Waste Connections, Inc.

Hello, everyone. Thank you for joining us and welcome to the Waste Connections, Inc. Q1 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, please press star one again. I will now hand the conference over to Ron Middlestad, President and CEO. Please go ahead.

Thank you, Operator, and good morning. I'd like to welcome everyone to this conference call to discuss our first quarter results. I am joined this morning by Marianne Whitney, our CFO, as well as several other members of our senior management. As noted in our earnings release, we are well positioned for 2026 following a strong start with upside potential from recent trends. We not only exceeded expectations for revenue in EBITDA, but delivered EBITDA margin of 32.5%, up 90 basis points year over year, excluding commodity impacts in spite of outsized weather impacts and in advance of recovering higher fuel costs. Against a volatile macroeconomic and geopolitical backdrop, our results reflect the durability of our model and consistency of execution as we continue to benefit from improved operating trends, along with recent increase in commodities and special waste activity. Before we get into much more detail, let me turn the call over to Mary Ann for our forward-looking disclaimer and other housekeeping items.

Thank you, Ron, and good morning. The discussion during today's call includes forward-looking statements made pursuant to the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, including forward-looking information within the meaning of applicable Canadian securities law. Actual results could differ materially from those made in such forward-looking statements due to various risks and uncertainties. Factors that could cause actual results to differ are discussed in the cautionary statement included in our April 22nd earnings release and in greater detail in Waste Connections filings with the U.S. Securities and Exchange Commission and the Securities Commissions or similar regulatory authorities in Canada. You should not place undue reliance on forward-looking statements. as there may be additional risks of which we are not presently aware or that we currently believe are immaterial, which could have an adverse impact on our business. We make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances that may change after today's date. On the call, we will discuss non-GAAP measures such as adjusted EBITDA, adjusted net income on both a dollar basis and per diluted share, and adjusted free cash flow. Please refer to our earnings releases for a reconciliation of such non-GAAP measures to the most comparable GAAP measures. Management uses certain non-GAAP measures to evaluate and monitor the ongoing financial performance of our operations. Other companies may calculate these non-GAAP measures differently. I will now turn the call back over to Ron.

Thank you, Marianne. On the strength of our business and consistent execution, 2026 is off to a great start, with results exceeding expectations. Despite the volatility of the broader macro environment, We haven't seen anything to date that doesn't support our full-year outlook as provided in February. In fact, we believe we should be well-positioned for incremental benefits, both from external factors driving higher fuel and other commodities, and also as a result of our ongoing investments in human capital and AI, which have broad implications for our operations, along with continued M&As. In Q1, we saw improving dynamics across our business, starting with better than expected solid waste pricing retention, resulting in core price of 6%, providing visibility for the high end of our full year 2026 outlook of 5% to 5.5%. Next, our landfill tons were slightly stronger than expected, offsetting the volume impacts from slowdowns and closures related to severe winter weather, which persisted in several markets, most notably in the Northeast. Landfill activity was led by higher special waste tons, up 8% year-over-year in Q1, the sixth consecutive quarter of improving special waste. Looking next at the aspects of our results related to crude oil prices and related volatility, which are twofold. First, our E&P waste business, where revenues increased sequentially and were up about 4% year-over-year on a like-for-like basis. We saw increases both in Canada on greater production-oriented activity and higher pricing, and in the U.S. on drilling-oriented activity, most notably in the Gulf. To date, we haven't seen a meaningful increase in rig count or pickup in drilling activity, which may be driven by sustained higher food prices or long-term supply disruptions and would be additive to the levels we are currently experiencing. Next, fuel and related costs. Spot diesel in the U.S. was up 12% year over year, including an increase of over 35% in March. That surge drove our internal fuel costs about $5 million above our expectations for Q1. Our exposure to the cost impacts is limited due to hedges we proactively put in place for over 45% of our expected diesel requirements for 2026. Additionally, in certain markets, our pricing mechanisms allow for recovery of a portion of higher fuel-related costs over time through surcharges, which will step up in Q2 as a result of the incremental costs we have already absorbed. Based on what we have seen to date, we would expect to be largely insulated on an EBITDA basis over time from most of the effects of higher fuel costs between the benefit from any pickup and E&P waste activity the impact of hedges, and the recovery of higher diesel costs through surcharges, albeit with some lag in timing. Looking next at trends for other commodities, recycled commodity values stepped up sequentially in Q1 for the first time in seven quarters, led by improving values for fiber during the quarter. Although nominal, the increase is a positive indicator. And landfill gas sales also stepped up sequentially, in this case due to increased volumes on stable values for renewable energy credits or RENs. Moving next to operating trends, Q1 marked our 14th consecutive quarter of improvement in employee retention and the achievement of another milestone as voluntary turnover dropped to below 10%. We can't overstate the value of human capital as a differentiator and continue to see the benefits of lower turnover throughout our operations from our record safety levels to increased employee engagement and ultimately customer retention. Shifting to the subject of technology, our continued investment and focus on AI and our overall digital platform are showing promising results within pricing effectiveness, customer engagement, and asset optimization. Specifically, our AI-driven pricing tool has yielded approximately 20% improvement in customer retention and pricing effectiveness while maintaining our core pricing strength. We are encouraged by early results, knowing our analytics and capabilities will only get better as our technology advances. Further, for the balance of 26 and into 2027, we are excited about our continued involvement with the field to expand our AI-powered tools. reinforcing our commitment to our decentralized first model and value-based approach to the business. These current and future tools will continue to expand our customer engagement and routing productivity with early indications suggesting strong returns on investment. Moving next to M&A, we continue to anticipate another outsized year of activity based on a robust and building pipeline with high visibility and a handful of deals with aggregate annualized revenue of approximately 100 million expected to close by the end of Q2 or early Q3, we are on track for another above average M&A year. Most importantly, we remain disciplined in our approach to acquisitions and well positioned for implementing our growth strategy while also increasing return of capital to shareholders. To that end, on a year to date, outlays of approximately 365 million we've repurchased about 1% of shares outstanding. And finally, an update on our management of the ongoing elevated temperature landfill or ETLF event at Chiquita Canyon, our closed landfill in Southern California. We continue to make progress on mitigating the reaction, which based on objective data collected today, is stable, controlled, and decelerating. As noted previously, we have sought out the increased involvement and oversight of the U.S. EPA in an effort to streamline the process. Over the past several weeks, the EPA has expanded its involvement at the facility, which we welcome. To date, the EPA has weighed in and provided direction on two critical issues and we respect their expertise and experience, which have facilitated the development of plans to resolve these matters consistent with our expectations. We continue to work with the EPA on a long-term agreement, which should provide even greater clarity once consummated. There is no change in our 2026 outlook for Chiquita, which reflects free cash flow impacts of 100 to 150 million. That said, we did adjust our accrual in Q1 to reflect the higher spending we saw in 2025, which was incorporated into our 2026 outlook. We look forward to being in a position to more formally re-forecast the outlays for subsequent periods once we have a roadmap for moving forward, still anticipated this year. Additionally, we continue to expect free cash flow impacts in 2027 will decline as compared to 2026, as previously communicated, and continue to step down in each year going forward. And now I'd like to pass the call to Marianne to review more in-depth the financial highlights of the first quarter I will then wrap up before heading into Q&A.

Thank you, Ron. In the first quarter, revenue of $2.371 billion exceeded our expectations and was up $143 million or 6.4% year over year. Contributions from acquisitions net of divestitures totaled $55 million in the quarter. Organic growth and solid waste collection transfer and disposal of 3.1% was led by 6% core price. which range from about 4% in our mostly exclusive market western region to over 7% in our competitive markets. Total price of 5.9% included a reduction of about 10 basis points in fuel and material surcharging, given the lag in recovery at higher costs. With over 75% of our price increases already in place or contractually provided for, We have high visibility for full year 2026 core pricing at the high end of the range we provided, or about 5.5%. And given the recent step up in diesel costs, we would expect surcharges to increase accordingly, albeit with a lag, driven not only by the mechanics of the surcharges, but also due to advanced monthly or quarterly billing for some of our customers. As Ron noted, we have hedges in place for almost half of our diesel requirements, and utilize surcharges in a portion of our markets. Yield of 4.7% reflects ongoing reductions in customer churn and implies solid waste volumes down about 1.5%, including up to about half a point attributable to outsized weather events that contributed to Q1 volume losses to varying degrees across all of our regions, except the western region, where volumes were up about 1.5%. Looking at year-over-year results in the first quarter on the same store basis, roll-off polls were down 1% on rates per poll up 3%, and with the exception of our western region, polls were down in all regions. That said, we are encouraged by improving roll-off trends, especially given weather impacts. As compared to Q4 year-over-year results, polls were less negative by almost half a point, and year-over-year rates per poll stepped up by 120 basis points. Landfill trends, while still mixed, are also encouraging. Total tons were up 4% on MSW, up 5%, and special waste up 8%, partially offset by ongoing weakness in C&D, down 5%. Increases in MSW tons were spread across our western, Canadian, and central regions, while special waste activity was broad-based, driving increases in five of six of our geographic regions. Most noteworthy, though, was a 20% increase in special waste activity in our central region, where the pickup inactivity we noted in recent quarters had been lagging other markets. And following up on Ron's comments about improving commodity-driven activity, recycled commodity revenues improved during Q1, led by an increase in old corrugated cardboard, or OCC, which averaged $89 per ton in Q1 and exited the quarter in line with the 2025 full-year average price of $94 per ton. Additionally, our landfill gas sales increased sequentially as a result of contributions from one of our new R&G facilities currently in startup, and also from higher natural gas prices, which spiked in Q1, similar to last year. Values for renewable energy credits, or RIMs, remain stable at about $2.40 following the EPA's updates for renewable volume obligations. Adjusted EBITDA for Q1 is reconciled in our earnings release with $769.5 million, up 8% year-over-year. At 32.5% of revenue, our adjusted EBITDA margin exceeded our expectations and was up 50 basis points year-over-year, driven by 90 basis points underlying margin expansion, offset by about 40 basis points dragged from commodities. Outside solid waste margin expansion reflected improvement in several cost items reflecting favorable price-cost spread dynamics led by strong pricing retention and magnified by benefits from employee retention and safety. These benefits were partially offset by higher fuel and related costs. And finally, adjusted free cash flow of $246 million was in line with our expectations and consistent with our full-year outlook as provided in February of 1.4 to 1.45 billion. We were pleased to see Q1 CapEx outlays outpaced last year's slow start, largely as a result of more expeditious deliveries of fleet and equipment and faster progress on projects, including our RNG facilities in development. Moving next to our balance sheet, we opportunistically accessed the public debt market with a $600 million note offering in early March to further diversify funding sources. Following that highly successful offering and activities during the quarter, including share repurchases, as noted by Ron, our debt outstanding of about $9.1 billion had a tenor of over eight years at an average interest rate of about 4%, with about 80% of our debt fixed. With liquidity of approximately $1 billion and quarter-end net debt to EBITDA leverage of about 2.75 times, we retained flexibility for acquisitions as well as returning capital to shareholders through additional repurchases and dividends. And now let me turn the call back over to Ron for some final remarks before Q&A.

Okay, thank you, Marianne. As we've said, 2026 is off to a great start, and there are a number of factors working in our favor for the rest of the year. The strength of our results is a reflection of the projectability and consistency that sets us apart regardless of the macroeconomic environment. Our industry-leading results are also a reminder of the importance we place on asset positioning and market selection, both of which are fundamental to our strategy and which we believe drive differentiation. Our results highlight the importance of discipline around capital allocation, as well as the value of human capital and culture in driving results. These are the tenets that have guided Waste Connections' approach since our founding over 28 years ago, and which remain fundamental as we approach 10 billion in revenue very soon. To that end, we're most grateful for the commitment of our 25,000 plus employees who live our values every day, putting safety first and making Waste Connections such a great place to work. We appreciate your time today. I will now turn this call over to the operator to open up the lines for your questions. Operator?

Thanks, Ron. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Tyler Brown with Raymond James. Your line is open. Please go ahead.

Hey, good morning. Hey, doing okay, Ron. Hey, Marianne. So I appreciate some of the comments on fuel, but I just want to make sure, excuse me, that I've got it. So sorry for this. It's kind of a multi-part question, but number one, I just want to make sure that it's clear that kind of over the course of the year, you would expect fuel to be effectively a push from an EBITDA dollar perspective. But then two, if we assume where, where fuel is and it stays where it is, we clearly need to contemplate higher surcharges and that will be dilutive on margins. So I assume that needs to be considered. Can you maybe size some of the dilution there? And then three, or my garbage bill, I believe I paid two months in advance. So we also need to consider that there is a lag on fuel recovery. So can you help us think about fuel dilution specifically in Q2? So I know there's a lot there. I'm sorry about that, but just some more color on fuel.

Sure. Happy to address that. And there are a lot of moving parts. So here's how I'd approach it. First of all, you have fuel impacts that are direct and indirect. And what we know is that the direct impacts are mitigated or impacted by first of all the hedges we have in place so we've got hedged almost 50 of our fuel requirements and then we get fuel surcharges in certain of our markets and as you said and as we said in the script largely in terms of the dollar amounts of the the impact from fuel we can recover that over time through fuel surcharges you use the term during the year i just remind that since the spike started in march it goes into next year in terms of the recovery To your point, there is a lag. The lag is driven by, it's twofold. One is the mechanism specified by whatever the, what limits or provides for the surcharge. And then secondly, as you also pointed out, we advance bill customers on a quarterly or monthly basis. And so you can appreciate that when fuel ran in March customers who we had built in January, of course, we couldn't have recovered that we hadn't anticipated it. So it could take, you know, by example, up until May to get that. So then that brings you to the question of how quickly we recover. And to think about it, quarter by quarter, Q2 would be the toughest, right, because it's the slowest recovery because we're late to the game. By Q3, you're more at that 100% level, and then that continues through the year. So, of course, again, as you pointed out, there's a margin impact there when you recover the dollars. And so you get the revenue in EBITDA, but the margin changes. And obviously, that's a function. of how big the number is. Illustratively, if we've got about 50 million gallons that aren't hedged, you then rate that over the course of three quarters of the year. You know, you could see how with a couple of dollars higher fuel, this could be as much as 60 or 70 million dollars in incremental fuel surcharges that would run through the P&L, and that would create that margin differential. So then I think about the other bucket, which is indirect impact. So moving the indirect impact, it then says there's an opportunity to have incremental benefits associated with the higher fuel to the extent that there is an increase, for instance, in E&P waste activity. And that, again, we would expect to take longer. We haven't seen it yet. As strong as our E&P results were in Q1, that really didn't reflect a pickup in drilling activity. We did see an improvement in commodities. You've already seen a little bit of an offset of those margin drags. And then, you know, you would look to continue to see that as we move through the year.

Okay, perfect. And then I know I'm sometimes a bit spacey, but maybe I missed it. But did you give any color specifically on Q2 around revenue or EBITDA? Is that a change? Should we think about not getting that forward quarter look, or how should we think about that? Thank you.

Well, actually, it's consistent with the way we've been doing it really since last year. You know, we certainly give guardrails around the movement throughout the year, and I think we did that in Q1 when people laid out their framework for the year. And so I now think about directionally, you know, to provide what's changed since our guidance in February. And, of course, as I mentioned, when I look overall at the commodity impacts, that's probably improved just based on where the pricing's gone to date. It's probably a 10 basis point. benefit versus where we expected things to be in February, and you'd start seeing that in Q2. To the extent it doesn't change from here. And we just talked about the incremental margin headwinds associated with fuel, which would be most felt in Q2 versus the other quarters.

Okay, perfect. Thank you, guys.

Your next question comes from the line of Konark Gupta with Scotiabank. Your line is open. Please go ahead.

Thanks. The first one, Marianne, the underlying margins in Q1, if you strip out the fuel impact, I think they were up 110 basis points, including commodities as well. I think in February, you guys were looking at 50 to 70 basis points for the full year. I'm just trying to understand, like with the pricing moving to the high end of the range, Do you think the underlying margin expansion has potential upside to the 50 to 70 beats you said for the full year?

You know, obviously we're excluding fuel in this conversation, but yes, with respect to the fact that we just said we had a nice strong start to the year, that could be arguably another Indication of, you know, maybe a nice tailwind as we move through the year, we'd always be cautious because you have to have a lot of things go. Right? And we described all the things that went right in Q1 and, you know, acknowledging that those benefits we've seen, for instance, from the, the human capital driven benefits as we described with respect to. retention and the improvement we've seen there you know we've gotten most of those benefits so i wouldn't think that they continue at the same extent as we move through the year so you might have a little better improvement in q1 versus the other quarters and the underlying margin expansion okay that makes sense thanks uh and on the m a side i think ron you were mentioning about another 100 million dollar uh acquisition uh worth uh in the coming

few months, I just wanted to understand the nature of these transactions. What kind of areas are you targeting and what kind of assets are these mostly post collection or collection?

Yeah, sure. Well, you know, first, and I was a little, you broke up just a little, but didn't, we didn't mean to imply that there was a hundred million dollar transaction. There's a series of transactions. that equate to 100 million or more. Just to clarify, these are all consistent with our traditional, you know, what I call singles and doubles, core solid waste transactions, both franchise and competitive. Both, we have some integrated transactions in that, meaning collection through disposal, and a few smaller E&P tuck-in transactions as well. everything that's consistent with our existing platform.

Great. Thank you.

Your next question comes from the line of Tony Kaplan with Morgan Stanley. Your line is open. Please go ahead.

Thanks so much. I wanted to talk about volume. I think last quarter you had talked about for the year an expectation of about down 50 to flattish. This quarter we did see some nice improvement versus last year, and it was impacted by weather, so even better than the 150. And so my question is, does anything need to happen specifically to get to, are you still expecting the flat to down 50 for volume for the year? And does anything sort of special need to happen, or are you running at that sort of Uh, pace to to get to that level and how much visibility you have in that. Thanks.

Sure, so I guess a couple of observations we did see improvement in underlying volumes as you point out in Q1, and we're still able to deliver the volume in line with our expectations in spite of 25 to 50 basis points of weather impact. You know, some of that. We'd attribute to that improvement in special ways, which you never, you try to hesitate to generalize from that because it can be lumpy and we've had multiple quarters of improvement in special ways. So, you know, I'd be cautiously optimistic there. And then Tony, the final piece of the puzzle is really that construction driven activity, which we haven't seen accelerate yet. And so there was some improvement in the underlying dynamics factored into our expectations. For the full year that got you closer to that flat as you're even positive as you exit the year to deliver those numbers as you described. But the good news is that we are seeing that reduction in the shedding or lost contracts. And so that is directionally getting us in the right we're moving in the right direction.

The last thing I'd comment on that, Tony, is I think we commented on this in our remarks, was that with our AI pricing tool, we've seen perhaps up to almost a 20% improvement in retention slash churn on the same type of price, which led us to a little bit higher performance on price than our 5% to 5.5% guidance. And so that has a component to volume as well.

Terrific. And then I wanted to ask about EMP, strong in the quarter, I think up sort of modestly organically, but, you know, nice quarter there. And also you had sort of mentioned if the fuel prices continue to be high, that could, you know, be even more of a tailwind for you. Just wanted to understand, has your pipeline changed? Has it gotten better? You know, or is this sort of you need a little bit more time for prices to be at a higher level in order to see any sort of impact to the pipeline and future deals? Thanks.

Yeah. I mean, as you know, Tony, the crude ran with the Iran crisis so precipitously within a You know, we have not yet seen any increase in rig count in the U.S., which is what would be needed to drive incremental drilling activity to affect our volumes in the U.S. Now, if you have a sustained higher price crude, you will absolutely see, you know, there is a mobilization period that takes place that takes time and it takes several months. and producers aren't just going to react on a four- to six-week price increase in crude. But if you have a sustained increase in crude price, they will react, and then you'll see a mobilization of rigs, and we will see greater drilling activity, and then that will have an impact. And then, of course, in our Canadian E&P business, that is 80% to 85% production length. And we have seen some nominal increase in their production because of what's going on with the price of crude in Canada as well, as well as their ability to export or their desire to. So certainly if this is sustained, we will see it. But I'd say it's, you know, too early to say that producers are reacting to a four to six week, you know, crisis and not knowing how long that is going to go on. Super helpful. Thank you.

Your next question comes from the line of Faiza Aoui with Deutsche Bank. Your line is open. Please go ahead.

Yes. Hi. Thank you, and good morning. I wanted to ask about yield. We've been talking about fuel surcharges, but I'm curious if there is sort of this potential for underlying benefit that we could see, you know, on yield alone as you, you know, look at your contracts where you may not have fueled surcharges, for example. Just curious how we should think about, you know, yield going forward from here and if there's room for potential upside.

Sure. So, you know, most of our price increases as we described are in place or known. And so, when I think about the benefit, In yield, that could be in 27 more so than in 26. That doesn't mean that there haven't been situations in the past when there's been outsized cost pressures or inflation later in the year and we've revisited our price increases. But at this time, we think in terms of the recovery through the fuel surcharges that we know we're entitled to and then incremental pricing benefits lagging and into next year.

Okay, understood. And, you know, some of the benefits that you've been talking about as it relates to retention, just because this is a, you know, a relatively newer metric and historically given us core price, just help us think through, like, does that show up more now in volume or in yield? And sort of how should we think about that? Does yield still sort of decelerate through the course of the year mechanically? Or, you know, or should we see, again, like a slight improvement as maybe you lean into some of your, you know, technology initiatives a little bit more?

So, yield, you should expect yield to follow the similar cadence to what price did, because really what we're talking about is always the dollars associated with the price increases that we've retained. and that denominator gets bigger, right? So with most of the price increases are done early in the year. So that's a consistent numerator on a denominator that's getting bigger. What's changed in the way we're communicating it is that arguably before our volume was reflecting any difference in mix and the price volume trade-off, the customer churn that was inherent in delivering the price increase. And so now we've just really shifted it to the yield bucket. So it's a function of those two pieces. So, of course, as customer churn improves, the yield should reflect some of that. So you will see a little bit, but I would still expect the number, the absolute value to decrease over the course of the year.

Understood. Thank you. Your next question comes from the line of Adam Bubas with Goldman Sachs. Your line is open. Please go ahead.

Hi, good morning. I have a follow-up on E&P. I think on the last call, you talked about expectations for E&P waste revenues flattish for the full year. And in the quarter, I think it was up over 20%. It sounds like that was largely acquisition contribution. But are you seeing outperformance on the acquired revenues? And is the right way to still think about E&P revenues for the full year as flattish? Because the run rate looks much better right now.

Sure, so I think the commentary about expectations is that really not much margin contribution was expected and on an organic growth basis, it was expected to be pretty minimal. And so this is really consistent with what we expected, given the fact that we had rollover contribution from acquisitions, but also has the benefit of projects we've done, including at at bolt on acquisitions recently. But, but also in, for instance, reopening 1 of the facilities we've talked about reopening. That's why we tried to communicate like, for like, basis to normalize for those benefits. So, I'd say overall, I still think the margin impact again, unless we are until we get that pickup that Ron was just talking about in terms of drilling activity where it could be more meaningful. I think that would be pretty limited. But yes, the dollar amount would go up because of those incremental projects on the roll over.

Got it and then I think you're targeting 7 initiatives through 2027. it sounds like some of those are already having a real impact. I understand you're going to lap some of the strong margin tailwinds from voluntary turnover, but between continued price costs, DAI initiatives, landfill gas ramping, just at a high level, how do you think about potential for continuation of outsized underlying margin expansion beyond 2026?

Yeah, Adam, I mean, you're correct. We've targeted seven initial AI initiatives between 2025 and 27. We implemented three of those in 2025. We're implementing two in 26 and two more in 27. You know, we are spending, you know, roughly 25 to $30 million a year right now in each year on those initiatives. If you put them all together, the returns have been, you know, quite staggering, to be honest. Most of them much quicker than a one-year payback. You know, as we roll out our routing and other broader digital tools, it really suggests that the returns will meet or exceed the pricing tool return. You know, I know others in our space have talked about, you know, fairly significant margin contribution. And we have no reason to believe it looks any different that we haven't laid out a formal number, but look, we believe as we come out of 27 and head into 28, it is reasonable that through all of 7 of those initiatives to expect somewhere approaching about 100 basis points. of margin appreciation as we head into 28. So, you know, this doesn't just come linearly. Obviously, you load the costs up initially in terms of the capital and the infrastructure. We're in that phase and still delivering what we're delivering. And then you see those improvements as things get fully implemented in the field and deployed which takes time. It takes time to reroute 570 locations with 15,000 trucks. That's going to take all the way through the majority of 27, as an example. So we feel extremely confident and are very excited about what we're seeing from AI. It has outpaced our expectations in virtually every manner, but it is a complex implementation. But those seven initiatives are on pace. If anything, we think we're a little bit ahead. But I think that 100 basis points is a fair expectation as we come through getting all seven implemented. Great. Thanks so much.

Your next question comes from the line of Brian Bergmeier with Citi. Your line is open. Please go ahead.

Good morning. Thank you for taking the questions. Maybe just following up on E&P. Just curious if you think, you know, the kind of 4% growth rate that you flagged in 1Q is, you know, an appropriate number for 2Q or 3Q. You know, I'm not sure if maybe that 1% number only captured one month of improvement. So maybe 2Q could be, you know, even better. Also don't want to kind of get ahead of ourselves. So, you know, any detail on that would be great.

Well, I think the key thing is that we haven't seen a pickup in the drilling activity, Frank. So really, that would be the determinant. So I would say watch the rig count, and that'll be the leading indicator that that could improve. I wouldn't encourage you to think that there's been a recent run up and that you should then increase that for a full quarter. As we've said, we really haven't seen it yet. Underlying activity is up nominally is the way we described it. And so I'd say it'd be a little premature to go that far.

Okay, yeah, that makes sense. Thanks for that. And last question, and I can turn it over. I think we're targeting like 30 million in EBITDA from natural gas this year. I guess, you know, A, is that still accurate? And then B, did any of that sort of come online in one queue? Or do we think about that being, you know, mostly kind of back half-weighted? Thanks.

Yes, I think you're referring to the R and G more number or landfill gas sales where nat gas is a tiny piece of it. And then we talked about that spiking and queue on as it did last year. But, um, you know, what I, what I say is it's, it's always good news when you get a contribution from a facility and in startup, you know, a reminder that startup comes up with comes with a lot of expenses. So you're, you're working through that as you start these facilities. But we look forward to having more visibility, and certainly, you know, we'd expect in July when we revisit all of our expectations, we'll have a little better visibility on our RNG projects. But we still are on track to have those facilities come online, as we have described, so that our dozen or so, you know, about half of them were still to come, that we'd expect that by year end. And so, you know, maybe some are a little earlier and some are a little later, but, you know, it's right in line with our expectations.

Yeah, Brian, just to reiterate on Marianne, we originally outlined 12 RNG projects. Five were online by the end of 25. One came online in the first quarter, the end of the first quarter of 26. So, you know, really no contribution or very de minimis. And we plan to bring another six online by year end. Most likely most of those coming online in the fourth quarter to give us all 12 online for next year. We remain confident in that. And so the capex on R&G will come to effectively an end for these first 12. And then the EBITDA contribution from those will come in 27 and beyond. So you will sort of have a double impact to free cash flow starting in 27 from the R&G.

Your next question comes from the line of Trevor Romeo with William Blair. Your line is open. Please go ahead.

Morning. Thank you for taking the questions. I had one more follow-up on the E&P business. I think, Marianne, you talked about one of the previously mothballed facilities coming back online. So can you just remind us, do you have more of those mothballed facilities kind of still offline at this point or just sort of any other Organic project growth opportunities or anything like that that. That could still happen in the future and what the decision would look like on those.

Sure, Trevor, this is Ron. So, when we acquired in February of 2430 facilities from secure that were disposal landfill and processing facilities. Twenty five of those were operational. There were five smaller facilities that were mothballed. Today, we have brought online two of those five facilities. So there's three that we will continue to make market dynamic decisions on whether we reopen those or not. You know, these tend to be smaller facilities, but, you know, contributing two to five million in EBITDA per facility sort of as we open them. So collectively, they're meaningful. And as I said, we've opened two. We are evaluating and, of course, demand will depend on. on whether we open the one in the latter part of this year or not. Wouldn't expect it to be meaningfully contributive, but as I said, they aggregate and the rollover is meaningful as we go forward.

Okay, thank you, Ron. That's really helpful. And then maybe just switching over to the New York City market. I think there was some reporting recently about timelines on some of the waste zones and the rollout shifting around a bit. I know you've also kind of added to your presence there with acquisitions in the market or in the region kind of the last several quarters, let's say. So all that said, could you maybe just give us an update on how the city rollout and your kind of positioning and strategy is going there?

Sure. Happy to. So the New York City market is going through the implementation of a non-exclusive franchise system from an openly competitive system where there were hundreds of smaller, in this term, called carters or haulers in the city for the commercial waste. They have divided the city into 30 commercial zones amongst the five boroughs. And they have awarded three franchise haulers per zone. No hauler is allowed to have more than 15 zones. We have the maximum at 15. We have most of our zones are in Manhattan and Queens and the Bronx. We have a fully integrated position. We have multiple transfer stations in our zones. And we also have five MSW and C&D landfills that we are feeding that volume to or can feed it to over the coming years. I think it's safe to say we're really the only fully integrated company in New York City in those zones. So it is an opportunity that we are very, very excited about. It is coming along. But the city, you know, is going through some changes, as you know, in leadership, et cetera. No impact to the franchise system other than they are slowing the implementation a bit in some of the zones just because it is such a change. And so it's pushing back between six and 12 months. the implementation of their original zone scheduling. So it's sort of, they hope to have everything implemented sort of by the end of 27. And now we're hearing that, you know, that plan is sort of the middle of 28 to the end of 28 by the time everything is implemented. So no other change than a six to 12 month delay on the full implementation of the zones.

Okay. Thanks a lot, Ron. I appreciate it.

Your next question comes from the line of Jerry Riewicz with Wells Fargo. Your line is open. Please go ahead.

Yes, hi. Good morning, everyone. Morning, Jerry. Morning. Ron, I just wanted to circle back to the performance at Arrowhead. So you folks have ramped that operation up really nicely. Over the course of this year, you know, last quarter we spoke about internalization rate approaching 60% for the company. That's one of the contributing factors. What can that look like on a multi-year basis now as you folks have delivered on the higher capacity? How much higher could you take volumes at the landfill over the next couple of years? And, you know, where could internalization rate for the company go as you continue to ramp that up?

Sure. Well, appreciate the kind words about the achievement of that, Jerry. It's been a lot of work by our team to get there. Look, we are right now or this year running between 7,500 and 8,000 plus tons a day at our peak when we add Arrowhead. We have a plan to get that to 8,500 to 9,000 as we roll into 2027 for the year. Um, that, uh, you know, this takes a number of incremental step changes in trackage, both in arrowhead at the landfill as well as at the intermodal facilities along the East coast. Um, and, uh, so that that is in the process of being implemented and, uh. They're laid by Norfolk Southern. So we have a cap, if you want to use that word, of 15,000 tons a day is what the facility is permitted for, and that's on a seven-day, 365-day, a year, 24-hour-a-day permit cap. So there's still obviously a lot of room. So, you know, I'm not going to sit here and tell you that in five years we're going to get to that, but, you know, I do believe that we will get north of 10,000 tons a day, you know, somewhere in the two to three-year mark from now as we sit here. You know, as we continue to grow, that will move the internalization on that objective into the low to mid 60% level, which, as you know and those that follow us know, It means we're really actually more than 80% internalized in our competitive market footprint, which is where it really matters. And when you compare it against competitive market models, that's very, very high. So it is something we're focused on, but, you know, it is playing out about as we had hoped.

Super. Thank you. And then just a short answer to your question. impressive pricing in their quarter. And so you folks were able to put up really good margins, even with the diesel headwind. Can you just talk about how pricing cadence played out over the course of the quarter? To what extent did that reflect, you know, you folks managing the business for these pockets of inflation or any other comments that you would make on the outperformance in the quarter?

Sure. Well, what I'd say about the outperformance in the quarter is that what's really great about it is it came from so many different places. And I will say that pricing retention was a little stronger than expected. And we'd attribute some of that to the success of rolling out that AI price optimization tool that we've talked about. So we've continued to see benefits there. You know, we'd also say that our human capital driven initiatives and being fully staffed and providing the level of service that allows us to defend those price increases has continued to be additive. And then, you know, again, as we've said, all these initiatives have driven small improvements in a number of areas. And so when I look through what drove the 110 basis points of underlying margin expansion, it's pretty much every line item, you know, with the exception of fuel and related costs there, which was about a 20 basis point drag that, as we've described, You know, so I would say, Jerry, that's how we think about the outperformance. Now, that was augmented by the fact that we had strong special waste volumes. And so, you know, landfill volumes were a little better than expected. So that's a good guy. Commodities improved over the course of the quarter. So that's a little good guy. So all those pieces working together help to drive the margin expansion.

Super. I appreciate the discussion. Thank you. Thanks, Jared.

Your next question comes from the line of Seth Weber with BNP Paribas. Your line is open. Please go ahead.

Hey, thanks. Good morning. Just another margin question. You know, your SG&A was basically flat year over year with higher revenue. Was there anything unusual in that number, in either number year over year, or is there any reason to think why – You can't kind of continue to keep SG&A flattish year over year going forward with all these initiatives you're talking about. Thank you.

Yeah, you know, there can always be some noisy things, whether it's incentive comp or other pieces. You know, we certainly... That always hits in Q1. We certainly have talked about the fact that for our AI initiatives, we've hired, we've incurred some upfront costs in order to drive those benefits we're seeing. So that would be a contributor, but really nothing to call out there. Just a reminder that there's always a lot of moving pieces quarter to quarter.

Okay, thanks. And then just in your prepared remarks, you talked about strength in the volumes in the western region. Can you just put any more color behind that, what's driving that, which areas in particular, which markets? Thank you.

Sure. Seth, this is Ron. I think one of the reasons we point this out, and again, for those that have followed us for quite some time, the West region is what we call our exclusive region and our franchise region. And the benefit of that is that we get 100% of all volumes wherever they're generated, and we get them at a guaranteed price of the franchise. So I think it just shows that that model derives a very strong volume and stability benefit, which is why we like it. We had strong landfill and special waste growth. In our Eastern Oregon landfills, as well as in some of our Northern California landfills as an example. So, and we saw consistency and as Marianne noted improvement in roll off volumes in our West again, because we get everything. So not only was our price per poll up there, but our polls actually per day were up there as well. So, you know, you do not have that price volume competitive tradeoff in the West. And I think that was what we were trying to note more than anything. And so that probably more reflects the underlying economy at, you know, maybe a 0 to 1% type real GDP going on right now. So that was really what the commentary was about.

That's helpful. Thank you, guys. I appreciate it. Of course.

Your next question comes from the line of Shlomo Rosenbaum with Stiefel. Your line is open. Please go ahead.

Hi, good morning. Thank you very much. Ronna, I just wanted to ask you a little bit more about what it looks like in terms of the cyclical parts of the business. It seems like the special waste continues to be strong. T&D was down 5%. I think last quarter was down 4%. Maybe it's bouncing around a little bit. You don't notice the polls getting less negative. Are you seeing this as an improvement? Are you seeing this as kind of a flattening out? Where do you see that we are in What do you think that we're going to end the year in terms of, you know, overall economic activity and, you know, what do you see the trajectory of the business in that way?

Well, obviously, if I understood that, we'd be in a different business, but I'll give you what we believe. How's that? Look, special waste being up for the sixth consecutive quarter in our industry, special waste is traditionally a leading indicator, right? And the reason is it is predominantly speculative cleanup for development of commercial or residential real estate. That is predominantly what special waste is. So that usually precedes infrastructure and construction development at some point. So that's a positive. Now, C&D being down 45%, that's a real-time indicator of what activity is predominantly in construction. OK, now you don't do a lot of construction in Q1 because of the winter weather. So that's a little hard to say. Is that an indicator of the economy or not? I would tell you it's probably not. I think we feel like there's pent up demand starting to come. We're not seeing any negative indicators in our business. Obviously, if the Iran deal situation drags on and fuel remains elevated for consumers and businesses, that could be a pinch point in the economy. But assuming hopefully that this is a relatively short-lived situation, and fuel retreats by the second half of the year, we think there's a lot of positive momentum in the underlying economy that should start to come through. So I would tell you to your comment, we would say flat to improving was how you asked the question, and that's where we would say it is.

The other observation from it would be that that was our 10th consecutive quarter of negative C and D volumes, right? So it's clearly this has been around for a while roll off polls similarly at some point the comps get that much easier and so you should see it get better and so that was kind of the expectation going into the year that maybe things became less negative as ron said q1 is probably not the right time to look for it but you know that's that's how we're thinking about the business trajectory okay thank you and then just shifting back to your question we touched on in rail in in how your

continuing to internalize more over there. I just wanted to ask, in terms of what's going on to the rail as you're ramping up the tons, is it primarily internalization or are you seeing some also at the landfill third party contributing to some of the growth in the tons there as well? I'm asking that both kind of strategically and then also just in terms of where the pricing is for rail versus kind of the stuff that is way unfolded more locally.

Sure. So at this point, Shlomo, most of what is going on the rail, our rail, at least in our situation, is a greater amount of internalized tons. Now that has been very purposeful. We've taken tons over the last year and a half that we're going into third party sites on the eastern seaboard. Some of those are sites, some of those third parties, and we've internalized some of that volume. We have not yet pursued aggressively third party volumes into our intermodal transfers on the eastern seaboard because we have had some capacity uh constraints at some of our northeastern landfills so we have pulled down some of our volume there and internalized it on the rail so that we could take customer volumes into those landfills uh and so as that alleviates itself here over the next year to two years at a couple of our sites we will be able to pursue more third-party volume onto our rails, and that will be incremental to us. But we have not yet done that. So this has been mostly internalized volume at this point in time. You know, look, as far as the competitiveness of the rails, look, the longer you go, the farther you go, in our case now, rail is going, you know, 1,500 to 1,800 miles from the eastern seaboard to Alabama. so it's quite some distance, you start becoming more competitive with an increasing fuel surcharge than you do on over the road. If you were going a shorter distance, trucking would be more cost effective. But when you start talking longer distances, rail is more cost effective than trucking.

Your next question comes from the line of Noah Kay with Oppenheimer & Co. Your line is open. Please go ahead.

Great. Thanks for taking the questions. The first one is on yield and price. I would just observe that this 130 bps spread between core price and yield is already quite tight in a positive way for this industry. And so I guess that spread probably tightened year over year, given the intentional shedding, moderating, and some of the AI and turnover and safety initiatives. But is there any way to mention or confirm what kind of improvement in the spread might have been year over year? And how should we be thinking about that sort of spread for 26 as a whole? How should we be modeling that?

Sure, so so when I look back and and try to do apples for apples and prior periods, I'd say I agree with you overall that that churn was probably running more in that 150 to 200 basis points for for several quarters. And so some of what we've seen is, is a tightening there. What gets a little trickier as you can appreciate Noah is that mixed factors into this and so to seasonality, therefore, and it's a reminder that when when we look at, for instance, Uh, selling in the Northeast and that rates per yard can be twice as much as they are in, say, our mid South or Southeast region. You know, that is another factor that's influencing what that amount is, which is frankly why we thought it was good to get it out of volume because it was overstating the negative volumes in a way that felt punitive. So, what we're really trying to do is achieve some parity with our peers or comparability with our peers. And we're going to acknowledge that it's still imperfect, but I think that's another consideration to have, which could cause a little variability.

Okay, thanks. And then related, it looks like risk management as a percentage of COGS improved 30 bps year over year in the quarter. You know, you've talked in the past about risk management as a lagging benefit of improved, you know, safety rates. Was that in any way a positive surprise? And how are you thinking about in the guide risk management as a benefit to margins for 26?

Yeah, as you'll recall, we called it out in Q4 that that was the first time we'd really seen it flip from being a headwind to a tailwind. And so was it a surprise? Look, it's always encouraging when you see the trends that you've expected to see in the business materialize in the numbers. You're always cautious because you can't generalize, but Two quarters is certainly, you know, good to see. And yes, we came into the year, you know, as you'll recall, we've talked about the fact those drivers for outsized margin expansion, we said this was really the final piece of those human capital driven benefits, the lagging benefit of risk. So is it generally in line with what we were hoping for this year? Yes. It'll vary quarter to quarter, but this is the right way to think about it. It's a good guide that was factored into our expectations.

Perfect. Thank you.

Your next question comes from the line of Kevin Chiang with CIBC. Your line is open. Please go ahead.

Hi. Thanks for taking my question. Congrats on a strong start to the year here. Maybe just a follow-on on a number of questions that were asked along the same vein. Just on the special waste, I appreciate a lot of the moving parts and Q1 can be a little bit noisy with weather, but I guess when you look back historically, what type of lead indicator is special waste to total volumes? Does it typically lead total volume inflection by a year, six months, 18 months? Is there any rule of thumb that we can point to when you see this type of special waste improvement over such a long period of time?

Yeah, I mean, I think, Kevin, it's a little anecdotal, but I would tell you that generally it's certainly, you know, in that next six to 12 months. I mean, look, this is property being cleared by developers who have pulled permits to do speculative construction or development. So, you know, that's that's shopping centers, infrastructure, apartments, homes. So, you're probably talking that that goes on for that and that lot clearing and clean up goes on for 3 to 9 months. And then construction begins. So, you know, we've talked about it said improving for 6 consecutive quarters now. So, you know, I think it's reasonable to expect that by this summer, as we go into the summer and through it, you should see some, some pick up and in and flow through into the solid waste business. I mean, that would be a traditional pattern.

That's helpful. Maybe I can ask the yield and core price question over a longer period of time. You're definitely gaining traction with some of your AI revenue management strategies here. When you look at whether it's a ratio or a spread, does that change over time as you look at some of the benefits from this AI tool? Do you reduce churn and so it helps the yield or Or maybe the rollbacks also improve, so maybe the net impact on the numerator and denominator are kind of equal. Just wondering how that ratio may or may not be impacted as you gain momentum on some of these revenue management initiatives driven by AI.

Sure. So, as you know, Kevin, first of all, of course, the absolute value of whatever this number is is a function of what our costs are doing. So, to the extent that we're seeing benefits and costs that say we need less price, that will factor into what you see, whether it's price or yield. Now, specific to yield as compared to core price, I would expect, and we look forward to, needing to put less price on the street, but to retain more because of these tools. And as we've said, That's one of the benefits we're already seeing. And ultimately, as we've described, it's really keeping the customer longer that's the greatest benefit. And so I would expect there to be some improvement in yields, but that would be tempered by the need for less price overall. So I'm not, you know, we'll take both of those things into consideration in terms of expectations for what those numbers look like.

Yeah, that's very helpful. Thank you very much for taking my questions. Of course. Thank you, Kevin.

Your next question comes from the line of Toby Samir with Truist. Your line is open. Please go ahead.

Thank you. If I could ask a follow-up question on the rail point. As you look at the business and the industry over a long stretch of time, how do you see the volumes shifting towards rail and how – What are your plans to help drive that change beyond Arrowhead? I imagine with the success you've experienced, you're looking at other ways to drive that change.

Yeah. Toby, I mean, obviously, look, today, rail is predominantly or almost exclusively a northeastern seaboard area. modality for waste because of very high tip fees in the Northeast because of landfill scarcity. You're not building new landfills in the Northeast, and it's obviously difficult to expand landfills in the Upper Northeast. So the combination of all that is ripe for rail to take waste out of the geography. As landfill airspace scarcity gets tighter in other parts of the country, such as along the lower East Coast seaboard, as an example, down in through Florida and the Carolinas, I think you will begin to see similar things happen at smaller levels there next. You still have a very, you know, a large amount of airspace available in the southeast and in the Midwest and in the Rocky Mountains at, you know, relatively inexpensive prices. cost relative to the Northeast, so it's not as conducive in that geography for rail. And then on the West Coast, in the Pacific Northwest, you do have rail as a very large modality that has been in place for quite some years in Washington and Oregon. You do not have it really in California, and I would not expect it there anytime soon. So, look, you really need to be moving the volumes somewhere probably north of 300 to 400 miles for rail to make sense in most tip-free environments. So, as you go forward 510 years, and you continue to see consolidation of landfills and increasing airspace. rates or tip fee rates, you will see more and more rail as waste moves economically farther. So, you know, look, I, you know, without divulging to the last part of your question, let me just say, stay tuned. And I think with, for us, you will see an incremental rail opportunity that will happen in 2026. And, you know, I'm quite confident in that. So it will continue to develop throughout the industry. It'll be slower, but follow landfill tip fees and the price of crude, because those are the two things that, as they move up, rail becomes more and more economical.

Thank you very much.

We have reached the end of the Q&A session. I will now turn the call back to Ron Mittelstadt for closing remarks.

If there are no further questions on behalf of our entire management team, we appreciate your listening to and interest in the call today. Marianne and Joe Fox are available today to answer any direct questions we did not cover that we are allowed to answer under Regulation FD, Reg G, and applicable securities laws in Canada. Thank you again and look forward to connecting with you at upcoming investor conferences or on our next earnings call.

This concludes today's call. Thank you for attending. You may now disconnect.