Q4 2023 GFL Environmental Inc Earnings Call

Good morning, My name is Jerome and I'll be your conference call for Asia today at this time I would like to welcome everyone did yes, I'll environment. So it forced to close out 2023 earnings call. All lines have been placed on mute to prevent any background noise.

Patrick Dovigi: My name is Drew. Go ahead when you are ready. Thank you and good morning. I'd like to welcome everyone to today's call and thank you for joining us. This morning, we will be reviewing our results for the fourth quarter and providing our guidance for 2024. I'm joined this morning by Luke Pelosi, our CFO, who will take us through the forward-looking disclaimer before we get into details. Thank you, Patrick. Good morning, everyone, and thank you for joining us.

After the Speakers' remarks, there will be a question answer session if you'd like to ask a question. Please press star followed by one on the telephone keypad. If you change your mind Press Star followed by two please stick to one question and one follow up I will now hand over to Patrick to V. G founder and CFO of G. F out. Please go ahead when you're ready.

Patrick: Thank you and good morning, I'd like to welcome everyone to today's call and thank you for joining US. This morning, we will be reviewing our results for the fourth quarter in providing our guidance for 2024.

Unnamed Speaker: 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, which is also available on our website.

Patrick: I am joined this morning by Luc <unk>, our CFO, who will take us through the forward looking disclaimer before we get into detail.

Luc: 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 is also available on our website.

Luke Pelosi: 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 statement.

Luc: 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 for.

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

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. securities regulators. I will now turn the call back over to Patrick. Thank you,

Luc: A discussion of certain non <unk> measures a reconciliation of these non <unk> measures can be found in our filings with the Canadian and U S Securities regulators I will now.

Luc: Turn the call back over to Patrick. Thank you look throughout 2023, we continue to implement our strategy by building on the strength of our best in class platform. Some of the highlights of the year included.

Patrick Dovigi: Throughout 2023, we will continue to implement our strategy by building on the strength of our best-in-class platform. Some of the highlights of the year included executing our pricing strategy across a solid waste platform, retrieving an industry-leading core price of 9.8%, the highest in company history and leading to outsized margin expansion. Growing environmental services revenue by over 17% and achieving best in class adjusted even margins of 26%, deleveraging almost a full turn to over 50% was coming from organic growth of the business. Optimizing our footprint with the divestiture of three non-core U.S. solid waste markets for $1.6 billion at mid-teens multiples and advancing our initiatives related to the quality of earnings and asset utilization in both our solid waste and environmental service segments. This includes the intentional shedding of low-margin business and non-core revenue that do not satisfy our return requirements.

Patrick: Executing on our pricing strategy across our solid waste platform, achieving industry, leading core price of nine 8% the highest in company history, and leading to outsized margin expansion.

Patrick: Growing environmental services revenue by over 17% and achieving best in class adjusted EBIT margins of 26%.

Patrick: Deleveraging almost a full turn over 50% was coming from organic growth of the business optimizing our footprint most of the Divesture of three noncore U S solid waste markets for $1 6 billion at mid teens multiples and advancing our initiatives related to the quality of earnings and asset utilization in both our solid waste and environmental.

Patrick: Service segments.

Patrick: This includes the intentional shedding of low margin business and non core revenue that do not satisfy our return requirements. The.

Patrick Dovigi: The impact of the steps we took is reflected in our exceptional performance for 2023, once again demonstrating the ability of our team to create long-term equity value for our shareholders. Fourth quarter adjusted EBITDA margin grew 200 basis points from the prior year with 245 basis points of underlying solid waste margin expansion and 180 basis points of margin expansion from our environmental services business. Adjusted EBITDA grew by over 21% from the prior year, excluding the impact of the divestiture.

Patrick: The impact of the steps we took are reflected in our exceptional performance for 2023, once again, demonstrating the ability of our team to create long term equity value for our shareholders.

Patrick: Fourth quarter adjusted EBITDA margin grew 200 basis points from the prior year with 245 basis points of underlying solid waste margin expansion and 180 basis points of margin expansion from our environmental services business.

Patrick: Adjusted EBITDA grew over 21% from the prior year, excluding the impact of the divestitures.

Patrick Dovigi: The record high voluntary labor turnover rates that we saw in 2021 and 2022, as well as supply chain constraints, continue to sequentially improve, and we expect to continue to see the positive impact of these trends into 2024. For acquisitions, in 2023, we deployed approximately 900 million into 39 acquisitions. We expect these acquisitions to generate revenue of approximately $355 million on an annualized basis.

Patrick: The record high voluntary labor turnover rates that we saw in 2021 and 2022 as well as supply chain constraints continue to sequentially improve and we expect to continue to see the positive impact of these trends into 2024.

Patrick: On acquisitions in 2023, we deployed approximately $900 million into 39 acquisitions.

Patrick: We expect these acquisitions to generate revenue of approximately $355 million on an annualized basis. We also deployed approximately $275 million into incremental organic initiatives, primarily in R&D and EPR related opportunities.

Patrick Dovigi: We also deployed approximately $275 million into incremental organic initiatives, primarily in R&G and EPR-related opportunities. We continue to believe that these opportunities represent some of the best risk-adjusted returns that we have seen and will provide significant upside to our long-term pre-cash flow trajectory in the coming year. Turning to our balance sheet, we ended the year with net leverage of about 4.1x, almost a full term lower than where we ended

Patrick: We continue to believe that these opportunities represent some of the best risk adjusted returns that we have seen and we will provide significant upside to our long term free cash flow trajectory in the coming years.

Patrick: Turning to our balance sheet, we ended the year with net leverage of about four one times almost a full term lower than where we ended 2022.

Patrick Dovigi: On our calls over the last year, we have talked about the ability of the business to naturally delever over time. We saw this play out in 2023, with the majority of the decrease in net leverage coming from organic growth in the base business. Our market selection, stronger balance sheet, and continued execution on the self-help leaders in the portfolio position us for a very attractive 2024 and beyond. Luke will walk us through in more detail, but at a high level, we're guiding to another year of strong revenue growth across the board, with solid waste pricing of six to six and a half percent and mid single digit organic top line revenue growth in environmental services. We expect that Adjusted EBITDA margins will organically expand another 100 basis points in each of our segments, which we expect to be industry-leading and support our Adjusted EBITDA Guide of $2.215 billion.

Patrick: On our calls over the last year, we've talked about the ability of the business of naturally delever over time, we saw this play out in 2023 with the majority of the decrease in net leverage coming from organic growth in the base business.

Patrick: Our market selection stronger balance sheet and continued execution on our self help levers the portfolio position us for a very attractive 2024 and beyond.

Patrick: Luke will walk us through in more detail, but high level, we're guiding to another year of strong revenue growth across the board with solid waste pricing of six to six 5% at mid single digit organic topline revenue growth in environmental services.

Patrick: We expect that adjusted EBITDA margins will organically expand another 100 basis points to each of our segments, which we expect to be industry, leading and support our adjusted EBIT guide of two to $1 5 billion.

Patrick Dovigi: In solid waste, the outside price-cost spread is expected to be the primary driver of this margin approval. We also expect that the cost impact on productivity, cost of risk, and repairs and maintenance from labor turnover trends and supply chain constraints will moderate and potentially provide upside to our guidance. Solid wave volumes are expected to be relatively flat when excluding the drag from intentional shedding of low margin and non-core volumes.

Patrick: In solid waste outsized price cost spread is expected to be the primary driver of this margin improvement. We also expect that the cost impact on productivity cost of risk in repairs and maintenance from labor turnover trends and supply chain constraints will moderate and potentially provide upside to our guidance.

Patrick: Solid waste volumes are expected to be relatively flat when excluding the drag from intentional shedding of low margin and non core volume.

Patrick Dovigi: Our guidance assumes commodity prices consistent with Q4 prices, which are lower than current levels. Any sustained price improvement will provide incremental upside to our guidance. Included in the guide is approximately $30 million of incremental adjusted EBITDA from R&G, all from our Arbor Hills facility that was commissioned in late 2023. Our guidance assumes a conservative volume ramp at this facility throughout 2024, meaning that there is potential upside as the operation of the facility matures. In addition, we expect to commission another two to three facilities in 2024, none of which are factored into our current guidance.

Patrick: Our guidance assumes commodity price consistent with Q4 prices, which are lower than current levels.

Patrick: Any sustained price improvement will provide incremental upside to our guide.

Patrick: Included in our guidance of approximately $30 million of incremental adjusted EBITDA from RG all from our Arbor Hills facility that was commissioned in late 2023.

Patrick: Our guidance assumes a conservative volume ramp of this facility throughout 2024, meaning that there is potential upside as the operation of the facility matures.

In addition, we expect the commission another two to three facilities in 2024, none of which are factored into our current guidance.

Patrick: As we set out in our capital allocation framework provided at the end of November we remain committed to making disciplined capital allocation decision, while continuing to delever the business with a focus on moving towards an investment grade credit rating in the medium term.

Patrick Dovigi: As we set out in our capital allocation framework provided at the end of November, we remain committed to making disciplined capital allocation decisions while continuing to delever the business, with a focus on moving toward an investment grade credit rating in the medium term. The incremental growth investments we plan to make in 2024 are estimated to be in the range of $250 to $300 million and will focus on high ROIC for sustainability-related investments around EPR and R&G. We expect to realize adjusted EBITDA from our EPR-related CapEx investments starting in Q4 of 2024, ramping to a full EBITDA run rate of 80 to 100 million in 2026. Given our first mover advantage and strong asset position in Canada, including our state-of-the-art MRF network, we have already won a significant number of accretive EPR-related contracts. We are optimistic that we'll be able to capitalize on additional contracts that we have yet to be awarded. As a result, we believe that our EPR opportunity will be significantly larger than the $80 million to $100 million that we have already been awarded, and we expect to provide updates on new contract awards in the coming months.

Patrick: The incremental growth investments, we plan to make in 2024 are estimated to be in the range of $250 million to $300 million and will focus on high ROIC sustainability related investments around EPR in LNG.

Patrick: We expect to realize adjusted EBITDA from our EPR related Capex investments starting in Q4 of 2020 for ramping to a full EBITDA run rate of 80% to $100 million in 2026 gig.

Patrick: Given our first mover advantage and strong asset positioning in Canada, including our state of the art MRF network. We have already won a significant number of accretive EPR related contracts. We are optimistic that we'll be able to capitalize on additional contracts that we have yet to be awarded.

Patrick: As a result, we believe that our EPR opportunity will be significantly larger than the 80% to $100 million that we have already been awarded and we expect to provide updates on new contract awards in the coming months.

Patrick Dovigi: On RNG, we now expect the first contributions from Arbor Hills in Q1 of 2024, and we remain confident in our ability to achieve our $175 million of EBITDA from RNG investments by 2026. We will provide an update on the EPR and RNG investments and potential EBITDA upside from these initiatives at our investor day later this year. Consistent with our November capital allocation framework, we expect to deploy between $600 and $650 million into densifying Topkin M&A in our existing footprint in 2024. Over half of this amount will go towards a medium-sized acquisition that we have already signed. The asset represents a vertically integrated solid waste business within one of our fastest growing existing markets in the southeast that will be immediately margin accreted. We have completed the regulatory process and anticipate closing early in the second quarter.

Patrick: On RMG, we now expect the first contributions from Arbor Hills in Q1 of 2024, and we remain confident in our ability to achieve a $175 million of EBITDA from R&D investment by 2026, we will provide an update on the EPR R&D investments and potential EBITDA upside from these initiatives at our investor.

Patrick: Data later this year.

Patrick: Consistent with our November capital allocation framework, we expect to deploy between 600 $650 million into densify tuck in M&A in our existing footprint in 2024.

Patrick: Over half of this amount will go towards the medium sized acquisition that we have already signed.

Patrick: The asset represents a vertically integrated solid waste business within one of our fastest growing existing markets in the southeast that will be immediately margin accretive.

Patrick: We have completed the regulatory process and anticipate closing early in the second quarter. The in year contribution from this acquisition and others. We complete during the year will be additive to our 2020 for guidance.

Luke Pelosi: The in-year contribution from this acquisition and others we complete during the year will be additive to our 2024 guidance. Taking all of this into account, we expect to end 2024 with net leverage between 3.65 and 3.85 and to generate a debt-free cash flow of $800 million. I'll now pass the call to Luke to walk through the particulars of Q4 and the 2024 guide, and then I will share some closing comments before we open it up for Q&A. Thanks, Patrick.

Patrick: Taking all of this into account, we expect to end 2024 with net leverage between $3 65, and $3 85 and to generate adjusted free cash flow of $800 million.

Patrick: I will now pass the call to Luke to walk through particularly as of Q4 and the 2024 guide and then I will share some closing comments before we open it up for Q&A. Thanks.

Luke: Thanks, Patrick for the following discussion I will refer to our accompanying investor presentation, which provide supplemental analysis to summarize our performance for the year and our guidance for 2024.

Luke Pelosi: For the following discussion, I will refer to our accompanying investor presentation, which provides supplemental analysis to summarize our performance for the year and our guidance for 2024. Fourth quarter revenue was $1.88 billion, representing year-over-year growth 200 basis points better than we had guided. Solid waste price of 7.9% was realized through ongoing support from both our geographies, 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 volume of negative 3.6% represented a 100 basis point deceleration from the third quarter due to intentional shedding, a tougher comp in the prior year, and softness in special waste.

Luke: Fourth quarter revenue was $1 88 billion representing year over year growth 200 basis points better than we had guided solid waste price of seven 9% was realized through ongoing support from both our geographies is better than mid single digit pricing continuing to be realized in the typically lower priced residential collection and post collection lines of <unk>.

Luke: <unk> solid waste volume of negative three 6% represented a 100 basis point deceleration from the third quarter due to intentional shedding a tougher comp in the prior year and softness in special waste.

Luke Pelosi: Page 4 highlights the 245 basis point expansion of underlying solid waste adjusted to EBITDA margins we realized during the fourth quarter, a 120 basis point acceleration over Q4-22. The impact from commodity prices flipped to a positive contribution thanks to price appreciation during the last months of the year. An equal and offsetting impact arose tied to insurance proceeds that were received in the prior year period.

Luke: Page four highlights the 245 basis point expansion of underlying solid waste adjusted EBITDA margins, we realized during the fourth quarter of 120 basis point acceleration over Q4 2002 the.

Luke: The impact from commodity prices flip to a positive contribution thanks to price appreciation during the last months of the year in equal and offsetting impact arose tied to insurance proceeds that were received in the prior year period.

Luke Pelosi: While the net impact of fuel surcharges and fuel costs was a positive contributor to margin, the benefit of a fuel hedge we had entered into in Q4-22 did not repeat in Q23, resulting in a net 10 basis point drag. For the year as a whole, underlying solid waste margins expanded 290 basis points. 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 price and cost inflation that we had forecast in the 2023 guide at the beginning of the year. Our ES segment also had a very strong end to the year. The benefit of our strategic shift towards quality revenue growth initiatives is evident in the 180 basis points of margin expansion we realized in the fourth quarter.

Luke: While the net impact of fuel surcharges and fuel cost was a positive contributor to margin the benefit of our fuel hedge we had entered into in Q4 'twenty two it did not repeat in 'twenty three resulting in a net 10 basis point drag for the year as a whole underlying solid waste margins expanded 290 basis points. We believe this is a strong <unk>.

Luke: Administrative and of the effectiveness of our pricing and deliberate volume strategies and is consistent with the expected impact of the widening spread between price and cost inflation that we had forecast in the 2023 guide at the beginning of the year.

Luke: Our Es segment also had a very strong into the year the benefit of our strategic shift towards quality revenue growth initiatives is evident in the 180 basis point of margin expansion, we realized in the fourth quarter. This result is even more impressive when considering the disruption from a small fire we added our Columbus facility in November.

Luke Pelosi: This result is even more impressive when considering the disruption from a small fire we had at our Columbus facility in November, the negative impact of which was approximately 165 basis points in the quarter. ES adjusted EBITDA margin was 26.2% for the year, inclusive of the impact of the fire. Consolidated adjusted EBITDA margin was 26.1% for the quarter, representing a 200 basis point increase over the prior year and in line with expectations when considering the 40 basis point consolidated margin impact of the facility fire. Adjusted free cash flow for the quarter was $472 million, which was in line with our guidance.

Luke: <unk> the negative impact of which was approximately 165 basis points in the quarter.

Luke: Adjusted EBITDA margin was 26, 2% for the year inclusive of the impact of the fire.

Luke: Consolidated adjusted EBIT margin was 26, 1% for the quarter, representing a 200 basis point increase over the prior year and in line with expectations when considering the 40 basis point consolidated margin impact of the facility fire.

Luke: Adjusted free cash flow for the quarter was $472 million, which was in line with our guidance <unk>.

Luke Pelosi: Incremental growth capital in the quarter was $145 million, $25 million less than planned due to timing. $10 million of our planned landfill spend was reported as closure costs instead of capex, and you can see that reclass between those two lines on the cash flow statement. Our underlying pre-cash flow generation was ahead of plan after factoring in approximately $20 million in RNG-related ITCs that we expected to receive in 2023 but, in the end, did not. On page six, we show the components of the material reduction for leverage in 2023. The graph is a powerful illustration of the leveraging capabilities of our business. Going forward, we expect organic growth and significant pre-cash flow generation to more than offset any leverage impacts from M&A, resulting in sequential annual delevering, to which we are absolutely committed over the near term. On page 7, we have summarized our current debt structure.

Luke: Incremental growth capital in the quarter was $145 million $25 million less than planned due to timing.

Luke: $10 million of our planned landfill spend was reported as closure costs instead of Capex and you can see that re class between those two lines on the cash flow statement.

Luke: Our underlying free cash flow generation was ahead of plan after factoring in approximately $20 million in LNG related itc's that we expected to receive in 2023.

And did not.

Luke: On page six we show the components of the material reduction to our leverage in 2023 the.

Luke: The graph is a powerful illustration of the deleveraging capabilities of our business going forward, we expect organic growth and significant free cash flow generation to more than offset any leverage impacts from M&A, resulting in sequential annual delevering to which we are absolutely committed over the near term.

Luke: On page seven we have summarized our current debt structure.

Luke Pelosi: Post our highly successful refinancing in November 2023, over 85% of our debt obligations carry a fixed rate of interest, providing significant certainty on our future interest costs. With the over four years of weighted average term remaining, we remain highly confident in the likelihood of receiving material credit rating upgrades prior to the maturity of most of our existing debt. We remain highly confident in the likelihood of receiving material credit rating upgrades prior to the maturity of most of our existing debt. The November refinancing also provides us with opportunity and flexibility with respect to nearer-term bond maturities.

Luke: Post our highly successful refinancing in November 2023 over 85% of our debt obligations carry fixed rate of interest providing significant certainty on our future interest costs.

Luke: With the over four years of weighted average term remaining we remain highly confident in the likelihood of receiving materials credit rating upgrades prior to the maturity of most of our existing debt.

Luke: November refinancing also provides us with the opportunity in respective near term bond maturities.

Luke: As we have previously communicated while we do not know where underlying treasury rates will go we expect the current spread of our borrowing rate over treasuries to materially decline as our credit quality improves.

Luke Pelosi: [inaudible] Looking forward to 2024, we are providing guidance consistent with the preliminary framework we laid out last year. Page 8 outlines the revenue bridge, and you can see we've provided a pro forma starting point for 2023 that takes into account solid waste divestitures completed in Q2. On the back of the strong end to 2023, we're expecting over 9% top line growth in 2024 before the impact of any incremental M&A. Driving this robust growth is solid waste pricing of 6% to 6.5% and approximately 4% from acquisitions already completed. Given the strength of Q4 pricing, we have a high degree of visibility in realizing over 7% solid waste price in the first quarter and are confident in the path to achieve a minimum 6% price for the year as a whole. The guide assumes 100 to under 25 basis points of negative solid waste volumes, all of which is attributable to our intentional shedding.

Luke: Looking forward to 2024, we are providing guidance consistent with the preliminary framework, we laid out last year P.

Luke: Page eight outlines the revenue bridge and you can see we've provided a pro forma starting point for 2023 that takes into account solid waste divestitures completed in Q2.

Luke: On the back of the strong end to 2023, we're expecting over 9% topline growth in 2024 before the impact of any incremental M&A.

Luke: Driving this robust growth is solid waste pricing of six to six 5% and approximately 4% from acquisitions already completed.

Luke: Given the strength of Q4 pricing, we have a high degree of visibility and realizing over 7% and solid waste price in the first quarter and are confident in the path to achieve a minimum 6% price for the year as a whole.

Luke: The guide assumes 100 to 125 basis points of negative solid waste volumes, all of which is attributable to our intentional shedding.

Luke: Otherwise underlying volumes are expected to be flat to positive 25 basis points, which we see as conservative, but prudent given the potential for some macroeconomic uncertainty.

Luke: Commodity prices are assumed to be at Q4 levels, which were 20% higher than the 2023 average, but 10% lower than current pricing.

Luke Pelosi: Otherwise, underlying volumes are expected to be flat to positive 25 basis points, which we see as conservative but prudent given the potential for some macroeconomic uncertainty. Recycled commodity prices are assumed to be at Q4 levels, which were 20% higher than the 2023 average but 10% lower than current prices. If current pricing remains at Q4 levels, it would be upside to our 2024 guidance. Recall that, post the divestitures, sensitivity to commodity prices is approximately five million dollars of EBITDA for every ten dollar move in our commodity basket. Environmental Services is guided at mid-single-digit, top-line growth, underpinned by our continued focus on price-driven, quality-of-revenue initiatives, offset by the shedding of low-margin work...

Luke: If current pricing remains at Q4 levels, there would be upside to our 2024 guidance recall that post the divestitures sensitivity to commodity prices as approximately $5 million of EBITDA for every $10 move in our commodity basket.

Luke: Rental services as guided at mid single digit topline growth underpinned by a continued focus on price driven quality of revenue initiatives offset by shedding of low margin work.

Luke: For the second year in a row, the quality of our anticipated topline growth leads to the expectation of a 100 basis points of EBIT margin expansion in 2024.

Luke: All of which is organic as rollover M&A is slightly margin decretive the.

Luke: The guide assumes that cost inflation continues to moderate.

Luke: 100 basis points of margin expansion is expected in both segments with corporate costs remaining flat year over year at three 3% of revenue.

Luke: The revenue growth coupled with the margin expansion yielded adjusted EBITDA of two to one 5 billion representing over 13% growth from the prior year on a pro forma basis.

Luke: The guidance assumes an FX rate of 135, which is flat with the average rate in 2023 or two basis points lower than the $1 37 that was used for our initial 2024 thoughts provided last November.

Luke Pelosi: For the second year in a row, the quality of our anticipated top-line growth leads to the expectation of 100 basis points of EBITDA margin expansion in 2024, all of which is organic, as rollover M&A is slightly margin-decretive. The Guide assumes that cost inflation continues to moderate. 100 basis points of margin expansion is expected in both segments, with corporate costs remaining flat year-over-year at 3.3% of revenue. The revenue growth coupled with the margin expansion yields adjusted EBIT of $2.215 billion, representing over 13% growth from the prior year on a pro forma basis. The guidance assumes an FX rate of 1.35, which is flat with the average rate in 2023 but two basis points lower than the 1.37 that was used for our initial 2024 thoughts provided last November.

Luke: Call that every penny of FX impact adjusted EBITDA by approximately $11 million at our guidance, therefore equivalent to a $2 two 4 billion of EBITDA, assuming the November FX rate.

Luke: At the free cash flow line the walk from the two to one 5 billion of adjusted EBITDA includes normal course, net capex of $850 to $900 million.

Luke: Cash interest of approximately $475 million, and then 50% to $75 million outlay for other cash flow items.

Luke: The $250 million to $300 million of growth capital at Patrick spoke to is excluded from the guide. Additionally, any R&D tax credits are not included in the guide and would therefore be additive.

Luke: Page 11 shows the expected 2020 for deleveraging path in which organic growth drives net leverage down to mid threes as Patrick said, we expect to end the year with net leverage of 365% to 385 times inclusive of the deployment of incremental growth capital and M&A in terms of the <unk>.

Luke Pelosi: Recall that every penny of FX impacts adjusted EBITDA by approximately $11 million, and our guide is therefore equivalent to a $2.24 billion of EBITDA, assuming the November FX rate. At the pre-cash flow line, the walk from the $2.215 billion of adjusted EBITDA includes normal course net capex of $850 to $900 million, cash interest of approximately $475 million, and a net $50 to $75 million outlay for The $250 million to $300 million of growth capital that Patrick spoke about is excluded from the guide.

Luke: In some deleveraging recall that based on the seasonality of our business and the timing of our cash flows Q1 net leverage typically increases over Q4 levels Q2 was relatively comparable with Q1, and then leverage steps down in Q3 and Q4.

Southern changes to FX rates and the timing of growth capital deployment, maybe modestly impact the quarterly results, but won't impact the year and landing point of $3 65 to 385 times net leverage.

Luke Pelosi: Additionally, any R&G tax credits are not included in the guide and would therefore be additive. Page 11 shows the expected 2024 deleveraging path in which organic growth drives net leverage down to the mid-3s. As Patrick said, we expect to end the year with net leverage of 3.65 to 3.85 times, inclusive of the deployment of incremental growth capital and M&A. In terms of the cadence of deleveraging, recall that, based on the seasonality of our business and the timing of our cash flows, Q1 net leverage typically increases over Q4 levels, Q2 is relatively comparable to Q1, and then leverage steps down in Q3 and Q4.

Luke: In terms of operational cadence consistent with our historical seasonality, we expect to realize approximately 23% of planned annual solid waste revenue in Q1, and 20% of the plan for Es, which equates to approximately $1 775 billion in revenue or 5% growth pro forma for the diverse.

Stitcher is in terms of margin the first quarter is expected to be the toughest comp.

Luke: Consolidated adjusted EBIT is expected to be $440 million at just under 25% margin.

Luke: Pro forma for divestitures that represents about six 5% growth at the segment level after giving effect to the reclassifications of certain operations between segments as reconciled in the appendix to our investor presentation.

Luke Pelosi: Sudden changes to FX rates and the timing of growth capital deployment may modestly impact the quarterly results but won't impact the year-end landing point of 3.65 to 3.85 times net. In terms of operational cadence, consistent with our historical seasonality, we expect to realize approximately 23% of planned annual solid waste revenue in Q1 and 20% of the plan for ES, which equates to approximately $1.775 billion in revenue, or 5% growth pro forma for the divested assets. In terms of margin, the first quarter is expected to be the toughest call.

Luke: Solid waste margins expand 80 basis points versus first quarter of 2023, and Es margins contracts approximately 70 basis points largely as a result of the tough comp the atypical January weather in many of our southern markets and disruption from the facility fire that spilled into the first quarter. These impacts.

Luke: Not expected to persist into Q2.

Luke: Corporate costs are expected at three 7% of revenue in the first quarter as we anniversary the investments made in 2023, mainly around <unk>.

Luke: The seasonally lower first quarter revenue.

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

Patrick: Thanks Luke.

Patrick: We believe that our results in 2023 confirm that our strategy is working over the past 15 plus years, we've assembled the best in class asset base across North America, and we are now optimizing what we have built we're pulling the right self help levers to grow revenue at industry, leading levels, helping drive outsized margin expansion at the same time, we continue.

Luke Pelosi: Consolidated adjusted EBIT is expected to be $440 million at just under a 25% margin. Pro forma for the divestitures, that represents about 6.5% growth. At the segment level, after giving effect to the reclassifications of certain operations between segments as reconciled in the appendix to our investor presentation, solid waste margins expanded 80 basis points versus the first quarter of 2023, and ES margins contracted approximately 70 basis points, largely as a result of the tough top, the atypical January weather in many of our southern markets, and disruption from the facility fire that spilled into the first quarter These impacts are not expected to persist into Q2.

Patrick: To strengthen our balance sheet and remain committed to further deleveraging we.

Patrick: We expect 2024 to deliver another year of significant margin expansion with longer term upside coming from our disciplined investments in highly accretive return opportunities and RMG EPR and densify tuck in M&A.

Patrick: The contribution from all these initiatives will significantly improve our free cash flow profile over time and continue to long term shareholder value.

Patrick: As always I am very grateful for the efforts of our more than 20000 employees are truly the key to our success 2023 was another year, where team bringing demonstrated their exceptional ability to execute on our growth strategy and I want to thank each and every one of them for their contributions.

Patrick Dovigi: Corporate costs are expected at 3.7% of revenue in the first quarter as we anniversary the investments made in 2023, mainly around IT, against the seasonally lower first quarter revenue. I will now pass the call back to Patrick for some closing comments before Q&A. Thanks, Luke.

Speaker Change: I'll now turn the call over to the operator to open up the line for Q&A.

Speaker Change: Thank you at this time I would like to remind everyone in order to ask a question. Please press star followed by one on your telephone keypad to withdraw your question. Please press star followed by Kim Thank.

Patrick Dovigi: We believe that the results in 2023 confirm that our strategy is working. Over the past 15 plus years, we've assembled the best-in-class asset base across North America, and we are now optimizing what we have built. We are pulling the right self-help levers to grow revenue at industry-leading levels, helping drive outsized margin expansion. At the same time, we continue to strengthen our balance sheet and remain committed to further deleveraging.

Speaker Change: Thank you remind everyone limit yourselves to one question on one side of that.

Speaker Change: Our first question today comes from Walter <unk> from RBC capital market. Your line is now open. Please go ahead.

Walter: Much Alberto good morning, everyone.

Walter: I'd like to start with you Patrick mentioned.

Walter: And that investment grade rating upgrade in the medium term expected and Luke you reiterated that it's likely going to come before.

Walter Spracklin: We expect 2024 to deliver another year of significant margin expansion, with longer-term upsides coming from our disciplined investments and highly equated return opportunities in R&D, EPR, and densifying tuck-in M&A. The contribution from all these initiatives will significantly improve our free cash flow profile over time and continue to deliver long-term shareholder value. As always, I am very grateful for the efforts of our more than 20,000 employees who are truly the key to our success. 2023 was another year where Team Green demonstrated their exceptional ability to execute on our growth strategy. And I want to thank each and every one of them for their contribution. I will now turn the call over to the operator to open up the line for Q&A. Good morning, everyone.

Walter: Before your current.

Walter: Maturities of your current debt arrangement. So just curious what is it.

Walter: What is the focus and the rating agencies is it just simply the leverage level.

Walter: Free cash flow or.

Walter: Is there something else that they are waiting for in terms of cadence direction momentum anything like that that we might be able to see a rating upgrade sooner rather than sooner rather than later.

Speaker Change: Yes, Thanks, Walter it's a great question, obviously something that we focus a lot on the rating agencies are quite bad.

Speaker Change: Backward looking in that with the growth that we have enjoyed over the last few years. It does take them some time to sort of catch up. So I think it is very much a leverage focus and they do want to see us sort of below that three five times leverage level, which you can see with the guide we have put out we have a very clear path to achieving that.

Luke Pelosi: Luke, I'd like to start with you. Patrick mentioned that an investment-grade rating upgrade in the medium term is expected, and Luke, you reiterated that it's likely going to come before the major maturities of your current debt arrangement. So I'm just curious, what is the focus of the rating agencies? Is it just simply the leverage level, free cash flow, or is there something else that they're waiting for in terms of cadence, direction, momentum, anything like that that we might be able to see a rating upgrade sooner rather than later? Yeah, thanks, Walter.

Speaker Change: We'll be a couple of quarters behind us in terms of when we reached the level in their models and then exactly as you said they'll want to see the sustained level and the commitment to that I don't think we can be any clearer and our commitment to deleveraging and achieving that and I think that aspect of it will be well in hand.

Luke Pelosi: It's a great question, obviously something that we focus a lot on. I mean, the rating agencies are quite backward looking in that, you know, with the growth that we have enjoyed over the last few years, it does take them some time to sort of catch up. So I think it is very much a leverage focus, and they do want to see you sort of below that three and a half times leverage level, which, you know, with the guide we have put out, we have a very clear path to achieving, but they will be a couple of quarters behind us in terms of when we reach the level in their models. And then, exactly as you said, they'll want to see the sustained level and the commitment to that. I don't think we could be any clearer in our commitment to deleveraging and achieving that.

So it's I think it's really a matter of having their models, which again backward looking catch up with us. So when you think about the four year weighted average maturities as well as our trajectory I think those things do align and we will have the opportunity to get upgrades along the way because recall, we have some upgrades to come before the <unk>.

Speaker Change: <unk>, but feel well in hand by the time the majority of that comes in and will be materially better credit rating than we are today.

Speaker Change: That's fantastic, Okay, and then on.

Speaker Change: On the price cost spread I know not so focused on the nominal actual price, but rather the spread between the two can you speak and you've given us guidance here on.

Speaker Change: On the price and just if you could give us a little bit more detail on how comfortable you are with the current cost inflation.

Patrick Dovigi: And I think that aspect of it will be well in hand. So I think it's really a matter of having their models, which are again, backward looking, catch up with ours. So when you think about the four-year weighted average maturities, as well as our trajectory, I think those things do align. And we will have the opportunity to get upgrades along the way. Because, recall, we have some upgrades to come before the IG rating, but feel well in hand that by the time the majority of that comes in hand, we will be a materially better credit rating than we are today. Fantastic

Speaker Change: Where wages are right now where were rehiring costs of rehiring comes in on the nutrition. How comfortable are you that you are maintaining our price cost spread and how would the 2020 for price cost spread compared to perhaps 23.

Speaker Change: And prior to.

Luke Pelosi: Okay, and then on the price-cost spread, I'm not so focused on the nominal actual price, but rather the spread between the two. Can you speak, and you've given us guidance on the price, and just if you could give us a little bit more detail on how comfortable you are with the current cost inflation, where wages are right now, where re-hiring, the cost of re-hiring comes in on any attrition. How comfortable are you that you are maintaining a price-cost spread, and how would the 2024 price-cost spread, prepared to perhaps 23 and prior to 2023 on that spread basis? Yeah, Walter, it's Luke again.

Speaker Change: 2023.

Speaker Change: That spread basis.

Speaker Change: Yeah, Walter it's Luc again, another great question, I mean, I think as we had articulated coming out of 'twenty to what we were expecting to see over that sort of 12 to 24 months with a widening of that spread and although you add 23, starting with double digit price, we're faced up against an equal amount of cost inflation and so.

Speaker Change: Not really generating the spread that we'd hoped for historically I think the industry, we're looking for somewhere between 35% to 70 basis points of spread and we articulated that we saw coming into 2024 of that spread almost doubling.

Luke Pelosi: Another great question. I mean, as we had articulated coming out of 22, what we were expecting to see over that sort of 12 to 24 months was a widening of that spread. And although you had 23, starting with a double-digit price, you were faced with an equal amount of cost inflation. And so we're not really generating the spread that we'd hoped for. Historically, I think the industry was looking for somewhere between 35 to 70 basis points of spread.

Speaker Change: Where exactly there I mean, our cost inflation baked in the model, we're anticipating that sort of mid to high fours cost inflation. So if you put that against our expected solid waste price you can see an opportunity for 150 basis points of spread between the two which we think is a fantastic outcome and it was one that we sort of anticipated cost inflation is.

Speaker Change: Obviously still quite real but does seem to be tempering and the labor markets and the associated impact to our cost structure with the softening of those is certainly something that we've been watching and enjoying as it seems to be moving in the right direction.

Luke Pelosi: And we articulated that we saw a path coming into 2024 of that spread almost doubling. [inaudible] So if you put that against our expected solid waste price, you can see an opportunity for 150 basis points of spread between the two, which we think is a fantastic outcome, and it was one that we sort of had anticipated coming.

Speaker Change: So we're feeling pretty good with the guide that we put forward and I think it's playing out exactly as we had sort of anticipated at the beginning of 2023.

Speaker Change: Okay I appreciate the time and congrats on a great quarter.

Thank you Walter.

Speaker Change: Our next question comes from Kevin Chiang from CIBC Wood Gundy. Your line is now open. Please go ahead.

Luke Pelosi: Cost inflation is obviously still quite real but does seem to be tempering. And the labor markets and, you know, the associated impacts on our cost structure with the softening of those are certainly something that, you know, we've been watching and enjoying as it seems to be moving in the right direction. So, we're feeling pretty good with the guide that we've put forward, and I think it's playing out exactly as we had sort of anticipated at the beginning of 2020. Okay, I appreciate the time. Congratulations on a great quarter. Thank you, Walter.

Kevin Chiang: Hi, Thanks, Thanks for taking my question.

Kevin Chiang: Just on the on the on.

Kevin Chiang: The opportunities on an EPR.

Kevin Chiang: You've highlighted the $80 million to $100 million, but theres upside here just given some of the changes changes in the regulatory environment that looks favorable.

Kevin Chiang: Hi, thanks for taking my question. Maybe just on the opportunities for EPR, you've highlighted the $80 to $100 million, but there's upside here just given, I guess, some of the changes in the regulatory environment that look favorable to EPR. When you think of the upside there, is it upside on the existing investments you'll be making over the next year or two and adding more earnings to that, or do you foresee having to make more investments to kind of capture the incremental earnings upside from what you've got it or what you're targeting today? And so it's two, it's two-fold.

Kevin Chiang: To EPR when you think of the upside there is an upside on the existing investments you'll be making over the next year or two and adding more more earnings to that or or do you foresee having to make more investments to kind of capture incremental earnings upside from from what you've guided to or what youre targeting today.

Kevin Chiang: So it's twofold, one Kevin Kevin it's around volume through the existing contracts into the existing facilities.

Patrick Dovigi: One, Kevin, Kevin, it's around volume for the existing contracts and for the existing facilities. There's potentially a sort of regulatory change coming that could drive some incremental volume into our facility. So that's one.

Kevin Chiang: Potentially in sort of a regulatory change coming that could drive some <unk>.

Kevin Chiang: Incremental volume into our facilities. So that's one.

Kevin Chiang: And two.

Patrick Dovigi: And two, it's largely, again, around facilities where we already have, you know, a lot of the volume going through, but it'll then be switched to EPR, and then there's the collection contracts, which are moving from municipalities to the producers. So, um, you know, there's a lion's share of, of a multitude of contracts that are going to be let over the next, you know, call it 12 So, um, and we think we're positioned very favorably; obviously, we're not bidding on them all at once.

Kevin Chiang: It's largely again around facilities, where we already have.

Kevin Chiang: A lot of volume going through but it will be then switch to EPR and then theres the collection contracts.

Kevin Chiang: Which are moving from municipalities.

Kevin Chiang: Two of the producers.

Kevin Chiang: No.

Kevin Chiang: Theres, a lion's share of a multitude of contracts that are going to be less over the next call. It 12 months. So and we think we're positioned very favorably obviously, we're not bidding on them all were ones, where we're bidding on the ones.

Patrick Dovigi: We're bidding on the ones where, you know, we're being selective about, you know, where we already have infrastructure, where we already have people, where it's an easy sort of turnover, not a lot of sort of startup risk. So, you know, I think we'll be able to update you with some very positive news sort of over the course of the next quarter. But we're feeling really good about where we're sitting today and the positions that we have with a bunch of those contractors. That's very helpful.

Kevin Chiang: Where we're being selective about where we already have infrastructure, where we already have people, where it's an easy sort of turnover with not a lot of sort of a startup risks.

Kevin Chiang: I think we'll be able to update you with some very positive news sort of over the course of the next quarter.

Kevin Chiang: But we're feeling really good about where we're sitting today in the positions that we have in a bunch of those contracts.

Kevin Chiang: That's.

Speaker Change: Very helpful.

Speaker Change: And maybe just as a follow up just for clarification, the $3 six 5% to three five leverage ratio you burden that with.

Luke Pelosi: Maybe just as a follow-up, just for clarification, the $365 to $385 leverage ratio, you've burdened that with the incremental growth spend you've highlighted in your capital allocation plan. Are you including the earnings contribution from, for example, the $600 to $650 million of M&A in there as well, or is that excluded because, you know, you, Sir, go on. So, the earnings aren't included in that. Kevin, it's Luke speaking.

Speaker Change: With the incremental growth.

Speaker Change: Spend you've highlighted in your capital allocation plans.

Speaker Change: Are you are you, including the earnings contribution from from for example, the $600 million to $650 million.

Speaker Change: M&A in there as well or is that.

Speaker Change: And that excluded because.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: Okay.

Patrick Dovigi: For purposes of our guide, any incremental EBITDA from the M&A spend is not included. But for purposes of that illustrative pro forma net leverage at the end of the year, it's assuming that in your run rate EBITDA, you have the benefit of the earnings of what you had bought, right? So if you spent $600 million on M&A, and you paid eight times that amount, you've included that EBITDA for purposes of the net leverage count, but you have not included any earnings in our EBITDA guide of $2.215 billion. Perfect. I just wanted to clarify that. Thank you very much and best of luck in 2020. Our next question today comes from... Good morning, everybody. I hope you're all well.

Speaker Change: Kevin It's Luc speaking for purposes of our guide any incremental EBITDA from the M&A spend is not included but for purposes of that illustrative pro forma net leverage ended the year at assuming that in your run rate EBITDA you have the benefit of the earnings of what you had bought right. So if you spend $600 million on M&A and you paid.

Luc: <unk> eight times, you've included that EBITDA for purposes of the net leverage cap, but you have not included any earnings in our EBIT guide of $2 2 billion to one 5 billion.

Kevin Chiang: Perfect just want to clarify that thank you. Thank you very much and best of luck in 'twenty 'twenty four here.

Kevin Chiang: Our next question today comes from Michael Hoffman from Stifel. Your line is now open. Please go ahead.

Michael Hoffman: Good morning, everybody and hope you're all well.

Michael Feniger: I'd like to follow up on the leverage question. I want to draw it out. If I follow all the math, the table you gave in the press release shows the debt number. That debt number is unchanged without M&A, but you spend all of the capital, growth, and organic growth of EBITDA will drive you down to like 3.7. Have I done that math correctly?

Michael Hoffman: I'd like to follow up on the leverage question because I think this is important you have emphasized it by one draw it out.

Michael Hoffman: If I follow all the math the table you gave in the press release shows that that number that that number is unchanged without M&A, but you spend all of the capital growth and maintenance.

Michael Hoffman: Organic growth of EBITDA will drive you're down to like $3 seven.

Michael Hoffman: <unk> done that math correctly, and it's important that there is a big operating leverage of this organic growth.

Luke Pelosi: And it's important that there's a big operating leverage from this organic growth. Yeah, Michael, I think without seeing the exact math, that's exactly right. I mean, if you look at the free cash flow generation, you can support the normal course capex plus a whole lot more, right? I mean, think about the classic free cash of what's left over to do, you know, growth or dividends or buybacks, etc. That pool is growing and growing. And that's what's allowing us to, you know, de-lever organically and even de-lever with the inclusion of all this incremental growth and M&A. You're absolutely right. You're going to have a pile of like $500 million in the middle of the table to do M&A buybacks. Hooray!

Speaker Change: Yes, Michael I think without seeing the exact math directionally, that's exactly right I mean, if you look at the free cash flow generation you can support the normal course, capex plus a whole lot more right and you think about the classic free cash of what's left over to do growth or dividends or buybacks et cetera.

That pool is growing and growing.

Speaker Change: And that's what's allowing us to de lever organically and even de lever with the inclusion of all this incremental growth and M&A, you're absolutely right.

Speaker Change: You're going to have a pile of like $500 million in the middle of the table to do M&A buybacks dividends.

Speaker Change: Correct spend.

Luke Pelosi: Spend everything. Okay. Um, and then, in the guide, how much, if any, because you mentioned at the beginning all of the operating leverage of 100 basis points in solid waste is price cost. You have a lot of self-help, just given where you are in the life cycle of the company, whether it's automation. Presidential or C&G, uh... your own efforts around working capital, which is more about free cash. Is there anything in the guide related to the 100 basis points from self-help, or is that also?

Speaker Change: Spend everything okay.

Speaker Change: And then.

Speaker Change: And the guide how much if any because you mentioned in the beginning all over the operating leverage of 100 basis points and solid waste is price cost.

Speaker Change: You have a lot of self help just given where you are in the lifecycle of the company, whether it's automation and in residential or CMG.

Speaker Change: Your own efforts around working capital, which is more about free cash.

Speaker Change: Is there anything in the guide related to the 100 basis points from self help or is that also incremental upside.

Luke Pelosi: Well, Michael, I mean, the price costs, you know, as the math suggests, 150 basis points of spread would give you 100 basis points of margin just unto itself. But, as we know, there are other factors at play. I think about some of the exogenous factors.

Speaker Change: Well, Michael I mean, the price cost as the math suggests a 150 sort of basis points of spread would give you a 100 basis points of margin just unto itself, but as we know there is other factors at play I think about some of the Dodge and <unk> factors I mean, this year commodities in R&D should be a slight tailwind call it toward.

Luke Pelosi: I mean, this year commodities and RNG should be a slight tailwind, call it sort of a 35 basis point tailwind. But going against that, I mean, our cost of risk, when I look at it this year, is about a 70-75 basis point headwind that we're facing. And I think that's probably sort of industry-wide, something to that magnitude, right? So just if you think about those three exogenous factors, you're starting at sort of minus 40. So, yes, we have the price cost spread, and I think that's the largest sort of driver. But we also have the impact of our intentional shedding, right?

Speaker Change: 35 basis points tailwind, but going against that I mean, our cost of risk. When I look this year is about a 70 75 basis point headwind that we're facing this year and I think thats, probably sort of industry wide something to that magnitude right. So if you think about those three exogenous factors youre, starting at sort of minus 40 basis points. So yes, we have the price cost.

Speaker Change: Spread and I think thats the largest sort of driver. We also have the impact of our intentional shedding right. As we've said, we've given up 200 basis points of volume at lower margin right. There is a sort of 30 to 40 basis points of margin impact coming from that and then as you said, yes. We have the self help we have the productivity improvement we have all of the levers that we have been talking.

Luke Pelosi: As we've said, we've given up 200 basis points of volume at lower margins, right? There's a sort of 30 to 40 basis points of margin impact coming from that. And then, as you said, yes, we have self-help.

Speaker Change: As well as the Anniversarying of some of the <unk> coming out of 2022 as it relates to people and productivity and so it's really the combination of all of those things, but to your point. If you sum those up you get to something greater than a 100 basis points. So we're feeling really confident in our ability to execute on this plan, but as we had.

Luke Pelosi: We have productivity improvement. We have all of the levers that we have been talking about, as well as the anniversary of some of the pain coming out of 2022 as it relates to people and productivity. And so it's really the combination of all of those things.

Speaker Change: <unk> articulated in the prepared remarks, we do see multiple points of upside above and beyond what we've currently guided.

Speaker Change: Thank you very much.

Speaker Change: Okay.

Speaker Change: Our next question comes from Jerry Revich from Goldman Sachs. Your line is now open. Please go ahead.

Jerry Revich: But to your point, if you sum those up, you get to something greater than 100 basis points. So, you know, we're feeling really confident in our ability to execute on this plan. But as we attempted to articulate in the prepared remarks, we do see multiple points of upside above and beyond where we've currently guided. Jerry Revich.

Jerry Revich: Yes, hi, good morning, everyone.

Jerry Revich: Patrick can I ask the landfill gas.

Jerry Revich: Actions, so enbridge $270 per MB to use what they paid.

Jerry Revich: To your footprint.

Youre potentially looking at $2 billion.

Patrick Dovigi: Yes, hi, good morning, everyone. Patrick, can I ask about landfill gas... Transactions, so Enbridge, $270 per MMBT is what they paid for your footprint, you know, you're potentially looking at two plus billion dollars. www.youtube.com, Zach, given where valuations are headed and how they can reduce leverage or redeploy via M&A, can you just talk about your views on that opportunity set? Listen, I mean, again, if you actually had a leverage issue, you would potentially look at But the reality is, the business is naturally de-levering to the place that it needs to be. From our perspective, where we sort of sit today, obviously, if we got a massive, massive price that sort of overvalued it and it worked from a tax perspective, you could definitely look at that.

Jerry Revich: Versus a fraction of that you invested.

Jerry Revich: How attractive is that opportunity.

Jerry Revich: Zach given where valuations are headed.

Jerry Revich: To reduce leverage or redeployed.

Jerry Revich: Can you just talk about your views on that opportunity set.

Jerry Revich: I mean again.

Jerry Revich: If you actually had a leverage issue you would potentially look at potentially pulling one of those levers, but the reality is.

Jerry Revich: The business is naturally delevering to the place that it needs to be and I think from our perspective, what we sort of sit today, obviously, if we got a massive massive price that sort of over value added and then work from a tax perspective, you can definitely look at that I think for where we're going today and the free cash flow generation, we're going to get that.

Patrick Dovigi: I think where we're going today in free cash flow generation, we're gonna get that from those RNG projects, and what that does for the business over the long term, the right decision is to keep that gas for the long term, both from a margin perspective and a free cash flow conversion perspective. And I think over the long term, shareholders are gonna win by keeping that asset versus doing something rash today just to de-lever the balance sheet. Yeah, nine to 12 months quicker than it normally would on an after-tax basis, so It's good to know what it's worth.

Jerry Revich: Those R&D project and what that does for the business over the long term. The right decision is to keep those that gas for the long term both from a margin perspective, and a free cash flow conversion perspective, and I think over the long term the shareholders are going to win by keeping that asset versus doing something rationale just at the delever the balance sheet.

Jerry Revich: Yes.

Jerry Revich: Nine to 12 months quicker than normally what on an after tax basis. So it.

Jerry Revich: It's good to know what it's worth and I think it.

Patrick Dovigi: And I think it, you know, it's just an asset that's sitting there, https://www.youtube.com. Can I ask about environmental Solutions? Luke, you mentioned margin compression in the first quarter. When does that turn to margin expansion, what gives you that visibility, and just re-segmenting, does that drive synergy opportunities, or is that just pure repurposing? Yeah, I think Jerry, before turning over to Luke, I think when you look at, if we look at our business holistically, you know, this is an El Nino year in Canada. And if you look at those, it brings a bunch of, yeah, I would say strange weather patterns from sort of east to west.

Jerry Revich: It's an asset that's sitting.

Jerry Revich: Nowhere within the within the organization today, but I think as those assets come online I think you have an asset that's worth.

Jerry Revich: In your math somewhere between three and three $9 billion and so.

Jerry Revich: We feel good knowing it fair, but I think the free cash flow generation and what that does to the margin profile of the free cash flow conversion for our overall business is going to be better to keep that.

Speaker Change: Okay great.

Speaker Change: I ask environmental solutions can you expand more on the outlook look you mentioned margin compression in the first quarter when does that turn to margin expansion. What gives you that visibility and just.

Speaker Change: <unk> re segmenting it does that drive synergy opportunities or is that just pure reporting change.

Patrick Dovigi: And, you know, I think that business is, you know, seasonally based, and I think the year before was a really outsized year. So I think we're being just conservative on the Q1 guide. You know, obviously, the full year number doesn't change.

Speaker Change: Yes, I think Jeremy.

Speaker Change: Over a look I think when you look at.

Speaker Change: If we look at our business Holistically.

Speaker Change: This was an el Nino year in Canada, and if you look at Belgium brings a bunch of.

Speaker Change: I would say strange weather patterns from sort of east to west.

Luke Pelosi: And we just want to be conservative about where we guided Q1, but which is more of a normal year, I would say. Last year was a bit of an outlier, just given all the different pieces that came together, coupled together with, you know, we really didn't get any snow in Canada, or sort of 80% of that revenue base is tied to. But overall, we feel really comfortable with where the year sort of stands and where we're going. Thank you.

Speaker Change: I think that business is.

Speaker Change: Seasonally based and I think the year before it was really outside the us. So I think we're being just conservative on the Q1 guide.

Speaker Change: Obviously, the full year number doesn't change when we just wanted to be conservative about where we guided Q1, but.

Speaker Change: Which is more of a normal year I would say.

Speaker Change: Last year was a bit of an outlier.

Speaker Change: Just given all the different pieces that came together coupled together with <unk>.

Speaker Change: We really didn't get any snow in Canada.

Speaker Change: 80% of our revenue base is tied to.

Speaker Change: But overall, we feel really comfortable with where the year sort of a standard where we're going.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Stephanie <unk> from Jefferies. Your line is now open. Please go ahead.

Stephanie: Hi, good morning, Thank you.

Unnamed Speaker: Thank you. I wanted to touch on the R&G opportunity for 2024, maybe even 2025. Maybe you could talk a little bit about just the ramp of the Arbor Hills facility coming online and what would be the general ramp of those facilities coming online and contributing to EBITDA and then maybe free cash flow over time as well.

Stephanie: I wanted to touch on the R&D opportunity for 2024, maybe even 2025, maybe you could talk a little bit about just the ramp of the Arbor Hills facility coming online in 2023, and just that ability to see maybe some upside in 2024th facility matures.

Stephanie: Kind of likelihood of that potentially happening and then you also called out maybe two to three facilities in 2024, what would be the general ramp up those facilities coming online and contributing to EBITDA and then maybe free cash flow over time as well.

Luke Pelosi: If you think about our rails commissioned in late 2023, you know, initial expectation, you know, and our guide at that time was there was going to be some contribution. As we've learned working with our partners, you need a sort of three to six month period post-commissioning in order for the actual gas to sort of be monetizable and flowing. And so we're now taking that degree of sort of conservatism. So you think about what 2024 has baked in the guide, you've said roughly $30 million coming out of Arbor Hills R&G, that's using a RIN price just under $3. It's really assuming a more muted volume, currently running about 70-75% of the total expected volume.

Stephanie: Yes, so Stephanie it's Luca speaking here.

Luca: Think about our Red Hills commissioned in late 2023 initial expectation and our guide at that time was there it's going to be some contribution as we've learned to working with our partners you need to sort of three to six month period post commissioning. It appears in order for the actual gas this would it be monetize and flowing and so we're now taking that degree of sort of.

Luca: Conservatism. So you think about what 2024 has baked in the guidance had roughly $30 million coming out of Arbor Hills RMG, that's using a RIN price just under $3 is really assuming a more muted volume. We're currently running about 70% to 75% of the total expected volume and Thats, where the upside remains we've assumed.

Luke Pelosi: And that's where the upside remains. We've assumed that that lowered level will remain throughout all of 2024. Whereas the reality, by the back half of 2024, you can see that ramping back up closer to that sort of 100% level. So there'll be some upside on that. In terms of the other three sites, two to three sites that will come online, probably two do get commissioned in the year; the third is scheduled for, you know, the very end of the year.

Luca: That lowered level remains throughout all of 2024, whereas the reality by the back half of 2024, you can see that ramping back up closer to that sort of a 100% level. So that would be sort of upside on that in terms of the other three sites two to three sites that will come online probably to do get commissioned in the year. The third is sketch.

Luca: <unk> for the very end of the year. So it's possible that that slips into Q1 of next year, but those two to three sites in aggregate represent sort of equal size of slightly larger in terms of EBIT contribution as Arbor Hills Arbor Hills was our largest those two to three other in aggregate are about equal size. So you put that together.

Luke Pelosi: So it's possible that that slips into Q1 of next year. But those two to three sites in aggregate represent, you know, sort of equal size to slightly larger in terms of EBITDA contribution as Arbor Hills. Arbor Hills was our largest; those two to three other sites in aggregate are about equal size.

Luke Pelosi: So you put that together, and that brings you closer to sort of $75-$80 million of EBITDA on a run rate basis with all of those. Now the two to three coming online, again, you need to bake in that sort of three to six month ramp period. So you may not realize all of that in the year 2025, but certainly by exiting the year, you expect to be at that sort of run rate. On the free cash flow component, as you know, some of these projects, we are sort of debt funding at the project level. And as a result, roughly the first sort of 12 to 15 months of generation of cash at the site goes to debt repayment. So you are going to have a lag between the first year's EBITDA generation and when the free cash actually starts being received. However, you do have an immediate free cash component tied to the royalty stream.

Luca: That brings you closer to sort of $75 million to $80 million of EBIT number.

Luca: On a run rate basis with all of those now that the two to three coming online again, you need to bake in that sort of three to six month ramp period. So you may not realize all of that in year 2025.

Luca: But certainly by exiting the year, you expect to be at that sort of run rate on the free cash flow component as you know some of these projects we are sort of debt funding at the project level and as a result, roughly the first sort of 12 to 15 months of journey.

Luca: Generation of cash at the site goes to debt repayment. So you are going to have a lag between the first use EBIT generation and when the free cash actually starts.

Luca: <unk> received you do have an immediate free cash component tied to the royalty stream and if you think about each of these projects sort of.

Luke Pelosi: And if you think about each of these projects, around 15 to 25% of the economics comes in as a royalty. And so that actually is free cash, but that other actual underlying equity pickup, you can have that 12 to 18 month lag, as I said. Great, no, that's really helpful, thank you.

Luca: 15% to 25% of the economics comes in our royalty and so that actually is free cash but that other actual underlying equity pick up you can have that 12 to 18 month lag as I said.

Speaker Change: Great. That's really helpful. Thank you and then maybe just as a follow up Patrick you noted some you've provided some color on the deal that you expected to go to close and maybe set early Q2 of this year, maybe if you could just talk a little bit about that transaction.

Patrick Dovigi: And then maybe just as a follow-up, Patrick, you noted some, you've provided some color on a deal that you are to close, and I believe he said early 2Qs this year. Maybe if you could just talk a little bit about that transaction. Thank you.

Patrick: Expectations in terms of opportunity over time too.

Patrick Dovigi: Yeah, so it's a market, you know, where we're currently operating, in and around, you know, great family business, fully vertically integrated, wonderful hauling business, great landfill asset, again, in a market where we've, you know, done exceptionally well. I think, you know, we like that market a lot. We like the markets around it a lot, and we think over time, it'll just fill in an area where we would like to be. And, you know, these opportunities don't come along sort of every day.

Speaker Change: In that specific market. Thank you.

Patrick: Yes, so that's a market.

Patrick: We're currently operating.

Patrick: In and around.

Patrick: Great family business fully vertically integrated.

Patrick: Wonderful hauling business create landfill asset again in a market.

Patrick: We've done exceptionally well in.

Speaker Change: Thank you.

Speaker Change: We like that market a lot we like the markets around that a lot and we think over time.

Speaker Change: It will just fill in an area, where we would like to be.

Speaker Change: And these opportunities don't come along sort of everyday and I think we're very well positioned both from a relationship perspective, what the seller as well as being able to get through the Doj regulatory process.

Patrick Dovigi: And I think we were very well positioned, both from a, you know, relationships perspective with the seller, as well as being able to get through the DOJ regulatory process in relatively short order. So you put those two things together, and I think that's what made it attractive to us. And I think when we're picking our spots, particularly with M&A, we're looking at places where, you know, we can add value and we have sort of, you know, a first mover or some sort of advantage with the asset, you know, around the DOJ regulatory process with some of our competitors, etc. So I think that's what we're spending the bulk of our time today on assets is, you know, we believe. We can get, you know, a higher return. Jeff,,,,,,,,,,,,,,,,,, Hey, good morning, guys.

Speaker Change: In relatively short order.

Speaker Change: So you put those two things together I think that's what made it attractive to us and I think what we're picking our spots, particularly with M&A. We're looking at places, where we can add value and we have sort of.

Speaker Change: First mover or some sort of advantage with the asset around Doj regulatory process with some of our competitors et cetera. So I think thats where were spending the bulk of our time today on assets as we believe.

Speaker Change: We can get.

Speaker Change: Higher return.

Speaker Change: Assets with sort of the capital that we have to deploy when we focus on those type of situations.

Speaker Change: You think it will be Greg will be able to update our expectations will close early Q2.

Speaker Change: <unk> as early as April one and then we'll update everybody clearly with that.

Speaker Change: With that in mind.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Michael <unk> from Scotiabank. Your line is now ladies and please go ahead.

Michael Hoffman: Hey, good morning, guys.

Patrick Dovigi: Okay, I obviously understand the reasons behind the capital allocation strategy you laid out in November and reiterated today, but I wonder, based on kind of everything, if that means you may forego M&A opportunities that you would otherwise pursue and close, especially given that you've allocated about half of your capital to spend. And if that's the case, is there anything that you can do to, Yeah, I think you know, this was a year again, this is, you know, as we said when we put on our capital allocation plan, you know, this was a year to sort of squarely put leverage into the threes. Yeah, there are multiple levers we could pull in order to do that.

Michael Hoffman: Okay, and I, obviously understand the reason behind the capital allocation strategy you laid out in November and reiterated today, but I wonder.

Michael Hoffman: Based on kind of everything if that means you may forego M&A opportunities that you would otherwise pursuing close I mean, especially given.

Michael Hoffman: Now looking at about half of the of the spend and if that's the case is there anything that you can do to minimize that.

Michael Hoffman: Yes, I think this was.

Michael Hoffman: For the year again. This is as we said when we put out our capital allocation plan.

Michael Hoffman: It was a year to sort of squarely put leverage into the threes.

Yes, there's multiple levers we can pull in order to do that or we're going to do that no. I think the plan is stick to the sort of capital allocation plan, we laid out.

Patrick Dovigi: Are we going to do that? No, I think the plan is to stick to the sort of capital allocation plan we laid out, which really is for the next sort of six months because if you think about what the growth plan would be as you roll into 2025, you're going to start putting all the wheels in motion in sort of Q4 of 2024. But we have a lot on our plate again with the rollout of EPR, and again this M&A transaction that we've been working on for sort of closer to almost six months now, put together with the onesies and twosies and small pocket highly creative acquisitions that are going into the existing footprint around sort of underutilized post-collection assets. And again, focus on just continuing to de-level the balance sheet and squarely get that to threes

Michael Hoffman: What's really is kind of the next sort of six months because if you think about what the growth plan would be as you roll into 2025, youre going to start putting all the wheels in motion in sort of Q1 'twenty to Q4, So our Q4 2024.

Michael Hoffman: But we have a lot on our plate again with the rollout of EPR again.

Michael Hoffman: As M&A transaction that we've been working on for sort of closer to almost six months now plus together with the <unk>.

Michael Hoffman: Onesies and Twosies and small tuck in highly accretive acquisitions at a more of an existing footprint around sort of underutilized post collection assets.

Michael Hoffman: And again focus on just continuing to Delever the balance sheet is squarely get them for three years once we get the balance sheet clearly into the threes.

Patrick Dovigi: Once we get the balance sheet clearly into the threes, you know, then it'll be sort of a natural, you know, gravitation downward closer to three. We'll then not have to have this conversation again, and we can just deploy, you know, incremental free cash flow. And given the size and scale of the business, you know, M&A is not really going to move the needle in any major way in terms of actually, you know, toggling between, you know, low threes and sort of mid threes. So I think, you know, we're going to just stick to this. We're going to stick to the course now.

Michael Hoffman: Then it will be sort of a natural gravitation downward closer to three we will then not have that conversation again, we can just deploy incremental free cash flow given the size and scale of our business.

Michael Hoffman: M&A is not really going to move the needle in any major way in terms of actually.

Michael Hoffman: Toggling between.

Michael Hoffman: Low threes in sort of mid <unk>. So I think we're going to just stick to this we're going to stick to the course now and.

Luke Pelosi: And, you know, I think there are lots of opportunities, and there will continue to be lots of opportunities. But for 2024, we want to stick with this plan. Got it.

Michael Hoffman: And I think there's lots of opportunities and there will be continued to be lots of opportunities, but for 2024, you want to stick with this plan.

Speaker Change: Got it makes sense.

Luke Pelosi: Makes sense. Appreciate the comments. Maybe turn it on to volumes.

Speaker Change: I get the comments, maybe turning to volumes.

Luke Pelosi: Again, for Solid Waste, the expectation for the outsized headwind in terms of volumes in Q1, given the comp, and then you get a moderation for the balance of the year, and then just turning to ES. I'm assuming organic growth there is going to be price-led, but just curious what your thoughts are on volume. Yeah, Michael. It's Luke speaking.

Speaker Change: Again for selling rates the expectation for the outsized headwind.

Speaker Change: In terms of volumes in Q1, given the comp and then you get a moderation for the balance of the year and then just turning to Es.

Speaker Change: I am assuming organic growth there is going to be priced right, but I'm just curious what your thoughts are on on volume assumptions.

Luke Pelosi: So for Q1 solid waste, you're absolutely right. The volume is sort of, I think, in the guide, we alluded to negative four and a half, which is really negative three and a half from intentional shedding. If you think about last year's cadence, Q1 was positive volume, then Q2 through Q4 were about negative two to three percent. So you're anniversarying that in Q1, and that yields about negative three and a half percent. And then all the weather impacts that Patrick alluded to, we're thinking about roughly another hundred BIPs.

Speaker Change: Yes, Michael its Luc speaking so for Q1 solid waste you're absolutely right.

Luc: Volume is sort of I think in the guide we had alluded to negative four five which is really negative $3 five from the intentional shedding as you think about last year's cadence Q1 was positive volume than Q2 through Q4 of a negative 2% to 3%. So youre anniversarying that in Q1 and that yields about negative three 5%.

Luc: And then all the weather impacts that Patrick alluded to we think about roughly another 100 bps, Steve starting with that negative four five and then that Ratably improves as you go through the year and getting to a positive volume number by Q4, that's roughly the expected cadence and for all of the comments in the prepared remarks, we think there could be some conservatism in there.

Luke Pelosi: So you're starting with that negative four and a half, and then that relatively improves as you go through the year, getting to a positive volume number by Q4. That's roughly the expected cadence, and for all of the comments and the prepared remarks, we think there could be some conservatism in there, but given the uncertainty, we're feeling confident that's the right sort of place to be guiding. E.F. ES is really if you have to go back to Q1 23 and recall, you know, the significant outperformance that he had in that quarter. And so you're really comping off, you know, a very tough quarter.

Luc: But given the uncertainty we're feeling confident thats, the right sort of place to be guiding to.

Luc: Yes.

Speaker Change: <unk> is really if you have to go back to Q1, 'twenty three and recall the significant outperformance that he has had in that quarter and so youre really comping off a very tough quarter. So that is certainly driving part of the Q1.

Luke Pelosi: So that is certainly driving part of the Q1 dynamic in the environmental services segment. But I think more overarchingly in environmental services, though, it's something that we've consistently been saying is that business historically was a volumetric growth story and is now pivoting to, well, a price-led growth story. So quality of revenue over quantity. And so if you think about the mid-single-digit overall top-line growth, that really is a sort of higher single-digit top-line growth coming out of price-driven initiatives offset by, you know, some negative volume. What I would say with ES, unlike always, is that there are some more event-driven components to it.

Speaker Change: Dynamic in the environmental services segment, I think a more overarching environmental services, though it's something that we've consistently be saying is that business historically was a volumetric growth story.

Speaker Change: And is now pivoting to one.

A price led growth story, so quality of revenue over quantity and so if you think about the mid single digit overall topline growth that really is where the higher single digit topline growth coming out of price driven initiatives offset by some negative volume what I would say with es. Unlike as always is there is some more event.

Speaker Change: Driven components to it and so you can have an event or an emergency response type action that does give rise to sort of more difficult to forecast volume throughout the year, we've been quite conservative on that and that can arise.

Luke Pelosi: And so you can have an event or an emergency response type action that does give rise to sort of more difficult-to-forecast volumes throughout the year. We've been quite conservative on that, and that can arise. Again, a lot of winter weather in Canada gives rise to those with a milder winter.

Speaker Change: Again, a lot of winter weather in Canada that gives rise to those so with the milder winter you didn't see as much of that but I think could come at any time. So there is upside from that to the guide, but that's how we're thinking about it overall.

Luke Pelosi: You didn't see as much of that, but it could come at any time. So there is an upside from that for the guide, but that's how we're thinking about it overall. Perfect helpful comment. Thank you. Thank you. Our next question today comes from Stephanie Yee. Hi, good morning.

Speaker Change: Perfect helpful comment thank you.

Speaker Change: Thank you.

Speaker Change: Our next question today comes from Seth <unk> from Jpmorgan. Your line is now open. Please go ahead.

Seth: Hi, good morning.

Stephanie Yee: I know you've been talking about the RNG and EPR spend together, but could you maybe break out either for 2024, how much is dedicated to RNG, or maybe even for the 2026 EBITDA, $175 million to RNG, what is the total RNG CapEx associated to get to that? Well, so Stephanie, it's Luke speaking. There are sort of two different questions in there. On the latter, $175 million of RNG in 2026, as we had previously said, it was just under sort of a 2x capital spend in order to do so. And I think to date, through our equity contributions into JVs, we've put about $80 or $90 million. We'll have the benefit of sort of debt funding, and a significant component of the remainder of those; it won't require an equity check.

Seth: I know you've been talking about the R&D and EPR spend to get there.

Seth: But could you maybe break out either for 2024.

Got it key to R&D or maybe just even for the 2020 EBITDA 175 million to R&D. What is the total R&D capex associated to get to that.

Seth: Hi.

Seth: So Stephanie as Luc speaking sort of two different questions in there on the ladder of $175 million of RMG in 2026, what we had previously said it was just under sort of a two X capital spend in order to do so.

Luc: I think to date through our equity contributions into JV, we put about 80% or $90 million.

Luc: We will have the benefit of sort of debt funding a significant component of the remainder of those who won't require an equity check.

Stephanie Yee: And then on the ones that we are building ourselves, you know, we'll continue to have the sort of capital spend when all said and done. We think it's in that sort of, you know, just under 2x what the EBITDA was, as we had said. Now, ITCs have not currently been sort of factored in. I know there's a hemming and hawing at the various legislative levels as to what's going to be the final outcome there, but it does seem, if you're reading the TV, that some amount of ITCs will be made available.

Luc: And then on the ones that we're building ourselves we will continue to have the sort of capital spend when all said and done we think it's in that sort of just under two X. What the EBITDA was what we had said now itc's have now firmly been sort of factored in and others.

Hemming and hawing into various legislative levels as to what's going to be the final outcome there, but it does seem if youre reading the tea leaves that some amount of itc's will be made available and that will obviously serve to offset what that sort of capital cost is in the 2024 spend your first question.

Luke Pelosi: And that will obviously serve to offset what that sort of capital cost is. In the 2024 spend, your first question, roughly two-thirds of that amount is going into ETR type initiatives with the other sort of third going into RNG. Our capital commitments and the JV contributions this year will be significantly lower than the prior year, as you know, those projects are now sort of standing on their own. But that's how we're thinking about each of those buckets. Okay, great. That was so helpful.

Luc: Roughly two thirds of that amount is going into ETR type initiatives with the other sort of third into R&D.

Luc: Our capital commitments and the JV.

Luc: Contribution this year will be significantly lower than the prior year as those projects are now sort of standing on their own but that's how we're thinking about each of those buckets.

Speaker Change: Okay, great that was very helpful.

Stephanie Yee: And just going back to environmental services, I guess this year, you mentioned in the kind of mid single-digit organic revenue growth is embedded high single-digit pricing that's getting you to 100 basis points of margin expansion. Can you just kind of walk through how you expect to get to that 30% plus even margin target over the medium term? Is it going to be primarily price driven to get there, or is there any other color you can provide?

Speaker Change: Just going back to Houston.

Speaker Change: Until servicing.

Speaker Change: This year you mentioned.

Speaker Change: In the kind of mid singles.

Speaker Change: Mechanic Rhatany growth is embedded high single digit pricing, that's getting you to 100 basis points of margin expansion in 2024, I guess can you just kind of walk through how you expect to get to that 30% EBITDA margin target over the medium term is that going to be primarily price Caribbean and to get there.

Luke Pelosi: Yes, Stephanie, I think it is a combination of price-driven asset utilization, as well as the self-help lever that we've been talking about, although we typically talk about a solid wasteland, equally applicable to environmental services. So price as a starting point, focusing on quality of revenue for net new revenue, but also, and perhaps almost equally important, shedding lower quality revenue that does not meet our return thresholds. And if you just look at the math, the power of shedding, call it low, single, or mid-teens margin work, is very accretive to the sort of blended margin.

Speaker Change: Or any other color you can provide.

Speaker Change: Yes, So 70 I think it is a combination of price driven asset utilization as well as the self help levers that we've been talking although we typically talk with a solid waste slant equally applicable to environmental services, so price as a starting point focusing on the quality of.

Speaker Change: Revenue for net new revenue, but also and perhaps almost equally important shedding lower quality revenue doesn't that is not being our return thresholds.

Speaker Change: I just looked at the math the power of shedding call. It low single or mid teens margin work is very accretive to the sort of the blended margin and so you've seen that at play in solid waste and we expect to see and realize similar benefits in environmental services as we undertake this sort of.

Luke Pelosi: And so you've seen that at play in solid waste, and we expect to see and realize similar benefits in environmental services as we undertake this sort of quality of revenue focus. Asset utilization is one that we've spoken about and continues to be a key focus. I mean, the number of SKUs and product offerings and environmental services is greater than what you have in solid waste.

Speaker Change: Quality of revenue focus.

Speaker Change: Asset utilization is one that we've spoken about and continues to be a key focus I mean, the number of skus and product offerings in environmental services far greater than what you have in solid waste and with the way the businesses have come together really with the tariff your integration from a few years ago, we have a diverse service offering that is not yet fully on.

Luke Pelosi: And with the way the businesses have come together, really with the TerraPure integration from a few years ago, we have a diverse service offering that is not yet fully offered in all of our markets, and therefore, we see opportunity for improved asset utilization by ensuring that each of our locations is doing all that it can be to drive an incremental sort of contribution. And so the focus on asset utilization is another sort of levered approach. And then the overarching sort of self-help we've talked about really just benefiting from a lot of the operational best-in-class practices from efficiency, costing, etc., that, you know, the solid waste industry has sort of perfected and benefited from over the past decade, just employing that in our environmental services business as well. So when you think about the margin expansion that we've achieved over the last few years and now with the pivot towards this quality of revenue, we're feeling really comfortable about, you know, that upward march to that sort of high 20s and eventually 30%, even a margin in the ES. Okay, great. Thank you so much.

Speaker Change: Offered in all of our markets and therefore, the opportunity for improved asset utilization by ensuring that each of our locations is doing all that it can be to driving incremental sort of contribution and so that focus on asset utilization is another sort of levered to the approach and then the overarching sort of self help that we've talked about really just.

Speaker Change: Benefiting from a lot of the operational best in class practices from efficiency costing et cetera that the solid waste industry has.

Speaker Change: Perfected and benefited from over the past decade, just employing that into our environmental services business as well. So when you think about the margin expansion that we've achieved over the last few years and now with the pivot towards this quality of revenue, we're feeling really comfortable about that upwards March to that sort of high <unk> eventually 30% EBITDA margin.

Speaker Change: Yes.

Speaker Change: Okay, great. Thank you so much.

Speaker Change: Our next question comes from Tobey Summer from Deutsche Bank. Your line is now open.

Unnamed Speaker: Ahem. Thanks. I was hoping you could speak to labor market trends and that, you know, the inputs and costs for turnover resulting from board and training, safety expenses, etc. Is that static at current rates, those trends in your guidance, or do you embed incremental improvements throughout? http://TheBusinessProfessor.com great. Yeah, we have not embedded any upside from where we exited Q4. We do believe there is some upside. I mean, involuntary turnover is still sitting in the low 20s range today.

Tobey Summer: Thanks, I was hoping you could speak to labor market trends and that the inputs in cost for turnover, resulting onboarding training safety expenses et cetera is that static at current rates those trends in your guidance or do you embed increments.

Tobey Summer: Improvements throughout the year is that trend kind of reverses from that Greg.

Tobey Summer: Greg resignation couple of years ago.

Greg: Yes, we have not embedded any upside from.

Greg: In short, we exited where we exited Q4, we do believe there is some upside I mean voluntary turnover still sitting in low twenties range today.

Patrick Dovigi: You know, we'd like to see that in the high teens across our book of business, so we do think there's some upside coming from that. We haven't embedded any of that into our numbers for 2024. So anything that happens would be good for the guy.

Greg: We'd like to see that in the high teens across our book of business. So we do think there's some upside coming from that we haven't embedded any of that into our numbers for 2024, so anything that happens what would be upside to the guidance.

Patrick Dovigi: Could you talk about the anticipated pipeline of acquisitions as you look out this year, both from a geographic mix, how you think the split may fall, and is there anything in the complexion of that pipeline to indicate that there would be or could be a change in the rate of intentional shedding? No, I think if you look at the sort of, I mean, on the intentional shedding piece, there's a bit of sort of, you know, low margin commercial work that you've inherited with some acquisitions, but the lion's share of that is going to become, you know, in residential contracts for a service provider, generally only without any material vertical integration. And, you know, either way, we're not going to deploy incremental capital into those types of opportunities. So, Southeast Michigan is an example of, you know, markets where we're potentially shedding some work because it's just, again, the cost. And what we actually get in the revenue we're getting for those contracts just doesn't make a ton of sense.

Greg: Could you talk about the.

Greg: No.

Anticipated pipeline of acquisitions as you look out this year both from a geographic mix. How do you think the split may fall and.

Greg: Is anything in the complexion of that pipeline indicate that there would be or could be a change in the rate of intentional shedding going forward.

Greg: No I think if you look at the sort of I mean on the intentional shedding piece. If you look at the intentional shedding piece.

Greg: There's a bit of sort of low margin commercial work that you've inherited with some acquisitions, but the lion's share of that is going to come in.

Greg: In residential contracts, where we're a service provider generally only without any material vertical integration.

Greg: And.

Greg: Either we're not going to deploy incremental capital into those types of opportunities So southeast, Michigan as an example.

Greg: The markets, where we're potentially shedding some work because it's just again the cost.

Greg: And what we actually get the revenue we're getting from those contracts. It doesn't make a ton of sense. There are some municipalities and communities are prepared to pay the the rate we need because they appreciate the service offerings that we are able to give them, but I think that's where the lion's share of that comes that being said if you look at where we're going to deploy capital the pipeline, yes, I would say.

Patrick Dovigi: There are some municipalities and communities that are prepared to pay the, you know, the rate we need because they appreciate the service offerings that we are able to give them, but I think that's where the lion's share of that comes from. That being said, if you look at where we're going to deploy capital, the pipeline, I would say these acquisitions don't always just happen in a month. I mean, these relationships are cultivated over long periods of time, so.

Greg: These acquisitions always just happened in a month I mean, these relationships cultivated over long periods of time so.

Patrick Dovigi: In terms of what we're focused on, really, the focus is, you know, once getting a sort of medium-sized acquisition out of the way, the lion's share, what we're going to do is just put a small puck in. M&A sort of, you know, largely sort of collection only in markets where we have, you know, I would say, underutilized post collection assets and transfer stations, recycling facilities, and landfills, where we can just drive incremental volumes to those facilities. We'll have facility consolidation, eliminate the SG&A cost, the consolidation of routes, etc., which will then provide the most torque for all of us as shareholders over the course of the next year. Thanks. And last thing for me, any regulatory proceedings that you're tracking that could create new opportunities but also require, No, I mean, from that, from that perspective, I think, you know, again, we're pretty selective, like I said earlier, about markets where we're going to go and for acquisitions that we think are sort of relevant for us and looking at the sort of dynamic of what exists in the market today. So, I mean, other than PFOS, I would say it's a landfill. There's nothing that sort of, you know, jumps out at me, but I think from a DOJ perspective, and from a HSR perspective, there's nothing that comes to mind.

Greg: In terms of what we're focused on is really the focus is once getting a sort of medium sized acquisition out of the way the lion's share of what we're going to do is a small tuck in <unk>.

Greg: M&A sort of largely sort of collection only in markets, where we are.

Greg: I would say underutilized post collection assets and transfer stations recycling facilities landfills, where we can just drive incremental volume. So those facilities will have facility consolidations eliminated SG&A cost the consolidation of routes et cetera, which will then provide the most tour for all of us as shareholders over the course of the next year.

Speaker Change: Last thing for me.

Speaker Change: Key regulatory proceedings that you're tracking that could create new opportunities, but also require some new investments.

Speaker Change: No.

Speaker Change: From that perspective, I think again, we're pretty selective like I said earlier about markets, where we're going to go and for acquisitions.

Speaker Change: That we think are sort of relevant for us and looking at the sort of dynamic of what exists in the market today.

Speaker Change: So I mean other than P. Fast I would say at the landfill theres nothing that sort of.

Speaker Change: Jumps out of me, but I think from from a Doj perspective, HSR perspective, nothing that comes to mind, we're just focused on again.

Patrick Dovigi: We're just focused on, again, going into markets where we know we can be through the DOJ and the HSR process in a relatively short order. You know, which again, money is not everything in some of these acquisitions. I think some of the sellers don't want to take 12 and 18 months to go through a process with, you know, HSR, etc. So I think that's where we're focused, and I think when you have a limited number of dollars you're going to deploy in any given year, particularly like this year, it gives us the luxury of being very selective about what we want to do and where we want to do it, and how we want to do it. Yeah, thanks guys. Um, maybe going back to the, um, the environmental services reclass, just a couple questions on this. Um, you know, first of all, I guess it moved, um, in aggregate, the, uh, margin on ES by how much of an energy basis point.

Speaker Change: Going into markets, where we know we can be through the Doj and the HSR process in a relatively short order.

Speaker Change: Which again money is not everything in some of these acquisitions I think some of the sellers don't want to take 12 and 18 months to go through a process with.

Speaker Change: Through HSR et cetera.

Speaker Change: That's where we're focused.

Speaker Change: And I think when you have a limited numbers of dollars youre going to deploy in any given year.

Speaker Change: Particularly like this year.

Speaker Change: Gives us the luxury of being very selective about what we want to do and where we want to do it and how we want to do it.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Chris Murray from <unk> Capital markets. Your line is now open. Please go ahead.

Chris Murray: Yes, thanks, guys.

Chris Murray: Maybe going back to the environmental services requires just a couple of questions on that.

Chris Murray: First of all I guess it moves in.

Chris Murray: In aggregate.

Chris Murray: The margin on Es by about 90 basis points. So a couple of questions on that first of all what actually.

Luke Pelosi: So I have a couple questions on this. First of all, what actually did move, um, between segments, and is this more of a financial thing or an operating thing? And then the question is, the other question is, down the road, you know, when you think about how you're operating the businesses, um, you know, yes, going to continue to operate as part of, uh, kind of a regional approach or are you, you know, are it, you know, separate management teams, things like that, just wondering, you know, just as we think about this reclass, how the business gets organized going forward Yeah, Chris. It's Luke speaking.

Speaker Change: Good move.

Speaker Change: Between segments and is this more of a financial thing or an operating thing.

Speaker Change: And then the question is the other question is.

Speaker Change: Down the road when you think about how you're operating the businesses.

Speaker Change: Yes, we're going to continue to operate part of kind of a regional approach or is it.

Speaker Change: A separate management team and things like that just wondering just as we think about those requests.

Speaker Change: The business, it's organized on a go forward basis.

Yes, Chris it's Luc speaking.

Luke Pelosi: And thanks for the question. We did put an appendix in the deck. I think it's on page 17 of the deck showing the details of the request. But really, what it is, if you go back, we bought a business called Sprint Waste Services, I believe it was in 2022. And that business, you know, a vertically integrated solid waste collection business, primarily in the Houston market, also had some environmental services type work. And you think about, you know, just the refineries and the activity that happened down in that geography. And I stood originally, we had just recorded all solid waste, but in reality, the plant services type component of it very much fits within what we do in environmental services. So the reclass is primarily about taking that business line and putting it into our environmental services just to be more consistent with that work that we do elsewhere. We took the opportunity, there were a few other similar instances from acquisitions that had been completed in solid that had some ancillary services, to move those over as well. But it really was Sprint in Houston, the majority of that. So why, and the driving was operationally.

Luc: And thanks for the question, we did put in the appendix in the deck I think it's on page 17 of the deck showing the detailed the request, but really what it is if you go back we bought a business called sprint waste services I believe it was in 2022 and that business vertically integrated solid waste collection business, primarily in the Houston and Houston.

Luc: The market also had some environmental services type work.

Luc: When you think about just the refineries and the activity that happened down in that geography.

Luc: Originally we hedges recorded all solid waste, but in reality.

Luc: <unk> services type component of it very much fits within what we do is environmental services. So the re class is primarily about taking that business line and putting it into our environmental services just to be more consistent with that work that we do elsewhere. We took the opportunity. There was a few other similar instances from acquisitions that have been completed and saw.

Luc: That has some ancillary services to move those over as well, but it really was the sprinted Houston the majority of that.

Luc: Why.

Luc: The driving was operationally I mean, we run the business with what makes sense in the field and our environmental services management team and professionals are best suited to do that work and wanted to put that where everything we have the best opportunity and it's with that team the businesses regionally run just like our solid waste business.

Luke Pelosi: I mean, we run the business with what makes sense in the field. And, you know, our environmental services management team and professionals are best suited to sort of do that work. And we wanted to put it where we think we have the best opportunity, and it's with that team. The business is regionally run, just like our solid waste business. You know, Ed Glavina, who runs it as a whole, has individual area VPs. They're responsible for each of their respective markets.

Luc: As the arena.

Luc: <unk> as a whole has individual area vps, a responsible for each of their respective markets and we don't see that changing that's the structure Thats worked very well for us in solid waste and were going to continue to employ it in environmental services and execute the same playbook of giving them the sort of freedom and capability to run their respective markets as we do believe.

Luke Pelosi: And we don't see that changing. That's the structure that's worked very well for us in solid waste. And we're gonna continue to employ it in environmental services and execute the same playbook of giving them the sort of freedom and capability to run their respective markets, as we do believe waste, whether it's environmental services or solid, is a regionally focused business, and continue to use the corporate function to support them in every way that we can. It has been highly successful in solid, and we expect continued success in environmental services. Thank you. That's very helpful. Um, the other question I had for you is something about, you know, you talked a little bit about this with your 2024 outlook about, um, you know, looking to improve turnover and health and safety. Um, you know, can you give us some color about where you're sitting today?

Luc: Waste, whether it's environmental services are solid as a regionally focused business extending into the corporate function to support them. In every way that we can then have a successful and solid can we expect for continued success and environmental services.

Speaker Change: Okay. Thank you that's helpful.

Speaker Change: The other question I had for you, it's something about you talked a little bit, but just with your 2020 core outlook is about.

Speaker Change: Looking to improve turnover in health and safety metrics.

Speaker Change: Can you give us some color about where you're sitting today.

Chris Murray: It feels like employee turnover should be settling down. But when you think about longer-term goals, um, on both those metrics, you know, where do you want to get to? I mean, obviously, probably zero, zero injuries, zero, zero incidents would be the target, but you know, where are you today and where do you think you need to go and, you know, what's involved in getting there. Ha!

Speaker Change: Fields like employee turnover should be settling down, but when you think about longer term goals.

Speaker Change: On both of those metrics.

Speaker Change: Where do you want to get too, obviously, probably zero injuries and zero incidents would be the target but.

Speaker Change: Where are you today, and where you think you need to go and what's involved in getting there.

Speaker Change: Yes.

Speaker Change: Hi.

Patrick Dovigi: Well, I mean, from a turnover perspective, from a turnover perspective, you know, I think we want to be in a place where you're sort of in the high teens, right? I think that's where we sat for a long period of time. And I think that's where we generally want to go today. That's the low 20s, but materially down from the peak, which was, you know, high 20s approaching 30 in sort of some markets.

Speaker Change: Well I mean from a from a turnover perspective from a turnover perspective I think.

Speaker Change: We want to be in a place where you're sort of in the high teens.

Speaker Change: That's where we've said for a long period of time, and I think Thats, where we generally want to go today, that's low twenties, but materially down from the peak, which was high <unk> approaching 30 and sort of some market. So I think from where we sort of sit today that makes us feel very good about where that trajectory is going away or that sort of trending.

Patrick Dovigi: So I think from where we sort of sit today, that makes us feel very good about where that trajectory is going and where that's sort of trending. And obviously, from a TIR perspective, you know, I think where we're sitting, we will sort of want to be, you know, in the twos. And I think this year was the best year we've had, and we moved to a place of, in 2020, we were roughly sort of 4.4 to, you know, just over sort of 3.

Speaker Change: And obviously from a <unk> perspective.

Speaker Change: Where we're sitting we will sort of want to be in.

Speaker Change: In the twos and I think this year was the best year, we've had.

Speaker Change: And if we move to a place of in 2020, we were roughly sort of $4 four.

Speaker Change: Just over sort of three this year. So we think we're going to generally move that to sort of mid twos and that sort of best in class and sort of world class for our industry. So again, we're almost there little bit of work to do but we feel really good about where that's going.

Luke Pelosi: So we think, you know, we're going to generally move that to sort of the mid twos, and that's sort of best in class and sort of world class for our industry. So, again, we're almost there, a little bit of work to do, but we feel really good about where that's going. That's helpful.

Speaker Change: Okay. That's helpful. Thank you.

Speaker Change: Thank you.

Speaker Change: Our next question comes from John <unk> from Wells Fargo. Your line is now open. Please go ahead.

John: Good morning, Thanks for squeezing me in maybe just a quick one on the solid waste volumes, obviously, the intentional shedding color was very helpful. But could you just frame the.

Chris Murray: Thank you. Thanks for joining me. Thanks for squeezing me in.

John Peter Bonner Mazzoni: Maybe just a quick one on the solid waste volumes, https://www.youtube.com how we will the next few years as well as 24, or are there any others? Hey, John, thanks for the question. It's Luke speaking here.

John: As well as the lack of impacts and how we should think about these contracts rolling through are they going to be kind of hanging.

John: In the next few years as well as 'twenty four or are there any other clips or timing items, we should be aware of thanks.

Luke Pelosi: So as we articulate through 2023, I think the lion's share of the effort, you know, is sort of behind us for what was easily actionable. Now, you raised a great point that some of the contracts are not within our ability to get out of as and when we want. And so you have to wait till the anniversary.

John: Hey, John Thanks for the question, it's Luc speaking years, so as we articulated through 2023 I think the lion's share of the effort is sort of behind us for what was easily actionable now you raised a great point that some of the contracts or not.

Luc: At our ability to get out of as and when we want and so you have to wait until the anniversary. So Patrick had alluded to southeast, Michigan being a pocket, where we see some of that opportunity coming off.

Luke Pelosi: So Patrick alluded to, you know, Southeast Michigan being a pocket where we see some of that opportunity coming off as those contracts reset. And, you know, certainly, there's other pockets throughout our book as well. So we're going to continue to evaluate. I do think, you know, you've seen the majority of it with our existing book of business. You could have another sort of 100, 125 basis points over the next 24, 25, additionally. But certainly the wholesale exiting of our sort of non-core offerings with things sort of behind us, and it was probably now around the edges a little bit. Hey, good morning, guys.

Luc: As those contracts reset.

Luc: Certainly there's other pockets throughout our book as well.

Luc: So we're going to continue to evaluate I do think you've seen the majority of it with our existing book of business you could have another sort of 100 125 basis points over the next 24 to 25. Additionally, but certainly the wholesale exiting of our sort of noncore offerings within sort of behind us and it was probably now around.

Luc: The edges, a little bit more.

Speaker Change: Great color. Thank you.

Speaker Change: Our final question comes from Jim Sheehan from TD, Kevin. Your line is now open. Please go ahead.

Jim Sheehan: Hey, good morning, guys.

Jim Sheehan: My call dropped earlier, so I apologize apologies if you already covered this but can you update us on your truck deliveries given the supply chain challenges.

Unnamed Speaker: My call dropped earlier, so apologies if you already covered this, but can you update us on your truck deliveries given the supply chain challenges? Yeah, I think it's certainly getting better. You know, we received sort of last year 70% of what we wanted. And we think this year that'll be closer to 90. And you know, would be 100% if we did not augment some from some trucks in for that we've had to switch for new residential contract wins, etc. But certainly getting better. And we think by 2025, we'll be back to where we ended pre-pandemic.

Jim Sheehan: Yes, I mean I think.

Jim Sheehan: Its certainly getting better we received we received started last year, 70% of what we wanted but we think this year that'll be closer to 90.

Jim Sheehan: And it would be 100% if we did not augment some from some trucks in for Joe We've had switched for new residential contract wins et cetera, but certainly getting better and we think by 2025 will be back.

Jim Sheehan: Back to exactly where we were we ended pre pandemic.

Patrick Dovigi: Okay, great. Thanks. All my other questions have been answered. Thank you. Thank you. Well, thank you everyone for joining the call. We look forward to speaking to you after Q1. Thank you for joining.

Speaker Change: Okay, great. Thanks, all my other questions have been answered thank you.

Speaker Change: Thank you.

Speaker Change: Well. Thank you everyone for joining the call and we look forward to speaking Jeff.

Speaker Change: After Q after Q1, thank you for joining.

Speaker Change: That concludes today's GSI environmental so let's call that 20%.

Speaker Change: <unk> earnings call you may now disconnect your lines.

Speaker Change: [music].