GFL Environmental Inc.

Hello, everyone, and thank you for joining the GFL first quarter 2025 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. I will now hand over to your host, Patrick Davigi, founder and CEO, to begin. Please go ahead.

Thank you, and good morning. I'd like to welcome everyone to today's call, and thank you for joining us. This morning, we will be reviewing our results for the quarter. I am joined this morning by Luke Pelosi, our CFO, who will take us through our forward-looking disclaimer before we get into details.

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 statements. These forward-looking statements speak only as of today's date, and we do not assume any obligation to update these statements, whether as a result of new information, future events and developments, or otherwise. This call will include a discussion of certain non-IFRS measures. A reconciliation of these non-IFRS measures can be found in our filings with the Canadian and U.S. securities regulators. I will now turn the call back over to Patrick.

Thank you, Luke. Our first quarter results are top to bottom, better than what we guided for 2025, including revenue growth of approximately 12.5% and adjusted EBITDA margin expansion of 120 basis points. This resulted in the highest first quarter adjusted EBITDA margin in our history. These results get us off to a great start for 2025 and, again, demonstrate the quality of our asset base, the effectiveness of our multi-pronged growth strategy, and the commitment of our employees. The strength of our operating performance accelerated into April, and we expect this positive momentum to continue for the rest of the year. Our pricing strategies are generating excess price-cost spread, which is flowing to the margin line. First quarter pricing of 5.7 percent was higher than our plan and gives us confidence in our ability to deliver the pricing levels on which our 2025 guidance was based. Our margins also benefiting from our disciplined approach to winning new accretive volumes and purposely shedding lower quality revenue. The return to positive volume we saw at the end of 2024 continued in the first quarter despite significant weather impacts in many of our markets. Tailwinds from our growth investments, including EPR, which we expected, more than offset weather-related weakness and roll-off in special waste in certain markets. We are also seeing the positive cost impacts of moderating labor turnover rates that improved by over 200 basis points in the quarter compared to Q1 of 2024 and nearly 800 basis points compared to the first quarter of 2023. We expect meaningful continued improvement in our voluntary turnover rates over the medium term, as previously communicated at a recent investor day. In addition, our ongoing focus on optimized asset utilization is also continuing the strong margin performance. We also recently renewed two long-term collection contracts with the City of Toronto. The rebase lining, which yielded material price increases consistent with current market rates. These are some of the largest residential municipal collection contracts across our footprint, and both are significant contributors to our Canadian operations. Overall this quarter, we saw solid execution from all facets of our portfolio, and we are encouraged by the amount of runway we see in front of us. As previously disclosed, the sale of our ES business closed on March 1st. Our retained interest in the ES business provides us the opportunity to participate in future equity value creation, which we believe will be significant. We redeployed the $6 billion of cash proceeds we received from the sale to repay over $3.5 billion of debt and repurchase over $2.5 billion of our outstanding shares, mostly from our sponsor group consistent with previous indications. Inclusive of the share buybacks, we ended the quarter with net leverage of 3.1 times, the lowest in our company's history. Post the ES transaction, our credit ratings were upgraded by both S&P and Moody, and we remain committed to achieving an investment-grade credit rating. As we have said before, this new leverage profile gives us the ultimate flexibility around future capital deployment. Going forward, we expect to focus our investments on maximizing ROIC, which includes organic growth initiatives such as EPR and RNG, accretive M&A, and opportunistic share buybacks. Specifically on M&A, year-to-date, we have spent $240 million on three deals, acquiring annualized revenue of over $85 million. Approximately a third of this was acquired effective January 1 and is already included in our base guidance. Our pipeline continues to remain robust, and we see many opportunities to identify our networks and improve asset utilization through tuck and M&A across our existing footprint. Given this backdrop, we should see above-average M&A activity for this year. If you recall, at Investor Day, we highlighted the ability to deploy between $700 and $900 million on M&A conservatively. Given the current pipeline, we should meet or exceed the high end of these estimates. Before I pass the call over to Luke, a quick word on tariffs, as I'm sure it's a question for most of you. What I can say is that so far we have not seen any direct material impact from the tariffs to our business. Based on our experience, we have a high degree of confidence in our ability to successfully operate in an environment with elevated levels of macro uncertainties. In the event tariffs have an inflationary impact on our capex or cost structure, we would expect to pass these through to mitigate our costs against the bottom line. As is typical for our industry, we will update our full year guidance when we release our second quarter results. With a strong start to the year, however, we see multiple avenues of upside to our current guide that gives us the confidence in our ability to meet or potentially exceed expectations for the year. I will now pass the call to Luke, who will walk us through the quarter in more detail, and then I'll share some closing comments before we open it up for Q&A.

Thanks, Patrick. To level set, with the sale of ES completed, all our financial results and the associated analysis exclude the contribution from ES for both the current and comparative prior year period. Consolidated revenue for the quarter of $1.56 billion was ahead of guidance and 12.5% ahead of the prior year pro forma for divestitures. As Patrick said, Pricing of 5.7% was better than expected, and with over 75% of our price increases already in place, we have a high degree of confidence in our ability to achieve the 5.25 to 5.5% pricing included in our guide. Volume of positive 90 basis points was more than 150 basis points ahead of guide, despite weather-related headwinds, which impacted roll-off and special waste volumes. These impacts were most pronounced in January and February, and we have seen rebounds in March and April. Volume associated with EPR-related activity in Canada drove positive volume growth as anticipated. Decreases in energy prices reduced first quarter revenues from fuel surcharges as compared to the prior year, whereas the reduction in OCC and fiber pricing was offset by an increase in non-fiber commodities, resulting in a 20 basis point revenue increase. Adjusted EBITDA margins were 27.3% of the quarter, 120 basis points higher than the prior year and ahead of our guide. The prior year period included the benefit of one-time royalty payments at two of our landfills, which created a 50 basis point headwind to margin expansion. The current year results include certain provision true-ups associated with the ES divestiture, which were another 50 basis point headwind to margins. Excluding these two items, margins expanded over 220 basis points. Commodity prices, FX, M&A, and the impact of the 2024 divestitures were tailwinds to margins. Adjusted free cash flow was approximately $14 million, a result better than planned on account of the adjusted EBITDA outperformance. Q1 cash flows were inclusive of the investment in working capital we typically make in the first half of the year, as well as $120 million of normalized cash interest payments. an amount that will decrease to $70 million in Q2 on account of the nonlinear timing of interest payments on our remaining debt stack. Both base capex and our incremental growth investments were in line with expectations. As Patrick mentioned, we used approximately $3.5 billion of the ES proceeds to repay in full our term loan, the 2025 and 2026 secured notes, and the amounts then outstanding under our revolver, which were higher than at year end due to the seasonal increase in revolver borrowing through January and February. With the balance of the ES proceeds, we repurchased 31.7 million of our shares, representing over 8% of the common shares outstanding. Under our normal course issuer bid, we continue to have material capacity for incremental share buybacks that we will opportunistically execute when we believe it is accretive to do so. Included in the 3.1 times quarter end net leverage is a cash balance of over $500 million, an amount available for investment in M&A, additional share repurchases, or further debt repayments. Our enhanced balance sheet strength positions us to be able to execute on all of these value creation drivers while maintaining leverage in the low threes, our new targeted leverage range to which we're committed. As Patrick said, we will wait until the second quarter to provide an update on full year guidance. However, the strength of our Q1 performance firmly positions us to meet or exceed our full year targets. As it relates to the second quarter of 2025, we expect consolidated revenue of approximately $1.675 billion and adjusted EBIT of approximately $505 million, which implies approximately 30% adjusted EBIT of margins and more than 150 basis points of margin expansion over the prior year pro forma for the ES sale. This guidance is based on today's FX rate, which is less than that of our original guide. Recall, every one-point move in FX is about a $30 million impact to annualized revenues. Q2 adjusted pre-cash flow is expected to be approximately $100 million, inclusive of $70 million in cash interest, $225 million in base CapEx, and $110 million investment in working capital and other operating cash flow items. I will now pass the call back to Patrick, who will provide some closing comments before Q&A.

Thanks, Luke. At our investor day in February, we laid out our goal-forward strategy to continue generating industry-leading organic growth in part from the near-term ramp from EPR, RNG, and other self-help pricing and volume-focused strategies. Drive adjusted EBITDA margins to the mid-30s and improve free cash flow conversion to the mid-40s. Execute on our robust M&A pipeline while maintaining leverage in line with our targets and continuing to progress towards and investment-grade credit rating. And lastly, broaden our capital allocation strategy to include share buybacks and increased dividends. Our first quarter results demonstrate that our strategic plan is working. We remain steadfast in our belief that GFL is uniquely positioned for industry-leading financial performance and value creation for all shareholders. 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 contributions. I will now turn the call over to the operator to open the line for Q&A.

Thank you, Patrick. 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 limit yourself to one question and one follow-up only. Our first question comes from the line of Sabahat Khan of RBC Capital Markets. Please go ahead.

Great. Thanks, and good morning. Just maybe a first question on the margin side. I think, Alok, you noted a couple of moving pieces in the margins there. If you can maybe just walk us through Maybe a bit of an update on some of the margin initiatives you outlined at Investor Day. What are you chipping away at this year? And could sort of continued progress on the margin side be a source of upside to the guidance as we look ahead to the rest of 25? Thanks.

Yeah, thanks, Saba. Great question. You know, when I talk about the margin bridge year over year, as you know, I always like to sort of isolate the macro or the factors outside of our control, right? So if you think about this quarter, Commodities was a tailwind, as was FX. So you had about 15 basis point benefit from commodities and about 10 from FX. You also had the extra day, right, the difference year over year quarter. And that's about a 25 basis point benefit to margins. And then M&A. For this quarter, M&A was sort of accretive. That was a 20 basis point tailwind. And then the divestitures, as we've been talking about, have also been a creative margin. That was about a 60 basis point benefit. Now, going against that, again, sort of things outside the normal course-based business, you know, as I said in the prepared remarks, we've received these one-time royalty payments at two of our landfills that were historical catch-ups last year. That was about a 50 basis point headwind to margins. I also mentioned these accruals. So associated with the ES, as we gave some of the provisions related to insurance, bad debt, et cetera, to the ES business, we just had to true up in our RemainCo a little bit, and that was about a 60 basis point impact. And then you have the weather, right, that I think is probably consistent with all the other groups talking about, you know, weather impacts, particularly in February. And we estimate that was about 20 basis point impact. So when you look at that, what it left with, and you sum that all up, is there's over 100 basis points of underlying margin expansion. And where is this coming? I mean, first and foremost, it's the price-cost spread, as we've been talking about, and we'll continue to do so. But then you have the incremental benefit of all the pieces that we've been talking about. So the EPR is coming in and starting to contribute the RNG contributions, asset utilization. So I'd say, Saba, it's not any one thing, but it's the combination of all of the things. And obviously, to beat our internal expectations in Q1, in spite of all these sort of challenges, I think the answer is absolutely yes. We're feeling like there's a path to some margin upside as we go through the year. Now, we will wait to Q2, but, you know, I gave the Q2 guide, and you're seeing that margin expansion accelerate, which is obviously sort of very encouraging for us. So we're feeling really good. And, you know, again, just echo Patrick's comments. We think all the pieces are coming together.

Great. And then just the follow-up there, can you maybe just walk us through your thinking on some of the remaining proceeds you've got left from the ES sale? I think Patrick mentioned thoughts on return of capital, things like that. So maybe just walk us through your views on share buybacks, dividends, and assuming the rest probably goes to M&A. Thanks.

Hey, this is Luke. Just before Patrick responds, I just want to clarify the $500 million left on that cash on balance sheet. You know, someone had made a comment that we were initially said we're going to repay 3.75 billion of debt. In the end, when we repaid all of our debt, the remaining debt is so far out in terms of term, we have an average four and a half years still left, that the cost of paying off some of that debt just didn't seem to make a lot of sense when we knew we had all these capital investments in front of us. So to the, you know, question that was emailed in, that's the basis for that. Now, what are we going to do with all of our capital and capacity? I'll hand it over to Patrick.

Yeah, I think as we communicated, M&A Pipeline is very robust at the moment. So, you know, we're working on a lot of great opportunities that will be sort of highly accretive to the overall book of business and sort of the earnings stream. So, again, highly focused on that. And again, share buybacks will continue to be part of the sort of ongoing plan. You know, as we press released last week, we did get relief from the OSC and the TSX to, you know, not have those shares we bought back from the insiders count against the NCIB. So we have, you know, an incremental sort of 21 million shares available for us to buy. So You know, where we sit today, we continue to believe the company is undervalued here. So the board and myself both believe that should be a part of the capital allocation plan given, you know, what we see for 26 and 27, which was laid out in sort of our investor day. But I think from where we sit today, that is going to continue to be a part of the capital allocation plan as well as sort of M&A.

Thanks very much.

We have a question from the line of Stephanie Moore of Jefferies. Please go ahead.

Hi, good morning. Thank you. If I could just touch on the volume performance for the quarter. Good morning. You know, it did exceed kind of the 1Q expectations in light of what we all know is a challenging weather environment. So maybe some puts and takes there would be helpful. Thank you.

Yeah, good morning, Stephanie. Thanks for the question. It's Luke. I think we gave the guidance in February sitting in the middle of those sort of protracted weather events. And so we're obviously seeing it in our real-time data in terms of primarily special waste volumes and the roll-off side of the business, which is most sort of impacted by that. And I think that played out exactly sort of as anticipated. Like if you look at the U.S. business, you had a roughly – one and a half, negative 2% volume for the quarter. And really, if you break the pieces out on that, you know, the one-day impact is about 60, 70 bps. The weather, you know, you could estimate it to be another about sort of 70 bps. And then we sort of roughly had solid waste volume or special waste at our landfills um down uh year over year i think partly macro but partly weather and you know that's probably another sort of 40 bits so really when you think about that you know the us business sort of roughly more close to flat volumes x those exogenous factors canada You had the same thing play out, but with a couple of differences. One being, you know, I think our Canadian business is a little bit more well-suited in experience of dealing with the weather, so the impact a little bit sort of less there. And the nature of our mix in Canada is we have less landfill, and therefore you get less of that sort of impact from both the one day and the weather. But the real story in Canada is EPR, right? And now this is what's been anticipated. And as all of our investments are starting to sort of yield the benefits as anticipated, we're getting these sort of volumetric tailwinds coming out of that. So if you look at the sort of Canadian volume story, which was a sort of high sixes number for the quarter, you really have sort of five we had anticipated and we also benefited from just a one-time project in canada which is really just timing at our transfer stations in the ontario benefited from a sort of factory demolition and saw 10 million dollars of revenue another sort of 230 basis points so if you take those two events epr and and the transfer station volumes of the equation a similar story just a little bit more muted in canada due to the mix and just our experience with weather This is sort of what gets us excited. All these investments we have made in these high return growth opportunities are sort of macro agnostic. These are, you know, largely contracted volumes, and these are going to be coming in regardless of, you know, what the sort of macro situation is. And just to clarify or remind everyone on any macro, I mean, our exposure to the, you know, more cyclical ends of the business is a very small number in our overall piece. If you think about our roll-off business, roughly $1.2 billion of revenue on an annual basis. Maybe it's sort of 10% of that plus. That's more in that sort of construction space, right? And then on the landfill, it's really just sort of special waste. You know, maybe there's another sort of $75 to $100 million of revenue. But you put that together, you get a sort of $225 million of revenue exposure to, you know, the end of the market that's maybe being a little bit sort of softer right now. We're certainly seeing the softness. it does seem to be improving you know over i look at the april trending proving over march but you know that balanced portfolio that we have gives us a great sort of confidence in our volume opportunities as we sort of go forward so we're expecting you know q2 guide anticipates again positive volume Q3 will sort of temper off in positivity, and Q4, where we sit today, is a negative number just on the tough comp. We have benefited from a lot of sort of storm volume in Q4-24, which makes a tough comp. But on balance, you know, we're feeling really good with the volume that we saw in Q1 and the setup that that gives us for the balance of the year.

Great, no, and you covered my follow-up questions as well, so I appreciate it. I'll pass it on. Thank you.

Thanks, Stephanie.

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

Hey, good morning, guys. Hey, Tyler. You guys there, can you hear me? Hey, sorry. Hey, Patrick. So the M&A, yeah, hey, the M&A pipeline sounds really, really good. I'm just kind of curious that that pipeline includes the number of deals that you've been working on kind of in the background. I know you were kind of constrained call it last year. And two, are most of these tuck-ins or should we think about some new beachheads in new markets? It just seems like there might be some chunkier deals in there.

Yeah, I mean, like we said at the investor day, obviously we knew we were going to be coming into cash just given the sale of ES and where that process was evolving. So, you know, we spent a lot of time building out the pipeline. And, you know, as you know, these deals don't happen overnight. Between the time you actually have first discussions to close generally takes, you know, sometimes six months, sometimes three months, sometimes nine months. So the pipeline's been building, and obviously that gives us the confidence that, you know, what we're going to deliver on for the rest of the year. The lion's share of what we're working on is tuck-ins into the existing markets, leveraging sort of post-collection assets to drive internalization rates higher, which we think is going to yield the best return on invested capital today. So I think that's what you're going to see mostly. Nothing immediate that I would say is moving into new markets or new beachheads. You know, looking at a couple of opportunities, but I would say they're in the early innings of anything. But the lion's share in the pipeline of what we're discussing today and what we're closing on is stuff that's going to tuck into the existing markets.

Okay, that's good. And then just kind of going back to the margin discussion, maybe you could help me clarify a little bit from the analyst's day, but of the The $150 million in self-help levers through 28, I think it was run rate 28, how much of that is expected to be kind of garnered this year? Kind of maybe what is the cadence of that? Is it pretty pro rata over the years or?

Great question. You know, some of the aspects of that, you know, are a little bit sort of harder to parse out from all the other good things that we're doing. But on balance, if you think about the employee turnover component, I mean, that continues to improve. And we're certainly getting, you know, our share of that benefit. So I think about that one on a sort of pro-rata basis. You know, fleet and fleet optimization would also be sort of pro-rata as we continue to sort of refresh our fleet with the, you know, build CMG and automation. And then pricing, you know, is similar. So I think to assume that our results for this year have a one-third share of that, I think is probably a fair estimate. As specific events happen that drive outperformance, I'll be able to articulate that better. But I think that's probably a pro rata is a decent way of thinking about it.

okay uh good and then just yeah and there's been some you know like yeah so go ahead tyler sorry no no i just said going to luke's point there's been some you know some pretty uh good healthy pricing wins particularly on the repricing of the resi book you know sort of being led by toronto which is you know comes on sort of mid 26 i mean if you look at that know currently we're doing you know we have that we've had that contract again a landmark contract for us back in 2010 15 years later we're here sort of renewing that same contract but you know basically today we're doing that work for 16 17 million dollars a year and you know under the new rebid the one contract is going to be done for 37 million a year um and then the multi-res which we're currently doing for around 10 or 11 million a year. We, you know, we rebid that and got that at sort of 70 million a year. So, you know, that's real material price that we'll see come through the resi book starting sort of, you know, mid next year. So that'll all sort of get layered on to what Luke just mentioned now.

Okay, perfect. And then just real quickly on corporate expense, Luke, Why was that up year over year? I thought something like $15 to $20 million was going to get shipped out with ES. Was there something there? Or just what's a good corporate number to kind of use for the rest of the year? Thanks.

Yeah, so what's going to happen, Tyler, and we've spoken about this when we talked about our ES, is effectively we've retained the corporate costs for the time being but are going to be compensated going forward in order to provide those services to ES. So the ES thing, we only have one month of the benefit, but they're effectively going to pay me $12 to $15 million a year, which will show up as an offset to my corporate costs in lieu of me providing those sort of services to them.

Okay, that is good clarification. Okay, perfect. Thank you. Thanks, Tyler.

We have a question from Kevin Chang of CIBC Woodgundy. Please go ahead.

Hey, thanks for taking my question. Good morning, everybody. Maybe just two clarification questions. One, the 5.5% tailwind on volumes from EPR that you saw in Q1, is that the right run rate to think about for the remainder of the year, or does it accelerate as EPR matures? as EPR matures?

I think, you know, you had some EPR coming on last year, and so now you're adding on to that. So it won't be rateable, but I think it's safe to say that we're going to continue to enjoy volumetric tailwinds. throughout the year as we bring on, you know, that roughly $40 million, $50 million incremental EPR EBITDA that we said this year. So you're going to get that roughly, I think in Q1, what I was saying, that it was a $20, $25 million volumetric tailwind coming out of EPR. I think you should sort of see that, you know, it's going to increase as we go into 26. It's just not going to be perfectly rateable, Kevin.

Okay, that's helpful. And I appreciate you'll provide an update on your full year outlook with Q2. But I guess now that we have Q1 and you've provided a guide for Q2, it looks like historically about 47% of your EBITDA came in the first half of the year. I'm not sure if you think that seasonality makes sense as you look out in 25 here, which maybe suggests something like $1.975 billion or maybe between $1.95 to $2 billion as as maybe where EBITDA can go to just based on how the first half is performing. I'm not sure if there's anything you take issue with that kind of, I guess, very simple math I just ran through.

Well, Kevin, it sounds like you're looking for us to give guidance for the year as a whole with your math. But look, what I would say is we have a seasonal business. Q1 and Q2 are typically, you know, Q1 is the lowest, Q2 ramps, Q3 is the highest, and then Q4 sort of steps down, you know, and it's somewhere between Q2 and Q3. That's the typical ramp. Now, again, the EBITDA dollars, right, doesn't move perfectly like that every quarter. But, you know, the original guide being, so I think 1937 and a half, You know, for this Q first score performance, as I said, I think there's a path to sort of exceed that. I think the range was 19.25 to 19.50. So you can exceed that. Now, FX is going against you, so you've got to have some of those offsets. Q1 sort of had the FX at guide or a little better, and now today it's a couple points below. As I said, every point is roughly $30 million. So, you know, there will be puts and takes. But, yes, I think we are now feeling that we could do better than the 19.50. X incremental M&A. Obviously, incremental M&A will be sort of additive to that. But, you know, as is industry practice, we'll wait to Q2. But, Kevin, you've always been good at math, so I'll leave it at that.

I tried. I appreciate it. Thank you for taking my questions.

We have a question from Kanark Gupta of Scotiabank. Please go ahead.

Hi, this is Ellie filling in for Conor. Good morning, everyone. What policy changes are you monitoring on the RNG side, whether they relate to volume, pricing, or tax credit?

Yeah, I mean, all of the above. I mean, it'll be, you know, there seems to be a lot of noise around it, obviously, just, you know, very similar to what happened when the last Trump administration came in, but You know, we're not seeing anything short of material today. I mean, the tax credits are still to come. You know, probably that'll come out in September. But, you know, I think RINs have sort of hung in there. Volumes, you know, we continue to produce the volumes that we sort of anticipated. But, you know, it'll just be what, but I think our guide contemplates, you know, a revised RIN number based on what we know today.

Thanks, guys. I appreciate the time. I'll pass the line.

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

Hi, this is Adam on for Jerry today. Good morning. It looks like your 2Q margin guidance embeds 285 basis points of sequential margin expansion, and typically we do see that sequential step up in 2Q. Can you just help us think about any puts and takes in the sequential margin trajectory versus normal seasonality, 2Q versus 1Q?

Yeah, so thanks, Adam. You know, just to make sure for everyone, you know, I've got to level set and remove ES from the historical quarterly cadence, right, because I had a difference with a margin profile. But when you're left with the sort of solid waste standalone business, as I said, anticipating roughly 30% margin this year versus last year, you know, on the sort of 28 and a half-ish, You know, commodities and how they behaved in the prior year versus how they're behaving this year obviously have an impact. If you think about last year, commodities really ramped from Q1 to Q2 versus this year, you know, it's looking kind of a little bit more flattish, right? So we'll have the... While commodities was a tailwind to Q1 margins year over year, it's actually a headwind based on sales commodity prices when you look quarter over quarter, right? So that's a sort of piece of it. Obviously, fuel is another component that can impact your sort of margins around the edges, as is M&A. So, you know, you have some moving pieces outside of what we can control that will have an impact on overall margin. But at the end of the day, you're absolutely right. Q2 sequentially improves as we get more volume and you get out of the winter operating period. And we expect to see that again. I mean, I give the guide for 150 BIPs. Again, when you peel back all of the various exogenous puts and takes, there's another 100 basis points of underlying margin expansion off of that, off of, you know, what was last year, that already sort of 200 basis point plus ramp from Q1 going into Q2. So we're feeling really good with the trajectory and, you know, look forward when we get to sort of Q2 to articulating the specific puts and takes that could drive this outperformance.

Hal Hallstein, got it and then Patrick you you touched on this a little bit, but wondering if you could expand on understand the for operational landfill gas projects are tracking verse expectations and then beyond what's online any updates on the construction timeline on the 15 projects under development.

Patrick O' yeah like we said, I mean you know they moved a little bit to the right, or last year, just you know, given. a various amount of issues that we experienced that, you know, were unforeseen. But by and large, the projects that are online are tracking the plan. One of the most recent ones coming on, a few operational challenges, but nothing, you know, our partner hasn't seen before. So that's, again, moved a little bit, but that's embedded in the guide anyways. And, you know, we expect over the next sort of two and a half years that we're going to bring them all online. So, again, nothing standing in front of us. nothing at the moment in terms of impediments based on tariffs on equipment coming in so i think you know by and large they're doing exactly what they were supposed to do and we don't see any reason why they won't moving forward great thanks so much thank you we have a question from brian bergmeyer of citigroup please go ahead

Hey, good morning. Thank you for taking my questions. You know, I think we've seen some kind of discussions around maybe headline inflation just for the entire economy, maybe picking up, you know, the summer if tariffs kind of stay in place. So, you know, can you just maybe remind us how that would sort of flow through on, you know, GFL's restricted pricing? You know, are you tethered to, you know, headline CPI? Should we be looking at sort of alternative indices? You know, is kind of a 12 to 18 month delay appropriate for that? Just sort of your Your overall thoughts on if we see inflation spike this summer, how that sort of benefits GFL?

Yeah, hey, Brian. Great question. Very sort of topical and obviously something we're looking at as we think about how the balance of the year sort of plays out. I mean, I think it's important, and as you know, I mean, although some of the restricted revenue will be tied to CPI, our cost structure isn't necessarily, right? Our cost structure is really driven by labor and labor rates and, you know, transportation and RM factor into it, but, you know, it's really a labor-driven cost structure. And, you know, I think what the unique setup that could happen as you go forward is maybe you have headline CPI increasing, which drives price increases on your restricted book of business. Our book, unlike some of the other national peers you follow, is still, you know, on the restricted side, more tied to CPI than some of these alternative indices. And I think that's just more function of the geography. Canada doesn't have a sort of sewer water trash sort of concept yet. And a lot of our books in the mid-Atlantic don't as well. So unlike some of the peers that I know have been very successful in moving 50% plus of their restricted book off of CPI, we still would have a heavier CPI book. But what's more interesting to us is the cost structure, because we're looking at labor turnover rates, we're looking at labor wage rates. we're not seeing that same labor wage rate inflation that we saw during that sort of previous cost inflation ramp up. And I think that could sort of bode quite well when you think about it. At the end of the day, what we're trying to solve for is what is our internal cost of inflation and then price accordingly on top of that to drive appropriate spread. So we came out at the beginning of the year, said we're going to do five and a quarter, five and a half percent price against a low fours cost inflation. And to the extent our internal cost inflation ends up increasing above, we will go back to our pricing strategies in order to recover that. I think we in the industry as a whole demonstrated the effectiveness of the real-time augurability to price in response to that over the past couple of years. And we would go back and do that again. However, as I said, I do think you could have a unique situation where headline CPI is increasing.

driving up our pricing we're getting on our restricted books but seeing a more muted impact to our actual internal cost inflation got it got it thanks for that detail really appreciate it um last question for me and then i can turn it over maybe just kind of following up on tyler's question from earlier just curious if there's any um sort of specific targets in the M&A pipeline coming up? You know, if you feel like maybe GFL is, you know, underweight or a specific type of asset, you know, are you trying to acquire more MRFs or more C&D or is it just going to be pretty widespread across all the different asset types? Any detail there would be great. Thanks. I'll turn it over.

Yeah, I think the beauty of how the book has come together you know, which is not because we're smart, it's just because of the opportunities and when they came, we were able to build our post-collection business in advance of our collection business. So what we have today is a lot of post-collection assets that, you know, have incremental utilization opportunities, and I think we have the ability to go out and acquire a lot of businesses that will drive incremental volumes in those facilities, which significantly increase profitability given the fixed cost-based nature of those facilities. So that is a priority, looking at those markets, looking at those facilities, looking at where we can get the sort of highest returns on invested capital. Obviously, making investments around RNG, EPR, and other markets, you know, which is widespread, and being opportunistic about where we bid on and grow the business sort of organically around new resi work, et cetera, always continues to be an opportunity, but we're being very smart and being very strategic about where we do that. And we have to get the right price in order to do the work. I mean, it's a different environment than it was 10 years ago for resi work, et cetera. And today you need to be paid the appropriate amount of dollars to do this work. It's not easy. Equipment, you know, two and a half times more than it was. Labor force is less than it was, making significantly more than they made in the past. And I just think all of those things coupled together are just going to be widespread throughout, you know, Canada and the U.S. But you'll see a little bit of everything sort of come from us. But, again, with the biggest focus on driving incremental volumes into our post-collection assets that have utilization opportunities.

Our next question comes from the line of James Shum of TD Cowen. Please go ahead.

Hey, good morning, guys. Thanks for taking the questions. I was wondering if you could give an EPR update and if you're expecting any additional growth capex there.

I mean, from an EPR perspective, you know, it continues to roll out over Canada. I think, you know, probably another year and a half to two years, the model will be fully sort of deployed. There are sort of a couple of opportunities still left that are unknown. You know, we bid on some. And, you know, we'll sort of see what happens. But there's, you know, there's probably potentially... up to sort of another in totality over the next two to three years, probably another couple hundred million dollars to spend. If we were successful, if we were successful, nothing would be zero. Obviously, I think the maximum you could spend over the next couple years would be another couple hundred million dollars.

Okay, thanks for that. And then on I was wondering if you could give an operational update on GIP. Are we fully past the inflationary challenges of the prior years, or is some of that still headwind, some of that business still rolling off?

There was a de minimis amount rolling through this year, but by and large, it's gone. We're basically fully through that. Have a great plan for sort of 25. The M&A pipeline has ramped up pretty significantly in the GIP business. You know, through that and getting back to plan where we thought we would be, and we are now, so that is back on track, and the inflationary pressures are well through those now.

Patrick, would you be willing to say, like, where are we now, like EBITDA level-wise, either this year or what you're targeting? Okay.

Yeah, so I mean, I think, again, publicly disclosed, I think this year, you know, base business sort of roughly $225 million of EBITDA, you know, recently announced a transaction, acquired a business in eastern Canada, you know, which is sort of in the $40 to $45 million of EBITDA range. So that brings sort of base business to like 265 to 270. And, you know, there's two other acquisitions under LOI that'll bring that number closer to 300, which is the number that we told the market we would be by the end of sort of 25. So that's well on track. So, you know, we'll be exiting this year with a $300-plus million EBITDA number, and there's still a fairly good backlog of M&A opportunities. You know, I will say, like we said on the last call, we have had a lot of reverse into us on the back of the ES transaction. So that is something that we are exploring about a potential monetization event for GIP. But, you know, we are not sellers of the whole business. We would potentially sell some in part. We continue to sell to shareholders of that. but you could see potentially a partial monetization of the GIP business, you know, this coming year.

Great. Thanks a lot. Appreciate it, guys. No problem.

We have a question from Rupert Murr of National Bank of Canada. Please go ahead.

Hi. Good morning, everyone. I want to talk about divestitures. I think we'll see the rollover impact from your divestiture in the solid waste business for one more quarter. Can you remind us of the remaining impact we should expect there? And then looking at your remaining portfolio, do you see any other opportunities for rationalization of the portfolio, asset divestitures or load shedding?

Yeah. Hey, Rupert. Good morning. It's Luke. So you're right. The Michigan divestiture portfolio, which is roughly $200, $220 million of revenue, you got one more quarter of that. So you got like roughly a $50, $60 million, maybe the seasonality, $60, $65 million revenue year over year impacting Q2, but then that will be sort of gone. In terms of your broader question, as we said, we think the heavy pruning has been done. Are there little things around the edges that you're constantly looking at? Sure. But where we sit today, both in terms of wholesale divestitures, but I'd also highlight the intentional shedding. Intentional shedding in those divesters really come at a period of elevated M&A. And because we've been sort of more restrained in our M&A deployment as of late, you know, you've seen the impact of that roll off as we had articulated. And so I think, you know, that's why our volume performance this period, you know, is accelerating versus maybe some others that still have some So as we ramp back up M&A, could there give rise to little pockets of pieces that you subsequently divest, and as well as intentional shedding? Yes. But where we sit today, we're really happy with the borders of the portfolio, and I don't think you're going to see anything more significant until we go and add incremental pieces that may give rise to new opportunities.

Great. Thanks, Luke. And if we can talk about your most recent divestiture, the ES business, give us some color on how it performed in the quarter, what sort of organic growth you saw, and what's the outlook for M&A there?

so the quarter that yes business and if you bought from the other industry now whether impact certainly uh... you know impacted that business a little bit of a softness as well as just the macro environment a little bit when you think about some of the event driven work that happened not accidental event like spills of the like the more large-scale industrial type events uh... better discretionary to a certain extent rivers you've seen a little bit of a sort of flow down in that which i think you know it's consistent with others However, as we've demonstrated in the past, variable cost structure allows a good sort of flex, and so therefore being able to sort of preserve the sort of EBITDA dollars. To your point on M&A, look, there's a very robust pipeline of tuck-in opportunities, you know, similar to what Patrick articulated for solid, that exists in ES, maybe even a greater opportunity set. So we're actively pursuing it. Recall over the past 18 months as we've been more selective in our NNA, solid waste was really the benefactor of that, and ES really has had very little done. So we have an equally or maybe arguably more robust pipeline in the near term on the ES business that you will see us sort of start executing on. Recall that business on a standalone basis is a very good pre-cash flow generator. Notwithstanding the slightly different margin profile of solid waste business, it does so with a lower capital intensity. And I just highlight because it has a good self-funding pre-cash flow stream that's going to allow for the execution of a pretty meaningful M&A program without any need for, you know, significantly incremental sort of funding to do so. So we're really excited about that opportunity, and we'll keep you updated as that business continues to grow.

As we articulated in the mall, Rupert, you know, I think the plan was to acquire somewhere around $30 to $35 million of EBITDA a year over the next sort of four to five years. So, you know, that's well in hand and well on track, and, you know, we don't see anything stopping that path, you know, sort of moving forward. Yeah, there might be a blip here and there from a quarter to quarter. That business has a little bit more volatility around organic growth, but by and large, the annualized plan still remains, and the M&A pipeline is as good or better than we anticipated before.

Great. I'll leave it there. Thank you.

Thank you.

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

Yeah, thanks, folks. Good morning. Maybe going back to the organic growth in Canada, I'm trying to make sure I'm understanding. I'm missing something here. So you did allude to the fact that volume was up on a lot of EPR, but that sort of applies that there was some pretty good price growth in Canada. So was that all tied to EPR, or was there something else going on? with that that you could maybe give us some more color on?

Yeah, so price growth in Canada, you know, we're getting a little bit of benefit from EPR but it's more just a sort of function, as Patrick said, some of these, you know, contracts that we've had for a decade plus that we've just renewed and now have come up to current market sort of pricing. So, you know, In most EPR instances, it's net new volume. It's therefore manifesting as volume. But if I had a contract that I did yesterday and now I do today, by this level set to today's pricing, that's being reflected in price. So you are getting a bit of a benefit. So if you look, as I said in the prepared remarks, I think Canada pricing was sort of a high at 6.5% to 7% number. You've got sort of roughly 150 bps of that is coming from the EPR, but just sort of rebase sliding those to today. So you are getting this tailwind. You back that out, and you have Canada that low to mid fives, sort of right, you know, exactly in line with what our sort of U.S. business had reported. So EPR, as anticipated, is going to provide tailwinds, mostly volumetric, right, as we've deployed all this incremental capital to capture new volumes. But in those instances, which you had some of which in Q1, where it's the same contract, just re-baseline, that's showing up in prices.

Okay.

And then on EPR, you mentioned that there's some additional contracts in Canada you're looking at, but now they've actually had an opportunity to run the EPR programs for a little more time. Are you starting to see any more opportunities in the U.S. where folks now have kind of something to look at where they can see kind of the benefits of the program and how they're working?

Yeah, I think... They're looking at the Canadian model. They look at the European model. I think where they sort of fit today, again, you've seen this roll out in places like Colorado, discussions in California. Obviously, you know, recent bills passed in sort of Washington and Maryland. So it's definitely happening. Each state has a little bit different nuances, so you sort of want to be able to... you want to be selective about where you go and investments you make based on regulation. But listen, the Canadian model, in our view, works extremely well. You know, I think consolidating volumes, reducing facilities, building best-in-class facilities that drive the most amount of volume for those facilities will yield, you know, optimal outcomes for industry, but it also yields optimal outcomes for the producers over the long term. And you have to make those big investments today, but I think over time, those investments will pay off, again, for both industry and the producers, because it's generally the right thing to do. I mean, the question really is around pros and how many people actually manage those streams to make it the most efficient way possible. And we certainly have specific views on that and what we think works better and again just from our perspective being able to speak for having a pro be able to speak for a hundred percent of the volume will drive ultimate efficiency at the end because you can allocate tons and residential contracts and collection contracts you know, most efficiently that way when you control 100% of the volume. So, you know, that leads to overall cost reductions and lower costs for the operator, which then can pass it on to the producer. So, you know, that's what we're advocating for in a lot of, you know, these states and, you know, with provisional governments and regulators, et cetera, to make it most efficient for us and make it most efficient for the producers.

Okay. I'll leave it there. Thanks, folks.

Thank you so much.

Our final question comes from the line of Toby Silver of Truist. Please go ahead.

Hey, yeah, good morning. This is Sidon for Toby. Just curious, sounds like the pipeline's strong, but curious if you're seeing any changes in the M&A market or seller behavior, just getting some of the broader macro uncertainty.

I mean, I guess that's the good and bad of waste. You know, it's a great industry to be in in good times, and it's a great industry to be in in uncertain times. So I think, you know, by and large, behaviors haven't changed. You know, I think uncertainty always leads to incremental sort of opportunity. But by and large, we haven't seen a material shift in behavior on the M&A side, given tariffs and other things, and just the macro economy. But You know, we continue to see the pipeline sort of basically today in the normal course.

OK, thank you.

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

Thank you very much everyone for joining the call today and we'll look forward to speaking to you when we report our Q2 results. Thank you very much.