Executive Summary / Key Takeaways

• Waste Connections (NYSE:WCN) demonstrates a robust investment thesis rooted in its disciplined market selection, vertical integration, and strategic acquisition strategy, consistently delivering price-led organic growth and strong financial performance.
• The company's significant investments in human capital, evidenced by a 55% reduction in voluntary employee turnover and over 25% improvement in safety incident rates, are directly translating into substantial underlying solid waste margin expansion.
• WCN is leveraging advanced technology, including AI-driven applications for pricing optimization and route efficiency, to enhance productivity, reduce customer churn, and drive future margin expansion, positioning it for sustained operational excellence.
• Despite macroeconomic uncertainties and commodity headwinds, WCN maintains a solid financial outlook for 2025, projecting approximately $9.45 billion in revenue and $3.12 billion in adjusted EBITDA, supported by a strong balance sheet and flexible capital allocation.
• The company's strategic focus on specialized waste segments, coupled with its expanding network and commitment to sustainability initiatives like Renewable Natural Gas (RNG) projects, reinforces its competitive moat and long-term value creation potential.

A Foundation of Discipline: Market Strategy and Integrated Growth

Waste Connections, Inc. has carved out a distinctive and highly effective niche within the North American waste management industry since its founding in 1997. The company's core strategy revolves around targeting mostly exclusive and secondary markets across 46 U.S. states and six Canadian provinces, deliberately avoiding the intense competition often found in large urban centers. This approach allows WCN to achieve high market share through exclusive contracts, vertical integration, and strategic asset positioning. The company's business model is comprehensive, encompassing non-hazardous waste collection, transfer, disposal, recycling, and specialized oil and natural gas exploration and production (E&P) waste treatment and disposal services.

WCN's history is marked by strategic expansion and operational resilience. A significant move was the relocation of its headquarters from California to Texas, which management credits with fostering substantial growth. The company has consistently pursued growth through disciplined acquisitions, exemplified by the August 2023 acquisition of the Arrowhead landfill. This strategic asset has seen its daily tonnage more than double from approximately 2,500-2,700 tonnes at acquisition to a consistent 7,000 tonnes per day by early 2025, primarily by internalizing waste from WCN's Northeast operations. This vertical integration is a cornerstone of WCN's profitability, allowing it to control the waste stream, charge tipping fees, and gain efficiencies in processing.

The waste management market itself is projected for robust growth, with the global market expected to reach $1598.1 billion by 2029, growing at a 5.6% CAGR from $1219.6 billion in 2024. This expansion is driven by proactive government measures, technological advancements in recycling, and increasing e-waste generation. WCN's focus on non-hazardous industrial waste and its strong landfill segment aligns with these broader market trends, particularly in North America, which is anticipated to be the largest region in the industry due to dense populations, urban development, and stringent regulations.

Competitive Edge: Focused Strategy and Technological Advancement

In a highly competitive industry dominated by large players, Waste Connections differentiates itself through its focused market strategy and an increasing emphasis on technological innovation. While larger competitors like Waste Management (WM) and Republic Services (RSG) leverage their immense scale for broad market coverage and cost leadership, WCN's agility and specialized services provide a distinct advantage. WCN's cross-border operations in Canada, including its robust E&P waste management, offer a broader geographic footprint than RSG and a specialized niche compared to WM.

WCN's competitive advantages are built on its extensive network of facilities, critical regulatory licenses, and strong customer relationships. This network enables efficient service delivery and fosters customer loyalty, allowing WCN to compete effectively in regional segments. The company's regulatory licenses provide a cost advantage in compliant operations, enhancing capital efficiency and profitability. While direct quantitative comparisons of all financial metrics with private competitors are challenging to ascertain, WCN's consistent growth rates and operational execution are competitive. The company's P/E ratio of 72.78 (TTM) reflects a premium valuation compared to WM (31.96) and RSG (32.85), suggesting investor confidence in its growth trajectory and strategic execution.

A critical differentiator for Waste Connections is its accelerating investment in technology and artificial intelligence (AI). The company is undertaking a multi-year initiative to digitize and automate its operations, aiming for significant productivity and efficiency gains. This includes AI-driven applications for:

• Pricing Optimization: Utilizing data analytics to implement more surgical price increases, leading to a "30% to 40% reduction in churn on similar price increases" in pilot areas. This directly contributes to improved pricing retention and a more favorable price-volume trade-off.
• Route Optimization: Developing real-time routing capabilities, akin to "ways for garbage," to dynamically adjust routes, avoid traffic, and enhance productivity.
• Maintenance Management: A complete revamp of maintenance software and its integration with operating systems for better inventory control, predictive maintenance, and flexible cost management.

These technological advancements are not merely incremental improvements; they are foundational to WCN's long-term value creation. By enhancing operational efficiency and customer satisfaction, these tools strengthen WCN's competitive moat, contribute to higher margins, and support its growth strategy. The company views itself as being in the "second inning of a 9-inning game" regarding technology deployment, indicating substantial future upside as these initiatives are rolled out across 50% to 75% of its P&Ls throughout 2026.

Financial Performance and Operational Excellence

Waste Connections delivered superior financial results in the third quarter of 2025, underscoring the resilience of its business model. Total revenues for the three months ended September 30, 2025, increased by $119.90 million, or 5.1%, to $2.46 billion, compared to the same period in 2024. For the nine months ended September 30, 2025, revenues reached $7.09 billion, up 6.5% year-over-year. This growth was primarily driven by a robust 6.3% core solid waste price in Q3 2025.

Operational efficiencies played a crucial role in profitability. Adjusted EBITDA for Q3 2025 was $830.3 million, up 5.4% year-over-year, resulting in an adjusted EBITDA margin of 33.8%. This margin performance was particularly notable, as it represented an underlying solid waste margin expansion of 80 basis points, even after excluding the impact of commodities and the Chiquita Canyon landfill closure. For the nine months ended September 30, 2025, adjusted EBITDA stood at $2.27 billion, with a 32.0% margin. The cost of operations as a percentage of revenues decreased by 0.30 percentage points to 57.20% in Q3 2025, primarily due to price-led revenue growth and lower disposal, maintenance, and fuel costs.

The company's commitment to human capital has been a significant driver of these operational improvements. Voluntary employee turnover decreased for the 12th consecutive quarter in Q3 2025, achieving a total reduction of over 55% from its peak in late 2022/early 2023. Concurrently, safety incident rates have improved by over 25% to new historic lows. These enhancements in employee engagement and safety have translated into tangible financial benefits, including reduced overtime, less reliance on third-party services, and lower vehicle wear and tear, all contributing to the observed underlying margin expansion.

Acquisition activity remains a powerful growth engine. Year-to-date through Q3 2025, WCN closed or had under definitive agreement approximately $300 million in annualized revenues from acquisitions. This includes strategic wins like two of the largest private companies in Florida and a state-of-the-art recycling facility in New Jersey, acquired to complement its growing New York City commercial collection franchise business. This New Jersey facility can process up to 20,000 tons per month and utilizes AI technology for optical sorting and air classification.

Capital Allocation, Outlook, and Risks

Waste Connections' strong financial profile provides substantial flexibility for capital allocation. The company's balance sheet remains robust, with leverage comfortably within its expected range of 2.75x debt-to-EBITDA in Q3 2025. Net cash provided by operating activities increased by $197.20 million to $1.86 billion for the nine months ended September 30, 2025. Adjusted free cash flow for the same period was $1.084 billion, with the company on track to meet its full-year outlook of $1.3 billion.

The Board of Directors authorized an 11.1% increase in the regular quarterly cash dividend, marking the 15th consecutive annual double-digit increase since 2010.

Additionally, WCN opportunistically repurchased approximately 2.4 million shares (nearly 1% of outstanding shares) through its normal course issuer bid.

For the full year 2025, Waste Connections maintains its outlook, projecting revenues of approximately $9.45 billion and adjusted EBITDA of $3.12 billion, representing a 33% margin. This implies an adjusted EBITDA margin expansion of 50 to 80 basis points year-over-year. The outlook assumes a 6% core pricing for solid waste and an internal cost inflation of around 4.5%, targeting a 150-200 basis point price-cost spread. Preliminary guidance for 2026 suggests mid-single-digit revenue growth driven by price-led organic growth and acquisition carryover, with continued above-average underlying solid waste margin expansion.

However, the company faces certain risks. The Elevated Temperature Landfill (ETLF) event at the Chiquita Canyon landfill in Southern California has led to significant outlays, totaling $224 million in 2024, with an expected $100 million to $150 million in 2025 and approximately $50 million in 2026. While management believes the reaction is contained and odor complaints have dropped by over 95%, extensive litigation and regulatory oversight continue. The U.S. EPA's increased involvement is seen as a positive step towards streamlining remediation efforts. The company is also actively addressing potential PFAS regulations, having successfully beta-tested and installed treatment technologies at multiple sites, positioning it to comply with future standards.

Conclusion

Waste Connections, Inc. stands as a compelling investment in the waste management sector, driven by a deeply ingrained culture of operational excellence and a strategic blueprint for value creation. Its disciplined approach to market selection, robust acquisition pipeline, and commitment to human capital have consistently translated into strong financial performance, characterized by price-led organic growth and expanding margins. The company's proactive embrace of technology, particularly AI-driven solutions, is poised to further enhance productivity and strengthen its competitive advantages, ensuring sustained efficiency and customer satisfaction.

Despite ongoing macroeconomic uncertainties and specific operational challenges like the Chiquita Canyon ETLF event, WCN's resilient business model and strong balance sheet provide a solid foundation. The company's strategic investments in sustainability, including RNG projects, and its ability to integrate acquisitions effectively, underscore a forward-looking strategy that aligns with evolving industry trends. Investors should recognize Waste Connections' proven ability to deliver consistent results and its clear roadmap for future growth, making it a well-positioned player in a critical and expanding industry.