Q1 2025 GFL Environmental Inc Earnings Call
Yeah.
Marie: Hello, everyone and thank you for joining the G. S. L. First quarter 2025 earnings call. My name is Marie and I will be coordinating your call today. During the presentation. You can register your question by pressing Star followed by one on your telephone keypad. If you change your mind. Please press star followed Baidu I will now hand over.
Patrick: Your host Patrick <unk> founder and CEO to begin please go ahead.
Speaker Change: Thank you and good morning, I'd like to welcome everyone to today's call and thank you for joining us.
Speaker Change: This morning, we will be reviewing our results for the quarter I'm joined this morning by look closely our CFO, who will take us through our forward looking disclaimer before we get into details. Thank you Patrick good morning, everyone and thank you for joining we filed our earnings press release, which includes important information. The press release is available on our website. During this call we'll be making some forward looking statements.
Speaker Change: 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 forward looking statement is not a guarantee of future performance and <unk>.
Speaker Change: 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 a discussion of certain non <unk> measure.
Speaker Change: A reconciliation of these non <unk> measures can be found in our filings with the Canadian and U S Securities regulators I will now turn the call back over to Patrick.
Luke: Thank you Luke.
Speaker Change: Our first quarter results, our top to bottom better than when we guided for 2025, including revenue growth of approximately 12, 5% and adjusted EBITDA margin expansion of 120 basis points.
Speaker Change: This resulted in our highest first quarter adjusted EBITDA margin in our history.
Speaker Change: These results get us off to a great start for 2025, and again demonstrates the quality of our asset base.
Speaker Change: <unk> of our multi pronged growth strategy and the commitment of our employees.
Speaker Change: The strength of our operating performance accelerated into April and we expect this positive momentum to continue for the rest of the year.
Speaker Change: Our pricing strategies are generating excess price cost spread which is flowing through the margin line first quarter pricing of five 7% was higher than our plan and gives us confidence in our ability to deliver the pricing levels, which are 2025 guidance was based.
Speaker Change: Our margins also benefiting from our disciplined approach to winning new accretive volumes and purposely shedding lower quality revenue.
Speaker Change: The return to positive volume we saw at the end of 2024 continued in the first quarter, despite significant weather impacts in many of our markets.
Speaker Change: Tailwind from our growth investments, including EPR, which we expected more of an offset weather related weakness in roll off in special waste in certain markets.
Speaker Change: We are also seeing a positive cost impact of moderating labor turnover rate that improved by over 200 basis points in the quarter compared to Q1 of 2024, and nearly 800 basis points compared to the first quarter of 2023.
Speaker Change: We expect meaningful continued improvement in our voluntary turnover rate over the medium term as previously communicated at our recent Investor day.
Speaker Change: In addition, our ongoing focus on optimizing asset utilization is also continuing the strong margin performance.
Speaker Change: We also recently renewed two long term collection contracts with the city of Toronto.
Speaker Change: The rebate, finding which yielded material price increases consistent with current market rates.
Speaker Change: These are some of the largest residential municipal collection contracts across our footprint and both are significant contributors to our Canadian operations.
Speaker Change: Overall this quarter, we saw solid execution from all facets of our portfolio and we are encouraged by the amount of runway, we see in front of us.
Speaker Change: As previously disclosed the sale of our Es business closed on March one hour.
Speaker Change: Our retained interest in the <unk> business provides us the opportunity to participate in future equity value creation, which we believe will be significant.
Speaker Change: We redeployed the $6 billion of cash proceeds we received from the sale to repay over $3 $5 billion of debt and repurchased over $2 $5 billion of our outstanding shares.
Speaker Change: Mostly from our sponsor group consistent with previous indications.
Speaker Change: Inclusive of the share buybacks, we ended the quarter with net leverage of three one times the lowest in our company's history.
Speaker Change: Post the <unk> transaction, our credit ratings were upgraded by both S&P and Moody's and we remain committed to achieving an investment grade credit rating.
Speaker Change: As we have said before this new leverage profile gives us the ultimate flexibility around future capital deployment going forward, we expect to focus our investments on maximizing ROIC, which include organic growth initiatives, such as EPR in R&D accretive M&A and opportunistic share buybacks spin.
Speaker Change: Specifically on M&A year to date, we have spent $240 million on three deals acquired annualized revenue of over $85 million approximately a third of this was acquired effective January one and is already included in our base guidance. Our pipeline continues to remain robust and we see many opportunities to identify our networks and improve <unk>.
Speaker Change: Asset utilization through tuck in M&A across our existing footprint.
Speaker Change: Given this backdrop, we should see above average M&A activity for this year.
Speaker Change: You recall at Investor Day, we highlighted the ability to deploy between 700 $900 million on M&A conservatively given the current pipeline, we should meet or exceed the high end of the of these estimates.
Speaker Change: Before I pass the call over to Luke a quick word on Paris as I'm sure. It's a question for most of you what I can say is that so far we have not seen any direct material impacts from the tariffs to our business based on our experience we have a high degree of confidence in our ability to successfully operate in environment with elevated levels of macro uncertainty.
Speaker Change: In the event tariffs have an inflationary impact on our capex or cost structure, we would expect capacity through to mitigate our costs against the bottom line.
Speaker Change: As is typical for our industry, we will update our full year guidance when we release, our second quarter results.
Speaker Change: With a strong start this year. However, we see multiple avenues of upside to our current guide that gives us the confidence in our ability to meet or potentially exceed expectations for the year.
Luc: I will now pass the call to Luc who will walk us through the quarter in more detail and then I'll share some closing comments before we open it up for Q&A.
Luc: Thanks, Patrick to level set with the sale of Es completed all of our financial results and the associated analysis excludes the contribution from Es for both the current and comparative prior year period.
Luc: Consolidated revenue for the quarter of 156 billion was ahead of guidance and 12, 5% ahead of the prior year pro forma for divestitures as Patrick said pricing of five 7% was better than expected and with over 75% of our price increase is already in place we have a high degree of confidence in our ability to achieve the $5 25.
Luc: To five 5% pricing included in our guide.
Luc: Volume was positive 90 basis points was more than 150 basis points ahead of guide despite weather related headwinds, which impacted roll off in special waste volumes. These.
Luc: These impacts were most pronounced in January and February and we have seen rebounds in March and April <unk>.
Luc: Volume associated with the EPR related activity in Canada drove positive volume growth as anticipated.
Luc: Decreases in energy prices reduced first quarter revenues from fuel surcharges as compared to the prior year, whereas the reduction in OCC and fiber pricing was offset by an increase in non fiber commodities, resulting in a 20 basis point revenue increase.
Luc: Adjusted EBITDA margins were 27, 3% for the quarter of 120 basis points higher than the prior year and ahead of our guide the prior year period included the benefit of onetime royalty payments at two of our landfills, which created a 50 basis point headwind to margin expansion. The current year results include certain provision true ups associated with.
Luc: The EES divestiture, which were another 50 basis point headwind to margins. Excluding these two items margins expanded over 220 basis points commodity prices FX M&A and the impact of the 2024 divestitures were tailwind to margins adjusted.
Luc: Adjusted free cash flow was approximately $14 million a result, better than plan on account of the adjusted EBITDA outperformance Q1 cash flows were inclusive of the investment in working capital. We typically make in the first half of the year as well as $120 million of normalized cash interest payments at amount that will decrease to $70 million in Q2.
Luc: On account of the non linear timing of interest payments on our remaining debt stack.
Luc: Both base Capex and our incremental growth investments were in line with expectations.
Luc: As Patrick mentioned, we used approximately $3 $5 billion of the proceeds to repay in full our term loan to 2025, and 2026 secured notes and the amount outstanding.
Luc: <unk> under our revolver, which were higher than at year end due to the seasonal increase in revolver borrowing through January and February.
Luc: With the balance of the proceeds we repurchased $31 $7 million of our shares representing over 8% of the common shares outstanding.
Luc: Under our normal course issuer bid we continue to have material capacity for incremental share buybacks that we will opportunistically execute when we believe it is accretive to do so.
Luc: Included in the $3, one times quarter end net leverage as a cash balance of over $500 million and amount available for investment and M&A additional share repurchases or further debt repayments.
Luc: Our enhanced balance sheet strength positions us to be able to execute on all of these value creation drivers, while maintaining leverage in the low threes are new targeted leverage range, which we're committed.
Luc: As Patrick said, we will wait until the second quarter to provide an update on full year guidance. However, the strength of our Q1 performance firmly positions us to meet or exceed our full year targets.
Luc: As it relates to the second quarter of 2025, we expect consolidated revenue of approximately 175 billion and adjusted EBIT of approximately $505 million, which implies approximately 30% adjusted EBITDA margins and more than 150 basis points of margin expansion over the prior year pro forma for the Es sale. This guide.
Luc: <unk> is based on today's FX rate, which is less than that of our original guide recall every one point move in FX is about a $30 million impact annualized revenues.
Luc: Q2, adjusted free cash flow is expected to be approximately $100 million inclusive.
Luc: Inclusive of $70 million in cash interest $225 million and base Capex and $110 million investment in working capital and other operating cash flow items.
Patrick: I will now pass the call back to Patrick who will provide some closing comments before Q&A.
Patrick: Thanks Luke.
Patrick: At our Investor Day in February we laid out our go forward strategy.
Patrick: To continue generating industry, leading organic growth and part from the near term ramp from EPR RMG and other self help pricing and volume focused strategies.
Patrick: Drive adjusted EBIT margins to the mid <unk> and improve free cash flow conversion to the mid Forty's.
Patrick: Execute on a robust M&A pipeline, while maintaining leverage in line with our targets and continuing to progress towards an.
Patrick: And investment grade credit rating.
Patrick: And lastly, broaden our capital allocation strategy to include share buybacks and increased dividends.
Patrick: Our first quarter results demonstrate that our strategic plan is working we remain steadfast in our belief that <unk> is uniquely positioned for industry, leading financial performance and value creation for all shareholders.
Patrick: I always want to end with thanking our employees. Our continued success would not be possible without the tireless hard work and dedication and I want to thank each and every one of them for their contributions I will now turn the call over to the operator to open the line for Q&A.
Patrick: Thank you.
Patrick: I ask a question. Please press star followed by one on your telephone keypad now.
Patrick: If you change your mind, Please press star followed by.
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Patrick: We ask that you limit yourself to one question and one follow up only.
Speaker Change: Our first question comes from the line of <unk> Khan of RBC capital markets. Please go ahead.
Speaker Change: Great. Thanks, and good morning, just maybe a first question on the margin side I think Luke you noted a couple of moving pieces in the margins. There. If you can maybe just walk us through.
Speaker Change: Maybe in a bit of an update on some of the margin initiatives you outlined at Investor Day, what are you chipping away at this year.
Speaker Change: And could sort of continued progress on the margin side be a source of upside to the guidance as we look ahead to the rest of the 25. Thanks.
Speaker Change: Yes.
Yes, Thanks, Great question, and I talked about the margin bridge year over year as you know I would like to sort of isolate the macro or the factors outside of our control right. So if you think about this quarter commodities.
Speaker Change: That's a tailwind as was FX.
Speaker Change: 15 basis point benefit from commodities and about 10 from FX you also had the extra day alright.
Speaker Change: <unk> year over year quarter, and Thats about a 25 basis point benefit to margins and then M&A for that for this quarter M&A was sort of accretive.
Speaker Change: That was 20 basis point tailwind and then the divestitures as we've been talking about have also been accretive margin that was about a 60 basis point benefit.
Speaker Change: Going against that again sort of things outside the normal course base business.
Speaker Change: As I said in the prepared remarks, we've received these onetime royalty payments at two of our landfills that were historical catch ups last year that was about a 50 basis point headwind to margins.
Speaker Change: I also mentioned these accruals associated the Es as we gave some of the provisions related to insurance bad debt et cetera to the Es business. We just had to true up in our remain co a little bit and that was about a 60 basis point impact and then you had the weather alright, I think is probably consistent with all the other groups talking about weather impacts, particularly in <unk>.
Speaker Change: And we estimate that was about 20 basis point impact. So when you look at that what is left with in sum that all up is there is over 100 basis points of underlying margin expansion at whereas is coming I mean first and foremost the price cost spread as we've been talking about and we'll continue to do so but then you have the incremental benefit of all of the pieces that we've been talking about right. So.
Speaker Change: EPR is coming in and starting to contribute the RMG contributions asset utilization, so I'd say Sal, but it's not any one thing, but it's the combination of all of the things and obviously to beat our internal expectations. In Q1 in spite of all of these sort of challenges I think the answer is absolutely. Yes, we're feeling like there's a path to some march.
Speaker Change: Upside as we go through the year that we will wait to Q2, but I gave the Q2 guide and Youre seeing that margin expansion accelerate which is obviously sort of very encouraging for us. So we're feeling really good.
Speaker Change: Again, just echoing Patricks comments, we think all the pieces are coming together.
Speaker Change: Okay, Great and then just the follow up there can you maybe just walk us through your thinking on some of the remaining proceeds you've got left from the <unk> sale I think Patrick mentioned thoughts on return of capital and things like that so can you just walk us through your views on share buybacks dividends and assuming the rest probably goes to M&A. Thanks.
Speaker Change: Hey, this is Luke just before Patrick's responds I just wanted to clarify the $500 million left I can get that cash on balance sheet somebody made a comment that we were initially said, we're going to repay $3 $75 billion of debt in the end when we repaid all of our debt. The remaining debt is so far out in terms of term we have an average four five years still that that the <unk>.
Speaker Change: Cost of paying off some of that that just didnt make seem to make a lot of sense. When we knew we had all these capital investments in front of us. So to the question that was E mailed in Thats the basis for that and what are we going to do with all of our capital and capacity I'll turn it over to Patrick Yes, I think as we communicated M&A.
Patrick: M&A pipeline is very robust at the moment. So we're working on a lot of great opportunities that will be sort of highly accretive to the overall book of business and sort of the earning stream. So again highly focused on that.
Patrick: And again share buybacks will continue to be part of the sort of ongoing plan.
Patrick: As we press release last week, we did get relief.
Patrick: From the OSC in the PSX.
Patrick: Not have those shares we bought back from the insiders count against the NCI.
Patrick: So we have an incremental sort of 21 million shares available for us to buy so.
Patrick: Where we sit today, we continue to believe the company is undervalued here.
Patrick: So the board and myself, both believe that should be a part of the capital allocation plan given what we see for $26 27, which was laid out in sort of our investor day, but I think from where we sit today that is going to continue to be a part of the capital allocation plan as well as sort of M&A.
Patrick: Thanks very much.
Speaker Change: We have a question from the line of Stephanie more of Jefferies. Please go ahead.
Stephanie Jefferies: Hi, good morning, Thank you.
Stephanie Jefferies: Good morning touch on the volume performance for the quarter.
Stephanie Jefferies: It did exceed kind of.
Stephanie Jefferies: <unk> expectations in light of what we all know, it's a challenging weather environment or maybe some puts and takes there would be helpful. Thank you.
Luke: Yeah, Hey, good morning, Stephanie Thanks for the question it's Luke.
Luke: I think we gave the guidance in February sitting in the middle of those sort of protracted weather events and so we're obviously seeing it in a real time data in terms of primarily special waste volumes and the roll off side of the business, which is most sort of impacted by that.
Luke: And I think that played out exactly sort of is it anticipated like if you look at the the U S business.
Luke: You had a roughly.
Luke: One five negative 2% volume for the for the quarter and really if you break the pieces out on that the one day impact is about 60 70 bps. The weather you could estimate would be another about 70 bps and then we sort of roughly had solid waste volume our special waste at our landfills.
Luke: Down year over year, I think partly macro, but partly weather and that's probably another sort of 40 bps. So really when you think about that the U S business would have roughly more close to flat volumes ex those exogenous factors, Canada you had the same thing play out but with a couple of differences one.
Luke: I think our Canadian business is a little bit more wells soon and the experience of dealing with the weather so the impact a little bit sort of less there.
Luke: And the nature of our mix in Canada, as we have less landfill and therefore, you get less of that sort of impact from both the one day and the weather.
Luke: But the real story in Canada as EPR, Alright, and now this is what's been anticipated and as all of our investments are starting to sort of yield the benefits as anticipated. We're getting these sort of volumetric tailwind is coming out of that so if you look at that sort of Canadian volume story, which was a sort of high <unk> number for the quarter, we really had sort of <unk>.
Luke: Five 5% plus of that coming from the ETR that we had anticipated and we also benefited from a onetime project in Canada, which is really just timing at our transfer stations and the Ontario benefited from a sort of factory demolition was off $10 million of revenue and other sort of 230 basis points. So if you take those two events EPR and <unk>.
Luke: The transfer station volumes added equation, a similar story in just a little bit more muted in Canada due to the mix and just our experience with weather, but overarching Lee. This is sort of what gets US excited all of these investments we have made in these high return.
Luke: Both opportunities are sort of macro agnostic. These are largely contracted volumes and these are going to be coming in regardless of what the sort of macro situation is and just to clarify or remind everyone on any macro I mean, our exposure to the more cyclical ends of the business is a very small number in <unk>.
Luke: Raul piece I think if you think about our roll off business.
Luke: Roughly $1 $2 billion of revenue on an annual basis, maybe it's 10% of that plus that's more in that sort of construction space Alright, and then on the landfill is really thats, what a special waste. Maybe this one is sort of $75 million to $100 million of revenue, but you put that together you get sort of 200 $225 million of revenue.
Luke: Exposure to the end of the market, that's maybe being a little bit sort of softer right. Now we're certainly seeing the softness it does seem to be improving.
Luke: Over when I look at the April trending proving over March but that balanced portfolio that we have gives us great confidence in our volume opportunities as we sort of go forward. So we're expecting Q2 guide anticipates again positive volume.
Luke: Q3 will sort of taper off and positive EBITDA in Q4, where we sit today.
Luke: Is a negative number just on the tough comp we had benefited from a lot of sort of storm volume in Q4, 24, which makes a tough comp.
Luke: But on balance we're feeling really good with the volume that we saw in Q1 and the setup of that gives us for the balance of the year.
Luke: Great.
Luke: You covered my follow up questions as well so I appreciate it I'll pass it on thank you.
Luke: Thanks.
Luke: <unk>.
Luke: Okay.
Speaker Change: We have a question from Patrick E Brown of Raymond James. Please go ahead.
Speaker Change: Okay.
Speaker Change: Hey, good morning, guys.
Speaker Change: Hey, Tyler.
Speaker Change: Is there can you hear me okay alright.
Patrick: Alright, Hey, Patrick so the M&A.
Patrick: M&A pipeline is really really good.
Patrick: Kind of curious at that pipeline includes the number of deals that you've been working on kind of in the background. I know you were kind of constrained call. It last year in Q.
Patrick: These tuck ins, where should we think about new beachheads in new markets. It just seems like there might be chunkier deals in there.
Patrick: Yes.
Patrick: Like we said at Investor Day, obviously, we knew we were going to be coming into.
Patrick: Into cash just given the sale of the asset and where that process is evolving so.
Patrick: We spent a lot of time building out the pipeline.
Patrick: Okay.
Patrick: Yes.
Patrick: Right.
Patrick: As you know these deals don't happen overnight.
Patrick: Between timing actually our first discussions are closed generally takes.
Sometimes six months, sometimes three months, sometimes nine months. So the pipeline has been building and obviously that gives us confidence.
Patrick: We're going to deliver on for the rest of the year. The lion's share of what we're working on is tuck ins into the existing markets leveraging sort of post collection assets to drive internalization rates higher.
Patrick: Which we think is going to yield the best return on invested capital today, So I think thats, what youre going to see mostly.
Patrick: Nothing.
Patrick: Immediate but I would say is moving into new markets or new beachheads.
Patrick: Looking at a couple of opportunities, but I would say they are in the early innings of anything but.
Patrick: The lion's share and the pipeline of what we're discussing today and what were closing on is the stuff thats going to tuck into the existing markets.
Patrick: Okay. That's good and then.
Patrick: Just kind of going back on the margin discussion.
Patrick: Maybe you can help me clarify a little bit from the analyst day, but.
Patrick: The $150 million in self help levers through 2008.
Patrick: 28.
Patrick: Much of that is it.
Patrick: That could be kind of garner this year.
Patrick: Maybe what is the cadence of that is it's pretty pro rata over the over the years.
Patrick: Any color on that.
Patrick: Great question, some of the aspects of that a little bit sort of harder to parse out from all the other good things that we're doing but on balance I think you think about the employee turnover component I mean that continues to improve and we're certainly getting our share of that benefit. So I think about that one sort of pro rata basis.
Fleet and fleet optimization.
Patrick: We would also be sort of pro rata as we continue to sort of refresh our fleet with the CMG and automation and then pricing is similar so I think to assume that are rolled out into the area where it is one one third share of that I think is probably a fair.
Patrick: Estimate as specific events happen that drive outperformance.
Patrick: Be able to articulate that better.
Patrick: But I think thats, probably a pro rata is a decent way of thinking about it.
Patrick: Okay.
Patrick: And then it was mentioned.
Patrick: Morning.
Patrick: Yes.
Patrick: So go ahead Tom.
Patrick: Okay.
Patrick: No no I just had to lose point theres been some some pretty.
Patrick: Good healthy pricing wins, particularly on the repricing of the resi book.
Patrick: Sort of being led by Toronto, which is.
Patrick: It comes on sort of mid 2006, I mean, if you look at that.
Patrick: Currently we're doing we have that we've had that contract again with landmark contracts, whereas back in 2010 15 years later, we're here sort of renewing that same contract but.
Patrick: Basically today, we are doing that work for $60 $70 million a year under.
Patrick: Under the new rebid.
Patrick: The one contract is going to be done for $37 million a year.
Patrick: And then the multi res, which we're currently doing for around 10 or $11 million a year.
Patrick: Rebid that and got that at sort of 70 million years. So.
Patrick: Real material price that we'll see come through the resi book starting sort of.
Patrick: Mid next year, so that will all sort of get layered onto it.
Patrick: As mentioned now.
Okay, Perfect and then just real quickly on.
Patrick: <unk> expense.
Patrick: Why was that up year over year.
Patrick: The $20 million.
Patrick: Is there something there.
Patrick: As a good corporate number to kind of use for the rest of the year.
Patrick: Yes, so what's going to happen and we have spoken about this when we talk about our Es is effectively we've retained the corporate costs for the time being but are going to be compensated going forward in order to provide those services to es. So the es thing, we only have one month of the benefit but they're effectively going to pay me 12 to 15 million.
Patrick: A year, which will show up as an offset to my corporate costs.
Patrick: In lieu of me, providing those sort of services to them.
Speaker Change: Okay that is good.
Patrick: Okay perfect. Thank you.
Speaker Change: Thanks Tyler.
Speaker Change: We have a question from Kevin Chiang of CIBC group. Thank you. Please go ahead.
Kevin Chiang: Hey, Thanks for thanks for taking my question good morning, everybody.
Kevin Chiang: Maybe just two clarification questions one five.
Kevin Chiang: Five 5% tailwind on volumes from EPR that you saw in Q1 is that the right run rate to think about for the remainder of the year or does it does it accelerate as the EPR as E comm matures.
Kevin Chiang: As <unk> matures.
Kevin Chiang: I think you had some EPR coming on last year and so now you are adding on to that so it wont be ratable, but I think it's safe to say that we're going to continue to enjoy volumetric tailwind throughout the year as we bring on that roughly $40 million 50 minute, obviously incremental EPR EBITDA, we said.
Kevin Chiang: This year, so youre going to get that roughly I think in Q1, but I was saying that it was a 20 million $25 million volumetric tailwind coming out of EPR I think you should sort of see that.
Kevin Chiang: It's going to increase as we go into 2006 is just thought it would be perfectly ratable Kevin.
Kevin Chiang: Okay. That's helpful.
Speaker Change: And I appreciate you will provide an update.
Speaker Change: On your full year outlook with Q2, but I guess another way of Q1 and you provided a guide for Q2.
Speaker Change: It looks like historically about 47% of your EBITDA came in the first half of the year I am not sure. If you think about seasonality makes sense as you look out in 'twenty five here, which maybe suggests.
Speaker Change: Yeah.
Speaker Change: Something like $1, 97, 5 billion or maybe between $1 $95 billion to $2 billion is as maybe where EBITDA can go to just just based on all the first half is performing I'm not sure. If there's anything you would take issue with that kind of I guess very simple math I just I just ran through.
Kevin Chiang: Well, Kevin it sounded like Youre looking for us to give guidance for the year as a whole with here.
Speaker Change: Matt what I would say is we have a seasonal business Q1, and Q2 are typically Q1 is the lowest Q2 RASK Q3 is the highest and in Q4 sort of steps down and somewhere between Q2 and Q3, that's the typical ramp now again, the EBITDA dollars right.
Kevin Chiang: It doesn't move perfectly like that every quarter, but the original guide being so I think $19 37, an app.
Kevin Chiang: For this <unk> first quarter performance as I said, I think there's a path to exceed that by having the range was <unk> 19 in the quarter to $19 50. So you can exceed that FX is going against you. So you've got to have some of those offsets Q1. So it had the FX that guide or a little better and now today. It's a couple of points below as I said every point is.
Kevin Chiang: The 30 million Bucks, so there'll be puts and takes but yes. I think we are now feeling that we can do better than the $19 50.
Kevin Chiang: Ex incremental M&A, obviously incremental M&A will be additive to that but.
Stephanie Jefferies: As is industry practice, we'll wait to Q2, but Kevin you've always been good at math.
Kevin Chiang: So I'll leave it at that.
Speaker Change: I tried I appreciate it thank you for taking my questions.
Speaker Change: We have a question from Gunnar.
Speaker Change: Scotia Bank. Please go ahead.
Andy: Hi, this is andy filling into content and good morning, everyone.
Andy: Good morning changes.
Andy: Changes are you monitoring on the R&D side, whether they relate to volume pricing or taxes.
Andy: Yes, I mean all of the above.
Andy: There seems to be a lot of noise around it obviously.
Andy: Yes.
Andy: Very similar to what happened when the last Trump administration came in but we're not seeing anything sort of material today I mean, the tax credits are still to come.
Andy: Probably going to come out in September but.
Andy: Think range of sort of hung in there.
Andy: The volumes, we continue to produce the volumes that we sort of anticipated, but it will just be what.
Andy: But I think our guide contemplates.
Andy: Our revised written number based on what we know today.
Andy: Thanks, guys appreciate the time.
Andy: Your line.
Speaker Change: The answer question from Jerry Revich of Goldman Sachs. Please go ahead.
Speaker Change: Hi, This is Adam on for Jerry today.
Speaker Change: Morning.
Speaker Change: It looks like your <unk> margin guidance Embeds two on.
Speaker Change: 85 basis points of sequential margin expansion and typically we do see that sequential step up in <unk> can you just help us think about any puts and takes and the sequential margin trajectory versus normal seasonality.
Speaker Change: <unk>.
Speaker Change: Yes so.
Speaker Change: Thanks, Adam.
Speaker Change: Sure for everyone I've got a level set and remove es from the historical quarterly cadence right, but the difference with our margin profile, but when you're left with the sort of solid waste standalone business as I said anticipating roughly 30% margin this year versus last year.
Speaker Change: Sort of 2008 and a half ish.
Speaker Change: Commodities and how they behaved in the prior year versus how they are behaving. This year, obviously have an impact if you think about last year commodities really ramp from Q1 to Q2.
Speaker Change: Versus this year, it's looking kind of a little bit more flattish right. So we'll have the while commodities was a tailwind to Q1 margins year over year, it's actually a headwind based on today's commodity prices. When you look quarter over quarter right. So that's the sort of piece of it obviously fuel is another component that can impact.
Speaker Change: <unk> sort of margins around the edges as as M&A. So you have some moving pieces outside of what we can control that will have an impact on overall margin, but at the end of the day, you're absolutely right Q2 sequentially improves as we get more volume and you get it out of the winter operating period.
Speaker Change: We expect to see that again, I mean, I give the guidance for 150 bps again, when you Peel back all of the various exogenous puts and takes US another 100 basis points of underlying margin expansion off of that off of what was last year that already sort of a 200 basis points plus ramp from Q1 going into Q2. So we're feeling really good with the.
Speaker Change: Right.
Speaker Change: And look forward when we get to sort of Q2, it's articulating those specific puts and takes that could do to drive this outperformance.
Speaker Change: Got it and then Patrick you touched on this a little bit, but wondering if you could expand on that.
Speaker Change: For operational landfill gas projects are tracking versus expectations and then beyond what's online.
Speaker Change: Any updates on the construction timeline on the 15 projects under development.
Speaker Change: Yes.
Speaker Change: They moved a little bit to the Reits or last year just.
Speaker Change: Given.
Speaker Change: Various amount of issues that we experienced an unforeseen but by and large the projects that are online are tracking to plan.
Speaker Change: <unk>.
Speaker Change: One of the most recent ones coming on a few operational challenges, but nothing.
Speaker Change: Our partner Hasnt seen before so that's <unk>.
Speaker Change: <unk> moved a little bit, but that's embedded in the guide anyways.
Speaker Change: We expect over the next year or two and two and half years that we're going to bring them online. So.
Speaker Change: Again, nothing standing in front of us.
Speaker Change: Nothing at the moment in terms of impediments based on tariffs on equipment coming in so I think.
Speaker Change: By and large they are doing exactly what they were supposed to do and we don't see any reason why they won't moving forward.
Speaker Change: Great. Thanks, so much.
Speaker Change: Thank you.
Speaker Change: We have a question from Brian Brookmyre of Citigroup. Please go ahead.
Speaker Change: Hey, good morning, Thank you for taking my questions.
Speaker Change: I think we've seen some kind of discussions around maybe headline inflation for the entire economy, maybe picking up the summer tariffs kind of stay in place. So can you just maybe remind us how that how that would sort of flow through.
Speaker Change: Gsl's restricted pricing.
Speaker Change: There are two headline CPI should we be looking at sort of alternative indices.
Speaker Change: It's kind of a 12 to 18 months delay.
Speaker Change: Appropriate for that just sort of your overall thoughts on if we see an inflation spike this summer how that sort of.
Speaker Change: Yes.
Speaker Change: Yes, Hey, Brian Great question, very topical and obviously something we're looking at as we think about how the balance of the year sort of plays out.
Speaker Change: It is important and as you know I mean, although some of the restricted revenue will be tied to CPI.
Speaker Change: Our cost structure isn't necessarily right. Our cost structure is really driven by labor and labor rates in transportation NRM factor into it but it's really a labor driven cost structure.
Speaker Change: I think what the unique setup that could happen as you go forward as maybe you have headline CPI, increasing which drives price increases on your restricted book of business. Our book. Unlike some of the other national peers. You follow is still on the restricted side more tied to CPI in some of these alternative indices and I think that's just more a function of geography, Canada.
Speaker Change: Doesn't have a sort of sewer water trash order concept, yet and a lot of our books and the mid Atlantic don't as well. So unlike some of the peers that I know have been very successful in moving 50% plus of their restricted book off of CPI, We still would have a heavier CPI.
Speaker Change: Book.
But what's more interesting to us is the cost structure, because where we're looking we're looking at labor turnover rates. We're looking at labor wage rates, we're not seeing that same labor wage rate inflation that we saw during that sort of previous cost inflation ramp up and I think that could sort of bode quite well when you think about at the end of the day, what we're trying to solve for is what is our internal cost.
Speaker Change: Inflation, and then price accordingly on top of that to drive appropriate spread. So we came out at the beginning of the year said, we're going to do five and a quarter five 5% price against a low fours cost inflation and to the extent our internal cost inflation ends up increasing about we will go back to our pricing strategies in order to recover that.
We and the industry as a whole demonstrated.
Speaker Change: Effectiveness of the real time ability to price in response to that over the past couple of years and we would go back and do that again, however, as I said I do think you could have a unique situation where headline CPI is increasing driving up our pricing, we're getting on a restricted book, but seeing a more muted impact.
Speaker Change: Our actual internal cost inflation.
Speaker Change: Got it got it thanks for that detail really appreciate it last question for me and then I can turn it over maybe just kind of following up on Tyler's question from earlier.
Speaker Change: If there is any.
Speaker Change:
Speaker Change: Specific targets in the M&A pipeline coming up do you feel like maybe GSL is underway.
Speaker Change: Perfect.
Speaker Change: Are you trying to acquire more merged or more C and D or is it just going to be.
Speaker Change: Yes pretty widespread across.
Speaker Change: All of the different asset types any detail there would be great. Thanks, I'll turn it over.
Speaker Change: Yeah, I think the beauty of how the bookings come together.
Speaker Change: Which is not because we're smart just because of the opportunity and when they came.
Speaker Change: We were able to build our post collection business.
Speaker Change: In advance of our collection business. So what we have today is a lot of post collection assets that.
Speaker Change: Incremental utilization opportunities and I think we have the ability to go out and acquire a lot of businesses that will drive incremental volumes yields facilities with significantly increased profitability given the fixed cost base nature of those facilities. So that is a priority looking at those markets looking at those for.
Speaker Change: <unk> looking at where we can get to sort of the highest returns on invested capital, obviously, making investments around R&D.
Speaker Change: RMG EPR.
Speaker Change: And other markets, which is widespread and being opportunistic about where we bid on and grow the business sort of organically around new reservoir et cetera always continues to be an opportunity, but we're being very smart can be very strategic about where we do that and we have to get the right price in order to do the work.
Speaker Change: It's a different environment than it was 10 years ago revenue work et cetera, and you need to be paid the appropriate amount of dollars to do this work, it's not easy equipment two five times more than it was labor force is less than it was making significantly more than they did in the past and I. Just think all of those things coupled together is just going to be widespread throughout.
Speaker Change: Canada and the U S.
Speaker Change: But you'll see a little bit of everything sort of come from us, but again with the biggest focus on driving incremental volume as our post collection assets that have utilization opportunities.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of James Schumm of BD Cowen. Please go ahead.
James Schumm: Hey, good morning, guys. Thanks for taking the questions.
James Schumm: I was wondering if you could give an EPR update and if you're expecting any additional growth capex there.
James Schumm: Well I mean, so I mean from an EPR perspective.
James Schumm: Continues to rollout over Canada, I think probably another year and a half to two years.
James Schumm: The model will be fully sort of deployment.
James Schumm: <unk>.
James Schumm: There are sort of a couple of opportunities still left that are unknown.
James Schumm: We bid on some.
James Schumm: And we'll just we'll sort of see what happens, but there is.
James Schumm: Probably potentially.
James Schumm: Opportunity to sort of another in totality over the next two to three years, probably another couple hundred million dollars of spend.
James Schumm: If we were a success if we are successful nothing zero, obviously I think the maximum you could spend over the next couple of years would be another couple $100 million.
James Schumm: Okay.
Speaker Change: Thanks for that and then on I was wondering if you could give an operational update on Gi P. R.
Speaker Change: Fully passed the inflationary challenges of the prior year's or is some of that is still a headwind some of that business rolling off.
Speaker Change: There was a de minimis amount rolling through.
Speaker Change: This year, but by and large it's gone.
Speaker Change: Well basically fully through that of a grand plan for sort of 25%.
Speaker Change: The M&A pipeline had ramped up pretty significantly.
Speaker Change: And the Gis business.
Speaker Change: Through that and getting back to plan, where we thought we would be.
Speaker Change: And we are now so that is back on track.
Speaker Change: The inflationary pressures are well through those now.
Speaker Change: Patrick would you be willing to say like where are we now like EBITDA level wise, either this year or what youre targeting.
Speaker Change: Yes, so I mean, I think again publicly disclosed I think this year.
Speaker Change: Base business sort of roughly $225 million of EBITDA.
Speaker Change: <unk> recently announced a transaction acquired a business in eastern Canada.
Speaker Change: Which is sort of in the $40 million to $45 million of EBITDA range. So that brings sort of base business only $2 65 to $2 70.
Speaker Change: And there's two other acquisitions under LOI that will bring that number closer to 300, which is the number that we told the market we would be by the end of sort of 25, so thats well on track.
Speaker Change: So we'll be exiting this year was a 300 plus million.
Speaker Change: But a number and there is still a fairly good backlog of M&A opportunities.
Speaker Change: <unk>.
Speaker Change: I will say like we said on the last call.
Speaker Change: We've had we are we have had a lot of reverse into us on the backs of the Es transaction.
Speaker Change: So that is something that we are exploring a potential.
Speaker Change: Monetization event for <unk>, but we are not sellers of the whole business, who potentially sell southern part we continue to push.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: But you could see potentially.
Speaker Change: A partial monetization of the Gi business.
Speaker Change: This coming year.
Speaker Change: Great. Thanks, a lot appreciate it guys.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: We have a question from Rupert Murdoch.
Speaker Change: National Bank of Canada. Please go ahead.
Speaker Change: Hi, good morning, everyone.
Speaker Change: I wanted to talk about divestitures.
Speaker Change: Divestitures, I think we will see that.
Speaker Change: I think we will see the rollover impact from your divestiture in the solid waste business for one more quarter can you remind us of the remaining impact.
Speaker Change: Should expect there and then looking at your remaining portfolio do you see any other opportunities for rationalization of the portfolio asset divestitures or low Chang.
Luc: Hey, good morning, it's Luc so youre right.
Luc: Michigan divestiture portfolio, which is roughly $220 million of revenue you got one more quarter of that so you got like roughly $50 million to $60 million, maybe the seasonality $60 million to $65 million revenue.
Luc: Year over year impact in Q2, but then that will be sort of gone in terms of your broader question.
Luc: We've said, we think the heavy pruning has been done other little things around the edges that youre constantly looking at share, but where we sit today both in terms of wholesale divestitures, but I'd also highlight the intentional shedding alright intentional shedding in those divestitures, we really come out of periods of elevated M&A and because we've been sort of more restrained in our M&A deployment as of <unk>.
Luc: Right.
Luc: <unk> seen the impacts of that roll off as we had articulated and so I think that's why our volume performance. This period is accelerating versus maybe some others that still have some intentional shedding.
Luc: Happening so as we ramp back up M&A could give rise to a little pockets of pieces that you subsequently divest and as well as intentional shedding, yes, but where we sit today, we're really happy with the borders of the portfolio and I don't think youre going to see anything more significant until we go and add incremental pieces that may give rise to new.
Luc: Opportunities.
Speaker Change: Great. Thanks, Luc and if we could talk about your most recent divestiture of the Es business can you give us some color on how it performed in the quarter, what sort of organic growth.
Luc: What's the outlook for M&A there.
Luc: So the quarter, the Es business and if you followed some of the other industry weather impact certainly.
Luc: Impacted that business, a little bit of sort of softness as well as just the macro environment a little bit when you think about some of the event driven work that happens not accidental events like spills in the legs, but more large scale industrial type events.
Luc: That are discretionary to a certain extent familiars, you've seen a little bit of a sort of a slowdown in that which I think is consistent with others. However, as we've demonstrated in the past variable cost structure allows a good sort of flex and so therefore being able to sort of preserve sort of EBIT dollars.
Luc: To your point on M&A, but there is a very robust pipeline of tuck in opportunities similar to Patrick articulated for solid that exist in es, maybe even a greater opportunity set.
Luc: So were actively pursuing it recall over the past 18 months as we've been more selective in our M&A and solid waste was really the benefactor of that and he has really has had very little time. So we have a equally or maybe arguably more robust pipeline.
Luc: And near term on the Es business that you will see.
Luc: So to start executing on recall that business on a standalone basis is a very good free cash flow generator, notwithstanding the slightly different margin profile and solid waste business. It does so with a lower capital intensity and I'd just highlight because it has a good self funding free cash flow stream, that's going to allow for the execution of.
Luc: Any meaningful M&A program without any need for <unk>.
Luc: Significantly incremental sort of funding to do so so we're really excited about that opportunity and we'll keep you updated as that business continues to grow and as we articulated in the mall of Rupert.
Luc: I think the plan was to acquire somewhere around 30% to 35 million of EBITDA year over the next sort of four to five years. So.
Luc: That's well in hand, and well on track and we don't see anything stopping that.
Luc: Pat.
Pat: Moving forward, yes, there might be a blip here and there from a quarter to quarter.
Pat: Just had a little bit more volatility around organic growth, but by and large the annualized plan.
Pat: Still remains in the M&A pipeline is as good or better than we anticipated before.
Pat: Great I'll leave it there thank you.
Pat: Thank you.
Pat: We have a question from Chris Murray of <unk>.
Speaker Change: The capital markets. Please go ahead.
Chris Murray: Yes, thanks, so much good morning.
Chris Murray: Maybe going back to the organic growth in Canada, I, just I'm trying to make sure im understanding of of missing something here. So.
Chris Murray: So you did allude to the fact that volume was up on a lot of EPR, but.
Chris Murray: Sort of applies.
Chris Murray: There was a pretty good price growth in Canada. So was that all tied to EPR, which is something else going on.
Chris Murray: With that that you can maybe give us some more color on.
Chris Murray: Yes, so price growth in Canada, we're getting a little bit of benefit from ETR, but it's more just a sort of a function as Patrick said some of these contracts that we've had for a decade plus that we've just renewed and now have come up to current market sort of pricing. So in most EPR instances as net new volume, therefore, manifesting as volume but.
Chris Murray: If I had a contract that I did yesterday and now I do today by just level set to today's pricing that's being reflected in price. So you are getting a bit of a benefit. So if you look as I said in the prepared remarks, I think Canada pricing was sort of a high of six 5% to 7% number you got sort of roughly a 150 bps of that is coming from the EPR, but just sort of.
Chris Murray: Rebased fighting those to today you are getting this tailwind you back that out and you have candidate in that low to mid fives sort of right exactly in line with what our sort of U S business have reported so EPR as anticipated is going to provide tailwind mostly volumetric right as we've deployed all this incremental capital to capture new volumes, but.
Chris Murray: But you had some of which in Q1, whereas the same contract just re baseline that's showing up in price.
Chris Murray: Okay.
And then on ETR.
Chris Murray: Yes.
Chris Murray: You mentioned that there is some additional contracts in Canada, youre looking at but now that you've actually had an opportunity to run the EPR programs or a little more time are you starting to see any more.
Chris Murray: Opportunities in the U S.
Chris Murray: Our folks know kind of something to look at where they can see kind of the benefits of the program and how they're working.
Chris Murray: Yeah, I think I think.
Chris Murray: So we're looking at the Canadian model when you look at the European model I think.
Chris Murray: Where are they sort of kicking in again, you've seen us rollout in places like Colorado discussions in California, Obviously recent bills passed in sort of Washington in Maryland.
Chris Murray: It is definitely happening.
Chris Murray: Each day as a little bit different nuances, so youll sort of our view of what.
Chris Murray: Do you want to be selective about where you go in investments you make based on regulation, but listen the Canadian model in our view works extremely well.
Chris Murray: I think consolidating volumes, reducing facilities building best in class facilities that drive the most amount of volume through those facilities will yield optimal outcomes for industry, but it also yield optimal outcomes for the producers over the long term right.
Chris Murray: And you have to make a big investment today, but I think over time those investments will pay off for again for both the industry and the producers because it's generally the right thing to do.
Chris Murray: The question really is around.
Chris Murray: Trolls and how many people actually manage those streams.
Chris Murray: To make it the most efficient way possible and we certainly are specific views on that and what we think works.
Chris Murray: Better.
Chris Murray: And again, just from our perspective being able to speak for all having a probe you're able to speak for 100% of the volume will drive ultimate efficiency APN, because you can allocate tons and residential contracts and collection contracts.
Chris Murray: Most efficiently that way when you control, 100% of the volume so.
Chris Murray: That leaves overall cost reductions and lower cost for the operator, which then can pass it onto the producer. So that's what we're advocating for and a lot of.
Chris Murray: These states.
Chris Murray: Provincial governments, and regulators et cetera to make it most efficient for us to make the most efficient for the producers.
Chris Murray: Okay I'll leave it there thanks folks.
Speaker Change: Thank you so much.
Speaker Change: Our final question comes from the line of Tobey Silver Jewish. Please go ahead.
Speaker Change: Yes. Good morning, this is sid on for Tobey.
Speaker Change: Just curious sounds like the pipeline is strong, but curious if youre seeing any changes in the M&A market or seller behavior, just given some of the broader macro uncertainty.
Speaker Change: I mean, I guess thats, the good and bad of waste.
Speaker Change: It's a great industry to be in good times and integrate industry to be into.
Speaker Change: Uncertain times.
Speaker Change: I think by and large behaviors haven't changed.
Speaker Change: I think uncertainty always lead to incremental sort of opportunity.
Speaker Change: <unk>.
Speaker Change: But by and large we haven't seen a material shift in behavior on the M&A side, given tariffs and other things and just the macro economy, but.
Speaker Change: We continue to see the pipeline sort of basically today in the normal course.
Speaker Change: Okay.
Speaker Change: Okay. Thank you.
Patrick: We currently have no further questions I will hand back to Patrick for closing remarks.
Patrick: Thank you very much everyone for joining the call today, and we'll look forward to speaking to you.
Patrick: When we report our Q2 results. Thank you very much.