Q3 2021 GFL Environmental Inc Earnings Call
Hello, everyone and they will welcome to the G. F L. Environmental third quarter earnings Cool My name is <unk> and I'll be coordinating yokel today, if you would like to register a question. During the presentation you may do site by pressing stuff for like one on your telephone keypad.
With that I have the pleasure of handing over to your highest founder and C. I a G F L environmental Patrick the Beachy. Please go ahead Patrick.
Thank you and good morning, I would like to walk him every once in today's call and thank you for joining US. This morning, we will be reviewing our results for the third quarter and updating our outlook for the remainder of the year.
I am joined this morning by loopholes yours, fearful will take us through our forward looking disclaimer before we get into details. Thank you Patrick good morning, everyone and thank you for joining we have filed their earnings press release, which includes important information. The press releases available on our website. We have prepared a presentation to accompany this call but is also available on our web site.
During this call 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 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.
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 Iowa press measures. A reconciliation of these non Iowa for us measures can be founded our filings with the Canadian and U S Securities regulators I will now turn the call back over to Patrick.
We'll start off on page three of the presentation.
Thank you Luke.
Once again, a tremendous strength of our business and the effectiveness of our growth strategy droll performance in excess of expectations.
The capabilities of the leading asset base, we've assembled coupled with a rigorous discipline around capital deployment continue to drive exceptional high quality growth that we believe will lead to industry, leading free cash flow generation and equity value creation.
The headline numbers for the quarter or revenue was up 43% adjusted EBITDA up 48% solid waste adjusted EBITDA margins up 110 basis points.
Even more impressive than the anti numbers on their own or the underlying driving factors.
Solid waste pricey continued to accelerate and was four 3% for the quarter 20 basis points ahead of plan.
As we seven Q2 are proactive approach to pricing earlier in the year has allowed us to stay ahead of the broad based concentration we're seeing in the business.
I know, there's a lot of possible labor pressures in the market and while that's clearly real and happening our job is to manage through that a couple of things that we think of helps us do our job. The majority of our operations are secondary markets and our experienced is that the labour pressures in those markets have not seen as acute as it is.
Have an urban areas and wage inflation in those markets.
Especially in Canada that is really just one of a what was one large secondary market except for a few pockets.
Which has been lower also our brand we cannot underestimate in today's climate that the employees want to be part of a company like GFS. So we find that we are able to attract a strong pool of talent to our brand.
At the same time operating in the current labor market is more expensive and.
And that's where pricing has come in.
We proactively used pricing to cover the incremental cost pressures and while our results to date have been exceptional we're even more encouraged by the pricing opportunities we see on the horizon, particularly as it relates to the CPI linked revenue reset and the return of pricing unattractive commercial volume and many of our slower to reopen Canadian markets.
Solid waste volume growth was also had a plan of 2.4% U S volumes were high twos with particular strength in our Midwest markets continue.
Canadian volume saw 2% increase despite ongoing restrictions in many markets through most of Q3.
We think there's deleted Canadian dynamics, it set up with a tailwind in 2022.
As the remaining restrictions are lifted we anticipate realizing volume recovery to Canada like we saw in the us throughout 2021.
Commodity values once again provided a tailwind and the overall strength of a recycling business coupled with changing regulatory landscape continues to support our favorable outlook on the opportunity set within this line of business.
Solid waste adjusted EBIT margin was 31.7% a 110 basis points increase over the prior period. Despite the drag from recent M&A.
Local walk through the components of the margin walk, but substantially all the margin expansion as organic.
Realizing pricing and access of our internal cost inflation focus on cost controls productivity and the real operating leverage from our talking M&A program continues to drive margin and we remain optimistic on the speed, which will be able to realize our stated margin targets.
Finally, liquid and infrastructure continue to show recovery during the quarter, despite the slower than anticipated reopening activity in Canada, where the bulk of this revenue is derived.
Both segments have significant sequential margin expansion over the second quarter as we saw operating leverage associated with the volume recovery.
The earlier than anticipated closing of tear up your signature significantly increased liquid lease revenue during the quarter, but as expected. It was realized that a dilutive adjusted EBITDA margin offsetting the substantial organic margin expansion in the base business.
The third quarter also saw continue to pursue others strategic strategies for value creation.
Year to date, we deploy approximately $2.2 billion to 37 acquisitions to acquire approximately $735 million an annualized revenues.
More than two five times the amount that we suggested at the beginning of the year. Our pipelines continues to be robust and incremental transactions will likely be completed prior to year and.
We think our approach to emanate continues to establish ourselves and acquire a choice in certain markets and when coupled with a rigorous focus on returns on invested capital. This will lead to outsize valley accretion opportunities as we move into the future.
We also continued our capital redeployment strategy, realizing incremental $95 million proceeds from the disposal of non-core low contribution solid waste asset in the Midwest.
Bringing total process.
Proceeds realized for the year to approximately $155 million nearly.
Nearly twice are stated targeted at the beginning of the year, we've identified a whole host of high return opportunities to replace this capital and anticipate being able to reinvest more than half of these proceeds before year end.
Our strategy for deployment capital of those investments that support our sustainability strategy.
Like advanced sorting technologies that we're installing at our mercy that drive operating efficiencies and improve material recovery rates.
Our continuing investments an automated side motors and on board safe driving technologies support our strategy to attract and retain drivers.
These are early days or many of these investments and we expect to see them paying off longer term in achieving our targeted margin expansion.
And finally, we continue to work on a balance sheet are highly successful boats offering and 50 basis point Lane improvement on our credit facility during the quarter demonstrates the continued support we have from our institutional that investors a group was trust rebuilt over many years of successful execution.
We will continue to leverage our ever improving credit quality to reduce our cost of capital drive incremental free cash flow and create equity value.
When you put it all together the quality of the results of the quarter combined with our favorable outlook support us raising our guidance for the second time this year.
I will pass it to Luke will walk through the details, but our guidance our revenue adjusted EBITDA and adjusted free cash flow are all being raised.
And although we are like a waynesville February before providing 2022 guidance effectively the launch off point for 2022 also increases et cetera suffer revenue growth of better than 15% and adjusted free cash flow growth well in excess of 20%.
I will now have to call over to Luke who will walk you through the details of the financial results and then I'll share some closing perspectives before we wrap up and turn it over back to the operator for questions.
Thanks, Patrick I will pick up on page four of the presentation revenue increased over 43% compared to the prior year period. This was ahead of our July guidance and driven by outperformance across solid waste pricing volume commodity prices and contribution from emanate infrastructure organic growth turn positive for the first time since the second quarter.
<unk> 2020, and liquid ways benefited from the territory of acquisition effectively closing two months earlier than anticipated similar.
Similar to our comments on the recovery of solid waste volumes in Canada, we expect improving strength in the recovery of both of these segments as restrictions in Canada continued to ease.
On page five you'll see adjusted EBITDA for Q3 of $415 8 million at the margin of 28% an increase of 90 basis points over the prior period and up 110 basis points sequentially over Q2, where.
We're particularly pleased with this result, when considering the backdrop of rising labor and input cost inflation as well as the reintroduction of certain discretionary costs, such as travel entertainment incentive compensation and certain professional fees that were all the headwind to a margin.
Solid waste margins of 31.7% or 110 basis points ahead of the prior comparable period, and 80 basis points up sequentially over Q2.
100 basis points of the margin expansion was organic and driven by our pricing programs and operating leverage on volume recovery commodity pricing was a 90 basis points tailwind, but this will substantially offset by 70 basis point drive from fuel prices and a 10 basis points headwind from emanate.
Liquid waste margins increased 50 basis points sequentially over Q2, and nearly 300 basis points of organic over the prior year period before considering the margin dilutive impact the contribution from tariff during the quarter.
Over 85% of tear pure revenue is currently reported or liquid waste segment with allocations between the segments to be revised in 2022.
Characters liquid waste revenue, keeping just below mid twenties margin, but we continue to see a path to bring that up to the segment average.
Infrastructure and soil margins improved 190 basis points sequentially from Q2, and 90 basis points period over a period as volumes turn positive and we were able to leverage the relatively fixed cost structure of the segment.
On page six you can see adjusted cash flow from operating activities of $250 million inclusive of $95 million of proceeds from our asset sale. Once again, we're including these excess proceeds adjusted free cash flow wreck as we intend to redeploy most of these dogs before the end of the year and therefore, these proceeds or portion thereof will be used.
To offset the over and above growth capital, we expect to deploy before here.
While there'll be some lumpiness from quarter to quarter that annual free cash flow reconciliation will include a normalised level of capital expenditures for the business.
During the quarter, we've normalized for $35 million of working capital related to recent emanate, which we believe is better characterize as part of the purchase price.
Nope that an inaugural holiday in Canada on September 30th impacted working capital by approximately $15 million as compared to the prior year.
Turning to page seven as previously announced where once it gets successful in accessing the debt capital markets to raise capital at attracted coupons and amended our credit facility to among other things taken the borrowing right by 50 basis points.
Consistent with our strategy of levering, leveraging our ever improving credit quality to drive the lower cost of the debt during.
During the quarter, we deployed approximately $1.1 billion to 14 acquisitions and post quarter, and we deployed and incremental $900 million for another eight acquisitions net of the contribution of one business sold as part of a divesture, we expect to generate annualized revenues approximately $735 million from these acquisitions.
Anticipate approximately $450 million of his ruling over into 2022 and this amount with further increase to the extent there is any incremental M&A completed before the end of the year.
As anticipated net leverage a quarter and modestly stepped up with the acquisition of tariff here the cash on hand, a quarter and was largely used to fund M&A off in October and we continue to have ample liquidity to support our growth goals. Additionally, during the quarter. We entered the definitive agreement, which gives us the right to issue up to an aggregate amount of 300 million.
U S of preferred shares before the end of the year, we will draw in this act would we commit an as needed to allow us to continue executing our growth strategy, while maintaining our previously stated leverage targets.
On page eight we're showing the drivers of our updated guidance for the year, where now expecting revenue of five $4 billion $150 million increase over the guidance to be provided in July when measuring midpoints midpoint the.
The components are laid out on the page, but the growth comes from price volume and M&A contribution all exceeding our previously communicated expectations.
For the year, where now expecting pricing at four and a quarter and volume in the mid choose both of about 25 basis points higher than our July guidance, and and encouraging launch off point for 2022.
From this revenue we expect adjusted EBITDA of 14, $40 to 14, 15 or $37.5 million increase over july's guidance again measured midpoint the midpoint.
In terms of Capex.
Recall the guide at the beginning of the year with the base Capex, a $510 million with the first half growth of the business. We increase the 525 million in July and they are now increasing to 540 in mind that you upsized growth of the business on top of this number we guided on the opportunity to redeploy proceeds from asset disposals into a track.
Of growth opportunities are original guidance for this opportunity was $50 million to $100 million of incremental spend.
As of today, we think will be at the high end or more of this range of terrific outcome of this investment will drive high quality incremental growth in 2022 now.
Now all of this incremental spend it was being covered by the proceeds from asset disposals. So although there would be a gross capex number of $645 40, plus 100, the net capex would remain at 540.
We have been extremely successful in our portfolio rationalization program, realizing $170 million in proceeds to date from asset disposals, NASA divestures with the possibility to realize more before the year is done including 100% of these proceeds in our year and adjusted free cash flow reconciliation with yields a net capex number of 470.
And effectively overstate, our free cash flow for the year. So a year and will include an adjustment to exclude access proceeds from disposable and normalize the net capex number to somewhere around 540.
While working capital the New guide is this going to a use of approximately 35 to 40 million as compared to nil in the original July guide this is over and above the M&A related working capital investment and all of that yields and adjusted free cash flow of $525 million to $530 million or 10% to $15 million increase over July.
Guide, despite the incremental $50 million investment in Capex and working capital.
We're not going to specifically walk through Q4, but you can do the math and see the implied results at the midpoint is approximately 141 $5 billion of revenue at $26, 1% adjusted EBITDA margin of 90 basis point increase over the prior year.
This is based on pricing of low fours and volume of half a point 12 point both above.
July guidance from a modeling perspective, I think many continue to underestimate the extent of seasonality in the business and therefore, there is a recalibration of dollars between Q3 and Q4.
For Q4 implied free cash flow the normalized Capex dynamic I just spoke to complicate the simple full year last year to date map. The Q3 year to date adjusted free cash flow member of 512 inclusive of excess proceeds from disposal, excluding $70 million of these proceeds from the 512 and enbridge into the full year number.
Give a better picture of Q4 on a standalone basis.
And lastly, while not going well, we're not going to provide our guidance for 2022 until we meet again in February where were already sitting with nearly 85% top line growth in rollover and we anticipate the instructive macro backdrop to support organic price and volume of better than six so as Patrick mentioned, there's a clear path to 15% plus.
Offline growth before considering anything incremental to what we have today.
With that I will turn the call back over to Patrick.
Thanks, Luke as we continue to deliver on the roadmap we've laid out for the business since the IPO. We're also focused on advancing our sustainability initiatives.
Consistent with the commitment that we made in Q1 last year to improve the diverse did our board we announced today that our second female director director, Jessica Mcdonald will be joining the board as our 17 independent director of February of next year, Jessica his appointment to our board as part of a broader commitment to promote greater participation of women across our organization through our women in way.
Program.
With the crop 26 summit this week, focusing the world attention on the need to move to a lower carbon future. We have never been a better position to provide the services that will help us achieve that goal, including through our recycling initiatives and the development of renewable natural gas projects that are landfill.
On our last call. We told you that we had setup GFR removable does our vehicle to unlock significant value in landfill gas to energy projects and to accelerate the conversion of our fleet CMG.
We continue to make significant process progress on this initiative and in the quarter expect to announce projects at a number of our landfills prior to year and.
Demonstrating are growing resignation as a leader in sustainability next week GFS will be participating envision 2045 to share our vision for greener future with 50 other business leaders from around the world.
All of <unk> achievements, I look and I have talked about today are a reflection of the incredible hard work and dedication of all of our employees.
It is our employee dedication and passion to achieve our vision to be green for life that allows us to continue to deliver a quarter over quarter on our commitment to build long term value for all of our stakeholders.
I will now turn the call over to the operator to open up the line for questions.
Thank you.
I'd like to ask a question. Please press stop followed by bundling. That's all thank you pop now if you change your mind you can print stuff on it.
Yeah.
When preparing to ask you a question can you can show up.
Unneeded lately.
Our first question comes from the Taliban and finding games.
Hello, Thank you for that.
Yeah, Hey, good morning, guys.
Alright.
Can you guys hear me.
Hey, just real quick can you guys just reset us on how much of your new five 4 billion revenue basis tied to CPI and just any color on how that breaks down between the us and Canada.
Yes, so round numbers.
Think today.
About $1 billion now that all of the recent M&A sort of rolling debates that sort of CPI linked and that's roughly 90 90 80, 590% is in your residential line and the rest is on post collection.
Roughly $1 billion.
That about 40% of which will reset in Q1 then.
Then Q2 is pretty low you got sort of 10% and then Q3 is another big.
Reset so from a cadence through the year. So you think about the timing in which that hits and then when you look that's about roughly.
I'd say, 75% in the U S and balance again, maybe 70 30.
Okay. Okay, Yeah very helpful. And then I know, it's a little early pricing has been strong I think it accelerated sequentially.
But when you think about that 22, 6% price plus volume organic revenue expectation, how do you kind of envision that being composed does it just 4% price, 2% volume or does it feel that the price could be a bigger part of that mix.
I mean pre pre Covid as you know, we were saying where this with a 3.5% to 4% price and we're going to migrate to the top of the range I think when you look at the backed up today with CPI I.
I mean, if you're moving that billion dollars from the typical with a 2% and you're moving that up to three four somewhere higher.
With a little bit of incremental support on the commercial and post collection lines. I think you can add 100 basis points to that pricing number pretty easy. So maybe now and that's what the 0.5 to five range going into next year. So I think as the quarter and year plays out and we see those resets and the overall continued acceleration of pricing will have a.
Better than you would in February, but I think it's something better than four.
And just how much better.
They will have to give us a couple of months before it that back to you.
Okay I can do that and then just my last one here. So Patrick I mean, obviously acquiring revenues has been a big part of the story, but it is interesting to see all the divestitures. Obviously it happens time to time for everybody, but how should we think about your divestiture program is this something.
It's a bit more one off or do you have a process, where we're going to see this kind of year in and year out and just kind of turning the assets I'm just kind of curious.
Big picture there.
No I think we identified only required some of these businesses.
Market that I think or model release strategic to us of these assets were of a higher a better use.
For some local players that could do something better with the asset and I think effectively we could I mean from our perspective.
If it doesn't work strategically and we're not going to go into specific market to sort of build it.
And I'm more focused on if you look at where we've divested assets is largely sort of around urban market.
Whether it a lot of competition.
And some of these market that I will take the market needs. Another it needs a fifth player. If you got three at a large strategic plus a big regional player I mean, what's GFS will get add to that so I think it just makes sense for us.
Focus those dollars and redeploy them into a certain mark I think by and large I think over the course of the next 12 months and you should have the entire book rationalized to a point, where we feel comfortable with the base that we have.
Okay. Okay. That's very helpful. Okay. Thank you so much thanks guys.
I think that's going to Taiwan.
Our next question comes from work is Bracken poppy seed to market. Please God help Roxanne.
Okay. Thank you very much operator, good morning, everyone.
Perhaps we could start.
I think it was it was Luke maybe with you Patrick mentioned Terry pure.
On the margins of 20%.
Certainly lower than what you've done before but you indicated that you hope to get it up to the average.
Can you give us some indication of those too.
What type of what type of initiatives are you going to do to get.
To get that up to the average and how quickly that would occur do you think it will it will be front end loaded or whether it's a little longer duration.
Yeah, So Walter it's Blue speaking, let the comment I made with specifically talking with the liquid waste walk. So recall Tara pure is parked liquid waste part solid solid components are extremely high margin and so the underwritten pro forma for therapy, I think with with a 28% margin. When you break that out you had a liquid.
Large landfill that was with a high thirties, pushing 40, and then the liquid waste component was sort of lower twenties. So the comment in the prepared remarks was that the liquid waste revenue came in at the sort of low just below mid twenties, which is right in line with the expectation and the solid waste, which is in the other 15% of red.
News and a solid segment that came in at the sort of high thirties, and those actually accretive too.
Canadian solid waste margins. So character is right in line with where we anticipated big.
I think the.
Likley to waste component of the business as we rationalize those facilities and.
Harvest the synergies and opportunities we expect it you will see the Turkey or liquid component become.
Neutral to accretive to our existing Lipoate segment, and the solid component is already in creative.
Okay, that's great and.
In terms of your capital plan, obviously, you've done a lot of acquisition so far and.
And you're getting a better sense of of the condition of some of the assets you're buying.
Can you give us a bit of a peek into next year's capital program is there any reason based on nowadays.
Had.
Had a chance to review.
That we would see any major change in cadence four capex in 2022 or would you considered kind of consistent with the growth in your business and the growth in the acquisitions that you've seen historically.
Hi, Thank you I'll be attending Walter there'll be consistent with when you see this year I mean, a little look opportunistically as we talked about the question with Tyler if there's some proceeds from continued to rationalization take those dollars and redeploy them into markets, where we see opportunities.
The development post collection operations or original conversion to CG redeployments capitals into.
New municipal contracts throughout the Midwest.
And some of these business units is where we only acquired sort of.
Commercial front-load businesses and.
In landfill so.
Nothing out of the normal ordinary and I think very consistent with what he saw this year.
Okay, perfect and just last question here, when we looked at free cash flow and the cadence there we kind of looked at high six hundreds into next year.
Anything that would would would change that now that we're a little closer to 2022 or is that the kind of ballpark that you'd indicated before is that the kind of Paul a ballpark that we should be considering for next year.
Yeah, I think that's the right ZIP code I mean, I think from our expectation that's today.
Most likely I think from our perspective will be working on making that number better, but I think from where we sit today that that's the right difficult to breathe.
Okay. Congrats on a great quarter guys. Thank you very much.
Thanks Walter.
Our next question today comes from Hanson.
Jeffrey something your line.
Perhaps.
Good morning My.
My first question is just on their renewables and length of the gas strategy.
Just remind us how big that could be again, I think you want to fly Jake.
Previous ski, but maybe some more detail.
Is the equity stakes, you're going to take care of you.
On the whole thing.
The projects ramp.
We would all women exposure or a fixed price offtake, maybe it's too early there to talk about.
Talk about just a little more detail around that strategy.
Yeah. So I think we've mentioned previously hanzo, we have about 18 landfills that will form part of this program. Our initial focus is on the first five to six.
Our expectation is that we will.
Definitive agreements on five of the prior year and and then on the sixth one sometime in in.
Q1.
I think when you look at the number of people.
Initially was sort of Emma $75 billion to $100 billion of free cash flow that I'll get generated from the 18 project I think that number is is <unk>.
Conservative from what we're seeing today.
I'll stick by that but I think from our perspective.
It is I think.
We expected admirals, probably side right around this time that you have taken a little bit longer I mean, these are 20 year agreement that we're committing too.
We're just taking the time to make sure we effectively get them right.
I think to your question.
On what happened with the fuel.
As everyone knows this is an evolving market and I think all of us as landfill operators.
Both at the moment this is Ah.
A fuel that everybody wants.
Historically, a big focus on the transportation market to sell the gas can do which is where the women's played.
A big part of it but I also think there's another large part of the market, that's growing which is supplying permanent sort of industrial commercial manufacturing facilities right and a lot of.
These factories et cetera that are looking for their own ESG type initiatives are looking for long term supply Richardson.
The delay and also just finding the happy medium of the supply agreement to making sure that would be locked him in and lock them in at the right price.
Because we're going to be respectful was stuck with them for 20 plus years, but I think I think there is upside to the number we've given you in the past.
I think we've structured them very simply we're going to get a normal royalty off the top like any other gas provider, but we also are sharing.
We're doing 50 50 joint venture projects and we're going to share in the off coffees entity. So.
And a royalty off the top of its sharing in the profitability of the entities below.
Great.
Follow up question.
Is really around.
Operating leverage.
Talked about Labour inflation.
Managed to that pretty well with price adjustments, but maybe if you could talk about labour availability, there's been a lot of service businesses, where.
<unk> availability has been an issue to capture married or it's hurt operating leverage so as you look forward.
How are you going to manage crew labor availability issues and some of your market maybe.
Maybe some of these secondary markets, it's less of a concern.
Stock through that and then.
Can you continue to adjust pricing as inflation ramps.
Yes, there are a lot of questions about I think where we sit today.
I think.
Yes, labor issues and challenges are definitely real.
I think when you're talking about pricing and labor I think it's all sort of part of the same conversation because at the end of the day. Our business is very simple we're paid to pick up late if we don't pick it up.
We can hook up you cancelled the price increases are going to get a lot of church and that book of business. Rachel I think are all sort of tied together.
But if you pick up the latest you can generally charged for every wall and I'll have to think about prescription residential or commercial customer doesn't really care, whether the cake 17 or $18 a month of the paying $25 a month at the end of the <unk> wanted to pick it up when you said you were going to pick it up and then I will forward you the ability to charge. What you want yes Labour has tightened put at the end of the day. This is what we're paid.
To do and I tell our guys that all the time I generally say people go leave the company. They worked for the actual leave the box that they work for right. So it's on our guys in the regional management to be accountable and keep our guys engaged in retained and retained.
Who we have working for us today so.
Right and you gotta be selective about new business.
Because it's not a.
Robust labor market today, where you can graph of different pools, and so when you're winning new business and you're winning new municipal contract you better make sure you're getting the right price because there's going to be some some wage inflation that goes into it and we don't need to practice so.
As a for profit organization and that's what we're sort of focused on now.
Last question I'll turn it over Patrick where do you see the business much longer term.
I know you've given free cash flow numbers out there I don't expect you to update those here but.
But just you know where do you see the business longer term, there's been a ton of emanate Europe growing organically mid single digits.
Plus delevering the balance you you're integrating those assets.
Are you going to grow at the same pace.
How should we think about this business longer term.
Just.
Answer that however, you want thank you.
Yeah, I mean, I think what are you going to see as much of the same going in the future I don't think anything is going to change I mean, you think when you walk when we did the IPO March of 2020, our plan was very simple that we believe we could.
EBITDA from roughly 1 billion to $2 billion over a five year period, I think we thought we could take free cash flow from 300 to sort of $700 million to $800 million over that period.
And continue to drive margin expansion in the tuna sort of 200 to 250 basis points from where we were in 2020 I think from our perspective, we've exceed we will exceed all of those targets and I think our new goal is getting free cash flow to closer to $1 billion and I think when you lay around this RMG opportunity that starts rolling in in 2000.
Three plus all of the recent move that we've made over the last 18 months I think you get we've reset or both of these internally and the new bogey, if we get to that building a free cash flow and I think we can do that over the next two and a half to three years.
Fairly conservatively.
And I think every day.
Look at the organic opportunities the industry has never been healthier from a price and a volume perspective M&A opportunities continue to be very exciting and I think when you look at our footprint now in the U S and Canada.
We used to do sort of 15 20, they will be there within 2025 year over year. This year, we are on pace to probably do 40, plus a few of the year. So I think you can sort of couple that all together and then later on all of the.
Yeah.
The refinancing of the balance sheet to just draw.
Drives incremental free cash flow out of the business I think we're very well positioned so I think we're just going to keep doing a lot of what we've done.
That's great. Thank you.
Thanks, Thank you have one.
Our next question comes from Mark Nothing Scotiabank. Please proceed mark.
Hey, good morning, guys.
Okay, Great coordinator.
Maybe just as the wrap up the conversation on free cash flow.
You've got 525 30, but if we were to fully sort of.
Count for the divestitures.
I'll be going to the printing something.
Close closer to 600 is.
My math correct.
Yes, that's exactly right Mark as I said in the prepared remarks.
Rationalization program has been extremely successful in those excess proceeds. So if you think where we ended the year.
The net capex number could be as lowest or 50 or 460 with all the proceeds.
So I am normalizing by excluding portion of those are the sort of 540. If you were to include all of the proceeds to your point EBITDA number 606.
Okay.
Okay.
Another GFR renewable opportunity here.
Curious and I'm thinking about Capex for next year's or a big capital required extra for these first slice exposure.
No I think the way I mean, it sort of goes back into the structure that we're finding that shouldn't be a large capex Ben.
I think.
We do some of these all fake agreement that we're thinking that will require very little equity to fund the Billboard on the project.
Okay. Okay, and then maybe just on price for next year.
Canada foreign restarted reopened.
There's some good opportunities to go after some pricing commercial just give them a recess what may happen next year.
The idea should it should pricing sort of accelerate through the year versus where you're entering the ear.
Yeah, I think that's what we've seen the road <unk> 21, which I think is a typical normal industry would be Q1 being the eqs and stepped fail, but if mark I think that's right with the dynamic of these CPI resets coupled with recovery of attractive.
Price Sentra commercial volumes, I think that up and the typical cadence and so certainly I think the first couple of quarters, and then again with our sort of roughly 30% of the book resetting in Q3 that will provide support to Q3 pricing as well. So I do think similar to 2021 2022.
Has the opportunity for continued acceleration of pricing as opposed to the Q1 peak that you may not let me see.
Yeah.
Right.
Sorry, just in terms of the queue for guide.
While we're talking with Canada against the does that assume.
Better and the volume acceleration in Canada.
So just given.
Certain reopen again Marshall.
Like.
It was really based on the exiting.
Q3, so I mean, if we'd go further but I mean, we're there, but I like to travel I mean, I went to Oxford game like they got things are coming back with some other than the offices, but.
As you know it's resembling normality again, so it's reflective of today and if all of a sudden everyone went back to the offices tomorrow that would be upsized.
The chances of that happening before 2022 seem pretty remote to me.
Yeah.
Alright, Thanks, a lot I appreciate the time okay.
Thanks Mark.
We have the question said, Michael Hofmann at Stifel, Michael I think.
Perhaps.
Yeah.
Thank you very much morning, Luke patch.
Patrick.
Five nine is the run rate at year end based on what you have in hand, sure that you're going to be 6% or better organic.
Even that we're in the business of modeling and we can't wait till February.
Several as us without any M&A 6251.
$1 billion 70 needed.
Which would be flat margins year over year. So that's not seeing any margin expansion in about 700 million and three cats.
Those rates places to start.
And we will see what you can do.
Yes, Michael I'd say you have five four.
The 6% on that plus add the eight and a half hour of nine a rollover. So that gets you directions sort of $6. Two number and then everything else. He said look that math is is.
Is a bit in the masses accurate so yes, I think reality.
Pushed margin expansion beyond where we are.
The free cash flow conversion story that I know.
Keep saying, it's real maybe look last year free cash flow conversion is EBIT, though is low thirties. This year, we're guiding to either of these next few of them that you just described and the gift review your 40 and then later on the continued M&A another sort of self-help Patrick was saying you are going to work with that so.
That's where the math is going to shake out I think they are actually you are sort of the top lines and the rights with the ZIP code, but again you can do you a temporary model now and I'll refine it for you in February.
Great and then given all the changes in the next can you walk us through how to think about seasonality now and what we should be doing.
And our models.
What's the what's the way to think about a step down seasonality and <unk> and then in the one cute.
Yeah. That's a good question like on again, we're doing all of our finalizing all of our budget for next year because of all the recent M&A recalibrating that because obviously as we could do that revenues and the sort of more southern regions that tempers the previously existing seasonality occur, but the growth in the Midwest.
Certainly, adding to it as well and Tara pure.
Has it.
Significant seasonality curve, just because of the nature of that business is such so historically I'd say at the top line yet.
Flea, 20% in Q1, you jump up this would of mid twenties and Q2 Q3 by far the peak at 26 27 eight.
28, if you look at this this year's path and then queue for US then down that's what a low 20.
Historical curve I think modeling that is probably in the right ZIP code and again I commend give you the refinement in February.
Okay.
Let's turn off and then in liquids were you a net beneficiary of what's going on in these oil market help from that but we're performing all 4% or again.
No I mean I think.
Okay.
All we always seem to pick the wrong on that I think historically, where we were title of fever, and then when it was always.
There was all the ammo 2020 stop and then there was all the volatility of motive.
The street, not really understanding Motiva, we switched to WT High index, probably two years ago. So when you look at our Spradley, we haven't we haven't got any material spread.
Spread expansion on over the course of the last couple of years.
Been relatively flat on a year over year basis.
Okay. So the important that is this you did it the old fashioned way lots of little customers increase little bits of business.
Yes.
Yes.
So it's not currently partnering with Cuba.
<unk> I mean, you know I mean Mojo.
Eight a dollar to $2 in the lows.
Today's more kilos $4 to $4.25. So the street.
The rebates of street really haven't changed all that much and I think refiners are capturing all of that March which is great for them, but we've never been in that game. We've been this has been a service offering that augments the rest of our environmental services. So.
Inc.
We're just happy maintaining that existing spread that we had previously.
Right right and that and my point was the 4% reflects that.
Lots of small non a loyal customers showed some incremental improvement that's that's the part that since you didn't get carrying in the background.
Alright.
Okay. Okay.
Alright cool thank you.
Thanks, Michael Thank you Michael.
Our next question comes from Germany, and I think you'd call. Please.
Hi, Gary.
Hi, good morning.
I'm wondering if you folks might just talking about the opportunity that you see in <unk>.
Recycling either from a greenfield or M&A standpoint can you.
Talk about what your pipeline looks like there. Thanks.
Yeah.
Our perspective worldly. So we're not we're looking to build new facilities around markets, where we have a significant amount of all right. So.
Let me think about a bunch of ours.
Much of our operations in the in the Southeast and then you look to the Midwest It up into Michigan.
A real opportunity has struck the greenfield some sites I think obviously, we've extended producing responsibility trickling into Canada.
That over the next 16 months 18 months is going to play out in terms of capital investments will need to make in new recycling facilities outside of the ones, we already own in specific markets in Ontario. So.
I think it's a model continues to be attractive.
Revenue sharing agreements continue to work with producers administer valued customers and all and there'll be a continued focus of ours to deploy dollars into those type of opportunities, but when I look at greenfield opportunities probably the.
4% to five facilities that we want to build over the next 18 months and then Jerry I would just add retrofitting existing facilities is another area and by retrofitting, adding latest technology, whether it's robots or more and more optical eyes.
The ability to improve recovery and what that does the rates, particularly today's levels, coupled with the labour efficiencies.
There's very attractive returns from those type of investments in so that's also another area that we're actively pursuing across our existing facility.
Facility base in addition to refill opportunities and Patrick reference.
Terrific and then separately I'm wondering can you just fly.
Flesh out for us here may pipeline.
It a little bit more detail, what's the pipeline looked like today, which makes it a assets.
Looking at within that pipeline and your level of optimism about getting enough activity in the fourth quarter to essentially issue the preferred shares, but you gave yourself a option to be thanks.
Yeah, So pipeline continues to be robust.
Between Canada, and the US I mean, I think from our perspective than the base case, we probably acquire another sort of 50 ish million dollars revenue could be upwards of up to $100 million of revenue.
It's sort of all over the U T rolling into sort of next year on an annualized basis.
So a lot of conviction around still continued emanate through the back half of the year.
Okay.
And lastly, Patrick you mentioned, the various mechanisms to monetize landfill gas.
It looks at least optically that the comics are most attractive.
Pipeline that gas somewhere I'm wondering if you could just comment on what the returns looked like for the other.
Monetization options that you folks.
Laid out in the.
Option too.
Not connected to the pipeline I guess suggest.
Look at a pipeline infrastructure in those areas I would guess, but maybe you could flesh that out for us.
Yeah, So I mean.
Different ways the pipeline, obviously, whether we put it in the transportation market in what we put into the industrial manufacturing facility vendor sort of looking to buy this or in the pipeline that are looking to put a portion of gas and in a fight.
Green gas.
I think what you will see it will be a hybrid.
Of all of those different.
Agreements I think when you look at it very simply.
Obviously extremely attractive returns on invested capital profile I mean, I think when you look at US today of today's pricing you're probably in the two the two and a half year payback.
Most facilities on 20 year agreement.
So.
They will be very accretive to the sort of overall structure that we currently happening.
I appreciate the discussion thanks.
Thanks.
Our next question comes from Kevin Chang CIBC, Hey, Kevin.
Good morning.
My question.
What about this one from the 2022.
Percent organic number you provided.
Do highlight some of the market will have the lines in the recovery.
We're sitting in one of them.
<unk>.
Organic numbers too.
Global volume spread between market will have recovered more fully well that's close.
Are you assuming that this full carnival logged into 2022 on it and if we were to Nevada will contain the wounded soon.
Any sensible upcycle volume could be if all your market is kind of going back to normal next year.
Yeah, So cabinet flu.
I want to reiterate that we're not giving the sort of guidance.
Today.
Being is I think the backdrop the board something better than six so I'm trying to say that we are very optimistic of over 22 is going to look like we don't know.
What it's going to be as of yet every sort of lumped that passes lawsuit a better perspective. So when we come in February will give you a number it's going to be better than sex and just how much better. So it remains to be seen.
So.
Edwards to say Hey is looking positive and we're very optimistic I think it was more even if you only use six with what we've got going on a we're already at 15% number of next year. So.
That was more the intent as opposed to trying to anchor us disorder.
To be a number of better themselves, let's go to leave a little bit on the phone under promise and over.
Will be obligated.
Yeah can I think it was a simple math is the pricing of where prices almost three NAFTA for for us with a backup cannot go to four and a half to five and then it's volume with all that volume comes back you could have a couple of points of volume on top and you put that together you can get to a number of seven or seven or better, but we're going to we're going to.
Get back to you with exactly what we the way we think that's going to be sticking out at that time.
That's fair enough.
Very helpful color.
Hoping question.
You will follow.
Margins, so up sequentially up yoga and sequentially install and elevate the level and they may in.
I think these culminant a lower margin. So I'm just wondering what's your legacy devoted.
If I were to take all the acquisition forbidden in the fourth quarter.
To get a sense of what your lemonade.
Solid wince margins would be there seems to be a lot higher.
A lot of all thought a wardrobe and maybe if I.
Extend that further does that kind of change how you think such a multi a consolidated Morgan expectation Google in your account for mix.
Yeah. So a lot a lot in the cabin look if you think about R. U S margin business or use business.
<unk> was a drag to the base.
You think about update I mean, they're all pretty close if you think about a base in the low thirties.
32% thing you got to remember Q3 is the peak.
Alright, so as not reflective of the year as a whole, but I think we have rerated and you have that business in north of 30% Mark.
I think as we go forward and leverage the asset base that we have just organically there's going to be real operating leverage next got a memory of underutilized post collection assets that is very high flow through as we go into to build up a collection networks and densify that so you put it all together, we came out and Patrick Moore.
Mentioned it in his prior response, but we came out of the Gator ideal at 24% margin business, maybe add 200, 250 basis points, bringing that up to a blended margin business sort of $2727.
I think now that bulky has gotten higher and we can take this business disorder.
<unk> and I think the solid waste leverage operating leverage is going to be a point of it bring that blended solid waste segment into that low thirties, and then liquid and infra are going to get to those data targets as well. So it's not just I think solid waste U S. I think it's always started as a higher relative margin business. It's also bringing.
The Canadian segment as well as.
The liquid and it is all going to contribute to getting to that new level high quality, which is where we think we're going to take.
Yeah.
That's very helpful. Thank you that's helpful near congrats on good quarter.
Hey, Kevin.
Our next question comes from 10, Jane STD Securities teeth being eaten.
Thanks, very much good morning.
Just wondering if you could comment or update us a little bit on plans and the opportunity around the.
The tier appeared the Stoney Creek landfill facility in particular.
Kind of an exciting opportunity to get your hands on that just just talk about.
Where that stands and what the opportunity is there as you look at it today.
Yeah, I think from our perspective, the moment with the <unk>.
Being sort of slower recovery I think there's real opportunities.
A bunch of industrial.
Manufacturers generators of his weight come back on line not to mention a pretty large internalization opportunity for us to be able to internalize.
Certain ways from soils that historically have been going to landfills other than that we've been using other third parties.
So that process is started but I think.
As we roll into 2022, we think there's material upside coming from from that site for us.
Okay. That's helpful. My second question.
I mean, just your execution it seems like it's going so well here overall, you're securing and many opportunities.
You've now got this RMG initiative underway I mean things.
Things.
Very promising obviously as you've identified I mean, if you were forced to see where degrees challenges are in the business today would you or could you point too.
We've been doing this for 15 years right angle.
May seem like a lot for people sitting on the outside.
Now is on the company as as a public company.
This is sort of in the DNA I mean, I think we're all aware that the bottleneck is always around integration trade in sort of pacey metal Bowl from.
From a regional perspective that just a function perspective, so that's always.
That's always where you're sort of bottleneck is in terms of <unk>.
Continuing to rap on the M&A front, the beauty of where we are as we have.
Nine provinces in Canada, 27 states in the US today, and we have regional management teams there that no GSL systems et cetera, which is far different than what we had 10 years ago. As we were building all of those out so now that bills are built.
Mmk program really is pretty seamless because we're talking these businesses into existing markets, where we already owned businesses.
So I continue to tell people the biggest threat and all of our businesses the cyber security.
We were cyber attacks of 2016 cyber tacked on on a daily basis, all of US and I think just continuing to stay on top of those risks around that part of the business will will be prevalent for us, but as far as I'm concerned I feel very good about where we are obviously on wing.
The inflation front, keeping an eye on the labor.
In the supply chain stuff, just ensuring that we get the parts we need.
To run our business and get the equipment that we need to run a business. So far we're going on a very good spot and I will say our procurement department has done an excellent job of of staying on top of that ensuring we get what we need and ensuring that we have the parts to maintain our trucks.
But.
By and large I think.
Ourselves of the company and the industry as a whole.
As in a very good position today.
Okay, great. Thanks for the insights Patrick Thank you.
Thanks.
Our next question comes from Michael Funny kind of Thanks America, Michael piece that helps.
Thanks, guys for.
Taking my question just on that.
Last comment Patrick I'm, just curious on the labor side and supply constraints clearly you guys managed it well.
I'm just curious as you've moved into Q4 have you seen any signs of that easing or is it just not getting incrementally worse at least when you think about some of those labor supply constraints.
Yes Labour is definitely <unk> on the peak was spring summer and I think just a natural came in for the businesses right like people just need less people over to.
Winter and coming into the spring. So I think that's definitely needs, but a lot of the government program I am just starting to come off we've definitely seen it we definitely seen it.
Our focus now is to make sure that we can all come.
Come back in spring of two.
<unk> 2022 that were staffed appropriately can you have the right bodies in the right people will direct Keith.
Supply constraints listening, it's lead time Dragon I think again, our guys Don.
Kudos to them, they're a lot smarter than me off a lot of pockets and you know I think with our relationships with a lot of the Oems suppliers. They were very forthcoming just given the size of customer water them and letting us know the appropriate lead time, whether it's brake pads, whether it's homegoods et cetera, like all of them all of the things we need to run our business on a daily day to day basis.
Hello.
Compromising behavior.
You need because you know we're experiencing six to 10 week delays on this sort of stuff. So.
And you could get that stuff in 24 hours. So I think our guys will proactive went out.
Both purchased what we need to purchase for the existing business had been able to manage through it so far.
Terms of warehouse pointless.
First of all I can tell I have no idea I don't know how the world's gone.
Guidance, such a mess over the last.
12 months, but hopefully.
Hopefully, we're coming out the other end of it that she.
Shifting start the only thing start when we get back on this order right.
White program here in the next six months.
Makes sense it makes sense, Patrick and then on just the pricing you laid out the CPI research.
I'm just curious in terms of Big picture for you guys as we enter 2022 on the price Brian.
If you put a price increase your running a commercial customers, let's say.
March April may.
Are you willing to go back to complete implement another price increase or is this strategy collect those CPI reset tap in.
You're managing a business and you'll you'll wait till your normal annual price increase so just curious how you think about that as you may of 2022 with.
Yeah.
Yeah, So big difference between open market and.
The contractual CPI annual adjustments like you would see on municipal contract. Fortunately Unfortunately on the municipal once you activate that year anyway. So there's no there's no choice.
But listen on the on the Oprah book of business, if things materially change I think.
And you are providing great service customers are normal and understand later you will have to pay more obviously like local our customers as much as we can but at the end of the day. These are real diesel real cost pressures that we're all experiencing so I think we we want to be shy to go back out.
Hi, we saw the real meeting in order sort of maintain some extraordinary inflation measures that we had predicted when we put through the first price increase earlier in the year.
That's great and just lastly could you just remind us of sensitivity to your earnings.
I'm recycling and those commodity prices I believe contracts orange.
And your peers or maybe it's a bit differently. When we think Canada and you ask Jesus flesh that out that'd be great.
Yeah. My closer look we have roughly 800000 tons that we have some volatility on in terms of the backend now more and more.
Change in the dollar's, we're getting we're rebating back to the customer, but if you think about it today a good math is 60 cents on the dollar sure keeping on those 800000 time, if the blended basket is going up a dollar on getting 60% for that that's the rough math, although I would say it continues to migrate.
And when we talk in February we'll give you the latest sort of view, where we are at that time.
Perfect. Thanks, guys.
Okay.
Our final question today comes from the novel.
As National Bank Finance now.
Keith.
Good morning, everyone and then just a couple of quick follow up some orangina start Patrick you mentioned in the first five or six orangey assets.
Looking at 75 to 100 million free cash can you can you confirm that you're 50% sure and and when you talk about the the timeframe needs to come online in 2023, how quickly. These should we expect this does that get staggered through the year or so earlier, so I would say.
Yes, there is.
75 to 100 is the right number I think the lion's share of that will come into various parts of the year of 2023, and you'll have a full one.
Right I think the number will be higher by the time, we get off of 2024.
Because we will bring on those incremental landfills over the course of 2022 beyond that applied to fix that I just spoke about.
But your.
Leo volatile probably $8 million to $10 million coming 2022.
Good chance of numbers in 2023, and then full run rate in 2024 for probably the lion's share of the projects.
Okay, Great and I mentioned, the first five or six of the best projects opportunities you have what are the the next five or six look like after that as far as I'm not sure that.
That they are the simplest to execute.
For some of these these have electrical contractor that to come out of some require incremental infrastructure some require expanded pipelines being able to get to the site.
But if you have your thinking about the first five percentage, we're talking about the roughly call at 25000 CFM of gas a day.
Leaning I think conservatively.
Conservatively the other ones, but some for the same.
The officer and he could be double the size of the area does that keep you on the wall.
And then the following opportunities of those 2024 story and you bring them on that quickly.
I think we will sign up some of the others for sure over the course of 2022 right. So they would they would also come online sometime in 2023 with a full run rate towards 24 alright.
All right very good and then quickly look can you can you talk about the sensitivity you have to fuel prices right now and how you should be modeling that going forward.
Yeah, I mean, luckily it roughly 50 million leaders a quarter of fuel that were going on right now in our recovery.
We are not nearly as advanced on a recovery in fuel costs. So that we could get so as we continue to progress on that strategy, we're covering more and more offsetting.
But today.
A high degree of exposure, we're probably mitigating for the 20% of the price volatility in the rest of the sort of falling through.
Know incremental CSC conversion as we continue to do that is also going to drive improvement.
But that's sort of where we sit today.
Excellent. Thank you very much over there.
Thank you.
Thank you for anything.
Can you please.
Q&A question.
Thanks Cool. Thank you for joining we had Catholic great rest of your day you May know.
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