seen in past years.

Operator provided instructions. The next question comes from Chris Murray of ATB Capital Markets.

Maybe turning back to SECURE just for a second and thinking about kind of the synergies and where you drive this from, can you lay out the impact that this may also have on the ES business versus the solid waste business and where you think you could leverage some of these assets? Historically, you've been involved in some of the transactions back in the Tervita days. Any thoughts on the mix of business you see evolving over time would be great.

No material impact on the ES business, although there should be some disposal synergies that benefit the combined SECURE-GFL business. There are incremental waste streams we could internalize into those landfills and depots over time, but no material changes to either business that come from that.

Okay. And then last one, just to follow up on pricing. You mentioned that part of the reason for the stronger pricing was lower churn as well as EPR. Is there something different you're doing on your approach to churn that's actually driving that? Or is it just a factor of mix or how it's coming in? And how is EPR playing into that? Any additional color would be helpful.

Two distinct questions. EPR is a function of the growth capital we've deployed to get in front of this wave of change in Canada and we've benefited from returns on that capital. If a contract we were doing before is now under an EPR framework, that change has been reflected in price; if it was net new volume, that's reflected in volume. Regarding churn and retention, it comes down to customer service — providing exceptional service will drive retention. We're also becoming more strategic in pricing initiatives. Better tools, including analytics and AI-enabled capabilities, allow for more targeted and relevant pricing, which improves stick rates. Additionally, we've been executing on our portfolio optimization opportunities articulated at Investor Day — the $40 million to $80 million potential — and we continue chipping away at that. All those factors together give us confidence in the industry's pricing dynamics and the discipline to maintain price above our costs to generate appropriate returns.

Operator provided instructions. The next question comes from Tobey Sommer of Truist Securities.

It's Henry on for Tobey. To start on expectations for inflation for the rest of the year and some potential upside to the guidance there with the global situation. And just the mix of contracts that you have that are CPI linked and the lag we could expect once those adjustments flow through.

Great question. Our CPI resets often reference a look-back period several months before contract renewal. So Jan 1 price increases are often based on inflation reads 3, 6 or 9 months earlier. With that, 2026 pricing is largely baked and won't change materially for the typical residential CPI-linked book; the real benefit from broad CPI printing would be for 2027 pricing. Historically, when cost inflation runs significantly higher than expectations, the industry has moved to open market pricing to recover incremental costs in-year. Where we're at today, cost inflation is largely a function of energy cost, and we can recover that separately with surcharges. But if broader CPI prints materially higher, that's more of a 2027 benefit.

And then just quick on the potential timeline for SECURE regulatory approvals. Are there any major milestones we should look for as the process moves along?

No material issues from our perspective. We've done significant work pre- and post-announcement. The Canadian Competition Bureau has been through similar processes and understands the market well. A reasonable time frame to expect would be three to five months, which could have us closing the transaction around September or October, so we'd have ownership for a quarter this year if that timing holds.

Operator provided instructions. The final question today comes from Shlomo Rosenbaum of Stifel.

Patrick, maybe you could give us some color on the differences in the regions in the performance. It looks like Canada grew organically 7.2%, U.S. 3.4%. You're getting more margin expansion in Canada. Is there operational differences going on? Does it have to do somewhat with EPR coming on? Maybe break that down. And then I have a housekeeping question for Luke.

Most of the margin increase in Canada is coming from the recycling contract resets related to EPR. On January 1, 2026, we took over a significant amount of recycling contracts that had been extended for years and were priced at older levels; as we took over the recycling as part of EPR, we reset them to current market rates. That led to much of the margin expansion difference between Canada and the U.S. There's no anomaly beyond that — it's largely the repricing of those recycling collection contracts that represented a significant amount of revenue.

To add to Patrick's point, the U.S. margin was more impacted by exogenous factors. Year-over-year in the U.S., commodities were a 40 basis point headwind, fuel 40 basis points, the hurricane comp and winter impact about 40 basis points, and about 75 to 80 basis points from M&A. Factor that in and you actually have nearly a 200 basis point underlying margin expansion in the U.S. Canada benefited disproportionately from EPR. Our Canadian business has moved from a high-20s margin business toward the low to mid-30s while the U.S. has been low- to mid-30s. Also, some pricing opportunities were disproportionately available in Canada. All of these items together show both geographies are performing well; the headline differences reflect those exogenous factors.

Okay. That's great color. And then Luke, maybe you could just provide color: what is the change in value on the call option due to?

We have a call option to buy back the ES business in four years' time. As with any option, a significant component of the value is time. All else equal, time decay erodes the option value as duration decreases. That results in roughly a $10 million a quarter amortization of the option value. When we update the equity value calculations for that asset periodically, that can offset the time decay component, but absent changes in the equity value, you'll see that natural amortization.

Okay. That's great color. So on an annual basis, you should expect to see something like that absent a change in the equity value?

Correct.

We have no further questions at this time. I'd like to hand back to Patrick for closing remarks.

Thank you, everyone, and we look forward to speaking to you about our Q2 results. Thank you. Have a good day.

This concludes today's call. Thank you all for joining. You may now disconnect your lines.