Sabahat Khan

Sabahat Khan inquired about the revenue outlook for the nuclear/energy and life sciences segments, specifically if the significant growth in nuclear was anticipated and what factors drive mid-to-high single-digit growth in life sciences. He also asked about the working capital target and the ranking of M&A in capital allocation as leverage improves.

Answer

Interim CFO Anne Cybulski detailed that energy backlog primarily consists of life extension projects and new builds, including a recent fuel fabrication order. CEO Doug Wright added that nuclear involves long-standing CANDU relationships and early-stage SMR activities, which are long-term investments. For life sciences, Anne mentioned custom integration, products, and services, while Doug highlighted pipeline diversity in radiopharma, visual inspection, med tech, and mail-order pharmacy. Regarding capital, Doug stated it's premature to set new working capital targets but acknowledged progress. He confirmed commitment to disciplined M&A, a rich pipeline, and favoring M&A deployment as leverage improves.

Sabahat Khan asked for a high-level overview of revenue outlook for the nuclear/energy and life sciences segments, specifically regarding new orders and growth drivers, and inquired about working capital targets and the ranking of M&A in capital allocation as leverage improves.

Answer

Interim CFO Anne Cybulski detailed energy backlog from life extension projects and new builds, including a fuel fabrication order. CEO Doug Wright added on SMR early-stage activities and life sciences diversity in radiopharma, visual inspection, and med tech. Doug Wright also stated it's premature to set new working capital targets but confirmed a disciplined approach to M&A, favoring deployment as leverage improves.

Asked about the variability of backlog conversion for the rest of fiscal '26, the outlook for margin progression with the EV business now smaller, and the potential positive and negative impacts from tariffs and reshoring efforts.

Answer

The company's objective is to outpace the mid-single-digit automation market growth, similar to its pre-EV-headwind performance. The transportation business was a drag but is improving and expected to be profitable in FY26. Modest, progressive margin expansion is expected throughout the year. Regarding tariffs, the impact has been minimal, and the company's global footprint could be a mid-term benefit, allowing it to build in-region for customers and support reshoring.

Sabahat Khan of RBC Capital Markets asked about the variability of the backlog conversion rate for fiscal 2026, the outlook for margin progression with a reduced drag from the EV business, and the net impact of tariffs and potential reshoring.

Answer

CFO Ryan McLeod stated that while the conversion rate will vary, the company aims to outpace the market's mid-single-digit growth. He expects the transportation business to be profitable in FY26, contributing to modest, non-linear margin expansion. CEO Andrew Hider added that the impact from tariffs has been minimal and that ATS's global footprint could be a mid-term benefit by enabling in-region manufacturing for customers.

Sabahat Khan of RBC Capital Markets asked about the expected revenue conversion rate from the large backlog, the outlook for margin progression in fiscal '26 with a smaller EV business, and the potential positive and negative impacts from trade tariffs.

Answer

CFO Ryan McLeod explained that while the backlog conversion rate varies, the 19% YoY growth in backlog supports the company's goal to outpace mid-single-digit market growth. He expects modest, progressive margin expansion throughout fiscal '26 as the transportation business drag abates. CEO Andrew Hider added that while tariffs are a challenge, the impact has been minimal, and he views them as a potential mid-term benefit due to ATS's ability to leverage its global footprint for reshoring efforts.

Asked about capital allocation priorities for fiscal '26, the medium-term revenue mix potential for the nuclear business, any changes in life sciences customer behavior due to the new US administration, and supply chain exposure to Mexico and US-Canada trade in the context of tariffs.

Answer

The company's current priority is deleveraging to its 2x-3x target range before resuming significant M&A. Nuclear is viewed as a key high-value niche, but Life Sciences will remain the largest segment. No marked change in life sciences customer behavior has been observed. The company is actively working with suppliers to mitigate potential tariff impacts on its supply chain, which has some exposure.

Sabahat Khan from RBC Capital Markets asked about the capital allocation strategy for fiscal 2026, the medium-term revenue potential for the nuclear segment, any changes in Life Sciences customer behavior due to political shifts, and supply chain exposure to Mexico under potential tariff scenarios.

Answer

Ryan McLeod, Chief Financial Officer, reiterated that the priority is reducing leverage to the 2x-3x target range over the next few quarters, which will precede a pickup in M&A. Andrew Hider, Chief Executive Officer, added that while nuclear is a high-value niche, Life Sciences will remain the largest market. He has seen no marked change in Life Sciences customer behavior, emphasizing ATS's ability to support them globally. Ryan McLeod also detailed that they are working with suppliers to mitigate potential tariff impacts, including those sourcing from Mexico.

Sabahat Khan asked about the factors influencing Jacobs' updated FY2026 guidance, particularly how potential government shutdowns and macro trends are reflected, and what would drive performance towards the higher versus lower end of the top-line guidance. Khan also inquired about the demand drivers for the environmental services business, which is expected to improve in the second half of the fiscal year, asking if specific end markets or catch-up work are contributing to this trend.

Answer

CEO Bob Pragada explained that the guidance reflects the burn profile of backlog, strong, high-velocity wins in life sciences and advanced manufacturing (data centers, chip manufacturing), and robust international business growth across Europe, the Middle East, and APAC. He noted that the velocity of private sector work would drive the higher end of the range. Regarding environmental services, Pragada segmented the recovery into three areas: an inflection point in government work (US Department of Defense, Navy, Army Corps of Engineers), the settling of disaster relief work transfer to state/local entities, and a double-digit pipeline increase in the private sector (industrial, life sciences, advanced manufacturing), all pointing to a second-half recovery.

Sabahat Khan inquired about the higher-level outlook, including the impact of potential government shutdowns and macro concerns on Jacobs' guidance, and what factors could drive performance towards the higher or lower end of the top-line forecast, considering potential green shoots and government-related considerations. Khan also asked for more detail on the environmental services business, specifically what's driving its anticipated improvement in the second half of the fiscal year, including specific end markets or catch-up work.

Answer

Chair and CEO Bob Pragada explained that the burn profile of the backlog, particularly high-velocity wins in life sciences and advanced manufacturing (data centers, chip manufacturing), and a strong international business (Europe, Middle East, APAC) would drive performance. For environmental services, Mr. Pragada identified three drivers: increased US Department of Defense programs (Navy, Army Corps of Engineers), the settling of disaster relief transfers from federal to state/local, and a pickup in the private sector (industrial, life sciences, advanced manufacturing), noting a double-digit increase in the pipeline for the second half.

Sabahat Khan from RBC Capital Markets asked about the expected contribution from IIJA funding to the FY26 outlook. He also inquired about the sustainability of PA Consulting's strong revenue and profit growth and its underlying drivers.

Answer

Chair & CEO Bob Pragada stated the outlook is based on existing backlog, not speculation on IIJA acceleration, noting the portfolio's diversity provides a balance. Regarding PA Consulting, he explained its growth is driven by UK public sector stability and defense spending, supported by a 16% backlog increase.

Sabahat Khan asked if recent macro volatility was significant enough to trigger stimulus spending discussions with government clients. He also inquired if there has been an increase in reshoring-related project discussions in key end markets like semiconductors and healthcare.

Answer

Chair and CEO Bob Pragada confirmed that some paused DoD infrastructure projects are now resuming in the second half, though state and local work was unaffected. He affirmed that reshoring discussions for life sciences and semiconductor clients are happening in 'real time,' with Jacobs benefiting from its involvement in early-stage planning and site selection.

Sabahat Khan inquired about customer sentiment in the U.S. amid the current political narrative and asked for details on the specific initiatives driving the company's full-year margin improvement guidance.

Answer

Chair and CEO Bob Pragada stated that customer sentiment remains positive, with double-digit pipeline growth and no dramatic shifts in client behavior. CFO Venk Nathamuni attributed margin strength to cost controls, operating leverage, a favorable project mix, and the global delivery model, confirming the full-year guidance of 13.8% to 14% adjusted EBITDA margin.

Sabahat Khan asked if the FY25 growth guidance includes a buffer for potential political changes in the U.S. He also requested more detail on the outlook for the U.K. and Middle East markets, including spending priorities post-U.K. election and evolving development plans in the Middle East.

Answer

CEO Bob Pragada clarified that guidance is based on client activity and long-term global trends, which are largely separate from potential political 'churn in the Beltway.' CFO Venk Nathamuni added the range reflects the most likely outcome. Regarding international markets, Pragada noted strong local client demand and growing pipelines in the U.K. and Middle East, driven by long-term trends in water and transportation, and emphasized the importance of the global talent pool in those regions.

Sabahat Khan asked how Tetra Tech's full-year guidance range reflects potential market outcomes, including stabilizing and accelerating markets, and inquired about an enhanced focus on M&A, balance sheet capacity, the type and size of target assets, and CEO Dan Batrack's transitioning role.

Answer

CEO Dan Batrack stated that the guidance midpoint assumes midpoints of growth rates, with the low end factoring in potential partial government shutdowns or volatility, and the high end considering bipartisan support, accelerated commercial work, and potential for more Ukraine-related power engineering. Regarding M&A, he confirmed a focus on 'needle-moving' strategic acquisitions, potentially larger deals (up to 4x leverage, with quick deleveraging), as he transitions day-to-day operations to President Roger Argus to focus on vision, direction, and transformative partnerships. CFO Steve Burdick highlighted $2 billion in debt capacity for larger acquisitions.

Sabahat Khan asked how Tetra Tech's full-year revenue and earnings guidance range reflects potential market outcomes, and then inquired about the enhanced focus on M&A, balance sheet capacity, and the CEO's transitioning role.

Answer

Dan Batrack, Chairman and Chief Executive Officer, stated the guidance midpoint assumes midpoints of market growth rates, with the low end factoring in potential partial government shutdowns or volatility, and the high end considering bipartisan support and increased Ukraine-related work. Regarding M&A, Mr. Batrack explained his new Executive Chairman role would focus on 'needle-moving' strategic acquisitions, leveraging the company's $2 billion debt capacity (and more with equity) for transformative deals, while smaller bolt-ons continue. Steve Burdick, Chief Financial Officer, confirmed the strong balance sheet capacity.

Sabahat Khan of RBC Capital Markets asked for color on the growth drivers in the water market relative to general infrastructure across the U.S., UK, and Australia. He also asked where Tetra Tech sees opportunities to increase its penetration of front-end advisory and consulting work.

Answer

CEO Dan Batrak highlighted that state and local water infrastructure work continues to grow above the company's 10-15% expected range, nearing 18% growth excluding disaster work. He noted similar mid-teens growth in the UK and Ireland, driven by water utility frameworks. For front-end work, Batrak explained that as energy clients pivot from renewables to conventional sources like natural gas, there is a significant need for front-end consulting on technical evaluation, grid connection, permitting, and project economics.

Sabahat Khan asked about visibility with government partners for the second half of the year and into 2026, the medium-term outlook post-USAID changes, and the company's capital allocation priorities.

Answer

CEO Dan Batrack expressed confidence in funding streams from clients like the Department of Defense and the FAA, citing over $30 billion in contract capacity. He affirmed the medium-term outlook remains strong due to enduring tailwinds in water and environment. CFO Steven Burdick added that the company's capital allocation strategy is balanced, with sufficient liquidity to support dividend growth, M&A, and share buybacks simultaneously.

Sabahat Khan asked for expectations for the Civil and DoD segments for the rest of fiscal 2025, trends in the commercial business related to data centers and infrastructure, and for more detail on the environmental and renewables business bucket.

Answer

CEO Dan Batrack responded that DoD work is growing strongly at 5-10% and is unaffected by recent administrative changes, with potential for acceleration. He noted commercial client conversations are progressing steadily, particularly for permitting and studies related to LNG and data center power. Batrack clarified that renewables represent only about 5% of revenue, with U.S. wind projects that may be out of favor constituting a very small portion (approx. 1.5%) of the total portfolio.

Sabahat Khan asked about margin expansion levers available if top-line growth moderates, the current competitive landscape in the water market, and the focus of the M&A strategy on non-U.S. targets.

Answer

CEO Dan Batrack identified three margin drivers: 1) internal efficiencies from digital tools, 2) shifting the portfolio mix toward higher-margin consulting, and 3) growing the high-margin software subscription business. He asserted that while competitors are entering the water space, they are focused on the commoditized end that Tetra Tech is exiting. Regarding M&A, he stated the primary driver is acquiring intellectual property and technology, not specific geographies.

Sabahat Khan with RBC Capital Markets inquired about WM's macro backdrop outlook, specifically asking about industrial activity and the construction and demolition (C&D) market pickup, and then followed up on the 2026 Healthcare Solutions segment's pricing, cost refinement, SG&A reduction initiatives, and margin expectations for the next 12-24 months.

Answer

CEO Jim Fish and CFO David Reed expressed optimism about the macroeconomy, noting industrial activity nearing flat and residential volumes improving, with strong performance in landfill and special waste. For Healthcare Solutions, Jim Fish and President John Morris highlighted significant progress in customer service, with credit memos peaking in Q4 2025. They anticipate 4.2% price growth and 3% top-line growth in 2026, driven by cost structure improvements and cross-selling benefits, with a near-term pathway to reduce total company SG&A below 10%.

Sabahat Khan asked about the macro backdrop, specifically industrial activity and the C&D market, and then followed up on the Healthcare Solutions business regarding 2026 pricing, cost refinement, SG&A, and future margin expectations.

Answer

CEO Jim Fish expressed optimism about the macroeconomy, noting industrial business bouncing back to almost flat and residential volume normalizing. He also detailed progress in Healthcare Solutions, including improved customer service, peaking credit memos, and expected 4.2% price realization in 2026, with cross-selling exceeding expectations. President and COO John Morris added that cross-selling benefits are showing up in the core solid waste business.

Sabahat Khan of RBC Capital Markets requested an update on the residential business optimization journey, the key drivers for maintaining EBITDA margin guidance despite lower revenue, and the outlook for the industrial (roll-off) business.

Answer

President & COO John Morris stated that about 70% of the residential business is now at an acceptable margin and expects volume loss to moderate by year-end. EVP & CFO Devina Rankin explained the margin guidance increase was driven by strong C&D performance, recycling commodity price impacts, and better-than-expected price-cost spread. CEO Jim Fish noted an encouraging rebound in the roll-off business, with significant improvement in June.

Sabahat Khan requested more detail on the residential business margin improvement, asking if the focus is on further volume shedding or pricing. He also asked about the timing of Stericycle synergy realization, inquiring which quarter would see the largest EBITDA impact and what specific initiatives would drive it.

Answer

EVP and COO John Morris explained that while reaching 20% margin is a milestone, they will continue to shed low-margin residential volume through 2025 and early 2026 to improve returns. EVP and CFO Devina Rankin stated that synergy realization will ramp up in the second half of 2025, with Q3 showing significant momentum from initiatives like back-office streamlining. Executive Rafael Carrasco added that operational discipline, such as bringing an incinerator online, will also drive savings.

Sabahat Khan of RBC Capital Markets asked about the underlying macroeconomic view embedded in the 2025 volume guidance, particularly for cyclical volumes, and requested more detail on the commodity price assumptions for the year.

Answer

President and CEO Jim Fish stated that the industrial segment has been soft, reflecting a broader industrial slowdown, and the guidance does not assume a big rebound. He noted landfill volumes remain a bright spot. EVP and CFO Devina Rankin specified the 2025 recycled commodity price assumption is $85/ton, down from $92/ton in 2024. She added that prices bottomed in December and have seen an uptick in January, with the model assuming moderate increases through the year.

Sabahat Khan asked about the risk to investment tax credits (ITCs) from a potential change in administration and the expected timeline for restoring consolidated margins after the Stericycle acquisition.

Answer

EVP & CFO Devina Rankin stated the primary risks to ITCs are project timing and the interpretation of complex IRA rules, not necessarily an administration change. SVP & Chief Sustainability Officer Tara Hemmer clarified the rule risk is the difference between a 30% and 40% credit. President & CEO Jim Fish said it was too early to provide a timeline for margin recovery but will give more color with 2025 guidance, noting that growth in the core and sustainability businesses will be positive drivers.

Sabahat Khan asked about BRP's current production levels and factory utilization rates, particularly in the context of the calendar 2026 EBITDA margin base case of around 14%. He also inquired about the expected evolution of tariff impacts and whether additional tariffs would be managed through efficiencies or pricing.

Answer

CFO Sébastien Martel stated that BRP's factories will still operate below average asset utilization rates next year, even with the CAD 400 million-CAD 500 million revenue tailwind, indicating utilization will be among the lowest. Regarding tariffs, Mr. Martel explained that the impact depends on materiality and components, but BRP's teams are becoming more sophisticated in managing exposure. He expects the tariff headwind to be similar next year due to improved processes and collaboration, and BRP will continue to monitor and adapt proactively.

Sabahat Khan of RBC Capital Markets asked for a deeper dive into the expected retail evolution in the second half and into next year, considering macro factors. He also inquired about the company's capital allocation strategy and balance sheet management outlook.

Answer

CFO Sébastien Martel stated that the base case for H2 retail is a continuation of Q2 trends, but BRP is confident in its guidance due to low inventory and demand for new products. On capital allocation, Martel emphasized that the priority remains investing in the business and growing the dividend. He noted that the company will likely remain on the sidelines for share buybacks, prioritizing financial flexibility and prudence given the uncertain environment.

Sabahat Khan inquired about the channel inventory situation, including the timeline for rightsizing, the competitive landscape, and the factors supporting an expected retail improvement in the second half of the year.

Answer

CFO Sebastien Martel stated that network inventory was down 21% year-over-year, with most of the work on Year-Round Products expected to be complete by the end of Q2. He noted that some competitors were later in adjusting production, leading to an aggressive promotional environment. CEO Jose Boisjoli added that confidence for H2 is based on normalized non-current inventory levels, exciting new model year '26 product launches, and sustained momentum in current-year unit sales.

Sabahat Khan asked about the competitive inventory landscape's impact on fiscal 2026 guidance and the outlook for CapEx and free cash flow.

Answer

CFO Sebastien Martel explained that BRP is in a stronger inventory position than competitors, who hold excess noncurrent units. He anticipates market share pressure in H1 2026, with normalization expected in H2. Martel also noted that while initial plans called for solid free cash flow, CapEx would be slightly higher due to foreign exchange, and the company remains flexible to adapt spending if market conditions worsen.

Sabahat Khan inquired about the anticipated evolution of Legence's revenue mix between the Installation & Maintenance (I&M) and Engineering & Consulting (E&C) segments over the next one to three years, asking if management aims to return to a pre-IPO mix or follow market opportunities. She also asked about the operating leverage benefits from the Bowers acquisition and potential revenue and cost synergies over the next one to two years.

Answer

CFO Stephen Butts stated that Legence aims to maintain a reasonable balance between segments, acknowledging that M&A and market growth will cause the mix to ebb and flow, with a shift towards I&M expected next year. CEO Jeff Sprouw emphasized conviction in being a life cycle provider with national scale in both segments, viewing it as a key differentiator. Stephen Butts explained that cost synergies from Bowers would likely be offset by incremental costs in the short term (e.g., cybersecurity, finance, HR compliance), with revenue synergies being the primary value driver. Longer-term economies of scale are expected in 2027-2028.

Sabahat Khan inquired about the evolution of Legence's revenue mix between the Installation & Maintenance (I&M) and Engineering & Consulting (E&C) segments over the next one to three years, and management's perspective on maintaining balance. He also asked about operating leverage benefits from the Bowers acquisition and synergy opportunities.

Answer

Stephen Butts, CFO, and Jeff Sprouw, CEO, discussed maintaining a reasonable balance in revenue mix, acknowledging shifts due to M&A and market growth. Jeff Sprouw emphasized Legence's conviction in being a life cycle provider with national scale in both segments. Stephen Butts explained that cost synergies from acquisitions are typically offset by incremental costs in early years, with revenue synergy being the primary driver of value uplift, and longer-term economies of scale expected in 2027-2028.

Sabahat Khan inquired about Stantec's high-level outlook for 2026, specifically regarding organic growth across major end markets and regions, and later asked for more detail on Canadian opportunities, including broad infrastructure programs versus energy-based projects.

Answer

Gord Johnston, President and CEO, and Vito Culmone, EVP and CFO, expressed strong momentum for 2026, citing continued ramp-up of AMP programs in the U.K., frameworks in Australia/New Zealand, copper demand for energy transition in South America, and Canadian federal budget support for infrastructure. They noted robust, broad-based growth in Canada, including land development, transportation, strong public and private sector water projects, and industrial/energy sector opportunities. Despite U.S. uncertainty, macro fundamentals remain strong.

Sabahat Khan asked about Stantec's high-level outlook for 2026, seeking color by major end markets or region, and then inquired specifically about the Canadian market, including exposure to broad infrastructure programs versus energy-based opportunities like pipeline work.

Answer

Gord Johnston, President and CEO, expressed strong momentum for 2026, citing continued ramp-up of AMP programs and frameworks in global operations, federal budget support for Canadian infrastructure, and strong macro fundamentals in the U.S. He detailed robust Canadian organic growth (8.5% YTD) across land development, transportation, water (public and private sector), and the energy sector.

Sabahat Khan asked for details on the drivers behind the increased EBITDA margin guidance and the significant 12.4% organic growth in the Water business.

Answer

EVP and CFO Vito Culmone attributed the margin strength to solid project execution, lower administrative costs, higher utilization, and favorable claim settlements, which contributed 30-40 basis points in the quarter. President and CEO Gord Johnston explained the Water segment's growth is driven by long-term demand, the ramp-up of AMP8 in the UK, and strong performance in Canada, with no signs of slowing down.

Sabahat Khan of RBC Capital Markets inquired about the key drivers for the 2025 revenue growth guidance, the assumptions behind the EBITDA margin range, and the current M&A pipeline, including deal sizes and valuation trends.

Answer

Executive Gordon Johnston cited strong organic backlog growth, especially in the Buildings and Water businesses, as a primary driver of confidence. Executive Vito Culmone added that the EBITDA margin range is mainly influenced by project margin and business mix, with a continued focus on operational leverage. Regarding M&A, Johnston noted a focus on mid-sized firms with some larger opportunities emerging, while Culmone stated they have not yet seen a significant change in the M&A environment or valuation multiples.

Sabahat Khan of RBC Capital Markets inquired about Stantec's capital allocation strategy, the M&A pipeline, and the likelihood of a larger transaction amidst a management transition. He also asked about the expected margin progression in the second half of the year and the business sentiment among private sector clients.

Answer

CEO Gordon Johnston confirmed that the M&A pipeline is full, including firms in the 500 to 2,000-person range and larger, and stated there is no change in M&A philosophy despite the CFO transition. CFO Theresa B. Jang noted that Q3 is historically the strongest quarter for margins and the company is on track to meet its guidance. Johnston added that while the commercial subsector is slow, areas like healthcare are strong, and he sees no significant softening from private clients, with an expected rebound in U.K. homebuilding.

Sabahat Khan asked about the full-year guidance, specifically the setup for both segments heading into the tail end of the year, and the magnitude of the EBITDA guide-up relative to street expectations and Q3 outperformance. Khan also inquired about the GSA agreement, asking for details on previous activities, the 35,000 vehicle addition, and whether the economics for these remarketed vehicles are similar to salvage vehicles.

Answer

CEO Jim Kessler clarified that the GTV guidance range was tightened, not nudged up, from 0-3% to 0-1%. CFO Eric Guerin explained that strong Q3 EBITDA performance was in line with expectations, but the operating model generated some Q4 savings, which were incorporated into the updated guidance. Regarding the GSA contract, Jim Kessler stated that RB Global previously handled care, custody, and control, and marshaling activities, but the new agreement adds disposition services for the full package. Eric Guerin added that ASPs for these remarketed vehicles would be accretive to salvage ASPs, and other services would be revenue-generating, though the model differs from salvage.

Sabahat Khan asked about the drivers behind RB Global's full-year Adjusted EBITDA guidance increase, specifically how Q3's strong performance and early operating model savings contributed to exceeding street expectations. Khan also inquired about the financial specifics of the expanded GSA partnership, including previous services, the nature of the 35,000 vehicle addition, and whether the economics for these remarketed vehicles align with salvage operations.

Answer

CEO Jim Kessler clarified that while GTV guidance was tightened, the Adjusted EBITDA increase reflected strong Q3 performance and initial savings from the new operating model, which are expected to reach $25 million run rate by Q2 2026. Regarding the GSA contract, Kessler explained the expansion from care/custody/marshaling to full disposition services. CFO Eric Guerin added that the average selling prices (ASPs) for these remarketed vehicles would be accretive to salvage ASPs, and while other services would generate revenue, the overall model differs from traditional salvage.

Sabahat Khan inquired about the cautious second-half EBITDA guidance despite strong H1 results and asked for an update on customer sentiment in the Commercial Construction & Transportation (CC&T) sector.

Answer

CFO Eric Guerin explained that the guidance reflects a continued 'wait and see' approach from partners, though it still implies an acceleration in H2 EBITDA growth. CEO Jim Kessler added that while it's too early in Q3 to see a clear trend due to macro uncertainty, RB Global is well-positioned for when market activity resumes.

Sabahat Khan from RBC Capital Markets asked about the key metrics behind the recent salvage customer win, the operational drivers of margin improvement, and the company's performance during recent minor weather events.

Answer

CEO Jim Kessler attributed the customer win to superior and transparent performance on service level agreements (SLAs) in a head-to-head comparison. He and CFO Eric Guerin credited margin gains to a continuous focus on operational efficiency without compromising service. Kessler also noted that while recent catastrophe (CAT) events were small, the company's response was rapid and well-received, underscoring their readiness for larger events.

Sabahat Khan inquired about customer sentiment in the commercial construction & transportation (CC&T) segment amid macro uncertainty and asked for details on the new U.K. customer win, including its scale and operational requirements.

Answer

CEO Jim Kessler explained that CC&T customers are adopting a 'wait-and-see' approach due to high interest rates and project uncertainty, viewing equipment disposition as a timing issue. Regarding the U.K. win with Direct Line Group, Kessler noted it's an exclusive, multiyear contract with a top-tier carrier where RB Global previously had no business. He confirmed that IAA already has a physical footprint in the U.K., so no significant new investment is required for the Q3 start.

Sabahat Khan asked about the guidance update, seeking clarification on the various factors influencing the uptake, including M&A effects, and the company's confidence in the revised guidance. Khan also inquired about the current status and future runway of the EPR (Extended Producer Responsibility) program, specifically its contribution to results in 2025 and anticipated impact in 2026 and beyond.

Answer

Luke Pelosi (CFO, GFL) explained that the $100 million incremental revenue was driven by a 75 basis point increase in pricing (offset by fuel/commodity headwinds), slightly positive volume (EPR outperformance offsetting C&D/construction softness), and $200 million in annualized M&A revenue. For EPR, Pelosi detailed that 2025 saw accelerated benefits from transitional arrangements, with an expected net 75 basis point incremental revenue tailwind in 2026, which will be margin accretive, particularly for the Canadian segment.

Sabahat Khan asked about the detailed puts and takes reflected in GFL's updated guidance, including M&A effects, and the company's comfort level with the guidance uptake. Khan also inquired about the current status and future runway of the EPR (Extended Producer Responsibility) initiatives, including wins, current contributions, and expected growth through 2026 and beyond.

Answer

Luke Pelosi, CFO of GFL, explained that the guidance update reflects a $100 million incremental revenue, driven by higher pricing (up to 6%), partially offset by fuel surcharge and commodity headwinds. He noted positive volume from EPR outperformance and transitional contracts, offsetting softer C&D and construction activity, with M&A driving the majority of the raise. For EPR, Pelosi highlighted outperformance in 2025 due to accelerated realization of benefits, with an incremental 75-100 basis points of revenue growth expected in 2026, which will be margin accretive.

Sabahat Khan of RBC Capital Markets asked about the strategic options for GFL's GIP infrastructure business, its composition, and a recent monetization gain. He also requested an update on margin improvement levers from the Investor Day and their contribution to full-year guidance.

Answer

Founder, Chairman, President & CEO Patrick Dovigi confirmed the GIP sale process is in its final stages, with proceeds expected to fund M&A and share buybacks. Executive VP & CFO Luke Pelosi detailed margin drivers, highlighting outperformance from pricing strategies, improved labor turnover, and synergy realization, all contributing ahead of plan.

Sabahat Khan inquired about the progress on margin initiatives outlined at the Investor Day, the potential for guidance upside, and the company's capital allocation strategy for the remaining proceeds from the Environmental Services (ES) sale.

Answer

Executive Luke Pelosi detailed the Q1 margin bridge, highlighting over 100 basis points of underlying expansion driven by price-cost spread, EPR, and asset utilization, suggesting a path to margin upside for the year. CEO Patrick Dovigi added that the capital allocation focus is on a robust M&A pipeline of accretive tuck-ins and continued opportunistic share buybacks, noting the company remains undervalued.

Sabahat Khan inquired about GFL's capital allocation priorities following the ES business divestiture and the key drivers for the 2025 margin expansion guidance.

Answer

CEO Patrick Dovigi detailed the plan to use proceeds for debt repayment of approximately $3.75 billion and a significant share buyback program of up to $2.25 billion, noting the stock is 'materially undervalued'. Executive Luke Pelosi explained that the 100 basis points of underlying margin expansion is driven by a 100-basis-point price-cost spread, yielding 60 bps of margin, with the remainder coming from self-help levers like EPR and RNG benefits, improved asset utilization, and lower employee turnover.

Sabahat Khan inquired about the potential sale of the Environmental Services (ES) segment, asking for details on the type of interest, valuation multiples, and timeline. He also requested a breakdown of the factors driving the updated 2024 guidance.

Answer

CEO Patrick Dovigi explained that due to a significant valuation gap, the company will launch a formal auction for the ES segment after Labor Day, citing high private market valuations for similar assets. He emphasized the strategic goal is to accelerate deleveraging and fund a significant stock buyback. CFO Luke Pelosi detailed the guidance update, attributing the net increase to positive FX and commodity impacts, accretive M&A net of a divestiture, and strong underlying solid waste performance, which more than offset lower volumes from large-scale event-driven work.

Sabahat Khan from RBC Capital Markets inquired about the outlook for pricing power amid tariff impacts and the long-term margin trajectory for the Environmental Solutions (ES) business given current volume softness.

Answer

CEO Jon Vander Ark stated that the company is actively managing tariff-related cost increases and will pass them through in pricing, remaining confident in its ability to achieve a 30-50 basis point annual margin spread. For the ES business, he reiterated that while quarterly progress may be uneven, there is considerable long-term margin expansion potential over the next four to five years, driven by the technical nature of the waste streams and post-collection asset network.

Sabahat Khan of RBC Capital Markets questioned the outlook for pricing discussions and customer acceptance for next year, given tariff impacts. He also asked about the margin improvement journey and runway for the Environmental Solutions (ES) business.

Answer

CEO Jon Vander Ark stated the company is working to mitigate tariff impacts with suppliers and will pass through necessary cost increases, remaining confident in achieving a 30-50 basis point price-cost margin spread. Regarding ES margins, Vander Ark sees considerable long-term runway but cautioned that progress will not be linear quarter-to-quarter. He expects a consistent, steady margin expansion trajectory over the next four to five years.

Sabahat Khan inquired about current trends in the more cyclical parts of Republic Services' business, such as construction and manufacturing, and asked for an update on the full-year 2025 guidance.

Answer

CEO Jon Vander Ark acknowledged that cyclical volumes have been soft for three years but noted a pickup in March and April after weather-related weakness early in the quarter. He anticipates construction activity to remain flat due to interest rates. Vander Ark also explicitly reaffirmed the company's full-year 2025 guidance, stating that if guidance is not formally updated, it is reaffirmed.

Sabahat Khan asked about the current pricing dynamics with solid waste customers and whether there was any pushback. He also inquired about the timeline for RNG facilities coming online.

Answer

CEO Jon Vander Ark explained that while absolute pricing is moderating, the spread over costs remains healthy, with strong price retention. He identified the municipal business as a key area for future pricing optimization. CFO Brian DelGhiaccio clarified that the delayed RNG projects are a timing issue and are expected to be online in Q1 2025.

Sabahat Khan from RBC Capital Markets inquired about customer conversations around pricing as headline inflation moderates and asked for perspective on the outlook for cyclical volume growth and any remaining volume churn.

Answer

CEO Jon Vander Ark stated that a 3-3.5% inflation environment is a 'good spot' for the business. He noted that while cyclical construction volume is down, the market is behaving rationally on price. CFO Brian DelGhiaccio added that significant residential contract losses from earlier in the year will anniversary by year-end, removing a headwind for 2025 volume comps.

Sabahat Khan of RBC Capital Markets inquired about the evolving U.S. market dynamics, particularly in the private sector, and sought a breakdown of the drivers behind the company's strong margin performance.

Answer

Chairman & CEO Troy Rudd addressed the U.S. market, noting increased clarity and stability in infrastructure investment agendas post-elections, supported by federal initiatives and robust state budgets. Chief Financial & Operations Officer Gaurav Kapoor detailed the margin drivers, attributing them to high-return organic investments, increased business development spending, operational efficiencies from initiatives like enterprise capability centers, and the early benefits of AI.

Sabahat Khan asked for details on the company's private sector exposure, including key sectors and customer confidence, and inquired about the company's perspective on share buybacks and capital allocation amid market volatility.

Answer

CFO Gaurav Kapoor explained that the private sector constitutes about 30% of the business and is less cyclical than perceived, as two-thirds is regulatory-driven water and environmental work. He reaffirmed that the capital allocation strategy is unchanged, with share repurchases remaining consistent with free cash flow generation, which is typically weighted to the second half of the year.

Sabahat Khan of RBC Capital Markets asked about the outlook for volume shedding into 2026 and beyond, and questioned the cost structure flexibility within the E&P business.

Answer

CEO Ronald Mittelstaedt projected that volume shedding from M&A integration would decrease but remain around 50-75 basis points if the acquisition pace stays high. He described the E&P business as having high fixed costs, where margin expansion is driven by volume, not cost reductions. CFO Mary Whitney added that the E&P segment is de-risked, with the production-linked Canadian business performing well.

Sabahat Khan of RBC Capital Markets asked about leading indicators for special waste volumes, cost management for that lumpy business, and the status of shedding volumes from past acquisitions.

Answer

CFO Mary Anne Whitney and Executive Ronald Mittelstaedt noted that while the project pipeline is robust, project start dates are being delayed by governmental uncertainty. Mittelstaedt emphasized disciplined expense management, highlighting the strong Q1 margin. He also confirmed that the shedding of low-quality volumes from the Progressive Waste acquisition is now nearly complete.

Sabahat Khan of RBC Capital Markets inquired about the company's evolving perspective on the macro environment and volume outlook for 2025, and asked about the capacity to integrate an elevated pace of M&A.

Answer

CFO Mary Anne Whitney noted that the 2025 preliminary framework implies mid-single-digit price plus volume, with the pace of reported volume recovery depending on anniversarying prior contract shedding. Executive Ronald Mittelstaedt stated that the company is better positioned than ever to integrate more M&A, citing a 50% reduction in open headcount, and that integration capacity would not be a limiting factor for another record year.

Sabahat Khan asked for confirmation that Polaris's inventory reduction strategy relies more on cutting shipments than on matching aggressive competitor promotions. He also inquired about the expected resilience of the PG&A business through the current cycle.

Answer

CEO Mike Speetzen stated the strategy is a combination: Polaris will use promotions to protect key segments but will not chase the deep, unsustainable discounts competitors are using to clear multi-year-old inventory. The primary tool to hit inventory targets is reducing shipments, as reflected in the updated guidance. He explained that the PG&A business is less volatile than whole goods, with the parts business showing particular resilience as consumers repair and maintain older vehicles.