GFL Environmental Inc. Q1 FY2025 Earnings Call

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

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

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. During this call, we’ll be making some forward-looking statements within the meaning of applicable Canadian and U.S. securities laws, including statements regarding events or developments that we believe or anticipate may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set out in our filings with the Canadian and U.S. securities regulators. Any forward-looking statement is not a guarantee of future performance, and actual results may differ materially from those expressed or implied in the forward-looking statements. These forward-looking statements speak only as of today’s date, and we do not assume any obligation to update these statements, whether as a result of new information, future events and developments or otherwise. This call will include a discussion of certain non-IFRS measures. A reconciliation of these non-IFRS measures can be found in our filings with the Canadian and U.S. securities regulators. I will now turn the call back over to Patrick.

Thank you, Luke. Our first quarter results are top to bottom, better than what we guided for 2025, including revenue growth of approximately 12.5% and adjusted EBITDA margin expansion of 120 basis points. This resulted in the highest first quarter adjusted EBITDA margin in our history. These results get us off to a great start for 2025 and again demonstrate the quality of our asset base, the effectiveness of our multipronged growth strategy and the commitment of our employees. The strength of our operating performance accelerated into April, and we expect this positive momentum to continue for the rest of the year. Our pricing strategies are generating excess price cost spread, which is flowing to the margin line. First quarter pricing of 5.7% was higher than our plan and gives us confidence in our ability to deliver the pricing levels on which our 2025 guidance was based. Our margins are also benefiting from our disciplined approach to winning new accretive volumes and purposely shedding lower-quality revenue. The return to positive volume we saw at the end of 2024 continued in the first quarter despite significant weather impacts in many of our markets. Tailwinds from our growth investments, including EPR, which we expected more than offset weather-related weakness in roll-off and special waste in certain markets. We are also seeing the positive cost impact of moderating labor turnover rates that improved by over 200 basis points in the quarter compared to Q1 of 2024 and nearly 800 basis points compared to the first quarter of 2023. We expect meaningful continued improvement in voluntary turnover rates over the medium term as previously communicated at our recent Investor Day. In addition, our ongoing focus on optimized asset utilization is also continuing the strong margin performance. We also recently renewed two long-term collection contracts with the city of Toronto. The rebaselining yielded material price increases consistent with current market rates. These are some of the largest residential municipal collection contracts across our footprint and both are significant contributors to our Canadian operations. Overall, this quarter, we saw solid execution from all facets of our portfolio, and we are encouraged by the amount of runway we see in front of us. As previously disclosed, the sale of our ES business closed on March 1. Our retained interest in the ES business provides us the opportunity to participate in future equity value creation, which we believe will be significant. We redeployed the $6 billion of cash proceeds we received from the sale to repay over $3.5 billion of debt and repurchased over $2.5 billion of our outstanding shares, mostly from our sponsor group, consistent with previous indications. Inclusive of the share buybacks, we ended the quarter with net leverage of 3.1x, the lowest in our company's history. Post the ES transaction, our credit ratings were upgraded by both S&P and Moody's and we remain committed to achieving an investment-grade credit rating. As we have said before, this new leverage profile gives us the ultimate flexibility around future capital deployment. Going forward, we expect to focus our investments on maximizing ROIC, which includes organic growth initiatives such as EPR and RNG, accretive M&A and opportunistic share buybacks. Specifically on M&A, year-to-date, we have spent $240 million on three deals, acquiring annualized revenue of over $85 million. Approximately one-third of this was acquired effective January 1 and is already included in our base guidance. Our pipeline continues to remain robust, and we see many opportunities to densify our networks and improve asset utilization through tuck-in M&A across our existing footprint. Given this backdrop, we should see above-average M&A activity for this year. If you recall at Investor Day, we highlighted the ability to deploy between $700 million and $900 million on M&A conservatively. Given the current pipeline, we should meet or exceed the high end of these estimates. Before I pass the call over to Luke, a quick word on tariffs as I'm sure it's a question for most of you. What I can say is that so far, we have not seen any direct material impact from the tariffs on our business. Based on our experience, we have a high degree of confidence in our ability to successfully operate in an environment with elevated levels of macro uncertainty. In the event that tariffs have an inflationary impact on our CapEx or cost structure, we would expect to pass these through to mitigate our costs against the bottom line. As is typical for our industry, we will update our full-year guidance when we release our second-quarter results. With a strong start to the year, however, we see multiple avenues of upside to our current guide that gives us the confidence in our ability to meet or potentially exceed expectations for the year. I will now pass the call to Luke, who will walk us through the quarter in more detail, and then I'll share some closing comments before we open it up for Q&A.

Thanks, Patrick. To level set with the sale of ES completed, all our financial results and the associated analysis exclude the contribution from ES for both the current and comparative prior year period. Consolidated revenue for the quarter of $1.56 billion was ahead of guidance and 12.5% ahead of the prior year pro forma for divestitures. As Patrick said, pricing of 5.7% was better than expected and with over 75% of our price increases already in place, we have a high degree of confidence in our ability to achieve the 5.25% to 5.5% pricing included in our guide. Volume and positive 90 basis points was more than 150 basis points ahead of guide despite weather-related headwinds, which impacted roll-off and special waste volumes. These impacts were most pronounced in January and February, and we have seen rebounds in March and April. Volume associated with the EPR-related activity in Canada drove positive volume growth as anticipated. Decreases in energy prices reduced first-quarter revenue from fuel surcharges as compared to the prior year whereas the reduction in OCC and fiber pricing was offset by an increase in non-fiber commodities, resulting in a 20 basis point revenue increase. Adjusted EBITDA margins were 27.3% for the quarter, 120 basis points higher than the prior year and ahead of our guide. The prior year period included the benefit of one-time royalty payments at two of our landfills, which created a 50 basis point headwind to margin expansion. The current year results include certain provision true-ups associated with the ES divestiture, which were another 50 basis point headwind to margins. Excluding these two items, margins expanded over 220 basis points. Commodity prices, FX, M&A and the impact of the 2024 divestitures were tailwinds to margins. Adjusted free cash flow was approximately $14 million, a result better than planned on account of the adjusted EBITDA outperformance. Q1 cash flows were inclusive of the investment in working capital we typically make in the first half of the year as well as $120 million of normalized cash interest payments. An amount that will decrease to $70 million in Q2 on account of the nonlinear timing of interest payments on our remaining debt stack. Both base CapEx and our incremental growth investments were in line with expectations. As Patrick mentioned, we used approximately $3.5 billion of the ES proceeds to repay in full our term loan, the 2025 and 2026 secured notes and the amounts then outstanding under our revolver, which were higher than at year-end due to the seasonal increase in revolver borrowing through January and February. With the balance of the ES proceeds, we repurchased over $2.5 billion of our shares, representing over 8% of the common shares outstanding. Under our normal course issuer bid, we continue to have material capacity for incremental share buybacks that we will opportunistically execute when we believe it is accretive to do so. Included in the 3.1x quarter end net leverage is a cash balance of over $500 million, an amount available for investment in M&A, additional share repurchases or further debt repayments. Our enhanced balance sheet strength positions us to be able to execute on all of these value creation drivers while maintaining leverage in the low 3s, our new targeted leverage range to which we're committed. As Patrick said, we will wait until the second quarter to provide an update on full-year guidance. However, the strength of our Q1 performance firmly positions us to meet or exceed our full-year targets. As it relates to the second quarter of 2025, we expect consolidated revenue of approximately $1.675 billion and adjusted EBITDA of approximately $505 million, which implies approximately 30% adjusted EBITDA margins and more than 150 basis points of margin expansion over the prior year pro forma for the ES sale. This guidance is based on today's FX rate, which is less than that of our original guide. Recall every 1 point move in FX is about a $30 million impact on annualized revenues. Q2 adjusted free cash flow is expected to be approximately $100 million, inclusive of $70 million in cash interest, $225 million in base CapEx and $110 million investment in working capital and other operating cash flow items. I will now pass the call back to Patrick, who will provide some closing comments before Q&A.

Thanks, Luke. At our Investor Day in February, we laid out our go-forward strategy to continue generating industry-leading organic growth in part from the near-term ramp from EPR, RNG and other self-help pricing and volume-focused strategies, drive adjusted EBITDA margins to the mid-30s and improve free cash flow conversion to the mid-40s, execute on our robust M&A pipeline, while maintaining leverage in line with our targets and continuing to progress toward an investment-grade credit rating. And lastly, broaden our capital allocation strategy to include share buybacks and increased dividends. Our first quarter results demonstrate that our strategic plan is working. We remain steadfast in our belief that GFL is uniquely positioned for industry-leading financial performance and value creation for all shareholders. I always want to end by thanking our employees. Our continued success would not be possible without their tireless hard work and dedication, and I want to thank each and every one of them for their contributions. I will now turn the call over to the operator to open the line for Q&A.

Our first question comes from the line of Sabahat Khan of RBC Capital Markets.

I have a question regarding margins. Luke, you mentioned there are several factors affecting the margins. Could you provide an update on the margin initiatives you discussed during Investor Day? What are you currently working on this year? Also, could further improvements in margins potentially enhance our guidance as we look toward the rest of 2025?

Yes. Thanks, Saba. Great question. When I talk about the margin bridge year-over-year, as you know, I would like to sort of isolate the macro or the factors outside of our control, right? So if you think about this quarter, commodities were a tailwind as was FX. You had about a 15 basis point benefit from commodities and about a 10 basis point from FX. You also had the extra day, right, the difference year-over-year quarter, and that's about a 25 basis point benefit to margins. And then M&A for this quarter, M&A was sort of accretive. That was a 20 basis point tailwind. And then the divestitures, as we've been talking about, have also been accretive to margin, that was about a 60 basis point benefit. Now going against that, again, sort of things outside the normal course base business, as I said in the prepared remarks, we received these one-time royalty payments at two of our landfills that were historical catch-ups last year. That was about a 50 basis point headwind to margins. I also mentioned these accruals associated with the ES as we gave some of the provisions related to insurance, bad debt, et cetera, to the ES business, we just had to true up in RemainCo a little bit, and that was about a 60 basis point impact. And then you had the weather, right? I think it's probably consistent with all the other groups talking about weather impacts, particularly in February. And we estimate that was about a 20 basis point impact. So when you look at that, what it left with, and you sum that all up, is there's over 100 basis points of underlying margin expansion. And where is this coming? I mean, first and foremost, it's the price cost spread as we've been talking about, and we'll continue to do so. But then you have the incremental benefit of all the pieces that we've been talking about. Right? So EPR is coming in and starting to contribute the RNG contributions, asset utilization. So I'd say Saba, it's not any one thing, but it's the combination of all of the things. And obviously, to beat our internal expectations in Q1 in spite of all these sort of challenges, I think the answer is absolutely yes. We're feeling like there's a path to some margin upside as we go through the year. Now we will wait until Q2, but I gave the Q2 guide, and you're seeing that margin expansion accelerate, which is obviously sort of very encouraging for us. So we're feeling really good. And again, just to echo Patrick's comments, we think all the pieces are coming together.

And then just the follow-up there. Can you maybe just walk us through your thinking on some of the remaining proceeds you've got left from the ES sale. I think Patrick mentioned thoughts on return on capital, things like that. So maybe just walk us through your views on share buybacks, dividends, and assuming the rest probably goes to M&A?

This is Luke. Just before Patrick responds, I just want to clarify the $500 million left on cash on balance sheet. Someone made a comment that we were initially said we were going to repay $3.75 billion of debt. In the end, when we repaid all of our debt, the remaining debt is so far out in terms of term. We have an average of 4.5 years still left that the cost of paying off some of that debt just didn't sort of seem to make a lot of sense, but we knew we had all these capital investments in front of us. So to the question that was emailed in, that's the basis for that. And what are we going to do with all of our capital capacity? I'll hand it over to Patrick.

Yes. I think as we communicated, the M&A pipeline is very robust at the moment. So we're working on a lot of great opportunities that will be highly accretive to the overall book of business and the earnings stream. So again, highly focused on that. And again, share buybacks will continue to be part of the ongoing plan, as we press released last week, we did get relief from the OSC and the TSX not have those shares we bought back from the insider count against the NCIB. So we have an incremental sort of 21 million shares available for us to buy. So where we sit today, we continue to believe the company is undervalued here. So the Board and myself both believe that should be a part of the capital allocation plan, given what we see for '26 and '27, which was laid out in our Investor Day. But I think from where we sit today, that is going to continue to be a part of the capital allocation plan as well as M&A.

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

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

Thank you for your question, Stephanie. This is Luke. We provided guidance back in February during a challenging weather period. We're observing this in our real-time data, particularly affecting special waste volumes and the roll-off segment, which have been significantly impacted. As expected, the U.S. business experienced a volume decline of approximately 1.5% to 2% for the quarter. Breaking this down, the 1-day impact accounts for about 60 to 70 basis points, and the weather adds approximately another 70 basis points. Additionally, our landfill special waste was down year-over-year, driven partly by macro conditions and partly by the weather, contributing another 40 basis points to the decline. If we account for these external factors, the U.S. business had volumes that were closer to flat. In Canada, a similar scenario unfolded, although with some differences. Our Canadian operations adeptly handle weather challenges, resulting in a somewhat lesser impact. The composition of our business in Canada, with less reliance on landfills, mitigates the effects we see from both one-day events and weather. The real highlight in Canada is the Extended Producer Responsibility (EPR) initiative. As anticipated, our investments are starting to generate benefits, leading to volumetric growth. The Canadian volume growth rate was in the high 6% range for the quarter, with over 5.5% attributed to EPR. We also experienced a boost from a one-time project related to a factory demolition at our transfer stations in Ontario, contributing $10 million in revenue, or about 230 basis points. Excluding these two factors, the story in Canada mirrors that of the U.S., just with a more moderate impact due to our mix and weather experience. Overall, we are excited about our investments in high-return growth opportunities that are largely independent of macroeconomic conditions. These contracted volumes will continue irrespective of the broader economic landscape. It's important to note that our exposure to more cyclical segments of the business is limited. For context, our roll-off business generates around $1.2 billion in annual revenue, with about 10% associated with construction. In terms of landfills, the special waste segment contributes an additional $75 million to $100 million in revenue. Combined, our exposure to the slower segments of the market totals around $225 million. We are indeed seeing some softness, but it appears to be improving, as trends from April suggest a recovery compared to March. Our balanced portfolio instills confidence in our volume opportunities moving forward. We anticipate positive volume in Q2, while Q3 is expected to be less positive, and Q4 may show a decline due to tough comparisons from last year, particularly given the storm volume we had. Nevertheless, we feel optimistic about the volume achieved in Q1 and the outlook for the remainder of the year.

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

So the M&A pipeline sounds really, really good. I'm just kind of curious if that pipeline includes the number of deals that you've been working on kind of in the background. I know you were kind of constrained, call it, last year. And two, are most of these tuck-ins? Or should we think about some new beachheads in new markets? It just seems like there might be some comp of your deals in there?

Yes. As we mentioned at the Investor Day, we anticipated coming into cash due to the sale of ES and the evolution of that process. We have dedicated considerable time to building out our pipeline, understanding that these deals typically take time to mature—usually ranging from three to nine months from initial discussions to closure. Our pipeline is growing, which instills confidence in what we plan to deliver for the remainder of the year. Most of our efforts focus on tuck-in acquisitions within existing markets, utilizing post-collection assets to enhance internalization rates, which we believe will provide the best return on invested capital at this time. Therefore, you can expect to see primarily this type of activity, with no immediate plans to enter new markets or establish new beachheads. While we are monitoring a few potential opportunities, they are still in the early stages; the bulk of our current discussions and closings involve integrations into our existing markets.

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

Great question. Some of the aspects of that a little bit sort of harder to parse out from all the other good things that we're doing. But on balance, look, if you think about the employee turnover component, I mean that continues to improve, and we're certainly getting our share of that benefit. So I think about that one on a sort of pro rata basis. Fleet and fleet optimization would also be sort of pro rata as we continue to sort of refresh our fleet with build CMG and automation. And then pricing is similar. So I think to assume that our results for this year have sort of 1/3 share of that, I think it's probably a fair estimate as specific events happen that drive outperformance I'll be able to articulate that better. But I think that's probably a pro rata is a decent way of thinking about it.

And there's been some, go ahead, Tyler. Sorry.

No, no. Please.

I just want to highlight that there have been some strong pricing successes, especially with the repricing of the residential book, led by Toronto, which is currently around 26%. Looking at our history, we signed a significant contract in 2010, and 15 years later, we are renewing that same agreement. Right now, we are doing that work for about $16 million to $17 million a year under the new bid. One of those contracts will be completed for $37 million a year. Additionally, we are currently working on multi-residential projects for about $10 million or $11 million a year, but after rebidding, we secured it for around $70 million a year. This substantial price increase will start to reflect in our residential book by mid-next year, which will complement what Luke just discussed.

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

Yes. So what's going to happen, Tyler, and we had spoken about this when we talked about our ES is effectively, we've retained the corporate costs for the time being, but are going to be compensated going forward in order to provide those services to ES. So the ES thing, we only have one month of the benefit, but they're effectively going to pay me $12 million to $15 million a year, which will show up as an offset to my corporate costs in lieu of me providing those sort of services to them.

We have a question from Kevin Chiang of CIBC.

Maybe just two clarification questions. One, the 5.5% tailwind on volumes from EPR that you saw in Q1, is that the right run rate to think about for the remainder of the year? Or does it accelerate as...

I think you had some EPR coming on last year, and so now you're adding on to that. So it won’t be ratable, but I think it's safe to say that we're going to continue to enjoy volumetric tailwinds throughout the year as we bring on that roughly $40 million, $50 million, that was incremental EPR EBITDA that we said this year. So you're going to get that roughly, I think, in Q1, what I was saying that it was a $20 million, $25 million volumetric tailwind coming out of EPR. I think you should sort of see that it's going to increase as we go into '26. It's just not going to be perfectly ratable, Kevin.

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

Kevin, it sounds like you're looking for us to give guidance for the year as a whole, with your math. But look, what I would say is we have a seasonal business. Q1 and Q2 are typically, Q1 is the lowest, Q2 ramps, Q3 is the highest. And then Q4 sort of steps down somewhere between Q2 and Q3. That's the typical ramp. Now again, the EBITDA dollars, right? It doesn't move perfectly like that every quarter, the original guide being sort of, I think, $1937 and a half for this first quarter performance, as I said, I think there's a path to sort of exceed that, right? I think the range was $1925 to $1950, so you could exceed that. Now FX is going against you. So you got to have some of those offsets. Q1 sort of had the FX at guide or a little better, and now today, it's a couple of points below. As I said, every point is roughly $30 million. So there'll be puts and takes. But yes, I think we are now feeling that we could do better than the $1950, excluding incremental M&A. Obviously, incremental M&A will be sort of additive to that. But as is industry practice, we'll wait to Q2. But Kevin, you've always been good at math. So I'll leave it at that.

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

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

Yes, I agree with everything mentioned. There appears to be considerable chatter about it, reminiscent of the situation during the previous Trump administration, but as of now, we haven't observed any significant changes. The tax credits are still pending, likely to be announced in September. However, RINs seem to have remained stable. We continue to produce the volumes we expected, and our guidance reflects an updated winning number based on the current information we have.

We have a question from Jerry Revich of Goldman Sachs.

This is Adam on for Jerry today. It looks like your Q2 margin guidance embeds 285 basis points of sequential margin expansion, and typically, we do see that sequential step up in 2Q. Can you just help us think about any puts and takes in the sequential margin trajectory versus normal seasonality, 2Q versus 1Q?

Thank you, Adam. To clarify for everyone, I've adjusted our historical quarterly comparison by excluding ES, as it had a different margin profile. For the solid waste stand-alone business, we're anticipating around a 30% margin this year compared to around 20.5% last year. The behavior of commodities last year versus this year is significant. Last year, commodities increased sharply from Q1 to Q2, whereas this year appears more stable. Thus, while commodities contributed positively to Q1 margins year-over-year, they present a challenge when comparing quarter-over-quarter. Fuel costs also affect our margins, along with M&A activities. There are various external factors beyond our control that will influence overall margins. However, Q2 is expected to improve sequentially as we gain more volume and move past the winter operating period. I indicated a guidance of 150 basis points. When we examine the different external influences, we anticipate an additional 100 basis points of underlying margin growth compared to last year, building on the more than 200 basis points increase from Q1 to Q2. We're optimistic about the trajectory and look forward to detailing the factors driving this outperformance as we approach Q2.

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

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

We have a question from Bryan Burgmeier of Citigroup.

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

Bryan, it's Luke. Great question, very sort of topical and obviously something we're looking at as we think about how the balance of the year sort of plays out. I think it's important. And as you know, although some of the restricted revenue will be tied to CPI, our cost structure isn't necessarily right? Our cost structure is really driven by labor and labor rates and transportation and raw materials. And it's really a labor-driven cost structure. And I think what the unique setup that could happen as you go forward is maybe you have headline CPI increasing, which drives price increases on your restricted book of business. Our book, unlike some of the other national peers that you follow is still on the restricted side, more tied to CPI than some of these alternative indices. And I think that's just more a function of the geography, Canada doesn't have a sort of sewer, water, trash sort of concept yet and a lot of our books in the Mid-Atlantic don't as well. So unlike some of the peers that I know have been very successful in moving 50% plus of their restricted book off of CPI. We still would have a heavier CPI book. But what's more interesting to us is the cost structure because we're looking, we're looking at labor turnover rates. We're looking at labor wage rates. We're not seeing that same labor wage rate inflation that we saw during that sort of previous cost inflation ramp-up. And I think that could sort of bode quite well when you think about it. At the end of the day, what we're trying to solve for is what is our internal cost of inflation and then price accordingly on top of that to drive appropriate spread. So we came out at the beginning of the year, said we're going to do 5.25%, 5.5% price against a low 4's cost inflation. And to the extent our internal cost inflation ends up increasing, we will go back to our pricing strategies in order to recover that. I think we and the industry as a whole demonstrated the effectiveness of the real-time operability to price, in response to that over the past couple of years and we would go back and do that again. However, as I said, I do think you could have a unique situation where headline CPI is increasing, driving up our pricing, we're getting on our restricted book, but seeing a more muted impact to our actual internal cost inflation.

I really appreciate it. Last question for me, and then I can turn it over maybe just kind of following up on Tyler's question from earlier. Just curious if there's any sort of specific targets in the M&A pipeline coming up? If you feel like maybe GFL is underweight or a specific type of asset? Are you trying to acquire more MRFs or more C&D? Or is it just going to be pretty widespread across all the different asset types? Any detail there would be great.

Yes. I think the beauty of how the book has come together, which is not because we're smart. It's just because of the opportunity and when they came. We were able to build our post-collection business in advance of our collection business. So what we have today is a lot of post-collection assets that have incremental utilization opportunities. And I think we have the ability to go out and acquire a lot of businesses that will drive incremental volume to those facilities with significantly increased profitability given the fixed cost-based nature of those facilities. So that is a priority, looking at those markets, looking at those facilities and looking at where we can get the sort of highest returns on invested capital. Obviously, making investments around RNG, EPR and other markets, which is widespread and being opportunistic about where we bid on and grow the business sort of organically around new residential work, etc., always continues to be an opportunity, but we're being very smart and very strategic about where we do that and we have to get the right price in order to do the work. I mean it's a different environment than it was 10 years ago for residential work, etc. And today, you need to be paid the appropriate amount of dollars to do this work. It's not easy; equipment is 2.5x more than it was, and the labor force is less than it was, making significantly more than they made in the past. And I just think all of those things coupled together is just going to be widespread throughout Canada and the U.S., but you'll see a little bit of everything sort of come from us, but again, with the biggest focus on driving incremental volumes into our post-collection assets that have utilization opportunities.

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

I was wondering if you could give an EPR update and if you're expecting any additional growth CapEx there.

From an EPR perspective, we are continuing to expand across Canada. I anticipate that the model will be fully deployed in about 1.5 to 2 years. There are still a few opportunities that are uncertain as we place bids on them, and we will see how that unfolds. However, if we are successful, there could be an additional couple of hundred million dollars in spending over the next 2 to 3 years; otherwise, it could be zero. Ultimately, the maximum expenditure over the next couple of years could reach another couple of hundred million dollars.

I was wondering if you could provide an operational update on GIP. Have we completely overcome the inflationary challenges from previous years, or are some of those issues still affecting us as part of the business continues to decline?

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

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

Yes, this year, our base business is projected to generate approximately $225 million of EBITDA. We recently completed a transaction to acquire a business in Eastern Canada, which is expected to contribute around $40 million to $45 million of EBITDA. This takes the total for our base business to about $265 million to $270 million, and we have two additional acquisitions under letter of intent that will bring this number closer to $300 million, which aligns with our goal for the end of 2025. We expect to finish this year with an EBITDA exceeding $300 million, and we have a healthy backlog of M&A opportunities. As mentioned in the previous call, we have seen considerable interest following the ES transaction, and we are exploring a potential monetization event for GIP. However, we are not looking to sell the entire business; we may consider selling a part of it. We continue to observe significant interest from shareholders, and there is a possibility of a partial monetization of the GIP business in the coming year.

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

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

Rupert, good morning, it's Luke. So you're right. The Michigan divestiture portfolio, which is roughly $200 million, $220 million of revenue, you got one more quarter of that. So you got like roughly a $50 million, $60 million, maybe the seasonality, $60 million, $65 million revenue year-over-year impact in Q2, but then that will be sort of gone. In terms of your broader question, as we've said, we think the heavy pruning has been done. Are there little things around the edges that you're constantly looking at? Sure. But where we sit today, both in terms of wholesale divestitures, but I'd also highlight like the intentional shedding, right? Intentional shedding in those divestitures really come at a period of elevated M&A. And because we've been sort of more restrained in our M&A deployment as of late, you've seen the impacts of that roll off as we had articulated. And so I think that's why our volume performance this period is accelerating versus maybe some others that still have some intentional shedding happening. So as we ramp back up M&A, could there give rise to little pockets of pieces that you subsequently divest and as well as intentional shedding? Yes. But where we sit today, we're really happy with the borders of the portfolio, and I don't think you're going to see anything more significant until we go and add incremental pieces that may give rise to new opportunities. And if we can talk about your most recent divestiture, the ES business, can you give us some color on how it performed in the quarter, what sort of organic growth you saw? And what's the outlook for M&A there? So the quarter, the ES business, and as you follow some of the other industry, weather impact certainly impacted that business. So a little bit of sort of softness as well as just the macro environment a little bit when you think about some of the event-driven work that happens, not accidental events like spills or the likes, but more large-scale industrial type events that are discretionary to a certain extent from ES. You've seen a little bit of a sort of slowdown in that, which I think is consistent with others. However, as we've demonstrated in the past, variable cost structure allows a good sort of flex. And so therefore, being able to sort of preserve the sort of EBITDA dollars. To your point on M&A, look, there's a very robust pipeline of tuck-in opportunities, similar to what Patrick articulated for solid that exists in ES, maybe even a greater opportunity set. So we are actively pursuing it. Recall over the past 18 months, as we have been more selective in our M&A, solid waste was really the benefactor of that and ES really has had very little done. So we have equally or maybe arguably more robust pipeline to the near term on the ES business that you will see us sort of start executing on. Recall that business on a stand-alone basis is a very good free cash flow generator, now notwithstanding the slightly different margin profile of always business, it does so with a lower capital intensity. So I just highlight because it has a good self-funding free cash flow stream that's going to allow for the execution of a pretty meaningful M&A program without any need for significantly incremental sort of funding to do so. So we’re really excited about that opportunity, and we'll keep you updated as that business continues to grow.

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

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

Can you provide more details about the organic growth in Canada? I want to ensure I’m understanding correctly. You mentioned that volume increased significantly for EPR, suggesting that there was notable price growth in Canada. Was this entirely related to EPR, or were there other factors contributing to this growth that you could elaborate on?

Yes. So price growth in Canada, we're getting a little bit of benefit from EPR, but it's more just a sort of function, as Patrick said, some of these contracts that we've had for a decade plus that we just renewed and now have come up to current market sort of pricing. So in most EPR instances, it is net new volume and therefore, manifesting is volume. But if I had a contract that I did yesterday and now I do today by this level set to today's pricing, that's being reflected in price. So you are getting a bit of a benefit. So if you look, as I said in the prepared remarks, I think Canada pricing was sort of a high at 6.5% to 7% number, you've got roughly 150 basis points of that coming from the EPR, but just sort of rebaselining those to today. So you are getting this tailwind. You back that out, and you have Canada that low to mid-5% sort of right exactly in line with what our sort of U.S. business had reported. So EPR, as anticipated, is going to provide tailwinds, mostly volumetric, as we've deployed all this incremental capital to capture new volumes. But in those instances, which you had some of which in Q1 where it's the same contract just rebaseline, that's showing up in price.

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

Yes, I believe you are considering the Canadian model and how it compares to the European model. We have seen progress in states like Colorado and ongoing discussions in California, along with recent legislation in Washington and Maryland. Each state has its own unique aspects, so it's essential to be selective about where we invest based on regulations. In our opinion, the Canadian model functions very effectively. Consolidating volumes, reducing facilities, and creating top-notch facilities that maximize volume will lead to the best outcomes for the industry and for producers in the long run. Making substantial investments now is critical, as it will benefit both the industry and producers over time. The key question is about management and efficiency in handling those streams. We have specific insights on what we believe works best. From our perspective, having a single professional manage the entire volume will enhance efficiency since it allows for optimal allocation of resources in residential and collection contracts. This approach ultimately results in cost reductions for operators, which can then be passed on to producers. We are promoting this strategy in various states and with provisional government and regulators to ensure maximum efficiency for both ourselves and producers.

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

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

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

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

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

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