GFL Environmental Inc. Price & Performance (GFL)

Morning, everyone, and thank you for joining.

We have filed our earnings press release, which includes important information. The press release is available on our website. During this call, we'll be making some forward looking statements within the meaning of Canadian and U. S. Securities laws, including statements regarding events or developments that we believe or may occur in the future, These forward looking statements are subject to a number of risks uncertainties including those set up in our filings with [indiscernible] Any forward looking statement is not a guarantee of future performance and actual results may differ materially from those expressed or implied in the forward looking statements. These forward looking statements speak only as of today's date, and we do not assume any obligation to update these statements whether as a result of new information future events and developments, or otherwise. This call will include a discussion of certain non IFRS measures. A reconciliation of these non IFRS measures can be found in our filings with Canadian and U. S. Securities regulators. I will now turn the call back over to Patrick.

Thank you, Luke. The quality of our asset base and the strong execution of our committed employees once again drove industry leading organic growth for the year. In Q4, for the second quarter in a row, we saw 300 basis points of margin expansion. At the same time, we exceeded our internal expectations for growth across revenue, adjusted EBITDA and adjusted free The momentum of our financial performance gives us conviction in our key value creation strategies, One, generating durable price cost spread Two focusing on the quality volume [indiscernible] benefiting from improvement in employee turnover four, optimizing our platform through improved asset utilization five, realizing contribution from our sustainability related investments and six capturing synergies from accretive M and A within our existing footprint. We believe our continued focus on these strategies will provide significant runway for further value creation over the coming years. The previously announced sale of our ES business is on track to close on March 1. As we said in January, this transaction facilitates the acceleration of several of our key financial objectives, while preserving the opportunity to participate in expected material upside through our retained equity in the business. [indiscernible] sale leaves us with an enhanced balance sheet that will provide us with incremental capital deployment creating capacity for additional M and A activity and also for the first time in allowing us to do share buybacks and increase dividends to become meaningful drivers of our shareholder value will continue to be prioritized.

We deployed $300,000,000 of incremental growth investments in 2024 consistent with our 2024 capital allocation framework.

We intend to deploy $325,000,000 of incremental growth capital in 2025 mainly comprised of the final investments required for the EPR contract we've been awarded. By the end of twenty twenty five, cumulative investments in EPR will total approximately $600,000,000 or approximately $50,000,000 remaining to be spent in 2026 and 2027. This material step down will free up cash flows for other deployment opportunities such as share repurchases. M and A activity in 2024 was lower than what we would have done as we focused on the balancing both accretive organic growth investments and deleveraging our balance sheet. We closed 11 transactions, all of which were small. It's for the vertically integrated asset we acquired in Florida the second quarter. This asset was highly complementary to our existing footprint in the fast growing Florida market. In Q4, we also saw the positive volume contribution from the broader network we have created in Florida, that facilitate the higher level of participation in hurricane cleanup efforts. Our pipeline remains robust and we see many similar opportunities to identify our existing networks and improve asset utilization through tuck in M and A across our existing footprint. For 2025, we are once again guiding industry leading organic growth across all of our financial metrics.

Recall that in 2024, we laid out an extremely detailed plan raised that guide multiple times throughout the year and beat our expectations on all fronts. We see multiple avenues of upside to our current guide that gives us confidence in our ability [indiscernible] and potentially exceed the expectations for the year that Luke will walk through in detail. And we view 2025 as just the beginning. We believe we have an exceptional multiyear outlook we look forward to walking through the details at our Investor Day on February 27 at the New York Stock Exchange. I will now turn the call over to Lou for additional color on the quarter and the 2025 guide then I will have some closing remarks before we open it up for Q and A. Thanks, Patrick.

Consolidated revenue for the quarter of $1.98600000000.0 dollars was ahead of our guidance Fourth quarter solid waste organic growth accelerated to 7% in excluding the impact of the divestitures, driven by solid waste pricing of 6% and volume of positive two point three percent seventy five basis points better than plan and a three ten basis points The return to positive volumes was expected in the fourth quarter as we anniversaried most of the impact of our targeted volume shedding initiatives. Hurricane cleanup activity and the accelerated commencement of EPR related activity were the main drivers of the volume of performance versus plan. Decreases in energy prices reduced fourth quarter revenues from fuel surcharges as compared to the prior year and lower commodity prices in the quarter were a headwind to revenues as compared to our guidance although to a lesser extent than historically would have experienced as our transition to ETR continues to mitigate our exposure to commodity price fluctuations, Environmental services revenue was down 2.2% compared to the prior year, inclusive of the impact of lower used motor oil pricing, lower soil volumes, and a tough comparison arising from large scale event driven revenue realized in the prior year period Excluding the impact of these three items, segment revenue was up 2% versus the prior year.

Adjusted EBITDA margins were 29.1% for the quarter 300 basis points higher than the prior year. Consistent with our guide. Solid waste adjusted EBITDA margins were 33.4% a two seventy basis point increase over the prior year. Inclusive of the dilutive margin impact of the [indiscernible] and increased cost of risk as well as the impact of reclassification of certain costs that we recognized in the segment in the prior year period. Commodity and fuel prices FX and M and A and the impact of recent divestitures were tailwinds to margins. Environmental Services adjusted EBITDA margins were 28.9%, three ninety basis points ahead of the prior year to recall we had a fire at one of our facilities in December of last year and that reduced Q4 twenty twenty three profitability The lapping of this event was a tailwind to margins as was the timing of incident claim costs and performance compensation accruals. Adjusted free cash flow and adjusted net income were $360,000,000 in $80,000,000 respectively, both ahead of expectations. Q4 cash collections were negatively impacted Q4 cash collections were negatively impacted by a Canadian postal strike in December. Creating a headwind to working capital in the quarter, an investment we expect to recover in 2025 We deployed $51,000,000 of incremental growth CapEx during the quarter bringing the total for the year incremental growth CapEx in $98,000,000 Together with the approximate $590,000,000 we deployed into M and A, total capital deployed into these growth initiatives was $890,000,000 in line with the $900,000,000 cap we guided to at our initial capital allocation framework beginning of twenty twenty four, With the significant strengthening of The U. S. Dollar versus the Canadian dollar in the fourth quarter, our net leverage at the end of the year increased to 4.06.

Due to the translational impact of revaluing our year end debt stack at the year end FX rate of 1.44 If you recast the year end balance sheet, and the full year's adjusted EBITDA, at the FX rate of 1.35% on which our guidance was originally based, year end net leverage would have been 3.85 exactly in line with the target we committed to at the beginning of last year.

As Patrick said, we expect the ES transaction to close March 1.

As previously indicated, we intend to repay $3,750,000,000 of long term debt shortly after the closing of the sale giving rise to annual cash interest savings of just under $200,000,000 We also plan to use up to $2,250,000,000 of the proceeds to opportunistic repurchases of GFL shares with a view to reducing the current overhang as well as reducing our current diluted share count. Pro form a for the planned use of the ES proceeds net leverage is expected to be approximately three times. Looking forward, the strength with which we are exiting 2024 and our outlook for 2025 sets up guidance better than the initial framework we provided in Q3. In the press release, we provided guidance both on a status quo basis as well as pro form a for the divestiture of ES. As we have a high degree of conviction that the ES sale will close this coming weekend, the focus of our guidance will be ex ES and that is what I will walk through now. Top line growth is expected to be 6% to 7% yielding $6,500,000,000 to $6,550,000,000 of revenue. Underpinning this growth is 5.25% to 5.5% price which we are implementing in response to our expected cost inflation of low to mid-4s.

As we have said, we believe price cost spreads over the next [indiscernible] due to the highly disciplined industry backdrop as well as incremental pricing opportunities unique to GFL given the relatively nascent stage of our price discovery versus our peers that are more mature in this area. Partially offsetting the price growth is 30 basis point headwind from commodity prices and fuel surcharges, Note that the continued deterioration in commodity prices since November has created a headwind versus when we provided our initial framework for 20 albeit to a lesser extent than typical thanks to the reduced commodity price exposure resulting from our ETR transition, On volume, we are assuming roughly flat at the midpoint. Plus or minus 25 basis points for the year. The volume assumption underlying the initial 2025 framework provided in November slightly higher than this but we are being conservative in light of the severe winter we've seen across many of our markets that we will expect will impact Q1 volumes.

FX is assumed to be 1.41 which adds 200 basis points and net M and A contributes negative 80 basis points which is largely the result of the Michigan divestitures that we completed in Q2 partially offset by the small rollover of the modest M and A we did in 2024. Excluding the impact of the 2024 Michigan divestitures, expected revenue growth is over 8%. For the third year in a row, we are guiding an industry leading 100 basis points of adjusted EBITDA margin expansion. Consolidated adjusted EBIT margin is expected to be 29.7%. Solid waste margins are expected to be 33.8% to 33.9 and corporate costs of 4.1% to 4.2% of revenue. The step up in corporate cost intensity is not due to an increase in costs, but rather reduced revenue as a result of the sale of the ES business. We expect meaningful leveraging of the corporate cost segment as we grow our top line both organically and through M and A over the coming years. Commodity prices and the RNG ITC's previous recognized in the P and L in 2024 are 45 basis point headwinds whereas M and A rollover the Michigan divestitures and FX are 45 basis point tailwind meaning the 100 basis points is effectively underlying organic margin expansion.

Again, as we have transitioned to EPR, recycling business is structurally less sensitive to commodity prices due to the higher proportion of overall recycling revenues derived from processing Adjusted free cash flow is expected to be $750,000,000 For the Wasson adjusted EBITDA, we expect normal course CapEx of $700,000,000 to $725,000,000 net of cash interest of approximately $350,000,000 approximately $200,000,000 lower than what it would have otherwise been as a result of the use of the ES proceeds. And $125,000,000 of other cash flow items. Mainly ARO and cash taxes. The $325,000,000 of planned growth capital is excluded from the guide. Free cash flow conversion as a percentage of adjusted EBITDA increases two thirty basis points to 38.7% as we push towards our near term goal. Of free cash flow conversion that starts with a four, We believe we have a clear line of sight to [indiscernible] which will be a key focus of our discussion at this week's Investor Day.

As Patrick mentioned, the post ES delevered balance sheet allows for the recognition of our M and A strategies that have been tempered over the past eighteen months Our pipeline remains robust and the incremental M and A completed during the year will be upside to our guide. I want to highlight that our M and A program can be ex thanks to the power of our financial model, which provides dependable organic delevering each year through adjusted EBITDA growth and consistent strong free cash flow generation. Specifically as it relates to the first quarter of twenty twenty five, we expect consolidated revenues of approximately $1,520,000,000 at approximately 27.1% adjusted EBITDA margin which implies a 100 basis point expansion over the prior year pro form a for the ES sale. Q1 adjusted free cash flow pro form a as a the ESCL occurred in January 1 expected to be about nil. Less than the prior year largely on accounts of the timing of cash interest payments and anticipated investments working capital and capital. I will now pass the call back to Patrick who will provide some closing comments before Q and A. [indiscernible] As we said in January, I don't think our setup has ever been better.

We have proven that we can execute on our strategic plan and we believe that we have laid out the foundation for long term growth and value creation for all shareholders. Our go forward strategy remains simple and clear. We're going to continue to generate industry leading organic growth part from the near term ramp up from EPR, RNG and the other self help strategies I described in my opening remarks. We want to improve free cash flow conversion. Execute on our robust M and A pipeline while maintaining leverage in line with our targets continuing to progress towards an investment grade credit rating. We're going to broaden our capital allocation strategy to include share buybacks, as well as increased dividends. At our Investor Day, we will expand on each of these items and demonstrate why we believe that GFL is uniquely positioned for industry leading financial performance over the near term. I always want to end with thanking our employees. Our continued success would not be possible without their tireless hard work and dedication I want to thank each and every one of them for their continued contributions. I will now turn the call over to the operator to open the line for Q and A. Our first question comes from Sabahat Khan of RBC Capital Markets.

Okay.

Great. Thanks and good morning. Maybe before getting into the operation, just just a broader question on capital allocation here. Your guidance at the time of the ES announcement was for pro form a leverage to be around three times. Maybe if you can just update us on sort of the capital allocation priorities as we look ahead to the closing on March and therefore? Thanks.

Yes, thanks. As As we said and Luke mentioned in his comments, We expect to close on the first and receive the capital on March 3. I think it's going to be twofold. Initially, as we said, dollars 3,750,000,000.00 roughly is going to go to repay debt and that's going to be a combination of revolver term loan as well as some payable bond that exists. I mean, the term loan revolver will be done fairly instantaneously. The bond will take a couple of weeks. But certainly before the end of the quarter that debt will be repaid. And then we're going to turn our attention to share buybacks. I think from our perspective and the Board's perspective, the stock continues to be undervalued here. We think when we look out later into '25 into 2026, given all the investments we've made around EPR, RNG, I mean, we've given a conservative guide and with the organic expansion we expect coupled together with the M and A, the Board thinks that the stock is material undervalued here. So What you're going to see from us is twofold. You're going to see most likely the next twenty four to forty eight hours normal course issuer bid, which we've applied for executive relief to get the buyback up to 10% of the public float. [indiscernible] and then there'll be a combination of doing that.

And I think from our perspective, we can depending on the rolling volume calc On The U. S. Line, we could typically be buyers of probably 350,000 to 500,000 shares a day. Up to that, And on the Canadian line, we can buy probably up to $65,000 to 70,000 shares a day on the Canadian In conjunction with that, we are also finalizing now that we have clarity on the closing we expect to have clarity on how we're actually going to buyback shares that Luke referenced in terms of the overhang from the private equity shareholders meaning Ontario Teachers, GIC and and BC Partners, So we expect clarity on that from the OFC over the next sort of week two as well. So that will also be a combination. So between the two of those, Between the two of those, we expect that we'll be able to re buyback the $2,250,000,000 worth of shares that we had articulated when we announced the transaction.

Okay, great. And then maybe just on some of the margin commentary that Luke shared for 2025. Maybe we can just dig a little bit deeper into the the self help levers, I know you'll get a bit more, detail at the Investor Day, but maybe for 2025, what are some of the levers that are driving this margin improvement for this year? Maybe the stuff that we should wait for, I guess, over the next few years that you'll maybe talk later this week? Thanks. That's it for me.

Yes.

Great question, Sal.

But obviously, we're really pleased with setup and being able to come out with industry leading margin expansion yet again. You think about the drivers, as you know, I always like to the exogenous factors, if you will, And if you think about the guide, you may have 100 basis [indiscernible] of underlying solid waste margin If I think about commodities and fuel, with where we sit today, it's about a 20 basis And then last year, the sort of recognition of RNG IT that ended up in EBITDA is about another 25 basis point drag. So you got 45 basis points sort of against you Now good guys, M and A albeit a small amount is accretive and that's five basis points. The FX today is five basis points.

And you got sort of a thirty, thirty five basis point benefit from the Michigan divestiture So the good guys and bad guys articulated there a bit of a wash. So really leaving this 100 basis points of underlying as really organic margin expansion. And now to your point on the self help levers, I mean if you think about a price cost spread we're thinking of cost inflation sort of low to mid-4s against the sort of price number of that kind of low to mid-5s.

So you're banking on 100 basis points of spread there, which effectively gives you 60 basis points of margin expansion coming out of that spread. So you really have another sort of 30 to 40 bps coming from the self help levers.

And what it says, Bob, is what gets us excited, it's not any one thing.

It's really all of the things contributing, right? And so you have to benefits of EPR and RNG rolling on You're having the benefits of continued sort of fleet and asset utilization you're having the benefits of the employee turnover, the quantification of which is multifold but you see it from onboarding cost, productivity, cost of risk, etcetera. So what gets us excited is the sort of incremental contributions from each of these levers working in concert to yield these sort of industry leading results. So on Thursday, we'll talk about each of those levers in a little bit sort of more detail. To what we think the order of the possible can be. But safe to say, we have a high degree of conviction that the realization of those benefits ratably over the next [indiscernible] Is going to continue to deliver exceptional results at the margin more importantly free cash flow conversion line. [indiscernible] very much. We have a question from Patrick T. Brown of Raymond James.

Please go ahead.

Hey, good morning guys.

It's Tyler.

Good morning.

Good morning. Hey, can we just start a little bit more on the EBITDA bridge? So if we started pro form a solid waste plus corporate, I think you're at call it 1,760,000,000.00 just how much is FX and then how much is EPR and RNG laying in the year? And I think you've got maybe some corporate a little bit that goes with ES as well, but can you talk a little bit about the puts and takes Yes. So that's right.

Think if you take I'll do the bridge of revenue and then we can talk about margins. But if you take about a starting point bridge you have roughly 6,150 of revenue last year pro form a if you back out ES. Right? Now you have $100,000,000 roughly from the Michigan divestitures. So if you want to sort of normalize, you would take that out. And so you're at roughly this sort of sixty-fifty sort of XES. So from that, what we're saying at the top line, as I said, is 5.2550.5% price.

You're getting volume of sort of plus or minus 25 bps assume that sort of nil at the midpoint [indiscernible] of sort of minus 25 bps.

That would have been significantly higher when you think about how the actual underlying index has moved. But as we the benefit of sort of EPR transition moving to fixed fee processing model is shielding us from some of that also. If you But then the last, you GFL a 25 bps drag from the commodity price component M and A rollover is at 80 bps, which is really an 80 bps positive from the small amount of M and A offset by the 160 bps of Michigan GFL.

Depending on if you have start with the 6,150 number or 6,050, how you treat the divestitures.

And then on top of that to your point you got FX of two two points.

Right? So we're saying an FX assumption of 1.41 Now realize that is lower than where we are at today, as we said our guys, we always like to sort of pick the prevailing interest rate and use that as the basis for the guide. There's been a lot of volatility in FX as of late and there continues to be So with a bit of a balancing target for sort of conservative purposes, we just took the sort of 1.41 rate Worth noting or reminding folks that the sensitivity of the revenue line is about $30,000,000 per point of FX. And about sort of round numbers $10,000,000 at the EBITDA line. So if you were to recast this guide, let's say, something I think today's FX might be to 1.44 that's what a three three point difference with yield and incremental. We're roughly $100,000,000 of revenue and over $30,000,000 of EBITDA. Just for sort of context. So that's the sort of revenue bridge saying, you're putting it all together at the EBITDA line. I think you're right, start with roughly seventeen sixty of EBITDA in 2024 pro form a for removal of ES. And then you can think of it as a natural fall through of each of those components as they work towards the EBITDA line.

RNG and EPR, the specific items you called out are ramping up in their contribution. RNG will go from a sort of roughly $30,000,000 $25,000,000 $30,000,000 contributor in 2024 upwards to sort of $50,000,000 in 2025. And then ETR, as we said, we're going to have to we originally thought we'd have about $10,000,000 in '24 with the outperformance we had in Q4 and the waste and the commodity price movements, there was closer to sort of $20,000,000 realized [indiscernible] '24 As we said, you get sort of roughly $35,000,000 to $40,000,000 lift of incremental coming into '25. And again, that's a sort of helping with the sort of margin walk And then the last piece just to note is what ETR is uniquely doing is it is shielding us from the downward pressure we would have otherwise seen as it relates to commodity price decline. So we're still feeling some of it, but not as great as we otherwise would have [indiscernible] Or preservation of your EBITDA base by virtue of that move to the sort of fixed fee processing model. So those are the moving pieces. Obviously, there are many other puts and takes underneath that, but those are the sort of broad strokes that we think are working out that guy who just laid out.

Excellent.

Okay.

Lots of good detail. Appreciate that very much. Patrick, can we talk real quickly about GIP? Can you just give us some updated financials there, maybe EBITDA, the leverage profile? And then then now that you've got kind of ES behind you, what's the plan to monetize that asset maybe over the next couple of years?

Thanks, guys.

Sure.

Yes, so 2024 was a great year. Finished in sort of low $200,000,000 of EBITDA We have a plan this year for approximately $225,000,000 of EBITDA as a plan. We have three M and A transactions lined up. For that business, So again, back on plan, which is great. Interestingly enough, we have had a significant amount of reverse inquiry into that about that business. Particularly on the success that came from the ES transaction, [indiscernible] it is something we're going to look at and explore. Would it be a full outright sale? No, because I think is a significant amount of value creative creation opportunities within that business. Particularly coming out of this crazy inflationary environment. But it is something we're going to explore and maybe there's a partial liquidity event that comes with that business, but we're going post closing, BES business. But on track, performing great. Valuations in the sector sort of have never been better. So So we're feeling very good about it and very confident about it. Okay, perfect. Thank you. Thanks, Alex.

We have a question from Kevin Chiang of CIBC Boyd Gundy. Please go ahead.

Hey, good morning everybody. Thanks for taking my question. Luke, maybe just on the margin guide for the year and maybe for the first quarter, I think you're calling out about 100 basis points for both. I guess I think the margin cadence through the year. I would have imagined Q1 would have been been tougher just you called out winter and I suspect commodity prices, I know EPR helps here, but commodity prices the comps are probably tougher to start off 2025. I guess how do I square a pretty good margin lift in Q1 which looks maybe is your most challenging seasonal quarter with the full year outlook also being 100 basis points?

Yes. It's a great question, Kevin. Thanks for it. I mean, so if you think about H1 versus H2, And the benefit in Q1 of not having that sort of lower quality volume is roughly sort of 65 basis points. Right. So providing a lot of support to offset, I think, one the commodity and other sort of exogenous type factors but also the sort of seasonal component. [indiscernible] you think about the commodity ramp for last year, I think it's a point of this syndicated there, because recall it was really a Q2 into Q3 ramp when the prices took off. So Q1 over Q1, we actually have a slight lift on commodities. At the margin level and that actually turns to GFL negative you get into the sort of back end of the year And it's also just the sort of quality of the underlying sort of margin expansion that's happening sort of ratably. Right? And so you're seeing that come through in each of the quarters We anticipate being able to have right term of industry leading, I keep saying, but it is very impressive organic growth across each of the quarters. I think Q3 is going to be the toughest just by virtue if you go back and look at what you're lapping that was a record breaking quarter for us.

But the H1 is certainly benefiting from again with the outsized contribution from this sort of divestitures. As well as just the cadence and timing of some of the exogenous factors on commodity. That's very helpful color. I apologize if I missed this. I did notice a step up in your organic growth in The U. S. Up to 5.8%. On a I guess on a pro form a basis. Versus what you're tracking in Q3? And think through the first half of twenty twenty four. Anything to call out there in terms of the step up in the fourth quarter Yes, Kevin, I'd say if you look at The U. S. Sort of specific [indiscernible] in a very sort of satisfactory manner us, a little bit of outsized price in Canada as you're getting numerous contracts rolling on and you're getting the sort of price increase sort of benefit from that. I'd say the really strong story in The U. S. In Q4 was the sort of volume piece, right? And again, as you've laughed these sort of intentional shedding, and you think about how that's materializing in volume, I mean The U. S. Volumes increased three sixty basis points sequentially from Q3.

Right? Q3 was negative 1.9% and that increased to 1.7% in Q4. Now part of that was the anniversary Part of it was strong success in the sort of hurricane cleanup efforts that we're able to participate in, thanks to our optimized platform in those regions. So that certainly sort of contributed to the step up there. Where you were otherwise seeing negative volumes during the year. That's super helpful. Thank you for taking my questions. Thanks, Kevin. Thanks, Kevin. We have a question from Brian Bergmeier of Citigroup.

Please go ahead.

Good morning. Thank you for taking the question. Maybe just digging into RNG a little bit. Do you expect to lock in any RIN pricing for this year And are you able to provide an earnings sensitivity to RIN prices, just so we can market that throughout the year. And then after the $325,000,000 of growth dollars of growth CapEx, is it possible to say how much do you think could be left for 'twenty six, 'twenty seven? Yes. So this is Luke speaking. I'll speak on the first point or the second comment about sensitivity. If you look today, we're assuming we're in pricing in around the sort of $2.40 level, roughly with what we have online. Every $0.5 of RIN prices would drive roughly $15,000,000 of EBITDA. [indiscernible] at maturity, every $0.5 of grain prices drives about $50,000,000 of EBITDA.

But obviously with the sort of lower volume of MMBTUs that we've yet to have in the system, today's sensitivity is a little bit lower. I'll pass it to sort of Patrick as you think about sort of the locking in Yes. So long term, locking the pricing, obviously, we don't feel like today is the right time, but as the year progresses similar to the last Trump administration, we think that it will find a level set in place. And I think I think from an industry perspective, we think $2.75 to $3 is probably still a long term number. That's what all the people are smarter than me think. [indiscernible] being said, we're going to forward sell all of our wins for the year. So our expectation is that we don't see much volatility from that because everything will be pre sold. For the year. The near term.

Brian, on the last on the CapEx piece, each year the sustainability spend has been roughly sort of two thirds each EPR and other and then a sort of third RNG If you look after this year, there's probably another sort of 100, $150,000,000 of sort of net CapEx that's going to come out of our pocket. As it relates to RNG over the sort of $26,000,000 to $28,000,000 level. So I think that spend comes down considerably from today's levels. There will still be some as it relates to finalizing those last RNG [indiscernible] Okay, understood. Thank you very much for that. Detail. And then last question for me and then I can turn it over is, I know guidance doesn't have any kind of incremental M and A in there. Just curious if you've either closed any deals yet this year And then if you think maybe last year's $600,000,000 in spending is like a decent proxy for '25 or maybe we should just hold tight until the Investor Day for more details. But thank you. I'll turn it over.

Yes, I mean, we'll lay it out. Listen, I think we've closed one small deal this year The expectation is post getting the dollar that the M and A program is going to ramp up to what it was before. And I think we typically guided somewhere between a spend of sort of anywhere between $500,000,000 to $700,000,000 The upside case is probably closer to $1,000,000,000 but in that ZIP code is what our expectations are getting back to a normal year versus last year. Obviously, last year was an abnormal year just because we had the capital allocation balancing the EPR, RNG spend coupled together with M and A coupled together with delevering Now that that's all behind us, we'll get back to normal course and do what we do best and continue executing on the strategy that we've deployed over the last seventeen Well, we'll have a very good update for you you on Investor Day on Thursday.

We have a question from Jerry Revich of Goldman Sachs. Please go ahead.

Good morning. This is Adam on for Jerry today. Just one follow-up on M and A. It sounds like the pipeline remains robust. Can you just talk about the mix of opportunities in the M and A pipeline from a standpoint of solid waste business lines or geography GFL? Yes, it's going to be a combination of U. S. And Canada.

Existing markets where we're currently operating that densify existing markets where we already own a substantial amount of post collection assets I think you're going to see that move throughout both Canada and The U. S. I think from a dollar weighted perspective, you're going to see more dollars get deployed into The U. S. Just because of the size of opportunity and where we're looking to expand a bunch of those operations beginning around markets where we have landfills, recycling facilities, transportation. But my expectation is probably something like 75%, 25%, 75% of dollars both of the 25% go to Canada.

Great. And then can you just Talk about your assumptions for recycling prices in the guide and update us on how we should think about sensitivity to recycling prices based on risk sharing mechanisms in place today?

Yes, Adam, it's Luke speaking. I mean, we exited 2025 at roughly about $180 Canadian per sort of Canadian ton when you look at where the sort of markets were I think one thing to note when you look on a year over year comp is that during periods of price volatility, I mean we ultimately sell at a spread above the market price, right? And when you have periods of rising prices, we're often able to sort of increase that spread that we're able to realize and then the inverse as prices decline. And why I highlight that when you look at the 2024 average rate, it's about $200 $2.00 $5 per ton Canadian per Canadian ton. It's about $25 delta I think about the $180 exit rate, but our realized rate during 'twenty four was significantly higher than that. Because of that sort of price volatility And so you're looking at more like a sort of $40.45 dollars delta in terms of the sort of pricing. Year over year on which our guidance base [indiscernible] at the roughly 1,000,000 tons that we have that would have implied like $45,000,000 headwind The reality is today we're seeing a significantly lower headwind than that because again as Evan mentioned sticks away from volatile commodity based contracts to fixed fee processing model.

So today where we said it's roughly every $10 change is going to be about a $5 change in EBITDA, the flow through and as we progress through '25 and twenty six, that exposure will reduce even further from there. But that's how we think about the setup for 2025 as we sit today.

Great. Thanks so much. We have a question from Devin Dodge of BMO.

Please go ahead. Yes, thanks.

Good morning.

So, I wanted to start ask a question about the OTPP appointed director stepping down. I think the investor rights agreement allowed teachers to appoint a Board member as long as they know more than 5% Just based on the buyback with the proceeds from YES that you've talked about before, I don't think teachers would fall below that threshold. So just wondering if you could provide a bit of color behind the the board change and if there is any read through to the planned buyback activity?

No, no change in the read through. I think from our perspective, as we said, looking at Board composition we've approached both of the sponsors and thinking about what the long term view is on the Board, how that board representation is going to play out. Particularly given that the levels that they're going to be at the buyback, and then allowing the company to set itself up to go out and think about a long term board and again recruiting individuals that would go on the board in replacement of this more of the sponsor type.

Right?

And as I said previously, what our expectation was that Ontario Teachers would come off in sort of early twenty twenty five. Which is happening now. And obviously, with the sell down, our expectation is that one of the BC members will come off as well. So So I think the way the investor rights agreement reads is they have the right to appointment. It's not an not a necessity. And then just given how close they'll be to the threshold post the buyback, the expectation was we got one of them out of the way now and expect the other one we're in process now of working with our external advisors as well as the current board on what that board is going to look like and what new members will be appointed to the Board. So that's all in process. As per plan.

Okay. Thanks for that. Good context.

And then maybe just a modeling question, so it might be for Luke here, but the repayment of lease obligations on the cash flow statement, look, there's been a fair bit of quarter to quarter volatility think it was almost zero in the quarter. Just wondering if you could provide some color on what's driving some of that noise that line item and what that should be on a go forward basis in the mix between operating and finance Yes, Devin, it's Luke speaking. On a go forward basis, if you think about it, Ron, roughly like $100,000,000 $120,000,000 per year amounts.

I'd say there's the U. S. Dollar denominated to get some FX sort of volatility in that. The operating versus finance as you know, like it doesn't really sort of exist under IFRS per se, so it's not classification that we have readily available. I think of it sort of roughly call it 75%, if you think about operating, which is [indiscernible] key facilities that are leased. And the other balance would be equipment type financing amounts.

Okay. And maybe just the volatility, just could you help me understand just the is it the timing of payments or what's driving some of that to quarter volatility. This year what you had is equipment to specifically corporate aircraft lease that you'd had typically under a lease. And you had upfront payments for replacement aircraft being made and then you received a reimbursement in Q4 as it pivoted into a regular loan for those payments. And so you just had some puts and takes within the quarters as a result of those amounts.

Okay, got it. Thanks for that. I'll turn it over. We have a question from Pannard Gupta of Scotiabank.

Please go ahead.

Thanks, and good morning. Wanted to understand, Luke, what's your expectation for the cadence for net leverage as the year progresses? And I'm asking this like from a perspective of you have obviously the capital deployment for the sustainability of the ES sale will happen in the next month or so. And then you have some M and A as well happening. So I mean, how do you see the ebbs and flows of the net leverage as the year progresses? Thanks. Yes, Conor, it's a great question and obviously something we're going to pivot towards being very proud to report on as opposed to historically. Maybe it wasn't always the case. But if you think pro form a for the transaction, you have roughly sort of three turns right out the gate And then as you go forward from here, I mean ex M and A, I'll start, it's just the sort of natural sort of deleveraging that happened throughout the year. Between Q2, Q3 and then Q4. You bounce around in and around there, but you're going to end the year otherwise at 2.9 times on an organic basis. And that's inclusive of the sort of growth CapEx that's Now the actual sort of cadence from each of the periods typically H1 is a bit of a heavier investment.

On both working capital and CapEx. I mean, each one will be roughly $100,000,000 working capital investment and you'd spend sort of 55% to 60% of your total CapEx spend So from a free cash flow perspective, H1 is a little bit more of investment. You will see a slight uptick in Q2 on that sort of pro form a number. And then that rate of labor recovers through Q3, Q4 Inclusive of potential M and A, which would be all the additive to the guide of the EBITDA level, that could impact leverage depending on the timing when those deals close. However, what I would say and I highlighted in the prepared remarks, is the relative impact of M and A due to the size and overall sort of EBITDA and free cash flow generation of the business, is much more muted today at the leverage line. Specifically, if you look at it, you could spend about $500,000,000 at 7.5, eight times on M and A and that would impact leverage by roughly sort of 15 basis points. So that's part of our excitement of the story. Of this inflection point that's been reached, whereas you can execute on the M and A strategy and still maintain leverage at this desired level.

That's something that we've historically been able to do and gives us great sort of conviction and our ability to sort of balance various sort of interest in driving equity value creations we put forth in here.

Here.

That's great color. Look, I second follow-up, Jose. We have seen one of the companies in Canada was trying to redone sale in The U. S. And then they pulled back. I'm just wondering like with the ES sale transaction, is there any consideration to change anything on the head U. S. GAAP or not? [indiscernible] Nothing no decisions obviously have been made. Again, in the Investor Day, I think you'll see us lay out what the two paths are for that. I think from our perspective, Index inclusion would be great. I think when you look at where we sort of sit in the rankings for the TSX 60, I would say we're pretty close in Canada. To probably being one of the next obviously, industrial names that would go into the PSX 60, Obviously, there's some larger companies like Fairfax and particularly Celestica on the technical side, Fairfax on the financial side, and it looks like we would be next from what everybody sends in terms of data and going into TSX 60. Obviously, industrials and TSX 60 are underweighting today. So it is going to be a question of what the committee there thinks in terms of what goes in next.

But given our market cap and trajectory, and sort of float, Where it's moving to, our expectation is that As someone comes out, we'll probably one of the next two or three that would go in. Maybe the next one that goes in, we don't know.

As far as us looking at it, obviously, with a substantial amount of our revenue now in The U. S, that is probably an avenue that's available to us as well. Although it's not as clear, obviously, we would never reincorporate In The U. S, We think that not possible. I mean, anything is possible, but from a tax efficiency perspective, it's not efficient. So that would never happen, but there are tax there are other other examples of companies that have reincorporated their head offices to get U. S. Industry inclusion. As well as checking the boxes about eight other things. So again, that's something we're obviously actively looking at today. It's a question of what opens what opens the broadest base of investors. I think either path is good. I think currently, we're focused on the Canadian TSX 60 pad. But at the same time, post the ES divestiture, we'll look at both and we'll make a determination as to what where we see the most amount of value that can be added to our name over time and where we can get the most amount of flows of of buyers and shareholders into our name. So both in progress, give you a pretty good summary at the At the Investor Day on Thursday.

Yes. That's great to know. Thanks guys. Appreciate it. And Thank you.

We have a question from Chris Murray of ATB Capital Markets. Please go ahead.

Chris, your line is now open. Please go ahead. As we are not getting any audio from this time, we will move on to the next question. We have a question from Brian Butler from Stifel. Please go ahead.

Hey, good morning. Thanks for taking the questions.

Just first one starting off [indiscernible] maybe pricing, when you talk about you gave good color on on kind of cadence on some items. Can you talk maybe about pricing cadence through the year for 2025 in that 5% to 5.25%?

Yes. Hey, Brian, great question. It's Luke here speaking.

I mean, I think in a typical year, you're going to see the cadence come out with the highest print in Q1 and then kind of ratably step down from there.

Now obviously, that's predicated on our current assumptions how the year played out. But I think as we've demonstrated before to the extent cost inflation [indiscernible] we will go back and revisit that sort of strategy. Because again, we're going to continue to ensure that we get paid an appropriate sort of rate of return on the services that we're providing. But where we sit today, you kind of start at a higher five middle Q2, Q3 and that sort of mid five, and you end the year at that sort of lower 5s. And that's what's going to blend to that sort of 5.4% to 5.5%. The one thing I just remind everyone on pricing, just the way the pricing cadence works, We already have sort of 70% to 75% of those price dollars So again, I think the downside on that number is de minimis and it's really a question of whether cost inflation behaves as anticipated that will drive the need to [indiscernible] Perfect. Great. And then second, you gave super strong outlook kind of going into 2025. What do you guys see as kind of the biggest challenges for 2025 being that a lot of self help levers to pull [indiscernible] kind of needs to be overcome if there is anything?

Yes, I don't see anything material in front of us. I think the business has become very predictable as you've seen quarter after quarter after quarter, I would say weather maybe in Q1 a little bit more impactful than probably previous last three years, particularly in Canada and our piece. But again, looking at what's how the business performed even through that. We're almost we're two thirds of the way through basically Q1. So we feel pretty feel very good about Q1. I would say the only unknown out there potentially is there's all this tariff noise. Again, from our perspective, we think it has a de minimis impact on anything. Does it change potential capital [indiscernible] depending on if OEMs have to put it through some incremental surcharges, which then I think would force us to go back to the market to push through more price. But other than that, we feel very good about what we put forward. [indiscernible] from our perspective, pretty simple. Again, we put out industry leading organic margin expansion which again, as Luke said, again, conservative our expectations are we're going to do better Organic growth same vein, again, from a free cash flow conversion perspective, again, post repaying the debt, we put out on the street as sort of like 38.7 Again, our expectation is doing better.

We want to get that into the sort of low 40s. As we've talked about. Again, the M and A pipeline is zero model. So So again, multiple levers for upside to the guide. Feeling very good about where the year is starting, put ourselves in a great place and then then as the RNG and EPR investments that we made over the last two years come into fruition, really starting in sort of 2026 again, see multiple levers for growth and that's why the Board has taken the position that they have and authorized sort of normal close issuer bid and allowed us to be post receiving the dollars on the first to be active buyers in the market of our own stock.

Which is a first for us.

So we think we're feeling very good about 25% and things are shaping up exactly the way we anticipated. Perfect. Thank you very much for taking the questions. [indiscernible] have a question from Tobey Sommer of Truist Securities. Please go ahead. Hey, good morning. This is Sid on for Tobey.

I believe the guidance assumes cost inflation, the load of mid 4% range. I'm curious if that's what you saw in 4Q or you're anticipating some easing there?

Thanks. Hey, it's a great question. This is Luke speaking. Again, if you think about what drives our sort of raw cost inflation, mostly sort of labor and transportation related costs We've seen sequential easing as we move through all '23 and then into '24, We're being I think appropriately conservative in the 2025 guide.

Just by nature of the current sort of uncertainty on the trajectory of inflationary paths, right, because we the direction of downward seems to sort of stabilize and I think there's talk of potentially things sort of moving back the other way. So I'd say it is based on what our experience is and where we're exiting, but not necessarily giving consideration to potential incremental reductions from here. So if you see a lowering cost inflation as you go forward that could yield some sort of upside to the guide, But as we said, the theme and sort of conservatism don't see a lot of sort of risk to that number playing out being materially higher absent as Patrick said some tariff potential causing issues, but that would likely be more on the capital side. Right, because that's potentially our concern if there's a tariff situation that maybe some of your CapEx in the short term gets a little bit more expensive. But I think the risk that the cost inflation is materially higher than that sort of low to mid mid-4s is pretty de minimis where we sit today. All right, great. Thanks.

We have a question from Stephanie Moore of Jefferies. Please go ahead. Hello. This is Harold on for Stephanie Moore.

So I guess, on the progress to investment grade rating, post the ES transaction, you get down to three times pro form a leverage. So I guess what else needs to be done as you guys move to that aggressive grade rating up after you collect the capital from the divestiture?

Yes, not in our control. Obviously, when we do that, [indiscernible] significant upgrades in time when ultimately we get the investment grading investment grade credit rating is really off to Moody's and S and P. Typically, they like to see the numbers roll through over sort of a twelve month period. So but in the meantime, we'll get material Credit rating upgrade. So little bit unknown, but obviously squarely in our site now post the debt repayment next week.

Got it.

And I guess just on the guide, what are you seeing on open book price inflation restricted book? And then on the volumes and other expected to be flattish. But if you could talk about intentional shedding versus expectations on specialty waste, industrial light expecting an improvement there? Are you expecting specialty rates and C and D volumes to remain in line with twenty twenty four levels. Thank you.

Yes, Harold, Luke speaking. So on the pricing side, we really you're definitely seeing the collection, which is really your open market commercial collection business stepping down from the levels you realize in 2023 and 2024. As can be expected in response to that sort of cost inflation stepping down. So you're still at a sort of 6% plus number on your blended collection. Which is higher in your commercial industrial book and a little bit lower in your residential, your residential tends to be that CPI link. What you call restricted And then the part that gets us sort of excited is the continued sort of new floor level close to mid single digit on post collection. [indiscernible] the post collection piece has been the one that sort of dragged down your blended pricing. And I think you hear this comforted narrative from the industry that we can't give away our sort of post collection assets and capacity at below Our sort of cost of servicing those lines So continue to see strength in both the collection and the post collection line. Albeit step down from 2423 and doing so in conjunction with step down in cost inflation. In terms of the volume, I'd say intentional shedding activities are largely behind us.

There's always some, but relatively de minimis where we today at what's baked in the '25 guide.

As you ramp up back M and A, you obviously give rise to incremental volumes that don't meet your sort of thresholds. And so that could give rise to some incremental But the guide today is really I think you're particularly really around the special waste. Right, whether it's hurricane clean up or just general sort of special waste, there's puts or takes. A little bit of uncertainty with how the market is in 2025 as it brought us some caution to that. To the extent there is incremental volumes that will all be sort of upside. You think about the margin walk, there is about a sort of 50 basis point drag as a result of our assumptions around special ways. So there could be even more incremental upside to what we had previously said if that does play out as it did Thank you.

We currently have no further questions So I will hand back to Patchen for closing remarks.

Thank you, everyone, and much appreciate for joining the call and look forward to seeing everyone on Thursday at our Investor Day. And as always, if you have any questions, please feel to reach out and looking forward to speaking to everyone after Q1 and another successful quarter. Thank you so much.

This concludes the base call. Thank you for joining. You may now disconnect.