Waste Connections (NYSE:WCN) Q3 2025 Earnings Call October 22, 2025 08:30 AM ET Speaker2Ladies and gentlemen, this is the conference operator. Thank you for joining this morning's Waste Connections conference call. The call will begin momentarily. Once again, we do thank you for joining. Please stay on the line and the call will begin momentarily.SA.Good morning everyone and welcome to the Waste Connections Inc. Q3 2025 earnings call. All participants will be in a listen only mode. Should you need assistanc ...

Group 1: Government Shutdown Overview - The likelihood of a government shutdown is high, with estimates between 80% to 90% [19] - A shutdown occurs when Congress fails to pass a budget or short-term funding, leading to temporary furloughs of federal workers [39][40] - Essential services continue during a shutdown, but many federal operations are paused, affecting data releases like the employment report [40][41] Group 2: Market Reactions and Economic Impact - Despite the looming shutdown, stock markets have shown resilience, with a strong quarter reported [6][8] - Historical data indicates that markets tend to recover after initial drops during shutdowns, with positive returns observed one month post-shutdown [44][48] - Long-term Treasury yields typically decline following a shutdown, with a median drop of 19 basis points observed in nine out of eleven instances [47] Group 3: Investor Sentiment and Strategies - Investors are advised to focus on defensive plays that are less affected by government shutdowns, such as companies in essential services [27] - The current political climate suggests a lack of cooperation between parties, which may complicate negotiations and prolong the shutdown [35][36] - The upcoming earnings season is expected to reflect strong corporate performance, with projected earnings growth of 7% to 10% [14][16]

Acquisition Details - GFL Environmental acquired Superior Waste Industries from Red Dog Equity in an all-cash transaction, with the deal amount undisclosed [1] - GFL plans to spend approximately $900 million on acquisitions in 2023, indicating a ramp-up in M&A activities following a slow start due to the spinoff of its environmental services business [2] Superior Waste Industries Background - Superior Waste Industries was founded by industry veteran Billy Dietrich, who partnered with Red Dog Equity and other financial sponsors to acquire Central Disposal in March 2022, which included a landfill and hauling network [3] - Dietrich aimed to grow Superior into the leading independent waste company in Oklahoma [4] Recent Developments - Superior expanded its operations by acquiring Harley Hollan Cos. in 2022, which enhanced its hauling network and included a transfer station for construction waste [5] - In 2024, Superior acquired Sue's Recycling and Sanitation, adding two transfer stations in Oklahoma, and expressed intentions to seek further acquisitions and development opportunities [6] Statements and Future Outlook - Red Dog Equity expressed satisfaction with its partnership with Superior and confidence in GFL's ability to manage Superior's team and customers effectively [7] - Prior to the acquisition of Superior, GFL made three tuck-in acquisitions in Q2, totaling $105 million in annualized revenue, and acquired Wisconsin hauling assets from LRS in March [7]

Core Insights - Waste Management Inc reported better-than-expected earnings for Q2, with earnings of $1.92 per share, surpassing the analyst consensus estimate of $1.89 per share, and quarterly sales of $6.430 billion, exceeding the estimate of $6.369 billion [1][2] Financial Performance - The company achieved robust organic revenue growth and margin expansion in its Collection and Disposal business, reaching the best-ever operating expense margin [2] - Operating EBITDA grew by double digits in both Recycling Processing and Sales and WM Renewable Energy segments, indicating strong earnings contributions from sustainability investments [2] Guidance and Analyst Ratings - Waste Management lowered its FY2025 sales guidance from a range of $25.550 billion-$25.800 billion to $25.275 billion-$25.475 billion [2] - Following the earnings announcement, analysts adjusted their price targets: Oppenheimer raised it from $260 to $265, UBS from $260 to $265, and BMO Capital from $245 to $248, while maintaining their respective ratings [3][5]

Core Points - Huizhou City has completed the rectification of the 54th task of the second round of central ecological environment protection inspection, which is now ready for acceptance and closure [1] - The daily production of municipal sludge in Huizhou is approximately 900 tons, with a disposal capacity shortfall of about 300 tons per day [1] - Huizhou Xinlong Environmental Service Co., Ltd. was involved in illegal disposal practices, transferring 28,000 tons of sludge to Yingde RunTian Environmental Technology Co., Ltd., which lacked the necessary disposal capabilities [1] - The city has implemented a work plan to enhance sludge disposal capacity, with projects like the Boro Guangda sludge treatment facility and Huizhou Green Power being completed in 2022, and the first phase of the Zhongkai Eco-Park project completed in 2023 [1] - By the end of 2023, Huizhou's stable sludge disposal capacity is expected to reach 1,450 tons per day, with an average daily sludge production of 865.1 tons [1] Regulatory Actions - In April 2021, Huizhou City ordered Xinlong Environmental Service Co., Ltd. to cease operations and stop accepting municipal sludge [2] - The company cooperated with investigations and transferred remaining payments to the Yingde Public Security Bureau for the cleanup of involved sludge [2] - Huizhou has established a closed-loop regulatory mechanism for sludge transport and disposal, including monthly reporting and management of sludge handling processes [2] - The city has also initiated a special rectification plan for construction waste disposal sites and illegal transportation of construction waste, ensuring compliance with sludge transport and disposal regulations [2] Current Status - As of now, no illegal transfer or dumping of municipal sludge has been reported [3]

Financial Data and Key Metrics Changes - Revenues in Q1 2025 were $417.1 million, an increase of $76.1 million or 22.3% year over year, with $57.3 million from acquisitions and $18.4 million from organic growth of 5.4% [14] - Adjusted EBITDA was $86.4 million, up $15.4 million or 21.7% year over year, with adjusted EBITDA margins at 20.7%, down 10 basis points year over year [17][18] - Adjusted net income was $12.2 million or $0.19 per diluted share, an increase of $3.5 million or about $0.04 per share [19] Business Line Data and Key Metrics Changes - Solid waste revenues increased by 25.9% year over year, with pricing up 5.6% and volume down 1.7% [14] - In the landfill business, organic growth exceeded 7% with positive contributions from both price and volume, where price was up 3.3% and tons up 3.9% [9][16] - Resource Solutions revenues were up 9.5% year over year, with national accounts up 10.9% [16] Market Data and Key Metrics Changes - Pricing momentum in the collection side of the solid waste business was positive at 5.8%, offsetting a volume decrease of 1.7% [10] - The average price per ton in the landfill business was up 4.8% in the quarter [16] - Commodity prices remained stable, with recent softness in the fiber market offset by strength in plastics and aluminum [17] Company Strategy and Development Direction - The company continues to execute its acquisition strategy, having closed four deals year to date with approximately $50 million in annualized revenues [11] - The active M&A pipeline is over $500 million in revenues in various stages of engagement, focusing on operational fit and margin improvement [25] - The company aims to internalize more of its own tons and is working on expanding fleet automation and improving employee retention [9][10] Management's Comments on Operating Environment and Future Outlook - Management remains confident in the 2025 outlook, seeing opportunities for future value creation despite macroeconomic uncertainties [11][21] - The company has low exposure to tariffs and is closely monitoring vendor pricing related to tariffs [22] - Management noted that the first quarter was a strong start to 2025, with operational strategies working well [11][12] Other Important Information - The company was recognized on Forbes' 2025 America's Best Midsized Employers list, highlighting its core values and culture [7] - The company has approximately $900 million of availability between excess cash and its undrawn revolver, positioning it well for future growth [21][90] Q&A Session Summary Question: How much of the landfill volume increase is due to lost construction and demolition volumes flowing back? - Management indicated that about a third of the increase is from recapturing construction and demolition tons in the New York market, with two-thirds related to efforts to internalize additional tons [30][31] Question: Can you provide an update on landfill capacity for internalization? - Management stated that they are running about 30% excess capacity, primarily in New York State, with opportunities to drive more volume to specific landfills [33][34] Question: What is the expected EBITDA contribution from internalization? - Management noted that the impact of internalization is acquisition-dependent and varies based on specific transactions [78] Question: Why was full-year guidance not changed despite strong Q1 results? - Management explained that it is typical not to change guidance in the first quarter unless there are significant deviations from expectations [99][100] Question: Is there any impact on acquisition candidates due to economic uncertainty? - Management reported no significant impact on M&A activity, maintaining steady engagement with potential candidates [102]

Group 1: Investment Strategy - Bill Gates favors a concentrated investment portfolio, focusing on a few key titles rather than a diversified list [1][2] - The Gates Foundation Trust's portfolio is heavily weighted towards Microsoft, Berkshire Hathaway, and Waste Management [2] Group 2: Microsoft - Microsoft is the largest holding in the Gates Foundation Trust, with approximately 28.5 million shares valued at nearly $12 billion [4] - The company has shown consistent profitability and impressive growth rates, particularly in the AI sector, where it has made significant investments in OpenAI [5][6] Group 3: Berkshire Hathaway - Berkshire Hathaway is the second-largest holding, with nearly 19.7 million shares worth over $8.9 billion [8] - The company follows a buy-and-hold investment philosophy and has a diverse equity portfolio, including long-term positions in American Express and Coca-Cola [9][10] Group 4: Waste Management - Waste Management is the third-largest holding, with over 32.2 million shares valued at more than $6.5 billion [11] - The company is the largest in its sector by revenue, with a full-year 2024 revenue exceeding $22 billion and a net income of approximately $2.75 billion [12] - Waste Management has a strong history of paying dividends, with a yield of 1.5%, making it attractive for investors [13]