Q3 2023 GFL Environmental Inc Earnings Call

Operator: Good morning. Thank you for attending today's GFL Environmental 2023 Q3 earnings call. My name is Forum. I will be your moderator for today's call. All lines will remain muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. It is now my pleasure to pass the conference over to our host, Patrick Dovigi, Founder and CEO. Mr. Dovigi, please proceed.

Good morning. Thank you for attending today's G. S. L. Environmental 2023, Q3 earnings call. My name is forum and I will be your moderator for today's call.

All lines will remain muted during the presentation portion of the call with an opportunity for questions and answers at the end if he would like to ask a question. Please press star one on your telephone keypad. It is now my pleasure to pass the conference over to our host Patrick WG founder and CEO. Mr. WG. Please proceed.

Patrick Dovigi: Thank you, good morning. I would like to welcome everyone to today's call and thank you for joining us. This morning, we will be reviewing our results for Q3. I am joined this morning by Luke Pelosi, our CFO, who will take us through a forward-looking disclaimer before we get into the details.

Thank you and good morning, I would like to welcome everyone to today's call and thank you for joining US. This morning, we will be reviewing our results for the third quarter.

I'm joined this morning by Luc <unk>, our CFO, who will take us through a forward looking disclaimer before we get into the details.

Luke Pelosi: Thank you, Patrick. Good morning, everyone, and thank you for joining. We have filed our earnings press release, which includes important information. The press release is available on our website. We have prepared a presentation to accompany this call that is also available on our website. During this call, we will be making some forward-looking statements within the meaning of applicable Canadian and U.S. securities laws, including statements regarding events or developments that we believe or anticipate may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set out in our filings with the Canadian and U.S. securities regulators. Any 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.

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 to accompany this call that 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 in our filings with the Canadian and U S Securities regulators any.

Looking statement is not a guarantee of future performance and actual results may differ materially from those expressed or implied in the forward looking statements. These forward looking statements speak only as of today's date and we do not assume any obligation to update these statements whether as a result of new information future events or developments or otherwise.

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

This call will include a decision discussion of certain non <unk> measures. A reconciliation of these non <unk> measures can be found in our filings with the Canadian and U S security regulators I will now turn the call back over to Patrick.

Patrick Dovigi: Thanks, Luke. In Q3, we once again outperformed our detailed guidance and continued strong core solid waste price growth of 8.8%, 230 basis points of consolidated adjusted EBITDA margin expansion, 335 basis points of expansion of our underlying solid waste margin, and ES margins of nearly 31%. Our ongoing focus on optimizing price and managing costs to drive higher underlying profitability continues to yield exceptional operating results and positions us for continued success in the future. Luke will walk us through some of the details, I wanted to start off by reflecting on where we are today versus where we were when we went public almost four years ago. We have always been focused on the long-term trajectory of the business, balancing growth, profitability, and capital deployment.

Thanks, Luke in the third quarter, we once again outperformed our detailed guidance and continued strong core solid waste price growth of eight 8%.

230 basis points of consolidated adjusted EBITDA margin expansion 335 basis points of expansion of our underlying solid waste margin and es margins of nearly 31%.

Our ongoing focus on optimizing price and managing costs to drive higher underlying profitability continues to yield exceptional operating results and positions us for continued success in the future.

Luke will walk us through some of the details, but I wanted to start off by reflecting on where we are today versus where we were when we went public almost four years ago.

We have always been focused on the long term trajectory of the business balancing growth profitability and capital deployment.

Patrick Dovigi: This focus is shared by me as the founder and largest individual shareholder of GFL, as well as the entire senior leadership team, all of which retain significant equity in our company. Executing on our long-term strategy has proven very successful for GFL and all of its stakeholders since we founded the business 16 years ago, and we expect this strategy to continue to be the foundation of our continued success. Since we went public in March of 2020, we have more than doubled the size of the business while at the same time shaping a platform and asset base that will now drive the execution of our differentiated growth strategy in the coming years.

This focus is shared by me as the founder and largest individual shareholder of GSL as well as the entire senior leadership.

Team, all of whom retain significant equity in our company.

Executing on our long term strategy has proven very successful for GSL and all of its stakeholders. Since we founded the business 16 years ago, and we expect this strategy to continue to be the foundation of our continued success.

Since we went public in March of 2020, we have more than doubled the size of the business. While at the same time shaping a platform an asset base that will now drive the execution of our differentiated growth strategy in the coming years.

Patrick Dovigi: That included the steps we took earlier this year to divest of non-core pieces of our portfolio at multiples greater than the basis of our current valuation, spinning off our infrastructure business into Green Infrastructure Partners, and deliberately shedding low-quality volume that does not meet our return thresholds. With those refinements completed, we continue to focus on the same key three prongs to our growth strategy that we have communicated since going public: high-quality organic growth, harvesting the multiple self-help levers in our portfolio, and completing densified tuck-in M&A. Our business has now scaled to the point where we expect organic initiatives to outpace M&A as growth drivers in the years to come. Our base pricing strategies are working and will continue to mature. Ancillary services are significantly underutilized in our portfolio today, and we see significant runway as we implement the well-defined industry playbook in this area.

That included the steps we took earlier this year to divest of noncore pieces of our portfolio at multiples greater than the basis of our current valuation.

Spinning off our infrastructure business into green infrastructure partners and deliberately shedding low quality volume that does not meet our return thresholds.

With those refinements completed we continue to focus on the same key three prongs to our growth strategy that we have communicated since going public.

High quality organic growth harvesting the multiples self help levers in our portfolio and completing densify tuck in M&A.

Our business is now scaled to the point, where we expect organic initiatives to outpace M&A as growth drivers in the years to come.

Our base pricing strategies are working and will continue to mature.

Ancillary services are significantly underutilized in our portfolio today, and we see significant runway as we implement the well defined industry playbook in this area.

Patrick Dovigi: Over the past 2 years, we have also made disciplined capital allocation decisions to invest in the very attractive returns from organic growth opportunities from renewable natural gas and recycling under Canada's extended producer responsibility legislation, also known as EPR. These investments have the best risk-adjusted returns we have seen in the last decade and are equivalent of completing acquisitions at 3 to 4x EBITDA. EPR continues to be a dynamic opportunity for us where we have a first-mover advantage based on our market expertise and best-in-class asset base. In Ontario and Quebec, we have already been awarded a significant base of new recycling, processing, and collection contracts, and we anticipate incremental opportunities to be realized in the near term. As a result, we believe that the overall size of the EPR opportunity is even higher than our previously provided estimate of CAD 40 to 50 million of EBITDA.

Over the past two years, we have also made disciplined capital allocation decisions to invest in the very attractive returns from organic growth opportunities from renewable natural gas and recycling under Canada's extender producer responsibility legislation also known as EPR.

These investments have the best risk adjusted returns we have seen in the last decade, and our equivalent of completing acquisition at 3% to four times EBITDA.

EPR continues to be a dynamic opportunity for us where we have a first mover advantage based on our market expertise and best in class asset base.

In Ontario, and Quebec, we have already been awarded a significant base of new recycling processing and collection contracts and we anticipate incremental opportunities to be realized in the near term as a result, we believe that the overall size of the EPR opportunity is even higher than our previously provided estimate of $40 million to $50 million of EBITDA.

Patrick Dovigi: We are in the process of finalizing the negotiation of additional contracts and expect to be in a position to provide a comprehensive update on our Q4 earnings call. On RNG, our first and largest plant at the Arbor Hills landfill is now online. While specific technical delays have us expecting the first contributions from this site to be in early 2024, the improvement in the underlying RIN pricing yield and expected annual contribution are far greater than we initially underwrote. In reference to our broader RNG portfolio, we now expect the facilities to be all online by 2026, generating around CAD 175 million of EBITDA at CAD 2 RINs, with significant room to the upside given the current RIN market price of over CAD 3. We'll provide more details on RNG and EPR on our Q4 call when we issue formal 2024 guidance.

We are in the process of finalizing the negotiation of additional contracts and expect to be in a position to provide a comprehensive update on our Q4 earnings call.

On R&D, our first and largest plant at the Arbor Hills landfill is now online.

While specific technical delays have us expecting the first contributions from this site to be in early 2020 for the improvement in the underlying RIN pricing yield an expected annual contribution are far greater than we initially underwrote.

In reference to our broader RMG portfolio, we now expect the facilities to be all online by 2026.

Generating around $175 million of EBITDA at $2 Rins with significant room to the upside given the current RIN market price of over $3.

We will provide more details on RMG and EPR on our Q4 call when we issue formal 2020 for guidance.

Patrick Dovigi: On M&A, we have done the large platform-type acquisitions that we needed to establish the base. We do not need any further platforms to execute our strategy. We have no plans to shift our focus away from our core solid waste and environmental services businesses by seeking out large acquisitions outside of the core. Instead, our focus is on smart, accretive, densifying tuck-in acquisitions that we expect to drive further improvement in return on invested capital going forward. Within the entire platform, we continue to focus on the self-help levers around fleet conversion, asset utilization, and synergy realization. We believe the combination of these growth levers will yield outsized operating leverage for several years to come. Now let's talk about leverage. Pre-IPO, net leverage was north of 7.6 times with 2019 EBITDA of CAD 826 million.

On M&A, we have done the large platform type acquisitions that we needed to establish the base, we do not need any further platforms to execute our strategy. We have no plans to shift our focus away from our core solid waste and environmental services businesses by seeking a large acquisitions outside of the core.

Instead, our focus is on smart accretive densify tuck in acquisitions that we expect to drive further improvement in return on invested capital going forward.

And within the entire platform, we continue to focus on the self help levers around fleet conversion asset utilization and synergy realization.

We believe the combination of these growth levers will yield outsized operating leverage for several years to come.

So now let's talk about leverage.

Pre IPO net leverage was north of seven six times with 2019 EBITDA of $826 million.

Patrick Dovigi: Since that time, we have grown the business nearly two and a half times while at the same time bringing down net leverage to around 4.3 times. During that period, we have expanded consolidated EBITDA margins by 130 basis points to approximately 27%. We have achieved all of this in the face of a global pandemic, including complete business shutdowns in Canada, unprecedented cost inflation, the impacts of which continue to persist, and over 500 basis point increases in interest rates. Over the past few months, we've received feedback from some investors suggesting we should stop all M&A in the near term to manage to the short-term leverage target of less than four times that we shared with you in June. We have thought long and hard about that. We have to balance the short-term objective against what we see as the opportunity for longer-term value creation.

Since that time, we have grown the business nearly two five times, while at the same time, bringing down net leverage to around four three times.

During that period, we've expanded consolidated EBITDA margins by 130 basis points to approximately 27%.

We have achieved all of this in the face of a global pandemic, including complete business shutdowns in Canada unprecedented cost inflation, the impact of which continue to persist and over 500 basis point increases in interest rates.

Over the past few months, we've received feedback from some investors, suggesting we should stop all M&A in the near term to manage to the short term leverage target of less than four times that we shared with you in June.

We have thought long and hard about that.

We have to balance the short term objective against what we see as the opportunity for longer term value creation.

Patrick Dovigi: We have never shied away from doing what we think is the right thing for the business. Giving up attractive value creation opportunities in order to manage leverage by 10 or 15 basis points in the short term does not align with our long-term perspective. We believe that we have continued to execute on our commitment and to take advantage of market opportunities when we see them so long as they are consistent with the three key prongs of our strategy that I just laid out. Taking all that into consideration, we completed 11 acquisitions in Q3 and another four acquisitions after Q3 end. I wanted to highlight two of these acquisitions and the highly attractive growth opportunities we are confident that they will generate for us.

We have never shied away from doing what we think is the right thing for the business.

Giving up attractive value creation opportunities in order to manage leverage by 10 or 15 basis points in the short term does not align with our long term perspective.

We believe that we have continued to execute on our commitments and to take advantage of market opportunities. When we see them. So long as they are consistent with the three key prongs of our strategy that I just laid out.

Taking all that into consideration, we completed 11 acquisitions in the third quarter and another for acquisitions after quarter end.

I wanted to highlight two of these acquisition and the highly attractive growth opportunities. We are confident that they will generate for us.

Patrick Dovigi: One of those is Capital Waste, a vertically integrated secondary market-focused solid waste business headquartered in South Carolina, right in the middle of our already dense Waste Industries footprint. We believe Capital Waste's 4 landfills, 8 transfer stations, and over 200 collection vehicles have meaningful runway and self-help opportunities to drive outsized organic growth and margin expansion in the near term. The other acquisition I wanted to mention is Fielding Environmental, an environmental services family business established in 1955 in the greater Toronto area, right in the heart of the largest footprint of our environmental services business. Fielding has highly complementary specialized processing capabilities and a Part B permit that will allow for the realization of material internalization and organic cross-selling growth opportunities within our existing environmental services network.

One of those is capital waste a vertically integrated secondary market focus solid waste business headquartered in South Carolina right in the middle of our already dense waste industries footprint.

We believe capital waste four landfills, a transfer stations and over 200 collection vehicles have meaningful run runway and self help opportunities to drive outsized organic growth and margin expansion in the near term.

The other acquisition I want to mention is fielding environmental and.

On environmental services family business established in $19 55 in the greater Toronto area.

Right in the heart of the largest footprint of our environmental services business.

<unk> has a highly complementary specialized processing capabilities and a part b permit that will allow for the realization of material internalization and organic cross selling growth opportunities within our existing environmental services network.

Patrick Dovigi: While these deals will result in 10 to 15 basis points of higher leverage at Q4 and will have a short-term impact of free cash flow conversion, we are highly confident in our ability to generate accretive returns on invested capital from these investments over the medium term, leading to even better free cash flow conversion in the future. Again, I want to reiterate our long-term commitment to deleveraging. We have delevered and we will continue to delever while growing at above-average industry growth rates. In doing so, we see a path to investment-grade credit rating in the medium term. This path is not necessarily a straight line, but the trajectory is definitely downward. In our view, it has been seen in the light of all these things we have achieved in the business that I just laid out.

While these deals will result in 10 to 15 basis points of higher leverage at Q4, and well have a short term impact of free cash flow conversion. We are highly confident in our ability to generate accretive returns on invested capital from these investments over the medium term leading to even better free cash flow conversion in the future.

And again I want to reiterate our long term commitment to deleveraging we have discovered and we will continue to delever, while growing at above average industry growth rates and in doing so we see a path to investment grade credit rating in the medium term.

This path is not necessarily a straight line, but the trajectory is definitely downward in our view. It has been seen in the light of all these things we have achieved in the business that I just laid out.

Patrick Dovigi: While we are aware that the combination of the current higher-for-longer narrative together with our leverage levels is not seen ideal by some, I want to reiterate that our strategy's success was never predicated on operating in a low-interest rate environment. We are highly confident in the opportunity to realize material credit quality enhancements in the near to medium term that will position us for improved free cash flow conversion. We've heard a lot of speculation on the topic of what is going to happen to our interest costs in the future. Luke will walk you through some of the slides we have prepared. At a high level, I will lay some out. We have significant experience in the debt capital markets.

While we are aware that the com combination of the current higher for longer narrative together with our leverage levels are not seen ideal by some I want to reiterate that our strategy success was never predicated on operating in a low interest rate environment. We.

We are highly confident in the opportunity to realize material credit quality enhancements in the near to medium term that will position us for improved improved free cash flow conversion.

We've heard a lot of speculation on the topic of what is going to happen to our interest costs in the future and Luc will walk you through some of the slides we are prepared but at a high level.

I will lay somehow we have significant experience in the debt capital markets. This is evidenced by the quality of our current debt structure as well as our Q3 refinancing of our <unk> to one of the lowest credit adjusted spreads executed in years and is in this high interest rate environment.

Patrick Dovigi: This is evidenced by the quality of our current debt structure as well as our Q3 refinancing of our TLB to one of the lowest credit-adjusted spreads executed in years and is in this high-interest rate environment. Over 70% of our long-term debt is fixed rate with a weighted remaining average of over four years. Over 60% of our long-term debt does not mature until 2028 or later. As our key business metrics continue to improve and our credit quality improves to reflect that, the spread component of our borrowing rates will continue to improve. Even if we are to refinance our entire debt structure under what we believe to be a reasonable range of outcomes today, which we are not planning to do, the cumulative impact or annual interest costs would be entirely immaterial to our long-term financial model.

Over 70% of our long term debt is fixed rate with a weighted remaining average of over four years over 60% of our long term debt does not mature until 2028 or later.

As our key business metrics continue to improve and our credit quality improves to reflect that the spread component of our borrowing rates will continue to improve.

Even if we are to refinance our entire debt structure under what we believe to be a reasonable range of outcomes today, which we are not planning to do the cumulative impact of our annual interest costs would be entirely immaterial to our long term financial model.

Patrick Dovigi: To wrap up, we have a long-term strategy that we are executing on. We have built a best-in-class platform and asset base that gives us multiple levers to pull to grow revenue and improve margins that we are using to continue to create long-term value for all of our shareholders. We are confident in the ability of this platform to deliver industry-leading free cash flow per share growth. At the same time, we remain committed to the trajectory of our deleveraging profile. As always, I want to thank our amazing employees who are the key to our continued success. I will now pass the call over to Luke, who will walk us through the quarter in more detail, and then I will share some closing thoughts before we open it up for Q&A. Thanks, Patrick.

To wrap up we are a long term strategy that we're executing on we have built a best in class platform, an asset base that gives us multiple levers to pull to grow revenue and improve margin that we are using to continue to create long term value for all of our shareholders. We are confident in the ability of this platform to deliver industry, leading free cash flow.

Per share growth at the same time, we remain committed to the trajectory of our deleveraging profile.

As always.

I want to thank our amazing employees, who are the key to our continued success I will now pass the call over to Luke who will walk us through the quarter in more detail and then I will share some closing thoughts before we open it up for Q&A.

Luke Pelosi: For the following discussion, I will refer to our accompanying investor presentation, which provides supplemental analysis to summarize our performance in the quarter. Q3 revenue was CAD 1.89 billion, representing year-over-year growth 130 basis points better than we had guided. Solid Waste price of 8.8% was realized through ongoing support from both our geographies and with better than mid-single-digit pricing continuing to be realized in the typically lower-priced residential collection and post-collection lines of business. Solid Waste volumes of -2.4% was nearly 50 basis points better than expected as the underlying volume growth in commercial and residential collection, as well as our post-collection services, offset the impact of the intentional shedding of low-quality revenue and the exiting of certain non-core ancillary service offerings. Page three highlights the 250 basis point expansion of Solid Waste adjusted to EBITDA margin year-over-year, a 30 basis point sequential acceleration over Q2.

Thanks, Patrick for the following discussion I will refer to our accompanying investor presentation, which provides supplemental analysis that summarize our performance in the quarter.

Third quarter revenue was $1 eight 9 billion representing year over year growth of 130 basis points better than we had guided solid waste price of eight 8% was realized through ongoing support from both our geographies and with better than mid single digit pricing continuing to be realized in the typically lower priced residential collection and post collection lines of <unk>.

Business.

Solid waste volumes of minus two 4% was nearly 50 basis points better than expected as the underlying volume growth in commercial and residential collection as well as our post collection services offset the impact of the intentional shedding of low quality revenue and the exiting of certain non core ancillary service offerings.

Page three highlights the 250 basis point expansion of solid waste adjusted EBITDA margin year over year, a 30 basis point sequential acceleration over the second quarter.

Patrick Dovigi: Commodities continue to be a year-over-year headwind, the impact of which is greater in our Canadian segment due to the larger relative volume of recycling activities we have in that market. Commodity prices during Q3 were broadly in line with expectations. While October has seen an uptick in fiber pricing, we expect this to reverse by the year-end and to be back to Q3 OCC pricing levels as we exit the year, all of which is baked into our guidance. Regarding fuel costs, while we believe that the maturity of our surcharge programs adequately mitigates fluctuating diesel costs from materially impacting our margins and profitability for extended periods of time, the rapid rise in diesel costs during Q3 resulted in approximately 20 basis point margin headwind to our guidance, and net fuel as a whole impacted margins 10 basis points year-over-year.

Commodities continued to be a year over year headwind the impact of which is greater than our Canadian segment due to the larger relative volume of recycling activities, we have in that market.

Commodity prices during the third quarter were broadly in line with expectations. While October has seen an uptick in fiber pricing. We expect this to reverse by the year end and to be back to Q3, OCC pricing levels as we exit the year all of which is baked into our guidance.

Regarding fuel costs, while we believe that the maturity of our surcharge programs adequately mitigates fluctuating diesel costs from materially impacting our margins and profitability for extended periods of time.

The rapid rise in diesel costs during the third quarter resulted in approximately 20 basis point margin headwind to our guidance and net fuel as a whole impacted margins 10 basis points year over year.

Patrick Dovigi: The lag in our surcharge mechanisms, which is consistent with industry norms, should see the incremental diesel costs incurred in Q3 recovered in Q4. We also continue to see additional upside from the ongoing optimization of our fuel surcharge programs. Normalizing for these items, underlying margin expansion accelerated an incremental 20 basis points over Q2 to 335 basis points year-over-year. We believe this is a strong demonstration of the effectiveness of our pricing and deliberate volume strategies and is consistent with the expected impact of the widening spread between pricing cost inflation that we forecast in the 2023 guide. Page four summarizes the historical performance of our ES Segment. The negative volume realized during the COVID pandemic reversed in early 2021, and the double-digit organic revenue growth steadily sequentially increased throughout 2022.

The lag in our surcharge mechanisms, which is consistent with industry norms should see the incremental diesel costs incurred in Q3 recovered in Q4. We also continue to see additional upside from the ongoing optimization of our fuel surcharge programs.

Normalizing for these items underlying margin expansion accelerated an incremental 20 basis points over Q2 to 335 basis points year over year. We believe this is a strong demonstration of the effectiveness of our pricing and deliberate volume strategies and is consistent with the expected impact of the widening spreads.

Between pricing cost inflation that we forecast in the 2023 guide.

Page four summarizes the historical performance of our Es segment.

The negative volume realized during the Covid pandemic reversed in early 2021, and the double digit organic revenue growth steadily sequentially increase throughout 2022.

Patrick Dovigi: At the beginning of this year, we articulated that we now have the asset positioning we desire and would transition the growth strategy for this segment to one of revenue quality over quantity. You can see the results of the strategic shift in the acceleration of the adjusted EBITDA margin expansion. Recall that in Q3 2022, we identified the impact from an outsized amount of subcontracting work performed in that quarter. Excluding that CAD 30 million impact from the comparison, revenue grew 6.9% year-over-year. Contaminated soil volumes, which are levered to primary markets and tend to be more economically sensitive, were approximately CAD 15 million less than our plan in Q3, a trend that presents a headwind to margins that we are now expected to continue for the balance of the year.

At the beginning of this year, we articulated that we now have the asset positioning we desire and would transition the growth strategy for this segment to one of revenue quality over quantity and you can see the results of the strategic shift in the acceleration of the adjusted EBITDA margin expansion.

Recall that in the third quarter of 2022, we identified the impact from an outsized amount of sub contracting work performed in that quarter, excluding that $30 million impact from the comparison revenue grew six 9% year over year.

Contaminated soil volumes, which are leveraged to primary markets and tend to be more economically sensitive were approximately $15 million less than our plan in Q3, a trend that presents a headwind to margins that we are now expected to continue for the balance of the year.

Patrick Dovigi: The realization of over 400 basis points of margin expansion inclusive of this headwind is a testament to the operating leverage we are realizing in this segment. At the consolidated level, adjusted EBITDA margins of 28.1% represented 230 basis point expansion over the prior year. Adjusted free cash flow for the quarter was CAD 276 million versus our guidance of CAD 275, which included cash taxes of approximately CAD 250 million related to the recently completed divestitures. We expect to pay the balance of the cash taxes on the divestitures in Q4. Cash interest was CAD 20 million greater than guidance, more than half of which was a timing difference arising from the repricing of our term loan, with the balance attributable to the impact of the recent acquisition spend. As a result of this recent M&A, we now expect cash interest for the year of approximately CAD 515 to 520 million.

The realization of over 400 basis points of margin expansion inclusive of this headwind is a testament to the operating leverage we are realizing in this segment at.

At the consolidated level adjusted EBITDA margins of 28, 1% represented 230 basis point expansion over the prior year.

Adjusted free cash flow for the quarter was $276 million versus our guidance of 275, which included cash taxes of approximately $250 million related to the recently completed divestitures, we expect to pay the balance of the cash taxes on the divestitures in the fourth quarter.

Cash interest was $20 million greater than guidance more than half of which was a timing difference arising from the repricing of our term loan with the balance attributable to the impact of the recent acquisition spend.

As a result of this recent M&A, we now expect cash interest for the year of approximately $515 million to $520 million.

Patrick Dovigi: Gross purchases of property and equipment were CAD 276 million, the low end of our guidance, and inclusive of approximately CAD 130 million of reallocation of proceeds received from the recent divestitures into incremental growth investments, as previously described. We still anticipate full-year gross purchases of property equipment to be between CAD 1.05 and 1.15 billion. We have left our 2023 guidance largely unchanged other than a modest increase in expected revenues. Page five of the presentation outlines the moving pieces and illustrates that the impacts of FX and recent M&A drive revenue to approximately CAD 7.48 billion. The adjusted EBITDA contributions from these two items are offset by the delay in contribution from the Arbor Hills RNG facility coming online, as well as the reduced view on contaminated soil volumes through year-end, resulting in the maintaining of our CAD 2 billion EBITDA guide for 2023. Page six bridges net leverage from Q2 to Q3.

Gross purchases of property and equipment with $276 million, the low end of our guidance and inclusive of approximately $130 million of reallocation of proceeds received from the recent divestitures into incremental growth investments as previously described.

We still anticipate full year gross purchases of property equipment, it would be between 105 and $1 5 billion.

We have left our 2023 guidance largely unchanged other than a modest increase in expected revenues.

Page five of the presentation outlines the moving pieces and illustrates that the impacts of FX and recent M&A drive revenue to approximately 748 billion.

The adjusted EBITDA contribution from these two items are offset by the delay in contribution from the Arbor Hills RMG facility coming online as well as the reduced view on contaminated soil volumes through year end, resulting in the maintain maintaining of our $2 billion EBIT guide for 2023.

Page six bridges net leverage from Q2 to Q3 record Q2 benefited from the delay in the payment of taxes on the divestitures also the weakening of the Canadian versus U S. Dollar has a translational impact normalizing for these two items the organic deleveraging of the business more than offset the net.

Patrick Dovigi: Recall, Q2 benefited from the delay in the payment of taxes on the divestitures. The weakening of the Canadian versus the US dollar has a translational impact. Normalizing for these two items, the organic deleveraging of the business more than offset the net leverage impact of incremental M&A during the quarter. On page seven, we have illustrated how these impacts to net leverage carry through to the end of the year. The base business is still anticipated to delever to the sub-four times level we previously guided, with the incremental acquisitions and the translational FX impact, we now expect to exit the year with leverage in the low fours. Notwithstanding this slightly higher launch-off point, we still expect that we will delever the business to mid-threes by the end of 2024, as previously communicated.

<unk> impact of incremental M&A during the quarter.

And then on page seven we have illustrated how these impacts the net leverage carried through to the end of the year.

The base business is still anticipated to delever to the sub four times level, we previously guided but with the incremental acquisitions in the translational FX impact, we now expect to exit the year with leverage in the low fours now.

Notwithstanding the slightly higher launch off point, we still expect that we will delever the business to mid threes by the end of 2024 as previously communicated.

Patrick Dovigi: As Patrick said, we have included some additional slides on the potential impact of various scenarios on interest costs. Page nine shows our current effective interest rate of 5.2% versus our current variable rates of between 7.1% and 7.8%. The intent of this page is to illustrate that while our current spread above treasuries is significantly better than when we assembled our current debt complex, it is still multiples of the spreads incurred by our investment-grade peers. With that, on page 10, we have presented the math of what the impact on our annual cash interest could be using various different interest rates.

As Patrick said, we have included some additional slides on the potential impact of various scenarios on interest costs page.

Page nine shows our current effective interest rate of five 2% versus our current variable rates of between seven one and seven 8%.

The intent of this pages to illustrate that while our current spread above treasuries is significantly better than when we assembled our current debt complex. It is still multiples of the spreads incurred by our investment grade peers.

While we do not know where underlying treasury rates will go we believe that as our credit quality improves our current spread of 175 to 250 basis points should reduce more than 115 basis points as we migrate towards the spread of our peer group.

So with that on page 10, we have presented the math of what the impact on our annual cash interest could be using various different interest rates. The first row shows the incremental cash interest if we were to recalculate, our entire debt structure at our current highest variable rate of seven 8% <unk>.

Patrick Dovigi: The first row shows the incremental cash interest if we were to recalculate our entire debt structure at our current highest variable rate of 7.8%. Considering the long-term tenor and current trading levels of our debt, we in no way perceive this as a likely outcome in the current rate environment, but have included the math for illustrative purposes. The subsequent rows show the equivalent math under a range of other possible scenarios that contemplate various degrees of improvement to our credit spread and the underlying benchmark. As we expect our credit quality to improve gradually over time, the actual outcome in the intervening years is likely a combination of multiple scenarios. In our view, the point of this analysis is best highlighted on page 11.

Considering the long term tenor and current trading levels of our debt we in no way perceive this as a likely outcome in the current rate environment, but have included the math for illustrative purposes.

The subsequent roche or the equivalent math under a range of other possible scenarios that contemplate various degrees of improvement to our credit spread and the underlying benchmark.

As we expect our credit quality to improve gradually over time, the actual outcome in the intervening years is likely a combination of multiple scenarios.

In our view the point of this analysis is best highlighted on page 11 the.

Patrick Dovigi: The left side of the page summarizes the cumulative impact to 2029 annual cash interest would be if recalculated at a range of interest rates. Note that is not shown on this page is the tax impact of any incremental interest that would partially mitigate any free cash flow impact. The right side shows the growth of adjusted EBITDA over the same time period, assuming a range of historical growth rates for the industry. This is meant to be illustrative. As you can see, any incremental cash interest is relatively immaterial to the magnitude of the illustrated 2029 EBITDA range of CAD 3.2 to nearly 4 billion. As Patrick said, regardless of the refinancing outcomes, we remain highly confident in the long-term equity thesis. I will now pass the call back to Patrick for some closing comments before Q&A.

The left side of the page summarizes the cumulative impact to what 2029 annual cash interest would be if recalculated at a range of interest rates.

Note that what is not shown on this page is the tax impact of any incremental interest that would partially mitigate any free cash flow impact.

The right side shows the growth of adjusted EBITDA over the same time period, assuming a range of historical growth rates for the industry. This is meant to be illustrative, but as you can see any incremental cash interest is relatively immaterial to the magnitude of the illustrated 2000, 2009 EBITDA range of $3 two to nearly 4 billion.

As Patrick said, regardless of the refinancing outcomes, we remain highly confident in the long term equity thesis.

I will now pass the call back to Patrick for some closing comments before Q&A.

Patrick Dovigi: Thanks, Luke. As a quick preview on 2024, we're feeling very good about our launching-off point. We'll give our detailed guidance in the new year, but we're expecting top-line organic revenue growth to be better than mid-single digits with M&A rollover for deals already completed of over 2.5% before considering the impact of the divestitures from earlier this year. By continuing to apply the tried-and-true levers that drove the margin expansion this year, we expect adjusted EBITDA margins to have another outsized year of expansion, which should drive low-teens EBITDA growth or at least 10% when considering the impacts of the divestitures. We are highly confident that the actions we have taken over the past couple of years have created material equity value for you. While this may not be reflected in the market today, I assure you at some point it will be.

Thanks, Luke as a quick preview on 2024, we're feeling very good about our launching off point.

We will give our detailed guidance in the new year, but we are expecting top line organic revenue growth to be better than mid single digits with M&A rollover for deals already completed of over two 5%.

Before considering the impact of the divestitures from earlier this year.

By continuing to apply the tried and true lever that drove the margin expansion. This year, we expect adjusted EBITDA margins to have another outsized year of expansion, which should drive low teens EBITDA growth or at least 10% when considering the impacts of the divestitures.

We are highly confident that the actions we have taken over the past couple of years have created material equity value for you.

While this may not be reflected in the market today I assure you at some point it will be we look forward to hosting an investor day in 2024, we will share more details on the rollout of our strategic plan for the next three years I will now turn the call over to the operator to open the line for Q&A.

Patrick Dovigi: We look forward to hosting an investor day in 2024 where we will share more details on the role of our strategic plan for the next three years. I will now turn the call over to the operator to open the line for Q&A.

Operator: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. In the interest of time, we ask that everyone limit to one question and one follow-up question to ensure everyone has the opportunity to speak. We will pause here briefly as questions are registered. Our first question comes from the line of Stephanie Moore with Jefferies. Stephanie, your line is now open.

Thank you.

I would like to ask a question. Please press star followed by one on your telephone keypad.

Any reason you would like to remove that question. Please press star followed by Tim again to ask a question press Star one.

As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question and the interest of time, we ask that everyone limit to one question and one follow up question to ensure everyone has the opportunity to speak with a little pause here briefly ask question their registry.

Our first question comes from the line of Stephanie Moore with Jefferies. Stephanie Your line is now open.

Stephanie Moore: Hi. Good morning. Thank you.

Hi, good morning, Thank you.

Patrick Dovigi: Good morning.

Luke Pelosi: Good morning.

Stephanie Moore: Good morning. My first question, you know, it's just on, you know, M&A and leverage. You know, as you noted, you know, you said back in July that you would exit 2023 at less than 4x leverage, you know, due to the acquisition of Capital and maybe the other, your leverage has, you know, clearly ticked up slightly. My question is, did you know that you would be doing the deal when you gave the net leverage target?

Good morning, good morning, just.

Good morning. My first question is just on M&A and leverage as you noted you said back in July that you would exit 2023 at less than four times leverage, but due to the acquisition of capital and maybe the other.

Clearly picked up slightly so my question is did you know that you would be doing the deal. When you gave the net leverage target.

Patrick Dovigi: The short answer is no. You know, this was this asset was something obviously we had our eyes on sort of, you know, over the last sort of number of months. What I will say is, you know, we know the business extremely well. We knew the business extremely well. We knew the shareholders extremely well. Brian Yorston, who's the COO, is the brother of our COO, Greg Yorston. There's a long sort of history with the business. The reality was, is we were not selected as the preferred bidder. It wasn't contemplated. The reality is the company that was selected as the higher bidder, it became very clear and apparent that they were going to have a longer time period to get to the DOJ, and the shareholders were looking to for certainty.

So the short answer is no.

This was.

This asset was something obviously, we had our eyes on sort of.

Over the last sort of number of months, but what I will say is.

We know the business extremely well, we knew division extremely well when you the shareholders extremely well.

And Brian your student who is the CFO is the brother of our COO Gregg Larson so.

There's a long sort of history with the business. The reality was as we were not selected as the preferred bidder.

So it wasn't contemplated the reality is that the.

The company I was selected as a higher bidder.

Very clear and apparent that they were going to have a longer time period to get to the Doj and the shareholders were looking for certainty.

Luke Pelosi: They came back to us to acquire the business at a lower price with certainty around the DOJ process. That sort of came. We'd already done a lot of diligence on it. The time for us to get that done, it happened pretty quickly. It's a business, obviously, we love. It's right in our backyard in the Carolinas that touches Georgia that, you know, exactly in the areas that we want to grow in, those sort of fast-growing markets in the US. You know, that's sort of the history around sort of Capital Waste.

And then they came back to us to acquire the business at a lower price with certainty around the Doj process. So that sort of came we'd already done a lot of diligence on it. So the time for us to get that done it happened pretty quickly and it's a business. Obviously, we love it's right in our backyard in the Carolinas that touches Georgia that.

Exactly in the areas that we want to grow with their sort of fast growing markets in the U S. But that's sort of a history around sort of capital ways.

Stephanie Moore: Okay. Got it. That's helpful. Then just as a follow-up, how would you characterize the pace of M&A anticipated next year to get to that mid-3 times target? You know, how does that kind of compare to prior years? Thanks.

Okay.

Okay got it that's helpful. And then just as a follow up how would you characterize the pace of M&A anticipated next year to get to that mid three times target and how does that kind of compare that to prior years.

Luke Pelosi: Yeah. Stephanie's Luke. I'll just say, if you think about, as we've historically said and continue to say, the normal course organic deleveraging that we're anticipating is somewhere around a sort of seven 60 to 75 basis points. Now, if there's some outsized growth opportunities, the EBITDA from margin expansion or just normal course growth, that number increases. Organically, if you're ending the year at sort of a low 4s number, you're going to get to a sort of mid-3s. Now, M&A, as we've articulated with the size and scale of the business, the relative impact to net leverage of from M&A becomes much more muted. I think we've provided some analysis that even if you're spending CAD 750 to CAD 1 billion a year into M&A, the impact thereon is sort of measured in 10 to 15 bips.

Yes. So Stephanie is look I'd, just say if you think about as we've historically said and continue to say the normal course organic deleveraging that we're anticipating somewhere around sort of $7 $60 to 75 basis points now if there's some outsized growth opportunities as the EBITDA from margin expansion or just normal course.

This growth that number increases so organically due ending the year at sort of a low fours number youre going to get.

The mid threes now M&A as we've articulated with the size and scale of the business the relative impact to net leverage of from M&A becomes much more muted and I think we've provided some analysis that even if youre spending $750 billion to $1 billion a year into M&A the impact there on and sort of measured 10 to 15.

Kevin Chiang: The cadence of how that would work, look, as Patrick, I think, just articulated in his response, we manage actively manage a pipeline and would love to attempt to slot it in perfectly throughout different quarters, but just doesn't tend to work out that way. It's going to be difficult for me to comment on the actual intra-quarter cadence. I think overarchingly, what our message is to be is the leverage is going in one direction and one direction only, and that's down. I think with the size and scale and the opportunities we have organically, we feel highly confident, regardless of the M&A opportunities, to end the year in that range.

Bps. So the cadence of how that would work look as Patrick I think just articulated in his response, we manage actively manage a pipeline and we'd love to attempt to slotted in perfectly.

Quarters, but.

This doesn't tend to work out that way so it's going to be difficult for me to comment on the actual intra quarter cadence, but I think overarching Lee what our message is to be as the leverage is going in one direction and one direction, only and thats down and I think with the size and scale and the opportunities. We have organically, we feel highly confident regardless of the M&A opportunities to end the year.

Patrick Dovigi: Stephanie, just on the point you made, to us, it's sort of false precision on sort of leverage 10 basis points up or down doesn't materially change the financial profile of the business. You know, I'm not going to forego long-term value creation opportunities, for the sake of a small movement sort of intra-quarter. We are committed to do we are not taking leverage materially up from here. We have delevered, and we've committed to delevering. You'll continue to see the business delever over the sort of short, medium, and long term into the ranges that we've stated. You know, again, we can keep talking about this. This is not an issue. It will never be an issue. You know, I would like to sort of move on from the point.

That range.

Stephanie just on the point you made.

Tell us.

But sort of false precision on sort of leveraged 10 basis points up or down doesn't materially change the financial profile of the business and I'm not going to forego long term value creation opportunities.

For the sake of a small movement sort of intra quarter, but we are committed to do we are not taking leverage materially up from here. We've committed we have deleveraged and we've committed to delevering and Youll continue to see the business delever over the sort of short medium and long term into the ranges that we stated so.

Again, we can keep talking about this this is not an issue we will never be an issue. So.

I would like to sort of move on from the point.

Stephanie Moore: Fair enough. I'll do that. Thanks, guys.

Fair enough I'll do that thanks, guys.

Operator: Thank you for your question. Our next question comes from the line of Kevin Chiang with CIBC Wood Gundy. Kevin, your line is now open.

Thank you for your question. Our next question comes from the line of Kevin Chiang with CIBC Wood Gundy, Kevin Your line is now open.

Kevin Chiang: Hey, thanks. Thanks for taking my question here. You gave a little bit of a prelim outlook for 2024. You called out, I guess, from what your peers, you know, 2024 should see another year of outsized margin expansion. Outside of Q1 of this year, you've obviously been seeing some pretty good margin expansion already. I suspect Q4 is going to be pretty good. If I just, you know, ballpark it, you're probably going to be, let's say, 125, 150 basis points up year over year on a consolidated basis.

Thanks for taking my question here.

You gave a little bit of a premium outlook for 2024, and you can call. It the full at your peers two.

2020 should see another year of outsized margin expansion.

Outside of Q1 of this.

You've obviously.

It seems a pretty good margin expansion already I think that Q4, so it would be.

And if I could.

Ballpark youre, probably going to be let's say, a 120 550 basis points up year over year on a consolidated basis.

Luke Pelosi: You know, when you think of 2024, do you think you're better than that, just given some of the company-specific leverage you continue to have or is outside just relative to kind of the industry average of, you know, 30, 40 basis points of typical margin expansion you'd see in a normal cost environment? Yeah. Kevin is Luke. I'm going to refrain from getting too detailed on 2024 until our Q4 call. I think you're thinking about it right. It is both of those things. I think the overarching widening of price versus cost should give rise to a margin expansion opportunity in excess of that historical industry average. In addition, you know, as we've articulated, we have significant opportunities for self-help that we continue to avail ourselves of that we think should drive something in excess of that.

When you think of 'twenty four.

<unk>.

Better than that just given some of them.

Any specific leverage you continue to have.

Outside just relative to kind of industry average of $4 40 basis points. So a typical margin expansion you've seen the global coffee Alliance.

Yes, Kevin is look I'm going to refrain from getting too detailed on 2024 until our Q4 call, but I think youre thinking about it right and it is both of those things. So I think the overarching widening of price versus cost should give rise to a margin expansion opportunity in excess of.

That historical industry average and then in addition, as we've articulated we have significant opportunities for self help that we continue to avail ourselves of that we think should drive something in excess of that so when you put both of those things together.

Kevin Chiang: When you put both of those things together, you know, I think you end up directionally where you're speaking. We're going to hold off until Q4 to get a finer point on that. That's fair. That's great color. Just maybe my second question, just on some of those levers, you know, you obviously implemented a fuel surcharge program, you know, I think pretty quickly from where you started off at the onset of rising diesel prices. I think you have a number of other levers in the pricing category, you know, other fees that your peers implement that you're still looking to push through. Can you give us an update on that in terms of where you sit and maybe the timing of getting all that through? Yeah.

I think you end up direction, Lee, where youre speaking, but we're going to hold off until Q4 to get.

Final point on that.

That's fair that's great color.

And just maybe my second question just on some of those levers.

We implemented a fuel surcharge program.

I think we're pretty quickly from where you started off at the onset of rising diesel prices I think you have a number of other levers in the pricing category other fees.

Tears implement that.

So if you can give us an update on that.

In terms of what you said.

Maybe the timing of getting all of that.

Luke Pelosi: Kevin, at the pricing, we're very proud of the job that we did at Fuel. As we articulated, we still see meaningful room to go on that. It's a function of we grabbed the low-hanging fruit that we could, but there are certain components of our book of business that were restricted and precluded us from moving. While we really moved the needle there's still a meaningful prize. You could see that in this quarter where, particularly in the month of September, we probably had CAD 3 or CAD 4 million of incremental costs against us that the non-optimized aspect of our fuel surcharge program precluded us from being sheltered from. We still see room even in that bucket.

Yes, so Kevin at the pricing I mean, we're very proud of the job that we did a fuel but as we articulated we still see meaningful room to go on that and it's a function of we grab the low hanging fruit that we could but there are certain components of our book of business that we're restricted in precluded us from moving.

While we really move the needle there there is still a meaningful price and you could see that in this quarter, where particularly in the month of September we probably had three or $4 million of incremental cost against us that.

Non optimized aspect of our fuel surcharge program precluded us from being sheltered from so we still see room, even in that bucket and then if you take that further.

Kevin Chiang: If you take that further, just the ancillary service charges that we had sort of mentioned is just another area or another lever at the pricing level that the industry, I think, has done a good job to making sure that we're getting appropriately paid for the work that's performed. What we mean by that is items for such as blocked cans or overflowing cans or the other areas where we're contractually entitled to charge an appropriate return where we are not as sophisticated or comprehensive in our billing practices in order to capture that opportunity. There's real dollars being left on the table there. That's going to be the next fulsome focus, in that sort of ancillary or surcharge-type environment.

The ancillary service charges that we had sort of mentioned is just another area or another lever at the pricing level that industry. I think has done a good job to making sure that we're getting appropriately paid for the work that's performed what we mean by that is.

Items for such as blocked cans are overflowing cans are the other areas, where we're contractually entitled to charge, an appropriate return, where we are not as sophisticated or comprehensive in our billing practices in order to capture that opportunity and so there's real dollars being left on the table there and that's going to be the next.

Some focus in that sort of ancillary or surcharge type environment I mean, the base pricing as we've talked about just the relative recency of our price discovery versus our peers. We just see a lot of runway there and youre seeing it in our continued strength of our core pricing and we expect that to sort of continue to be.

Luke Pelosi: I mean, the base pricing, as we've talked about, just the relative recency of our price discovery versus our peers, we just see a lot of runway there. You're seeing it in our continued strength of our core pricing. We expect that to sort of continue to be, you know, at levels, in excess of what maybe a more mature book of business is able to achieve. We see a lot at the pricing level. Just for the sake of time, you know, I'm not going to get into the details on the costs, but we've articulated a lot of that at our investor day. We intend on, you know, updating our progress there.

At levels in excess of what maybe a more mature book of business is able to achieve so we see a lot of the pricing level and as for the sake of time and I'm not going to get into the details on the costs, but we've articulated a lot of that at our Investor day, and we intend on updating our progress there but.

Luke Pelosi: You know, by and large, summarized, many of the levers the industry has pulled to bring their operating margins to where they are today, we're in the, you know, immature stages of realizing a bunch of that. We see a bunch of opportunity. That's going to tuck into the comment I made previously of the idiosyncratic margin expansion opportunities that we think we'll realize over the coming years. Thanks for taking my question. Thanks, Kevin.

By and large summarize many of the levers the industry that's pulled to bring their operating margins where they are today we're in the.

Immature stages of realizing a bunch of that so we see a bunch of opportunity and thats going to tuck into the comment I made previously of the idiosyncratic margining.

Expansion opportunities that we think we will realize over the coming years.

Thanks for taking my question.

Thanks, Kevin.

Operator: Thank you for your question. Our next question comes from the line of Michael Hoffman with Stifel. Michael, your line is now open.

Thank you for your question. Our next question comes from the line of Michael Hoffman with Stifel. Michael Your line is now open.

Michael Hoffman: Hey, Patrick, you don't need me to make this comment, but, you know, run your business. You're proving that you're a good steward of capital. Run the business. You know, you're not going to end up in some in-between ground on leverage. You either run it highly leveraged or you run it low leverage. You don't run it in the in between. Run your business. Now, with that said, baseline repeatable capital spending for the whole company, sort of think about it as 11% of revenues. Cash flow from operations stays 18% of sales, can it be sort of low 20s? That's where the peers are. If that happens, you walk your free cash as a percentage of revenues from 8.5%, 9%, up to sort of a 10% to 12%. Is that the right model to build?

Hey, Patrick.

Patrick you don't need me to make this comment but.

Run your business.

<unk> proven that you are a good steward of capital and run the business.

Yes.

Youre not going to end up in some in between ground on leverage either run it highly levered or you run at low leverage you don't want it and if it's in between to run your business.

With that said.

Baseline repeatable capital spending for the whole company sort of think about it is 11% of revenues.

Cash flow from operations stays at 18% of sales, but can it be sort of low <unk>, that's where the peers are if that happens then you work your free cash as a percentage of revenues from 859% up to sort of a 10 to 12.

Michael Hoffman: Then we can talk about what the ancillary spending is. That's where I'd like to get to, is how do I think about those incremental dollars above baseline capital spending on a multi-year basis, like 2024, 2025, 2026, 2027? Think about that compounding cash story.

That the REIT model to build and then we can talk about what the ancillary spending is and that's where I would like to get to is how do we think about those incremental dollars above baseline capital spending.

On a multiyear basis.

425, 26, 7% think about that compounding cash story.

Luke Pelosi: Michael, it's Luke. I'll start on the sort of base framework. I think you articulated it quite well. I mean, we'll wait until Q4 to give the detailed 2024 free cash framework. It's exactly that. I mean, I think the pieces we've given on revenue and EBITDA, saying EBITDA at least 10%, I can see that sort of, you know, CAD 2.2 billion of EBITDA number. If you do the walk down there, you have a baseline capex. I think your 11% number in the current rate environment is probably the right thing with the OEM cost increases. You know, I think we're all playing catch-up to get there.

Yeah, So Michael it's Luke I'll start on the sort of base framework and I think you circulated it quite well I mean, we'll wait until 2008 until Q4 to give the detailed 2020 for free cash framework, but it's exactly that I mean, I think the pieces, we've given on revenue and EBITDA, saying EBITDA at least pan and I get it.

It is sort of $2 $2 billion of EBIT number and if you do the walk down there you have a baseline capex I think you're 11% number in the current rate environment is probably the right thing with the OEM cost increases I think we're all playing catch up to get there, but in and around that for the ongoing maintenance capex, which would yield us sort of mid to high eight hundreds.

Kevin Chiang: In and around that for the ongoing maintenance capex, which would yield you a sort of mid to high CAD 800 million number for recurring capex, you know, our interest expense that was previously low CAD 400 million is now a mid to high CAD 400 million in light of the incremental M&A spend. Then you have the other category of working cap, etc. I call that, you know, another sort of CAD 50 million, CAD 75 million in the year. Put that together, you have that baseline CAD 800 million free cash number for next year that we've been talking about. Then that grows at the rates we've been seeing because as you start getting operating leverage, particularly at the free cash flow line. You know, we articulated that that in 2025 goes to a CAD 1 billion number. I don't think you need to believe a lot to sort of see that.

<unk> number for recurring Capex.

Our interest expense that was previously low four hundreds is now mid to high four hundreds in light of the incremental M&A spend and then you have the other category.

Working cap et cetera, I'd call that another sort of $50 to $75 million and you put that together you are at that base by $800 million free cash number for next year that we've been talking about and then that grows at the rates we've been seeing because as you start getting operating leverage, particularly at the free cash flow line.

We articulated that that in $2025 to $1 billion number and I don't think you need to believe a lot to sort of see that now incremental growth or sustainability related capital spend as you alluded to would obviously be something in addition to that and I think as Patrick was articulating and I'll turn it to him.

Kevin Chiang: Now, incremental growth or sustainability-related capital spend, as you're alluding to, would obviously be something in addition to that. I think as Patrick was articulating and I'll turn it to him, we're still evaluating what those opportunities might look like. From our perspective, you know, we hope there's a large amount of those because of the return profile, you know, how attractive it is. Patrick, I'm not sure if you had additional comments.

Evaluating what those opportunities might look like but from our perspective, we hope there is a large amount of those because of the return profile.

As attractive as Patrick I'm not sure. If you had additional yeah and I think from our perspective, what we're thinking about it we're thinking about.

Patrick Dovigi: Yeah. I think from our perspective, the way we're thinking about it, we're thinking about the capital allocation between M&A and those capital deployments. That's really largely around EPR, right? We will toggle between the two to ensure that we're delevering at the same time, making the investments in sort of, you know, in M&A and making the investments around these EPR projects that, you know, again, there's multiple contracts out for bid that we're in negotiations for now. We'll have very good clarity on these by the end of January. We'll be able to give you that. Then we'll be able to sort of break out what the M&A spend is going to be and what, you know, the spend will be around, you know, these EPR initiatives. I think you're right down the middle of the fairway.

The capital allocation between M&A, and those capital deployment and Thats really largely around EPR right. So.

We will toggle between the two.

To ensure that we're delevering at the same time, making the investments in sort of an M&A and make any investments.

Around these EPR projects that again, there's there's multiple contracts out for bid that we are in negotiations for now we'll have very good clarity on these by the end of January.

So we'll be able to give you that and then we'll be able to sort of break out what the M&A spend is going to be and what the.

The spend will be around these EPR initiatives, but I think youre right down the middle of the fairway.

Luke Pelosi: You know, again, as Luke said, we have the commitment for 2024. We also have the commitment for 2025 for the CAD 1 billion of free cash flow. That was done in light of, you know, significantly lower rates. We feel very good about where we are. You know, our free cash flow growth is sort of outgrowing what our expectations were a couple of years ago. We'll continue to do so. We feel very good about where we are today.

As Luke said, we have a commitment for 2024, we also have a commitment for 2025 with a $1 billion $1 billion of free cash flow and that was done in light of significantly lower rates, but we feel very good about where we are.

Our free cash flow growth is sort of is outgrowing what our expectations were a couple of years ago and then we'll continue to do so so we feel very good about where we are today.

Michael Hoffman: That EPR spend was identified as a couple hundred million CAD this year, assuming it can all get done. The upside is another CAD 100 million if all these other ones are win. I got sort of CAD 300 million over the next this year, next year, maybe into 2025. Is that part of that? Then you've got your RNG spend as well.

And that EPR spend was identified as a couple of hundred million dollars. This year.

Get done.

The upside is another 100, if all these other ones are wins, so I got sort of 300 over the next this year next year, maybe in the 25. It is that part of that and then <unk>.

Got your R&D spend as well.

Patrick Dovigi: Yeah. That's right. Again, I don't want to comment sort of on the EPR spend yet because I actually don't know. There's a lot of balls up in the air. You know, we think we have pretty good visibility on what we're going to get. That's why I said I prefer to wait till the end of sort of January to give you detailed guidance. You know, it'll be this next wave is for contracts that are starting in 2025, between 1 January 2025 and 1 January 2026. You know, most likely, those spends will be pushed out anyways because now they're moving to the hauling portion of the EPR process. The facilities and the processing was done and sort of awarded. Now we're talking about the vertical integrated hauling contracts, transfer stations, etc. All of that is in process.

Yes, that's right again.

I don't want to comment sort of on the EPR spend yet because I actually don't know theres a lot of balls up in the air.

We think we have pretty good visibility on what we're going to get and that's why I said.

<unk> wait till the end of January to give you detailed guidance, but it.

It will be this next wave is for contracts that are starting in 'twenty five between January one 2025 and January one 2026, so most likely those spends will be pushed out any ways.

Because now they're moving to the hauling portion of the of the EPR proceeds so the facilities and the processing was done in sort of awarded and now we're talking about the vertical integrated hauling contracts transfer stations et cetera. So all of that is in process and we expect that to wrap up by the end of January to have very good clarity and <unk>.

Luke Pelosi: You know, we expect that to wrap up by the end of January, to have very good clarity and give you a very detailed bridge of capital that needs to be spent when the contract starts and when things are going the exact same way we will do RNG now as we have very good visibility on facilities, construction, permits, etc. All that is sort of well in hand now. We'll be able to give you know, not just a generic, Oh, it's going to be all online by 2026. We will actually show you how that all phases in over 2024, 2025, and then full sort of run right into 2026.

Give you a very detailed.

<unk> of.

Of capital that needs to be spent when the contract starts and when things going the exact same way we will do RMG now is we have very good visibility.

On facilities construction permits et cetera, all of that is sort of well in hand, now and we'll be able to give you.

Not just the generic all it's going to be all online by 2026, we will actually show you how that all phases in over 24%, 25% and then full sort of run rate into 'twenty six but Michael. This summary is the capital being deployed is that.

Luke Pelosi: Michael, the summary is the capital being deployed is at these sort of great risk-adjusted sort of rates, you know, in that 3x to 4x EBITDA we're saying. You know, whatever the ultimate dollar of capital is going to be, it's going to have a return profile consistent with that.

At these sort of great risk adjusted sort of rates in that three to four X EBITDA were saying so whatever the ultimate value dollar of capital is going to be it's going to have a return profile consistent with that.

Michael Hoffman: Okay. Last one is you're at 6.9% of revenues as your cash interest expense. Peers are in the mid-3s with the elevated cost these days of capital. How far out am I looking before you're back into that range of the peer group on a percent of the business model?

Okay last one as you are at six 9% of revenues as your cash interest expense peers are in the mid threes.

The elevated costs.

Capital.

How far out of my looking before you're back into that range of the peer group on a on a percent of the business model.

Luke Pelosi: Well, Michael, as Luke's saying, I mean, I think inherent in that question is, you know, the assumption of what I'm going to refinance my current debt stack at. The attempt of illustrating these pages was that there's some uncertainty in the underlying treasury. If you tell me where treasuries are going to go over the next sort of three to five years, I could answer that sort of precisely. I think the non-debatable amount is that our number is going to come down, the pace of which is somewhat tied to underlying treasury. That percentage is going to migrate towards that of the peer group. That's going to afford us a free cash flow per share, you know, growth tailwind that my peers just aren't going to have.

Well, Michael as Luc say I mean, I think inherent in that question is the assumption of what I'm going to refinance my current debt stack at an attempt of illustrating. This these pages was that there is some uncertainty in the underlying treasury. If you tell me where treasuries are going to go over the next sort of three to five years.

Good answer that sort of precisely, but I think the.

Non debatable amount is that our number is going to come down the pace of which is somewhat tied to underlying treasury, but that percentage is going to migrate towards that of the peer group and that's going to afford us a free cash flow per share growth tailwind that might curious just arent going to have.

Michael Hoffman: 4% tenure.

4%.

Tenure.

Patrick Dovigi: 4% tenure? That's your.

4% 10 year, that's your that's where it's going why does it going there.

Kevin Chiang: That's where it's going. When's it going there? Anyway, that's the direction of travel, Michael, that we will continue to move and migrate towards them.

Anyway, that's the direction that kind of direction of travel Michael that we will continue to move and migrate towards them.

Patrick Dovigi: I prefer 2.5, by the way.

I prefer to have by the way.

[laughter] Thanks for taking my question.

Michael Hoffman: All right. Thanks for taking my question.

Alright.

Operator: All right. Thank you for your question. Our next question comes from the line of Jerry Revich with Goldman Sachs. Jerry, your line is now open.

Thank you for your question. Our next question comes from the line of Jerry Revich with Goldman Sachs. Jerry Your line is now open.

Jerry Revich: Yes. Hi. Good morning, everyone. If we're taking a vote, I'll also vote for 2.5. Can I ask around the preliminary outlook for 2024 EBITDA growth? Is the landfill gas upside relative to that? You know, I think last quarter when we spoke, you know, it was about a CAD 65 million EBITDA tailwind at, you know, CAD 2 D3 RIN prices, which would be, you know, a nice 3% tailwind. Obviously, D3 RIN prices are up. Projects are a little to the right. Should we think about as landfill gas being upside to the 10% plus all in EBITDA growth you spoke about? Would you mind expanding on that point, Patrick and Luke? Thanks.

Yes, hi, good morning, everyone and if we're taking a vote.

Also look for two and a half.

Yeah.

Ask around the.

Yes.

Our preliminary outlook for 2000 for EBITDA growth.

Is the landfill gas upside relative to that I think last quarter when we spoke.

About $65 million EBITDA tailwind.

$2, <unk>, RIN prices, which would be a nice 3% tailwind obviously <unk>.

When prices are up.

Projects are a little to the right. So should we think about as landfill gas.

Upside to the 10% plus all in EBITDA growth.

Spoke about would you mind.

On that point.

Patrick Thanks.

Luke Pelosi: Yeah. Hey, Jerry. It's Luke. As Patrick alluded to in the prepared remarks, we're seeing a delay in some of these projects coming online. I think it's pretty sort of widespread in the industry. There's some permitting and other sort of just technical complexities that are shifting all these things anywhere from sort of three to six months to the right. You know, on that point, we want to get better clarity on our timing of what we're previously anticipated to be 2024 projects in terms of coming online because our experience is even if the construction is complete, some of these other sort of interconnects and pieces can add incremental time before you start actually monetizing the value off of that. As of where we sit today, we're moving our expectations to the right in terms of timing.

Yeah, Hey, Gerry it's Luc so as Patrick alluded to in the prepared remarks, we're seeing a delay in some of these projects coming online and I think it's pretty sort of widespread in the industry.

Permitting and other sort of just technical complexities that are shifting all of these things anywhere from sort of three to six months to the right and so on that point, we want to get better clarity on our timing of what were previously anticipated to be 2024 projects in terms of coming online because our experiences even the constructions.

Some of these other sort of interconnection pieces can add incremental time before you start actually monetizing the value off of that so.

As of where we sit today, we're moving our expectations to the right in terms of timing in that $65 million that you said before is probably close to half of that now I think thats, a conservative number and that's really tied to volume of RMG coming online.

Luke Pelosi: That CAD 65 million that you said before is probably close to half that. Now, I think that's a conservative number. That's really tied to volume of RNG coming online to the extent that projects materialize closer to the original timetable, there's some upside to that number. The current guide of at least 10 is contemplating RNG in that sort of 30 million-ish sort of range. To the extent that, you know, delays dissipate, there could be upside to that number. That's how we're thinking about RNG from where we sit today.

To the extent that projects materialize closer to the original timetable there is some upside to that number. So the current guide of at least 10 is contemplating RMG and that sort of $30 million ish sort of range.

To the extent that.

Delays.

Dissipates, there could be upside to that number but that's how we're thinking about R&D from where we sit today.

Patrick Dovigi: Yeah. Just from where we sit, Jerry, you know.

Yes.

Michael Hoffman: That's assuming CAD two.

Jerry.

Okay.

Patrick Dovigi: That's assuming CAD 2. Yeah. Just from where we sit today, you know, I think where experience now says, Listen, we brought on the Arbor Hills facility. You know, it really came on. Construction was finished in June, was commissioned over the summer, got it really online sort of in September, and just sort of working out kinks in the sort of quality of gas. I think we're moving things to the right just a little bit somewhere between four or six months after the plant's actually commissioned to get that up and actually running and selling the highest quality gas, you know, because the experience has been certainly in the first one is, yes, the facility works perfectly.

That's assuming $2, yes, and just from where we sit today.

I think.

Experience now says that we brought on the Arbor Hills facility.

It really came off construction was finished in June was commissioned over the summer got it really online sort of in September and just sort of working out kinks in the sort of quality of gas. So I think we're moving things to the right just a little bit somewhere between four to six months. After the plants actually commission to get that up and actually running and selling the <unk>.

Hi, its quality gas.

Because what we've already experienced has been certainly in the first one is yes. The facility worked perfectly but that it was going back and looking at the well field to make sure that oxygen and nitrogen levels are going into.

Luke Pelosi: You know, then it was going back and looking at the well fields to make sure that, you know, oxygen and nitrogen levels that were going into the, you know, were a little bit elevated in sort of the RNG was cleaned up. I think, you know, that took an extra sort of month or two. We're just being conservative now as, you know, now that we have real data and real experience in bringing these online at landfills where historically they haven't been.

We're a little bit elevated in sort of the R&D. It was cleaned up and I think that took an extra sort of month or two so we're just being conservative now is now that we have.

<unk> data and real experience in bringing these online at landfills, where historically they haven't been.

Jerry Revich: That definitely makes sense. Can I ask on the producer responsibility opportunities that you folks have obviously done really well with the programs to date, what's the blue sky scenario, you know, based on legislation that's being contemplated in your markets? How significant of an opportunity could that be, you know, for looking out over the next couple of years? What kind of visibility do we have?

Definitely makes sense.

And then can I ask on the producer responsibility opportunity you said you folks have obviously done really well with the programs.

Date.

What's the Blue Sky scenario based on legislation, that's being contemplated in your markets, how significant of an opportunity could that be.

Looking out over the next couple of years.

What kind of visibility that we have.

Patrick Dovigi: Yeah. I think where we sort of sit today, we said we communicated 40 to 50 before. I think in reality, it could be 2x that, maybe more, depending on what happens in a couple of the other provinces, which is sort of coming to fruition now. It seems as though the model we've developed along with the producers seems to be being accepted by other provinces as the sort of gold standard. Again, you know, this is a file that sort of I've intimately been involved with for sort of a number of years. It's sort of near and dear to my heart. I think from where we sit today, the other provinces in Canada are going to adopt the gold standard of what we've developed here in Ontario. Quebec is certainly moving that way. The Maritimes are certainly moving that way.

Yeah, I think where are we sort of sit today. We said we've communicated 40 to 50 before I think in reality it could be.

<unk> that may be more.

Depending on what happens in a couple of the other provinces, which is sort of coming to fruition now.

It seems as though the model we've developed along with the producers.

<unk> seems to be being accepted by other provinces as the sort of gold standard. So again. This is a file that sort of ive intimately been involved with for sort of a number of years.

So it's sort of near and Dear to my heart, but I think from where we sit today.

Other provinces in Canada are going to adopt the gold standard of what we've developed here in Ontario.

<unk> is certainly moving that way the maritime to shortly moving that way.

Patrick Dovigi: Alberta is certainly moving that way. Still some discussion around Manitoba and Saskatchewan. I can tell you know, the opportunity is going to continue to grow from here. You know, just given our asset positioning in Canada and the markets where we are and the facilities we have and the collection contracts we already have, our expertise, know-how, and sort of being able to work with the producers hand in hand to sort of come up with and develop this and get this done actually in the most efficient way possible is yielding very good results.

Alberta is certainly moving that way.

Some still some discussion around Manitoba, and Saskatchewan, but I can tell you the opportunity is going to continue to grow from here and just given our asset positioning in Canada in the markets, where we are in the facilities. We have in the collection contracts, we already have our expertise knowhow and sort of being.

Able to work with the producers hand in hand to sort of come up with and develop this.

And get this done actually in the most efficient way possible.

Patrick Dovigi: I think, you know, it's a win-win for the industry because it was, you know, this was a program that, you know, could have potentially created a lot of, you know, uncertainty for not only waste collectors but producers but, you know, residents, etc., municipalities, governments, etc. I think the plan has come together exceptionally well. Again, like I said, it'll be a win-win for everyone.

Is yielding very good results and I think it's a win win for I think it's a win win for the industry. Because there was this was this was a program.

Scott.

Could it potentially created a lot of uncertainty for not only wage collectors, but producers but.

Residents et cetera municipalities governments et cetera, and I think the plan has come together exceptionally well and again like I said it will be a win win for everyone.

Michael Hoffman: Well done. Thank you.

Well done thank you.

Operator: Thank you for your question. Our next question comes from the line of Rupert Merer with National Bank. Rupert, your line is now open.

Thank you for your question. Our next question comes from the line every partner with National Bank. Your line is now open.

Rupert Merer: Thank you. Good morning. Thanks for taking the question. Luke, with the environmental services business, you highlighted expanded service capabilities and improved asset utilization as having driven growth in that business since you acquired Terrapure. How much more low-hanging fruit do you see there? How can that drive the pace of growth and margins going forward?

Thank you good morning, Thanks for taking the question.

Look with the environmental services business, you highlighted expanded service capabilities and improved asset utilization as having driven growth in that business since you acquired <unk>.

Much more low hanging fruit do you see there and how can that drive the pace of growth and margins going forward.

Luke Pelosi: Well, Rupert, I think as we've said, we see a clear line of sight to that business, you know, approaching a sort of 30% margin over the sort of medium term. That's going to be a function of those levers you just described, you know, really making that combined platform hum, if you will, in terms of asset optimization, but also just the benefits of pivoting to a sort of price-centric growth model. You know, as we've gone through, we've talked about shedding of work in our solid waste business that doesn't meet appropriate return thresholds. There's a similar dynamic there. We need to be paid the appropriate amount for the work that we do. We're going to continue to lead with that approach. You can see the margin expansion we're realizing today.

But I think as we've said, we see a clear line of sight to that business. Unfortunately sort of 30% margin over the sort of medium term and that's going to be a function of those levers you just describes really making that combined platform hub. If you will in terms of asset optimization, but also just the benefits of pivoting to a soda.

Price centric growth model as we've gone through we've talked about shedding of.

Work in our solid waste business that doesn't meet appropriate return thresholds and there's a similar dynamic that we need to be paid the appropriate amount for the work that we do and we're going to continue to lead with that approach and you can see.

The margin expansion, we're realizing today.

Luke Pelosi: You know, I think it shouldn't be overlooked, the impact of achieving that result inclusive of the contaminated soil. I mean, you're here in the sort of, you know, Ontario, Canadian market, you know, the slowing down of that. That's very high-margin special waste, if you will. You know, I think achieving those results even inclusive of that headwind is a real testament to what's happening there. We continue to expect to see this, you know, what was a low 20s and now mid 20s moving to the high 20s, leading to a sort of 30% margin business over the medium term as we previously communicated.

I think it shouldnt be overlooked the impact of achieving that results inclusive of the contaminated soil you here in Ontario.

The Canadian market, the slowing down of that Thats very high margin special waste, if you will and.

Achieving those results even inclusive of that headwind is a real testament to what's happening there. So we continue to expect to see this.

What was the low twenty's and our mid twenties moving into high twenties, leading to us with a 30% margin business over the medium term as we previously communicated.

Rupert Merer: What do you think you could achieve on top line, had a little bit lower top line growth this quarter? Is that a sustainable rate that we see this quarter? Or could we expect you could outperform that?

What do you think you could achieve on top line had a little bit lower topline growth this quarter.

Is that a sustainable rate that we see this quarter or could we expect you could you could outperform that.

Luke Pelosi: Yeah. That was the intent of the page to show that historical perspective because, you know, we've been trying to talk folks down of, you know, expectation management when we were printing 25% plus organic growth quarter after quarter. That really was, you know, a multitude of factors combining to yield that sort of outcome. As we go forward from today, what we said at the beginning of the year, you know, and we continue to believe, I think a mid to high single-digit organic top line cadence primarily driven by price is what we are going to be striving for in this business. There's a little bit of sensitivity around things like soil and/or, you know, the modest impact from Motiva or other sort of oil pricing. I can move that around the edges.

Yes, so that was the intent of the page to show that historical perspective, because we've been trying to talk folks down of expectation management. When we were at <unk>, 25% plus organic growth quarter. After quarter. I mean is that really was.

A multitude of factors combining to yield that sort of outcome and so as we go forward from today, what we said at the beginning of the year as we continue to believe I think a mid to high single digit organic top line cadence primarily driven by price is what we are going to be striving for in this business, there's a little bit of sensitivity around things like soil.

And or the modest impact from motiva or other sort of oil price and that can move that around the edges, but I think from a long term modeling perspective, the way, we're thinking about that as a mid to high single digit primarily price driven topline growth.

Luke Pelosi: I think from a long-term modeling perspective, the way we're thinking about that is a mid to high single-digit, primarily price-driven top line growth.

Rupert Merer: Great. Then as a follow-up on a somewhat related company, wondering if you can give us an update on GFL Infrastructure. How are they doing? What are your plans for future involvement?

Great and then as a follow up on a somewhat related company I'm wondering if you can give us an update on GSL infrastructure, how are they doing and what are your plans for future involvement.

Patrick Dovigi: Yeah. I mean, infrastructure business, obviously, as you know, there's a lot of projects that have recently come to fruition. You know, the business, again, just we had to sort of, as I said last call, running through some of the inflationary costs and pressures on some fixed-rate contracts, which are rolling off, you know, between now and sort of mid-2024. We are bringing on sort of a lot of new work. We've been shortlisted for a lot of new work. You know, the outlook for that business is sort of very positive. You know, we will be opportunistic with that business when the time comes. You know, my expectation is, you know, we're going to get through 2024 and into 2025, you know, and hopefully the world sort of in a better place.

Yes, I mean infrastructure business, obviously as you know.

There's a lot of projects that have recently.

Come to the fruition the business again, just we had to sort of as I said last call running through some of the inflationary cost pressures on some fixed rate contracts, which are rolling off between now and sort of mid 2024.

But we are bringing on sort of a lot of new work and we've been shortlisted for a lot of new work.

The outlook for that business is sort of very positive.

<unk>.

We will be opportunistic with that business when the time comes <unk>.

My expectation is we're going to get through 2024 and into 2025.

And hopefully the world sort of in a.

Better placed.

Luke Pelosi: We'll look to sort of maximize and optimize value out of that business in some format the way we've done with every other sort of part of our business over time. It's performing well. It's great. You know, I think when you look at the infrastructure spends that particularly the governments, both in sort of Eastern Canada and Western Canada, are looking to spend, particularly around transportation. You know, when you look at the infrastructure budget today, around 80% of the infrastructure spends are hospitals and roads, which are things that are right down the middle of Fairway, exactly what we do. We think it'll be a very positive outcome.

And we will look to sort of maximize and optimize value.

Out of that business in some format the way we've done with every other.

Part of our business over time, but it's performing well it's great.

And I think when you look at the infrastructure spend that particularly out of the governments, both in sort of eastern Canada, and Western Canada looking.

Spend.

Particularly around transportation.

When you look at infrastructure budgets today around $80, 80% of the infrastructure spend.

Our hospitals enrolls, which are things that are right down the middle of fairway exactly what we do so.

We think it will be a very positive outcome.

Rupert Merer: Great. I'll leave it there. Thank you.

Alright ill leave it there thank you.

Patrick Dovigi: Thanks, Rupert.

Thanks Rupert.

Operator: Thank you for your question. Our next question comes from the line of Michael Doumet with Scotiabank. Michael, your line is now open.

Thank you for your question. Our next question comes from the line of Michael <unk> with Scotiabank. Michael Your line is now open.

Michael Doumet: Hey. Good morning, guys.

Hey, good morning, guys.

Patrick Dovigi: Good morning.

Patrick Dovigi: Just a question on the 2024 margin. Hey. Good morning. On the 2024 margin expansion, I know still early, Luke, but, you know, would you be able to quantify the margin expansion from the divestiture as well as the intentional volume shedding this year into next year because, you know, presumably, that would be additive to the price-cost spread?

So one question on the 2024 margin Hey, good morning.

On the 2020 for margin expansion I know, it's still early but.

Would you be able to quantify the margin expansion from the divestiture as well as the potential volume shedding this year into next year, because presumably that would be additive to the price cost spread.

Luke Pelosi: Yeah. That's right. I mean, the net M&A number will be a function of the impact of the divestitures, which is slightly margin accretive at solid and relatively neutral to sort of baseline number in conjunction with the incremental net new rollover. What we're going to do, Michael, as part of the 2024 guide, we'll lay out all those sort of moving pieces based on, you know, where we end up for this year. You know, we've contemplated internally actually providing the specific numbers for Q1 and Q2 related to those divestitures so folks can model that appropriately. We are going to wait to Q4 before we get into the particulars of that nature.

Yes, that's right.

The net M&A number will be a function of the impacts of the divestitures, which is slightly margin.

Accretive, it's solid and relatively neutral to set a baseline number in conjunction with the incremental net new rollover and what we're going to do Michael as part of the 2024 guide, we'll lay out all of those sort of moving pieces based.

Based on where we ended up for this year and we've contemplated internally actually providing the specific numbers for Q1 and Q2 related to those divestitures. So folks can model that appropriately, but we're going to wait to Q4 before we get into the particulars of that nature.

Michael Doumet: Okay. Thank you. maybe just turning to the inflation trends in the business, you know, particularly as it relates to labor and R&M, you know, maybe just discuss, you know, what you're seeing today versus H1 and how you're tracking into 2024.

Okay. Thank you.

And then maybe just turning to the inflation trends in the business.

Particularly as it relates to labor in R&M.

Maybe just discuss what youre seeing today versus first half and how youre tracking into 2024.

Luke Pelosi: Yeah, this is Luke speaking. I'd say at a high level, it's trending as anticipated, albeit at a slower rate. I mean, at the labor line, it's clear that things are getting better. You know, I don't think it's quite as improvement as we had hoped for. But certainly, at the sort of wage rate and the rate of wage inflation, you're seeing improvement there. I think on the R&M side, I don't think we're alone within the industry where we said, you know, headwinds in that line have continued to persist. Again, appears to be getting better. Supply chain improvements are providing, you know, the trucks that we were missing. We look at, you know, the rental trucks that we were using last Q4 versus today.

Yeah. This is Luke speak I'd say at a high level, it's trending as anticipated, albeit at a slower rate.

I mean at the Labor line, it's clear that things are getting better.

I don't think its quite.

As improvement as we had hoped for but certainly at the sort of wage rate and the rate of wage inflation youre seeing improvement there.

Think on the R&M side I don't think we're alone within the industry, where we said headwinds in that line of continuing to persist.

<unk> appears to be getting better supply chain improvements are providing the trucks that were missing we look at the rental trucks that we were using last Q4 versus today and that number has come down sort of 90%, which I think is indicative of the.

Luke Pelosi: That number's come down sort of 90%, right, which I think is indicative of, you know, the improvement in those sort of supply chain constraints. As we said on the call in Q2, I mean, our expectations for the improvement of that R&M line in H2, you know, we're probably going to exit the year 50, 70 basis points as a higher R&M cost and percentage of revenue than we previously anticipated. I'd say everything appears to be moving in the right direction, albeit a little bit slower than anticipated.

Improvement in the sort of supply chain constraints, but as we said on the call in Q2, I mean, our expectations for the improvement of that R&M line in the back half of the year.

We're probably going exited the year 50, 70 basis points as the higher R&M costs as a percentage of revenue that we previously anticipated.

So I'd say everything appears to be moving in the right direction, albeit a little bit slower than anticipated.

Michael Doumet: Thanks for that. One quick one, just for the capital outlay for M&A in Q4 for the deals completed?

Yeah.

Thanks for that and one quick one just for the capital outlay for M&A in Q4 for the deals completed.

Luke Pelosi: Sorry. Oh, what have we spent subsidized in the quarter end? It's about CAD 200 million approximately post-quarter end.

Sorry, Oh, what did we spend subsequent to quarter end.

It's about 200 $200 million approximately post quarter end.

Michael Doumet: Perfect. Thanks for the questions, guys.

Perfect. Thanks for the questions guys.

Luke Pelosi: Thanks, man.

Thanks, Dan.

Operator: Thank you for your question. Our next question comes from the line of Walter Spracklin with RBC. Walter, your line is now open.

Thank you for your question. Our next question comes from the line of Walter <unk> with RBC.

Your line is now open.

Walter Spracklin: Yeah. Thanks very much, Alfred. Good morning, everyone. I just wanted to zero in on the pricing. I know some focus has been on that having to come down as you lap harder comps. I'm a little more focused on the spread and the evolution of the spread. I know you touched on labor and some of the costs there. I get the sense that at 8.8%, you've now expanded your pricing to well cover costs. You're in a pretty good spot here now. Even if that headline pricing comes down, my question is whether you can hold onto a little bit higher spread than what you've been able to hold onto in the past given the stickiness in some of those contractor pricing. Just your thoughts on that spread.

Okay. Thanks, very much operator, good morning, everyone I just wanted to zero in on the pricing and I know some focus has been on not having to come down as you lap harder harder comps.

Little more little more focused on the spread and the evolution of the spread I know you touched on on labor and some of the costs, there, but I get the sense that at eight 8% you've you've now expanded your pricing to well cover.

Costs and you're in a pretty good spot here now and even if that headline pricing comes down. My question is whether you can hold on to a little bit higher spread than what you've been able to hold on to in the past given the stickiness and in some of those contracted pricing just your thoughts on that spread.

Luke Pelosi: Hey, Walter. It's Luke speaking. I think that's absolutely right. While price is decelerating, it's doing so at a slower pace than, you know, cost. You're going to have this widening of the spread. I think if I look at pricing into next year, it's not going to be as high as it was this year. I think we feel highly confident we're going to have a wider spread than we did this year because this year was really the sort of tale of two halves, right? You know, the double-digit price recorded in Q1 was lovely to see as a headline. You saw that margins were backwards year over year. You know, as prices come down, the margin expansion, I think, is really what we're after. We're feeling really optimistic about the 2024 setup.

Yes.

Hey, Walter It's Luc speaking I think that's absolutely right and while price is decelerating, it's doing so at a slower pace than then.

And so.

Youre going to have this widening of the spread I think if I look at pricing into next year, it's not going to be as high as it was this year, but I think we feel highly confident we're going to have a wider spread than we did this year. Because this year was really to sort of a tale of two paths right.

The double digit price recorded in Q1 was lovely to see as a headline but you saw that margins were backwards year over year.

As prices come down the.

The margin expansion I think is really what we're after and so we're feeling really optimistic about the 2024 setup and it's partially for that exact reason that I think youre going to have this more stable cost number might be a little bit higher than what we had hoped for when we started 2023, but I think we've.

Luke Pelosi: It's partially, you know, for that exact reason that I think you're going to have this more stable cost number. It might be a little bit higher than what we had hoped for when we started 2023. You know, I think we've demonstrated that us and the industry as a whole will price at the level we need to be. I think the backdrop is very favorable going into 2024.

<unk> that us and the industry as a whole will price at the level, we need to be and I think the.

Backdrop is very favorable going into 2024.

Walter Spracklin: That's great. Just my follow-up here is on the tenor of the M&A pipeline. I know you dialed back a little bit your acquisitions or, you know, the tempo a bit for this year as you realigned leverage down toward the 4 level. I know you've got 3 and a half kind of penciled in for end of year next year. Is that predicated on a, you know, on a consistent level of M&A that you've seen this year? Can you, as you become more cash flow generative, start to reaccelerate your M&A and still be able to achieve that mid-3 target for next year?

That's great and just.

My follow up here is on the tenor of.

Of the M&A pipeline and I know you dialed back a little bit your acquisitions or.

The tempo a bit for this year as you realigned leverage down toward the four level and I know you've got three and a half kind of penciled in for next year is that predicated on.

On a.

On a consistent level of M&A that you've seen this year or can you as you become more cash flow generative start to Reaccelerate, your M&A and still be able to achieve that mid <unk> mid.

Mid three target for next year.

Patrick Dovigi: I think from where we sit today, you know, it's going to be a question of what you buy, where you buy, what the synergies are, etc., and what price you have to pay for those targets. That is all going to sort of go in the blender in terms of where we look at how we deploy those dollars coupled together with how many dollars we have to deploy, you know, into these EPR-related initiatives. I mean, we're looking at the EPR spend bucket and M&A as one. You know, it's really just deploying those dollars and where's the capital best allocated once we see the whole host of opportunities that are going to in the final plan that sort of comes out of EPR. You know, do I think you're going to see a material acceleration? No. The answer is no.

Yes, so I think from where we sit today.

It's going to be a question of what you buy where you buy what the synergies are.

Et cetera, and what price you have to pay for those targets. So that is all going to go in the blender in terms of.

Where we look at how we deploy those dollars coupled together with how many dollars we have to deploy.

Cds EPR related initiatives I mean, we're looking at the EPR spend bucket and M&A is one so.

So it's really just deploying those dollars and whereas the capital Thats allocated once we see the whole host of opportunities that are going to in the final plan that sort of comes out of EPR.

Do I think youre going to see a material acceleration no. The answer is no.

Patrick Dovigi: You know, we are focused on sort of, you know, a healthy balance between sort of densifying, tucking in M&A, EPR spend, as well as, you know, just a natural delevering course. You know, I think, you know, we sit this is the time you know, this is also actually the time you want to deploy dollars. I mean, when you have private equity and infrastructure funds, etc., sort of sitting on the sidelines because their ability to finance these transactions at attractive rates with attractive leverage levels has become tougher as the banks have tightened up and as the loan market has tightened up. It's really left a pretty good wide-open market for strategics and put us in a very good position. You know, similar to, like, GFL. You know, do you want to buy GFL when it's trading at 15x or 16x?

We are focused on sort of healthy balance between sort of densify tuck in M&A EPR spend as well as just the natural delevering cores.

I think we said.

This is the timing.

This is also actually the time you want to deploy dollars I mean, when you have private equity and infrastructure funds et cetera sort of sitting on the sidelines because.

Their ability to finance these transactions at attractive rates with attractive leverage levels.

Become tougher as the banks have tightened up and as the loan market has tightened up so its really left.

I'm pretty good wide open market market for strategics and put us in a very good position.

Similar to La <unk>.

Do you want to buy GFS, when it's trading at 15, or 16 times or do you want to own GFS. When you can buy it at 11.

Patrick Dovigi: Do you want to own GFL when you can buy it at CAD 11, right? In theory, you should be buying it at CAD 11. When people are fearful, they're not buying anything. I think that's a similar dynamic that's playing out in the M&A market now because of the backdrop around the leverage finance market for non-strategics.

In theory, you should be buying another 11 when people are fearful, they're not buying anything and I think that similar dynamic thats playing out in the M&A market now because of the backdrop around the leveraged finance market for non strategics.

Walter Spracklin: That's awesome. I appreciate the color, as always.

That's helpful. I appreciate the color as always.

Luke Pelosi: Thanks, Walter.

Patrick Dovigi: Thanks, Walter.

Thanks, Paul Thanks Walter.

Operator: Thanks for your question. Our next question comes from the line of Stephanie Yee with JPMorgan. Stephanie, your line is now open.

Thanks for your question. Our next question comes from the line of Stephanie Yee with Jpmorgan.

Your line is now open.

Stephanie Yee: Hi. Good morning.

Hi, good morning.

Luke Pelosi: Good morning.

Good morning.

Stephanie Yee: Could I clarify on the CAD 210 million of M&A rollover in 2024? If that includes the four acquisitions that you've already done post the Q3.

Okay.

Okay clarify on the 210 million M&A rollover in 'twenty or does that include the four acquisitions that you've already done post the third quarter.

Luke Pelosi: Yeah. That's right, Stephanie. When we updated, I think we said in the press release CAD 325 million of acquired revenue. If you recall from Q2, that was about CAD 50 million. Implying about CAD 275 million were acquired post Q2. There is roughly CAD 200 million in Q3 and approximately CAD 75 million post Q3. That CAD 210 is the accumulation of everything we have acquired this year.

Yes, that's right Stephanie when we updated that I think we said in the press release $325 million of acquired revenue.

If you recall from Q2 that was about $50 million.

Implying about $275 million acquired post Q2 is roughly $200 million in Q3, and approximately $75 million post Q3 in that 210 is the accumulation of everything we've acquired this year.

Stephanie Yee: Okay. Great. Just could you talk about the recent activity trends you're seeing in your different lines of business? Resi, industrial post-collection, any changes in kind of the cadence of activity in recent months?

Okay great.

Could you talk about.

And at some of the trends you're seeing in your different lines of business.

Industrial took collection.

Changes in kind of the key activity.

Right.

Patrick Dovigi: No. There hasn't been much, at least. I think the biggest, I would say the only main impact we've seen is really just around sort of large urban markets, particularly around sort of the small amount of C&D open rolloff container collection. I mean, we've seen that dip off in some of the larger markets in Canada, not as much in the US. Again, some special weights, particularly around soil volumes, etc. Other than that, it's been pretty much status quo.

No there hasn't been much or at least I think the biggest.

The only impact we've seen is around.

It's really just around sort of large urban markets, particularly around sort of the small amount of <unk>.

<unk> opened roll off container collection, I mean, we've seen that dip off in some of the larger markets in Canada not as much in the U S.

And again, some special ways, particularly around soil volumes et cetera, but other than that it's been pretty much status quo and Stephanie I think thats in part a testament of our the market selection you've heard us speak a lot about this I mean, the secondary market focus and a lot of it concentrated in the faster growing areas of the U S. Southeast I think bodes well for us in terms of that sort of volumetric.

Luke Pelosi: And Stephanie, I think there's some parted testaments around the market selection. You've heard us speak a lot about this. I mean, the secondary market focus and a lot of it concentrated in the faster-growing areas of the US Southeast, I think, bodes well for us in terms of that sort of volumetric growth. Although we've maintained, I think, the guide as about a -2% overall negative volume for the year, you know, it's really 210 basis points of shedding and exiting non-core with underlying positive sort of volume growth. Yes, C&D-related stuff around the edges and certainly the sort of contaminated soil in the Toronto area as we articulated in the environmental services segment. By and large, you know, I think we've yet to see any material impacts.

Growth. So although we have maintained I think the guide is about a negative 2% overall negative volume for the year, It's really 210 basis points of shedding and exiting non core with underlying positive volume growth. So, yes, C&D related stuff around the edges and certainly the sort of contaminated soil in the Toronto area as we articulated in the.

Environmental services segment.

But by and large.

I think we've yet to see any material impacts.

Stephanie Yee: Okay. Great. That was great color. Thank you.

Okay, Great that was great color. Thank you.

Operator: Thank you for your question. Our final question comes from the line of Chris Murray with ATB Capital Markets. Chris, your line is now open.

Thank you for your question. Our final question comes from the line of Chris Murray with ATB capital markets. Chris. Your line is now open.

Chris Murray: Yeah. Thanks, guys. Just one final kind of cleanup. Just thinking about capital and self-help initiatives, can you guys maybe lay out how should we think about 2024? How much is going to be capital-driven? You talked a little bit about the fact that, you know, you would probably have pulled ahead some capital into 2023. Maybe you didn't even 2024. You know, Luke, just listening to you, it feels like a lot of what's left to be done now would be more around pricing and just process. If you can just lay it out how you think, you know, capital plays into what you can do for margins, that would be great.

Yes. Thanks, guys. So just one final kind of clean up just thinking about capital and self help initiatives.

Can you guys, maybe lay out how should we think about 'twenty four and how much is going to be capital driven.

You talked a little bit about the fact that you would probably get pulled ahead some capital into 'twenty three maybe even in 'twenty four but look just listening to you. It feels like a lot of what's left to be done now would be more around pricing and just process. So if you use it laid it out I think capital plays into what you can do for March.

That would be great.

Yes.

Luke Pelosi: Yeah, Chris. I'd bifurcate it into two separate buckets. We have a whole host of organic operational-type initiatives that are what I would call capital light that, you know, we are actively pursuing. You can think about sort of pricing-related items. Some of those will have a modest capital sort of requirement. If you think about some of the ancillary charges for blocked bins or overflowing bins, there is some truck augmentation that you do. By and large, a lot of those self-help levers are what I would call is capital light. You have this separate bucket of incremental, largely sustainability-related growth items. Those, you know, will have an incremental capital component to them. You know, I think what we said already is roughly CAD 40 to 50 million coming out of EPR. You spend sort of roughly CAD 200 million for that.

Yes, Chris So I would bifurcate into two separate buckets, we have a whole host of organic operational type initiatives that are what I would call. It capital light that we are at.

Actively pursuing and you can think about sort of pricing related items. Some of those will have a modest capital requirement, even thinking about some of the ancillary charges for blocked bins are overflowing keeping hands. There is some truck augmentation that you view, but by and large a lot of those self help levers are what I would call is capital light and then you have the separate bucket of ink.

<unk> largely sustainability related growth items, and those will have an incremental capital component to them.

What we said already is roughly 40% to $50 million coming out of EPR and it's been sort of roughly $200 million for that that would be incremental growth and to the extent that that opportunity can grow above that there'll be a corresponding incremental capital investment, but the self help within the existing portfolio I would describe as relatively capital.

Luke Pelosi: That would be incremental growth. To the extent that that opportunity can grow above that, there'd be a corresponding incremental capital investment. The self-help within the existing portfolio, I would describe as relatively capital light. It's really how much above and beyond incremental growth opportunity are we going to be successful in securing? That's what, you know, as Patrick said, we need another sort of quarter or so before we put a finer point on that.

Right.

It's really how much above and beyond incremental growth opportunity are we going to be successful in securing and thats as Patrick said, we need another quarter or so before we put a finer point on that.

Chris Murray: All right. Fair enough. Maybe just to come back to it, I mean, you did put out the number in the deck thinking about, you know, your leverage, you know, how it came down in the Q. About half of it was deployed into new growth. Is that maybe a different way to frame it as to think about of that 60 to 70 basis points and natural delivering? Maybe think about half of it goes back into growth initiatives. Half of it goes to debt reduction as we go into the next couple of years.

Alright fair enough.

And maybe just to come back to it I mean, you did put out the number in the deck and thinking about.

Your leverage.

How it came down in the quarter and about half of it was deployed into new growth is that maybe a different way to frame. It is to think about of that 60 to 70 basis points and natural delivering maybe think about half of that goes back into growth initiatives half of it goes to.

Debt reduction is a result.

Go into the next several years.

Luke Pelosi: I think that ratio was historically true. Now, as this inflection point has been reached with the free cash flow generation and EBITDA growth dollars of the business, the relative impact of M&A and other capital deployments is much more muted compared to that deleveraging capability. This goes back to, you know, you hear from Patrick and myself, the conviction in the deleveraging because the base business deleveraging profile is so robust that even, you know, larger amounts of M&A do relatively, you know, immaterial sort of change to that. I think if you're modeling a 65, 75 basis point organic deleveraging in a normal course model, M&A and other things move that to the tune of 10 to 20 basis points, not, you know, to the tune of half of that.

I think that that ratio is historically true, but now as this inflection point has been reached with the free cash flow generation and the EBIT growth dollars of the business the relative impact of M&A and other capital deployment is much more muted compared to that deleveraging capability and this goes back to you.

From Patrick and myself, the conviction and the deleveraging because the base business deleveraging profile is so robust that even larger amounts of M&A two relatively immaterial sort of change to that so I think.

If youre modeling, a $65 75 basis points organic.

Deleveraging in a normal course model M&A and other things move that to the tune of 10 to 20 basis points not to the tune of half of that.

Chris Murray: Okay. That's helpful. Thanks, guys.

Okay. That's helpful. Thanks, guys.

Luke Pelosi: Thanks.

Yes.

Operator: Thank you. Thank you for your question. This concludes our question and answer session for today's call. I will now pass back for any final remarks. Thank you.

Thanks. Thank you. Thank you for your question. This concludes our question and answer session for today's call I will now pass back for any final remarks. Thank you.

Patrick Dovigi: Thank you, everyone. Appreciate the support as always. We look forward to speaking to you after Q4. Thank you very much.

Thank you everyone and I appreciate the support as always and we look forward to speaking to you. After Q4. Thank you very much.

Okay.

Operator: This concludes today's GFL Environmental 2023 Q3 earnings call. Thank you for your participation. You may now disconnect your line.

This concludes today's Tfl environmental 2023, Q3 earnings call. Thank you for your participation you may now disconnect your line.