This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk05: Hello and welcome to the GFL Environmental 2023 Q1 earnings call. My name is Elliot and I'll be coordinating your call today. If you would like to register a question during the presentation, please press star followed by one on your telephone keypad. I would now like to hand over to Patrick Davigi, founder and CEO. The floor is yours. Please go ahead.
spk07: Thank you and good morning. I would like to welcome everyone to today's call and thank you for joining us. This morning, we will be reviewing our results for the first quarter. I am joined this morning by Luke Pelosi, our CFO, who will take us through our forward-looking disclaimer before we get into detail.
spk11: Thank you, Patrick. Good 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. We have prepared a presentation to accompany this call that is also available on our website. During this call, we'll be making some forward-looking statements within the meaning of applicable Canadian and U.S. securities laws, including statements regarding events or developments that we believe or anticipate may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set out in our filings with the Canadian and U.S. securities regulators. 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 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 the Canadian and U.S. securities regulators. I will now turn the call back over to Patrick.
spk07: Thank you, Luke. Our exceptionally strong first quarter performance once again showcases the quality of our assets and the capabilities of our team and sets us up for another year of industry-leading organic growth. Exceeding our own expectations for revenue, adjusted EBITDA, margin, and free cash flows, our results clearly demonstrate the highly successful execution of the value creation strategies we've been communicating to you since we went public. For the fifth quarter in a row, We realized double-digit organic revenue growth across both our segments, contributing to nearly 30% top-line growth in the first quarter. Solid waste core pricing was 12.6%, the highest in our history, and an acceleration of 270 basis points over the record pricing we realized in the fourth quarter. The impact of our open market pricing strategies, fuel surcharge initiatives, and the acceleration of price increases on CPI-linked revenue all combined to yield a core price level higher than we anticipated, setting us up to exceed the 8 percent minimum price level on which our 2023 guidance was based. The positive solid waste volumes we realized in both of our geographies were also ahead of our expectations and speak to the quality of our market selection and the resiliency of our business. Additionally, the rollover of 2022 solid waste M&A also exceeded our plan. Our environmental services segment once again delivered results significantly ahead of our internal expectation, realizing over 25 percent organic growth in the quarter and continuing to demonstrate the merits of our strategy in this segment. Our previously discussed focus on pricing quality added to the substantial double-digit volume growth that has been ongoing since the second half of 2021. As I said last quarter, we remain extremely optimistic on this segment's growth prospects and operating leverage opportunities given our focus on quality of revenue and asset utilization. Adjusted EBITDA grew 24% in the first quarter and margins were nearly 50 basis points better than planned as our diligent focus on optimizing pricing and on our cost base continues to drive our higher underlying profitability. The $441 million of adjusted EBITDA was ahead of our expectations and attributable to the broad-based revenue outperformance and operating leverage across both segments. The margin impact of higher fuel costs that were a focus on most of 2022 continue to be mitigated by the ongoing implementation of our fuel cost recovery program, which allows price increases to drive operating leverage. The quarter saw almost double-digit unit cost inflation, which was in line with expectations and is expected to radiably step down as the year progresses. With that said, repair and maintenance cost headwinds continue to linger. Our record price increases overcame these cost pressures and drove nearly 200 basis points of organic solid waste margin expansion when excluding the impact of fuel and commodity prices. As we look forward to the balance of the year, we're seeing positive signs in labor and commodity prices, and which would shape us up to have a tailwind to the guide. The strength of the first quarter further solidifies our high degree of visibility on the widening spread between price and cost inflation and makes us optimistic that we should be able to meet or exceed the high end of the already industry-leading margin expansion we included in our four-year guidance. For adjusted free cash flow, Luke will talk through the movie pieces. But at a high level, the front-end loading of working capital investment and capital expenditures resulted in a plan that was negative in the first half and positive in the second half. The first quarter results were better than our plan. We are actively trying to pull forward receipt of every truck and piece of equipment we can in response to the repair and maintenance cost pressures, a strategy that we anticipate will drive incremental profitability as we move forward. In addition to outstanding financial performance, the first quarter also saw material progress on our portfolio rationalization initiative. On our last call, we told you that we had identified three distinct non-core markets for Divesture. As of this week, we have signed definitive agreements for all three, and we now anticipate total gross proceeds of $1.6 billion Canadian dollars, over $100 million more than we had said on our February call. We expect one of the transactions will close as early as next month, and the balance of the two to be closed by the end of Q2 or the end of the third quarter. The net proceeds from the transactions will be used to pay down our floating rate debt. The divested assets represent approximately 110 million of adjusted EBITDA at mid-20s margin, and the transactions are expected to be immediately free cash flow accretive as the interest in CapEx savings more than offset the divested adjusted EBITDA. Because of the mid-teens multiple we were realizing on these sales, the transactions are delevering by nearly half a term. The high degree of visibility that we now have on the transaction timing, combined with our exceptional first quarter operating performance, solidifies our conviction that we will end the year with net leverage that is less than four times. We are committed to achieving this leverage target by year end and expect further deleveraging in 2024 and beyond. We think that this will position us to secure an investment grade rating over the medium term. On the ESG front, in Q1, we continue to make progress on our R&G project pipeline. One of the largest of these projects are Arbor Hills Facility, Michigan, and is expected to start production in Q2 of this year. We hired our first Director of Diversity, Equity, Inclusion, and Belonging. This month, we expect to begin to see positive impact on employee retention and engagement as we continue to roll out our D, E, I, and B roadmap and the other employee-focused programs that we talked about in our last sustainability report. Also this month, we announced the appointment of Sandra Lavee to our board of directors. Sandra is a great addition to the board with her HR and legal background combined with her experience as an Olympian. We expect she'll be able to provide some good insights to management as we continue to foster our already strong culture at GFL. Lastly, Joy Grajak, our EVP of Strategic Initiatives, who has been with GFL since the early years, will be recognized as one of the five inaugural women who inspire at Waste Expo next month. To sum it all up, the quarter delivered industry-leading financial performance that exceeded our plan and at the same time saw material advancement of our ESG-related initiatives. Once again, I want to thank each and every one of our 20,000 employees for all that they do to allow GFL to continue to achieve these exceptional results. I'll now pass the call over to Luke, who will walk through the quarter in more detail, and then I'll share some closing comments before we open it up for Q&A.
spk11: Thanks, Patrick. Our accompanying investor presentation provides supplemental analysis to summarize our performance in the quarter in a consistent format to what we previously provided. Page 3 summarizes the bridge between our guidance and actual revenue with outsized underlying price volume fundamentals combining with M&A outperformance to drive a result more than $100 million above the original guide. Note that the M&A outperformance is primarily related to the rollover of 2022 M&A as the contribution from new 2023 M&A, excluding the Heartland deal, which was included in the base guide, was approximately only $5 million. While Environmental Services continues to materially outperform and consistently surprise to the upside, the quarter's overall outperformance was almost equally driven by solid waste, where pricing, volume, and M&A rollover were all ahead of our expectations. Core solid waste pricing accelerated 270 basis points from Q4, with double-digit pricing in both our geographies and high single-digit price in the typically lower-priced residential collection and post-collection service lines. This result is largely attributable to CPI-linked revenue finally starting to reset at prices commensurate with the cost inflation environment. a dynamic that is expected to provide pricing support for quarters to come due to the inherent lag in the mechanics of the underlying contract. As Patrick said, the strength of the first quarter pricing provides conviction that we will do better than the 8% pricing that was included in the guide for the year as a whole. Page 4 shows the bridge for solid waste adjusted EBITDA margins compared to the first quarter of 2022. As anticipated, the decline in commodity prices in our MRF business was 125 basis point headwind to margins year over year. Recall our guide assumed commodity prices remain at January 2023 levels. While this pricing was broadly in line with first quarter actuals, any improvement from here will be upside. Although fuel costs decreased sequentially from Q4, the increased diesel costs over the prior year continued to be a margin headwind. However, The ongoing improvement of our fuel cost recovery strategies yielded a 35 basis point improvement to the net margin impact from higher diesel prices as compared to the fourth quarter. Excluding the impact of commodity and fuel prices, solid waste margins expanded 190 basis points on the same store's basis. a 65 basis point acceleration over the spread in Q4, and as Patrick said, a result that reinforces our optimism in being able to meet and exceed the already industry-leading margin expansion we included in our base guide. And while the positive benefits of using fuel surcharges to mitigate the margin impact of fuel price volatility are clearly evident in our results, page 5 highlights that we still see a substantial opportunity for further improvement in this area. We remain highly confident in our ability to conclude the first phase of this initiative by June of this year, two quarters ahead of the original plan, and we remain committed to pursuing the additional upside of phase two throughout the second half of 2023 and beyond. We continue to lag the industry in this area due to the rapid growth of our platform in recent years that anticipate meaningful improvements to margin stability and quality as we close the gap to industry peers. Adjusted free cash flow for the quarter was negative 55 million, approximately 35 million better than planned, despite 25 million of unanticipated cash interest payments solely due to timing. On this point, interest rate volatility during the quarter led to the decision to accelerate the timing of our variable rate interest payments, which resulted in effectively four months of cash interest payments in the first quarter. This is purely just a timing difference, and Q2 will see cash interest $25 million less than planned, and the first half as a whole will be in line with the guide. When thinking about the cadence of free cash flow, in addition to the seasonality and adjusted EBITDA, the quarterly variances in free cash flow are primarily attributable to working capital and capital expenditures timings. On working capital, we typically see an investment in the first quarter, a larger investment in the second quarter, and then a substantially equal and offsetting recovery in the second half, predominantly in the fourth quarter. The current year first quarter investment was anticipated to be greater than the prior year in light of the material revenue growth, particularly the environmental services, which has a higher DSO profile. For capital expenditures, we typically see a front-end loading in the first half and then a rateable step-down in the second half. For the current year, the front-end loading was expected to be even more pronounced by virtue of the $50 million rollover from 2022 and the active strategy to take delivery of new trucks and equipment early as mitigation to lingering R&M pressures. Incremental CapEx tied to recent M&A that has effectively purchased price, but as it was incurred post-closing, also presented itself as CapEx in our reporting. As a result of these dynamics, the adjusted free cash flow was expected to be negative $90 million in the first quarter, and the actual results are significantly better than our plan. Reported net leverage was 4.97 at the end of the quarter. Looking forward, achieving adjusted EBITDA and adjusted free cash flow at plan would organically reduce year-end leverage to low fours. And then the divestiture transactions will reduce leverage an additional 40 basis points, resulting in year-end net leverage that starts with a three. This is the starting point to achieving an investment grade rating in the medium term. In the meantime, once our leverage is reduced and maintained at these lower levels, we anticipate material credit rating upgrades prior to the maturity of most of our existing debt, providing opportunity for near-term borrowing costs and improved free cash flow conversion. We will wait until the second quarter to update our guidance, but based on the strength of Q1, we certainly see a path to be at or above the high end of our ranges. In relation to our expectations for the second quarter, we typically realize just over 25% of annual solid waste revenues in the second quarter and 26 to 27% of the revenue plan for environmental services, which translates to approximately $1.975 billion of consolidated revenue expected for the second quarter. In terms of margins, with the toughest margin comp behind us, we remain optimistic that margins can accelerate to the low to mid-27s for approximately 70 to 90 basis points expansion over the second quarter of 2022. At the segment level, this assumes solid-race margins of between 30.5% and 31% and environmental services margins of almost 30%, with corporate margins comparable to Q1. The guide then contemplates further margin expansion in the third quarter before stepping down in the fourth quarter as per the typical cadence of the business. That yields the Q2 adjusted EBITDA expectation of $535 to $545 million. To continue the walk to Q2 adjusted free cash flow, in Q2 we are expecting CapEx of approximately $300 million, cash interest of $110 million, and an investment in working capital and other operating cash flow items comparable to Q2 of the prior year, or about $130 million combined, for an adjusted free cash flow of about nil. It's worth noting that this back-end loaded free cash flow cadence, primarily driven by working capital seasonality and CapEx timings, is in line with the expectations and assumptions underlying our original guidance to which we remain committed. I will now pass the call back to Patrick, who will provide some closing comments before Q&A.
spk07: Thanks, Luke. I wanted to conclude with a few thoughts on where we are today and where we are headed. We've now reported as a public company for 13 quarters. With each quarter, the impact of the strategies that we have been talking to you about since our IPO in March of 2020 have been clearly demonstrated. We have always been confident in our strategy and our ability to execute. I've said this many times before and I will say it again. We have built the best team in this industry. We are all driven to make the business better every day and we deliver on what we say we are going to do. That's our culture and it can be felt across GFL. All of these pieces, including the effective strategies we use to lever the cumulative impact of both organic growth and M&A programs, these have been in place for a long time. We didn't adopt a new strategy when we went public. We are consistently applying the same strategies that we have used to create billions of dollars of value for shareholders over the past 15 years. When you look at what's in front of us, here's what I see. the optimization of pricing to provide sustainable, durable price-cost spread, the rationalization of the portfolio to focus on the most attractive markets, the deleveraging and associated financial leverage, the ramp-up of RNG, all the self-help levers we can pull to improve asset utilization and cost efficiency, and the runway for further M&A, And the opportunity for industry leading growth along with material improvements to our margins and free cash flow conversion is undeniable. So from where I sit, I would say we're just getting started. I will now turn the call over to the operator to open the line for Q&A.
spk05: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. When preparing to ask a question, please ensure your device is unmuted locally. Our first question today comes from Kevin Chang from CIBC, Woodgundy. Your line is open.
spk10: Hey, Patrick and Luke, thanks for taking my question here. Congrats on a Q1. I know you're going to update the outlook when you report Q2. Thanks for the details on what Q2 looks like. But if I just look at what you did in Q1, and if I take the implied seasonality You inferred on the Q4 call in terms of what first quarter could look like. It does suggest an EBITDA on a full year basis, maybe closer to $2.1 to $2.2 billion, obviously excluding interviews, asset divestitures. Just wondering if there's anything wrong with that simplistic math, I guess, just based on how much you all performed in the first quarter here.
spk11: Yeah, Kevin, it's Luke speaking. I'd say, yeah, we're thinking there's opportunity to exceed the high end of the guidance we put on based on the strength of Q1. But, you know, I think it is premature to just simply roll forward 100% of the outperformance of Q1 and add that on. And that's why we want to hold off until Q2 before we formally update the guidance. I mean, you know, in Toronto, you were there this season. It was very mild. And no doubt you had some pull forward that benefited. But obviously with the strength of the pricing and the quality of the cost optimization that we're seeing in the results, we're feeling very bullish and there's going to be an opportunity to revisit. So we do want to get Q2 under the belt, but I would say you're probably not thinking about it wrong. Okay, that's helpful.
spk10: I mean, just my second question, you know, just looking at, I guess it would be slides for your kind of waterfall graph on the solid waste margins. 29 and a half, as I think through some of the headwinds that dissipate as we get through this year and into next year and beyond, you're obviously clearly through 30%. And then you have the RNG projects, which I believe you've called up in another couple of hundred basis points of EBITDA margin. Is this approaching a mid-30% EBITDA margin when I look at some of the puts and takes and you kind of lap some of the headwinds you've experienced? within your solid waste business?
spk07: I mean, we've been consistent in saying that we think, you know, over time there's still another 250 or 300 basis points of opportunity within the solid waste business. You know, could that be revisited with the moving up of sort of RNG and others? For sure. The continued pricing initiatives? For sure. The continued cost rationalizations? For sure. The focus on sort of higher margin, more accretive markets? For sure. So, I mean, you know, we're not going to stop at that incremental sort of 250, 300 basis points. But, you know, over time, you know, like we've said, there's no reason that this business couldn't push closer to the mid-30s over time.
spk11: Yeah, Kevin, if you think about the guide, the original guide, we were saying solid waste was going to be like 30.5% margin in and around that area. And that was inclusive of the material headwind to margin from commodity prices. Commodity prices alone normalizing something brings that number closer to 31. Obviously, the strength of the Q1 and the continued durable spread of pricing costs could provide upside on top of that number as well. So never mind going forward to RNG and the other market densification optimization that Patrick spoke to. I think just within this year alone, there's an opportunity to meaningfully sort of close that gap. So, yeah, we're very excited on the solid waste. And obviously, environmental services is the other segment in which we believe there's a lot of runway at the margin level as well.
spk10: Perfect. That's it for me. Congrats on a great start to the year. Thank you.
spk06: Thanks, Kevin.
spk05: Our next question comes from Tyler Brown from Raymond James. Your line is open.
spk02: Hey, good morning, guys. Morning, Tyler. You hear me? Oh, hey, sorry. Sorry about that. Hey, I just want to come back to price. Yeah, so obviously pricing was very solid, but can you just remind us what percent of the book is restricted versus open? I think you've got maybe a little bit more tilt towards the open market. And then, Luke, I think you mentioned what the trends were. Could you refresh that, what open market and restricted pricing was?
spk11: Yeah, so on an annual basis, as you said, and it's always booked, we have about a billion one that's tied to more of that CPI link type revenues, mostly in the residential collection, but we also see it in post-collection and some of our MRF processing type contracts. We're now seeing, and we saw in the first quarter, that restricted book resetting at 7% and 8% Price increases, which is obviously a much healthier number than what we've seen historically. Now, you're just catching up for the cost pressures that you were effectively eating, but it's certainly nice to sort of feel that relief. And then on the open market piece, you know, where you're seeing pricing in the sort of mid-teens. Now, again, this is the catch-up in response to the cost environment. We do expect that that will moderate as the year progresses, but you should continue to have broad-based support on the CPI-linked revenue as those resets continue to occur throughout the balance of 2023 and honestly even into 2024. Right.
spk02: Okay, that's helpful. And then I've been kind of asking all the companies this just to level set it, but what are you expecting or what is embedded in the guidance today from a unit cost inflation perspective?
spk11: Yeah, so our guide started the year, we said it was around a 6% number, and it was really a tale of two halves, right? As Q1 was going to be a high single-digit and then moderating to a lower single digit by the time you got to Q4 by virtue of the lapping. Now, if you look at labor, you know, labor cost is a 5.5% to low 6% number today. That is right in line with the expectation of the guide and seems to be moderating and or easing in line with expectations. We don't think there's any material deviations there. continues to linger, the cost pressures associated with that. Now, its ability to move the blended number is more limited, but, you know, that is the one area that we're watching. But otherwise, we think this year is going to be that sort of just above mid-single digit and really entering into Q4 and therefore into 2024 at now a sub-mid-single digit level.
spk02: Okay. All right, good. So this kind of brings me to my last question. So there's a lot of talk about pricing, a lot of talk about unit cost inflation and this idea of spread. So if you look back over the past, what do you think that that spread to unit cost inflation has been? Where do you think it is today? And do you think that we could see a structurally wider spread as we think about it off into the future? I don't know if that's a forever thing, but maybe... over the next couple of years. Just any thoughts on that. Appreciate it.
spk11: Yeah. I mean, I think historically, the industry was trying to get somewhere between 100 to 175 basis of spread and then a sort of 30% margin business. That would drive your sort of 30 to 50 basis points of annual organic margin expansion. I think what happened in 2022 is everyone was trying to catch up with the cost inflation and that spread compressed. And now we're coming out the other side of that. You're seeing that spread widening. I think 2023 is going to be characterized by an exceptionally wide spread, particularly as you get into the second half of the year. And I think that carries into 2024, at which point you'll have some sort of moderating. I think the question you're asking is the right one in that where does that spread now settle out as we go forward over the medium and longer term? Our perspective is that it's a better spread than it was before. And I think when you look at the continued discipline on pricing in the industry, the need to earn appropriate returns on the invested capital in this highly regulated business, coupled with the continued consolidation, I think those are all supports to retain what is going to be a structurally higher spread. I think it's difficult to say what exactly it will be, but I think it is clear the industry has demonstrated we will price at the required level in response to the cost environment we see. And in doing so, we're going to ensure that that spread is there to earn the appropriate return.
spk02: Okay, perfect. Thank you, guys.
spk05: Thank you, sir. Our next question comes from Michael Hoffman from Spiegel. Your line is open.
spk13: Good morning, Luke. I hope that's spring allergies and not a cold.
spk11: That's me, actually. That's actually Mr. DeVesey. I'm healthy today, Michael.
spk13: Oh, okay. Very good. So 12.6 less 190 is 10.7. So that's the first quarter inflation. Heads to four or five in the fourth quarter. You add that up on an average basis, and there's your midpoints. That's what you're talking about.
spk11: Yeah, I would just say the 10-9, Michael, I mean, that doesn't factor in. The factor is incremental cost investment. You think about the IT spend that we've spoken about, et cetera. So you technically have to back that out if you want to get your real unit cost inflation. And in doing so, the puts and takes, you get to more like a sort of low to mid-9 number.
spk13: Okay. All right. Are you starting to see it in ease or is it still persistently high in April? Is the evidence of an ease happening?
spk11: The evidence of the ease of the cost inflation is certainly happening. You're seeing reality and you're seeing the math of just the comparison. If I look month by month, round numbers, the January margin was backwards like 200 basis points plus. By February, that was about 50 basis points. By April, you were actually ahead, I'm saying on a year-over-year basis. I'm sorry, by March, you were ahead. In April, you're expected to spread even wider. So we're certainly seeing it. And I think it's a combination of both the actual unit cost inflation moderating as well as just the year-over-year comping fact.
spk13: And this is that's the point I was going to make is you did your wage increases, the big ones all through the spring. And so we're comping against that. And this starts to add.
spk11: Correct. And then you think about for us, we had the second half of the year. We had significant incremental cost inflation from some of our third party suppliers that were then finally just catching up on their own wage and fuel related headwinds, but then got passed on. And so Q1 in the first half is a materially more difficult comp than the second, and we're seeing that play out as anticipated, which further gives the optimism we have in the guide that we put out.
spk13: Okay. What do we pay down with the 1.2, 1.3? What instruments are we paying down?
spk11: You'll pay your variable rate debt, right? So you have your term loan B and you have your revolver balance. They have a comparable coupon. Depending on the timing of receipt, you'll look at your revolver and you'll evaluate how much pay down should happen there in conjunction with the free cash flow generation of the business to preserve an appropriate level of liquidity. But the majority of those dollars will go against the term loan B, which is the highest coupon component of our capital structure.
spk13: And what are the rating agencies telling you today about what they need to see for a period of time in order to get that investment grade? It's not just the leverage. What else do they need to see?
spk11: Well, the leverage will be the primary gaining item. They'll want to see sustained leverage at the lower level. And then in addition, over time, they'll want to see sell down from the sponsorship growth to a level slightly below where they are today. and that's just because as long as the sponsor continues to own in the size that they do, there's an incremental perspective on the sort of financial policies of the business. So those two things have to happen, but the major gating item is simply getting the leverage to that below three and a half level for more than just a moment in time.
spk13: Okay, and that's sort of without you knowing necessarily when or how much they want to do. It's sort of reminding everybody that the sponsors are going to seek to monetize and haven't done so since November 21. So this starts happening again.
spk07: It'll happen, Michael, just a question of when. I mean, I think the shareholders' perspective, at least on our side, I mean, they just see a material disconnect in sort of evaluation today. So I don't think anyone's rushing to do anything sort of anytime soon, particularly given the value disconnect that the shareholder group continues to see. So I don't think it's anything happening anytime soon, but as we continue to deliver and as we continue to perform and the thesis continues to play out, in theory the stock should move up and the valuations should trend closer to where the industry comps are, then I think you might see some of that. But until then, it's going to be pretty quiet.
spk13: Okay. And given the really healthy start to EF, Is there a corollary to what's happening at Green Infrastructure Partners, and does that speed up the timing on when you might be able to monetize that?
spk07: No. I mean, as you know, on Green Infrastructure Partners, sort of slow and steady there. Obviously, last year, with the big ramp up in cost inflationary, we were cautious about what M&A we did, just getting our hands around the business to make sure that we didn't have any headwinds. that were material. We got through that, and obviously, as you know, we wrapped up the M&A program this year in that business, actually closing sort of our largest acquisition on May 1st, which is, you know, the ACON road building business. But, you know, we'll spend time getting that integrated, and we have a couple of other things under LOI. You know, still on track to meet the targets. You know, my goal is sort of in the course of the next year and a half to get that to, you know, 300-plus million of EBITDA. We'll get that to 300 plus million of EBITDA, and then we'll look at some strategic alternatives for that business. But I don't foresee anything happening with that business in 2023.
spk13: Okay. And last item for me is you didn't model commodities in as part of the guide, which I think is the right thing to do. But what are your recycling people, Steve, Miranda, and Stephanie, so they're seeing in the trends that might also contribute to why I have confidence about high-end, not just on price?
spk07: I mean, their perspective, you know, has always been from the beginning of the year, Q1 and most of Q2 was going to be pretty soft. But we are seeing increased demand for the recycled products. And, you know, I think their perspective is that, you know, late Q2 and into Q3 and, particularly into the latter half of Q3, we'll start seeing some movements up in the right direction. And that's been their assessment from the beginning of the year. I mean, obviously things are subject to change, but there's certainly demand. It's now just moving price to the right spot.
spk13: Great. Thank you so much. See you in New Orleans.
spk05: Thank you, Michael. Our next question comes from Jerry Revich from Goldman Sachs. Your line is open.
spk01: Yes, hi, good morning, everyone, and nice quarter. I'm wondering if we could just talk about how you folks are initially thinking about price cost in 2024, given the outsized gains this year. Does that impact at all in terms of the price cost that you would target in 24?
spk11: Yeah, good morning, Jerry. Look, I mean, it's similar to Tyler's question. I think our perspective is we are going to have a wider spread back out to 2023 and into 2024 than what is going to be the new structural norm. The exact quantum of that, I think, remains to be seen, but we have a high degree of conviction and visibility that 2024 pricing is still going to be You know, better than mid-single digits at a minimum when you think about the rollover effect of the residential and CPI-linked book of work. And cost inflation from the trend we're seeing should moderate to something at a low single digits, lower, like lower than mid-single digits. So you put that together, is there somewhere between 200 to 300 basis points of spread available? I think so. We are going to reserve until we get to the end of the year to put a finer point on that. But we think it is underestimated the degree to which this cost price spread dynamic will continue into 2024 in a favorable manner.
spk01: That's good to hear. So you're seeing good acceptance of pricing. And then, you know, can we talk about The other moving piece is in 24, you know, the landfill gas projects. You folks had expected, I think, $60 million of contribution in 2024. Can you update us on how those projects are going, and should we still think about that as a tailwind, 24 versus 23?
spk11: Yeah, I mean, we put out the summary in the Q4 report where we laid out the pages. We may have actually replicated it into this presentation. That remains our current view in terms of the timing of those MMBQs coming online. And recall that we did that at roughly $2 RINs, right? So to the extent there is recovery or appreciation in the value of RINs, that is all upside to those numbers. So the cadence of the development and the commercialization of the plants remains as previously guided. And to the extent there's recovery in that sort of underlying value, the green gas, that will be upside above and beyond what we had previously said.
spk07: And there's also some, you know, there's some investigations going on on our side regarding sort of the ERIN program and some of the facilities that we had slated, you know, for RNG and some that are already under sort of electrical utility fit contracts. So we're also assessing those too, Jerry. So we'll have an update once we see the legislation in June.
spk01: Yeah, Patrick, I'm glad you brought that up. Can you say more on what you feel like the value capture will be for the industry versus the auto OEMs? How are those conversations going? And, you know, can you remind us how much power are you folks generating now just so we can contextualize what e-rents could mean for you folks at existing facilities?
spk07: Yeah, it's unclear for us exactly because we have to make an assessment of our existing sort of fit contracts. So we're literally deep in the throes of it now, but I have pretty good conviction that we'll be able to come back to you with a pretty concrete perspective after Q2.
spk01: We look forward to it. Thank you. And can I ask one last one? Environmental services, outstanding performance. Can we just talk about what part of the portfolio is driving that performance? How broad-based? Is it, and should we be thinking about any tough comps as we head into 24, given just the magnitude of our performance this year?
spk07: Yeah, I still think there's continued, I mean, remember, that business is significantly levered to Canada, right? So you have almost 80% of the revenue out of that business is definitely coming out of Canada. As you know, we put the two largest players together in Canada, ourselves and Terrapier, put that together, coupled together with coming out of the COVID recovery, um in sort of early 2022 so there's continues to be just a lot of demand of people you know getting caught back up of of with work that you know they had been slower over the last couple years during you know the material aspects of covid so that continues to be coupled together with amount of synergies and obviously those two businesses had um you know different service offerings so now the ability to cross sell those services between two businesses that we put together is sort of driving this material revenue growth and you know do i think it'll stay elevated at these levels no um but it'll definitely stay sort of at above average and more importantly we now have the ability to start pushing um price in a more material way and focusing on the quality of revenue in that business so i think you'll continue to see um fairly healthy sort of margin upticks coming from that uh line of businesses you know you've seen with some of our peers recently.
spk11: Yeah, Jerry, in reference to the Comma 2024 comp, I mean, as Patrick said, this has largely been a volumetric growth story with price discovery in the very early stages. We, like our industry peers, are actively initiating on the pricing front, and I think that is going to provide a tailwind that despite material concern about comps on the margin level in 2024, despite what we expect to be very healthy 2023 results.
spk07: Yeah, Jerry, I think what's also underappreciated post these investors for 2024 is just the free cash flow walk, right? So when you take out, you know, close to $80, $90 million of interest costs, we're set up pretty well for a very big sort of uh free cash flow number growth number going into 2024 and sort of not getting into 2024 guidance but i can see even with some cash taxes you know that number very easily conservative somewhere between 875 and 900 million um you know which is material step up from sort of what people are thinking today when you sort of put the different pieces together coupled together with the outperformance um you know of the business and where we see that going over the next little while so You know, I think we've positioned ourselves very well for a very healthy and solid 2024 here.
spk01: Excellent. I appreciate the discussion. Thank you. Thanks, Jerry.
spk05: Our next question comes from Walter Strachlan from RBC Capital Markets. Your line is open.
spk12: Thanks very much. Good morning, everyone. I just wanted to focus in on that M&A strategy post your three-handle leverage. As you get into 2024, you'll have a credit upgrade. It'll further lower your borrowing costs. You'll be of size then. I think, Patrick, you mentioned 875 and 900, and then on route to a billion of free cash flow generated organically without recourse to debt. I think all this has been a great strategy in terms of how you're proceeding here. Just curious, once we get to 2024, how do you look at your total addressable market for M&A? Like when you look at the total market that's in private hands, you know, how much of that is in your wheelhouse so that we can frame kind of the cadence of what you would ramp up to and for how long could you run at that rate given the you know, your organic free cash flow that's fueling that strategy, how long can you go at that run rate? Yeah.
spk07: So I think we've been pretty vocal. You know, I think when you look at analyst consensus numbers out there today, the free cash flow is somewhere between 800 and 825 for 2024. I think, you know, the reality is post these divesters that we just talked about now that number moves up, you know, several between 875 and 900 pretty conservatively. So you think about how we reinvest that 875 to $900 million in 2024. And that's without further M&A or anything we do this year, that's just sort of taking the base number this year. You know, I think consistently, we've responsibly deployed capital uh into m a and i think you will continue to see us do that um obviously with the large focus on continuing to move leverage closer to the mid threes so if you just look at what the base business does the base business organically even in 2024 will be lever call it 70 basis points so if we finish high threes If we finish at high threes at the end of 2023, going into 2024, business de-levers, you know, call it into the low threes over the course of 2024. The first $900 million of spend, obviously, next year is all de-levering. So, you know, you can conservatively, even spending closer to a billion to a billion two in 2024, that will de-lever, that'll still keep us under sort of three and a half turns of leverage for 2024. then that number just continues to ramp up when you look at the free cash flow in 2025 that is a billion one plus closer probably to a billion two with organic growth and then it just keeps stepping up pretty ratably from there particularly when all the free cash flow from the rng starts hitting in 25 and 26. so I think our program will continue the exact same way it continued before, albeit with a target leverage sort of sub three and a half so we can move to that investment grade rating sort of over the next couple of years. But the pipeline, just to go back to the pipeline.
spk12: That's fantastic.
spk07: I've said this multiple times. Listen, you look at Canada. You know, Canada, there's seven and a half, $8 billion market, or sorry, $11 to $12 billion market today. But the big three today do call it three and a half to four of that. This is just in solid ways. You know, you still have six and a half to seven billion unconsolidated through probably 2,000 to 2,500 companies in 10 provinces in Canada. So, all of that is sort of white space for us. And then you look in the U.S., I mean, you know, our target market is, you know, we think there's five to seven billion of revenue in the markets where we want to continue expanding sort of materially. And so, I think for the next 10 to 12 years, we are going to be sort of continuing to move at this pace, albeit obviously our business profile changes substantially with the amount of free cash that we have, but we will continue that M&A program as we move forward.
spk12: That's fantastic color, Patrick. Maybe one for Luke here. CapEx guide for the full year, I think, is at 300 to 500. I think, Luke, you said that would be 300 in the second quarter. So does that mean we're going to be closer to the 500 million for the full year? And does that at all impact your guidance for the free cash flow of 700 million for the full year? Just curious on that.
spk11: Yeah, hi, Walter. I think a little confusion there. 300 to 500 was the articulated number in M&A deployment, so dollars spent into M&A. The capex guide for the year was, I think, about $830 million gross. You know, with the recent M&A, as I said, there's probably another 20, 30 million bucks of land purchases that are coming on some deals we just did. So that number is probably 850-ish. And so what I was just trying to articulate with the approximately 250, 260 million spent In Q1 and then $300 million in Q2, you do have sort of 60%, 65% of your CapEx plan happening in H1. That was the front-end loading I was trying to speak to. The $300 million to $500 million was articulated as the art of the possible in proceeds deployed into M&A by virtue of, as Patrick characterized, a bit of a lighter year.
spk12: Sorry, I was looking at the wrong note there. But you answered my question in terms of cadence. It doesn't. the cadence of the front-end CapEx guide is not impacting your full-year free cash flow target at all. Correct. I'm reading that right.
spk06: Yeah. Correct.
spk12: Perfect. That's all my questions. Thank you very much for the time. Thanks, Walter.
spk05: Our next question comes from Rupert Mara from National Bank. Your line is open.
spk04: Hi, good morning. Thanks for taking the question. Just to follow up on that last question. So I think you're showing acquisitions of $217 million in Q1. Can you talk about how the M&A market is shaping up and are you still comfortable you'll fall in that $300 to $500 million range for this year?
spk11: So, Rupert, this is Luke. Just one clarification. You'll recall we purchased the Heartland facility from Vertex in the first week of January, or the very beginning of January, and that was about $130 million of M&A spend that we actually included in our base guide by virtue of the earliness in the year in which it had occurred. So when we're talking about spending $300 to $500, that was going to be incremental to the Vertex spend. So in reality, excluding Vertex, we spent about $100 million this year. And to Patrick's point on the quality and opportunities in the pipeline, yes, we anticipate we will be in that range of that incremental, call it $500 million, to deploy into M&A. And so that will be on top of the heartland. So on the financial statements, it will present as a $600 million spend because we were always talking about increments to heartland. And we're able to do that without any implications to our stated goals and commitments around leverage.
spk04: Okay, perfect. Thank you. And if we could talk about volume trends in solid waste, near-term and long-term, In the near term, I think you talked today about pulling forward some volumes into Q1 and maybe comps are getting tougher in some markets. How should we think about volumes the remainder of the year? And then in the long term, we've talked a little about what the business model looks like post-2024. What do you think is going to be a good run rate for volume growth? And how well do you think you are positioned in Some of your target markets, I'm looking at the population growth in Canada. You seem to be well positioned there. How do you see that impacting you?
spk07: Yeah, so I think, you know, what we've communicated is sort of flat up 1%. Obviously, there's puts and takes across, you know, the various parts of the country and in Canada and the U.S. But, yeah, I think there's a little bit too much of a focus sort of on what the volumes are. you know, plus one or minus one doesn't really move the needle all that much sort of in the business. But I think where we sort of sit today, particularly in Canada, I think, you know, Canada will be more flattish, I think, for the next little while, just given, you know, we have a small component of C&D volumes that come into landfills, et cetera. You know, obviously, with the lag that'll happen sort of in, you know, late 23 and into probably the first half of 24, that we think we'll see in some of those C and D related volumes. You know, that'll slow down a little bit, but again, it doesn't materially, it doesn't materially move the number. If you can, in some markets, we'd actually like volume potentially to back off a little bit so we can take some of our worst trucks off the road, some of our not so great drivers off the road, and you'll just have a significantly more efficient operation like we saw in sort of parts of COVID. But I think using sort of, you know, maybe down a half to up one is sort of the range that you see sort of over the long term is probably the right place to be.
spk11: And Rupert, just to clarify on your comment about pull forward of volume from Q2 into Q1, we're not necessarily saying there was a pull forward, but as you know, You know, with our exposure to the sort of winter belt, if you will, you know, across Canada, but also to Wisconsin, Michigan, et cetera, you just never know exactly how the spring is going to play out. And that's just why we always want to reserve until Q2 to actually see if there was pull forward or not. So not necessarily saying that's the case, but just would appreciate the incremental time to fully formalize our view on that. Just wanted to clarify that point.
spk04: Yeah, and I appreciate that the numbers are pretty small compared to what we're seeing on pricing. Great. I'll leave it there. Thank you.
spk05: Thanks, Rupert. Our next question comes from Stephanie Moore from Jefferies. Your line is open.
spk08: Hi. Good morning. Thank you. Good morning. Good morning. No, maybe this is a good follow-up to the previous question. You didn't note any of this, and your results kind of speak for themselves, but just curious if through the course of 1Q you saw any maybe volume weakness either in the U.S. or Canada on the solid waste side. I think some of your peers have called out maybe a little bit of slower activity, but just love to get some color on what you're seeing. Thank you.
spk07: Yeah, I think it's clearly moderated, you know, not shooting the lights out sort of anywhere specifically. Obviously, sort of on roll-off polls in specific markets, a little bit lower, particularly around, you know, C and D related polls, albeit sort of under sort of 5% of our revenue. You know, you still see a slowdown in some of the larger primary markets, particularly in Canada. But you know, in the US it's sort of moderate and we don't. We don't have a lot of exposure to the West Coast, so we didn't have the West Coast sort of weather impacts that you know, maybe some of the others have. And that's just, you know, I would say to a certain extent lucky just in terms of where we were this year that we didn't operate in some of those places. you know, that'll come back for everyone in the industry. But I think, you know, by and large, we haven't seen any material slowdown sort of anywhere outside of, you know, some of the C&D stuff in some of the larger primary markets in Canada.
spk08: Great. Thank you. And then, you know, Luke, you mentioned this, I think, earlier in your remarks about the margin opportunity and maybe some of your investments in, you know, new technology or automation. Could you maybe just give us an update on some of those investments expected for
spk11: 2023? Yeah, so Stephanie, what I would say is what we're seeing and realizing thus far is without any substantial incremental dollars in there. We've spoken about both of the truck C&G conversion automation and some of these capital spends that have attractive return profiles and how we've been more limited in deploying capital into them as there's been this perception around you know, leverage constraints, if you will. So our current guide, as we previously said, just assumes normal course replacement schedules, yes, favoring C&G where we can, but nothing out of the ordinary in terms of incremental spend that would help accelerate the realization of some of those opportunities. So they're real, they're there, and, you know, once we perhaps get leverage to a level that that is more consistent with what the expectation set looks like, you'll see an opportunity to revisit profitable high return investments like that and others. But as of now, there's been just the normal course and mostly what you're seeing on the margin is before including what we expect to be the significant benefit once we start implementing more initiatives around those areas.
spk08: Great. Thank you so much.
spk11: Thank you. Thanks, Stephanie.
spk05: Our next question comes from Stephanie Yee from JP Morgan. The line is open.
spk00: Hi. Good morning. I want to ask about the first quarter price. Good morning. I want to ask about the first quarter pricing outperformance. Did you get less customer pushback from the pricing that you rolled out, and that's what drove the outperformance? Or can you just kind of comment on how the conversations with customers went in implementing those pricing?
spk07: Yeah, I think it wasn't a question of whether we could get more because it was just a, I think some of the outperformance came from the initial realization of the fuel and surcharge program that the customer is contractually obligated to be charged, right? So it was less of a conversation versus just charging them and level setting them to what they're contractually obligated to sort of pay. And I think we communicated that through Q3 and Q4 of last year that the initial realization of some of those surcharge environmental would sort of fall into base price, and that's why you saw the outperformance in sort of base price. Okay. But to put it back, customer churn has been at all-time lows. So, you know, just catching up has got us there, but customer churn is at all-time lows.
spk00: Okay. That's great to hear. And just on M&A, do you feel like you have to evaluate the M&A opportunities differently because maybe you have to hold back on some opportunities given the leverage commitment?
spk07: Yeah, I mean, I think what we've communicated historically, what we've communicated today is, listen, we're going to deploy the dollars that we see fit, and we're going to deploy them into markets where we have a significant amount of fixed base cost facilities. where we can lever those fixed-base cost facilities with incremental volumes. So that's looking at markets where we have a lot of post-collection operations that maybe we acquired through other businesses or we got through the divestor packages where they're running at sort of 60%, 70% utilization and we want to push those to 100% utilization. And that's where the lion's share of those dollars are going to be deployed this year. As we get through this year, then we will look at sort of expanding and tertiary markets around, you know, those existing platform-type markets we have, but within the same geography. So, yeah, I mean, the focus definitely this year is sort of small tuck-ins that we can buy at significantly lower values that we can leverage that, you know, fixed-cost-based post-collection operations that we currently own today that are running at not 100% utilization.
spk00: Okay. Makes sense. Thank you.
spk05: Our next question comes from Chris Murray from ATB Capital Markets. Your line is open.
spk03: Yeah, thanks, folks. Just looking, going back to some of the pricing that you guys were talking about for Q1, how much of the price for the rest of the year do you feel is already kind of in place today? And how much do you think is left to get for the rest of the year?
spk11: Yeah, good morning, Chris. I'd say you probably have 85% to 90% of the price just in the typical seasonal cadence, and that's being most of our price occurs in Q1 with then another pricing event that happens in Q3. So where we would sit, that would normally be the level of comfort. When you think about our guide of at least 8%, and when you think about the strength of Q1, I would say you have probably 100% visibility. to which there's upside above that.
spk03: Okay, fair enough. And then I'm not sure who wants to take this one, but you were talking about the fuel surcharge program and you were talking about getting to the first phase of the plan and then a second phase into 2024. Can you just maybe elaborate on what you're talking about in terms of different phases for the fuel surcharge and any thoughts around this actually being accretive as perhaps you get these surcharges into pricing in the next few quarters?
spk11: Yeah, so because all we were simply saying is what we're looking today is to cover our direct fuel costs with a surcharge mechanism such that for every dollar change in diesel price, I can recover my dollar plus my margin. And that's what we really perceived as phase one, get to that point where we've effectively neutralized the margin in changes in our P&L. The reality is we are subject to fuel costs in indirect manners through a whole host of lines on the P&L. It could be third-party trucking support. It can be plastic containers and other items that are impacted by petroleum costs. So I think we will continue to pursue the overarching industry approach whereby there's a path to recover all of those types of costs. Beyond just our direct energy, and that's what we mean really by sort of phase two and beyond. Yes, I think this is all margin accretive in that the initial recognition of these surcharges is effectively there's a certain tranche of it that's just like incremental permanent base price, and that's what you're seeing sort of come through in the results. So we're happy to now substantially be at the place where we've achieved phase one, and we will continue through our pricing discovery to optimize the surcharge program in conjunction with our normal course pricing practices as we go forward from here and beyond.
spk05: Okay, that's all. Thanks, folks.
spk04: Thank you.
spk05: Our next question comes from Devin Dodge from BMO. Your line is open.
spk09: Thanks. Good morning. I wanted to start with more of a modeling question, and apologies if I missed that earlier, but once the divestitures are completed, how does that impact the timing when GFL is expected to be a full cash tax year?
spk11: Sorry, Devin, we're having a really difficult time hearing. I think you said a mention about cash taxes associated with the divestitures. So, yes, as you know, we currently have significant net operating losses that have provided us tax shields on a regular basis. The divestitures will consume a significant component of those operating losses and accelerate the pace at which you become a sort of cash taxpayer. Now, obviously, with our capital deployment and M&A deployment, there's opportunities to continue to minimize what is due at the cash taxes level. But starting in 2020, late 2024, and now into 2025, which is probably about half a year earlier than previously anticipated, they'll start having a ramp up in cash taxes to the extent there is not mitigating factors such as, you know, M&A, et cetera.
spk09: Okay, makes sense. I'll leave it there. Congrats on a strong start to the year.
spk11: Thank you, Devin. Thanks, Devin.
spk05: Our next question comes from Michael Feniger from Bank of America. Your line is open.
spk14: Hey guys, thanks for just squeezing me in. You guys are showing areas of addressing the low-hanging fruit as you build this company. The fuel surcharge program is a great example. Just curious, over time, do you think you'd create less seasonality with that free cash flow? Could it smooth out over the next few years?
spk11: Yeah, good morning, Mike. It's Luke. I think the answer is yes. You know, the CapEx that we're always going to respond with capital expenditures, you know, to what we see out there, and this year pulling forward, I think, was just prudent in light of what you're seeing on the R&M side. The working capital swing that we have, we'll always have a certain degree of it coupled with by virtue of, you know, the Canadian or winter climates and environmental services, but then there's a meaningful opportunity to standardize and harmonize our processes and programs there, and you think about all the sort of payables associated with businesses that have come on, that's sort of the generator of it, and get to a point where you have more muted amounts from quarter to quarter. So I think it's a great question. I think it's something that will represent an opportunity for us as we go forward with what is now a more sort of you know, stable size core that will allow for that sort of harmonization of those practices.
spk14: Great. And just to sneak one last in, the environmental services side, another big player reported a great quarter there with volume and price. Do you sense that this side of the waste industry is becoming more rational and disciplined if project activity is and volumes there start to soften, do you think pricing will stay disciplined on this area of the waste industry? Thanks, everyone.
spk07: I do. I mean, it's been my thesis for almost 16 years now. So I think, you know, it's probably 15 years behind where the solid waste business is. But I think over time and, you know, the moat in those businesses are particularly your facilities that are, you know, very difficult to replicate today. Again, think about it as a landfill, fixed cost-based materials come in on a route-based collection network, come in, process those, discharge those wastewaters or solidify them, put them into a sludge and set it to one of our sort of landfills. You know, I think where we're sitting is that, you know, the market and the competitors are realizing what the actual cost is to do that work, and it's becoming significantly more rational. And as we've said, you know, our business, we anticipate it'll be a mid-20s margin business this year, and we think... we can push that closer to 30% over the coming years. So, yes, we are of the same thesis. I believe that to be true, and I think you're seeing that sort of come through in some of the competitors' numbers as well.
spk14: Perfect. Thanks, Ed.
spk07: Thanks, Mike.
spk05: Our final question comes from Michael Hoffman from Stifel. Your line is open.
spk13: Hey, thanks for the follow up. I meant to ask this before and I forgot. So the US House has passed a debt ceiling bill. And they have pulled the RNG investment tax credit that was in the IRA out of it. And it's got to get through the Senate. But assuming that goes away, you'd still do all of this RNG investing, but how does it impact the cash numbers you've been sharing?
spk11: Yeah, so Michael, You'll recall our previous conversation around this was we were going to use the ITC off the initial jobs to serve as the equity investment in the subsequent ones. We're going to have this opportunity to recycle that nicely. To the extent that goes away, what it will require will be a little bit more equity than we were previously anticipating. But again, as you well know, the returns on that equity and the overall profile that we've seen in this industry or in this business. So nothing changes. It potentially changes the timing of our sort of CapEx into those. We don't anticipate there being a material shift for this year's guide, but we'll obviously sort of stay close to it as we go forward and think about 2024.
spk13: Yes, and just to remind everybody, everybody was developing these before the IRA was even in Congress's line of sight.
spk06: Correct.
spk13: And then the last one, what do you care about more, free cash flow, compounded average growth rate, and conversion of the P&L versus margin?
spk07: I think it's one and the same from my perspective because, you know, if we can drive out the incremental sort of margin organically out of the base business, you know, all those dollars are going to flow down in the sort of free cash flow. So I think it's, from my perspective, one and the same.
spk11: Michael, the thing we talk about is the growth of free cash flow per share. That's where we believe we have a unique opportunity in an industry that's a great compounder of free cash flow per share with the idiosyncratic operating leverage opportunities available for us, compounded by then the financial leverage. We just think we have a very compelling growth of free cash flow per share for the next, pick your duration, but mid to long term. that is highly compelling, and doing that should create material value.
spk13: Right. I guess what I was trying to get at is there's a point where margins find a level and then the incrementals on those get tighter, but there's an almost continuous opportunity to maximize capital asset utilization that drives even more cash.
spk07: Of course, all those self-help opportunities are going to continue driving more cash. And then the transfer of wealth from the debt side of the balance sheet to the equity holders, right? So as that moves, all that value is going to transfer from the debt side of the balance sheet to the equity side. So, you know, you put those two things together, that's going to drive sort of material sort of free cash flow growth.
spk13: Yep. Okay. Great. Thanks. Thanks for taking the call.
spk11: Thank you, Michael.
spk05: This concludes our Q&A. I'm going to hand back to Patrick Davigi, founder and CEO, for any final remarks.
spk07: Thank you very much, everyone, for joining the call this morning. And we look forward to speaking to you after Q2. And again, thank you to everyone for their sort of continued support. And always available to take calls, et cetera, for the balance of the day. Thank you very much.
spk05: Ladies and gentlemen, today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines.
Disclaimer