Good morning. Thank you for attending today’s GFL Environmental 2023 Q3 Earnings Call. My name is Foram, and I will be your moderator for today’s call. All lines will remain muted during the presentation portion of the call. [Operator Instructions] It is now my pleasure to pass the conference over to our host, Patrick Dovigi, Founder and CEO. Mr. Dovigi, please proceed.

Thank you, and good morning. I would like to welcome everyone to today’s call and thank you for joining us. This morning, we will be reviewing our results for the third quarter. I am joined this morning by Luke Pelosi, our CFO, who will take us through a 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 have 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 decision – 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.

Thanks, Luke. In the third quarter, we once again outperformed our detailed guidance and continued strong core Solid Waste price growth of 8.8%, 230 basis points of consolidated adjusted EBITDA margin expansion, 335 basis points of expansion of our underlying Solid Waste margin, and ES margins of nearly 31%. Our ongoing focus on optimizing price and managing cost to drive higher underlying profitability continues to yield exceptional operating results and positions us for continued success in the future. Luke will walk us through some of the details, but I wanted to start off by reflecting on where we are today versus where we were when we went public almost four years ago. We have always been focused on the long-term trajectory of the business, balancing growth, profitability, and capital deployment. This focus is shared by me, as the Founder and largest individual shareholder of GFL, as well as the entire senior leadership team, all of which whom retain significant equity in our company. Executing on our long-term strategy has proven very successful for GFL and all of its stakeholders since we founded the business 16 years ago, and we expect this strategy to continue to be the foundation of our continued success. Since we went public in March of 2020, we have more than doubled the size of the business, while at the same time shaping a platform and asset base that will now drive the execution of our differentiated growth strategy in the coming years. That included the steps we took earlier this year to divest of non-core pieces of our portfolio at multiples greater than the basis of our current valuation. Spinning off our infrastructure business into green infrastructure partners and deliberately shedding low-quality volume that does not meet our return thresholds. With those refinements completed, we continue…

Thanks, Patrick. For the following discussion, I will refer to our accompanying investor presentation, which provides supplemental analysis to summarize our performance in the quarter. Third quarter revenue was $1.89 billion, representing year-over-year growth of 130 basis points better than we had guided. Solid Waste price of 8.8% was realized through ongoing support from both our geographies and with better than mid-single-digit pricing continuing to be realized in the typically lower priced residential collection and post-collection lines of business. Solid Waste volumes of minus 2.4% was nearly 50 basis points better than expected, as the underlying volume growth in commercial and residential collection, as well as our post-collection services offset the impact of the intentional shedding of low-quality revenue and the exiting of certain non-core ancillary service offerings. Page 3 highlights the 250 basis point expansion of Solid Waste adjusted EBITDA margin year-over-year, a 30 basis point sequential acceleration over the second quarter. Commodities continue to be a year-over-year headwind, the impact of which is greater in our Canadian segment due to the larger relative volume of recycling activities we have in that market. Commodity prices during the third quarter were broadly in line with expectations. While October has seen an uptick in fiber pricing, we expect this to reverse by the year-end and to be back to Q3 OCC pricing levels, as we exit the year, all of which is baked into our guidance. Regarding fuel costs, while we believe that the maturity of our surcharge programs adequately mitigates fluctuating diesel costs were materially impacting our margins and profitability for extended periods of time. The rapid rise in diesel cost during the third quarter resulted in approximately 20 basis point margin headwind to our guidance, and net fuel, as a whole impacted margins 10 basis points year-over-year. The lag…

Thanks, Luke. As a quick preview on 2024, we’re feeling very good about our launching off point. We’ll give our detailed guidance in the New Year, but we are expecting top line organic revenue growth to be better than mid-single digits with M&A rollover for deals already completed of over 2.5% before considering the impact of the divestitures from earlier this year. By continuing to apply the tried-and-true lever that drove the margin expansion this year, we expect adjusted EBITDA margins to have another outsized year of expansion, which should drive low-teens EBITDA growth or at least 10% when considering the impact of the divestitures. We are highly confident that the actions we have taken over the past couple of years have created a material equity value for you. While this may not be reflected in the market today, I assure you, at some point, it will be. We look forward to hosting an Investor Day in 2024, where we will share more details on the role of our strategic plan for the next three years. I will now turn the call over to the operator to open the line for Q&A.

Thank you. [Operator Instructions] Our first question comes from the line of Stephanie Moore with Jefferies. Stephanie, your line is now open.

Hi good morning. Thank you.

Good morning.

Good morning.

Just my first question is just on M&A and leverage. As you noted, you said back in July that you would exit 2023 at less than four times leverage, but due to the acquisition of capital and maybe the other, your leverage has clearly ticked up slightly. So my question is, did you know that you would be doing the deal when you gave the net leverage target?

So the short answer is no. This was – this asset was something obviously, we had our eyes on sort of over the last sort of number of months. But what I would say is, we know the business extremely well. We knew the business extremely well. We knew the shareholders extremely well. And Brian Yorston, who’s the COO is the brother of our COO, Greg Yorston. So the long sort of history with the business. The reality was we were not selected, as the preferred bidder. So it wasn’t contemplated. The reality is the company that was selected the higher bidder, it became very clear and apparent that they were going to have a longer time period to get to the DOJ and the shareholders were looking at this for certainty. And then they came back to us to acquire the business at a lower price with certainty around the DOJ process. So that sort of came. We’d already done a lot of diligence on it. So the time for us to get that done, it happened pretty quickly. And it’s a business obviously we love. It’s right in our backyard in the Carolinas, that touches Georgia that exactly in the areas that we want to grow in the sort of fast-growing markets in the U.S. But that’s sort of the history around sort of capital lease.

Okay. Got it. That’s helpful. And then just as a follow-up, how would you characterize the pace of M&A anticipated next year to get to that mid-three times target? And how does that kind of compare to prior years? Thanks.

Yes. So Stephanie, it’s Luke. I’ll just say, if you think about as we’ve historically said and continue to say the normal course organic deleveraging that we’re anticipating is somewhere around sort of 60 basis points to 75 basis points. Now there’s some outsized growth opportunities, the EBITDA from margin expansion are just normal course growth, that number increases. So organically, joining the year at sort of a low-4s number, you’re going to get to a sort of mid-3s. Now M&A, as we’ve articulated, with the size and scale of the business, the relative impact to net leverage from M&A becomes much more muted. And I think we’ve provided some analysis that even if you’re spending $750 million to $1 billion a year into M&A, the impact there on is sort of measured in 10 bps to 15 bps. So the cadence of how that would work, look, as Patrick, I think, just articulated in his response, we manage – actively manage a pipeline and would love to attempt to slot it in perfectly throughout different quarters, but just doesn’t tend to work out that way. So it’s going to be difficult for me to comment on the actual intra-quarter cadence. But I think overarchingly, what our message is to be is the leverage is going in one direction, in one direction only, and that’s down. And I think with the size and scale and the opportunities we have organically, we feel highly confident regardless of the M&A opportunities to end the year in that range.

And then Stephanie, just on the point you made – to us, it’s sort of false precision on sort of leverage 10 basis points up or down doesn’t materially change the financial profile of the business. And I’m not going to forgo long-term value creation opportunities for the sake of a small movement sort of intra-quarter. But we are committed to – we are not taking leverage materially up from here. We’ve committed – we have delevered, and we’ve committed to delevering, and you’ll continue to see the business delever over the sort of short, medium and long term into the ranges that we stated. So again, we can keep talking about this. This is not an issue. It will never be an issue. So, I would like to sort of move on from the point.

Fair enough. Thanks guys.

Thank you for your question. Our next question comes from the line of Kevin Chiang with CIBC Wood Gundy. Kevin, your line is now open.

Hey guys, thanks for taking my question. You gave a little bit of a prelim outlook for 2024, and you called out, I guess, some of your peers, 2024 should see another year of outsized margin expansion. You’ve – outside of Q1 of this year, you’ve obviously been seeing some pretty good margin expansion already. I suspect Q4 is going to be pretty good. And if I just ballpark, you’re probably going to be, let’s say, 125 basis points, 150 basis points up year-over-year on a consolidated basis. When you think of 2024, do you think you’re better than that, just given some of the company-specific leverage you continue to have or outside just relative to kind of the industry average of 30 basis points, 40 basis points of typical margin expansion you see in a normal cost environment.

Yes. Kevin, it’s Luke. I’m going to refrain from getting too details on 2024 until our Q4 call. But I think you’re thinking about it right, and it is both of those things. So, I think the overarching widening of price versus cost should give rise to a margin expansion opportunity in excess of that historical industry average. And then in addition, as we’ve articulated, we have significant opportunities for self-help that we continue to avail ourselves of that we think should drive something in excess of that. So when you put both of those things together, I think you end up directionally, where you’re speaking, but we’re going to hold off until Q4 to get a finer point on that.

That’s fair and that’s great color. And just maybe my second question, just on some of those levers. You obviously implemented a fuel surcharge program. I think pretty quickly from where you started off at the onset of rising diesel prices, I think you have a number of other levers in the pricing category, other fees that your peers implement that you’re still looking to push through. Can you give us an update on that in terms of where you sit and maybe the timing of getting all that through.

Yes. So Kevin, at the pricing, I mean, we’re very proud of the job that we did at fuel. But as we articulated, we still see meaningful room to go on that. It’s a function of we grab the low-hanging fruit that we could, but there is certain components of our book of business that were restricted and precluded us from moving. So while we really move the needle there, there’s still a meaningful prize. And you could see that in this quarter, where particularly in the month of September, we probably had $3 million or $4 million of incremental cost against us that the non-optimized aspect of our fuel surcharge program precluded us from being sheltered from. So we still see room even in that bucket. And then if you take that further, just the ancillary service charges that we sort of mentioned is just another area or another lever at the pricing level, but the industry, I think, has done a good job to making sure that we’re getting appropriately paid for the work that’s performed. What we mean by that is items for such as blocked cans or overflowing cans or the other areas, where we’re contractually entitled to charge an appropriate return, where we are not as sophisticated or comprehensive in our billing practices in order to capture that opportunity. And so, there’s real dollars being left on the table there, and that’s going to be the next fulsome focus in that sort of ancillary or surcharge type environment. I mean, the base pricing, as we talked about, just the relative recency of our price discovery versus our peers, we just see a lot of runway there. And you’re seeing it in our continued strength of our core pricing, and we expect that to sort of continue to be at levels in excess of what may be a more mature book of business is able to achieve. So we see a lot of the pricing level. And it’s for the sake of time, I’m not going to get into the details on the cost, but we’ve articulated a lot of that at our Investor Day, and we intend on updating our progress there. But by and large, summarize many of the levers the industry that’s pulled to bring their operating margins to where they are today, we’re in the immature stages of realizing a bunch of that. So we see a bunch of opportunity and that’s going to tuck into the comment I made previously of the idiosyncratic margin expansion opportunities that we think we will realize over the coming years.

Thanks for taking my question.

Thanks, Kevin.

Our next question comes from the line of Michael Hoffman with Stifel. Michael, your line is now open.

Hey, Patrick, you don’t need me to make this comment, but run your business, you’ve proven that you’re a good steward of capital, run the business, and you’re not going to end up in some – in between ground on leverage. You either run it highly levered or you run at low leverage. You don’t run it in the – in between, so run your business. Now with that said, baseline repeatable capital spending for the whole company sort of think about it as 11% of revenues, cash flow from operations today is 18% of sales, but can it be sort of low 20s, that’s where the peers are. If that happens, then you walk your free cash, as a percentage of revenues from 8.5%, 9% up to sort of 10% to 12%. Is that the right model to build and then we can talk about what the ancillary spending is, and that’s what I’d like to get to is, how do I think about those incremental dollars above baseline capital spending on a multiyear basis, like 2024 – 2025, 2026, 2027, think about that compounding cash story.

Yes. So Michael, its Luke. I’ll start on the sort of base framework, and I think you articulated it quite well. I mean, we’ll wait until – until Q4 to give the detailed 2024 free cash framework. But it’s exactly that. I mean, I think the pieces we’ve given on revenue and EBITDA, saying EBITDA at least $10 million, I can see that sort of $2.2 billion of EBITDA number. And if you do the walk down there, you have a baseline CapEx. I think your 11% number in the current rate environment is probably the right thing with the OEM cost increases. I think we’re all playing catch-up to get there. But in and around that for the ongoing maintenance CapEx, which would yield you a sort of mid to high 800s number for recurring CapEx. Our interest expense that was previously low 400s is now mid to high 400s in light of the incremental M&A spend. And then, you have the other category of working cap, et cetera, I call that another sort of $50 million, $75 million in the year. You put that together, you have that baseline $800 million free cash number for next year that we’ve been talking about. And then that grows at the rates we’ve been seeing because as you start getting operating leverage, particularly at the free cash flow line. And we articulated that, that in 2025 goes to $1 billion number, and I don’t think you need to believe a lot to sort of see that. Now incremental growth or sustainability-related capital spend, as you’re alluding to, would obviously be something in addition to that. And I think as Patrick was articulating, and I’ll turn it to him, we’re still evaluating what those opportunities might look like. But from our perspective, we hope there’s a large amount of those because of the return profile as attractive as this. Patrick, I’m not sure, if you had additional comment.

Yes. And I think from our perspective, we’re thinking about – we’re thinking about the capital allocation between M&A and those capital deployment, and that’s really largely around EPR, right? So we will toggle between the two to ensure that we’re delevering at the same time, making the investments in sort of in M&A and making the investments around these EPR projects that, again, there’s multiple contracts out for bid that we’re in negotiations for now. We’ll have very good clarity on these by the end of January. So we’ll be able to give you that. And then, we’ll be able to sort of break out the – what the M&A spend is going to be and what the spend will be around these EPR initiatives. But I think you’re right down the middle of the fairway. And again, as Luke said, we have a commitment for 2024. We also have a commitment for 2025 was $1 billion of free cash flow, and that was done in light of significantly lower rates, but we feel very good about, where we are. Our free cash flow growth is sort of – is outgrowing what our expectations were a couple of years ago, and we’ll continue to do so. So we feel very good about where we are today.

And that EPR spend was identified as a couple of $100 million this year, assuming you can all get done. The upside is another $100 million if all these other ones are wins. So I got sort of $300 million over the next – this year, next year, maybe into 2025. Is that part of that? And then, you’ve got your RNG spend as well?

Yes. That’s right. Again, I don’t want to comment sort of on the EPR spend yet because I actually don’t know. There’s a lot of balls up in the air. We think we have pretty good visibility on what we’re going to get, and that’s why I said I’d prefer to wait till the end of sort of January to give you detailed guidance. But it will be – this next wave is for contracts that are starting in 2025 between January 1, 2025 and January 1, 2026. So most likely, those spends will be pushed out anyways because now they’re moving to the hauling portion of the EPR process. So the facilities and the processing was done and sort of awarded. And now we’re talking about the vertical integrated hauling contracts, transfer stations, et cetera. So all of that is in process. And we expect that to wrap up by the end of January to have very good clarity and give you a very detailed bridge of capital that needs to be spent when the contract starts and when things going. The exact same way we will do RNG now, as we have very good visibility on facilities, construction, permits, et cetera, all that is sort of well in hand now, and we’ll be able to give you not just a generic, oh, it’s going to be all online by 2026. We will actually show you how that all phases in over 2024, 2025 and then full sort of run rate into 2026.

But Michael, the summary is the capital being deployed is at the sort of great risk-adjusted sort of rates in that 3x to 4x EBITDA we’re saying. So whatever the ultimate dollar of capital is going to be, it’s going to have a return profile consistent with that.

Okay. Last one is you’re at 6.9% of revenues is your cash interest expense, peers are in the mid-3s with the elevated cost these days of capital. How far out am I looking before you’re back into that range of the peer group on a percent of the business model?

Well, Michael, it’s Luke here. I mean, I think inherent in that question is the assumption of what I’m going to refinance my current debt stack at and the attempt of illustrating this – these pages was that there’s some uncertainty in the underlying treasury. If you tell me where treasuries are going to go over the next sort of three years to five years, could answer that sort of precisely. But I think the non-debatable amount is that our number is going to come down. The pace of which is somewhat tied to underlying treasury, but that percentage is going to migrate towards that of the peer group, and that’s going to afford us a free cash flow per share growth tailwind that – that my peers just aren’t going to have.

4% tenure.

4% tenure that’s your...

That’s where it’s going. When is it going there? Anyway, that’s the direction. That’s the direction of travel, Michael. That we will continue to move and migrate towards them.

I prefer 2.5% by the way.

All right. Thanks for taking the questions.

Thank you for your question. Our next question comes from the line of Jerry Revich with Goldman Sachs. Jerry, your line is now open.

Yes, hi good morning everyone. And if we’re taking a vote, I’ll also vote for 2.5%. Can I ask around the – the preliminary outlook for 2024 EBITDA growth, is the landfill of gas upside relative to that? I think last quarter when we spoke, it was about a $65 million EBITDA tailwind at $2 D3 RIN prices, which would be a nice 3% tailwind. Obviously, D3 RIN prices are up, projects are a little to the right. And so, should we think about as landfill gas being upside to the 10% plus all-in EBITDA growth you spoke about? Would you mind expanding on that point, Patrick and Luke? Thanks.

Yes. Hi, Jerry, it’s Luke. So as Patrick alluded to in the prepared remarks, we’re seeing a delay in some of these projects coming online, and I think it’s pretty sort of widespread in the industry. There’s some permitting and other sort of just technical complexities that are shifting all these things anywhere from sort of three months to six months to the right. And so, on that point, we want to get better clarity on our timing of what were previously anticipated to be 2024 projects in terms of coming online because our experience is even if the construction is complete, some of these other sort of interconnects and theses can add incremental time before you start actually monetizing the value off of that. So as of where we sit today, we’re moving our expectations to the right in terms of timing and that $65 million that you said before is probably close to half of that. Now I think that’s a conservative number, and that’s really tied to volume of RNG coming online to the extent that projects materialize closer to the original timetable, there’s some upside to that number. So the current guide of at least $10 million is contemplating RNG in that sort of $30 million-ish sort of range to the extent that delays dissipate, there could be upside to that number. But that’s how we’re thinking about RNG from where we sit today.

Yes. Just on where we sit, Jerry...

That’s assuming $2?

Yes. That’s assuming $2. Yes. And just from where we sit today, I think well, experience now says, listen we brought on the Arbor Hills facility. It really came on – construction was finished in June. It was commissioned over the summer, got it really online sort of in September and just sort of working out kinks in the sort of quality of gas. So I think we’re moving things to the right, just a little bit somewhere between four months or six months after the plant is actually commissioned to get that up and actually running and selling the highest quality gas. Because what we’ve – our experience has been certainly and the first one is, yes, the facility works perfectly, but then it was going back and looking at the well field to make sure that oxygen and nitrogen levels that were going into the – that was – were a little bit elevated and sort of the RNG was cleaned up. And I think that took an actual sort of month or two. So we’re just being conservative now is now that we have real data and real experience in bringing these online at landfills, where historically they haven’t been.

Definitely makes sense. And then can I ask on the producer responsibility opportunity set you folks have obviously done really well with the programs to-date. What’s the blue sky scenario based on legislation that’s being contemplated in your markets, how significant of an opportunity could that be for looking out over the next couple of years? And what kind of visibility do we have?

Yes. I think it – where we sort of sit today, we said we communicated 40 to 50 [ph] before. I think in reality, it could be 2x that maybe more depending on what happens in a couple of the other provinces, which is sort of coming to fruition now. It seems as though the model we’ve developed, along with the producers seems to be being accepted by other provinces as the sort of gold standard. So again, this is a file that sort of I’ve intimately been involved with a – sort of a number of years. So it’s sort of near dear to my heart. But I think from where we sit today, the other provinces in Canada are going to adopt the gold standard of what we’ve developed here in Ontario. Quebec is certainly moving that way. The Maritime is certainly moving that way. Alberta is certainly moving that way. Still some – still some discussion around Manitoba and Saskatchewan. But I can tell you the opportunity is going to continue to grow from here. And just given our asset positioning in Canada and the markets we are and the facilities we have and the collection contracts we already have, our expertise know-how and sort of being able to work with the producers hand-in-hand to sort of come up with and develop this and get this done actually in the most efficient way possible is yielding very good results. And I think it’s a win-win for – I think it’s a win-win for the industry because it was – this was a program that could have potentially created a lot of uncertainty for not only waste collectors but producers, but residents, et cetera, municipalities, governments, et cetera, and I think the plan has come together exceptionally well. And again, like I said, it will be a win-win for everyone.

Well done. Thank you.

Thank you for your question. Our next question comes from the line of Rupert Merer with National Bank. Rupert, your line is now open.

Thank you. Good morning. Thanks for taking the question. Luke, with the Environmental Services business, you highlighted expanded service capabilities and improved asset utilization as having driven growth in that business since you acquired Terrapure. How much more low-hanging fruit do you see there? And how can that drive the pace of growth in margins going forward?

Rupert, I think as we’ve said, we see a clear line of sight to that business approaching a sort of 30% margin over the sort of medium term. And that’s going to be a function of those levers you just described, really making that combined platform HUM [ph], if you will, in terms of asset optimization, but also just the benefits of pivoting to a sort of price-centric growth model. As we’ve gone through, we’ve talked about shedding of work in our Solid Waste business that doesn’t meet appropriate return thresholds. And this is a similar dynamic that we need to be paid the appropriate amount for the work that we do. And we’re going to continue to lead with that approach. And you can see the margin expansion we’re realizing today; I think it shouldn’t be overlooked the impact of achieving that results inclusive of the contaminated soil. I mean, you’re here in the sort of Ontario, Canadian market, the slowing down of that, that’s very high-margin special waste, if you will. And I think achieving those results even inclusive of that headwind is a real testament to what’s happening there. So we continue to expect to see this – what was a low 20s and now mid 20s, moving to high 20s, leading to a sort of 30% margin business over the medium term, as we previously communicated.

What do you think you could achieve on top line, you had a little bit lower top line growth this quarter. Is that a sustainable rate that we see this quarter? Or could we expect you could outperform that?

Yes. So that was the intent of the page to show that historical perspective because we’ve been trying to talk folks down of expectation management when we’re printing 25%-plus organic growth quarter-after-quarter. That really was a multitude of factors combining to yield that sort of outcome. And so, as we go forward from today, what we said at the beginning of the year, and we continue to believe, I think a mid to high single-digit organic top line cadence primarily driven by price is what we are going to be striving for in this business. There’s a little bit of sensitivity around things like soil and/or the modest impact from Motiva or other sort of oil pricing. I can move that around the edges. But I think from a long-term modeling perspective, the way we’re thinking about that is a mid to high single digit, primarily price-driven top line growth.

Great. And then as a follow-up, on a somewhat related company, wondering if you can give us an update on GFL Infrastructure? How are they doing? And what are your plans for future involvement?

Yes. I mean, infrastructure business, obviously, as you know, there’s a lot of projects that have recently come to the fruition. The business, again, just we had to sort of I just said last call, running through some of the inflationary costs and pressures on some fixed rate contracts, which are rolling off between now and sort of mid-2024. But we are bringing on sort of a lot of new work, and we’ve been shortlisted for a lot of new work. And the outlook for that business is sort of very positive. We will be opportunistic with that business when the time comes. My expectation is we’re going to get through 2024 and into 2025. And hopefully, the world is sort of in a better place, and we’ll look to sort of maximize and optimize value out of that business in some format, the way we’ve done with every other sort of part of our business over time. But it’s performing well, it’s great. And I think when you look at the infrastructure spends that particularly the government, both in sort of Eastern Canada and Western Canada looking to spend, particularly around transportation. When you look at the infrastructure budget today, around 80% of the infrastructure spends are hospitals and roads, which are things that are right down the middle of fairway exactly what we do. So we think it will be a very positive outcome.

Great. I leave it there. Thank you.

Thanks, Rupert.

Thank you for your question. Our next question comes from the line of Michael Doumet with Scotiabank. Michael, your line is now open.

Hey, good morning, guys. So just a question on the 2024 margin – on the 2024 margin expansion, I know it’s still early, but would you be able to quantify the market expansion from the divestiture, as well as the intentional volume shedding this year into next year because presumably, that would be additive to the price cost spread?

Yes. That’s right. I mean, the net M&A number will be a function of the impact of the divestitures, which is slightly margin accretive and solid and relatively neutral to sort of baseline number in conjunction with the incremental net new rollover. And what we’re going to do, Michael, is part of the 2024 guide, we’ll lay out all those sort of moving pieces based on where we end up for this year. And we’ve contemplated internally actually providing the specific numbers for Q1 and Q2 related to those divestitures, so folks can model that appropriately. But we are going to wait till Q4 before we get into the particulars of that nature.

Okay. Thank you. And then maybe just turning to the inflation trends in the business, particularly as it relates to labor and R&M, maybe just discuss what you’re seeing today versus the first half and how you’re tracking into 2024?

Yes. This is Luke speaking. I’d say at a high level, it’s trending as anticipated, albeit at a slower rate. I mean, the labor line, it’s clear that things are getting better. I don’t think it’s quite as improvement, as we had hoped for, but certainly at the sort of wage rate and the rate of wage inflation you’re seeing improvement there. I think on the R&M side, I don’t think we’re alone within the industry, where we said headwinds in that line have continued to persist. Again, appears to be getting better. Supply chain improvements are providing the trucks that we are missing. We look at the rental trucks that we were using last Q4 versus today, and that number has come down sort of 90%, right, which I think is indicative of the improvement in the sort of supply chain constraints. But as we said on the call, in Q2, I mean, our expectations for the improvement of that R&M line in the back half of the year, we’re probably going to exit the year, 50 basis points, 70 basis points, as a higher R&M cost and percentage of revenue than we previously anticipated. So I’d say everything appears to be moving in the right direction, albeit a little bit slower than anticipated.

Thanks for that. And one quick one, just for the capital outlay for M&A in Q4 for the deals completed?

Sorry. What have we spent subsequent quarter end? It’s about $200 million approximately post quarter end.

Perfect. Thanks for the questions guys.

Thanks, Michael.

Thank you for your question. Our next question comes from the line of Walter Spracklin with RBC. Walter, your line is now open.

Yes, thanks very much operator. Good morning everyone. I just wanted to zero in on the pricing, and I know some focus has been on that having to come down, as you lap harder comps, but I’m a little more focused on the spread and the evolution of the spread. I know you touched on labor and some of the costs there. But I get the sense that at 8.8%, you’ve now expanded your pricing to well cover costs, and you’re in a pretty good spot here now. And even if that headline pricing comes down, my question is whether you can hold on to a little bit higher spread than what you’ve been able to hold on to in the past, given the stickiness in some of those contracted pricing? Just your thoughts on that spread?

Hey Walter, it’s Luke speaking. I think that’s absolutely right. And while price is decelerating, it’s doing so at a slower pace than cost. And so, you’re going to have this widening of the spread. I think if I look at pricing into next year, it’s not going to be as high as it was this year. But I think we feel highly confident we’re going to have a wider spread than we did this year because this year was really the sort of tale of two halves, right? And the double-digit price recorded in Q1 was lovely to see as a headline, but you saw that margins were backwards year-over-year. And as prices come down, the margin expansion, I think, is really what we’re after. And so, we’re feeling really optimistic about the 2024 setup. And it’s partially for that exact reason that I think you’re going to have this more stable cost number, might be a little bit higher than what we had hoped for when we started 2023. But I think we’ve demonstrated that us and the industry, as a whole will price at the level we need to be. And I think the backdrop is very favorable going into 2024.

That’s great. And just my follow-up here is on the tenor of the M&A pipeline. And I know you dialed back a little bit your acquisitions or the tempo a bit for this year as you realigned leverage down toward the 4% level. And I know you’ve got 3.5% kind of penciled in for end of year next year. Is that predicated on a consistent level of M&A that you’ve seen this year? Or can you as you become more cash flow generative start to reaccelerate your M&A and still be able to achieve that mid-3 target for next year?

Yes. So I think from where we sit today, it’s going to be a question of what you buy, where you buy, what the synergies are, et cetera, and what price you have to pay for those targets. So that is all going to go in the blender in terms of where we look at how we deploy those dollars, coupled together with how many dollars we have to deploy into these EPR related initiatives. I mean, we’re looking at the EPR spend bucket and M&A as one. So it’s really just deploying those dollars and where is the capital best allocated once we see the whole host of opportunities that are going to – in the final plan that sort of comes out of EPR. Do I think we’re going to see a material acceleration? No, the answer is no. We are focused on sort of a healthy balance between sort of densifying tuck-in M&A, EPR spend, as well as just a natural delevering course. I think we said – this is the time – this is also actually the time you want to deploy dollars. I mean, when you have private equity and infrastructure funds, et cetera, are sort of sitting on the sidelines because their ability to finance these transactions at attractive rates with attractive leverage levels has become tougher, as the banks have tightened up and as the loan market has tightened up. So it’s really left a pretty good wide open market for strategics and put us in a very good position, similar to like GFL. Do you want to buy GFL, when it’s trading at 15 times or 16 times or do you want to own GFL, when you can buy it at 11, right? So in theory, you should be buying it at 11. But when people are fearful, they’re not buying anything. And I think that’s a similar dynamic that’s playing out in the M&A market now because of the – that drop around the leveraged finance market for non-strategics.

That’s awesome. I appreciate the color, as always.

Thanks, Walter.

Thanks, Walter.

Thanks for your question. Our next question comes from the line of Stephanie Yee with JPMorgan. Stephanie, your line is now open.

Hi, good morning.

Good morning.

Can I clarify on the $210 million of M&A rollover in 2024. Does that include the four acquisitions that you’ve already done post the third quarter?

Yes. That’s right, Stephanie. When we updated – I think we said in the press release, $325 million of acquired revenue. If you recall from Q2, that was about $50 million, implying about $275 million acquired post Q2. There’s roughly $200 million in Q3 and approximately $75 million post Q3. And that $210 million is the accumulation of everything we’ve acquired this year.

Okay. Great. And just could you talk about the recent activity trends you’re seeing in your different lines of business, so resi, industrial, post-collection, any changes in kind of the cadence of activity in recent months?

No. There hasn’t been much, I would say. I think the biggest – I’d say, the only main impact we’ve seen is around – is really just around sort of large urban markets, particularly around sort of the small amount of C&D open roll-off container collection. I mean, we’ve seen that dip off in some of the larger markets in Canada, not as much in the U.S. And again, some special weights, particularly around soil volumes, et cetera. But other than that, it’s been pretty much status quo.

And Stephanie, I think that’s in part a testament to the market selection, you’ve heard us speak a lot about this. I mean, the secondary market focus and a lot of the concentrate in the faster-growing areas of the U.S. Southeast, I think, bodes well for us in terms of that sort of volumetric growth. So although we’ve maintained, I think the guide is about a negative 2% overall negative volume for the year, it’s really 210 basis points of shedding and exiting non-core with underlying positive sort of volume growth. So yes, C&D related stuff around the edges and certainly the sort of contaminated soil in the Toronto area, as we articulated in the Environmental Services segment. But by and large, I think we’ve yet to see any material impact.

Okay. That was great color. Thank you.

Thank you for your question. Our final question comes from the line of Chris Murray with ATB Capital Markets. Chris, your line is now open.

Yes. Thanks guys. So just one final kind of cleanup, just thinking about capital and self-help initiatives. Can you guys maybe lay out how should we think about 2024? And how much is going to be capital driven? You talked a little bit about the fact that you would probably have pulled ahead some capital into 2023, maybe even into 2024. But Luke, just listening to you, it feels like a lot of what’s left to be done now would be more around pricing and just process. So if you can just lay it out how you think capital plays into what you can do for margins, that would be great.

Yes. Chris. So I’d bifurcate it into two separate buckets. We have a whole host of organic operational type initiatives that are what I would call capital light that we are actively pursuing, and you can think about sort of pricing-related items. Some of those will have a modest capital sort of requirement if you think about some of the ancillary charges for blocked bins or overflowing gipping hands. There is some truck augmentation that you do. But by and large, a lot of those self-help levers are, what I would call is capital light, and then, you have the separate bucket of incremental largely sustainability-related growth items. And those will have an incremental capital component to them. I think what we said already is a roughly $40 million to $50 million coming out of EPR and spend sort of roughly $200 million for that. That would be incremental growth. And to the extent that, that opportunity can grow above that, it’d be a corresponding incremental capital investment. But the self-help within the existing portfolio, I would describe as relatively capital light. It’s really how much above and beyond incremental growth opportunity are we going to be successful in securing. And that’s what – as Patrick said, we need another sort of quarter or so before we put a finer point on that.

All right. Fair enough. And maybe just to come back to it. I mean, you did put out the number in the deck thinking about your leverage, how it came down in the quarter and about half of it was deployed into new growth. Is that maybe a different way to frame it is to think about of that 60 basis points to 70 basis points of natural delevering. Maybe think about half of it goes back into growth initiatives, half of it goes to debt reduction, as we go into the next couple of years?

I think that ratio was historically true. But now, as this inflection point has been reached with the free cash flow generation and the EBITDA growth dollars of the business, the relative impact of M&A and other capital deployment is much more muted compared to that deleveraging capability. And this goes back to – you hear from Patrick and myself the conviction in the deleveraging because the base business deleveraging profile is so robust that even larger amounts of M&A do relatively immaterial sort of change to that. So I think if you’re modeling a 65 basis point, 75 basis point organic deleveraging in a normal course model, M&A and other things move that to the tune of 10 basis points to 20 basis points, not to the tune of half of that.

Okay, that’s helpful. Thanks, guys.

Thanks.

Thank you for your question. This concludes our question-and-answer session for today’s call. I will now pass back for any final remarks. Thank you.

Thank you, everyone, and appreciate the support, as always, and we look forward to speaking to you after Q4. Thank you very much.

This concludes today’s GFL Environmental 2023, Q3 earnings call. Thank you for your participation. You may now disconnect your lines.