Q3 2024 GFL Environmental Inc Earnings Call
Good morning and thank you all for attending the GFL third quarter 2024 earnings call. My name is Brika and I will be your moderator for today.
All lines are muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to your host Patrick Dovigi, founder and CEO at GFL Environmental. Thank you, you may proceed Patrick.
Patrick Dovigi: Thank you and good morning. I would like to welcome everyone to today's call and thank you for joining us. This morning we will be reviewing our results for the third quarter and providing updates on other items. I'm joined this morning by Luke Pelosi, our CFO, who will take us through the forward look and disclaimer before we get into details.
Luke Pelosi: Thank you, Patrick. Good morning, everyone, and thank you for joining. We have filed our earnings press release, which includes important information. The press release is available on our website.
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 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.
Patrick Dovigi: 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.
Patrick Dovigi: I will now turn the call back over to Patrick. Thank you, Luke. The momentum from our exceptional first half of the year continues through the third quarter, resulting in nearly 20% adjusted EBITDA growth and another quarter of industry-leading margin expansion.
Patrick: The strength of our ongoing operational and financial performance this year once again demonstrates the dedication of our employees, the quality of our asset base, and the effectiveness of our overall value creation strategies.
Patrick: The impact of the commitment we see every day from our employees cannot be understated. Our employees' handling of the two hurricanes that hit within a two-week period is just one example.
Patrick: Given our extensive operations in the U.S. Southeast, the hurricane had the potential to be severely disruptive to our operations. The extensive preparation and exceptional execution of our teams ensured that we were able to keep everyone safe while continuing to provide essential services to our customers.
Patrick: Once again, I am humbled by the more than 20,000 men and women on Team Green.
Patrick: Consistent with our guide, the third quarter saw the highest adjusted EBITDA margin in GFL's history at 31.1%, a 300-basis point margin expansion over the prior year.
Patrick: This margin expansion has driven us using all the levers that we have talked about in the prior quarters. Our discipline approach to pricing generating higher price-cost spread against moderating cost inflation.
Patrick: The accretive margin benefits of shedding low-quality revenue and the exiting of non-core service offerings.
Patrick: improve productivity, onboarding efficiency, and low cost of risk associated with improving employee turnover, and an M&A strategy, synergy realization as the businesses we have acquired continue to mature within our existing footprint.
Patrick: Luke will walk through more of the specifics on the margin bridge, but we are extremely pleased with how things are working. This quarter's results once again demonstrate the highly predictable and recurring nature of our business model and further enforce our conviction in our near-term roadmap that we believe will continue to drive industry-leading financial performance.
Patrick: In the quarter, we continue to execute on our capital allocation strategy exactly in line with the framework we provided at the end of last year. We are on track to deploy approximately $900 million on both M&A and incremental growth investments this year, as previously announced.
Patrick: During the third quarter, we deployed $96 million into these incremental growth investments primarily related to recycling and R&G infrastructure.
Patrick: We have commissioned two new MRFs so far this year and expect two more to come online in early 2025. Some of our EPR-related collection contracts started up in the third quarter, and we will see more start up between now and 2026.
Patrick: The contribution from EPR will be a growth tailwind over the next 24 months and we remain optimistic about incremental contract wins above and beyond the $130 million of EBITDA we have already talked about.
Patrick: As anticipated, two new R&G plants were commissioned in Q3, and we expect a third to come online before year-end.
Patrick: All three of these projects will drive incremental contribution in 2025 and beyond. We also deployed $47 million into three token acquisitions and continue to have a robust pipeline of attractive M&A opportunities in our markets.
Patrick: We ended the quarter with net leverage of 4.05, the lowest in GFL's history, demonstrating our absolute commitment to the capital allocation and deleveraging targets that we previously shared.
Patrick: As we previewed in August, we officially launched a robust process to evaluate the sale of our environmental services segment in September.
Patrick: As anticipated, the best-in-class quality of this asset, coupled with its near-term growth opportunities, has attracted a significant number of highly credible potential buyers from diverse backgrounds.
Patrick: Based on the first round bids that we received last week, we are highly confident that a transaction at a valuation equal to or greater than we have previously suggested can be signed and announced before we report our full year results in February.
Patrick: We have conviction that the transaction should net a minimum of $6 billion in after-tax proceeds. We expect to repay at least $3.5 billion of debt with the remainder available to buyback stocks and for general corporate purposes.
Patrick Dovigi: Before I hand the call over to Luke, I want to take a minute to talk about the security incident that you may have read about in recent media reports in the context of where GFL is today.
Patrick: I started this business in 2007 with one solid waste transfer station and four old roll-off trucks and $250,000 in startup capital.
Patrick: This December will be GFL's 17th anniversary as a company, and today we are the fourth largest diversified environmental services company in North America.
Patrick: We have operations across 10 Canadian provinces and 25 U.S. states. And this year we are approaching $8 billion in annual revenue.
Patrick: We have millions of customers who trust us to provide them with their essential environmental services, including the over 5 million households that we service across Canada and the United States weekly.
Patrick: We have achieved this level of success by providing high-quality service at a fair price and through the more than 250 acquisitions we have completed to date, with many of those owner-operators staying on with us post-acquisition to continue to contribute to the integration of their businesses into GSL.
Patrick: We have a reputation in the industry of doing what we say we're going to do and we are very proud of that reputation.
Patrick: Investors in GFL now include the highest quality institutions, from private equity funds, to pension funds, sovereign wealth funds, and leading financial institutions around the world.
Patrick: Many of our investors have been with GFL since our early days and have done extensive due diligence on GFL, our leadership team, and the industry.
Patrick: All of our long-term investors have earned significant returns on their capital that they've invested in with us.
Patrick: They have and continue to put their confidence in us to be the stewards of their capital and create long-term value for them. We do not take that trust lightly.
Patrick: Regarding the recent events, we are not going to comment on any specifics because the police are investigating these incidents and the investigations are ongoing.
Patrick: While the media likes to speculate, we would encourage everyone to allow the authorities to do their work. We are cooperating in the investigations and trust that the authorities will bring them to a successful resolution, hopefully in the near term.
Patrick: We are also working with a third-party security consultant to review our security measures and any additional precautions we should be taking.
Patrick: While the authorities continue to do their work, we also remain focused on the safety and well-being of our employees, who, as I said before, are the core to everything we do.
Patrick: The results we've achieved this quarter and throughout our history are a reflection of all the hard work and dedication of GFL's more than 20,000 employees.
Patrick: We have hundreds of facilities across our platform, and these incidents are not going to derail or distract us from continuing to drive the business forward. I will now turn the call over to Luke for additional color on the quarter, and I will then have some closing remarks before we open it up for Q&A.
Thanks, Patrick.
Luke Pelosi: Consolidated revenue for the quarter of 2.015 billion was right in line with our guidance after giving effect to FX and commodity prices.
Patrick: The third quarter saw 11.3% revenue growth in solid waste when excluding the impact of the divestitures.
Patrick: driven by stronger-than-expected solid waste pricing of 6% and volume of minus 0.8%, a 90-basis-point sequential improvement over Q2, despite initial storm-related impacts at the end of the quarter.
Patrick: We expect volumes to turn positive in the fourth quarter and as we anniversary most of the impacts of our targeted volume shedding initiatives
Patrick: Decreases in commodity and energy prices reduce third quarter revenues derived from the sale of commodities as well as fuel surcharges compared to our guidance, a trend we expect to continue in the fourth quarter.
Patrick: Environmental services revenue was up 3% compared to the prior year, inclusive of the impact of lower UMO pricing and a tough comp arising from a large-scale event-driven revenue realized in the prior year period.
Patrick: Excluding the impact of these two items, segment revenue was up 9% versus the prior year. Demonstrating the strength of our price-led growth strategy to offset this lower level of event-driven activity that we continue to see in certain markets.
Patrick: Adjusted EBITDA margins were 31.1% for the quarter, 300 basis points over the prior year, and the first time in our history that we've reported adjusted EBITDA margins of over 30%.
Patrick: For context, adjusted EBITDA margins in Q3 2019, the first publicly reported third quarter results we have, were 25.1%. This quarter representing 600 basis points of margin expansion over those past five years.
Patrick: Solid waste adjusted EBITDA margins were up 340 basis points, inclusive of tailwinds from commodity and fuel prices, the impact of recent divestitures, and the impact of the results of our R&G joint ventures flowing through our P&L, which overcame headwinds from M&A that came in at decreed EBITDA margins. The dilutive margin impact of the increased cost of risk
Patrick: as well as the impact of reclassification of certain costs that have been recognized in the corporate segment in the prior period.
Patrick: Environmental services adjusted EBITDA margins were 32.2 percent, a hundred and ten basis points ahead of the prior year, despite headwinds from used motor oil pricing and increased cost of risk.
Patrick: Adjusted Pre-Cash Flow and Adjusted Net Income were $225 million and $126 million respectively, both exactly in line with expectations, and another data point illustrating the highly predictable nature of our financial results.
Patrick: Net leverage at the end of the quarter was 4.05, ahead of expectations, largely on account of translational FX. But when looking through the FX impact, this result is consistent with the quarterly cadence on which our year-end net leverage target is based.
Patrick: As you all know, it is difficult to predict what FX rates will be in the future, but on a constant currency basis, we continue to track towards the net leverage range outlined in our 2024 Capital Allocation Framework.
Patrick: After quarter end, we were successful in issuing our first industrial revenue bond, a tax-efficient financing instrument commonly used by all of our public company peers.
Patrick: The U.S. $210 million bond was issued with a 4.375% coupon rate, approximately 100 basis points lower than the current weighted average effective interest rate on our other long-term debt.
Patrick: Our initial foray into the tax-exempt bond market is another example of the incremental financing opportunities we expect to become available with our increasing credit quality profile.
Patrick: We have one additional secured bond in our current debt stack that becomes callable at par in the third quarter of next year.
Patrick: The debt markets remain highly constructive and we expect to address these notes in advance of their maturity through cash on hand, proceeds from divestitures, or opportunistically accessing the debt markets when a window presents itself.
Patrick: During the quarter, we also converted approximately $14.5 million of our Series A Perpetual Convertible Preferred Shares into $16 million common shares. The conversion had no impact on our total diluted shares outstanding.
All other aspects of our previously provided guidance remain unchanged.
Patrick: As a result, our expectation for fiscal 2024 adjusted EBITDA margin increases for the third time this year to approximately 28.6%, representing an industry-leading 200 basis point margin expansion over the prior year.
Patrick: Specifically, as it relates to the fourth quarter, we expect consolidated revenue of approximately $1.94 to $1.97 billion at just over 29% adjusted EBITDA margin, representing another quarter of 300 basis points of year-over-year margin expansion.
Patrick: Q4 adjusted free cash flow and adjusted net income are expected to be approximately $350 million and $75 to $80 million respectively.
Patrick: Due to the significant impact the potential sale of our environmental services segment would have on our financial outlook, we're going to wait until February to provide our wholesome 2025 framework and guidance.
Patrick: In addition, we plan to have an Investor Day in early 2024, details of which will be announced soon. However, where we sit today, we have a strong line of sight to a mid-single-digit, top-line organic growth.
Patrick: Layering in the potential contribution from completing even a portion of our current M&A pipeline, we could see 2025 adjusted EBITDA grow in the low to mid-teens.
Speaker Change: I will now pass the call back to Patrick who will provide some closing comments before Q&A.
Patrick Dovigi: This year's performance demonstrates the strength of what we have built and moving into 2025 the setup is very clear.
Patrick Dovigi: Continue to advance the ESL process, giving us the opportunity to accelerate our deleveraging plan and explore options to buy back our stock. Continue to focus on generating industry-leading organic margin expansion in our solid waste business.
Speaker Change: benefit from the ramping contributions from both Extended Producer Responsibility and our R&G facilities, and execute on our robust M&A pipeline while maintaining leveraged targets and continue progressing towards an investment-grade credit rating.
Speaker Change: As I said many times before, all that we have achieved is a testament to the hard work and dedication of all of our employees. On behalf of all of GFL's management team, I want to thank each and every one of our employees and our investors, as well as our customers, and our communities for the continued loyalty and support.
Speaker Change: This quarter also sees us announcing the change of our leadership team. In a long-planned succession, effective January 1st, Greg Yorsten will transition the COO role to Billy Zaffera, our current EVP of our solid waste operations.
Speaker Change: Greg has had a distinguished career in the waste industry of nearly 40 years. Starting in Western Canada in 1986, Greg and his family moved 8 times throughout the U.S. before he settled at Waste Industries in 2013.
Speaker Change: Greg's Canadian roots came full circle when he took on the role of COO following GFL's 2018 merger with Waste Industries.
Speaker Change: Since then, Gregg has been instrumental in executing our growth strategy across our solid waste platform and instilling operational disciplines across all of these operations.
Speaker Change: I know that we would not be where we are today if it weren't for Greg's leadership and dedication to GFL over the last six years. I am personally very grateful for all of his contributions and feel very fortunate to know that GFL will continue to benefit from his expertise through 2025.
Speaker Change: Billy has been a key member of our operational leadership team since he joined us in 2021.
Speaker Change: Billy should be familiar to many of you, who with his more than 30 years of experience in the solid waste industry, including at Republic Services, and most recently before he joined GFL at Advance Disposal.
Speaker Change: Billy has worked as Greg's right hand since 2021 and with his decades of industry and GFL experience, Billy is uniquely positioned to take on the leadership of our solid waste operations.
Speaker Change: This succession has been extensively planned and we are highly confident in a seamless transition. I will now turn the call over to the operator to open the line for Q&A.
Speaker Change: Thank you Patrick. We will now begin the question and answer session. If you would like to ask a question, please press star followed by 1 on your telephone keypad.
Speaker Change: And we do ask that you please limit yourself to one question and one follow-up And if you have any further you will need to press star 1 and get back in the queue And again, that is star followed by 1 to ask any questions
Speaker Change: We have the first question on the line from Patrick Brown with Raymond James. Your line is open.
Hey, good morning, guys.
Morning, Father. Can you hear me?
Speaker Change: Hey, sorry. Hey, Patrick, I just want to kind of thanks for all the details on the ESL, but I just want to be clear. So the six billion is net of any tax leakage, and I don't necessarily want to go down a big rabbit hole here on taxes paid or how a deal might be structured. But kind of regardless of those taxes, I mean, the implied multiple on this deal.
Speaker Change: is still very attractive. It's fully consistent with the multiples that you guys had talked about last quarter. Would that be correct?
Speaker Change: Yeah, that's correct. I think Tyler what we meant to sort of illustrate with this is you know I mean, there's lots there's been lots of media Attention on what the actual value of this business is. I think what we tried to articulate is that
Speaker Change: We have a very, very high degree of confidence that we will deliver a minimum amount of $6 billion in cash proceeds.
Speaker Change: three-and-a-half billion of that is going to get, you know, a minimum of three-and-a-half billion that's going to get these reposts, get to repay debt, and then the balance will be used for general corporate purposes in share buybacks. But, you know, I think that was clearly meant to demonstrate we have, you know, a very high degree of confidence in that today.
Yeah, okay, excellent. And then.
Luke Pelosi: Big Picture Luke, as we kind of look to 25, can we talk about some of the breadcrumbs roll, just at a very high level, specifically around EPR and RNG?
Speaker Change: I mean, right now, how much incremental EBITDA would you expect from both of those buckets? Would it be something like $30 to $40 million incrementally for each in 2025, and then the contribution kind of steps up into 2026?
Speaker Change: Yeah, so Tyler I think you're thinking about it right in terms of the ramp I mean if you take EPR this year and as we said the minimus impact I think five to ten million of EBITDA in-year results that number is going to go up To call it a sort of 40 to 50 million next year. So you have that sort of incremental 35-45 million from EPR
Speaker Change: On the R&G side, this year the one facility, Arbor Hills, roughly $25-$30 million of EBITDA, and I think that number should look to sort of double into next year. Obviously on the R&G side, RIN pricing can play a factor of that. I think we're being pretty conservative with our expectations on RIN. That's keeping it well below today's levels.
Speaker Change: So, you know, we're basically doubling up the MMBTUs with the new plants that have come on.
Speaker Change: New plans for that will come on later in 25 and into 26. We'll have the minimum impact in a year so I I'd say the RNG number and that sort of 35 to 45 incremental and Sorry, EPR 35 45 incremental and RNG and that sort of 25 to 30 range
Speaker Change: Yeah, perfect. And then just to be clear, there's no, at this point, based on deals done to date, there's really no M&A impact in 25.
Speaker Change: No, but what I will say on MNA for 25, obviously, you know, with the high degree of confidence that he has,
Speaker Change: You know, we're going to get something done in relatively short order.
Speaker Change: A very good setup from an M&A perspective across both Canada and the U.S. So to Luke's earlier comments of just the setup for 2025 and the potential impact from incremental M&A, well, again, you know.
Speaker Change: sort of maintaining leverage targets that we have with the focus on the investment grade credit rating. Now we're going to have a very good setup with the proceeds that we receive from the S to be able to sort of double down on the solid waste businesses in our markets that you know that are going to be sort of highly accretive to be both from a free cash flow perspective and just an operational perspective.
Speaker Change: and Tyler I mean to Patrick's point like M&A is really this kicker to what's an extremely attractive organic setup because you know as I said in the prepared remarks
Speaker Change: like mid-single-digit top line I think of it and that will come out with the specifics But you know, I think there's a path where you have another, you know 100 basis points of spread of price over your sort of cost of inflation
Speaker Change: So if you think at the margin level, if you've got a mid-single digit on the top line, 100 basis points of spread, that should give you 60, 70 basis points of margin coming out of the spread. You've got R&G and EPR that we just talked about, that's additive to that. The Michigan divestiture is UN anniversary next year, you pick up another 20 basis points there. So you don't need to believe a lot to see 100 basis points with a margin expansion.
Speaker Change: And so just natural, organically, you know, EBITDA would be up 8%, the RNG and EPR contributions another 2. That puts you at a 10% EBITDA increase before considering M&A. And you know, we're feeling like really confident in those numbers. So we think it's just a very attractive setup as we're getting into next year.
Speaker Change: Yep, no perfect. Sounds great. Appreciate it so much. Thank you guys
And vote.
Your next question comes from
Sabah Khan with RBC Capital Markets. Please go ahead.
Speaker Change: Okay, great. Thanks and good morning. Maybe just continuing on the margin discussion and sounds like you'll probably provide a bit of a medium-term outlook here investor day, but
Speaker Change: If we put the ES business aside, can you maybe just give us, maybe we'll just rehash kind of the margin journey, obviously a peak margin this quarter, how we should think about the margins over the next two, three, four years, and maybe the bigger bucket drivers over the medium term, specifically for the solid waste business, thanks.
Thank you.
Speaker Change: Yeah, it sounds like you're trying to steal our thunder from Investor Day, but at a high level.
Speaker Change: Look, I think you have the base algorithm of price-cost spread. I think what you're seeing this year and, you know, industry-wide, you're hearing the conviction going into 2025 and beyond. I think that's here to stay. We can debate, you know, what the new norm is, but I think you're going to be seeing this ongoing base margin expansion coming out of that dynamic. And I think where we're at, just in the relatively sort of infancy of some of our price discovery, we probably have some runaway of that above and beyond with the industry here.
are.
Speaker Change: Then in addition, we have the whole discovery of ancillary pricing charges, which is just net newer in our book, less mature in our application of that, and that's going to provide us what we perceive to be an incremental tailwind as we just catch up to where the industry already is.
Speaker Change: So you have a very attractive sort of price-cost spread driver of annual margin expansion.
Speaker Change: You take EPR and RNG, I mean Tyler was asking about the 25 amounts, but take them all the way to fruition and over the next couple of years you're gonna get at least a hundred thirty million dollars at EPR coming in, at accretive margins. We can't wait.
Speaker Change: And you have RNG that from this year's 25-30 million is going to ramp up to 175 million dollars plus, right? Which is highly imaginative and creative. And you should realize all the benefit of that in the next year.
for joining us. Thank you.
Speaker Change: And then, you know, Patrick's prepared remarks spoke to what's happening within the base business of the continued maturation of our optimization sort of processes within, whether that's procurement or after utilization, everything we've been doing to optimize the business we have, and the continued maturation of synergy realization from recent M&A.
Speaker Change: And so when you put this all together on the remaining solid waste business, you know, I think there's a very clear path to what should be industry-leading margin expansion taking us to a place where we should be sort of, you know, very close to best-in-class on our sort of solid waste margin.
Speaker Change: Very clear path to what should be the industry, leading margin expansion, taking us to a place where we should be sort of very close to best in class on our sort of solid waste margins. So we're feeling really good the exact bread crumbs will provide at investor day, but that's the broad sort of strokes of the outlook.
Speaker Change: So we're feeling really good the exact breadcrumbs will provide an investor day, but that's the broad sort of strokes of the outlook
Speaker Change: Great appreciate that and then I think the commentary around $3 $5 billion at least of debt Paydown just.
Speaker Change: Great, appreciate that. And then, you know, I think the commentary around three and a half billion dollars at least of debt pay down, you know, just that high level numbers gets you to a very low three times leverage.
Speaker Change: At high level numbers gets you to a very low three times leverage.
Speaker Change: Is that sort of the kind of the leverage ratio I guess would that be a happy place to kind of continue to do M&A and maintain leverage is that how we should sort of read into that low three times leverage pro forma the sale just any any thoughts you could share there.
Speaker Change: Is that sort of the, you know, the leverage ratio, I guess, would that be a happy place to kind of continue to do M&A and maintain leverage? Is that how we should sort of read into that low three times leverage per form of the sale? Just any thoughts you could share there?
Speaker Change: Yeah, obviously, the cash flow is going to continue to ramp and obviously with the organic growth we're going to continue to organically grow the business, which is again continued pushing leverage down I think from from a rating agency perspective, you won't want to maintain leverage between sort of three and three and a half to get to that investment grade credit rating and again, we're moving on.
Speaker Change: Yeah, obviously the cash flow is going to continue to ramp, and obviously with the organic growth, we're going to continue to organically grow the business, which is going to continue pushing leverage down.
Speaker Change: from a rating agency perspective, you want to maintain a leverage between 3 and 3.5 to get to that investment grade rate credit rating.
Speaker Change: Again, we're moving all the way down there, so we might as well stay down there.
Speaker Change: The way down there so we might as we're going to stay down there. So.
Speaker Change: I think depending on sort of what M&A and timing of M&A, you can step up a little bit for a quarter or two sure, but we're going to maintain leverage between the three in Korea.
Speaker Change: I think, depending on sort of what M&A and timing of M&A, could it step up a little bit for a quarter or two? Sure, but we're gonna maintain leverage between the three and three and a half.
Speaker Change: Great. Thanks, very much I'll pass along.
Great. Thanks very much. I'll pass the line.
Speaker Change: Thank you we now have Kevin Chiang with CIBC. Please go ahead.
Speaker Change: Thank you. We now have Kevin Chang with CIBC. Please go ahead, Kevin.
Kevin Chang: Hi, Thanks for taking my question.
Speaker Change: Hi, thanks for taking my question. Maybe I could just ask on EPR, it seems like as you've gone on this journey, it seems like you've kind of pointed to there being just more upside relative to...
Speaker Change: Can I just ask on.
Speaker Change: It seems like as you've gone on this journey.
Speaker Change: You know you can kind of pointed to there being just more upside relative to.
Speaker Change: So the original opportunities.
Speaker Change: for the original opportunities you saw in front of you and you kind of mentioned in your prepared remarks, Patrick, you know, you could see offset to $130 million. I'm just wondering, based on the investment you're putting forward, is there a way to think about
Patrick Dovigi: You saw in front of you and you kind of mentioned in your prepared remarks, Patrick you could see upside to like a $30 million.
Speaker Change: I'm just wondering based on the investments we're putting forward is there a way to think about.
Patrick Dovigi: I guess.
Speaker Change: I guess the blue sky earnings potential based on the capacity that you'll be putting into the market or when you think about the excess of $130,000, does that require more investments and more facilities to service those new contracts?
Patrick Dovigi: The Blue Sky earnings potential based on the capacity.
Speaker Change: That you'll be putting into the market or when you think about the excess of ones that require more of a banking into more facilities.
Speaker Change: Surface looking contract.
Speaker Change: Yeah, like we said, Ontario was basically done and Thats the number of alerts referencing coupled together with it.
Speaker Change: Yeah, like we said, Ontario is basically done, and that's, you know, the number, the loops referencing coupled together with a, you know, incremental opportunity in Quebec.
Speaker Change: Incremental opportunity in Quebec, what's still out there on the table.
What's still out there on the table is the Maritimes.
Speaker Change: The Maritimes.
as well as Alberta.
Speaker Change: As well as Alberta, and Saskatchewan and sort of Manitoba. Those are the sort of next fall I think blue Sky scenario.
Speaker Change: and Saskatchewan and sort of Manitoba, those are the sort of next big ones to fall. I think blue sky scenario, you'd be pushing closer to 200 million of you, right? I would say that's the blue sky scenario.
Speaker Change: <unk>.
Speaker Change: Pushing closer to $200 million of EBITDA, right I would say that the blue Sky scenario.
Speaker Change: Could we potentially get to the Blue Sky scenario. The answer is probably yes are we underwriting that the answer is no, but it's certainly going to be more than 130, and potentially sort of slightly less than 200, but we're feeling very confident about our asset positioning and our positions in those markets again I guess.
Could we potentially get to the Blue Sky scenario?
Speaker Change: The answer is probably yes. Are we underwriting that? The answer is no. But it's certainly going to be more than $130,000 and potentially slightly less than $200,000. But we're feeling very confident about our asset positioning.
Speaker Change: Just on that from an asset positioning perspective, we're in very good shape and a lot of those markets. So.
Speaker Change: And obviously with our relationship with circular materials and how we sort of built. This program is designed the program I think yes.
Speaker Change: We're in a good spot to get our fair share.
Speaker Change: But as those bids continue to move forward.
Speaker Change: We're certainly at the top of the pile and.
Speaker Change: With the push forward haul and Kevin I mean, as Patrick said asset positioning I mean, some of those markets. We can use an existing facility to drive incremental volume and profitability is running so call. It capex light and another market remaining to build the facility, but again going back the return profile of the type of business away and we'd like to invest capital in places, where we can have long.
Speaker Change: Term visibility on predictable sort of cash flows and the new contract of this contract supports that and so I think it will be a combination in the end of that sort of blue sky between using existing and building net new but Bo.
Speaker Change: <unk> options I think fit within the overall margin return on invested capital framework with which we evaluate all of our capital decisions.
Speaker Change: That's helpful.
Speaker Change: And then just my second question I'm, just wondering like.
Speaker Change: And our post sale.
Speaker Change: Scale World and.
Speaker Change: Obviously, we will have enough cash to do that.
Speaker Change: Towards the capital structure.
Speaker Change: Does that change how you think about the working capital seasonality you had but it looks like I guess.
Speaker Change: In 2024.
Speaker Change: If you're in a world where you have a.
Speaker Change: Pretty big.
Speaker Change: Capital a working capital unwind in Q4, it was incremental.
Speaker Change: The heavier lift in the first three quarters. It does that change in a post <unk> world is that something you can address address as you kind of think of.
Speaker Change: Pure solid waste business.
Speaker Change: Yes, absolutely Kevin.
Speaker Change: Big component of that working capital seasonality profile you see today is driven by yes. The most seasonal of our business. It's a function of the larger Canadian exposure. It has plus just the sort of nature of the work that gets done this year, although the year to date investment in working capital sort of exactly the same as last year, you can see more muted swings in each.
Speaker Change: The quarters.
Speaker Change: The Guy has Q4 sort of reflecting back to sort of zero. So again smaller more muted swings than what you had historically, excluding es from that today, it's co mingled, but when you carve that out.
Speaker Change: DSO profile of the business on a blended will improve to sort of a lower number than the GAAP abuses Epo is going to be more stable and narrower.
Speaker Change: I think you will see exactly what you're anticipating our Canadian solid waste business will continue to have a seasonality profile, which you can see it like one of our other so it appears that has a more sort of northeastern exposure.
Speaker Change: More muted than where we are today.
Speaker Change: Perfect. That's super helpful. Thanks for taking my questions.
Speaker Change: Thanks, Kevin.
Speaker Change: We now have J revich with Goldman Sachs. Please go ahead.
Speaker Change: Yes, hi, good morning, everyone and congratulations to Greg.
Speaker Change: I wanted to ask.
Speaker Change: Consequently, the divestiture could you just talk about any benefits from a simplification standpoint to look you just spoke about and working capital benefits what about organizational structure, how much does simplify the process.
Speaker Change: Create the ability to do more M&A without potentially ramping up overhead from here can you just address is that an opportunity.
Speaker Change: Thanks Jerry.
Speaker Change: I would say is I mean, we've contemplated divesting of Es, so that several times and from a sort of this integration.
Speaker Change: <unk> perspective, I don't want say, a standalone, but the thing is sort of.
Speaker Change: Economists isn't the right word, but not massively intertwined in outlets gives us the conviction with the speed with which we can do something and so why I highlight that as well, obviously not having that segment with simplified certain aspects couple of less systems. A couple less particular administrative function that serve to support yes.
Speaker Change: But.
Speaker Change: I don't think youre going to have a step function change in our overarching overhead most of the es specific overhead is actually already burdened in the Es segment. So if you think about that from a corporate cost bucket, we have like a 10% to $15 million reduction that comes out of that one yes goes away as opposed to maybe a pro rata number that you might be thinking of and again that's because.
Speaker Change: A lot of it yes specific overhead is already in yes.
Speaker Change: But certainly if.
Speaker Change: If you look today, we balance our sort of capital allocation amongst.
Speaker Change: Both of the segments.
Speaker Change: And with the capital allocation constraints, if you will sometimes we're foregoing.
Speaker Change: Opportunities and solid as we're sort of doing something in yes, and there is a sort of balancing coming through of that but if you think about that corporate bucket.
Speaker Change: We start doing the M&A, you've got the sort of leverage that's going to sort of come out of that and youre going to see we don't need incremental overhead investments and so with what we have I think we have the base thats in place and if you roll forward the model over the next four or five years, you can see what today is a sort of low 3% number gravitating towards that one five to two <unk>.
Speaker Change: Is that number and I think we expect to get meaningful leverage out of that as we grow the business from here.
Speaker Change: Got it.
Speaker Change: Shifting gears.
Speaker Change: <unk> was really impressive this quarter.
Speaker Change: Pricing and inflation actually slowed.
Speaker Change: Last quarter can you just talk about what's driving that and sustainability based on what Youre seeing you talked Ober.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: I think it's all of the things that we aim to be honest the initiatives <unk> been talking about I mean, you think about turnover rates and Patrick spoke about et cetera.
Speaker Change: Prepared remarks, while we there's been a lot of focus on unit cost inflation like the efficiency and productivity associated with that sort of reducing turnover is real and youre seeing that come through in your sort of cost inflation as well R&M costs continue to moderate.
Speaker Change: As anticipated and we're getting the benefit of that so Jerry I'd say it's.
Speaker Change: Not any one thing, but really a combination of all of the things in conjunction with the pricing levels that we have.
Speaker Change: Had a high degree of sort of visibility. So it's this combination.
Speaker Change: And the recurring nature of it that gives us such sort of conviction on our expectations as I sort of set out for 2025.
Speaker Change: Again, not a specific thing, but all of the things together.
Speaker Change: Great.
Speaker Change: And lastly, the R&D tailwind number that you pointed out 25 to 30.
Speaker Change: It feels like Youre, leaving a lot of room.
Speaker Change: For RIN price volatility too.
Speaker Change: $2 <unk> I think the incremental earnings could be closer to $50 million from the $4 million and maybe do you can you can you just expand on that is that to say, we just had a change in the white house, let's make sure we understand what's happening with the three run prices and room to execute.
Speaker Change: Are there any discrete contract structures that we should be aware of.
Speaker Change: Talk about.
Speaker Change: Just 25% to 30 <unk> step up.
Speaker Change: Jerry just to confirm its only its $2 million incremental F&B to you're right, we got $2 million and $2 million coming on but even with that Youre right. There is some conservatism in there one of the written pricing, but two more so.
Speaker Change: The two of those facilities of the net new loans are coming online in Q4, effectively and there is a ramp up until these facilities actually start contributing at sort of full run rate. So its a volumetric conservatism, which I think is appropriate in conjunction with just some conservatism on grain pricing.
Speaker Change: Okay sounds good thank you.
Speaker Change: Thanks Darren.
Speaker Change: Your next question comes from Devin Dodge with BMO.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Thanks, Good morning.
Speaker Change: Nice margin expansion in the quarter.
Speaker Change: I'm just wondering have you started to realize some benefit from the.
Speaker Change: The investment in camera technology for nonconforming pick up conditions of recycling contamination, and then could you just remind us how meaningful that opportunity could be for you over time.
Speaker Change: Hey, Devin it's Luc speaking so the tablet initiative is sort of still in flight piloting.
Speaker Change: Getting the things in the trucks is one thing the bank changing the sort of driver behavior and making sure we have the process in place to capture as another so.
Speaker Change: I would say the infant stages of this.
Speaker Change: And you can certainly see in the markets, where it is being employed the incremental dollars coming in.
Speaker Change: I want to be clear right now, it's really focusing on block spins and overloading recycled contamination fees, which I think our peers in the industry have brought it to would be a sort of phase II for us I mean, right now we think the low hanging fruit on the.
Speaker Change: We think you'll continue to see the financial benefit come through in our results and in our safety stocks.
Speaker Change: Yes.
Speaker Change: Thank you that's awesome.
Speaker Change: Kenzie sylmar with tourist on the line.
Speaker Change: Thank you post divestiture do you intended to change or see opportunities maybe informed by your M&A pipeline to change the mix between the U S.
Speaker Change: Canada any appreciable way.
Speaker Change: No I don't think so I think.
Speaker Change: I think from again, when we say it again, we operate 10 provinces today.
Speaker Change: 95 states in the U S. I think larger where you'll see a discontinued buying businesses and densify those existing markets, where we operate typically around markets, where again, we have capacity in post collection facilities, and we think thats what were going to get the highest returns on invested capital.
Speaker Change: How do you think the opportunity obviously in the U S continues to be largely just from a market size and scale perspective.
Speaker Change: But I don't think Youll see us change the strategy that we've had over the last four to 17 years I think it will just be largest hain, but obviously.
Speaker Change: More getting done in the U S. Just given the size of the market that we operate there.
Speaker Change: Makes sense.
Speaker Change: <unk>.
Speaker Change: No, it's fresh sort of hot off the presses, but does the change in administration in the U S.
Speaker Change: Impact.
Speaker Change: Impact your thinking potentially.
Speaker Change: M&A.
Speaker Change: Potential taxes.
Speaker Change: What does that mean for the company.
Speaker Change: I don't think it means much as we've been able to both of the company and as an industry.
Speaker Change: So basically were there any sort of level of government I mean, when we started the business, yes. The Obama administration, and then that sort of move to Trumpf and then Thats move now to buy it and they are now back to Trump I think yes, I think the one benefit that I think we're all looking for is an industry, which could be material is weather.
Speaker Change: The Republicans bring back and bonus depreciation.
Speaker Change: Some of that legislation has been tabled out for a while sort of sitting there and bonus depreciations rolled off will that sort of come back on I think the thought is that or at least the hope is that it will come back.
Speaker Change: Given that it was something initially supported by the Democrats, particularly with the.
Speaker Change: The Republicans, having housing incentives that that's something that will probably happen, but outside of that I don't think there'll be much change from us in terms of how we operate and where we operate are what we do with the U S.
Speaker Change: Thanks for your help.
Speaker Change: Thank you.
Speaker Change: You now have a question from Betty White box with National Bank of Canada. Please go ahead.
Speaker Change: Hey, guys just filling in for over here and I appreciate you taking my questions.
Speaker Change: So just back on the environmental services segment thinking about the tax I think last quarter you said.
Speaker Change: $5 million to $600 million range are a good way to think about it is it fair to expect this higher now with more visibility on a higher price.
Speaker Change: Throughout the process or maybe closer to the top end of that range.
Speaker Change: Yeah, I think that that's it.
Speaker Change: Trials that we're getting into the weeds, we're getting into specifics and again that is the enterprise value moves up so the taxes. So we're looking at the most the most effective way to structure that maximizes long term shareholder value while.
Speaker Change: Addressing the issues that we want to address it both as we as we talked about general corporate purposes and to share buybacks and number three an outgoing dollars of debt repayment. So.
Speaker Change: We don't have a exact specifics today, we are confident in the 6 billion net cash number.
Speaker Change: So.
Speaker Change: Stay tuned in terms of what that ultimately looks like.
Speaker Change: We move through the process, but yes, ultimately that number that was cited loss was tied to a much lower EV than what Patrick speaking of today and just very simply as the <unk> goes up that number goes up.
Speaker Change: I think that would be considered sale and it's a bigger number because the EV is bigger and that's where all the comments Patrick said is what we're contemplating.
Speaker Change: Okay. Thank you.
Speaker Change: And you talked a bit about the corporate overhead impact there, but how does the maintenance capex for the environmental services compared to the solid waste segment.
Speaker Change: It's.
Speaker Change: Lower capital intensity. So you will see on a blended basis in theory that increases the intensity, but if you look at <unk> as a whole we've been running in the sort of the 100 basis points lower than our peers. When you exclude the growth spend and thats really been a function of having this sort of yes business there I think without it.
Speaker Change: What you see is a.
Speaker Change: Gravitation towards the industry being in that sort of tenant at 11, 5%, depending on where you are in the growth cycle.
Speaker Change: Normal course capital intensity for our solid waste business as we go forward.
Speaker Change: Okay. Thank you that's it for me.
Speaker Change: Thank you.
Speaker Change: That does conclude the Q&A session and I'd like to hand.
Speaker Change: That's right.
Speaker Change: Okay.
Speaker Change: Thank you everyone for attending the call and we're looking forward to catching back up with you and we have some updates both on the Yadkin certainly with our.
Speaker Change: Q4 results as we move into next year. So thanks for attending and thank you for the support.
Speaker Change: Thank you all for joining D. G S. Alex that's cool.
Speaker Change: Earnings Conference call on today's call has now concluded. Please enjoy the rest of your day and you may now disconnect.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yeah.