Operator: Hello, everyone. Thank you for joining us, and welcome to GFL Environmental Inc. Second Quarter Earnings Call. [Operator Instructions] I will now hand the conference over to Patrick Dovigi, Founder and CEO. Mr. Dovigi, please go ahead.
Patrick Dovigi: 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.
Luke Pelosi: 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.
Patrick Dovigi: 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 have 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 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 overcome 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 and 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 7 other acquisitions during the quarter, including Frontier and 6 tuck-ins, 2 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.
Luke Pelosi: 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 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 the 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 2 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.
Patrick Dovigi: 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 the 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.
Operator: [Operator Instructions] Your first question comes from the line of Sabahat Khan with RBC Capital Markets.
Sabahat Khan: 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?
Patrick Dovigi: Yes. I mean, I think, we -- when there's a dislocation in share price versus sort of intrinsic value, I think that affords others the opportunity to sort of potentially look at sort of a take-private transaction. I think from where we sit today, I think we feel slightly vindicated that I think all the intrinsic value we believe we've created has attracted others and who have approached us about taking the company private at a materially higher number than the company is currently trading for today. So as you know, I'm very sort of well versed in the private equity world. I mean, 6 private equity recaps before GFL went public and then last year, recapping the Environmental Services business and the GIP business that sort of all mid-teens type multiples, right? So we know that world very well. I mean I think it's a testament to the business that's being built. And interestingly enough, two of these parties that approached us were doing a significant amount of work on SECURE and believe SECURE was an exceptional acquisition, which, as you know, the first couple of days after announcing that, we had a lot of explaining to do. But that being said, the Board has formed a special committee. The special committee instructed sort of management to explore the art of the possible. I'm less focused personally on the sort of price out of the gate. I think, obviously, it's materially higher than where we're trading for today. But as most of you know on this call, I'm not a seller. I'm not a seller at $40. I'm not a seller at $50. I'm not a seller at $60. I'm not a seller at $70, and I'd be rolling 100% of my equity into whatever is sort of being proposed. I think there's a lot of opportunity here. If you look at sort of the growth for '27, you look at the free cash flow growth, you look at the setup that we have, SECURE is putting up numbers, the best in their history. GFL is performing better than ever had. From my perspective, my motivation is to keep going and the parties that have approached us as a condition would like me to roll 100% of my equity into a new transaction. So what I'm focused on is, listen, there's two paths. One, there's an offer brought to shareholders, which would require sort of a majority of the minority because I would be being treated differently in terms of just I'd be rolling 100% of my stake. And shareholders can have their say in terms of what they want. And if the fast money hedge fund type investors think it's compelling, then they can vote for something like that. If we've had a lot of conversations over the last couple of weeks with our largest holders. They have interesting views and perspectives on what the value is. And I think it's just a moment in time where we were caught up in this weird AI trade and SECURE and some of the arms that have entered the name pre-closing. But that exists today. And the alternative is staying public as well, which, from my perspective, is a great alternative as well. I have no issue staying public as well. The real question is, would shareholders be happy with the price, which is materially higher than where it's trading at today. And as management and sort of insiders, can we create significantly more value in a shorter amount of time inside a private company? And my biggest focus is on not the next year or 2, my focus is on what that looks like in sort of year 5, 6 and 7. How do we -- it's one thing to actually take a business private, and it's another thing to actually realize the value you've created. And I think we just need clarity in terms of how that's going to be realized, whether it's going to stay in perpetual private hands that have created this new marketplace that exists or is the thought to potentially relist the company in 5 or 6 years after we've created a whole bunch of incremental value over the next 5 or 6 years. So that's what's sort of being discussed. But I do think the Board and management does feel vindicated that some of the smartest and largest institutions in the world that have the biggest pockets of capital believe this company is undervalued and can generate mid-teens to 20% IRRs, even paying a premium to where the stock is trading at today. And from our perspective, these are all the things we've been saying for a long period of time and sort of pounding the table. But from where I sit today, those are the two opportunities. So as I said, the special committee has given us instructive to sort of go explore that, and we'll do that. My intent is, obviously, the focus is on getting SECURE closed. We'll run these in sort of parallel paths. There is no situation where we -- I saw some notes and we're paying some things on whether you could try and pay a break fee and walk away from SECURE or something. That is not -- these buyers that have approached us are -- they love the SECURE asset as much as they love the GFL business. So we are -- we'll continue -- my plan is not to sort of make a career of this. We want to get the answers relatively quickly and pick a path. But from my perspective, either path is a good path. And we'll just -- we'll decide what the right path is and whether it makes sense for myself and makes sense to sort of bring it to shareholders in the sort of near to medium term.
Sabahat Khan: Great. I appreciate all the color. Maybe just switching over to sort of the kind of the outlook here 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.
Luke Pelosi: Yes. Thanks, Saba. Great question. In Q1, we said we're going to be looking to spend $200 million for the year. I think that number other than a little bit of FX adjustment, I think you got like $5 million higher on that through FX. That's still largely good. If you look in the quarter, we were a little behind on what we wanted to spend. Some of these projects, the exact cadence is a little bit outside of our control. The one thing I'd note is with SECURE, if we get that done in Q4, as you may be aware, SECURE's capital allocation approach has been to deploy excess free cash into sort of growth capital as well. They did some in Q2. They're planning on a big amount in Q3, and there may be some spillover to Q4. So ultimately, at the end of the year, pro forma for SECURE, we may be something a little bit higher than what stand-alone GFL is. But I think if you factor in FX, the $200 million gets a little bit higher, and it's going to be in and around that sort of ZIP code, maybe a little less, maybe a little bit more, but that number holds true.
Patrick Dovigi: 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 pretty positive, pushing higher even through sort of relative to your initial guide. Is it just the customers are accepting that there is an inflationary environment, fuel is running up, and it's been maybe easier to pass through some pricing. Maybe you can just talk about what's happening in the industry with some of this positive pricing that you're seeing and your peers are seeing? And do you think it could continue into '27 from GFL's perspective?
Luke Pelosi: Yes. I like the way you frame it at the end, Saba, because it's difficult for me to talk about my peers. But what we have said consistently is that we see an opportunity to continue to price above cost inflation to generate the spread we need to generate return on invested capital. And then in addition to that amount, we have opportunities within our portfolio above and beyond as we just continue to have, I'd call it, mispriced books of business. So we continue to demonstrate that in the quarterly results. I think the spread above cost inflation remains true and dear to everyone's pricing strategies, and I don't see that changing. So the ultimate headline number may change if you look over a 3- to 5-year period, but again, focusing on that spread. And as we said, we had identified, I think we said in Investor Day, $40 million to $80 million of incremental price, probably a price greater than that. And as we keep doing M&A, that number grows. And a significant component of our outperformance is the effective realization of those opportunities. And at the end of the day, when you think about the 3-year outlook that we provided for Investor Day, I think we'll be able to capture a greater amount than what we had put down on the page at that time.
Operator: The next question comes from Tyler Brown with Raymond James.
Patrick Brown: Luke, Just there's quite a bit moving around in the guidance. I mean you've got FX, M&A volumes, commodities. Just in broad strokes, can you kind of bridge the guide -- the new guide versus the old guide? I'm kind of feeling that maybe FX, fuel, M&A and commodities are all helps, but then second half volume is a drag. But just any color there would be really helpful.
Luke Pelosi: Yes, Tyler, great question. I appreciate with the magnitude, the upswing, there are sort of moving pieces. So if you think of the top line, pricing is now going to be just above 6%. So that's sort of 50 basis points up from our original guide. Now saying volume is going to be about negative 50 bps. So that's about a 75 bps decrease from the original guide that contemplated about 25 bps of positive volume. Surcharge is now at 80 bps positive. So that's about 100 bps over the original guide, and that's just a function of the change in the diesel pricing. Commodity, we're now saying about a 10 bps drag year-over-year, and that's a 20 basis point increase over the original guide. So initially thought about minus 30. Now we're about minus 10. Again, recall, our sensitivity, we don't see the upside as much as we used to, but the benefit is we also don't see the downside. And then M&A, obviously, a big one with Frontier and the other, that's now going to be at sort of 770 bps up, so 7.7% coming from M&A. That's about 520 basis points higher than the original guide. And then FX with the meaningful change, that's now considered to be a 40 basis point drag, so minus 0.4% from FX, which is about 170% higher than the original guide. The original guide contemplated 1.36. And now we're doing the first half at whatever it was and now assuming the second half at 1.40.
Patrick Brown: Yes. Okay. Perfect. Extremely helpful. The other thing that I think should maybe be highlighted here, unless I'm missing it, but the new guidance, I think, calls for margins to be virtually unchanged. But the old margins didn't include a very sizable headwind from fuel and call it, non-leveraging FX revenues. So could one imply that you are actually raising the underlying implied margins fairly substantially? Or am I misreading that?
Luke Pelosi: No, Tyler, you're absolutely right. I mean if you think about the original guide, we were supposed to go to 30.5%, and that reflected 100 basis points of underlying at that time. And in that, we had our assumptions on fuel, commodity, all the externalities. When you look today, as you said, we're maintaining 30.5%, but now inclusive of a 60 to 70 basis point drag from fuel, a 30 to 40 basis point drag from M&A. I mean those 2 things alone is a 100 basis point drag above and beyond from where we started the year. Now there's other moving pieces, obviously. If you think about special waste and C&D landfill volumes, that's net new headwind. I don't want to get into every little piece, but that mix, I mean, if you think about those incremental tons that are missing, that's very high margin flow-through, right? And so if you look at that original 100 basis points underlying, I think you're probably 2x that today, notwithstanding that the headline numbers saying at 30.5%. And that's why I think I'll circle back to Patrick's comment. I mean, I don't think the operation of the business has ever been performing better, and you're seeing that sort of come through in the numbers.
Patrick Brown: Yes, exactly. And then just real quickly, Patrick, last one on volume. How does the competitive environment feel? Have you seen any pickup in churn? Is there anything happening on the small hauler side that gives you any pause? Or is there any change in behavior there?
Patrick Dovigi: I mean we're in a competitive business as always. And I think there's certain markets that have different competitive dynamics. And of course, there's markets where we have to fight and we have to defend our business and defend churn. But there's a lot of other parts of our business that continue to be strong on ticket, continue to get pricing and churn at sort of all-time lows. Nothing any different than what we've seen in the last 20 years. So I think we just keep chugging along, again, picking the right markets where we want to operate that allows us to continue deploying the strategy. And I think that's what you continue to see from us and you will continue to see from us. So nothing out of the ordinary from my perspective.
Operator: The next question comes from the line of Kevin Chiang with CIBC.
Kevin Chiang: If I could just dig into the U.S. organic growth in the second quarter. It was up nicely sequentially. And if I just look back outside of the elevated inflation period during the latter innings of the pandemic, I mean, this seems historical or looks historically high. I get pricing is good across the board, you have surcharges there, but are you hitting an inflection point in the U.S. in terms of some of the initiatives that you laid out at the Investor Day that might be driving maybe more outsized organic growth in the U.S. versus maybe what you see in Canada on a rate of change basis, just given Canada is a more mature market for you?
Luke Pelosi: Yes. Thanks for the question, Kevin. It's a great one. I think -- if you think about overall organic growth, starting at price, I mean, the U.S. has consistently been a good pricing market for us and continues to be. And I think I said in the prepared remarks, it was both geographies around that sort of 6% level. I think the -- some of our books of business in the U.S. were probably more mature in some of the sort of surcharge initiatives. And so some of that outsized opportunity has been realized more in Canada, although there are net new geographies in the U.S. where that's also been an opportunity. But on balance, I'd say the U.S. pricing is more driven by just strength of underlying core as opposed to the sort of implementation of net new surcharges. I think it really comes down on the volume story. And if you think about what we and some of our industry peers have talked about is this is this idea of intentional shedding post M&A. And so if you look for the period that you're looking at, I mean, the levels of revenue acquired in the U.S. were quite significant from 2020 through 2024, 2025. And following that, you do have the intentional shedding. And again, it's unsafe work. It's work that doesn't meet your return hurdle. It is tangential type ancillary revenue service offerings that we're not going to continue to do. And so I think what's really happened is as the quantum of M&A sort of paused starting late '24 into '25, we had more quieter deployment of capital, you've no longer had the subsequent knock-on effect of that sort of shedding. And it's allowing, therefore, the volume metric to reflect just what's actually happening in the underlying business as opposed to being distorted. And I think it's a great data point and testament to the sort of quality of the market selection and the business that we have because once you remove the M&A-related noise, what you're left with is the normal course volume, which is going to be a plus or minus probably 50 bps type number and doesn't move around very much.
Kevin Chiang: That's very helpful color. I mean just a follow-on, just looking at your -- you talked about operating leverage in your prepared remarks. If I look at kind of core cost as a percentage of revenue, you're back down to kind of a low 3% intensity. So maybe what you look like pre the ES spinout. Can you remind us where that can get to? Are you kind of at a level where you've kind of, I'll say, maximize the revenue absorption within that corp cost. So incremental top line growth requires a little bit more investment in corp? Or can you push that below 3%?
Luke Pelosi: Yes, it's a great question, Kevin, and an area that we're very excited by because, I mean, again, -- that's a relatively fixed cost component that's derived primarily of sort of people and IT-related costs. Now when you think about the last 3 or 4 years, there was, as we articulated, a meaningful investment as we did a big large-scale lift and shift to cloud-based sort of systems, and we had dollars going through there that were transitory in nature. You've seen those sort of roll off, and now you're sort of left with a more sort of steady state dollars. Now in that unit, if you think about where things like AI is going to bring productivity enhancement, that we anticipate to be an area where that's realizable. But regular way back-end shared services, whether that's HR and payroll, whether that's treasury, whether that's the IT group, efficiencies that should be able to come from sort of more automation and processes should yield the ability of that existing cost structure to take on even larger amounts of revenue. So I don't think we're at a position here today to say exactly where that is going, but I certainly don't think 3% is a floor, and we see a path even pro forma going into next year getting below that level. But certainly, we believe that's going to be, as we've articulated, a meaningful source of operating leverage for the consolidated margin as that cost bucket remains relatively fixed, and we continue to grow revenue and/or EBITDA at materially higher growth rates.
Operator: The next question comes from Tobey Sommer with Truist.
Tobey Sommer: I wanted to ask a question 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 '26?
Patrick Dovigi: No, no impact. I mean, we're running the business normal course. There's no change to sort of strategy or businesses that we're speaking to, and it's irrelevant whether we were -- whether it was private or public and we just continue marching on as if we're running the business as is in the normal course.
Luke Pelosi: Tobey, I'd say just to add, Patrick, the one thing I'd say that's most impacting M&A is, again, just our absolute commitment to sort of the leverage philosophies that we sort of talked about. I mean, unfortunately, when the Canadian dollar depreciates as much as it does, it puts this sort of temporary translational impact on our leverage. And so we're 10 to 15 basis points higher than we otherwise would have been, which factors into the amount of capital you can deploy into M&A. So that, I would suggest, is more the sort of balancing act that we're doing. But to Patrick's point, in his initial comments that he made, we're running going full force running our business, whatever the sort of capital structure of the business will be, but it's not going to impact how we're thinking about growth.
Tobey Sommer: If I could ask a follow-up on -- you mentioned the tight spread and attractive rates in your recent fixed income offering. What do you think is contributing to that? And how does that dovetail into the potential IRR of an LBO should that come to pass?
Patrick Dovigi: Yes. I think -- listen, we've done exactly what we said we were going to do for over 13 years in that market, right? So we have a lot of goodwill in the market and always have and have always punched significantly above our weight on that side because we've always done what we said we're going to do, and we've continued to deliver. Now the beauty of the transaction we're talking about, there's not any material impact sort of on leverage of what's being proposed. So for our debt investors, there's no real risk that this is being treated as a traditional LBO in the sense where you're going to have 6-plus turns of leverage and material rating decreases. So I think we are fortunate from that perspective. But again, you look at the art of the possible. I mean, again, even if we did need more debt capital to affect the transaction, which that's not really being proposed in sort of any material way, that market has supported us with 6 to 6.5 turns of leverage for a long period of time, albeit at slightly higher rates, that's where it sort of stood. But again, that's not -- I wish sometimes our equity investors would understand the business as well as our debt investors, but this is life, and it takes time to sort of mature and understand. But that's not a market I worry about. And again, deep relationships for many, many years of doing the same thing sort of over and over again.
Luke Pelosi: And Tobey, just to add to that, if you think the spread on that bond that we did was 134 basis points over the underlying treasury. Our investment-grade peers in the industry would be doing fixed income offerings at sort of 70 to 90 basis points over treasury. So you're looking there, I call it, a 40 to 50 basis point spread, and that's a pretax impact, right? So you roll that all through, and I've made this comment before, the benefit of becoming an investment-grade company is much less on the debt cost of capital. but rather on the perceived perception related to equity cost of capital. The debt markets are effectively already viewing us basically as an investment-grade credit, and we'll continue to march towards that direction.
Operator: The next question comes from Trevor Romeo with William Blair.
Trevor Romeo: Maybe I'll have another one on kind of M&A. I think, Patrick, you said that the Frontier integration has gone exceptionally well thus far. So maybe you could update us on how that transition is going? What kind of growth opportunities you've identified thus far for that business? And then I appreciate the comments about the leverage that Luke just made, but maybe you could talk a little bit about what types of assets might be in your kind of intermediate term pipeline there for M&A?
Patrick Dovigi: Yes. So Frontier, that was well in hand. I mean we had a lot of time between sort of signing and closing on that. So I mean that -- the integration plan for that was well in hand before we hit the ground running day 1, effectively have that business transition over to our platform now. So there's been no -- interestingly enough, they ran a back-office software called Navisoft that we run as well. So the integration was very straightforward. Payroll has been sort of transitioned, health and benefits transitioned. So now looking at that business on our own KPI program. And in terms of new opportunities, similar to what we said on the last call, we have a plan to double the size of the business there over the next 5 years, and that's a combination of organic and inorganic opportunities. There'll be some smaller tuck-in sort of M&A, and then there's some organic opportunities, both on the sort of landfill, recycling, transportation side that we think are highly compelling that is going to sort of bolstering that. So that is sort of well in hand and on plan. No issues, no red flags, all green flags at the moment. So that will continue moving in the same direction. In terms of what the back half of the year look like from an M&A perspective, again, the big focus really is on tuck-in M&A that tucks into existing markets where we already have operating facilities, transfer stations, landfills, recycling facilities where we can internalize incremental volumes in those streams and leverage the fixed cost base facilities that we have. And that will make up the lion's share of the back half M&A. At the same time, the M&A team certainly continues to work on other opportunities for sort of ES and GIP. And both of those divisions are putting up sort of record numbers as well organically. I mean, ES had the best -- they had the best June ever recorded sort of in company's history on sort of a multitude of fronts. And the same goes for sort of GIP, had the best June they've ever had. So you have, basically, GFL, the public company, sort of firing on all cylinders. SECURE, again, posting the biggest and best numbers that they've reported in their history. And then our 2 sort of private businesses where we own the 40% stake and the 30% stake, putting up the best numbers that they've ever put up. So listen, we're feeling very good about sort of where we're sitting today. And I think there's definitely more opportunity than there are times. So we're just using our time wisely and finding the stuff that's going to -- and focusing our time on the stuff that's the most accretive to us as shareholders.
Trevor Romeo: And then maybe a quick one for Luke. I think the updated guide, the free cash flow did have, I think, a little bit better conversion than your original guide. So maybe what's driving that? And then just looking beyond this year, I know you have SECURE that will come on at a higher conversion rate, but maybe would just love your latest thoughts on what kind of organic improvements in cash flow conversion you'd be looking for from here, especially as more of your RNG projects come online.
Luke Pelosi: Yes, Trevor, great question. Thanks for that. For the current year guide on the free cash flow, obviously, the incremental EBITDA, you have the sort of flow-through of that. With the refinancing or recent financings of our debt, you've effectively taken a portion of interest expense that would have otherwise been associated with the growth and flatten that out. So that's going to roll over into next year. So you're maintaining that $445 million cash interest despite the higher sort of EBITDA. Working capital, you're getting a bit of a benefit from FX, right, just the way the math works and -- because we're in a net liability position, the higher level of FX, while it's a drag, the leverage, as we spoke about, you're getting a little bit of benefit there. But it's really just leveraging that fixed sort of other items of interest, taxes, et cetera, as we keep sort of growing EBITDA. And when you roll that forward into next year, you're absolutely right, pro forma with SECURE, you're going to see this inflection point, bringing that free cash flow conversion of adjusted free cash flow divided by adjusted EBITDA north of 40%. And really, with the incremental free cash flow profile, where the real benefit will come from is, yes, ongoing margin expansion all drops down to the free cash flow conversion line, but it's really being able to leverage a relatively now fixed component of interest as you're able to largely self-finance the growth from your own free cash flow and therefore, the eventual reduction of interest intensity in the free cash flow walk as we articulated at our Investor Day, is going to provide GFL a tailwind to free cash flow growth and conversion growth idiosyncratically because our other folks are already at that sort of lower leverage level. So too early to get into the moving pieces of '27, but certainly, there's going to be a meaningful step-up and an inflection point in all of those numbers, but particularly free cash flow.
Operator: The next question comes from James Schumm with TD Cowen.
James Schumm: Patrick, you've built the fourth largest solid waste company in North America, and you've done incredibly well financially. You've said that clearly, you're going to roll your stake. But can you just comment on maybe what you want to do in the future, maybe it's 5 or 10 years down the road? So specifically, like how much longer do you want to be the CEO of this company?
Patrick Dovigi: As long as I continue to see opportunity, you're going to see me sort of sitting in the seat or if people tell me that it's time to leave. I mean, started over 20 years ago now. I don't think I have a better opportunity than anything I see to continue compounding my own wealth over sort of a long period of time. And again, from where I sit today, and I keep saying it, maybe I sound like a broken record. If you see the condition of the business that it's in today, the shape we're in, where the free cash flow is going for 2027, the opportunities we have going into 2027 and beyond, if I look at the next sort of 5 to 10 years, there is a real opportunity to double the size of this business again. And we have best-in-class operating systems, best-in-class management teams, what I call best-in-class markets. We have -- if you look at our 7 regions, all operating in similar sort of margin profiles in both Canada and the U.S. with a significant amount of opportunity. And by no means are we fully optimized in all these markets as well. So there's significant self-help opportunities in these markets to continue making the businesses better. So where I sit, listen, that's why I keep saying I'm not a seller. So the public markets will move around in terms of what they believe waste companies are valued at or where GFL should be valued at based on things that we've done. But again, sitting in the seat for over 20 years, creating billions of dollars of value for shareholders, I think we have a very sort of proven track record of a model that works. And again, whether that's publicly or privately, it can be done in both. The real question is, privately, can you just do things faster that you couldn't necessarily do in the public markets as quickly? And you're a dynamic management team like ourselves that likes to do things and create value over time. And we've done that, maybe sort of less popular things at times or people perceive to be less popular things at times. But I go back and I look at -- since being public, I look at -- we did a whole bunch of M&A in 2020 and 2021, increased leverage modestly, which, again, wasn't looked as favorably on. But when I go back at those, those are the right decisions to make for the business if you're a long-term shareholder. And you're putting together -- Terrapure together with our ES business in the middle of COVID and bringing up leverage 30 or 40 basis points, which, again, penalized from a bunch of investors at the time. We went out and put those 2 businesses together and sold that for almost 15x, right? So those are the right decisions. I think we know where -- how to create value. We know where to create value, and we do it in a very disciplined fashion that continues to sort of compound. And I think if you look at what's happened to the margin profile, the free cash flow profile of our business, the strategy continues to work. It's worked for 20 years, and it will continue to work for the next 20 years. So I'm here for the long run as long as people will have me. And again, I see a clear path to just materially increasing my own personal sort of equity value, and that's what we're focused on.
James Schumm: Great. And as you contemplate -- you guys kind of contemplate these two options, private or public. Maybe you touched on this, but what do you think is driving the discount in your stock today? And how can you address it? So is it free cash flow conversion or some of the things that you laid out was that you're just going to create value. And over time, the market is going to realize that value? Or are you sitting there evaluating, okay, well, if we stay public, if we do X and Y, we can get a more appropriate valuation to our stock?
Patrick Dovigi: Yes. I mean, listen, there's been -- I mean we've been public for almost 6 years now, right? And if you look at the math and sort of the dislocation in share price, there was 2 things. In 2022, levered growth became a very bad thing, and we were operating with higher leverage than all of our peers. And that was something that sort of had to be rectified, even though when you think about using an extra half a turn of leverage, again, I cite the example of the ES business. When we put ES together with Terrapure, buying that from a Canadian private equity firm at sort of 8 or 9x at the time and increasing leverage. I think at the time, it was like 30 or 40 basis points and certain investors sort of throwing tomatoes at us saying, why would you do such a thing? Now that created almost $4 billion of equity value for us as shareholders when we recap that business. So again, you're not always going to be popular by doing the things you need to do to sort of create value. The easiest thing to do is sit here and do nothing and just keep compounding and growing at the sort of normal growth algorithm. But that's not our DNA. That's not what we've done. That's not how we built this business. We would have never built the fourth largest environmental services business in North America if we just sat around figuring out all the reasons why not to do things. We generally find the reasons to do things that will work with the overall sort of strategy. So when you sit here today and look at the opportunities, I think this is a unique -- has been a unique period in time where you had the industry sell off around this AI trade. And then you had us our discount widening to the peer group, where we've always been sort of plus or minus a turn less or a turn more than the sort of peer group depending what was happening in the macro thematic theme. And in this environment, what happened is you basically industry traded down 2 to 2.5 turns because waste has been out of favor. And then you had us trade down 2.5 to 3 turns because we're out of favor. Maybe it was a secure transaction, maybe it was just our lack of sort of industry inclusion, but there was a sort of broader sell-off where nobody liked waste, and that sort of -- that creates the opportunity for other people to come in that have significant pockets of capital, and it doesn't happen often, right? So again, it happened in '22. It's happened -- so it's happened twice since we've been public. I always say math is math. We'll continue running the business, build the best business we can build. You'll continue seeing the margin expansion, continue to see us compound free cash flow, continue on the growth trajectory. And then eventually, math is math, the computers, you can't discount the math, right? And eventually, we get there. So -- but in the meantime, you have this dislocation in share price versus what the intrinsic value is versus what other people can generate with these assets and returns they can generate creates this opportunities for other. And again, from my perspective, I feel completely vindicated when the smartest investors in the world with the biggest pockets of capital, the largest financial institutions in the world come back and say, this doesn't make sense. This is the sort of opportunity that we have. And again, from my perspective, these are all the things we've been saying as a Board and as shareholders and management is why it makes sense. So listen, again, I'm focused on the upfront, but I'm also focused on what the path looks like in the future. If it leans towards, hey, we're going to re-IPO this, then we have a decision to make or I have a decision to make about whether that makes sense or not because I'm not sure how happy my public shareholders will be if I go out and take equity at sort of $50 a share and go that to $100 a share and then try and -- and then we're going to have to re-IPO that and they miss that big sort of lift for the big guys that have supported us. And we've had a lot of feedback from some of them. And a lot of them, stay the course and be patient. That being said, you have others sort of banging on the door that see this opportunity. So we're weighing both of them. We're doing the work. But what's for certain is the business is worth significantly more than it's trading for today. So that's what we all know and that's what the conclusion is, and we'll just keep driving forward.
Luke Pelosi: And Jim, I'd just add to Patrick's comment that you mentioned free cash flow conversion, that when we first went public in 2020, there was a lot of focus on our EBITDA adjustments. They said, well -- and to be fair, it was complicated. It was a fast-growing business. The structure we went public with was complicated. That at the time was when people said, "Oh, you're getting this complexity discount because of EBITDA adjustments". In time, that subsided and just we grew into it as we said we did, like, hey, this is going to pass and no one ever has really sort of talked about that very much. Then '22, '23 comes along, all of a sudden with leverage, right? Folks are talking about leverage. And as Patrick just alluded to, that was a point in time. Today, yes, I get it with this quarter with translation impact step up, but largely folks aren't sort of talking about that sort of anymore. So free cash flow conversion, I guess you highlighted it because that's an area folks talk to. Okay. The free cash flow conversion is a little bit sort of lower than our industry peers. It is going to grow at a rate faster than our industry peers, full stop, right? And the math, as Patrick said, the math is math. It's very clear to see. It is going to go up from here. And I -- why I give that context and background is I've never heard your initial comment, why is the stock trading discount. I never heard people say it's because of our market selection, it's because of our business, because of any of those sort of fundamentals. It really seems to be about sort of transitory inflection point in the math. Free cash flow conversion, if that's the remaining sort of item, that is going to improve at a rate far greater than the industry average. And so you'll see that in the 2027 guide and then in '28 and beyond. So I think that is a source of the confidence that Patrick has in that it's going to work because you don't need to believe a lot to see the improvement in that one remaining metric.
Operator: The next question comes from Bryan Burgmeier with Citigroup.
Bryan Burgmeier: Just a couple of quick ones for me. First, you announced an update on a couple of RNG projects during the quarter. I assume those are kind of part of the 7 million MMBtus that were under negotiation during the 2025 Investor Day. Just curious if you can add any kind of details around the timing of those projects?
Luke Pelosi: Yes. Thanks for the question, Bryan. Yes, those absolutely were included as part of our remaining sort of sites to come online. The expectation for all this was supposed to be late '27. I think with the pace at which things are moving, if there was some slippage into 2028, that wouldn't sort of surprise me. I think initially, Investor Day contemplated having that RNG price, which we called as now saying around $125 million in hand by 2028. I think it's probably more a run rate level by the end of 2028 as opposed to having it on Jan 1. But yes, those 2 projects with one of our existing partners that we have a great deal of confidence in is all part of the plan.
Bryan Burgmeier: Got it. Got it. And then last one, and I'll go ahead and turn it over. Yes, I know the SECURE acquisition hasn't even closed yet, but maybe just from like a high level, do you think about SECURE maybe opening the door for a little more bolt-on M&A going forward. You've talked about organic kind of growth investments. Just curious about the inorganic side as well.
Patrick Dovigi: Yes, nothing material, nothing sort of outside the norm in sort of Western Canada. I think there's the ability to -- with the continued investment that you're seeing in Western Canada, both from the federal government level and the provincial levels and just sort of the broader financial community that's creating incremental opportunity from some organic -- incremental organic opportunities that we'll assess -- any way we would assess sort of an M&A transaction or any sort of organic opportunity from sort of return on invested capital perspective. But there'll be a lot of sort of incremental opportunity as you see in the financial results that they put out. That business is firing on all cylinders, putting up sort of best-in-class numbers as well as the sort of biggest and best numbers that they put up in their sort of the company's history. So again, feeling really bullish about it in terms of the timing on the SECURE assets, again, as we said, targeting sort of October 1, plus or minus 30 days on that. But I think from where we sit today, we put in our final information request to the Competition Bureau in the last couple of days, and we'll just continue working that course. But we continue to see no issues in terms of any regulatory sort of hurdles there from -- at least from the seat that we sit in today. So everything is on track and moving in the direction that we all thought it would.
Operator: The next question comes from Konark Gupta with Scotia Capital.
Konark Gupta: My first question is to follow up on the prior discussion about the go private discussions you might be having. In light of those discussions, are you expecting to do some rationing on any of the usual initiatives like buybacks or dividend growth or even like M&A, including the SECURE deal?
Patrick Dovigi: No. Business as usual, no change. .
Konark Gupta: Okay. And then just on the ES and GIP minorities. Luke, if you can share your thoughts and outlook for '26 in terms of EBITDA and leverage ratio?
Luke Pelosi: Yes, Konark. Thanks for the question. We've said previously, I mean, if you look at ES expectation that sort of $600 million with some M&A, maybe $625 million of EBITDA and we'll probably be in and around sort of 5.5 turns of leverage. On the GIP business, roughly $360 million to $380 million of EBITDA, and there'll be a sort of 4.5 turns leverage. In terms of the ES call option -- someone had e-mailed the question in, that initial valuation of that done in December 2025 was so close to the ES recapitalization. We just used the equity value at the recap at that time. As a result, you're now just going to have that call option, the sort of time decay value being amortized every sort of quarter until you sort of revalue the equity as a whole. And we're going to do that sort of annually. As Patrick said, the direction of travel of both of those businesses has never been better. And with some accretive strategic bolt-on M&A, there's some equity value creation coming out of those as well. So we would anticipate sort of revisiting both of the marks at year-end.
Operator: The next question comes from Stephanie Moore with Jefferies.
Stephanie Benjamin Moore: Just one for me. I think you called out that underlying margin is running maybe 2x your original expectations. So we'd love to get a little bit more color there on what's running better than you originally expected. Is it labor? I think we all see pricing is quite strong, but we'd love to get just a little bit more color there and then kind of your expectations on underlying margin expansion for the remainder of the year?
Luke Pelosi: Yes. Great question, Stephanie. I'd say where we take a great deal of comfort is the fact that it's not any one thing, but it's all of the things that we've been talking about. You start at the top line, obviously, pricing 20 bps better or 50 bps better than guide for the year, 20 bps for the quarter. That all flows through down to bottom line. So that's the sort of starting point. Obviously, volume and the nature of the volume is a headwind versus the original plan because those landfill tons that are missing, although C&D is a small component of our business, it is sort of accretive. So that's a sort of headwind. When you look at the cost of sales bucket as a whole, the efficiency we continue to see across the major cost categories, whether that's transportation, whether it's labor is a function of both the optimization and densification of the business that we've done as well as the self-help initiatives that we sort of outlined. And it's all of those sort of pieces coming together when modeling for that, there's a pro forma of the way it's supposed to look, and you want to obviously bake in a degree of conservatism in that. And I think what we're very pleasantly surprised with is the rate at which we're actually being able to realize that. As a part of it is that synergy capture from post M&A, right? And as we've said, the business has initially come in at mid-20s. And then as you do rerouting, as you do integration, you get that up to an accretive margin. And it's all of that sort of coming through. And so we are very optimistic about our ability to hit the targets and exceed that we had previously sort of set out. And the prior caller had asked next year, when you think about RNG as being another meaningful incremental sort of margin tailwind, you're really not even sort of getting that sort of benefit yet, and when we put that all together, together with the SECURE business, we were incrementally optimistic as to what the ultimate sort of margin profile of the business can be because of the effectiveness we're seeing in these sort of self-help initiatives that we had laid out.
Operator: The next question comes from Chris Murray with ATB Cormark Capital Markets.
Chris Murray: Maybe turning back to that margin question and just maybe extending it into the 2027 or longer time frame. You sort of talked about the fact that I think it was a number of things, but you did talk about labor, you did talk about maintenance. Is this the best that it's going to get now we're just sort of moving into a being able to leverage the organization. You talked about densification, you talked about different things. But is there any additional opportunities on the self-help? Or are we kind of running to the end of those opportunities and now it's going to be just scale and leverage that you'll be able to drive margins off of?
Luke Pelosi: Well, Chris, I think it's the opposite. I think we're just really getting started with the self-help. And Patrick sort of alluded to this. You got to remember, I mean, I think in that Investor Day presentation, we put 5 items. right? There's a team of people here working on 50 items or more at any given time, all of which could sort of be incremental and above. And then I think it's just the quantum of the items. I mean, I don't have the list in front of me, but I think like the procurement fleet-related bucket in that self-help was $30 million to $50 million. Like early days, just looking at SECURE, we're seeing sort of meaningful incremental procurement opportunities for them, just leveraging our existing plan, not to mention what we might be able to do when we go to market with now that broader sort of spend as a result of the size and scale. So I think the earliness of the maturation of this profile gives us a lot of optimism as to how much more incremental benefit there can be. And then you think about AI and/or sort of technology-related things that would be net new to the industry, we're just scratching the surface of that. So we take a great deal of comfort that we see a lot of runway pulling on the levers that the industry has already demonstrated to be highly effective and tried and true. And then as this sort of age of sort of technological enhancements is playing out so rapidly, undoubtedly, there's going to be meaningful incremental opportunity coming from that as well. So I would say we feel very well advanced and in hand in achieving the self-help that we set out. But I think the next time we come and do an Investor Day, we're going to have a whole host of incremental opportunities that will continue to be tailwind to outsized margin expansion above and beyond the normal course industry algorithm.
Operator: The next question comes from Shlomo Rosenbaum with Stifel .
Shlomo Rosenbaum: I actually want to expand a little bit on the last question and the comment that you made, Luke, about some of the incremental opportunities that are out there with AI and some of the technology. It seems like there's a playbook that you guys are implementing that others have already implemented that gives you kind of some runway. But some of the other ones that are in the industry have already pulled those levers are talking more about some of the dynamic routing that they could do with AI that they're working on, some of the dynamic pricing by customer. I was wondering if you could just kind of drill down, give us a little bit of insight as to, is that something that you guys are working on concurrently right now as well with what you're seeing? And are there other examples that we should be thinking about? Or is this a matter of like, hey, we have so much in front of us with the levers that others have pulled, we're primarily focused on those levers?
Luke Pelosi: Yes, it's a great question, Shlomo. What I'd say is, and you articulate, we have a lot of opportunity low-hanging fruit right in front of us before having to sort of reinvent the wheel. And as you're seeing quarter after quarter, those are the opportunities we are sort of executing on and capturing. Now obviously, we are very invested and engaged in AI-related technologies as well. But I do think we have a unique advantage where we're allowing some others to experiment and find some of those benefits, and we don't necessarily need to be the early adopter as we have so many other opportunities in our sort of pipeline. Certainly, we're using AI in multiple facets of our business. But I'd say it is more in the early stages, and therefore, the financial benefits of that are not yet really flowing through in your margin. But from HR and recruiting, to pricing, to FP&A broader analysis, preventative maintenance, we have AI installations in all of these various sort of things, I'd say it's just sort of early days and where I take great comfort is if you extrapolate what the margin and cost savings implications of some of those applications could be, they're very large numbers. And so going back to the prior caller's comment, we're focusing on the sort of nuts and bolts of the self-help that we had articulated at Investor Day currently, while we are tangentially laying the groundwork for what will eventually be a much larger full-scale implementation of some of those AI automation initiatives.
Shlomo Rosenbaum: Okay. And just as a follow-up, one of the themes we're just seeing in the earnings for solid waste is really higher pricing, and it seems like the first 3 companies have all talked about that. And then just the volumes just not being where people thought they were going to be for various reasons. And I don't know, Patrick, maybe you could talk a little bit. Is that just, hey, the macro we thought was going to get better. There's the Iran war that just kind of upset things and it's going on longer. Is there anything else going on? Just what's your take on what's going on with volumes?
Patrick Dovigi: I mean nothing specific. Like we said in the bad market, volumes down 1%, good market volumes plus 1% like that's the range. I mean, again, C&D, special waste volumes are soft. They get higher interest rates for longer. I mean you're looking at homebuilders and other ones, like just things are slower. And I mean, we've been calling that out for the last sort of 12 to 18 months that we saw that perpetually getting slower. And I think on the C&D project, not necessarily felt at the same time because generally, those projects still have to finish and that volume sort of last to go and then last to come back as well. But there's nothing structurally any sort of issues in the market. And at the end of the day, we are pricing at the appropriate levels for the level of cost inflation that exists in the market. No one is charging egregious numbers or egregious pricing. It's just like we know what our internal cost inflation are, we know what headline price needs to be to sort of maintain that spread. And that's what you're seeing. And I think the industry -- that's the beauty of this industry is it's very disciplined and everyone is focused on the returns on invested capital, look at it in similar ways. And I think that's how people are pricing and the market is supporting that. And again, when you look at the average check size of our bills, on sort of a residential home, your average check size is sort of $25 to $40 a month. And if you're a commercial customer, average check size is $250 a month, whether that customer is taking 5% price, 4% price or 6% price, it's not a material amount in the grand scheme of things on a monthly basis. So I just -- I don't see any disruption coming from that side of the business either.
Operator: The next question comes from Adam Bubes from Goldman Sachs.
Adam Bubes: On the volume front, just a follow-up there. Are you able to parse out the performance this quarter between EPR-related volumes and underlying core volume growth? And then within the core volume growth, I think you did mention residential outperforming your expectations. So just any more color on volume performance by collection lines of business would be great.
Luke Pelosi: Yes. Great questions. It's Luke here. So volume of 100 basis points better than planned, sort of negative 0.7% versus sort of negative 1.5% in and around there. It was supposed to be negative on a tough EPR comp, right? Last year's EPR ramped, we had some transitional volumes that we were sort of falling over. And then C&D softness obviously sort of persists and continues. As I said, the C&D and special waste tons were down sort of 10%, 11% year-over-year. And if you look at it in terms of actual dollars, volume was minus $11 million, right? And if you look at that, landfill was about $9 million of those dollars and MRF processing, which really relates to sort of transitional contract I signed was about sort of $2 million on that. So it's really suggesting all else is flat, right? Now there's puts and takes in that. IC&I collection was sort of slightly down as residential collection was sort of slightly up, sort of offsetting it. But it's really that sort of C&D ending up at the landfill as well as some of that lapping sort of EPR, that was really the majority of it. Within Canada, the positive volumes of Canada, some of that residential growth is EPR driven. So again, I think in terms of dollars, the Canadian segment was plus 0.5% up on volume growth, so positive volume growth. And in there was EPR. I think EPR had a smaller contribution of sort of $5 million to $7 million of that growth was EPR related and sort of EPR tangential really related to the collection contract side of EPR. But those are sort of the moving pieces. If you peel it all back, you really have the normal course business sort of being flat with some headwinds coming from those 2 items.
Adam Bubes: Very helpful. And then it might be too early to talk 2027, but just conceptually, can you help us think about growth CapEx next year and the trajectory on the EPR and landfill gas side?
Luke Pelosi: Yes. So I think a little early for the '27 guide. Just conceptually, what we had said is GFL's growth CapEx is going to step down materially again next year, and that's going to be more in the sort of $75 million or $100 million, I think is what we had said sort of half of this year's number. Now what I'd just sort of reserve comment for is SECURE's model has been to deploy excess capital into organic growth opportunities in their book of business. So we'll have to evaluate that in totality. But growth CapEx is going to come meaningfully down, as we said, '25 was the peak. '26 is sort of going to be half '25. Yes, there'll be some R&D dollars required in '26. Some of that manifests in the investment line as opposed to CapEx just by virtue of us actually making contributions into joint ventures. You will have some of that, but we'll have to get later in the year before we articulate. What I would just say is even inclusive of growth CapEx, the overall sort of free cash flow number is going to inflect meaningfully going into '27.
Operator: The next question comes from Jake Kooyman from Wells Fargo.
Jake Kooyman: I'm on for Jerry this morning. So corporate costs were roughly $62 million in the quarter, which is roughly $250 million annualized. And you pointed to intensity going below 3% pro forma next year. So on the 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 2,000 employees. So does that mean you're essentially assuming SECURE's corporate functions are substantially eliminated? Or is that saving already inside the pro forma framework you published? Any comments on that would be helpful.
Luke Pelosi: Thanks for the question. I haven't looked at the math in that degree of rigor. What I would just say conceptually is our corporate costs really represent the centralized head office functions that support all of our business and geographies. So when we do acquisitions, something like SECURE, the field level support for those acquisitions is actually burdened within our segments, right? So if you think about our reported U.S. and Canada segment, there's a meaningful amount of overhead costs in those buckets that doesn't actually sit in the sort of corporate offices. So SECURE will be similar. The vast majority of those sort of secure support costs are actually just going to be in the field as opposed to certainly in the corporate. I think the math suggesting -- I mean, Kevin just asked directionally, there's going to be more M&A into next year that you have to factor in as well. But I would think about your corporate cost bucket ex sort of step changes from sort of a large acquisition or something is going to grow at a low to mid-single-digit number, while our top line is growing at a mid- to high single-digit number. And that is the basis on which you're going to get operating leverage. I'm not prepared to sort of commit to the actual dollars of corporate cost in '27 where we sit today.
Operator: 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.
Patrick Dovigi: Thank you, everyone, and we look forward to speaking with everyone after we report our Q3 results.
Operator: This concludes today's call. Thank you for attending. You may now disconnect.
