GFL Environmental Inc.

everyone and thank you for joining the gfl fourth quarter 2024 earnings call my name is marie and i will be coordinating your call today during the presentation you can register a question by pressing star followed by one on your telephone keypad if you change your mind please press star followed by two we ask that you limit yourselves to one question and one follow-up only i will now hand over to your host patrick davigi founder and ceo to begin please go ahead

Patrick O' 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 fourth quarter and providing our guidance for 2025. I am joined this morning by Luke Pelosi, our CFO, who will take us through our forward-looking disclaimer before we get into the details.

Luke Pelosi, CFO, 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. 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 statement. 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 the 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 cash flow. The momentum of our financial performance gives us conviction in our key value creation strategies. One, generating durable price-cost spreads. Two, focusing on the quality volume. Three, 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&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 1st. 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. The sale leaves us with an enhanced balance sheet that will provide us with incremental capital deployment optionality, creating capacity for additional M&A activity, and also, for the first time, allowing us to do share buybacks and increase dividends to become meaningful drivers of our shareholder value creation. Higher return on invested capital organic growth initiatives will continue to be prioritized. We deployed 300 million of incremental growth investments in 2024, consistent with our 2024 capital allocation framework. We intend to deploy 325 million of incremental growth capital in 2025, mainly comprised of the final investments required for the EPR contracts we've been awarded. By the end of 2025, cumulative investments into EPR will total approximately $600 million, with approximately $50 million remaining to be spent in 2026 and 2027. This material step-down will free up cash flows for other deployment opportunities, such as share or purchases. M&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 sheets. We closed 11 transactions, all of which were small, except for the vertically integrated asset we acquired in Florida in 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 facilitated a higher level of participation in hurricane cleanup efforts. Our pipeline remains robust, and we see many similar opportunities to densify our existing networks and improve asset utilization through tuck-in M&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 to meet 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 multi-year outlook and we look forward to walking through the details at our investor day on February 27th at the New York Stock Exchange. I will now turn the call over to Luke for additional color on the quarter and the 2025 guide And then I will have some closing remarks before we open it up for Q&A.

Thanks, Patrick. Consolidated revenue for the quarter of $1.98.6 billion was ahead of our guidance. Fourth quarter solid waste organic growth accelerated to 7%, excluding the impact of the divestitures, driven by solid waste pricing of 6% and volume of positive 2.3%, 75 basis points better than planned, and a 310 basis points sequential improvement over Q3. The return to positive volumes was expected in the fourth quarter as we anniversary 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 they historically would have experienced as our transition to EPR continues to mitigate our exposure to commodity rights fluctuations. Environmental services revenue was down 2.2% compared to the prior year, inclusive of the impact of lower use 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 270 basis point increase over the prior year, inclusive of the dilutive margin impact of the extra workday as compared to the prior year, an increased cost of risk, as well as the impact of reclassification of certain costs that were recognized in the corporate segment in the prior year period. Commodity and fuel prices, FX and M&A, and the impact of recent divestitures were tailwinds to margins. Environmental services adjusted EBITDA margins were 28.9%, 390 basis points ahead of the prior year, despite headwinds from used motor oil pricing. Recall we had a fire at one of our facilities in December of last year, and that reduced Q4 2023 profitability. The lapping of this event was a tailwind of margins, as was the timing of incident claim costs and performance compensation accruals. Adjusted free cash flow and adjusted net income were $360 million and $86 million respectively, both ahead of expectations. 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 million of incremental growth CapEx during the quarter, bringing the total for the year of incremental growth CapEx to $298 million. Together with the approximate $590 million we deployed into M&A, total capital deployed into these growth initiatives was $890 million, in line with the $900 million cap we guided to in our initial capital allocation framework at the beginning of 2024. With the significant strengthening of the US 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 1st. As previously indicated, we intend to repay approximately $3.75 billion of long term debt shortly after the closing of the sale, giving rise to annual cash interest savings of just under $200 million. We also plan to use up to $2.25 billion of the proceeds to opportunistically pursue repurchases of GFL shares with a view to reducing the current overhang as well as reducing our current diluted share count. Pro forma 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 forma 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 XES, and that is what I will walk through now. Top line growth is expected to be 6 to 7%, yielding 6.5 to 6.55 billion 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 fours. As we have said, we believe price cost spreads over the next five years can be structurally higher than they were in the past 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 headwinds 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 2025, albeit to a lesser extent than typical, thanks to the reduced commodity price exposure resulting from our EPR 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 was slightly higher than this, but we are being conservative in light of the severe winter we have 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&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&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 EBITDA 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 cost, 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&A over the coming years. Commodity prices and the RNG ITCs previously recognized in the P&L in 2024 are 45 basis point headwinds. Whereas M&A rollover, the Michigan divestitures and FX are a 45 basis point tailwind, meaning the 100 basis points is effectively underlying organic margin expansion. Again, as we have transitioned to EPR, our recycling business is structurally less sensitive to commodity prices due to the higher proportion of overall recycling revenues derived from processing fees. Adjusted free cash flow is expected to be $750 million. For the WACM-adjusted EBITDA, we expect normal course CapEx of $700 to $725 million, net of cash interest of approximately $350 million, approximately $200 million lower than what it would have otherwise been as a result of the use of the ES proceeds, and $125 million of other cash flow items, mainly ARO and cash taxes. The $325 million of planned growth capital is excluded from the guide. pre-cash flow conversion as a percentage of adjusted EBITDA increases 230 basis points to 38.7% as we push towards our near-term goal of pre-cash flow conversion that starts with a four. We believe we have a clear line of sight to industry leading rates of improvement to our pre-cash flow conversion, 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 re-ignition of our M&A strategies that have been tempered over the past 18 months. Our pipeline remains robust and the incremental M&A completed during the year will be upside to our guide. I want to highlight that our M&A program can be executed without having a significant impact on leverage thanks to the power of our financial model, which provides dependable organic de-levering each year through adjusted EBITDA growth and consistent strong free cash flow generation. Specifically, as it relates to the first quarter of 2025, we expect consolidated revenues of approximately $1.52 billion at approximately 27.1% adjusted EBITDA margin, which implies 100 basis point expansion over the prior year for the ES sale. Lou Stubecki, Q1 adjusted free cash flow for format that the sale occurred in January one is expected to be about nil less than the prior year, largely on account of the timing of cash interest payments and anticipated investments and working capital capital.

Lou Stubecki, i'll now have to call back to Patrick will provide some closing comments before Q amp a. Patrick O' Thanks 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 in part from a near-term ramp-up from EPR, RNG, and the other self-help strategies I described in my opening remarks. We're going to improve free cash flow conversion, execute on our robust M&A pipeline while maintaining leverage in line with our targets, and 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 and 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&A.

To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure that your device is unmuted locally. We ask that you kindly limit yourselves to one question and one follow-up only. Our first question comes from Sabahat Khan of RBC Capital Markets. Please go ahead.

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

Yeah, thanks. You know, as we said, and Luke mentioned in his comments, you know, we expect to close on the 1st and receive the capital on March 3rd. I think it's going to be twofold. Initially, as we said, $3.75 billion 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 bonds that exist. I mean, the term loan revolver will be done fairly instantaneously. The bonds 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. You know, I think from our perspective and the board's perspective, the stock continues to be undervalued here. We think when we look out, you know, later into 25, into 26, given, you know, all the investments we've made around EPR, RNG, you know, I mean, we've given a conservative guide and with the organic expansion we're expecting coupled together with the M&A, you know, the board thinks that the stock is materially undervalued here. So, what you're going to see from us is twofold. You're going to see most likely the next 24 to 48 hours, normal course issuer bid, which we've applied for exemptive relief to get to buy back up to 10% of the public flow. So that, and then there'll be a combination of doing that. And, you know, I think from our perspective, we can, you know, depending on the rolling volume counts, you know, on the US line, know we could typically be buyers of probably 350 to 500 000 shares a day up to that and on the canadian line we can buy probably up to 65 to 70 000 shares a day on the canadian line um in conjunction with that we are also um finalizing now that we have clarity on the closing you know we expect to have clarity on how we're actually going to buy back um you know shares that loop reference in terms of the overhang from the private equity shareholders, meaning Ontario teachers, GIC and BC partners. So we expect clarity on that from the OSC over the next sort of week or two as well. So that'll also be a combination. So between the two of those, we expect that we'll be able to buy back the $2.25 billion 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 you can just dig a little bit deeper into maybe the self-help levers. I know you'll get a bit more detail at the investor level. Maybe for 2025, what are some of the levers that are driving this margin improvement for this year? And maybe the stuff that we should wait for, I guess, over the next few years that you'll maybe talk about later this week. Thanks. That's it for me.

Yeah, it's a great question, Sal, but obviously we're really pleased with the setup and being able to come out with industry-leading margin expansion yet again. If you think about the drivers, as you know, I always like to talk about, you know, the exogenous factors, if you will. And if you think about the guide, you may have 100 basis points, you know, of underlying solid waste margin. You know, if I think about commodities and fuel with, you know, where we sit today, it's about a 20 basis point drag. And then, you know, last year, the sort of recognition of R&G ITC 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&A, you know, 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 30, 35 basis point benefit from the Michigan divestitures. So the good guys and bad guys articulated there are a bit of a wash. So really leaving this hundred basis points of underlying as really organic margin expansion. So now to your point on the self-help levers. I mean, if you think about a price cost spread, you know, we're thinking of the cost inflation sort of low to mid fours against the sort of price number of that kind of low to mid fives. So you're banking on a hundred 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 bips coming from the self-help levers. And what it says is what gets us excited. It's not any one thing. It's really all of the things contributing, right? And so you have the 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 employee turnover, you know, the quantification of which is, you know, multifold, but you see it from onboarding costs, but productivity, cost of risk, et cetera. 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 as to what we think the art of the possible can be. But, you know, safe to say we have a high degree of conviction that the realization of those benefits ratably over the next couple of years is going to continue to deliver exceptional results at the margin and, more importantly, free cash flow conversion-wise.

Thanks very much.

We have a question from Patrick D. Brown of Raymond James. Please go ahead.

Hey, good morning, guys. Tyler.

Good morning.

Good morning. Hey, Luke, can we just start a little bit more on the EBITDA bridge? So if we started pro forma solid waste plus corporate, I think you would call it 1.76 billion. just how much is fx and then how much is epr and rng laying in this year and i think you've got maybe some some corporate you know a little bit that goes with es as well but can you talk a little bit about the puts and takes yeah so that's right i think if you take i'll do the bridge of revenue and then we can talk about margins but if you take about you know a starting point bridge you have roughly 61.50 of revenue

last year pro forma if you back out yes right now you have a hundred million dollars 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 60 50 sort of x yes you know so from that what we're saying at the top line as i said it's five and a quarter to five and a half percent price um you're getting volume of sort of plus or minus 25 bits so assume that's sort of you know nil at the midpoint you're having commodity price sort of minus 25 bps. Now that would have been significantly higher when you think about how the actual underlying indexes move. But as we've said, the benefit of sort of, you know, EPR transition moving to fixed speed processing model is shielding us from some of that volatility. But nonetheless, you got about 25 bps drag from the commodity price component. M&A rollover is 80 bps, which is really an 80 bps positive from the small amount of M&A offset by the 160 bps of Michigan. So, depending on if you start with the, you know, 6150 number or 6050, how you treat the divestitures. And then on top of that, to your point, you've got FX of two points, right? So, we're saying an FX assumption of 1.41. Now, realize that is lower than where we are at today. And, you know, as we set our guides, we always like to sort of pick the prevailing interest rate and use that, you know, as the basis for the guide. You know, there's been a lot of volatility in FX as of late, and there continues to be. So, with a bit of a bouncing target for sort of conservative purposes, you know, we just took the sort of 1.41 rate. you know, worth noting or reminding folks that the sensitivity of the revenue line is about $30 million per point of FX and about sort of round numbers, $10 million at the EBITDA line. So if you were to recast, you know, this guy that say, you know, something I think today's FX might be closer to 1.44, that sort of three-point difference would yield an incremental roughly $100 million of revenue and over $30 million of EBITDA, just for sort of context there. So that's the sort of revenue bridge, you know, saying you're putting it all together at the EBITDA line. I think you're right. You start with roughly 1760 of EBITDA in 2024 pro forma for, you know, removal of BS. 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. R&G will go from a sort of roughly $25, $30 million contributor in 24 upwards to sort of $50 million in 25. And then EPR, you know, as we said, we're going to have to, we originally thought we'd have about $10 million in 24. With the outperformance we had in Q4 and the ways in the commodity price movement, it was closer to sort of $20 million realized in 24. As we said, you get sort of roughly $35 to $40 million list of incremental coming into 25. And again, that's sort of helping with the sort of margin walk. And then the last piece just to note is what EPR 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. So you effectively get this incremental lift. 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's many other puts and takes underneath that, but those are the sort of broad strokes that we think are working out to that guy who just laid out.

Excellent.

Okay.

Lots of good detail. Appreciate that very much. Hey, Patrick, can we talk real quickly about GIP? Can you just give us some updated financials there? Maybe EBITDA, the leverage profile, and then, you know, 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. Yeah. So 2024 was a great year. You know, finished in sort of low 200 millions of EBITDA. You know, we have a plan this year for approximately 225 million of EBITDA is the plan. We have three M&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. It is something we're going to look at and explore. Would it be a full outright sale? No, because I think there's a significant amount of value 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 to explore that post-closing the ES business. It's on track, performing great. Valuations in the sector sort of have never been better. So, you know, we're feeling very good about it and very confident about it.

Okay, perfect. Thank you.

Thanks, Alex.

We have a question from Kevin Chang of CABC Wood 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 tougher. You called out winter and I suspect commodity prices, and 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 and which looks maybe is your most challenging seasonal quarter with the full year outlook also being 100 basis points.

Yeah, it's a great question, Kevin. Thanks for it. I mean, so if you think about H1 versus H2, I mean, H1 has the benefit of this Michigan divestiture, right? And it just goes to show the power. Patrick mentioned the comment about focusing on quality of volume. And the benefit in Q1 of not having that sort of lower quality volume is roughly sort of 65 basis points. 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. Now, if you think about the commodity ramp for last year, I think it's important to understand the cadence 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 sort of negative as you get into the sort of back end of the year. And, you know, 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 know, you're seeing that come through in each of the quarters. We anticipate being able to have the right term of industry-leading, I keep saying, but this 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 outside contribution from the divestitures, as well as just the cadence and timing of some of the exogenous factors on commodity.

That's a very helpful caller. 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 pro forma basis versus what you're tracking in Q3 and I think through the first half of 2014. Anything to call out there in terms of the step up in the fourth quarter?

Yeah, Kevin, I'd say if you look at the U.S. sort of specifically, I mean, both markets have been contributing, you know, sort of at the price line, you know, in a very sort of satisfactory manner to us. A little bit of an outsized price in Canada as you're getting new municipal contracts rolling on and you're getting the sort of price increase sort of benefit from that. I'd say the really, you know, strong story in the U.S. in Q4 was the sort of volume piece, right? And again, as you've lapped these sort of intentional shedding, And you think about how that's materializing in volume. I mean, the U.S. volumes increased 360 basis points sequentially from Q3. 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 were 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.

Hi, 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 earning sensitivity to RIN prices just so we can market that throughout the year? And then, you know, after the $325 million in growth capex, you know, is it possible to say how much you think could be left for 26th and 27th?

Yeah, 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 240 level and roughly with what we have online, every $0.50 of RIN prices would drive roughly $15 million of EBITDA. Now, at maturity, every $0.50 of RIN prices drives about $50 million 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. How fast is this, Patrick, as you think about the locking in of pricing?

Yeah, so long-term locking of 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'll find a level setting place. And 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 who aren't smarter than me think. That being said, we're going to forward sell all of our rings 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 in the near term.

Brian, I'm the last on the CapEx piece. Each year, the sustainability spend has been roughly two-thirds EPR and other, and then a third RNG. If you look after this year, there's probably another $100 million, $150 million of net CapEx as it relates to RNG over the sort of 26 through 28 levels. So I think that overall spend comes down considerably from today's levels. There will still be some as it relates to finalizing those last RNG projects.

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&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 million 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.

Yeah, I mean, listen, I think we've closed one small deal this year. You know, the expectation is post getting the dollars that, you know, the M&A program is going to ramp up to what it was before. And I think, you know, we typically guide it to somewhere between a spend of sort of, you know, anywhere between five to seven hundred million dollars. I think the upside case is probably closer to a billion. But in that zip code is, you know, 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 framework balancing the EPR, RNG, spends coupled together with M&A, coupled together with de-levering. 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 17 years. But we'll have a very good update for you, you know, on investor day on Thursday.

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

Hi, good morning. This is Adam on for Jerry today. Just one follow-up on M&A. It sounds like the pipeline remains robust. Can you just talk about the mix of opportunities in the M&A pipeline from a standpoint of solid waste business lines or geography?

Yeah, it's going to be a combination of U.S. and Canada in existing markets where we're currently operating that densify existing markets where we already own a substantial amount of post-collection assets. And I think you're going to see that move throughout both canada and the us i think from a dollar weighted perspective you're going to see more dollars get deployed into the us just because of the size of opportunity and where we're looking to expand a bunch of those operations again around markets where we have landfills recycling storage transfer stations um but you know my expectation is probably something like 75 25 75 of dollars go to the us 25 dollars 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?

Yeah, Adam, Luke speaking. I mean, we exited in 2025 at roughly about $180 Canadian per Canadian ton when you look at where the sort of markets were. You know, 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 is when you look at the 2024 average rate, you know, it's about $200, $205 per ton Canadian for Canadian tons. you know, it's about $25 Delta, you know, when I think about the $180 exit rate, but our realized rate during 24 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 Delta in terms of the sort of pricing, you know, year over year, which our guide is based. Now, at the roughly million tons that we have, that would have implied like a $45 million headwind. The reality is today we're seeing a significantly lower headwind than that because, again, as I mentioned, fixed 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 26, that exposure will reduce even further from there. That's how I would think about the setup for 2025, as we said today.

Great. Thanks so much.

We have a question from Devin Dodge of BMO. Please go ahead.

Yeah, 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 don't more than 5%. Just based on the buyback, the proceeds from yes, 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 board change and if there is any read-through to the plan 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 post 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, you know, this more of the sponsor type. Right. And as I said previously, you know, our expectation was that Ontario teachers would come off in sort of early 2025. 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, you know, I think the way the investor rights agreement reads is they have the right to appoint it. It's not a necessity. And then just given how close they'll be to the threshold post the buyback, you know, the expectation was we got one of them out of the way now and we expect the other one, you know, we're in process now of, of, Patrick Corbett- 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.

Patrick Corbett- Okay, thanks good context and then maybe just a modeling question so might be for Luke here, but. Patrick Corbett- The repayment of lease obligations on the cash flow statement but there's been a fair bit of quarter to quarter volatility, I think it was almost zero in the quarter just just. Wondering if you could provide some color on what's driving some of that noise in that line item and what that should be on a go-forward basis in the mix between operating and finance leases.

Yeah, Devin, it's Luke speaking. On a go-forward basis, if you think about it, it's roughly like $100 million, $120 million per year amounts. And I'd say there's a U.S. dollar denominator 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 a classification that we have readily available. I think of it sort of roughly call it 75%, which you think about operating, which is, you know, buildings primarily. It's like offices and some of our key facilities that are leased. And the other balance would be, you know, equipment type financing amounts.

Okay, and maybe just the volatility. Can you help me understand just the timing of payments or what's driving some of that quarter-to-quarter volatility?

This year what you had is equipment, specifically corporate aircraft lease that you had 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 divoted into a regular loan for those payments. And so you just had some inputs 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 Kunar Gupta of Scotiabank. Please go ahead.

Thanks, Anne. Good morning. Just wanted to understand, Luke, what's your expectation for the canons for net leverage as the year progresses? And I'm asking this, you know, like from a perspective of you have obviously the capital deployment for the sustainability, the ES sale will happen in the next month or so. And then you have some M&A as well happening. So how do you see the ebb and flow of the net leverage, you know, as it progresses? Thanks.

Yeah, 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, you know, maybe it wasn't always the case. But if you think pro forma for the transaction, you have roughly sort of three turns right out the gate. And then as you go forward from here, I mean, X M&A, I'll start, it's just the sort of natural sort of deleveraging that happens throughout the year between Q2, Q3, and then Q4. You know, 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, et cetera. Now the actual sort of cadence from each of the periods, you know, typically each one is a bit of a heavier investment on both working capital and capex. I mean, each one will be roughly a hundred million dollar working capital investment and you spend sort of 55 to 60% of your total capex spend. So, you know, from a free cashflow perspective, H1 is a little bit more of investments. You will see a slight uptick in Q2 on that sort of pro forma number. And then that rate of labor recovers through Q3 and Q4. James Forrest, Norcal PTAC, Inclusive of potential M&A, which would be all be added to the guide at the EBITDA level. James Forrest, Norcal PTAC, You know that's that could be back leveraged depending on the timing when those deals close, however, what I would say, and I highlighted in the prepared remarks. James Forrest, Norcal PTAC, Is the relative impact of M&A, 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 know, you could spend about 500 million dollars at seven and a half, eight times on M&A, and that would impact leverage by roughly sort of 15 basis points. So, you know, that's part of our excitement of the story of this inflection point that's been reached, whereas you can execute on the M&A strategy and still maintain leverage at this desired level. So 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 the various sort of interest in driving equity value creation as we go forward from here.

That's great, Kalar. Look, if I can follow up quickly, we have seen, you know, one of the companies in Canada was trying to redone its style in the U.S. and then they pulled back. I'm just wondering, like, you know, with the ESL transaction, is there any consideration to, you know, change anything on the headquarters side of things or from an accounting perspective, whether to go to U.S. gap or not?

yeah nothing um nothing no decisions obviously have been made um you know again in the investor day i think you'll see us lay out what the two paths are for that um i think you know from our perspective um index inclusion would be great um i think when you look at where we sort of sit in the rankings um for the tsx60 i would say we're pretty close in canada to probably being one of the next, obviously, industrial names that would go into the TSX-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 us in terms of data going into TSX-60. Obviously, industrials in the TSX-60 are underweighting today. So it's going to be a question of what the committee there thinks in terms of, you know, what goes in next. But given our market cap and trajectory and sort of float, you know, where it's moving to, you know, our expectation is that as someone comes out, we'll probably be 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, you know, us looking at it, obviously the substantial amount of our revenue now in the US, 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 US. We think that's 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 paths and there are other examples of companies that have reincorporated their head offices to get US industry inclusion, as well as checking the box with about eight other things. So again, that's, you know, that's something we're obviously actively looking at today. You know, it's a question of what opens the, what opens the broadest base of investors? You know, I think either path is good. I think currently we're, you know, focused on the Canadian TSX 60 path, but at the same time, post the ES investor, we'll look at both and we'll make a determination as to what, you know, where we see the most amount of value that can be added to our name um over time and where we can get the most amount of flows of of buyers and shareholders into our name so all both in progress can give you a pretty good uh summary at the uh um at the investor day on on thursday yep that's uh that's great thanks guys appreciate and see you thursday thank you we have a question from chris murray of atv capital markets please go ahead

Chris, your line is now open. Please go ahead. As we are not getting any audio from Chris's line, 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 on maybe pricing. When you talk about, you gave good color on kind of cadence on some items. Can you talk maybe about pricing cadence through the year for 2025 and that five to five and a quarter?

Yeah. 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 of how the year played out. But I think as we've demonstrated before, to the extent cost inflation behaves differently than anticipated, 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 fives, you know, middle Q2 and Q3s and that sort of mid fives. And you end the year with that sort of lower fives, and that's what's going to blend to that sort of five and a quarter to five and a half. The one thing I just remind everyone on pricing, just the way the pricing cadence works, you already have sort of 70% to 75% of those price dollars pretty much locked in post Q1. So again, I think the downside on that number is de minimis, and it's really a question of whether cost inflation behaved as anticipated, that will drive the need to potentially explore incremental price. 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 fundamental team in a good place, a lot of self-help levers to pull? What kind of needs do you overcome if there is anything?

Yeah, I don't think I see anything material in front of us. You know, I think the business has become very predictable, as you've seen quarter after quarter after quarter. You know, I would say weather may be in Q1 a little bit more impactful than probably the previous last three years, particularly in Canada and Northeast. But again, just looking at what's, you know, how the business performed even through that, you know, we're almost, you know, we're two thirds of the way through basically Q1. So we feel pretty, we'll feel very good about Q1. I would say the only unknown out there potentially is, you know, there's all this pair of noise. Again, from our perspective, we think it has a de minimis impact on anything. Does it change potential capital, you know, requirements depending on, you know, if OEMs have to put it through some incremental surcharges, which then I think would force us to go back to the market, push through more price. But other than that, we feel very good about what we put forward. Again, 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, you know, we put out on the street is 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. And again, the M&A pipeline zeros model. So, you know, 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, You know, as the RNG and EPR investments that we've made over the last two years come into fruition, really starting in sort of 26, you know, again, see multiple levers for growth. And that's why the board has taken the position that they have and authorized a sort of normal close issuer bid and, you know, allowed us to be 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.

Thanks, Ben.

We have a question from Toby Sommer of Truist Securities. Please go ahead.

Hey, good morning. This is Sidon for Toby. I believe the guidance assumes cost inflation, the load of mid-4% range. I'm curious if that's what you saw on the 4Q or... if you're anticipating some easing there. Thanks.

Hey, it's a great question. This is Luke speaking. You know, again, if you think about what drives our sort of overall cost inflation, mostly sort of labor and transportation-related costs, you know, we've seen sequential easing as we move through, you know, all 23 and then into 24. You know, we're being, I think, appropriately conservative in the 2025 guide. just by nature of, you know, the current sort of uncertainty on the trajectory of inflationary paths, right? Because we, you know, the direction of downward seems to have sort of stabilized and, you know, I think there's talk of potentially things sort of moving back the other way. So, you know, I'd say it is based on what our current experience is and where we're exiting, but not necessarily giving consideration of potential incremental reductions from here. So, you know, 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 is sort of conservatism. I 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. Harold Martin, 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 fours is pretty de minimis where we sit today.

Harold Martin, All right, great thanks.

Stephanie Moore, We have a question from stephanie more of jeffrey's please go ahead.

Harold Martin, Hello, this is her long for stephanie more. So I guess on the progress to investment grade rating, you know, post the ES transaction, you get down to three times performance leverage. So I guess what else needs to be done as you guys move to that investment grade rating after you collect the capital from the rest of the chain?

yeah not in our control obviously when we move that obviously the expectation is we're going to get significant upgrades um in time when ultimately we get the investment grading investment grade credit rating is really you know up to moody's and s p typically they like to see the numbers roll through over sort of a 12-month period so but in the meantime we'll get you know material uh credit rating upgrades so um a little bit unknown but obviously squarely in our site now post a debt repayment next week.

Got it. And I guess just on the guide, you know, what are you seeing on open book pricing versus stricter book? And then on the volumes, are they expected to be flourished? But if you could talk about, you know, intentional shedding versus, you know, expectations on specialty waste, industrial, are you expecting any improvement there? Are you expecting especially recently in the volumes to remain kind of in line with 2024 levels. Thank you.

Yeah, Harold, Luke speaking. So on the pricing side, like, you know, we really, you're definitely seeing the collection, which is really your open market, you know, commercial collection businesses stepping down from the levels you realize in 23 and 24, 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 of close to mid-single digits on post-collections. Because historically, the post-collection piece has been the one that sort of dragged down your blended pricing. And I think you hear this concerted 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 of business. So, you know, continue to see strength in both the collection and the post-collection line, albeit, you know, step down from 24 and 23 in doing so in conjunction with the step down in cost inflation. In terms of the volume, you know, I'd say intentional shedding activities are largely behind us. You know, there's always some, but, you know, relatively de minimis where we sit today of what's based in the 25 guide. As you ramp up back M&A, you know, 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 articulated really around the special waste, right? Whether it's hurricane cleanup or just general sort of special waste, there's puts or takes. you know, a little bit of uncertainty with how the market is in 25, as it brought some caution to that, to the extent there is, you know, incremental volumes, that will all be sort of upside. You know, you think about the margin walk, you know, there is about a sort of 50 basis point drag, you know, 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, you know, as it did in

Thank you.

We currently have no further questions, so I will hand back to Patrick for closing remarks.

Thank you, everyone, and much appreciated for joining the call and look forward to seeing everyone on Thursday at our investor day. And as always, if anyone has any questions, please feel free to reach out and looking forward to speaking to everyone after Q1 and another successful quarter. Thank you so much.

This concludes today's call. Thank you for joining. You may now disconnect your lines.