Q2 2021 GFL Environmental Inc Earnings Call
Today's presentation there'll be an opportunity to ask questions. Please.
This event is being recorded I would now like to turn the conference over to Patrick to Beachy CEO and founder. Please go ahead.
Thank you and good morning, I would like to welcome everyone to today's call and thank you for joining US. This morning, we'll be reviewing our results for the second quarter and providing our outlook.
For the remainder of the year.
I am joined this morning by Luc <unk>, our CFO, who will take us through our forward looking disclaimer before we get into the details.
Thank you Patrick good morning, everyone and thank you for joining we filed our earnings press release, which includes important information. The press release is available on our website, we have prepared a presentation.
Note. This call is also available on our website.
During this call, we'll be making some forward looking statements within the meaning of the 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.
On to <unk> 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.
And we do not assume any obligation to update these statements whether as a result of new information.
And our furniture events and developments or otherwise. This call will include a discussion of certain non non <unk> measures. A reconciliation of these non <unk> 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 who will start off on page 3 of the presentation.
Thank you Luke on exceptional starts on a year continued into the second quarter, allowing us to once again exceed expectations. Specifically, we grew revenue by nearly 40% on a constant currency basis, adjusted EBITDA margin expanded 60 basis points and adjusted free cash flow more than doubled.
Thanks.
For your tireless dedication and capabilities are more than 15000 employees. We were once again able to demonstrate the power of our business model and our ability to execute on our stated growth strategy.
In terms of organic growth the quality of pricing. We saw on Q1 continue to accelerate into the second quarter. While we saw solid waste pricing ahead of plan at $4.
1%.
True residential pricing the recovery of price, attracting commercial volume and strong price retention combined to yield this outcome.
We remain encouraged with the path to see more than offsetting rising cost inflation. So the underlying pricing opportunities we see in the business. Additionally, the inflationary environment should.
Should provide a boost to the pricing we see on CPI linked contracts a benefit that we will realize as we rollover into 2022.
Solid waste volume growth was well ahead of expectations at 6.3% the markets on a quicker to ease COVID-19 related restriction saw the greatest volume recoveries that being said.
Indian business, which are subject to continued and in some cases enhance COVID-19 restrictions through most of Q2 saw a 5.5% revenue increase.
From non MRF processing volumes and outcome that we think bodes well for future periods when existing restrictions are lifted.
For like Canada gets to such a stage soon but at this point in the year.
Or can you benefits will be realized primarily in 2022.
Commodity values once again provided a tailwind although as we've disclosed our sensitivity to price fluctuations continues to decrease as we progressed on our strategic shift towards a fixed price processing model. Nonetheless commodities will continue to provide a benefit if prices remain at current.
We think that for the remainder of the year and we've updated our full year outlook on that basis, our liquid waste business showed significant recovery during the quarter growing organically nearly 14%.
The markets in which we operate began to recover consistent with our guidance, we saw significant operating leverage associated with the volume recovery our rigorous.
Value on quality of revenue and cost management drove nearly a 500 basis points EBITDA margin expansion over the prior period and further our progress towards the longer term margin profile, we expect for this segment.
Recall that our infrastructure install remediation business posted positive organic growth from the second quarter of 2020 as.
Focus on share of the activity in that segment was the last the taper off at the onset of the pandemic.
And what we're now seeing is a bit of last stop loss the restart as the recovery of this segment is lagging the broader business by a quarter or 2.
We remain confident that the lag is merely timing and debt while delayed the pent up demand and additional stimulus from infrastructure spending.
Spending will drive volume recovery that we expect will benefit us in the periods to come.
In addition to organic growth the second quarter also saw us advanced several of other our value creation initiatives.
We successfully refinanced our highest coupon bonds on realized nearly $17 million of annual cash.
Cash interest savings in doing so.
It may be sold $60 million of non core low contribution assets and have identified several high contribution opportunities into which we intend to deploy the capital and.
And finally, we continue to executing on our M&A strategy.
In addition to substantially furthering the regulatory process on the pair of your.
<unk> we acquired.
Small tuck ins and a new landfill during the quarter.
We expect to close a similar number of transactions in Q3 and remain highly optimistic on our ability to deploy an outsized amount of capital into M&A strategy in the back half of the year, considering the depth and quality of our pipeline.
The strong.
On first half results, coupled with our confidence in the back half of the year are leading us to increase our full year expectations for the business Luke will walk through the details, but when you boil it all down on a constant currency basis, we are increasing our guidance for revenue and EBITDA by 4% to 5%.
We are increasing our adjusted free cash flow guidance by nearly 10%.
But perhaps the most relevant of all we are now guiding to at the end of the year with an adjusted run rate free cash flow number of $610 million or better.
We think sets us up to exceed the multiyear guidance, we laid out just 6 months ago.
I know, we're still relatively new named for many of you, but this marks our sixth quarter as a public company.
But what we've been doing.
We did this quarter for a long time in the private markets setting expectations for the business and meeting or exceeding them we.
We've said on prior quarterly calls that we've assembled the pieces of puzzle that form the foundation capable of consistently producing exceptional high quality growth.
We believe that this quarter's results again demonstrate.
<unk> our ability to execute on this growth strategy I will now pass the call over to Luke who will walk us through the details on financial results and then I'll share some closing perspectives before we wrap up.
Thanks, Patrick I'll pick up on gauge for the presentation.
<unk> increased over 32% compared to the prior year period. This was driven by outperformance.
20, M&A strong solid waste pricing and meaningful volume improvements both sequentially and as compared to the prior period you can see the trend in volume growth over the past quarters on the chart at the bottom left on the page and I'll Circle back to this chart on a minute net solid waste pricing was 4.1%, which was better than what we saw on the prior comparable period and in Q1 of this year.
As anticipated the recovery by C&I volumes, coupled with inflationary backdrop has continued to provide incremental price support for the year and provides us the confidence to forecast that we've been able to deliver at the high end of our pricing targets for the year as a whole.
Resetting of CPI linked contracts, which tend to lag actual CPI movements should also provide broad based support.
The pricing levels over the next several quarters.
Comparable to what we reported in Q1 elevated commodity prices increased revenue 80 basis points as compared to the prior period.
The 6.3% positive solid waste volume increase was 5.1% when excluding the Merck processing contracts in Canada that have now lapped in Q2.
Excluding these contracts U S volumes were 60 basis points better than Canadian volumes, which while a positive data point for the U S. We believe also speaks to the underlying strength of our Canadian business. Considering we achieved these results when most major Canadian markets continued to be faced with pandemic related restrictions on activities throughout the second quarter although.
We have seen additional easing of Covid related measures key Canadian market, such as Toronto, continuing to face activity restrictions, which will temper the pace of the volume recovery, while they remain in place.
Although the lag has become longer than we had originally anticipated the evidence coming from our southern U S markets is further reinforced our views that when the restrictions are eventually lifted.
<unk>, we will see a meaningful acceleration of volumes on this point I would remind everyone that the majority of the revenue we derived from the fastest to open U S markets, namely those in the Sun belt in certain pockets in the Midwest is coming from our 2020 acquisitions and the outperformance of these businesses is therefore being presented as incremental contribution from.
M&A as opposed to additional volume growth.
Also just wanted to remind folks about the cadence of our volume growth over the past few quarters. So if you circle back to the volume trend chart on the bonds. The left I think it's important to highlight that we're just getting back to slightly above 2019 levels. The volume growth is more a function of the easy comps as opposed to.
Incremental economic activity growth, which we think is there, but not yet fully showing through in the numbers.
Highlight this to help provide context for expectations, we were only negative 8% for the low of Q2 last year and were actually positive by Q4 of last year. The low is that we're bouncing off are not nearly as low as what some of the others have experienced.
As we talked about the guidance for the balance of the year I just wanted to remind that context.
Moving to liquid ways. This segment showed tremendous growth during the quarter as COVID-19 related volume declines came back online.
The volume recovery was more pronounced in our U S business, although the Canadian business recovery was also impressive, particularly considering the continue.
<unk> on the broad based pandemic restrictions.
Similar to our comments on the recovery of solid waste volumes in Canada, we expect improving strength in the recovery of this segment as restrictions in Canada continue to ease.
As Patrick mentioned the negative into from a structure volumes were in line with our expectations and largely attributable to the tough prior period comp.
Hey contributed approximately $288 million of revenue during the quarter about $16 million of which was from new 2021, M&A with the rollover from 2020 accounting for the balance which was above our guidance. Despite the FX headwind from the predominantly U S. Dollar denominated revenues of these assets.
We continue to identify.
And then a significant incremental growth opportunities within these asset packages and remain confident in the ability to outperform the original pro forma expectations for these deals.
FX was negative 6.4% for the prior versus the prior period and about $25 million revenue headwind versus guidance Youll recall that our FX impacts us substantially all trends.
Translational and that for every $1 change in the FX rate our annual revenues are impacted by approximately $24 million on.
On page 5 you will see segment results solid waste margins of 39% or 10 basis points ahead of the prior comparable period. Despite a 65 basis point headwind from recent M&A, although the net effect of elevated <unk>.
Commodity pricing was a margin tailwind this was more than offset by the impact of higher fuel prices and the strengthening of the Canadian dollar. Excluding these macro factors, we saw strong pricing cost management and focus on productivity and asset utilization drove 90 basis points of organic solid waste margin expansion. Our result, we think is quite.
Impressive when considering rising labor and input cost inflation and the delayed recovery of such costs and much of our CPI linked to revenue base.
Liquid waste margins increased 480 basis points substantially all of which was organic and demonstrating the operating leverage in this segment the ongoing volume recoveries should provide support.
Better than mid Twenty's margins to continue through Q3 before the seasonal step down in Q4 <unk>.
Infrastructure and soil margins improved 640 basis points sequentially from Q1, despite the ongoing impact of decreased volumes on the change in mix.
On page 6 you can see adjusted cash flow from operating activities of nearly 160.
<unk>.
This amount includes $63 million of proceeds from our asset sale.
That will inclusion of these proceeds seems lopsided for the current quarter, we intend to redeploy these dollars before the end of the year and therefore, the timing difference will be offset by year's end. Excluding these proceeds adjusted free cash flow was $97 million.
More than double the prior year and ahead of our expectations on the strength of our operating results of the business and continued rigor around working capital management. We continue to expect the working capital investment in the first half of the year to be recovered in the second half of the year same for any impacts.
From second half M&A.
As previously discussed.
Millions, we once again demonstrated our ability to reduce our weighted average cost of debt by refinancing.
Financing or 8.5% notes during the quarter.
Repricing that U S dollar $360 million from 8.5% to 475% reduces annual interest cost by approximately $17 million, we continue to see opportunities for refinancing.
And we will execute as opportunities present themselves.
We deployed approximately $200 million into 15 acquisitions for the first 6 months of the year and almost another $100 million into 5 additional tuck ins subsequent to quarter end. We think these acquisitions will contribute approximately $130 million to $140 million on annual.
Revenues and puts us well on our way to achieving the M&A targets, we laid out beginning of the year, even before considering the impact of tariff year, which we're on track to close by the end of the third quarter.
Quickly on page 7 net leverage at quarter end further improved and we continue to have ample liquidity to support our growth goals, while delevering our balance sheet.
Nancy and as I, just said, we continue to assess opportunities to reduce our overall cost of borrowing.
On page 9 we've laid out our updated guidance in the form of a revenue bridge on the strength of the results in the first half of the year, we're increasing our guidance by $100 million to $115 million attributable solid waste pricing and volume and assuming commodity.
<unk> prices remain at current levels.
Specifically solid waste pricing goes to 4% the high end of our previous range and as always volume goes to the low twos. Despite the lingering restrictions in Canada commodities added an incremental $20 million on top of the original guide and the outperformance of the 2020 M&A.
As another $20 million.
Conversely, with the delays on Recommencement of activities, we're now expecting soil and infrastructure to be approximately $30 million less than our original guide again, we think this is entirely timing and when the sector starts back up there will be meaningful volume gains. It just at where we're sitting today it would appear as if the.
And if it will be a 2022 event as opposed to 2021.
We then add the expected contribution from 2021, M&A, which reflects our expectations for the businesses. We've acquired to date and assumes tariff year closes October 1 date for which we now have a high degree of conviction the $120 million to $150 million presents.
Any of that as contribution from net new M&A is net of the revenue divested as part of the asset sale, we completed during this quarter.
That takes you to a revenue of approximately $5.3 billion, which is presented on a constant currency basis to what we presented our original guidance. The last step on that page normalizes for FX, reflecting the actual FX for the first 6 months of the year and.
Rented agenda of a 1 to 5 FX rate for the second half of the year.
From that revenue, we expect to generate EBIT of approximately <unk> <unk>.
<unk> 410, the high end of our margin range and adjusted cash flow of approximately $520 million or $530 million on the currency constant currency basis, with our original guidance, reflecting a 10%.
On assumptions over our original adjusted free cash flow guidance for the year.
So then lastly is page 10, and we think this page is the most relevant what we've done here is the updated our expectations for our 2021 exit run rate. So if you start with the actual expected revenue to be realized in 2021. We then add the rollover of M&A, we've already done so far in 2021 and.
<unk> created an exit run rate of $5 billion and $550 million. So this is effectively what the run rate will look like if we don't do anything else for the remainder of the year.
At the beginning of the year, we laid out incremental upside opportunities related to M&A refinancing and capital redeployment, excluding tariff here, we basically achieved half of our goals in these areas through.
Through the first 6 months.
Last step of $150 million represents the incremental expected contribution if we achieve the targets we laid out for each of these areas by the end of the year and Biggs you to an exit run rate of 575 low.
From this revenue, we expect a run rate adjusted EBITDA of 1.
$504, 5 and run rate adjusted free cash flow of $610 million.
So while we're not currently updating our guidance for 2022 and 2023, we think this page should help set the stage. If you take the base business organic growth model of mid single digits at the top line mid to high single digits at adjusted EBITDA and.
Low double digits that adjusted free cash flow layer on some outsized volume contributions that are expected for 2022 from self funded tuck in M&A and continued refinancing we feel highly confident in our ability to exceed the multiyear growth targets. We laid out just 6 months ago, we will formally provide our 2022 guidance.
Subsequent call, but just wanted to provide the stepping stones as we know there've been a lot of moving pieces.
With that I will now turn the call back over to Patrick for some closing comments.
I would like to end on call today with an update on our sustainability initiatives, we are continuing to develop the ESG.
On its targets and we will disclose on next year's sustainability report.
The focus of our port will be our initiatives aimed at reducing or avoiding GHT initiatives.
1 key area is recyclables earlier this month, we announced the formation of the reinsurance recovery Alliance.
This initiative from GFR at the forefront of the move.
To extend their produce responsibility providing producers with the solutions they need to drive higher resource recovery rates on <unk>.
Other key focus is on renewable energy, we are setup GFR renewables was on vehicles to unlock significant value and landfill gas energy projects at 18 of our MSW landfills.
Golar have identified to date and to accelerate the conversion of our fleet CMG.
All in all of these trends we are seeing this quarter and the opportunities. We see ahead of us I've never been more optimistic about the future of GSL.
I will now turn the call over to the operator to open up the line for Q&A.
We will now begin the question and answer session to ask a question you May Press Star then 1 on your Touchtone phone.
We are using a speakerphone please pick up your headset with more questions Keith.
Your question. Please press Star then queue at this time, we will pause momentarily to assemble our roster.
Our first question comes from.
Mark <unk> from Jefferies. Please go ahead.
Hey, good morning, Thank you.
Could you maybe talk about Directionally, how investors should think about free cash flow given the update and given the current update.
'twenty 'twenty, 2 and 'twenty 3 and then maybe just tie that back through.
The investment thesis from the time of the IPO as well.
Yes.
I'll turn it on a little high level.
I guess the irony of active last year at.
For a time, we were defending that on a short seller that said the business had no free cash flow and we were estimating $360 million for 2020 as realized I think when you look today.
No.
Realizing somewhere between sort of 510 and $5.20, this year with probably some potential upside to that number.
At this time and then you roll that forward and day to a run rate number like we've mentioned over 610.
No.
Very good profitability, though we continue growing these days on that.
Double digit free cash flow growth from there so I mean youre looking at somewhere between.
675% to 700 for 2022.
And then.
When you think about 2023, youre going to be growing at double digits again from there so I think.
Fairly conservatively you get you get free cash flow in 2023 to sort of the mid 8 hundreds and I think.
That exceeded.
We had anticipated at the time of the IPO, but.
A piece.
<unk> will continue following a point of interest is really what the free cash flow is what's driving the business.
Yes, I would just add that the numbers Patrick saying is in sort of the official guidance for next year, but rather just you lay out the operating model on our on our exit run rate and that's the.
The math that you get even before considering some of this incremental self help opportunities we've identified within the base business, which could be quite sort of meaningful so.
And I think we're at a very unique inflection point, we're going to start leveraging some of the investment and the capital structure and you're just.
It's going to really see that conversion of what was as a percentage of revenue are mid to high single digits really quickly start approaching the low than the mid teens and then Conversely are similarly at the EBIT line you can take what was a sort of high mid to high Thirty's free EBITDA conversion into free cash flow is going to go to low 40.
And then the high end I mean, I think we're just going to keep laying out the building blocks of the folks understand because I think we're talking about a free cash flow CAGR north of 20% and I realize theres, a theres a lot of moving pieces and get there, but that's the story that we want folks to keep sort of focusing on.
Because we believe that that is highly compelling.
That's.
That's great.
Then just the second question is just on GFS on renewables could you maybe talk about the strategy. There are you separating that business or just any broad thoughts on long term strategy there.
Yeah.
Yeah, So what I mean.
Particularly over the course of the last 6 months and particularly with the increased value of the RIN credits.
You know what.
We have significant cubic feet of gas.
Coming to our landfills and.
When we've done a study on this really over the last 6 months and you know there's sort of bubbled up for a lot of other companies in the industry that I think a little bit more mature than us. We have 18 landfills today that we have an opportunity.
To basically make RMG.
When you think about that.
I just we started just gave high level numbers.
What im talking about now would be all in addition to.
Today, we have like today's rent pricing about $175 million of gas that can be sold at todays rate pricing.
Our perspective is.
This cash could add $75 million to $100 million of free cash flow over the next couple of years, because what we would do is because we would partner with some.
There's 2 companies were in dialog with today to build out this infrastructure at our facilities.
On a man it would be with a fairly minimal capex.
The other thing we would do.
As we would hedge out the debt.
That RIN value over 20 years.
Sign off take agreements with some others now that comes on.
On a discount to where the Rins are currently trading at today, but it takes out a lot of the volatility.
Out of the RIN values.
And I think when we look at that I think that 175 is going to be some economic split with developers plus then you've got a discounted back a little bit because we would enter into.
Or a presale contracts for 20 years with an off take provider. So at the end of it. We think there is probably $75 million to $100 million of free cash flow that comes back to us.
Without not a lot of volatility so it's a big opportunity I'm also separating it out.
There's been some recent transactions, where there had been some renewable fuel plays and these businesses are trading at.
40 to 50 times, EBITDA and I think from our.
Our perspective.
Yes, it'll be a nice free cash flow generator, but hey, if it's a way to unlock value because some of these other players that are in the business want to come in and pay us a big check to buy the rights that fuel.
There's billions of dollars sitting there under our nose potentially and we just wanted to have it in a separate vehicle.
And then the other big benefited from an ESG story is with as we develop these plants will be able to fuel 100% of our vehicles with cash so recapture neural landfills, which we think is there.
Great story as well so.
Put all that together, we think this is a very large opportunity.
And all added at resi on that.
Luke just laid out.
Okay got it just last question and I'll turn it over I know you talked about M&A this year, but any thoughts as to the longer term pipeline specifically.
Out of the private company revenue debt.
Everybody has their.
And that's what that number is in U S and Canada, but do you have a sense of what percent of private company revenue fits your book of business today.
You can answer it however, you want in.
In the U S and Canada.
Sure.
Yeah I mean.
From our perspective.
On that so you sit today.
On the M&A market is extremely active and I think.
We're fortunate in a few markets, where we've become the acquirer of choice because some of those competitors.
Family businesses that fit well with us from sort of our culture.
But they'll also said from our perspective that given the length of the Doj processes that people have been going through.
They tried to get deals approved.
Led to some delays and we were part of that on the SWM transaction I know Republic has gone through a few with.
With.
They are reaching.
Well vision and I think theres. Some sellers that are concerned about where capital gains are going in and that positions us very well because of some of the markets.
We don't think we have a very difficult time getting true Doj and Thats made it as an acquirer of choice for some of those differences, but I think it will be an outsized year, but I mean, when we look at our pipeline today.
Over the net sort of 12 to 16 months I mean from.
From our perspective, there is easily another.
$508 billion to $1 billion of revenue that we can get our hands on.
Relatively seamlessly over and over that period.
Great. Thank.
<unk>.
Our next question comes from Michael Hoffman of Stifel. Please.
Please go ahead.
Thank you very much just a.
A little bit in the weeds, but.
What's the quarterly contribution of tariff here for the fourth quarter, So we get that progression right.
So on that yes, so Michael what we've modeled in as of now is about $80 million to $90 million of revenue and the reason thats, maybe arguably a larger range than normal is on the basis that with the reopening in Canada, I think we're going to see a bit of a shift in the typical seasonality pattern that wanted to expect with delays so theres.
A bit of a moving target there, but it's around that 80% to $90 million at the top line is what we've included and keep in mind, it's at a lower margin than the blended what we underwrote for the business as a whole just again because the typical sort of seasonality pattern in Canada. So it's in the low twenties as opposed to that high 20% that we.
Expect for a full 12 months on therapy.
Okay that helps a lot. Thank you and then when you think about your comments on Canada, and its sort of progressive reopening.
But you also have a seasonal issue.
Again, how do we think about being back to even 2019.
19 levels, what's your sort of sense about the timing of that.
Allative to Canada.
I mean I think we're.
Vaccination rates on debt and then I think the full reopening plan as planned for.
Phasing through September and November and when I say.
It's really sporting events.
It's office buildings at schools et cetera, which ive been shut for a long period of time and I think if you see you have all the guidance that everyone's protocols candidates now okay. We got to live with the virus and Theyre going to fade debt in between September and November I mean.
We're getting pretty close to <unk>.
<unk> thousand 19 levels today as Luc mentioned earlier on the call. So I think we turn positive.
I will start by the end of the year and then certainly going into 2022, we'll be back to pre pandemic levels.
Okay that helps and then on the renewables business.
Rents are at a little over.
Right now long term average is sort of a buck 50 to 2.
Intention to sort of hedge down into that long term average and that's the that's the point youre not introducing another point of volatility in the model.
Yes, that's my perspective in.
Particularly.
We will.
Look the rock in call it 65% on that so we don't get volatility on 65% on the ran and then.
The other way because we have a natural hedging currently because we would take a florida that fuel to fuel our trucks.
So we'd be virtually 100% covered.
Okay.
On that and then on the EPR program.
Can you talk a little bit.
On a unique issue relative to the United States, we do it at the state level I doubt it ever happens at a federal level.
<unk>.
As a particular strength to GFS given this national rollout.
<unk> chip programs.
Buying in the nonprofit what what what are all those combined to create as a natural within your natural strengths our competitive advantage.
So if you look at it today British Columbia on was the first province to enacted.
We currently manage that program for our producers.
Province on any of a lot of experienced firstly.
And I just think in there.
This is dealing with municipal curbside volume, so we're not talking about the ICD sector here.
And today, the producers pay 50% of the cost of the recycling of those materials that is moving to a 100% and they are responsible for the.
And for the collection process thinking municipalities actually have to opt out.
I think the value we bring is I think our asset base given the amount of collection contracts, we already have in Ontario.
Layering on together the processing facilities, we already on and then capital together with the experience we have in BC and then buying.
Actual CSA, which actually has.
The regulatory reporting and compliance tool sales.
You put that altogether.
A very compelling offer for our producers.
At the end of the day on carriers moving away from a single model to a multiple pro model.
Those are going to have to work together, so we think.
Costs, working together will give us the right seat at the table to structure all of these contracts properly and utilizing our assets to the best of our abilities.
Right.
And then within the context of the free cash flow outlook.
All of the numbers, you're giving are still sort of around the high thirties cash conversion of your EBITDA.
Uh huh.
So what's the prospect of moving the conversion ratio as well not just the overall growth of it but moving the conversion ratio back up into mid.
Mid forty's or better level.
Yes, Michael I think naturally.
The conversion improvement.
Given by the margin improvement that we're talking about is going to fall through but I think where youre going to get the most torque and it's something we've spoken about before is by leveraging that interest line alright. So if you think about this sort of $300 million ish interest line Thats currently in my free cash flow walk pivoting into next year I mean, we really turned into.
Funding model and you start leveraging that line and I think it's through that that if that if that represents sort of mid single digits of our revenue today.
As you grow thereafter, you're going to really see that sort of number getting leverage off of that so as we said before.
The plan was from 2020 IPO year to 2025, we thought we could take at a percentage of revenue up from high single digits, the sort of mid teens and if you roll that into the EBITDA conversion ratio.
On that mid <unk> to high <unk>, So we think that with.
We're demonstrating that and youre going to continue to see that but the capital structure component of it I think is a unique opportunity for us where we're at and our path that's going to provide extra torque at that at that conversion ratio, okay and to put that in context of the peers are 2% to 3% of revenues as there is the interest expense you are higher.
Other than that and this is an absolute dollar reduction in it or an accelerated growth of the Reds and therefore, the compounding through the profit.
Well the latter in the near term and then the former in the longer term right.
You as you get beyond 2023, and you start having an excess free.
Cash flow thing, that's what I think you actually start reducing the quantum of dollars, but in the nearer term we have just leveraging the fixed cost the fixed amount of dollars. Okay.
Okay. That's.
That's great. Thank you for taking the question.
Comes from Walter <unk> from <unk>.
BC cash.
Capital markets. Please go ahead.
Thanks, very much good morning, everyone.
Let's come back to the landfill to gas conversion Patrick you mentioned that you are at.
Any right now of 171%.
$75 million, but the ability to grow significantly beyond that can you give us a little bit of share.
What it would take to grow what level it could get up to.
And I think you said, a modest capex spend a little bit more elaboration on on on the capital required to get up to a higher run rate on your landfill to gas conversion.
Yes, so we're taking a look on it today there is what I said on those.
$175 million today at today's.
Hey, Duane pricing.
Give or take so it's probably somewhere on us on being conservative on that.
Question and answers.
On a perspective it today were going to joint develops on the off we're not going to develop them on our own I think our time to realize those dollars price can be quicker day with someone that knows how so we're going to give up some of the economics of that.
Somebody else on a revenue sharing arrangement.
But if you look today today, you can sort of look lock.
Lock in some of these forward gas contracts.
Actively hedge out the win.
Somewhere between $1.80, and $2. So you don't take a third of that off and on the revenue share I think you get to somewhere between.
Few opening 5 on 100 million, thanks to total capex spend to do that.
On a portion of it would be $1.25 to 150 can use.
Number.
The interesting part of it as you enter into these these hedges, but we're contemplating doing.
Mean studies offtake agreements.
We will be starting these offtake agreements with an investment grade utility.
We could get investment grade bonds to basically finance 100 percentage goes out if we did 60, 65% of the off take with them. So I think from an equity perspective, its very minimal and obviously from an IRR.
<unk> perspective.
40, plus I mean, I don't think there's a better use of capital anywhere today.
So that is guidance, what's going on that's why I sort of use the number of 75 to 100 over the next sort of 2 to 2 and half years.
That's great and Dovetailing that into.
Non core.
Operations, you made a divestiture just recently.
Are there other divestitures that you could then deploy into some of your core areas could free.
Same out how much of non core are you.
Currently looking at our capacity.
<unk> look at it and would landfill to gas conversion be if it gets big enough and when you look at that as something Thats spin out.
And redeploy into some of your core is that or is that something you want to kind of keep in house.
From my perspective, I'm a shareholder first.
Rob.
<unk> already here to make money on the single largest shareholder.
We kept separate for that reason I mean, these renewable plays like I said.
Our recent walnuts.
Come on with 40 million of EBITDA, that's gone public at a $2 billion volume Theres, 1 recently in Canada, but I think that had 7 or $8 billion of EBITDA.
And it's trading at 1 billion dollar volume.
Uh huh.
We're going to have 75 to 100 sitting in here and I think.
If someone wants to pay us multiple billions of dollars I mean, we're happy to take that money on.
We'd make a lot of people are happy with the deleveraging story, maybe some form of dividend or distribution.
But thats always I'm, sorry on what we just keep it let me think these businesses are trading at 25% to 30 times free cash flow. So you all potentially could 28.3.
$3 billion of value.
The next little while so 1 way or another.
We think it's going to create significant value, whether that's kept internally or whether longer term.
Right.
So that gas to someone that's.
<unk> got a crazy multiple in the public markets.
And Walter the GAAP.
Gas component aside just the broader redeployment of capital or non core at the beginning of the year. We said there was $50 million to $100 million of potential.
Sort of asset sales to complete what we did in Q2 was about $50 million U S that we sold what we put in the incremental upside opportunities in terms of the guidance is just that remaining 50, so saying that we still think there is in this year of $100 million and the non core that we're going to sort of execute on and take.
Several others to sort of redeploy into other higher growth and return initiatives.
So I think that.
Yes, I think that's really a conservative number as well so.
You'll probably see us do a little bit more than than what we've put on the guide on that from.
Yes, it sounds like a good optionality for.
Sure I appreciate the time as always guys. Thanks.
Thanks, Walter Thanks margin.
Our next question comes from Kevin Chiang from CIBC. Please go ahead.
Hi, good morning, Thanks for taking my question.
I know youre not officially adjusting your 2022 and 2023 target.
<unk>.
If my math is correct I think you are applying something with a low 20%, 27% EBITDA margin in 2023, but.
But just given that the 2021 update which kind of gets at almost a 27% of all ready just wondering how you think of the cadence of EBITDA margin expansion.
Over the coming years.
Do you see a higher.
Upside relative to maybe what you saw.
6 to 7 months ago, when you put all put out that outlook initially.
Yes, I think from our perspective, we know we're taking under under promise and so.
So on to deliver approach.
I think when we talked.
So at the time of the IPO I think we're probably a year ahead of plan on in terms of margin expansion.
Certainly.
Our plan is to continue expanding margin.
It looks like debt move.
Move somewhere between 28 and 29% from.
As we move out into sort of 2023.
Talking about feel free to Titan.
Yeah, Kevin what I'd say is that the.
Quantum of the margin expansion period over period last year was sort of unique.
Coming into this year the idea was to take it up to high 2006 is.
$26.786.8 I think was the guide I think you are right.
There could be a path to doing a little bit better than that which has been setting up next year.
What youll see in the guide when we talk for 2022.
As we're able to battle these cost inflation this year without having the benefit of this the CPI resets right because again thats really going to be a 2022.
So we are eating it for the first 2 or 3 quarters of this year before we get the benefit that's going to likely probably add even more so I think youre right in thinking about the original target is probably now been accelerated.
The exact timing and new sort of goalpost.
Stay tuned.
Benefit I think youre thinking about it in the right in the right context.
That's helpful.
As you sit here today obviously.
Punching above Youre ahead of schedule as you mentioned, Patrick and Luke can we just get an update on when you think.
Cash taxes start flowing in to you and then and what's the success.
Tune, but free cash flow generation does that change your priorities.
Do you push more of that into M&A to deleveraging become more of a priority with with this excess free cash flow here just wondering how you think about that.
I'll touch on the cash taxes quickly Patrick speak to excess cash flow.
On.
Sure.
Considerations on the cash taxes.
It's largely the growth in the U S business is what's going to drive the.
The cash tax payments, starting and as of now that's sort of a little bit in 2024, and then you get into more of a full payer in 2025.
And then a real full payer in 2026.
That's absent continued strategies to sort of mitigate that which we're constantly evaluating and certainly the incremental deployment of capital to M&A helps with that.
So Kevin to your point I think yes on the base plan.
The.
Outperformance is accelerating that however, the counter is excess outperformance in M&A deployment, which I think kind of provides a bit of a buffer.
So we continue to evaluate I think holding the 2025 is the year still holds true but no.
We are actively engaged and continue to be as strategic there as possible in terms of what we do with the excess free cash flow Patrick I'm not sure. If you have sort of commentary around that.
Yes, I mean, I think from our perspective.
We've always said.
We're going to continue deploying capital into.
Debt smart accretive M&A, we think where we R&R growth cycle, that's going to continue to be.
Prevalent.
The free cash flow really starts building between 2022 and 2023 I think.
Moving to you're also going to move to a sort of a dividend policy.
Let me when the Teus.
<unk> is off and youre going to put on sort of back day nominal dividend on some.
Those interest payments go away and then sort of coupled together with share buybacks at some point, but.
I think loans a lot of M&A in a lot of great M&A that can still be done.
Significantly lower values.
<unk> from trading out today, so I mean on them.
On the mindset today to buyback our own stock at significantly higher value than I could buy some high quality assets private liquidity for.
Over time, that's what's going to create a lot of valuable relative I mean, we've been doing this for 14 years.
As I said, all I want to do is take my.
$801 billion on to 1 billion.
The work with you my options that I have.
And continue.
Driving the value of those forward I mean, if you look at the recent <unk> plan that <unk> signed up for.
No 1 is getting anything until the stock clears through 50, and then clears through $60 U S. So.
That is our conviction around what we believe.
Equity value of this business is going which is almost 2 X where it is today. So we are there.
Where are you sort of comfortable in the plan that we've laid out.
From our perspective, just get each and every 1 of you to building blocks, but how are we going to get there I think it's been 6 quarters of.
Net loss.
Particularly exactly what we're going to do even at the time of the IPO, leading through Colgate and where we are today.
We will just continue delivering and executing on that plan.
Eventually we're going to fill up the bus with investors and that will start driving forward in getting this trading where we all believe it will be.
I appreciate you taking my questions. Thank you very much.
Thanks, Kevin.
Our next question comes from Martin <unk> from Scotiabank. Please go ahead.
Hey, good morning, guys.
Let me remark, but maybe from.
Good morning, maybe first for Patrick maybe just going back on the renewable opportunities.
Maybe just walk us through sort of timelines and milestones to watch for in terms of signing up developers.
Maybe just help us with that.
Yes.
Well, along and rely on and I think the first engagement engagement will be signed sort of in the next 4 weeks.
And then youre basically between sort of 15 and 16 months out too.
To build some of them some of our sales are already built you just need to be modified because they've been used for co Gen and power. So I think.
See what we could start seeing the realization of some of the dollars going into early 2022.
But.
<unk> seen a real dollars and as we get into later 2022 and starting into 2023 through to 2024.
Thanks.
Maybe Luke just on.
Point of clarification on the Capex.
It sounds like growth in net for the year will sort of net out to the same number if you can sort.
Spend all that money, but.
Maybe just give us maybe just help on the guide for the Capex on for the year. Thanks, guys.
Yes, Mark so.
Youre right.
The proceeds from disposals are going to offset any incremental spend so if you think about the original guide it was sort of a 510 number with the M&A.
And that is what it tends to maybe think about it as a net $5.25 to the extent, we can redeploy the capital this year will be sort of doing so, but we're going to average out to a net number of 525 million, we won't we'll only spend proceeds.
To push investment above and beyond that so the while the gross number could be.
North of that towards so, let's say 600, we'll we'll make sure to manage to that net number the $5.25, and it's dependent on how quickly we could deploy some of this capital into a whole host of growth opportunities we've identified.
In the existing base business and net new things like the landfill gas to Patrick's document.
Yeah.
Got it thanks for taking my questions.
Our next time.
Our next question comes from Jerry Revich from Goldman Sachs. Please go ahead.
Hi, This is Adam on for Jerry Today. In addition to landfill gas you folks have a bra.
<unk> opportunities. So just wondering if you could help me think about the annual capex associated with green initiatives and is it possible to break that out.
Between landfill to gas recycling and any other key initiatives.
Yes.
We don't separately break out.
On a bunch of our.
ESG type initiatives that all gets sort of modeled in our maintenance and growth capex for the year that sort of sits at around 10%.
I think Leo.
Domestically.
Sort of sitting today as we're deploying anywhere on a GAAP given year roughly $50 million.
On recycling type initiatives.
A year ago was closer to 100, just because we had a large organic buildout.
On the large recycling facility, but I think 50 today as it was probably a realistic number that we're using.
As we develop those over the last number of years on the landfill gas.
I said I think our spend is going to be somewhere between $125.150 to capture that over the next.
24 months, but given these creative way to finance it with these.
On investment grade type bonds with these offtake agreements going on from an equity perspective, it shouldn't eat up anything from an IRR perspective.
No I don't think we will find something that can produce.
On the IRR is on a much higher than that internal opportunity.
Okay, Great. That's really helpful. And then other solid waste peers have talked about gradually shifting their index price contracts to water sewer trash away from traditional CPI I was wondering if you could provide any color on the makeup.
Index contracts and if you see that evolving from current levels.
Yeah, Adam it's Luke.
Yes, what I would say is we welcome the shift but are very early days in our.
We will sort of participation in that so if you look today, we have roughly.
$800 million most of which is in residential but you also have some in Merck processing landfill and transfer that is tied to CPI type index.
Very little de Minimis of it is tied.
1 of the what I'll call better indices like sewer water main or utility or some of the others that the majors in the industry have.
<unk> been converting too.
We are.
Supportive of the change and think it does better reflect the cost structure of these businesses, but we just see.
First opportunity today, because we are still sort of pegged to the the old way. If you will of sort of CPI, but that being said, we think even the CPI linked contracts are going to provide a very nice pick up for the next call. It 4 to 6 quarters as those things sort of reset I mean, I think the print in June in the.
That is us was north of 5 and Canada sort of mid threes and I think as we now get the resets a lot of which happened in the back half of the year, we're going to enjoy that benefit.
But I think longer term pivoting and migrating our portfolio of.
Index linked revenue to.
The U S. Higher index is is just an even larger opportunity.
That debt out there for us.
Great. Thank you very much.
Our next question comes from Tim James from TD.
TD Securities. Please go ahead.
Thank.
Thank you very much good morning.
I just want to go back on the question Patrick on.
Your comments regarding.
Kind of the change in revenue guidance and where some of that originated from it was I correct in understanding that.
Solid waste impact on guidance is primarily originating from from acquired.
This is in and the assets in the Sun belt in particular.
No no no I mean, Rosemary <unk>, yeah, well, we we tried to break out there was.
The pieces of the outperformance I mean, what we're saying in the base guide, we're taking up price before we set price was sort of going to be 3 and a half and take that up to the high end of the range. We're taking a volume before we said volume would be like sub 1 now taken that up to sort of low twos and then the.
Other piece of volume is in the M&A bucket, the rollover, but now saying the volume experience we have in that rollover M&A is greater than than thoughts. So that's coming up again by another sort of point to 2 points. So I think it is broad based across all of the buckets.
As opposed to saying the the new M&A the new M&A was that separate bucket. If you look at the bridge.
So I think all of the revenue drivers are sort of coming up so I commodities with the last 1 I didn't mention.
And in the in the quantum that just articulate.
Okay. That's helpful. Thank you.
And then wondering if you could just talk a bit about what you're hearing from.
Your construction project customers in particular in terms of of getting back on line or are there any notable and remaining impediments to returning to normal levels of activity in the in the back half of the year again, notwithstanding I guess any retrenchment in reopenings.
And maybe and particularly the lower volume soil remediation customers.
A bit of an update their annual that's continued to be slow here in the second quarter.
Yeah. So I think it's coming on I think everyone is highly encouraged final on restrictions came on I mean, there's there's really in Ontario.
On those 4 on somebody else <unk>.
Significantly G T a and I think most of those restrictions came off at the end of June and beginning of July people are not on ramping back up too but.
But they do take a few months to get these sites ramped up just Kevin day then.
Chavez. So that's why I said look I think that looks at earlier, but the bulk of this is from.
We will watch side, we're going to get us for 2022, I look at the amount of contracts you bid from the guys are talking about going.
It is August 2 minutes Ferraro sort of earlier next year I mean.
There are some significant projects and I mean.
Tens of billions of dollars that the provincial government has is canvassing now I'm looking for work to be done. So all of that is kind of calm I just think.
Like like we said that day was the slowest aligned down on its the slowest to sort of pick back up.
We now have visibility on what's going to be there and I think 2022 is going to be very very big year for us.
Okay. That's great. Thank you very much and congratulations on the court.
Thank you. Thank you.
Our next question Tyler Brown from Raymond James. Please go ahead.
Hey, good morning guidance morning, Tyler.
I got a I got a call waiting right whenever I turn it over but he calls been long here, but look on on slide 9 I really appreciate it but I want to make sure that I have it so the incremental 110 to 115 and solid waste only 20 of that is from commodities and the rest is just kind of core.
A core delta.
Yes, that's right. So sorry, if you think about what we said at the beginning of the year year over year. The original guide provided plus 10, a commodity based on what we've seen throughout this year and now the expectation for the balance of the year, saying there'll be another sort of plus 20 on commodity and again, while that's muted compared to what others may be sort of saying you got to remember that.
For every every dollar the commodity goes up I give sort of 40 cents of it back to the guy and so.
I am getting less of an impact is edwin so the $20 million macro commodity the rest is really outperformance on price on volume.
Okay and on the price on volume I'm, assuming that's largely a positive delta in the U S. I mean, it sounds like you have pretty reserve comments on Canada.
I mean, it's.
I continue to have reserve comments on Canada, but the opening guidance was also reserved on Canada. So it is positive in both particularly on this sort of pricing moving both of those up to getting to a higher number than the original guy, but yes, it's the U S business for which we are more have a better line of sight because.
On our Canadian government seems to be a little bit more uncertainty in terms of timing.
Okay, and then so on the free cash and I just wanted to make sure I've got this because I'm a little confused. So you book the 50 million of asset sales in the quarter that is in your guide correct.
The $50 million is really just going to be an offset for incremental capital growth capital will redeploy so I have it in there today because by the time, they get the year and I'm, probably going to have redeployed those dollars and I want to get to that net normalized capex. A 525, so by the end of the year if I've <unk>.
<unk> 585, I have only done spend that extra 60 by virtue of having those proceeds so it kind of creates a walking is for this quarter individually I'd back it out for this quarter, but no by the time I get the year end of deployed it and therefore, its inclusion normalizes capex to that right 525 level. Okay. That's helpful. So it's a normalizing on.
Capex. So then if we just do the simple EBITDA to free cash walk.
I'm assuming it's.
Against something like 1.4 of EBITDA, you've got $300 million or so a cash get your capex of qualify 50 or a little bit more an enclosure post closure and that's pretty much the walk.
Yes, that's right working capital V sort of net neutral you got the cash interest in that 300, and you've got the Capex, a 5 and a quarter public closure post closure and that sort of 55 range and the 8 to 10 for cash taxes and you do that walk and you should get this sort of 510.520 range.
And then asked me on the balance sheet is it safe to assume that about half of the refis have been done and the other tranches will just come as the call premiums he's.
I'd say about.
2 thirds of the 2021 opportunity has been done and we.
True anticipate being able to execute on the full opportunity and then the balance of the balance sheet becomes 2022.2023 opportunities.
Right, Okay, Okay, alright, guys I appreciate it thanks.
Thanks.
Thanks.
Our next question comes from reading.
From National Bank. Please go ahead.
Good morning, Thanks for taking my question.
I'm on a river.
Back to to Jeff L renewables again.
You've been a very well developed organics business I'm wondering are you looking at any opportunities for conversion of organics too Orangey with 80 systems and if you can get some comment on what the economics that might.
Yeah I mean.
I'm not as bullish on the piano Digest Your fund, particularly in North America, just because.
The consistency of the stream I need to go through those digesters female to run them.
First economical congrats on you just sort of chosen the other path for now I mean, you know I don't I mean, we all know or are we sticking all day and extend from time to climb on.
Particularly in Ontario on it only gets worse did you go into parts of the us So we're going to stick with that so no we're not going on.
We're not we don't we're not anticipating going into being a little bit Digest your business on anytime soon.
Alright, great. Thanks, and on the last call you highlighted some royalty agreements on landfill gas.
Gas operations on her up for negotiation. The next 3 to 5 years, how does that play into the strategy do you do you buy those out or do you need to do it.
Fire.
On.
That's part of loans will share all the time on the electrical contracting which is all sort of wonder why you would telegraph and that number and.
We think that'll happen relatively quickly if those aren't really money, making.
Opportunities for the actual utility so a lot of them are happy to get on them because we move through this furniture.
Oh, Great and then just finally can you give us some thoughts on the timing of investment that's going to be needed to convert to to see on G vehicles.
And I'm going to follow the normal cost for sure I mean on what I'm looking at doing it sort of just rebalancing our fleets moving diesel trucks income markets, where from existing area that don't have C. N G and then.
You spent on maintenance Catholic for deploying those.
Areas, where just C. G makes more sense. So I don't think you'll see any outsized capex come from that I'd, just be it'll be a rebalancing and shifting of all those dollars gets bent.
Okay, well I'll leave it there thank you very much.
Okay true.
Again, if you have a question please press stars.
Our next.
Adam.
Adwd capital. Please go ahead.
Hey, Patrick congratulations on a on a great quarter.
I think my question is more qualitative in nature. If you kind of look back you guys went public on early 2020.
At the depths of Covid.
Inc.
You would obviously.
On the challenges taken the asset to market.
And look you guys navigated COVID-19 extremely well.
Excuse me on exactly what you said you would do that the 2 platforms dive.
Divesting assets Leverages coming down the refinance story is happening I mean, I would say that for the last year on a half you basically delivered on everything that you said you would do and exceeded all kind of numerical expectations.
That being said you know the rest of the industry trades at a at a substantially higher multiple and arguably.
Has.
I would argue in your unit economics on an incremental basis and from an Roissy and all the rest and so you as an insider and the largest shareholder. Unlike the rest of your peer group.
Are faced with the kind of a question or or kind of something to ask yourself, which is you know.
The public markets are resisting the way you deploy capital even though it is far superior to your peer group and you traded at a at a S as significant.
Discount to your peer group I mean at what point do you pull on their levers to kind of tease out the value obviously, you're concentrating shareholder vs could make it easy to tap the capital markets again interest rates are obviously very very low.
Could this company get re LBO could you do a sale leaseback on your real estate you know that obviously.
Just real real estate is that very very low multiples I mean the.
The way, we see you are trading at like almost 10 plus percent yield out a year and a half and your real estate training at 3 appears are trading at 3.
How do you think about you know kind of.
From from an owner's perspective from an IRR perspective.
The types of libraries, you can pull in and at what point you say look. This is this is a waste of my time.
This is this is enough we're not creating value fast enough from an equity perspective relative to the business performance.
Oh, no. There's a lot in I guess geraldo statements and the lecturing so I mean, I think I'll take a stab at I mean, I think from our perspective.
I think.
A private company, we never really got to focus on the Mark will be equity right on I'm Gonna Mark on the equity Israeli on the relevant if you need the equity just sort of fell on your plan and I think at this point that plan is largely self funded so we don't.
That being said you know we do think there's a there's a very compelling opportunity.
I'll Miss name at a.
Relatively inexpensive Carlton correlation with some of the other peers, but.
I think we've been at it for 6 quarters publicly obviously, a lot longer time privately and you're all right you know I do and the largest single shareholder.
And at the end of the day I'm Gonna keep being the great store the capital that I've done over the last 14 years. When you started this company with.
$250000 in.
Put up significantly over that period from I think 1 way or another of the value will be unlocked.
At some point.
On whether I should try with 1 another M&A transaction leather that just continue executing on what we do best.
Unlock the value over time, and we're giving everybody the roadmap.
You will receive a valley and like you said you look out a couple of years thinking all day.
Everybody loves to focus on the corner I mean, you can't build great businesses quarter to quarter, you've got to take.
3 to 4 your view alright, you're going to do from a plant perspective at a business perspective, and that's exactly what we're doing and like I said a year ago defending that the business had didn't have any cash flow and the equity was we're here on I think we just put her head down been really small and continue doing there and have grown cash flow and Ah 40% CAGR.
Ever since and we're standing on it I can continue growing free cash flow 15, 20% CAGR here for the next.
Free plus years, so I mean, we've given me on there.
I have no interest in saying that other than saying, okay wait and see I mean watch what's going to happen. If you on on it today on a today. If you don't want on today don't only today, but I mean, all these on this is exactly what we're gonna do and I think we have a history of of beating expectations and that's my focus on like I said, 1 way or another and will depend on what the removal of side here we from.
Potential gash opportunity that could yield on a significant amount of free cash flow and we were on rock the value from on its whether that's keeping the cash flow and trading at 225 to 30 times free casual we tried out today.
You know you on lock the value of someone else that's trading at 40 to 50 types free cash flow. So.
We will do that and we'll just keep doing the things that we think add value to on on equity.
Okay.
That's very helpful.
Last question so so.
Think about the Tfl historical strategy you guys are the approached the waste management consolidation somewhat differently than your peers, albeit better you by a very well run platform.
And local.
You don't buy their trucks you sell their trucks to keep their trucks you do consolidation you know it might be helpful for me and perhaps others on the call to kind of.
Walk folks.
Typical tucking transaction to your hub-and-spoke, so by $5 billion EBITDA and put it in your system, what multiple bidders because at least from our understanding and then like they might be helpful for others is that.
Would you buy a platform you're buying the structure, but when buttons things and plug them into your roots.
There are substantial capex savings and substantial G&A savings. So I mean, it might be helpful for me and others to kind of say okay.
I think the 5 or 6 times EBITDA, it's really should think about them as a multiple of cash flow or EBIT. So it might be helpful. Just to kind of lay out how that works because it feels like that's where this business is goin' gotten those too big.
Platforms and so the vast majority of your time goes on.
On this kind of emblematic transaction.
Yeah cause I would say, it's no different in Canada. The margin profile of what's happening in Canada channel was a low twenties margin business today is high twenties margin business on how that happened as we built out the platform across Canada. When you build up on the platform you get all the SG&A requirements the operating facilities.
Teens I needed to get the markets and that's no different than what we're doing now do you understand and when you look at what we do is you know I'd say, we have a lot of the great pieces of the puzzle already in place.
We have an an amazing fixed facility.
Fixed cost base and now we acquire the smaller collection only business days. So we can talk into our existing geographies and utilize that fixed cost base and utilize those post collection operations like transportation's recycling facilities in landfills, although has become highly accretive.
And when you can put them on those those routes on the back of your existing routes, obviously, you're eliminating a significant amount of capex and you're just increasing revenue on your existing book of business, That's drive higher margin to drive higher free cash flow margin and and that's what we've been doing for 14 years and that's why our margins are gone from high teens to.
Moving <unk> approaching 30 right.
And then for the solid waste business in excess of soda so.
Why that team will continue on deviate from that strategy.
You know we went on Alpha hunters you know the lie on any to Luke said you know the number of opportunities. We've acquired this year 20, plus if you look at the relative <unk> again tiny.
And you know we think over time those will add the most value directly.
Sure and how do you think about Capex as a percentage of sales from where we are now and where do you think it could be in 5 years. I mean, if you continue to execute on this I mean, <unk> I mean, your Catholics insurance sales has come down a lot and where do you think it could be in 5 years.
Yeah, I mean, we were early days or 15% on you know look today, it's free now and the 10 minutes to 11 Zip code.
Where it goes would you keep going from there I think you know cause they could I get the 90% sure I needed just depends where we are on the growth cycling, how we want to think about our business for 5 years.
Yes, you're right in saying that when you look back in time, if you make the perspectives chop actually we haven't had to make those investments has come down as a percentage of the overall revenue.
I mean look I'll leave you with this that that to me is the most exciting part of this story you know that that you know obviously, you're thinking about it as a business owner and you've got to buy these good platforms on that's why you've historically played from multiples for these big platforms, but I mean, what you do is you get this great Foundation and you bring in these little guys and you don't duplicate the trucks to get share procurement I mean, it feels like.
You think about where we are in the cycle with these 2 platforms.
These deals that you're buying a 456 times EBITDA.
Multiple of EBIT is considerably lower so to us that that's the most exciting part of the story. So I look forward to seeing it and thank you again for all the hard work on a great quarter.
Alright, thank you so much.
This concludes the question and answer session I would now like to turn the conference back over to Patrick to V. T T foreclosure remarks.
Thank you everyone and we look forward to speaking to want to report on few favorite adults. Thank you.
This conference has now concluded. Thank you for attending today's presentation you may now disconnect.