GFL Environmental Inc. (GFL) Q2 2021 Earnings Report, Transcript and Summary

Good morning and welcome to the GFL Environmental Second Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator instructions] Please note this event is being recorded. I would now like to turn the conference over to Patrick Dovigi, CEO and Founder. Please go ahead.

Thank you, and good morning. I would like to welcome everyone to today's call and thank you for joining us. This morning, we will be reviewing our results for the second quarter and providing our outlook for the remainder of the year. I am joined this morning by Luke Pelosi, our CFO, who will take us through our forward-looking disclaimer before we get into the details.

Thank you, Patrick. Good morning, everyone and thank you for joining. We have filed our earnings press release, which includes important information. The press release is available on our website. We've prepared a presentation to accompany this call that is also available on our website. During this call, we will be making some forward-looking statements within the meaning of applicable Canadian and U.S. securities laws, including statements regarding events or developments that we believe or anticipate may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set out in our filings with the Canadian and U.S. securities regulators. Any forward-looking statement is not a guarantee of future performance and actual results may differ materially from those expressed or implied in the forward-looking statements. 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, who will start off on Page 3 of the presentation.

Thank you, Luke. Our exceptional start to the year continued into the second quarter allowing us to once again exceed expectations. Specifically, we grew revenue by nearly 40% on a constant currency basis; adjusted EBITDA margin expanded 60 basis points; and adjusted free cash flow more than doubled. Thanks for the tireless dedication and capabilities of our more than 50,000 employees. We were once again able to demonstrate the power of our business model and our ability to execute on our stated growth strategy. In terms of organic growth, the quality of pricing we saw in Q1 continued to accelerate into the second quarter. While we saw solid waste pricing ahead of plan at 4.1% improved residential pricing, the recovery of price, attracting commercial volume and strong price retention combined to yield this outcome. We remain encouraged with the path to see more than offsetting rising cost inflation through the underlying pricing opportunities we see in the business. Additionally, the inflationary environment should provide a boost to the pricing we see on CPI-linked contracts, a benefit that we will realize as we rollover into 2022. Solid waste volume growth was well ahead of expectations at 6.3%. The markets that were quicker to ease COVID-related restrictions saw the greatest volume recoveries. That being said, our Canadian business, which is subject to continued and in some cases, enhanced COVID restrictions through most of Q2, saw 5.5% revenue increase from non-MRF processing volumes, an outcome that we think bodes well for future periods when existing restrictions are lifted. We are hopeful that Canada gets to such a stage soon, but at this point in the year, we think the benefits will be realized primarily in 2022. Commodity values once again provided a tailwind, although as we've disclosed, our sensitivity to price fluctuations continues to decrease as we progress on our strategic shift toward the fixed price processing model. Nonetheless, commodities will continue to provide a benefit and prices will remain at current values for the remainder of the year and we've updated our full year outlook on that basis. Our liquid waste business showed significant recovery during the quarter, growing organically nearly 14%, as the markets in which we operate began to recover. Consistent with our guidance, we saw significant operating leverage associated with the volume recovery. Our rigorous focus on quality and revenue and cost management drove nearly 500 basis points EBITDA margin expansion over the prior period and furthers our progress toward the longer-term margin profile we expect for this segment. Recall that our infrastructure and soil remediation business posted positive organic growth in the second quarter of 2020, and the nature of the activity in that segment was the last to taper off at the onset of the pandemic. And what we are now seeing is a bit of last stop and last to restart as the recovery of the segment is lagging the broader business by a quarter or two. We remain confident that the lag is nearly timing and that while delayed, the pent-up demand and additional stimulus from infrastructure spending will drive volume recovery that we expect will benefit us over the periods to come. In addition to organic growth, the second quarter also saw us advance several of other value-creation initiatives. We successfully refinanced our highest coupon bonds and realized nearly $17 million of annualized cash interest savings in doing so. We sold $60 million of non-core low contribution assets and have identified several high contribution opportunities into which we intend to deploy the capital. And finally, we continued executing on our M&A strategy. In addition to substantially furthering the regulatory process on the Terrapure acquisition, we acquired eight small tuck-ins in the new landfill during the quarter. We expect to close a similar number of transactions in Q3 and remain highly optimistic in our ability to deploy an outsized amount of capital into our M&A strategy in the back half of the year, considering the depth and quality of our pipeline. The strong first half results, coupled with our confidence in the back half of the year are leading us to increase our full year expectations for the business. Luke will walk through the details, but when you boil that down on a constant currency basis, we are increasing our guidance for revenue and EBITDA by 4% to 5%. We are increasing our adjusted free cash flow guidance by nearly 10%. But perhaps the most relevant of all, we are now guiding to the end of the year with an adjusted runrate free cash flow number of $610 million or better, which we think sets us up to exceed the multiyear guidance we laid out just six months ago. I know we are still relatively new name for many of you, but this marks our sixth quarter as a public company. But what we've been doing, we did this quarter for a long time in the private markets, setting expectations for the business and meeting or exceeding them. We said on prior quarterly calls that we've assembled the pieces of puzzle that form the foundation capable of consistently producing exceptional high-quality growth. We believe that this quarter results again demonstrates our ability to execute on this growth strategy. I'll now pass the call over to Luke, who will walk us through the details of the financial results and then I'll share some closing perspectives before we wrap up.

Thanks, Patrick. I'll pick up on Page 4 of the presentation. Revenue increased over 32%, compared to the prior year period. This was driven by outperformance from the 2020 M&A, strong solid waste pricing, and meaningful volume improvements, both sequentially and as compared to the prior period. You can see the trend in volume growth over the past quarters on the chart at the bottom-left of the page, and I'll circle back to this chart in a minute. Net solid waste pricing was 4.1%, which was better than what we saw in the prior comparable period ending Q1 of this year. As anticipated, the recovery of IC&I volumes, coupled with the inflationary backdrop has continued to provide incremental price support for the year and provides us the confidence to forecast that we will be able to deliver at the high end of our pricing targets for the year as a whole. Resetting of CPI-linked contracts, which tend to lag actual CPI movements should also provide broad based support to pricing levels over the next several quarters. Comparable to what we reported in Q1, elevated commodity prices increased revenue 80 basis points as, compared to the prior period. The 6.3% positive solid waste volume increase was 5.1% when excluding the MRF processing contracts in Canada that have now lapped in Q2. Excluding these contracts, U.S. volumes was 60 basis points better than Canadian volumes, which while a positive data point for U.S., we believe it also speaks to the underlying strength of our Canadian business, considering we achieved these results when most major Canadian markets continued to be faced with pandemic-related restrictions on activities throughout the second quarter. Although Q3 has seen additional easing of COVID-related measures, key Canadian markets such as Toronto, continue to face activity restrictions, which will temper the pace of the volume recovery while they remain in place. Although the lag has become longer than we had originally anticipated, the evidence coming from our Southern U.S. markets has further reinforced our views that when the restrictions are eventually lifted, we will see a meaningful acceleration of volumes. On this point, I'd remind everyone that the majority of the revenue we derived from the fastest to open U.S. markets, namely those in the Sunbelt and certain pockets in the Midwest is coming from our 2020 acquisitions. And the outperformance of these businesses is therefore being presented as incremental contribution from M&A, as opposed to additional volume growth. Also just want to remind folks about the cadence of our volume growth over the past few quarters. So if you circle back to the volume trend chart at bottom on the left, I think it's important to highlight that we are just getting back to slightly above 2019 levels. The volume growth is more a function of the easy comps as opposed to real incremental economic activity growth, which we think is there, but not yet fully showing through in the numbers. I highlight this to help provide context for expectation. We were only negative 8% for the low of Q2 last year and were actually positive by Q4 of last year. The lows that we are bouncing off are not nearly as low as what some of the others that have experienced. So as we talk about the guidance for the balance of the year, I just wanted to remind that context. Moving to liquid waste, this segment showed tremendous growth during the quarter, as COVID-related volume declines came back online. The volume recovery was more pronounced in our U.S. business, although the Canadian business recovery was also impressive, particularly considering the continuation of the broad based pandemic restrictions. Similar to our comments in the recovery of solid waste volumes in Canada, we expect improving strength in the recovery of this segment as restrictions in Canada continue to ease. As Patrick mentioned, the negative infrastructure volumes were in line with our expectations and largely attributable to the tough prior period comp. M&A contributed approximately $288 million of revenue during the quarter, about $16 million of which was from new 2021 M&A with the rollover from 2020 accounting for the balance, which was above our guidance despite the FX headwinds from the predominantly U.S. dollar-denominated revenues of these assets. We continue to identify significant incremental growth opportunities within these asset packages and remain confident in the ability to outperform the original pro forma expectations for these deals. FX was negative 6.4% for the – versus the prior period and about a $25 million revenue headwind versus guidance. You'll recall that our FX impact is substantially all translational and that for every one point change in the FX rate, our annual revenues are impacted by approximately $24 million. On Page 5, you'll see segment results. Solid Waste margins of 30.9% were 10 basis points ahead of the prior comparable period, despite a 65 basis point headwind from recent M&A. Although the net effects of elevated commodity pricing was a margin tailwind, this was more than offset by the impacts of higher fuel prices and the strengthening of the Canadian dollar. Excluding these macro factors, we saw strong pricing, cost management, and focus on productivity and asset utilization, drive 90 basis points of organic solid waste margin expansion, a result we think is quite impressive when considering rising labor and input cost inflation and the delayed recovery of such costs in much of our CPI-linked revenue base. Liquid Waste margins increased 480 basis points, substantially all of which was organic and demonstrative of the operating leverage in this segment. The ongoing volume recovery should provide support for better than mid-20 margins to continue through Q3 before the seasonal step-down in Q4. Infrastructure and soil margins improved 640 basis points sequentially from Q1, despite the ongoing impact of decreased volumes and the change in mix. On Page 6, you can see adjusted cash flow from operating activities of nearly $160 million. This amount includes $63 million of proceeds from our asset sale. Note that while inclusion of these proceeds seems lopsided for the current quarter, we intend to redeploy these dollars before the end of the year and therefore, the timing difference will be offset by year's end. Excluding these proceeds, adjusted free cash flow was $97 million, more than double the prior year and ahead of our expectations on the strength of our operating results of the business and continued rigor around working capital management. We continue to expect the working capital investment in the first half of the year to be recovered in the second half of the year, same for any impacts from second half M&A. As previously discussed, we once again demonstrated our ability to reduce our weighted average cost of debt by refinancing our 8.5% notes during the quarter. Repricing that $360 million from 8.5% to 4.75% reduces annual interest cost by approximately $17 million. We continue to see opportunities for refinancing and we’ll execute as opportunities present themselves. We deployed approximately $200 million into 15 acquisitions for the first six months of the year and almost another $100 million into five additional tuck-ins subsequent to quarter-end. We think these acquisitions will contribute approximately $130 million to $140 million in annual revenues and puts us well on our way to achieving the M&A targets we laid out at the beginning of the year, even before considering the impact of Terrapure, which we are on track to close by the end of the third quarter. Quickly on Page 7, net leverage at quarter end further improved and we continue to have ample liquidity to support our growth goals while delevering our balance sheet. And as I just said, we continue to assess opportunities to reduce our overall cost of borrowing. On Page 9, we've laid out our updated guidance in the form of a revenue bridge. On the strength of the results in the first half of the year, we are increasing our guidance by $100 million to $115 million attributable to solid waste pricing and volume and assuming commodity prices remain at the current levels. Specifically, solid waste pricing goes to 4%, at the high-end of our previous range and solid waste volume goes to the low 2s, despite the lingering restrictions in Canada. Commodities add an incremental $20 million on top of the original guide and the outperformance of the 2020 M&A adds another $20 million. Conversely, with the delays in recommencement of activities, we are now expecting soil and infrastructure to be approximately $30 million less than our original guide. Again, we think this is entirely timing and when the sector starts back up there will be meaningful volume gains, it's just that where we are sitting today, what appears is the majority of that benefit will be a 2022 event as opposed to 2021. We then add the expected contribution from 2021 M&A, which reflects our expectations for the businesses we've acquired to-date and assumes Terrapure closes October 1, a date for which we now have a high degree of conviction. $120 million to $150 million presented as contribution from net new M&A is net of the revenue divested as part of the asset sale we completed during this quarter. That takes you to revenue of approximately $5.3 billion, which is presented on a constant currency basis to what we presented our original guide. The last step on that page normalizes for FX, reflecting the actual FX for the first six months of the year, an assumption of a 1.25 FX rate for the second half of the year. From that revenue, we expect to generate EBIT of approximately $1.410 billion, the high end of our margin range and adjusted cash flow of approximately $520 million or $530 million on a currency - constant currency basis with our original guidance, reflecting a 10% increase over our original adjusted free cash flow guidance for the year. So then, lastly is Page 10 and we think this page is the most relevant. What we've done here is updated our expectations for our 2021 exit runrate. So if you start with the actual expected revenue to be realized in 2021, we then have the rollover of the M&A we've already done so far in 2021 and this brings you to an exit run rate of $5.55 billion. So this is effectively what the runrate will look like, but we don't do anything else for the remainder of the year. At the beginning of the year, we laid out incremental upside opportunities related to M&A, refinancing and capital redeployment. Excluding Terrapure, we basically achieved half of our goals in these areas through the first six months. The last step of $150 million represents the incremental expected contribution if we achieve the targets we laid out for - in each of these areas by the end of the year and brings you to an exit run rate of $5.750 billion. From this revenue, we expect a runrate-adjusted EBITDA of $1.545 billion and runrate adjusted free cash flow of $610 million. So while we are not currently updating our guidance for 2022 and 2023, we think this page should help set the stage. If you take the base business organic growth model of mid-single-digits at the top-line, mid- to high-single-digits at adjusted EBITDA and low-double-digits at adjusted free cash flow, layer in some outsized volume contributions that are expected for 2022, some self-funded tuck-in M&A and continued refinancing, we feel highly confident in our ability to exceed the multiyear growth targets we laid out just six months ago. We will formally provide our 2022 guidance on a subsequent call, but just wanted to provide the stepping stones as we know there have been a lot of moving pieces. With that, I will now turn the call back over to Patrick for some closing comments.

I would like to end our call today with an update on our sustainability initiatives. We are continuing to develop the ESG goals and targets that we will disclose in next year's sustainability report. A focus of our report will be our initiatives aimed at reducing or avoiding GHG emissions. One key area is recyclables. Earlier this month, we announced the formation of the Resource Recovery Alliance. This initiative puts GFL at the forefront of the move to extended producer responsibility, providing producers with the solutions they need to drive higher resource recovery rates. Another key focus is on renewable energy. We have set up GFR Renewables of our vehicles to unlock significant value in landfill gas energy projects at 18 of our MSW landfills that we have identified to-date and to accelerate the conversion of our fleet to CNG. All in all of these trends, we are seeing this quarter and the opportunities we see ahead of us, I've never been more optimistic about the future of GFL. I will now turn the call over to the operator to open up the line for Q&A.

[Operator instructions] Our first question comes from Hamza Mazari from Jefferies. Please go ahead.

Hey. Good morning. Thank you. Could you maybe talk about directionally, how investors should think about free cash flow, given the update in – given the current update for 2022 and 2023? And then, maybe just tie that back to the investment thesis from the time of the IPO, as well?

Yes. So, I mean, I'll turn it over to Luke. But I mean, high level, I mean, it's – I guess, the irony of this is, last year, at this time, we were defending a short seller, that said, the business had no free cash flow and we were estimating $360 million for 2020 as realized. I think when you look today, realizing somewhere between sort of $510 million and 520 million this year with probably some potential upside to that number. And then, you roll that forward in to a sort of runrate number, like Luke mentioned of the $610 million, there is very good probability that we continue growing this business at double-digit free cash flow growth from there. So, I mean, you are looking at somewhere between $675 million and $700 million for 2022 and then, when you think about 2023, you are going to be growing at double-digits again from there. So I think, fairly conservatively, you get free cash flow in 2023 to sort of mid-800s and I think that exceeded what we had anticipated at the time of the IPO. But as a piece of puzzle continues falling in place which is really what the free cash flow that's driving the business.

Yes. I would just add, Hamzah, that, the numbers Patrick is saying isn't sort of the official guidance for next year, but rather just you lay out the operating model on our exit runrate and that's the math that you get even before considering some of this incremental self-help opportunities we've identified within the base business, which could be quite sort of meaningful. So, again, I think we are at a very unique inflection point where we start leveraging some of the investments and the capital structure and you are just going to really see that conversion of what was - as a percentage of revenue, a mid- to-high-single-digits, really quickly start approaching the lower than the mid-teens and then converse similarly at the EBITDA line, you can take what was a sort of high – mid- to high 30s EBITDA conversion to free cash flow is going to go to low 40s and then to high. And I mean, I think we are just going to keep laying out the building blocks, so the folks understand because I think we are talking about a free cash flow CAGR north of 20% and I realize there is a lot of moving pieces to get there. But that's the story that we want folks to keep sort of focusing on, because we believe that that's highly compelling.

That's great. And then, just the second question is just on GFL renewable, could you maybe talk about the strategy there? Are you separating that business out, just any broad thoughts on long-term strategy there?

Yes. So, I mean, particularly, over the course of the last six months and particularly with the increased value of the RIN credits, we have significant cubic feet of gas coming to our landfills and when we've done a study on this really over the last six months this sort of bubbled up for a lot of other companies in the industry that I think are a little bit more mature than us. We have 18 landfills today that we have an opportunity to basically make RNG. When you think about that, I just – we sort of just gave high level numbers. What I am talking about now would be all in addition to. Today, we have - like today's RIN pricing, about $175 million of gas that could be sold at today's RIN pricing. Our perspective is that, this gas should add $75 million to $100 million of free cash flow over the sort of next couple of years, because what we would do is, is we would partner with some – there is two companies we are in dialogue with today to build out this infrastructure at our facilities and it would be with a fairly minimal CapEx spend. I think the other thing we would do is we would hedge out the – that RIN value over 20 years and sign off-take agreements with some others. Now that comes at a discount to where the RINs are currently trading at today, but it takes out a lot of the volatility out of the RIN values. So, when we look at that, I think that $175 million is going to be some economics still with developers, plus then you got to discount it back a little bit, because we would enter into a hedge or a presale contract for 20 years with an off-take provider. So at the end of that, we think there is probably $75 million to $100 million of free cash flow that comes back to us without not a lot of volatility. So, it's a big opportunity. I am also separating it out. There has been some recent transactions where there has been some renewable fuel plays. These businesses are trading at 40 times to 50 times EBITDA and I think from our perspective, yes, it will be a nice free cash flow generator. But, hey, it's a way to unlock value, because some of these other players that are in the business want to come in and pay us a big check to buy the rights to that fuel. There is billions of dollars sitting there under our nose potentially and we just wanted to have that in a separate vehicle. And then, the other big benefit from an ESG story is with – as we develop these plants, we will be able to fuel 100% of our vehicles with gas that we capture in all landfills, which we think is a great story, as well. So, put all that together, we think this is a very large opportunity. And all additive to the plan that Luke just laid out.

Good. Got it. Just last question, I'll turn it over. I know, you talked about M&A this year. But any thoughts as to the longer term pipeline, specifically, out of the private company revenue that's out, there. Everybody has their own estimates what that number is in U.S. and Canada. But do you have a sense of what percent of private company revenue fits your book of business today? And then, you can answer it however you want in the U.S. or in Canada. Thank you.

Yes. I mean, from our perspective, where we sit today, the M&A market is extremely active and I think we are fortunate in a few markets where we've become the acquirer of choice, because some of those competitors are family businesses fit very well with us and sort of our culture. But they also fit from a perspective that given the length of the DOJ processes that people have been going through, they try to get deals approved has led to some delays. And we were part of that on the ADS-WM transaction and now we are public, gone through a few with the recent acquisitions and I think there's some sellers that are concerned about where capital gains are going and that positions us well because some of the markets where we don't think we have a very difficult time getting through DOJ and that's made us an acquirer of choice for some of those businesses. But I think it will be an outsized year. But I think when we look at our pipeline today, over the next sort of 12 to 16 months, I mean, from our perspective, there is easily another $500 million to $1 billion of revenue that we can get our hands on relatively seamlessly over that period.

Great. Thank you so much.

Our next question comes from Michael Hoffman at Stifel. Please go ahead.

Hey. Thank you very much. Just a little bit in the weeds, Luke, but what's the quarterly contribution of Terrapure for the fourth quarter so we get that progression right?

Yes. So Michael, what we've modeled in as of now is about $80 million to $90 million of revenue and the reason that's going to be arguably a larger range than normal is on the basis that with the reopening in Canada, I think we are going to see a bit of a shift in the typical seasonality pattern that one would expect with delays. So there is a bit of a moving target there. But it's around that $80 million to $90 million at the top-line is what we've included. And keep in mind, it's at a lower margin than the blended what we underwrote for the business as a whole just again, because the typical sort of seasonality pattern in Canada. So it's in the low-20s as opposed to that high-20s that we expect for the full twelve months in Terrapure.

Okay. That’s helps a lot. Thank you. And then, when you think about your comments on Canada and the sort of progressive reopening, but you also have a seasonal issue. Again, how do we think about being back to even 2019 levels? What's your sort of sense about the timing of that relative to Canada?

Yes. I mean, I think well – vaccination rates are bad and I think that the full reopening plan is planned for phase in through September and November. And when I say that, it's really sporting events, it's office buildings, it’s schools, et cetera, which have been shut for a long period of time. And I think if you see all the guidance that everyone has put out across Canada, it's now okay, we got to live with the virus and they are going to fade that in between September, November. I mean, we are getting pretty close to 2019 levels today, as Luke mentioned earlier in the call. So, I think we turned positive by the end of the year and then certainly going into 2022 will be back to pre-pandemic levels.

Olay, that helps too. And then, on the Renewables business and the wins are at little over $3 right now. Long-term average is sort of $1.50 to $2. Is the intention to sort of hedge down into that long-term average and that's the point you are not introducing another point of volatility in the model?

Yes. That's my perspective and particularly, we will look to lock in, call it, 65% on that. So we don't get volatility on 55% of the RIN. And then, the other way we look be we have a natural hedging currently, because we would take a sort of that fuel to fuel our trucks. So we'd be virtually 100% covered.

Okay. That helps on that. And then, on the EPR program, can you talk a little bit, you know that's a unique issue relative to the United States. We do it at a state level. I doubt it ever happens at a Federal level. So, what is of particular strength to GFL given this national rollout the stewardship programs, buying in the non-profit, what do all those combine to create as a natural – within your natural strengths of competitive advantage?

Yes. So, if you look at today, British Columbia was the first province to enact it. We currently manage that program for producers and for the province. I mean we have a lot of experience, firstly. And I just think and this is dealing with municipal curbside volumes. So we are not talking about the IC&I sector here. And today, the producers pay 50% of the cost for the recycling of those materials. That is moving to 100% and they are responsible for the actual collection processing and the municipalities actually have to opt out. So I think, the value we bring is, I think our asset base, given the amount of collection contracts where we have in Ontario, layering on together the processing facilities we already own, and then coupled together with the experience we have in BC, and then, buying the DC facility, which actually has the regulatory reporting and compliance tool. So we put that all together, I think it's a very compelling offer for producers and at the end of the day, Ontario is moving away from a single model to a multiple pro model and onward programs have to work together. So, we think us working together will give us the right feed at the table to structure all these contracts properly and utilizing our assets to the best of our abilities.

Okay. And then within the context of the free cash flow outlook, all of the numbers you are giving are still sort of around a high 30s cash conversion of your EBITDA. So what's the prospect of moving the conversion ratio, as well, not just the overall growth of it, but moving the conversion ratio back up into a mid-40s or a better level?

Yes, Michael, I think naturally, the conversion improvement driven by the margin improvement that we are talking about is going to fall through. But I think where you are going to get the most torque and something we've spoken about before is by leveraging that interest line, right? So, if you think about the sort of $300 million-ish interest line that's currently in my free cash flow walk, pivoting into next year, I mean, we really returned into the self-funding model and you start leveraging that line. And I think it's through that, but if that represents sort of mid-single-digits of our revenue today, as you grow thereafter, you're going to really see that sort of number getting leverage off of that. So, as we said before, the plan was from 2020 IPO year to 2025, we thought we could take at a percentage of revenue, up from high-single-digits to sort of mid-teens and as you roll that into the EBITDA conversion ratio, taking that mid- 30s to high 40s. So, we think that we are demonstrating that and you are going to continue to see that. But the capital structure component of it, I think is a unique opportunity for us where we are at in our path that's going to provide extra torque at that conversion ratio.

Okay. And to put that in context, the peers are 2% to 3% of revenues, is their interest expense higher than that and this is an absolute dollar reduction in it or an accelerated growth of the revs and therefore, the compounding to the profit?

Well, the latter in the near-term and then the former in the longer term, right? As you get beyond sort of 2023 and you start having an excess free cash flow thing that's when I think you actually start reducing the quantum of dollars, but in the nearer term, we are just leveraging the fixed cost – the fixed amount of dollars.

Okay. Thanks. That's great. Thanks for taking the question.

Our next question comes from Walter Spracklin from RBC Capital Markets. Please go ahead.

Yes. Thanks very much. Good morning, everyone. I'd like to come back to the landfill to gas conversion, Patrick, you mentioned that you are at opportunity right now of $175 million, but the ability to grow significantly beyond that. Can you give us a little bit of sense of what it would take to grow? What level it could get up to? And I think you said a modest CapEx spend, a little bit more elaboration on the capital required to get up to a higher runrate on your landfill to gas conversion.

Yes. So, I think when you look at it today, there is – what I said is there is roughly $175 million today at today's RIN pricing, sales give or take there is probably some more, so I am being conservative on that. The question is, is we – our perspective is today we're going to joint develop them or we're not going to develop them on our own, I think our time to realize those dollars would just be quicker doing it with someone that knows how. So we are going to give up some of the economics of that fuel to somebody else on a revenue sharing arrangement. But if you look today, today you can sort of lock in some of these forward gas contracts and effectively hedge out the RIN at somewhere between $1.8 and $2. So you don't take a third of that off and then the revenue share, I think you get to somewhere between $75 million and $100 million. I think the total CapEx spend to do that – for our portion of it would be $125 million to $150 million is the rough number. The interesting part is, as you enter into these hedges that we are contemplating doing, or these off-take agreements, we would be signing these off-take agreements with an investment-grade utility. We could get investment-grade bonds to basically finance 100% of the build-out if we did 60%, 65% of the off-take with them. So from an equity perspective it is very minimal. And obviously, from an IRR perspective, it's 40% plus. I mean, I don't think there is a better use of capital anywhere today. So, that is what's going and that's why I sort of used the number of $75 million to $100 million over the next sort of two to two-and-a-half years.

That's great. And dovetailing that into non-core operations, you made a divestiture just recently. Are there other divestitures that you could then deploy into some of your core areas you could frame out how much of non-core are you currently looking at or could possibly look at? And would landfill to gas conversion be, if it gets big enough and would you look at that as something to spin-out and redeploy into some of your core? Or is that something you want to kind of keep in-house?

From my perspective, I'm a shareholder first. My priority here is to make money. I am the single largest shareholder. We kept it separate for that reason. I mean, these renewable play, like I said, there has been a recent one that's just come out $40 million of EBITDA that's gone public at a $2 billion value. There is one recently in Canada that I think it had $7 million or $8 million of EBITDA and it's trading at $1 billion value. We are going to have $75 million to $100 million sitting in here. I think if someone wants to pay us multiple billions of dollars, I mean, we are happy to take that money and I think we make a lot of people happy with the deleveraging story maybe some form of dividend or distribution. But that's all we do alternate of why we'd just keep it. I mean, I think these businesses are trading at 25 times to 30 times free cash flow. So you have the potential to create $3 plus billion of value over the next little while. So, one way or another, we think it's going to create significant value, whether that's kept internally or whether longer term, we sell the rights to that gas to someone that's got a crazy multiple in the public markets.

And Walter, the gas component aside just the broader redeployment of capital are non-core. At the beginning of the year, we said there was $50 million to $100 million of potential sort of asset sales to complete. What we did in Q2 was about $50 million that we sold. What we've put in the incremental upside opportunities in terms of the guide is just that remaining $50 million. So, saying that we still think there is in this year, $100 million in the non-core that we are going to sort of execute on and take those dollars to sort of redeploy into other higher growth and return initiatives.

I appreciate that. Thanks.

I think that, yeah, I think that's a conservative number, as well. So, you'll probably see us do a little bit more than what we put in the guide in that front.

Yes. It sounds like good optionality for sure. I appreciate the time as always guys. Thanks.

Thanks, Walter.

Thanks, Walter.

Our next question comes from Kevin Chiang from CIBC. Please go ahead.

Hi. Good morning. Thanks for taking my question. I know you are not officially adjusting your 2022 and 2023 targets. But if my math is correct, I think you are implying something with a low 20% - 27% EBITDA margin out in 2023. But just given the 2021 update, which kind of gets you almost a 27% already, just wondering how you think of the cadence of EBITDA margin expansion over the coming years here, do you see a higher upside relative to maybe what you saw six to seven months ago when you put out that outlook initially?

Yes. I think from our perspective, we are taking the under-promise and over-deliver approach. I think when we talked about at the time of the IPO I think we're probably a year ahead of plan in terms of margin expansion. But certainly, our plan is to continue expanding margins and as Luke said move somewhere between 28% and 29% as we move out into sort of 2023. Luke, feel free to pipe in.

Yes. Kevin, what I'd say is the quantum of the margin expansion period-over-period last year was sort of unique. Coming to this year, the idea was to take it up to high 26%, 26.7%, 26.8%, I think is the guide. I think you are right. There could be a path to doing a little bit better than that, which is then setting you up next year. I think what you'll see in the guide when we talk for 2022 is, if we are able to battle these cost inflations this year without having the benefit of the CPI resets, right, because again, that's really going to be a 2022 benefit. So we're eating it for the first two or three quarters of this year before we get the benefit. That's going to likely probably add even more. So, I think you're right in thinking about the original target is probably now been accelerated. The exact timing and new sort of goal post, you have to sort of stay tuned. But I think you're thinking about it in the right context.

Okay. That's helpful. And just - as we sit here today, you are obviously punching above or you're ahead of schedule, as you mentioned, Patrick and Luke. Can you just give an update on when you think cash taxes starts flowing into you? And then, with this accelerated free cash flow generation, does that change your priorities? Do you push more of that into M&A? Does the deleveraging become more of a priority with this excess free cash flow here? Just wondering how you think about that.

I'll touch on the cash taxes quickly then let Patrick speak to excess cash flow considerations. On the cash taxes, look, it's largely the growth in the U.S. business is what's going to drive the cash tax payment starting. And as of now, that's sort of a little bit in 2024. And then you get into more of a full payer in 2025 and then a real full payer in 2026. But that's absent continued strategy is to sort of mitigate that, which we're constantly evaluating and certainly, the incremental deployment of capital to M&A helps with that. So, Kevin, to your point, I think, yes, on the base plan, the outperformance is accelerating that. However, the counter is, excess outperformance in M&A deployment, which I think kind of provides a bit of a sort of buffer. So we continue to evaluate, I think, the holding - 2025 as the year still sort of holds true. But know that we are actively engaged and continue to be as strategic there as possible. In terms of what we do with the excess free cash flow, Patrick, I'm sure you have sort of commentary around that.

Yes, I mean, I think from our perspective, like we've always said, we're going to continue deploying capital into smart accretive M&A. We think where we are in our growth cycle that’s going to continue to be prevalent. The free cash flow really starts building between 2022 and 2023. Again, you are going to move through that, I mean, you are also going to move to a sort of a dividend policy when the TEUs come off and are going to put it sort of back to nominal dividend as some of those TEU interest payments go away. And then, sort of coupled together with it share buybacks at some point. But I think there is a lot of M&A and a lot of great M&A that can still be done significantly lower values than we are trading at today. So I mean, I am not of the mindset today to buy back our own stock at significantly higher value. We'd like to buy some high-quality assets privately today for, I mean. Over time, that's what's going to create a lot of value for us. I mean, we've been doing this for 14 years. And like I said, all I want to do is, take my $800 billion to $1 billion of equity in my option, but I have and continue just driving the value of those forward. I mean, if you look at the recent altered plan that the MEO signed up for, I mean, no one is getting anything until the stock clears to $50 and then clears to $60. So, that is our conviction around what we believe the equity value of this business is going, which is almost 2x where it is today. So, we are very sort of comfortable in the plan that we've laid out. And I think from our perspective, just give each and every one of your building blocks about how we're going to get there. I think it's been six quarters of us articulating exactly what we were going to do even at the time of the IPO, living through COVID and where we are today. We'll just continue delivering and executing on that plan. And eventually, we are going to fill up the box with investors and that will start driving things forward and getting this trading where we all believe it will be.

I appreciate you taking my question. Thank you very much.

Thanks, Kevin.

Our next question comes from Mark Neville from Scotiabank. Please go ahead.

Hey. Good morning, guys.

Good morning, Mark.

Good morning. Maybe first for Patrick, maybe just going back to the renewable opportunity, can you maybe just walk us through sort of timelines and sort of milestones to watch for in terms of signing up developers or partners maybe help us with that?

Yes. So we are well along the line and I think this first engagement will be signed sort of in the next four weeks. And then, you're basically between sort of 15 and 16 months out to build some of them. Some of the faculty is already built. They just need to be modified, because they've been used for co-gen and power. So, I think conceivably, we could start seeing the realization of some of the dollars going into early 2022. But then seeing the real dollars as we get into later 2022 and starting into 2023 through to 2024.

Thanks. Maybe, Luke, just a point of clarification on the CapEx, it sounds like gross and net for the year will sort of net out to the same number. If you can sort of spend all that money, but maybe just give us – maybe just help on this guide for the CapEx spend for the year? Thanks guys.

Yes, Mark. You are right. The proceeds from disposal are going to offset any incremental spend. So, if you think about the original guide, it was sort of a 510 number with the M&A there another sort of 10 maybe think about it as a net 525. To the extent we can redeploy the capital this year we'll be sort of doing so. We're going to average out to a net number of 525. We only spend proceeds to push investment above and beyond that. So that while the gross number could be north of that towards, sort of, say, 600, we'll make sure to manage through that net number of the 525 and it's dependent on how quickly we can deploy some of this capital into a whole host of growth opportunities we've identified in the existing base business and net new things like the landfill gas that, Patrick was talking about.

Got it. Thanks for taking my questions.

Our next question comes from Jerry Revich from Goldman Sachs. Please go ahead.

Hi. This is Adam on for Jerry today. In addition to landfill gas, you folks have a broad set of ESG opportunities. So, just wondering if you could help me think about the annual CapEx associated with green initiatives. And is it possible to break that out between landfill to gas, recycling and any other key initiatives?

Yes. So, I mean, we don't separately break out a bunch of our ESG type initiatives. I mean, that all gets sort of modeled in our maintenance and growth CapEx for the year. That sort of sits at around 10%. But I think realistically, where we're sort of sitting today is, we're deploying anywhere on a given year roughly $50 million on recycling type initiatives, a year ago was closer to $100 million just because we had a large organic build out and a large recycling facility. But I think $50 million today is probably a realistic number that we are using. It’s all built over the last number of years. On the landfill gas, like I said, I think our spend is going to be somewhere between $125 million and $150 million to capture that over the next 24 months. But given these creative way of financing with these investment-grade type bonds, with these off-take agreements from an equity perspective, it should have either been even from an IRR perspective. I don't think we'll find something that can produce any IRR that are much sort of higher than that internal opportunity.

Okay, great. That's really helpful. And then, other solid waste peers have talked about gradually shifting their index price contracts to water sewer trash way from traditional CPI. I was wondering if you could provide any color into the makeup of your index contracts. And if you see that evolving from current levels?

Yes. Adam, it's Luke. Yes. What I would say is we welcome the shift, but are very early days in our personal sort of participation in that. So if you look today, we have roughly $800 million, most of which is in residential, but you also have some in MRF processing, landfill and transfer, that's tied to a CPI type index. Very little de minimis of it is tied to one of the, what I'll call, better indices like sewer water manner utility or some of the others that the majors in the industry have been converting to. We are supportive of the change and think it does better reflect the cost structure of these businesses. But we just see that as opportunity today because we are still sort of pegged to the old way, if you will, of sort of CPI. But, that being said, we think even the CPI-linked contracts are going to provide a very nice pickup for the next, call it, four to six quarters as those things sort of reset. I mean, I think the print in June in the U.S. was north of 5%, in Canada, sort of mid-3%s and I think as we now get the resets, a lot of which happened in the back half of the year, we're going to enjoy that benefit going. But I think longer term, pivoting and migrating our portfolio of index-linked revenue to these higher indexes is just an even larger opportunity that's out there for us.

Great. Thank you very much.

Our next question comes from Tim James from TD Securities. Please go ahead.

Thank you very much. Good morning. I just want to go back on the question, Patrick, on your comments regarding kind of the change in revenue guidance and where some of that originated from. Was I correct in understanding that the solid waste impact on guidance is primarily originating from acquired businesses and in the assets in the Sunbelt in particular?

No. I think Luke made that…

Yes. What we tried to break out there was, the pieces of the outperformance. I mean, what we are saying in the base guide, we are taking up price before we said price was sort of going to be 3.5% and take that up to the high-end of the range. We are taking up volume before we said volume would be like sub 1%, now taking that up to sort of low 2s. And then, the other piece of volume is in the M&A bucket the rollover we are now saying the volume experience we have in that rollover M&A is greater than that. So that's coming up again by another sort of 1 point to 2 points. So I think it's broad based across all of the buckets, as opposed to saying the new M&A. The new M&A was a separate bucket if you look at the bridge. And so, I think all of the revenue drivers are sort of coming up, commodities is the last one I didn't mention. And in the quantum, that I just articulated.

Okay. That's helpful. Thank you. And then, why don’t if you could just talk a bit about what you're hearing from your construction project customers, in particular in terms of getting back online? Are there any notable kind of remaining impediments to returning to normal levels of activity in the back half of the year? Again, notwithstanding, I guess, any retrenchment in reopenings? And maybe in particular, the lower volume soil remediation customers, a bit of an update there. I know that's continued to be slow here in the second quarter.

Yes. So, I think, it's coming. I think, everyone is highly encouraged. Final restrictions came on and this is really an Ontario business for us. I mean it's collaborative significantly GTA and I think as most of those restrictions came off at the end of June and beginning of July, people are now ramping back up to. But they do take a few months to get these sites ramped up just given they've been struggle – so as I said, Luke, I think, what Luke said earlier was that the bulk of this is the real upside we're going to get into 2022 and I look at the amount of contracts that you bid and these guys that are talking about going as early as August and as far as sort of earlier next year. I mean, there are some significant projects and – I mean, tens of billions of dollars that the provincial government has – is canvassing now looking for work to be done. So, all of that's going to come. I just think, like we said, it was the slowest to wind down and it was the slowest to sort of pick back up. We now have visibility on what's going to be bid and I think 2022 is going to be a very, very big year for us.

Okay. That’s great. Thanks very much and congratulations on a good quarter.

Thank you.

Thank you.

Our next question comes from Tyler Brown from Raymond James. Please go ahead.

Hey. Good morning, guys.

Good morning, Tyler.

Good morning, Tyler.

Hey, I got a call waiting right, whenever I turn it over. But hey, I know the call has been long here. But Luke, on Slide 9, I really appreciate it, but I want to make sure that I have it. So, of the incremental 110 to 115 in solid waste, only 20 of that is from commodities and the rest is just kind of core delta?

Yes, that's right. So, Tyler, if you think about what we said at the beginning of the year, year-over-year, the original guide provided plus 10% at commodity. Based on what we've seen throughout this year and now the expectation for the balance of the year, saying there'll be another sort of plus 20 on commodity. And again, while that's muted compared to what others may be sort of saying, you got to remember that for every dollar the commodity goes up, I give sort of $0.40 of it back to the guy. And so I am getting less of an impact as that moves. So there is 20 million macro commodity. The rest is really outperformance on price and volume.

Okay. And on the price and volume, I am assuming that's largely a positive delta in the U.S. I mean, it sounds like you have pretty reserve comments on Canada.

I mean, it's – I continue to have reserve comments on Canada, but the opening guidance was also reserved on Canada. So it is positive in both, particularly, on the sort of pricing, moving both of those up to getting to a higher number than in the original guide. But yes, it's the U.S. business for which we are more – have a better line of sight because, again, our Canadian government seems to be a little bit more uncertainty in terms of timing.

Yes. Okay. And then, so, on the free cash, and I just want to make sure I've got this, because I am a little confused. So, you booked the $50 million of asset sales in the quarter. That is in your guide, correct?

The $50 million is really just going to be an offset for incremental capital, growth capital that we will redeploy. So, I have it in there today. But by the time I get to year end, I'll be going to have redeploy those dollars. And I want to get to that net normalized CapEx of $525 million. So, by the end of the year, $585 million, I’ve only done spend that extra $60 million by virtue of having those proceeds. So it kind of creates a lumpiness for this quarter individually. I’ve backed it out for this quarter, but now by the time I get to year end I will deploy it and therefore, its inclusion normalizes CapEx to that right 525 level.

Okay. That's helpful. So it's normalizing on the CapEx. So, then, if we just do this simple EBITDA to free cash walk, I am assuming it's, again, something like 1.4 of EBITDA. You got $300 million or so of cash. That your CapEx, I’ll call it, 550 a little bit more and then closure, post-closure, and that's pretty much the walk.

Yes. That’s right. Working capital be sort of net neutral. You got the cash interest in that $300 million. You've got the CapEx of 500 in a quarter, before the closure, post closure in that sort of 55 range and the 8 to 10 for cash taxes and you do that walk, you need to get to the sort of that 510, 520 range.

Okay. And just, I think on the balance sheet, is it safe to assume that about half of the refis have been done and the other tranches will just come as the call premiums ease?

I'd say, about two-thirds of the 2021 opportunity has been done and we anticipate being able to execute on the full opportunity and then the balance of the balance sheet becomes 2022, 2023 opportunities.

Right. Okay, Okay. Alright, guys. Appreciate it.

Thanks, Tyler.

Thanks, Tyler.

Our next question comes from Rupert Merer from National Bank. Please go ahead.

Good morning and thanks for taking the question.

Good morning, Rupert.

Back to GFL’s Renewables again. You've got a very well-developed organics business. I am wondering, are you looking at any opportunities for conversion of organics to RNG with AD Systems? And if you can give a bit on what the economics of that might be?

Yes. I mean, I'm not as bullish on the anaerobic digester front, particularly in North America, just because, the consistency of the stream that needs to go through those digesters to run them with the most economical. And that's how we've sort of chosen the other path for now. I mean, we all know when we stick at our organic thing from time-to-time and particularly in Ontario and it only gets worse as you go into parts of the U.S. So we're going to stick with that. So, we're not – we don’t - we're not anticipating going into anerobic digester business any time soon.

Alright. Great. Thanks. And on the last call, you highlighted some royalty agreements on landfill gas operations that are up for negotiation in the next three to five years. How does that play into the strategy? Do you buy those out or do you need expect it to expire?

That's part of it for sure on some of the electrical contracts and which is all sort of well underway and telegraphed in that number. We think that will happen relatively quickly. Those aren't really moneymaking opportunities for the actual utility. So, a lot of them are happy to get out of them when we move through this venture.

Great. And just finally, can you give us some thoughts on the timing of investment that's going to be needed to convert to the CNG vehicles?

I am going to follow the normal course, for sure. I mean, what we are looking at doing is sort of just rebalancing our fleets, moving diesel trucks into markets where from existing area that don't have CNG. And then, well, we spend our maintenance CapEx for deploying those into areas where CNG makes more sense. So, I don't think you'll see any outsized CapEx components. It will be a rebalancing and shifting of where those dollars get spent.

Great. I'll leave it there. Thank you very much.

Thanks, Rupert.

[Operator instructions] Our next question comes from Adam Wyden at ABW Capital. Please go ahead.

Hey, Patrick, congratulations on a great quarter. I think, my question is more qualitative in nature. If you kind of look back, you guys went public in early 2020 at the depths of COVID. I think you'd obviously have some challenges taking the asset to market. And look, you guys adapted to COVID extremely well. You've executed on exactly what you said you would do. You've got the two platforms, you are divesting assets leverage is coming down. The refinance story is happening. I mean, I would say that for the last year-and-a-half, you basically delivered on everything you said you would do and exceeded all kind of numerical expectations. That being said, the rest of the industry trades at a substantially higher multiple and arguably has what I would argue in your unit economics on incremental basis and from an ROIC and all the rest. And so you as an insider and the largest shareholder, unlike the rest of your peer group are faced with kind of a question or kind of something to ask yourself, which is, the public markets are resisting the way you deployed capital even though it is far superior to your peer group and you traded at a significant discount to your peer group. I mean, at what point do you pull other levers to kind of tease out the value? Obviously, your concentrated shareholder fees could make it easy to tap the capital markets. Again, interest rates are obviously very, very low. Could this company get reIPOed? Could you do a sale-leaseback on your real estate? That obviously, industrial real estate is at very, very low multiples. I mean, the way we see it, you're trading at like almost a 10-plus percent yield out year-and-a-half. And your real estate is trading at three, your peers are trading at three. How do you think about kind of – from an owner's perspective, from an IRR perspective, the types of levers you can pull? And at what point you say, look, this is a waste of my time. This is enough. We're not creating value fast enough from an equity perspective relative to the business performance?

So there is a lot in, I guess, a lot of statements in the lecturing. So, I mean, I think, I'll take a stab at it. I mean, I think from our perspective, I think as a private company, we never really like to focus on the mark of the equity, right? And the mark on the equity is really only relevant if you need the equity to sort of fund your plan and I think at this point, the plan is largely self-funded. So we don't. That being said, we do think there is a very compelling opportunity to own this name at a relatively inexpensive cost and correlation to some of the other peers. But, I think we've been at it for six quarters publicly, obviously, a longer-term privately. And you are right, I do am the largest single shareholder. And at the end of the day, I am going to keep being the great steward of capital and have been over the last 14 years when we started this company with $250,000 and brought it up significantly over that period. And I think one way or another, the value will be unlocked at some point. Whether that's private, what that's another M&A transaction, whether that just continue executing on what we do best, we'll unlock the value over time. And we're giving everybody the roadmap of where we see the value. And like you said, you look out a couple of years. Everybody wants to focus on the quarter. I mean you can't build great businesses quarter-to-quarter. You got to take a three to four year view on what you're going to do from a plan perspective and a business perspective and that's exactly what we are doing. And like I said, a year ago, we’re defending that the business didn't have any cash flow and the equity was zero and I think we put our head down, came really strong, continued doing that and have grown cash flow at a 40% CAGR ever since and we're saying we're going to continue growing free cash flow at a 15% to 20% CAGR here for the next three plus years. So, I mean, we've given you, there I have no interest in saying it other than saying okay, wait and see. I mean, watch what's going to happen and if you want to own it today, own it today. If you don't want to own today, don't own it today. But I mean, these are – this is exactly what we're going to do and I think we have a history of beating expectations and that's my focus. And like I said, one way or another, no difficulty with the renewable side here. We found there is potential gas opportunity that could yield a significant amount of free cash flow. And we will unlock the value from that, whether that's keeping the cash flow and trading at the 25 times to 30 times free cash flow that we trade at today. Or you unlock the value with someone else that's trading at 40 times to 50 times free cash flow. So, we will do that and we'll just keep doing the things that we think add value to our own equity.

Okay. That's very helpful. Last question. So, if you think about the GFL historical strategy, you guys have approached the waste management consolidation somewhat differently than your peers, albeit better. You buy a very well-run platform. Any local and you don't buy their trucks. You sell their trucks. You keep their trucks. You do consolidation. It might be helpful for me and perhaps others on the call to kind of block folks through put a typical tuck-in transaction to your hub and spoke. So, you buy $5 million of EBITDA and put it into your system, what multiple of EBIT is, because at least from our understanding and I think it might be helpful for others is that, when you buy a platform, you are buying the structure. But when you buy these things and you plug them into your roots, there are substantial CapEx savings and substantial G&A savings. So, I mean, it might be helpful for me and others to kind of say, okay, when we buy things at five times or six times EBITDA, you really should think about them as a multiple of cash flow or EBIT. So it might be helpful just to kind of lay out how that works because it feels like that's where this business is going. You've gotten those two big platforms. And so, the vast majority of your time going forward will be spent on this kind of emblematic transactions.

Yes. Yes. I would say it's no different in Canada. Look at the margin profile of what's happening in Canada. Canada was a low-20s margin business. Today it is high-20s margin business. And how that happened is we built out the platform across Canada. When you build out the platform, you get all the SG&A requirements. The operating facilities and you have teams in these existing markets and it's no different than what we're doing now in the U.S. And when you look at what we do is, I say we have a lot of the great pieces of the puzzle already in place. We have an amazing fixed facility and fixed cost base and now when we acquire these smaller collection-only businesses, so we can tuck into our existing geographies and utilize that fixed cost base and utilize those post-collection operations, like transportations, recycling facilities and landfills, those become highly accretive. And then, when you can put them on those routes on the back of your existing routes, so obviously, you're eliminating a significant amount of CapEx. And you're just increasing revenue on your existing book of business, which drives higher margins and drives higher free cash flow margins. I mean, that what we've been doing for 14 years and that's why our margins have gone from high-teens to moving to high-20s, approaching 30s, right and then, for the solid waste business in excess of 30. So, well, that theme will continue. We won't deviate from that strategy. We are not always hunters. As Luke said, the number of opportunities we've acquired this year is 20 plus. If you look at the relative size of those, again, tiny and we think over time, those will add the most value to our equity.

Sure. And how do you think about CapEx as a percentage of sales from where we are now? And where do you think it could be in five years, I mean, if you continue to execute on this? I mean, your CapEx percentage has come down a lot. I mean, where do you think it could be in five years?

Yes. I mean, we were in the early days, we were at 15% and when you look, today, it's in the 10-ish to 11% we had called. We are going - keep going from there I think, could it get to 9% to 10%? Sure. I mean, it just depends where we are in the growth cycle and how we want to think about our business four or five years I would think. Yes, you're right in saying that when you look back in time, if you look at the perspectives, CapEx is we haven't had to make those investments has come down as a percentage of the overall revenue.

Yes. I mean, look, I'll leave you with this. That to me is the most exciting part of this story that that obviously, you are thinking about it as a business owner and you've got to buy these good platforms and that's why you've historically paid multiples for these big platforms. But, I mean, what you do is you get the great foundation and you bring in these little guys and you don't duplicate the trucks and you get share procurement. I mean it feels like you think about where we are in the cycle with these two platforms. These deals that you're buying in four, five, six times EBITDA, the multiple of EBIT is considerably lower. So to us, that's the most exciting part of the story. So, I look forward to seeing it and thank you again for all the hard work and a great quarter.

Alright, Adam. Thanks so much.

This concludes the question-and-answer session. I would now like to turn the conference back over to Patrick Dovigi for closing remarks.

Thank you, everyone and we look forward to speaking to you when we report our Q2 results. Thank you.

This conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.