Q4 2020 GFL Environmental Inc Earnings Call
Actually the team has occurred.
Good morning, and welcome to the G. S L Environmental fourth quarter earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.
You asked the question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Patrick the pit the Vg found her and she 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 fourth quarter. We will also provide our outlook for 2021 as well as additional considerations through to 2023.
I'm joined this morning by loopholes here, our CFO, who will take us through our forward looking disclaimer before we get into the details. Thank you Patrick and good morning, everyone. Please note that we have filed our earnings press release, which includes important information. The press release is available on our website also we have prepared a presentation to accompany this call that is also available on our website.
During this call we will 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 form.
We're 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.
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 <unk> measures. A reconciliation of these non <unk> measures can be found in our filings with the Canadian and U S Securities.
I will now turn the call back over to Patrick who will start off on page three of the presentation.
Thank you Luke I wanted to start this morning with a recap of 2020 as I believe it has been an extraordinary year on many fronts.
On page three of the presentation, we have a summary of the many ways in which we have delivered on the commitments. We made at the time of our IPO.
While the numbers speak for themselves I want to acknowledge that none of these achievements could of impossible without the dedication contributions countless hours and loved that each employee has for this company.
From our frontline workers to our employees, who support our operations in the field and all of our corporate office employees GFS is full of heroes all of our employees did their part to help GFS navigate successfully through 2020, keeping each other safe and ensuring that we continue to meet our commitments to service all of our customers.
There is no doubt that the most important part of any business is the people. If you have dedicated loyal and hard working employees you will have a successful business I have never been more proud of what our employees working together in the face of great uncertainty accomplished in 2020 it is truly inspirational.
I have said many times over the years never let a good crisis go to waste, but as we headed into Q2, we had no idea of how much we would all be challenged by the impact of the COVID-19 pandemic, both personally and professionally.
Or that we would be able to achieve so much in the face of of global crisis.
Even as we faced many obstacles, we were able to take advantage of market opportunities and deliver on the commitments, we made to our stakeholders at the time of the IPO and more including.
We expanded our EBITDA margins of 100 basis points, despite unprecedented COVID-19 related volume declines across much of the platform. We deployed nearly $4 billion on strategic accretive acquisitions, we reduced our cost of debt by almost 200 basis points, we de levered, our balance sheet by over three turns and we accomplished all of this well.
The delivering the best safety stats of GFS history.
To expand on the M&A comment the majority of the 4 billion that was deployed on two larger acquisitions in Q1, and the Wch Wm eds acquisitions in Q4, the WCS and Wm Avs integrations remain on track and we remain confident of the opportunities. We previously outlined for these deals.
The Q4 revenue contribution from both of these businesses exceeded our expectations and early indications from 'twenty to 'twenty. One are also positive. During Q4, we also closed seven smaller tuck in transactions and the pipeline is lined up such that 2021 could be another outsized year for M&A.
Something we will touch on more in the guidance portion of the call.
During 2020, we were also able to make great progress on our sustainability initiatives sustainability has always been of core value of GSL. We recognized early on that providing customers with sustainable environmental solutions would be of key value proposition for all of our stakeholders.
To name a few of our most notable achievements in 2020, we published our first sustainability report, which highlights the many ways in which sustainability is in our DNA something for which we are very proud of them.
Our Winnipeg Merck was named the 2020 recycling facilities the year by the National waste and recycling Association and our environmental Innovation program was recognized by the 2000 Twenty's seal environmental initiative of work.
We will be issuing a specific goals and targets with our 2021 sustainability report so stay tuned for that.
From my perspective, the most exciting part of 2020 is how it has set us up for 2021 and beyond we have assembled the pieces of the puzzle to build that we believe is a rock solid foundation that we can leverage for exceptional high quality growth over the next several years and this is where we want to spend the majority of our time this morning.
Talking about not only our 2021 guidance, but also of our outlook for incremental opportunities that we see going out to 2023, we believe that we have a unique set of circumstances for industry, leading free cash flow growth over the midterm and want to highlight the basic building blocks for our plan. However, we get into 2000.
21 of the law and we will quickly summarize how the fourth quarter ended up.
I'll pass it over to Luke who will take you through the details but at a high level, we exceeded our plans on on nearly every level, despite even greater than expected COVID-19 related headwinds in our eastern Canadian business revenue increased by 37% and the business as a whole return to overall positive organic growth for the first time since the first quarter.
Solid waste pricing ended the year strong thanks to late Q3 pricing initiatives and volumes continued to show meaningful sequential improvements across all of our lines of business consistent with what we said before our liquids infrastructure business have been the most impacted by Covid related volume declines, but we continue to believe that these volumes will return and.
The meaningful sequential improvements in the business during the quarter are supported by that view.
At the adjusted EBITDA margin line in the fourth quarter saw expansion of 190 basis points driven by continued margin expansion of our solid and liquid based businesses, partially offset by the compression in our infrastructure line, our solid waste business ended the year as a whole of a 30% margin and outcome in excess of what we had guided you toward.
And the area, where we think we can continue to build on.
And lastly, we ended the year with nearly $360 million of adjusted free cash flow.
We are extremely happy with this outcome, we see a clear path to more than doubling free cash flow over the next few years and that's what we'll focus on as we continue to discuss guidance now I'll pass the call over to Luke.
Patrick I'll walk through the next couple of pages of the deck summarizing the fourth quarter results and then I will pass it back to Patrick as we get into the outlook section on.
On page four we have provided unusual summary of revenue growth by operating segment revenue increased over 37% compared to the prior year period, driven by M&A contribution strong solid waste pricing and continued sequential volume improvements overall organic revenue growth was 320 basis points greater than Q3 and was positive overall for the first time since <unk>.
Q1 for.
For the quarter, we exceeded our expectations and realised three 6% net price thanks to pricing activity in late Q3 again, our overall pricing in the solid waste business in the current year continues to be impacted by suppressed IP and high volumes and by negative CPI adjustments of certain municipal contracts with Q4 is the result, however, we ended the year with $3.
<unk>, 9% net price and outcome, we're very happy with the one that emboldens, our confidence in being able the continuing to deliver on our stated pricing goals as we look forward.
Consistent with the third quarter, we also realized an incremental 70 basis points tied to commodity prices, we realized the blended basket price nearly 40% higher than that of the prior year and up over 15% from the third quarter as we continue moving our contracts towards the fixed price processing model, we will see less volatility in our results by the movements in <unk>.
<unk> and other commodities.
Solid waste collection volumes were down 3% of 60 basis points improvement over the third quarter, which was driven by a 5% decrease in IC ni offset by nearly flat volume in residential.
<unk> volumes were 250 basis points better than the third quarter as we continued to see sequential improvements across nearly all of our markets.
The collection volumes were positive 10, 5% of 200 basis point improvement over the third quarter and once again largely on the strength of processing volumes in Canada, Excluding Merck volumes post collection volumes were negative seven 4% per the quarter, which was slightly behind the six 9% decline we saw in Q3, but largely.
<unk> two of tough comp in our organics processing servicing line as both the transfer station in landfill volumes were meaningfully better than Q3.
The volume story remains regional specific with our eastern Canada solid waste business, where incremental COVID-19 restrictions were implemented during the Q4, continuing to lag or other markets, where reopening activities have progressed at a faster rate.
As Patrick mentioned, the Wm, ABS and <unk> acquisitions contributed revenue of just over $155 million on a same store basis, which was $10 million more than our original guidance, which we believe indicates the seasonality profile of the assets is not as pronounced as we had thought but it's also in the early validation of our expectation on those two acquisitions.
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To recap the solid waste volume story for the year Q2 was negative eight 3% Q3 was negative 2% in Q4 was basically flat with the overall volume numbers were support while the overall volume numbers were supported by the strength of our expanding Merck of operations and the Canadian residential contracts, where we are paid by the ton of.
Benefited from heavier curb weight. We nonetheless think these results are a true testament of the resilience of our overall platform.
Our infrastructure and liquid waste businesses saw the greatest sequential improvements over Q3, and we remain encouraged by that trend line. We continue to believe that the combination of permit delays driven by COVID-19 related shutdowns and temporary capital spending deferrals by our customers are yielding of slower volume recovery than we've seen in solid waste, but the volumes will return as reopening activities.
Continue the regional nuances. We described in Q3 continued to be at play with soil volumes in the U S northeast and liquid volumes in the U S. Midwest lagging the recovery, we've seen in our Canadian markets used motor oil volumes.
The continued to lag the prior year, but the GAAP continues to close from the low we saw in Q2, when we get to our outlook section you will see we're taking a more conservative view on the expected timing of the recovery of these businesses, but again, we believe it's just the timing and when the volume returns we will enjoy above average growth as our customers catch up on previously deferred spending.
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On page five we have presented margins by segment for the quarter and for the year as a whole once again consistent with Q3, we expanded solid waste margins by 240 basis points in the fourth quarter and achievement. We believe once again demonstrates the success, we're having with our multi pronged strategy of leveraging the platform to drive incremental profitability.
The key components of the solid waste margin walk include 57 basis points from lower diesel costs, and 45 basis points from commodity pricing, partially offset by 10 basis point headwind from incremental COVID-19 related costs.
Acquisitions were slightly margin accretive at the segment level as the recent M&A in the U S, which contributed margins higher than our base business offset the drag from tuck ins in Canada. The have yet to achieve what we believe is their full margin accretive potential. Excluding these items our base solid waste business continued to realize the organic margin expansion despite ongoing.
Non COVID-19 related volume headwinds.
On infrastructure and soil, we continue to see margins impacted by the change in volume mix, whereby we are seeing the smaller proportion of total volumes coming from low volume high frequency customers. This change in mix, coupled with the relatively higher fixed cost structure of the segment resulted in margin compression. Despite our continued focus on cost control strategies as we said last quarter.
After we fully expect that as volumes recover we will see significant margin expansion consistent with our view that this segment can be of low twenty's margin business in the near to mid term.
Our liquid waste business showed the strongest relative recovery of all of our segments with 910 sequential basis points improvement in organic revenue versus the third quarter. We continue to flex the operating cost side of the business and this focus on cost containment coupled with continued synergy realization of nearly 28% increase of net used motor oil selling prices drove the organic.
<unk> expansion as compared to the prior year similar to our commentary in Q3, when you think of it the $9 million revenue decrease from lower liquid volumes on a year over year basis the <unk>.
Realized margin expansion highlights the underlying operating leverage we are realizing in this segment. We remain confident of our views of the liquid segment can be of better than mid twenty's margin business in the near to midterm.
Turning to page six adjusted cash flows from operating activities were $240 million per the quarter and $767 million for the year results that exceeded our expectations and the guidance. We previously provided and the reconciliation you will note that the calculation of our adjusted free cash flow, we backed out the networking capital investments we made in the fourth.
On the two recent deals as we highlighted in our Q3 call. The <unk> acquisition did not come with opening working capital atypical for us on the transaction of that size in a dynamic that was factored into our valuation. So we view the initial investment in working capitals of financing activity and back of the amount of of the operating activities on that basis.
Turning to broader working capital management, our efforts around our order to cash cycle time are continuing to contribute to our success recall. Our guide was to end the year neutral in terms of working capital and we ended up $5 million positive, including the $60 million net drag from the recent M&A. So like for like we ended up plus $21 million of the working cap.
Of the line and outcome, we're very happy with considering the backdrop.
In terms of credit exposures the quarter not see any significant incremental bad debt as we said before we can see the actively monitor exposures in light of the uncertain landscape.
When thinking about cash from operations in Q4 as compared to Q3, it's important to consider the timing of our cash interest payments Q4 included a $126 million of cash interest excluding the $35 5 million of debt prepayment penalties versus $36 million of cash interest cost included in Q3 with.
With recent refinancings, we've been thoughtful about equalizing the cash interest payment cadence across the quarters.
So there'll still be some volatility in 2021, the cadence by the end of the year will be closer to the straight line pattern of interest payments.
Net capex for the quarter was $117 million recall of our guide for Q4 was $90 million for the base business and an additional approximately $50 million for potential incremental organic growth in the Q4 acquisitions of the integration Capex and regular capex for those businesses. When you unpack the $117 million. What you have is the organic number.
In line with guidance and the cash spent on the recent M&A coming in lower than expectations, but thats largely just the timing issue. We remain confident in the ongoing capex needs for these two businesses as previously communicated.
We deployed an incremental $80 million for seven tuck ins during the quarter over half of which was at December 31.
We think these gen. These acquisitions will generate approximately $30 million of annualized revenue, although the clarify over half of this revenue was already included in the rollover guide we provided in Q3.
The main cash flow from financing activities are listed on page six as you've seen we've continued our strategy of pursuing opportunistic refinancings and I think the success of that strategy speaking per itself. Although there are costs associated with the refinancing such as the $35 million incurred in Q4. The interest rate differentials are so significant that the payback and returns.
<unk> remain highly compelling we're constantly evaluating opportunities to reduce our borrowing costs and you will see us continue to access the debt markets as attractive opportunities present themselves.
We presented our full year adjusted free cash flow at the bottom of the page, but I would highlight the number of their reflects both our pre and post IPO the structure and so it is not necessarily representative of our true current run rate in the guidance section will walk through where we think we can take adjusted free cash flow of the next couple of years quickly.
Quickly on page seven once again, we've included the summary of net leverage consistent with how we presented in the past I'll say here that we ended the year in line with our previous messaging and we remain committed to the leverage philosophies. We have discussed with each of you at length. We can do have ample liquidity to support our growth goals, while delevering, our balance sheet and reducing our cost of borrowing along the way I'll now turn the.
The call over to Patrick who will pick up on page nine of the presentation.
Thanks, Luke before we get into guidance I wanted to provide some context as we're going to do things a little bit different than some of our peers.
Though we are managers first and foremost we are shareholders and I believe we have some of the best incentive alignment in our industry.
Part of this company in 2007 with $250000, which was all the money I had at the time since then through a lot of blood sweat and tears, both mining of our employees to support of our various partners and a little bit of luck, we have grown the business into the fourth largest environmental services waste management company.
In North America, I am personally one of the largest single shareholders and I would argue no. One is more incentivize the see GFS growth continues to succeed over the long term and.
And when you look at the broader management team both the other any old and the other field level leaders.
You'll also see best in class shareholder alignment.
As the broader management team as a material amount of equity in this business as I've said before this is the management team that knows how to create equity value. We've done it for over the past 13 years, and we see a very clear path to creating material incremental equity value in the near to midterm.
This is why in addition to providing our 2021 guidance. We're also going to provide our outlook through to 2023.
We see clear opportunity to significantly golar of free cash flow and we want to make sure everyone has the same building blocks that we're thinking about.
So turning to page 10, we have laid out how we plan to do it with summarized on this page of the same as the four pillars of our strategy that we've been speaking of since our IPO. We will continue to speak to these over the next several years as we believe they are the cornerstones of our path to creating long term shareholder value first organic growth.
As we've said, we think our market and asset positioning together with where we are at and optimizing the pricing of our existing portfolio positions us for outsized organic growth compared to the industry as a whole.
Continuing to leverage our leadership position in many sustainable service offerings should add to our growth opportunities as regulations and sentiment continue to evolve on the ESG related matters and finally, we see opportunities for capital redeployment, where we would look to divest of certain non core assets around the edges of our platform and reinvest those proceeds into.
Organic growth initiatives in our core markets.
This is our fourth lever, we believe can add incremental organic growth, particularly on the free cash flow one.
Second margin expansion, we have continuously said that we believe we of the path to raise margins across all of our segments and bring the blended business to a high 20 Sevens low 28 margin over the next few years I think we've proved our strategy is working in 2020, increasing margins by 100 basis points during a period, where many others were.
Going in the other direction and what we did despite that compression in our infrastructure business of Luke explained we think we can expand margins in our base business. Another 80 to 90 basis points in 2021, and that's with our conservative views on volume growth and reopening, which Luke will outlined in the moment.
When volume growth returns to what I would call more normal levels, we expect high incremental contributions, which can drive higher margins expansion even further.
The third pillar is reducing our cost of debt. We have decreased our average interest cost of long term debt by almost 200 basis points since 2019.
And although we are very proud of that achievement, we still have an average cost of interest of about four 5%, which is the number we think can significantly improve.
We will outline what we think is the art of possible in this area, but we think there's easily another $50 million of incremental free cash flow, we can generate over the next several years from this lever of loan.
The final pillar is M&A I will dive into this area of detail in a minute, but suffice to say, we believe there's significant opportunity to deploy capital to attract at attractive multiples for assets in the long run will be very accretive to our business. These four pillars are areas Youll hear us talk about a lot of as we execute on the strategy over the next few years.
I'm now going to pass the call over to Luke who will walk through the 2021 guide for our base business.
<unk> identified some incremental opportunities that allow we are not including in our although we are not including in our base guidance or area that we believe can meaningfully impact our launch of point going into 2022.
So on page 11, we show on the building blocks of our guide what I'd say is this outlook is based on the environment and market conditions. We see today, we have not factored material easing of COVID-19 related restrictions nor of the anticipated volume increases that we expect to see with reopening activities. While we like I'm sure. Many of you are extremely hopeful that we can get to the other side of this pandemic as soon as possible.
We've received too much uncertainty, particularly in our Canadian markets to make the call as to whether that will be three six or nine months from now. So we've provided the guide and what we see today.
Looking at the waterfall, we're assuming solid waste price and the three 5% of 4% range consistent with our past messaging with continued restrictions in many of our Canadian markets and suppressed ICI volumes across the entire platform, we're not expecting to materially outperform this range. In 2021. However, we continue to see outsized pricing opportunities within our portfolio that we intend to.
After once normality returns inflationary expectation should offset some of the negative CPI adjustments, we experienced in 2020 and ongoing discipline around ensuring any under price residential contracts of renewed at rates that meet our return thresholds should serve to support our price and goals.
So all of the ways volumes, we're seeing approximately half of point to one point of growth now we know some of the expectations for higher growth number here, but I remind everyone of the following two points. One is we had a lower volume declined during the year that much of the industry. So we're coming off of a higher low if you will and two we have a bigger proportion of our revenue is coming from Canada.
<unk> of which is still under some of the most restrictive lockdowns and we think on average maybe a quarter or two behind the U S. In terms of reopening timelines.
From a cadence perspective, we're anticipating Q1 will be low single digits negative volume inclusive of the drag from the extra day in February of 2020, Q2 should be low to mid single digits positive on the easy comp in Q3, and Q4 of flat to modestly positive again should reopening activity is accelerating we see a rebound in Ics and high volume.
And where we are today that would be upsides of the guide no.
Of that in respect of commodity pricing as we continue to move more and more of our contracts to a fixed processing charge model, we're seeing less variability in our results from movements in commodity. The guide assumes 2021 plays out of the pricing. We saw at the end of 2020, which equates to approximately $910 million of incremental revenue that flows through at a high incremental margin.
On liquid and infrastructure, we're taking a more tempered view in terms of when volumes return. Despite the significant sequential increases we've seen in the recovery of these segments. The tough comp over Q1, 2020, and the concentration of revenue and some of the harder hit regions of the northeast and in Canada, and the lag in when customers capital spending programs geared back up all leads us to think 'twenty, one and more concern.
<unk> growth of terms, we've shown the two segments together, but when you unpack it we're thinking of liquid in the mid single digits and infrastructure basically flat.
On the M&A roll forward. This reflects the approximately $900 million. We previously communicated plus the late December M&A reduced slightly in response to revise views on seasonality in the current winter situation in the South and then grossed up to the $1 34 FX rate to be presented on a constant currency basis for 2020.
We're providing our guide assuming of $1 two seven FX rate so that last steppingstone on the pages to bring the Canadian equivalent of roughly $2 $4 billion U S. Dollar denominated revenue down from the average 2020 exchange rate of $1 34 to $1 27.
4% per FX equates to about $170 million and is roughly split $50 million related to the rollover M&A and $120 million on the base business.
Every point move of the FX revenue changes by approximately $24 million and we will provide details of impacts from FX as we reported during the year.
So that's the revenue bridge for your modeling considerations remember, we still have relative to seasonality in our business largely driven by our more northern geographies. The cadence of the annual revenue is expected to be approximately 22% to 23% in Q1, 24%, 25% in Q2, 26% to 27% in Q3 and the balance in Q4 in terms of of the.
<unk> rollover expect $250 million to $260 million in Q1 $270 million ish in Q2, approximately $280 million in Q3 and the balance in Q4.
If you look at page 12, we have shown what that revenue translates to in terms of adjusted EBITDA free cash flow and leverage remember none of this guidance includes any incremental M&A of refinancing activities for adjusted EBITDA, we forecast to be able to drive an incremental 90 basis points of margin expansion and we're expecting that ex the engine pretty consistently across each of the segments. When you think of.
The EBIT of work using the middle of our guidance range. After adjusting for the 127 of FX, we're expecting about $240 million incremental EBIT from acquisition rollover recall that the majority of the rollover M&A the blend of 28% margin. So we're expecting the 2020 M&A to be slightly decretive to the solid waste margin and slightly accretive to the overall.
The margin the EBITDA impact of the $120 million of FX on the base business is a headwind of about $37 million. Additionally.
Additionally, we have approximately $15 million of incremental public company and risk costs on a year over year basis, the balance of just under $100 million as organic growth at.
At the margin line when you think of it the 90 bps or so basis points of expansion M&A adds just under 30 basis points and commodity prices added another 10 basis points, the $15 million of incremental public and risk costs or negative 30 basis points and the FX is negative 10 basis points. So all four of those items are basically a wash and what youre left with is all of the expansion coming organically.
<unk> from the same levers that we've been pulling and expected to continue to pull as we go forward.
From that adjusted EBITDA, we're guiding towards an adjusted free cash flow number of 465 million to $495 million based unexpected net capital expenditures of around $510 million cash taxes of 10 million of modest improvement in working capital offset by repayment of carriers deferred dollars and some incremental M&A related investment <unk>.
Land of about $60 million and cash interest of $300 million, which again is before considering the impact of any refinancing activity.
So if youre thinking about an adjusted free cash flow walk again, using the midpoint of the guidance take the $360 million from 2020 add the 'twenty one incremental EBITDA at just over $15 million for changes in working cap then deduct the 100 million for incremental Capex $34 million for the swing from carriers deferrals $5 million per Inc.
The mental cash interest and about $40 million per incremental aero and cash taxes.
And at the bottom of the page if you run the math between where we ended 2020 of what the model shows for 2021, you'll see the business will delever down to the mid force.
Thanks Luke.
Let me just walk through as our base guidance with our current platform capital structure and macro operating environment. We are confident we can deliver on that plan. However on pages 12, and 13, we have highlighted opportunities over which we have a degree of conviction and that would be incremental to our plan.
The first opportunity is incremental M&A the.
The integration of the recent transaction is well on track and we remain confident in realizing the synergies we have underwritten the business performed well in Q4 and early indications for 2021 are also looking very positive. Although we are still assessing whatever minor impacts from we there may be from recent severe weather in the zone.
I think the.
The success, we were able to achieve during 2020, clearly demonstrates our ability to continue to deliver even in the most challenging environments 2021 is shaping up for what could be another active year for M&A, we have a robust pipeline of actionable opportunities that fit our model and we could envision deploying upwards of $500 million of capital across 20.
Five to 30 tuck in transactions throughout our existing geographies the.
The smaller tuck in acquisitions can be entirely self financed primarily with our own free cash flow, which will allow for deleveraging as we grow.
We are also evaluating one larger opportunity of business that we have known for years, but was never actionable.
It is entirely within our existing footprint and we believe would be highly complementary.
Timing of that acquisition signing could be in the next few weeks with closing potentially in the second half of the year and we would not need any equity to finance this potential transaction.
Any impact from this acquisition will be additive to what I said about the tuck in acquisitions.
In addition to M&A on page 14, we have laid out to additional areas of opportunity for 2021. The first is refinancing, which we think is a real opportunity to replace our eight 5% notes with much cheaper paper and reprice. Our term loan we conservatively estimate that those initiatives could result in 20% to $30 million of annual savings.
As always we will be opportunistic depending on market windows and there could be of path, even more savings here, but we think 20% to $30 million is an achievable outcome.
The other items capital redeployment, and we think 2021 could be a year, where we clean up of our portfolio around the edges, realizing proceeds of $100 million to $125 million and redeploying those dollars into attractive organic growth initiatives and some of our key growth markets.
The potential of divested assets that we're considering are ones that are underutilized in our portfolio and as a result, suboptimal free cash flow generators. So while the impact of revenue and adjusted EBITDA will likely be somewhat muted. We think we will be able to drive an incremental $10 million to $15 million of adjusted free cash flow from the redeployment.
So if you turn to page 15, we've shown a bridge of what the launch off point for 2022 could be for adjusted free cash flow now we intentionally of not incorporated the upside from these opportunities and our 2021 guidance as the timing and quantum of the impact is still uncertain. At this point. However, we feel highly confident in our ability to realize the <unk>.
Side by the end of the year and therefore, we are thinking about an adjusted free cash flow launch I'll point in 2022 somewhere in the $550 million range, representing over 10% of revenue and approaching 40% conversion from adjusted EBITDA.
Then to take it one step further we presented the similar exercise for 2022 and 2023 now obviously 2023 as of few years out and now World May look a little bit different by them, but all we're trying to show on page 16 is that the inflection point, we've reached and the power of the model that we've built.
The top of the page lays out the organic growth impact based on the same revenue growth drivers we've been talking about all along assumptions I would characterize as highly conservative for 2022, when you think about the potential for outsized growth as we get on the other side of this pandemic.
The middle of the page has M&A assumptions of acquiring a $160 million to $240 million of revenue per year, which we think is also a pretty conservative I think the highlight on the M&A point as these deals become more and more free cash flow accretive as the truly tuck in to our largely sales.
Finance free cash flow model.
And finally at the bottom of the page we have refinancing as the legacy debt becomes callable. We believe we can replace with cheaper options and drive another incremental of $20 million to $30 million of adjusted free cash flow through lower cash interest expense on page 17, we've laid out the waterfall and showing that in our view you don't need to believe much to see a pretty clean.
Path of 2024 of free cash flow launch I'll point of around $800 million.
We understand the approach is unconventional we said that in the opening remarks, but it is our intent and everyone to go in to update their models for the upside opportunities as communicated our preference would be for people to think about these the base business of that exist today, and then we will update as and when we announce new transactions, we just see.
Some very clear building blocks for how we can more than double our 2020 free cash flow over the next few years and wanted to lay those out on a piece of paper for all to see.
I'm sure. There's a couple of questions. So I'll turn it over the operator to open up the line for Q&A.
We will now begin the question and answer session.
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The first question comes from.
The <unk> from Jefferies. Please go ahead.
Hey, good morning.
Thank you for all the detail.
Just just on the free cash flow the long term targets that you laid out.
With M&A refinancing et cetera could.
Could you maybe.
How how achievable you think these metrics are I know investors don't have a lot of public history with you guys. So just talk about do you view of these targets as conservative maybe just unpack the free cash flow growth.
But for us.
Yes.
Look what I would say I mean, the components are all laid on the page right between the organic the M&A and the refinancing.
Youre right, we have of short history in the public market window and I think the one thing we have picked up is the under promise and over deliver strategy and so when we've looked about each of those levers we think the opportunity to outperform what we've laid on the page is there on all three of the buckets now the organic.
<unk>, obviously is still timed the conditional on the timing of when things reopen but you've heard from others and I think the industry as a whole view is that it feels like things are about to take off like a rocket ship. It's just a matter of when that hits and when it does I think the volume component of that incremental free cash flow could be far in excess of.
What we've sort of laid out on the page of the pricing strategies, there and that's working the volume story, we think bill com and will be exciting when it does we're just uncertain of the matter of of when you think of it the incrementals that are going to come from that volume I think it could far outperform the modest organic free cash flow growth. That's on that page and then the sort of nonorganic piece of the financing and the <unk>.
I mean again, we realize we've been in the public sphere for a short period of time, but we've been doing this for a long period of time and what I would say as we are of high degree of conviction that we can outperform those two buckets, but we wanted to put down some conservative view so folks of at least see how we were.
Thinking about it Patrick I'm not sure. If there was any other pieces, yes, I would just say from my perspective this isn't.
A six to nine month sort of I know, there's been a big focus on volume, but I think what you've seen over the last year.
Year that this business has been really resilient and it's the whole sector. Its not just <unk> I mean, it's been subject of basic regional reopening and I think we've all performed I would say exceptionally well and I think what this has proved is.
Like most businesses I don't think what people understand is that even even with sort of volume declines all of us were able to maintain price, which is not something you see in every industry. So I think when you layer that on and then you look at the hockey stick effect Thats going to come in late 2021, and 2022 and 2023.
The sporting events reopening hotels.
Opening.
Restaurants schools.
The office buildings.
There is just a big amount of volume that is going to come in I think we're taking a very conservative approach to what we think organic is going to be but I think we're in a very good place today.
Got it that's very helpful. Just just on the volume piece.
You mentioned youre kind of.
Extrapolating, what you're seeing per day, so the 2021 guide on volume growth.
That doesn't include any vaccine expectations or whats your sort of underlying economic assumptions for the flow of the volume guide so just looking to see what potential upside.
Yeah.
We've modeled basically what we saw in Q4, what we saw in Q1, I mean I think.
The U S is probably moving quicker than clearly, Canada I mean.
I remember, 40% of our revenue today is going to come from Canada, Canada has been much more conservative on the reopening is now I think thats going to ramp up significantly with the vaccine here over the next couple of months. So I think Canada is probably four to five months behind the U S, but that being said we haven't modeled any.
Again.
Improvements in where we are today. So that's why going back to <unk> point I think we've taken a very conservative approach and that's probably going to be upside to those numbers as of <unk>.
Things start coming back online relatively quickly here.
Gotcha and then.
Referenced sort of.
The near term pipeline of M&A over the next two years.
Could you maybe talk about.
Longer term.
Something larger you can do Patrick.
What are your sort of long term plans as you'd think about.
A much much larger transaction.
Long term just given your overlap.
With some of the other larger players in the.
In the public arena.
Okay, well, what I would say is firstly.
I'm a shareholder right in my job here is to create shareholder value. So at the end of the day.
Not hearing of practice, we're here to win.
Which in turn means everybody on this call is going to win so I mean, that's the way I think about it of my own mind.
In terms of our.
The pipeline and opportunities of M&A like we've said the pipeline is robust if you look today, we have almost 13.
Tuck in transactions under LOI.
Again, which we haven't modeled and like I said, we talked about one larger transaction.
Truthfully of business that we looked at over the last seven years, but could you just never get the deal over the line for whatever reason.
And.
I'm not one to the.
Surprise people in the public markets I mean, I think that is an acquisition we're actively working on.
And I think it could be signing is weeks away.
Whats closing.
We'll be in sort of Q3, so I mean, that's what the pipeline sort of looks like for 2021.
So you put that all in a blender I think we're set up in terms of of a larger transaction.
No.
Who knows I guess is probably the word.
Sure.
Sure I mean, when you look at it as a shareholder I mean, you really after the SaaS.
Culturally two companies come together, because thats, where theyre going to succeed or fail and then financially what it work and can you make more money together than apart I mean, if you look at the industry as a whole big deals have been successful over the years.
At least since I've been in the industry, whether it was Republican Allied.
Whether it was waste connections and progressive or whether it was recently Wm and eds I think.
Done right you can make money.
And I think all of those companies of double as well over the year, So I mean, who knows but.
Whether were included in one of those of where we happen to be the company that gets the pickup the divestitures from someone else merging would be.
A good outcome as well, but who knows.
Yes.
You are a young Guy you got a long road ahead of us. So that's great. Thank you I'll turn it over.
Thanks Hamzah.
Next question comes from Martin of <unk> from Scotia Bank. Please go ahead.
Hey, good morning, guys.
I appreciate all the detail here lots of Q3.
Maybe just starting on the M&A.
Just just unclear the all of the M&A that you sort of talked about all of the tuck in.
The plant itself on that maybe there is a need for some incremental debt, but no equity correct.
Correct. So for for the small tuck in M&A as well as the larger transaction, we would not need any incremental equity we could self fund through maybe a little bit more board more borrowing and using the free cash flow to offset.
Any of the leverage related issues and again with the commitment to still maintain leverage in the mid fours.
Right. So the so these are the larger deal that you ran.
For instance of the change that equation.
No no no equity would be required that.
Of that show that that gives you.
From conviction from our side on sort of the multiple we'd be paying and the synergy opportunity on the existing group of transactions that I say it referenced that are under LOI plus the larger one.
It was that large the one in salt Lake.
How am I going to get into the detail on it but.
I think it's safe to say a portion of it is.
Okay.
Maybe just on the margin.
Okay.
Just to be clear of the 2021, you haven't really seen lots of upside of the volume, but theres a little bit baked in.
In terms of volume recovery 2020 through 2023 of that sort of helps some horizontal correct.
Yes, Mark of this look I think thats right, obviously 90 bps of organic expansion in 2021. There is some positive volume we think when the volume comes back it's obviously at high sort of Incrementals.
But very modest and conservative in the quantum of that sort of volume I mean, if you look today and you think about.
What the sort of prices to get back I mean on the solid side, we're probably missing of 110 of $130 million of sort of revenue right like that's the sort of lost volume. If you look for the year and so what we would already had when that comes back we anticipate particularly considering that as most of the and post collection and sort of IC ni.
Very margin accretive when that comes back so we've been quite conservative in the portion of that debt. We're anticipating back in 2021, and then the pretty plain vanilla growth in 2022 of 23 that we put out there obviously isn't inclusive of any sort of hockey stick recovery there either and then also on the liquid and infrastructure I mean, you're probably missing the 60.
In liquid and call it another $40 million to $50 million in infrastructure, which is very very high accretive margins right just because of the sort of fixed cost nature of those businesses. So again, a little bit of expansion of each of those businesses, but when that volume fully returns whether that would be late 2021. Early 2022 were sometime thereafter, we think that.
It represents meaningful upside to the numbers we've laid out.
Yeah.
And.
Again, just sort of just taking what you said I haven't been all of the math yet but the.
Hey, guys, you sort of the incremental margin you spoke with the different lines of business and sort of get you to the targets that you sort of referenced earlier in the call for low Twenty's mid 'twenty I think closer to 30% is that sort of where you sort of wind by 2023 at the sort of hit all of these targets.
Yes, I think it's not just the volume, but also just looking at how we have been sort of flexing the business. Realizing the synergies of all of that we've brought together. So I think it's really all of those leavers together our pricing programs are working on the middle and now the expectation of leveraging the sort of refined cost structure.
That we have as that new volume comes back I think it's all of those things together that now gives us further conviction of achieving those sort of broader margin targets in totality and by segment as we have articulated.
Alright, I appreciate all of you guys. Thanks a lot.
Thanks Mark.
Our next question comes from Michael Hoffman from Stifel. Please go ahead.
Hey, Patrick Hope, you're having a good day up there.
Just to be clear your 'twenty, one of 23 plan doesn't inaction facts pick up $210 million of.
Pandemic loss business.
The only showing of half a point to a point of volume growth.
Of that.
That is correct that is correct Michael right. Okay. So that so there is.
Theres a double whammy here.
Do your job every day plus.
The upside of.
The the reopening trade.
Correct Okay.
Shorten the analysts asked some short term questions the $105 million to $135 million of year over year free cash flow growth.
If you have broken into three buckets of cash interest operating leverage and M&A, how does the but if you want to take the midpoint of the split it up how does that split up.
So.
Cash interest Michael I mean, if you look through the normalization. We did in 2020 of effectively saying 2000, Twenty's cash interest was where the $2 95, and I'm telling you of guide for next year 300, So theres, a minus $5 million from cash interest.
You have.
The Capex line year over year is going up by $100 million. So you have that and then side of the last number you referenced Michael Youre talking about.
So I was thinking of a bit more from the standpoint of.
The operational leverage and then M&A, so just sort of business, what's the operational leverage the free cash what's the M&A leveraged of free cash offset by a negative $5 four.
Yes. So if you go about it that way I mean, if you take the M&A I mean, effectively saying the M&A is adding the.
The EBIT from the M&A coming in sort of high true thirties.
If you incorporate that in our walk from 2020, you take 2000 Twenty's number of 360, you'd normalize that for FX now the FX you get some wins on the interest and Capex line, but net net FX would have been of sort of $20 million drag.
And if you walk through that what Youre going to see I think is implied organic on the base number you have about $60 million to $65 million of organic sort of free cash flow in that level, and which is sort of 17, 18%. So I think when you strip out all of the M&A and the other sort of noise Thats, what youre really left with the sort of operating leverage driven.
By the business, Okay, and then the other number I'd like to zero in on your your cash flow from ops range has improved as a percentage of revenue is pretty meaningfully from <unk>.
Low double digits up to almost 20% 19 five of 20%.
For 'twenty one.
The hit.
Lot of what Youre laying out that cash flow from ops number needs to improve and it's not adjusted net income doing that but how much working capital do we have to play with.
Debt.
And come out of this model and help drive us into 'twenty, two 'twenty, 3% of revenues is cash flow per box.
Yes, so the cash flow from ops, because I would say in 2020, I mean, you really need to look at the adjusted number obviously in the first quarter of a lot of sort of noise in that number and so when you look at the adjusted of where it's at.
The 770, <unk> had sort of for the year, and where thats going I think there's sort of less of a walk at that point right and so really what youre seeing here is the interest component right. If there is of $300 million drag of the interest line. We're really now leveraging that as we're going forward, adding all of the sort of incremental net income if you will.
But without any incremental sort of interest coming off of that so you are getting I think of lot of leverage on that line.
Working capital I mean in the guide we're giving this year working capital, there's some noise with the carriers et cetera, but really just modeling a modest working capital improvement for next year, so sort of.
On the base business, if you will kind of plus 10% to $15 million.
We think the working capital price as we've said in the business is far in excess of that but again a lot of that exist in our legacy sort of Canadian business and just with the uncertainty on reopening of et cetera. We didn't think 2021 was the year to guide to a big sort of price on that piece.
It's still there I think it's probably just more of 2022 plus <unk>.
So really I think once you have normalized and looked at our 2020 adjusted cash from ops is the starting point, you'll see it's really starting to leverage that sort of finance cost component of it which historically has been a large drag and you being able to see that sort of true sort of operating income margin of the business come out come through.
Okay, and then back.
Back in the fourth quarter in several different virtual settings.
Patrick.
Offered up that liquid.
While it was a good business why you grew it isn't necessarily core to the long term strategy do you still maintain that thesis.
I mean like I said before if someone wanted to pay us a big price for it I think.
It was it was something we would we would look at.
I think where we sit today the business is recovering exceptionally well Canada.
Almost hit budget for the actual year.
The biggest impact was really in the Midwest operations in the liquid weighted business.
Our Canadian business.
Ran at above the mid Twenty's margins.
For the year and I think it is recovering well and I think it's.
Set up to do exceptionally well this share, citing our view is just sort of given the relative size and scale of and we're going to keep we're going to.
My view is as to keep it it's a good growth vehicles of good free cash flow generator at this point.
I don't I don't I don't see a reason that we would do something with it.
But you would entertain it of paid the right value for it.
Saying sure like anything or anybody.
Any line of business I guess, if someone wanted to.
Well again, we would assess whatever that would be at any time.
On the portfolio cleanup.
The timing of those proceeds showing up or do you have line of sight on that.
Yes, so I mean, the view is I think it's a first half of of.
Of 'twenty into 'twenty, one so I mean I think.
Definitely a line of sight.
The anticipation is we'll get it done in the first half of 2021.
And then last one for me is there anything you can do to help.
The volatility out of the infrastructure margin.
I mean prior to Covid.
Like a beautiful sort of low.
It's more of a regional issue right.
We have exposure to Ontario, and Quebec, and NBC in that market in the northeast is where one of our facilities are now the amount of infrastructure dollars I can tell you that are being announced in Canada and even through the northeast that we bid on three of those facilities.
Going back to your earlier point in the recovery.
I don't know exactly when but I would say by late Q3, the beginning of Q4, we're going to experience and that will be what we've experienced.
Really from 2016 through to 2019, when Covid hit I mean.
There is of significant backlog of.
Of projects and things of that.
That are essential that actually have the move.
If you look at the Ontario market of Quebec market the amount of transportation spending that's been announced I mean.
Just sort of fit dead smack in the middle of.
Where we receive a lot of of the volumes and you look at a bunch of of the opportunities on the west coast and some of the recent projects that had been price to go into our northeast facilities. I mean, I think it's kind of be.
I'm pretty bullish about it I mean, there is nothing you can really do today.
And the situation, but I think youre going to see that recover at faster rates than you.
You see the rest of the business just because of the impact that we experienced for the last year in that business.
Okay. Thank you very much.
Thanks, Michael.
Our next speaker is Walters Bakken and he comes from RBC capital markets. Please go ahead.
Thanks, very much operator, good morning, everyone.
So I'd like to come back on your thoughts on leverage.
And clarify a couple of things so first of all of you.
The entity of $4 six.
You said you could deploy all of the capital.
The $3 50 to 500 million and of.
Shelf kind of self financing way.
The $3 50 to 500, but then there is the larger acquisition on top of that.
I think you answered the question that you could do both without the need for equity show both the $350 of 500, plus the larger acquisition and would that imply essentially you might.
You might go above five by the end of the year, but line of sight to get back down to mid to low or one year. Later are we looking at that the right way or is there some day.
Yes, no I mean, youre directionally, correct, but leverage would stay generally in the same range that it would be today, if the larger acquisition got done Walter I think the thing to consider as we start the year of $4 six that's going to naturally delever. Even if you do the small tuck in M&A youre still going to Delever as you go throughout the year. So if you get by.
The time, you get into the back half, which is why not something larger would potentially close.
You brought leverage down and then you were able to sort of do that acquisition was still respecting that high mid to high fours cap that we've talked about historically going growing above five is not in the cards got it perfect. Okay. That's great.
Just to just a small amount of here the free cash flow guide you put refi at the kind of an opportunity for that $20 million to $30 million why is the opportunity and not not built in your free cash flow guide what would stop you from doing something like that in 2021.
I think from our perspective, when we model that it just.
To be honest of it was just analysts' models like of when that actually got realize I mean, we typically do it when there is an opportunistic point in time to do it so that could happen next week. It could happen in may it could happen in June so I think.
The view was that we would just make everybody aware of it when it was done so people can update their models, but.
Our view is it's kind of get done imminently.
Whenever that is when that market window is there for us to execute in the best way, but it is going to happen sooner rather than later, yes, Walter I don't think we would characterize it much different than the sort of outsized volume recovery in the M&A. We think those of both things that are probably going to happen in the year, but just don't know exactly when and so we'd rather.
Other just articulate the art of the possible in terms of of what that could look like so of the bulk of it could consider that in this on the side, but don't have it sort of change if you will the base business guide of what we have today, that's really the sort of thought around it.
Got it totally makes.
Okay and last question here is really on strategic focus.
When you look at your book of business right now in terms of what market share of market segments you're in.
You mentioned the sale of non core can you give us some color around how you see your business of side.
Side of your.
The solid waste aspect.
What areas do you like where you see opportunity to scale up and what would the areas that really might be too small within the organization that you might look to divest.
Yes, so like we said before there is a couple of markets that we've acquired with recent businesses that again, they're good assets, they're just of.
In our view probably more strategic value.
So some some players in those markets, where we just don't see a real opportunity for us to really want to deploy a significant amount of capital because we have better use of our capital I think from an M&A from an M&A perspective.
Again capital allocation and like we said.
All of the capital that we've allocated for 2021 is going to go into the existing markets and the existing business lines that we're already in so that's the nine provinces in Canada in 2007 states in the U S. I think there is.
Probably.
More of a little bit heavily weighted to Canada today and.
Again from my perspective, I think it's an attractive time to acquire.
Canada number one we get a lot in the U S and those guys are integrating and digesting.
But in Canada, the guys have largely been sitting on the sidelines for a little bit.
And I think it is an opportune time to acquire I mean, you get to see the highs of some of these businesses that you own in 2018 in 2019, you've watched the loans youre valuing them off and LTM number.
Thats, probably more reasonable than it was in 2018 in 2019, we of ultra low interest rates and then we're going to have on our view of a very strong recovery through 2022 and 2023. So I think now is the time to sort of deploying the capital then you look at it.
The borrowing rates I mean, when you're borrowing money at we're talking to borrow the money I wanted to ask the two 5%.
One could argue is that an asset or is that actually of liability like that.
That's on a non.
Any of our pre tax base, so I think.
We're in a very good spot today with the platform and again I mean, the the <unk>.
Loans that arguably the most accretive to us are going to be the ones within that footprint today and given that platform that we have.
I think we're just going to again juice as much of the fruit as we can.
Within that platform and that's going to be the most synergistic.
Makes sense I appreciate the time.
Our next question comes from Adam Jonathan from <unk> Capital. Please go ahead.
Hey, Patrick this is Adam widen I guess the have Jonathan in the analyst.
So look I think you guys have done a lot of numerical kind of conversation and I just want to take a step back I mean, you're basically one year into your IPO and you still training to basically three five turns to waste connections you clearly have a much longer runway in front of the.
You your guidance and your your shareholder value creation kind of.
Initiatives are far more ambitious than theirs can you talk a little bit about.
Thank you can do the narrowed that gap in terms of communicating it and then I have a couple of questions kind of qualitatively about the tuck in program.
Sure.
Yes, I mean from from my perspective, it just again continuing to execute on the strategy that we've deployed I mean, I think from from our perspective again growth continuing to grow free cash flow of double digit rates continuing to execute on the M&A I mean over time the value.
From my perspective will accrete in all of them.
We will continue to call the GAAP, we started very far behind.
At the beginning of the year and the GAAP sort of close over the next little while and I think as.
As we continue executing on the strategy, we will continue to get the respect and trust of of.
The public Investor base.
Alright, So let me ask the question we've been of shareholder now for almost a year I mean as most of you know we do an enormous amount of primary research on our company is that all of the industries.
What our observation has been is that these larger companies, whether it's low risk management rollouts are not new to society.
I think that you've got good not bad.
And.
The.
Yields like you guys have been doing it a little bit differently.
Based on our research you guys have been very focused on volume platforms, and then doing tuck ins and without getting into specifics on different markets augur standing as you buy in the DSW you buy of WCS.
You were in Michigan Rizzo.
Understanding that you can buy these things at whenever anywhere at the seven five times EBITDA, but once you roll in the back office and basically integrate the assets you can get them.
Low singles, but even more importantly.
If they are on the existing route you can drive utilization on your existing trucks I E sell their trucks run them on your trucks, and then increase the purchasing cards on future trucks and so.
When we do I kind of our back of the envelope math. Your return on invested capital is far better than your peer group as a function of kind of how you do integrations can you talk about kind of what you see the WCS SW and your ability to drive return on invested capital and margin numbers are numbers, but I think it's really help.
For me as an investor and perhaps other people that are new to the waste management industry to qualitatively understand the strength of your business model of your peers.
Yes, I mean again this is Jim.
Of all right.
You go and you buy of platform you buy all of these.
The post collection operations like landfills transportation recycling facilities, you go along with the base of business and then you go in and the <unk>.
<unk> strategy works really well around those assets because of the.
The incremental margin that you get from of volume that you are talking into those existing facilities and eliminate going in I mean, you're of the SG&A savings out of the gate and then you have the operational synergies around facility consolidations and routing opportunities and Thats, what youre going to see the bulk of this year do and when you do that youre going to eliminate a significant amount of cost you're going to do acquisition.
And then youre going to Delever naturally at the same time because of the actual effective purchase price of those acquisitions. So I think it all holds together I think you're right in saying that's what it is and I think I think from from the scalability perspective, and where we are in terms of the overall CAGR number we're probably in a unique position.
Because of our smaller than the larger big three today and I think from a CAGR perspective, our number is going to look a lot of larger just because we're in the we were aware they were sort of you know.
$700 10 years ago. So I think we are.
We're in a great spot I mean, I think we've done M&A well the integration team is exceptional here they've done just countless times the business development team is here, we are of very well oiled machine.
Most of you know we did a lot and we've done a lot of previous to 2020 and did a lot of in 2020.
And the factory continues to run here. So I think we're positioned very well for 2021 and 2022 for sure.
But I think look without without throwing your competitors under the bus I mean, I know youre doing business with them. The yourself of the mass of thing at least from our study of the industry. Historically most people have not taken the approach to the industry that you have I E. They buy.
The bigger assets they've run them independently, maybe they get purchasing synergies on trucks, but I mean in terms of combined routes in terms of combining back office I mean, the level of the scale of integration doesn't.
Is somewhat unprecedented I mean, you guys have the huge M&A team waste connections has two guys. I mean look I know you have to be careful what you say, but like I think it's important to distinguish in an industry, where it's capital intensive the influx of isn't that you guys are doing it better and not just a little bit better a lot better I mean can you comment on that.
I don't know what the other competitors have in terms of their business development team I know, we do of well like I said earlier, we're not hearing of practice. We're here to win so we will continue doing what we've done for the last 14 years and like I said earlier, you guys will all be the benefactor of that and.
Again this is.
This is not of sprint sort of of marathon. So we will we will continue executing the same way we have in the last 14 years.
Very good well look I look forward to seeing your cost of capital and payout to your peers.
So you guys have proven that even without it you've been able to create substantial shareholder value. So I appreciate all of the hard work.
Thanks, Sam Thanks, Adam.
Our next question comes from Tyler Brown from Raymond James. Please go ahead.
Hey, guys good morning.
Good morning, Todd the tone.
Hey, Luke you May have mentioned this in the prepared remarks, but what is the expectation for closure post closure just out the door annually based on the landfill fleet today.
$55 million to $60 million.
Okay.
Since we're kind of on this I don't know if you guys have this offhand, but again based on the fleet today, how much annual aerospace do you think you consume.
So if you could split that between Canada and the U S.
Tyler I'm going to have the I tried to purposely have my prepared remarks address all of your questions, but you caught me off guard with that one so I'm going to have to.
I'll have to get back to you on that.
Yes, no problem no problem and just my last one I know this call the long already but.
At a very high level.
How much of the revenue is tied to CPI and.
I don't know if you can break that also into the U S and Canada as well.
Yes, so if you think about.
I mean, CPI ultimately area of the contractually I mean, if you look at the residential revenue on that line of business you have of $1 $2 billion of revenue going into next year, now and not yet of about 300, and Canadian Canada, which you'd said think basically virtually all of us some sort of CPI type escalator then you have the other 900.
In the U S now that 900 in the U S.
Have.
The 300 of that nine of subscription right. So more of like open market pricing and therefore, you are left with that sort of 600 CAD dollars, but in the U S that would be tied to a CPI type escalator I know there is a lot of great work being done in the industry by moving to sort of sewer and water main and et cetera.
We look forward to being sort of joining that trained but where we are of de minimis amount of that today. So the vast majority of that 600, that's not subscription would be CPI in the U S and you'd have a little bit of it in the merger and in the post collection, where municipalities or using our landfills, but by and large it's in that residential collection line.
Yes, Okay alright, thank you for all of the detail I appreciate it.
Thanks Tyler.
Our next question comes from Kevin Chiang.
From CIBC. Please go ahead.
Home loans.
Good morning.
Of course.
The policy.
In the space.
In terms of the one what would you please.
Okay.
I'll pull the opportunistic just lending channel.
Just wondering how that will change the cash tax profile over the next few years.
Yes, Kevin you were very difficult to hear of I understand youre, saying with all of the guidance what does that look like on the cash taxes line. That's the question.
That's correct that's correct.
So if you look if you look today, we continue to have meaningful sort of tax shield, that's going to push out any meaningful cash taxes, the sort of <unk>.
Beyond 2024, obviously, the extent to which we continue to invest in the business, both organically and Inorganically, if theres any outsized investments that can sort of augment and continue to push that out from a further sort of runway perspective, let's say today in Canada.
There is very clear path of going through 'twenty, five and beyond with no meaningful cash taxes. The U S. Absent some other M&A or other things by the time you get the 2025, you'll eventually start sort of pivoting to a cash taxpayer. We continue to look at ways to be as affect the effective and efficient as possible there and.
Obviously incremental deployment of M&A dollars will help provide additional buffer at that tax line.
Thank you very much.
Thanks, Kevin.
Our next question comes from Tim James from TD.
TD Securities. Please go ahead.
Thanks. Good morning, I was just wondering if you could talk about how you're seeing the resilience.
The Canadian markets.
And I'm thinking kind of liquid waste.
Soil and infrastructure here in particular, just kind of a comparison between Canada and the U S. In terms of the resiliency to the restrictions is there any difference there.
And how it is impacting the business.
I mean on the infrastructure sides of it or it's really just been around.
Mostly around delays the backlog and the amount of work that has to get done and continues to be announced is significant and again I think when you look at the U S. Again, it's very regional specific depending on.
Of the regions, where you're operating we're in the northeast in the U S. So again that was a little bit harder hit than some other markets in the sunbelt, where it's less impact of now it's all coming back and the projects are going in the <unk>.
Facilities through the early part of the year of starting to see the volume come back, but I think in Canada on the liquid waste side, particularly I mean lithium post the original shutdown everything has basically stayed open.
Again, we don't have really any exposure to E&P. This is all really around sort of manufacturing industrial type of usage and all of those have been deemed.
No essential and continues to stay open so that business really largely tracked back to <unk>.
Almost hitting budget by the end of the year, which is an exceptional result so.
I think it's really just that I think versus some of the other places in the U S where we operate.
In the Midwest, there was more capital deferral.
Again, some of those projects will get done probably in the second half of 2021, but more of an impact.
While people were going through their own capital mitigation procedures.
Okay. Thanks, and then just quickly I'm wondering if you could just provide us with a bit of an update on the integration of your two big acquisitions from late last year it sounds like.
The results of the generated in the in the fourth quarter were.
We're very good relative to your expectations just in terms of kind of the integration process any thing kind of turning up the better than expected or more challenging than expected.
Yes, Tim as Luke I'd say quickly just the last minute or so before we have to and I mean, the avs Wm business.
I think all things considered from both sides and I think Wm make similar comments was about as good as one could have expected I mean, although the delays with the with the process. There were painful it did afford everyone. A lot of time for planning and preparation and I think that was about as seamless as one could hope, yes, those hiccups here and there but by and large.
Day, one that was an asset deal moved over to our systems and platforms and by December 31 switched everything over I think we rely on wm through some internet services in some locations, but other than that basically complete the integrated on the backend.
And now we're executing on the operational overlap, where we can drive sort of incremental cost savings in those markets.
Does overlap so I'd say that business and the integration thereof, when phenomenally successful and we're very very happy with how that came together WCS is a bit more of a staggered approach again, there was really of back office consolidation there minimal geographic overlap. So the integration was very much of sort of corporate and back office won the.
The first wave of that happened at the time of closing is really focused on the sort of C suite.
Which was effective in happened as per our plan and then.
We'll be mid Q2, where we do the full conversion of the corporate office into our existing shared services centers. So the planning for that how they've been reporting in the meantime, I'd say all is very much on track the synergy realization of the approximately $15 million that we had underwritten.
Also on track.
And again all of these things have sort of the hiccups, but.
One of the experiences you get through all of the practice. We've had is figuring out how to sort of manage through those which I think the team has done exceptionally well.
Okay. That's really helpful. Thank you.
Okay.
This concludes our question and answer session I would like to turn the conference back over to Patrick.
For closing remarks.
Thank you very much everyone and we look forward to speaking to you after Q1.
This conference has now concluded. Thank you for attending today's presentation you may now disconnect.