GFL Environmental Inc. (NYSE:GFL) Q1 2025 Earnings Call Transcript

GFL Environmental Inc. (NYSE:GFL) Q1 2025 Earnings Call Transcript May 1, 2025

Operator: Hello, everyone, and thank you for joining the GFL First Quarter 2025 Earnings Call. My name is Marie, and I will be coordinating your call today. [Operator Instructions] I will now hand over to your host, Patrick Dovigi, Founder and CEO, to begin. Please go ahead.

Patrick Dovigi: Thank you, and good morning. I’d like to welcome everyone to today’s call, and thank you for joining us. This morning, we will be reviewing our results for the quarter. I am joined this morning by Luke Pelosi, our CFO, who will take us through our forward-looking 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. Press release is available on our website. During this call, we’ll 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. This call will include a discussion of certain non-IFRS measures. A reconciliation of these non-IFRS measures can be found in our filings with the Canadian and U.S. securities regulators. I will now turn the call back over to Patrick.

Patrick Dovigi: Thank you, Luke. Our first quarter results are top to bottom, better than what we guided for 2025, including revenue growth of approximately 12.5% and adjusted EBITDA margin expansion of 120 basis points. This resulted in the highest first quarter adjusted EBITDA margin in our history. These results get us off to a great start for 2025 and again demonstrate the quality of our asset base, the effectiveness of our multipronged growth strategy and the commitment of our employees. The strength of our operating performance accelerated into April, and we expect this positive momentum to continue for the rest of the year. Our pricing strategies are generating excess price cost spread, which is flowing to the margin line.

First quarter pricing of 5.7% was higher than our plan and give us confidence in our ability to deliver the pricing levels on which our 2025 guidance was based. Our margins also benefiting from our disciplined approach to winning new accretive volumes and purposely shedding lower quality revenue. 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. Tailwinds from our growth investments, including EPR, which we expected more than offset weather-related weakness in roll-off in special waste in certain markets. We are also seeing the positive cost impact of moderating labor turnover rates 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.

We expect meaningful continued improvement or voluntary turnover rates over the medium term as previously communicated at our recent Investor Day. In addition, our ongoing focus on optimized asset utilization is also continuing the strong margin performance. We also recently renewed two long-term collection contracts with the city of Toronto. The rebaselining, which yielded material price increases consistent with current market rates. These are some of the largest residential municipal collection contracts across our footprint and both are significant contributors to our Canadian operations. 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. As previously disclosed, the sale of our ES business closed on March 1.

Our retained interest in the ES business provides us the opportunity to participate in future equity value creation, which we believe will be significant. 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, mostly from our sponsor group, consistent with previous indications. Inclusive of the share buybacks, we ended the quarter with net leverage of 3.1x, the lowest in our company’s history. Post the ES transaction, our credit ratings were upgraded by both S&P and Moody’s and we remain committed to achieving an investment grade credit rating. 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 includes organic growth initiatives such as EPR and RNG, accretive M&A and opportunistic share buybacks. Specifically on M&A, year-to-date, we have spent $240 million on three deals, acquiring annualized revenue of over $85 million. Approximately 1/3 of this was acquired effective January 1 and is already included in our base guidance. Our pipeline continues to remain robust, and we see many opportunities to densify our networks and improve asset utilization through tuck-in M&A across our existing footprint. Given this backdrop, we should see above-average M&A activity for this year. If you recall at Investor Day, we highlighted the ability to deploy between $700 million and $900 million on M&A conservatively.

Given the current pipeline, we should meet or exceed the high end of these estimates. Before I pass the call over to Luke, a quick word on tariffs 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 impact from the tariffs to our business. Based on our experience, we have a high degree of confidence in our ability to successfully operate in an environment with elevated levels of macro uncertainty. In the event, tariffs have an inflationary impact on our CapEx or cost structure we would expect to pass these through to mitigate our costs against the bottom line. As is typical for our industry, we will update our full year guidance when we release our second quarter results. With a strong start to the 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.

I will now pass the call to Luke, 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.

Luke Pelosi: Thanks, Patrick. To level set with the sale of ES completed, all our financial results and the associated analysis excludes the contribution from ES for both the current and comparative prior year period. Consolidated revenue for the quarter of $1.56 billion was ahead of guidance and 12.5% ahead of the prior year pro forma for divestitures. As Patrick said, pricing of 5.7% was better than expected and with over 75% of our price increases already in place, we have a high degree of confidence in our ability to achieve the 5.25% to 5.5% pricing included in our guide. Volume and positive 90 basis points was more than 150 basis points ahead of guide despite weather-related headwinds, which impacted roll-off and special waste volumes.

These impacts were most pronounced in January and February, and we have seen rebounds in March and April. Volume associated with the EPR related activity in Canada drove positive volume growth as anticipated. Decreases in energy prices reduced first quarter revenue’s 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. Adjusted EBITDA margins were 27.3% for the quarter, 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 the ES 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 tailwinds to margins. Adjusted free cash flow was approximately $14 million, a result better than planned 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. An amount that will decrease to $70 million in Q2 on account of the nonlinear timing of interest payments on our remaining debt stack. Both base CapEx and our incremental growth investments were in line with expectations. As Patrick mentioned, we used approximately $3.5 billion of the ES proceeds to repay in full our term loan, the 2025 and 2026 secured notes and the amounts then outstanding under our revolver, which were higher than at year-end due to the seasonal increase in revolver borrowing through January and February.

With the balance of the ES proceeds, we repurchased [indiscernible] million of our shares, representing over 8% of the common shares outstanding. 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. Included in the 3.1x quarter end net leverage is a cash balance of over $500 million, an amount available for investment in M&A, additional share repurchases or further debt repayments. 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 3s, our new targeted leverage range to which we’re committed. 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. As it relates to the second quarter of 2025, we expect consolidated revenue of approximately $1.675 billion and adjusted EBITDA 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 guidance is based on today’s FX rate, which is less than that of our original guide. Recall every 1 point move in FX is about a $30 million impact to annualized revenues. Q2 adjusted free cash flow is expected to be approximately $100 million, inclusive of $70 million in cash interest, $225 million in base CapEx and $110 million investment in working capital and other operating cash flow items.

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

Patrick Dovigi: Thanks, Luke. At our Investor Day in February, we laid out our go-forward strategy to continue generating industry-leading organic growth in part from the near-term ramp from EPR, RNG and other self-help pricing and volume focused strategies, drive adjusted EBITDA margins to the mid-30s and improve free cash flow conversion to the mid-40s, execute on our robot M&A pipeline, while maintaining leverage in line with our targets and continuing to progress towards and investment-grade credit rating. And lastly, broaden our capital allocation strategy to include share buybacks and increased dividends. Our first quarter results demonstrate that our strategic plan is working. We remain steadfast in our belief that GFL is uniquely positioned for industry-leading financial performance and value creation for all shareholders.

I always want to end with thanking our employees. Our continued success would not be possible without their 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.

Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of Sabahat Khan of RBC Capital Markets.

Sabahat Khan: Just maybe a first question on the margin side. I think, Luke you noted there’s a couple of moving pieces in the margins there. If you can maybe just walk us through — maybe a bit of an update on some of the margin initiatives you outlined at Investor Day, what are you chipping away at this year? 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 ’25.

Luke Pelosi: Yes. Thanks, Saba. Great question. When I talk 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 was a tailwind as was FX. You had about 15 basis point benefit from commodities and about 10 basis point from FX. You also had the extra day, right, the difference year-over-year quarter, and that’s about a 25 basis point benefit to margins. And then M&A for this quarter, M&A was sort of accretive. That was a 20 basis point tailwind. And then the divestitures, as we’ve been talking about, have also been accretive to margin, that was about a 60 basis point benefit. Now going against that, again, sort of things outside the normal course base business, 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. I also mentioned these accruals associated with 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 RemainCo a little bit, and that was about a 60 basis point impact. And then you had the weather, right? I think it’s probably consistent with all the other groups talking about weather impacts, particularly in February. And we estimate that was about a 20 basis point impact. So when you look at that, what it left with, and you sum that all up, is there’s over 100 basis points of underlying margin expansion. And where is this coming? I mean, first and foremost, it’s 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 the pieces that we’ve been talking about. Right? So EPR is coming in and starting to contribute the RNG contributions, asset utilization. So I’d say Saba, 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 these sort of challenges, I think the answer is absolutely yes. We’re feeling like there’s a path to some margin upside as we go through the year. Now we will wait until Q2, but I gave the Q2 guide, and you’re seeing that margin expansion accelerate, which is obviously sort of very encouraging for us. So we’re feeling really good. And again, just to echo Patrick’s comments, we think all the pieces are coming together.

Sabahat Khan: 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 ES sale. I think Patrick mentioned thoughts on return on capital, things like that. So maybe just walk us through your views on share buybacks, dividends and assuming the rest probably goes to M&A.

Luke Pelosi: This is Luke. Just before Patrick’s respond, I just want to clarify the $500 million left on cash on balance sheet. Someone 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 4.5 years still left that the cost of paying off some of that debt just didn’t sort of seem to make a lot of sense, but we knew we had all these capital investments in front of us. So to the question that was e-mailed in, that’s the basis for that. And what are we going to do with all of our capital capacity, I’ll hand it over to Patrick.

Patrick Dovigi: Yes. I think as we communicated, 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 earnings stream. So again, highly focused on that. And again, share buybacks will continue to be part of the sort of ongoing plan, as we press released last week, we did get relief from the OSC and the TSX not have those shares we bought back from the insider count against the NCIB. So we have an incremental sort of 21 million shares available for us to buy. So where we sit today, we continue to believe the company is undervalued here. So the Board and myself both believe that should be a part of the capital allocation plan, given what we see for ’26 and ’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.

Operator: We have a question from the line of Stephanie Moore of Jefferies. Please go ahead.

Stephanie Moore: I was hoping if you could touch on the volume performance for the quarter. It did exceed kind of the 1Q expectations in light of what we all know it’s a challenging weather environment. So maybe some puts and takes there would be helpful.

Luke Pelosi: Stephanie, thanks for the question. It’s 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 our 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. And I think that played out exactly sort of as anticipated. Like if you look at the U.S. business, you had a roughly 1.5%, negative 2% volume for the quarter. And really, if you break the pieces out on that, the 1-day impact is about 60, 70 bps. The weather, you could estimate to be another about sort of 70 bps. And then we sort of roughly had solid waste or special lease at our landfills 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 sort of 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 being, I think our Canadian business is a little bit more well suited in the experience of dealing with the weather. So the impact a little bit sort of less there and the nature of our mix in Canada is we have less landfill and therefore, you get less of that sort of impact from both the 1-day and the weather. But the real story in Canada is EPR right? 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 tailwinds coming out of that.

So if you look at the sort of Canadian volume story, which was a sort of high 6s number for the quarter, really have sort of 5.5% plus of that coming from the EPR that we had anticipated. And we also benefited from just a onetime project in Canada, which is the just timing at our transfer stations in the Ontario benefited from a sort of factory demolition, we saw $10 million of revenue, another sort of 230 basis points. So if you take those two events, EPR and the transfer station volumes out of the equation, a similar story, just a little bit more muted in Canada due to the mix and just our experience with weather. But overarchingly, this is sort of what gets us excited. All these investments we have made in these high-return growth 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 and our overall piece. Again, if you think about our roll-off business, roughly $1.2 billion of revenue on an annual basis, maybe it’s sort of 10% of that plus, that’s more in that sort of construction space, right? And then on the landfills, really, this was a special waste, maybe there’s another sort of $75 million to $100 million of revenue. But you put that together, you got a sort in $225 million of revenue 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 over — I look at the April trending proving over March. But that balanced portfolio that we have gives us a great sort of confidence in our volume opportunities as we sort of go forward. So we’re expecting Q2 guide anticipates again positive volume. Q3 will sort of temper off in positivity, and in Q4 where we sit today 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. But on balance, we’re feeling really good with the volume that we saw in Q1 and the setup that, that gives us for the balance of the year.

Operator: We have a question from Patrick Brown of Raymond James. Please go ahead.

Patrick Brown: So the M&A — the M&A pipeline sounds really, really good. I’m just kind of curious if 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. And two, are most of these tuck-ins? Or should we think about some new beachheads in new markets? It just seems like there might be some comp of your deals in there?

Patrick Dovigi: Yes. I mean I said — like we said at the Investor Day, obviously, we knew we were going to be coming into cash, just given the sale of ES and where that process was evolving. So we spend a lot of time building out the pipeline [indiscernible] as you know, these deals don’t happen overnight — between time you actually have first discussion to close generally take sometimes 6 months, sometimes 3 months, sometimes 9 months. So our pipeline has been building and obviously, that gives us the confidence that what 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, which we think is going to yield the best return on invested capital today.

So I think that’s what you’re going to see mostly nothing immediate that I would say is moving into new markets or new beachheads, looking at a couple of opportunities, but I would say they’re in the early innings of anything, but the lion’s share in the pipeline of what we’re discussing today and what we’re closing on is stuff that’s going to tuck into the existing markets.

Patrick Brown: And then just kind of going back to the margin discussion. Maybe you could help me clarify a little bit from the Analyst Day, but of the $150 million in self-help levers through ’28, I think it was run rate, ’28, how much of that is expected to be kind of garnered this year? Kind of maybe what is the cadence of that? Is it pretty pro rata?

Luke Pelosi: 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, look, if 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 on a sort of pro rata basis. Fleet and fleet optimization would also be sort of pro rata as we continue to sort of refresh our fleet with build CMG and automation. And then pricing is similar. So I think to assume that our results for this year have sort of 1/3 share of that. I think it’s probably a fair estimate as specific events happen that drive outperformance I’ll be able to articulate that better. But I think that’s probably a pro rata is a decent way of thinking about it.

Patrick Dovigi: And there’s been some — like we — go ahead, Tyler. Sorry.

Patrick Brown: No, no. Please.

Patrick Dovigi: No, no. I just said go to Luke’s point, there’s been some pretty good healthy pricing wins, particularly on the repricing of the resi book, sort of being led by Toronto, which is — comes on sort of mid-26%. I mean if you look at that currently, we’re doing — we’ve got that contract again, a landmark contract for us back in 2010, 15 years later, we’re here sort of renewing that same contract. But basically, today, we’re doing that work for $16 million, $17 million a year under the new rebid. The one contract is going to be done for $37 million a year. And then the multi-res, which we’re currently doing for around $10 million or $11 million a year, we rebid that and got that at sort of $70 million a year. So that’s real material price that we’ll see come through the resi book starting sort of mid next year. So that will all sort of get layered on to what Luke just mentioned now.

Patrick Brown: And then just real quickly on corporate expense loan. Why was that up year-over-year? I thought it’s something like $15 million to $20 million was going to be shipped out with ES. Is there something there? Or just what’s a good corporate number to kind of use for the rest of the year?

Luke Pelosi: Yes. So what’s going to happen, Tyler, and we had spoken about this when we talked 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 1 month of the benefit, but they’re effectively going to pay me $12 million to $15 million a year, which will show up as an offset to my corporate costs in lieu of me providing those sort of services to them.

Operator: We have a question from Kevin Chiang of CIBC.

Kevin Chiang: Maybe just two clarification questions. One, the 5.5% 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 accelerate as…

Luke Pelosi: I think you had some EPR coming on last year, and so now you’re adding on to that. So it won’t be ratable, but I think it’s safe to say that we’re going to continue to enjoy volumetric tailwinds throughout the year as we bring on that roughly $40 million, $50 million, that was incremental EPR EBITDA that we said this year. So you’re going to get that roughly, I think, in Q1, what 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 it’s going to increase as we go into ’26. It’s just not going to be perfectly ratable, Kevin.

Kevin Chiang: And I appreciate you’ll provide an update on your full year outlook with Q2. But I guess now that we have Q1, you’ve provided a guide for Q2 it looks like historically, about 47% of your EBITDA came in the first half of the year. I’m not sure if you think that seasonality makes sense as you look out in ’25 here, which maybe suggests something like $1.975 billion or maybe between $1.95 billion to $2 billion as maybe where EBITDA can go to just based on how the first half is performing. I’m not sure if there’s anything you take issue with that kind of I guess, very simple math I just ran through.

Luke Pelosi: Kevin, it sounds like you’re looking for us to give guidance for the year as a whole, with your math. But look, what I would say is we have a seasonal business. Q1 and Q2 are typically, Q1 is the lowest, Q2 ramps, Q3 is the highest. And then Q4 sort of steps down somewhere between Q2 and Q3. That’s the typical ramp. Now again, the EBITDA dollars, right? It doesn’t move perfectly like that every quarter, the original guide being sort of, I think, $1937 and a half for this first quarter performance, as I said, I think there’s a path to sort of exceed that, right? I think the range was $1925 to $1950, so you could exceed that. Now FX is going against you. So you got to have some of those offsets. Q1 sort of had the FX at guide or a little better.

And now today, it’s a couple of points below. As I said, every point is roughly $30 million. So there’ll be puts and takes. But yes, I think we are now feeling that we could do better than the $1950, ex incremental M&A. Obviously, incremental M&A will be sort of additive to that. But as is industry practice, we’ll wait to Q2. But Kevin, you’ve always been good at math. So I’ll leave it at that.

Operator: We have a question from Konark Gupta of Scotiabank. Please go ahead.

Unidentified Analyst: This is Elie filling in for Konark. Policy changes, what policy changes are you monitoring on the RNG side, whether they relate to volume, pricing or tax credit?

Patrick Dovigi: Yes. I mean all of the above. I mean — there seems to be a lot of noise around it, obviously, just 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. Probably that will come out in September. But I think RINs have sort of hung in there. Volumes, we continue to produce the volumes that we sort of anticipated, but that will just be what — but I think our guide contemplates a revised win number based on what we know today.

Operator: We have a question from Jerry Revich of Goldman Sachs.

Adam Bubes: This is Adam on for Jerry today. It looks like your 2Q margin guidance embeds 285 basis points of sequential margin expansion and typically, we do see that sequential step up in 2Q. Can you just help us think about any puts and takes in the sequential margin trajectory versus normal seasonality, 2Q versus 1Q?

Luke Pelosi: Yes. So Thanks, Adam. Just to make sure for everyone, I’ve got a level set and remove ES from the historical quarterly cadence, right, because that had a difference sort of margin profile. But when you left with the sort of solid waste stand-alone business, as I said, anticipating roughly 30% margin this year versus last year on the sort of 20.5-ish. Commodities and how they behaved in the prior year versus how they’re behaving this year obviously have an impact. If you think about last year, commodities really ramped from Q1 to Q2 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 says commodity prices when you look quarter-over-quarter, right?

So that’s just sort of a piece of it. Obviously, fuel is another component that can impact your sort of margins around the edges as is M&A. So you have some moving pieces outside of what we can control that will have an impact to overall margin. But at the end of the day, you’re absolutely right. Q2 sequentially improves as we get more volume and you get out of the winter operating period, and we expect to see that again. I mean I give the guide for 150 bps. Again, when you peel back all of the various exogenous puts and takes. There’s another 100 basis points of underlying margin expansion off of that — off of what was last year that already sort of 200 basis point plus ramp from Q1 going into Q2. So we’re feeling really good with the trajectory and look forward when we get to sort of Q2 to articulating those specific puts and takes that continue to drive this outperformance.

Adam Bubes: And then, Patrick, you touched on this a little bit, but wondering if you could expand on just how the four operational landfill gas projects are tracking versus expectations? And then beyond what’s online. Any updates on the construction time line on the 15 projects under development?

Patrick Dovigi: Yes. Like we said, I mean, they moved a little bit to the right sort of last year, just given various amount of issues that we experienced that were unforeseen. But by and large, the projects that are online are tracking to plan. One of the most recent ones coming on a few operational challenges, but nothing, our partner hasn’t seen before. So that’s, again, moved a little bit, but that’s embedded in the guide anyways. And we expect over the next 2 to 2.5 years, that we’re going to bring them online. So again, nothing standing in front of us. Nothing at the moment in terms of impediments based on tariffs on equipment coming in. So I think by and large, they’re doing exactly what they were supposed to do, and we don’t see any reason why they won’t moving forward.

Operator: We have a question from Bryan Burgmeier of Citigroup.

Bryan Burgmeier: I think we’ve seen some kind of discussions around maybe headline inflation just for the entire economy, maybe picking up the summer if the tariffs kind of stay in place. So can you just maybe remind us how that would sort of flow through on GFL’s restricted pricing? Are you tethered to headline CPI, should we be looking at sort of alternative indices, is this kind of a 12- to 18-month delay appropriate for that? Just sort of your overall thoughts on if we see inflation spike this summer, how that sort of benefits GFL.

Luke Pelosi: Bryan, it’s Luke. Great question, very sort of topical and obviously something we’re looking at as we think about how the balance of the year sort of plays out. I think it’s important. And as you know, although some of the restricted revenue will be tied to CPI, our cost structure isn’t necessarily right? Our cost structure is really driven by labor and labor rates and transportation and RM factor and it’s really a labor-driven cost structure. And I think what the unique setup that could happen as you go forward is 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 that you follow is still on the restricted side, more tied to CPI than some of these alternative indices.

And I think that’s just more a function of the geography, Canada doesn’t have a sort of sewer water trash sort of concept yet and a lot of our books in 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 book. But what’s more interesting to us is the cost structure because 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 it. At the end of the day, what we’re trying to solve for is what is our internal cost of 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 5.25%, 5.5% price against a low 4s cost inflation. And to the extent our internal cost inflation ends up increasing, but we will go back to our pricing strategies in order to recover that. I think we and the industry as a whole demonstrated the effectiveness of the real-time operability 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 our restricted book, but seeing a more muted impact to our actual internal cost inflation.

Bryan Burgmeier: I 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. Just curious if there’s any sort of specific targets in the M&A pipeline coming up? If you feel like maybe GFL is underweight or a specific type of asset? Are you trying to acquire more MRFs or more C&D? Or is it just going to be pretty widespread across all the different asset types? Any detail there would be great.

Patrick Dovigi: Yes. I think the beauty of how the book has come together, which is not because we’re smart. It’s just because of the opportunity and when they came. We were able to build our post-collection business in advance of our collection business. So we — what we have today is a lot of post collection assets that have incremental utilization opportunities. And I think we have the ability to go out and acquire a lot of businesses that will drive incremental volume to those facilities with significantly increased profitability given the fixed cost-based nature of those facilities. So that is a priority, looking at those markets, looking at those facilities, looking at where we can get the sort of highest returns on invested capital.

Obviously, making investments around RNG, EPR and other markets, which is widespread and being opportunistic about where we bid on and grow the business sort of organically around new resi work, et cetera, always continues to be an opportunity, but we’re being very smart and be very strategic about where we do that and we have to get the right price in order to do the work. I mean it’s a different environment than it was 10 years ago for resi work, et cetera. And today, you need to be paid the appropriate amount of dollars to do this work. It’s not easy equipment 2.5x more than it was labor force is less than it was, making significantly more than they made in the past. And I just think all of those things coupled together is just going to be widespread throughout Canada and the U.S., but you’ll see a little bit of everything sort of come from us and — but again, with the biggest focus on driving incremental volumes into our post-collection assets that have utilization opportunities.

Operator: Our next question comes from the line of James Schumm of TD Cowen.

James Schumm: I was wondering if you could give an EPR update and if you’re expecting any additional growth CapEx there.

Patrick Dovigi: So I mean from an EPR perspective, it continues to roll out over Canada. I think probably another 1.5 years to 2 years, the model will be fully sort of deployed. There are sort of a couple of opportunities still left that are unknown as we bid on some. And we’ll just — we’ll sort of see what happens. But it’s probably potentially up to sort of another in totality over the next 2 to 3 years, probably another couple of hundred million dollars of spend if we were successful or nothing, it would be 0, obviously. I think the maximum you could spend over the next couple of years would be another couple of hundred million dollars.

James Schumm: And then on — I was wondering if you could give an operational update on GIP. Are we fully past the inflationary challenges of the prior years? Or is some of that still a headwind, some of that business still rolling off?

Patrick Dovigi: There’s a de minimis amount rolling through this year. But by and large, it’s done. We’re basically fully through that, have a great plan for sort of ’25. The M&A pipeline has ramped up pretty significantly in the GIP business. So through that and getting back to plan where we thought we would be, and we are now. So that is back on track and the inflationary pressures we’re well through those now.

James Schumm: Patrick, would you be willing to say like where are we now, like EBITDA level wise, either this year or what you’re targeting?

Patrick Dovigi: Yes. So I mean, I think, again, publicly disclosed, I think this year, base business, sort of roughly $225 million of EBITDA, recently announced the transaction, acquired a business in Eastern Canada, which is sort of in the $40 million to $45 million of EBITDA range. So that brings sort of base business like $265 to $270 and there’s two other acquisitions under LOI that will bring that number closer to $300 million, which is the number that we told the market we would be by the end of sort of ’25. So that’s well on track. So we’ll be exiting this year with a $300-plus million EBITDA number, and there’s still a fairly good backlog of M&A opportunities. I will say — like we said on the last call, we have had a lot of reverse into us on the back of the ES transaction.

So that is something that we are exploring about a potential monetization event for GIP, but we are not sellers of the whole business who potentially sell some part. We continue to see shareholders [indiscernible] but you could see potentially a partial monetization of the GIP business this coming year.

Operator: We have a question from Rupert Merer of National Bank of Canada. Please go ahead.

Rupert Merer: I want to talk about divestitures. So I think we’ll see the rollover impact from your divestiture in the solid waste business for one more quarter. Can you remind us of the remaining impact we should expect there? And then looking at your remaining portfolio, do you see any other opportunities for rationalization of the portfolio, asset divestitures or load shedding?

Luke Pelosi: Rupert, good morning, it’s Luke. So you’re right. The Michigan divestiture portfolio, which is roughly $200 million, $220 million of revenue, you got one more quarter of that. So you got like roughly a $50 million, $60 million, maybe the seasonality, $60 million, $65 million revenue year-over-year impact in Q2, but then that will be sort of gone. In terms of your broader question, as we’ve said, we think the heavy pruning has been done. Are there little things around the edges that you’re constantly looking at, sure. But where we sit today, both in terms of wholesale divestitures, but I’d also highlight like the intentional shedding right? Intentional shedding in those divestitures really come at a period of elevated M&A.

And because we’ve been sort of more restrained in our M&A deployment as of late, you’ve 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 happening. So as we ramp back up M&A, could there give rise to 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 you’re going to see anything more significant until we go and add incremental pieces that may give rise to new opportunities.

Rupert Merer: And if we can talk about your most recent divestiture, the ES business, can you give us some color on how it performed in the quarter, what sort of organic growth you saw? And what’s the outlook for M&A there?

Luke Pelosi: So the quarter, the ES business, and as you follow some of the other industry, weather impact certainly impacted that business. So 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 or the likes, but more large-scale industrial type events that are discretionary to a certain extent from ES. You’ve seen a little bit of a sort of 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 the sort of EBITDA dollars, To your point on M&A, look, there’s a very robust pipeline of tuck-in opportunities, similar to what Patrick articulated for solid that exists in ES, maybe even a greater opportunity set.

So we are actively pursuing it. Recall over the past 18 months, as we have been more selective in our M&A, solid waste was really the benefactor of that and ES really has had very little done. So we have equally or maybe arguably more robust pipeline to the near term on the ES business that you will see us sort of start executing on. Recall that business on a stand-alone basis is a very good free cash flow generator, now notwithstanding the slightly different margin profile of always business, it does so with a lower capital intensity. So I just highlight because it has a good self-funding free cash flow stream that’s going to allow for the execution of a pretty meaningful M&A program without any need for 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.

Patrick Dovigi: And as we articulated in the mall, Rupert, I think the plan was to acquire somewhere around $30 million to $35 million of EBITDA a year over the next sort of 4 to 5 years. So that’s well in hand and well on track, and we don’t see anything stopping that sort of moving forward. Yes, there might be a blip here from quarter-to-quarter. That business has a little bit more volatility around organic growth, but by and large, the annualized plan still remains and the M&A pipeline is as good or better than we anticipated before.

Operator: We have a question from Chris Murray of ATB Capital Markets.

Chris Murray: Maybe going back to the organic growth in Canada. I just — I’m trying to make sure I’m understanding, I’m not missing something here. So you did allude to the fact that volume was up on a lot of EPR, but sort of applies that there was some pretty good price growth in Canada. So was that all tied to EPR? Was there something else going on with that, that you could maybe give us some more color on.

Luke Pelosi: Yes. So price growth in Canada, we’re getting a little bit of benefit from EPR, but it’s more just a sort of function, as Patrick said, some of these contracts that we’ve had for a decade plus that we just renewed and now have come up to current market sort of pricing. So in most EPR instances, is net new volume and therefore, manifesting is volume. But if I had a contract that I did yesterday and now I do today by this 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 at 6.5% to 7% number. you got sort of roughly 150 bps of that is coming from the EPR, but just sort of rebaselining those to today.

So you are getting this tailwind. You back that out and you have Canada that low to mid-5s sort of right exactly in line with what our sort of U.S. business had reported. So EPR, as anticipated, is going to provide tailwinds, mostly volumetric, right, as we’ve deployed all this incremental capital to capture new volumes. But in those instances, which you had some of which in Q1 where it’s same contract just rebaseline, that’s showing up in price.

Chris Murray: And then on EPR, just you mentioned that there’s some additional contracts in Canada, you’re looking at. But now that you’ve actually had an opportunity to run the EPR programs for a little more time, are you starting to see any more opportunities in the U.S. where folks now have kind of something to look at where they can see kind of the benefits of the program and how they’re working.

Patrick Dovigi: Yes. I think you are looking at the Canadian model. They look at the European model, I think where they sort of sit today, again, you’ve seen in rollout places like Colorado, discussions in California. Obviously, recent bills passed in sort of Washington and Maryland. So it’s definitely happening. Each state has a little bit different nuances. So you sort of want to be able to — you want to be selective about where you go and investments you make based on regulation. But listen, the Canadian model, in our view, works extremely well. I think consolidating volumes, reducing facilities, building best-in-class facilities that drive the most amount of volume for those facilities will yield optimal outcomes for industry, but it also yields optimal outcomes for the producers over the long term, right?

And you have to make those big investments today, but I think over time, those investments will pay off, again, for both industry and the producers because it’s generally the right thing to do. I mean the question really is, is around pros and how many people actually manage those streams to make it the most efficient way possible. And we certainly have specific views on that and what we think works better. And again, just from our perspective, being able to speak for having a pro be able to speak for 100% of the volume will drive ultimate efficiency at the end because you can allocate tons in residential contracts and collection contracts most efficiently that way when you control 100% of the volume. So that leads to overall cost reductions and lower costs for the operator, which then can pass it on to the producer.

So that’s what we’re advocating for in a lot of these states and with provisional government and regulators, et cetera, to make it most efficient for us and make it most efficient for the producers.

Operator: Our final question comes from the line of Tobey Sommer of Truist. Please go ahead.

Sidney Schultz: This is Sid on for Tobey. Just curious, it sounds like the pipeline is strong, but curious if you’re seeing any changes in the M&A market or seller behavior, just given some of the broader macro uncertainty.

Patrick Dovigi: I mean, I guess that’s the good and bad of waste. It’s a great industry to be in good times, and it’s a great industry to be in uncertain times. So I think by and large, behaviors haven’t changed. I think uncertainty always leads to incremental sort of opportunity. But by and large, you haven’t seen a material shift in behavior on the M&A side given tariffs and other things and just the macro economy, but we continue to see a pipeline sort of basically today in the normal course.

Operator: We currently have no further questions, so I will hand back to Patrick for closing remarks.

Patrick Dovigi: Thank you very much, everyone, for joining the call today, and we look forward to speaking to you when we report our Q2 results. Thank you very much.

Operator: This concludes today’s call. Thank you all for joining. You may now disconnect your lines.